ACCEPTED 04-15-00469-CV FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS 9/3/2015 10:37:38 AM KEITH HOTTLE CLERK

NO. 04-15-00469-CV

FILED IN 4th COURT OF APPEALS IN THE FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS AT SAN ANTONIO, TEXAS 09/3/2015 10:37:38 AM KEITH E. HOTTLE Clerk

CASH BIZ, LP, CASH ZONE, LLC D/B/A CASH BIZ and REDWOOD FINANCIALS, LLC

Appellants.

v. HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS, and ROOSEVELT COLEMAN, JR., on behalf of themselves and for all other similarly situated

Appellees.

From the 224th Judicial District Court for Bexar County, Texas, No. 2015-CI-01545

BRIEF ON INTERLOCUTORY APPEAL

Edward S. Hubbard Patrick E. Gaas State Bar No. 10131700 State Bar No. 07562790 [email protected] [email protected] COATS, ROSE, YALE, RYMAN & LEE, P.C. ^[9] Greenway Plaza, Suite 1100 Houston, Texas 77046 (713) 651-0111 (713) 651-0220 Facsimile COUNSEL FOR APPELLANT

ORAL ARGUMENT REQUESTED

010725.000005\4816-2886-4038.v2

NO. 04-15-00469-CV

IN THE FOURTH COURT OF APPEALS AT SAN ANTONIO, TEXAS

CASH BIZ, LP, CASH ZONE, LLC D/B/A CASH BIZ and REDWOOD FINANCIALS, LLC

Appellants.

v. HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS, and ROOSEVELT COLEMAN, JR., on behalf of themselves and for all other similarly situated

Appellees.

From the 224th Judicial District Court for Bexar County, Texas, No. 2015-CI-01545

IDENTITY OF PARTIES AND COUNSEL In compliance with Rule 38.1(a), Appellants provide the following list of the parties to the trial court order at issue, and the names and addresses of trial and appellate counsel for the parties: i|Page 010725.000005\4816-2886-4038.v2 Appellants: CASH BIZ, LP, CASH ZONE, LLC d/b/a Cash Biz and Redwood Financial, LLC (“Cash Biz”) Represented by: Coats, Rose, Yale, Ryman & Lee, P.C. Edward S. Hubbard State Bar No. 10131700 [email protected] Patrick E. Gaas State Bar No. 07562790 [email protected] 9 Greenway Plaza, Suite 1100 Houston, Texas 77046 (713) 651-0111 (713) 651-0220 facsimile Appellees: HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS, and ROOSEVELT COLEMAN, JR., on behalf of themselves and for all other similarly situated Represented by: Daniel Dutko State Bar No. 24054206 Hanszen Laporte 11767 Katy Freeway, Suite 850 Houston, Texas 77079 ii | P a g e 010725.000005\4816-2886-4038.v2 TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL .................................................................................. i TABLE OF CONTENTS ............................................................................................................... iii INDEX OF AUTHORITIES.......................................................................................................... iv STATEMENT OF CASE .............................................................................................................. ix STATEMENT REGARDING REQUEST FOR ORAL ARGUMENT ........................................ xi ISSUES PRESENTED.................................................................................................................. xii STATEMENT OF FACTS ............................................................................................................. 1 SUMMARY OF ARGUMENT ...................................................................................................... 7 ARGUMENT .................................................................................................................................. 9 A. The Standard of Review.......................................................................................... 9 B. The Burdens of Proof ............................................................................................ 11 C. Cash Biz met its burden of proof to enforce the arbitration provision ................. 14 9 U.S.C. § 3. ″[The opponent of arbitration] bears the burden of establishing that the arbitration clause is unenforceable.″ Stewart v. Molded Plastic’s Research of Ill., Inc., 2001 U.S. Dist. LEXIS 20985, 2001 WL 1607464, at *1 (N.D. Ill. Dec. 17, 2001) (citing Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226-27, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987) (″The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue.″)).

III. DISCUSSION

A. Bill Kay Did Not Waive its Right to Arbitration 3 Professor Margaret Moses argues forcefully, however, that judges have misinterpreted the FAA, granting it far greater breadth than Congress contemplated when it passed the law:

″. . . [The Federal Arbitration Act ]--which has been construed to preempt state law, eliminate the requirement of consent to arbitration, permit arbitration [*8] of statutory rights, and remove the jury trial right from citizens without their knowledge or consent--is a statute that would not likely have commanded a single vote in the 1925 Congress.″

Margaret L. Moses, Statutory Misconstruction: How the Supreme Court Created a Federal Arbitration Law Never Enacted by Congress, 34 FLA. ST. U. L. REV. 99 (2006). 4 Bill Kay argues that Illinois law also supports his motion, but the plaintiff responds only within the context of the FAA. Page 3 of 5

