Martha Hill Jamison, Justice.
Appellants Sarita Garg, Smith & Garg, LLC, and Garg & Associates, PC (the Garg Parties) challenge the trial court's interlocutory order denying their motion to compel arbitration. After the Garg Parties filed their notice of appeal, we ordered the parties to address whether we have jurisdiction over this appeal of the trial court's interlocutory order. In four issues, the Garg Parties contend that (1) we have jurisdiction over the appeal; (2) all of appellee Tuan Minh Pham's claims are covered by the arbitration clause and it is enforceable against Pham; (3) the Garg Parties did not waive their right to arbitration; and (4) the arbitration clause is not unconscionable.
Pham was an attorney at the law firm Smith & Garg, LLC where Sarita Garg and Brian Smith are (or were) partners. Sarita Garg is also a shareholder of Garg & Associates, PC.
In March 2008, Pham and Smith & Garg, LLC entered into a Partnership Agreement. The Partnership Agreement required Pham to invest a total of $250,000 in Smith & Garg, LLC over time, including an up-front payment of $100,000. In return, Pham became a partner with a one-third interest in any future firm offices or businesses opened by Smith & Garg, LLC.
Pham alleges his investment was to be used only "to operate and expand" the law firm's office in Long Beach and any other office Smith & Garg, LLC subsequently opened. Pham asserts he was never provided an accounting of his investment, access to company records, or decision-making authority. He purportedly was locked out of Smith & Garg, LLC and Smith & Garg, PC, and he contends that the parties' business relationship was "illegally terminat[ed]."
The Garg Parties and Pham were named as defendants in this lawsuit, which was brought by a former client in 2008. Pham subsequently filed his own suit against Garg in December 2010 (the 2010 lawsuit). The former client nonsuited her claims, and the trial court consolidated the two cases in 2012. Pham brought claims against the Garg Parties for common law and statutory fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, misappropriation and unfair competition, conversion, promissory estoppel, quantum meruit, and civil conspiracy.
In May 2014, after trial had been continued several times by request of the parties, the trial court set a trial date for
The Garg Parties subsequently filed a "Motion for Reconsideration of Motion to Compel Mediation and Arbitration and Stay All Claims of Tuan M. Pham." They argued that the motion should be reconsidered based on the merits, not because of their failure to appear. They also argued that even if their counsel had appeared at the hearing, they would not have had time to review and reply to the response Pham filed the morning of the hearing.
The trial court granted the motion for reconsideration and agreed to reconsider the motion to compel arbitration by submission. The court again denied the motion. The Garg Parties filed their notice of interlocutory appeal on September 30, 2014.
In four issues, the Garg Parties argue that we have jurisdiction over the appeal and complain that the trial court denied their motion to compel arbitration. The Garg Parties assert that they established the existence of a valid arbitration agreement, Pham's claims fall within the scope of that agreement, they did not waive their right to arbitration, and the arbitration agreement is not unconscionable.
In their first issue, the Garg Parties assert that we have jurisdiction over this appeal because they filed a timely notice of appeal. The trial court denied the Garg Parties' motion to compel arbitration on August 1, 2014, but subsequently granted their motion to reconsider. The trial court again denied the motion to compel arbitration on August 25. We ordered the parties to address whether the Garg Parties were required to appeal the trial court's first order denying the motion to compel arbitration within the time allowed to perfect an interlocutory appeal or whether they could appeal the trial court's second order denying the motion to compel.
An appeal from an interlocutory order denying a motion to compel arbitration is accelerated. Tex. R. App. P. 28.1(a). A notice of accelerated appeal must be filed within 20 days after the judgment or order is signed unless an extension is granted. Tex. R. App. P. 26.1(b), 26.3. The time for filing a notice of appeal is jurisdictional, and absent a timely filed notice of appeal or an extension request, we must dismiss the appeal. Hydro Mgmt. Sys., LLC v. Jalin, Ltd., No. 04-09-00813-CV, 2010 WL 1817813, at *1 (Tex.App.-San Antonio May 5, 2010, no pet.) (mem.op.) (citing Verburgt v. Dorner, 959 S.W.2d 615, 617 (Tex.1997)).
