Court Opinion

ID: 9950943
Source: CourtListenerOpinion
Date Created: 2024-03-15 07:17:00.869773+00
Date Added: 2024-06-11T14:37:31.011449
License: Public Domain

In The

                              Court of Appeals

                   Ninth District of Texas at Beaumont

                             ________________

                             NO. 09-23-00098-CV
                             ________________

FIDELITY AUTO GROUP, LLC, D/B/A BAYTOWN NISSAN, Appellant

                                       V.

                   GRETCHEN HARGRODER, Appellee
________________________________________________________________________

                   On Appeal from the 58th District Court
                         Jefferson County, Texas
                        Trial Cause No. A-203,460
________________________________________________________________________

                                   OPINION

      Gretchen Hargroder (“Hargroder”) sued Fidelity Auto Group, LLC, d/b/a

Baytown Nissan (“Baytown Nissan”) and Nissan North America, Inc. after they sold

her a “new” truck that she later learned was used and the previous owner had

returned as defective. Baytown Nissan appeals the trial court’s order denying its

                                       1
Motion to Compel Arbitration. 1 See Tex. Civ. Prac. & Rem. Code Ann. § 51.016

(allowing interlocutory appeal from an order denying motion to compel arbitration).

In one issue, Baytown Nissan complains the district court erred in denying its Motion

to Compel Arbitration, because: 1) the parties have a valid and enforceable

arbitration agreement; 2) Hargroder’s claims fall within the agreement’s broad

scope; 3) the question of arbitrability or “waiver” is contractually assigned to the

arbitrator not the courts; 4) Baytown Nissan’s litigation conduct did not waive its

right to arbitrate; and 5) Texas public policy favors arbitration. For the reasons

discussed below, we affirm the trial court’s Order denying arbitration.

                    I. Background and Procedural Posture

      In February 2018, Hargroder purchased a “new” 2017 Nissan Titan XD crew

cab truck from Baytown Nissan. Baytown Nissan represented the truck was new and

sold Hargroder the truck as such. The contract documents for the purchase of the

vehicle contained an arbitration provision. The arbitration provision provided as

follows:

                 ARBITRATION PROVISION
PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS
1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE
BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY
JURY TRIAL.

      1Nissan North America, Inc. also appealed the trial court’s Order Denying the

Motion to Compel Arbitration. It has since dismissed its appeal; therefore we limit
our background and procedural discussion to Baytown Nissan.
                                         2
2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT
TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS
MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US
INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY
CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.
3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE
GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER
RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE
AVAILABLE IN ARBITRATION.

Any claim or dispute, whether in contract, tort, statute or otherwise (including the
interpretation and scope of this Arbitration Provision, and the arbitrability of the
claim or dispute), between you and us or our employees, agents, successors or
assigns, which arises out of or relates to your credit application, purchase or
condition of this vehicle, this contract or any resulting transaction or relationship
(including any such relationship with third parties who do not sign this contract)
shall, at your or our election, be resolved by neutral, binding arbitration and not by
a court action. If federal law provides that a claim or dispute is not subject to binding
arbitration, this Arbitration Provision shall not apply to such claim or dispute. Any
claim or dispute is to be arbitrated by a single arbitrator on an individual basis and
not as a class action. You expressly waive any right you may have to arbitrate a class
action. You may choose the American Arbitration Association, 1633 Broadway,
10th Floor, New York, New York 10019 (www.adr.org), or any other organization
to conduct the arbitration subject to our approval. You may get a copy of the rules
of an arbitration organization by contacting the organization or visiting its website.
Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the
applicable rules. The arbitrator shall apply governing substantive law and the
applicable statute of limitations. The arbitration hearing shall be conducted in the
federal district in which you reside unless the Seller-Creditor is a party to the claim
or dispute, in which case the hearing will be held in the federal district where this
contract was executed. We will pay your filing, administration, service or case
management fee and your arbitrator or hearing fee all up to a maximum of $5000,
unless the law or the rules of the chosen arbitration organization require us to pay
more. The amount we pay may be reimbursed in whole or in part by decision of the
arbitrator if the arbitrator finds that any of your claims is frivolous under applicable
law. Each party shall be responsible for its own attorney, expert and other fees,
unless awarded by the arbitrator under applicable law. If the chosen arbitration
organization’s rules conflict with this Arbitration Provision, then the provisions of
this Arbitration Provision shall control. Any arbitration under this Arbitration
Provision shall be governed by the Federal Arbitration Act (9 U.S. C. § 1 et. seq.)
                                           3
and not by any state law concerning arbitration. Any award by the arbitrator shall be
in writing and will be final and binding on all parties, subject to any limited right to
appeal under the Federal Arbitration Act.
You and we retain the right to seek remedies in small claims court for disputes or
claims within that court’s jurisdiction, unless such action is transferred, removed or
appealed to a different court. Neither you nor we waive the right to arbitrate by using
self-help remedies, such as repossession, or by filing an action to recover the vehicle,
to recover a deficiency balance, or for individual injunctive relief. Any court having
jurisdiction may enter judgment on the arbitrator’s award. This Arbitration Provision
shall survive any termination, payoff or transfer of this contract. If any part of this
Arbitration provision, other than waivers of class action rights, is deemed or found
to be unenforceable for any reason, the remainder shall remain enforceable. If a
waiver of class action rights is deemed or found to be unenforceable for any reason
in a case in which class action allegations have been made, the remainder of the
Arbitration Provision shall be enforceable.

