Lucchese, Inc. and Jose Angel Velarde v. Hector Rodriguez

Opinion

COURT OF APPEALS EIGHTH DISTRICT OF TEXAS EL PASO, TEXAS

' LUCCHESE, INC. and No. 08-11-00102-CV JOSE ANGEL VELARDE, ' Appeal from Appellants, ' 34th District Court v. ' of El Paso County, Texas ' HECTOR RODRIGUEZ, ' (TC # 2008-797) Appellee.

OPINION

Lucchese, Inc. and Jose Angel Velarde appeal from an order granting Hector Rodriguez’s

motion to strike their amended motion to compel arbitration. For the reasons that follow, we

reverse and remand.

FACTUAL SUMMARY

On February 26, 2008, Hector Rodriguez filed a non-subscriber negligence suit against

his employer, Lucchese, and against his supervisor, Velarde,1 alleging he suffered an on-the-job

injury in 2007. Lucchese answered and filed a motion to compel arbitration based on an

arbitration agreement contained in its Arena Brands Texas Injury Benefit Plan (the Plan). The

motion to compel arbitration alleged that Rodriguez signed an acknowledgement on September

21, 2005 reflecting that he had received and read, or had the opportunity to read, the summary

plan description (SPD) which included a requirement that he arbitrate disputes relating to on-the-

job injuries. Rodriguez opposed arbitration on the ground that the arbitration agreement was

illusory because Lucchese had the unilateral right to amend or terminate the Plan without notice.

1 The opinion will refer to the Appellants collectively as Lucchese. The trial court denied the motion to compel arbitration. On May 26, 2010, this court denied

Lucchese’s petition for mandamus relief because we concluded that the agreement to arbitrate

was illusory. In re Lucchese Boot Co., 324 S.W.3d 211, 214 (Tex.App.--El Paso 2010, orig.

proceeding).

On February 11, 2011, Lucchese filed an amended motion to compel arbitration based on

a different arbitration agreement. According to the motion and attached evidence, Lucchese also

has a Problem Resolution Plan (the Program) which contains an agreement to arbitrate. The

Program requires arbitration of all disputes between Lucchese and Rodriguez whereas the other

arbitration agreement relates only to disputes concerning the Plan. Under the Program, both

Lucchese and Rodriguez waived the right to trial by judge or jury and agreed that all claims

covered by the Program would be arbitrated unless both parties waived the right to arbitrate in

writing prior to the initiation of any litigation. The Program defined “covered disputes” as

including tort claims for physical, mental, or psychological injury, without regard to whether the

injury was allegedly sustained in the course and scope of employment. The Program also

provided that it was governed by the Federal Arbitration Act.

In his response to the amended motion to compel arbitration, Rodriguez argued that the

trial court should strike the amended motion and enter an order finding that Lucchese had waived

its right to compel arbitration because it had failed to exercise due diligence in presenting the

issue and evidence to the trial court. He also asserted that Lucchese should not be allowed to

“reopen” because it had not used due diligence in obtaining the evidence. Additionally,

Rodriguez relied on the doctrine of equitable estoppel and argued that Lucchese should be

estopped from filing an amended motion to compel arbitration. After a brief hearing, the trial

court granted Rodriguez’s motion to strike. Lucchese filed notice of accelerated appeal from the

-2- interlocutory order. In its brief, Lucchese has included an alternative petition for writ of

mandamus in the event we determine that we lack jurisdiction of the interlocutory appeal. We

will address the jurisdictional issue first.

