## Facts

- In 1996, Robert and S. Jane Cull bought a home from Perry Homes and purchased a written warranty issued by Home Owners Multiple Equity, Inc. and Warranty Underwriters Insurance Co.
- The warranty included a broad arbitration clause requiring binding arbitration under the Federal Arbitration Act and administered by the AAA (or another agreed arbitrator) for any “unresolved dispute” with Perry Homes or the warranty companies.
- The Culls later alleged serious structural and drainage defects and claimed the defendants shifted blame rather than fixing the problems.
- In 2000, the Culls sued in Texas district court asserting construction- and warranty-related claims.
- The warranty companies promptly sought to compel arbitration; Perry Homes did not join that request, and the Culls vigorously opposed arbitration. No ruling was obtained on the early motion.
- For roughly three years, the case proceeded in court with extensive merits discovery, including multiple depositions and requests for substantial information, some of which would not have been available in arbitration.
- Four days before the scheduled trial, the Culls changed course and moved to compel arbitration over the defendants’ objections.
- The trial court ordered arbitration; a three-arbitrator panel issued a substantial award for the Culls, and the trial court confirmed it.
- Defendants sought vacatur, arguing the Culls waived arbitration by substantially invoking litigation to defendants’ prejudice.

## Issues

1. Whether the Culls waived their contractual right to compel arbitration by substantially invoking the judicial process while opposing arbitration.
2. Whether the defendants proved prejudice from the Culls’ litigation conduct and late request for arbitration.
3. Whether the trial court abused its discretion by compelling arbitration shortly before trial and confirming the resulting award.

## Decision

- The Supreme Court of Texas reversed the court of appeals.
- The Court held the Culls waived arbitration by substantially invoking the judicial process and causing prejudice to the defendants.
- The Court held the trial court abused its discretion in compelling arbitration at that late stage.
- The Court vacated the arbitration award and remanded the case to the trial court for a prompt trial.

## Legal Principles

- Arbitration is waived when (1) a party substantially invokes the judicial process and (2) that conduct prejudices the opposing party.
- A strong presumption against waiver exists, but it can be rebutted by litigation conduct inconsistent with arbitration.
- A party may not oppose arbitration, pursue extensive court discovery and trial preparation (including advantages unavailable in arbitration), and then compel arbitration on the eve of trial.
- Prejudice may be shown by wasted litigation expense and effort, late-stage forum switching, and the opposing party being forced into arbitration after preparing for a court trial.

## Conclusion

The Supreme Court of Texas vacated an arbitration award after concluding the homeowners waived arbitration by actively litigating for years, extracting extensive discovery, and then seeking arbitration only days before trial, thereby prejudicing the defendants and rendering the trial court’s order compelling arbitration an abuse of discretion.


Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008)