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Vectra Infosys, Inc. v. Adema

Court of Appeals of Texas, Fifth District, Dallas

August 28, 2019

VECTRA INFOSYS, INC., Appellant
v.
SANDEEP KUMAR ADEMA AND DEEPA CHINTAM, Appellees

          On Appeal from the 95th District Court Dallas County, Texas Trial Court Cause No. DC-17-15170

          Before Chief Justice Burns, Justice Richter, [1] and Justice Rosenberg [2]

          MEMORANDUM OPINION

          MARTIN RICHTER JUSTICE.

         This is an accelerated appeal from the trial court's order denying Vectra Infosys, Inc.'s motion to compel Sandeep Kumar Adema's breach of employment contract and quantum meruit claims to arbitration. In two issues, Vectra asserts the trial court erred in denying the motion because (1) Adema's claims are within the scope of the employment contract's arbitration clause and (2) it did not waive its right to arbitration. Because Adema did not dispute at trial, nor does he on appeal, that the claims are subject to arbitration and the trial court did not find the claims were not arbitrable, [3] we address only the waiver issue. See Tex. R. App. P. 47.1. For the reasons that follow, we reverse and remand.

         BACKGROUND

         Vectra filed its motion to compel arbitration pursuant to section 171.021 of the Texas Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem. Code § 171.021. The motion was filed on August 10, 2018, nine months after Adema filed suit. Adema filed a response, supported only by counsel's affidavit, and argued Vectra had waived its right to compel arbitration because it had substantially invoked the judicial process. Adema noted in the response that, during the nine months between the date suit was filed and the date the motion was filed, Vectra had, in chronological order,

• filed an original answer and affirmative defenses;
• served requests for written discovery, including fifteen interrogatories and thirty-three requests for production, which "related to [the] merits of the case as a whole";
• filed a third-party complaint against his sister, Deepa Chintam;
• taken his deposition, which like the written discovery "related to the merits of the case as a whole";
• filed a no-evidence motion for summary judgment, requiring him "to file a response and reveal [his] legal arguments, evidence, and strategy";
• filed a motion to quash his deposition of Vectra's president and corporate representative;
• entered into a rule 11 agreement allowing him to take depositions before it moved forward with its summary judgment motion; and,
• filed a demand for jury trial.[4]

         Adema also noted that Vectra filed the motion to compel three weeks before the trial setting, although the trial setting was subsequently continued at his and Chintam's request, and did not set the motion for hearing until five weeks later, after he had moved for summary judgment that "included sworn [deposition] testimony from Vectra's president that acknowledged" Adema was owed "the contractual damages" demanded. Finally, Adema noted that Vectra had set for hearing a motion for protective order regarding third-party plaintiff's depositions, but failed to appear for the hearing. Comparing Vectra's conduct to the conduct of the plaintiffs in Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008), Adema asserted Vectra's conduct prejudiced him as Vectra "sought to have it both ways by switching between litigation and arbitration to its own advantage[, ] obtain[ing] extensive discovery under one set of rules and now seek[ing] to arbitrate . . . under another, delay[ing] disposition by switching to arbitration when trial was imminent, and obtain[ing] orders from the court while limiting [his] and [Chintam's] rights to appellate review."[5]

         In a reply and at the hearing on the motion, Vectra explained it had not filed the motion to compel earlier because its ownership had changed and it was unaware the employment contract included an arbitration clause until its current and former owners were deposed shortly before the motion to compel was filed.[6] Vectra also argued Adema's response to the motion failed to include any evidence of prejudice and noted that Chintam had "just received permission to join a new party to this suit," and the new party had not yet been served.

         Adema disputed Vectra's claim that it had only learned of the arbitration clause shortly before it filed the motion to compel, arguing the employment contract was produced in discovery two months after suit was filed.[7] Noting generally the various litigation activities in which Vectra had engaged prior to filing its motion to compel arbitration, Adema also disputed Vectra's claim that he failed to include evidence of prejudice. Adema asserted he would be prejudiced by the "inherent unfairness," recognized in Perry Homes, that results from having to switch to arbitration after extensive litigation and because he would be responsible for half the cost of arbitration. Adema, however, did not offer any evidence in support or ask the trial court to take judicial notice of the court's file.[8]

         Although noting in the midst of the hearing that he did not "have a record" showing the impact the cost of arbitration would have on Adema, the trial judge found "that to allow the case to be . . . compelled to arbitration at this point would result in inherent unfairness or prejudice to [Adema]" and denied the motion. The trial court's written order recites the court considered only the motion, responses, and pleadings on file. It is important to note the trial court considered no evidence.

