Saturday, July 9, 2011

Dallas Court of Appeals finds Waiver of Right to Arbitrate

Trial court's denial of motion to compel arbitration upheld in interlocutory appeal on waiver grounds.

Adams v. Staxxring, Inc.  
Adams, William Bryan "Bill" v. Staxxring, Inc. and Molly Langford, ex rel Staxxring, Inc.,
No. 05-10-01142-CV (Tex. App.- Dallas July 7, 2011) (Opinion by Justice Mary L. Murphy)

Pretrial activity included not only substantial discovery and discovery-related motions, but also amended pleadings with affirmative defenses, counterclaims, third-party claims, Rule 12 motion, a mandamus proceeding in the court of appeals, and a trip to bankruptcy court with associated stay (and delay) in state court.

Trial court found that aggressive litigation activity was prejudicial to the opposing party and denied motion to compel arbitration filed near the end of the discovery period after multiple trial resets. Fifth Court of Appeals affirms waiver ruling. Given the absence of a bright-line rule governing waiver of contractual arbitration rights under the Supreme Court's totality-of-the-circumstances precedent in Perry Homes v. Cull, the reviewing Court spends much time elaborating on the procedural history of the case in the trial court.  

In The Court of Appeals
Fifth District of Texas at Dallas
No. 05-10-01142-CV




On Appeal from the 95th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-09-07879-D

THE GIST: Because Adams substantially invoked the judicial process to the detriment and prejudice of Langford and StaxxRing, we conclude Adams waived any arbitration rights under the StaxxRing bylaws. We affirm the trial court's order denying Adams's motion to compel arbitration.


Before Justices Murphy, Fillmore, and Myers

Opinion By Justice Murphy

William B. Adams appeals the trial court's denial of his motion

to compel arbitration of the lawsuit filed by Molly Langford and

StaxxRing, Inc. We conclude Adams waived any right to arbitration and

affirm the trial court's order.


Langford and Adams are each fifty-percent owners of StaxxRing, a

closely held corporation in the jewelry business. The trial court

described their underlying dispute as a power struggle over the control

of StaxxRing, which “more nearly resembles a corporate food fight.”

Because of the nature of the dispute and our consideration of the level

to which Adams invoked the judicial process, our review of background

information is detailed.

The Pleadings and Injunctive Relief

The litigation began on June 22, 2009, when StaxxRing and

Langford See Footnote 1 filed suit against Adams alleging he usurped

Langford's authority and undermined her efforts as president of

StaxxRing. The petition included a jury demand and claims for breach of

fiduciary duty, tortious interference, negligence, conversion, theft of

property and violations of the theft liability act, and a violation of

the Uniform Fraudulent Transfer Act. Langford and StaxxRing sought

declaratory and injunctive relief as well as a constructive trust,

damages, attorney's fees, and exemplary damages.

The next day, with allegations Langford was “freezing” him out

of StaxxRing, Adams answered the lawsuit; asserted affirmative defenses

of fraud, unclean hands, and estoppel and quasi- estoppel; and

counterclaimed against Langford for fraud, conversion, and shareholder

oppression, requesting damages, exemplary damages, and attorney's fees.

Adams also joined as a defendant Robert Swift, StaxxRing's sales

manager, and alleged claims of breach of fiduciary duty against Swift

and Langford individually. Quoting from StaxxRing's bylaws, Adams

demanded inspection of StaxxRing's books and records and sought

injunctive relief, the appointment of a receiver for StaxxRing,

expedited discovery, and rule 194 disclosures.

Counsel for Adams sent a letter to the trial court the next day,

June 24, requesting a hearing to “entertain Adams' motion for expedited

discovery on an expedited basis.” On June 25, Adams's counsel requested

and participated in a telephone conference with the trial court and

plaintiffs' counsel. The trial court granted Adams's request and ordered

Langford to provide StaxxRing's books and records no later than July 2,


Adams also amended his answer and counterclaim on July 1, adding

third-party claims for conversion and negligence against Bank of

America, N.A., the depository for StaxxRing's operating funds. Adams

added the Bank to his request for injunctive relief and included a

demand for accounting by StaxxRing. Adams again cited to and quoted

StaxxRing's bylaws, and attached the entirety of the bylaws to an

affidavit included in his amended answer. Article II, section 13 of the

bylaws provides: Arbitration. All claims, disputes, demands or

disagreements, relating to or arising out of, directly or indirectly,

this Article II among the shareholders of the Corporation shall be

settled by arbitration in Dallas, Texas. Such arbitration shall be

subject to the Texas General Arbitration Act and the rules of the

American Arbitration Association, in accordance with this Section 13. .

