REVERSE AND REMAND and Opinion Filed December 13, 2018 

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In The 

## Court of Appeals Fifth District of Texas at Dallas
No. 05-18-00140-CV ARCHER WESTERN CONSTRUCTION, LLC, Appellant V. BEAIRD DRILLING SERVICES, INC., AND SOUTH TEXAS INNOVATIONS, Appellees On Appeal from the 193rd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-16-16390 

### MEMORANDUM OPINION Before Justices Stoddart, Whitehill, and Boatright Opinion by Justice Whitehill This interlocutory appeal arise s out of an arbitration clause in a construction contract and concerns whether Archer Western Construction, LLC (Archer) impl iedly waived its right to arbitration. Archer argues that the trial court erred by denyi ng its motion to compel arbitration because it did not waive its right to arbitration by substantia lly invoking the judicial process or causing South Texas Innovations ( STI) to suffer prejudice. We conclude that even if Archer substantially invoked the judic ial process, STI did not meet its burden to establish pr ejudice. Thus there was no impl ied waiver of Archer’s arbitration right, and the trial court abused its discretion in denying Arc her’s motion to compel arbitration. Accordingly, we reverse the trial court’s order and remand for further proceedings consistent with this opinion.–2– I. B ACKGROUND Archer was the general contractor for the construction of a lu xury high rise project and it hired STI to provide certain construction-related labor, materi als and services for that project. The subcontract included the fo llowing arbitration provision:
Arbitration . Any controversy or claim of Co ntractor against Subcontractor or Subcontractor against Contractor or its surety shall, at the op tion of Contractor or Contractor’s surety and at any ti me, be resolved by arbitration pursuant to rules determined by Contractor. The Contractor and Subcontractor agr ee to equally split the administrative costs, fees, and other similar expenses char ged by the arbitrator or arbitration agency. Subcontra ctor irrevocably submits to the jurisdiction of the federal, state, or United States territory courts located in th e state or United States territory of the Project for the purpose of proceedings with re spect to the arbitration. At the Contractor’s or its suret y's option, the arbitration may be consolidated with any arbitration between the Cont ractor and Owner or other entit y associated with the Project. Subcontractor waive s to the fullest extent permitt ed by law any objection that they may now or may hereafter have to having arb itration proceedings conducted in the state or United States territory i n which the Project is located, including any claim that it is an inconvenient forum f or such arbitration or court proceedings. The award rendered by the arbitrator(s) sha ll be conclusive and binding upon the parties and shall be enforceable in any court of competent jurisdiction of any Contracting State pursuant to the Conventio n on the Recognition and Enforcement of Foreign Arbitral Awards (330 UNTS 3; 9 U.S.C . 201, et seq.). Several lawsuits concerning disp uted project payments were file d. The first lawsuit was filed by a drilli ng contractor, Beaird D rilling Services Inc., against Archer, STI, and other parties. (the Beaird suit). When a payment dispute arose between Archer and STI, STI filed a separate suit against Archer (the Archer suit). Archer answered, counterclaimed and filed a third-party petition in the Archer suit all subject to a m otion to compel arbitration previ ously filed in that case. 1 By agreement, STI moved to consolidate the Beaird and Archer su its. The trial court consolidated the two suits i nto what is now this case.

1 The motion is not part of our record, but is referenced in the pleading. Neither party disputes that it was filed.–3– On January 9, 2018, Beaird’s claims were settled in mediation, leaving only the claims between STI and Archer. Shortly thereafter, Archer filed its “Motion to stay the proce eding and to compel arbitration, and, in the alternat ive, for continuance.” STI op posed Archer’s motion, arguing that Archer waived its right to compel arbitration by substantially participating in the judicial process and that it would cause STI “pr ofound prejudice” to compel arbi tration. The trial court denied the moti on to compel arbitration, and Ar cher timely filed this interlocutory appeal.
II. A NALYSIS A. First Issue: Does the arbitr ation clause prohibit waiver? Archer initially argued that th e arbitration cl ause’s language expressly prohibits waiver of arbitration. But Archer now wit hdraws that issue, and we do no t consider it. See T EX

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47.1. Archer did not otherwise challenge the clause’s enforceability. B. Second Issue: Did the trial court abuse its discretion by c oncluding that Archer waived its arbitration rights? Archer’s second issue argues that the trial court abused its di scretion by denying its motion to compel arbitration because STI did not meet its burden to es tablish that Archer waived its arbitration rights. We agree be cause, assuming Archer substant ially invoked the j udicial process, STI failed to prove that it was thereby prejudiced. 1. Applicable Law Public policy strongly favors arbitration. Prudential Sec. Inc. v. Marshall , 909 S.W.2d 896, 898 (Tex. 1995). To compel arbitration, a party must show a valid agreement to arbitrate exists and the claims asserted are within the agreement’s scope

