Court Opinion

ID: 9370397
Source: CourtListenerOpinion
Date Created: 2023-02-13 11:08:16.540364+00
Date Added: 2024-06-11T17:16:21.403942
License: Public Domain

Opinion issued February 7, 2023

                                      In The

                              Court of Appeals
                                     For The

                          First District of Texas
                           ————————————
                              NO. 01-22-00685-CV
                            ———————————
      MAC HAIK CHEVROLET, LTD. AND HOUSTON MAC HAIK
                AUTOMOTIVE, LLC, Appellants
                                        V.
  STEVEN PAUL PARKER AND ABIGAIL NICOLE PARKER, Appellees

                    On Appeal from the 295th District Court
                             Harris County, Texas
                       Trial Court Case No. 2020-10165

                          MEMORANDUM OPINION

      Appellees, Steven Paul Parker and Abigail Nicole Parker (collectively, the

“Parkers”), purchased a used car and extended warranty from appellants, Mac Haik

Chevrolet, Ltd., and Houston Mac Haik Automotive, LLC (collectively, “Mac

Haik”). After the warranty did not cover repairs to the car as expected, the Parkers
sued Mac Haik for fraud and violations of the Texas Deceptive Trade Practices Act.1

Mac Haik subsequently filed a motion to compel arbitration. The trial court denied

the motion and concluded “that arbitration has been waived” due to the inability of

the parties “to get even the basics done toward arbitration.” Mac Haik now brings

this interlocutory appeal.2 In a single issue, Mac Haik challenges the trial court’s

order denying its motion to compel arbitration on the basis of waiver of the right to

arbitrate.

       We reverse and remand.

                                     Background

       On January 30, 2017, the Parkers purchased a 2013 Audi A6 sedan, with

71,790 miles on the odometer, from automobile dealer Mac Haik. The terms of the

sale were governed by a Motor Vehicle Retail Installment Sales Contract (the

“Contract”). The Contract included the sale of an extended warranty, known as a

MasterTech Vehicle Protection Program (the “Warranty”). The Parkers alleged in

their petition that Mac Haik represented to them that the Warranty would cover

repairs to the Audi “for 48 months and 100,000 miles.”

1
       See TEX. BUS. & COM. CODE §§ 17.46(b), 17.50.
2
       See TEX. CIV. PRAC. & REM. CODE § 51.016 (authorizing certain interlocutory
       appeals in matters subject to Federal Arbitration Act); see also 9 U.S.C. §§ 1–16.

                                           2
      In mid-2018, the Audi, which by then had an odometer reading of 109,000

miles, began having mechanical problems. The Parkers alleged that when they

presented the Audi to a shop for repairs, “MasterTech declined to cover the repair

costs, citing that the warranty had run at 107,000 miles instead of the expected

171,000 miles.” As a result, the Parkers were unable to complete the repairs and the

Audi sat idle, leaving the Parkers to rely on alternate transportation.

      On February 13, 2020, the Parkers brought the instant suit against Mac Haik,

asserting claims for fraud and violations of the DTPA. They asserted that during the

purchase negotiations they had requested a 48-month, 100,000-mile warranty and

that Mac Haik had initially declined, stating that the Audi was ineligible based on

its mileage. Later, however, Mac Haik sold them the Warranty, which Mac Haik

represented would cover repairs for “48 months and 100,000 miles,” for which the

Parkers paid $3,500.00.

      In fact, the Warranty provided coverage for only 36,000 miles after their

purchase.    The Parkers alleged that Mac Haik “misrepresented the [Audi’s]

eligibility for the warranty by changing the mileage on the Warranty” contract.

Namely, rather than listing the correct mileage of 71,790, Mac Haik represented on

the contract that the Audi had “Odometer Mileage” of only 7,179.

      Mac Haik generally denied their allegations and asserted various affirmative

defenses.

                                           3
      On March 4, 2020, Mac Haik sent the Parkers a demand for arbitration based

on the following arbitration provision in their Contract:

      1.     EITHER YOU OR WE MAY CHOOSE TO HAVE ANY
             DISPUTE BETWEEN US DECIDED BY ARBITRATION
             AND NOT IN COURT OR BY JURY TRIAL.
                                          ....
      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 in dispute), between you [the Parkers] and
      us [Mac Haik] 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. . . .
      . . . . 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 [are] 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 [FAA] . . . and not by any state law concerning
      arbitration. . . .