JURISDICTION OF THE INTERLOCUTORY APPEAL

Appellate courts generally have jurisdiction over final judgments, and such interlocutory

orders as the Legislature deems appealable by statute. Hernandez v. Department of Family and

Protective Services, --- S.W.3d ----, 2012 WL 1647984 at *1 (Tex.App.-- El Paso 2012, no pet.

h.); see TEX.CIV.PRAC.&REM.CODE ANN. § 51.012 and § 51.014 (West Supp. 2011). We

strictly apply statutes authorizing interlocutory appeals because they are a narrow exception to

the general rule that interlocutory orders are not immediately appealable. CMH Homes v. Perez,

340 S.W.3d 444, 447-48 (Tex. 2011).

Relying on Section 51.016 of the Civil Practice and Remedies Code and Section 16 of the

FAA, Lucchese contends that we have jurisdiction of this appeal because the trial court’s order

striking the amended motion to compel arbitration effectively denied the motion. Section 51.016

provides, in relevant part, that in a matter subject to the Federal Arbitration Act,2 a person may

take an appeal to the court of appeals from an interlocutory order of a district court under the

same circumstances that an appeal from a federal district court’s order or decision would be

permitted by 9 U.S.C. § 16. TEX.CIV.PRAC.&REM.CODE ANN. § 51.016. The Program

expressly provides that it is adopted pursuant to and is governed by the Federal Arbitration Act.

Parties may expressly agree to arbitrate under the FAA. In re Rubiola, 334 S.W.3d 220, 223

(Tex. 2011).

The United States Supreme Court stated in Green Tree Financial Corporation v.

Randolph that the FAA generally permits immediate appeal of orders hostile to arbitration but 2 9 U.S.C.A. §§ 1-16 (West 2009).

-3- bars appeal of interlocutory orders favorable to arbitration. Green Tree Financial Corp. v.

Randolph, 531 U.S. 79, 86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); In re Gulf Exploration, LLC,

289 S.W.3d 836, 839 (Tex. 2009). Section 16 of the FAA specifies the types of orders which

may be appealed. 9 U.S.C.A. § 16(a)(1)(C)(West 2009). An appeal may be taken from:

(1) an order--

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(C) denying an application under section 206 of this title to compel arbitration,

(D) confirming or denying confirmation of an award or partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that is subject to this title; or

(3) a final decision with respect to an arbitration that is subject to this title.

We strictly apply statutes authorizing interlocutory appeals. See Texas La Fiesta Auto Sales,

LLC v. Belk, 349 S.W.3d 872, 878 (Tex.App.--Houston [14th Dist.] 2011, no pet.). The

substance and function of the order being appealed controls our interlocutory jurisdiction. Id.

Rodriguez argues that we lack jurisdiction of this appeal because Lucchese’s amended

motion to compel arbitration is actually a motion to reconsider the trial court’s prior ruling.

Appellate courts have held that while Section 51.016 and Section 16 of the FAA permit an

appeal from an order refusing to compel arbitration, it does not provide for an appeal from an

order denying a motion to reconsider. See Wells Fargo Bank, N.A. v. Goldberg, No. 09-10-

00386-CV, 2011 WL 662952 at *2 (Tex.App.--Beaumont Feb. 24, 2011, no pet.)(dismissing

appeal from denial of motion to reconsider an order denying motion to compel arbitration);

-4- Nabors Well Services Company v. Aviles, No. 06-10-00018-CV, 2010 WL 2680087 (Tex.App.--

Texarkana 2010, no pet.)(dismissing appeal from denial of amended motion to compel

arbitration because the amended motion was not a new motion but was in substance a motion to

reconsider the prior ruling); Hydro Management Systems, LLC v. Jalin, Ltd., No. 04-09-00813-

CV, 2010 WL 1817813 (Tex.App.--San Antonio 2010, no pet.)(holding that Section 16 of the

FAA permits an appeal from an order denying a motion to compel arbitration but not from an

order denying a motion to reconsider, and therefore, order denying motion to reconsider was not

independently appealable).

The instant case is distinguishable because Lucchese based its amended motion to compel

arbitration on an agreement which had not previously been offered as a basis for its motion to

compel arbitration. It is not merely a different version of the Plan’s arbitration agreement. It is a

separate and distinct agreement which stands on its own. Thus, Lucchese did not ask the trial

court to reconsider its prior ruling. It instead moved the trial court to compel arbitration based on

a different agreement. Thus, the amended motion included “new matter.” See TEX.R.CIV.P. 62

(defining the object of an amendment of a pleading to include pleading new matter, in addition to

that formerly pleaded).

