Court Opinion

ID: 5116252
Source: CourtListenerOpinion
Date Created: 2021-10-06 06:16:12.159751+00
Date Added: 2024-06-11T08:21:55.501467
License: Public Domain

Affirmed and Opinion Filed September 30, 2021

                                    S  In The
                             Court of Appeals
                      Fifth District of Texas at Dallas
                               No. 05-21-00003-CV

 FEE, SMITH, SHARP & VITULLO, LLP, JOHN L. MALESOVAS D/B/A
   MALESOVAS LAW FIRM, AND ANTHONY VITULLO, Appellants
                             V.
 DEANA STRUNK AND CECIL WEBER (“SCOTT”) CASTERLINE III,
                          Appellees

                 On Appeal from the 162nd Judicial District Court
                              Dallas County, Texas
                      Trial Court Cause No. DC-20-05323

                          MEMORANDUM OPINION
                 Before Justices Myers, Partida-Kipness, and Carlyle
                         Opinion by Justice Partida-Kipness
      In this interlocutory appeal, appellants contend the trial court abused its

discretion in denying their motion to compel arbitration. Appellees contend,

however, the trial court did not abuse its discretion because the parties executed a

subsequent agreement to litigate the claims at issue in court, and appellants breached

the arbitration agreement and waived their right to arbitration. We affirm the trial

court’s order.
                                 BACKGROUND

      Appellant attorneys and law firms (collectively, the FSSV parties) provided

legal services to appellee Deana Strunk in matters surrounding the settlement of her

deceased husband’s estate. Strunk and the FSSV parties executed a contingent-fee

contract in May 2018 to evaluate possible claims against Strunk’s family members

for alleged improper distribution of community assets and contesting her husband’s

will. The contract contained an arbitration provision stating:

      It is Attorney’s goal to maintain at all times a constructive and positive
      relationship with Client on the matter described above and on future
      matters in which Attorney may perform services for Client. However,
      should a dispute and/or claim arise between Attorney and Client, a
      prompt and fair resolution is in the interests of all concerned. To this
      end, if any controversy or claim arises out of or is related to this
      agreement, any services provided by Attorneys to Client in connection
      with Client’s Claims, or any other matter that may arise between Client
      and Attorney (including malpractice claims and fee disputes),
      Attorneys and Client both waive any right to bring a court action or
      have a jury trial and agree that the dispute shall be submitted to binding
      arbitration to be conducted in the state of Texas before the American
      Arbitration Association (“AAA”) in accordance with the Commercial
      Arbitration Rules of the AAA with one arbitrator who must be an
      attorney licensed to practice law in the State of Texas. Arbitration
      means that no lawsuit can be filed by any party, the arbitration will be
      conducted privately, discovery may be limited, and any arbitration
      decision is not appealable.

The FSSV parties represented Strunk in various capacities concerning the

distribution of the estate and Strunk’s claims against the estate and family members.

After Strunk reached a settlement with the estate and family members, the FSSV

parties attempted to collect contingent fees under the contract. Strunk refused to pay,

and the FSSV parties initiated an arbitration proceeding on March 26, 2020. The
                                         –2–
FSSV parties and Strunk then attempted to mediate the fee dispute on April 6, 2020.

During mediation, Strunk asserted that the arbitration provision was unenforceable,

and the parties failed to reach a settlement. That same day, the FSSV parties filed

this lawsuit against appellees (collectively, the Strunk parties). The FSSV parties

alleged that Strunk breached the contract by refusing to pay the FSSV parties’ fees

and that appellee Cecil Weber Casterline, III, one of Strunk’s sons, tortiously

interfered with the contract by encouraging Strunk not to pay the FSSV parties’ fees.

       On April 8, 2020, two days after the FSSV parties filed their original petition,

appellant John L. Malesovas e-mailed a copy of the petition and a letter to Strunk’s

and Casterline’s attorneys. In the letter, Malesovas asked whether Strunk and

Casterline wished to address the FSSV parties’ claims in court or arbitration. In

pertinent part, the letter stated:

       [I]f Deana Strunk feels that arbitration of our demand for payment of
       our fee due under our contingent fee contract is not in her best interest
       based on the advice of her current attorneys, Richard Leshin and John
       McShane, we are willing to litigate this matter in court rather than
       before AAA. Towards that end, we have filed the attached lawsuit in
       District Court.

