Western Rim Property Services Inc. v. Paula Bazan-Garcia
Date Filed2014-12-31
Docket04-14-00829-CV
Cited0 times
StatusPublished
Full Opinion (html_with_citations)
ACCEPTED
04-14-00829-cv
04-14-00829-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
12/24/2014
12/31/2014 9:16:08
4:25:35 AM
PM
KEITH HOTTLE
CLERK
ORAL ARGUMENT REQUESTED
FILED IN
No. 04-14-00829-CV 4th COURT OF APPEALS
SAN ANTONIO, TEXAS
12/31/2014 4:25:35 PM
IN THE COURT OF APPEALS KEITH E. HOTTLE
Clerk
FOR THE FOURTH JUDICIAL DISTRICT OF TEXAS
AT SAN ANTONIO
Western Rim Property Services, Inc.,
Appellant,
v.
Paula Bazan-Garcia,
Appellee.
ON APPEAL FROM THE COUNTY COURT AT LAW NO. CC# 03 OF
BEXAR COUNTY, TEXAS, CAUSE NO. 2014CV01064
APPELLANTâS OPENING BRIEF
BAKER BOTTS L.L.P. BAKER BOTTS L.L.P.
Jennifer M. Trulock Stephanie F. Cagniart
State Bar No. 90001515 State Bar No. 24079786
jennifer.trulock@bakerbotts.com stephanie.cagniart@bakerbotts.com
2001 Ross Avenue, Suite 600 98 San Jacinto Boulevard, Suite 1500
Dallas, Texas 75201-2980 Austin, Texas 78701-4078
(214) 953-6500 (512) 322-2500
(214) 953-6503 (Facsimile) (512) 322-2501 (Facsimile)
Attorneys for Appellant Western Rim Property Services, Inc.
Identity of Parties and Counsel
Appellant Western Rim Property Services
Counsel for Appellant BAKER BOTTS L.L.P.
Jennifer M. Trulock
State Bar No. 90001515
2001 Ross Avenue
Suite 600
Dallas, Texas 75201
Stephanie F. Cagniart
State Bar No. 24079786
98 San Jacinto Blvd
Suite 1500
Austin, Texas 78701
Appellee Paula Bazan-Garcia
Counsel for Appellee The Espinoza Law Firm, PLLC
Javier Espinoza
State Bar No. 24036534
Josue Garza
State Bar No. 24072737
503 E. Ramsay
Suite 103
San Antonio, Texas 78216
i
Table of Contents
Page
Identity of Parties and Counsel .................................................................................. i
Table of Authorities ................................................................................................. iv
Statement of the Case.............................................................................................. vii
Issue Presented ....................................................................................................... viii
Statement of Facts ......................................................................................................1
I. Bazan-Garcia agreed to arbitrate her disputes with WRPS. ................. 1
II. Despite the partiesâ agreement to arbitrate their disputes,
Bazan-Garcia files a lawsuit against WRPS in state court.................... 3
Standard of Review ....................................................................................................4
Summary of the Argument.........................................................................................6
Argument....................................................................................................................7
I. The trial court erred in refusing to compel arbitration because
Bazan-Garcia agreed to arbitrate her disputes with WRPS. ................. 7
A. WRPS proved that Bazan-Garcia agreed to arbitrate her
disputes with WRPS. .................................................................. 8
B. WRPS proved that Bazan-Garciaâs claims fall within the
scope of her agreement to arbitrate. .......................................... 10
II. The trial court abused its discretion by denying WRPSâs motion
to compel arbitration on the grounds that the partiesâ agreement
was unconscionable, because that defense is itself subject to
arbitration. ........................................................................................... 12
A. The partiesâ arbitration agreement clearly and
unmistakably delegated issues of arbitrability to the
arbitrator. ................................................................................... 13
ii
B. Bazan-Garcia is bound to arbitrate her unconscionability
defense because she failed to prove that the delegation
clause was invalid. .................................................................... 17
III. In the alternative, the trial court erred in denying WRPSâs
motion to compel arbitration because Bazan-Garcia did not
prove that the partiesâ arbitration agreement is unconscionable. ........ 20
A. Legal Standard .......................................................................... 20
B. Bazan-Garcia failed to prove that arbitration under the
partiesâ agreement would be more expensive than
litigation, and effectively prevent her from vindicating
her statutory rights. ................................................................... 22
1. Bazan-Garcia failed to prove that arbitrating her
claims is likely to cost upwards of $20,000. .................. 23
2. Under the partiesâ agreement, WRPS will bear
almost all of the costs of arbitration. .............................. 26
C. An arbitration agreement cannot be found
unconscionable based on provisions that the arbitrator is
empowered to modify. .............................................................. 28
IV. If any provision of the arbitration agreement is unconscionable,
this Court should sever it and enforce the remainder of the
agreement. ........................................................................................... 32
Conclusion and Prayer for Relief.............................................................................33
Certificate of Compliance ........................................................................................35
Certificate of Service ...............................................................................................35
Index to Appendix ....................................................................................................36
iii
Table of Authorities
Page(s)
CASES
Aspen Tech., Inc. v. Shasha,
253 S.W.3d 857(Tex. App.âHouston [14th Dist.] 2008, no pet.) .............23, 24 Burlington Res. Oil & Gas Co. LP v. San Juan Basin Royalty Trust,249 S.W.3d 34
(Tex. App.âHouston [1st Dist.] 2007, pet. denied) ................. 16 Cantella & Co., Inc. v. Goodwin,924 S.W.2d 943
(Tex. 1996) .......................................................................... 5, 10 Contec Corp. v. Remote Solution, Co., Ltd.,398 F.3d 205
(2d Cir. 2005) ............................................................................... 15 D.R. Horton-Tex., Ltd. v. Dragseth, 02-12-000435,2013 WL 3377121
(Tex. App.âFort Worth July 3, 2013, no pet.) .................................................................................................................. 5 Ernst & Young LLP v. Martin,278 S.W.3d 497
(Tex. App.âHouston [14th Dist.] 2009, no pet.) .............13, 17 Forest Oil Corp. v. McAllen,268 S.W.3d 51
(Tex. 2008).............................................................6, 8, 12, 13, 20 Garcia v. Huerta,340 S.W.3d 864
(Tex. App.âSan Antonio 2011, pet. denied)............................ 5 Gilmer v. Interstate/Johnson Lane Corp.,500 U.S. 20
(1991) .............................................................................................. 28 Green Tree Fin. Corp.-Ala. v. Randolph,531 U.S. 79
(2000) ..................................................................................22, 23, 24 Haddock v. Quinn,287 S.W.3d 158
(Tex. App.âFort Worth 2009, pet. denied) ............................ 16 Hoover Slovacek LLP v. Walton,206 S.W.3d 557
(Tex. 2006) .............................................................................. 20
iv
Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79(2002) .............................................................................................. 13 IHS Acquisition No. 171, Inc. v. Beatty-Ortiz,387 S.W.3d 799
(Tex. App.âEl Paso 2012, no pet.) ........................................ 19
In re Dallas Peterbilt, L.L.P.,
196 S.W.3d 161 (Tex. 2006) .............................................................................. 10
In re FirstMerit Bank, N.A.,
52 S.W.3d 749 (Tex. 2001).................................................................8, 23, 29, 31
In re Halliburton Co.,
80 S.W.3d 566 (Tex. 2002)............................................................................. 8, 10
In re J.D. Edwards World Solutions Co.,
87 S.W.3d 546 (Tex. 2002)............................................................................... 5, 8
In re Olshan Found. Repair Co., LLC,
328 S.W.3d 883 (Tex. 2010) ..................................... 6, 20, 21, 22, 23, 25, 27, 28
In re Palm Harbor Homes, Inc.,
195 S.W.3d 672 (Tex. 2006) ................................................................................ 9
In re Poly-America, L.P.,
262 S.W.3d 337 (Tex. 2008) ......................... 5, 20, 21, 22, 28, 29, 30, 31, 32, 33
In re Rubiola,
334 S.W.3d 220 (Tex. 2011) .............................................................................. 10
In re Weekley Homes, L.P.,
180 S.W.3d 127(Tex. 2005) .............................................................................. 13 J.M. Davidson, Inc. v. Webster,128 S.W.3d 223
(Tex. 2003) ................................................................................ 4 Jack B. Anglin Co., Inc. v. Tipps,842 S.W.2d 266
(Tex. 1992) .......................................................................... 8, 27 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,473 U.S. 614
(1985) ............................................................................................ 21
v
Palm Harbor Homes, Inc. v. McCoy,
944 S.W.2d 716(Tex. App.âFort Worth 1997, no writ) .................................... 5 Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co.,687 F.3d 671
(5th Cir. 2012) .............................................................................. 15 Prudential Sec. Inc. v. Marshall,909 S.W.2d 896
(Tex. 1995) .............................................................................. 10 Rent-A-Center, West v. Jackson,561 U.S. 63
(2010) ......................................................................13, 17, 18, 19, 20 Saxa Inc. v. DFD Architecture Inc.,312 S.W.3d 224
(Tex. App.âDallas 2010, pet. denied)..............................14, 15 Ski River Dev., Inc. v. McCalla,167 S.W.3d 121
(Tex. App.âWaco 2005, pet. denied) .................................... 31 Venture Cotton Co-op v. Freeman,435 S.W.3d 222
(Tex. 2014) ............................................................21, 22, 32, 33 STATUTES9 U.S.C. § 2
.............................................................................................................. 13
Tex. Civ. Prac. & Rem. Code § 171.001 ................................................................... 8
Tex. Civ. Prac. & Rem. Code § 171.001(b)......................................................... 5, 13
Tex. Civ. Prac. & Rem. Code § 171.002(a)(4) ........................................................ 16
Tex. Civ. Prac. & Rem. Code § 171.021(c) ......................................................... 5, 12
Tex. Civ. Prac. & Rem. Code § 171.025(a) ............................................................... 8
OTHER AUTHORITIES
AAA Employment Rules ..................................................................................passim
Restatement (Second) of Contracts § 208 (1981) .................................................... 32
Tex. R. App. P. 9.4 ................................................................................................... 35
vi
Statement of the case
This is an accelerated interlocutory appeal from denial of a motion to
compel arbitration. Plaintiff-Appellee Paula Bazan-Garcia (âBazan-Garciaâ), who
worked as an at-will employee for Defendant-Appellant Western Rim Property
Services (âWRPSâ), agreed in and after her initial employment agreement that any
dispute between her and WRPS would be resolved by binding arbitration. Bazan-
Garcia also agreed that any dispute over the validity and enforceability of the
partiesâ arbitration agreement would be decided by the arbitrator, not by the court.
Despite these promises, Bazan-Garcia sued WRPS on various claims arising from
her employment and termination, see CR 9â13, all of which fall within the scope
of the partiesâ arbitration agreement, see App. 3â13.1
After Bazan-Garcia refused to submit her claims to arbitration in
accordance with the agreement, WRPS moved to compel arbitration in the trial
court. CR 16â70. The trial court denied WRPSâs motion on November 17, 2014.
App. 1. WRPS timely filed its notice of accelerated interlocutory appeal on
November 24, 2014. CR 156â57. On December 3, 2014, this Court granted
WRPSâs Emergency Motion to Stay Proceedings in the trial court pending
resolution of this appeal.
1
The Clerkâs Record is referred to herein as âCR,â the Supplemental Clerkâs Record as
âSupp. CR,â the Reporterâs Record as âRR,â and the Appendix as âApp.â
vii
Issue Presented
Did the trial court err by denying WRPSâs motion to compel
arbitration, where it was undisputed that Bazan-Garcia agreed to arbitrate her
disputes with WRPS, where Bazan-Garciaâs only challenge to the arbitration
agreement was based on an unconscionability defense that the parties also agreed
would be decided by the arbitrator rather than the court, and where Bazan-Garcia
failed to prove that she would not be able to vindicate her statutory rights in the
forum of arbitration?
viii
Statement of Facts
I. Bazan-Garcia agreed to arbitrate her disputes with WRPS.
Paula Bazan-Garcia was employed as a housekeeper by WRPS from
September 26, 2011 until October 22, 2013. CR 32. Both upon hire and during
her employment with WRPS, Bazan-Garcia signed and assented to several written
agreements. See CR 32â33. Among these agreements were an Employee
Acknowledgement Form (âAcknowledgementâ) and an Arbitration Agreement
(âArbitration Agreementâ), both of which contained mandatory and binding
arbitration provisions. App. 3, 4.
The Acknowledgement stated that Bazan-Garcia had received a copy
of WRPSâs Employee Handbook, and that she understood that âit [was her]
responsibility to read and comply with the policies contained in this handbook and
any revisions made to it.â App. 4. The Employee Handbook included a section
entitled âProblem Resolution.â App. 12. It had an arbitration provision stating:
Problems, disputes, or claims not resolved through
[voluntary internal dispute] resolution steps are subject to
final and binding arbitration. The arbitration proceeding
will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration
Association [(the âAAA Rulesâ)].
App. 13. This same provision was included in every version of the Employee
Handbook in place during Bazan-Garciaâs employment. See CR 33, 53, 63, 70.
Bazan-Garcia signed the Acknowledgement on September 20, 2011. App. 4.
1
Bazan-Garcia signed the Arbitration Agreement on September 27,
2011. App. 3. The agreement was clearly entitled âArbitration Agreement,â and
also stated that disputes between Bazan-Garcia and WRPS would be decided by
binding arbitration under the AAA Rules:
[O]ther than a workerâs compensation claim covered by
insurance, no dispute between [WRPS] and the
undersigned which is in any way related to the
employment of the undersigned, including but not limited
to a claim for wrongful termination, discrimination
and/or harassment, and workerâs compensation not
covered by insurance, shall be the subject of a lawsuit
filed in any state or federal court. Instead, any such
dispute shall be submitted to arbitration in accordance
with the rules of the American Arbitration Association
(âAAAâ).
Id. Under the AAA Rules, â[t]he arbitrator shall have the power to rule on his or
her own jurisdiction, including any objections with respect to the existence, scope
or validity of the arbitration agreement.â AAA Rule 6(a) (App. 30).2 The
Arbitration Agreement also specified that â[e]ach party to arbitration shall be
entitled to take only one deposition,â and that â[a]ny arbitration relating to any
dispute covered by this Agreement shall be arbitrated in Dallas County, Texas.â
App. 3.
2
AAA Employment Rules are available online at
https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004362.
2
On October 22, 2013, WRPS terminated Bazan-Garciaâs employment.
CR 32. Because Bazan-Garciaâs employment was âat-will,â WRPS could
terminate it âat any time without a cause or reason.â CR 35.
II. Despite the partiesâ agreement to arbitrate their disputes, Bazan-Garcia
files a lawsuit against WRPS in state court.
More than eight months after her termination, on July 1, 2014, Bazan-
Garcia initiated this lawsuit in Bexar County Court at Law. CR 9. In her Original
Petition, Bazan-Garcia alleged that WRPSâs stated reasons for terminating her
employment were pretextual. CR 11. The real reason for her discharge, she
claimed, was that she had sustained and notified WRPS of an âon-the-job injury
and/or initiated the filing of a workersâ compensation claim.â CR 11. WRPS
answered with a general denial on September 12, 2014. CR 14â15. Bazan-Garcia
then served her initial discovery requests on WRPS, including 72 requests for
production, 23 interrogatories, and 13 requests for admission. Supp. CR 10â35.
Shortly after receiving Bazan-Garciaâs discovery requests, WRPS sent
a copy of Bazan-Garciaâs signed arbitration agreement to Bazan-Garciaâs counsel
and demanded that Bazan-Garcia submit her claims to arbitration in accordance
with her agreement. CR 30. Bazan-Garcia refused, and WRPS filed a Motion to
Compel Arbitration on October 16, 2014. CR 16. WRPS also filed a Motion for
Protective Order from Discovery, asking the trial court for relief from the
obligation to respond to Bazan-Garciaâs burdensome discovery requests until the
3
court decided whether arbitration was required. Supp. CR 4â8. In her response
brief and supporting affidavits, Bazan-Garcia did not dispute that she had agreed to
arbitrate her disputes with WRPS. Instead, she claimed that the arbitration
agreement was unconscionable and therefore unenforceable. CR 72â97.
The trial court held a hearing on WRPSâs motion to compel
arbitration and motion for a protective order, found the arbitration agreement was
unconscionable, see RR 18, and denied WRPSâs motions on November 17, 2014
on that ground, see App. 1. On November 19, 2014, Bazan-Garcia filed her First
Amended Petition, alleging for the first time that WRPS interfered with Bazan-
Garciaâs attempts to exercise her rights under the Family Medical Leave Act
(âFMLAâ), and/or terminated her employment in retaliation for invoking those
rights. CR 150.
WRPS timely filed this accelerated interlocutory appeal on November
24, 2014. CR 156â57. On December 3, 2014, this Court stayed all proceedings
pending in the trial court âuntil further order of this court.â
Standard of Review
Arbitration agreements are contracts and âinterpreted under traditional
contract principles.â J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.
2003). â[O]n appeals of orders denying arbitration under the Texas Arbitration Act
(âTAAâ), [the court] appl[ies] a no-evidence standard to the trial courtâs factual
4
determinations and a de novo standard to legal determinations.â Garcia v. Huerta,
340 S.W.3d 864, 868(Tex. App.âSan Antonio 2011, pet. denied). Because âa presumption exists in favor of agreements to arbitrate . . . [c]ourts must resolve any doubts about an agreement to arbitrate in favor of arbitration.â Cantella & Co., Inc. v. Goodwin,924 S.W.2d 943, 944
(Tex. 1996) (internal citations omitted).
If a claim is subject to an arbitration agreement, then âthe trial court
has no discretion but to compel arbitration and stay its own proceedingsâ until
arbitration is complete. In re J.D. Edwards World Solutions Co., 87 S.W.3d 546,
549(Tex. 2002); see also Tex. Civ. Prac. & Rem. Code § 171.021(c) (App. 67). The party opposing arbitration has the heavy burden of proving that âgrounds exist at law or equity for [the arbitration agreementâs] revocation . . . such as fraud or unconscionability.â Palm Harbor Homes, Inc. v. McCoy,944 S.W.2d 716, 721
(Tex. App.âFort Worth 1997, no writ); see also Tex. Civ. Prac. & Rem. Code § 171.001(b) (App. 66). âBecause a trial court has no discretion to determine what the law is or to apply the law incorrectly, its clear failure to properly analyze or apply the law of unconscionability constitutes an abuse of discretion.â D.R. Horton-Tex., Ltd. v. Dragseth, 02-12-000435,2013 WL 3377121
, at *3 (Tex. App.âFort Worth July 3, 2013, no pet.) (citing In re Poly-America, L.P.,262 S.W.3d 337, 348
(Tex. 2008)).
5
Generally, the trial court is empowered to decide challenges to the
validity of an arbitration agreement. Forest Oil Corp. v. McAllen, 268 S.W.3d 51,
61(Tex. 2008). However, if the partiesâ arbitration agreement clearly and unmistakably delegates questions regarding the agreementâs validity and enforceability to the arbitrator, the court must enforce that provision.Id.
If the trial court refuses to do so, the court of appeals has âno discretion but to direct the trial court to compel arbitration [of that issue] and stay [the] litigation.âId.
Summary of the Argument
Arbitration agreements are favored by Texas public policy and must
be enforced by the courts. In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883,
892 (Tex. 2010). The evidence is uncontroverted that Bazan-Garcia agreed to
arbitrate her disputes with WRPS. In addition, the parties expressly agreed that the
arbitrator rather than the court would decide any question regarding the validity of
their arbitration agreementâincluding the unconscionability defense that Bazan-
Garcia raised before the trial court. Under these circumstances, the trial court had
no discretion but to grant WRPSâs motion to compel arbitration and stay the
litigation. Its failure to do so here is clear error.
Additionally, even if Bazan-Garciaâs unconscionability defense to
arbitration could have been considered by the trial court, it was without merit.
Bazan-Garcia claimed that under the partiesâ agreement, arbitration would be
6
prohibitively costly and prevent her from vindicating her statutory rights. In
making her case, Bazan-Garcia entirely disregarded provisions of the contract that
contradicted her interpretation, as well as the fact that the arbitrator can modify the
complained-of provisions. Her arguments have already been rejected in similar
cases by the Texas Supreme Court and Texas courts of appeals, and should have
been rejected by the trial court. Finally, even if this Court concludes that it has the
authority to consider Bazan-Garciaâs defense and finds that one or more of the
agreementâs provisions is unconscionable, it is required to sever that provision so
that the remainder of the arbitration agreement can be enforced.
Because WRPS met its burden of proving that the parties agreed to
arbitrate this dispute, and because Bazan-Garcia failed to prove any valid defense
to arbitration, this Court must reverse the judgment of the trial court and order it to
compel arbitration of Bazan-Garciaâs claims.
Argument
I. The trial court erred in refusing to compel arbitration because Bazan-
Garcia agreed to arbitrate her disputes with WRPS.
WRPS presented uncontroverted evidence to the trial court that (1)
Bazan-Garcia agreed to arbitrate her disputes with WRPS, and (2) all of Bazan-
Garciaâs claims fell within the scope of this agreement. See infra at 7â12. Bazan-
Garcia did not contest any of this evidence, or deny that she signed and assented to
the written arbitration agreements. Under the TAA, the trial court therefore had no
7
discretion to refuse to compel arbitration in this case. See J.D. Edwards World
Solutions, 87 S.W.3d at 549; Tex. Civ. Prac. & Rem. Code § 171.001 (App. 66). Its refusal to do so denied WRPS the benefit of its bargain, and was error as a matter of law. See Jack B. Anglin Co., Inc. v. Tipps,842 S.W.2d 266, 271
(Tex.
1992).
A. WRPS proved that Bazan-Garcia agreed to arbitrate her disputes
with WRPS.
Texas and federal policy strongly favor arbitration agreements. Tipps,
842 S.W.2d at 268. Under the TAA, if the party seeking to compel arbitration shows that the parties entered into a written and valid arbitration agreement and that their dispute falls within the scope of the agreement, âthe â[trial] court has no discretion but to compel arbitration and stay its own proceedings.ââ Forest Oil,268 S.W.3d at 56
n.14 (quoting In re FirstMerit Bank, N.A.,52 S.W.3d 749
, 753â 54 (Tex. 2001)); Tex. Civ. Prac. & Rem. Code § 171.025(a) (App. 68) (âThe court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an application for that order is made under this subchapter.â). This rule extends to arbitration provisions that are incorporated by reference into the agreement. See In re Halliburton Co.,80 S.W.3d 566, 569
(Tex. 2002).
It is undisputed that Bazan-Garcia agreed to the written arbitration
provisions contained in the Arbitration Agreement and incorporated by reference
in the Acknowledgement. Bazan-Garcia signed the Arbitration Agreement on
8
September 27, 2011. App. 3. The contract was clearly entitled âArbitration
Agreement,â and contained an express provision stating that, other than a workerâs
compensation claim covered by insurance, all disputes between WRPS and Bazan-
Garcia âshall be submitted to arbitration in accordance with the rules of the
American Arbitration Association.â Id.By presenting a signed copy of the Arbitration Agreement to the trial court, WRPS proved the existence of an arbitration agreement between the parties. In re Palm Harbor Homes, Inc.,195 S.W.3d 672, 676
(Tex. 2006) (âBecause the [defendant] presented a signed
arbitration agreement to the court . . . and the [plaintiffs] have presented no
evidence that they did not sign the agreement, we conclude that, as a matter of law,
the existence of an arbitration agreement among the parties was established.â).
WRPS also presented a signed and uncontroverted copy of the
Acknowledgement to the trial court. See App. 4. The Acknowledgement was
signed by Bazan-Garcia on September 20, 2011, and represented that she had
received the Employee Handbook and âunderst[oo]d that it [was her] responsibility
to read and comply with the policies contained in this handbook and any revisions
made to it.â Id. The Employee Handbook contained an arbitration provision
stating that any â[p]roblems, disputes, or claims not resolved through [voluntary
internal dispute] resolution steps are subject to final and binding arbitration.â App.
13. By signing the Acknowledgement that incorporated by reference the
9
Employee Handbookâs policies, Bazan-Garcia accepted the Handbookâs arbitration
provision. See In re Dallas Peterbilt, L.L.P., 196 S.W.3d 161, 163(Tex. 2006) (holding that an at-will employee who signed an acknowledgement form stating he had âreceived and carefully read or been given the opportunity to readâ a summary of the employerâs arbitration policy had assented to arbitration); Halliburton,80 S.W.3d at 569
(holding that an at-will employee who accepted an agreement that
incorporated an arbitration provision by reference had assented to arbitrate his
disputes with his employer).
B. WRPS proved that Bazan-Garciaâs claims fall within the scope of
her agreement to arbitrate.
WRPS also proved, and Bazan-Garcia did not dispute, that all of
Bazan-Garciaâs claims in this litigation fall within the scope of the arbitration
provisions contained in the Arbitration Agreement and Acknowledgement.
âWhen deciding whether claims fall within an arbitration agreement,
courts employ a strong presumption in favor of arbitration.â In re Rubiola, 334
S.W.3d 220, 225(Tex. 2011) (citing Cantella & Co,924 S.W.2d at 944
). âThe policy in favor of arbitration agreements is so compelling that a court should not deny arbitration unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.Id.
(quoting Prudential Sec. Inc. v. Marshall,909 S.W.2d 896, 899
(Tex.
1995)) (emphasis in original).
10
In her Original Petition, Bazan-Garcia alleged that she was wrongfully
discharged by WRPS after she notified WRPS of an âon-the-job injury and/or
initiated the filing of a workersâ compensation claim.â CR 11. In her Amended
Petition, filed after the trial court denied WRPSâs motion to compel arbitration,
Bazan-Garcia also alleged that WRPS prevented her from exercising her FMLA
rights and/or âterminated her [employment] in retaliation for invoking her FMLA
rights.â CR 150.
The arbitration provision in the partiesâ Arbitration Agreement clearly
encompasses these disputes. It states that âother than a workerâs compensation
claim covered by insurance, no dispute between [WRPS] and [Bazan-Garcia]
which is in any way related to the employment of [Bazan-Garcia], including but
not limited to a claim for wrongful termination . . . shall be the subject of a lawsuit
filed in any state or federal court.â App. 3. Both of Bazan-Garciaâs claims are
related to her employment and expressly allege she was wrongfully terminated,
and neither are a âworkerâs compensation claim covered by insurance.â These
claims must therefore be submitted to arbitration under the express terms of the
Arbitration Agreement.
Bazan-Garciaâs claims are also within the scope of the Employee
Handbookâs arbitration provision, incorporated by reference into the
Acknowledgement. Pursuant to that provision, Bazan-Garcia agreed that she
11
would arbitrate any â[p]roblems, disputes, or claims not resolved through
[voluntary internal dispute] resolution steps.â App. 13. None of the claims alleged
by Bazan-Garcia in this litigation have been resolved through WRPSâs voluntary
internal dispute resolution process.
WRPS met its burden before the trial court by proving that the parties
agreed to arbitrate their disputes, and that all of Bazan-Garciaâs claims are within
the scope of that agreement. Under the TAA, this Court must therefore reverse and
remand this case for the trial court to compel arbitration of Bazan-Garciaâs claims.
See Forest Oil, 268 S.W.3d at 56, 61; Tex. Civ. Prac. & Rem. Code § 171.021(c)
(App. 67).
II. The trial court abused its discretion by denying WRPSâs motion to
compel arbitration on the grounds that the partiesâ agreement was
unconscionable, because that defense is itself subject to arbitration.
Bazan-Garcia raised a single challenge against arbitration: she argued
that the partiesâ agreement is substantively unconscionable because it limits
discovery, requires both parties to pay some arbitration costs, and requires
arbitration to take place in Dallas County, Texas. CR 72. At the hearing the trial
court agreed with Bazan-Garcia, see RR 18, and subsequently denied WRPSâs
motion to compel arbitration on this ground, see App. 1. But the partiesâ
arbitration agreement clearly and unmistakably empowered the arbitratorânot the
courtâto decide any issues of arbitrability, including whether the arbitration
12
agreement is unconscionable. The trial court was therefore required under the
TAA to compel arbitration of Bazan-Garciaâs unconscionability defense, and
abused its discretion by denying WRPSâs motion on this ground. See Ernst &
Young LLP v. Martin, 278 S.W.3d 497, 500 (Tex. App.âHouston [14th Dist.]
2009, no pet.) (â[A]n arbitration clause that reallocates traditional court functions
to the arbitrator is enforceable and cannot serve as a basis for denying a motion to
compel arbitration.â).
A. The partiesâ arbitration agreement clearly and unmistakably
delegated issues of arbitrability to the arbitrator.
Under the TAA, like under the FAA, a party may revoke a written
arbitration agreement âonly on a ground that exists at law or in equity for the
revocation of a contract,â such as fraud or unconscionability. Tex. Civ. Prac. &
Rem. Code § 171.001(b) (App. 66); see also Forest Oil, 268 S.W.3d at 56n.12;9 U.S.C. § 2
(FAA savings clause). The default rule is that the court decides such âgateway questions of arbitrability.â Rent-A-Center, West v. Jackson,561 U.S. 63
, 68â69 (2010) (internal quotation marks omitted). However, the parties can delegate these issues to the arbitrator rather than the court, so long as the agreement âclearly and unmistakablyâ demonstrates that this was the partiesâ intent. Howsam v. Dean Witter Reynolds, Inc.,537 U.S. 79, 79
(2002); see also In re Weekley Homes, L.P.,180 S.W.3d 127, 130
(Tex. 2005). Because â[t]he issue
of arbitrability is subject to virtually identical analysis under either the FAA or the
13
TAA,â courts may rely on authorities applying either statute in evaluating an
agreement. Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224, 229 n.4 (Tex.
App.âDallas 2010, pet. denied).
âWhen, as here, parties agree to a broad arbitration clause and
explicitly incorporate rules that empower an arbitrator to decide issues of
arbitrability, the incorporation serves as clear and unmistakable evidence of the
partiesâ intent to delegate such issues to an arbitrator.â Saxa, 312 S.W.3d at 230. In Saxa, for example, the parties agreed to arbitrate âany claim, dispute or other matterâ related to their contract, âin accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.âId. at 226
(modification omitted). The AAA Construction Rules contain a delegation clause empowering the arbitrator âto rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.âId.
at 228â29.
Because the partiesâ broad arbitration agreement incorporated the
AAA Rules, the court of appeals held that the partiesâ arbitrability disputeâin that
case, whether joinder was permissibleâhad to be decided by the arbitrator rather
than the court. Id. at 230. It emphasized that a majority of courts have reached this same conclusion.Id.
(collecting cases); see also Aspri Inv., LLC, 04-10- 00573-CV,2011 WL 3849487
, at *9 (Tex. App.âSan Antonio 2011, pet. dismâd)
14
(enforcing the AAA Rulesâ delegation clause because incorporating the Rules into
an agreement to arbitrate all disputes related to the partiesâ lease âconstitutes clear
and unmistakable evidence of the partiesâ intent to delegate issues of arbitration to
the arbitratorâ); Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687
F.3d 671, 675 (5th Cir. 2012) (âWe agree with most of our sister circuits that the
express adoption of the [AAA] rules presents clear and unmistakable evidence that
the parties agreed to arbitrate arbitrability.â).
The same result is required here. The AAA Employment Rules
contain a delegation clause that is identical to the one enforced in Saxa: â[t]he
arbitrator shall have the power to rule on his or her own jurisdiction, including any
objections to the existence, scope or validity of the arbitration agreement.â AAA
Rule 6(a) (App. 30). The Employee Handbook, incorporated by reference into the
Acknowledgement, states that all â[p]roblems, disputes, or claims not resolved
through [voluntary internal dispute] resolution steps are subject to final and
binding arbitration . . . conducted under the Employment Dispute Resolution Rules
of the American Arbitration Association.â App. 13. See Contec Corp. v. Remote
Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005) (agreement clearly and
unmistakably delegated issues of arbitrability to the arbitrator by requiring parties
to use âbest effortsâ to resolve their dispute or submit it to arbitration under the
AAA Rules). The Arbitration Agreement provides that âto resolve in a speedy and
15
inexpensive way any legal controversy which may arise,â the parties must arbitrate
any dispute âwhich is in any way related to the employment of [Bazan-Garcia] . . .
in accordance with the rules of the American Arbitration Association.â App 3.
Only a âworkerâs compensation claim covered by insuranceâ is exempt, see id., as
such claims cannot be the subject of an arbitration agreement under state law. See
Tex. Civ. Prac. & Rem. Code § 171.002(a)(4).
Bazan-Garcia and WRPS entered into agreements with broad
arbitration provisions that incorporated all of the AAA Employment Rules,
including the delegation clause. The parties did not reserve the right to seek
judicial relief for a broad array of claims, or specify that the AAA Rules would
only apply to their agreement in a limited manner. Compare with Burlington Res.
Oil & Gas Co. LP v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 42â43 (Tex. App.âHouston [1st Dist.] 2007, pet. denied) (holding agreement did not incorporate delegation clause where parties agreed to arbitrate only certain âaudit disputesâ and specified the agreementâs terms controlled over the AAA Rules in the event of a conflict); Haddock v. Quinn,287 S.W.3d 158
, 174â75 (Tex. App.â
Fort Worth 2009, pet. denied) (holding agreement did not delegate arbitrability to
arbitrator because it only incorporated the AAA Rules âto the extent not
inconsistentâ with the agreement and specified in detail the procedures and scope
of arbitration (internal quotation marks omitted)). Consequently, Bazan-Garcia
16
and WRPS clearly and unmistakably agreed that the arbitrator rather than the court
would decide any arbitrability disputes between them, and the trial court abused its
discretion by refusing to enforce that bargain. See Ernst & Young LLP, 278
S.W.3d at 501 (granting mandamus relief where trial court failed to enforce an
unchallenged delegation clause).
B. Bazan-Garcia is bound to arbitrate her unconscionability defense
because she failed to prove that the delegation clause was invalid.
Because she agreed to delegate issues of arbitrability to the arbitrator,
Bazan-Garcia could only have the trial court decide her unconscionability defense
if she proved that the delegation clause itself was invalid and unenforceable. Rent-
A-Center, 561 U.S. 63. Instead, Bazan-Garcia focused on proving the merits of her
unconscionability defense, see CR 72â82, and erroneously claimed that the trial
court could decide that issue because her petition alleged a statutory cause of
action, see RR 13. Neither of these grounds allows Bazan-Garcia to avoid the
delegation clause in her agreements.
Bazan-Garciaâs unconscionability defense is nearly identical to one
raised by the plaintiff in Rent-A-Center, which the U.S. Supreme Court held had to
be decided by the arbitrator rather than the court. See 561 U.S. 63. The plaintiff in
Rent-A-Center filed a statutory employment-discrimination lawsuit against his
former employer, and opposed arbitration on the grounds that the agreement was
unconscionable because it limited discovery and required the parties to split the
17
costs of arbitration. Id. at 74. The partiesâ arbitration agreement included a
provision delegating issues of arbitrability to the arbitrator. Id. at 66. Despite this
provision, the U.S. Court of Appeals for the Ninth Circuit held that âthe threshold
question of unconscionability [was] for the courtâ to decide. Id. at 67.
The Supreme Court reversed. Id. at 74â76. Because a âdelegation
provision is an agreement to arbitrate threshold issues concerning the arbitration
agreementâ and must be enforced like any other contract, the plaintiff could only
avoid it by proving that the clause itself was invalid. Id. at 69â70. Before the trial
court, however, the plaintiff focused solely on proving the merits of his
unconscionability defense. Id. at 73â74 (explaining that plaintiff âdid not make
any arguments specific to the delegation provision; [instead] he argued that the fee-
sharing and discovery procedures rendered the entire Agreement invalidâ)
(emphasis in original). Consequently, the Supreme Court held that the trial court
was required to compel arbitration of the plaintiffâs unconscionability defense. Id.
at 75. It refused to consider a challenge to the delegation provision that the
plaintiff raised for the first time in his brief to the Supreme Court, on the grounds
that it was âtoo late.â Id. at 75â76.
Like the plaintiff in Rent-A-Center, Bazan-Garcia opposed WRPSâs
motion to compel arbitration on the grounds that the agreement limited the partiesâ
access to discovery and required them to split arbitration costs, and is therefore
18
unconscionable. See CR 72. But even though WRPSâs motion discussed and
analyzed the delegation clause that was incorporated into the partiesâ arbitration
agreement, see CR 25â28, Bazan-Garciaâs response did not address that clause at
all. Instead, Bazan-Garcia focused solely on the merits of her unconscionability
defense. See CR 72â82. Because Bazan-Garcia failed to prove that the delegation
clause is invalid, she is bound to that agreement. See Rent-A-Center, 561 U.S. at
74.
In addition, Bazan-Garcia cannot avoid arbitration based on the
statutory nature of her claims. At the hearing, Bazan-Garcia suggested that the
trial court was not required to enforce the delegation clause because her asserted
causes of action are based on a statute. See RR 13. But Bazan-Garcia has failed to
identify any case in which a court refused to enforce a delegation clause on the
grounds that the party opposing arbitration was asserting statutory claims, and
WRPS is aware of no such authority. To the contrary, the claims that the plaintiff
filed against his employer in Rent-A-Center were statutory in nature, and that fact
had no bearing on the Courtâs decision to enforce the delegation clause. See 561
U.S. at 74â75; see also IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d
799, 808 (Tex. App.âEl Paso 2012, no pet.) (enforcing delegation clause in
arbitration agreement in case where plaintiff alleged gender-discrimination claims
against employer).
19
â[A] trial court has no discretion to determine what the law is or to
apply the law incorrectly.â Poly-America, 262 S.W.3d at 349. The law in this area is clear: a court has no discretion to refuse to enforce an unchallenged delegation clause. See Rent-A-Center, 561 U.S. at 75â76; Forest Oil,268 S.W.3d at 61
(holding that because the arbitration agreementâs delegation clause was ânot
challenged on any legal or public policy grounds,â the Court had âno discretion but
to direct the court to compel arbitration and stay [this] litigationâ). If Bazan-
Garcia believes that the arbitration agreement is unconscionable, she can still make
that argument. In accordance with her agreements, however, she must do so in the
forum of arbitration.
III. In the alternative, the trial court erred in denying WRPSâs motion to
compel arbitration because Bazan-Garcia did not prove that the
partiesâ arbitration agreement is unconscionable.
A party opposing arbitration on the grounds of unconscionability
bears the heavy burden of proving this defense. In re Olshan Found. Repair Co.,
LLC, 328 S.W.3d 883, 893 (Tex. 2010). Bazan-Garcia failed to meet that rigorous
standard. Arbitration of her claims was therefore required, even if the trial court
had authority to consider the merits of this defense.
A. Legal Standard
âWhether a contract is . . . unconscionable at the time it is formed is a
question of law.â Poly-America, 262 S.W.3d at 349 (citing Hoover Slovacek LLP
20
v. Walton, 206 S.W.3d 557, 562(Tex. 2006)). âIn general, a contract will be found unconscionable if it is grossly one-sided.â Id. at 348; see also Venture Cotton Co- op v. Freeman,435 S.W.3d 222, 228
(Tex. 2014) (âOne of the earliest decisions to apply the defense described an unconscionable contract as one that âno man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.ââ) (internal citation omitted). Because arbitration is a favored method of dispute resolution, the Texas Supreme Court has cautioned that courts ââshould be wary of setting the bar for holding arbitration clauses unconscionable too lowâ as that would undermine the âliberal federal policy favoring arbitration agreements.ââ Venture Cotton,435 S.W.3d at 232
(quoting Olshan,328 S.W.3d at 893
).
âAgreements to arbitrate disputes between employers and employees
are generally enforceable under Texas law; there is nothing per se unconscionable
about an agreement to arbitrate employment disputes and, in fact, Texas law has
historically favored agreements to resolve such disputes by arbitration.â Poly-
America, 262 S.W.3d at 348. Nor is there anything inherently unconscionable about an agreement to arbitrate a statutory claim. âWhen parties agree to arbitrate a statutory claim, âa party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.ââ Venture Cotton,435 S.W.3d at 229
(quoting Mitsubishi Motors Corp. v.
21
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628(1985)). Thus, âan arbitration agreement covering statutory claims is valid so long as the arbitration agreement does not waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory right.âId.
(quoting Poly-America,262 S.W.3d at 352
).
B. Bazan-Garcia failed to prove that arbitration under the partiesâ
agreement would be more expensive than litigation, and
effectively prevent her from vindicating her statutory rights.
Bazan-Garcia claims that the partiesâ agreement requires her to split
the costs of arbitration equally with WRPS, and that AAA arbitration of her claims
could cost upward of $20,000. CR 77â78. She contends that this would
effectively force her to abandon these claims, because she cannot ârisk incurring a
substantial debt exceeding $10,000.00 in arbitrator fees.â CR 81.
In assessing whether an arbitration agreement is unconscionable, the
court must determine whether the cost of arbitration would effectively prevent the
claimant from pursuing and vindicating her statutory rights. Poly-America, 262
S.W.3d at 356. The agreement may be âunconscionable if âthe existence of large arbitration costs could preclude a litigant from effectively vindicating his or her federal [or state] statutory rights in the arbitral forum.ââ Olshan,328 S.W.3d at 892
(quoting Green Tree Fin. Corp.-Ala. v. Randolph,531 U.S. 79, 90
(2000))
(internal modifications omitted). Because arbitration is favored, it is not enough
22
for the claimant to show there is a âriskâ that arbitration will be prohibitively
expensive. Id. at 892. Instead, â[t]he party opposing arbitration bears the burden
to show that the costs of arbitration render it unconscionable . . . [by] âshowing the
likelihood of incurring such costs.ââ Id. at 893 (quoting Green Tree, 531 U.S. at
92); see also FirstMerit Bank,52 S.W.3d at 757
(âBecause the record contains no
specific evidence that the [plaintiffs] will actually be charged excessive arbitration
fees, we conclude that there is legally insufficient evidence that the plaintiffs
would be denied access to arbitration based on excessive costs.â). In making this
determination, âa comparison of the total cost of [arbitration and litigation] is the
most important factor.â Olshan, 328 S.W.3d at 894â95.
1. Bazan-Garcia failed to prove that arbitrating her claims is
likely to cost upwards of $20,000.
Bazan-Garcia estimated that arbitration in this case would cost more
than $20,000, based on the costs of three allegedly similar arbitrations that were
conducted through the AAA. CR 85â94. The partiesâ agreement, however, does
not require them to pursue arbitration through the AAA; it only states that
arbitration will be conducted âin accordance withâ and âunderâ the AAA Rules.
App. 3, 13. âUnder this language, the AAA may administer the arbitration, but the
parties are not required to have the arbitration administered by the AAA.â Aspen
Tech., Inc. v. Shasha, 253 S.W.3d 857, 864 (Tex. App.âHouston [14th Dist.]
2008, no pet.). Moreover, evidence of what costs were incurred by other parties in
23
other arbitrations is, by itself, legally insufficient to meet Bazan-Garciaâs burden of
proving what arbitration will cost her in this particular case.
In Shasha, the parties entered into an arbitration agreement stating
that arbitration would be âin accordance with the [AAA] Rules.â 253 S.W.3d at
864. In support of its argument that arbitration would prohibitively expensive, the plaintiff presented evidence showing what amounts were likely to be charged by the AAA and AAA arbitrators.Id.
The court of appeals found that this evidence was âlegally insufficient to support the trial courtâs implied finding that [the plaintiff] satisfied his burden of providing specific evidence showing a likelihood that he would be denied access to arbitration based on excessive arbitration costs,â since the parties were not obligated to arbitrate through the AAA.Id.
The court of appeals held the trial court had abused its discretion by denying the defendantâs motion to compel arbitration on this basis.Id. at 865
. Bazan-Garciaâs evidence in support of her unconscionability defense is also âlegally insufficient,â as it similarly presumes that arbitration will take place through the AAA. See also Green Tree,531 U.S. at 91
n.6 (holding that plaintiff failed to provide any âbasis
on which to ascertain the actual costs and fees to which she would be subject in
arbitrationâ because she âfailed to make any factual showing that the [AAA] would
conduct the arbitration, or that, if it did, she would be charged the filing fee or
arbitratorâs fee that she identifiedâ).
24
In addition, Bazan-Garciaâs evidence was inadequate because it relied
entirely on fees that other parties have incurred. In Olshan, the plaintiffs argued
that arbitration would be prohibitively costly, and in support of this claim
âprovided two invoices from the AAA for arbitration in, as the [plaintiffs] allege,
âsimilar casesâ to show the likelihood of excessive litigation costs.â 328 S.W.3d at
897. The Supreme Court held that â[m]erely showing that other claimants have incurred arbitration costs of some amount falls well short of specific evidence that these particular parties will be charged excessive fees.âId.
The Court also noted that there was no evidence that the plaintiffs had âmade any effort to reduce the likely charges through requests for fee waivers, pro bono, arbitrators, or even simply requesting a one arbitrator panel.âId.
Because â[s]ubstantive unconscionability threatens to become the exception that swallows the rule if all that must be done to avoid arbitration is to assume the most expensive possible scenario,â the Court concluded that âthere is no legally sufficient evidence that [the arbitration] fees prevent the [plaintiffs] from effectively pursuing their claim in the arbitral forum.âId. at 897
. Like the plaintiffs in Olshan, Bazan-Garciaâs evidence
consisted entirely of invoices from other arbitrations, see CR 85â95, and therefore
did not support the trial courtâs finding that the partiesâ agreement was
unconscionable.
25
2. Under the partiesâ agreement, WRPS will bear almost all of
the costs of arbitration.
Regardless of what the overall cost of arbitrating her claims may be,
Bazan-Garciaâs contention that she will be forced to bear half of these costs is
directly contradicted by the terms of the partiesâ agreement. The Employee
Handbook, on which Bazan-Garcia relies, states that â[e]mployees who choose to
use the arbitration process to resolve a problem will be expected to share the cost
of the arbitration proceeding with WRPS, LP.â App. 13. This provision does not
require the parties to equally split the costs of arbitration, and Bazan-Garcia
provides no authority in support of her interpretation of this language.
Moreover, pursuant to the AAA Rules that the parties agreed to,
arbitration costs under an employer-promulgated plan such as the one at issue in
this case are almost entirely borne by the employer, rather than divided evenly
between the parties. See App. 45â47. Bazan-Garcia is only required to pay an
initial filing feeâ$200 if she files with the AAAâand may also have to pay
additional fees if she postpones or cancels a scheduled hearing, as well as bear any
expenses for witnesses that she chooses to produce at the hearing. AAA Rule 45
(App. 43); AAA Rule 48(i) (App. 45); AAA Rule 48(iii) (App. 47). These
administrative fees may be âdefer[red] or reduce[d]â if Bazan-Garcia shows that
they would cause her âextreme hardship.â AAA Rule 43 (App. 43). WRPS, in
contrast, will be responsible for paying a non-refundable filing fee in the amount of
26
$1,350. WRPS must also pay all fees associated with the hearings, and all of the
arbitratorâs fees and expenses. AAA Rule 48(i)â(iii) (App. 45â47).
The AAA Rules are controlling over any allegedly contrary provision
in the partiesâ arbitration agreement, and would therefore defeat Bazan-Garciaâs
unconscionability argument even if her reading of the Employee Handbookâs cost-
sharing clause was correct. See AAA Rule 1 (App. 28) (arbitrator must apply
AAA Rules if âan adverse material inconsistency exists between the arbitration
agreement and these rulesâ). Far from causing Bazan-Garcia to ârisk incurring a
substantial debt exceeding $10,000.00,â CR 82, therefore, the agreement only
requires Bazan-Garcia to pay a filing fee of $200.00âless than the fee she paid to
file this lawsuit in state court, see id. at 81 (stating that Bazan-Garcia paid 280.00
in expenses to file her lawsuit in state court). Even that small fee could be avoided
or reduced if Bazan-Garcia shows that it would be overly burdensome, see AAA
Rule 43 (App. 43), or files the arbitration outside of the AAA. Furthermore, by
pursuing her claims in arbitration rather than litigation, Bazan-Garcia could
decrease her overall expenses by avoiding lengthy and expensive discovery and
appeals. See Olshan, 328 S.W.3d at 894 (âThe desire to avoid steep litigation
expensesâincluding the costs of longer proceedings, more complicated appeals on
the merits, discovery, investigations, fees, and expert witnessesâis the purpose of
arbitration in the first place.â (citing Tipps, 842 S.W.2d at 272â73)).
27
Because Bazan-Garcia failed to prove that arbitration will be more
costly than litigation and thereby prevent her from vindicating her statutory rights,
she failed to show that the arbitration agreement is unconscionable. See Olshan,
328 S.W.3d at 894â95.
C. An arbitration agreement cannot be found unconscionable based
on provisions that the arbitrator is empowered to modify.
Bazan-Garcia took issue with three provisions in the partiesâ
agreement: (1) the requirement that the parties âshareâ some costs of arbitration,
(2) the prohibition on either party taking more than one deposition; and (3)
conducting the arbitration hearing in Dallas County, Texas. CR 72. None of these
provisions is inherently unconscionable, and Bazan-Garcia does not claim they are.
See, e.g., Poly-America, 262 S.W.3d at 355â56 (holding that âfee-splitting
provisions that operate to prohibit an employee from fully and effectively
vindicating statutory rights are not enforceable,â but declining to hold that fee-
splitting or fee-sharing agreements are âunenforceable per seâ); see also id. at 357
(enforcing an arbitration agreement limiting the parties to one deposition each
because the plaintiff failed to prove it was âinsufficient to allow [him] a fair
opportunity to present his claimsâ (quoting Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 31 (1991)). Moreover, if circumstances cause any of these
provisions to become unconscionable, the arbitrator has the power to modify them.
28
The trial court therefore abused its discretion by finding that the arbitration is
unconscionable.
As a matter of law, an agreement is not unconscionable if its
potentially objectionable provisions can be modified by the arbitrator. In Poly-
America, for example, the parties entered into an agreement that required them to
equally split the costs of arbitration up to a particular amount, and limited the
amount of discovery that each party could pursue, including only allowing each
side to take âone oral deposition of no more than six hours.â 262 S.W.3d at 344. Like Bazan-Garcia, the plaintiff in Poly-America alleged that his employer had wrongfully discharged him in retaliation for filing a workersâ compensation claim, and opposed arbitration on the grounds that the agreementâs cost-splitting provisions and discovery limitations would effectively prevent him from vindicating his statutory rights.Id.
The Supreme Court rejected both of these challenges. The partiesâ
agreement âspecifically provide[d] that the arbitrator may modify unconscionable
terms.â Id. at 357. As a result, at this stage of the proceedings the plaintiff could not show a likelihood that he would be forced to pay the complained-of costs, or unable to obtain necessary discovery.Id.
at 357â58 (describing the plaintiffâs arguments as âspeculativeâ); see also FirstMerit Bank, N.A.,52 S.W.3d at 757
(holding plaintiffs failed to prove arbitration agreement was unconscionable
29
because âthe AAA may, in the event of extreme hardship on the part of any party,
defer or reduce the administrative feesâ). The Court also emphasized that the
arbitrator, rather than the court, âis better situated to assessâ whether the cost or
discovery provisions in the agreement would hinder the plaintiffâs ability to
vindicate his statutory rights, and âto modify the contractâs terms accordingly.â
Poly-America, 262 S.W.3d at 357â58.
For the reasons given by the Supreme Court in Poly-America, Bazan-
Garcia cannot prove that any of the provisions she complains of make the
arbitration agreement unconscionable. Under the AAA Rules, Bazan-Garcia is
only required to pay an initial filing fee, while WRPS must pay virtually all other
expenses of arbitration. See App. 45â47. If paying the $200 filing fee would
cause Bazan-Garcia âextreme hardship,â then the AAA may âdefer or reduceâ it.
AAA Rule 43 (App. 43). Likewise, limiting each party to taking one deposition is
not unconscionable, since â[t]he arbitrator shall have the authority to order such
discovery, by way of deposition, interrogatory, document production, or otherwise,
as the arbitrator considers necessary to a full and fair exploration of the issues in
dispute, consistent with the expedited nature of arbitration.â AAA Rule 9 (App.
32). Finally, the agreementâs venue provision is not unconscionable because the
arbitrator may ultimately decide the locale of the arbitration, âhaving regard for the
30
contentions of the parties and the circumstances of the arbitration.â AAA Rule 10
(App. 32).3
An arbitration agreement is unconscionable only if it is âso one-sided
that it is unconscionable under the circumstances existing when the parties made
the contract,â FirstMerit Bank, 52 S.W.3d at 757, and âsufficiently shocking or gross to compel the court to intercede.â Ski River Dev., Inc. v. McCalla,167 S.W.3d 121, 136
(Tex. App.âWaco 2005, pet. denied). The agreements between Bazan-Garcia and WRPS do not meet this standard. They incorporate the AAA Rules and are typical for arbitration agreements between employers and their employees, as well as similar to those upheld by the Supreme Court in Poly- America. Indeed, it will be less expensive for Bazan-Garcia to arbitrate her claims than to try (and appeal) those claims in state court, see infra at Part III.B., and she will also have the opportunity to ask the arbitrator to change any objectionable cost, discovery, and venue provisions, see infra at Part III.C. By finding such an agreement unconscionable, the trial court abused its discretion, and its judgment must be reversed. See Poly-America,262 S.W.3d at 349
.
3
In addition, none of these provisions is âone-sided,â which is generally required for a
provision to be deemed unconscionable. See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757
(Tex. 2001).
31
IV. If any provision of the arbitration agreement is unconscionable, this
Court should sever it and enforce the remainder of the agreement.
Finally, if this Court concludes that any of the arbitration agreementâs
terms is unconscionable, then it should sever that term and remand the case for the
trial court to compel arbitration under the remainder of the agreement.
â[W]here a term rather than the entire contract is unconscionable, the
appropriate remedy is ordinarily to deny effect to the unconscionable term.â
Venture Cotton, 435 S.W.3d at 230(quoting Restatement (Second) of Contracts § 208 cmt. g (1981)) (internal modification omitted); see also Poly-America,262 S.W.3d at 360
(âAn illegal or unconscionable provision of a contract may generally be severed so long as it does not constitute the essential purpose of the agreement.â). In Venture Cotton, the issue was whether a provision in an arbitration agreement that prohibited the plaintiff from recovering attorneysâ fees under the Texas Deceptive Trade Practices Act was unconscionable. The Texas Supreme Court held that if the provision was unconscionable, then the court of appeals should have severed it and enforced the remainder of the agreement, even though the defendant had not requested this remedy from the trial court.435 S.W.3d at 230
(explaining that on interlocutory appeal, â[c]onservation of time and
resources recommend that we consider the issue now because nothing prevents [the
defendant] from urging severance in the trial court and, if denied, from renewing
its complaint in yet another interlocutory appealâ).
32
Bazan-Garcia claims that three provisions in the partiesâ arbitration
agreement are unconscionable: the cost-sharing provision, the limitation on
depositions, and the venue clause. None of these provisions constitutes the
âessential purpose of the agreement,â Poly-America, 262 S.W.3d at 360, which is
âto resolve in a speedy and inexpensive way, any legal controversy that may arise,â
App. 3. Consequently, if any or all of these provisions is found to be
unconscionable, it must be severed so that the remainder of the arbitration
agreement can be enforced. See Venture Cotton, 435 S.W.3d at 230â31 (holding
that âthe court of appeals erred in declining to sever the objectionable limitationâ
from the arbitration agreement).
Conclusion and Prayer for Relief
For the reasons set forth above, WRPS respectfully requests the Court
reverse the trial courtâs Order denying WRPSâs motion to compel arbitration, and
direct the trial court to compel arbitration of all of Bazan-Garciaâs claims and abate
this litigation.
33
Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ Jennifer M. Trulock
Jennifer M. Trulock
State Bar No. 90001515
2001 Ross Avenue, Suite 600
Dallas, Texas 75201
(214) 953-6500 Telephone
(214) 953-6503 Facsimile
jennifer.trulock@bakerbotts.com
Stephanie F. Cagniart
State Bar No. 24079786
98 San Jacinto Boulevard, Suite 1500
Austin, Texas 78701-4078
(512) 322-2500 Telephone
(512) 322-2501 Facsimile
stephanie.cagniart@bakerbotts.com
ATTORNEYS FOR APPELLANT
WESTERN RIM PROPERTY
SERVICES, INC.
34
Certificate of Compliance
This brief complies with the type-volume limitations of Tex. R. App.
P. 9.4, as it contains 7,637 words, excluding the parts of the brief exempted by
Rule 9.4(i)(1).
/s/ Stephanie F. Cagniart
Stephanie F. Cagniart
Certificate of Service
I hereby certify that on December 24, 2014, a copy of the foregoing
was served by the Courtâs CM/ECF electronic service and by electronic mail on
the following parties:
Javier Espinoza
Josue F. Garza
The Espinoza Law Firm, PLLC
503 E. Ramsey, Ste. 103
San Antonio, Texas 78216
210-229-1302 (Facsimile)
josue@espinozafirm.com
/s/ Stephanie F. Cagniart
Stephanie F. Cagniart
35
Index to Appendix
A. Trial Courtâs Order Concerning Defendantâs Motion to Compel Arbitration
and Motion for Protective Order (App. 1â2)
B. Arbitration Agreement (App. 3)
C. Employee Acknowledgement Form (App. 4)
D. Employee Handbook, WRPS, LP (App. 5â13)
E. Employment Arbitration Rules and Mediation Procedures, American
Arbitration Association (App. 14â65)
F. Tex. Civ. Prac. & Rem. Code §§ 171.001, 171.021 and 171.025 (App. 66â
68)
36
APPENDIX
EXHIBIT A
, ..
E-FILED
20 14CVO 1064 Bexar County, County Clerk
Gerard Rickhoff
Accepted Date:11/10/2014 9:10:58 AM
CAUSE NO. 2014CV01064 Accepted By: Leticia Silva
Leticia Silva
PAULA BAZAN-GARCIA, § IN THE COUNTY COUR'Peputy Clerk
§
Pli!intiff. §
§
v. § ATLAWN0.03
§
WESTERN RIM PROPERTY SERVICES, §
nNC. §
§
Defendant § BEXAR COUNI'YJ TEXAS
OROER OONCERNÂŁNG DEFENDANT'S MOTION TO COMPID.tARBITRATlON
AND MOT!ON FQR PROTJ}CTIY~ .ORDER
On this the 61h day of November 2014 <;ame to be he!l!d Defendant's Motion to Compel
Arbitration and M~tion for P.totectlve Otder. The Court having considered the Motions :md all
applicable 11rB'lments, case law and evidence is of the opinion thl\t the arbitxation policy contained in
Defendant's dispute tesolution policy is unconscionable and unenf().J:ceab1e.
1T IS THEREFORE ORDERED, ADJUDGED AND DECREED that Defendant's
Motion ro Compel Arbitration is heteby in all t:h.ings DENIED.
lT IS FURTI-IER ORDERED, ADJUDGED AND DECREED that Defendant's Motion
for P1ote<:.tive O.tdet is heJ:eby in all things DENIED. /f /
this~day of._ __,/~~~___;;,(]"'
1
SIGNED 2nd ENTERED _ _ ___, 2014.
BON. JUDGE PRESIDING
APPROVED AS 'I'O FORM:
13
144
Submit Date:11/10/2014 9:09:081 AM
App.001
....
JOSUE F. '-IÂŁ1JllL1
Espinoza Law Firm, PLLC
Atto1ueys fo.t: Plaintiff
503 E. R:unsey, Ste. 103
San An xas 7B216
JENNIFER . 'f_,.....~'""'"'·
STEPHANIE F. CAGNIART
98 Slm J~clnto 'Boulev:ud. Suite 1500
Austin, Texas 78701-4078
14
145
2
App.002
EXHIBIT B
ARBITRATION AGREEMENT
lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty _
(20) days prior written notice:
Each party to arbitration shall be entitled to tab only one deposition. Any arbitration _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.
N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.
BY:
39
1
App.003
EXHIBIT C
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP
EM'LOYEE ACKNOWLEDGEMENT FORM
Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.
I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.
Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..
Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.
EMPLOYEE'S NAME (printed~/a Q.J~::DZEtJ.:·~a._y ("~---Â
SfGNAn.JR~(!. 4~ ~
EMPLOYEE'S
DATE,~ ?Q,'ZtJlL.~---
37
1
App.004
EXHIBIT D
WR
p s
Employee Handbook
WRPS,LP
10/01/2011
45
App.005
IIIli
1111
WRPSI LP
Table of Contents
No. Polley Effective Revision Page
Date: J2!!!i
INTRODUCTION
020 Employee Welcome Message 1211/1999 11112006 1
030 Organization Description 1211/1999 1/1/2006 2
040 Introductory Statement 12/111999 1/1/2006 3
051 Employee Acknowledgement Form 121111999 1/112006 4
EMPLOYMENI'
101 Nature of Employment 1211/1999 1/1/2000 5
102 Employee Relations 1211/1999 1/1/2006 6
103 Equal Employment Opportunity 12/1/1999 111/2006 7
104 Business Ethics and Conduct 12/1/1999 111/2006 8
107 Immigration Law Compliance 12/1/1999 11112000 9
108 Conflicts oflnterest 12/111999 1/112006 10
110 Outside Employment 12/111999 1/112006 11
112 Non-Disclosure 12/1/1999 1/1/2006 12
114 Disability Accommodation 12/1/1999 1/112006 13
180 Personal Relationships in the Workplace 11/19/2004 1/1/2006 14
EMPLOYMENT STATUS & RECORDS
201 Employment Categories 12/1/1999 1/1/2006 16
202 Access to Personnel Files 12/1/1999 111/2006 18
203 Employment Reference Checks 12/1/1999 1/1/2000 19
204 Personnel Data Changes 12/111999 111/2006 20
205 Introductory Period 12/1/1999 1/1/2006 21
208 Employment Applications 12/111999 1/1/2006 22
209 Perfonnan.ce Evaluation 1211/1999 1/1/2006 23
210 Job Descriptions 12/1/1999 1/1/2006 24
280 Confidentiality of Salary 12/111999 1/1/2006 25
EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits 12/1/1999 1/112006 26
303 Vacation Benefits 12/1/1999 10/1/2009 27
304. Child Care Benefits 12/1/1999 111/2006 29
305 Holidays 12/111999 1/1/2006 30
46
App.006
WRPS, LP
307 Sick Leave Benefits 12/l/1999 10/1/2009 31
308 Time Off to Vote 12/1/1999 1/1/2006 33
309 Bereavement Leave 12/111999 1/112006 34
310 Relocation Benefits 12/1/1999 1/1/2006 35
311 Jury Duty 12/1/1999 1/112006 36
312 Witness Duty 12/111999 1/1/2006 37
313 Benefits Continuation (COBRA) 12/1/1999 1/1/2006 38
314 Educational Assistance 1211/1999 1/112006 39
316 Health Insurance 12/1/1999 1/112006 40
317 Life Insurance 12/1/1999 1/1/2006 41
320 401 (k) Savings Plan 12/1/1999 111/2006 42
326 Flexible Spending Account (FSA) 12/1/1999 1/1/2006 43
328 Partnership Participation Units 1211/1999 1/1/2006 44
330 Annual Incentive Trip 12/1/1999 1/112006 45
TIMEKEEPING/PAYR.OLL
401 Timekeeping 12/1/1999 1/1/2000 46
403 Paydays 12/1/1999 1/1/2000 47
405 Employment Termination 12/111999 1/112006 48
407 Severance Pay 12/1/1999 1/1/2006 49
409 Administrative Pay Corrections 12/111999 1/1/2006 so
410 Pay Deductions and Setoffs 12/111999 111/2006 Sl
WORK CONDITIONS & HOURS
502 Work Schedules 1211/1999 1/1/2006 52
504 Use of Phone and Mail Systems 12/1/1999 1/1/2006 53
505 Smoking 12/1/1999 111/2006 54
506 Rest and Meal Periods 12/1/1999 1/1/2006 55
507 Overtime 121111999 1/1/2006 56
512 Business Travel Expenses 12/111999 1/1/2009 57
514 Visitors in the Workplace 121111999 1/1/2006 58
516 Computer and Email Usage 12/1/1999 1/112006 60
517 Internet Usage 1211/1999 111/2006 61
522 Workplace Violence Prevention 1211/1999 l/1/2006 63
526 Cell Phone Usage 12/111999 11112006 65
LEAVES OF ABSENCE
60 l Medical Leave 1211/1999 1/1/2006 66
47
App.007
II
WRPS., LP
602 Family Leave 12/1/1999 1/1/2006 68
605 Military Leave 1/1/2006 111/2000 70
EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules 12/1/1999 111/2006 71
702 Drug and Alcohol Use 1211/1999 111/2000 73
703 Sexual and Other Unlawful Harassment 12/1/1999 111/2006 74
704 Attendance and Punctuality 12/1/1999 11112000 76
705 Personal Appearance 12/1/1999 1/1/2000 77
706 Return of Property 12/1/1999 1/112000 78
708 Resignation 12/1/1999 1/1/2000 79
714 Drug Testing 12/1/1999 1/1/2006 80
716 Progressive Discipline 12/1/1999 1/1/2006 81
718 Problem Resolution 12/111999 111/2006 83
720 Casual Days 12/1/1999 1/1/2006 85
MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace 12/1/1999 111/2006 87
806 Suggestion Program 12/1/1999 111/2006 88
48
App.008
WRPS,LP
WRPS,LP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.
We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.
We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
49
App.009
1111
1111
WRPS,LP
WRPS,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
50
App.010
II
WRPS,LP
WRPS,LP
INTRODUCTORY STATEMENT
This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.
3
51
App.011
1111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure. ·
If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem. ·
5. Employee presents problem to the President in writing.
83
52
App.012
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.
84
53
App.013
EXHIBIT E
Employment
Arbitration Rules & Mediation Procedures
Available online at adr.org/employment
Rules Amended and Effective November 1, 2009
Fee Schedule Amended and Effective May 15, 2013
1
App.014
Regional Vice Presidents and Directors
States: Delaware, District of Columbia, Maryland, States: Alaska, Arizona, California, Colorado,
New Jersey, Pennsylvania, West Virginia Hawaii, Idaho, Montana, Nevada, Oregon, Utah,
Kenneth Egger Washington, Wyoming
Vice President John English
Phone: 215.731.2281 Vice President
Email: EggerK@adr.org Phone: 619.239.3051
Email: EnglishJ@adr.org
States: Connecticut, Maine, Massachusetts,
New Hampshire, New York, Vermont States: Rhode Island
Ann Lesser, Esq. Heather Santo
Vice President Director
Phone: 212.484.4084 Phone: 866.293.4053
Email: LesserA@adr.org Email: SantoH@adr.org
States: Alabama, Arkansas, Florida, Georgia, States: Louisiana, New Mexico, Oklahoma, Texas
Mississippi, North Carolina, South Carolina, Molly Bargenquest
Virginia Vice President
Charles Dorsey Phone: 972.702.8222
Director Email: BargenquestM@adr.org
Phone: 866.686.6024
Email: DorseyC@adr.org
States: Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska,
North Dakota, Ohio, South Dakota, Tennessee,
Wisconsin
Jan Holdinski
Vice President
Phone: 248.352.5509
Email: HoldinskiJ@adr.org
Case Management Vice Presidents and Directors
Molly Bargenquest Charles Dorsey
Vice President Director
Phone: 972.702.8222 Phone: 866.686.6024
Email: BargenquestM@adr.org Email: DorseyC@adr.org
Administers cases in AR, IL, IA, KS, LA, MN, MS, Administers cases in FL, GA
MO, NE, ND, OK, SD, TX, WI
Heather Santo
Patrick Tatum Director
Director Phone: 866.293.4053
Phone: 559.490.1905 Email: SantoH@adr.org
Email: TatumP@adr.org Administers cases in AL, CT, DC, DE,
Administers cases in AK, AZ, CA, CO, HI, ID, MT, IN, KY, MA, MD, ME, MI, NC, NH, NJ,
NV, NM, OR, UT, WA, WY NY, OH, PA, RI, SC, TN, VA, VT, WV
2 RULES AND MEDIATION PROCEDURES American Arbitration Association
2
App.015
Table of Contents
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Role of the American Arbitration AssociationÂź. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Legal Basis of Employment ADR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Fairness Issue: The Due Process Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
AAAâs Employment ADR Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
AAAâs Policy on Employment ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Costs of Employment Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Designing an ADR Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Alternative Dispute Resolution Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Open Door Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Ombuds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Peer Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Internal Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fact-Finding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Types of Disputes Covered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Employment Arbitration Rules and Mediation Procedures. . . . . . . . . . . . . . . . . . . . . 15
1. Applicable Rules of Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. AAA as Administrator of the Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Initiation of Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Changes of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6. Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Administrative and Mediation Conferences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. Arbitration Management Conference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10. Fixing of Locale (the city, county, state, territory, and/or country of the Arbitration).19
11. Date, Time and Place (the physical site of the hearing within the designated locale)
of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Number, Qualifications and Appointment of Neutral Arbitrators . . . . . . . . . . . . . . . 20
13. Party Appointed Arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 3
3
App.016
14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties. . . . . . . . . . 21
15. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16. Disqualification of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17. Communication with Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
19. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
20. Stenographic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21. Interpreters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
22. Attendance at Hearings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
23. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. Postponements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. Oaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
26. Majority Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
27. Dispositive Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28. Order of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
29. Arbitration in the Absence of a Party or Representative. . . . . . . . . . . . . . . . . . . . . . . 25
30. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
31. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
32. Interim Measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
33. Closing of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
34. Reopening of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
35. Waiver of Oral Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
36. Waiver of Objection/Lack of Compliance with These Rules. . . . . . . . . . . . . . . . . . . . 28
37. Extensions of Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
38. Serving of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
39. The Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
40. Modification of Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
41. Release of Documents for Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
42. Applications to Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
43. Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
44. Neutral Arbitratorâs Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
45. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
46. Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
47. Suspension for Non-Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
48. Interpretation and Application of Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Costs of Arbitration (including AAA Administrative Fees). . . . . . . . . . . . . . . . . . . . . . . . . 31
4 RULES AND MEDIATION PROCEDURES American Arbitration Association
4
App.017
For Disputes Arising Out of Employer-Promulgated Plans*: . . . . . . . . . . . . . . . . . . . 32
(i) Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(ii) Hearing Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(iii) Postponement/Cancellation Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(iv) Hearing Room Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(v) Abeyance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(vi) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
For Disputes Arising Out of Individually-Negotiated Employment Agreements
and Contracts:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Administrative Fee Schedules (Standard and Flexible Fees) . . . . . . . . . . . . . . . . . . . 35
(i) Standard Fee Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(ii) Refund Schedule for Standard Fee Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(iii) Flexible Fee Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(iv) Hearing Room Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(v) Abeyance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(vi) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
For Disputes Proceeding Under the Supplementary Rules for Class Action
Arbitration (âSupplementary Rulesâ):. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Optional Rules for Emergency Measures of Protection. . . . . . . . . . . . . . . . . . . . . . . . 42
O-1. Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
O-2. Appointment of Emergency Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
O-3. Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
O-4. Interim Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
O-5. Constitution of the Panel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
O-6. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
O-7. Special Master. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
O-8. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 5
5
App.018
Employment Mediation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
M-1. Agreement of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
M-2. Initiation of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
M-3. Fixing of Locale (the city, county, state, territory and, if applicable, country of
the mediation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
M-4. Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
M-5. Appointment of the Mediator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
M-6. Mediatorâs Impartiality and Duty to Disclose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
M-7. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
M-8. Duties and Responsibilities of the Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
M-9. Responsibilities of the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
M-10. Privacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
M-11. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
M-12. No Stenographic Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
M-13. Termination of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
M-14. Exclusion of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
M-15. Interpretation and Application of Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
M-16. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
M-17. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
M-18. Cost of the Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6 RULES AND MEDIATION PROCEDURES American Arbitration Association
6
App.019
Employment Arbitration
Rules and Mediation Procedures
Introduction
Federal and state laws reflecting societal intolerance for certain workplace
conduct, as well as court decisions interpreting and applying those statutes,
have redefined responsible corporate practice and employee relations.
Increasingly, employers and employees face workplace disputes involving
alleged wrongful termination, sexual harassment, or discrimination based on
race, color, religion, sex, national origin, age and disability.
As courts and administrative agencies become less accessible to civil litigants,
employers and their employees now see alternative dispute resolution (âADRâ)
as a way to promptly and effectively resolve workplace disputes. ADR procedures
are becoming more common in contracts of employment, personnel manuals,
and employee handbooks.
