The Court issued two opinions with today’s order list, the long-discussed case Perry Homes v. Cull and a slightly revised opinion on rehearing in Igal v. Brighstar Information Technology Group, Inc..
More details follow the break.
* Perry Homes v. Cull, No. 05-0882. This case has been far more discussed for who the litigants are than what the issues are. The issue, it turns out, is under what circumstances a party waives an arbitration clause in a contract by his or her litigation conduct.
The Culls sued Perry Homes for defects in their home. After substantial discovery and shortly before a possible trial, the Culls decided that they would rather arbitrate and instead invoked the arbitration clause in their contract. Perry Homes sought mandamus relief but was rebuffed. The arbitration was eventually held, awarding relief to the Culls. Perry Homes then challenged that arbitral proceeding as defective because the arbitration clause had been waived.
The Texas Supreme Court divided 5-4 on the merits. To reach that point of narrow disagreement, the Court first agreed 9-0 on some basic questions of Texas arbitration law, which included the principle that an arbitration clause could be waived by litigation conduct, that this was a question for the courts and not the arbitrator, that it was not too late to advance this waiver argument even <em>after</em> the arbitration took place, and that a party seeking to invoke the waiver must establish some measure of prejudice.
Justice Brister <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882.pdf">wrote for the Court</a>, joined in full by Justices Hecht, O'Neill, Wainwright and Medina. Justice O'Neill also wrote a separate <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882c.pdf">concurring opinion</a>. Parts I-V of that opinion discussed general principles of arbitration law that were joined by all nine Justices.
Justice Johnson wrote an opinion <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882cd.pdf">concurring in part and dissenting in part</a>, which was joined by Chief Justice Jefferson and Justice Green. Justice Willett wrote a separate opinion <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882cd1.pdf">concurring in part and dissenting in part</a>.
Five Justices agreed that the level of litigation conduct by the Culls here met the threshold for showing waiver and, ultimately, that Perry Homes showed it had suffered prejudice. Accordingly, the Court reversed and remanded for trial — in which the Culls can again assert their claims against Perry Homes.
<strong>How Much Litigation Conduct Results in Waiver?
Before today, the Court had acknowledged that it was theoretically possible for a party to waive arbitration by litigation conduct, but it had in every prior case concluded that the alleged waiver was insufficient (majority, pp. 11-12).
Today, the Court lined up those opinions and concluded: "Unquestionably, the Culls substantially invoked the litigation process, as their conduct here far exceeds anything we have reviewed before." Why? The Court looked to the physical representation of discovery in the trial court's paper file, including the number of pages of each filing. The Court also noted that the Culls had originally objected to arbitration and had waited fourteen months into the proceeding to invoke the arbitration clause. Applying a "totality of the circumstances" test, the Court concluded that this record demonstrated waiver.
What guidance is there for future litigants? The Court listed many factors that might properly bear on the "totality of the circumstances" analysis, many of which it did not analyze in relation to this case. So, future litigants appear to have a wide range of factors to argue from — including those drawn from the federal courts (pp. 12-13) and from earlier Texas Supreme Court decisions (pp. 13-14).
But the narrow example of this case may prove tricky. That's because the Court focused so narrowly on the few factors that were evident from the paper file — which is a constraint imposed by the shallowness of the record Perry Homes made on these points in the trial court. (( The dissenting Justices found this record to be so shallow that it was impossible to say that the trial court had abused its discretion in ordering arbitration. )) Whatever the other factors enumerated by the Court across several pages of its opinion may suggest, parties who have objectively done these same measurable things may find great difficulty overcoming the Court's emphatic statement that even the admittedly limited record in <em>Perry Homes</em> made waiver "[u]nquestionabl[e]."
<strong>What Standard Must Be Met To Show Prejudice?</strong>
There will be much more room to argue about "prejudice." While a majority of five agreed about the standards necessary to show waiver, the result was less clear about what is needed to demonstrate <em>prejudice</em> to the party asserting waiver.
The majority opinion embraces an approach that seems focused on the fairness of the litigation process rather than costs shouldered by each party, which will leave ample ground for litigants on both sides of future cases to argue for essentially de novo review of the question. But that analysis was joined by only four Justices; Justice O'Neill's separate concurrence appears to set out a different sort of test than that used by Justice Brister's majority opinion.