      Shortly after buying the vehicle, Hargroder learned that the truck had been

previously purchased and returned as defective when it dropped a large amount of

engine fluid. When Hargroder learned this, she demanded that Baytown Nissan take

the truck back and return her down payment with the vehicle she traded in. Baytown

Nissan refused.

      In March 2019, Hargroder sued Baytown Nissan, Nissan North America, and

two individuals who worked for Baytown Nissan. Hargroder pleaded causes of

action for negligence, gross negligence, intentional violations of the Texas

Deceptive Trade Practices Act (DTPA), fraud, fraudulent misrepresentation,

negligent misrepresentation, breach of fiduciary duty, breach of warranties,

manufacturing defects, and breach of contract.

                                           4
      Baytown Nissan first answered with a general denial, subject to its motion to

transfer venue. Its amended answer raised multiple affirmative defenses, sought

costs and fees, and demanded a jury. The parties also conducted merits-based written

discovery, which included Baytown Nissan responding to Hargroder’s multiple

requests and propounding written discovery requests on Hargroder. Baytown Nissan

also deposed Hargroder and the former employee who sold the truck to Hargroder.

In September 2022, the parties filed a Joint Motion for Continuance and Entry of

Docket Control Order, which requested that the matter be moved from its October

2022 trial setting and set for trial in June 2023. The trial court signed the parties’

Agreed Amended Docket Control Order and set the case on its “try or dismiss”

docket in June 2023.

      Baytown Nissan moved to compel arbitration in March 2023, almost four

years after Hargroder filed suit, shortly after the trial court granted Hargroder’s

Motion to Compel the production of certain documents, and three months before the

scheduled trial setting. In their Motion to Compel Arbitration, Baytown Nissan

argued a valid arbitration agreement existed and noted the delegation clause that

provides the parties to arbitrate “[a]ny claim or dispute, whether in contract, tort,

statute or otherwise (including the interpretation and scope of this Arbitration

Provision and the arbitrability of the dispute).” Baytown Nissan also argued that the

AAA commercial rules say that the arbitrator rather than the court determines issues

                                          5
of arbitrability. Finally, it argued that Hargroder’s claims are within the broad scope

of the agreement and attached multiple exhibits to its Motion, including the contract

documents containing the arbitration provision and the AAA Rules for Commercial

Arbitration.

      Hargroder filed a Response to Baytown Nissan’s Motion to Compel

Arbitration and supported her Response with evidence. Hargroder argued that

Baytown Nissan waived and relinquished its right to arbitrate via its litigation

activities, and that given a recent decision by the Supreme Court of the United States,

there is no longer a prejudice requirement. Even so, she argued she expended time

and over $3,500 that she would not have had if Baytown Nissan timely demanded

arbitration, and she noted the discovery dispute required her to file a Motion to

Compel.

      Baytown Nissan filed a Reply to Hargroder’s Response and disputed that they

did not waive the right to enforce the arbitration agreement by their litigation

conduct. Baytown Nissan also argued that the Federal Arbitration Act governed the

dispute and whether the dispute was arbitrable. It contended that Hargroder had the

burden to raise an affirmative defense to the provision’s enforcement and that the

“question of waiver is one of arbitrability the parties have committed to the arbitrator

by adopting the AAA rules.” It also asserted that even if the Court rather than the

arbitrator had the authority to decide the waiver issue, Hargroder failed to prove that

                                           6
Baytown Nissan had waived its right to enforce the parties’ arbitration agreement.

Finally, it asserted that it never invoked the litigation process to Hargroder’s

detriment, and she failed to show she was prejudiced by Baytown Nissan’s delay in

invoking arbitration.

      The trial court denied Baytown Nissan’s Motion to Compel Arbitration, and

Baytown Nissan timely appealed. After the appeal was perfected but before its

submission, Appellee Hargroder requested that a supplemental clerk’s record be

filed under Texas Rules of Appellate Procedure 34.5(c) and 34.5(b)(4), and on July

13, 2023, the supplemental clerk’s record was filed in this Court. The contents of the

supplemental clerk’s record includes the Appellee’s brief filed in the court of appeals

with the documents contained in the brief’s appendix. These documents were 1) the

letter requesting the supplemental clerk’s record dated May 2023, 2) an attorney’s

affidavit dated May 2023 authenticating various documents, 3) Baytown Nissan’s

discovery responses, and 4) emails between counsel regarding scheduling mediation,

discovery disputes, substituting counsel, and the arbitration provision. These

documents were filed in the trial court after it ruled on the Motion to Compel

Arbitration. Appellant Baytown Nissan objected to the supplemental clerk’s record.

It argued that the documents in the supplemental clerk’s record were all filed as part

of Hargroder’s appellate brief, after the trial court’s March 2023 ruling on the

Motion to Compel Arbitration. Baytown Nissan complained that the documents

                                          7
were not before the trial court when it ruled, so they should not be considered by this

Court. We have carried a ruling on that objection with the appeal.

                         II. Supplemental Clerk’s Record

      We first address Appellant Baytown Nissan’s objection to the supplemental

clerk’s record. “If a relevant item has been omitted from the clerk’s record, the trial

court, the appellate court, or any party may by letter direct the trial court clerk to

prepare, certify, and file in the appellate court a supplement containing the omitted

item.” Tex. R. App. P. 34.5(c)(1). If a supplemental clerk’s record is filed, it becomes

part of the appellate record. Id. 34.5(c)(3). Here, the documents contained in the

supplemental record were not filed in the trial court until after the appeal was

perfected and the parties filed their appellate briefs.

      Simply because a supplemental clerk’s record is filed, does not mean the

documents contained in the supplemental record are relevant for our decision on the

merits of the case. See Roventini v. Ocular Sciences, Inc., 111 S.W.3d 719, 726 (Tex.