Increasingly, corporations and their employees look to the American Arbitration
AssociationÂź as a resource in developing prompt and effective employment
procedures for employment-related disputes.
These Rules have been developed for employers and employees who wish
to use a private alternative to resolve their disputes, enabling them to have
complaints heard by an impartial person with expertise in the employment
field. These procedures benefit both the employer and the individual employee
by making it possible to resolve disputes without extensive litigation.
Role of the American Arbitration Association
The American Arbitration Association, founded in 1926, is a not-for-profit, public
service organization dedicated to the resolution of disputes through mediation,
arbitration, elections and other voluntary dispute resolution procedures. Millions
of workers are now covered by employment ADR plans administered by the AAAÂź.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 7
7
App.020
In addition, the AAA provides education and training, specialized publications,
and research on all forms of dispute settlement. With 30 offices worldwide
and cooperative agreements with arbitral institutions in 63 other nations, the
American Arbitration Association is the nationâs largest private provider of
ADR services.
For over 80 years, the American Arbitration Association has set the standards
for the development of fair and equitable dispute resolution procedures. The
development of the Employment Arbitration Rules and Mediation Procedures
and the reconstitution of a select and diverse roster of expert neutrals to hear
and resolve disputes, are the most recent initiatives of the Association to provide
private, efficient, and cost-effective procedures for out-of-court settlement of
workplace disputes.
Legal Basis of Employment ADR
Since 1990, Congress has twice re-affirmed the important role of ADR in the
area of employment discrimination â in the Americans with Disabilities Act in
1990, and a year later in Section 118 of the Civil Rights Act of 1991.
The United States Supreme Court has also spoken on the importance of ADR
in the employment context. In Gilmer v. Interstate/Johnson Lane, 500 U.S. 20,
111 S.Ct. 1647 (1991), the Supreme Court refused to invalidate Gilmerâs agreement
with the New York Stock Exchange that he would arbitrate disputes with his
employer (Interstate/Johnson Lane) simply because he was obliged to sign it in
order to work as a securities dealer whose trades were executed on the Exchange.
Although the Gilmer Court found that the Age Discrimination in Employment Act
did not preclude arbitration of age discrimination claims, it specifically declined
to decide whether employment arbitration agreements were âcontracts of
employmentâ excluded under the Federal Arbitration Act.
The specific issue left open by Gilmer was decided 10 years later by the United
States Supreme Court in Circuit City Stores, Inc. v. Adams, 532 U.S. 105,121 S. Ct. 1302
,149 L. Ed. 2d 234
(2001). In Circuit City, the Supreme Court concluded
that except for transportation workers such as seamen or railroad workers, the
FAA covers all contracts of employment and that the Act may be used to compel
arbitration of employment-related claims. While Circuit City involved only state
law claims, the Supreme Court had determined previously in Gilmer that federal
age discrimination claims (and presumably other federal civil rights claims) were
arbitrable under the FAA.
8 RULES AND MEDIATION PROCEDURES American Arbitration Association
8
App.021
The Fairness Issue: The Due Process Protocol
The Due Process Protocol for Mediation and Arbitration of Statutory Disputes
Arising Out of the Employment Relationship was developed in 1995 by a special
task force composed of individuals representing management, labor, employment,
civil rights organizations, private administrative agencies, government, and the
American Arbitration Association. The Due Process Protocol, which was endorsed
by the Association in 1995, seeks to ensure fairness and equity in resolving
workplace disputes. The Due Process Protocol encourages mediation and
arbitration of statutory disputes, provided there are due process safeguards. It
conveys the hope that ADR will reduce delays caused by the huge backlog of
cases pending before administrative agencies and the courts. The Due Process
Protocol ârecognizes the dilemma inherent in the timing of an agreement to
mediate and/or arbitrate statutory disputesâ but does not take a position on
whether an employer can require a pre-dispute, binding arbitration program as
a condition of employment.
The Due Process Protocol has been endorsed by organizations representing a
broad range of constituencies. They include the American Arbitration Association,
the American Bar Association Labor and Employment Section, the American
Civil Liberties Union, the Federal Mediation and Conciliation Service, the National
Academy of Arbitrators, and the National Society of Professionals in Dispute
Resolution. The National Employment Lawyers Association has endorsed the
substantive provisions of the Due Process Protocol.
It has been incorporated into the Report of the United States Secretary of Laborâs
Task Force in Excellence in State and Local Government and cited with approval
in numerous court opinions.
AAAâs Employment ADR Rules
On June 1, 1996, the Association issued National Rules for the Resolution of
Employment Disputes (now known as the Employment Arbitration Rules and
Mediation Procedures). The rules reflected the guidelines outlined in the
Due Process Protocol and were based upon the AAAâs California Employment
Dispute Resolution Rules, which were developed by a committee of employment
management and plaintiff attorneys, retired judges and arbitrators, in addition
to Association executives. The revised rules were developed for employers and
employees who wish to use a private alternative to resolve their disputes.
The rules enabled parties to have complaints heard by an impartial person of
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 9
9
App.022
their joint selection, with expertise in the employment field. Both employers and
individual employees benefit by having experts resolve their disputes without the
costs and delay of litigation. The rules included procedures which ensure due
process in both the mediation and arbitration of employment disputes. After a
year of use, the rules were amended to address technical issues.
AAAâs Policy on Employment ADR
The AAAâs policy on employment ADR is guided by the state of existing law, as
well as its obligation to act in an impartial manner. In following the law, and in
the interest of providing an appropriate forum for the resolution of employment
disputes, the Association administers dispute resolution programs which meet
the due process standards as outlined in its Employment Arbitration Rules
and Mediation Procedures and the Due Process Protocol. If the Association
determines that a dispute resolution program on its face substantially and
materially deviates from the minimum due process standards of the Employment
Arbitration Rules and Mediation Procedures and the Due Process Protocol, the
Association may decline to administer cases under that program. Other issues
will be presented to the arbitrator for determination.
Notification
If an employer intends to utilize the dispute resolution services of the Association
in an employment ADR plan, it shall, at least 30 days prior to the planned effective
date of the program: (1) notify the Association of its intention to do so; and (2)
provide the Association with a copy of the employment dispute resolution plan.
If an employer does not comply with this requirement, the Association reserves
the right to decline its administrative services. Copies of all plans should be sent
to the American Arbitration Association, 725 South Figueroa Street, Suite 2400,
Los Angeles, CA 90017; FAX: 213.622.6199.
Costs of Employment Arbitration
These Rules contain two separate and distinct arbitration costs sections; one
for disputes arising out of employer-promulgated plans and the other for
disputes arising out of individually-negotiated employment agreements and
contracts. When the arbitration is filed, the AAA makes an initial administrative
determination as to whether the dispute arises from an employer-promulgated
plan or an individually-negotiated employment agreement or contract. This
10 RULES AND MEDIATION PROCEDURES American Arbitration Association
10
App.023
determination is made by reviewing the documentation provided to the AAA
by the parties, including, but not limited to, the demand for arbitration, the
partiesâ arbitration program or agreement, and any employment agreements
or contracts between the parties.
When making its determination on the applicable costs of arbitration section in
a given arbitration, the AAAâs review is focused on two primary issues. The first
component of the review focuses on whether the arbitration program and/or
agreement between the individual employee and the employer is one in which
it appears that the employer has drafted a standardized arbitration clause with
its employees. The second aspect of the review focuses on the ability of the
parties to negotiate the terms and conditions of the partiesâ agreement.
If a party disagrees with the AAAâs initial determination, the parties may bring
the issue to the attention of the arbitrator for a final determination.
Designing an ADR Program
The guiding principle in designing a successful employment ADR system is
that it must be fair in fact and perception. The American Arbitration Association
has considerable experience in administering and assisting in the design of
employment ADR plans, which gives it an informed perspective on how to
effectively design ADR systems, as well as the problems to avoid. Its guidance
to those designing employment ADR systems is summarized as follows:
» The American Arbitration Association encourages employers to consider the
wide range of legally-available options to resolve workplace disputes outside the
courtroom.
» A special emphasis is placed by the Association on encouraging the development
of in-house dispute resolution procedures, such as open door policies, ombuds,
peer review and internal mediation.
» The Association recommends an external mediation component to resolve disputes
not settled by the internal dispute resolution process.
» Programs which use arbitration as a final step may employ:
âą pre-dispute, voluntary final and binding arbitration;
âą pre-dispute, mandatory nonbinding arbitration;
âą pre-dispute, mandatory final and binding arbitration; or
âą post-dispute, voluntary final and binding arbitration.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 11
11
App.024
» Although the AAA administers binding arbitration systems that have been required
as a condition of initial or continued employment, such programs must be consistent
with the Associationâs Employment Arbitration Rules and Mediation Procedures.
Specific guidance on the responsible development and design of employment
ADR systems is contained in the Associationâs publication, Resolving Employment
Disputes: A Practical Guide, which is available from the AAAâs website,
www.adr.org.
12 RULES AND MEDIATION PROCEDURES American Arbitration Association
12
App.025
Alternative Dispute Resolution Options
Open Door Policy
Employees are encouraged to meet with their immediate manager or supervisor
to discuss problems arising out of the workplace environment. In some systems,
the employee is free to approach anyone in the chain of command.
Ombuds
A neutral third party (either from within or outside the company) is designated
to confidentially investigate and propose settlement of employment complaints
brought by employees.
Peer Review
A panel of employees (or employees and managers) works together to resolve
employment complaints. Peer review panel members are trained in the handling
of sensitive issues.
Internal Mediation
A process for resolving disputes in which a neutral third person from within the
company, trained in mediation techniques, helps the disputing parties negotiate
a mutually acceptable settlement. Mediation is a nonbinding process in which
the parties discuss their disputes with an impartial person who assists them in
reaching a settlement. The mediator may suggest ways of resolving the dispute
but may not impose a settlement on the parties.
Fact-Finding
The investigation of a complaint by an impartial third person (or team) who
examines the complaint and the facts and issues a nonbinding report. Fact-finding
is particularly helpful for allegations of sexual harassment, where a fact-finding
team, composed of one male and one female neutral, investigates the
allegations and presents its findings to the employer and the employee.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 13
13
App.026
Arbitration
Arbitration is generally defined as the submission of disputes to one or more
impartial persons for final and binding determination. It can be the final step in
a workplace program that includes other dispute resolution methods. There are
many possibilities for designing this final step.
They include:
» Pre-Dispute, Voluntary Final and Binding Arbitration
The parties agree in advance, on a voluntary basis, to use arbitration to
resolve disputes and they are bound by the outcome.
» Pre-Dispute, Mandatory Nonbinding Arbitration
The parties must use the arbitration process to resolve disputes, but they
are not bound by the outcome.
» Pre-Dispute, Mandatory Final and Binding Arbitration
The parties must arbitrate unresolved disputes and they are bound by
the outcome.
» Post-Dispute, Voluntary Final and Binding Arbitration
The parties have the option of deciding whether to use final and binding
arbitration after a dispute arises.
Types of Disputes Covered
The dispute resolution procedures contained in this booklet were developed
for arbitration agreements contained in employee personnel manuals, an
employment application of an individual employment agreement, other types
of employment agreements, or can be used for a specific dispute. They do not
apply to disputes arising out of collective bargaining agreements or independent
contractor agreements.
14 RULES AND MEDIATION PROCEDURES American Arbitration Association
14
App.027
Employment Arbitration Rules and Mediation Procedures
1. Applicable Rules of Arbitration
The parties shall be deemed to have made these rules a part of their arbitration
agreement whenever they have provided for arbitration by the American
Arbitration Association (hereinafter âAAAâ) or under its Employment Arbitration
Rules and Mediation Procedures or for arbitration by the AAA of an employment
dispute without specifying particular rules*. If a party establishes that an adverse
material inconsistency exists between the arbitration agreement and these rules,
the arbitrator shall apply these rules.
If, within 30 days after the AAAâs commencement of administration, a party
seeks judicial intervention with respect to a pending arbitration and provides the
AAA with documentation that judicial intervention has been sought, the AAA
will suspend administration for 60 days to permit the party to obtain a stay of
arbitration from the court.These rules, and any amendment of them, shall apply
in the form in effect at the time the demand for arbitration or submission is
received by the AAA.
*
The National Rules for the Resolution of Employment Disputes have been re-named the Employment Arbitration
Rules and Mediation Procedures. Any arbitration agreements providing for arbitration under its National Rules for
the Resolution of Employment Disputes shall be administered pursuant to these Employment Arbitration Rules and
Mediation Procedures.
2. Notification
An employer intending to incorporate these rules or to refer to the dispute
resolution services of the AAA in an employment ADR plan, shall, at least 30 days
prior to the planned effective date of the program:
a. notify the Association of its intention to do so and,
b. provide the Association with a copy of the employment dispute resolution plan.
Compliance with this requirement shall not preclude an arbitrator from
entertaining challenges as provided in Section 1. If an employer does not
comply with this requirement, the Association reserves the right to decline its
administrative services.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 15
15
App.028
3. AAA as Administrator of the Arbitration
When parties agree to arbitrate under these rules, or when they provide for
arbitration by the AAA and an arbitration is initiated under these rules, they
thereby authorize the AAA to administer the arbitration. The authority and duties
of the AAA are prescribed in these rules, and may be carried out through such of
the AAAâs representatives as it may direct. The AAA may, in its discretion, assign
the administration of an arbitration to any of its offices.
4. Initiation of Arbitration
Arbitration shall be initiated in the following manner.
a. The parties may submit a joint request for arbitration.
b. In the absence of a joint request for arbitration:
(i) The initiating party (hereinafter âClaimant[s]â) shall:
(1) File a written notice (hereinafter âDemandâ) of its intention to arbitrate at any
office of the AAA, within the time limit established by the applicable statute
of limitations. Any dispute over the timeliness of the demand shall be referred
to the arbitrator. The filing shall be made in duplicate, and each copy shall
include the applicable arbitration agreement. The Demand shall set forth the
names, addresses, and telephone numbers of the parties; a brief statement
of the nature of the dispute; the amount in controversy, if any; the remedy
sought; and requested hearing location.
(2) Simultaneously provide a copy of the Demand to the other party (hereinafter
âRespondent[s]â).
(3) Include with its Demand the applicable filing fee, unless the parties agree to
some other method of fee advancement.
(ii) The Respondent(s) may file an Answer with the AAA within 15 days after the
date of the letter from the AAA acknowledging receipt of the Demand. The
Answer shall provide the Respondentâs brief response to the claim and the issues
presented. The Respondent(s) shall make its filing in duplicate with the AAA, and
simultaneously shall send a copy of the Answer to the Claimant. If no answering
statement is filed within the stated time, Respondent will be deemed to deny the
claim. Failure to file an answering statement shall not operate to delay the
arbitration.
(iii) The Respondent(s):
(1) May file a counterclaim with the AAA within 15 days after the date of the
letter from the AAA acknowledging receipt of the Demand. The filing shall
be made in duplicate. The counterclaim shall set forth the nature of the claim,
the amount in controversy, if any, and the remedy sought.
16 RULES AND MEDIATION PROCEDURES American Arbitration Association
16
App.029
(2) Simultaneously shall send a copy of any counterclaim to the Claimant.
(3) Shall include with its filing the applicable filing fee provided for by these rules.
(iv) The Claimant may file an Answer to the counterclaim with the AAA within
15 days after the date of the letter from the AAA acknowledging receipt of
the counterclaim. The Answer shall provide Claimantâs brief response to the
counterclaim and the issues presented. The Claimant shall make its filing in
duplicate with the AAA, and simultaneously shall send a copy of the Answer to
the Respondent(s). If no answering statement is filed within the stated time,
Claimant will be deemed to deny the counterclaim. Failure to file an answering
statement shall not operate to delay the arbitration.
c. The form of any filing in these rules shall not be subject to technical pleading
requirements.
5. Changes of Claim
Before the appointment of the arbitrator, if either party desires to offer a new or
different claim or counterclaim, such party must do so in writing by filing a written
statement with the AAA and simultaneously provide a copy to the other party(s),
who shall have 15 days from the date of such transmittal within which to file an
answer with the AAA. After the appointment of the arbitrator, a party may offer
a new or different claim or counterclaim only at the discretion of the arbitrator.
6. Jurisdiction
a. The arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope or validity of the arbitration
agreement.
b. The arbitrator shall have the power to determine the existence or validity of a contract
of which an arbitration clause forms a part. Such an arbitration clause shall be treated
as an agreement independent of the other terms of the contract. A decision by the
arbitrator that the contract is null and void shall not for that reason alone render
invalid the arbitration clause.
c. A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
claim or counterclaim no later than the filing of the answering statement to the claim
or counterclaim that gives rise to the objection. The arbitrator may rule on such
objections as a preliminary matter or as part of the final award.
7. Administrative and Mediation Conferences
Before the appointment of the arbitrator, any party may request, or the AAA, in
its discretion, may schedule an administrative conference with a representative
of the AAA and the parties and/or their representatives. The purpose of the
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 17
17
App.030
administrative conference is to organize and expedite the arbitration, explore
its administrative aspects, establish the most efficient means of selecting an
arbitrator, and to consider mediation as a dispute resolution option. There is
no administrative fee for this service.
At any time after the filing of the Demand, with the consent of the parties, the
AAA will arrange a mediation conference under its Mediation Procedures to
facilitate settlement. The mediator shall not be any arbitrator appointed to the
case, except by mutual written agreement of the parties. There is no additional
filing fee for initiating a mediation under the AAA Mediation Procedures for
parties to a pending arbitration.
8. Arbitration Management Conference
As promptly as practicable after the selection of the arbitrator(s), but not later than
60 days thereafter, an arbitration management conference shall be held among
the parties and/or their attorneys or other representatives and the arbitrator(s).
Unless the parties agree otherwise, the Arbitration Management Conference
will be conducted by telephone conference call rather than in person. At the
Arbitration Management Conference the matters to be considered shall include,
without limitation:
a. the issues to be arbitrated;
b. the date, time, place, and estimated duration of the hearing;
c. the resolution of outstanding discovery issues and establishment of discovery
parameters;
d. the law, standards, rules of evidence and burdens of proof that are to apply to the
proceeding;
e. the exchange of stipulations and declarations regarding facts, exhibits, witnesses,
and other issues;
f. the names of witnesses (including expert witnesses), the scope of witness testimony,
and witness exclusion;
g. the value of bifurcating the arbitration into a liability phase and damages phase;
h. the need for a stenographic record;
i. whether the parties will summarize their arguments orally or in writing;
j. the form of the award;
k. any other issues relating to the subject or conduct of the arbitration;
l. the allocation of attorneyâs fees and costs;
m. the specification of undisclosed claims;
18 RULES AND MEDIATION PROCEDURES American Arbitration Association
18
App.031
n. the extent to which documentary evidence may be submitted at the hearing;
o. the extent to which testimony may be admitted at the hearing telephonically, over the
internet, by written or video-taped deposition, by affidavit, or by any other means;
p. any disputes over the AAAâs determination regarding whether the dispute arose
from an individually-negotiated employment agreement or contract, or from an
employer-promulgated plan (see Costs of Arbitration section).
The arbitrator shall issue oral or written orders reflecting his or her decision on the
above matters and may conduct additional conferences when the need arises.
There is no AAA administrative fee for an Arbitration Management Conference.
9. Discovery
The arbitrator shall have the authority to order such discovery, by way of
deposition, interrogatory, document production, or otherwise, as the arbitrator
considers necessary to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.
The AAA does not require notice of discovery related matters and
communications unless a dispute arises. At that time, the parties should notify
the AAA of the dispute so that it may be presented to the arbitrator for
determination.
10. Fixing of Locale (the city, county, state, territory, and/or country of the
Arbitration)
If the parties disagree as to the locale, the AAA may initially determine the place
of arbitration, subject to the power of the arbitrator(s), after their appointment to
make a final determination on the locale. All such determinations shall be made
having regard for the contentions of the parties and the circumstances of the
arbitration.
11. Date, Time and Place (the physical site of the hearing within the designated
locale) of Hearing
The arbitrator shall set the date, time, and place for each hearing. The parties
shall respond to requests for hearing dates in a timely manner, be cooperative in
scheduling the earliest practicable date, and adhere to the established hearing
schedule. The AAA shall send a notice of hearing to the parties at least 10 days
in advance of the hearing date, unless otherwise agreed by the parties.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 19
19
App.032
12. Number, Qualifications and Appointment of Neutral Arbitrators
a. If the arbitration agreement does not specify the number of arbitrators or the parties
do not agree otherwise, the dispute shall be heard and determined by one arbitrator.
b. Qualifications
i. Neutral arbitrators serving under these rules shall be experienced in the field of
employment law.
ii. Neutral arbitrators serving under these rules shall have no personal or financial
interest in the results of the proceeding in which they are appointed and shall
have no relation to the underlying dispute or to the parties or their counsel
that may create an appearance of bias.
iii. The roster of available arbitrators will be established on a non-discriminatory
basis, diverse by gender, ethnicity, background, and qualifications.
iv. The AAA may, upon request of a party within the time set to return their list or
upon its own initiative, supplement the list of proposed arbitrators in disputes
arising out of individually-negotiated employment contracts with persons from
the Commercial Roster, to allow the AAA to respond to the particular need of
the dispute. In multi-arbitrator disputes, at least one of the arbitrators shall be
experienced in the field of employment law.
c. If the parties have not appointed an arbitrator and have not provided any method of
appointment, the arbitrator shall be appointed in the following manner:
i. Shortly after it receives the Demand, the AAA shall send simultaneously to each
party a letter containing an identical list of names of persons chosen from the
Employment Dispute Resolution Roster. The parties are encouraged to agree to
an arbitrator from the submitted list and to advise the AAA of their agreement.
ii. If the parties are unable to agree upon an arbitrator, each party to the dispute
shall have 15 days from the transmittal date in which to strike names objected
to, number the remaining names in order of preference, and return the list to
the AAA. If a party does not return the list within the time specified, all persons
named therein shall be deemed acceptable.
iii. From among the persons who have been approved on both lists, and in
accordance with the designated order of mutual preference, the AAA shall invite
the acceptance of an arbitrator to serve. If the parties fail to agree on any of the
persons named, or if acceptable arbitrators are unable to act, or if for any other
reason the appointment cannot be made from the submitted list, the AAA shall
have the power to make the appointment from among other members of the
panel without the submission of additional lists.
20 RULES AND MEDIATION PROCEDURES American Arbitration Association
20
App.033
13. Party Appointed Arbitrators
a. If the agreement of the parties names an arbitrator or specifies a method of appointing
an arbitrator, that designation or method shall be followed.
b. Where the parties have agreed that each party is to name one arbitrator, the arbitrators
so named must meet the standards of Section R-16 with respect to impartiality and
independence unless the parties have specifically agreed pursuant to Section R-16(a)
that the party-appointed arbitrators are to be non-neutral and need not meet those
standards. The notice of appointment, with the name, address, and contact information
of the arbitrator, shall be filed with the AAA by the appointing party. Upon the request
of any appointing party, the AAA shall submit a list of membersof the National Roster
from which the party may, if it so desires, make the appointment.
c. If the agreement specifies a period of time within which an arbitrator shall be
appointed and any party fails to make the appointment within that period, the AAA
shall make the appointment.
d. If no period of time is specified in the agreement, the AAA shall notify the party to
make the appointment. If within 15 days after such notice has been sent, an arbitrator
has not been appointed by a party, the AAA shall make the appointment.
14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties
a. If, pursuant to Section R-13, either the parties have directly appointed arbitrators, or
the arbitrators have been appointed by the AAA, and the parties have authorized
them to appoint a chairperson within a specified time and no appointment is made
within that time or any agreed extension, the AAA may appoint the chairperson.
b. If no period of time is specified for appointment of the chairperson and the
party-appointed arbitrators or the parties do not make the appointment within
15 days from the date of the appointment of the last party-appointed arbitrator,
the AAA may appoint the chairperson.
c. If the parties have agreed that their party-appointed arbitrators shall appoint the
chairperson from the National Roster, the AAA shall furnish to the party-appointed
arbitrators, in the manner provided in Section R-12, a list selected from the National
Roster, and the appointment of the chairperson shall be made as provided in
that Section.
15. Disclosure
a. Any person appointed or to be appointed as an arbitrator shall disclose to the AAA
any circumstance likely to give rise to justifiable doubt as to the arbitratorâs impartiality
or independence, including any bias or any financial or personal interest in the
result of the arbitration or any past or present relationship with the parties or their
representatives. Such obligation shall remain in effect throughout the arbitration.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 21
21
App.034
b. Upon receipt of such information from the arbitrator or another source, the AAA shall
communicate the information to the parties and, if it deems it appropriate to do so,
to the arbitrator and others.
c. In order to encourage disclosure by arbitrators, disclosure of information pursuant to
this Section R-15 is not to be construed as an indication that the arbitrator considers
that the disclosed circumstance is likely to affect impartiality or independence.
16. Disqualification of Arbitrator
a. Any arbitrator shall be impartial and independent and shall perform his or her duties
with diligence and in good faith, and shall be subject to disqualification for:
i. partiality or lack of independence,
ii. inability or refusal to perform his or her duties with diligence and in good faith,
and
iii. any grounds for disqualification provided by applicable law. The parties may
agree in writing, however, that arbitrators directly appointed by a party pursuant
to Section R-13 shall be nonneutral, in which case such arbitrators need not be
impartial or independent and shall not be subject to disqualification for partiality
or lack of independence.
b. Upon objection of a party to the continued service of an arbitrator, or on its own
initiative, the AAA shall determine whether the arbitrator should be disqualified under
the grounds set out above, and shall inform the parties of its decision, which decision
shall be conclusive.
17. Communication with Arbitrator
a. No party and no one acting on behalf of any party shall communicate ex parte with
an arbitrator or a candidate for arbitrator concerning the arbitration, except that a
party, or someone acting on behalf of a party, may communicate ex parte with a
candidate for direct appointment pursuant to Section R-13 in order to advise the
candidate of the general nature of the controversy and of the anticipated proceedings
and to discuss the candidateâs qualifications, availability, or independence in relation
to the parties or to discuss the suitability of candidates for selection as a third arbitrator
where the parties or party-designated arbitrators are to participate in that selection.
b. Section R-17(a) does not apply to arbitrators directly appointed by the parties who,
pursuant to Section R-16(a), the parties have agreed in writing are non-neutral. Where
the parties have so agreed under Section R-16(a), the AAA shall as an administrative
practice suggest to the parties that they agree further that Section R-17(a) should
nonetheless apply prospectively.
22 RULES AND MEDIATION PROCEDURES American Arbitration Association
22
App.035
18. Vacancies
If for any reason an arbitrator is unable to perform the duties of the office, the
AAA may, on proof satisfactory to it, declare the office vacant. Vacancies shall be
filled in accordance with applicable provisions of these Rules.
In the event of a vacancy in a panel of neutral arbitrators after the hearings have
commenced, the remaining arbitrator or arbitrators may continue with the hearing
and determination of the controversy, unless the parties agree otherwise.
In the event of the appointment of a substitute arbitrator, the panel of arbitrators
shall determine in its sole discretion whether it is necessary to repeat all or part
of any prior hearings.
19. Representation
Any party may be represented by counsel or other authorized representatives.
For parties without representation, the AAA will, upon request, provide
reference to institutions which might offer assistance. A party who intends to be
represented shall notify the other party and the AAA of the name and address
of the representative at least 10 days prior to the date set for the hearing or
conference at which that person is first to appear. If a representative files a
Demand or an Answer, the obligation to give notice of representative status is
deemed satisfied.
20. Stenographic Record
Any party desiring a stenographic record shall make arrangements directly with
a stenographer and shall notify the other parties of these arrangements at least
three days in advance of the hearing. The requesting party or parties shall pay
the cost of the record. If the transcriptis agreed by the parties, or determined by
the arbitrator to be the official record of the proceeding, it must be provided to
the arbitrator and made available to the other parties for inspection, at a date,
time, and place determined by the arbitrator.
21. Interpreters
Any party wishing an interpreter shall make all arrangements directly with the
interpreter and shall assume the costs of the service.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 23
23
App.036
22. Attendance at Hearings
The arbitrator shall have the authority to exclude witnesses, other than a party,
from the hearing during the testimony of any other witness. The arbitrator also
shall have the authority to decide whether any person who is not a witness may
attend the hearing.
23. Confidentiality
The arbitrator shall maintain the confidentiality of the arbitration and shall have
the authority to make appropriate rulings to safeguard that confidentiality, unless
the parties agree otherwise or the law provides to the contrary.
24. Postponements
The arbitrator: (1) may postpone any hearing upon the request of a party for
good cause shown; (2) must postpone any hearing upon the mutual agreement
of the parties; and (3) may postpone any hearing on his or her own initiative.
25. Oaths
Before proceeding with the first hearing, each arbitrator shall take an oath of office.
The oath shall be provided to the parties prior to the first hearing. The arbitrator
may require witnesses to testify under oath administered by any duly qualified
person and, if it is required by law or requested by any party, shall do so.
26. Majority Decision
All decisions and awards of the arbitrators must be by a majority, unless the
unanimous decision of all arbitrators is expressly required by the arbitration
agreement or by law.
27. Dispositive Motions
The arbitrator may allow the filing of a dispositive motion if the arbitrator
determines that the moving party has shown substantial cause that the motion
is likely to succeed and dispose of or narrow the issues in the case.
28. Order of Proceedings
A hearing may be opened by: (1) recording the date, time, and place of the
hearing; (2) recording the presence of the arbitrator, the parties, and their
24 RULES AND MEDIATION PROCEDURES American Arbitration Association
24
App.037
representatives, if any; and (3) receiving into the record the Demand and the
Answer, if any. The arbitrator may, at the beginning of the hearing, ask for
statements clarifying the issues involved.
The parties shall bear the same burdens of proof and burdens of producing
evidence as would apply if their claims and counterclaims had been brought
in court.
Witnesses for each party shall submit to direct and cross examination.
With the exception of the rules regarding the allocation of the burdens of proof
and going forward with the evidence, the arbitrator has the authority to set the
rules for the conduct of the proceedings and shall exercise that authority to
afford a full and equal opportunity to all parties to present any evidence that
the arbitrator deems material and relevant to the resolution of the dispute.
When deemed appropriate, the arbitrator may also allow for the presentation
of evidence by alternative means including web conferencing, internet
communication, telephonic conferences and means other than an in-person
presentation of evidence. Such alternative means must still afford a full and
equal opportunity to all parties to present any evidence that the arbitrator
deems material and relevant to the resolution of the dispute and when involving
witnesses, provide that such witness submit to direct and cross-examination.
The arbitrator, in exercising his or her discretion, shall conduct the proceedings
with a view toward expediting the resolution of the dispute, may direct the order
of proof, bifurcate proceedings, and direct the parties to focus their presentations
on issues the decision of which could dispose of all or part of the case.
Documentary and other forms of physical evidence, when offered by either party,
may be received in evidence by the arbitrator.
The names and addresses of all witnesses and a description of the exhibits in the
order received shall be made a part of the record.
29. Arbitration in the Absence of a Party or Representative
Unless the law provides to the contrary, the arbitration may proceed in the
absence of any party or representative who, after due notice, fails to be present
or fails to obtain a postponement. An award shall not be based solely on the
default of a party. The arbitrator shall require the party who is in attendance to
present such evidence as the arbitrator may require for the making of the award.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 25
25
App.038
30. Evidence
The parties may offer such evidence as is relevant and material to the dispute
and shall produce such evidence as the arbitrator deems necessary to an
understanding and determination of the dispute. All evidence shall be taken
in the presence of all of the arbitrators and all of the parties, except where
any party or arbitrator is absent, in default, or has waived the right to be
present, however âpresenceâ should not be construed to mandate that the
parties and arbitrators must be physically present in the same location.
An arbitrator or other person authorized by law to subpoena witnesses or
documents may do so upon the request of any party or independently.
The arbitrator shall be the judge of the relevance and materiality of the evidence
offered, and conformity to legal rules of evidence shall not be necessary. The
arbitrator may in his or her discretion direct the order of proof, bifurcate
proceedings, exclude cumulative or irrelevant testimony or other evidence,
and direct the parties to focus their presentations on issues the decision of
which could dispose of all or part of the case. All evidence shall be taken in the
presence of all of the arbitrators and all of the parties, except where any party
is absent, in default, or has waived the right to be present.
If the parties agree or the arbitrator directs that documents or other evidence
may be submitted to the arbitrator after the hearing, the documents or other
evidence shall be filed with the AAA for transmission to the arbitrator, unless the
parties agree to a different method of distribution. All parties shall be afforded
an opportunity to examine such documents or other evidence and to lodge
appropriate objections, if any.
31. Inspection
Upon the request of a party, the arbitrator may make an inspection in connection
with the arbitration. The arbitrator shall set the date and time, and the AAA shall
notify the parties. In the event that one or all parties are not present during the
inspection, the arbitrator shall make an oral or written report to the parties and
afford them an opportunity to comment.
26 RULES AND MEDIATION PROCEDURES American Arbitration Association
26
App.039
32. Interim Measures
At the request of any party, the arbitrator may grant any remedy or relief that
would have been available to the parties had the matter been heard in court,
as stated in Rule 39(d), Award.
A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with the agreement to arbitrate or a waiver of the
right to arbitrate.
33. Closing of Hearing
The arbitrator shall specifically inquire of all parties whether they have any
further proofs to offer or witnesses to be heard. Upon receiving negative replies
or if satisfied that the record is complete, the arbitrator shall declare the hearing
closed.
If briefs are to be filed, the hearing shall be declared closed as of the final
date set by the arbitrator for the receipt of briefs. If documents are to be filed as
provided in Rule 30 and the date set for their receipt is later than that set for the
receipt of briefs, the later date shall be the date of closing the hearing. The time
limit within which the arbitrator is required to make the award shall commence
to run, in the absence of other agreements by the parties, upon closing of
the hearing.
34. Reopening of Hearing
The hearing may be reopened by the arbitrator upon the arbitratorâs initiative,
or upon application of a party for good cause shown, at any time before the
award is made. If reopening the hearing would prevent the making of the award
within the specific time agreed on by the parties in the contract(s) out of which
the controversy has arisen, the matter may not be reopened unless the parties
agree on an extension of time. When no specific date is fixed in the contract, the
arbitrator may reopen the hearing and shall have 30 days from the closing of the
reopened hearing within which to make an award.
35. Waiver of Oral Hearing
The parties may provide, by written agreement, for the waiver of oral hearings.
If the parties are unable to agree as to the procedure, upon the appointment of
the arbitrator, the arbitrator shall specify a fair and equitable procedure.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 27
27
App.040
36. Waiver of Objection/Lack of Compliance with These Rules
Any party who proceeds with the arbitration after knowledge that any provision
or requirement of these rules has not been complied with, and who fails to state
objections thereto in writing or in a transcribed record, shall be deemed to have
waived the right to object.
37. Extensions of Time
The parties may modify any period of time by mutual agreement. The AAA or the
arbitrator may for good cause extend any period of time established by these
Rules, except the time for making the award. The AAA shall notify the parties of
any extension.
38. Serving of Notice
a. Any papers, notices, or process necessary or proper for the initiation or continuation
of an arbitration under these rules, for any court action in connection therewith, or for
the entry of judgment on any award made under these rules may be served on a party
by mail addressed to the party, or its representative at the last known address or by
personal service, in or outside the state where the arbitration is to be held, provided
that reasonable opportunity to be heard with regard to the dispute is or has been
granted to the party.
b. The AAA, the arbitrator, and the parties may also use overnight delivery or electronic
facsimile transmission (fax), to give the notices required by these rules. Where all
parties and the arbitrator agree, notices may be transmitted by electronic mail (e-mail),
or other methods of communication.
c. Unless otherwise instructed by the AAA or by the arbitrator, any documents submitted
by any party to the AAA or to the arbitrator shall simultaneously be provided to the
other party or parties to the arbitration.
39. The Award
a. The award shall be made promptly by the arbitrator and, unless otherwise agreed by
the parties or specified by law, no later than 30 days from the date of closing of the
hearing or, if oral hearings have been waived, from the date of the AAAâs transmittal
of the final statements and proofs to the arbitrator. Three additional days are provided
if briefs are to be filed or other documents are to be transmitted pursuant to Rule 30.
b. An award issued under these rules shall be publicly available, on a cost basis.
The names of the parties and witnesses will not be publicly available, unless a party
expressly agrees to have its name made public in the award.
c. The award shall be in writing and shall be signed by a majority of the arbitrators and
shall provide the written reasons for the award unless the parties agree otherwise.
It shall be executed in the manner required by law.
28 RULES AND MEDIATION PROCEDURES American Arbitration Association
28
App.041
d. The arbitrator may grant any remedy or relief that would have been available to
the parties had the matter been heard in court including awards of attorneyâs fees
and costs, in accordance with applicable law. The arbitrator shall, in the award, assess
arbitration fees, expenses, and compensation as provided in Rules 43, 44, and 45 in
favor of any party and, in the event any administrative fees or expenses are due the
AAA, in favor of the AAA, subject to the provisions contained in the Costs of
Arbitration section.
e. If the parties settle their dispute during the course of the arbitration and mutually
request, the arbitrator may set forth the terms of the settlement in a consent award.
f. The parties shall accept as legal delivery of the award the placing of the award or a
true copy thereof in the mail, addressed to a party or its representative at the last
known address, personal service of the award, or the filing of the award in any manner
that may be required by law.
g. The arbitratorâs award shall be final and binding.
40. Modification of Award
Within 20 days after the transmittal of an award, any party, upon notice to the
other parties, may request the arbitrator to correct any clerical, typographical,
technical, or computational errors in the award. The arbitrator is not empowered
to redetermine the merits of any claim already decided. The other parties shall
be given 10 days to respond to the request. The arbitrator shall dispose of the
request within 20 days after transmittal by the AAA to the arbitrator of the request
and any response thereto. If applicable law requires a different procedural time
frame, that procedure shall be followed.
41. Release of Documents for Judicial Proceedings
The AAA shall, upon the written request of a party, furnish to the party, at that
partyâs expense, certified copies of any papers in the AAAâs case file that may
be required in judicial proceedings relating to the arbitration.
42. Applications to Court
a. No judicial proceeding by a party relating to the subject matter of the arbitration shall
be deemed a waiver of the partyâs right to arbitrate.
b. Neither the AAA nor any arbitrator in a proceeding under these rules is or shall
be considered a necessary or proper party in judicial proceedings relating to the
arbitration.
c. Parties to these procedures shall be deemed to have consented that judgment upon
the arbitration award may be entered in any federal or state court having jurisdiction.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 29
29
App.042
d. Parties to an arbitration under these rules shall be deemed to have consented
that neither the AAA nor any arbitrator shall be liable to any party in any action for
damages or injunctive relief for any act or omission in connection with any arbitration
under these rules.
43. Administrative Fees
As a not-for-profit organization, the AAA shall prescribe filing and other
administrative fees to compensate it for the cost of providing administrative
services. The AAA administrative fee schedule in effect at the time the demand
for arbitration or submission agreement is received shall be applicable.
AAA fees shall be paid in accordance with the Costs of Arbitration Section
(see page 33-43).
The AAA may, in the event of extreme hardship on any party, defer or reduce the
administrative fees. (To ensure that you have the most current information, see
our website at www.adr.org).
44. Neutral Arbitratorâs Compensation
Arbitrators shall charge a rate consistent with the arbitratorâs stated rate of
compensation. If there is disagreement concerning the terms of compensation,
an appropriate rate shall be established with the arbitrator by the AAA and
confirmed to the parties.
Any arrangement for the compensation of a neutral arbitrator shall be made
through the AAA and not directly between the parties and the arbitrator.
Payment of the arbitratorâs fees and expenses shall be made by the AAA from
the fees and moneys collected by the AAA for this purpose.
Arbitrator compensation shall be borne in accordance with the Costs of
Arbitration section.
45. Expenses
Unless otherwise agreed by the parties or as provided under applicable law, the
expenses of witnesses for either side shall be borne by the party producing such
witnesses.
30 RULES AND MEDIATION PROCEDURES American Arbitration Association
30
App.043
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator shall be borne in accordance with the Costs of
Arbitration section.
46. Deposits
The AAA may require deposits in advance of any hearings such sums of money
as it deems necessary to cover the expenses of the arbitration, including the
arbitratorâs fee, if any, and shall render an accounting and return any unexpended
balance at the conclusion of the case.
47. Suspension for Non-Payment
If arbitrator compensation or administrative charges have not been paid in full,
the AAA may so inform the parties in order that one of them may advance the
required payment. If such payments are not made, the arbitrator may order the
suspension or termination of the proceedings. If no arbitrator has yet been
appointed, the AAA may suspend or terminate the proceedings.
48. Interpretation and Application of Rules
The arbitrator shall interpret and apply these rules as they relate to the arbitratorâs
powers and duties. When there is more than one arbitrator and a difference arises
among them concerning the meaning or application of these Rules, it shall be
resolved by a majority vote. If that is not possible, either an arbitrator or a party
may refer the question to the AAA for final decision. All other procedures shall
be interpreted and applied by the AAA.
Costs of Arbitration (including AAA Administrative Fees)
This Costs of Arbitration section contains two separate and distinct sub-sections.
Initially, the AAA shall make an administrative determination as to whether the
dispute arises from an employer-promulgated plan or an individually-negotiated
employment agreement or contract.
If a party disagrees with the AAAâs determination, the parties may bring the
issue to the attention of the arbitrator for a final determination. The arbitratorâs
determination will be made on documents only, unless the arbitrator deems a
hearing is necessary.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 31
31
App.044
For Disputes Arising Out of Employer-Promulgated Plans*:
Arbitrator compensation is not included as part of the administrative fees charged
by the AAA. Arbitrator compensation is based on the most recent biography
sent to the parties prior to appointment. The employer shall pay the arbitratorâs
compensation unless the employee, post dispute, voluntarily elects to pay a
portion of the arbitratorâs compensation. Arbitrator compensation, expenses as
defined in section (iv) below, and administrative fees are not subject to reallocation
by the arbitrator(s) except upon the arbitratorâs determination that a claim or
counterclaim was filed for purposes of harassment or is patently frivolous.
*
Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
fees. (Effective January 1, 2003.)
A party making a demand for treatment of a claim, counterclaim, or additional
claim as a collective action arbitration will be subject to the administrative
fees as outlined in the standard and flexible fee schedules below. Arbitrator
compensation is not included as a part of the administrative fees charged by
the AAA. Arbitrator compensation in cases involving a collective action claim
will be charged in accordance with the determination as to whether the dispute
arises from an employer-promulgated plan or an individually negotiated
employment agreement or contract.
(i) Filing Fees
Cases Filed by Employee Against Employer
In cases before a single arbitrator, a non-refundable filing fee capped in the
amount of $200 is payable in full by the employee when a claim is filed, unless
the plan provides that the employee pay less. A non-refundable fee in the
amount of $1350 is payable in full by the employer, unless the plan provides
that the employer pay more.
In cases before three or more arbitrators, a non-refundable filing fee capped
in the amount of $200 is payable in full by the employee when a claim is filed,
unless the plan provides that the employee pay less. A non-refundable fee in
the amount of $1,800 is payable in full by the employer, unless the plan provides
that the employer pay more.
32 RULES AND MEDIATION PROCEDURES American Arbitration Association
32
App.045
The employerâs share is due as soon as the employee meets his or her filing
requirements, even if the matter settles.
There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually negotiated
employment agreements.
The above fee schedule will also apply where the employer files on behalf of
the employee pursuant to the terms of the employer promulgated plan.
Cases Filed by Employer Against Employee
In cases before a single arbitrator, a non-refundable fee in the amount of $1,550
is payable in full by the employer.
In cases before three or more arbitrators, a non-refundable fee in the amount
of $2,000 is payable in full by the employer.
There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually-negotiated
employment agreements.
(ii) Hearing Fees
For each day of hearing held before a single arbitrator, an administrative fee of
$350 is payable by the employer.
For each day of hearing held before a multi-arbitrator panel, an administrative
fee of $500 is payable by the employer.
There is no AAA hearing fee for the initial Arbitration Management Conference.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 33
33
App.046
(iii) Postponement/Cancellation Fees
A fee of $150 is payable by a party causing a postponement of any hearing
scheduled before a single arbitrator.
A fee of $250 is payable by a party causing a postponement of any hearing
scheduled before a multi-arbitrator panel.
(iv) Hearing Room Rental
The hearing fees described above do not cover the rental of hearing rooms.
The AAA maintains hearing rooms in most offices for the convenience of the
parties. Check with the administrator for availability and rates. Hearing room
rental fees will be borne by the employer.
(v) Abeyance Fee
Parties on cases held in abeyance for one year will be assessed an annual
abeyance fee of $300. A case may only be held in abeyance after the initial filing
fees have been paid. If a party refuses to pay the assessed fee, the other party
or parties may pay the entire fee on behalf of all parties, otherwise the matter
will be administratively closed.
(vi) Expenses
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne by the employer.
For Disputes Arising Out of Individually-Negotiated Employment
Agreements and Contracts:
The AAAâs Fee Schedule, as modified below, will apply to disputes arising out
of individually-negotiated employment agreements and contracts, even if such
agreements and contracts reference or incorporate an employer-promulgated
plan. Arbitrator compensation is not included as part of the administrative fees
charged by the AAA. Arbitrator compensation is based on the most recent
biography sent to the parties prior to appointment.
34 RULES AND MEDIATION PROCEDURES American Arbitration Association
34
App.047
Administrative Fee Schedules (Standard and Flexible Fee)
The AAA has two administrative fee options for parties filing claims or
counterclaims, the Standard Fee Schedule and Flexible Fee Schedule. The
Standard Fee Schedule has a two-payment schedule, and the Flexible Fee
Schedule has a three-payment schedule which offers lower initial filing fees, but
potentially higher total administrative fees of approximately 12% to 19% for cases
that proceed to a hearing. The administrative fees of the AAA are based on the
amount of the claim or counterclaim. Arbitrator compensation is not included in
this schedule. Unless the parties agree otherwise, arbitrator compensation and
administrative fees are subject to allocation by the arbitrator in the award.
In an effort to make arbitration costs reasonable for consumers, the AAA has a
separate fee schedule for consumer-related disputes. Please refer to Section C-8
of the Supplementary Procedures for Consumer-Related Disputes when filing a
consumer-related claim. Note that the Flexible Fee Schedule is not available on
cases administered under these supplementary procedures.
The AAA applies the Supplementary Procedures for Consumer-Related Disputes
to arbitration clauses in agreements between individual consumers and businesses
where the business has a standardized, systematic application of arbitration
clauses with customers and where the terms and conditions of the purchase of
standardized, consumable goods or services are non-negotiable or primarily
non-negotiable in most or all of its terms, conditions, features, or choices.
The product or service must be for personal or household use. The AAA will
have the discretion to apply or not to apply the Supplementary Procedures and
the parties will be able to bring any disputes concerning the application or
non-application to the attention of the arbitrator. Consumers are not prohibited
from seeking relief in a small claims court for disputes or claims within the scope
of its jurisdiction, even in consumer arbitration cases filed by the business.
Fees for incomplete or deficient filings: Where the applicable arbitration
agreement does not reference the AAA, the AAA will attempt to obtain the
agreement of the other parties to the dispute to have the arbitration administered
by the AAA. However, where the AAA is unable to obtain the agreement of the
parties to have the AAA administer the arbitration, the AAA will administratively
close the case and will not proceed with the administration of the arbitration. In
these cases, the AAA will return the filing fees to the filing party, less the amount
specified in the fee schedule below for deficient filings.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 35
35
App.048
Parties that file demands for arbitration that are incomplete or otherwise do not
meet the filing requirements contained in these Rules shall also be charged the
amount specified below for deficient filings if they fail or are unable to respond
to the AAAâs request to correct the deficiency.
Fees for additional services: The AAA reserves the right to assess additional
administrative fees for services performed by the AAA beyond those provided for
in these Rules which may be required by the partiesâ agreement or stipulation.
(i) Standard Fee Schedule
An Initial Filing Fee is payable in full by a filing party when a claim, counterclaim,
or additional claim is filed. A Final Fee will be incurred for all cases that proceed
to their first hearing. This fee will be payable in advance at the time that the first
hearing is scheduled. This fee will be refunded at the conclusion of the case if
no hearings have occurred. However, if the Association is not notified at least
24 hours before the time of the scheduled hearing, the Final Fee will remain
due and will not be refunded.
36 RULES AND MEDIATION PROCEDURES American Arbitration Association
36
App.049
These fees will be billed in accordance with the following schedule:
AMOUNT OF CLAIM INITIAL FILING FEE FINAL FEE
Above $0 to $10,000 $775 $200
Above $10,000 to $75,000 $975 $300
Above $75,000 to $150,000 $1,850 $750
Above $150,000 to $300,000 $2,800 $1,250
Above to $300,000 to $500,000 $4,350 $1,750
Above to $500,000 to $1,000,000 $6,200 $2,500
Above $1,000,000 to $5,000,000 $8,200 $3,250
Above $5,000,000 to $10,000,000 $10,200 $4,000
Base fee of $12,800 plus .01% of the
Above $10,000,000 amount above $10,000,000 $6,000
Fee Capped at $65,000
Nonmonetary claims1 $3,350 $1,250
Collective Action Claims2 $3,350 $1,250
Deficient Claim Filing Fee3 $350
Additional Services4
1
This fee is applicable when a claim or counterclaim is not for a monetary amount. Where a
monetary claim amount is not known, parties will be required to state a range of claims or be
subject to a filing fee of $10,200.
2
This fee is applicable where a party makes a demand for treatment of a claim, counterclaim, or
additional claim as a collective action arbitration.
3
The Deficient Claim Filing Fee shall not be charged in cases filed by a consumer in an arbitration
governed by the Supplementary Procedures for the Resolution of Consumer-Related Disputes, or
in cases filed by an Employee who is submitting their dispute to arbitration pursuant to an employer
promulgated plan.
4
The AAA may assess additional fees where procedures or services outside the Rules sections are
required under the partiesâ agreement or by stipulation.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 37
37
App.050
Fees are subject to increase if the amount of a claim or counterclaim is modified
after the initial filing date. Fees are subject to decrease if the amount of a claim
or counterclaim is modified before the first hearing.
The minimum fees for any case having three or more arbitrators are $2,800 for
the Initial Filing Fee, plus a $1,250 Final Fee. Expedited Procedures are applied in
any case where no disclosed claim or counterclaim exceeds $75,000, exclusive of
interest and arbitration costs.
Parties on cases filed under either the Flexible Fee Schedule or the Standard
Fee Schedule that are held in abeyance for one year will be assessed an annual
abeyance fee of $300. A case may only be held in abeyance after the filing fees
have been paid. If a party refuses to pay the assessed fee, the other party or
parties may pay the entire fee on behalf of all parties, otherwise the matter will
be administratively closed.
For more information, please contact your local AAA office, case management
center, or our Customer Service desk at 1-800-778-7879.
(ii) Refund Schedule for Standard Fee Schedule
The AAA offers a refund schedule on filing fees connected with the Standard Fee
Schedule. For cases with claims up to $75,000, a minimum filing fee of $350 will
not be refunded. For all other cases, a minimum fee of $600 will not be refunded.
Subject to the minimum fee requirements, refunds will be calculated as follows:
> 100% of the filing fee, above the minimum fee, will be refunded if the case is
settled or withdrawn within five calendar days of filing.
> 50% of the filing fee, will be refunded if the case is settled or withdrawn between
six and 30 calendar days of filing.
> 25% of the filing fee will be refunded if the case is settled or withdrawn between
31 and 60 calendar days of filing.
No refund will be made once an arbitrator has been appointed (this includes
one arbitrator or a three-arbitrator panel). No refunds will be granted on
awarded cases.
Note: The date of receipt of the demand for arbitration with the AAA will be
used to calculate refunds of filing fees for both claims and counterclaims.
38 RULES AND MEDIATION PROCEDURES American Arbitration Association
38
App.051
(iii) Flexible Fee Schedule
A non-refundable Initial Filing Fee is payable in full by a filing party when a
claim, counterclaim, or additional claim is filed. Upon receipt of the Demand for
Arbitration, the AAA will promptly initiate the case and notify all parties as well as
establish the due date for filing of an Answer, which may include a Counterclaim.
In order to proceed with the further administration of the arbitration and
appointment of the arbitrator(s), the appropriate, non-refundable Proceed Fee
outlined below must be paid.
If a Proceed Fee is not submitted within ninety (90) days of the filing of the
Claimantâs Demand for Arbitration, the Association will administratively close
the file and notify all parties.
No refunds or refund schedule will apply to the Filing or Proceed Fees once
received.
The Flexible Fee Schedule below also may be utilized for the filing of
counterclaims. However, as with the Claimantâs claim, the counterclaim will not
be presented to the arbitrator until the Proceed Fee is paid.
A Final Fee will be incurred for all claims and/or counterclaims that proceed to
their first hearing. This fee will be payable in advance when the first hearing is
scheduled, but will be refunded at the conclusion of the case if no hearings
have occurred. However, if the Association is not notified of a cancellation at
least 24 hours before the time of the scheduled hearing, the Final Fee will remain
due and will not be refunded.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 39
39
App.052
All fees will be billed in accordance with the following schedule:
AMOUNT OF CLAIM INITIAL FILING FEE PROCEED FEE FINAL FEE
Above $0 to $10,000 $400 $475 $200
Above $10,000 to $75,000 $625 $500 $300
Above $75,000 to $150,000 $850 $1,250 $750
Above $150,000 to $300,000 $1,000 $2,125 $1,250
Above to $300,000 to $500,000 $1,500 $3,400 $1,750
Above to $500,000 to $1,000,000 $2,500 $4,500 $2,500
Above $1,000,000 to $5,000,000 $2,500 $6,700 $3,250
Above $5,000,000 to $10,000,000 $3,500 $8,200 $4,000
$10,300 plus .01%
Above $10,000,000 $4,500 of claim amount over $6,000
$10,000,000 up to $65,000
Nonmonetary 1 $2,000 $2,000 $1,250
Collective Action Claims2 $2,000 $2,000 $1,250
Deficient Claim Filing Fee $350
Additional Services3
1
This fee is applicable when a claim or counterclaim is not for a monetary amount. Where a monetary
claim amount is not known, parties will be required to state a range of claims or be subject to a filing
fee of $3,500 and a proceed fee of $8,200.
2
This fee is applicable where a party makes a demand for treatment of a claim, counterclaim, or
additional claim as a collective action arbitration.
3
The AAA reserves the right to assess additional administrative fees for services performed by the
AAA beyond those provided for in these Rules and which may be required by the partiesâ agreement
or stipulation.
40 RULES AND MEDIATION PROCEDURES American Arbitration Association
40
App.053
For more information, please contact your local AAA office, case management
center, or our Customer Service desk at 1-800-778-7879. All fees are subject to
increase if the amount of a claim or counterclaim is modified after the initial filing
date. Fees are subject to decrease if the amount of a claim or counterclaim is
modified before the first hearing.
The minimum fees for any case having three or more arbitrators are $1,000 for
the Initial Filing Fee; $2,125 for the Proceed Fee; and $1,250 for the Final Fee.
Under the Flexible Fee Schedule, a partyâs obligation to pay the Proceed Fee
shall remain in effect regardless of any agreement of the parties to stay,
postpone or otherwise modify the arbitration proceedings. Parties that, through
mutual agreement, have held their case in abeyance for one year will be assessed
an annual abeyance fee of $300. If a party refuses to pay the assessed fee, the
other party or parties may pay the entire fee on behalf of all parties, otherwise
the matter will be closed.
Note: The date of receipt by the AAA of the demand for arbitration will be used
to calculate the ninety (90) day time limit for payment of the Proceed Fee.
There is no Refund Schedule in the Flexible Fee Schedule.
(iv) Hearing Room Rental
The fees described above do not cover the cost of hearing rooms, which are
available on a rental basis. Check with the AAA for availability and rates.
(v) Abeyance Fee
Parties on cases filed under the Standard Fee Schedule that are held in abeyance
for one year will be assessed an annual abeyance fee of $300. A case may only
be held in abeyance after the filing fees have been paid. If a party refuses to pay
the assessed fee, the other party or parties may pay the entire fee on behalf of all
parties, otherwise the matter will be administratively closed.
(vi) Expenses
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne equally by the parties.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 41
41
App.054
For Disputes Proceeding Under the Supplementary Rules for Class
Action Arbitration (âSupplementary Rulesâ):
The AAAâs Administered Fee Schedule, as listed in Section 11 of the
Supplementary Rules for Class Action Arbitration, shall apply to disputes
proceeding under the Supplementary Rules.
Optional Rules for Emergency Measures of Protection
O-1. Applicability
Where parties by special agreement or in their arbitration clause have adopted
these rules for emergency measures of protection, a party in need of emergency
relief prior to the constitution of the panel shall notify the AAA and all other
parties in writing of the nature of the relief sought and the reasons why such
relief is required on an emergency basis. The application shall also set forth the
reasons why the party is entitled to such relief. Such notice may be given by
facsimile transmission, or other reliable means, but must include a statement
certifying that all other parties have been notified or an explanation of the
steps taken in good faith to notify other parties.
O-2. Appointment of Emergency Arbitrator
Within one business day of receipt of notice as provided in Section O-1, the
AAA shall appoint a single emergency arbitrator from a special AAA panel of
emergency arbitrators designated to rule on emergency applications. The
emergency arbitrator shall immediately disclose any circumstance likely, on
the basis of the facts disclosed in the application, to affect such arbitratorâs
impartiality or independence. Any challenge to the appointment of the emergency
arbitrator must be made within one business day of the communication by the
AAA to the parties of the appointment of the emergency arbitrator and the
circumstances disclosed.
O-3. Schedule
The emergency arbitrator shall as soon as possible, but in any event within
two business days of appointment, establish a schedule for consideration of the
application for emergency relief. Such schedule shall provide a reasonable
opportunity to all parties to be heard, but may provide for proceeding by
telephone conference or on written submissions as alternatives to a formal hearing.
42 RULES AND MEDIATION PROCEDURES American Arbitration Association
42
App.055
O-4. Interim Award
If after consideration the emergency arbitrator is satisfied that the party seeking
the emergency relief has shown that immediate and irreparable loss or damage
will result in the absence of emergency relief, and that such party is entitled to
such relief, the emergency arbitrator may enter an interim award granting the
relief and stating the reasons therefore.
O-5. Constitution of the Panel
Any application to modify an interim award of emergency relief must be based
on changed circumstances and may be made to the emergency arbitrator until
the panel is constituted; thereafter such a request shall be addressed to the
panel. The emergency arbitrator shall have no further power to act after the
panel is constituted unless the parties agree that the emergency arbitrator is
named as a member of the panel.
O-6. Security
Any interim award of emergency relief may be conditioned on provision by the
party seeking such relief of appropriate security.
O-7. Special Master
A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with the agreement to arbitrate or a waiver of the
right to arbitrate. If the AAA is directed by a judicial authority to nominate a
special master to consider and report on an application for emergency relief, the
AAA shall proceed as provided in Section O-1 of this article and the references
to the emergency arbitrator shall be read to mean the special master, except that
the special master shall issue a report rather than an interim award.
O-8. Costs
The costs associated with applications for emergency relief shall be apportioned
in the same manner as set forth in the Costs of Arbitration section.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 43
43
App.056
Employment Mediation Procedures
M-1. Agreement of Parties
Whenever, by stipulation or in their contract, the parties have provided for
mediation or conciliation of existing or future disputes under the auspices of the
American Arbitration Association (AAA) or under these procedures, the parties
and their representatives, unless agreed otherwise in writing, shall be deemed to
have made these procedures, as amended and in effect as of the date of filing of
a request for mediation, a part of their agreement and designate the AAA as the
administrator of their mediation.
The parties by mutual agreement may vary any part of these procedures
including, but not limited to, agreeing to conduct the mediation via telephone
or other electronic or technical means.
M-2. Initiation of Mediation
Any party or parties to a dispute may initiate mediation under the AAAâs auspices
by making a Request for Mediation to any of the AAAâs regional offices or case
management centers via telephone, email, regular mail or fax. Requests for
Mediation may also be filed online via AAA WebFile at www.adr.org.
The party initiating the mediation shall simultaneously notify the other party or
parties of the request. The initiating party shall provide the following information
to the AAA and the other party or parties as applicable:
i. A copy of the mediation provision of the partiesâ contract or the partiesâ
stipulation to mediate.
ii. The names, regular mail addresses, email addresses (if available), and telephone
numbers of all parties to the dispute and representatives, if any, in the mediation.
iii. A brief statement of the nature of the dispute and the relief requested.
iv. Any specific qualifications the mediator should possess.
Where there is no preexisting stipulation or contract by which the parties have
provided for mediation of existing or future disputes under the auspices of the
AAA, a party may request the AAA to invite another party to participate in
âmediation by voluntary submissionâ. Upon receipt of such a request, the AAA
will contact the other party or parties involved in the dispute and attempt to
obtain a submission to mediation.
44 RULES AND MEDIATION PROCEDURES American Arbitration Association
44
App.057
M-3. Fixing of Locale (the city, county, state, territory and, if applicable, country of
the mediation)
i. When the partiesâ agreement to mediate is silent with respect to locale and the
parties are unable to agree upon a locale, the AAA shall have the authority to
consider the partiesâ arguments and determine the locale.
ii. When the partiesâ agreement to mediate requires a specific locale, absent the
partiesâ agreement to change it, the locale shall be that specified in the
agreement to mediate.
iii. If the reference to a locale in the agreement to mediate is ambiguous, the
AAA shall have the authority to consider the partiesâ arguments and determine
the locale.
M-4. Representation
Any party may participate without representation (pro-se), or by any representative
of that partyâs choosing, or by counsel, unless such choice is prohibited by
applicable law. A party intending to have representation shall notify the other
party and the AAA of the name, telephone number and address, and email
address if available of the representative.
M-5. Appointment of the Mediator
Parties may search the online profiles of the AAAâs Panel of Mediators at
www.adr.org/mediation in an effort to agree on a mediator. If the parties have
not agreed to the appointment of a mediator and have not provided any other
method of appointment, the mediator shall be appointed in the following manner:
i. Upon receipt of a request for mediation, the AAA will send to each party a list
of mediators from the AAAâs Panel of Mediators. The parties are encouraged to
agree to a mediator from the submitted list and to advise the AAA of their
agreement.
ii. If the parties are unable to agree upon a mediator, each party shall strike
unacceptable names from the list, number the remaining names in order of
preference, and return the list to the AAA. If a party does not return the list within
the time specified, all mediators on the list shall be deemed acceptable to that
party. From among the mediators who have been mutually approved by the
parties, and in accordance with the designated order of mutual preference, the
AAA shall invite a mediator to serve.
iii. If the parties fail to agree on any of the mediators listed, or if acceptable
mediators are unable to serve, or if for any other reason the appointment cannot
be made from the submitted list, the AAA shall have the authority to make the
appointment from among other members of the Panel of Mediators without the
submission of additional lists.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 45
45
App.058
M-6. Mediatorâs Impartiality and Duty to Disclose
AAA mediators are required to abide by the Model Standards of Conduct for
Mediators in effect at the time a mediator is appointed to a case. Where there
is a conflict between the Model Standards and any provision of these Mediation
Procedures, these Mediation Procedures shall govern. The Standards require
mediators to (i) decline a mediation if the mediator cannot conduct it in an
impartial manner, and (ii) disclose, as soon as practicable, all actual and potential
conflicts of interest that are reasonably known to the mediator and could
reasonably be seen as raising a question about the mediatorâs impartiality.
Prior to accepting an appointment, AAA mediators are required to make a
reasonable inquiry to determine whether there are any facts that a reasonable
individual would consider likely to create a potential or actual conflict of interest
for the mediator. AAA mediators are required to disclose any circumstance likely
to create a presumption of bias or prevent a resolution of the partiesâ dispute
within the time-frame desired by the parties. Upon receipt of such disclosures,
the AAA shall immediately communicate the disclosures to the parties for their
comments.
The parties may, upon receiving disclosure of actual or potential conflicts of
interest of the mediator, waive such conflicts and proceed with the mediation.
In the event that a party disagrees as to whether the mediator shall serve, or in
the event that the mediatorâs conflict of interest might reasonably be viewed as
undermining the integrity of the mediation, the mediator shall be replaced.
M-7. Vacancies
If any mediator shall become unwilling or unable to serve, the AAA will appoint
another mediator, unless the parties agree otherwise, in accordance with
section M-5.
M-8. Duties and Responsibilities of the Mediator
i. The mediator shall conduct the mediation based on the principle of party
self-determination. Self-determination is the act of coming to a voluntary,
uncoerced decision in which each party makes free and informed choices as to
process and outcome.
ii. The mediator is authorized to conduct separate or ex parte meetings and other
communications with the parties and/or their representatives, before, during, and
after any scheduled mediation conference. Such communications may be
conducted via telephone, in writing, via email, online, in person or otherwise.
46 RULES AND MEDIATION PROCEDURES American Arbitration Association
46
App.059
iii. The parties are encouraged to exchange all documents pertinent to the relief
requested. The mediator may request the exchange of memoranda on issues,
including the underlying interests and the history of the partiesâ negotiations.
Information that a party wishes to keep confidential may be sent to the mediator,
as necessary, in a separate communication with the mediator.
iv. The mediator does not have the authority to impose a settlement on the parties
but will attempt to help them reach a satisfactory resolution of their dispute.
Subject to the discretion of the mediator, the mediator may make oral or written
recommendations for settlement to a party privately or, if the parties agree, to all
parties jointly.
v. In the event a complete settlement of all or some issues in dispute is not
achieved within the scheduled mediation session(s), the mediator may continue
to communicate with the parties, for a period of time, in an ongoing effort to
facilitate a complete settlement.
vi. The mediator is not a legal representative of any party and has no fiduciary duty
to any party.
vii. The mediator shall set the date, time, and place for each session of the mediation
conference. The parties shall respond to requests for conference dates in a timely
manner, be cooperative in scheduling the earliest practicable date, and adhere
to the established conference schedule. The AAA shall provide notice of the
conference to the parties in advance of the conference date, when timing permits.
M-9. Responsibilities of the Parties
The parties shall ensure that appropriate representatives of each party, having
authority to consummate a settlement, attend the mediation conference.
Prior to and during the scheduled mediation conference session(s) the parties
and their representatives shall, as appropriate to each partyâs circumstances,
exercise their best efforts to prepare for and engage in a meaningful and
productive mediation.
M-10. Privacy
Mediation sessions and related mediation communications are private
proceedings. The parties and their representatives may attend mediation
sessions. Other persons may attend only with the permission of the parties and
with the consent of the mediator.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 47
47
App.060
M-11. Confidentiality
Subject to applicable law or the partiesâ agreement, confidential information
disclosed to a mediator by the parties or by other participants (witnesses) in the
course of the mediation shall not be divulged by the mediator. The mediator
shall maintain the confidentiality of all information obtained in the mediation,
and all records, reports, or other documents received by a mediator while serving
in that capacity shall be confidential.
The mediator shall not be compelled to divulge such records or to testify in
regard to the mediation in any adversary proceeding or judicial forum.
The parties shall maintain the confidentiality of the mediation and shall not rely
on, or introduce as evidence in any arbitral, judicial, or other proceeding the
following, unless agreed to by the parties or required by applicable law:
i. Views expressed or suggestions made by a party or other participant with respect
to a possible settlement of the dispute;
ii. Admissions made by a party or other participant in the course of the mediation
proceedings;
iii. Proposals made or views expressed by the mediator; or
iv. The fact that a party had or had not indicated willingness to accept a proposal
for settlement made by the mediator.
M-12. No Stenographic Record
There shall be no stenographic record of the mediation process.
M-13. Termination of Mediation
The mediation shall be terminated:
i. By the execution of a settlement agreement by the parties; or
ii. By a written or verbal declaration of the mediator to the effect that further efforts
at mediation would not contribute to a resolution of the partiesâ dispute; or
iii. By a written or verbal declaration of all parties to the effect that the mediation
proceedings are terminated; or
iv. When there has been no communication between the mediator and any party
or partyâs representative for 21 days following the conclusion of the mediation
conference.
48 RULES AND MEDIATION PROCEDURES American Arbitration Association
48
App.061
M-14. Exclusion of Liability
Neither the AAA nor any mediator is a necessary party in judicial proceedings
relating to the mediation. Neither the AAA nor any mediator shall be liable to any
party for any error, act or omission in connection with any mediation conducted
under these procedures. Parties to a mediation under these procedures may not
call the mediator, the AAA or AAA employees as a witness in litigation or any
other proceeding relating to the mediation. The mediator, the AAA and AAA
employees are not competent to testify as witnesses in any such proceeding.
M-15. Interpretation and Application of Procedures
The mediator shall interpret and apply these procedures insofar as they relate
to the mediatorâs duties and responsibilities. All other procedures shall be
interpreted and applied by the AAA.
M-16. Deposits
Unless otherwise directed by the mediator, the AAA will require the parties
to deposit in advance of the mediation conference such sums of money as it,
in consultation with the mediator, deems necessary to cover the costs and
expenses of the mediation and shall render an accounting to the parties and
return any unexpended balance at the conclusion of the mediation.
M-17. Expenses
All expenses of the mediation, including required traveling and other expenses
or charges of the mediator, shall be borne equally by the parties unless they
agree otherwise. The expenses of participants for either side shall be paid by
the party requesting the attendance of such participants.
M-18. Cost of the Mediation
There is no filing fee to initiate a mediation or a fee to request the AAA to invite
parties to mediate.
The cost of mediation is based on the hourly or daily mediation rate published
on the mediatorâs AAA profile. This rate covers both mediator compensation
and an allocated portion for the AAAâs services. There is a four-hour or one
half-day minimum charge for a mediation conference. Expenses referenced in
Section M-17 may also apply.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 49
49
App.062
If a matter submitted for mediation is withdrawn or cancelled or results in a
settlement after the request to initiate mediation is filed but prior to the
mediation conference the cost is $200 plus any mediator time and charges
incurred. These costs shall be borne by the initiating party unless the parties
agree otherwise.
If you have questions about mediation costs or services visit
www.adr.org/mediation or contact your local AAA office.
50 RULES AND MEDIATION PROCEDURES American Arbitration Association
50
App.063
© 2013 American Arbitration Association, Inc. All rights reserved. These Rules are the copyrighted property of the
American Arbitration Association (AAA) and are intended to be used in conjunction with the AAAâs administrative services.
Any unauthorized use or modification of these Rules may violate copyright laws and other applicable laws.
Please contact 800.778.7879 or websitemail@adr.org for additional information.
51
App.064
Regional Vice Presidents and Directors
States: Delaware, District of Columbia, Maryland, States: Alaska, Arizona, California, Colorado,
New Jersey, Pennsylvania, West Virginia Hawaii, Idaho, Montana, Nevada, Oregon, Utah,
Kenneth Egger Washington, Wyoming
Vice President John English
Phone: 215.731.2281 Vice President
Email: EggerK@adr.org Phone: 619.239.3051
Email: EnglishJ@adr.org
States: Connecticut, Maine, Massachusetts,
New Hampshire, New York, Vermont States: Rhode Island
Ann Lesser, Esq. Heather Santo
Vice President Director
Phone: 212.484.4084 Phone: 866.293.4053
Email: LesserA@adr.org Email: SantoH@adr.org
States: Alabama, Arkansas, Florida, Georgia, States: Louisiana, New Mexico, Oklahoma, Texas
Mississippi, North Carolina, South Carolina, Molly Bargenquest
Virginia Vice President
Charles Dorsey Phone: 972.702.8222
Director Email: BargenquestM@adr.org
Phone: 866.686.6024
Email: DorseyC@adr.org
States: Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska,
North Dakota, Ohio, South Dakota, Tennessee,
Wisconsin
Jan Holdinski
Vice President
Phone: 248.352.5509
Email: HoldinskiJ@adr.org
Case Management Vice Presidents and Directors
Molly Bargenquest Charles Dorsey
Vice President Director
Phone: 972.702.8222 Phone: 866.686.6024
Email: BargenquestM@adr.org Email: DorseyC@adr.org
Administers cases in AR, IL, IA, KS, LA, MN, Administers cases in FL, GA
MS, MO, NE, ND, OK, SD, TX, WI
Heather Santo
Patrick Tatum Director
Director Phone: 866.293.4053
Phone: 559.490.1905 Email: SantoH@adr.org
Email: TatumP@adr.org Administers cases in AL, CT, DC, DE,
Administers cases in AK, AZ, CA, CO, HI, ID, IN, KY, MA, MD, ME, MI, NC, NH, NJ,
MT, NV, NM, OR, UT, WA, WY NY, OH, PA, RI, SC, TN, VA, VT, WV
800.778.7879 | websitemail@adr.org | adr.org
52
App.065
EXHIBIT F
§ 171.001. Arbitration Agreements Valid, TX CIV PRAC & REM§ 171.001
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annas)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annas)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annas)
V.T.C.A., Civil Practice & Remedies Code § 171.001
§ 171.001. Arbitration Agreements Valid
Currentness
(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that:
(I) exists at the time of the agreement; or
(2) arises between the parties after the date of the agreement.
