Court Opinion

ID: 4511792
Source: CourtListenerOpinion
Date Created: 2020-03-02 08:16:06.721265+00
Date Added: 2024-06-11T09:12:31.606013
License: Public Domain

COURT OF APPEALS
                                 EIGHTH DISTRICT OF TEXAS
                                      EL PASO, TEXAS

  TRULY NOLEN OF AMERICA, INC.,                  §
                                                                 No. 08-19-00118-CV
                    Appellant,                   §
                                                                    Appeal from the
  v.                                             §
                                                                  327th District Court
  OMAR MARTINEZ,                                 §
                                                               of El Paso County, Texas
                    Appellee.                    §
                                                                 (TC# 2017DCV3006)
                                                 §

                                         OPINION

       Appellee Omar Martinez (Martinez) filed suit alleging he was wrongfully terminated on a

discriminatory basis from his employment with Appellant Truly Nolen of America, Inc. (Truly

Nolen) following a workplace injury that he sustained in the course and scope of his employment.

After various means of discovery were utilized by both parties during the pendency of the suit,

Truly Nolen eventually filed a motion to compel arbitration based on an arbitration agreement

signed by Martinez. This motion was filed more than a year and a half after Martinez filed his

lawsuit, four days before the discovery period scheduled by the trial court was set to end, and a

little over a month before trial was set to begin. Martinez filed a response arguing that no valid

agreement existed and that Truly Nolen waived its right to arbitrate by substantially invoking the

judicial process to Martinez’s detriment. After a hearing, the trial court denied Truly Nolen’s
motion to compel arbitration. In one issue, Truly Nolen appeals the trial court’s denial of its

motion. We affirm.

                                        BACKGROUND

       Martinez was employed at Truly Nolen beginning in 2010. During Truly Nolen’s hiring

process, it customarily required new employees to sign an “Acceptance of Binding Arbitration –

Receipt,” and receipt and acknowledgement of Truly Nolen’s arbitration policy was a mandatory

condition of employment. The acceptance form referenced the arbitration policy and contained an

admonition that employees, “Please Read Carefully: Acceptance of this Policy Affects your Legal

Rights.” Martinez signed the signature block on this form for indicating that the “Binding

Arbitration Policy” had been “Agreed to.” The arbitration policy applied to any claims of

discrimination and prohibited litigation of such claims by Truly Nolen or its employees in court

and instead required that such claims be resolved by binding arbitration administered by the

American Arbitration Association (AAA). The agreement further provided: “By signing the

acceptance form and accepting or continuing employment, the [employee] voluntarily, knowingly

and intelligently waives any right he or she may have to seek remedies in court, including the right

to a jury trial.” As alleged by Martinez in his suit, he was terminated from his employment on

May 18, 2017, or weeks after sustaining an on-the-job injury on April 6, 2017.

       On August 31, 2017, Martinez filed his original petition alleging that he was wrongfully

discharged on a discriminatory basis by Truly Nolen. In his petition, Martinez requested a jury

trial and discovery disclosures. Along with his petition, Martinez also filed that same day the

following requests: (1) a request for production of documents with 44 itemized requests; (2) a

request for admissions with 13 queries; and (3) a set of interrogatories with 21 interrogatories and

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some sub-parts. On October 6, 2017, Truly Nolen filed its original answer containing a general

denial and a demand for a jury trial. Truly Nolen followed-up by making multiple discovery

requests of its own, and on February 9, 2018, Martinez filed a Certificate of Written Discovery,

stating that he served the following on Truly Nolen: (1) his response to eight requests for

admissions; (2) his response to requests for disclosure; (3) his response to 11 requests for

production; (4) his answers to 18 interrogatories; (5) his witness list; and (6) his exhibit list. Truly

Nolen likewise served its response to requests for admissions, requests for production, and

interrogatories, and it later supplemented its response to Martinez’s requests for production.

