Court Opinion

ID: 3089555
Source: CourtListenerOpinion
Date Created: 2015-10-16 03:47:14.389026+00
Date Added: 2024-06-11T12:46:48.659108
License: Public Domain

NUMBER 13-12-00473-CV

                           COURT OF APPEALS

                 THIRTEENTH DISTRICT OF TEXAS

                    CORPUS CHRISTI – EDINBURG

KENNEDY HODGES, L.L.P.,                                               Appellant,

                                           v.

VENTURA GOBELLAN, JR. AND
PAULA GOBELLAN,                                                       Appellees.

                    On appeal from the 24th District Court
                         of Jackson County, Texas.

                         MEMORANDUM OPINION
     Before Chief Justice Valdez and Justices Garza and Longoria
             Memorandum Opinion by Justice Longoria
      By one issue, appellant, Kennedy Hodges, LLP, appeals the trial court’s order

denying its motion to compel arbitration. We affirm.

                                    I. BACKGROUND
       In 2004, appellees, Ventura Gobellan, Jr. and Paula Gobellan, signed a

contingency fee agreement with appellant concerning appellant’s representation of

appellees in a personal injury suit. The suit was filed in 2005 in Jackson County, Texas

(the “Jackson County suit”).      In 2006, appellees terminated their representation by

appellant. Thereafter, appellees were represented by Canonero Brown, an attorney

who previously worked for appellant.

       Subsequently, in 2006, appellant filed suit in Harris County, Texas against Brown

and his new employer (the “Harris County suit”).            Appellees were not named as

defendants, but the suit involved appellees’ contingency fee contract with appellant. In

relevant part, appellant alleged in its petition:

       [Appellant seeks] a declaratory judgment regarding [appellant’s] existing
       rights and/or the status of [appellant’s] interests in cases in which current
       or former . . . clients [of appellant] are now being represented (or in the
       future will be represented) by one or more defendants. [Appellant] is
       entitled to recover its full contractual fee interest in these cases.
       Alternatively, [appellant] is entitled to recover in quantum meruit for the
       reasonable value of services rendered before termination of the
       contractual relationship with each client.

       In 2007, appellant intervened in appellees’ personal injury suit in Jackson

County. Appellant asserted causes of action against appellees for breach of contract

and declaratory judgment, alleging that it “is entitled to forty percent (40%) of any and all

settlements and/or compensation paid to and/or received by [appellees] with regards to

the accident made the basis of their lawsuit.” Appellant requested a judgment declaring

that it is entitled to 40% of any recovery by appellees, its “full contractual fee interest.”

       On December 4, 2007, after what appellees describe as “eighteen months of

intense litigation, including full discovery,” appellant, Brown, and Brown’s employer

entered into a settlement agreement in the Harris County suit. The parties agreed “to

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settle all claims and controversies between them, whether or not asserted in this case,

except as explicitly stated [in the agreement].” The settlement agreement specifically

addressed appellant’s claim for its full contractual fee interest under its contingency fee

contract with appellees. Under the terms of the agreement, appellant agreed to accept

less than its full contractual fee interest.     Specifically, the agreement provided in

relevant part as follows:

        [Appellees’] claims shall be split as follows: 65% of the legal fees shall be
        paid to [appellant] and 35% of the legal fees shall be paid to [Brown].
        Notwithstanding this fee split, 100% of the fees on the $7500 settlement
        achieved before [Brown] left [appellant’s employment] shall be paid to
        [appellant] only. Further, [Brown] shall request that the clients involved
        herein authorize [appellant] to endorse the settlement check, or its
        replacement if “stale,” for $7,500.00 or shall use his Power of Attorney to
        endorse the check for the benefit of [appellant].

The agreement also provided that Brown would pay appellant the fees owed by

appellees:

        Other terms of this settlement are that since the payment of these
        settlements will be made to parties other than [appellant], the funds shall
        be placed first into an IOLTA account and shall be paid directly to
        [appellant] within 15 days of the date of the deposit.

Pursuant to the agreement, appellant and Brown filed a joint motion for dismissal with

prejudice in the Harris County suit. On February 29, 2008, the trial court in the Harris

County suit entered an agreed order of dismissal with prejudice, dismissing all claims

and causes of action that were asserted or that could have been asserted by the parties

in that suit.

        In 2010, Brown, representing appellees, settled appellees’ personal injury claims

in the Jackson County suit for $470,000. Based on the settlement agreement between

Brown and appellant, Brown paid appellant attorney’s fees in the amount of $61,600 on

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behalf of appellees.    Subsequently, in June 2011, appellant filed a lawsuit against

appellees in Harris County, seeking an additional $189,000 from their recovery.