. . Any determination by such arbitrator(s) shall be a conclusive

determination of the matter, shall be binding upon the shareholders and

shall not be contested by them.

At Adams's request, the trial court held a hearing on his

application for temporary restraining order on July 2. The trial court

granted Adams's request as to Langford in part, finding Adams “is likely

to prevail on the merits of at least one of his claims.” The same day,

the trial court ordered Adams and Langford to mediation. As of the date

this appeal was filed, the parties had mediated twice unsuccessfully.

Eight days after the TRO hearing, Adams served Langford with a

subpoena duces tecum to produce documents by July 16, the day before the

hearing on the parties' cross-applications for temporary injunctions.

The subpoena requested nine groups of documents related to Langford's

net worth as well as the financial position of StaxxRing. Objecting to

the requests, Langford filed a motion to quash and for a protective

order. Pursuant to the parties' agreement, the court signed an order

requiring Langford to produce documents but otherwise granting

Langford's motion.

Also on July 16, Langford and StaxxRing filed a first amended

petition, embellishing the factual background and including an

allegation of sexual harassment against Adams. The amended petition

included Langford's affidavit attaching several documents, including

StaxxRing's financial records. The same day, Adams supplemented his

first amended counterclaim by adding an indemnification claim for legal

fees pursuant to the StaxxRing bylaws.

The temporary-injunction hearing began on July 17, 2009. The

appellate record does not include a reporter's record of the hearing,

but the trial court characterized it as involving “substantial

testimonial and documentary evidence.” Langford testified at the hearing

and was subject to cross- examination by Adams's counsel. The hearing

lasted for several days and concluded July 22, 2009.

The same day , Adams filed his second supplement to his first

amended counterclaim in which he added a breach-of-contract claim

against Langford and StaxxRing, jointly. He maintained his requests for

injunctive relief, attorney's fees, expedited discovery, appointment of

a receiver, and indemnification pursuant to StaxxRing's bylaws.

On July 23, 2009, the day after the injunction hearing

concluded, Adams filed a letter brief in support of his requested

injunctive relief. On July 25, the trial court granted injunctions in

part for both sides, finding they were “likely to prevail on the merits”

of at least one of their respective claims. The court set trial for

January 11, 2010 as part of the same order.

Just over a week later, Adams filed a motion to clarify or

modify the temporary injunction, relying on StaxxRing's bylaws. Adams

also described a line of credit to StaxxRing he personally had

guaranteed through Fidelity Bank and expressed concern that Fidelity

would call the note due and payable on its maturity date of August 7,


The trial court heard Adams's motion on August 20 and, on August

24, 2009, signed its order denying Adams's request for clarification. As

part of its order, the trial court stated it “has also had the

opportunity to keenly observe the in-court demeanor of the parties (as

witnesses and participants) and their actions since the filing of this

lawsuit.” Commenting that Adams's “mission has begun to take on the

appearance of a vendetta,” the trial court added that “the unchallenged

evidence before the Court indicates that Adams only recently

deliberately used his personal relationships to interfere with and

influence the termination of a [StaxxRing] line of credit at Fidelity

Bank.” Questioning the validity of Adams's third-party claims against

the Bank, the trial court noted “Adams continues to vigorously press

claims against Bank of America, the admitted purpose of which is to

force a termination of (or 'freeze,' as Adams puts it) [StaxxRing's]

bank account . . . .” The trial court concluded the order with the

“further opinion that at any future hearings at which he is present,

Defendant Adams must seek advance approval of the Court before leaving

the courtroom.” Adams subsequently non-suited his claims against the


On October 30, 2009, Adams filed a second amended answer and

counterclaim, adding claims against Langford for equitable buy-out and

malicious suppression of dividends. He maintained his request for

injunctive relief, appointment of a receiver, inspection of books and

records, accounting, attorney's fees, and damages.

On November 23, 2009, Adams paid the jury fee.

