Court Opinion

ID: 3111317
Source: CourtListenerOpinion
Date Created: 2015-10-16 06:55:04.404215+00
Date Added: 2024-06-11T12:47:00.745391
License: Public Domain

Opinion issued December 10, 2013.

                                    In The

                            Court of Appeals
                                    For The

                        First District of Texas
                         ————————————
                            NO. 01-12-01032-CV
                         ———————————
  STEVE HOLMES, DEBBIE HOLMES, CLINTON HOLMES, DANA
ATKINSON, JERRY SMITH, GREG EVANS, PENNY EVANS, AND GARY
                     EVANS, Appellants
                                      V.
        JOHN L. GRAVES AND HARPER TRAMMELL, Appellees

                  On Appeal from the 334th District Court
                           Harris County, Texas
                     Trial Court Case No. 2012-23495

                        MEMORANDUM OPINION

     Steve Holmes, Debbie Holmes, Clinton Holmes, Jerry Smith, Dana

Atkinson, and Greg Evans―in their capacity as purported directors and members
of the Houston Aeronautical Heritage Society, Inc.―and Penny Evans and Gary

Evans―(collectively “Plaintiffs”) in their capacity as members of HAHS―bring

this interlocutory appeal challenging the trial court’s denial of their motion to

compel arbitration in the underlying suit against John L. Graves and Harper

Trammell (collectively “Defendants”) regarding the governance and operation of

HAHS. Because we conclude that the trial court did not err by denying Plaintiffs’

motion to compel arbitration, we affirm.

                                     Background

      The mission of HAHS is to “preserve, renovate and/or restore the original

purpose-built airport terminal building known as the Houston Municipal Airport

Building and/or The 1940 Air Terminal, and to operate within it, and nearby

structures, a museum of civil aviation[.]” The operation and governance of HAHS

has been the subject of multiple lawsuits, all of which have been filed in or

transferred to the same district court.

      In 2011, HAHS, through three of its directors (including Gary Evans), filed a

lawsuit against six of its other directors (including Graves and Trammell) seeking

to (1) enjoin a special meeting of the Board of Directors called for the purpose of

appointing new directors and (2) obtain a declaration that a special meeting of

members, rather than a special meeting of the Board, was required for the

appointment of new directors under HAHS’s bylaws. In its final summary

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judgment in the 2011 lawsuit, the trial court made the following findings and

conclusions:

      • HAHS shall take nothing on any of its claims against Graves, Trammell,
        or the other defendant directors;

      • Graves, Trammell, and the other defendant directors were current
        members of the HAHS Board;

      • The bylaws submitted by the defendant directors as part of their
        pleadings in the 2011 lawsuit were the “current, applicable and effective
        bylaws that govern the affairs of [HAHS]”; 1 and

      • The special meeting called by the defendant directors for the purpose of
        appointing new directors was authorized by the bylaws.

As part of its final judgment, the trial court also vacated an agreed temporary

injunction in the 2011 lawsuit that prohibited the calling of special meetings. 2

      The day after the trial court rendered its final judgment in the 2011 lawsuit,

Graves, Trammell, and the other defendant directors noticed a special meeting of

the Board for the purpose of addressing “[t]he amendment and restatement of the

bylaws with immediate effect” and “[c]onsideration of and a vote upon the

proposed removal” of the directors who had been plaintiffs in the 2011 lawsuit.

The special meeting was called for April 20, 2012. The minutes of the April 20

meeting recount that all directors (including the directors who were plaintiff and

1
      For purposes of this appeal, we refer to these bylaws as the “original bylaws.”
2
      An appeal from the final judgment in the 2011 lawsuit is currently pending in this
      Court. Today, we also issue our opinion in that appeal.

                                           3
defendants in the 2011 lawsuit) were present and there was a quorum. The minutes

recount that the following events occurred:

      Discussion was opened pertaining to the amended bylaws which have
      been proposed by the Majority Directors [defendant directors in the
      2011 lawsuit]. John Graves made the motion that the amended bylaws
      be accepted; Oscar Nipper seconded . . . A vote was called to adopt
      the proposed amended bylaws by Harper Trammell.[ 3] The results
      were 6 in favor (Morris, Trammell, High, Nipper, M. Evans, Graves)
      and 3 opposed (G. Evans, D. Coats by proxy and K. Coats by proxy
      [plaintiff directors in the 2011 lawsuit]). The motion to accept the
      proposed bylaws passed.

