in Re Gerald W. Haddock

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH

NO. 2-06-472-CV

GERALD W. HADDOCK APPELLANT

V.

WILLIAM F. QUINN, PAUL E. ROWSEY, III, APPELLEES
JOHN GOFF, TERRY N. WORRELL,
CRESCENT REAL ESTATE EQUITIES
COMPANY, CRESCENT REAL ESTATE
LIMITED PARTNERSHIP AND CRESCENT
REAL ESTATE EQUITIES, LTD.

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FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY

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AND

NO. 2-07-048-CV

IN RE GERALD W. HADDOCK RELATOR

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ORIGINAL PROCEEDING

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OPINION
I. Introduction

In this consolidated interlocutory appeal and mandamus proceeding,

Relator and Appellant Gerald W. Haddock seeks relief from the trial court’s

order staying arbitration proceedings that he initiated against Appellees and Real

Parties in Interest W illiam F. Quinn, Paul E. Rowsey, III, John Goff, Terry N.

Worrell, Crescent Real Estate Equities Company (“CEI”), Crescent Real Estate

Equities Limited Partnership (“CREELP”), and Crescent Real Estate Equities,

Limited (“CREE”).

Haddock raises three issues. In his first issue, Haddock argues that the

trial court improperly assumed jurisdiction because the parties contracted to

have all issues—including questions of arbitrability—decided by arbitration.

Second, Haddock contends that even if the trial court had jurisdiction to decide

some issues of arbitrability, the main issue in this case—whether he repudiated

or waived arbitration—should be decided by an arbitrator. Third, Haddock

argues that the trial court erred and abused its discretion by concluding that he

repudiated or waived arbitration by engaging in prior litigation that was

inconsistent with arbitration.

Real Parties in Interest contend that the issue of repudiation or waiver

was properly for the court to decide and that the trial court correctly determined

that Haddock repudiated, or in the alternative waived, arbitration of his claims

2
by substantially invoking the judicial process to their detriment. They argue

that the trial court correctly concluded that the remaining claims asserted by

Haddock, individually and derivatively on behalf of CEI stockholders and against

nonsignatories, are not within the scope of the arbitration agreement.

II. Factual and Procedural Background

A. The Parties

1. The Crescent Entities

CEI is a publicly held real estate investment trust (commonly referred to

as a “REIT”) organized under the laws of the state of Texas. CEI is structured

as an Umbrella Partnership Real Estate Investment Trust whereby CEI owns a

majority of the limited partnership interests in CREELP, a Delaware limited

partnership. This organizational structure (referred to as an “UPREIT”) allows

owners of investment real estate to sell their properties to CREELP in exchange

for CREELP units, which the seller may later convert into CEI common stock.

The real estate owners incur no income tax liability until they sell the stock.

CREE, a Delaware corporation, is a wholly owned subsidiary of CEI and serves

as CREELP’s general partner.

3
 2. The Individuals

In 1994, Haddock and two cofounders created the Crescent Entities and

related companies. Prior to 1994, Haddock had served in various capacities in

companies formed by one of the cofounders, including serving as lead

transactional attorney and chief negotiator. Of the individual Real Parties in

Interest, John Goff currently serves as CEI’s CEO and Vice Chairman. William

Quinn, Paul Rowsey III, and Terry Worrell serve as members of CEI’s Board of

Trust Managers.

B. The CREELP Partnership Agreement and Arbitration Clause

In February 1994, Haddock, as CEI’s President, signed a limited

partnership agreement on behalf of CEI, CREE, and several limited partners to

form the CREELP limited partnership. CREE was CREELP’s general partner.

Haddock became a limited partner in CREELP as well as President of CEI, and

he became CEO of CEI in 1996. As an officer and senior management

employee, Haddock received options to purchase units in CREELP in 1995 and

1996, which were exchangeable for CEI common stock. The options for both

the CREELP units and CEI stock were created by incentive plans adopted by

those entities’ respective governance committees.

The original CREELP limited partnership agreement did not contain an

arbitration agreement. However, in May 1994, the limited partnership

4
agreement was amended to add an arbitration agreement that provides, in

pertinent part:1

Section 16.1 Arbitration

Notwithstanding anything to the contrary contained in this
Agreement, all claims, disputes and controversies between the
parties hereto (including, without limitation, any claims, disputes,
and controversies between the Partnership and any one or more of
the Partners and any claims, disputes and controversies among any
two or more Partners) arising out of or in connection with this
Agreement or the Partnership created hereby, relating to the
validity, construction, performance, breach, enforcement or
termination thereof, or otherwise, shall be resolved by binding
arbitration in the State of Texas, in accordance with this Article 16
and, to the extent not inconsistent herewith, the Expedited
Procedures and Commercial Arbitration Rules of the American
Arbitration Association.

The arbitration agreement contains additional paragraphs of detailed procedures

to be followed in any arbitration proceedings under the agreement, including an

expedited schedule for selection of an arbitration panel, for commencement and

completion of the arbitration proceeding within sixty days after selection, and

for rendition by the panel of its award within thirty days thereafter.

1
… Each of several amended partnership agreements contain the identical
arbitration provision.

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 C. The Severance Agreement

In June 1999, Haddock resigned from his executive positions and entered

into a confidential severance agreement with CEI and CREELP, which provided

for him to receive certain cash compensation and which, together with

simultaneously executed amended unit option and stock option agreements,

accelerated the vesting of certain of his CREELP unit options and CEI stock

options that he had previously received as part of his compensation. The

agreement called for Haddock to relinquish all of his remaining unvested unit

options and stock options. Paragraph 13 of the severance agreement (the

“unfavorable-comments clause”) restricted both Haddock and the Crescent

Entities from making unfavorable comments about the other or about Haddock’s

job performance. The severance agreement did not contain an arbitration

clause.

D. The Prior Lawsuit

In March 2005, Haddock filed a suit for a declaratory judgment and for

temporary and permanent injunctions against the Crescent Entities in the 17th

District Court of Tarrant County, Texas. Haddock pleaded his prior status as

CEO and President of CEI, CREE, and other related entities referred to in his

petition as “the Employer Group,” that he and the Employer Group had agreed

to terminate his employment relationship in June 1999, and that the parties had

6
entered into a confidential severance agreement that he would file under seal

with the court. Haddock stated that as consideration for his resignation from

all directorships and offices held in the Employer Group, the severance

agreement provided that, in addition to stock and units in CEI and CREELP that

he already owned, he was promised certain cash compensation as well as the

accelerated vesting of certain stock and partnership unit options and that he

thereby became immediately vested in a large number of stock and unit options

in both CEI and CREELP.

In his petition, Haddock further explained that he had become

“concerned” that the Crescent Entities were being managed and operated

adversely to interests of shareholders and unitholders by offering executives

excessive compensation packages and risky loans that seriously jeopardized the

financial health and stability of the entities. Haddock alleged that he desired to

discuss these concerns with fellow shareholders and unitholders and to further

investigate but feared that doing so might be construed by the Crescent entities

as a breach of the unfavorable comments clause in the severance agreement.

Haddock alleged that he had received threats that the Crescent Entities would

forfeit his options as a result of his conduct in discussing those matters and

exposing their “questionable practices.”

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 Haddock sought to clarify or reform the severance agreement by a

declaratory judgment that the unfavorable comments clause of the severance

agreement was void or limited to statements rising to the level of actionable

defamation. He also sought and obtained a temporary restraining order against

the Crescent Entities from “[t]hreatening or taking any action to declare

forfeited or interfere with” his rights in any shares of CREE or CREELP, already

owned by him or shares or units subject to an unexercised option held by him.