App.—Houston [1st Dist.] 2003, no pet.) (noting same in context of restricted

appeal); see also Republic Services v. Rodriguez, No. 14-12-01054-CV, 2014 WL

2936172, at *4 (Tex. App.—Houston [14th Dist.] June 26, 2014, no pet.) (declining

to consider deposition excerpts that were not before the trial court when it ruled on

summary judgment). “The rule has long been that evidence not before the trial court

prior to final judgment may not be considered in a writ of error proceeding.” Gen.

                                           8
Elec. Co. v. Falcon Ridge Apartments, Joint Venture, 811 S.W.2d 942, 944 (Tex.

1991) (citations omitted) (collecting cases); Adimora-Nweke v. Yarbrough, No. 14-

19-00426-CV, 2021 WL 1917832, at *3 (Tex. App.—Houston [14th Dist.] May 13,

2021, pet. denied) (citation omitted) (noting that “[w]e do not consider evidence that

was not before the trial court at the time it made its ruling in the case.”). “‘While the

record may be supplemented under the appellate rules if something has been omitted,

the supplementation rules cannot be used to create new evidence.’” Baylor Scott &

White, Hillcrest Med. Ctr. v. Weems, 575 S.W.3d 357, 366 (Tex. 2019) (quoting

Whitehead v. State, 130 S.W.3d 866, 872 (Tex. Crim. App. 2004)) (other citation

omitted). Since none of the documents in the supplemental clerk’s record were

before the trial court when it considered the Motion to Compel Arbitration, we do

not consider the contents of the supplemental clerk’s record filed in this

appeal. See Gen. Elec. Co., 811 S.W.2d at 944; Adimora-Nweke, 2021 WL 1917832,

at *3; see also Rodriguez, 2014 WL 2936172, at *4; Roventini, 111 S.W.3d at 726.

                        III. Motion to Compel Arbitration

      We now turn to Baytown Nissan’s claim that the trial court erred in denying

its Motion to Compel Arbitration.

A. Standard of Review

       “[A] party seeking to compel arbitration must establish the existence of a

valid arbitration agreement and show that the disputed claims fall within the scope

                                           9
of that agreement.” Wagner v. Apache Corp., 627 S.W.3d 277, 282 (Tex.

2021) (citing In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005)).

We review a trial court’s order denying a motion to compel arbitration for an abuse

of discretion. Henry v. Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). We defer to

the trial court’s factual determinations if they are supported by evidence but review

its legal determinations de novo. See id.; see also Aerotek, Inc. v. Boyd, 624 S.W.3d

199, 204 (Tex. 2021) (noting deference to factual determinations if they are

supported by evidence). Whether the disputed claims fall within the scope of a valid

arbitration agreement is a question of law, which we review de novo. See Henry, 551

S.W.3d at 115; In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642–43 (Tex. 2009).

If the trial court finds that a valid arbitration agreement exists, the burden then shifts

to the party opposing arbitration to raise an affirmative defense to enforcing

arbitration. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).

Whether a party waived its right to arbitrate is also a question of law that we review

de novo. Henry, 551 S.W.3d at 115; G.T. Leach Builders, LLC v. Sapphire V.P., LP,

458 S.W.3d 502, 511 (Tex. 2015).

      In its order denying Baytown Nissan’s Motion to Compel Arbitration, the trial

court did not state why it refused to compel Baytown Nissan and Hargroder to

arbitrate their dispute. The trial court did not issue findings of fact or conclusions of

law, and no party requested them. Because this appeal proceeds without the benefit

                                           10
of the trial court’s express findings, the trial court is presumed to have made all

findings necessary to support its judgment. See Tex. R. Civ. P. 299.

B. General Arbitration Law Principles

      We must first decide whether the parties made a valid and enforceable

agreement to arbitrate. See G.T. Leach, 458 S.W.3d at 519 (citation omitted). We do

so by looking to the parties’ intent as expressed in their written agreement. See id.

“Once the trial court concludes that the arbitration agreement encompasses the

claims, and that the party opposing arbitration has failed to prove its defenses, the

trial court has no discretion but to compel arbitration and stay its own proceedings.”

In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753–54 (Tex. 2001) (citations omitted);

see also G.T. Leach, 458 S.W.3d at 519 (stating same). A valid arbitration agreement

creates a strong presumption in favor of arbitration. RSL Funding, LLC v. Newsome,

569 S.W.3d 116, 121 (Tex. 2018) (citing Rachal v. Reitz, 403 S.W.3d 840, 850 (Tex.

2013)). Texas and federal law require the enforcement of valid arbitration

agreements. Id.; see also 9 U.S.C. § 2; Tex. Civ. Prac. & Rem. Code Ann. § 171.021.

Generally, courts consider an arbitration agreement’s terms to determine which

issues must be arbitrated. See RSL Funding, 569 S.W.3d at 121; Forest Oil Corp. v.

McAllen, 268 S.W.3d 51, 61 & n.37 (Tex. 2008) (stating same and discussing

arbitration agreement that assigned “scope determination” to arbitrator rather than

court). That said, since parties “have the right to contract as they see fit, they may

                                         11
agree to arbitral delegation clauses that send gateway issues such as arbitrability to

the arbitrator.” RSL Funding, 569 S.W.3d at 121 (citing Rent-A-Ctr., West, Inc. v.

Jackson, 561 U.S. 63, 68–70 (2010); Forest Oil Corp., 268 S.W.3d at 61 n.38).

C. There is a valid arbitration provision containing a delegation of issues to the
arbitrator, but it does not delegate the question of waiver by litigation conduct.

