in Re Multifuels, L.P.

Opinion issued

May 7, 2010

In The

Court of Appeals

For The

First District of Texas

NO. 01-09-00475-CV

IN RE MULTIFUELS, L.P., Relator

Original Proceeding on Petition for Writ of Mandamus

MEMORANDUM

OPINION

By petition for writ of mandamus, relator, Multifuels,

L.P., challenges the trial court’s [1]

May 15, 2009 order denying arbitration. Because

the claims in the underlying suit are within the scope of the arbitration

agreement and because the real party in interest did not carry its burden to

show waiver, we conditionally grant the

petition for writ of mandamus.

Background

Jesse Arriaga, the real party in interest, began

working for relator, Multifuels, in 2002 without a written employment

agreement. In 2003, Arriaga signed an arbitration agreement that identified

covered claims and excluded claims and read, in relevant part

Claims Covered by the Agreement

The Company and I mutually consent to the resolution

by arbitration of all claims or controversies (“claims”), past, present or

future, whether or not arising out of my application for employment,

employment, or the termination of my employment that the Company may have

against me or that I may have against any of the following: (1) the Company,

(2) its officers, directors, employees, or agents in their capacity as such or

otherwise, (3) the Company’s parent, subsidiary, and affiliated entities, (4)

the benefit plans or the plans’ sponsors, fiduciaries, administrators,

affiliates, and agents, and/or (5) all successors and assigns of any of them.

The only claims that are arbitrable are those that, in

the absence of this Agreement, would have been justiciable under applicable

state or federal law. The claims covered

by this Agreement include, but are not limited to: claims for wages or other

compensation due; claims for breach of any contract or covenant (express or

implied); tort claims; claims for discrimination (including, but not limited to

race, sex, sexual harassment, religion, national origin, age, marital status,

medical condition, handicap or disability) work-related illnesses or injuries;

claims for benefits (except claims under an employee benefit or pension plan

that either (1) specifies that its claims procedure shall culminate in an arbitration

procedure different from this one, or (2) is underwritten by a commercial

insurer which decides claims); and claims for violation of any federal , state

or other governmental law, statute, regulation, or ordinance, except claims

excluded in the section of this Agreement entitled “Claims Not Covered by the

Agreement.”

Except as otherwise provided in this Agreement, both

the Company and I agree that neither of us shall initiate or prosecute any

lawsuit or administrative action (other than an administrative charge of

discrimination to the Equal Employment Opportunity commission, or a similar

fair employment practices agency, or an administrative charge within the

jurisdiction of the National Labor Relations Board) in any way related to any

claim covered by this Agreement.

Claims Not Covered by the Agreement

Claims I may have for unemployment compensation

benefits or workers’ compensation benefits are not covered by this Agreement . Also

not covered are claims for injunctive

and/or other equitable relief for unfair competition and/or the

use and/or unauthorized disclosure of trade secrets or confidential

information, as to which either party may seek and obtain relief from a court

of competent jurisdiction.

That same year , Arriaga began working on a gas-storage-site project,

called the Freebird Gas Storage Project.

Multifuels later fired Arriaga, and Arriaga then made demands to Multifuels

for payment of more than one million dollars in bonuses that he asserted were owed to him for

work on the Free Bird Gas Storage Project. According to Multifuels, after his discharge, Arriaga made

disparaging and false statements to third parties about Multifuels’ economic

interests and disclosed confidential information and/or trade secrets to

Multifuels’ competitors.

On December 16, 2008, Multifuels sued Arriaga for

business disparagement, breach of fiduciary duty, a declaratory judgment that

there is no enforceable contract between Multifuels and Arriaga and by which it

owed Arriaga money, and a declaration that Multifuels had no obligation to pay

Arriaga any additional monies for his work for Multifuels. Multifuels alleged that it had suffered

pecuniary loss from the business disparagement and, in its prayer, sought

actual and punitive damages from Arriaga.

It also sought temporary and permanent injunctive relief to stop Arriaga

from disclosing trade secrets or confidential information.

On

February 2, 2009, Arriaga answered and countersued for breach of contract,

quantum meruit, promissory estoppel, and fraudulent inducement relating to the unpaid

bonuses that Arriaga contends Multifuels owes him.