In December 2009, both sides filed motions for contempt,

claiming violations of the temporary injunction.


Meanwhile, Adams pursued additional discovery from Langford and

StaxxRing. After the initial expedited discovery, which included the

subpoena duces tecum served on Langford and the related order, Adams

served Langford and StaxxRing with merits discovery consisting of

twenty-six requests for production of documents and additional requests

for disclosure. On September 25, 2009, Adams served a second request for

production of documents, which included twenty-three requests for

documentation supporting StaxxRing's balance sheet and profit-and-loss

statement produced earlier. Upon receipt of Langford and StaxxRing's

responses to his requests for documents, Adams filed a motion and

supplemental motion to compel, attaching the discovery responses as well

as Langford's testimony from the temporary-injunction hearing where she

was cross-examined by Adams's counsel.

During the same time period, Adams resisted discovery. On

September 2, 2009, he filed a motion seeking to quash a subpoena and

document request Langford and StaxxRing directed to Fidelity. In late

October, Langford and StaxxRing served a deposition notice for Adams and

two others, which Adams promptly moved to quash. StaxxRing and Langford

responded with a motion to compel and a motion for attorney's fees,

costs, and sanctions, attaching correspondence evidencing a history of

their attempts to depose Adams. In November, Langford and StaxxRing

served another deposition notice for Adams and the same two individuals;

again, Adams filed a motion to quash. In July of 2010, StaxxRing and

Langford served Adams with their last deposition notice, which Adams

again moved to quash and for a protective order. StaxxRing and Langford

filed a second motion to compel Adams's deposition and a motion for


The Rule 12 Motion

In early October 2009, after serving Langford and StaxxRing with

multiple discovery requests, Adams filed a motion under rule 12 of the

Texas Rules of Civil Procedure for counsel to show authority to

represent StaxxRing. See Tex. R. Civ. P. 12. Adams again attached

StaxxRing's bylaws to this motion. A few weeks later, Adams filed an

amended motion to show authority, which included an additional copy of

StaxxRing's bylaws.

The trial court heard Adams's rule-12 motion on November 6,

2009. The hearing also included Adams's motion to compel responses to

certain discovery requests. On November 14, 2009, the trial court signed

an order denying Adams's rule-12 motion, granting his motion to compel

production of certain documents, and otherwise denying Adams's motion to

compel. Within a week, Adams filed a petition for writ of mandamus and

emergency motion, again attaching a copy of StaxxRing's bylaws, based on

the trial court's denial of Adams's rule-12 motion. This Court denied

Adams's petition for writ of mandamus on December 8, 2009. See In re

William Adams, No. 05-09- 01406-CV, 2009 WL 4601163, at *1 (Tex.

App.-Dallas Dec. 8, 2009, orig. proceeding) (mem. op.).

Adams's Motion for Continuance of Trial Setting

The year 2009 closed with Adams filing a verified motion to

continue the January 11, 2010 trial setting due to an injury his counsel

sustained. Langford and StaxxRing did not oppose the motion, although

their counsel announced that they were ready for trial. The trial court

granted Adams's requested continuance on January 5, 2010 and re-set the

trial for April 5, 2010.

Adams's Petition for Involuntary Bankruptcy of StaxxRing

After the trial court granted Adams's a continuance of the

January trial setting, he, his wife, his accounting firm, and other

creditors filed a petition for involuntary bankruptcy of StaxxRing. The

bankruptcy petition was filed January 29, and Adams filed a suggestion

of bankruptcy with the trial court on February 15. Five days later, the

trial court signed an order staying proceedings as to Langford and

StaxxRing but not as to Adams's third-party claims against Swift. Adams

non-suited his claims against Swift shortly thereafter.

In response to the bankruptcy petition, StaxxRing filed a motion

to dismiss that was heard by the bankruptcy court on April 28, 2010. A

month later, the bankruptcy court dismissed the bankruptcy petition with

prejudice. In the meantime, the April 5 trial setting passed. See

Footnote 2

The BA Acquisitions Lawsuit against StaxxRing and Langford

On June 17, 2010, an entity named BA Acquisitions filed suit

against StaxxRing and Langford in the 116th district court in Dallas

County. Testimony revealed that Adams was the sole officer, director,

and shareholder of BA Acquisitions and he had created the company for

the sole purpose of purchasing the StaxxRing note held by Fidelity. BA

Acquisitions, represented by the same attorneys who represented

Fidelity, sought payment of the note previously held by Fidelity.

