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RSL Funding, LLC v. Pippins

Court of Appeals of Texas, Fourteenth District

January 30, 2014

RSL FUNDING, LLC, Appellant
v.
CHAVEZE D. PIPPINS, DANIEL P. MORRIS, DONNA M. O'BRIEN, METROPOLITAN LIFE INSURANCE COMPANY, METLIFE INSURANCE COMPANY OF CONNECTICUT & METLIFE INVESTORS USA INSURANCE CO., Appellees

On Appeal from the County Civil Court at Law No. 4 Harris County, Texas Trial Court Cause No. 994875

Panel consists of Chief Justice Frost and Justices Jamison and McCally (Frost, C.J., dissenting).

OPINION

Martha Hill Jamison Justice

RSL Funding, LLC brings this interlocutory appeal from the trial court's ordering the stay of arbitration proceedings and denying the stay of related trial proceedings. The underlying dispute concerns rights related to certain annuities issued by Metropolitan Life Insurance Company, MetLife Insurance Company of

Connecticut, and MetLife Investors USA Insurance Co. (collectively, the MetLife parties) to Chavese D. Pippins, Daniel P. Morris, and Donna O'Brien (collectively, the Individuals). The Individuals subsequently executed assignment agreements with RSL concerning their rights in the annuities. While the original investment contracts between the MetLife parties and the Individuals did not contain arbitration clauses, the assignment agreements between the Individuals and RSL did contain such clauses. Claims, counter-claims, and cross-claims were pleaded among the parties to the litigation. When RSL attempted to enforce the arbitration clause and stay the trial proceedings, the trial court denied RSL's motion and instead entered an order staying the arbitration. RSL now complains this was error. We affirm.

Background

Each of the Individuals signed annuity contracts with the MetLife parties and subsequently entered contracts to assign their annuity rights to RSL.[1] The assignment agreements between RSL and the Individuals each contained an arbitration clause stating broadly that any disputes under the agreements would be subject to arbitration if one of the parties so demanded. These clauses stated:

Disputes under this Agreement of any nature whatsoever including but not limited to those sounding in constitutional, statutory, or common law theories as to the performance of any obligations, the satisfaction of any rights and/or the enforceability hereof . . . shall be resolved through demand by any interested party to arbitrate the dispute in accordance with the laws of the State of Texas (including the Federal Arbitration Act which shall be controlling) . . . . The parties hereto agree that the issue of arbitrability shall likewise be decided by the arbitrator, and not by any other person. That is, the question of whether a dispute itself is subject to arbitration shall be decided solely by the arbitrator and not, for example by any court. In so doing the intent of the parties is to divest any and all courts of jurisdiction in disputes involving the parties, except for the confirmation of the award and enforcement thereof.

The agreements also contained provisions permitting RSL to assign the right to purchase the annuities to a "designated assignee." Each of the Individuals thereafter signed Bills of Sale conveying their annuity rights to RSL Special-IV, Ltd., which was apparently RSL's designated assignee.[2]

When the Metlife parties balked at recognizing RSL or RSL Special-IV's rights as payees, RSL filed a lawsuit on June 20, 2011, in a Harris County court-at-law, naming the MetLife parties and the Individuals as defendants. The procedural history of this relatively simple case is rather lengthy and complex. Because that history is integral to our analysis, we will recount it in some detail.[3]

In its original petition, RSL alleged it received assignments from each of the Individuals of their respective annuity rights, but the MetLife parties refused to redirect the payments to RSL or its assignee. RSL sought a declaratory judgment that the assignments from the Individuals were enforceable and binding on all parties and alleged the MetLife parties breached the respective annuity contracts by not paying the amounts due to RSL or its assignee. RSL attached to its petition affidavits from each of the Individuals stating that they had sold their annuity rights to RSL's assignee, RSL Special-IV.