. J.M. Davidson, Inc. v. Webster , 128 S.W.3d 223, 227 (Tex. 2003). Once that occurs, there is a strong presumption favoring–4– arbitration, and the burden then shifts to the party opposing a rbitration to present an affirmative defense to enforcement. Id

. Waiver is a valid defense to arbitration. Perry Homes , 258 S.W.3d 580, 589–90 (Tex. 2008). Waiver is an intentional relinquishment of a known righ t, or intentional conduct inconsistent with asserting that right. Sun Exp. And Prod. Co. v. Benton , 728 S.W.2d 35, 37 (Tex. 1987). Furthermore, waiver depends on the facts and the totality of th e circumstances of each case. Perry Homes, 258 S.W.3d at 591. Although waiver can be implied from a part y’s conduct, the “conduct must be unequivocal,” and the burden to prove waiver i s a heavy one. See Richmont Holdings , Inc

. v. Superior Recharge Sys., LLC , 455 S.W.3d 573,575 (Tex. 2014) (per curiam). “[I]n close cases, the strong presumption against waiver should govern.” Perry Homes, 258 S.W.3d at 591. Determining implied waiver involves a two-pronged test: (i) did the party seeking arbitration substantially invoke the judicial process, and (ii) did the opposing party prove that it suffered resulting prejudice. 2 Id . at 589–90, 593. 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 fo rces it to litigate an issue and later seeks to arbitrate that same issue.” Id. at 597 (internal quotations omitted). “[A] party should not be allowed purposefully and unjustifiably to manipulate the exe rcise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.” Id . (internal quotations omitted). Thus, prejudice refers to “an inherent unfairness caused by a party’s attempt to have it both ways by

2 Although STI also argues express waiver, we do not consider tha t argument because STI did not raise it in the trial court. See T EX

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. P.38.1.–5– switching between litigation and arbitration to its own advanta ge.” In re Citigroup Global Mkts.,
Inc ., 258 S.W.3d 623, 625 (Tex. 2008) (per curiam). We review a trial court’s denial of a motion to compel arbitra tion for an abuse of discretion.
See In re D. Wilson Constr. Co ., 196 S.W.3d 774, 780 (Tex. 2006) (orig. proceeding). Under t his standard, we do not defer to the trial court on questions of la w but do defer to a trial court’s fact findings if they are supported by evidence. Perry Homes , 258 S.W.3d at 598. But where the facts are undisputed, whether a party waived its right to arbitrate, including whether that party’s conduct caused prejudice, is a questi on of law that we review de novo. Id

. 2. Implied Waiver Because the validity and scope of the arbitration agreement ar e not at issue he re, we begin with STI’s implied waiver defense; specifically, whether STI me t its burden to establish that Archer waived its right to arbitrate. Here, STI maintains that Archer substantially invoked the judic ial process by engaging in numerous litigation activities. B ut even if Archer did so, STI cannot establish waiver unless it also establishes prejudice. See Perry Homes , 258 S.W.3d at 593. Thus, we b egin with prejudice, and examine the record evidence of ( i) delay; (ii) expense, and (ii i) damage to STI’s legal position. Id