The day after filing suit, on December 17, 2008,

Multifuels filed a motion for expedited discovery to prepare for the temporary

injunction hearing. Multifuels sought a

deposition of Arriaga and others with knowledge of relevant facts and numerous

documents relating to Arriaga’s actions and communication from the time of his

termination forward. The record on

mandamus does not reflect the trial court’s ruling on this motion, but

Multifuels, in its reply, says that it was denied. According to Arriaga, in an effort to avoid

unnecessary litigation, he agreed to the temporary injunction, agreed to

present himself for deposition in an expedited fashion, and agreed to provide

counsel with requested documents prior to the deposition, while Multifuels agreed

to provide dates for the deposition of Multifuels’s principal, Randall Gibbs.

On

February 6, 2009, the trial court issued an “Agreed Temporary Injunction”

restricting Arriaga from disclosing trade secrets or confidential information

belonging to Multifuels and which set the case for trial on July 20, 2009. Arriaga’s deposition was taken February 24,

2009, and the record indicates that Multifuels tendered responses to requests

for production that included requests

for documents relating to claims that Multifuels would later contend were

subject to arbitration. The record also suggests that Arriaga responded

to Multifuels’s interrogatories, additional requests for production, and a

request for disclosure. The mandamus

record does not contain any of Multifuel’s discovery requests or Arriaga’s responses, [2] other than some documents which Arriaga apparently

sent as responses to some requests for production.

On

March 16, 2008, after Arriaga had been deposed, and after he had responded to

Multifuels’s interrogatories and requests for disclosure and production,

Arriaga sent his own interrogatories and requests for production to

Multifuels.

On

April 13, 2009, Multifuels sent Arriaga a letter demanding arbitration on “its

claims against . . . Arriaga,” and referenced its claims for declaratory relief

and Arriaga’s claims for breach of contract.

The letter did not mention

Multifuels’s claims of pecuniary loss from the alleged business disparagement

or its request for judgment in its favor for actual and punitive damages

against Arriaga.

On

April 16, 2009, Multifuels filed a motion to compel arbitration and to abate

the case. On April 20, 2009, Multifuels

responded to Arriaga’s discovery requests, objecting to each interrogatory and

request for production on the ground that the claims were subject to

arbitration. Multifuels asserted that it had only found the arbitration

agreement on March 27, 2009, while searching its records to respond to

Arriaga’s request for production of documents.

In its motion to compel arbitration, Multifuels stated:

1. This is a

suit seeking declaratory relief that (1) there is no enforceable contract by

and between the Company and Jesse Arriaga . . . by which

Arriaga is owed any money and (2) the Company has no obligation to pay Arriaga

any additional monies in connection with his employment at the Company. Arriaga has filed a counter-claim alleging

breach of contract and generally that he is owed money in connection with his

employment at the Company.

. . . .

2. . . . The Arbitration Agreement provides that

claims for wages or other compensation due and claims for breach of any

contract or covenant shall be determined by binding arbitration. . . .

.

. . .

2. [sic] The claims which are the subject matter of

this lawsuit fall within the scope of the Arbitration Agreement. Arriaga has admitted as much in his Original

Answer and Original Counterclaim.

Accordingly, Multifuels requests this Court to order this matter to arbitration

pursuant to the Arbitration Agreement.

Multifuels’s

request omitted any mention of its noncontractual claims, both (1) the request

for injunctive relief related to disclosure of confidential information and

trade secrets [3] and (2)

its claim for business disparagement for which it asserted a pecuniary loss and

asked for actual and punitive damages. It

sought to abate the suit during the pendency of the arbitration proceedings.

Arriaga

opposed the motion to compel. He noted

that Multifuels had sought more than just the declaratory judgment asserted in

the motion to compel, pointing out that Multifuels has also pleaded business

disparagement and breach-of- fiduciary duties causes of action, in addition to

requesting injunctive relief. He also

noted that Multifuels had filed a motion for expedited discovery and related

what had occurred up until that point in the suit. Arriaga argued that Multifuels had waived its

right to arbitration. He asserted that

Multifuels substantially invoked the judicial process by: (a) filing suit, (b)

seeking a temporary injunction; and (3) “forcing Arriaga to: give his

deposition; respond to interrogatories; and respond to requests for discovery.”

He asserted that he had suffered prejudice “because Multifuels used the lawsuit

to gain access to discovery” and “because he was forced to answer

interrogatories” which were “a kind of discovery that [was] not available under

the arbitration agreement.” He also asked for sanctions against Multifuels.

Multifuels

replied to Arriaga’s response to the motion to compel arbitration, arguing,

that as a matter of law, the actions Multifuels took in the underlying case did

not constitute waiver and that Arriaga had not demonstrated prejudice.

Multifuels asserted that a limited amount of discovery had taken place and

noted that it had moved for arbitration after only about 10 weeks of

litigation. Multifuels contended that it

had only issued one set of interrogatories containing only 8 questions and had

only taken one deposition. [4]

After

a hearing, the trial court denied Multifuels motion to compel arbitration,

without any explanation or comment in its order.