The restraining order granted by the trial court also provided that all parties

were to abide by the unfavorable-comments clause. The parties later agreed

to an order extending the temporary restraining order until the date of trial,

originally scheduled for August 29, 2005.

The Crescent Entities filed a counterclaim asserting that Haddock had

breached the terms of both the severance agreement and a subsequent 2001

settlement agreement, general release, and covenant not to sue for claims and

causes of action in any way connected with his prior employment or

termination.

In June 2005, Haddock filed a motion to clarify or modify the temporary

restraining order, alleging that he proposed to exercise his rights as a unitholder

in CREELP and the right to have the value of his options adjusted in accordance

with “relevant agreements and plans” under which the options were created.

8
Haddock alleged in that motion that he had reason to believe he had one or

more common law and statutory causes of action against the Crescent Entities

related to management and desired “to assert these claims in this suit, or in

another suit.” Haddock requested in his motion that the court remove all doubt

that filing those lawsuits would not violate the terms of the severance

agreement and that it either clarify or modify the temporary restraining order to

permit him to file the lawsuits.

Haddock subsequently filed two motions for summary judgment, one as

to the enforceability of the severance agreement and the other as to the

Crescent Entities’ counterclaim; the Crescent Entities likewise moved for

summary judgment. After a two-day hearing, the trial court signed a final

judgment on December 1, 2005, ordering that Haddock and the Crescent

Entities take nothing on their respective claims and counterclaims. Haddock

appealed to this court from the take-nothing summary judgment against him,

but he later moved to dismiss the appeal, and we dismissed it on April 6, 2006.

See Haddock v. Crescent Real Estate Equities Co., No. 02-06-00096-CV, 2006

WL 909470, at *1 (Tex. App.—Fort Worth Apr. 6, 2006, no pet.).

E. The Arbitration Demand

On December 6, 2005, six days after the trial court signed its final

judgment, Haddock wrote to the CEI Compensation Committee, requesting that

9
it adjust the exercise price for his options pursuant to the antidilution provisions

of the stock and unit option plans, which request was refused. Thereafter,

according to Haddock, CREELP and CEI continually refused to allow him to

exercise CREELP unit options and to exchange them for CEI stock.

On July 10, 2006, Haddock filed a forty-three page Statement of Claims

with the American Arbitration Association under the arbitration provision

contained in the CREELP limited partnership agreement. In his Statement of

Claims, Haddock asserted causes of action against all of the Crescent Entities

as well as the individual Real Parties in Interest for breach of contract, breach

of the duty of good faith and fair dealing, violation of securities laws, and

breach of fiduciary duty. As in his prior suit, Haddock set forth the events

regarding his resignation as director and officer from the Crescent Entities in

1999, and alleged that since that time, those entities’ operations had declined

and the entities had begun to liquidate their real estate properties, using the

proceeds to continue to award extraordinary dividends to stockholders, thereby

diluting the value of his CREELP unit options.

Haddock further alleged that the Entities’ Compensation Committee

refused to adjust the exercise price of his options as provided by anti-dilution

provisions in the option agreements, prevented him from converting his options

to CEI common stock, and refused to allow him to exercise his options with a

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recourse promissory note as provided by the CREELP unit option agreement,

resulting in damages of over $8.2 million. Haddock also asserted a claim, in a

derivative capacity on behalf of CEI shareholders, asserting that loans to

company insiders violated the Sarbanes-Oxley Act, resulting in damages to the

shareholders of at least $39.7 million, including lost interest. He named Quinn,

Rowsey, and Worrell as parties based upon their service on a Special Litigation

Committee for the Crescent Entities that refused his demand regarding the

derivative claim.

F. The Underlying Proceeding

Real Parties in Interest filed this action in the 67th District Court of

Tarrant County seeking a stay of the arbitration proceedings and a declaratory

judgment that Haddock had repudiated the CREELP arbitration agreement by

filing his March 2005 suit and proceeding to a final judgment rather than

arbitrating the issues in that case and that the remaining claims were not within

the scope of the arbitration agreement. Haddock answered with a general

denial and a plea to the jurisdiction asserting that the trial court lacked

jurisdiction to decide any issues of arbitrability, including waiver or repudiation.

Alternatively, he asserted that even if the court had jurisdiction over some

arbitrability issues, its jurisdiction was limited in scope and did not allow it to

decide the waiver or repudiation issue.

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 After a hearing on the application to stay arbitration, the trial court—the

presiding judge being the same judge who had earlier entered the temporary

restraining order in the prior suit, sitting for the regular judge of the 17th

District Court—signed an order granting the stay and permanently enjoining

Haddock from pursuing his arbitration demand. After Haddock perfected his

appeal in this case, the trial court filed findings of fact and conclusions of law,

finding that Haddock had repudiated the CREELP arbitration agreement by

litigating the March 2005 suit to a final judgment, that he was estopped from

relying on the arbitration agreement, that Real Parties in Interest accepted that

repudiation by defending against Haddock’s claims and filing a counterclaim,

and that Real Parties in Interest suffered prejudice.

Haddock seeks review of the trial court’s order both by petition for writ

of mandamus and by interlocutory appeal. We have consolidated the two

proceedings for a decision disposing of both simultaneously. See In re Valero

Energy Corp., 968 S.W.2d 916, 916–17 (Tex. 1998) (orig. proceeding). The

trial court has stayed all proceedings in this case pending the outcome of the

mandamus proceeding and interlocutory appeal.

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III. Discussion

A. Mandamus or Interlocutory Appeal?

The parties agree that the Federal Arbitration Act (“FAA”) applies to the

arbitration agreement in this case. See generally 9 U.S.C. §§ 1–16 (West

2009). A party seeking relief pursuant to the FAA from a denial or stay of

arbitration must pursue relief by way of petition for writ of mandamus. In re

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

(“Mandamus is proper to correct a clear abuse of discretion when there is no

adequate remedy by appeal, . . . as when a party is denied its contracted-for

arbitration rights under the FAA.”); In re Valero Energy Corp., 968 S.W.2d at

917 (holding mandamus available for denial of arbitration because party has no

remedy by appeal under FAA); Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266,

272 (Tex. 1992) (orig. proceeding); see also W. Dow Ham III Corp. v.

Millennium Income Fund, L.L.C., 237 S.W.3d 745, 751 (Tex. App.—Houston

[1st Dist.] 2007, no pet.) (holding mandamus only means of reviewing order

granting stay of arbitration). Therefore, we will dismiss the interlocutory appeal

for want of jurisdiction and proceed to determine whether Haddock as Relator

is entitled to mandamus relief. See Tex. R. App. P. 42.3(a), 43.2(f).

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 B. Standard of Review

Mandamus will issue to correct a clear abuse of discretion for which the

remedy by appeal is inadequate. In re Prudential Ins. Co. of Am., 148 S.W.3d

124, 135–36 (Tex. 2004). A trial court has no discretion in determining what

the law is or in applying the law to the facts, and a clear failure to analyze or

apply the law correctly will constitute an abuse of discretion. Walker v. Packer,

827 S.W.2d 833, 840 (Tex. 1992). When a motion to compel arbitration under

the FAA has been erroneously denied or when a motion to stay arbitration is

erroneously granted, there is no adequate remedy by appeal, and mandamus

will issue. In re D. Wilson Constr. Co., 196 S.W.3d at 780; see also In re

Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (orig.

proceeding) (per curiam).