       Please discuss with your clients and let us know which forum they wish
       to use to address this matter. If they choose to litigate in District Court,
       then please advise if you will agree to accept service of the enclosed
       petition on behalf of all Defendants effective as of this date and
       assuming you agree, we will dismiss the AAA arbitration without
       prejudice. If your clients prefer to litigate this matter on behalf of all
       Defendants before AAA, then please confirm your agreement to
       arbitrate with AAA on behalf of all Defendants and provide proposed
       dates and times next week to have our initial conference with Andrew
       Barton per his letter request last week and we will then nonsuit the
       lawsuit without prejudice.
                                           –3–
      Please let us know your position on this by close of business tomorrow,
      April 9, 2020.

Leshin informed Malesovas on April 9, 2020, that Strunk and Casterline “wish to

address your demand for legal fees in the State of Texas District Court.” Malesovas

replied and asked Leshin to confirm he was accepting service for the Strunk parties.

Leshin replied that he was not authorized to accept service because he was not the

“trial lawyer on this matter.” Malesovas sent a second reply, indicating that the

FSSV parties were “willing to dismiss the AAA arbitration upon confirmation that

someone is accepting service of the lawsuit.” He then asked Leshin, “Please let me

know who the trial lawyer is[,] and I will see if they are willing to accept service.”

There was no further communication between Malesovas and Leshin. The record

reflects that, despite Malesovas’s April 8, 2020 request for an attorney to accept

service for the Strunk parties, the FSSV parties had already ordered citation for

service to Strunk and Casterline personally on April 7, 2020. Each was personally

served on April 13, 2020.

      The Strunk parties filed an answer and motion to transfer venue on May 4,

2020. Their new trial counsel also sent an e-mail to the FSSV parties on May 4,

2020, stating his “understanding that after filing a notice of arbitration with the

AAA, the parties agreed to pursue their respective claims in Court” and notifying

the FSSV parties of the Strunk parties’ motion and answer. Appellant Anthony

Vitullo responded that “in light of [the Strunk parties’] filing today, [the FSSV

parties] will be seeking to pursue claims in arbitration.”
                                         –4–
      Strunk also filed suit against the FSSV parties in Aransas County, Texas, on

May 4, 2020, alleging breach of fiduciary duty, negligent misrepresentation, fraud,

DTPA violations, unfair debt collection practices, and breach of contract. Ten days

later, on May 14, 2020, she filed a second amended petition in Aransas County,

seeking a declaratory judgment, a temporary restraining order, and a temporary

injunction to prevent the FSSV parties from proceeding with their claims in

arbitration. That same day, the Aransas County court issued an ex parte order

granting the temporary restraining order and setting a hearing on the application for

a temporary injunction.

      The next day, on May 15, 2020, the FSSV parties filed their first amended

petition, dropping their claim against Casterline and adding a declaratory judgment

action seeking a declaration that the arbitration provision is enforceable and

compelling Strunk to arbitrate the FSSV parties’ claim against her. The FSSV parties

also filed a motion to compel arbitration. Strunk responded to the FSSV parties’

motion. The trial court heard the FSSV parties’ motion to compel arbitration and the

Strunk parties’ motion to transfer venue. The trial court denied both motions, and

this appeal followed.

                           STANDARD OF REVIEW

      We review a denial of a motion to compel arbitration for an abuse of

discretion, reviewing questions of law de novo and factual determinations under a

no-evidence standard of review. Sidley Austin Brown & Wood, L.L.P. v. J.A. Green

                                        –5–
Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.—Dallas 2010, no pet.). Because the

trial court did not enter findings of fact or conclusions of law to explain its denial of

the motion to compel, we must uphold the trial court’s decision on any appropriate

legal theory urged below. Bonded Builders Home Warranty Assn. of Tex. v. Rockoff,

509 S.W.3d 523, 531–32 (Tex. App.—El Paso 2016, no pet.). Accordingly, we

review the trial court’s decision in light of the grounds presented below by the party

resisting arbitration. Cardwell v. Whataburger Rests., L.L.C., 484 S.W.3d 426, 428

(Tex. 2016); Ridge Nat. Res. LLC v. Double Eagle Royalty, L.P., 564 S.W.3d 105,

118 (Tex. App.—El Paso 2018, no pet).