         APPLICABLE LAW

         Texas law has historically favored the settlement of disputes by arbitration but also recognized that a party may waive the right to arbitrate by substantially invoking the judicial process to the detriment of the other party. Perry Homes, 258 S.W.3d at 589-90; L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex. 1977). Because the law favors arbitration, however, a strong presumption exists against waiver and the party asserting waiver bears a heavy burden of proof. RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (per curiam); Perry Homes, 258 S.W.3d at 590. Both a substantial invocation of the judicial process and prejudice must be shown; without a showing of both, the high burden is not met. See Perry Homes, 258 S.W.3d at 595; see also LaLonde v. Gosnell, No. 16-0966, 2019 WL 2479172, at *3 (Tex. June 14, 2019) (substantial invocation of judicial process and prejudice are distinct concepts).

         Whether a party has waived the right to arbitration is decided on a case-by-case basis, considering the totality of the circumstances. Perry Homes, 258 S.W.3d. at 591. Factors in determining whether the party has substantially invoked the judicial process include whether the party seeking to compel arbitration is the plaintiff or defendant, when he knew of the arbitration clause, and whether he sought judgment on the merits; how much discovery has been conducted, who initiated it, whether it related to the merits rather than arbitrability or standing, and how much of it would be useful in arbitration; and, the proximity in time between the trial setting and the filing of the motion to compel. Henry v. Cash Biz, LP, 551 S.W.3d 111, 117 (Tex. 2018); Perry Homes, 258 S.W.3d at 591-92. No single factor is dispositive, and the record must unequivocally show that the party seeking arbitration has taken specific and deliberate actions, after suit is filed, that are inconsistent with the right to arbitrate or has actively tried, but failed, to obtain a satisfactory result through litigation before turning to arbitration. See RSL Funding, 499 S.W.3d at 430; Perry Homes, 258 S.W.3d at 593; Pilot Travel Ctrs. LLC v. McCray, 416 S.W.3d 168, 183 (Tex. App.-Dallas 2013, no pet.).

         In determining whether the party asserting waiver has been prejudiced, courts consider three factors: delay, expense, and damage to a party's legal position. See Perry Homes, 258 S.W.3d at 597 (quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004)). These factors are considered together to determine what effect the litigation activities that occurred during the period of delay had on the party opposing arbitration or, stated differently, "when a party can no longer take it back." See Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 791, 796 (Tex. App.-El Paso 2015, no pet.) (quoting Perry Homes, 258 S.W.3d at 595). The party asserting waiver need prove only the fact of prejudice, not the extent, but must show more than theoretical harm. See In re Nationwide Ins. Co. of Am., 494 S.W.3d 708, 714 (Tex. 2016) (orig. proceeding) (considering waiver by litigation conduct in context of forum-selection clause); Perry Homes, 258 S.W.3d at 599. Courts have found the burden satisfied where the record showed the party seeking to compel arbitration initially opposed arbitration, conducted extensive discovery, and moved for arbitration on the “eve” of trial; conducted discovery and moved for arbitration after the opposing party filed its trial fact and expert witness lists; and moved for arbitration after receiving an adverse discovery ruling and anticipating being sanctioned. See Perry Homes, 258 S.W.3d at 597; Hogg, 480 S.W.3d at 796; Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 522 (Tex. App.-El Paso 2013, no pet.). In cases where prejudice has been found, the records have generally consisted of evidence admitted at the hearing on the motion to compel or, at a minimum, the court's judicially noticed file. See, e.g., Perry Homes, 258 S.W.3d at 595 (judicially noticed court file); id. at 603 (Johnson, J., concurring in part and dissenting in part) (testimony and evidence); Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 720 (Tex. App.-Houston [1st Dist.] 2014, pet. denied) (op. on reh'g) (evidentiary hearing); Adams v. StaxxRing, Inc., 344 S.W.3d 641, 647 (Tex. App.-Dallas 2011, pet. denied) (documents and testimony); Holmes, Woods, & Diggs v. Gentry, 333 S.W.3d 650, 655 (Tex. App.-Dallas 2009, no pet.) (judicially noticed court file, counsel's affidavit, deposition excerpts); Citizens Nat'l Bank v. Bryce, 271 S.W.3d 347, 355 (Tex. App.-Tyler 2008, orig. proceeding) (judicially noticed court file).

         On appeal, whether the right to arbitrate has been waived is a matter of law we determine de novo. RSL Funding, 499 S.W.3d at 430. In making our determination, we limit our review to the record before the trial judge at the time of the ruling and resolve any doubts as to waiver in favor of arbitration. See Perry Homes, 258 S.W.3d at 593, 596 n.89; Vanscot Concrete Co. v. Bailey, 862 S.W.2d 781, 783 (Tex. App.-Fort Worth 1993) ("Our duty, as an appellate court, is to consider only the testimony adduced and the evidence tendered and/or admitted at the time of trial."), aff'd, 894 S.W.2d 757 (Tex. 1995); Gould v. City of El Paso, 440 S.W.2d 696, 699 (Tex. App.-El Paso 1969, writ ref'd n.r.e.) ("It is elementary that when an appellate court is called upon to revise the ruling of a trial court, it must do so upon the record before that court when such ruling was made.").

         DIS ...


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