Appellant alleged that appellees terminated representation without good cause and

thereafter “refus[ed] to pay [appellant] the full fee and reimbursement for all expenses,

as provided for in the Fee Agreement for termination without cause.”              The lawsuit

contained a demand for arbitration; however, appellant subsequently amended the

lawsuit to add Brown and the payor of the $470,000 settlement as defendants and to

delete its demand for arbitration.

       On January 13, 2012, appellees answered the lawsuit. Appellant then filed a

motion to compel arbitration.        On March 8, 2012, appellees filed a verified plea in

abatement based on the pending status of appellant’s intervention in the Jackson

County suit. Appellant subsequently nonsuited its claims against appellees in the Harris

County suit.

       In March 2012, appellees filed their answer to appellant’s petition in intervention

in the Jackson County suit. In addition, appellees filed a third-party petition against

Brown and his employer. No discovery has been conducted in the Jackson County suit

with regard to appellant’s petition in intervention or appellees’ counterclaim.

       On May 16, 2012, appellant filed a motion to compel arbitration based on an

arbitration provision in the contingency fee agreement. Appellees opposed the motion

on the basis that appellant had waived its right to arbitration by delaying any attempts to

enforce the arbitration provision and litigating its claim in the Harris County suit against

Brown to a final order.      Appellees maintained that they had been prejudiced by

appellant’s attempt to have it both ways by seeking to compel arbitration of the same

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claim it fully litigated in the Harris County suit. On June 29, 2012, the trial court entered

an order denying appellant’s motion to compel arbitration. This interlocutory appeal

ensued. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West Supp. 2011).

                                        II. ANALYSIS

A. Applicable Law

       A party waives an arbitration clause 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). Due to the strong presumption against waiver of arbitration, this hurdle

is a high one. Id. at 590. The Texas Supreme Court has held that parties did not waive

arbitration by: (1) filing suit; (2) moving to dismiss a claim for lack of standing; (3)

moving to set aside a default judgment and requesting a new trial; (4) opposing a trial

setting and seeking to move the litigation to federal court; (5) moving to strike an

intervention and opposing discovery; (6) sending 18 interrogatories and 19 requests for

production; (7) requesting an initial round of discovery, noticing (but not taking) a single

deposition, and agreeing to a trial resetting; or (8) seeking initial discovery, taking four

depositions, and moving for dismissal based on standing. Id. (citations omitted).

       We decide questions of waiver by applying a totality-of-the-circumstances test on

a case-by-case basis. Id. In doing so, we consider a wide variety of factors including:

(1) whether the movant was plaintiff (who chose to file in court) or defendant (who

merely responded); (2) how long the movant delayed before seeking arbitration; (3)

whether the movant knew of the arbitration clause all along; (4) how much pretrial

activity related to the merits rather than arbitrability or jurisdiction; (5) how much time

and expense has been incurred in litigation; (6) whether the movant sought or opposed

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arbitration earlier in the case; (7) whether the movant filed affirmative claims or

dispositive motions; (8) what discovery would be unavailable in arbitration; (9) whether

activity in court would be duplicated in arbitration; and (10) when the case was to be

tried. Id. at 591. Of course, all these factors are rarely presented in a single case.

Courts have found waiver based on a few, or even a single one. Id.

       Even substantially invoking the judicial process does not waive a party’s

arbitration rights unless the opposing party proves that it suffered prejudice as a result.

Id. at 593. “Prejudice” has many meanings, but in the context of waiver of arbitration, it

relates to inherent unfairness—that is, a party’s attempt to have it both ways by

switching between litigation and arbitration to its own advantage.       Id. at 597.   For

purposes of a waiver of an arbitration agreement, 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. Thus, “a party should not be allowed purposefully and unjustifiably to

manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage

over the opposing party.” Id.

B. Standard of Review

       Review of the denial of a motion to compel arbitration is conducted under an

abuse of discretion standard. Okorafor v. Uncle Sam & Assocs., Inc., 295 S.W.3d 27,

38 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). We resolve the question of

waiver as a question of law by applying a totality-of-the-circumstances test to the

particular circumstances of the case.       Id.   The trial court’s ultimate conclusion

concerning waiver of arbitration is a legal question that we review de novo.            Id.

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However, when the trial court must first resolve underlying facts, we defer to the trial

court's factual resolutions and any credibility determinations that may have affected

those resolutions, and we may not substitute our judgment on these matters. Id. The

duty is upon the party resisting arbitration to raise an affirmative defense.           J.M.

Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Any doubts are to be

resolved in favor of arbitration. Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 899

(Tex. 1995).

C. Discussion

       We begin with the proposition that “[a] party invokes the judicial process only to

the extent that it litigates a specific claim it subsequently seeks to arbitrate.” Chambers

v. O’Quinn, 305 S.W.3d 141, 152 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). In

this case, appellant seeks to arbitrate a claim against appellees to collect its fees under

the contingency fee agreement.       In this context, for there to have been a waiver,

appellant “must [have], at the very least, engage[d] in some overt act in court that

evince[d] a desire to resolve the [same] arbitrable dispute through litigation rather than

arbitration.” Haddock v. Quinn, 287 S.W.3d 158, 177 (Tex. App.—Fort Worth 2009, pet.

denied). Thus, it is relevant that appellant previously litigated its claim to the same

attorney’s fees under the same contract in the suit against Brown in Harris County. See

In re Christus Spohn Health Sys. Corp., 231 S.W.3d 475, 481 (Tex. App.—Corpus

Christi 2007, orig. proceeding) (holding hospital’s prior litigation conduct in criminal case

constituted waiver of right to arbitrate where prior litigation involved developing evidence

as part of strategic plan for defense of civil suit for damages). Furthermore, we note

that appellees contend—and appellant does not dispute—that appellant engaged in

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extensive discovery in the Harris County suit. See Nationwide of Bryan v. Dyer, 969
S.W.2d 518, 522 (Tex. App.—Austin 1998, no pet.) (“To substantially invoke the judicial

process a party must make a specific and deliberate act after suit has been filed that is

inconsistent with its right to arbitrate, such as engaging in extensive discovery or

requesting a jury.”).

       Appellant argues that its participation in the litigation with Brown has nothing to

do with the claim it now seeks to arbitrate. Appellant bases this assertion on the fact

that appellees were not parties to the Harris County suit. We agree that the absence of

appellees from the suit is a relevant factor for purposes of the totality-of-the-

circumstances test, but we conclude that more weight should be given to the fact that

appellant was attempting to collect the same fees it now seeks to collect from appellees

through arbitration. See Haddock v. Quinn, 287 S.W.3d 158, 179 (Tex. App.—Fort

Worth 2009, pet. denied) (“[W]aiver may be found where a party has tried and failed to

achieve a satisfactory result before turning to arbitration.”).

       It is also significant that the Harris County suit was settled based on, among

other things, appellant’s agreement to accept only 65% of the fee it claimed to be

entitled to under the contingency fee agreement with appellees. See id. In fact, the trial

court dismissed with prejudice appellant’s claim to 100% of the fee in an order entered

by agreement of the parties. Thus, the fact that appellant is now seeking to arbitrate a

claim to 100% of the same fee indicates that appellant “failed to achieve a satisfactory

result before turning to arbitration.”    Id.   Furthermore, we note that “failing to seek

arbitration until after proceeding in litigation to an adverse result is the clearest form of

inconsistent litigation conduct and is inevitably found to constitute substantial invocation

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of the litigation process resulting in waiver.” Id. at 180. Accordingly, we conclude that

appellees have satisfied the first prong of the test for waiver of arbitration by

establishing that appellant substantially invoked the judicial process.

       Turning to the second prong of the test, requiring prejudice, we note that

“‘prejudice’ has many meanings, but in the context of waiver . . . it relates to inherent

unfairness—that is, a party’s attempt to have it both ways by switching between

litigation and arbitration to its own advantage.”     Perry Homes, 258 S.W.3d at 597.

“[M]anipulation of litigation for one party’s advantage and another’s detriment is

precisely the kind of inherent unfairness that constitutes prejudice under federal and

state law.” Id.

       Here, appellant elected to file suit against Brown to collect fees allegedly owed

by appellees. Appellant pursued the claim to an adverse outcome (i.e., dismissal with

prejudice).     Now, appellant seeks to arbitrate the same claim to obtain a more

satisfactory result (i.e., 100% of the fee, instead of 65%). Thus, appellant is attempting

to have it both ways by switching between litigation and arbitration to its own advantage.

See id.       Accordingly, we conclude that appellees have established prejudice for

purposes of waiver.

       Appellant’s issue is overruled.

                                      III. CONCLUSION

       The order of the trial court is affirmed.

                                                   _______________________
                                                   NORA L. LONGORIA
                                                   Justice

Delivered and filed the
14th day of March, 2013.

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