       On April 4, 2018, Truly Nolen filed its Notice of Intention to Take Deposition by Written

Questions for the custodians of records for three entities, including two businesses where Martinez

had previously worked. On the same day the notice was filed, Martinez filed a motion to quash

praying that the trial court quash the depositions and enter a protective order prohibiting production

of the requested records from the witnesses. Ultimately, depositions by written questions were

completed for all three of the custodians of records and also for a separate custodian not designated

in any notice. In addition, Martinez and Truly Nolen corresponded by email to coordinate

depositions for six witnesses by Martinez and for the deposition of Martinez by Truly Nolen.

       On May 31, 2018, the case was transferred to the 327th District Court due to the requests

for a jury trial. In the trial court’s scheduling order, it required discovery to be completed by March

16, 2019, and it set a jury trial for April 16, 2019. On December 14, 2018, Martinez filed another

Certificate of Written Discovery stating that he served on Truly Nolen a supplemental response to

requests for disclosure and a supplemental witness list.

       Four days before the discovery period ended and a little over a month before trial was set

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to begin, on March 12, 2019, Truly Nolen filed its Motion to Compel Arbitration and Stay

Litigation. In its motion, Truly Nolen asserted that Martinez had agreed to arbitrate any dispute

arising out of his employment and attached a copy of the arbitration agreement acceptance form

signed by Martinez. Martinez filed a response contending that the motion to compel arbitration

should be denied because Truly Nolen: (1) failed to mention the existence of an agreement to

arbitrate or its intention to seek arbitration during any conferences had between the parties

pertaining to deposition scheduling or had with the trial court pertaining to scheduling a trial date;

and (2) waived its right to arbitrate by substantially invoking the judicial process and causing

prejudice to Martinez. As exhibits in support of Martinez’s response, he attached his original

petition and Truly Nolen’s answer, his motion to quash, the trial court’s scheduling order, the

discovery requests and responses by both parties, and the email correspondence regarding

additional depositions.

        A hearing on the motion to compel arbitration was held at which Truly Nolen admitted two

exhibits without objection. The first was an affidavit from Truly Nolen’s vice president of human

resources with a copy of the arbitration agreement and its signed receipt attached. The second was

a brief excerpt from the Employment Arbitration Rules guide published by the AAA instructing

that an arbitrator shall have authority to order such discovery as the arbitrator considers necessary

to a full and fair exploration of the issues in dispute, “consistent with the expedited nature of

arbitration.”   Although Truly Nolen’s counsel objected at the hearing that argument from

Martinez’s counsel was not competent evidence, Truly Nolen’s counsel made no objections to any

of the exhibits attached to Martinez’s response to the motion to compel arbitration. Martinez

presented no new evidence at the hearing.

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        At the conclusion of the hearing, the trial court entered an order denying Truly Nolen’s

motion to compel arbitration, but the court stayed the proceedings, as requested in Truly Nolen’s

motion, and ordered mediation between the parties. Truly Nolen then filed its notice of appeal.

                                           DISCUSSION

        In one issue, Truly Nolen argues that the trial court erred in denying its motion to compel

arbitration because it proved the existence of a valid arbitration agreement and because Martinez

then failed to satisfy his burden of proving that Truly Nolen waived its right to arbitrate by

substantially invoking the judicial process and causing prejudice to him. In responding, Martinez

argues to the contrary on the existence of a valid, binding agreement; and, if so, whether Truly

Nolen had waived arbitration by substantially invoking the judicial process to Martinez’s

detriment.

         Standard of Review and Shifting Burdens for a Motion to Compel Arbitration

        We review the trial court’s denial of a motion to compel arbitration for an abuse of

discretion. Firstlight Fed. Credit Union v. Loya, 478 S.W.3d 157, 161 (Tex. App. – El Paso 2015,

no pet.). Under this standard, we defer to the trial court’s factual determinations that are supported

by the record and review legal questions de novo. Id.

        A party seeking to compel arbitration must establish the existence of a valid arbitration

agreement and show that the claims asserted fall within the scope of the arbitration agreement.