In an amended petition filed on September 16, RSL alleged that it was a "special servicing agent" for RSL Special-IV and Marla B. Matz, and "[i]n its capacity as plaintiff, [it was] representing the interests of RSL Special-IV, Ltd. and its designee Marla B. Matz. RSL further explained that "[i]n an effort to accommodate MetLife, " which had allegedly asserted that only natural persons could own the annuities, "Marla B. Matz, a natural person, has been designated as the owner of the three annuities by RSL Special-IV, Ltd. and RSL Funding, LLC as special agent for RSL Special-IV, Ltd." RSL further sought a declaration that RSL Special-IV or Matz owned "the Pippins, Morris, and O'Brien annuities" and had the exclusive rights to receive the monthly payments. Also on September 16, RSL moved the court to require the MetLife parties "to deposit annuity funds into the Court's registry funds."[4]

On September 23, the MetLife parties filed a "Counterclaim and Cross-Claim for Interpleader." In this pleading, the MetLife parties requested permission to deposit the annuity payments into the court's registry as the payments became due and sought declaratory judgment concerning which party or parties possessed the right to receive the payments. The MetLife parties designated their pleading as a counterclaim against RSL and as a cross-claim against the Individuals.

On September 27, 2011, RSL filed a motion to compel arbitration against Pippins, alleging that "contrary to his contractual obligation, " "Pippins refused to cooperate . . . and informed RSL that he intended to cancel the transaction and not cooperate with assignment related issues." RSL further accused Pippins of "materially breaching his contracts with RSL" and requested that the trial court enter "an order compelling Pippins to participate in arbitration."[5]

On October 4, the trial court entered an order directing the MetLife parties to deposit into the court's registry all annuity payments they were then holding and deposit future payments when and as they came due. Although the court referenced both RSL's motion to require the MetLife parties to make such deposits and the MetLife parties' own "motion for interpleader relief, " the court stated that it was entering the order to deposit sua sponte. Thereafter, the parties began the discovery process. MetLife and RSL exchanged discovery requests and deposed each others' representative, and the Individuals depositions were either taken or at least noticed.

On November 10, the Individuals filed cross-claims against the MetLife parties, alleging bad faith, breach of fiduciary duty, and breach of contract. On November 28, the Individuals filed a counterclaim against RSL for breach of contract. Specifically, the Individuals alleged that neither RSL nor RSL Special-IV paid the Individuals the lump sums required under their agreements in exchange for the annuity rights conveyed to RSL Special-IV and subsequently Matz. The Individuals further claimed severe financial distress and an inability to pay their own living expenses as a direct result of the breach of the agreements.[6] Because the Individuals claimed damages exceeding the jurisdictional limits of the county court at law in which RSL had originally filed suit, they also filed a motion to transfer the case to a Harris County district court. The trial court denied the motion to transfer.

The Individuals nonsuited all of their claims on November 30. On the same day, the Individuals filed an original petition as plaintiffs in a Harris County district court raising the same claims against both the MetLife parties and RSL that they previously had raised in the county court of law. On December 1, RSL also filed a nonsuit of all of its claims in the county court of law, without prejudice against refiling. In this document, RSL states that it sued all of the named defendants for declaratory relief and the MetLife parties for breach of contract. RSL further sought in the document dismissal of the MetLife parties' counterclaims, arguing that these claims were merely "mirror-image claims" intended to resist RSL's affirmative claims and did not constitute requests for affirmative relief in their own right. RSL further suggested that such nonsuit and dismissal meant that no claims or parties would remain alive in the lawsuit.[7] RSL followed this filing by filing its own cross-claims in the district court where the Individuals had earlier filed their petition. In that pleading, RSL sought a declaration regarding who owned the annuities at issue and also damages from the MetLife parties for breach of contract. RSL is careful in this pleading to complain only of the MetLife parties and not the Individuals. RSL then filed its own pleadings in the district court where the Individuals had earlier filed their petition.

On January 20, 2012, RSL filed a plea to the jurisdiction in the county court at law, asserting that the amount in controversy in the case (i.e., the annuity payments owed by the MetLife parties) exceeded the court's jurisdictional cap of $100, 000, citing Texas Government Code sections 25.003 and 25.1032. RSL also demanded a jury trial and filed an answer to the interpleader action in the county court at law.

