SHELDON ROBERTS v. THE STATE OF TEXAS (Dissenting)

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State: Texas

Court: Criminal Court of Appeals

Docket No: PD-1054-07

Case Date: 12/17/2008

Plaintiff: SHELDON ROBERTS

Defendant: THE STATE OF TEXAS (Dissenting)

Preview:In re Centex Home Equity Company, L.L.C.--Appeal
from 111th Judicial District Court of Webb County
MEMORANDUM OPINION
No. 04-04-00585-CV
IN RE CENTEX HOME EQUITY COMPANY, LLC
Original Mandamus Proceeding (1)
Opinion by: Karen Angelini, Justice
Sitting: Karen Angelini, Justice
Sandee Bryan Marion, Justice
Phylis J. Speedlin, Justice
Delivered and Filed: December 22, 2004
PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED
Relator Centex Home Equity Company, LLC ("Centex") seeks a writ of mandamus ordering respondent, the
Honorable Raul Vasquez, to vacate his August 17, 2004 order, denying relator's motion to compel arbitration and enter
an order staying the underlying case pending arbitration. Because we conclude that relator is entitled to the relief
sought, we conditionally grant the writ.
Background
On or about April 6, 2000, Gilberto and Claudia Galvan obtained a home-equity loan from Centex evidenced by a
promissory note executed by the Galvans in which they promised to pay Centex the original principal amount of
$92,000.00 plus interest. This loan was secured by a lien on the Galvans' home, as evidenced by a Deed of Trust dated
April 6, 2000.
In connection with this loan, the Galvans and Centex entered into an arbitration agreement dated April 6, 2000. The
arbitration agreement provides the following:
You [the Galvans] and We [Centex] agree that if any Dispute arises, either You or We may choose to have the Dispute
resolved by binding arbitration. The arbitration shall be administered by the American Arbitration Association under
the Commercial Arbitration rules then in effect. . . . The election to arbitrate may be made even if an action has been
filed in court, so long as no judgment has been rendered. By agreeing to arbitrate, You and We give up some rights,
including the right to go to court and the right to a jury trial.
The agreement defined "Dispute" as the following:
"Dispute" is any case, controversy, dispute, tort , disagreement, lawsuit or claim now or hereafter existing between
You and Us. A Dispute includes, but is not limited to, anything that concerns: this Agreement; any Credit Transaction
including, but not limited to, the origination or servicing of such Credit Transaction; any past, present, or future
insurance, service, or product that is offered in connection with a Credit Transaction; any documents or instruments
that contain information about any Credit Transaction, insurance, service, or product; and any act or omission by any
of Us regarding any claim. A Dispute does not include: any action to effect a foreclosure; any action to obtain
possession of any property securing the Credit Transaction; any action for prejudgment injunctive relief or appointment
of receiver(s); and any claim where We seek damages or relief because of Your default under the terms of the Credit
Transaction.
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(emphasis added). The agreement also provides that it "shall be subject to and governed by the Federal Arbitration Act,
9 U.S.C. Sections 1-16 as amended."
On or about March 20, 2002, Centex filed an application in the 111th Judicial District Court of Webb County Texas,
seeking an expedited foreclosure under Texas Rule of Civil Procedure 736. On August 22, 2002, the court signed a
default order allowing foreclosure of the lien. On November 5, 2002, Centex foreclosed on its home-equity lien and
conducted a non-judicial sale of the Galvans' home. At the sale, Centex purchased the home for $119,593.28.
On April 11, 2003, the Galvans filed an "Application for Temporary Restraining Order and Temporary Injunction and
Permanent Injunction and Bill of Review." In their application, the Galvans alleged that on May 17, 2002, the Galvans
filed a response to Centex's application for expedited foreclosure under rule 736. According to the Galvans, although
they filed a response, Centex represented to the court that they had not answered the lawsuit. And, they alleged that a
hearing as required under rule 736 was not held and that they did not get notice of any such hearing. As a result of the
default order, their home was sold at a foreclosure sale to Centex for $119,593.28. According to the Galvans, the value
of their home is $150,000, and they did not owe more than $92,000 on their home. As such, they alleged that they
were damaged in an amount in excess of $50,000.00.
In light of their allegations, the Galvans "seek recovery from Defendant Centex in the form of a bill of review,
damages, injunctive relief, attorney's fees and/or to set aside the foreclosure sale." The Galvans alleged that they were
likely to succeed on the merits of the lawsuit "because it is clear that [Centex] did not comply with rule 736 and
committed fraud on the Court and violated [the Galvans]' due process rights." As such, they requested that the court
immediately restrain Centex from executing a writ of possession obtained from the justice of the peace (and to be
executed by Constable Raul Hinojosa) and from interfering with the Galvans' possession of the home. According to the
Galvans,
It is essential that the court immediately and temporarily restrain [Centex and Constable Raul Hinojosa] from
executing the writ of possession and interfering with [the Galvans]' possession of the home. It is essential that the court
act immediately, prior to giving notice to [Centex and Constable Hinojosa] and a hearing on the matter because
[Centex and Constable Hinojosa] have stated that they will expel [the Galvans] by force today at 2:00 p.m.