Ellman v. JC Gen. Contractors, 419 S.W.3d 516, 519 (Tex. App. – El Paso 2013, no pet.). Once

accomplished, the burden shifts to the party opposing arbitration to prove any alleged defenses to

arbitration. Id. If the opposing party fails to do so, the trial court has no discretion but to compel

arbitration. Id.

                                                  5
                         Whether a Valid Arbitration Agreement Exists

                                          Applicable Law

       In this appeal, Martinez does not challenge Truly Nolen’s burden on the scope of the

arbitration agreement, and we thus proceed to determine only if a valid arbitration agreement

exists. By signing an arbitration agreement, a party manifests its intent to be bound by it. See

Firstlight, 478 S.W.3d at 167. An unsigned paper may be incorporated by reference into the paper

signed by the person sought to be charged, and the language used to accomplish this incorporation

is not important so long as the document signed plainly refers to the other writing. See In re

Prudential Ins., 148 S.W.3d 124, 135 (Tex. 2004); see also In re McKinney, 167 S.W.3d 833, 835

(Tex. 2005) (holding that an agreement to arbitrate was incorporated within a signature page by

the signature page’s reference to it). In addition, acceptance as a matter of law can be shown by

an employee’s conduct in continuing to work after being notified that continuing to work

constitutes the employee’s assent to the arbitration agreement. See Firstlight, 478 S.W.3d at 168.

Absent fraud, misrepresentation, or deceit, a party is bound by the terms of the arbitration

agreement he signed, regardless of whether he read it or thought it had different terms. See In re

McKinney, 167 S.W.3d at 835.

                                            Application

       We observe at the outset that the acceptance form for the arbitration agreement in this case

referenced the arbitration policy at issue here and thus incorporated the entirety of the policy into

the acceptance form. See In re Prudential Ins., 148 S.W.3d at 135; see also In re McKinney, 167
S.W.3d at 835. Therefore, Martinez’s signature on the acceptance form proved his intent to be

bound by the agreement. See Firstlight, 478 S.W.3d at 167. But in addition to this, the arbitration

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policy further provided that any employee of Truly Nolen “voluntarily, knowingly and intelligently

waives any right he or she may have to seek remedies in court” by accepting or continuing

employment. Martinez’s acceptance of employment in 2010 and continuance of employment until

2017 thus also shows acceptance of the arbitration agreement as a matter of law. See Firstlight,
478 S.W.3d at 168.

       Despite the two means through which Martinez demonstrated his acceptance of the

agreement, Martinez argues in this appeal that it is nonetheless an invalid agreement because Truly

Nolen did not prove he had unequivocal notice of the terms of the arbitration agreement,

contending that Truly Nolen has not proven he had the opportunity to review the agreement, to

receive a copy of it, or to reach a mutual understanding. His contention that he did not have an

opportunity to read it is undercut by the acceptance form’s admonition to “Please Read Carefully:

Acceptance of this Policy Affects your Legal Rights.” In addition, his signature on the receipt and

acceptance form for Truly Nolen’s arbitration agreement demonstrates that he received sufficient

notice of it, even if he did not receive a copy of it. See In re Dallas Peterbilt, Ltd., L.L.P., 196
S.W.3d 161, 163 (Tex. 2006) (holding that an employee’s signed acknowledgement of receipt of

a summary of the arbitration plan gave the employee notice of the arbitration agreement, despite

his claim that he did not receive the summary). Finally, his claim that he generally did not

understand the agreement cannot negate his acceptance of the agreement’s terms by way of his

signature here without any claim of fraud, misrepresentation, or deceit committed by Truly Nolen.

See In re McKinney, 167 S.W.3d at 835 (holding that a party’s contention “that he did not

understand his signature’s significance” on an arbitration agreement did not negate his acceptance

of the contract’s terms by way of his signing the agreement).

