In the case of Tuscan Builders, LP v. 1437 SH6 LLC, No. 01-13-00685-CV (Tex.App. [1st Dist.] Jan. 30, 2014), the appellate court affirmed the denial of a motion to compel arbitration finding that the moving party's "motion to compel more consistent with a late-game tactical decision than an intent to preserve the right to arbitrate."
Here at Division 1, we are all familiar with this issue. It particularly occurs where we represent clients in matters, such as mechanic's lien actions, that are required to be filed in court -- not through arbitration. We know that the question of implied waiver of the arbitration provision is one for the Court to decide and it will turn on the particular facts and procedural history of the case. The question always is: how much is too much?
We thought a summary of this case would be a helpful refresher.
The Facts
Plaintiff in the original action was the Owner of a new commercial building that was going to provide health related services.
Owner contracted with Designer to design the building. Owner and Designer signed a modified B141-1997 that excluded the mediation and arbitration provisions in favor of state court litigation.
Owner contracted with Contractor to construct the building. Contractor provided the Owner with the A101-1997 agreement. No modifications were made to the incorporated A201-1997 agreement thereby selecting mediation and arbitration as the dispute resolution mechanism. Owner claimed it was never provided a copy of the A201 General Conditions.
Owner sued Designer and Contractor. Contractor answered without asserting the right to arbitrate. Contractor also asserted third party actions against its subcontractors.
The litigation ensued with written discovery, an inspection of the building demanded by the third party defendants, and a consented-to extension of the trial schedule.
After the passage of one year and the closure of discovery, Contractor moved to compel arbitration. Owner claimed that it never knew of the arbitration provision in the A201 and, even if the arbitration provision was binding and enforceable, Contractor waived its right to compel through its active involvement in the litigation.
The trial court agreed with Owner and denied Contractor's motion.
Factors Considered For Implied Waiver of Arbitration Clause
The Tuscan Builders Court applied a five-factor test (the Perry Homes Factors): "In determining whether a party waived an arbitration clause, the courts can consider, among other factors,
- whether the movant for arbitration was the plaintiff (who chose to file in court) or the defendant (who merely responded),
- when the movant learned of the arbitration clause and how long the movant delayed before seeking arbitration,
- the amount of the movant's pretrial activity related to the merits rather than arbitrability or jurisdiction,
- the amount of discovery conducted, and
- whether the movant sought judgment on the merits."
Under the facts of Tuscan Builders, the appellate court agreed Contractor had waived its right to enforce the A201 arbitration clause. The facts most relied upon by the Court which caused the strong presumption against waiver to be overcome were:
- No mention (or reservation) of the arbitration agreement.
- Lapse of Time - 1 year.
- Contractor was presumed to be familiar with the arbitration provision because it presented the AIA form agreement to Owner.
- Perceived tactical strategy to use the tools of litigation and then go to arbitration.
- Prejudice to Owner, Designer, and Court for piecemeal, inefficient proceedings.
Division 1 Members, please feel free share similar cases you are aware of or your personal experience on the issue of how far can you go in litigation until impliedly waiving arbitration . . .
No comments:
Post a Comment