Langford and StaxxRing filed an answer and third-party petition against

Adams and moved to transfer the lawsuit from the 116th to the 95th

judicial district court where their original litigation was pending. On

August 6, Adams filed a motion to compel arbitration of that dispute,

and on August 12, BA Acquisitions filed a notice of non-suit. The

third-party petition filed against Adams remained pending.

Lifting the Bankruptcy Stay and Adams's Motion to Compel Arbitration

In mid-June, Langford and StaxxRing filed a motion to reopen

this case and to lift the stay imposed as a result of the bankruptcy.

Adams subsequently agreed to the request and the trial court signed an

agreed order on July 8, 2010. A few days later, Adams began the process

of changing counsel. On July 19, 2010, after discovery closed, Adams

moved to compel arbitration, relying on article II, section thirteen of

StaxxRing's bylaws. Adams supplemented his motion to compel arbitration

on August 3, 2010; the next day, he filed a demand for arbitration with

the American Arbitration Association. On August 9, 2010, the trial court

reset the matter for trial for the third time: November 29, 2010.

The trial court heard Adams's motion to compel arbitration on

August 10 and 11, 2010, during which documents and testimony were

admitted. On August 27, 2010, the trial court heard Langford and

StaxxRing's motion to compel Adams's deposition and motion for

sanctions. In a single, hand-crafted order signed August 28, 2010, the

trial court denied Adams's motion to compel arbitration, ordered Adams's

deposition for September 28, 2010, and carried Langford and StaxxRing's

motion for sanctions.

Pursuant to its August 28 order, the trial court denied Adams's

motion to compel arbitration on the bases that (1) there was no

agreement to arbitrate the dispute before the court, (2) Adams waived

any right he may have had to arbitrate the claims in this case by

substantially invoking the judicial process “to the clear detriment and

prejudice of the plaintiffs,” and (3) the arbitration demanded by Adams

would not provide StaxxRing and Langford with “an accessible and

equivalent forum for them to redress their grievances.” This

interlocutory appeal followed.


In a single issue, Adams asserts that the trial court erred in

denying his motion to compel arbitration, arguing: (1) the claims are

within the scope of the arbitration agreement found within article II,

section 13 of StaxxRing's bylaws, (2) the agreement to arbitrate is not

substantively unconscionable, and (3) he has not waived his right to

arbitration because he has not substantially invoked the judicial

process and Langford and StaxxRing have not proven they have suffered


We address the question of whether Adams waived his right to

arbitration, because resolution of that issue is dispositive of this

appeal. In doing so, we assume without deciding that the claims are

subject to arbitration and the parties' agreement is not substantively


Standard of Review and Applicable Law

Waiver of arbitration 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) (orig.

proceeding) (per curiam). Arbitration rights are contractual, and the

law includes a strong presumption against the waiver of those rights.

See Bruce Terminix, 988 S.W.2d at 704. When presented with questions of

waiver, we are required to resolve any doubts in favor of arbitration.

In re Oakwood Mobile Homes, 987 S.W.2d 571, 574 (Tex. 1999) (orig.

proceeding) (per curiam), abrogated in part on other grounds by In re

Halliburton Co., 80 S.W.3d 566, 572 (Tex. 2002) (orig. proceeding). The

standard for determining waiver is the same under federal and state law.

See Holmes, Woods & Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex.

App.-Dallas 2009, no pet.). Waiver may be implied from a party's

conduct, so long as that conduct is unequivocal. Perry Homes, 258 S.W.3d

at 593. In “close cases, the 'strong presumption against waiver' should

govern.” Id. (quoting In re D. Wilson Constr. Co., 196 S.W.3d 774, 783

(Tex. 2006) (orig. proceeding)).

As the parties claiming waiver, Langford and StaxxRing had the

heavy burden of establishing Adams substantially invoked the judicial

process. See Bruce Terminix, 988 S.W.2d at 704; Valero Energy Corp. v.

Teco Pipeline Co., 2 S.W.3d 576, 594 (Tex. App.-Houston [14th Dist.]

