Smith v. Duncan Land & Exploration, Inc., No. 2-05-334-CV (Tex. App. 7/20/2006)
| Decision Date | 20 July 2006 |
| Docket Number | No. 2-05-334-CV.,2-05-334-CV. |
| Court | Texas Court of Appeals |
| Parties | DEE ANN SMITH, Appellant, v. DUNCAN LAND & EXPLORATION, INC. Appellees. |
Appeal from the 90th District Court of Young County.
Panel F: LIVINGSTON, GARDNER, and WALKER, JJ.
Appellant Dee Ann Smith appeals from a final judgment awarding appellee Duncan Land & Exploration, Inc. $3,000 in attorney's fees, plus court costs, on its counterclaim for breach of contract. In three issues, appellant contends that the trial court abused its discretion by holding a trial on the counterclaim instead of compelling arbitration on it, that the trial court erred by awarding appellee $3,000 in attorney's fees as a sanction, and that the award of attorney's fees was not equitable and just as a matter of law. We affirm.
Appellee hired appellant to perform legal services in a suit by appellee against Robert Blay. Appellant and Brian Duncan, as appellee's President, signed an engagement letter dated February 14, 2003 setting forth the terms of appellant's representation of appellee. The following provision is included on the last page of the letter:
If a party to this agreement has a dispute or claim against the other party or anyone employed under this agreement and the dispute or claim arises out of, is related to, or concerns any aspect of this agreement or services performed or not performed under this agreement, all such disputes or claims shall be submitted to binding arbitration. Any such arbitration shall be held in Wichita Falls, Texas, and no legal proceedings may be instituted except to enforce the award of the arbitrator or to preserve the jurisdiction of any court with existing jurisdiction of any of the parties, whether related or not to this agreement.
Appellant prepared the letter agreement.
During the course of the suit, appellee hired another attorney and eventually refused to pay appellant fees and expenses that she claimed appellee owed her. On January 21, 2004, appellant intervened in appellee's suit against Blay, asking that the trial court award her $7,725.25 in reasonable attorney's fees and expenses for legal services she had rendered in the Blay suit. Appellee filed a counterclaim for breach of contract, claiming that appellant breached her own letter agreement by filing a petition in intervention rather than an application for arbitration. Appellee asked the trial court to award breach of contract damages of $6,725.25, sanctions of $6,725.25 for appellant's frivolous pleading, reasonable and necessary attorney's fees of $3,000, and costs of court.
The trial court held a hearing on March 22, 2004. Appellant called in sick and did not appear. The trial court abated appellant's petition in intervention and ordered that "any dispute between Brian Duncan and [appellant] regarding Attorney Fees in this cause of action should be sent to arbitration as a final decision."2 The trial court also set a hearing on appellee's counterclaim for damages, sanctions, and attorney's fees.
On June 4, 2004, the trial court held a hearing on appellee's counterclaim. The trial court took the matter under advisement and on March 14, 2005, sent the parties a letter stating that "[a]fter due consideration, the court is of the opinion that [appellant] should not have filed an action for fees without first seeking a resolution with Mr. Duncan, either through negotiation or arbitration as set forth in the fee contract prepared by [appellant]."
On July 11, 2005, appellant filed an "Objection to Proposed Judgment And Motion For Partial Rehearing Relating to Intervention." In the motion for rehearing section, she contended for the first time that appellee's counterclaim should also have been ordered to arbitration. There is no response in the record. The trial court denied appellant's objection to the proposed judgment and denied the motion for partial rehearing on August 24, 2005. On August 25, 2005, the trial court signed an order awarding appellee $3,000 in attorney's fees on its counterclaim against appellant. Appellant filed a notice of appeal appealing this order on September 15, 2005.
The parties arbitrated the fee dispute in October 2005. The arbitrator awarded appellant $4,625.25, after offsetting the trial court's $3,000 attorney's fees award on appellant's counterclaim. Appellant filed an application to confirm the arbitration award on November 16, 2005, along with a "First Amended Answer to Counterclaim and Counter-Motion for Sanctions." On November 22, 2005, the trial court signed a final judgment confirming the arbitrator's award and severing the counterclaim, thus making its August 25, 2005 order final.