2008 U.S. Dist. LEXIS 52946, *7

Gatlin first contends that because Caputo, acting on behalf of Bill Kay, initiated criminal proceedings against Gatlin, Bill Kay waived its right to arbitration. Choosing [*9] to submit issues which are arbitrable under a contract to a court for decision is a presumptive waiver of the right to arbitrate. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995); Kennedy v. Commercial Carriers, Inc., 630 N.E.2d 1059, 1062, 258 Ill. App. 3d 939, 943, 196 Ill. Dec. 894, 897 (Ill. App. Ct. 1st Dist. 1994). This is an unusual fact pattern. At least, neither party has cited any case authority specifically addressing the issue whether initiation of a criminal case in court to resolve a contractual dispute amounts to submitting arbitrable issues to a court for decision. Here, as the facts are presented, Bill Kay through its agent was not seeking resolution of a dispute contemplated by the arbitration clause; it was attempting to effect its contractual right to take possession of the vehicle. Certainly, Bill Kay would not have had a justiciable claim at that point. It follows that Bill Kay has not waived its right to arbitration. B. The Arbitrability of Gatlin’s Claims against Bill Kay is an Issue to be Determined by the Arbitrator Gatlin next contends that these claims do not fall within the scope of the arbitration agreement because [*10] false arrest and malicious prosecution claims are too attenuated to have been reasonably considered by the plaintiff at the time he signed the arbitration agreement. One of Bill Kay’s points in support of its motion, however, is that the parties agreed to submit the question of arbitrability itself to an arbitrator. As quoted above, the arbitration agreement provides that ″’dispute’ includes any question regarding whether a matter is subject to arbitration under this Arbitration Agreement.″ Under both federal and Illinois law, ″courts have recognized that parties are free to agree to submit the question of arbitrability itself to arbitration.″ Bahuriak v. Bill Kay Chrysler Plymouth, Inc., 786 N.E.2d 1045, 1050, 337 Ill. App. 3d 714, 719, 272 Ill. Dec. 211 (2003) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-45, 115 S. Ct. 1920, 1923-25, 131 L. Ed. 2d 985, 992-94 (1995)); Int’l Bhd. of Elec. Workers, Local 21 v. Ill. Bell Tel. Co., 491 F.3d 685, 687 (7th Cir. 2007) (Issues of arbitrability are to be decided by the court unless the parties have clearly provide otherwise). Gatlin has not responded to this argument in his response brief. The arbitration agreement at [*11] issue clearly stipulates that questions of arbitrability will be submitted to arbitration. The court must therefore submit the question of arbitrability to the arbitrator. C. Arbitration will be Stayed Until the Conclusion of this Case Gatlin’s final contention is that his claims against those defendants who were not signatories of the arbitration agreement are intertwined with the claims against Bill Kay and it would therefore be prejudicial to pursue these claims separately. His argument overlooks the fact that ″the Federal Arbitration Act ’requires piecemeal resolution when necessary to give effect to an arbitration agreement’ and mandates enforcement of an arbitration agreement ’notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.’″ Board of Managers of the Courtyards at the Woodlands Condominium Ass’n v. IKO Chicago, Inc., 697 N.E.2d 727, 732, 183 Ill. 2d 66, 75, 231 Ill. Dec. 942, 947 (1998) (citing Moses H. Cone Memorial Hospital, 460 U.S. at 20)). Immediate submission of Gatlin’s claims against Bill Kay, however, would undermine the court’s jurisdiction over Gatlin’s nonarbitrable claims against the other [*12] defendants in this case. Because Bill Kay’s liability is premised on respondeat superior, it will depend on the liability of Caputo and Illinois Solutions Group and on findings of fact regarding their actions. The arbitrator could not determine Bill Kay’s liability without deciding whether Caputo and ISG are liable, and if it decides those issues before the court could do so, its decision could potentially have a res judicata effect on the claims against those parties in this case. When a similar situation arose in Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 644 (7th Cir. 1981), the Seventh Circuit said that the district court did not have discretion to force the parties to litigate otherwise arbitrable claims in order to preserve its jurisdiction over nonarbitrable claims, but noted that it did Page 4 of 5 2008 U.S. Dist. LEXIS 52946,[*12] have discretion to stay the arbitration of those claims until the nonarbitrable claims had been decided by the court. Because that course of action would preserve the court’s jurisdiction over Gatlin’s nonarbitrable claims and would also promote efficiency, arbitration of Gatlin’s claims against Bill Kay will be stayed until the conclusion of this case. If the arbitrator determines [*13] that those claims are not arbitrable, they will return to the court, and their resolution will be likely to have been simplified by the proceedings in the interim. IV. Conclusion and Order For the foregoing reasons, Bill Kay’s motion to stay and to compel arbitration [# 12] is granted; however, the arbitration is stayed until Gatlin’s nonarbitrable claims have been resolved by the court. Dated: July 10, 2008 /s/ Joan H Lefkow Joan Humphrey Lefkow United States District Judge Page 5 of 5 | | Caution As of: September 1, 2015 5:26 PM EDT Griffin v. Burlington Volkswagen, Inc. Superior Court of New Jersey, Appellate Division October 27, 2009, Submitted; February 8, 2010, Decided DOCKET NO. A-2727-08T1 Reporter 411 N.J. Super. 515; 988 A.2d 101; 2010 N.J. Super. LEXIS 20 JOSEPH GRIFFIN, PLAINTIFF-APPELLANT, v. BURLINGTON VOLKSWAGEN, INC., AND AUGUSTINE STAINO, DEFENDANTS-RESPONDENTS. Subsequent History: [***1] Approved for Publication February 8, 2010. Subsequent appeal at, Remanded by Griffin v. Burlington Volkswagen, 2014 N.J. Super. Unpub. LEXIS 2269 (App.Div., Sept. ^[18], 2014) Prior History: On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-2756-08. Core Terms arbitration, financing, Retail, parties, arbitration clause, tort claim, subject to arbitration, arrest Case Summary Procedural Posture Plaintiff car purchaser sued defendant seller for, inter alia, false arrest, false imprisonment, malicious prosecution, abuse of process, and violation of the New Jersey Civil Rights Act of 2004, N.J.S.A. §§ 10:6-1 to -2. The seller moved to dismiss on the ground that the purchaser was required to arbitrate his claims. The Superior Court of New Jersey, Law Division, Burlington County, granted the motion; the purchaser appealed. Overview The purchaser signed a retail order form containing an arbitration provision. Approximately a month after he bought the car, he was advised by the seller that the third-party lender it had expected to provide financing had changed its mind and was unwilling to do so. The seller demanded that the purchaser return the car, but he did not comply. He alleged that the seller tried to repossess the car by wrongfully reporting to police that it was stolen, which led to his being arrested while driving it. The appellate court held that under the broad form of the arbitration clause which required the parties to arbitrate any claim that might arise out of or relate to the purchase of the car and the financing thereof, the purchaser was required to arbitrate his claims of false arrest, false imprisonment, and malicious prosecution, based on the seller’s reporting the car stolen when the purchaser retained the car despite the seller’s demand for its return after financing could not be obtained. The purchaser’s tort claims were subject to arbitration because they depended in part on an interpretation of the parties’ rights under the retail order form. 411 N.J. Super. 515,[*515] ; 988 A.2d 101, **101; 2010 N.J. Super. LEXIS 20, ***1 Outcome The judgment was affirmed. LexisNexis® Headnotes Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Evidence > Inferences & Presumptions > Presumptions HN1 It is firmly established in New Jersey that because of the favored status afforded to arbitration, an agreement to arbitrate should be read liberally in favor of arbitration. Therefore, courts operate under a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN2 Courts have generally read the terms ″arising out of″ or ″relating to″ a contract as indicative of an extremely broad agreement to arbitrate any dispute relating in any way to the contract. Arbitration provisions using such expansive language are construed to require arbitration of statutory claims such as alleged civil rights violations and common law torts. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Torts > General Overview HN3 For a tort claim to be subject to arbitration under a broad arbitration clause, it must raise some issue the resolution of which requires reference to or construction of some portion of the parties’ contract. Where, however, a tort claim is independent of the contract terms and does not require reference to the underlying contract, arbitration is not compelled. Counsel: J. Craig Currie (J. Craig Currie & Associates), attorney for appellant. Wardell, Craig, Annin & Baxter, attorneys for respondents (Jeffrey S. Craig and Domenic B. Sanginiti, Jr., on the brief). Judges: Before Judges SKILLMAN, GILROY and SIMONELLI. The opinion of the court was delivered by SKILLMAN, P.J.A.D. Opinion by: SKILLMAN Opinion [*516] [**101] The opinion of the court was delivered by SKILLMAN, P.J.A.D. In August 2006, plaintiff Joseph Griffin purchased a car from defendant Burlington Volkswagen. This purchase required Griffin to obtain financing. According to Griffin, he was assured at the time of the sale by defendant Page 2 of 5 411 N.J. Super. 515,[*516] ; 988 A.2d 101, **101; 2010 N.J. Super. LEXIS 20, ***1 Augustine Staino, an employee of Burlington Volkswagen, that he had already been approved [**102] for such financing. After paying a $ 1,000 deposit and signing a retail order form, Griffin obtained possession of the car and thereafter received what he described as a ″certificate of ownership.″ Griffin subsequently drove the car to Texas where he was enrolled in college. [*517] Approximately a month after entering into this transaction, Griffin was informed by Burlington Volkswagen that [***2] the third-party lender it had expected to provide financing for Griffin’s purchase of the car had changed its mind and was unwilling to provide financing. Moreover, Burlington Volkswagen declined to finance the purchase itself and instead undertook efforts to repossess the car from Griffin. According to Griffin, these efforts consisted of harassing telephone calls to Griffin and his employer at Griffin’s place of employment and to Griffin and his girlfriend at their residence. According to Griffin, Burlington Volkswagen also reported to the Burlington Police Department that Griffin had stolen the car by forcibly removing it from their premises. As a result of this report, a warrant was issued for Griffin’s arrest. Based on this warrant, Griffin was arrested while driving the car in Mississippi and incarcerated overnight. Griffin had to retain local counsel, post a bond, and remain in Mississippi until he provided an explanation for his possession of the car sufficient for Mississippi law enforcement authorities to allow his release. Griffin also alleges that the Mississippi police seized the car and that he has not seen the car since. Thereafter, Griffin had to return to New Jersey to [***3] respond to the criminal charges brought against him as a result of Burlington Volkswagen’s report of his theft of the car. On May 7, 2007, those charges were dismissed. Griffin subsequently brought this damages action against Burlington Volkswagen and Staino in the Law Division, asserting common law claims for false arrest, false imprisonment, malicious prosecution, abuse of process, invasion of privacy, and intentional infliction of emotional distress and a statutory claim under the New Jersey Civil Rights Act of 2004, N.J.S.A. 10:6-1 to -2. Before filing an answer, Burlington Volkswagen moved to dismiss Griffin’s complaint on the ground that he was required to arbitrate his claims under an arbitration provision contained in the [*518] retail order form. The trial court granted this motion. Griffin appeals. The arbitration provision that the trial court concluded requires Griffin to arbitrate his claims against Burlington Volkswagen states in pertinent part: The parties to this agreement agree to arbitrate any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the purchase or lease identified in this Motor Vehicle [***4] Retail Order and the financing thereof. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes. New Jersey Consumer Fraud Act, Used Car Lemon Law, and Truth-in-Lending claims are just three examples of the various types of claims subject to arbitration under this agreement. . . . There are no limitations on the type of claims that must be arbitrated, except for New Car Lemon Law and Magnuson-Moss Warranty Act claims which are excluded from arbitration under this agreement. HN1 It is firmly established in this State that ″[b]ecause of the favored status [**103] afforded to arbitration, ’[a]n agreement to arbitrate should be read liberally in favor of arbitration.’″ Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 132, 773 A.2d 665 (2001) (quoting Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282, 633 A.2d 531 (1993)). Therefore, ″courts operate under a ’presumption of arbitrability in the Page 3 of 5 411 N.J. Super. 515,[*518] ; 988 A.2d 101, **103; 2010 N.J. Super. LEXIS 20, ***4 sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration [***5] clause is not susceptible of an interpretation that covers the asserted dispute.’″ EPIX Holdings Corp. v. Marsh & McLennan Cos., 410 N.J. Super. 453, 471, 982 A.2d 1194 (App.Div.2009) (quoting Caldwell v. KFC Corp., 958 F. Supp. 962, 973 (D.N.J.1997)). HN2 Courts have generally read the terms ″arising out of″ or ″relating to″ a contract as indicative of an ″extremely broad″ agreement to arbitrate any dispute relating in any way to the contract. Angrisani v. Financial Tech. Ventures, L.P., 402 N.J. Super. 138, 149, 952 A.2d 1140 (App.Div.2008); accord EPIX Holdings, supra, 410 N.J. Super. at 472, 982 A.2d 1194 (quoting with approval the court’s ″expansive interpretation″ in Sweet Dreams Unlimited, [*519] Inc. v. Dial-A-Mattress Int’l, Inc., 1 F.3d 639, 642 (7th Cir.1993), of ″an arbitration clause applying to disputes ’arising out of the agreement’ as including ’any dispute between the contracting parties that is in any way connected with their contract.’″). Arbitration provisions using such expansive language are construed to require arbitration of statutory claims such as alleged civil rights violations and common law torts. See, e.g., EPIX Holdings, supra, 410 N.J. Super. at 461, 468-75, 982 A.2d 1194 (tort claims including breach of fiduciary duty, [***6] negligent misrepresentation, and fraud); Alfano v. BDO Seidman, LLP., 393 N.J. Super. 560, 575-77, 925 A.2d 22 (App.Div.2007) (tort claims including fraud and civil conspiracy); Gras v. Assocs. First Capital Corp., 346 N.J. Super. 42, 54-57, 786 A.2d 886 (App.Div.2001) (Consumer Fraud Act claim); Young v. Prudential Ins. Co., 297 N.J. Super. 605, 608, 614-21, 688 A.2d 1069 (App.Div.1997) (Law Against Discrimination and Conscientious Employee Protection Act claims). The retail order form signed by Griffin included an expansive form of arbitration clause under which he agreed ″to arbitrate any claim, dispute, or controversy . . . that may arise out of or relating to the purchase . . . identified in the Motor Vehicle Retail Order and the financing thereof.″ Griffin’s claims ″arise out of″ and ″relate to″ the actions that Burlington Volkswagen took after Griffin retained possession of the car even though financing for this transaction was not obtained and Griffin made no payments beyond his initial $ 1,000 deposit. Specifically, Griffin alleges that Burlington Volkswagen attempted to repossess the car by wrongfully reporting to the Burlington Police Department that he had stolen it, as a result of which he was arrested and [***7] incarcerated in Mississippi and had to defend himself against criminal charges. Griffin’s claims of false arrest, false imprisonment, abuse of process, and malicious prosecution based on Burlington Volkswagen’s actions will depend, at least in part, on a determination of the parties’ respective interests in the car under the Motor Vehicle Retail Order in light of the failure to obtain financing for Griffin’s [*520] purchase. Therefore, Griffin’s claims ″arise out of″ and ″relate to″ this consumer transaction and are thus subject to the arbitration clause contained in the retail order form. See Dan Wachtel Ford, Lincoln, Mercury, Inc. v. Modas, 891 So. 2d 287 (Ala.2004) (holding that plaintiffs claims of ″malicious prosecution . . . and abuse of process [arose] out of [**104] actions taken by [defendant upon plaintiff’s] refusal to return″ a car after defendant was unable to find financing). But see Mannix v. Hosier, 249 A.D.2d 966, 672 N.Y.S.2d 574, 575 (App.Div.1998) (holding that plaintiff’s claim of malicious prosecution that resulted from harassment charges brought by plaintiff’s broker ″only collaterally related to the financial relationship between the parties″). Griffin analogizes Burlington Volkswagen’s [***8] action in reporting that the car had been stolen to the police to a Burlington Volkswagen employee assaulting him in order to regain possession of the car. However, a tort claim based on such an assault would not require a determination of the parties’ respective rights in the car under the Motor Vehicle Retail Order. A Missouri court has concluded that HN3 for a tort claim to be subject to arbitration under a broad arbitration clause, it must raise some issue the resolution of which requires reference to or construction of some portion of the parties’ contract. Where, however, a tort claim is independent of the contract terms and does not require reference to the underlying contract, arbitration is not compelled. Page 4 of 5 411 N.J. Super. 515,[*520] ; 988 A.2d 101, **104; 2010 N.J. Super. LEXIS 20, ***8 [Estate of Athon v. Conseco Finance Servicing Corp., 88 S.W.3d 26, 30 (Mo.Ct.App.2002) (citations omitted).] See also EPIX Holdings, supra, 410 N.J. Super. at 475, 982 A.2d 1194 (requiring arbitration under expansive arbitration clause because plaintiff could not ″maintain its claim for damages without reference to, and reliance upon, the underlying contract″). Under this approach to determining arbitrability under the broad form of arbitration clause involved in this case, a tort claim based [***9] on an assault upon Griffin to regain possession of the car would not be subject to arbitration because it would not require ″reference to the underlying contract.″ However, Griffin’s tort claims against Burlington Volkswagen are subject to arbitration because they [*521] depend in part on an interpretation of the parties’ rights under the Motor Vehicle Retail Order. As alternative grounds for reversal of the judgment dismissing his complaint, Griffin also argues that Burlington Volkswagen should be foreclosed from relying upon the arbitration clause because its invocation of the criminal process to regain possession of the car constituted a waiver or equitably estopped Burlington Volkswagen from seeking arbitration of Griffin’s claims. These arguments are clearly without merit. R. ^[2]:11-3(e)(1)(E). Affirmed. Page 5 of 5 | | Caution As of: September 1, 2015 2:45 PM EDT Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co. Court of Appeals of Texas, Fourteenth District, Houston February 4, 1993, Rendered ; February 4, 1993, Filed NO. B14-92-00509-CV Reporter 849 S.W.2d 380; 1993 Tex. App. LEXIS 334 HEARTHSHIRE BRAESWOOD PLAZA LIMITED PARTNERSHIP, SMP MED CENTER PARTNERS LIMITED, AND JAMES M. BIRNEY, Appellants v. BILL KELLY COMPANY, Appellee Prior History: [**1] On Appeal from the 129th District Court. Harris County, Texas. Trial Court Cause No. 92-03127. Disposition: Affirmed in Part, Reversed and Remanded in Part Core Terms arbitration, trial court, arbitration provision, no evidence, plea in abatement, appellants’, contracts, parties, compel arbitration, motion to stay, disputes, induced, fraud in the inducement, inferred, renovation project, fraud claim, renovation, pleadings, elements of fraud, fraudulently, negotiations, foreclosure, foreclosed, appellant contention, amended petition, unconscionability, allegations, prevails, sections, grounds Case Summary Procedural Posture Appellants, corporate apartment complex owners and their agent, sought review of the order of the 129th District Court of Harris County (Texas), which denied appellants’ pleas in abatement and motions to stay litigation and compel arbitration in an action brought by appellee renovator. The action sought a declaratory judgment and asserted claims for breach of contract, foreclosure of liens, fraud, and negligent misrepresentation. Overview Appellee renovator filed suit against appellants, corporate apartment complex owners and agent, seeking a declaratory judgment that arbitration was unavailable to appellants. Appellee claimed breach of contract, foreclosure of liens, fraud, and negligent misrepresentation, following a contract dispute. The trial court denied appellants’ pleas in abatement and motions to stay litigation and compel arbitration. The court, using the ″no evidence″ standard of review, reversed in part and held that appellee’s affidavits did not present sufficient evidence to support his claim of fraud in the inducement of the contract as a whole or of the arbitration provision of the contract and that the trial court erred in basing its decision on the claims. The court held that appellee clearly showed intent to be bound by the contract with appellants, that the contract was valid even if an appellant failed to sign it, and that, pursuant to the contract, the issue of whether there was a contractual breach was a 849 S.W.2d 380,[*380] ; 1993 Tex. App. LEXIS 334, **1 subject for arbitration. The court affirmed the holding that appellee could proceed with the claims against appellants arising from the renovation of a complex not involved in the case. Outcome The court reversed the order of the lower court that denied appellant corporate apartment complex owners and appellant agent’s pleas in abatement and motions to stay litigation and compel arbitration. The court held that appellee renovator failed to prove fraud in the inducement of the contract as a whole or in the arbitration provision of the contract, and the court held that contractual breach was a subject for arbitration. LexisNexis® Headnotes Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders Civil Procedure > Appeals > Standards of Review > General Overview Civil Procedure > ... > Standards of Review > Substantial Evidence > General Overview HN1 In a standard appeal, when the appellant raises ″no evidence″ and ″factual insufficiency″ points, the appellate court reviews the ″no evidence″ point first. If the court finds there is some evidence, it proceeds then to consider the insufficient evidence point. The proper standard of review in an appeal from an interlocutory order concerning a motion to stay litigation and compel arbitration is simply ″no evidence.″ Civil Procedure > ... > Standards of Review > Substantial Evidence > General Overview HN2 In reviewing ″no evidence″ or legal sufficiency points, the court considers only the evidence and inferences, when viewed in their most favorable light, that tend to support the finding under attack, and disregards all evidence and inferences to the contrary. If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. When there are no findings of fact and conclusions of law, the court affirms the judgment if there is evidence to support it upon any legal theory asserted by the prevailing party. Contracts Law > Contract Conditions & Provisions > General Overview HN3 See Tex. Rev. Civ. Stat. Ann. art. 224 (1992). Torts > Business Torts > Fraud & Misrepresentation > General Overview HN4 In order to prove fraud, a plaintiff has to show that: (1) a material representation was made; (2) the representation was false; (3) when the defendant made it he or she knew it was false, or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the representation was made with the intention that it should be acted upon by the plaintiff; (5) the plaintiff acted in reliance upon the representation; and (6) the plaintiff thereby suffered injury due to its reliance on the representation. Further, because the representation involves a promise to do an act in the future, the plaintiff also has to prove that at the time the representation was made, the defendant had no intention of performing the act. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders Page 2 of 15 849 S.W.2d 380,[*380] ; 1993 Tex. App. LEXIS 334, **1 HN5 An order overruling a plea in abatement is interlocutory in nature because the order does not finally resolve the controversy. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview Contracts Law > Defenses > Unconscionable > General Overview Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN6 Under the Texas General Arbitration Act, Tex. Rev. Civ. Stat. Ann. art. 224 (1992), an agreement to arbitrate is valid unless grounds exist for revocation. Fraud and unconscionability are defenses to the enforcement of an arbitration provision under Article 224. Since the law favors arbitration, and Article 224 sets up fraud and unconscionability as defenses, the burden of proof is on the party seeking to avoid arbitration. Civil Procedure > Trials > Jury Trials > Jury Deliberations Civil Procedure > Special Proceedings > Eminent Domain Proceedings > Jury Trials HN7 A trial court may disregard a jury’s finding to a special issue, only if the finding has no support in the evidence or it is rendered immaterial by other findings. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > ... > Standards of Review > Substantial Evidence > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN8 When there are no findings of facts and conclusions of law, the court must affirm the judgment if there is evidence to support it on any legal theory raised by the prevailing party. Real Property Law > ... > Liens > Nonmortgage Liens > Mechanics’ Liens HN9 See Tex. Prop. Code Ann. § 53.154 (1984). Governments > Legislation > Statute of Limitations > Time Limitations Real Property Law > ... > Liens > Nonmortgage Liens > Mechanics’ Liens HN10 See Tex. Prop. Code. Ann. § 53.18 (1992). Real Property Law > ... > Liens > Nonmortgage Liens > Mechanics’ Liens HN11 Tex. Prop. Code Ann. § 53.154 and Tex. Prop. Code Ann. § 53.158 require that a suit for foreclosure must be brought and that the mechanic’s lien can only be foreclosed by a court of competent jurisdiction. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Real Property Law > ... > Liens > Nonmortgage Liens > Mechanics’ Liens Page 3 of 15 849 S.W.2d 380,[*380] ; 1993 Tex. App. LEXIS 334, **1 HN12 When a party is entitled to arbitration, the foreclosure of an mechanic and materialman’s lien shall be stayed until the arbitrators determine whether the party seeking foreclosure prevails in the underlying dispute. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Breach > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Torts > Procedural Matters > Alternative Dispute Resolution HN13 Causes of action sounding in tort are not automatically exempted from arbitration. A dispute arising out of a contractual relationship may give rise to breach of contract claims and tort claims. To determine whether the particular tort claim is subject to arbitration, the court must determine whether the particular tort claim is so interwoven with the contract that it could not stand alone or, on the other hand, is a tort completely independent of the contract and could be maintained without reference to the contract. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Formation of Contracts > Execution Torts > Procedural Matters > Alternative Dispute Resolution HN14 The Texas General Arbitration Act, Tex. Rev. Civ. Stat. Ann. art. 224 (1992), provides that arbitration agreements, whether separate or within the confines of a contract, must be in writing. Article 224, however, does not require that the agreement or the contract be signed by the parties in order for the arbitration provision to be valid except in two specific instances: contracts for the acquisition of property, services, money, or credit where the consideration is $ 50,000 or less, and claims for personal injury. Contracts Law > Formation of Contracts Contracts Law > Formation of Contracts > Execution HN15 A party is bound by the terms of the contract that he has signed, except upon a showing of special circumstances. Further, for a contract to be valid, it is not necessary that the agreement be signed by both parties. If one party signs, the other may accept by his acts, conduct or acquiescence in the terms of the contract. Counsel: William K. Andrews of Houston, for Appellants. Stephen A. Mendel of Houston, Daryl L. Moore of Houston, for Appellee. Judges: Panel Consists of Justices Murphy, Cannon and Robert E. Morse (sitting by designation) Opinion by: BILL CANNON Opinion [*382] OPINION Page 4 of 15 849 S.W.2d 380,[*382] ; 1993 Tex. App. LEXIS 334, **1 This is an appeal from the trial court’s order denying appellants’ pleas in abatement and motions to stay litigation and compel arbitration. The order of the trial court is reversed in part and affirmed in part. The appellants in this case are: Hearthshire Braeswood Plaza Limited Partnership (Hearthshire), owner of an apartment complex known as the Gardens of Braeswood (the Gardens); James Birney (Birney), a limited partner of and agent for Hearthshire; and SMP Med Center Partners, Ltd. (SMP), a limited partnership and owner of the Braesbrook Landing Apartments (the Landing). Birney is also an agent for SMP. The appellee is Bill Kelly Company (Kelly), a sole proprietorship owned by Mr. Bill Kelly (Mr. Kelly). Mr. Kelly’s company renovates apartment complexes. In 1991, [**2] Hearthshire and Kelly entered into two contracts concerning renovation work on the Gardens, one on January 21, 1991 and one on March 28, 1991. Each [*383] contract contained an arbitration clause which provided, in pertinent part: All claims or disputes between the Contractor and the Owner arising out or relating to the Contract, or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect unless the parties mutually agree otherwise and subject to an initial presentation of the claim or dispute to the Architect as required under Paragraph 10.5. 1 [**3] Subsequently, disputes arose between the parties. Kelly claimed it fully performed under both contracts, but that Hearthshire only paid for the January contract. Hearthshire claimed the work performed by Kelly was unsatisfactory. On December 13, 1991, Hearthshire filed Demands for Arbitration with the American Arbitration Association (AAA) in order to resolve its disputes with Kelly. The demands requested arbitration under the January contract and the March contract. The cases were given two separate case numbers by the AAA. Kelly objected to arbitration claiming that it was unavailable to Hearthshire because: (1) Hearthshire did not comply with paragraph 10.5; (2) certain claims asserted by Hearthshire were not arbitrable; and (3) Hearthshire had failed to give proper notice under the Texas Deceptive Trade Practices Act. None of the reasons asserted by Kelly at that time, concerned fraud in the inducement of the contract or fraud in the inducement of the arbitration provision. During the following two month period, the parties corresponded with the AAA concerning the arbitrability of the case. This was done at the request of the AAA. In one of the letters to the AAA, Kelly [**4] asserted that arbitration was not available to Hearthshire because the March contract had been procured through fraud. In that same letter, Kelly conceded that certain issues in the January contract were potentially arbitrable. On January 24, 1992, Kelly filed a lawsuit seeking a declaratory judgment that arbitration was unavailable to Hearthshire, asserting the same objections it had initially made to the AAA. In the petition, Kelly also asserted claims against Hearthshire and Birney for breach of contract, foreclosure of a mechanic and materialman’s lien, suit on a sworn account, quantum meruit, fraud, promissory estoppel, negligent misrepresentation, and grossly negligent misrepresentation. The basis for these last four claims was Kelly’s contention that it had agreed to 1 Paragraph 10.5 states: The Architect will interpret and decide matters concerning performance under and requirements of the Contract Documents on written request of either the Owner or Contractor. The Architect will make initial decisions on all claims, disputes or other matters in question between the Owner and Contractor, but will not be liable for results of any interpretations or decisions rendered in good faith. The Architect’s decisions in matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents. All other decisions of the Architect, except those which have been waived by making or acceptance of final payment, shall be subject to arbitration upon the written demand of either party. Page 5 of 15 849 S.W.2d 380,[*383] ; 1993 Tex. App. LEXIS 334, **4 perform and finance the renovation work at the Gardens because Hearthshire and Birney had allegedly promised Kelly that it would receive the $ 4.5 million renovation project on the Landing. Kelly claimed that in reliance on this representation, it financed and completed the renovation work at the Gardens, but never received a contract to renovate the Landing. Hearthshire and Birney filed a Plea in Abatement [**5] and Original Answer on February 28, 1992. On March 9, 1992, Kelly amended its petition to add SMP to the suit, asserting against it the same claims which had asserted against Hearthshire and Birney. On March 11, 1992, Hearthshire and Birney filed a Motion to Stay Litigation and Compel Arbitration and a brief in support of the motion. On March 27, 1992, SMP filed its Plea in Abatement, Motion to Stay Litigation and Compel Arbitration and Original Answer. On April 4, 1992, Kelly filed its response to the motions to stay litigation and compel arbitration, and filed an amended petition. In these [*384] documents, Kelly alleged that appellants had fraudulently induced Kelly to enter into the arbitration provision in the March contract. Kelly asserted that it entered into the March contract because Hearthshire and Birney represented that Project Controllers, Inc. (PCI) would initially resolve all disputes between the parties. Kelly based this assertion on the fact that while PCI was referred to in the contract as ″project manager″, it acted as architect for other purposes, and paragraph 10.5 stated that all disputes would be initially referred to the architect. Kelly had worked with [**6] PCI before and knew it to be qualified. Kelly alleged that this representation induced it to enter into the arbitration provision. Appellants claimed that there was no architect on the project and therefore, the mandates of paragraph 10.5 were inapplicable. As to the January contract, Kelly also claimed that it was not enforceable because Hearthshire had not signed it. On April 7, 1992, the trial court denied appellants’ motions without a hearing. On April 20, 1992, the trial court entered an order denying appellants’ pleas in abatement and motions to stay litigation and compel arbitration. The court further ordered that the arbitration proceedings under the January and March contracts be stayed. The trial court did not explain the reasons for, or set out specific grounds for its ruling. Further, the trial court did not file findings of fact and conclusions of law. Appellants appeal from that order. In their third point of error 2, appellants contend that there was no evidence or insufficient evidence to support the trial court’s finding of fraud in the inducement of the contract as a whole. [**7] HN1 In a standard appeal when the appellant raises ″no evidence″ and ″factual insufficiency″ points, the appellate court reviews the ″no evidence″ point first. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex. 1981). If the court finds there is some evidence, it proceeds then to consider the insufficient evidence point. Id. Though appellants style this point of error and others as ″no evidence″ and ″insufficient evidence,″ the proper standard of review in an appeal from an interlocutory order concerning a motion to stay litigation and compel arbitration is simply ″no evidence.″ Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 79 (Tex. App.--Houston [1st Dist.] 1988, no writ); Gulf Interstate Eng’g v. Pecos Pipeline, 680 S.W.2d 879, 881 (Tex. App.--Houston [1st Dist.] 1984, writ dism’d). Therefore, we will review this point of error and the others similarly styled under the ″no evidence″ standard of review. HN2 In reviewing ″no evidence″ or legal sufficiency points, the court considers only the evidence and inferences, when viewed in their most favorable light, that tend to support the finding under attack, and disregards all evidence and inferences [**8] to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex. 1988); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965). If there is any evidence of probative force to 2 Appellants have listed their points of error in outline form, 1.A. through 1.L. For clarity, we have renumbered the points as numbers one through twelve. Page 6 of 15 849 S.W.2d 380,[*384] ; 1993 Tex. App. LEXIS 334, **8 support the finding, the point must be overruled and the finding upheld. Sherman v. First Nat’l Bank, 760 S.W.2d 240, 242 (Tex. 1988); In Re King’s Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (Tex. 1951). When, as in this case, there are no findings of fact and conclusions of law, we must affirm the judgment if there is evidence to support it upon any legal theory asserted by the prevailing party. Gulf Interstate, 680 S.W.2d at 881. HN3 Article 224 of the Texas General Arbitration Act states, in pertinent part: A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or equity for the revocation of any contract. A court shall refuse to enforce an agreement or contract provision to submit a controversy to arbitration if the court [*385] finds it was unconscionable at the [**9] time the agreement or contract was made. TEX. REV. CIV. STAT. ANN. art. 224 (Vernon Supp. 1992). In its suit for declaratory judgment, Kelly maintained that arbitration was unavailable to appellants because they had fraudulently induced Kelly to enter into the contract as a whole, and that under article 224, this was sufficient to deny appellants’ demands for arbitration. Kelly based this contention on its claim that appellants had allegedly represented to Kelly that it would receive the $ 4.5 million renovation project on the Landing if Kelly financed and completed the renovations on the Gardens. Kelly alleged that it fulfilled its end of the bargain, but that appellants did not give Kelly the Landing renovation project as promised. Kelly claimed that the representation as to the $ 4.5 million project induced it to enter the contract, and that this was done fraudulently. HN4 In order to prove fraud, Kelly had to show that: (1) a material representation was made; (2) the representation was false; (3) when appellants made it they knew it was false, or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the representation was made with [**10] the intention that it should be acted upon by Kelly; (5) Kelly acted in reliance upon the representation; and (6) Kelly thereby suffered injury due to its reliance on the representation. Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983); Stone v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 185 (Tex. 1977); New Process Steel Corp., Inc. v. Steel Corp. of Texas, Inc., 703 S.W.2d 209, 213-14 (Tex. App.--Houston [1st Dist.] 1985, writ ref’d n.r.e.). Further, because the representation involved a promise to do an act in the future, i.e., allow Kelly to renovate the Landing in the future, Kelly also had to prove that at the time the representation was made, appellants had no intention of performing the act. Crim Truck & Tractor v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 597 (Tex. 1992); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 433 (Tex. 1986). The evidence in the record in support of Kelly’s contentions consists of two affidavits of Mr. Kelly. One of these affidavits is attached to Kelly’s response to appellants’ motions to stay litigation and compel arbitration. The other affidavit is attached to Kelly’s second amended petition. Besides these [**11] affidavits and a copy of the contract, the other documents in the record are pleadings, motions, and responses filed by the parties. Kelly urges this court to accept the affidavits and their pleadings as evidence in support of the fraud claim. Kelly argues that because appellants filed pleas in abatement, the trial court was required to accept as true the factual allegations of fraud in the inducement as set forth in the second amended petition, unless those allegation were disproved. See Seth v. Meyer, 730 S.W.2d 884, 885 (Tex. App.--Fort Worth 1987, no writ). We refuse to accept Kelly’s argument for three reasons: (1) the appellants did not simply file pleas in abatement, rather the pleas in abatement were supplanted by, or at best, coupled with appellants’ motions to stay litigation and compel arbitration; (2) the burden of proof is on the party resisting arbitration; and (3) the standard suggested by Kelly for plea in abatement review is incompatible with the ″no evidence″ standard of review also advocated by Kelly. A fair reading of the motions filed by appellants clearly shows that they were not mere pleas in abatement. The substance of the motions is a request [**12] for the trial court to stay the litigation and compel arbitration. The Page 7 of 15 849 S.W.2d 380,[*385] ; 1993 Tex. App. LEXIS 334, **12 plea in abatement filed by the appellants Hearthshire and Birney was filed with their original answer as provided for under the Texas Rules of Civil Procedure. See TEX. R. CIV. P. 85. Later, they filed their motion to stay litigation and compel arbitration. SMP, who was later added as a defendant by Kelly, simply lumped the plea in abatement in with their original answer and motion to stay litigation and compel arbitration. If the relief sought by appellants had concerned only a plea in abatement, this court would not have jurisdiction over this appeal. HN5 An order overruling a plea in abatement is interlocutory [*386] in nature because the order does not finally resolve the controversy. 745 S.W.2d 78, 79; City of Arlington v. Texas Elec. Serv. Co., 540 S.W.2d 580, 582 (Tex. Civ. App.--Fort Worth 1976, writ ref’d n.r.e.). However, we have jurisdiction in this case because the trial court’s order did not just overrule a plea in abatement, rather the order required the parties to litigate and stayed the arbitration proceedings. TEX. REV. CIV. STAT. ANN. art. 238-2(1) and (2) (Vernon 1973). Because the [**13] relief sought by appellants and denied by the trial court was not solely for abatement, the cases cited by Kelly in support of its plea in abatement argument are inapplicable. The cases cited by Kelly, supporting the argument that the trial court had to accept its pleadings as true unless appellants disproved those allegations, do not involve arbitration. ^[3] The burden of proof in a plea in abatement action is very different from the burden of proof in an action where a party is seeking to avoid arbitration. Arbitration is favored by the courts of this state. Manes v. Dallas Baptist College, 638 S.W.2d 143, 145 (Tex. App.--Dallas 1982, writ ref’d n.r.e.); Carpenter v. North River Ins. Co., 436 S.W.2d 549, 553 (Tex. Civ. App.--Houston [14th Dist.] 1968, writ ref’d n.r.e.). HN6 Under the Texas General Arbitration Act, an agreement to arbitrate is valid unless grounds [**14] exist for revocation. TEX. REV. CIV. STAT. ANN. art. 224 (Vernon Supp. 1992). As stated in Gulf Interstate, fraud and unconscionability are defenses to the enforcement of an arbitration provision under article 224. Gulf Interstate, 680 S.W.2d at 881. Since the law favors arbitration, and article 224 sets up fraud and unconscionability as defenses, the burden of proof is on the party seeking to avoid arbitration. See Id. Because Kelly was the party seeking to avoid arbitration, it was Kelly’s burden to prove fraud. Therefore, the trial court was not required to accept the allegations in Kelly’s pleadings as true. Finally, we cannot accept the plea in abatement standard of review suggested by Kelly because it is inconsistent with the ″no evidence″ standard of review also advocated by Kelly. Under the plea in abatement standard, Kelly argues that the trial court should have accepted Kelly’s pleadings as true since appellants failed to disprove them. Kelly’s argument on appeal suggests that we are required to do the same; however, Kelly also argues that this court should use the ″no evidence″ standard. Under this standard, we are required to consider only the evidence [**15] which supports the trial court’s order, i.e. Kelly’s evidence, and to disregard all evidence to the contrary, i.e. appellants’ evidence. If we used both standards, we would have to accept the allegations in Kelly’s pleadings as true, and ignore any evidence in the record that contradicted those pleadings. In other words, Kelly would automatically prevail on appeal because its contentions would be accepted and any evidence brought by appellants would be ignored. It is apparent from our analysis that the plea in abatement argument proposed by Kelly is flawed. Therefore, we hold that Kelly’s pleadings are not to be taken as evidence and the proper standard of review in this appeal is the ″no evidence″ standard. Since we have determined that Kelly’s pleadings do not constitute evidence in this case, we now look to the two affidavits of Mr. Kelly to determine if they are sufficient to sustain Kelly’s claim of fraud in the inducement of the contract as a whole. The affidavit which is attached to Kelly’s second amended petition swears to the allegations in the petition concerning Kelly’s claim for sworn account. There is nothing in that affidavit to support Kelly’s fraud [**16] 3 Seth v. Meyer, 730 S.W.2d 884 (Tex. App.--Fort Worth 1987, no writ); Flowers v. Steelcraft Corp., 406 S.W.2d 199 (Tex. 1966). Page 8 of 15 849 S.W.2d 380,[*386] ; 1993 Tex. App. LEXIS 334, **16 claim. Therefore, the affidavit attached to Kelly’s response to appellants’ motions to stay litigation and compel arbitration is the [*387] only document that speaks to Kelly’s allegation that it was induced to enter the contract relating to the Gardens because appellants fraudulently represented that Kelly would be given the $ 4.5 million renovation project on the Landing. Now, we must look to the affidavit and determine whether it contains some evidence on each of the elements of fraud. Paragraphs eleven through thirteen contain statements regarding the Landing. In these paragraphs, Mr. Kelly states that: 1. Birney requested that Kelly perform work on the Landing, a complex owned by SMP. ^[2]. Kelly was not allowed to perform the work on the Landing. ^[3]. The negotiations with Birney for the Landing project were in his individual capacity and/or as president of the general partner for SMP. ^[4]. There was no written agreement between the parties as to the Landing project, and therefore Kelly is not required to arbitrate disputes regarding the Landing. Viewing these statements in the light most favorable to the trial court’s order, Kelly has failed [**17] to present sufficient evidence to support its claim of fraud in the inducement of the contract as a whole. The only evidence in this affidavit supporting a fraud allegation is Mr. Kelly’s statements that Birney told Kelly that it would receive the Landing project, and that Kelly did not receive the project. There is no evidence that: (1) Birney knew the statement was false when it was made; (2) Birney intended Kelly to rely on the statement; (3) Kelly did in fact enter into the contracts for the Gardens because of this statement; or (4) at the time the representation was made, appellants did not intend to give Kelly the Landing project. Therefore, we hold that there is no evidence of fraud in the inducement of the contract as a whole. Kelly failed to present evidence on each of the elements of fraud. If the trial court based its decision on fraudulent inducement of the contract as a whole, it committed error because there is no evidence to support that contention. Appellants’ third point of error is sustained. In their first point of error, appellants allege that fraud in the inducement of the contract as a whole cannot be used as grounds to defeat an arbitration clause. Because [**18] we have determined that there was no evidence to support fraudulent inducement of the contract as a whole, it is unnecessary for us to decide this point of error. Whether a claim of fraudulent inducement of the contract as a whole is sufficient to defeat an arbitration provision is irrelevant in this instance because Kelly failed to present evidence of such fraud. Since the trial court did not specify the reasons for its ruling, we must proceed with our review of appellants’ remaining points to determine if there is any legal theory to support the trial court’s decision. Id. Appellants argue, in their fifth point of error, that there was no evidence or insufficient evidence to support the finding of fraud in the inducement of the arbitration provision. Again, using only the ″no evidence″ standard as set out above at length, we hold that there is no evidence to support a finding of fraud in the inducement of the arbitration provision. As we have already discussed, only the affidavit attached to Kelly’s response to the motions to stay litigation and compel arbitration contains evidence of any type of fraud. We will now examine the affidavit to determine whether [**19] it contains evidence on the elements of fraud as set out above, as the claim relates to fraud in the inducement of the arbitration provision. Kelly’s argument as to this claim of fraud states that it was fraudulently induced to enter into the arbitration provision because appellants falsely represented the PCI would Page 9 of 15 849 S.W.2d 380,[*387] ; 1993 Tex. App. LEXIS 334, **19 act as the initial arbitrator for all disputes between the parties. The pertinent parts of Kelly’s affidavit state, as summarized: 1. At the request of PCI, Kelly agreed to renovate the Gardens. ^[2]. All negotiations were with Birney, and PCI participated in the negotiations. ^[3]. The contracts were standard owner/contractor agreements. These types [*388] of agreements generally provide that an architect will oversee the work; however, it is not uncommon that another party will be substituted in the architect’s place and carry out his duties. ^[4]. Hearthshire substituted PCI as the entity to perform the architect’s duties. PCI performed numerous duties, assigned under the terms of the contract, to the architect. ^[5]. When Hearthshire complained about defective workmanship, Kelly had no reason not to believe that PCI would resolve the dispute. [**20] 6. The March contract did not disqualify PCI from handling any disputes. Page one of the contract indicates that PCI is substituted for the architect for all purposes including dispute resolution. 7. Based on the fact that PCI would serve as project manager, the nature of the work PCI would perform, and the language of paragraph 10.5, Kelly agreed to the contract containing the arbitration provision. Kelly also agreed that PCI would substitute for the architect. Kelly was comfortable with the arbitration provision because he had worked with PCI on other projects. ^[8]. Hearthshire never submitted its complaints to PCI as required by the contract. PCI confirmed that Hearthshire never submitted any disputes for resolution. While the affidavit is more substantial as to fraud in the inducement of the arbitration provision, it still falls short of what is required. In the affidavit, Mr. Kelly states that Hearthshire represented that PCI would be the architect and this representation, coupled with the wording of paragraph 10.5 induced him to enter into the arbitration provision. He further stated that the representation was false when it came to dispute resolution. But, [**21] nowhere in the affidavit does Mr. Kelly maintain that appellants knew the statement was false when it was made, that they intended that Kelly act based upon the statement, or that when the agreement was made, appellants had no present intent to perform. Kelly argues that these three elements of fraud can be inferred. In support of this proposition, Kelly cites New Process Steel Corp., Inc. v. Steel Corp. of Texas, Inc., 703 S.W.2d 209 (Tex. App.--Houston [1st Dist.] 1985, writ ref’d n.r.e.); however, New Process Steel is distinguishable from the case before us. In New Process Steel, S & S Alloys (S & S) owed Steel Corporation of Texas (SCOT) an unsecured debt of $ 500,000. Because of the financial condition of S & S, it was questionable whether the debt would ever be paid. Id. at 211. When the secured creditors of S & S threatened foreclosure, SCOT bought out their interests, and decided to obtain better management for S & S so that it could become profitable again. Id. SCOT’s board of directors authorized its president, Kiefer, to negotiate with New Process Steel about taking over management of S & S. Id. As a result of the negotiations, a management [**22] agreement was reached. New Process Steel agreed to provide management, inventory, and working capital to S & S while deciding if it was interested in purchasing the business. Id. SCOT agreed that: (1) it would not try to collect its debt from S & S during the term of the management agreement; and (2) that as the sole secured creditor of S & S, it would place an upper limit on its security interest in an amount equal to the dollar value of that security interest at the time New Process Steel began its management. Id. During the management period, New Process Steel made sales and cash Page 10 of 15 849 S.W.2d 380,[*388] ; 1993 Tex. App. LEXIS 334, **22 advances to S & S, while the parties continued to negotiate regarding the purchase of S & S. Id. New Process Steel considered SCOT’s release of its security interest in S & S essential to any agreement. Id. Kiefer kept SCOT’s executive board informed throughout the negotiations. Id. The parties reached an agreement, and a closing date was set for January 16, 1979. Id. Before the closing date, Kiefer spoke with a majority of the executive board members and received their approval. Id. At closing, New Process Steel purchased S & S with the understanding that SCOT would accept [**23] a new note in exchange for the $ 1,000,000 note that SCOT held against S & S, and the outstanding accounts receivable [*389] due to SCOT from S & S. Id. at 212. This ″understanding″ was not reduced to writing at the time of the closing. After the closing, SCOT’s management had second thoughts about the agreement. Id. SCOT fired Kiefer in June of 1979, and then advised New Process Steel that it would not perform the January 16 agreement. Id. Thereby, in effect, denying the existence of the agreement. New Process Steel brought suit against SCOT for breach of contract and fraud. Id. The jury found for New Process Steel on its fraud claim 4, but the trial court refused to give effect to the damage issue based on the fraud claim. Id. at 213. New Process Steel complained about this refusal on appeal. The court of appeals held that HN7 a trial court may disregard a jury’s finding to a special issue, only [**24] if the finding has no support in the evidence or it is rendered immaterial by other findings. Id. The court then set out to determine whether the evidence was sufficient to support a finding of fraud and the damages awarded by the jury for the fraud claim. As in the case before us, New Process Steel involved a promise to take action in the future. After listing the elements of fraud, including present intent not to perform, the court of appeals stated that fraudulent intent is an element of fraud that is difficult to prove. Id.; see Freeman v. Greenbriar Homes, Inc., 715 S.W.2d 394, 397 (Tex. App.--Dallas 1986, writ ref’d n.r.e.). But, the court stated, when a party denies making the agreement and fails to perform, this constitutes evidence from which lack of present intent to perform may be inferred. New Process Steel, 703 S.W.2d at 214. In order for New Process Steel to aid Kelly, we must find that the element of ″lack of present intent to perform″ is in effect the same as the element ″knowingly making a false statement.″ Thus, Kelly’s argument must be that if one can infer the former, the latter element of fraud may also be inferred. Further, Kelly [**25] would also have this court assume that if these two elements can be inferred, it is reasonable to assume that the statement was made with the intent that it should be acted upon. Kelly wants us to accept this hypothesis because these three elements are the ones not addressed in Mr. Kelly’s affidavit. Kelly argues that they should be inferred based upon New Process Steel. Even if we were to accept this interpretation, which we do not, Kelly’s argument still fails because New Process Steel differs in one crucial respect. In New Process Steel, Kiefer testified that he kept the board apprised of the negotiations, had full authority to make the agreement, and that the agreement was approved by the board. Id. Despite this, the chairman of the SCOT board denied that either he or the board had ever approved the agreement, and the evidence was clear that SCOT failed to perform under the agreement. Id. at 215. The court held that the denial of the agreement and the failure to perform was sufficient to allow the jury to infer that SCOT had never intended to perform the agreement, and had therefore defrauded New Process Steel. See Id. In this case, we [**26] are not confronted with a party denying the existence of an agreement. Appellants do not deny the existence of the contract or the arbitration provision. In fact, they wish to rely on the arbitration provision and force Kelly to abide by it. Appellants simply do not agree with Kelly’s interpretation of the 4 The other jury findings in the case are irrelevant for our purposes here. Page 11 of 15 849 S.W.2d 380,[*389] ; 1993 Tex. App. LEXIS 334, **26 contract or the arbitration provision. This is altogether different from denying that the agreement exists. Even if we were to accept Kelly’s argument, we cannot, under the facts of New Process Steel, infer the missing fraud elements because appellants have not denied the existence of the agreement. Therefore, since Kelly failed to provide some evidence on each of the elements of fraud in the inducement of the arbitration provision, the trial court erred if its order was based on Kelly’s claim of fraud in the inducement of the arbitration provision. In that there is no evidence to support fraud in the inducement of the arbitration provision, [*390] appellants’ fifth point of error is sustained. In points of error two, four, and six, appellants contend that the trial court erred in denying their motions to stay litigation and compel arbitration based on unconscionability. [**27] After reviewing the record, we find that the legal theory of unconscionability was never raised or argued by Kelly as grounds for avoiding the arbitration provision. HN8 When there are no findings of facts and conclusions of law, we must affirm the judgment if there is evidence to support it on any legal theory raised by the prevailing party. Gulf Interstate, 680 S.W.2d at 881. Since unconscionability was never asserted by Kelly, it could not have been relied on by the trial court in making its determination to deny appellants’ motions. Thus, it is unnecessary for us to address points two, four, and six since they could not have been the basis for the trial court’s order. In their seventh point of error, appellants contend that the trial court erred in finding that the Texas Property Code preludes the resolution of the underlying contract dispute by arbitration. In its second amended petition, Kelly sought enforcement and foreclosure of a mechanic and materialman’s lien. Kelly argued in the trial court that under Texas Property Code §§ 53.154 and 53.158, it was required to bring the action through a lawsuit and not through arbitration. We agree with Kelly that an M & [**28] M lien must be foreclosed by a court of competent jurisdiction; however, this does not mean that the underlying contract, which forms the basis of the lien, cannot be arbitrated. The Texas Property Code provides: HN9 A mechanic’s lien may be foreclosed only on judgment of a court of competent jurisdiction foreclosing the lien and ordering the sale of the property subject to the lien. TEX. PROP. CODE ANN. § 53.154 (Vernon 1984). The Code also provides: HN10 Suit must be brought to foreclose the lien within two years after the date of filing the lien affidavit under Section 53.052 or within one year after completion of the work under the original contract under which the lien is claimed, whichever is later. TEX. PROP. CODE ANN. § 53.158 (Vernon Supp. 1992). Kelly contends that the language of these sections is mandatory, and therefore, arbitration is unavailable on this issue. The sections are mandatory; however, Kelly desires a broader interpretation than is permitted by the clear language of the sections. HN11 Sections 53.154 and 53.158 require that a suit for foreclosure must be brought, and that the lien can only be foreclosed by a court [**29] of competent jurisdiction. Appellants contend that these sections do not state that arbitration is unavailable to determine which party prevails in the underlying dispute. They argue that these sections only require that the actual foreclosure of the lien be performed by a court of competent jurisdiction. In support of their argument, appellants cite Mountain Plains Constructors, Inc. v. Torrez, 785 P.2d 928 (Colo. 1990). Page 12 of 15 849 S.W.2d 380,[*390] ; 1993 Tex. App. LEXIS 334, **29 We decline to follow the approach advocated by Kelly, and choose to adopt the one presented by appellants and accepted by the Colorado Supreme Court. In Mountain Plains, the Colorado court addressed the issue of the proper disposition of an M & M lien when arbitration is required. The court held that HN12 when a party is entitled to arbitration, the foreclosure of an M & M lien shall be stayed until the arbitrators determine whether the party seeking foreclosure prevails in the underlying dispute. Id. at 931. Kelly argues that we should not accept this approach because this case is interpreting Colorado statutory law, not Texas law. Though we have found no Colorado statutes that correspond precisely to the language contained TEX. PROP. CODE ANN. [**30] §§ 53.154 and 53.158, it is clear from the statutes regarding the enforcement of liens that Colorado also requires that foreclosure be accomplished by filing suit in a court of competent jurisdiction. See COLO. REV. STAT. ANN. §§ 38-20-106, 38-22-105.5, [*391] 38-22-110 through 38-22-116, and 38-22-120 (West 1990 & 1992). Therefore, there is no reason to decline to adopt this approach. But beyond this, our decision on this issue is the result of common sense. If we allowed Kelly to foreclose the M & M lien before arbitration, and the arbitrators found for appellants, they would be without recourse. The lien would be foreclosed, the property disposed of, and no money judgment could adequately replace the lost property. However, if Kelly prevails in the arbitration, it may then have the arbitration award confirmed by the court under the Texas General Arbitration Act, and can sue to foreclose the M & M lien. TEX. REV. CIV. STAT. ANN. art. 236 (Vernon 1973). Kelly will have an adequate remedy at law. Appellants’ seventh point of error is sustained. In their eighth point of error, appellants allege that the trial court erred in finding that Kelly’s claims as to the [**31] Landing renovation project are not arbitrable. As part of its fraudulent inducement claim, Kelly asserted that it had only entered into the contracts involving the Gardens because it had been promised the $ 4.5 million renovation project on the Landing. Besides using this as part of its claim for fraudulent inducement, Kelly, in its second amended petition, filed claims against appellants for negligent and grossly negligent misrepresentation, DTPA, promissory estoppel, and breach of an oral contract based on the Landing project. Appellants contend that all of these claims should be included in the arbitration proceedings because they ″arise out of, or relate to the contract or breach thereof,″ as provided in the arbitration provisions contained in the January and March contracts covering the Gardens. We agree with appellants that HN13 causes of action sounding in tort are not automatically exempted from arbitration. A dispute arising out of a contractual relationship may give rise to breach of contract claims and tort claims. See Valero Energy Corp. v. Wagner & Brown, 777 S.W.2d 564, 566-67 (Tex. App.--El Paso 1989, writ denied). To determine whether the particular tort [**32] claim is subject to arbitration, the court must determine whether the particular tort claim is so interwoven with the contract that it could not stand alone or, on the other hand, is a tort completely independent of the contract and could be maintained without reference to the contract. Id. at 566. Thus, here, the question is whether Kelly’s claims as to the Landing project can stand alone or can be maintained without reference to the contracts involving the Gardens. We hold that they can. The only connection between the Landing project and the contracts involving the Gardens is Kelly’s claim that the promise of the Landing project fraudulently induced it to enter the contracts for the renovation of the Gardens. If necessary, Kelly need not even refer to the contracts involving the Gardens in order to maintain the claims regarding the Landing. Kelly could assert that it was fraudulently promised the Landing project and that the promise was breached, even if the Garden contracts had never existed. Further, when a dispute arises between contracting parties whose relationship includes an agreement to arbitrate any dispute arising out of or under the contract, the trial court [**33] must determine whether the issues presented are subject to arbitration under that agreement. Id. at 567. The parties must have specifically agreed by clear language to arbitrate the Page 13 of 15 849 S.W.2d 380,[*391] ; 1993 Tex. App. LEXIS 334, **33 matters in dispute. Id. The contracts covering the Gardens make no reference to the Landing project and it would take a leap of logic to argue that the arbitration provisions in the contracts were meant to encompass any disputes arising out of a project not mentioned in the contract and one that had not even been fully discussed. We hold that the claims arising out of the Landing renovation project are separate and distinct from those arising out of the contracts pertaining to the Gardens. Therefore, the Landing claims do not have to be arbitrated, and Kelly may proceed with the litigation as to those claims. Appellants’ eighth point of error is overruled. [*392] In point of error nine, appellants assert that the trial court erred in finding that the dispute between the parties over paragraph 10.5 of the contract is not a proper subject for arbitration. Though both sides have made numerous allegations against the other, the real dispute in this case concerns the interpretation [**34] of paragraph 10.5 of the contract, i.e., whether PCI was, or was to act as, the architect on the Gardens project. Arbitration is designed for that purpose. If we were to say that it is improper to allow arbitrators to determine the meaning of contractual provisions, we would render the entire arbitrary scheme meaningless. Since we have already determined that Kelly has failed to prove fraud, or any other ground to excuse itself from the arbitration provision, all of the disputes involving the contracts pertaining to the Gardens should be arbitrated, including the interpretation of paragraph 10.5. The issue as to whether there is a valid arbitration provision is separate from the issue of whether the contract was breached, the former is determined the court, and the latter by an arbitrator. Shearson Lehman Hutton, Inc. v. McKay, 763 S.W.2d 934, 938 (Tex. App.--San Antonio 1989, no writ). Appellants’ ninth point of error is sustained. Appellants next contend that the trial court erred in finding that the arbitration provision of the January contract was not enforceable against Kelly because Hearthshire did not sign the contract. HN14 Article 224 of the Texas General Arbitration [**35] Act provides that arbitration agreements, whether separate or within the confines of a contract, must be in writing. TEX. REV. CIV. STAT. ANN. art. 224 (Vernon Supp. 1992). Article 224, however, does not require that the agreement or the contract be signed by the parties in order for the arbitration provision to be valid except in two specific instances: contracts for the acquisition of property, services, money, or credit where the consideration is $ 50,000 or less, and claims for personal injury. Those instances do not apply here. Since article 224 provides that an arbitration provision may be revoked ″upon such grounds as exist at law or in equity for the revocation of any contract,″ we must determine whether Hearthshire’s failure to sign the January contract is a ground to revoke the contract, and therefore, the arbitration provision. Under the general rules of contract law, HN15 a party is bound by the terms of the contract that he has signed, except upon a showing of special circumstances. Shearson Lehman Hutton, 763 S.W.2d at 937. Kelly has produced no evidence of any special circumstances. Further, for a contract to be valid, it is not necessary that the agreement be [**36] signed by both parties. E.g., Velasquez v. Schuehle, 562 S.W.2d 1, 3 (Tex. Civ. App.--San Antonio 1977, no writ). If one party signs, the other may accept by his acts, conduct or acquiescence in the terms of the contract. Id. Kelly signed the January contract, and though Hearthshire did not sign the contract, its acts, including the execution of the March contract and the position taken in this appeal, clearly show intent to be bound by the January contract. Appellants’ tenth point of error is sustained. Point of error number eleven states that even if only some of the claims are arbitrable and others are not, the trial court erred in not staying the litigation as to any of the claims that are arbitrable and compelling arbitration of those claims. Our holding in point of error eight makes it unnecessary to review this point of error. We have already determined which claims are not arbitrable and which are. The parties are to arbitrate all claims involving the contracts pertaining to the Gardens. Any claims that relate to the Landing renovation project may proceed to litigation. Our reasons for this decision were spelled out in the discussion under point of error number [**37] eight. Page 14 of 15 849 S.W.2d 380,[*392] ; 1993 Tex. App. LEXIS 334, **37 In their final point of error, appellants contend that the trial court erred in not consolidating the arbitration proceedings because Kelly presented no evidence, or insufficient evidence that it would be prejudiced by the resolution of all disputes in one consolidated proceeding. [*393] When Hearthshire filed its demands for arbitration with the AAA, it filed a separate demand for each contract. It then immediately sought to consolidate them according to AAA procedures. Appellants want this court to order the trial court to consolidate the arbitrable claims into one proceeding. Because the trial court denied, in error, appellants’ motions to stay litigation and compel arbitration, it never reached the issue of whether the arbitration proceedings should be consolidated. We cannot reverse a trial court on a decision it never reached. Appellants’ twelfth point of error is overruled. The order of the trial court is reversed except as to Kelly’s claims involving the Landing renovation project. The trial court is directed to make orders such as are necessary to comply with this court’s opinion. Bill Cannon Justice Judgment rendered and Opinion [**38] filed February 4, 1993. Panel Consists of Justices Murphy, Cannon and Robert E. Morse (sitting by designation). Page 15 of 15 | | Caution As of: September 1, 2015 5:05 PM EDT Heritage Resources v. Nationsbank Supreme Court of Texas November 29, 1995, Argued ; April 25, 1996, Delivered No. 95-0515 Reporter 939 S.W.2d 118; 1996 Tex. LEXIS 41; 39 Tex. Sup. J. 537 HERITAGE RESOURCES, INC., PETITIONER v. NATIONSBANK, CO-TRUSTEE UNDER THE WILL OF DAVID B. TRAMMELL, DECEASED ET AL., RESPONDENTS Subsequent History: [**1] As Corrected May 2, 1996. Prior History: ON APPLICATION FOR WRIT OF ERROR TO THE COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS. Core Terms royalty, market value, costs, lease, Oil, post-production, deducted, marketing, parties, Lessor’s, lessee, processing, compression, court of appeals, transportation, royalty clause, decisions, proceeds, clauses, transportation costs, point of sale, ambiguous, no deduction, courts, royalty interest, market price, sale of gas, oil and gas lease, dehydration, contracts Case Summary Procedural Posture Petitioner, lessees and operator of gas, oil, and mineral leases, sought review of the decision of the Court of Appeals for the Eighth District of Texas that upheld the trial court’s summary judgment award in favor of respondents, owners of interests in gas, oil and mineral rights, in respondents’ breach of lease action. Overview Respondents, owners of interests in oil, gas, and mineral rights, filed suit against petitioner, lessee and operator of gas, oil, and mineral leases, arguing that it had deducted transportation costs from respondents’ royalty payments in violation of the leases. The court of appeals affirmed the trial court’s judgment for respondents, finding that petitioner did not comply with the intent of the royalty clauses. The leases required petitioner to pay respondents their share of the market value at the well. The court found that the lease was not ambiguous, so it applied the commonly accepted meaning of market value and royalty. Because there was no evidence regarding comparable sale prices, it concluded that petitioner was correct in paying a royalty based on the market value at the point of sale less the reasonable postproduction marketing costs. The court determined that pursuant to the divisional orders, petitioner was only liable for the amount of unpaid royalty it retained, because to hold otherwise would benefit other working interest owners who were not parties to the suit. The court reversed the judgment and entered a take-nothing judgment in favor of respondents. 939 S.W.2d 118,[*118] ; 1996 Tex. LEXIS 41, **1 Outcome The court reversed the summary judgment award in favor of respondents, owners of interests in gas, oil and mineral rights, and rendered judgment that respondents take nothing, finding that petitioner, lessee and operator of oil, gas, and mineral leases, had complied with the correct interpretation of the royalty clauses contained in the leases when it deducted transportation costs from royalty payments made to respondents. LexisNexis® Headnotes Contracts Law > Contract Interpretation > Ambiguities & Contra Proferentem > General Overview Contracts Law > Defenses > Ambiguities & Mistakes > General Overview Contracts Law > Types of Contracts > Lease Agreements > General Overview HN1 The question of whether a contract is ambiguous is one of law for the court. A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more that one interpretation. Energy & Utilities Law > Leases & Licenses > Royalty Clauses HN2 Royalty is commonly defined as the landowner’s share of production, free of expenses of production. Although it is not subject to the costs of production, royalty is usually subject to post-production costs, including taxes, treatment costs to render it marketable, and transportation costs. However, the parties may modify this general rule by agreement. Energy & Utilities Law > Natural Gas Industry > General Overview Energy & Utilities Law > Leases & Licenses > Royalty Clauses Energy & Utilities Law > Oil & Petroleum Products > General Overview Energy & Utilities Law > Royalties > Leasehold Royalty Clauses HN3 Market value at the well has a commonly accepted meaning in the oil and gas industry. Market value is the price a willing seller obtains from a willing buyer. There are two methods to determine market value at the well. Energy & Utilities Law > Leases & Licenses > Royalty Clauses HN4 The most desirable method to determine market value at the well is to use comparable sales. A comparable sale is one that is comparable in time, quality, quantity, and availability of marketing outlets. Contracts Law > Types of Contracts > Lease Agreements > General Overview Energy & Utilities Law > Oil, Gas & Mineral Interests > Purchase Contracts > Division & Transfer Orders HN5 The general rule is that division orders are binding until revoked. When an operator prepares a division order that allocates payments among the interest owners in a manner that differs from the lease provisions and the operator retains the benefits, the division order is not binding. Counsel: For PETITIONER: Long, Mr. D. Patrick, Rockwell, Mr. Brad, Patton Boggs, Dallas, TX. For RESPONDENTS: Dixon, Jr., Mr. Thomas R., Parker, Mr. Kevin P., Underwood Wilson Berry Stein & Johnson, Amarillo, TX. Page 2 of 19 939 S.W.2d 118,[*118] ; 1996 Tex. LEXIS 41, **1 Judges: JUSTICE BAKER delivered the opinion of the Court, in which CHIEF JUSTICE PHILLIPS, JUSTICE CORNYN, JUSTICE ENOCH, and JUSTICE SPECTOR join. JUSTICE OWEN filed a concurring opinion, in which JUSTICE HECHT joins. JUSTICE GONZALEZ filed a dissenting opinion in which JUSTICE ABBOTT joins. JUSTICE OWEN, joined by JUSTICE HECHT, concurring. JUSTICE GONZALEZ, joined by JUSTICE ABBOTT, dissenting. Opinion by: JAMES A. BAKER Opinion [*120] This case involves construction of royalty clauses in several oil and gas leases. NationsBank sued Heritage contending that Heritage deducted transportation costs from the value of NationsBank’s royalty in violation of the leases. The trial court rendered a partial summary judgment against Heritage deciding liability and damages through 1991. NationsBank amended its pleading to include Heritage’s deductions [**2] through 1993. After a bench trial, the trial court awarded NationsBank and other royalty owners the transportation costs Heritage deducted plus interest and attorney’s fees. The court of appeals affirmed the trial court’s judgment. Heritage Resources v. Nationsbank, 895 S.W.2d 833 (1995). It held that the royalty clauses showed the parties’ intent not to deduct the post-production transportation costs when determining market value at the well. Heritage, 895 S.W.2d at 836-37. The court of appeals also held that the division orders Heritage and the royalty owners executed did not bind the royalty owners and that Heritage was liable for the full amount deducted. Heritage, 895 S.W.2d at 839. We conclude the trial court and the court of appeals incorrectly interpreted the royalty clauses. We reverse the court of appeals’ judgment. We render judgment that NationsBank take nothing. Further, we disapprove of the court of appeals’ language about the liability of an operator who underpays royalty interest owners. Facts NationsBank is the trustee for owners of interests in gas, oil, and other minerals inherited under David B. Trammel’s will. Heritage is the lessee and [**3] operator under a number of leases. Heritage also owns an undivided working interest in some of the leases. Heritage sold gas off the leased premises. Heritage deducted the cost to transport the gas from the wellhead to the point of sale as a post-production cost from the sales price before calculating royalties. In January 1989, NationsBank noticed that Heritage was deducting severance taxes and transportation charges from the purchase price. NationsBank objected to the transportation charge deduction. NationsBank contended that the leases specifically prohibited the deduction. Three different leases are in issue. The relevant parts are : 3. The royalties to be paid Lessor are . . . (b) on gas, including casinghead gas or other gaseous substances produced from the land, or land consolidated therewith, and sold or used off the premises or in the manufacture of gasoline or other products therefrom, the market value at the well of 1/5 of the gas so sold or used, provided that on gas sold at the well the royalty shall be 1/5 of the amount realized from such sale provided, however, that there shall be no deductions from the value of the Lessor’s royalty by reason [**4] of any required processing, cost of dehydration, compression, transportation or other matter to market such gas. Page 3 of 19 939 S.W.2d 118,[*120] ; 1996 Tex. LEXIS 41, **4 or: 3. In consideration of the premises, Lessee covenants and agrees . . . (b) To pay the Lessor 1/4 of the market value at the well for all gas (including substances contained in such gas) produced from the leased premises; provided, however, that there shall be no deductions from the value of Lessor’s royalty by reason of any required processing, cost of dehydration, compression, [*121] transportation, or other matter to market such gas. or 3. Lessee shall pay the following royalties subject to the following provisions: . . . (b) Lessee shall pay the Lessor 1/4 of the market value at the well for all gas (including all substances contained in such gas) produced from the leased premises and sold by Lessee or used off the leased premises, including sulphur produced in conjunction therewith; provided, however, that there shall be no deductions from the value of Lessor’s royalty by reason of any required processing, cost of dehydration, compression, transportation, or other matter to market such gas. Although [**5] the court of appeals states that the leases are virtually identical, the first lease is distinctly different from the others. In the first lease, for gas sold on the lease, royalty is on proceeds, with no deduction for marketing costs, but if sold at a point off the lease, the royalty is the market value at the well. However, this difference is irrelevant for purposes of this opinion. All three leases require us to determine if Heritage improperly deducted transportation costs from the royalty payments. The critical clause in all three leases is the requirement that Heritage pay the royalty interest owners their fractional interest of ″the market value at the well″ of the gas produced. Royalty Clause Construction Heritage contends that the royalty clauses define the lessor’s royalty as a fraction of the market value at the well. Therefore, the clauses limiting deduction from the value of the lessor’s royalty simply means that Heritage cannot deduct an amount from the sales price that would make the royalty paid less than the required fraction of market value at the well. Because NationsBank concedes Heritage only deducted reasonable transportation costs from the market [**6] value at the point of sale, Heritage did not make a deduction from the ″value of the Lessor’s royalty.″ The court of appeals rejected Heritage’s interpretation of the royalty clause. Heritage, 895 S.W.2d at 836. The court of appeals reasoned that because royalty interests are normally subject to postproduction costs, Heritage’s interpretation renders the post-production clause meaningless. Heritage, 895 S.W.2d at 837. Although we do not disagree with the court of appeals’ reasoning in this respect, we find that applying the trade meaning of royalty and market value at the well renders the post-production clauses surplusage as a matter of law. (a) Applicable Law Oil and Gas Lease Construction Page 4 of 19 939 S.W.2d 118,[*121] ; 1996 Tex. LEXIS 41, **6 HN1 The question of whether a contract is ambiguous is one of law for the court. R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more that one interpretation. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). In construing an unambiguous oil and gas lease our task is to ascertain the parties’ intentions as expressed in the lease. Sun [**7] Oil Co. v. Madeley, 626 S.W.2d 726, 727-28 (Tex. 1981); McMahon v. Christmann, 157 Tex. 403, 303 S.W.2d 341, 344 (Tex. 1957). To achieve this goal, we examine the entire document and consider each part with every other part so that the effect and meaning of one part on any other part may be determined. Steeger v. Beard Drilling Co., 371 S.W.2d 684, 688 (Tex. 1963). We presume that the parties to a contract intend every clause to have some effect. Ogden v. Dickinson State Bank, 662 S.W.2d 330, 331 (Tex. 1983). We give terms their plain, ordinary, and generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense. Western Reserve Life Ins. Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557 (Tex. 1953), cert. denied, 347 U.S. 928, 98 L. Ed. 1081, 74 S. Ct. 531 (1954). This Court will enforce the unambiguous document as written. Sun Oil Co., 626 S.W.2d at 728. Both the trial court and the court of appeals determined that the leases in question were unambiguous. We agree. Royalty HN2 Royalty is commonly defined as the landowner’s share of production, free of [*122] expenses of production. [**8] See Delta Drilling Co. v. Simmons, 161 Tex. 122, 338 S.W.2d 143, 147 (Tex. 1960); Alamo Nat’l Bank v. Hurd, 485 S.W.2d 335, 338 (Tex. Civ. App.--San Antonio 1972, writ ref’d n.r.e.); 8 WILLIAMS & MEYERS, OIL & GAS LAW, 856-57 (1987); 3 KUNTZ, OIL & GAS LAW, § 42.2 (1989). Although it is not subject to the costs of production, royalty is usually subject to post-production costs, including taxes, treatment costs to render it marketable, and transportation costs. Martin v. Glass, 571 F. Supp. 1406, 1410 (N.D. Tex. 1983), aff’d, 736 F.2d 1524 (5th Cir. 1984); WILLIAMS & MEYERS, OIL & GAS LAW, 857 (1987). However, the parties may modify this general rule by agreement. Martin, 571 F. Supp. at 1410. Market Value at the Well HN3 Market value at the well has a commonly accepted meaning in the oil and gas industry. See generally Wakefield, Annotation, Meaning of, and Proper Method for Determining, Market Value or Market Price in Oil and Gas Lease Requiring Royalty to be Paid on Standard Measured by Such Terms, 10 ALR 4TH 732 (1981). Market value is the price a willing seller obtains from a willing buyer. See Exxon Corp. v. Middleton, 613 S.W.2d 240, [**9] 246 (Tex. 1981). There are two methods to determine market value at the well. HN4 The most desirable method is to use comparable sales. Middleton, 613 S.W.2d at 246; Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866, 872 (Tex. 1968). A comparable sale is one that is comparable in time, quality, quantity, and availability of marketing outlets. Middleton, 613 S.W.2d at 246; Vela, 429 S.W.2d at 872. Courts use the second method when information about comparable sales is not readily available. See, e.g., Le Cuno Oil Co. v. Smith, 306 S.W.2d 190, 193 (Tex. Civ. App. Texarkana 1957), cert. denied, 356 U.S. 974, 78 S. Ct. 1137, 2 L. Ed. 2d 1147 (1958); Clear Creek Oil & Gas Co. v. Bushmiaer, 165 Ark. 303, 264 S.W. 830, 832 (Ark. 1924); see also Pierce, Royalty Valuation Principles in a Changing Gas Market, in STATE BAR OF TEXAS PROF. DEV. PROGRAM, 11TH ANNUAL ADVANCED OIL, GAS AND MINERAL LAW COURSE E, E-9 (1993). This method involves subtracting reasonable post-production marketing costs from the market value at the point of sale. Texas Oil & Gas Corp. v. Hagen, 683 S.W.2d 24, 28 (Tex. App.--Texarkana 1985), dism’d as moot, 760 [**10] S.W.2d 960 (Tex. 1988). Post-production marketing costs include transporting the gas to the market and processing the gas to make it marketable. Hagen, 683 S.W.2d at 29. With either method, the plaintiff has the burden to prove market value at the well. Hagen, 683 S.W.2d at 29. (b) Application of Law to the Facts Page 5 of 19 939 S.W.2d 118,[*122] ; 1996 Tex. LEXIS 41, **10 The court of appeals disregarded the generally accepted meanings of ″market value at the well″ and ″royalty″ to determine that Heritage wrongfully deducted post-production costs. The court of appeals’ construction results in a royalty clause that specifies royalty payable as a fraction of the market value at the well, to mean the royalty is payable as a fraction of the market value at the point of sale with no deductions for post-production costs. The terms ″royalty″ and ″market value at the well″ have well accepted meanings in the oil and gas industry. The post-production clauses in issue here plainly state that there ″shall be no deduction from the value of the Lessor’s Royalty.″ The leases clearly set the lessor’s royalty as a fraction (1/4 or 1/5) ″of the market value at the well.″ Under the leases, the lessee must determine the value of the lessor’s [**11] royalty. The lessee accomplishes this by determining market value at the well and multiplying it by the fraction specified in the royalty clause (1/4 or 1/5). This result is the value of the lessor’s royalty. The post-production clauses then specifies that there can be no deduction from this value (the value of the lessor’s royalty) by reason of any post-production costs. Here, the only conclusion we can draw is that the post-production clauses merely restate existing law. The post-production clauses illustrate that the lessee cannot pay the lessor less than his fractional value of the comparable sales price (market value). This could occur if the amount realized from the [*123] sale of the gas less the post production costs was less than the comparable sales price and the lessee calculated the lessor’s royalty by subtracting post production costs from amount realized. At times the amount realized from the sale of gas has varied greatly from the market value of the gas. See Vela, 429 S.W.2d at 875-76 (evidence sustained trial court’s finding that market value was 13.047 cents per mcf even though amount realized by lessee under long term gas sales contract was 2.3 cents [**12] per mcf). Even though the Vela scenario may be unlikely to reoccur in the future due to changes in the market place, see, Pierce, Royalty Valuation Principles in a Changing Gas Market, in STATE BAR OF TEXAS PROF. DEV. PROGRAM, 11TH ANNUAL ADVANCED OIL, GAS AND MINERAL LAW COURSE E, E-1 - E-3, the market value may differ from the amount realized. We recognize that our construction of the royalty clauses in two of the three leases arguably renders the post-productions clause unnecessary where gas sales occur off the lease. However, the commonly accepted meaning of the ″royalty″ and ″market value at the well″ terms renders the post-production clause in each lease surplusage as a matter of law. To determine if Heritage correctly paid royalties under the leases, we must first determine the market value of the gas at the well. NationsBank offered no evidence of comparable sales. However, Heritage conceded in its response to NationsBank’s motion for partial summary judgment that the price Heritage received for the gas was the market price at the point of sale. NationsBank conceded at oral argument that the transportation costs Heritage deducted were reasonable. Because [**13] there is no evidence to support the comparable sales method of computing market value at the well, we use the alternate method. Under that method, Heritage must pay a royalty based on the market value at the point of sale less the reasonable post-production marketing costs. Hagen, 683 S.W.2d at 28. Based on the parties’ concessions, the amount Heritage paid is the correct amount in royalties to NationsBank under the leases. Division Orders Heritage entered into division orders with the royalty owners. The division orders contained the following language: All proceeds from the sale of gas shall be paid to the undersigned or their assigns in the proportions as herein set out less taxes and any costs incurred in the handling and transportation to the point of sale, treating, Page 6 of 19 939 S.W.2d 118,[*123] ; 1996 Tex. LEXIS 41, **13 compressing boosting, dehydrating or any other conditioning necessary, subject to the terms of any contract of purchase and sale with affects the above described property . . . The court of appeals held that the division orders were of no effect and that Heritage was liable for reimbursement to the royalty owners for transportation costs improperly withheld in payment to Urantia. [**14] The court of appeals’ discussion about the effect of a division order that contradicts the lease terms conflicts with our earlier opinion in Gavenda v. Strata Energy, Inc., 705 S.W.2d 690 (Tex. 1986). HN5 The general rule is that division orders are binding until revoked. Gavenda, 705 S.W.2d at 691; Middleton, 613 S.W.2d at 250. When an operator prepares a division order that allocates payments among the interest owners in a manner that differs from the lease provisions and the operator retains the benefits, the division order is not binding. Gavenda, 705 S.W.2d at 692. The basis of this rule is unjust enrichment. Gavenda, 705 S.W.2d at 692. The operator then becomes liable for the part of the interest owner’s payments the operator retained. See Gavenda, 705 S.W.2d at 693. The operator is not liable for the amounts it paid out to other interest owners. Gavenda, 705 S.W.2d at 693. The court of appeals decision incorrectly states that ″Heritage was liable for reimbursement to the royalty owners for transportation costs improperly withheld in payment to Urantia.″ Heritage Resources v. Nationsbank, 895 S.W.2d 833, 839 (1995). Under Gavenda, Heritage [**15] would be liable, if at all, only for the amount of the unpaid royalty it retained. In this case, there were other working interest owners who were not parties to the suit. Absent an agreement [*124] otherwise, all the working interest owners would benefit from an improper deduction of transportation charges from the royalties paid to NationsBank. Therefore the trial court could only hold Heritage liable for an amount of unpaid royalties that Heritage retained. Summary In conclusion, we hold that the court of appeals erred in holding that the lease required Heritage to pay royalties based on the market value at the point of sale. Further, we specifically disapprove of the court of appeals discussion about an erroneous division order’s effects. We reverse the court of appeals’ judgment and render judgment that NationsBank take nothing from Heritage. James A. Baker, Justice OPINION DELIVERED: April 25, 1996 Concur by: Priscilla R. Owen Concur I concur in the judgment of the Court. The meaning of ″market value at the well,″ upon which the resolution of this case ultimately turns, is not as clear-cut as the Court’s opinion indicates when determining [**16] whether post-production costs are to be shared by a royalty owner. I write separately to consider the meaning of ″market value at the well″ more fully and to recognize that the construction we are compelled to give to the leases at issue may not comport with the subjective intent of at least some of the parties to those agreements. I NationsBank, as trustee, is an owner of royalty interests under six leases that are the subject of this suit. Heritage is a working interest owner under each of the leases and is the operator of the wells located on those leases. The specific lease provisions that have given rise to this dispute are set forth in the Court’s opinion. Page 7 of 19 939 S.W.2d 118,[*124] ; 1996 Tex. LEXIS 41, **16 The royalty clauses in contention specifically address marketing costs that may be incurred after the gas leaves the wellhead, including processing, dehydration, compression, and transportation costs. These are sometimes called post-production costs. The only costs at issue in this suit, however, are transportation charges. Simply put, the issue is how the cost of transporting the gas to market is to be allocated under the terms of these leases. This is a question of law. There are no factual disputes. NationsBank has conceded [**17] that the transportation charges were reasonable and in line with market rates. Heritage and NationsBank agree that the prices at which the gas was sold reflected its market value at the point of sale. It is undisputed that the sales of gas at issue have taken place off of the leased premises. The trial court, the court of appeals, and this Court correctly concluded that none of the leases are ambiguous. II At the outset, it is important to note that we are construing specific language in specific oil and gas leases. Parties to a lease may allocate costs, including post-production or marketing costs, as they choose. See generally 3 WILLIAMS, OIL & GAS LAW § 645 (1990). Our task is to determine how those costs were allocated under these particular leases. Each of the royalty provisions begins with the statement that royalties are to be paid on gas sold off the lease based on the market value of the gas at the well. The proviso that follows, prohibiting the deduction of marketing costs from the value of the royalty, is virtually identical in all of the leases. Accordingly, any differences among the leases are immaterial for purposes of determining the royalty obligation. [**18] 1 The starting point in construing the leases is the language chosen by the parties. We first must ascertain the meaning of ″market value at the well,″ which the agreements set [*125] out as the initial benchmark for valuing the royalty. ″Market value at the well″ tells us how and where the value of the royalty is measured, subject to any other provisions that bear on valuation. [**19] A number of courts in producing states across the country have considered the meaning of various royalty clauses, including ″market value at the well″ clauses, in deciding which marketing costs, if any, are to be borne by the royalty owner. The decisions, including those under Texas law, are not uniform. There are two diverse viewpoints, with some decisions picking and choosing between the two, depending on the specific marketing cost under consideration. ^[2] At one end of the spectrum is the view that because the operator has an implied duty or an implied covenant to market the gas, all costs of marketing must be borne by the operator. Generally speaking, this is the minority view. On the other end of the spectrum, many decisions recognize that while there is an implied duty or covenant to market the gas, this duty does not extend to expenses incurred in sales off the lease; marketing costs are to be shared proportionately by the working interest and royalty owners. [**20] In examining decisions in this area, it must be borne in mind that not all royalty clauses were created equal. Some are based on ″proceeds,″ some on ″amount realized,″ while others are based on ″market value.″ Some specify the point at which the value of the royalty is determined, such as ″at the well.″ Some do not. Some leases have more than one method for valuing royalty depending on whether the gas is sold or used off the leased premises or is sold at the well. Different courts have accorded differing meanings to the same language. ^[1] One of the leases differs somewhat from the others. Because of the way in which the royalty clause of that lease is structured, an argument could be made that the proviso prohibiting the deduction of marketing costs from the value of the royalty applies only when the sale of gas occurs at the well and that the proviso does not apply when determining the market value of gas sold off the lease. It is unnecessary to decide that issue, however, because the parties agree that the proviso does apply under this lease as well as under the other leases in determining the market value of gas at the well when it is sold off the premises. ^[2] For a general discussion of these competing principles and some of the divergent decisions, see Wood v. TXO Production Corp., 854 P.2d 880 (Okla. 1992). See also 3 WILLIAMS, OIL & GAS LAW § 645 (1990). Page 8 of 19 939 S.W.2d 118,[*125] ; 1996 Tex. LEXIS 41, **20 With these distinctions in mind, I consider Texas decisions first. A The concept of ″market value″ is well-established in our jurisprudence. It is what a willing buyer under no compulsion to buy will pay to a willing seller under no compulsion to sell. See, e.g., Exxon Corp. v. Middleton, 613 S.W.2d 240, 246 (Tex. 1981). This would seem to be a straight-forward measure, but how market value is determined in the context of an oil and gas lease is a question that has been before this Court on more than one occasion. We held in Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866 (Tex. 1968) that the price paid under a gas purchase contract [**21] between the lessee and the purchaser is not necessarily the market price within the meaning of the lease. 429 S.W.2d 866, 871 (Tex. 1968). The parties in that case agreed that the market price of gas is to be determined by sales comparable in time, quality, and availability of marketing outlets. Id. at 872. See also First Nat’l Bank in Weatherford, Texas v. Exxon Corp., 622 S.W.2d 80, 82 (Tex. 1981)(intrastate sales of gas not comparable to interstate sales regulated by the Federal Power Commission). In Middleton, we considered when gas is sold within the meaning of a royalty clause based on ″market value at the well.″ Exxon contended that the gas was sold at the time Exxon entered into a long term contract with the purchaser, and that market value should be determined as of then. We disagreed, holding that market value is determined at the point in time when the gas is actually produced and delivered. 613 S.W.2d at 245. We also concluded that ″sold at the wells″ means sold at the wells within the lease, not sold at wells within the field. Middleton, 613 S.W.2d at 243. We had occasion to consider whether an operator owes a duty to a non-participating interest [**22] owner to process gas in Danciger Oil & Refineries, Inc. v. Hamill Drilling Co., 141 Tex. 153, 171 S.W.2d 321 (Tex. 1943). We determined that the operator was not obligated to process the gas where the agreement provided that an overriding royalty interest would be computed on 1/24th of the gas ″produced, saved and marketed at the prevailing market price paid by major companies . . . free and clear of operating expenses.″ Danciger, 171 S.W.2d at 322-23. The only market in the vicinity was for processed [*126] gas. There was no market for gas produced in its raw state at the wellhead. We reasoned that the overriding royalty payments were to be made out of gas ″if, as and when produced,″ not out of its value after it had been processed into a more valuable product, even though the clause also referred to gas ″marketed.″ Danciger, 171 S.W.2d at 322. We further held that ″operating costs″ meant the expenses necessary to market the gas, not processing the gas into some other product. Danciger, 171 S.W.2d at 323. We have recognized that for occupation tax purposes, the market value of processed gas is measured as to all ownership interests, including royalty interests, [**23] by the total proceeds of the sale of the component parts of the gas after processing, less transportation and processing costs. Mobil Oil Corp. v. Calvert, 451 S.W.2d 889, 892 (Tex. 1970). In Mobil, market value was defined in the tax statute as value ″at the mouth of the well.″ Id. at 891. But these decisions do not directly answer the question of who bears marketing costs under a ″market value at the well″ royalty clause in a lease. Our Court has spoken to this issue only obliquely. In Upham v. Ladd, 128 Tex. ^[14], 95 S.W.2d 365, 366 (Tex. 1936), we concluded that a lessor suing for underpayment of royalties based on a clause calling for payment of ″proceeds″ had stated a cause of action, but noted that the question of construction of the lease was not yet before the Court. Decisions of the courts of appeals and other courts applying Texas law have confronted the question of whether post-production costs may be allocated to the royalty interest owners, but the holdings are not entirely consistent and construe differing provisions. Page 9 of 19 939 S.W.2d 118,[*126] ; 1996 Tex. LEXIS 41, **23 One of the earliest decisions dealing with Texas law on the subject of marketing costs and payment of royalties was Phillips Petroleum [**24] Co. v. Bynum, 155 F.2d 196 (5th Cir. 1946). In discussing how to arrive upon the market value of gas, the Fifth Circuit observed that in the absence of available evidence of market price at the well, it ″would seem appropriate″ to look at the market price paid by the purchasers in the area at the point of sale, and to then deduct transportation costs. Id. at 198. The Fifth Circuit assumed without discussion that transportation charges should be deducted in arriving upon market value. See also Phillips Petroleum Co. v. Johnson, 155 F.2d 185, 189 (5th Cir.), cert. denied, 329 U.S. 730, 91 L. Ed. 632, 67 S. Ct. 87 (1946)(decided the same day, holding that royalty on processed gas is 1/8th of the sale proceeds less a credit for transportation, separation, and sales costs under a royalty clause that called for ″1/8th of net proceeds derived from the sale of the gas at the mouth of the well″); Holbein v. Austral Oil Co., Inc., 609 F.2d 206, 209 (5th Cir. 1980)(dehydration costs deductible from royalty under clause basing royalty on amount realized from the sale of gas). At least two decisions from Texas courts of appeals are at odds with the approach taken by the Fifth [**25] Circuit. The royalty in Miller v. Speed, 248 S.W.2d 250, 256 (Tex. Civ. App.--Eastland 1952, no writ), was held to be free of any marketing costs. The provision under consideration was not expressly a market value clause. It simply provided for a royalty of 1/24th of all gas produced, saved and made available for market. The case of Pan American Petroleum Corp. v. Southland Royalty Co., 396 S.W.2d 519, 524-25 (Tex. Civ. App.--El Paso 1965, writ dism’d w.o.j.), relied on Miller and reasoned that a royalty interest is free of the cost of production and marketing costs. The poorly worded royalty clause in Pan American was based on proceeds and also provided for delivery of the lessor’s share of the minerals ″free of cost.″ See also Skaggs v. Heard, 172 F. Supp. 813 (S.D. Tex. 1959)(compression costs could not be charged to the lessor where the sale occurred on the lease and the royalty clause provided for royalties based on proceeds). In contrast, other Texas courts of appeals have allowed certain marketing costs to be allocated to the royalty owner. Only one of those cases dealt with a market value royalty clause, Texas Oil & Gas Corp. v. Hagen, 683 [**26] S.W.2d 24 (Tex. App.--Texarkana 1984), writ dism’d as moot, 760 S.W.2d 960 (Tex. 1988). Hagen held that market value at the well is the market value of the gas where sold, less reasonable and necessary transportation and processing costs. Hagen, 683 S.W.2d at 28. Similarly, in [*127] Parker v. TXO Prod. Corp., 716 S.W.2d 644 (Tex. App.--Corpus Christi 1986, no writ), the royalty owner was required to share in post-production compression costs. In dicta, the Parker court indicated that all post-production costs could be charged to the royalty owners. Id. at 648. The specific terms of the royalty clause cannot be discerned from the opinion in Parker. Marketing costs were also charged to the royalty owners in Le Cuno Oil Co. v. Smith, 306 S.W.2d 190 (Tex. Civ. App.--Texarkana 1957, writ ref’d n.r.e.), cert. denied, 356 U.S. 974, 78 S. Ct. 1137, 2 L. Ed. 2d 1147 (1958). The parties agreed that a division order calling for 1/8th of the price received at the wells governed the royalty, and the court held costs of dehydration, gathering, transporting, and processing could be deducted from the gross sales price received by the operator. [**27] Le Cuno Oil, 306 S.W.2d at 193. See also Martin v. Glass, 571 F. Supp. 1406, 1411-15 (N.D. Tex. 1983), aff’d, 736 F.2d 1524 (5th Cir. 1984) (post-production compression charges held deductible under a royalty clause based on net proceeds at the well). The court found that ″net proceeds″ contemplated deductions. 571 F. Supp. at 1411. See also Maddox v. Texas Co., 150 F. Supp. 175, 180 (E.D. Tex. 1957)(″fair value″ was the measure where there was no market and marketing costs must be considered where the lease required the lessor to bear its proportionate cost of rendering gas merchantable). To add another point of view on this subject, a Texas court of appeals recently held that a royalty clause based on ″market value at the well″ was ambiguous. That court upheld a jury finding that the parties did not intend to allow the deduction of compression charges from royalties. Judice v. Mewbourne Oil Co., 890 S.W.2d 180 (Tex. App.--Amarillo 1994), reversed today by this Court in a companion decision, 939 S.W.2d 133. Page 10 of 19 939 S.W.2d 118,[*127] ; 1996 Tex. LEXIS 41, **27 While it is fair to say that the greater number of courts considering Texas law have permitted allocation of post-production costs to royalty owners, [**28] there are decisions reaching the opposite conclusion. It remains for this Court to determine whether ″market value at the well″ includes or excludes post-production costs. Decisions from other jurisdictions illuminate the arguments on both sides of the issue and offer a variety of potential resolutions. B One of the most comprehensive discussions of ″market value at the well″ royalty clauses is Judge Wisdom’s decision in Piney Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225 (5th Cir.), cert. denied, 471 U.S. 1005, 85 L. Ed. 2d 161, 105 S. Ct. 1868 (1984). Although that decision applies Mississippi law, the court’s review of the law is not restricted to Mississippi jurisprudence. Among other authorities, the opinion considers at some length the meaning attributed to ″market value at the well″ by numerous commentators, concluding that the purpose in specifying ″at the well″ is to distinguish between gas sold in the form in which it emerges from the wellhead and gas which thereafter has had value added by transportation or processing. Piney Woods, 726 F.2d at 231, 240. The Fifth Circuit held that royalties under a ″market value at the well″ clause should compensate [**29] only for the value of the gas at the well, before the operator adds value. Id. Accordingly, that court concluded that royalty owners may be charged with all expenses subsequent to production including processing, transportation, removal of sulfur, and other marketing costs where the royalty provision measures value ″at the well.″ Id. This reasoning is persuasive. It has not been followed, however, by the highest courts of some of our sister states. The implied obligation to market gas was held to be paramount in Garman v. Conoco, Inc., 886 P.2d 652 (Colo. 1994). After surveying the law in other jurisdictions and examining the rationale underpinning the various decisions, the Supreme Court of Colorado concluded that the implied covenant to market gas obligates the lessee to incur post-production costs necessary to place the gas in a condition acceptable for market. Id. at 659. Examples of costs borne solely by the lessee included gathering and compression costs to move the gas from the wellhead to a processing plant, and dehydration costs. Garman, 886 P.2d at 655-56 n.8. The court did draw a distinction, though, between costs necessary to [*128] market the [**30] gas and those that increased value after the gas had been rendered marketable. Id. at 661. The court imposed the burden on the lessee to demonstrate that costs enhancing an already marketable product are reasonable and that they increase royalty revenues in proportion with those costs. Id. at 661. It should be noted that this case was decided essentially in a vacuum, without reference to any specific lease clause. A general question had been certified to the court. The Oklahoma supreme court, after similarly surveying other states’ decisions, concluded that the implied duty to market gas is a duty to ″get the product to the place of sale in marketable form.″ Wood v. TXO Prod. Corp., 854 P.2d 880, 882 (Okla. 1993). A ″market value at the well″ clause was at issue. The court held that compression charges necessary for the gas to enter the purchaser’s pipeline could not be deducted from the royalty where the sale occurred on the lease premises. Id. In the dissenting opinion, four members of the court found this result ″harsh and untenable″ and would have adopted the ″better-reasoned″ approach of allowing the deduction of compression costs. Id. at 883. The [**31] majority in Wood v. TXO distinguished that court’s prior decision in Johnson v. Jernigan, 475 P.2d 396 (Okla. 1970), which held that the obligation to market did not require the operator to absorb the cost of transporting gas ten miles by pipeline to the point of sale off the lease. Johnson extended the duty to market only to the lease boundaries. Id. at 399. The Johnson court reached this conclusion even though the lease called for royalties based on the ″gross proceeds at the prevailing market rate for all gas sold off the premises.″ Id. at 397. The court reasoned that ″gross proceeds″ had reference to the value of the gas on the lease property ″without deducting any of the expenses involved in developing and marketing the dry gas to this point of delivery.″ Id. at 399. Page 11 of 19 939 S.W.2d 118,[*128] ; 1996 Tex. LEXIS 41, **31 Kansas courts have also seemed to draw a distinction between sales on the lease premises and those off the premises in deciding whether marketing costs may be passed on to the royalty owner. Language in the lease specifying that royalty is to be determined ″at the well″ has not appeared to be a factor in the courts’ decisions. Compare Schupbach v. Continental Oil Co., 193 [**32] Kan. 401, 394 P.2d 1 (Kan. 1964)(lessee cannot deduct post-production compression costs where sale occurred on the lease and royalty clause was based on proceeds at the mouth of the well; court noted that compression was installed without consulting royalty owners as to size, location and number of compressors); and Gilmore v. Superior Oil Co., 192 Kan. 388, 388 P.2d 602 (Kan. 1964)(could not recover compression costs under lease based on ″proceeds from the sale of gas at the mouth of the well″; court emphasized that compression was installed on the lease and recognized duty to market, distinguishing situations where market is distant from the lease) with Matzen v. Hugoton Prod. Co., 182 Kan. 456, 321 P.2d 576, 581-82 (Kan. 1958)(where gas gathered, processed and sold off premises, lessee may deduct these costs from gross proceeds under clause based on proceeds from the sale of gas, even though lease silent as to where market must be found); and Moliter v. Lewis, 156 Kan. 544, 134 P.2d 404, 406 (Kan. 1943)(implied covenant to market does not require lessee to bear cost of transporting oil by truck to a distant place even though lease provided for delivery by lessee [**33] to lessor into pipeline ″free of cost″). See also Ashland Oil & Refining Co. v. Staats, Inc., 271 F. Supp. 571, 575 (D. Kan. 1967)(refusing to enlarge lessee’s duty to market to require it to bear full cost of 153-mile pipeline system). Arkansas seems to recognize a distinction between royalty based on ″proceeds″ versus ″market value at the well,″ even if the proceeds are to be determined ″at the well.″ Compare Hanna Oil & Gas Co. v. Taylor, 297 Ark. 80, 759 S.W.2d 563, 564-65 (Ark. 1988)(compression costs necessary to market gas not deductible under lease providing for royalty on proceeds received at the well), with Clear Creek Oil & Gas Co. v. Bushmiaer, 165 Ark. 303, 264 S.W. 830, 832 (Ark. 1924)(under lease calling for royalty based on market price at the wells, royalty was net price after deducting transportation costs). [*129] Kentucky and Wyoming decisions appear to permit the deduction of at least transportation charges where the sale occurs off the lease. Reed v. Hackworth, 287 S.W.2d 912, 913-14 (Ky. Ct. App. 1956)(where lease silent as to place of market, royalty is based on market at the well); Kretni Dev. Co. v. Consolidated Oil Corp., 74 [**34] F.2d 497, 500 (10th Cir. 1934), cert. denied, 295 U.S. 750, 79 L. Ed. 1694, 55 S. Ct. 829 (1935), (obligation to market did not extend to providing ninety-mile pipeline for distant market at sole cost of lessee). California law appears to allow the deduction of marketing costs under a ″market price at the well″ clause, absent language to the contrary. Atlantic Richfield Co. v. State, 214 Cal. App. 3d 533, 262 Cal. Rptr. 683, 688 (Cal. App. 1989, review denied)(unless there is clear language to the contrary, lessor bears proportionate share of processing and transportation costs when term ″market price at the well″ is used). The North Dakota supreme court took a route similar to that of our court of appeals in Judice. West v. Alpar Resources, Inc., 298 N.W.2d 484, 490-91 (N.D. 1980). The North Dakota court found a royalty clause ambiguous where it specified only that the royalty was ″one-eighth of the proceeds from the sale of the gas,″ and did not specify whether proceeds were to be determined at the well or at the point of sale. The North Dakota court proceeded to construe the lease against the lessor as a matter of law, requiring the lessor to bear all costs. [**35] Id. at 491. Finally, courts applying Louisiana law have uniformly held that post-production costs are deductible under a ″market value at the well″ clause, commencing with the Louisiana supreme court’s decision in Wall v. United Gas Pub. Serv. Co., 178 La. 908, 152 So. 561, 564 (La. 1934)(market price means market value in the field and the lessee is not required to bear all the expense of carrying gas to a market beyond the field). Louisiana has applied a ″reconstruction″ approach to determine market value. Value is ″reconstructed″ by beginning with the gross proceeds from the sale of the gas and deducting any costs of taking the gas from the wellhead to the Page 12 of 19 939 S.W.2d 118,[*129] ; 1996 Tex. LEXIS 41, **35 market. See Merritt v. Southwestern Elec. Power Co., 499 So. 2d 210, 213 (La. Ct. App. 1986)(compression charges to market gas, as opposed to produce it, could be deducted). For a good discussion of the rationale underpinning Louisiana law in this area, see Freeland v. Sun Oil Co., 277 F.2d 154 (5th Cir. 1960)(processing costs can be deducted). See also Sartor v. United Gas Pipe Pub. Serv. Co., 84 F.2d 436, 440 (5th Cir.), cert. denied, 364 U.S. 826 (1936)(transportation charges deductible [**36] under ″market value at the well″ leases). Having canvassed the law of other states, it can fairly be said that there is no consensus among other jurisdictions as to when post-production costs are to be shared by the royalty owner, although the majority view appears to be that royalty owners do share in costs, at least where the sale occurs off the lease. C In the case before us, the court of appeals concluded that ″market value at the well″ meant that the royalty interests were subject to costs incurred after production, including taxes, costs of treating the gas, and costs of transportation to market, unless other language in the lease modified this provision. Heritage Resources v. Nationsbank, 895 S.W.2d 833, 836 (1995). This is the better-reasoned view. While Texas recognizes that the lessee has an implied duty to market gas, Cabot Corp. v. Brown, 754 S.W.2d 104, 106 (Tex. 1987), we have never determined who bears the cost of marketing gas beyond the wellhead in the absence of an express agreement. There is an express agreement in this case as to how and where royalty will be determined. The implied duty to market gas cannot override that agreement. The words ″at the [**37] well″ should be given their straightforward meaning. Market value ″at the well″ means the value of gas at the well, before it is transported, treated, compressed or otherwise prepared for market. In construing language commonly used in oil and gas leases, we must keep in mind that there is a need for predictability and uniformity as to what the language used means. Parties entering into agreements expect that [*130] the words they have used will be given the meaning generally accorded to them. As we have seen, the decisions under Texas law are not entirely consistent, but the weight of the precedent is that post-production costs are to be shared by the royalty owner under a lease that values the gas based on ″market value at the well.″ See Phillips Petroleum Co. v. Bynum, 155 F.2d 196, 198 (1946); Martin, 571 F. Supp. at 1411-15; Hagen, 683 S.W.2d at 28; and Le Cuno Oil Co., 306 S.W.2d at 193. See also Parker, 716 S.W.2d at 648. These decisions are not binding, but are persuasive. Having concluded that marketing costs are to be shared by the royalty interest owners under a ″market value at the well″ clause, absent language to the contrary, it must be [**38] determined whether there is language in the leases in this case that re-allocates these costs. II The language of the pertinent clause states: Lessee shall pay the Lessor . . . market value at the well for all gas . . . sold . . . off the leased premises . . . provided, however, that there shall be no deductions from the value of Lessor’s royalty by reason of any required processing, cost of dehydration, compression, transportation, or other matter to market such gas. It is clear certain ″deductions″ are prohibited. The question that must be answered is from what are deductions prohibited. The clause says ″from the value of Lessor’s royalty.″ The value of Lessor’s royalty is ″market value at the well″ for gas sold off the leased premises. The court of appeals correctly observed that the intent of the parties is determined from what they actually expressed in the lease as written, not what they may have intended but failed to express. Heritage Resources v. Page 13 of 19 939 S.W.2d 118,[*130] ; 1996 Tex. LEXIS 41, **38 Nationsbank, 895 S.W.2d 833, 836 (1995). However, the court of appeals did not apply this principle. It reasoned that the parties ″must have intended something by this language,″ and in order to give [**39] the language some meaning, the court construed the proviso to mean that royalty owners do not share in post-production costs. Id. There is little doubt that at least some of the parties to these agreements subjectively intended the phrase at issue to have meaning. However, the use of the words ″deductions from the value of Lessor’s royalty″ is circular in light of this and other courts’ interpretation of ″market value at the well.″ The concept of ″deductions″ of marketing costs from the value of the gas is meaningless when gas is valued at the well. Value at the well is already net of reasonable marketing costs. The value of gas ″at the well″ represents its value in the marketplace at any given point of sale, less the reasonable cost to get the gas to that point of sale, including compression, transportation, and processing costs. Evidence of market value is often comparable sales, as the Court indicates, or value can be proven by the so-called net-back approach, which determines the prevailing market price at a given point and backs out the necessary, reasonable costs between that point and the wellhead. But, regardless of how value is proven in a court of law, logic and economics [**40] tell us that there are no marketing costs to ″deduct″ from value at the wellhead. See Piney Woods Country Life Sch., 726 F.2d at 231. Further, prohibiting deductions ″from the value of Lessor’s royalty″ is not the equivalent of directing that value be based on anything other than ″market value at the well.″ The Court is not presented with a clause similar to one at issue in Judice v. Mewbourne Oil Co., __ S.W.2d __, __ (Tex. 1996), where a division order directed royalties to be based on ″gross proceeds realized at the well.″ There is an inherent, irreconcilable conflict between ″gross proceeds″ and ″at the well″ in arriving at the value of the gas. That conflict renders the phrase ambiguous. The proviso in the Heritage leases does not create an ambiguity. It is simply ineffective. As long as ″market value at the well″ is the benchmark for valuing the gas, a phrase prohibiting the deduction of post-production costs from that value does not change the meaning of the royalty clause. Thus, even if the Court were to hold that a lessee’s duty to market gas includes the obligation to absorb all of the marketing costs, the proviso at [*131] issue would add nothing to the [**41] royalty clause. All costs would already be borne by the lessee. It could not be said under that circumstance that the clause is ambiguous. It could only be said that the proviso is surplusage. However, the proviso prohibiting the deduction of marketing costs would not be surplusage if we interpreted ″market value at the well″ to obligate the lessee to pay some, but not all, marketing costs. For example, it has been argued that at least some post-production costs, such as compression, should be borne solely by the lessee as part of its duty to market the gas, but that other costs, such as processing, should be shared by the lessor. See, e.g., Garman v. Conoco, Inc., 886 P.2d at 654. Such an interpretation of a royalty clause would mean that value is determined on a basis other than value ″at the well.″ If ″value″ were not referable to ″market value at the well,″ but encompassed other considerations, then the proviso could be construed to prohibit the deduction of any costs ″required . . . to market such gas.″ But such an approach injects uncertainty into the meaning of ″market value at the well″ leases, and could lead to a fact-finding inquiry in virtually every case as [**42] to what was and was not a cost ″required to market the gas.″ This weighs heavily against adopting the approach apparently taken in Colorado where the lessee has a duty to ″create a marketable product,″ and a fact question exists as to what costs are required to make the gas marketable. Id. at n.3. Our Court has correctly concluded that ″market value at the well″ means just that, what a willing buyer would pay at the well, recognizing there would be costs to get the gas from the wellhead to a market. There are any number of ways the parties could have provided that the lessee was to bear all costs of marketing the gas. If they had intended that the royalty owners would receive royalty based on the market value at the point of delivery or sale, they could have said so. If they had intended that in addition to the payment of market value at the well, the lessee would pay all post-production costs, they could have said so. They did not. There is no Page 14 of 19 939 S.W.2d 118,[*131] ; 1996 Tex. LEXIS 41, **42 direct statement in the leases that the royalty owners are to receive anything in addition to the value of their royalty, which is based on value at the well. To the contrary, the leases only prohibit any deduction from [**43] value at the well. This distinction may be a fine one, but the language used is not ambiguous and must be given its ordinary meaning. We cannot re-write the agreement for the parties. See, e.g., Exxon v. Middleton, 613 S.W.2d at 245 (quoting Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866, 871 (1968)) (explaining that if Exxon had intended its royalty obligation to be based on the prices it actually received under long term sales contracts, it could have agreed in the lease that royalty would be based on the ″amount realized″ from the sale, rather than ″market value at the well″). ***** For the foregoing reasons, I concur in the judgment of the Court. Priscilla R. Owen JUSTICE OPINION DELIVERED: April 25, 1996 Dissent by: RAUL A. GONZALEZ Dissent The contract at issue clearly denotes the parties’ intent that ″there shall be no deductions from the value of Lessor’s royalty by reason of any . . . cost of . . . transportation.″ The Court’s unprecedented refusal to enforce the contract as written has generated quite a controversy. Since our original opinions issued on April 25, 1996, the following educational institutions, charitable organizations, [**44] independent mineral and royalty owners, and oil and gas practitioners have filed amicus curiae briefs asking the Court to withdraw its prior opinion and grant NationsBank’s motion for rehearing: the Texas Land Commissioner; University of Texas System; Southern Methodist University; Baptist Foundation of Texas; Boy Scouts of America; Moody Foundation; Texas Bankers Association; Independent Bankers Association of Texas; National Association of Royalty Owners; National Association of Royalty Owners -- Texas; American National Insurance Co.; River Oaks Trust Company; Texas Commerce Bank; First Victoria National Bank; Moody National Bank; Frost National Bank; Landon Alford; John R. Alford, Jr.; Dan Moody, Jr., Ben F. Vaughan, III and John B. McFarland of Graves, Dougherty, Hearon & Moody, P.C.; C.C. Small, Jr. of Small, Craig & Werkenthin; Jeffery L. Hart and John C. Cardwell of Cardwell & Hart; Cullen R. Looney; Richard Watt; Harry M. Whittington; Howard P. Newton of Wells, Pinckney & McHugh; Clayton Hoover; Randall K. Sadler; and W.F. (Bill) Countiss. On the whole, these amici support my view that the majority and the concurrence err by discarding the meaning the parties attributed [**45] to the ″no deductions″ language at issue here. (Gonzalez, J., joined by Abbott, J., dissenting); see Lenape Resources Corp. v. Tennessee Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996) (″In construing a written contract, our primary concern is to ascertain the true intentions of the parties as expressed in the written instrument.″); State Farm Life Ins. Co v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995) (″When construing a contract, courts must strive to give effect to the written expression of the parties’ intent. To do so, they must read all parts of a contract together.″ (citations omitted)); Lyons v. Montgomery, 701 S.W.2d 641, 643 (Tex. 1985) (″Language used by parties in a contract should be accorded its Page 15 of 19 939 S.W.2d 118,[*131] ; 1996 Tex. LEXIS 41, **45 plain, grammatical meaning unless it definitely appears that the intention of the parties would thereby be defeated.″); R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518-19 (Tex. 1980) (″In the interpretation of contracts the primary concern of courts is to ascertain and to give effect to the intentions of the parties as expressed in the instrument. To achieve this object the court will examine and consider the entire instrument so that none [**46] of the provisions will be rendered meaningless.″ (citation omitted)); Mercer v. Hardy, 444 S.W.2d 593, 595 (Tex. 1969) (″’An interpretation will not be given to one part of a contract which will annul another part of it.’″ (quoting 17A C.J.S. Contracts § 309)). NationsBank and the amici offer a number of constructions that would give some effect to the royalty clauses at issue. On this basis alone, we should grant the motion for rehearing, withdraw our previous opinions, and issue a new opinion affirming the judgment of the court of appeals. Amici also cite authorities which raise doubts about the Court’s conclusion that the law governing post-production costs is unsettled. In Wintermann v. McDonald, 129 Tex. 275, 102 S.W.2d 167 (Tex. 1937), we stated that ″the term ’free royalty’ . . . must mean that the interest reserved to the State in the minerals produced on school land . . . must not bear any part of the expense of the production, sale, or delivery thereof.″ Wintermann, 102 S.W.2d at 173 (emphasis added); see also Pan Am. Petroleum Corp. v. Southland Royalty Co., 396 S.W.2d 519, 525 (Tex. Civ. App. -- El Paso 1965, writ dism’d) (recognizing ″well-adjudicated [**47] and accepted legal principle that royalty interests are not chargeable with the expenses of production, preparation, marketing, etc.″); Miller v. Speed, 248 S.W.2d 250, 256 (Tex. Civ. App. -- Eastland 1952, no writ) (stating that ″the interest reserved is clearly royalty, hence, free of cost of producing, saving and preparing for market″). The legislation we construed in Wintermann contained no definition of the term ″free royalty″ and did not expressly prohibit deductions for the expenses of production, sale, or delivery. These cases establish that a royalty interest does not bear such expenses, contrary to the result the Court reached. Finally, numerous amici argue that, if the Court overrules the motion for rehearing, we should apply the new rule of law set out in this case only prospectively. Amici claim that the royalty clauses at issue are similar to most publicly available printed forms used in Texas for the last several decades. ″No deductions″ clauses like the one used in this case are common to the industry and are understood to allocate some or all post-production costs to the lessee. By altering this industry understanding, the Court’s decision will disrupt longstanding [**48] contractual and economic relationships, cause uncertainty, and create unnecessary litigation over contracts containing similar language. Thus, at a minimum, the Court should limit this decision to prospective application. JUSTICE CORNYN and JUSTICE SPECTOR have joined JUSTICE ABBOTT and me in voting to grant NationsBank’s motion for rehearing. CHIEF JUSTICE PHILLIPS has also switched his position and now agrees with JUSTICE OWEN’S concurrence, in which JUSTICE HECHT joined. JUSTICE ENOCH has recused himself on rehearing, leaving JUSTICE BAKER as the lone remaining supporter of his original majority opinion. Thus, the Court is now deadlocked four-to-four on the proper disposition of this case. We cannot call upon the Governor to specially appoint a replacement Justice to break the tie under these circumstances, and NationsBank’s motion for rehearing is therefore overruled by operation of law. See Saenz v. Fidelity & Guaranty Ins. Underwriters, 925 S.W.2d 607, 612 (Tex. 1996) (holding that motion for rehearing is not ″a case″ or ″a decision″ requiring majority vote to overrule); see also TEX. CONST. art. V, § 2 (mandating concurrence of five Justices to render ″a decision [**49] of a case″); id. § 11 (allowing Governor to appoint substitute when a member of this Court is ″disqualified to hear and determine any case″). Because we are without majority agreement on the reasons supporting the judgment, however, the judgment itself has very limited precedential value and controls only this case. See University of Tex. Medical Branch v. York, 871 S.W.2d 175, 176-77 (Tex. 1994). Cases relying on the new rule of law pronounced in the Court’s April 25, 1996 opinion are similarly restricted. See, e.g., Judice v. Mewbourne Oil Co., 939 S.W.2d 133 (Tex. 1996) (citing Heritage Resources for proposition that lessee must share in post-production costs because ″the royalty is to be determined based on ’market value at the well’″). Page 16 of 19 939 S.W.2d 118,[*131] ; 1996 Tex. LEXIS 41, **49 Lessors should not lose the benefit of their bargain because the Court now reads language clearly prohibiting deductions from royalty as ″surplusage.″ The Court’s error in this case will have far-reaching effects on the oil and gas industry in Texas, as millions of dollars will now be placed in dispute. This decision unnecessarily increases the transaction costs of all parties with similar lease provisions. For these [**50] reasons, and for the reasons stated in my dissenting opinion of April 25, 1996, we would grant NationsBank’s motion for rehearing. Raul A. Gonzalez Justice RAUL A. GONZALEZ The simple question presented in this case is whether Heritage can deduct transportation costs from the value of NationsBank’s royalties under these leases. The language at issue, which is common to each contract, reads as follows: There shall be no deductions from the value of Lessor’s royalty by reason of any required processing, cost of dehydration, compression, transportation, or other matter to market such gas. ^[1] What could be more clear? This provision expresses the parties’ intent in plain English, and I am puzzled by the Court’s decision to ignore the unequivocal intent of sophisticated parties who negotiated contractual terms at arm’s length. See M/S Bremen v. Zapata [**51] Off-Shore Co., 407 U.S. ^[1], 12, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972) (noting that, absent compelling reason, contracts ″made in an arm’s-length negotiation by experienced [*132] and sophisticated businessmen . . . should be honored by the parties and enforced by the courts″); accord Prudential Ins. Co. v. Jefferson Assoc., 896 S.W.2d 156, 161 (Tex. 1995). In my opinion, both the trial court and the court of appeals correctly held that this language clearly forbids Heritage from deducting transportation costs to arrive at the market value of the gas on which the royalty payment is based. Fundamental principles of Texas law hold that competent parties enjoy the utmost freedom of contract and that courts will enforce a contract freely and voluntarily made for a lawful purpose. Crutchfield v. Associates Inv. Co., 376 S.W.2d 957, 959 (Tex. Civ. App.