                                     ANALYSIS

      In their sole issue on appeal, the FSSV parties contend the trial court abused

its discretion in denying their motion to compel arbitration. The FSSV parties

specifically contend they established that a valid arbitration agreement existed; the

agreement encompassed their claim against Strunk; they did not expressly or

impliedly waive arbitration by substantially invoking the judicial process; and

Strunk was not prejudiced by their invoking the judicial process.

      The party attempting to compel arbitration must establish (1) an arbitration

agreement exists and (2) the dispute falls within the scope of the agreement. In re D.

Wilson Const. Co., 196 S.W.3d 774, 781 (Tex. 2006) (orig. proceeding). In this case,

the parties do not dispute that an arbitration agreement exists, and the dispute falls

within the scope of the agreement. Thus, the burden was on the Strunk parties to

                                          –6–
establish an affirmative defense to arbitration. In re FirstMerit Bank, N.A., 52

S.W.3d 749, 754 (Tex. 2001) (orig. proceeding). The Strunk parties asserted three

defenses in response to the FSSV parties’ motion: novation, the FSSV parties’

breach and revocation of the arbitration provision, and the FSSV parties’ waiver by

substantially invoking the judicial process. We address each defense in order.

I.    Novation

      In their response to the FSSV parties’ motion to compel arbitration, the Strunk

parties asserted that the parties executed a novation in which they agreed to resolve

their dispute in court. The FSSV parties agree they made an offer to allow the Strunk

parties to choose the forum, but they contend there was no novation because the

Strunk parties did not accept all conditions of the offer.

      Parties to an arbitration agreement can agree to modify or supersede their

arbitration agreement. Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 808 (Tex.

App.—Dallas 2008, pet. denied); Adcock v. Five Star Rentals/Sales, Inc., No. 04-

17-00531-CV, 2018 WL 1831646, at *2 (Tex. App.—San Antonio Apr. 18, 2018,

no pet.) (mem. op.). A novation, or the substitution of a new agreement, occurs when

a contract evinces “an intention to relinquish and extinguish pre-existing claims and

rights of action; in lieu of the old obligation, a party accepts the promise of

performance of the new obligation instead of the performance itself.” Fulcrum Cent.

v. AutoTester, Inc., 102 S.W.3d 274, 277 (Tex. App.—Dallas 2003, no pet.). “The

                                         –7–
novation contract discharges the original obligation and only the new obligation may

be enforced.” Id.

      A novation requires (1) a previous, valid obligation; (2) a mutual agreement

of the parties to the acceptance of a new contract; (3) the extinguishment of the old

contract; and (4) the validity of the new contract. Vickery v. Vickery, 999 S.W.2d

342, 356 (Tex. 1999); In re B.N.L.-B., 523 S.W.3d 254, 264 (Tex. App.—Dallas

2017, no pet.). “The substitution of a new agreement occurs when a later agreement

is so inconsistent with a former agreement that the two cannot subsist together.”

Fulcrum Cent., 102 S.W.3d at 277 (quoting Scalise v. McCallum, 700 S.W.2d 682,

684 (Tex. App.—Dallas 1985, writ ref’d n.r.e.)). A novation is never presumed, thus

the parties’ intent to novate must be clear. In re B.N.L.-B., 523 S.W.3d at 264;

Fulcrum Cent., 102 S.W.3d at 277–78. Whether a new contract operates as a

novation of an earlier contract is usually a question of fact and becomes a question

of law only “when the state of the evidence is such that reasonable minds cannot

differ as to its effect.” In re B.N.L.-B., 523 S.W.3d at 264 (quoting Fulcrum, 102

S.W.3d at 278).