Rodriguez next complains that we do not have jurisdiction of this appeal because the trial

court did not rule on Lucchese’s amended motion to compel arbitration and the FAA does not

authorize an appeal from an order striking a motion to compel arbitration. This argument

presents a difficult question. On the one hand, the record does not reflect that the court

conducted a hearing on the merits of the amended motion to compel arbitration nor does it show

that the court expressly or even impliedly ruled on that motion. Instead, the trial court conducted

a hearing on Rodriguez’s motion to strike and the court ruled on that motion. The parties did not

-5- present any evidence related to the merits of Lucchese’s amended motion to compel arbitration.

To the contrary, Rodriguez’s counsel made clear that if the court denied his motion to strike, he

would need to engage in discovery related to the Program’s arbitration agreement because it had

not been produced by Lucchese in response to discovery requests. On the other hand, the effect

of the trial court’s order is to permanently foreclose arbitration. One of the arguments relied on

by Rodriguez is that Lucchese waived its right to arbitrate. Waiver is a ground utilized by

plaintiffs to avoid arbitration. See e.g., EZ Pawn Corp. v. Mancias, 934 S.W.2d 87 (Tex. 1996).

We conclude that the trial court’s order striking the amended motion to compel arbitration is the

functional equivalent of an order denying the motion. Accordingly, we conclude that we have

jurisdiction to review this interlocutory order by virtue of Section 51.016 and Section 16(a)(1)(C)

of the FAA.

Even if we are incorrect in our resolution of the jurisdiction issue, we would not dismiss

the appeal but would review the issues raised by Lucchese under the mandamus standard of

review because Lucchese requested that we treat its brief as a mandamus petition in the event we

find that we do not have jurisdiction to review the interlocutory order. See CMH Homes v.

Perez, 340 S.W.3d 444, 452 (Tex. 2011)(impermissible interlocutory appeal from order

appointing an arbitrator would be considered as a petition for writ of mandamus, where seller

invoked the court of appeals’ appellate jurisdiction by specifically requesting that its appeal be

treated as a mandamus petition). We would review the issues for a clear abuse of discretion. See

In re Prudential Insurance Company of America, 148 S.W.3d 124, 135 (Tex. 2004).

AUTHORITY TO STRIKE LUCCHESE’S AMENDED MOTION TO COMPEL ARBITRATION

Lucchese argues in its sole issue that the trial court abused its discretion by striking its

amended motion to compel arbitration and by refusing to compel arbitration. Given that the trial

-6- court did not consider the merits of Lucchese’s motion to compel arbitration, we will not address

the latter argument but will instead restrict our review to the trial court’s decision to strike

Lucchese’s motion to compel arbitration.

Standard of Review

Under the abuse of discretion standard, an appellate court may reverse the trial court’s

ruling only if the trial court acted without reference to any guiding rules and principles, such that

its ruling was arbitrary or unreasonable. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). When

undertaking this review, we may not substitute our judgment for that of the trial court with

respect to resolution of factual issues or matters committed to the trial court’s discretion. See

Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992)(orig. proceeding); see also Downer v.

Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985). While a trial court does not

abuse its discretion merely because it decides a discretionary matter differently from an appellate

court, a trial court has no discretion in determining the law or its application. Walker, 827

S.W.2d at 840. A clear failure by the trial court to analyze or apply the law correctly will

constitute an abuse of discretion. Walker, 827 S.W.2d at 840.

Authority to Strike Pleadings

Lucchese contends that the trial court did not have authority to strike its amended motion

to compel arbitration. Under the Rules of Civil Procedure, courts are authorized to strike a

party’s pleadings in a limited variety of situations. For example, a court is required to strike a

party’s pleadings under TEX.R.CIV.P. 12 if an attorney fails to show sufficient authority to

prosecute or defend a suit on behalf of a party and no person who is authorized to prosecute or

defend appears. A court may strike a groundless and false pleading. TEX.R.CIV.P. 13. A court

is also authorized to strike a third party claim. TEX.R.CIV.P. 38(a). A plea in intervention is

-7- subject to being stricken by the court for sufficient cause on the motion of any party.