(b) A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.
Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. I, 1997.
Notes of Decisions (636)
V. T. C. A., Civil Practice & Remedies Code§ 171.001, TX CIV PRAC & REM§ 171.001
Current through the end of the 2013 Third Called Session of the 83rd Legislature
Next ' l âą I J 111 ) "\
App.066
§ 171.021. Proceeding to Compel Arbitration, TX CIV PRAC & REM § 171.021
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code§ 171.021
§ 171.021. Proceeding to Compel Arbitration
Currentness
(a) A court shall order the parties to arbitrate on application of a party showing:
(I) an agreement to arbitrate; and
(2) the opposing party's refusal to arbitrate.
(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily
determine that issue. The court shall order the arbitration if it finds for the party that made the application. If the court does
not find for that party, the court shall deny the application.
(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (138)
V. T . C. A., Civil Practice & Remedies Code§ 171.021, TX CIV PRAC & REM§ 171.021
Current through the end of the 2013 Third Called Session of the 83rd Legislature
Cnd ,,r Oonun<:ut
Next I I , t .. II, 1 IJ VG 11
App.067
§ 171.025. Stay of Related Proceeding, TX CIV PRAC & REM§ 171.025
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code§ 171.025
§ 171.025. Stay of Related Proceeding
Currentness
(a) The court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an application
for that order is made under this subchapter.
(b) The stay applies only to the issue subject to arbitration if that issue is severable from the remainder of the proceeding,
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (5)
V. T. C. A., Civil Practice & Remedies Code§ 171.025, TX CIV PRAC & REM§ 171.025
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of l)ocnnwut
tJ S. Govemrnont VVorks
App.068
, ..
E-FILED
20 14CVO 1064 Bexar County, County Clerk
Gerard Rickhoff
Accepted Date:11/10/2014 9:10:58 AM
CAUSE NO. 2014CV01064 Accepted By: Leticia Silva
Leticia Silva
PAULA BAZAN-GARCIA, § IN THE COUNTY COUR'Peputy Clerk
§
Pli!intiff. §
§
v. § ATLAWN0.03
§
WESTERN RIM PROPERTY SERVICES, §
nNC. §
§
Defendant § BEXAR COUNI'YJ TEXAS
OROER OONCERNÂŁNG DEFENDANT'S MOTION TO COMPID.tARBITRATlON
AND MOT!ON FQR PROTJ}CTIYI.:; .ORDER
On this the 61h day of November 2014 <;ame to be he!l!d Defendant's Motion to Compel
Arbitration and M~tion for P.totectlve Otder. The Court having considered the Motions :md all
applicable 11rB'lments, case law and evidence is of the opinion thl\t the arbitxation policy contained in
Defendant's dispute tesolution policy is unconscionable and unenf().J:ceab1e.
1T IS THEREFORE ORDERED, ADJUDGED AND DECREED that Defendant's
Motion ro Compel Arbitration is heteby in all t:h.ings DENIED.
lT IS FURTI-IER ORDERED, ADJUDGED AND DECREED that Defendant's Motion
/f
for P1ote<:.tive O.tdet is heJ:eby in all things DENIED. /
SIGNED 2nd ENTERED this ~day of~___./.,...-;~~__;;;,0"'
1
___ ..-J 2014.
BON. JUDGE PRESIDING
APPROVED AS 'I'O FORM:
13
Submit Date:11/10/2014 9:09:08 AM
App.001
....
JOSUE F.
Espinoza Law Firm, PLLC
Atto1ueys fo.t: Plaintiff
503 E. R:unsey, Ste. 103
San An xas 7B216
JENNIFER . LJ~CUb"CCvnÂ
STEP~F.CAGNIART
98 Slm J~clnto 'Boulev:ud. Suite 1500
Austin, Texas 78701-4078
14
App.002
1111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure. ·
If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem. ·
5. Employee presents problem to the President in writing.
83
App.012
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.
84
App.013
Employment Arbitration Rules and Mediation Procedures
1. Applicable Rules of Arbitration
The parties shall be deemed to have made these rules a part of their arbitration
agreement whenever they have provided for arbitration by the American
Arbitration Association (hereinafter âAAAâ) or under its Employment Arbitration
Rules and Mediation Procedures or for arbitration by the AAA of an employment
dispute without specifying particular rules*. If a party establishes that an adverse
material inconsistency exists between the arbitration agreement and these rules,
the arbitrator shall apply these rules.
If, within 30 days after the AAAâs commencement of administration, a party
seeks judicial intervention with respect to a pending arbitration and provides the
AAA with documentation that judicial intervention has been sought, the AAA
will suspend administration for 60 days to permit the party to obtain a stay of
arbitration from the court.These rules, and any amendment of them, shall apply
in the form in effect at the time the demand for arbitration or submission is
received by the AAA.
*
The National Rules for the Resolution of Employment Disputes have been re-named the Employment Arbitration
Rules and Mediation Procedures. Any arbitration agreements providing for arbitration under its National Rules for
the Resolution of Employment Disputes shall be administered pursuant to these Employment Arbitration Rules and
Mediation Procedures.
2. Notification
An employer intending to incorporate these rules or to refer to the dispute
resolution services of the AAA in an employment ADR plan, shall, at least 30 days
prior to the planned effective date of the program:
a. notify the Association of its intention to do so and,
b. provide the Association with a copy of the employment dispute resolution plan.
Compliance with this requirement shall not preclude an arbitrator from
entertaining challenges as provided in Section 1. If an employer does not
comply with this requirement, the Association reserves the right to decline its
administrative services.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 15
App.028
ARBITRATION AGREEMENT
lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty _
(20) days prior written notice:
Each party to arbitration shall be entitled to tab only one deposition. Any arbitration _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.
N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.
BY:
App.003
(2) Simultaneously shall send a copy of any counterclaim to the Claimant.
(3) Shall include with its filing the applicable filing fee provided for by these rules.
(iv) The Claimant may file an Answer to the counterclaim with the AAA within
15 days after the date of the letter from the AAA acknowledging receipt of
the counterclaim. The Answer shall provide Claimantâs brief response to the
counterclaim and the issues presented. The Claimant shall make its filing in
duplicate with the AAA, and simultaneously shall send a copy of the Answer to
the Respondent(s). If no answering statement is filed within the stated time,
Claimant will be deemed to deny the counterclaim. Failure to file an answering
statement shall not operate to delay the arbitration.
c. The form of any filing in these rules shall not be subject to technical pleading
requirements.
5. Changes of Claim
Before the appointment of the arbitrator, if either party desires to offer a new or
different claim or counterclaim, such party must do so in writing by filing a written
statement with the AAA and simultaneously provide a copy to the other party(s),
who shall have 15 days from the date of such transmittal within which to file an
answer with the AAA. After the appointment of the arbitrator, a party may offer
a new or different claim or counterclaim only at the discretion of the arbitrator.
6. Jurisdiction
a. The arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope or validity of the arbitration
agreement.
b. The arbitrator shall have the power to determine the existence or validity of a contract
of which an arbitration clause forms a part. Such an arbitration clause shall be treated
as an agreement independent of the other terms of the contract. A decision by the
arbitrator that the contract is null and void shall not for that reason alone render
invalid the arbitration clause.
c. A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
claim or counterclaim no later than the filing of the answering statement to the claim
or counterclaim that gives rise to the objection. The arbitrator may rule on such
objections as a preliminary matter or as part of the final award.
7. Administrative and Mediation Conferences
Before the appointment of the arbitrator, any party may request, or the AAA, in
its discretion, may schedule an administrative conference with a representative
of the AAA and the parties and/or their representatives. The purpose of the
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 17
App.030
ARBITRATION AGREEMENT
lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty _
(20) days prior written notice:
Each party to arbitration shall be entitled to tab only one deposition. Any arbitration _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.
N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.
BY:
App.003
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP
EM'LOYEE ACKNOWLEDGEMENT FORM
Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.
I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.
Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..
Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.
EMPLOYEE'S NAME (printed~/a Q.J~::DZEtJ.:·~a._y ("~---Â
eMPLOYEE'S SlGNAnJR~(}, t;)~ ~
DATE,~ 1Q,'ZclL_____
App.004
WR
p s
Employee Handbook
WRPS,LP
10/01/2011
App.005
IIIli
1111
WRPSI LP
Table of Contents
No. Polley Effective Revision Page
Date: J2!!!i
INTRODUCTION
020 Employee Welcome Message 1211/1999 11112006 1
030 Organization Description 1211/1999 1/1/2006 2
040 Introductory Statement 12/111999 1/1/2006 3
051 Employee Acknowledgement Form 121111999 1/112006 4
EMPLOYMENI'
101 Nature of Employment 1211/1999 1/1/2000 5
102 Employee Relations 1211/1999 1/1/2006 6
103 Equal Employment Opportunity 12/1/1999 111/2006 7
104 Business Ethics and Conduct 12/1/1999 111/2006 8
107 Immigration Law Compliance 12/1/1999 11112000 9
108 Conflicts oflnterest 12/111999 1/112006 10
110 Outside Employment 12/111999 1/112006 11
112 Non-Disclosure 12/1/1999 1/1/2006 12
114 Disability Accommodation 12/1/1999 1/112006 13
180 Personal Relationships in the Workplace 11/19/2004 1/1/2006 14
EMPLOYMENT STATUS & RECORDS
201 Employment Categories 12/1/1999 1/1/2006 16
202 Access to Personnel Files 12/1/1999 111/2006 18
203 Employment Reference Checks 12/1/1999 1/1/2000 19
204 Personnel Data Changes 12/111999 111/2006 20
205 Introductory Period 12/1/1999 1/1/2006 21
208 Employment Applications 12/111999 1/1/2006 22
209 Perfonnan.ce Evaluation 1211/1999 1/1/2006 23
210 Job Descriptions 12/1/1999 1/1/2006 24
280 Confidentiality of Salary 12/111999 1/1/2006 25
EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits 12/1/1999 1/112006 26
303 Vacation Benefits 12/1/1999 10/1/2009 27
304. Child Care Benefits 12/1/1999 111/2006 29
305 Holidays 12/111999 1/1/2006 30
App.006
WRPS, LP
307 Sick Leave Benefits 12/l/1999 10/1/2009 31
308 Time Off to Vote 12/1/1999 1/1/2006 33
309 Bereavement Leave 12/111999 1/112006 34
310 Relocation Benefits 12/1/1999 1/1/2006 35
311 Jury Duty 12/1/1999 1/112006 36
312 Witness Duty 12/111999 1/1/2006 37
313 Benefits Continuation (COBRA) 12/1/1999 1/1/2006 38
314 Educational Assistance 1211/1999 1/112006 39
316 Health Insurance 12/1/1999 1/112006 40
317 Life Insurance 12/1/1999 1/1/2006 41
320 401 (k) Savings Plan 12/1/1999 111/2006 42
326 Flexible Spending Account (FSA) 12/1/1999 1/1/2006 43
328 Partnership Participation Units 1211/1999 1/1/2006 44
330 Annual Incentive Trip 12/1/1999 1/112006 45
TIMEKEEPING/PAYR.OLL
401 Timekeeping 12/1/1999 1/1/2000 46
403 Paydays 12/1/1999 1/1/2000 47
405 Employment Termination 12/111999 1/112006 48
407 Severance Pay 12/1/1999 1/1/2006 49
409 Administrative Pay Corrections 12/111999 1/1/2006 so
410 Pay Deductions and Setoffs 12/111999 111/2006 Sl
WORK CONDITIONS & HOURS
502 Work Schedules 1211/1999 1/1/2006 52
504 Use of Phone and Mail Systems 12/1/1999 1/1/2006 53
505 Smoking 12/1/1999 111/2006 54
506 Rest and Meal Periods 12/1/1999 1/1/2006 55
507 Overtime 121111999 1/1/2006 56
512 Business Travel Expenses 12/111999 1/1/2009 57
514 Visitors in the Workplace 121111999 1/1/2006 58
516 Computer and Email Usage 12/1/1999 1/112006 60
517 Internet Usage 1211/1999 111/2006 61
522 Workplace Violence Prevention 1211/1999 l/1/2006 63
526 Cell Phone Usage 12/111999 11112006 65
LEAVES OF ABSENCE
60 l Medical Leave 1211/1999 1/1/2006 66
App.007
WRPS., LP
602 Family Leave 12/1/1999 1/1/2006 68
605 Military Leave 1/1/2006 111/2000 70
EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules 12/1/1999 111/2006 71
702 Drug and Alcohol Use 1211/1999 111/2000 73
703 Sexual and Other Unlawful Harassment 12/1/1999 111/2006 74
704 Attendance and Punctuality 12/1/1999 11112000 76
705 Personal Appearance 12/1/1999 1/1/2000 77
706 Return of Property 12/1/1999 1/112000 78
708 Resignation 12/1/1999 1/1/2000 79
714 Drug Testing 12/1/1999 1/1/2006 80
716 Progressive Discipline 12/1/1999 1/1/2006 81
718 Problem Resolution 12/111999 111/2006 83
720 Casual Days 12/1/1999 1/1/2006 85
MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace 12/1/1999 111/2006 87
806 Suggestion Program 12/1/1999 111/2006 88
App.008
WRPS,LP
WRPS,LP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.
We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.
We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
App.009
1111
1111
WRPS,LP
WRPS,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
App.010
II
WRPS,LP
WRPS,LP
INTRODUCTORY STATEMENT
This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.
3
App.011
1111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure. ·
If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem. ·
5. Employee presents problem to the President in writing.
83
App.012
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.
84
App.013
n. the extent to which documentary evidence may be submitted at the hearing;
o. the extent to which testimony may be admitted at the hearing telephonically, over the
internet, by written or video-taped deposition, by affidavit, or by any other means;
p. any disputes over the AAAâs determination regarding whether the dispute arose
from an individually-negotiated employment agreement or contract, or from an
employer-promulgated plan (see Costs of Arbitration section).
The arbitrator shall issue oral or written orders reflecting his or her decision on the
above matters and may conduct additional conferences when the need arises.
There is no AAA administrative fee for an Arbitration Management Conference.
9. Discovery
The arbitrator shall have the authority to order such discovery, by way of
deposition, interrogatory, document production, or otherwise, as the arbitrator
considers necessary to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.
The AAA does not require notice of discovery related matters and
communications unless a dispute arises. At that time, the parties should notify
the AAA of the dispute so that it may be presented to the arbitrator for
determination.
10. Fixing of Locale (the city, county, state, territory, and/or country of the
Arbitration)
If the parties disagree as to the locale, the AAA may initially determine the place
of arbitration, subject to the power of the arbitrator(s), after their appointment to
make a final determination on the locale. All such determinations shall be made
having regard for the contentions of the parties and the circumstances of the
arbitration.
11. Date, Time and Place (the physical site of the hearing within the designated
locale) of Hearing
The arbitrator shall set the date, time, and place for each hearing. The parties
shall respond to requests for hearing dates in a timely manner, be cooperative in
scheduling the earliest practicable date, and adhere to the established hearing
schedule. The AAA shall send a notice of hearing to the parties at least 10 days
in advance of the hearing date, unless otherwise agreed by the parties.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 19
App.032
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP
EM'LOYEE ACKNOWLEDGEMENT FORM
Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.
I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.
Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..
Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.
EMPLOYEE'S NAME (printed~/a Q.J~::DZEtJ.:·~a._y ("~---Â
eMPLOYEE'S SlGNAnJR~(}, t;)~ ~
DATE,~ 1Q,'ZclL_____
App.004
d. Parties to an arbitration under these rules shall be deemed to have consented
that neither the AAA nor any arbitrator shall be liable to any party in any action for
damages or injunctive relief for any act or omission in connection with any arbitration
under these rules.
43. Administrative Fees
As a not-for-profit organization, the AAA shall prescribe filing and other
administrative fees to compensate it for the cost of providing administrative
services. The AAA administrative fee schedule in effect at the time the demand
for arbitration or submission agreement is received shall be applicable.
AAA fees shall be paid in accordance with the Costs of Arbitration Section
(see page 33-43).
The AAA may, in the event of extreme hardship on any party, defer or reduce the
administrative fees. (To ensure that you have the most current information, see
our website at www.adr.org).
44. Neutral Arbitratorâs Compensation
Arbitrators shall charge a rate consistent with the arbitratorâs stated rate of
compensation. If there is disagreement concerning the terms of compensation,
an appropriate rate shall be established with the arbitrator by the AAA and
confirmed to the parties.
Any arrangement for the compensation of a neutral arbitrator shall be made
through the AAA and not directly between the parties and the arbitrator.
Payment of the arbitratorâs fees and expenses shall be made by the AAA from
the fees and moneys collected by the AAA for this purpose.
Arbitrator compensation shall be borne in accordance with the Costs of
Arbitration section.
45. Expenses
Unless otherwise agreed by the parties or as provided under applicable law, the
expenses of witnesses for either side shall be borne by the party producing such
witnesses.
30 RULES AND MEDIATION PROCEDURES American Arbitration Association
App.043
For Disputes Arising Out of Employer-Promulgated Plans*:
Arbitrator compensation is not included as part of the administrative fees charged
by the AAA. Arbitrator compensation is based on the most recent biography
sent to the parties prior to appointment. The employer shall pay the arbitratorâs
compensation unless the employee, post dispute, voluntarily elects to pay a
portion of the arbitratorâs compensation. Arbitrator compensation, expenses as
defined in section (iv) below, and administrative fees are not subject to reallocation
by the arbitrator(s) except upon the arbitratorâs determination that a claim or
counterclaim was filed for purposes of harassment or is patently frivolous.
*
Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
fees. (Effective January 1, 2003.)
A party making a demand for treatment of a claim, counterclaim, or additional
claim as a collective action arbitration will be subject to the administrative
fees as outlined in the standard and flexible fee schedules below. Arbitrator
compensation is not included as a part of the administrative fees charged by
the AAA. Arbitrator compensation in cases involving a collective action claim
will be charged in accordance with the determination as to whether the dispute
arises from an employer-promulgated plan or an individually negotiated
employment agreement or contract.
(i) Filing Fees
Cases Filed by Employee Against Employer
In cases before a single arbitrator, a non-refundable filing fee capped in the
amount of $200 is payable in full by the employee when a claim is filed, unless
the plan provides that the employee pay less. A non-refundable fee in the
amount of $1350 is payable in full by the employer, unless the plan provides
that the employer pay more.
In cases before three or more arbitrators, a non-refundable filing fee capped
in the amount of $200 is payable in full by the employee when a claim is filed,
unless the plan provides that the employee pay less. A non-refundable fee in
the amount of $1,800 is payable in full by the employer, unless the plan provides
that the employer pay more.
32 RULES AND MEDIATION PROCEDURES American Arbitration Association
App.045
For Disputes Arising Out of Employer-Promulgated Plans*:
Arbitrator compensation is not included as part of the administrative fees charged
by the AAA. Arbitrator compensation is based on the most recent biography
sent to the parties prior to appointment. The employer shall pay the arbitratorâs
compensation unless the employee, post dispute, voluntarily elects to pay a
portion of the arbitratorâs compensation. Arbitrator compensation, expenses as
defined in section (iv) below, and administrative fees are not subject to reallocation
by the arbitrator(s) except upon the arbitratorâs determination that a claim or
counterclaim was filed for purposes of harassment or is patently frivolous.
*
Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
fees. (Effective January 1, 2003.)
A party making a demand for treatment of a claim, counterclaim, or additional
claim as a collective action arbitration will be subject to the administrative
fees as outlined in the standard and flexible fee schedules below. Arbitrator
compensation is not included as a part of the administrative fees charged by
the AAA. Arbitrator compensation in cases involving a collective action claim
will be charged in accordance with the determination as to whether the dispute
arises from an employer-promulgated plan or an individually negotiated
employment agreement or contract.
(i) Filing Fees
Cases Filed by Employee Against Employer
In cases before a single arbitrator, a non-refundable filing fee capped in the
amount of $200 is payable in full by the employee when a claim is filed, unless
the plan provides that the employee pay less. A non-refundable fee in the
amount of $1350 is payable in full by the employer, unless the plan provides
that the employer pay more.
In cases before three or more arbitrators, a non-refundable filing fee capped
in the amount of $200 is payable in full by the employee when a claim is filed,
unless the plan provides that the employee pay less. A non-refundable fee in
the amount of $1,800 is payable in full by the employer, unless the plan provides
that the employer pay more.
32 RULES AND MEDIATION PROCEDURES American Arbitration Association
App.045
The employerâs share is due as soon as the employee meets his or her filing
requirements, even if the matter settles.
There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually negotiated
employment agreements.
The above fee schedule will also apply where the employer files on behalf of
the employee pursuant to the terms of the employer promulgated plan.
Cases Filed by Employer Against Employee
In cases before a single arbitrator, a non-refundable fee in the amount of $1,550
is payable in full by the employer.
In cases before three or more arbitrators, a non-refundable fee in the amount
of $2,000 is payable in full by the employer.
There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually-negotiated
employment agreements.
(ii) Hearing Fees
For each day of hearing held before a single arbitrator, an administrative fee of
$350 is payable by the employer.
For each day of hearing held before a multi-arbitrator panel, an administrative
fee of $500 is payable by the employer.
There is no AAA hearing fee for the initial Arbitration Management Conference.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 33
App.046
(iii) Postponement/Cancellation Fees
A fee of $150 is payable by a party causing a postponement of any hearing
scheduled before a single arbitrator.
A fee of $250 is payable by a party causing a postponement of any hearing
scheduled before a multi-arbitrator panel.
(iv) Hearing Room Rental
The hearing fees described above do not cover the rental of hearing rooms.
The AAA maintains hearing rooms in most offices for the convenience of the
parties. Check with the administrator for availability and rates. Hearing room
rental fees will be borne by the employer.
(v) Abeyance Fee
Parties on cases held in abeyance for one year will be assessed an annual
abeyance fee of $300. A case may only be held in abeyance after the initial filing
fees have been paid. If a party refuses to pay the assessed fee, the other party
or parties may pay the entire fee on behalf of all parties, otherwise the matter
will be administratively closed.
(vi) Expenses
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne by the employer.
For Disputes Arising Out of Individually-Negotiated Employment
Agreements and Contracts:
The AAAâs Fee Schedule, as modified below, will apply to disputes arising out
of individually-negotiated employment agreements and contracts, even if such
agreements and contracts reference or incorporate an employer-promulgated
plan. Arbitrator compensation is not included as part of the administrative fees
charged by the AAA. Arbitrator compensation is based on the most recent
biography sent to the parties prior to appointment.
34 RULES AND MEDIATION PROCEDURES American Arbitration Association
App.047
(iii) Postponement/Cancellation Fees
A fee of $150 is payable by a party causing a postponement of any hearing
scheduled before a single arbitrator.
A fee of $250 is payable by a party causing a postponement of any hearing
scheduled before a multi-arbitrator panel.
(iv) Hearing Room Rental
The hearing fees described above do not cover the rental of hearing rooms.
The AAA maintains hearing rooms in most offices for the convenience of the
parties. Check with the administrator for availability and rates. Hearing room
rental fees will be borne by the employer.
(v) Abeyance Fee
Parties on cases held in abeyance for one year will be assessed an annual
abeyance fee of $300. A case may only be held in abeyance after the initial filing
fees have been paid. If a party refuses to pay the assessed fee, the other party
or parties may pay the entire fee on behalf of all parties, otherwise the matter
will be administratively closed.
(vi) Expenses
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne by the employer.
For Disputes Arising Out of Individually-Negotiated Employment
Agreements and Contracts:
The AAAâs Fee Schedule, as modified below, will apply to disputes arising out
of individually-negotiated employment agreements and contracts, even if such
agreements and contracts reference or incorporate an employer-promulgated
plan. Arbitrator compensation is not included as part of the administrative fees
charged by the AAA. Arbitrator compensation is based on the most recent
biography sent to the parties prior to appointment.
34 RULES AND MEDIATION PROCEDURES American Arbitration Association
App.047
§ 171.001. Arbitration Agreements Valid, TX CIV PRAC & REM § 171.001
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.001
§ 171.001. Arbitration Agreements Valid
Currentness
(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that:
(1) exists at the time of the agreement; or
(2) arises between the parties after the date of the agreement.
(b) A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.
Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (636)
V. T. C. A., Civil Practice & Remedies Code § 171.001, TX CIV PRAC & REM § 171.001
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
App.066
§ 171.021. Proceeding to Compel Arbitration, TX CIV PRAC & REM § 171.021
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.021
§ 171.021. Proceeding to Compel Arbitration
Currentness
(a) A court shall order the parties to arbitrate on application of a party showing:
(1) an agreement to arbitrate; and
(2) the opposing party's refusal to arbitrate.
(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily
determine that issue. The court shall order the arbitration if it finds for the party that made the application. If the court does
not find for that party, the court shall deny the application.
(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (138)
V. T. C. A., Civil Practice & Remedies Code § 171.021, TX CIV PRAC & REM § 171.021
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
App.067
§ 171.025. Stay of Related Proceeding, TX CIV PRAC & REM § 171.025
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.025
§ 171.025. Stay of Related Proceeding
Currentness
(a) The court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an application
for that order is made under this subchapter.
(b) The stay applies only to the issue subject to arbitration if that issue is severable from the remainder of the proceeding.
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (5)
V. T. C. A., Civil Practice & Remedies Code § 171.025, TX CIV PRAC & REM § 171.025
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
App.068
WRPS,LP
WRPS,LP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.
We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.
We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
App.009
1111
1111
WRPS,LP
WRPS,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
App.010
II
WRPS,LP
WRPS,LP
INTRODUCTORY STATEMENT
This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.
3
App.011
1111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure. ·
If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem. ·
5. Employee presents problem to the President in writing.
83
App.012
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.
84
App.013
10. Throughout Plaintiff's employment with Defendant, Plaintiff consistendy was told
she was doing a good job. Plaintiff seldom--if ever--received any negative evaluations. Plaintiff was
never written up for any serious violations while employed by Defendant.
11. Plaintiff had a good attendance record until March 20, 2013, when she suffered an
on-the-job injury. Plaintiff promptly notified her supervisor of her injury and upon information and
belief, a workers' compensation claim was flied.
12. On or about June 4, 2013, Plaintiff was prohibited from working by her doctor as a
result of the injury she sustained while working in the course and scope of her employment.
Because Plaintiff was being taken off work pending surgery, in addition to being prohibited ftom
working by her doctor, Plaintiff requested to take FMLA leave and submitted the paperwork to
Defendant's corporate office.
13. Plaintiff was released to return to work on light duty on or about August 19, 2013;
however, Plaintiff was prohibited from working by Defendant, who clain1ed to not have any light
duty positions.
14. On or about October 22, 2013, soon after Plaintiff was released on full duty,
Defendant terminated Plaintiff for a pre-textual reason.
15. As a result of her discharge and the company's continuing refusal to reinstate her,
Plaintiff has suffered substantial economic losses and severe mental anguish, and she will continue
to suffer such losses in the future.
WORKERS' COMPENSATION RETALIATION
16. Plaintiff incorporates by reference the allegations contained in paragraphs 1 through
16 as if those allegations were set forth verbatim.
17. Plaintiff alleges that Defendant, violated Section 451.001 of the Texas Labor Code
by discharging Plaintiff because she notified her employer of her on-the-job injury and/ or initiated
the filing of a workers' compensation claim in good faith, and by not reinstating her.
0R1G1NAL PF.m'l'ION AND RP.QUES'l' l'OR DISCLOSURP. PAGE3
11
18. Plaintiff seeks the maximum damages allowed by Section 451.002 of the Texas Labor
Code and at common law.
19. Plaintiffs injuries resulted from Defendant's fraud and/or malice as set forth in Tex.
Civ. Prac. & Rem. Code§ 41.001 et seq. Accordingly, Plaintiff is entitled to an award of exemplary
damages in accordance with Texas law.
FAMILY MEDICAL LEAVE ACT VIOLATION
20. Pleading in the alternative and without waiving the foregoing, Plaintiff rellages the
allegations contained in Paragraphs 1 through 20 as if fully stated herein.
21. Plaintiff has satisfied all jurisdictional prerequisites in connection with her claitn
under the Family Medical Leave Act ("F.MI.A"), 29 U.S. C. §§ 2601 ct. seq.
22. Defendant is an "employer" as defmed by the FMLA in 29 U.S.C. § 2611 (4).
23. During the titne that Plaintiff was employed by Defendant, she was an "eligible
employee" as defmed by the FMLA in 29 U.S.C. § 2611 (2).
24. While Plaintiff was employed by Defendant, Plaintiff had an illness that can be
defined as a "serious health condition" under the FMLA as outlined in 29 U.S. C. § 2611 (11).
25. Plaintiff was entitled to medical leave for her serious health condition as provided for
in the FMLA (in 29 U.S.C. § 2612(a)(1)(C)) without fear of retaliation.
26. Plaintiff attempted to exercise her FMLA rights and Defendant illegititnately
interference and denied Plaintiffs right to exercise her FMLA rights.
27. Tn d1e alternative and without waving the foregoing, Plaintiff alleges that Defendant
terminated Plaintiff in retaliation for invoking her FMLA rights. PL'lintiff suffered an adverse
employment action as a result of her termination by Defendant.
0RTGTNAT. PmTflON AND REQUESl'l'OR DISCLOSURE PAGE4
150
E-FILED
Bexar County, County Clerk
Gerard Rickhoff
Accepted Date:10/16/2014 8:08:46 AM
Accepted By: Marylou Gaylord
CAUSE NO. 2014CV01064
Deputy Clerk
PAULA BAZAN-GARCIA, § IN THE COUNTY COURT
§
Plaintiff, §
§
vs. § AT LAW NO. CC# 03
§
WESTERN RJM PROPERTY §
SERVICES INC., §
§
Defendant. § BEXAR COUNTY, TEXAS
DEFENDANT WESTERN RIM PROPERTY SERVICES. INC.'S
MOTION TO COMPEL ARBITRATION
I. SUMMARY OF THE ARGUMENT
When Plaintiff Paula Bazan-Garcia ("Bazan-Garcia") accepted employment with
WRPS III, LP ("WRPS"), she agreed to arbitrate any future dispute with WRPS related to her
employment, including a claim for wrongful termination. In addition, Bazan-Garcia agreed that
the arbitrator-not the court-would have authority to resolve any controversy over whether a
particular dispute is subject to arbitration. Despite this, Bazan-Garcia has filed a lawsuit against
WRPS alleging that she was wrongfully terminated, and has refused to submit her claim to
arbitration. Bazan-Garcia's claim falls within the scope of the parties' valid arbitration
agreement, and any challenge to the arbitrability of the dispute must be decided by the arbitrator.
WRPS therefore respectfully requests that this Court compel arbitration, and abate and stay this
lawsuit until the arbitration proceeding is complete.
II. FACTUAL BACKGROUND
Paula Bazan-Garcia worked as a housekeeper for WRPS from September 26,
2011 until October 22, 2013. Aff. at~ 2. As an at-will employee, Bazan-Garcia agreed to,
signed, and submitted multiple fonns to WRPS. Aff. ~ 3. These fonns included an Arbitration
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Paget
16
Submit Date:10/15/2014 4:03:13 PM
E-FILED
Bexar County, County Clerk
Gerard Rickhoff
Accepted Date:10/16/2014 8:08:46 AM
Accepted By: Marylou Gaylord
CAUSE NO. 2014CV01064
Deputy Clerk
PAULA BAZAN-GARCIA, § IN THE COUNTY COURT
§
Plaintiff, §
§
vs. § AT LAW NO. CC# 03
§
WESTERN RJM PROPERTY §
SERVICES INC., §
§
Defendant. § BEXAR COUNTY, TEXAS
DEFENDANT WESTERN RIM PROPERTY SERVICES. INC.'S
MOTION TO COMPEL ARBITRATION
I. SUMMARY OF THE ARGUMENT
When Plaintiff Paula Bazan-Garcia ("Bazan-Garcia") accepted employment with
WRPS III, LP ("WRPS"), she agreed to arbitrate any future dispute with WRPS related to her
employment, including a claim for wrongful termination. In addition, Bazan-Garcia agreed that
the arbitrator-not the court-would have authority to resolve any controversy over whether a
particular dispute is subject to arbitration. Despite this, Bazan-Garcia has filed a lawsuit against
WRPS alleging that she was wrongfully terminated, and has refused to submit her claim to
arbitration. Bazan-Garcia's claim falls within the scope of the parties' valid arbitration
agreement, and any challenge to the arbitrability of the dispute must be decided by the arbitrator.
WRPS therefore respectfully requests that this Court compel arbitration, and abate and stay this
lawsuit until the arbitration proceeding is complete.
II. FACTUAL BACKGROUND
Paula Bazan-Garcia worked as a housekeeper for WRPS from September 26,
2011 until October 22, 2013. Aff. at~ 2. As an at-will employee, Bazan-Garcia agreed to,
signed, and submitted multiple fonns to WRPS. Aff. ~ 3. These fonns included an Arbitration
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Paget
16
Submit Date:10/15/2014 4:03:13 PM
Agreement ("Arbitration Agreement") and an Employee Acknowledgement Fonn
("Acknowledgement"). Aff. ~ 3(b)-(c); see also Aff. Exhs. B & C.
The Arbitration Agreement expressly provided that disputes between Bazan-
Garcia and WRPS would be decided by binding arbitration, in accordance with the rules of the
American Arbitration Association ("AAA"):
[O]ther than a worker's compensation claim covered by insurance,
no dispute between [WRPS] and the undersigned which is in any
way related to the employment of the undersigned, including but
not limited to a claim for wrongful termination, discrimination
and/or harassment, and worker's compensation not covered by
insurance, shall be the subject of a lawsuit filed in any state or
federal .court. Instead, any such dispute shall be submitted to
arbitration in accordance with the rules of the American
Arbitration Association ("AAA").
Aff. Exh. C. The agreement specified that any arbitration would occur in Dallas County, Texas.
Id Bazan-Garcia signed the Arbitration Agreement on September 27, 2011. Jd
Bazan-Garcia also signed the Acknowledgement. Aff. at ~ 3(b ); Aff. Exh. B. The
Acknowledgement represented that Bazan-Garcia had received a copy of the Employee
Handbook, and understood that "it [was her] responsibility to read and comply with the policies
contained in this handbook and any revisions made to it." Aff. Exh. B.
The Employee Handbook contained an arbitration provision. See Aff. Exh. F.
Section 718, entitled ''Problem Resolution," stated: "Problems, disputes, or claims not resolved
through [voluntary intemal] resolution steps are subject to tinal and binding arbitration. The
arbitration proceeding will be conducted under the Employment Dispute Resolution Rules of the
American Arbitration Association." Aff. Exh. F at 84. The arbitration provision also
"requir[ed]" every employee to "sign the attached Arbitration Agreement." Id Garcia-Bazan
signed the Arbitration Agreement on September 27, 20 ll. Ati. Exh. C.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 2
17
In addition, the Acknowledgement stated that revisions could be made to the
Employee Handbook that "supersede, modify, or eliminate existing policies." Aff. Exh. B.
While Bazan-Garcia was employed by WRPS, the Employee Handbook was revised several
times. See Aff. Exhs. G & H. Every version of the Employee Handbook in place during Bazan-
Garcia's employment with WRPS contained the same arbitration provision as the one described
above. See Aff. Exh. Fat 84; AfT. Exh. Gat 85; Aff. Exh. Hat 87. Bazan-Garcia also signed
and returned to WRPS acknowledgements stating she had received addendums to the Employee
Handbooks and understood it was her responsibility "to read and comply with the revision that
has been made." Exhs. D & E.
As an at-will employee, Bazan-Garcia could "quit [her] employment at any time
without a cause or reason," and WRPS could terminate her employment "at any time without a
cause or reason." Aff. Ex. A. Bazan-Garcia's employment with WRPS was terminated on
October 22,2013. Aff. at, 2. On July I, 2014, Bazan-Garcia initiated this lawsuit, alleging that
WRPS discharged her from employment because she had notified WRPS of an "on-the-job
injury and/or initiated the filing of a workers' compensation claim." Orig. Pet. at, 17. WRPS
answered with a general denial on September 12, 2014. Orig. Ans. at 1.
By signing the Arbitration Agreement and Acknowledgement, and by beginning
and continuing her employment with WRPS after receiving notice of the those agreements'
tenns, Bazan-Garcia agreed to arbitrate all of the claims alleged in her Original Petition. Bazan-
Garcia is bound by those agreements.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page3
18
III. ARGUMENT AND AUTHORITIES
A. The Texas Arbitration Act governs this dispute and requires, at a minimum,
that trial of this action be stayed until arbitration is complete.
Bazan-Garcia is a Texas resident and WRPS is a Texas-based company, and their
contractual relationship was based in San Antonio, Texas. Orig. Pet. at~ 3. Their arbitration
agreement does not fall into one of the categories that is excluded from coverage by the Texas
Arbitration Act ("TAA''). See Tex. Civ. Prac. & Rem. Code § 171.002 (excluding certain
arbitration agreements from the statute). Consequently, these agreements are governed by the
TAA. See id. at§§ 171.001 et seq.
Texas and federal policy strongly favor arbitration agreements. Jack B. Anglin
Co., Inc. v. Tipps, 842 S.W.2d 266,268(Tex. 1992). Under the TAA, "[i]fa trial court finds that the claim falls within the scope of a valid arbitration agreement, the 'court has no discretion but to compel arbitration and stay its own proceedings."' Forest Oil Corp. v. McAllen,268 S.W.3d 51, 56
(Tex. 2008) (quoting In re FirstMerit Bank, N.A.,52 S.W.3d 749, 753-54
(Tex. 2001));
see also Tex. Civ. Prac. & Rem. Code §§ 171.021(c) ("An order compelling arbitration must
include a stay of any proceeding subject to Section 171.025."); id. at § 171.025(a) ("The court
shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or
an application for that order is made under this subchapter.").
ln deciding whether to compel arbitration, the trial court must resolve the
following issues: '"(1) whether a valid, enforceable arbitration agreement exists, and (2) if so,
whether the claims asserted fall within the scope of that agreement." Henry v. Gonzalez, 18
S.W.3d 684, 688 (Tex. App.-San Antonio 2000, pet. dism'd by agr.). Unless the party resisting
arbitration shows there is a material issue of disputed fact that requires an evidentiary hearing,
the trial court "may summarily decide whether to compel arbitration on the basis of affidavits,
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 4
19
pleadings, discovery, and stipulations." Jack B. Anglin, 842 S.W.2d at 269. The court may
generally also "rei [y] interchangeably on cases that discuss the [Federal Arbitration Act
("FAA")] and [the] TAA," because "many of the underlying substantive principles are- the
same." Forest Oil Corp., 268 S.W.3d at 56 n. 10.
As explained below, WRPS and Bazan-Garcia entered into a valid arbitration
agreement, and all of the claims asserted by Garcia against WRPS are within the scope of that
agreement. The Court must therefore compel arbitration, and stay this lawsuit until that
proceeding is complete.
B. The agreement to arbitrate this dispute is valid.
When deciding whether arbitration is mandatory under the TAA, the Court must
first determine whether the parties have a valid arbitration agreement. Henry, 18 S.W.3d at 688. This is a question of law. J.M Davidson, Inc. v. Webster,128 S.W.3d 223, 227
(Tex. 2003). "Arbitration agreements are interpreted under traditional contract principles." Id.; see also Garcia v. Huerta,340 S.W.3d 864, 869
(Tex. App.-San Antonio 2011, pet. denied) ("Under
both the FAA and the TAA, we apply ordinary state contract law principles in order to decide
whether a valid arbitration agreement exists.").
1. Bazan-Garcia agreed to arbitrate this dispute by signing the
arbitration agreement.
Assent is an essential element of contractual formation. A party who signs a
contract "must be held to have known what words were used in the contract and to have known
their meaning, and he must also be held to have known and fully comprehended the legal effect
of the contract." In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 878(Tex. App.-El Paso 2005, no pet.) (quoting Nguyen Ngoc Giao v. Smith & Lamm, P.C.,714 S.W.2d 144, 146
(Tex. App.-
Houston [1st Dist.] 1986, no writ)). Consequently, a party's "signature on a written contract is
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 5
20
'strong evidence' that the party unconditionally assented to its terms." !d. (holding that the
arbitration agreement plaintiff signed with her employer was enforceable, even though she
claimed she was "rushed" into signing the agreement and did not understand its terms).
The Texas Supreme Court has held that proving a plaintiff signed an arbitration
agreement establishes the agreement's existence as a matter of law. In In re Palm Harbor
Homes, inc., the plaintiffs signed two documents containing arbitration agreements. 195 S.W.3d
672, 676 (Tex. 2006). Nonetheless, they argued they should not be bound by those agreements
because
[1] the documents were not explained to them; [2] they were told
that the documents were necessary to complete the purchase; [3]
they were w1aware that they had signed arbitration agreements; ...
[41 the [defendant] did not sign the arbitration agreements; and [51
they were unaware of what arbitration entailed and did not
voluntarily waive their right to a jury trial.
!d. The Supreme Court held that this was insufficient to disprove the existence of the arbitration
agreement and show it was invalid. "Because the [defendant] presented a signed arbitration
agreement to the court ... and the [plaintiffs] have presented no evidence that they did not sign
the agreement, we conclude that, as a matter of law, the existence of an arbitration agreement
among the parties was established." !d. at 676.
Bazan-Garcia signed the Arbitration Agreement on September 27, 2011. Aff.
Exh. C. That agreement provided that, other than certain worker's compensation claim disputes,
all disputes between WRPS and Bazan-Garcia "shall be submitted to arbitration in accordance
with the rules of the American Arbitration Association." !d. Bazan-Garcia also signed the
Employee Acknowledgement form, which represented that she would comply with the Employee
Handbook. Aff. Exh. B. The Employee Handbook also required the parties to submit their
disputes "to final and binding arbitration." Aff. Exh. Fat 84; see also In re Halliburton Co., 80
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page6
21
S.W.3d 566, 569 (Tex. 2002) (holding that an employee who accepted an agreement that
incorporated an arbitration provision by reference had accepted that arbitration provision).
Bazan-Garcia is therefore bound to arbitrate her disputes with WRPS pursuant to a valid
arbitration agreement.
2. Bazan-Garcia also agreed to arbitrate this dispute because she
commenced and continued employment with WRPS after receiving
notice of its arbitration policy.
In addition, "[a]n at-will employee who receives notice of an employer's
arbitration policy and continues or commences employment accepts the terms of the agreement
as a matter of law." D.R. Horton, Inc. v. Brooks, 207 S.W.3d 862, 867(Tex. App.-Houston [14th Dist.] 2006, no pet.) (citing In re Halliburton Co.,80 S.W.3d 566, 56
(Tex. 2002)). This applies to arbitration agreements that are incorporated by reference into another contract, because a party who signs a contract is responsible for ensuring that it knows and accepts the terms ofthat contract. See In re Merrill Lynch Trust Co. FSB,235 S.W.3d 185, 190
(Tex. 2007)
("Additionally, the plaintiffs' testimony that they failed to read the arbitration provisions until
this dispute arose is not a valid ground for setting aside their signed agreements."); In re
December Nine Co., Ltd., 225 S.W.3d 693, 702 (Tex. App.-El Paso 2006, no pet.) (enforcing
incorporated arbitration provisions even though employees did not receive copies of the
incorporated documents, since employees presented no evidence that they were actually
prevented from obtaining copies).
When the plaintiff in In re Dallas Peterbilt, Ltd., L.L.P. began his at-will
employment, he received a summary of his employer's dispute resolution program, as well as an
acknowledgment form stating he had "received and carefully read or been given the opportunity
to read the [Summary]." 196 S.W.3d 161, 163 (Tex. 2006) (modification in original). The
plaintiff signed the form, and began working for the employer. !d. The Texas Supreme Court
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 7
22
held that the employee had received notice of the arbitration policy from the acknowledgement
form, and that "by signing the acknowledgement form and commencing his employment,
[plaintiffj accepted the [arbitration] agreement as a matter of law." !d. He was therefore bound
to arbitrate his dispute with his employer. !d.; see also In re Autotainment Partners Ltd. P 'ship,
183 S.W.3d 532, 535-36 (Tex. App.-Houston [14th Dist.] 2006, no pet.) (employee who signed
acknowledgement stating she had "received a copy of the [employer's] Program, received
training on the Program, and understood such a Program was in use" had "agreed to the terms
contained in the Program documents.'' including an arbitration agreement).
Like the plaintiffs in Dallas Peterbilt and Autotainment Partners, Bazan-Garcia
accepted the arbitration agreement contained in the Employee Handbook by beginning and
continuing to work for WRPS after she had notice of that agreement. At the time she accepted
employment, Bazan-Garcia received and signed the Acknowledgement. Aff. Exh. B. In that
acknowledgement, she expressly represented that she had "received the handbook," and that she
understood it was her "responsibility to read and comply with the policies contained this
handbook and any revisions to it." !d. The Employee Handbook required Bazan-Garcia to sign
the separate Arbitration Agreement, which she did on September 27, 2011. Aff. Exh. C. It also
contained its own arbitration agreement, stating that disputes not resolved internally "are subject
to final and binding arbitration . . . under the Employment Dispute Resolution Rules of the
American Arbitration Association." Aff. Exh. F at 84. This provision was not conditioned on
Bazan-Garcia signing the separate and additional Arbitration Agreement. See id.; In re
AdvancePCS Health, L.P., 172 S.W.3d 603,606 (Tex. 2002) ("[N)either the FAA nor Texas law
requires that arbitration clauses be signed, so long as they are written and agreed to by the
parties.").
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 8
23
Bazan-Garcia began working for WRPS after receiving notice of the Employee
Handbook's arbitration agreement through the Acknowledgement. Aff. at~ 2; Aff. Exh. B. She
continued working for, and accepting payment from, WRPS for fifteen months. Aff. at ~ 2.
During this period, Bazan-Garcia also received addenda to the Employee Handbook informing
her of revisions, and signed those addenda acknowledging that it was her responsibility to
comply with all of the Employee Handbook's provisions. Atl Exhs. D & E. All of the versions
of the Employee Handbook that were in place during Bazan-Garda's employment included the
same arbitration clause, requiring the parties to submit any "[p]roblems, disputes, or claims ...
to final and binding arbitration . . . under the Employment Dispute Resolution Rules of the
American Arbitration Association." See Aff. Exh. Fat 84; Aff. Exh. Gat 85; Aff. Exh. Hat 87.
Having agreed to the terms of the Employee Handbook through her signature and conduct,
Bazan-Garcia is bound to its arbitration provision.
C. Bazan-Garcia's claims fall within the scope of the agreement to arbitrate.
The second and final inquiry in determining whether arbitration of a party's
claims is mandatory under the TAA is whether those claims fall within the scope of the parties'
arbitration agreement. If they do, the Court must compel arbitration. Henry, 18 S. W.3d at 688.
"When deciding whether claims fall within an arbitration agreement, courts
employ a strong presumption in favor of arbitration." In re Rubiola, 334 S. W.3d 220, 225(Tex. 2011). Thus, the court "must resolve any doubts about the scope of an arbitration agreement in favor of arbitration." Dennis v. Coli. Station Hosp., L.P.,169 S.W.3d 282, 285
(Tex. App.-
Waco 2005, pet. denied). "The policy in favor of compelling arbitration agreements is so
compelling that a court should not deny arbitration unless it can be said with positive assurance
that an arbitration clause is not susceptible of an interpretation which would cover the dispute at
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page9
24
issue." In re Rubiola, 334 S.W.3d at 225(quoting Prudential Sec. Inc. v. Marshall,909 S.W.2d 896, 899
(Tex. 1995)).
Bazan-Garcia claims she was wrongfully discharged by WRPS after allegedly
notifying WRPS of an "on-the-job injury and/or initiat[ing] the filing of a workers'
compensation claim." Orig. Pet. at ~ 17. The parties' agreement clearly encompasses that
dispute. The Arbitration Agreement states that "other than a worker's compensation claim
covered by insurance, no dispute between [WRPS] and the undersigned which is in any way
related to the employment of the undersigned, including but not limited to a claim for wrongful
termination ... shall be the subject of a lawsuit filed in any state or federal court." Aff. Exh. C
(emphasis added). Bazan-Garcia is making a claim for wrongful termination, and is not making
a claim for worker's compensation. The Arbitration Agreement expressly requires arbitration of
the wrongful termination claim, which is therefore within the scope of the agreement.
The arbitration provision contained in the Employee Handbook also clearly
covers the parties' dispute. That provision states that "[p]roblems, disputes, or claims not
resolved through [voluntary internal] resolution steps are subject to final and binding
arbitration." Aff. Exh. F at 84. Bazan-Garcia's claim was not resolved through a voluntary
internal resolution process, and therefore falls within the scope of the arbitration agreement.
Because the TAA requires the arbitration of all disputes in this case, the Court
must compel arbitration and stay this lawsuit. See Forest Oil, 268 S.W.3d at 56; Tex. Civ. Prac.
& Rem. Code§ 171.02l(c).
D. Any defenses to arbitration raised by Bazan-Garcia must be decided by the
arbitrator rather than the Court.
If Bazan-Garcia raises any defense to arbitration, including any argument about
the existence, validity, or enforceability of the parties' arbitration agreements, that challenge
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 10
25
must be decided by the arbitrator and not the Court. Bazan-Garcia therefore cannot avoid
arbitration on any of those grounds.
The default rule is that the court decides issues of substantive arbitrability, such as
the validity of the arbitration agreement. Forest Oil, 268 S.W.3d at 61. However, the parties may agree to have those issues decided by the arbitrator instead, so long as the agreement ''clearly and unmistakably" demonstrates that this was the parties' intent. Howsam v. Dean Witter Reynoldr;, Inc.,537 U.S. 79, 79
(2002); see also Saxa Inc. v. DFD Architec/Ure Inc.,312 S. W.3d 224
, 229 n. 4 (Tex. App.-Dallas 2010, pet. denied) (explaining that the trial court could
rely on FAA and T AA precedents in analyzing whether the parties had delegated issues of
arbitrability to the arbitrator, because it "is subject to a virtually identical analysis under either"
statute).
Such a delegation clause can empower the arbitrator to decide, among other
things, whether the agreement is valid, binding and enforceable against a particular plaintitr~
illusory, unconscionable, or sufficiently broad to cover the parties' dispute. See, e.g., Rent-A-
Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2775, 2779(20 I 0) (delegation clause empowered arbitrator to decide whether arbitration agreement was unconscionable); Forest Oil,268 S.W.3d at 61
(delegation clause empowered arbitrator to decide whether the parties' dispute was within the scope of the arbitration agreement); IHS Acquisitions No. 171, Inc. v. Beatty-Ortiz,387 S.W.3d 799, 808
(Tex. App.-El Paso 2012, no pet.) (delegation clause empowered arbitrator to decide whether arbitration agreement was illusory); Saxa,312 S. W.3d at 229
(delegation clause
empowered arbitrator to decide whether joinder of parties was proper under the arbitration
agreement). In deciding a motion to compel arbitration, the trial court has no discretion to refuse
to enforce a clause that authorizes the arbitrator to decide these issues. Ernst & Young LLP v.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 11
26
Martin, 278 S.W.3d 497, 500 (Tex. App.-Houston [14th Dist.] 2009, no pet.) ("[A]n arbitration
clause that reallocates traditional court functions to the arbitrator is enforceable and crumot serve
as a basis for denying a motion to compel arbitration.").
The Arbitration Agreement and the Employee Handbook clearly and
unmistakably vest jurisdiction over arbitrability to the arbitrator. The Arbitration Agreement
specifies that arbitration will occur "in accordance with the rules of the American Arbitration
Association." Aff. Exh. C. The Employee Handbook states that "[t]he arbitration proceeding
will be conducted under the Employment Dispute Resolution Rules of the American Arbitration
Association." Aff. Exh. Fat 84. Under the AAA's Rules for employment cases, "[t]he arbitrator
shall have the power to rule on his or her own jurisdiction, including any objections with respect
to the existence, scope or validity of the arbitration agreement." AAA Employment Arbitration
Rules at 17, ~ 6(a). 1
A provision that incorporates the AAA Rules clearly and unmistakably delegates
substantive arbitrability to the arbitrator. See Saxa Inc., 312 S.W.3d at 229. In Saxa, for
example, the parties' arbitration agreement provided that "any claim, dispute or other matter in
question arising out of or related to" the contract "shall be subject to arbitration." /d. In
addition, the agreement stated that arbitration would occur in accordance with the AAA's
Construction Industry Arbitration Rules, which give the arbitrator power "to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or validity of the
arbitration agreement." /d. at 228-29. The Court compelled arbitration of the parties' dispute
over arbitrability-in that case, whether the joinder of parties was appropriate. ''When, as here,
the parties agree to a broad arbitration clause and explicitly incorporate rules that empower an
1
A copy of the AAA Employment Arbitration Rules & Mediation Procedures is available at
https:/ /www .adr. org/aaa!Show Property?nodel d=/U CM/AD RSTG.~ 004362&revi sion=latestre leased.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 12
27
arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable
evidence of the parties' intent to delegate such issues to an arbitrator." /d. at 230. The Court
emphasized that a majority of courts have reached this same conclusion. !d. (collecting cases);
see also Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.
2012) ("We agree with most of our sister circuits that the express adoption of the [the AAA]
rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.").
Bazan-Garcia assented to an arbitration agreement that empowers the arbitrator to
decide arbitrability because the Arbitration Agreement and the Employee Handbook incorporate
the AAA Rules' delegation provision-the same provision at issue in Saxa. See Aff. Exh. C;
Aff. Exh. F at 84. This delegation provision does not prohibit Bazan-Garcia from raising any
challenges to the parties' arbitration agreement, including challenges based on the validity of the
parties' signatures, the scope of the agreement, any alleged waiver of arbitration by WRPS, or
whether the agreement is illusory or unconscionable. It does, however, require Bazan-Garcia to
pursue these challenges in the forum of arbitration, not the court.
IV. Prayer
WRPS prays that the Court grant its Motion to Compel Arbitration and abate and
stay a11 proceedings in this lawsuit until arbitration has been completed.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRA TJON Page 13
28
Respectfully submitted,
BAKER BOTTS L.L.P.
By: Is/ Jennifer M Trulock
Jennifer M. Trulock
State Bar No. 90001515
2001 Ross Avenue, Suite 600
Dallas, Texas 75201
(214) 953-6500 Telephone
(214) 953-6503 Facsimile
jennifer.trulock@bakerbotts.com
Stephanie F. Cagniart
98 San Jacinto Boulevard, Suite 1500
Austin, Texas 78701-4078
(512) 322-2500 Telephone
(512) 322-2501 Facsimile
stephanie.cagniart@bakerbotts.com
ATTORNEYS FOR DEFENDANT WESTERN
RIM PROPERTY SERVICES, INC.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 14
29
CERTIFICATE OF CONFERENCE
I certify that on September 23,2014 and on October 15,2014, I conferred by e-mail with
Josue Garza, counsel for Plaintiff, regarding this motion. Mr. Garza stated on both dates that
Plaintiff opposes the relief requested in this motion.
Is/ Stephanie F. Cagniart
Stephanie F. Cagniart
CERTIFICATE OF SERVICE
I certify that on this the 15th day of October, 2014, a copy of the foregoing was
served by certified mail, return receipt requested, and by facsimile on the following counsel for
Plaintiff:
Javier Espinoza
Steven Sachs
Josue F. Garza
The Espinoza Law Firm, PLLC
503 E. Ramsey, Ste. 103
San Antonio, Texas 78216
210-229-1302 (Facsimile)
Is/ Steehanie F. Cagniart
Stephanie F. Cagniart
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 15
30
EXHIBIT 1
31
CAUSE NO. 2014CV01064
PAULA BAZAN-GARCIA, § IN THE COUNTY COURT
§
Plaintiff, §
§
VS. § AT LAW NO. CC# 03
§
WESTERN RIM PROPERTY §
SERVICES INC., §
§
Defendant. § BEXAR COUNTY, TEXAS
A.FFIDAVIT OF CHARLES D. SMITH
Before me, the undersigned authority, personally appeared Charles D. Smith, who, being
duly sworn, testified as follows:
I. My narne is Charles D. "Doug" Smith. I am over the age of 18, of sound mind,
and competent to testify to the matters stated in this Affidavit. I have personal knowledge of the
facts set forth in this Aflidavit, and all of these facts are true.
2. Paula Bazan-Garcia was employed as a housekeeper by WRPS III, LP from
September 26,2011 to October 22, 2013.
3. I am the custodian of the records of WRPS III, LP. In Bazan-Garcia' s personnel
file are located the following documents:
a. An At- Will Employee Agreement, a true and correct copy of which is attached to
this Affidavit as Exhjbit A.
b. An Employee Acknowledgement Form, a true and correct copy of which is
attached to this Affidavit as Exhibit B.
c. An Arbitration Agreement, a true and correct copy of which is attac.hed to this
Affidavit as Exhibit C.
d. Two Employee Handbook Addendum forms, true and correct copies of which are
attached to this Affidavit as Exhibits D & E.
AFFIDA VlT OF CHARLES D. SMITH Page I
32
4. True and correct copies of the Employee Handbooks that were used by WRPS III,
LP during Bazan-Garcia's employment are also attached to this Affidavit as Exhibits F. G, & H.
5. The documents attached to this Affidavit as Exhibits A through H are kept by
WRPS lii, LP in the regular course of business, and it was the regular course of business of
WRPS III, LP for an employee or representative of WRPS III, LP, who had knowledge of the
event recorded to keep copies of these docmm::nts in WRPS III, LP's personnel files. The
records attached hereto are the originul or exact duplicates of the original.
FURTHER, AFFIANT SA YETH NOT.
SUBSCIUBED AND SWORN TO BEFORE ME by Charles D. Smith on this 1'[~
day of October, 2014.
CHERYL ANN
. NUGENT --·]
Notary Public. State of Texas
My Cornrntssion Exolres
- August 30, 2016
--~--
AFFIDAVIT OF CHARLES D. SMITH Page 2
33
AFFIDAVIT
EXHIBIT A
34
WRPSni1 LP
A~~LLEMPLOYEEAGREEMENT
To: WRPS III, LP employee
I hereby acknowledge that WRPS lll, LP has given me ample private time to sit
and review the Company's Policy and Procedure Handbook dated August l, 2006. r
understand clearly aU tho statements made in this. hllruiboolc and will comply with alttbe
rules and regulations of the Company SCit forth in this handbook along with those thac r
learn of during my employment I understand clearly that failure to do so may result in
my silspension or discharge. · · ·
I recognize that 1 am an "at will" employee and that I can quit my om.ploymentat
any time without a cause or reason, and the Company may tenninate my emplilyment at
au{ti..tne without a cause or reason. I realiz.~ that the various "causes" for termirurtion
listod in this handbook are not exclusive; rathar, they illustrate reasons when termination
is ·appropriate. Tennination may bo appropriate for many other reasons net specifically
listed h~in.
Employee's Si
~~ C1 fr.w.Ll @tCi ~ · - -
mployee's Printed Name
35
AFFIDAVIT
EXHIBITB
36
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP
EM'LOYEE ACKNOWLEDGEMENT FORM
Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.
I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.
Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..
Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.
EMPLOYEE'S NAME (printed~/a Q.J~::DZEtJ.:·~a._y ("~---Â
SfGNAn.JR~(!. 4~ ~
EMPLOYEE'S
DATE,~ ?Q,'ZtJlL.~---
37
AFFIDAVIT
EXHIBIT C
38
ARBITRATION AGREEMENT
lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty _
(20) days prior written notice:
Each party to arbitration shall be entitled to tab only one deposition. Any arbitration _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.
N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.
BY:
39
AFFIDAVIT
EXHIBITD
40
WRPSIII,LP
WRPSID,LP
Dcccmber28, 2012
E~LOYEEHANDBOOKADDENDU:M
The attached addendum desoribes important information about WRPS Jli, LP. f understand that l should
consult the Human Resources Dapartmmt regarding any questions.
I acknowledge that I have received tlle addendum nrul I understand that it is my responsibility to read and
comply with the revi8ion that has been made.
EMPLOYEE'S SIGNATURE: @~f~''..~-~-v------Â
DA tE: __1:-_2:1~
4
41
AFFIDAVIT
EXHIBITE
42
Ill
WRPSIII,LP
WRPSill,LP
March 1, 2013
KMPLOYEEHANDBOOKADDENDUM
Tho attached addendum dcscrlbcs important information about WRPS III. LP. J understand that 1 should
consult the Humao. Resources Department Jegarding any questions.
I acknowledge that 1 have received. the addendum and I understand that it Is my responsibility to read and
comply with the revision that bas been made.
EMPLOYEE'S NAME (printed): _ _F~t D-. !2az.M- bPfC~/6
I!MPLOYBB'S SlONATtlRll:~-·&~-· --·
DATE: __ .3..1:::/2 ..~- . -· ·"'··-
4
43
AFFIDAVIT
EXHIBITF
44
WR
p s
Employee Handbook
WRPS,LP
10/01/2011
45
IIIli
1111
WRPSI LP
Table of Contents
No. Polley Effective Revision Page
Date: J2!!!i
INTRODUCTION
020 Employee Welcome Message 1211/1999 11112006 1
030 Organization Description 1211/1999 1/1/2006 2
040 Introductory Statement 12/111999 1/1/2006 3
051 Employee Acknowledgement Form 121111999 1/112006 4
EMPLOYMENI'
101 Nature of Employment 1211/1999 1/1/2000 5
102 Employee Relations 1211/1999 1/1/2006 6
103 Equal Employment Opportunity 12/1/1999 111/2006 7
104 Business Ethics and Conduct 12/1/1999 111/2006 8
107 Immigration Law Compliance 12/1/1999 11112000 9
108 Conflicts oflnterest 12/111999 1/112006 10
110 Outside Employment 12/111999 1/112006 11
112 Non-Disclosure 12/1/1999 1/1/2006 12
114 Disability Accommodation 12/1/1999 1/112006 13
180 Personal Relationships in the Workplace 11/19/2004 1/1/2006 14
EMPLOYMENT STATUS & RECORDS
201 Employment Categories 12/1/1999 1/1/2006 16
202 Access to Personnel Files 12/1/1999 111/2006 18
203 Employment Reference Checks 12/1/1999 1/1/2000 19
204 Personnel Data Changes 12/111999 111/2006 20
205 Introductory Period 12/1/1999 1/1/2006 21
208 Employment Applications 12/111999 1/1/2006 22
209 Perfonnan.ce Evaluation 1211/1999 1/1/2006 23
210 Job Descriptions 12/1/1999 1/1/2006 24
280 Confidentiality of Salary 12/111999 1/1/2006 25
EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits 12/1/1999 1/112006 26
303 Vacation Benefits 12/1/1999 10/1/2009 27
304. Child Care Benefits 12/1/1999 111/2006 29
305 Holidays 12/111999 1/1/2006 30
46
WRPS, LP
307 Sick Leave Benefits 12/l/1999 10/1/2009 31
308 Time Off to Vote 12/1/1999 1/1/2006 33
309 Bereavement Leave 12/111999 1/112006 34
310 Relocation Benefits 12/1/1999 1/1/2006 35
311 Jury Duty 12/1/1999 1/112006 36
312 Witness Duty 12/111999 1/1/2006 37
313 Benefits Continuation (COBRA) 12/1/1999 1/1/2006 38
314 Educational Assistance 1211/1999 1/112006 39
316 Health Insurance 12/1/1999 1/112006 40
317 Life Insurance 12/1/1999 1/1/2006 41
320 401 (k) Savings Plan 12/1/1999 111/2006 42
326 Flexible Spending Account (FSA) 12/1/1999 1/1/2006 43
328 Partnership Participation Units 1211/1999 1/1/2006 44
330 Annual Incentive Trip 12/1/1999 1/112006 45
TIMEKEEPING/PAYR.OLL
401 Timekeeping 12/1/1999 1/1/2000 46
403 Paydays 12/1/1999 1/1/2000 47
405 Employment Termination 12/111999 1/112006 48
407 Severance Pay 12/1/1999 1/1/2006 49
409 Administrative Pay Corrections 12/111999 1/1/2006 so
410 Pay Deductions and Setoffs 12/111999 111/2006 Sl
WORK CONDITIONS & HOURS
502 Work Schedules 1211/1999 1/1/2006 52
504 Use of Phone and Mail Systems 12/1/1999 1/1/2006 53
505 Smoking 12/1/1999 111/2006 54
506 Rest and Meal Periods 12/1/1999 1/1/2006 55
507 Overtime 121111999 1/1/2006 56
512 Business Travel Expenses 12/111999 1/1/2009 57
514 Visitors in the Workplace 121111999 1/1/2006 58
516 Computer and Email Usage 12/1/1999 1/112006 60
517 Internet Usage 1211/1999 111/2006 61
522 Workplace Violence Prevention 1211/1999 l/1/2006 63
526 Cell Phone Usage 12/111999 11112006 65
LEAVES OF ABSENCE
60 l Medical Leave 1211/1999 1/1/2006 66
47
II
WRPS., LP
602 Family Leave 12/1/1999 1/1/2006 68
605 Military Leave 1/1/2006 111/2000 70
EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules 12/1/1999 111/2006 71
702 Drug and Alcohol Use 1211/1999 111/2000 73
703 Sexual and Other Unlawful Harassment 12/1/1999 111/2006 74
704 Attendance and Punctuality 12/1/1999 11112000 76
705 Personal Appearance 12/1/1999 1/1/2000 77
706 Return of Property 12/1/1999 1/112000 78
708 Resignation 12/1/1999 1/1/2000 79
714 Drug Testing 12/1/1999 1/1/2006 80
716 Progressive Discipline 12/1/1999 1/1/2006 81
718 Problem Resolution 12/111999 111/2006 83
720 Casual Days 12/1/1999 1/1/2006 85
MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace 12/1/1999 111/2006 87
806 Suggestion Program 12/1/1999 111/2006 88
48
WRPS,LP
WRPS,LP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.
We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.
We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
49
1111
1111
WRPS,LP
WRPS,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
50
II
WRPS,LP
WRPS,LP
INTRODUCTORY STATEMENT
This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.
3
51
1111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure. ·
If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem. ·
5. Employee presents problem to the President in writing.
83
52
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.
84
53
AFFIDAVIT
EXHIBIT G
54
WR
p s
Employee Handbook
WRPS III, LP
'\
\
09/21/2012 i
Il
I
I
i;
55
1111
1111
WRPSIII, LP
Table of Contents
No. Policy Effe~tive Revision f.i9!
Date: Dam:
INTRODUCTION
Employee Welcome Message 12/1/1999 1/1/2006 1
Organization Description 12/1/1999 1/1/2006 2
Introductory Statement 12/1/1999 1/1/2006 3
Employee Acknowledgement Fonn 12/1/1999 1/1/2006 4
EMPLOYMENT
10 I Nature of Employment 12/1/1999 1/112000 5
102 Employee Relations 12/111999 1/1/2006 6
l 03 Equal Employment Opportunity 12/1/1999 111/2006 7
104 Business Etbies and Conduct 12/111999 I/lt2006 8
107 Immigration Law Compliance 12/1/1999 1/1/2000 9
108 Conflicts of Interest 12/1/1999 1/112006 10
11 0 Outside Employment 12/1/1999 l/112006 12
112 Non-Disclosure 12/l/1999 111/2006 13
114 Disability Accommodation 1211/1999 111/2006 14
180 Personal Rei ationships in the Workplace 11/19/2004 111/2006 15
EMPLOYMENT STATUS & RECORDS
201 Employment Categories 1211/1999 1/1/2006 17
202 Access to Personnel Files 12/1/1999 1/112006 19
203 Employment Reference Checks 12/1/1999 1/1/2000 20
204 Personnel Data Changes 12/111999 1/112006 21
205 Introductory Period 1211/1999 1/1/2006 22
208 Employment Applications 1211/1999 1/1/2006 23
209 Perfonnance Evaluation 12/1/1999 1/l/2006 24
21 0 Job Descriptions 1211/1999 1/1/2006 25
280 Confidentiality of Salary 1211/1999 1/1/2006 26
EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits 1211/1999 l/l/2006 27
303 Vacation Benefits 12/l/1999 10/1/2009 28
304 Child Care Benefits 12/111999 1/1/2006 30
56
1111
1111
WRPSII/1 LP
305 Holidays 12/111999 1/1/2006 31
307 Sick Leave Benefits 12/1/1999 10/1/2009 32
308 Time Offto Vote 12/1/1999 1/1/2006 34
309 Bereavement Leave 12/1/1999 1/1/2006 35
310 Relocation Benefits 12/I/1999 lll/2006 36
311 Jury Duty 12/l/1999 1/1/2006 37
312 Witness Duty 1211/1999 1/112006 38
313 Benefits Continuation (COBRA) 12/1/1999 111/2006 39
314 Educational Assistance 12/1/1999 1/1/2006 40
316 Health Insurance 1211/1999 1/112006 41
317 Life Insurance 12/1/1999 1/1/2006 42
320 401 (k) Savings Plan 12/1/1999 1/112006 43
326 Flexible Spending Account (FSA) 12/1/1999 1/112006 44
328 Partnership Participation Units 12/1/1999 11112006 45
330 Annuallncentive Trip 12/111999 1/1/2006 46
TIMEKEEPlNGIPAYROLL
401 Timekeeping 12/1/1999 1/1/2000 41
403 Paydays 12/1/1999 1/112000 48
405 Employment Termination 12/1/1999 1/1/2006 49
407 Severance Pay 12/111999 1/112006 50
409 Administrative Pay Corrections 12/1/1999 1/l/2006 51
410 Pay Deductions and Setoffs 12/1/1999 1/112006 52
WORK CONDITIONS & HOURS
502 Work Schedules 12/1/1999 1/112006 53
504 Use of Phone and Mail Systems 12/1/1999 1/112006 54
505 Smoking 12/1/1999 1/1/2006 55
506 Meal Periods 12/l/1999 1/1/2006 56
507 Overtime 12/1/1999 1/112006 57
512 Business Travel Expenses 12/1/1999 1/112006 58
514 Visitors in the Workplace 12/1/1999 11112006 60
5 16 Computer and Email Usage 12/1/1999 1/1/2006 61
517 Internet Usage 12/1/1999 1/1/2006 62
522 Workplace Violence Prevention 12/111999 111/2006 64
526 Cell Phone Usage 12/1/1999 11112006 66
LEAVES OF ABSENCE
601 Medical Leave 12/1/1999 1/112006 67
I
!
I'
i
j
I
'l
I
57
WRPS Ill, LP
602 Family Leave 12/1/1999 l/112006 69
605 Military Leave 111/2006 1/112000 71
EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules 12/I/1999 1/1/2006 72
702 Drug and Alcohol Use 12/1/1999 1/112000 74
703 Sexual and Other Unlawful Harassment 12!111999 1/1/2006 75
704 Attendance and Punctuality 121111999 111/2000 77
70S Personal Appearance 1211/1999 I/1/2000 78
706 Return of Property 121111999 111/2000 79
708 Resignation 1211/1999 1/1/2000 80
714 Drug Testing ' 12/111999 1/112006 81
716 Progressive Discipline 12/l/1999 1/l/2006 82
718 Problem Resolution 12/1/1999 111/2006 84
720 Casual Days 12/1/1999 1/112006 86
MJSCELLANEOUS
800 Life-Threatening Illnesses in the Workplace 12/1/1999 1/1/2006 88
806 Suggestion Program 121111999 111/2006 89
58
II
WRPSIII,LP
WRPSDitLP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS Ill, LP and wish you every success here.
We believe that each employee contributes directly to WRPS III, LP's growth and success, and we hope
you will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about
employment with WRPS III, LP.