      The Strunk parties contend the parties entered into a novation to resolve the

fee dispute in court after mediation failed. The FSSV parties admit that they offered

to litigate the matter in court but contend that the Strunk parties did not accept all

material conditions of the offer. According to the FSSV parties, the offer was

conditioned upon the Strunk parties’ attorney accepting service and agreeing to

                                         –8–
litigate in Dallas County, and neither condition was accepted by the deadline stated

in Malesovas’s e-mail. Thus, the FSSV parties contend the parties did not reach a

meeting of the minds necessary to form a novation. The Strunk parties disagree and

assert that acceptance of service was merely a subsequent logistical detail and there

was no condition that litigation be limited to Dallas County. We agree with the

Strunk parties.

      “When a contract’s meaning is disputed, our primary objective is to ascertain

and give effect to the parties’ intent as expressed in the instrument.” URI, Inc. v.

Kleberg Cnty., 543 S.W.3d 755, 763–64 (Tex. 2018) (citing Valence Operating Co.

v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005)). “Objective manifestations of intent

control, not ‘what one side or the other alleges they intended to say but did not.’” Id.

(quoting Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d

118, 127 (Tex. 2010)). “We therefore ‘presume parties intend what the words of their

contract say’ and interpret contract language according to its ‘plain, ordinary, and

generally accepted meaning’ unless the instrument directs otherwise.” Id. at 764

(quoting Gilbert Tex. Constr., 327 S.W.3d at 126, and Heritage Res., Inc. v.

NationsBank, 939 S.W.2d 118, 121 (Tex. 1996)). We construe the parties’ words “in

the context in which they are used,” which encompasses “the circumstances present

when the contract was entered.” Id. (quoting Columbia Gas Transmission Corp. v.

New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996)).

                                          –9–
          The parties’ disagreement revolves around the third paragraph of Malesovas’s

letter:

          Please discuss with your clients and let us know which forum they wish
          to use to address this matter. If they choose to litigate in District Court,
          then please advise if you will agree to accept service of the enclosed
          petition on behalf of all Defendants effective as of this date and
          assuming you agree, we will dismiss the AAA arbitration without
          prejudice. If your clients prefer to litigate the matter on behalf of all
          Defendants before AAA, then please confirm your agreement to
          arbitrate with AAA on behalf of all Defendants and provide proposed
          dates and times next week to have our initial conference with Andrew
          Barton per his letter request last week and we will then nonsuit the
          lawsuit without prejudice.

By its plain language, the first sentence of this paragraph constitutes an offer to allow

the Strunk parties to choose the forum for resolving the fee dispute. See URI, Inc.,

543 S.W.3d at 764. The remainder of the paragraph and the parties’ communications

further demonstrate that this is the only material term of the offer.

          The FSSV parties contend the second sentence conditioned the offer on

acceptance of service by the Strunk parties’ attorney. Employing the conjunctive

“if,” however, the second and third sentences merely provide alternative subsequent

actions to be taken based on the Strunk parties’ forum choice. See If, Merriam-

Webster, https://www.merriam-webster.com/dictionary/if (last visited on September

21, 2021) (defining “if” as “in the event that,” “allowing that,” “on the assumption

that,” or “on condition that”). And the “acceptance of service” clause is further

predicated on the Strunk parties’ “cho[ice] to litigate in District Court” via the adverb

“then.”          See        Then,        Merriam-Webster,           https://www.merriam-

                                             –10–
webster.com/dictionary/then (last visited on September 21, 2021) (defining “then”

as “soon after that” or “next in order of time”). The letter contains no indication that

the Strunk parties’ forum choice is dependent on the acceptance of service or that

failure to accept service will invalidate the Strunk parties’ forum choice.

      The record contains additional evidence that the offer was not conditioned on

acceptance of service. See URI, Inc., 543 S.W.3d at 763–64 (we consider “the

circumstances present when the contract was entered”). Specifically, Malesovas

reiterated in his e-mail exchange with Leshin that the FSSV parties were willing to

dismiss the arbitration “upon confirmation that someone is accepting service” and

asked who the Strunk parties’ trial lawyer was so he could “see if they are willing to

accept service.” Malesovas raised no concern that the Strunk parties’ acceptance was

inadequate or that the parties had not reached an agreement to litigate in court.