A party seeking to enforce an arbitration agreement must establish the

existence of a valid arbitration agreement and show that the claims in dispute

fall within the scope of that agreement. In re Bank One, N.A., 216 S.W.3d

825, 826 (Tex. 2007) (orig. proceeding) (per curiam); In re Kellogg Brown &

Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding); see BWI Cos.,

Inc. v. Beck, 910 S.W.2d 620, 621 (Tex. App.—Austin 1995, orig.

proceeding). In determining the validity of arbitration agreements under the

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FAA, we generally apply state-law principles governing the formation of

contracts. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006)

(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct.

1920, 1924 (1995)).

Once the moving party establishes the existence of a valid arbitration

agreement, the trial court then determines whether the nonmovant’s claims fall

within the scope of the arbitration clause. In re FirstMerit Bank, N.A., 52

S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). If the trial court determines

that a valid arbitration agreement exists, the burden shifts to the party opposing

arbitration to prove its defenses. J.M. Davidson, Inc. v. Webster, 128 S.W.3d

223, 227 (Tex. 2003). Whether a valid arbitration agreement exists is a legal

question subject to de novo review. In re D. Wilson Constr. Co., 196 S.W.3d

at 781.

C. The Arbitration Agreement

Haddock contends by his first issue that repudiation and waiver are

matters of substantive arbitrability and that the parties clearly and unmistakably

agreed to have all issues, including questions of arbitrability, decided by an

arbitrator. Therefore, he asserts, the trial court lacked jurisdiction to decide the

issues of repudiation and waiver. Real Parties in Interest contend that no valid

15
arbitration agreement continued to exist because Haddock “repudiated” it by

filing the prior lawsuit. They argue that when Haddock commenced the prior

lawsuit, the Crescent Entities were put to an “election” to either terminate or

insist on performance of the arbitration agreement and that, by filing a

counterclaim and allowing the prior lawsuit to go to final judgment, the

Crescent Entities and Haddock mutually terminated the arbitration agreement.

1. The issue is waiver, not repudiation by election.

In findings of fact 2 and conclusions of law that it entered after the parties

filed their briefs in this court and that have not been challenged by either party,

the trial court found in favor of Real Parties in Interest that Haddock

2
… When an abuse of discretion standard of review applies to a trial
court’s ruling, findings of fact and conclusions of law aid us in reviewing the
propriety of the ruling by providing us with an explanation for the ruling.
Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 852 (Tex. 1992); Samuelson v.
United Healthcare of Tex., Inc., 79 S.W.3d 706, 710 (Tex. App.—Fort Worth
2002, no pet.). But while findings of fact and conclusions of law can be helpful
in applying the abuse of discretion standard, they are not required. Samuelson,
79 S.W.3d at 710. To determine whether a trial court abused its discretion, we
must decide whether it acted without reference to any guiding rules or
principles; in other words, whether the act was arbitrary or unreasonable. See
Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985),
cert. denied, 476 U.S. 1159 (1986). Any factual issues decided by the court
in reaching the decision under review are not reviewed by legal- and
factual-sufficiency standards, although when the decision under review is based
on facts determined by the court, those facts must have some support in the
evidence. Crouch v. Tenneco, Inc., 853 S.W.2d 643, 649 & n.2 (Tex.
App.—Waco 1993, writ denied) (op. on reh’g). However, neither party has
challenged the trial court’s findings of fact in this case.

16
 repudiated the Arbitration Agreement by filing and prosecuting the
Prior Lawsuit to a final judgment. The Crescent Entities accepted
that repudiation by defending against Haddock’s claims . . . and by
prosecuting a counterclaim. The Arbitration Agreement ceased to
exist as between these parties on or before April 6, 2006, the date
Haddock dismissed his appeal of the Prior Lawsuit.3

To support their argument that Haddock repudiated the arbitration

agreement, Real Parties in Interest rely on Vireo, P.L.L.C. v. Cates, 953 S.W.2d

489, 491 (Tex. App.—Austin 1997, pet. denied). In Vireo, the Austin court

held that when a plaintiff filed suit on an arbitrable claim, the defendant had an

election to insist or not on arbitration; when the defendant elected not to

arbitrate, the parties therefore mutually repudiated the arbitration agreement.

Id.

Although the Supreme Court of Texas has not spoken on this issue,

Vireo’s approach, that of “mutual repudiation and waiver based on election”

when a plaintiff files suit and then seeks arbitration, has been rejected by this

court on two occasions as well as by other Texas courts of appeals. See Grand

Homes, 96, LP v. Loudermilk, 208 S.W.3d 696, 704 (Tex. App.—Fort Worth

2006, pet. denied) (noting that Vireo holding would undermine policy promoting

arbitration and observing that TGAA was enacted to abrogate common law

3
… The facts in this case are undisputed. Relator’s position is that the
trial court misapplied the law to the facts and abused its discretion. See In re
Dillard Dep’t Stores, Inc., 198 S.W.3d 778, 780 (Tex. 2006).

17
“right of election” doctrine in arbitration context); see also Wee Tots Pediatrics

v. Morohunfola, 268 S.W.3d 784, 792 n.4 (Tex. App.—Fort Worth 2008, no

pet.) (again declining to follow Vireo); Practicehwy.com, Inc. v. Albany IVF

Fertility and Gynecology, PLLC, No. 05-06-00222-CV, 2006 WL 2960838, at

*3 (Tex. App.—Dallas Oct. 18, 2006, no pet.) (mem. op.) (rejecting Vireo as

conflating repudiation and waiver). We decline to revisit this issue. We hold

that the trial court abused its discretion by basing its order staying arbitration

on mutual repudiation of the arbitration agreement. However, this is but the

beginning of our inquiry.

In addition to asserting repudiation, Real Parties in Interest contend that

Haddock waived the arbitration agreement by inconsistent conduct in the prior

lawsuit that resulted in prejudice to them. The trial court made additional

findings that Haddock’s conduct in filing and prosecuting the prior lawsuit to

final judgment substantially invoked the litigation process and prejudiced the

Crescent Entities. In Perry Homes v. Cull, handed down after briefs were filed

and after submission in this court, the Supreme Court of Texas extensively

addressed the defense of waiver of arbitration by substantially invoking the

judicial process to the other party’s detriment or prejudice. 258 S.W.3d 580,

589–90 (Tex. 2008), cert. denied, 129 S. Ct. 952 (2009). By postsubmission

supplemental briefs, the parties have joined issue on whether Haddock waived

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his right to arbitration by inconsistent litigation conduct, although Real Parties

in Interest still say this is an issue of both waiver and repudiation.4

2. The trial court has jurisdiction to decide waiver.

As a threshold issue, Haddock argues that the trial court lacked subject

matter jurisdiction to decide the issue of waiver. Federal and state courts have

concurrent jurisdiction to enforce the FAA. In re Palacios, 221 S.W.3d 564,

565 (Tex. 2006) (orig. proceeding); In re Kellogg Brown & Root, Inc., 166

S.W.3d at 739 (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,

460 U.S. 1, 26 n.32, 103 S. Ct. 927, 942 n.32 (1983)). Waiver in the context

of this case is a question of arbitrability, and who decides arbitrability is a

matter of contract interpretation regarding the division of labor or responsibility

between the court and the arbitrator, not jurisdiction. See Howsam v. Dean

Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 592 (2002)

(characterizing presumption that questions of arbitrability are to be presented

to court unless parties have clearly and unmistakably agreed otherwise as

“interpretive rule”); Marie v. Allied Home Mtg. Corp., 402 F.3d 1, 3 (1st Cir.

4
… Indeed, Haddock has argued from the outset that “repudiation” and
“waiver” in the context of a party’s litigation conduct that is inconsistent with
arbitration have no substantive difference.

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2005) (noting question of who decides waiver is one of “division of labor”

between courts and arbitrators).