We hope that your experience here will be challenging. enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
59
II
WRPSIII,LP
WRPSffi,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Rim has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet, and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadium
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Many are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry'' for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
60
WRPSIII,LP
WRPSlli,LP
rnTRODUCTORYSTATEMENT
This handbook is designed to acquaint you with WRPS III, LP and provide you with infonnation about
working conditions, employee benefrts, and some oftbe policies affecting your employment. You should
read, understand. and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS fii, LP to benefit
employees. One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS III, LP
continues to grow, the need may arise and WRPS III, LP reserves the right to revise. supplemen~ or
rescind any policies or portion of the handbook from time to time as it deems appropriate. in its sole and
absolute discretion. The only exception to any changes is our employment-at-will policy pennitting you
or WRPS m, LP to end our relationship for any reason at any time. Employees will, of course, be notified
of such changes to the handbook as they occur.
3
61
IIIII
1111
WRPSIII,LP
WRPSIU,LP
718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 811/2006
WRPS Ill, LP is committed to providing the best possible working conditions for its employees. Part of
this commitment is encouraging an open and frank atmosphere in which any problem, complaint,
suggestion, or question receives a timely response from WRPS lll, LP supervisors and management.
WRPS III, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee wiU be penalized, formally or
informally, for voicing a complaint with WRPS III, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.
If a situation occurs when employees believe that a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Departrnent or any other member of
management.
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's manager(s), if necessary, and directs employee to the President for review of
problem.
5. Employee presents problem to the President in writing.
84
62
WRPSIII,LP
WRPSIII, LP
6. The President reviews and considers problem. The President informs employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties arid may not be discussed or complained about _again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
fmal and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under tttese rules is exclusive, final, and binding on both parties, their beneficiaries, executors,
administrators, successors, and assigns. mo: employee must sign the attached Arbitration Agreement.
This is an absolute requirement.
Employees who choose to use the arbitration process to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS Ill, LP. A complete description of the arbitration procedure
is available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confidence is important to the operation of an efficient and harmonious work environment, and helps to
ensure everyone's job security.
85
63
AFFIDAVIT
EXHIBITH
64
WR
p s
Employee Handbook
WRPS,LP
05/01/2013
65
WRPS,LP
WRPS,LP
Welcome new employee!
On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.
We believe that each employee contributes directly to WRPS, LP's growth and success, and we hope you
will take pride in being a member of our team.
This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about
employment with WRPS, LP.
We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!
Sincerely,
Marcus D. Hiles
Chairman and CEO
1
66
1111
1111
WRPS,LP
WRPS,LP
ORGANIZATION DESCRIPTION
Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever yom needs, Western Rim has a home to satisfy
your requirements.
The Mansion 1rademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet, and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadium
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Om philosophy is not that we are renting living space but are instead marketing a life
style.
Western Rim Properties are on the cutting edge of design. Many are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).
2
67
WRPS,LP
WRPS,LP
mTRODUCTORYSTATEMrnNT
This handbook is designed to acquaint you with WRPS, LP and provide you with information about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.
No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-will policy permitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.
3
68
11111
1111
WRPS,LP
WRPS,LP
718 Problem Resolution
Effective Date: 1211/1999
Revision Date: 8/112006
WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.
WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.
If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.
If a situation occurs when employees believe that a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.
l. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management.
2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.
3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.
4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's manager(s), if necessary, and directs employee to the President for review of
problem.
5. Employee presents problem to the President in writing.
86
69
1111
1111
WRPS,LP
WRPS,LP
6. The President reviews and considers problem. The President informs employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has futl authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.
Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. Every employee must sign the attached Arbitration Agreement. This is an
absolute requirement.
Employees who choose to use the arbitration process to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.
Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confidence is important to the operation of an efficient and harmonious work environment, and helps to
ensure everyone's job security.
87
70
issue." In re Rubiola, 334 S.W.3d at 225(quoting Prudential Sec. Inc. v. Marshall,909 S.W.2d 896, 899
(Tex. 1995)).
Bazan-Garcia claims she was wrongfully discharged by WRPS after allegedly
notifying WRPS of an "on-the-job injury and/or initiat[ing] the filing of a workers'
compensation claim." Orig. Pet. at ~ 17. The parties' agreement clearly encompasses that
dispute. The Arbitration Agreement states that "other than a worker's compensation claim
covered by insurance, no dispute between [WRPS] and the undersigned which is in any way
related to the employment of the undersigned, including but not limited to a claim for wrongful
termination ... shall be the subject of a lawsuit filed in any state or federal court." Aff. Exh. C
(emphasis added). Bazan-Garcia is making a claim for wrongful termination, and is not making
a claim for worker's compensation. The Arbitration Agreement expressly requires arbitration of
the wrongful termination claim, which is therefore within the scope of the agreement.
The arbitration provision contained in the Employee Handbook also clearly
covers the parties' dispute. That provision states that "[p]roblems, disputes, or claims not
resolved through [voluntary internal] resolution steps are subject to final and binding
arbitration." Aff. Exh. F at 84. Bazan-Garcia's claim was not resolved through a voluntary
internal resolution process, and therefore falls within the scope of the arbitration agreement.
Because the TAA requires the arbitration of all disputes in this case, the Court
must compel arbitration and stay this lawsuit. See Forest Oil, 268 S.W.3d at 56; Tex. Civ. Prac.
& Rem. Code§ 171.02l(c).
D. Any defenses to arbitration raised by Bazan-Garcia must be decided by the
arbitrator rather than the Court.
If Bazan-Garcia raises any defense to arbitration, including any argument about
the existence, validity, or enforceability of the parties' arbitration agreements, that challenge
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 10
25
must be decided by the arbitrator and not the Court. Bazan-Garcia therefore cannot avoid
arbitration on any of those grounds.
The default rule is that the court decides issues of substantive arbitrability, such as
the validity of the arbitration agreement. Forest Oil, 268 S.W.3d at 61. However, the parties may agree to have those issues decided by the arbitrator instead, so long as the agreement ''clearly and unmistakably" demonstrates that this was the parties' intent. Howsam v. Dean Witter Reynoldr;, Inc.,537 U.S. 79, 79
(2002); see also Saxa Inc. v. DFD Architec/Ure Inc.,312 S. W.3d 224
, 229 n. 4 (Tex. App.-Dallas 2010, pet. denied) (explaining that the trial court could
rely on FAA and T AA precedents in analyzing whether the parties had delegated issues of
arbitrability to the arbitrator, because it "is subject to a virtually identical analysis under either"
statute).
Such a delegation clause can empower the arbitrator to decide, among other
things, whether the agreement is valid, binding and enforceable against a particular plaintitr~
illusory, unconscionable, or sufficiently broad to cover the parties' dispute. See, e.g., Rent-A-
Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2775, 2779(20 I 0) (delegation clause empowered arbitrator to decide whether arbitration agreement was unconscionable); Forest Oil,268 S.W.3d at 61
(delegation clause empowered arbitrator to decide whether the parties' dispute was within the scope of the arbitration agreement); IHS Acquisitions No. 171, Inc. v. Beatty-Ortiz,387 S.W.3d 799, 808
(Tex. App.-El Paso 2012, no pet.) (delegation clause empowered arbitrator to decide whether arbitration agreement was illusory); Saxa,312 S. W.3d at 229
(delegation clause
empowered arbitrator to decide whether joinder of parties was proper under the arbitration
agreement). In deciding a motion to compel arbitration, the trial court has no discretion to refuse
to enforce a clause that authorizes the arbitrator to decide these issues. Ernst & Young LLP v.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 11
26
Martin, 278 S.W.3d 497, 500 (Tex. App.-Houston [14th Dist.] 2009, no pet.) ("[A]n arbitration
clause that reallocates traditional court functions to the arbitrator is enforceable and crumot serve
as a basis for denying a motion to compel arbitration.").
The Arbitration Agreement and the Employee Handbook clearly and
unmistakably vest jurisdiction over arbitrability to the arbitrator. The Arbitration Agreement
specifies that arbitration will occur "in accordance with the rules of the American Arbitration
Association." Aff. Exh. C. The Employee Handbook states that "[t]he arbitration proceeding
will be conducted under the Employment Dispute Resolution Rules of the American Arbitration
Association." Aff. Exh. Fat 84. Under the AAA's Rules for employment cases, "[t]he arbitrator
shall have the power to rule on his or her own jurisdiction, including any objections with respect
to the existence, scope or validity of the arbitration agreement." AAA Employment Arbitration
Rules at 17, ~ 6(a). 1
A provision that incorporates the AAA Rules clearly and unmistakably delegates
substantive arbitrability to the arbitrator. See Saxa Inc., 312 S.W.3d at 229. In Saxa, for
example, the parties' arbitration agreement provided that "any claim, dispute or other matter in
question arising out of or related to" the contract "shall be subject to arbitration." /d. In
addition, the agreement stated that arbitration would occur in accordance with the AAA's
Construction Industry Arbitration Rules, which give the arbitrator power "to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or validity of the
arbitration agreement." /d. at 228-29. The Court compelled arbitration of the parties' dispute
over arbitrability-in that case, whether the joinder of parties was appropriate. ''When, as here,
the parties agree to a broad arbitration clause and explicitly incorporate rules that empower an
1
A copy of the AAA Employment Arbitration Rules & Mediation Procedures is available at
https:/ /www .adr. org/aaa!Show Property?nodel d=/U CM/AD RSTG.~ 004362&revi sion=latestre leased.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION Page 12
27
arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable
evidence of the parties' intent to delegate such issues to an arbitrator." /d. at 230. The Court
emphasized that a majority of courts have reached this same conclusion. !d. (collecting cases);
see also Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.
2012) ("We agree with most of our sister circuits that the express adoption of the [the AAA]
rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.").
Bazan-Garcia assented to an arbitration agreement that empowers the arbitrator to
decide arbitrability because the Arbitration Agreement and the Employee Handbook incorporate
the AAA Rules' delegation provision-the same provision at issue in Saxa. See Aff. Exh. C;
Aff. Exh. F at 84. This delegation provision does not prohibit Bazan-Garcia from raising any
challenges to the parties' arbitration agreement, including challenges based on the validity of the
parties' signatures, the scope of the agreement, any alleged waiver of arbitration by WRPS, or
whether the agreement is illusory or unconscionable. It does, however, require Bazan-Garcia to
pursue these challenges in the forum of arbitration, not the court.
IV. Prayer
WRPS prays that the Court grant its Motion to Compel Arbitration and abate and
stay a11 proceedings in this lawsuit until arbitration has been completed.
DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRA TJON Page 13
28
E-FILED
2014CV01064 Bexar County, County Clerk
Gerard Rickhoff
Accepted Date: 11/5/2014 4:29:41 PM
Accepted By: Elizabeth Torres
CAUSE NO. 2014CV01064 lsi Elizabeth Torres
Deputy Clerk
PAULA BAZAN-GARCIA) § IN THE COUNTY COURT
§
Plaintiff. §
§
v. § ATLAWN0.03
§
WESlERN RIM PROPERTY SERVICES1 §
INC. §
§
Defendant. § BEXAR COUN1YJ TEXAS
PLAINTIFF'S RESPONSE IN OPPOSITION TO
DEFENDANTlS MOTION TO COMPEL ARBITRATION,
REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition
to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an
Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully
show the Cow:t :as follows~
I. RELIEF REQUESTED
Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged
Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:
1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
her burden of proof;
2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
split the cost of the 1u:bitrarion fees with the Defendant; and
3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
arbitrate her claims in Dalb.s County.
Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
'
Compel.Atbitmtion.
1
72
Submit Date:11/5/2014 4:06:30 PM
E-FILED
2014CV01064 Bexar County, County Clerk
Gerard Rickhoff
Accepted Date: 11/5/2014 4:29:41 PM
Accepted By: Elizabeth Torres
CAUSE NO. 2014CV01064 lsi Elizabeth Torres
Deputy Clerk
PAULA BAZAN-GARCIA) § IN THE COUNTY COURT
§
Plaintiff. §
§
v. § ATLAWN0.03
§
WESlERN RIM PROPERTY SERVICES1 §
INC. §
§
Defendant. § BEXAR COUN1YJ TEXAS
PLAINTIFF'S RESPONSE IN OPPOSITION TO
DEFENDANTlS MOTION TO COMPEL ARBITRATION,
REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition
to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an
Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully
show the Cow:t :as follows~
I. RELIEF REQUESTED
Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged
Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:
1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
her burden of proof;
2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
split the cost of the 1u:bitrarion fees with the Defendant; and
3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
arbitrate her claims in Dalb.s County.
Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
'
Compel.Atbitmtion.
1
72
Submit Date:11/5/2014 4:06:30 PM
II. BRIEF BACKGROUND
At sll times t:elevant to this cause of action Plaintiff was employed by Defendnnt and was
working .in the course and scope of her employment Defendant is 1an employer that is a
'{subscriber'' to the wotk.ets' compensation system at all times material to this action. On or about
Octobet 22, 2013, soon aftet Plaintiff sustained an on-the-j,ob injuty and filed a. wodrers'
oo.tnpensation claim, Pl'.!inriffwas tennin;u.ed for a pte--textual tes.son.
Prior to filing suit in this caseJ on o:t about Decernbru: 9, 2013> Phintiff sent a let.te.t to
Defendant. requesting any existing atbittation ~gteetnent be produced to OOWlsel within th.il:ty days,
so that Plaintiff tnay emuate any existing arbittation 11greement and file her suit .in the ptopet
forum. Plaintiffs counsel never 1-eceived a tesponse, so, .months later) Plaintiff filed this action in
the County Court of Bexar County, Texas. On or 11.bout September 12, 2014. Plaintiff received
Defendant's Original .Answer, wlllch did not include a .tequest for the Coutt to compel arbitration.
It was not until Octo bet 15, 2014, that Defendant ftled its Motion to Compel Arbitration.
Subsequently, it was discovered that as a pretequisite to Plaintiffs employment with
Defendant, Plaintiff was gi~en an .Arbit.tation Agtee:tnent. The Agreernent provides the following
selected pmvis.ions:
Each Patty to arbitration shall be entitled to take only one deposition. Any
11
atbitration relating to any dispute covered by this Agreement shall be arbitrated in
Dallas County, Texas.)) S11e Defendant's Motion to Compel Arbitration, Exhibit C.
In addition, Defen.dant>s Employee H:mdbook, which contains the Arbitration Ag.~:eement)
requites Plaintiff to split the costs. of the arbitration. The Handbook states, ,..[e]mployees who
choose to use the atbittation process to resolve a ptoblem will be expected to shate the cost of the
atb.i.tration proceeding with WRPS, LP.') SB~ Defendant's Motion to Compel Atbitrntion, Exhibit
G.
2
73
Pliililtiff argues that these provisions make the Arbitration Agteement unconscionable
because it (1) is one-sided and significantly limits the discovery tools available to Plaintiff hll.d
Pl~intiff.s case been bmught in a Bexat County Cou:rt; (2) requires Plaintiff to split the asttonomical
cost of arbit:tation and .incm substantii!l debt in order to proceed with her case; snd (3) tequites
Plaintiff to conduct atbittation in DallM County, Texas, which further requites Plaintiff to incut
substantial addition~! debt to continue with her case, Fot these reasons, Pl~intifÂŁ respectfully tequest
this Court deny Defendant's Motion to Compel Arbittation.
Should this Court grant Defend~nt's Motion to Compel Arbitration, Plaintiff respectfully
tequests this Court grant Pl~intiff costs and attorneys} fees stelil!IUng ftom Defendant's fllilute to
provtde this Arbitration Agreement prior to the time of filing suit. Plruntiff attetnpted to discover
this information prim: to filing suit io otdet to avo.id incurring these costs ~nd, due to Defendant's
f~ilute to tespond, Plaintiff incutted approximately $261.34 in filing fees~ $85.00 in process serving
fees) and $750.00 .in attorneys' fees. As a s~nction for Defendants conduct. Plaintiff requests a total
~mount of$1,096.34 be awarded to Plaintiff to cover the costs incurted,
III. ARGUMENTS AND AUTHORITIES
A. REQUEST FOR EVIDENTIARY HEARING ON DISPUTED FACTS
A p~rty seeking- to compel arbitration must fu:st establish the existence of an atbittation
agteernent -and show the cWms raised fall within the scope of the agteem.ent. See JM David!YJn, Inc,
1!. Webster, 128 S.W.3d 223, 227(Tex. 2003)~ In re Oakwood MJJbils Home~, Inc.~987 S.W.2d 571
~ 573 (fex. 1999); I11 tt Btmzl USA, Inc.~155 S.W.3d 202
) 209 (T~. App.-El Paso 2004). The party m.oving fot atblttation must show that the claim is subject. to a valid atbit:tation 11greement. In rc Oifymy Healrb ccm~ Inc.310 S.W.3d 419, 422
(Tex. 2010). When~ patty resists ubitration, the trial
coutt must determine whethex a valid ru:hittation agreement exists. Id.; TRx. Crv. PRAC. & REM.
CODE§ 171.021.
3
74
The trial coutt may sutnmarily decide whether to cotnpel atbittation on the basis of
affidavits, pleadings, discovery, ~md stipulations. However, if the material facts necessaxy to
determine the issue ate controverted) by an opposing affidavit or otherwise admissible evidence, the
trial court tnust conduct ~n evidentiary hearing to detemline the disputed matetial facts. Hofl.flofl Pipe
line Co., LP. tJ. O'Conmr.& H,JVitt, Ltd.âą 269 S.W.3d 90) 99 (Tex. App.-Corpus Christi 2008); TEx.
CIV. PRAC. &REM. CODE§ 171.021; In~ Bwr{/ USA, Inc:, 155 S.WJd 202. 209 (rex. App.-El Paso
2004).
There are nume:tou~ disputed ruatetial facts that go directly to the question whether the.re is
an enforceable agteetnent to arbitrate. Plaintiff accordingly requests an evid.entiaty hearing, and
fw:thet tequests the Court to allow limited discovery prior to the evidentiary h~ring on issues
tekted to whether there is an enforceable agreement to a:tbitrate in this case, as .tnore fully described
below.
B. ARBITRATION AND SUBSTANTIVE UNCONSCIONABlUTY
Under Texas law, as with any other contract. agteeruents to arbitrate are valid unless grounds
exist jlt law o.t .in equity for .revocation of the agteem.ent. In re PofyAmcrica, LP., 262 S.W.3d 337, 348(Tex. 2008). The burden of pt:oving .such a ground--such jlS fraud, unconscionability or voidness _under public policy-falls on the party opposing the cont:ract.Id.
Agreetnents to arbitrate disputes between employets and employees 111e generQUy enforceable unde1 Texas law. There is nothing per te unconscion11ble about an agreement to atbi.tnte employment disputes and, in fact. Texas 1~w has historically favored agteements to 1esolve such disputes by atbit.r'ation. SM Ad(Jemce PCS, 172 S.W.3d jlt 608; EZ Paw11 Corp. 11. Manr:ia.t,934 S.W.2d 87, 90
(Tex. 1996); Cant~lla & Co. v. Good111in,924 S.W.2d 943
} 944 (I'ex. 1996). However. unconscionability is a defense to ·an atbittation agreement. TMJ, I~c: Z>J, Brook.r.225 S.W.3d 783, 792
(fe:x-. App.-Houston 14111 Dist.
2007), Accordingly) an agteernent to arbitrate is valid absent grounds fo.r the .revocation of a
4
75
contract, such as unconscionability. TEX. Civ. PRAC. & REM. CODE§ 171.001 (Vernon 2005); OJ.rhnn
Fbund. fupairCo. tJ.Ayalo, 180 S.W.3d 212, 214~215 (Tex. App.--San Antonio 2005).
As a general rule, the term 'âąunconscionability'" describes a contract that is unfair be·~use of
its overall on~sidedness or the gross one--s.ideclness of one of its tet:m~. ld. NeV'etthdess,
"un<:onscionability" has no precise legal definition because it is not a concept but a detenninatio.n.to
a
be rna.de in light of a variety of factors. Id.Unconscionability is to be deteunined in light of variety of fitcto.tst which aim to prevent opptessioo and unfair sutprise; in general, a contract will be foWld unconscionable if it .is grossly one-sided. Set Dw B. Dobbs, 2 LAw OF REMEDIES 703t 706 (2d ed. 1993)~ Jet p/.Jo RESTATEMENT (SECOND) OF CONTRACTS§ 208, Clllt. a (1979). Whethet a contract is contt-.ary to public policy ot unconscionable at the time it is fortned is a question of law. HfJffVBr Sht1t.1ce.k 1LP v. Walt1Jn1206 S.W.3d 557, 562
(fex. 2006).
Coutts may consider both subswulve and procedural unconscionability when evaluating the
"t'lilidity of an arbitration provision. I11 ~ Hallib11rton Co., 80 S.W.3d 566> 572 (fex. 2002). ((Substantive wiconscionab.llity refers to the fairness of the athitr9.tion provision itself, whereas p.tocedw:al unconscionability refers to the circumstances suttounding adoption of the w;bitration provision.>t Inn: Palm Haroor Ho11m, [lfc.~195 S.W.3d 672, 677
(Tex. 2006).
a) LlMlTING PLAINTIFF'S AIIILITY TO UTIUZE DISCOVERY PROCEDURES PERMlT'IED
BY THE TEXAS RULES O:F CIVIL PROCEDURE IS SUBSTANTIVELY UNCONSCIONABLE
The Texas Supretne Coutt hru; held that <cwhete the undetlying substantive tight is not
wruvable, ex ante funitl\tions OD disCO'Q'ery that unteasonably ttn.pede effectiYe prosecution of such
rights are likewise unenfo.tceable!' In'~ Po!J·Am6rica, 262 S.W.3d at 358. In this case, since Plaintiff
beats the butden of ptoof in this case, the Agtee.tnent's limitation on discovery to only pe..tmit one
deposition, 5e-rerely handi<:aps Pbintiff's ability to litigate her claims. This caS'e is cUite.ady being
conducted undet a level two-discovery plan. Therefo.te, Should Plaintiff be able to litigate het: cbitns
5
76
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine
Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that
Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to
depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo
depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the
ciJ:cums~ntial evidence of .reblliation with just one deposition. See Exhibit A, Af.fid~vlt of J~vi.et
Espinon.
These lliniu.tions again have been placed to limit the employee's claims while not inhibiting
Defendant's ability to defend these suits. Genually, an. employer in workers' compensation
retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the
documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that
must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of
proof in these cases.
Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s
dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
. .
S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.
b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
SUBSTANTIVELY UNCONSCIONABLE.
The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of
~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement substanti"'ely
unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215(Tex. App.---San Antonio 2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb,531 U.S. 79, 91
(2000)~ In~~ Fu-sf Merit Bank, N.A.,52 S.W.3d 749, 745
(I'ex. 2001).
The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation
with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet
6
77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,
PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will
probably not pursue het claim in arbitration should she be compelled to submit her claim before an
atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.
The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be
incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of
Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of
blking a risk of incuning a debt exceeding $1 0)000.00. is " (;OSt significandy too high fat the Plaintiff
to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.
The United States Sup.[eme Coutt recognized .in Gmn Tree Financial Corp~ Akl. l!. Rnndolph
that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating
her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala. tr, Rt:Jndolph, 531 U.S.
79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs
arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims
in atbitnttion.
One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:
longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~
OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has
further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient
alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld
effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the
atbit.tation agreement may be substantively unconscion1thle. !d. Addition~lly, the United States
1
In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.
7
78
Supterne Cmnt has held that statutory claims may be arblttated "'so long as the ptospecti'lre litigant
effectively may vindicate (his or herJ statutory cause of action in the atbittal forum." Green TmJ 531
U.S. at 90(citing Giln.~enâą. Interstate/John.rrm Lme Cotp.,500 U.S. 20
1 28 (1991)). Further, an arbitration
agreement may render a contract substantively unconscionable if ('the existence of latge arbitration
costs could preclude a litigant ... ftom effectively vindicating (his or her] federal statutory tjghts in
the arbitral forum." Id.J· JM also In re Pofy.AmeJica, 262 S.WJd at 355-57; FirstMerit Bemk. 52 S.W.3d ~t
756 (citing Grmr Tm, 531 U.S. at 91).
\Vhen '<a party seeks to inv~date an atbitration agteem.ent on the gtound that arbitration
would be prohibitively expensive. thflt patty heAts the butden of show.ing the likelihood of incurting
S'Uch costs."G1l'M Tne, 531 U.S. ll.t 92. The courts likewise requite some evidence tlutt a complaining
patty will likely incur arbitration costs in such an iltnOunt as to deter enforcement of statutory rjghts
in the arbil:t1;!1 fo.tuln, Sef Inn 0/sh(J'JI Found. &pair Co. LLC. 328 S.W.3d 883,895 (Tex.2010).
The Coutt in Gre~fJ T~e did n.oc explain haw deta.il.ed the showing of prohibitive expense
need to be in o.tdet to invalidate an arbitration agreement. Gr~en Tm, 531 U.S. at 92 ("How detailed .
'
the showing of prohibitive expense must be before the party seeking atbitration must come forward
with contrary evidence is a lnll.ttet we need not discuss ... âą} Howeve.t, a numbex of federal courts
of appeals, relying on Gree11 Tree. have a.pplied·a caS8-by-case ana!J.fi! of the effect the ~rbitration clause
has on a patticulat plaintiffs ability to effectively vindicate his or her tights. Sf?e, e.g., MK.rnick v. Ki11g
Motor Co. ojFort Landmiale, 325 F.3d 1255, 1259 (11m Cit. 2003) ("Since Gm11 Trw, all but one of the
other Citcuits thar have reconsidered this issue have applied a similat case-by-case approll.ch.';); Blilir
v. Scott Spetialtp G,:ms, 283 F.3d 595, 609-10(3d Cir. 2002); BratftJrd v. Rnckwell Semuond1ttt1Jr Sy.r. 1 Inc.,238 F.3d 549, 556
(4th Cir. 2001); L1Prade v. Kidd~r, Peabot!J & Co., !lie.,246 F.3d 702, 708
, (D.C. Cir. 2001). But m Circuit Ci!J Stores, Int. v. Adams,279 F.3d 889, 895
(9th Cir. 2002) (holding that plaintiff
employees should not <âąh11Ye to pay either unreasonable costs ox any arbitratots' fees ot expenses as i\
8
79
condition of access to the arbitration fonun'). Coutts acwss the countty hl\'O"e univetsally
condenm.ed the use of fee-splitting agtee:nents in employment contracts that have the effect of
det.e.rring potential litigants from vindicating theit statutory rights in an arbittal forutn. Se, Gmn
Tm, 531 U.S. at 90-91. Some courts have gone so faa: as to find fee-sharing agreements unenforceableptrs8. S86', e.g.âą Cole v. B11m! Int 'I Sec. See al.ro SeroJ.,105 F.3d 1465
. 1483-BS (D.C. Cit. 1995), cimd in Ha!Jil:nlr!MJ80 S.W.3d at 572
; Slxmkk v. B-G Mflint. Mgmt. of Com., Iru:.,163 F.3d 1230, 1233-35
(10th Cit. 1999); P(J/atliflo t~. Aunet Campxt~r nrhJ.~ Inc.,134 F.3d 1054
, 1062 (11th Cit. 1998). Coutts :te~son that "an employee Qltl never be required) as a condition of employment:, to pay Qn arbittator's compensation in orde.t to secure the resolution of statutory claims ... [I'Jhis would sutely deteJ: the b.tinging of !u:bitration and constitute a de facto fotfeitute of statutory tights." CfJiq,105 F.3d at 1468
.
The court in Col, reasoned that an employee can fi~V~r be tequired, as a condition of
employment, to pay an arbittatot's compensation in ordet to s.eC'l::!re the resolution of statutory
daims under Title VII any tnote than an etnpfoyee can be made to pay a judge's salary. CfJk, 105
F.3d Jtt 1468. The Court fu.tthet .reasoned that) if there is any risk thtl.t an atbittation agreement can
be consttued to requite this tesul~ it would surely detet the brmging of arbit.ratioO: ru1d constitute a
de facto foo::feiture of the employee's statutory rights. The only way that an ~bittation agtee.tnent of
the son at issue hete can be lawful is if the employer assumes responsibility for the payment of the
arbimtor's rompens'.l.tion. Id.
The Fourth Cir.cuirs apptaa.ch in Bradford v. &ckJJI8!/ SemicohdJKI()f Sy!tfms, Inc. is particulatly
instructive in determining that the proper antl.lysis "evalut~tes whethex the arbitral forum in a
pauicuhu: case is an adequate and accessible substitute to litigation.» In re O!sha11 Fo11nd. fupair Co.,
LLC., 32B S.W.3d 883, 893-894 (Tex-.2010) affirmatively citing Bra4ford v. Rod":we/1 SemkfJnd11dor
.fyJfems. !11~, 238 F.3d 549t 556 (4th Ch:. 2001). That inquiry requites '<a case-by-case ilni~lysis thllt
9
80
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the
expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost
diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,
328 S.W.3d 883, 893-894(I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes, but what the totil.l cost to the claimant to plll:sue the claim is.Id.
Requiring Pl~intiff to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,
fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to
b:cing het statutory wwngful termination claim ~gainst her etnployet is a strong deterient from
bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect
of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur
even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of
Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.
If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in
Dallas County, wd risk having to pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she
will ptobably not continue with her dl.im. See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since
there is a risk that Plmtiff be xequiled to pRy the a.~:bitration fees, the alleged Agreement .is
substantively unconscionable and un.enforceJ\ble. In iiddition, the .risk of inc:uning such 11
prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn
in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-
rights~ exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore
making it unenforceable undet: Texas law.
III. CONCLUSION
The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds
when considering the sophistication of both parties. The agreement .requires Plaintiff to split the
10
81
cost of the Atbitrat:ion and risk i.acmting debt in excess of $10,000. Moreover, the Atblttation
Agreement requites Pl2indff incut e~en mote debt by conducting the arbittation in Dallas County.
Fu.tthertnote, when consider.ing the additional discovery funitations. it is obvious that the Agreement
was drafted and designed to favor Defendant over its unsophisticated, uneducated employees and
should therefore also be consideted unconscioruble by this Coutt, For these teasom. Defendant's
Motion to Compel Atbittation should be denied. and Plaintiff should be peimitted to continue to
pursue het statutory claitns ag1l.inst Defendant in this forum.
IV. PRAYER
WHEREFORE PREMISES CONSIDEREDt Plafutiff preys that m evidenti!UJ hearing
be set and that the Judge deny Defendant's Motion to Compel Arbitration and for such futther relief
that Plaintiff ruay show is justly entitkd.
Respectfully submitted,
THE ESPINOZA LAW FIRMt PLLC
Attome)III for Claitnant
5()3 E. Ratmey) St.e. 103
Sr.tn Antonio, Texas 78216
210.229' 1300 t
210.229.1302 f
www.espinozafittn.com
~ Tex11s Bat No. 24036534
Steven Sachs
Texa.s Bar No. 24074995
JOSUE F. GARZA
Texas Bar No. 24072737
11
82
E-FILED
2014CV01064 Bexar County, County Clerk
Gerard Rickhoff
Accepted Date: 11/5/2014 4:29:41 PM
Accepted By: Elizabeth Torres
CAUSE NO. 2014CV01064 lsi Elizabeth Torres
Deputy Clerk
PAULA BAZAN-GARCIA) § IN THE COUNTY COURT
§
Plaintiff. §
§
v. § ATLAWN0.03
§
WESlERN RIM PROPERTY SERVICES1 §
INC. §
§
Defendant. § BEXAR COUN1YJ TEXAS
PLAINTIFF'S RESPONSE IN OPPOSITION TO
DEFENDANTlS MOTION TO COMPEL ARBITRATION,
REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition
to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an
Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully
show the Cow:t :as follows~
I. RELIEF REQUESTED
Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged
Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:
1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
her burden of proof;
2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
split the cost of the 1u:bitrarion fees with the Defendant; and
3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
arbitrate her claims in Dalb.s County.
Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
'
Compel.Atbitmtion.
1
72
Submit Date:11/5/2014 4:06:30 PM
II. BRIEF BACKGROUND
At sll times t:elevant to this cause of action Plaintiff was employed by Defendnnt and was
working .in the course and scope of her employment Defendant is 1an employer that is a
'{subscriber'' to the wotk.ets' compensation system at all times material to this action. On or about
Octobet 22, 2013, soon aftet Plaintiff sustained an on-the-j,ob injuty and filed a. wodrers'
oo.tnpensation claim, Pl'.!inriffwas tennin;u.ed for a pte--textual tes.son.
Prior to filing suit in this caseJ on o:t about Decernbru: 9, 2013> Phintiff sent a let.te.t to
Defendant. requesting any existing atbittation ~gteetnent be produced to OOWlsel within th.il:ty days,
so that Plaintiff tnay emuate any existing arbittation 11greement and file her suit .in the ptopet
forum. Plaintiffs counsel never 1-eceived a tesponse, so, .months later) Plaintiff filed this action in
the County Court of Bexar County, Texas. On or 11.bout September 12, 2014. Plaintiff received
Defendant's Original .Answer, wlllch did not include a .tequest for the Coutt to compel arbitration.
It was not until Octo bet 15, 2014, that Defendant ftled its Motion to Compel Arbitration.
Subsequently, it was discovered that as a pretequisite to Plaintiffs employment with
Defendant, Plaintiff was gi~en an .Arbit.tation Agtee:tnent. The Agreernent provides the following
selected pmvis.ions:
Each Patty to arbitration shall be entitled to take only one deposition. Any
11
atbitration relating to any dispute covered by this Agreement shall be arbitrated in
Dallas County, Texas.)) S11e Defendant's Motion to Compel Arbitration, Exhibit C.
In addition, Defen.dant>s Employee H:mdbook, which contains the Arbitration Ag.~:eement)
requites Plaintiff to split the costs. of the arbitration. The Handbook states, ,..[e]mployees who
choose to use the atbittation process to resolve a ptoblem will be expected to shate the cost of the
atb.i.tration proceeding with WRPS, LP.') SB~ Defendant's Motion to Compel Atbitrntion, Exhibit
G.
2
73
Pliililtiff argues that these provisions make the Arbitration Agteement unconscionable
because it (1) is one-sided and significantly limits the discovery tools available to Plaintiff hll.d
Pl~intiff.s case been bmught in a Bexat County Cou:rt; (2) requires Plaintiff to split the asttonomical
cost of arbit:tation and .incm substantii!l debt in order to proceed with her case; snd (3) tequites
Plaintiff to conduct atbittation in DallM County, Texas, which further requites Plaintiff to incut
substantial addition~! debt to continue with her case, Fot these reasons, Pl~intifÂŁ respectfully tequest
this Court deny Defendant's Motion to Compel Arbittation.
Should this Court grant Defend~nt's Motion to Compel Arbitration, Plaintiff respectfully
tequests this Court grant Pl~intiff costs and attorneys} fees stelil!IUng ftom Defendant's fllilute to
provtde this Arbitration Agreement prior to the time of filing suit. Plruntiff attetnpted to discover
this information prim: to filing suit io otdet to avo.id incurring these costs ~nd, due to Defendant's
f~ilute to tespond, Plaintiff incutted approximately $261.34 in filing fees~ $85.00 in process serving
fees) and $750.00 .in attorneys' fees. As a s~nction for Defendants conduct. Plaintiff requests a total
~mount of$1,096.34 be awarded to Plaintiff to cover the costs incurted,
III. ARGUMENTS AND AUTHORITIES
A. REQUEST FOR EVIDENTIARY HEARING ON DISPUTED FACTS
A p~rty seeking- to compel arbitration must fu:st establish the existence of an atbittation
agteernent -and show the cWms raised fall within the scope of the agteem.ent. See JM David!YJn, Inc,
1!. Webster, 128 S.W.3d 223, 227(Tex. 2003)~ In re Oakwood MJJbils Home~, Inc.~987 S.W.2d 571
~ 573 (fex. 1999); I11 tt Btmzl USA, Inc.~155 S.W.3d 202
) 209 (T~. App.-El Paso 2004). The party m.oving fot atblttation must show that the claim is subject. to a valid atbit:tation 11greement. In rc Oifymy Healrb ccm~ Inc.310 S.W.3d 419, 422
(Tex. 2010). When~ patty resists ubitration, the trial
coutt must determine whethex a valid ru:hittation agreement exists. Id.; TRx. Crv. PRAC. & REM.
CODE§ 171.021.
3
74
The trial coutt may sutnmarily decide whether to cotnpel atbittation on the basis of
affidavits, pleadings, discovery, ~md stipulations. However, if the material facts necessaxy to
determine the issue ate controverted) by an opposing affidavit or otherwise admissible evidence, the
trial court tnust conduct ~n evidentiary hearing to detemline the disputed matetial facts. Hofl.flofl Pipe
line Co., LP. tJ. O'Conmr.& H,JVitt, Ltd.âą 269 S.W.3d 90) 99 (Tex. App.-Corpus Christi 2008); TEx.
CIV. PRAC. &REM. CODE§ 171.021; In~ Bwr{/ USA, Inc:, 155 S.WJd 202. 209 (rex. App.-El Paso
2004).
There are nume:tou~ disputed ruatetial facts that go directly to the question whether the.re is
an enforceable agteetnent to arbitrate. Plaintiff accordingly requests an evid.entiaty hearing, and
fw:thet tequests the Court to allow limited discovery prior to the evidentiary h~ring on issues
tekted to whether there is an enforceable agreement to a:tbitrate in this case, as .tnore fully described
below.
B. ARBITRATION AND SUBSTANTIVE UNCONSCIONABlUTY
Under Texas law, as with any other contract. agteeruents to arbitrate are valid unless grounds
exist jlt law o.t .in equity for .revocation of the agteem.ent. In re PofyAmcrica, LP., 262 S.W.3d 337, 348(Tex. 2008). The burden of pt:oving .such a ground--such jlS fraud, unconscionability or voidness _under public policy-falls on the party opposing the cont:ract.Id.
Agreetnents to arbitrate disputes between employets and employees 111e generQUy enforceable unde1 Texas law. There is nothing per te unconscion11ble about an agreement to atbi.tnte employment disputes and, in fact. Texas 1~w has historically favored agteements to 1esolve such disputes by atbit.r'ation. SM Ad(Jemce PCS, 172 S.W.3d jlt 608; EZ Paw11 Corp. 11. Manr:ia.t,934 S.W.2d 87, 90
(Tex. 1996); Cant~lla & Co. v. Good111in,924 S.W.2d 943
} 944 (I'ex. 1996). However. unconscionability is a defense to ·an atbittation agreement. TMJ, I~c: Z>J, Brook.r.225 S.W.3d 783, 792
(fe:x-. App.-Houston 14111 Dist.
2007), Accordingly) an agteernent to arbitrate is valid absent grounds fo.r the .revocation of a
4
75
contract, such as unconscionability. TEX. Civ. PRAC. & REM. CODE§ 171.001 (Vernon 2005); OJ.rhnn
Fbund. fupairCo. tJ.Ayalo, 180 S.W.3d 212, 214~215 (Tex. App.--San Antonio 2005).
As a general rule, the term 'âąunconscionability'" describes a contract that is unfair be·~use of
its overall on~sidedness or the gross one--s.ideclness of one of its tet:m~. ld. NeV'etthdess,
"un<:onscionability" has no precise legal definition because it is not a concept but a detenninatio.n.to
a
be rna.de in light of a variety of factors. Id.Unconscionability is to be deteunined in light of variety of fitcto.tst which aim to prevent opptessioo and unfair sutprise; in general, a contract will be foWld unconscionable if it .is grossly one-sided. Set Dw B. Dobbs, 2 LAw OF REMEDIES 703t 706 (2d ed. 1993)~ Jet p/.Jo RESTATEMENT (SECOND) OF CONTRACTS§ 208, Clllt. a (1979). Whethet a contract is contt-.ary to public policy ot unconscionable at the time it is fortned is a question of law. HfJffVBr Sht1t.1ce.k 1LP v. Walt1Jn1206 S.W.3d 557, 562
(fex. 2006).
Coutts may consider both subswulve and procedural unconscionability when evaluating the
"t'lilidity of an arbitration provision. I11 ~ Hallib11rton Co., 80 S.W.3d 566> 572 (fex. 2002). ((Substantive wiconscionab.llity refers to the fairness of the athitr9.tion provision itself, whereas p.tocedw:al unconscionability refers to the circumstances suttounding adoption of the w;bitration provision.>t Inn: Palm Haroor Ho11m, [lfc.~195 S.W.3d 672, 677
(Tex. 2006).
a) LlMlTING PLAINTIFF'S AIIILITY TO UTIUZE DISCOVERY PROCEDURES PERMlT'IED
BY THE TEXAS RULES O:F CIVIL PROCEDURE IS SUBSTANTIVELY UNCONSCIONABLE
The Texas Supretne Coutt hru; held that <cwhete the undetlying substantive tight is not
wruvable, ex ante funitl\tions OD disCO'Q'ery that unteasonably ttn.pede effectiYe prosecution of such
rights are likewise unenfo.tceable!' In'~ Po!J·Am6rica, 262 S.W.3d at 358. In this case, since Plaintiff
beats the butden of ptoof in this case, the Agtee.tnent's limitation on discovery to only pe..tmit one
deposition, 5e-rerely handi<:aps Pbintiff's ability to litigate her claims. This caS'e is cUite.ady being
conducted undet a level two-discovery plan. Therefo.te, Should Plaintiff be able to litigate het: cbitns
5
76
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine
Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that
Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to
depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo
depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the
ciJ:cums~ntial evidence of .reblliation with just one deposition. See Exhibit A, Af.fid~vlt of J~vi.et
Espinon.
These lliniu.tions again have been placed to limit the employee's claims while not inhibiting
Defendant's ability to defend these suits. Genually, an. employer in workers' compensation
retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the
documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that
must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of
proof in these cases.
Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s
dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
. .
S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.
b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
SUBSTANTIVELY UNCONSCIONABLE.
The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of
~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement substanti"'ely
unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215(Tex. App.---San Antonio 2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb,531 U.S. 79, 91
(2000)~ In~~ Fu-sf Merit Bank, N.A.,52 S.W.3d 749, 745
(I'ex. 2001).
The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation
with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet
6
77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,
PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will
probably not pursue het claim in arbitration should she be compelled to submit her claim before an
atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.
The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be
incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of
Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of
blking a risk of incuning a debt exceeding $1 0)000.00. is " (;OSt significandy too high fat the Plaintiff
to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.
The United States Sup.[eme Coutt recognized .in Gmn Tree Financial Corp~ Akl. l!. Rnndolph
that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating
her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala. tr, Rt:Jndolph, 531 U.S.
79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs
arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims
in atbitnttion.
One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:
longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~
OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has
further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient
alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld
effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the
atbit.tation agreement may be substantively unconscion1thle. !d. Addition~lly, the United States
1
In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.
7
78
Supterne Cmnt has held that statutory claims may be arblttated "'so long as the ptospecti'lre litigant
effectively may vindicate (his or herJ statutory cause of action in the atbittal forum." Green TmJ 531
U.S. at 90(citing Giln.~enâą. Interstate/John.rrm Lme Cotp.,500 U.S. 20
1 28 (1991)). Further, an arbitration
agreement may render a contract substantively unconscionable if ('the existence of latge arbitration
costs could preclude a litigant ... ftom effectively vindicating (his or her] federal statutory tjghts in
the arbitral forum." Id.J· JM also In re Pofy.AmeJica, 262 S.WJd at 355-57; FirstMerit Bemk. 52 S.W.3d ~t
756 (citing Grmr Tm, 531 U.S. at 91).
\Vhen '<a party seeks to inv~date an atbitration agteem.ent on the gtound that arbitration
would be prohibitively expensive. thflt patty heAts the butden of show.ing the likelihood of incurting
S'Uch costs."G1l'M Tne, 531 U.S. ll.t 92. The courts likewise requite some evidence tlutt a complaining
patty will likely incur arbitration costs in such an iltnOunt as to deter enforcement of statutory rjghts
in the arbil:t1;!1 fo.tuln, Sef Inn 0/sh(J'JI Found. &pair Co. LLC. 328 S.W.3d 883,895 (Tex.2010).
The Coutt in Gre~fJ T~e did n.oc explain haw deta.il.ed the showing of prohibitive expense
need to be in o.tdet to invalidate an arbitration agreement. Gr~en Tm, 531 U.S. at 92 ("How detailed .
'
the showing of prohibitive expense must be before the party seeking atbitration must come forward
with contrary evidence is a lnll.ttet we need not discuss ... âą} Howeve.t, a numbex of federal courts
of appeals, relying on Gree11 Tree. have a.pplied·a caS8-by-case ana!J.fi! of the effect the ~rbitration clause
has on a patticulat plaintiffs ability to effectively vindicate his or her tights. Sf?e, e.g., MK.rnick v. Ki11g
Motor Co. ojFort Landmiale, 325 F.3d 1255, 1259 (11m Cit. 2003) ("Since Gm11 Trw, all but one of the
other Citcuits thar have reconsidered this issue have applied a similat case-by-case approll.ch.';); Blilir
v. Scott Spetialtp G,:ms, 283 F.3d 595, 609-10(3d Cir. 2002); BratftJrd v. Rnckwell Semuond1ttt1Jr Sy.r. 1 Inc.,238 F.3d 549, 556
(4th Cir. 2001); L1Prade v. Kidd~r, Peabot!J & Co., !lie.,246 F.3d 702, 708
, (D.C. Cir. 2001). But m Circuit Ci!J Stores, Int. v. Adams,279 F.3d 889, 895
(9th Cir. 2002) (holding that plaintiff
employees should not <âąh11Ye to pay either unreasonable costs ox any arbitratots' fees ot expenses as i\
8
79
condition of access to the arbitration fonun'). Coutts acwss the countty hl\'O"e univetsally
condenm.ed the use of fee-splitting agtee:nents in employment contracts that have the effect of
det.e.rring potential litigants from vindicating theit statutory rights in an arbittal forutn. Se, Gmn
Tm, 531 U.S. at 90-91. Some courts have gone so faa: as to find fee-sharing agreements unenforceableptrs8. S86', e.g.âą Cole v. B11m! Int 'I Sec. See al.ro SeroJ.,105 F.3d 1465
. 1483-BS (D.C. Cit. 1995), cimd in Ha!Jil:nlr!MJ80 S.W.3d at 572
; Slxmkk v. B-G Mflint. Mgmt. of Com., Iru:.,163 F.3d 1230, 1233-35
(10th Cit. 1999); P(J/atliflo t~. Aunet Campxt~r nrhJ.~ Inc.,134 F.3d 1054
, 1062 (11th Cit. 1998). Coutts :te~son that "an employee Qltl never be required) as a condition of employment:, to pay Qn arbittator's compensation in orde.t to secure the resolution of statutory claims ... [I'Jhis would sutely deteJ: the b.tinging of !u:bitration and constitute a de facto fotfeitute of statutory tights." CfJiq,105 F.3d at 1468
.
The court in Col, reasoned that an employee can fi~V~r be tequired, as a condition of
employment, to pay an arbittatot's compensation in ordet to s.eC'l::!re the resolution of statutory
daims under Title VII any tnote than an etnpfoyee can be made to pay a judge's salary. CfJk, 105
F.3d Jtt 1468. The Court fu.tthet .reasoned that) if there is any risk thtl.t an atbittation agreement can
be consttued to requite this tesul~ it would surely detet the brmging of arbit.ratioO: ru1d constitute a
de facto foo::feiture of the employee's statutory rights. The only way that an ~bittation agtee.tnent of
the son at issue hete can be lawful is if the employer assumes responsibility for the payment of the
arbimtor's rompens'.l.tion. Id.
The Fourth Cir.cuirs apptaa.ch in Bradford v. &ckJJI8!/ SemicohdJKI()f Sy!tfms, Inc. is particulatly
instructive in determining that the proper antl.lysis "evalut~tes whethex the arbitral forum in a
pauicuhu: case is an adequate and accessible substitute to litigation.» In re O!sha11 Fo11nd. fupair Co.,
LLC., 32B S.W.3d 883, 893-894 (Tex-.2010) affirmatively citing Bra4ford v. Rod":we/1 SemkfJnd11dor
.fyJfems. !11~, 238 F.3d 549t 556 (4th Ch:. 2001). That inquiry requites '<a case-by-case ilni~lysis thllt
9
80
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the
expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost
diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,
328 S.W.3d 883, 893-894(I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes, but what the totil.l cost to the claimant to plll:sue the claim is.Id.
Requiring Pl~intiff to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,
fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to
b:cing het statutory wwngful termination claim ~gainst her etnployet is a strong deterient from
bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect
of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur
even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of
Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.
If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in
Dallas County, wd risk having to pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she
will ptobably not continue with her dl.im. See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since
there is a risk that Plmtiff be xequiled to pRy the a.~:bitration fees, the alleged Agreement .is
substantively unconscionable and un.enforceJ\ble. In iiddition, the .risk of inc:uning such 11
prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn
in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-
rights~ exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore
making it unenforceable undet: Texas law.
III. CONCLUSION
The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds
when considering the sophistication of both parties. The agreement .requires Plaintiff to split the
10
81
cost of the Atbitrat:ion and risk i.acmting debt in excess of $10,000. Moreover, the Atblttation
Agreement requites Pl2indff incut e~en mote debt by conducting the arbittation in Dallas County.
Fu.tthertnote, when consider.ing the additional discovery funitations. it is obvious that the Agreement
was drafted and designed to favor Defendant over its unsophisticated, uneducated employees and
should therefore also be consideted unconscioruble by this Coutt, For these teasom. Defendant's
Motion to Compel Atbittation should be denied. and Plaintiff should be peimitted to continue to
pursue het statutory claitns ag1l.inst Defendant in this forum.
IV. PRAYER
WHEREFORE PREMISES CONSIDEREDt Plafutiff preys that m evidenti!UJ hearing
be set and that the Judge deny Defendant's Motion to Compel Arbitration and for such futther relief
that Plaintiff ruay show is justly entitkd.
Respectfully submitted,
THE ESPINOZA LAW FIRMt PLLC
Attome)III for Claitnant
5()3 E. Ratmey) St.e. 103
Sr.tn Antonio, Texas 78216
210.229' 1300 t
210.229.1302 f
www.espinozafittn.com
~ Tex11s Bat No. 24036534
Steven Sachs
Texa.s Bar No. 24074995
JOSUE F. GARZA
Texas Bar No. 24072737
11
82
CERTIFICATE OF SERVICE_
S
I hereby certify thltt on this u. day of Novetnbet 2014, a true and conect copy of the
foregoing was DELIVERED. MAILED or FAXED to:
Jennifer . Trulock
Stephanie F, <Agniart
98 San Jacinto Boulevat:d, Suite 1500
Austin, Texas 78701-4078
512.322.2500
512.322.25'01
12
83
Exhibit A
84
AFFIDAYIT
STATE OF TEXAS §
§
COUNTY OF BEXAR §
BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:
"My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.
I 11m the lead attorney for Plaintiff Paula Bazan-GaÂŁcia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.
The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 ÂŁhose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.
If Ms. Bnan-Garci'll ls r~qu.ired to 1!ÂŁbitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those ÂŁhat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. AccoÂŁding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.
I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms. Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.
Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According
1
85
to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
(S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
on the Defendant's inju.qr and termination policie.!!, the supeÂŁV1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,
Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.rooÂŁ
For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.
Further affiant says naught,''
ern OJwtJ-(_j!~
SWORN TO AND SUBSCRmE this lhe~-~~~ day ofNovembex-, 2014.
My corru:nlssion expires: NOTARY PUBLIC in ttnd fur the
State of Texas
~r.AA l qf 1Qlt-
~~·~~ MAIIiSOL CASON
1~1r-\ Nolory PubliC, Sloleo1le~o~
\~~Jj Mv Commission E~epi1EJ5
~.r.w.~~ June n, 2018
2
86
Exhibit 1
87
l 3727 N'ocl Rud, Suite: 700
DaUas, TX 7$24{)
Telephone.: (.91:1)701·8222
I'm::: (85.5)267-4082
Detail Invoice/Statement
l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~ Re)I!Cicnllog: N'abars Completion 1od Prodoe~ioo Ser\'ioe Co.
Com;p~~n~
Rc;; Mllrto Cortel
Sl$ Wosl Ore~ s ~«lad
Suite 1200 Vs.
Ho~st.cm, Teoras 779(,7 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
~-
Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------
e AM!m.lCAN
A:&BlmA'1'10N
ASSOCrA'l'YON&
Nabor&: (:'ompleLion and Prodtrdfcn .Service
I I N1"ÂŁ'R NATIONAL CENT R"E
FOil OISP'UTIO RESOLUnoNâą
R~pre9enl.iog; WaborS Comple lion and.
I :!1727 Nac:L Read. Suire 7DD
T~hono~
Dall""· TX75:MD
(P72J1()2..82ll
Pall;: (SSS)~67·4082
Prod~cLiM Servf\\0
Compliny 01.
51.5 W~l Gremu Road Re: Muco Cortez
SoiLe 1200 VB.
Housr.on, Teus77967
Nabors Compl~1lon ~~d Prod\lcLioll Servko
cO.
O.'i-Nov-14 71>-10·1300-o014 $0.00
- · : · "fl.l.'~·.f!?~~ ~"·R;âą~c~_i.i~L, ,t;·--·âą. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .: t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . ,
:-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..;
·.\i \!~~-=:..i'~,~.,_ . .t=.:: r.-... ~ .:zJ·.. ~-~--~P. ';..\1·~.-....·..~·- ...~~-.-~ ;1=·1..· .:~·._:.,_ ..., ~.
09-Jun-2014 11~30009 Flllros Fe"- CLa!m due alcue $9SDJJO 50.00 09-Jun-2014
closios. .&lr Sm'i~s incurred
09-Jun-2014 Allocalion $930.00
0!1-run-2014 11D299S4 Atbilrlltors Compe11s~tio~ $2 ,61)4.00 jll)..(lO 09-Ju~-2()14
09-Jllll-2014 C~noeii.-Efon S2S8.65
U-Aus-20t4 Allocation Sl,1~HS
(19-Jun·20 !4 .Allocallon 5600.00
07-Jâą~-20!4 JOS81i0l4 ,o\dmlnJslâąâą![~~ ~for Ht.~~dMg- $300.00 SO.OG 07-JâąIl-2014
OA'l"E: 03/WUll~
28-1~~-20 14 Billed jn l!nor s'oo..oo
07-Jan-20 14 IOSS6013 Aclmlnlstr~~LIWlOP~ forH~<ioa- $300.00 $0.00 07-l&tt-ZOl4
DATB:OJ~[..f
U-lm-~14 Billod in Bcror SJOO.OO
07-.1&11-2014 l0.586012 Admlni;Lczlivo Poe rar frearlfll: - $300Jl0 so.oo 1)1..Jall·l014
DA'fB; 0312512014
09-Juo-201~ AIL~Lion -:%00.00
10-Peb·2014 Allocation 5900.00
01-0ct-201) LOS460l0 A~mlllistrali\leFeeo for lfearll'lg- $300110 ro..oo 01-0CI-20(~
DATEc 0210512014
14-0cL>2013 allied In Error s~uu.oo
01-0ct-Z!Jl:l 10546009 Adml~i~l:ra1iveFI!Ie- for HQ3o1Pg- ~00.00 .rooo 01-0rr-2011
DATE: D2104121l14
14-0ct-201:! Billed im :&roT S300.00
()1.0ct-'1013 lOSHIODS l'cslpcoemro~ cl' 2 h~llri~(S); S7S.OO :ro.oa 1)1-0ct-2013
l JIJ 312013,11!141201 ~
3!-Qct-1013 Alfoclllico ST$..00
J2-Apr-l(JI3 10467!152 Ycrur Shre of 1he N'ellutl $4,800.00 SO.()!) 12-Apr-2013
CornpensliLion D~~t rove no~
16 hou[S ofS'kldy
09-Mav-201:3 Alloc.ation S4,800.00
11-Apr-20 L3 10>16/951 Yo'llr &hllr~OfLhe tlleuCI'lll ~7,200110 ro..oo I:Z..Apr-Zill3
88
AMBRJCAN
ARBITRATION
I INTE:~NATIONAL
FOR DISPUH
CENTRE
f~ESOU)'fiOW
J3127 Noel Ri>id, .S:ui1~ 7()0
D.alla~;.'l'X75lAO
ASSOCIA'llON' Telephone: (972)10~82:22
P~: (3.55)26'1-4082
Compensation Depmil coYertDf 4
dâąys offle.adng
09·M⹠·2.013 AlloC~~Cion S7.200.00
1:2.-A.pr"rlO!J (Q.fo19so YoYt h-ofrhe N'cllll:!ll S4,800.00 ro.oo I:Z..Apr-2013
Co~nsatian Dcpoalr cov~ring
US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB Allocalian S4 SOO.OO
II-Apr-2<113 104157730 Adrnini&lnllivc ~ for He~ring - $300.00 ro.oo ll-Apr·20 13
OA'Tii: 11114/2()13
09--M, ·2013 AlloeaJ[cn 5300.00
11-AlJ'I"-2013 1046'1729 Admin!sJn.Jive Foe for HearlDf âą $)00.00 .w.oa 11-Apr-2013
DATl!: 11{13r.!013
()~-Ma -WB Allooalion s~oo.oo
17·J8Qâą:Wl3 10419204 Jni lial Adm I~ lscnuve Pee mo.oo so.oo Ji-J en-2l) I j
09-Ju~-"2014 CaM<~lls~toD S950.00
12-PW.wn Al!oi:.I!Lton 59.50.00
il9-Jun-llll4 AI[QC.allofl -S9SCI.OO
Remarlu For any 111qulrl~s please ca.ll: (800}1!04 ·9'308 Steltnltct lla!an~o
$'0.00
Pli!Jise mall c~e~ to 13727 Noel Ro~d, Suire 100 Please- Iru:l icarc Caso No. on
oo
DaUas, TX'1S:2.40 cllecl:
f,tt-~1/,1,1\.
'T~l~pho.ne: (912)7Q2..S222
PIIX: (&55)267-4 Dll2
89
Exhibit 2
90
e Amt~rkmt Arbitration
l>iâąpJII~ fl.tl~tlllliiHI ,,·~"·ir~·
A~S()cia~inn
fllr, /~ll!'itlr
1:l-tM Noel RwJ- S\ii~G
Dâą~ ... TI( 76Z«l
mo
INVOICE/S~A~BMSN~
Qtlllll ~;, Adarn11U RapreaMlRIISisO\I Re6111W1nl,, LLO
~~ SIM'Ilat;l &Mli~ twr Burna ~Chrl&llr.tT«rN
~ltSa-lPm
Stills 800
8snAnlmiQTXUZ!O
I' lcas;e De !uclund Rclu1·n \\'ltll PII,)UrcltlUO tTie Abtm~ M(fJ'~Iil ND. ml e[t~ck
--~::~;i;.~~~~~·~~i-t~~~-~·i-~-1~~~;;:;,·~~~·i~~1 . . -.. . . . i~ 5 ·~~~:~~~··17m·~··
h ..........
l'~~c IJ111i~afu Cas~
......... ~.-·~·~·- ......._.,.. ~ . - ..........-·-···-·
fJi.,pflt6 f(o~LI-fllliCJII -'~' tâąl1·p, l~'râąl'lrl~·i·l~
N~ME Gl'llntE.Mamlill R&~enltig S\llllQ ReW~Urenl!l, U.c
Mtnll'lhid:lld Sahl!lh~ aM ll~l R~ Ctlrlalfne TII!Y'II!I
II:J118aa l'adto
Sui~!! 1100
Soul Ml011fo11(78!1S
0111W2012 {0288376
011o5ml'l! :11!11111:1
Âź1111'20]2 t0081>8n VOir Sl>llt8 01 Illâą Nawa! Compenaallon Depolll ~a hWt~ 20a0,00
~ Prfiiii'IIIWY lolallara i
031091:!0 12 tOOO!I Potjt'TWinL l'1tGiol Jrcm: $1agg Jto.~lllunlniâą ;tOOO,OO âą 1
~.DO
~12
$C,IIO
300,00
~UO.IIO
TOI1fi'20t~ 1!m77112 Y«J :~~Tare o, fla Nculnil C!llllpGDSe.tlon C.POtl ~ ~ IIIGWI 76Q.OO
at f'flli'nlllay !.tillore
110.00
1ooe!l224 YN' Sh;d Of IIIII NM!ltal (:qnpar!IUIIkm Oapo rl[ ~ ~ <hiYJ 7&10.00
{013112012
~fHollllilg
100952:1" Y~ .Sil&~e ot lila NawaJ COJnlflDIIMIIa)B Polposl\ --'nci 24 hGun
Of$*udy
7601.\.00 J 7600.00
----L----·...!~------~---~-------....1....--------C-~--. - --· 7~00
~B,WQ_ tH!l PAlO Nl!fDUE
JkM!!C& SUM.MAA'f: INI'(I.WCQI.rtlr!:n..CLIIII\I FI!~S 916.00 trMXI 0.00
HgA,RINWPOS1PmiEMENTII"IOOI.II'AOOl!SSI i'IS Pl!e!l '100.00 (),(0 900.00
1\IW.l..OCATlDn AT CAS !!I l!Nl) fE:~9 0.00 0,00 0.00
HE!I.ImAI. tOI.oiPENsA'I'tOWE:XPI!NSe~ 1e35C.oo 200D.Il0 1639l.OQ EIN: 1~Ool~~14&
91
f!
114511 tul A~ âą Sulla 1750
âą Amerka n Ari) i tra.t i fJ n As.>oc ia ti.nn
08lllit,TlC '/'8zj0
~iiM!~
z i. -
lli\~nl~ J(nâąl},.jjq,. .~u11lrrâą ll'~tâą'/d~r-ltlr
llWl\1im~li~
l 70-1~1102LDR 1
INVOICE/S'I'A'l!EMEN~ ~Ill DaG Upon UC>IlCLpl
OIWII E. AMI!! Ul
MMlr .:!f!IAIIeW Sdl$11lllll and lklm~
t!t 1 9.an P&dm
u.eoo
Ball AII QI'I O TX lB216
Plea.'!~ DclllCh Dncl Relum with I'LcymCitt tu lhc Abov~: Adc~ l'lemn~ lnrllcutc C11se No. on cbcclc
·····~::l.~~:~t~;~~~~·::~:=·~~~-~~·;:~~~·~~··-····~···~·······~··âąÂ·1-8W'=~;:~~-'1ieo·-··w~·---·~·····'"·'-''''·'·'········w . . . . ~.- . . . ~
Ui'f~~ r.- f!tâąllflrli111f .f;J \'('~~ ~nu IJwirlâą
MAMa Gnrd.E.Adamll~ ~~~JII'""III'lllflld ISII!QI Resl~'fiiiU, ~Ul
Alhlbllihllftllld SCI'It~ af'ld lluma R.: ~rflliJo Tarru
ll31 H;.., P«!ro
1>.11!8 8QO
8811 Arl:unlo TX 7~~fe
HiBJ; BILLED N&.TI'AII> ~
lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~ 015..oa ~75,00 0..00
HEN11NM09TPOHEN ENT.Ifi0Q.IIWROOI!8911i<J FE!eS 90&..00 0.00 900.00
fiEAU,.QCI\liON Kr CI.!IE eND nes 0.00 0.00 o.ao
NEliTRAl. CllMPI!H$r\TtOt4i!Xl'~!ll6 183511.00 2030.00 183150.0~ EIN: 13-009145
92
Exhibit 3
93
Nonnandy Financial Closing 1· '. PagcJ of3
i ...
~~-----·- ~7 r'··---~----...,...4$+·~
70-16D~OD432-10
H.E,B. Grocery Company, L.P.
=
Admlnlsfratr11e Fees and Expenses:
Filing Fees $925.00
Case Services Fee $0.00
He~rlng Fees $750.00
AM Room Rental Fee $0.0[}
Abeyanoo/Misc. AAA Fees $0.(]0
Non-AM Cooferenca Room
$0.00
Expenses
Mise Expenses $0.00
Yoor Share of Administrative Fees and Expenses: $Ul75.00
Amount Paid for Administrative Fees and Expenses: $2,875.00
Balimce Admlnlslmtive Fees and Expenses: ($1 ,200.00)
llleutra\ CompensaliQn and E)tper.eos:
Your Shere of Neutral Compansation and Expenses: $19,B07.24
Amount Paid for Neutral Compensation and Expenses: $20,470.00
Balance Neutral Compensation and Expenses: {$662.711)
Party Ba~an<:e: ($1,862.761
file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011
94
. Exhibit B
95
AFFIDAVIT
STATE OF TEXAS §
§
COUNTY OF BEXAR §
BEFORE ME, the undersigned authority, on this. day personally appeued PAULA
BAZAN-G.All..CIA, who is personally known to rue md being fttst duly sworn according to hw
upon this oath deposed and said:
"1fy n11me is PAULA BAZAN-GARCIA. I ~ln 0'9'et the age of twenty-one and am fully
competent in all respects to m-ake this affidavit. The facts stated in this affidavit are within my
p etsonal knowledge and are true and correct.
I atn the plaintiff in thili case. I worked for WESTERN RIM PROPERlY SERVICES, INC. I w~s
hited in Bexar County, Texas and worked in Bexar County, Texas, On or about October 22, 2013, l
was tertnini!ted ftOlll my job aftet filing a workers' compensation clAim. I was tei:tninated in Bexar
County, Texas. I worked as 1l housekeepet fot Westexn lUm Property Services. Inc. earning apptox.
$12.98 pet hout. As a result of this tennin~tion, I am on an e:xt:remely tight budget. as it w-as
difficult f01 sne to find work aftet l wg_s ftted f.torn Defendant. I reside in Bexar County, and I do
not have any family ot lodgings in D~llas County. I nEWet had to ttavel to Dallas County in the
course and scope of my employment at Western Ritn P.roperty, Services, Inc.
If it is detetmirt.ed th~t I must bring ruy lawsuit against my employer in aJ:bitration, and risk having to
pay over $10~000.00 in arbit.mtor fees~ I will probably not continue with rny claim. In addition, if it is
detennined that I rnust bring my lawsuit against my employer in arbittation in Dallas CoWlty, Tex~s.
I will incur substantial additional expenses in travel and lodging, and I will probably not continue
with my claim, This risk is too gtea t for rue and I do not h1we that type of money. I wish to sue my
employer in stRte court for my w.tongful termination bec11use I cannot afford the cost of incuuing
such a substantial debt to tltbittate my claims in Dallas County.
In addition, l worked fot Defendllnt in Bexat County, Te::&:as. I was dso injuted and terminated in
Bexat County, Texas. Therefore, the majority of the witnesses that my attorneys would cill at trial
are located in BexBt County, Texas. This includes sotne of tny family metnbets who may testify in
my case. I do not believe th11t they will be able to sffutd the expense of tra"9'eling to Dall~ County
to testify at an atbittation hearing. Thetefote., if my case is heard in Dall~s County, I will not be able
to call all the witnesses I would call if the case remained in Bexat County.
Further affiant says naught."
96
âą
2014.
SWORN TO AND SUBSCRIBED BEFORE ME on this the -4--th day of Novembet.
~CJJLu:;~{L {IJ4JL r
My cornrnission expites~ NOTARY PUBLIC in and fat the
State ofTexas
,Jv\1\R > {,q r;J,CJ/8
A~~~~Jt~
· ··.~ No1orvMA~I$0l CASON
Publtc, Slaleor Tewr;
\1 1.-!;.i My commlsifoo Expires
~~:r.~:~ June 19, 201 B
97
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine
Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that
Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to
depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo
depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the
ciJ:cums~ntial evidence of .reblliation with just one deposition. See Exhibit A, Af.fid~vlt of J~vi.et
Espinon.
These lliniu.tions again have been placed to limit the employee's claims while not inhibiting
Defendant's ability to defend these suits. Genually, an. employer in workers' compensation
retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the
documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that
must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of
proof in these cases.
Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s
dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
. .
S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.
b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
SUBSTANTIVELY UNCONSCIONABLE.
The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of
~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement substanti"'ely
unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215(Tex. App.---San Antonio 2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb,531 U.S. 79, 91
(2000)~ In~~ Fu-sf Merit Bank, N.A.,52 S.W.3d 749, 745
(I'ex. 2001).
The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation
with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet
6
77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,
PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will
probably not pursue het claim in arbitration should she be compelled to submit her claim before an
atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.
The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be
incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of
Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of
blking a risk of incuning a debt exceeding $1 0)000.00. is " (;OSt significandy too high fat the Plaintiff
to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.
The United States Sup.[eme Coutt recognized .in Gmn Tree Financial Corp~ Akl. l!. Rnndolph
that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating
her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala. tr, Rt:Jndolph, 531 U.S.
79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs
arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims
in atbitnttion.
One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:
longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~
OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has
further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient
alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld
effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the
atbit.tation agreement may be substantively unconscion1thle. !d. Addition~lly, the United States
1
In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.
7
78
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the
expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost
diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,
328 S.W.3d 883, 893-894(I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes, but what the totil.l cost to the claimant to plll:sue the claim is.Id.
Requiring Pl~intiff to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,
fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to
b:cing het statutory wwngful termination claim ~gainst her etnployet is a strong deterient from
bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect
of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur
even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of
Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.
If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in
Dallas County, wd risk having to pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she
will ptobably not continue with her dl.im. See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since
there is a risk that Plmtiff be xequiled to pRy the a.~:bitration fees, the alleged Agreement .is
substantively unconscionable and un.enforceJ\ble. In iiddition, the .risk of inc:uning such 11
prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn
in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-
rights~ exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore
making it unenforceable undet: Texas law.
III. CONCLUSION
The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds
when considering the sophistication of both parties. The agreement .requires Plaintiff to split the
10
81
AFFIDAYIT
STATE OF TEXAS §
§
COUNTY OF BEXAR §
BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:
"My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.
I 11m the lead attorney for Plaintiff Paula Bazan-GaÂŁcia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.
The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 ÂŁhose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.
If Ms. Bnan-Garci'll ls r~qu.ired to 1!ÂŁbitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those ÂŁhat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. AccoÂŁding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.
I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms. Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.
Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According
1
85
to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
(S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
on the Defendant's inju.qr and termination policie.!!, the supeÂŁV1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,
Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.rooÂŁ
For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.
Further affiant says naught,''
ern OJwtJ-(_j!~
SWORN TO AND SUBSCRmE this lhe~-~~~ day ofNovembex-, 2014.
My corru:nlssion expires: NOTARY PUBLIC in ttnd fur the
State of Texas
~r.AA l qf 1Qlt-
~~·~~ MAIIiSOL CASON
1~1r-\ Nolory PubliC, Sloleo1le~o~
\~~Jj Mv Commission E~epi1EJ5
~.r.w.~~ June n, 2018
2
86
Exhibit 1
87
l 3727 N'ocl Rud, Suite: 700
DaUas, TX 7$24{)
Telephone.: (.91:1)701·8222
I'm::: (85.5)267-4082
Detail Invoice/Statement
l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~ Re)I!Cicnllog: N'abars Completion 1od Prodoe~ioo Ser\'ioe Co.
Com;p~~n~
Rc;; Mllrto Cortel
Sl$ Wosl Ore~ s ~«lad
Suite 1200 Vs.
Ho~st.cm, Teoras 779(,7 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
~-
Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------
e AM!m.lCAN
A:&BlmA'1'10N
ASSOCrA'l'YON&
Nabor&: (:'ompleLion and Prodtrdfcn .Service
I I N1"ÂŁ'R NATIONAL CENT R"E
FOil OISP'UTIO RESOLUnoNâą
R~pre9enl.iog; WaborS Comple lion and.
I :!1727 Nac:L Read. Suire 7DD
T~hono~
Dall""· TX75:MD
(P72J1()2..82ll
Pall;: (SSS)~67·4082
Prod~cLiM Servf\\0
Compliny 01.
51.5 W~l Gremu Road Re: Muco Cortez
SoiLe 1200 VB.
Housr.on, Teus77967
Nabors Compl~1lon ~~d Prod\lcLioll Servko
cO.
O.'i-Nov-14 71>-10·1300-o014 $0.00
- · : · "fl.l.'~·.f!?~~ ~"·R;âą~c~_i.i~L, ,t;·--·âą. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .: t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . ,
:-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..;
·.\i \!~~-=:..i'~,~.,_ . .t=.:: r.-... ~ .:zJ·.. ~-~--~P. ';..\1·~.-....·..~·- ...~~-.-~ ;1=·1..· .:~·._:.,_ ..., ~.