--Dallas 1964, writ ref’d). Under basic rules of contract interpretation, this Court must give effect to the written expression of the parties’ intent. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). To do so involves reading all parts of the contract together, giving effect to each individual [**52] part. Id. In this case, however, the Court unnecessarily looks to the trade meaning of the words used to conclude that the post-production clause is surplusage as a matter of law. 939 S.W.2d 118. Similarly, the concurrence needlessly considers other judicial constructions of ″market value at the well,″ including several non-Texas cases, without analyzing whether those contracts bear any similarity to the ones at issue here. Id. at 124 (Owen, J., concurring). Neither the majority nor the concurrence give proper legal effect to specific language in these contracts which clearly denotes the parties’ intent that ″there shall be no deductions from the value of Lessor’s royalty by reason of any . . . cost of . . . transportation.″ See Forbau, 876 S.W.2d at 133-34. Heritage was free to bargain over whether NationsBank would have the right to participate in post-production business activities and receive royalties derived from those activities. The lease provision incorporates all four of the distinct business activities into which most gas production operations can be divided: production, gathering, marketing, and processing. It clearly excludes deductions for ″any required [**53] processing, cost of dehydration, compression, transportation, or other matter to market such gas.″ The drafters of this clause could have allowed for deductions of the cost of any of the distinct business activities that occur after the production of gas, but chose not to include language to that effect. The language in the lease provision is clear, 1 The royalty clause in one lease differs slightly from the others. However, any differences are immaterial to resolving the issue presented. Page 17 of 19 939 S.W.2d 118,[*132] ; 1996 Tex. LEXIS 41, **53 and in the absence of fraud or misrepresentation, a party is charged with knowing the legal effect of a contract voluntarily made. Barfield v. Howard M. Smith Co., 426 S.W.2d 834, 838 (Tex. 1968). Because the provision at issue is unambiguous, the Court errs by ignoring the clear intent of the parties. The majority and the concurrence both state that they agree with the trial court and the court of appeals that the leases in question are unambiguous. Heritage Resources v. Nationsbank, 939 S.W.2d 118, 124 (1996) (Owen, J., concurring). I find their agreement odd and amusing given that, interpreting the same contracts, both opinions reach a completely opposite result than the lower courts. By definition, if a contract is reasonably susceptible to more than one meaning, it is ambiguous. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. [**54] 1983); Skelly Oil Co. v. Archer, 163 Tex. 336, 356 S.W.2d 774, 778 (Tex. 1962). By supplying a meaning not found in the leases for ″market value at the well,″ both the majority and the concurrence create an ambiguity where none exists. When a contract contains an ambiguity, we consider the words used in the instrument, in light of the surrounding circumstances, and apply the appropriate rules of construction to settle their meaning. Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1980). Assuming for the sake of argument that these contracts are ambiguous, we must apply two of the most basic rules governing interpretation of oil and gas leases: (1) contracts are to be construed against the scrivener; and (2) leases are to be construed against the lessee. The ″construe against the scrivener″ canon flows from basic contract law. See Kramer, The Sisyphean Task of Interpreting Mineral Deeds and Leases: An Encyclopedia of Canons of Construction, 24 TEX. TECH L. REV. ^[1], 103 (1993). This canon allocates the burden of uncertainty caused by the use of inappropriate or vague language in a written instrument. To the extent the court can identify the party who either drafted the instrument [**55] [*133] or provided the form used, the canon requires that the uncertainty be resolved against that party. The ″construe against the lessee″ canon functions similarly. When an oil and gas lease is subject to two or more equally reasonable constructions, ″the one more favorable to the lessor will be allowed to prevail.″ Zeppa v. Houston Oil Co., 113 S.W.2d 612, 615 (Tex. Civ. App.--Texarkana 1938, writ ref’d); see also Stanolind Oil & Gas Co. v. Newman Bros. Drilling Co., 157 Tex. 489, 305 S.W.2d 169, 176 (Tex. 1957). In the present case, Heritage indisputably wrote the lease contracts and occupied the position of lessee. Thus, even if the provision is ambiguous, application of the basic rules of interpreting oil and gas leases would result in a construction against Heritage and in favor of NationsBank. I have one final concern about today’s decision. By attributing an unequivocal, precise meaning to ″market value at the well″ in oil and gas leases, the Court announces a new rule that should be applied only prospectively. See generally Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 515-521 (Tex. 1992) (discussing factors [**56] for deciding between retroactive and prospective operation). We have limited the effect of our decisions in this manner when considerations of fairness and policy preclude full retroactivity. See, e.g., Moser v. United States Steel Corp., 676 S.W.2d 99, 103 (Tex. 1984) (limiting new rule concerning phrase ″other minerals″ in deeds to prospective application). This result is appropriate in the present case because, before now, the meaning of ″market value at the well″ was subject to specific negotiation by the parties. Indeed, as the concurring opinion notes, this Court has never decided previously whether ″’market value at the well’ includes or excludes post-production costs,″ Heritage Resources v. Nationsbank, 939 S.W.2d 118, 127 (1996) (Owen, J., concurring), and lower courts have not reached agreement on the issue. See Heritage, 939 S.W.2d at 126. Compare Texas Oil & Gas Corp. v. Hagen, 683 S.W.2d 24, 28 (Tex. App.--Texarkana 1984) (concluding that ″market value at the well″ includes deduction for ″the reasonable cost of transporting the gas to the market″), writ dism’d as moot, 760 S.W.2d 960 (Tex. 1988) with Heritage Resources, Inc. v. NationsBank [**57] , 895 S.W.2d 833, 836-37 (Tex. App.--El Paso 1995) (determining that market-value royalty clause did not allow deduction for transportation costs), rev’d, 895 S.W.2d 833 (Tex. 1996). Today, the Court decides that question, but substitutes its own interpretation of the phrase for the meaning the parties intended. The Court blindsides NationsBank and other lessors by mandating that this decision apply retroactively. Page 18 of 19 939 S.W.2d 118,[*133] ; 1996 Tex. LEXIS 41, **57 This decision wrongfully denies parties such as NationsBank the right to collect royalty payments for which they clearly bargained. For the foregoing reasons, I dissent. Raul A. Gonzalez Justice Opinion delivered: April 25, 1996 Page 19 of 19 | | Caution As of: September 1, 2015 5:39 PM EDT Holmes, Woods & Diggs v. Gentry Court of Appeals of Texas, Fifth District, Dallas July 21, 2009, Opinion Filed No. 05-08-00723-CV Reporter 333 S.W.3d 650; 2009 Tex. App. LEXIS 5573 HOLMES, WOODS & DIGGS, Appellant v. LAURIE GENTRY, Appellee Subsequent History: Released for Publication August 21, 2009. Prior History: [**1] On Appeal from the County Court at Law No. 2, Dallas County, Texas. Trial Court Cause No. CC 06-00807-B. Core Terms arbitration, parties, trial court, discovery, right to arbitration, bill of review, mediation, waived, fee agreement, invoked, default judgment, trial court’s order, counterclaim, depositions Case Summary Procedural Posture In an interlocutory appeal, appellant law firm sought review of an order from the County Court at Law No. 2, Dallas County, Texas, which denied its motion to enforce an arbitration clause with regard to an underlying action involving appellee client. Overview The firm argued that the trial court erred because the firm did not waive its right to arbitration. On appeal, the court found that the existence of a valid arbitration agreement and that the claims asserted by both parties fell within the scope of the agreement was undisputed. Further, viewing the totality of the circumstances, the court concluded that the firm’s actions evidenced the firm’s intent to relinquish its right to arbitrate and that such actions were inconsistent with its subsequent claim of that right. The record showed that the client incurred a specified sum in attorney’s fees over a two year period during which she attempted to have a default judgment set aside and filed a counterclaim against the firm. The stated purpose of the arbitration clause in the fee agreement was to resolve disputes in a cost-effective and expeditious manner. The record also showed that the firm attempted to manipulate the process to its advantage and that was precisely the kind of inherent unfairness that constituted prejudice under the Texas General Arbitration Act, Tex. Civ. Prac. & Rem. Code Ann. M§ 171.001-.098 (2005) and the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16. Outcome 333 S.W.3d 650,[*650] ; 2009 Tex. App. LEXIS 5573, **1 The court affirmed the trial court’s order. LexisNexis® Headnotes Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Appeals > Standards of Review > De Novo Review HN1 The standard for determining waiver of the right to arbitration, however, is the same under both the Texas General Arbitration Act (TAA), Tex. Civ. Prac. & Rem. Code Ann. M§ 171.001-.098 (2005) and the Federal Arbitration Act (FAA), 9 U.S.C.S. §§ 1-16. Under both the FAA and the TAA, whether a party has waived his right to arbitrate is a question of law that an appellate court reviews de novo. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability HN2 A party seeking to compel arbitration has the initial burden to establish an agreement to arbitrate and that the claims are within the scope of the agreement. Tex. Civ. Prac. & Rem. Code Ann. § 171.021 (2005). If these showings are made, the burden shifts to the party opposing arbitration to present a valid defense to the agreement. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN3 Waiver is a valid defense to arbitration. Because public policy favors arbitration, there is a strong presumption against finding that a party has waived his right to arbitration, and the burden to prove waiver is a heavy one. Any doubts regarding waiver are resolved in favor of arbitration. Whether waiver occurs depends on the facts and circumstances of each case. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN4 The test for determining waiver is two-pronged: (1) did the party seeking arbitration substantially invoke the judicial process, and (2) did the opposing party prove that it suffered prejudice as a result. 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. Factors considered 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, how much of the discovery would be useful in arbitration, and whether the movant sought judgment on the merits. Whether the movant is a plaintiff or defendant is also relevant to the consideration, but does not alone justify a finding of waiver or change the totality of the circumstances test. Civil Procedure > Pleading & Practice > General Overview Civil Procedure > Discovery & Disclosure > General Overview HN5 The amount of litigation conduct deemed substantial depends on the context: three or four depositions may be all the discovery needed in one case, but merely preliminary in another. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview HN6 Prejudice refers to the inherent unfairness in terms of delay, expense or damage to a party’s legal position when the party’s opponent forces it to litigate an issue and later seeks to arbitrate that same issue. A party should Page 2 of 6 333 S.W.3d 650,[*650] ; 2009 Tex. App. LEXIS 5573, **1 not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party. Counsel: For APPELLANT: Angel Berbarie, Holmes, Diggs, Eames & Puhl, Dallas, TX. For APPELLEE: James E. Polk, Dallas, TX. Judges: Before Morris, Richter, and Lang-Miers. Opinion By Justice Richter. Opinion by: MARTIN RICHTER Opinion [*652] Opinion By Justice Richter This is an interlocutory appeal from a trial court’s order denying a motion to enforce an arbitration clause. In a single issue, appellant Holmes, Woods & Diggs (the ″Firm″) contends the trial court erred because the Firm did not waive its right to arbitration. We conclude the Firm’s arguments are without merit and affirm the trial court’s order. BACKGROUND In December 2003, Laurie Gentry retained the Firm to represent her in a family law matter. Gentry and the Firm executed a fee agreement in connection with the representation. The fee agreement contains an arbitration clause which provides: [To] formulate a quick and inexpensive resolution of any . . . disputes, you and we agree that any disputes arising out of our representation, whether contractual or tortious in nature, will be resolved exclusively by submission to binding arbitration pursuant to the rules of the American Arbitration Association. According to the agreement, arbitration is to occur in Dallas, Texas ″in accordance [**2] [*653] with the laws of the State of Texas.″ The agreement further provides that a mediation ″shall be conducted prior to arbitration upon the request of any party.″ The agreement specified that arbitration would apply to: [A]ny controversy, claim or dispute in the course and scope of the lawyer-client relationship or arising out of or relating to [the fee agreement] or the breach, termination, enforcement, interpretation or validity thereof, including the scope or applicability of [the] agreement to arbitrate. A dispute concerning fees arose between the parties and Gentry did not pay the Firm’s bill. On March 14, 2005, the Firm filed suit against Gentry claiming it was entitled to recover $ 8, 347.48 plus interest and reasonable attorney’s fees. The suit was not served on Gentry until August 2005. After being served with the lawsuit, Gentry attempted to file an answer as a pro se litigant through an on-line service. Two days later, Gentry contacted the Firm to request mediation or arbitration in accordance with the fee agreement by sending an e-mail to Robert Holmes, the general partner with whom she had contact and who executed the agreement on behalf of the Firm. Holmes agreed to mediation [**3] or arbitration. Gentry’s answer to the lawsuit was never filed, but she believed Holmes was arranging dates for mediation or arbitration. On September 21, 2005, the Firm filed a motion for default judgment that was granted by the court the same day. The Firm then attempted to execute on its judgment. Page 3 of 6 333 S.W.3d 650,[*653] ; 2009 Tex. App. LEXIS 5573, **3 Gentry retained an attorney to prevent the Firm from executing a post-judgment attachment and sale of her condominium and second home. To prevent execution of the judgment, Gentry was required to deposit $ 12,000 in her attorney’s trust account while the parties negotiated a settlement. Settlement negotiations failed. Consequently, Gentry filed a bill of review on January 25, 2006. Both parties conducted discovery on the issues to be tried in the bill of review. The discovery included depositions and the exchange of interrogatories and requests for production. On June 26, 2006, the Firm filed a motion for summary judgment and argued the default judgment should be enforced and the bill of review denied. Gentry filed a response to the motion. The trial court initially granted the motion, but after Gentry filed a motion for rehearing, signed an order setting aside the initial summary judgment [**4] order. The trial court ordered the parties to mediation, but the dispute was not resolved. The bill of review was tried on September 5, 2007. On September 11, 2007, the trial court granted the bill of review and set aside the default judgment. As a result, the Firm’s original suit was set on the court’s trial docket. On December 13, 2007, Gentry filed an answer and counterclaim and asserted claims against the Firm for fraudulent inducement, negligence, and breach of contract in connection with the fee agreement. The answer also contained affirmative defenses to the Firm’s claim that it was entitled to recover fees from Gentry. The Firm answered the counterclaim. On December 31, 2007, the Firm filed a motion to enforce the arbitration clause in the fee agreement. Gentry responded and asserted the Firm had waived its right to arbitrate. After both parties briefed the issue, on May 9, 2008, the trial court denied the motion. This appeal followed. DISCUSSION In a single issue, the Firm asserts the trial court erred because it did not waive [*654] its right to arbitrate. The Firm seeks reversal of the trial court’s order, or alternatively, mandamus relief. Neither the trial court nor the parties indicate [**5] whether this action is governed by the Texas General Arbitration Act (″TAA″), TEX. CIV. PRAC. & REM. CODE ANN. § 171.001-.098 (Vernon 2005), the Federal Arbitration Act (″FAA″), 9 U.S.C. §§ 1-16 (2006), or both, and the agreement fails to specify which law applies. HN1 The standard for determining waiver of the right to arbitration, however, is the same under both the TAA and the FAA. See Sedillo v. Campbell, 5 S.W.3d 824, 826 (Tex. App.-Houston [14th Dist.] 1999, no pet.) (combined appeal and orig. proceeding). Under both the FAA and the TAA, whether a party has waived his right to arbitrate is a question of law that we review de novo. In re Oakwood Mobile Homes, 987 S.W.2d 571, 574 (Tex. 1999) (per curiam) (FAA); In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (per curiam) (FAA); In re Trammell, 246 S.W.3d 815, 820 (Tex. App.- Dallas 2008, no pet.) (under the TAA, appellate court reviews questions of law de novo). HN2 A party seeking to compel arbitration has the initial burden to establish an agreement to arbitrate and that the claims are within the scope of the agreement. In re D. Wilson Const. Co., 196 S.W.3d 774, 781 (Tex. 2006) (orig. proceeding); In re Igloo Prods. Corp., 238 S.W.3d 574, 577 (Tex. App.-Houston [14th Dist.] 2007) [**6] (orig. proceeding); see also TEX. CIV. PRAC. & REM. CODE ANN. § 171.021 (Vernon 2005). If these showings are made, the burden shifts to the party opposing arbitration to present a valid defense to the agreement. Igloo Prods. Co., 238 S.W.3d at 577. HN3 Waiver is a valid defense to arbitration. See, e.g., In re Oakwood Mobile Homes, 987 S.W.2d at 573. Because public policy favors arbitration, there is a strong presumption against finding that a party has waived his right to arbitration, and the burden to prove waiver is a heavy one. EZ Pawn Corp. v. Mancias, 934 S.W.2d Page 4 of 6 333 S.W.3d 650,[*654] ; 2009 Tex. App. LEXIS 5573, **6 87, 89 (Tex. 1996). Any doubts regarding waiver are resolved in favor of arbitration. In re Bruce Terminix, 988 S.W.2d at 705. Whether waiver occurs depends on the facts and circumstances of each case. Perry Homes v. Cull, 258 S.W.3d 580, 591 (Tex. 2008), cert. denied, 129 S. Ct. 952, 173 L. Ed. 2d 116 (2009). HN4 The test for determining waiver is two-pronged: (1) did the party seeking arbitration substantially invoke the judicial process, and (2) did the opposing party prove that it suffered prejudice as a result. Perry Homes, 258 S.W.3d at 589-90; In re Bank One N.A., 216 S.W.3d 825, 827 (Tex. 2007). The judicial process is substantially invoked [**7] 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. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (orig. proceeding). Factors considered 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, how much of the discovery would be useful in arbitration, and whether the movant sought judgment on the merits. Perry Homes, 258 S.W.3d at 591-592. Whether the movant is a plaintiff or defendant is also relevant to the consideration, but does not alone justify a finding of waiver or change the ″totality of the circumstances test.″ Perry Homes, 258 S.W.3d at 592. Here, the existence of a valid arbitration agreement and that the claims asserted [*655] by both parties fall within the scope of the agreement is undisputed. Therefore, we begin our inquiry by examining whether the Firm substantially invoked [**8] the litigation process. The Firm contends it did not substantially invoke the litigation process because there has been no litigation in the case in chief, and virtually all activity in the trial court pertained to the default judgment and Gentry’s efforts to have it set aside. We are not persuaded by this argument. We note at the outset that the parties and the record are not clear as to whether the Firm agreed to ″arbitration or mediation″ or simply to arbitration. The Firm admits that it agreed to ″arbitration or mediation″ and never specifically denied Gentry’s assertion that it had agreed to arbitration. Because the parties’ agreement specifies that a party may request mediation as a precursor to arbitration, and because the record is clear that Gentry believed the parties were proceeding in accordance with the agreement, we view the distinction as immaterial for purposes of our analysis and consider the parties’ agreement an agreement to proceed with arbitration. The Firm not only initiated the litigation, but initially agreed to arbitration. Despite its agreement, the Firm then elected to aggressively pursue litigation. After two years of activity in the trial court, the original [**9] case was reinstated on the trial court’s docket. Although the discovery may not have involved the merits per se, it did not involve arbitrability or standing. The record does not reflect how much of the discovery might prove useful in the underlying suit. But the discovery, like all of the other activity in the trial court, would never have occurred if the Firm had honored its original agreement to arbitrate. The trial court’s order states that the court took judicial notice of the contents of its file in this cause and in the earlier proceeding and the record reflects that the Firm actively attempted to achieve a satisfactory result through litigation before turning to arbitration. The Firm obtained a default judgment, pursued execution of the judgment, and actively opposed the bill of review through summary judgment and then at trial. It was only after the bill of review was denied and Gentry asserted affirmative claims against the Firm that the Firm turned to arbitration. Viewing the totality of the circumstances, we conclude the Firm’s actions evidence the Firm’s intent to relinquish its right to arbitrate and that these actions are inconsistent with its subsequent claim of that [**10] right. The affidavit of James Polk (″Polk Affidavit″), counsel for Gentry, is also part of the record. The affidavit states that the parties took mutual depositions and the Firm served two sets of interrogatories and one request for production of documents on Gentry. Excerpts from these depositions are also included in the record. Although Page 5 of 6 333 S.W.3d 650,[*655] ; 2009 Tex. App. LEXIS 5573, **10 the volume of discovery is pertinent to our analysis, the Texas Supreme Court has held that HN5 the amount of litigation conduct deemed ″substantial″ depends on the context: three or four depositions may be all the discovery needed in one case, but merely preliminary in another. Perry Homes, 258 S.W.3d at 593. Because this case involves a relatively simple fee dispute, we view that the discovery that was conducted, coupled with the extensive briefing and aggressive defense of the default judgment and opposition to the bill of review as substantial. Therefore, we conclude that the Firm substantially invoked the litigation process. We must next determine whether Gentry suffered prejudice. HN6 Prejudice refers to the inherent unfairness in terms of delay, expense or damage to a party’s legal position when the party’s opponent forces [*656] it to litigate an issue and [**11] later seeks to arbitrate that same issue. Perry Homes, 258 S.W.3d at 597. ″A party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.″ Id. citing, In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 46 n.5 (1st Cir. 2005). Here, the record reflects that Gentry incurred $ 22,612.75 in attorney’s fees over the two years she spent attempting to have the default judgment set aside and for filing a counterclaim against the Firm. The stated purpose of the arbitration clause in the fee agreement, however, was to resolve disputes in a cost-effective and expeditious manner. The record also reflects that the Firm attempted to manipulate the process to its advantage, and this is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law. See Perry Homes, 258 S.W.3d at 597. The Firm also argues that even if it waived the right to arbitrate its claim against Gentry, it did not waive the right to arbitrate her counterclaim. The counterclaim, however, arises in the same lawsuit and falls within the scope of the arbitration clause. We are aware of [**12] no reason, nor does the Firm provide one, why the Firm’s waiver of the right to arbitrate would not encompass all claims within the scope of the agreement. Because the Firm substantially invoked the litigation process and Gentry suffered prejudice, we conclude the trial court did not err in its determination that the Firm waived the right to arbitration. We resolve the Firm’s issue against it, and affirm the trial court’s order. The request for mandamus relief is also denied. MARTIN RICHTER JUSTICE Page 6 of 6 | | Caution As of: September 1, 2015 5:18 PM EDT Howsam v. Dean Witter Reynolds Supreme Court of the United States October 9, 2002, Argued ; December 10, 2002, Decided No. 01-800 Reporter 537 U.S. 79; 123 S. Ct. 588; 154 L. Ed. 2d 491; 2002 U.S. LEXIS 9235; 71 U.S.L.W. 4019; 2002 Cal. Daily Op. Service 11847; 2002 Daily Journal DAR 13897; 16 Fla. L. Weekly Fed. S 20 KAREN HOWSAM, ETC., PETITIONER v. DEAN WITTER REYNOLDS, INC. Prior History: ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT. Dean Witter Reynolds, Inc. v. Howsam, 261 F.3d 956, 2001 U.S. App. LEXIS 17971 (10th Cir. Colo. 2001) Disposition: Reversed. Core Terms arbitration, parties, time limit, gateway Case Summary Procedural Posture Respondent securities dealer sued petitioner investor, seeking a declaration that arbitration of the parties’ dispute was barred by a time limit imposed by Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10304. Upon grant of a writ of certiorari, the investor appealed the United States Court of Appeals for the Tenth Circuit’s judgment , which held that the timeliness of the arbitration was subject to judicial rather than arbitral resolution. Overview The investor contended that the dealer misrepresented the virtues of an investment, and that the question of whether arbitration of the dispute was time barred under Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10304, required resolution by the arbitrator. The dealer argued that the timeliness of the arbitration raised a question of arbitrability which could only be determined by a court. The United States Supreme Court held that the applicability of the time limit rule was a matter presumptively for the arbitrator, and did not raise a question of substantive arbitrability requiring judicial intervention. The timeliness of the arbitration was a procedural condition precedent to arbitration but did not involve a question of whether the parties were bound by the arbitration clause of their agreement. Further, it was reasonable to infer that the parties intended that the arbitrator, who was comparatively more expert about the meaning of the time limit rule, was also better able to interpret and apply the rule. Outcome 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 The judgment requiring judicial determination of the timeliness of arbitration under the securities dealers rule was reversed. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers HN1 Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10304, states that no dispute shall be eligible for submission where six years have elapsed from the occurrence or event giving rise to the dispute. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods HN2 Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN3 Although the United States Supreme Court recognizes and enforces a liberal federal policy favoring arbitration agreements, there is an exception to this policy. The question whether the parties have submitted a particular dispute to arbitration, i.e., the ″question of arbitrability,″ is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods HN4 The United States Supreme Court finds the phrase ″question of arbitrability″ applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Formation of Contracts > Execution Page 2 of 11 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 HN5 A gateway dispute about whether the parties are bound by a given arbitration clause raises a ″question of arbitrability″ for a court to decide. Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court. Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR HN6 The United States Supreme Court finds the phrase ″question of arbitrability″ not applicable in general circumstance where parties would likely expect that an arbitrator would decide the gateway matter. Thus ″procedural″ questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide. So, too, the presumption is that the arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability. Civil Procedure > ... > Defenses, Demurrers & Objections > Affirmative Defenses > Laches Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Conditions Precedent International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN7 Rev. Unif. Arbitration Act of 2000 § 6, 7 U.L.A. 12 (Supp. 2002), states that an arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled. In the absence of an agreement to the contrary, issues of substantive arbitrability are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide. Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers HN8 The applicability of the time limit rule of Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10304, is a matter presumptively for the arbitrator, not for the judge. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers Securities Law > ... > Self-Regulating Entities > National Securities Exchanges > General Overview HN9 National Association of Securities Dealers arbitrators, comparatively more expert about the meaning of their own rules, are comparatively better able to interpret and to apply them. In the absence of any statement Page 3 of 11 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 to the contrary in an arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding. And for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure a fair and expeditious resolution of the underlying controversy, a goal of arbitration systems and judicial systems alike. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers HN10 The time limit rule of Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10304, falls within the class of gateway procedural disputes that do not present what United States Supreme Court cases call ″questions of arbitrability.″ Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers HN11 See Nat’l Ass’n Sec. Dealers Manual, Code Arb. P.R. 10324. Lawyers’ Edition Display Decision National Association of Securities Dealers (NASD) arbitrator, rather than court, held to be decisionmaker that ought to apply, to particular investment-related controversy, NASD’s time-limit rule for submitting controversies to arbitration. Summary A controversy arose out of some investment advice which a company had provided a client at some time between 1986 and 1994. This controversy fell within a standard arbitration clause in the parties’ client service agreement. The clause provided that any such controversy would be determined by arbitration before any self-regulatory organization or exchange of which the company was a member. Moreover, the agreement provided that the client could select the arbitration forum. In this instance, the client (1) chose arbitration before the National Association of Securities Dealers (NASD), and (2) in 1997, signed NASD’s uniform submission agreement, which provided that the controversy was submitted in accordance with the NASD code of arbitration procedure. One rule of this NASD code set forth a 6-year limit for submitting controversies to arbitration. The company (1) filed suit in the United States District Court for the District of Colorado; (2) asked the court to declare that the parties’ controversy was ineligible for arbitration, on the theory that the controversy was allegedly more than 6 years old; and (3) sought an injunction that would have prohibited the client from proceeding in arbitration. However, the District Court dismissed the suit, on the asserted ground that a NASD arbitrator, not the court, ought to interpret and apply the NASD time-limit rule. On appeal, the United States Court of Appeals for the Tenth Circuit, in reversing and in ordering a remand, expressed the view that (1) application of the NASD time-limit rule presented a question of the underlying controversy’s arbitrability that was presumptively for a court, not an arbitrator, to decide; (2) the client service agreement, as supplemented by the submission agreement, did not ″clearly and unmistakably″ demonstrate the Page 4 of 11 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 parties’ intent to have the time-limit dispute decided by an arbitrator; and (3) even though the client service agreement included a general provision that the agreement would be governed by New York state law--under which law such time-limit disputes allegedly ought to be decided by an arbitrator--″the federal law of arbitrability,″ rather New York law, governed the question whether an arbitrator or a court ought to apply the time-limit rule in the case at hand (261 F3d 956). On certiorari, the United States Supreme Court reversed. In an opinion by Breyer, J., joined by Rehnquist, Ch. J., and Stevens, Scalia, Kennedy, Souter, and Ginsburg, JJ., it was held that a NASD arbitrator, rather than a court, was the decisionmaker that ought to apply, to the underlying controversy in the case at hand, NASD’s time-limit rule, as: (1) This time-limit dispute fell within the class of gateway procedural disputes which did not present what the Supreme Court’s cases had called ″questions of arbitrability″ that were presumptively for a court to decide. (2) Without the help of a special arbitration-disfavoring presumption, the Supreme Court could not properly conclude that the parties intended to have a court, rather than an arbitrator, interpret and apply the time-limit rule. Thomas, J., concurring in the judgment, expressed the view that arbitrators ought to be permitted to resolve the issues concerning the NASD time-limit rule that had arisen in the case at hand, because (1) New York state case law so provided, (2) the parties had agreed to be bound by New York law, and (3) Supreme Court precedent required the Supreme Court to enforce that agreement. O’Connor, J., did not participate. Headnotes ARBITRATION §11 > EVIDENCE §385 > -- time limit -- application by arbitrator or court -- presumptions > Headnote: LEdHN[1A] [1A]LEdHN[1B] [1B]LEdHN[1C] [1C]LEdHN[1D] [1D]LEdHN[1E] [1E] With respect to an agreed-upon arbitration, before the National Association of Securities Dealers (NASD), of a controversy concerning some investment advice which a company had provided a client, a NASD arbitrator, rather than a court, was the decisionmaker that ought to apply, to this controversy, the 6-year limit for submitting controversies to arbitration that was set forth in a rule of the NASD code of arbitration procedure, as: (1) This time-limit dispute fell within the class of gateway procedural disputes which did not present what the United States Supreme Court’s cases had called ″questions of arbitrability″ that were presumptively for a court to decide--and, thus, the applicability of the time-limit rule was a matter presumptively for an arbitrator, not for a judge--in that (a) this time-limit dispute closely resembled the gateway questions which the Supreme Court had found not to be such questions of arbitrability, for the time-limit dispute seemed to be an aspect of the controversy which called the grievance procedures into play; (b) it was reasonable to infer--in the absence of any statement to the contrary in the parties’ arbitration agreement--that the parties intended the agreement to reflect an understanding that NASD arbitrators, comparatively more expert about the meaning of their own rule, would be better able to interpret and to apply the rule; and (c) for the law to assume an expectation that aligned the decisionmaker with comparative expertise would help better to secure a fair and expeditious resolution of the underlying controversy, a goal of arbitration systems and judicial systems alike. Page 5 of 11 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 (2) Without the help of a special arbitration-disfavoring presumption, the Supreme Court could not properly conclude that the parties intended to have a court, rather than an arbitrator, interpret and apply the NASD time-limit rule, as (a) the parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters; and (2) any temptation to place special antiarbitration weight on the appearance of the word ″eligible″ (for submission) in the NASD time-limit rule was counterbalanced by a different NASD rule, which provided that arbitrators would be empowered to interpret and determine the applicability of all provisions under the NASD code. (Thomas, J., dissented in part from this holding.) ARBITRATION §11 > EVIDENCE §385 > -- questions for arbitrator or court -- presumptions > Headnote: LEdHN[2A] [2A]LEdHN[2B] [2B]LEdHN[2C] [2C] While the United States Supreme Court has long recognized and enforced a liberal federal policy favoring arbitration agreements, there is a policy exception, pursuant to which there is a presumption, or interpretive rule, that the question whether the parties have submitted a particular dispute to arbitration--that is, the question of arbitrability--is an issue for judicial determination, unless the parties clearly and unmistakably provide otherwise. For such purposes, the phrase ″question of arbitrability″ has a far more limited scope than encompassing any potentially dispositive gateway question. In regard to particular issues, a gateway dispute about whether the parties are bound by a given arbitration clause raises such a question of arbitrability for a court to decide. Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for a court to decide. However, procedural questions which grow out of a dispute and bear on its final disposition are presumptively not for a judge, but for an arbitrator, to decide. Moreover, the presumption is that an arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability. Syllabus Per respondent Dean Witter Reynolds, Inc.’s standard client agreement, petitioner Howsam chose to arbitrate her dispute with the company before the National Association of Securities Dealers (NASD). NASD’s Code of Arbitration Procedure § 10304 states that no dispute ″shall be eligible for submission . . . where six (6) years have elapsed from the occurrence or event giving rise to the dispute.″ Dean Witter filed this suit, asking the Federal District Court to declare the dispute ineligible for arbitration because it was more than six years old and seeking an injunction to prohibit Howsam from proceeding in arbitration. The court dismissed the action, stating that the NASD arbitrator should interpret and apply the NASD rule. In reversing, the Tenth Circuit found that the rule’s application presented a question of the underlying dispute’s ″arbitrability″; and the presumption is that a court will ordinarily decide an arbitrability question. Held: An NASD arbitrator should apply the time limit rule to the underlying dispute. Pp. 3-7. (a) ″Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.″ Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347. The question whether parties have submitted a particular dispute to arbitration, i.e., the ″question of arbitrability,″ is ″an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.″ AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 106 S. Ct. 1415. The phrase ″question of arbitrability″ has a limited scope, applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter. Page 6 of 11 537 U.S. 79,[*79] ; 123 S. Ct. 588, **588; 154 L. Ed. 2d 491, ***491 But the phrase is not applicable in other kinds of general circumstance where parties would likely expect that an arbitrator would decide the question -- ″procedural questions which grow out of the dispute and bear on its final disposition,″ John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 11 L. Ed. 2d 898, 84 S. Ct. 909, and ″allegations of waiver, delay, or a like defense to arbitrability,″ Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. ^[1], 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927. Following this precedent, the application of the NASD rule is not a ″question of arbitrability″ but an ″aspect of the [controversy] which called the grievance procedures into play.″ John Wiley & Sons, Inc., supra, at 559. NASD arbitrators, comparatively more expert about their own rule’s meaning, are comparatively better able to interpret and to apply it. In the absence of any statement to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding. And for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure the underlying controversy’s fair and expeditious resolution. Pp. 3-6. (b) Dean Witter’s argument that, even without an antiarbitration presumption, the contracts call for judicial determination is unpersuasive. The word ″eligible″ in the NASD Code’s time limit rule does not, as Dean Witter claims, indicate the parties’ intent for the rule to be resolved by the court prior to arbitration. Parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters, and any temptation here to place special antiarbitration weight on the word ″eligible″ in § 10304 is counterbalanced by the NASD rule that ″arbitrators shall be empowered to interpret and determine the applicability″ of all code provisions, § 10324. Pp. 6-7. 261 F.3d 956, reversed. Counsel: Alan C. Friedberg argued the cause for petitioner. Matthew D. Roberts argued the cause for the United States, as amicus curiae, by special leave of court. Kenneth W. Starr argued the cause for respondent. Judges: BREYER, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and STEVENS, SCALIA, KENNEDY, SOUTER, and GINSBURG, JJ., joined. THOMAS, J., filed an opinion concurring in the judgment. O’CONNOR, J., took no part in the consideration or decision of the case. Opinion by: BREYER Opinion [**590] [*81] [***495] JUSTICE BREYER delivered the opinion of the Court. LEdHN[1A] [1A]This case focuses upon an arbitration rule of the National Association of Securities Dealers (NASD). The rule states that no dispute ″shall be eligible for submission to arbitration . . . where six (6) years have elapsed from the occurrence or event giving rise to the . . . dispute.″ NASD Code of Arbitration Procedure § 10304 (1984) (NASD Code or Code). We must decide whether a court or an NASD arbitrator should apply the rule to the underlying controversy. [***496] We conclude that the matter is for the arbitrator. I The underlying controversy arises out of investment advice that Dean Witter Reynolds, Inc. (Dean Witter), provided its client, Karen Howsam, when, some time between 1986 and 1994, it recommended that she buy and Page 7 of 11 537 U.S. 79,[*81] ; 123 S. Ct. 588, **590; 154 L. Ed. 2d 491, ***496 hold interests in four limited partnerships. Howsam says that Dean Witter misrepresented the virtues of the partnerships. The resulting controversy [**591] falls within their standard Client Service Agreement’s arbitration clause, which provides: ″all controversies . . . concerning or arising from . . . any account . . ., any transaction . . ., or . . . the construction, performance or breach of . . . any . . . agreement between us . . . shall be determined by arbitration before any self-regulatory organization or exchange of which Dean Witter is a member.″ App. 6-7. [*82] The agreement also provides that Howsam can select the arbitration forum. And Howsam chose arbitration before the NASD. To obtain NASD arbitration, Howsam signed the NASD’s Uniform Submission Agreement. That agreement specified that the ″present matter in controversy″ was submitted for arbitration ″in accordance with″ the NASD’s ″Code of Arbitration Procedure.″ Id., at 24. And that Code contains the provision at issue here, HN1 a provision stating that no dispute ″shall be eligible for submission . . . where six (6) years have elapsed from the occurrence or event giving rise to the . . . dispute.″ NASD Code § 10304. LEdHN[1B] [1B] LEdHN[2A] [2A]After the Uniform Submission Agreement was executed, Dean Witter filed this lawsuit in Federal District Court. It asked the court to declare that the dispute was ″ineligible for arbitration″ because it was more than six years old. App. 45. And it sought an injunction that would prohibit Howsam from proceeding in arbitration. The District Court dismissed the action on the ground that the NASD arbitrator, not the court, should interpret and apply the NASD rule. The Court of Appeals for the Tenth Circuit, however, reversed. 261 F.3d 956 (2001). In its view, application of the NASD rule presented a question of the underlying dispute’s ″arbitrability″; and the presumption is that a court, not an arbitrator, will ordinarily decide an ″arbitrability″ question. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995). The Courts of Appeals have reached different conclusions about whether a court or an arbitrator primarily should interpret and apply this particular NASD rule. Compare, e.g., 261 F.3d 956 (CA10 2001) (case below) (holding that the question is for the court); J. E. Liss & Co. v. Levin, 201 F.3d 848, 851 (CA7 2000) (same), with PaineWebber Inc. v. Elahi, 87 F.3d 589 (CA1 1996) (holding that NASD § 15, currently § 10304, is presumptively for the arbitrator); Smith Barney Shearson, Inc. v. Boone, 47 F.3d 750 (CA5 1995) (same). We [*83] granted Howsam’s petition for certiorari to resolve this disagreement. And we now hold that the matter is for the arbitrator. II LEdHN[1C] [1C]LEdHN[2B] [2B]This Court has determined that HN2 ″arbitration is a matter of contract and a party cannot be required [***497] to submit to arbitration any dispute which he has not agreed so to submit.″ Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960); see also First Options, 514 U.S. at 942-943.HN3 Although the Court has also long recognized and enforced a ″liberal federal policy favoring arbitration agreements,″ Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. ^[1], 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983), it has made clear that there is an exception to this policy: The question whether the parties have submitted a particular dispute to arbitration, i.e., the ″question of arbitrability,″ is ″an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.″ AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986) (emphasis added); First Options, 514 U.S. at 944. We must decide here whether application of the NASD time limit provision falls into the scope of this last-mentioned interpretive rule. [**592] LEdHN[2C] [2C]Linguistically speaking, one might call any potentially dispositive gateway question a ″question of arbitrability,″ for its answer will determine whether the underlying controversy will proceed to Page 8 of 11 537 U.S. 79,[*83] ; 123 S. Ct. 588, **592; 154 L. Ed. 2d 491, ***497 arbitration on the merits. The Court’s case law, however, makes clear that, for purposes of applying the interpretive rule, the phrase ″question of arbitrability″ has a far more limited scope. See 514 U.S. at 942. HN4 The Court has found the phrase applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of [*84] forcing parties to arbitrate a matter that they may well not have agreed to arbitrate. Thus, HN5 a gateway dispute about whether the parties are bound by a given arbitration clause raises a ″question of arbitrability″ for a court to decide. See id., at 943-946 (holding that a court should decide whether the arbitration contract bound parties who did not sign the agreement); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-547, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964) (holding that a court should decide whether an arbitration agreement survived a corporate merger and bound the resulting corporation). Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court. See, e.g., AT&T Technologies, supra, 475 U.S. 643, at 651-652 (holding that a court should decide whether a labor-management layoff controversy falls within the arbitration clause of a collective-bargaining agreement); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241-243, 8 L. Ed. 2d 462, 82 S. Ct. 1318 (1962) (holding that a court should decide whether a clause providing for arbitration of various ″grievances″ covers claims for damages for breach of a no-strike agreement). At the same time HN6 the Court has found the phrase ″question of arbitrability″ not applicable in other kinds of general circumstance where parties would likely expect that an [***498] arbitrator would decide the gateway matter. Thus ″’procedural’ questions which grow out of the dispute and bear on its final disposition″ are presumptively not for the judge, but for an arbitrator, to decide. John Wiley, supra, 376 U.S. 543, at 557 (holding that an arbitrator should decide whether the first two steps of a grievance procedure were completed, where these steps are prerequisites to arbitration). So, too, the presumption is that the arbitrator should decide ″allegations of waiver, delay, or a like defense to arbitrability.″ Moses H. Cone Memorial Hospital, 460 U.S. at 24-25. Indeed, HN7 the Revised Uniform Arbitration Act of 2000 (RUAA), seeking to ″incorporate [*85] the holdings of the vast majority of state courts and the law that has developed under the [Federal Arbitration Act],″ states that an ″arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled.″ RUAA § 6(c) and comment 2, 7 U. L. A. 12-13 (Supp. 2002). And the comments add that ″in the absence of an agreement to the contrary, issues of substantive arbitrability . . . are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.″ Id., § 6, comment 2, 7 U. L. A., at 13 (emphasis added). LEdHN[1D] [1D]Following this precedent, we find that HN8 the applicability of the NASD time limit rule is a matter presumptively for the arbitrator, not for the judge. The time limit rule closely resembles the gateway questions that this Court has found not to be ″questions of arbitrability.″ E.g., Moses H. Cone Memorial Hospital, supra, 460 U.S. ^[1], at 24-25 [**593] (referring to ″waiver, delay, or a like defense″). Such a dispute seems an ″aspect of the [controversy] which called the grievance procedures into play.″ John Wiley, supra, 376 U.S. 543, at 559. Moreover, HN9 the NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it. In the absence of any statement to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding. Cf. First Options, 514 U.S. at 944-945. And for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure a fair and expeditious resolution of the underlying controversy -- a goal of arbitration systems and judicial systems alike. Page 9 of 11 537 U.S. 79,[*85] ; 123 S. Ct. 588, **593; 154 L. Ed. 2d 491, ***498 We consequently conclude that HN10 the NASD’s time limit rule falls within the class of gateway procedural disputes that do not present what our cases have called ″questions of arbitrability.″ [*86] And the strong pro-court presumption as to the parties’ likely intent does not apply. III LEdHN[1E] [1E]Dean Witter argues that, in any event, i.e., even without an antiarbitration presumption, we should interpret the contracts between the parties here as calling for judicial determination of the time limit matter. Howsam’s execution of a Uniform Submission Agreement with the NASD in 1997 effectively incorporated the NASD Code into the parties’ [***499] agreement. Dean Witter notes the Code’s time limit rule uses the word ″eligible.″ That word, in Dean Witter’s view, indicates the parties’ intent for the time limit rule to be resolved by the court prior to arbitration. We do not see how that is so. For the reasons stated in Part II, supra, parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters. And any temptation here to place special antiarbitration weight on the appearance of the word ″eligible″ in the NASD Code rule is counterbalanced by a different NASD rule; that rule states that HN11 ″arbitrators shall be empowered to interpret and determine the applicability of all provisions under this Code.″ NASD Code § 10324. Consequently, without the help of a special arbitration-disfavoring presumption, we cannot conclude that the parties intended to have a court, rather than an arbitrator, interpret and apply the NASD time limit rule. And as we held in Part II, supra, that presumption does not apply. IV For these reasons, the judgment of the Tenth Circuit is Reversed. JUSTICE O’CONNOR took no part in the consideration or decision of this case. Concur by: THOMAS Concur [*87] JUSTICE THOMAS, concurring in the judgment. As our precedents make clear and as the Court notes, arbitration is a matter of contract. Ante, at 3. In Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989), we held that under the Federal Arbitration Act courts must enforce private agreements to arbitrate just as they would ordinary contracts: in accordance with their terms. Under Volt, when an arbitration agreement contains a choice-of-law provision, that provision must be honored, and a court interpreting the agreement must follow the law of the jurisdiction selected by the parties. See id., at 478-479 (enforcing a choice-of-law provision that incorporated a state procedural rule concerning arbitration proceedings); see also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 67, 131 L. Ed. 2d 76, 115 S. Ct. 1212 [**594] (1995) (THOMAS, J., dissenting) (concluding that the choice-of-law provision in question was indistinguishable from the one in Volt and, thus, should have been given effect). A straightforward application of these principles easily resolves the question presented in this case. The agreement now before us provides that it ″shall be construed and enforced in accordance with the laws of the State of New York.″ App. 6. Interpreting two agreements containing provisions virtually identical to the ones Page 10 of 11 537 U.S. 79,[*87] ; 123 S. Ct. 588, **594; 154 L. Ed. 2d 491, ***499 in dispute here, the New York Court of Appeals held that issues implicating § 15 (now § 10304) of the National Association of Securities Dealers Code of Arbitration Procedure are for arbitrators to decide. See Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 689 N.E.2d 884, 666 N.Y.S.2d 990 (1997). Because the parties agreed to be bound by New York law [***500] and because Volt requires us to enforce their agreement, I would permit arbitrators to resolve the § 10304 issues that have arisen in this case, just as New York case law provides. The Court follows a different route to reach the same conclusion; accordingly, I concur only in the judgment. References L Ed Digest, Arbitration 11; Evidence 385L Ed Index, Securities RegulationAnnotation References:. Page 11 of 11 | | Caution As of: September 1, 2015 5:36 PM EDT In re Bruce Terminix Co. Supreme Court of Texas June 5, 1998, Delivered No. 98-0030 Reporter 988 S.W.2d 702; 1998 Tex. LEXIS 84; 41 Tex. Sup. J. 941 IN RE BRUCE TERMINIX COMPANY, RELATOR Disposition: Writ of mandamus conditionally granted. Core Terms arbitration, waived, trial court, initiate, right to arbitration, compel arbitration, mandamus, parties, court of appeals, judicial process, discovery, courts, inspect, abate Case Summary Procedural Posture Petitioner corporation sought writ of mandamus relief from an order of the trial court (Texas), which denied its plea in abatement and motion to compel arbitration of a claim brought by respondent customer. Overview Respondent customer sued petitioner corporation for extermination services that did not work The trial court granted petitioner’s motion to have the matter placed into arbitration pursuant to an arbitration clause in the parties’ contract. The trial court never signed an order because the parties were unable to agree on the appropriate language. After several months, respondent sent petitioner an executed arbitration form, which was never filed because both parties refused to pay the fee. The trial court later granted respondent’s motion to vacate the order compelling arbitration, and set the matter for trial. Petitioner’s motion to compel arbitration was denied, and the trial court determined that petitioner had waived its right to compel arbitration, and was in default in proceeding with arbitration. Petitioner’s request for mandamus relief was partially granted by the court, which determined that there was a presumption against waiver of arbitration, that petitioner had not availed itself of the judicial process to respondent’s detriment before pursuing arbitration, and that it was respondent’s duty to arrange for the arbitration of her claim. Outcome The court granted petitioner corporation’s request for writ of mandamus relief in part because the trial court abused its discretion in finding that petitioner had waived its right to arbitration of the claim asserted by respondent customer. 988 S.W.2d 702,[*702] ; 1998 Tex. LEXIS 84, **84 LexisNexis® Headnotes Civil Procedure > Remedies > Writs > General Overview Civil Procedure > Appeals > Standards of Review > Abuse of Discretion HN1 The reviewing court will grant mandamus when a trial court has clearly abused its discretion and the relator has no adequate remedy by appeal. An error in determining what the law is or applying the law to the facts constitutes an abuse of discretion. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 Whether a party’s conduct waives its arbitration rights under the Federal Arbitration Act is a question of law. There is no adequate remedy by appeal for denial of the right to arbitrate, because the very purpose of arbitration is to avoid the time and expense of a trial and appeal. Admiralty & Maritime Law > Arbitration > General Overview Admiralty & Maritime Law > Arbitration > Federal Arbitration Act Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Stay Pending Arbitration Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN3 The Federal Arbitration Act (Act), 9 U.S.C.S. § 3, requires courts to stay lawsuits involving arbitrable issues pending arbitration, providing the applicant for the stay is not in default in proceeding with such arbitration. In applying this provision, courts commonly use the term ″waiver″ rather than the statutory term ″default.″ The Act imposes a strong presumption against waiver. Courts will not find that a party has waived its right to enforce an arbitration clause by merely taking part in litigation unless it has substantially invoked the judicial process to its opponent’s detriment. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN4 Even substantially invoking the judicial process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result. Civil Procedure > ... > Discovery > Methods of Discovery > General Overview Page 2 of 7 988 S.W.2d 702,[*702] ; 1998 Tex. LEXIS 84, **84 Civil Procedure > ... > Discovery > Methods of Discovery > Inspection & Production Requests Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN5 Responding to one set of requests for production does not establish prejudice because American Arbitration Association rules allow arbitrators to arrange for production of relevant documents and other information. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR HN6 Unless the parties contract otherwise, the burden to initiate arbitration rests on the plaintiff as the party seeking relief. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN7 Absent a contrary agreement, a party against whom a claim is asserted does not waive its right to arbitrate by failing to initiate arbitration of that claim. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN8 The American Arbitration Association’s rules define the initiating party in arbitration as the ″claimant″ and the claimant shall initiate arbitration through a demand containing a statement setting forth the nature of the dispute, the amount involved, and the remedy sought. American Arbitration Association’s Comm. Arb. Rule 6(a) (1996). Moreover, the party who files a claim must pay a filing fee that varies based on the amount of the claim. The duty to define the nature of the dispute and the remedy as provided by rule 6(a) naturally and logically falls on the claimant. Counsel: For Relator: Roy L. Stacy, Calhoun & Stacy, Dallas. For Respondent: Joe Ross Massengill, Mccarty Wilson & Nash, Ennis. Opinion [**1] [*703] ON PETITION FOR WRIT OF MANDAMUS. PER CURIAM This is an original proceeding seeking relief from the denial of a plea in abatement and motion to compel arbitration. Because the trial court abused its discretion in finding that relator waived arbitration and because relator has no adequate remedy by appeal, we conditionally grant the petition for writ of mandamus. Page 3 of 7 988 S.W.2d 702,[*703] ; 1998 Tex. LEXIS 84, **1 In 1990, Kay Bates contracted with relator Bruce Terminix Company for residential termite extermination services. The contract contained an arbitration clause. ^[1] After Terminix failed to rid Bates’s house of termites, she filed suit against Terminix on February 28, 1994. Bates alleged fraud, negligent misrepresentation, breach of contract, and Deceptive Trade Practices Act violations, and she asked the court to reform the contract. [**2] Terminix answered the suit and sent Bates requests for production and interrogatories, which she answered. On August 8, 1994, Terminix moved to abate the action and compel arbitration. At a hearing on September 26, 1994, the trial court orally granted the motion and asked Terminix to prepare a written order. But the parties could not agree on wording and the trial court never signed an order. Almost a year and a half later, on March 1, 1996, Bates wrote to Terminix requesting its assistance in arranging for the American Arbitration Association (″AAA″) to arbitrate the case. After some additional correspondence, Bates sent Terminix a completed AAA Submission to Dispute Resolution form, and on July 5, 1996, Terminix signed the form and returned it to Bates. Because the parties disagreed over who would pay the filing fee, the form was never filed with the AAA. On September 20, 1996, Bates moved to vacate the 1994 oral order compelling arbitration. At three hearings on the motion, Bates argued that Terminix had waived its right to enforce the arbitration clause. In an order dated July 21, 1997, the court granted Bates’s motion, denied Terminix’s original 1994 motion to compel arbitration, [**3] and set the case for trial. The court made a finding of fact that Terminix had waived its right to compel arbitration and was ″in default in proceeding with . . . arbitration″ under the Federal Arbitration Act, 9 U.S.C. § 3, because it had substantially invoked the judicial process to Bates’s detriment through its use of discovery in 1994. Terminix sought mandamus from the court of appeals. The court of appeals denied Terminix’s petition on an alternative ground which had been argued but not ruled on in the trial court: that Terminix had waived its rights by failing to initiate arbitration after the trial court granted its motion to compel arbitration on September 26, 1994. 953 S.W.2d 537, 540-41. Terminix now seeks mandamus from this Court. HN1 This Court will grant mandamus when a trial court has clearly abused its discretion and the relator has no adequate remedy by appeal. See Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). An error in determining what the law is or applying the law to the facts constitutes an abuse of discretion. See id. at 840. HN2 Whether a party’s conduct waives its arbitration rights under [*704] the Federal Arbitration Act is a question of law. See Price [**4] v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986). There is no adequate remedy by appeal for denial of the right to arbitrate, because the very purpose of arbitration is to avoid the time and expense of a trial and appeal. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272-73 (Tex. 1992). HN3 The Federal Arbitration Act requires courts 2 to stay lawsuits involving arbitrable issues pending arbitration, ″providing the applicant for the stay is not in default in proceeding with such arbitration.″ 9 U.S.C. § 3. In applying this provision, courts commonly use the term ″waiver″ rather than the statutory term ″default.″ See Morewitz v. West of Eng. Ship Owners Mut. Protection & Indem. Ass’n, 62 F.3d 1356, 1365 n.16 (11th Cir. ^[1] The clause reads in full: 10. ARBITRATION. The Purchaser and Terminix agree that any controversy or claim between them arising out of or relating to this agreement shall be settled exclusively by arbitration. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules then in force of the American Arbitration Association. The decision of the arbitrator shall be a final and binding resolution of the disagreement which may be entered as a judgment by any court of competent jurisdiction. Neither party shall sue the other where the basis of the suit is this agreement other than for enforcement of the arbitrator’s decision. ^[2] Although section 3 of the Act mentions only ″courts of the United States,″ it applies to state as well as federal courts. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 26 n.34, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). Page 4 of 7 988 S.W.2d 702,[*704] ; 1998 Tex. LEXIS 84, **4 1995). Because public policy favors arbitration, however, the Act imposes a strong presumption against waiver. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). Courts will not find that a party has waived its right to enforce an arbitration [**5] clause by merely taking part in litigation unless it has substantially invoked the judicial process to its opponent’s detriment. See Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir. 1991); EZ Pawn, 934 S.W.2d at 89. Terminix’s use of the judicial process was limited to filing an answer and propounding one set of eighteen interrogatories and one set of nineteen requests for production. ^[3] Terminix moved to abate the judicial proceedings and compel arbitration less than six months after Bates filed suit. The Fifth Circuit has held that a party may invoke court processes to a comparable or even greater extent than this without waiving its arbitration rights. See J.C. Bradford, 938 F.2d at 576-78 (finding no waiver by defendant who removed case from [**6] state to federal court, participated in scheduling and discovery conferences, and propounded two sets of written discovery one of which was answered). Terminix did not seek a judicial resolution of its dispute with Bates. Compare J.C. Bradford, 938 F.2d at 577-78 (finding no waiver and noting that defendant ″did not ask the court to make any judicial decisions, for example, by requesting summary judgment″), with Frye v. Paine, Webber, Jackson & Curtis, Inc., 877 F.2d 396, 398 (5th Cir. 1989) (party who participated in trial waived arbitration); Price, 791 F.2d at 1162 (party who moved for summary judgment waived arbitration); and Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497-98 (5th Cir. 1986) (party who filed multiple lawsuits waived arbitration). Thus, this is not a case in which a party who has tried and failed to obtain a satisfactory result in court then turns to arbitration. [**7] HN4 Even substantially invoking the judicial process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result. See Prudential, 909 S.W.2d at 898-99. The trial court concluded that Bates was prejudiced by Terminix’s use of discovery. Although prejudice may result when a party uses judicial processes to gain access to information that would not have been discoverable in arbitration, see J.C. Bradford, 938 F.2d at 578 n.3, this case falls under the rule that ″when 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.″ Tenneco Resins, Inc. v. Davy Int’l, 770 F.2d 416, 421 (5th Cir. 1985). The fact that Bates HN5 responded to one set of requests for production does not establish [*705] prejudice because AAA rules allow arbitrators to arrange for ″production of relevant documents and other information.″ AMERICAN ARBITRATION ASS’N, COMMERCIAL ARBITRATION RULES Rule 10 (1996). Bates also answered Terminix’s interrogatories, but the only substantive facts her response provided were a list of persons with knowledge [**8] of facts relevant to the dispute and a list of communications between herself and Terminix. Whether or not Terminix would have been able to obtain this information under AAA procedures, it falls short of the level of discovery that courts have held waives the right to arbitrate. See Zwitserse Maatschappij van Levensverzekering en Lijfrente v. ABN Int’l Capital Markets Corp., 996 F.2d 1478, 1480 (2d Cir. 1993) (deposition-like witness hearing conducted under foreign law); St. Mary’s Med. Ctr. v. Disco Aluminum Prods., 969 F.2d 585, 591 (7th Cir. 1992) (depositions). Bates has not carried the ″heavy burden of proof″ required to establish waiver of arbitration rights. See J.C. Bradford, 938 F.2d at 577. The court must resolve any doubt in favor of arbitration. See Moses H. Cone, 460 3 Bates also points out that Terminix’s experts inspected and tested her house in May 1994, three months into the litigation. However, Terminix did not obtain the inspection through the judicial process. Instead of filing a request to inspect land with the trial court, see TEX. R. CIV. P. 167(1), Terminix simply sent Bates a letter stating, ″Please let me know if you will agree to allow [Terminix] to [inspect the house] or whether I need to file a Motion with the Court″; Bates then consented to the inspection. Page 5 of 7 988 S.W.2d 702,[*705] ; 1998 Tex. LEXIS 84, **8 U.S. at 24-25. Under this standard, the trial court abused its discretion by holding that Terminix’s 1994 participation in the lawsuit waived its right to enforce the arbitration clause. We now turn to the court of appeals’ alternative rationale for denying Terminix’s petition for mandamus. The court of appeals held that as the party seeking to resolve the dispute by arbitration rather than [**9] in court, Terminix had the burden to arrange for arbitration of Bates’s claims against it. 953 S.W.2d at 540-41. Thus, the court of appeals reasoned, Terminix waived its rights by failing to initiate arbitration after the trial court granted its motion to abate the suit and compel arbitration in September 1994. Id. That conclusion conflicts with the decisions of two other courts of appeals holding that HN6 unless the parties contract otherwise, the burden to initiate arbitration rests on the plaintiff as the party seeking relief. See Moore v. Morris, 931 S.W.2d 726, 729 (Tex. App.--Austin 1996, orig. proceeding); Mamlin v. Susan Thomas, Inc., 490 S.W.2d 634, 639 (Tex. Civ. App.--Dallas 1973, no writ). 4 [**10] This Court has never squarely addressed the question of who has the burden to go forward with arbitration after a trial court grants a defendant’s motion to compel arbitration. However, we tacitly endorsed Moore and Mamlin’s result in Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896 (Tex. 1995). The plaintiffs in Prudential argued that the defendant had waived the right to arbitration by a number of actions, including its failure to pursue arbitration of certain claims that the trial court had ruled were subject to arbitration. See Prudential, 909 S.W.2d at 898. Noting that mere delay does not waive a party’s arbitration rights, we held that there was no waiver. See id. at 898-99. According to the court of appeals, it would be ″illogical . . . [to] place[] the onus of proceeding to arbitration on the very party who may be seeking to avoid it.″ 953 S.W.2d at 540. But placing the burden on the party against whom relief is sought would lead to an even stranger reversal of the litigants’ proper roles. ″It is antithetical to the interests of such a party to itself initiate a proceeding, be it a court suit or arbitration, that would expose it to the risk [**11] of liability.″ Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 468 A.2d 91, 100 (Md. 1983). ″If no arbitration clause existed, [the plaintiff] would have had the task and expense of initiating suit; she could not have required the [defendant] to sue itself. The rule is the same with arbitration substituted for suit: the party seeking relief is the one who must go forward with arbitration proceedings.″ Johnson v. Fireman’s Fund Ins. Co., 272 N.W.2d 870, 882 (Iowa 1978) (Uhlenhopp, J., [*706] dissenting). We therefore hold that HN7 absent a contrary agreement, a party against whom a claim is asserted does not waive its right to arbitrate by failing to initiate arbitration of that claim. Although the parties may choose to contract around this default rule and require the party against whom relief is sought to initiate arbitration, see Mamlin, 490 S.W.2d at 639, Bates and Terminix did not do so. Their contract states that the AAA’s Commercial Arbitration Rules shall govern. Those rules define ″HN8 the initiating party″ as the ″claimant″ and provide that the claimant shall initiate arbitration through a ″demand″ containing ″a statement setting forth ″the nature of the dispute, [**12] the amount involved, . . . [and] the remedy sought.″ AMERICAN ARBITRATION ASS’N, COMMERCIAL ARBITRATION RULES Rule 6(a) (1996). Moreover, the party who files a claim must pay a filing fee that varies based on the amount of the claim. Id. at 27. The duty to define the nature of the dispute and the remedy as provided by AAA Rule 6(a) ″naturally and logically falls on the claimant.″ Mamlin, 490 S.W.2d at 639. It would be anomalous to require the party against whom relief is sought to present its opponent’s case and pay a filing fee whose amount is based on the size of its 4 Accord Shanferoke Coal & Supply Corp. v. Westchester Serv. Corp., 70 F.2d 297, 299 (2d Cir. 1934) (Learned Hand, J.), aff’d, 293 U.S. 449, 79 L. Ed. 583, 55 S. Ct. 313 (1935); Mountain Plains Constructors, Inc. v. Torrez, 785 P.2d 928, 930 (Colo. 1990); Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 468 A.2d 91, 97-101 (Md. 1983); Lane-Tahoe, Inc. v. Kindred Constr. Co., 91 Nev. 385, 536 P.2d 491, 494 (Nev. 1975); Tothill v. Richey Ins. Agency, Inc., 117 N.H. 449, 374 A.2d 656, 658 (N.H. 1977); 1 DOMKE, DOMKE ON COMMERCIAL ARBITRATION § 19:06 (rev. ed. 1997); 1 OEHMKE, COMMERCIAL ARBITRATION § 27:02 (rev. ed. 1995). Page 6 of 7 988 S.W.2d 702,[*706] ; 1998 Tex. LEXIS 84, **12 opponent’s claim. ″This scenario is not reasonable and clearly not the design of the rules.″ Moore, 931 S.W.2d at 728-29 (discussing National Association of Securities Dealers rules). By agreeing to the AAA rules, Terminix and Bates placed the burden of initiating arbitration on the party seeking relief. *** Under Texas Rule of Appellate Procedure 59.1, without hearing oral argument, we conditionally grant Bruce Terminix Company’s petition for writ of mandamus. We are confident that the trial court will abate Bates’s lawsuit pending arbitration in accordance with this opinion and we instruct the [**13] clerk to issue the writ only if it does not. Opinion Delivered: June 5, 1998 Page 7 of 7 | | Caution As of: September 1, 2015 5:21 PM EDT In re Christus Spohn Health Sys. Corp. Court of Appeals of Texas, Thirteenth District, Corpus Christi - Edinburg July 31, 2007, Opinion Delivered ; July 31, 2007, Filed NUMBER 13-07-399-CV Reporter 231 S.W.3d 475; 2007 Tex. App. LEXIS 6143 IN RE CHRISTUS SPOHN HEALTH SYSTEM CORPORATION D/B/A CHRISTUS SPOHN HOSPITAL SHORELINE Core Terms arbitration, discovery, real party in interest, judicial process, right to arbitration, orig, invoked, parties, trial court, interrogatories, request for production, mandamus, motion to compel arbitration, pet, compel arbitration, lawsuit, writ petition, third party, first set, movant Case Summary Procedural Posture Real parties in interest, the family of a deceased employee, brought a wrongful death claim against relator employer. A Texas trial court denied the employer’s motion to compel arbitration based on an arbitration clause included in its employee benefit plan. The employer petitioned for a writ of mandamus ordering the trial court to compel arbitration. Overview The underlying lawsuit was filed in December 2005. The employer did not move to compel arbitration until February 2007, after the case had been set for trial on three separate dates. During the fourteen-month interval before the motion was filed, the parties substantially litigated the case and engaged in voluminous discovery. The court concluded that under the circumstances, the employer had substantially invoked the judicial process so as to waive arbitration. Although none of the employer’ actions alone would establish waiver, the combination of those actions--including delaying the motion for arbitration, requesting continuance, and seeking substantive discovery--did establish waiver. In addition, there was evidence that compelling arbitration would have greatly prejudiced the employee’s family because it had gone to substantial time and expense in developing the matter for trial, and that such time and expense had been greatly increased by the employer’s conduct. Outcome The petition for writ of mandamus was denied. 231 S.W.3d 475,[*475] ; 2007 Tex. App. LEXIS 6143, **6143 LexisNexis® Headnotes Civil Procedure > ... > Writs > Common Law Writs > Mandamus Civil Procedure > Appeals > Standards of Review > Abuse of Discretion Evidence > Burdens of Proof > Allocation HN1 A writ of mandamus will issue to correct a clear abuse of discretion when there is no adequate remedy by appeal. A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if it clearly fails to correctly analyze or apply the law. The relator has the burden to establish that the trial court abused its discretion. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN2 If a trial court erroneously denies a party’s motion to compel arbitration under the Federal Arbitration Act, the movant has no adequate remedy at law and is entitled to a writ of mandamus. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Evidence > Inferences & Presumptions > Presumptions Evidence > Burdens of Proof > General Overview HN3 There is a strong presumption against waiver of arbitration rights. A heavy burden of proof is required to establish waiver of arbitration rights, and the court must resolve all doubt in favor of arbitration. Whether a party has waived its contractual right to arbitrate is a question of law. Waiver may be express or implied. Whether waiver has occurred depends on the individual facts and circumstances of each case. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN4 Waiver of arbitration rights occurs only where a party has acted inconsistently with its right to arbitrate and such actions prejudiced the other party. Stated differently, a party waives an arbitration clause when it substantially invokes the judicial process to the other party’s detriment. Waiver of an arbitration right must be intentional. Therefore, the test for determining waiver is two-pronged: (1) did the party seeking arbitration substantially invoke the judicial process, and (2) did the opposing party prove that it suffered prejudice as a result. The judicial process has been substantially invoked when the party seeking arbitration has taken specific and deliberate actions, after the filing of suit, that are inconsistent with a right to arbitrate or has actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration. Civil Procedure > Pleading & Practice > Pleadings > Answers Civil Procedure > ... > Pleadings > Counterclaims > General Overview Civil Procedure > Discovery & Disclosure > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Continuances HN5 Actions that are inconsistent with the right to arbitrate and thus raise the issue of waiver may include some combination of filing an answer, setting up a counterclaim, pursuing extensive discovery, moving for a continuance, and failing to timely request arbitration. Page 2 of 8 231 S.W.3d 475,[*475] ; 2007 Tex. App. LEXIS 6143, **6143 Civil Procedure > ... > Summary Judgment > Motions for Summary Judgment > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Settlements > General Overview HN6 Examples of actions that indicate that a party is attempting to achieve a satisfactory result through litigation before turning to arbitration include moving for summary judgment or seeking a final resolution of the dispute. However, attempts at settlement do not evidence waiver. Civil Procedure > Discovery & Disclosure > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN7 Delay alone generally does not establish waiver of arbitration rights. Similarly, purely defensive measures do not substantially invoke the judicial process so as to establish waiver. A party does not, for instance, substantially invoke the judicial process merely by participating in discovery. In contrast, pursuing extensive discovery may substantially invoke the judicial process. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN8 Even when a party has substantially invoked the judicial process, a party’s right to arbitration is not waived absent a clear showing that the opposing party has been prejudiced. In determining whether or not a party has been prejudiced, courts focus on factors such as: (1) the movant’s access to information that is not discoverable in arbitration; and (2) the opponent’s incurring costs and fees due to the movant’s actions or delay. Counsel: For RELATOR: Charles W. Hurd, III, Joy M. Soloway, FULBRIGHT & JAWORSKI, Houston, TX.; Christine Kirchner, Jennifer Simons, Stephen J. Knight, CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & MARTIN, Houston, TX.; Darrell L. Barger, HARTLINE, DACUS, BARGER, DREYER, Corpus Christi, TX. For REAL PARTY IN INTEREST: David T. Bright, WATTS LAW FIRM, Corpus Christi, TX.; Robert C. Hilliard, HILLIARD & MUNOZ, Corpus Christi, TX. Judges: [**1] Before Chief Justice Valdez and Justices Benavides and Vela. Opinion by Chief Justice Valdez. Opinion by: ROGELIO VALDEZ Opinion [*477] On Petition for Writ of Mandamus OPINION Before Chief Justice Valdez and Justices Benavides and Vela Opinion by Chief Justice Valdez Relator, Christus Spohn Health System Corporation d/b/a Christus Spohn Hospital Shoreline, seeks a writ of mandamus ordering the trial court to compel arbitration of a wrongful death claim brought by real parties in interest, the family of a deceased employee. We deny the petition for writ of mandamus. I. Standard of Review Page 3 of 8 231 S.W.3d 475,[*477] ; 2007 Tex. App. LEXIS 6143, **1 HN1 A writ of mandamus will issue to correct a clear abuse of discretion when there is no adequate remedy by appeal. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if it clearly fails to correctly analyze or apply the law. In re Ford Motor Co., 165 S.W.3d 315, 317 (Tex. 2005). The relator has the burden to establish that the trial court abused its discretion. See id. HN2 If a trial court erroneously denies a party’s motion to compel arbitration under the FAA, the movant has no adequate remedy [**2] at law and is entitled [*478] to a writ of mandamus. In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (orig. proceeding); Serv. Corp. Int’l v. Lopez, 162 S.W.3d 801, 808 (Tex. App.-Corpus Christi 2005, no pet.). II. Background This is a premises liability case. Debra Slough worked as a nurse at Christus Spohn Shoreline. Jesus Alvarez abducted Slough from Christus Spohn’s parking garage and murdered her. Debra Slough’s husband, Corey Slough, filed suit against Christus Spohn individually and on behalf of their three minor children. Relator contends that the trial court erred in failing to grant its motion to compel arbitration based on an arbitration clause included in its employee benefit plan. Real parties in interest contend, inter alia, that there is neither a valid arbitration agreement nor that their claims fall within the scope of that agreement. Real parties in interest raise further defenses to arbitration, including waiver, estoppel, and procedural and substantive unconscionability. We conclude that the issue of waiver is dispositive of this matter. See TEX. R. APP. P. 47.1. III. Applicable Law HN3 There is a strong presumption against waiver of arbitration rights. In re Bank One, 216 S.W.3d 825, 827 (Tex. 2007); [**3] In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006) (orig. proceeding); see In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (orig. proceeding). A ″heavy burden of proof″ is required to establish waiver of arbitration rights, and the court must resolve all doubt in favor of arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 702 (Tex. 1998). Whether a party has waived its contractual right to arbitrate is a question of law. See In re Oakwood Mobile Homes, 987 S.W.2d 571, 574 (Tex. 1999) (orig. proceeding). Waiver may be express or implied. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996) (orig. proceeding); Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730, 735 (Tex. App.-Eastland 2006, orig. proceeding). Whether waiver has occurred depends on the individual facts and circumstances of each case. Southwind Group, Inc., 188 S.W.3d at 735; Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex. App.-Houston [1st Dist.] 2003, no pet.); Sedillo v. Campbell, 5 S.W.3d 824, 827 (Tex. App.-Houston [14th Dist.] 1999, no pet.). HN4 Waiver occurs only where ″a party has acted inconsistently with its right to arbitrate and such actions prejudiced the [**4] other party.″ In re Oakwood Homes, 987 S.W.2d at 574. Stated differently, ″a party waives an arbitration clause when it substantially invokes the judicial process to the other party’s detriment.″ In re Bank One, 216 S.W.3d at 827; see In re Vesta, 192 S.W.3d at 763. Waiver of an arbitration right must be intentional. In re Bank One, 216 S.W.3d at 827; EZ Pawn Corp., 934 S.W.2d at 89; In re Certain Underwriters at Lloyd’s, 18 S.W.3d 867, 872 (Tex. App.-Beaumont 2000, orig. proceeding). Therefore, the test for determining waiver is two-pronged: (1) did the party seeking arbitration substantially invoke the judicial process, and (2) did the opposing party prove that it suffered prejudice as a result. Perry Homes v. Cull, 173 S.W.3d 565, 569-70 (Tex. App.-Fort Worth 2005, pet. granted). The judicial process has been substantially invoked when the party seeking arbitration has taken specific and deliberate actions, after the filing of suit, that are inconsistent with a right to arbitrate or has actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration. In re Vesta Group, [*479] Inc., 192 S.W.3d at 763; Williams Indus., 110 S.W.3d at 135. Compare [**5] Sedillo, 5 S.W.3d at 827 (waiver may occur when a party has taken specific and deliberate acts after suit has been filed that are inconsistent with Page 4 of 8 231 S.W.3d 475,[*479] ; 2007 Tex. App. LEXIS 6143, **5 the right to arbitrate), and Nationwide of Bryan v. Dyer, 969 S.W.2d 518, 521 (Tex. App.-Austin 1998, no pet.) (same), with Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 703-704 (Tex. App.-Fort Worth 2006, pet. filed) (waiver may occur when a party has actively tried, but failed, to achieve a satisfactory result in litigation before turning to arbitration); Southwind Group, Inc., 188 S.W.3d at 736 (same); Williams Indus., Inc., 110 S.W.3d at 135 (same). HN5 Actions that are inconsistent with the right to arbitrate and thus raise the issue of waiver may include some combination of filing an answer, setting up a counterclaim, pursuing extensive discovery, moving for a continuance, and failing to timely request arbitration. See In re Certain Underwriters at Lloyd’s, 18 S.W.3d at 872-873; Sedillo, 5 S.W.3d at 827; Central Nat’l Ins. Co. v. Lerner, 856 S.W.2d 492, 494 (Tex. App.-Houston [1st Dist.] 1993, orig. proceeding). HN6 Examples that indicate the party is attempting to achieve a satisfactory result through litigation before turning to arbitration [**6] include moving for summary judgment or seeking a final resolution of the dispute. Williams Indus., Inc., 110 S.W.3d at 135. In this regard, we would note that attempts at settlement do not evidence waiver. In re Certain Underwriters at Lloyd’s, 18 S.W.3d at 876; D. Wilson Constr. Co. v. McAllen Indep. Sch. Dist., 848 S.W.2d 226, 230 (Tex. App.-Corpus Christi 1992, writ dism’d w.o.j.). HN7 Delay alone generally does not establish waiver. In re Vesta, 192 S.W.3d at 763. Similarly, purely defensive measures do not substantially invoke the judicial process. See Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 593 (Tex. App.-Dallas 1991, writ dism’d w.o.j.) (citing filing of general denial to preclude default judgment and filing of protective order in response to discovery request as examples of defensive measures ); see also In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002) (orig. proceeding) (holding that objecting to trial setting showed intent to avoid rather than to participate in judicial process). A party does not, for instance, substantially invoke the judicial process merely by participating in discovery. In re Bruce Terminix Co., 988 S.W.2d at 704; Southwind Group, Inc., 188 S.W.3d at 736-737; [**7] In re Nasr, 50 S.W.3d 23, 27 (Tex. App.-Beaumont 2001, orig. proceeding). In contrast, pursuing extensive discovery may substantially invoke the judicial process. Southwind Group, Inc., 188 S.W.3d at 736-737; Nationwide of Bryan, Inc., 969 S.W.2d at 522. HN8 Even when a party has substantially invoked the judicial process, a party’s right to arbitration is not waived absent a clear showing that the opposing party has been prejudiced. See In re Vesta Ins. Group, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d at 704. In determining whether or not a party has been prejudiced, courts focus on factors such as: (1) the movant’s access to information that is not discoverable in arbitration; and (2) the opponent’s incurring costs and fees due to the movant’s actions or delay. See In re Bruce Terminix Co., 988 S.W.2d at 704; Southwind Group, Inc., 188 S.W.3d at 737; Williams Indus., Inc., 110 S.W.3d at 135. IV. Analysis We now turn to the procedural history of this matter. The underlying lawsuit was originally filed on December 16, 2005. Spohn did not move to compel arbitration [*480] until February 8, 2007, after the case had been set for trial on three separate dates and almost fourteen months [**8] after the inception of the lawsuit. Spohn filed an amended motion to compel arbitration on February 22, 2007. The trial court heard arguments on the motion to compel arbitration on March 2, 2007, and requested supplemental briefing, which was subsequently filed in April and May. On June 20, 2007, Spohn filed a petition for writ of mandamus complaining of the trial court’s failure to rule and argued that the trial court’s failure to rule was a denial of the motion to compel ″[f]or all practical purposes.″ The trial court entered an order denying Spohn’s motion to compel arbitration on June 28, 2007. During the fourteen-month interval before the motion to compel arbitration was filed, the parties substantially litigated this case. The real parties added an additional defendant to the lawsuit, and Spohn filed a motion for Page 5 of 8 231 S.W.3d 475,[*480] ; 2007 Tex. App. LEXIS 6143, **8 leave to designate Jesus Alvarez as a responsible third party and filed an original third party petition seeking to add claims against Jesus Alvarez to the lawsuit. Spohn also applied for a temporary restraining order and temporary injunction against real parties in interest, which were granted by the trial court. As mentioned previously, the matter was set for trial [**9] on no less than three occasions before Spohn first mentioned the issue of arbitration. Spohn participated in a docket control conference and a docket control order was entered setting this matter for trial on December 3, 2006, with an alternate setting for April 2, 2007. After plaintiffs added an additional defendant, the parties agreed to pass the December setting and proceed with the April 2, 2007 setting. On January 3, 2007, Spohn filed a verified motion for continuance, requesting that the trial date be reset, and also requested entry of a Level III discovery plan. The trial court granted Spohn’s motion for continuance and, on January 8, 2007, reset the case for trial in August of 2007. During this same fourteen-month period of time before Spohn moved to compel arbitration, the parties engaged in voluminous discovery. Spohn initiated and commenced a significant amount of affirmative discovery. In addition to standard requests for disclosure, Spohn sent seven separate sets of written discovery to real parties in interest. These discovery requests, which are part of the record, are substantive and address the merits of the case, including both liability and damage issues. ^[1] Spohn [**10] also ordered nineteen sets of business records from third parties. Spohn filed numerous discovery motions, including eight motions to compel, and requested entry of an agreed protective order. Without referencing or mentioning [*481] an alleged right to arbitration, Spohn presented seventeen of its employees for deposition. The parties, including Spohn, sought affirmative relief regarding their discovery efforts. In the criminal cause pending against Jesus Alvarez filed in the 156th District Court of Bee County, Texas, Spohn moved to hold counsel for real parties in interest in contempt of court based on alleged discovery abuse. While we ordinarily would not consider actions in a separate cause as indicative of waiver, we would note that Spohn’s motion for contempt expressly stated that: Movant seeks a contempt finding from this Court, so it may present such finding to [respondent in this underlying proceeding] in connection with various steps civil defense counsel will take to suppress the use of the improperly obtained video and/or transcript of Mr. Alvarez’s sworn statement, for any purpose, in the civil matter. Accordingly, we construe Spohn’s actions in this separate lawsuit as part of its strategic plan of defense in the underlying [**12] matter that would be inconsistent with a right to arbitrate. Moreover, real parties in interest sought and received sanctions against Spohn in the instant case for its failure to identify persons with relevant knowledge and its representations regarding the lack of video surveillance of Spohn’s premises, when it possessed, but failed to identify or produce, video surveillance of Spohn’s premises on the date of Debra Slough’s abduction and murder. Finally, counsel for real parties in interest testified, by affidavit, that he had asked counsel for Spohn early in the litigation whether there were any reasons real parties could not bring the claims set out in their petition 1 Written discovery propounded by Spohn includes: (1) Spohn’s first set of interrogatories and first request for production to Corey Slough, individually (thirteen interrogatories and thirteen requests for production); (2) Spohn’s first request for production to Corey Slough, as representative of the estate of Debra Slough, deceased (nine interrogatories); (3) Spohn’s second request for production and first set of interrogatories to Corey Slough, as representative of the estate of Debra Slough, deceased (seven requests for production and one interrogatory); (4) Spohn’s third request for production to Corey Slough, as representative of the estate of Debra Slough, deceased (twelve requests for production); (5) Spohn’s first set of interrogatories and requests for production to Corey Slough, as next friend to Katelyn Slough (fourteen interrogatories and ten requests for production); [**11] (6) Spohn’s first set of interrogatories and requests for production to plaintiff, Corey Slough, as next friend to Holly Slough (same); and (7) Spohn’s first set of interrogatories and requests for production to plaintiff, Corey Slough, as next friend to Stacey Slough (same). Page 6 of 8 231 S.W.3d 475,[*481] ; 2007 Tex. App. LEXIS 6143, **12 because he was concerned that Spohn might consider decedent Debra Slough to be an employee within the course and scope of her employment, and thus subject to the employee benefit plan containing the arbitration agreement. Counsel stated that Spohn repeatedly and expressly denied this. Counsel for Spohn also took the position that Slough’s murder did not qualify as an ″event″ under the employee benefit plan because of a ″criminal act by a third party.″ Further, Spohn has denied any benefits to the Slough family under [**13] the employee benefit plan. Considering the individual facts and circumstances of this case, we conclude that Spohn substantially invoked the judicial process. Although delay alone does not establish waiver, fourteen months passed before Christus moved to compel arbitration, and, under these circumstances, we would conclude that Spohn failed to timely request arbitration. See In re Certain Underwriters at Lloyd’s, 18 S.W.3d at 872-873; Sedillo, 5 S.W.3d at 827. Two separate trial settings had been passed and the matter had already been set for trial a third time, at Spohn’s request via a verified motion for continuance, before Spohn moved to compel arbitration. Cf. Interconex, Inc. v. Ugarov, 224 S.W.3d 523, 534-35 (Tex. App.-Houston [1st Dist.] 2007, no pet.) (movant acted inconsistently with its right to arbitrate when it requested that the case be reset and failed to file a motion to compel arbitration until shortly before trial, which it had specifically requested and caused to be set at a certain date). According to the written discovery contained in the record, Spohn sought substantive discovery on the merits, pertaining to both liability and damages, through numerous discovery [**14] requests and motions. Southwind Group, Inc., 188 S.W.3d at 736-737; Nationwide of Bryan, Inc., 969 S.W.2d at 522. Moreover, Spohn’s third-party petition, motion for contempt, and attempt to impose sanctions constitute specific and deliberate actions that are inconsistent [*482] with the right to arbitrate and suggest that Spohn was attempting to achieve a satisfactory result through the judicial process. While none of these factors alone would establish waiver of the right to arbitration, the combination herein does. See In re Certain Underwriters at Lloyd’s, 18 S.W.3d at 872-873; Sedillo, 5 S.W.3d at 827; Central Nat’l Ins. Co. v. Lerner, 856 S.W.2d 492, 494 (Tex. App.-Houston [1st Dist.] 1993, orig. proceeding). Having determined that Spohn substantially invoked the judicial process, we next consider whether real parties in interest have made a clear showing that they have been prejudiced. See In re Vesta Ins. Group, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d at 704. In the instant case, counsel for real parties in interest testified by affidavit that compelling arbitration would ″greatly prejudice″ real parties in interest. Counsel testified that real parties in interest spent [**15] approximately $ 60,000 to $ 70,000 in expenses in developing this matter for trial. Counsel further testified that he and co-counsel spent more than 1,000 hours on the case in preparing it for trial, and, estimating their hourly rate at $ 350 per hour, had invested more than $ 350,000 in attorney’s fees. Counsel deposed seventeen witnesses before Spohn moved to compel arbitration and ordered records through depositions on written questions from twenty-three non-parties. Counsel propounded twelve substantive sets of written discovery to Spohn. Counsel testified that, had Spohn requested arbitration before discovery, he would have used a different discovery strategy and limited the depositions and expenses incurred because of the limits customarily proposed in arbitration proceedings. Counsel further testified that Spohn’s failure to identify fact witnesses and failure to acknowledge the existence of, or produce, video surveillance of its premises on the date of the incident, greatly increased the time and expense of this lawsuit. Finally, counsel for real parties testified that he had relied on representations by Spohn’s counsel that this was not an ″event″ under Spohn’s plan because [**16] of a ″criminal act by a third party.″ Corey Slough testified by affidavit that he and his children were expecting this matter to be resolved by trial in April or August, and having to continue this matter via arbitration, with no specific end date in sight, would be ″highly prejudicial and detrimental″ to him and his three daughters. ″We have been receiving counseling to Page 7 of 8 231 S.W.3d 475,[*482] ; 2007 Tex. App. LEXIS 6143, **16 get through this ordeal, and it will be very prejudicial for this to keep going because of Spohn’s agreement to the trial setting, and now trying to back out of it . . . .″ Based on the record, we conclude that real parties in interest have made a clear showing of prejudice. See In re Vesta Ins. Group, 192 S.W.3d at 763. V. Conclusion Even given the strong presumption against waiver, we conclude that Spohn substantially invoked the judicial process to its opponents’ detriment. Real parties in interest have identified acts by Spohn that are inconsistent with its right to arbitrate and have further shown resultant prejudice on their part. Accordingly, the Court, having examined and fully considered the petition for writ of mandamus and response thereto is of the opinion that relator has not shown itself entitled to the [**17] relief sought. Accordingly, the petition for writ of mandamus is DENIED. See TEX. R. APP. P. 52.8(a). Any pending motions are dismissed as moot. ROGELIO VALDEZ, Chief Justice Opinion delivered and filed this the 31st day of July, 2007. Page 8 of 8 | | Caution As of: September 1, 2015 5:10 PM EDT In re Conseco Fin. Servicing Corp. Court of Appeals of Texas, Tenth District, Waco June 7, 2000, Delivered ; June 7, 2000, Filed No. 10-00-121-CV Reporter 19 S.W.3d 562; 2000 Tex. App. LEXIS 3822 IN RE CONSECO FINANCE SERVICING CORP. F/K/A GREEN TREE FINANCIAL SERVICING CORPORATION Disposition: [**1] Writ conditionally granted. Core Terms arbitration, unconscionable, disputes, parties, arbitration agreement, arbitration clause, motion to compel arbitration, mobile home, trial court, interstate commerce, parties agree, mandamus, Collection, scope of arbitration, statutory claim, Manufactured, enforceable, provides, issues, orig Case Summary Procedural Posture Petitioner requested a writ of mandamus directing respondent trial judge of the 82nd District Court (Texas) to grant petitioner’s motion to compel arbitration in a suit against petitioner alleging violations of the Texas Debt Collection Act, Tex. Fin. Code Ann. § 392.301 (1998), and Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code Ann. §§ 17.46(b)(12), 17.50 (Supp. 2000). Overview After receiving a loan from petitioner to purchase a manufactured home, respondent borrower and his wife sued petitioner for violations of the Texas Debt Collection Act, Tex. Fin. Code Ann. § 392.301 (1998), and the Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code Ann. §§ 17.46(b)(12), 17.50 (Supp. 2000). Respondent trial judge denied petitioner’s motion to compel arbitration pursuant to a clause in the sales contract. Petitioner sought a writ of mandamus. Because an arbitration clause could not be challenged in a Texas court as unconscionable and because respondent borrower’s statutory claims ″related to″ the sales contract, the court granted mandamus directing respondent trial judge to order arbitration of respondent borrower’s claims in compliance with the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999). However, since respondent wife was not a party to the contract, her claims were not required to be arbitrated. Outcome The court granted petitioner’s mandamus request as to respondent borrower’s claims, directing respondent trial judge to order arbitration, but denied petitioner’s request as to respondent wife’s claims because she was not a party to contract that contained arbitration clause. 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN1 Both Texas and federal public policy strongly favor the submission of disputes to arbitration. Both governing bodies have established specific statutes to govern arbitration disputes. ^[9] U.S.C.S. § 1 et seq. (1999); Tex. Civ. Prac. & Rem. Code Ann. § 171.001 et seq. (2000). Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), provides for mandamus review of the denial of a demand for arbitration. Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN3 The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), applies to any contract which ″involves″ interstate commerce. A contract ″involves″ interstate commerce if it ″affects″ interstate commerce, within the broadest meaning of the word approved by the United States Supreme Court. Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN4 The happenstance of whether the parties happen to think to insert a reference to interstate commerce in a document is not determinative of whether the contract is governed by the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq. (1999). Rather, the United States Supreme Court insists that the ″transaction″ in fact ″involve interstate commerce″ to fall within the coverage of the FAA. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Page 2 of 13 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 HN5 Although the United States Supreme Court requires that the transaction reflected in a contract involve interstate commerce in fact in order for the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), to apply, it also allows the parties to specify by contract the rules under which arbitration will be conducted. On that basis, the parties may designate which arbitration act they wish to control proceedings under the contract, and the courts will honor that choice. Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN6 The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), creates a substantive body of law that is applicable in state courts. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Estate, Gift & Trust Law > Wills > Revocation of Wills > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN7 A court called upon to determine if arbitration should be compelled under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), must determine whether the parties agreed to arbitrate, and if so, whether the scope of the agreement encompasses the asserted claims. Additionally, the agreement to arbitrate may be avoided upon such grounds as exist at law or in equity for the revocation of any contract. ^[9] U.S.C.S. § 2. Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Erie Doctrine Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Estate, Gift & Trust Law > Wills > Revocation of Wills > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN8 Texas procedure controls the decision by a Texas court when it is called on to decide if a disputed claim is subject to an arbitration clause under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999). Thus, if the opposing party disputes the agreement to arbitrate, i.e., claims that there is no agreement to arbitrate or, conceding that the agreement exists, raises a ground in law or in equity for the revocation of any contract, the court may decide the issue on the basis of affidavits, pleadings, discovery and stipulations, unless the material facts are controverted. If the facts are controverted, by opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine those disputed facts before deciding if there is an enforceable agreement to arbitrate between the parties. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Page 3 of 13 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN9 Under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), when addressing whether a dispute falls within the scope of the parties’ arbitration agreement, the court should analyze the agreement under standard contract construction principles. The court’s focus should be on the factual allegations involved in the dispute and not on the legal causes of action raised by the parties. As a matter of federal substantive law, any doubts as to whether the dispute falls within the scope of the arbitration agreement should be resolved in favor of arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR HN10 The presumption of arbitrability is particularly applicable where the clause is broad; that is, the clause provides for arbitration of ″any dispute arising between the parties,″ or ″any controversy or claim arising out of or relating to the contract thereof,″ or ″any controversy concerning the interpretation, performance or application of the contract.″ In such instances, absent any express provisions excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail. Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Civil Procedure > Appeals > Standards of Review > Abuse of Discretion International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN11 Mandamus issues only to correct a clear abuse of discretion or the violation of a duty imposed by law when there is no other adequate remedy by law. When the trial court’s decision rests on the resolution of factual issues or matters committed to the court’s discretion, the relator must establish that the trial court could reasonably have reached only one decision. A trial court’s failure to correctly apply the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), to the facts of a dispute constitutes an abuse of discretion for which there is no adequate remedy at law. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN12 With respect to a mandamus action, if the trial court has held an evidentiary hearing and has resolved disputed issues of fact, the reviewing court may not substitute its judgment on the facts for that of the trial court. Thus, if the enforceability of an arbitration agreement is properly challenged and the trial court resolves disputed facts in route to determining that issue, the reviewing court may disturb the trial court’s decision only if it was ″arbitrary and unreasonable.″ A review of a trial court’s determination of the legal principles controlling its Page 4 of 13 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 ruling, however, is much less deferential. A trial court has no discretion in determining what the law is or applying the law to the facts. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion, and may result in reversal by the extraordinary writ. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Standards of Review > De Novo Review Contracts Law > Contract Interpretation > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN13 The scope of an unambiguous arbitration agreement is an issue of contract construction. Thus, it is a question of law subject to de novo review on appeal. Civil Procedure > Appeals > Reviewability of Lower Court Decisions > Preservation for Review HN14 If the trial court’s decision does not require resolution of factual issues or if there is no indication that it received and considered evidence in arriving at its judgment, a complete record of the hearing is not required for appellate review. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Estate, Gift & Trust Law > Wills > Revocation of Wills > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Real Property Law > Mobilehomes & Mobilehome Parks > General Overview HN15 To avoid being compelled to arbitrate claims within the scope of an agreement, a party must come forward with grounds as exist at law or in equity for the revocation of any contract. ^[9] U.S.C.S. § 2. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Defenses > Unconscionable > General Overview Contracts Law > Defenses > Unconscionable > Arbitration Agreements Real Property Law > Mobilehomes & Mobilehome Parks > General Overview HN16 Whether the terms and conditions of an arbitration agreement are themselves unconscionable is a matter which must be submitted to the designated arbitrator. Thus, in Texas, a claim that the substance of an arbitration clause is unconscionable is not a ground which can be asserted in court to defeat a motion to compel arbitration as a matter of law. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Page 5 of 13 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN17 An agreement to arbitrate ″all disputes, claims or controversies arising from or relating to″ the contract is a broad arbitration agreement, which does not exclude any claims from its scope. Thus, a party opposing arbitration is required to present the most forceful evidence of purpose to exclude a claim from arbitration to avoid the effect of a broad arbitration clause. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Standards of Review HN18 If there is no claim that an arbitration clause is ambiguous, the appellate court will construe the clause as a matter of law, dispensing with the necessity of a record from the motion-to-compel hearing. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Contract Interpretation > General Overview HN19 Claims based on the collection of debts owed on a contract arise from or relate to the contract. Such claims are within the scope of a broad arbitration clause. Antitrust & Trade Law > Consumer Protection > Deceptive & Unfair Trade Practices > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN20 Claims under the Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code Ann. §§ 17.46(b)(12), 17.50 (Supp. 2000), fall within the scope of an arbitration agreement. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Governments > Legislation > Statutory Remedies & Rights International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN21 Statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq. (1999). Only if Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue may a party avoid its bargain to arbitrate its claims. However, because the FAA preempts state laws to the contrary, a state may not avoid the application of the FAA to its statutory claims by its own acts. Banking Law > Consumer Protection > Fair Debt Collection > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Page 6 of 13 19 S.W.3d 562,[*562] ; 2000 Tex. App. LEXIS 3822, **1 Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Defenses > Unconscionable > Arbitration Agreements International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN22 Although a federal statutory claim may escape an arbitration clause that is subject to the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. (1999), depending upon Congress’s intent, a state statutory cause of action, such as a claim for violations of the Texas Debt Collections Act, Tex. Fin. Code Ann. § 392.301 (1998), may not. Counsel: Richard A. McKinney, HIGIER, LAUTIN, FOXMAN & McKINNEY, P.C., Austin, TX, for Relator. Ron Butler, Attorney at Law, Marlin, TX, for Real Party in Interest. Judges: BILL VANCE, Justice. Before Chief Justice Davis, Justice Vance, and Justice Gray. Opinion by: BILL VANCE Opinion [*565] Original Proceeding Conseco Finance Servicing Corp. loaned Jody Grams money to purchase a manufactured home. When Jody and his wife, Candace, sued Conseco for violations of the Texas Debt Collection Act and the Texas Deceptive Trade Practices Act, Conseco invoked an arbitration clause contained in the sales contract. Respondent, Judge of the 82nd District Court, denied Conseco’s motion to compel arbitration, and Conseco brings this mandamus proceeding asking us to order Respondent to grant that motion. Jody argues that his claims are not subject to arbitration because the arbitration clause in the contract is unconscionable and his statutory claims are not within its scope. Because the Texas Supreme Court has stated that an arbitration clause cannot be challenged in a court as unconscionable and because Jody’s statutory claims ″relate to″ his contract with Conseco, we will direct Respondent to order the parties to arbitrate his claims. We will not require Candace’s claims to be arbitrated because she is not a party to the contract [**2] with Conseco and Conseco has not attempted to show that she should be bound by that contract otherwise. Jody purchased his home on August 12, 1997. The contract is a three-page preprinted, fill-in-the-blank form. There are three parties listed: the buyer--Jody Grams, the seller--Budget Mobile Homes, and the assignee--Green Tree Financial Servicing Corp. (Conseco’s predecessor). The contract defines ″I″ to be the buyer and ″you″ to be the seller and the assignee. The first page lists the details of the transaction, including the number and amounts of payments, the make, model, and serial number of the home, and states that Jody is giving a security interest in the home. The next two pages state the terms of the contract. By these provisions, Jody agrees to make payments on the home according to the schedule on the first page, to keep the home in good condition and to keep it fully insured by a policy payable to the seller. He also agrees that Conseco could accelerate the amount he owed if he defaulted in performing any obligation created by the contract. The arbitration clause at issue is on the third page of the contract and provides, in full: 14. ARBITRATION: All disputes, claims [**3] or controversies arising from or [*566] relating to this Contract or the parties thereto shall be resolved by binding arbitration by one arbitrator selected by you with my consent. Page 7 of 13 19 S.W.3d 562,[*566] ; 2000 Tex. App. LEXIS 3822, **3 This agreement is made pursuant to a transaction in interstate commerce and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they chose arbitration instated of litigation to resolve disputes. The parties understand that they have a right to litigate disputes in court, but that they prefer to resolve their disputes through arbitration except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO A COURT ACTION BY YOU (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law and any other laws including, but not limited to all contract, tort and property disputes, will be subject to binding arbitration in accord with this Contract. The parties agree that the arbitrator shall have all powers provided [**4] by law, the Contract and the agreement of the parties. These powers shall include all legal and equitable remedies including, but not limited to, money damages, declaratory relief and injunctive relief. Notwithstanding anything hereunto the contrary, you retain an option to use judicial (filing a lawsuit) or non-judicial relief to enforce a security agreement relating to the Manufactured Home secured in a transaction underlying this arbitration agreement, to enforce the monetary obligation secured by the Manufactured Home or to foreclose on the Manufactured Home. The institution and maintenance of a lawsuit to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this Contract, including the filing of a counterclaim in a suit brought by you pursuant to this provision. On November 12, 1999, the Grams filed suit against Conseco, alleging that it had violated both the Texas Debt Collection Act and the Deceptive Trade Practices Act. TEX. FIN. CODE ANN. § 392.301 (Vernon 1998); TEX. BUS. & COM. CODE ANN. [**5] §§ 17.46(b)(12), 17.50 (Vernon Supp. Pamph. 2000). Conseco filed a motion to compel arbitration, relying on this clause to argue that the parties had agreed to arbitrate ″all disputes, claims and controversies which arise from or relate to the Contract.″ Apparently, Respondent conducted a hearing on the motion to compel, 1 and denied Conseco’s request. This mandamus proceeding followed. [**6] What law applies HN1 Both Texas and Federal public policy strongly favor the submission of disputes to arbitration. D. Wilson Constr. Co. v. Cris Equip. Co., Inc., 988 S.W.2d 388, 393 (Tex. App.--Corpus Christi 1999, orig. proceeding). Both governing bodies have established specific statues to govern arbitration disputes. ^[9] U.S.C.A. § 1, et seq. (West 1999); TEX. CIV. PRAC. & REM. CODE ANN. § 171.001, et seq. (Vernon Supp. 2000). Which statute applies to this contract has several implications. First, if Conseco’s demand for arbitration comes [*567] within the ambit of HN2 the Federal Arbitration Act (FAA), it is entitled to seek review of the denial of that motion by mandamus. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). If its claim must be based on the Texas Act, mandamus is not appropriate because an interlocutory appeal is available. Id.; TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1). Secondly, on the substance of the claim, Texas law provides for different restrictions on an arbitration clause than does the Federal statute. [**7] See, e.g., TEX. CIV. PRAC. & REM. CODE ANN. § 171.002. Thus, depending upon which law governs, we must consider different requirements to determine if Respondent abused his discretion when he refused to order the dispute to arbitration. HN3 The Federal act applies to any contract which ″involves″ interstate commerce. A contract ″involves″ interstate commerce if it ″affects″ interstate commerce, within the broadest meaning of the word approved by 1 We say ″apparently″ because Conseco has not presented us with a reporter’s record from a hearing on its motion even though the order denying that motion indicates that ″[a] record was duly made.″ However, the parties agree that the only evidence Respondent had before him was the pleadings, including the Grams’ verified pleading seeking a temporary restraining order, the exhibits attached to Conseco’s motion to compel arbitration, and the exhibits attached to its brief in support of that motion. The parties agree that no other evidence was heard by Respondent during the course of the hearing. Page 8 of 13 19 S.W.3d 562,[*567] ; 2000 Tex. App. LEXIS 3822, **7 the United States Supreme Court. Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265, 273-74, 115 S. Ct. 834, 839, 130 L. Ed. 2d 753 (1995). HN4 The ″happenstance [of] whether the parties happened to think to insert a reference to interstate commerce in the document″ is not determinative of whether the contract is governed by the FAA. Dobson, 513 U.S. at 278, 115 S. Ct. at 842. Rather, the United States Supreme Court ″insists that the ’transaction’ in fact ’involve[]’ interstate commerce″ to fall within the coverage of the act. Id., 513 U.S. at 281, 115 S. Ct. at 843. HN5 Although the United States Supreme Court requires that the transaction reflected in the contract [**8] involve interstate commerce in fact, it has also allowed the parties to ″specify by contract the rules under which that arbitration will be conducted.″ Volt Info. Sciences v. Board of Trustees, 489 U.S. 468, 479, 109 S. Ct. 1248, 1256, 103 L. Ed. 2d 488 (1989). On that basis, ″the parties may designate which arbitration act they wish to control proceedings under the contract, and the courts will honor that choice.″ Russ Berrie and Co. v. Gantt, 998 S.W.2d 713, 715 n.6 (Tex. App.--El Paso 1999, no pet.). Here, the parties agreed in the contract that the arbitration would be governed by the FAA, and we will apply those provisions to this dispute. Thus, this proceeding is properly before us on Conseco’s petition for a writ of mandamus. The law as applied in a trial court HN6 The Federal Arbitration Act creates a substantive body of law that is applicable in state courts. Perry v. Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 2525, 96 L. Ed. 2d 426 (1987). HN7 A court called upon to determine if arbitration should be compelled under the FAA must determine (1) whether the parties agreed to arbitrate, and if so, (2) whether the scope [**9] of the agreement encompasses the asserted claims. Chelsea Square Textiles, Inc. v. Bombay Dyeing and Manufacturing Co., 189 F.3d 289, 294 (2nd Cir. 1999); see also Leander Cut Stone Co. v. Brazos Masonry, Inc., 987 S.W.2d 638, 640 (Tex. App.--Waco 1999, no pet.). Additionally, the agreement to arbitrate may be avoided ″upon such grounds as exist at law or in equity for the revocation of any contract.″ 9 U.S.C.A. § 2; Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 686, 116 S. Ct. 1652, 1656, 134 L. Ed. 2d 902 (1996). HN8 Texas procedure controls the decision by a Texas court when it is called on to decide if a disputed claim is subject to an arbitration clause under the Federal Act. Jack B. Anglin, 842 S.W.2d at 268. Thus, if the opposing party disputes the agreement to arbitrate, i.e., claims that there is no agreement to arbitrate or, conceding that the agreement exists, raises a ground in law or in equity for the revocation of any contract, the court may decide the issue on the basis of affidavits, pleadings, discovery and stipulations, unless the material facts are controverted. Leander Cut Stone, 987 S.W.2d at 640. [**10] If the facts [*568] are controverted, by opposing affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to determine those disputed facts before deciding if there is an enforceable agreement to arbitrate between the parties. Id. HN9 When addressing the second issue--whether the dispute falls within the scope of the parties’ arbitration agreement--the court should analyze the agreement under standard contract construction principles. Id. Its focus should be on the factual allegations involved in the dispute and not on the legal causes of action raised by the parties. Id. As a matter of federal substantive law, any doubts as to whether the dispute falls within the scope of the arbitration agreement should be resolved in favor of arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 & n.8, 115 S. Ct. 1212, 1218 & n.8, 131 L. Ed. 2d 76 (1995). As our sister court of appeals has observed: HN10 The presumption of arbitrability is particularly applicable where the clause is broad; that is, it provides for arbitration of ″any dispute arising between the parties,″ or ″any controversy or claim arising out of or relating [**11] to the contract thereof,″ or ″any controversy concerning the interpretation, performance or application of the contract.″ [citations omitted]. In such instances, absent any express provisions excluding a particular Page 9 of 13 19 S.W.3d 562,[*568] ; 2000 Tex. App. LEXIS 3822, **11 grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail. Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 230 (Tex. App.--Houston [14th Dist.] 1993, writ denied); see also Southwest Health Plan, Inc. v. Sparkman, 921 S.W.2d 355, 358 (Tex. App.--Fort Worth 1996, no writ). Our review of the trial court’s actions ″HN11 Mandamus issues only to correct a clear abuse of discretion or the violation of a duty imposed by law when there is no other adequate remedy by law.″ Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (quoting Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985)); In re Bishop, 8 S.W.3d 412, 416 (Tex. App.--Waco 1999, orig. proceeding). When the trial court’s decision rests on the resolution of factual issues or matters committed to the court’s discretion, ″the relator must [**12] establish that the trial court could reasonably have reached only one decision.″ Walker, 827 S.W.2d at 839-40. A trial court’s failure to correctly apply the FAA to the facts of a dispute constitutes an abuse of discretion for which there is no adequate remedy at law. Jack B. Anglin, 842 S.W.2d at 272-73. HN12 If the trial court has held an evidentiary hearing and has resolved disputed issues of fact, we may not substitute our judgment on the facts for that of the trial court. Walker, 827 S.W.2d at 839. Thus, if the enforceability of the arbitration agreement was properly challenged and Respondent resolved disputed facts in route to determining that issue, we may disturb his decision only if it was ″arbitrary and unreasonable.″ Walker, 827 S.W.2d at 840. A review of a trial court’s determination of the legal principles controlling its ruling, however, is much less deferential. A trial court has no discretion in determining what the law is or applying the law to the facts. Id. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion, and may result in reversal by the extraordinary [**13] writ. Id.; In re Monsanto Co., 998 S.W.2d 917, 921-22 (Tex. App.--Waco 1999, orig. proceeding). HN13 The scope of an unambiguous arbitration agreement is an issue of contract construction, thus, a question of law subject to de novo review on appeal. Leander Cut Stone, 987 S.W.2d at 640. Similarly, if the court was not required or not allowed to resolve fact issues to determine if the arbitration agreement was enforceable, but based its ruling on a pure issue of law, our [*569] review of its decision on the first prong is much less deferential. On a related matter, when a trial court’s decision is based on a factual determination, we may not find that the court abused its discretion in the absence of a complete record from the hearing. See Walker, 827 S.W.2d at 837. HN14 If the court’s decision does not require resolution of factual issues or if there is no indication that it received and considered evidence in arriving at its judgment, a complete record of the hearing is not required. See Walker, 827 S.W.2d at 837 n.3; Barnes v. Whittington, 751 S.W.2d 493, 495 (Tex. 1988); Humphreys v. Caldwell, 881 S.W.2d 940, 944 [**14] (Tex. App.--Corpus Christi 1994, orig. proceeding). Is there an enforceable agreement to arbitrate? Conseco attached a copy of the contract to its motion to compel arbitration. Thus, it has met its burden of presenting evidence of an arbitration agreement between it and Jody. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999); Leander Cut Stone, 987 S.W.2d at 640. HN15 To avoid being compelled to arbitrate claims within the scope of that agreement, Jody must have come forward with ″grounds as exist at law or in equity for the revocation of any contract.″ 9 U.S.C.A. § 2; Casarotto, 517 U.S. at 687, 116 S. Ct. at 1656; Oakwood Mobile Homes, 987 S.W.2d at 573. Because we do not have a reporter’s record from the hearing before the trial court, we do not know what grounds Jody argued to avoid the arbitration clause. However, in this court, Page 10 of 13 19 S.W.3d 562,[*569] ; 2000 Tex. App. LEXIS 3822, **14 he advances only one reason that the clause is unenforceable: He claims that the clause was unconscionable when it was made because its terms potentially require arbitration of intentional torts and require him to arbitrate any claim he may [**15] have against Conseco but reserves Conseco’s right to litigate most of its claims against him. Although we are sympathetic to Jody’s complaints regarding this arbitration clause, 2 [**16] our hands are tied by the Texas Supreme Court’s decision in Oakwood Mobile Homes. According to the Court, ″HN16 whether the terms and conditions of an arbitration agreement are themselves unconscionable is a matter which must be submitted to the designated arbitrator.″ Oakwood Mobile Homes, 987 S.W.2d at 573 n.3. 3 Thus, in Texas, a claim [*570] that the substance of an arbitration clause is unconscionable is not a ground which can be asserted in court to defeat a motion to compel arbitration as a matter of law. Id. [**17] Because Jody asserts only a ground which is outside of the authority of Respondent to consider, it is irrelevant what evidence Respondent might have heard on the issue. Thus, we do not need a reporter’s record from the hearing to conclude Respondent abused his discretion if he determined that the arbitration agreement was unenforceable because it is unconscionable. Walker, 827 S.W.2d at 837; Barnes, 751 S.W.2d at 495; Humphreys, 881 S.W.2d at 944. Are the claims in this suit within the scope of the arbitration agreement? When he purchased the mobile home, Jody HN17 agreed to arbitrate ″all disputes, claims or controversies arising from or relating to″ the contract. This is a broad arbitration agreement, which does not exclude any of Jody’s claims from its scope; thus, Jody was required to present ″the most forceful evidence of purpose to exclude″ his claim from arbitration to avoid its effect. Babcock, 863 S.W.2d at 230. Because the scope of the clause is a matter of contract construction, the only source that a court can look to for that ″forceful evidence″ is the terms of the contract itself, unless the [**18] clause is ambiguous. See Leander Cut Stone, 987 S.W.2d at 2 Courts have held that arbitration clauses which require the party with lesser bargaining power to arbitrate their claims but reserve the right to litigate the claims of the party with the greater power are unconscionable. Iwen v. U.S. West Direct, 1999 MT 63, 977 P.2d 989, 293 Mont. 512 (Mont. 1999); Arnold v. United Companies Lending Corp., 204 W. Va. 29, 511 S.E.2d 854 (W.Va. 1998); Ramirez v. Circuit City Stores, Inc., 76 Cal. App. 4th 1229, 90 Cal. Rptr. 2d 916 (Cal. App. 1999), review granted, 94 Cal. Rptr. 2d 1, 995 P.2d 137 (Cal. 2000). 3 Although this statement is contained in a footnote in a per curiam opinion and refers only to an unpublished El Paso Court of Appeals decision for support, we feel obligated to follow it. If we were writing on a blank slate, we would instead follow the United States Supreme Court’s holding that ″generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements [by a court] without contravening″ the enforcement provision of the FAA. Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656, 134 L. Ed. 2d 902 (1996). Unconscionability is a generally applied legal theory in Texas, which allows a court to ″refuse to enforce the contract, or [to] enforce the remainder of the contract without the unconscionable clause, or [to] limit the application of any unconscionable clause as to avoid any unconscionable result.″ TEX. BUS. & COM. CODE ANN. § 2.302 (Vernon 1994). This section applies to the purchase of a mobile home. See Apeco Corp. v. Bishop Mobile Homes, Inc., 506 S.W.2d 711, 717 (Tex. Civ. App.