Ellman v. JC Gen. Contractors

• Decision Date: 23 October 2013
• Docket Number: No. 08–12–00029–CV.,08–12–00029–CV.
• Parties: Dr. Marc ELLMAN, Individually and d/b/a Southwest Eye Institute, Vista Surgery Center, LLC, and Aura Development, LLC, Appellants, v. JC GENERAL CONTRACTORS, and Jose M. Chavez, Appellees.
• Court: Texas Court of Appeals

419 S.W.3d 516

Dr. Marc ELLMAN, Individually and d/b/a Southwest Eye Institute, Vista Surgery Center, LLC, and Aura Development, LLC, Appellants,

v.JC GENERAL CONTRACTORS, and Jose M. Chavez, Appellees.

No. 08–12–00029–CV.

Court of Appeals of Texas,

El Paso.

Oct. 23, 2013.

Wiley F. James III, James & Haugland PC, El Paso, for Appellants.

David R. Pierce, Pierce & Little, PC, El Paso, for Appellees.

Before McCLURE, C.J., RODRIGUEZ, and Larsen (Senior Judge), sitting by assignment, JJ.

OPINION

ANN CRAWFORD McCLURE, Chief Justice.

Appellants, Dr. Marc Ellman, individually and d/b/a Southwest Eye Institute, Vista Surgery Center, LLC, and Aura Development, LLC, appeal the trial court's denial of their motion to compel arbitration. For the reasons that follow, we affirm.

FACTUAL SUMMARY

On November 9, 2006, JC General Contractors ¹ entered into an agreement with Marc Ellman, M.D.² for the construction of a shell building along with the surrounding improvements for an ophthalmology clinic and surgical center in El Paso, Texas at a total price of $1,529,603 (the “Shell Contract”). A little over one week later, JC signed a Standard Form Agreement between the owner and design builder and provided it to Dr. Ellman. The Standard Form Agreement contains an arbitration clause requiring Aura Development and JC to arbitrate any disputes according to the clause requirements. Construction began and disputes eventually arose regarding payment and completion of construction.

On January 23, 2009, JC filed its original petition against Appellants alleging theft, conversion, fraud, breach of contract, and defamation. A few days later, Appellants answered the suit, raising special exceptions and affirmative defenses, and counterclaimed for breach of contract, fraud, breach of warranty, and declaratory judgment. From the time the suit was filed until February 2010, the parties engaged in substantial and extensive discovery and the court set the case for trial on July 12, 2010. It is undisputed that both parties initiated discovery during this period. On June 7, 2010, the parties filed a joint motion for continuance on the ground they would not be ready for trial because they needed to conduct additional discovery, including depositions and production of records from third parties, and because the trial court had ordered the parties to attend mediation. The trial court granted the joint motion for continuance. For the next eight months, the parties engaged in additional discovery. In February 2011, the trial court entered an order setting the case for jury trial on January 23, 2012 and for pretrial conference on December 14, 2011. The order required the parties to bring to the pretrial conference their list of witnesses and designated experts, list of exhibits, stipulation of medical records if applicable, and a proposed charge. On February 18, 2011, the trial court also ordered the parties to mediation. The record reflects that the parties continued to engage in discovery from March 4, 2011 through November of 2011. On September 23, 2011, JC filed its lists of trial fact witnesses and expert witnesses as required by the scheduling order.

On August 18, 2011, Appellants took the deposition of JC's chief financial officer. They deposed Jose Chavez, president of JC General Contractors, on September 16, 2011. On October 11, 2011, thirty-five months after filing suit and approximately three and a half months before the January 23, 2012 trial setting, Appellants sent JC a letter asserting their demand for arbitration. JC refused because arbitration had not been requested within a reasonable time as required by the arbitration agreement. Appellants deposed two of JC's former employees on November 2, 2011 and two of its current employees on November 3. Approximately one week later, on November 9, Appellants filed a motion to compel discovery and a motion to compel arbitration. They also filed a motion for continuance of the January 23, 2012 trial setting. In the motion for continuance, Appellants stated: “Since this matter was previously continued, the parties have conducted extensive discovery.” [Emphasis added]. JC opposed arbitration on the ground that Appellants had waived their right to arbitrate by substantially invoking the judicial process. Following a hearing conducted on December 16, 2011, the trial court denied the motion to compel arbitration.

WAIVER OF ARBITRATION

In their sole issue, Appellants contend that the trial court erred by finding they waived their right to arbitration.