On January 30, 2012, the Individuals filed a motion to withdraw the funds deposited into the court's registry. No reason or basis is given in the motion for the request. An amended motion with updated amounts followed on February 24.

Meanwhile, on February 3, RSL filed a motion for summary judgment, seeking a determination that RSL Special-IV or Matz had a right to receive the monthly annuity proceeds from Pippins' annuity and seeking an order compelling the MetLife parties to direct future payments to either RSL Special-IV or Matz. The motion was based on the signing of the agreements by Pippins and on alleged concessions made by an employee of one the MetLife parties in a deposition. It is not entirely clear why RSL sought summary judgment regarding only Pippins' annuity, but evidence demonstrated Pippins also sold or attempted to sell the right to receive his annuity income to another lump-sum funding company.

On February 17, RSL filed a motion to stay the trial proceedings pending resolution of arbitration proceedings RSL had instituted against the Individuals. Attached to the motion was an arbitration demand RSL had filed with an arbitrator.[8] In the arbitration filing, RSL complained that the Individuals "attempted to exercise dominion and control over annuity funds that belong to RSL." RSL further sought recovery therein for the Individuals' breach of their assignment agreements and for a "declaration of all rights." Around this same time, the Individuals' trial counsel—who had filed the Individuals' motions to withdraw funds and apparently had been compensated by RSL up to this point— filed a motion to withdraw. It was this same counsel, however, who filed the Individuals' motion and amended motion to withdraw funds.

On March 16, the district court granted the MetLife parties' motion to abate the district court proceedings in deference to the ongoing proceedings in the county court at law.[9] There appears to have been no further action taken in the district court after this order was entered.

New counsel appeared for the Individuals and filed a Notice of Withdrawal of Motions to Withdraw Funds before such motions could be presented to the court. The Individuals then filed a combined motion to stay arbitration and opposition to RSL's motion to stay the trial proceedings. In that document, the Individuals argued that (1) arbitration would not resolve any issues pending before the court, at least in part because Matz and RSL Special-IV were not parties to the arbitration; (2) the arbitrator chosen by RSL appeared to be "partial or biased towards RSL"; (3) the arbitration provisions in the assignment agreements were unconscionable; and (4) RSL had waived its right to demand arbitration by substantially invoking the litigation process to the detriment of the other parties.[10]The MetLife parties also filed a response to RSL's motion, principally arguing waiver due to substantially invoking the litigation process. The trial court signed an order granting the Individuals' motion to stay arbitration on March 30, without specifying its basis. During a related hearing on March 28, the court orally denied RSL's motion to abate the trial proceedings, mentioning that RSL had itself started the litigation by filing suit instead of an arbitration, had requested relief from the court "innumerable times, " and had participated in a dozen hearings involving "hundreds if not thousands[] of pages of exhibits and motions."[11] RSL's counsel also acknowledged at the hearing that it had reset its motion for partial summary judgment several times for hearing, even after filing the motion to abate the trial proceedings.

Governing Law

In two issues, RSL contends the trial court erred in overruling RSL's motion to stay the litigation pending arbitration and instead ordering a stay of the arbitration.[12] As set forth above, in their combined motion to stay arbitration and opposition to RSL's motion to stay the trial proceedings, the Individuals raised several grounds in contesting RSL's arbitration demand; however, we will primarily focus on the waiver ground in this opinion. A party can be held to have waived an arbitration clause if it has substantially invoked 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 question of law subject to de novo review, and we will only defer to the trial court's discretion on any factual disputes that need to be resolved. See id. at 587, 598. Waiver is a matter for the courts and not for arbitrators. Id. at 587.

The party opposing arbitration has the burden of proving waiver, and there is a strong presumption against such a finding. Id. at 590. Whether a party has waived arbitration is decided on a case-by-case basis, based upon the totality of the circumstances. Id. at 591. While the court in Perry Homes did not offer detailed criteria that must be present or considered in order to find ...


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