Multifuels filed a petition for writ of mandamus, [5] arguing that the trial court abused its

discretion in denying the motion to compel arbitration based on waiver. Multifuels asserts that the three actions

that Arriaga presented to the trial court to prove that Multifuels allegedly

invoked the judicial process (filing suit, securing a temporary injunction, and

conducting “limited” discovery [6] )

were insufficient as a matter of law to prove waiver and that Arriaga did not

prove prejudice because he provided no affidavits, no witness testimony, and no

evidence of the allegedly prejudicial discovery requests or his deposition

transcript. Multifuels also argued that

Arriaga suffered no prejudice because the discovery conducted by Multifuels was

also available in the arbitration proceeding because the Arbitration Agreement

allowed for the parties to take the deposition of one individual and any expert

witness, the right to propound requests for document production and “additional

discovery may be had only where the arbitrator selected so orders.” Multifuels noted that the arbitrator had the

authority to order interrogatories and so contended that Arriaga was not

prejudiced by Multifuels having received his responses to their discovery in

the litigation.

Multifuels filed a record on mandamus that included:

(1) Multifuels’s

original and amended petition;

(2) Arriaga’s

answer and counterpetition;

(3) the

Agreed Temporary Injunction;

(4) Multifuels’s

motion to compel arbitration and for abatement;

(5) Arriaga’s

response in opposition to the motion to compel; and

(6) Multifuel’s

reply to Arriaga’s response.

The record on mandamus does not include a reporter’s

record from the hearing on Multifuels’ motion to compel arbitration nor did it

include any of the discovery requests by Multifuels or responses by

Arriaga. It also does not include a full

transcript of the deposition of Arriaga, though it does provide a few pages of

the deposition.

We

ordered Arriaga to respond. He did so

and also filed a supplemental record. [7] In his response, Arriaga contended that the

discovery conducted by Multifuels before seeking arbitration was “substantially

complete” given the nature of the case and its level of complexity. He argued that Multifuels’s actions as a

whole (filing suit, securing a temporary injunction, and “conducting

substantially complete discovery”) were sufficient to substantially invoke the

judicial process. He also pointed out

that, unlike cases relied upon by Multifuels, Multifuels was the plaintiff

in this litigation, sought its relief from the court system, conducted and

received the benefit of discovery, and only then moved for arbitration, before

Arriaga could receive the benefit of discovery.

Arriaga further argued that he was prejudiced by Multifuels’s

substantial completion of discovery and asserted that Multifuels could not have

received a similar benefit in arbitration because the agreement did not provide

for interrogatories as a matter of right (but only as a matter of discretion by

the arbitrator). Arriaga noted that

Multifuels, in its motion for a stay of discovery in this Court, had stated

that “different rules may be employed” in the trial system than in arbitration.

The

supplemental record filed by Arriaga included:

(1) Multifuels’s motion for expedited discovery;

(2) letters

between the parties regarding production requests, including one apparent

response to requests for production that included emails and a power of

attorney and contingent fee contract; and

(3) Multifuels’s

emergency motion to stay discovery filed in this Court.

It

did not include the discovery that Arriaga answered before Multifuels sought

arbitration, other than the portions of responses to requests for production

mentioned above, nor did it include a copy of the deposition given by

Arriaga.

In

its reply to Arriaga’s response, Multifuels asserted that it was Arriaga’s

responsibility to provide evidence to the trial court that he was prejudiced

and that Arriaga did not do so below and did not do so on mandamus. It also asserted that if each of the three

bases which Arriaga contended were individually insufficient to constitute

waiver, then they could not, considered all together be sufficient for waiver

because “the whole cannot be greater than the sum of its parts.”

Mandamus Standard of Review

A.

Mandamus as a Remedy

The arbitration agreement that Arriaga signed stated,

“I understand and agree that the company is engaged in transactions involving

interstate commerce and that my assignment/employment with the Company involves

such commerce.” Therefore, the Federal

Arbitration Act (“the FAA”) applies to this case. See 9

U.S.C. § 2 (2006). For orders

entered prior to September 1, 2009, [8] “[a]

party denied the right to arbitrate under the Federal Arbitration Act by a

state court has no adequate remedy by appeal and is entitled to mandamus relief

to correct a clear abuse of discretion.”

In re L & L Kempwood Assocs., L.P. , 9 S.W.3d 125, 128 (Tex.

1999) (per curiam).

