Richmont Holdings, Inc. v. Superior Recharge Systems, L.L.C.

In holding that petitioner waived arbitration by substantially invoking the judicial process, the court of appeals, 453 S.W.3d443 (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 a party waives an arbitration clause by substantially invoking the judicial pro*575cess 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 enforce arbitration, the amount of discovery conducted by the movant, and whether the movant sought disposition 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, 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. Crv. 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. Nine*576teen 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 Rich-mont 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 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 par- ■ ties’ 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 cu-riam). 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 (Tex. App.-Fort Worth 2013).

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. 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 does not justify the delay. But 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.