We recently decided this very issue against Haddock’s position in another

case. Nw. Constr. Co. v. Oak Partners, L.P., 248 S.W.3d 837, 847 (Tex.

App.—Fort Worth 2008, pet. denied) (holding question of who decides issue of

waiver of arbitration not one of subject matter jurisdiction). We hold that the

trial court had jurisdiction to decide the issue of waiver. 5

3. Who decides the question of waiver by inconsistent conduct?

Haddock next argues that who decides the question of waiver is a matter

of contract and that the parties to this arbitration agreement clearly and

unmistakably referred all questions of arbitrability to an arbitration panel.6 We

agree that “arbitration is a matter of contract.” Howsam, 537 U.S. at 83, 123

S. Ct. at 591. The question of “‘who has the primary power to decide

5
… Although the trial court did not make an explicit finding or conclusion
as to whether it possessed the power to determine the issue of waiver, it
implicitly so concluded because it proceeded to determine the essential
elements of waiver against Haddock.
6
… The limited partnership agreement requires that Delaware law be used
when construing the agreement, specifically including the arbitration agreement.
The parties agree that, to the extent that any state substantive law applies,
Delaware law “mirrors federal law.” When applying the FAA, Texas courts also
look to federal law to decide substantive issues. Jack B. Anglin Co., 842
S.W.2d at 271–72. We thus look to federal law to determine this issue.

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arbitrability’ turns upon what the parties agreed about that matter.” First

Options, 514 U.S. at 944, 115 S. Ct. at 1923.

There is a “qualification” to that general rule, which is also an exception

to the liberal policy favoring arbitration agreements. Howsam, 537 U.S. at 83,

123 S. Ct. at 591. “The question whether the parties have submitted a

particular dispute to arbitration, i.e., the question of arbitrability, is ‘an issue for

judicial determination [u]nless the parties clearly and unmistakably provide

otherwise.’” Id. (quoting AT & T Techs., Inc. v. Commc’ns Workers, 475 U.S.

643, 649, 106 S. Ct. 1415, 1418 (1986)); see also First Options, 514 U.S. at

944, 115 S. Ct. at 1924; In re Weekley Homes, L.P., 180 S.W.3d 127, 130

(Tex. 2005) (“[A]bsent unmistakable evidence that the parties intended the

contrary, it is the courts rather than the arbitrators that must decide ‘gateway

matters,’ such as whether a valid arbitration agreement exists.”).

In First Options, the Supreme Court noted, in discussing the “clear and

unmistakable evidence” requirement, that “the law treats silence or ambiguity

about the question ‘who (primarily) should decide arbitrability’ differently from

the way it treats silence or ambiguity about the question whether a particular

merits-related dispute is arbitrable because it is within the scope of a valid

arbitration agreement,’” so as to not “force unwilling parties to arbitrate a

21
matter they reasonably would have thought a judge, not an arbitrator, would

decide.” 514 U.S. at 944–45, 115 S. Ct. at 1924–25.

a. No “clear and unmistakable” evidence of agreement to
delegate questions of arbitrability to arbitrator

Haddock argues that the arbitration agreement of the limited partnership

agreement “clearly and unmistakably” delegates arbitrability issues, including

waiver, to an arbitration panel by expressly incorporating the Commercial

Arbitration Rules of the American Arbitration Association (“AAA”). Specifically,

Haddock relies upon Rule 7(a) of those rules, which provides that the arbitrator

“shall have the power to rule on his or her own jurisdiction, including any

objections with respect to the existence, scope, or validity of the arbitration

agreement.” American Arbitration Association, Commercial Arbitration Rules

and Mediation Procedures, R7, http://www.adr.org/sp.asp?id=22440#R7 (last

accessed February 25, 2009).

Real Parties in Interest respond that the supreme court in Perry Homes

has now decided, contrary to Haddock’s position, that the issue of waiver in a

case governed by the FAA is for the court, not an arbitrator. 258 S.W.3d at

587. Although we agree that this was the holding in Perry Homes, the

arbitration agreement at issue in that case contained no reference to the AAA

rules. And the supreme court in that case noted, albeit in another section of its

22
opinion, that there was no indication in that contract that the parties had

“clearly and unmistakably agreed” that the arbitrator should decide arbitrability.

Id. at 587, n.15 (citing First Options, 514 U.S. at 947–48, 115 S. Ct. at

1924). Therefore, we do not read Perry Homes as abandoning the “clear and

unmistakable” qualification to the presumption that the court is to decide issues

of arbitrability.

The majority of courts have concluded that express incorporation of rules

empowering the arbitrator to decide arbitrability (including ruling upon his or her

own jurisdiction) clearly and unmistakably evidences the parties’ intent to

delegate issues of arbitrability to the arbitrator. See, e.g., Qualcomm Inc. v.

Nokia Corp., 466 F.3d 1366, 1372–73 (Fed. Cir. 2006) (holding incorporation

of AAA rules, including Rule 7(a), clearly and unmistakably showed parties’

intent to delegate issue of arbitrability to arbitrator); Contec Corp. v. Remote

Solution Co., 398 F.3d 205, 208 (2nd Cir. 2005) (holding that incorporation of

AAA Rules, including Rule 7(a), clearly and unmistakably evinced intent for

arbitrator to decide whether nonsignatory party bound by arbitration

agreement); Terminix Int’l Co., L.P. v. Palmer Ranch Ltd. P’ship, 432 F.3d

1327, 1332–33 (11th Cir. 2005) (holding by incorporating AAA Rules into

agreement, parties clearly and unmistakably agreed arbitrator should decide

whether arbitration clause was valid); Citifinancial, Inc. v. Newton, 359

23
F. Supp.2d 545, 549–52 (S.D. Miss. 2005) (same); see also Burlington Res. Oil

& Gas Co. L.P. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 40 (Tex.

App.—Houston [1st Dist.] 2007, pet. denied) (collecting cases).

But the majority view does not “mandate that arbitrators decide

arbitrability in all cases where an arbitration clause incorporates the AAA rules.”

San Juan Basin, 249 S.W.3d at 42 (quoting James & Jackson, LLC v. Willie

Gary, LLC, 906 A.2d 76, 78, 80 (Del. 2006)). Haddock points out that, in

James & Jackson, the Delaware Supreme Court adopted the majority federal

rule that incorporation of AAA rules requires submission of issues of arbitrability

to the arbitrator rather than the court. 906 A.2d at 80–81. However, the

court in that case also held that this rule would only apply in cases where (1)

an arbitration clause generally provides for arbitration of all disputes and also

(2) incorporates a set of arbitration rules that empowers arbitrators to decide

arbitrability. Id. Because the arbitration agreement there did not generally

provide for arbitration of all disputes but expressly allowed the parties to seek

injunctive relief and specific performance in the courts, the court held that

something other than mere incorporation of AAA rules would be needed in order

to establish clear and unmistakable intent to delegate issues of arbitrability to

the arbitrator. Id. at 81.

24
 In Marie v. Allied Home Mortgage Corp., the arbitration clause referred to

binding arbitration “any and all disputes, claims (whether in tort, contract,

statutory, or otherwise), and disagreements concerning the interpretation or

application of this Agreement . . . including the arbitrability of any such

controversy or claim.” 402 F.3d at 14-15. The First Circuit in that case

acknowledged that, while the issue of waiver by litigation conduct is

presumptively for the court, the parties may by agreement shift the waiver

issue to an arbitrator by clear and unmistakable expression of intent in the

agreement. Id. at 14 (citing First Options, 514 U.S. at 945, 115 S. Ct. at

1925). But the court held in that case that express delegation of “arbitrability”

issues to the arbitrator in the arbitration agreement at issue there did not evince

“clear and unmistakable” intent for the arbitrator to decide the issue of waiver

by litigation conduct. Id. at 15. The court in Marie noted that the arbitration

agreement at issue there also incorporated the AAA rules but that it was silent

regarding whether the issue of waiver or any similar issue was intended to be

referred to an arbitrator. Id.