      In support of its sole issue, Baytown Nissan contends that the plain language

of the arbitration agreement was evidence that the delegation clause which included

determining by arbitration issues including “the scope of the Arbitration Provision”

and “arbitrability” rather than by court action. They also contend that they agreed

the arbitration would be conducted under the AAA Commercial Rules, which

constituted clear and unmistakable evidence that they intended for the arbitrator to

determine its own jurisdiction, including waiver by litigation conduct. Hargroder

does not dispute the existence of the arbitration agreement or the delegation clause

generally but asserts that the issue of waiver by litigation conduct is not included in

the arbitrability issues delegated to the arbitrator. In essence, we are asked to

determine whether the delegation clause that delegated “arbitrability” and “scope of

the agreement” determinations to the arbitrator also encompassed a delegation of

whether there has been a waiver by litigation conduct.

      Courts generally enforce delegation clauses when the delegation is “clear and

unmistakable.” Jetall Companies, Inc. v. Sonder USA Inc., No. 01-21-00378-CV,

2022 WL 17684340, at *7 (Tex. App.—Houston [1st Dist.] Dec. 15, 2022, no pet.)
                                          12
(mem. op.) (citation omitted); see also Perry Homes v. Cull, 258 S.W.3d 580, 588

(Tex. 2008) (“Although the federal courts do not defer to arbitrators when waiver is

a question of litigation conduct, they consistently do so when waiver concerns

limitations periods . . . .”). “Whether parties have agreed to arbitrate a dispute is a

‘gateway matter ordinarily committed to the trial court,’ but parties can ‘agree to

arbitrate arbitrability.’” Jetall, 2022 WL 17684340, at *7 (quoting Jody James

Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 631 (Tex. 2018)) (other citation

omitted); see RSL Funding, 569 S.W.3d at 120 (“[A] contractual agreement to

submit the arbitrability question to an arbitrator is valid and must be treated like any

other arbitral agreement.”). Certain threshold questions of arbitrability may be

delegated to the arbitrator if the parties’ agreement does so by “‘clear and

unmistakable evidence.’” See Jetall, 2022 WL 17684340, at *7 (quoting Henry

Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 530 (2019)).

      Whether a party waived its right to arbitration by its litigation conduct is

generally a question for the courts to decide. See G.T. Leach, 458 S.W.3d at 520;

Perry Homes, 258 S.W.3d at 588. This is

      because (1) “[c]ontracting parties would expect the court to decide
      whether one party’s conduct before the court waived the right to
      arbitrate,” (2) it is a “gateway” matter regarding “whether the parties
      have submitted a particular dispute to arbitration,” and (3) “courts
      decide defenses relating solely to the arbitration clause.”

                                          13
G.T. Leach, 458 S.W.3d at 520 (quoting Perry Homes, 258 S.W.3d at 588–

89). There is a recognized distinction between questions of “substantive

arbitrability” that courts decide and “procedural arbitrability” which arbitrators

decide. Id. (citing BG Group, PLC v. Republic of Arg., 572 U.S. 25, 34–36

(2014); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 81 (2002)). In

addressing these distinctions, “courts should defer to arbitrators to resolve the issue

of waiver when ‘waiver concerns limitations periods or waiver of particular claims

or defenses,’ but [the court[] should decide issues of waiver by litigation conduct.”

Id. at 521 (quoting Perry Homes, 258 S.W.3d at 588).

      The Supreme Court of Texas has stated that when the issue involves conduct

in court, “the court is obviously in a better position to decide whether [the conduct]

amounts to waiver[,]” and parties “would expect the court to decide whether one

party’s conduct before the court waived the right to arbitrate.” See Perry Homes, 258

S.W.3d at 588 (quoting Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97

F. App’x 462, 464 (5th Cir. 2004)); Jetall, 2022 WL 17684340, at *11 n.4

(explaining same).The Houston First Court of Appeals and multiple federal courts

have expressly decided whether delegation clauses included waiver by litigation

conduct. See Jetall, 2022 WL 17684340, at *11 n.4 (concluding where neither the

arbitration provision nor the delegation clause specifically mentioned who decided

waiver by litigation conduct, the parties did not “clearly and unmistakably delegate

                                          14
this issue of substantive arbitrability to the arbitrator”); Vine v. PLS Fin. Servs., Inc.,

689 F. App’x 800, 803–04 (5th Cir. 2017) (concluding there was no “clear and

unmistakable evidence” the parties intended to arbitrate litigation-conduct waiver

where agreement did “not explicitly mention litigation-conduct waiver”); Qazi v.

Stage Stores, Inc., No. 4:18-CV-0780, 2020 WL 1321538, at *5 (S.D. Tex. Mar. 17,

2020) (mem. op. and order) (concluding the delegation clause did not contain “clear

and unmistakable evidence” of parties’ intent to arbitrate litigation-conduct waiver

where it never mentioned litigation-conduct waiver); Tellez v. Madrigal, 292

F.Supp.3d 749, 756–57 (W.D. Tex. 2017) (same). They have uniformly determined

that where a delegation clause generally refers arbitrability decisions to the arbitrator

but does not mention litigation-conduct waiver, the issue of litigation-conduct

waiver remains one for the court to decide. See Jetall, 2022 WL 17684340, at *7;

Vine, 689 F. App’x at 803–04; Qazi, 2020 WL 1321538, at *5; Tellez, 292 F.Supp.3d

at 756–57. We find their reasoning persuasive.