B. Clear

Abuse of Discretion

We review the denial of a motion to

compel arbitration for abuse of discretion.

In re D. Wilson Constr. Co. , 196 S.W.3d 774, 780 (Tex. 2006)

(original proceeding); Walker v. Packer , 827 S.W.2d 833, 839 (Tex. 1992)

(orig. proceeding). A trial court abuses

its discretion when it acts arbitrarily or unreasonably and without reference

to any guiding rules or principles. See

Walker , 827 S.W.2d at 839, 840 .

Because a trial court has no discretion in determining what the law is,

which law governs, or how to apply the law, we review this category of

discretionary rulings de novo. See

id. at 840 .

Applicability of the Arbitration Agreement

When a party asserts a right to

arbitrate under the FAA, the question of whether the dispute is subject to

arbitration is determined under federal law.

Prudential Secs. Inc. v. Marshall , 909 S.W.2d 896, 899 (Tex.

1995). As a matter of federal law, any

doubts concerning the scope of arbitrable issues are resolved in favor of

arbitration, whether pertaining to the construction of the contract or a

defense to arbitration. See In re

Serv. Corp. Int’l , 85 S.W.3d 171, 174 (Tex. 2002). “In determining whether to compel

arbitration, a court must decide two issues: (1) whether a valid, enforceable

arbitration agreement exists and, (2) if so, whether the claims asserted fall

within the scope of the agreement.” In

re Tenet Healthcare, Ltd. , 84 S.W.3d 760, 765 (Tex. App.—Houston [1st

Dist.] 2002, orig. proceeding) (citing In re Oakwood Mobile Homes,

Inc. , 987 S.W.2d 571, 573 (Tex. 1999)).

A court has no discretion and must compel arbitration if the answer to

both questions is affirmative. In re

Tenet Healthcare, Ltd. , 84 S.W.3d at 765 .

“An order to arbitrate should not be denied unless it can be said with

positive assurance that the arbitration clause is not susceptible of an

interpretation that covers the asserted dispute.” Hou-Scape, Inc. v. Lloyd , 945 S.W.2d 202,

205 (Tex. App.—Houston [1st Dist.] 1997, no writ) (citing United

Steelworkers v. Warrior & Gulf Navigation Co. , 363 U.S. 574 , 582–83, 80

S. Ct. 1347, 1353 (1960)). We review de

novo whether an enforceable agreement to arbitrate exists. In re Kellogg Brown & Root , 80

S.W.3d 611, 615 (Tex. App.—Houston [1st Dist.] 2002, orig. proceeding). To determine if a claim falls within the scope

of an arbitration agreement, we focus on the facts alleged, not the causes of

action asserted. Hou-Scape , 945

S.W.2d at 205 .

Reviewing the record, we note that, while

Multifuels’s claim for injunctive relief based on disclosure of trade secrets

was not arbitrable, under the plain language of the agreement, the remaining

factual allegations pertaining to compensation that Arriaga contended

Multifuels owed him as a result of his employment were clearly within the scope

of the arbitration agreement’s plain language, as were Arriaga’s claims against

Multifuels, and Multifuels’s business tort claims for which it sought actual

and punitive damages.

Multifuels’ motion to compel arbitration also speaks only of arbitrable

claims. We conclude that the claims on

which Multifuels sought arbitration were subject to the arbitration agreement.

We further note that Arriaga did not

contest the validity and applicability of the arbitration agreement below. His only argument was that Multifuels had

waived its right to compel arbitration.

On mandamus, likewise, Arriaga limits his argument to waiver of

arbitration. We turn then to analyzing

that issue.

The Affirmative Defense of Waiver

In a mandamus review, generally the

relator carries the burden to show that the trial court clearly abused its

discretion. See Tex. R. App. P .

52. The real party in interest need not

even file a response. Tex. R. App. P. 52.4 (“Any party may

file a response to the petition, but it is not mandatory.”).

However, a party opposing arbitration based on the affirmative defense

of waiver has the burden to prove waiver. See , e.g. , In re Fleetwood

Homes, L.P. , 257 S.W.3d 692, 695 (Tex. 2008) (original proceeding)

(“Because [real party in interest] has failed to show that Fleetwood waived its

contractual right to arbitration, we conditionally grant Fleetwood’s petition

for writ of mandamus and direct the trial court to compel arbitration.”).

