On Behalf Of Mirant Corp.. v. Castex Energy Inc.

• Decision Date: 02 August 2010
• Docket Number: No. 09-10451.,09-10451.
• Citation: 613 F.3d 584
• Parties: In the Matter of: MIRANT CORPORATION, Debtor. MC Asset Recovery LLC, as successor in interest & as representative of, on behalf of Mirant Corporation, Plaintiff-Appellee, v. Castex Energy, Inc.; Castex Energy 1995, LP; Castex Energy 1996, LP; Laterre Co., Ltd., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

613 F.3d 584

In the Matter of: MIRANT CORPORATION, Debtor.MC Asset Recovery LLC, as successor in interest & as representative of, on behalf of Mirant Corporation, Plaintiff-Appellee,

v.Castex Energy, Inc.; Castex Energy 1995, LP; Castex Energy 1996, LP; Laterre Co., Ltd., Defendants-Appellants.

No. 09-10451.

United States Court of Appeals,Fifth Circuit.

Aug. 2, 2010.

COPYRIGHT MATERIAL OMITTED.

John Robert Forshey (argued), Suzanne K. Rosen, Forshey & Prostok, L.L.P., Fort Worth, TX, for Plaintiff-Appellee.

Louis Middleton Phillips, Ryan James Richmond, Gordon, Arata, McCollam, Duplantis & Eagan, L.L.P., Baton Rouge, LA, Jonathan Bridges, Susman Godfrey, L.L.P., Dallas, TX, Neal Stuart Manne, Karen A. Oshman (argued), Susman Godfrey, L.L.P., Houston, TX, for Defendants-Appellants.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, Chief Judge, and SMITH and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

This appeal arises from a dispute between Castex Energy and MC Asset Recovery (“MCAR”) regarding the alleged breach of a purchase and sale agreement. Castex appeals the district court's denial of its motion to compel arbitration. For the following reasons, we AFFIRM.

I.

In 2001, Mirant Corporation and its affiliates (collectively, “the Mirant Entities”), MCAR's predecessors in interest, purchased interests in Louisiana mineral properties and obtained a 75% majority interest in a closely held corporation pursuant to a 2001 Purchase and Sale Agreement (“PSA”) with Castex (hereinafter “the Assets”). In 2002, the Mirant Entities agreed to sell the Assets back to Castex pursuant to another PSA. After the closing of the 2002 PSA, Castex sold the Assets to Apache Corporation. The Mirant Entities alleged breach of the 2002 PSA and fraud, claiming Castex should have disclosed the fact that it was negotiating with Apache for a sale of the Assets.

This lawsuit originated as a fraudulent transfer adversary proceeding initiated by some of the Mirant Entities in connection with Mirant Corporation's bankruptcy. The original complaint sought to avoid the 2001 PSA and the 2002 PSA as constructively fraudulent transfers, but did not allege breach of the 2002 PSA. Two days after filing their original complaint, the Mirant Entities moved to stay the adversary proceeding. The bankruptcy court granted the request and stayed the case for 19 months, until January 2007.

Once the stay expired, Castex filed its answer to the original complaint. By that time, MCAR had been designated as the assignee of the claims raised in the original complaint and successor in interest to the Mirant Entities. Castex's answer contained several affirmative defenses, including its right to compel arbitration. Castex then requested a jury trial before the district court, and, on that basis, moved to withdraw the reference to the bankruptcy court. Castex stated its intention to preserve its right to compel arbitration in a footnote in the motion to withdraw reference to the bankruptcy court, but it did not move to compel arbitration at that time. The district court granted the motion to withdraw reference to the bankruptcy court.

After Castex answered, MCAR filed its first amended complaint and largely abandoned its original grounds for relief and raised state law claims arising from the 2002 PSA for breach of contract, fraud, violations of the Texas Blue Sky Law, and breach of fiduciary duty. Castex did not move to compel arbitration at that time. Instead, it filed a motion to dismiss under Fed.R.Civ.P. 9(b), 12(b)(6), and 12(c), arguing that MCAR's complaint was deficient because it failed to allege sufficient facts to state a claim for relief. In a footnote in the motion, Castex reserved its right to compel arbitration.