       Despite the ability to delegate certain matters of gateway arbitrability, courts

have explained that “where arbitration agreements divest courts of power, courts

have still been able to determine ‘whether legal constraints external to the parties’

agreement foreclosed the arbitration of those claims.” Qazi, 2020 WL 1321538, at

*5 (quoting Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996)). Other

courts have determined parties may delegate the issue of waiver by litigation conduct

                                            15
to the arbitrator, but the arbitration agreement’s delegation clause “must contain

clear and unmistakable evidence ‘of the parties’ intent to arbitrate this issue

specifically.” Jetall, 2022 WL 17684340, at *11 n.4. (quoting Qazi, 2020 WL

1321538, at *5). Since waiver by litigation conduct is one presumptively for the

courts, if the parties desire to overcome this presumption and delegate it, they must

do so by clear and express language. See id.; Qazi, 2020 WL 1321538, at *5. If the

arbitration agreement omits any mention of waiver, the issue has not been clearly

and unmistakably delegated to the arbitrator. See Qazi, 2020 WL 1321538, at *5.

The delegation clause before us does not mention litigation waiver at all, and

conspicuously absent is language that would overcome the presumption that the

court will decide whether a party has waived its right to enforce the arbitration

provision by its litigation conduct. See id.

      We turn briefly to the parties’ discussion of the AAA rules mentioned in the

arbitration provision. The Supreme Court of Texas recently held that “as a general

rule, an agreement to arbitrate in accordance with the AAA or similar rules

constitutes a clear and unmistakable agreement that the arbitrator must decide

whether the parties’ disputes must be resolved through arbitration.” TotalEnergies

E&P USA, Inc. v. MP Gulf of Mexico, LLC, 667 S.W.3d 694, 708 (Tex. 2023). Still,

the express language of the parties’ agreement did not adopt the AAA Commercial

Rules or require that they be used. Here, the arbitration provision only says the

                                         16
parties “may choose” the AAA or “any other organization” subject to Baytown

Nissan’s approval. The arbitration provision also instructs that if the “chosen

arbitration organization’s rules” conflict with the Arbitration Agreement, then the

Arbitration Agreement controls. The agreement’s language provides that AAA rules

were merely one option, so we reject Baytown Nissan’s argument the AAA rules

require the litigation waiver issue to be submitted to the arbitrator.

      For the reasons outlined above, we conclude that the question about whether

Baytown Nissan waived the right to compel arbitration by virtue of its litigation

conduct is an issue for the trial court to decide. Neither the arbitration agreement nor

the delegation clause mention waiver by litigation conduct, and there is no “clear

and unmistakable evidence” overcoming the presumption the court will decide that

issue. See Jetall, 2022 WL 17684340, at *7; Vine, 689 F. App’x at 803–04; Qazi,

2020 WL 1321538, at *5; Tellez, 292 F.Supp.3d at 756–57; see also G.T. Leach, 458

S.W.3d at 520 (explaining why courts decide issue of waiver by litigation conduct);

Perry Homes, 258 S.W.3d at 588–89 (same).

D. Hargroder established the affirmative defense of waiver by litigation
conduct.

      We now turn to whether Hargroder met her burden to establish the affirmative

defense of waiver by litigation conduct. The parties do not dispute that the arbitration

agreement signed by Hargroder and Baytown Nissan is valid, so “‘the burden shifts

to the party opposing arbitration to raise an affirmative defense to enforcing
                                          17
arbitration.’” Bonsmara Nat. Beef Co. v. Hart of Tex. Cattle Feeders, LLC, 603

S.W.3d 385, 397–98 (Tex. 2020) (quoting J.M. Davidson, Inc., 128 S.W.3d at 227).

“Waiver is ‘an intentional relinquishment of a known right or intentional conduct

inconsistent with claiming that right.’” Conn Appliances, Inc. v. Puente, No. 09-18-

00326-CV, 2020 WL 4680283, at *4 (Tex. App.—Beaumont Aug. 13, 2020, no pet.)

(mem. op.) (quoting Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d 35, 37

(Tex. 1987)). The reasoning behind a waiver finding lies in the “inherent unfairness

caused by ‘a party’s attempt to have it both ways by switching between litigation

and arbitration . . . .’” In re Citigroup Glob. Mkts., Inc., 258 S.W.3d 623, 625 (Tex.

2008) (orig. proceeding) (quoting Perry Homes, 258 S.W.3d at 597); see also

Puente, 2020 WL 4680283, at *4.

      Historically, waiver by litigation as an affirmative defense required the party

opposing arbitration to show both: 1) the party seeking arbitration substantially

invoked the litigation process; and 2) it prejudiced the party opposing arbitration.

See Bonsmara Nat. Beef Co., 603 S.W.3d at 395 (citation omitted); Perry Homes,

258 S.W.3d at 589–90, 593; BBX Operating, LLC v. Am. Fluorite, Inc., No. 09-17-

00245-CV, 2018 WL 651276, at *6 (Tex. App.—Beaumont Feb. 1, 2018, no pet.)

