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Waive Not, Want Not: Lessons from Momentum v. Booflies
Momentum Project Controls, LLC v. Booflies to Beefras LLC[1] provides valuable insights for contractors, owners, and design professionals about how litigation conduct can deprive them of the right to arbitrate disputes, even in the face of a standard non-waiver provision.[2]
Background:
Momentum was hired as the general contractor for a daycare facility construction project under a standard AIA contract. A payment dispute arose between Momentum and the project’s owner, and Momentum sued the owner in 2018. Meanwhile, a subcontractor, Young Lee Plumbing, filed a separate lawsuit in 2020, suing Momentum for breach of contract and the owner for foreclosure of Young Lee’s mechanic’s lien. Young Lee’s suit was consolidated with Momentum’s original suit and several other subcontractors’ suits, and Momentum also counterclaimed against Young Lee.
Young Lee won a partial summary judgment against Momentum for $57,958, and the case was set for trial in 2022 to resolve Young Lee’s claim for attorney’s fees. Just two weeks before the trial, Momentum tried to compel Young Lee to arbitrate the dispute. However, the court ruled that Momentum had waived its right to arbitration by substantially invoking the litigation process for so long.
Court’s Decision:
Momentum argued it couldn’t waive its right to arbitrate because of the AIA contract’s nonwaiver clause protecting that right. That provision states that no action or failure to act by the contractor would waive any rights, unless agreed in writing.
The court rejected this argument, holding that Momentum’s actions—waiting four years to seek arbitration, attempting to compel arbitration just before trial, and doing so only after losing summary judgment—demonstrated a waiver of the right to arbitrate. The court also held that these actions waived the AIA’s nonwaiver clause itself.
Implications and Key Takeaways:
This case is consistent with a long line of cases holding that boilerplate nonwaiver provisions can be waived as easily as the provisions they purportedly protect. Parties should not over-rely on nonwaiver provisions.
Clear and specific contract language is crucial. Parties should ensure that nonwaiver clauses explicitly state what actions do not constitute a waiver, to avoid disputes and the resulting uncertainty over contract enforcement. The Texas Supreme Court has made clear that if a nonwaiver provision includes specific conduct that does not constitute waiver, evidence of that conduct cannot prove waiver. For example, if a lease agreement states that acceptance of late installments of rent will not waive the landlord from enforcing any other provision of the agreement, Texas courts will enforce that provision and will not credit late acceptance of rent as evidence of waiver. Shields Limited Partnership v. Bradberry, 526 S.W.3d 471, 481(Tex. 2017). The clause, however, must be specific.
This case also underscores the importance of acting promptly if a party intends to enforce an arbitration clause.[3] Since an agreement to arbitrate is fundamentally an agreement not to litigate, courts often treat litigation conduct as contrary to the promise to arbitrate. While the Texas Supreme Court has narrowed the circumstances in which litigation conduct will waive arbitration, waiting until two weeks before trial to assert a right to arbitrate is risky.
[1] Momentum Project Controls, LLC v. Booflies to Beefras LLC, No. 14-22-00712-CV, 2023 WL 4196584 (Tex. App.―Houston [14th Dist.] June 27, 2023, pet. denied) (mem. op.).
[2] This abbreviated summary is intended to alert you to recent court opinions that may affect your business. It is not a substitute for consulting with an attorney about your specific contracts, business practices, or procedures. Nor is it a substitute for reading the case in its entirety. There is no legal advice here.
[3] For additional discussion and insights into the court’s holding regarding waiver of right to arbitration, read Will Allensworth Case Law Update 2024 pages 140-145.