After filing its motion to dismiss, Castex filed a motion for a protective order, seeking to stay discovery in the case, pending the district court's resolution of its motion to dismiss. Castex also filed a motion for relief from the court's initial scheduling order, seeking relief from the requirement that the parties make initial disclosures pursuant to Fed.R.Civ.P. 26. The district court entered a protective order staying all discovery in the case pending the outcome of the motion to dismiss. MCAR later moved for limited relief from the protective order in order to depose an employee of the Mirant Entities who was scheduled to leave his position. Castex objected to this motion and the district court denied it.

Before the district court ruled on the first motion to dismiss, MCAR filed its second amended complaint. This complaint contained modified versions of the claims in the first amended complaint and added claims for fraud, fraudulent inducement, and statutory fraud under Tex. Bus. & Com.Code § 27.01. In response to the second amended complaint, Castex filed a second motion to dismiss under Fed.R.Civ.P. 9(b), 12(b)(6), and 12(c). Once again, Castex reserved its right to compel arbitration in a footnote but did not move to compel arbitration. Castex also filed a separate motion to dismiss under Rule 12(b)(1) arguing that MCAR lacked standing because it had not been assigned any claims outside of the bankruptcy avoidance claims contained in the original complaint.

MCAR then filed a third amended complaint, which contained the same substantive causes of actions as the previous complaint but with more details added. Castex filed a third motion to dismiss pursuant to Rules 9(b) and 12(b)(6). As it had done in its previous motions to dismiss, Castex reserved its right to compel arbitration in a footnote. In its third motion to dismiss, Castex asked the district court to use its discretion to deny further amendments to MCAR's complaint and asked that the court dismiss all claims with prejudice. On September 22, 2008, the district court partially granted the motion, dismissing Count VI (breach of fiduciary duty) with prejudice. The court denied the motion as to the remaining claims.

On October 6, 2008, Castex filed a motion to compel arbitration before answering the third amended complaint. MCAR responded to Castex's motion to compel arbitration by arguing that Castex had waived that right by substantially invoking the judicial process. MCAR also claimed it had been prejudiced by incurring $265,559 in attorneys' fees and costs in defending against the motions to dismiss. The district court denied the motion to compel arbitration. The district court noted that “[t]here does not appear to be any dispute in this case over the existence or validity of the [arbitration clause] or whether [MCAR's claims] fall within the scope of the [arbitration clause].” The district court, however, held that Castex had waived its right to compel arbitration because it had substantially invoked the judicial process by filing multiple motions to dismiss, seeking and partially obtaining a dismissal with prejudice, and waiting eighteen months before invoking arbitration. It also found that MCAR suffered prejudice through delay, legal fees, and the dismissal of its claim for breach of fiduciary duty.

II.

We have jurisdiction of this appeal even though the district court's denial of Castex's motion to compel arbitration is an interlocutory order. Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir.2009). We review the district court's denial of a motion to compel arbitration de novo. Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 536 (5th Cir.2003). We also review the district court's determination that Castex has waived its right to arbitration de novo, but we review any factual findings underlying that determination for clear error. Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir.2004). “Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.” Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir.1991) (internal quotation marks and citation omitted). “There is a strong presumption against finding a waiver of arbitration, and the party claiming that the right to arbitrate has been waived bears a heavy burden.” Republic Ins. Co., 383 F.3d at 344 (citation omitted).

A.

We first examine whether Castex substantially invoked the judicial process. To invoke the judicial process, a “party must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir.1999). Castex argues that the filing of a motion to dismiss, standing alone, can never support a finding that a party has “substantially invoke[d] the judicial process.” Walker, 938 F.2d at 577 (internal quotation marks and citation omitted). As the Eighth Circuit has observed, however, “[m]otions to dismiss are not homogeneous.” Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917, 922 (8th Cir.2009). In this Circuit, a bright-line rule is inappropriate for deciding whether a party has waived its right to arbitration. Rather, our precedent establishes that “[t]he question of what constitutes a waiver of the right of arbitration depends on the facts of each case.” Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.1985) (citation omitted).

“A party waives arbitration by seeking a decision on the merits before attempting to arbitrate.” Petroleum Pipe Ams. Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir.2009) (citation omitted). Castex argues that it did not attempt to obtain a decision on the merits because it only filed “perfunctory motion[s] to dismiss.” Williams v. Cigna Fin. Advisors, Inc., 56 F.3d 656, 661 (5th Cir.1995) (internal quotation marks and citation omitted). We disagree. Castex based its second and third motions to dismiss partially on the affirmative defenses of waiver and release. Such affirmative defenses “admit...