On May 16, 2008, the Supreme Court of Texas held a corporation that spent seven months removing a case to various federal courts before filing an answer in state court with a contemporaneous motion to compel arbitration did not waive its contractual right to arbitration.
In In re Citigroup Global Markets, Inc., — S.W.3d —, 2008 WL 2069835 (Tex 5/16/08), Robert and Natalie Nickell – – who had investment accounts with Citigroup and signed agreements to arbitrate any disputes “concerning or arising from” their accounts – – allegedly lost more than $4 million after they invested in WorldCom, Inc. based on research reports by a Citigroup analyst.
The Nickells sued Citigroup in state court. Citigroup immediately removed the case to federal court on the ground that it related to WorldCom’s bankruptcy proceedings; the Nickells countered with a motion to remand. Citigroup then moved to transfer the case to a federal multidistrict litigation (“MDL”) court in New York managing similar WorldCom-related suits against Citigroup and moved to stay the proceedings in federal court pending the MDL panel’s decision – – specifically reserving its defense that “Plaintiffs arbitrate, not litigate, their claims.” Once in the MDL, a stay order excused Citigroup from filing an answer or pleading any defenses.
The Nickells filed another motion to remand in the MDL. Citigroup conceded the jurisdictional battle, agreed to remand the case back to state court, and contemporaneously filed an original answer and motion to compel arbitration. The trial court denied the motion to compel arbitration, and the court of appeals denied mandamus relief on the ground that Citigroup expressly waived arbitration by stating its intent to litigate the dispute. The court of appeals decision rested on Citigroup’s written explanations for the removal and transfer of the case, and the accepted rule that “a party waives an arbitration clause by substantially invoking the judicial process to the other party’s detriment.” Perry Homes v. Cull, — S.W.3d — (Tex. 2007).
The Supreme Court of Texas found that Citigroup’s statements regarding this case’s similarity to others already in the MDL, and the potential convenience of the parties and witnesses in consolidated proceedings, were required by statute to justify transfer to the MDL; that its statements about the discovery that could be avoided by transfer to the MDL could reflect an effort to avoid litigation activity rather than duplicate it; and that Citigroup’s transfer to the MDL did not indicate it had abandoned arbitration. The Supreme Court also found that Citigroup’s actual litigation conduct was limited to jurisdictional issues, not the merits of the case – – it did not send or respond to any discovery, conduct any depositions, file any motions (or even an answer) relating to the merits before seeking arbitration, or engage in any “litigation conduct whatsoever other than transferring the case to the federal and MDL courts.” Thus, it held Citigroup did not substantially invoke the judicial process.
Accordingly, the Supreme Court of Texas conditionally granted Citigroup’s petition for writ of mandamus and directed the trial court to compel arbitration because the Plaintiffs failed to show Citigroup waived its contractual right to arbitration.
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