ANDREW W. AUSTIN, Magistrate Judge.
Before the Court are: Defendants' Motion to Compel Arbitration (Dkt. No. 25); Amended Plaintiff's Opposition to Defendants' Motion to Compel Arbitration (Dkt. No. 28); Defendants' Reply in Support of Motion to Compel Arbitration and Dismiss (Dkt. No. 32); and Defendants' Objections to Plaintiff's Evidence Submitted in Opposition to Motion to Compel Arbitration (Dkt. No. 33).
Franklin Leal worked as a television news producer for the local Telemundo television station run by KEYE-TV, a Texas-based CBS Television affiliate. Leal, who is Hispanic, produced the Spanish language news segments for the television station until he was terminated on September 11, 2015. Leal alleges he was discriminated against, retaliated against, and ultimately fired because of his national origin and alleged mental disability.
On May 10, 2016, Leal filed this lawsuit in the 250th Judicial District of Travis County, Texas against Sinclair Broadcast Group, Inc., the owner and operator KEYE-TV, San Antonio Television, LLC, a subsidiary of Sinclair, Telemundo Austin KEYE-TV, Amy Villarreal, in her individual capacity, and Ana Maria Lamas, in her individual capacity ("Defendants"). Leal's lawsuit alleges (1) discrimination and hostile work environment claims under Title VII of the Civil Rights Act of 1964 and the Texas Commission on Human Rights Act; (2) retaliation claims under Title VII and the TCHRA; (3) discrimination on the basis of, and failure to accommodate, his alleged mental disability under the Americans with Disabilities Act and the TCHRA; (4) intentional infliction of emotional distress under Texas law; and (5) wrongful discharge under Texas law.
On June 10, 2016, Defendants removed the case on the basis of federal question jurisdiction under 28 U.S.C. § 1331. On June 17, 2016, Defendants filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), seeking the dismissal of Leal's IIED and wrongful discharge claims, and of the individual defendants. See Dkt. No. 6. On September 26, 2016, the undersigned issued a Report and Recommendation recommending that the Motion to Dismiss be granted in part and denied in part. See Dkt. No. 20. Specifically, the Court recommended that the District Court dismiss Defendants Telemundo Austin KEYE-TV, Amy Villarreal and Ana Maria Lamas from this lawsuit as they were not subject to suit. The Court further recommended that the District Court dismiss Leal's state law claim for intentional infliction of emotional distress for failure to state a claim on which relief may be granted. Finally, the Court recommended that the District Court deny the Motion to Dismiss with regard to the state law wrongful discharge claim and permit Leal to re-plead his wrongful discharge claim under Texas law. The Court further noted that Leal's claims against Sinclair Broadcast Group, Inc. and San Antonio Television, LLC under Title VII, the ADA and the TCHRA remained in the lawsuit as they were not at issue in the Motion to Dismiss.
On December 22, 2017, the District Court adopted the Report and Recommendation in full and dismissed Leal's claims against Defendants Telemundo Austin KEYE-TV, Amy Villarreal, and Ana Maria Lamas and dismissed his state-law claim for intentional infliction of emotional distress with prejudice. Dkt. No. 23. The District Court denied the Motion to Dismiss with regard to Leal's state-law claim of wrongful discharge, and ordered Leal to file an Amended Complaint before January 6, 2017. On January 5, 2017, Leal filed his Amended Complaint against Sinclair Broadcast Group, Inc. and San Antonio Television, LLC., reasserting his employment discrimination, retaliation and hostile work environment claims under Title VII, the ADA, and TCHRA and repleading his state wrongful discharge claim and alleging that Defendants violated his Employment Agreement. In response, Defendants filed the instant Motion to Compel Arbitration and Dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). in which they argue that the Employment Agreement Leal relies on contains an arbitration clause requiring Leal to submit all the claims asserted in this case to binding arbitration.
In his Amended Complaint, Leal alleges that on October 11, 2013, he entered into "an enforceable employment contract" that limited the Defendants' right to discharge him "at will." Dkt. No. 24 at ¶ 26. Leal attaches a copy of the agreement to his Amended Complaint. He alleges that Defendants violated the Employment Agreement by wrongfully discharging him and failing to pay him through the contract term. In response, Defendants now claim—for the first time—that the Employment Agreement contains an arbitration clause that requires Leal to submit the claims raised in this lawsuit to arbitration. Defendants rely on the following language in the Employment Agreement:
Dkt. No. 25-2 at 9. Based on this language, Defendants argue that Leal must pursue his claims in arbitration and the case should be dismissed. In response, Leal contends that the Court should not enforce the arbitration clause because (1) the arbitration clause is procedurally and substantively unconscionable and/or (2) Defendants have waived their right to seek arbitration. The Court will address the waiver argument first.