--Corpus Christi 1974, writ ref’d n.r.e.). Thus, unconscionability is included in the ″grounds as exist at law or in equity for the revocation of any contract″ which may be applied by a state court to invalidate an arbitration agreement. ^[9] U.S.C.A. § 2 (West 1999); Casarotto, 517 U.S. at 686, 116 S. Ct. at 1656. Our research has disclosed no other court that has taken the position that only the arbitrator has the authority to determine if the terms of the arbitration clause are unconscionable. We have found many courts that have ruled upon an argument based on unconscionability. See, e.g., Dobbins v. Hawk’s Enterprises, 198 F.3d 715 (8th Cir. 1999); Harris v. Green Tree Financial Corp., 183 F.3d 173 (3rd Cir. 1999); We Care Hair Development, Inc. v. Engen, 180 F.3d 838 (7th Cir. 1999); Doctor’s Associates, Inc. v. Hamilton, 150 F.3d 157 (2nd Cir. 1998); Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727 (4th Cir. 1991); Iwen v. U.S. West Direct, 1999 MT 63, 977 P.2d 989, 293 Mont. 512 (Mont. 1999); Arnold v. United Companies Lending Corp., 204 W. Va. 29, 511 S.E.2d 854 (W.Va. 1998); Williams v. Aetna Finance Co., 83 Ohio St. 3d 464, 700 N.E.2d 859 (Ohio 1998); Sosa v. Paulos, 924 P.2d 357 (Utah 1996); Buraczynski v. Eyring, 919 S.W.2d 314 (Tenn. 1996); Stirlen v. Supercuts, Inc., 51 Cal. App. 4th 1519, 60 Cal. Rptr. 2d 138 (Cal. App. 1997); Powertel, Inc. v. Bexley, 743 So. 2d 570 (Fla. App. 1999). Most have rejected the claim. Page 11 of 13 19 S.W.3d 562,[*570] ; 2000 Tex. App. LEXIS 3822, **18 640. HN18 There is no claim made here that the clause is ambiguous. Thus, we construe the clause as a matter of law, again dispensing with the necessity of a record from the motion-to-compel hearing. Jody argues that his claims for violations of the Debt Collection Act and the Deceptive Trade Practices Act are not arbitrable under this provision because (1) these claims are not based on the formation, negotiation, terms, or performance of the contract, but relate to Conseco’s behavior after the contract was entered, and (2) his claims are statutory causes of action sounding wholly in intentional tort separate and apart from any dispute based on his contractual relationship with Conseco. Although true that the claim raised by Jody is not based on the formation or the terms of the contract, the arbitration clause is not so limited. Rather, the clause provides for arbitration of any claims ″arising from or relating to″ the contract. Jody’s complaint arises from Conseco’s alleged efforts to collect the amounts due under the terms of the agreement. Absent the contract, there would be no relationship between Jody and [**19] Conseco, and there would have been no debt the collection of which caused the difficulty between them. See American Employers’ Ins. Co. v. Aiken, 942 S.W.2d 156, 160 (Tex. App.--Fort Worth 1997, no writ). Therefore, we conclude that Jody’s HN19 claims based on Conseco’s acts in collecting the debt owed on the contract arise from or relate to the contract and so are within the scope of the arbitration clause. Furthermore, HN20 the Texas Supreme Court has held that claims under the DTPA fall within the scope of an arbitration agreement. Jack B. Anglin, 842 S.W.2d at 270-71. Jody’s second argument for finding that his claim is not within the scope of the arbitration clause is equally [*571] unavailing. Although there was some debate as to whether statutory claims were exempt from arbitration, ″it is by now clear that HN21 statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA.″ Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S. Ct. 1647, 1652, 114 L. Ed. 2d 26 (1991). Only if ″Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue″ may [**20] a party avoid its bargain to arbitrate its claims. Id. (emphasis added). However, because the FAA preempts state laws to the contrary, a state may not avoid the application of the FAA to its statutory claims by its own acts. See Jack B. Anglin, 842 S.W.2d at 271 (holding that the FAA preempts the nonwaiver provisions of the DTPA to the extent it would prevent or restrict enforcement of an arbitration agreement). Thus, HN22 although a federal statutory claim may escape an arbitration clause that is subject to the FAA, depending upon Congress’s intent, a state statutory cause of action, such as Jody’s claim for violations of the Texas Debt Collections Act, may not. To what relief is Conseco entitled? We have concluded that Jody cannot show that the arbitration agreement in the contract with Conseco is unconscionable and has failed to show that his claims are not within the scope of that clause. Thus, Respondent abused his discretion when he failed to grant Conseco’s motion to compel arbitration of Jody’s claims. Conseco has no adequate remedy at law to correct this abuse of discretion. Thus, it is entitled to writ of mandamus compelling Respondent to [**21] grant the motion and order that Jody’s claims be submitted to arbitration. ^[4] Conseco goes further than merely asking that Jody be compelled to submit to arbitration. First, it also asks that Candace be required to arbitrate her claims. However, the contract is between only Jody and Conseco. Candace is not a party to it. Conseco has not presented any argument or authority which would allow it to force Candace 4 Although the Civil Practice and Remedies Code provides that the court should ″order the parties to arbitrate,″ Jody, as the party seeking relief, has the burden to go forward with the arbitration after Respondent grants Conseco’s motion to compel arbitration of his claims. TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(a) (Vernon Supp. 2000); In re Bruce Terminix Co., 988 S.W.2d 702, 705-06 (Tex. 1998). Page 12 of 13 19 S.W.3d 562,[*571] ; 2000 Tex. App. LEXIS 3822, **21 to arbitrate any claims she may have against it in the absence of an agreement with Conseco to do so. Thus, we conclude that Respondent did not err in refusing [**22] to require Candace to submit her claims to arbitration, and we will not instruct him to do so. Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 931 (Tex. App.--Houston [1st Dist.] 1996, no writ); Prudential-Bache Securities, Inc. v. Garza, 848 S.W.2d 803, 807 (Tex. App.--Corpus Christi 1993, orig. proceeding). Conseco also asks that we issue an order requiring that Respondent dismiss both Jody’s and Candace’s claims with prejudice if they have not submitted to arbitration within thirty days of Respondent’s order compelling arbitration. Conseco presents no authority or argument justifying this request. Therefore, this relief is denied. Conclusion Respondent is directed to withdraw his order denying Conseco’s motion to compel arbitration and order that Jody’s claims be submitted to arbitration. Confident that Respondent will comply, the writ will issue only if he fails to do so within fourteen days of this opinion. BILL VANCE Justice Before Chief Justice Davis Justice Vance, and Justice Gray Writ conditionally granted Opinion delivered and filed June 7, 2000 Page 13 of 13 | | Caution As of: September 1, 2015 2:39 PM EDT Am. Std. v. Brownsville Indep. Sch. Dist. (In re D. Wilson Constr. Co.) Supreme Court of Texas February 14, 2006, Argued ; June 30, 2006, Delivered NO. 05-0326, consolidated with NO. 05-0327 Reporter 196 S.W.3d 774; 2006 Tex. LEXIS 644; 49 Tex. Sup. J. 909 IN RE D. WILSON CONSTRUCTION COMPANY, ET AL., RELATORS; AMERICAN STANDARD AND THE TRANE COMPANY, ET AL., PETITIONERS, v. BROWNSVILLE INDEPENDENT SCHOOL DISTRICT, RESPONDENT Subsequent History: [**1] Released for Publication August 18, 2006. Prior History: ON PETITION FOR WRIT OF MANDAMUS. ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE THIRTEENTH DISTRICT OF TEXAS. Am. Std. v. Brownsville Indep. Sch. Dist., 2005 Tex. App. LEXIS 1016 (Tex. App. Corpus Christi, Feb. 10, 2005) Core Terms arbitration, ambiguous, arbitration agreement, interlocutory appeal, court of appeals, Conditions, contracts, mandamus, parties, trial court, AIA, third-party, orig, state law, Supplementary, per curiam, motion to compel arbitration, consolidated appeal, preempts, invoke, joined, interstate commerce, subcontractors, proceedings, commerce, applies, motions, schools, pet Case Summary Procedural Posture Petitioner subcontractor sought review of a judgment from the Court of Appeals for the Thirteenth District (Texas), which denied an interlocutory appeal and a mandamus petition challenging the trial court’s refusal to compel arbitration of respondent school district’s construction defect claims under the Federal Arbitration Act (FAA), 9 U.S.C.S. §§ 1-16, and the Texas Arbitration Act (TAA), Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-171.098. Overview The subcontractor sought injunctive relief against the district to preserve evidence in a personal injury action. The district counterclaimed for alleged construction defects and filed third-party actions against several parties, including two general contractors. The trial court found the arbitration agreements, which referenced neither the 196 S.W.3d 774,[*774] ; 2006 Tex. LEXIS 644, **1 FAA nor the TAA, to be ambiguous. The court of appeals dismissed the interlocutory appeal for want of jurisdiction, finding the TAA inapplicable because the dispute concerned a transaction involving commerce. The court concluded that the TAA was not preempted by the FAA because the parties did not assert that anything in the TAA or other state law would subvert enforcement of the agreements; hence, the court of appeals had jurisdiction under both laws. The contracts with the general contractors validly and expressly incorporated by reference the expansive arbitration language in a standard construction industry document. There was no ambiguity in either the validity or the scope of the arbitration agreements. No waiver was effected by cross-actions for indemnity in the personal injury suit or by the subcontractor’s pursuit of injunctive relief. Outcome The court conditionally granted the writ of mandamus and directed the trial court to vacate the order that had denied the motions to compel arbitration, to grant one contractor’s motion to compel arbitration, to conduct further proceedings to determine whether the other contractor was entitled to arbitration, and to conduct further proceedings to determine whether the various nonsignatories were entitled to arbitration. LexisNexis® Headnotes Civil Procedure > ... > Federal & State Interrelationships > Choice of Law > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN1 Contracts that reference neither the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, nor the Texas Arbitration Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-171.098, but merely note that the contracts shall be governed by the law of the place where the project is located, invoke federal and state law. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Scope HN2 The Federal Arbitration Act (FAA), 9 U.S.C.S. §§ 1-16, only preempts contrary state law, not consonant state law. The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. But even when Congress has not completely displaced state regulation in an area, state law may nonetheless be pre-empted to the extent that it actually conflicts with federal law--that is, to the extent that it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The question before a court, therefore, is whether application of state law to stay arbitration under a contract in interstate commerce would undermine the goals and policies of the FAA. The FAA preempts state statutes to the extent they are inconsistent with that act. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Scope HN3 There is a four-factor test to determine whether the Texas Arbitration Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-171.098, would thwart the goals and policies of the Federal Arbitration Act (FAA), 9 U.S.C.S. §§ 1-16, in a particular case. The FAA only preempts the TAA if: (1) the agreement is in writing, (2) it involves interstate commerce, (3) it can withstand scrutiny under traditional contract defenses under state law, and (4) state law affects the enforceability of the agreement. The mere fact that a contract affects interstate commerce, thus triggering the FAA, does not preclude enforcement under the TAA as well. For the FAA to preempt the TAA, state law must refuse to enforce an arbitration agreement that the FAA would enforce, either because (1) the TAA has expressly exempted the agreement from coverage, or (2) the TAA has imposed an enforceability requirement not found in the FAA. Page 2 of 11 196 S.W.3d 774,[*774] ; 2006 Tex. LEXIS 644, **1 Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN4 Mandamus is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal, as when a party is erroneously denied its contracted-for arbitration rights under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16. Also, a trial court has no discretion in determining what the law is or applying the law to the facts. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration HN5 In evaluating a motion to compel arbitration, a court must determine first whether a valid arbitration agreement exists, and then whether the agreement encompasses the claims raised. When deciding whether the parties agreed to arbitrate under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, courts should apply ordinary state law principles regarding the formation of contracts. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN6 Whether a valid arbitration agreement exists is a legal question subject to de novo review. Contracts Law > Contract Interpretation > Ambiguities & Contra Proferentem > General Overview HN7 Whether contractual ambiguity exists is a question of law. Inartful drafting does not alone render a contractual provision ambiguous. A contract is ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent rules of construction. Ambiguity does not exist merely because the parties assert forceful and diametrically opposing interpretations. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN8 A contractual term is not rendered invalid merely because it exists in a document incorporated by reference, and arbitration-related language is no exception to this rule. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN9 The strong presumption favoring arbitration generally requires that a court resolve doubts as to the scope of the agreements in favor of coverage. Once an agreement is established, a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN10 There is a strong presumption against waiver under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16. Merely taking part in litigation is not enough unless a party has substantially invoked the judicial process to its opponent’s detriment. Counsel: For RELATOR: Mr. John R. Griffith, Ms. Lucia Thompson, GRIFFITH & GARZA, L.L.P., McAllen, TX; Mr. Paul W. Gertz, GERMER GERTZ, L.L.P., Beaumont, TX; Mr. David P. Benjamin, O’CONNELL & BENJAMIN, L.L.P., Mr. Albert M. Gutierrez, Jr., AVAREZ, NOTZON, GUTIERREZ, L.L.P., San Antonio, TX; Ms. Cindy A. Lopez Garcia, Harlingen, TX; Ms. Margery Huston, Mr. Rick Fancher, BARKER LEON Page 3 of 11 196 S.W.3d 774,[*774] ; 2006 Tex. LEXIS 644, **1 FANCHER & MATTHYS, L.L.P., Corpus Christi, TX; Mr. Rob Martin, BATEMAN/PUGH, P.L.L.C., Mr. Fred L. Shuchart, KROGER, MYERS, FRISBY & HIRSCH, Houston, TX; Mr. Robert A. Skipworth, LAW OFFICE of ROBERT A. SKIPWORTH, El Paso, TX; Mr. Ewing Edben Sikes, III, ROYSTON, RAYZOR, VICKERY & WILLIAMS, L.L.P., Brownsville, TX; Mr. Mark T. Beaman, Mr. David E. Little, GERMER GERTZ BEAMAN & BROWN, L.L.P., Austin, TX. For REAL PARTIES IN INTEREST: Mr. Ernesto Gamez, Jr., LAW OFFICES of ERNESTO GAMEZ, JR., Brownsville, TX; Mr. Ramon Garcia, Ms. Catherine W. Smith, LAW OFFICES of RAMON GARCIA, P.C., Edinburg, TX; Mr. Baltazar Salazar, LAW OFFICE of BALTAZAR SALAZAR, Houston, TX. For OTHER: Mr. William K. Luyties, Mr. Paul Goldenberg, LORANCE & THOMPSON, Houston, TX; Mr. Moises R. Hernandez, HERNANDEZ LAW FIRM, Edinburg, TX. Judges: JUSTICE WILLETT delivered the opinion of the Court, in which CHIEF JUSTICE JEFFERSON, JUSTICE HECHT, JUSTICE O’NEILL, JUSTICE WAINWRIGHT, JUSTICE MEDINA, JUSTICE GREEN, and JUSTICE JOHNSON joined. JUSTICE BRISTER filed a concurring opinion. Opinion by: Don R Willett Opinion [*777] In this consolidated proceeding, we decide whether the court of appeals had jurisdiction over an interlocutory appeal under the Texas Arbitration Act and whether the parties’ arbitration agreements are ambiguous. We hold that the court of appeals had jurisdiction over the interlocutory appeal and that the agreements are not ambiguous. I. Background In 1993, the Brownsville Independent School District contracted with two general contractors, D. Wilson Construction Company and Stotler Construction Company, to build two schools in Brownsville. Both contracts incorporate General Conditions and Supplementary Conditions. The General Conditions expressly incorporate AIA Document A201, a standard construction industry [**2] document published by the American Institute of Architects that details the parties’ respective rights, responsibilities and relationships on the project. ^[1] Paragraph 4.5 of A201 is titled ″Arbitration,″ and subparagraph 4.5.1, titled ″Controversies and Claims Subject to Arbitration,″ sets forth the broad, catch-all scope of the arbitration agreement: ″Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association . . . .″ 1 Document Synopses by Series, at http://www.aia.org/docs_series. The American Institute of Architects represents the professional interests of America’s architects. The AIA: Advocacy Community, Knowledge, at http://www.aia.org/about_default. Among other things, the AIA publishes industry standard documents for design and construction projects. About AIA Contract Documents, at http://www.aia.org/docs_about&defPr=1. Document A201 ″is frequently adopted by reference into a variety of other agreements . . . to establish a common basis for the primary and secondary relationships on the typical construction project.″ Instruction Sheet for AIA Document A201, General Conditions of the Contract for Construction--1987 Edition at 1, available at http://www.engin.umich.edu/ class/cee431/AIA/A201Inst.PDF. In the instant case, the General Conditions incorporate the 1987 (14th) Edition of AIA Document A201, which is approved and endorsed by the Associated General Contractors of America. AIA Document A201, General Conditions of the Contract for Construction (1987). Page 4 of 11 196 S.W.3d 774,[*777] ; 2006 Tex. LEXIS 644, **3 [**3] The Supplementary Conditions state that they ″modify, change, delete from or add to″ the General Conditions. Among other things, the Supplementary Conditions ″[a]dd new Clause 4.5.1.1″ to the arbitration provision: ″Except as otherwise provided in this Contract, any dispute concerning a question of fact arising under this contract, which is not disposed of by agreement shall be decided by [BISD] . . . . The decision of [BISD] shall be final and conclusive unless″ it is timely appealed to the Superintendent and then to the BISD Board of Trustees, ″whose decision shall be final and conclusive.″ [*778] This litigation began when one of the subcontractors, American Standard and the Trane Company (Trane), sought injunctive relief against BISD to preserve evidence in a personal injury action that students and teachers brought against Trane in another court. BISD counterclaimed for alleged defects in the construction of the two schools and filed third-party actions against several parties, including general contractors Wilson and Stotler, as well as subcontractors and second-tier subcontractors. Trane and the third-party defendants filed or joined motions to compel arbitration under the [**4] Federal Arbitration Act, 9 U.S.C. §§ 1- 16, and the Texas Arbitration Act, TEX. CIV. PRAC. & REM. CODE §§ 171.001-.098. 2 After a hearing, the trial court issued a brief letter ruling denying arbitration, saying ″the Court finds the contract in question ambiguous.″ Trane and the third-party defendants filed both a petition for writ of mandamus under the FAA and an interlocutory appeal under the TAA, and the court of appeals consolidated the two proceedings. __ S.W.3d __, __, 2005 Tex. App. LEXIS 1016, Nos. 13-04-184-CV, 13-04-333-CV, 2005 WL 310777, at *1 (citing In re Valero Energy Corp., 968 S.W.2d 916, 916-17, 41 Tex. Sup. Ct. J. 817 (Tex. 1998)). The court of appeals dismissed the interlocutory appeal for want of jurisdiction, finding the TAA inapplicable since the dispute concerned a ″’transaction involving commerce.’″ Id. at __, 2005 Tex. App. LEXIS 1016, 2005 WL 310777, at *2 (quoting In re MONY Secs. Corp., 83 S.W.3d 279, 282-83 (Tex. App.--Corpus Christi 2002, consolidated appeal and orig. proceeding). The court also denied the petition for writ of mandamus, holding that clause 4.5.1.1 in the Supplementary [**5] Conditions creates ambiguity. Id. at __, 2005 Tex. App. LEXIS 1016, 2005 WL 310777, at *3. In this appeal, Trane and the third-party defendants complain that (1) the court of appeals erred in dismissing their interlocutory appeal under the TAA for want of jurisdiction, and (2) the trial court erred in deeming the arbitration agreements ambiguous and abused its discretion in denying their motions to compel arbitration. [**6] II. Jurisdiction of the Court of Appeals Trane and the third-party defendants first argue that the court of appeals erred in dismissing their TAA-based interlocutory appeal for want of jurisdiction. We agree. ^[3] HN1 The contracts in question reference neither the FAA nor TAA, merely noting that ″[t]he Contracts shall be governed by the law of the place where the Project is located.″ We have interpreted identical language [*779] to invoke federal and state law. In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127-28, 43 Tex. Sup. Ct. J. 138 (Tex. 1999) (per curiam) (consolidated appeal and orig. proceeding). Trane [**7] and the third-party defendants sought relief under both statutes in the court of appeals, bringing a petition for writ of mandamus 2 Four third-party defendants filed independent motions to compel arbitration: Wilson, Stotler, Mijares Mora Architects, Inc., and Zamora Engineering, Inc. Mac’s Insulation, Inc. joined Stotler’s motion. Trane, Victoria Air Conditioning, Ltd., and Superheat Air Balancing Co., Inc. joined the Wilson and Stotler motions. Al Cardenas Masonry Inc. joined Trane’s motion. Sechrist-Hall Co., Wrightway Construction, Inc., and Rio Mechanical, Inc. joined the Wilson and Trane motions. The independent motions of Mijares Mora Architects, Inc. and Zamora Engineering, Inc. do not invoke the FAA or TAA. Wilson’s motion is not in the record, and we are thus unable to determine whether it invokes the FAA, TAA, both, or neither. All other motions invoke the FAA or both the FAA and the TAA. The motions of all subcontractors and second-tier subcontractors also argue that the doctrine of equitable estoppel allows nonsignatories to the Wilson and Stotler contracts to obtain the benefits of the arbitration agreements therein. ^[3] This Court undeniably has jurisdiction to review the correctness of the court of appeals’ decision that it lacked jurisdiction over the TAA-based interlocutory appeal. See McAllen Med. Ctr., Inc. v. Cortez, 66 S.W.3d 227, 231, 44 Tex. Sup. Ct. J. 1094 (Tex. 2001) (″When a court of appeals determines that it lacks jurisdiction over an interlocutory appeal, this Court has jurisdiction to review that decision.″). Page 5 of 11 196 S.W.3d 774,[*779] ; 2006 Tex. LEXIS 644, **7 under the FAA, see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272-73, 36 Tex. Sup. Ct. J. 205 (Tex. 1992), and an interlocutory appeal under the TAA, TEX. CIV. PRAC. & REM. CODE § 171.098(a)(1). While refusing jurisdiction under the TAA, the court of appeals recognized that it at least had jurisdiction under the FAA to consider the mandamus petition. __ S.W.3d at __, 2005 Tex. App. LEXIS 1016, 2005 WL 310777, at *2. We held in Jack B. Anglin Co. that mandamus is appropriate to review a trial court’s denial of a motion to compel arbitration under the FAA. 842 S.W.2d at 272-73. The court of appeals determined that it lacked jurisdiction over the interlocutory appeal under the TAA because the construction contracts involved interstate commerce, thus implicating the FAA. __ S.W.3d at __, 2005 Tex. App. LEXIS 1016, 2005 WL 310777, at *2; see Perry v. Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987) (the FAA applies when the dispute concerns a ″contract evidencing interstate commerce″); 9 U.S.C. § 1 [**8] (″’commerce’ . . . means commerce among the several States″); In re L & L Kempwood Assocs., L.P., 9 S.W.3d at 127 (noting that the FAA ″extends to any contract affecting commerce, as far as the Commerce Clause of the United States Constitution will reach″). The court of appeals is not alone in dismissing interlocutory appeals under the TAA when the FAA applies. See Kroupa v. Casey, 2005 Tex. App. LEXIS 10212, Nos. 01-05-00224-CV, 01-05-00376-CV, 2005 WL 3315279, at *4 (Tex. App.--Houston [1st Dist.] 2005, consolidated appeal and orig. proceeding) (not designated for publication); Am. Med. Techs., Inc. v. Miller, 149 S.W.3d 265, 269-70 (Tex. App.--Houston [14th Dist.] 2004, consolidated appeal and orig. proceeding); Verlander Family Ltd. P’ship v. Verlander, 2003 Tex. App. LEXIS 1413, No. 08-02-00135-CV, 2003 WL 304098, at *3 (Tex. App.--El Paso 2003, no pet.); Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498 (Tex. App.--San Antonio 2000, consolidated appeal and orig. proceeding). Other courts have granted mandamus relief and dismissed the consolidated interlocutory appeal as moot. See, e.g., Kirby Highland Lakes Surgery Ctr., L.L.P. v. Kirby, 183 S.W.3d 891, 895 & n.5 (Tex. App.--Austin 2006, consolidated appeal and orig. proceeding) [**9] ; In re MacGregor (FIN) Oy, 126 S.W.3d 176, 181, 184 (Tex. App.--Houston [1st Dist.] 2003, consolidated appeal and orig. proceeding). We take this opportunity to clarify precisely when the FAA preempts the TAA. Many courts of appeals wrongly view the FAA and TAA as mutually exclusive, but the United States Supreme Court and this Court have held a different view for some time: HN2 the FAA only preempts contrary state law, not consonant state law. The United States Supreme Court has said: The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. But even when Congress has not completely displaced state regulation in an area, state law may nonetheless be pre-empted to the extent that it actually conflicts with federal law--that is, to the extent that it ″stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.″ The question before us, therefore, is whether application of [state law] to stay arbitration under this contract in interstate commerce . . . would undermine the [**10] goals and policies of the FAA. [*780] Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477-78, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) (citations omitted) (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 85 L. Ed. 581 (1941)). Similarly, this Court has noted that the FAA ″preempts state statutes to the extent they are inconsistent with that Act.″ Jack B. Anglin Co., 842 S.W.2d at 271. Recently, in the case of In re Nexion Health at Humble, Inc., HN3 this Court articulated a four-factor test to determine whether the TAA would thwart the goals and policies of the FAA in a particular case. 173 S.W.3d 67, 69, 48 Tex. Sup. Ct. J. 805 (Tex. 2005) (per curiam) (construing 9 U.S.C. § 2). The FAA only preempts the TAA Page 6 of 11 196 S.W.3d 774,[*780] ; 2006 Tex. LEXIS 644, **10 if: ″(1) the agreement is in writing, (2) it involves interstate commerce, (3) it can withstand scrutiny under traditional contract defenses [under state law], and (4) state law affects the enforceability of the agreement.″ Id.. (emphasis added). In today’s case, the court of appeals ignored the fourth factor. The mere fact that a contract affects interstate commerce, thus triggering the [**11] FAA, does not preclude enforcement under the TAA as well. For the FAA to preempt the TAA, state law must refuse to enforce an arbitration agreement that the FAA would enforce, either because (1) the TAA has expressly exempted the agreement from coverage, see TEX. CIV. PRAC. & REM. CODE § 171.002(a) (detailing various claims the TAA ″does not apply to″), or (2) the TAA has imposed an enforceability requirement not found in the FAA, see In re Nexion Health at Humble, Inc., 173 S.W.3d at 69 (″The TAA interferes with the enforceability of the arbitration agreement by adding an additional requirement--the signature of a party’s counsel--to arbitration agreements in personal injury cases.″). The parties have asserted nothing in the TAA or other state law that would subvert enforcement of the agreements at issue. Therefore, the FAA does not preempt the TAA in this case, and the court of appeals had jurisdiction under both laws. ^[4] [**12] III. Ambiguity of the Arbitration Agreements Trane and the third-party defendants next argue that the trial court wrongly deemed the arbitration agreements ambiguous and abused its discretion in denying their motions to compel arbitration. We decide the merits under our mandamus jurisdiction. ^[5] HN4 Mandamus is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal, Walker v. Packer, 827 S.W.2d 833, 839, 35 Tex. Sup. Ct. J. 468 (Tex. 1992) [**13] (orig. proceeding), as when a party is erroneously denied its contracted-for arbitration rights under the FAA, Jack B. Anglin [*781] Co., 842 S.W.2d at 272-73. Also, a trial court ″has no ’discretion’ in determining what the law is or applying the law to the facts.″ Walker, 827 S.W.2d at 840. HN5 In evaluating a motion to compel arbitration, a court must determine first whether a valid arbitration agreement exists, and then whether the agreement encompasses the claims raised. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573, 42 Tex. Sup. Ct. J. 377 (Tex. 1999) (per curiam). When deciding whether the parties agreed to arbitrate under the FAA, courts should apply ordinary state law principles regarding the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227-28, 47 Tex. Sup. Ct. J. 196 (Tex. 2003). In a letter ruling, the trial court found ″the contract in question ambiguous″; however, the record does not indicate whether the trial court was uncertain as to the agreements’ existence or merely their scope. We address these two issues in turn. [**14] A. Ambiguity Concerning the Existence of Valid Agreements HN6 Whether a valid arbitration agreement exists is a legal question subject to de novo review. J.M. Davidson, Inc., 128 S.W.3d at 227. HN7 Whether contractual ambiguity exists is likewise a question of law. See Columbia 4 While we continue to see no benefit in requiring parties to pursue parallel proceedings that are ″unnecessarily expensive and cumbersome,″ we remain mindful that ″we may not enlarge appellate jurisdiction absent legislative mandate.″ Jack B. Anglin Co., 842 S.W.2d at 272. We again invite the Legislature, ″[i]n the interests of promoting the policy considerations of rigorous and expedited enforcement of arbitration agreements, . . . to consider amending the Texas Act to permit interlocutory appeals of orders issued pursuant to the Federal Act.″ Id. 5 Our analysis today proceeds under the FAA because, as a procedural matter, Trane and the third-party defendants only assert in their ″Statement of Jurisdiction″ that this Court has jurisdiction under Cortez to decide whether the lower court had jurisdiction. 66 S.W.3d at 231 (″When a court of appeals determines that it lacks jurisdiction over an interlocutory appeal, this Court has jurisdiction to review that decision.″). They do not assert ″conflict or dissent″ jurisdiction under the general interlocutory appeal statute. TEX. GOV’T CODE § 22.225(c). Page 7 of 11 196 S.W.3d 774,[*781] ; 2006 Tex. LEXIS 644, **14 Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589, 40 Tex. Sup. Ct. J. 42 (Tex. 1996). Inartful drafting does not alone render a contractual provision ambiguous. See Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (Tex. 1951). A contract is ambiguous only if it is subject to ″two or more reasonable interpretations after applying the pertinent rules of construction.″ Columbia Gas Transmission Corp., 940 S.W.2d at 589. Ambiguity does not exist merely because the parties assert forceful and diametrically opposing interpretations. Id. BISD contends that the contracts with Wilson and Stotler (1) contain no arbitration language at all, or (2) contain ambiguous language. The trial court’s three-sentence letter ruling is silent on the first point, while the court of appeals, ″[a]ssuming without determining that the contracts contain [**15] arbitration language,″ concluded that ″the supplementary conditions create ambiguity.″ __ S.W.3d at __, 2005 Tex. App. LEXIS 1016, 2005 WL 310777, at *3. We disagree with BISD that its contracts with Wilson and Stotler contained no arbitration language. The contracts validly and expressly incorporate by reference the expansive arbitration language of subparagraph 4.5.1 of A201. Innumerable contracts are consummated every day in Texas that incorporate other documents by reference. HN8 A contractual term is not rendered invalid merely because it exists in a document incorporated by reference, Owen v. Hendricks, 433 S.W.2d 164, 166, 12 Tex. Sup. Ct. J. 28 (Tex. 1968), and we agree with the courts of appeals that arbitration-related language is no exception to this rule. See, e.g., Teal Constr. Co./Hillside Villas Ltd. v. Darren Casey Interests, Inc., 46 S.W.3d 417, 420 (Tex. App.--Austin 2001, pet. denied) (holding that an unsigned arbitration agreement contained in a document incorporated by reference into the signed contract constitutes an enforceable arbitration agreement); D. Wilson Constr. Co. v. McAllen Indep. Sch. Dist., 848 S.W.2d 226, 230 (Tex. App.--Corpus Christi [**16] 1992, writ dism’d w.o.j.) (rejecting the argument that an arbitration agreement incorporated by reference is invalid or unenforceable). Accordingly, we reject BISD’s argument that these provisions were not validly incorporated into the contracts with Wilson and Stotler. [*782] We likewise reject BISD’s argument, and the trial court’s holding, that the arbitration agreements are ambiguous. Subparagraph 4.5.1 of A201 states: ″Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association . . . .″ The Supplementary Conditions ″[a]dd new Clause 4.5.1.1″ to the arbitration provision: ″Except as otherwise provided in this Contract, any dispute concerning a question of fact arising under this contract, which is not disposed of by agreement shall be decided by [BISD] . . . . The decision of [BISD] shall be final and conclusive unless″ it is timely appealed to the Superintendent and then to the BISD Board of Trustees, ″whose decision shall be final and conclusive.″ The caption of clause 4.5.1.1 in the Supplementary Conditions evinces [**17] the parties’ intent to ″[a]dd new Clause 4.5.1.1 to subparagraph 4.5.1.″ Clause 4.5.1.1 is added to subparagraph 4.5.1, and the clause’s numerical designation places it beneath subparagraph 4.5.1. In addition, clause 4.5.1.1 begins with the caveat, ″[e]xcept as otherwise provided in this Contract.″ Subparagraph 4.5.1 does provide otherwise in certain cases. If the parties intended for clause 4.5.1.1 to supplant subparagraph 4.5.1, they could have easily drafted language to accomplish exactly that. 6 Further, clause 4.5.1.1 does not mention the additional arbitration procedures set forth in subparagraphs 4.5.2-4.5.7. If clause 4.5.1.1 negates subparagraph 4.5.1, as BISD contends, then subparagraphs 4.5.2-4.5.7 are meaningless. The placement, caption, and caveat of clause 4.5.1.1, as well as the language of subparagraphs 4.5.2-4.5.7, indicate that the clause is subordinate to subparagraph 4.5.1 if subparagraph 4.5.1 applies in a given situation. 6 A subparagraph later in the Supplementary Conditions states that it ″[d]elete[s] the first sentence [of subparagraph 5. 2. 1 of the General Conditions] and substitute[s] the following . . . .″ Clearly, the parties were free to delete and replace language in the General Conditions with language in the Supplementary Conditions, and they had done so elsewhere. Page 8 of 11 196 S.W.3d 774,[*782] ; 2006 Tex. LEXIS 644, **18 [**18] BISD argues that such a construction would render clause 4.5.1.1 meaningless. We disagree. By its terms, clause 4.5.1.1 applies to ″any dispute concerning a question of fact arising under this contract,″ while subparagraph 4.5.1 applies to ″[a]ny controversy or Claim arising out of or relating to the Contract, or the breach thereof . . . .″ (emphasis added). While the scope of clause 4.5.1.1 is narrower than the scope of subparagraph 4.5.1, certain situations would fall solely under the factual dispute clause. For example, the construction contracts could have called for solid brass doorknobs throughout the schools. BISD could have argued that the doorknobs Wilson and Stotler used were brass-plated instead of solid brass. Whether the doorknobs are solid brass or brass-plated would be a factual dispute subject to clause 4.5.1.1. We hold that the arbitration agreements and clause 4.5.1.1 can be reconciled; the arbitration agreements are not susceptible to more than one reasonable interpretation and are therefore not ambiguous. Columbia Gas Transmission Corp., 940 S.W.2d at 589. B. Ambiguity Concerning the Scope of the Agreements We next consider whether [**19] there is ambiguity concerning the agreements’ scope. HN9 The strong presumption favoring arbitration generally requires that we resolve doubts as to the scope of the agreements in favor of coverage. In re Kellogg, Brown & Root, Inc., 166 S.W.3d 732, 737, [*783] 48 Tex. Sup. Ct. J. 678 (Tex. 2005); In re FirstMerit Bank, 52 S.W.3d 749, 753, 44 Tex. Sup. Ct. J. 900 (Tex. 2001); Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944, 39 Tex. Sup. Ct. J. 856 (Tex. 1996) (per curiam) (orig. proceeding). Once an agreement is established, ″a court should not deny arbitration ’unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.’″ Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899, 39 Tex. Sup. Ct. J. 116 (Tex. 1995) (per curiam) (orig. proceeding) (emphasis in original) (quoting Neal v. Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990)). Here, BISD claims there are construction defects throughout the two schools. This dispute is a ″controversy or Claim arising out of or related to the Contract″ to build the schools and thus falls squarely within the scope of the arbitration agreements. We find no ambiguity [**20] in either the validity or the scope of these arbitration agreements. Trane and the third-party defendants have proven the existence of valid arbitration agreements that cover the present dispute. In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573. The trial court abused its discretion by denying the motions to compel arbitration after finding ″the contract in question ambiguous.″ C. Waiver Finally, BISD argues that Trane and Stotler waived any right to arbitrate. In a personal injury suit filed by students and teachers in a separate court, Trane, Stotler, and Mac’s Insulation, Inc. filed cross-actions against BISD, seeking indemnity in that case. Trane also filed the present suit against BISD to obtain injunctive relief to preserve evidence in that personal injury case. HN10 There is a strong presumption against waiver under the FAA. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, __, 49 Tex. Sup. Ct. J. 445, 2006 WL 662335, at *2 (Tex. 2006) (per curiam). ″Merely taking part in litigation is not enough unless a party ’has substantially invoked the judicial process to its opponent’s detriment.’″ Id. (quoting In re Serv. Corp. Int’l, 85 S.W. 3d 171, 174, 45 Tex. Sup. Ct. J. 1241 (Tex. 2002)). [**21] In In re Vesta Ins. Group, Inc., we held that the relators, who litigated in the trial court for two years, did not substantially invoke the judicial process to their opponent’s detriment because the relators engaged in minimal discovery, and the real party in interest failed to demonstrate sufficient prejudice to overcome the strong presumption against waiver. Id. at __, 49 Tex. Sup. J. 445, 2006 WL 662335, at *3. Page 9 of 11 196 S.W.3d 774,[*783] ; 2006 Tex. LEXIS 644, **21 Likewise, BISD has failed to demonstrate how the cross-actions for indemnity in the separate personal injury suit or Trane’s pursuit of injunctive relief related to that case have worked to BISD’s detriment. We hold that the actions of Trane, Stotler, and Mac’s Insulation, Inc. do not constitute waiver of their right to arbitrate. IV. Conclusion The trial court abused its discretion by finding the contracts ambiguous and denying the motions to compel arbitration. There is no ambiguity in either the existence or scope of these arbitration agreements. We conditionally grant the writ of mandamus and direct the trial court to (1) vacate its order denying the motions to compel arbitration, (2) grant Stotler’s motion to compel arbitration, (3) conduct further proceedings [**22] to determine whether Wilson is entitled to arbitration, 7 and (4) conduct further proceedings to determine whether the various nonsignatories are entitled to arbitration. The writ will issue only if the trial court fails to comply. Insofar [*784] as we have granted full relief under our mandamus jurisdiction, we dismiss the related interlocutory appeal as moot. Don R. Willett Justice Concur by: Scott Brister Concur JUSTICE BRISTER, concurring. I agree that the court of appeals erred in dismissing the petitioners’ interlocutory appeal, and join in the Court’s judgment. I disagree that we should continue requiring litigants to pursue parallel mandamus and interlocutory appeal proceedings in arbitration cases. This unnecessary duplication makes arbitration more cumbersome and costly than other cases, rather than the ″simplicity, informality, and expedition″ intended for them. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985). [**23] An interlocutory appeal is proper to enforce arbitration agreements under the Texas Arbitration Act. See TEX. CIV. PRAC. & REM. CODE § 171.098. Mandamus is proper to enforce arbitration agreements under the Federal Arbitration Act. See In re Weekley, 180 S.W. 3d 127, 130, 49 Tex. Sup. Ct. J. 55 (Tex. 2005). When a party chooses the wrong form to enforce arbitration, Texas appellate courts ″must not . . . dismiss an appeal for formal defects or irregularities in appellate procedure without allowing a reasonable time to correct or amend the defects or irregularities.″ TEX. R. APP. P. 44.3; Higgins v. Randall County Sheriff’s Office, 193 S.W.3d 898, 899, 49 Tex. Sup. Ct. J. 645 (Tex. 2006) (per curiam); Linwood v. NCNB Texas, 885 S.W.2d 102, 103, 38 Tex. Sup. Ct. J. 30 (Tex. 1994); Grand Prairie Indep. Sch. Dist. v. S. Parts Imps., Inc., 813 S.W.2d 499, 500, 34 Tex. Sup. Ct. J. 743 (Tex. 1991) (per curiam). When this and other Texas appellate courts decide that an appeal or other pleading should have been pursued by mandamus, we do not generally toss out the appeal or require it to be done twice; instead, we treat the improper appeal as a proper mandamus. [**24] See, e.g., Powell v. Stover, 165 S.W.3d 322, 324, 48 Tex. Sup. Ct. J. 780 (Tex. 2005); Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491, 494, 34 Tex. Sup. Ct. J. 287 (Tex. 1991); Bielamowicz v. Cedar Hill Indep. Sch. Dist., 136 S.W.3d 718, 719-20 (Tex. App.--Dallas 2004, pet. denied); In re Cobos, 994 S.W.2d 313, 314 (Tex. App.--Corpus 7 Wilson’s motion to compel arbitration is not in the record. Page 10 of 11 196 S.W.3d 774,[*784] ; 2006 Tex. LEXIS 644, **24 Christi 1999, no pet.); In re Swarthout, 982 S.W.2d 92, 92 (Tex. App.--Houston [1st Dist.] 1998, no pet.); State ex rel. Wade v. Stephens, 724 S.W.2d 141, 143 (Tex. App.--Dallas 1987, no writ); Clark v. Russell, 590 S.W.2d 651, 652 (Tex. Civ. App.--Dallas 1979, no writ). Parties should not have to file both an interlocutory appeal and an original proceeding; even attorneys who can predict which one an appellate court will find proper may hesitate to gamble with their client’s money. I would allow them to file either, and then have the appellate courts treat it as they think proper. Scott Brister Justice Page 11 of 11 | | Caution As of: September 1, 2015 5:09 PM EDT In re FirstMerit Bank, N.A. Supreme Court of Texas February 14, 2001, Argued ; June 14, 2001, Delivered NO. 00-0548 Reporter 52 S.W.3d 749; 2001 Tex. LEXIS 59; 44 Tex. Sup. J. 900 IN RE FIRSTMERIT BANK, N.A. F/K/A SIGNAL BANK, N.A. AND MOBILE CONSULTANTS, INC., RELATORS Subsequent History: [**1] As Amended August 2, 2001. Prior History: ON PETITION FOR WRIT OF MANDAMUS. Disposition: Court conditionally grants writ of mandamus and directs trial court to order that all claims proceed to arbitration. Core Terms arbitration, sellers, installment contract, Mobile, costs, trial court, unconscionable, mandamus, parties’, compel arbitration, defenses, interstate commerce, allegations, security interest, revocation, Servicing, repossess, covers Case Summary Procedural Posture Respondents sued petitioners, alleging breach of contract, breach of warranty, negligence, and fraud, among other things, related to a security interest in a home purportedly purchased by respondents. Petitioners filed a petition seeking mandamus relief after the trial court denied their motion to compel arbitration. The Third Court of Appeals, Texas, denied the writ of mandamus. Petitioners filed a second writ of mandamus. Overview Respondents bought a mobile home for their daughter. They bought the home under an installment financing agreement. The seller assigned this financing contract, which respondents signed, to petitioner bank’s predecessor. The agreement contained an arbitration addendum, which required binding arbitration for ″all disputes, claims, or other matters in question arising out of or relating to the loan, its interpretation, validity, performance, or the breach thereof.″ The addendum stated ″the scope of arbitrability was broad.″ After the home was delivered, respondents tried to revoke their acceptance, claiming the home was defective. They stopped making loan payments. In response, bank’s predecessor took possession of the home. Respondents then sued petitioners and others. The trial court denied petitioners’ motion to compel arbitration. The instant court granted petitioners’ writ of mandamus request. In light of the addendum’s broad language, all of respondents’ factual 52 S.W.3d 749,[*749] ; 2001 Tex. LEXIS 59, **1 allegations arose out of or related to either the sale of the home and negotiation of the installment contract, or to the performance or alleged breach of the installment contract. Arbitration could be compelled. Outcome The petition for writ of mandamus was conditionally granted. The trial court was ordered to compel arbitration in accordance with the parties’ agreement. LexisNexis® Headnotes Civil Procedure > Remedies > Writs > General Overview HN1 Mandamus is an extraordinary remedy available only in limited circumstances. A court should issue mandamus only to correct a clear abuse of discretion or the violation of a legal duty when there is no other adequate remedy at law. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Civil Procedure > ... > Writs > Common Law Writs > Mandamus International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 When a trial court erroneously denies a party’s motion to compel arbitration under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., the movant has no adequate remedy at law and is entitled to a writ of mandamus. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Civil Procedure > ... > Writs > Common Law Writs > Mandamus Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN3 A party seeking to compel arbitration by mandamus must first establish the existence of an arbitration agreement subject to the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. Once the movant establishes an agreement, the court must then determine whether the arbitration agreement covers the nonmovant’s claims. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Page 2 of 10 52 S.W.3d 749,[*749] ; 2001 Tex. LEXIS 59, **1 Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN4 Because state and federal policies continue to favor arbitration, a presumption exists favoring agreements to arbitrate under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., and courts must resolve any doubts about an arbitration agreement’s scope in favor of arbitration. Once the trial court concludes that the arbitration agreement encompasses the claims, and that the party opposing arbitration has failed to prove its defenses, the trial court has no discretion but to compel arbitration and stay its own proceedings. Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > ... > Sales of Goods > Breach, Excuse & Repudiation > Installment Contracts Contracts Law > ... > Secured Transactions > Installment Contracts > General Overview Contracts Law > ... > Secured Transactions > Installment Contracts > Recordings Contracts Law > Types of Contracts > Installment Contracts International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN5 As defined in the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., ″interstate commerce″ is not limited to the interstate shipment of goods, but includes all contracts ″relating to″ interstate commerce. In fact, the United States Supreme Court has construed the FAA to extend as far as the Commerce Clause of the United States Constitution will reach. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN6 To determine whether a party’s claims fall within an arbitration agreement’s scope, a court focuses on the complaint’s factual allegations rather than the legal causes of action asserted. The court resolves any doubts about the arbitration agreement’s factual scope in favor of coverage. Contracts Law > Contract Interpretation > General Overview Contracts Law > Types of Contracts > Installment Contracts HN7 A litigant who sues based on a contract subjects himself to the contract’s terms. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > ... > Affirmative Defenses > Coercion & Duress > General Overview Contracts Law > Types of Contracts > Installment Contracts HN8 Defenses that pertain to an entire installment contract can be arbitrated. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Page 3 of 10 52 S.W.3d 749,[*749] ; 2001 Tex. LEXIS 59, **1 HN9 Since the law favors arbitration, the burden of proving a defense to arbitration is on the party opposing arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN10 An arbitration agreement’s mere silence with respect to costs and fees, by itself, is a ″plainly insufficient″ basis for invalidating the agreement. Instead, the party opposing arbitration must prove the likelihood of incurring such costs. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Commercial Law (UCC) > ... > Contract Provisions > Contract Terms > Unconscionable Terms Contracts Law > Formation of Contracts > Consideration > General Overview Contracts Law > Formation of Contracts > Consideration > Adequate Consideration Contracts Law > Contract Conditions & Provisions > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Defenses > Unconscionable > General Overview Contracts Law > Defenses > Unconscionable > Arbitration Agreements Contracts Law > ... > Priorities > Perfected Secured Parties & Purchasers > Buyers & Lessees in Ordinary Course Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN11 The basic test for unconscionability in an arbitration agreement is whether, given the parties’ general commercial background and the commercial needs of the particular trade or case, the arbitration clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. Tex. Bus. & Com. Code Ann. §2.302, cmt. ^[1]. Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview HN12 The elements of a fraud in the inducement claim are: (1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Interpretation > General Overview Contracts Law > Types of Contracts > Installment Contracts HN13 An arbitration addendum’s validity is a separate issue from the validity of the whole contract. Page 4 of 10 52 S.W.3d 749,[*749] ; 2001 Tex. LEXIS 59, **1 Judges: JUSTICE ENOCH delivered the opinion of the Court. Opinion by: Craig T. Enoch Opinion [*752] ON PETITION FOR WRIT OF MANDAMUS JUSTICE ENOCH delivered the opinion of the Court. FirstMerit Bank and Mobile Consultants seek mandamus relief after the trial court denied their motion to compel arbitration. Because the Federal Arbitration Act (FAA) requires the trial court to compel arbitration in this case, we conditionally grant their petition and order the trial court to compel arbitration in accordance with the parties’ agreement. I. BACKGROUND Pete and Janie de los Santos purchased a mobile home for their daughter, Sarah, and her husband, Gary Alvarez. They bought the home from Verde Homes under Verde’s retail installment financing agreement. Verde assigned this contract, which Pete and Janie signed, to Signal Bank (now FirstMerit Bank). The agreement contained an Arbitration Addendum, which required binding arbitration for ″all disputes, claims, or other matters in question arising out of or relating to this Loan, its interpretation, validity, performance or the breach thereof.″ The word ″Loan″ referred to ″all manufactured home loan documents, including [**2] but not limited to the retail installment contract. . . .″ The Addendum further stated that ″the scope of arbitrability is broad and includes, without limitation, contractual, tort, statutory, and caselaw claims.″ The Addendum also permitted the bank to seek judicial relief to enforce its security interest, recover the buyers’ monetary loan obligation, and foreclose. [*753] But aside from these three exceptions, the Addendum required arbitration for all other disputes relating to the installment contract. After Verde delivered the home, the de los Santoses tried to revoke their acceptance, claiming that the home was defective and that Verde failed to perform certain promised repairs. Although Verde Homes refused to rescind the sale, the de los Santoses apparently stopped making their monthly loan payments. In response, Signal Bank took possession of the home. The de los Santoses then sued Signal Bank, Mobile Consultants (Signal’s servicing agent), Verde Homes, and two Verde employees, alleging breach of contract, revocation of acceptance, breach of warranty, negligence, and fraud. They also alleged violations of the Deceptive Trade Practices Act, Fair Debt Collection Practices Act, Equal [**3] Credit Opportunity Act, and Fair Credit Reporting Act. Additionally, the de los Santoses claimed that their successful revocation of acceptance entitled them to a security interest in the home, equal to the amount they had paid on the installment contract. To enforce their security interest, they requested an injunction forcing FirstMerit to return possession of the home until it refunded the de los Santoses’ loan payments. In response, FirstMerit and Mobile moved to compel arbitration. ^[1] The trial court denied their motion. FirstMerit Bank and Mobile then petitioned the Third Court of Appeals for a writ of mandamus, which the court denied. FirstMerit and Mobile now ask this Court for mandamus relief. II. WHETHER TO ORDER ARBITRATION 1 The other parties did not answer the suit, and a default judgment was entered against them. Page 5 of 10 52 S.W.3d 749,[*753] ; 2001 Tex. LEXIS 59, **3 HN1 Mandamus is an extraordinary remedy available only in limited circumstances. ^[2] A court should issue mandamus only to correct a clear abuse of discretion or the violation [**4] of a legal duty when there is no other adequate remedy at law. ^[3] HN2 When a trial court erroneously denies a party’s motion to compel arbitration under the FAA, the movant has no adequate remedy at law and is entitled to a writ of mandamus. ^[4] Thus, we must determine whether the movants established their right to arbitration. HN3 A party seeking to compel arbitration by mandamus must first establish the existence of an arbitration agreement subject to the FAA. ^[5] Once the movant establishes an agreement, the court must then determine whether the arbitration agreement covers the nonmovant’s claims. 6 HN4 Because state and federal policies continue to favor arbitration, 7 a presumption exists favoring agreements to arbitrate under the FAA, 8 and courts must resolve any doubts about an arbitration agreement’s scope in favor of arbitration. ^[9] Once the [**5] trial court [*754] concludes that the arbitration agreement encompasses the claims, and that the party opposing arbitration has failed to prove its defenses, 10 the trial court has no discretion but to compel arbitration and stay its own proceedings. ^[11] A. SCOPE OF ARBITRATION Here, there is no dispute [**6] about the Arbitration Addendum’s existence. The de los Santoses instead contend that the installment contract was completed entirely in Texas, did not involve interstate commerce, and, accordingly, was not subject to the FAA. HN5 As defined in the FAA, however, ″interstate commerce″ is not limited to the interstate shipment of goods, but includes all contracts ″relating to″ interstate commerce. 12 In fact, the United States Supreme Court has construed the FAA to extend as far as the Commerce Clause of the United States Constitution will reach. ^[13] In this case, the evidence demonstrates that the loan was made in interstate commerce. Signal Bank and Mobile Consultants were Ohio corporations, while the de los Santoses were Texas residents. The installment contract stated that Signal Bank was located in Ohio. The record includes several photocopies of loan payment checks drawn on a Texas bank that Signal Bank had deposited in Ohio. And both Signal and Mobile Consultants corresponded with the de los Santoses from Ohio. The de los Santoses also listed Signal’s Ohio address at the top of their revocation of acceptance letter. Moreover, the Arbitration Addendum, which Pete and Janie de los Santos [**7] both signed, states that the loan ″involves interstate commerce . . . and 2 In re Masonite Corp., 997 S.W.2d 194, 197 (Tex. 1999). 3 Id. 4 EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88 (Tex. 1996). 5 In re Oakwood Mobile Homes, 987 S.W.2d 571, 573 (Tex. 1998). 6 Cantella & Co., v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996). 7 Id.; Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, , 121 S. Ct. 513, 522, 148 L. Ed. 2d 373 (2000). 8 Cantella, 924 S.W.2d at 944. 9 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995). 10 See In re Oakwood, 987 S.W.2d at 573. 11 Cantella, 924 S.W.2d at 944. 12 See Lost Creek Mun. Util. Dist. v. Travis Indus. Painters, Inc., 827 S.W.2d 103, 105 (Tex. App.-Austin 1992, writ denied). 13 Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272-74, 276-78, 130 L. Ed. 2d 753, 115 S. Ct. 834 (1995). Page 6 of 10 52 S.W.3d 749,[*754] ; 2001 Tex. LEXIS 59, **7 shall be governed by the Federal Arbitration Act . . . .″ In light of these facts, we conclude that the installment contract relates to interstate commerce and is subject to the FAA. ^[14] Because FirstMerit and Mobile have established the existence of an agreement to arbitrate under the FAA, we must next determine whether the Arbitration Addendum covers the de los [**8] Santoses’ claims. HN6 To determine whether a party’s claims fall within an arbitration agreement’s scope, we focus on the complaint’s factual allegations rather than the legal causes of action asserted. 15 And again, we resolve any doubts about the Arbitration Addendum’s factual scope in favor of coverage. Further, we reiterate that the parties’ Arbitration Addendum covers ″all disputes, claims, or other matters in question arising out of or relating to this Loan, its interpretation, validity, performance, or the breach thereof″ and states that ″the scope of arbitrability is broad and includes, without limitation, contractual, tort, statutory, and case law claims.″ We now turn to the de los Santoses’ factual allegations. The de los Santoses asserted that the sellers misrepresented that they owned the homesite, and that the homesite included a driveway and septic system. They also claimed that the sellers were not properly licensed, misrepresented [*755] the terms [**9] of the loan, failed to provide a credit report to Sarah and Gary Alvarez, and failed to make other disclosures regarding interest rates and credit. The de los Santoses further alleged that the sellers fraudulently double-charged them for insurance that was already paid for in the installment contract. In addition, the de los Santoses asserted that after taking possession of the home, they learned that the home was not yet complete, that it lacked carpeting and air conditioning, and that it was not installed properly. They also charged that the sellers failed to repair these defects in a timely and workmanlike manner, that they never installed an air conditioner, and that the sellers’ attempts to repair the septic tank were untimely and defective. Finally, the de los Santoses asserted that the bank wrongfully denied their attempt to revoke the contract, criminally trespassed on their property, and wrongfully repossessed the home. In light of the Addendum’s broad language, all of the de los Santoses’ factual allegations fall within the Addendum’s scope. The de los Santoses contend that because the Addendum ″relat(es) to the Loan,″ it only covers claims that relate directly to the home’s [**10] financing, and does not cover their allegations about the home’s post-sale condition and repairs. But this interpretation ignores the Addendum’s broad definition of ″Loan″ to include the installment contract and all other loan documents. Further, irrespective of the Addendum’s broad language, we also note that the home was the bank’s collateral under the Loan. The de los Santoses alleged that the sellers’ failure to remedy the home’s physical problems entitled them to a security interest in the home, which would prevent the bank from repossessing its collateral. 16 Thus, the home’s post-sale condition, and the sellers’ post-sale failure to remedy the home’s problems, relate to the bank’s right to repossess its collateral under the loan. In sum, all of the de los Santoses’ factual allegations arise out of or relate to either the sellers’ conduct in selling the home and negotiating the installment contract, or to the performance or alleged breach of the installment contract. Furthermore, while fraud in the inducement of an arbitration agreement is a defense to arbitration, whether the sellers made any misrepresentations in the inducement of the underlying contract relates to the contract’s [**11] validity and can be arbitrated. 17 As for the de los Santoses’ wrongful repossession allegations, the Addendum provides that ″any counterclaims in suits brought by Seller/Assignee pursuant to this provision,″ including complaints about foreclosure, may be arbitrated. Given the Addendum’s 14 See, e.g., Mesa Operating Ltd. P’ship v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 243 (5th Cir. 1986); Snyder v. Smith, 736 F.2d 409 , 418 (7th Cir. 1984), cert. denied, 469 U.S. 1037, 83 L. Ed. 2d 403, 105 S. Ct. 513 (1984). 15 Prudential Sec., 909 S.W.2d at 900. 16 See TEX. BUS. & COM. CODE § 2.608(a), 2.711(c). 17 See Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 930 (Tex. App.-Houston [1st Dist.] 1996, no writ); New Process Steel Corp. v. Titan Indus. Corp., 555 F. Supp. 1018, 1022 (S.D. Tex. 1983). Page 7 of 10 52 S.W.3d 749,[*755] ; 2001 Tex. LEXIS 59, **11 language on counterclaims, the Arbitration Addendum covers all of the de los Santoses’ complaints about the bank’s right to repossess the home. As a specific challenge, Sarah and Gary Alvarez contend that their claims are exempt from the Arbitration Addendum because they did not sign the contract. But HN7 a litigant who sues based on a contract subjects him or herself to the [**12] contract’s terms. ^[18] Here, the Alvarezes fully joined the de los Santoses’ contract claims. In fact, the de los Santoses’ original petition [*756] makes no distinction between the parents’ claims and the Alvarezes’ claims. Thus, by suing FirstMerit based on the de los Santoses’ installment contract, the Alvarezes subjected themselves to the contract’s terms, including the Arbitration Addendum. Accordingly, unless the de los Santoses can prove one of their defenses to the Arbitration Addendum, the FAA requires arbitration. 19 B. DEFENSES TO ARBITRATION The de los Santoses assert the defenses of unconscionability, duress, fraudulent inducement, and revocation. [**13] We again note that these defenses must specifically relate to the Arbitration Addendum itself, not the contract as a whole, if they are to defeat arbitration. 20 HN8 Defenses that pertain to the entire installment contract can be arbitrated. 21 We further note that the de los Santoses’ defenses against the Addendum are governed by Texas law. 22 Again, HN9 since the law favors arbitration, the burden of proving a defense to arbitration is on the party opposing arbitration. ^[23] The de los Santoses contend that the Arbitration Addendum is unconscionable because arbitration might subject them to substantial costs and fees. On this issue, in Green Tree Financial Corp. v. Randolph, the United States Supreme Court recognized that ″the existence of large arbitration costs [**14] could preclude a litigant . . . from vindicating her federal statutory rights . . . .″ 24 Nonetheless, the Supreme Court concluded that HN10 an arbitration agreement’s mere silence with respect to costs and fees, by itself, is a ″plainly insufficient″ basis for invalidating the agreement. 25 Instead, the party opposing arbitration must prove the likelihood of incurring such costs. 26 To hold otherwise would ″undermine the liberal federal policy favoring arbitration agreements.″ 27 While the Supreme Court did not specify ″how detailed the showing of prohibitive expense must be,″ there is no doubt that some specific information of future costs is required. 28 In Green Tree, the party resisting arbitration cited what she claimed were American Arbitration Association (AAA) figures on arbitration costs, but she provided no evidence that the AAA would actually conduct the arbitration or charge [**15] her the fees 18 See Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex. App.-Austin 1998, no pet.). 19 See In re Oakwood, 987 S.W.2d at 573. 20 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967). 21 See id. 22 In re Oakwood, 987 S.W.2d at 574. 23 Id. at 573. 24 531 U.S. 79, 90; 121 S. Ct. at 522. 25 Id. 26 Id. 27 Id. 28 121 S. Ct. at 522-23. Page 8 of 10 52 S.W.3d 749,[*756] ; 2001 Tex. LEXIS 59, **15 she identified. 29 Because of this uncertainty, the Supreme Court deemed the evidence insufficient to defeat arbitration. 30 Here, the de los Santoses testified, in two sworn affidavits, that the AAA charged a minimum $ 2,000 filing fee and a $ 250/day/party hearing fee, along with several other unspecified fees, for hearings before a three-member panel. But we [*757] need not decide whether these costs would be excessive. As in Green Tree, the de los Santoses provided no evidence that the AAA would actually conduct the arbitration or charge the specified fees. The Arbitration Addendum does not state that the AAA will conduct the arbitration, and it makes no mention of arbitration costs. We also note that the most recent AAA commercial arbitration rules provide that ″the AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative fees.″ 31 Moreover, in the [**16] event the de los Santoses do not avail themselves of FirstMerit Bank’s choice of arbitrators, the FAA permits the trial court to choose an alternate set of arbitrators. 32 The de los Santoses also complain that the requirement of three arbitrators is inherently costly. But again, without any specific information on what the costs will be, this requirement is not evidence of unconscionability. Finally, in agreeing to the Addendum, Pete and Janie de los Santos agreed ″that arbitration is a less expensive method of dispute resolution that decreases servicing costs of this loan . . . .″ Because the record contains no specific evidence that the de los Santoses will actually be charged excessive arbitration fees, we conclude that there is legally insufficient evidence that the plaintiffs would be denied access to arbitration based on excessive costs. The de los Santoses [**17] also argue that the agreement’s terms are unconscionable because they force the weaker party to arbitrate their claims, while permitting the stronger party to litigate their claims. 33 They point us to decisions in other jurisdictions that have found this type of clause to be unconscionable. 34 Most federal courts, however, have rejected similar challenges on the grounds that an arbitration clause does not require mutuality of obligation, so long as the underlying contract is supported by adequate consideration. 35 [**19] In any event, HN11 the basic test for unconscionability is whether, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. 36 The principle is one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power. 37 Here, the Arbitration Addendum allows the bank to seek judicial relief to enforce its security agreement, recover the buyers’ monetary loan obligation, and foreclose. Given the weight of federal precedent and the routine [**18] nature of mobile [*758] home financing agreements, 38 we find that the Arbitration Addendum in this case, by excepting claims essentially protecting the bank’s security interest, is not 29 121 S. Ct. at 522 & n.6. 30 See id. 31 American Arbitration Association, Arbitration Rules for the Real Estate Industry, Rule 51. 32 See 9 U.S.C. § 5. 33 See In re Conseco Fin. Servicing Corp., 19 S.W.3d 562, 569 n.3 (Tex. App.-Waco 2000, pet. dism’d by agr.). 34 See, e.g., Armendariz v. Foundation Health Psychcare Servs., 24 Cal. 4th 83, 6 P.3d 669, 691-94 (Cal. 2000); Iwen v. U.S. West Direct, 1999 MT 63, 977 P.2d 989, 995-96, 293 Mont. 512 (Mont. 1999). 35 See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183 (3d Cir. 1999); Doctor’s Assoc., Inc. v. Distajo, 66 F.3d 438, 451-53 (2d Cir. 1995); Wilson Elec. Contractors, Inc. v. Minnotte Contracting Corp., 878 F.2d 167, 168-69 (6th Cir. 1989); Young v. Jim Walter Homes, Inc., 110 F. Supp. 2d 1344, 1350 (M.D. Ala. 2000); Pridgen v. Green Tree Fin. Servicing Corp., 88 F. Supp. 2d 655, 658-59 (S.D. Miss. 2000); Gray v. Conseco, Inc., 2000 U.S. Dist. LEXIS 14821, 13-16 (C.D. Cal. Sept. 29, 2000). 36 TEX. BUS. & COM. CODE § 2.302 cmt. ^[1]. 37 Id. 38 See Palm Harbor Homes, Inc. v. McCoy, 944 S.W.2d 716, 723 n.8 (Tex. App.-Fort Worth 1997, orig. proceeding). Page 9 of 10 52 S.W.3d 749,[*758] ; 2001 Tex. LEXIS 59, **18 unconscionable. 39 We also recognize that the plaintiffs are free to pursue their unconscionability defense in the arbitral forum. Moreover, the de los Santoses cannot prevail on their duress defense, since there is no evidence that the sellers threatened to do anything they did not have a legal right to do. 40 At most, the sellers stated only that they would not sell the home if the de los Santoses would not sign the Addendum, which is not evidence of duress. 41 The de los Santoses also alleged fraud in the inducement of the Arbitration Addendum. HN12 The elements of fraud are: [**20] (1) that a material representation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. 42 In this case, the de los Santoses alleged that the sellers fraudulently represented that they owned the land under the home, and that the home had a septic system and driveway. They also allege that the sellers’ advertisements and pre-sale statements made no reference to an arbitration clause, and that the sellers did not adequately explain the consequences of signing the Addendum. However, there is no evidence that the sellers actually misrepresented the Addendum’s terms, or that they made any false material representations with regard to the Arbitration Addendum itself. Accordingly, we decline to invalidate the Arbitration Addendum based on fraud. [**21] Finally, the de los Santoses argue that their alleged revocation of the installment contract also applies to the Arbitration Addendum, rendering it unenforceable. But this claim really pertains to the entire installment contract and not just the Arbitration Addendum. Again, the HN13 Arbitration Addendum’s validity is a separate issue from the validity of the whole contract. 43 And given that the FAA’s primary objective is to encourage the arbitration of contract-related issues, the issue of whether the underlying contract was revoked is an issue that should be arbitrated, since it ″arises from or relates to″ the contract. 44 III. CONCLUSION Because the claims in this lawsuit are within the scope of the parties’ agreement to arbitrate, we conditionally [**22] grant the writ of mandamus and direct the trial court to order that all claims proceed to arbitration. The clerk is instructed to issue [*759] the writ only if the trial court fails to do so. Craig T. Enoch Justice Opinion delivered: June 14, 2001 39 See Pridgen, 88 F. Supp. 2d at 658-59; see also Conseco Fin. Servicing Corp. v. Wilder, 47 S.W.3d 335, 2001 Ky. App. LEXIS 60 (Ky. Ct. App. May 18, 2001). 40 In re Oakwood, 987 S.W.2d at 574. 41 See id. 42 Formosa Plastics Corp. v. Presidio Engrs. & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). 43 See Miller v. Puritan Fashions Corp., 516 S.W.2d 234, 238-39 (Tex. Civ. App.-Waco 1974, writ ref’d n.r.e.). 44 See Mewbourne Oil Co. v. Blackburn, 793 S.W.2d 735, 737 (Tex. App.-Amarillo 1990, orig. proceeding). Page 10 of 10 | | Caution As of: September 1, 2015 2:40 PM EDT In re Fleetwood Homes of Tex., L.P. Supreme Court of Texas June 20, 2008, Opinion Delivered NO. 06-0943 Reporter 257 S.W.3d 692; 2008 Tex. LEXIS 579; 51 Tex. Sup. J. 1066 IN RE FLEETWOOD HOMES OF TEXAS, L.P. AND FLEETWOOD ENTERPRISES, INC., RELATORS Subsequent History: Released for Publication August 1, 2008. Prior History: In re Fleetwood Homes of Tex., L.P., 2006 Tex. App. LEXIS 9198 (Tex. App. Waco, Oct. 25, 2006) Core Terms arbitration, discovery, parties, unconscionable, waived, express waiver, trial setting Case Summary Procedural Posture Relator manufacturers filed a petition for a writ of mandamus to challenged a decision from a Texas court of appeals, which denied a request for the same relief. Mandamus was sought to challenge a finding that arbitration had been waived. Overview A dealer agreement contained an arbitration clause. The agreement was cancelled, and the dealer filed suit. The answer demanded arbitration, but a motion to compel arbitration was not filed for some time. The dealer contended that arbitration was expressly waived due to several e-mails about a trial setting; moreover, limited discovery was allowed. The trial court found that arbitration had been waived, and the court of appeals agreed. This writ petition followed. In conditionally granting relief, the supreme court determined that the evidence here was legally insufficient to support a finding of prejudice to the dealer based on the exchange of e-mails. The communications were merely a factor to be considered. No dispositive motions were filed, and the motion to compel was not filed on the eve of trial. The actions complained of were not enough to overcome the presumption against waiver. Finally, the supreme court rejected the assertion that the arbitration clause was substantively unconscionable due to its limit on discovery or its provision regarding attorney’s fees. Outcome The petition for a writ of mandamus was conditionally granted. The writ only issued if the trial court failed to compel arbitration. 257 S.W.3d 692,[*692] ; 2008 Tex. LEXIS 579, **579 LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN1 Parties that conduct full discovery, file motions going to the merits, and seek arbitration only on the eve of trial waive any contractual right to arbitration. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN2 Mandamus relief is proper to enforce arbitration agreements governed by the Federal Arbitration Act. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN3 A party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice. Waiver is a legal question for the court based on the totality of the circumstances, and asks whether a party has substantially invoked the judicial process to an opponent’s detriment, the latter term meaning inherent unfairness caused by a party’s attempt to have it both ways by switching between litigation and arbitration to its own advantage. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN4 In the context of waiver, while communications by a party seeking to compel arbitration is a factor to be considered in the totality-of-the-circumstances, it is not the only factor. Civil Procedure > Discovery & Disclosure > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN5 In the context of waiver, a party who requests lots of discovery is not prejudiced by getting it and taking it to arbitration in the same way as a party who produces lots of discovery. Civil Procedure > Discovery & Disclosure > General Overview Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN6 An arbitration’s limits on discovery for both parties does not make it unconscionable. The test for substantive unconscionability is whether, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. Civil Procedure > ... > Attorney Fees & Expenses > Basis of Recovery > Statutory Awards Contracts Law > Contract Conditions & Provisions > General Overview HN7 Absent a contractual agreement, Texas law allows attorney’s fees only for a prevailing plaintiff. Tex. Civ. Prac. & Rem. Code Ann. §§ 38.001-.002. Counsel: For Fleetwood Homes of Texas, L.P., RELATOR: Mr. Michael J. Craddock, Ms. Felicia Norvell, Ms. Rachel Elizabeth Khirallah, Mr. David Charles Routzon Jr., Craddock Reneker & Davis, L.L.P., Dallas, TX. For Fleetwood Enterprises, Inc., RELATOR: Ms. Felicia Norvell, Craddock Reneker & Davis, L.L.P., Dallas, TX. Page 2 of 4 257 S.W.3d 692,[*692] ; 2008 Tex. LEXIS 579, **579 For Gulf Regional Services, Inc., REAL PARTIES: Mr. Michael Allen Starzyk, Mr. Alan M. Bush, Ms. April Lee Walter, Starzyk & Associates, The Woodlands, TX. For WD Inc., RELATOR: Ms. Felicia Norvell, Craddock Reneker & Davis, L.L.P., Dallas, TX. For Gary Adamek, RELATOR: Ms. Felicia Norvell, Craddock Reneker & Davis, L.L.P., Dallas, TX. Opinion [**1] [*693] ON PETITION FOR WRIT OF MANDAMUS PER CURIAM HN1 Parties that ″conduct full discovery, file motions going to the merits, and seek arbitration only on the eve of trial″ waive any contractual right to arbitration. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006). The relators here did none of those, instead merely discussing a potential trial setting and sending a set of written discovery the day before moving to compel arbitration. The trial court held the relators waived arbitration, and a divided court of appeals denied mandamus relief. S.W.3d , 2006 Tex. App. LEXIS 9198. We disagree, and thus conditionally grant it. See In re Weekley, 180 S.W.3d 127, 130 (Tex. 2005) (HN2 ″Mandamus relief is proper to enforce arbitration agreements governed by the FAA.″). Fleetwood Enterprises, Inc., manufactures mobile homes. In January 2005 it signed a dealer agreement with Gulf Regional Services, Inc., an owner and developer of mobile home parks in southeast Texas that also sells and leases mobile homes. The agreement included an arbitration clause covering ″any dispute, controversy or claim among the Parties.″ In August 2005 Fleetwood cancelled the agreement on the ground that Gulf was planning to sell or use mobile [**2] homes at a location other than that specified in the dealer agreement. After Gulf filed suit in October 2005, Fleetwood filed an answer demanding arbitration, [*694] but did not actually move to compel arbitration until July 2006. Gulf opposed the motion on two grounds: express waiver and unconscionability. HN3 ″[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, , 2008 Tex. LEXIS 423,[*18] (Tex. 2008). Waiver is a legal question for the court based on the totality of the circumstances, and asks whether a party has substantially invoked the judicial process to an opponent’s detriment, the latter term meaning inherent unfairness caused by ″a party’s attempt to have it both ways by switching between litigation and arbitration to its own advantage.″ Id. at , 2008 Tex. LEXIS 423 at[*74] . Gulf argues that Fleetwood expressly waived arbitration, pointing to several emails from Fleetwood’s counsel regarding a proposed trial setting, culminating in the following: I have reviewed the Setting Request and would ask that we try to get a setting in March . . . . Given the documentation I received last week and the work we need to do as a result [**3] of those documents, Fleetwood is not going to be in a position to try this case in December. If you are agreeable to this, we could sign an agreed Setting Request, otherwise, I will have to oppose the request after you submit it and request a later setting. We need not decide whether Gulf is correct that express waiver is governed by different rules than those that Page 3 of 4 257 S.W.3d 692,[*694] ; 2008 Tex. LEXIS 579, **3 govern implied waiver, as we disagree that this rises to the level of an express waiver. Nothing in this communication expressly waives arbitration or revokes the arbitration demand Fleetwood included in every answer it filed. Instead, the question here is whether Fleetwood impliedly waived arbitration by failing to pursue its arbitration demand for eight months while discussing a trial setting and allowing limited discovery. We have already answered that question ″No.″ In EZ Pawn Corp. v. Mancias, we held a party had not waived arbitration by filing an answer, discussing a docket-control order, sending written discovery, noticing a deposition, and agreeing to postpone a trial setting. 934 S.W.2d 87, 90 (Tex. 1996). Gulf points out correctly that the movant in EZ Pawn had not yet ″discovered″ the arbitration clause until after [**4] these actions had already taken place. Id. at 89. But our opinion was based on the nonmovant’s failure to show any prejudice, id. at 90, a requirement we recently reaffirmed. See Perry Homes, 258 S.W.3d at , 2008 Tex. LEXIS 423 at[*29] . As in EZ Pawn, the evidence here is legally insufficient to support a finding of prejudice. Gulf does not explain how it possibly could have been prejudiced by exchanging emails about a trial setting. Moreover, HN4 while these communications are a factor to be considered in the totality-of-the-circumstances, they are not the only factors. See id. at . Here, Fleetwood took no depositions, although it noticed one deposition before cancelling it. ^[1] It served one set of written discovery the day before it moved to compel arbitration. It filed no dispositive motions, nor did it wait until the eve of [*695] trial to move to compel. Taken together, these actions are not enough to overcome the presumption against waiver. See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006); In re Bruce Terminix, 988 S.W.2d 702, 704 (Tex. 1998). Gulf also argues the arbitration clause is substantively unconscionable, citing two reasons. First, it asserts that arbitration limits its right to discovery. But limited discovery is one of arbitration’s ″most distinctive features.″ Perry Homes, 258 S.W.3d at , 2008 Tex. LEXIS 423 at[*46] ; see also Preston v. Ferrer, U.S. , , 128 S. Ct. 978, 986, 169 L. Ed. 2d 917 (2008) (″A prime objective of an agreement to arbitrate is to achieve streamlined proceedings and expeditious results.″). Gulf’s argument that ″streamlined″ discovery makes arbitration unconscionable would nullify almost all arbitration agreements. We hold that HN6 arbitration’s limits on discovery for both parties does not make it unconscionable. See In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 678 (Tex. 2006) (″The test for substantive unconscionability is whether, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the [**6] contract.″ (internal quotation marks omitted)). Second, Gulf asserts the agreement here is unconscionable because it allows the prevailing party to recover attorney’s fees. It is true that HN7 absent a contractual agreement like this, Texas law allows attorney’s fees only for a prevailing plaintiff. See TEX. CIV. PRAC. & REM. CODE § 38.001-.002. But allowing both parties to recover fees hardly makes an agreement ″one-sided″; such agreements, common in commercial contexts, surely make them less so. Because Gulf has failed to show that Fleetwood waived its contractual right to arbitration, we conditionally grant Fleetwood’s petition for writ of mandamus and direct the trial court to compel arbitration. We are confident that the trial court will promptly comply, and our writ will issue only if it does not. OPINION DELIVERED: June 20, 2008 1 Gulf deposed three Fleetwood representatives, but does not explain how it was prejudiced in being allowed to do so. See Perry Homes, 258 S.W.3d at , 2008 Tex. LEXIS 423 at[*50] (HN5 ″[A] [**5] party who requests lots of discovery is not prejudiced by getting it and taking it to arbitration in the same way [as] a party who produces lots of discovery . . . .″) (emphasis in original). Page 4 of 4 | | Caution As of: September 1, 2015 4:53 PM EDT In re Kaplan Higher Educ. Corp. Supreme Court of Texas August 24, 2007, Opinion Delivered NO. 06-0072 Reporter 235 S.W.3d 206; 2007 Tex. LEXIS 707; 50 Tex. Sup. J. 1058 IN RE KAPLAN HIGHER EDUCATION CORPORATION AND LETICIA VENTURA, RELATORS Subsequent History: Released for Publication October 12, 2007. Prior History: [**1] ON PETITION FOR WRIT OF MANDAMUS. In re Kaplan Higher Educ. Corp., 2006 Tex. App. LEXIS 239 (Tex. App. Corpus Christi, Jan. 10, 2006) Core Terms arbitration, enrollment, arbitration clause, fraudulent inducement, affiliate, induced Case Summary Procedural Posture Relators, an educational corporation and an admissions director, challenged a ruling from the Thirteenth Court of Appeals (Texas), which denied mandamus relief from the trial court’s refusal to compel arbitration of real party in interest students’ claims for negligent misrepresentation and other causes of action. Overview The students enrolled at a vocational college that was a subsidiary of the educational corporation. They alleged that they were fraudulently induced to enroll by misrepresentations from the admissions director and others. Each student signed an enrollment agreement that required arbitration of any controversy or claim arising out of, or relating to, the agreement. The court observed that the substance of the claim was fraudulent inducement because the students sought refunds of tuition and other costs they would not have incurred had they not been induced to enroll. Fraudulent inducement claims fell within an agreement to arbitrate all disputes involving an underlying contract. Although the claims were not on the contract, the court stated that the agents of a signatory sometimes could invoke an arbitration clause even if they themselves were nonsignatories and a claimant was not suing on the contract. The court concluded that arbitration was necessary because the college would be liable under Tex. Educ. Code Ann. § 132.061(a)(2) for any judgment; if its liability could be decided by a suit against an agent, then the arbitration contract would have been effectively abrogated. Outcome The court conditionally granted the writ of mandamus and directed the trial court to order that the students’ claims proceed to arbitration. 235 S.W.3d 206,[*206] ; 2007 Tex. LEXIS 707, **1 LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability HN1 Arbitrability turns on the substance of the claim, not artful pleading. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Torts > Business Torts > Fraud & Misrepresentation > General Overview HN2 Fraudulent inducement claims fall within an agreement to arbitrate all disputes involving an underlying contract. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability HN3 Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract. Claims can be brought in tort (and in court) if liability arises from general obligations imposed by law. Torts > Business Torts > Fraud & Misrepresentation > General Overview HN4 Claims of fraudulent inducement arise from general obligations imposed by law, not the underlying contract. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Torts > Business Torts > Fraud & Misrepresentation > General Overview HN5 The agents of a signatory may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is not suing on the contract. Thus, if two companies sign a contract to arbitrate disputes, one cannot avoid it by recasting a contract dispute as a tortious interference claim against an owner, officer, agent, or affiliate of the other. Every contract claim against a corporation could be recast as a tortious interference claim against its agents, and it is impractical to require every corporate agent to signor be listed in every contract. As a contracting party generally cannot avoid unfavorable clauses by suing the other party’s agents, this rule is necessary to place arbitration agreements on equal footing with other contracts. For the same reasons, the same rule must apply when a party to an arbitration contract seeks to avoid it by pleading a contract dispute as fraudulent inducement by an officer, agent, or affiliate of the other. Here too, almost every contract claim against a corporation could be recast as a fraudulent inducement claim against the agents or employees who took part in the negotiations preceding it. If such arbitration clauses are enforceable only if every officer, employee, agent, or affiliate signs or is listed in the contract, they would be more easily avoided than other contract clauses. Education Law > Administration & Operation > Career & Technical Schools HN6 The Texas Education Code requires vocational schools to provide full refunds if enrollment was procured by representations by the owner or representatives of the school. Tex. Educ. Code Ann. § 132.061(a)(2). Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability HN7 A challenge to the validity of a contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Page 2 of 5 235 S.W.3d 206,[*206] ; 2007 Tex. LEXIS 707, **1 HN8 Arbitration clauses do not automatically cover all corporate agents or affiliates. Like other contracts, arbitration agreements are enforced according to their terms and according to the intentions of the parties. Thus, for example, owners may not be able to invoke a subsidiary’s arbitration clause when they act on their own behalf rather than for their subsidiary. But when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was pulling the strings. Counsel: For Kaplan Higher Education Corporation, RELATOR: Ms. Joy M Soloway, Mr. Richard N. Carrell, Fulbright & Jaworski, L.L.P., Houston, TX.; Mr. David G. Oliveira, Roerig Oliveira & Fisher, Brownsville, TX. For Rios, Mr. Luis, REAL PARTIES: Mr. Joe Escobedo Jr., Mr. Mauro Ferando Ruiz, Mr. David H. Hockema, Hockema Tippet & Escobedo, McAllen, TX.; Mr. Damian Orozco, Pharr, TX.; Mr. Jeffrey D. Small, Law Office of Jeff Small, San Antonio, TX.; Mr. David R. Montpas, Mr. Brendan K. McBride, Prichard Hawkins McFarland & Young, L.L.P., San Antonio, TX. Opinion [*208] PER CURIAM A vocational college and 45 of its students agreed to arbitrate any dispute ″arising from or relating to″ their enrollment agreement. Claiming they were fraudulently induced to sign up, the students nevertheless seek to avoid arbitration by pursuing their claims only against two nonsignatories. The parties agree the Federal Arbitration Act applies. See 9 U.S.C. § 1 et. seq. The trial court refused to compel arbitration, and the Thirteenth Court of Appeals denied mandamus relief. We conditionally grant it. See In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (″Mandamus relief is proper to enforce arbitration agreements governed by the FAA.″). The students enrolled in an electrician’s program at the San Antonio College of Medical and Dental Assistants -- McAllen Branch (″the College″), a wholly-owned subsidiary of Kaplan Higher Education Corporation. They allege they were fraudulently induced to enroll by assurances that upon graduation they would be eligible for licenses as journeymen or master electricians. Each student signed an enrollment agreement detailing tuition, rules, and graduation requirements, and requiring them to arbitrate [**2] ″[a]ny controversy or claim arising out of, or relating to, this Agreement.″ 1 Initially, the plaintiffs filed suit against Kaplan, the College, Frank Jennings (the College’s president) and Leticia Ventura (the College’s admissions director). When the defendants moved for arbitration, the plaintiffs dropped their claims against the College and Jennings (both signatories to the agreements) as well as all claims of joint venture or enterprise, leaving only claims against Kaplan and Ventura (both nonsignatories). Although alleged in various forms, 2 the substance of the students’ claim was fraudulent inducement, as they seek refunds of tuition and other costs they would not have incurred had they not been induced [*209] to sign up. See Weekley, 180 S.W.3d at 131-32 [**3] (stating that HN1 arbitrability ″turns on the substance of the claim, not artful pleading″); Haase v. Glazner, 62 S.W.3d 795, 797-800 (Tex. 2001) (distinguishing fraudulent 1 Each enrollment agreement contained the following arbitration provision: ACKNOWLEDGEMENT OF OBLIGATION: . . . Any controversy or claim arising out of, or relating to, this Agreement, or breach thereof, no matter how pleaded or styled, shall be settled by arbitration in accordance with the Commercial Rules of Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction. ^[2] The students’ pleadings alleged negligence, negligence per se based on alleged violations of the Texas Education and Texas Administrative Codes, violations of the Texas Deceptive Trade Practices Act, and negligent misrepresentation. Page 3 of 5 235 S.W.3d 206,[*209] ; 2007 Tex. LEXIS 707, **3 inducement from other fraud claims as it ″presupposes that a party has been induced to enter a contract″). We have held that HN2 such claims fall within an agreement to arbitrate all disputes ″involving″ an underlying contract. See In re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 550-51 (Tex. 2002). Clearly, the students’ complaints arise out of and relate to their enrollment agreements. We disagree with Kaplan that the students are suing on those agreements. HN3 ″Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract . . . . [C]laims can be brought in tort (and in court) if liability arises from general obligations imposed by law.″ Weekley, 180 S.W.3d at 132. HN4 Claims of fraudulent inducement arise from general obligations imposed by law, not the [**4] underlying contract. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304 (Tex. 2006) (″The duty not to fraudulently procure a contract arises from the general obligations of law rather than the contract itself, and may be asserted in tort even if the only damages are economic.″); Formosa Plastics Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998) (″[I]t is well established that the legal duty not to fraudulently procure a contract is separate and independent from the duties established by the contract itself.″). Nevertheless, HN5 the agents of a signatory may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is not suing on the contract. Thus, if two companies sign a contract to arbitrate disputes, one cannot avoid it by recasting a contract dispute as a tortious interference claim against an owner, officer, agent, or affiliate of the other. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 762-63 (Tex. 2006) (per curiam). ″Every contract claim against a corporation could be recast as a tortious interference claim against its agents,″ and it is impractical to require every corporate agent to signor be listed in [**5] every contract. Id. at 762. As a contracting party generally cannot avoid unfavorable clauses by suing the other party’s agents, this rule is necessary ″’to place arbitration agreements on equal footing with other contracts’.″ Id. (quoting E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293, 122 S. Ct. 754, 151 L. Ed. 2d 755 (2002)). For the same reasons, the same rule must apply when a party to an arbitration contract seeks to avoid it by pleading a contract dispute as fraudulent inducement by an officer, agent, or affiliate of the other. Here too, almost every contract claim against a corporation could be recast as a fraudulent inducement claim against the agents or employees who took part in the negotiations preceding it. If such arbitration clauses are enforceable only if every officer, employee, agent, or affiliate signs or is listed in the contract, they would be more easily avoided than other contract clauses. Further, the students’ agreements with the College require arbitration here because the College will be liable for the judgment if their suit is successful. HN6 The Texas Education Code requires vocational schools to provide full refunds if enrollment was procured by representations ″by the owner or representatives [**6] of the school.″ TEX. EDUC. CODE § 132.061(a)(2); see also Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 577 (Tex. 2002) (stating that employers are generally liable for employees’ torts committed in course, scope, and furtherance of employer’s business). [*210] The enrollment agreements specifically provided for tuition refunds in the event enrollment was induced by misrepresentation. If the College’s liability for such refunds (about $ 10,000 for each student) can be decided in court by suing its agents, then the arbitration contract has been effectively abrogated. The students argue that Ventura and the other admissions officers to whom they spoke were not employees of the College but of Kaplan. But the undisputed facts (and the students’ own pleadings) show that regardless of who paid them, they were acting as agents of the College when they advertised, recruited, and procured contracts on its behalf, and that the College itself will have to answer for any misrepresentations they made in doing so. The students also assert that Kaplan cannot seek arbitration because of ″unclean hands″ in its dealings with them. But this defense pertains to the enrollment agreement in general rather [**7] than the arbitration clause Page 4 of 5 235 S.W.3d 206,[*210] ; 2007 Tex. LEXIS 707, **7 in particular, and thus must be arbitrated. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006) (″We reaffirm today that . . . HN7 a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.″); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). We emphasize again today that HN8 arbitration clauses do not automatically cover all corporate agents or affiliates. See In re Merrill Lynch Trust Co., 235 S.W.3d 185, 2007 Tex. LEXIS 736 at[*33] (Tex. 2007); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam). Like other contracts, arbitration agreements ″are enforced according to their terms and according to the intentions of the parties.″ First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995) (internal citation omitted). Thus, for example, owners may not be able to invoke a subsidiary’s arbitration clause when they act on their own behalf rather than for their subsidiary. See, e.g., Westmoreland v. Sadoux, 299 F.3d 462, 466 (5th Cir. 2002). But when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid [**8] it by simply pleading that a nonsignatory agent or affiliate was pulling the strings. Accordingly, without hearing oral argument, see TEX. R. APP. P. 52.8(c), we conditionally grant the writ of mandamus and direct the trial court to order that the students’ claims proceed to arbitration. Our writ will not issue unless the trial court fails to do so. OPINION DELIVERED: August 24, 2007 Page 5 of 5 | | Caution As of: September 1, 2015 4:44 PM EDT In re Kellogg Brown & Root, Inc. Supreme Court of Texas December 1, 2004, Argued ; May 20, 2005, Delivered NO. 03-1129 Reporter 166 S.W.3d 732; 2005 Tex. LEXIS 393; 48 Tex. Sup. J. 678 IN RE KELLOGG BROWN & ROOT, INC., RELATOR Subsequent History: Writ of mandamus granted In re MaCgregor (FIN) Oy, 2005 Tex. App. LEXIS 9329 (Tex. App. Houston 1st Dist., Nov. 10, 2005) Prior History: [**1] ON PETITION FOR WRIT OF MANDAMUS. MacGregor (FIN) Oy v. Kellogg, Brown & Root, Inc. (In re MacGregor (FIN) Oy), 126 S.W.3d 176, 2003 Tex. App. LEXIS 5903 (Tex. App. Houston 1st Dist., 2003) Core Terms arbitration, non-signatory, fabrication, subcontract, collateral, estoppel, arbitration provision, direct benefit, trial court, state law, ownership, elevator, court of appeals, moot, arbitration agreement, arbitration clause, services, trunks, liens, federal court, contracts, possessed, parties, quantum meruit claim, quantum meruit, subcontractor, declaration, mandamus relief, equitable, materials Case Summary Procedural Posture Relator sub-subcontractor sought mandamus relief from a judgment of the court of appeals (Texas), which ordered a trial court to vacate its order denying a contractor’s motion to compel the sub-subcontractor to pursue its claims in an ongoing arbitration between the contractor and a subcontractor and to issue an order compelling the sub-subcontractor to arbitrate all claims. Overview At issue was whether the sub-subcontractor, as a non-signatory to a contract containing an arbitration clause governed by the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, had to arbitrate its claims against the subcontractor and the contractor, the signatories to the contract. The court held that the sub-subcontractor could not be so compelled. Under direct benefits estoppel, although a non-signatory’s claim might relate to a contract containing an arbitration provision, that relationship did not, in itself, bind the non-signatory to the arbitration provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it sought, through the claim, to derive a direct benefit from the contract containing the arbitration provision. In its quantum meruit claim against the contractor, the sub-subcontractor sought payment for services rendered under its contract with the subcontractor. 166 S.W.3d 732,[*732] ; 2005 Tex. LEXIS 393, **1 Thus, the court of appeals abused its discretion to the extent it compelled the sub-subcontractor to arbitrate its quantum meruit claim against the contractor. The court did not decide whether other arguments existed to compel the sub-subcontractor to arbitrate the validity of its liens. Outcome The court conditionally granted mandamus relief and ordered the court of appeals to vacate its order compelling the sub-subcontractor to arbitrate all claims. The writ was to issue only if the court of appeals failed to comply. LexisNexis® Headnotes Civil Procedure > ... > Justiciability > Mootness > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR HN1 A case becomes moot if a controversy ceases to exist between the parties at any stage of the legal proceedings, including the appeal. A case is not rendered moot simply because some of the issues become moot during the appellate process. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Evidence > Inferences & Presumptions > General Overview Evidence > Burdens of Proof > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 A party seeking to compel arbitration under the Federal Arbitration Act (FAA) must establish that: (1) there is a valid arbitration agreement; and (2) the claims raised fall within that agreement’s scope. Doubts regarding an agreement’s scope are resolved in favor of arbitration because there is a presumption favoring agreements to arbitrate under the FAA. However, the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists because the purpose of the FAA was to make arbitration agreements as enforceable as other contracts, not more so. Administrative Law > Agency Adjudication > Alternative Dispute Resolution Civil Procedure > ... > Jurisdiction > Subject Matter Jurisdiction > General Overview Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > Concurrent Jurisdiction Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Page 2 of 12 166 S.W.3d 732,[*732] ; 2005 Tex. LEXIS 393, **1 Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Estoppel > Equitable Estoppel > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN3 Under the Federal Arbitration Act (FAA), ordinary principles of state contract law determine whether there is a valid agreement to arbitrate. Because arbitration is contractual in nature, the FAA generally does not require parties to arbitrate when they have not agreed to do so. Federal and Texas state courts have recognized, however, that it does not follow that under the FAA an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision; instead, under certain circumstances, principles of contract law and agency may bind a non-signatory to an arbitration agreement. Although state law determines the validity of an arbitration agreement, courts have applied both federal and state law to determine the related, but distinct, issue of whether non-signatory plaintiffs should be compelled to arbitrate their claims. The FAA does not specify whether state or federal law governs, and the United States Supreme Court has not directly addressed the issue. Federal courts of appeals, however, have frequently applied federal substantive law when deciding whether a non-signatory must arbitrate. Federal and state courts have concurrent jurisdiction to enforce the FAA. Administrative Law > Agency Adjudication > Alternative Dispute Resolution Business & Corporate Law > ... > Duties & Liabilities > Causes of Action & Remedies > General Overview Business & Corporate Law > ... > Duties & Liabilities > Causes of Action & Remedies > Breach of Contract Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Estoppel > Equitable Estoppel > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN4 Federal courts have recognized six theories, arising out of common principles of contract and agency law, that may bind non-signatories to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary. Under direct benefits estoppel, a non-signatory plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate disputes. Thus, a non-signatory plaintiff may be compelled to arbitrate if it seeks to enforce terms of a contract containing an arbitration provision. For example, if a non-signatory’s breach-of-warranty and breach-of-contract claims are based on certain terms of a written contract, then the non-signatory cannot avoid an arbitration provision within that contract. If, however, a non-signatory’s claims can stand independently of the underlying contract, then arbitration generally should not be compelled under this theory. Consistent with the federal doctrine of direct benefits estoppel, the Texas Supreme Court has held that a non-signatory plaintiff may be compelled to arbitrate if its claims are based on a contract containing an agreement to arbitrate. Civil Procedure > Pleading & Practice > Pleadings > Rule Application & Interpretation Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Remedies > Equitable Relief > General Overview Page 3 of 12 166 S.W.3d 732,[*732] ; 2005 Tex. LEXIS 393, **1 HN5 Quantum meruit is an equitable remedy that is based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted. A party generally cannot recover under quantum meruit when there is a valid contract covering the services or materials furnished. A party to a contract may, however, seek alternative relief under both contract and quasi-contract theories. Pleading in the alternative does not defeat the effect of an arbitration clause that broadly covers all disputes between signatories that arise out of the underlying agreement. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN6 Under ″direct benefits estoppel,″ a non-signatory plaintiff cannot be compelled to arbitrate on the sole ground that, but for the contract containing the arbitration provision, it would have no basis to sue. The work to be performed under a second-tier subcontract will inherently be related to and, to a certain extent, defined by contracts higher in the chain. Under ″direct benefits estoppel,″ although a non-signatory’s claim may relate to a contract containing an arbitration provision, that relationship does not, in itself, bind the non-signatory to the arbitration provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision. Contracts Law > Third Parties > Beneficiaries > General Overview HN7 The intention to contract or confer a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third party must be denied. Contracts Law > Types of Contracts > Construction Contracts Real Property Law > Construction Law > Contracts HN8 In construction contracts, in the absence of an express agreement to the contrary, a subcontractor is not in privity with the owner. Commercial Law (UCC) > Documents of Title (Article 7) > General Overview Commercial Law (UCC) > Documents of Title (Article 7) > Warehouse Receipts > Liens Contracts Law > ... > Sales of Goods > Remedies > General Overview Contracts Law > ... > Priorities > Liens > Warehousemen’s Liens Real Property Law > ... > Liens > Nonmortgage Liens > General Overview HN9 The self-executing constitutional lien attaches to buildings and special-order articles that are made or repaired by mechanics, material men, and artisans who have a direct contractual relationship with the owner of the property. Tex. Const. art. XVI, § 37. The warehouseman’s lien arises against the bailor on the goods covered by a warehouse receipt or on the proceeds thereof in his possession for charges for storage or transportation, insurance, labor, or charges present or future in relation to the goods, and for expenses necessary for preservation of the goods. Tex. Bus. & Com. Code Ann. § 7.209(a)(1). Counsel: For the RELATOR Kellogg Brown & Root, Inc.: Mr. Jack D. Carnegie, Mr. John L. Hagan, Jones Day, Houston, TX., Mr. Kevin B. Finkel, Johnson Finkel Deluca & Kennedy, P.C., Houston, TX. Page 4 of 12 166 S.W.3d 732,[*732] ; 2005 Tex. LEXIS 393, **1 For REAL PARTIES MacGregor (Fin) OY: Mr. Jeffrey Raizner, Johnson Finkel DeLuca & Kennedy, P.C., Houston, TX. Mr. Ira E. Hoffman, Grayson, Kubli & Hoffman, P.C., McLean, VA.,Mr. Jeff H. Galloway, Hughes Hubbard & Reed, New York, NY., Mr. John Fellas, Hughes Hubbard & Reed, LLP, New York, NY., Mr. Jack F. Burleigh,, Houston, TX. For OTHER Gulf Coast Holdings, Inc.: Mr. Jeffrey T. Nobles, Beime Maynard & Parsons, LLP, Houston, TX., Mr. Clint Alexander Corrie, Bieme Maynard & Parsons, LLP, Dallas, TX., Mr. Joseph Lawrence Mira, Dallas, TX., Mr. Robert Bryan Tabor, Houston, TX., Mr. John D. White, Jones Walker Waechter Poitevent Carrere & Denegre, The Woodlands, TX.. Judges: CHIEF JUSTICE JEFFERSON delivered the opinion of the Court. JUSTICE JOHNSON did not participate in the decision. Opinion by: Wallace B. Jefferson Opinion [*734] In this original proceeding, the question is whether Kellogg Brown & [**2] Root, Inc. (″KBR″), as a non-signatory to a contract containing an arbitration clause, must arbitrate its claims against Unidynamics, Inc. (″Unidynamics″) and MacGREGOR (FIN) Oy (″MacGregor″)--the signatories to the contract. The trial court denied MacGregor’s motion, which sought to compel KBR to pursue its claims in an ongoing arbitration between MacGregor and Unidynamics. The court of appeals held that the trial court abused its discretion and conditionally granted mandamus relief, ordering the trial court to vacate its order denying MacGregor’s motion and ″issue an order compelling KBR to arbitrate all claims.″ 126 S.W.3d 176, 184. KBR sought mandamus relief in this Court. Approximately two months after KBR filed its petition here, the arbitration between MacGregor and Unidynamics concluded. As a result, the relief MacGregor requested in the lower courts--that KBR be compelled ″to pursue its claims in the arbitration between MacGregor (FIN) and Unidynamics″--is no longer available. The case is not moot, however, because the parties continue to dispute whether KBR should be compelled to ″arbitrate all claims″ pursuant to the court of appeals’ order. Id. at 184. [**3] Because we conclude that KBR cannot be so compelled, we conditionally grant mandamus relief and order the court of appeals to vacate its order. I Factual Background In October 1999, MacGREGOR (USA), Inc. contracted with Ingalls Shipbuilding, Inc. (″Ingalls″) to build elevator trunks for two cruise ships. MacGREGOR (USA) assigned the contract to its sister company, [*735] MacGREGOR (FIN) Oy 1 [**4] (″MacGregor″). In August 2000, MacGregor subcontracted part of the job to Unidynamics, which agreed to fabricate a set of the elevator trunks for one of the ships. ^[2] In June 2001, Unidynamics and KBR entered into a second-tier subcontract, under which KBR agreed to furnish labor, equipment, and facilities to fabricate the elevator trunks. In the fabrication subcontract between MacGregor and Unidynamics, the parties agreed that: ″Any disputes arising from the interpretation or application of this contract including any document pertaining thereto, shall be settled by arbitration in accordance with General Conditions 1 The term ″Oy″ for Finnish companies is an abbreviation of ″osakeyhtio″ (″osake″ means ″share,″ ″yhtio″ means ″society″). See http://encyclopedia.laborlawtalk.com/Oy (last visited May 18, 2005, and available in Clerk of Court’s file). 2 In October 2000, MacGregor and Unidynamics entered into another subcontract, under which Unidynamics agreed to preassemble and install the elevator trunks. That subcontract is not at issue in this case. Page 5 of 12 166 S.W.3d 732,[*735] ; 2005 Tex. LEXIS 393, **4 (ECE 188), (Appendix 10).″ 3 The second-tier subcontract between Unidynamics and KBR did not contain an arbitration provision. After the ship buyer declared bankruptcy in November 2001, Ingalls directed MacGregor to cease work and notify its subcontractors to do the same. MacGregor directed Unidynamics to comply with ″the same instructions that Ingalls gave MacGregor.″ Unidynamics conveyed those instructions to KBR. On or around November 5, 2001, KBR ceased work, stored the elevator trunks and other equipment, and sent Unidynamics invoices for unpaid fabrication services and storage costs. Because KBR had not been paid in full, it asserted liens on the elevator trunk fabrications, parts, and other materials (the ″collateral″). [**5] A dispute then arose between MacGregor and Unidynamics regarding who owned the collateral and who owed KBR for the fabrication services and storage costs. The dispute stemmed from MacGregor and Unidynamics’ Agreement Concerning Passing of Title (the ″Title Agreement″), executed on December 5, 2001, and fully incorporated into their fabrication subcontract. Among other things, the Title Agreement provided that full title to the collateral would pass irrevocably to MacGregor immediately after MacGregor made two payments to Unidynamics, which were to occur no later than December 19, 2001. The Title Agreement further required Unidynamics to release the collateral to MacGregor upon MacGregor’s request. It is undisputed that MacGregor timely paid Unidynamics; however, Unidynamics asserted that the payments were ineffective to pass title to MacGregor. When MacGregor demanded that Unidynamics release the elevator trunks, Unidynamics refused. The collateral remained in KBR’s possession. II Procedural Background In May 2002, pursuant to the arbitration provision in the fabrication subcontract, MacGregor asked the International Chamber of Commerce (″ICC″) to arbitrate its dispute with [**6] Unidynamics. Among other things, MacGregor sought: (1) damages for breach of contract by Unidynamics for failure to release the collateral, (2) a determination [*736] as to which defendant owned the collateral, and (3) a determination regarding MacGregor’s proportionate responsibility for the storage costs KBR billed Unidynamics. Unidynamics filed an answer and asserted counterclaims. MacGregor and Unidynamics then commenced arbitration in Paris, France. While the arbitration was proceeding, both MacGregor and Unidynamics demanded that KBR release the collateral. KBR refused the demands and, on September 17, 2002, filed suit against both companies in Harris County. KBR claimed that Unidynamics breached its contract and, in the alternative, that it was entitled to recover quantum meruit damages against Unidynamics and MacGregor. KBR also sued for declaratory relief to determine which defendant owned the collateral. Subject to the court’s ruling on ownership, KBR sought a judicial declaration that it possessed valid constitutional and statutory liens against the collateral in its possession. ^[4] MacGregor answered and sought a temporary restraining order, temporary injunction, and permanent [**7] injunction directing KBR to release the collateral. Unidynamics opposed MacGregor’s application, arguing that the court action should be abated because the collateral’s ownership was ″the very issue . . . being arbitrated before the ICC.″ MacGregor, Unidynamics, and KBR then negotiated an agreement, which the trial court entered as an Agreed Order. Pursuant to that order, MacGregor agreed to post a $ 1,000,000 bond 3 The arbitration provision in ECE 188 provided: ″Any dispute arising out of the Contract shall be finally settled, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce [″ICC″], by one or more arbitrators designated in conformity with those Rules.″ 4 See TEX. CONST. art. XVI, § 37; TEX. BUS. & COM. CODE § 7.209. Page 6 of 12 166 S.W.3d 732,[*736] ; 2005 Tex. LEXIS 393, **7 and, upon presentation of the bond, KBR agreed to release the collateral to MacGregor. ^[5] MacGregor posted the bond on October 28, 2002. [**8] Meanwhile, on October 18, 2002, MacGregor filed a motion to abate the state court proceedings pending its arbitration with Unidynamics or, in the alternative, to compel KBR to pursue its claims in the ongoing arbitration between MacGregor and Unidynamics. The trial court denied MacGregor’s motion. On December 19, 2002, MacGregor filed an interlocutory appeal and a petition for writ of mandamus in the court of appeals, contending that the trial court abused its discretion. The court of appeals dismissed the interlocutory appeal as moot and conditionally granted mandamus relief, ordering the trial court ″to vacate its order denying MacGregor’s plea in abatement and motion to compel arbitration, to issue an order compelling KBR to arbitrate all claims, and to stay all proceedings pending arbitration.″ 6 126 S.W.3d at 184-85. [**9] On December 9, 2003, KBR petitioned this Court for a writ of mandamus. On February 4, 2004, while the petition was pending before us, the arbitration between MacGregor and Unidynamics concluded, and the ICC issued a final arbitration award. KBR does not contest that award. III Mootness As a preliminary matter, we must decide whether the ICC’s final arbitration [*737] award moots this mandamus proceeding. HN1 A case becomes moot if a controversy ceases to exist between the parties at any stage of the legal proceedings, including the appeal. Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 642, 48 Tex. Sup. Ct. J. 474 (Tex. 2005); Bd. of Adjustment of San Antonio v. Wende, 92 S.W.3d 424, 427, 45 Tex. Sup. Ct. J. 674 (Tex. 2002); Williams v. Lara, 52 S.W.3d 171, 184, 44 Tex. Sup. Ct. J. 998 (Tex. 2001). This case stems from the lower courts’ action on MacGregor’s motion to ″compel[] KBR to pursue its claims in the arbitration between [MacGregor] and Unidynamics.″ Because that arbitration is over, KBR can no longer be compelled to ″join the arbitration.″ See 126 S.W.3d at 183 (concluding that the trial court abused its discretion by refusing to compel KBR to join the ongoing arbitration). The question, then, [**10] is whether this proceeding is moot. A case is not rendered moot simply because some of the issues become moot during the appellate process. See Allstate, 159 S.W.3d at 642 (holding that a dispute concerning attorney’s fees preserved a live controversy in an otherwise moot appeal); Camarena v. Tex. Employment Comm’n, 754 S.W.2d 149, 151, 31 Tex. Sup. Ct. J. 563 (Tex. 1988) (same). In this case, the court of appeals ordered the trial court ″to issue an order compelling KBR to arbitrate all claims.″ 126 S.W.3d at 184. Although it is no longer possible for KBR to join the Paris arbitration, the court of appeals’ ultimate directive has no temporal component. It requires KBR to ″arbitrate all claims.″ The live controversy in this proceeding is whether KBR must arbitrate those claims that remain now that the arbitration between MacGregor and Unidynamics has concluded. KBR’s petition consisted of: (1) a breach-of-contract claim against Unidynamics; (2) in the alternative, a quantum meruit claim against Unidynamics and MacGregor; and (3) a declaratory judgment action to determine the collateral’s owner and to establish that KBR possessed valid liens. The arbitrator determined that, [**11] pursuant to the Title Agreement between MacGregor and Unidynamics, title to the collateral passed from Unidynamics to MacGregor on December 10, 2001. KBR is satisfied with this resolution of the ownership dispute, and thus, we need not address whether the ownership dispute must be arbitrated. Additionally, we need not address whether KBR 5 The parties agreed that the bond would be enforceable and payable in Texas, and that it would ″constitute an unconditional promise to pay upon demand accompanied by proof of Final Judgment adjudicating the validity and amount, if any, of [KBR’s] lien or liens against . . . the collateral.″ 6 As of the date of this opinion, the trial court has not acted on the court of appeals’ orders. Proceedings have not resumed in the trial court since the court of appeals ordered a stay on January 9, 2003. See 126 S.W.3d at 180-81. Page 7 of 12 166 S.W.3d 732,[*737] ; 2005 Tex. LEXIS 393, **11 should be compelled to arbitrate its claims against Unidynamics, because the parties now agree that those claims are not subject to arbitration. Our inquiry is accordingly limited to determining whether KBR must arbitrate its quantum meruit and lien-validity claims against MacGregor. IV Discussion The parties do not dispute the court of appeals’ holding that the arbitration provision at issue is governed by the Federal Arbitration Act (″FAA″). See 9 U.S.C. §§ 1-16; 126 S.W.3d at 181. In general, HN2 a party seeking to compel arbitration under the FAA must establish that: (1) there is a valid arbitration agreement, and (2) the claims raised fall within that agreement’s scope. In re FirstMerit Bank, 52 S.W.3d 749, 753, 44 Tex. Sup. Ct. J. 900 (Tex. 2001); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573, 42 Tex. Sup. Ct. J. 377 (Tex. 1999). [**12] Doubts regarding an agreement’s scope are resolved in favor of arbitration because there is a presumption favoring agreements to arbitrate under the FAA. In re FirstMerit Bank, 52 S.W.3d at 753; Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944, 39 Tex. Sup. Ct. J. 856 (Tex. 1996). However, ″the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists,″ J.M. Davidson, Inc. v. Webster, [*738] 128 S.W.3d 223, 227, 47 Tex. Sup. Ct. J. 196 (Tex. 2003), because ″the purpose of the FAA was to make arbitration agreements as enforceable as other contracts, not more so.″ Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 354 n.4 (5th Cir. 2003) (citations omitted); see also E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293, 151 L. Ed. 2d 755, 122 S. Ct. 754 (2002) (″The FAA directs courts to place arbitration agreements on equal footing with other contracts . . . .″). HN3 Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to arbitrate. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004); [**13] J.M. Davidson, Inc., 128 S.W.3d at 227-28; In re Halliburton Co., 80 S.W.3d 566, 568, 45 Tex. Sup. Ct. J. 720 (Tex. 2002). Because arbitration is contractual in nature, the FAA generally ″does not require parties to arbitrate when they have not agreed to do so.″ Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478-79, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989) (″Arbitration under the [FAA] is a matter of consent, not coercion . . . .″), quoted in E.E.O.C., 534 U.S. at 293-94; see also Bridas, 345 F.3d at 361 (citing J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate--A Bridge Too Far?, 21 REV. LITIG. 593, 632 (2002)). Federal and Texas state courts have recognized, however, that ″it does not follow . . . that under the [FAA] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision″; instead, under certain circumstances, principles of contract law and agency may bind a non-signatory to an arbitration agreement. Fisser v. Int’l Bank, 282 F.2d 231, 233 (2d Cir. 1960), [**14] quoted in Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen, 206 F.3d 411, 416 (4th Cir. 2000), and Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995); see also Bailey, 364 F.3d at 267 (quoting Thomson-CSF, 64 F.3d at 776); In re FirstMerit Bank, 52 S.W.3d at 755 (citing Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex. App.--Austin 1998, no pet.)); S.W. Tex. Pathology Assocs. v. Roosth, 27 S.W.3d 204, 208 (Tex. App.--San Antonio 2000, pet. dism’d w.o.j.). Although state law determines the validity of an arbitration agreement, courts have applied both federal and state law to determine the related, but distinct, issue of whether non-signatory plaintiffs should be compelled to arbitrate their claims. See, e.g., Bailey, 364 F.3d at 267-68 (applying federal law); Bridas, 345 F.3d at 355-63 (applying federal law); Fleetwood Enters. v. Gaskamp, 280 F.3d 1069, 1074-77 (5th Cir. 2002) (applying state law); Roosth, 27 S.W.3d at 208-09 (applying state law); Dyer, 969 S.W.2d at 520 [**15] (applying state law); Lakeland Anesthesia, Inc. v. United Healthcare of La., Inc., 871 So. 2d 380, 392-95 (La. Ct. App. 2004) (applying federal and state law). The FAA does not specify whether state or federal law governs, and the United States Supreme Court has not directly addressed the issue. Federal courts of appeals, however, have frequently applied federal substantive law when deciding whether a non-signatory must arbitrate. See, e.g., Bailey, 364 F.3d at 267 n.6; Bridas, 345 F.3d at 355-63; InterGen N.V. Page 8 of 12 166 S.W.3d 732,[*738] ; 2005 Tex. LEXIS 393, **15 v. Grina, 344 F.3d 134, 142-50 (1st Cir. 2003); Dominion Austin Partners v. Emerson, 248 F.3d 720, 728 (8th Cir. 2001); Int’l Paper Co., 206 F.3d at 417 n.4; Thomson-CSF, 64 F.3d at 778-79. The Fourth and Fifth Circuits have reasoned that ″’federal substantive law of arbitrability’. . . resolves this question,″ because the determination of whether a non-signatory is bound ″presents no state [*739] law question of contract formation or validity.″ R.J. Griffin & Co. v. Beach Club II Homeowners Ass’n, 384 F.3d 157, 160 n.1 (4th Cir. 2004) (quoting Int’l Paper Co., 206 F.3d at 417 n.4); [**16] Bailey, 364 F.3d at 267 n.6 (same). We are not convinced that state law plays no role in making this determination. See Roosth, 27 S.W.3d at 208-09 (applying state law); Dyer, 969 S.W.2d at 520 (applying state law). Nevertheless, we are mindful of the extensive body of federal precedent that has explored the extent to which non-signatories can be compelled to arbitrate. Moreover, we recognize that it is important for federal and state law to be as consistent as possible in this area, because federal and state courts have concurrent jurisdiction to enforce the FAA. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). Our decision today rests on state law, but it is informed by persuasive and well-reasoned federal precedent. HN4 Federal courts have recognized six theories, arising out of common principles of contract and agency law, that may bind non-signatories to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary. See, e.g., Bridas, 345 F.3d at 356. 7 [**18] Here, [**17] MacGregor asserts that KBR is bound to arbitrate under the doctrine of ″direct benefits estoppel″--a type of equitable estoppel that federal courts apply in the arbitration context. See, e.g., Bailey, 364 F.3d at 268; Bridas, 345 F.3d at 361-62; DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199-201 (3d Cir. 2001); Int’l Paper Co., 206 F.3d at 418. 8 Under ″direct benefits estoppel,″ a non-signatory plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate disputes. R.J. Griffin & Co. at 160-61; Bailey, 364 F.3d at 268; Int’l Paper Co., 206 F.3d at 418 (″The doctrine recognizes that a party may be estopped from asserting that the lack of his signature precludes enforcement of the contract’s arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.″); Thomson-CSF, 64 F.3d at 778. Thus, a non-signatory plaintiff may be compelled to arbitrate if it seeks to enforce terms of a contract containing an arbitration provision. See R.J. Griffin & Co., 384 F.3d at 161-64; Bailey, 364 F.3d at 268; Bridas, 345 F.3d at 361-62 [**19] (″Direct benefits estoppel applies when a nonsignatory ’knowingly exploits the agreement containing the arbitration clause.’″) (quoting E.I. DuPont de Nemours & Co., 269 F.3d at 199); Int’l Paper Co., 206 F.3d at 418. For example, if a non-signatory’s breach-of-warranty and breach-of-contract claims are based on certain terms of a written contract, then the non-signatory cannot avoid an arbitration provision within that contract. See Int’l Paper Co., 206 F.3d at 418. If, however, a non-signatory’s [*740] claims can stand independently of the underlying contract, then arbitration generally should not be compelled under this theory. See, e.g., R.J. Griffin & Co., 384 F.3d at 164; Bridas, 345 F.3d at 362. Consistent with the federal doctrine of ″direct benefits estoppel,″ this Court has held that a non-signatory plaintiff may be compelled to arbitrate if its claims are ″based on a contract″ containing an agreement to arbitrate. In re FirstMerit Bank, 52 S.W.3d at 755 (″[A] litigant who sues based on a contract subjects him or 7 Most federal courts, however, list only five of these theories, omitting third-party beneficiary as a separate ground. See Local Union No. 38, Sheet Metal Workers’ Int’l Ass’n v. Custom Air Sys., Inc., 357 F.3d 266, 268 (2d Cir. 2004); Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003); Fleetwood, 280 F.3d at 1076; Employers Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir. 2001); Bel-Ray Co. v. Chemrite (PTY) Ltd., 181 F.3d 435, 446 (3d Cir. 1999); Int’l Paper Co., 206 F.3d at 417; Thomson-C.S.F., 64 F.3d at 776. 8 While not all federal courts use the phrase ″direct benefits estoppel,″ we adopt that terminology from Bridas to describe this form of estoppel. See 345 F.3d at 361-62. Page 9 of 12 166 S.W.3d 732,[*740] ; 2005 Tex. LEXIS 393, **19 herself to the contract’s terms.″). In FirstMerit Bank, the [**20] non-signatory plaintiffs sued the signatory defendant for, among other things, breach of contract, revocation of acceptance, and breach of warranty. Id. at 752-53, 755. By bringing the breach-of-contract and breach-of-warranty claims, the plaintiffs sought benefits that stemmed directly from the contract’s terms. We concluded that, by seeking to enforce the contract, the non-signatory plaintiffs ″subjected themselves to the contract’s terms, including the Arbitration Addendum.″ Id. at 756; see also Roosth, 27 S.W.3d at 208 (″The nonsignatory cannot enforce specific terms of the agreement while seeking to avoid the arbitration provision.″). The issue here is whether KBR sought to enforce terms of the fabrication subcontract by (1) bringing a quantum meruit claim against MacGregor, or (2) seeking a declaration that it possessed valid liens. We begin with quantum meruit. HN5 Quantum meruit is an equitable remedy that ″’is based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted.’″ Vortt Exploration Co., Inc. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944, 33 Tex. Sup. Ct. J. 409 (Tex. 1990) [**21] (quoting Truly v. Austin, 744 S.W.2d 934, 936, 31 Tex. Sup. Ct. J. 228 (Tex. 1988)). A party generally cannot recover under quantum meruit when there is a valid contract covering the services or materials furnished. Murray v. Crest Constr., Inc., 900 S.W.2d 342, 345, 38 Tex. Sup. Ct. J. 925 (Tex. 1995); Woodard v. S.W. States, Inc., 384 S.W.2d 674, 675, 8 Tex. Sup. Ct. J. 145 (Tex. 1964) (″Recovery on an express contract and on quantum meruit are inconsistent.″). A party to a contract may, however, seek alternative relief under both contract and quasi-contract theories. Pleading in the alternative does not defeat the effect of an arbitration clause that broadly covers all disputes between signatories that arise out of the underlying agreement. But in this case, KBR is not a signatory to the fabrication subcontract between MacGregor and Unidynamics; therefore, the scope of that subcontract’s arbitration clause does not answer whether KBR must arbitrate. To advance its estoppel theory, MacGregor contends that KBR’s quantum meruit claim is ″based on″ the fabrication subcontract in the sense that KBR’s labor and services were linked inextricably to that subcontract. It is true, of course, that KBR was [**22] fabricating trunks that were at the contract’s core and that, in performing the work, KBR relied on the fabrication subcontract’s specifications. However, HN6 under ″direct benefits estoppel,″ a non-signatory plaintiff cannot be compelled to arbitrate on the sole ground that, but for the contract containing the arbitration provision, it would have no basis to sue. The work to be performed under a second-tier subcontract will inherently be related to and, to a certain extent, defined by contracts higher in the chain. See BLACK’S LAW DICTIONARY 1464 (8th ed. 2004) (defining subcontractor as ″one who is awarded a portion of an existing contract by a contractor, esp. a general contractor″). If this were a sufficient basis for binding a non-signatory subcontractor, arbitration agreements would become easier to enforce than other contracts, counter to the FAA’s purpose. See InterGen, 344 F.3d at [*741] 145-46 (noting that federal courts have ″been hesitant to estop a nonsignatory seeking to avoid arbitration″). We conclude that, under ″direct benefits estoppel,″ although a non-signatory’s claim may relate to a contract containing an arbitration provision, that relationship does [**23] not, in itself, bind the non-signatory to the arbitration provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision. See Bailey, 364 F.3d at 268; MAG Portfolio Consult, GMBH v. Merlin Biomed Group LLC, 268 F.3d 58, 61 (2d Cir. 2001) (″The benefits must be direct--which is to say, flowing directly from the agreement.″); Int’l Paper Co., 206 F.3d at 417-18; Thomson-CSF, 64 F.3d at 778-79; In re FirstMerit Bank, 52 S.W.3d at 755 . 9 9 Federal courts have also applied ″direct benefits estoppel″ to bind ″non-signatories who, during the life of the contract, have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the agreement.″ E.I. DuPont de Nemours & Co, 269 F.3d at 200; see also InterGen, 344 F.3d at 146 (holding equitable estoppel theory inapplicable to Page 10 of 12 166 S.W.3d 732,[*741] ; 2005 Tex. LEXIS 393, **24 [**24] In its quantum meruit claim against MacGregor, KBR seeks payment for services rendered. KBR provided services pursuant to its contract with Unidynamics. KBR’s asserted right to payment therefore stems directly from the KBR-Unidynamics contract, not the fabrication subcontract. The fabrication subcontract includes no provision for paying KBR. In fact, KBR is effectively precluded from asserting rights under that contract, which expressly provides that ″Approved use of any subcontractor creates no contractual relationship between the subcontractor and [MacGregor].″ 10 Thus, we conclude that the court of appeals abused its discretion to the extent it compelled KBR to arbitrate its quantum meruit claim against MacGregor. [**25] Having determined that KBR’s quantum meruit claim is not subject to arbitration, we turn to KBR’s lien-validity claims. KBR sought a judicial declaration that it possessed valid constitutional and warehouseman’s statutory liens. See TEX. CONST. art. XVI, § 37; TEX. BUS. & COM. CODE § 7.209(a)(1). HN9 The self-executing constitutional lien attaches to buildings and special-order articles that are made or repaired by mechanics, material men, and artisans who have a direct contractual relationship with the owner of the property. See TEX. CONST. art. XVI, § 37; CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 240, 46 Tex. Sup. Ct. J. 366 (Tex. 2002) (″For constitutional liens that [*742] are self-executing, there are no technical requirements . . . .″); First Nat’l Bank v. Whirlpool Corp., 18 Tex. Supp. 101, 517 S.W.2d 262, 268 (Tex. 1974) (holding that ″the constitutional lien on manufactured chattels is available . . . only upon articles made especially for a purchaser pursuant to a special order and in accordance with the purchaser’s plans or specifications″); Hayek v. W. Steel Co., 478 S.W.2d 786, 790, 15 Tex. Sup. Ct. J. 232 (Tex. 1972); Strang v. Pray, 89 Tex. 525, 35 S.W. 1054, 1056 (Tex. 1896). [**26] The warehouseman’s lien arises ″against the bailor on the goods covered by a warehouse receipt or on the proceeds thereof in his possession for charges for storage or transportation . . ., insurance, labor, or charges present or future in relation to the goods, and for expenses necessary for preservation of the goods . . . .″ TEX. BUS. & COM. CODE § 7.209(a)(1); see also Flores v. Didear Van & Storage Co., 489 S.W.2d 406, 407-09 (Tex. Civ. App.