(mem. op.); see also Rivas v. Molina, No. 08-23-00102-CV, 2024 WL 647656, at *3

& n.3 (Tex. App.—El Paso Feb. 15, 2024, no pet. h.) (mem. op.). “When courts

consider allegations of such a waiver, ‘[t]here is a strong presumption’ against it

                                         18
under the FAA.” RSL Funding v. Pippins, 499 S.W.3d 423, 430 (Tex. 2016) (quoting

In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006)). The presumption

applies in close cases. Perry Homes, 258 S.W.3d at 593. Courts look at the totality

of the circumstances and decide this issue on a case-by-case basis. See Pippins, 499

S.W.3d at 430; Perry Homes, 258 S.W.3d at 591; BBX Operating, 2018 WL 651276,

at *6. The factors employed include: 1) how long the party moving to compel

arbitration waited to do so; 2) the reasons for the delay; 3) whether and when the

movant knew of the arbitration agreement during the delay; 4) how much discovery

was conducted before moving to compel arbitration and whether discovery related

the merits; 5) whether the movant requested disposition on the merits; 6) whether

the movant asserted affirmative claims for relief in the trial court; 7) the extent of

the movant’s “engagement in pretrial matters” concerning the merits versus

arbitrability or jurisdiction; 8) amount of time and expense the parties committed to

litigation; 9) whether the discovery conducted would be unavailable or useful in

arbitration; 10) whether activity would be duplicated in arbitration; and 11) when

the case was to be tried. G.T. Leach, 458 S.W.3d at 512 (citing Perry Homes, 258

S.W.3d at 590–91); see also Pippins, 499 S.W.3d at 430 (citations omitted). Merely

taking part in litigation is insufficient unless a party substantially invokes the judicial

process to its opponent’s detriment. See In re Vesta Ins. Grp., Inc., 192 S.W.3d 759,

                                            19
763 (Tex. 2006) (orig. proceeding) (citation omitted). Likewise, delay alone

generally will not establish waiver. Id.

      “Generally, no one factor, by itself, is dispositive.” Pippins, 499 S.W.3d at

430. We recognize that waiver by litigation conduct is a high hurdle, and the party

opposing a valid arbitration agreement based on waiver bears the burden of proving

that defense. See Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d

494, 499–500 (Tex. 2015); G.T. Leach, 458 S.W.3d at 512; In re Bruce Terminix,

988 S.W.2d 702, 705 (Tex. 1998) (citation omitted) (noting “heavy burden of proof”

required to show waiver of arbitration rights).

      1. Substantial Invocation of the Litigation Process

      We examine the totality of the factors to determine whether Baytown Nissan

substantially invoked the litigation process. See G.T. Leach, 458 S.W.3d at 512;

Perry Homes, 258 S.W.3d at 590–92; BBX Operating, 2018 WL 651276, at *6.

      Baytown Nissan did not just wait months or even a few years to move to

compel arbitration—it waited four years and failed to explain this delay other than

new counsel noticed there was an arbitration agreement. Baytown Nissan drafted the

arbitration agreement, and we presume a party who can read a contract containing

an arbitration agreement and signs it, knows its contents. See EZ Pawn Corp. v.

Mancias, 934 S.W.2d 87, 90 (Tex. 1996); see also BBX Operating, 2018 WL

651276, at *6 (“[A] party who is aware of an arbitration clause, yet only files a

                                           20
motion to compel arbitration after having engaged in discovery and filed pleadings

with the trial court, and after having received an adverse ruling from a trial court,

has substantially invoked the litigation process and thereby waived its right to

arbitrate.”). Courts have found waiver based on shorter periods of delay coupled

with other factors. See, e.g., Perry Homes, 258 S.W.3d at 596 (finding waiver where

party delayed request for arbitration fourteen months after suing); Buzbee v. Terry

& Thweatt, P.C., No. 01-23-00123-CV, 2023 WL 7311212, at *5 (Tex. App.—

Houston [1st Dist.] Nov. 7, 2023, no pet.) (mem. op.) (delay of two years coupled

with other factors supported finding of waiver); F.T. James Constr., Inc. v. Hotel

Sancho Panza, LLC, 657 S.W.3d 623, 632 (Tex. App.—El Paso 2022, no pet.)

(concluding twelve-month delay considered with other factors weighed in favor of

waiver); Menger v. Menger, No. 01-19-00921-CV, 2021 WL 2654137, at *5 (Tex.

App.—Houston [1st Dist.] June 29, 2021, no pet.) (mem. op.) (finding six-month

delay before requesting arbitration supported finding of waiver). This case was also

three months from a trial setting. See Perry Homes, 258 S.W.3d at 596. We look at

these factors proportionally and compare waiting four years after litigation began to

compel arbitration to the three months before the trial setting. See id. at 596 n.92

(citing In re Vesta Ins. Grp., 192 S.W.3d at 764); F.T. James Constr., Inc., 657

S.W.3d at 632 (comparing months between initiation of lawsuit and motion to

                                         21
compel arbitration with months remaining before trial date). This factor weighs in

favor of waiver.

      Next, we examine the activity and discovery in this case. “Generally, merely

responding to discovery requests is insufficient to constitute a substantial invocation

of the judicial process.” BBX Operating, 2018 WL 651276, at *7 (citing In re Bruce

Terminix, 988 S.W.2d at 704). Yet the record here shows Baytown Nissan also

propounded two sets of requests for production, two sets of interrogatories, and

request for disclosure to Hargroder, all of which went to the merits of the claims,

which weighs against Baytown Nissan and in favor of waiver. 2 See G.T. Leach, 458

S.W.3d at 512–14 (considering how much discovery movant conducted before

seeking arbitration and whether it went to the merits); Perry Homes, 258 S.W.3d at

595–96 (explaining discovery went to “about every aspect of the merits”). Also,

Baytown Nissan deposed Hargroder and the salesperson who sold the vehicle to her,

and their discovery addressed the merits, which weighs against Baytown Nissan and

in favor of waiver. See id. Only after the trial court adversely ruled against Baytown

Nissan by granting Hargroder’s Motion to Compel the production of documents

significant to her claims did the defendant move to compel arbitration. See BBX

      2The record reveals that Baytown Nissan’s First Set of Request for Production

to Hargroder contained thirty-six requests and the Second Set of Request for
Production contained eleven requests. Likewise, the combined sets of interrogatories
Baytown Nissan propounded to Hargroder contained twenty-two requests.
                                          22
Operating, 2018 WL 651276, at *6; see also GRGP, Inc. v. Black Forest Holdings,

Inc., No. 01-23-00314-CV, 2023 WL 8459522, at *6 (Tex. App.—Houston [1st

Dist.] Dec. 7, 2023, no pet.) (mem. op.) (noting that party did not move to compel

arbitration until the trial court adversely ruled against it, including finding that it

intentionally spoliated evidence). These facts weigh against Baytown Nissan and

favor waiver.