The Garg Parties' counsel failed to appear at the first hearing on the motion to compel arbitration, which was denied. The Garg Parties then filed their motion to reconsider the denial, asserting that counsel's failure to appear was inadvertent and that Pham did not file a timely response. The trial court granted the motion for reconsideration and ordered that the motion to compel arbitration would be "re-heard by submission" on August 25, 2014. The trial court again denied the motion to compel arbitration on that date.
The Garg Parties assert that we have jurisdiction over their appeal because they filed a timely notice of appeal of the trial court's second order denying their motion
We agree that the trial court's denial of a motion for reconsideration would not extend the appellate timetable and that the trial court's order on a motion for reconsideration is not appealable. However, the Garg Parties are not appealing the trial court's order on the motion for reconsideration. They are appealing the trial court's second order denying the motion to compel arbitration, which the trial court signed after granting the Garg Parties' motion for reconsideration. Pham has cited no case law — and we have found none — that would prevent the Garg Parties from appealing the second denial of their motion to compel arbitration. Likewise, we have found no case law addressing whether the grant of a motion for reconsideration extends the appellate timetable on a motion to compel arbitration.
We find the supreme court's analysis regarding motions to reconsider orders granting motions for new trial to be instructive. A trial court has the authority and responsibility to review any pretrial order upon proper motion. In re Baylor Med. Ctr. at Garland, 280 S.W.3d 227, 231 (Tex.2008). When a trial court grants a motion for new trial, the case stands on the court's docket as if no trial had occurred. Id. at 230-31. If, however, the trial court reconsiders and withdraws its order granting a new trial, the prior judgment is reinstated, and the appellate deadlines run from the later order granting reinstatement rather than the earlier order granting the new trial. Id. at 231. In other words, a trial court sets aside the judgment with a new trial order. See id. If the trial court later reconsiders its order on the motion for new trial and reinstates the judgment, the appellate deadlines run
Here, the trial court denied the Garg Parties' motion to compel but subsequently granted the Garg Parties' motion for reconsideration of the earlier order. The trial court explicitly agreed to "re-hear" the motion to compel, which is similar to granting a motion for new trial. As discussed, the effect of granting a new trial is to set aside the original judgment. See id. We conclude that in agreeing to rehear the motion to reconsider, the trial court similarly set aside the original order denying the motion to compel. The trial court again denied the motion to compel, which is similar to reconsidering a motion for new trial, denying it, and reinstating the original judgment. Accordingly, the appellate timetable began to run from the date the trial court again denied the motion to compel arbitration rather than the date of the original order. See id.; see also Enright v. Goodman Distribution, Inc., 330 S.W.3d 392, 395 n. 2 (Tex.App.-Houston [14th Dist.] 2010, no pet.) (acknowledging that an order granting reconsideration of an order granting motion for new trial caused "appellate timetable [to begin] anew"). We thus conclude that the Garg Parties' notice of appeal was filed timely and we have jurisdiction over this appeal.
We sustain the Garg Parties' first issue.
We now turn to the merits of the appeal to determine whether the trial court erred in denying the Garg Parties' motion to compel arbitration. The arbitration clause does not specifically invoke either the Federal Arbitration Act (FAA) or the Texas Arbitration Act (TAA). Pham asserts on appeal that the FAA controls, and the Garg Parties have not challenged this assertion.
A party moving to compel arbitration must establish the existence of a valid arbitration agreement and that the claims asserted fall within the scope of that agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003). If a relevant party did not sign the document in which the arbitration agreement is found, addressing the first prong includes analyzing whether the nonsignatory is bound by or can enforce the arbitration
In reviewing a denial of a motion to compel arbitration, we review factual findings under a legal sufficiency or "no evidence" standard and legal conclusions de novo. Id. When only the legal interpretation of the arbitration clause is at issue, we review the trial court's ruling de novo. Id. The parties do not dispute the existence of the arbitration clause; instead, they disagree over the scope and enforceability of the clause. Pham raises two defenses to arbitration — waiver and unconscionability.
