The Court of Appeals for the Fifth District of Texas has reversed a trial court’s denial of a motion to compel arbitration in a breach of contract lawsuit over an unpaid auto loan, ruling a consumer did not waive his right to arbitrate by agreeing to an order letting the plaintiff — a bank — take possession of the vehicle while the case was pending.
The background: The dispute traces back to 2019, when the defendant signed a retail installment contract financing about $56,500 for the purchase of a pickup truck.
- The contract included an arbitration clause allowing either party to have any dispute decided by arbitration under the Federal Arbitration Act, along with a provision stating that neither party waived the right to arbitrate by using self-help remedies such as repossession or by filing an action to recover the vehicle.
- Last year, the plaintiff sued the defendant after he allegedly stopped making his monthly payments, seeking about $17,800 in damages plus attorney’s fees. The same day, it applied for a writ of sequestration, a court order allowing it to hold the vehicle while the lawsuit played out.
- The defendant filed his answer and, less than a month later, moved to compel arbitration. The day after that motion was filed, the trial court signed an agreed sequestration order, approved by both sides, requiring the plaintiff to post a $50,000 bond.
- The plaintiff argued the defendant waived his right to arbitrate by agreeing to the sequestration order and that arbitration would be an “inefficient use of judicial resources.” The trial court denied the motion to compel arbitration without explaining its reasoning.
The ruling: The Appeals Court reversed and sent the case to arbitration, noting the plaintiff never disputed that the arbitration agreement was valid or that the claims fell within its scope, leaving waiver as the only question.
- The party claiming waiver must prove its opponent “substantially invoked the judicial process,” a burden the court described as heavy, with any doubts resolved in favor of arbitration.
- The few months between the lawsuit’s filing and the arbitration motion carried little weight. Texas courts have found delays of nine months, and even two years, insufficient to waive arbitration.
- Agreeing to the sequestration order was not conduct on the merits, because sequestering a vehicle “does not settle the question of who the vehicle belongs to.” It is a temporary remedy that decides nothing about the underlying claim.
- The defendant filed no counterclaims and no dispositive motions, and no discovery took place beyond required initial disclosures.
- As for the efficiency argument, the Appeals Court noted that courts must compel arbitration even when doing so “would be possibly inefficient,” and that the plaintiff offered no evidence to support its claim of duplicated effort.
- The plaintiff did not file a brief on appeal.