      Hargroder acknowledges that the discovery that was the subject of the motion

to compel could be useful in arbitration, which would weigh against waiver. See

Perry Homes, 258 S.W.3d at 592; In re Bruce Terminix, 988 S.W.2d at 704. On

balance and considering all the circumstances, as we must, the fact that discovery

could be useful in arbitration does not outweigh the other factors that Baytown

Nissan actively participated in the discovery process for years, only sought merits-

based discovery, propounded multiple sets of requests, and deposed key witnesses.

      We agree with Baytown Nissan that propounding discovery alone and delay

alone are not enough to find that it substantially invoked the litigation process, but

here the totality-of-the-circumstances weighs in favor of waiver. It is the combined

force of 1) Baytown Nissan’s unexplained delay of four years, 2) the length of that

delay compared with the months to the trial date, 3) the presumption that it knew its

contract forms contained an arbitration provision and was aware of the provision

from the outset, 4) that it propounded multiple sets of merits-based discovery, 5) that

                                          23
it deposed key witnesses, and 6) that it only sought to compel arbitration after the

trial court adversely ruled against it on a Motion to Compel and required it to produce

documents significant to Hargroder’s claims that points us to our decision. See id. at

596–97; BBX Operating, 2018 WL 651276, at *6. Based on the totality of the

circumstances, we conclude the trial court did not abuse its discretion in denying the

request for arbitration because Baytown Nissan substantially invoked the judicial

process in a manner inconsistent with the right to arbitrate. See Perry Homes, 258

S.W.3d at 596; BBX Operating, 2018 WL 651276, at *6.

      2. Prejudice 3

      “In the context of waiver of the right to arbitrate, prejudice generally focuses

on the inherent unfairness caused by a party’s attempt to have it both ways by

switching between litigation and arbitration to its own advantage.” Momentum

Project Controls, LLC v. Booflies to Beefras LLC, No. 14-22-00712-CV, 2023 WL

4196584, at *5 (Tex. App.—Houston [14th Dist.] June 27, 2023, pet. denied) (mem.

op.) (citing G.T. Leach, 458 S.W.3d at 515; Perry Homes, 258 S.W.3d at 597).

      3Recently, the United States Supreme Court held        a federal court cannot
“condition a waiver of the right to arbitrate on a showing of prejudice.” Morgan v.
Sundance, Inc., 596 U.S. 411, 417 (2022). The plaintiff argues Morgan dispensed
with the prejudice requirement in a waiver by litigation conduct analysis in cases
under the Federal Arbitration Act. See id. The Texas Supreme Court has not spoken
on the prejudice prong since Morgan. Nevertheless, because the record before us
shows both substantial invocation of the litigation process and prejudice, we find it
unnecessary to decide that issue.
                                          24
Relevant to the prejudice issue are considerations of delay, expense, or damage to

another party’s legal position. See id.; see also Kennedy Hodges, L.L.P. v. Gobellan,

433 S.W.3d 542, 545 (Tex. 2014); Perry Homes, 258 S.W.3d at 597. Two critical

factors in determining whether a party was prejudiced by the opposing party’s delay

in asserting arbitration are (1) expenses incurred by the party during the delay; and

(2) the effect on the parties’ legal positions, including whether the party moving for

arbitration would gain an unfair advantage by switching forums from litigation to

arbitration. Momentum Project Controls, LLC, 2023 WL 4196584, at *5

(citing Perry Homes, 258 S.W.3d at 597).

      Baytown Nissan argues that Hargroder failed to present any evidence of

prejudice. The court in Perry Homes explained that a nonmovant need only prove

substantial invocation of the judicial process that caused prejudice, not precisely how

much it cost. 258 S.W.3d at 599–600. “A party opposing arbitration is not always

required to prove the cost of the extensive discovery in order to prove prejudice.”

Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 522 (Tex. App.—El Paso 2013, no

pet.) (citing Perry Homes, 258 S.W.3d at 599–600); see also Green v. Velocity Invs.,

LLC, No. 05-20-00795-CV, 2022 WL 3655232, at *6 (Tex. App.—Dallas Aug. 25,

2022, no pet.) (mem. op.) (citations omitted). Thus, even without specific evidence

of discovery costs or attorneys’ fees, Hargroder “may demonstrate prejudice on the

                                          25
face of the record.” Archimedes, Inc. v. Russell, No. 01-21-00222-CV, 2022 WL

2024851, at *4 (Tex. App.—Houston [1st Dist.] June 7, 2022, no pet.) (mem. op.).

      “Cost is only one dimension of prejudice.” Green, 2022 WL 3655232, at *6.