                                                 7
        Thus, we hold that Truly Nolen satisfied its burden of proving the existence of a valid

arbitration agreement here and shifted the burden to Martinez to prove his alleged defense of

waiver of the agreement by Truly Nolen. See Ellman, 419 S.W.3d at 519.

       Whether the Judicial Process was Substantially Invoked to Martinez’s Detriment

                                           Applicable Law

        A party waives an arbitration clause by substantially invoking the judicial process to the

other party’s detriment or prejudice. Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008).

Thus, the party asserting waiver must prove both of the following: (1) substantial invocation of the

judicial process; and (2) prejudice. See id. at 593. Prejudice in this context refers to the inherent

unfairness in terms of delay, expense, or damage to a party’s legal position that occurs when the

party’s opponent forces it to litigate an issue and later seeks to arbitrate that same issue. Id. at 597.

Due to the strong presumption against waiver of arbitration, the hurdle of proving waiver is a high

one. Id. at 590. However, the purpose of the presumption against finding a waiver of contractual

arbitration is to preserve the purpose of the parties’ agreement to obtain a speedy and inexpensive

final disposition of the disputed matter. See Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d
717, 723 (Tex. App. – Houston [1st Dist.] 2014, pet. denied); see also Perry Homes, 258 S.W.3d

at 596 (observing that arbitration reduces delay in the resolution of a case by “severely limiting”

pretrial discovery); Com-Tech Assoc. v. Comput. Assoc. Int’l, Inc., 938 F.2d 1574, 1578 (2nd Cir.

1991) (“To permit litigants to exercise their contractual rights to arbitrate at such a late date, after

they have deliberately chosen to participate in costly and extended litigation would defeat the

purpose of arbitration: that disputes be resolved with dispatch and with a minimum of expense.”).

        Whether a party has waived arbitration must be decided on a case-by-case basis upon an

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examination of the totality of the circumstances. Ellman, 419 S.W.3d at 519. In making this

determination, courts consider a variety of non-exhaustive factors including the following:

   •   Whether the party who pursued arbitration was the plaintiff or the defendant;

   •   How long the party who pursued arbitration delayed before seeking arbitration;

   •   When the party who pursued arbitration learned of the arbitration clause’s existence;

   •   How much pretrial activity related to the merits rather than arbitrability or jurisdiction;

   •   How much time and expense has been incurred in litigation;

   •   Whether the party who pursued arbitration sought or opposed arbitration earlier in the case;

   •   Whether the party who pursued arbitration filed affirmative claims or dispositive motions;

   •   How much discovery has been conducted and who initiated the discovery;

   •   Whether the discovery would be useful in arbitration;

   •   Whether discovery would be unavailable in arbitration;

   •   Whether activity in court would be duplicated in arbitration;

   •   When the case was to be tried; and

   •   Whether the party who pursued arbitration sought judgment on the merits.

Ellman, 419 S.W.3d at 519-20.

       One especially weighty factor in this determination is whether the party who sought

arbitration waited until the eve of trial to do so. See Perry Homes, 258 S.W.3d at 584 (“[A] party

cannot substantially invoke the litigation process and then switch to arbitration on the eve of

trial.”); Ellman, 419 S.W.3d at 520 (finding as “[p]erhaps the most striking of these factors”

weighing in favor of finding substantial invocation of the judicial process was that the party

seeking arbitration waited almost three years after the suit was filed and two and a half months

                                                 9
before the trial date to demand arbitration). The rule that one cannot wait until the “eve of trial”

to request arbitration is not limited to the evening before trial, and it is instead a rule of proportion.

See Perry Homes, 258 S.W.3d at 596; Ellman, 419 S.W.3d at 521.