In its fourth issue, the Garg Parties contend that all of Pham's claims fall under the purview of the arbitration clause.
To determine whether a claim falls within the scope of an arbitration clause, we must "focus on the factual allegations of the complaint, rather than the legal causes of action asserted." In re Rubiola, 334 S.W.3d at 225; FD Frontier Drilling (Cyprus), Ltd. v. Didmon, 438 S.W.3d 688, 695 (Tex.App.-Houston [1st Dist.] 2014, pet. denied). We apply a common-sense
Pham asserts that his causes of action for common law fraud, breach of fiduciary duty, gross negligence, misrepresentation, promissory estoppel, quantum meruit, conversion, misappropriation, unfair competition, and civil conspiracy do not relate entirely to the Partnership Agreement but instead relate in part to an earlier oral compensation agreement and thus fall out-side the scope of the arbitration clause. Pham alleges in his live petition that the parties attended a meeting in January 2008 during which an oral "compensation plan contract ... was implemented and the job title of `Partner' was given to" Pham. Under this alleged oral compensation agreement, Pham was not given a membership interest in Smith & Garg, LLC or a shareholder interest in Smith & Garg, PC, but was to be compensated with a percentage of the fees billed by associate attorneys and a percentage of gross revenues. Pham also alleges that he and Smith & Garg, LLC entered into the Partnership Agreement in March 2008. The Partnership Agreement also addresses the investment Pham made into Smith & Garg, LLC, the compensation to be paid to Pham as a partner in Smith & Garg, LLC, and Pham's responsibilities and other rights as a partner.
The arbitration clause in the Partnership Agreement expressly encompasses any "dispute with regard to [the Partnership] Agreement or any issues related to the Partnership, business, or any logically related entity or business associated with Smith and Garg, [LLC,] Brian Smith, Sarita Garg, or Stephen Pham." The phrase "related to" is very broad. Schwarz v. Pully, No. 05-14-00615-CV, 2015 WL 4607423, at *3 (Tex.App.-Dallas Aug. 3, 2015, no pet.) (mem.op.) (concluding that claims arising out of a separate oral employment agreement related to written partnership agreement with broad arbitration clause). Issues "relate to" a partnership if they have a significant relationship with the partnership or touch partnership matters. See id. (citing Kirby Highland Lakes Surgery Ctr., L.L.P. v. Kirby, 183 S.W.3d 891, 898 (Tex.App.-Austin 2006, no pet.)). Because the arbitration clause is so broad, if the facts alleged "touch matters," have a "significant relationship" to, are "inextricably enmeshed" with, or are "factually intertwined" with partnership business or any other logically related entity or business associated with Smith and Garg, LLC, Brian Smith, Sarita Garg, or Stephen Pham, the claim is arbitrable. See Cotton Commercial USA, Inc. v. Clear Creek ISD, 387 S.W.3d 99, 108 (Tex.App.-Houston [14th Dist.] 2012, no pet.); see also Didmon, 438 S.W.3d at 695. But if the facts alleged in support of the claim stand alone and are completely independent of these matters, and the claim could be maintained without reference to them, the claim is not subject to arbitration. Cotton Commercial USA, 387 S.W.3d at 108; Didmon, 438 S.W.3d at 695-96.