      In February 2021, the parties filed an agreed motion to abate the case and refer

it to arbitration. The trial court granted the motion. In doing so, the trial court found

that this “dispute is subject to arbitration pursuant to an enforceable arbitration

                                           4
clause” and ordered the case “suspended until the parties conclude[d] arbitration in

accordance with the Contract.”

      Thereafter, the parties chose an arbitrator; but disagreed about the meaning of

the Contract’s language regarding the parties’ respective payment of fees.

      In July 2021, Mac Haik sent the arbitrator a copy of the Contract and pointed

out the language that “provided for [Mac Haik] to pay a maximum of $5,000.00.”

The Parkers responded that:

      The Parties agree that the first $10,000.00 of fees and expenses of the
      arbitrator shall be borne by [Mac Haik]. Any fees and expenses that
      exceed $10,000.00 shall be borne equally by the Parties. [Mac Haik]
      agree[s] to timely deposit funds in advance of the arbitration, up to the
      maximum of $10,000.00, as invoiced by the arbitrator for estimated
      arbitrator fees and expenses . . . .

      The parties were unable to resolve their differences on the fee issue and, in

June 2022, the trial court set a status conference for July 25, 2022, noting:

      Parties have not done anything in the last 15 months to proceed through
      arbitration. They indicated there was a problem with how the arbitrator
      was to be paid. Reset the status conference to 07/25 at 2:00 p.m. and
      told them if they didn’t have a date for final hearing and a discovery
      order that I was holding that the arbitration has been waived and that I
      was bringing them back here and would try the case in 9 months.

      The status conference was later reset for August 8, 2022. Before that date,

counsel for Mac Haik notified the trial court and the Parkers that he would be out of

the country and asked for the status conference to be reset. The trial court did not

respond and the status conference went forward on August 8 without Mac Haik.

                                          5
       In the interim, Mac Haik moved to dismiss the Parkers’ claims, asserting that

they refused to pay their share of the arbitration fees under the Contract and were

the sole cause of the delay in arbitrating the case. In response, the Parkers stated

that “[a]lthough they believed the cost of arbitration to be excessive, Plaintiffs

agreed to arbitration,” but they “have been unable to raise the funds necessary to

initiate the arbitration and are [instead] ready and willing to go to trial in this Court

in May of 2023.”

       The trial court denied Mac Haik’s motion to dismiss and ordered sua sponte

that “through the inactivity of the parties that arbitration has been waived.” The next

week, Mac Haik filed a Motion to Compel Arbitration, asserting that there was no

dispute that the arbitration provision in the Contract was valid and that the Parkers’

claims fell within its scope. With respect to the trial court’s earlier sua sponte finding

of waiver of arbitration, Mac Haik pointed out that the Parkers never raised or

attempted to establish any defense to arbitration, including any waiver of the right

to arbitrate.

       The Parkers responded by generally stating that they were not the sole cause

of the delay in commencing arbitration and that any waiver of the right to arbitrate

could be supported by Mac Haik’s failure to appear at the August 8, 2022 status

conference.

       The trial court denied the motion to compel arbitration and stated:

                                            6
      [T]his case will proceed to trial as planned beginning the two-week
      period of May l, 2023. The Court has previously found that as a result
      of the parties[’] conduct over the last 19 months and their inability to
      get even the basics done toward arbitration, and the Court’s ability to
      manage the Court’s docket, that arbitration has been waived.

                      Motion to Compel Arbitration
      In its sole issue, Mac Haik maintains that the trial court abused its discretion

in denying its motion to compel arbitration on the basis that “arbitration has been

waived.”

Standard of Review and Principles of Law

      “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).

A trial court abuses its discretion if it acts arbitrarily or unreasonably. Worford v.

Stamper, 801 S.W.2d 108, 109 (Tex. 1990). We defer to the trial court’s factual

determinations if they are supported by evidence but review its legal determinations

de novo. Henry, 551 S.W.3d at 115. Whether a party has waived its right to arbitrate

is a question of law, which we review de novo. Id.