The court in Marie did not expressly decide the effect of the incorporation

of the AAA rules but broadly held as follows:

We cannot say that the use of the term [arbitrability] here
evinces a clear and unmistakable intent to have waiver issues
decided by the arbitrator. There are no references to waiver or

25
 similar terms anywhere in the arbitration agreement. Neither party
should be forced to arbitrate the issue of waiver by conduct
without a clearer indication in the agreement that they have agreed
to do so. The issue of who would decide such a question is an
‘arcane’ one that employees are unlikely to have considered unless
clearly spelled out by the employer.

Id.

The Third Circuit has followed Marie in Ehleiter v. Grapetree Shores, Inc.,

holding that waiver by litigation conduct inconsistent with arbitration is

presumptively an issue for the court. 482 F.3d 207, 222 (3rd Cir. 2007). It

additionally held that, even though the arbitration agreement there expressly

stated that all claims or matters arising out of or relating in any fashion to the

agreement “shall be considered arbitrable” including “the issue of arbitrability

of any claim or dispute,” the agreement did not manifest a clear and

unmistakable intent to have an arbitrator decide the issue of waiver based on

litigation conduct. Id. at 221. The court reasoned:

[W]e do not believe that this provision . . . evidences a clear
and unmistakable intent to have an arbitrator decide procedural
questions of arbitrability that arise only after the parties have
bypassed a gateway determination of substantive arbitrability by
the arbitrator and actively litigated the underlying dispute in court.

Id. at 222. The court in Ehleiter also noted that there was no reference to

waiver of arbitration in the agreement. Id. That court refused to interpret the

agreement’s “silence regarding who decides the waiver issue” as giving

26
arbitrators that power “‘for doing so . . . [would] force [an] unwilling part[y] to

arbitrate a matter [he] reasonably would have thought a judge, not an arbitrator,

would decide.’” Id. (quoting First Options, 514 U.S. at 945, 115 S. Ct. 1920);

see also San Juan Basin, 249 S.W.3d at 41–42 (reasoning that, although

reference to AAA rules might otherwise be construed as “clear and

unmistakable intent” to refer arbitrability issues to arbitrator, language of

agreement was silent as to referral of “arbitrability” issues to arbitrator and

limiting language of agreement negated such intent); In re Ford Motor Co., 220

S.W.3d 21, 23 (Tex. App.—San Antonio 2006, orig. proceeding) (holding,

despite reference to AAA rules, that agreement did not clearly and unmistakably

evidence intent that issue of whether a nonparty was bound by arbitration

agreement be decided by arbitrator).

Haddock seeks to distinguish Marie on the basis that the conduct

constituting waiver arose in the same litigation in that case, as contrasted with

the prior litigation instituted by Haddock in a different court.7 We disagree.

The conduct found to constitute waiver in Marie was in a separate proceeding

in a different litigation forum, the EEOC. Marie, 402 F.3d. at 14.

7
… Haddock does not discuss the differences between or attempt to
distinguish Ehleiter or James & Jackson from this case.

27
 Haddock also argues that the First Circuit held that sending the waiver

issue to the arbitrator in Marie would be “exceptionally inefficient” given that

the case started in court, whereas Haddock claims this matter began with a

demand for arbitration so that the issue of waiver could more easily be resolved

in that forum. To the contrary, the conduct complained of by Real Parties in

Interest started when Haddock instituted and pursued his prior litigation to an

adverse decision in court. As the court in Marie recognized, “[i]f the arbitrator

were to find that the defendant had waived its right to arbitrat[ion], then the

case would inevitably end up back in court.” Id. at 13. The same would be

true here.

Finally, Haddock argues that Marie did not address the incorporation of

the AAA rules into the arbitration agreement. But the court clearly considered

that language, because it specifically pointed out that the agreement so stated;

yet the court found no clear and unmistakable evidence of intent in the

agreement to shift the issue of waiver to the arbitrator. Id. at 14.

Additionally, as in the San Juan Basin and James & Jackson cases, the

arbitration agreement here is not unequivocal but contains limiting language

with regard to the incorporation of the AAA rules, incorporating those rules “to

the extent not inconsistent” with the remainder of the detailed provisions of the

28
arbitration agreement, which contains five sections and ten paragraphs of

information prescribing the procedure and scope of any arbitration.

We also note that there is no designation in the arbitration agreement

here as to which version of the AAA rules is to apply, the version in existence

when the agreement was made or that in existence at the time of the dispute.

Haddock acknowledges that the rule now designated as Rule 7(a), upon which

he relies, did not exist when the arbitration agreement was added to the limited

partnership agreement in 1994. Although, as Haddock points out, the

partnership agreement has been amended several times since its inception

without change to the arbitration agreement language, we cannot assume from

silence in the agreement as to the issue of arbitrability or as to which version

of the AAA rules is to apply, that the parties intended to incorporate Rule 7(a),

which did not exist when the arbitration agreement was added. See Marie, 402

F.3d at 15; see also Ehleiter, 482 F.3d at 222.

Silence is not “clear and unmistakable evidence” of intent. The

agreement is silent as to whether the parties intended to incorporate the current

rules, silent as to whether the arbitrator is to decide issues of “arbitrability,”

and silent specifically regarding who is to decide waiver, repudiation, or similar

matters. We hold that the general reference in the arbitration agreement to the

29
AAA rules, without more, does not clearly and unmistakably manifest these

parties’ intent to refer the issue of waiver by litigation conduct to the arbitrator.

b. Substantial invocation of the litigation process still an
issue for the court after Howsam

By part of his second issue, Haddock argues that, even if this court

concludes that the trial court had power to consider some arbitrability issues,

the trial court lacked power specifically to decide the waiver issue, based upon

language contained in the United States Supreme Court’s decision in Howsam

v. Dean W itter Reynolds Inc., which stated that the “presumption is that the

arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to

arbitrability.’” 537 U.S. at 84, 123 S. Ct. at 592 (quoting Moses H. Cone

Mem’l Hosp., 460 U.S. at 24–25, 103 S. Ct. at 941). In Perry Homes, the

Culls made the identical argument made here by Haddock, asserting that

whether a party has waived the right to arbitrate by litigation conduct is an

issue to be decided by the arbitrator, rather than the court, based upon the

same language from Howsam. 258 S.W.3d at 588–90. The supreme court in

Perry Homes rejected that argument, flatly stating,

Every federal court that has addressed this issue since Howsam has
continued to hold that substantial invocation of the litigation
process is a question for the court rather than the
arbitrator—including the First, Third, Fifth, and Eighth Circuit. Legal
commentators appear to agree. So do we.

30
Id. at 589; see JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393–94

(6th Cir. 2008) (holding Howsam limited to contractually based waiver, not

waiver by litigation conduct inconsistent with arbitration); Ehleiter, 482 F.3d at

217; Marie, 402 F.3d at 13–14; Republic Ins. Co. v. PAICO Receivables, LLC,

383 F.3d 341, 344–47 (5th Cir. 2004); Tristar Fin. Ins. Agency, Inc. v.

Equicredit Corp. of Am., 97 Fed. Appx. 462, 464 (5th Cir. 2004). We overrule

that portion of Haddock’s second issue.

c. The “No-Waiver” Rule

Haddock also argues that Rule 48-(a) of the AAA rules incorporated into

the arbitration agreement is a factor to be taken into consideration in

determining whether he waived the agreement. That rule provides, “No judicial

proceeding by a party relating to the subject matter of the arbitration shall be

deemed a waiver of a party’s right to arbitrate.” American Arbitration

Association, Commercial Arbitration Rules and Mediation Procedures, R48,

http://www.adr.org/sp.asp?id=22440#R48 (last accessed February 25, 2009).