        Regarding the amount of resource-consuming litigation conducted prior to the request for

arbitration, “[h]ow much litigation conduct will be ‘substantial’ depends very much on the context;

three or four depositions may be all the discovery needed in one case, but purely preliminary in

another.” Perry Homes, 258 S.W.3d at 593 [internal footnotes omitted].                  In addition, the

production of a minimal amount of discovery can cut against a finding of waiver where the

discovery can be useful in arbitration for the party opposing arbitration. See Tenneco Resins, Inc.

v. Davy Int’l, AG, 770 F.2d 416, 421 (5th Cir. 1985) (“[W]hen only a minimal amount of discovery

has been conducted, which may also be useful for the purpose of arbitration, the court should not

ordinarily infer waiver based upon prejudice to the party opposing the motion to stay litigation[.]”);

see also Perry Homes, 258 S.W.3d at 600 (“[A] party who requests lots of discovery is not

prejudiced by getting it and taking it to arbitration in the same way that a party who produces lots

of discovery outside the stricter discovery limits in arbitration.”). But in any case, the party

opposing arbitration is not always required to prove the cost of the discovery in order to prove

prejudice. Ellman, 419 S.W.3d at 522.

                           Substantial Invocation of the Judicial Process

        This case is one in which Truly Nolen waited until the eve of trial to request arbitration.

Martinez filed his lawsuit at the end of August 2017, and it had been pending for more than a year

and a half at the time Truly Nolen filed its motion to compel arbitration. Coincidentally, this filing

was also done four days before the discovery period ended and a little over a month before the trial

                                                   10
date. This is despite Truly Nolen’s knowledge of the arbitration agreement’s existence from the

outset of the lawsuit. See Ellman, 419 S.W.3d at 520 (holding that knowledge of the arbitration

clause was imputed to the signatories to the agreement). Thus, the late filing of the motion to

compel arbitration weighs heavily in favor of finding a substantial invocation of the judicial

process. See Perry Homes, 258 S.W.3d at 584; Ellman, 419 S.W.3d at 520.

       Turning to the amount of litigation conducted in the trial court prior to Truly Nolen’s

request for arbitration, the record shows the parties not only engaged in traditional discovery on

the merits of the suit but also engaged in pretrial disclosures and other trial related activities. Both

parties made requests for disclosures, admissions, and production of documents and served

interrogatories on the other party.     Both Martinez and Truly Nolen responded to requests and

gave supplemental responses when necessary. Martinez also gave a witness list and exhibit list to

Truly Nolen. Furthermore, Martinez filed a motion to quash the attempted written depositions by

Truly Nolen. Truly Nolen proceeded to take written depositions for four custodians of records. In

addition, Martinez and Truly Nolen corresponded by email to coordinate depositions for six

witnesses by Martinez and for the deposition of Martinez by Truly Nolen. Although we recognize

that the amount of discovery that will equate to a “substantial” level depends on the context of

each case, we hold that the discovery in this case met that level. See Perry Homes, 258 S.W.3d at

595-96 (holding that a party conducted extensive discovery where the party deposed witnesses,

requested disclosures, requested production of documents, filed motions to compel, and filed

protective orders). Thus, the substantial level of pretrial litigation in this case also weighs in favor

of finding a substantial invocation of the judicial process. See Ellman, 419 S.W.3d at 519-20

(reciting as factors the amount of discovery and pretrial litigation conducted by the parties).

                                                  11
       Addressing the quantum of litigation, Truly Nolen points out that it had not filed any

affirmative claims or dispositive motions and that Martinez made the first discovery requests. We

note, however, that the case had already been set for jury trial after both parties had made such a

request and was transferred to a district court for that purpose, when Truly Nolen filed its motion

for arbitration several months later. Furthermore, we afford little weight to the matter of who

initiated discovery first in light of the breadth of discovery conducted here. Cf. Ellman, 419
S.W.3d at 520-21 (holding that initiation of more than a minimal amount of discovery by the party

seeking arbitration was more important than considering who initiated more discovery).