      Here, the Contract expressly states that its arbitration provision is governed

by the Federal Arbitration Act (“FAA”), and neither party argues otherwise.3 See id.

“Under the FAA, a presumption exists favoring agreements to arbitrate.” Id. A party

3
      Because the principles applicable to this appeal are the same under both the FAA
      and the Texas General Arbitration Act, we rely interchangeably on the caselaw. See
      Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56, n.10 (Tex. 2008).
                                          7
seeking to compel arbitration must establish (1) that a valid arbitration agreement

exists and (2) that the claims at issue fall within its scope. Id. If the proponent meets

its burden, the burden shifts to the party opposing arbitration to prove a defense to

enforcement. Id.

      An opponent asserting waiver as a defense to arbitration must establish in the

trial court both of the following prongs: (1) that the proponent of arbitration has

“substantially invoked the judicial process,” which is conduct inconsistent with a

claimed right to compel arbitration, and (2) that the inconsistent conduct has caused

the opponent to suffer prejudice. G.T. Leach Builders, LLC v. Sapphire V.P., LP,

458 S.W.3d 502, 511–12 (Tex. 2015). “Due to the strong presumption against

waiver of arbitration, [the] hurdle [to establish waiver] is a high one.” Perry Homes

v. Cull, 258 S.W.3d 580, 590 (Tex. 2008).

      A waiver of arbitration can be implied from a party’s conduct, but “that

conduct must be unequivocal. And in close cases, the ‘strong presumption against

waiver’ should govern.” Id. at 593. Whether a proponent substantially invoked the

judicial process must therefore be based on the totality of the circumstances in the

case and involves numerous factors, such as: (1) whether the proponent is the

plaintiff or defendant; (2) the duration of any delay in moving to compel arbitration

and the reasons for such delay; (3) the extent of the proponent’s engagement in

pretrial matters and discovery on the merits; (4) whether the proponent sought relief

                                           8
on the merits in the trial court; (5) the time and expense the parties have expended

in litigation; and (6) whether any discovery conducted would be unavailable or

useful in arbitration. RSL Funding, LLC v. Pippins, 499 S.W.3d 423, 430 (Tex.

2016).

      For example, “a party who enjoys substantial benefits by gaining an advantage

in the pretrial litigation process should be barred from turning around and seeking

arbitration with the spoils.” Perry Homes, 258 S.W.3d at 593.               Moreover,

“[s]ubstantially invoking the judicial process can occur when the proponent of

arbitration actively tried, but failed, to achieve a satisfactory result in litigation

before turning to arbitration.” Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110

S.W.3d 131, 135 (Tex. App.—Houston [1st Dist.] 2003, no pet.).

      Under the second prong, the opponent may establish prejudice by showing

that it incurred costs as a result of the proponent’s actions or that the proponent

acquired information in the trial court not discoverable in arbitration. Id. at 135; see

also Perry Homes, 258 S.W.3d at 594–95, 597.

      If the trial court concludes that a valid arbitration agreement encompasses the

claims at issue and that the opponent has failed to establish every element of a

defense to arbitration, here waiver, 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).

                                           9
Discussion

      Here, the parties do not dispute the validity of the arbitration agreement or

that the Parkers’ claims fall within its scope. Indeed, at the outset of the case, the

Parkers and Mac Haik filed an agreed motion asking the trial court to refer the case

to arbitration. The trial court did so and expressly found that this “dispute is subject

to arbitration pursuant to an enforceable arbitration clause.”

      In order to establish waiver of the right to arbitrate, the Parkers had the heavy

burden to prove both of these prongs: (1) that Mac Haik substantially invoked the

judicial process in a manner inconsistent with its claimed right to compel arbitration

and (2) that they, the Parkers, suffered actual prejudice as a result of that inconsistent

conduct. See Henry, 551 S.W.3d at 116.