09-Jun-2014 11~30009 Flllros Fe"- CLa!m due alcue $9SDJJO 50.00 09-Jun-2014
closios. .&lr Sm'i~s incurred
09-Jun-2014 Allocalion $930.00
0!1-run-2014 11D299S4 Atbilrlltors Compe11s~tio~ $2 ,61)4.00 jll)..(lO 09-Ju~-2()14
09-Jllll-2014 C~noeii.-Efon S2S8.65
U-Aus-20t4 Allocation Sl,1~HS
(19-Jun·20 !4 .Allocallon 5600.00
07-Jâą~-20!4 JOS81i0l4 ,o\dmlnJslâąâą![~~ ~for Ht.~~dMg- $300.00 SO.OG 07-JâąIl-2014
OA'l"E: 03/WUll~
28-1~~-20 14 Billed jn l!nor s'oo..oo
07-Jan-20 14 IOSS6013 Aclmlnlstr~~LIWlOP~ forH~<ioa- $300.00 $0.00 07-l&tt-ZOl4
DATB:OJ~[..f
U-lm-~14 Billod in Bcror SJOO.OO
07-.1&11-2014 l0.586012 Admlni;Lczlivo Poe rar frearlfll: - $300Jl0 so.oo 1)1..Jall·l014
DA'fB; 0312512014
09-Juo-201~ AIL~Lion -:%00.00
10-Peb·2014 Allocation 5900.00
01-0ct-201) LOS460l0 A~mlllistrali\leFeeo for lfearll'lg- $300110 ro..oo 01-0CI-20(~
DATEc 0210512014
14-0cL>2013 allied In Error s~uu.oo
01-0ct-Z!Jl:l 10546009 Adml~i~l:ra1iveFI!Ie- for HQ3o1Pg- ~00.00 .rooo 01-0rr-2011
DATE: D2104121l14
14-0ct-201:! Billed im :&roT S300.00
()1.0ct-'1013 lOSHIODS l'cslpcoemro~ cl' 2 h~llri~(S); S7S.OO :ro.oa 1)1-0ct-2013
l JIJ 312013,11!141201 ~
3!-Qct-1013 Alfoclllico ST$..00
J2-Apr-l(JI3 10467!152 Ycrur Shre of 1he N'ellutl $4,800.00 SO.()!) 12-Apr-2013
CornpensliLion D~~t rove no~
16 hou[S ofS'kldy
09-Mav-201:3 Alloc.ation S4,800.00
11-Apr-20 L3 10>16/951 Yo'llr &hllr~OfLhe tlleuCI'lll ~7,200110 ro..oo I:Z..Apr-Zill3
88
AMBRJCAN
ARBITRATION
I INTE:~NATIONAL
FOR DISPUH
CENTRE
f~ESOU)'fiOW
J3127 Noel Ri>id, .S:ui1~ 7()0
D.alla~;.'l'X75lAO
ASSOCIA'llON' Telephone: (972)10~82:22
P~: (3.55)26'1-4082
Compensation Depmil coYertDf 4
dâąys offle.adng
09·M⹠·2.013 AlloC~~Cion S7.200.00
1:2.-A.pr"rlO!J (Q.fo19so YoYt h-ofrhe N'cllll:!ll S4,800.00 ro.oo I:Z..Apr-2013
Co~nsatian Dcpoalr cov~ring
US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB Allocalian S4 SOO.OO
II-Apr-2<113 104157730 Adrnini&lnllivc ~ for He~ring - $300.00 ro.oo ll-Apr·20 13
OA'Tii: 11114/2()13
09--M, ·2013 AlloeaJ[cn 5300.00
11-AlJ'I"-2013 1046'1729 Admin!sJn.Jive Foe for HearlDf âą $)00.00 .w.oa 11-Apr-2013
DATl!: 11{13r.!013
()~-Ma -WB Allooalion s~oo.oo
17·J8Qâą:Wl3 10419204 Jni lial Adm I~ lscnuve Pee mo.oo so.oo Ji-J en-2l) I j
09-Ju~-"2014 CaM<~lls~toD S950.00
12-PW.wn Al!oi:.I!Lton 59.50.00
il9-Jun-llll4 AI[QC.allofl -S9SCI.OO
Remarlu For any 111qulrl~s please ca.ll: (800}1!04 ·9'308 Steltnltct lla!an~o
$'0.00
Pli!Jise mall c~e~ to 13727 Noel Ro~d, Suire 100 Please- Iru:l icarc Caso No. on
oo
DaUas, TX'1S:2.40 cllecl:
f,tt-~1/,1,1\.
'T~l~pho.ne: (912)7Q2..S222
PIIX: (&55)267-4 Dll2
89
Exhibit 2
90
e Amt~rkmt Arbitration
l>iâąpJII~ fl.tl~tlllliiHI ,,·~"·ir~·
A~S()cia~inn
fllr, /~ll!'itlr
1:l-tM Noel RwJ- S\ii~G
Dâą~ ... TI( 76Z«l
mo
INVOICE/S~A~BMSN~
Qtlllll ~;, Adarn11U RapreaMlRIISisO\I Re6111W1nl,, LLO
~~ SIM'Ilat;l &Mli~ twr Burna ~Chrl&llr.tT«rN
~ltSa-lPm
Stills 800
8snAnlmiQTXUZ!O
I' lcas;e De !uclund Rclu1·n \\'ltll PII,)UrcltlUO tTie Abtm~ M(fJ'~Iil ND. ml e[t~ck
--~::~;i;.~~~~~·~~i-t~~~-~·i-~-1~~~;;:;,·~~~·i~~1 . . -.. . . . i~ 5 ·~~~:~~~··17m·~··
h ..........
l'~~c IJ111i~afu Cas~
......... ~.-·~·~·- ......._.,.. ~ . - ..........-·-···-·
fJi.,pflt6 f(o~LI-fllliCJII -'~' tâąl1·p, l~'râąl'lrl~·i·l~
N~ME Gl'llntE.Mamlill R&~enltig S\llllQ ReW~Urenl!l, U.c
Mtnll'lhid:lld Sahl!lh~ aM ll~l R~ Ctlrlalfne TII!Y'II!I
II:J118aa l'adto
Sui~!! 1100
Soul Ml011fo11(78!1S
0111W2012 {0288376
011o5ml'l! :11!11111:1
Âź1111'20]2 t0081>8n VOir Sl>llt8 01 Illâą Nawa! Compenaallon Depolll ~a hWt~ 20a0,00
~ Prfiiii'IIIWY lolallara i
031091:!0 12 tOOO!I Potjt'TWinL l'1tGiol Jrcm: $1agg Jto.~lllunlniâą ;tOOO,OO âą 1
~.DO
~12
$C,IIO
300,00
~UO.IIO
TOI1fi'20t~ 1!m77112 Y«J :~~Tare o, fla Nculnil C!llllpGDSe.tlon C.POtl ~ ~ IIIGWI 76Q.OO
at f'flli'nlllay !.tillore
110.00
1ooe!l224 YN' Sh;d Of IIIII NM!ltal (:qnpar!IUIIkm Oapo rl[ ~ ~ <hiYJ 7&10.00
{013112012
~fHollllilg
100952:1" Y~ .Sil&~e ot lila NawaJ COJnlflDIIMIIa)B Polposl\ --'nci 24 hGun
Of$*udy
7601.\.00 J 7600.00
----L----·...!~------~---~-------....1....--------C-~--. - --· 7~00
~B,WQ_ tH!l PAlO Nl!fDUE
JkM!!C& SUM.MAA'f: INI'(I.WCQI.rtlr!:n..CLIIII\I FI!~S 916.00 trMXI 0.00
HgA,RINWPOS1PmiEMENTII"IOOI.II'AOOl!SSI i'IS Pl!e!l '100.00 (),(0 900.00
1\IW.l..OCATlDn AT CAS !!I l!Nl) fE:~9 0.00 0,00 0.00
HE!I.ImAI. tOI.oiPENsA'I'tOWE:XPI!NSe~ 1e35C.oo 200D.Il0 1639l.OQ EIN: 1~Ool~~14&
91
f!
114511 tul A~ âą Sulla 1750
âą Amerka n Ari) i tra.t i fJ n As.>oc ia ti.nn
08lllit,TlC '/'8zj0
~iiM!~
z i. -
lli\~nl~ J(nâąl},.jjq,. .~u11lrrâą ll'~tâą'/d~r-ltlr
llWl\1im~li~
l 70-1~1102LDR 1
INVOICE/S'I'A'l!EMEN~ ~Ill DaG Upon UC>IlCLpl
OIWII E. AMI!! Ul
MMlr .:!f!IAIIeW Sdl$11lllll and lklm~
t!t 1 9.an P&dm
u.eoo
Ball AII QI'I O TX lB216
Plea.'!~ DclllCh Dncl Relum with I'LcymCitt tu lhc Abov~: Adc~ l'lemn~ lnrllcutc C11se No. on cbcclc
·····~::l.~~:~t~;~~~~·::~:=·~~~-~~·;:~~~·~~··-····~···~·······~··âąÂ·1-8W'=~;:~~-'1ieo·-··w~·---·~·····'"·'-''''·'·'········w . . . . ~.- . . . ~
Ui'f~~ r.- f!tâąllflrli111f .f;J \'('~~ ~nu IJwirlâą
MAMa Gnrd.E.Adamll~ ~~~JII'""III'lllflld ISII!QI Resl~'fiiiU, ~Ul
Alhlbllihllftllld SCI'It~ af'ld lluma R.: ~rflliJo Tarru
ll31 H;.., P«!ro
1>.11!8 8QO
8811 Arl:unlo TX 7~~fe
HiBJ; BILLED N&.TI'AII> ~
lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~ 015..oa ~75,00 0..00
HEN11NM09TPOHEN ENT.Ifi0Q.IIWROOI!8911i<J FE!eS 90&..00 0.00 900.00
fiEAU,.QCI\liON Kr CI.!IE eND nes 0.00 0.00 o.ao
NEliTRAl. CllMPI!H$r\TtOt4i!Xl'~!ll6 183511.00 2030.00 183150.0~ EIN: 13-009145
92
Exhibit 3
93
Nonnandy Financial Closing 1· '. PagcJ of3
i ...
~~-----·- ~7 r'··---~----...,...4$+·~
70-16D~OD432-10
H.E,B. Grocery Company, L.P.
=
Admlnlsfratr11e Fees and Expenses:
Filing Fees $925.00
Case Services Fee $0.00
He~rlng Fees $750.00
AM Room Rental Fee $0.0[}
Abeyanoo/Misc. AAA Fees $0.(]0
Non-AM Cooferenca Room
$0.00
Expenses
Mise Expenses $0.00
Yoor Share of Administrative Fees and Expenses: $Ul75.00
Amount Paid for Administrative Fees and Expenses: $2,875.00
Balimce Admlnlslmtive Fees and Expenses: ($1 ,200.00)
llleutra\ CompensaliQn and E)tper.eos:
Your Shere of Neutral Compansation and Expenses: $19,B07.24
Amount Paid for Neutral Compensation and Expenses: $20,470.00
Balance Neutral Compensation and Expenses: {$662.711)
Party Ba~an<:e: ($1,862.761
file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011
94
AFFIDAYIT
STATE OF TEXAS §
§
COUNTY OF BEXAR §
BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:
"My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.
I 11m the lead attorney for Plaintiff Paula Bazan-GaÂŁcia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.
The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 ÂŁhose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.
If Ms. Bnan-Garci'll ls r~qu.ired to 1!ÂŁbitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those ÂŁhat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. AccoÂŁding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.
I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms. Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.
Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According
1
85
to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
(S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
on the Defendant's inju.qr and termination policie.!!, the supeÂŁV1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,
Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.rooÂŁ
For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.
Further affiant says naught,''
ern OJwtJ-(_j!~
SWORN TO AND SUBSCRmE this lhe~-~~~ day ofNovembex-, 2014.
My corru:nlssion expires: NOTARY PUBLIC in ttnd fur the
State of Texas
~r.AA l qf 1Qlt-
~~·~~ MAIIiSOL CASON
1~1r-\ Nolory PubliC, Sloleo1le~o~
\~~Jj Mv Commission E~epi1EJ5
~.r.w.~~ June n, 2018
2
86
Exhibit 1
87
l 3727 N'ocl Rud, Suite: 700
DaUas, TX 7$24{)
Telephone.: (.91:1)701·8222
I'm::: (85.5)267-4082
Detail Invoice/Statement
l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~ Re)I!Cicnllog: N'abars Completion 1od Prodoe~ioo Ser\'ioe Co.
Com;p~~n~
Rc;; Mllrto Cortel
Sl$ Wosl Ore~ s ~«lad
Suite 1200 Vs.
Ho~st.cm, Teoras 779(,7 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
~-
Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------
e AM!m.lCAN
A:&BlmA'1'10N
ASSOCrA'l'YON&
Nabor&: (:'ompleLion and Prodtrdfcn .Service
I I N1"ÂŁ'R NATIONAL CENT R"E
FOil OISP'UTIO RESOLUnoNâą
R~pre9enl.iog; WaborS Comple lion and.
I :!1727 Nac:L Read. Suire 7DD
T~hono~
Dall""· TX75:MD
(P72J1()2..82ll
Pall;: (SSS)~67·4082
Prod~cLiM Servf\\0
Compliny 01.
51.5 W~l Gremu Road Re: Muco Cortez
SoiLe 1200 VB.
Housr.on, Teus77967
Nabors Compl~1lon ~~d Prod\lcLioll Servko
cO.
O.'i-Nov-14 71>-10·1300-o014 $0.00
- · : · "fl.l.'~·.f!?~~ ~"·R;âą~c~_i.i~L, ,t;·--·âą. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .: t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . ,
:-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..;
·.\i \!~~-=:..i'~,~.,_ . .t=.:: r.-... ~ .:zJ·.. ~-~--~P. ';..\1·~.-....·..~·- ...~~-.-~ ;1=·1..· .:~·._:.,_ ..., ~.
09-Jun-2014 11~30009 Flllros Fe"- CLa!m due alcue $9SDJJO 50.00 09-Jun-2014
closios. .&lr Sm'i~s incurred
09-Jun-2014 Allocalion $930.00
0!1-run-2014 11D299S4 Atbilrlltors Compe11s~tio~ $2 ,61)4.00 jll)..(lO 09-Ju~-2()14
09-Jllll-2014 C~noeii.-Efon S2S8.65
U-Aus-20t4 Allocation Sl,1~HS
(19-Jun·20 !4 .Allocallon 5600.00
07-Jâą~-20!4 JOS81i0l4 ,o\dmlnJslâąâą![~~ ~for Ht.~~dMg- $300.00 SO.OG 07-JâąIl-2014
OA'l"E: 03/WUll~
28-1~~-20 14 Billed jn l!nor s'oo..oo
07-Jan-20 14 IOSS6013 Aclmlnlstr~~LIWlOP~ forH~<ioa- $300.00 $0.00 07-l&tt-ZOl4
DATB:OJ~[..f
U-lm-~14 Billod in Bcror SJOO.OO
07-.1&11-2014 l0.586012 Admlni;Lczlivo Poe rar frearlfll: - $300Jl0 so.oo 1)1..Jall·l014
DA'fB; 0312512014
09-Juo-201~ AIL~Lion -:%00.00
10-Peb·2014 Allocation 5900.00
01-0ct-201) LOS460l0 A~mlllistrali\leFeeo for lfearll'lg- $300110 ro..oo 01-0CI-20(~
DATEc 0210512014
14-0cL>2013 allied In Error s~uu.oo
01-0ct-Z!Jl:l 10546009 Adml~i~l:ra1iveFI!Ie- for HQ3o1Pg- ~00.00 .rooo 01-0rr-2011
DATE: D2104121l14
14-0ct-201:! Billed im :&roT S300.00
()1.0ct-'1013 lOSHIODS l'cslpcoemro~ cl' 2 h~llri~(S); S7S.OO :ro.oa 1)1-0ct-2013
l JIJ 312013,11!141201 ~
3!-Qct-1013 Alfoclllico ST$..00
J2-Apr-l(JI3 10467!152 Ycrur Shre of 1he N'ellutl $4,800.00 SO.()!) 12-Apr-2013
CornpensliLion D~~t rove no~
16 hou[S ofS'kldy
09-Mav-201:3 Alloc.ation S4,800.00
11-Apr-20 L3 10>16/951 Yo'llr &hllr~OfLhe tlleuCI'lll ~7,200110 ro..oo I:Z..Apr-Zill3
88
AMBRJCAN
ARBITRATION
I INTE:~NATIONAL
FOR DISPUH
CENTRE
f~ESOU)'fiOW
J3127 Noel Ri>id, .S:ui1~ 7()0
D.alla~;.'l'X75lAO
ASSOCIA'llON' Telephone: (972)10~82:22
P~: (3.55)26'1-4082
Compensation Depmil coYertDf 4
dâąys offle.adng
09·M⹠·2.013 AlloC~~Cion S7.200.00
1:2.-A.pr"rlO!J (Q.fo19so YoYt h-ofrhe N'cllll:!ll S4,800.00 ro.oo I:Z..Apr-2013
Co~nsatian Dcpoalr cov~ring
US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB Allocalian S4 SOO.OO
II-Apr-2<113 104157730 Adrnini&lnllivc ~ for He~ring - $300.00 ro.oo ll-Apr·20 13
OA'Tii: 11114/2()13
09--M, ·2013 AlloeaJ[cn 5300.00
11-AlJ'I"-2013 1046'1729 Admin!sJn.Jive Foe for HearlDf âą $)00.00 .w.oa 11-Apr-2013
DATl!: 11{13r.!013
()~-Ma -WB Allooalion s~oo.oo
17·J8Qâą:Wl3 10419204 Jni lial Adm I~ lscnuve Pee mo.oo so.oo Ji-J en-2l) I j
09-Ju~-"2014 CaM<~lls~toD S950.00
12-PW.wn Al!oi:.I!Lton 59.50.00
il9-Jun-llll4 AI[QC.allofl -S9SCI.OO
Remarlu For any 111qulrl~s please ca.ll: (800}1!04 ·9'308 Steltnltct lla!an~o
$'0.00
Pli!Jise mall c~e~ to 13727 Noel Ro~d, Suire 100 Please- Iru:l icarc Caso No. on
oo
DaUas, TX'1S:2.40 cllecl:
f,tt-~1/,1,1\.
'T~l~pho.ne: (912)7Q2..S222
PIIX: (&55)267-4 Dll2
89
Exhibit 2
90
e Amt~rkmt Arbitration
l>iâąpJII~ fl.tl~tlllliiHI ,,·~"·ir~·
A~S()cia~inn
fllr, /~ll!'itlr
1:l-tM Noel RwJ- S\ii~G
Dâą~ ... TI( 76Z«l
mo
INVOICE/S~A~BMSN~
Qtlllll ~;, Adarn11U RapreaMlRIISisO\I Re6111W1nl,, LLO
~~ SIM'Ilat;l &Mli~ twr Burna ~Chrl&llr.tT«rN
~ltSa-lPm
Stills 800
8snAnlmiQTXUZ!O
I' lcas;e De !uclund Rclu1·n \\'ltll PII,)UrcltlUO tTie Abtm~ M(fJ'~Iil ND. ml e[t~ck
--~::~;i;.~~~~~·~~i-t~~~-~·i-~-1~~~;;:;,·~~~·i~~1 . . -.. . . . i~ 5 ·~~~:~~~··17m·~··
h ..........
l'~~c IJ111i~afu Cas~
......... ~.-·~·~·- ......._.,.. ~ . - ..........-·-···-·
fJi.,pflt6 f(o~LI-fllliCJII -'~' tâąl1·p, l~'râąl'lrl~·i·l~
N~ME Gl'llntE.Mamlill R&~enltig S\llllQ ReW~Urenl!l, U.c
Mtnll'lhid:lld Sahl!lh~ aM ll~l R~ Ctlrlalfne TII!Y'II!I
II:J118aa l'adto
Sui~!! 1100
Soul Ml011fo11(78!1S
0111W2012 {0288376
011o5ml'l! :11!11111:1
Âź1111'20]2 t0081>8n VOir Sl>llt8 01 Illâą Nawa! Compenaallon Depolll ~a hWt~ 20a0,00
~ Prfiiii'IIIWY lolallara i
031091:!0 12 tOOO!I Potjt'TWinL l'1tGiol Jrcm: $1agg Jto.~lllunlniâą ;tOOO,OO âą 1
~.DO
~12
$C,IIO
300,00
~UO.IIO
TOI1fi'20t~ 1!m77112 Y«J :~~Tare o, fla Nculnil C!llllpGDSe.tlon C.POtl ~ ~ IIIGWI 76Q.OO
at f'flli'nlllay !.tillore
110.00
1ooe!l224 YN' Sh;d Of IIIII NM!ltal (:qnpar!IUIIkm Oapo rl[ ~ ~ <hiYJ 7&10.00
{013112012
~fHollllilg
100952:1" Y~ .Sil&~e ot lila NawaJ COJnlflDIIMIIa)B Polposl\ --'nci 24 hGun
Of$*udy
7601.\.00 J 7600.00
----L----·...!~------~---~-------....1....--------C-~--. - --· 7~00
~B,WQ_ tH!l PAlO Nl!fDUE
JkM!!C& SUM.MAA'f: INI'(I.WCQI.rtlr!:n..CLIIII\I FI!~S 916.00 trMXI 0.00
HgA,RINWPOS1PmiEMENTII"IOOI.II'AOOl!SSI i'IS Pl!e!l '100.00 (),(0 900.00
1\IW.l..OCATlDn AT CAS !!I l!Nl) fE:~9 0.00 0,00 0.00
HE!I.ImAI. tOI.oiPENsA'I'tOWE:XPI!NSe~ 1e35C.oo 200D.Il0 1639l.OQ EIN: 1~Ool~~14&
91
f!
114511 tul A~ âą Sulla 1750
âą Amerka n Ari) i tra.t i fJ n As.>oc ia ti.nn
08lllit,TlC '/'8zj0
~iiM!~
z i. -
lli\~nl~ J(nâąl},.jjq,. .~u11lrrâą ll'~tâą'/d~r-ltlr
llWl\1im~li~
l 70-1~1102LDR 1
INVOICE/S'I'A'l!EMEN~ ~Ill DaG Upon UC>IlCLpl
OIWII E. AMI!! Ul
MMlr .:!f!IAIIeW Sdl$11lllll and lklm~
t!t 1 9.an P&dm
u.eoo
Ball AII QI'I O TX lB216
Plea.'!~ DclllCh Dncl Relum with I'LcymCitt tu lhc Abov~: Adc~ l'lemn~ lnrllcutc C11se No. on cbcclc
·····~::l.~~:~t~;~~~~·::~:=·~~~-~~·;:~~~·~~··-····~···~·······~··âąÂ·1-8W'=~;:~~-'1ieo·-··w~·---·~·····'"·'-''''·'·'········w . . . . ~.- . . . ~
Ui'f~~ r.- f!tâąllflrli111f .f;J \'('~~ ~nu IJwirlâą
MAMa Gnrd.E.Adamll~ ~~~JII'""III'lllflld ISII!QI Resl~'fiiiU, ~Ul
Alhlbllihllftllld SCI'It~ af'ld lluma R.: ~rflliJo Tarru
ll31 H;.., P«!ro
1>.11!8 8QO
8811 Arl:unlo TX 7~~fe
HiBJ; BILLED N&.TI'AII> ~
lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~ 015..oa ~75,00 0..00
HEN11NM09TPOHEN ENT.Ifi0Q.IIWROOI!8911i<J FE!eS 90&..00 0.00 900.00
fiEAU,.QCI\liON Kr CI.!IE eND nes 0.00 0.00 o.ao
NEliTRAl. CllMPI!H$r\TtOt4i!Xl'~!ll6 183511.00 2030.00 183150.0~ EIN: 13-009145
92
Exhibit 3
93
Nonnandy Financial Closing 1· '. PagcJ of3
i ...
~~-----·- ~7 r'··---~----...,...4$+·~
70-16D~OD432-10
H.E,B. Grocery Company, L.P.
=
Admlnlsfratr11e Fees and Expenses:
Filing Fees $925.00
Case Services Fee $0.00
He~rlng Fees $750.00
AM Room Rental Fee $0.0[}
Abeyanoo/Misc. AAA Fees $0.(]0
Non-AM Cooferenca Room
$0.00
Expenses
Mise Expenses $0.00
Yoor Share of Administrative Fees and Expenses: $Ul75.00
Amount Paid for Administrative Fees and Expenses: $2,875.00
Balimce Admlnlslmtive Fees and Expenses: ($1 ,200.00)
llleutra\ CompensaliQn and E)tper.eos:
Your Shere of Neutral Compansation and Expenses: $19,B07.24
Amount Paid for Neutral Compensation and Expenses: $20,470.00
Balance Neutral Compensation and Expenses: {$662.711)
Party Ba~an<:e: ($1,862.761
file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011
94
CAUSE No?O 14CVO 1 06'1 E-FILED
Bexar County, County Clerk
Gerard Rickhoff
Accepted Date:?/1/2014 10:45:56 AM
PAULA BAZAN-GARCIA, § INTHt~J.
§
Plaintiff, §
§
v. § ATLAWNO.CC# 03
§
WESTERN RIM PROPERTY §
SERVICES INC., §
§
Defendant. § BEXAR COUNTY, TEXAS
PLAINTIFF,S ORIGINAL PETITION AND REQUEST FOR DISCLOSURE
AND JURY DEMAND
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW PAULA BAZAN-GARCIA, (hereinafter referred to as "Plaintiff'),
complaining of WESTERN RIM PROPERTY SERVICES, INC., (hereinafter referred to as
"Defendant''), and for a cause of action would respectfully show unto the Court as follows:
DISCOVERY
1. Discovery Control Plan. Pursuant to Rule 190.3 of the Texas Rules of Civil Procedure,
Discovery Control Plan Level Two governs this lawsuit.
2. &quest .For Disclosure. Pursuant to Rule 194 of the Texas Rules of Civil Procedure,
Defendant is requested to disclose, within 50 days of service of this request, the information
described in Rule 194.2 of the Texas Rules of Civil Procedure.
PARTIES
3. Plaintiff is a resident of the State of Texas. She currently resides in Bexar County,
Texas, and she has resided there at all times material to this lawsuit.
4. Defendant is a private corporation organized under the laws of Texas, and its
principal place of business is in Tarrant County, Texas, located at 2505 N. Highway 360, Suite 800,
Grand Prairie, Tarrant County, Texas 75050 and may be served with process by serving its registered
ORIGINAL PETmON AND RBQUEST FOR DISCJ.OSURE PAGJ:ll
9
S"bm;t Date:61251201411:20:51 J
agent, Matthew J. Hiles, at 2505 N. Highway 360, Suite 800, Grand Prairie, Texas 75050 and/or
wherever any duly authorized agent tnay be found.
MISNOMER/MISIDENTIFICATION
5. In the event any parties are misnamed or are not included herein, it is Plaintiffs
contention that such was a "misidentification," "misnomer" and/ or such parties were "alter egos"
of parties named herein. Alternatively, Plaintiff contends that such "corporate veils" should be
pierced to hold such parties properly included in the interest of justice.
JURISDICTION & VENUE
6. This court has personal jurisdiction, both specific and general, over Defendant,
because it does business in Bexar County, Texas and Defendant is amenable to service by a Texas
court. Additionally, venue is proper in Bexar County because a substantial part of the events or
omissions giving 1-ise to Plaintiffs claim occurred in Bexar County. TEX. CIV. PRAC. & REM. CODE
§15.002(a)(1).
7. Plaintiff has suffered damages in an amount within the jurisdictional limits of this
Court. Pursuant to Rule 47 of the Texas Rules of Civil Procedure, Plaintiff in good faith pleads the
value of this case is over one hundred thousand dollars ($100,000.00) but less than two hundted
thousand dollars ($200,000.00). Plaintiff reserves the right to amend these amounts if a jury awards
an atnount in excess of two hundred thousand dollars ($200,000.00).
STATEMENT OF FACTS
8. Defendant has been a "subscriber" of workers' compensation insurance at all times
material to this action.
9. Plaintiff was employed by Defendant since approximately September, 26, 2011 at
Defendant's apartment complex, The Towers at TPC, located at 5505 TPC Parkway, San Antonio,
Bexar County, Texas.
ORIGINAL PETITION AND REQUEST l'Oit DlS<:WSURE PAGE2
10
10. Throughout Plaintiff's employment with Defendant, Plaintiff consistendy was told
she was doing a good job. Plaintiff seldom--if ever--received any negative evaluations. Plaintiff was
never written up for any serious violations while employed by Defendant.
11. Plaintiff had a good attendance record until March 20, 2013, when she suffered an
on-the-job injury. Plaintiff promptly notified her supervisor of her injury and upon information and
belief, a workers' compensation claim was flied.
12. On or about June 4, 2013, Plaintiff was prohibited from working by her doctor as a
result of the injury she sustained while working in the course and scope of her employment.
Because Plaintiff was being taken off work pending surgery, in addition to being prohibited ftom
working by her doctor, Plaintiff requested to take FMLA leave and submitted the paperwork to
Defendant's corporate office.
13. Plaintiff was released to return to work on light duty on or about August 19, 2013;
however, Plaintiff was prohibited from working by Defendant, who clain1ed to not have any light
duty positions.
14. On or about October 22, 2013, soon after Plaintiff was released on full duty,
Defendant terminated Plaintiff for a pre-textual reason.
15. As a result of her discharge and the company's continuing refusal to reinstate her,
Plaintiff has suffered substantial economic losses and severe mental anguish, and she will continue
to suffer such losses in the future.
WORKERS' COMPENSATION RETALIATION
16. Plaintiff incorporates by reference the allegations contained in paragraphs 1 through
16 as if those allegations were set forth verbatim.
17. Plaintiff alleges that Defendant, violated Section 451.001 of the Texas Labor Code
by discharging Plaintiff because she notified her employer of her on-the-job injury and/ or initiated
the filing of a workers' compensation claim in good faith, and by not reinstating her.
0R1G1NAL PF.m'l'ION AND RP.QUES'l' l'OR DISCLOSURP. PAGE3
11
18. Plaintiff seeks the maximum damages allowed by Section 451.002 of the Texas Labor
Code and at common law.
19. Plaintiffs injuries resulted from Defendant's fraud and/ or malice as set forth in Tex.
Civ. Prac. & Rem. Code § 41.001 et seq. Accordingly, Plaintiff is entitled to an award of exemplary
damages in accordance with Texas law.
REQUEST FOR REUEF
20. Based on the foregoing, Plaintiff requests that Defendant appear and answer, and
that on final trial of this lawsuit Plaintiff have final judgment against Defendant for the following
relief:
a) All reasonable damages;
b) Lost earnings and employee benefits in the past;
c) Lost earnings and employee benefits that in reasonable probability will be lost in the
futw:e;
d) Compensat01y damages, past and future (which may include emotional pain and
suffering, inconvenience, mental anguish, loss of enjoyment of life, and other non-
pecuniary losses);
e) Exemphuy damages;
f) Pre-judgment and post-judgment interest at the maximum amount allowed by law;
g) Costs of suit;
h) The award of such other and further relief, both at law and in equity, including
injunctive relief and reinstatement, to which Plaintiff may be justly entitled.
PRAYER
21. WHEREFORE, PREMISES CONSIDERED, Plaintiff requests that the
Defendant be cited to appear and answer, and that upon final trial, Plaintiff have judgment against
Defendant for all relief requested, for pre-judgment interest, for costs of this suit, punitive damages
and for such other and further relief, general and special, at law or in equity, to which Plaintiff may
be justly entitled.
ORIGINAL PETITION AND REQU&'T l'OH DISO.OSURE! PAGE4
12
Respectfully submitted,
THE ESPINOZA LAW FIR..M, PLLC
503 E. Ramsey, Ste. 103
San Antonio, Texas 78216
210.229~1300 t
210.229.1302 f
~a~com
~~
JAVI R..~OZA
Texas Bar No. 24036534
STEVEN SACHS
Texas Bar No. 24074995
JOSUE F. GARZA
Texas Bar No. 24072737
ORIGINAL PITI'J'l10N AND REQUEST !'OR DISCLOSURE PAGE5
13
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)
Modification
253 S.W.3d 857 or vacation of judgment or order
Court of Appeals of Texas,
Mandamus
Houston (14th Dist.).
Civil
ASPEN TECHNOLOGY, INC., Appellant
proceedings other than actions
v.
Mandamus relief was potentially available to
Abe SHASHA, Appellee.
employer challenging trial court's decision
In re Aspen Technology, Inc., Relator. on employer's motion to compel arbitration,
pursuant to arbitration agreement governed by
Nos. 14â07â00303âCV, 14â07â
the Federal Arbitration Act, although under the
00469âCV. | March 27, 2008.
Act, employer had an adequate remedy by law
Synopsis by interlocutory appeal. 9 U.S.C.A. § 1 et seq.
Background: Former employee brought action against
2 Cases that cite this headnote
employer, challenging payment of commissions. The 165th
District Court, Harris County, Elizabeth Ray, J., granted
employer's motion to compel arbitration, but on employee's [2] Alternative Dispute Resolution
motion to clarify, enforced first of two arbitration agreements,
Constitutional
ordering arbitration in Texas. Employer appealed and
and statutory provisions and rules of court
filed petition for writ of mandamus. Proceedings were
consolidated. Commerce
Arbitration
The Federal Arbitration Act applies to an
Holdings: The Court of Appeals, Kem Thompson Frost, J., arbitration agreement in any contract involving
held that: interstate commerce, to the full extent of
the Commerce Clause of the United States
[1] fact that trial court did not deny employer's motion to Constitution. U.S.C.A. Const. Art. 1, § 8, cl. 3;
compel did not deprive Court of Appeals of jurisdiction over 9 U.S.C.A. § 2.
petition for writ of mandamus;
Cases that cite this headnote
[2] employer did not retain a unilateral, unrestricted right
to modify or terminate the arbitration agreement, as would
[3] Mandamus
render the agreement illusory; and
Civil
[3] agreement was not unconscionable because employee proceedings other than actions
failed to demonstrate a likelihood he would be denied access Mandamus relief is available when the trial
to arbitration by excessive arbitration costs. court clearly abuses its discretion by erroneously
denying a party its contracted-for arbitration
rights under the Federal Arbitration Act. 9
Writ granted.
U.S.C.A. § 1 et seq.
3 Cases that cite this headnote
West Headnotes (14)
[4] Mandamus
[1] Mandamus Matters
of discretion
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)
On mandamus review of factual issues, a trial
court will be held to have abused its discretion [9] Contracts
only if the party requesting mandamus relief
Existence
establishes that the trial court reasonably could
of ambiguity
have reached only one decision, and not the
Contracts
decision the trial court made.
Ambiguity
1 Cases that cite this headnote
in general
When a written contract is worded such that it
[5] Mandamus can be given a certain or definite legal meaning
Matters or interpretation, it is unambiguous, and the court
of discretion construes it as a matter of law.
On mandamus review of issues of law, the trial Cases that cite this headnote
court will be found to have abused its discretion
if it clearly fails to analyze the law correctly or
[10] Mandamus
apply the law to the facts.
Civil
Cases that cite this headnote
proceedings other than actions
Mandamus
[6] Alternative Dispute Resolution
Jurisdiction
Construction and authority
To ascertain the parties' true intentions in an Fact that trial court did not deny employer's
arbitration agreement, a court examines the motion to compel arbitration did not deprive
entire agreement in an effort to harmonize and the Court of Appeals of jurisdiction over
give effect to all provisions of the contract so that employer's petition for writ of mandamus;
none will be rendered meaningless. trial court granted the motion to compel,
but in response to employee's motion for
2 Cases that cite this headnote
reconsideration and clarification, ordered parties
to arbitrate claim in Texas, impliedly finding that
[7] Contracts the second of two arbitration agreements was
illusory and substantively unconscionable, thus
Ambiguity
denying employer its contracted-for arbitration
in general
rights under the second agreement, which was
Whether a contract is ambiguous is a question of governed by the Federal Arbitration Act. 9
law for the court. U.S.C.A. § 1 et seq.
1 Cases that cite this headnote Cases that cite this headnote
[8] Contracts [11] Alternative Dispute Resolution
Existence In
of ambiguity general; formation of agreement
A contract is ambiguous when its meaning Under language of arbitration agreement stating
is uncertain and doubtful or is reasonably that employer's vice president would âbe
susceptible to more than one interpretation. responsible for the periodic review of the
plan and may make revisions from time to
Cases that cite this headnote
time,â employer did not retain a unilateral,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)
unrestricted right to modify or terminate
the arbitration agreement, and therefore the
arbitration agreement, as a matter of law, was not Attorneys and Law Firms
illusory.
*859 Laura Gibson for Aspen Technology, Inc.
1 Cases that cite this headnote
Mark G. Lazarz, Michael Todd Slobin, for Abe Shasha.
[12] Alternative Dispute Resolution Panel consists of Chief Justice HEDGES and Justices
ANDERSON and FROST.
In
general; formation of agreement
If one party to an arbitration agreement retains OPINION
a unilateral, unrestricted right to terminate,
then the arbitration agreement is illusory and KEM THOMPSON FROST, Justice.
unenforceable.
An employer and its employee entered into two arbitration
Cases that cite this headnote agreementsâone in which they did not specify the arbitration
rules, arbitration site, or number of arbitrators and a
subsequent agreement in which they specified a three-
[13] Alternative Dispute Resolution arbitrator panel in Boston, Massachusetts, in accordance with
the commercial arbitration rules of the American Arbitration
Unconscionability
Association. The trial court compelled arbitration in Houston,
Employee failed to demonstrate a likelihood
Texas, before a single arbitrator under the first agreement but
that he would be denied access to arbitration
refused to compel arbitration under the second agreement,
by excessive arbitration costs, as would support
impliedly ruling that the second agreement is illusory and
trial court's finding that arbitration clause
substantively unconscionable. We conclude mandamus relief
requiring arbitration in Boston was substantively
is warranted. For the reasons explained below, we direct the
unconscionable; even if American Arbitration
trial court to vacate its orders compelling arbitration under the
Association (AAA) conducted and administered
first agreement and to issue an order compelling arbitration
the arbitration and costs were allocated equally,
under the second agreement. Given this ruling, the employer's
as assumed by employee, cost to employee of
interlocutory appeal is rendered moot.
$17,862 was not unconscionable in view of
his asserted claim of between $300,000 and
$500,000, and employee provided no evidence of
his ability to pay at time the parties entered into I. FACTUAL AND PROCEDURAL BACKGROUND
the arbitration agreement.
Appellee/real party in interest Abe Shasha began his
1 Cases that cite this headnote employment in December 2001, with the predecessor of
appellant/relator Aspen Technology, Inc. At that time,
Shasha signed an agreement regarding his employment, in
[14] Alternative Dispute Resolution
which he and Aspen's predecessor agreed to arbitrate any
and all disputes or controversies that might arise between
Evidence
Shasha and Aspen's predecessor, including without limitation
A party seeking to invalidate an arbitration
employment disputes (hereinafter â2001 Agreementâ). On
agreement on the ground that arbitration would
October 28, 2005, Shasha signed an agreement regarding
be prohibitively expensive bears the burden of
his incentive compensation for Aspen fiscal year 2006
providing specific evidence showing a likelihood
(hereinafter â2006 Agreementâ). In the 2006 Agreement,
that he would incur excessive arbitration costs.
Shasha agreed that any legal action against Aspen would
Cases that cite this headnote be settled exclusively by arbitration before a three- *860
member panel in Boston, Massachusetts in accordance with
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)
the commercial arbitration rules of the American Arbitration in support of its position that there is no merit in Shasha's
Association (hereinafter âAAAâ). two objections to the enforceability of the arbitration clause
in the 2006 Agreement. Aspen asserted that the Federal
Early in 2006, Shasha notified Aspen that he had a dispute Arbitration Act (âFederal Actâ) and the Texas Arbitration
regarding his commissions. In May 2006, Shasha resigned Act (âTexas Actâ) both mandate that Shasha's claims be
from his position with Aspen and soon thereafter filed suit arbitrated in Boston, Massachusetts before a panel of three
against Aspen in the trial court below asserting contract arbitrators pursuant to the commercial arbitration rules of
and tort claims. Aspen filed a motion to compel arbitration, the AAA (âCommercial Rulesâ) and that the proceedings in
relying on both the 2001 Agreement and the 2006 Agreement. the trial court be stayed pending completion of arbitration.
In response, Shasha admitted that he executed both the 2001 Aspen submitted to the trial court a proposed order denying
Agreement and the 2006 Agreement. Shasha argued that the Shasha's motion. In this proposed order, the trial court would
arbitration provision in the 2006 Agreement replaced the compel arbitration in Boston, Massachusetts, before a panel
arbitration provision in the 2001 Agreement. Shasha did not of three arbitrators pursuant to the Commercial Rules and stay
dispute that his claims fall within the scope of the arbitration the proceedings in the trial court until the conclusion of the
clause in the 2006 Agreement; rather, Shasha asserted that arbitration. Instead of signing this proposed order, the trial
this arbitration clause is unenforceable because (1) the clause court signed an order in which it granted Shasha's motion and
is illusory given that Aspen allegedly retains a unilateral, compelled arbitration in Houston, Texas, with a single *861
unrestricted right to terminate this arbitration agreement; and arbitrator under the 2001 Agreement. Aspen has appealed this
(2) the clause imposes such exorbitant costs on Shasha that it order under section 171.098(a)(1) of the Texas Civil Practice
is substantively unconscionable. and Remedies Code. See TEX. CIV. PRAC. & REM.CODE
ANN. § 171.098(a)(1) (Vernon 2005). Aspen also filed a
The trial court granted Aspen's motion to compel, ordered petition for writ of mandamus. This court has consolidated
all claims to arbitration, and stayed the case pending the these two proceedings.
conclusion of the arbitration. However, the trial court's first
order did not specify the site for the arbitration or the
agreement under which the trial court ordered the parties
II. STANDARD OF REVIEW
to arbitrate the claims. Confusion arose as to whether the
trial court had ordered arbitration under the 2006 Agreement. [1] [2] [3] [4] [5] The Federal Act applies to an
Aspen asserted that the trial court had ordered the parties arbitration agreement in any contract involving interstate
to arbitrate the claims in Boston, Massachusetts, under the commerce, to the full extent of the Commerce Clause of the
2006 Agreement. Shasha filed a motion for reconsideration United States Constitution. See 9 U.S.C. § 2(1999); Alliedâ and clarification. In this motion, Shasha stated that the trial Bruce Terminix Co. v. Dobson,513 U.S. 265
, 277â81, 115 court's order was ambiguous as to whether the trial court had S.Ct. 834, 839â41,130 L.Ed.2d 753
(1995); In re L & L compelled the parties to arbitrate the claims under the 2001 Kempwood Assocs.,9 S.W.3d 125, 127
(Tex.1999). Shasha Agreement or under the 2006 Agreement. Shasha asserted does not dispute that the Federal Act applies. The 2001 that he had no issue with the court to the extent it intended Agreement and the 2006 Agreement both involve interstate to compel arbitration under the 2001 Agreement. However, commerce, and therefore, the Federal Act applies. Mandamus to the extent the trial court had ordered arbitration under the relief is available when the trial court clearly abuses its 2006 Agreement, Shasha moved the court to reconsider its discretion by erroneously denying a party its contracted- rejection of the two grounds upon which Shasha had asserted for arbitration rights under the Federal Act. See In re D. that this arbitration agreement is unenforceable. Shasha Wilson Const. Co.,196 S.W.3d 774
, 780â81 (Tex.2006) (orig. requested the trial court to order the parties to arbitration proceeding); In re Igloo Prods. Corp.,238 S.W.3d 574
,
under the 2001 Agreement in Houston, Texas, with a single 577 (Tex.App.-Houston [14th Dist.] 2007, orig. proceeding
arbitrator. [mand. denied] ). Therefore, Aspen's right to mandamus relief
hinges on whether the trial court erred by refusing to compel
Aspen filed a response in opposition in which it argued that
arbitration under the 2006 Agreement. 1 On mandamus
no clarification was necessary because the trial court already
review of factual issues, a trial court will be held to have
had ordered the parties to arbitrate in Boston, Massachusetts,
abused its discretion only if the party requesting mandamus
under the 2006 Agreement. Aspen again presented argument
relief establishes that the trial court reasonably could have
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857(2008) reached only one decision, and not the decision the trial court discretion by erroneously denying a party its contracted-for made. Walker v. Packer,827 S.W.2d 833, 840
(Tex.1992) arbitration rights under the Federal Act. See In re D. Wilson (orig. proceeding). Mandamus review of issues of law is less Const. Co.,196 S.W.3d 774
, 780â81. Impliedly finding that
the arbitration clause in the 2006 Agreement is illusory and
deferential. A trial court abuses its discretion if it clearly fails
to analyze the law correctly or apply the law to the facts. substantively unconscionable, the trial court denied Aspen its
In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 contracted-for arbitration rights under the 2006 Agreement,
(Tex.2005). which is governed by the Federal Act. Therefore, this court
has mandamus jurisdiction to consider whether the trial court
[6] [7] [8] [9] In construing the 2006 Agreement,clearly abused its discretion in so ruling. See In re D. Wilson
our primary concern is to ascertain and give effect to the Const. Co., 196 S.W.3d 774, 780â81. intentions of the parties as expressed in the contract. Kelleyâ Coppedge, Inc. v. Highlands Ins. Co.,980 S.W.2d 462, 464
(Tex.1998). To ascertain the parties' true intentions, we B. Did the trial court err by concluding that the examine the entire agreement in an effort to harmonize and arbitration clause in the 2006 Agreement is illusory? give effect to all provisions of the contract so that none [11] [12] Shasha asserted in the trial court that the will be rendered meaningless. MCI Telecomms. Corp. v. Tex. arbitration clause in the 2006 Agreement is illusory because Utils. Elec. Co.,995 S.W.2d 647, 652
(Tex.1999). Whether Aspen allegedly retains a unilateral, unrestricted right a contract is ambiguous is a question of law for the court. to terminate this arbitration agreement. If one party to Heritage Res., Inc. v. NationsBank,939 S.W.2d 118
, 121 an arbitration agreement retains such a right, then the (Tex.1996). A contract is ambiguous when its meaning is arbitration agreement is illusory and unenforceable. See *862 uncertain and doubtful or is reasonably susceptible to In re Palm Harbor Homes, Inc.,195 S.W.3d 672
, 677 more than one interpretation.Id.
However, when a written (Tex.2006). Shasha asserts that Aspen retains a unilateral, contract is worded such that it can be given a certain or unrestricted right to terminate the arbitration provision in the definite legal meaning or interpretation, it is unambiguous, 2006 Agreement based on the following language in that and the court construes it as a matter of law. Am. Mfrs. Mut. agreement: Ins. Co. v. Schaefer,124 S.W.3d 154, 157
(Tex.2003).
The incentive compensation plan
administrator (Vice President of
Worldwide Sales Operations) is
III. ISSUES AND ANALYSIS responsible for the interpretation of the
plan. If the meaning or interpretation
A. Does this court lack mandamus jurisdiction because of the plan wording requires
the trial court did not deny a motion to compel clarification after consideration of
arbitration? all the facts, the Senior Vice
[10] Shasha first argues that this court lacks jurisdiction President, Worldwide Sales and
to consider Aspen's mandamus petition because the trial Business Development (SVP Sales) or
court allegedly did not deny Aspen's application to compel his/her designee(s), if any [,] will issue
arbitration. According to Shasha, Aspen moved to compel a written ruling, which will be final.
arbitration under either the 2001 Agreement or the 2006 In addition, the SVP Sales will be
Agreement, and the trial court granted this request by responsible for the periodic review of
compelling arbitration under the 2001 Agreement. Though the plan and may make revisions from
Aspen based its motion to compel on both agreements, time to time.
in response to Shasha's motion for reconsideration and
clarification, Aspen relied on the 2006 Agreement and (emphasis added). The title of the 2006 Agreement is âAspen
requested the trial court to order arbitration of Shasha's claims Technology, Inc. FY 2006 Incentive Compensation Plan
in Boston, before a panel of three arbitrators pursuant to Global Account Manager (GAM).â In the 2006 Agreement,
the Commercial Rules. The trial court refused to do so, there is no definition of the term âplan.â Shasha asserts
and instead, it ordered the parties to arbitrate the claims in that, under *863 the above language, the SVP Sales may
Houston, with a single arbitrator under the 2001 Agreement. make revisions to the 2006 Agreement from time to time.
Mandamus relief is available if a trial court abuses its Presuming that the above language refers to the 2006
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857(2008) Agreement as âthe plan,â and presuming that the SVP Sales such exorbitant costs on him that it is substantively may review the 2006 Agreement and make revisions from unconscionable. Under certain circumstances, arbitration time to time, this is not equivalent to stating that the SVP Sales costs could be so high that they preclude a litigant from has a unilateral, unrestricted right to terminate the arbitration effectively vindicating his rights through arbitration. See provision in the 2006 Agreement. Under the 2006 Agreement, Green Tree Fin. Corp. v. Randolph,531 U.S. 79
, 90â92, â[a]ny additional terms or conditions, or verbal or written121 S.Ct. 513
, 522â23,148 L.Ed.2d 373
(2000). A party
agreements between [Shasha] and [Aspen] will not apply seeking to invalidate an arbitration agreement on the ground
unless explicitly agreed to and approved in a signed writing that arbitration would be prohibitively expensive bears the
by both the SVP Sales and [Shasha].â burden of providing specific evidence showing a likelihood
that he would incur excessive arbitration costs. See Green
We conclude that, under the unambiguous language of Tree Fin. Corp., 531 U.S. at 90â92, 121 S.Ct. at 522â23; In
the 2006 Agreement, Aspen does not retain a unilateral, re U.S. Home Corp., 236 S.W.3d 761, 764(Tex.2007); In unrestricted right to modify or terminate the arbitration re FirstMerit Bank, N.A.,52 S.W.3d 749, 756
(Tex.2001); provision in that agreement; therefore, that arbitration TMI, Inc. v. Brooks,225 S.W.3d 783, 796
(Tex.App.-Houston provision, as a matter of law, is not illusory. See In re Dillard [14th Dist.] 2007, pet. denied). Dept. Stores, Inc.,186 S.W.3d 514, 516
(Tex.2006) (holding that arbitration agreement did not give employer unilateral, *864 The 2006 Agreement is silent as to arbitration costs. unrestricted right to modify the arbitration agreement). In the trial court Shasha offered an affidavit from one of The cases on which Shasha relies are not on point. See his lawyers. In this affidavit, Shasha's counsel testifies, in J.M. Davidson, Inc. v. Webster,128 S.W.3d 223
, 228â pertinent part, to the following: 30 (Tex.2003) (concluding that it was unclear whether employer retained unilateral right to terminate arbitration âą Based on his personal knowledge of the Commercial agreement without notice in case in which agreement stated Rules and the AAA employment arbitration rules that the employer âreserves the right to unilaterally abolish (âEmployment Rulesâ), claims arbitrated under the or modify any personnel policy without prior noticeâ); In re Commercial Rules are significantly more costly to C & H News Co.,133 S.W.3d 642, 646
(Tex.App.-Corpus the employee/claimant than claims arbitrated under
Christi 2003, orig. proceeding) (concluding agreement was the Employment Rules. This is because under the
illusory because it contained provision giving employer Employment Rules, the employee/claimant is only
the ability to modify or delete provisions as the employer responsible for a filing fee of $50â150; whereas
deems appropriate, with or without prior notification to under the Commercial Rules, the employee/claimant is
employees); Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d responsible for the filing fee, the case service fee, and
386, 386â88 (Tex.App.-Houston [14th Dist.] 1998, pet. one-half of all the arbitrator fees unless the arbitration
dism'd w.o.j.) (holding arbitration agreement contained in agreement states otherwise.
employee handbook was not supported by consideration, in
âą The AAA's filing fee for this case would be $4,250, and
case in which handbook stated that (1) it was not intended
the AAA case service fee would be $1,750. The AAA
to constitute a legal contract with any employee because that
administration fee would be $325. Although arbitrator
could only occur with a written agreement executed by a
fees vary for each arbitrator, a âmedian estimateâ is
facility executive director and (2) the employer reserved the
$305.50 per hour for each arbitrator based on ten
right to amend or rescind any provision of the handbook as
arbitrator resumes for the Boston area from the AAA
it deemed appropriate in its sole and absolute discretion).
website. A conservative estimate of total arbitrator fees
Therefore, the trial court clearly abused its discretion to the
based on four days of work per arbitrator is $24,000 (32
extent it concluded that the arbitration clause in the 2006
hours x $250/hour per arbitrator).
Agreement is illusory.
âą Shasha's air fare and hotel costs for an arbitration in
Boston would be at least $2,700.
C. Did the trial court err by concluding that the
arbitration clause in the 2006 Agreement is substantively
Presuming that arbitrations under the Commercial Rules
unconscionable?
are significantly more costly than arbitrations under the
[13] [14] Shasha asserted in the trial court that
Employment Rules, this testimony alone does not provide
the arbitration clause in the 2006 Agreement imposes
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857(2008) specific evidence as to Shasha's likely costs to arbitrate under projected aggregate costs and fees of $30,325, which would the 2006 Agreement. Though Shasha's counsel provides make Shasha's portion $15,162.50. Presuming that the extra projected fees for filing with the AAA, AAA case service, expense of traveling to Boston for the arbitration is $2,700 and AAA administration, this projection is based on the (the figure stated in the affidavit of Shasha's counsel) the total premise that the AAA would administer the arbitration. 2 financial burden on Shasha would be $17,862.50. However, However, the arbitration provision in the 2006 Agreement Shasha is asserting a claim of between $300,000 and does not require that the AAA conduct or administer the $500,000, and Shasha's base salary, without commissions, arbitration; rather the provision states that arbitration shall when he entered into the 2006 Agreement was $120,000. be âin accordance with the [Commercial Rules].â Under this Though Shasha provided his own affidavit, in which he states language, the AAA may administer the arbitration, but the that the costs of pursuing his claim through arbitration in parties are not required to have the arbitration administered Boston under the 2006 Agreement would be extraordinary, by the AAA. See TMI, Inc., 225 S.W.3d at 797. Although oppressive, unaffordable, and would deprive him of the the party seeking to compel arbitration in TMI, Inc. presented opportunity to litigate his claim, these conclusory statements evidence that arbitration under the same arbitration provision are legally insufficient. See, e.g., Green Tree Fin. Corp., 531 was available by a non-AAA arbitrator at a cost significantly U.S. at 90 n. 6, 121 S.Ct. at 522 n. 6 (concluding that party's lower that the costs of a AAA arbitration, such proof is unsupported statement that she did not have the resources not necessary for Shasha to be required to make a factual to pay the high costs of arbitration was insufficient). Shasha showing that the AAA would administer the arbitration. does state that he is currently paying for the university studies See Green Tree Fin. Corp.,531 U.S. at 90
n. 6, 121 S.Ct. of his three children and that since he stopped working at
at 522 n. 6 (concluding that party asserting substantive Aspen he has been unable to find âequivalent fixed income
unconscionability could not carry her burden of proof based work.â However, we determine substantive unconscionability
on AAA fees unless she, made a factual showing, among other based on the circumstances existing when the parties entered
things, that the AAA would administer the arbitration). into the contract in October 2005, and Shasha provided no
evidence as to his finances or ability to pay $17,862.50 at this
As to arbitrator fees, again, Shasha's projected fees appear time. 3 See In re FirstMerit Bank, N.A., 52 S.W.3d at 757.
to be based on fees charged by AAA arbitrators. In addition,
Shasha's counsel testifies that, under the Commercial Rules, Under the applicable standard of review, we conclude that the
absent agreement by the parties, Shasha must pay half of trial court clearly abused its discretion by impliedly ruling that
the arbitrator fees. However, under the Commercial Rules the arbitration clause in the 2006 Agreement is substantively
attached to counsel's affidavit, the arbitration panel in its final unconscionable. 4
award *865 shall apportion the arbitration fees, expenses,
and compensation among the parties in such amounts as the
panel determines is appropriate.
IV. CONCLUSION
We conclude that the evidence is legally insufficient to
The Federal Act governs the arbitration clause in the 2006
support the trial court's implied finding that Shasha satisfied
Agreement. Therefore, this court has mandamus jurisdiction
his burden of providing specific evidence showing a
to consider whether the trial court erred in denying Aspen its
likelihood that he would be denied access to arbitration based
contracted-for arbitration rights under the 2006 Agreement.
on excessive arbitration costs. See Green Tree Fin. Corp., 531
The trial court clearly abused its discretion (1) by impliedly
U.S. at 90â92, 121 S.Ct. at 522â23; In re U.S. Home Corp.,
finding that the arbitration *866 clause in the 2006
236 S.W.3d at 764; In re FirstMerit Bank, N.A., 52 S.W.3d at
Agreement is illusory; (2) by impliedly finding that the
756â57; TMI, Inc., 225 S.W.3d at 796. On the record before
clause is substantively unconscionable; and (3) by refusing
it, the only finding the trial court could have made was that
to order the parties to arbitrate the claims under the 2006
Shasha did not satisfy this burden. By impliedly ruling to the
Agreement. Accordingly, we conditionally grant a writ of
contrary, the trial court clearly abused its discretion.
mandamus directing the trial court to vacate its orders
compelling arbitration under the 2001 Agreement and to issue
In addition, even presuming that the AAA would administer
an order (1) compelling arbitration under the 2006 Agreement
the arbitration and that the arbitration costs and fees would
before a three-arbitrator panel in Boston, Massachusetts,
be allocated equally by the arbitration panel, Shasha's counsel
in accordance with the Commercial Rules and (2) staying
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)
mandamus relief, we dismiss Aspen's interlocutory appeal as
the proceedings in the trial court pending completion of
moot.
arbitration. We are confident the respected trial judge will
comply with this opinion. Only in the unlikely event she fails
to do so will the writ issue. Because we have granted this
Footnotes
1 In 1992, addressing whether a party is entitled to mandamus relief for wrongful denial of its arbitration rights under an agreement
subject to the Federal Act, the Texas Supreme Court concluded that the Texas Act does not provide such a party the ability to assert
an interlocutory appeal. See Jack B. Anglin, Inc. v. Tipps, 842 S.W.2d 266, 272â73 (Tex.1992). In 2006, the Texas Supreme Court
decided that such a party can file an interlocutory appeal of the trial court's denial of a motion to compel arbitration under an agreement
governed by the Federal Act. See In re D. Wilson Const. Co., 196 S.W.3d 774, 778â80 (Tex.2006). It might appear that Aspen is
not entitled to mandamus relief in this case because the Federal Act governs the Agreement and, under In re D. Wilson Const. Co.,
Aspen has an adequate remedy at law by interlocutory appeal. See id. However, the Texas Supreme Court reaffirmed in In re D.
Wilson Const. Co. that mandamus relief remains available when a party is erroneously denied its contracted-for arbitration rights
under the Federal Act. See In re D. Wilson Const. Co., 196 S.W.3d at 780â81. Therefore, we conclude that mandamus relief is still
potentially available to Aspen.
2 Shasha's counsel attaches a copy of the Commercial Rules and the fee schedule for arbitrations conducted by the AAA, but the AAA
fee schedule is not part of the Commercial Rules.
3 In any event, Shasha did not provide specific evidence in his affidavit that would prove his present ability to pay this amount.
4 Shasha relies on In re Luna, 175 S.W.3d 315, 319 (Tex.App.-Houston [1st Dist.] 2004, orig. proceeding [mand. pending] ). We are
not bound by In re Luna, and, in any event, in that case, there was evidence establishing that arbitration would force the former
employee to pay fees that amounted to one-half of his annual compensation. See In re Luna, 175 S.W.3d 315, 321 (Tex.App.-Houston
[1st Dist.] 2004, orig. proceeding [mand. pending] ). Therefore, In re Luna is not on point.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487
lessees. The leased property was used as a convenience store,
gas station, and car wash.
2011 WL 3849487
Only the Westlaw citation is currently available.
On October 3, 2006, ENM attempted to exercise an option
SEE TX R RAP RULE 47.2 FOR to purchase the property in accordance with the terms of the
DESIGNATION AND SIGNING OF OPINIONS. lease. However, Aspri contended ENM was in default of the
lease, and on October 6, sent ENM a notice to vacate the
MEMORANDUM OPINION premises and terminating the lease. On October 10, 2006,
Court of Appeals of Texas, Aspri filed a demand for arbitration of its claim for forcible
San Antonio. detainer with the American Arbitration Association. A few
days later, Aspri filed a lawsuit in Bexar County District
ASPRI INVESTMENTS, LLC, Appellant
Court against ENM, Mrs. Afeef, and her son and store
v. manager, Ahmed âTonyâ Afeef. The petition and attached
Maryam Begum AFEEF and affidavit asserted that ENM owed past-due rent and that
ENM Food Mart, Inc., Appellees. Aspri owned or had a security interest in the inventory and
equipment in the store. Aspri sought damages, a temporary
No. 04â10â00573âCV. | Aug. 31, restraining order, and permanent injunction. The trial court
2011. | Rehearing Overruled Oct. 27, 2011. issued a temporary restraining order on October 17, 2006,
that prohibited ENM from removing anything from the store
From the 73rd Judicial District Court, Bexar County, Texas,
and from interfering with Aspri's possession. ENM filed
Trial Court No. 2010âCIâ03099; Solomon Casseb, III, Judge
counterclaims for tortious interference with contract and
Presiding.
business relationships, conversion, malicious prosecution,
Attorneys and Law Firms and wrongful injunction. ENM also requested the court abate
the proceedings for arbitration of all issues relating to the
Lori D. Massey, Samuel V. Houston, III, Ford & Massey, lease. However, ENM asserted that its tort claims against
P.C., San Antonio, TX, for Appellant. Aspri did not relate to the terms of the lease and were not
subject to arbitration. In November 2006, the district court
George H. Spencer, Jr., Clemens & Spencer, P.C., San issued a temporary injunction, set the case for final trial on
Antonio, TX, for Appellees.
April 2, 2007, and abated the case for arbitration. 1 Soon after
Sitting: PHYLIS J. SPEEDLIN, Justice, REBECCA the suit was filed, Aspri filed a landlord's lien for unpaid rent
SIMMONS, Justice, STEVEN C. HILBIG, Justice. pursuant to sections 54.021 and 54.022 of the Texas Property
Code.
MEMORANDUM OPINION The arbitrator issued an award in March 2007, finding that
Aspri had no right to terminate the leasehold and that the lease
STEVEN C. HILBIG, Justice. termination, eviction, and restraining order were wrongful.
The arbitrator found that Aspri breached the lease and was
*1 Aspri Investments, LLC appeals the trial court's not owed any past rent, but that ENM's attempt to exercise
judgment confirming an arbitration award in favor of Maryam the option was faulty. The arbitrator found that ENM had not
Begum Afeef and ENM Food Mart, Inc. We affirm. demanded arbitration of claims for damages and that issue
was not before the tribunal.
FACTUAL AND PROCEDURAL BACKGROUND After the arbitration award was filed in the trial court, ENM
filed a jury demand on its counterclaims and a motion for
The underlying dispute arose out of a commercial property continuance of the April 2, 2007 trial setting in order to
lease entered into in February 2005 between Aspri conduct discovery on its claims for damages. After a lengthy
Investments, LLC (âAspriâ) as lessor and Maryam Begum discussion at the April 2, 2007 hearing, the trial court denied
Afeef and ENM Food Mart, Inc. (collectively âENMâ) as the motion for continuance and ruled that it would render
final judgment based on the arbitration award. The trial court's
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487
judgment was signed the same day. The judgment recited ENM filed suit in district court, seeking confirmation of the
the court was confirming the arbitration award by: declaring award. Aspri answered and filed a motion to vacate, correct,
that Aspri's termination of the lease and eviction of ENM or modify the award. The trial court held an evidentiary
were wrongful and ENM's attempt to exercise the option was hearing and later signed a judgment confirming the award.
ineffective; awarding possession of the premises to ENM; and The judgment, which includes interest to the date of the
denying ENM's counterclaims. Aspri appealed the judgment judgment and attorney's fees awarded by the arbitration
and posted a $25,000 supersedeas bond to suspend issuance of panel, is for $1,713,011.69. Aspri appeals the judgment,
a writ of possession. ENM did not appeal. In February, 2008, complaining the trial court erred in confirming and not
this court affirmed the judgment. The Supreme Court denied vacating the award because (1) ENM waived its right to
review in August 2008. arbitrate any claims arising from the 2006 lease termination
and eviction; (2) all claims arising out of the 2006 lease
*2 After the Supreme Court denied review, Aspri sent ENM termination and eviction are barred by res judicata; (3) the
a letter purporting to tender possession of the premises and arbitration panel exceeded its powers; and (4) the panel
demanding payment of rent. However, Aspri did not deliver manifestly disregarded the law and committed gross mistake.
keys to the property and did not tender a return of any
of ENM's property, equipment, or inventory which it had
seized. Additionally, another tenant was in possession of the
FEDERAL ARBITRATION ACT OR
premises and demanded $150,000 to vacate. When ENM
TEXAS GENERAL ARBITRATION ACT?
objected to the purported tender, Aspri sent a letter again
stating the lease was terminated for nonpayment of rent. The parties' lease contained an agreement to arbitrate. The
agreement does not specify whether the Federal Arbitration
On October 27, 2008, ENM filed a demand for arbitration, Act (âFAAâ) or the Texas General Arbitration Act (âTAAâ)
alleging wrongful eviction, wrongful injunction, failure to would govern; however, the lease contains a choice of law
tender possession in compliance with prior arbitration award clause, providing that the laws of the State of Texas governs
and judgment, breach of contract, fraud, theft, conversion, enforcement of the lease.
and intentional infliction of emotional distress. ENM sought
lost profits, damages for loss of business reputation, the *3 The TAA applies to written agreements to arbitrate
value of property, equipment, and inventory seized, mental unless the agreement is excluded from coverage by section
anguish damages, exemplary damages, attorney's fees, and 171.002 of the Act. Tex. Civ. Prac. & Rem.Code Ann.
release of the lien Aspri filed during the first arbitration. Aspri §§ 171.001, 171.002 (West 2011). Neither party contends
filed a counterclaim for $20,000 in past due rents and for a their agreement is excluded from coverage under the TAA.
declaration of its rights and responsibilities under the April 2, However, ENM argues that Texas law regarding enforcement
2007 judgment. In addition, Aspri asserted that ENM's claims of the arbitration award is preempted by the Federal
were barred by res judicata, by the statute of limitations, and Arbitration Act. We disagree. For the FAA to preempt
because they were compulsory counterclaims in the previous the TAA, the agreement must involve interstate commerce
arbitration and court proceeding. Aspri did not assert ENM andâstate law must refuse to enforce [the] arbitration
had waived its right to arbitration nor did it attempt to stay the agreement that the FAA would enforce, either because (1) the
arbitration via a court proceeding. TAA has expressly exempted the agreement from coverage,
or (2) the TAA has imposed an enforceability requirement not
Arbitration was conducted in November 2009 before a panel found in the FAA.âIn re D. Wilson Constr. Co., 196 S.W.3d
of three arbitrators. The panel issued a unanimous 24 page 774, 780 (Tex.2006) (citations omitted); see Nafta Traders,
decision, including 131 findings of fact and 43 conclusions of Inc. v. Quinn, 339 S.W.3d 84, 97â98 (Tex.2011), petition law, on February 12, 2010. The panel found in ENM's favor for cert. filed,âââ U.S.L.W. ââââ (U.S. Aug. 11, 2011) on all claims except the claims for mental anguish damages, (No. 11â1188). The FAA does not preempt all inconsistent and considered and rejected all of Aspri's defenses. The award state laws relating to arbitration; rather it only âpreempts gave ENM an option of restoring the lease plus damages or state-law impediments to arbitration agreements.âNafta, 339 damages only, and ordered Aspri to release the lien. ENMS.W.3d at 100
. The only argument made in this appeal against
subsequently opted to recover damages only. enforcement of the arbitration agreement is Aspri's argument
that ENM waived its right to arbitrate these claims. However,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487because Texas law on waiver of arbitration is consistent with an adverse result in the first suit, and to allow arbitration at federal law, there is no preemption. See Perry Homes v. Cull, this late date is inherently unfair.258 S.W.3d 580, 595
(Tex.2008), cert. denied,555 U.S. 1103
,129 S.Ct. 952
,173 L.Ed.2d 116
(2009) (in order to keep state Waiver, in the context of arbitration, ârelates to inherent
and federal arbitration law consistent, court holds proof of unfairnessâthat is, a party's attempt to have it both ways
waiver in arbitration context requires showing of prejudice). by switching between litigation and arbitration to its own
advantage.âId. at 597.ENM argues that Aspri engaged in the
Because the TAA applies to the parties' arbitration agreement same inherently unfair conduct it accuses ENM of, and should
and its application is not preempted by federal law, we apply not be allowed to raise a waiver argument for the first time
the TAA in our review of the trial court's judgment. after the arbitration award was rendered. We agree with ENM.
Aspri acquiesced to ENM's demand for arbitration of its
damage claims. Although Aspri pled and pursued various
STANDARD OF REVIEW
procedural and merits-based defenses in the arbitration, it did
We review de novo the trial court's judgment confirming not assert that ENM had waived a right to arbitrate any of
an arbitration award âwhile giving strong deference to its claims and took no action to have the claims adjudicated
the arbitrator with respect to issues properly left to the in court instead of arbitration. Instead, Aspri waited until
arbitrator's resolution.âXtria L.L.C. v. Int'l Ins. Alliance after the entire arbitration proceedings had concluded and an
Inc., 286 S.W.3d 583, 591(Tex.App.-Texarkana 2009, pet. adverse award entered, before asserting a right to judicial denied); see Centex/Vestal v. Friendship W. Baptist Church, determination of the claims and defenses based on ENM's314 S.W.3d 677, 683
(Tex.App.-Dallas 2010, pet. denied); waiver. GJR Mgmt. Holdings, L.P. v. Jack Rous, Ltd.,126 S.W.3d 257, 262
(Tex.App.-San Antonio 2003, pet. denied). Judicial Aspri contends it could raise waiver for the first time in its review of arbitration awards is âextraordinarily narrow.â E. motion to vacate the arbitration award. However, in each Tex. Salt Water Disposal Co. v. Werline,307 S.W.3d 267
, 271 of the cases it relies upon, waiver was urged to the court (Tex.2010). Courts are to indulge all reasonable presumptions before the arbitration, either in response to a motion to in favor of the award, and neither an arbitrator's mistake of compel arbitration or in a motion to stay or enjoin arbitration. fact or error in applying substantive law is ground for vacating See, e.g., Perry Homes, 258 S.W.3d at 584â85; Haddock an award. CVN Group, Inc. v. Delgado,95 S.W.3d 234
, 238 v. Quinn,287 S.W.3d 158
, 167â68 (Tex.App.-Fort Worth (Tex.2002); Centex/Vestal,314 S.W.3d at 683
. 2009, mandamus denied & pet. denied). Aspri has not cited
any cases in which a party was allowed to remain silent on
waiver throughout the arbitration and then obtain a vacatur
of an unfavorable arbitration award, claiming the case should
WAIVER be tried because arbitration was waived. Rather, Aspri cites
In its first issue, Aspri contends the trial court erred by failing Holcim (Tex.) Ltd. P'ship v. Humboldt Wedag, Inc., 211
to vacate the arbitration award on the ground that ENM S.W.3d 796, 803(Tex.App.-Waco 2006, no pet.) for the waived any right to arbitrate the underlying dispute. The trial contention that waiver is an âissue of arbitrabilityâ that it may court's rejection of this argument is a question of law we raise in a motion to vacate without having first sought a stay review de novo. Perry Homes,258 S.W.3d at 598
& n. 102. of the arbitration. In Holcim, the party sought to vacate an
arbitration award on the ground there was no agreement to
arbitrate. The court held the issue could be raised in a motion
*4 There is a strong presumption against waiver of
to vacate the arbitration award even though no motion to
arbitration. In re D. Wilson, 196 S.W.3d at 783. The burden
stay had been filed. 211 S.W.3d at 802â03. The holding was
is on the party seeking to have claims heard in a court instead
based on section 171.088(a)(4) of the TAA, which authorizes
of in arbitration to prove it has been prejudiced by the other
vacatur of an arbitration award if âthere was no agreement
party's substantial invocation of the judicial process. Perry
to arbitrate,â provided âthe party did not participate in the
Homes, 258 S.W.3d at 593â94. Aspri argues ENM waived its
arbitration hearing without raising the objection .âId. at 803;
right to arbitrate by filing its claims in the first suit, asserting
TEX. CIV. PRAC. & REM.CODE ANN. § 171.088(a)(4)
the claims should not be arbitrated, and demanding a jury trial.