A . Waiver of right to arbitration

1. Waiver

is a Question of Law

Whether

a party has waived its right to arbitration is a question of law, which we

review de novo. In re Fleetwood Homes ,

257 S.W.3d at 694 ; Perry Homes v. Cull , 258 S.W.3d 580 , 591–93 (Tex.

2008); Williams Indus., Inc. v. Earth Dev. Sys. Corp. , 110 S.W.3d 131 ,

135 & n. 4 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (explaining waiver

under Texas General Arbitration Act, but explaining that “standard for

determining waiver of the right to arbitration is the same under both the Texas

General Arbitration Act and the Federal Arbitration Act.”). There exists a strong presumption against waiver

in the law and “[a]ny doubts regarding waiver are resolved in favor of

arbitration.” In re D. Wilson Constr. ,

196 S.W.3d at 783 ; see also Perry Homes , 258 S.W.3d at 589–90; Williams

Indus. , 110 S.W.3d at 135 (citing In re Bruce Terminix , 988 S.W.2d

702, 705 (Tex. 1998)).

2. Proof

of waiver

Waiver of arbitration rights may be

expressed or implied. In re Citigroup

Global Mkts. , 258 S.W.3d 623, 626 (Tex. 2008). Express waiver occurs when a party

affirmatively indicates that it wishes to litigate the dispute. See i d. Implied waiver occurs when the party “substantially

invoke[es] the judicial process to the other party’s detriment.” Id . at 625 (quoting Perry Homes ,

258 S.W.3d at 589–90). The party who

asserts waiver of an arbitration clause bears a heavy burden. EZ Pawn Corp. v. Mancias , 934 S.W.2d

87, 90 (Tex. 1996).

A determination of whether waiver has

occurred depends on an evaluation of the totality of the circumstances of the

particular case. Perry Homes , 258

S.W.3d at 591–92. The Perry Homes court

identified several nonexclusive factors that it and the federal courts have

used when considering a question of waiver, some pertaining to substantial

invocation of the litigation process and others to actual prejudice: (1)

whether the movant was plaintiff (who chose to file in court) or defendant (who

merely responded); (2) how long the movant delayed before seeking arbitration;

(3) whether the movant knew of the arbitration clause all along; (4) how much

pretrial activity related to the merits rather than arbitrability or jurisdiction;

(5) how much time and expense has been incurred in litigation; (6) whether the

movant sought or opposed arbitration earlier in the case; (7) what discovery

would be unavailable in arbitration; (8) whether activity in court would be

duplicated in arbitration; (9) when the case was to be tried; (10) when the

movant knew of the arbitration clause; (11) how much discovery had been

conducted; (12) who initiated the discovery that had been conducted; (13)

whether the discovery that had been conducted related to the merits rather than

arbitrability or standing; (14) how much of the discovery would be useful in

arbitration; and (15) whether the movant sought judgment on the merits. Perry Homes , 258 S.W.3d at 591–92.

How much litigation conduct will be

“substantial” depends on the context of the case. Id. Parties that “conduct full

discovery, file motions going to the merits, and seek arbitration only on the

eve of trial” may waive contractual rights to arbitration. In re Vestra Ins. Group , 192 S.W.3d

758, 764 (Tex. 2006). But the Perry

Homes court recognized that sometimes only two of those three circumstances

have been met and that how much discovery is “full discovery” depends on the

context of the case. See Perry Homes ,

258 S.W.3d at 590, 593 . This Court has

held that “[s]ubstantially invoking the judicial process can occur when the

proponent of arbitration actively tried, but failed, to achieve a satisfactory

result in litigation before turning to arbitration,” and that a party

substantially invokes the judicial process when, after the lawsuit is filed, he

takes specific and deliberate actions that are inconsistent with the right to

arbitrate, such as moving for summary judgment or seeking a final resolution of

the dispute. Williams Indus. , 110

S.W.3d at 135 .

A

party opposing arbitration must also show detriment, i.e ., that he has

suffered actual harm as a result of the moving party’s substantial invocation

of the judicial process. See id . Detriment means “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

Fleetwood Homes , 257 S.W.3d

at 694 (quoting Perry Homes , 258 S.W.3d at 597 ), that is, “the inherent

unfairness in terms of delay, expense, or damage to a party’s legal position”

when it is first forced by the other party to litigate an issue, and later

required to arbitrate the same issue. Perry Homes, 258 S.W.3d at 597 . “The prejudice on which courts focus includes

such things as (1) the movant’s access to information that is not discoverable

in arbitration and (2) the opponent’s incurring costs and fees due to the

movant’s actions or delay.” Williams Indus. , 110 S.W.3d at 135 . Showing prejudice is generally an evidentiary

burden which is placed on the party opposing the arbitration. Id.