      With respect to the first prong, the Parkers generally stated in their response

to Mac Haik’s motion to compel arbitration that waiver could be supported by Mac

Haik not appearing at the August 8, 2022 status conference—“If anyone waived their

right to arbitrate, it is Mac Haik, as its attorney did not appear at the August 8, 2022

status conference to state Defendant’s case for arbitration.” The Parkers did not

direct the trial court to any legal authority supporting that assertion, and they did not

argue it in this Court.4 Moreover, we are unaware of any legal authority in Texas

4
      The Parkers included this general assertion in their Conclusion and Prayer to their
      appellees’ brief, but, again, did not provide this Court with any supporting argument
      or legal authority. See TEX. R. APP. P. 38.1(i), 38.2.
                                           10
providing that the right to arbitrate is waived when the proponent does not attend a

status conference.

      To the extent that the Parkers are also contending under the first prong that

Mac Haik should have moved to compel arbitration sooner than August 2022 (even

though the case was already referred to arbitration), it is settled that “mere delay in

moving to compel arbitration is not enough for waiver.” Richmont Holdings, Inc. v.

Superior Recharge Sys., L.L.C., 455 S.W.3d 573, 576 (Tex. 2014); G.T. Leach

Builders, 458 S.W.3d at 515 (“Waiver can be implied from a party’s unequivocal

conduct, but not by inaction.”).

      This contention is also refuted by In re Vesta Insurance, 192 S.W.3d 759 (Tex.

2006) (orig. proceeding). In Vesta Insurance, the plaintiff similarly argued that the

defendant waived arbitration by participating in litigation for two years before

moving to compel arbitration. Id. at 763. There, the record showed that, during that

time, the defendant sought initial discovery, took four depositions, and moved to

dismiss the case for lack of standing. Id. at 763–64. The supreme court held that

such delay, without more, did not demonstrate that the defendant “substantially

invoked the judicial process enough to overcome the strong presumption against

waiver.” Id. at 764. Indeed, the supreme court has “declined to conclude that the

right to arbitrate was waived in all but the most unequivocal of circumstances.”

Henry, 551 S.W.3d at 116.

                                          11
      Here, similarly, the passage of time before Mac Haik moved to compel

arbitration, without more, does not show that it substantially invoked the judicial

process. See id. In that regard, the record also shows that the Parkers filed this

lawsuit in February 2020 and that Mac Haik sent the Parkers a written demand for

arbitration about one month later. The parties then subsequently filed an agreed

motion to abate the case and refer the case to arbitration, which the trial court

granted.

      The record before us is silent as to the extent of Mac Haik’s engagement in

pretrial matters, whether it engaged in significant motion practice, whether any

discovery has been conducted and, if so, whether it related to the merits or would be

useful in arbitration, and the time and expense the parties have expended in litigation.

See RSL Funding, 499 S.W.3d at 430. The record also does not reflect that Mac

Haik sought relief on the merits in the trial court. See id.

      Therefore, based on the totality of the circumstances in this case, this

contention by the Parkers is also without merit. It cannot overcome the “strong

presumption against waiver of arbitration” under Texas law. See Perry Homes, 258

S.W.3d at 590. Stated differently, the Parkers failed to establish unequivocal

conduct by Mac Haik, under the first prong, of any substantial invocation of the

judicial process or that it enjoyed substantial benefits in the pretrial litigation

                                           12
process—between the time that the case was referred to arbitration and when Mac

Haik subsequently filed its motion to compel arbitration. See id. at 591–93, 597.

      The Parkers also argue for the first time on appeal that “Mac Haik implicitly

waived the arbitration agreement by filing its Motion to Dismiss for Plaintiffs’

Failure to Arbitrate in Accordance with the Contract between the Parties.” As

support for that proposition, the Parkers rely on Perry Homes. Id. at 589–90. That

reliance is also misplaced.

      In Perry Homes, the plaintiff homeowners vigorously opposed arbitration in

their pleadings and in open court. But after conducting extensive discovery about

every aspect of the merits, the plaintiffs changed course and moved to compel

arbitration—just four days before the trial setting. Id. at 584. The supreme court

held that the homeowners substantially invoked the litigation process to the

defendants’ prejudice and thus waived arbitration. Id. at 596–97.