(West 2011). Because the party had filed a motion in the
Aspri contends ENM turned to arbitration only after suffering
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487
arbitration proceeding, seeking to bar the claims on the basis only matters of substantive arbitrability, such as whether
there was no arbitration agreement, the issue could be asserted dispute falls within scope of arbitration provision; arbitrator
in the motion to vacate.Holcim, 211 S.W.3d at 803. In determines matters of procedural arbitrabilityâthose that
contrast, Aspri did not assert that ENM had waived its right to âgrow out of the dispute and bear on its final disposition,â
arbitration in any of the arbitration pleadings contained in the such as delay, time limits, notice, laches, and estoppel). Some
record or in its oral arguments to the arbitration panel. Aspri courts have recognized a limited exception to the rule when
never sought to stay or enjoin the arbitration or otherwise the prior judgment arose from a court proceeding, rather
move ENM's claims from the arbitration forum to a judicial than an arbitration. See W. Dow Hamm, 237 S.W.3d at 755.
forum. Thus, even if a waiver argument is within the scope of âThe rationale for the prior-court-judgment exception is that
section 171.088(a)(4), which we do not decide, it would not a court is inherently empowered to protect the integrity and
apply in this case because Aspri participated in the arbitration finality of its own prior judgment, and this policy outweighs
hearing without raising the objection. even the strong policy in favor of arbitration.âId. However,
when the prior judgment was simply a confirmation of an
*5 In conclusion we hold that, although ENM's pursuit of its arbitration award, rather than a result of an independent court
counterclaims in the 2006 litigation may have been a waiver adjudication, the same institutional concerns are not present,
of its right to arbitrate those claims, Aspri waived its right to and the application of res judicata remains an issue for the
assert waiver by acquiescing in the 2009 arbitration without arbitrator. Id. at 756.
complaining of ENM's waiver and without seeking to have
the claims adjudicated in a judicial forum. The parties disagree as to whether the 2007 judgment against
ENM on its counterclaims was simply a confirmation of
the arbitration award or the result of an independent court
adjudication. Aspri contends ENM's claims were not decided
RES JUDICATA
in the first arbitration and that the district court independently
The April 2, 2007 judgment denied ENM's counterclaims for adjudicated them; 2 ENM contends the trial court did not
damages arising out of the 2006 lease termination, eviction, adjudicate its claims and merely confirmed what it believed
TRO, and injunction. ENM did not appeal the judgment and the arbitrator had awarded. To decide this issue, we review the
the judgment became final. In its second issue on appeal, 2007 arbitration award, the record of the subsequent hearing
Aspri argues the trial court erred by failing to vacate the in the trial court, and the 2007 judgment.
2010 arbitration award because most of ENM's claims are
barred by res judicata. Aspri contends that res judicata was *6 When the first arbitration occurred, ENM had pending
an issue for the district court to decide, not the arbitration in the trial court various claims arising out of the lease
panel, and that Aspri conclusively established its res judicata termination and eviction. However, ENM had asserted
defense in the trial court. Alternatively, Aspri argues the in its trial court pleadings a desire to try those claims
trial court erred in denying the motion to vacate because the and did not demand arbitration of the claims or present
arbitrators committed a gross mistake by ignoring the res them in the arbitration. The March 2007 arbitration award
judicata effect of the 2007 judgment and because the award included findings that the lease termination and eviction were
violates fundamental Texas policy regarding the finality of wrongful, but with respect to any damages incurred by ENM,
judgments. the award stated:
The issue of [ENM's] damages for the wrongful
A. Is the res judicata effect of the 2007 judgment decided termination has not been submitted by demand and
by the court or the arbitration panel? payment of the appropriate fee to the American Arbitration
As a general rule, res judicata is an affirmative defense Association. Therefore, that issue is not properly before
for the arbitrator to decide. W. Dow Hamm III Corp. v. this tribunal.
Millennium Income Fund, L.L.C., 237 S.W.3d 745, 754(Tex.App.-Houston [1st Dist.] 2007, orig. proceeding); see ... Howsam v. Dean Witter Reynolds, Inc.,537 U.S. 79
, 84â85,
This Award is in full settlement of all claims submitted
123 S.Ct. 588,154 L.Ed.2d 491
(2002) (holding that unless
to this Arbitration. All damages, claims, or other relief
arbitration agreement provides otherwise, court determines
requested by Claimants or Respondents which are not
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487
expressly granted or awarded herein, are hereby expressly that award, and the opinion on appeal. 3 The panel found
denied. that Aspri filed the first arbitration demand as a forcible
detainer action and that the only issue in that arbitration
At the subsequent April 2, 2007 hearing in the trial
was possession. It found that ENM's claims for damages
court, ENM contended that its counterclaims had not been
were not compulsory counterclaims in the first arbitration
submitted to arbitration and remained pending in the district
and the arbitrator did not consider or dispose of the claims.
court, and that it was entitled to a continuance to conduct
The panel found the first arbitration resulted in the March
discovery. Aspri took the position that the counterclaims were
2007 award that Aspri wrongfully terminated the lease and
compulsory in the arbitration and that the arbitrator found
wrongfully evicted ENM by temporary restraining order, and
ENM had waived them by not submitting any evidence. After
that the award in favor of ENM was confirmed by the district
reviewing the award and hearing argument, the trial court
court on April 2, 2007. In addition, the panel found that
construed the award as disposing of the entire case and stated:
ENM's claims for damages related to the termination of the
The Court is going to enter judgment lease and wrongful eviction were not tried on the merits
based on the arbitrator's ruling that in the district court, and that all those claims were matters
there was no right to terminate for arbitration pursuant to the parties' agreement. The panel
the lease; that the eviction of the concluded that because the district court did not conduct a
respondent by the TRO was wrongful; hearing on the merits on ENM's damage claims and those
that the respondent failed to bring forth claims were matters for arbitration, the district court did not
damages to the arbitration tribunal; have authority (or âjurisdictionâ) to dispose of the claims.
therefore, there are no damages.... The panel also concluded that the 2007 judgment confirming
That's what the arbitrator ruled in my the arbitration award âdid not address the damage claims
opinion. the subject of this arbitration.âBased on these findings and
conclusions, the arbitration panel declined to hold that res
The 2007 judgment recites the court is âenter[ing] and judicata barred ENM from pursuing its claims in the second
confirm[ing] the Award of the Arbitrator as follows:â There arbitration.
follows four numbered paragraphs, one of which awards
ENM possession of the premises, but otherwise denies its
counterclaims. The judgment concludes by stating, âThis is a C. Did the trial court err in denying the motion to vacate
Final Judgment. All other claims presented in the arbitration because the panel made a gross mistake in deciding res
are expressly denied.â judicata?
*7 Aspri argues the trial court erred in confirming the award
Although we agree with Aspri that ENM's counterclaims and denying its motion to vacate because the arbitration
were not submitted or decided in the first arbitration, we panel committed a gross mistake by rejecting its res judicata
disagree that the trial court independently adjudicated them. It defense. Under the TAA, a court must confirm an arbitration
is apparent from the record of the 2007 confirmation hearing award on the application of a party unless a statutory
and the judgment itself that the trial court construed the 2007 ground for vacating, modifying, or correcting the award under
arbitration award as denying ENM's counterclaims, and the section 171.088 or 171.091 is shown. TEX. CIV. PRAC.
trial court purported simply to be confirming the award. That & REM.CODE ANN. § 171.087 (West 2011). However,
the court may have misinterpreted the award does not mean the Texas courts of appeals recognize some common law
it independently adjudicated ENM's claims. Accordingly, defenses as being cumulative of the statutory grounds for
this case comes within the general rule that the res judicata vacatur. See Collins v. TexMall, L.P., 297 S.W.3d 409,
defense was for the arbitration panel to decide. See id. at 756. 415 (Tex.App.â2009 Fort Worth, no pet.); Werline v. E.
Tex. Salt Water Disposal Co., Inc., 209 S.W.3d 888,
897â98 (Tex.App.-Texarkana 2006), aff'd,307 S.W.3d 267B. The arbitration panel's res judicata decision (Tex.2010); GJR,126 S.W.3d at 263
;but see E. Tex. Salt In rendering its decision on Aspri's res judicata defense, the Water Disposal Co., Inc. v. Werline,307 S.W.3d 267
, 282
arbitration panel appears to have examined at least some n. 7 (Tex.2010) (noting that court of appeals held arbitration
of the pleadings from the first arbitration and district court award could be set aside under common law for fraud,
suit, the 2007 arbitration award, the judgment confirming misconduct, or gross mistake, but âexpress[ing] no opinion on
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487this issueâ); Callahan & Assocs. v. Orangefield Indep. Sch.S.W.3d at 239
. Because of the strong policy in favor of Dist.,92 S.W.3d 841, 844
(Tex.2002) ( âassuming without enforcing arbitration awards, any claim that an award should decidingâ party could attack arbitration award on common be vacated for violating public policy âmust be carefully law ground of gross mistake, failure to award any damages scrutinized to protect the arbitration award from unwarranted was not gross mistake). 4 judicial interference.âId. at 239. The trial court must indulge every reasonable presumption To justify overturning an arbitration award on public policy in favor of upholding an arbitration award. CVN Group, 95 grounds, the policy must be well-defined and dominant. SeeS.W.3d at 238
. An arbitrator's failure to correctly apply theid.
at 238â39 (citing W.R. Grace & Co. v. Local Union law will not justify vacating an arbitration award. Id.;Xtria, 759,461 U.S. 757, 766
,103 S.Ct. 2177
,76 L.Ed.2d 298
286 S.W.3d at 591
. The common law ground of gross mistake (1983)). If the arbitrator âwholly disregard[s]â such a policy âdoes not mean an egregious mistake of fact or law.âXtria, and makes an arbitration award âin direct contravention of the286 S.W.3d at 598
. To set aside an arbitration award on the policy, the award might be set aside. Id. at 239.But when the ground of gross mistake, there must be more; the record must facts are disputed and the issue is submitted to the arbitrator, show bad faith or failure to exercise honest judgment on the âan arbitrator's mere disagreement with a judgeâ about the part of an arbitrator. See id.;Werline,209 S.W.3d at 898
. application of the law does not violate public policy.Id.
It is clear from the arbitration hearing record and the panel's In CVN, the petitioner contended the arbitration award lengthy written decision that it gave serious consideration violated homestead protections found in the Texas to the parties' contentions, evidence, and arguments. The Constitution.Id.
The court agreed that the homestead is given arbitration panel did not ignore Aspri's res judicata defense, special protection in the Texas Constitution and the Texas but gave it serious consideration. Nothing in the record Property Code, and that an arbitration award that wholly suggests the panel made its decision in bad faith or failed contravened those protections would violate public policy. to exercise honest judgment. Moreover, although AspriId.
The court also noted that an award based on a claim conclusorily urged the panel to bar ENM's claims on res arising out of an illegal transaction would violate public judicata grounds in its pleading and argument, nothing in the policy.Id.
at 237 (citing Smith v. Gladney,128 Tex. 354
, record Aspri filed in the trial court shows that it provided98 S.W.2d 351
, 351 (1936)); see also Symetra Nat'l Life Ins. the arbitrators relevant law on res judicata or substantive Co. v. Rapid Settlements, Ltd., No. 14â07â00880âCV, 2009 guidance on how to apply the law to the facts of this case. The WL 1057339, at *3 (Tex.App.-Houston [14th Dist.] Apr. trial court should not overturn an arbitration award rendered 21, 2009, no pet.)(mem.op.) (vacating arbitration award that after honest consideration given to claims and defenses required transfer of structured settlement payment without presented to it, no matter how erroneous. See Xtria, 286 court approval, in direct contravention of Texas StructuredS.W.3d at 598
; Werline,209 S.W.3d at 898
. Accordingly, we Settlement Protection Act); Lee v. Daniels & Daniels, 264 hold the trial court did not err in denying the motion to vacateS.W.3d 273
, 279â81 (Tex.App.-San Antonio 2008, pet.
on this ground. denied) (vacating award enforcing provision in attorney
services contract that allowed recovery of fee prohibited by
Texas Disciplinary Rules of Professional Conduct); Lee v. El
D. Did the trial court err in denying the motion to vacate Paso County, 965 S.W.2d 668, 673(Tex.App.-El Paso 1998, the award because the award violates public policy ? pet. denied) (affirming trial court's order vacating arbitration *8 Aspri next argues the trial court should have vacated award that directly conflicted with Texas constitutional the arbitration award because it violates fundamental Texas provision that prohibits granting extra compensation for public policy. In CVN Group, the Texas Supreme Court services already rendered). assumed, but did not decide, that a common law challenge to an arbitration award on the ground it violates public We recognize that the common law doctrine of res judicata policy is not preempted by the TAA. 95 S.W.3d at 237â38. is rooted in public policies favoring the finality of judgments Subject to that assumption, the court held that âan arbitration and disfavoring seriatim litigation. See Frost Nat'l Bank award cannot be set aside on public policy grounds except v. Fernandez,315 S.W.3d 494, 510
(Tex.2010), cert. in an extraordinary case in which the award clearly violates denied,âââ U.S. ââââ,131 S.Ct. 1017
,178 L.Ed.2d 829
carefully articulated, fundamental policy.âCVN Group, 95 (2011); Hallco Texas, Inc. v. McMullen County, 221 S.W.3d
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 384948750, 60 (Tex.2006). Although res judicata is public policy concluded that where the parties' agreement did not limit in the sense that it is well-defined, it âmust at times be the issues to be arbitrated or the applicability of the AAA weighed against competing interests and other public policy, rules, incorporation of the AAA rules constitutes clear and and must, on occasion, yield to other policies.âSullivan v. unmistakable evidence of the parties' intent to delegate issues State,572 S.W.2d 778, 784
(Tex.Civ.App.-El Paso 1978, writ of arbitrability to the arbitrator. See Haddock, 287 S.W.3d at
ref'd n.r.e.). 172â73 (discussing cases); Burlington, 249 S.W.3d at 40â42
(same). We conclude the parties agreed to submit arbitrability
*9 We do not believe that under the circumstances issues to the arbitrators.
of this case the common law policy of res judicata
dominates over Texas policy enacted into law in the TAA Because the arbitration panel had the primary power to decide
in favor of enforcing agreements to arbitrate disputes and the scope of arbitration, the court's standard for reviewing the
enforcing arbitration awards except in extraordinarily narrow panel's decision on that matter is the same as the standard
circumstances. The arbitration award does not arise out of used in reviewing the panel's decision on substantive matters.
an illegal transaction and does not award anything or require First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, any act that violates the Texas Constitution or any legislative115 S.Ct. 1920
,131 L.Ed.2d 985
(1995). That is, the trial enactment. The decision of what res judicata effect to give the court reviews the panel's determination with great deference, prior confirmed arbitration award was a matter of procedural indulging all reasonable presumptions in favor of the panel's arbitrability that was committed to the arbitration panel for decision. See CVN Group,95 S.W.3d at 238
; Roe v. Ladymon, decision. See W. Dow Hamm, 237 S.W.3d at 755â56. Under318 S.W.3d 502, 511
(Tex. AppâDallas 2010, no pet.). Any
these circumstances, we will not hold that the award, made doubts concerning the scope of what is arbitrable should be
after the arbitration panel gave due consideration to the res resolved in favor of arbitration. Centex/Vestal, 314 S.W.3d at
judicata defense, violates public policy merely because this 684.
court may disagree with how the panel applied the law.
*10 The scope of the arbitration panel's authority begins
with the arbitration agreement, in which Aspri and ENM
agreed the lease was subject to arbitration and that any
DID THE ARBITRATION
âcontroversy or claim arising out of or relating to this
PANEL EXCEED ITS POWERS?
agreement or the breach of this agreementâ would be settled
In its next issue, Aspri argues the trial court erred in denying by arbitration. The agreement is very broad, encompasses a
its motion to vacate the award pursuant to section 171.088(a) wide range of disputes, and the language used is construed
(3)(A) of the TAA because the arbitration panel exceeded âas evidencing the parties' intent to be inclusive rather than
its powers. Aspri contends the arbitration panel exceeded exclusive.âSee Centex/Vestal, 314 S.W.3d at 685. Moreover,
its powers by arbitrating issues not related to the lease and the parties may, by their oral and written submissions to the
beyond the scope of the arbitration agreement. arbitrator, broaden the scope of the arbitrators' authority. In
this case, at the end of the arbitration, after all the evidence
The scope of the arbitration is a matter of substantive had been presented, one of Aspri's attorneys emphatically
arbitrability for a court to decide unless the parties clearly asked the panel to decide all of the issues between the parties:
agreed otherwise. See Howsam, 537 U.S. at 84; Burlington
These parties need a ruling on all the
Res. Oil & Gas Co. LP v. San Juan Basin Royalty Trust,
issues, and I think this panel has the
249 S.W.3d 34, 39 (Tex.App.-Houston [1st Dist.] 2007, pet.
power to do that. And we are asking
denied). Here, the lease's arbitration provision requires all
the panel to render all relief that's
controversies and claims arising out of or relating to the
possibly due at law or in equity so that
lease or its breach to be arbitrated in accordance with the
all the issues between the parties are
rules of the American Arbitration Association. Those rules,
resolved.
which were introduced into evidence at the confirmation
hearing in the trial court, provide that the arbitrator âshall Finally, it is evident from the award that the parties made
have the power to rule on his or her own jurisdiction, written submissions to the panel that were not included in
including any objections with respect to the existence, scope the record filed in the trial court. We presume the omitted
or validity of the arbitration agreement.âMost courts have portions of the record support the award. See In re Chestnut
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487Energy Partners, Inc.,300 S.W.3d 386, 401
(Tex.App.- Aspri failed to show the trial court erred by not deferring to
Dallas 2009, pet. denied). the arbitration panel's determinations that these matters were
issues the parties agreed to arbitrate.
Aspri contends the arbitration panel exceeded its powers by
awarding damages related to a lien that arose from a note Lastly, Aspri contends the arbitrators determined Tony
to a third party, awarding an âoffsetâ for amounts unrelated Afeef's individual rights and obligations and adjudicated
to the lease, and by âentertaining claims of Tony Afeefâa his individual tort claims. 5 The arbitration award does not
nonpartyâand treating him as if he was owner of ENM.âThe adjudicate any causes of action by or against Tony Afeef,
panel awarded damages for loss of business reputation and individually, nor does it award any sum of money to him.
lost profits caused in part by Aspri's wrongful filing and Aspri suggests that the $50,000 punitive damage award
failure to remove a lien. Aspri asserts this issue is unrelated was based solely on torts committed against Afeef. We
to the lease and adjudicates the rights of third parties. Aspri disagree. Although the panel found that Aspri intentionally
contends the lien arose out of a note ENM gave to a third inflicted emotional distress against Maryam Begum Afeef
party in 2005, when ENM assumed the lease. As part of the and âthe corporate representativeâ Tony Afeef, it found that
transaction, ENM signed a note and granted a security interest damages had not been proven and none were awarded. The
to the third party. The note and security interest were later panel's award of exemplary damages is supported by its
assigned to Aspri. Aspri argues the arbitrators exceeded their unchallenged findings and conclusions that Aspri committed
powers by awarding damages âresulting from the filing of a theft and conversion and that ENM proved fraud by clear and
lien for the debt owed under the ... note.âRegardless of the convincing evidence.
actual legal basis for any lien, Aspri filed a landlord's lien in
the real property records during the first arbitration pursuant We conclude that Aspri has not shown grounds for the trial
to sections 54.021 and 54.022 of the Texas Property Code. court to do anything other than defer to the arbitration panel's
The lien statement asserted that ENM owed Aspri past-due determinations about the scope of the arbitration, and we hold
rent and attorney's fees totaling over $40,000. During the the trial court did not err in failing to vacate on the ground the
presentation of evidence, one of the arbitrators stated that the arbitrators exceeded their powers.
lien should have âgone awayâ if the eviction was wrongful
and ENM did not owe rent. Aspri's attorney responded, âI
completely agree.â The panel found that Aspri did not remove
or release the lien after the 2007 arbitration award declared DID THE ARBITRATION PANEL
that ENM did not owe Aspri any rent or attorney's fees, and COMMIT GROSS MISTAKE?
that such failure to act was wrongful and was intended to harm
In its final issue, Aspri argues the trial court erred by not
ENM.
vacating the award for gross mistake. Aspri challenges the
competence and sufficiency of the evidence supporting the
*11 Aspri also contends that approximately $160,000 of the
damage awards and concludes âthe panel obviously sought to
arbitration award was for amounts unrelated to the lease or its
punish Mr. Viraniâ (Aspri's agent).
breach. The panel found as a matter of fact that when Aspri
terminated the lease in 2006, Aspri owed ENM $116,119.61
As discussed above, a party challenging an arbitration
ârelated to the Business and this Leaseâ; that Aspri had agreed
award on the ground of gross mistake has the burden of
to offset this amount against rents owed under the lease and/
demonstrating the arbitrators acted in bad faith or failed to
or the purchase price pursuant to the lease's purchase option;
exercise honest judgment. Xtria, 286 S.W.3d at 598; Werline,
that Aspri did not dispute the amount of the offset; and
209 S.W.3d at 898; Pheng Inv., Inc. v. Rodriquez, 196 S.W.3d
that, as of the date of the award, Aspri had not paid any of
322, 330â31 (Tex.App.Fort Worth 2006, no pet.).âGross
this amount to ENM or offset it against any amounts Aspri
mistake results in a decision that is arbitrary and capricious;â
claimed was due it. Aspri does not directly challenge any
whereas âa judgment rendered after honest consideration
of the arbitration panel's findings of fact in its briefs, and at
given to conflicting claims, no matter how erroneous, is not
oral argument of this appeal, Aspri's attorney stated it was
arbitrary or capricious.âXtria at 598.An arbitrator's decision
not contesting any of the findings of fact. The arbitration
is arbitrary and capricious if it is the product of âwillful
panel could rationally have concluded that both these matters
and unreasoning action, action without consideration and in
arose out of or were related to the lease or its breach, and
disregard of the facts and circumstances of the case.âGrand
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487
amount to nothing more than challenges to the legal and
Int'l Bhd. Of Locomotive Eng'rs v. Wilson, 341 S.W.2d 206,
factual sufficiency of the evidence and alleged errors in the
211 (Tex.Civ.App.-Fort Worth 1960, writ ref'd n.r.e.).
application of the substantive law, which we have no power
to review. See id.;Crossmark, Inc. v. Hazar, 124 S.W.3d
*12 The arbitration panel's extensive findings of fact
422, 435 (Tex.App.-Dallas 2004, pet. denied); J.J. Gregory
set forth in detail the evidence it relied upon and the
Gourmet Servs., Inc. v. Anton's Imp. Co., 927 S.W.2d 31, 35
qualifications of the witnesses whose testimony it relied on,
(Tex.App.-Houston [1st Dist.] 1995, no writ). Aspri has not
and explains how it arrived at its conclusions. The reporter's
pointed to anything other than the result as evidence of bad
record of the arbitration and panel's written decision evidence
faith or bad motive. It did not establish gross mistake and the
an attempt to ascertain disputed facts and to justly decide
trial court therefore did not err in denying the motion to vacate
the claims and defenses presented in a fair hearing. See
on that ground.
Pheng, 196 S.W.3d at 330â31. That Aspri may disagree
with the panel's credibility determinations or the weight to
be given to particular evidence does not render the panel's For these reasons, we affirm the trial court's judgment.
decision arbitrary and capricious, evidence bad faith, or show
a failure to exercise honest judgment. Aspri's arguments
Footnotes
1 The trial court's 2006 order abating the case for arbitration is not in the record.
2 Aspri took the opposite position in the 2007 hearing on confirmation of the award, convincing the trial court that the arbitrator had
denied ENM's counterclaims on the merits for failure to present evidence of damages.
3 Aspri filed an incomplete record of the arbitration in the trial court. Although a reporter's record of the testimony and oral arguments
presented at the arbitration was filed, no exhibit volume was filed in the trial court and only some of the arbitration pleadings were filed.
The reporter's record of the arbitration includes an exhibit list. However, the list does not specifically identify each document admitted
before the panel. Some of the descriptions are generic, e.g., âjudgment,â âclaim summary,â and others reflect exhibits were admitted
in clusters, e.g., âNotices and approvals,â âPrevious Arbitration: # 70115E68506 Certified Copy of AAA Documents,ââDistrict court
Bexar County Court Orders.âAspri filed numerous documents and pleadings as exhibits to its pleadings in the trial court and at the
confirmation hearing. However, it did not establish which of these were before the arbitration panel. Nor did Aspri identify what
additional, unfiled, documents and pleadings were before the arbitration panel.
4 ENM briefly questions whether the arbitration award is subject to challenge on common law grounds following the United States
Supreme Court decision in Hall St. Assocs., LLC. v. Mattel, Inc., 552 U.S. 576,128 S.Ct. 1396
,170 L.Ed.2d 254
(2008) (holding
parties could not by agreement expand statutory grounds for judicial review of arbitration award under FAA). However, ENM did not
provide any argument on this issue. Moreover, the Hall Street opinion itself states that the Court was âdeciding nothing about other
possible avenues for judicial enforcement of arbitration awardsâ such as âenforcement under state statutory or common law.â552 U.S.
at 590;see also Nafta Traders, 339 S.W.3d at 91â101 (extensively discussing Hall Street opinion and declining to apply its principal
holding to case under the TAA). We therefore decline to hold that Hall Street forecloses Aspri's common law challenge to the award.
5 Tony Afeef is the son of Maryam Afeef, ENM's owner. Tony Afeef was the manager of ENM's store and had responsibility for its
day-to-day operations. In addition, he acted as ENM's corporate representative throughout the proceedings.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
Arbitrability
249 S.W.3d 34 of Dispute
Court of Appeals of Texas,
Operator of oil and gas properties, and holder
Houston (1st Dist.).
of net overriding royalty interest, in their
BURLINGTON RESOURCES OIL agreement to arbitrate their audit disputes, did
not clearly and unmistakably submit the issue
& GAS COMPANY LP, Appellant,
of arbitrability to arbitration, though arbitration
v.
agreement stated that arbitration would be
SAN JUAN BASIN ROYALTY TRUST, Appellee.
conducted in accordance with Commercial
No. 01â06â00485âCV. | Aug. 16, 2007. Arbitration Rules of American Arbitration
Association (AAA), and those Rules provided
Synopsis that arbitrator had power to rule on his or her own
Background: Operator of oil and gas properties filed jurisdiction, including objections with respect
application to vacate or modify arbitrator's award to holder to scope of arbitration agreement; arbitration
of net overriding royalty interest. Holder filed counterclaim agreement also stated that terms of arbitration
for confirmation of award. The 281st District Court, Harris agreement would control in event of any conflict
County, David J. Bernal, J., confirmed the award. Operator with such Rules, and arbitration agreement
appealed. stated that audit exceptions identified in attached
exhibit were the only items that would be
subjected to arbitration.
Holdings: The Court of Appeals, Terry Jennings, J., held that: 11 Cases that cite this headnote
[1] parties did not clearly and unmistakably submit the issue
of arbitrability to arbitration, and [3] Alternative Dispute Resolution
Arbitrability
[2] parties did not agree to arbitrate holder's claim for share of Dispute
of settlement with third-party gas company.
In determining whether arbitration agreement
provides clear and unmistakable language
Reversed and rendered in part; remanded in part. delegating to arbitrators the power to decide
arbitrability, Texas courts consider specific
language of arbitration agreement and also
apply general principles of Texas contract law
West Headnotes (8) governing formation of contracts.
9 Cases that cite this headnote
[1] Alternative Dispute Resolution
Evidence
[4] Alternative Dispute Resolution
When courts decide whether a party has agreed
Disputes
that arbitrators should decide arbitrability, courts
and Matters Arbitrable Under Agreement
should not assume that the parties agreed to
arbitrate arbitrability unless there is clear and Operator of oil and gas properties, and holder
unmistakable evidence that they did so. of net overriding royalty interest, in their
agreement to arbitrate their audit disputes,
12 Cases that cite this headnote agreed to arbitrate only holder's complaint that
its gross proceeds were understated due to excess
[2] Alternative Dispute Resolution royalties charged against it for its share of
settlement of other royalty interest holders' claim
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
for royalty payments on portion of operator's
settlement with third-party gas company, which Construction
portion of settlement the operator had originally in Favor of Arbitration
allocated to non-royalty-bearing take-or-pay The policy that favors resolving doubts in
claims, and its complaint that it was owed favor of arbitration cannot serve to stretch an
interest on the understated gross proceeds, arbitration clause beyond the scope intended by
which disputes were identified in arbitration the parties or authorize an arbiter to disregard or
agreement as involving stated âarbitrate amountâ modify the plain and unambiguous provisions of
of $374,978; operator and holder did not agree the agreement.
to arbitrate holder's claim for share of settlement
Cases that cite this headnote
with third-party gas company, which dispute
involved over $6 million.
1 Cases that cite this headnote
Attorneys and Law Firms
[5] Alternative Dispute Resolution *36 David J. Beck, David M. Gunn, Beck, Redden &
Arbitration L.L.P., Houston, TX, for Appellant.
Secrest,
Favored; Public Policy
Guy S. Lipe, Vinson & Elkins LLP, Houston, TX, for
There is strong presumption under the Federal Appellee.
Arbitration Act (FAA) of favoring arbitration. 9
U.S.C.A. § 1 et seq. Panel consists of Justices NUCHIA, JENNINGS, and
HIGLEY.
Cases that cite this headnote
[6] Alternative Dispute Resolution OPINION
TERRY JENNINGS, Justice.
Construction
in Favor of Arbitration
Appellant, Burlington Resources Oil & Gas Company LP
Any doubt as to whether a party's claim falls
(âBurlingtonâ), challenges the trial court's judgment rendered
within the scope of an arbitration agreement must
in favor of appellee, San Juan Basin Royalty Trust (the
be resolved in favor of arbitration.
âTrustâ), confirming a portion of an arbitration award in
1 Cases that cite this headnote favor of the Trust and ordering that the Trust recover
from Burlington damages in the amount of $6,019,370, plus
interest, for a total disputed award of $6,243,990. In its first
[7] Alternative Dispute Resolution issue, Burlington contends that the parties did not agree,
by clear and unmistakable language, to submit questions
Construction
regarding the scope of arbitrable issues to the arbitrator. In its
in Favor of Arbitration
second issue, Burlington contends that âconstruing the scope
A court should not deny arbitration unless it can
of the arbitration agreement de novo,â the parties' dispute is
be said with positive assurance that an arbitration
not within the scope of the arbitration agreement.
clause is not susceptible to an interpretation that
would cover the dispute at issue.
We reverse and render in part and remand in part.
Cases that cite this headnote
[8] Alternative Dispute Resolution Factual and Procedural Background
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
Burlington 1 owns and operates several oil and gas properties payments due and owing to them from the proceeds of the
in New Mexico. The Trust holds a net overriding royalty GCNM settlement.
interest in those properties and, pursuant to the terms of a
âConveyance,â is entitled to receive a 75% interest in the The Trust asserts that as part of its MMS/Jicarilla settlement,
Burlington agreed to pay MMS and Jicarilla royalties on
net proceeds from those properties. 2 Burlington is required
the $6.7 million portion of the GCNM settlement that had
by the Conveyance to issue quarterly accounting statements
been originally allocated to ânon-royalty-bearing take-or-pay
to the Trust, and the Trust has 180 days to except to those
claims.â Burlington disputes the Trust's claim and asserts, to
statements.
the contrary, that MMS and Jicarilla expressly acknowledged
that they were not entitled to royalty payments on the $6.7
In October 2004, in order to resolve a number of specific
million portion of the GCNM settlement. Although the parties
existing âaudit disputes,â the parties entered into an
disagree as to the whether MMS and Jicarilla received
âAgreement Dealing with the Resolution of Existing Audit
royalty payments on the $6.7 million portion of the GCNM
Disputesâ (the âArbitration Agreementâ). However, the
settlement, the Trust asserts that, following the MMS/Jicarilla
parties ultimately disagreed regarding the arbitrability of one
settlement, Burlington erroneously charged the Trust with
of the Trust's claims ruled upon by the arbitrator. After
its 75% share of the MMS/Jicarilla settlement payment by
the arbitrator ruled in favor of the Trust on this claim,
deducting this charge from the amount of proceeds due to the
Burlington filed its application to vacate, modify, or correct
Trust for its net overriding royalty interest on the properties.
the arbitration award.
The Trust complained that the charge assessed against it by
Burlington had been calculated based on the full amount
The parties' dispute relevant to this appeal originates from
of the MMS/Jicarilla settlement, including the $6.7 million
Burlington's entry into a settlement agreement in 1990 with
originally allocated to take-or-pay claims.
the Gas Company of New Mexico (âGCNMâ) to resolve
litigation involving properties covered by the Conveyance
The parties entered into the Arbitration Agreement to settle
(the âGCNM settlement agreementâ). Pursuant to the terms of
this âaudit disputeâ and a number of other existing audit
the GCNM settlement agreement, Burlington received $54.5
disputes, many of which are not relevant to this appeal. The
million in settlement payments. At that time, Burlington
Arbitration Agreement, our focus in resolving the parties'
allocated $6.7 million of those proceeds to take-or-pay
dispute, states, in relevant part,
claims, $21 million *37 to past-pricing claims, and $26.8
million to future-pricing claims. In accordance with the terms 3. Exhibit âCâ attached hereto identifies audit exceptions
of the Conveyance, in calculating the amount of the GCNM that the parties have identified for submission to binding
settlement proceeds owed to the Trust for its net overriding arbitration pursuant to the procedures set forth hereafter....
royalty interest, Burlington did not include the $6.7 million [T]he exceptions identified in Exhibit âCâ constitute the
allocated to the take-or-pay claims. As the Trust notes, only items that will be subjected to arbitration.
however, the Trust also was not burdened with a charge for
any royalty payments due to other royalty owners on that 4. Arbitration Agreement
portion of the GCNM settlement. At that time, the Trust did
not challenge Burlington's allocation of the GCNM settlement The existing audit disputes described on attached Exhibit
proceeds or Burlington's exclusion of the $6.7 million portion âC,â ... shall be finally settled by arbitration pursuant to
of the settlement in calculating the amounts owed to the Trust. the provisions hereof. This agreement to arbitrate applies
only to the audit disputes identified on Exhibit âCâ ...
In 2001, Burlington entered into a settlement agreement all of which shall be collectively referred to as the âAudit
with the Minerals Management Service of the United States Disputes.â
Department of Interior (âMMSâ) and the Jicarilla Apache
(a) The Audit Disputes shall be heard and determined by
Indian Nation (âJicarillaâ), other royalty interest holders in
one Arbitrator.....
properties covered by the Conveyance (the âMMS/Jicarilla
settlementâ). Burlington, MMS, and Jicarilla entered into (b) The proceeding shall be conducted in accordance
the MMS/Jicarilla settlement in order to resolve MMS's with the Commercial Arbitration Rules of the
and Jicarilla's complaints regarding the amount of royalty American Arbitration Association, unless otherwise
specified herein.... In the event of a conflict *38
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
between such Commercial Arbitration Rules and this proportionate share of the $6.7 million proceeds [from
Agreement, this Agreement shall control. the 1990 GCNM settlement] is within the scope of
the Arbitration Agreement.â The arbitrator contended that
(Emphasis added). Exhibit C identified âan exception related to the MMS/
Jicarilla settlementâ and that the Trust's claim arose from
Exhibit C, attached to the Arbitration Agreement, lists a Burlington's charging the Trust for additional royalty
number of audit disputes, and, as Burlington emphasizes, payments Burlington made to Jicarilla and MMS to settle
includes a column entitled âArbitrate Amount,â which details their claims even though Burlington had not shared the $6.7
specific amounts at issue for each of the identified audit million portion on which the additional royalty payments had
disputes. On the first page of Exhibit C, the sum total been calculated. Based on this, the arbitrator stated,
âarbitrate amountâ for all of the audit disputes listed in Exhibit
C, including many of which that are not relevant to the From the testimony and documents
underlying award or this appeal, is identified as $1,528,223. attached to the Arbitration Agreement,
In fact, among the numerous audit disputes identified on it is clear that the dispute between
Exhibit C, only two specific disputes are relevant to this the parties over the MMS/Jicarilla
appeal, and the total âarbitrate amountâ for these two [settlement] flows directly from
disputes is identified as $374,978. The parties identified Burlington's charge of royalty on the
the first dispute as âGross Proceeds under stated due to $6.7 million initially attributed to take-
excess royalties charged from MMS/Jicarilla settlement,â and or-pay.
the total arbitrate amount for that dispute is identified as
$342,477. The parties labeled their second dispute as âInterest The arbitrator further concluded that there was a ânexus
Overcharged on MMS/Jicarilla Settlement,â and the total between the royalty charge and the excluded $6.7 millionâ
arbitrate amount for that dispute is identified as $32,501. and that âan adjustment to gross proceeds to include the
There is no mention of the GCNM settlement or any audit Trust's proportionate share of *39 the $6.7 million on which
issues specifically relating to the GCNM settlement anywhere it has been charged royalty is an arbitrable claim.â
in the Arbitration Agreement or Exhibit C.
After determining the scope of its jurisdiction, the arbitrator
At the conclusion of the arbitration, the arbitrator entered an stated that â[b]y making this reallocation, Burlington
arbitration award in favor of the Trust, including an award characterized the entire $54.5 million GCNM settlement
of over $6 million on the two relevant audit disputes for proceeds (including the $6.7 million Burlington originally
the Trust's â75% share of additional gross proceeds resulting allocated to take-or-pay) as past pricing in which the Trust is
from the reallocation of $6.7 million [of the 1990 GCNM entitled to share.â Thus, the arbitrator ruled that the Trust was
settlement] to past pricing.â In its award, the arbitrator entitled to a 75% share of additional gross proceeds from the
conceded that Burlington had objected to consideration of the reallocation of the $6.7 million to past-pricing claims.
Trust's claim for its share of the $6.7 million in reallocated
proceeds. However, the arbitrator determined that it had Following arbitration, Burlington filed an application to
jurisdiction to decide its âown jurisdictionâ pursuant to the vacate or modify the arbitration award. See 9 U.S.C. §§
terms of the Arbitration Agreement, which provided that 10, 11; see also TEX. CIV. PRAC. & REM.CODE ANN.
the arbitration would be conducted âin accordance with the §§ 171.088(a)(3)(A), 171.091(a)(2) (Vernon 2005). In its
Commercial Arbitration Rules of the American Arbitration application, Burlington asserted that, in awarding the Trust
Association unless otherwise specificed.â The arbitrator then $6,243,990 on its claim for a portion of the allegedly
cited in his opinion Rule 7(a) of the Commercial Rules, reallocated proceeds from the 1990 GCNM settlement
which provides, âThe Arbitrator shall have the power to (referred to in the arbitration award as âMMS/Jicarillaâ
rule on his or her own jurisdiction, including any objections Case Aâ), the arbitrator rendered an award on a matter
with respect to the existence, scope or validity of the not submitted to him and thereby exceeded his powers.
Arbitration Agreement.â COMMERCIAL RULES OF THE Burlington asserted that this portion of the arbitration award
AMERICAN ARBITRATION ASSOCIATION, Rule 7(a). should be modified, corrected, or vacated. Burlington also
asserted a claim for breach of the Arbitration Agreement on
After determining that it had the power to decide arbitrability, the ground that the Trust's attempt to assert a claim for a
the arbitrator concluded that âthe Trust's claim to its portion of the GCNM settlement, i.e., its newly crafted MMS/
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
JicarillaâCase A, violated the agreement and caused it to incur to arbitrate their dispute, that party must bear the burden
substantial unnecessary expenses in defending the arbitration of demonstrating clearly and unmistakably that the parties
and pursuing relief in the trial court. The Trust filed a agreed to have the arbitrator decide that threshold question
counterclaim for confirmation of the arbitration award. The of arbitrability.â); In re Weekley Homes, L.P., 180 S.W.3d
trial court rendered judgment in favor of the Trust, denying 127, 130 (Tex.2005) (â[A]bsent unmistakable evidence that
Burlington's application and granting the Trust's application the parties intended the contrary, it is the courts rather than
to confirm the arbitration award. The trial court denied all the arbitrators that must decide âgateway matters' such as
other requested relief, including Burlington's claim for breach whether a valid arbitration agreement exists. Whether an
of the Arbitration Agreement. arbitration agreement is binding on a nonparty is one of those
gateway matters.â); In re Ford Motor Co., 220 S.W.3d 21, 23
(Tex.App.-San Antonio 2006, no pet.) (same).
Arbitrability
[2] Paragraphs 3 and 4 of the Arbitration Agreement
In its first issue, Burlington argues that the parties did expressly state that the audit exceptions identified in Exhibit
not agree, by clear and unmistakable language, to submit C âconstitute the only items that will be subjected to
questions regarding the scope of arbitrable issues to the arbitrationâ and that the Arbitration Agreement âapplies only
arbitrator because the Arbitration Agreement itself âcarefully to the audit disputes identified on Exhibit C.â Here, there
limited the scope of arbitration to identified audit disputesâ is no clear and unmistakable statement in the Arbitration
and âwithheld from the arbitrator [the] power to decide any Agreement that matters of arbitrability will be submitted to
additional questions, including the question of arbitrability.â an arbitrator. In fact, Burlington and the Trust purposefully
The Trust counters that the parties' incorporation of the drafted an Arbitration Agreement of very narrow scope.
American Arbitration Association (âAAAâ) rules clearly and
unmistakably granted the arbitrator the power to determine Although, as the Trust emphasizes, the Arbitration
Burlington's objection to the scope of the arbitration. Agreement generally provides that the proceeding âshall be
conducted in accordance with the Commercial Arbitration
[1] In First Options of Chicago, Inc. v. Kaplan, the United Rules of the [AAA], unless otherwise specified herein,â
States Supreme Court stated that â[w]hen deciding whether the Arbitration Agreement further provides that the terms
the parties agreed to arbitrate a certain matter (including of the Arbitration Agreement control in the event of any
arbitrability), courts generally [ ] should apply ordinary conflict with the rules. We conclude that there is no
state-law principles that govern the formation of contracts,â conflict because the parties, in their Arbitration Agreement,
with the qualification that, âwhen courts decide whether a unambiguously detailed the specific subjects and amounts
party has agreed that arbitrators should decide arbitrability,â subject to arbitration, and arbitrability was not one of those
courts âshould not assume that the parties agreed to arbitrate matters. Even if we were to conclude, based, in part, on the
arbitrability unless there is âclea [r] and unmistakabl[e]â authority cited below, that some ambiguity was created by the
evidence that they did so.â 514 U.S. 938, 944, 115 S.Ct. parties' reference to the AAA rules, the parties simply did not 1920, 1924,131 L.Ed.2d 985
(1995) (citations omitted). clearly and unmistakably submit the issue of arbitrability to The Supreme Court noted that âthe law treats silence or arbitration. ambiguity about the question âwho (primarily) should decide arbitrabilityâ differently from the way it treats silence or We recognize that Rule 7(a) of the Commercial Arbitration ambiguity about the question âwhether a particular merits- Rules of the AAA grants an arbitrator âthe power to rule related dispute is arbitrable because it is within the scope of on his or her own jurisdiction, including any objections a valid arbitration agreementâ â so as to not âforce unwilling with respect to the existence, scope or validity of the parties to arbitrate a matter they reasonably would have Arbitration Agreement.â COMMERCIAL RULES OF THE *40 thought a judge, not an arbitrator, would decide.â AMERICAN ARBITRATION ASSOCIATION, Rule 7(a).Id.,
514 U.S. at 944â45, 115 S.Ct. at 1924â25; see also We further recognize that, â[a]lthough the United States
Gen. Motors Corp. v. Pamela Equities Corp., 146 F.3d Court of Appeals for the Fifth Circuit has not addressed the
242, 249 (5th Cir.1998) ( â[W]hen a party to a dispute effect of a reference to AAA Rules contained in an arbitration
contends that he and the other disputant agreed to submit clause,â 3 other courts have generally concluded that an
... the question of whether that arbitrator had authority arbitration agreement's incorporation of rules empowering
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34(2007) an arbitrator to decide arbitrability clearly and unmistakably the construction of an unambiguous contractâ). Here, the evidences the parties' intent to allow the arbitrator to decide Arbitration Agreement restricted the arbitrator's reach only issues of arbitrability. See, e.g., Qualcomm Inc. v. Nokia to specifically identified âaudit disputes,â and for specific Corp.,466 F.3d 1366
, 1372â73 (Fed.Cir.2006) (concluding amounts. There is not a clear and unmistakable indication that that agreement's incorporation of AAA rules clearly and the parties authorized an arbitrator to decide the arbitrability unmistakably showed parties' intent to delegate issue of of claims or amounts not specifically identified in the determining arbitrability to arbitrator); Terminix Int'l Co., Arbitration Agreement. Moreover, the agreement provided LP v. Palmer Ranch Ltd. P'ship,432 F.3d 1327
, 1332â33 that to the extent there was any conflict between the parties' (11th Cir.2005) (holding that by incorporating AAA Rules agreement and the AAA rules, any such conflict would be into arbitration agreement, parties clearly and unmistakably resolved in favor of the agreement. agreed that arbitrator should decide whether arbitration *41 clause was valid); Contec Corp. v. Remote Solution, Although not directly on point, we note that the San Co.,398 F.3d 205, 208
(2d Cir.2005) (â[W]hen ... parties Antonio Court of Appeals has recently concluded that an explicitly incorporate rules that empower an arbitrator to arbitration agreement providing for any dispute to be settled decide issues of arbitrability, the incorporation serves as clear âin accordance with the rules and procedures of the AAAâ did and unmistakable evidence of the parties' intent to delegate not contain unmistakable evidence that the parties intended such issues to an arbitrator.â); Citifinancial, Inc. v. Newton, for an arbitrator to decide whether nonparties were bound by359 F.Supp.2d 545
, 549â52 (S.D.Miss.2005) (holding that the arbitration agreement. In re Ford Motor Co., 220 S.W.3d by agreeing to be bound by procedural rules of AAA, at 23â24. In so holding, the court highlighted âthe established including rule giving arbitrator power to rule on his or her Texas law [of] placing the initial burden of proving the own jurisdiction, defendant agreed to arbitrate questions of existence of a valid arbitration agreement and claims within jurisdiction before arbitrator); Sleeper Farms v. Agway, Inc., the scope of that agreement on the party seeking to compel211 F.Supp.2d 197, 200
(D.Me.2002) (holding arbitration arbitration.âId.
clause stating that arbitration shall proceed according to rules of AAA provides clear and unmistakable delegation of scope- We also find the opinion of the United States Court of Appeals determining authority to arbitrator). We are also mindful that, for the Second Circuit in Katz v. Feinberg helpful to our in certain circumstances, the incorporation of AAA rules may analysis. See290 F.3d 95
(2d Cir.2002). In Katz, the court constitute clear and unmistakable evidence of an intent to found that the parties did not agree to arbitrate questions allow an arbitrator to decide issues of arbitrability. of arbitrability.Id.
at 96â97. The Katz court recognized
that a âbroadly worded *42 arbitration clause committing
[3] However, we conclude, based on the express terms of resolution of all disputes to arbitrationâ would satisfy the
the Arbitration Agreement before us, that the agreement's clear and unmistakable standard. Id. at 97. However, the court mere reference to the AAA's rules does not provide clear could not conclude that âwhere a single agreement contains and unmistakable evidence of the parties' delegation of both a broadly worded arbitration clause and a specific clause issues of arbitrability to an arbitrator. In determining whether assigning a certain decision to an independent accountant, an agreement provides clear and unmistakable language of that the parties intention to arbitrate questions of arbitrability such delegation, we consider the specific language of the under the broad clause remains clear.âId.
Arbitration Agreement. See Kaplan,514 U.S. at 944
,115 S.Ct. at 1924
(âWhen deciding whether the parties agreed Similarly, in James & Jackson, LLC v. Willie Gary, LLC, to arbitrate a certain matter (including arbitrability), courts the Delaware Supreme Court recognized the âmajority viewâ generally [ ] should apply ordinary state-law principles that an arbitration agreement's reference to AAA rules might that govern the formation of contracts.â). We also apply provide clear and unmistakable evidence of the parties' intent general principles of Texas contract law governing the to have an arbitrator determine arbitrability.906 A.2d 76, 78
, formation of contracts. See In re Dillard Dep't Stores, 80 (Del.2006). However, the court stated that the majority Inc.,186 S.W.3d 514, 515
(Tex.2006) (stating that ordinary view did not âmandate that arbitrators decide arbitrability
principles of â[c]ontract law determine [ ] the validity of in all cases where an arbitration clause incorporates the
arbitration agreements,â a âtrial court's determination of an AAA rules.â Id. at 80. Rather, the court stated, the majority
arbitration agreement's validity is a legal question,â and view âapplies in those cases where the arbitration clause
â[t]he objective intent as expressed in the agreement controls generally provides for arbitration of all disputes and also
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34(2007) incorporates a set of arbitration rules that empower arbitrators *43 [4] Burlington asserts that the audit disputes identified to decide arbitrability.âId.
The court noted that although the in Exhibit C to the Arbitration Agreement confirm that (1) arbitration agreement before it required arbitration of âany the parties agreed to arbitrate only the Trust's complaint controversy arising out of or related to [the agreement],â it that its âgross proceeds were understated due to excess also expressly authorized the non-breaching parties to obtain royaltiesâ charged against it based on the full value of some limited types of relief in the courts.Id. at 81
. Thus, the the GCNM settlement and (2) the Trust's claim for a 75% court concluded, âdespite the broad languageâ at the outset of share of the $6.7 million portion of the allegedly reallocated the arbitration agreement and the reference in the agreement GCNM settlement proceeds was never contemplated by to the AAA rules, that â[s]ince this arbitration clause does the parties to be an arbitrable claim. Rather, Burlington not generally refer all controversies to arbitration, the federal complains that the Trust asserted this new claim only after majority rule does not apply, and something other than the the commencement of arbitration. Burlington notes that the incorporation of the AAA rules would be needed to establish expressly stated subject matter of the first audit dispute was that the parties intended to submit arbitrability questions to that Burlington, âin adjusting gross proceeds to reflect the an arbitrator.âId.
MMS/Jicarilla settlement[,] ... improperly deducted royalties
paid supposedly on account of the $6.7 million in take-or-pay
We recognize that the arbitration agreements in both claims not covered by the Conveyance.â
Katz and James & Jackson, LLC are quite different than
the Arbitration Agreement before us. For example, the In fact, the dispute to be arbitrated arose from the Trust's
Arbitration Agreement here does not contain any provisions allegation that the MMS/Jicarilla settlement was based upon
assigning decision-making authority on the specifically the full amount of the GCNM settlement, including the $6.7
identified existing audit disputes to anyone other than the million take-or-pay portion, that 12.3% of the MMS/Jicarilla
arbitrator. However, both Katz and James & Jackson, LLC settlement, or approximately $500,000, was allocable to
illustrate the application of the principle that a court must production in which the Trust had no interest, and that
carefully consider the language of the specific arbitration the Trust should not have been charged for 75% of those
agreement before it in determining whether the parties have payments. Moreover, the Trust's complaint about the second
clearly and unmistakably ceded authority to decide matters of audit dispute simply concerned its claim for interest on the
arbitrability to an arbitrator. See id.; Katz, 290 F.3d at 97. A amount at issue in the first audit dispute. In spite of these court should not blindly apply the majority view regarding the specifically identified and narrowly limited audit disputes, effect of mere reference to AAA rules and ignore the âclear the arbitrator ruled on a claim by the Trust that its âgross and unmistakable standardâ set forth by the Supreme Court proceeds were understated, not due to the deduction or in Kaplan. See Kaplan,514 U.S. at 944
,115 S.Ct. at 1924
. charge of royalties paid to MMS and the Jicarilla tribe,
but, instead, due to the exclusion of $6.7 million of receipts
Accordingly, we hold that Burlington and the Trust did under gas purchase contracts in the GCNM settlement that
not agree in the Arbitration Agreement, by clear and [Burlington] has attributed to take-or-pay obligations.â Yet,
unmistakable language, to submit questions regarding the as Burlington highlights, there is absolutely no mention of the
scope of arbitrable issues to the arbitrator. See id., 514 U.S. GCNM settlement in Exhibit C, nor is there any suggestion
at 942â44, 115 S.Ct. at 1923â25. that the Trust would be seeking to recover in arbitration
approximately $6 million based on its theory that Burlington
We sustain Burlington's first issue. had reallocated funds from its 1990 settlement. Burlington
argues that âthe sheer numbers involvedâ in the Trust's newly
asserted claim preclude it âfrom being shoehorned into the
âexcess royalties' conceptâ identified in Exhibit C.
Scope of Arbitration Agreement
In its second issue, Burlington argues that âconstruing the The Trust, on the other hand, asserts that the audit disputes
scope of the arbitration agreement de novo,â the Trust's claim describe its complaint that Burlington had charged it with
for its â75% share of additional gross proceeds resulting from excess royalties relating to Burlington's reallocation of the
the reallocation of $6.7 million to past pricingâ is not within $6.7 million in take-or-pay claims without sharing those
proceeds with the Trust. The Trust notes that, despite the
the scope of the Arbitration Agreement. 4
specific arbitrate amounts, Exhibit C states that â[a]ll amounts
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
stated are subject to change.â The Trust asserts that this shall modify or correct award if âthe arbitrators have made
language justifies the arbitration award of over $6 million, an award with respect to a matter not submitted to them
even though the relevant âarbitrate amountâ for the two and the award may be corrected without affecting the merits
audit disputes was $374,978. The Trust, as additional support of the decision made with respect to the issues that were
for its claim for a 75% share of the full value of the submittedâ).
GCNM settlement, cites a November 1, 2002 letter from it to
Burlington stating, [5] [6] [7] [8] In reviewing the arbitrator's decision
independently, we recognize the strong presumption under
The Trust was not paid any royalties on the take-or-pay the Federal Arbitration Act of favoring arbitration. See In re
settlement [of 6.7 million]. The Trust did not pursue a claim D. Wilson Constr. Co., 196 S.W.3d 774, 782â83 (Tex.2006). for royalties on that amount, and does not now want to Furthermore, we note that any doubt as to whether a party's be assessed any portion of the current settlement which claim falls within the scope of an arbitration agreement is attributable to royalties which should *44 have been must be resolved in favor of arbitration.Id.
Also, a court paid to the MMS or Jicarillas on the take-or-pay portion should not deny arbitration unless it can be said with positive because the Trust did not share in the economic benefits assurance that an arbitration clause is not susceptible to an attributable to the take-or-pay settlement in 1990. If the interpretation that would cover the dispute at issue. Id.; see âmajor portionâ settlement took into account the take-or- also In re Dillard Dept. Stores, Inc.,186 S.W.3d at 516
. Of
pay claim, the amount allocated to the Trust should be course, âthe policy that favors resolving doubts in favor of
reduced ... arbitration cannot serve to stretch a contractual clause beyond
the scope intended by the parties or authorize an arbiter to
If instead the 1990 settlement was âreallocatedâ such
disregard or modify the plain and unambiguous provisions
that more or all of the amount received by Burlington's
of the agreement.â Smith v. Transp. Workers Union of Am.,
successor [sic] was treated as âpast pricingâ or âcontract
AFLâCIO Air Transp. Local 556, 374 F.3d 372, 375 (5th
buyout,â then the Trust is entitled to 75% net overriding
Cir.2004) (citations omitted); see also Belmont Constructors,
royalty interest on the 6.7 [million] no longer allocable to
Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356
take-or-pay.
(Tex.App.-Houston [1st Dist.] 1995, no writ) (stating that
âfederal policy of resolving doubts in favor of arbitrationâ
Based on this letter, the Trust asserts that it âmade
cannot stretch contractual clause beyond scope intended or
clearâ throughout its dispute âits complaint that Burlington
allow modification of plain and unambiguous provisions).
improperly had charged the Trust with royalty on settlement
proceeds without sharing those proceeds with the Trustâ and
With these principles in mind, and reviewing the arbitrator's
âthe alternative remedies that it was seeking ... [to] either
decision independently, we conclude that the relevant audit
eliminate the charge to the Trust of the royalties on the
disputes describing the Trust's complaint *45 about its
proceeds or give the Trust its share of the proceeds.â
understated gross proceeds due to Burlington's charge of
excess royalties from the MMS/Jicarilla settlement is not
The Supreme Court stated in Kaplan that if âthe parties did not
susceptible to an interpretation for an alternative claim by the
agree to submit the arbitrability question itself to arbitration,
Trust for a 75% interest in the allegedly reallocated proceeds
then the court should decide that question just as it would
of $6.7 million portion of the 1990 GCNM settlement. We
decide any other question that the parties did not submit to
can say, with positive assurance, that by making a claim for
arbitration, namely, independently.â Kaplan, 514 U.S. at 943,
reallocated proceeds from the 1990 GCNM settlement, the
115 S.Ct. at 1923â24. The Federal Arbitration Act provides
Trust was making a separate and new claim rather than a
that a court may vacate an arbitration award âwhere the
claim covered by the âaudit disputesâ contemplated by the
arbitrators exceeded their powers, or so imperfectly executed
parties in the Arbitration Agreement. The inescapable fact is
them that a mutual, final, and definite award upon the subject
that the Arbitration Agreement provided specific âarbitrate
matter submitted was not madeâ and may modify or correct
amountsâ for each of the identified audit disputes, and the
an arbitration award â[w]here the arbitrators have awarded
amount ultimately awarded by the arbitrator on the Trust's
upon a matter not submitted to them.â 9 U.S.C. §§ 10, 11; see
newly asserted claim greatly exceeded, beyond any amount
also TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.088(a)
that could have reasonably been contemplated by the parties,
(3)(A) (providing that court shall vacate award if arbitrators
the amounts identified in the Arbitration Agreement. As the
exceed their powers), 171.091(a)(2) (providing that court
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
Rather, the unambiguous provisions of the Arbitration
Trust points out, the Arbitration Agreement did provide that
Agreement, setting forth detailed descriptions of the relevant
the arbitrate amounts were âsubject to changeâ; however, the
audit disputes and the associated arbitrate amounts, control
inclusion of this language cannot justify the assertion of a
our inquiry. See In re Dillard Dept. Stores, Inc., 186 S.W.3d
wholly separate claim. Again, the 1990 GCNM settlement
at 515 (stating that â[t]he objective intent as expressed in
is not mentioned in the Arbitration Agreement. Allowing
the agreement controls the construction of an unambiguous
the Trust to assert a claim for over $6 million shortly after
contractâ).
executing an agreement identifying the arbitration amounts
for the relevant audit disputes to be approximately $375,000
In sum, the Arbitration Agreement cannot reasonably be
stretches the Arbitration Agreement beyond its breaking
interpreted as authorizing the Trust's claim for its 75% share
point. Had the parties intended to arbitrate the Trust's claim
of the full value of the 1990 GCNM settlement proceeds.
for reallocated proceeds from the 1990 GCNM settlement, the
Accordingly, we hold that the Trust's claim was âclearly
parties could have included a reference to this settlement in
beyond the agreed scope of the arbitration,â the arbitrator
the Arbitration Agreement and stated the appropriate arbitrate
exceeded his powers in ruling on the Trust's claim, and the
amount.
arbitrator entered an award on a matter not properly submitted
to him. We further hold that the trial *46 court erred in
The Trust contends, in post-submission briefing, that âthe
confirming the arbitration award.
parties were not required to include in Exhibit C all sub-
issues entailed within that general description of the dispute
We sustain Burlington's second issue.
and the alternative remedies to which the Trust might be
entitled, depending on facts that were solely within the control
of Burlington and which became known to the Trust only
following discovery undertaken in the course of arbitration Conclusion
proceedings.â First, one cannot reasonably conclude that a
claim for over $6 million for allegedly reallocated proceeds We reverse the portion of the trial court's judgment
from the 1990 GCNM settlement qualifies as a âsub-issueâ confirming the portion of the arbitration award awarding the
of a specific âaudit disputeâ over understated gross proceeds Trust $6,243,990 (labeled in the arbitration award as âMMS/
in the amount of $374,978. Second, the Trust's admission JicarillaâCase Aâ), vacate that portion of the arbitration
that it did not learn of the underlying facts supporting award, and modify the award to reflect that this award
its newly asserted claim until after the commencement of has been vacated. We render a take-nothing judgment in
arbitration establishes that such a claim was not one of Burlington's favor on the Trust's claim giving rise to the
the âexistingâ audit disputes between the parties to be arbitration award of $6,243,990. We also reverse the portion
resolved by the Arbitration Agreement. Finally, we cannot, of the trial court's judgment denying Burlington's claim for
as suggested by the Trust, rely on its November 2002 letter breach of the Arbitration Agreement, and we remand for
as âclearlyâ putting Burlington âon notice of the Trust's further proceedings consistent with this opinion.
positionâ that it was always seeking alternative remedies.
Footnotes
1 To avoid confusion, we make no distinction between Burlington and its predecessor, Southland Royalty Company (âSouthlandâ).
2 The Trust explains that â[t]he overriding royalty interest is a ânetâ interest, in the sense that Burlington, in calculating the payments
to which the Trust is entitled, includes certain revenues (including proceeds from the sale of production from the properties) and
certain expenses incurred in the operation of the properties (including royalties on production paid to royalty owners holding royalty
interests in the properties).â
3 Citifinancial, Inc. v. Newton, 359 F.Supp.2d 545, 551 (S.D.Miss.2005).
4 Having held that the Arbitration Agreement does not clearly and unmistakably evidence the parties' intent to delegate the issue of
determining arbitrability to the arbitrator, we need not consider Burlington's alternative contention in its second issue that even if
the arbitrator is afforded âconsiderable leewayâ in construing the scope of the arbitration agreement, the parties' dispute is âclearly
beyond the agreed scope of the arbitration.â See Kaplan, 514 U.S. at 943, 115 S.Ct. at 1923â24.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
Scope
398 F.3d 205 and Standards of Review
United States Court of Appeals,
Court of Appeals reviewed de novo district
Second Circuit.
court's decision that issue of arbitrability was for
CONTEC CORPORATION, Plaintiff- arbitrator, not court.
Counter-Defendant-Appellee, 10 Cases that cite this headnote
v.
REMOTE SOLUTION CO., LTD.,
[2] Alternative Dispute Resolution
Defendant-Counterclaimant-Appellant.
Evidence
Docket No. 04-0382-CV. | Argued
Under Federal Arbitration Act, there is general
Dec. 9, 2004. | Decided Feb. 14, 2005.
presumption that issue of arbitrability is resolved
Synopsis by courts; presumption may be rebutted by
Background: Corporation/buyer sought to compel clear and unmistakable evidence from arbitration
arbitration of indemnification dispute with manufacturer agreement, as construed by relevant state law,
pursuant to arbitration clause of sales contract between that parties intended that question of arbitrability
manufacturer and corporation's predecessor, a limited shall be decided by arbitrator. 9 U.S.C.A. § 1 et
partnership. Manufacturer counterclaimed, contending that it seq.
could not be compelled to arbitrate with non-signatory to
90 Cases that cite this headnote
contract. The United States District Court for the Northern
District of New York, David N. Hurd, J., dismissed
action, ruling that issue of arbitrability was for arbitrator. [3] Alternative Dispute Resolution
Manufacturer appealed.
Evidence
When parties to arbitration agreement explicitly
incorporate rules that empower arbitrator to
Holdings: The Court of Appeals, Oakes, Senior Circuit
decide issues of arbitrability, incorporation
Judge, held that:
serves as clear and unmistakable evidence
of parties' intent to delegate such issues to
[1] arbitration of arbitrability issue was appropriate
arbitrator, thus rebutting Federal Arbitration
for indemnification claim, even though corporation was
Act's general presumption in favor of courts'
nonsignatory to contract, and
deciding arbitrability. 9 U.S.C.A. § 1 et seq.
[2] corporation as non-signatory could compel arbitration 141 Cases that cite this headnote
of indemnification claim, since issue of whether contract's
arbitration rights were validly assigned by limited partnership
to corporation was issue of arbitrability and thus was [4] Alternative Dispute Resolution
within arbitrator's jurisdiction pursuant to arbitration clause's Persons
delegation provision. Affected or Bound
In determining whether arbitration of
Affirmed. arbitrability question is appropriate as between
signatory to arbitration agreement and non-
signatory, court must first determine whether
parties have sufficient relationship to each
West Headnotes (6) other and to rights created under agreement. 9
U.S.C.A. § 1 et seq.
[1] Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
45 Cases that cite this headnote 51 Cases that cite this headnote
[5] Alternative Dispute Resolution
Persons
Attorneys and Law Firms
Affected or Bound
*206 David L. Finger, Wilmington, DE (Finger & Slanina,
Alternative Dispute Resolution
LLC; and Madeline H. Kibrick Kauffman, Nolan & Heller,
Sales LLP, Albany, NY, of counsel), for Appellant.
Contracts Disputes
Kenneth L. Stein, New York, N.Y. (Jones Day, of counsel),
Under arbitration clause of sales contract
for Appellee.
between manufacturer and corporation's
predecessor, which contained clear delegation Before OAKES, JACOBS, and CABRANES, Circuit Judges.
to arbitrator of question of arbitrability,
arbitration of arbitrability issue was appropriate Opinion
for corporation's indemnification claim against
*207 OAKES, Senior Circuit Judge.
manufacturer arising under contract, even
though corporation was nonsignatory to This case originated when Contec Corporation filed suit
contract; there was undisputed relationship to compel Remote Solution Co., Ltd. (âRemote Solutionâ)
between manufacturer and both corporation and to arbitrate an indemnification dispute. Remote Solution
predecessor, and dispute arose because parties argued that it could not be compelled to participate in
had continued to conduct themselves as subject arbitration because Contec Corporation was a non-signatory
to sales contract regardless of any changes in to the arbitration agreement Remote Solution had signed with
corporate form. 9 U.S.C.A. § 1 et seq. Contec L.P. in 1999. The United States District Court for
the Northern District of New York, David N. Hurd, Judge,
28 Cases that cite this headnote
dismissed the suit, finding that whether a valid arbitration
agreement existed between Remote Solution and Contec
[6] Alternative Dispute Resolution Corporation was an issue to be decided by the arbitrator.
We agree with the district court that Remote Solution is
Arbitrability
compelled under the agreement it signed with Contec L.P. to
of Dispute
arbitrate the question of arbitration with Contec Corporation.
Under arbitration clause of sales contract Accordingly, we affirm.
between manufacturer and corporation's
predecessor, which contained clear delegation
to arbitrator of question of arbitrability,
corporation could compel arbitration of its BACKGROUND
indemnification claim against manufacturer
In 1999, Contec L.P. and Hango Electronics, a Korean
arising under contract, even though contract
electronics company that subsequently changed its name
prohibited assignment of rights and excluded
to Remote Solution, entered into an agreement for the
third-party rights; whether contract's arbitration
manufacturing and purchase of remote control devices (âthe
rights were validly assigned by predecessor to
1999 Agreementâ). Later in 1999, Contec L.P. was converted
corporation was issue that pertained directly
to Contec LLC and then, in 2001, merged with Contec
to continued existence, scope or validity of
Corporation, leaving Contec Corporation as the surviving
contract, i.e. was issue of arbitrability, and thus
entity. These changes in corporate form did not alter Contec's
was within jurisdiction of arbitrator pursuant
address or ownership and allegedly did not impact its business
to arbitration clause's delegation provision. 9
relationship with Remote Solution.
U.S.C.A. § 1 et seq.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
In 2000 and 2002, Contec Corporation was sued for alleged arbitration. This is the agreement that
patent infringement. Under an indemnification provision of Remote Solution ... agreed to.
the 1999 Agreement, Remote Solution was required to defend
Contec L.P. in any patent infringement suit and pay any This appeal followed.
and all costs or damages awarded. Remote Solution did not
make any indemnification payments to Contec Corporation
for costs Contec Corporation incurred in connection with the DISCUSSION
suit. Contec Corporation therefore withheld payment on a
shipment of remote control units as a setoff against amounts [1] Our review of âwhether the issue of arbitrability is for the
it believed it was owed by Remote Solution. court or for the arbitratorâ is de novo. Bell v. Cendant Corp.,
293 F.3d 563, 565-66(2d Cir.2002); see also Shaw Group In June 2003, Remote Solution filed suit against Contec Inc. v. Triplefine Int'l Corp.,322 F.3d 115
, 120 (2d Cir.2003). Corporation in Korea. Relying on Paragraph 19 of the 1999 Agreement, which required that all disputes arising under the [2] The 1999 Agreement, as a contract involving agreement be arbitrated, Contec Corporation filed a demand international commerce, is governed by the Federal for arbitration with the American Arbitration Association. Arbitration Act (âFAAâ). See9 U.S.C. §§ 1
, 2 (2004); David Additionally, it filed suit in the district court seeking to L. Threlkeld & Co. v. Metallgesellschaft Ltd.,923 F.2d 245
, compel arbitration and an order to dismiss or stay Remote 249 (2d Cir.1991) (noting that the Supreme Court held in Solution's lawsuit in Korea. Prima Paint Corp. v. Flood & Conklin Mfg. Co.,388 U.S. 395, 402
,87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967), that the In the district court proceedings, Remote Solution contended FAA âapplies in federal court to diversity suits which relate that Contec Corporation was not a signatory to the to contracts involving interstate or international commerceâ). 1999 Agreement and was therefore barred from seeking Under the FAA, there is a general presumption that the issue its enforcement. In response, Contec Corporation argued of arbitrability should be resolved by the courts. See First that arbitration, not the court, was the proper forum for Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 944-45
, determining whether a valid arbitration agreement existed115 S.Ct. 1920
,131 L.Ed.2d 985
(1995). Acknowledging
between itself and Remote Solution. this presumption, we have held that âthe issue of arbitrability
may only be referred to the arbitrator if there is clear and
In December 2003, the district court dismissed the suit, unmistakable evidence from the arbitration agreement, as
finding that âall claims set forth in the complaint and construed by the relevant state law, that the parties intended
counterclaim are subject to arbitration.â The district court that the question of arbitrability shall be decided by the
explained its reasoning as follows: arbitrator.â Bell, 293 F.3d at 566 (emphasis in original)
(internal quotations omitted). 1
[T]he threshold question is whether
Contec Corp.'s purported right to
The arbitration clause at issue here appears in paragraph 19
enforce the agreement falls within
of the 1999 Agreement and provides:
the scope of the arbitration clause.
The agreement clearly provides In the event of any controversy arising
that any dispute arising under the with respect to this Agreement, both
agreement will be resolved by parties shall use its best efforts to
arbitration in accordance with the resolve the controversy. In the event
Commercial Arbitration Rules of the parties are unable to arrive at
the American Arbitration Association. a resolution, such controversy shall
The Commercial Arbitration Rules be determined by arbitration held
provide that issues of jurisdiction, in the City of Albany, New York
including objections regarding the in accordance with the Commercial
scope or validity of the arbitration Arbitration Rules of the American
agreement, are subject *208 to Arbitration Association (the âAAAâ)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
or any organization that is the referring issues of arbitrability to arbitrators). A useful
successor thereto .... benchmark for relational sufficiency can be found in our
estoppel decision in Choctaw Generation Ltd. P'ship v. Am.