3. Multifuels ’ s

Actions

Before moving to compel arbitration,

Multifuels: (1) filed suit for declaratory judgment on a contract claim,

injunctive relief on a trade-secrets-disclosure claim, and for actual and punitive

damages on business-tort claims; (2) moved for expedited discovery and

deposition of Arriaga on the nonarbitrable claims; (3) served Arriaga with

interrogatories and requests for production and disclosure, for which it

received responses; (4) wrote to Arriaga’s attorney about document production

on Arriaga’s claims; (4) filed an amended original petition; (5) deposed

Arriaga; and (7) demanded arbitration by letter sent to Arriaga’s counsel. Contemporaneous with its motion to compel

arbitration, Multifuels responded to Arriaga’s first set of interrogatories and

first request for production, but Multifuels objected to each question or

request, stating that the claims were subject to arbitration.

B . Proof

of waiver and the adequacy of the record

Review of the mandamus record reveals that neither

the record filed by Multifuels nor the supplemental record filed by Arriaga

include a transcript of the hearing on the motion to compel arbitration, a

complete transcript of Arriaga’s deposition, the complete discovery requested

by Multifuels, or Arriaga’s complete responses to Multifuels’ discovery

requests. The mandamus record shows that

Multifuels filed suit, deposed Arriaga, and sought and received some written

discovery, but does not show how much discovery remained to be completed, how

much the discovery already conducted pertained to the merits or to issues of

arbitrability or the non-arbitrable claims, or even how much discovery had been

conducted. However, as Multifuels asserts

that it did not discover the arbitration agreement until after discovery had

been undertaken, it is reasonable to assume that the discovery requests

pertained to the merits of the case. The

record does not establish how many questions were posed in the interrogatories,

how many requests for production were made, or how many documents were sought. [10]

It also does not show what answers were given, or what documents produced

(apart from the ones noted previously), or how what was answered or given would

have prejudiced Arriaga. The record and

arguments of both parties suggest that Multifuels did not seek additional

discovery—and actually sought to stay discovery in the trial court—after it

demanded and then moved to compel arbitration, albeit after Arriaga had already

complied with Multifuels’s discovery and deposition requests .

Given the relative simplicity of the

case, t he fact that Multifuels instigated

the litigation and immediately sought and received discovery (including Arriaga’s

deposition)—some of which, at least, was clearly related to the merits of

Arriaga’s claims—in a short period of time, lends support to the trial court’s

conclusion that the “totality of the circumstances” demonstrated that

Multifuels had substantially invoked the judicial process. The trial court was not required to believe

Multifuels’s assertion that it did not know about the arbitration agreement—an

agreement which was apparently created by Multifuels and would have presumably

been in Arriaga’s employment file. See In re Yamaha Corp. , No.

09-09-00313-CV, 2009 WL 2051661 , at *1 (Tex. App.—Beaumont, July 16, 2009) (orig.

proceeding [mandamus denied]) (memo. op.) (holding that, given nature of

document, trial court could have reasonably disbelieved relator who asserted

that it was not aware of arbitration clause until year after litigation

began). Moreover, like a recent case

decided by this Court in which we affirmed a trial court’s decision to refuse

to compel arbitration, Multifuels sought arbitration only after it had

benefitted from receiving discovery from Arriaga and when its own discovery to

Arriaga was due. See Okorafor v.

Uncle Sam & Assocs., Inc. , 295 S.W.3d 27, 40 (Tex. App.—Houston [1st

Dist.] 2009, pet. denied).

However, even if the “totality of the

circumstances” demonstrates that Multifuels substantially invoked the judicial

process in this case, thus meeting the first requirement of waiver under Perry Homes , this alone would not be

sufficient for the trial court to have found waiver. There must also have been evidence that Arriaga

suffered actual harm as a result of Multifuels’

use of the judicial process. See In re

Bruce Terminix , 988 S.W.2d

at 704 (“Even substantially invoking the judicial process does not waive a

party’s arbitration rights unless the opposing party proves that it suffered

prejudice as a result [of the invocation of the judicial process]”). In other words, Arriaga must have been harmed in

terms of delay, expenses, or damage to his legal position as a result of being

“forced” to be in the judicial system litigating the dispute for four months

instead of being in arbitration from the start. See id .;

Perry Homes, 258 S.W.3d at 597 ; Williams

Indus. , 110 S.W.3d at 135 .