      Here, the Parkers made no showing that Mac Haik’s filing of a motion to

dismiss constituted unequivocal conduct from which waiver of arbitration can be

implied. In that regard, the Texas Supreme Court has held that filing a motion to

dismiss on grounds other than on the merits of the case does not constitute

substantially invoking the judicial process in a manner inconsistent with a claimed

right to compel arbitration. See Vesta Ins., 192 S.W.3d at 764. That is especially

true here where the trial court had already referred the case to arbitration.

                                          13
      Again, the record here shows that the parties agreed to arbitration at the

beginning of the case and then, at the parties’ request, the trial court referred the case

to arbitration. The parties then became embroiled in a disagreement over the

payment of arbitration fees as specified in the parties’ arbitration agreement for

nearly 19 months—a threshold arbitration matter. See Faust Distrib. Co. Inc., LLC

v. Verano, No. 01-21-00460-CV, 2022 WL 3588423, at *9 (Tex. App.—Houston

[1st Dist.] Aug. 23, 2022, no pet.) (mem. op.) (holding that, although sixteen months

passed between filing of answer and moving to compel arbitration, defendant did not

substantially invoke judicial process in manner inconsistent with claimed right to

arbitration because “most of the delay was caused by the parties’ disagreement” over

threshold arbitration matter). With respect to the fee dispute, we note that the

Parkers asserted in their response to the motion to dismiss that they were “unable to

raise the funds necessary to initiate the arbitration, but are ready and willing to go to

trial in this Court in May of 2023.”5

      Accordingly, based on the record and arguments presented to us, and the

totality of circumstances in this case, we conclude that the Parkers did not meet their

5
      The record does not reflect that the Parkers presented any evidence to the trial court
      or arbitrator about the fees provision in the arbitration agreement being
      cost-prohibitive. See In re Poly-Am., L.P., 262 S.W.3d 337, 356 (Tex. 2008) (“[T]he
      burden of demonstrating that incurring such costs is likely under a given set of
      circumstances rests, at least initially, with the party opposing arbitration.” (internal
      quotations omitted)).

                                             14
initial burden under the first prong of the test to establish that Mac Haik substantially

invoked the judicial process.6 See Henry, 551 S.W.3d at 118; Vesta Ins., 192 S.W.3d

at 764. We hold that the trial court therefore abused its discretion in denying Mac

Haik’s motion to compel arbitration on the basis that Mac Haik waived its right to

arbitration. See In re FirstMerit Bank, 52 S.W.3d at 753–54.

      We sustain Mac Haik’s sole issue.

6
      Recently, the United States Supreme Court addressed whether federal courts may
      condition waiver of the right to arbitrate on a showing of prejudice. Morgan v.
      Sundance, Inc., 142 S. Ct. 1708, 1712–13 (2022). The Court held that courts may
      not do so, reasoning that outside the arbitration context, a waiver inquiry “does not
      generally ask about prejudice,” and courts should not create “special, arbitration-
      preferring procedural rules.” Id. at 1713. Here, we hold that the Parkers did not
      meet their burden to establish that Mac Haik substantially invoked the judicial
      process. We therefore need not address whether Morgan abrogates the requirement
      in Texas jurisprudence that a party seeking to establish waiver of the right to
      arbitrate must establish both (1) substantial invocation of the judicial process, and
      (2) prejudice as a result of the opposing party’s inconsistent conduct. See Turnbull
      Legal Group, LLC v. Microsoft Corp., No. 01-20-00851-CV, 2022 WL 14980287,
      at *15, n.10 (Tex. App.—Houston [1st Dist.] 2022, no pet. h.) (mem. op.); see also
      Henry v. Cash Biz, LP, 551 S.W.3d 111, 118 (Tex. 2018) (concluding that opponent
      did not establish that proponent substantially invoked judicial process under first
      prong and thus declining to reach prejudice under second prong).

                                           15
                                   Conclusion

      We reverse the trial court’s order denying the motion to compel arbitration

and remand the case to the trial court for further proceedings consistent with this

opinion, including the entry of an order granting the motion to compel arbitration

and an appropriate stay.

                                             Terry Adams
                                             Chief Justice

Panel consists of Chief Justice Adams and Justices Countiss and Rivas-Molloy.

                                        16