Justice O'Neill's separate opinion — the fifth vote on prejudice — says:
> I join the Court’s opinion, but write separately to note that I believe the proof required to demonstrate prejudice in any given case should be measured by the degree to which the litigation process has been invoked. In some circumstances, a party’s invocation of the judicial process may be so substantial that a court could presume the party resisting arbitration has been prejudiced and the right to arbitration has been waived. In my view, such a presumption may easily be drawn on this record.
In other words, Justice O'Neill applied a presumption of prejudice because of the degree of litigation conduct here. That varies somewhat from the majority's approach, which was a "totality of the circumstances" approach in which no single factor was dominant. (The majority discusses prejudice at pp. 22-23, 25-28 of <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882.pdf">the PDF version</a>.) And it raises the question of whether any future case might qualify for "waiver" but fall short of that presumption of prejudice.
<strong>Lessons for "Abuse of Discretion" Review</strong>
In dissent, <a href="http://www.supreme.courts.state.tx.us/historical/2008/may/050882.pdf">Justice Johnson would have held</a> (see p.7) that the record here did not establish prejudice because Perry Homes failed to make its case in the trial court. (( Justice Willett's opinion reached the same conclusion as Justice Johnson's, but did not engage in the same back-and-forth with the majority. Instead, Justice Willett wrote that the record made this a close case and that he ultimately concluded that the trial court did not abuse its discretion in ordering arbitration. ))
> In sum, there were decisions for the trial court to make based upon weighing evidence,
drawing inferences from it in light of the parties’ contentions, determining what the evidence and
inferences proved, and drawing a conclusion as to Defendants’ claims of prejudice. That situation
requires our deferring to the trial court’s findings and order when the standard of review is abuse of
discretion.
The majority dismisses that argument by reframing what the dissent saw as a <em>factual</em> dispute as instead a legal dispute. The majority says that there is no disagreement about the papers that flew back and forth between the parties in discovery (( The majority also focused its "waiver" analysis on the papers in the record, rather than other factors. )), but instead that the parties merely disagree about how to characterize those papers — and says this is a question on which the appellate courts are free to second-guess the lower courts:
> Under a proper abuse-of-discretion review, waiver is a question of law for the court, and we do not defer to the trial court on questions of law. We do defer to a trial court’s factual findings if they are supported by evidence, but there was no factual dispute here regarding whether the Culls initially opposed arbitration, whether they conducted extensive merits discovery, or whether they sought arbitration late in the litigation process. This leaves only the conclusion whether such conduct constitutes prejudice, a legal question we cannot simply abandon to the trial
court.
The majority held that Perry Homes was not required to have detailed evidence of prejudice because the district court was not being asked to determine the extent of prejudice (or its cost), but rather whether at least some prejudice existed.
The lesson for "abuse of discretion" practice is the obvious one — to the extent you can frame your case as being about agreed facts rather than contested facts, you can obtain what is essentially de novo review.
The lesson for future arbitration-waiver cases is more murky. It seems risky for future litigants to cavalierly assume that they can get by without introducing evidence of prejudice, perhaps even of the <em>extent</em> of prejudice. In part, that's because Justice O'Neill's concurrence quite explicitly says that there is a sliding scale of proof ("the proof required to demonstrate prejudice in any given case should be measured by the degree to
which the litigation process has been invoked”). With less clear evidence of “waiver” here, the proof of “prejudice” might have been inadequate.
- Igal v. Brightstar Information Technology Group, Inc., No. 04-0931.
This was the case in which the 8 members of the Court who were not recused divided 4-to-4 about whether a lawsuit is barred by res judicata if the same subject matter was considered in a previous Texas Workforce Commission proceeding that was ultimately decided on limitations grounds. That tie was broken by Justice McCoy of the Fort Worth Court of Appeals, who agreed — but only on some of the grounds. So the Court, by a 5-to-4 margin, held that a decision by the TWC on limitations grounds did act to extinguish common-law claims in court through principles of res judicata.
Previous coverage here included quick postings about Professor Beal filing an amicus brief in the case and about the motion for rehearing itself.
Today, the Court denied the pending motion for rehearing in this case and issued a new majority opinion, replacing its previous opinion of December 7, 2007.
The changes are very minor and do not affect the Court’s holding. (( I saw two changes. First, the Court slightly cleaned up its description of the TWC’s appeals process, changing its description of Igal’s appeal as having “included appearances by counsel and witness testimony for both sides” to a new description of “including legal argument and witnesses for both sides.” Second, the Court added a sentence to footnote 4, which discusses a 2003 study concluding that the average wage claim was for $420. The new sentence emphasizes that Igal’s claim was for $285,234.57. )) The dissenting Justices did not issue a revised opinion.