TEX.R.CIV.P. 60. As another example, a court may strike a pleading filed after a deadline

imposed by a pre-trial order. See TEX.R.CIV.P. 166(p). The Rules of Civil Procedure also

authorize trial courts to sanction a party for failure to comply with a discovery request by striking

pleadings or by entering an order refusing to allow the disobedient party from supporting

designated claims or defenses, or prohibiting him from introducing designated matters in

evidence. TEX.R.CIV.P. 215.2(b)(5).

Rodriguez argued that the court should strike Lucchese’s amended motion to compel

arbitration and refuse to consider the evidence attached to the amended motion on the grounds

that:

1) Lucchese waived its right to assert the new grounds alleged in his amended motion to compel arbitration; 2) Lucchese did not exercise due diligence in presenting new arguments and evidence, and therefore, the court should not permit Lucchese to “reopen” the arbitration issue; and

3) Lucchese is estopped from reopening the arbitration issue.

We will address these arguments in order.

Waiver

Rodriguez argued in his motion to strike that Lucchese waived its right to compel

arbitration under the Program’s arbitration agreement because it did not present that argument or

the evidence to the trial court in the first motion to compel arbitration. The Texas Supreme

Court rejected a similar argument in In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 68

(Tex. 2005). In that case, the defendant filed a motion to compel arbitration based only on the

Texas Arbitration Act and later filed a motion to reconsider based on new grounds under the

Federal Arbitration Act. The Court held that the defendant did not waive its right and was not

estopped from seeking to compel arbitration. Id. Here, Lucchese first moved to compel

-8- arbitration under the Injury Benefit Plan’s arbitration agreement and later moved to compel

arbitration based on a new ground, namely, the Problem Resolution Program’s arbitration

agreement. We conclude that Lucchese did not waive its right to arbitrate by not raising both

grounds for arbitration in the original motion to compel arbitration.

In the arbitration context, a party waives its right to compel arbitration by substantially

invoking the judicial process to the other party’s detriment or prejudice. In re Fleetwood Homes

of Texas, L.P., 257 S.W.3d 692, 694 (Tex. 2008) (orig. proceeding); In re ReadyOne Industries,

Inc., 294 S.W.3d 764, 772 (Tex.App.--El Paso 2009, orig. proceeding). There is a strong

presumption against waiver of arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.

1998) (orig. proceeding). Waiver is a legal question for the court based on the totality of the

circumstances, and asks whether a party has substantially invoked the judicial process to an

opponent’s detriment, the latter term meaning inherent unfairness caused by “a party’s attempt to

have it both ways by switching between litigation and arbitration to its own advantage.” In re

ReadyOne, 294 S.W.3d at 772, quoting Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008).

Waiver must be decided on a case-by-case basis, and courts should look to the totality of the

circumstances involved. In re ReadyOne, 294 S.W.3d at 772. We consider factors such as when

the movant knew of the arbitration clause, how much discovery has been conducted, who

initiated it, whether it related to the merits rather than arbitrability or standing, how much of it

would be useful in arbitration, and whether the movant sought judgment on the merits. Perry

Homes, 258 S.W.3d at 591-92; In re ReadyOne, 294 S.W.3d at 772.

There has been no showing that Lucchese substantially invoked the judicial process or

that Lucchese has switched between litigation and arbitration to its own advantage. The record

instead reflects that Lucchese’s efforts have been consistently directed at compelling arbitration.