A resolution removing the plaintiff directors in the 2011 lawsuit from the Board

was also passed, with the same six directors voting in favor of the resolution and

the same three directors opposing it.

      A quorum of HAHS’s members participated in a members meeting the

following day at which the directors’ actions at the special meeting were ratified,

including the ratification and adoption of the amended and restated Bylaws.

Relevant to this appeal, the arbitration clause contained in the original bylaws was

omitted from the amended and restated bylaws.

      The plaintiff directors in the 2011 lawsuit called a competing members’

meeting for the purpose of electing new directors. That meeting occurred

immediately after the special members’ meeting discussed above. The record does

not establish the attendance at this meeting. However, Steve Holmes, Debbie

3
      For purposes of this appeal, we refer to these bylaws as the amended and restated
      bylaws.
                                          4
Holmes, Clinton Holmes, Dana Atkinson, Jerry Smith, and Greg Evans contend

that they were duly appointed as members of the Board at that meeting. The

appointment of these new directors gave rise to the dispute regarding the

constitution of HAHS’s Board, with two separate groups of directors (Plaintiffs

and Defendants here) claiming authority to act on HAHS’s behalf.

      After their purported election as directors, Plaintiffs filed the underlying

lawsuit (the 2012 lawsuit), seeking substantially the same injunctive and

declaratory relief that the plaintiff directors had sought in the 2011 lawsuit. Indeed,

Plaintiffs characterize the 2012 lawsuit as a “continuation of” the 2011 lawsuit.

They allege that Defendants “attempted to supplant the by-laws determined to be

in force in the [Judgment from the 2011 lawsuit] with a new set of by-laws [which]

strip all of HAHS members of their right to vote, take away all privileges of

membership so that HAHS members will no longer be ‘Members’ under the Texas

Business Organizations Code, and give the [Defendants] absolute power to

dissolve any membership, at any time, for any reason, ‘or no reason at all.’”

      Plaintiffs sought to enjoin Defendants from the following conduct:

          1. Interfering with the day to day operations of the [HAHS] 1940
             Air Terminal Museum;

          2. Interfering with the governance of HAHS by its Board of
             Directors and Officers;

                                          5
         3. Interfering with the rights and privileges of HAHS’ members as
            provided by HAHS’ articles of incorporation, bylaws and the
            Texas Business Organizations Code[;]

         4. Otherwise interfering with the status quo[; and]

         5. Damaging, destroying, concealing, and/or disposing of records
            or other items which may be relevant to the present suit.

Plaintiffs also sought declaratory relief―specifically, a declaration regarding “the

rights, responsibilities and obligations of the parties” and a declaration regarding

“the current officers and directors of [HAHS], and its bylaws.”

      Defendants answered the 2012 lawsuit, filed a counterclaim seeking a

declaration that, among other things, Plaintiffs have no authority to prosecute their

claims in the 2012 lawsuit, and made requests for injunctive relief in the 2011

lawsuit on the ground that Plaintiffs’ actions as purported members of the HAHS

Board were inconsistent with the final judgment in that lawsuit. Pursuant to

Defendants’ request, the trial court, as part of the 2011 lawsuit, entered a

temporary restraining order and a temporary injunction. The temporary injunction

includes the following fact findings:

      • [O]n April 20, 2012, a special meeting of the HAHS Board of
        Directors was held, in accordance with the same notice procedures
        previously approved by the Court, and at which meeting, among
        other things, [the plaintiff directors in the 2011 lawsuit] were
        removed and replaced as officers and directors of HAHS and that
        subsequently [Gary] Evans attended a special meeting of members
        on April 21, 2012 and purported to elect another Board of
        Directors[;]

                                         6
      • [T]he April 21, 2012 election of directors was inconsistent with
        and contrary to the Court’s Final Judgment[;]

      • [S]ubsequent to the April 21, 2012 special meeting of members,
        Messrs. Evans and Coats, and persons acting at the direction or in
        concert with them, including Steve Holmes, Debbie Holmes, Jerry
        Smith, Dana Atkinson, Greg Evans, Penny Evans, and Clinton
        Holmes [Plaintiffs here], have undertaken certain actions
        inconsistent with the Final Judgment, since such actions were
        premised upon the April 21, 2012 election of another Board of
        Directors[; and]

      • [T]o the extent that it is brought in [Plaintiffs’] capacity as
        purported directors or on behalf of [HAHS], [the 2012 lawsuit] is
        inconsistent with the Court’s Final Judgment, and will harm
        [HAHS] by creating uncertainty with the public, HAHS donors,
        HAHS staff and HAHS volunteers over who governs HAHS.