       Truly Nolen also argues that we should minimize the weight afforded to the amount of

litigation already done because “it is consistent with discovery available to and authorized through

the arbitration process[,]” and Truly Nolen points to an excerpt from a guide by the AAA

Employment Arbitration Rules to support its argument. Initially, we observe that Truly Nolen has

not put forth any argument as to what specific parts of the discovery conducted by both parties

were “consistent” with discovery available in arbitration by pointing to any particular requests or

responses in the record. But aside from that, the guide provided simply states, in sparse detail, that

an arbitrator has authority to order such discovery as the arbitrator considers necessary to a full

and fair exploration of the issues in dispute, “consistent with the expedited nature of arbitration.”

Truly Nolen also cites to the precedent instructing that discovery consistent with arbitration might

weigh against a finding of waiver where a minimal amount of discovery has been conducted. See

Tenneco Resins, Inc., 770 F.2d at 421; see also Perry Homes, 258 S.W.3d at 600. However, as

discussed above, we find the situation in this case to be one where the discovery conducted was

not minimal nor the proceedings in the trial court “consistent with the expediated nature of

                                                 12
arbitration,” and we therefore find Truly Nolen’s discovery-consistent-with-arbitration argument

unpersuasive in light of the other factors at play here.

       Ultimately, we hold that Martinez proved under a totality of the circumstances that Truly

Nolen substantially invoked the judicial process based on Truly Nolen’s delay until the eve of trial

to request arbitration and its extensive conduct in pursuing discovery. Therefore, we now turn to

consider whether Martinez proved prejudice.

                                              Prejudice

       The most substantial factor in our analysis here is the extraordinary delay Martinez suffered

by the late request for arbitration. As earlier mentioned, Truly Nolen filed its request over a year

and a half after Martinez filed his lawsuit, four days before the discovery period ended, and a little

over a month before trial was set to begin. In addition, substantial discovery, along with its

associated consumption of resources and its opportunity cost to Martinez’s counsel, burdened

Martinez here. While we observe that Martinez failed to provide evidence showing the expenses

he incurred in the discovery process, we cannot deem such discovery activity costless, even if we

do not here afford it as much prejudicial weight as we might otherwise with a concrete accounting

of costs. See Ellman, 419 S.W.3d at 522 (holding that the party opposing arbitration is not always

required to prove the cost of the discovery in order to prove prejudice). Finally, there is at least

some minimal showing of damage to Martinez’s legal position where he responded to discovery

on the merits and produced pretrial disclosures to include lists of trial witnesses and exhibits.

       Based on the extreme delay, undeniable expense, and at least a minimal showing of damage

to his legal position, we hold that Martinez has also proved the necessary showing of prejudice

here. See Perry Homes, 258 S.W.3d at 597 (holding that a party’s conduct prejudiced the other

                                                 13
party opposing arbitration where, in part, the party got extensive discovery and delayed disposition

by switching to arbitration when trial was imminent); Ellman, 419 S.W.3d at 522 (holding that

prejudice was shown where, even though there was no evidence of how much the discovery cost,

the party who sought arbitration actively initiated discovery on the merits up to the days before

filing their motion to compel arbitration and waited to make their demand for arbitration until after

the other party revealed its trial strategy through the filing of its witness lists); see also Com-Tech

Assoc., 938 F.2d at 1578 (holding that the district court’s conclusion that the defendants had

forfeited their contractual right to compel arbitration was supported by: (1) the proximity of trial;

and (2) the defendants full participation in discovery, including the deposition of seven plaintiffs).

       Thus, Martinez satisfied his defensive burden of proving that Truly Nolen substantially

invoked the judicial process to his detriment. See Ellman, 419 S.W.3d at 519. Truly Nolen

therefore waived its right to arbitrate pursuant to the arbitration agreement, and the trial court did

not err in denying Truly Nolen’s motion to compel arbitration. See id. We overrule Truly Nolen’s

sole issue presented for review.

                                          CONCLUSION

       The trial court’s judgment is affirmed.

                                               GINA M. PALAFOX, Justice
February 26, 2020

Before Alley, C.J., Rodriguez, and Palafox, JJ.
Alley, C.J., concurring

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