Pham alleges that he was not compensated in accordance with the Partnership Agreement and the Garg Parties failed to provide him an accounting of his investment or access to company records, failed to provide him with decision-making authority in Smith & Garg, LLC and Smith & Garg, PC, and improperly terminated their business relationship with him. The Garg Parties' duty to compensate Pham and provide Pham with accountings, access to company records, and decision-making
We shall determine whether Pham's causes of action for common law fraud, breach of fiduciary duty, gross negligence, misrepresentation, promissory estoppel, quantum meruit, conversion, misappropriation, unfair competition, and civil conspiracy involving the oral compensation agreement are "issues related to the Partnership, business, or any logically related entity or business associated with Smith and Garg, [LLC,] Brian Smith, Sarita Garg, or Stephen Pham" by examining the following allegations, in relevant part, with regard to each claim:
Pham alleges he became a partner of Garg & Smith, LLC and Garg & Smith, PC under the oral compensation agreement. All of the above allegations deal with a dispute over partnership resources, responsibilities, and liability. Garg & Smith, PC is an "entity or business" that is "logically related to" Garg & Smith, LLC. Accordingly, we conclude Pham's claims all relate "to the Partnership, business, or any logically related entity or business associated with Smith and Garg, [LLC,] Brian Smith, Sarita Garg, or Stephen Pham" and are arbitrable under the plain language of the arbitration clause. See Schwartz, 2015 WL 4607423, at *4; see also McGehee v. Bowman, 339 S.W.3d 820, 825 (Tex.App.-Dallas 2011, no pet.).
Pham, the plaintiff below, is a signatory to the Partnership Agreement. A claimant cannot seek to hold a nonsignatory liable for duties imposed by an agreement that contains an arbitration clause, but then deny arbitration's applicability because the defendant is a nonsignatory. Parker, 475 S.W.3d at 924 (citing Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306 (Tex.2006)). In that connection, under principles of equitable estoppel, a claimant who sues based on a contract subjects himself or herself to the contract's terms, including the arbitration clause. G.T. Leach Builders, 458 S.W.3d at 527. For a nonsignatory to be able to enforce an arbitration clause based on equitable estoppel, the claim must not only relate to the agreement containing the arbitration clause, but the claimant must also seek to derive a direct benefit — that is, a benefit that stems directly from that agreement. Id.; see also Parker, 475 S.W.3d at 924; Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling Co., 475 S.W.3d 436, 442 (Tex.App.-Houston [14th Dist.] 2015, no. pet.). The claim must depend on the existence of the contract and be unable to stand independently without the contract. G.T. Leach Builders, 458 S.W.3d at 527-28.
In examining whether Garg & Associates, PC may invoke the Partnership Agreement's arbitration clause, we again note that Pham's claims all relate "to the Partnership, business, or any logically related entity or business associated with Smith and Garg, [LLC,] Brian Smith, Sarita Garg, or Stephen Pham" and are arbitrable under the plain language of the arbitration clause. Moreover, Pham seeks damages for breaches of the Partnership Agreement and related torts from all of the appellants. Although Pham contends that his claims depend in part on an earlier oral compensation agreement, he seeks compensation under both that agreement and the Partnership Agreement.
Because (1) Pham was a signatory to the Partnership Agreement; (2) Pham agreed to arbitrate "any issues related to the Partnership, business, or any logically related entity or business associated with Smith and Garg, [LLC,] Brian Smith, Sarita Garg, or Stephen Pham," which includes Garg & Associates, PC; and (3) Garg & Associates, PC's liability cannot be determined without reference to the Partnership Agreement, we hold the doctrine of equitable estoppel applies. See Parker, 475 S.W.3d at 924-25 (citing Meyer, 211 S.W.3d at 306-07 (applying doctrine of equitable estoppel to motion to compel arbitration by parties who were not signatories to arbitration agreement), Pers. Sec. & Safety Sys. Inc. v. Motorola Inc., 297 F.3d 388, 394-95 (5th Cir.2002) (holding arbitration clause in one agreement that is "essential" to an "overall transaction" presumptively applies to "other contemporaneously executed agreements that are part of the same transaction"), and Kirby, 183 S.W.3d at 900-01 (same)). Accordingly, Garg & Associates, PC, is entitled to compel arbitration if Pham has not established any defenses to arbitration.
We sustain the Garg Parties' fourth issue.