1999, no pet.). Additionally, “waiver of arbitration requires a showing

of prejudice.” Perry Homes, 258 S.W.3d at 595. In determining whether

Langford and StaxxRing met their burden, we must examine the

case-specific facts and look to the totality of the circumstances. Id.

at 591.


The supreme court in Perry Homes emphasized what would

constitute waiver: “allowing a party to conduct full discovery, file

motions going to the merits, and seek arbitration only on the eve of

trial.” Id. at 590 (quoting In re Vesta Ins. Group, Inc., 192 S.W.3d

759, 764 (Tex. 2006) (orig. proceeding) (per curiam)). The court also

recognized, as in that case where only two of these three requirements

were met, waiver “involves substantial invocation of the judicial

process, not just judgment on the merits.” Id. at 592. Here, the record

does not fit squarely within the circumstances that clearly would

constitute waiver, and we therefore must review relevant factors in the

context of the totality of the circumstances. Those factors include:

when Adams knew of the arbitration clause; the extent of discovery, who

initiated it, whether it related to the merits rather than arbitrability

or standing, and how much of it would be useful in arbitration; and,

whether Adams sought judgment on the merits. See id. at 591-92. See

Footnote 3

The record here is extensive. Although we have a reporter's

record for only one of the several hearings, the clerk's record consists

of over thirteen hundred pages, and the trial court took judicial notice

of its file. The trial court also issued two orders discussing

extensively the procedural history of the parties' dispute. See

Footnote 4

Adams's Knowledge of Arbitration Clause and Delay

Adams does not contest his knowledge of the arbitration clause

in StaxxRing's 2005 bylaws, which were adopted by the same unanimous

consent that elected Adams as an officer and director and issued him

100,000 shares of stock. The day after he was sued, Adams responded with

a pleading citing to and quoting the same bylaws. He also attached and

relied on the bylaws repeatedly as part of the relief sought by him in

the litigation and as part of his mandamus proceeding when the trial

court denied his rule-12 motion. Langford also testified to the

uncontroverted fact that the StaxxRing bylaws have been reviewed

repeatedly at the various hearings in the case. Yet Adams did not seek

to invoke arbitration until after thirteen months of extensive and

fast-paced litigation of a matter that had been reset for trial twice,

both times at Adams's request or as a result of his conduct. See Perry

Homes, 258 S.W.3d at 596 (waiver found when party delayed fourteen

months after filing suit); see also In re Christus Spohn Health Sys.

Corp., 231 S.W.3d 475, 481-82 (Tex. App.-Corpus Christi 2007, orig.

proceeding) (finding waiver after fourteen months of litigation and

resetting matter for trial three times).


Relevant discovery factors in determining whether a movant has

substantially invoked the judicial process include how much discovery

has been conducted and who initiated it, whether the discovery related

to the merits rather than arbitrability or standing, and how much of the

discovery would be useful in arbitration. Holmes, 333 S.W.3d at 654

(citing Perry Homes, 258 S.W.3d at 591-92). “How 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.

Adams not only initiated, but expedited discovery while avoiding

discovery directed to him. He served almost two hundred merits-related

requests-none going to issues of standing or arbitrability-and nothing
in the record suggests he responded to any discovery. See Holmes, 333

S.W.3d at 655 (“Although the discovery may not have involved the merits

per se, it did not involve arbitrability or standing.”). He also sought

and obtained orders from the court compelling discovery he was

requesting, cross-examined Langford during at least three evidentiary

hearings, and used that evidence as part of his requests for additional


While initiating and conducting his own discovery, Adams filed

repeated motions for protection and moved to compel arbitration only

after the discovery deadline had passed. It would appear discovery was

substantially completed. See Perry Homes, 258 S.W.3d at 596 (“[T]he

record is nevertheless clear that most of the discovery in the case had

already been completed before the Culls requested arbitration. The rule

that one cannot wait until 'the eve of trial' to request arbitration is

not limited to the evening before trial; it is a rule of proportion that

is implicated here.”). Adams argues that all of the discovery would be

useful in the arbitration. This is but a factor to be considered. See

Citizens Nat'l Bank v. Bryce, 271 S.W.3d 347, 358 (Tex. App.-Tyler 2008,

orig. proceeding) (citing Perry Homes, 258 S.W.3d at 591-92). What, if

any, remedies would be available in arbitration as to the discovery

resisted by Adams in the trial court is unknown. See Perry Homes, 258

S.W.3d at 599.