Haddock acknowledges that this rule does not preclude a finding of waiver but

argues that this rule, as incorporated into the agreement, is further indication

of the parties’ intent to favor arbitration, specifically with regard to waiver.

The presence of such a “no waiver” clause in an arbitration agreement

does not alter the ordinary analysis undertaken to determine if a party has

31
waived its right to arbitration by litigation conduct. PAICO, 383 F.3d at 348.

The Fifth Circuit in that case agreed with those courts that have interpreted

such a “no waiver” clause as intended to permit parties to seek provisional

remedies or other judicial proceedings that would not function to displace

arbitration on the underlying dispute. Id. Specifically, the court in PAICO

stated, “‘[T]he fact that an arbitration agreement incorporates such a provision

would not prevent a court from finding that a party waived arbitration by

protracted litigation of an arbitrable dispute.’” Id. (quoting S & R Co. v. Latona

Trucking, Inc., 159 F.3d 80, 85 (2nd Cir. 1998), cert. dism’d, 528 U.S. 1058

(1999)); see also Home Gas Corp. v. Walter’s of Hadley, Inc., 403 Mass. 772,

532 N.E.2d 681, 684–85 (1989) (holding “no waiver” clause did not prevent

finding of waiver by litigation conduct); Seidman & Seidman v. Wolfson, 50

Cal. App. 3d 826, 835, 123 Cal. Rptr. 873 (Cal. Ct. App. 1975) (stating

purpose behind “no waiver” rule is not to allow a party to seek judicial relief

of a controversy “and later to switch course and demand arbitration”).

We hold that the trial court properly determined that it, rather than an

arbitrator, should decide whether Haddock waived the arbitration agreement by

filing and prosecuting the prior lawsuit. We overrule Haddock’s first issue.8

8
… We also overrule the second part of Haddock’s second issue, in which
he argues that whether the arbitration agreement forbids his Sarbanes-Oxley

32
 D. Waiver by Prior Litigation Conduct Inconsistent with Arbitration

Having dealt with the preliminary arguments that consumed the vast bulk

of the briefing by both sides, we now address the main issue. Haddock

contends that the trial court abused its discretion and misapplied the law to the

facts by concluding that he waived arbitration by his conduct in initiating and

prosecuting the prior lawsuit. Haddock maintains that his prior lawsuit did not

assert the same issues raised by his demand for arbitration and that the issue

in the prior lawsuit did not “aris[e] out of or in connection with th[e]

[Partnership] Agreement or the Partnership” but, instead, arose from an entirely

separate contract—the severance agreement—which was not subject to

arbitration.

Real Parties in Interest do not contest the validity of the arbitration

agreement in the limited partnership agreement. Their position is that the

severance agreement is subject to the arbitration agreement contained in the

derivative claim is for the arbitrator to decide, not the court, similar to a like
issue regarding class arbitration under Green Tree Financial Corp. v. Bazzle, 539
U.S. 444, 449, 123 S. Ct. 2402, 2405 (2003) (holding question of whether an
arbitration agreement forbade class arbitration was for the arbitrator, not the
court, because it involved contract interpretation and arbitration procedures).
The trial court did not determine that the derivative claim was forbidden by the
arbitration agreement; rather, it determined that the claim was outside the
scope of the arbitration agreement because most CEI stockholders were not
parties to the partnership agreement. Haddock has not challenged that ruling
or the findings of the court to that effect.

33
limited partnership agreement that Haddock raised and litigated in the prior

litigation, that his conduct in the prior litigation was inconsistent with an intent

to arbitrate that claim, and that they suffered prejudice; thus, they argue,

Haddock waived his right to arbitrate his current claims.

Whether a party has waived its arbitration rights under the FAA by

inconsistent litigation conduct is a question of law that we review de novo.

Perry Homes, 258 S.W.3d at 598 & n.102; see also In re Citigroup Global

Mkts, Inc., 258 S.W.3d 623, 625 (Tex. 2008) (orig. proceeding) (per curiam);

In re Serv. Corp. Int’l, 85 S.W.3d 171, 174 (Tex. 2002) (orig. proceeding) (per

curiam). Because public policy favors arbitration, there is a strong presumption

against waiver of arbitration. Moses H. Cone Mem’l Hosp., 460 U.S. at 24–25,

103 S. Ct. at 941; In re D. Wilson Constr. Co., 196 S.W.3d at 783.

The party asserting waiver bears a heavy burden of proof, and the court

must resolve all doubts in favor of arbitration. In re Bruce Terminix Co., 988

S.W.2d 702, 704 (Tex. 1998). Waiver must be intentional. In re Bank One,

N.A., 216 S.W.3d at 827. Waiver may be express or implied from a party’s

conduct, but that conduct must be unequivocal. Id. Additionally, waiver in the

context of arbitration agreements subject to the FAA requires more than is

required for general waiver—it requires proof that the party asserting waiver as

34
a defense to arbitration has suffered prejudice. Perry Homes, 258 S.W.3d at

594–95 & n.80 (reaffirming requirement of prejudice and collecting cases).

Under the FAA, “[a] party waives an arbitration clause by substantially

invoking the judicial process to the other party’s detriment.” In re Citigroup

Global Mkts., Inc., 258 S.W.3d at 625 (quoting Perry Homes, 258 S.W.3d at

594).

To demonstrate waiver, the party opposing arbitration must establish both

that (1) the party seeking arbitration substantially invoked the judicial process

and (2) the party opposing arbitration suffered prejudice thereby. In re Bruce

Terminix, 988 S.W.2d at 704. To 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.” PAICO,

383 F.3d at 344 (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324,

326 (5th Cir. 1999)).

1. The prior suit substantially invoked the judicial process

Haddock contends that waiver could not have occurred because the prior

suit concerned only the unfavorable-comments clause in the severance

agreement, which had no arbitration agreement, and that his current arbitration

demand asserts entirely different claims that arise only out of a separate

contract, i.e., the partnership agreement. Therefore, we first determine

35
whether—as Real Parties in Interest contend—the prior suit invoked the judicial

process regarding the same claims that Haddock now seeks to arbitrate. See

id. at 344–47 (holding waiver applies only where the same claim sought to be

arbitrated was previously litigated but upholding finding of waiver where

jurisdiction of court was previously invoked on all issues). We agree with Real

Parties in Interest on this key issue.