There is a "strong federal policy in favor of enforcing arbitration agreements." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985). However, "[t]he right to arbitrate a dispute, like all contract rights, is subject to waiver." Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir. 2009). Thus, "[a] party who has entered into an agreement to arbitrate must insist on this right, lest it be waived." Janvey v. Alguire, 847 F.3d 231, 243 (5th Cir. 2017). Although waiver of arbitration is not a favored finding, "[w]aiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986). As the Fifth Circuit has explained:
Id. Under well-established Fifth Circuit precedent, a party waives its right to arbitrate if it (1) substantially invokes the judicial process and (2) thereby causes detriment or prejudice to the other party. Janvey, 847 F.3d at 243.
"A party generally invokes the judicial process by initially pursing litigation of claims then reversing course and attempting to arbitrate those claims." Nicholas, 565 F.3d at 907. As the Fifth Circuit has further explained, "[t]o invoke the judicial process, a party must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration." In re Mirant Corp., 613 F.3d 584, 589 (5th Cir. 2010). As mentioned, Leal did not invoke the arbitration clause, but instead filed suit in state court. Defendants similarly did not invoke their rights under the clause, instead choosing to remove the case to this Court and then file a substantive motion to dismiss requesting that the Court dismiss several defendants and claims in this lawsuit. Defendants did not mention the arbitration clause in its removal or in the motion to dismiss. Defendants waited some eight months after Leal filed his original lawsuit in state court to invoke the arbitration clause.
Defendants contend that they did not substantially invoke the judicial process because they only filed a partial motion to dismiss which they contend is insufficient to "substantially invoke" the process.
By removing this case to Federal Court and filing a substantive motion to dismiss, Defendants demonstrated a clear and unmistakable "disinclination" to arbitrate this case. See Petroleum Pipe, 575 F.3d at 482 (holding that party invoked the judicial process by waiting a year after suit was filed to move for arbitration, removing case to federal court, filed counterclaims, participated in discovery and sought a ruling from the court on settlement agreement); Nicholas, 565 F.3d at 908 (finding that party invoked the judicial process by filing suit and pursuing claims for ten months before invoking her right to arbitrate); Jallo v. Resurgent Capital Servs., LP and LVNV Funding, LLC., 131 F.Supp.3d 609, 614-15 (E.D. Tex. Aug. 7, 2015) (finding that party invoked judicial process by waiting ten months to move for arbitration after they had filed answers, motions to stay, motions for judgment on the pleadings and motions for extensions of time); Parker v. ABC Debt Relief, Ltd. Co., 2011 WL 13156874, *2 (N.D. Tex. Nov. 4, 2011) (holding that defendant invoked judicial process by filing numerous motions to dismiss, filed answers and participated in discovery).
Also like the defendant in In re Mirant Corp., Leal moved to compel arbitration only after the District Court denied the Motion to Dismiss with regard to the wrongful discharge claim and permitted Leal to file an Amended Complaint. Defendants should not be allowed "a second bite of the apple through arbitration." Petroleum Pipe, 575 F,3d at 482. "To hold otherwise would encourage litigants to delay moving to compel arbitration until they could ascertain how the case was going in federal district court." In re Mirant Corp., 613 F.3d at 590 (internal quotation marks and citation omitted). "In essence, [Defendants] attempted to play `heads I win, tails you lose,' which is the worst possible reason for failing to move for arbitration sooner than it did." Id. Based upon the foregoing, the Court finds that Defendants substantially invoked the judicial process in this case.
"In addition to invocation of the judicial process, the party opposing arbitration must demonstrate prejudice" before the Court will find a waiver of the right to arbitrate. Nicholas, 565 F.3d at 910. "Prejudice in the context of arbitration waiver refers to delay, expense, and damage to a party's legal position." Id.
Leal has been prejudiced by Defendants' delay in raising the arbitration clause. As noted, Defendants waited eight months before filing a motion to compel arbitration, during which time Defendants removed the case to federal court and obtained dismissal of some of Leal's claims. See Nicholas, 565 F.3d at 910 (finding that ten month delay without mentioning arbitration clause was prejudicial). "While delay in asserting the right to arbitrate will not alone result in waiver, such delay does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred." Id. (internal citations and quotations omitted). During this delay, Leal was prejudiced by unnecessary litigation costs in defending against the removal, the motion to dismiss, and this motion to compel arbitration. See In re Mirant Corp., 613 F.3d at 591 (finding that plaintiff was prejudiced by legal expenses incurred as a result of use of the federal court system). Leal's attorney has spent 586 hours on the litigation in this case since it was removed to federal court. See Attach. 2 to Dkt. No. 28. "These are precisely the expenses of litigation that arbitration is designed to avoid." Nicholas, 565 F.2d at 911. In addition, Leal has had to respond Defendants' Motion to Dismiss which has given Defendants a preview of Leal's litigation strategy. See Parker, 2011 WL 13156874 at * 3 (finding that plaintiff was prejudiced by not just litigation costs but by having to respond to motions thereby giving defendants a preview of litigation strategy). Based upon the foregoing, the Court finds that Leal has been substantially prejudiced as a result of Defendants' invocation of the judicial process. Accordingly, the Court finds that Defendants have waived their right to arbitration.
Based upon the foregoing, the undersigned Magistrate Judge
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53, 106 S.Ct. 466, 472-74 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