Applicable Law

A party seeking to compel arbitration must (1) establish the existence of a valid arbitration agreement; and (2) show that the claims asserted are within the scope of the agreement. See In re AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex.2005); Inland Sea, Inc. v. Castro, 420 S.W.3d 55, 57–58, 2012 WL 1715242 at *2 (Tex.App.-El Paso 2012, pet. denied). If these two showings are made, then the burden shifts to the party resisting arbitration to present a valid defense to the agreement, and absent evidence supporting such a defense, the trial court must compel arbitration. See In re AdvancePCS, 172 S.W.3d at 607.

A party waives a right to arbitration 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). Prejudice within the context of waiver relates to the inherent unfairness resulting from a party's attempt to have it both ways by switching between litigation and arbitration to their own advantage. Perry Homes, 258 S.W.3d at 597. Thus, 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., citing Republic Insurance Company v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004). JC had the burden to establish that Appellants substantially invoked the judicial process to JC's prejudice. Due to the strong presumption against waiver of arbitration, this hurdle is a high one. Id., at 590.

Whether a party has waived arbitration must be decided on a case-by-case basis, based upon an examination of the totality of the circumstances. See id., at 591; Baty v. Bowen, 423 S.W.3d 427, 432–33, 2013 WL 2253584 at *4 (Tex.App.-Houston [14th Dist.] 2013, no pet. h.). In making this determination, courts consider a wide variety of factors including:

• whether the party who pursued arbitration was the plaintiff or the defendant;

• how long the party who pursued arbitration delayed before seeking arbitration; • when the party who pursued arbitration learned of the arbitration clause's existence;

• how much the pretrial activity related to the merits rather than arbitrability or jurisdiction;

• how much time and expense has been incurred in litigation;

• whether the party who pursued arbitration sought or opposed arbitration earlier in the case;

• whether the party who pursued arbitration filed affirmative claims or dispositive motions;

• how much discovery has been conducted and who initiated the discovery;

• whether the discovery sought would be useful in arbitration;

• what discovery would be unavailable in arbitration;

• whether activity in court would be duplicated in arbitration;

• when the case was to be tried; and

• whether the party who pursued arbitration sought judgment on the merits.

Baty, 423 S.W.3d at 432–34, 2013 WL 2253584 at *4–5,citing Perry Homes, 258 S.W.3d at 591–92.

Standard of Review

We review a ruling denying a motion to compel arbitration for an abuse of discretion. Perry Homes, 258 S.W.3d at 602. Under this standard, we defer to the trial court's factual determinations if they are supported by the evidence and review its legal determinations de novo. Brainard v. State, 12 S.W.3d 6, 30 (Tex.1999), disapproved on other grounds by Martin v. Amerman, 133 S.W.3d 262 (Tex.2004). Whether a party has waived arbitration by litigation conduct is a question of law, which we review de novo. See Perry Homes, 258 S.W.3d at 598;In re ReadyOne Industries, Inc., 294 S.W.3d 764, 772 (Tex.App.-El Paso 2009, orig. proceeding).

Did Appellants Substantially Invoke the Judicial Process?

The parties do not dispute the validity and existence of the arbitration clause within the Standard Form Agreement or that the issues disputed are within the scope of the agreement as initially required in order to compel arbitration. The issue is whether JC established its waiver defense.

An examination of the Perry Homes factors demonstrates that Appellants substantially invoked the judicial process. Appellants are the defendants in the trial court, but they have also raised affirmative claims for relief by virtue of their counterclaim. Perhaps the most striking of these factors is that Appellants waited almost three years after the suit was filed and two and a half months before the trial date to demand arbitration. Appellants do not dispute they had knowledge of the arbitration clause. As signatories to the Standard Form Agreement, knowledge of the terms of the contractual agreement, including the arbitration clause, is imputed to Dr. Ellman and Aura Development. See In re ReadyOne Industries, 294 S.W.3d at 769. The record also reflects that discovery went to the merits of the case, rather than arbitrability or standing. In a motion for continuance filed a few days after they filed their motion to compel arbitration, Appellants asserted the following: “Since this matter was previously continued, the parties have conducted extensive discovery.” [Emphasis added]. They also concede in their brief on appeal that Appellants and JC were initiators of the discovery but assert that JC conducted the bulk of it. The record certainly supports Appellants' assertion that JC initiated more discovery than Appellants, but it also shows that Appellants initiated more than a minimal amount of discovery....