Merits Activity

As to merits activity conducted by Adams, he sought a temporary

restraining order and temporary injunctive relief on the merits

immediately after suit was filed and well before any answer would have

been due. He participated fully in the related hearings, and the trial

court specifically found as part of its order granting Adams injunctive

relief that he was “likely to prevail on the merits” of at least one of

his claims. Not only did Adams later seek to modify or clarify the

injunction, but he also asked the trial court to find Langford in

contempt for allegedly violating the injunction in Adams's favor. Even

if Adams's merits activity alone is insufficient to waive any right he

had to arbitrate his claims, this is an additional factor we consider.

See Perry Homes, 258 S.W.3d at 591-92.

Other Factors

Other factors implicated by Adams's actions are relevant to our

inquiry. Not only did Adams embrace the judicial process the day after

suit was filed by filing an answer, affirmative defenses, and

counterclaims, but he also brought in third parties. The trial date was

reset repeatedly either at the request of Adams or as a direct result of

his conduct. Months after the case was filed and Adams had engaged in

discovery, filed motions to compel and to show authority, pursued and

obtained injunctive relief, and had filed his second amended answer and

counterclaim, he paid a jury fee. By the time Adams filed his motion to

compel arbitration, the clerk's record included over eight hundred pages

of pleadings, motions, and other documentation. The trial court took

judicial notice of its “ample file” and noted that “the majority of the

file was generated by Adams'[s] own vigorous litigation of this case.”

In addition, Adams filed a rule-12 motion and sought mandamus

appellate review when the trial court denied him relief. Although the

rule-12 motion and Adams's immediate detour to the appellate court did

not implicate the merits of the underlying dispute, the journey delayed

and frustrated the trial court's ability to resolve the case and

increased the litigation costs for the parties. Importantly, Adams's use

of mandamus appellate review is activity otherwise not available in


Adams also invoked the judicial process through independent

proceedings: the involuntary bankruptcy petition and BA Acquisition's

suit against Langford and StaxxRing in the 116th district court.

Although we normally would not consider litigation activity in other

forums as evidencing waiver, Adams's other lawsuits support the

conclusion he was willing to engage in all methods of litigation

activity inconsistent with the right to arbitrate as part of his

strategy against Langford and StaxxRing. See Christus Spohn, 231 S.W.3d

at 481 (“While we ordinarily would not consider actions in a separate

cause as indicative of waiver, . . . we construe [movant's] actions in

this separate lawsuit as part of its strategic plan of defense in the

underlying matter that would be inconsistent with a right to

arbitrate.”); cf. Haddock v. Quinn, 287 S.W.3d 158, 180 (Tex. App.-Fort

Worth 2009, pet. denied) (“Moreover, participation in litigation to gain

an advantage in future litigation can result in waiver.”). We

conclude, considering the totality of the circumstances, Adams

substantially invoked the judicial process. By arguing Langford and

StaxxRing failed to meet their difficult burden of showing his

individual actions were sufficient to constitute waiver, Adams ignores

the requirement that we examine all circumstances in determining whether

he exhibited an intent to avail himself of the judicial process. See

Perry Homes, 258 S.W.3d at 591; see also Nw. Constr. Co. v. Oak

Partners, L.P., 248 S.W.3d 837, 849 (Tex. App.-Fort Worth 2008, pet.

denied) (“Northwest focuses on its various activities in the suit in

isolation; however, when viewed together, all of Northwest's actions in

the suit indicate an intention to avail itself of the judicial

process.”). At the time Adams invoked the arbitration clause contained

in the StaxxRing bylaws he had cited, quoted, and relied on early and

often, discovery was closed. All that appeared to remain in the case

were court-ordered depositions, including his, and trial of the case.

The trial court did not err in finding Adams had substantially invoked

the judicial process. See Christus Spohn, 231 S.W.3d at 479 (noting

actions inconsistent with right to arbitrate include some combination of

filing answer and counterclaim, conducting extensive discovery, moving

for continuance, and failing to timely request arbitration); Okorafor v.