If the movant uses an arbitration agreement to tactically switch from one forum to

another, the nonmovant may show prejudice. See Perry Homes, 258 S.W.3d at 599–

600 (prejudice found where party manipulated litigation for one’s advantage and

another’s detriment); Green, 2022 WL 3655232, at *6 (prejudice found given

thirteen-month delay and damage to legal position seeking arbitration on “eve of

trial”); Archimedes, Inc., 2022 WL 2024851, at *5 (prejudice found by considering

expenses, potential damage to opposing party’s legal position by switching to

arbitration a month before trial after a nineteen-month delay); Ellman, 419 S.W.3d

at 522 (finding prejudice where party initiated merits discovery and waited to

demand arbitration until trial strategy was revealed through fact and expert witness

lists). If a party seeks to compel arbitration following an adverse ruling in the trial

court, the non-movant may be prejudiced by a change in its legal position. See Perry

Homes, 258 S.W.3d at 597; Green, 2022 WL 3655232, at *6; Ellman, 419 S.W.3d

at 522; see also Hogg v. Lynch, Chappell & Alsup, P.C., 480 S.W.3d 767, 791, 795

(Tex. App.—El Paso 2015, no pet.). The unfairness results from 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; see Hogg, 480 S.W.3d at 790–91.

                                          26
As the Court explained in Perry Homes, “‘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.’” 258 S.W.3d at

597 (quoting In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 46 n.5 (1st Cir. 2005)).

Under those circumstances, the party opposing arbitration suffers harm to its legal

position. Id.; see also Hogg, 480 S.W.3d at 791. The Hogg court found prejudice

where Ms. Hogg did not move for arbitration until she lost a discovery dispute and

was “faced with the near-certainty of having a sanctions order entered against

her.” Hogg, 480 S.W.3d at 796. There was no pending sanctions order here, but

Baytown Nissan lost a discovery dispute that resulted in it having to produce

documents significant to Hargroder’s claims.

      This Court has recognized that generalized complaints about delay and

expense are not enough without explanations and evidence. See In re Vesta Ins. Grp.,

192 S.W.3d at 763; In re Citgo Petroleum, 248 S.W.3d 769, 778 (Tex. App.—

Beaumont 2008, org. proceeding) (citations omitted). That said, the record before us

establishes more than generalized complaints. Hargroder did not provide an affidavit

in the trial court outlining her costs and expenses, but her Response to the Motion to

Compel Arbitration explained that she spent over $3,500 related to litigation that she

would not have incurred had Baytown Nissan timely demanded arbitration.

Hargroder also asserted that Baytown Nissan benefitted from the trial court

                                          27
discovery, that all the pretrial activity went to the case’s merits, and that

“[s]ignificant time and expense” had already been incurred. She focused on the

discovery process and pointed to the dispute that required her to file a Motion to

Compel. Hargroder argued in her Response that “the undersigned has devoted

dozens and dozens of hours to drafting pleadings, drafting discovery, responding to

discovery, taking depositions, preparing a motion to compel, attending a motion to

compel hearing,” among the other things involved in litigating the case. The

evidence she attached to her Response included the trial court’s Order granting her

Motion to Compel Discovery and the discovery requests that were the subject of the

Motion to Compel. This evidence shows that the trial court ordered Baytown Nissan

to produce documents responsive to Plaintiff’s Third Request for Production and

that the trial court overruled all Baytown Nissan’s exceptions, except two. The only

objections the trial court sustained limited the timeframe of documents responsive

to Hargroder’s request to five years for two of her requests.

      The record shows the parties conducted significant pretrial proceedings and

discovery over the four years before the arbitration demand. It was only after the

trial court ruled against Baytown Nissan on Hargroder’s motion to compel and

required the company to produce documents significant to Hargroder’s claims that

Baytown Nissan filed its motion to compel arbitration. The documents the trial court

ordered produced included documents that went to the dealership’s knowledge that

                                        28
the truck was not new and employee personnel files. Less than a month after being

ordered to produce the additional documents Baytown Nissan moved to compel

arbitration, and it sought arbitration even though the case had been set and reset for

trial. Even when Baytown Nissan filed its motion to compel arbitration, the motion

was filed just three months before the scheduled trial setting.

      We conclude that the trial court could have concluded that Hargroder had been

prejudiced by Baytown Nissan’s attempt to manipulate the litigation process to its

advantage by demanding arbitration after an unexcused four-year delay, three

months before a scheduled trial setting, and after the trial court granted Hargroder’s

Motion to Compel. See Perry Homes, 258 S.W.3d at 597; Green, 2022 WL 3655232,

at *6; Ellman, 419 S.W.3d at 522; Hogg, 480 S.W.3d at 791, 795; Archimedes, Inc.,

2022 WL 2024851, at *4–5. “Appellees were not required to detail the extent of

prejudice, only that prejudice resulted.” BBX Operating, 2018 WL 651276, at *8

(citing Perry Homes, 258 S.W.3d at 599).

      On this record, we cannot say the trial court erred in concluding that Baytown

Nissan waived its right to arbitrate by substantially invoking the judicial process to

Hargroder’s detriment. The trial court could have reasonably concluded that

Baytown Nissan’s “‘attempt to have it both ways by switching between litigation

and arbitration to its own advantage’” resulted in “inherent unfairness” to Hargroder.

See In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (orig.

                                         29
proceeding) (quoting Perry Homes, 258 S.W.3d at 597); BBX Operating, 2018 WL

651276, at *8; Hogg, 480 S.W.3d at 791, 795; Archimedes, Inc., 2022 WL 2024851,

at *4–5.

      We overrule Baytown Nissan’s sole issue.

                               IV. Conclusion

      Having overruled Baytown Nissan’s sole issue, we affirm the trial court’s

Order Denying Baytown Nissan’s Motion to Compel Arbitration.

      AFFIRMED.

                                                 W. SCOTT GOLEMON
                                                      Chief Justice

Submitted on February 29, 2024
Opinion Delivered March 14, 2024

Before Golemon, C.J., Johnson and Wright, JJ.

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