Perry Homes v. Cull

• Decision Date: 02 May 2008
• Docket Number: No. 05-0882.,05-0882.
• Parties: PERRY HOMES, A Joint Venture, Home Owners Multiple Equity, Inc., and Warranty Underwriters Insurance Company, Petitioners, v. Robert E. CULL and S. Jane Cull, Respondents.
• Court: Texas Supreme Court

258 S.W.3d 580

PERRY HOMES, A Joint Venture, Home Owners Multiple Equity, Inc., and Warranty Underwriters Insurance Company, Petitioners, v. Robert E. CULL and S. Jane Cull, Respondents.

No. 05-0882.

Supreme Court of Texas.

Argued March 20, 2007.

Delivered May 2, 2008.

Rehearing Denied August 29, 2008.

Geoffrey H. Bracken, Gardere Wynne Sewell, L.L.P., Houston, TX, Stacy R. Obenhaus, Gardere Wynne Sewell LLP, Dallas, TX, Kent Hance, Hance Scarborough Wright Woodward & Weisbart LLP, Austin, TX, Gary W. Javore, Johnson Cristopher Javore & Cochran, Inc., San Antonio, TX, for Petitioners.

Thomas M. Michel, Griffith, Jay, & Michel LLP, Fort Worth, TX, Evan (Van) Lane Shaw, Law Offices of Van Shaw, Dallas, TX, for Respondent.

M. Scott Norman Jr., Texas Association of Builders, Austin, TX, for Amicus Curiae.

Justice BRISTER delivered the opinion of the Court, in which Justice HECHT, Justice O'NEILL, Justice WAINWRIGHT, and Justice MEDINA joined, and in which Chief Justice JEFFERSON, Justice GREEN, Justice JOHNSON, and Justice WILLETT joined as to parts I-V.

Since 1846, Texas law has provided that parties to a dispute may choose to arbitrate rather than litigate.¹ But that choice cannot be abused; a party cannot substantially invoke the litigation process and then switch to arbitration on the eve of trial.² There is a strong presumption against waiver of arbitration,³ but it is not irrebuttable and was plainly rebutted here. The Plaintiffs vigorously opposed (indeed spurned) arbitration in their pleadings and in open court; then they requested hundreds of items of merits-based information and conducted months of discovery under the rules of court; finally only four days before the trial setting they changed their minds and decided they would prefer to arbitrate after all. Having gotten what they wanted from the litigation process, they could not switch to arbitration at the last minute like this.

The Plaintiffs argue — and we agree — that sending them back to the trial court not only deprives them of a substantial award but also wastes the time and money spent in arbitration. But they knew of this risk when they requested arbitration at the last minute because all of the Defendants objected. Accordingly, we vacate the arbitration award and remand the case to the trial court for a prompt trial.

I. Background

In 1996, Robert and Jane Cull bought a house from Perry Homes for $233,730. They also bought a warranty from Home Owners Multiple Equity, Inc. and Warranty Underwriters Insurance Company. The warranty agreement included a broad arbitration clause providing that all disputes the Culls might have against Perry Homes or the warranty companies were subject to the Federal Arbitration Act, and would be submitted to the American Arbitration Association (AAA) or another arbitrator agreed upon by the parties.⁴

Over the next several years, the home suffered serious structural and drainage problems. According to the Culls, the Defendants spent more effort shifting blame than repairing the home. When the Culls sued in October 2000, the warranty companies (but not Perry Homes) immediately requested arbitration; the Culls vigorously opposed it, and no one ever pressed for a ruling. At the same time, the Culls' attorneys began seeking extensive discovery from all of the Defendants.

After most of the discovery was completed and the case was set for trial, the Culls changed their minds about litigating. Instead they asked the trial court to compel arbitration under precisely the same clause and conditions to which they had originally objected. The trial judge expressed reservations, saying:

I really have a problem with people who have competent counsel who wait 14 months and after all this much effort in the courthouse has taken place, to come in and say that they have not waived that arbitration. That arbitration clause was there when the lawsuit was filed.

Nevertheless, the trial court ordered arbitration because the Defendants had not shown any prejudice from litigation conduct:

[A]ll I have heard from [defense counsel] insofar as what is the prejudice suffered by people you represent is that they have participated in litigation activities that may or may not have been required by the arbitrator. So without anything further, I am going to grant the motion to abate the case for arbitration.

