Dallas Court of Appeals, No. 05-21-00003-CV (September 30, 2021)
Justices Myers, Partida-Kipness (opinion available here), and Carlyle
The law firm Fee, Smith, Sharp & Vitullo, LLP sued its former clients for payment under a contingency fee agreement. The fee agreement contained an arbitration provision, and the firm initiated an arbitration before the AAA. The clients claimed the arbitration provision was unenforceable. So the firm filed suit in Dallas County, delivered a copy of the lawsuit to the clients’ new attorneys, and asked whether the clients preferred to resolve the dispute in court or arbitration. The letter stated: “Please discuss with your clients and let us know which forum they wish to choose to address this matter. If they choose to litigate in District Court, then please advise if you will agree to accept service of the enclosed petition on behalf of all Defendants effective as of this date and assuming you agree, we will dismiss the AAA arbitration without prejudice.”
The clients chose arbitration, but the attorney responding to the firm’s letter was not their “trial attorney” and was not authorized to accept service. The firm had the clients personally served, and the suit was underway. After the clients answered and filed a motion to transfer venue, the firm moved to compel arbitration. But what about the agreement to proceed in District Court? The firm argued that acceptance of service and maintaining the litigation in Dallas County were conditions to its offer to litigate in court, which conditions the clients did not accept. The trial court disagreed and denied the motion to compel arbitration. The firm appealed.
The Dallas Court of Appeals sided with the clients and affirmed the trial court’s order. It concluded a novation occurred in which the parties extinguished their arbitration agreement and formed a new agreement to litigate in District Court. The Court rejected the firm’s argument that acceptance of service was a condition to accepting the proposed novation. It concluded that allowing the clients to choose the forum for resolving the fee dispute was the only material term of the offer. The sentence “If they choose to litigate in District Court, then please advise if you will agree to accept service” merely provided “alternative subsequent actions to be taken based on the [clients’] forum choice.” The Court found no indication in the letter that the clients’ forum choice was dependent on acceptance of service. This conclusion was bolstered by the fact that the firm moved forward with effecting personal service of the lawsuit. The Court also found nothing to suggest the offer was limited to litigating in Dallas County, so the clients’ attempt to transfer venue did not invalidate the agreement.