Opinion
No. 11-07-00276-CV
Opinion filed March 6, 2008.
Original Mandamus Proceeding, No. 11-07-00315-CV.
Panel consists of: WRIGHT, C.J., McCALL, J., and STRANGE, J.
MEMORANDUM OPINION
The trial court denied Advanta Bank Corporation's motion to compel arbitration. It also denied a motion to compel arbitration filed by Phillips Cohen Associates, Ltd. In their petitions for writ of mandamus, Advanta and Phillips Cohen ask this court to order the trial court to grant their motions and compel arbitration. We conditionally grant the writs.
We originally found an order by which the trial court denied the motion to compel filed by Phillips Cohen. We could find no order whereby the trial court denied a like motion filed by Advanta. Under the provisions of TEX. R. APP. P. 44.4, we abated this case and directed the trial court to enter an order either granting or denying Advanta's motion to compel arbitration. The trial court entered an order denying Advanta's motion. These appeals have been reinstated.
Background Facts
Charles Watlington owned Mustang Oil Change in Nolan County. Advanta issued a business credit card to Watlington. Watlington later sold Mustang Oil to Vernon Stutts. Watlington alleges that he closed the Advanta account when he sold to Stutts and that he paid the account in full. Nevertheless, Stutts continued to make charges to the credit card. Watlington later received a call from a representative of Advanta, and he learned that there was a balance of about $12,000 owing on the account. Watlington says that he told the representative that he had paid the entire balance due on the account and had closed it. He also told the representative that he had not authorized any additional charges to the account. It is Watlington's position that Advanta, or those acting under and for it, including Phillips Cohen, began to harass him and to threaten him regarding payment of the account.
On September 21, 2005, Watlington sued Advanta, Phillips Cohen, and Stutts in Nolan County. Basically, Watlington alleged various causes of action against Advanta and Phillips Cohen under the Deceptive Trade Practices Act and under the Debt Collection Act. His suit also contained claims against Advanta, Phillips Cohen, and Stutts for common-law fraud.
TEX. BUS. COM. CODE ANN. ch. 17 (Vernon 2002 Supp. 2007).
TEX. FIN. CODE ANN. ch. 392 (Vernon 2006).
In April 2006, in a state court in Utah, Advanta sued Watlington on the debt. In August 2006, Advanta recovered a default judgment against Watlington for $16,651.09. Subsequently, both Advanta and Phillips Cohen filed motions to compel arbitration of the claims made by Watlington in his Nolan County lawsuit. The trial court denied the motions.
Claims of Advanta
Mandamus relief is appropriate when a party is denied, wrongfully, the right to arbitrate under the Federal Arbitration Act. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 575 (Tex. 1999) (orig. proceeding). A writ of mandamus will issue to correct a clear abuse of discretion or when a court has violated a duty imposed by law or when the abuse cannot be remedied by an appeal. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992).
9 U.S.C. §§ 1- 16.
When a party seeks to compel arbitration, that party must establish that there is an arbitration agreement and that the claims asserted come within the scope of that agreement. Oakwood Mobile Homes, 987 S.W.2d at 573. Both DTPA claims and claims under the Texas Debt Collection Act are subject to the Federal Arbitration Act. In re Conseco Fin. Servicing Corp., 19 S.W.3d 562 (Tex.App.-Waco 2000, orig. proceeding). For purposes of this original proceeding, it is not disputed that the business credit card agreement between Advanta and Watlington contained an arbitration clause in accordance with the Federal Arbitration Act. Further, for purposes of this proceeding, there have been no claims that the matters alleged by Watlington in the Nolan County lawsuit against Advanta are not within the scope of the arbitration clause. The claim is that Advanta waived its right to arbitration.
Although there are various ways in which a party can waive its right to arbitrate a claim, Watlington's only claim was that Advanta waived its right to insist upon the arbitration clause because it filed the Utah lawsuit and thereby substantially invoked the judicial process to Watlington's actual prejudice. The trial court agreed.