--Corpus Christi 1972, no writ) (discussing validity and enforceability of warehouseman’s lien). In this Court, MacGregor’s sole argument for compelling arbitration of KBR’s lien-validity claims is that the claims require a determination of ownership, and thus, they are ″based on″ the Title Agreement within the fabrication subcontract. ^[11] Ownership was, of course, a central issue before and during the Paris arbitration. When the arbitration award resolved the ownership dispute, it also eliminated the only rationale that MacGregor has asserted thus far for arbitrating the liens’ validity. non-signatory that did not seek to derive direct benefits from contracts ″during their currency″); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding non-signatory who received lower insurance rates and ability to sail under French flag due to contract was bound by arbitration clause within contract); In re VMS Ltd. P’ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by arbitration clause that only her husband signed as she accepted benefits of investment services). We do not reach this application of ″direct benefits estoppel″ here. MacGregor’s argument for arbitration rests not on KBR’s actions during the life of the fabrication subcontract, but on KBR’s attempt to benefit from that contract through litigation. 10 See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651, 42 Tex. Sup. Ct. J. 656 (Tex. 1999) (″HN7 The intention to contract or confer a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third party must be denied.″); City of LaPorte v. Taylor, 836 S.W.2d 829, 831 (Tex. App.--Houston [1st Dist.] 1992, no writ) (″Generally, HN8 in construction contracts, in the absence of an express agreement to the contrary, a subcontractor is not in privity with the owner . . . .″). 11 KBR’s petition included the following: 29. Ownership. Given the Defendants’ competing claims known to Plaintiff by the Defendants, Plaintiff seeks a declaration from the Court as to which Defendant(s) possesses the ownership rights, title and interest in the elevator shaft fabrications, component parts and other materials . . . . 30. Constitutional Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that Plaintiff possesses a valid constitutional lien to the elevator shaft fabrications, component parts and other materials pursuant to Article 16, § 37 of the Texas Constitution. Page 11 of 12 166 S.W.3d 732,[*742] ; 2005 Tex. LEXIS 393, **27 [**27] . We do not decide whether other arguments may exist to compel KBR to arbitrate the validity of its liens. To the extent a lien dispute still remains, the trial court is in the best position to determine, on principles we have declared today, whether it must be arbitrated. V Conclusion We conditionally grant mandamus relief and order the court of appeals to vacate its order compelling KBR to ″arbitrate all claims.″ See 126 S.W.3d at 184. The writ will issue only if the court of appeals fails to comply. Wallace B. Jefferson Chief Justice 31. Statutory Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that Plaintiff possesses a valid statutory lien to the elevator shaft fabrications, component parts and other materials pursuant to § 7.209 of the Texas Business and Commerce Code. (Emphasis added.) Page 12 of 12 | | Caution As of: September 1, 2015 4:47 PM EDT In re Koch Indus. Court of Appeals of Texas, Fourth District, San Antonio April 18, 2001, Delivered ; April 18, 2001, Filed No. 04-01-00067-CV Reporter 49 S.W.3d 439; 2001 Tex. App. LEXIS 2477 IN RE KOCH INDUSTRIES, INC., et al. Prior History: [**1] Original Mandamus Proceeding Arising from the 229th Judicial District Court, Duval County, Texas. Trial Court Nos. DC-99-104 & DC-99-465. Honorable Alex W. Gabert, Judge Presiding. Disposition: PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED. Core Terms arbitration, easement, abandonment, counterclaim, entities, parties, waived, arbitration provision, compel arbitration, discovery, arbitration clause, trial court, services, removal, motion to compel arbitration, arbitration agreement, federal court, scheduling, pipeline, lawsuit, district court judge, interstate commerce, employees, replacing, pet Case Summary Procedural Posture The Fourth District Court of Appeals (Texas) considered petitioners’ request for mandamus relief from the trial court’s order denying their motion to compel arbitration and additional parties were permitted to join as relators in a case where petitioners and additional parties were sued for damages arising from their actions in digging up a pipeline located in an easement and removing, rebuilding, or replacing it. Overview In 1931, a person granted a pipeline company an easement. The easement provision stated the pipeline company agreed to pay damages resulting from any acts in removing or replacing the pipeline. The easement provision also provided for arbitration if the parties could not agree on damages. The person’s land was subsequently conveyed to two respondent landowners, subject to the easement. Petitioners became a successor-in-interest to the pipeline company. Thereafter, petitioners, with the aid of additional parties, dug up the pipeline located in the easement and removed, rebuilt, or replaced it. Respondent landowners challenged petitioners’ actions by suing petitioners and additional parties for negligence and trespass. After petitioners’ motion to compel arbitration was denied, the appellate court found that the motion to compel should have been granted. ^[9] U.S.C.S. § 2 of the Federal Arbitration Act applied because petitioners showed that the pipeline involved interstate commerce. It also found petitioners neither abandoned nor waived their arbitration claim, and that petitioners and the additional parties were entitled to enforce the arbitration provision. 49 S.W.3d 439,[*439] ; 2001 Tex. App. LEXIS 2477, **1 Outcome Petition for writ of mandamus conditionally granted because petitioners and additional parties were entitled to enforce the arbitration provision in the easement granted to petitioner’s predecessor-in-interest. The writ was to be issued if the trial court failed to withdraw its order denying petitioners’ motion to compel arbitration. LexisNexis® Headnotes Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN1 The Federal Arbitration Act applies to a contract ″evidencing a transaction involving commerce.″ 9 U.S.C.S. § 2. The term ″involving″ has been broadly construed as the functional equivalent of ″affecting.″ A transaction involves commerce if the transaction turns out in fact to involve commerce even if the parties did not contemplate an interstate commerce connection. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Coercion & Duress > General Overview Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview Contracts Law > Defenses > Unconscionable > General Overview Evidence > Inferences & Presumptions > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement Real Property Law > Mobilehomes & Mobilehome Parks > General Overview HN2 A party seeking to compel arbitration must: (1) establish the existence of a valid, enforceable arbitration agreement; and (2) show that the claims asserted fall within the scope of that agreement. The party seeking arbitration has the initial burden to present evidence of an arbitration agreement. Once the existence of an arbitration agreement has been established, a presumption attaches favoring arbitration. The burden then shifts to the opposing party to present evidence that the agreement was procured in an unconscionable manner, induced or procured by fraud or duress, or that the other party has waived its right to compel arbitration under the agreement. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Standards of Review > Abuse of Discretion Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN3 Appellate courts have held that the proper standard for reviewing a trial court’s determination regarding the existence of an arbitration agreement is abuse of discretion. Under this standard, a trial court’s findings must Page 2 of 10 49 S.W.3d 439,[*439] ; 2001 Tex. App. LEXIS 2477, **1 be upheld unless it is determined that the trial court could reasonably have reached only one decision. With regard to legal issues, a clear failure by the trial court to analyze or apply the law correctly will constitutes an abuse of discretion. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Standards of Performance > Discharge & Termination Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN4 An arbitration agreement contained within a contract survives the termination or repudiation of the contract as a whole. When a party claims that the underlying contract has been terminated, the trial court’s duty is to determine the validity of the arbitration clause in the contract separately from the validity of the contract itself. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN5 Courts will not find that a party has waived a right to enforce an arbitration clause by merely taking part in litigation unless the party has substantially invoked the judicial process to the opposing party’s detriment. The test for determining waiver is two prong: (1) did the party seeking arbitration substantially invoke the judicial process; and (2) did the opposing party prove that it suffered prejudice as a result. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Evidence > Inferences & Presumptions > General Overview HN6 Whether a party has waived its right to compel arbitration is a question of law. A strong presumption against waiver exists. Waiver of an arbitration right must be intentional. Implying waiver from a party’s actions is appropriate only if the facts demonstrate that the party seeking to enforce arbitration intended to waive its arbitration right. The party seeking to prove waiver bears a ″heavy burden of proof,″ and any doubts regarding waiver are resolved in favor of arbitration. Civil Procedure > ... > Pleadings > Counterclaims > General Overview Civil Procedure > ... > Pleadings > Crossclaims > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Page 3 of 10 49 S.W.3d 439,[*439] ; 2001 Tex. App. LEXIS 2477, **1 HN7 Both federal and Texas courts recognize that the filing of a counterclaim is an action that may evidence waiver. However, not every counterclaim will amount to a waiver of arbitration. For instance, a counterclaim contesting the existence or scope of an arbitration agreement is not a waiver. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Mergers & Acquisitions Law > General Business Considerations > General Overview HN8 Federal courts have held that affiliated companies, including parent and subsidiary corporations, and successor corporations can be forced to arbitrate where the claims against them arise out of the same operative facts and are inherently inseparable from the claims against the affiliate or predecessor corporation. Administrative Law > Agency Adjudication > Alternative Dispute Resolution Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Estoppel > Equitable Estoppel > General Overview HN9 Application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more signatories to the contract. Counsel: APPELLANT ATTORNEY: David L. Hanna, Larry D. Warren, Nicole D. Lodge, Ruth G. Malinas, Ball & Weed, P.C., San Antonio, TX. Marc O. Knisely, Shannon W. Bangle, W. Timothy George, McGinnis, Lochridge & Kilgore, L.L.P., Austin, TX. Travis A. Pearson, Attorney At Law, Wichita, KS. Shannon H. Ratliff, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Austin, TX. Gene R. Ward, Hornblower, Manning & Ward, Corpus Christi, TX. APPELLEE ATTORNEY: Christopher A. Bandas, Paula A. Wyatt, Waytt, Wyatt & Cowley, Corpus Christi, TX. Gabriella S. Canalas, Attorney At Law, Alice, TX. G. Don Schauer, Ronald A. Simank, Schauer & Simank, P.C., Corpus Christi, TX. John Charles Lemon, Lemon & Gonzalez-Lemon, L.L.P., Alice, TX. Judges: Opinion by: Phil Hardberger, Chief Justice. Sitting: Phil Hardberger, Chief Justice, Alma L. Lopez, Justice, Sarah B. Duncan, Justice. Opinion by: Phil Hardberger Opinion [*441] This is an original proceeding in which Koch Industries, Inc., Koch Pipeline Company, L.P., Koch Petroleum Group, and Koch Gathering Systems, Inc. (collectively ″Koch″) seek mandamus relief from the trial court’s order denying their motion to compel arbitration. AFC Lease Services, Inc. (″AFC″) and its owner, Allen Yates (″Yates″), were granted permission to join this proceeding as relators. Koch, AFC and Yates were sued for damages arising from their actions in digging up a pipeline located in an easement and removing, rebuilding, or replacing it. This proceeding presents four issues: (1) whether the Federal Arbitration Act is applicable; (2) whether the claim that the easement Koch relied upon was abandoned is an arbitrable issue; (3) whether Koch waived its right to arbitration; and [**2] (4) whether all of the Koch entities, AFC and Yates are entitled to enforce the easement’s arbitration provision. We conclude that the trial court erred in denying the motion to compel arbitration. Therefore, we conditionally grant the writ of mandamus. BACKGROUND Page 4 of 10 49 S.W.3d 439,[*441] ; 2001 Tex. App. LEXIS 2477, **2 In 1931, Pattie Jo Hamilton granted Humble Pipe Line Company an easement. The easement provided: The said Humble Pipe Line Company hereby agrees to pay any damages which may result from its acts and/or omissions in laying, maintaining, operating, replacing, changing or removing said pipe line; said damages if not mutually agreed upon to be ascertained and determined by three disinterested persons, one of whom shall be appointed by the owners of said lands, their heirs or assigns, one by Humble Pipe Line Company, its successors and assigns, and the third by the two so appointed as aforesaid; and the award of such three persons shall be final and conclusive. The land owned by Hamilton was subsequently conveyed in undivided interests to Hector Lopez and Rachel Canales. The deeds conveying that interest stated that the conveyance was subject to the Humble easements. Koch became a successor in interest to Humble, [**3] and, in 1997, dug up the pipeline located in the easement and removed, rebuilt or replaced it. On April 14, 1999, Rachel Canales sued Koch for trespass and negligence, claiming that Koch’s negligent actions had damaged her land and that the easement had been abandoned, therefore, Koch’s actions also constituted a trespass. In May of 1999, Koch filed its original answer and its first requests for disclosures and admissions. On June 18, 1999, Koch filed a notice of removal. [*442] On September 28, 1999, Koch filed a report of meeting of counsel and joint discovery/case management plan. The report stated that Koch was informed that if the case was not settled, Canales would hire an attorney to represent her with regard to all matters, including the joint discovery/case management plan before the hearing scheduled for September 29, 1999; as a result, the joint case management plan could not be completed at the meeting. At the scheduling conference on September 29, 1999, the attorney retained by Canales asserted the position that the easement had been abandoned, which Koch refuted. In response to the district court judge’s inquiry about the validity and applicability of the arbitration provision, [**4] Koch’s attorney responded: ″We’re not sure yet, Your Honor.″ Koch’s attorney explained that Koch had not demanded that Canales appoint someone to evaluate her damage because it believed that the misunderstanding could be resolved at the Rule 26 meeting. Koch’s attorney further stated: ″As far as whether or not there’s a binding arbitration requirement, I think that’s something that all of us will need to pay particular consideration to.″ The district court judge concluded the hearing by ordering the parties to file statements concerning whether Hector Lopez needed to be joined as a party. In addition, the district court judge ordered that any intervention by Terry Canales and a new case management plan were to be filed within ten days. Koch subsequently filed a statement of non-opposition to the joinder of the Lopezes as plaintiffs. Canales filed a motion for leave to file an amended petition to join additional defendants, and Terry Canales filed a motion for leave to intervene. Koch filed an opposition to Canales’s motion to join additional defendants. The Lopezes filed a response to the original petition and a motion to remand. On November 29, 1999, a second scheduling conference [**5] was held. When the issue of abandonment was again raised, the district court judge stated: ″That’s almost getting further than I can go today because I’ve got to make sure whether or not you’re even in the right court, and that’s what I’m struggling with today.″ The district court judge concluded the hearing by ordering four depositions per side limited to the jurisdictional issue. In December of 1999, Koch filed an answer and counterclaim for declaratory judgment. Koch’s pleading stated that the declaratory judgment is necessary because the plaintiffs complain that Koch trespassed on their property, Page 5 of 10 49 S.W.3d 439,[*442] ; 2001 Tex. App. LEXIS 2477, **5 while Koch maintains it has a valid easement. In December of 1999 and January of 2000, Koch served discovery requests and deposition notices on Hector Lopez and the Canaleses. On December 9, 1999, the Canaleses filed a second lawsuit against other Koch defendants, Koch’s independent contractor (AFC), and Yates relating to the same alleged trespass and negligence. The second lawsuit also was removed to federal court by Koch. In February of 2000, the Canaleses filed their motion to remand both lawsuits. In March of 2000, Koch filed its opposition to the motion to remand. On March 16, 2000, a [**6] third scheduling conference was held. At the end of the hearing, the district court judge entered a ruling consolidating both pending lawsuits and remanding them to state court. After the cause was remanded, the Canaleses filed an amended petition, naming numerous Koch entities, AFC, Yates, and the Lopezes as defendants. On April 20, 2000, Koch sent a letter to the Canaleses’ [*443] attorney demanding arbitration. When the Canaleses refused to arbitrate, Koch filed a motion to compel arbitration on May 5, 2000. Sometime thereafter, Hector Lopez filed a cross-claim against the Koch entities, AFC and Yeats. On May 31, 2000, Koch filed a motion to compel arbitration of Lopez’s cross-claim. Koch’s motions were set for a hearing on November 29, 2000. The Canaleses responded to the Koch’s motion to compel, claiming (1) Koch waived its right to arbitrate; (2) whether the easement had been abandoned was not an arbitrable issue; and (3) Koch did not have standing to invoke the arbitration provision of the easement. The Lopezes also filed a response to the motion to compel, claiming abandonment, waiver, absence of standing and prejudice. The trial court denied Koch’s motions to compel arbitration. [**7] APPLICABILITY OF FEDERAL ARBITRATION ACT Koch contends that the Federal Arbitration Act applies because evidence was introduced in Koch’s pleadings that employees from out of state were sent to Texas to work on the pipeline and materials and services were purchased from out-of-state companies to complete the work. The Canaleses contend that Koch failed to introduce any evidence of interstate commerce. HN1 The Federal Arbitration Act applies to a contract ″evidencing a transaction involving commerce.″ 9 U.S.C. § 2. The term ″involving″ has been broadly construed as the functional equivalent of ″affecting.″ Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 274-75, 130 L. Ed. 2d 753, 115 S. Ct. 834 (1995). A transaction involves commerce if the transaction turns out in fact to involve commerce even if the parties did not contemplate an interstate commerce connection. Id. at 282. In Dobson, the Court held that the transaction in that case, a contract involving a lifetime ″Termite Protection Plan″ for a house located in Alabama, involved interstate commerce. Id. at 283. The Court concluded, ″In [**8] addition to the multistate nature of Terminix and Allied-Bruce, the termite treating and house-repairing material used by Allied-Bruce in its (allegedly inadequate) efforts to carry out the terms of the Plan, came from outside Alabama.″ Similarly, the Texas Supreme Court has held that a contract involving renovation work on Houston apartments to be done by a Texas business for Georgia owners involved interstate commerce. In re L & L Kempwood Associates, L.P., 9 S.W.3d 125, 127 (Tex. 1999). In this case, the transaction involved the removal and replacement of pipeline in Texas. A Texas entity, AFC, was engaged to perform the work, and Koch employees from Wichita, Kansas oversaw the project. A Kansas entity was retained as the inspector for the project. In addition, employees of an Oklahoma entity also provided services. The Canaleses contend that Koch failed to introduce any evidence of interstate commerce; however, the record contains two affidavits from Koch employees, detailing the work performed by out-of-state Page 6 of 10 49 S.W.3d 439,[*443] ; 2001 Tex. App. LEXIS 2477, **8 employees and entities. Although the Canaleses objected to the affidavits, the trial court deferred its ruling on the objection when it was presented, but [**9] never issued a ruling prior to issuing its order. Therefore, the objection was waived. See TEX. R. APP. P. 33.1(a); Dolcefino v. Randolph, 19 S.W.3d 906, 926 (Tex. App.--Houston [14th Dist.] 2000, pet. denied) (noting party asserting objection must obtain written ruling or risk waiver). Because the easement was a contract evidencing a transaction involving commerce, the Federal Arbitration Act applies. [*444] ARBITRABILITY OF ABANDONMENT CLAIM The Canaleses and the Lopezes contend that the easement Koch relied upon to enter the property had been abandoned. They further assert that the abandonment claim is not subject to arbitration. HN2 A party seeking to compel arbitration must: (1) establish the existence of a valid, enforceable arbitration agreement; and (2) show that the claims asserted fall within the scope of that agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999); Henry v. Gonzalez, 18 S.W.3d 684, 688 (Tex. App.--San Antonio 2000, pet. dism’d by agmt.). The party seeking arbitration has the initial burden to present evidence of an arbitration agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573; [**10] Henry v. Gonzalez, 18 S.W.3d at 688-89. Once the existence of an arbitration agreement has been established, a presumption attaches favoring arbitration. Henry v. Gonzalez, 18 S.W.3d at 689. The burden then shifts to the opposing party to present evidence that the agreement was procured in an unconscionable manner, induced or procured by fraud or duress, or that the other party has waived its right to compel arbitration under the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573; Henry v. Gonzalez, 18 S.W.3d at 689. HN3 This court has held that the proper standard for reviewing a trial court’s determination regarding the existence of an arbitration agreement is abuse of discretion. See ANCO Ins. Services of Houston, Inc. v. Romero, 27 S.W.3d 1, 5 (Tex. App.--San Antonio 2000, pet. denied); Hardin Const. Group, Inc. v. Strictly Painting, Inc., 945 S.W.2d 308, 312 (Tex. App.--San Antonio 1997, orig. proceeding [leave denied]). Under this standard, a trial court’s findings must be upheld unless it is determined that the trial court could reasonably have reached only one decision. [**11] See Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). With regard to legal issues, ″a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion.″ Id. at 840. In this case, Koch introduced into evidence the easement containing the arbitration provision. The Canaleses and the Lopezes countered that the arbitration provision was not enforceable because the easement had been abandoned. Koch primarily relies on two cases to support its position that the abandonment issue is arbitrable. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967), the United States Supreme Court held that a claim that a contract was fraudulently induced is subject to arbitration. The fraudulent inducement claim only becomes arbitrable ″if the claim is fraud in the inducement of the arbitration clause itself - an issue which goes to the ’making’ of an agreement to arbitrate.″ Id. at 403-04. In Lawrence v. Comprehensive Business Services Co., 833 F.2d 1159, 1161-62 (5th Cir. 1987), the Fifth Circuit cited Prima Paint [**12] in holding that a claim that a contract is illegal would similarly be subject to arbitration. In this case, Koch argues the abandonment claim is also subject to arbitration because the abandonment claim would void the easement as a whole. In General Guaranty Ins. Co. v. New Orleans General Agency, Inc., the Fifth Circuit directly addressed whether a claim that a contract had been abandoned was arbitrable. 427 F.2d 924, 928-930 (5th Cir. 1970). In that case, one of the parties claimed that the first agreement between the parties containing an arbitration clause was Page 7 of 10 49 S.W.3d 439,[*444] ; 2001 Tex. App. LEXIS 2477, **12 abandoned when the parties entered into a second agreement that did not contain [*445] an arbitration clause. See id. at 926. The district court’s order provided: The question is then presented - should the parties be directed to arbitrate? We think not. There is a possibility that the contract has been abandoned. If this were the case, it would be because of some subsequent agreement over which it is agreed the arbitrator has no jurisdiction. That issue must be determined by the Court, and to avoid a useless arbitration, should be, we believe, determined now. . . . IT IS FURTHER ORDERED that a [**13] separate trial of the issue of whether the contract was abandoned or merely terminated with reservation of rights be held. The Fifth Circuit agreed with the district court, noting, ″We do not read [Prima Paint] as depriving the District Court of jurisdiction to decide the abandonment issue.″ Id. at 930 n.9. In Henry v. Gonzalez, this court held that ″HN4 an arbitration agreement contained within a contract survives the termination or repudiation of the contract as a whole.″ 18 S.W.3d at 690. When a party claims that the underlying contract has been terminated, the trial court’s duty is to determine the validity of the arbitration clause in the contract separately from the validity of the contract itself. Id. In this case, the Canaleses and the Lopezes only challenged the validity of the easement, not the validity of the arbitration clause contained in the easement. Unlike General Guaranty, the parties did not enter into a subsequent easement that did not contain an arbitration provision. Therefore, the abandonment issue in this case is an issue relating to the validity of the easement or the abandonment of the contract as a whole, [**14] not an abandonment of the arbitration clause. Accordingly, the abandonment issue is an arbitrable issue, and the trial court did not have the discretion to deny the motion to compel based on the abandonment theory. WAIVER The Canaleses and the Lopezes further assert that Koch waived its right to compel arbitration. HN5 Courts will not find that a party has waived a right to enforce an arbitration clause by merely taking part in litigation unless the party has substantially invoked the judicial process to the opposing party’s detriment. See Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir. 1991). The test for determining waiver is two prong: (1) did the party seeking arbitration substantially invoke the judicial process; and (2) did the opposing party prove that it suffered prejudice as a result? See Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). HN6 Whether a party has waived its right to compel arbitration is a question of law. See Walker v. J.C. Bradford & Co., 938 F.2d at 577; In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). A strong presumption against waiver exists. [**15] See Walker v. J.C. Bradford & Co., 938 F.2d at 577; Prudential Securities, Inc. v. Marshall, 909 S.W.2d at 898. Waiver of an arbitration right must be intentional. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996) (orig. proceeding). Implying waiver from a party’s actions is appropriate only if the facts demonstrate that the party seeking to enforce arbitration intended to waive its arbitration right. Id. The party seeking to prove waiver bears a ″heavy burden of proof,″ and any doubts regarding waiver are resolved in favor of arbitration. See Walker v. J.C. Bradford & Co., 938 F.2d at 577; In re Bruce Terminix Co., 988 S.W.2d at 705. The Canaleses and the Lopezes rely on the actions taken by Koch during the federal proceedings to support their [*446] waiver claim, specifically: (1) Koch’s failure to assert its right to compel arbitration during the pendency of the federal proceedings; (2) Koch’s failure to assert its right to compel arbitration when it filed its answers; (3) Koch’s filing of counterclaims seeking declaratory relief regarding the enforceability of the easement; and (4) Koch’s [**16] participation in discovery. Page 8 of 10 49 S.W.3d 439,[*446] ; 2001 Tex. App. LEXIS 2477, **16 Koch filed its notice of removal within two months of the date the lawsuit was filed. See In re Winter Park Const., Inc., 30 S.W.3d 576, 579 (Tex. App.--Texarkana 2000, no pet.) (right to arbitrate not waived based on temporary removal to federal court and participation in discovery). The discovery in which the parties engaged was limited to the issue of federal diversity jurisdiction. See Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986) (holding pre-trial discovery related to non-arbitrable subject matter does not constitute waiver). All of the federal court’s actions were mainly routine scheduling and discovery orders restricted to resolving the jurisdictional issue. See Walker v. J.C. Bradford & Co., 938 F.2d at 577 (no waiver where district court’s actions during thirteen month delay mainly were routine scheduling orders and discovery continuances). Although Koch did not assert its right to compel arbitration during the pendency of the federal court proceedings, Koch did not rule out that possibility. In response to the court’s inquiry, Koch stated that it was not certain regarding [**17] the validity and applicability of the arbitration provision. Koch’s attorney further stated: ″As far as whether or not there’s a binding arbitration requirement, I think that’s something that all of us will need to pay particular consideration to.″ The most problematic action taken by Koch was the filing of the counterclaims. HN7 Both Federal and Texas courts recognize that the filing of a counterclaim is an action that may evidence waiver. See Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656, 661-62 (5th Cir. 1995); Trade Arbed, Inc. v. S.S. Ellispontos, 482 F. Supp. 991, 998-99 (S.D. Tex. 1980); Sedillo v. Campbell, 5 S.W.3d 824, 827 (Tex. App.--Houston [14th Dist.] 1999, no pet.); Central Nat’l Ins. Co. v. Lerner, 856 S.W.2d 492, 494 (Tex. App.--Houston [1st Dist.] 1993, orig. proceeding). However, not every counterclaim will amount to a waiver of arbitration. See Sedillo, 5 S.W.3d at 828; see also Williams v. Cigna Financial Advisors, Inc., 56 F.3d at 661-62 (no waiver despite counterclaim). In Sedillo, the court explained, ″For instance, a counterclaim contesting [**18] the existence or scope of an arbitration agreement is not waiver.″ 5 S.W.3d at 828. In this case, Koch’s counterclaim requested declaratory relief relating to the ongoing validity of the easement containing the arbitration provision. Therefore, the counterclaim related to the existence of the arbitration agreement. Although the Lopezes contend that the filing of the counterclaim necessarily resulted in waiver as to their claims since the Lopezes did not have a claim filed against Koch at the time the counterclaim was filed, the Lopezes were joint owners of the property in question whose rights were necessarily implicated. In addition, considerable confusion existed as to the Lopezes’ status in federal court. Under these circumstances, Koch’s counterclaim is not evidence of waiver. The federal court remanded the cause to state court in March of 2000. This was approximately one year after the lawsuit was originally filed. One month later, Koch asserted its right to compel arbitration. Although the decision whether to arbitrate is ″one best made at the onset of the case, and not part of the way through,″ Walker v. J.C. Bradford & Co., 938 F.2d at 577, Koch’s [**19] actions did not [*447] substantially invoke the judicial process. As a result, Koch did not waive the right to arbitrate. KOCH ENTITIES, AFC AND YATES With regard to the ability of each of the Koch entities to enforce arbitration, HN8 federal courts have held that affiliated companies, including parent and subsidiary corporations, and successor corporations can be forced to arbitrate where the claims against them arise out of the same operative facts and are inherently inseparable from the claims against the affiliate or predecessor corporation. See, e.g., J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir. 1988); Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976). With regard to the claims against AFC and Yates, those claims are based on actions taken pursuant to a contract between AFC and Koch. The Fifth Circuit has adopted the equitable estoppel theory announced by the Eleventh Circuit in dealing with this type of situation. See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000). ″HN9 Application of equitable estoppel is warranted when the signatory [**20] to the contract Page 9 of 10 49 S.W.3d 439,[*447] ; 2001 Tex. App. LEXIS 2477, **20 containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more signatories to the contract.″ Id. (quoting MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)). In this case, Koch contracted AFC to perform services, and the claims against AFC and Yates not only relate to the services AFC was contracted to perform but also relate to ″acts and/or omissions in … maintaining .. replacing, changing, or removing [the pipeline],″ which are the very claims that the easement requires to be submitted to arbitration. We hold that the Koch entities, AFC and Yates are entitled to enforce the arbitration provision. CONCLUSION Because the trial court erred in denying Koch’s motion to compel arbitration, we conditionally grant the writ of mandamus. The writ will only issue if the trial court fails to withdraw its order denying Koch’s motion to compel arbitration. PHIL HARDBERGER, CHIEF JUSTICE Page 10 of 10 | | Caution As of: September 1, 2015 4:45 PM EDT In re Oakwood Mobile Homes, Inc. Supreme Court of Texas February 11, 1999, Delivered No. 98-0662 Reporter 987 S.W.2d 571; 1999 Tex. LEXIS 14; 42 Tex. Sup. J. 377 IN RE OAKWOOD MOBILE HOMES, INC., RELATOR Disposition: [**1] Writ of mandamus conditionally granted.. Core Terms arbitration, unconscionable, arbitration agreement, trial court, mandamus, right to arbitration, motion to compel arbitration, initiate, parties, duress, waived Case Summary Procedural Posture In an appeal stemming from plaintiff mobile home buyers’ action to rescind a contract for the purchase of a mobile home from defendant seller, defendant sought review of the decision, by the Court of Appeals (Texas), denying defendant’s motion to compel arbitration and defendant’s petition for mandamus. Overview Defendant mobile home seller sought review of a decision denying defendant’s motion to compel arbitration and denying defendant’s petition for mandamus. The court held that defendant met its initial burden of presenting evidence of an arbitration agreement that governed the parties’ dispute. Thereafter, the burden was on plaintiffs to demonstrate the agreement was obtained in an unconscionable manner, induced by fraud or duress, or that defendant waived its right to arbitration. Plaintiffs’ contention that, without the arbitration provision, the purchase agreement would not have been approved was insufficient to support fraud or misrepresentation claims. Defendant’s failure to initiate arbitration upon receipt of plaintiffs’ complaints was not sufficient to establish waiver of defendant’s right to arbitration. The court held that plaintiffs failed to meet their burden of showing the arbitration agreement had been improperly obtained or waived and, as a result, it was an abuse of discretion to have denied defendant’s motion to compel arbitration. Outcome The court conditionally granted defendant a writ of mandamus because, after defendant met its burden of demonstrating the existence of an arbitration agreement governing the parties’ dispute, plaintiffs failed to meet their own burden of demonstrating the agreement had been obtained in an unconscionable manner, induced by fraud or duress, or that defendant had waived its right to arbitration. 987 S.W.2d 571,[*571] ; 1999 Tex. LEXIS 14, **1 LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN1 In Texas, mandamus relief is available to a party who is improperly denied arbitration under an agreement subject to the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN2 A party seeking to compel arbitration must establish the existence of an arbitration agreement, and show that the claims raised fall within the scope of that agreement. Civil Procedure > ... > Defenses, Demurrers & Objections > Affirmative Defenses > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN3 Once the party establishes a claim within the arbitration agreement, the trial court must compel arbitration and stay its own proceedings. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > Material Misrepresentations HN4 To establish fraud in the formation of an arbitration agreement, a party must prove, inter alia, that (1) a material misrepresentation was made, and (2) it was false. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview Page 2 of 6 987 S.W.2d 571,[*571] ; 1999 Tex. LEXIS 14, **1 Contracts Law > Formation of Contracts > Execution International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN5 Under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, state law should be applied to assess the validity of arbitration agreements if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. Contracts Law > ... > Affirmative Defenses > Coercion & Duress > General Overview Contracts Law > Defenses > Unconscionable > General Overview Contracts Law > Defenses > Unconscionable > Adhesion Contracts Contracts Law > Types of Contracts > Adhesion Contracts HN6 Adhesion contracts are not automatically unconscionable or void. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Defenses > Unconscionable > General Overview Contracts Law > Defenses > Unconscionable > Arbitration Agreements Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN7 There is nothing per se unconscionable about arbitration agreements. Contracts Law > ... > Affirmative Defenses > Coercion & Duress > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN8 Duress is defined as a threat to do some act which the threatening party has no legal right to do. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Waivers > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN9 Because public policy favors resolving disputes through arbitration, there is a strong presumption against the waiver of contractual arbitration rights. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Trials > Jury Trials > Province of Court & Jury Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN10 Whether a party’s conduct waives its arbitration rights is a question of law. Page 3 of 6 987 S.W.2d 571,[*571] ; 1999 Tex. LEXIS 14, **1 Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN11 The court should resolve any doubts about waiver in favor of arbitration. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN12 Waiver may be found when it is shown that a party acted inconsistently with its right to arbitrate and such actions prejudiced the other party. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN13 Absent an agreement to the contrary, a party against whom a claim is asserted does not waive its right to arbitrate by failing to initiate arbitration of that claim. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Remedies > Writs > General Overview Civil Procedure > ... > Writs > Common Law Writs > Mandamus International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN14 A party erroneously denied the right to arbitrate under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, has no adequate remedy on appeal, and mandamus relief is appropriate. Opinion [*573] ON PETITION FOR WRIT OF MANDAMUS Per Curiam Opinion In this original proceeding, Oakwood Mobile Homes, Inc. seeks relief from the denial of its motion to compel arbitration. Because the trial court abused its discretion in denying arbitration, and because Relator has no adequate remedy by appeal, we conditionally grant the writ of mandamus. Shirley and David Brandon purchased a mobile home from Oakwood. Three days before completing the sales transaction, and again on the closing date, the Brandons signed Oakwood’s Arbitration Agreement. This Agreement required the parties to submit all disputes arising out of the sale to binding arbitration under American Arbitration Association rules. When they began experiencing problems with the mobile home, the Brandons twice wrote to Alan Warren and Charles Page 4 of 6 987 S.W.2d 571,[*573] ; 1999 Tex. LEXIS 14, **1 Boyner of Oak Creek Homes, the manufacturer of the home, and requested that they arrange an arbitration hearing. ^[1] Receiving no response, the Brandons sued Oakwood for rescission of the contract. [**2] Oakwood moved to compel arbitration under the Agreement. In support of its motion, Oakwood submitted a copy of the Agreement, together with an affidavit attesting that it was voluntarily executed and negotiated at arm’s length. The Brandons responded, claiming that the Agreement was unconscionable and void for fraud, duress, and misrepresentation. In support of their contentions, the Brandons submitted affidavits stating that they were told ″we had to sign [the Agreement] or we couldn’t finance the house,″ and ″we had to sign the arbitration provision or we could not take possession of the house.″ The Brandons also claimed Oakwood waived the right to compel arbitration by failing to respond to their letters requesting an arbitration hearing. The trial court denied Oakwood’s motion to compel arbitration. The court of appeals concluded that the Brandons’ uncontroverted affidavits provided sufficient evidence for the trial court’s summary disposition of the motion to compel arbitration, and denied Oakwood’s petition for mandamus. In re Oakwood Mobile Homes, 1998 Tex. App. LEXIS 2613, S.W.2d . Oakwood now petitions this Court for mandamus relief. ^[2] [**3] HN2 A party seeking to compel arbitration must establish the existence of an arbitration agreement, and show that the claims raised fall within the scope of that agreement. See Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996). HN3 Once the party establishes a claim within the arbitration agreement, the trial court must compel arbitration and stay its own proceedings. Id. Here, Oakwood met its burden of presenting evidence of an arbitration agreement that governs the dispute between the parties. See Weekley Homes, Inc. v. Jennings, 936 S.W.2d 16, 18 (Tex. App.--San Antonio 1996, writ denied) (per curiam). The burden then shifted to the Brandons to present evidence that the Agreement was procured in an unconscionable manner, induced or procured by fraud or duress, 3 or that Oakwood had waived arbitration under the Agreement. Id. Oakwood contends the Brandons presented no evidence to support their claims; therefore, they did not satisfy their burden and the trial court erred in denying arbitration. We agree. [**4] HN4 To establish fraud in the formation of an arbitration agreement, a party must [*574] prove, inter alia, that (1) a material misrepresentation was made, and (2) it was false. See Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997); see also Perry v. Thomas, 482 U.S. 483, 492 n. 9, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987) (noting that HN5 under the FAA, state law should be applied to assess the validity of arbitration agreements ″if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally″). The Brandons’ fraud and misrepresentation claims rest solely on their contention that Oakwood represented the sale would not go through if they did not sign the Agreement. Because neither party asserts that these representations were false, they cannot support the Brandons’ fraud or misrepresentation claims. ^[1] Although there is some confusion in the record as to which entity, Oak Creek or Oakwood, employed Warren and Boyner, this determination is not material to our analysis. ^[2] HN1 In Texas, mandamus relief is available to a party who is improperly denied arbitration under an agreement subject to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16. See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88 (Tex. 1996). Neither party disputes the applicability of the FAA. ^[3] As the court of appeals correctly notes in its opinion, whether the terms and conditions of an arbitration agreement are themselves unconscionable is a matter which must be submitted to the designated arbitrator. Here, however, the Brandons complain of procedural unconscionability that relates to the actual making or inducement of the Arbitration Agreement. Claims of procedural unconscionability are reserved for judicial review. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1966) (relying on FAA, 9 U.S.C. § 4); In re Foster Mold, Inc., 979 S.W.2d 665, 667-68 (Tex. App.--El Paso 1998) (orig. proceeding). Page 5 of 6 987 S.W.2d 571,[*574] ; 1999 Tex. LEXIS 14, **4 In support of their claims of unconscionability and duress, the Brandons contend the Agreement ″is a classic example of a contract of adhesion where one party . . . had absolutely no bargaining power or ability to change the contract terms.″ Even if this contention is true, however, HN6 adhesion contracts are not automatically unconscionable or void. See Merrill [**5] Lynch, Pierce, Fenner & Smith, Inc. v. Security Pac. Corp., 961 F.2d 1148, 1154 (5th Cir. 1992), cert. denied, 506 U.S. 1079, 113 S. Ct. 1046, 122 L. Ed. 2d 355 (1993) (citing 6A ARTHUR CORBIN, CONTRACTS § 1376, at 20-21 (1962) & 7-9 (Supp. 1991)). Moreover, ″HN7 there is nothing per se unconscionable about arbitration agreements.″ EZ Pawn, 934 S.W.2d at 90; see Emerald Tex., Inc. v. Peel, 920 S.W.2d 398, 402-403 (Tex. App.--Hous. [1 Dist.] 1996, no writ) (holding that to find the arbitration provision unconscionable under the evidence presented would negate the public policy in favor of arbitration). The Brandons did not present the trial court with evidence of unconscionability or duress in their affidavits. See Tenneco Oil Co. v. Gulsby Eng’g, Inc., 846 S.W.2d 599, 604 (Tex. App.--Hous. [14 Dist.] 1993, writ denied) (HN8 defining ″duress″ as ″a threat to do some act which the threatening party has no legal right to do″). Accordingly, the Brandons failed to meet their burden. The Brandons next contend Oakwood waived its right to arbitrate when it failed to respond to their requests for arbitration. HN9 Because public policy favors resolving disputes through arbitration, there is a strong presumption [**6] against the waiver of contractual arbitration rights. See In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998); Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). HN10 Whether a party’s conduct waives its arbitration rights is a question of law. See In re Bruce Terminix Co., 988 S.W.2d at 703. HN11 We should resolve any doubts about waiver in favor of arbitration. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). HN12 Waiver may be found when it is shown that a party acted inconsistently with its right to arbitrate and such actions prejudiced the other party. See In re Bruce Terminix Co., 988 S.W.2d at 704. The Brandons contend Oakwood’s failure to respond to their letters requesting arbitration was inconsistent with Oakwood’s right to arbitrate. However, in In re Bruce Terminix Co., we held that, HN13 absent an agreement to the contrary, ″a party against whom a claim is asserted does not waive its right to arbitrate by failing to initiate arbitration of that claim.″ In re Bruce Terminix Co., 988 S.W.2d at 706. It was never Oakwood’s burden under the Agreement [**7] to initiate the arbitration process against itself or assist the Brandons in doing so. The Agreement specifically provides that the parties shall arbitrate in accordance with ″the applicable rules of the American Arbitration Association.″ 4 By agreeing to these rules, the parties placed the burden of initiating arbitration on the claimant, in this instance the Brandons. Accordingly, Oakwood’s failure to initiate arbitration in response to the Brandons’ letters is not a waiver as a matter of law. We conclude that the trial court abused its discretion by denying Oakwood’s motion to compel arbitration. HN14 A party erroneously [*575] denied the right to arbitrate under the FAA has no adequate remedy on appeal, and mandamus relief is appropriate. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272-73 (Tex. 1992). Accordingly, without hearing oral argument, TEX. R. APP. P. 52.8(c), we conditionally [**8] grant the writ of mandamus. We are confident the trial court will grant Oakwood’s motion to compel arbitration in accordance with this opinion. We instruct the clerk to issue the writ only if the trial court fails to do so. OPINION DELIVERED: February 11, 1999 4 Rule 6(a) of the AAA’s Commercial Arbitration Rules states the procedure to be followed by the initiating party or ″claimant.″ Page 6 of 6 | | Positive As of: September 1, 2015 4:56 PM EDT In re Olshan Found. Repair Co., LLC Supreme Court of Texas March 23, 2010, Argued; December 3, 2010, Opinion Delivered NOS. 09-0432, 09-0433, 09-0474, 09-0703 Reporter 328 S.W.3d 883; 2010 Tex. LEXIS 897; 54 Tex. Sup. J. 300 IN RE OLSHAN FOUNDATION REPAIR COMPANY, LLC AND OLSHAN FOUNDATION REPAIR COMPANY OF DALLAS, LTD., RELATORS Subsequent History: Released for Publication January 14, 2011. Prior History: In re Olshan Found. Repair Co., LLC, 2010 Tex. LEXIS 39 (Tex., Jan. 15, 2010) In re Olshan Found. Repair Co., LLC, 2010 Tex. LEXIS 37 (Tex., Jan. 15, 2010) In re Olshan Found. Repair Co., LLC, 2010 Tex. LEXIS 48 (Tex., Jan. 15, 2010) In re Olshan Found. Repair Co., LLC, 2010 Tex. LEXIS 40 (Tex., Jan. 15, 2010) Core Terms arbitration, arbitration agreement, unconscionable, parties, contracts, consumer, homeowners, trial court, costs, claimant, unenforceable, arbitration clause, disputes, cases, choice-of-law, arbitral forum, preempts, void, compel arbitration, plea in abatement, expensive, deposit, courts, rights, arbitration costs, court of appeals, state law, vindicate, damages, invoice Case Summary Procedural Posture In consolidated cases, relator repair companies sought mandamus relief from orders of respondent trial courts (Texas), which denied its pleas in abatement and refused to compel arbitration of real party in interest homeowners’ claims for breach of contract, breach of warranty, negligence, violations of the Texas Deceptive Trade Practices Act, and violations of the Texas Home Solicitation Act arising from four contracts to repair home foundations. Overview One of the contracts specified arbitration pursuant to the Texas General Arbitration Act (TAA). The other three contracts contained a reference to the arbitration laws of the state but did not specify the governing laws. The court held that the Federal Arbitration Act (FAA) governed the contracts that referred to the arbitration laws of the state because the FAA was part of the arbitration laws in Texas and was thus applicable in the absence of further language specifically excluding its application. In those three cases, the FAA preempted Tex. Civ. Prac. & Rem. Code Ann. § 171.002(a)(2), which rendered unenforceable the contract that specified application of the 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 TAA in the other case. The court further held that the contracts governed by the FAA were not unconscionable under Tex. Bus. & Com. Code Ann. § 2.302 and the case law. Although the homeowners argued that the cost of arbitration would be prohibitive, their evidence of arbitration invoices for two unrelated cases did not meet their burden of presenting specific evidence that their arbitration fees would be excessive when compared to the expected cost of litigation, the amount of their claims, or their ability to pay. Outcome The court denied mandamus relief with regard to the case in which the agreement specified arbitration pursuant to the TAA; conditionally granted mandamus relief in the cases where the FAA governed; and remanded to the trial court, with directions to conduct further proceedings, each of the cases where the FAA governed. LexisNexis® Headnotes Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN1 Mandamus will not issue unless: (1) the trial judge has committed a clear abuse of discretion; and (2) there is no adequate remedy on appeal. A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable it amounts to a clear and prejudicial error of law or it clearly fails to correctly analyze or apply the law. The second requirement for mandamus relief, that the relator has no adequate remedy by appeal, has no comprehensive definition. However, case law has determined that relators have no adequate remedy by appeal when a trial judge erroneously refuses to compel arbitration under the Federal Arbitration Act. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration HN2 Trial courts abuse their discretion by refusing to compel arbitration if the Federal Arbitration Act preempts the Texas General Arbitration Act and the arbitration agreements are not unconscionable. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods HN3 The Texas General Arbitration Act renders arbitration agreements unenforceable if the agreements containing the arbitration clauses are agreements for services in which the total consideration to be furnished by the individual is not more than $ 50,000 and the agreements are not in writing, signed by each party, and each party’s attorney. Tex. Civ. Prac. & Rem. Code Ann. § 171.002(a)(2). Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Constitutional Law > Supremacy Clause > Federal Preemption HN4 9 U.S.C.S. § 2 preempts state law that would otherwise render arbitration agreements unenforceable in a contract involving interstate commerce. The Federal Arbitration Act (FAA) was designed to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate, and place such agreements upon the same footing as other contracts. The FAA preempts parts of the Texas General Arbitration Act, including Tex. Civ. Prac. & Rem. Code Ann. § 171.002(a)(2). But the FAA does not confer a right to compel arbitration of any dispute at any time. The FAA policy is simply to ensure that private agreements to arbitrate are enforced according to their terms. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Constitutional Law > Supremacy Clause > Federal Preemption Page 2 of 19 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 HN5 The Federal Arbitration Act (FAA) preempts state laws which require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration. But the FAA does not prevent the enforcement of agreements to arbitrate under different rules than those set forth in the act itself. Arbitration under the act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted. By permitting the courts to rigorously enforce such agreements according to their terms, courts give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind by the FAA. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN6 Courts treat arbitration agreements as other contracts in applying the legal rules to interpret them. The goal is to discern the true intentions of the parties, as the primary purpose of the Federal Arbitration Act is to ensure private agreements to arbitrate are enforced according to their terms, no more, no less. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN7 An agreement containing a general choice-of-law provision stating that the entire contract will be governed by the law of the place where the project is located does not preclude application of the Federal Arbitration Act (FAA). When the language of the provision includes federal law, further language specifically excluding application of the FAA is necessary for a court to apply the Texas General Arbitration Act to the FAA’s exclusion. Absent such an exclusion, a court will not read the choice-of-law clause as having such an effect. Rather, a general choice-of-law provision may reasonably be read as merely a substitute for the conflict-of-laws analysis that otherwise would determine what law to apply to disputes. Courts apply the FAA unless language in the arbitration agreement indicates its exclusion. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN8 Courts rarely read general choice-of-law provisions to choose state law to the exclusion of federal law. Further, just as the Federal Arbitration Act (FAA) is part of the substantive law of Texas, the FAA is part of the arbitration laws in Texas. The language of an arbitration clause designating arbitration pursuant to the arbitration laws of the state includes the FAA. Civil Procedure > ... > Federal & State Interrelationships > Choice of Law > General Overview HN9 A valid choice-of-law provision makes a conflicts-of-law analysis unnecessary. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN10 The Federal Arbitration Act (FAA) is not part of the Texas General Arbitration Act (TAA), at least to the extent the two are inconsistent. An arbitration clause specifically invoking the TAA designates the TAA to govern all aspects of arbitration under the agreement, to the exclusion of the FAA. The parties may specify the law governing interpretation of the scope of the arbitration clause. The focus of the determination is on the parties’ choice. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Constitutional Law > Supremacy Clause > Federal Preemption Page 3 of 19 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN11 An agreement specifying that arbitration occur pursuant to the Texas General Arbitration Act excludes the Federal Arbitration Act’s preemption of Tex. Civ. Prac. & Rem. Code Ann. § 171.002(a)(2). Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Defenses > General Overview HN12 9 U.S.C.S. § 2 states arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. A central purpose of the Federal Arbitration Act is to reverse the longstanding judicial hostility to arbitration agreements and to place arbitration agreements upon the same footing as other contracts. Such agreements are enforceable only if they meet the requirements of the general contract law of the applicable state. When determining whether an agreement to arbitrate is valid, state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. Commercial Law (UCC) > ... > Contract Provisions > Contract Terms > Unconscionable Terms Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN13 Texas law renders unconscionable contracts unenforceable. Texas further recognizes both substantive and procedural unconscionability. Substantive unconscionability refers to the fairness of the arbitration provision itself, whereas procedural unconscionability refers to the circumstances surrounding adoption of the arbitration provision. A complaint of the prohibitive cost of arbitration is grounded in substantive unconscionability. Generally, a contract is unconscionable if, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power. Tex. Bus. & Com. Code Ann. § 2.302, cmt. ^[1]. Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN14 Statutory claims may be arbitrated so long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum. Conversely, an arbitration agreement may render a contract unconscionable if the existence of large arbitration costs could preclude a litigant from effectively vindicating his or her federal statutory rights in the arbitral forum. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN15 Courts should be wary of setting the bar for holding arbitration clauses unconscionable too low. First, arbitration is favored in both federal and Texas law, and to conclude that an arbitration agreement is unconscionable based merely on the risk that the claimant will be saddled with prohibitive costs would undermine the liberal federal policy favoring arbitration agreements. Second, the theory behind unconscionability in contract law is that courts should not enforce a transaction so one-sided, with so gross a disparity in the values exchanged, that no rational contracting party would have entered the contract. But there is nothing per se unconscionable about arbitration agreements. In fact, historically, Texas law favors settling disputes by arbitration. Arbitration agreements offer a permissible choice to traditional litigation that does not favor either party. Moreover, assuming unequal bargaining power between the parties exists does not establish grounds for Page 4 of 19 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 defeating an agreement to arbitrate under the Federal Arbitration Act. Furthermore, arbitration clauses in consumer contracts reduce merchants’ operating costs and produce savings passed on to the consumer in the form of lower prices. Thus, a fairly administered arbitration should not create a gross disparity in the values exchanged. Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN16 Arbitration is intended as a lower cost, efficient alternative to litigation. Where these justifications are vanquished by excessive arbitration costs that deter individuals from bringing valid claims, the unconscionability doctrine may protect unfairly disadvantaged consumers. Excessive costs imposed by an arbitration agreement render a contract unconscionable if the costs prevent a litigant from effectively vindicating his or her rights in the arbitral forum. Contracts Law > Defenses > Unconscionable > Arbitration Agreements Evidence > Burdens of Proof > Allocation HN17 A party opposing arbitration bears the burden to show that the costs of arbitration render it unconscionable. When a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs. Likewise, some evidence is required that a complaining party will likely incur arbitration costs in such an amount as to deter enforcement of statutory rights in the arbitral forum. A number of federal courts of appeals have applied a case-by-case analysis of the effect the arbitration clause has on the particular plaintiff’s ability to effectively vindicate his rights. Such an analysis evaluates whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation. That inquiry focuses, among other things, upon the claimant’s ability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether that cost differential is so substantial as to deter the bringing of claims. The key factor is not where the cost to pursue the claim goes, but what the total cost to the claimant to pursue the claim is. A claimant is not deterred from pursuing his statutory rights in arbitration where the overall cost of arbitration is equal to or less than the cost of litigation in court. Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN18 In applying the unconscionability standard, the crucial inquiry is whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation, a forum where the litigant can effectively vindicate his or her rights. Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN19 Litigation allows claimants to effectively vindicate their rights, despite the expense. The desire to avoid steep litigation expense--including the costs of longer proceedings, more complicated appeals on the merits, discovery, investigations, fees, and expert witnesses--is the purpose of arbitration in the first place. In the absence of unusual animus between the parties or external motives, plaintiffs continue to pursue claims when the expected benefits of the lawsuit outweigh the total cost of bringing it. If the total cost of arbitration is comparable to the total cost of litigation, the arbitral forum is equally accessible. Thus, a comparison of the total costs of the two forums is the most important factor in determining whether the arbitral forum is an adequate and accessible substitute to litigation. Other factors include the actual cost of arbitration compared to the total amount of damages the claimant is seeking and the claimant’s overall ability to pay the arbitration fees and costs. These factors may also show arbitration to be an inadequate and inaccessible forum for the particular claimants to vindicate their rights. However, these considerations are less relevant if litigation costs more than arbitration. Page 5 of 19 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 Contracts Law > Defenses > Unconscionable > Arbitration Agreements Evidence > Burdens of Proof > Burden Shifting Evidence > Weight & Sufficiency HN20 Case law creates a burden-shifting test in which the party seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive bears the burden of showing the likelihood of incurring such costs. Once met, the burden shifts to the party seeking arbitration, who must come forward with contrary evidence. Evidence of the risk of possible costs of arbitration is insufficient evidence of the prohibitive cost of the arbitration forum. Rather, the courts require specific evidence that a party will actually be charged excessive arbitration fees. The party opposing arbitration must show the likelihood of incurring such costs in her particular case. Thus, for evidence to be sufficient, it must show that the plaintiffs are likely to be charged excessive arbitration fees. While claimants need not actually incur the cost of arbitration before they can show its excessiveness, parties must at least provide evidence of the likely cost of their particular arbitration, through invoices, expert testimony, reliable cost estimates, or other comparable evidence. Evidence that merely speculates about the risk of possible cost is insufficient. Contracts Law > Defenses > Unconscionable > Arbitration Agreements Evidence > Weight & Sufficiency HN21 Merely showing that other claimants have incurred arbitration costs of some amount falls well short of specific evidence that a party seeking to invalidate an arbitration agreement will be charged excessive fees. Substantive unconscionability threatens to become the exception that swallows the rule if all that must be done to avoid arbitration is to assume the most expensive possible scenario. Absent specific evidence that the party opposing arbitration will actually be charged excessive arbitration fees, there is no legally sufficient evidence that such fees prevent the party opposing arbitration from effectively pursuing the claim in the arbitral forum. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Defenses > Unconscionable > Arbitration Agreements HN22 It is tempting to avoid the unnecessary costs that would accompany an allegedly unnecessary arbitration. But to do so requires the trial court to make a determination of issues relating to the contract generally, even if it seems clear that one party or the other will prevail. When the parties have contracted for arbitration of their disputes, a trial court may consider only issues relating to the making and performance of the agreement to arbitrate. There is no way to fashion a standard to determine whether arbitration is unnecessary without giving the trial court some discretion over issues relating to the making and performance of the contract generally--exactly what the case law has sought to avoid. Allowing courts to make this determination under an unconscionability analysis would provide an end run around the rule. While in some cases this rule permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void, the opposite approach permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable. This conundrum is solved with a rule that allocates such decisions to arbitration, which is consistent with the liberal policy favoring arbitration in the Federal Arbitration Act and the case law. Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Contract Interpretation > General Overview HN23 A court endeavors to interpret agreements, including those to arbitrate, as they are written. Page 6 of 19 328 S.W.3d 883,[*883] ; 2010 Tex. LEXIS 897, **897 Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN24 When an agreement specifically states that it is to be governed by the Texas General Arbitration Act, it will be governed by the act, which may mean that disputes arising from its terms will be excluded from arbitration. Counsel: For Olshan Foundation Repair Company, LLC (09-0432, 09-0433, 09-0474, 09-0703), RELATOR: Mr. Stephan B. Rogers, Rogers & Moore, Boerne, TX; Mr. Duncan Roderick MacRae II, Mr. Jeffrey D. Janota, Henslee Schwartz, LLP, Austin, TX; Mr. Mark C. Roberts, Henslee Schwartz, LLP, Dallas, TX. For Kilpatrick, Kenneth, Tisdale, Mr. Charley, Waggoner, Mr. Craig, Tingdale, Robert (09-0432, 09-0433, 09-0474, 09-0703), REAL PARTIES IN INTEREST: Mr. Robert W. Loree, Mr. Edwin Todd Lipscomb, Loree, Hernandez & Lipscomb, PLLC, San Antonio, TX; Mr. Steven W. Thornton, McCorkle Westerburg & Thornton, PC., Dallas, TX; Mr. David M. Walsh IV, Chamblee & Ryan, P.C., Dallas, TX. For Tingdale, Robert (09-0703), REAL PARTY IN INTEREST: Mr. Christopher Dean Below, Loree, Hernandez & Lipscomb, PLLC, San Antonio, TX. Judges: [**1] JUSTICE WAINWRIGHT delivered the opinion of the Court. JUSTICE HECHT filed a concurring opinion, in which JUSTICE MEDINA joined. Opinion by: Dale Wainwright Opinion [*886] ON PETITIONS FOR WRITS OF MANDAMUS Olshan Foundation Repair Company filed these petitions for writs of mandamus in four different cases in which three separate trial courts denied Olshan’s pleas in abatement, refusing to compel arbitration of consumer claims against it. Three different courts of appeals also declined to order the disputes to arbitration. We consolidated these cases for argument and now issue a consolidated opinion. Because the Texas General Arbitration Act (TAA), and not the Federal Arbitration Act (FAA), governs the arbitration dispute in one of the cases (Waggoner, No. 09-0474), we deny Olshan mandamus relief in that case. We conclude that for the other three cases, the trial courts erred in holding that the TAA governs the arbitrations, there is no evidence that the arbitration agreements were unconscionable as a matter of law, and all other disputed issues are questions for the arbitrator. Because the trial court erred by denying Olshan’s pleas in abatement in the arbitrations governed by the FAA, we conditionally grant mandamus [**2] relief in those three actions. I. Factual and Procedural Background Olshan is a national company that repairs residential home foundations. In 1998, Craig and Joy Waggoner contracted with Olshan to repair their home’s foundation. The Waggoners subsequently discovered new damage to the foundation and hired an engineer, Peter De la Mora, to investigate the problems. In a 2007 report, De la Mora concluded that Olshan had not properly repaired the home. The Waggoners filed suit against Olshan for breach of contract, breach of warranty, negligence, violations of the Texas Deceptive Trade Practices Act, and violations of the Texas Home Solicitation Act. In three other cases, similar circumstances unfolded. In 2002, Olshan contracted with Vickie and Kenneth Kilpatrick, who filed suit against Olshan in 2007. The Kilpatricks’ case was consolidated at the appellate court Page 7 of 19 328 S.W.3d 883,[*886] ; 2010 Tex. LEXIS 897, **2 level with claims brought by Charley and Gladys Tisdale, again with nearly identical facts. In June 2007, Robert and Marta Tingdale, who initially contracted with Olshan in 2004, filed another similar case. All plaintiffs are represented by the same counsel, and each case includes a report from De la Mora opining that Olshan had [**3] not properly repaired each home. The four repair contracts were in writing, and each contained arbitration clauses. The arbitration clauses in Kilpatrick (No. 09-0432), Tisdale (No. 09-0433), and Tingdale (No. 09-0703) provide: Notwithstanding, any provision in this agreement to the contrary, any dispute, controversy, or lawsuit between any of the parties to this agreement about any matter arising out of this agreement, shall be resolved by mandatory and [*887] binding arbitration administered by the American Arbitration Association (″AAA″) pursuant to the arbitration laws in your state and in accordance with this arbitration agreement and the commercial arbitration rules of the AAA . . . . (emphasis added). The arbitration clause in the Waggoner (No. 09-0474) agreement is identical except for the language in bold, which states ″pursuant to the Texas General Arbitration Act.″ (emphasis added). None of the agreements addressed in this opinion was signed by the consumers’ attorney or exceeded $ 50,000 in consideration. Olshan filed a plea in abatement in each case and sought to compel arbitration under the Federal Arbitration Act (FAA). The homeowners responded to the pleas, arguing that: (1) the [**4] TAA applies to the agreements to the exclusion of the FAA, rendering the arbitration agreements unenforceable because the agreements were not signed by the homeowners’ attorney; and (2) arbitration with the AAA is substantively unconscionable because of the expense required and because the contract itself was undisputably unenforceable under the Texas Home Solicitation Act. The trial court denied Olshan’s plea in the Waggoners’ action. It held that the TAA applies to the agreement, and thus the arbitration agreement was unenforceable pursuant to Chapter 171 of the Texas Civil Practice and Remedies Code. See TEX. CIV. PRAC. & REM. CODE § 171.002(a)(2) (requiring arbitration agreements in service contracts for less than $ 50,000 be signed by all parties and their attorneys). The trial court alternatively held that the prohibitive cost of arbitration rendered the agreement to arbitrate unconscionable. Olshan petitioned for mandamus relief with the court of appeals, which was denied. The court of appeals held the TAA was not preempted by the FAA, and section 171.002(a)(2) of the TAA rendered the agreement unenforceable. It denied Olshan’s writ of mandamus without reaching the other issues. [**5] In the remaining three actions, the trial courts denied Olshan’s pleas in abatement and the courts of appeals denied Olshan’s petitions for writs of mandamus. ^[1] II. Standard for Mandamus At the time these petitions were filed, there was no method under Texas procedure for parties to file interlocutory appeals of a trial court’s refusal to compel arbitration under the FAA. ^[2] Olshan sought relief through petitions 1 The Tingdale, Kilpatrick and Tisdale trial courts issued memorandum opinions, which are addressed by the courts of appeals, respectively, in No. 10-09-00119-CV, 2009 Tex. App. LEXIS 4985, 2009 WL 1886648 (Tex. App.--Waco July 1, 2009, orig. proceeding); Nos. 2-08-336-CV, 2-08-342-CV, 2008 Tex. App. LEXIS 9660, 2008 WL 4661815 (Tex. App.--Fort Worth Oct. ^[2], 2008, orig. proceeding). 2 The Legislature recently amended the Texas Civil Practice and Remedies Code to allow an interlocutory appeal ″to the court of appeals from the judgment or interlocutory order of a district court . . . under the same circumstance that an appeal from a federal district court’s order or decision would be permitted by 9 U.S.C. Section 16.″ TEX. CIV. PRAC. & REM CODE § 51.016. However, this act Page 8 of 19 328 S.W.3d 883,[*887] ; 2010 Tex. LEXIS 897, **5 for writs of mandamus. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992). HN1 Mandamus will not issue unless: (1) the trial judge has committed a clear abuse of discretion; and (2) there is no adequate remedy on appeal. In re Odyssey Healthcare, [*888] Inc., 310 S.W.3d 419, 422 (Tex. 2010) (per curiam) (citing In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004)). A trial court abuses its discretion if it reaches a decision so arbitrary [**6] and unreasonable it amounts to a clear and prejudicial error of law or it clearly fails to correctly analyze or apply the law. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (citations omitted). The second requirement for mandamus relief, that the relator has no adequate remedy by appeal, ″has no comprehensive definition.″ See In re Ford Motor Co., 165 S.W.3d 315, 317 (Tex. 2005) (citing Prudential, 148 S.W.3d at 136). However, we have determined that relators have no adequate remedy by appeal when a trial judge erroneously refuses to compel arbitration under the FAA. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001). This Court must decide whether the trial courts abused their discretion by not compelling arbitration pursuant to the FAA, as requested in Olshan’s pleas in abatement. The HN2 trial courts abuse their discretion by refusing to compel arbitration if the FAA preempts the TAA and the arbitration agreements are not unconscionable. However, the trial courts did not err by denying Olshan’s pleas in abatement if the TAA applies to the agreements or the agreements are unconscionable. III. Federal Preemption A. The FAA and Choice of Law HN3 The TAA renders arbitration agreements unenforceable if the agreements containing the arbitration clauses are agreements for services ″in which the total consideration to be furnished by the individual is not more than $ 50,000″ and the agreements are not in writing, signed by each party, and each party’s attorney. TEX. CIV. PRAC. & REM. CODE § 171.002(a)(2). The homeowners contend that the arbitration agreements are governed by the TAA and are unenforceable for failure to meet the two identified [**8] TAA requirements. Olshan argues that the FAA applies to the agreements and preempts the TAA’s exemption from coverage under section 171.002(a)(2), making the arbitration clauses enforceable. See In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (per curiam) (addressing a similar exemption under the TAA for personal injury cases). HN4 Section 2 of the FAA preempts state law that would otherwise render arbitration agreements unenforceable in a contract involving interstate commerce. ^[9] U.S.C. § 2; Southland Corp. v. Keating, 465 U.S. ^[1], 10-11, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984). ″The Act was designed to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate, and place such agreements upon the same footing as other contracts.″ Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) (internal quotations omitted). We have recognized that the FAA preempts parts of the TAA, including section 171.002(a)(2) of the Civil Practice and Remedies Code. See Jack B. Anglin Co., 842 S.W.2d at 271 (discussing FAA’s preemption of non-waiver provision of DTPA); Nexion, 173 S.W.3d at 69 (Tex. 2005) (discussing FAA’s preemption of TAA section 171.002(a)(3)). But [**9] the FAA does not ″confer a right to compel arbitration of any dispute at any time.″ Volt, 489 U.S. at 474. The FAA policy is simply to ″ensur[e] that private agreements to arbitrate are enforced according to their terms.″ Id. at 479. In Volt, the Court upheld the application of a California statute that allowed a stay of arbitration proceedings pending resolution of related litigation because the contract [*889] also contained a choice-of-law clause providing that ″[t]he Contract shall be governed by the law of the place where the Project is not applicable to appeals of an interlocutory order in an action pending as of September 1, 2009. Act of June 19, 2009, 81st Leg., R.S., ch. 820, § 2, 2009 Tex. Gen. [**7] Laws 2061. Because all four actions in this consolidated opinion were pending as of September 1, 2009, section 51.016 does not allow an interlocutory appeal of these causes. Page 9 of 19 328 S.W.3d 883,[*889] ; 2010 Tex. LEXIS 897, **9 is located.″ Id. at 470. The Court reiterated that HN5 ″the FAA pre-empts state laws which ’require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.’″ Id. at 478 (quoting Southland Corp., 465 U.S. at 10). But the FAA does not prevent the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. . . . Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract [**10] the rules under which that arbitration will be conducted. . . . By permitting the courts to ″rigorously enforce″ such agreements according to their terms, we give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind by the FAA. Id. at 479 (citations omitted). Subsequently, in Mastrobuono v. Shearson Lehman Hutton, Inc., the Court held that the FAA preempted New York’s prohibition against arbitral awards of punitive damages despite a choice of law provision in an arbitration agreement that stated the agreement ″shall be governed by the laws of the State of New York.″ 514 U.S. 52, 63-64, 115 S. Ct. 1212, 131 L. Ed. 2d 76 (1995). The Court first stressed that the agreement would be enforced as written, stating that ″the case before us comes down to what the contract has to say about the arbitrability of petitioners’ claim for punitive damages.″ Id. at 58. Where the Court in Volt read the choice-of-law provision as definitively choosing state law over federal law, the Court in Mastrobuono read the provision differently: The choice-of-law provision, when viewed in isolation, may reasonably be read as merely a substitute for the conflict-of-laws analysis that otherwise [**11] would determine what law to apply to disputes arising out of the contractual relationship. ... At most, [it] introduces an ambiguity into an arbitration agreement that would otherwise allow punitive damages awards. Id. at 59, 62. Then, using FAA mandated rules of contract construction, the Court concluded that the provision should be read ″to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators.″ Id. at 62-64. Thus, HN6 courts treat arbitration agreements as other contracts in applying the legal rules to interpret them. The goal is to discern the true intentions of the parties, as the FAA’s primary purpose is to ensure private agreements to arbitrate are enforced according to their terms, no more, no less. Volt, 489 U.S. at 479; see also Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th Cir. 1994) (Posner, C.J.) (″[S]hort of authorizing trial by battle or ordeal or, more doubtfully, by a panel of three monkeys, . . . parties are as free to specify idiosyncratic terms of arbitration as they are to specify any other terms in their contract.″). B. This Court’s Treatment of Choice-of-Law Provisions [**12] Relating to Arbitration Agreements This Court analyzed contractual language in the context of the relationship [*890] between an arbitration clause and a general choice-of-law provision in In re L & L Kempwood Associates, L.P., 9 S.W.3d 125, 127-28 (Tex. 1999) (per curiam). We held that HN7 an agreement containing a general choice-of-law provision stating that the entire contract will be governed by ″the law of the place where the Project is located,″ does not preclude application of the FAA. Id. The Court observed that the Project was located in Houston, thus the FAA was part of ″the law of the place where the Project is located.″ Id.; see also Capital Income Props. v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992) (per curiam) (stating that ″[t]he Federal [Arbitration] Act is part of the substantive law Page 10 of 19 328 S.W.3d 883,[*890] ; 2010 Tex. LEXIS 897, **12 of Texas″). When the language of the provision included federal law, further language specifically excluding application of the FAA is necessary for a court to apply the TAA to the FAA’s exclusion. ″The choice-of-law provision did not specifically exclude the application of federal law, and absent such an exclusion we decline to read the choice-of-law clause as having such an effect.″ L & L Kempwood, 9 S.W.3d at 127-28. [**13] Rather, a general choice-of-law provision ″may reasonably be read as merely a substitute for the conflict-of-laws analysis that otherwise would determine what law to apply to disputes.″ Id. at 127 n.16 (citing Mastrobuono, 514 U.S. at 59-60). Courts apply the FAA unless language in the arbitration agreement indicates its exclusion. C. The Law the Parties Chose Three of the arbitration agreements state that disputes arising out of the contract ″shall be resolved by mandatory and binding arbitration administered . . . pursuant to the arbitration laws in your state . . . .″ HN8 Courts rarely read such general choice-of-law provisions to choose state law to the exclusion of federal law. See Mastrobuono, 514 U.S. at 59; L & L Kempwood, 9 S.W.3d at 127 n.16. Further, just as the FAA is part of the substantive law of Texas, the FAA would be part of the arbitration laws in Texas. See L & L Kempwood, 9 S.W.3d at 127 n.15 (quoting Capital Income Props., 843 S.W.2d at 23). The language of the arbitration clause designating arbitration pursuant to ″the arbitrations laws in your state″ includes the FAA. See id. at 127-28. Thus, the FAA applies to the three agreements that include the ″arbitration laws [**14] in your state″ language, and the FAA preempts the provisions of section 171.002(a)(2) of the TAA that would otherwise render the agreements unenforceable. The trial courts abused their discretion in denying Olshan’s requests to compel arbitration based on the unenforceability of the arbitration under section 171.002(a)(2) in the Kilpatrick, Tisdale and Tingdale cases. In contrast, the Waggoner agreement states that disputes arising out of the contract ″shall be resolved by mandatory and binding arbitration . . . pursuant to the Texas General Arbitration Act . . . .″ This provision distinguishes the Waggoner agreement from the other agreements and the agreements in L & L Kempwood and Mastrobuono. This is not the same general choice-of-law provision. This provision chooses a state’s substantive law, specifically the TAA, to govern disputes under the agreement. HN9 A valid choice-of-law provision makes a conflicts-of-law analysis unnecessary; this provision expresses a preference between federal and state law. Id. The FAA is part of the arbitration laws of Texas and can be applied to arbitration administered pursuant to the laws of Texas. However, HN10 the FAA is not part of the TAA, at least to [**15] the extent the two are inconsistent. [*891] The Fifth Circuit has likewise interpreted an arbitration clause specifically invoking the TAA as designating the TAA to govern all aspects of arbitration under the agreement, to the exclusion of the FAA. Ford v. Nylcare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 246 (5th Cir. 1998) (applying Texas law). The court stated the parties may ″specify the law governing interpretation of the scope of the arbitration clause.″ Id. at 248. The focus of the determination is on the parties’ choice. Thus, the court held that the parties intended the TAA to govern the scope of the arbitration clause. Id. at 249. The language of the Waggoner agreement also indicates the parties’ intention that the TAA govern the scope of their arbitration agreement. The plain language clearly indicates that the parties intend their arbitration to be governed by the TAA rather than merely ″the law of the state″ or ″Texas law.″ The parties’ intention that arbitration be administered pursuant to the TAA would be thwarted if the FAA preempted the TAA’s specific provisions. Thus, HN11 an agreement specifying that arbitration occur ″pursuant to the Texas General Arbitration Act″ excludes [**16] the FAA’s preemption of section 171.002(a)(2) of the TAA. ^[3] Because the TAA would render the Waggoners’ arbitration agreement unenforceable, and because the FAA was not chosen by the parties, the trial court correctly denied Olshan’s plea in abatement, seeking to compel 3 We do not believe the choice-of-law provision to be ambiguous. Page 11 of 19 328 S.W.3d 883,[*891] ; 2010 Tex. LEXIS 897, **16 arbitration of Waggoner’s action against Olshan. However, because the parties in the Kilpatrick, Tisdale, and Tingdale contracts chose to arbitrate pursuant to the laws of Texas, which include the FAA, the FAA preempts section 171.002(a)(2) of the TAA and precludes those requirements from barring arbitration. IV. Unconscionability Even though the FAA governs the arbitration agreements in the Kilpatrick, Tisdale, and Tingdale contracts, if those agreements are unconscionable, they are unenforceable. The homeowners contend that the arbitration agreements are unconscionable because ″mandatory binding arbitration administered by the American Arbitration Association . . . in accordance with this arbitration agreement and the commercial arbitration rules of the AAA″ is prohibitively expensive, preventing their ability to vindicate their claims. Further, they contend [**17] the contracts are clearly void because Olshan violated the Home Solicitation Act, exacerbating the unconscionability of the agreement. A. Unconscionability of Arbitration Agreements HN12 Section 2 of the FAA states arbitration agreements ″shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.″ 9 U.S.C. § 2. A central purpose of the FAA is ″to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts.″ Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991) (citations omitted). Such agreements are enforceable only if they meet ″the requirements of the general contract law of the applicable state.″ In re Poly-America, L.P., 262 S.W.3d 337, 347 (Tex. 2008) (citation omitted). When determining whether an agreement to arbitrate is valid, ″state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, [*892] revocability, and enforceability of contracts generally.″ Perry v. Thomas, 482 U.S. 483, 493 n.9, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987). HN13 Texas law renders unconscionable contracts unenforceable. [**18] Poly-America, 262 S.W.3d at 348. Texas further recognizes both substantive and procedural unconscionability. ″Substantive unconscionability refers to the fairness of the arbitration provision itself, whereas procedural unconscionability refers to the circumstances surrounding adoption of the arbitration provision.″ In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex. 2006). Because the homeowners complain of the prohibitive cost of arbitration, their claim is grounded in substantive unconscionability. Generally, a contract is unconscionable if, ″given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.″ FirstMerit Bank, 52 S.W.3d at 757 (citing TEX. BUS. & COM. CODE § 2.302 cmt. ^[1]). ″The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power.″ TEX. BUS. & COM. CODE § 2.302 cmt. ^[1] (internal citation omitted). The U.S. Supreme Court has held that HN14 statutory claims may be arbitrated ″so long as the prospective [**19] litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum.″ Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000) (citing Gilmer, 500 U.S. at 28). Conversely, an arbitration agreement may render a contract unconscionable if ″the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating [his or her] federal statutory rights in the arbitral forum.″ Id.; see also Poly-America, 262 S.W.3d at 355-57; FirstMerit Bank, 52 S.W.3d at 756 (citing Green Tree, 531 U.S. at 91). HN15 We should be wary of setting the bar for holding arbitration clauses unconscionable too low. First, arbitration is favored in both federal and Texas law, and to conclude that an arbitration agreement is Page 12 of 19 328 S.W.3d 883,[*892] ; 2010 Tex. LEXIS 897, **19 unconscionable based merely on the ″’risk’ that [the claimant] will be saddled with prohibitive costs″ would undermine the ″’liberal federal policy favoring arbitration agreements.’″ Green Tree, 531 U.S. at 91 (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)); FirstMerit Bank, 52 S.W.3d at 756. Second, the theory behind unconscionability in contract law is that courts should not enforce a transaction so one-sided, [**20] with so gross a disparity in the values exchanged, that no rational contracting party would have entered the contract. RESTATEMENT (SECOND) OF CONTRACTS § 208 cmt. b (1981). But as we have recognized previously, there is nothing per se unconscionable about arbitration agreements. In fact, historically, Texas law favors settling disputes by arbitration. Arbitration agreements, like the one here, offer a permissible choice to traditional litigation that does not favor either party. Moreover, assuming unequal bargaining power between [the parties] exists does not establish grounds for defeating an agreement to arbitrate under the FAA. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90-91 (Tex. 1996) (per curiam) (citations omitted). Furthermore, arbitration clauses in consumer contracts reduce merchants’ operating costs and produce savings passed on to the consumer in the form of lower prices. Thus, a fairly administered [*893] arbitration should not create a gross disparity in the values exchanged. Stephen J. Ware, Paying the Price of Process: Judicial Regulation of Consumer Arbitration Agreements, 2001 J. DISP. RESOL. 89, 89 (2001); see generally Steven Shavell, Alternative Dispute Resolution: An Economic [**21] Analysis, 24 J. LEGAL STUD. ^[1] (1995). However, we also recognize that HN16 arbitration is intended as a lower cost, efficient alternative to litigation. See Poly-America, 262 S.W.3d at 347 (″[A]rbitration is intended to provide a lower-cost, expedited means to resolve disputes . . . .″). Where these justifications are vanquished by excessive arbitration costs that deter individuals from bringing valid claims, the unconscionability doctrine may protect unfairly disadvantaged consumers. We agree, as in Green Tree, that excessive costs imposed by an arbitration agreement render a contract unconscionable if the costs prevent a litigant from effectively vindicating his or her rights in the arbitral forum. See Green Tree, 531 U.S. at 90. B. Application of the Standard HN17 The party opposing arbitration bears the burden to show that the costs of arbitration render it unconscionable. When ″a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.″ Green Tree, 531 U.S. at 92. This Court likewise requires ″some evidence that a complaining party will likely incur arbitration [**22] costs in such an amount as to deter enforcement of statutory rights in the arbitral forum.″ Poly-America, 262 S.W.3d at 356; accord In re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex. 2007); FirstMerit Bank, 52 S.W.3d at 756-57. The Court in Green Tree did not explain how detailed the showing of prohibitive expense need be to invalidate an arbitration agreement. Green Tree, 531 U.S. at 92 (″How detailed the showing of prohibitive expense must be before the party seeking arbitration must come forward with contrary evidence is a matter we need not discuss . . . .″). However, a number of federal courts of appeals, relying on Green Tree, have applied a case-by-case analysis of the effect the arbitration clause has on the particular plaintiff’s ability to effectively vindicate his rights. ^[4] The Fourth Circuit’s approach in Bradford v. Rockwell Semiconductor Systems, Inc. is particularly instructive. 238 F.3d 549 (4th Cir. 2001). The court noted the proper analysis ″evaluates whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation.″ Id. According to the 4 See Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1259 (11th Cir. 2003) (″Since Green Tree, all but one of the other Circuits that have reconsidered this issue have applied a similar case-by-case approach.″); see also Blair v. Scott Specialty Gases, 283 F.3d 595, 609-10 (3d Cir. 2002); Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001); LaPrade v. Kidder, Peabody & Co., Inc., 246 F.3d 702, 708, 345 U.S. App. D.C. 358 (D.C. Cir. 2001). But see Circuit City Stores, Inc. v. Adams, 279 F.3d Page 13 of 19 328 S.W.3d 883,[*893] ; 2010 Tex. LEXIS 897, **22 court, that inquiry requires ″a case-by-case analysis that focuses, among other things, upon [**23] the claimant’s ability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether that cost differential is so substantial as to deter the bringing of claims.″ Id. (quotations omitted). The key factor is not where the cost to pursue the claim goes, but what the total cost to the claimant to pursue the claim is. The [*894] court ″fail[ed] to see how a claimant could be deterred from pursuing his statutory rights in arbitration simply by the fact that his fees would be paid to the arbitrator where the overall cost of arbitration is otherwise equal to or less than the cost of litigation in court.″ Id. Likewise, in Honrubia Properties, Ltd. v. Gilliland, the Corpus Christi-Edinburg Court of Appeals essentially accepted Bradford’s conceptual framework. Nos. 13-07-210-CV, 13-07-249-CV, 2007 Tex. App. LEXIS 8085, 2007 WL 2949567 at *6 (Tex. App.--Corpus Christi-Edinburg Oct. ^[11] 2007, no pet.) (mem. op.). It considered the party’s ability to pay the arbitration fee, the actual amount of the fee in relation to the amount of the underlying claim, and the cost differential between arbitration and litigation in court. Id. (citations omitted). Applying the standard, the court held the arbitration agreement was not substantively unconscionable where evidence showed the arbitration would cost approximately $ 15,000 to $ 20,283, plus expenses and other possible fees; the claimant was seeking more than $ 4,000,000 in compensatory and punitive damages; and arbitration costs would range from 11 percent to 15 percent of the claimant’s gross income. 2007 Tex. App. LEXIS 8085, [WL] at *7. The claimant failed to submit any evidence pertaining to the expected cost differential between [**25] arbitration and litigation. Id. HN18 In applying the unconscionability standard, the crucial inquiry is whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation, a forum where the litigant can effectively vindicate his or her rights. With this in mind, we agree that the approach taken by the Fourth Circuit in Bradford effectively pursues this inquiry. We note all of the analyses previously discussed correctly assume that HN19 litigation allows claimants to effectively vindicate their rights, despite the expense. The desire to avoid steep litigation expense--including the costs of longer proceedings, more complicated appeals on the merits, discovery, investigations, fees, and expert witnesses--is the purpose of arbitration in the first place. See Jack B. Anglin Co., 842 S.W.2d at 272-73 (″[T]he purpose of [arbitration is] providing a rapid, inexpensive alternative to traditional litigation . . . .″). In the absence of unusual animus between the parties or external motives, plaintiffs continue to pursue claims when the expected benefits of the lawsuit outweigh the total cost of bringing it. If the total cost of arbitration is comparable to the total [**26] cost of litigation, the arbitral forum is equally accessible. ^[5] Thus, a comparison of the total costs of the two forums is the most important factor in determining [*895] whether the arbitral forum is an adequate and accessible substitute to litigation. Other factors include the actual cost of arbitration compared to the total amount of damages the claimant is seeking and the claimant’s overall ability to pay the arbitration fees and costs. These factors may also show arbitration to be an inadequate and inaccessible forum for the particular claimants to vindicate their rights. However, these considerations are less relevant if litigation costs more than arbitration. 889, 895 (9th Cir. 2002) [**24] (holding that plaintiff employees should not ″have to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum″). 5 ″Total cost″ refers to the total cost of pursuing a claim in either forum, notwithstanding who will be financing the claim. Some courts have noted the argument that attorneys will be unwilling to represent plaintiffs on a contingency fee basis in the arbitral forum and that contingent fee arrangements make litigation less expensive for plaintiffs than arbitration. See Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 664 (6th Cir. 2003); Poly-America, 262 S.W.3d at 355. But other commentators argue that there is no reason why [**27] plaintiffs cannot secure the same financing when arbitration is mandated if both the value of their claim and the cost to pursue it remain constant. See Christopher R. Drahozal, Arbitration Costs and Contingent Fee Contracts, 59 VAND. L. REV. 729, 768 (2006) (″On the face of it, there is no reason to expect contingent fee contracts to treat arbitration costs differently than they treat other litigation expenses.″ ). We recognize arbitration is not always a lower-cost, efficient litigation alternative. Forcing consumer plaintiffs into an arbitral forum may affect their ability to pursue remedies when small claims are at issue. However, this does not excuse parties opposing arbitration from providing sufficient evidence to demonstrate that excessive costs make arbitration unconscionable in their particular case. Page 14 of 19 328 S.W.3d 883,[*895] ; 2010 Tex. LEXIS 897, **27 C. Sufficiency of the Evidence HN20 Green Tree creates a burden-shifting test in which the ″party seek[ing] to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive . . . bears the burden of showing the likelihood of incurring such costs.″ Green Tree, 531 U.S. at 92. Once met, the burden shifts to ″the party seeking arbitration [who] must [**28] come forward with contrary evidence.″ Id.; see also Poly-America, 262 S.W.3d at 348 (″The burden of proving such a ground--such as fraud, unconscionability or voidness under public policy--falls on the party opposing the contract.″); FirstMerit Bank, 52 S.W.3d at 756 (″Again, since the law favors arbitration, the burden of proving a defense to arbitration is on the party opposing arbitration.″). Evidence of the ″risk″ of possible costs of arbitration is insufficient evidence of the prohibitive cost of the arbitration forum. Green Tree, 531 U.S. at 91 (″The ’risk’ that [the plaintiff] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.″). Rather, ″both the United States Supreme Court and this Court require specific evidence that a party will actually be charged excessive arbitration fees.″ U.S. Home Corp., 236 S.W.3d at 764; see also FirstMerit Bank, 52 S.W.3d at 757 (″Because the record contains no specific evidence that the [plaintiffs] will actually be charged excessive arbitration fees, we conclude that there is legally insufficient evidence that the plaintiffs would be denied access to arbitration based on excessive [**29] costs.″). The party opposing arbitration must show the likelihood of incurring such costs in her particular case. Thus, for evidence to be sufficient, it must show that the plaintiffs are likely to be charged excessive arbitration fees. While we do not mandate that claimants actually incur the cost of arbitration before they can show its excessiveness, parties must at least provide evidence of the likely cost of their particular arbitration, through invoices, expert testimony, reliable cost estimates, or other comparable evidence. See Poly-America, 262 S.W.3d at 354-55 (concluding that the plaintiff’s ″own affidavit and that of an expert witness providing detailed estimates of the likely cost of arbitration in [the plaintiff’s] case″ constituted sufficient evidence); Olshan Found. Repair Co. v. Ayala, 180 S.W.3d 212, 215-16 (Tex. App.--San Antonio 2005, pet. denied) (holding invoice for party’s share of arbitration expenses sufficient). Evidence that merely speculates about the risk of possible cost is insufficient. D. Application to the Facts In applying this analysis to the facts at hand, we begin with the agreement itself, which states, ″any matter arising out of this agreement shall [**30] be resolved by mandatory and binding arbitration administered by the American Arbitration Association . . . in accordance with this arbitration agreement and the commercial arbitration rules of the AAA.″ According to the commercial arbitration rules, the AAA: [*896] applies the Supplementary Procedures for Consumer-Related Disputes to arbitration clauses in agreements between individual consumers and businesses where the business has a standardized, systematic application of arbitration clauses with customers and where the terms and conditions of the purchase of standardized, consumable goods or services are nonnegotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices. AAA Commercial Arbitration Rule R-1 (2007, 2009). The Supplementary Procedures for Consumer-Related Disputes have a separate fee schedule for consumer arbitration: Administrative Fees Administrative fees are based on the size of the claim and counterclaim in a dispute. They are based only on the actual damages and not on any additional damages, such as attorneys’ fees or punitive damages. Portions of these fees are refundable pursuant to the Commercial Fee Schedule. Page 15 of 19 328 S.W.3d 883,[*896] ; 2010 Tex. LEXIS 897, **30 Arbitrator Fees For cases [**31] in which no claim exceeds $ 75,000, arbitrators are paid based on the type of proceeding that is used. The parties make deposits as set forth below. Any unused deposits are returned at the end of the case. Desk Arbitration or Telephone Hearing $ 250 for service on the case In Person Hearing $ 750 per day of hearing For cases in which a claim or counterclaim exceeds $ 75,000, arbitrators are compensated at the rates set forth on their panel biographies. Fees and Deposits to be Paid by the Consumer: If the consumer’s claim or counterclaim does not exceed $ 10,000, then the consumer is responsible for one-half the arbitrator’s fees up to a maximum of $ 125. This deposit is used to pay the arbitrator. It is refunded if not used. If the consumer’s claim or counterclaim is greater than $ 10,000, but does not exceed $ 75,000, then the consumer is responsible for one-half the arbitrator’s fees up to a maximum of $ 375. This deposit is used to pay the arbitrator. It is refunded if not used. If the consumer’s claim or counterclaim exceeds $ 75,000, or if the consumer’s claim or counterclaim is non-monetary, then the consumer must pay an Administrative Fee in accordance with the Commercial Fee Schedule. [**32] 6 A portion of this fee is refundable pursuant to the Commercial Fee Schedule. The consumer must also deposit one-half of the arbitrator’s compensation. This deposit is used to pay the arbitrator. This deposit is refunded if not used. The arbitrator’s compensation rate is set forth on the panel biography provided to the parties when the arbitrator is appointed. AAA Supplementary Procedures for Consumer-Related Disputes, Administrative Fees, Arbitrator Fees, Fees and Deposits to be Paid by the Consumer (2005, 2010). Thus, for a consumer claim up to $ 75,000, the most a consumer will have to pay under these rules is $ 375 for the arbitrator. [*897] Id.; see also Green Tree, 531 U.S. at 95 (Ginsburg, J., dissenting) (describing the AAA’s Consumer Arbitration Rules as a model ″for fair cost and fee allocation″). The homeowners bear the burden to show the likelihood of incurring excessive costs, yet no homeowners provided any concrete idea of the amount of their claims. It is impossible to know how much they will be charged under the AAA rules, even if the fees charged by AAA were excessive. Instead, the homeowners provided two invoices from the AAA for arbitration in, as the homeowners allege, ″similar cases″ to show the likelihood of excessive litigation costs. The first was a copy of the invoice from the AAA to the Ayalas who were plaintiffs in a different lawsuit against Olshan. It shows that the Ayalas’ claim against Olshan was for $ 200,000, and that the Ayalas’ were charged $ 35,900 to arbitrate that claim. The second was an invoice from the AAA to an anonymous claimant for the arbitration of a construction dispute, a similar type of case using only one arbitrator. 7 The amount of this claim is not stated on this invoice, but based on the administrative fee and case 6 ″The filing fee shall be advanced by the party or parties making a claim or counterclaim, subject to final apportionment by the arbitrator in the award. The AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative fees.″ AAA Commercial Arbitration Rule R-49 (2007, 2009). In 2008, when Olshan sought to compel arbitration, the total initial filing [**33] fee and case service fee ranges from $ 2,550 for claims between $ 75,000-$ 150,000 to $ 8,500 for claims above $ 500,000. AAA Commercial Arbitration Administrative Fees, Fees (2007). 7 It is unclear whether this means that the Ayalas requested three arbitrators. That the cost of the arbitrator to the Ayalas per day of hearing was $ 3,350, compared to $ 1,250 per day in the anonymous case, leads us to believe they did. Page 16 of 19 328 S.W.3d 883,[*897] ; 2010 Tex. LEXIS 897, **33 service fee charged by the AAA, we can [**34] deduce that it was between $ 75,000 and $ 150,000. The anonymous claimants were charged $ 11,406 to arbitrate. HN21 Merely showing that other claimants have incurred arbitration costs of some amount falls well short of specific evidence that these particular parties will be charged excessive fees. There is no evidence that the homeowners’ claims are similar in amount or difficulty as the claims of the Ayalas or the anonymous claimant. In fact, the Ayalas’ invoice shows that their claim was for $ 200,000, while none of the homeowners’ claims in this case exceeded $ 20,000. Moreover, there is no evidence that the homeowners have made any effort to reduce the likely charges through requests for fee waivers, pro bono arbitrators, or even simply requesting a one arbitrator panel. As the court in In re MHI Partnership, Ltd. aptly noted, ″Substantive unconscionability threatens to become the exception that swallows the rule if all that must be done to avoid arbitration [**35] is to assume the most expensive possible scenario.″ No. 14-07-00851-CV, 2008 Tex. App. LEXIS 4053, 2008 WL 2262157 at *7 (Tex. App.--Houston [14th Dist.] May 29, 2008, no pet.) (mem. op.). Even if we took these invoices as evidence of the likely arbitration charges to the homeowners, they have provided no comparison of these charges to the expected cost of litigation, the amount of their claim, or their ability to pay these costs. See Green Tree, 531 U.S. at 90 n.6 (concluding that a party’s unsupported statement that she did not have the resources to pay the high costs of arbitration was insufficient); Bradford, 238 F.3d at 556 n.5 (″The cost of arbitration, as far as its deterrent effect, cannot be measured in a vacuum or premised upon a claimant’s abstract contention that arbitration costs are ’too high.’″). The record contains no specific evidence that the homeowners will actually be charged excessive arbitration fees, and thus there is no legally sufficient evidence that such fees prevent the homeowners from effectively pursuing their claim in the arbitral forum. E. Unconscionability in Light of the Texas Home Solicitation Act Finally, the homeowners argue that the arbitration is unconscionable because the [**36] parties will expend time, energy, [*898] and money needlessly going to arbitration when the arbitrator will find the contract--including the arbitration clause--void, sending the case back to court. ^[8] They assert that their contract with Olshan violated the Texas Home Solicitation Act (THSA), which would render the agreements, including the arbitration clauses, void. The alleged basis for violation of the THSA is Olshan’s failure to include in the agreements certain language regarding cancellation in at least 10-point boldfaced type, where the transactions occurred by personal solicitation outside Olshan’s place of business. TEX. BUS. & COM. CODE §§ 601.002(a), .052, .053, .201. Further, the homeowners contend that there is no dispute over whether the contract violates the THSA, and the arbitrator will thus certainly find the contract void. ^[9] HN22 It is tempting to avoid the unnecessary costs that would accompany an allegedly unnecessary arbitration. But to do so requires the trial court to make a determination of issues relating to the contract generally, even if it seems clear that one party or the other will prevail. As the U.S. Supreme Court stated in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., when the parties have contracted for arbitration of their disputes, a trial court ″may consider only issues relating to the making and performance of the agreement to arbitrate.″ 388 U.S. 395, 404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967); see also Rent-A-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2778, 177 L. Ed. 2d 403 (2010); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46, 126 S. Ct. ^[8] The homeowners concede that the arbitrator and not a court decides a contractual defense to the contract as a whole as opposed to a contractual defense to just the arbitration provision. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006); In re Labatt Food Serv., L.P., 279 S.W.3d 640, 647-49 (Tex. 2009). 9 Olshan states in its brief [**37] and stated at argument to the contrary that it will present certain defenses to this claim. It is neither our province nor the province of the trial court to determine the merits of these defenses when the parties have contracted to arbitrate such disputes. Page 17 of 19 328 S.W.3d 883,[*898] ; 2010 Tex. LEXIS 897, **37 1204, 163 L. Ed. 2d 1038 (2006) (″[U]nless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.″). There is no way to fashion a standard to determine whether arbitration [**38] is unnecessary without giving the trial court some discretion over issues relating to the making and performance of the contract generally--exactly what Prima Paint, and later Buckeye and Rent-A-Center, sought to avoid. Allowing courts to make this determination under an unconscionability analysis would provide an end run around the rule. While in some cases this ″rule permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void[,] . . . it is equally true that [the opposite] approach permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable.″ Buckeye, 546 U.S. at 448-49. This conundrum is solved with a rule that allocates such decisions to arbitration, which is consistent with the liberal policy favoring arbitration in the FAA, U.S. Supreme Court decisions, and decisions of this Court. The homeowners failed to provide legally sufficient evidence of the prohibitive cost of arbitration to prove unconscionability, and this failure cannot be remedied by allowing the trial court to determine if it believes the contract itself is void. V. Conclusion HN23 This Court endeavors to [**39] interpret agreements, including those to arbitrate, as they [*899] are written. HN24 When an agreement specifically states that it is to be governed by the Texas General Arbitration Act, we hold that it will be governed by the Act, which may mean that disputes arising from its terms will be excluded from arbitration. Thus, the TAA applies to the arbitration agreement between the Waggoners (No. 09-0474) and Olshan and renders it unenforceable. See TEX. CIV. PRAC. & REM. CODE § 171.002(a)(2). The trial court did not err by denying Olshan’s plea in abatement, and the court of appeals denied relief. We also deny mandamus relief in the Waggoner case. However, where an arbitration agreement states that it is to be governed by the law of this state, that law includes the Federal Arbitration Act. Because it is proper to apply the FAA to the Kilpatrick (No. 09-0432), Tisdale (No. 09-0433), and Tingdale (No. 09-0703) agreements that use such language, the FAA preempts the provisions of section 171.002(a)(2) that would otherwise render those agreements unenforceable. And the parties opposing arbitration in those three cases did not submit legally sufficient evidence that arbitration of their claims would [**40] be unconscionable. Therefore, the trial court erred by denying Olshan’s pleas in abatement, and we conditionally grant mandamus relief in the Kilpatrick, Tisdale, and Tingdale cases and remand those cases to the trial court for further proceedings consistent with this opinion. We are confident that the trial courts will comply, and the writs will issue only if they fail to do so. Dale Wainwright Justice OPINION DELIVERED: December 3, 2010 Concur by: Nathan L. Hecht; MEDINA Concur JUSTICE HECHT, concurring, in which JUSTICE MEDINA joined. I join fully in the Court’s opinion and write only with this further observation. Page 18 of 19 328 S.W.3d 883,[*899] ; 2010 Tex. LEXIS 897, **41 The homeowners contend that the contracts at issue violated the Texas Home Solicitation Act 1 because they did not contain the requisite notice of their right to cancellation and are therefore void by express provision of the Act. ^[2] In response, Olshan tells us in its briefing only that it ″will present its defenses . . . in the arbitral forum″. Asked at oral argument what defenses it has to the homeowners’ contention that their contracts, including the arbitration provisions, are void and unenforceable, counsel answered that ″there might be an estoppel defense″ because the homeowners did not [**41] challenge the validity of the contracts until work was completed. Counsel also argued that even if the contracts are void, the arbitration provision is severable and valid, and the homeowners [*900] must still submit their complaints to arbitration. Olshan has cited no authority for either of these arguments. The homeowners acknowledge that, as the Court notes, the validity of the contracts is a matter for the arbitrator to decide. ^[3] But the homeowners argue that the invalidity of the contracts is a foregone conclusion and that ″the entire process . . . will be a needless waste of time, energy, and money″. 4 I agree with the Court that even if this is true, the contracts are not unconscionable. But being led on a wild goose chase, 5 if that is all arbitration comes to, is not without remedy. If, as the homeowners predict, the arbitrator concludes that the contracts are indeed void, Olshan and its counsel are subject to being sanctioned by the trial court for filing a groundless motion to compel arbitration. 6 The trial court certainly has the authority to sanction frivolous resistance to arbitration, and sanctions are not a one-way ratchet. The court’s authority to sanction a frivolous motion to compel is not displaced by the arbitrator’s authority to determine the predicate issue-that the contracts are unenforceable. If the dispute returns to the trial court, the homeowners may seek full redress for Olshan’s lark. Nathan L. Hecht Justice Opinion delivered: December 3, 2010 1 Act of May 18, 1973, 63rd Leg., R.S., ch. 246, § 1, 1973 Tex. Gen. Laws 574, codified as TEX. REV. CIV. STAT. ANN. art. 5069-13.01, amended by Act of April 4, 1975, 64th Leg., R.S., ch. 59, § 1, 1975 Tex. Gen. Laws 124, and by Act of May 27, 1995, 74th Leg., R.S., ch. 926, § 1, 1995 Tex. Gen. Laws 4649, recodified by Act of May 24, 1997, 75th Leg., R.S., ch. 1008, § 3, 1997 Tex. Gen. Laws 3091, 3583, as TEX. BUS. & COM . CODE §§ 39.001-.009, and by Act of May 15, 2007, 80th Leg., R.S., ch. 885, § 2.01, 2007 Tex. Gen. Laws 1905, 2026, as TEX. BUS. & COM . CODE §§ 601.001-.205. 2 Section 601.201, TEX. BUS. & COM . CODE, provides that ″[a] sale or contract entered into under a consumer transaction in violation of . . . Subchapter D is void.″ Section 601.152, in subchapter D, states: ″A merchant may not: (1) at the time the consumer signs the contract pertaining to a consumer transaction or [**42] purchases the goods, services, or real property, fail to inform the consumer orally of the right to cancel the transaction; or (2) misrepresent in any manner the consumer’s right to cancel.″ The prior versions of the Act contained substantively identical provisions. Former TEX. BUS. & COM . CODE. § 39.008(a)(3)-(4) & (b); TEX. REV. CIV . STAT . ANN. art. 5069-13.03(a)(3)-(4) & (b). 3 Ante at (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967)). 4 E.g., Brief of Real Parties in Interest Kenneth and Vickie Kilpatrick at 21. 5 See WILLIAM SHAKESPEARE, ROMEO AND JULIET act 2, sc. ^[4]: ″Romeo: Switch and spurs, switch and spurs; or I’ll cry a match. ″Mercutio: Nay, if thy wits run the [**43] wild-goose chase, I have done; for thou hast more of the wild-goose in one of thy wits than, I am sure, I have in my whole five.″ 6 TEX. R. CIV. P. 14; TEX. CIV. PRAC. & REM . CODE §§ 9.001-.014, 10.001-.006. Page 19 of 19 | | Positive As of: September 1, 2015 5:34 PM EDT In re Serv. Corp. Int’l Supreme Court of Texas August 29, 2002, Delivered NO. 01-0650 Reporter 85 S.W.3d 171; 2002 Tex. LEXIS 132; 45 Tex. Sup. J. 1241 IN RE SERVICE CORPORATION INTERNATIONAL, ROBERT L. WALTRIP, L. WILLIAM HEILIGBRODT, AND GEORGE R. CHAMPAGNE, RELATORS Prior History: In re Serv. Corp. Intl, 234 F.3d 29, 2000 U.S. App. LEXIS 26967 (5th Cir. Tex., 2000) Disposition: [**1] Petition for writ of mandamus conditionally granted. Core Terms relators, arbitration, federal court, merger, state court, trial court, waived, right to arbitration, state law claim, discovery, per curiam, Securities, litigate, compel arbitration, judicial process, mandamus, parties, invoke Case Summary Procedural Posture Relator officers moved the trial court, Texas, to compel respondent shareholders’ security litigation claims to arbitration. The trial court denied the officers’ motion and the officers sought a writ of mandamus. Overview The officers were involved in two lawsuits involving their roles as officers in two publicly traded corporations and allegations of securities fraud in a merger transaction. One action had been filed in federal court and involved only federal claims, and the instant action involved only state law claims. The shareholders were in the instant action were bound by an arbitration agreement covering all their claims, but most of the federal plaintiffs were not. The shareholders argued that the officers waived any right to arbitrate by delaying their request for arbitration, opposing a trial setting, and proceeding in federal court. The state supreme court noted that there was a strong presumption against waiver of arbitration. The court noted that the officers’ delay in moving to compel arbitration or objecting to the shareholders’ request for a trial setting did not waive their right to compel arbitration as the shareholders did not demonstrate any prejudice by the delay. The officers action reflected efforts to avoid litigation and not participate it. The denial of their motion to compel arbitration was reversed. Outcome The officers’ petition for mandamus was granted, and the trial court was directed to promptly to vacate its order denying the officers’ to compel arbitration and to grant the motion as to the shareholders. 85 S.W.3d 171,[*171] ; 2002 Tex. LEXIS 132, **1 LexisNexis® Headnotes Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN1 The Federal Arbitration Act, 9 U.S.C.S. §§ 1-307 establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 The Texas Supreme Court has held that under the federal statute, courts will not find that a party has waived its right to enforce an arbitration clause by merely taking part in litigation unless it has substantially invoked the judicial process to its opponent’s detriment. There is a strong presumption against waiver. The Texas Supreme Court has also held that whether a party’s conduct waives its arbitration rights under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-307 is a question of law. Civil Procedure > Discovery & Disclosure > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN3 The filing of a motion to dismiss the claims of class members does not waive arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN4 Only prior litigation of the same legal and factual issues as those the party now wants to arbitrate results in waiver of the right to arbitrate. Opinion [*172] ON PETITION FOR WRIT OF MANDAMUS Per Curiam Relators in this original mandamus proceeding are the four defendants in both a federal court class action involving only federal law claims and a state court action involving only state law claims. Both actions raise Page 2 of 5 85 S.W.3d 171,[*172] ; 2002 Tex. LEXIS 132, **1 similar but not identical factual allegations of securities fraud in a merger transaction. The two plaintiffs in the state court action are members of the class in federal court. At least one of the plaintiffs in state court is bound by an arbitration agreement covering all his claims, state and federal, but almost all of the other members of the class in federal court are not. Relators moved the state to compel arbitration of the state law claims, and the plaintiffs responded that relators had waived any right to arbitration by delay and because of their willingness to litigate the federal law claims in federal court. The trial court denied relators’ motion. We conclude that this was an abuse of discretion remediable by mandamus. Service Corporation International and Equity Corporation International, [**2] two large, publicly traded corporations engaged in the death care business, merged in a stock-for-stock transaction in January 1999. One week later, SCI announced that its earnings for the prior quarter were lower than expected, and its stock fell. Within days, more than twenty identical class actions were filed in federal courts against SCI and three of its officers at the time of the merger 1 alleging securities fraud. The actions were consolidated, 2 and in August 1999 a class was certified that included all SCI shareholders other than its officers at the time of the merger. The four defendants, relators in the proceeding now before us, moved to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995. 3 The parties here tell us that this [*173] motion remains pending and has the effect of staying proceedings in federal court. [**3] James P. Hunter, III, ECI’s chairman and chief executive officer, and the James P. Hunter, III Family Trust (collectively, ″the Hunters″) were major shareholders in ECI and received SCI stock in the merger. The Hunter Family Trust was thus a member of the class in federal court, but Hunter himself was excluded because he had become an officer of SCI as part of the merger. In November 1999, a little over two months after the class was certified, the Hunters filed suit in state court against SCI and the three individual defendants in the federal action, along with three other SCI officers and its accountant, PricewaterhouseCoopers. The Hunters’ factual allegations are much like those made in federal court, but there are differences. For example, an allegation made only in federal court is that SCI failed to disclose that its pre-need funeral business was a drain on profits. Also, the Hunters argue that they complain only of misrepresentations made near the time of the merger while class members who obtained SCI stock independent of the merger may not be able to recover absent proof of misrepresentations made long before the merger closed. And just as the federal action does not involve [**4] any state law claims, the state action does not involve any federal law claims. Relators moved the federal court in December 1999 to stay all discovery in the state action under the Securities Litigation Uniform Standards Act of 1998, 4 and the court heard the motion in May 2000. At that hearing, in response to questions from the court, SCI suggested that Hunter be made a member of the class. The court issued two orders, one amending the class definition to include Hunter, and the other staying discovery in the state action as relators had requested and also ordering on its own initiative that the Hunters litigate all of their claims in the federal action. The Fifth Circuit vacated the second order in September 2000, holding that the district court was not authorized to prohibit the Hunters from opting out of the class and pursuing their claims elsewhere. ^[5] Relators immediately renewed their motion to stay discovery in state court, and the federal court granted the motion a few days later. ^[1] They are Robert L. Waltrip, L. William Heiligbrodt, and George R. Champagne. ^[2] In re Service Corp. Int’l, Civil No. H-99-280 (S.D. Tex.). 3 Pub. L. No. 104-67, 109 Stat. 737 (1995). 4 Pub. L. No. 105-353, 112 Stat. 3227 (1998). 5 In re Service Corp. Int’l, 234 F.3d 29, 2000 U.S. App. LEXIS 26967, No. 00-20451 (5th Cir., Sept. ^[13], 2000) (per curiam) (unpublished). Page 3 of 5 85 S.W.3d 171,[*173] ; 2002 Tex. LEXIS 132, **5 [**5] Since the federal court had not stayed all proceedings in state court, the Hunters moved the state court for a preferential trial setting. In February 2001, the same day that motion was heard, relators and the other defendants in state court filed a motion to compel arbitration of the Hunters’ state law claims, based on the following provision in the merger agreement between SCI and ECI: upon the request of any party (defined for the purpose of this provision to include affiliates, principles [sic] and agents of any such party), any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement or any agreement executed in connection herewith or contemplated hereby, . . . shall be finally resolved by mandatory and binding arbitration in accordance with the terms hereof. In a written response, the Hunters urged that relators had waived any right to arbitrate by delaying their request for arbitration, opposing a trial setting, and proceeding in federal court. The Hunters agreed to nonsuit the four defendants other than relators. At the hearing on relators’ motion, [*174] the Hunter Family Trust also argued that it was not covered by the arbitration [**6] agreement, an argument it had not made in the written response to relators’ motion. The trial court denied the motion, and the court of appeals denied mandamus relief. 6 The parties agree that the arbitration provision is governed by the Federal Arbitration Act. 7 In the words of the United States Supreme Court, HN1 ″The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.″ 8 HN2 We have held that under the federal statute, ″Courts will not find that a party has waived its right to enforce an arbitration clause by merely taking part in litigation unless it has substantially invoked the judicial process to its opponent’s detriment.″ 9 [**7] There is a strong presumption against waiver. 10 We have also held that ″whether a party’s conduct waives its arbitration rights under the Federal Arbitration Act is a question of law.″ 11 [**8] Relators’ delay in moving to compel arbitration and their opposition to the Hunters’ request for a trial setting do not amount to a waiver of arbitration. Neither involved a substantial invocation of the state judicial process. During the delay relators sought no relief from the state court, and their objection to a trial setting reflects an intent to avoid the state judicial process, not invoke it. Moreover, we have held that ″[a] party does not waive a right to arbitration merely by delay; instead, the party urging waiver must establish that any delay resulted in prejudice.″ 12 To show prejudice from delay, the Hunters argue only that they would not have had to appeal the federal court order requiring them to try all their claims in federal court had relators earlier asked for arbitration of the state law claims. But relators did not invoke the federal court issuance of that portion of its order; the federal court issued that part of the order on its own initiative, and it is far from clear that the court would have ruled differently had arbitration already been requested. The Hunters complain that relators defended the federal court’s order on appeal, and to some extent they [**9] did, although the Fifth Circuit noted 6 In re Service Corp. Int’l, No. 09-01-252-CV (Tex. App.--Beaumont, order issued June 29, 2001) (per curiam) (unpublished). 7 9 U.S.C. §§ 1-307. 8 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). 9 In re Bruce Terminix Co., 988 S.W.2d 702, 704, 41 Tex. Sup. J. 941 (Tex. 1998) (per curiam) (citing Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir. 1991)); accord, EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89, 40 Tex. Sup. J. 104 (Tex. 1996) (per curiam) (citing Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986) ). 10 Bruce Terminix, 988 S.W.2d at 704 (citing Moses H. Cone, 460 U.S. at 24); EZ Pawn, 934 S.W.2d at 89 (same); Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896, 898, 39 Tex. Sup. J. 116 (Tex. 1995) (per curiam) (same). 11 Bruce Terminix, 988 S.W.2d at 703-704 (citing Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986)). 12 Prudential Securities, 909 S.W.2d at 898-899 (citing Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) ). Page 4 of 5 85 S.W.3d 171,[*174] ; 2002 Tex. LEXIS 132, **9 that relators argued that the federal district court ″did not intend [the] effect″ its language had. In any event, the detriment to the Hunters was caused by the federal court’s ruling, not by relators’ defense of it. [*175] The Hunters’ principal argument is that relators have waived arbitration of the state law claims by invoking the federal judicial process -- specifically, by moving to dismiss the complaint, moving for a stay of state court discovery, supporting Hunter’s inclusion in the class, and otherwise indicating a willingness to litigate in federal court. We do not agree. HN3 The filing of a motion to dismiss the claims of class members, almost all of whom are not subject to arbitration, did not waive arbitration. ^[13] The effect of that motion was to stay discovery in federal court, and federal law authorized a stay of [**10] discovery in state court. Relators’ efforts in moving to dismiss and staying discovery were to avoid litigation, not participate in it. Including Hunter in the class was the federal court’s suggestion in which relators at most acquiesced. The Hunters would have a stronger position if the federal and state claims were more alike. Regarding the similarity of the state and federal claims, the parties have maintained flexibility. In opposing a trial setting, relators told the state court that the claims are ″virtually identical″ while the Hunters characterized them as ″quite different″; now relators tell us that the claims are ″different″ while the Hunters embrace relators’ earlier view that they are ″virtually identical″. The truth, as we have noted, is that the federal and state actions are quite similar, arising as they do out of the same merger transaction, yet different in several particular respects. [**11] The important thing, however, is that almost all of the class members’ claims cannot be arbitrated. Relators should not be forced to arbitrate the Hunters’ federal claims alone of all the other class members in order to preserve their right to arbitrate state claims that only the Hunters have asserted. The Fifth Circuit has held that ″a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate.″ 14 We do not read this to suggest that a party has unlimited freedom to decide to arbitrate some interrelated claims and litigate others. On the other hand, the arbitration provision involved here gave parties the right to arbitrate ″any dispute, controversy or claim″ related to the merger agreement. This provision is broad enough to permit relators to litigate the Hunters’ federal claims with those other class members while insisting on arbitration of the Hunters’ state claims. [**12] The Hunter Family Trust argues that it is not subject to the arbitration provision. It did not raise this argument in its written response to relators’ motion to compel but mentioned it at the hearing on the motion. Although relators asserted in their motion to compel arbitration that the provision extended to the Hunter Family Trust, they now contend that the issue is not before us because it is not clear that the trial court ruled on it. The issue involves arguments that we think should be addressed by the trial court in the first instance, and therefore we express no opinion on the subject. We leave the matter for further consideration by the trial court. We conclude that as a matter of law relators did not waive their right to arbitrate the Hunters’ state law claims, and [*176] that the trial court therefore abused its discretion in denying the relators’ motion on this basis. For reasons we have explained in similar contexts, relators have no adequate legal remedy. 15 Accordingly, we grant relators’ petition for mandamus and without hearing oral argument 16 direct the trial court promptly to vacate its order of May 7, 2001, denying relators’ motion to compel arbitration, and to grant [**13] the motion as to James P. Hunter, III. We are confident the trial court will comply, and our writ will issue only if it does not.