. at 597. (a). Delay First, we consider delay. Alt hough prejudice “is more easily s hown when a party delays his request for arbitration and in the meantime engages in pret rial activity inconsistent with an intent to arbitrate,” Ideal Roofing, Inc. v. Ambruste r, No. 05-13-00446-CV, 2013 WL 6063724, at *8 (Tex. App.—Dallas Nov. 18, 2013, no pet.), delay alone gener ally cannot establish waiver. See In re Vesta Ins. Group , Inc. , 192 S.W.3d at 763.–6– STI sued Archer on July 7, 2017, and Archer moved to compel arb itration approximately five and a half months later, on January 22, 2018. STI argues that, while the length of delay is not particularly problematic, the timing of the motion to compel ar bitration shows Ar cher’s intent to delay the proceedings. Specifically, trial wa s set for February 27, 2018. Archer, how ever, sought to continue the case “for at least six months” to conduct discovery on the cons olidated claims. The court denied the continuance motion, and shortly thereafter Archer moved to compel arbitration. In that motion, Archer alternatively requested t hat the court delay the trial s etting for at leas t four months. There is no dispute but that Arch er knew of the arbitration cla use early on. When STI sued Archer in July 2017, Archer moved to compel arbitration when it filed its answer and counterclaim and made those pleadings subject to the arbitration demand. ST I argues that Archer did not seek arbitration in the consolidated suit until after the denial of its continuance motion despite Archer’s prior awareness of its arbitra tion right. However, STI’s argum ent ignores the fact that Archer’s timing followed the Beaird claims settlement—when all that rema ined in the suit were arbitrable claims between STI and Archer. Moreover, the timing is significant only if the delay actually caused prejudice. To this end, STI maintains that it has been prejudiced by the delay because “Archer continues to withhold funds in excess of $5 million owed to STI.” There is, however, no ev idence to support this assertion. Notwithstanding Archer’s awarene ss of the arbitra tion provision , the litigation activity, and the timing of its motion, the r ecord does not establish that Ar cher’s delay was an attempt to move the litigation forward for its own benefit and to STI’s detrime nt. See, e.g ., Sipriano , 2016 WL 2905553, at *6.–7– (b). Expense Next, we consider expense. Archer also engaged in discovery (i n the Beaird case and in this case) including: (i) pr opounding four requests for product ion and one set of interrogatories to STI, and (ii) a deposition on written questions and request for documents to a third party. Archer also filed: (i) a motion to consolidate, (ii) a motion for cont inuance, (iii) a counterclaim and amended counterclaim, (iv) a thir d party petition against STI’s surety, (v) a motion for summary judgment, and (vi) a temporary re straining order, and participa ted in mediation and designated experts. STI’s evidence included an affidavit from its president, Gary H aymond, who stated that STI “has incurred $101,703.52 in att orney’s fees and expenses” in this litigation. Haymond also says that STI “sustained the majority of the ongoing significan t attorney’s fees and expenses” after the cases were consolidated. Haymond claims that “STI would su ffer significant prejudice in the form of financial harm . . . aft er having engaged in substantia l litigation efforts and agreeing to consolidate the case . . . .” But there have been multiple suits involving multiple parties a nd STI does not quantify which portion of the fees and expenses are specifically attribu table to Archer’s litigation activities. It also does not quantify the “majority” amount of those fees i t claims occurred after consolidation. Moreover, the record contains no evidence that the trial prepa ration and “litigation efforts” would not also be useful in arbitrating STI’s claims. See In re Vesta Ins. Group, Inc ., 192 S.W.3d at 763 (attorney affidavit that plaintiff incurred more than $2 00,000 in discovery-related expenses and fees did not establish prej udice without evide nce of the ex tent and substance of the discovery and that the discovery would not be useful in arbitration); Practicehwy.com, Inc. v. Albany IVF Fertility & Gynecology, PLLC , Np. 05-06-00222-CV, 2006 WL 296083 8, *3 (Tex. App.—Dallas Oct. 18, 2006, no pet.) (no prejudice where there was no eviden ce that time and funds expended–8– would not have been expended or inure to appellee’s benefit in his arbitration); Tex. Residential Mortgage, L.P. v. Portman , 152 S.W.3d 861, 864 (Tex. App.—D allas 2005, no pet.) (plainti ff’s trial preparation expense resulting from ten-month delay did no t establish prejudice). Nor is there any evidence that participating in arbitration would result in economic hardship to STI. See Sipriano v. Regional Fin. Corp. of T x., No. 05-15-00397-CV, 2016 W L 2905553, at *5, n.6 (Tex. App.—Dallas May 16, 2016, no pet.). (c). Damage to Legal Position Finally, we examine whether STI’s legal position was damaged by Archer’s delay in asserting its arbitration right. STI has not argued, and we se e no evidence in the record, that the delay or other activity harmed its legal position. See, e.g., Pilot Travel Ctrs., LLC v. Mc Cray, 416 S.W.3d 168, 186 (Tex. App.—Dallas 2013, no pet.). While there is no dispute that Archer engaged in discovery and other litigation activities, the record does n ot show that it obtained any information that could not be obtained in arbitration. Given the totality of the circumstances and the strong presumpt ion against waiver, we conclude that STI did not establish it was prejudiced by Archer ’s actions. Absent prejudice, we need not address whether Archer’s conduct substantially invoked the judicial process. See T EX

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. P. 47.1; Texas Residential Mortgage, L.P ., 152 S.W.3d at 863–64. Bec ause the trial court abused its discretion in denying Archer’s motion to compel arbi tration, we resolve Archer’s second issue in its favor.–9– III. C ONCLUSION We reverse the trial court’s order denying Archer’s motion to compel arbitration and remand to the trial court for entry of an order compelling the parties’ dispute to arbitration and granting an appropriate stay.

180140F.P05 /Bill Whitehill/ BILL WHITEHILL JUSTICE–10– 

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Court of Appeals Fifth District of Texas at Dallas JUDGMENT

ARCHER WESTERN CONSTRUCTION, LLC, Appellant

No. 05-18-00140-CV V. BEAIRD DRILLING SERVICES, INC., AND SOUTH TEXAS INNOVATIONS, Appellee On Appeal from the 193rd Judicial District Court, Dallas County, Texas Trial Court Cause No. DC-16-16390. Opinion delivered by Justice Whitehill. Justices Stoddart and Boatright participating.

In accordance with this Court’s opinion of this date, the judg ment of the trial court is REVERSED and this cause is REMANDED to the trial court for ent ry of an order compelling the parties’ dispute to arbitra tion and granting an appropriate stay. It is ORDERED that appellant ARCHER WESTE RN CONSTRUCTION, LLC recover its costs of this appeal from a ppellee BEAIRD DRILLING SERVICES , INC., AND SOUTH TEXAS INNOVATIONS.
Judgment entered December 13, 2018.