December 19, 2014

December 19, 2014:
Texas Supreme Court holds that a party does not waive arbitration by filing suit, engaging in limited discovery, moving to transfer venue of a related suit, and waiting nineteen months before moving to compel arbitration.  Richmont Holdings, Inc. v. Superior Recharge Systems, Inc., 455 S.W.3d 573 (Tex. 2014).

Richmont Holdings bought the assets of Superior Recharge.  Superior's part owner Jon Blake agreed to serve as general manager of the combined business for two years.  The Asset Purchase Agreement had an arbitration provision, but Blake's employment agreement did not.  Superior and Blake sued Richmont in Denton County seeking, among other things, a declaration that the non-compete in Blake's employment agreement was unenforceable.  Richmont then sued Blake in Dallas County, seeking to enforce the non-compete, and moved to transfer the Denton County action to Dallas or Collin County.  The Dallas County case was abated.  In the Denton County case, Richmont failed to respond to Blake's discovery requests, was sanctioned for that failure, and requested disclosures pursuant to Rules 194.1 and 194.2 of the Texas Rules of Civil Procedure.  Nineteen months after being sued in Denton County, Richmont moved to compel arbitration.  The court of appeals held that Richmont had waived arbitration.  In a per curiam opinion, the Texas Supreme Court reversed.  

The Supreme Court reaffirmed its many earlier pronouncements that "'a party waives an arbitration clause by substantially invoking the judicial process to the other party's detriment or prejudice.'"  455 S.W.3d at 574-75 (quoting Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008)).  Factors relevant to whether a party has substantially invoked the judicial process are the reasons for the delay in seeking arbitration, the amount of discovery sought by the arbitration movant, and whether the arbitration movant sought disposition on the merits.  Id. at 575.  

The Supreme Court determined that Richmont's filing of the Dallas County case and its moving to transfer venue of the Denton County case did not waive arbitration.  Id. at 576.  "Merely filing suit does not waive arbitration."  Id.  The objection to venue had to be made at the beginning of the case (to avoid waiver) and did not seek a disposition on the merits.  Id.  Richmont sought only minimal discovery.  Id.  The court said that Richmont's explanation for its nineteen month delay in moving to compel arbitration (uncertainty whether the arbitration provision in the Asset Purchase Agreement would apply to Blake's claims) was "implausible," but "mere delay in moving to compel arbitration is not enough for waiver."  Id.  Based on the totality of circumstances, the court determined that Richmont had not substantially invoked the judicial process.  It was, therefore, not necessary for the court to address whether Blake was prejudiced by the delay.  Id.

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