Dallas Excavation Systems, Inc. v. Orellana
Dallas Court of Appeals, No. 05-23-01149-CV (August 21, 2024)
Justices Molberg (Opinion, here), Nowell, and Kennedy (Dissenting, here)
In a case arising from an arbitration agreement governed by the Federal Arbitration Act, the Texas Supreme Court has held that, “[A] party waives an arbitration clause by [1] substantially invoking the judicial process [2] to the other party’s detriment or prejudice.” Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). More recently, however, the United States Supreme Court has said that under the FAA, it is “wrong to condition a waiver of the right to arbitrate on a showing of prejudice.” Morgan v. Sundance, 596 U.S. 411, 417 (2022).
Dallas Excavation Systems (“DES”) commenced two separate but related lawsuits against Orellana and others. After those cases were consolidated, and only 48 days before trial, DES moved to compel arbitration pursuant to an arbitration clause in one of the contracts at issue. That clause provided for arbitration under the FAA, 9 U.S.C. § 1 et seq. The trial court denied the motion to compel, ruling that DES had waived arbitration by “substantially invoking the judicial process.” A divided panel of the Dallas Court of Appeals affirmed, finding that DES’s actions in the trial court, viewed “together as a whole,” “evidence[d] an election to litigate, not arbitrate.” The majority further held that, even though the Texas Supreme Court has not yet considered the issue, “the second Perry Homes factor—prejudice to the nonmovant—… no longer applies, at least in cases involving arbitration agreements governed by the FAA.”
Justice Nancy Kennedy dissented, arguing that DES had not sufficiently “invoked the judicial process”—i.e., had not “actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration”—to be deemed to have waived its right to arbitrate. As a result, she would not have reached the question whether the second Perry Homes factor, prejudice to the party resisting arbitration, has been eliminated in Texas for FAA cases, based on intervening SCOTUS precedent.