Based on these findings and its power to enforce its judgment, the trial court

ordered that “Gary Evans . . . and . . . persons in active concert or participation

with [him] – including members of the supposed Board elected at the April 21,

2012 members meeting (including Steve Holmes, Debbie Holmes, Jerry Smith,

Dana Atkinson, Greg Evans, Penny Evans, Clinton Holmes, and Christopher

Gilbert) . . . are hereby enjoined from undertaking any actions based on the

purported election of directors at the April 21, 2012 special meeting of members.”

      As part of the pretrial proceedings in the 2012 lawsuit, Plaintiffs requested

that the trial court grant them a temporary restraining order and temporary

                                         7
injunction. The trial court denied the requested relief.4 After the denial of their

request for injunctive relief, Plaintiffs filed a motion to compel arbitration under

the arbitration clause contained in the original HAHS bylaws. Defendants resisted

arbitration on the grounds that the amended and restated bylaws do not include an

agreement to arbitrate and, by waiting to compel arbitration until after the trial

court denied their request for temporary injunctive relief, Plaintiffs had waived

their right to arbitration. The trial court denied Plaintiffs’ motion to compel

arbitration, and this appeal followed.

                                Waiver of Arbitration

       Plaintiffs assert that the trial court erred in refusing to compel arbitration of

claims that are subject to a valid arbitration agreement. Specifically, Plaintiffs

contend that (1) their injunctive and declaratory-relief claims are subject to the

arbitration clause contained in the original bylaws, (2) they complied with any

conditions precedent to arbitration, and (3) they did not waive their right to

arbitrate. We do not address whether Plaintiffs’ claims are subject to an agreement

to arbitrate because we conclude that Plaintiffs waived their right, if any, to

arbitrate.

4
       The record does not include a transcript of any hearing on Plaintiffs’ request for a
       temporary restraining order and temporary injunctive relief.

                                            8
      Waiver is a question of law that this Court reviews de novo. Perry Homes v.

Cull, 258 S.W.3d 580, 598 (Tex. 2008); In re Bruce Terminix Co., 988 S.W.2d
702, 703−04 (Tex. 1998) (per curiam). Although both state and federal law favor

arbitration, arbitration rights are contractual and, like any other contractual right,

may be waived. See In re Bruce Terminix, 988 S.W.2d at 704. There is, however, a

strong presumption against the waiver of those rights. See id.; see also In re Bank

One, N.A., 216 S.W.3d 825, 827 (Tex. 2007); In re D. Wilson Constr. Co., 196
S.W.3d 774, 783 (Tex. 2006).

      When parties have not expressly waived their arbitration rights, waiver may

be implied from a party’s unequivocal conduct. Perry Homes, 258 S.W.3d at 593

(citing Van Indep. Sch. Dist. v. McCarty, 165 S.W.3d 351, 353 (Tex. 2005); First

Valley Bank v. Martin, 144 S.W.3d 466, 471 (Tex. 2004); Jernigan v. Langley, 111
S.W.3d 153, 156 (Tex. 2003); and Equitable Life Assurance Soc’y v. Ellis, 152
S.W. 625, 628 (Tex. 1913)). Courts determine waiver under the case-specific facts

and, looking to the totality of the circumstances, inquire whether a party has

substantially invoked the judicial process to an opponent’s detriment. See Perry

Homes, 258 S.W.3d at 589–92. Substantial invocation of the judicial process “may

occur when the party seeking arbitration actively has tried, but failed, to achieve a

satisfactory result in litigation before turning to arbitration.” N.W. Constr. Co., Inc.

v. Oak Partners, L.P., 248 S.W.3d 837, 848 (Tex. App.—Fort Worth 2008, pet.

                                           9
denied). “Prejudice” is inherent unfairness caused by “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.

A.    Substantial invocation of the litigation process

      The Texas Supreme Court has deemed that the following acts, standing

alone, do not amount to a substantial invocation of the litigation process: filing

suit; requesting initial discovery; noticing, but not taking a deposition; and taking

four depositions. Id. at 590. However, the combined acts of conducting full

discovery, filing motions going to the merits, and seeking arbitration “only on the

eve of trial” do constitute substantial invocation of the judicial process. Id. (citing

In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 764 (Tex. 2006)). Because this case

does not fit squarely into any of those scenarios, we consider the following factors

in the context of the totality of the circumstances:

      1.     whether the movant for arbitration was the plaintiff (who chose
             to file in court) or the defendant (who merely responded);

      2.     when the movant learned of the arbitration clause and how long
             the movant delayed before seeking arbitration;

      3.     the amount of pretrial activity related to the merits rather than
             arbitrability or jurisdiction;

      4.     the amount of discovery conducted and by whom;

      5.     whether the discovery went to the merits rather than
             arbitrability or jurisdiction;

      6.     whether the movant sought judgment on the merits; and
                                          10
      7.     what discovery is available in arbitration.