[*763] courts have agreed. HN6 We remain mindful of the importance of keeping federal and state law uniform so that arbitrability does not depend on where one seeks to compel it. Kellogg, 166 S.W.3d at 739.

We agree with Cashion that he would not be required to arbitrate a tortious interference claim [**9] against a complete stranger to his contract and its arbitration clause. But he did not sue any strangers here; every defendant is a current or former owner, officer, agent, or affiliate of States General, with whom he agreed to arbitrate these disputes. Cashion also asserts that several of the relators waived any right to arbitration by litigating for two years in the trial court. HN7 There is a strong presumption against waiver under the FAA. See In re Serv. Corp. Int’l, 85 S.W.3d 171, 174, 45 Tex. Sup. Ct. J. 1241 (Tex. 2002). Merely taking part in litigation is not enough unless a party ″has substantially invoked the judicial process to its opponent’s detriment.″ Id. (internal citations omitted). Delay alone generally does not establish waiver. Id. According to the affidavit of one of his attorneys, Cashion incurred more than $ 200,000 in expenses and fees due to ″prolonged and extensive discovery″ that ″would not have been allowed or occurred in an arbitration.″ The record shows that Cashion’s pre-trial costs were largely self-inflicted -- he sent far more discovery requests than he received, and amended his petition at least eleven times. The relators did not ″shower″ him with interrogatories [**10] and discovery requests, see Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 898 (5th Cir. 2005); other than standard requests for disclosure (all requiring the same responsive information, see TEX. R. CIV. P. 194.2), they noticed a total of four depositions, and the Vesta defendants each sent a request for production. Because Cashion offered none of these documents in the trial court and presented no details about any of them, the record does not show whether these requests were limited or extensive, whether they sought information for affirmative claims or defensive ones, or even whether they addressed the merits or merely the arbitration issue. Further, Cashion does not allege that the discovery already conducted would not be useful in arbitration; to the contrary, he concedes it would be useful whether the case is arbitrated or tried. See In re Bruce Terminix Co., 988 S.W.2d 702, 704, 41 Tex. Sup. Ct. J. 941 (Tex. 1998) (noting that even substantial invocation of judicial process does not constitute waiver absent proof of prejudice). On this record, Cashion has not demonstrated sufficient prejudice to overcome the strong presumption against [**11] waiver.

[*764] Cashion’s attorney also averred that Vesta and Cronin successfully moved to dismiss his commercial bribery claims against them, and that Walker unsuccessfully moved for summary judgment. But the former motions sought dismissal for lack of standing rather than on the merits, and the record reveals nothing about the latter as it was never tendered into the record or described in any particulars. Without more details than this, Cashion has not shown that the relators substantially invoked the judicial process enough to overcome the strong presumption against waiver. 1999, no pet.) (same in suit by one signatory against corporate affiliate of the other, as well as the affiliate’s officers and directors); Carlin v. 3V, Inc., 928 S.W.2d 291, 297 (Tex. App-Houston [14th Dist.] 1996, no writ) (same in suit by one signatory against sister corporation of the other); Valero Energy Corp. v. Wagner & Brown, II, 777 S.W.2d 564, 565 (Tex. App.-El Paso 1989, writ denied) (same in suit by one signatory against other signatory and affiliates); Lette v. Brooke Corp., 2004 Tex. App. LEXIS 7205, No. 13-02-00527-CV, 2004 WL 1797578, at *5-6 (Tex. App.--Corpus Christi, Aug. 12, 2004, pet. denied) (not designated for publication) (same in suit by one signatory against corporate affiliates of signatory buyer). But see Fridl v. Cook, 908 S.W.2d 507, 513 (Tex. App.-El Paso 1995, writ dism’d w.o.j.) (refusing to compel arbitration of suit alleging tortious interference brought by one signatory against sole shareholder and alleged alter ego of the other because of independent fraud claim). 6 See, e.g., Grigson v. Creative Artists Agency, 210 F.3d 524, 527-28 (5th Cir. 2000) (compelling arbitration of suit alleging tortious interference and other claims brought by one signatory against third parties); Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Intern., Inc., 198 F.3d 88, 97-99 (2d Cir. 1999) (same in suit by one signatory against corporate affiliates of the other); Sunkist Soft-Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757-758 (11th Cir. 1993) (same in suit by one signatory against corporate affiliates of the other); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-321 (4th Cir. 1988)(same in suit by one signatory against corporate affiliates of the other); Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 839, 841, n. 9 (7th Cir. 1981) (same in suit by one signatory against construction manager hired by the other). Page 5 of 6

192 S.W.3d 759,[*764] ; 2006 Tex. LEXIS 220, **11 The contract also specified the time limits for arbitration demands.

Construction on the project began in July 1975. Performance was to be completed by October 1979. 3 In fact, construction was substantially completed in February 1979, and final inspections were made that June.

[*6] At a meeting in October 1977 (during construction), attended by representatives of Mercury, the Hospital, and the Architect, Mercury agreed, at the Architect’s request, to withhold its claims for delay and impact costs (i. e., claims for extended overhead or increase in construction costs due to delay or inaction by the Hospital) until the work was substantially completed. On this record, the Hospital does not contest the existence of this agreement, although it asserts that the Architect lacked [**932] authority to agree to a delay in presentation of claims or to entertain claims after the contract work was completed.

In January 1980, Mercury submitted to the Architect its claims for delay and impact costs. Mercury and [***774] the Architect discussed the claims over several months, substantially reducing the amount of the claims. According to the Hospital, it first learned of the existence of Mercury’s claims in April 1980; its lawyers assumed active participation in the claim procedure in May. The parties differ in their characterizations of the events of the next few months -- whether there were ″ongoing negotiations,″ or merely an ″investigation″ by the Hospital. In any event, it appears from the record that lawyers for the Hospital requested additional information concerning Mercury’s claims. As a result, on August 12, 1980, Mercury gave a detailed presentation of its claims at a meeting attended by Mercury’s representatives and lawyers, the Hospital’s representatives and lawyers, and representatives of the Architect. Mercury agreed to send copies of its files to an expert hired by the Hospital, and the parties agreed to meet again on October 13. 1 The Architect was given final say on ″matters relating to artistic effect.″ App. 28-29. The contract also excluded arbitration on any claim waived by the making or acceptance of final payment. Id., at 29. Neither of these exceptions is asserted to apply in this case. ^[2] The contract provided that no demand for arbitration could be made later than 30 days after the Architect’s written final decision. In the case of arbitrable disputes not subject to submission to the Architect, the demand was required to be made ″within a reasonable time after the claim . . . has arisen,″ and in no event after the applicable statute of limitations had run. Id., at 29-30. The contract also set a starting time limit for arbitration demands. No demand could be made earlier than 10 days after presentation of evidence to the Architect, unless the Architect rendered a written decision before that time. Id., at 29. 3 The completion date, originally set as November 14, 1978, was extended to October 1979 by agreement of the parties. Page 13 of 28