-9- Rodriguez filed suit on February 26, 2008. Lucchese included a demand for arbitration in its

original answer and moved to compel arbitration on April 21, 2008. The parties engaged in

discovery but it was limited to the issue of arbitrability. The trial court denied the motion to

compel arbitration on December 23, 2008 and Lucchese challenged that ruling by filing a

mandamus petition in this Court. We denied mandamus relief on May 26, 2010 and overruled

the motion for rehearing on June 30, 2010. In re Lucchese, Inc., 324 S.W.3d 214 (Tex.App.--El

Paso 2010, orig. proceeding). Lucchese filed its amended motion to compel arbitration on

February 11, 2011. There is no evidence that Lucchese engaged in discovery or took any other

actions between June 2010 and February 2011 which could be characterized as invoking the

judicial process. It is true that a considerable amount of time elapsed between the filing of the

original and amended motions to compel arbitration and Lucchese has not offered any

explanation for its failure to raise both arbitration agreements in its original motion, but a party

does not waive its right to arbitration by mere delay. See Prudential Securities, Inc. v. Marshall,

909 S.W.2d 896, 898 (Tex. 1995). Instead, the party urging waiver must establish that any delay

resulted in prejudice. Id. Rodriguez has not shown how Lucchese’s delay in moving to compel

arbitration under the Program’s arbitration agreement has resulted in prejudice. Consequently,

we are unable to conclude that Rodriguez has overcome the strong presumption against finding a

waiver of arbitration. Rodriguez’s waiver argument does not support the trial court’s ruling.

Reopening the Evidence

Rodriguez’s motion to strike also asserted that Lucchese could not “reopen” the

arbitration issue and introduce new evidence because it had not exercised due diligence in

obtaining the new evidence. Rodriguez relied on TEX.R.CIV.P. 270 and AXA Financial, Inc. v.

Roberts, No. 08-07-00079-CV, 2007 WL 2403210 (Tex.App.--Austin 2007, orig. proceeding) to

- 10 - support this contention. Rule 270 provides that:

When it clearly appears to be necessary to the due administration of justice, the court may permit additional evidence to be offered at any time; provided that in a jury case no evidence on a controversial matter shall be received after the verdict of the jury.

Rule 270 is one of nine rules found in the section of the Rules of Civil Procedure addressing the

conduct of trial. See TEX.R.CIV.P. 263 (providing for trial on agreed statement of facts);

TEX.R.CIV.P. 264 (providing for all testimony and evidence to be presented by videotape);

TEX.R.CIV.P. 265 (setting the order of proceedings on trial by jury); TEX.R.CIV.P. 266

(plaintiff has the right to open and close both evidence and argument unless the defendant has the

burden of proof); TEX.R.CIV.P. 267 (witnesses placed under the “Rule”); TEX.R.CIV.P. 268

(motion for instructed verdict); TEX.R.CIV.P. 269 (addressing closing argument).

In AXA Financial, a Chapter 7 bankruptcy trustee filed suit against several defendants on

behalf of the bankruptcy estate of Kent Abney. The claims arose out of Abney’s association and

employment relationship with the defendants. The defendants filed a motion to compel

arbitration before the National Association of Securities Dealers based upon a Uniform

Application for Securities Industry Registration or Transfer (“Form U-4”) executed by Abney in

1987. The defendants did not include the 1987 Form U-4 as evidence in support of their motion,

but they attached an amended U-4 signed in 2005. When Abney signed the 2005 U-4, he

expressly refused to consent to pre-dispute arbitration and reserved his right to file suit. Prior to

the hearing, the parties entered into a Rule 11 agreement whereby the defendants agreed to limit

their evidence to that attached to the motion to compel. The trial court subsequently denied the

motion to compel arbitration with prejudice based upon a finding that the defendants had not

carried its burden to establish a valid agreement to arbitrate the disputed claims. The defendants

filed a motion to reconsider and attached Form U-4s allegedly signed by Abney in 1989, 1994,

- 11 - and 2003. The U-4s contained language that Abney had agreed to arbitrate any dispute with his

firm. The trial court denied the motion to reconsider.

The defendants appealed under the Texas Arbitration Act and filed a mandamus petition

under the FAA. The Austin Court of Appeals dismissed the appeal for want of jurisdiction

because the notice of appeal was untimely, but the court addressed the issues raised in the

mandamus petition. AXA Financial, 2007 WL 2403210 at *3-4. The Court of Appeals

concluded that the documents attached to the motion to compel arbitration did not support

compelling Abney to arbitrate his claims. Id. at *6. With respect the motion to reconsider, the

Court noted that the defendants attached new evidence but did not raise any new ground for

compelling arbitration. Id. at *6. The defendants cited Rule 270 in support of their argument

that the additional evidence was properly before the trial court, but the Court of Appeals held

that the defendants had not shown due diligence in obtaining the evidence. Id. at *7.

Additionally, the Court held that the trial court did not abuse its discretion by denying the motion

to reconsider because the Rule 11 Agreement limited the defendants to the evidence attached to

its motion to compel. Id. at *7-8.

AXA Financial is the only case we have found applying Rule 270 to a court’s ruling on a

motion to compel arbitration and the Court of Appeals did so in direct response to the relators’

argument based on the rule. Given that a court’s ruling on a motion to compel arbitration is a

pre-trial matter, we conclude that Rule 270 is inapplicable. We decline to follow AXA Financial.

The trial court abused its discretion by impliedly finding that Lucchese could not “re-open” the

arbitration issue based on Rule 270.

Doctrine of Equitable Estoppel

Rodriguez also alleged that Lucchese was estopped from filing an amended motion to

- 12 - compel arbitration because Lucchese had failed to disclose the Program’s arbitration agreement

in response to his written discovery requests and had failed to include the evidence in its original

motion to compel. The doctrine of equitable estoppel requires (1) a false representation or

concealment of material facts; (2) made with knowledge, actual or constructive, of those facts;

(3) with the intention that it should be acted on; (4) to a party without knowledge or means of

obtaining knowledge of the facts; (5) who detrimentally relies on the representation. Johnson &

Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998);

Enchilada’s Northwest, Inc. v. L & S Rental Properties, 320 S.W.3d 359, 365 (Tex.App.--El

Paso 2010, no pet.). We understand Rodriguez to argue that Lucchese’s failure to produce the

Program’s arbitration agreement at an earlier date and in response to discovery requests

constituted concealment of material facts. Rodriguez failed to prove that Lucchese intended for

him to act on the concealment, he had no knowledge of the existence of the Program’s arbitration

agreement and no means to obtain knowledge of the fact, or he detrimentally relied on the

representation. Consequently, the trial court’s order cannot be supported by a finding of

equitable estoppel.

Discovery Sanction

Rodriguez’s counsel stated on the record below that Lucchese failed to produce the

Program’s arbitration agreement in response to written discovery requests. But Rodriguez did

not make any request that the trial court strike the amended motion or issue an order refusing to

allow Lucchese to support its amended motion to compel arbitration with the evidence as a

sanction for failure to comply with a discovery request. See TEX.R.CIV.P. 215.2(b)(4), (b)(5).

Appellate counsel has repeated these assertions and urges that the trial court could have

exercised its discretion not to reconsider the arbitration issue because, Lucchese failed to

- 13 - “explain how Hilda Matthews could testify such ‘new’ evidence was ‘kept in the regular course

of business’ of Lucchese, yet was not produced or disclosed during discovery on the arbitration

issue.” To the extent Rodriguez’s brief can be read as arguing that the trial court struck the

amended motion as a discovery sanction under Rule 215.2(b), we conclude that he did not

present this specific argument to the trial court for a ruling. Consequently, it is not a basis for

upholding the trial court’s order.3

None of the arguments made by Rodriguez supports the trial court’s order striking the

amended motion to compel arbitration. Accordingly, we find that the trial court abused its

discretion by granting the motion to strike. If we reviewed this issue under the mandamus

standard, we would find that the trial court clearly abused its discretion. Issue One is sustained.

We reverse the trial court’s order striking the amended motion to compel arbitration and remand

the cause to the trial court for proceedings consistent with this opinion.

June 27, 2012 ________________________________________________ ANN CRAWFORD McCLURE, Chief Justice

Before McClure, C.J., Rivera, and Antcliff, JJ.

3 In the event Rodriguez raises the discovery sanction issue on remand to the trial court, our opinion should not be read as expressing any opinion on the merits of that issue.

- 14 -