The Court’s 5-4 ruling last Friday in Perry Homes v. Cull, No. 05-0882 (Tex. May 2, 2008), probably won’t help.
The case. The Culls, husband and wife, bought a new dwelling for their retirement years from Perry Homes in 1996. They discovered foundation problems and other construction defects. In October 2000, they filed suit in Tarrant County district court. On December 6, 2001, four days before a trial setting, they persuaded the trial judge to send the dispute to arbitration. The defendants unsuccessfully petitioned the Fort Worth court of appeals and the Supreme Court to undo the order. A year later, on December 24, 2002, the arbitrator awarded the Culls $800,000 in actual and punitive damages, fees, and expenses.
Perry Homes asked the district court to vacate the award on the ground, among others, that the Culls waived their right to arbitrate by substantially invoking the judicial process. The court denied the motion. The court of appeals affirmed.
Perry Homes petitioned the Texas Supreme Court to grant discretionary review. Fourteen months later, the Court took the case. It heard oral argument on March 20, 2007, and rendered its decision reversing the lower courts on May 2, 2008.
Timeline. The parties
- litigated in court for 14 months (Oct. 2000-Dec. 2001),
- arbitrated 12 months (Dec. 2001-Dec. 2002),
- battled over confirming the award in district court 14 months (Dec. 2002-Feb. 2004),
- fought in the court of appeals 18 months (Feb. 2004-Aug. 2005), and
- spent 31 months before the Supreme Court (Oct. 2005-May 2008).
Decision. The appeal to the Supreme Court raised two main questions:
Who decides the "waiver" question — a court or the arbitrator?
— and —
Did the district court abuse its discretion in concluding that the Culls didn’t waive their right to arbitrate?
The majority held that a court, not an arbitrator, must determine the question of waiver by "litigation conduct" and that the trial judge did abuse his discretion.
Critique. Blawgletter found the Court’s analysis of the first issue the more troubling. We don’t mind so much its gloss on Howsam v. Dean Witter Reynolds, Inc., 531 U.S. 79, 84 (2002), where that Court said "the presumption is that the arbitrator should decide ‘allegations of waiver, delay, or a like defense to arbitrability.’" Federal courts of appeals agree that the Howsam Court didn’t mean waiver by "litigation conduct", which the court considering whether to compel arbitration is in a better position to evaluate. It meant waiver by doing something like waiting too long to request arbitration.
No. The trouble comes from the Perry Homes Court’s glossing over a possibly key distinction — that the arbitration had already happened. Couldn’t — shouldn’t — the defendants have asked the arbitrator to find waiver of the Culls’ right to arbitrate? The arbitration clause covered "all claims, demands, disputes, controversies, and differences that may arise between the parties to this Agreement of whatever kind or nature". Doesn’t that include a dispute over waiver? And how is the court in a better position to judge waiver if the, um, court has already judged that there was none? At the least, shouldn’t the loser have to show more after losing than before? The majority (and dissent) leave us to wonder.
As for the abuse of discretion question, it drew four dissenters. Yes, they conceded, the Culls did wait a long time to ask for arbitration and did do a lot of stuff in the district court. But:
I conclude the record is not conclusive either that Defendants suffered prejudice as they claimed or that the Culls obtained an unfair advantage by litigation conduct as the Court holds. I also conclude that evidence before the trial court required the court to weigh and draw inferences from it and that some evidence supports the trial court’s determination that Defendants did not prove prejudice to themselves or unfair advantage to the Culls by use of the litigation process. Accordingly, I would hold that the trial court did not abuse its discretion by compelling the parties to arbitrate and I would affirm the judgment of the court of appeals.
We tend to agree with Justice Phil Johnson, who wrote the dissent.
Observations. The outcome wouldn’t have much bothered us, we think, if it had come out in April 2002, when the Court declined to issue a writ of mandamus. Even then, it would have stood out among the multiple cases in which the Court gave the back of its hand to plaintiffs who alleged that defendants waived the right to arbitrate. But we wonder at the wisdom of using the Culls’ case, after they won on the merits, to teach a lesson about waiver. Haven’t they suffered enough — not least by having to wait 31 months for the Court to give them an answer? Wouldn’t the bench and bar have learned more if the Court taught the lesson to a defendant that "substantially invoked" the litigation process before demanding arbitration?
reached out to review an order it declined to examine six years ago;
waited 2.5 years to decide whether or not to uphold the order; and
stretched to vacate an arbitration award.
We haven’t seen a single decision, from any court, that vacated an arbitration award because a party waived the right to arbitrate. Perry Homes cites none. It strikes us as harsh and extreme.
Finally, as we have mentioned, the Court swayed more non-Texas courts to "follow" its legal reasoning during the six years between 1993 and 1998 than at any other time since 1940. We proposed that the "balance" of Republican and Democratic justices in those years likely accounted for the exceptional quality and persuasiveness of the Court’s opinions. We don’t have balance any more.
The shift to a one-party Court has coincided with a dip in influence. Perry Homes may help illustrate why.