460 U.S. ^[1], *6; 103 S. Ct. 927, **932; 74 L. Ed. 2d 765, ***774

On October 6, Mercury’s counsel telephoned the Hospital’s counsel to confirm that the scheduled meeting would go forward. The Hospital’s counsel said he would call back the next day. When he did, he informed Mercury’s counsel that the Hospital would pay nothing on Mercury’s claim. He also said that the Hospital intended to file a declaratory judgment action in North Carolina state court. [*7] True to its word, the Hospital filed an action on the morning of October 8 in the Superior Court of Guilford County, N. C., naming Mercury and the Architect as defendants. The complaint alleged that Mercury’s claim was without factual or legal basis and that it was barred by the statute of limitations. It alleged that Mercury had lost any right to arbitration under the contract due to waiver, laches, estoppel, and failure to make a timely demand for arbitration. The complaint also alleged various delinquencies on the part of the Architect. As relief, the Hospital sought a declaration that there was no right to arbitration; a stay of arbitration; a declaration that the Hospital bore no liability to Mercury; and a declaration that if the Hospital should be found liable in any respect to Mercury, it would be entitled to indemnity from the Architect. The complaint was served on Mercury on October 9. On that same day, Mercury’s counsel mailed a demand for arbitration. On October 15, without notice to Mercury, the Hospital obtained an ex parte injunction from the state court forbidding Mercury to take any steps directed toward arbitration. Mercury objected, and the stay was dissolved on October 27. As soon as the stay was lifted, Mercury filed the present action in the District Court, seeking an order compelling arbitration under § 4 of the Arbitration Act, 9 U. S. C. § 4. 4 Jurisdiction was based on diversity of citizenship. On the Hospital’s motion, the District Court stayed Mercury’s federal-court suit pending resolution of the state-court suit because [***775] the two suits involved the identical issue of the arbitrability of Mercury’s claims. App. to Pet. for Cert. A-38. [*8] Mercury sought review of the District Court’s stay by both a notice of appeal and a petition for mandamus. A panel of the Court of Appeals for the Fourth Circuit heard argument in the case, but before the panel issued any decision, the court informed the parties that it would consider the case en banc. After reargument, the en banc court held that it had appellate jurisdiction over the case under 28 U. S. C. § 1291. It reversed the District Court’s stay order and remanded the case to the [**933] District Court with instructions for entry of an order to arbitrate. II Before we address the propriety of the District Judge’s stay order, we must first decide whether that order was appealable to the Court of Appeals under 28 U. S. C. § 1291. 5 LEdHN[2] [2]Mercury sought appellate review through two alternative routes -- a notice of appeal under § 1291, and a petition for mandamus under the All Writs Act, 28 U. S. C. § 1651. 6 Mercury expressly stated that its appeal was based only on § 1291, and not on 28 U. S. C. § 1292 (relating to interlocutory appeals). The 4 Simultaneously, Mercury filed a petition for removal of the Hospital’s state-court action. The District Court remanded the removed case on the ground that, because the Hospital and the Architect are both North Carolina corporations, there was no complete diversity. The propriety of the removal or remand is not before this Court. ^[5] Section 1291 provides in relevant part: HN1 ″The courts of appeals shall have jurisdiction of appeals from all final decisions of the district courts of the United States, . . . except where a direct review may be had in the Supreme Court.″ 6 The Hospital argues that because Mercury’s filing in the Court of Appeals was styled a petition for mandamus first and a notice of appeal only ″in the alternative,″ the Hospital was somehow entitled to have the Court of Appeals apply the stricter standards of review that obtain under the mandamus procedure before considering any appeal. Brief for Petitioner 30-31. We do not understand why this order of proceeding would be of any benefit to the Hospital; but in any event the contention is frivolous. In the first place, Mercury also filed a proper notice of appeal in the District Court, see Fed. Rule App. Proc. 3(a). More fundamentally, a court of appeals has no occasion Page 14 of 28 460 U.S. ^[1], *8; 103 S. Ct. 927, **933; 74 L. Ed. 2d 765, ***775 Hospital contends that the order appealed from was not a ″final [decision]″ within § 1291. We [*9] disagree and hold that the stay order was final for purposes of appellate jurisdiction. Idlewild Liquor Corp. v. Epstein, 370 U.S. 713 (1962), is instructive in this regard. There the plaintiff brought a federal suit challenging the constitutionality of a state statute. The District Judge declined to convene a three-judge court and stayed the federal suit under the Pullman abstention doctrine. 7 We held that the District Court’s action was final and therefore reviewable by the Court of Appeals, stating: ″The Court of Appeals properly rejected the argument that the order of the District Court ’was not final and hence unappealable under 28 U. S. C. §§ 1291, 1292,’ pointing out that ’[appellant] was effectively [***776] out of court.’″ 370 U.S., at 715, n. 2. 8 [*10] Here, the argument for finality of the District Court’s order is even clearer. [**934] HN3 A district court stay pursuant to Pullman abstention is entered with the expectation that the federal litigation will resume in the event that the plaintiff does not obtain relief in state court on state-law grounds. ^[9] Here, by contrast, the District Court predicated its stay order on its conclusion that the federal and state actions involved ″the identical issue of arbitrability of the claims of Mercury Construction Corp. against the Moses H. Cone Memorial Hospital.″ App. to Pet. for Cert. A-38. That issue of arbitrability was the only substantive issue present in the federal suit. Hence, a stay of the federal suit pending resolution of the state suit meant that there would be no further litigation in the federal forum; the state court’s judgment on the issue would be res judicata. 10 Thus, here, even more surely than in Idlewild, Mercury was ″effectively out of court.″ Hence, as the Court of Appeals held, this stay order amounts to a dismissal of the suit. ^[11] to engage in extraordinary review by mandamus ″in aid of [its] [jurisdiction],″ 28 U. S. C. § 1651, when it can exercise the same review by a contemporaneous ordinary appeal. See, e. g., Hines v. D’Artois, 531 F.2d 726, 732, and n. 10 (CA5 1976). 7 Railroad Comm’n v. Pullman Co., 312 U.S. 496 (1941). 8 The plaintiff in Idlewild had requested injunctive relief against enforcement of the state statute. Nevertheless, it is clear that neither the Court of Appeals nor this Court based the holding of appealability on the argument that the District Court had effectively denied injunctive relief. See generally 28 U. S. C. § 1292(a)(1); Carson v. American Brands, Inc., 450 U.S. 79 (1981). Section 1292 HN2 in terms applies only to interlocutory orders, and therefore could hardly have been the basis for a holding that the orders were ″final.″ There is no basis for the dissent’s attempt, post, at 33, to distinguish Idlewild on the basis that in that case there was no pending state-court action when the District Court’s stay issued. Neither the Court of Appeals nor this Court suggested in Idlewild that the state court’s doors were anything but wide open to the plaintiff. ″[Effectively] out of court″ means effectively out of federal court -- in keeping with the fact that the decision under appeal is the refusal to exercise federal jurisdiction. Moreover, the dissent’s resolution of the appealability issue would yield the odd result that Pullman abstention orders would be immediately appealable in Texas but not in the other 49 States. Compare American Trial Lawyers Assn. v. New Jersey Supreme Court, 409 U.S. 467 (1973) (stays appropriate in Pullman cases), with Harris County Commissioners Court v. Moore, 420 U.S. 77, 88-89, and n. 14 (1975) (dismissal permissible to accommodate Texas jurisdictional requirements). This oddity illustrates the artificiality of resting appealability on an otherwise substanceless distinction between stays and dismissals in the present context. See Part IV-E, infra. ^[9] See England v. Louisiana Bd. of Medical Examiners, 375 U.S. 411 (1964). 10 See, e. g., Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176, 1183-1184 (CA11 1981); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 397-398 (CA5 1981). 11 See 656 F.2d 933, 937-938, and n. 6 (CA4 1981), citing as dispositive Amdur v. Lizars, 372 F.2d 103, 105-106 (CA4 1967). See also Federman v. Empire Fire & Marine Insurance Co., 597 F.2d 798, 808, and n. 15 (CA2 1979); Baltimore Bank for Cooperatives v. Farmers Cheese Cooperative, 583 F.2d 104, 108-109 (CA3 1978); Sun Oil Co. v. FEA, 572 F.2d 867 (Temp. Emerg. Ct. App. 1978); Rancho Palos Verdes Corp. v. Laguna Beach, 547 F.2d 1092, 1093, n. 1 (CA9 1976); Hines v. D’Artois, supra, at 730-732; Drexler v. Southwest Dubois School Corp., 504 F.2d 836, 838 (CA7 1974) (en banc); Druker v. Sullivan, 458 F.2d 1272, 1274, n. 3 (CA1 1972). But see Acton Corp. v. Borden, Inc., 670 F.2d 377, 380-382 (CA1 1982); State Farm Mutual Automobile Insurance Co. v. Scholes, 601 F.2d 1151, 1153-1154 (CA10 1979); Frederick L. v. Thomas, 578 F.2d 513, 515-516 (CA3 1978) (dictum). Page 15 of 28 460 U.S. ^[1],[*11] ; 103 S. Ct. 927, **934; 74 L. Ed. 2d 765, ***776 [*11] [***777] LEdHN[3] [3]In any event, if the District Court order were not final for appealability purposes, it would nevertheless be appealable within the exception to the finality rule under Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949). The factors required to show finality under this exception have been summarized as follows: HN7 ″To come within the ’small class’ of decisions excepted from the final-judgment rule by Cohen, the order must conclusively determine the disputed question, resolve an important issue completely [**935] separate from the merits of the action, and be effectively unreviewable on appeal [*12] from a final judgment.″ Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978) (footnote omitted). 12 There can be no dispute that this order meets the second and third of these criteria. An order that amounts to a refusal to adjudicate the merits plainly presents an important issue separate from the merits. ^[13] For the same reason, this order would be entirely unreviewable if not appealed now. Once the state court decided the issue of arbitrability, the federal court would be bound to honor that determination as res judicata. The Hospital contends nevertheless that the District Court’s stay order did not meet the first of the criteria, namely that it ″conclusively [***778] determine the disputed question.″ But this is true only in the technical sense that every order short of a final decree is subject to reopening at the discretion of the district judge. ^[14] In this case, however, there is [*13] no basis to suppose that the District Judge contemplated any reconsideration Of course, as these cases recognize, Idlewild does not disturb HN4 the usual rule that a stay is not ordinarily a final decision for purposes of § 1291, since most stays do not put the plaintiff ″effectively out of court.″ See, e. g., Amdur, supra, at 105-106. Idlewild’s reasoning is limited to cases where (under Colorado River, abstention, or a closely similar doctrine) the object of the stay is to require all or an essential part of the federal suit to be litigated in a state forum. This answers the dissent’s argument, post, at 33-34, that Idlewild was overruled by that part of Coopers & Lybrand v. Livesay, 437 U.S. 463, 469-477 (1978), which rejected the ″death knell″ doctrine of appealability. The ″death knell″ doctrine rested on the argument that in some situations an interlocutory decision (such as a refusal to certify a class) might terminate a suit as a practical matter because the named plaintiff would lack an economic incentive to pursue his individual claim. In a ″death knell″ case, however, the order sought to be appealed had no legal effect on the named plaintiff’s ability to proceed with his individual claim in federal court. There is an obvious difference between a case in which the plaintiff himself may choose not to proceed, and a case in which the district court refuses to allow the plaintiff to litigate his claim in federal court. HN5 Appeal from a stay on abstention or Colorado River grounds, therefore, presents no prospect of ″appeals of right from nonfinal orders that turn on the facts of a particular case,″ as in Coopers & Lybrand, supra, at 476. We foresee no great difficulty in determining when a district court has surrendered jurisdiction over a federal lawsuit. For much the same reason, the dissent errs in likening the stay in this case to an ordinary delay in the interest of docket control, post, at 30-31. We do not hold that an order becomes final merely because it may have the practical effect of allowing a state court to be the first to rule on a common issue. We hold only that HN6 a stay order is final when the sole purpose and effect of the stay are precisely to surrender jurisdiction of a federal suit to a state court. 12 Accord, Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 375 (1981); United States v. MacDonald, 435 U.S. 850, 854-855 (1978); Abney v. United States, 431 U.S. 651, 658-659 (1977). 13 The ″completely separate from the merits″ requirement is a distillation of the principle that there should not be piecemeal review of ″steps towards final judgment in which they will merge.″ Cohen v. Beneficial Loan Corp., 337 U.S. 541, 546 (1949). In this case, of course, there is no step towards final judgment, but a refusal to proceed at all. ^[14] See Fed. Rule Civ. Proc. 54(b); 18 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4478, pp. 788-792 (1981). Coopers & Lybrand held that the Cohen rule did not apply to a class decertification order because, among other reasons, such an order is ″inherently tentative″ under Federal Rule of Civil Procedure 23(c)(1), which provides that such an order may be ″altered or amended before the decision on the merits.″ 437 U.S., at 469, and n. 11. Of course, as Rule 54(b) provides, virtually all interlocutory orders may be altered or amended before final judgment if sufficient cause is shown; yet that does not make all pretrial orders ″inherently tentative″ in the sense of that phrase in Coopers & Lybrand. The rationale behind Rule 23(c)(1) is that a certification decision should be made ″[as] soon as practicable,″ even though later events or discoveries may mandate a different result. Many other orders, by contrast, are made with the expectation that they will be the final word on the subject addressed. Certainly that was true of the order at issue in this case. Page 16 of 28 460 U.S. ^[1],[*13] ; 103 S. Ct. 927, **935; 74 L. Ed. 2d 765, ***778 of his decision to defer to the parallel state-court suit. He surely would not have made that decision in the first instance unless he had expected the state court to resolve all relevant issues adequately. See Part IV-E, infra. It is not clear why the judge chose to stay the case rather than to dismiss it outright; for all that the record shows, there was no reason other than the form of the Hospital’s motion. Whatever the reason, however, the practical effect of his order was entirely the same for present purposes, and the order was appealable. III We turn now to the principal issue to be addressed, namely, the propriety of the District Court’s decision to stay this federal suit out of deference to the parallel litigation brought in state court. Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), provides persuasive guidance in deciding this question. A Colorado River involved the effect of the McCarran Amendment, 66 Stat. 560, 43 U. S. C. § 666, on the existence and exercise of federal-court jurisdiction to adjudicate federal water rights, 28 U. S. C. § 1345. The Amendment waives the Government’s [**936] sovereign immunity to permit the joinder of the United States in some state-court suits for the adjudication of water rights. In Colorado River, however, the Government proceeded in Federal District Court, bringing suit against some 1,000 nonfederal water users, seeking a declaration of the water rights of certain federal entities and Indian tribes. Shortly thereafter, a defendant in that suit [*14] sought to join the United States in a state-court proceeding for the comprehensive adjudication and administration of all water rights within the river system that was the subject of the federal-court suit. The District Court dismissed the federal suit, holding that the abstention doctrine required deference to the state-court proceedings. [***779] The Court of Appeals for the Tenth Circuit reversed, holding that the suit of the United States was within the District Court’s jurisdiction under 28 U. S. C. § 1345 and that abstention was inappropriate. We reversed the judgment of the Court of Appeals and affirmed the judgment of the District Court dismissing the complaint. We began our analysis by examining the abstention doctrine in its various forms. We noted: HN8 ″Abstention from the exercise of federal jurisdiction is the exception, not the rule. ’The doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest.’″ 15 After canvassing the three categories of abstention, we concluded that none of them applied to the case at hand. 424 U.S., at 813-817. 16 Nevertheless, we held that the District Court’s dismissal was proper on another ground -- one resting not on considerations of state-federal comity or on avoidance of constitutional [*15] decisions, as does abstention, but on ″considerations of ’[wise] judicial administration, giving regard to conservation of judicial resources and The reasoning of Coopers & Lybrand does not reach all pretrial orders that are formally subject to revision, but only those as to which some revision might reasonably be expected in the ordinary course of litigation. 15 424 U.S., at 813, quoting County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-189 (1959). 16 There is no contention here that any of the categories of the abstention doctrine apply to this case. Page 17 of 28 460 U.S. ^[1],[*15] ; 103 S. Ct. 927, **936; 74 L. Ed. 2d 765, ***779 comprehensive disposition of litigation.’″ 17 We noted that HN9 ″ ’the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction,’″ and that the federal courts have a ″virtually unflagging obligation . . . to exercise the jurisdiction given them.″ 18 We continued: ″Given this obligation, and the absence of weightier considerations of constitutional adjudication and state-federal relations, the circumstances permitting the dismissal of a federal suit due to the presence of a concurrent state proceeding for reasons of wise judicial administration are considerably more limited than the circumstances appropriate for abstention. The former circumstances, though exceptional, do nevertheless exist.″ Id., at 818. We declined to prescribe a hard-and-fast rule for dismissals of this type, but instead described some of the factors relevant to the decision. ″It has been held, for example, that the HN10 court first assuming jurisdiction over property may exercise [***780] that jurisdiction to [**937] the exclusion of other courts. . . . In assessing the appropriateness of dismissal in the event of an exercise of concurrent jurisdiction, a federal court may also consider such factors as the inconvenience of the federal forum; the desirability of avoiding piecemeal litigation; and the order in which jurisdiction was obtained by the concurrent forums. No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction [*16] and the combination of factors counselling against that exercise is required. Only the clearest of justifications will warrant dismissal.″ Id., at 818-819 (emphasis added; citations omitted). LEdHN[4] [4] As this passage makes clear, the decision whether to dismiss a federal action because of parallel state-court litigation does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction. The weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case. Colorado River itself illustrates this principle in operation. By far the most important factor in our decision to approve the dismissal there was the ″clear federal policy . . . [of] avoidance of piecemeal adjudication of water rights in a river system,″ id., at 819, as evinced in the McCarran Amendment. We recognized that the Amendment represents Congress’ judgment that the field of water rights is one peculiarly appropriate for comprehensive treatment in the forums having the greatest experience and expertise, assisted by state administrative officers acting under the state courts. Id., at 819-820. In addition, we noted that other factors in the case tended to support dismissal -- the absence of any substantial progress in the federal-court litigation; the presence in the suit of extensive rights governed by state law; the geographical inconvenience of the federal forum; and the Government’s previous willingness to litigate similar suits in state court. Id., at 820. B Before discussing the application of Colorado River’s exceptional-circumstances test, we must address the Hospital’s argument that that test was undermined by our subsequent decision in Will v. Calvert Fire Insurance Co., 437 U.S. 655 (1978). We find no merit in this argument for at least two reasons. [*17] The Hospital relies on the opinion of JUSTICE REHNQUIST, announcing the judgment of the Court. The Hospital argues that JUSTICE REHNQUIST’s opinion, if not expressly overruling Colorado River, at least modifies its holding substantially. But it is clear that a majority of the Court reaffirmed the Colorado River test 17 424 U.S., at 817, quoting Kerotest Mfg, Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183 (1952). 18 424 U.S., at 817, quoting McClellan v. Carland, 217 U.S. 268, 282 (1910). Page 18 of 28 460 U.S. ^[1],[*17] ; 103 S. Ct. 927, **937; 74 L. Ed. 2d 765, ***780 in Calvert. JUSTICE REHNQUIST’s opinion commanded only four votes. It was opposed by the dissenting opinion, in which four Justices concluded that the Calvert District Court’s stay was impermissible under Colorado River. 437 U.S., at 668-669, 672-674 (BRENNAN, J., joined by BURGER, C. J., and MARSHALL and POWELL, JJ., dissenting). JUSTICE BLACKMUN, although [***781] concurring in the judgment, agreed with the dissent that Colorado River’s exceptional-circumstances test was controlling; he voted to remand to permit the District Court to apply the Colorado River factors in the first instance. 19 437 U.S., at 667-668. On remand, the Court of Appeals correctly recognized that the four dissenting Justices and JUSTICE BLACKMUN formed a majority to require application of the Colorado River test. Calvert Fire Insurance Co. v. Will, 586 F.2d 12 (CA7 1978). 20 [*18] [**938] LEdHN[5] [5]Even on the basis of JUSTICE REHNQUIST’s opinion, however, there is an obvious distinction between Calvert and this case. The key to Calvert was the standard for issuance of a writ of mandamus under 28 U. S. C. § 1651. 21 As JUSTICE REHNQUIST stressed, such extraordinary writs are used in aid of appellate jurisdiction only to confine an inferior court to a lawful exercise of its prescribed authority, or to compel it to exercise its authority when it is its duty to do so. The movant must show that his right to the writ is clear and indisputable. 437 U.S., at 661-662, 664, 665-666 (opinion of REHNQUIST, J.). JUSTICE REHNQUIST concluded that the movant in Calvert had failed to meet this burden. At the same time, he noted that the movant might have succeeded on a proper appeal. Id., at 665. In this case we have held that the Court of Appeals did have appellate jurisdiction; it properly exercised that jurisdiction to find that the District Court’s stay was impermissible under Colorado River. [***782] LEdHN[6] [6]The Hospital further contends that Calvert requires reversal here because the opinions of JUSTICE REHNQUIST and [*19] JUSTICE BLACKMUN require greater deference to the discretion of the District Court than was given by the Court of Appeals in this case. HN11 Under both Calvert and Colorado River, of course, the decision whether to defer to the state courts is necessarily left to the discretion of the district court in the first instance. Yet to say that the district court has discretion is not to say that its decision is unreviewable; such discretion must be exercised under the relevant standard prescribed by this Court. In this case, the relevant standard is Colorado River’s exceptional-circumstances test, as elucidated by the factors 19 Our decision in ColoradoRiver came down after the District Court’s stay order in Calvert but before the Court of Appeals issued its mandamus in that case. 20 On remand from our decision in Calvert, the District Court and Court of Appeals concluded that the stay should be continued, but rested that decision on a ground not addressed in the prior Court of Appeals decision (Calvert Fire Insurance Co. v. Will, 560 F.2d 792 (CA7 1977)) or in any of this Court’s opinions in the case. They concluded that the filing of the federal suit was a ″defensive tactical maneuver″ based on a contrived federal claim; hence, a stay was called for as ″a means to deter vexatious use of the federal courts.″ The courts also noted that, in the interim, the basis for the plaintiff’s assertion of exclusive federal jurisdiction had vanished. Calvert Fire Insurance Co. v. American Mutual Reinsurance Co., 600 F.2d 1228, 1234-1236 (CA7 1979), aff’g 459 F.Supp. 859 (ND Ill. 1978). The case did not come before this Court for review a second time. The Court of Appeals in this case relied on similar reasoning. It concluded that, despite chronological priority of filing, the Hospital’s state-court suit was a contrived, defensive reaction to Mercury’s expected claim for relief and for arbitration. 656 F.2d, at 944-945. The reasoning of the Courts of Appeals in this case and in Calvert -- that the vexatious or reactive nature of either the federal or the state litigation may influence the decision whether to defer to a parallel state litigation under Colorado River -- has considerable merit. We need not rely on such reasoning here, however, for we conclude infra that even if the Hospital acted in complete good faith there were no exceptional circumstances warranting the District Court’s stay. 21 The Court of Appeals in Calvert had held that it lacked jurisdiction to entertain an ordinary appeal, apparently because a portion of the federal litigation was the subject of exclusive federal jurisdiction and would therefore remain to be disposed of in federal court after the conclusion of state-court proceedings. Calvert Fire Insurance Co. v. Will, 560 F.2d, at 794, citing Cotler v. Inter-County Orthopaedic Assn., 526 F.2d 537, 540 (CA3 1975). Cf. Drexler v. Southwest Dubois School Corp., 504 F.2d, at 838 (stay of litigation pending exhaustion of state remedies is final under Idlewild). The issue of appellate jurisdiction was not presented to this Court in Calvert. Page 19 of 28 460 U.S. ^[1],[*19] ; 103 S. Ct. 927, **938; 74 L. Ed. 2d 765, ***782 discussed in that case. As we shall now explain, we agree with the Court of Appeals that the District Court in this case abused its discretion in granting the stay. IV LEdHN[1B] [1B] Applying the Colorado River factors to this case, it is clear that there was no showing of the requisite exceptional circumstances to justify the District Court’s stay. The Hospital concedes that the first two factors mentioned in Colorado River are [**939] not present here. There was no assumption by either court of jurisdiction over any res or property, nor is there any contention that the federal forum was any less convenient to the parties than the state forum. The remaining factors -- avoidance of piecemeal litigation, and the order in which jurisdiction was obtained by the concurrent forums -- far from supporting the stay, actually counsel against it. A LEdHN[1C] [1C]There is no force here to the consideration that was paramount in Colorado River itself -- the danger of piecemeal litigation. LEdHN[7A] [7A]The Hospital points out that it has two substantive disputes here -- one with Mercury, concerning Mercury’s claim for delay and impact costs, and the other with the Architect, concerning the Hospital’s claim for indemnity for any liability it may have to Mercury. The latter dispute cannot be sent [*20] to arbitration without the Architect’s consent, since there is no arbitration agreement between the Hospital and the Architect. It is true, therefore, that if Mercury obtains an arbitration order for its dispute, the Hospital will be forced to resolve these related disputes in different forums. That misfortune, however, is not the result of any choice between the federal and state courts; it occurs because the relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement. 22 HN12 Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement. ^[23] If the dispute between Mercury and the Hospital is arbitrable [***783] under the Act, then the Hospital’s two disputes will be resolved separately -- one in arbitration, and the other (if at all) in state-court litigation. Conversely, if the dispute between Mercury and the Hospital is not arbitrable, then both disputes will be resolved in state court. But neither of those two outcomes depends at all on which court decides the question of arbitrability. Hence, a decision to allow that issue to be decided in federal rather than state court does not cause piecemeal resolution of the parties’ underlying disputes. Although [*21] the Hospital will have to litigate the arbitrability issue in federal rather than state court, that dispute is easily severable from the merits of the underlying disputes. B LEdHN[1D] [1D]The order in which the concurrent tribunals obtained and exercised jurisdiction cuts against, not for, the District Court’s stay in this case. The Hospital argues that the stay was proper because the state-court 22 This provides a sharp contrast with the key statute at issue in Colorado River -- the McCarran Amendment. There, as we stressed, the primary policy of the statute was the avoidance of piecemeal litigation. 424 U.S., at 819-820. 23 LEdHN[7B] [7B] E. g., C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228, 1231-1232 (CA7 1977); Acevedo Maldonado v. PPG Industries, Inc., 514 F.2d 614, 617 (CA1 1975); Hamilton Life Insurance Co. v. Republic National Life Insurance Co., 408 F.2d 606, 609 (CA2 1969). In some cases, of course, it may be advisable to stay litigation among the nonarbitrating parties pending the outcome of the arbitration. That decision is one left to the district court (or to the state trial court under applicable state procedural rules) as a matter of its discretion to control its docket. See generally Landis v. North American Co., 299 U.S. 248, 254-255 (1936). Page 20 of 28 460 U.S. ^[1],[*21] ; 103 S. Ct. 927, **939; 74 L. Ed. 2d 765, ***783 suit was filed some 19 days before the federal suit. In the first place, this argument disregards the obvious reason for the Hospital’s priority in filing. An indispensable element of Mercury’s cause of action under § 4 for an arbitration order is the Hospital’s refusal to arbitrate. See n. 27, infra. That refusal did not occur until less than a day before the Hospital filed its state suit. Hence, Mercury simply had no reasonable opportunity to file its § 4 petition [**940] first. Moreover, the Hospital succeeded in obtaining an ex parte injunction from the state court forbidding Mercury to take any steps to secure arbitration. ^[24] Mercury filed its § 4 petition the same day that the injunction was dissolved. 25 LEdHN[8] [8]That aside, the Hospital’s priority argument gives too mechanical a reading to the ″priority″ element of the Colorado River balance. This factor, as with the other ColoradoRiver factors, is to be applied in a pragmatic, flexible manner with a view to the realities of the case at hand. Thus, HN13 priority should not be measured exclusively by which complaint was filed first, but rather in terms of how much progress has been made in the two actions. Colorado River illustrates [*22] this point well. There, the federal suit was actually filed first. Nevertheless, we pointed out as a factor favoring dismissal ″the apparent absence of any proceedings in the District Court, other than the filing of the complaint, prior to the motion to dismiss.″ 424 U.S., at 820. Here, the opposite was true. It was the state-court suit in which no substantial proceedings (excepting [***784] only the abortive temporary injunction) had taken place at the time of the decision to stay. In the federal suit, by contrast, the parties had taken most of the steps necessary to a resolution of the arbitrability issue. 26 In realistic terms, the federal suit was running well ahead of the state suit at the very time that the District Court decided to refuse to adjudicate the case. This refusal to proceed was plainly erroneous in view of Congress’ clear intent, in the Arbitration Act, to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible. HN14 The Act provides two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U. S. C. § 3, and an affirmative order to engage in arbitration, § 4. Both of these sections call for an expeditious and summary hearing, with only restricted inquiry into factual issues. 27 24 Of course we do not mean to say that the state court’s injunction could properly have been applied to prevent Mercury from filing or prosecuting a federal lawsuit. See General Atomic Co. v. Felter, 434 U.S. 12 (1977); Donovan v. City of Dallas, 377 U.S. 408 (1964). Mercury was not obliged, however, to put itself in danger of contempt sanctions merely in order to cut short the period of the Hospital’s priority of filing. 25 See also n. 20, supra. 26 Under § 6 of the Arbitration Act, 9 U. S. C. § 6, Mercury’s application for a § 4 order was properly treated procedurally as a motion. Mercury submitted affidavits, legal briefs, and documentary evidence in support of the order sought. The Hospital responded with full briefing and extensive evidentiary submissions on the arbitrability issue, and it requested oral argument and a jury trial. At the same time, it made its successful motion for a stay. It is readily apparent that if the District Court had denied the stay, it doubtless could and should have gone on to decide the arbitrability point in very short order. 27 HN15 Section 3 provides that if a suit is brought on the merits of a dispute covered by an arbitration agreement, ″the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.″ 9 U. S. C. § 3. HN16 Section 4 provides that a district court must enter an order to arbitrate ″upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.″ If either of these points is in issue, § 4 provides that ″the court shall proceed summarily″ to a trial on that point. Section 6 further provides that a request for relief under either § 3 or § 4 is to be treated procedurally as a motion. Moreover, the policy of the Arbitration Act requires a liberal reading of arbitration agreements, see infra, at 24-25. As a result, some issues that might be thought relevant to arbitrability are themselves arbitrable -- further speeding the procedure under §§ 3 and 4. See, e. g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). Page 21 of 28 460 U.S. ^[1],[*22] ; 103 S. Ct. 927, **940; 74 L. Ed. 2d 765, ***784 Assuming that the state [**941] court would [*23] have granted prompt relief to Mercury under the Act, 28 there still would have been an inevitable delay as a result of the District Court’s stay. The stay thus frustrated the statutory policy of rapid and unobstructed enforcement of arbitration agreements. C LEdHN[1E] [1E]Besides the four factors expressly discussed in Colorado River, there is another that emerges from Calvert -- the fact that federal law provides the rule of decision on the merits. The state-versus-federal-law factor was of ambiguous relevance in Colorado River. 29 In Calvert, however, [***785] both the four-vote dissenting opinion and JUSTICE BLACKMUN’s opinion concurring in the judgment pointed out that the case involved issues of federal law. 437 U.S., at 667 (BLACKMUN, J., concurring in judgment); id., at 668-677 (BRENNAN, J., [*24] dissenting). See also Colorado River, 424 U.S., at 815, n. 21. It is equally apparent that this case involves federal issues. LEdHN[9] [9]The basic issue presented in Mercury’s federal suit was the arbitrability of the dispute between Mercury and the Hospital. Federal law in the terms of the Arbitration Act governs that issue in either state or federal court. HN17 Section 2 is the primary substantive provision of the Act, declaring that a written agreement to arbitrate ″in any maritime transaction or a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.″ 9 U. S. C. § 2. 30 Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act. In Prima Paint Corp. v. Flood & Conklin Mfg. Corp., 388 U.S. 395 (1967), for example, the parties had signed a contract containing an arbitration clause, but one party alleged that there had been fraud in the inducement of the entire contract (although the alleged fraud did not go to the arbitration clause in particular). The issue before us was whether the issue of fraud in the inducement was itself an arbitrable controversy. We held that the language and policies of the Act required the conclusion that the fraud issue was arbitrable. Id., at 402-404. Although our holding in Prima Paint extended only to the specific issue presented, the Courts of Appeals have since consistently concluded that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. We agree. HN18 The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues [*25] should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. 31 [***786] [**942] LEdHN[10] [10]To be sure, the source-of-law factor has less significance here than in Calvert, since the federal courts’ jurisdiction to enforce the Arbitration Act is concurrent with that of the state 28 See n. 34, infra; but cf. nn. 35, 36, infra. 29 Although the dissenting Justices in Colorado River relied on this point, see 424 U.S., at 825-826, the majority concluded that the federal/state law point was not controlling for two reasons. First, there was an affirmative policy in federal law expressly approving litigation of federal water rights in state court -- the McCarran Amendment. Second, although the water rights of the United States and the Indian tribes were governed in part by federal law, the bulk of the litigation would necessarily revolve around the state-law water rights of the thousand nonfederal parties in the case -- a factor on which we expressly relied in approving the District Court’s stay. Id., at 820. 30 HN19 ″Maritime transactions″ and ″commerce″ are defined in § 1 of the Arbitration Act, 9 U. S. C. § 1. 31 E. g., Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 643 (CA7 1981); Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (CA5 1979); Becker Autoradio U. S. A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43-45 (CA3 1978); Hanes Corp. v. Millard, 174 U. S. App. D. C. 253, 266, 531 F.2d 585, 598 (1976); Acevedo Maldonado v. PPG Industries, Inc., 514 F.2d, at 616-617; Germany v. River Terminal R. Co., 477 F.2d 546, 547 (CA6 1973); Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211-1212 (CA2 1972); Hart v. Orion Insurance Co., 453 F.2d 1358, 1360-1361 (CA10 1971). Page 22 of 28 460 U.S. ^[1],[*25] ; 103 S. Ct. 927, **942; 74 L. Ed. 2d 765, ***786 courts. 32 But we emphasize that our HN20 task in cases such as this is not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist ″exceptional″ circumstances, the ″clearest of justifications,″ that can suffice under Colorado [*26] River to justify the surrender of that jurisdiction. Although in some rare circumstances the presence of state-law issues may weigh in favor of that surrender, see n. 29, supra, the presence of federal-law issues must always be a major consideration weighing against surrender. 33 D LEdHN[1F] [1F]Finally, in this case an important reason against allowing a stay is the probable inadequacy of the state-court proceeding to protect Mercury’s rights. We are not to be understood to impeach the competence or procedures of the North Carolina courts. Moreover, state courts, as much as federal courts, are obliged to grant stays of litigation under § 3 of the Arbitration Act. 34 It is less clear, however, whether the same is true of an order to compel arbitration under § 4 of the Act. 35 We need not resolve that question here; it suffices to say that there was, at a minimum, substantial room for doubt that Mercury could obtain from the state court an order compelling [*27] the Hospital to arbitrate. 36 [***787] In many cases, no doubt, a § 3 stay is quite [**943] adequate to protect the right to arbitration. But in a case such as this, where the party opposing arbitration is the one from whom payment or performance is sought, a stay of litigation alone is not enough. It leaves the recalcitrant party free to sit and do nothing -- neither to litigate nor to arbitrate. If the state court stayed litigation pending arbitration but declined to compel the Hospital to arbitrate, Mercury would have no sure way 32 See n. 34, infra. The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U. S. C. § 1331 (1976 ed., Supp. V) or otherwise. Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue. E. g., Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, 268-269 (CA5 1978), and cases cited. Section 3 likewise limits the federal courts to the extent that a federal court cannot stay a suit pending before it unless there is such a suit in existence. Nevertheless, although enforcement of the Act is left in large part to the state courts, it nevertheless represents federal policy to be vindicated by the federal courts where otherwise appropriate. We need not address whether a federal court might stay a state-court suit pending arbitration under 28 U. S. C. § 2283. 33 Cf. n. 20, supra. 34 Although § 3 refers ambiguously to a suit ″in any of the courts of the United States,″ the state courts have almost unanimously recognized that the stay provision of § 3 applies to suits in state as well as federal courts, requiring them to issue the same speedy relief when a dispute is referable to arbitration. (The North Carolina Supreme Court has so held, although not until after the District Court ordered this stay. Burke County Public Schools Board of Education v. Shaver Partnership, 303 N. C. 408, 279 S. E. 2d 816 (1981).) This is necessary to carry out Congress’ intent to mandate enforcement of all covered arbitration agreements; Congress can hardly have meant that an agreement to arbitrate can be enforced against a party who attempts to litigate an arbitrable dispute in federal court, but not against one who sues on the same dispute in state court. See also Prima Paint, 388 U.S., at 404. 35 Section 4, unlike § 3, speaks only of a petition to ″any United States district court.″ Nonetheless, at least one state court has held that § 4 does require state courts to issue § 4 orders to arbitrate where the section’s conditions are met. Main v. Merrill Lynch, Pierce, Fenner & Smith Inc., 67 Cal. App. 3d 19, 24-25, 136 Cal. Rptr. 378, 380-381 (1977). 36 As a historical matter, there was considerable doubt at the time of the District Court’s stay that the North Carolina court would have granted even a § 3 stay of litigation. The then-controlling precedent in North Carolina was to the effect that a contract such as that between Mercury and the Hospital was not subject to the Arbitration Act at all, on the reasoning that a construction project is not ″commerce″ within the meaning of §§ 1 and 2 of the Act. Burke County Public Schools Board of Education v. Shaver Partnership, 46 N. C. App. 573, 265 S. E. 2d 481 (1980); Bryant-Durham Electric Co. v. Durham County Hospital Corp., 42 N. C. App. 351, 256 S. E. 2d 529 (1979). The North Carolina Supreme Court has, however, since repudiated those decisions. Burke County Public Schools Board of Education v. Shaver Partnership, 303 N. C. 408, 279 S. E. 2d 816 (1981). Page 23 of 28 460 U.S. ^[1],[*27] ; 103 S. Ct. 927, **943; 74 L. Ed. 2d 765, ***787 to proceed with its claims except to return to federal court to obtain a § 4 order -- a pointless and wasteful burden on the supposedly summary and speedy procedures prescribed by the Arbitration Act. E LEdHN[11] [11]The Hospital argues that the Colorado River test is somehow inapplicable because in this case the District Court merely stayed the federal litigation rather than dismissing the suit outright, as in Colorado River. It contends that Mercury remains free to seek to reopen the federal suit on a showing that the state suit has failed to adjudicate its rights, and that a stay is less onerous than a dismissal. We have already rejected this distinction, for purposes of this case, in discussing appellate jurisdiction. Supra, at 12-13. We reject it in this context for the same reasons. [*28] We have no occasion in this case to decide whether a dismissal or a stay should ordinarily be the preferred course of action when a district court properly finds that Colorado River counsels in favor of deferring to a parallel state-court suit. 37 We can say, however, that HN21 a stay is as much a refusal to exercise federal jurisdiction as a dismissal. When a district court decides to dismiss or stay under Colorado River, it presumably concludes that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties. If there is any substantial doubt as to this, it would be a serious abuse of discretion to grant the stay or dismissal at all. See Part IV-D, supra; McNeese v. Board of Education, 373 U.S. 668, 674-676 (1963). Thus, HN22 the decision to invoke Colorado River necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case, whether it stays or dismisses. See 17 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4247, pp. 517-519 (1978). [***788] Moreover, assuming that for some unexpected reason the state forum does turn out to be inadequate in some respect, the Hospital’s argument fails to make out any genuine difference between a stay and a dismissal. It is true that Mercury could seek to return to federal court if it proved necessary; but that would be equally true if the District Court had dismissed the case. It is highly questionable whether this Court would have approved a dismissal of a federal suit in Colorado River (or in any of the abstention cases, see supra, at 14) if the federal courts did not remain open to a dismissed plaintiff who later demonstrated the inadequacy of the state forum. [*29] V In addition to reversing the District Court’s stay, the Court of Appeals decided that the underlying contractual dispute between [**944] Mercury and the Hospital is arbitrable under the Arbitration Act and the terms of the parties’ arbitration agreement. It reversed the District Court’s judgment and remanded the case ″with directions to proceed in conformity herewith.″ 656 F.2d, at 946. In effect, the Court of Appeals directed the District Court to enter a § 4 order to arbitrate. LEdHN[12] [12]In this Court, the Hospital does not contest the substantive correctness of the Court of Appeals’ holding on arbitrability. It does raise several objections to the procedures the Court of Appeals used in considering and deciding this case. In particular, it points out that the only issue formally appealed to the Court of Appeals was the propriety of the District Court’s stay order. Ordinarily, we would not expect the Court of Appeals to pass on issues not decided in the District Court. In the present case, however, we are not disposed to disturb the court’s discretion in its handling of the case in view of the special interests at stake and the apparent lack of any prejudice to the parties. Title 28 U. S. C. § 2106 HN23 gives a court of appeals some 37 This reservation, of course, applies only to cases under Colorado River. Cf., e. g., American Trial Lawyers Assn. v. New Jersey Supreme Court, 409 U.S. 467 (1973) (stay rather than dismissal in Pullman abstention). Page 24 of 28 460 U.S. ^[1],[*29] ; 103 S. Ct. 927, **944; 74 L. Ed. 2d 765, ***788 latitude in entering an order to achieve justice in the circumstances. HN24 The Arbitration Act calls for a summary and speedy disposition of motions or petitions to enforce arbitration clauses. The Court of Appeals had in the record full briefs and evidentiary submissions from both parties on the merits of arbitrability, and held that there were no disputed issues of fact requiring a jury trial before a § 4 order could issue. Under these circumstances, the court acted within its authority in deciding the legal issues presented in order to facilitate the prompt arbitration that Congress envisaged. Affirmed. Dissent by: REHNQUIST Dissent [*30] JUSTICE REHNQUIST, with whom THE CHIEF JUSTICE and JUSTICE O’CONNOR join, dissenting. In its zeal to provide arbitration for a party it thinks deserving, the Court has made an exception to established rules of procedure. The Court’s attempt to cast the District Court’s decision as a final judgment fails to do justice to the meaning of the word ″final,″ to the Act of Congress that limits the jurisdiction of the courts of appeals, or to the district [***789] judges who administer the laws in the first instance. If the District Court had not stayed the proceeding, but had set a trial date two months away, there would be no doubt that its order was interlocutory, subject to review only by mandamus or pursuant to 28 U. S. C. § 1292(b). This would be true even though § 4 of the Arbitration Act provides that ″the court shall proceed summarily″ to trial, because an order setting a trial date only guides the course of litigation, and does not, of its own force, dispose of it on the merits. Such an order is tentative; that is, it is subject to change at any time on the motion of a party or by the court, sua sponte. The order the District Court actually entered is no more final. It delayed further proceedings until the completion of pending litigation in the state courts. This order was also tentative; it was subject to change on a showing that the state proceedings were being delayed, either by the Hospital or by the court, or that the state courts were not applying the federal Act, or that some other reason for a change had arisen. This order did not dispose of the case on the merits. If the state court had found that there was no agreement to arbitrate within the meaning of the United States Arbitration Act, the District Court would have been bound by that finding. But res judicata or collateral estoppel would apply if the state court reached a decision before the District Court in the absence of a stay. The likelihood that a state court of competent jurisdiction may enter a judgment that may determine some issue in a case does not render final a federal district court’s decision to take a two-day recess, or to order additional [*31] briefing by the parties in five days or five months, or to take a case under advisement rather than render an immediate decision [**945] from the bench. Such a possibility did not magically change that character of the order the District Judge entered in this case. Section 1291 of the Judicial Code is a congressional command to the federal courts of appeals not to interfere with the district courts’ management of ongoing proceedings. Unless the high standards for a writ of mandamus can be met, or the district court certifies an interlocutory appeal pursuant to § 1292(b), Congress has directed that the district courts be permitted to conduct their cases as they see fit. The reason for this rule is simple: ″Since the right to a judgment from more than one court is a matter of grace and not a necessary ingredient of justice, Congress from the very beginning has, by forbidding piecemeal disposition on appeal of what for practical purposes is a single controversy, set itself against enfeebling judicial administration. Thereby is avoided the obstruction to just claims that would come from permitting the harassment and cost of a succession Page 25 of 28 460 U.S. ^[1],[*31] ; 103 S. Ct. 927, **945; 74 L. Ed. 2d 765, ***789 of separate appeals from the various rulings to which a litigation may give rise, from its initiation to entry of judgment. To be effective, judicial administration must not be leaden-footed. Its momentum would be arrested by permitting separate reviews of the component elements in a unified cause.″ Cobbledick v. United States, 309 U.S. 323, 325 (1940) (Frankfurter, J., for a unanimous Court). [***790] The Court’s decision places an unwarranted limitation upon the power of district courts to control their own cases. The Court’s opinion does not establish a broad exception to § 1291, see ante, at 10-11, n. 11, but it does create uncertainty about when a district court order in a pending case can be appealed. This uncertainty gives litigants opportunities to disrupt or delay proceedings by taking colorable appeals from interlocutory [*32] orders, not only in cases nearly identical to this but also in cases which the ingenuity of counsel disappointed by a district court’s ruling can analogize to this one. Section 1291 established a policy that district judges should conduct their own cases from beginning to end. The occasional injustice to a litigant that results from an erroneous district court decision is far outweighed by the far greater systemic disruption created by encouraging parties to attempt interlocutory appeals. The former attracts the Court’s attention because the legal error it perceives is apparent on the surface of the case. The latter receives inadequate attention because it does not appear in published decisions or in petitions for certiorari. It is, rather, obscured by the ″merits″ of cases and hidden among statistics on the cost and seeming interminable nature of litigation. Both respect for district judges and concern for the course of litigation generally should make the Court hesitate before creating another exception, however narrow, to § 1291. The Court has acknowledged the importance of the rule of finality as recently as Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), which rejected the so called ″death knell″ exception to § 1291. In Coopers, a putative representative plaintiff whose motion for class certification had been denied by the District Court sought to appeal under § 1291. We accepted his argument that this order effectively put him out of court, id., at 470, but held that this circumstance did not justify an exception to the statute. ″[Allowing] appeals of right from nonfinal orders that turn on the facts of a particular case thrusts appellate courts indiscriminately into the trial process and thus defeats one vital purpose of the final-judgment rule -- ’that of maintaining the appropriate relationship between the respective courts. . . . This goal, in the absence of most compelling reasons to the contrary, is very much worth preserving.’″ Id., at 476 (quoting Parkinson v. April Industries, Inc., 520 F.2d 650, 654 (CA2 1975) (concurring opinion)). [*33] The Court has not given any sound, principled justification for permitting the Court of Appeals to thrust itself into the trial process in this case. It begins by citing [**946] Idlewild Liquor Corp. v. Epstein, 370 U.S. 713 (1962). There the District Court had stayed an action challenging the constitutionality of a state statute ″to give the state courts an opportunity to pass upon the constitutional issues presented, although there was no relevant litigation then pending in the state courts.″ Id., at 714. This Court held that the order was appealable because the plaintiff ″was effectively out of court.″ Id., at 715, n. 2. Idlewild does not control this case. [***791] First, Mercury is less ″effectively out of court″ than was Idlewild. There was no pending state proceeding that might have resolved the issues in the case, and Idlewild might well have been obliged to take the risk of violating the statute and challenging it in an enforcement proceeding in state court. More importantly, however, the decision in Idlewild cannot be good law after Coopers, supra. The Court describes Coopers as holding only that the collateral-order doctrine of Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949), does not apply to a class decertification order under Federal Rule of Civil Procedure 23(c)(1). Ante, at 12-13, n. 14. We did hold that ″the collateral-order doctrine is not applicable to″ a decertification order. 437 U.S., at 468-469. We then went on to reject the argument that the decertification order was final under the so-called ″death knell″ doctrine, holding that an order does not become final simply because the plaintiff will be unable to pursue his claim if the order stands. Id., at 469-477. We declined to attach any importance to the fact that the plaintiff in Coopers was just as ″effectively out of court″ as Idlewild or Mercury. We noted that ″if Page 26 of 28 460 U.S. ^[1],[*33] ; 103 S. Ct. 927, **946; 74 L. Ed. 2d 765, ***791 the ’death knell’ doctrine has merit, it would apply equally to the many interlocutory orders in ordinary litigation . . . that may have such tactical economic significance that a defeat is tantamount to a ’death knell’ for the entire case.″ Id., at 470. We also noted that 28 U. S. C. § 1292(b) provides for review [*34] of certain nonfinal orders, and that the ″death knell″ doctrine circumvents its restrictions. 437 U.S., at 474-475. By ignoring this discussion and holding from Coopers, the Court has created an unjustified exception to § 1291. The Court also states that the stay order in this case is appealable under Cohen, supra. It quotes the formulation of the Cohen collateral-order doctrine from Coopers: ″[The] order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment.″ 437 U.S., at 468, quoted, ante, at 11-12. The District Court’s order did not ″conclusively determine the disputed question″ for the reasons stated above. The Court’s assertion to the contrary, ante, at 12-13, is nothing short of sheer speculation about the state of mind of the District Judge. Such speculation is hardly the ″practical rather than . . . technical construction″ * of § 1291 contemplated by Cohen, supra, at 546. In Cohen itself, the District Court denied the defendant’s motion [***792] to require the plaintiff to post a bond on the ground that the statute requiring the bond did not apply. That order ″conclusively determined″ the question whether a bond was required because no conceivable change of circumstances could affect the basis of the District Court’s decision. In this case, any number of plausible events might have convinced the District Court that a necessary basis of its decision -- that the state court would proceed promptly and fairly to adjudicate the issue [**947] of the existence of an agreement to arbitrate -- no longer applied. [*35] Furthermore, I am not as certain as is the Court that by staying this case the District Court resolved ″an important issue.″ An issue should not be deemed ″important″ for these purposes simply because the court of appeals or this Court thinks the appellant should prevail. The issue here was whether the factual question whether there was an agreement to arbitrate should be adjudicated in a state or federal court. Unless there is some reason to believe that the state court will resolve this factual question wrongly, which the Court quite rightly disclaims, ante, at 26, I do not see how this issue is more important than any other interlocutory order that may place a litigant at a procedural disadvantage. For these reasons, I do not believe the District Court’s order was appealable. Interlocutory orders are committed by statute to the judgment of the district courts, and this Court ill-serves the judges of those courts and the overwhelming majority of litigants by devising exceptions to the statute when it believes a particular litigant has been wronged. Given my view of appealability, I do not find it necessary to decide whether the District Court’s order was proper in this case. I am disturbed, however, that the Court has sanctioned an extraordinary departure from the usual and accepted course of judicial proceedings by affirming the Court of Appeals decision on an issue that was not decided in the District Court. The Court of Appeals ordered the District Court to enter an order compelling arbitration, even though that issue was not considered by the District Court. This Court has maintained the difference between appellate jurisdiction and original jurisdiction at least since Marbury v. Madison, 1 Cranch 137, 174-176 (1803) (″It is * As a practical matter, it is not at all clear to me that the Court of Appeals’ course would have provided arbitration more quickly than that of the District Court, even if this Court had not granted certiorari. If the Court of Appeals was correct that this dispute is plainly arbitrable, there is no reason to expect that the state courts would not have resolved that issue in the 11 months during which the case was before the Court of Appeals. Page 27 of 28 460 U.S. ^[1],[*35] ; 103 S. Ct. 927, **947; 74 L. Ed. 2d 765, ***792 the essential criterion of appellate jurisdiction, that it revises and corrects the proceedings in a case already instituted″). I do not understand how the Court can say that the Court of Appeals had discretion to perform a nonappellate act. [*36] The Court relies on 28 U. S. C. § 2106, which provides that a court of appeals ″may affirm, modify, vacate, set aside or reverse any judgment, decree, or order of a court lawfully brought before it for review, and may remand the cause and direct the entry of such appropriate judgment, decree, or order, or require such further proceedings to be had as may be just under the circumstances.″ This statute does not grant the courts of appeals authority to constitute themselves as trial courts. Section 4 of the Arbitration Act gives [***793] the Hospital a right to a jury trial. See ante, at 23, n. 27. By deciding that there were no disputed issues of fact, the Court of Appeals seems to have decided a motion for summary judgment that was not before it. This is the kind of issue that district judges decide every day in the ordinary course of business. It is not the kind of issue that courts of appeals determine. The Court of Appeals did have before it the memoranda filed in the District Court but, contrary to the Court’s intimation, ante, at 29, this issue was not argued in the Court of Appeals. See 656 F.2d 933, 948, n. 1 (1981) (Hall, J., dissenting) (″No one argued that this court should decide that issue″). There was no reason to believe that the District Court would not have acted promptly to resolve the dispute on the merits after being reversed on the stay. That judges of a court of appeals believe they know how a case should be decided is no reason for them to substitute their own judgment for that of a district judge without regard to the normal course of appellate procedure. The judgment below should be vacated and the case remanded to the Court of Appeals with directions to dismiss the appeal for want of jurisdiction. Failing that, even if the Court is correct that the stay order was an error, the judgment should be reversed insofar as it decides the question of arbitrability, and the case should be remanded to the District Court for further proceedings under the Arbitration Act. References ; 32A, Federal Practice and Procedure 898-901, 906, 907, 923-17781 Federal Procedure, L Ed, Access to District Courts 1:558-1:575; 2 Federal Procedure, L Ed, Appeal, Certiorari, and Review 3:306, 3:307, 3:309, 3:314, 3:315-3:17, 3:31, 3:645; 3 Federal Procedure, L Ed, Arbitration 4:17-4:30, 4:128-4:1472 Federal Procedural Forms, L Ed, Appeal, Certiorari, and Review 3:11-3:40; 3 Federal Procedural Forms, L Ed, Arbitration 4:21-4:802 Am Jur Pl & Pr Forms (Rev ),Arbitration and Award, Forms 11-31; 11 Am Jur Pl & Pr Forms (Rev), Federal Practice and Procedure, Forms 2051-2055US L Ed Digest, Appeal and Error 23, 24, 1670; Arbitration 2; Courts 709L Ed Index to Annos, Appeal and Error; Arbitration and Award; CourtsALR Quick Index, Appeal and Error; Arbitration and Award; Courts; District Courts; Federal Courts; Supersedeas or StayFederal Quick Index, Appeal and Error; Arbitration and Award; Courts; State Courts; Stay of Proceedings Annotation References:.Supreme Court authorizing Supreme Court..Stay of action in federal court.. Page 28 of 28 | | Cited As of: September 1, 2015 5:28 PM EDT MYERS v. ROSENBERG United States District Court for the Northern District of Illinois Eastern Division March 6, 1986 No. 83 C 1342 Reporter 1986 U.S. Dist. LEXIS 28488; 1986 WL 3329 NANCY MYERS, Plaintiff, vs. ROBERTS ROSENBERG, Defendant Core Terms arbitration, Securities, arbitration agreement, compel arbitration, motion to dismiss, Racketeer, discovery, subject to arbitration, right to arbitration, scope of arbitration, judicial protection, intent of congress, defense motion, requirements, boilerplate, analogize, manifest, courts Case Summary Procedural Posture Defendant man filed a motion to compel arbitration of plaintiff woman’s claims alleging a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.S. § 1961 et seq. and a breach of fiduciary duty. Litigation was ongoing for more than two years, and the man filed an answer and a motion to dismiss and engaged in discovery. A claim under the Securities and Exchange Act of 1934, 15 U.S.C.S. § 78, was already dismissed. Overview The man relied on a boilerplate contractual arbitration provision. The woman argued that he had waived his rights thereunder. The court held that (1) a waiver of arbitration was not lightly inferred, delay alone was insufficient, and the issue was whether the party seeking arbitration acted inconsistently with the arbitration right under the totality of the circumstances; (2) waiver was implied where a party substantially invoked the litigation machinery; (3) the man had sought judicial dismissal of all claims and accepted dismissal of the Securities Act claim, and if his motion to dismiss all claims had been granted, it was doubtful that he then would have insisted upon arbitration; and (4) RICO was enacted as part of the criminal code to allow victims of a racketeering enterprise to act as true arms of the state, and although federal policy promotes arbitration, 9 U.S.C.S. § 4, neither this policy nor RICO reasonably contemplated the arbitration of criminal activity. Outcome The court denied the motion to compel arbitration of the RICO count and arbitration as to both counts was deemed waived. 1986 U.S. Dist. LEXIS 28488,[*28488] LexisNexis® Headnotes Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN1 A waiver of arbitration is not lightly to be inferred. A court must determine whether the defaulting party acted ″inconsistently″ with the arbitration right under the totality of the circumstances. Delay alone will not constitute a waiver of arbitration rights, nor are preliminary negotiations for settlement inconsistent with the right to arbitrate. Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN2 When a party has substantially invoked the litigation machinery, a waiver of a contractual arbitration right will be implied. Antitrust & Trade Law > Clayton Act > Penalties Antitrust & Trade Law > ... > Private Actions > Racketeer Influenced & Corrupt Organizations > General Overview Antitrust & Trade Law > ... > Private Actions > Racketeer Influenced & Corrupt Organizations > Scope Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Criminal Law & Procedure > ... > Racketeering > Racketeer Influenced & Corrupt Organizations Act > General Overview HN3 The Racketeering Influenced and Corrupt Organizations Act (RICO) was enacted as part of the criminal code; not as a criminal provision of a civil code. Its purpose is to allow victims of a racketeering enterprise to act as true arms of the state. A plaintiff under RICO becomes, in essence, a civil prosecutor. The strict pleading requirements for effectively stating a claim under RICO are designed to protect the innocent defendant from the stigma attached to being publicly labelled a criminal racketeer. This concern should not be undermined by allowing a boilerplate arbitration agreement to circumvent this judicial protection. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Criminal Law & Procedure > ... > Racketeering > Racketeer Influenced & Corrupt Organizations Act > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN4 While federal policy promotes arbitration, 9 U.S.C.S. § 4, neither this policy nor RICO itself reasonably contemplates the arbitration of criminal activity. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Page 2 of 4 1986 U.S. Dist. LEXIS 28488,[*28488] Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Criminal Law & Procedure > ... > Racketeering > Racketeer Influenced & Corrupt Organizations Act > General Overview Governments > Legislation > Interpretation International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN5 Just as it is the congressional policy manifested in the Federal Arbitration Act that requires courts liberally to construe the scope of arbitration agreements covered by the Act, it is the congressional intention expressed in some other statute on which the courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable. The statutory intent to provide judicial protection to litigants, while not expressly stated, is clearly manifest by the Racketeering Influenced and Corrupt Organizations Act’s placement in the criminal code and by its legislative history. Opinion by: [*1] PARSONS Opinion MEMORANDUM OPINION AND ORDER The defendant Rosenberg here presents the interesting question of whether a defendant, after 2-1/2 years of litigation, having filed an answer and a motion to dismiss, and having substantially engaged in discovery, may thereafter seek to compel arbitration of the claims all purportedly covered by a standard arbitration agreement. One of the claims sought to be arbitrated alleges a violation of the Racketeer Influenced and Corrupt Organizations Act (″RICO″), 18 U.S.C. § 1961 et seq.; the other claims allege a breach of fiduciary duty owed to the plaintiff. The plaintiff’s claim under the Securities and Exchange Act of 1934, 15 U.S.C. § 78, has already been dismissed by the Court. It is well established that HN1 ″a waiver of arbitration is not lightly to be inferred.″ See Midwest Window Systems, Inc. v. Amcor Industries, Inc., 630 F.2d 535, 536 (7th Cir. 1980); Dickinson v. Heinold Securities, Inc., 661 F.2d 638 (1981). The court must determine whether the defaulting party acted ″inconsistently″ with the arbitration right under the totality of the circumstances. Dickinson, supra, at 641. Delay alone will not constitute [*2] a waiver of arbitration rights, nor are preliminary negotiations for settlement inconsistent with the right to arbitrate. However, HN2 when a party has ″substantially invoked the litigation machinery″, waiver will be implied. E.C. Ernst, Inc. v. Manhattan Construction Co. of Texas, 559 F.2d 268 (5th Cir. 1977). While the defendant here did not instigate the judicial process as the defendant did in Midwest Window, like in Midwest Window the defendant here accepted a judicial decision in his favor on a motion to dismiss the securities count. Unlike the defendant in Dickinson, defendant here has confined neither his motion to dismiss nor his discovery to ″non-arbitrable″ claims. And while the defendant may have had reservations concerning the arbitrability of the Securities Act claim, he expressed no reason for postponing his request for arbitration of certain pendent state claims. Unlike in Dickinson, here the delay pending the motion to compel arbitration did not arise from ″good faith efforts to resolve the controversy without reference to an adjudicatory body.″ Indeed there is little question that had defendant’s motion to dismiss been granted by this Court, the [*3] defendant would not now attempt to insist upon his arbitration ″right″. Having actively sought adjudication of claims including those subject to the Page 3 of 4 1986 U.S. Dist. LEXIS 28488, *3 arbitration agreement, the defendant should not now attempt to recant from substantive arguments and discovery, and stand upon a boilerplate arbitration agreement. As the Seventh Circuit concluded in Midwest Windows, supra, at 537: the case has ″gone too far with too much prejudice to shift part of the responsibility for resolution elsewhere.″ See also Barrantine v. Arkansas Best Freight System, Inc., 450 U.S. 728, 101 S. Ct. 1427 (1981) at 744-5. Furthermore, I cannot find that RICO claims are subject to arbitration agreements. While the defendant attempts to analogize civil RICO claims with the antitrust provisions of the Sherman Act, 15 U.S.C. §1 et seq., the analogy is not persuasive for the purpose of determining the scope of an arbitration agreement. HN3 RICO was enacted as part of the criminal code; not as a criminal provision of a civil code. Its purpose is to allow victims of a racketeering enterprise to act as true arms of the state. A plaintiff under RICO becomes, in essence, a civil prosecutor. The strict pleading requirements [*4] in this Circuit for effectively stating a claim under RICO are designed to protect the innocent defendant from the stigma attached to being publically labelled a criminal ″racketeer″. This concern should not be undermined by allowing a boilerplate arbitration agreement to circumvent this judicial protection. And HN4 while federal policy promotes arbitration, See: 9 U.S.C. §4, neither this policy not RICO itself reasonably contemplates the arbitration of criminal activity. As the Supreme Court states in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, U.S. 105 S.Ct. 3346 (July 2, 1985), HN5 ″just as it is the congressional policy manifested in the Federal Arbitration Act that requires courts liberally to construe the scope of arbitration agreements covered by the Act, it is the congressional intention expressed in some other statute on which the courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable.″ Id. at 3355. (emphasis added) Here the statutory intent to provide judicial protection to the litigants, while not expressly stated, is clearly manifest by RICO’s placement in the criminal code and [*5] by its legislative history. Under Mitsubishi, then, this is a case in which the policy towards arbitration is outweighed by clear countervailing congressional intent and sound policy reasons. Accordingly, the defendant’s motion to compel arbitration of the RICO count is denied, and arbitration as to both counts is deemed waived. Page 4 of 4 | | Neutral As of: September 1, 2015 2:28 PM EDT NCP Fin. Ltd. P’ ship v. Escatiola Court of Appeals of Texas, Fourth District, San Antonio April 27, 2011, Delivered; April 27, 2011, Filed No. 04-10-00644-CV Reporter 350 S.W.3d 152; 2011 Tex. App. LEXIS 3110 NCP FINANCE LIMITED PARTNERSHIP and NMCapital, Inc., Appellants v. Humberto ESCATIOLA, Appellee Subsequent History: Released for Publication October 20, 2011. Prior History: [**1] From the 150th Judicial District Court, Bexar County, Texas. Trial Court No. 2009-CI-19255. Honorable Antonia Arteaga, Judge Presiding. In re NCP Fin. Ltd. P’ship, 2010 Tex. App. LEXIS 7570 (Tex. App. San Antonio, Sept. 15, 2010) Disposition: REVERSED AND REMANDED. Core Terms arbitration, trial court, parties’, class certification, arbitration agreement, credit service, class action, proceedings, disputes Case Summary Procedural Posture In an accelerated appeal, appellants, a lender and a finance company, appealed the order of the 150th Judicial District Court, Bexar County, Texas, denying their motion to compel individual arbitration and stay litigation. Overview Appellee debtor obtained a loan from the finance company. The parties signed a credit services agreement and an arbitration agreement providing that the arbitrator had to decide class certification issues. On behalf of a purported class, the debtor sued the finance company and a credit services organization for usury and violations of the Texas Deceptive Trade Practices Act and the Texas Credit Services Organization Act. Because a party could not be compelled to submit to class arbitration absent its express consent, the trial court erred by denying the finance company’s motion to compel individual arbitration and by permitting the debtor to seek class certification before the arbitrator. Outcome The order was reversed, and the case was remanded to the trial court for proceedings. 350 S.W.3d 152,[*152] ; 2011 Tex. App. LEXIS 3110, **1 LexisNexis® Headnotes Civil Procedure > Special Proceedings > Class Actions > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN1 The United States Supreme Court has held that whether an arbitration agreement forbids a class action is a question for the arbitrator, not the trial court, to decide. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Interpretation > General Overview HN2 Arbitrators are well suited to answer questions of contract interpretation. Civil Procedure > Special Proceedings > Class Actions > Certification of Classes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview HN3 The Texas Supreme Court has held the arbitrator, not the trial court, must rule on class certification issues. Civil Procedure > Special Proceedings > Class Actions > Certification of Classes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN4 When the contracts at issue commit all disputes arising out of the agreement to the arbitrator, the arbitrator must decide class certification issues. Civil Procedure > Special Proceedings > Class Actions > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN5 A party may not be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. Civil Procedure > Special Proceedings > Class Actions > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration HN6 The United States Supreme Court has held a party cannot be compelled to submit to class arbitration absent its express consent. Counsel: For APPELLANT: Bryan James Wick, Wick Phillips, LLP, Dallas, TX; Jeffrey Wallace Hellberg Jr., Wick Phillips LLC, Dallas, TX. For APPELLEE: John Steven Dwyre, John Dwyre & Associates, San Antonio, TX. Judges: Sitting: Sandee Bryan Marion, Justice, Rebecca Simmons, Justice, Steven C. Hilbig, Justice. Opinion by: Sandee Bryan Marion, Justice. Opinion by: Sandee Bryan Marion Page 2 of 5 350 S.W.3d 152,[*152] ; 2011 Tex. App. LEXIS 3110, **1 Opinion [*152] REVERSED AND REMANDED In this accelerated appeal, appellants, NCP Finance Limited Partnership and NMCapital, Inc. (collectively ″NCP″), appeal from the trial court’s order on their motion to compel individual arbitration and stay litigation pending arbitration. We reverse and remand. [*153] BACKGROUND ACE Credit Service, LLC (″ACE″) is a registered Texas credit services organization, and NMCapital is an out-of-state lender and a general partner of NCP Finance Limited Partnership, a Texas limited partnership. On February 16, 2008, appellee, Humberto Escatiola, obtained a loan from NCP through credit services provided by ACE. On that same date, Escatiola, ACE, and NCP signed a credit services agreement, [**2] a loan agreement, a promissory note, and an arbitration agreement. The arbitration agreement states: [U]pon the election of either [Escatiola], [ACE] . . ., or [NCP] . . ., any legal dispute between [Escatiola], on the one hand, and ACE and/or [NCP], on the other hand, will be resolved by binding arbitration. . . . (1) NO PARTY MAY PARTICIPATE IN A CLASS ACTION IN COURT OR IN CLASS-WIDE ARBITRATION . . . ; (2) NO PARTY MAY ACT AS A PRIVATE ATTORNEY GENERAL IN COURT OR IN AN ARBITRATION; (3) CLAIMS BROUGHT BY OR AGAINST [ESCATIOLA] MAY NOT BE JOINED OR CONSOLIDATED WITH CLAIMS BROUGHT BY OR AGAINST ANY OTHER PERSON; AND (4) THE ARBITRATOR SHALL HAVE NO AUTHORITY TO CONDUCT A CLASS-WIDE ARBITRATION, PRIVATE ATTORNEY GENERAL ARBITRATION OR MULTIPLE-PARTY ARBITRATION. The arbitration agreement commits any ″claim,″ which it defines as ″any legal dispute between [Escatiola], on the one hand, and ACE and/or [NCP], on the other hand,″ to the arbitrator. However, the arbitration agreement also states: ″[A]ny dispute about the validity, effect or enforceability of the prohibitions against class proceedings, private attorney general proceedings and/or multiple-party proceedings . . . shall be resolved [**3] by a court and not by an arbitrator or arbitration administrator″ (emphasis added). Escatiola refinanced the loan three times over the next two months, and he signed identical arbitration agreements on each occasion. On behalf of a purported class, Escatiola sued ACE and NCP for usury, violation of the Texas Deceptive Trade Practices Act, and violation of the Texas Credit Services Organization Act. NCP filed a motion in the trial court to compel individual arbitration, to strike Escatiola’s request for class action certification, and to stay the litigation pending completion of arbitration. The trial court’s order on the motion reads, in part: ″IT IS . . . ORDERED THAT [NCP’s] Motion as to individual arbitration is denied and that the case shall proceed in arbitration and [Escatiola] may seek class certification therein.″ The trial court stayed the litigation and appointed an arbitrator. On appeal, NCP argues the trial court was required to grant the motion as to individual arbitration because (a) the parties’ arbitration agreement specifically prohibits class arbitration, and (b) the United States Supreme Court recently ruled in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. [**4] that class arbitration may not be compelled absent express agreement of the parties. DISCUSSION Several years ago, HN1 the United States Supreme Court held that whether an arbitration agreement forbids a class action is a question for the arbitrator, not the trial court, to decide. Green Tree Fin. Corp. v. Bazzle, 539 Page 3 of 5 350 S.W.3d 152,[*153] ; 2011 Tex. App. LEXIS 3110, **4 U.S. 444, 452, 123 S. Ct. 2402, 156 L. Ed. 2d 414 (2003) (plurality opinion). In Green Tree, Lynn and Burt Bazzle (″the Bazzles″) obtained a home improvement loan from Green Tree [*154] Financial Corporation (″Green Tree″). Id. at 447. The Bazzles and Green Tree signed a contract, which included this arbitration clause: ″’All disputes, claims, or controversies arising from or relating to this contract or the relationships which result from this contract . . . shall be resolved by binding arbitration by one arbitrator selected by [Green Tree] with consent of [the Bazzles].’″ Id. at 448 (emphasis in original). The Bazzles subsequently sued Green Tree in South Carolina state court for violation of the South Carolina Consumer Protection Code and asked the trial court to certify their claim as a class action. Id. at 449. The trial court certified a class and entered an order compelling arbitration. Id. Affirming the trial [**5] court’s order, the South Carolina Supreme Court held class arbitration was authorized because the contract was silent on the matter. Id. at 450. A plurality of the United States Supreme Court vacated the South Carolina Supreme Court’s ruling, holding that in certain limited circumstances, courts must decide ″gateway″ arbitration-related matters, ″such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.″ Id. at 452. However, the Court concluded the question involved in Green Tree—whether the parties’ contract forbade class arbitration—did not fall into that narrow exception because it concerned neither the validity of the arbitration clause nor the clause’s applicability to the underlying dispute. Id. According to the Court, whether the parties’ contract forbade class arbitration was a question of what kind of arbitration the parties agreed to—a matter of contract interpretation and arbitration procedures. Id. at 452-53. Given that HN2 ″[a]rbitrators are well suited to answer″ questions of contract interpretation, and that the parties’ contract contained ″sweeping language concerning [**6] the scope of the questions committed to arbitration,″ the Court held the matter should be decided by the arbitrator, not the trial court. Id. at 453. Expressly relying upon the United States Supreme Court’s ruling in Green Tree,HN3 the Texas Supreme Court also held the arbitrator, not the trial court, must rule on class certification issues. In re Wood, 140 S.W.3d 367, 368 (Tex. 2004) (per curiam). In Wood, an attorney and three of his clients signed fee agreements providing that all disputes arising from the agreements would be submitted to binding arbitration. Id. When the clients sued the attorney over a fee dispute, the trial court ordered the case to arbitration and signed a second order specifically authorizing the arbitrator to decide whether the clients could seek class certification in arbitration. Id. The court of appeals issued a writ of mandamus directing the trial court to vacate its second order and determine whether the parties’ agreement permitted class arbitration. Id. However, the Texas Supreme Court concluded the decision in Green Tree was ″directly on point″ and held the court of appeals erred in directing the trial court to determine the class certification issue. Id. at 369-70. [**7] According to the unanimous Texas Supreme Court,HN4 ″when the contracts at issue commit[] all disputes arising out of the agreement to the arbitrator,″ the arbitrator must decide class certification issues. Id. at 368. Recently, a majority of the United States Supreme Court recognized Green Tree did not garner a majority on the question of whether the trial court or the arbitrator must decide class certification questions. Stolt-Nielsen, 130 S. Ct. 1758, 1772, 176 L. Ed. 2d 605 [*155] (2010). However, the Stolt-Nielsen majority declined to resolve this unsettled question because the parties’ agreement expressly assigned the class certification question to the arbitration panel. Id. Instead, the Court turned to the question the Green Tree Court did not address—the standard to be applied when determining whether a contract permits class arbitration. Id. The Court held thatHN5 ″a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.″ Id. at 1775 (emphasis in original). Because the parties conceded their agreement was silent on the matter of class certification, the Court found the arbitration panel’s certification of a class ″fundamentally [**8] at war with the foundational . . . principle that arbitration is a matter of consent.″ Id. Here, the arbitration agreement expressly assigns ″any dispute about the validity, effect or enforceability of the prohibitions against class proceedings″ to the trial court, not the arbitrator. Accordingly, because the contract at Page 4 of 5 350 S.W.3d 152,[*155] ; 2011 Tex. App. LEXIS 3110, **8 issue here did not commit all disputes to the arbitrator, but rather expressly assigned disputes involving the class action waiver provision to the trial court, the trial court was required to rule on NCP’s motion to compel individual arbitration. Turning to whether the trial court’s denial of NCP’s motion was correct in light of recent precedent, we must conclude it was not. The clear language of the parties’ agreement expressly forbids class certification in arbitration. Because HN6 the United States Supreme Court recently held in Stolt-Nielson that a party cannot be compelled to submit to class arbitration absent its express consent, the trial court erred by denying NCP’s motion to compel individual arbitration and by permitting Escatiola to seek class certification before the arbitrator. CONCLUSION We reverse the trial court’s order and remand this matter to the trial [**9] court for proceedings consistent with this opinion. Sandee Bryan Marion, Justice Page 5 of 5 | | Caution As of: September 1, 2015 2:42 PM EDT Perry Homes v. Cull Supreme Court of Texas March 20, 2007, Argued; May 2, 2008, Opinion Delivered NO. 05-0882 Reporter 258 S.W.3d 580; 2008 Tex. LEXIS 423; 51 Tex. Sup. J. 819 PERRY HOMES, A JOINT VENTURE, HOME OWNERS MULTIPLE EQUITY, INC., AND WARRANTY UNDERWRITERS INSURANCE COMPANY, PETITIONERS, v. ROBERT E. CULL AND S. JANE CULL, RESPONDENTS Subsequent History: Released for Publication August 29, 2008. Rehearing denied by Perry Homes v. Cull, 2008 Tex. LEXIS 792 (Tex., Aug. 29, 2008) US Supreme Court certiorari denied by Cull v. Perry Homes, 2009 U.S. LEXIS 486 (U.S., Jan. 12, 2009) Prior History: [**1] ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS. Perry Homes v. Cull, 173 S.W.3d 565, 2005 Tex. App. LEXIS 7254 (Tex. App. Fort Worth, 2005) Core Terms arbitration, discovery, parties, trial court, waived, depositions, warranty, arbitration clause, Defendants’, reimbursement, prejudiced, unfairness, invoked, merits, detriment, requests, orders, litigation process, attorneys’, courts, arbitration agreement, right to arbitration, cases, compelling arbitration, arbitration award, opposing party, circumstances, trial judge, companies, compel arbitration Case Summary Procedural Posture Petitioners, a builder and two home warranty companies, sought review of a judgment from the Court of Appeals for the Second District (Texas), which affirmed the trial court’s confirmation of an arbitration award in favor of respondent homeowners for construction defects. Overview The homeowners complained of serious structural and drainage problems. When the homeowners filed suit, the warranty companies immediately requested arbitration pursuant to an arbitration clause, and the homeowners vigorously opposed it. No ruling was made. The homeowners’ attorneys engaged in extensive discovery for more than a year. After most of the discovery was completed and the case was set for trial, the homeowners changed their minds about litigating and instead asked the trial court to compel arbitration. The trial court found no prejudice from their conduct. The court noted that the denial of pre-arbitration mandamus proceedings 258 S.W.3d 580,[*580] ; 2008 Tex. LEXIS 423, **1 without comment on the merits did not foreclose review and that 9 U.S.C.S. § 16(b)(2) provided for review after, not before, arbitration. Waiver of arbitration by litigation conduct was a question of law for the court, not the arbitrators. The court concluded that the homeowners waived their right to arbitration under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., because their conduct substantially invoked the judicial process and unfairly manipulated the litigation to the detriment or prejudice of the builder and the warranty companies. Outcome The court reversed the judgment of the court of appeals, vacated the arbitration award, and remanded to the trial court for a prompt trial. LexisNexis® Headnotes Civil Procedure > Judgments > Preclusion of Judgments > Law of the Case Civil Procedure > ... > Writs > Common Law Writs > Mandamus HN1 As mandamus is a discretionary writ, its denial, without comment on the merits, cannot deprive another appellate court from considering the matter in a subsequent appeal. Mandamus is only available when a final appeal would be inadequate; if filing for mandamus precluded a final appeal, that requirement would be self-fulfilling. Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders HN2 Parties waive nothing by foregoing interlocutory review and awaiting a final judgment to appeal. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN3 See 9 U.S.C.S. § 16(b)(2). Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN4 Reviewing a trial court’s initial referral to arbitration is not the same as reviewing the arbitrator’s final award; courts conduct ordinary review of the former and deferential review only of the latter. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN5 Although the federal courts do not defer to arbitrators when waiver is a question of litigation conduct, they consistently do so when waiver concerns limitations periods or waiver of particular claims or defenses. Parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters. By contrast, when waiver turns on conduct in court, the court is obviously in a better position to decide whether it amounts to waiver. Contracting parties would expect the court to decide whether one party’s conduct before the court waived the right to arbitrate. Parties generally intend arbitrators to decide matters that grow out of the dispute and bear on its final disposition, while they intend courts to decide gateway matters regarding whether the parties have submitted a particular dispute to arbitration. Waiver of a substantive claim or delay beyond a limitations deadline could affect final disposition, but waiver by litigation conduct affects only the gateway matter of where the case is tried. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Page 2 of 31 258 S.W.3d 580,[*580] ; 2008 Tex. LEXIS 423, **1 Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN6 Arbitrators generally must decide defenses that apply to the whole contract, while courts decide defenses relating solely to the arbitration clause. Thus, for example, arbitrators must decide if an entire contract was fraudulently induced, while courts must decide if an arbitration clause was. As waiver by litigation conduct goes solely to the arbitration clause rather than the whole contract, consistency suggests it is an issue for the courts. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN7 A party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice. Due to the strong presumption against waiver of arbitration, this hurdle is a high one. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN8 Federal courts decide questions of waiver of arbitration by applying a totality-of-the-circumstances test on a case-by-case basis. In doing so, they consider a wide variety of factors including whether the movant was plaintiff (who chose to file in court) or defendant (who merely responded); how long the movant delayed before seeking 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 has been incurred in litigation; whether the movant sought or opposed arbitration earlier in the case; whether the movant filed affirmative claims or dispositive motions; what discovery would be unavailable in arbitration; whether activity in court would be duplicated in arbitration; and when the case was to be tried. Of course, all these factors are rarely presented in a single case. Federal courts have found waiver based on a few, or even a single one. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN9 Under Texas case law, waiver of arbitration must be decided on a case-by-case basis, and courts should look to the totality of the circumstances. The factors considered include when the movant knew of the arbitration clause; how much discovery has been conducted; who initiated it; whether it related to the merits rather than arbitrability or standing; how much of it would be useful in arbitration; and whether the movant sought judgment on the merits. Thus, waiver is not ruled out solely because the party seeking arbitration did not ask the court to make any judicial decisions on the merits of the case. While this is surely a factor, it is not the only one. Waiver involves substantial invocation of the judicial process, not just judgment on the merits. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN10 As parties may begin arbitration without a court order, it is relevant to the issue of waiver that a plaintiff chose to file suit instead. But Texas procedure also contemplates that parties may file suit in order to compel arbitration. Thus, while the movant’s status is a factor to consider, it does not alone justify a finding of waiver or change the basic nature of the totality-of-the-circumstances test. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN11 A party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils. The answer to most questions regarding arbitration flow inexorably from the fact that arbitration is simply a matter of contract between the parties. Like any other contract right, arbitration can be waived if the parties agree instead to resolve a dispute in court. Such waiver can be implied from a party’s conduct, although that conduct must be unequivocal. And in close cases, the strong presumption against waiver should govern. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Page 3 of 31 258 S.W.3d 580,[*580] ; 2008 Tex. LEXIS 423, **1 HN12 Even substantially invoking the judicial process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result. Prejudice is a necessary requirement of waiver by litigation conduct. Contracts Law > Contract Conditions & Provisions > Waivers > General Overview Contracts Law > ... > Estoppel > Equitable Estoppel > General Overview Contracts Law > Types of Contracts > Option Contracts HN13 Under Texas law, waiver may not include a prejudice requirement, but estoppel does. In cases of waiver by litigation conduct, the precise question is not so much when waiver occurs as when a party can no longer take it back. Texas estoppel law does not allow a party to withdraw a representation once the other party takes action or forbearance of a definite and substantial character. A party is not allowed to withdraw an option contract when the offeree has taken substantial action based upon it. In these contexts, prejudice is an element of the normal contract rules. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN14 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. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN15 ″Prejudice″ has many meanings, but in the context of waiver under the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., it relates to inherent unfairness -- that is, a party’s attempt to have it both ways by switching between litigation and arbitration to its own advantage. For purposes of a waiver of an arbitration agreement, 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 that same issue. Thus, a party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party. Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements HN16 Arbitration contracts should not be more enforceable than other contracts. That is not what Congress intended when it enacted the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq. Civil Procedure > Appeals > Standards of Review > Abuse of Discretion HN17 Every abuse-of-discretion review is not identical because a trial judge’s discretion may be applied to scores of situations and in many different ways. A totality-of-the-circumstances test presumes a multitude of potential factors and a balancing of evidence on either side; if appellate courts must affirm every time there is some factor that was not negated or some evidence on either side, then no ruling based on the totality-of-the-circumstances could ever be reversed. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN18 Under a proper abuse-of-discretion review, waiver of arbitration is a question of law for the court, and an appellate court does not defer to the trial court on questions of law. The appellate court defers to a trial court’s factual findings if they are supported by evidence, but in the absence of a factual dispute, there is only the Page 4 of 31 258 S.W.3d 580,[*580] ; 2008 Tex. LEXIS 423, **1 conclusion whether a party’s trial conduct constitutes prejudice, a legal question that cannot simply be abandoned to the trial court. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN19 Because courts must consider all the circumstances, the amount of discovery needed to show prejudice will vary depending on what the other circumstances are. Prejudice should be easier to show against a party that initially opposed arbitration than against one who sought it from the start. While the mere failure to assert the right to demand arbitration does not alone translate into a waiver of that right, such failure does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred. The failure to demand arbitration affects the burden placed upon the party opposing waiver. When a timely demand for arbitration was made, the burden of proving waiver falls even more heavily on the shoulders of the party seeking to prove waiver. A demand for arbitration puts a party on notice that arbitration may be forthcoming, and therefore, affords that party the opportunity to avoid compromising its position with respect to arbitrable and nonarbitrable claims. In contrast, where a party fails to demand arbitration and in the meantime engages in pretrial activity inconsistent with an intent to arbitrate, the party later opposing a motion to compel arbitration may more easily show that its position has been compromised, i.e., prejudiced. Counsel: For PETITIONER: Mr. Geoffrey H. Bracken, GARDERE WYNNE SEWELL, L.L.P., Houston, TX; Mr. Stacy R. Obenhaus, GARDERE WYNNE SEWELL, L.L.P., Dallas, TX; Mr. Kent Hance, HANCE SCARBOROUGH WRIGHT WOODWARD & WEISBART, L.L.P., Austin, TX; Mr. Gary W. Javore, JOHNSON CRISTOPHER JAVORE & COCHRAN, INC., San Antonio, TX. For RESPONDENT: Mr. Thomas M. Michel, GRIFFITH, JAY & MICHEL, L.L.P., Fort Worth, TX; Mr. Evan (Van) Lane Shaw, LAW OFFICES of VAN SHAW, Dallas, TX. For AMICUS CURIAE: Mr. M. Scott Norman, Jr., TEXAS ASSOCIATION of BUILDERS, Austin, TX. Judges: JUSTICE BRISTER delivered the opinion of the Court, in which JUSTICE HECHT, JUSTICE O’NEILL, JUSTICE WAINWRIGHT, and JUSTICE MEDINA joined, and in which CHIEF JUSTICE JEFFERSON, JUSTICE GREEN, JUSTICE JOHNSON, and JUSTICE WILLETT joined as to parts I-V. JUSTICE O’NEILL filed a concurring opinion. JUSTICE JOHNSON filed an opinion concurring in part and dissenting in part, in which CHIEF JUSTICE JEFFERSON and JUSTICE GREEN joined. JUSTICE WILLETT filed an opinion concurring in part and dissenting in part. Opinion by: Scott Brister Opinion [*584] Since 1846, Texas law has provided that parties to a dispute may choose to arbitrate rather than litigate. ^[1] But that choice cannot be abused; a party cannot substantially invoke the litigation process and then switch to arbitration on the eve of trial. ^[2] There is a strong presumption against waiver of arbitration, 3 but it is not irrebuttable and was plainly rebutted here. The Plaintiffs vigorously opposed (indeed spurned) arbitration in their pleadings and in open court; then they requested hundreds of items of merits-based information and 1 See L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex. 1977). 2 See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 348 (5th Cir. 2004); Com-Tech Assoc. v. Computer Assoc. Int’l, Inc., 938 F.2d 1574, 1576-77 (2d Cir. 1991); Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1160 (5th Cir. 1986); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006). Page 5 of 31 258 S.W.3d 580,[*584] ; 2008 Tex. LEXIS 423, **1 conducted months of discovery under the rules of [**2] court; finally only four days before the trial setting they changed their minds and decided they would prefer to arbitrate after all. Having gotten what they wanted from the litigation process, they could not switch to arbitration at the last minute like this. The Plaintiffs argue -- and we agree -- that sending them back to the trial court not only deprives them of a substantial award but also wastes the time and money spent in arbitration. But they knew of this risk when they requested arbitration at the last minute because all of the Defendants objected. Accordingly, we vacate the arbitration award and remand the case to the trial court for [**3] a prompt trial. I. Background In 1996, Robert and Jane Cull bought a house from Perry Homes for $ 233,730. They also bought a warranty from Home Owners Multiple Equity, Inc. and Warranty Underwriters Insurance Company. The warranty agreement included a broad arbitration clause providing that all disputes the Culls might have against Perry Homes or the warranty companies were subject to the Federal Arbitration Act, and would be submitted to the American Arbitration [*585] Association (AAA) or another arbitrator agreed upon by the parties. ^[4] Over the next several years, the home suffered serious structural and drainage problems. According to the Culls, the Defendants spent more effort shifting blame than repairing the home. When the Culls sued in October 2000, the warranty [**4] companies (but not Perry Homes) immediately requested arbitration; the Culls vigorously opposed it, and no one ever pressed for a ruling. At the same time, the Culls’ attorneys began seeking extensive discovery from all of the Defendants. After most of the discovery was completed and the case was set for trial, the Culls changed their minds about litigating. Instead they asked the trial court to compel arbitration under precisely the same clause and conditions to which they had originally objected. The trial judge expressed reservations, saying: I really have a problem with people who have competent counsel who wait 14 months and after all this much effort in the courthouse has taken place, to come in and say that they have not waived that arbitration. That arbitration clause was there when the lawsuit was filed. Nevertheless, the trial court ordered arbitration because the Defendants had not shown any prejudice from litigation conduct: [A]ll I have heard from [defense counsel] insofar as what is the prejudice suffered by people you represent is that they have participated in litigation activities that may or may not have been required by the arbitrator. So without anything further, I [**5] am going to grant the motion to abate the case for arbitration. The order was signed December 6, 2001, four days before the case was set for trial. The Defendants filed 3 See, e.g., In re Vesta, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d 702, 704-05 (Tex. 1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89-90 (Tex. 1996). 4 The warranty provided: Any ″unresolved dispute″ (defined below) that you may have with [Perry Homes or the warranty companies] shall be submitted to binding arbitration governed by the procedures of the Federal Arbitration Act, 9 U.S.C. ^[1] et seq. . . . The dispute will be submitted to the American Arbitration Association, or such other independent arbitration service as is agreeable to the [warranty administrator] and you . . . . Page 6 of 31 258 S.W.3d 580,[*585] ; 2008 Tex. LEXIS 423, **5 petitions for mandamus in the court of appeals and this Court, both of which were denied without opinion within a few days. ^[5] After a year in arbitration, on December 24, 2002, the arbitrator awarded the Culls $ 800,000, including restitution of the purchase price of their home ($ 242,759), mental anguish ($ 200,000), exemplary damages ($ 200,000), and attorney’s fees ($ 110,000). The Defendants moved to vacate the award, again arguing (among other things) that the case should never have been sent to arbitration after so much activity in court. The trial court overruled the objection, confirmed the award, and added post-judgment interest duplicating that already in the award; the court of appeals affirmed after deleting the duplicative interest. 6 We granted the Defendants’ petition to consider whether the arbitration award should be set aside because [**6] the Culls waived their right to arbitration. II. When Should Orders Compelling Arbitration Be Reviewed? At the outset, the Culls assert it is too late to review the trial court’s order referring this case to arbitration. First, they argue the pre-arbitration mandamus proceedings establish the law of the case [*586] and preclude the Defendants from raising the same arguments now. We recently rejected this argument, holding that HN1 as mandamus is a discretionary writ, ″its denial, without comment on the merits, cannot deprive another appellate court from considering the matter in a subsequent appeal.″ 7 Mandamus is only available when a final appeal would be inadequate; 8 if filing for mandamus precluded a final appeal, that requirement would be self-fulfilling. Because the earlier proceedings here were denied without comment on the merits, they do not foreclose our review. Second, the Culls argue that an order compelling arbitration can only be reviewed before arbitration occurs. The Culls address none of [**7] the cases in which this Court and the United States Supreme Court have reviewed such orders after arbitration. ^[9] Nor do they address the general rule that HN2 parties waive nothing by foregoing interlocutory review and awaiting a final judgment to appeal. 10 But most important, the Culls do not address section 16 of the Federal Arbitration Act, which expressly prohibits pre-arbitration appeals: HN3 Except as otherwise provided in section 1292(b) of title 28 [providing for certified questions to federal circuit courts], an appeal may not be taken from an interlocutory order . . . directing [**8] arbitration to proceed under section 4 of this title [providing for orders compelling arbitration] . . . . 11 5 Perry Homes sought mandamus in the court of appeals on April 11, 2002, and was denied 7 days later. It refiled in this Court on April 26, and was denied 13 days later. 6 173 S.W.3d 565, 568. 7 Chambers v. O’Quinn, 242 S.W.3d 30, 32 (Tex. 2007). 8 In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004); Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). 9 See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000); Chambers, 242 S.W.3d at 31; see also Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (Tex. 1959) (invalidating portion of award regarding nonarbitrable issues); Fortune v. Killebrew, 86 Tex. 172, 23 S.W. 976, 978 (Tex. 1893) (same). 10 Pope v. Stephenson, 787 S.W.2d 953, 954 (Tex. 1990) (″The decision not to pursue the extraordinary remedy of mandamus does not prejudice or waive a party’s right to complain on appeal.″); accord, City of San Benito v. Rio Grande Valley Gas Co., 109 S.W.3d 750, 756 (Tex. 2003); Walker v. Packer, 827 S.W.2d 833, 842 n.9 (Tex. 1992). 11 See 9 U.S.C. § 16(b)(2); see also TEX. CIV. PRAC. & REM. CODE § 171.098 (providing for interlocutory appeal only of orders denying motion to compel arbitration). Page 7 of 31 258 S.W.3d 580,[*586] ; 2008 Tex. LEXIS 423, **11 This ban on interlocutory appeals of orders compelling arbitration was added by Congress in 1988 to prevent arbitration from bogging down in preliminary appeals. 12 We have held that routine mandamus review of such orders in state court would frustrate this federal law. ^[13] [*587] The Culls assert that post-arbitration review is unavailable because an arbitration award can be vacated only for statutory grounds like corruption, fraud, or evident partiality. ^[14] But HN4 reviewing the trial court’s initial referral to arbitration is not the same as reviewing the arbitrator’s final award; as the United States Supreme Court has held, courts conduct ordinary review of the former and deferential review only of the latter. 15 We agree that post-arbitration review of referral may create (as the Culls allege) a ″huge waste of the parties’ resources.″ But if review is available before arbitration, parties may also waste resources appealing every referral when a quick arbitration might settle the matter. Frequent pre-arbitration review would inevitably frustrate Congress’s intent ″to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.″ 16 We recognize the potential for waste, but that is a risk a party must take if it moves for arbitration after substantially invoking the litigation process. III. Do Courts or Arbitrators Decide Waiver? The Culls also assert that waiver of arbitration by litigation conduct is an issue to be decided by arbitrators rather than courts. To the contrary, this Court and the federal courts have [**11] held it is a question of law for the court. 17 Rather than referring such claims to arbitrators, we have decided them ourselves at least eight times, 18 as does every federal circuit court. 19 12 See David D. Siegel, Appeals from Arbitrability Determinations, Practice Commentary to 9 U.S.C. § 16 (″The mission of § 16 is to assure that if the district court does determine that arbitration is called for, the court system’s interference with the arbitral process will terminate then and there, leaving the arbitration free to go forward. To accomplish this, § 16 provides in general that there may be no appeal from the pro-arbitration determination until after the arbitration has gone forward to a final award.″); see also CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3914.17 (2d ed. 1992). 13 In re Palacios, 221 S.W.3d 564, 565 (Tex. 2006). [**9] Courts may review an order compelling arbitration if the order also dismisses the underlying litigation so it is final rather than interlocutory. See Green Tree Fin. Corp.-Ala., 531 U.S. at 87 n.2; Childers v. Advanced Found. Repair, L.P., 193 S.W.3d 897, 898 (Tex. 2006). As we noted in Palacios, the Fifth Circuit has indicated it may review a district court’s decision to stay rather than dismiss if a petitioner shows ″clearly and indisputably that the district court did not have the discretion to stay the proceedings pending arbitration.″ Id. (citing Apache Bohai Corp., LDC v. Texaco China, B. V., 330 F.3d 307, 310-11 (5th Cir. 2003)). 14 See 9 U.S.C. § 10(a). 15 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995). The Court noted that a [**10] different rule would apply if the parties clearly and unmistakably indicated in the arbitration contract that the arbitrator should decide arbitrability, id., but there is no such indication in this contract. 16 Preston v. Ferrer, U.S. , , 128 S. Ct. 978, 169 L. Ed. 2d 917 (2008) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 22, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)). 17 In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002); In re Bruce Terminix Co., 988 S.W.2d 702, 703-04 (Tex. 1998); accord, In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir. 2004); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 104 (2d Cir. 2002); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 n.18 (11th Cir. 2002); Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986). 18 See In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007) (finding no waiver under FAA); In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006) (same); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006) (same); In re Serv. Corp. Int’l, 85 S.W.3d at 174 (same); In re Bruce Terminix Co., 988 S.W.2d at 704-05 (same); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex. Page 8 of 31 258 S.W.3d 580,[*588] ; 2008 Tex. LEXIS 423, **15 [*588] The Culls argue this was all changed in 2002 by Howsam v. Dean Witter Reynolds, in which the United States Supreme Court said the ″presumption is that the arbitrator should decide ’allegation[s] of waiver, delay, or a like defense to arbitrability.’″ 20 For several reasons, we disagree that this single sentence changed the federal arbitration landscape. First, ″waiver″ and ″delay″ are broad terms used in many different contexts. Howsam involved the National Association of Securities Dealers’ six-year limitations period for arbitration claims, not waiver by litigation conduct; indeed, it does not appear the United States Supreme Court has ever addressed the latter kind of waiver. HN5 Although the federal courts do not defer to arbitrators when waiver is a question of litigation conduct, they consistently do so when waiver concerns limitations periods or waiver of particular claims or defenses. 21 As Howsam involved the latter rather than the former, 22 its reference to waiver must be read in that context. Second, the Howsam court specifically stated that ″parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters.″ 23 Thus, the NASD’s six-year limitations rule in that case was a gateway matter for the NASD [**15] arbitrator because ″the NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it.″ 24 By contrast, when waiver turns on conduct in court, the court is obviously in a better position to decide whether it amounts to waiver. 25 ″Contracting parties would expect the court to decide whether one party’s conduct before the court waived the right to arbitrate.″ 26 1999) (same); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89-90 (Tex. 1996) (same); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995). 19 See, e.g., Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 32-34 (1st Cir. 2001); [**12] Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 456 (2d Cir. 1995); Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir. 2000); Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 96 (4th Cir. 1996); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999); Germany v. River Terminal Ry. Co., 477 F.2d 546, 547 (6th Cir. 1973); Ernst & Young LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753, 758 (7th Cir. 2002); Ritzel Commc’ns v. Mid-American Cellular, 989 F.2d 966, 969-71 (8th Cir. 1993); Martin Marietta Aluminum, Inc. v. Gen. Elec. Co., 586 F.2d 143, 146 (9th Cir. 1978); Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489-90 (10th Cir. 1994); Ivax Corp., 286 F.3d at 1316; Nat’l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 261 U.S. App. D.C. 284, 821 F.2d 772, 777-78 (D.C. Cir. 1987). 20 537 U.S. 79, 84, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) [**13] (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. ^[1], 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)). 21 See, e.g., Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 447, 123 S. Ct. 2402, 156 L. Ed. 2d 414 (2003) (holding whether arbitration could proceed by class action was question for arbitrator); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S. Ct. 909, 11 L. Ed. 2d 898 (1964) (holding question whether steps of grievance procedure prerequisite to arbitration had been completed was for arbitrator); Sleeper Farms v. Agway, Inc., 506 F.3d 98, 104 (1st Cir. 2007) (noting question whether breach of contract [**14] voided arbitration clause would normally be for arbitrator); United Steelworkers of Am. v. Saint Gobain Ceramics & Plastics, Inc., 505 F.3d 417, 422 (6th Cir. 2007) (holding question of timely demand for arbitration was for arbitrator); Ansari v. Qwest Communs. Corp., 414 F.3d 1214, 1220-21 (10th Cir. 2005) (holding question whether plaintiffs waived forum selection clause by filing suit elsewhere was for arbitrator); Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 871-72 (8th Cir. 2004) (holding questions of timely demand and waiver by failing to initiate arbitration were for arbitrator); Glass v. Kidder Peabody & Co., 114 F.3d 446, 457 (4th Cir. 1997) (holding question of timely demand for arbitration was for arbitrator); Great W. Mortgage Corp. v. Peacock, 110 F.3d 222, 231-32 (3d Cir. 1997) (holding question of waiver of substantive state law rights was for arbitrator). 22 See Howsam, 537 U.S. at 81-82. 23 Id. at 86. 24 Id. at 85. 25 Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 F. App’x 462, 464 (5th Cir. 2004). 26 Id. Page 9 of 31 258 S.W.3d 580,[*589] ; 2008 Tex. LEXIS 423, **19 [*589] Third, as the Howsam Court itself stated, parties generally intend arbitrators to decide matters that ″grow out of the dispute and bear on its final disposition,″ while they intend courts to decide gateway matters regarding ″whether the parties have submitted a particular dispute to arbitration.″ 27 Waiver of a substantive claim or delay beyond a limitations deadline could affect final disposition, but waiver by litigation conduct affects only the gateway matter of where the case is tried. 28 Finally, HN6 arbitrators generally must decide defenses that apply to the whole contract, while courts decide defenses relating solely to the arbitration clause. 29 Thus, for example, arbitrators must decide if an entire contract was fraudulently induced, while courts must decide if an arbitration clause was. 30 As waiver by litigation conduct goes solely to the arbitration clause rather than the whole contract, consistency suggests it is an issue for the courts. Every federal circuit court that has addressed this issue since Howsam has continued to hold that substantial invocation of the litigation process is a question for the court rather than the arbitrator -- including the First, 31 Third, 32 Fifth, 33 and Eighth Circuits. 34 Legal commentators appear to agree. 35 So do we. IV. When Is the Litigation Process Substantially Invoked? We have said on many occasions that HN7 a party waives an arbitration clause by substantially [*590] invoking the judicial process to the other party’s detriment or prejudice. 36 Due to the strong presumption against waiver 27 Howsam, 537 U.S. at 83-84 (internal quotations omitted); see also Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 451-52, 123 S. Ct. 2402, 156 L. Ed. 2d 414 (2003). 28 See [**16] Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 13 (1st Cir. 2005). 29 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006) (″We reaffirm today that . . . a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.″). 30 In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 190 (Tex. 2007) (holding claim that contract was illusory went to contract as a whole and thus was for arbitrators); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001) (″The de los Santoses assert the defenses of unconscionability, duress, fraudulent inducement, and revocation. We again note that these defenses must specifically relate to the Arbitration Addendum itself, not [**17] the contract as a whole, if they are to defeat arbitration.″); see also In re Kaplan Higher Educ. Corp., 235 S.W.3d 206, 210 (Tex. 2007) (holding claim of ″unclean hands″ that went to contract as a whole rather than arbitration clause was question for arbitrators). 31 In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 45-47 (1st Cir. 2005); Marie, 402 F.3d at 13-14; In re Citigroup, Inc., 376 F.3d 23, 27-29 (1st Cir. 2004); Rankin v. Allstate Ins. Co., 336 F.3d 8, 12-14 (1st Cir. 2003); Restoration Pres. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 61-63 (1st Cir. 2003). 32 Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-21, 48 V.I. 1034 (3d Cir. 2007). 33 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344-47 (5th Cir. 2004); Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 F. App’x 462, 464 (5th Cir. 2004). 34 Lewallen v. Green Tree Servicing, L.L. C., 487 F.3d 1085, 1090-94 (8th Cir. 2007); [**18] Kelly v. Golden, 352 F.3d 344, 349-50 (8th Cir. 2003). The Eighth Circuit did refer to Howsam in one case as requiring waiver to be referred to arbitrators, but that case involved an allegation of waiver by previous arbitration, not litigation. See Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 463-66 (8th Cir. 2003). 35 See David LeFevre, Note, Whose Finding is it Anyway?: The Division of Labor Between Courts and Arbitrators with Respect to Waiver, 2006 J. DISP. RESOL. 305, 316-17 (2006); Stephen K. Huber, The Arbitration Jurisprudence of the Fifth Circuit, Round II, 37 TEX. TECH L. REV. 531, 542 (2005). 36 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007); In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006); In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002); In re Oakwood Mobile Page 10 of 31 258 S.W.3d 580,[*590] ; 2008 Tex. LEXIS 423, **18 of arbitration, this hurdle is a high one. 37 To date, we have never found such a waiver, holding in a series of cases that parties did not waive arbitration by: . filing suit; . moving to dismiss a claim for lack of standing; . moving to set aside a default judgment and requesting a new [**19] trial; . opposing a trial setting and seeking to move the litigation to federal court; . moving to strike an intervention and opposing discovery; . sending 18 interrogatories and 19 requests for production;

. requesting an initial round of discovery, noticing (but not taking) a single deposition, and agreeing to a trial resetting; 44 or . seeking initial discovery, taking four depositions, and moving for dismissal based on standing.

These cases well illustrate the kind of conduct that falls short. But because none amounted to a waiver, they are less instructive about what conduct suffices. We have stated that ″allowing a party to conduct full discovery, file motions going to the merits, and seek arbitration only on the eve of trial″ would be sufficient. 46 But what if (as in this case) only two out of these three are met? And how much is ″full discovery″?

We begin by looking to the standards imposed by the federal courts. HN8 They decide questions of waiver by applying a totality-of-the-circumstances test on a case-by-case basis. 47 In doing so, they [*591] consider a wide variety of factors including:

Homes, Inc., 987 S.W.2d 571, 574 (Tex. 1999); In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995). 37 In re Bank One, N.A., 216 S.W.3d at 827; In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta Ins. Group, Inc., 192 S.W.3d at 763; In re Serv. Corp. Int’l, 85 S.W.3d at 174; In re Bruce Terminix Co., 988 S.W.2d at 704; EZ Pawn Corp., 934 S.W.2d at 89. 38 In re D. Wilson Constr. Co., 196 S.W.3d at 783. 39 In re Vesta Ins. Group, Inc., 192 S.W.3d at 764. 40 In re Bank One, N.A., 216 S.W.3d at 827. 41 In re Serv. Corp. Int’l, 85 S.W.3d at 174-75. 42 Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995). 43 In re Bruce Terminix Co., 988 S.W.2d at 704. 44 EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996). 45 In re Vesta Ins. Group, Inc., 192 S.W.3d at 763 [**20] (holding requests for disclosure, four depositions, and request for production did not waive arbitration absent proof regarding extent of requests and whether they addressed merits or arbitrability). 46 Id. at 764. 47 In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir. 2005) (″[E]ach case is to be judged on its particular facts.″); Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004) (″Ultimately, however, the question of what constitutes a waiver of the right of arbitration depends on the facts of each case.″); accord, Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1315 (11th Cir. 2002); Grumhaus v. Comerica Secs., Inc., 223 F.3d 648, 650 (7th Cir. 2000); Nat’l Found. for Cancer Research v. A. G. Edwards & Sons, Inc., 261 U.S. App. D.C. 284, 821 F.2d 772, 774 (D.C. Cir. 1987); Tenneco Resins, Inc. v. Davy Int’l, AG, 770 F.2d 416, 420 (5th Cir. 1985). Page 11 of 31

258 S.W.3d 580,[*591] ; 2008 Tex. LEXIS 423, **24 . whether the movant was plaintiff (who chose to file in court) or defendant (who merely responded); . how long the movant delayed before seeking arbitration; . whether the movant knew of the arbitration clause all along; . how much pretrial activity related to the merits rather than arbitrability or jurisdiction; [**21] . how much time and expense has been incurred in litigation; . whether the movant sought or opposed arbitration earlier in the case; . whether the movant filed affirmative claims or dispositive motions; . what discovery would be unavailable in arbitration; . whether activity in court would be duplicated in arbitration; and . when the case was to be tried.

Of course, all these factors are rarely presented in a single case. Federal courts have found waiver based on a few, or even a single one. 58

HN9 We agree waiver must be decided on a case-by-case basis, and that courts should look to the totality of the circumstances. Like the federal courts, this Court has considered factors such as: . when the movant knew of the arbitration clause;

48 Grumhaus, 223 F.3d at 650; [**22] see also Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995). 49 PAICO, 383 F.3d at 346; In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir. 2004); Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489 (10th Cir. 1994); Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 926 (3d Cir. 1992). 50 Brown v. Dillard’s, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 206 (4th Cir. 2004). 51 PAICO, 383 F.3d at 346; Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003); Hoxworth, 980 F.2d at 926; Gilmore v. Shearson/American Express Inc., 811 F.2d 108, 112 (2d Cir. 1987); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co., 767 F.2d 1140, 1150-51 (5th Cir. 1985). 52 PAICO, 383 F.3d at 346; Patten Grading, 380 F.3d at 205; In re Citigroup, 376 F.3d at 26; Metz, 39 F.3d at 1489; Hoxworth, 980 F.2d at 927. 53 Hoxworth, 980 F.2d at 927; Com-Tech Assoc. v. Computer Assoc. Int’l, Inc., 938 F.2d 1574, 1577 (2d Cir. 1991); E.C. Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1040-41 (5th Cir. 1977); Blake Constr. Co. v. United States for Use and Benefit of Lichter, 252 F.2d 658, 662 (5th Cir. 1958). 54 In re Citigroup, 376 F.3d at 26; [**23] Metz, 39 F.3d at 1489. 55 In re Citigroup, 376 F.3d at 26; Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489. 56 Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489. 57 Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995); Peterson v. Shearson/American Express, Inc., 849 F.2d 464, 468 (10th Cir. 1988) (finding waiver as movant waited until five weeks before trial date to move to compel). 58 See, e.g., Restoration Preserv. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 62 (1st Cir. 2003) (finding three-year delay alone sufficient to establish waiver); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (finding removal to federal court alone sufficient to establish waiver). 59 See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88-89 (Tex. 1996) (finding no waiver as defendant did not discover existence of arbitration agreement for almost a year). Page 12 of 31

258 S.W.3d 580,[*592] ; 2008 Tex. LEXIS 423, **23 [*592] . how much discovery has been conducted; . who initiated it; . whether it related to the merits rather than arbitrability or standing; . how much of it would be useful in arbitration; and . whether the movant sought judgment [**24] on the merits.

Thus, we disagree with the court of appeals that waiver is ruled out in this case solely because the Culls ″did not ask the court to make any judicial decisions on the merits of their case.″ 65 While this is surely a factor, 66 it is not the only one. Waiver involves substantial invocation of the judicial process, not just judgment on the merits.

We also disagree with the Defendants that different standards should apply to plaintiffs and defendants. HN10 As parties may begin arbitration without a court order, it is certainly relevant that a plaintiff chose to file suit instead. But Texas procedure also contemplates that parties may file suit in order to compel arbitration. 67 Thus, while the movant’s status is a factor to consider, it does not alone justify [**25] a finding of waiver or change the basic nature of the totality-of-the-circumstances test. 68

We recognize, as we have noted before, ″the difficulty of uniformly applying a test based on nothing more than the totality of the circumstances.″ 69 But there appears to be no better test for ″substantial invocation.″ 70 As the United States Supreme Court has said about minimum contacts, tests based on ″reasonableness″ are never susceptible to mechanical application -- ″few answers will be written in black and white[;] [t]he greys are dominant [*593] and even among them the shades are innumerable.″ 71 How much litigation conduct will be 60 In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006). 61 Id. 62 Id. 63 Id.; In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). 64 In re Bruce Terminix Co., 988 S.W.2d at 704. 65 173 S.W.3d at 570. 66 See In re Bruce Terminix Co., 988 S.W.2d at 704. 67 See, e.g., TEX. CIV. PRAC. & REM. CODE § 171.021(a) (″A court shall order the parties to arbitrate on application of a party showing: (1) an agreement to arbitrate; and (2) the opposing party’s refusal to arbitrate.″). 68 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006); accord, United Computer Sys., Inc. v. AT&T Corp., 298 F.3d 756, 764 (9th Cir. 2002). 69 See R.R. St. & Co. v. Pilgrim Enters., Inc., 166 S.W.3d 232, 242-43 (Tex. 2005) [**26] (quotation marks omitted) (applying totality-of-the-circumstances test in determining whether party ″otherwise arranged″ to dispose of hazardous waste). 70 See Burton-Dixie Corp. v. Timothy McCarthy Constr. Co., 436 F.2d 405, 407-08 (5th Cir. 1971) (″There is no set rule, however, as to what constitutes a waiver or abandonment of the arbitration agreement. The question depends upon the facts of each case and usually must be determined by the trier of facts.″); Joel E. Smith, Annotation, Defendant’s Participation in Action as Waiver of Right to Arbitration of Dispute Involved Therein, 98 A.L.R. 3d 767, 771 (1980) (″In those cases involving the issue of whether the defendant’s participation in an action constitutes a waiver of the right to arbitrate the dispute involved therein, no general rules are readily apparent for determining waiver other than the general adherence by the courts to the principle that waiver is to be determined from the particular facts and circumstances of each case . . . .″). 71 Kulko v. Superior Court of Cal., 436 U.S. 84, 92, 98 S. Ct. 1690, 56 L. Ed. 2d 132 (1978) (quoting Estin v. Estin, 334 U.S. 541, 545, 68 S. Ct. 1213, 92 L. Ed. 1561 (1948)). Page 13 of 31