If a party seeking arbitration substantially has invoked the judicial process and if the party opposing arbitration suffers actual prejudice as a result, then the right to arbitrate has been waived. Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730, 735 (Tex.App.-Eastland 2006, no pet.). Because public policy favors arbitration of claims, there is a strong presumption against the waiver of a right to arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (orig. proceeding). It is Watlington's burden to establish the elements of his waiver claim, that being (1) that Advanta substantially invoked the judicial process and (2) that he suffered actual prejudice as a result, Southwind Group, 188 S.W.3d at 735; the burden is a heavy one. Terminix, 988 S.W.2d at 705. We resolve any doubts in favor of arbitration. Id. at 705. Our review of the issue is a question of law and is de novo. Southwind Group, 188 S.W.3d at 735.
There are two different classes of claims involved in this appeal as far as Watlington and Advanta are concerned. First, there are the claims that Watlington filed in Nolan County, as plaintiff, against Advanta, as defendant. Secondly, there is the claim on the debt that Advanta filed against Watlington in Utah. The debt claim has never been a part of the Nolan County lawsuit, and the claims raised by Watlington in Nolan County have never been made a part of the Utah lawsuit. Advanta apparently decided not to arbitrate its claim for the debt against Watlington because it filed suit on that claim. And, apparently Watlington decided not to demand his right that the debt claim be submitted to arbitration because he did nothing in the lawsuit on that claim in Utah. On the other hand, Advanta is asserting a right to arbitrate the separate and distinct claims that Watlington made in the Nolan County lawsuit that he instigated.
We do not address the effect, if any, of TEX. R. CIV. P. 97 because no issue has been raised under that rule.
The claims in Nolan County are different from the one in Utah. Some courts have correctly described "substantially invok[ing] the judicial process" as taking specific and deliberate steps, after a suit has been filed, that are inconsistent with the right to arbitrate. See Sedillo v. Campbell, 5 S.W.3d 824, 827 (Tex.App.-Houston [14th Dist.] 1999, no pet.). We think that it is clear that, if Advanta had not succeeded in its Utah lawsuit, then it could not have insisted on later arbitrating that same claim. Its actions would have been inconsistent with the right to arbitrate its debt claim, and it would have substantially invoked the judicial process. Furthermore, one who has tried, but failed, in its invocation of the judicial process should not be allowed then to try again in the arbitration process. The court in Terminix stated: "[T]his is not a case in which a party who has tried and failed to obtain a satisfactory result in court then turns to arbitration." Terminix, 988 S.W.2d at 704; see also Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex.App.-Houston [1st Dist.] 2003, no pet.); In re Winter Park Const., Inc., 30 S.W.3d 576, 579 (Tex.App.-Texarkana 2000, no pet.). We hold that Advanta did not substantially invoke the judicial process as to the claims that Watlington filed in the Nolan County lawsuit.
Furthermore, even if it can be said that Advanta did substantially invoke the judicial process as to the Nolan County claims when it filed suit on the debt claim in Utah, Watlington has not met the heavy burden of showing actual prejudice.
When courts determine the prejudice issue, the focus is on such matters as (1) whether the one seeking to arbitrate, after having substantially invoked the judicial process, has gained access to information not discoverable in the arbitration process and (2) whether the one seeking to establish waiver has incurred costs and fees as a result of the proponent's actions or delay. Southwind Group, 188 S.W.3d at 737. This burden generally involves the presentation of evidence. Williams Indus., 110 S.W.3d at 135. There was no evidentiary hearing held in this case. General statements about the costs related to the invocation of the judicial process are not sufficient to meet the heavy burden related to a showing of actual prejudice. Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 499-500 (Tex.App.-San Antonio 2000, no pet.).
The only prejudice that Watlington asserts is that a court in Utah entered a judgment against him in the amount of the debt plus costs and attorney's fees. There is no showing that he would not have had to pay these amounts in an arbitration proceeding. Watlington failed to show the kind of actual prejudice required when a party is called upon to establish costs and fees incurred by him as a result of a proponent's actions or delay. See Southwind Group, 188 S.W.3d at 737 (opponents of arbitration did not present any evidence of the amount of any expenses in litigating their claims that they would not have incurred in arbitration); Pennzoil Co., 30 S.W.3d at 499-500 (opponent of arbitration failed to show the time and expenses incurred as a result of the invocation of the judicial process); Williams Indus., 110 S.W.3d at 140-41 (opponent failed to carry its burden of showing actual prejudice because it presented no evidence in support of expenses directly related to actions of proponent of arbitration). Watlington did not establish actual prejudice.
