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Another Texas Supreme Court Victory for Big Business

Last Friday, the Texas Supreme Court issued another opinion where it opted for big business over consumers. The question in Perry Homes v. Cull was whether the Culls’ claim was properly submitted to arbitration. In the case, the Culls filed suit against Perry Homes for defects in their house. Fourteen months later, after completing discovery and on the eve of trial (of which the defendants sought to delay), the Culls asked that the case be submitted to arbitration. The trial court agreed, and the case proceeded in arbitration, where the Culls received a judgment of $800,000.00. Perry Homes then appealed saying that the Culls had waived their right to arbitration, and the majority of the Supreme Court agreed.

While reading the facts on their face makes it appear that the ruling was correct, I don’t think it was. If you compare this case to other decisions where the plaintiffs accused the defendants of delaying before seeking arbitration, you’ll find little difference in the conduct, but a completely different result.

There are two elements that a party must prove to establish that the party seeking arbitration waived its rights to arbitration. First, the party opposing arbitration must prove the party seeking arbitration has substantially invoked the litigation process prior to asking for arbitration. And second, the party opposing arbitration must show that it was prejudiced by the other party’s invoking of litigation.

The issue in this case is whether Perry Homes was prejudiced by the Culls’ actions. When reaching this decision, the majority didn’t point to any specific evidence offered, but seemed to say “Gosh, it’s just inherently unfair to delay so long or to invoke the discovery process and then ask for arbitration.” However, the Court has specifically rejected these types of arguments in the past when finding that defendants didn’t waive their rights to arbitration.

In 2006, the Supreme Court handed down the decision of In Re Vesta Insurance Group. In that case, the defendant filed a Motion to Dismiss, sent written discovery, and took 4 depositions. After two years of going through litigation, the defendant then asked that the case be sent to arbitration. The court held that this long delay (longer than the Cull case) and the sending of discovery were not enough to show that the plaintiff was prejudiced by the defendant’s invoking of the litigation process, and the case was sent to arbitration.

The Court has also rejected the idea that the notion of engaging in discovery is enough to show prejudice because many arbitrations allow discovery proceedings. In the 1998 decision of In re Bruce Terminix Co., the Supreme Court said, “Even substantially invoking the arbitration process does not waive a party’s arbitration rights unless the opposing party proves that it suffered prejudice as a result.” In rejecting the plaintiff’s argument that it was prejudiced by discovery, the court said that being forced to responded to written discovery “does not establish prejudice because AAA rules allow arbitrators to arrange for ‘production of relevant documents and other information.’”

In 1996, the Court again addressed arbitration in the case of EZ Pawn Corp. v. Macias, and the court found that the plaintiff didn’t prove prejudice despite a year delay by the defendant in invoking arbitration and despite the defendant sending written discovery.

For all the reasons that the Supreme Court found that plaintiffs didn’t prove prejudice in these cases, the Court should have found that Perry Homes didn’t prove prejudice.

However, even more important than the actual substance may be the tone of the opinions. In each opinion where the defendant sought arbitration, the Court engaged in a rigorous analysis to show how the plaintiff’s proffered evidence didn’t support a claim of prejudice. In the Perry decision, there was no such rigorous analysis and the majority seems to assume that the delay and discovery caused prejudice.

Clearly, I think that if the Court had applied the standards and analysis set out in their prior opinions, they would have held that the trial court properly sent the case to arbitration.

I will also give credit where it is due. I have often expressed my displeasure with several members of the court, but Justices Johnson, Jefferson, Green and Willet all dissented, finding that Perry Homes didn’t fulfill its burden to show prejudice.

Now, I will add that the most interesting or sensationalist part of the case involves the actual parties. Bob Perry of Perry Homes is one of the biggest contributors to the Republican party, both in Texas and nationwide. All nine judges on the court have each received contributions totaling more than $260,000 from Perry’s family. Perry is also a major donor to Texans for Lawsuit Reform, which has given an additional $185,000 to the justices. Several of the posts below touch on that relationship.

This case has received a lot of publicity, and you can find more discussion at the sources below:

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