At 1:50 p.m. on April 11, 2003, the trial court signed a temporary restraining order, restraining Centex and Constable
Hinojosa from executing the writ of possession and interfering with the Galvans' possession of the home.
On July 3, 2003, Centex filed a general denial. On April 8, 2004, the court sua sponte dismissed the cause for want of
prosecution. On April 30, 2004, the Galvans filed a motion for new trial and motion to reinstate the dismissed cause.
On May 14, 2004, the trial court granted the motion for new trial and motion to reinstate and entered a scheduling
order setting trial for August 23, 2004. On May 20, 2004, the Galvans filed their "First Supplemental Petition for
Application for Temporary Restraining Order and Temporary Injunction and Permanent Injunction and Bill of
Review." In this supplemental petition, the Galvans added the following new allegation:
At the time that [Centex] made the home equity loan to [the Galvans], [Centex] violated certain provisions of Art. XVI,
Section 50 of the Texas Constitution of 1876 and Texas Property Code, Section 41.001 which requires strict
compliance with Art. XVI, Section 50 of the Texas Constitution. As a result of said violations, [Centex]'s lien did not
attach to [the Galvans]' property, is invalid, and void or voidable and should be set aside. Furthermore, as a result of
said violations, [Centex] should forfeit all of its principal and interest on the extension of credit. More specifically,
[Centex] violated the following provisions to the State Constitution in that-
a) Centex charged fees to [the Galvans] to originate, evaluate, maintain, record, insure, or service the extension of the
credit that exceeded, in the aggregate, three percent of the original principal amount of the extension of credit (Art.
XVI, Section 50(a)(6)(E));
b) [Centex] failed to provide the constitutional notice required by Art. XVI, Section 50(g), before closing, in the
Spanish language, despite the fact that all discussions with the [Galvans] were conducted in Spanish and that neither of
the [Galvans] speak or read the English language, in violation of said section.
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c) None of the loan documents have a provision stating that the "Lender will forfeit all principal and interest if the
Lender fails to comply with the Lender's obligations," in violation of Art. XVI, Section 50(g). [This] provision is a
mandatory provisions which must form part of the agreement of the parties and should be considered as part of the
agreement of the parties whether contained in the loan documents or not. Therefore, pursuant to the agreement of the
parties, [Centex] shall forfeit all of its principal and interest for failure to comply with the Texas Constitution as stated
herein.
[Centex]'s actions described herein constitute a breach of contract which has proximately caused damages to [the
Galvans].
[Centex]'s actions constitute a violation of the Texas Finance Code Section 392.304 in that Defendant used false
representations or deceptive means to collect a debt.
[Centex]'s actions constitute a violation of the Texas Finance Code Sections 305.001 and 305.002 in that [Centex] has
charged more interest than authorized by law.
[Centex] violated Texas Finance Code Section 343.102 in that [Centex] failed to provide the notice required by that
section.
[Centex] violated Texas Finance Code Section 342.204 in that [Centex] made the loan without regard to [the Galvans]'
payment ability and only with regard to [the Galvans]' equity on the home. [Centex] also violated Texas Finance Code
Sections 349.001 thru 349.003.
In light of these allegations, the Galvans sought "recovery from Defendant Centex damages, forfeiture of the principal
and interest, additional, double or treble damages as allowed by law, injunctive relief, attorney's fees, interest, court
costs and/or to set aside the foreclosure sale."
On July 19, 2004, sixty-six days after the dismissed cause was reinstated and sixty days after the Galvans filed their
amended application, Centex filed its "Plea in Abatement and Motion to Compel Arbitration," arguing that the
Galvans' amended application implicated the arbitration agreement. On August 9, 2004, the court held a hearing on
Centex's motion. And, on August 17, 2004, the court signed an order denying Centex's motion because it found that
Centex had waived its right to arbitration:
After considering [Centex's motion], the record, the evidence presented and the argument of counsel, the Court finds
that [Centex] has waived its right to arbitrate by substantially engaging in litigation until the eve of trial without ever
requesting arbitration, which is inconsistent with its right to arbitrate, thereby causing [the Galvans] prejudice in the
form of attorney's fees incurred in pre-trial matters, such as, but not limited to, answering pre-trial discovery,
preparing a motion for summary judgment and trial preparation. [The Galvans] have also suffered delay which is
inherent in civil litigation and not arbitration. [Centex] has used the judicial process to obtain written discovery which
[Centex] would not have been entitled to in arbitration.
In response, Centex has filed a petition for writ of mandamus.
Standard of Review
When a trial court erroneously denies a party's motion to compel arbitration under the FAA, the movant has no
adequate remedy at law and is entitled to a writ of mandamus. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex.
2001) (orig. proceeding). A party seeking to compel arbitration by mandamus must first establish the existence of an
arbitration agreement subject to the FAA. Id. Once the movant establishes an agreement, the court must then determine