In their second issue, the Garg Parties contend that they did not waive their right to arbitration. Pham argues to the contrary that the Garg Parties substantially invoked the judicial process and thus impliedly waived their right to arbitration.
A party can substantially invoke the judicial process when it participates in full discovery, files motions going to the merits, and waits until the eve of trial to seek arbitration. In re Fleetwood Homes of Tex., L.P., 257 S.W.3d 692, 693 (Tex.2008) (citing In re Vesta Ins. Group, 192 S.W.3d 759, 764 (Tex.2006)). But the strong presumption against waiver of arbitration renders this hurdle a high bar. Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex.2014). In close cases, the strong presumption against waiver should govern. Cooper Indus., 475 S.W.3d at 449 (citing Perry Homes, 258 S.W.3d at 593).
We must decide waiver on a case-by-case basis by assessing the totality of the circumstances. See Kennedy Hodges, 433 S.W.3d at 545. The party's conduct must be unequivocally inconsistent with claiming a known right to arbitration. Cooper Indus., 475 S.W.3d at 449. The supreme court has considered such nonexclusive factors as (1) when the movant knew of the arbitration clause and the length of delay before seeking arbitration; (2) how much discovery was conducted, who initiated it, and whether it related to the merits rather than arbitrability or standing; (3) how much of the discovery would be useful or unavailable in arbitration; (4) how much pretrial activity related to the merits rather than arbitrability or jurisdiction and how much time and expense has been incurred in litigation; (5) whether the movant sought judgment on the merits; (6) whether the movant filed affirmative claims or dispositive motions; (7) whether the movant sought or opposed arbitration earlier in the case; (8) whether activity in court would be duplicated in arbitration; (9) whether the movant is a plaintiff or a defendant; and (10) when the case was set for trial.
Pham contends that the Garg Parties substantially invoked the judicial process because (1) they knew about the arbitration clause from the beginning of the litigation, but chose to wait until "the eve of trial and after [Pham] sought summary judgment on the merit[s] to invoke the arbitration clause"; (2) they participated in extensive discovery and other pretrial activity related to the merits of the litigation;
The Garg Parties filed their motion to compel arbitration in June 2014 subject to Sarita Garg's special appearance. They argue that their delay in filing the motion to compel was reasonable because Pham did not serve Smith & Garg, LLC and Garg & Associates, PC until 2011 and never properly served Sarita Garg.
Delay alone does not establish waiver. In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002). Although delay is relevant in a determination of whether a party has substantially invoked the judicial process, the focus is on the amount of pretrial activity and discovery related to the merits of the case during that time period.
In Perry Homes, the supreme court held that the movants waived their right to arbitration because they participated in the lawsuit for 14 months, "changed their minds and requested arbitration ... shortly before the ... trial setting," and their "change of heart ... unquestionably delayed adjudication of the merits." 258 S.W.3d at 596. In reaching its conclusion, the court acknowledged that waiting until the eve of trial and moving for arbitration "very late in the trial process" can result in waiver. Id. The court acknowledged that the rule that one cannot wait until the eve of trial is not limited to the evening before trial: it is a rule of proportion that may be implicated depending on how late
As discussed more fully below, the motion to compel arbitration was not filed late in the litigation process under these circumstances. Trial was scheduled to commence seven months after the motion was filed.
For purposes of our analysis, we consider only pretrial activity that occurred after Pham's claims against the Garg Parties were consolidated into this lawsuit and any evidence in the record regarding pretrial activity in the 2010 lawsuit. Pham presented no evidence of any pretrial activity in the 2010 lawsuit other than the motion for default judgment he filed against Smith & Garg, LLC and Garg & Associates, PC. Pham had the burden to establish that the Garg Parties substantially invoked the litigation process. See G.T. Leach Builders, 458 S.W.3d at 511-12. Accordingly, we limit our analysis to the motion for default judgment in the 2010 lawsuit and pretrial activity occurring after the February 2012 consolidation, which consisted of motions for trial continuance filed jointly by the parties, Sarita Garg's special appearance, and Pham's motion for summary judgment.