Arriaga argues that he was prejudiced

because he responded to discovery requests which are not necessarily available

in arbitration. [11] However, the record of does not include a complete

copy of the discovery requests or Arriaga’s responses to them, or a copy of his

deposition. Multifuels asserts that

Arriaga presented no evidence of prejudice to the trial court apart from the

attachments to his response in opposition to the motion to compel—which do not

include a copy of the discovery requests or Arriaga’s responses or a copy of

the deposition. Arriaga does not

contradict this assertion. Instead, he

states that he presented the trial court with “ample evidence,” but he does not

identify any particular evidence that he presented to the trial court, nor does

he cite to any evidence in the record before us as being given to the trial

court. Arriaga argues only that the

trial court was entitled to take judicial notice of its own records and should

be presumed to have done so. He does not

assert that the trial court took judicial notice of any particular document in

the record. We do not have a copy of the

trial court’s record before us and so we do not know what documents the trial

court could have taken judicial notice of, if it so did. However, because Texas Rule of Civil

Procedure 191.4 prohibits the filing of discovery requests, responses, or

documents and tangible things produced in discovery, the record should not have

contained any of those items apart from any attached to other motions, such as

Arriaga’s motion in opposition to the motion to compel. See Tex. R. Civ. Pro. 191.4(a)(1), (2),

(3), (b)(2), (c)(2). Therefore, in light

of Arriaga’s response, we take as true Multifuel’s assertion that the only

evidence that Arriaga offered to the trial court was the documents attached to Arriaga’s

response in opposition to the motion to compel, which included a cover letter

and a copy of the arbitration agreement, a fax cover sheet and Multifuels’

answers to Arriaga’s interrogatories and requests for production. [12] Thus neither the discovery requests to Arriaga

from Multifuels, nor the responses by Arriaga to Multifuels, were before the

trial court when it made its ruling.

“Knowing the amount and content of

discovery is important in determining prejudice because ‘when only a minimal

amount of discovery has been conducted, which may also be useful for the

purpose of arbitration, the court should not ordinarily infer waiver based upon

prejudice.’” Williams Indus. , 110 S.W.3d at 139–40 (quoting In re Bruce Terminix , 988

S.W.2d at 704 ). Without a copy of the discovery

requests to Arriaga and Arriaga’s responses, the trial court could not ascertain

whether by Arriaga’s responses provided Multifuels “information that is not

discoverable in arbitration.” [13] See Williams Indus. , 110 S.W.3d at 135 . The trial court could determine that Arriaga

had not gained anything from discovery in the litigation because Multifuels had

not responded to Arriaga’s discovery requests, but the trial court did not have

any evidence before it that proved that Arriaga was harmed in terms of delay,

expenses, or damage to his legal position by responding to Multifuels’s interrogatories. See

Perry Homes, 258 S.W.3d at 597 ; In re

Bruce Terminix , 988 S.W.2d

at 704 ; Williams Indus. , 110 S.W.3d at 135 . The scant evidence actually

presented to the trial court did not include any information demonstrating harm

to Arriaga arising from delay, expenses, or damage to Arriaga’s legal position. On this record, Arriaga did not meet his

burden to prove that he suffered actual harm as a result of Multifuels’ use of the judicial process. See

Perry Homes, 258 S.W.3d at 597 ; In re

Bruce Terminix , 988 S.W.2d

at 704 ; Williams Indus. , 110 S.W.3d at 135 .

Based on the totality of the

circumstances, we hold that Arriaga did not meet his burden below to show that

Multifuels waived the arbitration agreement.

See Perry Homes , 258 S.W.3d at

593 ; In re Bruce Terminix , 988 S.W.2d

at 705 . Accordingly, Multifuels has met

its burden on mandamus to prove that the trial court abused its discretion denying

Multifuel’s motion to compel arbitration.

Conclusion

We

conditionally grant relator’s petition for writ of mandamus and we

direct the trial court to vacate its May 15, 2009 order and grant relator’s

motion to compel arbitration. We are

confident the trial court will promptly comply, and our writ will issue only if

it does not.

Laura

Carter Higley

Justice

Panel consists of Justices Jennings, Higley,

and Sharp.

Justice Sharp, dissenting

with opinion to follow.

1

The underlying case is

Multifuels, L.P. v. Jesse Arriaga ,

No. 2008-73857, in the 11th District Court of Harris County, Texas, the

Honorable Mike Miller, presiding.

[2] Multifuels

contends that these documents were also not filed with the trial court nor

shown to the trial court.

[3] The

request for injunctive relief was not arbitrable under the arbitration

agreement and was functionally resolved by the issuance of the temporary

injunction.

[4] The

record on mandamus does not contain these interrogatories or deposition. It is clear from the record that there were

also at least 18 requests for production, including requests for documents

related to Arriaga’s counterclaims.