Although the severance agreement contains no arbitration clause, the

CREELP unit option plan—as amended and attached to the severance

agreement—does. Both the prior suit and the arbitration demand concern

claims that “aris[e] out of or in connection with” the limited partnership or the

limited partnership agreement by virtue of the CREELP unit option plan, which

is subject to all terms of the limited partnership agreement. Section 6.26 of the

1996 CREELP Unit Option Incentive Plan, attached as an appendix to Haddock’s

severance agreement, expressly provides that “the rights granted thereunder are

governed by and subject to each of the terms and conditions of the partnership

agreement.” That option plan further provides that upon exercising an option

thereunder, each participant is “deemed to have accepted and agreed to be

bound by each of the terms and conditions of the Partnership Agreement for all

purposes.” [Emphasis added.] As amended in 1994 and thereafter, the

partnership agreement, in turn, contains the arbitration agreement under which

36
Haddock seeks to arbitrate his CREELP unit option and his CEI stock option

claims.9

While Haddock claims that he initially sought only to reform the

unfavorable-comments clause of the severance agreement in the prior lawsuit,

he had a stated purpose for doing so—so that he could plead and litigate his

claims of risky loans and mismanagement of the Crescent Entities, which

allegedly resulted in devaluing his CREELP and CEI options, without fear of

violating that clause. Moreover, he also sought and obtained affirmative

injunctive relief against the Crescent Entities, preventing them from threatening

or taking action to forfeit his rights in the CREELP unit options vested in him by

the severance agreement. Haddock expressly stated his intent to file an

additional suit to assert his claims against the Crescent Entities or, alternatively,

to assert those claims in that same suit, and he sought the protection of the

9
… The trial court found, and Haddock has not challenged that finding,
that he raised some of the same issues in the prior suit that he now seeks to
arbitrate, alleging in his petition in that suit that the Crescent Entities “may be
acting adversely to the interests of stockholders and unitholders” and that
“Haddock further believes the management of the Employer Group is not acting
in the best interests of the shareholders and unitholders by providing risky loans
to executives which seriously jeopardize the financial health and stability of the
Employer Group.”

37
court through a ruling that he would not risk interference or forfeiture of his

options by proceeding with his proposed litigation.

Only after ultimately suffering an adverse result in his suit did Haddock

turn to arbitration. Haddock alleged in his arbitration demand that the option

claims he now asserts in that demand are “covered by the arbitration provision

in the Limited Partnership Agreement.” 10 The fact is that both his prior suit and

his arbitration demand assert the same conduct of Real Parties in Interest,

namely, allegedly refusing to honor and reducing in value his CREELP unit

options and CEI stock options.

Haddock cannot have it both ways. If, as he says, his claims regarding

option rights asserted in his arbitration demand are covered by the arbitration

agreement, then so were the claims regarding the option rights that he sought

to protect in the previous lawsuit and planned to litigate once he obtained a

declaration that the unfavorable-comments clause of his severance agreement

did not preclude such a suit. By his prior lawsuit, Haddock invoked the judicial

process with respect to the same claims specifically regarding his options in

CREELP that he now seeks to arbitrate.

10
… Although Haddock points out that he had and retains to this day a
limited partnership interest in CREELP, he has never explained how the
arbitration demand involves that limited partnership interest, other than through
the identical options that were involved in the prior suit.

38
 Was his invocation of the judicial process in the prior litigation

“substantial”? Waiver by litigation conduct must be decided under a totality-of-

the-circumstances test on a case-by-case basis. Perry Homes, 258 S.W.3d at

591. Factors listed in that case in considering the totality of the circumstances

include whether the party seeking arbitration chose to file in court as plaintiff,

how long the party seeking arbitration delayed before seeking that process,

whether that party knew of the arbitration clause from the outset, how much

discovery was conducted, how much pretrial activity went to the merits, how

much time and expense was incurred in litigation, whether the party seeking

arbitration filed dispositive motions or sought judgment on the merits, and when

the case was to be tried. Id. at 591–92.

Real Parties in Interest assert that Haddock “substantially” invoked the

judicial process with respect to his claim regarding his rights in the CREELP unit

options because

(1) Haddock chose to file the prior lawsuit in court rather than
arbitrate (“whether the movant was the plaintiff (who chose to file
in court) or the defendant (who merely responded)”);

(2) Haddock filed the prior lawsuit in March 2005, pursued it
through final judgment, appealed it to this court, and waited until
July of 2006 to file his demand for arbitration (“how long the
movant delayed before seeking arbitration”);

(3) Haddock was “the primary signatory on the First Amended
Limited Partnership Agreement” and “intended for the arbitration

39
 agreement to be broad and encompass all claims and disputes
(“whether the movant knew of the arbitration clause all along”);

(4) Haddock knew of the arbitration agreement in 1994 when he
signed the First Amended Limited Partnership Agreement (“when
the movant knew of the arbitration clause”);

(5) Haddock was the plaintiff in the prior lawsuit and filed two
motions for summary judgment (“whether the movant filed
affirmative claims and dispositive motions”); and

(6) Haddock pursued the prior lawsuit to a final judgment (“whether
the movant sought judgment on the merits”).

Haddock does not dispute these facts. Haddock chose to file his prior

suit rather than to arbitrate, sought and obtained affirmative relief, and

expressed his intent to pursue his claims in that lawsuit or in another suit as to

mismanagement and refusal of the Crescent Entities to allow him to exercise

his options. Throughout the prior litigation, Haddock never mentioned the

arbitration agreement under which he now seeks to arbitrate his option claims.

Yet he was clearly aware of it because he admits in his brief in this court that

he desired that it be included in the limited partnership agreement in 1994.

Further, waiver may be found where a party has tried and failed to

achieve a satisfactory result before turning to arbitration. See, e.g., Oak

Partners, 248 S.W.3d at 848; Loudermilk, 208 S.W.3d at 704; Williams Indus.,

Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex. App.—Houston [1st

Dist.] 2003, no pet.); In re Winter Park Constr. Inc., 30 S.W.3d 576, 579 (Tex.

40
App.—Texarkana 2000, orig. proceeding); compare In re Bruce Terminix Co.,

988 S.W.2d at 704 (finding no waiver where defendant did not ask court for

any judicial decision such as by requesting summary judgment).

Indeed, failing to seek arbitration until after proceeding in litigation to an

adverse result is the clearest form of inconsistent litigation conduct and is

inevitably found to constitute substantial invocation of the litigation process

resulting in waiver. See, e.g., Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333,

340–41 (Tex. App.—Fort Worth 2007, no pet.) (holding defendant waived

arbitration of counterclaim by litigating over two years and after summary

judgment was rendered against her); see also Frye v. Paine, Weber, Jackson &

Curtis, Inc., 877 F.2d 396, 398 (5th Cir. 1989) (holding party waived

arbitration by participating in litigation that ended in mistrial), cert. denied, 494

U.S. 1016 (1990); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494,

497–98 (5th Cir. 1986) (finding waiver by filing state court lawsuit and

permitting it to be dismissed for want of prosecution); see also Carbajal v.

Household Bank F.S.D., No. 00 C 0626, 2003 WL 22159473, at *10 (N.D. Ill.

Sept. 18, 2003) (noting “[p]articipation in litigation raises concerns of forum-

shopping. If a party first demands arbitration only after it receives an adverse

ruling in the lawsuit, courts inevitably will find waiver” and collecting cases),

aff’d, 372 F.3d 903 (7th Cir. 2004); Oak Partners, 248 S.W.3d at 849 (holding

41
trial court’s waiver finding based on totality of circumstances including

engaging in extensive discovery over nineteen-month period, filing of

counterclaim, cross-claims, and motion for partial summary judgment, and

seeking arbitration only after failure of mediation).

Haddock filed his arbitration demand after filing suit, obtaining injunctive

relief, litigating for some nine months, filing two motions for summary

judgment, and finally suffering an adverse result in the prior lawsuit. All of

these facts support the trial court’s finding that he substantially invoked the

litigation process and thereby waived his right to arbitration.