Pretrial activity consisting of motions for trial continuance and Sarita Garg's special appearance do not relate to the merits of the case. See Cooper Indus., 475 S.W.3d at 451. Neither does Pham's motion for default judgment, in which Pham sought judgment based on procedural default, without an adjudication on the merits. See Sutherland v. Spencer, 376 S.W.3d 752, 756 (Tex.2012) (acknowledging a default judgment is based on procedural default rather than an adjudication on the merits). The only motion relating to the merits of the case — the motion for summary judgment — was filed by Pham and does not weigh in favor of finding waiver. See Vesta Ins. Group, 192 S.W.3d at 763-64 (noting pretrial costs incurred by party opposing arbitration were "largely self-inflicted" because he sent more discovery requests than he received and amended his petition at least eleven times and acknowledging that although allowing a party to "file motions going to the merits," among other things, "defeats the FAA's goal of resolving disputes without the delay and expense of litigation," proponents of arbitration did not do so when they only filed a motion to dismiss based on standing and engaged in limited discovery).
Neither responding to discovery nor propounding limited written discovery waives arbitration. G.T. Leach Builders, 458 S.W.3d at 514. Form requests for disclosure seek basic information about a lawsuit, and serving them does not waive the right to arbitration. Id. The Garg Parties' limited participation in discovery weighs against a finding of substantial invocation of the judicial process. See, e.g., Vesta Ins. Group, 192 S.W.3d at 763 (holding
Pham argues that he suffered prejudice because the Garg Parties waited until the eve of trial to file their motion to compel arbitration and Pham lost time and financial resources in prosecuting his claims. As discussed above, delay also may be a factor in whether the nonmovant has suffered prejudice. Id. But even substantial delay will not show prejudice because waiver cannot be implied from a party's inaction. Id. As discussed above, the only pretrial activity related to the merits of the litigation that caused Pham to incur lost time and expenses relates to Pham's own actions. Pham has failed to show how the Garg Parties' delay in filing the motion to compel prejudiced him.
Pham also argues that he has suffered prejudice because the Garg Parties delayed in responding to his discovery requests and provided incomplete responses and thus the discovery conducted will not be useful in arbitration.
Pham also does not elaborate on what information the responses provided. Knowing the content of discovery is important
We sustain the Garg Parties' second issue.
Having concluded that there was no waiver of arbitration, we next consider the Garg Parties' third issue regarding whether the arbitration clause was unconscionable. Pham argues the arbitration clause is substantively unconscionable because of the cost of arbitration under the AAA.
A court may not enforce an arbitration agreement if it finds the agreement was unconscionable at the time it was made. Tex. Civ. Prac. & Rem. Code § 171.022. The test of substantive unconscionability is whether, given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 678 (Tex.2006) (citing In re FirstMerit Bank, NA., 52 S.W.3d at 757). Federal and state courts have recognized the possibility that the excessive costs of arbitration might, under certain circumstances, render an arbitration agreement unconscionable. See Olshan
Pham provided no cost amount, estimated or verified, below or on appeal, to support his argument. Instead, he speculates that the cost of arbitration may be excessive. Pham concedes that he cannot determine the cost of arbitration with the AAA, but guesses that the parties may incur the expense of a forensic accountant "making the cost of arbitration ... exuberant [sic]."
We sustain the Garg Parties' third issue.
We conclude that we have jurisdiction over this appeal, Pham's claims are all within the scope of a valid arbitration clause, Garg & Associates, PC can compel Pham to arbitration, the Garg Parties did not waive their right to arbitration, and the arbitration agreement was not unconscionable due to the cost of arbitration. Accordingly, we reverse the trial court's order denying the Garg Parties' motion to compel arbitration, render judgment ordering arbitration of Pham's claims against the Garg Parties, and remand this case for proceedings consistent with this opinion, including the grant of an appropriate stay. See Tex. Civ. Prac. & Rem. Code § 171.025(a).