Uncle Sam & Assocs., Inc., 295 S.W.3d 27, 40 (Tex. App.-Houston [1st

Dist.] 2009, pet. denied) (finding circumstances reflected concerted

effort seven months into simple defense strategy of denying sworn

account, to escalate process by multiple sworn and affirmative defenses,

claims of failures of conditions precedent, and affirmative claims for

relief, including declaratory relief, attorney's fees, and sanctions).


In determining whether Adams's substantial invocation of the

judicial process constitutes a waiver of his arbitration rights, we also

must determine whether StaxxRing and Langford showed prejudice. Perry

Homes, 258 S.W.3d at 595. In this context, “prejudice 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 the same issue.” Id. at

597 (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 an intent to arbitrate. Id. at 600 (quoting

PAICO, 383 F.3d at 346)).

Here, Langford and StaxxRing presented sufficient evidence of

prejudice resulting from Adams's failure to invoke his arbitration

rights for thirteen months. They showed that over 5,000 pages of

documents were produced in response to Adams's discovery requests while

they continued unsuccessfully to obtain discovery from Adams. The trial

court had ordered Adams's deposition at the same time it denied Adams's

motion to compel arbitration; Adams then filed this interlocutory appeal

and obtained a stay of the trial court proceedings. Langford and

StaxxRing also incurred approximately $21,000 in legal fees solely for

the purpose of responding to Adams's discovery requests and motions and

$35,000 in legal fees in addressing Adams's rule-12 motion and appeal.

As of the date of the hearing on Adams's motion to compel arbitration,

Langford and StaxxRing had incurred $110,000 in legal fees in this

matter alone. Langford also testified that, in responding to discovery

requests, she lost “hundreds of hours” of income-producing activity and

needed to hire an accounting person to assist StaxxRing with production.

See Christus Spohn, 231 S.W.3d at 482 (considering personal prejudice

suffered by party as result of delay). StaxxRing also spent over $20,000

to handle the involuntary bankruptcy proceeding. See Footnote 5

In addition, when Adams filed his motion to compel arbitration,

discovery was closed with the exception of court-ordered depositions.

Thus, after Adams had obtained thousands of pages of documents from

Langford and StaxxRing under the rules of civil procedure, he sought to

apply the arbitration rules to any further proceedings. See Okorafor,

295 S.W.3d at 40 (“Armed with discovery provided by Uncle Sam and facing

a looming deadline to produce discovery requested by Uncle Sam, the

Okorafors tried to have it both ways and moved to compel arbitration.

Having substantially invoked the litigation process, the Okorafors

abruptly attempted to arrest it to gain the advantage of avoiding

reciprocal discovery.”) (internal citations omitted).

Adams argues that in order to show prejudice from pretrial

discovery, Langford and StaxxRing must show that discovery would not be

useful in arbitration and any costs would not have been incurred in

arbitration. The authority cited by Adams precedes Perry Homes, in which

the court stated such considerations were factors to consider but were

not dispositive on the issue of waiver. Perry Homes, 258 S.W.3d at

591-92. The majority in Perry Homes emphasized in response to a

dissenting argument that there would be no prejudice “from extensive

discovery without proof that an arbitration would have prohibited it”:

That again is impossible; arbitrators have almost unbridled discretion

regarding discovery, so no one can predict what they might do in

advance. Presuming (as the dissents do) that broad discovery is

generally available in arbitration simply ignores one of its most

distinctive features.

Id. at 599. That Langford and StaxxRing did not prove the discovery

incurred during litigation (and the attendant costs) would not have

occurred in arbitration, does not negate a conclusion they were

prejudiced by Adams's failure to timely invoke the arbitration clause

while simultaneously actively obtaining discovery under the rules of

civil procedure. See Bryce, 271 S.W.3d at 357-58; see also Perry Homes,

258 S.W.3d at 599 (“This confuses proof of the fact of prejudice with

proof its extent; the Defendants had to show substantial invocation that

prejudiced them, not precisely how much it all was.”).

In addition to this record evidencing costs involved, the status

of discovery, and the status of the litigation, Langford and StaxxRing

also presented their attorney's affidavit, in which he described the

effect Adams's litigation activities had on his clients' legal

positions: Perhaps more significant to the issue of prejudice than

attorneys' fees themselves is the fact that Adams forced Plaintiffs to

marshal their evidence, thought process, and legal analysis of its

attorneys in responding to Adams'[s] Mandamus, Emergency Appeal, Motion

to Show Authority, Temporary Injunction, Motion to Clarify/Modify and

reconsider, and the other pleadings and discovery Adams conducted in

this case that he would not have been able to in arbitration.