Moreover, participation in litigation to gain an advantage in future

litigation can result in waiver. See In re Christus Spohn Health Sys. Corp., 231

S.W.3d 475, 481 (Tex. App.—Corpus Christi 2007, orig. proceeding) (holding

hospital’s prior litigation conduct in criminal case constituted waiver of right to

arbitrate where prior litigation involved developing evidence as part of strategic

plan for defense of civil suit for damages). Haddock made clear in his pleadings

in his prior suit that his strategy and plan was to obtain an interpretation of the

severance agreement that would permit him to assert his claims in a lawsuit

without violating the unfavorable-comments clause while preventing Real

Parties in Interest from taking any action to interfere with the option rights he

sought to protect by injunctive relief and which he now seeks to arbitrate.

42
 Haddock filed his arbitration demand for his option claims over a year and

a half after filing suit, prosecuting that suit, suffering an adverse summary

judgment in the trial court, and after dismissing his appeal to this court.

Considering the totality of the circumstances as articulated in Perry Homes, we

hold that Haddock substantially invoked the judicial process.

2. Prejudice

Substantially invoking the judicial process does not waive a party’s

arbitration rights unless the opposing party also proves that it suffered prejudice

as a result. Perry Homes, 258 S.W.3d at 593–94 (citing In re Bruce Terminix

Co., 988 S.W.2d at 704). “Courts will not find that a party has waived its right

to enforce an arbitration clause by merely taking part in litigation unless it has

substantially invoked the judicial process to its opponent’s detriment.” In re

Service Corp. Int’l, 85 S.W.3d at 174. “When one party reveals a disinclination

to resort to arbitration on any phase of suit involving all parties, those parties

are prejudiced by being forced to bear the expense of a trial. . . . Substantially

invoking the litigation machinery qualifies as the kind of prejudice that is the

essence of waiver.” E.C. Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268,

269 (5th Cir. 1977) (holding extensive postsuit actions in all phases of complex

litigation served as waiver of right to arbitrate when opposing parties were

43
prejudiced by being forced to bear expenses of a quite lengthy trial, which is

the kind of prejudice arbitration is designed to avoid).

“Prejudice” has many meanings. Perry Homes, 258 S.W.3d at 597.

However, prejudice or “detriment” in the context of litigation conduct

inconsistent with arbitration relates to “inherent unfairness” caused by “a

party’s attempt to have it both ways by switching between litigation and

arbitration to its own advantage.” Id.; see also Subway, 169 F.3d at 327

(referring to “inherent unfairness—in terms of delay, expense, or damage to a

party’s legal position—that occurs when the party’s opponent forces it to

litigate an issue and later seeks to arbitrate that same issue”). “[A] party

should not be allowed purposefully and unjustifiably to manipulate the exercise

of its arbitral rights simply to gain an unfair tactical advantage over the

opposing party.” Id. (citing In re Tyco Int’l Ltd. Securities Litigation, 422 F.3d

41, 46 n.5 (1st Cir. 2005)).

Ultimately, what constitutes waiver of the right to arbitrate depends on

the facts of each case. PAICO, 383 F.3d at 346 (citing Tenneco Resins, Inc.

v. Davy Int’l, AG, 770 F.2d 416, 420 (5th Cir 1985)). Three factors are

particularly relevant in determining prejudice. Id. First, pretrial activity related

to all claims including those that are arbitrable may result in prejudice. Id.

(citing Price v. Drexel Burnham Lambert, Inc. 791 F.2d 1156, 1161–62 (5th

44
Cir. 1986)). Second, time and expense incurred in defending against a motion

for summary judgment could prejudice the party opposing arbitration. Price,

791 F.2d at 1162. Thus, both delay and the extent of the moving party’s

participation in judicial proceedings are material factors in assessing prejudice.

Frye, 877 F.2d at 398. Third, failure to assert the right to demand arbitration

is a factor bearing on the question of prejudice along with other considerations.

Price, 791 F.2d at 1161–62. A demand for arbitration puts the other party on

notice that arbitration is forthcoming and affords that party the opportunity to

avoid compromising its position with regard to arbitrable and nonarbitrable

claims. PAICO, 383 F.3d at 347.

If a party has asserted the right to arbitrate at or before commencement

of litigation, the party opposing arbitration will necessarily carry a heavy burden

to show waiver. Id. Conversely, when a party fails to demand arbitration and

also engages in pretrial activity inconsistent with the intent to arbitrate, the

opposing party seeking to show waiver “may more easily show that its position

has been compromised, i.e., prejudiced.” Id.; see Oak Partners, 248 S.W.3d

at 851 (concluding that plaintiff showed prejudice when defendant delayed

nineteen months before moving to compel arbitration, during which time it

actively pursued litigation in the trial court, sought discovery from plaintiff, and

actively sought relief from the trial court, which forced plaintiff to respond and

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to incur attorney’s fees); Jones, 235 S.W.3d at 340–41 (holding appellant

waived her right to arbitrate when she waited for over two years after card

issuer’s first petition was filed before requesting arbitration, and by that time

had filed numerous motions including a motion to dismiss, a counterclaim, and

opposition to summary judgment); see also Fraser v. Merrill Lynch Pierce,

Fenner & Smith, Inc., 817 F.2d 250, 253 (4th Cir. 1987) (finding sufficient

prejudice to support waiver where brokerage firm delayed four-and-one-half

years before seeking arbitration, two trial dates passed, and opposing party was

required to respond to two motions for partial summary judgment and three

motions to dismiss); Miller Brewing, 781 F.2d at 497—98 (finding waiver where

plaintiff unconditionally filed suit, waited eight months to assert right to

arbitrate, and did not pursue arbitration until after its suit was dismissed three

years later for want of prosecution). Likewise, in Price, the Fifth Circuit Court

of Appeals held that prejudice resulted in waiver when the party opposing

arbitration had been put to the expense and time of defending a motion to

dismiss and for summary judgment because unlike a perfunctory motion to

dismiss before answering, a federal rule 12(b) motion to dismiss and for

summary judgment “could not have caused anything but substantial prejudice

to the Prices.” 791 F.2d at 1162.

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 Haddock failed to seek arbitration before initiating the prior litigation.

Then he waited over fourteen months before requesting arbitration, from March

2005, when he filed the prior lawsuit, until July 2006, when he filed his

statement of claims with the AAA. During that time, among other things, he

obtained a temporary injunction, filed two motions for summary judgment,

litigated his claims to an adverse judgment, and filed and dismissed an appeal

from that judgment. The trial court specifically found that the “Crescent

Entities were prejudiced by Haddock’s invocation of the judicial system in the

Prior Lawsuit. In reliance on Haddock’s actions, the Crescent Entities spent

substantial sums defending Haddock’s claims in the Prior Lawsuit and

prosecuting a counterclaim.” Haddock has not challenged that finding.

We hold that the trial court did not abuse its discretion by staying the

arbitration because Haddock made his choice: he substantially invoked the

judicial process as to his option claims to the prejudice of Real Parties in Interest

in the prior litigation and thereby waived his right to arbitrate those claims. We

overrule Haddock’s third issue.

IV. Conclusion

Haddock does not challenge the trial court’s ruling that his claims based

on his stock options in CEI or his Sarbanes-Oxley claim are beyond the scope

of the arbitration agreement. Nor has he raised an issue on appeal as to the trial

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court’s ruling that his claims against Quinn, Rowsey, and Worrell are beyond

the scope of the arbitration agreement. Therefore, we need not reach the

propriety of the trial court’s order as to those claims. Having overruled

Haddock’s three issues, we deny the petition for writ of mandamus, and we

dismiss the interlocutory appeal for want of jurisdiction.

ANNE GARDNER
JUSTICE

PANEL: GARDNER and W ALKER, JJ.; and DIXON W. HOLMAN, J. (Senior
Justice, Retired, Sitting by Assignment).

WALKER, J. concurs without opinion.

DELIVERED: February 26, 2009

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