In her first issue, appellant contends that the trial court abused its discretion by retaining jurisdiction of appellee's counterclaim, rather than ordering it to arbitration. Appellant claims that the counterclaim was arbitrable because "it was interwoven with the contract so that it could not stand alone" and that she did not waive her right to arbitrate the counterclaim.
A party seeking to compel arbitration must first prove that an arbitration agreement exists and that the claims asserted fall within the scope of the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding), abrogated in part on other grounds by In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002) (orig. proceeding); In re Southwind Group, Inc., 188 S.W.3d 730, 735 (Tex. App.-Eastland 2006, orig. proceeding). Any doubts regarding the existence or scope of an agreement are resolved in favor of arbitration. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001).
The arbitration agreement in the letter agreement applies to a "dispute or claim [that] arises out of, is related to, or concerns any aspect of [the] agreement." This type of language is construed broadly. In re Conseco Fin. Serv. Corp., 19 S.W.3d 562, 568 (Tex. App.-Waco 2000, orig. proceeding). It encompasses all claims at issue unless "it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (orig. proceeding).
Here, appellee's counterclaim for breach of contract is based directly on and "arises out of" the letter agreement; appellee contends that appellant breached the arbitration provision by filing a suit in intervention rather than an application to arbitrate. Thus, appellee's breach of contract claim falls within the scope of the arbitration agreement. See Pepe Int'l Dev. Co. v. Garcia, 915 S.W.2d 925, 931 (Tex. App.-Houston [1st Dist.] 1996, orig. proceeding).
If a party seeking arbitration carries its initial burden, the burden shifts to the party resisting arbitration to present evidence on its defenses to the arbitration agreement. Southwind Group, Inc., 188 S.W.3d at 735. We cannot determine from the record that appellee asserted any defenses to appellant's claim on rehearing of the counterclaim that it was subject to arbitration; however, appellant asserted in that motion that she had not waived her right to arbitrate the counterclaim. Thus, we will determine whether appellant waived the right to arbitrate the counterclaim.3
Whether a party has waived its right to arbitrate presents a question of law that we review de novo. Oakwood Mobile Homes, Inc., 987 S.W.2d at 574; Southwind Group, Inc., 188 S.W.3d at 735. Because public policy favors arbitration, there is a strong presumption against finding that a party has waived its right to arbitration; the burden to prove waiver is thus a heavy one. In re Bruce Terminix Co., 988 S.W.2d 702, 704-05 (Tex. 1998) (orig. proceeding); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996) (orig. proceeding); Southwind Group, Inc., 188 S.W.3d at 735. Any doubts regarding waiver are resolved in favor of arbitration. Bruce Terminix Co., 988 S.W.2d at 705; Southwind Group, Inc., 188 S.W.3d at 735.
Waiver may be express or implied, but it must be intentional. EZ Pawn Corp., 934 S.W.2d at 89; Southwind Group, Inc., 188 S.W.3d at 735. Whether waiver occurs depends on the individual facts and circumstances of each case. Southwind Group, Inc., 188 S.W.3d at 735; Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex. App.-Houston [1st Dist.] 2003, no pet.). A party does not waive arbitration merely by delay; instead, the party urging waiver must establish that any delay resulted in prejudice. Prudential Secs. Inc., 909 S.W.2d at 898; Southwind Group, Inc., 188 S.W.3d at 735. A court may find waiver only when (1) the party seeking arbitration has substantially invoked the judicial process and (2) the party opposing arbitration suffers actual prejudice as a result. Bruce Terminix Co., 988 S.W.2d at 704; Southwind Group, Inc., 188 S.W.3d at 735.
Courts will not find that a party has waived its right to enforce an arbitration clause by merely taking part in litigation unless it has substantially invoked the judicial process to its opponent's detriment. Bruce Terminix Co., 988 S.W.2d at 704; Southwind Group, Inc., 188 S.W.3d at 736. Substantially invoking the judicial process may occur when the party seeking arbitration actively tried, but failed, to achieve a satisfactory result in litigation before turning to arbitration. Southwind Group, Inc., 188 S.W.3d at 736; Williams Indus., Inc., 110 S.W.3d at 135.
Here, appellant not only waited almost a year and a half after the counterclaim was filed to request arbitration of the counterclaim, she actually participated in a hearing on the merits of the counterclaim without objection. Only after the trial court rendered a damage judgment against her did she assert her right to arbitration, a little over a year after...
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