June 26, 2020

June 26, 2020:

Texas Supreme Court holds that a defendant's failure to take a permissive, interlocutory appeal from a trial court's order denying a motion to compel arbitration does not preclude the defendant, after losing at trial, from challenging the denial of the motion to compel on appeal from an adverse final judgment.  Bonsmara Natural Beef Co. v. Hart of Tex. Cattle Feeders, LLC, 603 S.W.3d 385 (Tex. 2020).

Let's assume, hypothetically, that your client gets sued in state district court for breach of contract.  The contract has an arbitration provision.  You move to compel arbitration.  For whatever reason, the trial court denies the motion.  Texas law, both in cases governed by the Federal Arbitration Act and in cases governed by the Texas General Arbitration Act, allows for permissive, interlocutory appeal -- "may" appeal -- from the order denying your motion to compel arbitration.  You decide to forgo the opportunity for an interlocutory appeal of the order denying your motion to compel arbitration, not wanting to incur the expense and believing that you will win at trial.  You try the case to a jury.  And, unexpectedly, you lose.  The jury is just not buying what you are selling.  The trial court enters final judgment against your client.  You see very little in the way of reversible error, except, maybe, the trial court's denial of your motion to compel arbitration so many months ago.  Having passed on the opportunity for a permissive, interlocutory appeal of that ruling, can you now challenge that ruling on appeal from the adverse final judgment, in effect getting a second bite at the apple (resolution by final hearing in arbitration) after having lost a jury trial?  In an opinion that has very little wiggle room, the Texas Supreme Court recently answered that question -- Yes, you can.         

Justice Busby delivered the court's opinion and was joined by five other Justices.  The majority's principal rationale was straightforward.  The word "may" is permissive, not mandatory.  When a statute provides that a party "may" take an interlocutory appeal from a trial court's non-final order, the statute provides the party with discretion to take the interlocutory appeal, but does not mandate that the party do so.  And nothing in the text of the relevant Texas statute "indicates that a party's choice not to pursue an appeal from an interlocutory order has any consequences for the longstanding jurisdictional principle that it may challenge the order on appeal from a final judgment."  603 S.W.3d at 391.   

Justice Green, joined by Justices Hecht and Devine, dissented, taking issue with the "absurd result . . . that a party that fails to timely assert its right to arbitration under the interlocutory appeal statute can now, after losing at trial, be awarded a do-over in an arbitration proceeding -- it gets another bite at the apple."  Id. at 401.  Among other legal doctrines, the dissent urged the Texas rule that a party waives an arbitration provision by substantially invoking the judicial process to the other party's detriment or prejucice.  In this case, after losing on their motion to compel arbitration, instead of pursuing an interlocutory appeal of that ruling, the defendants filed and pursued a counterclaim, subpoenaed witnesses, took depositions, and tried the case, including their counterclaim, to a jury.  "[A] party that forgoes its opportunity to seek interlocutory appeal of the trial court's denial of a motion to compel arbitration and instead litigates the case through trial . . . waives its right to arbitrate."  Id. at 408.         

The majority responded to the argument for waiver (by substantiallly invoking the judicial process) in two ways.  First it noted that plaintiffs had never asserted this waiver argument, not even in the supreme court.  Id. at 396.  Of course, that might leave open the possibility of a different result in a case in which the waiver argument was asserted.  Perhaps some wiggle room.  But the majority seemingly foreclosed that possibility by considering -- and rejecting -- the waiver argument on its merits in a footnote.  Once an interlocutory order denying arbitration is entered, "the party must adhere to the trial court's order -- as it must all interlocutory orders -- whether it agrees with the order or not."  Id. at 396 n.22.  "It is surely not the case that measures such as disobedience to the order, repetitious motions to reconsider, or abstention from putting on a case are necessary to avoid waiver.  If simply adhering to an adverse order while continuing to litigate waived review of that order on appeal from a final judgment, there would be few orders left to review."  Id.            

So, if you find yourself in the position of the defendants in Bonsmara, losing a motion to compel arbitration, you have options.  If you believe the motion to compel arbitration is strong and feel that your client's merits position will be substantially better received by an arbitrator than by a judge or jury in court, you may take an immediate, interlocutory appeal of the denial of your motion to compel arbitration.  But if you want to avoid the expense of an immediate appeal and are bullish about your chances at a trial in court, you may forgo your right to take the interlocutory appeal now knowing that if things go wrong at trial, you may challenge the arbitrability ruling on appeal from the final judgment, potentially getting, in the words of the Bonsmara dissenters, a"do-over," a "proverbial second bite at the apple."                        


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