whether the arbitration agreement covers the nonmovant's claims. Id. Because state and federal policies continue to
favor arbitration, a presumption exists favoring agreements to arbitrate under the FAA, and courts must resolve any
doubts about an arbitration agreement's scope in favor of arbitration. Id. Once the trial court concludes that the
arbitration agreement encompasses the claims, and that the party opposing arbitration has failed to prove its defenses,
the trial court has no discretion but to compel arbitration and stay its own proceedings. Id. at 753-54.
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Waiver
In their response to Centex's petition for writ of mandamus, the Galvans argue that Centex waived its right to
arbitration by waiting fifteen months after the original petition was filed. Centex, however, argues that the Galvans'
amended petition filed on May 20, 2004 added new claims that implicated the arbitration agreement. As such, it timely
invoked its right to compel arbitration by filing its motion to compel arbitration on July 22, 2004.
Whether a party has waived its arbitration rights is a question of law. In re Bruce Terminix Co., 988 S.W.2d 702, 703-
04 (Tex. 1998) (orig. proceeding). Because public policy favors the resolution of disputes through arbitration, there is a
strong presumption against waiver. Id. at 704. Therefore, the party seeking to avoid arbitration bears a heavy burden to
prove waiver, and any doubts regarding waiver are resolved in favor of arbitration. Menna v. Romero, 48 S.W.3d 247,
251 (Tex. App.--San Antonio 2001, pet. dism'd w.o.j.). We 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 Bruce Terminix Co., 988 S.W.2d at 704.
Here, the Galvans argue that Centex waived its right to arbitrate by waiting fifteen months after their original petition
was filed. However, the original petition did not state any claims that would implicate the arbitration agreement. The
arbitration agreement states that a "dispute" does not include "any action to effect a foreclosure; any action to obtain
possession of any property securing the Credit Transaction; any action for prejudgment injunctive relief or appointment
of receiver(s); and any claim where We [Centex] seek damages or relief because of Your default [the Galvans] under
the terms of the Credit Transaction." Thus, Centex's original foreclosure action under rule 736 did not implicate the
arbitration agreement. The Galvans' original petition and bill of review sought a temporary restraining order to prevent
imminent foreclosure. They also sought to vacate the trial court's order allowing foreclosure under rule 736, arguing
that the order should be vacated because Centex had not complied with rule 736. The Galvans were simply asking that
they be allowed to remain in their home and that the foreclosure sale be set aside. They also alleged that they were
damaged in the amount of $50,000 as a result of the allegedly illegal foreclosure sale. The Galvans, however, did not
plead claims that would implicate the arbitration agreement.
On May 20, 2004, however, the Galvans did plead new claims that implicated the arbitration agreement. Instead of just
arguing that the foreclosure was improper, they added claims relating to the processing and closing of the loan. These
claims implicated the arbitration agreement for the first time. Centex then filed its motion to compel arbitration sixty
days later on July 22, 2004.
The trial court found that Centex waited until the eve of trial to move for arbitration. On May 14, 2001, the trial court
granted the Galvans' motion for new trial and reinstated the cause. On that same day, the trial court entered a
scheduling order setting trial for August 23, 2004, a little over three months from the date of the scheduling order. The
Galvans then filed their amended petition invoking the arbitration clause on May 20, 2004. Centex filed its motion to
compel arbitration on July 22, 2004. Centex did not wait until the eve of trial to compel arbitration. Because the cause
had been dismissed for want of prosecution, the trial court set a tight trial date. But, Centex did not waive its right to
arbitration when the Galvans did not plead claims invoking the arbitration clause until May 20, 2004.
The trial court also found that the Galvans were prejudiced in the form of attorney's fees incurred in pre-trial matters,
such as, but not limited to, answering pre-trial discovery, preparing a motion for summary judgment and trial
preparation. Centex, however, propounded pre-trial discovery in October of 2003, many months before the Galvans
added the new claims implicating the arbitration agreement. Similarly, the motion for summary judgment prepared by
the Galvans was filed a mere month after they filed the amended petition implicating the arbitration clause for the first
time.
We, therefore, hold that Centex did not waive its right to arbitration.
Conclusion
Because Centex did not waive its right to arbitration, the trial court had no discretion but to compel arbitration and
stay its own proceedings. Accordingly, we conditionally grant Centex's petition for writ of mandamus and direct
respondent (1) to withdraw his order denying Centex's motion to compel arbitration and (2) to enter an order staying
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the underlying cause pending arbitration of those claims covered by the arbitration agreement. Only if the Honorable
Raul Vasquez fails to comply will we issue the writ.
Karen Angelini, Justice
1. This proceeding arises out of Cause No. 2003CVQ000530D2, styled Gilberto Galvan and Claudia Galvan v. Centex
Home Equity Company, LLC, pending in the 111th Judicial District Court, Webb County, Texas, the Honorable Raul
Vasquez presiding.
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