258 S.W.3d 580,[*593] ; 2008 Tex. LEXIS 423, **29

″substantial″ depends very much on the context; three or four depositions may be all the discovery needed in one case, 72 but purely preliminary in another. 73 Moreover, this test is quite similar to one we have long recognized and recently applied to arbitration -- estoppel. Estoppel is a defensive theory barring parties from asserting a claim or defense when their representations have induced ″action or forbearance of a definite and substantial character″ and ″injustice can be avoided only by enforcement.″ 74 In arbitration cases, we have held a nonparty who enjoys substantial direct benefits from a contract may be estopped from denying an arbitration clause in the same contract. 75 By the same token, HN11 a party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils. The answer to most questions regarding arbitration ″flow inexorably from the fact that arbitration is simply a matter of contract between the parties.″ 76 Like any other contract right, arbitration can be waived if the parties agree instead to resolve a dispute in court. Such waiver can be implied from a party’s conduct, although that conduct must be unequivocal. 77 And in close cases, the ″strong presumption against waiver″ should govern. 78 V. Is a Showing of Prejudice Required? Although convinced that [**29] the Culls had substantially invoked the litigation process, the trial court compelled arbitration because the Defendants did not prove an arbitrator would not have allowed the same discovery. HN12 ″Even substantially invoking the judicial process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result.″ 79 On at least eight occasions, we have said prejudice is a necessary requirement of waiver by litigation [*594] conduct. 80 The Defendants ask us to reconsider this requirement. They point out that Texas law does not require a showing of prejudice for waiver, but only an intentional relinquishment of a known right. 81 Waiver ″is essentially unilateral [**30] in its character″ and ″no act of the party in whose favor it is made is necessary to complete 72 See, e.g., TEX. R. CIV. P. 190.2(c)(2) (limiting parties in Level 1 cases to six [**27] hours of depositions). 73 See, e.g., In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (holding four depositions did not waive arbitration as record did not show whether they were limited or extensive or whether they addressed merits or merely arbitrability). 74 Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex. 1997); see English v. Fischer, 660 S.W.2d 521, 524 (Tex. 1983); ″Moore″ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936-37 (Tex. 1972); [**28] Wheeler v. White, 398 S.W.2d 93, 96 (Tex. 1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 (1979). 75 In re Weekley Homes, L.P., 180 S.W.3d 127, 133-35 (Tex. 2005); accord, Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex. 2006). 76 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995). 77 See Van Indep. Sch. Dist. v. McCarty, 165 S.W.3d 351, 353 (Tex. 2005); First Valley Bank of Los Fresnos v. Martin, 144 S.W.3d 466, 471 (Tex. 2004); Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003); Equitable Life Assurance Soc’y of U.S. v. Ellis, 105 Tex. 526, 152 S.W. 625, 628 (Tex. 1913). 78 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex. 1996). 79 In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). 80 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007); In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006); In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002); In re Bruce Terminix Co., 988 S.W.2d at 704; In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex. 1999); EZ Pawn Corp., 934 S.W.2d at 89; Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995). 81 See In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006); Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987); Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex. 1980); Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., Page 14 of 31 258 S.W.3d 580,[*594] ; 2008 Tex. LEXIS 423, **30 it.″ 82 Thus, they argue we cannot impose a waiver rule for arbitration contracts that does not apply to all others. 83 We decline the Defendants’ invitation based on both federal and state law. The Defendants say the federal courts are split on the issue, but the [**31] split is not very wide. Of the twelve regional circuit courts, ten require a showing of prejudice, 84 and the other two treat it as a factor to consider. 85 We have noted before the importance of keeping federal and state arbitration law consistent. 86 [*595] HN13 Under Texas law, waiver may not include a prejudice requirement, but estoppel does. In cases of waiver by litigation conduct, the precise question is not so much when waiver occurs as when a party can no longer take it back. As noted above, Texas estoppel law does not allow a party to withdraw a representation once the other party takes ″action or forbearance of a definite and substantial character.″ 87 Using precisely the same terms, the Restatement does not allow a party to withdraw an option contract when the offeree has taken substantial action based upon it. 88 In these contexts, prejudice is an element of the normal contract rules. Thus, we agree with the courts below that waiver of arbitration requires a showing of prejudice. VI. Was Arbitration Waived Here? 416 S.W.2d 396, 401 (Tex. 1967); Texas & P. Ry. Co. v. Wood, 145 Tex. 534, 199 S.W.2d 652, 656 (Tex. 1947); Kennedy v. Bender, 104 Tex. 149, 135 S.W. 524, 526 (Tex. 1911); see also Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995) (citing authorities showing that contract law generally holds waiver effective without proof of detrimental reliance). 82 Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex. 1967). 83 See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995). 84 In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir. 2004) (″We have emphasized that, to succeed on a claim of waiver, plaintiffs must show prejudice.″); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002); Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir. 1992) (″[P]rejudice is the touchstone for determining whether the right to arbitrate has been waived . . . .″); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 206 (4th Cir. 2004) (″[T]he dispositive question is whether the party objecting to arbitration has suffered actual prejudice.″) (internal quotations and italics omitted); Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004) (″In addition to the invocation of the judicial process, there must be prejudice to the party opposing arbitration before we will find that the right to arbitrate has been waived.″); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003); [**32] Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003) (″The actions must result in prejudice to the other party for waiver to have occurred.″); Brown v. Dillard’s, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005); Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1490 (10th Cir. 1994); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 (11th Cir. 2002) (″[W]e look to see whether, by [invoking the litigation process], that party has in some way prejudiced the other party.″) (internal quotations omitted). 85 St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 590-91 (7th Cir. 1992); Nat’l Found. for Cancer Research v. A. G. Edwards & Sons, Inc., 261 U.S. App. D.C. 284, 821 F.2d 772, 777 (D.C. Cir. 1987) (holding ″a court may consider prejudice to the objecting party as a relevant factor among the circumstances that the court examines in deciding whether the moving party has taken action inconsistent with the agreement to arbitrate″). 86 In re Weekley Homes, L.P., 180 S.W.3d 127, 130-31 (Tex. 2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39 (Tex. 2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) (Thomas, J., concurring) (suggesting [**33] Supreme Court sometimes looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004) (noting that whether state or federal law of arbitrability applies ″is often an uncertain question″). 87 Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex. 1997); see English v. Fischer, 660 S.W.2d 521, 524 (Tex. 1983); ″Moore″ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex. 1972); Wheeler v. White, 398 S.W.2d 93, 96 (Tex. 1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 [**34] (1979). 88 RESTATEMENT (SECOND) OF CONTRACTS § 87(2) (1981) (″An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.″). Page 15 of 31 258 S.W.3d 580,[*595] ; 2008 Tex. LEXIS 423, **34 A. Did the Culls Waive Arbitration? It remains only to apply these rules to this case. Unquestionably, the Culls substantially invoked the litigation process, as their conduct here far exceeds anything we have reviewed before. Before arbitration was ordered, the Culls did not deny taking ten depositions, and the court’s file (of which the trial judge took judicial notice) included: . their initial objection to arbitration covering 79 pages; . the Defendants’ responses to requests for disclosure; . the Culls’ five motions to compel, attached to which were 76 requests for production of documents regarding complaints, inspections, repairs, and settlements relating to eight other homes in the same subdivision; . Perry Homes’ two [**35] motions for protective orders regarding six designees noticed for deposition by the Culls on nine issues (including purchase and preparation of the lot, design and construction of the foundation, sale of this home and others in the subdivision, and attempts to deal with the Culls’ and other foundation complaints), with an attachment requesting 67 categories of documents (including all photos, videos, correspondence, insurance policies, plans, soil tests, permits, subcontractors, contracts for sale, and repairs relating to the house or the suit, all complaints about any house in the subdivision, and Perry Homes’ articles of incorporation, by-laws, minutes, and financials); and . the Culls’ notices of depositions for three of the Defendants’ experts with 24 categories of documents requested from each (including all documents relating to this case, all their articles, [*596] publications, or speeches given in their fields of expertise, all courses or seminars they had attended, all persons they had studied under, and all reference books or treatises in their libraries). There is simply no question on this record that the Culls conducted extensive discovery about every aspect of the merits. 89 But under the totality-of-the-circumstances test, discovery is not the only measure of waiver. Here, when the warranty defendants initially moved to compel arbitration, the Culls filed a 79-page response opposing it, asserting that the AAA ″is incompetent, is biased, and fails to provide fair and appropriate arbitration panels.″ They complained of the AAA’s fees, and asserted that as a result the ″purported arbitration clause is unconscionable and unenforceable, and this Court’s enforcement of such would be nothing short of ridiculous and absurd.″ This, plus their prayer asking the trial court to deny the motion to compel arbitration ″in its entirety,″ belies the court of appeals’ conclusion that ″the Culls merely opposed the use of the AAA″ rather than arbitration itself. 90 In some federal courts, the Culls’ objection alone could suffice to waive arbitration. 91 The Culls also moved for arbitration very late in the trial process. It is true that Perry Homes moved to continue the trial setting when the Culls sought arbitration, requesting about ten weeks to finish deposing experts. 89 Because [**36] we limit our review to the record before the trial judge, we do not consider the Defendants’ additional seven volumes of discovery exhibits filed after the arbitration award. 90 173 S.W.3d 565, 570; see also Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000) (holding that unconscionable arbitration fee would render [**37] clause unenforceable). 91 See In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir. 2005) (holding defendant’s objections to arbitration before criminal trial waived his right to arbitration); Gilmore v. Shearson/American Exp. Inc., 811 F.2d 108, 112 (2d Cir. 1987) (holding party’s withdrawal of its prior motion to compel arbitration constituted express waiver of that right). Page 16 of 31 258 S.W.3d 580,[*596] ; 2008 Tex. LEXIS 423, **39 Because the trial court ordered arbitration, no one knows whether the case would have gone to trial (including the unnamed court clerk cited by the dissent). But in view of the written discovery and depositions already completed, the record is nevertheless clear that most of the discovery in the case had already been completed before the Culls requested arbitration. HN14 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. 92 Then 14 months after filing suit and shortly before the December 2001 trial setting, the Culls changed their minds and requested arbitration. They justified their change of heart on the basis that they wanted to avoid the delays of an appeal. But their change unquestionably delayed adjudication of the merits; instead of a trial beginning in a few days or weeks, the plenary arbitration hearing did not begin until late September of 2002 -- almost ten months after the Culls abandoned their trial setting. Moreover, to the extent arbitration reduces delay, it does so by severely limiting both pretrial discovery and post-trial review. Having enjoyed the benefits of extensive discovery for 14 [*597] months, the Culls could not decide only then that they were in a hurry. It is also unquestionably true that this conduct prejudiced the Defendants. HN15 ″Prejudice″ has many meanings, but in the context of waiver under the FAA it relates to inherent unfairness - that is, a party’s attempt to have [**39] it both ways by switching between litigation and arbitration to its own advantage: [F]or purposes of a waiver of an arbitration agreement[,] 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 that same issue. 93 Thus, ″a party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.″ 94 Here, the record before the trial court showed that the Culls objected to arbitration initially, and then insisted on it after the Defendants acquiesced in litigation. They 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. B. A Response to the Dissents Although we have repeatedly said arbitration agreements can be waived, today’s dissents would effectively hold they cannot. That would favor arbitration too much; because most agreements can be waived by the parties’ 92 See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex. 2006) [**38] (citing Com-Tech Assocs. v. Computer Assocs. Int’l, Inc., 938 F.2d 1574, 1576-77 (2d Cir. 1991), in which arbitration was waived by request that did not come until 18 months after filing and 4 months before trial). 93 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004) (punctuation omitted); accord, In re Tyco, 422 F.3d at 46 n.5 (″[A] party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.″); In re Citigroup, Inc., 376 F.3d 23, 28 (1st Cir. 2004); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 327 (5th Cir. 1999); PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir. 1997); Doctor’s Assocs. v. Distajo, 107 F.3d 126, 134 (2d Cir. 1997) (″[P]rejudice as defined by our cases refers [**40] 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.″). 94 In re Tyco, 422 F.3d at 46 n.5. Page 17 of 31 258 S.W.3d 580,[*597] ; 2008 Tex. LEXIS 423, **40 conduct, 95 HN16 arbitration contracts should not [**41] be more enforceable than other contracts. That is not what Congress intended when it enacted the FAA. 96 Indeed, one dissent cannot even bring itself to say the Culls substantially invoked the litigation process. If the litigation conduct here is not enough, it is hard to imagine what would be. The dissents make several mistakes in their analyses. First, they misconstrue the standard of review. HN17 Every [*598] abuse-of-discretion review is not identical because ″a trial judge’s discretion may be applied to scores of situations and in many different ways.″ 97 Reviewing a declaratory judgment fee award (where trial judges have broad discretion) [**42] 98 is not the same as reviewing admission of hearsay (where trial judges follow detailed rules), 99 even though an abuse-of-discretion standard applies to both. 100 Moreover, a totality-of-the-circumstances test presumes a multitude of potential factors and a balancing of evidence on either side; if appellate courts must affirm every time there is some factor that was not negated or some evidence on either side, then no ruling based on the totality-of-the-circumstances could ever be reversed. That standard of review would be the same as no review at all. By applying such a standard, both dissents would allow trial judges to send any case to arbitration no matter what has occurred in court. HN18 Under a proper abuse-of-discretion [**43] review, waiver is a question of law for the court, 101 and we do not defer to the trial court on questions of law. 102 We do defer to a trial court’s factual findings if they are supported by evidence, 103 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 95 See, e.g., Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 643 (Tex. 1996) (holding companies waived contractual right to approve assignments by treating assignee as full partner); Ford v. State Farm Mut. Auto. Ins. Co., 550 S.W.2d 663, 666 (Tex. 1977) (holding insurer waived contractual right to consent to settlement by denying liability under policy). 96 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967) (″[T]he purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.″). 97 W. Wendell Hall, Standards of Review in Texas, 38 ST. MARY’S L.J. 47, 63 (2006). 98 TEX. CIV. PRAC. & REM. CODE § 37.009 (″In any proceeding under this chapter, the court may award costs and reasonable and necessary attorney’s fees as are equitable and just.″ (emphasis added)). 99 See TEX. R. EVID. 801-806. 100 See Nat’l Liab. and Fire Ins. Co. v. Allen, 15 S.W.3d 525, 529 (Tex. 2000) (hearsay); Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998) (declaratory fee award). 101 In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex. 1999); In re Bruce Terminix Co., 988 S.W.2d 702, 703-04 (Tex. 1998). 102 Brainard v. State, 12 S.W.3d 6, 30 (Tex. 1999) (holding that in abuse-of-discretion standard ″we defer to the trial court’s factual determinations if they are supported by the evidence and review its legal determinations de novo″); Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (″A trial court has no ’discretion’ in determining what the law is or applying the law to the facts. Thus, a clear failure by the trial court to analyze or apply the [**44] law correctly will constitute an abuse of discretion . . . .″); see Hall, supra note 97, at 284 (″When the trial court’s findings involve [mixed] questions of law and fact, the appellate court reviews the trial court’s decision for an abuse of discretion. In applying the standard, the reviewing court defers to the trial court’s factual determinations if supported by the evidence and reviews its legal determinations de novo.″); cf. Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 484 (5th Cir. 2002) (″This court reviews de novo a district court’s dismissal of a claim that a party waived its right to arbitrate.″); accord, Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 (11th Cir. 2002); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999). 103 Brainard, 12 S.W.3d at 30; Walker, 827 S.W.2d at 840; see Hall, supra note 97, at 284; cf. Gulf Guar., 304 F.3d at 484; accord, Ivax Corp., 286 F.3d at 1316; Subway Equip., 169 F.3d at 326. Page 18 of 31 258 S.W.3d 580,[*598] ; 2008 Tex. LEXIS 423, **44 litigation process. This leaves only the conclusion whether such conduct constitutes prejudice, a legal question we cannot simply abandon to the trial court. 104 [*599] Second, the dissents define prejudice in a way that makes it impossible to prove. While recognizing that ″waiver″ has a special definition in the arbitration context, the dissents overlook that ″prejudice″ does too. Instead of the inherent-unfairness standard used by the federal courts, 105 they impose what appears to be an irretrievable-loss standard. One dissent would go so far as to hold that no amount of discovery, no matter how extensive, can show prejudice if the fees incurred might be compensated in the final arbitration award, even if erroneously. 106 No one could ever show prejudice under this standard, because even if a contract allowed no reimbursement of discovery costs (as in this case), 107 it is always hypothetically possible that a rogue arbitrator might reimburse costs regardless. The same dissent would find no prejudice from extensive discovery without proof that an arbitrator would have prohibited it. That again is impossible; arbitrators have almost unbridled discretion regarding discovery, so no one can predict [**46] 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. 108 Third, both dissents quibble with the Defendants’ proof of prejudice because it was insufficiently detailed. 109 This confuses proof of the fact of prejudice with proof of its extent; the Defendants had to show substantial invocation that prejudiced them, not precisely how much it all was. Referral to arbitration should be decided summarily with the evidence limited to disputed facts; 110 as the Culls did not dispute that the parties had conducted more than a dozen depositions and other extensive discovery [**48] on the merits, requiring proof of each one would have merely made the referral hearing longer and more [*600] expensive. The pre-arbitration 104 See Reliance Nat’l Indem. Co. v. Advance’d Temps., Inc., 227 S.W.3d 46, 50 (Tex. 2007) (″What might otherwise be a question of fact becomes one of law when the fact is not in dispute or is conclusively established.″); [**45] Hall, supra note 97, at 284 (″[A] trial court abuses its discretion [if the court] . . . fails to properly apply the law to the undisputed facts . . . .″). 105 See supra Part VI.A. 106 S.W.3d at (″But even if the Court is right and the reimbursement clause does not allow for recovery of all Defendants’ litigation attorney’s fees, an arbitration award would not be subject to being vacated if an arbitrator interpreted it to allow recovery of all the fees.″). 107 The parties contract limited reimbursement to costs incurred in ″seeking dismissal″ of litigation, not costs incurred in preparing it for trial: Inasmuch as this Agreement provides for mandatory arbitration of disputes, if any party commences litigation in violation of this Agreement, such party shall reimburse the other parties to the litigation for their costs and expenses including attorney’s fees incurred in seeking dismissal of such litigation. (emphasis added). 108 See Preston v. Ferrer, U.S. , , 128 S. Ct. 978, 169 L. Ed. 2d 917 (2008) (″A prime objective of an agreement to arbitrate is to achieve streamlined proceedings and expeditious results.″); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) [**47] (noting that ″the discovery provisions of the Federal Rules of Civil Procedure are more generous than those of the American Arbitration Association″); cf. Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1160 (5th Cir. 1986) (finding prejudice due to discovery as ″discovery --whether meaningful or otherwise--is not available in arbitration″); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 498 (5th Cir. 1986) (″A party to arbitration does not have a right to the pre-trial discovery procedures that are used in a case at law.″); Developments in the Law--Discovery, 74 HARV. L. REV. 940, 943 (1961) (noting expense of discovery as inconsistent with desire to arbitrate). 109 The court of appeals affirmed on this basis. 173 S.W.3d at 570 (″Appellants did not provide any evidence of the work done, time spent, or costs incurred that would not have been done or incurred in anticipation of an arbitration hearing.″). 110 TEX. CIV. PRAC. & REM. CODE § 171.021(b); see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992). Page 19 of 31 258 S.W.3d 580,[*600] ; 2008 Tex. LEXIS 423, **48 record proved that discovery was extensive; the evidence demanded by the dissents would have merely showed how much it cost. Finally, the dissents’ focus on discovery ignores all the other circumstances that the totality-of-the-circumstances test requires us to consider. HN19 Because we must consider all the circumstances, the amount of discovery needed to show prejudice will vary depending on what the other circumstances are. As the Fifth Circuit has held, prejudice should be easier to show against a party that initially opposed arbitration than against one who sought it from the start: While the mere failure to assert the right to demand arbitration does not alone translate into a waiver of that right, such failure [**49] does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred. The failure to demand arbitration affects the burden placed upon the party opposing waiver. When a timely demand for arbitration was made, the burden of proving waiver falls even more heavily on the shoulders of the party seeking to prove waiver. A demand for arbitration puts a party on notice that arbitration may be forthcoming, and therefore, affords that party the opportunity to avoid compromising its position with respect to arbitrable and nonarbitrable claims. In contrast, where a party fails to demand arbitration . . . and in the meantime engages in pretrial activity inconsistent with an intent to arbitrate, the party later opposing a motion to compel arbitration may more easily show that its position has been compromised, i.e., prejudiced. 111 It is these other circumstances that make this case different from In re Vesta. 112 The parties seeking arbitration in Vesta had not opposed arbitration from the outset and then [**50] invoked it after getting all the discovery they wanted. 113 Nor was the Vesta case close to trial, as was the case here. The parties in Vesta had taken four depositions (rather than 15); they had also exchanged standard requests for disclosure and one request for production, but only one of those documents was in the record so there was no evidence whether this limited discovery related to the merits (as the extensive discovery here clearly did). 114 And while the party opposing arbitration in Vesta allegedly incurred more than $ 200,000 in expenses, most of that was incurred in getting discovery rather than providing it; 115 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. 116 Applying the proper standard of review and the proper definition of prejudice, we disagree with the dissents that the Defendants have failed to show prejudice here. [*601] C. Did the Warranty Companies Waive Arbitration? Finally, the Culls argue the warranty companies cannot object to arbitration for two reasons. First, the warranty companies originally requested arbitration (which the Culls opposed), so it could be argued that it is unfair to hold the Culls to their original position without holding the warranty companies to theirs. Of 111 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir. 2004) (internal citations and punctuation omitted). 112 In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex. 2006). 113 Two of the numerous defendants in Vesta initially objected to the remaining defendants’ motion to compel arbitration, but withdrew that objection before the hearing on the motion. 114 Id. at 763. 115 Id. 116 The defendants in Vesta had stipulated that all discovery obtained so far could be [**51] used in arbitration. Page 20 of 31 258 S.W.3d 580,[*601] ; 2008 Tex. LEXIS 423, **51 course, we cannot hold both parties to their original positions as those positions were contradictory. More important, while the parties’ original demands are relevant factors, the test is the totality of the circumstances. Looking to all the circumstances, it is quite clear from the parties’ extensive co-participation in months of discovery that everyone waived their right to arbitration -- whether they asserted that right early (as did the warranty companies) or late (as did the Culls). Second, the Culls argue that the only objection to the trial court’s order compelling arbitration was filed by Perry Homes, not the warranty companies. It [**52] is true that only Perry Homes’ attorneys signed the motion, but in that motion and at the hearing held on it they represented that they were authorized to do so on behalf of all the Defendants. If the Culls wanted to question their authority to speak for the warranty companies, they should have done so by sworn motion. 117 *** Accordingly, we reverse the court of appeals’ judgment, vacate the arbitration award, and remand this case to the trial court for a prompt trial. Scott Brister Justice OPINION DELIVERED: May 2, 2008 Concur by: Harriet O’Neill; Phil Johnson (In Part); Don R. Willett (In Part) Concur JUSTICE O’NEILL, concurring. Most members of the Court agree that the Culls substantially invoked the litigation process before requesting arbitration; the point of disagreement is whether Perry Homes adequately proved it suffered prejudice as a result. 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 [**53] 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. Harriet O’Neill Justice OPINION DELIVERED: May 2, 2008 Dissent by: Phil Johnson (In Part); Don R. Willett (In Part) Dissent JUSTICE JOHNSON, joined by CHIEF JUSTICE JEFFERSON and JUSTICE GREEN, concurring in part and dissenting in part. 117 See TEX. R. CIV. P. 12. Page 21 of 31 258 S.W.3d 580,[*601] ; 2008 Tex. LEXIS 423, **53 I disagree that the trial court abused its discretion in compelling arbitration. I concur with the disposition of part VI-C. I dissent from parts VI-A and VI-B of the Court’s opinion and dissent from its judgment. The parties agree that their arbitration agreement covers the dispute and that the Federal Arbitration Act (FAA) applies. Thus, whether the Culls waived the right to arbitrate is a question of law. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 [*602] (Tex. 1999); In re Bruce Terminix Co., 988 S.W.2d 702, 703-04 (Tex. 1998). The Court has said previously, and says again today, that prejudice is a required element of waiver of the right to arbitrate cases subject to the FAA. S.W.3d at ; see In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007). The party asserting waiver has the burden to prove prejudice. [**54] See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001) (noting that if an agreement to arbitrate exists and the party opposing arbitration fails to prove its defenses, then a trial court has no discretion and its only option is to compel arbitration); In re Bruce Terminix Co., 988 S.W.2d at 704 (″Even substantially invoking the judicial process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result.″). In the context of the issue before us, prejudice means detriment. See In re Bank One, 216 S.W.3d at 827 (″A party waives an arbitration clause when it substantially invokes the judicial process to the other party’s detriment.″). We review a trial court’s order compelling arbitration for an abuse of discretion. See In re Bruce Terminix Co., 988 S.W.2d at 705. That standard is in accord with the general practice of reviewing a trial court’s actions for an abuse of discretion when a trial court has discretion to grant or deny relief based on its factual determinations. See Bocquet v. Herring, 972 S.W.2d 19, 20-21 (Tex. 1998) (noting that the abuse of discretion standard of review as to a trial court’s factual determinations [**55] applies when a trial court has discretion either to grant or deny relief based on its factual determinations). The test for abuse of discretion is not whether, in the opinion of the reviewing court, the trial court’s ruling was proper, but whether the trial court acted without reference to guiding rules and principles. See Cire v. Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004). The trial court’s ruling should be reversed only if it was arbitrary or unreasonable. Id. at 839. Generally, if there is any evidence to support the trial court’s ruling then the court did not abuse its discretion. See In re BP Prods. N. Am., Inc., 244 S.W.3d 840, 849 (Tex. 2008) (citing Butnaru v. Ford Motor Co., 84 S.W.3d 198, 211 (Tex. 2002)). That is because it is only when the evidence is such that the trial court could have made but one decision, yet made another, that we say the trial court abused its discretion. Id. Our decisions affording deference to trial court rulings when evidence supports those rulings comport with the standard of review utilized by the United States Fifth Circuit Court of Appeals in regard to whether a party has suffered prejudice for purposes of waiving arbitration rights subject [**56] to the FAA. The Fifth Circuit’s position is that trial court findings on which the legal conclusion of waiver is based are predicate questions of fact ″which may not be overturned unless clearly erroneous.″ Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986); see also Republic Ins. Co. v. Paico Receivables, LLC, 383 F.3d 341, 347 (5th Cir. 2004) (″[T]he district court’s finding that PRLLC would suffer prejudice if arbitration was compelled is not clearly erroneous.″). The waiver issue in this matter is not determined by general waiver elements, but by waiver as that term is used in regard to avoiding arbitration agreements subject to the FAA. Generally, ″waiver″ is the intentional relinquishment of a right actually or constructively known, or intentional conduct inconsistent with claiming that right. See Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003). The elements of waiver include (1) an existing right, benefit, or advantage held by a party; (2) the party’s actual or constructive knowledge [*603] of its existence; and (3) the party’s actual intent to relinquish the right or intentional conduct inconsistent with the right. See Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 643 (Tex. 1996). [**57] The Culls’ actions and their attorneys’ statements in court, taken as a whole, present compelling evidence of those elements. Waiver as that term is used in regard to arbitration agreements subject to the FAA, however, requires more than is required for general waiver--it requires proof that the party asserting waiver as a defense to arbitration has suffered detriment. S.W.3d at ; In re Bank One, 216 S.W.3d at 827. So, when the Culls finally moved to Page 22 of 31 258 S.W.3d 580,[*603] ; 2008 Tex. LEXIS 423, **57 compel arbitration and proved applicability of an arbitration agreement, Defendants unquestionably had the burden to raise and prove their defense of waiver, including prejudice, if they wanted to avoid arbitration. In re Bruce Terminix Co., 988 S.W.2d at 704. Defendants recognized that to avoid arbitration they had to prove a defense to the arbitration agreement. As part of their response to the Culls’ motion to compel arbitration, Defendants pled that (1) after suit was filed, all parties conducted written and oral discovery, (2) the Culls filed several motions and obtained two hearings and court rulings on discovery-related issues, and (3) a trial setting was imminent. Defendants conceded applicability of the arbitration clause, [**58] then cited authorities for and took the position that ″Plaintiffs have waived arbitration because they substantially invoked the judicial process to the detriment of Defendants.″ Subsequently, Defendants more clearly detailed the detriment they were claiming: In this case, the costs incurred by Defendants in responding to the motions to compel filed by Plaintiffs would not have been incurred during the course of arbitration. Similarly, defendants are prejudiced by the fact that it [sic] was required to comply with the Court’s orders on such motions to compel, when such means and methods would not have been available in arbitration. Because of Plaintiffs’ delay in seeking arbitration, coupled with the resulting prejudice by Defendants being required to respond to multiple discovery motions and comply with orders thereon, Plaintiffs cannot now rely on the Limited Warranty Agreement to compel arbitration. (Emphasis added). A second part of Defendants’ response was a motion for continuance of trial to complete discovery. At the hearing on the Culls’ motion to compel arbitration, the trial judge, who noted at the end of the hearing that ″I just finished [an arbitration] with the American Arbitration [**59] Association,″ admitted all the evidence offered, and took judicial notice of the court file as requested by Defendants. After evidence was introduced at the hearing, Defendants again argued that there were two factors involved: ″whether or not the parties have acted inconsistently with the agreement to arbitrate and then whether those actions and the actions that were taken actually worked to the detriment or prejudice of the party that’s opposing transference to arbitration.″ During the hearing, the trial judge expressed considerable concern over the Culls’ conduct. He discussed the Culls’ testimony that they had knowledge of the arbitration clause before suit was filed, the extended time for which the case had been filed, and the impending trial setting. He also discussed the arbitration provision itself, 1 its mandatory nature, and pressed [*604] the Culls’ attorney about the reason for the delay in requesting arbitration. Finally, he asked about a provision in the arbitration provision that provided ″if any party commences litigation in violation of this Agreement, such party shall reimburse the other parties to the litigation for their costs and expenses including attorney’s fees incurred [**60] in seeking dismissal of such litigation.″ The Culls’ attorney acknowledged the provision and asserted that it would be up to the arbitrator to determine whether the Culls would be responsible for such fees and costs of Defendants. Defendants did not dispute the 1 In relevant part, the provision provided for the homeowners, [**61] the builder, the administrator of the warranty program, and the warranty insurer to submit to arbitration all claims, demands, disputes, controversies, and differences that may arise between the parties to this Agreement of whatever kind or nature, including without limitation, disputes: (1) as to events, representations, or omissions which pre-date this Agreement; (2) arising out of this Agreement or other action performed or to be performed by the Builder, the Administrator or the Insurer pursuant to this Agreement. As to procedures in arbitration, the arbitration provision provided that ″The Arbitration shall be conducted in accordance with the Arbitrator’s rules and regulations to the extent that they are not in conflict with the Federal Arbitration Act.″ Page 23 of 31 258 S.W.3d 580,[*604] ; 2008 Tex. LEXIS 423, **60 Culls’ position. Then, agreeing with the assertions of the parties, the trial judge did not address whether the judicial process had been substantially invoked; rather, the court concluded Defendants had not shown the prejudice they claimed and granted the Culls’ motion: The question is, I think, when it deals with waiver is are the defendants prejudiced by this delay, and if they are not prejudiced or if there is not proof of prejudice, then the Court has no alternative but to order the case abated for arbitration purposes. And, [counsel for Defendants], all I have heard from you insofar as what is the prejudice suffered by people you represent is that they have participated in litigation activities that may or may not have been required by the arbitrator. So without anything further, I’m going to grant the motion to abate the case for arbitration. ^[2] (Emphasis added). Perry Homes filed a motion for reconsideration. In their motion, Perry Homes again asserted that ″all parties have conducted written and oral discovery under the Texas Rules of [**62] Civil Procedure″ but did not complain that they had been denied any discovery. Perry Homes’ motion recapped the prejudice they were claiming: Defendants have in fact been prejudiced by Plaintiffs’ last-minute attempt to disclaim their election to file suit and instead choose arbitration. In this case, the costs incurred by Defendants--including attorneys’ fees and man hours--in attending 16 depositions, responding to multiple sets of written discovery and responding to the motions to compel filed by Plaintiffs would not have been incurred during the course of arbitration. Similarly, Defendants are prejudiced by the fact that they were required to comply with the Court’s orders on such motions to compel, when such means and methods would not have been available in arbitration. The amount of attorney time Perry Homes has invested in responding to Plaintiffs’ discovery requests and related motions thus far is 122 attorney hours and 20 paralegal hours. [*605] (Emphasis added). An affidavit was attached setting out that the law firm representing Perry Homes had spent 122 attorney hours and 20 paralegal hours in responding to the Culls’ discovery requests and related motions. ^[3] The hours were not [**63] broken down and no dates, times, or tasks were set out. There was no specification as to time spent on actions Defendants claimed as prejudice--responding to motions to compel discovery and complying with court orders compelling discovery that would not have been available in arbitration. The docket sheet reflects that the trial court denied the motion, but the record contains neither a transcript from the hearing nor an order ruling on the motion. The Court agrees that the standard of review applicable to the trial court’s order compelling arbitration is abuse of discretion, but its holding that the Culls waived their right to arbitrate misses the mark. In reaching its conclusion, the Court says the question of prejudice is a matter of law because all the relevant facts were undisputed. It seems to me that (1) there was evidence requiring the trial court to make evidentiary determinations as to prejudice, [**64] and (2) Defendants did not prove that they were prejudiced or that the Culls obtained an advantage because of the litigation process. As to the evidence that the trial court was required to weigh and make evidentiary determinations on, the record reveals that Defendants took depositions and engaged in written discovery, as did the Culls. Yet Defendants did 2 The trial court did not order arbitration as to defendants Jerald W. Kunkel, the foundation engineer, and his firm. The Culls agreed the Kunkel defendants were not covered by the arbitration agreement. The Kunkel defendants are not parties to this appeal. ^[3] Defendants referenced depositions in their motion for rehearing. They did not take the position or offer proof at the hearing on the Culls’ motion to compel arbitration that depositions would not have occurred in arbitration either by permission of the arbitrator or by agreement. Page 24 of 31 258 S.W.3d 580,[*605] ; 2008 Tex. LEXIS 423, **64 not claim prejudice due to the Culls somehow reaping an unfair advantage through discovery. The trial court could have considered the advantages accruing to all parties by depositions and bilateral written discovery and determined that no prejudice was shown because all parties were more fully prepared to proceed with dispute resolution by knowing what the testimony of witnesses would be, and that such knowledge would shorten arbitration and reduce further costs. Next, at the time of the hearing on the motion to compel there was an imminent trial setting. But Defendants did not claim they had spent time preparing to go to trial at the December 10 setting and that those hours would be wasted unless they went to trial immediately. At the December 6 hearing on the motion to compel, the parties agreed the case would not be ready for trial [**65] at the December 10 setting, and the Culls’ attorney stated that, according to the court clerk, the case probably would not be reached for trial. In any event, a trial setting and actually going to trial are different matters. Even though Defendants moved for a continuance and requested the case to be reset in two months, there is nothing in the record to show when the next setting actually would have been, much less when the case would have gone to trial if the motion for continuance had been granted. The Court speculates that trial would have occurred sooner than arbitration took place. To the extent a resetting or actual future trial date should be considered, however, the trial court was in the best position to determine when any new setting would have occurred--whether days, weeks, or months in the future--and to determine the weight to give the setting and a potential trial date along with the other factors. [*606] Further, the Court discounts evidence of a contractual provision in the arbitration clause requiring any party that commenced litigation in violation of the arbitration clause to reimburse other parties’ litigation expenses and costs. The clause is not a model of clarity as [**66] to exactly what was recoverable: Inasmuch as this Agreement provides for mandatory arbitration of disputes, if any party commences litigation in violation of this Agreement, such party shall reimburse the other parties to the litigation for their costs and expenses including attorney’s fees incurred in seeking dismissal of such litigation. It was the trial court’s goal, just as it is ours, to ascertain the true intent of the parties to the agreement. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). The language used in the agreement is the primary evidence of that intent. See id.; National Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). If the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, creating a fact issue on the parties’ intent. See J.M. Davidson, 128 S.W.3d at 229. The Court construes the clause as allowing reimbursement for expenses and attorneys’ fees incurred in seeking dismissal of the lawsuit, but not for expenses and fees in preparing the suit for trial. However, the clause can also be read as requiring reimbursement [**67] of all litigation costs and expenses, including but not limited to attorneys’ fees incurred in seeking dismissal of the litigation. And that, apparently, is how the parties interpreted the agreement. The trial court questioned the Culls’ attorney about whether the Culls would be responsible for the Defendants’ attorneys’ fees and costs. When the Culls’ attorney replied that it was an issue for the arbitrator, the Defendants’ attorney did not contend otherwise. See Mathis v. Lockwood, 166 S.W. 3d 743, 744-45 (Tex. 2005); Banda v. Garcia, 955 S.W.2d 270 (Tex. 1997). The Culls’ attorney’s representations and lack of protestation by Defendants’ attorney is the only evidence in the hearing record about the parties’ intent as to the language in the clause. ^[4] Under the abuse of discretion standard by which we review the trial court’s order, 4 Although not before the [**68] trial court when it ordered arbitration, the arbitration record now before us shows that Defendants considered the clause to provide for recovery of all litigation costs and attorneys’ fees, not just those incurred in seeking dismissal of the lawsuit. The arbitration record shows Defendants claimed that pursuant to the reimbursement clause they were ″entitled to recover or setoff [their] attorney’s fees from [the Culls], which were incurred in connection, with the litigation.″ Perry Homes’ attorney submitted Page 25 of 31 258 S.W.3d 580,[*606] ; 2008 Tex. LEXIS 423, **68 the reimbursement clause and the attorneys’ respective representations and silence is part of the entire record which we must consider in determining whether the trial court followed guiding rules and principles. See Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 852 (Tex. 1992); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). But even if the Court [**69] is right and the reimbursement clause does not allow for [*607] recovery of all Defendants’ litigation attorney’s fees, an arbitration award would not be subject to being vacated if an arbitrator interpreted the clause to allow recovery of all the fees. If arbitrators simply misinterpret a contractual clause such as the reimbursement clause, that type of error is not one which will justify setting aside an award. ^[5] See Wise v. Wachovia Securities, LLC, 450 F.3d 265, 269 (7th Cir. 2006) (noting that in reviewing an arbitration award under the FAA, ″the issue for the court is not whether the contract interpretation is incorrect or even wacky but whether the arbitrators had failed to interpret the contract at all″). Under the circumstances, it was proper for the trial court to weigh, and the record shows it did, the reimbursement provision and the parties’ representations in deciding that Defendants had not proved they suffered prejudice. Regardless of the trial court’s interpretation of what costs and expenses would be recoverable under the reimbursement provision, the mere existence of the provision and its reimbursement requirement comprise evidence supporting the decision to order arbitration [**70] and properly leave construction and application of the clause to the arbitrator. In [**71] 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. Despite evidentiary matters the trial court had before it which warrant our deferring to its implied and stated findings, the Court sets out factors that were uncontroverted, then concludes, without ever saying exactly how, that Plaintiffs were advantaged or Defendants were prejudiced by the ″inherent unfairness″ of it all: Here, the record before the trial court showed that the Culls objected to arbitration initially, and then insisted on it after the Defendants acquiesced in litigation. They got extensive discovery under one set of rules and an affidavit to the arbitrator in support of the claim for attorneys’ fees recovery or setoff. The affidavit mirrored the affidavit submitted as part of Defendants’ motion for reconsideration that was earlier filed in the lawsuit. The arbitration affidavit claimed that Prior to the Court’s order compelling arbitration, Perry Homes incurred one-hundred-twenty-two (122) attorney hours and twenty (20) paralegal hours responding to Claimants’ discovery requests and discovery-related motions. Accordingly, Perry Homes is entitled to an offset in the amount of $ 26,400.00 against any damages awarded to Claimants, due to their violation of the arbitration agreement. ^[5] The Federal Arbitration Act provides that an arbitration award may be set aside for limited reasons: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. ^[9] U.S.C. § 10(a). Page 26 of 31 258 S.W.3d 580,[*607] ; 2008 Tex. LEXIS 423, **71 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. [**72] 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. S.W.3d at . No one (but the Culls and their attorneys) could seriously disagree that the Culls’ conduct smacks of inequity. But even disregarding the evidentiary questions the trial court had to resolve as set out above, when the record is searched for evidence that Defendants suffered prejudice as Defendants [*608] claimed--by incurring expenses in discovery proceedings, responding to discovery motions, and complying with court orders on discovery when that type of activity would not be available in arbitration--there is none. Nor is there evidence that the Culls were unfairly advantaged. The fact of the matter is that all parties took part in litigation discovery as part of the process to resolve their dispute. The Court discusses at length how the facts are undisputed, how ordering the parties to arbitration resulted in ″inherent unfairness″ to Defendants, and that such ″inherent unfairness″ equates to prejudice to Defendants, or conversely, unfair advantage to the Culls. However, the authorities used [**73] to support the Court’s statements do not cut nearly so broadly as the Court indicates. The cases cited incorporate elements such as delay, expense, damage to a party’s legal position, or ″tactical advantage″ by which to measure prejudice to one party or unfairness to the other party. S.W.3d at n.94 (citing In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d 41, 47 n.5 (1st Cir. 2005) (″[A] party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.″ (emphasis added)); Doctor’s Assocs. v. Distajo, 107 F.3d 126, 134 (2d Cir. 1997) (″[P]rejudice as defined by our cases 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.″ (emphasis added)). The following passage embodies the substance of the Court’s opinion as to prejudice or unfair advantage: It is also unquestionably true that [the Cull’s] conduct prejudiced the Defendants. ″Prejudice″ has many meanings, but in the context of waiver under the FAA it relates [**74] to inherent unfairness--that is, a party’s attempt to have it both ways by switching between litigation and arbitration to its own advantage: [F]or purposes of a waiver of an arbitration agreement[,] 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 that same issue. Thus, ″a party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.″ . . . 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. S.W.3d at (citations omitted). As noted previously, the Court does not specify how Defendants proved, at the hearing on the Culls’ motion to compel arbitration, detriment from delay, damage to Defendants’ legal position or a tactical advantage achieved by the Culls, which perhaps is just as well because Defendants did not claim those types of prejudice in the trial court. Defendants claimed [**75] prejudice because of discovery and court hearings that would not have occurred in arbitration. But contrary to the Court’s conclusion that discovery would have been limited in arbitration, the broad arbitration clause did not preclude any particular type or level of discovery. It provided that arbitration would be conducted according to the arbitrator’s rules so long as they did not conflict with the FAA. Specifically, and by way of example, Defendants did not claim prejudice from or prove that (1) delay because of litigation interfered with [*609] their business activities, caused them loss Page 27 of 31 258 S.W.3d 580,[*609] ; 2008 Tex. LEXIS 423, **75 of evidence, or interfered with their ability to arbitrate; (2) if an arbitrator had ordered the lawsuit discovery pursuant to the arbitration clause, the order would have violated the arbitration clause; (3) had the litigation discovery been requested in arbitration, Defendants would have agreed to it and conferences with the arbitrator would not have been necessary; (4) the litigation discovery was not useable in arbitration; (5) Defendants had already begun trial preparations or taken other litigation related actions that would have been wasted effort if the case went to arbitration; or (6) Defendants [**76] suffered compromise of their legal position on the merits of the Culls’ claims. There was not an offer of proof such as by expert testimony, Defendants themselves, their attorneys or otherwise, that all, some, or any arbitrators probably would not have allowed the discovery, that their agreement or a rule limited discovery in arbitration, or Defendants wasted any litigation discovery effort. And to boot, arbitrators do not come free. Disclosure conferences in arbitration might well have cost more than discovery hearings in litigation because arbitrators generally charge for preparing for and attending conferences while trial judges do not. Nor have Defendants claimed that their attorneys would not have charged fees for arbitration discovery activities. So the possibility exists that the disclosure process in arbitration could have ended up costing more than litigation discovery. The Court questions whether broad discovery is generally available in arbitration, but the parties here do not argue that it is. What is argued here is that the parties’ contract provided how the arbitration was to be conducted--through adherence to the arbitrator’s rules so long as those rules do not conflict [**77] with the FAA--and that Defendants did not prove any litigation discovery that would have been in violation of the contract. The Court says that as of the time of the hearing on the Culls’ motion to compel arbitration, what discovery an arbitrator would allow was purely speculative. But arbitration is not new; Defendants could have at least attempted to prove the custom and practice, if any, of arbitrators as to discovery in arbitration, even though each arbitration is governed by the particular agreement between the parties. Even if such evidence might have been ruled speculative, as the Court concludes it would have been, the obligation to overcome the burden of proof still lay with Defendants. See Borg-Warner Corp. v. Flores, 232 S.W.3d 765, 772-74 (Tex. 2007) (recognizing difficulties of proving asbestos claims against individual defendants, yet requiring plaintiffs to meet that burden). The Court says that ″a party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils.″ S.W.3d at . I agree with that statement. The problem is that the Court does not apply [**78] the statement in its entirety to this case. The Court assumes, without requiring Defendants to prove, that the Culls obtained some advantage or caused detriment to Defendants by both parties having engaged in discovery activities. It is hard to see how discovery of facts, witness names, documents, and testimony about the controversy can prejudice either party. See Jampole v. Touchy, 673 S.W.2d 569, 573 (Tex. 1984) (noting that discovery is done so disputes may be decided by what the facts are, not by what facts are concealed). Defendants neither alleged nor proved that they were prejudiced because some privileged, proprietary, or confidential matter had been disclosed. Discovery in both judicial proceedings and in arbitration facilitates just [*610] and reasonable resolutions of disputes and helps prevent unjust and unreasonable resolutions because of ambush, surprise, or concealment of relevant, nonprotected, nonprivileged evidence which could sway the outcome. Furthermore, I disagree with the idea that merely making discovery disclosures is evidence of wasted effort or other prejudice. Although the extent to which a party engages in litigation discovery plays a significant part in determining [**79] whether that party substantially engaged the litigation process, disclosure of relevant, nonprivileged evidence, names of witnesses, and information makes just and reasonable dispute resolution more likely regardless of whether disclosure is strictly voluntary or is made in judicial discovery proceedings or arbitration proceedings. Evidence at the hearing on the Culls’ motion to compel arbitration consisted only of testimony by the Culls and five documents they introduced: the earnest money contract, the application for warranty, the limited warranty Page 28 of 31 258 S.W.3d 580,[*610] ; 2008 Tex. LEXIS 423, **79 agreement containing the arbitration provision, a letter from the warranty company, and a copy of one of Defendants’ original answers. The Culls acknowledged in their testimony that discovery and depositions had occurred, but they were unsure of how many depositions and how much discovery. Defendants requested the trial court to take judicial notice of ″five separate motions to compel discovery and two separate orders on some, but not all, of the motions to compel.″ The court took notice of ″its file,″ which at that time mostly consisted of copies of pleadings and discovery requests attached as exhibits to motions. The file contained only [**80] one or two of the documents actually produced in discovery. There were two orders on the Culls’ motions to compel discovery. The second order referred only to the Kunkel defendants who were not ordered to arbitration. Because the Kunkel defendants were not ordered to arbitration, the trial court could have determined that any orders or motions relating solely to them should not be considered in regard to prejudice as to the other Defendants. In short, the record on which the trial court ruled on December 6 was not extensive, and although it showed what the Culls requested, practically none of the record was of what Defendants produced in discovery, which was filed later when Defendants sought to set aside the arbitration award. And Defendants did not allege in the trial court that some or even any of the discovery would not be useful in arbitration, only that the discovery would not be available in arbitration. Last, the Court says that requiring Defendants to file detailed proof of the discovery would have made the record more cumbersome and would have entailed more expense, and that to show prejudice, Defendants only had to show substantial wasted effort anyway. The Court then concludes [**81] that the record before the trial court at the time of the hearing showed substantial wasted effort, and thus detriment, to Defendants. But in In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex. 2006), the Court declined to determine that waiver of the right to arbitrate occurred when the party opposing arbitration failed to introduce any of the discovery documents, present details about them, or contend that the discovery would not be useful in arbitration. The record, the Court stated, does not show whether these requests were limited or extensive, whether they sought information for affirmative claims or defensive ones, or even whether they addressed the merits or merely the arbitration issue. Further, [plaintiff] does not allege that the discovery already conducted would not be useful in arbitration; to the contrary, he concedes [*611] it would be useful whether the case is arbitrated or tried. Id. at 763. Neither party here claimed before arbitration (nor, for that matter, after arbitration) that the litigation discovery would not be useful in arbitration. On the other hand, and as addressed below, Defendants claimed after arbitration that they suffered prejudice because Plaintiffs’ attorney [**82] used the discovery depositions to prepare for arbitration. In this regard, there are further inferences from the record that the Court does not credit but that the trial court could have made when it compelled arbitration: both parties would use the litigation discovery and depositions to prepare for arbitration, the discovery would be useful in arbitration, and neither party was unfairly advantaged or suffered detriment from the discovery. In summary, the Court (1) does not limit its review to Defendants’ claims of prejudice made in the trial court, (2) disregards factors that presented the trial court with decisions to make based on evidence allowing for different interpretations and inferences, and (3) assumes ″inherent unfairness″ equates to Defendants’ prejudice or the Culls’ unfair advantage from litigation conduct and effectively forgives Defendants’ failure to prove detriment to themselves or advantage to the Culls. Defendants make other contentions not reached by the Court, but none of them warrant holding that the trial court abused its discretion. In their brief to this Court, Defendants reference rules of the American Arbitration Association and urge that the AAA Rules of [**83] Procedure provide for limited discovery in that the arbitrator is limited to directing ″(i) the production of documents and other information, and (ii) the identification of any Page 29 of 31 258 S.W.3d 580,[*611] ; 2008 Tex. LEXIS 423, **83 witnesses to be called.″ Defendants also assert that they were prejudiced because during post-arbitration proceedings, the Culls’ attorney testified that he reviewed deposition testimony in preparing for the arbitration and depositions are not generally available in arbitration. 6 First, Defendants did not introduce the AAA rules into evidence at the hearing or ask the trial court to take judicial notice of them. Second, to the extent the arguments encompass discovery depositions, Defendants did not complain in the trial court that they were prejudiced by the taking of depositions or that the Culls planned to use them in arbitration, and the argument cannot be raised here. See TEX. R. APP. P. 33.1; Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 577 (Tex. 2006) (noting that except for fundamental error, appellate courts are not authorized to consider issues not properly raised by the parties). Third, even if the AAA rules had been before the trial court, there was no evidence that all, most, or any arbitrators [**84] would have refused to require disclosure of any of the matters disclosed by Defendants. Finally, Defendants’ attorneys had access to the same deposition testimony to use for arbitration preparation, so there could not have been an unfair advantage to the Culls by use of the depositions. I conclude the record is not conclusive either that Defendants suffered prejudice as they claimed or that the Culls obtained an unfair advantage by litigation conduct as the Court holds. I also conclude that evidence before the trial court required the court to weigh and draw inferences from it and that some evidence supports the trial court’s determination that Defendants did not prove prejudice to themselves [*612] or unfair advantage to the Culls by use of the litigation process. Accordingly, I would hold that the trial court did not abuse its discretion by compelling the parties to arbitrate and I would affirm the judgment of the court of appeals. Phil Johnson Justice OPINION DELIVERED: May 2, 2008 JUSTICE WILLETT, concurring in part and dissenting in part. Arbitration has become a hot-button topic for the Court of late-in [**85] this Term alone we have decided at least three arbitration-related cases 1 and heard argument in four more. ^[2] As the range of opinions in this case demonstrates, the invocation and operation of arbitration provisions can present tricky legal questions that spark honest differences of opinion. I agree with Parts I-V of the Court’s decision, and also with much of Part VI regarding waiver. However, I respectfully dissent from the Court’s ultimate result, not on an arbitration law issue, but on a much more old-fashioned ground--the applicable standard of review. The [**86] Court properly acknowledges that a trial court’s order compelling arbitration is reviewed for abuse of discretion. Under this standard, we will reverse the trial court only when ″it acts in an arbitrary or unreasonable manner, without reference to any guiding rules or principles.″ 3 I agree with the Court, and the trial judge for that matter, that the record clearly shows that the Culls substantially invoked the judicial process. I also agree with the Court that the cost-reimbursement provision in the arbitration agreement does not prevent Perry 6 Of course, that argument cuts against the idea that discovery was not usable in arbitration. ^[1] See Chambers v. O’Quinn, 242 S.W.3d 30 (Tex. 2007); In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007). This case is the third. ^[2] In re Great Western Drilling, 211 S.W.3d 828 (Tex. App.--Eastland 2006), pet. granted, 51 Tex. Sup. Ct. J. 77 (Nov. ^[2], 2007); E. Tex. Salt Water Disposal Co. v. Werline, 209 S.W.3d 888 (Tex. App.--Texarkana 2006), pet. granted, 51 Tex. Sup. Ct. J. 77 (Nov. ^[2], 2007); Bison Bldg. Materials v. Aldridge, 2006 Tex. App. LEXIS 8162, 2006 WL 641280 (Tex. App.--Houston [1st Dist.] 2006), pet. granted, 51 Tex. Sup. Ct. J. 77 (Nov. ^[2], 2007); Forest Oil Corp. v. McAllen, 2005 Tex. App. LEXIS 10441, 2005 WL 3435061 (Tex. App.--Corpus Christi 2005), pet. granted, 51 Tex. Sup. Ct. J. 667 (Apr. 27, 2007). 3 In re Nitla, 92 S.W.3d 419, 422 (Tex. 2002) (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985)). Page 30 of 31 258 S.W.3d 580,[*612] ; 2008 Tex. LEXIS 423, **86 Homes from showing prejudice resulting from the Culls’ arbitration flip-flop. JUSTICE JOHNSON is comforted by the possibility that an arbitrator might (mis)construe this provision to award Perry Homes all its litigation-related costs and fees, but I am not. The provision limits reimbursement to ″costs and expenses including attorney’s fees incurred in seeking dismissal of such litigation,″ and we cannot plausibly say Perry Homes fails on prejudice because an arbitrator may misread the agreement. Having said all that, [**87] I cannot conclude, as does the Court, that the trial court abused its discretion by compelling arbitration. I believe in waiver-by-conduct, but Perry Homes bore the threshold responsibility of building a record upon which the trial court could find prejudice. The record on appeal is far more extensive than what the trial court considered (and the arguments far more refined), but I agree with JUSTICE JOHNSON that the trial court--sitting where it sat, seeing what it saw, hearing what it heard, reviewing what it reviewed--did not abuse its discretion in concluding ″no prejudice.″ Trial courts do not have carte blanche ″to send any case to arbitration no matter what has occurred in court,″ 4 but I cannot conclude that this trial court acted ″without reference to any [*613] guiding rules or principles″ 5 in ruling that Perry Homes fell short of building a trial-court record that showed prejudice. This is admittedly a close call, and the Court makes the best possible case for going the other way. Given the relevant record, however, I have a difficult time saying the trial court acted arbitrarily or disregarded all guiding standards in not reaching the opposite result. Accordingly, I dissent from [**88] the Court’s decision vacating the arbitration award and remanding for trial. Don R. Willett Justice Opinion delivered: May 2, 2008 4 S.W.3d . 5 Nitla, 92 S.W.3d at 422. Page 31 of 31 | | Caution As of: September 1, 2015 4:55 PM EDT Porter & Clements, L.L.P. v. Stone Court of Appeals of Texas, First District, Houston December 5, 1996, Opinion filed NOS. 01-96-00872-CV, 01-96-00873-CV Reporter 935 S.W.2d 217; 1996 Tex. App. LEXIS 5422 PORTER & CLEMENTS, L.L.P., JOHN O’NEILL, EVELYN V. KEYES, AND J. EUGENE CLEMENTS, Relators v. THE HONORABLE KATHLEEN S. STONE, JUDGE OF THE 55TH DISTRICT COURT OF HARRIS COUNTY, TEXAS, Respondent. PORTER & CLEMENTS, L.L.P., JOHN O’NEILL, EVELYN V. KEYES, AND EUGENE CLEMENTS, Appellants v. SCARLETT RABALAIS, ALVIN RABALAIS, AND HOT DIGGITY DOG, INC., Appellees Prior History: [**1] On Appeal from the 55th District Court. Harris County, Texas. Trial Court Cause No. 95-43759. KATHLEEN S. STONE, Judge. Disposition: Judgment reversed and remanded, motion for leave to file petition for writ of mandamus overruled. Core Terms arbitration, parties, binding, arbitration agreement, binding arbitration, federal arbitration, fee agreement, trial court, non-binding, settlement, provides, arbitration award, entering judgment, appointed, disputed, mandamus, lawsuit Case Summary Procedural Posture Appellants, a law firm and several of its partners, sought review of a judgment of the 55th District Court of Harris County (Texas), which denied appellants’ motion to compel arbitration following the commencement of a suit by appellees, former clients with whom appellants had a fee agreement, that charged appellants with misrepresenting to them their legal position in an unsuccessful suit appellees earlier filed against a third party. Overview Appellees, appellant law firm’s former clients, argued that the omission of the word ″binding″ from the arbitration clause of their fee agreement with appellant, which unsuccessfully represented them in a suit against a third party, automatically transformed the agreement into a nonbinding arbitration agreement. The court disagreed, rejecting appellees’ contention that the Alternative Dispute Resolution Act (ADR Act), Tex. Civ. Prac. & Rem. Code Ann. § 154.027 (1996), which provided for binding arbitration only if the parties stipulated to that effect, so required. The ADR Act only dealt with court-ordered referrals of pending litigation and did not deal with private, contractually agreed-upon provisions for arbitration, the court explained. The controlling Texas 935 S.W.2d 217,[*217] ; 1996 Tex. App. LEXIS 5422, **1 Arbitration Act (TAA), §§ 171.001-.023, in authorizing a trial court to enter a final judgment upon an arbitrator’s award, contemplated that the award would be binding, the court ruled, noting the absence of any provision in the TAA for a non-binding arbitration procedure. Moreover, the court concluded, the parties’ agreement intimated that the arbitrator’s decision would be final, and provided no appeal mechanism. Outcome Judgment denying motion by appellant law firm and named partners to compel arbitration with appellees, former clients with whom they had a fee agreement, reversed, because appellants entitled to enforce binding arbitration clause with appellees, as omission of word ″binding″ from clause made it nonbinding only for court-ordered referrals of pending litigation, but not for private, contractually agreed upon arbitration clauses. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Remedies > Writs > General Overview Civil Procedure > ... > Writs > Common Law Writs > Mandamus Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN1 A writ of mandamus is required to allow a Texas court to review an order refusing to compel arbitration under the Federal Arbitration Act, 9 U.S.C.S. § 2. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review HN2 See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.023 (1996). Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods HN3 See Tex. Civ. Prac. & Rem. Code Ann. § 154.027 (1996). Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Judicial Review Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN4 The Texas Alternative Dispute Resolution Act, Tex. Civ. Prac. & Rem. Code Ann. § 154.027 (1996), does not deal with private, contractually agreed-upon provisions for arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Page 2 of 7 935 S.W.2d 217,[*217] ; 1996 Tex. App. LEXIS 5422, **1 Contracts Law > Contract Interpretation > General Overview Contracts Law > Contract Interpretation > Intent HN5 An arbitration agreement need not be in any particular form, but no party is under a duty to arbitrate unless by clear language he has so agreed, and it must clearly appear that the intention of the parties was to submit their dispute to the arbitrators and to be bound by that decision. A clause requiring arbitration is interpreted under contract principles, and the language contained within will be enforced according to its plain meaning unless this would defeat the intention of the parties. Administrative Law > Judicial Review > Standards of Review > General Overview Civil Procedure > Appeals > Standards of Review > Clearly Erroneous Review HN6 An arbitrator’s award has the same effect as a judgment of a court of last resort, and the trial court may not substitute its judgment for the arbitrator’s merely because it would have reached a different conclusion. An arbitrator’s award can only be set aside by the courts under limited circumstances. Tex. Civ. Prac. & Rem. Code Ann. § 171.014 (1996). Counsel: For Appellants: SAM CRUSE, JR., STEPHEN BAILEY, BILLY SHEPHERD, HOUSTON. For Appellees: SEAN F. O’NEILL, SAN ANTONIO. Judges: Margaret Garner Mirabal, Justice. Justices O’Connor and Wilson also sitting. Opinion by: Margaret Garner Mirabal Opinion [*218] OPINION By way of an interlocutory appeal and a mandamus action, Porter & Clements, L.L.P., and several attorneys employed by the firm attack the trial court’s denial of their motion to compel arbitration. We reverse and remand in the interlocutory appeal and overrule the motion for leave to file a petition for writ of mandamus as improvidently granted. On May 9, 1991, Porter & Clements entered into a fee agreement with Alvin and Scarlett Rabalais, owners of a food services company known as Hot Diggity Dog (HDD). Porter & Clements is a law firm located in Houston, Texas. Scarlett Rabalais is a resident of Harris County, Texas. Alvin Rabalais is a resident of Dallas County, Texas. [*219] [**2] HDD’s principal place of business is Dallas, Texas. The Rabalais hired Porter & Clements to represent them in a suit against Sam’s Wholesale Clubs (Sam’s). Sam’s is a Delaware corporation with its headquarters in Arkansas. The lawsuit concerned HDD’s rights to operate hot dog carts at Sam’s locations throughout the country. The Rabalais’ claims against Sam’s included unfair competition, trademark infringement, breach of contract, breach of fiduciary duties, and other business-related torts. Ultimately, a take nothing judgment was entered against the Rabalais. On August 31, 1995, the Rabalais sued their attorneys, Porter & Clements. The Rabalais claimed that Porter & Clements had misrepresented to them the potential for a recovery in the Sam’s lawsuit, and that if they had known the weakness of their legal position they would not have pursued the lawsuit, but would have accepted a settlement offer made by Sam’s. Page 3 of 7 935 S.W.2d 217,[*219] ; 1996 Tex. App. LEXIS 5422, **2 On May 29, 1996, Porter & Clements filed a motion to compel arbitration and stay litigation based on an arbitration provision in the fee agreement with the Rabalais. Porter & Clements then filed a motion to clarify that it was requesting binding arbitration. The Rabalais [**3] filed a response in which they agreed to arbitration, but objected to binding arbitration. After considering the motion, the response, and the attached exhibits, the trial court denied Porter & Clements’ motion to compel binding arbitration. No evidentiary hearing was held. Porter & Clements filed a motion for leave to file a petition for writ of mandamus, contending that arbitration was required by the Federal Arbitration Act. ^[1] [**4] Porter & Clements contemporaneously filed an interlocutory appeal, contending that arbitration was required by the Texas Arbitration Act. ^[2] Parallel proceedings were required because an interlocutory appeal is only available to pursue a claim under the Texas Arbitration Act. Tex. Civ. Prac. & Rem. Code Ann. 171.017(a)(1) (Vernon Supp. 1996). HN1 A writ of mandamus is required to allow a Texas court to review an order refusing to compel arbitration under the Federal Arbitration Act. Jack B. Anglin v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992); Smith Barney Shearson, Inc. v. Finstad, 888 S.W.2d 111, 113 (Tex. App.--Houston [1st Dist.] 1994, no writ). The trial court did not specify whether state or federal arbitration laws applied to the contract in question. Porter & Clements argues that under either Act, arbitration is required. The Federal Arbitration Act applies to ″a contract evidencing a transaction involving commerce.″ 9 U.S.C 2. In this case, the only possible connection to commerce is the fact that one of the parties to the underlying lawsuit, Sam’s, is a foreign corporation doing business in several different states. However, all parties to the fee agreement at issue in this case are residents of Texas. The fee agreement involves the providing of legal services in Texas. The dispute giving rise to the claim for arbitration involves misrepresentations that were allegedly made to the Rabalais in Texas. The underlying lawsuit, the handling of which gives rise to the Rabalais’ claim against Porter & Clements, was filed in federal court in Texas. The fee agreement does not fall within the terms of the Federal Arbitration Act. See Withers-Busby Group v. Surety [**5] Industries, 538 S.W.2d 198, 199 (Tex. Civ. App.-- Dallas 1976, no writ). Accordingly, our order granting Porter & Clements’ motion for leave to file petition for writ of mandamus was improvidently granted. We withdraw our order and overrule the motion for leave to file. We will apply the Texas Arbitration Act 3 to this case. [**6] [*220] The fee agreement between Porter & Clements and the Rabalais indicated that the law firm would represent the Rabalais in their suit against Sam’s and the firm would be paid a contingency fee. The fee agreement also contained the following arbitration clause: 1 U.S.C. ^[2]. 2 2 Tex. Civ. Prac. & Rem. Code Ann. 171.001-171.023 (Vernon Supp. 1996). 3 HN2 The Texas Arbitration Act reads, in relevant part: 171.001. A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable . . . . 171.002 (a). On application of a party showing an agreement described in section 171.001, and the opposing party’s refusal to arbitrate, the Court shall order the parties to proceed with arbitration . . . . 171.003. If the arbitration agreement provides a method of appointment of arbitrators, this method shall be followed . . . . 171.011 (b). The making of an agreement described in section 171.001 and to which that section is applicable . . . which provides for or authorizes an arbitration in this state, confers jurisdiction on the Court to enforce the agreement under this chapter and to enter judgment on an award thereunder. 171.013. Upon application of a party, the Court shall confirm an award . . . . Page 4 of 7 935 S.W.2d 217,[*220] ; 1996 Tex. App. LEXIS 5422, **6 Should any dispute arise regarding the terms or conditions of this contract or the fees, costs, or expenses payable thereunder, all parties hereby agree that the dispute shall be referred to arbitration by an arbitrator appointed by the senior United States District Judge for the Southern District of Texas. For example, if you receive intangible or illiquid assets such as contract or lease provisions by way of settlement, and if we are unable to agree on their fair value, an arbitrator will set fair value for division purposes. Both Porter & Clements and the Rabalais agree that an arbitration agreement exists and that the agreement encompasses the claims asserted. The only issue is whether the arbitration is to be binding. The Rabalais first argue that only nonbinding arbitration is required because section 154.027 of the Texas Alternative Dispute Resolution Act (ADR Act) 4 requires the parties to [**7] an arbitration to stipulate in advance if they intend for an arbitration award to be binding. The Rabalais’ reliance on section 154.027 of the ADR Act is misplaced because the ADR Act only deals with court-ordered referrals of pending litigation to alternative dispute resolution procedures. Tex. Civ. Prac. & Rem. Code Ann. 154.021 (Vernon Supp. 1996). HN4 The ADR Act does not deal with private, contractually agreed-upon provisions for arbitration. The [**8] present case does not involve court-ordered referral of pending litigation to an ADR procedure. Rather, the parties contractually agreed to arbitration before the current dispute ever arose. As such, the current dispute is governed by the Texas Arbitration Act, not the ADR Act. The Rabalais also argue that the plain language of the arbitration agreement requires nonbinding arbitration. We note that neither party contends the agreement is ambiguous; therefore, we will construe its meaning as a matter of law. Manes v. Dallas Baptist College, 638 S.W.2d 143, 145 (Tex. App.--Dallas 1982, writ ref’d n.r.e.). HN5 An arbitration agreement need not be in any particular form, but no party is under a duty to arbitrate unless by clear language he has so agreed, and it must clearly appear that the intention of the parties was to submit their dispute to the arbitrators and to be bound by that decision. Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 81 (Tex. App.--Houston [1st Dist.] 1988, no writ); Manes, 638 S.W.2d at 145. A clause requiring arbitration is interpreted under contract principles, and the language contained within will be enforced according to its plain meaning [**9] unless this would defeat the intention of the parties. Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 930 (Tex. App.--Houston [1st Dist.] 1996, no writ). Historically, the settlement of disputes by arbitration has been favored in Texas law. L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex. 1977); Massey v. [*221] Galvan, 822 S.W.2d 309, 316 (Tex. App.--Houston [14th Dist.] 1992, writ denied). In McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 983-85 (5th Cir. 1995), the court construed the Louisiana arbitration statute, which is similar to the Texas statute. There the court considered whether the parties to a contract had agreed to binding arbitration. The clause at issue provided that the parties would submit any dispute to ″an arbitration to be conducted by the American Arbitration Association (A.A.A.).″ 5 The plaintiffs 4 HN3 The ADR Act provides: (a) Nonbinding arbitration is a forum in which each party and counsel for the party present the position of the party before an impartial third party, who renders a specific award. (b) If the parties stipulate in advance, the award is binding and is enforceable in the same manner as any contract obligation. If the parties do not stipulate in advance that the award is binding, the award is not binding and serves only as a basis for the parties’ further settlement negotiations. Tex. Civ. Prac. & Rem. Code Ann. 154.027 (Vernon Supp. 1996). 5 The complete text of the arbitration agreement in McKee provided: Page 5 of 7 935 S.W.2d 217,[*221] ; 1996 Tex. App. LEXIS 5422, **9 argued that the agreement did not contemplate ″binding″ arbitration. Id. at 983. The court held that under Louisiana law, binding arbitration was required because arbitration, by definition, was a binding procedure. Id. at 985. [**10] Arbitration is binding only if a court may enter judgment on the award made pursuant to the arbitration. While the Louisiana Arbitration Law generally parallels the Federal Arbitration Act, there is a significant difference between the sections dealing with entry of judgment. Disputes about whether arbitration is binding can arise under the Federal Arbitration Act because the Federal Arbitration Act provides that a court may enter judgment on the arbitration only if the parties agreed that a court may enter judgment. See 9 U.S.C. ^[9]. Such disputes do not arise under the Louisiana Arbitration Law because the Louisiana law provides that a court may enter judgment if the parties agreed to arbitration; the Louisiana law simply makes no provision for non-binding arbitration. See LSA-R.S. ^[9]:4209. Thus under the Louisiana Arbitration Law, if the parties agreed to a non-binding procedure, they did not agree to arbitration. McKee, 45 F.3d at 985. The Texas Arbitration Act is similar to the Louisiana arbitration statute in that it also authorizes the trial court to enter a final judgment based upon the arbitrator’s award. Tex. Civ. Prac. & Rem. Code Ann. 171.011 [**11] (b), 171.013 (Vernon Supp. 1996). We agree with the Fifth Circuit’s interpretation of the similar statute in McKee. By providing that a trial court ″shall confirm an award,″ the Texas Arbitration Act necessarily contemplates that the arbitration award will be binding. The Texas Arbitration Act makes no provision for a non-binding arbitration procedure. This interpretation of the Texas Arbitration Act is consistent with the historical nature of arbitration in Texas law. In Texas, ″arbitration″ is generally a contractual proceeding by which the parties to a controversy, in order to obtain a speedy and inexpensive final disposition of the disputed matter, select arbitrators or judges of their own choice, and by consent, submit the controversy to these arbitrators for determination. Manes, 638 S.W.2d at 145; Alderman v. Alderman, 296 S.W.2d 312, 315 (Tex. Civ. App.--San Antonio 1956, writ ref’d). HN6 An arbitrator’s award has the same effect as a judgment of a court of last resort, and the trial court may not substitute its judgment for the arbitrator’s merely because it would have reached a different conclusion. City of Baytown v. C.L. Winter, Inc., 886 S.W.2d [**12] 515, 518 (Tex. App.--Houston [1st Dist.] 1994, writ denied). An arbitrator’s award can only be set aside by the courts under limited circumstances. See Tex. Civ. Prac. & Rem. Code Ann. 171.014 (Vernon Supp. 1996). These authorities, as well as the reasoning of McKee, lead us to conclude that, by its very nature, arbitration under the Texas Arbitration Act is a mechanism by which the [*222] parties to a contract reach a binding resolution to their differences. In McDonnell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830-31 (2nd Cir. 1988), the court considered whether the parties had entered a binding arbitration agreement. The clause at issue provided: Should the Builder of Homebuyer(s) disagree with the Insurer’s decision to deny the claim as recommended by the Service, the contesting party shall call for conciliation with the Service or an arbitration to be conducted by the American Arbitration Association (A.A.A.), or other mutually agreeable arbitration service at the Service’s expense . . . . The conciliation and/or arbitration process will be conducted in accordance with the warranty conditions described herein and the rules and regulations of the A.A.A. or other mutually agreeable arbitration service. The dispute settlement process shall precede any litigation attempted by either party on items that are specifically included in this warranty. . . . The dispute will be resolved or an award rendered by the arbitrator within 40 days from the time the form is received by the arbitration service. Page 6 of 7 935 S.W.2d 217,[*222] ; 1996 Tex. App. LEXIS 5422, **12 If the Company should disagree with any Owner’s computation of the amount of the required indemnity payment or refund thereof as provided below or if any Owner should disagree with such good faith determination of the Company that there is substantial risk, the Company and the Owner shall appoint an independent tax counsel to resolve the dispute, and if the parties cannot agree to the appointment of such counsel, said independent tax counsel shall be appointed by the American [**13] Arbitration Association and the Company shall not be obligated to pay, and such Owner shall not be obligated to refund, the disputed portion of such amount until and only to the extent that such dispute is resolved adversely to the party required to make payment. Id. at 827 (emphasis added). The Second Circuit stated that it was irrelevant that the clause did not use the word ″arbitration;″ what was important was that the parties agreed to submit their dispute for binding resolution by a third party. 858 F.2d at 830-31. Similarly, the absence of the words ″final″ or ″binding″ was considered insignificant. Id. at 830. The agreement in this case designates a mechanism for choosing an arbitrator. The agreement also gives an example of the type of claim that will be referred to arbitration. In the example, the agreement states that the arbitrator ″will set fair value″ of intangible assets received in any settlement. The use of the term ″will set,″ like the use of the term ″resolve″ in McDonnell Douglas, indicates that the arbitrator’s decision will be final. The arbitration clause does not provide for any appeal mechanism. We hold that the mere omission of the term [**14] ″binding″ from an arbitration agreement does not automatically transform it into a nonbinding arbitration agreement. The arbitration agreement in the present case provides for binding arbitration. Therefore, the trial court erred by denying Porter & Clements’ motion to compel binding arbitration. We sustain Porter & Clements’ sole point of error. We reverse the judgment of the trial court and remand for further proceedings consistent with this opinion. /s/ Margaret Garner Mirabal Justice Justices O’Connor and Wilson also sitting. Judgment rendered and opinion delivered Page 7 of 7 | | Positive As of: September 1, 2015 5:27 PM EDT Prescott-Follett & Assocs. v. Delasa/ Prescott Follett & Assocs. United States District Court for the Eastern District of Louisiana November 8, 2002, Decided ; November 8, 2002, Filed; November 12, 2002, Entered CIVIL ACTION No. 01-3178 SECTION: I/2 Reporter 2002 U.S. Dist. LEXIS 21988; 2002 WL 31528463 PRESCOTT-FOLLETT & ASSOCIATES, INC. ET AL versus DELASA/ PRESCOTT FOLLETT & ASSOCIATES, ET AL Subsequent History: Appeal dismissed by Prescott-Follett & Assocs. v. Delasa/Prescott-Follett & Assocs., 2004 U.S. App. LEXIS 11035 (5th Cir. Tex., June 7, 2004) Disposition: [*1] Defendant’s motion to compel arbitration granted. Case stayed pending arbitration. Core Terms arbitration, operating agreement, parties, arbitration clause, plaintiffs’, inducement, commerce, void, judicial process, defendants’, charges, lawsuit, Lease, compel arbitration, district court, court finds, Memorandum, waive Case Summary Procedural Posture Plaintiffs sued defendants to have a November operating agreement declared null and void and to reinstate a March operating agreement. Plaintiffs also sought damages for defendant’s alleged breach of the March operating agreement. Defendants moved to compel arbitration. Overview The parties formed a Delaware limited liability company (one of the defendants) for the purpose of securing a 25 year lease of the port facilities at Puerto Cabezas, Nicaragua. The parities signed an operating agreement in March of 1999 which contained an arbitration agreement. In November of 1999 the parties negotiated a new operating agreement. The Delaware company’s agent in Nicaragua wrongfully deposited checks that belonged to the Delaware company into another account. The court found that both the March and November operating agreements contained an identical arbitration clause. Plaintiffs’ fraud defense related to the operating agreements generally therefore the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., mandated that plaintiffs’ claims be resolved by the arbitrator. Defendants’ filing of alleged civil and/ or criminal matters in Nicaragua against the agent and another person did not amount to a substantial invocation of the judicial process and it was not inconsistent with defendants’ desire to arbitrate the present claims arising out of the parties’ operating agreement. 2002 U.S. Dist. LEXIS 21988, *1 Outcome The motion to compel arbitration was granted. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Constitutional Law > Congressional Duties & Powers > Commerce Clause > General Overview Constitutional Law > ... > Commerce Clause > Interstate Commerce > Prohibition of Commerce Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Transportation Law > Interstate Commerce > Federal Powers HN1 The Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., applies to written arbitration provisions contained in contracts involving commerce and its reach is coextensive with the Congressional power to regulate under the Commerce Clause. Admiralty & Maritime Law > Arbitration > General Overview Admiralty & Maritime Law > Maritime Contracts > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN2 See 9 U.S.C.S. § 2. Civil Procedure > ... > Diversity Jurisdiction > Alienage Jurisdiction > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods International Trade Law > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN3 With regard to the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., the term ″commerce″ refers to commerce among the several states or with foreign nations, 9 U.S.C.S. § 1, and it is to be broadly construed. Furthermore, it is well established that although the FAA is substantive law, the FAA applies in diversity cases because Congress has so intended. Civil Procedure > ... > Subject Matter Jurisdiction > Federal Questions > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Page 2 of 12 2002 U.S. Dist. LEXIS 21988, *1 HN4 The Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., preempts state law. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Formation of Contracts > Execution International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN5 The Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., expresses a strong presumption favoring arbitration of disputes and all doubts concerning the arbitrability of claims should be resolved in favor of arbitration. By its terms, the FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. In determining whether the parties should be compelled to arbitrate a dispute, the court performs a two-step inquiry. First, the court must determine whether the parties agreed to arbitrate the dispute. Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable. In conducting this two step analysis, courts must not consider the merits of the underlying action. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN6 A court must determine whether the parties agreed to arbitrate the dispute, this determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN7 Where an arbitration clause is ″broad,″ the action should be stayed and the arbitrator permitted to decide if the dispute falls within the clause. Whereas in cases where the clause is ″narrow,″ the case is not referred to arbitration or stayed, unless the court determines that the dispute falls within the clause. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN8 With regard to arbitration, clauses which contain the term ″any dispute″ have been held to be ″broad.″ Page 3 of 12 2002 U.S. Dist. LEXIS 21988, *1 Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN9 The United States Supreme Court holds that pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., if the claim is fraud in the inducement of the arbitration clause itself -- an issue which goes to the ″making″ of the agreement to arbitrate -- the federal court may proceed to adjudicate it, but the federal court cannot consider claims of fraud in the inducement of the contract itself. Thus, unless a defense relates solely to the arbitration clause, it must be submitted to the arbitrator for consideration as part of the underlying dispute between the parties. Civil Procedure > ... > Responses > Defenses, Demurrers & Objections > Waiver & Preservation of Defenses Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN10 Waiver of arbitration is not a favored finding and there is a presumption against it. In general, courts hesitate to find that a party has waived its contractual right to arbitration. Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract itself or an allegation of waiver, delay, or a like defense to arbitrability. Accordingly, a party asserting waiver of arbitration bears a heavy burden of proof. Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party. Waiver requires a showing of both a substantial invocation of the judicial process and either detriment or prejudice to the other party. Finally, it is well established that a party only invokes the judicial process to the extent it litigates a specific claim it subsequently wants to arbitrate. Only prior litigation of the same legal and factual issues as those the party now wants to arbitrate results in a waiver of the right to arbitrate. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN11 With regard to waiver of arbitration, ″substantial″ invocation of the judicial process requires active participation in a lawsuit or some other type of act inconsistent with the desire to arbitrate. With respect to the requirement of ″prejudice,″ the United States Court of Appeals for the Fifth Circuit holds that, when one party reveals a disinclination to resort to arbitration on any phase of a lawsuit involving all parties, those parties are prejudiced by being forced to bear the expenses of a trial. Arbitration is designed to avoid this very expense. Substantially invoking the litigation machinery qualifies as the kind of prejudice that is the essence of waiver. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Page 4 of 12 2002 U.S. Dist. LEXIS 21988, *1 Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN12 Federal courts hold that the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., while promoting arbitration, does not contemplate the arbitration of criminal activity. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN13 Arbitration clauses containing the ″any dispute″ language are of the broad type. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN14 Absent allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause on its face appears broad enough to encompass the party’s claims. Counsel: For PRESCOTT-FOLLETT & ASSOCIATES, INC., LATIN AMERICA ENERGY DEVELOPMENT, INC., plaintiffs: John I. Hulse, IV, Hulse & Wanek, New Orleans, LA. For DELASA/ PRESCOTT FOLLETT & ASSOCIATES, ALMA FINANCE GROUP, KRIS N MAHABIR, ARETE LLC, MARY A WRIGHT, defendants: Guy W. Smith, Simon, Peragine, Smith & Redfearn, LLP, New Orleans, LA. Judges: LANCE M. AFRICK, UNITED STATES DISTRICT JUDGE. Opinion by: LANCE M. AFRICK Opinion Before this Court is the motion of defendants, Delasa/ Prescott Follett & Associates, a Delaware limited liability company, Alma Finance Group, Kris N. Mahabir, Arete, LLC, and Mary Wright, to compel arbitration pursuant to an operating agreement of Delasa/ Prescott Follett & Associates. Plaintiffs, Prescott-Follett & Associates, Inc. and Latin American Energy Development, Inc. d/ b/ a Delasa oppose the motion. For the following reasons, the motion is GRANTED. FACTUAL BACKGROUND In 1999, Prescott-Follett & Associates, Inc., Latin American [*2] Energy Development, Inc. d/ b/ a Delasa, 1 Alma Finance Group, and Arete, LLC, (the ″Parties″) formed a Delaware limited liability company, Delasa/ Prescott-Follett & Associates LLC (the ″Delaware Company″), for the purpose of securing a twenty five year 1 Plaintiffs, Prescott-Follett & Associates, Inc. and Latin American Energy Development, Inc. d/ b/ a Delasa, are both Louisiana corporations. Alma Finance Group and Arete LLC are foreign companies. R. Doc. No. 1, P 1. Page 5 of 12 2002 U.S. Dist. LEXIS 21988, *2 lease of the port facilities at Puerto Cabezas, Nicaragua. ^[2] [*3] Shortly after forming the Delaware Company, the Parties signed an operating agreement dated March 29, 1999, (the ″March Operating Agreement″) to formalize their agreement to work together on the project. ^[3] The March Operating Agreement contained a clause requiring that, ″in the Event of any dispute under this Agreement, such dispute shall be settled by arbitration in New York, New York, in accordance with the rules then promulgated by the American Arbitration Association …″ 4 In November 1999, the Parties allegedly negotiated a new operating agreement (the ″November Operating Agreement″). The terms of the November Operating Agreement were substantially different from the March Operating Agreement, but contained the same dispute resolution clause as the original March Operating Agreement, in that it required the members to resolve ″any dispute under this Agreement … by arbitration in New York.″ 5 The Delaware Company was ultimately successful in securing the lease and it assumed control of the port at Puerto Cabezas in July, 2001. 6 As a prerequisite for doing business in Nicaragua, Nicaraguan law required the Delaware Company to be registered in Nicaragua and to appoint an agent who resided in Nicaragua. 7 The Delaware Company appointed [*4] Arnaldo Talavera to act as its agent and it granted him power of attorney to handle, inter alia, certain banking transactions for the Delaware Company. ^[8] In August, 2001, the majority shareholder of the Delaware Company requested that Talavera provide an accounting of funds he handled on behalf of the Delaware Company. ^[9] Talavera failed to respond to these requests. Shortly thereafter, it was discovered that John Wheelock 10 had allegedly opened a bank account in Nicaragua under the same name as the Delaware Company and that he wrongfully deposited checks belonging to the Delaware Company. ^[11] [*5] Consequently, the Delaware Company filed charges in Nicaragua against Talavera on September 18, 2002, seeking an accounting of the Delaware Company’s funds. 12 On December 12, 2001, a judge of the Criminal Court of Puerto Cabezas convicted Talavera of the crime of theft with abuse of trust in violation of the Nicaraguan Criminal Code. ^[13] In the judgment of conviction, defendants allege that the judge also set forth a 2 R. Doc. No. 18, Memorandum, p. 2. The purpose of the project was ″the commercial, long-term development and privatization of Puerto Cabezas, as a major port in Nicaragua, on the Atlantic coast, serving the North Atlantic Autonomous Region of Nicaragua.″ R. Doc. No. 1, P 8. 3 Id. at pp. 2-3. 4 R. Doc. No. 5, Exhibit D-1, Article XXII, § 22.1. 5 R. Doc. No. 18, Exhibit 1, Operating Agreement, Article 10, § 10.1. 6 R. Doc. No. 18, Memorandum, p. 3. 7 Id. 8 Id. at p. 4. 9 Id. 10 John Wheelock is the principal of Latin American Energy Development d/ b/ a Delasa, and a member of the Delaware Company. R. Doc. No. 1, P 8-9. 11 R. Doc. No. 18, p. 4. Plaintiffs dispute that Wheelock wrongfully deposited money into this account. 12 R. Doc. No. 18, p. 5; R. Doc. No. 5, Exhibits M-1, M-2, and N. 13 R. Doc. No. 18, p. 5; R. Doc. No. 32, p. 2. Page 6 of 12 2002 U.S. Dist. LEXIS 21988, *5 criminal complaint 14 against Wheelock for being presumed to be Talavera’s co-conspirator. 15 Plaintiffs agree that Wheelock was subsequently convicted of this alleged crime in absentia. 16 [*6] On October 19, 2001, plaintiffs filed the present lawsuit seeking to have the November Operating Agreement declared null and void and to reinstate the March Operating Agreement. Plaintiffs also seek damages arising from the defendants’ alleged breach of the March Operating Agreement. LAW AND ANALYSIS HN1 The Federal Arbitration Act (″FAA″) applies to written arbitration provisions contained in contracts involving commerce and ″its reach is coextensive with the Congressional power to regulate under the Commerce Clause.″ Trapp Chevrolet-Oldsmobile-Cadillac, Inc. v. General Motors Corporation, 2002 U.S. Dist. LEXIS 10412, 2002 WL 11633611, *2 (E.D.La. 5/31/02). Specifically, Section 2 of the FAA provides: HN2 A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity [*7] for the revocation of any contract. ^[9] U.S.C. § 2. HN3 The term ″commerce″ refers to ″commerce among the several States or with foreign nations″ 17 and it is to be broadly construed. Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1280 (5th Cir. 1994). Furthermore, it is well established that although the FAA is substantive law, the Act applies ″in diversity cases because Congress has so intended.″ 18 Allied Bruce Terminex Companies, Inc. v. Dobson, 513 U.S. 265, 271, 115 S. Ct. 834, 838, 130 L. Ed. 2d 753 (1995). In this case, none of the parties dispute that the operating agreements between the parties are contracts involving commerce within the meaning of 9 U.S.C. § 2. 19 Moreover, it is also undisputed that both the March and November [*8] operating agreements contain written arbitration provisions. 20 Accordingly, the FAA governs this Court’s determination regarding the arbitrability of this dispute. [*9] HN5 The FAA expresses a strong presumption favoring arbitration of disputes and ″all doubts concerning the arbitrability of claims should be resolved in favor of arbitration.″ Primerica Life Insurance Co. v. Brown, 14 According to the record, the judge ordered that an ″instructive of law″ be opened against Wheelock. R. Doc. No. 32, p. 5. 15 R. Doc. No. 18, p. 5 and Exhibit 2. 16 R. Doc. No. 23, p. 12. Plaintiffs further argue that the conviction was subsequently overturned by the judge who held that the charges against Wheelock were civil in nature. Id. However, plaintiffs arguments are unsupported by any evidence in the record. 17 9 U.S.C. § 1. 18 In fact, the U.S. Supreme Court has made it clear that HN4 the FAA preempts state law. Id., 513 U.S. at 272, 115 S. Ct. at 838. 19 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 23, pp. 1, 6-7. Although the parties dispute whether the March or November operating agreement should apply, it is clear that both agreements ″involve commerce″ as the parties to the agreements are residents of different states and the agreements relate to the operations of a Delaware Company whose business was the development of a major foreign port in Nicaragua. As such, they fall under the coverage of the FAA. See Rushe v. NMTC, Inc., 2002 U.S. Dist. LEXIS 7420, 2002 WL 575706, *5 (E.D.La. 4/16/02)(holding that where distributorship agreement was between residents of different states and involved the distribution of products from outside the State of Louisiana and ″where the claims and allegations of the suit involved meetings and communications which took place between Ohio and Louisiana,″ the agreement was one which involved commerce within the meaning of the FAA). 20 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 1, p. 1. Page 7 of 12 2002 U.S. Dist. LEXIS 21988, *9 304 F.3d 469, 471 (5th Cir. 2002). ″By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.″ Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217-18, 105 S. Ct. 1238, 1241, 84 L. Ed. 2d 158 (1985)(emphasis added). In determining whether the parties should be compelled to arbitrate a dispute, the Court performs a two-step inquiry. Primerica Life Insurance Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002). ″First, the court must determine whether the parties agreed to arbitrate the dispute. 21 Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable.″ Id. In conducting this two step analysis, ″courts must not consider the merits of the underlying [*10] action.″ Downer v. Siegel, 2002 U.S. Dist. LEXIS 17752, 2002 WL 31106920, *2 (E.D.La. 9/19/02). Here, plaintiffs do not deny that both the March and November operating agreements at issue contain an identical arbitration clause requiring ″any dispute″ under the agreement to be arbitrated in New York. 22 Likewise, plaintiffs do not contest that their claims for breach of the original operating agreement (i.e. the March Operating Agreement) fall within the broad scope 23 [*12] of the arbitration clause. ^[24] Rather, plaintiffs sole argument is that they should not be compelled to arbitrate at all because both the March and November agreements are invalid as a whole as a result of fraudulent misrepresentations by the defendants. 25 Specifically, [*11] plaintiffs contend ″that the entire consent to form the contract initially was obtained by the fraud, 21 This HN6 determination involves two considerations: ″(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement.″ Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996). 22 R. Doc. No. 5, Exhibit D-1, Operating Agreement, Article XXII, § 22.1; R. Doc. No. 18, Exhibit 1, Article 10, § 10.1. 23 The Fifth Circuit has differentiated between arbitration clauses which are ″broad″ and those which are ″narrow.″ Rushe, 2002 U.S. Dist. LEXIS 7420, 2002 WL 575706 at *5. HN7 ″Where an arbitration clause is ’broad,’ the action should be stayed and the arbitrator permitted to decide if the dispute falls within the clause. Whereas in cases where the clause is ’narrow,’ the case is not referred to arbitration or stayed, unless the Court determines that the dispute falls within the clause.″ Id. (citing In Re Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 755 (5th Cir. 1993)). HN8 Clauses which contain the term ″any dispute″ have been held to be ″broad.″ Id.; see also Pennzoil Exploration & Prod. Co. v. Ramco Energy, 139 F.3d 1061, 1067; Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corporation, 797 F.2d 238, 244 (5th Cir. 1986)(finding that arbitration clause requiring arbitration of ″any controversy between the parties … arising under this Contract″ was broad); Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996)(″any other dispute″ was sufficiently broad); In Re Complaint of Hornbeck, 981 F.2d at 755 (holding that arbitration clause in towage agreement providing for reference to arbitration of ″any dispute″ arising between the parties was broad); Sedco v. Petroleos Mexicanos Mexican Nat’l Oil, 767 F.2d 1140, 1144 (5th Cir. 1985)(finding that clause providing for arbitration of ″any dispute or difference between the parties″ was sufficiently broad); Neal v. Hardee’s Food Systems, Inc., 918 F.2d 34, 38 (5th Cir. 1990)(clause governing ″any and all disputes″ between the parties was broad). In this case, both the March and November Operating Agreements contain identical arbitration provisions requiring arbitration of ″any dispute under this Agreement.″ The Court finds that regardless of which operating agreement is applied, the clauses are of the ″broad″ type. Therefore, in accordance with the jurisprudence, the matter should be stayed and submitted to arbitration. ^[24] In fact, plaintiffs do not even address this issue in their opposition memorandum. 25 R. Doc. No. 23, p. 7-10. The Court notes that plaintiffs’ original and first supplemental and amending complaints assert only that the November Operating Agreement should be voided. R. Doc. No. 1, R. Doc. No. 5. On September 19, 2002, plaintiffs requested leave to file a second supplemental and amending complaint wherein they asserted claims that the March operating agreement should also be rescinded on the same basis as the November agreement. R. Doc. No. 27. Although the Court denied plaintiffs request for leave, the Court, in the interest of justice, nevertheless considers plaintiffs’ arguments with respect to the March Operating Agreement as these are raised in opposition to the present motion to compel arbitration. Page 8 of 12 2002 U.S. Dist. LEXIS 21988,[*11] manipulation and misrepresentation″ 26 of facts by the defendants ″upon which the plaintiffs relied, and without which the entire contract, including the arbitration clause, would never have been entered into or agreed to.″ 27 The Court notes that plaintiffs’ arguments, legally actionable as they may be, do not render their claims nonarbitrable. At no time have plaintiffs asserted that there was fraud in the inducement or misrepresentations relative [*13] to the arbitration clause alone. 28 [*14] In Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S. Ct. 1801, 1806, 18 L. Ed. 2d 1270 (1967), the HN9 United States Supreme Court specifically held that pursuant to the FAA, ″’if the claim is fraud in the inducement of the arbitration clause itself -- an issue which goes to the ’making’ of the agreement to arbitrate -- the federal court may proceed to adjudicate it,’ but the federal court cannot consider claims of fraud in the inducement of the contract itself.″ Downer v. Siegel, 2002 U.S. Dist. LEXIS 17752, 2002 WL 31106920, *2 (E.D.La. 9/19/02)(citing Prima Paint, 388 U.S. at 403-04, 87 S. Ct. at 1806)). Thus, unless a defense relates solely to the arbitration clause, it must be submitted to the arbitrator for consideration as part of the underlying dispute between the parties. 29 Primerica Life Insurance Co. v. Brown, 304 F.3d 469, 471-72 (5th Cir. 2002). [*15] Plaintiffs in this case seek a declaratory judgment that the November operating agreement is ″null, void, ultra vires, in violation of the Original Consent and Terms of the Operating Agreement, and of no effect whatsoever″ as a result of alleged fraudulent misrepresentations by the defendants. 30 In their opposition to the motion to compel arbitration, the plaintiffs further allege that ″even the March 29 Operating Agreement was manipulated by defendants″ and should be voided. 31 As plaintiffs’ fraud defense relates to the operating agreements generally, the jurisprudence and the FAA mandate that plaintiffs’ claims, including the fraud in the inducement defense, be resolved by the arbitrator. 32 See Prima Paint, 388 U.S. 395, 404, 87 S. Ct. 1801, 1806, 18 L. Ed. 2d 1270; Rushe, 2002 U.S. Dist. LEXIS 7420, 2002 WL 575706 at *7. 26 R. Doc. No. 23, p. 14. 27 Id. at p. 7. 28 Plaintiffs’ contention that the arbitration clause should be voided because the entire contract is null and void is not a challenge to the arbitration clause, itself, but a challenge to the entire contract, including the arbitration clause. 29 See Primerica Life Insurance Company v. Brown, 304 F.3d 469, 471-72 (5th Cir. 2002)(holding that where defendant’s capacity defense was a defense to the entire agreement and not a specific challenge to the arbitration clause, the defense was part of the underlying dispute between the parties which must be submitted to the arbitrator); Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1267-68 (5th Cir. 1994)(submitting allegations of fraud in the inducement to arbitration because allegations did not concern arbitration clause specifically, but rather was a challenge to the contract in its entirety); Lawrence v. Comprehensive Business Services Company, 833 F.2d 1159, 1162 (5th Cir. 1987)(submitting defense of illegality of the contract to arbitration because it was not a challenge to the arbitration clause, itself, but rather to the contract as a whole); Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 244 (5th Cir. 1986)(submitting to arbitration a defense that contract was void from its inception because defendant did not argue ″that the agreement to arbitrate [was] invalid separately from the entire contract). 30 R. Doc. No. 1, P 21, 31 R. Doc. No. 23, p. 2. 32 Plaintiffs cite George Engine Co., Inc. v. Southern Shipbuilding Corp., 350 So.2d 881 (La. 1977) in support of their contention that the district court, not the arbitrator, has jurisdiction to decide the issue of fraud in the inducement of a contract containing an arbitration clause. Id. at 884. In George Engine, the Louisiana Supreme Court declined to follow Prima Paint. However, in Rushe and Downer, the federal district courts, faced with the same argument presented by the plaintiffs herein, rejected the holding in George Engine, explaining that in George Engine the Louisiana Supreme Court ″was interpreting the Louisiana Arbitration Act §§ 4201, 4203, not the FAA.″ Rushe, 2002 U.S. Dist. LEXIS 7420, 2002 WL 575706 at *6; Downer, 2002 U.S. Dist. LEXIS 17752, 2002 WL 31106920 at *3, n. 3. Page 9 of 12 2002 U.S. Dist. LEXIS 21988,[*16] [*16] Plaintiffs next argue that arbitration should be denied in this case because defendants sought the intervention of the judicial system in Nicaragua rather than resorting to arbitration, thereby waiving their right to compel arbitration. 33 Specifically, in their supplemental and amending complaint plaintiffs aver: Defendants have waived any right to arbitration of this claim both by their filing or causing the filing of civil and criminal litigation against John Wheelock and Arnoldo Talavera in matters arising out of the Lease and Operating Agreement; and by their conscious and deliberate efforts to violate, illegally modify and undermine the operation of DELASA/ Delaware and the proper operation of Puerto Cabezas under the Lease. 34 ″HN10 Waiver of arbitration is not a favored finding and there is a presumption against it.″ Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159, 1164 (5th Cir. 1987); Subway Equipment Leasing v. Forte, 169 F.3d 324, 326 (5th Cir. 1999) [*17] (″There is a strong presumption against waiver of arbitration″); Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir. 1991)(″In general, we hesitate to find that a party has waived its contractual right to arbitration.″); Moses H. Cone Mem’l Hosp., 460 U.S. ^[1], 24-25, 103 S. Ct. 927, 941, 74 Led.2d 765 (1983)(″Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract itself or an allegation of waiver, delay, or a like defense to arbitrability″). Accordingly, a party asserting waiver of arbitration bears a heavy burden of proof. Subway, 169 F.3d at 326 (5th Cir. 1999). ″Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.″ Miller v. Brewing Co. v. Forth Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986). Waiver requires a showing of ″both a substantial invocation of the judicial process and either detriment or prejudice to the other party.″ 35 Consorcio Rive v. Briggs of Cancun, Inc., 134 F. Supp.2d 789, 795 (E.D.La. 2001). [*18] Finally, it is well established that ″a party only invokes the judicial process to the extent it litigates a specific claim it subsequently wants to arbitrate.″ Subway, 169 F.3d at 328; Doctor’s Associates v. Distajo, 107 F.3d 126, 134 (2nd Cir. 1997)(″Only prior litigation of the same legal and factual issues as those the party now wants to arbitrate results in a waiver of the right to arbitrate″). [*19] Defendants’ filing of alleged civil and/ or criminal matters in Nicaragua against Talavera and Wheelock did not amount to a substantial invocation of the judicial process and it was not inconsistent with the defendants’ desire to arbitrate the present claims arising out of the parties’ operating agreement. With respect to the alleged civil and criminal proceedings against Talavera, plaintiffs have presented no evidence that Talavera was a member of the Delaware Company or a party to the March and/ or November agreements. 36 [*21] Accordingly, the Court fails to see how litigation against a non-party to an agreement can result in a waiver of arbitration 33 R. Doc. No. 23, p. 11. 34 R. Doc. No. 5, P 50. 35 HN11 ″Substantial″ invocation of the judicial process requires ″active participation in a lawsuit or some other type of act inconsistent with the desire to arbitrate.″ Consorcio Rive v. Briggs of Cancun, Inc., 134 F. Supp.2d 789, 795 (E.D.La. 2001). With respect to the requirement of ″prejudice,″ the Fifth Circuit has held that, ″when one party reveals a disinclination to resort to arbitration on any phase of a lawsuit involving all parties, those parties are prejudiced by being forced to bear the expenses of a trial … Arbitration is designed to avoid this very expense. Substantially invoking the litigation machinery qualifies as the kind of prejudice … that is the essence of waiver.″ Id. (quoting E.C. Ernst, Inc. v. Manhattan Construction Co. of Texas, 559 F.2d 268, 269 (5th Cir. 1977)). 36 To the contrary, the Operating Agreements themselves show that the only parties to the operating agreements and the only entities/ individuals having an ownership interest in the Delaware Company are Alma Finance (through its principal, Kris N. Mahabir), Arete LLC (through its principal, Mary A. Wright), Delasa, Inc. (through its principal John F. Wheelock), Prescott Follett and Associates, Inc. (through its principal, Prescott Follett), Michael Beaury, and Todd Esse. See R. Doc. No. 18, Exhibit 1, Schedule A. Page 10 of 12 2002 U.S. Dist. LEXIS 21988,[*21] rights pursuant to that agreement. 37 Further, defendants’ actions in filing proceedings against Talavera for theft of funds could not have resulted in any detriment or prejudice to plaintiffs with respect to this action. Plaintiffs were not even parties to the litigation against Talavera and did not have to bear the expense of burdensome litigation. Plaintiffs’ claims against defendants for breach of the operating agreements are unrelated to any claims against Talavera, individually, for alleged theft of funds. Consequently, the Court [*20] finds that any proceeding by defendants against Talavera, whether civil or criminal, did not result in a waiver of arbitration rights in this matter. See Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (holding that franchisor did not waive right to arbitration under franchise agreement by filing previous lawsuit against franchisees where the earlier action involved claims that were different from the one the franchisor now sought to arbitrate); Amalgamated Local No. 55, United Automobile, Aerospace & Agricultural Implement Workers of America v. Metal and Alloy Division of Silver Creek Precision Corporation, 396 F. Supp. 667, 670 (N.D.N.Y. 1975)(finding that union did not waive arbitration under collective bargaining agreement by filing criminal charge against one of employer’s officers where criminal action was based upon different issues than those before the court and was brought against an individual and not the defendant corporation). Similarly, the Court finds that the alleged filing of criminal charges against Wheelock 38 [*22] did not amount to a waiver of defendants’ right to arbitrate. HN12 Federal courts have held that the FAA, while promoting arbitration, does not contemplate the arbitration of criminal activity. See Myers v. Rosenberg, 1986 U.S. Dist. LEXIS 28488, 1986 WL 3329, *2 (N.D.Ill. 3/7/86). Therefore, defendants’ alleged filing of criminal charges cannot be held to be inconsistent with their desire to arbitrate. Nor can it be held to have resulted in any detriment or prejudice to the plaintiffs, particularly in light of the fact that Wheelock ″was convicted in absentia, being out of the Country of Nicaragua at the time, never having been formally faced with his accusers, never having been permitted to go to trial.″ 39 Accordingly, plaintiffs fail to meet their burden of proving a waiver of the arbitration. In sum, the Court finds that there is no impediment to the arbitration of plaintiffs’ claims. All of the parties, including the plaintiffs, admittedly signed the operating agreements. 40 All agreed to arbitrate ″any dispute under the Agreement[s].″ 41 Further, plaintiffs point to no federal statute or policy that may render their claims nonarbitrable. Consequently, considering the broad nature of the arbitration clause 42 [*23] and the U.S. 37 Clearly, as a non-party to the agreement, there was no duty owed to Talavera to resolve any disputes arising out of the agreement through arbitration. 38 The Court notes that although plaintiffs argue that civil charges were also filed against Wheelock, the evidence submitted by plaintiffs to the Court do not reveal the filing of any such civil matters. See R. Doc. No. 5, Exhibits M-1, M-2 and N. To the contrary, a review of the documents submitted by plaintiffs show that the only matter against Wheelock is/ was pending before the Criminal District Court of Puerto Cabezas. R. Doc. No. 5, Exhibit M-2. Accordingly, any arguments by plaintiff that a civil lawsuit was filed against Wheelock or, alternatively, that the criminal charges ″were purely civil in nature,″ R. Doc. No. 23, p. 12, are merely speculative and unsupported by any evidence in the record. 39 R. Doc. No. 23, p. 12. Because Wheelock was convicted in absentia, there was no ″active participation in a lawsuit″ sufficient to amount to substantial invocation of the judicial process. Consorcio Rive, 134 F. Supp.2d at 795. 40 R. Doc. No. 23, p. 2. 41 R. Doc. No. 23, p. 1. 42 In Re Complaint of Hornbeck Offshore Corp., 981 F.2d at 755 (HN13 ″Arbitration clauses containing the ’any dispute’ language … are of the broad type.″). Page 11 of 12 2002 U.S. Dist. LEXIS 21988,[*23] Supreme Court’s pronouncement in Prima Paint, this Court holds that plaintiffs’ claims, including their claim for fraud in the inducement of the operating agreement, must be submitted to arbitration. 43 Accordingly, IT IS ORDERED that the motion to compel arbitration of defendants, Delasa/ Prescott Follett & Associates, a Delaware Limited Liability Company, Alma Finance Group, Kris N. Mahabir, Arete, LLC, and Mary Wright, is GRANTED. IT IS FURTHER ORDERED that the claims of plaintiffs, Prescott-Follett & Associates, Inc. and Latin American Energy Development, Inc. d/ b/ a Delasa, shall be submitted to arbitration, in accordance with the parties’ arbitration agreement. IT IS FURTHER ORDERED that this case BE AND IS HEREBY STAYED PENDING ARBITRATION. IT IS FURTHER ORDERED that the Clerk of Court mark this action closed for statistical [*24] purposes and place this matter in a Civil Suspense File; IT IS FURTHER ORDERED that the Court shall retain jurisdiction and the matter shall be restored to the trial docket if circumstances change this action, upon motion of a party, within thirty (30) days of any such change of circumstances, so that it may proceed to final disposition. This order shall not prejudice the rights of the parties to this litigation. New Orleans, Louisiana, November 8, 2002. LANCE M. AFRICK UNITED STATES DISTRICT JUDGE 43 Id.; Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil Co., 767 F.2d 1140, 1148 (5th Cir. 1985)(″’absent HN14 allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause on its face appears broad enough to encompass the party’s claims.’″)(quoting Life of America Insurance Co. v. Aetna Life Insurance Co., 744 F.2d 409, 413 (5th Cir. 1984)). Page 12 of 12 | | Caution As of: September 1, 2015 4:41 PM EDT Prudential Sec. v. Marshall Supreme Court of Texas November 16, 1995, Delivered No. 95-0698 Reporter 909 S.W.2d 896; 1995 Tex. LEXIS 157; 39 Tex. Sup. J. 116 PRUDENTIAL SECURITIES INCORPORATED, JOHN RHOADES, KEVIN O’FRIEL, KENT VARNER, JOE NITTOLO, AND MIKE MCCLAIN, RELATORS v. THE HONORABLE JOHN MCCLELLAN MARSHALL, JUDGE, RESPONDENT Subsequent History: Related proceeding at Hawkins v. NASD, 149 F.3d 330, 1998 U.S. App. LEXIS 17610 (5th Cir. Tex., 1998) Core Terms arbitration, trial court, broker, subject to arbitration, right to arbitration, defendants’, Securities, discovery, mandamus, allegations, scope of arbitration, compel arbitration, slander, libel, waive Case Summary Procedural Posture Defendants, former employer and current employees, sought mandamus relief from an order by the trial court (Texas), which denied arbitration of several libel and slander claims asserted against them by plaintiffs, former employees. Overview Plaintiff former employees were terminated and brought a cause of action against defendants, former employer and current employees, for libelous and slanderous statements they allegedly made. Defendants claimed that the Federal Arbitration Act, 9 U.S.C.S. §§ 1-14 (Act), required the trial court to enforce the arbitration agreement signed by the parties. The court found that under the Act any doubts to whether the claims fell within the scope of arbitration had to be resolved in favor of arbitration. The court, in determining whether a claim fell within the scope of arbitration, focused on the factual allegations of the complaint. The court held that plaintiffs’ contention that their claims were outside the scope of the arbitration agreement was inherently inconsistent with their allegations that the statements were uttered to further a conspiracy to blackball them from the securities industry and tended to injure them as brokers. The court conditionally granted the writ of mandamus because in order to injure plaintiffs’ professional reputations the statements had to touch upon their performance as brokers, which made their claims referable to arbitration. Outcome 909 S.W.2d 896,[*896] ; 1995 Tex. LEXIS 157, **157 The court conditionally granted the writ of mandamus and directed the trial court to order that all claims proceed to arbitration because the claims at issue in the cause of action were within the scope of the parties’ arbitration agreement. Furthermore, the policy in favor of enforcing arbitration agreements was compelling. The writ was to be issued only if the trial court failed to follow the court’s order. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods HN1 Arbitration of disputes is strongly favored under federal and state law. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN2 A party does not waive a right to arbitration merely by delay; instead, the party urging waiver must establish that any delay has resulted in prejudice. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN3 Parties do not waive their right to arbitration by invoking the judicial process in the absence of prejudice to the opposing party. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN4 Under the Federal Arbitration Act, 9 U.S.C.S. §§ 1-14, any doubts as to whether claims fall within the scope of the agreement must be resolved in favor of arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN5 The policy in favor of enforcing arbitration agreements is so compelling that a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue. Civil Procedure > ... > Federal & State Interrelationships > Federal Common Law > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Page 2 of 6 909 S.W.2d 896,[*896] ; 1995 Tex. LEXIS 157, **157 Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration Labor & Employment Law > Collective Bargaining & Labor Relations > Federal Preemption > Primacy of Labor Policy HN6 When a party asserts a right to arbitration under the Federal Arbitration Act, 9 U.S.C.S. 1-14, the question of whether a dispute is subject to arbitration is determined under federal law. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses HN7 In determining whether a claim falls within the scope of an arbitration agreement, the court focuses on the factual allegations of the complaint, rather than the legal causes of action asserted. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Evidence > Burdens of Proof > General Overview HN8 The burden is upon plaintiffs to show that their claims fall outside the scope of the arbitration agreement. Civil Procedure > Judicial Officers > Judges > Discretionary Powers Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > Remedies > Writs > General Overview International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN9 Mandamus is issued only to correct a clear abuse of discretion when the abuse cannot be remedied by appeal. Counsel: [**1] For RELATORS: Pierce, Jr., Mr. Stephen J., Bryant, Jr., Mr. Corbet F., Carrington Coleman Sloman & Blumenthal, Dallas, TX. Berry, Mr. Steven J., Wright, Mr. Robert L., Gardere & Wynne, Dallas, TX. Hill, Hon. John L., Essig, Mr. James E., Liddell Sapp Zivley Hill & LaBoon, Houston, TX. For RESPONDENT: Abbey, Mr. Joe, B., Dallas, TX. Carlton, Mr. Dean, The Carlton Firm, Dallas, TX. Ackels, Jr., Joseph E., Ackels & Ackels, Dallas, TX. Opinion [*897] ON PETITION FOR WRIT OF MANDAMUS PER CURIAM Prudential Securities Incorporated, John Rhoades, Kevin O’Friel, Kent Varner, Joe Nittolo, and Mike McClain seek mandamus relief from a trial court order denying arbitration of several libel and slander claims asserted against them by the real parties in interest, former Prudential stockbrokers Edwin Troy Hawkins and Francis Moise. Because we conclude that the claims are within the scope of arbitration agreements Hawkins and Moise entered into with Prudential, we conditionally grant the relief requested. While employed at Prudential, Hawkins and Moise each signed Uniform Applications for Securities Industry Registration or Transfer in which they agreed to arbitrate ″any dispute, claim or controversy [**2] that may arise Page 3 of 6 909 S.W.2d 896,[*897] ; 1995 Tex. LEXIS 157, **2 between [them and Prudential] . . . that is required to be arbitrated under the rules″ of organizations with which they were registered. Hawkins and Moise were both registered with the New York Stock Exchange. Rule 347 of the Board of Directors of the New York Stock Exchange provides that ″any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of such registered representative . . . shall be settled by arbitration.″ (Emphasis added). Hawkins and Moise do not dispute that they are bound by this rule. Prudential fired Moise April 25, 1994 and terminated Hawkins on September 6, 1994. Prudential filed criminal charges against Hawkins for allegedly stealing customer lists shortly after he was fired, but a grand jury declined to indict him. Later, he sued Prudential and its employees, Rhoades, O’Friel, Varner, and Nittolo. Hawkins alleged that the defendants had conspired to blackball him from the brokerage industry and had made several libelous or slanderous statements to further the conspiracy. He also asserted that the individual defendants were acting in the course and [**3] scope of their employment for Prudential and that their allegedly defamatory statements injured him in his profession as a broker. Prudential and the individual defendants moved to stay the trial court proceedings and compel arbitration of Hawkins’ claims. They argued that the Federal Arbitration Act, 9 U.S.C. §§ 1-14 (1970), and the Texas General Arbitration Act, TEX. REV. CIV. STAT. ANN. art. 224 to 238-6, 238-20 (Vernon Supp. 1995), required the trial court to enforce the arbitration agreement. [*898] The trial court ruled that three of Hawkins’ claims were subject to arbitration. These included claims based upon statements that Hawkins was fired ″for insubordination, and the office has been broken into and records stolen,″ ″because he lost so much money,″ and because he made an ″unauthorized entry into his office using a false name to seize files of customer complaints.″ The trial court also ruled that three claims were not subject to arbitration. These included claims based upon statements that Hawkins ″lied, cheated and stole,″ ″is a thief, a criminal and should be in jail,″ and ″is a dishonest person and should not be hired [and] omitted truths.″ Two weeks later, the defendants [**4] filed a motion asking the trial court to reconsider its decision and rule that all of Hawkins’ claims were subject to arbitration. Hawkins then filed an amended petition, in which he limited his libel and slander allegations to the specific statements the trial court had ruled were not subject to arbitration. He retained, however, the allegations that the statements were made to blackball him from the securities industry, that the individual defendants were acting in the course and scope of their employment, and that the statements tended to injure him in his profession as a broker. Five weeks later, Moise intervened in Hawkins’ lawsuit as a third-party plaintiff. Moise’s third-party petition alleged libel and slander claims against Prudential, O’Friel, and another Prudential employee, McClain. The allegedly libelous or slanderous statements forming the basis for Moise’s lawsuit were that ″Moise is a dishonest person″ and ″Moise churned accounts.″ Like Hawkins, Moise alleged that the defendants made these statements to further a conspiracy to blackball him from the securities industry and that the statements tended to injure him in his profession as a broker. The defendants moved [**5] to strike Moise’s intervention; the trial court overruled their motions on June 14, 1995. The defendants then moved to compel arbitration of the claims alleged by Moise in his third party petition and to stay, dismiss, or abate the lawsuit. The trial court denied this motion on June 20, 1995; it signed an order overruling the defendants’ motion for reconsideration of the order denying arbitration of some of Hawkins’ claims on July 19, 1995. Prudential then sought mandamus relief from the orders denying arbitration of Hawkins’ and Moise’s claims. Before we reach the merits of the defendants’ mandamus petition, we must consider Hawkins’ and Moise’s contention that the defendants waived any right to arbitration. They contend that the defendants waived their Page 4 of 6 909 S.W.2d 896,[*898] ; 1995 Tex. LEXIS 157, **5 rights to arbitration by invoking the judicial process to strike Moise’s intervention, by seeking and resisting discovery, by delaying seeking mandamus relief from the trial court’s orders, and by not pursuing arbitration of Hawkins’ claims that the trial court ruled were subject to arbitration. We disagree. HN1 Arbitration of disputes is strongly favored under federal and state law. Moses H. Cone Memorial Hosp. v. Mercury Constr. [**6] Corp., 460 U.S. ^[1], 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983); Brazoria County v. Knutson, 142 Tex. 172, 176 S.W.2d 740, 743 (Tex. 1943). Accordingly, a presumption exists against the waiver of a contractual right to arbitration. See Moses H. Cone, 460 U.S. at 24-25. The record before us in this case does not overcome that presumption. Instead, the record indicates that the defendants consistently and timely sought to invoke any contractual rights to arbitration they might have. The first responsive pleading the defendants filed to Hawkins’ petition in this case was their Motion to Stay All Proceedings and to Compel Arbitration and Original Answer Subject Thereto. After Moise filed his petition in intervention, the defendants moved to strike his intervention; within three days of the date the trial court overruled the motion to strike, they moved to compel arbitration of Moise’s claims. HN2 A party does not waive a right to arbitration merely by delay; instead, the [*899] party urging waiver must establish that any delay resulted in prejudice. See Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985); Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 592 (Tex. App.--Dallas 1991, writ dism’d w.o.j.). [**7] Similarly, HN3 parties do not waive their right to arbitration by invoking the judicial process in the absence of prejudice to the opposing party. See Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 496-97 (5th Cir. 1986). Hawkins asserts no prejudice as a result of the defendants’ conduct in this litigation. Moise, on the other hand, contends that the defendants’ ″dilatory tactics″ have prejudiced him, apparently referring to various discovery disputes in the trial court. These tactics, Moise alleges, have cost him time and money and prevented him from earning a living as a broker. The record provided us, however, contains no discovery requests served by the defendants on Moise. Instead, the record evidences a dispute, spanning a period of a little more than a month, arising from Moise’s efforts to obtain certain discovery from the defendants and a law firm that had previously represented Moise and Prudential in connection with a Securities and Exchange Commission investigation. We cannot conclude, based upon this record, that the defendants’ efforts to resist discovery overcome the strong presumption in favor of arbitration. See Steinberg & Lyman v. Takacs, 774 [**8] F. Supp. 885, 887 (S.D.N.Y. 1991); Home Club, Inc. v. Barlow, 818 S.W.2d 192, 193 (Tex. App.--San Antonio 1991, orig. proceeding). The defendants’ opposition to Moise’s discovery was based on their contention that his requests were overbroad or oppressive, or sought privileged material. While we do not address the merits of the defendants’ position in the discovery disputes, their opposition is not inconsistent with an intent to invoke contractual arbitration rights. We therefore hold that the defendants did not waive their rights to arbitration. On the merits, the defendants argue that the factual allegations in Hawkins’ and Moise’s petitions on their face establish that the claims fall within the scope of the arbitration agreements, and that the trial court thus abused its discretion by declining to compel arbitration of all of the claims and stay the trial court proceedings. We agree. HN4 Under the Federal Arbitration Act, any doubts as to whether Hawkins’ and Moise’s claims fall within the scope of the agreement must be resolved in favor of arbitration. Moses H. Cone, 460 U.S. at 24-25. HN5 The policy in favor of enforcing arbitration agreements is so compelling that a court [**9] should not deny arbitration ″unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.″ Neal v. Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990) (quoting Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)) (emphasis added). Page 5 of 6 909 S.W.2d 896,[*899] ; 1995 Tex. LEXIS 157, **9 HN6 When a party asserts a right to arbitration under the Federal Arbitration Act, the question of whether a dispute is subject to arbitration is determined under federal law. See Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987). The federal courts have interpreted the arbitration provision of Rule 347 of the Stock Exchange to include any dispute involving significant aspects of the employment relationship or depending upon the evaluation of the employee’s performance as a broker. See Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1053 (2d Cir. 1989). Applying that standard, claims very similar to those raised by Hawkins and Moise have been held to be arbitrable. See, e.g., id. (holding that defamation claim based upon statement that broker was ″basically a criminal″ was subject [**10] to arbitration); Smith Barney Shearson, Inc. v. Finstad, 888 S.W.2d 111, 117 (Tex. App.--Houston [1st Dist.] 1994, no writ) (holding that claims based upon statement that fired broker was ″unethical″ were subject to arbitration to the extent statement related to broker’s business practices, as opposed to his sexual mores). [*900] HN7 In determining whether a claim falls within the scope of an arbitration agreement, we focus on the factual allegations of the complaint, rather than the legal causes of action asserted. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); Genesco, Inc., 815 F.2d at 846. HN8 The burden was upon Hawkins and Moise to show that their claims fell outside the scope of the arbitration agreement. See Merrill Lynch, Pierce, Fenner, and Smith v. Longoria, 783 S.W.2d 229, 231 (Tex. App.--Corpus Christi 1989, orig. proceeding). On this record, we cannot conclude with positive assurance that the statements at issue here are not at least ″factually intertwined″ with the arbitrable claims. See Jack B. Anglin, 842 S.W.2d at 271. Hawkins and Moise’s contention that their claims are outside the scope of the arbitration agreement is inherently inconsistent [**11] with their allegations that the statements were uttered to further a conspiracy to blackball them from the securities industry and tended to injure them in their professions as brokers. In order to injure the plaintiffs’ professional reputations, the statements must, as a matter of logic, at least touch upon their performance as brokers, making the claims referable to arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 624 n.13, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985). 1 HN9 Mandamus will issue only to correct a clear abuse of discretion when the abuse cannot be remedied [**12] by appeal. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). In this case, the trial court abused its discretion because it misapplied the Federal Arbitration Act to the facts of this case. See Jack B. Anglin, 842 S.W.2d at 271. A party who is erroneously denied the right to arbitration has no adequate remedy at law because the fundamental purpose of arbitration--to provide a rapid, less expensive alternative to traditional litigation--would be defeated. Id. Because the claims at issue in this lawsuit are within the scope of Hawkins’ and Moise’s agreements to arbitrate, we conditionally grant the writ of mandamus and direct the trial court to order that all claims proceed to arbitration. The clerk is instructed to issue the writ only if the trial court fails to do so. OPINION DELIVERED: November 16, 1995 1 The defendants also rely on arbitration requirements imposed by the regulations of the National Association of Securities Dealers, the constitution of the New York Stock Exchange, and a ″Financial Adviser in Training Agreement″ signed by Hawkins. Because we conclude that the disputes between the parties in this case fall within the scope of Rule 347 of the Stock Exchange, we do not address the reach of the other arbitration provisions. Page 6 of 6 | | Positive As of: September 1, 2015 4:51 PM EDT Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C. Supreme Court of Texas December 19, 2014, Opinion Issued NO. 13-0907 Reporter 455 S.W.3d 573; 2014 Tex. LEXIS 1211; 58 Tex. Sup. J. 179 RICHMONT HOLDINGS, INC., NUKOTE HOLDING, INC., NUKOTE INTERNATIONAL, INC., INKBRARY, L.L.C., SUPERIOR ACQUISITIONS L.L.C., JOHN P. ROCHON, SR., JOHN P. ROCHON, JR., KELLY KITTRELL, RUSSELL MACK, C & R SERVICES, INC. AND KENNETH R. SCHLAG, PETITIONERS, v. SUPERIOR RECHARGE SYSTEMS, L.L.C., AND JON BLAKE, RESPONDENTS Subsequent History: Rehearing denied by Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 2015 Tex. LEXIS 225 (Tex., Mar. ^[13], 2015) Prior History: [**1] ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS. Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 453 S.W.3d 443, 2013 Tex. App. LEXIS 10689 (Tex. App. Fort Worth, Aug. 22, 2013) Core Terms arbitration, waive, per curiam, discovery, compel arbitration, discovery request Case Summary Overview HOLDINGS: [1]-A party did not waive its right to arbitration by filing a second suit, engaging in very limited discovery, and moving for a venue transfer; considered as a whole, these circumstances did not approach a substantial invocation of the judicial process. Outcome Court of appeals’ judgment reversed and case remanded to the trial court. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Evidence > Inferences & Presumptions > Presumptions > Effects HN1 A party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment or prejudice, but due to the strong presumption against waiver of arbitration, this hurdle is a high one. 455 S.W.3d 573,[*574] ; 2014 Tex. LEXIS 1211, **1 Whether a party has substantially invoked the judicial process depends on the totality of the circumstances; key factors include the reason for delay in moving to enforce arbitration, the amount of discovery conducted by the movant, and whether the movant sought disposition on the merits. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN2 Merely filing suit does not waive arbitration, even when the movant files a second, separate suit in another county based in part on a contract at issue in the first action. Nor does moving to transfer venue. The motion does not address the merits of the case. Moreover, objections to improper venue must be made at the outset of the case. Tex. R. Civ. P. 86. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver HN3 Mere delay in moving to compel arbitration is not enough for waiver. A party does not waive a right to arbitration merely by delay; instead, the party urging waiver must establish that any delay resulted in prejudice. Counsel: For Richmont Holdings Inc., et al., Petitioner: Scott Ryan Doody, Law Offices of Scott R. Doody, Fort Worth TX. For Superior Recharge System L.L.C., and Jon Blake, Respondent: Stephen D. Colbert, Colbert Johnston Dion PLLC, Flower Mound TX. Opinion [*574] PER CURIAM In holding that petitioner waived arbitration by substantially invoking the judicial process, the court of appeals, 453 S.W.3d 443, 2013 Tex. App. LEXIS 10689 (Tex. App.—Fort Worth 2013), misapplied our decision in Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008). Accordingly, we reverse the court of appeals’ judgment and remand the case to the trial court. TEX. GOV’T CODE § 22.225(b)(3), (c). ″We have said on many occasions that HN1 a party waives an arbitration clause by substantially invoking the judicial process [*575] to the other party’s detriment or prejudice,″ but ″[d]ue to the strong presumption against waiver of arbitration, this hurdle is a high one.″ Perry Homes, 258 S.W.3d at 589-90 (footnotes omitted). We have often determined that arbitration was not waived.^[1] Whether a party has substantially invoked the judicial process depends on the totality of the circumstances; key factors include the reason for delay in moving to 1 See Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 544-45 (Tex. 2014) (per curiam) (law firm did not waive right to arbitrate a fee dispute with former clients by litigating with a former associate); In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (per curiam) (defendant did not waive by ″failing to pursue its arbitration demand for eight months while discussing a trial setting and allowing limited discovery″); In re Citigroup Global Mkts., Inc., 258 S.W.3d 623, 625-26 (Tex. 2008) (per curiam) (defendant did not waive arbitration by removing case to federal court and acceding to remand seven months later before demanding arbitration); In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007) (per curiam) (defendant did not waive arbitration by moving to set aside a default judgment, requesting a new trial, and waiting eight months to move to compel arbitration); In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006) (contractors did not waive arbitration by suing to preserve evidence and cross-claiming for indemnity in a separate suit, absent a showing that their actions detrimentally affected the defendant); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam) (defendants did not waive arbitration by litigating for two years, especially when the plaintiff initiated more discovery requests than he received); In re Serv. Corp. Int’l, 85 S.W.3d 171, 174-75 (Tex. 2002) (per curiam) (defendants did not waive arbitration by supporting plaintiffs’ inclusion in a federal class action whose members were not subject to arbitration, and moving, inter alia, to [**3] dismiss in that action); In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (per curiam) (defendant did not waive arbitration by its delay and discovery requests, when the responses were insufficient to show prejudice); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89-90 (Tex. 1996) (per curiam) (in the absence of a showing of prejudice, defendants did not waive arbitration by, e.g., Page 2 of 4 455 S.W.3d 573,[*575] ; 2014 Tex. LEXIS 1211, **3 enforce arbitration, the amount of discovery conducted by the movant, and whether the movant sought disposition [**2] on the merits. Perry Homes, 258 S.W.3d at 590-93. Richmont Holdings, Inc., through an affiliate, bought the assets of Superior Recharge Systems, L.L.C. The parties’ Asset Purchase Agreement contained an arbitration provision. Superior Recharge’s part-owner, Jon Blake, agreed to continue as general manager of the business for two years. The employment contract contained a covenant not to compete but not an arbitration clause. After six months, Blake’s employment was terminated, allegedly for cause. Superior Recharge and Blake (collectively ″Blake″) sued Richmont and several of its affiliates and principals (collectively ″Richmont″) in Denton County for fraud, breach of contract, a declaration that the covenant not to compete was unenforceable, [**4] and an injunction. Richmont sued Blake individually in Dallas County to enforce the covenant not to compete, invoking a forum selection clause in that agreement, and moved to transfer venue of the Denton County suit to Dallas County or Collin County. The Dallas County suit was abated, and the motion to transfer was never decided. In the Denton County suit, Richmont does not appear to have sought discovery other than a request for disclosure. See TEX. R. CIV. P. 194.1 and 194.2. Richmont failed to respond to Blake’s discovery requests and was sanctioned $5,000. No trial date appears to have been set. Nineteen [*576] months after being sued, Richmont moved to compel arbitration, asserting that Blake’s claims arose out of the Asset Purchase Agreement and were therefore subject to arbitration. Blake did not dispute that assertion but argued that Richmont had waived arbitration by engaging in litigation. The trial court denied the motion to compel. The court of appeals affirmed, but not on waiver, the only ground Blake raised. Rather, it held that Blake’s claims were not covered by the arbitration agreement. 392 S.W.3d 174, 182-83 (Tex. App.—Fort Worth 2011) (mem. op.). On Richmont’s petition for review in this Court, Blake conceded that the court of appeals [**5] had erred. Accordingly, we reversed, stating: The court of appeals’ conclusion that the arbitration provision in the asset purchase agreement has no application to Blake’s lawsuit is contrary to the parties’ contentions and has no support in the record. Moreover, the court’s failure to recognize the arbitration agreement here is contrary to our precedent, which mandates enforcement of such an agreement absent proof of a defense. 392 S.W.3d 633, 635 (Tex. 2013) (per curiam). On remand, the court of appeals held that Richmont had waived arbitration by suing Blake in Dallas County, moving to transfer venue of the Denton County suit, failing to respond to discovery requests, and delaying in moving to compel arbitration. 453 S.W.3d 443, 446, 2013 Tex. App. LEXIS 10689 (Tex. App.—Fort Worth 2013). HN2 Merely filing suit does not waive arbitration, even when the movant, as in this case, files a second, separate suit in another county based in part on a contract at issue in the first action. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006). Nor, we think, does moving to transfer venue. The motion does not address the merits of the case. Moreover, objections to improper venue must be made at the outset of the case. TEX. R. CIV. P. 86. Richmont engaged in only minimal discovery. For the most part, it refused to respond to Blake’s discovery requests. [**6] Richmont argues that it delayed in moving to compel arbitration because, while it drafted the Asset Purchase Agreement and knew full well of the arbitration clause, it was very slow in recognizing that the clause could apply to Blake’s claims. We think this explanation implausible; certainly, it requesting discovery and waiting ten months to ask for arbitration); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995) (per curiam) (defendants did not waive arbitration by moving to strike an intervention, seeking and resisting discovery, and failing to timely seek mandamus review). Page 3 of 4 455 S.W.3d 573,[*576] ; 2014 Tex. LEXIS 1211, **6 does not justify the delay. But HN3 mere delay in moving to compel arbitration is not enough for waiver. In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 694 (Tex. 2008) (per curiam) (eight-month delay); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex. 2006) (per curiam) (two-year delay); see also Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995) (per curiam) (″A party does not waive a right to arbitration merely by delay; instead, the party urging waiver must establish that any delay resulted in prejudice.″). The circumstances here, considered as a whole, do not approach a substantial invocation of the judicial process. Having reached this conclusion, we need not consider whether Blake was prejudiced by the delay. Accordingly, we grant the petition for review and, without hearing oral argument, reverse the court of appeals’ judgment and remand the case to the trial court. TEX. R. APP. P. 59.1. Opinion issued: December 19, 2014 Page 4 of 4 | | Caution As of: September 1, 2015 4:57 PM EDT Seagull Energy E&P, Inc. v. Eland Energy, Inc. Supreme Court of Texas November 30, 2005, Argued ; June 16, 2006, Delivered No. 04-0662 Reporter 207 S.W.3d 342; 2006 Tex. LEXIS 550; 49 Tex. Sup. J. 744; 168 Oil & Gas Rep. 655; 36 ELR 20115 Seagull Energy E&P, Inc., Petitioner, v. Eland Energy, Inc., Respondent Subsequent History: [**1] Released for Publication December 29, 2006. Rehearing denied by Seagull Energy E&P, Inc. v. Eland Energy, Inc., 2006 Tex. LEXIS 1333 (Tex., Dec. 29, 2006) Prior History: On Petition for Review from the Court of Appeals for the Fourteenth District of Texas. Eland Energy, Inc. v. Seagull Energy E&P, Inc., 135 S.W.3d 122, 2004 Tex. App. LEXIS 1574 (Tex. App. Houston 14th Dist., 2004) Core Terms operating agreement, parties, obligations, Lease, assigning, Participating, costs, working interest, provisions, expenses, withdraw, Oil, proportion, platform, Abandonment, delegation, operations Case Summary Procedural Posture Petitioner, the operator of oil and gas leases, sued respondents, the seller and the assignee of an interest in the leases, for breach of the operating agreement. The trial court held that the seller and the assignee remained jointly and severally liable to operator for $ 268,418.90. The Court of Appeals for the Fourteenth District of Texas reversed, holding that the seller was not liable due to the assignment. The operator petitioned for review. Overview In 1994, the seller obtained an interest in two offshore oil and gas leases. In July 1996, the seller sold its interest in these leases to an assignee who received the seller’s rights and obligations under the operating agreements. The assignee failed to reimburse the operator of the lessees for its share of operating costs. The operator sought these costs from the seller as an interest owner. The seller refused to pay because it no longer owned an interest in the leases. The state supreme court interpreted the operating agreement and found that it was unambiguous. The court held that the operating agreement did not expressly provide that the seller’s obligations would terminate upon assignment and the operator did not expressly release the seller following the assignment of its working interest. Therefore, the seller remained liable for operating costs under the agreement. Outcome 207 S.W.3d 342,[*342] ; 2006 Tex. LEXIS 550, **1 The court of appeals’ judgment was reversed, and the trial court’s judgment was reinstated. LexisNexis® Headnotes Contracts Law > Contract Interpretation > Ambiguities & Contra Proferentem > General Overview HN1 A contract is not ambiguous merely because the parties disagree on its meaning. An ambiguity exists only if the contract language is susceptible to two or more reasonable interpretations. Civil Procedure > Appeals > Standards of Review > De Novo Review Contracts Law > Contract Interpretation > General Overview HN2 The meaning of an unambiguous agreement is a question of law. Contracts Law > Contract Interpretation > General Overview HN3 The court’s primary concern when interpreting a contract is to ascertain and give effect to the intent of the parties as that intent is expressed in the contract. To discern this intent, the court examines and considers the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument. Contracts Law > Standards of Performance > Assignments > General Overview HN4 A party cannot escape its obligations under a contract merely by assigning the contract to a third party. Thus, as a general rule, a party who assigns its contractual rights and duties to a third party remains liable unless expressly or impliedly released by the other party to the contract. The principle is similarly recognized by Tex. Bus. & Com. Code Ann. § 2.210 (a). Contracts Law > Third Parties > Delegation of Performance HN5 See Tex. Bus. & Com. Code Ann. § 2.210 (a). Contracts Law > Standards of Performance > Assignments > General Overview HN6 Even when the contract does not expressly provide for the consequences resulting from the assignment of one’s interest, the contract’s subject or other circumstances may indicate that obligations were not intended to survive assignment. Counsel: For Petitioner: William P. Maines, Fulbright & Jaworski L.L.P., Houston, TX; Paul J. Franzetti McDade Fogler, Houston, TX; William J. Boyce, Fulbright & Jaworski L.L.P., Houston, TX. For Respondent: Carl D. Rosenblum, Jones Walker Waechter Poitevent Carrere & Denegre, The Woodlands, TX; Alida C. Hainkel, person interested in case, Jones Walker Waechter Poitevent Carrere & Denegre, New Orleans LA; J. D. Page, Doyle Restrepo Harwin & Robbins, Houston, TX; John D. White, Jones Walker Waechter Poitevent Carrere & Denegre, The Woodlands, TX. Judges: Justice Medina delivered the opinion of the Court. JUSTICE O’NEILL and JUSTICE BRISTER did not participate in the decision. Page 2 of 6 207 S.W.3d 342,[*342] ; 2006 Tex. LEXIS 550, **1 Opinion by: David M. Medina Opinion [*344] In this case we must determine whether the sale of an oil and gas working interest, which was subject to an operating agreement, 1 released the seller from any further obligations to the operator. The court of appeals concluded that it did, reversing the trial court’s judgment in favor of the operator. 135 S.W.3d 122. [**2] We conclude that, despite selling its working interest, the seller remains liable under the operating agreement, unless released by the operator or the terms of the agreement. Because neither the operating agreement nor the operator expressly released the seller from its obligations under that agreement, we reverse the court of appeals’ judgment and render judgment for the operator. Seagull Energy E&P, Inc. is a lessee and operator of two offshore oil and gas leases in the Gulf of Mexico near the Texas coast -- Blocks 828 and 831, Mustang Island Area. In 1994, Eland Energy, [**3] Inc. purchased an interest in both leases, acquiring a 1.09375% interest in Block 828 from General Atlantic Resources, Inc. and a 9.41719% interest in Block 831 from UMC Petroleum Corporation. As the new owner, Eland expressly assumed certain rights and responsibilities under two offshore operating agreements, each applicable to its respective block. Both agreements designated Seagull as the operator and were essentially the same. They provided that Eland and the other lessees were to share the cost of operations in proportion to their respective interests, and that Seagull, as operator, was to exploit the minerals and collect the operating costs from the other lessees. In July 1996, Eland sold its interest in these leases to Nor-Tex Gas Corporation, also assigning to Nor-Tex its rights and obligations under the operating agreements. Not long thereafter, Nor-Tex failed to reimburse Seagull for its share of operating costs, and Seagull sought these costs from Eland as an interest owner. Eland, however, refused to pay because it no longer owned an interest in the leases. Seagull then sued Eland and Nor-Tex for breach of the operating agreement. Both Seagull and Eland moved for summary [**4] judgment. The trial court denied Eland’s motion but granted a partial summary judgment in Seagull’s favor. In its summary judgment, the court concluded that Nor-Tex had breached the operating agreement by failing to pay its share of the operating expenses and that Eland also remained liable for these expenses which it incurred under the operating agreement. Damages were tried to the court which found Eland and Nor-Tex jointly and severally liable to Seagull in the amount of $ 268,418.90, plus interest and attorney’s fees. Eland appealed. The court of appeals reversed the trial court’s judgment to the extent it awarded damages against Eland. The court concluded that Eland had no continuing liability under the operating agreements after [*345] the assignment of its working interest because the agreements did not expressly provide for such a continuing obligation. 135 S.W.3d at 127-28. Seagull argues, however, that Texas contract law generally provides that an assignor’s contractual obligations survive assignment unless the contract expressly provides otherwise or the assignor obtains an express release. Because the operating agreements here were silent on the subject and they [**5] did not expressly release Eland, Seagull submits that the court of appeals should have applied this general rule. Eland responds that the court 1 An operating agreement is a contract typical to the oil and gas industry whose function is to designate an ″operator, describe the scope of the operator’s authority, provide for the allocation of costs and production among the parties to the agreement, and provide for recourse among the parties if one or more default in their obligations.″ 3 Ernest E. Smith & Jacqueline L. Weaver, Texas Law of Oil and Gas ’ 17.3 at 17-7 (2d ed. 2006). Page 3 of 6 207 S.W.3d 342,[*345] ; 2006 Tex. LEXIS 550, **5 of appeals was right to ignore this rule of continuing liability because the express language of the operating agreements indicated that the rule did not apply. Eland maintains that its obligation to pay expenses under the operating agreement terminated on the date it sold its interests because the agreement imposed liability for expenses only upon current working interest owners. This dispute thus turns on whether the parties to the operating agreement expressly agreed upon the consequences that should follow an assignment of one’s interest to a third party. Although Seagull and Eland construe their obligations under this contract quite differently, HN1 a contract is not ambiguous merely because the parties disagree on its meaning. Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 727, 25 Tex. Sup. Ct. J. 101 (Tex. 1981). ″An ambiguity exists only if the contract language is susceptible to two or more reasonable interpretations.″ Am. Mfrs Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157, 47 Tex. Sup. Ct. J. 40 (Tex. 2003). Neither the parties nor the lower courts [**6] have found this operating agreement ambiguous, and we likewise agree that it is not. HN2 Its meaning is therefore a question of law. Coker v. Coker, 650 S.W.2d 391, 394, 26 Tex. Sup. Ct. J. 368 (Tex. 1983). HN3 Our primary concern when interpreting a contract is to ascertain and give effect to the intent of the parties as that intent is expressed in the contract. Gulf Ins. Co. v. Burns Motors, Inc. 22 S.W.3d 417, 423, 43 Tex. Sup. Ct. J. 647 (Tex. 2000); Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953, 27 Tex. Sup. Ct. J. 150 (Tex. 1983). To discern this intent, we ″examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument.″ Coker, 650 S.W.2d at 393 (emphasis in original) (citations omitted). Eland focuses on several provisions that connect its obligation to reimburse the operator for costs and expenses to its participating interest, which is in turn based on its ownership in the lease. The pertinent provisions define [**7] participating interest and allocate costs and expenses in proportion to these interests as follows: Article 2 Definitions *** 2.10 Participating Interest. The respective percentage of participation of each Party electing to participate in each of the operations conducted hereunder, including the production of Oil and Gas, based on ownership in the Lease. *** Article 8 Expenditures 8.1 Basis of Charge to the Parties. Operator shall pay all costs and each Party shall reimburse Operator in proportion to its Participating Interest. *** [*346] Article 14 Abandonment and Salvage 14.1 Platform Salvage and Removal Costs. When the Parties owning a platform mutually agree to dispose of such platform, it shall be disposed of by the Operator as approved by such Parties. The costs, risks, and Page 4 of 6 207 S.W.3d 342,[*346] ; 2006 Tex. LEXIS 550, **7 net proceeds, if any, resulting from such disposition shall be shared by such Parties in proportion to their Participating Interests. *** 14.4 Abandonment Operations Required by Governmental Authority. Any well abandonment or platform removal required by governmental authority shall be accomplished by Operator with the costs, risks, and net proceeds, if any, to be [**8] shared by the Parties owning such well or platform in proportion to their Participating Interests. Eland concludes from these provisions that its obligation to reimburse the operator continued only so long as it owned a participating interest. Once it assigned its interest, it was, according to Eland’s interpretation, released from any continuing obligation to the operator for future costs or expenses. Eland, however, reads far too much into these provisions. Nowhere do they mention the subject of release or the consequences which are to follow the assignment of a working interest. These subjects are, however, mentioned elsewhere in the agreement. For example, section 15.1, entitled ″Withdrawal,″ 2 [**10] permits a party to withdraw from the agreement by assigning its interest to the other parties, while section 14.3, entitled ″Assignment of Interest,″ 3 provides that a party desiring to abandon a well shall assign its interest to the non-abandoning parties. Moreover, Article 26 pertains generally to the subject of assignment, providing that the ″[a]greement shall be binding upon and inure to the benefit of the parties and their respective heirs, successors, representatives [**9] and assigns″ and providing further that any assignment be made subject to the operating agreement. But like the cost allocation provisions on which Eland relies, none of these provisions deals specifically with the present circumstances. The operating agreement simply does not explain the consequences of an assignment of a working interest to a third party. Thus, we disagree with Eland that the parties expressly agreed that an assignment of a working interest was to operate as a novation, effectively ending any further obligation of the assignor under the operating agreement. Generally speaking, HN4 a party cannot escape its obligations under a contract merely by assigning the contract to a third [*347] party. Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 677 (Tex. App.--Houston [1st Dist.] 1996, no writ); Univ. of Tex. Med. Branch at Galveston v. Allan, 777 S.W.2d 450, 453 (Tex. App.--Houston [14th Dist.] 1989, no writ). Thus, as a general rule, a party who assigns its contractual rights and duties to a third party remains liable unless expressly or impliedly released by the other party to the contract. See W. Oil Sales Corp. v. Bliss & Wetherbee, 299 S.W. 637, 638 (Tex. [**11] Comm’n App. 1927, judgm’t adopted); Cauble v. Hanson, 249 S.W. 175, 178 (Tex. Comm’n App. 1923, judgm’t adopted); see also 29 Richard A. Lord, Williston on Contracts § 74.30, at 436-38 (4th ed. 2003). The principle is similarly recognized by statute and the Restatement. See HN5 Tex. Bus. & Com. Code § 2.210 (a) (″No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.″); Restatement (Second) of Contracts § 318(3) (unless the obligee agrees to delegation of performance, the delegation does not effect a discharge of the delegating obligor). 2 15.1 Withdrawal. A Party may withdraw from this Agreement as to a Lease by assigning, to the other Parties who do not desire to withdraw, all its interest in such Lease and the wells, platforms and Facilities used in operations on such Lease . . . Providing all such expenses, including any deficiency hereunder, due from the withdrawing Party have been paid within thirty (30) days after the rendering of such final payment, the assignment shall be effective the first day of the month following its receipt, and, the withdrawing Party shall thereafter be relieved from all further obligations and liabilities with respect to such Lease. ^[3] 14.3 Assignment of Interest. Each Participating Party desiring to abandon a well pursuant to Section 14.2 shall assign effective as of the last applicable election date, to the non-abandoning Parties, in proportion to their Participating Interests, its interest in such well and the equipment therein and its ownership in the production from such well. Any Party so assigning shall be relieved from any further liability with respect to said well. Page 5 of 6 207 S.W.3d 342,[*347] ; 2006 Tex. LEXIS 550, **11 HN6 Even when the contract does not expressly provide for the consequences resulting from the assignment of one’s interest, the contract’s subject or other circumstances may indicate that obligations were not intended to survive assignment. For example, the Restatement of Property provides that ″[w]hether a promise respecting the use of land of the promisor will continue to bind the promisor after he has ceased to have an interest in the land with respect to which the promise was made depends upon the [**12] intention manifested in the making of the promise.″ Restatement of Prop.: Servitudes § 538. The comment notes that ″[s]uch promises are often of such a character that they can be satisfactorily performed only by the possessor of the land affected.″ Id. cmt. a. As an example, the Restatement suggests that a promise to maintain a dam on one’s property to provide a certain water level for a neighbor would cease upon the conveyance of the land. Id. cmt. c, illus. ^[2]. Eland does not argue that this contract’s subject or circumstances imply that it should be released of its obligations after assignment. Even if it were to argue this, it is not apparent why Eland would not have been able to fulfill its obligations under the operating agreement even after the transfer of its interest in the underlying lease. See id. cmt. c, illus. ^[1]. Because the operating agreement did not expressly provide that Eland’s obligations under the operating agreement should terminate upon assignment and Seagull did not expressly release Eland following the assignment of its working interest, we reverse the court of appeals’ judgment and render judgment for Seagull as the trial court did. David [**13] M. Medina Justice Page 6 of 6 | | Cited As of: September 1, 2015 5:33 PM EDT Taft v. Burttram Supreme Court of Georgia September 5, 1985, Decided Nos. 42329, 42330 - CONSOLIDATED Reporter 254 Ga. 687; 333 S.E.2d 585; 1985 Ga. LEXIS 886 TAFT v. BURTTRAM, JR. et al. KILROY v. BURTTRAM, JR. et al. Prior History: [***1] Equity. Fulton Superior Court. Before Judge Daniel. Disposition: Judgment reversed. Core Terms arbitration, appellees, lawsuits, pending arbitration, initiating, securities, charges, trial court, encourages, defended, disputes, requires, warrants, parties, records, slander, cases, libel, join Case Summary Procedural Posture Appellant former employees appealed orders of the Fulton Superior Court (Georgia), which granted motions by appellees, brokerage firm and its officers, to stay the former employees’ lawsuits pending arbitration. Overview The brokerage hired the former employees as account executives, and they resigned to join a similar business. When the former employees failed to return certain corporate information, a corporate officer swore out warrants charging them with theft by taking. The former employees were arrested, and the charges were dismissed for lack of probable cause. The former employees filed suits alleging malicious prosecution, libel, abuse of process, slander, wrongful interference with an employment relationship, and intentional infliction of emotional harm. They appealed the trial court’s grant of stays pending arbitration. In reversing, the court held that (1) under the agreement the former employees signed prior to their employment with the brokerage firm, they agreed to arbitrate any dispute; (2) by swearing out criminal warrants against the former employees, appellees waived the agreement to arbitrate; and (3) the trial court should have denied the motions for stay of the lawsuits pending arbitration. Outcome The court reversed the orders staying the former employees’ lawsuits against appellees pending arbitration. Counsel: Rex M. Lamb III, Henry D. Fellows, Jr., Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta, for appellants. 254 Ga. 687,[*687] ; 333 S.E.2d 585, **585; 1985 Ga. LEXIS 886, ***2 Robert M. Axelrod, Rogers & Hardin, Phillip S. McKinney, Atlanta, for appellees. Judges: Smith, Justice. All the Justices concur. Opinion by: SMITH Opinion [*687] [**585] Appellants, William H. Taft and Kevin P. Kilroy, each sued appellees, H. Dyar Burttram, Jr., and Robert Rosenberg, officers of appellee Norris and Hirshberg, Inc., for malicious prosecution, libel, abuse of process, slander, wrongful interference with an employment relationship, and intentional infliction of emotional harm. Taft and Kilroy appeal the trial court’s grants of appellees’ motions to stay the lawsuits pending arbitration. The appeals have been consolidated. We reverse. Norris and Hirshberg, a securities brokerage business, hired Taft and Kilroy as account executives in August 1983. Taft and Kilroy resigned in August 1984, to join a similar business. They allege that the appellees altered their employment records to show that they were terminated for cause, and that the appellees mailed libelous [***2] material and related slanderous charges about them to various people involved in the securities business. In October 1984, after requesting the return of certain information and records to Norris and Hirshberg, appellee Burttram swore out warrants charging Taft and Kilroy with theft by taking. He contended that they had stolen client lists, confirmation slips, and other information regarding Norris and Hirshberg’s clients when they left Norris and Hirshberg to join the other business. Taft and Kilroy were arrested on November 2, 1984. On November 6, a Fulton County Magistrate dismissed the charges for lack of probable cause. He stated that the controversy was best suited for civil court. The [**586] appellees subsequently requested Taft and Kilroy to submit the dispute to arbitration. Taft and Kilroy filed the complaints initiating these lawsuits five days later, on December [*688] 12, 1984. 1. Taft and Kilroy contend that the trial court erred in staying their lawsuits pending arbitration. Under the agreement that the appellants signed prior to their employment with Norris and Hirshberg, they ″[agreed] to arbitrate any dispute, claim, or controversy″ that the National [***3] Association of Securities Dealers [NASD] requires to be arbitrated. The NASD requires its member to arbitrate ″any dispute, claim, or controversy arising out of or in connection with the business of any member of the Association . . .″ (Emphasis supplied.) As the appellees note, this procedure broadly encourages the members to arbitrate their disputes. When the appellees failed to abide by this policy, in swearing out criminal warrants against the appellants ″instead of seeking to arbitrate, this was the clearest kind of waiver on their part of an agreement to arbitrate.″ 1 Morales Rivera v. Sea Land of Puerto Rico, 418 F2d 725, 726 (1st Cir. 1969). Any other holding would be contrary to the clear federal policy of encouraging parties to resolve disputes through arbitration, rather than a resort to the courts. See Sweater Bee By Banff, Ltd. v. Manhattan Indus., 754 F2d 457, 461 (2nd Cir. 1985), as the dispute involved in the criminal case and this case, and the parties involved in both cases for all practical purposes are identical. ^[2] The appellees, in choosing the forum of criminal law rather than arbitration in their first 1 Here, the party who initiated legal proceedings subsequently seeks arbitration, and the party who defended that action claims waiver by inconsistency. This distinguishes this case from waiver cases in which the party defending the initial action seeks arbitration belatedly and the party initiating the action claims waiver. See, e.g., Sweater Bee, infra. ^[2] Compare Amalgamated Local No. 55, etc. v. Metal & Alloy Div., 396 FSupp. 667 (W.D.N.Y. 1975). Page 2 of 3 254 Ga. 687,[*688] ; 333 S.E.2d 585, **586; 1985 Ga. LEXIS 886, ***3 attempt to sort out their dispute with [***4] Taft and Kilroy, waived their right to compel arbitration. To put it simply, appellees cannot run with the hare and the hounds. Accordingly we find that the trial court should have denied appellees’ motions for stay of these lawsuits pending arbitration. ^[2]. Following the holding in Division 1, we need not reach appellants’ remaining enumerations of error. Judgment reversed. Page 3 of 3 | | Neutral As of: September 1, 2015 5:38 PM EDT Taylor v. Gately Court of Appeals of Texas, Tenth District, Waco February 9, 1994, Delivered ; February 9, 1994, Filed No. 10-93-244-CV Reporter 870 S.W.2d 204; 1994 Tex. App. LEXIS 259 FRENANDO RAY TAYLOR, Appellant v. SANDY GATELY, Appellee Prior History: [**1] From the 52nd District Court. Coryell County, Texas. Trial Court # 27,900 Disposition: Affirmed Core Terms ministerial, mandamus, prosecuting attorney, inaugurated, accepting Case Summary Procedural Posture Appellant inmate sought review of an order of the 52nd District Court, Coryell County, Texas, that dismissed his petition for writ of mandamus to compel appellee district attorney to initiate a prosecution by accepting a complaint charging assault and battery and a violation of his civil rights. Overview Appellant inmate attempted to initiate a prosecution charging assault and battery and a violation of his civil rights. He sought review from a judgment dismissing his petition for a writ of mandamus. Appellant argued that the court abused its discretion in refusing to compel appellee district attorney to initiate a prosecution concerning his charges. He claimed that Tex. Code Crim. Proc. Ann. art. 2.04, 2.05, 2.12, 2.13 (1977) imposed a ministerial duty upon appellee to accept and file his complaint. The court was aware of no case in which mandamus was issued against a district attorney for failure to institute a criminal case. District attorneys were constitutional officers with duties specified by art. 201. The prosecuting attorney had the authority to determine whether prosecution in any given case should be initiated. A writ of mandamus would not issue unless the petitioner established that he had no adequate remedy at law and that the act sought to be compelled was purely ministerial, as opposed to discretionary. The court concluded that appellant failed to meet the second prong of the test. The court overruled the point of error and affirmed the judgment of the trial court. Outcome The court affirmed the judgment of the trial court that dismissed his petition for a writ of mandamus to compel appellee district attorney to initiate a prosecution by accepting a complaint charging assault and battery and a 870 S.W.2d 204,[*204] ; 1994 Tex. App. LEXIS 259, **2 violation of appellant’s civil rights. Appellant failed to show that the act he sought was purely ministerial as opposed to discretionary. Counsel: For Appellant: Frenando Ray Taylor, Pro Se, Gatesville, TX. For Appellee: Sandy S. Gately, Disrict Attorney, Gatesville, TX. Judges: Before Chief Justice Thomas, Justice Cummings, and Justice Vance Opinion by: BILL VANCE Opinion [*204] OPINION Frenando Taylor, an inmate, appeals from a judgment dismissing his petition for a writ of mandamus in the court below. See Hogan v. Turland, 428 S.W.2d 316, 317 (Tex. 1968). He complains that the court abused its discretion in refusing to compel the District Attorney to initiate a prosecution by accepting a complaint charging assault and battery and a violation of his civil rights. He asserts that articles 2.04, 2.05, 2.12, and 2.13 of the Code of Criminal Procedure impose a ″ministerial duty″ upon the District Attorney to accept and file his complaint. See TEX. CODE CRIM. PROC. ANN. arts. ^[2].04, 2.05, 2.12, 2.13 (Vernon 1977). In support of this proposition, he cites language from Anderson v. City of Seven Points, 806 S.W.2d 791, 793 (Tex. 1991): ″An act is ministerial when the law clearly spells out the duty to be performed [**2] by the official with sufficient certainty that nothing is left to the exercise of discretion. We have been directed to no case, nor has our research revealed any case, in which mandamus has issued against a prosecuting attorney for failure to institute a criminal case. District Attorneys are constitutional officers. TEX. CONST. art 5, § 21. Their duties are specified by article 2.01 of the Code of Criminal Procedure. TEX. CODE CRIM. PROC. ANN. art. 2.01. The interpretative commentary to section twenty-one attributes the importance of the office to the ″fact that upon the prosecuting attorneys rests the power of determining whether prosecution in any given case shall be inaugurated, or if inaugurated, pushed to a successful conclusion.″ TEX. CONST. art. 5, § 21 interp. commentary (Vernon 1993). A writ of mandamus will not issue unless the petitioner establishes that he has no adequate remedy at law and that the act sought to be compelled is purely ministerial, as opposed to discretionary. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). Taylor has failed to meet the second prong of the test. Discretion is a necessary ingredient in the determination of whether the requisites [**3] [*205] for accepting and filing a criminal complaint have been met. See id. We overrule the point of error and affirm the judgment. BILL VANCE Justice Before Chief-Justice Thomas, Justice Cummings, and Justice Vance Page 2 of 3 870 S.W.2d 204,[*205] ; 1994 Tex. App. LEXIS 259, **3 Affirmed Opinion delivered and filed February 9, 1994 Page 3 of 3 | | Caution As of: September 1, 2015 2:38 PM EDT Valero Energy Corp. v. Teco Pipeline Co. Court of Appeals of Texas, Fourteenth District, Houston August 26, 1999, Rendered ; August 26, 1999, Opinion Filed NO. 14-96-01234-CV Reporter 2 S.W.3d 576; 1999 Tex. App. LEXIS 6369 VALERO ENERGY CORP., ET AL., Appellants v. TECO PIPELINE CO., Appellee Prior History: [**1] On Appeal from the 215th District Court. Harris County, Texas. Trial Court Cause No. 96-20628. Disposition: Reversed and Remanded. Core Terms arbitration, partnership, Pipeline, parties, arbitration clause, transportation, joint venture, arbitration agreement, nonsignatory, Ownership, asserts, compel arbitration, disputes, agreement to arbitrate, Remedies, set forth, argues, waived, condition precedent, natural gas, provides, terms, third party, trial court, contracts, mutual mistake, net revenue, contends, losses, merger Case Summary Procedural Posture Appellant sought review of an interlocutory decision from the 215th District Court, Harris County, Texas, which denied its motion to stay proceedings and compel arbitration in a suit brought by appellee asserting causes of action for breach of fiduciary duty, fraud, tortious interference, and professional malpractice arising from an agreement to purchase and sell a natural gas pipeline. Overview Appellant sought review of a decision denying its motion to stay the litigation and compel arbitration pursuant to the Texas General Arbitration Act, Tex. Civ. Prac. & Rem. Ch. 171 (TGAA). Appellant brought this interlocutory appeal in appellee’s suit asserting causes of action for breach of fiduciary duty, fraud, tortious interference, and professional malpractice arising from a purchase and sale agreement for a natural gas pipeline. The court reversed, holding that the TGAA was not limited to disputes between nonprofit entities and that whether appellant failed to comply with conditions precedent to enforce the agreement to arbitrate was for the arbitrator’s determination. The court found no evidence of any partnership separate from the joint venture established under the terms of the Operating Agreement or evidence that the arbitration agreement was revoked or later revived as a result of fraudulent inducement or a mutual mistake, and concluded the arbitration clause remained in full force and effect. The court held that because appellee’s claims against the other nonsignatory defendants were based on the same operative facts, they were also permitted to compel arbitration. ^[2] S.W.3d 576,[*576] ; 1999 Tex. App. LEXIS 6369, **1 Outcome The court reversed and remanded the decision which denied appellant’s motion to stay proceedings and compel arbitration upon a finding that there were no grounds to support a decision to deny enforcement of the arbitration clause contained in the agreement between the parties. LexisNexis® Headnotes Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Commercial Law (UCC) > Sales (Article 2) > Form, Formation & Readjustment > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN1 In determining whether to compel arbitration, the court must decide two issues: (1) whether a valid, enforceable arbitration agreement exists, and (2) if so, whether the claims asserted fall within the scope of the agreement. The court has no discretion but to compel arbitration if the answer to both questions is affirmative. Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Appeals > Standards of Review > Questions of Fact & Law HN2 Whether the parties have agreed to arbitrate is a question of fact to be summarily determined by the trial court. Appellate courts use a ″no evidence″ standard for review of factual questions. In a no evidence point, we consider only the evidence that supports the finding, while disregarding the evidence to the contrary. If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. Civil Procedure > Appeals > Standards of Review > De Novo Review HN3 Legal conclusions are subject to de novo review. De novo review is appropriate when the legal interpretation of the arbitration clause, and no fact issue, is before the court. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Arbitrability Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview Civil Procedure > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration HN4 Because the Texas General Arbitration Act, Tex. Civ. Prac. & Rem. Ch. 171 does not require or authorize the trial court to address questions of procedural arbitrability, the trial court need only decide two issues: (1) whether there is an agreement to arbitrate, and (2) whether the dispute comes within the scope of the arbitration agreement. Business & Corporate Law > General Partnerships > Formation > General Overview Page 2 of 20 2 S.W.3d 576,[*576] ; 1999 Tex. App. LEXIS 6369, **1 Business & Corporate Law > General Partnerships > Formation > Partnership Agreements Business & Corporate Law > General Partnerships > Formation > Partnership by Estoppel Business & Corporate Law > General Partnerships > Management Duties & Liabilities > General Overview Business & Corporate Law > ... > Management Duties & Liabilities > Rights of Partners > General Overview Business & Corporate Law > ... > Management Duties & Liabilities > Rights of Partners > Losses & Profits Business & Corporate Law > ... > Management Duties & Liabilities > Rights of Partners > Management & Voting Contracts Law > Types of Contracts > Partnership Agreements HN5 A partnership is an association of two or more persons to carry on as co-owners of a business for profit. Tex. Rev. Civ. Stat. Ann. art. 6132b § 6(1). This association must be based on an express or implied agreement. An express or implied partnership agreement has four essential elements: (1) a community of interest in the venture, (2) an agreement to share profits, (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. As a matter of law, a partnership does not exist if any one of these elements is not established. The burden of proof is on the party seeking to establish the partnership. Business & Corporate Law > General Partnerships > Formation > General Overview Business & Corporate Law > ... > Management Duties & Liabilities > Rights of Partners > Losses & Profits HN6 Without an agreement providing for the sharing of profits and losses, there can be no partnership. Business & Corporate Law > General Partnerships > Formation > General Overview HN7 A representation contained in a document or made to a third party that a partnership relationship exists constitutes a legal conclusion and is not determinative of the relationship. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Defenses > Ambiguities & Mistakes > Mutual Mistake Contracts Law > ... > Affirmative Defenses > Fraud & Misrepresentation > General Overview Contracts Law > Formation of Contracts > Mistake > Mutual Mistake Estate, Gift & Trust Law > Wills > Revocation of Wills > General Overview HN8 To establish fraud in the inducement in the formation of arbitration agreement, a party must prove (1) a material representation was made, and (2) it was false. Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Contract Interpretation > General Overview Contracts Law > Defenses > Ambiguities & Mistakes > Mutual Mistake Contracts Law > Formation of Contracts > Mistake > Mutual Mistake HN9 The law presumes that a written agreement correctly embodies the parties’ intentions, and is an accurate expression of the agreement the parties reached in prior oral negotiations. Contracts Law > Defenses > Ambiguities & Mistakes > General Overview Contracts Law > Defenses > Ambiguities & Mistakes > Mutual Mistake Page 3 of 20 2 S.W.3d 576,[*576] ; 1999 Tex. App. LEXIS 6369, **1 HN10 A mutual mistake occurs when both parties to a transaction have a belief in the present existence of a thing, material to the transaction, that does not exist. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods Civil Procedure > Appeals > Standards of Review > De Novo Review Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Contracts Law > Contract Interpretation > General Overview Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN11 Once the existence of an arbitration agreement is shown, the party seeking to avoid the effects of the arbitration agreement may do so by establishing that the dispute is not within the terms of the agreement. Whether the parties’ agreement imposes a duty to arbitrate is a matter of contract interpretation and a question of law for the court. Therefore, the language of the contract will be enforced according to its plain meaning unless such a reading would defeat the intentions of the parties. Because this issue involves the trial court’s interpretation of the arbitration clause, de novo review is appropriate. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Real Property Law > Torts > General Overview Torts > Procedural Matters > Alternative Dispute Resolution HN12 In determining whether a tort claim falls within the scope of an agreement to arbitrate, the focus should be on the factual allegations contained in the petition rather than on the legal causes asserted. The test should be based on a determination of whether the particular tort claim is so interwoven with the contract that it could not stand alone or, on the other hand, is a tort completely independent of the contract and could be maintained without reference to the contract. Arbitration is favored by Texas courts. Therefore, any doubts regarding the scope of an arbitration agreement are to be resolved in favor of arbitration. Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > Waiver Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Arbitration Clauses Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement HN13 A party waives its right to arbitration if it substantially invokes the judicial process to the detriment of the opposing party. To establish waiver, a party bears the burden of showing that the other party acted inconsistently with the arbitration agreement and that it was prejudiced by such conduct. There is a strong presumption against waiver, which must be intentional and may only be implied from a party’s actions if the facts demonstrate that the party seeking to enforce arbitration intended to waive its arbitration right. Therefore, any doubts regarding waiver should be resolved in favor of arbitration. Whether a party waives arbitration is a question of law. Page 4 of 20 2 S.W.3d 576,[*576] ; 1999 Tex. App. LEXIS 6369, **1 Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR Contracts Law > Contract Conditions & Provisions > Waivers > General Overview HN14 It has long been the law in Texas that even though a party may have once waived a contract right in the past, it may enforce that right in the future by giving notice of its intention to do so. Counsel: J. Clifford Gunter, III of Houston, TX. Gayle A. Boone of Houston, TX. Martin Edward Loeber of Houston, TX. Gael Plauche of Houston, TX. Andrew M. Edison of Houston, TX, for appellants. Craig B. Glidden of Houston, TX. Timothy J. Hill of Houston, TX. Donald B. McFall of Houston, TX, for appellees. Judges: Panel consists of Chief Justice Murphy and Justices Anderson and Edelman. Opinion by: JOHN S. ANDERSON Opinion [*579] OPINION This is an interlocutory appeal of an order denying a motion to stay proceedings and compel arbitration. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a) (Vernon Supp. 1999). 1 [**2] Teco Pipeline has sued Valero Energy Corp., 24 related companies, and two officers and directors, Stan L. McLelland and William L. Greehey (collectively ″Valero″). 2 Valero filed a motion to stay proceedings and compel arbitration. In response, Teco filed a motion to stay arbitration. The trial court granted Teco’s motion, while denying Valero’s motion. In two points of error, Valero asserts the trial court erred in denying its motion to stay proceedings and compel arbitration and granting Teco’s motion to stay arbitration. We reverse and remand. Background From 1969 to 1985, Valero was the sole operator and owner of the TransTexas Pipeline System, which delivered gas from Waha, Texas to New Braunfels, Texas. Through a merger with a network of pipelines, the TransTexas Pipeline was also able to deliver gas to the Texas Gulf Coast. InterNorth, Inc. owned an interstate pipeline connecting West Texas to northern states. On November 6, 1994, Valero and Northern Natural [**3] Gas Company, a division of InterNorth, signed a letter of intent to form a joint venture for the purpose of purchasing, transporting, and marketing natural gas. This agreement was formalized [*580] on February 1, 1985, when Valero and Northern Intrastate Pipeline Company entered into a partnership agreement, forming the Nor-Val Gas Company (″Nor-Val″). On February 28, 1985, Valero entered into a Purchase Agreement with InterNorth and Northern Texas Intrastate Pipeline Company 1 The provision for interlocutory appeal of an order granting or denying arbitration was formerly found in § 171.017 of the Texas Civil Practice & Remedies Code. Act of June 14, 1995, 74th Leg., R.S., ch. 588, § 1, 1995 Tex. Gen. Laws 3408, amended by Act of May 21, 1997, 75th Leg., R.S., ch. 165, § 5.01, 1997 Tex. Gen. Laws 336. 2 The other Valero companies are Valero Management Company, VGMA Company, VNGC Holding Company, Valero Natural Gas Company, Valero Eastex Pipeline Company, Valero Transmission Company, Valero Gas Marketing Company, Valero Gas Storage Company, Valero Industrial Gas Company, Valero Hydrocarbons Company, VT Company, Valero Marketing Company, Valero Natural Gas Partners, L.P., Valero Management Partnership, L.P., Valero Transmission, L.P., Valero Hydrocarbons, L.P., Valero Marketing L.P., Valero Industrial Gas, L.P., Valero Gas Marketing, L.P., VLDC, L.P., Reata Industrial Gas, L.P., Valero Nortex, L.P., Valero Northern Texas Company, and West Texas Transmission Company. Page 5 of 20 2 S.W.3d 576,[*580] ; 1999 Tex. App. LEXIS 6369, **3 (″NorTex″), a wholly owned subsidiary of InterNorth, for the purpose of transporting natural gas via the TranTexas Pipeline. Under the Purchase Agreement, Valero sold a one-half undivided interest in the TransTexas Pipeline to NorTex and 125,000 shares of Valero stock to InterNorth. As exhibits to the Purchase Agreement, Valero entered into three additional agreements with InterNorth and NorTex. The first agreement was the Operating Agreement, which created a joint venture for the purpose of providing for the operation, management, and maintenance of the TransTexas Pipeline. Valero Transmission Company (″VTC″) was appointed operator. The second agreement was the Ownership Agreement, which set forth a mutual understanding [**4] between the parties with regard to the rights of each party in the joint ownership of the TransTexas Pipeline. The third agreement was the Transportation Agreement, which allowed InterNorth to transport gas from New Braunfels to Houston on other portions of Valero’s integrated pipeline system. Two months later, InterNorth merged with Houston Natural Gas (″HNG″) to form Enron, Inc. At that time, HNG was a primary Valero competitor, owning a 50% interest in the only other pipeline delivering gas from West Texas to the Texas Gulf Coast. Seeking to block the merger, Valero filed suit against InterNorth and NorTex in the United States District Court for the Western District of Texas, San Antonio Division. Valero asserted that the merger violated NorTex’s fiduciary duties under the Ownership Agreement. On May 28, 1985, the parties entered into a Settlement Agreement (″1985 Settlement Agreement″). Under the 1985 Settlement Agreement: (1) Nor-Val was to be dissolved, (2) NorTex agreed to sell its one-half interest to an acceptable purchaser, (3) Valero retained the right to disapprove of any pipeline purchaser tendered by NorTex, and (4) Valero reaffirmed its right of first refusal to [**5] repurchase the pipeline as set forth in the Ownership Agreement. In addition to filing suit in federal court, Valero also had lodged a complaint with the Federal Trade Commission (″FTC″) regarding the proposed InterNorth/HNG merger. The FTC, finding antitrust implications, drew up a Consent Decree, which provided that in order for the merger to proceed, InterNorth had to divest itself of its interest in the TransTexas Pipeline. In 1987, in an effort to reorganize and refinance its internal operations, Valero assigned its interest in the TransTexas Pipeline to a related entity. Enron threatened to block the assignment by exercising its right of first refusal under the Ownership Agreement. On March 24, 1987, the parties executed the TransTexas Settlement Agreement, which eliminated Valero’s veto rights over any pipeline purchaser tendered by NorTex, but allowed Valero to continue with its reorganization. On July 15 1987, Enron and Teco entered into an agreement for the sale of NorTex, which included its interest in the TransTexas Pipeline. Valero opposed the sale to Teco and, exercising its right of first refusal, proposed to purchase the NorTex stock, thereby obtaining complete [**6] ownership of the pipeline. Enron submitted both proposed sales to the FTC for approval. The FTC approved the sale to Teco and disapproved the sale to Valero. Believing that the FTC did not have the authority to disapprove of the sale to Valero in view of its right of first refusal, Valero sued Enron, NorTex, and Teco in state court, for breach of contract. Valero also sought and received a temporary injunction blocking the conveyance of the pipeline to Teco. The case was removed to [*581] the United States District Court. After a trial on the merits, judgment was entered in favor of Enron, NorTex, and Teco and the temporary injunction was dissolved. The United States Fifth Circuit Court of Appeals affirmed the judgment. See West Tex. Transmission, L.P. v. Enron Corp., 907 F.2d 1554 (5th Cir. 1990). On December 12, 1988, Enron closed on the sale to Teco. Purchasing NorTex’s interest in the pipeline, Teco became a successor in interest to NorTex’s partnership rights and succeeded to all of the contractual agreements between NorTex and Valero. Page 6 of 20 2 S.W.3d 576,[*581] ; 1999 Tex. App. LEXIS 6369, **6 On April 24, 1996, Teco filed the underlying suit, asserting causes of action for breach of fiduciary duty, fraud, tortious interference, [**7] and professional malpractice. Valero counterclaimed for breach of contract of the Operating Agreement, breach of fiduciary duty, and fraud. Asserting that Teco’s claims are based on the Operating Agreement, Valero moved to stay the litigation and compel arbitration pursuant to the Texas General Arbitration Act (″TGAA″), Chapter 171 of the Texas Civil Practice & Remedies Code, and the arbitration clause found in the Operating Agreement: 3.01 General. Any dispute arising with respect to any matter within the scope of the Operating Agreement shall be resolved by arbitration pursuant to this Article C, which is intended to provide the exclusive means for resolving all such disputes. . . . Teco moved to stay arbitration on several grounds: (1) the TGAA applies only to disputes between nonprofit entities, (2) its claims arise out of a partnership separate and independent of the joint venture established in the Operating Agreement, (3) the arbitration clause has been revoked, (4) the Operating Agreement specifically excludes from arbitration claims regarding the transporting of third party natural gas, (5) the scope of the arbitration clause is too narrow to include its claims, (6) [**8] the Valero defendants, who are not signatories to the Operating Agreement, may not enforce the arbitration clause, (7) Valero has waived its right to enforce the arbitration clause by its previous litigation, and (8) Valero has failed to satisfy any conditions precedent to arbitration. After a hearing, the trial court denied Valero’s motion to stay litigation and compel arbitration and granted Teco’s motion to stay arbitration. Standard of Review HN1 In determining whether to compel arbitration, the court must decide two issues: (1) whether a valid, enforceable arbitration agreement exists, and (2) if so, whether the claims asserted fall within the scope of the agreement. See Dallas Cardiology Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.-Texarkana 1998, pet. denied); Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex. App.-Austin 1998, no pet.). The court has no discretion but to compel arbitration if the answer to both questions is affirmative. See Dallas Cardiology Assocs., P.A., 978 S.W.2d at 212; Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 878 (Tex. App.-Waco 1992, [**9] writ denied). HN2 Whether the parties have agreed to arbitrate is a question of fact to be summarily determined by the trial court. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.021(b) (Vernon Supp. 1999); see also Weber v. Hall, 929 S.W.2d 138, 141 (Tex. App.-Houston [14th Dist.] 1996, orig. proceeding). Appellate courts use a ″no evidence″ standard for review of factual questions. See Fridl v. Cook, 908 S.W.2d 507, 511 (Tex. App.-El Paso 1995, writ dism’d w.o.j.). In a no evidence point, we consider only the evidence that supports the finding, while disregarding the evidence to the contrary. Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co., 849 S.W.2d 380, 384 (Tex. App.-Houston [14th Dist.] 1993, writ denied). If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. See id. HN3 [*582] Legal conclusions, on the other hand, are subject to de novo review. See Fridl, 908 S.W.2d at 511; see also Certain Underwriters at Lloyd’s of London v. Celebrity, Inc., 950 S.W.2d 375, 377 (Tex. App. [**10] -Tyler 1996), writ dism’d w.o.j., 988 S.W.2d 731 (Tex. 1998) (per curiam). De novo review is appropriate when the legal interpretation of the arbitration clause, and no fact issue, is before the court. See Nationwide of Bryan, Inc., 969 S.W.2d at 520; Certain Underwriters at Lloyd’s of London, 950 S.W.2d at 377; Texas Private Employment Ass’n v. Lyn-Jay Int’l, Inc., 888 S.W.2d 529, 531 (Tex. App.-Houston [1st Dist.] 1994, no writ). Scope of the TGAA As a preliminary matter, Teco argues the TGAA applies only to nonprofit entities. Until 1995, when it was codified and moved to Chapter 171 of the Texas Civil Practice and Remedies Code, the TGAA was found in Page 7 of 20 2 S.W.3d 576,[*582] ; 1999 Tex. App. LEXIS 6369, **10 articles 224 through 238-20 of the Texas Revised Civil Statutes. See Act of June 18, 1965, 59th Leg., R.S., ch. 689, § 1, 1965 Tex. Gen. Laws 1593-1601, redesignated and amended by Act of June 14, 1995, 74th Leg., R.S., ch. 588, § 1, 1995 Tex. Gen. Laws 3402-09. Teco contends that when the Texas Legislature amended the TGAA in 1995, it limited the entire Act to disputes between nonprofit entities. In support of this argument, Teco cites section [**11] 171.022 of the Texas Civil Practice & Remedies Code, which states: The provisions of this chapter apply only to the arbitration of controversies between members of associations or corporations which are exempt from the payment of federal income taxes pursuant to Section 501(c) of the U.S. Internal Revenue Code or which are incorporated pursuant to the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon’s Texas Civil Statutes). TEX. CIV. PRAC. & REM. CODE ANN. 171.022. Reading section 171.022 out of context from the preceding sections appears to support the argument that the TGAA is limited to disputes involving members of nonprofit entities. See D. Wilson Constr. Co. v. Cris Equip. Co., 988 S.W.2d 388, 394 (Tex. App.-Corpus Christi 1999, no pet. h.); Holk v. Biard, 920 S.W.2d 803, 807 (Tex. App.-Texarkana 1996, orig. proceeding [leave denied]). Prior to its codification in 1995, § 171.022 was found in § 3 of article 238-20 of the Texas Revised Civil Statutes. Article 238-20 had four sections, which expressly applied to specific enforcement of executory agreements to arbitrate future disputes. [**12] See Holk, 920 S.W.2d at 807-08. When the TGAA was redesignated as Chapter 171 of the Texas Civil Practice and Remedies Code, former § 3 of article 238-20 was carried forward into Chapter 171. See id. at 808. Through error, however, § 3 was separated from the remaining three sections of former article 238-20, which were moved to section 171.021. See id. Rather than being designated as subsection (d) of section 171.021, § 3 was placed alone as section 171.022. See id. This made section 171.022 appear to limit the entire act, rather than applying only to specific performance of executory arbitration agreements in the bylaws of nonprofit corporations. See id.; see also D. Wilson Constr. Co., 988 S.W.2d at 394. The Holk court’s reasoning is further strengthened by the fact that since Teco filed the underlying suit in 1996, the Texas Legislature has corrected the error by renumbering the TGAA. Section 171.022 is now designated § 173.002 of the Texas Civil Practice & Remedies Code. See Act of June 14, 1995, 74th Leg., R.S., ch. 588, § 1, 1995 Tex. Gen. Laws 3409, added by Act of May 21, 1997, 75th Leg., R.S., [**13] ch. 165, § 5.03, 1997 Tex. Gen. Laws 349. Chapter 173 of the Texas Civil Practice & Remedies Code specifically and expressly applies to controversies between certain nonprofit entities. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 173.001-173.003 (Vernon Supp. 1999). Accordingly, we hold the TGAA, chapter 171 of the Civil Practice & [*583] Remedies Code, is not limited to disputes between nonprofit entities. Conditions Precedent Teco asserts Valero has failed to comply with contractual conditions precedent to enforce the agreement to arbitrate. ^[3] Valero, on the other hand, maintains that whether it has satisfied any condition precedent is a question for the arbitrator, not the court. In support of this contention, Valero cites several federal cases construing the Federal Arbitration Act. See, e.g., Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145, 149 (5th Cir. ^[3] The arbitration clause in the Operating Agreement contains a condition precedent, which provides: . . . Any Party (or the Operator) wishing to submit a dispute or other matter for arbitration hereunder shall first, by notice to the other Party and the Operator, call a meeting of the Management Committee to consider such dispute or other matter, such meeting to be held when, where and as reasonably specified in said notice, but not less than ten days nor more than twenty-five days after such notice is received. If such meeting is called and held as herein provided and the dispute or other matter submitted for consideration at such meeting is not resolved to the satisfaction of both Parties, . . . then either Party may within ten days thereafter submit the matter to arbitration in accordance with the following Sections 3.02 through 3.09. Page 8 of 20 2 S.W.3d 576,[*583] ; 1999 Tex. App. LEXIS 6369, **13 1987); Smith Barney Shearson, Inc. v. Boone, 838 F. Supp. 1156, 1158 (N.D. Tex. 1993), aff’d, 47 F.3d 750 (5th Cir. 1995). We note that in construing the TGAA, there is a conflict among Texas courts of appeals on this issue. [**14] See, e.g., D. Wilson Constr. Co., 988 S.W.2d at 395 (holding the trial court may determine issue of condition precedent to enforcement of agreement to arbitrate); City of Lubbock v. Hancock, 940 S.W.2d 123, 127 (Tex. App.-Amarillo 1996, orig. proceeding) (holding that under the TGAA, procedural questions, such as compliance with conditions precedent, are left to arbitrator’s determination). [**15] Addressing the question of whether a collective bargaining agreement with an arbitration provision required an employer, who did not sign the agreement, to arbitrate, the United States Supreme Court stated, ″Once it is determined . . . that the parties are obligated to submit to arbitration, ’procedural’ questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator.″ John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964). In reaching this conclusion, the Court distinguished substantive arbitrability, i.e., whether the dispute is encompassed by an agreement to arbitrate, and procedural arbitrability, i.e., issues such as compliance with a condition precedent to arbitrate. See City of Lubbock, 940 S.W.2d at 126 (citing John Wiley & Sons, Inc., 376 U.S. at 556-58). This reasoning has been followed in construing the Federal Arbitration Act. See Smith Barney Shearson, Inc., 838 F. Supp. at 1158. 4 The Amarillo Court of Appeals found the TGAA, like the Federal act, distinguishes substantive from procedural arbitrability. See City of Lubbock, 940 S.W.2d at 127. [**16] 5 Therefore, HN4 because [*584] the TGAA does not require or authorize the trial court to address questions of procedural arbitrability, the trial court need only decide two issues: (1) whether there is an agreement to arbitrate, and (2) whether the dispute comes within the scope of the arbitration agreement. See id. [**17] Similarly, this court has previously decided procedural issues are for the arbitrator’s determination. See Kline v. O’Quinn, 874 S.W.2d 776, 782 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (holding that while the determination of the scope of an arbitration agreement is for the court, the enforcement of pleading requirements before the arbitrator is a procedural matter for the arbitrator). We conclude, therefore, that whether Valero satisfied any conditions precedent to arbitration is for the arbitrator’s determination. Hence, it is not necessary for this court to make that determination. Separate Partnership Teco further argues its claims are not based on the Operating Agreement, which contains an arbitration clause, but rather, arise out of a separate unwritten partnership agreement, which was created as a result of the sale of 4 Section 4 of the Federal Arbitration Act provides, in part: The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. ^[9] U.S.C.A. § 4 (1999). 5 Section 171.002(a) of the Texas Civil Practice and Remedies Code, as cited in City of Lubbock, states: On application of a party showing an agreement described in Section 171.001, and the opposing party’s refusal to arbitrate, the court shall order the parties to proceed with arbitration; but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party; otherwise, the application shall be denied. Act of June 14, 1995, 74th Leg., R.S., ch. 588, § 1, 1995 Tex. Gen. Laws 3403, amended by Act of May 21, 1997, 75th Leg., R.S., ch. 165, § 5.01, 1997 Tex. Gen. Laws 330. The current version of this provision, without any substantive changes, is found at TEX. CIV. PRAC. & REM. CODE ANN. § 171.021 (Vernon Supp. 1999). Page 9 of 20 2 S.W.3d 576,[*584] ; 1999 Tex. App. LEXIS 6369, **17 the 50% undivided interest in the pipeline. Therefore, according to Teco, because its claims are related to this separate partnership, they are not subject to the arbitration clause of the Operating Agreement. 6 [**18] ″HN5 A partnership is an association of two or more persons to carry on as co-owners of a business for profit.″ TEX. REV. CIV. STAT. ANN. art. 6132b § 6(1) (Vernon 1970). This association must be based on an express or implied agreement. See Grimmett v. Higginbotham, 907 S.W.2d 1, 2 (Tex. App.-Tyler 1994, writ denied). An express or implied partnership agreement has four essential elements: (1) a community of interest in the venture, (2) [*585] an agreement to share profits, (3) an agreement to share losses, and (4) a mutual right of control or management of the enterprise. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176 (Tex. 1997). As a matter of law, a partnership does not exist if any one of these elements is not established. See id.; Stephanz v. Laird, 846 S.W.2d 895, 900 (Tex. App.-Houston [1st Dist.] 1993, no writ); State v. Houston Lighting & Power Co., 609 S.W.2d 263, 268 (Tex. Civ. App.-Corpus Christi 1980, writ ref’d n.r.e.). The burden of proof is on the party seeking to establish the partnership. See Stephanz, 846 S.W.2d at 899; Ben Fitzgerald Realty Co. v. Muller, 846 S.W.2d 110, 120 [**19] (Tex. App.-Tyler 1993, writ denied). At his deposition, Craig New, President of Teco, testified as to his beliefs concerning the existence of a relationship independent of the Operating Agreement: Q. Okay. So now that we’ve said that, did you have any reason to believe that some type of partnership existed separate and apart from that when you signed this letter on July the 15th, 1987? A. Yes, sir, I did. Q. What did you believe existed? A. I believed that a partnership, a commercial partnership existed outside of these written documents. *** 6 Although Teco raises this argument in its rejoinder brief to this court, a review of the reporter’s record of the hearing on the motion to compel arbitration reflects that Teco abandoned its contention that there was a separate partnership: THE COURT: Well now, when you say the partnership there, let’s make it clear exactly what you’re talking about. *** MR. MCFALL [Counsel for Teco]: Talking about the TransTexas Pipeline Partnership, Your Honor. THE COURT: Okay. So we’re talking about the written partnership and not the oral or the implied partnership as has been alleged by the defendant, right? You’re claiming - what I’m trying to get clear is - see, what I get out of this is there’s two things. Clearly, there is a joint venture that everybody agrees is in existence. *** THE COURT: Then there is this other partnership theory that’s out there; is that right? MR. GLIDDEN [Counsel for Teco]: It’s not really another partnership. What it is is the scope of the partnership. We say that there are duties beyond what’s contained in the written agreement, they say there cannot be and as a result, they want to call what we’re saying are the additional duties some separate independent partnership or some contrived independent partnership and we aren’t saying that. We’re saying these guys are partners. The relationship is defined in part by the agreement and in part by what they do and in part by the law. And - *** THE COURT: Okay. Okay. So what we’re looking at right here today then, just to be clear, make it clear is whether or not these are stand alone causes of action, independent torts. MR. GLIDDEN: That’s right. Page 10 of 20 2 S.W.3d 576,[*585] ; 1999 Tex. App. LEXIS 6369, **19 Q. Now, what did you believe the terms of the partnership were on July the 15th, 1987? A. I believed that it was - on July 15, ’87, it was a partnership that existed between Valero and NorTex. Valero was the general partner or managing general partner. They were to conduct the business affairs, commercial affairs of the partnership. *** A. That Valero would manage this partnership. With respect to the division of profits and losses, New further testified: Q. And how were the partnership profits and expenses to be split up or accounted for? A. The - all of the revenues and all of the expenses were going to be divided, or [**20] were divided equally between the partners. Q. Was there any agreement that provided that? A. The - in the Operating Agreement, which was an agreement between Valero as operator and the partners, Valero and Teco, Valero was elected to be the operator and also had a long accounting procedure that was appended to that agreement that provided for accounting for revenues, costs, allocations of overhead, whatnot. Q. So you’re saying - are you saying that that procedure was what you thought was to be used for accounting for the partnership revenues and profits? A. Yes, sir, I believe that’s right. Teco also points to several documents, which it contends establishes the existence of a separate partnership. The first document is a Valero ″offering memorandum,″ which states, in part: In February, 1985, Valero sold a 50% undivided interest to Northern Natural Gas Company forming the TransTexas Pipeline Partnership. The second document is an internal Valero memorandum stating, in part: . . . whether TransTexas Pipeline Company (″TPC″), a joint venture between Valero Transmission, L.P. and TECO on the West Texas pipeline, can enjoin and/or prohibit the use of ″TransTexas Transmission [**21] Corporation″ (″TTC″) as the new name of TransAmerican Natural [*586] Gas Corporation due to similarity of name and possible customer confusion. The third document is the minutes of a meeting of the Management Committee stating: Need to structure TransTexas as Partnership - As a result of previous conversations between Teco and Valero concerning the TransTexas Extension Project, there was some thought given to drafting a partnership agreement between Teco and Valero to formalize the actions taken jointly as TransTexas Pipeline in the past. After some discussion, the Management Committee took the posture of ″if it isn’t broke, don’t fix it″ and tabled the issue pending any future input Teco may have on the matter. While concluding that a partnership existed, New did not testify as to any facts to support his conclusion. Without more, New’s belief that there was a separate partnership relationship between Valero and Teco is not probative evidence of a separate partnership. See Ben Fitzgerald Realty Co., 846 S.W.2d at 121 (finding mere Page 11 of 20 2 S.W.3d 576,[*586] ; 1999 Tex. App. LEXIS 6369, **21 legal conclusions by a lay witness do not prove existence of a partnership) (citing Murphy v. McDermott, Inc., 807 S.W.2d 606, 613 [**22] (Tex. App.-Houston [14th Dist.] 1991, writ denied)). Moreover, Teco has failed to present any evidence of an agreement to share either profits or losses. New’s belief that the partners would divide revenues and expenses in accordance with accounting procedures set forth in the Operating Agreement is not sufficient to establish an agreement to share profits or losses necessary to prove the existence of the separate partnership. If anything, this suggests the relationship is based on the Operating Agreement. HN6 Without an agreement providing for the sharing of profits and losses, there can be no partnership. See, e.g., Schlumberger Tech. Corp., 959 S.W.2d at 176; Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 288 (Tex. 1978); Ben Fitzgerald Realty Co., 846 S.W.2d at 121; Houston Lighting & Power Co., 609 S.W.2d at 268. With respect to the documents evidencing a separate partnership, we reach the same conclusion, i.e., without an agreement to share profits and losses there is no partnership agreement. See Grimmett, 907 S.W.2d at 2-3 (finding that although there were numerous documents reflecting [**23] the existence of a partnership, in addition to witness testimony of party representations of a partnership, there was no partnership in the absence of an agreement to share losses). HN7 A representation contained in a document or made to a third party that a partnership relationship exists constitutes a legal conclusion and is not determinative of the relationship. See 907 S.W.2d at 2 n.3 (citing Coastal Plains Dev. Corp., 572 S.W.2d at 288) (stating ″just as the words used by the parties in a contract do not necessarily control the substance of the relationship, the terms used by the parties in referring to the arrangement do not control″); see also Murphy, 807 S.W.2d at 613 (finding summary judgment proof that one party referred to another as a partner was a legal conclusion, which cannot give rise to an issue of disputed fact of the existence of a partnership). Accordingly, we find no evidence of any partnership separate from the joint venture established under the terms of the Operating Agreement. Agreement to Arbitrate Teco contends that even if its claims are based on the Operating Agreement, there is no agreement to arbitrate because [**24] the arbitration clause was revoked by the 1985 Settlement Agreement. Without an agreement to arbitrate, arbitration cannot be compelled. See Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994) (original proceeding) (per curiam). Teco asserts the May 1985 Settlement Agreement redefined the parties relationship and governed all aspects of the relationship in place of the four agreements, including the Operating Agreement, signed [*587] in February 1985. The May 1985 Settlement Agreement provides: 14.3 Governing Law and Jurisdiction. (b) Each party irrevocably consents and agrees that any legal action, suit or proceeding against any of them with respect to their obligations, liabilities, or any other matter under or arising out of or in connection with this Agreement may be brought in the United States District Court for the Western District of Texas, San Antonio Division, or in the courts of the State of Texas, and hereby irrevocably accepts and submits to the jurisdiction of each of the aforesaid court in personam, generally and unconditionally with respect to any such action, suit or proceeding for itself and in respect of its properties, assets and revenues. Teco asserts [**25] the above clause provides for the procedure to be used in future disputes, i.e., that the parties will go through judicial channels, not arbitration. Teco also asserts the intent to revoke the arbitration clause is signified by the merger clause contained in the Settlement Agreement. 7 [**26] We disagree with Teco’s contention. A review of the 1985 Settlement Agreement reflects that it did not revoke any clause to arbitrate. First, this clause refers to ″this Agreement.″ The first page of the 1985 Settlement 7 14.6 Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules attached hereto, constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof and supercedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, and there are no warranties, representation or other agreements between the Parties in connection with the subject matter hereof except as set forth specifically herein or contemplated Page 12 of 20 2 S.W.3d 576,[*587] ; 1999 Tex. App. LEXIS 6369, **26 Agreement shortens its title to the ″Agreement.″ Therefore, this provision applies to disputes arising out of the 1985 Settlement Agreement, not the previously executed Purchase, Operating, Ownership, and Transportation Agreements. Second, while the Settlement Agreement may have modified some select terms of the Purchase, Operating, Ownership, and Transportation Agreements, those modifications are expressly set forth. Section 14.10 of the Settlement Agreement specifically amends the Operating Agreement: 14.10 Operating Agreement Amendment. Simultaneously with the execution of this Agreement, Transmission and NorTex have executed Amendment No. 1 to Pipeline Operating Agreement in the form attached hereto as Schedule D. Amendment No. 1, as referenced above, relates to the direction of gas flow. Third, there is nothing to indicate that all the terms of those previous agreements have been superceded by the Settlement Agreement. If this were the case, [**27] then nearly all material aspects of the relationship between the parties would be left undetermined. On June 12, 1985, Valero Transmission Company and InterNorth entered into an agreement regarding the distribution of NorTex’s share of net revenues from its joint ownership of the TransTexas Pipeline. This agreement further provided: Should InterNorth, Inc. desire to audit the amount of such payment, then, notwithstanding the sale of NorTex to a third party, VTC will permit InterNorth, Inc. to audit such payment amount in accordance with the provisions of the Operating Agreement. Should a dispute arise as to such payment amount, such dispute shall be submitted to arbitration as set forth in the Operating Agreement. [*588] [emphasis added]. Article V of the Operating Agreement establishes how the revenues are to be shared between the joint venturers. A review of the Operating Agreement reveals no limitation on submitting any dispute under Article V to arbitration. The June 12, 1985 letter, which was entered into after the Settlement Agreement, indicates that the arbitration clause is still in full force and effect. Teco, however, argues that a letter dated February 10, 1986, between [**28] Valero and InterNorth confirms the revocation of the arbitration clause. In referencing Amendment No. 1 to the Purchase Agreement and Amendment No. 2 to the Operating Agreement, both dated January 1, 1986, the letter states, in relevant part: Execution of the attached Amendments by InterNorth and NorTex is not, and shall in no way be deemed or construed to be, a waiver of InterNorth’s or NorTex’s right or rights to pursue any remedies now or in the future, at law or in equity, with regard to any matter arising out of or in connection with the Purchase Agreement, dated February 28, 1985 or the Operating Agreement, dated February 28, 1985. Teco claims that NorTex was not waiving its right to pursue any remedies available to it with regard to matters arising from the Purchase and Operating Agreements and that all matters arising out of or connected with the Operating Agreement were not subject to forced arbitration. Valero responds by pointing out the letter agreement merely states the execution of the referenced amendments would not be interpreted as a waiver of any rights arising under the Operating Agreement, which includes compelling arbitration. Therefore, according to Valero, [**29] the letter agreement confirms that the right to compel arbitration under the Operating Agreement is still available. hereby. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided. Page 13 of 20 2 S.W.3d 576,[*588] ; 1999 Tex. App. LEXIS 6369, **29 On October 1, 1991, Valero and Teco amended several provisions of the Operating Agreement. One such modification concerned § 3.03, which pertains to how the Management Committee is to conduct its meetings. A comparison of the original Operating Agreement and the 1991 Amendment reveals a minor modification, otherwise leaving the entire section, including the reference to arbitration intact. It states, in part: ″matters which cannot be resolved by the Management Committee as set forth above shall be resolved by arbitration as provided in Exhibit B, Article C.″ The amendment reaffirms that the arbitration clause found in Exhibit B, Article C of the Operating Agreement, which is at issue here, is still in effect. Valero argues that even if the arbitration clause had been previously revoked, it was revived by its incorporation in the 1991 Amendment. Teco responds that any revival of the arbitration agreement was the result of fraudulent inducement or a mutual mistake. HN8 To establish fraud in the inducement in the formation of arbitration agreement, Teco must prove (1) a [**30] material representation was made, and (2) it was false. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex. 1999) (per curiam). Teco argues that had Valero fulfilled its duty to inform it that the 1991 Amendment would revive the arbitration clause, Teco would not have signed the amendment. Teco has not cited any record evidence in support of this assertion. Teco also refers to the mention of ″arbitration as provided in Exhibit B, Article C″ as a ″casual reference at the bottom of a long paragraph.″ Teco contends the inclusion of this reference is a mutual mistake because the parties never intended to revive the arbitration clause. ″HN9 The law presumes that a written agreement correctly embodies the parties’ intentions, and is an accurate expression of the agreement the parties reached in prior oral negotiations.″ See Estes v. Republic Nat’l Bank of Dallas, 462 S.W.2d 273, 275 (Tex. 1970). HN10 A mutual mistake occurs when both parties to a transaction have a belief [*589] in the present existence of a thing, material to the transaction, that does not exist. See United Interests, Inc. v. Brewington, Inc., 729 S.W.2d 897, 903 (Tex. App. [**31] -Houston [14th Dist.] 1987, writ ref’d n.r.e.). An example is when the parties to the contract have a common intention, but the written contract erroneously reflects that intention because of a mistake by both parties in writing the agreement. See id. Teco, as the party claiming relief, must show what the parties’s true agreement was and that the instrument incorrectly reflects that agreement because of a mutual mistake. See Estes, 462 S.W.2d at 275. Parole evidence is admissible to show mutual mistake. See id. Teco has failed to present any evidence to satisfy its burden of establishing mutual mistake. Finding there is no evidence that the arbitration agreement was revoked or that it was later revived as a result of fraudulent inducement or a mutual mistake, we conclude the arbitration clause remains in full force and effect. Scope of the Operating Agreement Teco further claims the Operating Agreement excludes the subject matter of its claims. Teco states § 2.11(D) of the Operating Agreement is the only provision covering third-party transportation transactions, which are at issue in the underlying litigation. According to Teco, § 2.11(D) specifically [**32] precludes arbitration of its claims: 2.11 Transportation Fee. *** (D) All Other Volumes. For all volumes of gas transported through the System other than those volumes set forth and described in Section 2.11(A) and (B), the Joint Venture shall charge such transportation fee as the Management Committee shall, within applicable regulatory contraints, determine to be appropriate. Notwithstanding any other provisions of this Operating Agreement, the failure of the Management Committee to agree upon a transportation fee for any proposed transportation service involving volumes described in this Section 2.11(d) shall be deemed to be a final decision not to perform such particular service and any dispute with regard to such decision shall not be submitted to arbitration. . . . Page 14 of 20 2 S.W.3d 576,[*589] ; 1999 Tex. App. LEXIS 6369, **32 Valero asserts this clause provides only that it is the Management Committee’s responsibility to set the transportation fee. If a party does not approve of the transportation fee or wants a reduction or an increase in a fee, then it must go to the Management Committee and request a change in the transportation fee. If the Management Committee cannot agree upon the transportation fee, neither party can force [**33] the decision to arbitration. Therefore, Valero contends it does not provide an exception to arbitration for all disputes over third party contracts. We agree. Teco’s claims revolve around Valero’s alleged diversion of business opportunities, the rerouting of gas to other pipelines owned by Valero, discounting services to customers in exchange for benefits to Valero, and usurping opportunities for pipeline interconnects and facilities. Teco’s claims do not involve the Management Committee’s failure to agree on a certain transportation fee. Therefore, we find Teco’s claims are not excluded from arbitration by the express terms of the Operating Agreement. Intertwining of Claims Teco also asserts that even if there is a valid arbitration agreement between the parties, its claims still do not come within the purview of the agreement. HN11 Once the existence of an arbitration agreement is shown, the party seeking to avoid the effects of the arbitration agreement may do so by establishing that the dispute is not within the terms of the agreement. See D. Wilson Constr. Co., 988 S.W.2d at 394. Whether the parties’ agreement imposes a duty to arbitrate is a matter of [*590] contract [**34] interpretation and a question of law for the court. See Kline, 874 S.W.2d at 782. Therefore, the language of the contract will be enforced according to its plain meaning unless such a reading would defeat the intentions of the parties. See D. Wilson Constr. Co., 988 S.W.2d at 394. Because this issue involves the trial court’s interpretation of the arbitration clause, de novo review is appropriate. See Nationwide, 969 S.W.2d at 520; Certain Underwriters, 950 S.W.2d at 377. HN12 In determining whether a tort claim falls within the scope of an agreement to arbitrate, the focus should be on the factual allegations contained in the petition rather than on the legal causes asserted. See Valero Energy Corp. v. Wagner & Brown, II, 777 S.W.2d 564, 566 (Tex. App.-El Paso 1989, writ denied). The test should be based on a determination of whether the particular tort claim is so interwoven with the contract that it could not stand alone or, on the other hand, is a tort completely independent of the contract and could be maintained without reference to the contract. Id. Arbitration is favored by Texas [**35] courts. See Fridl, 908 S.W.2d at 511; Hearthshire Braeswood Plaza Ltd. Partnership, 849 S.W.2d at 386. Therefore, any doubts regarding the scope of an arbitration agreement are to be resolved in favor of arbitration. See Emerald Texas, Inc. v. Peel, 920 S.W.2d 398, 403 (Tex. App.-Houston [1st Dist.] 1996, no writ); Fridl, 908 S.W.2d at 511. In support of its claims, Teco makes the following factual allegations and charges Valero with: 1) diverting business opportunities for the transportation of gas on the TransTexas Pipeline; 2) disconnecting gas from the TransTexas Pipeline and rerouting it to other Valero owned or controlled pipelines; 3) providing discounts to customers of the TransTexas Pipeline in exchange for benefits to Valero; 4) providing discounts without proper authorization; 5) discounting services on the TransTexas Pipeline to obtain higher fees for services on other facilities owned by Valero; 6) usurping opportunities for pipeline interconnects and facilities; and 7) knowingly and willfully acting to destroy the TransTexas Partnership in order to secure its own pecuniary interests. The Operating [**36] Agreement establishes a joint venture for the purpose of operating the pipeline. ^[8] [**37] Section 2.02 further provides for joint management and control of the pipeline, and the appointment of the 8 It states: Page 15 of 20 2 S.W.3d 576,[*590] ; 1999 Tex. App. LEXIS 6369, **37 operator. ^[9] Section 8.02 provides that Valero [*591] and Teco each has the right to use 50% of the pipeline to transport gas. Section 2.11 provides that when a party transports gas on the pipeline under its own contracts, it must account for the use by paying the Joint Venture joint tariff of 11.9 cents for the entire 337 miles or a proportionally reduced rate for shorter distances. Section 5.01 of the Operating Agreement establishes that revenues and costs are to be divided equally between the parties. With respect to the distribution of net revenues, section 5.02 further provides the distribution of net revenues is to be done in accordance with established accounting procedures. 10 To that end, Exhibit A to the Operating Agreement establishes [**38] the accounting procedures to be used in calculating net revenues for distribution. Teco’s causes of action depend upon the factual allegations that VTLP and Teco are joint venturers with respect to the pipeline, and that VTC is the operator. Teco asserts the purpose of the joint venture was to maximize third party revenues to be generated by the use of the pipeline. Essentially, Teco’s complaints allege improper discounting of third party transportation fees and diversion of partnership or joint venture business opportunities. The Operating Agreement establishes (1) the tariff charged for transporting gas on [**39] the pipeline, and (2) that each party has an equal right to use the pipeline. We find that Teco’s tort claims are so interwoven with the Operating Agreement that they cannot stand independent of it. Teco further argues the arbitration clause is too narrow in scope to include its tort claims. This assertion is based on the assumption that its tort claims are not related to the Operating Agreement. Teco contends that ″within″ is at least as narrow as the phrase ″arising under,″ which has been found to be too narrow to encompass unrelated torts. See Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (finding ″arising hereunder″ is intended to cover disputes relating to the interpretation and performance of the contract itself). In any event, this argument, however, has been rejected by the Valero Energy Corp. court. In developing the test for intertwining tort claims, the court found any difference in an agreement to arbitrate any dispute ″’arising under this contract’″ and ″’arising out of the contract’″ to be ″unnecessarily sophisticated.″ See Valero Energy Corp., 777 S.W.2d at 564; see also J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th WHEREAS, the Parties desire to create a joint venture solely for the purpose of providing for the operation, management and maintenance of the System and to appoint VTC as the Operator thereof; . . .″ *** 2.01 Creation of Joint Venture. VTC and NorTex hereby establish a joint venture having the exclusive right of operating, managing and maintaining the System for the purpose of sharing the net revenues derived therefrom as specified in Article V hereof. The joint venture shall be named the ″TransTexas Pipeline″ and shall be referred to herein as the ″Joint Venture″. The Joint Venture shall file appropriate corporate charter documents in the State of Texas to permanently preserve ″TransTexas Pipeline″. This Operating Agreement shall not govern each Party’s ownership interest in the assets of the System; the respective rights and obligations of each of the Parties as owners are set forth and governed under the terms of the Ownership Agreement. ^[9] Section 2.02 states: 2.02 Establishment of a Management Committee and Appointment of an Operator. For purposes of management of the System, the Parties hereby establish a Management Committee and assign the duties and responsibilities as specified in Article III hereof. The sole responsibility for setting policies for operating, maintaining and managing the System on behalf of the Joint Venture shall be vested in the Managment Committee. No Party shall be empowered to act on behalf of the Joint Venture except as specifically authorized by the Management Committee or otherwise provided herein. VTC is hereby appointed as the Operator of the System and shall provide the Joint Venture with all the services fully stated herein. . . . 10 Section 5.02 states: 5.02 Distribution of Net Revenues. The distribution of net revenues shall be as set forth in the Accounting Procedure, or as the Management Committee shall otherwise determine from time to time, for monies in excess of anticipated working capital requirements after payment of all operating, maintenance, general and overhead expenses from revenues received by the Joint Venture. Page 16 of 20 2 S.W.3d 576,[*591] ; 1999 Tex. App. LEXIS 6369, **39 Cir. 1988) [**40] (concluding difference between ″in connection with″ and ″may arise out of or in relation to″ is largely semantic). Moreover, to the contrary, we find the agreement to arbitrate ″any dispute with respect to any matter within the Operating Agreement″ is sufficiently broad to encompass related torts. See, e.g., Acevedo Maldonado v. PPG Indus., Inc., 514 F.2d 614, 616 (1st Cir. 1975) (″any claim or controversy arising out or relating to this agreement″ broad enough to cover related torts); Griffin v. Semperit of Am., Inc., 414 F. Supp. 1384, 1387 (S.D. Tex. 1978) (same). Nonparties to the Agreement to Arbitrate Teco argues that, even if its claims come within the terms of the Operating Agreement and the arbitration clause is still in full force and effect, only VTLP, as joint owner in the pipeline, and VTC, as operator of the pipeline, are entitled to arbitration. The remaining 25 Valero defendants are not parties to the Operating [*592] Agreement and, therefore, may not seek enforcement of an arbitration agreement to which they are not parties. In support of this contention, Teco relies on a case from the First Court of Appeals. See Pepe Int’l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 930 [**41] (Tex. App.-Houston [1st Dist.] 1996, no writ). In Pepe Int’l Dev. Co., PIDCO and Pub entered into two contracts under which Pub would sell goods and provide services to PIDCO related to the construction of breweries in the Republic of Kazakhstan. See Pepe Int’l Dev. Co., 915 S.W.2d at 928. The contracts contained arbitration clauses. See id. PIDCO canceled the contracts with Pub for material breach. See id. Pub sued PIDCO, Moffett, secretary of PIDCO, Chappelle, president of PIDCO, and Pepe International, Inc. See id. The defendants sought arbitration. See id. Pub argued only PIDCO was a party to the contracts and that any matter resolved through arbitration would not be enforceable as against Moffett, Chappelle, and Pepe International. See Pepe Int’l Dev. Co., 915 S.W.2d at 930. The court found the breach of contract claim against PIDCO clearly fell within the scope of the arbitration clause. See id. at 931. The individual claims against Moffett, Chappelle, and Pepe International, however, fell outside the scope of the arbitration clauses. See id. at 931. The court observed that Moffett, Chappelle, and Pepe International were not signatories to [**42] the contract and, therefore, were not subject to the contracts’ provisions. See id. Valero contends that because Teco has sued nonsignatories to Operating Agreement, and the allegations against the nonsignatory Valero defendants are fundamentally grounded in obligations arising from the Operating Agreement, Teco is equitably estopped to deny the enforceability of the arbitration clause by the nonsignatory Valero defendants. Valero cites a number of cases in support of this argument. Teco maintains that Valero’s estoppel argument is not applicable here because that theory has been decided under the Federal Act, not the Texas Act. See, e.g., Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757-58 (11th Cir. 1993); McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984); Hughes v. Masonry Co. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 841 n.9 (7th Cir. 1981); Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976). Teco also argues the estoppel theory is not applicable here because its claims are not fundamentally grounded or [**43] intertwined with any obligation arising from the Operating Agreement, but instead, are related to its and the joint venture’s existing contracts and prospective relationships with third parties. This court, however, has previously considered the equitable estoppel theory. See Carlin v. 3V, Inc., 928 S.W.2d 291 (Tex. App.-Houston [14th Dist.] 1996, no writ). Francesco Carlin (″Carlin″) and SIGMA entered into a contract (″1981 Italian agreement″). See id. at 292. SIGMA and 3V are sister corporations and wholly owned subsidiaries of 3V Partecipazioni Industrial S.p.A. See id. The parent and subsidiary corporations manufacture, sell, and distribute specialty chemical products. See id. Under the 1981 Italian agreement, Carlin was to provide technical expertise with respect to the development of PVC suspendants, ″Polivic.″ See id. Prior to the Page 17 of 20 2 S.W.3d 576,[*592] ; 1999 Tex. App. LEXIS 6369, **43 termination of the 1981 Italian agreement, SIGMA assigned to 3V the rights to sell, manufacture, and distribute Polivic. See id. After the 1981 Italian agreement expired, Carlin and others developed other PVC suspendants. See id. 3V sued Carlin and Compagnia Italiana Di Ricerca e Sviluppo [**44] S.R.L. (″CIRS″) for breach of the 1981 Italian agreement and related torts. See id. at 292-93. 3V argued because it was not a party to the 1981 Italian agreement, it was not bound by its terms, including the arbitration agreement. See id. at 294. This court disagreed, first noting that 3V based its entire case on the rights it acquired in the [*593] 1981 Italian agreement and would have no case if the agreement did not exist. See id. at 295. The Carlin court noted that other cases, a finding that the claims of the nonsignatory party arise out of an agreement containing an arbitration clause, and the nonsignatory would have no claim in the absence of the underlying agreement, the arbitration clause was enforceable against the nonsignatory. See id. at 295-96 (citing J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988) (stating that when the claims against a parent company and its subsidiary are based on the same facts and are inherently inseparable, a court may refer claims against the parent to arbitration even though the parent is not formally a party to the arbitration [**45] agreement); Merrill Lynch v. Eddings, 838 S.W.2d 874, 879 (Tex. App.-Waco 1992, writ denied) (holding that nonsignatory settlor and trust beneficiaries could be compelled to arbitrate under account agreement between trustee and Merrill Lynch, which contained an arbitration clause, because agreement was the underlying basis for all the claims of the beneficiaries and there would have been no claims without the agreement)). In a discussion on the doctrine of equitable estoppel, the Carlin court observed that cases applying the doctrine were decided on the same ultimate fact, i.e., that each party must rely on the terms of the written agreement in asserting its claims. See 928 S.W.2d at 296 (citing Sunkist Soft Drinks, Inc., 10 F.3d at 757-58; J.J. Ryan & Sons, Inc., 863 F.2d at 320-21; McBro Planning & Dev. Co., 741 F.2d at 344; Hughes Masonry Co., 659 F.2d at 841 n.9). Moreover, the focus of the inquiry in each case was a determination of the nature of the underlying claims asserted by the party resisting arbitration, and whether these claims were within the scope of the arbitration clause contained [**46] in the agreement. See id. The Carlin court, finding that all of 3V’s claims arose out and were directly related to the 1981 Italian agreement, concluded 3V was equitably estopped from avoiding arbitration of its claims even though it was not a signatory to the agreement. See Carlin, 928 S.W.2d at 297. Here, Teco has alleged the other Valero defendants are either subsidiary, parent, or sister corporations of VTLP and VTC, or in the case of McLelland and Greehey, officers and directors of the various Valero defendants. Teco has brought the same claims against the nonsignatory Valero defendants as against VTLP and VTC. Specifically, Teco asserts that the Valero defendants acted ″in concert to thwart the legitimate purposes of the Partnership.″ Having already found Teco’s claims come within the scope of the Operating Agreement’s arbitration clause, we conclude Teco must rely on the terms of the Operating Agreement in asserting its claims against the nonsignatories. Because Teco’s claims against VTLP, VTC, and the other defendants are based on the same operative facts and are inherently inseparable, we hold the nonsignatory Valero defendants may also compel arbitration of Teco’s claims against [**47] them. See Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976) (explaining because the claims against nonsignatory defendants, including the parent corporation of signatory defendant, were based on the same operative facts and were inherently inseparable from the claims against the signatory defendant). 11 [**48] [*594] Waiver 11 Moreover, several federal circuit decisions have found that nonsignatories to arbitration agreements may be bound by the agreement under ordinary contract and agency principles. See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1122 (3d Cir. 1993) Page 18 of 20 2 S.W.3d 576,[*594] ; 1999 Tex. App. LEXIS 6369, **48 HN13 Finally, Teco argues Valero has waived enforcement of the arbitration clause by its previous litigation. A party waives its right to arbitration if it substantially invokes the judicial process to the detriment of the opposing party. See Turford v. Underwood, 952 S.W.2d 641, 643 (Tex. App.-Beaumont 1997, orig. proceeding); Marble Slab Creamery, Inc. v. Wesic, Inc., 823 S.W.2d 436, 438 (Tex. App.-Houston [14th Dist.] 1992, no writ). To establish waiver, Teco bears the burden of showing Valero acted inconsistently with the arbitration agreement and that it was prejudiced by such conduct. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 574; Turford, 952 S.W.2d at 643. There is a strong presumption against waiver, which must be intentional and may only be implied from a party’s actions if the facts demonstrate that the party seeking to enforce arbitration intended to waive its arbitration right. See Turford, 952 S.W.2d at 643. Therefore, any doubts regarding waiver should be resolved in favor of arbitration. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 574. [**49] Whether a party waives arbitration is a question of law. See id.; Nationwide of Bryan, Inc., 969 S.W.2d at 521. In 1985, Valero filed suit against InterNorth, NorTex and HNG when InterNorth merged with HNG to form Enron. Valero asserted the merger violated NorTex’s fiduciary duties under the Ownership Agreement. In 1987, Valero sued Enron, NorTex and Teco in an attempt to block the sale to Teco. Teco argues that Valero’s bringing this previous litigation waives its right to enforce arbitration in the underlying litigation. Teco, in particular, complains the Ownership Agreement includes an arbitration clause similar to the one found in the Operating Agreement. Several courts have rejected similar contentions. See, e.g., Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159 (5th Cir. 1987) (finding that a party who brings or participates in previous litigation does not forfeit the contractual right to compel arbitration as to all future disputes on the same contract); Insurance Co. of N. Am. v. J.A. Jones Constr. Co., 1995 U.S. Dist. LEXIS 6553, 1995 WL 295280, at *4 (E.D. La. 1995) (same); Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 593 [**50] (Tex. App.-Dallas 1991, writ dism’d w.o.j.) (stating that appellee’s argument that appellant had settled a previous dispute without compelling arbitration is ″of no import in the instant case″). ″HN14 It has long been the law in this state that even though a party may have once waived a contract right in the past, it may enforce that right in the future by giving notice of its intention to do so.″ Transwestern Pipeline Co., 809 S.W.2d at 592. The United States Fifth Circuit Court of Appeals has addressed facts similar to those at hand. In Lawrence v. Comprehensive Bus. Servs. Co., Comprehensive had sued the Lawrences in Illinois small claims court for payment of services it had provided under a franchise agreement, and obtained a judgment. 833 F.2d at 1161. The Lawrences, in turn, sued Comprehensive in Texas state court seeking a declaratory judgment that the agreement was illegal and unenforceable, therefore, freeing them of any further liability under it. See id. Comprehensive removed that cause of action to federal court and moved to stay the litigation and compel arbitration pursuant to the arbitration clause in the franchise agreement. See id. [**51] The Lawrences argued Comprehensive had waived arbitration by its earlier action on the same agreement. See 833 F.2d at 1164. The court found Comprehensive’s previous suit in Illinois did not substantially invoke the judicial process to the Lawrences’ detriment in the present suit. See 833 F.2d at 1165. The court further observed the Lawrences [*595] had not suggested Comprehensive either delayed its demand for arbitration or shown the earlier suit prejudiced their present claim. See id. Similarly, Teco has not claimed Valero either delayed its demand for arbitration or explained how any previous litigation prejudices arbitration of its present claims. We hold Valero has not waived its right to enforce arbitration. (claims against sister corporation fall within arbitration agreement based on agency principles); Arnold v. Arnold Corp.-Printed Communications for Bus., 920 F.2d 1269, 1282 (6th Cir. 1990) (nonsignatory defendants allegedly committed acts related to running of corporation in shareholder suit); Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986) (individual defendants’ allegedly wrongful acts related to handling of plaintiff’s securities account as agents of brokerage house). Teco alleges the Valero defendants acted as agents by entering into third party transportation contracts on behalf of the joint venture. Page 19 of 20 2 S.W.3d 576,[*595] ; 1999 Tex. App. LEXIS 6369, **51 Conclusion We sustain both of Valero’s points of error. Accordingly, the judgment of the trial court is reversed and remanded for proceedings consistent with this opinion. Our opinion moots all pending motions which were taken with the case. /s/ John S. Anderson Justice Judgment rendered and Opinion filed August 26, 1999. Panel consists of Chief Justice Murphy and Justices Anderson and Edelman. Page 20 of 20 | | Caution As of: September 1, 2015 4:57 PM EDT Willis v. Donnelly Supreme Court of Texas November 17, 2005, Argued ; June 2, 2006, Opinion Delivered No. 04-0409 Reporter 199 S.W.3d 262; 2006 Tex. LEXIS 505; 49 Tex. Sup. J. 661 MICHAEL T. WILLIS, FRANCIE WILLIS, URBAN RETREAT OF HOUSTON, INC., AND WILLIS HITE ENTERPRISES, INC., PETITIONERS, v. DAN DONNELLY, RESPONDENT Subsequent History: [**1] Released for Publication September 22, 2006. Rehearing denied by Willis v. Donnelly, 2006 Tex. LEXIS 1000 (Tex., Sept. 22, 2006) Prior History: ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FOURTEENTH DISTRICT OF TEXAS. Willis v. Donnelly, 118 S.W.3d 10, 2003 Tex. App. LEXIS 9176 (Tex. App. Houston 14th Dist., 2003) Core Terms letter agreement, stock, shareholder, court of appeals, damages, fiduciary duty, corporations, ratification, shares, spa, breach of fiduciary duty, Termination, ratified, loans, matters relating, contract claim, trial court, stock transfer, gross revenue, matter of law, new trial, individually, benefits, breach of contract, contract damages, no evidence, real estate, circumstances, argues, losses Case Summary Procedural Posture Petitioners, two corporations and their majority shareholders, sought review of a judgment from the Court of Appeals for the Fourteenth District (Texas), which affirmed the trial court’s judgment against the majority shareholders on respondent investor’s claim for breach of fiduciary duty. The court of appeals reversed the trial court’s judgment on a contract claim and remanded that claim to the district court for a new trial. Overview The majority shareholders created two corporations to own and manage a spa. The parties signed an agreement that provided for the investor to transfer a hair salon business to one of the corporations. One of the majority shareholders stated that he did not intend to be personally liable and crossed out an individual signature block where his name was typed. The investor had no prior business or personal dealings with the majority shareholders. The investor agreed to delay a transfer of stock to him. The parties disputed whether the majority shareholders had made loans or capital contributions. The court held that the majority shareholders were not liable on the contract claim because they were not parties to the agreement. A common law ratification claim 199 S.W.3d 262,[*262] ; 2006 Tex. LEXIS 505, **1 was precluded by Tex. Bus. Orgs. Code Ann. §§ 21.223(a), 21.224 and also lacked merit because the corporations did not act as the majority shareholders’ agents. The breach of fiduciary duty claim failed because no personal relationship existed and the alleged acts occurred before the investor became a shareholder. As to the contract claim against the corporations, the jury was instructed on the wrong measure of damages. Outcome The court reversed in part the court of appeals’ judgment and rendered a take-nothing judgment on all of the investor’s claims against the majority shareholders. The court affirmed the court of appeals’ judgment insofar as it granted a new trial on the contract claim against the corporations, and the court remanded to the district court for further proceedings. LexisNexis® Headnotes Civil Procedure > Appeals > Reviewability of Lower Court Decisions > Preservation for Review HN1 As a general rule, a petitioner’s complaint about a trial court’s judgment must be raised in the court of appeals to preserve error in the Texas Supreme Court. However, a party should not lose its right to appeal based on an unduly technical application of procedural rules. Business & Corporate Law > ... > Shareholders > Shareholder Duties & Liabilities > Personal Liability HN2 A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation’s contractual obligations. Avoidance of personal liability is not only sanctioned by the law; it is an essential reason that entrepreneurs choose to incorporate their businesses. Business & Corporate Law > ... > Shareholder Duties & Liabilities > Piercing the Corporate Veil > General Overview Business & Corporate Law > ... > Shareholders > Shareholder Duties & Liabilities > Personal Liability HN3 A shareholder may not be held liable to the corporation or its obligees with respect to any contractual obligation of the corporation on the basis that the holder is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory. Tex. Bus. Orgs. Code Ann. § 21.223(a). The liability of a shareholder for a contractual corporate debt under this statute is exclusive and preempts any other liability imposed for that obligation under common law or otherwise. Tex. Bus. Orgs. Code Ann. § 21.224. There is a statutory exception to this rule where the shareholder caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the shareholder. Tex. Bus. Orgs. Code Ann. § 21.223(b). There is also a statutory exception where the shareholder expressly agrees to be personally liable to the obligee for the obligation. Tex. Bus. Orgs. Code Ann. § 21.225(1). Business & Corporate Law > ... > Shareholder Duties & Liabilities > Piercing the Corporate Veil > General Overview Business & Corporate Law > ... > Shareholders > Shareholder Duties & Liabilities > Personal Liability HN4 To impose liability against shareholders under a common law theory of implied ratification because they accepted the benefits of an agreement made by the corporation would contravene the statutory imperative that, absent actual fraud or an express agreement to assume personal liability, a shareholder may not be held liable for contractual obligations of the corporation. Characterizing the theory as ″ratification″ rather than ″alter ego″ is simply asserting a similar theory of derivative liability that is covered by Tex. Bus. Orgs. Code Ann. § 21.223(a). Page 2 of 17 199 S.W.3d 262,[*262] ; 2006 Tex. LEXIS 505, **1 Business & Corporate Law > Agency Relationships > Ratification > General Overview HN5 Generally, ratification is a doctrine of agency law, and allows a principal to be bound by an agent’s unauthorized contract in circumstances where the principal becomes aware of the contract and retains benefits under it. Ratification presupposes that the principal has an agent who, by agreement, is authorized to act on the principal’s behalf. Business & Corporate Law > ... > Corporate Formation > Preincorporation > Incorporators & Promoters HN6 A promoter is not liable where a contract is made in the name and solely on the credit of the proposed corporation and the contracting party knows that the corporation does not yet exist. Civil Procedure > ... > Jury Trials > Jury Instructions > Objections Civil Procedure > Appeals > Reviewability of Lower Court Decisions > Preservation for Review HN7 A complaint about a defective jury instruction is waived unless specifically included in the objections to the charge. Tex. R. Civ. P. 274. Civil Procedure > Trials > Jury Trials > Province of Court & Jury Contracts Law > Contract Interpretation > General Overview HN8 The construction of an unambiguous contract is a question of law for the court. Contracts Law > Contract Interpretation > Fiduciary Responsibilities HN9 Generally, while a fiduciary relationship or confidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from the agreement made the basis of the suit. Contracts Law > Contract Interpretation > Fiduciary Responsibilities HN10 Where a plaintiff is suing for breach of fiduciary duty based on his purported status as a minority shareholder, but (1) no transfer of stock to the purported minority shareholder ever occurred, (2) the purported majority and minority shareholders were both experienced businessmen who had never met prior to the business arrangement at issue, (3) the two were conducting business under a written agreement that expressly required corporate entities, not the majority shareholder, to issue the stock, and (4) the two were also operating under an oral agreement to postpone the transfer of stock when the alleged breaches of fiduciary duty occurred, Texas law does not recognize the existence of a fiduciary duty. This is consistent with the general reluctance of Texas law to ignore corporate formalities and hold an individual defendant liable where the plaintiff has agreed to conduct business with a corporation. It is also consistent with the courts’ reluctance to recognize fiduciary relationships, especially in the commercial context. In order to give full force to contracts, courts do not create such a relationship lightly. Judges: JUSTICE WILLETT delivered the opinion of the Court. JUSTICE O’NEILL, JUSTICE BRISTER, and JUSTICE MEDINA did not participate in the decision. Opinion by: WILLETT Page 3 of 17 199 S.W.3d 262,[*262] ; 2006 Tex. LEXIS 505, **1 Opinion [*265] JUSTICE WILLETT delivered the opinion of the Court. This dispute centers on whether shareholders in closely held corporations can be held liable to an individual who agreed to a contractual business arrangement with the corporations. We agree with Petitioners Michael and Francie Willis (the Willises) that they cannot be held liable to Respondent Dan Donnelly under breach of contract and breach of fiduciary duty theories. We address other issues as well. I. Background A. Factual Background Michael Willis (Willis) is a successful Houston entrepreneur. In the late 1980s, he became intrigued with the idea of opening a high-end spa, where customers could receive hair styling and other personal services such as manicures and massages. He hired Richard Hite as a consultant to help develop the idea. Willis also received assistance from Charles Gebhardt, [**2] an accountant. The business plan called for the spa to be named the Urban Retreat. Willis and others created two corporations to carry out the plan. One of the corporations would operate the initial spa. If the business succeeded a second corporation would serve as an umbrella company. The plan was eventually to ″roll up″ the separate spas into a single company if the concept worked in multiple locations. In March 1989 Willis/Hite Enterprises, Inc. was incorporated, and the corporation was later renamed Urban Retreat of Houston, Inc. (URH). Willis and Gebhardt were the original shareholders of URH. In August 1989, a second company called Willis/Hite Enterprises, Inc. (WHE) was incorporated as the umbrella company. Willis, Gebhardt, and Bill Caudell were the original shareholders of WHE. URH and WHE were separate corporations, and one was not the subsidiary of the other. URH and WHE are Petitioners to this appeal along with the Willises. The articles of incorporation of URH and WHE name Willis, Hite, and Gebhardt as the original directors. Willis became the chairman of URH, and Hite was elected its president. Hite contacted Dan Donnelly (Donnelly), a successful hair stylist. Donnelly [**3] was the co-owner of Hairmasters of Houston, Inc. [*266] (Hairmasters), an incorporated business operating a hair salon. Hite and Willis met informally with Donnelly and discussed the idea for the spa. Donnelly had no prior business or personal dealings with Willis. With drafting assistance from Gebhardt, Hite and Willis eventually signed a letter agreement that lies at the heart of this dispute. The agreement is typed but has numerous handwritten changes initialed by Hite and Donnelly. Gebhardt testified that Willis ″didn’t have anything to do with″ the drafting of the agreement. There are several drafts of agreements concerning the Urban Retreat, and the record is uncertain as to when earlier drafts of the letter agreement were prepared and circulated. Donnelly showed a draft of the agreement to his lawyer and signed the final agreement on July 10, 1989, at a meeting attended by Donnelly, Hite, Willis, and Gebhardt. Donnelly signed as president of Hairmasters and individually. The only other person who signed the agreement was Hite, who signed as president of WHE and individually. The agreement states in its opening sentence that it is ″a letter agreement between [WHE], Richard H. Hite, [**4] Mike Willis, and [URH], and Daniel Donnelly and [Hairmasters].″ A signature block at the end of the agreement was typed for ″Mike Willis, Individually,″ but Willis crossed out this signature block at the July 10 meeting where the agreement was signed, and did not sign or initial the agreement. Donnelly testified that he signed the agreement after Willis’s name was crossed out. Willis testified that he crossed his name out to make Page 4 of 17 199 S.W.3d 262,[*266] ; 2006 Tex. LEXIS 505, **4 clear he did not agree to be bound in his individual capacity. Donnelly’s expert witness testified that because Willis removed himself as an individual signatory to the agreement, ″Mr. Willis did not intend to be a part of this agreement.″ Gebhardt testified that at the meeting where the agreement was signed, Willis made comments to the effect that he would not be individually responsible under the agreement, and Gebhardt passed these comments along to Hite and Donnelly. The agreement obliged Donnelly to transfer the entire Hairmasters business to URH, but qualified this obligation with some ″best efforts″ language. ^[1] It provided that Donnelly ″will have the responsibility to oversee the management of the day to day operations of the URH facility.″ [**5] The agreement provided that WHE and URH agree to issue Donnelly twenty-five percent ownership in URH within twelve months of the URH ″Grand Opening,″ or when URH’s gross revenues reached Hairmasters’ 1988 annual gross revenues, whichever occurred first. It provided for additional stock transfers as various revenue targets for URH are met. It separately stated that WHE would issue Donnelly ten percent ownership in WHE under the same terms as the initial transfer of URH stock. It provided that Donnelly would receive a salary of $ 110,000, and a salary equal to five percent of URH’s gross revenues after two years. As discussed further below, the parties disputed the applicability of two other provisions of the letter agreement, the ″Termination″ provision and the provision for ″Other Matters Relating to Shares.″ Donnelly [*267] argues by cross petition that the latter provision supplied the measure of damages for the failure to issue stock to him under the agreement. Willis argues that this provision is inapplicable to the dispute. To create the Urban Retreat facility, Hite located a piece of property on San Felipe Drive. River Oaks Bank owned the property. URH obtained an $ 800,000 renovation [**6] loan for this property and a lease from the bank. URH and WHE were initially capitalized with only $ 1,000 each and were not creditworthy. Willis personally pledged a $ 600,000 certificate of deposit to secure the loan and guaranteed URH’s lease. The Urban Retreat facility had its grand opening on December 12, 1989. Donnelly moved into the spa and began cutting hair and managing of the facility. The spa was not profitable. Donnelly testified that he ″knew it wasn’t making money.″ Willis loaned money to URH to keep the business afloat. He eventually loaned URH approximately $ 2 million. Much of the trial focused on the characterization of Willis’s cash infusions into the business as loans and whether Willis failed to live up to a promise to provide capital. The debate extended to battling experts. ^[2] Willis and Hite claimed they told Donnelly that the funds provided by Willis were loans as opposed to capital contributions. The balance sheets and the tax returns of URH describe the funds from Willis as loans, and Petitioners offered evidence that Donnelly was shown the financial records and attended meetings where the loans were discussed. While Willis testified that he agreed to ″provide [**7] the capital″ or to ″provide capital and funding,″ his testimony as a whole was clear that, with the exception of his initial $ 1,000 contribution, he 1 The agreement states: [Hairmasters] and any additional businesses owned by Daniel Donnelly and operating on its premises will transfer their entire operations, staff, and clientele to the URH premises on a date initiated by Richard H. Hite . . . . Mr. Donnelly will agree to use his best efforts to persuade his entire staff and Hairmasters’ present clientele to transfer to the URH. ^[2] One of Willis’s expert witnesses, an accountant, claimed that treating the cash infusions as capital contributions would mean that Willis was in effect making a gift to Donnelly once Donnelly received his stock in the corporation. One of Donnelly’s expert witnesses, a tax lawyer, stated that the IRS would want to characterize the infusions as capital contributions rather than loans. Page 5 of 17 199 S.W.3d 262,[*267] ; 2006 Tex. LEXIS 505, **7 viewed these cash infusions into URH as loans. Hite likewise viewed the cash infusions as loans. Donnelly testified that he was told that ″Mike’s putting in the money,″ but conceded that ″[t]hey did not tell me it would not be a loan.″ Regardless, the letter agreement did not expressly obligate Willis to provide any capital contributions to URH, or to provide loans for that matter. The parties contested whether Donnelly fully transferred his hairstyling business to Urban Retreat [**8] as promised. As described above, the letter agreement is somewhat vague as to this obligation, requiring Hairmasters and Donnelly to ″transfer their entire operations, staff, and clientele″ to the Urban Retreat, but also stating that Donnelly was only required to use his ″best efforts″ to persuade his staff and clientele to transfer to URH. Although the spa was losing money, it generated sufficient gross revenues to trigger the provisions in the letter agreement requiring the issuance of stock to Donnelly. Because the spa was so unprofitable, however, Willis asked Donnelly if he would agree to a reduced stock interest. Willis also asked Donnelly if he would agree to sign on to some of the spa’s debt. Donnelly refused. Donnelly claims that Willis unilaterally cut his salary. Willis also asked Donnelly if he would agree to delay the transfer of stock due to him under the letter agreement, and the trial testimony confirms that both Willis [*268] and Donnelly agreed to this delay. ^[3] [**10] Donnelly states in his respondent’s and cross petitioner’s briefs that he ″agreed to wait, based on Willis’s assurances that he would live up to the Letter Agreement when the business ’turned the corner.’″ He made [**9] the same statement to the court of appeals. Willis wanted the transfer delayed until the spa turned the corner financially, because the delay supposedly allowed Willis to continue to take losses on the business on his personal tax 3 Donnelly testified: Q: Well, tell me about that discussion where you specifically asked [Willis] to give you the stock. A: Well, I didn’t make a demand on Mr. Willis, obviously, because he continually told me that we were--that there was a point--from day one, the revenues kept increasing every year; but the place still wasn’t profitable. And the conversations we had . . . were to the effect that once we turned the corner . . . that he could at some point live up to the letter agreement. ... Q: Did you ever ask any officer or director of the corporations to issue you any stock? A: I did not. *** Q: Do you remember in your deposition you told me he said, ″Is it all right if I don’t issue you the stock at this time?″ A: ″Is it all right?″ In the first--I believe it was after the first year of business. Q: He asked you that question? A: Right. Q: And you agreed? A: Yes, I did. Page 6 of 17 199 S.W.3d 262,[*268] ; 2006 Tex. LEXIS 505, **9 returns. ^[4] Willis and Donnelly gave consistent and uncontradicted testimony confirming this oral agreement, and there was no evidence that, during Donnelly’s employment with URH, he ever withdrew his consent to delay the transfer of stock. The stock was never issued to Donnelly. Willis asked his wife, Francie Willis (Francie), to become involved in the spa. Willis hoped that Francie could turn the business around. Purportedly to enhance her credibility at the spa, Willis transferred all of his stock in URH to Francie in late 1990. 5 [**11] In July 1992, Willis and Francie purchased the real estate on which the spa was located for $ 1.6 million. Although URH had an option to purchase the realty under its lease with River Oaks Bank, URH did not have the funds to purchase the property. Willis saw this purchase as a means of recouping some of the funds he had lent to URH to improve the premises. Francie and Donnelly did not get along. Donnelly made plans to open a competing spa, and when Francie found out about these plans in late 1994, she testified that she confronted Donnelly and ″asked him to leave and not come back,″ but also testified in her deposition that Donnelly left by mutual agreement. The income statements and tax returns for URH indicate that it was never profitable during Donnelly’s employment. Hite and Petitioners’ accounting expert likewise testified that URH was not profitable during [*269] this period and had a negative book value. Donnelly’s experts did not refute this lack of earnings, but instead focused on gross revenues. As of the time of trial in 1999, the Urban Retreat was still unprofitable according to Francie Willis and Urban Retreat’s then-current general manager, although Francie admitted that [**12] she had testified in her deposition that she ″wouldn’t take $ 5 million for the Urban Retreat.″ The court of appeals noted that ″Urban Retreat’s liabilities and costs have always outstripped its tangible assets and revenue.″ 118 S.W.3d 10, 40. A separate dispute arose between Willis and Donnelly. In 1992, for personal financial reasons, Donnelly asked Willis for a loan of $ 18,000. Willis agreed and Donnelly signed a promissory note. Willis made a second personal loan to Donnelly and the two loans were rolled into a single note. Donnelly defaulted on the note. B. Proceedings Below This suit began when Willis sued Donnelly on the personal note. Donnelly filed a counterclaim and third party action against Willis, Francie, WHE, and URH, alleging several causes of action. The case proceeded to trial, 4 Willis testified: Mr. Donnelly, in one of our meetings, he mentioned to me, you know, the time frame is up for the corporation to issue him some stock. . . . And the way Sub S Corporations work is the losses go directly to the shareholders. And Mr. Donnelly had no, what’s known as basis, in those losses and, therefore, he couldn’t take any of the . . . tax losses . . . . So I just, I asked Dan if it would be okay if I delayed issuing the stock, because the losses were still coming in, and I could get the tax benefit of those losses. A: Did he agree with that? Q: He did. Donnelly disputes that only Willis was qualified to take advantage of the tax losses. ^[5] Donnelly complains in his respondent’s brief that Willis transferred his shares to Francie ″in spite of Donnelly’s right of first refusal under the Letter Agreement,″ but points to no record evidence that he had the desire or financial means to purchase Willis’s shares under the terms of the agreement. Page 7 of 17 199 S.W.3d 262,[*269] ; 2006 Tex. LEXIS 505, **12 and the jury ruled in favor of Willis on the promissory note. The jury found that WHE and URH breached the letter agreement by failing to convey stock to Donnelly, and that Donnelly was entitled to ten percent of the stock in WHE and fifty percent of the stock in URH under the terms of the letter agreement. The jury also found that Willis and Francie were individually [**13] liable under the letter agreement because they ratified the agreement. The jury rejected Donnelly’s tortious interference and fraud claims. It ruled in favor of Donnelly on his breach of fiduciary duty claim against Willis but found no breach of fiduciary duty by Francie. The jury was instructed that the Willises owed Donnelly a fiduciary duty, and asked whether each complied with their fiduciary duty to Donnelly. Since the jury was also instructed that a ″yes″ answer must be based on a preponderance of the evidence, the Willises had the burden of proving that they had complied with their fiduciary duties in order to avoid liability. As to both the breach of contract and breach of fiduciary duty claims, the jury found damages of $ 1,707,684.30. The trial court entered judgment against Donnelly on the promissory note. It entered judgment against Willis, Francie, URH, and WHE, jointly and severally, on Donnelly’s breach of contract claim, and entered judgment against Willis on Donnelly’s breach of fiduciary duty claim, in the amounts found by the jury. As further relief the court awarded a constructive trust in favor of Donnelly on the Urban Retreat real estate, and on fifty percent [**14] of the URH’s issued and unissued stock and ten percent of WHE’s issued and unissued stock. It awarded attorney’s fees of $ 400,000 to both sides as found by the jury. Both sides appealed. The court of appeals held that the record supported the liability of all Petitioners for breach of contract. 118 S.W.3d at 25-30. It agreed with the trial court that the Willises were liable for breach of contract because they ratified the letter agreement. Id. at 26. However, it reversed the judgment on the contract claim and remanded this portion of the case to the district court for a new trial on liability and damages, because it concluded that the jury had received an erroneous instruction on contract damages. Id. at 39-42. The court of appeals affirmed the judgment against Willis for breach of fiduciary duty, except that it remanded the judgment [*270] for constructive trust on the realty for an election of remedies. Id. at 30-35, 43-44. It reversed and remanded the portions of the judgment awarding attorney’s fees to Willis and Donnelly. Id. at 44-48. II. Discussion A. Breach of Contract 1. Liability [**15] of the Willises Individually The Willises argue that their contract liability based on a ratification theory fails as a matter of law. We agree. The jury found that the Willises had ratified the letter agreement. The court of appeals held that the Willises can be held liable for breach of contract based on this jury finding, and further held that they had waived any argument that the evidence is insufficient to support liability on the contract based on ratification. Donnelly argues that the court of appeals correctly held that the Willises had waived any argument that they cannot be held liable under a ratification theory by failing to brief the issue in the court of appeals. HN1 As a general rule, a petitioner’s complaint about the trial court’s judgment must be raised in the court of appeals to Page 8 of 17 199 S.W.3d 262,[*270] ; 2006 Tex. LEXIS 505, **15 preserve error in the Supreme Court. 6 [**16] However, we have recognized that a party should not lose its right to appeal based on an unduly technical application of procedural rules. 7 We conclude that the Willises’ opening brief in the court of appeals preserved error on this issue. ^[8] [**17] On the merits, we agree with the Willises that they are not liable for breach of the letter agreement under the undisputed facts presented. The ratification claim can only be based on a theory that the Willises expressly agreed to be bound by the agreement or impliedly ratified the agreement by retaining the benefits of the agreement. The jury was so instructed as to these alternative theories of ratification, 9 [*271] and relying on the latter theory Donnelly argued to the jury that the Willises had ratified the agreement by accepting benefits under it. 10 [**18] As explained above, Willis is not a party to the letter agreement, and he incorporated two companies that by law would shield him from personal liability. While his name is included in the opening sentence of the 6 See Bunton v. Bentley, 153 S.W.3d 50, 53, 48 Tex. Sup. Ct. J. 197 (Tex. 2004) (citing Tex. R. App. P. 53.2(f)). 7 See Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 427, 48 Tex. Sup. Ct. J. 134 (Tex. 2004); Briscoe v. Goodmark Corp., 102 S.W.3d 714, 717, 46 Tex. Sup. Ct. J. 534 (Tex. 2003). 8 The brief essentially presented the argument that as mere shareholders of the parties to the letter agreement, the Willises cannot as a matter of law be held liable for a breach of the letter agreement under a theory of ratification or some other theory of derivative liability, arguing, inter alia: Neither Francie Willis nor Michael Willis signed the Letter Agreement. Neither . . . was a party to the Letter Agreement. Thus, as a matter of law, neither . . . could have breached the Letter Agreement. There is no evidence, no legally sufficient evidence, and no factually sufficient evidence that Francie Willis or Michael Willis breached the Letter Agreement. . . . As a matter of law, the intentional deletion of Michael Willis’ signature line establishes that the parties did not intend to include Michael Willis as a party. . . . Furthermore, Richard Hite did not sign the Letter Agreement on behalf of Michael Willis or Francie Willis and, even if he had, there is no evidence and no finding that Mr. Hite had actual or apparent authority to do so. *** With regard to the Letter Agreement as it relates to the Willises, the jury was asked only whether the Willises ratified it. But ratification is simply an affirmative defense to an equitable claim for rescission. . . . Absent a finding that Michael Willis or Francie Willis actually breached the Letter Agreement, as a matter of law the jury’s affirmative response to the ratification question . . . cannot support a judgment against Michael Willis or Francie Willis for breach of contract. Furthermore, there is no evidence, no legally sufficient evidence, and no factually sufficient evidence to support . . . a finding that Francie Willis or Michael Willis ratified or breached the Letter Agreement. (Legal and record citations omitted). 9 The jury was instructed: A party’s conduct includes conduct of others that the party has ratified. Ratification may be express or implied. Implied ratification occurs if a party, though he may have been unaware of unauthorized conduct taken on his behalf at the time it occurred, retains the benefits of the transaction involving the unauthorized conduct after he acquired full knowledge of the unauthorized conduct. Implied ratification results in the ratification of the entire transaction. 10 Donnelly’s counsel argued in closing statement: Did Mike and Francie Willis ratify the July 10th, 1989 agreement? Ratification occurs when you retain the benefit of something you weren’t an original party to. Page 9 of 17 199 S.W.3d 262,[*271] ; 2006 Tex. LEXIS 505, **18 agreement, the agreement obligated URH and WHE only to issue shares to Donnelly. Moreover, at the meeting where the agreement was signed, Willis crossed his signature line off the agreement and refused to sign it. As a matter of law, the corporate shield from liability should operate in these circumstances. HN2 A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation’s contractual obligations. ^[11] Avoidance of personal liability is not only sanctioned by the law; it is an essential reason that entrepreneurs like Willis choose to incorporate their businesses. Not surprisingly, Willis testified that his intent always ″was for the corporation to be bound by this agreement and not me individually.″ Donnelly’s own counsel, in his opening statement to the jury, argued that Willis scratched his name off the agreement because he ″didn’t want to have anything to do with it in [**19] an individual capacity.″ In Castleberry [**20] v. Branscum, we stated that incorporation normally protects shareholders, officers, and directors from liability for corporate obligations, ″but when these individuals abuse the corporate privilege, courts will disregard the corporate fiction and hold them individually liable.″ 721 S.W.2d at 271. We also stated that ″[w]e disregard the corporate fiction, even though corporate formalities have been observed and corporate and individual property have been kept separately, when the corporate form has been used as part of a basically unfair device to achieve an inequitable result.″ Id. The business [*272] community was displeased with the flexible approach to piercing the corporate veil embraced in Castleberry, and in response the Legislature in 1989 narrowly prescribed the circumstances under which a shareholder can be held liable for corporate debts. 12 [**21] Under current law, by statute, HN3 a shareholder ″may not be held liable to the corporation or its obligees with respect to . . . any contractual obligation of the corporation . . . on the basis that the holder . . . is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate Now, I want y’all to think about who got this 2.2, 2.15 million dollars of Mr. Donnelly’s. He don’t have it. They’ve got it. So who kept the benefits of that agreement? That’s a yes, yes. . . . Both Francie and Mike kept the benefits. Yes, they ratified the agreement. ^[11] Castleberry v. Branscum, 721 S.W.2d 270, 271, 29 Tex. Sup. Ct. J. 481 (Tex. 1986) (″The corporate form normally insulates shareholders, officers, and directors from liability for corporate obligations . . . .″); see also Pabich v. Kellar, 71 S.W.3d 500, 507 (Tex. App.-Fort Worth 2002, pet. denied) (″A corporation is a separate legal entity that normally insulates its owners or shareholders from personal liability.″); Aluminum Chems. (Bol.), Inc. v. Bechtel Corp., 28 S.W.3d 64, 67 (Tex. App.-Texarkana 2000, no pet.) (″[A] major purpose of the corporate structure is to shield its shareholders from liabilities of the corporation.″); Nat’l Hotel Co. v. Motley, 123 S.W.2d 461, 465 (Tex. App.-Eastland 1938, writ dism’d judgm’t cor.) (″[A]n individual whose business is authorized to be incorporated may incorporate such business for the sole purpose of escaping individual liability of the owner for the debts of the corporation.″). 12 See Farr v. Sun World Sav. Ass’n, 810 S.W.2d 294, 296 (Tex. App.-El Paso 1991, no writ) (″Largely because of the uproar in the business community over the ramifications of Castleberry on stockholder liability, the 71st Texas Legislature amended Article 2.21A . . . .″). The 1996 Bar Committee Comment to Article 2.21 of the Business Corporation Act states: Castleberry, in particular its use of constructive fraud as a basis of piercing the corporate veil, was considered by many practitioners to be incorrectly decided. Further, while questionable in the context of tort claims, the use of constructive fraud as a means of piercing the corporate veil created a cloud on the sanctity of contract and the public policy of recognizing corporations as separate entities apart from their shareholders. In response to Castleberry, Article 2.21 of the TBCA was amended in 1989 to establish a clear legislative standard under which the liability of a shareholder for the obligations of a corporation is to be determined in the context of contractual obligations and all matters relating thereto. TEX. BUS. CORP. ACT ANN. art. 2.21 cmt. (Vernon 2003) (recodified at TEX. BUS. ORGS. CODE §§ 21.223-21.226). Page 10 of 17 199 S.W.3d 262,[*272] ; 2006 Tex. LEXIS 505, **21 a fraud, or other similar theory . . . .″ 13 [**22] The liability of a shareholder for a contractual corporate debt under this statute ″is exclusive and preempts any other liability imposed for that obligation under common law or otherwise.″ 14 There is a statutory exception to this rule where the shareholder ″caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the″ shareholder. 15 The jury rejected Donnelly’s fraud claim. There is also a statutory exception where the shareholder ″expressly . . . agrees to be personally liable to the obligee for the obligation.″ 16 We can find no evidence that the Willises expressly agreed to assume personal liability under the letter agreement. On the contrary, Francie Willis did not sign the agreement, and Donnelly admitted at trial that he never asked Francie to issue him the stock under the agreement. As to Michael Willis, Donnelly testified that in conversations Willis agreed to ″live up to the letter agreement,″ but Donnelly did not indicate whether Willis made such statements in his individual or corporate capacity. Willis expressly provided that he would not be liable personally on the agreement by creating two corporations to be the obligors on the agreement, and crossing his name off the agreement during the meeting when it was signed by other parties. [**23] HN4 To impose liability against the Willises under a common law theory of implied [*273] ratification because they accepted the benefits of the letter agreement would contravene the statutory imperative that, absent actual fraud or an express agreement to assume personal liability, a shareholder may not be held liable for contractual obligations of the corporation. We hold that characterizing the theory as ″ratification″ rather than ″alter ego″ is simply asserting a ″similar theory″ of derivative liability that is covered by the statute. Even absent the statutory impediment to Donnelly’s theory of liability, ratification is a common law doctrine that simply does not fit the factual circumstances presented. HN5 Generally, ratification is a doctrine of agency law, and allows a principal to be bound by an agent’s unauthorized contract in circumstances where the principal becomes aware of the contract and retains benefits under it. 17 Ratification, however, presupposes that the principal has an agent who, by agreement, is authorized to act on the principal’s behalf. In the pending case, URH and WHE were not agents of Willis authorized to act on Willis’s behalf and bind him to contracts. Quite the [**24] opposite, URH and WHE were separate corporations created to prevent the imposition of contractual liabilities on Willis personally. Again, the law allows an individual in these circumstances to incorporate a business and thereby protect himself from personal liability. The court of appeals quoted Hays v. Marble, 213 S.W.2d 329 (Tex. App.-Amarillo 1948, writ dism’d), for the proposition that ″[o]ne may ratify the act or contract of another . . . whether the other was his agent and exceeded his authority as such or was not his agent at all.″ Id. at 333. Assuming that Hays was correctly decided, we find it inapposite. In that case, one heir entered into a contract to [**25] sell property on behalf of all the heirs to the property and subsequently persuaded the other heirs to sign the deed. The court held that the other heirs had ratified the contract. In the pending case, Willis expressly refused to be bound personally by the contract, since he created separate corporations to assume liability on the letter agreement and crossed his name off the agreement when it was signed by others. ^[13] TEX. BUS. ORGS. CODE § 21.223(a) (emphasis added) (previously codified at Tex. Bus. Corp. Act Ann. art. 2.21(A) (Vernon 2003)). The references to ″alter ego″ and ″other similar theory″ in the current statute were added in 1993 amendments to the Business Corporation Act, Act of May 7, 1993, 73d Leg., R.S., ch. 215, § 2.05(A)(2), 1993 Tex. Gen. Laws 418, 446, before Donnelly asserted his claims against the Willises in this suit. ^[14] Id. § 21.224. 15 Id. § 21.223(b). 16 Id. § 21.225(1). 17 See Land Title Co. of Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756, 24 Tex. Sup. Ct. J. 117 (Tex. 1980) (″Ratification may occur when a principal, though he had no knowledge originally of the unauthorized act of his agent, retains the benefits of the transaction after acquiring full knowledge.″). Page 11 of 17 199 S.W.3d 262,[*273] ; 2006 Tex. LEXIS 505, **25 Donnelly argues that the corporate separateness of URH should be disregarded because the letter agreement indicates that URH did not exist at the time the agreement was signed, and instead refers to ″Urban Retreat of Houston, Inc., a corporation to be formed and originally owned by principals of Willis/Hite Enterprises, Inc.″ The corporate records of URH reveal, however, that it existed before the letter agreement was signed. ^[18] It is true that WHE is also a party to the letter agreement and was not incorporated until August 1989, shortly after the letter agreement was signed. 19 However, in [*274] these circumstances we think the better rule is that a contracting party must look to the unformed corporation for performance. The contract was made in the name of two corporations, [**26] stated that one of the corporations has not been formed, and the individual ″promoter,″ assuming Willis can be characterized as such, struck his name from the agreement, thus indicating that he would not be held personally liable under it. 20 [**27] 2. Contract Damages The court of appeals held that the jury was improperly instructed on the measure of damages on the contract claim. Reasoning that liability was contested, it held that the proper remedy for the erroneous instruction was to remand the case for a new trial. It further held that ″[t]he rules of appellate procedure do not permit a new trial solely on unliquidated damages if liability is contested,″ 118 S.W.3d at 42, and accordingly remanded the contract claim for a new trial on liability and damages. As explained above, the Willises are entitled to a rendition of judgment on the contract claim. The jury also held WHE and URH liable on the contract and awarded damages against them. A new trial is required for the contract claim against these corporations if the court of appeals’ analysis as to them is correct. The court of appeals concluded that the trial court incorrectly instructed the jury that the measure of contract damages included the value of Donnelly’s stock ownership under the provision of the letter agreement for ″Other Matters Relating to Shares.″ 21 This provision places a value on the stock equal to the appraised value of real [**28] estate plus the previous twelve months of gross revenue, 22 [**29] a measure more favorable to