Despite the controversy surrounding Perry Homes v. Cull, I’ve limited my discussion to the facts and holding
of the case.
Traditionally courts have upheld arbitration agreements, and there is a strong presumption against waiver of arbitration. Perry Homes v. Cull was the first case in which the Texas Supreme Court found a party waived arbitration by substantial invocation of the judicial process.
Facts
In 1996, Robert and Jane Cull purchased a home from Perry Homes and a home warranty that provided a broad arbitration agreement, which was to be governed by the Federal Arbitration Act. After the Culls purchased their home, they began having serious structural and drainage problems. When the warranty companies sought arbitration, the Culls opposed it. The issue was never presented for a ruling. Over the next several years the Culls sought extensive discovery from the defendants. After most of the discovery process was complete, the Culls then decided they did not want to go to trial and sought an order from the trial court to compel arbitration, which the trial court granted with some reservation.
Discussion:
The primary issue before the Supreme Court was whether the Culls had effectively waived arbitration by substantially invoking the litigation process. The Court started its discussion by describing what qualified as a “substantial invocation” of the judicial process. When a party “conduct[s] full discovery, files motions going to the merits, and seeks arbitration only on the eve of trial,” that would be sufficient to show waiver by substantial invocation of litigation process. The Court distinguished this from actions that did not substantially invoke the litigation process such as the mere filing of a lawsuit, a motion to dismiss based on lack of standing, a motion to set aside a default judgment, opposing a trial setting while seeking to move the litigation to a federal court, and even going as far as sending 18 interrogatories and 19 request for production.
Following the standards set by many federal courts, the Texas Supreme Court applied a “totality of the circumstances” test consider a number of factors listed in the opinion. Applying the test to this case, the Court considered the fact that the Culls filed a 79-page objection to Perry Homes initial arbitration request claiming the arbitrator was incompetent and biased. Also considered was the fact that the Culls filed five motions to compel over 75 requests for production of documents and conducted extensive discovery over the course of several years. Following all of this, the Culls “moved for arbitration very late in the trial process.” As the Court put it, “[t]here is no question on this record that the Culls conducted extensive discovery about every aspect of the merits.”
The Federal Arbitration Act prohibits a party from manipulating the exercise of arbitration rights in order to cause delay, expense or damage to the other party. Here the Court found that the Culls sought extensive discovery under one set of rules and then sought to arbitrate under another causing delay and limiting their opponent’s rights to appellate review.
Holding:
The Court found that the Culls engaged in the type of activity that the Federal Arbitration Act sought to limit, and therefore vacated the arbitration award of over $800,000 and remanded the case to the trial court to conduct a trial on the merits.