The contract in this case contained an agreement invoking the Federal Arbitration Act. No complaint is made regarding its scope. Watlington has failed to establish that Advanta waived its right to arbitrate the claims that Watlington made in the Nolan County lawsuit. Advanta is entitled to have those claims submitted in arbitration. We conditionally grant Advanta's petition for writ of mandamus. However, the writ will issue only if the trial court does not enter its order compelling arbitration of Watlington's Nolan County claims against Advanta.
Claims of Phillips Cohen
Because Phillips Cohen was not a party to the contract between Watlington and Advanta, Watlington maintains that Phillips Cohen is not entitled to arbitrate the claims he made against it in Nolan County. Nonsignatories to a contract have been allowed to enforce arbitration clauses in limited situations. In re Rolland, 96 S.W.3d 339, 344 (Tex.App.-Austin 2001, no pet.). Watlington maintains that his claims against Phillips Cohen are not the type that fall within those limited situations. He cites us to Rolland, which sets forth some of those exceptions. See id. For purposes of this opinion, we will agree that there is no showing that, while Advanta had engaged Phillips Cohen to assist in collecting the debt, there was any assignment of the agreement from Advanta to Phillips Cohen.
While Watlington is correct that this case does not fall within many of the exceptions set forth in Rolland, we are reminded that arbitration is a contract matter. If the parties to a contract, by that contract, confer contractual rights upon a third party, that third party may invoke an arbitration provision in a contract. Id.
In this case, Advanta and Watlington signed an agreement that contained the following provisions:
35. ARBITRATION DISCLOSURE: By applying for credit with us or using your Account, you agree that if a dispute of any kind arises out of your application for credit or out of the existence or use of this Agreement or your Account, either you or we or any other party that may be involved can choose to have that dispute resolved by binding arbitration. If arbitration is chosen, it will be conducted pursuant to the Code of Procedure of the National Arbitration Forum. . . . IF ANY PARTY TO ANY SUCH DISPUTE CHOOSES ARBITRATION, NEITHER YOU NOR WE OR ANY OTHER PARTY WILL HAVE THE RIGHT TO LITIGATE OR APPEAR IN COURT BEFORE A JUDGE OR JURY, OR TO ENGAGE IN DISCOVERY EXCEPT AS PROVIDED IN THE ARBITRATION RULES. . . .
36. ARBITRATION PROVISION: Any claim, dispute or controversy (whether stated in contract, tort, or otherwise) arising from or relating to the Account or this Agreement or the relationships that led up to or result from this Agreement, including, without limitation, any advertisements, promotions, and oral or written statements related to your Account, any application for credit and any prior agreements between you and us, and any claim concerning the applicability or validity of this Arbitration Provision or of this Agreement, no matter by or against whom the claim is made, whether by or against either you or us or (to the full extent permitted by law) by or against any employees, agents, representatives or assigns of either you or us or any involved third party (a "Claim"), shall, at the election of you or us or any such third party, be resolved by binding arbitration pursuant to this Arbitration Provision. . . .
Arbitration can be elected at any time on any Claim, regardless of whether a lawsuit has been filed in court (unless that suit has resulted in a judgment), and a party who has asserted a Claim in a lawsuit in court may elect arbitration with respect to that Claim and/or to any Claim(s) subsequently asserted in that lawsuit by any party.
Because arbitration is a contract matter, a party can be forced to arbitrate a dispute if it has agreed to arbitrate it. Id. at 345. Here, Watlington agreed. The arbitration provision in the contract between Advanta and Watlington is broadly written. Unlike many circumstances in which the contract addresses only the arbitration rights of the parties to it, Watlington and Advanta agreed in this contract that the arbitration provisions of the agreement would apply to third parties such as Phillips Cohen on claims such as those asserted by Watlington. Watlington's claims against Phillips Cohen arise from his agreement with Advanta, and because Watlington agreed that such third-party disputes could be submitted to arbitration, Phillips Cohen is entitled to have Watlington's claims against it submitted to arbitration. We conditionally grant Phillips Cohen's petition for writ of mandamus. However, the writ will issue only if the trial court does not enter its order compelling arbitration of Watlington's Nolan County claims against Phillips Cohen.
Watlington's claims against Stutts remain pending on the docket of the trial court.