See id. at 590−92; In re Hawthorne Townhomes, L.P., 282 S.W.3d 131, 141 (Tex.

App.—Dallas 2009, no pet.).

      The facts regarding the status of the proceedings and knowledge of the

arbitration clause are not disputed by the parties here. Turning to the first factor,

the movants for arbitration in the 2012 lawsuit are Plaintiffs. The 2012 lawsuit is

the second lawsuit filed by one of the Plaintiffs, Gary Evans, against Defendants in

the trial court arising from disputes over the governance and operation of HAHS,

and, the trial court, in the 2011 lawsuit, determined that the other Plaintiffs here

were acting in “active concert or participation with” Evans following the rendition

of the final summary judgment in that case.

      With regard to the second factor, the amount of delay, the record shows a

period of approximately five months between the time Plaintiffs filed the 2012

lawsuit and the time they sought to compel arbitration. Plaintiffs do not dispute

that they knew the dispute arguably was covered by an arbitration clause at the

time they filed the lawsuit―the plaintiff directors in the 2011 lawsuit had moved

for and were denied arbitration under the same clause, and Plaintiffs here have

described this lawsuit as a “continuation of” the 2011 lawsuit. 5 Far greater delays

5
      If the 2012 lawsuit is treated as a continuation of the 2011 lawsuit, the request for
      arbitration here occurred more than nine months after arbitration was sought in the
                                           11
have been insufficient to constitute waiver of arbitration rights in other cases, so

the delay here, alone, is not enough to find waiver. See, e.g., In re Vesta, 192
S.W.3d at 763 (litigating for two years in trial court insufficient to overcome strong

presumption against waiver). Because Plaintiffs elected to file the 2012 lawsuit,

we nevertheless conclude that the first two factors listed above weigh in favor of a

waiver finding.

      With regard to the conduct of discovery, the record is limited. The only

discovery contained in the record are the requests for disclosure propounded by

Plaintiffs as part of their original, first amended, and second amended petitions.

Those requests for disclosure pertained only to the basic discoverable information

listed in Texas Rule of Civil Procedure 194.2. See TEX. R. CIV. P. 194.2. The

record does not indicate whether Defendants responded to the requests or whether

other, more merits-based discovery was propounded by Plaintiffs. Neither does the

record indicate that Plaintiffs have obtained information through pretrial discovery

that would not otherwise be discoverable in arbitration. Thus, the fourth, fifth, and

seventh factors―all of which regard discovery―weigh against a finding of waiver.

We note, however, that the weight of these particular factors in this case is not

great. Given that the parties have been embroiled in litigation over the operation

and governance of HAHS for some time in another lawsuit, that this lawsuit is a

      2011 lawsuit and five months after the final summary judgment in the 2011
      lawsuit.
                                         12
continuation of the previous suit, and that the trial court already made some factual

determinations that are relevant to the merits of Plaintiffs’ claims here, it is not

surprising that the parties did not jump immediately into extensive discovery.

      Addressing next the third factor, the merits activity in the case, the record

shows that Plaintiffs delayed invoking their arbitration rights until after they

suffered defeat on their merits attack. The trial court has already determined factual

issues relevant to Plaintiffs’ claims as part of the temporary injunction proceedings

in the 2011 lawsuit. And, in the 2012 lawsuit, Plaintiffs requested that the trial

court make a judicial determination regarding their claim for injunctive relief.

They moved to compel arbitration only after being denied merits-based injunctive

relief. “An attempt to resolve the merits and still retain the right to arbitrate is

clearly impermissible.” Interconex, Inc. v. Ugarov, 224 S.W.3d 523, 534 (Tex.

App.—Houston [1st Dist.] 2007, no pet.) (citing In re Citigroup Global Mkts., Inc.,

202 S.W.3d 477, 482 (Tex. App.—Dallas 2006, orig. proceeding)).

      We reject Plaintiffs’ contention that requesting injunctive relief from the

trial court was not a specific or deliberate act that was inconsistent with the right to

arbitrate because injunctive relief is not permitted under the applicable rules of

arbitration. Plaintiffs did not establish what rules would govern any arbitration.