Indeed, the FSSV parties ordered citations for personal service on the Strunk parties

on April 7, 2020, the day before Malesovas’s letter. The Strunk parties were

personally served on April 13, 2020, four days after Malesovas’s and Leshin’s e-

mail exchange.

      The record does not reflect any communication between the parties from April

9, 2020, until Vitullo’s May 4, 2020 e-mail indicating the FSSV parties would pursue

arbitration in response to the Strunk parties’ answer and motion to transfer venue.

There is no record that, during this time, the FSSV parties responded to the

arbitrator’s request for an initial conference or otherwise continued to pursue

                                         –11–
arbitration. This raises an inference that, during this time, the FSSV parties had

treated Leshin’s response as acceptance of the offer to litigate in court, even though

the Strunk parties did not provide an attorney to accept service.

      The FSSV parties also contend that the offer was only to “litigate in Dallas

County District Court,” and, as evidenced by the Strunk parties’ motion to transfer

venue, the Strunk parties did not agree to this condition. According to the FSSV

parties, the inclusion of their petition in Malesovas’s e-mail “clearly and

unambiguously conveyed an offer to dismiss the AAA arbitration without prejudice

if Strunk’s counsel agreed to accept service of the petition filed in the district court

of Dallas County.” The offer letter, however, contains no reference to “Dallas

County District Court.” Nor does it stipulate that the Strunk parties waive their right

to seek transfer. Rather, it merely conditioned the parties’ subsequent actions on the

Strunk parties “cho[ice] to litigate in District Court.” Leshin’s response that the

Strunk parties “wish to address your demand for legal fees in the State of Texas

District Court” mirrored this language. See French v. Henson, No. 05-06-01036-CV,

2008 WL 2266119, at *2 (Tex. App.—Dallas June 4, 2008, no pet.) (mem. op.)

(“The acceptance must be identical with the offer.”) (citing Gilbert v. Pettiette, 838

S.W.2d 890, 893 (Tex. App.—Houston [1st Dist.] 1992, no writ)).

      On the record before us, we conclude the parties’ intent to novate is clear, see

In re B.N.L.-B., 523 S.W.3d at 264, and the parties entered into a novation to resolve

their fee dispute in court.

                                         –12–
II.    Breach

       The Strunk parties also asserted below that the FSSV parties materially

breached the arbitration provision by disclosing private information in their court

filings in violation of the arbitration provision’s privacy requirement. The FSSV

parties contend, however, they did not breach the arbitration provision because

merely filing a petition does not waive arbitration and they only filed the petition

after Strunk refused to participate in arbitration. As to the alleged disclosure, the

FSSV parties contend they only disclosed the information in response to Strunk’s

motion to transfer venue. Thus, according to the FSSV parties, Strunk

“manufactured” the material breach. We need not address the Strunk parties’

argument, however, because the alleged disclosure of private information occurred

after the parties executed a novation and Strunk answered the FSSV parties’ lawsuit.

Accordingly, any subsequent breach of the arbitration provision would be irrelevant.

See Fulcrum Cent., 102 S.W.3d at 277 (“The novation contract discharges the

original obligation and only the new obligation may be enforced.”).

III.   Waiver

       Finally, the Strunk parties asserted below that the FSSV parties had waived

arbitration by substantially invoking the judicial process to Strunk’s detriment.

There is a strong presumption against waiver of arbitration. Perry Homes v. Cull,

258 S.W.3d 580, 589–90 (Tex. 2008). However, a party may waive arbitration “by

substantially invoking the judicial process to the other party’s detriment or

                                       –13–
prejudice.” Id.; Seven Hills Commercial, LLC v. Mirabal Custom Homes, Inc., 442

S.W.3d 706, 721 (Tex. App.—Dallas 2014, pet. denied). Waiver on this basis is

rarely found and depends exclusively on the facts of the case. See Perry Homes, 258

S.W.3d at 589–92. Because the party must “substantially” invoke the judicial

process, merely filing suit, requesting limited discovery, or filing procedural or

jurisdictional motions is not sufficient to find waiver. See id.