Evidence of compromise to Langford's and StaxxRing's legal positions is

another factor relevant to our consideration in determining prejudice.

See Perry Homes, 258 S.W.3d at 597. Much of their briefing and the

evidence they presented required Langford and StaxxRing to address the

merits of the dispute with Adams and to marshal their legal strategy in

defense of Adams's aggressive litigation activities.

Reviewing the record before us, we agree Langford and StaxxRing

presented sufficient evidence of prejudice to support the trial court's

findings. This record is not unlike that described by the supreme court

in its Perry Homes decision: [Movants] got extensive discovery under one

set of rules and then sought to arbitrate the case under another. They

delayed disposition by switching to arbitration when trial was imminent

and arbitration was not. They got the court to order discovery for them

and then limited their opponents' rights to appellate review. Such

manipulation of litigation for one party's advantage and another's

detriment is precisely the kind of inherent unfairness that constitutes

prejudice under federal and state law.

Perry Homes, 258 S.W.3d at 597. Similarly, Langford and StaxxRing were

prejudiced by Adams's strategic attempt to switch to arbitration and a

different set of rules after thirteen months of aggressive litigation in

which he got extensive discovery, took full advantage of the rules of

procedure and appellate remedies, and repeatedly avoided both a trial

date and his own deposition.


Because Adams substantially invoked the judicial process to the

detriment and prejudice of Langford and StaxxRing, we conclude Adams

waived any arbitration rights under the StaxxRing bylaws. We affirm the

trial court's order denying Adams's motion to compel arbitration.




Footnote 1

The suit is styled “StaxxRing, Inc.; and Molly Langford ex rel
StaxxRing, Inc. v. William Bryan 'Bill' Adams,” but both the original

petition and first amended petition state that the suit “is brought on
behalf of the Company and Ms. Langford individually” against Adams.

Footnote 2

While the bankruptcy proceeded, Adams filed a state-bar grievance
against Langford and StaxxRing's counsel on the same grounds alleged in
his rule-12 motion to show authority.

Footnote 3

The court in Perry Homes also noted federal courts examine other
factors in determining waiver, including: whether the movant was the
plaintiff who elected to file in court or the defendant who merely
responded, how long the movant delayed before requesting arbitration,
whether the movant knew of the arbitration clause “all along,” how much
pretrial activity related to the merits rather than arbitrability or
jurisdiction, how much time and expense was incurred in litigation,
whether the movant sought or opposed arbitration previously in the case,
whether the movant filed affirmative claims or dispositive motions, what
discovery would be unavailable in arbitration, whether litigation
activity would be duplicated in arbitration, and when the case was to be
tried. Perry Homes, 258 S.W.3d at 590-91.

Footnote 4

The extensive record here contrasts the record in our earlier case of
Small v. Specialty Contractors, Inc., 310 S.W.3d 639 (Tex. App.-Dallas
2010, no pet.), in which we concluded the movants had not waived their
right to arbitration by invoking the judicial process to the prejudice
of nonmovant. Id. at 649. The record in Small contained no reporter's
record of argument before the trial court and no evidentiary hearing
regarding that motion to compel arbitration. Id. at 645-46. The trial
court in Small did not make findings, and the appellate record merely
contained the docket sheet, pleadings, briefing on a motion for summary
judgment, briefing on the motion to compel arbitration, and a notice of
partial non-suit. Id. at 646.

Footnote 5

Adams argues that any costs Langford and StaxxRing incurred as a result
of the bankruptcy filing should not be considered, citing an agreed
order in that suit for payment by Adams of $16,500 to resolve relief
sought by StaxxRing. The referenced order, however, is not part of the
appellate record, but is instead attached as an appendix to Adams's
opening brief on appeal. Even if we were to take judicial notice of the
order, it does not negate StaxxRing and Langford's showing of prejudice.
The settlement amount is less than the amount Langford's testimony shows
was expended as legal fees and the settlement does not address the
months of delay due to the bankruptcy stay.

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