Texas Supreme Court Finds that a Party Cannot Pursue Arbitration After Substantially Invoking the Litigation Process

The Texas Supreme Court recently ruled that once a party has substantially invoked the litigation process, the party cannot switch to arbitration shortly before trial.  While a strong presumption against waiver of arbitration rights exists, the presumption can be rebutted with evidence that the party seeking arbitration substantially invoked the litigation process, prejudicing another party.

In Perry Homes v. Cull, __ S.W.3d __ (Tex. May 2, 2008), a homebuilder challenged whether homeowners seeking damages from the homebuilder and two warranty companies for faulty construction could switch to arbitration after pursuing the case in court for over a year.  The Court found that whether a party has so substantially invoked the litigation process as to waive its right to arbitration requires a case-by-case determination.  Because the homeowners sought extensive discovery, vigorously opposed arbitration when other parties raised the issue, and moved for arbitration late in the trial process (four days before a trial setting), the Court found that the homeowners had substantially invoked the litigation process.  The Court further found that the homeowners’ conduct prejudiced the homebuilder and the warranty companies.  Thus, the homeowners waived their right to seek arbitration.

For more information on arbitration policies and procedures, please contact the Business Litigators at Clouse Dunn Khoshbin LLP at info@cdklawyers.com.