      The Strunk parties contend that the FSSV parties “substantially invoked the

judicial process both through their public disclosures of Ms. Strunk’s confidential

information, and also through their gamesmanship in repeatedly switching between

judicial and arbitral proceedings.” According to the Strunk parties, the FSSV parties

gained “publicity advantage” through their court filings they could not have obtained

in private arbitration. This alleged advantage does not fall into the factors we

consider when determining whether a party has substantially invoked the judicial

process. See Perry Homes, 258 S.W.3d at 590–91 (factors concern degree to which

the party used the judicial process to address its claims, to delay resolution of its

claims, or to gain a tactical advantage through discovery); Seven Hills, 442 S.W.3d

at 721 (same).

      Regarding the FSSV parties’ alleged “gamesmanship,” a party may not have

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

See Perry Homes, 258 S.W.3d at 597. However, switching forum positions is not

sufficient alone to demonstrate that the opposing party has been prejudiced by a

                                         –14–
party’s invoking of judicial process. See id. Rather, the party must “purposefully and

unjustifiably . . . manipulate the exercise of its arbitral rights simply to gain an unfair

tactical advantage over the opposing party.” See id. (concluding that party

impermissibly manipulated litigation by switching positions to obtain discovery

under one set of rules then seeking arbitration under another set, and delaying

disposition by switching to arbitration when trial was imminent and arbitration was

not); see also Seven Hills, 442 S.W.3d at 721 (“The judicial process is substantially

invoked when the party seeking arbitration has taken specific and deliberate actions,

after the filing of the suit, that are inconsistent with the right to arbitrate or has

actively tried, but failed, to achieve a satisfactory result through litigation before

turning to arbitration.”).

       Although the FSSV parties switched positions regarding forum, there is no

evidence that they did so to gain an unfair tactical advantage. The record reflects that

the FSSV parties opened arbitration on March 26, 2020, and filed this lawsuit on

April 6, 2020, only when mediation proved unfruitful. After Strunk filed her motion

to transfer venue, the FSSV parties filed their first amended petition and motion to

compel arbitration on May 15, 2020. Thus, only five weeks elapsed between the

filing of the FSSV parties’ original petition and motion to compel arbitration. The

FSSV parties did not file any dispositive motions or issue any discovery requests

during that time. See Seven Hills, 442 S.W.3d at 721 (including dispositive motions

and discovery requests among factors supporting waiver). The record does not

                                          –15–
reflect that the FSSV parties abused the litigation process to gain an unfair tactical

advantage. See Perry Homes, 258 S.W.3d at 597; Seven Hills, 442 S.W.3d at 721.

       Although the record does not reflect that the FSSV parties waived arbitration

by substantially invoking the judicial process, the parties novated their arbitration

agreement. Thus, the trial court did not abuse its discretion in denying the FSSV

parties’ motion to compel arbitration, and we overrule the FSSV parties’ sole issue

on appeal.

                                   CONCLUSION

       On the record before us, we conclude the trial court did not abuse its discretion

in denying the FSSV parties’ motion to compel arbitration. Accordingly, we affirm

the trial court’s order.

                                            /Robbie Partida-Kipness/
                                            ROBBIE PARTIDA-KIPNESS
                                            JUSTICE

210003F.P05

                                         –16–
                                    S
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                   JUDGMENT

FEE, SMITH, SHARP & VITULLO,                   On Appeal from the 162nd Judicial
LLP, JOHN L. MALESOVAS                         District Court, Dallas County, Texas
D/B/A MALESOVAS LAW FIRM,                      Trial Court Cause No. DC-20-05323.
AND ANTHONY VITULLO,                           Opinion delivered by Justice Partida-
Appellants                                     Kipness. Justices Myers and Carlyle
                                               participating.
No. 05-21-00003-CV           V.

DEANA STRUNK AND CECIL
WEBER ("SCOTT") CASTERLINE
III, Appellees

       In accordance with this Court’s opinion of this date, the judgment of the trial
court is AFFIRMED.

      It is ORDERED that appellee DEANA STRUNK AND CECIL WEBER
("SCOTT") CASTERLINE III recover their costs of this appeal from appellant
FEE, SMITH, SHARP & VITULLO, LLP, JOHN L. MALESOVAS D/B/A
MALESOVAS LAW FIRM, AND ANTHONY VITULLO.

Judgment entered September 30, 2021.

                                        –17–