Rule 7 of the AAA Commercial Arbitration Rules states with Home Assurance Co., where we held that the signatory to an
respect to jurisdiction that â[t]he arbitrator shall have the arbitration agreement âis estopped from avoiding arbitration
power to rule on his or her own jurisdiction, including any with a non-signatory âwhen the issues the non-signatory is
objections with respect to the existence, scope or validity of seeking to resolve in arbitration are intertwined with the
the arbitration agreement.â AAA Rule R-7(a). agreement that the estopped party has signed.â â 271 F.3d
403, 404(2d Cir.2001)(quoting Smith/Enron Cogeneration [3] We have held that when, as here, parties explicitly Ltd. P'ship v. Smith Cogeneration Int'l Inc.,198 F.3d 88
, 98 incorporate rules that empower an arbitrator to decide (2d Cir.1999)). In Choctaw, we summarized the factors laid issues of arbitrability, the incorporation serves as clear and out in Smith/Enron as âthe relationship among the parties, the unmistakable evidence of the parties' intent to delegate contracts they signed (or did not), and the issues that ha[ve] such issues to an arbitrator. See Shaw Group, 322 F.3d arisen.â Id. at 406. at 122; PaineWebber Inc. v. Bybyk,81 F.3d 1193, 1202
(2d Cir.1996). There can be no doubt that the 1999 [5] In the present case, neither we nor the district court
Agreement bound its signatory Remote Solution to arbitrate must reach the question whether Remote Solution is estopped
any disputes with the Agreement's other signatory, namely, from avoiding arbitration with Contec Corporation because,
Contec L.P. If Contec remained in its original corporate under the 1999 Agreement, the circumstances indicate that
form, Remote Solution would be compelled to arbitrate the arbitration of the issue of arbitrability is appropriate. First,
indemnification dispute at the heart of this case. Contec L.P., there is or was an undisputed relationship between each
however, has become Contec Corporation. The question, corporate form of Contec and Remote Solution. Secondly,
therefore, is whether *209 Contec Corporation's ability Remote Solution signed the 1999 Agreement. Finally, the
as a non-signatory to enforce the arbitration clause is an dispute at issue arose because the parties apparently continued
issue pertaining to the âexistence, scope or validity of the to conduct themselves as subject to the 1999 Agreement
arbitration agreementâ between Remote Solution and Contec regardless of change in corporate form. These factors
L.P. demonstrate that a sufficient relationship existed between
Contec Corporation and Remote Solution to permit Contec
Remote Solution argues that it cannot be compelled to Corporation to compel arbitration even if, in the end, an
arbitrate with a stranger to the 1999 Agreement because the arbitrator were to determine that the dispute itself is not
contractual language is effective only between the contracting arbitrable because Contec Corporation cannot claim rights
parties. It contends that the 1999 Agreement included both a under the 1999 Agreement.
prohibition on the assignment of rights under the Agreement
and an exclusion of third party rights, and that, therefore, [6] Having determined that a sufficient relationship exists
there is no contractual evidence of Remote Solution's intent between the parties, we must now address the more precise
to grant third parties the right to seek arbitration. According question presented here: whether a non-signatory can compel
to Remote Solution, Contec Corporation's rights under the a signatory to arbitrate under an agreement where the question
1999 Agreement, if any, fall outside the arbitration clause and of arbitrability is itself subject to arbitration. Although our
thus cannot be an issue pertaining to the âexistence, scope or circuit has not previously considered this question, we are not
validity of the arbitration agreement.â without guidance in federal law.
[4] As an initial matter, we recognize that just because *210 In Apollo Computer, Inc. v. Berg, 886 F.2d 469
a signatory has agreed to arbitrate issues of arbitrability
(1st Cir.1989), 2 the First Circuit decided a case virtually
with another party does not mean that it must arbitrate with
indistinguishable from this one. The court considered whether
any non-signatory. In order to decide whether arbitration
Apollo, a signatory to an arbitration agreement with another
of arbitrability is appropriate, a court must first determine
company called Dico, could be compelled to arbitrate by
whether the parties have a sufficient relationship to each
Dico's trustees in bankruptcy, who were non-signatories
other and to the rights created under the agreement. See First
to the agreement. As in the instant case, the agreement
Options, 514 U.S. at 944-45,115 S.Ct. 1920
(discussing
between Apollo and Dico contained a non-assignment clause.
the necessity of threshold determination by courts before
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
unmistakable evidence of the parties' intent to arbitrate issues
Rejecting the argument that Apollo could not be compelled to
of arbitrability. Moreover, in Microchip, the party that urged
arbitrate because there was no agreement between it and the
arbitration was the signatory to the arbitration agreement
defendants, the court held:
and the party that sought to avoid arbitration was *211
the non-signatory. Id. at 1353. In this case, as in Apollo,
The relevant agreement here is the one between Apollo the party seeking to avoid arbitration was a signatory to the
and Dico. The defendants claim that Dico's right to compel arbitration agreement. Although the Microchip court found
arbitration under that agreement has been assigned to this distinction irrelevant, id. at 1358, we find it an important
them.... Whether the right to compel arbitration ... was indicator of Remote Solution's expectation and intent when
validly assigned to the defendants and whether it can be binding itself to the 1999 Agreement. See Motorola Credit
enforced by them against Apollo are issues relating to the Corp. v. Uzan, 388 F.3d 39, 52 (2d Cir.2004) (recognizing the continued existence and validity of the agreement. âprinciple [that] an arbitration clause is binding ... on those Id. at 473. Similarly, the relevant agreement here is parties which have entered into a contractual agreement to the one Remote Solution signed with Contec L.P., in submit to arbitrationâ). which Remote Solution agreed to submit all disputes to arbitration. Under the reasoning of Apollo, whether the After review of Apollo and Microchip, we find the reasoning arbitration rights under the 1999 Agreement were validly of Apollo to be more persuasive and explicitly adopt it here. In assigned by Contec L.P. to Contec Corporation is an issue Apollo, the court recognized that the question of arbitrability that pertains directly to the continued âexistence, scope would ordinarily be subject to judicial determination rather or validityâ of the Agreement. As such, it is within the than arbitration. Id. (citing Am. Safety Equip. Corp. v. J.P. jurisdiction of the arbitrator pursuant to AAA Rule R-7(a) Maguire & Co.,391 F.2d 821
, 828-29 (2d Cir.1968)). as incorporated into the 1999 Agreement. However, because Apollo, like Remote Solution, âagreed In direct contrast to the holding in Apollo, the Federal Circuit to be boundâ by provisions that âclearly and unmistakably held recently in a very similar case that âthe question of allow the arbitrator to determine her own jurisdictionâ over whether the parties agreed to arbitrate is to be decided by the an agreement to arbitrate âwhose continued existence and court, not the arbitrator.â Microchip Tech. Inc. v. U.S. Philips validity is being questioned,â it is the province of the Corp.,367 F.3d 1350, 1358
(Fed.Cir.2004). In reaching this arbitrator to âdecide whether a valid arbitration agreement conclusion, the Federal Circuit did not examine Apollo, but exists.âId.
We therefore conclude that as a signatory to a instead relied on Supreme Court cases that either did not contract containing an arbitration clause and incorporating address whether there was clear and unmistakable evidence of by reference the AAA Rules, Remote Solution cannot now the parties' intent to submit arbitrability to an arbitrator,id.
at disown its agreed-to obligation to arbitrate all disputes, 1357 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. including the question of arbitrability. 79, 83-84,123 S.Ct. 588
,154 L.Ed.2d 491
(2002) (holding that applicability of a National Association of Securities We agree with the district court that Contec Corporation's Dealers time limit provision is not the type of âgateway purported right to enforce the 1999 Agreement is a matter disputeâ presumptively decided by the court)); AT & T Techs., of the Agreement's continued existence, validity and scope, Inc. v. Communications Workers of Am.,475 U.S. 643
, and is therefore subject to arbitration under the terms of 651,106 S.Ct. 1415
,89 L.Ed.2d 648
(1986) (holding that the arbitration clause. Accordingly, we hold that Remote it was court's duty to determine whether layoff provision Solution is compelled under the 1999 Agreement to arbitrate was expressly excluded from labor agreement arbitration the question of arbitrability with Contec Corporation. clause), or found that such clear and unmistakable evidence was absent;id.
(citing First Options,514 U.S. at 944-47
,115 S.Ct. 1920
; John Wiley & Sons, Inc. v. Livingston,
CONCLUSION
376 U.S. 543,84 S.Ct. 909
,11 L.Ed.2d 898
(1964)). In
our view, these cases are not determinative when analyzing For the foregoing reasons, the decision of the district court to
the factual situation presented by Microchip, Apollo, and dismiss this case in favor of arbitration is affirmed.
the instant case, where incorporation of arbitration rules
giving jurisdiction to the arbitrator provides clear and
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)
Footnotes
1 The 1999 Agreement is governed by New York law, which follows the same standard as federal law with respect to who determines
arbitrability: generally, it is a question for the court unless there is âa âclear and unmistakableâ agreement to arbitrate arbitrability.â
Shaw Group, 322 F.3d at 121 (quoting Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 45-46,666 N.Y.S.2d 990, 993
,689 N.E.2d 884
(1997)).
2 We have previously cited Apollo with approval for the proposition that parties who contract for arbitration in accordance with
arbitration rules such as the AAA Commercial Arbitration Rules have âthereby agreed to submit questions of arbitrability to the
arbitrator.â Shaw Group, 322 F.3d at 122-23.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)
Alternative Dispute Resolution
278 S.W.3d 497 Disputes
Court of Appeals of Texas, and Matters Arbitrable Under Agreement
Houston (14th Dist.).
A party seeking to compel arbitration must
ERNST & YOUNG LLP, Appellant, establish that a valid arbitration agreement exists
and that the claims asserted are within the scope
v.
of the agreement. 9 U.S.C.A. § 1, et seq.
J. David MARTIN, Michael Covarrubias,
and Cathy Greenwold, Appellees. Cases that cite this headnote
In re Ernst & Young LLP, Relator.
Nos. 14â07â00821âCV, 14â [3] Alternative Dispute Resolution
07â00896âCV. | Feb. 5, 2009. Right
to Enforcement and Defenses in General
Synopsis
Background: Clients brought suit against tax advisors after Alternative Dispute Resolution
tax benefits claimed from implementing advisors' advice
Remedies
were disallowed. Advisors moved to compel arbitration under
and Proceedings for Enforcement in General
Federal Arbitration Act (FAA) based on clients' engagement
letter with advisor. The 113th District Court, Harris County, If a valid arbitration agreement exists and the
Patricia Ann Hancock, J., denied motion without explanation. claims asserted are within the scope of the
Advisors made consolidated request for writ of mandamus agreement, a challenger must present a valid
and direct appeal. defense to the agreement; in absence of a valid
defense, a trial court has no discretion to exercise
and must compel arbitration. 9 U.S.C.A. § 1, et
seq.
[Holding:] The Court of Appeals, Leslie B. Yates, J.,
held that clause of arbitration agreement that reallocated Cases that cite this headnote
traditional court functions to the arbitrator was enforceable.
[4] Mandamus
Writ granted; direct appeal dismissed as moot.
Civil
Proceedings Other Than Actions
When a trial court improperly denies a motion to
West Headnotes (7) compel arbitration under the Federal Arbitration
Act (FAA), mandamus relief is appropriate. 9
U.S.C.A. § 1, et seq.
[1] Alternative Dispute Resolution
1 Cases that cite this headnote
What
Law Governs
Courts honor agreements to be bound by the [5] Alternative Dispute Resolution
Federal Arbitration Act (FAA). 9 U.S.C.A. § 1,
Arbitrability
et seq.
of Dispute
3 Cases that cite this headnote The Federal Arbitration Act (FAA) allows the
parties to determine which issues are arbitrable,
and the rule that courts usually decide issues of
[2] Alternative Dispute Resolution
arbitrability is a default rule that applies unless
Validity
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)
the contract provides otherwise. 9 U.S.C.A. § 1,
et seq. John E. Chapoton, Leif Alexander Olson, H. Ronald Welsh,
Sarah A. Duckers, Houston, for appellees in 14-07-00821-
2 Cases that cite this headnote CV.
Leif Alexander Olson, H. Ronald Welsh, John E. Chapoton,
[6] Alternative Dispute Resolution Houston, for real party in interest in 14-07-00896-CV.
ScopePanel consists of Justices YATES, SEYMORE, and BOYCE.
of Submission
Parties to a contract can agree to submit
any issue to arbitration, including questions of *499 OPINION
arbitrability.
LESLIE B. YATES, Justice.
2 Cases that cite this headnote
This is a consolidated request for a writ of mandamus and
direct appeal by appellant Ernst & Young LLP (âE & Yâ)
[7] Alternative Dispute Resolution
arising out of the trial court's denial of its motion to compel
As arbitration of the claims filed against it by appellees J. David
Ousting Jurisdiction of or Precluding Resort to Martin, Michael Covarrubias, and Cathy Greenwold. We
Courts conclude the trial court abused its discretion in denying E &
Alternative Dispute Resolution Y's motion to compel arbitration. We conditionally grant E
& Y's request for a writ of mandamus and dismiss its direct
Remedies
appeal as moot.
and Proceedings for Enforcement in General
Clause of arbitration agreement between tax
advisors and clients that reallocated traditional Background
court functions to the arbitrator was enforceable
and could not serve as a basis for denying a In 1999, appellees, California residents, hired E &
motion to compel arbitration, absent argument Y in California to provide tax advice. Appellees had
that specific provision of agreement to have anticipated that the actions they took pursuant to this advice
the arbitrator decide all arbitrability issues would provide tax benefits and potential economic profit.
and resolve any contention that any arbitration However, the IRS disallowed the tax benefits claimed from
procedure was unenforceable was itself invalid; implementing E & Y's tax advice, costing appellees millions
clients never argued that they did not knowingly of dollars in back taxes, penalties, and interest.
agree to arbitration.
Appellees sued E & Y, among other parties, asserting claims
1 Cases that cite this headnote for malpractice and various other common law theories,
including fraud and unjust enrichment. E & Y filed a motion
to compel arbitration under the Federal Arbitration Act
(âFAAâ) and, in the alternative, under the Texas Arbitration
Attorneys and Law Firms Act. This request was based on language in appellees'
engagement letters with E & Y agreeing to submit all disputes
*498 J. Brett Busby, Mark Manela, Lee B. Kovarsky, that could not be solved by mediation to arbitration. Appellees
Houston, Seth Farber, New York, NY, Paul Mogin, opposed arbitration, arguing that their contract with E &
Washington, DC, for appellant in 14-07-00821-CV. Y was unconscionable. The trial court denied the motion
without explanation.
J. Brett Busby, Mike Stenglein, Mark D. Manela, Lee
B. Kovarsky, Houston, Justin Warf, Austin, for relator in
14-07-00896-CV.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)
itself rather than contract as a whole). Regardless of which
analysis would otherwise apply, neither is relevant because
Analysis
the parties' agreement controls. The FAA allows the parties to
[1] The parties all agree that the FAA controls in this case. determine which issues are arbitrable. See Hall Street Assocs.,
Indeed, the arbitration clause provides that disputes regarding L.L.C. v. Mattel, Inc., âââU.S. ââââ, 128 S.Ct. 1396, 1404, the enforceability of any part of the arbitration agreement170 L.Ed.2d 254
(2008). The rule that courts usually decide âshall be governed by the Federal Arbitration Act.â Courts issues of arbitrability is a default rule that applies unless the honor agreements to be bound by the FAA. In re Jim Walter contract provides otherwise. See Howsam,537 U.S. at 83
, Homes, Inc.,207 S.W.3d 888, 896
(Tex.App.-Houston [14th123 S.Ct. 588
. Parties to a contract can agree to submit any
Dist.2006], orig. proceeding). issue to arbitration, including questions of arbitrability. See
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, [2] [3] [4] A party seeking to compel arbitration must115 S.Ct. 1920
,131 L.Ed.2d 985
(1995); see also Forest Oil establish that a valid arbitration agreement exists and that Corp. v. McAllen,268 S.W.3d 51
, 61 n. 38 (Tex.2008) (noting the claims asserted are within the scope of the agreement. In general rule that parties can contract as they see fit). re D. Wilson Constr. Co.,196 S.W.3d 774, 781
(Tex.2006) (orig.proceeding); In re Igloo Prods. Corp.,238 S.W.3d 574
, [7] The agreement here states:
577 (Tex.App.-Houston [14th Dist.] 2007, orig. proceeding
Any issue concerning the extent
[mand. denied] ). If these showings are made, the burden
to which any dispute is subject
shifts to the party opposing arbitration to present a valid
to arbitration, or concerning
defense to the agreement. In re Igloo Prods. Corp., 238
the applicability, interpretation, or
S.W.3d at 577. In the absence of a valid defense, the trial court
enforceability of these procedures,
has no discretion to exercise and must compel arbitration.
including any contention that all or
In re D. Wilson Constr. Co., 196 S.W.3d at 781; In re
part of these procedures are invalid
Igloo Prods. Corp., 238 S.W.3d at 577. When a trial court
or unenforceable, shall be governed
improperly denies a motion to compel arbitration under the
by the [FAA] and resolved by the
FAA, mandamus relief is appropriate. In re Bank One, N.A.,
arbitrators.
216 S.W.3d 825, 826 (Tex.2007) (orig.proceeding).
As they acknowledged during oral argument, appellees
Appellees argue that arbitration is improper because the make no argument that this specific provisionâthat is, the
contract is unconscionable under California law, which they agreement to have the arbitrator decide all arbitrability issues
contend controls. They claim E & Y fraudulently induced and resolve any contention that any arbitration procedure is
them to enter in to the agreement and that many terms of the unenforceableâis itself invalid. Absent such an argument, an
agreement, such as limiting their damages to the fees paid to E arbitration clause that reallocates traditional court functions
& Y, render the agreement unconscionable. E & Y argues that to the arbitrator is enforceable and cannot serve as a basis for
California law does not apply, that even if it should, appellees denying a motion to compel arbitration. See Forest Oil Corp.,
have not properly invoked it, and that the *500 agreement is 268 S.W.3d at 61 (finding trial court had no discretion but to
not unconscionable. We need not decide any of these issues enforce contract provision âshrinking the court's traditional
because, under the terms of the contract, the arbitrator must role and expanding the arbitrators' â when nonmovant did
make these decisions. not challenge that provision on any legal or public policy
grounds); Anderson v. Pitney Bowes, Inc., No. C 04â4808
[5] [6] The parties disagree as to whether appellees' SBA, 2005 WL 1048700, at *2 & n. 4 (N.D.Cal. May 4, 2005) unconscionability defense is the type of issue that should be (granting motion to compel arbitration, despite allegation decided by the court or the arbitrator. Compare Howsam v. that arbitration was unconscionable, because contract stated Dean Witter Reynolds, Inc.,537 U.S. 79, 83
,123 S.Ct. 588
, arbitrator was to decide arbitrability issues and there was no154 L.Ed.2d 491
(2002) (noting that arbitrability is generally allegation that the provision giving arbitrator this power was a question for the court), with Buckeye Check Cashing, Inc. unconscionable); Carbajal v. Household Bank, FSB, No. 00 v. Cardegna,546 U.S. 440, 446
,126 S.Ct. 1204
, 163 L.Ed.2d C 0626,2003 WL 22159473
, at *8 (N.D.Ill. Sept.18, 2003) 1038 (2006) (stating that issue of a contract's validity is to be (same), aff'd sub nom. Carbajal v. H & R Block Tax. Servs., decided by arbitrator unless challenge is to arbitration clause372 F.3d 903
(7th Cir.2004).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)
The parties' arbitration clause clearly states that arguments
For the first time in post-submission briefing, appellees
such as those made by appellees are to be decided by the
point to California case law purporting to hold that even
arbitrator. Based on this unchallenged provision, the trial
when the arbitration agreement states that the arbitrator is to
court had no discretion to deny E & Y's motion for arbitration.
decide arbitrability issues, an allegation of unconscionability
Therefore, we conditionally grant the writ of mandamus and
effectively shifts that determination to the court. However,
direct the trial court to (1) vacate its order denying E & Y's
unlike here, those cases involved a challenge to the agreement
motion to compel arbitration and (2) grant E & Y's motion to
to arbitrate itself. See Bruni v. Didion, 160 Cal.App.4th
compel arbitration. The writ will issue only if the trial court
1272, 73 Cal.Rptr.3d 395, 400, 408 (2008); *501 Murphy
fails to comply. Insofar as we have granted full relief pursuant
v. Check âN Go, 156 Cal.App.4th 138,67 Cal.Rptr.3d 120
,
to E & Y's request for a writ of mandamus, we dismiss E &
124â25 (2007); cf. Anderson, 2005 WL 1048700, at *2
Y's direct appeal as moot. See In re D. Wilson Constr. Co.,
& n. 4. Appellees have never argued that they did not
196 S.W.3d at 784 (granting mandamus relief for improperly
knowingly agree to arbitration or that the specific agreement
denying arbitration and dismissing related direct appeal as
to allow the arbitrator to decide the issues of arbitrability and
moot).
enforceability of the contract is unconscionable or otherwise
invalid.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
When an appeal from a denial of a motion
to compel arbitration turns on a legal
268 S.W.3d 51
determination, the appellate court applies a de
Supreme Court of Texas.
novo standard of review.
FOREST OIL CORPORATION and
10 Cases that cite this headnote
Daniel B. Worden, Petitioners,
v.
James Argyle McALLEN, El Rucio Land and Cattle [2] Alternative Dispute Resolution
Company, Inc., San Juanito Land Partnership, Arbitration
and McAllen Trust Partnership, Respondents. favored; public policy
No. 06â0178. | Argued Oct. 16, Federal law and Texas law strongly favor
arbitration. 9 U.S.C.A. § 1 et seq.; V.T.C.A.,
2007. | Decided Aug. 29, 2008.
Civil Practice & Remedies Code § 171.001 et
| Rehearing Denied Nov. 14, 2008.
seq.
Synopsis
3 Cases that cite this headnote
Background: After mediated settlement in which parties
released claims relating to oil and gas royalties and mineral
underdevelopment but specifically excluded from the release [3] Alternative Dispute Resolution
claims for environmental liability and personal injury and
provided for arbitration of such unreleased claims, plaintiffs Validity
brought action asserting environmental and personal injury Arbitration agreements that comport with
claims. After an evidentiary hearing, the 206th District Court, traditional principles of contract law are upheld
Hidalgo County, Rose Guerra Reyna, J., 2005 WL 6036449, by the court.
denied defendants' motion to compel arbitration. Defendants
4 Cases that cite this headnote
brought interlocutory appeal. The Corpus ChristiâEdinburg
Court of Appeals, 2005 WL 3435061, affirmed. Review was
granted. [4] Alternative Dispute Resolution
Validity
of assent
[Holding:] The Supreme Court, Don R. Willett, J.,
While an arbitration agreement procured by
held that waiver-of-reliance provision precluded fraudulent
fraud is unenforceable, the party opposing
inducement claim, with respect to arbitration clause.
arbitration must show that the fraud relates to
the arbitration provision specifically, not to the
Reversed and remanded. broader contract in which it appears.
10 Cases that cite this headnote
Wallace B. Jefferson, C.J., filed a dissenting opinion, in which
Medina, J., joined.
[5] Alternative Dispute Resolution
Discretion
West Headnotes (10) If a trial court finds that the claim falls within the
scope of a valid arbitration agreement, the court
[1] Alternative Dispute Resolution has no discretion but to compel arbitration and
stay its own proceedings.
Scope
and standards of review 25 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
[6] Release 4 Cases that cite this headnote
Fraud
and Misrepresentation [9] Alternative Dispute Resolution
A disclaimer of reliance on representations, in a Disputes
release, negates a fraudulent inducement claim, and Matters Arbitrable Under Agreement
where the parties' intent to waive fraudulent
Generally, after finding an arbitration agreement
inducement claims is clear and specific.
is valid, the court considers the agreement's
30 Cases that cite this headnote terms, to determine which issues are arbitrable.
9 Cases that cite this headnote
[7] Alternative Dispute Resolution
Validity[10] Alternative Dispute Resolution
of assent
Matters
Waiver-of-reliance provision in mediated to Be Determined by Court
settlement agreement, which agreement released
Provision of arbitration agreement, taking away
claims relating to oil and gas royalties
court's traditional role of deciding the scope of
and mineral underdevelopment but specifically
an arbitration agreement once the court finds the
excluded from the release claims for
agreement is valid, and instead placing with the
environmental liability and personal injury and
arbitration panel the role of deciding the scope of
provided for arbitration of such unreleased
issues subject to arbitration, would be enforced,
claims, precluded fraudulent inducement claim
in absence of a challenge of such provision on
with respect to arbitration clause; waiver-
legal or public policy grounds.
of-reliance provision constituted all-embracing
disclaimer of any and all representations 11 Cases that cite this headnote
and thereby clearly and specifically expressed
parties' intent to waive fraudulent inducement
claims with respect to arbitration clause, terms
of settlement agreement, including arbitration
Attorneys and Law Firms
clause, were negotiated rather than boilerplate,
during negotiations the parties specifically *52 Geoffrey L. Harrison, Johnny W. Carter, Richard
discussed arbitration of environmental and Wolf Hess, Susman Godfrey LLP, Houston, TX, Mitchell
personal injury claims, party asserting fraudulent C. Chaney, Aaron Pena Jr., Rodriguez Colvin Chaney
inducement had been represented by counsel, & Saenz, L.L.P., Brownsville, TX, Neil E. Norquest,
parties had dealt with each other in arm's length Rodriguez, Colvin, Chaney & Saenz, L.L.P., Edinburg, TX,
transaction, and parties were knowledgeable in for Petitioners.
business matters.
Jon Christian Amberson, Larissa Janee Hood, Jon Christian
42 Cases that cite this headnote Amberson, P.C., John F. Carroll, San Antonio, TX, Rolando
Cantu, Rolando Cantu & Associates, P.L.L.C., McAllen, TX,
Craig T. Enoch, David Scott Morris, Winstead Sechrest &
[8] Compromise and Settlement
Minick P.C., Austin, TX, for Respondents.
Nature
and Requisites Joseph R. Knight, Baker & Botts, L.L.P., Austin, TX, for
Amicus Curiae.
Settlement agreement are highly favored by the
law.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
Opinion In 2004, McAllen sued Forest Oil to recover for
environmental damage caused when Forest Oil allegedly
Justice WILLETT delivered the opinion of the Court,
âused its access under the leases to the surface estate to bury
in which Justice HECHT, Justice O'NEILL, Justice
highly toxic mercury-contaminatedâ material on the McAllen
WAINWRIGHT, Justice BRISTER, Justice GREEN, and
Ranch. McAllen also alleged environmental and personal
Justice JOHNSON joined.
injuries caused when Forest Oil moved oilfield drilling pipe
This commercial contract case asks whether an unambiguous contaminated with radioactive material from the McAllen
waiver-of-reliance provision precludes a fraudulent- Ranch to a nearby property, the Santillana Ranch, which
inducement claim as a matter of law. Here, sophisticated housed a sanctuary for endangered rhinoceroses. 5
parties represented by counsel in an arm's-length transaction
negotiated a settlement agreement that included clear and Forest Oil sought to compel arbitration under the settlement
broad waiver-of-reliance and release-of-claims language. agreement, but *55 McAllen argued the arbitration
Because that agreement conclusively negates reliance on provision was induced by fraud and thus unenforceable.
representations made by either side, any *53 fraudulent- McAllen recounts assurances during the 1999 settlement
inducement claim, lodged here to avoid an arbitration negotiations that no environmental pollutants or contaminants
provision, is contractually barred. We enforce the parties' existed on the property. McAllen claims an unidentified
contract as written. Thus, we reverse the court of appeals' lawyer for one of the four defendants âassured [McAllen]
judgment and remand to the trial court to compel arbitration that there was no problem, no issue at all that [he] would be
in accordance with our opinion. concerned about,â and McAllen says he signed the agreement
based on that specific representation. McAllen claims that
when this assurance of âno environmental issuesâ was given,
Forest Oil knew all about the radioactive-contaminated pipe
1. Factual and Procedural Background
and the mercury-contaminated material.
In 1999, Forest Oil Corporation settled a long-running lawsuit
over oil and gas royalties and leasehold development with After an evidentiary hearing on Forest Oil's motion to compel
James McAllen and others with interests in the McAllen arbitration, the trial court denied the motion, and the court of
appeals affirmed, applying a no-evidence standard of review
Ranch. 1 The settlement agreement resulted from a week-
because the case was âan interlocutory appeal from an order
long mediation and released Forest Oil from âany and allâ
denying a motion to compel arbitration that involves the
claims âof any type or character known or unknownâ that
are âin any manner relating toâ the McAllen Ranch Leases defense of fraudulent inducement.â 6 After examining the
and the covered lands, whether the claims sound in contract, testimony of McAllen and a former Forest Oil employee,
the court of appeals concluded there was some evidence
tort, trespass or any other theory. 2 While this sweeping
to support the trial court's determination that the arbitration
release resolved the royalty and nondevelopment disputes, the
parties reserved the right to arbitrate under the Texas General provision was induced by fraud. 7
Arbitration Act (TAA) claims âfor environmental liability,
surface damages, personal *54 injury, or wrongful death [1] This interlocutory appeal followed. 8 Although the court
occurring at any time and relating to the McAllen Ranch of appeals treated Forest Oil's argument as an evidentiary
Leases.â The parties also incorporated into the settlement challenge, this case fundamentally poses a legal question, not
agreement a separate surface agreement that detailed ongoing a factual one: does McAllen's disclaimer of reliance on Forest
care and remediation of the surface estate. 3 Oil's representations negate the fraudulent-inducement claim
as a matter of law? We review this legal question de novo. 9
Importantly, the settlement agreement specifically disclaimed
reliance âupon any statement or any representation of any
agent of the partiesâ in executing the releases contained in
2. Enforcement of the Parties' Arbitration
the agreement. 4 The parties also acknowledged they were Agreement Under the Texas General Arbitration Act
âfully advisedâ by legal counsel as to both the contents and
consequences of the release.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
[2] [3] [4] [5] We first address application of the TAA,
which the parties' settlement *56 agreement specifically [E]ach of us [the Swansons] expressly warrants and
represents and does hereby state ... and represent ... that no
invoked. Federal and Texas law strongly favor arbitration, 10
promise or agreement which is not herein expressed has
and we uphold arbitration agreements that comport with
been made to him or her in executing this release, and that
traditional principles of contract law. 11 While an arbitration none of us is relying upon any statement or representation
agreement procured by fraud is unenforceable, 12 the party of any agent of the parties being released hereby. Each
opposing arbitration must show that the fraud relates to the of us is relying on his or her own judgment and each has
arbitration provision specifically, not to the broader contract been represented by Hubert Johnson as legal counsel in this
13
in which it appears. If a trial court finds that the claim falls matter. The aforesaid legal counsel has read and explained
within the scope of a valid arbitration agreement, the âcourt to each of us the entire contents of this Release in Full, as
has no discretion but to compel arbitration and stay its own well as the legal consequences of this Release.... 18
proceedings.â 14 After learning that Schlumberger later sold the interest
to DeBeers for about $4 million, the Swansons sued,
Forest Oil challenges the trial court's refusal to compel claiming Schlumberger had fraudulently induced them to
arbitration on three grounds: (1) the waiver-of-reliance accept the low-price buyout. 19 They maintained that when
provision in the contract precludes as a matter of law Schlumberger entered into the settlement, it knew that the
McAllen's ability to show the reliance element of fraudulent Swansons' interest had a far higher value. 20
inducement; (2) McAllen cannot establish justifiable reliance
on oral representations that directly contradict the terms of a Our decision in Schlumberger assumed that (1) the company
signed contract; and (3) McAllen cannot establish justifiable knew during negotiations that it was misrepresenting the
reliance on statements made by an adversary. Because Forest value of the interest, and (2) the misrepresentations were
Oil's first argument defeats McAllen's claim, we do not reach
made with the intent of inducing the Swansons to settle. 21
the other two.
Despite these assumptions, we held as a matter of law that the
Swansons could not show fraudulent inducement. 22
3. Schlumberger Controls this Relevantly Similar Case: [7] McAllen argues that Schlumberger is not controlling
The Parties' Broad Disclaimer of Reliance is Dispositive because we restricted that holding to the record,
and today's case involves ânotable distinctionsâ and
Forest Oil contends the waiver-of-reliance provision in
âmaterial fact differences.â McAllen's chief argument to
the settlement agreement conclusively defeats McAllen's
distinguish Schlumberger is that Schlumberger âfocuses on
fraudulent inducement claim. We agree.
representations that were made regarding the underlying
agreement's core subject matter.â The dispute in
[6] We considered today's question in Schlumberger
Schlumberger concerned the value of the Swansons' interest
Technology Corp. v. Swanson, holding that a disclaimer
in the sea-diamond project, and the alleged misrepresentation,
of reliance on representations, âwhere the parties' intent is
as described by McAllen, âpertained to the very thing
clear and specific, should be effective to negate a fraudulent
disputed, which was resolved âonce and for allâ in the
inducement claim.â 15 In that caseâdecided eighteen months
settlement.â 23 This case is different, says McAllen, because
before the settlement in the instant case and construing
the litigation that led to the 1999 settlement concerned royalty
virtually identical disclaimer languageâSchlumberger and
underpayments and mineral underdevelopment, issues having
the Swansons agreed to a complete release of claims to settle a
nothing to do with the environmental and personal-injury torts
dispute involving an underwater diamond-mining project off
that sparked the current litigation and were excepted from
the South African coast. 16 The Swansons sold their interests the settlement agreement. That is, while the misrepresentation
in the venture to Schlumberger for roughly $1 million, 17 in Schlumberger âpertained to the very matter negotiated,
and *57 the parties signed a settlement agreement, which settled, and releasedââa factor that McAllen terms âthe
included this waiver-of-reliance provision: primary basisâ for the Court's holdingâthe misrepresentation
here did not concern known disputed matters (which were
settled and released) but potential future disputes (which were
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
set aside and reserved). And the disclaimer applies solely to and remediate past and future contamination. Therefore,
representations about the former, not the latter. Under this the parties expressly negotiated the treatment of surface
banner, McAllen makes three subsidiary arguments. issues; environmental issues were an important aspect of
the contract. Although the settlement agreement does not
First, McAllen stresses that the parties' settlement in preclude all future environmental disputes, it does require
Schlumberger definitively ended their valuation dispute. arbitration of them.
McAllen points out that the settled dispute was the
only dispute, meaning that the agreed-to disclaimer was Second, McAllen contends the settlement language itself
sufficiently specific to bar a *58 later fraudulent- compels a different result from Schlumberger. McAllen
inducement suit alleging one side misled the other about maintains that the disclaimer he signed is limited by its terms
valuation. 24 By contrast, in this case, ending the royalty to representations about the matters released and settled, not
underpayment and mineral underdevelopment dispute was to misrepresentations about matters reserved and excluded
not the sole purpose of the settlement agreement, McAllen from the settlement. Here, the waiver-of-reliance provision
argues, making the disclaimer insufficiently specific to be states: âEach of the [plaintiffs] expressly warrants and
applied to every representation made by Forest Oil. represents and does hereby state and represent that no promise
or agreement which is not herein expressed has been made
McAllen identifies a valid factual distinction, but we fail to him, her, or it in executing the releases contained in this
to see how the disclaimer's preclusive effect should be Agreement....â 27 McAllen claims the isolated *59 phrase
different where, as here, the parties agreed to resolve âin executing the releasesâ limits the waiver's application only
litigated claims and arbitrate future ones. Although we noted to released claims because the phrase refers to âreleasesâ
in Schlumberger that the company's representations about in the plural. Because an arbitration provision is not a
the project's value and feasibility led to âthe very dispute release, he reasons, the parties did not waive reliance with
that the release was supposed to resolve,â 25 this language respect to misrepresentations concerning the matters reserved
is more accurately interpreted as emphatic language, not for arbitration. This argument discounts the second half of
limiting language. Our analysis in Schlumberger rested on the same sentence, which makes clear the parties intended
the paramount principle that Texas courts should uphold an exhaustive waiver unconfined to claims specifically
contracts negotiated at arm's length by âknowledgeable released: ânone of them is relying upon any statement
and sophisticated business playersâ represented by âhighly or any representation of any agent of the parties being
competent and able legal counsel,â a principle that applies released hereby.â 28 Contrary to McAllen's interpretation, a
with equal force to contracts that reserve future claims as to natural and contextual reading, given the repeated and all-
contracts that settle all claims. 26 Essentially, Schlumberger encompassing âanyâ modifier, is not nearly so restrictive. It
holds that when knowledgeable parties expressly discuss rather plainly means the parties, âin executing the releases,â
material issues during contract negotiations but nevertheless were not led astray by any representations whatsoever, even
elect to include waiver-of-reliance and release-of-claims representations about nonreleased claims since those, too,
provisions, the Court will generally uphold the contract. can induce someone to release other claims. The disclaimer's
An all-embracing disclaimer of any and all representations, words do not say what McAllen construes them to say,
as here, shows the parties' clear intent. A âonce and for that there was âno promise or agreement concerning the
allâ settlement may constitute an additional factor urging released claims which is not herein expressedâ; those four
rejection of fraud-based claims, but a freely negotiated italicized words do not exist. Waiving reliance on statements
agreement to settle present disputes and arbitrate future ones made in executing the release provisions encompasses both
should also be enforceable. Moreover, contrary to McAllen's claims released and reserved because even statements about
assertions, the parties' discussions here did in fact address the latter can nudge assent to settle the former. Notably, in
environmental matters. Not only were such matters âvery this case, the release itself (in a section titled âReleasesâ no
importantâ to McAllen during settlement negotiations, as he less) specifically requires arbitration, making clear that at
testified, the parties also negotiated the surface agreement, the time of the agreement, the parties disclaimed reliance
which directly touches on the subject of Forest Oil's alleged with respect to all decisions being made during negotiations,
fraud: environmental contamination on the McAllen Ranch. including the decision to resolve future disputes regarding
The surface agreement, incorporated into the settlement environmental and personal-injury claims via arbitration. It is
agreement, required Forest Oil to remove hazardous material difficult to argue that Forest Oil's alleged fraud in obtaining
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
arbitration bears no relation to the release when the arbitration complaining party was represented by counsel; (3) the parties
requirement appears in the release. It is similarly difficult to dealt with each other in an arm's length transaction; (4) the
square McAllen's argument with this explicit language from parties were knowledgeable in business matters; and (5) the
the settlement agreement, which incorporated the surface release language was clear. These factors were each present
agreement: âdisputes relating to this Agreement ... will be in Schlumberger, and they are each present in this case.
resolved by arbitration.â 29
[8] Refusing to honor a settlement agreementâan
Third, McAllen argues that fraudulent inducement âis agreement highly favored by the law 33 âunder these facts
essentially a meeting-of-the-minds argument,â and there was would invite unfortunate consequences for everyday business
no such meeting here regarding the arbitration agreement transactions and the efficient settlement of disputes. After-
because Forest Oil knew all along of the potential the-fact protests of misrepresentation are easily lodged, and
for environmental claims while simultaneously assuring parties who contractually promise not to rely on extra-
McAllen âthere [were] no issues having to do with the contractual statementsâmore than that, promise that they
surface.â The parties thus had no common understanding have in fact not relied upon such statementsâshould be held
of the facts underlying the contract, according to McAllen. to their word. Parties should not sign contracts while crossing
But the settlement agreement itself belies this argument. their fingers behind their backs. McAllen accuses Forest Oil
The parties agreed that they might disagree and decided to of deceit, but Forest Oil could make the same allegation
arbitrate any environmental or personal-injury disputes that against McAllenâwho by his own admission and in writing
might later arise. If they were certain such disagreements is claiming the opposite now of what he expressly disclaimed
would never arise, there would have been no need to then. It is not asking too much that parties not rely on extra-
reserve future claims for arbitration. The act of specifically contractual statements that they contract not to rely on (or
carving out this discrete category of contamination claims else set forth the relied-upon representations in the contract
shows that McAllen in fact placed little trust in Forest Oil's or except them from the disclaimer). *61 If disclaimers of
assurances that there were âno issues having to do with reliance cannot ensure finality and preclude post-deal claims
the surfaceâ and that both parties recognized the possibility for fraudulent inducement, then freedom of contract, even
that McAllen might pursue future claims. Moreover, there among the most knowledgeable parties advised by the most
is an arbitration provision in the environment-focused knowledgeable legal counsel, is grievously impaired.
surface agreement itself, not only in the broader settlement
agreement. According to the surface agreement, *60 We conclude the arbitration requirement is integral to
â[s]urface issues which arise in connection with the Leasesâ the overall release and the settlement agreement's waiver-
must be arbitrated. McAllen knew environmental disputes of-reliance language applies by its terms to the parties'
might arise and agreed to arbitrate these disputes. commitment to arbitrate. None of McAllen's arguments
materially distinguishes our holding in Schlumberger: âa
It is true that Schlumberger noted a disclaimer of reliance release that clearly expresses the parties' intent to waive
âwill not always bar a fraudulent inducement claim,â 30 fraudulent inducement claims, or one that disclaims reliance
but this statement merely acknowledges that facts may on representations about specific matters in dispute, can
exist where the disclaimer lacks âthe requisite clear and preclude a claim of fraudulent inducement.â 34 Today's
unequivocal expression of intent necessary to disclaim holding should not be construed to mean that a mere
relianceâ on the specific representations at issue. 31 Courts disclaimer standing alone will forgive intentional lies
must always examine the contract itself and the totality of regardless of context. We decline to adopt a per se rule that a
the surrounding circumstances when determining if a waiver- disclaimer automatically precludes a fraudulent-inducement
of-reliance provision is binding. We did so in Schlumberger, claim, but we hold today, as in Schlumberger, that âon
but since courts of appeals seem to disagree over which this record,â the disclaimer of reliance refutes the required
element of reliance.
Schlumberger facts were most relevant, 32 we now clarify
those that guided our reasoning: (1) the terms of the
contract were negotiated, rather than boilerplate, and during
negotiations the parties specifically discussed the issue which 4. Scope of the Arbitration Clause
has become the topic of the subsequent dispute; (2) the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
[9] [10] Having determined that McAllen's fraudulent- a matter of law the element of reliance needed to support
inducement claim cannot defeat the arbitration provision in McAllen's fraudulent-inducement claim. Because Forest Oil
the 1999 settlement agreement, we now turn to whether has demonstrated that a valid arbitration agreement exists,
McAllen's claims fall within the scope of that arbitration an agreement that empowers the arbitrators to determine
provision. 35 Generally, after finding an agreement valid, a what issues are arbitrable, we reverse the court of appeals'
court considers the agreement's terms to determine which judgment and remand this case to the trial court to compel
arbitration in accordance with our opinion.
issues are arbitrable. 36 This arbitration agreement, however,
removes the âscope determinationâ from the court and places
it with the arbitration panel. 37 This provision, shrinking the
court's traditional role and expanding the arbitrators', is not Chief Justice JEFFERSON filed a dissenting opinion, in
which Justice MEDINA joined.
challenged on legal or public policy grounds. 38 Accordingly,
we have no discretion but to direct the trial court to compel Chief Justice JEFFERSON, joined by Justice MEDINA,
39 dissenting.
arbitration and stay McAllen's litigation.
According to the Court, the considerations most relevant to
The remaining question is what should happen to the claims our analysis in Schlumberger Technology Corp. v. Swanson,
brought by the nonsignatory plaintiffs who are not parties 959 S.W.2d 171 (Tex.1997), were:
to the arbitration requirement (or to this appeal). Forest
Oil concedes the trial court cannot order the nonsignatory (1) the terms of the contract were
plaintiffs to arbitration. Section 171.025(a) of the Civil negotiated, rather than boilerplate,
Practice and Remedies Code provides that â[t]he court shall and during negotiations the parties
stay a proceeding that *62 involves an issue subject to specifically discussed the issue which
arbitration if an order for arbitration or an application for has become the topic of the subsequent
that order is made under this subchapter.â Section 171.025(b) dispute; (2) the complaining party was
represented by counsel; (3) the parties
expressly allows for the severance of nonarbitrable issues. 40
dealt with each other in an arm'slength
Because the trial court is better positioned to make that
transaction; (4) the parties were
determination in this instance, we remand the severance issue
knowledgeable in business matters;
to that court.
and (5) the release language was clear.
However, as noted above, McAllen and Forest Oil agreed to 268 S.W.3d 60. My disagreement with the Court centers
arbitrate disputes over what the agreement covers. In terms on the first point. Under the Court's analysis, a party may
of timing, the arbitrators should decide scope before the intentionally misrepresent facts essential to the bargain to
trial court decides severance. It is impractical (and probably induce the other to sign, as long as the agreement says reliance
impossible) for the trial court to decide the severability of is waived. This is not sound policy, and Schlumberger does
the nonsignatories' claims before the arbitration panel has not support this result. I would hold that McAllen's fraudulent
decided the scope of the signatories' claims. Accordingly, the inducement claim survives the disclaimer of reliance at issue
trial court, in order to make an informed severance decision, here. Because the Court does not, I respectfully dissent.
should defer its decision until the arbitrators decide which
issues are arbitrable.
I
5. Conclusion
Schlumberger
McAllen may be correct that â[t]he facts of this case
are not the facts of Schlumberger ââevery case involves In Schlumberger, we noted that we had previously held âas a
unique factsâbut the decisive ones are assuredly close matter of policy, that a merger clause can be avoided based
enough that Schlumberger binds this relevantly similar on fraud in the inducement and that the parol evidence rule
case. The unequivocal disclaimer of reliance in the parties' does not bar proof of such fraud,â and that â[i]n doing so,
bargained-for settlement agreement conclusively negates as we brought *63 the law on the subject âinto harmony with
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
the great weight of authority, with the rule of the Restatement [d]â in Schlumberger âthat a disclaimer of reliance or merger of the Law of Contracts, and with the views of eminent clause will not always bar a fraudulent inducement claim.âId.
textwriters.â â Schlumberger,959 S.W.2d at 179
(quoting We cited Prudential Insurance Co. of America v. Jefferson Dallas Farm Mach. Co. v. Reaves,158 Tex. 1
, 307 S.W.2d Associates, in which we said â[a] buyer is not bound by an 233, 239 (1957)). This remains the general rule in Texas. See agreement to purchase something âas is' that he is induced to Prudential Ins. Co. of Am. v. Jefferson Assocs., 896 S.W.2d make because of a fraudulent representation or concealment 156, 162 (Tex.1995); see also Weitzel v. Barnes, 691 S.W.2d of information by the seller.â Prudential,896 S.W.2d 156, 598, 600
(Tex.1985) (admitting parol evidence to establish 162 (Tex.1995). This would be a strange authority to cite if misrepresentation in DTPA claim); Restatement (Second) of Schlumberger were as sweeping as the Court suggests: it is Contracts, § 214 cmt. c (âWhat appears to be a complete difficult to imagine a party making fraudulent representations and binding integrated agreement may be a forgery, a joke, on a subject that has not been discussed. And while the a sham, or an agreement without consideration, or it may be Court states that âthis statement merely acknowledges that voidable for fraud, duress, mistake, or the like, or it may be facts may exist where the disclaimer lacks âthe requisite clear illegal. Such invalidating causes need not and commonly do and unequivocal expression of intent necessary to disclaim not appear on the face of the writing. They are not affected relianceâ on the specific representations at issue,â it does even by a âmergerâ clause.â) (emphasis added). We then noted so without addressing Prudential, instead quoting an earlier that â[j]uxtaposed to this authority, we have a competing passage *64 from Schlumberger.268 S.W.3d at 55
(quoting concernâthe ability of parties to fully and finally resolve Schlumberger,959 S.W.2d at 179
). disputes between them.â Schlumberger,959 S.W.2d at 179
.
The Court reads Schlumberger as settling these competing In sum, in Schlumberger we balanced parties' need to settle
concerns by precluding a fraudulent inducement claim where disputes against our strong aversion to fraud. The result was a
there is a disclaimer of reliance and the factors listed above narrow exception to the rule that integration clauses do not bar
are present. fraudulent inducement claims. By expanding Schlumberger,
the Court's holding will force courts to honor contracts
But Schlumberger is not so broad. There, we held that, where indisputably induced by fraud on the basis of blanket reliance
the four other factors listed by the Court are present, âa waivers, like the one at issue here. I would not.
release that clearly expresses the parties' intent to waive
fraudulent inducement claims, or one that disclaims reliance
on representations about specific matters in dispute, can
II
preclude a claim of fraudulent inducement.â Id. at 181. The release in Schlumberger did not contain an express waiver of fraudulent inducement claims, but did disclaim reliance on McAllen's Fraudulent Inducement Claim representations about specific matters in dispute.Id. at 180
.
As discussed above, under Schlumberger, to bar a
The release itself noted that â âthere [wa]s considerable doubt,
fraudulent inducement claim, a disclaimer of reliance must
disagreement, dispute and controversy with reference to the
either expressly waive the claim or disclaim reliance
validity of the [claim being settled],â â and the âsole purpose
on representations about the specific disputed matter,
of the release was to end [that] dispute.â Id. The Schlumberger
Schlumberger, 959 S.W.2d at 181; otherwise, the general
Court therefore concluded âthat the parties contemplated, by
rule that integration clauses do not bar fraudulent inducement
the inclusion of [the disclaimer of reliance], that the Swansons
claims applies. The disclaimer in this case does neither. The
would not rely on any representations of Schlumberger about
relevant portion of the disclaimer reads:
the commercial feasibility and value of this project, which,
after all, was the very dispute that the release was supposed Each of the Plaintiffs and Intervenors
to resolve.â Id. expressly warrants and represents and
does hereby state and represent that
That the Schlumberger Court limited its holding to a no promise or agreement which is
release âthat clearly expresses the parties' intent to waive not herein expressed has been made
fraudulent inducement claims, or one that disclaims reliance to him, her, or it in executing the
on representations about specific matters in disputeâ is clear releases contained in this Agreement,
from the rest of the opinion. Id. at 181. Indeed, we âemphasize and that none of them is relying upon
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
any statement or any representation of the Restatement (Second) of Torts section 552. Id. at 795
any agent of the parties being released (concluding âthat there is no reason to exempt lawyers
hereby. from the operation of section 552â). Regardless, there is
evidence that McAllen relied not only on the statements of
This disclaimer makes no explicit reference to fraudulent âan unidentified lawyer for one of the four defendants,â 268
inducement. The question, then, is whether it disclaims S.W.3d at 55, but on representations made by the parties
reliance on representations about a specific disputed matter themselves:
in the agreement. While the disclaimers in this case and
Schlumberger may appear to be âvirtually identical,â 268 Q. (By Mr. Mancias) Yes, sir. Were you told in no uncertain
S.W.3d at 60, the factual differences between this case terms by the oil companies, including Forest Oil Company,
and Schlumberger are critical. In Schlumberger, there that there were no contaminants or pollutants on the surface
was essentially one disputeâspecifically described in the of your property?
agreementâbeing settled, and therefore, â[b]ecause courts
are to assume that the parties intended every contractual A. (By Mr. McAllen) Yes. And all the Forest attorneys were
provision to have some meaning,â the Court was able to there. I believe Forest Doran himself was there.
âpresumeâ that the disclaimer of reliance applied specifically
Q. Who is Forest Doran?
to representations about that sole dispute. Schlumberger,
959 S.W.2d at 180. In the instant case, in contrast, the A. I believe he's the majority stockholder of Forest Oil
settlement agreement covered a number of topics, chiefly Company.
royalty underpayment and mineral underdevelopment. Thus,
unlike Schlumberger, we cannot presume that the disclaimer Q. Can you tell the Judge whether or not Mr. Doran was
of reliance referred specifically to environmental issues, and present when those representations you just testified about
the general rule that fraudulent inducement claims are not were made to you?
barred by integration clauses should apply.
A. That, I can't recall.
Q. All right, sir. But the attorneys were present?
III
A. The attorneysâhis attorneys were present.
Forest Oil's Remaining Issues ***
Forest Oil argues that McAllen could not have justifiably A. But during the process, the owners for Forest and
relied on Forest Oil's representation that there were no Conoco and everybody else who was involved in the lawsuit
existing issues with the surface because that representation assured me that there was no issues [sic] having to do with
was contradicted by the agreement's express terms. Because the surface, and if I wanted to get this settlement agreement
the surface agreement contains no contrary statement behind us, I had to do that. But they were very convincing.
regarding surface conditions, it is not necessary to examine
this claim in detail. (Emphasis added.) McAllen's reliance on these statements
was not, therefore, unjustifiable as a matter of law.
Forest Oil also argues that McAllen could not justifiably
rely on the representation of his litigation adversary during
settlement negotiations. Forest Oil cites McCamish, Martin, IV
Brown & Loeffler v. F.E. Appling Interests, for the
proposition that âa third party's reliance on an attorney's
Conclusion
representation is not justified when the representation takes
place in an adversarial context.â McCamish, 991 S.W.2d Today the Court replaces Schlumberger's requirement that a
787, 794 (Tex.1999). This statement, however, refers not release must âclearly express[ ] the parties' intent to waive
to whether attorneys' *65 statements can provide the fraudulent inducement claims, or ... disclaim[ ] reliance on
grounds for a fraudulent inducement claim, but to individual representations about specific matters in disputeâ in order
attorneys' liability for negligent misrepresentation under to preclude a fraudulent inducement claim, 959 S.W.2d at
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
day be a weapon in the hands of those who profit from it. I
181, with the requirement that the parties merely âspecifically
respectfully dissent.
discussed the issue which has become the topic of the
subsequent disputeâ during negotiations, 268 S.W.3d 60.
Courts, including this one, have long battled the specter of
Parallel Citations
fraud in contracts; I fear that the Court's opinion may one
168 Oil & Gas Rep. 450,51 Tex. Sup. Ct. J. 1309
Footnotes
1 This appeal does not involve every party to the 1999 settlement agreement at issue. The defendants in the litigation that resulted in
that settlement were Forest Oil Corporation, Shell Oil Company, Conoco Incorporated, and Fina Oil & Chemical Company, along
with divisions of these entities. The plaintiffs included various business entities, individuals, and individual trusts. These parties
settled their dispute in June 1999.
Five years later, James McAllen and several others filed suit against Forest Oil, its employee (Daniel B. Worden), and
ConocoPhillips Corporation. ConocoPhillips was nonsuited, so only Forest Oil and Worden are petitioners here. They are referred
to collectively as âForest Oil.â Four plaintiffs to the pending litigationâJames McAllen, El Rucio Land & Cattle Company, San
Juanito Land Partnership, and McAllen Trust Partnershipâare respondents to this appeal and referred to collectively as âMcAllen,â
unless otherwise noted. These four plaintiffs admit they are bound by the 1999 settlement agreement either as signatories or
successors in interest thereto. Several other plaintiffs are not parties to this appeal, and Forest Oil concedes the trial court lacked
authority to require these other plaintiffs to arbitrate the current dispute.
2 The release language reads:
[The plaintiffs] generally and unconditionally RELEASE, DISCHARGE, and ACQUIT [the defendants] of and from any and all
claims and causes of action of any type or character known or unknown, which they presently have or could assert, including but
not limited to all claims and causes of action (i) in any manner relating to, arising out of or connected with the McAllen Ranch
Leases, or any of them, (ii) in any manner relating to, arising out of or connected with the Lands covered by the McAllen Ranch
Leases, or any of them, (iii) in any manner relating to, arising out of or connected with any implied covenants pertaining to the
McAllen Ranch Leases, or any of them, including (without limitation) implied covenants or obligations with respect to drainage,
development, unitization, marketing or the administration of the McAllen Ranch Leases ... (vi) all claims and causes of action
that the [plaintiffs] asserted or could have asserted in the Lawsuit including (without limitation) matters arising or sounding in
contract, in tort (including intentional torts, fraud, conspiracy, and negligence), in trespass, for forfeiture, or under any other
theory or doctrine, including any claim for attorneys fees, costs, and sanctions; and the [plaintiffs] hereby declare that all such
claims and causes of action have been fully compromised, satisfied, paid and discharged; except that the [plaintiffs] reserve and
except from this release only (a) their rights to receive the consideration (monetary and otherwise) provided in this Agreement,
(b) their rights to accrued but unpaid royalties ..., (c) any rights and claims arising under the McAllen Ranch Leases ... after the
Effective Date of this Agreement, (d) any rights or claims they may have, if any, for environmental liability, surface damages,
personal injury, or wrongful death occurring at any time and relating to the McAllen Ranch Leases, (e) the funds held [pursuant
to this Agreement], and (f) any intentional act done in contravention of this Agreement or the McAllen Ranch Leases between
the date of execution hereof and the Effective Date. Any disputes over any of the above items excepted and reserved from this
release shall be resolved in arbitration pursuant to [this Agreement].
3 The surface agreement required that oil companies remove nonnatural materials from the sites of abandoned wells and ânot store
or dispose of any hazardous materials on the surface of the Leases.â In addition, the surface agreement states plainly that surface
issues shall be addressed by arbitration: âSurface issues which arise in connection with the Leases shall be subject to that certain
Arbitration Agreement set forth and described in the Settlement Agreement. The specific issues addressed below shall become part
of the Settlement Agreement and shall be enforceable in accordance with the terms of such Agreement.â
4 The waiver-of-reliance provision reads:
[1] Each party acknowledges and confirms that each has had the opportunity to consult with counsel and has been fully advised
by counsel prior to the execution of this Agreement.
[2] Each of the Plaintiffs and Intervenors expressly warrants and represents and does hereby state and represent that no promise
or agreement which is not herein expressed has been made to him, her, or it in executing the releases contained in this Agreement,
and that none of them is relying upon any statement or any representation of any agent of the parties being released hereby. Each
of the Plaintiffs and Intervenors is relying on his, her, or its own judgment and each has been represented by his, her, or its own
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
legal counsel in this matter. The legal counsel for Plaintiffs have read and explained to each of the Plaintiffs the entire contents
of the releases contained in this Agreement as well as the legal consequences of the releases....
[3] Defendants expressly represent and warrant and do hereby state and represent that no promise or agreement which is not
herein expressed has been made to them in executing the releases contained in this Agreement, and that they are not relying
upon any statement or representation of any of the parties being released hereby. Defendants, and each of them are relying upon
its own judgment and each has been represented by its own legal counsel in this matter. The legal counsel for Defendants have
read and explained to them the entire contents of the releases contained in this Agreement as well as the legal consequences
of the releases.
5 The plaintiffs filed a joint petition asserting negligence, gross negligence, trespass, nuisance, strict liability, negligence per se,
misrepresentation, fraud, fraudulent concealment, and intentional battery. The facts giving rise to these causes of action took place
on two properties: the Santillana Ranch and the McAllen Ranch. We will refer to the claims arising on the McAllen Ranch as the
âMcAllen Ranch claimsâ and claims arising on the Santillana Ranch as the âSantillana Ranch claims.â
Forest Oil produces oil on the McAllen Ranch pursuant to the McAllen Ranch Leases; this relationship was the basis of the
original 1999 litigation that produced the now-disputed settlement agreement. The Santillana Ranch is owned by John R. Willis
Management Partnership; this entity is one of the plaintiffs to the underlying suit that are not parties to this appeal. See supra note 1.
The Third Amended Petition claims Forest Oil buried radioactive material on the McAllen Ranch, resulting in groundwater and soil
contamination. The petition does not assert personal injuries related to the McAllen Ranch. McAllen tried to establish a rhinoceros
sanctuary on the Santillana Ranch and asked Forest Oil, which has no lease on that ranch, to donate oilfield pipe to be used as pen
enclosures. Forest Oil took pipe from the McAllen Ranch to the Santillana Ranch, where McAllen and his employees worked on
the rhinoceros pens. McAllen claims this pipe was radioactive and has produced both environmental and personal injuries.
Forest Oil claims that because the pipe giving rise to the Santillana Ranch claims came from the McAllen Ranch, the Santillana
Ranch claims also fall within the settlement agreement's arbitration clause, which requires arbitration of claims âarising out of or
relating to the McAllen Ranch Leases.â We do not reach this issue.
6 268 S.W.3d 63.
7 Id. at 64.
8 We have jurisdiction to hear an appeal from an interlocutory order denying arbitration if the court of appeals' decision conflicts
with our precedent. See TEX. GOV'T CODE §§ 22.001(a)(2), 22.225(c); TEX. CIV. PRAC. & REM.CODE § 171.098; Certain
Underwriters at Lloyd's of London v. Celebrity, Inc., 988 S.W.2d 731, 733 (Tex.1998). As explained below, the court of appeals'
decision conflicts with Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex.1997).
9 When an appeal from a denial of a motion to compel arbitration turns on a legal determinationâhere, the preclusive effect of the
contract's disclaimerâwe apply a de novo standard. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003) (âThe trial
court's determination of the arbitration agreement's validity is a legal question subject to de novo review.â); see also In re D. Wilson
Constr. Co., 196 S.W.3d 774, 781(Tex.2006). 10 Prudential Sec. Inc. v. Marshall,909 S.W.2d 896, 898
(Tex.1995); see also In re FirstMerit Bank, N.A.,52 S.W.3d 749, 753
(Tex.2001). Whether a case is governed by the Federal Arbitration Act (FAA) or the TAA, many of the underlying substantive
principles are the same; where appropriate, this opinion relies interchangeably on cases that discuss the FAA and TAA.
11 In re D. Wilson Constr. Co., 196 S.W.3d at 781; Webster, 128 S.W.3d at 227.
12 TEX. CIV. PRAC. & REM.CODE § 171.001(b) (âA party may revoke the agreement only on a ground that exists at law or in equity
for the revocation of a contract.â); see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687,116 S.Ct. 1652
,134 L.Ed.2d 902
(1996); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738(Tex.2005). 13 See Prima Paint Corp. v. Flood & Conklin Mfg. Co.,388 U.S. 395
, 403â04,87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967). If a fraudulent-
inducement claim attacks the broader contract, then the arbitrator, not a court, considers the matter. See In re FirstMerit Bank, N.A.,
52 S.W.3d at 758. In this case, we assume that the alleged fraud went to the arbitration agreement itself since Forest Oil does not
argue otherwise. See TEX.R.APP. P. 53.2(f); Ramos v. Richardson, 228 S.W.3d 671, 673(Tex.2007). 14 In re FirstMerit Bank, N.A., 52 S.W.3d at 753â54; see also TEX. CIV. PRAC. & REM.CODE § 171.021. 15959 S.W.2d 171, 179
(Tex.1997).
16 Id. at 174.
17 Id.
18 Id. at 180. The disclaimer in today's case is virtually the same. See supra note 4.
19 Id. at 174.
20 Id.
21 Id. at 178.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
Forest Oil Corp. v. McAllen, 268 S.W.3d 51(2008)168 Oil & Gas Rep. 450
,51 Tex. Sup. Ct. J. 1309
22Id. at 181
. 23Id.
at 179â81. 24Id. at 180
(âThe sole purpose of the release was to end the dispute about the value of this commercial project between Schlumberger
and the Swansons once and for all.â).
25 Id.The reasoning of the case applies broadly to contracts generally, and we see no reason to accept McAllen's restrictive interpretation. 26Id.
27 See supra note 4.
28 Id.
29 See also supra note 3 (âSurface issues which arise in connection with the Leases shall be subject to that certain Arbitration Agreement
set forth and described in the Settlement Agreement.â).
30 959 S.W.2d at 181. 31Id. at 179
. 32 See, e.g., Warehouse Assocs. Corporate Ctr. II, Inc. v. Celotex Corp.,192 S.W.3d 225
, 230â34 (Tex.App.âHouston [14th Dist.]
2006, pet. filed) (limiting Schlumberger to cases in which the parties resolve a long-running dispute that is also the topic of the
alleged fraudulent representation); Coastal Bank SSB v. Chase Bank of Texas, N.A., 135 S.W.3d 840, 844 (Tex.App.âHouston [1st
Dist.] 2004, no pet.) (considering the broad language of the waiver-of-reliance provision to be the controlling factor); IKON Office
Solutions, Inc. v. Eifert, 125 S.W.3d 113, 124â28 (Tex.App.âHouston [14th Dist.] 2003, pet. denied) (applying Schlumberger in a
factual situation that did not involve a settlement agreement or a contract that terminated the parties' relationship); John v. Marshall
Health Servs., Inc., 91 S.W.3d 446, 450 (Tex.App.âTexarkana 2002, pet. denied) (refusing to apply Schlumberger because â[h]ere,
the contract was the beginning, not the end, of the relationship betweenâ the parties).
33 See Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex.1995) (âSettlements are favored because they avoid the uncertainties
regarding the outcome of litigation, and the often exorbitant amounts of time and money to prosecute or defend claims at trial.â);
Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 855 (Tex.1980) (Campbell, J., concurring) (âSettlement agreements are highly
favored in the law because they are a means of amicably resolving doubts and preventing lawsuits.â).
34 959 S.W.2d at 181.
35 The TAA allows personal-injury claims to be arbitrated when each party, on advice of counsel, has agreed to do so in a writing signed
by the parties and their attorneys. TEX. CIV. PRAC. & REM.CODE § 171.002(c). All parties to this appealâor their predecessors
in interestâand their attorneys signed the settlement agreement, which contains the arbitration agreement, so there is no statutory
prohibition to arbitrating these claims.
36 In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex.2001).
37 The arbitration provision reads: âAll disputes arising out of or relating to the McAllen Ranch Leases, including, without in any way
limiting the foregoing, disputes relating to this Agreement or disputes over the scope of this arbitration clause, will be resolved by
arbitration in Houston, Texas, using three neutral arbitrators.â While this provision clearly encompasses the McAllen Ranch claims,
it is not clear that it includes the Santillana Ranch claims.
38 In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129â30 (Tex.2004) (âAs a rule, parties have the right to contract as they see fit
as long as their agreement does not violate the law or public policy.â); see also Fairfield Ins. Co. v. Stephens Martin Paving, LP,
246 S.W.3d 653, 663â64 (Tex.2008). 39 TEX. CIV. PRAC. & REM.CODE § 171.021; In re Oakwood Mobile Homes, Inc.,987 S.W.2d 571, 573
(Tex.1999).
40 TEX. CIV. PRAC. & REM.CODE § 171.025(b) (âThe stay applies only to the issue subject to arbitration if that issue is severable
from the remainder of the proceeding.â).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
Decisions
121 S.Ct. 513 reviewable; finality
Supreme Court of the United States
District court order compelling arbitration and
GREEN TREE FINANCIAL CORP.âALABAMA dismissing a party's underlying claims is a
âfinal decision with respect to an arbitrationâ
and Green Tree Financial Corporation, Petitioners,
within meaning of Federal Arbitration Act
v.
(FAA) provision governing appellate review
Larketta RANDOLPH.
of arbitration orders, and thus is immediately
No. 99â1235. | Argued Oct. 3, appealable. 9 U.S.C.A. § 16(a)(3).
2000. | Decided Dec. 11, 2000. 252 Cases that cite this headnote
Purchaser of mobile home brought purported class action
against lender which had financed purchase, asserting claims [2] Alternative Dispute Resolution
under Truth in Lending Act (TILA) and Equal Credit
Opportunity Act (ECOA). The United States District Court Decisions
for the Middle District of Alabama, No. CV-96-D-11-N, Ira reviewable; finality
De Ment, J., 991 F.Supp. 1410, granted motion to compel Federal Arbitration Act (FAA) provision arbitration and dismissed purchaser's claims with prejudice. governing appeal from district court's arbitration Purchaser appealed. The Court of Appeals for the Eleventh order preserves immediate appeal of any Circuit, Carnes, Circuit Judge,178 F.3d 1149
, reversed âfinal decision with respect to an arbitration,â and remanded. Certiorari was granted. The Supreme Court, regardless of whether the decision is favorable or Chief Justice Rehnquist, held that: (1) order compelling hostile to arbitration.9 U.S.C.A. § 16
(a)(3). arbitration and dismissing a party's underlying claims is a âfinal decision with respect to an arbitrationâ within meaning 66 Cases that cite this headnote of Federal Arbitration Act (FAA), and thus is immediately appealable; abrogating - Seacoast Motors of Salisbury, Inc. [3] Federal Courts v. Chrysler Corp.,143 F.3d 626
(C.A.1 1998); Altman Nursing, Inc. v. Clay Capital Corp.,84 F.3d 769
(C.A.5 What 1996); Napleton v. General Motors Corp.,138 F.3d 1209
constitutes finality in general (C.A.7 1998); Gammaro v. Thorp Consumer Discount Co., âFinal decisionâ is a decision that ends the15 F.3d 93
(C.A.8 1994); McCarthy v. Providential Corp., litigation on the merits and leaves nothing more122 F.3d 1242
(C.A.9 1997), and (2) arbitration agreement for the court to do but execute the judgment.
that does not mention arbitration costs and fees is not per se
unenforceable on theory that it fails to affirmatively protect a 51 Cases that cite this headnote
party from potentially steep arbitration costs.
[4] Alternative Dispute Resolution
Affirmed in part and reversed in part.
Decisions
Justice Ginsburg filed opinion concurring in part and reviewable; finality
dissenting in part, in which Justices Stevens and Souter Because Federal Arbitration Act (FAA) does not
joined, and in which Justice Breyer joined in part. define phrase âa final decision with respect to an
arbitration,â as used in FAA provision governing
appeal from district court's arbitration order, nor
does FAA otherwise suggest that the ordinary
West Headnotes (12)
meaning of âfinal decisionâ should not apply,
court should accord the term its well-established
[1] Alternative Dispute Resolution meaning. 9 U.S.C.A. § 16(a)(3).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
prohibitive costs in arbitration; mere âriskâ that
95 Cases that cite this headnote plaintiff would be saddled with prohibitive costs
was too speculative to justify invalidation of
[5] Alternative Dispute Resolution arbitration agreement. 9 U.S.C.A. § 2; Truth in
Lending Act, § 102 et seq., 15 U.S.C.A. § 1601
Decisions et seq.
reviewable; finality
For purposes of Federal Arbitration Act (FAA) 657 Cases that cite this headnote
appeal provisions, phrase âfinal decisionâ
includes an order compelling arbitration and [8] Alternative Dispute Resolution
dismissing the other claims in the action even
when that order occurs in an âembeddedâ Validity
proceeding involving both a request for In considering whether particular agreement
arbitration and other claims for relief; abrogating to arbitrate is unenforceable, court is mindful
- Seacoast Motors of Salisbury, Inc. v. Chrysler of Federal Arbitration Act's (FAA) purpose to
Corp., 143 F.3d 626 (C.A.1 1998); Altman reverse the longstanding judicial hostility to
Nursing, Inc. v. Clay Capital Corp., 84 F.3d arbitration agreements and to place arbitration
769 (C.A.5 1996); Napleton v. General Motors agreements upon the same footing as other
Corp., 138 F.3d 1209(C.A.7 1998); Gammaro contracts.9 U.S.C.A. § 2
.
v. Thorp Consumer Discount Co., 15 F.3d 93
(C.A.8 1994); McCarthy v. Providential Corp., 313 Cases that cite this headnote
122 F.3d 1242(C.A.9 1997).9 U.S.C.A. § 16
(a)
(3). [9] Alternative Dispute Resolution
58 Cases that cite this headnote Statutory
rights and obligations
[6] Alternative Dispute Resolution Even claims arising under a statute designed
to further important social policies may be
Review arbitrated because, so long as the prospective
âEmbedded proceedingsâ are those actions litigant effectively may vindicate his or her
involving both a request for arbitration and statutory cause of action in the arbitral forum, the
other claims for relief, while âindependent statute serves its functions. 9 U.S.C.A. § 2.
proceedingsâ are actions in which a request to
order arbitration is the sole issue before the court. 203 Cases that cite this headnote
9 U.S.C.A. § 1 et seq.
[10] Alternative Dispute Resolution
17 Cases that cite this headnote
Statutory
[7] Alternative Dispute Resolution rights and obligations
In determining whether statutory claims may be
Validity arbitrated, court first asks whether the parties
Arbitration agreement that did not mention agreed to submit their claims to arbitration,
arbitration costs and fees was not unenforceable and then asks whether Congress has evinced
on theory that such an agreement failed to an intention to preclude a waiver of judicial
provide Truth in Lending Act (TILA) plaintiff remedies for the statutory rights at issue. 9
with protection from potentially steep costs of U.S.C.A. § 2.
pursuing her federal statutory claims in the
arbitral forum, where plaintiff presented no 102 Cases that cite this headnote
evidence as to likelihood that she would incur
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
(3) of the Federal Arbitration Act (FAA), which **516
[11] Alternative Dispute Resolution allows appeals from âa final decision with respect to an
arbitration that is subject to this title.â The court determined
Evidence
that a final, appealable order within this provision is one that
Where party seeks to invalidate an arbitration
disposes of all the issues framed by the litigation, leaving
agreement on the ground that arbitration would
nothing to be done but execute the order, and found the
be prohibitively expensive, that party bears the
District Court's order within that definition. Determining also
burden of showing the likelihood of incurring
that the arbitration agreement failed to provide the minimum
such costs. 9 U.S.C.A. § 2.
guarantees that Randolph could vindicate her statutory rights
656 Cases that cite this headnote under the TILA, the court observed that the agreement was
silent with respect to payment of arbitration expenses, and
therefore held the agreement unenforceable because it posed
[12] Federal Courts a risk that Randolph's ability to vindicate her statutory rights
would be undone by âsteepâ arbitration costs.
