In an opinion that provides an excellent review of when a right to arbitration may be waived, the San Antonio Court of Appeals has reversed a trial court order denying a party’s motion to compel arbitration.
San Antonio Eye Center, P.A., et al. v. Vision Associates of South Texas P.A. (No. 04-22-00078-CV) arose from a dispute between a manager of a network of optical health care providers (San Antonio Eye Center) and an optician whose practice contracted with the network manager for referrals. The parties executed an “Independent Physician Participation” agreement governing the patient referral arrangement. The agreement contained an arbitration provision applying to “a controversy or claim arising out of or relating to” the agreement or the breach thereof. The parties fell out when the optician accused the manager of refusing to provide referral lists and other information and that the manager was funneling the optician’s existing patients to another provider. The optician sued for breach of the agreement, fraudulent inducement to contract, negligent misrepresentation, tortious interference with existing business relationships, and breach of fiduciary duty. After the parties engaged in some discovery and about a year after the defendants filed their answer, the defendants moved to compel arbitration as provided by the agreement. The trial court denied the motion to compel. Defendants appealed.
The court of appeals reversed. Once the court determined that a valid arbitration agreement existed and that it governed the dispute, the primary issue on appeal was whether the defendants had waived their right to compel arbitration, either by signing a docket order containing a trial setting (express waiver) or substantially invoking the litigation process (implied waiver). As to the express waiver, the court held that absent an express statement in a docket order disclaiming the right to arbitrate (which it did not), “the docket control order itself cannot constitute an express waiver” (citations omitted).
The implied waiver issue required more analysis. Beginning with the strong presumption in favor of arbitration, the court opined that implying a waiver must be determined by the totality of the circumstances on a case-by-case basis (citations omitted). The court laid out eleven factors for consideration, including: “(1) how long the party moving to compel arbitration waited to do so; (2) how much of the movant’s pretrial activity related to the merits rather than arbitrability or jurisdiction; (3) who initiated discovery; (4) how much discovery the movant conducted before moving to compel arbitration; (5) how much of the discovery conducted would be useful in arbitration; (6) what discovery would be unavailable in arbitration; (7) whether the movant asserted affirmative claims for relief in court; (8) whether the movant requested the court to dispose of claims on the merits; (9) the amount of time and expense the parties have committed to the litigation; (1) whether activity in court would be duplicated in arbitration; and (11) when the case was to be tried” (citations omitted).
The only real activity that occurred between the defendants’ answer and the motion to compel involved discovery. They traded a first round of discovery, which included a conferral on deficiencies and a defense motion to compel responses to discovery and to quash other requests, but the court of appeals found that “the parties took very few pretrial activities prior to appellants filing their motion to compel arbitration.” Plaintiff alleged that defendant produced more than 40,000 pages of documents, which indicated a substantial invocation of the litigation process, but the court was unmoved. “[A]ppellees did not meet their burden of giving this number any context,” the court opined. “Absent this vital context, we simply cannot weigh the value of what 40,000 pages means in the context of this case. There is also nothing indicating the exchanged documents could not be used in an arbitration proceeding or that the parties’ efforts would have to be duplicated in arbitration.” While the period between the answer and the motion to compel arbitration was nearly a year, the court discounted that because the parties had done so little to develop the case, there were no counterclaims, and the defendants did not attempt to take depositions. Under the totality of the circumstances, therefore, the court ruled that the defendants did not substantially invoke the litigation process.
The opinion by Justice Valenzuela should be instructive both for those seeking to compel arbitration when some litigation activity has already occurred and those desiring to argue that another party waived the right to arbitrate. Once again, this case exemplifies the importance of the day-to-day work of the intermediate appellate courts and the commendable job they do to make sure trial courts are following the law.