The order was signed December 6, 2001, four days before the case was set for trial. The Defendants filed petitions for mandamus in the court of appeals and this Court, both of which were denied without opinion within a few days.⁵

After a year in arbitration, on December 24, 2002, the arbitrator awarded the Culls $800,000, including restitution of the purchase price of their home ($242,759), mental anguish ($200,000), exemplary damages ($200,000), and attorney's fees ($110,000). The Defendants moved to vacate the award, again arguing (among other things) that the case should never have been sent to arbitration after so much activity in court. The trial court overruled the objection, confirmed the award, and added post-judgment interest duplicating that already in the award; the court of appeals affirmed after deleting the duplicative interest.⁶ We granted the Defendants' petition to consider whether the arbitration award should be set aside because the Culls waived their right to arbitration.

II. When Should Orders Compelling Arbitration Be Reviewed?

At the outset, the Culls assert it is too late to review the trial court's order referring this case to arbitration. First, they argue the pre-arbitration mandamus proceedings establish the law of the case and preclude the Defendants from raising the same arguments now. We recently rejected this argument, holding that as mandamus is a discretionary writ, "its denial, without comment on the merits, cannot deprive another appellate court from considering the matter in a subsequent appeal."⁷ Mandamus is only available when a final appeal would be inadequate;⁸ if filing for mandamus precluded a final appeal, that requirement would be self-fulfilling. Because the earlier proceedings here were denied without comment on the merits, they do not foreclose our review.

Second, the Culls argue that an order compelling arbitration can only be reviewed before arbitration occurs. The Culls address none of the cases in which this Court and the United States Supreme Court have reviewed such orders after arbitration.⁹ Nor do they address the general rule that parties waive nothing by foregoing interlocutory review and awaiting a final judgment to appeal.¹⁰

But most important, the Culls do not address section 16 of the Federal Arbitration Act, which expressly prohibits pre-arbitration appeals:

Except as otherwise provided in section 1292(b) of title 28 [providing for certified questions to federal circuit courts], an appeal may not be taken from an interlocutory order . . . directing arbitration to proceed under section 4 of this title [providing for orders compelling arbitration]. . . .¹¹

This ban on interlocutory appeals of orders compelling arbitration was added by Congress in 1988 to prevent arbitration from bogging down in preliminary appeals.¹² We have held that routine mandamus review of such orders in state court would frustrate this federal law.¹³

The Culls assert that post-arbitration review is unavailable because an arbitration award can be vacated only for statutory grounds like corruption, fraud, or evident partiality.¹⁴ But reviewing the trial court's initial referral to arbitration is not the same as reviewing the arbitrator's final award; as the United States Supreme Court has held, courts conduct ordinary review of the former and deferential review only of the latter.¹⁵

We agree that post-arbitration review of referral may create (as the Culls allege) a "huge waste of the parties' resources." But if review is available before arbitration, parties may also waste resources appealing every referral when a quick arbitration might settle the matter. Frequent pre-arbitration review would inevitably frustrate Congress's intent "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible."¹⁶ We recognize the potential for waste, but that is a risk a party must take if it moves for arbitration after substantially invoking the litigation process.

III. Do Courts or Arbitrators Decide Waiver?

The Culls also assert that waiver of arbitration by litigation conduct is an issue to be decided by arbitrators rather than courts. To the contrary, this Court and the federal courts have held it is a question of law for the court.¹⁷ Rather than referring such claims to arbitrators, we have decided them ourselves at least eight times,¹⁸ as does every federal circuit court.¹⁹

The Culls argue this was all changed in 2002 by Howsam v. Dean Witter Reynolds, in which the United States Supreme Court said the "presumption is that the arbitrator should decide `allegation[s] of waiver, delay, or a like defense to arbitrability.'"²⁰ For several reasons, we disagree that this single sentence changed the federal arbitration landscape.

First, "waiver" and "delay" are broad terms used in many different contexts. Howsam involved the National Association of Securities Dealers' six-year limitations period for arbitration claims, not waiver by litigation conduct; indeed, it does not appear the United States Supreme Court has ever addressed the latter kind of waiver. Although the federal courts do not defer to arbitrators when waiver is a question of litigation conduct, they consistently do so when waiver concerns limitations periods or waiver of particular claims or defenses.²¹ As Howsam involved the latter rather than the former,²² its reference to waiver must be read in that context.

Second, the Howsam court specifically stated that "parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural...