Richmont Holdings, Inc., et al v. Superior Recharge Systems, L.L.C., 2014 Tex. LEXIS 1211 (Tex. Dec. 19, 2014)
Richmont Holdings, Inc. (“Richmont”) bought the assets of Superior Recharge Systems, L.L.C. (“Superior”). The asset purchase agreement contained an arbitration provision. A part-owner of Superior, Jon Blake (“Blake”), agreed to continue as the general manager of the purchased company for two years. This employment agreement contained a covenant not to compete and also contained an arbitration provision.
Superior and Blake later sued Richmont in Denton County for fraud, breach of contract, and a declaration that the covenant not to compete was unenforceable. Richmont then sued Blake in Dallas County to enforce the covenant not to compete. The Dallas County suit was abated. In the Denton County suit, Richmont sought no discovery other than a request for disclosure. Richmont also failed to respond to any discovery served upon it in Denton County.
Nineteen months after being sued, Richmont moved to compel arbitration. Superior and Blake argued that Richmont had waived arbitration. The trial court denied the motion. The appellate court affirmed the trial finding that Richmont had waived arbitration by (1) filing suit in Dallas County, (2) engaging in motion practice related to venue, (3) failing to respond to discovery requests, and (4) delaying in moving to compel arbitration.
The Texas Supreme Court’s Decision:
The Texas Supreme Court reversed the appellate court. The Texas Supreme Court held that filing suit does not waive arbitration. This is so even if you are already being improperly sued in state court and proceed to file another lawsuit in a separate state court based on the same contract containing the arbitration clause.
What to Take Away:
In analyzing whether a party has substantially invoked the judicial process and waived arbitration, filing a separate lawsuit will not alone be considered sufficient to find waiver. Instead, more will be needed, such as filing a separate lawsuit, engaging in protracted discovery, and seeking summary judgment.