Moreover, the clause in the original bylaws under which Plaintiffs sought

arbitration does not include any limit on the arbitrator’s authority. This Court has

                                          13
determined that arbitrators do not exceed their authority in awarding injunctive

relief in the absence of any language in the arbitration clause specifically

prohibiting the arbiters from granting such relief. See J.J. Gregory Gourmet Servs.,

Inc. v. Antone’s Import Co., 927 S.W.2d 31, 36 (Tex. App.—Houston [1st Dist.]

1995, no writ). Factors three and six thus weigh in favor of a waiver finding.

      Weighing all these factors under the case-specific facts here, we conclude

that the totality of the circumstances demonstrates an attempt by Plaintiffs to “have

it both ways.” See In re Citigroup Global Mkts., 258 S.W.3d 623, 625 (Tex. 2008)

(orig. proceeding) (quoting Perry Homes, 258 S.W.3d at 597). Such circumstances

demonstrate that Plaintiffs had substantially invoked the litigation process before

seeking to compel arbitration.

B.    Prejudice from substantial invocation of the litigation process

      Merely invoking the litigation process to a significant extent is not

sufficient, however, in itself, to find waiver of an arbitration agreement. Because of

the “strong presumption” against waiver, waiver of arbitration by substantially

invoking the judicial process compels a “high” evidentiary “hurdle.” Perry Homes,
258 S.W.3d at 590; see also In re Bank One, N.A., 216 S.W.3d at 827 (recognizing

“strong” presumption against waiver) (citing and quoting EZ Pawn Corp. v.

Mancias, 934 S.W.2d 87, 90 (Tex. 1996)). The dispositive inquiry, therefore, is

whether Defendants established that Plaintiffs’ switching from litigation to

                                         14
arbitration produced the necessary degree of prejudice or detriment to warrant

waiver of arbitration. See Perry Homes, 258 S.W.3d at 595 (declining to vacate

requirement that party claiming waiver premised on substantial invocation of

judicial process demonstrates prejudice). Prejudice to a party may arise in any

number of ways that demonstrate harm to a party’s legal rights or financial

position. See, e.g., id. at 597 (defining prejudice for purposes of waiver of

arbitration as “the inherent unfairness in terms of delay, expense, or damage to a

party’s legal position”) (quoting Republic Ins. Co. v. PAICO Receivables, LLC,

383 F.3d 341, 346 (5th Cir. 2004)). Prejudice is more easily shown when a party

delays his request for arbitration and in the meantime engages in pretrial activity

inconsistent with the intent to arbitrate. Id. at 599.

      Defendants contend that “[i]f this Court were to require [Defendants] to

arbitrate the last iteration of [Plaintiffs’] claims―claims [Defendants] have already

successfully defended in the 2011 [l]awsuit―it would not only be authorizing the

type of ‘switching between litigation and arbitration’ that is inherently prejudicial,

but it would also be encouraging the very type of forum shopping that Texas courts

repeatedly deem to be a violation of public policy.” We agree. The substantial

litigation between these parties related to the merits of Plaintiffs’ claims weighs

heavily in favor of a finding of prejudice. The trial court that is presiding over

Plaintiffs’ claims in the 2012 lawsuit presided over the 2011 lawsuit. In the 2011

                                           15
lawsuit, the trial court made factual determinations regarding the validity of the

respective meetings at which the amended and restated bylaws were adopted and at

which Defendants and Plaintiffs were appointed directors. Requiring Defendants to

defend against Plaintiffs’ claims before a new factfinder after Defendants have

already successfully defended substantially similar litigation results in prejudice to

Defendants. Plaintiffs’ attempts to have an arbitrator reexamine matters already

decided by the trial court in the 2011 lawsuit suggests an effort to duplicate

litigation rather than avoid it. The record supports a conclusion that Defendants

would be prejudiced by Plaintiffs invocation of their arbitration rights, if any, at

this stage of the proceedings. We therefore conclude that Plaintiffs have waived

their right, if any, to seek arbitration of their claims in this lawsuit.

                                       Conclusion

       We affirm the trial court’s denial of Plaintiffs’ motion to compel arbitration.

                                                 Harvey Brown
                                                 Justice

Panel consists of Chief Justice Radack and Justices Higley and Brown.

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