[5] We dismissed Multifuels’ first motion to stay

discovery, and we later denied (J. Sharp, individually) its second “emergency”

motion to stay discovery.

[6] The

term “limited” is Multifuels’s characterization, not Arriaga’s.

[7] Under

the Rules of Appellate Procedure, Arriaga had the opportunity to supplement the

record to bring forward any evidence that was presented to the trial court but

not included in relator’s record. Tex. R. App. P . 52.7(b) (“After the

record is filed, relator or any other party to the proceeding may file

additional materials for inclusion in the record.”).

[8] See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (Vernon Supp. 2009) (providing for

interlocutory appeal of order denying motion to compel arbitration under Federal

Arbitration Act); In Re Helix Energy

Solutions Group, Inc ., 303 S.W.3d 386 , 395 n.7 (Tex. App.—Houston [14th

Dist.] 2010) (original proceeding).

[10] Multifuels

contends in its petition for writ of mandamus that it served requests for

disclosure, requests for production (33) and interrogatories (8) on Arriaga and

Arriaga responded to “some of the same” and “produced some responsive

documents.” There is nothing in the

record that actually establishes that that was the total discovery by

Multifuels or what the answers were that it received and how that would affect

the position of the parties or the lawsuit.

[11] Multifuels erroneously argues that, because the

arbitrator could order

interrogatories and other discovery, Arriaga was not prejudiced by not being

able to receive responses to its discovery requests in the litigation, as

Multifuels had. This same argument was

rejected by the Texas Supreme Court in Perry Homes , the court noting that arbitrators

have almost unbridled discretion, so no one could predict what they could do in

advance. Perry Homes v. Cull , 258

S.W.3d 580, 599 (Tex. 2008).

Multifuels’s comments in its motion to stay discovery pending the

mandamus (remarking that the rules as to discovery might be different in the

courts than in arbitration) also undermine its arguments that Arriaga could not

show prejudice because he could receive discovery in arbitration. See

also Citizens Nat’l Bank v. Bryce , 271 S.W.3d 347, 359 (Tex. App.—Tyler

2008, no pet.) (interlocutory appeal and orig. proceeding [mandamus denied]).

[12] Arriaga

has provided a supplemental mandamus record which includes some correspondence

between the attorneys and some apparent responses by Arriaga to request for production

by Multifuels. Multifuels asserts that

Arriaga did not file or present those documents to the trial court and so they

were not part of the record in the case.

Arriaga has not disputed this assertion and has not asserted that he

presented those documents to the trial court.

Therefore we may not consider those documents in determining whether the

trial court abused its discretion in finding waiver. See

Sabine OffShore Serv., Inc. v. City of Port Arthur , 595 S.W.2d 840, 841

(Tex. 1979) (original proceeding) (on mandamus, appellate court could not

consider evidence that was not part of trial-court record, except to decide its

own jurisdiction); Methodist Hosps. v.

Tall , 972 S.W.2d 894, 898 (Tex. App.—Corpus Christi 1998, no pet.) (“It is

axiomatic that an appellate court reviews actions of a trial court based on the

materials before the trial court at the time it acted.”) However we note that,

even if we could consider such documents, they do not include the

interrogatories or responses that Arriaga claims were prejudicial, and what is

in the supplemental record is insufficient to establish actual harm.

[13] For

this reason, this case is distinguishable from our decision in Okorafor . The

record before us in that case established that, by answering the defendants’

discovery requests, the plaintiff had provided the defendants with the benefit

of discovery relevant to the case on the merits, as well as the defendants’

counterclaims and affirmative defenses, to the extent that the defendants were

“familiar” with the plaintiff’s case on the merits and on the defendants’

counterclaims and affirmative defenses. See Okorafor v. Uncle Sam &

Assocs., Inc. , 295 S.W.3d 27, 41 (Tex. App.—Houston [1st Dist.]

2009, pet. denied). By

contrast, in the case before us, the mandamus record does not establish how

“familiar” Multifuels became with Arriaga’s case from Arriaga’s responses to

discovery—in fact, we do not actually know from this record whether, and to

what extent, Arriaga even fully responded to the requests, whatever they

were. Without knowing the substance of

the requests, or Arriaga’s responses, we cannot say, on this record, that,

because of Arriaga’s responses to Multifuels’s discovery requests, Multifuels

became so “familiar” with Arriaga’s case on the merits, as was the plaintiff in

Okorafor , so as to make such knowledge prejudicial to Arriaga, or that

such knowledge could not have been obtained in arbitration. See

Williams Indus. , 110 S.W.3d at 135 .