Scope
and Extent of Review
Held:
Supreme Court would not reach respondent's
argument that Court of Appeals' conclusion 1. Where, as here, the District Court has ordered the parties
as to unenforceability of arbitration agreement to proceed to arbitration, and dismissed all the claims before
could be affirmed on alternative ground that the it, the decision is âfinalâ under § 16(a)(3), and therefore
agreement precluded respondent from bringing appealable. The term âfinal decisionâ has a well-developed
her claims under Truth in Lending Act (TILA) and longstanding meaning: It is a decision that ends the
as a class action, where Court of Appeals did not litigation on the merits and leaves nothing more for the court
pass on that question. 9 U.S.C.A. § 2; Truth in to do but execute the judgment. E.g., Digital Equipment Corp.
Lending Act, § 102 et seq., 15 U.S.C.A. § 1601v. Desktop Direct, Inc.,511 U.S. 863, 867
,114 S.Ct. 1992
,
et seq. 128 L.Ed.2d 842. Because the FAA does not *80 define
âa final decision with respect to an arbitrationâ or otherwise
15 Cases that cite this headnote
suggest that the ordinary meaning of âfinal decisionâ should
not apply, this Court accords the term its well-established
meaning. See Evans v. United States, 504 U.S. 255, 259â260,
112 S.Ct. 1881,119 L.Ed.2d 57
. The District Court's order
plainly falls within that meaning because it disposed of the
**515 Syllabus *
entire case on the merits and left no part of it pending before
Respondent Randolph's mobile home financing agreement the court. The fact that the FAA permits parties to arbitration
with petitioners, financial institutions, required that Randolph agreements to bring a separate proceeding to enter judgment
buy insurance protecting petitioners from the costs of her on an arbitration award once it is made (or to vacate or modify
default and also provided that all disputes under the contract it) does not vitiate the finality of the District Court's resolution
would be resolved by binding arbitration. Randolph later sued of the claims below. Moreover, this Court disagrees with
petitioners, alleging that they violated the Truth in Lending petitioners' contention that the phrase âfinal decisionâ does
Act (TILA) by failing to disclose the insurance requirement not include an order compelling arbitration and dismissing
as a finance charge and that they violated the Equal Credit the other claims in the action when that order occurs in an
Opportunity Act by requiring her to arbitrate her statutory âembeddedâ proceeding, such as this one, involving both an
causes of action. Among its rulings, the District Court arbitration request and other claims for relief, as distinguished
granted petitioners' motion to compel arbitration, dismissed from an âindependentâ proceeding in which a request to
Randolph's claims with prejudice, and denied her request for order arbitration is the sole issue before the court. It does not
reconsideration, which asserted that she lacked the resources appear that, at the time of § 16(a)(3)' s enactment, Court of
to arbitrate, and as a result, would have to forgo her claims Appeals decisions attaching significance to this independent/
against petitioners. The Eleventh Circuit held that it had embedded distinction, and its consequences for finality, were
jurisdiction to review the District Court's order under § 16(a) so firmly established that this Court should assume Congress
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
... meant to incorporate them into § 16(a)(3). Certainly the discuss how detailed such a showing would have to be, for statute's plain language does not suggest such an intent. Pp. in this case, there was no timely showing at all on the point. 519â521. Pp. 521â523. 2. Randolph's agreement to arbitrate is not rendered178 F.3d 1149
, affirmed in part and reversed in part. unenforceable simply because it says nothing about arbitration costs, and thus fails to provide her protection REHNQUIST, C. J., delivered the opinion of the Court, Part from potentially substantial costs of pursuing her federal II of which was unanimous and Parts I and III of which statutory claims in the arbitral forum. In light of the were joined by O'CONNOR, SCALIA, KENNEDY, and FAA's purpose to reverse longstanding judicial hostility to THOMAS, JJ. GINSBURG, J., filed an opinion concurring arbitration agreements and to place them on the same footing in part and dissenting in part, in which STEVENS and as other contracts, Gilmer v. Interstate/Johnson Lane Corp., SOUTER, JJ., joined, and in which BREYER, J., joined as to500 U.S. 20, 24
,111 S.Ct. 1647
,114 L.Ed.2d 26
, this Parts I and III, post, p. 523. Court has recognized that federal statutory claims can be appropriately resolved through arbitration and has enforced agreements involving such claims, see, e.g., Rodriguez de Attorneys and Law Firms Quijas v. Shearson/American Express, Inc.,490 U.S. 477
,
Carter G. Phillips, Washington, DC, Robert A. Huffaker,
109 S.Ct. 1917,104 L.Ed.2d 526
. In determining whether
William H. Webster, Rushton, Stakely, Johnston & Garrett,
such claims may be arbitrated, the Court asks whether the
P.A., Montgomery, AL, Carter G. Phillips, Paul J. Zidlicky,
parties agreed to submit the claims to arbitration and whether
Michael L. Post, Laurel E. Shanks, Sidley & Austin,
Congress has evinced an intention to preclude a waiver of
Washington, D.C., for petitioners.
judicial remedies for the statutory rights at issue. See, e.g.,
Gilmer, supra, at 26,111 S.Ct. 1647
. Here, it is undisputed Joseph M. Sellers, Washington, DC, C. Knox McLaney, III,
**517 that the parties agreed to arbitrate all claims relating McLaney & Associates, P.C., Montgomery, AL, Lynn W.
to their contract, including claims involving statutory rights, Jinks, III, Jinks, Daniel & Crow, L.L.C., Union Springs, AL,
and Randolph does not contend that the TILA evinces an Joseph M. Sellers, Suzette M. Malveaux, Deborah J. Vagins,
intention to preclude a waiver of judicial remedies. She Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Washington,
contends instead that the arbitration agreement's silence with DC, Angela L. Kimbrough, Ford & Kimbrough, Eutaw, AL,
respect to costs creates a âriskâ that she will be required to for respondent.
bear prohibitive arbitration *81 costs and thereby be unable
to vindicate her statutory rights in arbitration. Although Opinion
the existence of large arbitration costs may well preclude
*82 Chief Justice REHNQUIST delivered the opinion of the
a litigant like Randolph from effectively vindicating such
Court.
rights, the record does not show that Randolph will bear such
costs if she goes to arbitration. Indeed, it contains hardly In this case we first address whether an order compelling
any information on the matter, revealing only the agreement's arbitration and dismissing a party's underlying claims is
silence on the subject. That fact alone is plainly insufficient a âfinal decision with respect to an arbitrationâ within
to render it unenforceable. To invalidate the agreement would the meaning of § 16(a)(3) of the Federal Arbitration Act,
undermine the liberal federal policy favoring arbitration 9 U.S.C. § 16(a)(3), and thus is immediately appealable agreements, Moses H. Cone Memorial Hospital v. Mercury pursuant to that Act. Because we decide that question in Constr. Corp.,460 U.S. 1, 24
,103 S.Ct. 927
,74 L.Ed.2d 765
, the affirmative, we also address the question whether an and would conflict with this Court's holdings that the party arbitration agreement that does not mention arbitration costs resisting arbitration bears the burden of proving that Congress and fees is unenforceable because it fails to affirmatively intended to preclude arbitration of the statutory claims at protect a party from potentially steep arbitration costs. We issue, see, e.g.,Gilmer, supra, at 26
,111 S.Ct. 1647
. Thus, conclude that an arbitration agreement's silence with respect
a party seeking to invalidate an arbitration agreement on to such matters does not render the agreement unenforceable.
the ground that arbitration would be prohibitively expensive
bears the burden of showing the likelihood of incurring such
costs. Randolph did not meet that burden. The Court need not
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
The Court of Appeals found the District Court's order within
that definition.
I
Respondent Larketta Randolph purchased a mobile home The court then determined that the arbitration agreement
from Better Cents Home Builders, Inc., in Opelika, failed to provide the minimum guarantees that respondent
Alabama. She financed this purchase through petitioners could vindicate her statutory rights under the TILA. Critical
Green Tree Financial Corporation and its wholly owned to this determination was the court's observation that the
subsidiary, Green Tree Financial Corp.-Alabama. Petitioners' arbitration agreement was silent with respect to payment of
Manufactured Home Retail Installment Contract and Security filing fees, arbitrators' costs, and other arbitration expenses.
Agreement required that Randolph buy Vendor's Single On that basis, the court held that the agreement to arbitrate
Interest insurance, which protects the vendor or **518 posed a risk that respondent's ability to vindicate her statutory
lienholder against the costs of repossession in the event of rights would be undone by âsteepâ arbitration costs, and
default. The agreement also provided that all disputes arising therefore was unenforceable. We granted certiorari, 529 U.S.
from, *83 or relating to, the contract, whether arising under 1052, 120 S.Ct. 1552,146 L.Ed.2d 458
(2000), and we now
case law or statutory law, would be resolved by binding affirm the Court of Appeals with respect **519 to the first
conclusion, and reverse it with respect to the second.
arbitration. 1
Randolph later sued petitioners, alleging that they violated
the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et II
seq., by failing to disclose as a finance charge the Vendor's
Single Interest insurance requirement. She later amended [1] Section 16 of the Federal Arbitration Act, enacted in
her complaint to add a claim that petitioners violated the 1988, governs appellate review of arbitration orders. 9 U.S.C.
Equal Credit Opportunity Act, 15 U.S.C. §§ 1691â1691f, § 16. It provides:
by requiring her to arbitrate her statutory causes of action.
*85 â(a) An appeal may be taken fromâ
She brought this action on behalf of a similarly situated
class. In lieu of an answer, petitioners filed a motion to â(1) an orderâ
compel arbitration, to stay the action, or, in the alternative,
to dismiss. The District Court granted petitioners' motion to â(A) refusing a stay of any action under section 3 of this
compel arbitration, denied the motion to stay, and dismissed title,
Randolph's claims with prejudice. The District Court also
denied her request to certify a class. 991 F.Supp. 1410 â(B) denying a petition under section 4 of this title to order
(M.D.Ala.1997). She requested reconsideration, asserting arbitration to proceed,
that *84 she lacked the resources to arbitrate, and as a
â(C) denying an application under section 206 of this title
result, would have to forgo her claims against petitioners. See
to compel arbitration,
Plaintiff's Motion for Reconsideration, Record Doc. No. 53,
p. 9. The District Court denied reconsideration. 991 F.Supp., â(D) confirming or denying confirmation of an award or
at 1425â1426. Randolph appealed. partial award, or
The Court of Appeals for the Eleventh Circuit first held that â(E) modifying, correcting, or vacating an award;
it had jurisdiction to review the District Court's order because
â(2) an interlocutory order granting, continuing, or
that order was a final decision. 178 F.3d 1149 (1999). The
modifying an injunction against an arbitration that is
Court of Appeals looked to § 16 of the Federal Arbitration
subject to this title; or
Act (FAA), 9 U.S.C. § 16, which governs appeal from a
district court's arbitration order, and specifically § 16(a)(3), â(3) a final decision with respect to an arbitration that is
which allows appeal from âa final decision with respect to an subject to this title.
arbitration that is subject to this title.â The court determined
that a final, appealable order within the meaning of the â(b) Except as otherwise provided in section 1292(b) of
FAA is one that disposes of all the issues framed by the title 28, an appeal may not be taken from an interlocutory
litigation, leaving nothing to be done but execute the order. orderâ
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
The District Court's order directed that the dispute be
â(1) granting a stay of any action under section 3 of this resolved by arbitration and dismissed respondent's claims
title; with prejudice, leaving the court nothing to do but **520
execute the judgment. That order plainly disposed of the
â(2) directing arbitration to proceed under section 4 of this
entire case on the merits and left no part of it pending
title;
before the court. The FAA does permit parties to arbitration
â(3) compelling arbitration under section 206 of this title; agreements to bring a separate proceeding in a district court
or to enter judgment on an arbitration award once it is made
(or to vacate or modify it), but the existence of that remedy
â(4) refusing to enjoin an arbitration that is subject to this does not vitiate the finality of the District Court's resolution
title.â of the claims in the instant proceeding. 9 U.S.C. §§ 9, 10,
11. The District Court's order was therefore âa final decision
The District Court's order directed that arbitration proceed with respect to an arbitrationâ within the meaning of § 16(a)
and dismissed respondent's claims for relief. The question (3), and *87 an appeal may be taken. 2 See Sears, Roebuck
before us, then, is whether that order can be appealed as & Co. v. Mackey, 351 U.S. 427, 431,76 S.Ct. 895
, 100 âa final decision with respect to an arbitrationâ within the L.Ed. 1297 (1956) (explaining that had the District Court meaning of § 16(a)(3). Petitioners urge us to hold that it dismissed all the claims in an action, its decision would be cannot. They rely, in part, on the FAA's policy favoring final and appealable); Catlin, supra, at 236,65 S.Ct. 631
arbitration agreements and its goal of âmov[ing] the parties (noting that had petitioners' motion to dismiss been granted to an arbitrable dispute out of court and into arbitration as and a judgment of dismissal entered, âclearly there would quickly and easily as possible.â Moses H. Cone Memorial have been an end of the litigation and appeal would lie ...â). *86 Hospital v. Mercury Constr. Corp.,460 U.S. 1, 22
,103 S.Ct. 927
,74 L.Ed.2d 765
(1983);id., at 24
, 103 S.Ct. [5] [6] Petitioners contend that the phrase âfinal decisionâ
927. In accordance with that purpose, petitioners point out, does not include an order compelling arbitration and
§ 16 generally permits immediate appeal of orders hostile to dismissing the other claims in the action, when that order
arbitration, whether the orders are final or interlocutory, butoccurs in an âembeddedâ proceeding, such as this one. Brief
bars appeal of interlocutory orders favorable to arbitration. for Petitioners 26. âEmbeddedâ proceedings are simply those
actions involving both a request for arbitration and other
[2] [3] [4] Section 16(a)(3), however, preserves claims for relief. âIndependentâ proceedings, by contrast, are
immediate appeal of any âfinal decision with respect to an actions in which a request to order arbitration is the sole
arbitration,â regardless of whether the decision is favorable issue before the court. Those Courts of Appeals attaching
or hostile to arbitration. And as petitioners and respondent significance to this distinction hold that an order compelling
agree, the term âfinal decisionâ has a well-developed and arbitration in an âindependentâ proceeding is final within
longstanding meaning. It is a decision that â âends the the meaning of § 16(a)(3), but that such an order in an
litigation on the merits and leaves nothing more for the court âembeddedâ proceeding is not, even if the district court
to do but execute the judgment.â â Digital Equipment Corp.
dismisses the remaining claims. 3 Petitioners contend that
v. Desktop Direct, Inc., 511 U.S. 863, 867,114 S.Ct. 1992
,
the distinction *88 between independent and embedded
128 L.Ed.2d 842 (1994), and Coopers & Lybrand v. Livesay,
proceedings and its consequences for finality were so firmly
437 U.S. 463, 467,98 S.Ct. 2454
,57 L.Ed.2d 351
(1978)
established at the time of § 16's enactment that we should
(both quoting Catlin v. United States, 324 U.S. 229, 233, 65
assume Congress meant to incorporate them into § 16(a)(3).
S.Ct. 631, 89 L.Ed. 911 (1945)). See also St. Louis, I.M. &
See Brief for Petitioners 23â26.
S.R. Co. v. Southern Express Co., 108 U.S. 24, 28â29,2 S.Ct. 6
,27 L.Ed. 638
(1883). Because the FAA does not define
We disagree. It does not appear that, at the time of § 16(a)
âa final decision with respect to an arbitrationâ or otherwise
(3)'s enactment, the rules of finality were firmly established
suggest that the ordinary meaning of âfinal decisionâ should
in cases like this one, where the District Court both
not apply, we accord the term its well-established meaning.
See Evans v. United States, 504 U.S. 255, 259â260, 112 S.Ct. ordered arbitration and dismissed the remaining claims. 4 1881,119 L.Ed.2d 57
(1992). We also note that at that time, Courts of Appeals did not
have a uniform approach to finality with respect to orders
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
... directing arbitration in âembeddedâ proceedings. 5 The term S.Ct. 1917. These cases demonstrate that even claims arising **521 âfinal decision,â by contrast, enjoys a consistent and under a statute designed to further important social policies longstanding interpretation. Certainly the plain language of may be arbitrated because â âso long as the prospective litigant the statutory text does not suggest that Congress intended to effectively may vindicate [his or her] statutory cause of action incorporate the rather complex independent/ *89 embedded in the arbitral forum,â â the statute serves its functions. See distinction, and its consequences for finality, into § 16(a)Gilmer, supra, at 28
,111 S.Ct. 1647
(quoting Mitsubishi, (3). We therefore conclude that where, as here, theDistrict supra, at 637
,105 S.Ct. 3346
).
Court has ordered the parties to proceed to arbitration, and
dismissed all the claims before it, that decision is âfinalâ [10] In determining whether statutory claims may be
within the meaning of § 16(a)(3), and therefore appealable. arbitrated, we first ask whether the parties agreed to submit
their claims to arbitration, and then ask whether Congress has
evinced an intention to preclude a waiver of judicial remedies
for the statutory rights at issue. See Gilmer, supra, at 26,
III 111 S.Ct. 1647;Mitsubishi, supra, at 628
,105 S.Ct. 3346
.
In this case, **522 it is undisputed that the parties agreed
[7] [8] We now turn to the question whether Randolph's
to arbitrate all claims relating to their contract, including
agreement to arbitrate is unenforceable because it says
claims involving statutory rights. Nor does Randolph contend
nothing about the costs of arbitration, and thus fails to provide
that the TILA evinces an intention to preclude a waiver of
her protection from potentially substantial costs of pursuing
judicial remedies. She contends instead that the arbitration
her federal statutory claims in the arbitral forum. Section 2 of
agreement's silence with respect to costs and fees creates a
the FAA provides that â[a] written provision in any maritime
âriskâ that she will be required to bear prohibitive arbitration
transaction or a contract evidencing a transaction involving
costs if she pursues her claims in an arbitral forum, and
commerce to settle by arbitration a controversy thereafter
thereby forces her to forgo any claims she may have against
arising out of such contract ... shall be valid, irrevocable,
petitioners. Therefore, she argues, she is unable to vindicate
and enforceable, save upon such grounds as exist at law or
her statutory rights in arbitration. See Brief for Respondent
in equity for the revocation of any contract.â 9 U.S.C. § 2.
29â30.
In considering whether respondent's agreement to arbitrate
is unenforceable, we are mindful of the FAA's purpose
It may well be that the existence of large arbitration costs
âto reverse the longstanding judicial hostility to arbitration
could preclude a litigant such as Randolph from effectively
agreements ... and to place arbitration agreements upon the
vindicating her federal statutory rights in the arbitral forum.
same footing as other contracts.â Gilmer v. Interstate/Johnson
But the record does not show that Randolph will bear such
Lane Corp., 500 U.S. 20, 24,111 S.Ct. 1647
,114 L.Ed.2d 26
costs if she goes to arbitration. Indeed, it contains hardly any
(1991).
information on the matter. 6 As the Court of Appeals *91
[9] In light of that purpose, we have recognized that recognized, âwe lack ... information about how claimants fare
federal statutory claims can be appropriately resolved through under Green Tree's arbitration clause.â 178 F.3d, at 1158. The
arbitration, and we have enforced agreements to arbitrate record reveals only the arbitration agreement's silence on the
that involve such claims. See, e.g., Rodriguez de Quijas v. subject, and that fact alone is plainly insufficient to render it
Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. unenforceable. The âriskâ that Randolph will be saddled with 1917,104 L.Ed.2d 526
(1989) (Securities Act of 1933); prohibitive costs is too speculative to justify the invalidation Shearson/American Express Inc. v. McMahon, 482 U.S. of an arbitration agreement. 220,107 S.Ct. 2332
,96 L.Ed.2d 185
(1987) (Securities Exchange Act of 1934 and Racketeer Influenced and [11] [12] To invalidate the agreement on that basis would Corrupt Organizations Act); Mitsubishi Motors Corp. v. undermine the âliberal federal policy favoring arbitration Soler ChryslerâPlymouth, Inc.,473 U.S. 614
, 105 S.Ct. agreements.â Moses H. Cone Memorial Hospital,460 U.S., 3346
,87 L.Ed.2d 444
(1985) (Sherman Act). We have at 24,103 S.Ct. 927
. It would also conflict with our likewise rejected generalized attacks on arbitration that rest prior holdings that the party resisting arbitration bears the on âsuspicion of arbitration as a method of weakening the burden of proving that the claims at issue are unsuitable protections *90 afforded in the substantive law to would- for arbitration. SeeGilmer, supra, at 26
,111 S.Ct. 1647
; be complainants.â Rodriguez deQuijas, supra, at 481
, 109McMahon, supra, at 227
,107 S.Ct. 2332
. We have *92 held
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
... that the party seeking to avoid arbitration bears the burden of if imposed on her, will be prohibitive. Ante, at 522â523. As establishing that Congress intended to preclude arbitration of I see it, the case in its current posture is not ripe for such a the statutory claims at issue. SeeGilmer, supra;
McMahon, disposition.
supra. Similarly, we believe that where, as here, a party
seeks to invalidate an arbitration agreement on the ground The Court recognizes that âthe existence of large arbitration
that arbitration would be prohibitively expensive, that party costs could preclude a litigant such as Randolph from
bears the burden of showing the likelihood of incurring such effectively vindicating her federal statutory rights in the
costs. Randolph did not meet that burden. How detailed the arbitral forum.â Ante, at 522. But, the Court next determines,
showing of prohibitive expense **523 must be before the âthe party resisting arbitration bears the burden of proving
party seeking arbitration must come forward with contrary that the claims at issue are unsuitable for arbitrationâ and
evidence is a matter we need not discuss; for in this case âRandolph did not meet that burden.â Ante, at 522. In
neither during discovery nor when the case was presented on so ruling, the Court blends two discrete inquiries: First,
the merits was there any timely showing at all on the point. is the arbitral forum adequate to adjudicate the claims at
The Court of Appeals therefore erred in deciding that the issue; second, is that forum accessible to the party resisting
arbitration agreement's silence with respect to costs and fees arbitration.
rendered it unenforceable. 7
Our past decisions deal with the first question, the adequacy
The judgment of the Court of Appeals is affirmed in part and of the arbitral forum to adjudicate various statutory claims.
reversed in part. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20,111 S.Ct. 1647
,114 L.Ed.2d 26
(1991) (Age
It is so ordered. Discrimination in Employment Act claims are amenable to
arbitration); Shearson/American Express Inc. v. McMahon,
482 U.S. 220,107 S.Ct. 2332
,96 L.Ed.2d 185
(1987) (Claims
Justice GINSBURG, with whom Justice STEVENS and under Racketeer Influenced and Corrupt Organizations Act
Justice SOUTER join, and with whom Justice BREYER joins and Securities Exchange Act are amenable to arbitration).
as to Parts I and III, concurring in part and dissenting in part. *94 These decisions hold that the party resisting arbitration
bears the burden of establishing the inadequacy of the arbitral
forum for adjudication of claims of a particular genre. See
I
Gilmer, 500 U.S., at 26,111 S.Ct. 1647
; McMahon, 482 U.S., I join Part II of the Court's opinion, which holds that the at 227,107 S.Ct. 2332
. It does not follow like the night the
District Court's order, dismissing all the claims before it, was day, however, that the party resisting arbitration should also
a âfinal,â and therefore immediately appealable, decision. bear the **524 burden of showing that the arbitral forum
Ante, at 519â521. On the matter the Court airs in Part III, *93 would be financially inaccessible to her.
ante, at 521 to this pageâallocation of the costs of arbitration
âI would not rule definitively. Instead, I would vacate the The arbitration agreement at issue is contained in a form
Eleventh Circuit's decision, which dispositively declared the contract drawn by a commercial party and presented to an
arbitration clause unenforceable, and remand the case for individual consumer on a take-it-or-leave-it basis. The case
closer consideration of the arbitral forum's accessibility. on which the Court dominantly relies, Gilmer, also involved a
nonnegotiated arbitration clause. But the âwho paysâ question
presented in this case did not arise in Gilmer. Under the
rules that governed in Gilmerâthose of the New York Stock
II
Exchangeâit was the standard practice for securities industry
The Court today deals with a âwho paysâ question, parties, arbitrating employment disputes, to pay all of the
specifically, who pays for the arbitral forum. The Court holds arbitrators' fees. See Cole v. Burns Int'l Security Servs., 105
that Larketta Randolph bears the burden of demonstrating F.3d 1465, 1483 (C.A.D.C.1997). Regarding that practice, the
that the arbitral forum is financially inaccessible to her. Court of Appeals for the District of Columbia Circuit recently
Essentially, the Court requires a party, situated as Randolph commented:
is, either to submit to arbitration without knowing who will
â[I]n Gilmer, the Supreme Court endorsed a system of
pay for the forum or to demonstrate up front that the costs,
arbitration in which employees are not required to pay for
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
a particular fact may be assigned to âparty who presumably
the arbitrator assigned to hear their statutory claims. There
has peculiar means of knowledgeâ of the fact); Restatement
is no reason to think that the Court would have approved
(Second) of Contracts § 206 (1979) ( âIn choosing among the
arbitration in the absence of this arrangement. Indeed, we
reasonable meanings of ... [an] agreement or a term thereof,
are unaware of any situation in American jurisprudence in
that meaning is generally preferred which operates against the
which a beneficiary of a federal statute has been required
[drafting] party ....â). In these circumstances, it is hardly clear
to pay for the services of the judge assigned to hear her or
that Randolph should bear the burden of demonstrating up
his case.â Id., at 1484.
front the arbitral forum's inaccessibility, or that she should be
required to submit to arbitration without knowing how much
it will cost her.
III
As I see it, the Court has reached out prematurely to resolve
The form contract in this case provides no indication of
the matter in the lender's favor. If Green Tree's practice under
the rules under which arbitration will proceed or the costs
the form contract with retail installment sales purchasers
a *95 consumer is likely to incur in arbitration. 1 Green resembles that of the employer in Gilmer, Randolph would
Tree, drafter of the contract, could have filled the void by be insulated from prohibitive costs. And if the arbitral forum
specifying, for instance, that arbitration would be governed were in this case financially accessible to Randolph, there
by the rules of the American Arbitration Association (AAA). would be no occasion to reach the decision today rendered
Under the AAA's Consumer Arbitration Rules, consumers by the Court. Before writing a term into the form contract, as
in small-claims arbitration incur no filing fee and pay only the District of Columbia Circuit did, see Cole, 105 F.3d, at
$125 of the total fees charged by the arbitrator. All other
1485, 3 or leaving cost allocation initially to each arbitrator,
fees and costs are to be paid by the business party. Brief
as the Court does, I would remand for clarification of Green
for American Arbitration Association as Amicus Curiae 15â
Tree's practice.
16. Other national arbitration organizations have developed
similar models for fair cost and fee allocation. 2 It may be *97 The Court's opinion, if I comprehend it correctly, does
that in this case, as in Gilmer, there is a standard practice on not prevent Randolph from returning to court, postarbitration,
arbitrators' fees and expenses, one that fills the blank space if she then has a complaint about cost allocation. If that is so,
in the arbitration agreement. Counsel for Green Tree offered the issue reduces to when, not whether, she can be spared from
a hint in that direction. See Tr. of Oral Arg. 26 (âGreen Tree payment of excessive costs. Neither certainty nor judicial
does pay [arbitration] costs in a lot of instances ....â). But economy is served by leaving that issue unsettled until the
there is no reliable indication in this record that Randolph's end of the line.
claim will be arbitrated under any consumer-protective fee
arrangement. For the reasons stated, I dissent from the Court's reversal of
the Eleventh Circuit's decision on the cost question. I would
*96 As a repeat player in the arbitration required by its form instead vacate and remand for further consideration of the
contract, Green Tree has superior information about the cost
accessibility of the arbitral forum to Randolph. 4
to consumers of pursuing arbitration. Cf. **525 Raleigh v.
Illinois Dept. of Revenue, 530 U.S. 15, 21,120 S.Ct. 1951
,147 L.Ed.2d 13
(2000) (âthe very fact that the burden of Parallel Citations proof has often been placed on the taxpayer [to disprove tax liability] ... reflects several compelling rationales ...121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
, 148 [including] the taxpayer's readier access to the relevant L.Ed.2d 373,69 USLW 4023
,00 Cal. Daily Op. Serv. 9799
, informationâ); 9 J. Wigmore, Evidence § 2486 (J. Chadbourn2000 Daily Journal D.A.R. 13
,051, 14 Fla. L. Weekly Fed.
rev. ed.1981) (where fairness so requires, burden of proof of S 21
Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337,26 S.Ct. 282
,50 L.Ed. 499
.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
1 The arbitration provision states in pertinent part: âAll disputes, claims, or controversies arising from or relating to this Contract or
the relationships which result from this Contract, or the validity of this arbitration clause or the entire contract, shall be resolved by
binding arbitration by one arbitrator selected by Assignee with consent of Buyer(s). This arbitration Contract is made pursuant to a
transaction in interstate commerce, and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the
award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead
of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes through a court,
but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND
KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER
THIS CLAUSE OR PURSUANT TO A COURT ACTION BY ASSIGNEE (AS PROVIDED HEREIN). The parties agree and
understand that all disputes arising under case law, statutory law, and all other laws, including, but not limited to, all contract, tort,
and property disputes, will be subject to binding arbitration in accord with this Contract. The parties agree and understand that the
arbitrator shall have all powers provided by the law and the Contract.â Joint Lodging 37.
2 Had the District Court entered a stay instead of a dismissal in this case, that order would not be appealable. 9 U.S.C. § 16(b)(1). The
question whether the District Court should have taken that course is not before us, and we do not address it.
3 The majority of Courts of Appeals have so opined, contrary to the instant decision of the Court of Appeals for the Eleventh Circuit.
See, e.g., Seacoast Motors of Salisbury, Inc. v. Chrysler Corp., 143 F.3d 626, 628â629 (C.A.1 1998); Altman Nursing, Inc. v. Clay
Capital Corp., 84 F.3d 769, 771(C.A.5 1996); Napleton v. General Motors Corp.,138 F.3d 1209, 1212
(C.A.7 1998); Gammaro v.
Thorp Consumer Discount Co., 15 F.3d 93, 95(C.A.8 1994); McCarthy v. Providential Corp.,122 F.3d 1242, 1244
(C.A.9 1997). But
see Arnold v. Arnold Corp.âPrinted Communications for Business, 920 F.2d 1269, 1276 (C.A.6 1990) (order compelling arbitration
in an âembeddedâ proceeding treated as a final judgment when the District Court dismissed the action in deference to arbitration
and had nothing left to do but execute the judgment); Armijo v. Prudential Insurance Co. of America, 72 F.3d 793, 797 (C.A.10
1995) (same).
4 Seacoast Motors of Salisbury, Inc., supra, at 628 (noting in 1998 that the Court had not before addressed the question whether a
district court order directing arbitration and dismissing the proceedings was a âfinal decisionâ within the meaning of § 16(a)(3));
Napleton,supra, at 1212 (noting in 1998 that the appeal at issue adds an âunfamiliar ingredientâ because the District Court ordered
arbitration and dismissed the proceedings).
5 Cincinnati Gas & Elec. Co. v. Benjamin F. Shaw Co., 706 F.2d 155, 158 (C.A.6 1983) (rejecting the argument that because a
declaratory judgment and other relief was sought in suit where arbitration was ordered, order to arbitrate should not be appealable);
Howard Elec. & Mechanical Co. v. Frank Briscoe Co., 754 F.2d 847, 849 (C.A.9 1985) (plaintiff brought suit for work performed
under contract and then sought arbitration; order compelling arbitration held appealable). Cf. In re Hops Antitrust Litigation, 832
F.2d 470, 472â473 (C.A.8 1987) (District Court order requiring arbitration of some claims before it is not a final appealable order
because other matters remained pending before the court); County of Durham v. Richards & Assocs., Inc., 742 F.2d 811, 813, n. 3
(C.A.4 1984) (noting that a number of Courts of Appeals have held that an order compelling arbitration may be appealed even when
it is entered in the course of a dispute over the underlying claim). See generally 15B C. Wright, A. Miller, & E. Cooper, Federal
Practice and Procedure § 3914.17, pp. 19â25 (1992).
6 In Randolph's motion for reconsideration in the District Court, she asserted that â[a]rbitration costs are highâ and that she did not
have the resources to arbitrate. But she failed to support this assertion. She first acknowledged that petitioners had not designated a
particular arbitration association or arbitrator to resolve their dispute. Her subsequent discussion of costs relied entirely on unfounded
assumptions. She stated that â[f]or the purposes of this discussion, we will assume filing with the [American Arbitration Association],
the filing fee is $500 for claims under $10,000 and this does not include the cost of the arbitrator or administrative fees.â Randolph
relied on, and attached as an exhibit, what appears to be informational material from the American Arbitration Association that does
not discuss the amount of filing fees. She then noted: â[The American Arbitration Association] further cites $700 per day as the
average arbitrator's fee.â For this proposition she cited an article in the Daily Labor Report, February 15, 1996, published by the
Bureau of National Affairs, entitled Labor Lawyers at ABA Session Debate Role of American Arbitration Association. Plaintiff's
Motion for Reconsideration, Record Doc. No. 53, pp. 8â9. The article contains a stray statement by an association executive that the
average arbitral fee is $700 per day. Randolph plainly failed to make any factual showing that the American Arbitration Association
would conduct the arbitration, or that, if it did, she would be charged the filing fee or arbitrator's fee that she identified. These
unsupported statements provide no basis on which to ascertain the actual costs and fees to which she would be subject in arbitration.
In this Court, Randolph's brief lists fees incurred in cases involving other arbitrations as reflected in opinions of other Courts
of Appeals, while petitioners' counsel states that arbitration fees are frequently waived by petitioners. None of this information
affords a sufficient basis for concluding that Randolph would in fact have incurred substantial costs in the event her claim went
to arbitration.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79(2000)121 S.Ct. 513
,84 Fair Empl.Prac.Cas. (BNA) 769
,148 L.Ed.2d 373
,69 USLW 4023
...
7 We decline to reach respondent's argument that we may affirm the Court of Appeals' conclusion that the arbitration agreement is
unenforceable on the alternative ground that the agreement precludes respondent from bringing her claims under the TILA as a class
action. See Brief for Respondent 39â48. The Court of Appeals did not pass on this question, and we need not decide here issues not
decided below. Roberts v. Galen of Va., Inc., 525 U.S. 249,119 S.Ct. 685
,142 L.Ed.2d 648
(1999) (per curiam).
1 In Alabama, as in most States, courts interpret a contract's silence (about arbitration fees and costs) according to âusage or custom.â
Green Tree Financial Corp. of Ala. v. Wampler, 749 So.2d 409, 415 (Ala.1999); see also Restatement (Second) of Contracts § 204,
Comment d (1979) (where an essential term is missing, âthe court should supply a term which comports with community standards of
fairness and policyâ). Cf. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995) (courts
should generally apply state contract law principles when deciding whether parties agreed to arbitrate a certain matter); Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62â64, and n. 9,115 S.Ct. 1212
,131 L.Ed.2d 76
(1995) (interpreting arbitration clause
according to New York and Illinois law).
2 They include National Arbitration Forum provisions that limit small-claims consumer costs to between $49 and $175 and a
National Consumer Disputes Advisory Committee protocol recommending that consumer costs be limited to a reasonable amount.
National Arbitration Forum, Code of Procedure, App. C, Fee Schedule (July 1, 2000); National Consumer Disputes Advisory
Committee, Consumer Due Process Protocol, Principle 6, Comment (Apr. 17, 1998), http://www.adr.org/education/education/
consumer_ protocol.html.
3 The court interpreted a form contract to arbitrate employment disputes, silent as to costs, to require the employer âto pay all of the
arbitrator's fees necessary for a full and fair resolution of [the discharged employee's] statutory claims.â 105 F.3d, at 1485.
4 Randolph alternatively urges affirmance on the ground that the arbitration agreement is unenforceable because it precludes pursuit
of her statutory claim as a class action. But cf. Johnson v. West Suburban Bank, 225 F.3d 366 (C.A.3 2000) (holding arbitration
clause in short-term loan agreement enforceable even though it may render class action to pursue statutory claims unavailable). The
class-action issue was properly raised in the District Court and the Court of Appeals. I do not read the Court's opinion to preclude
resolution of that question now by the Eleventh Circuit. Nothing Randolph has so far done in seeking protection against prohibitive
costs forfeits her right to a judicial determination whether her claim may proceed either in court or in arbitration as a class action.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
Haddock v. Quinn, 287 S.W.3d 158 (2009)
[4] prior litigation substantially prejudiced REIT, limited
287 S.W.3d 158
partnership, and members of REIT's board of trustees, for
Court of Appeals of Texas,
purposes of determining whether CEO waived arbitration.
Fort Worth.
Gerald W. HADDOCK, Appellant,
Petition for writ of mandamus denied.
v.
William F. QUINN, Paul E. Rowsey, III, John Goff,
See also 2006 WL 909470.
Terry N. Worrell, Crescent Real Estate Equities
Company, Crescent Real Estate Limited Partnership
and Crescent Real Estate Equities, Ltd., Appellees.
West Headnotes (46)
and
In re Gerald W. Haddock, Relator.
[1] Mandamus
Nos. 2â06â472âCV, 2â07â048âCV.
| Feb. 26, 2009. | Rehearing and Civil
Rehearing En Banc Overruled July 9, 2009. Proceedings Other Than Actions
A party seeking relief pursuant to the Federal
Synopsis Arbitration Act (FAA) from a denial or stay of
Background: Former chief executive officer (CEO) of arbitration must pursue relief by way of petition
real estate investment trust (REIT) filed arbitration claim for writ of mandamus. 9 U.S.C.A. §§ 1â16.
alleging that the REIT and limited partnership controlled
by REIT refused to allow him to exercise partnership unit 1 Cases that cite this headnote
options and exchange them for REIT stock. REIT, limited
partnership, and members of REIT's board of trustees brought
[2] Mandamus
action seeking a stay of arbitration proceedings and a
judgment declaring that former CEO had repudiated limited Remedy
partnership's arbitration agreement. The 67th District Court by Appeal or Writ of Error
of Tarrant County, Donald J. Cosby, J., permanently enjoined
Mandamus
former CEO from pursuing arbitration. Former CEO sought
review by petition for writ of mandamus and interlocutory Nature
appeal. of Acts to Be Commanded
Mandamus will issue to correct a clear abuse
of discretion for which the remedy by appeal is
Holdings: The Court of Appeals, Anne Gardner, J., held that: inadequate.
Cases that cite this headnote
[1] a party seeking relief from a stay of arbitration had to
pursue relief by way of a petition for writ of mandamus, rather
than interlocutory appeal; [3] Mandamus
[2] issue of whether CEO waived arbitration by initiating and Matters
pursuing prior litigation was for the trial court, rather than of Discretion
arbitration panel; A trial court has no discretion, for purposes of
mandamus relief, in determining what the law is
[3] prior litigation initiated by CEO substantially invoked or in applying the law to the facts, and a clear
the judicial process on the same claims that CEO sought to failure to analyze or apply the law correctly will
arbitrate, for purposes of determining whether CEO waived constitute an abuse of discretion.
arbitration; and
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Cases that cite this headnote Disputes
and Matters Arbitrable Under Agreement
[4] Mandamus Once the moving party establishes the existence
of a valid arbitration agreement, a trial court then
Modification determines whether the nonmovant's claims fall
or Vacation of Judgment or Order within the scope of the arbitration clause.
Mandamus
2 Cases that cite this headnote
Civil
Proceedings Other Than Actions [8] Alternative Dispute Resolution
When a motion to compel arbitration under
the Federal Arbitration Act (FAA) has been Evidence
erroneously denied or when a motion to stay If a trial court determines that a valid arbitration
arbitration is erroneously granted, there is no agreement exists, the burden shifts to the party
adequate remedy by appeal, and mandamus will opposing arbitration to prove its defenses.
issue. 9 U.S.C.A. §§ 1â16.
Cases that cite this headnote
1 Cases that cite this headnote
[9] Alternative Dispute Resolution
[5] Alternative Dispute Resolution
Scope
Validity and Standards of Review
Alternative Dispute Resolution Whether a valid arbitration agreement exists is a
legal question subject to de novo review.
Disputes
and Matters Arbitrable Under Agreement Cases that cite this headnote
A party seeking to enforce an arbitration
agreement must establish the existence of a valid [10] Appeal and Error
arbitration agreement and show that the claims in
dispute fall within the scope of that agreement. Allowance
of Remedy and Matters of Procedure in General
1 Cases that cite this headnote
Trial
[6] Alternative Dispute Resolution Duty
to Make in General
What When an abuse of discretion standard of review
Law Governs applies to a trial court's ruling, findings of
In determining the validity of arbitration fact and conclusions of law aid the appellate
agreements under the Federal Arbitration court in reviewing the propriety of the ruling
Act (FAA), courts generally apply state-law by providing the reviewing court with an
principles governing the formation of contracts. explanation for the ruling, but, while findings of
9 U.S.C.A. §§ 1â16. fact and conclusions of law can be helpful in
applying the abuse of discretion standard, they
Cases that cite this headnote are not required.
Cases that cite this headnote
[7] Alternative Dispute Resolution
[11] Appeal and Error
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Abuse Arbitrability
of Discretion of Dispute
To determine whether a trial court abused Who decides arbitrability is a matter of contract
its discretion, an appellate court must decide interpretation regarding the division of labor
whether it acted without reference to any guiding or responsibility between the court and the
rules or principles; in other words, whether the arbitrator, not jurisdiction.
act was arbitrary or unreasonable.
Cases that cite this headnote
1 Cases that cite this headnote
[16] Alternative Dispute Resolution
[12] Appeal and Error
Contractual
Abuse or Consensual Basis
of Discretion Arbitration is a matter of contract.
Any factual issues decided by a trial court
in reaching a decision under review are Cases that cite this headnote
not reviewed by legal- and factual-sufficiency
standards, when the abuse of discretion standard [17] Alternative Dispute Resolution
of review applies, although when the decision
under review is based on facts determined by the Arbitrability
court, those facts must have some support in the of Dispute
evidence. The question of who has the primary power to
decide arbitrability turns upon what the parties
1 Cases that cite this headnote agreed about that matter.
Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing
[18] Alternative Dispute Resolution
or Participating in Suit
When a party files suit on an arbitrable claim, and What
the defendant elects not to arbitrate, the issue is Law Governs
not whether there was a mutual repudiation of the When applying the Federal Arbitration Act
arbitration agreement, but whether arbitration (FAA), both Texas and Delaware courts look
has been waived. to federal law to decide substantive issues. 9
U.S.C.A. §§ 1â16.
Cases that cite this headnote
Cases that cite this headnote
[14] Courts
[19] Alternative Dispute Resolution
Exclusive
or Concurrent Jurisdiction Arbitrability
Federal and state courts have concurrent of Dispute
jurisdiction to enforce the Federal Arbitration The question whether the parties have submitted
Act (FAA). 9 U.S.C.A. §§ 1â16. a particular dispute to arbitration, i.e., the
question of arbitrability, is an issue for judicial
Cases that cite this headnote determination, unless the parties clearly and
unmistakably provide otherwise.
[15] Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Whether a party has waived its arbitration rights
1 Cases that cite this headnote under the Federal Arbitration Act (FAA) by
inconsistent litigation conduct is a question of
[20] Alternative Dispute Resolution law that reviewed de novo. 9 U.S.C.A. §§ 1â16.
Arbitrability Cases that cite this headnote
of Dispute
Issue of whether former chief executive officer [23] Alternative Dispute Resolution
(CEO) of real estate investment trust (REIT)
waived arbitrability, by instituting and pursuing Evidence
prior litigation to an adverse decision in court, Because public policy favors arbitration, there
was for the trial court in which defendants sought is a strong presumption against waiver of
a stay of arbitration, rather than arbitration arbitration.
panel, when former CEO filed arbitration claim
alleging REIT and limited partnership controlled Cases that cite this headnote
by REIT refused to allow him to exercise limited
partnership unit options and exchange them [24] Alternative Dispute Resolution
for REIT stock, as there was not clear and
unmistakable evidence that the parties intended Evidence
the arbitrators to determine arbitrability; though A party asserting a waiver of arbitration bears
provision in arbitration agreement expressly a heavy burden of proof, and the court must
incorporated rules of arbitration association, resolve all doubts in favor of arbitration.
provision in current version rules stating that the
arbitrator had the power to rule on objections to Cases that cite this headnote
arbitration was not in association's rules when the
parties entered into arbitration agreement. [25] Alternative Dispute Resolution
7 Cases that cite this headnote Waiver
or Estoppel
[21] Alternative Dispute Resolution Waiver of arbitration may be express or implied
from a party's conduct, but that conduct must be
Suing unequivocal.
or Participating in Suit
The presence of a âno waiverâ clause in an Cases that cite this headnote
arbitration agreement, stating that no judicial
proceeding by a party relating to the subject [26] Alternative Dispute Resolution
matter of an arbitration would be deemed a
waiver of a right to arbitrate, does not alter Waiver
the ordinary analysis undertaken to determine or Estoppel
if a party has waived its right to arbitration by Waiver in the context of arbitration agreements
litigation conduct. subject to the Federal Arbitration Act (FAA)
requires more than is required for general waiver;
1 Cases that cite this headnote
it requires proof that the party asserting waiver
as a defense to arbitration has suffered prejudice.
[22] Alternative Dispute Resolution 9 U.S.C.A. §§ 1â16.
Scope Cases that cite this headnote
and Standards of Review
[27] Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Haddock v. Quinn, 287 S.W.3d 158 (2009)
arose in connection with the partnership's unit
Suing option plan which was expressly subject to
or Participating in Suit the terms of the partnership agreement which
Under the Federal Arbitration Act (FAA), a party contained arbitration agreement, though in
waives an arbitration clause by substantially prior litigation CEO initially sought to reform
invoking the judicial process to the other party's unfavorable-comments clause in severance
detriment. 9 U.S.C.A. §§ 1â16. agreement he did so in order to litigate claims
of mismanagement which allegedly resulted in
1 Cases that cite this headnote
devaluation of unit options, and CEO only
invoked arbitration after litigating his claims to
[28] Alternative Dispute Resolution an unfavorable result. 9 U.S.C.A. §§ 1â16.
Suing Cases that cite this headnote
or Participating in Suit
To demonstrate waiver of arbitration, the party [31] Alternative Dispute Resolution
opposing arbitration must establish both that:
(1) the party seeking arbitration substantially Suing
invoked the judicial process, and (2) the party or Participating in Suit
opposing arbitration suffered prejudice thereby. Waiver of arbitration by litigation conduct must
be decided under a totality-of-the-circumstances
2 Cases that cite this headnote
test on a case-by-case basis.
[29] Alternative Dispute Resolution Cases that cite this headnote
Suing
[32] Alternative Dispute Resolution
or Participating in Suit
To invoke the judicial process so as to waive Suing
arbitration, a party must, at the very least, engage or Participating in Suit
in some overt act in court that evinces a desire to Waiver of arbitration by litigation conduct may
resolve the arbitrable dispute through litigation be found where a party has tried and failed to
rather than arbitration. achieve a satisfactory result before turning to
arbitration.
3 Cases that cite this headnote
3 Cases that cite this headnote
[30] Alternative Dispute Resolution
[33] Alternative Dispute Resolution
Suing
or Participating in Suit Suing
Prior litigation by former chief executive officer or Participating in Suit
(CEO) of real estate investment trust (REIT) Failing to seek arbitration until after proceeding
substantially invoked the judicial process on the in litigation to an adverse result is the clearest
same claims that CEO sought to arbitrate, for form of inconsistent litigation conduct and
purposes of determining whether CEO waived constitutes substantial invocation of the litigation
arbitration under the Federal Arbitration Act process resulting in waiver.
(FAA) of claims alleging REIT and limited
partnership controlled by REIT refused to allow 4 Cases that cite this headnote
him to exercise partnership unit options and
exchange them for REIT stock; both prior [34] Alternative Dispute Resolution
litigation claims and CEO's arbitration claims
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Substantially invoking the litigation machinery
Suing qualifies as the kind of prejudice that is the
or Participating in Suit essence of waiver of arbitration.
Participation in litigation to gain an advantage
in future litigation can result in waiver of Cases that cite this headnote
arbitration.
[39] Alternative Dispute Resolution
1 Cases that cite this headnote
Suing
[35] Alternative Dispute Resolution or Participating in Suit
âPrejudiceâ or detriment in the context of
Suing litigation conduct inconsistent with arbitration
or Participating in Suit relates to inherent unfairness caused by a party's
Substantially invoking the judicial process does attempt to have it both ways by switching
not waive a party's arbitration rights unless between litigation and arbitration to its own
the opposing party also proves that it suffered advantage.
prejudice as a result.
1 Cases that cite this headnote
Cases that cite this headnote
[40] Alternative Dispute Resolution
[36] Alternative Dispute Resolution
Right
Suing to Enforcement and Defenses in General
or Participating in Suit A party should not be allowed purposefully and
Courts will not find that a party has waived its unjustifiably to manipulate the exercise of its
right to enforce an arbitration clause by merely arbitral rights simply to gain an unfair tactical
taking part in litigation unless it has substantially advantage over the opposing party.
invoked the judicial process to its opponent's
detriment. Cases that cite this headnote
2 Cases that cite this headnote
[41] Alternative Dispute Resolution
[37] Alternative Dispute Resolution Waiver
or Estoppel
Suing Ultimately, what constitutes waiver of the right
or Participating in Suit to arbitrate depends on the facts of each case.
When one party reveals a disinclination to resort
to arbitration on any phase of suit involving all Cases that cite this headnote
parties, those parties are prejudiced by being
forced to bear the expense of a trial. [42] Alternative Dispute Resolution
Cases that cite this headnote Suing
or Participating in Suit
[38] Alternative Dispute Resolution Three factors are particularly relevant in
determining prejudice, for purposes of
Suing determining whether a party has waived
or Participating in Suit arbitration by litigation conduct; first, pretrial
activity related to all claims including those that
are arbitrable may result in prejudice, second,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Haddock v. Quinn, 287 S.W.3d 158 (2009)
time and expense incurred in defending against
a motion for summary judgment could prejudice Cases that cite this headnote
the party opposing arbitration, and three, failure
to assert the right to demand arbitration is a factor [46] Alternative Dispute Resolution
bearing on the question of prejudice along with
other considerations. Suing
or Participating in Suit
1 Cases that cite this headnote Prior litigation initiated by former chief
executive officer (CEO) of real estate investment
[43] Alternative Dispute Resolution trust (REIT), seeking to reform unfavorable-
comments clause in severance agreement in
Suing order to litigate claims of mismanagement
or Participating in Suit which allegedly resulted in devaluation of his
Both delay and the extent of the moving party's unit options in limited partnership controlled
participation in judicial proceedings are material by REIT, prejudiced REIT, partnership and
factors in assessing prejudice, for purposes members of REIT's board of trustees, for
of determining whether a party has waived purposes of determining whether CEO waived
arbitration. arbitration under the Federal Arbitration Act
(FAA) of claims alleging REIT and limited
Cases that cite this headnote partnership refused to allow him to exercise
partnership unit options and exchange them for
[44] Alternative Dispute Resolution REIT stock; CEO failed to seek arbitration
under partnership agreement before initiating
Waiver litigation, CEO waited over 14 months before
or Estoppel requesting arbitration, during such time he
A demand for arbitration puts the other party obtained a temporary injunction, filed two
on notice that arbitration is forthcoming and motions for summary judgment and litigated his
affords that party the opportunity to avoid claims to an adverse judgment, and defendants
compromising its position with regard to spent a substantial sums defending CEO's
arbitrable and nonarbitrable claims, for purposes claims. 9 U.S.C.A. §§ 1â16.
of determining whether a party has waived
arbitration. Cases that cite this headnote
1 Cases that cite this headnote
[45] Alternative Dispute Resolution Attorneys and Law Firms
Suing *163 Wolf Law PC and Jeffrey J. Wolf, Fort Worth, and
or Participating in Suit Beatie and Osborn LLP and *164 Russel H. Beatie, New
York, NY, for appellant/relator.
If a party has asserted the right to arbitrate
at or before commencement of litigation, the Jackson & Walker LLP and Charles L. Babcock, David
party opposing arbitration will necessarily carry T. Moran, Patrick R. Cowlishaw, William R. Jenkins, Jr.,
a heavy burden to show waiver; conversely, Amanda L. Bush, Fort Worth, for appellees/real parties in
when a party fails to demand arbitration and also interest.
engages in pretrial activity inconsistent with the
intent to arbitrate, the opposing party seeking PANEL: GARDNER and WALKER, JJ.; and DIXON
to show waiver may more easily show that its W. HOLMAN, J. (Senior Justice, Retired, Sitting by
position has been compromised, i.e., prejudiced. Assignment).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Haddock v. Quinn, 287 S.W.3d 158 (2009)
partnership. This organizational structure (referred to as an
âUPREITâ) allows owners of investment real estate to sell
OPINION their properties to CREELP in exchange for CREELP units,
which the seller may later convert into CEI common stock.
ANNE GARDNER, Justice. The real estate owners incur no income tax liability until they
sell the stock. CREE, a Delaware corporation, is a wholly
I. Introduction owned subsidiary of CEI and serves as CREELP's general
In this consolidated interlocutory appeal and mandamus partner.
proceeding, Relator and Appellant Gerald W. Haddock
seeks relief from the trial court's order staying arbitration
proceedings that he initiated against Appellees and Real 2. The Individuals
Parties in Interest William F. Quinn, Paul E. Rowsey, III, In 1994, Haddock and two cofounders created the Crescent
John Goff, Terry N. Worrell, Crescent Real Estate Equities Entities and related companies. Prior to 1994, Haddock had
Company (âCEIâ), Crescent Real Estate Equities Limited served in various capacities in companies formed by one
Partnership (âCREELPâ), and Crescent Real Estate Equities, of the cofounders, including serving as lead transactional
Limited (âCREEâ). attorney and chief negotiator. Of the individual Real Parties in
Interest, John Goff currently *165 serves as CEI's CEO and
Haddock raises three issues. In his first issue, Haddock Vice Chairman. William Quinn, Paul Rowsey III, and Terry
argues that the trial court improperly assumed jurisdiction Worrell serve as members of CEI's Board of Trust Managers.
because the parties contracted to have all issuesâincluding
questions of arbitrabilityâdecided by arbitration. Second,
Haddock contends that even if the trial court had jurisdiction B. The CREELP Partnership Agreement and
to decide some issues of arbitrability, the main issue in this Arbitration Clause
caseâwhether he repudiated or waived arbitrationâshould In February 1994, Haddock, as CEI's President, signed a
be decided by an arbitrator. Third, Haddock argues that the limited partnership agreement on behalf of CEI, CREE,
trial court erred and abused its discretion by concluding that and several limited partners to form the CREELP limited
he repudiated or waived arbitration by engaging in prior partnership. CREE was CREELP's general partner. Haddock
litigation that was inconsistent with arbitration. became a limited partner in CREELP as well as President of
CEI, and he became CEO of CEI in 1996. As an officer and
Real Parties in Interest contend that the issue of repudiation or senior management employee, Haddock received options to
waiver was properly for the court to decide and that the trial purchase units in CREELP in 1995 and 1996, which were
court correctly determined that Haddock repudiated, or in the exchangeable for CEI common stock. The options for both the
alternative waived, arbitration of his claims by substantially CREELP units and CEI stock were created by incentive plans
invoking the judicial process to their detriment. They argue adopted by those entities' respective governance committees.
that the trial court correctly concluded that the remaining
claims asserted by Haddock, individually and derivatively on The original CREELP limited partnership agreement did not
behalf of CEI stockholders and against nonsignatories, are not contain an arbitration agreement. However, in May 1994,
within the scope of the arbitration agreement. the limited partnership agreement was amended to add an
arbitration agreement that provides, in pertinent part: 1
II. Factual and Procedural Background
Section 16.1 Arbitration
A. The Parties
Notwithstanding anything to the contrary contained in
1. The Crescent Entities this Agreement, all claims, disputes and controversies
CEI is a publicly held real estate investment trust (commonly between the parties hereto (including, without limitation,
referred to as a âREITâ) organized under the laws of the state any claims, disputes, and controversies between the
of Texas. CEI is structured as an Umbrella Partnership Real Partnership and any one or more of the Partners and any
Estate Investment Trust whereby CEI owns a majority of the claims, disputes and controversies among any two or
limited partnership interests in CREELP, a Delaware limited more Partners) arising out of or in connection with this
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Agreement or the Partnership created hereby, relating compensation as well as the accelerated vesting of certain
to the validity, construction, performance, breach, stock and partnership unit options and that he thereby became
enforcement or termination thereof, or otherwise, shall immediately vested in a large number of stock and unit
be resolved by binding arbitration in the State of Texas, options in both CEI and CREELP.
in accordance with this Article 16 and, to the extent
not inconsistent herewith, the Expedited Procedures In his petition, Haddock further explained that he had become
and Commercial Arbitration Rules of the American âconcernedâ that the Crescent Entities were being managed
Arbitration Association. and operated adversely to interests of shareholders and
unitholders by offering executives excessive compensation
The arbitration agreement contains additional paragraphs packages and risky loans that seriously jeopardized the
of detailed procedures to be followed in any arbitration financial health and stability of the entities. Haddock alleged
proceedings under the agreement, including an expedited that he desired to discuss these concerns with fellow
schedule for selection of an arbitration panel, for shareholders and unitholders and to further investigate but
commencement and completion of the arbitration feared that doing so might be construed by the Crescent
proceeding within sixty days after selection, and for entities as a breach of the unfavorable comments clause in the
rendition by the panel of its award within thirty days severance agreement. Haddock alleged that he had received
thereafter. threats that the Crescent Entities would forfeit his options as a
result of his conduct in discussing those matters and exposing
C. The Severance Agreement
their âquestionable practices.â
In June 1999, Haddock resigned from his executive positions
and entered into a confidential severance agreement with
Haddock sought to clarify or reform the severance agreement
CEI and CREELP, which provided for him to receive certain
by a declaratory judgment that the unfavorable comments
cash compensation and which, together with simultaneously
clause of the severance agreement was void or limited to
executed amended unit option and stock option agreements,
statements rising to the level of actionable defamation. He
accelerated the vesting of certain of his CREELP unit options
also sought and obtained a temporary restraining order against
and CEI stock options that he had previously received as
the Crescent Entities from â[t]hreatening or taking any action
part of his compensation. The agreement called for Haddock
to declare forfeited or interfere withâ his rights in any shares
to relinquish all of his remaining unvested unit options and
of CREE or CREELP, already owned by him or shares or
stock options. Paragraph 13 of the severance agreement (the
units subject to an unexercised option held by him. The
âunfavorable-comments clauseâ) restricted both Haddock
restraining order granted by the trial court also provided that
and the Crescent Entities from making unfavorable comments
all parties were to abide by the unfavorable-comments clause.
about the other or about Haddock's job performance. The
The parties later agreed to an order extending the temporary
severance agreement did not contain an arbitration clause.
restraining order until the date of trial, originally scheduled
for August 29, 2005.
D. The Prior Lawsuit
*166 In March 2005, Haddock filed a suit for a declaratory The Crescent Entities filed a counterclaim asserting that
judgment and for temporary and permanent injunctions Haddock had breached the terms of both the severance
against the Crescent Entities in the 17th District Court of agreement and a subsequent 2001 settlement agreement,
Tarrant County, Texas. Haddock pleaded his prior status as general release, and covenant not to sue for claims and causes
CEO and President of CEI, CREE, and other related entities of action in any way connected with his prior employment or
referred to in his petition as âthe Employer Group,â that termination.
he and the Employer Group had agreed to terminate his
employment relationship in June 1999, and that the parties In June 2005, Haddock filed a motion to clarify or modify
had entered into a confidential severance agreement that he the temporary restraining order, alleging that he proposed
would file under seal with the court. Haddock stated that as to exercise his rights as a unitholder in CREELP and the
consideration for his resignation from all directorships and right to have the value of his options adjusted in accordance
offices held in the Employer Group, the severance agreement with ârelevant agreements and plansâ under which the options
provided that, in addition to stock and units in CEI and were created. Haddock alleged in that motion that he had
CREELP that he already owned, he was promised certain cash reason to believe he had one or more common law and
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Haddock v. Quinn, 287 S.W.3d 158 (2009)
statutory causes of action against the Crescent Entities related Haddock further alleged that the Entities' Compensation
to management and desired âto assert these claims in this suit, Committee refused to adjust the exercise price of his
or in another suit.â Haddock requested in his motion that the options as provided by anti-dilution provisions in the option
court remove all doubt that filing those lawsuits would not agreements, prevented him from converting his options to
violate the terms of the severance *167 agreement and that CEI common stock, and refused to allow him to exercise
it either clarify or modify the temporary restraining order to his options with a recourse promissory note as provided by
permit him to file the lawsuits. the CREELP unit option agreement, resulting in damages
of over $8.2 million. Haddock also asserted a claim, in a
Haddock subsequently filed two motions for summary derivative capacity on behalf of CEI shareholders, asserting
judgment, one as to the enforceability of the severance that loans to company insiders violated the SarbanesâOxley
agreement and the other as to the Crescent Entities' Act, resulting in damages to the shareholders of at least $39.7
counterclaim; the Crescent Entities likewise moved for million, including lost interest. He named Quinn, Rowsey,
summary judgment. After a two-day hearing, the trial court and Worrell as parties based upon their service on a Special
signed a final judgment on December 1, 2005, ordering that Litigation Committee for the Crescent Entities that refused
Haddock and the Crescent Entities take nothing on their his demand regarding the derivative claim.
respective claims and counterclaims. Haddock appealed to
this court from the take-nothing summary judgment against
him, but he later moved to dismiss the appeal, and we F. The Underlying Proceeding
dismissed it on April 6, 2006. See Haddock v. Crescent Real Parties in Interest filed this action in the 67th District
Real Estate Equities Co., No. 02â06â00096âCV, 2006 WL Court of Tarrant County seeking a stay of the arbitration
909470, at *1 (Tex.App.-Fort Worth Apr. 6, 2006, no pet.). proceedings and a declaratory judgment that Haddock had
repudiated the CREELP arbitration agreement by filing his
March 2005 suit and proceeding to a final judgment rather
E. The Arbitration Demand than arbitrating the issues in that case and that the remaining
On December 6, 2005, six days after the trial court signed claims were not within the scope of the arbitration agreement.
its final judgment, Haddock wrote to the CEI Compensation Haddock answered with a general denial and a plea to *168
Committee, requesting that it adjust the exercise price for his the jurisdiction asserting that the trial court lacked jurisdiction
options pursuant to the antidilution provisions of the stock to decide any issues of arbitrability, including waiver or
and unit option plans, which request was refused. Thereafter, repudiation. Alternatively, he asserted that even if the court
according to Haddock, CREELP and CEI continually refused had jurisdiction over some arbitrability issues, its jurisdiction
to allow him to exercise CREELP unit options and to was limited in scope and did not allow it to decide the waiver
exchange them for CEI stock. or repudiation issue.
On July 10, 2006, Haddock filed a forty-three page Statement After a hearing on the application to stay arbitration, the
of Claims with the American Arbitration Association under trial courtâthe presiding judge being the same judge who
the arbitration provision contained in the CREELP limited had earlier entered the temporary restraining order in the
partnership agreement. In his Statement of Claims, Haddock prior suit, sitting for the regular judge of the 17th District
asserted causes of action against all of the Crescent Entities Courtâsigned an order granting the stay and permanently
as well as the individual Real Parties in Interest for breach enjoining Haddock from pursuing his arbitration demand.
of contract, breach of the duty of good faith and fair dealing, After Haddock perfected his appeal in this case, the trial court
violation of securities laws, and breach of fiduciary duty. As filed findings of fact and conclusions of law, finding that
in his prior suit, Haddock set forth the events regarding his Haddock had repudiated the CREELP arbitration agreement
resignation as director and officer from the Crescent Entities by litigating the March 2005 suit to a final judgment, that he
in 1999, and alleged that since that time, those entities' was estopped from relying on the arbitration agreement, that
operations had declined and the entities had begun to liquidate Real Parties in Interest accepted that repudiation by defending
their real estate properties, using the proceeds to continue against Haddock's claims and filing a counterclaim, and that
to award extraordinary dividends to stockholders, thereby Real Parties in Interest suffered prejudice.
diluting the value of his CREELP unit options.
Haddock seeks review of the trial court's order both
by petition for writ of mandamus and by interlocutory
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Haddock v. Quinn, 287 S.W.3d 158(2009) appeal. We have consolidated the two proceedings for [5] [6] A party seeking to enforce an arbitration agreement a decision disposing of both simultaneously. See In re must establish the existence of a valid arbitration agreement Valero Energy Corp.,968 S.W.2d 916
, 916â17 (Tex.1998) and show that the claims in dispute fall within the scope (orig.proceeding). The trial court has stayed all proceedings of that agreement. In re Bank One, N.A., 216 S.W.3d in this case pending the outcome of the mandamus proceeding 825, 826 (Tex.2007) (orig.proceeding) (per curiam); In and interlocutory appeal. re Kellogg Brown & Root, Inc.,166 S.W.3d 732, 737
(Tex.2005) (orig.proceeding); see BWI Cos., Inc. v. Beck, 910
S.W.2d 620, 621 (Tex.App.-Austin 1995, orig. proceeding).
III. Discussion In determining the validity of arbitration agreements under
the FAA, we generally apply state-law principles governing
A. Mandamus or Interlocutory Appeal?
the formation of contracts. In re Palm Harbor Homes, Inc.,
[1] The parties agree that the Federal Arbitration Act
195 S.W.3d 672, 676 (Tex.2006) (citing First Options of
(âFAAâ) applies to the arbitration agreement in this case.
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944,115 S.Ct. 1920
,
See generally 9 U.S.C. §§ 1â16 (West 2009). A party
1924, 131 L.Ed.2d 985 (1995)).
seeking relief pursuant to the FAA from a denial or stay of
arbitration must pursue relief by way of petition for writ of
[7] [8] [9] Once the moving party establishes the
mandamus. In re D. Wilson Constr. Co., 196 S.W.3d 774,
existence of a valid arbitration agreement, the trial court then
780 (Tex.2006) (orig.proceeding) ( âMandamus is proper to
determines whether the nonmovant's claims fall within the
correct a clear abuse of discretion when there is no adequate
scope of the arbitration clause. In re FirstMerit Bank, N.A.,
remedy by appeal, ... as when a party is denied its contracted-
52 S.W.3d 749, 753 (Tex.2001) (orig.proceeding). If the trial
for arbitration rights under the FAA.â); In re Valero Energy
court determines that a valid arbitration agreement exists, the
Corp., 968 S.W.2d at 917 (holding mandamus available for
burden shifts to the party opposing arbitration to prove its
denial of arbitration because party has no remedy by appeal
defenses. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, under FAA); Jack B. Anglin Co. v. Tipps,842 S.W.2d 266, 227
(Tex.2003). Whether a valid arbitration agreement exists
272 (Tex.1992) (orig.proceeding); see also W. Dow Hamm III
is a legal question subject to de novo review. In re D. Wilson
Corp. v. Millennium Income Fund, L.L.C., 237 S.W.3d 745,
Constr. Co., 196 S.W.3d at 781.
751 (Tex.App.-Houston [1st Dist.] 2007, no pet.) (holding
mandamus only means of reviewing order granting stay
of arbitration). Therefore, we will dismiss the interlocutory C. The Arbitration Agreement
appeal for want of jurisdiction and proceed to determine Haddock contends by his first issue that repudiation and
whether Haddock as Relator is entitled to mandamus relief. waiver are matters of substantive arbitrability and that the
See Tex.R.App. P. 42.3(a), 43.2(f). parties clearly and unmistakably agreed to have all issues,
including questions of arbitrability, decided by an arbitrator.
Therefore, he asserts, the trial court lacked jurisdiction to
B. Standard of Review
decide the issues of repudiation and waiver. Real Parties in
[2] [3] [4] Mandamus will issue to correct a clear abuse
Interest contend that no valid arbitration agreement continued
of discretion for which the remedy by appeal is inadequate.
to exist because Haddock ârepudiatedâ it by filing the prior
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135â36
lawsuit. They argue that when Haddock commenced the prior
(Tex.2004). A trial court has no discretion in determining
lawsuit, the Crescent Entities were put to an âelectionâ to
what the law is or in applying the law to the facts, and a clear
either terminate or insist on performance of the arbitration
failure to analyze or apply the law correctly will constitute
agreement and that, by filing a counterclaim and allowing the
an abuse of discretion. Walker v. Packer, 827 S.W.2d 833,
prior lawsuit to go to final judgment, the Crescent Entities and
840 (Tex.1992). When a motion to compel arbitration under
Haddock mutually terminated the arbitration agreement.
the FAA has been erroneously denied or when a motion to
stay arbitration is erroneously granted, there is no adequate
remedy by appeal, and mandamus will issue. In re D. Wilson 1. The issue is waiver, not repudiation by election.
Constr. *169 Co., 196 S.W.3d at 780; see also In re
[10] [11] [12] In findings of fact 2 and conclusions of
Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005)
law that it entered after the parties *170 filed their briefs in
(orig.proceeding) (per curiam).
this court and that have not been challenged by either party,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
Haddock v. Quinn, 287 S.W.3d 158 (2009)
the trial court found in favor of Real Parties in Interest that after submission in this court, the Supreme Court of Texas
Haddock extensively addressed the defense of waiver of arbitration by
substantially invoking the judicial process to the other party's
detriment or prejudice. 258 S.W.3d 580, 589â90 (Tex.2008), repudiated the Arbitration Agreement by filing and cert. denied, âââ U.S. ââââ,129 S.Ct. 952
,173 L.Ed.2d 116
prosecuting the Prior Lawsuit to a final judgment. The (2009). By postsubmission supplemental briefs, the parties
Crescent Entities accepted that repudiation by defending have joined issue on whether Haddock waived his right to
against Haddock's claims ... and by prosecuting a arbitration by inconsistent litigation conduct, although Real
counterclaim. The Arbitration Agreement ceased to exist Parties in Interest still say this is an issue of both waiver and
as between these parties on or before April 6, 2006, the date
repudiation. 4
3
Haddock dismissed his appeal of the Prior Lawsuit.
To support their argument that Haddock repudiated the
arbitration agreement, Real Parties in Interest rely on Vireo, *171 2. The trial court has jurisdiction to decide
P.L.L.C. v. Cates, 953 S.W.2d 489, 491(Tex.App.-Austin waiver. 1997, pet. denied). In Vireo, the Austin court held that when [14] [15] As a threshold issue, Haddock argues that the a plaintiff filed suit on an arbitrable claim, the defendant trial court lacked subject matter jurisdiction to decide the had an election to insist or not on arbitration; when the issue of waiver. Federal and state courts have concurrent defendant elected not to arbitrate, the parties therefore jurisdiction to enforce the FAA. In re Palacios, 221 S.W.3d mutually repudiated the arbitration agreement.Id. 564, 565
(Tex.2006) (orig.proceeding); In re Kellogg Brown
& Root, Inc., 166 S.W.3d at 739 (citing Moses H. Cone Mem'l
[13] Although the Supreme Court of Texas has not spoken Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n. 32, 103 on this issue, Vireo's approach, that of âmutual repudiation S.Ct. 927, 942 n. 32,74 L.Ed.2d 765
(1983)). Waiver in and waiver based on electionâ when a plaintiff files suit and the context of this case is a question of arbitrability, and then seeks arbitration, has been rejected by this court on two who decides arbitrability is a matter of contract interpretation occasions as well as by other Texas courts of appeals. See regarding the division of labor or responsibility between the Grand Homes, 96, LP v. Loudermilk,208 S.W.3d 696
, 704 court and the arbitrator, not jurisdiction. See Howsam v. Dean (Tex.App.-Fort Worth 2006, pet. denied) (noting that Vireo Witter Reynolds, Inc.,537 U.S. 79, 83
,123 S.Ct. 588, 592
, holding would undermine policy promoting arbitration and154 L.Ed.2d 491
(2002) (characterizing presumption that observing that TGAA was enacted to abrogate common law questions of arbitrability are to be presented to court unless âright of electionâ doctrine in arbitration context); see also parties have clearly and unmistakably agreed otherwise as Wee Tots Pediatrics v. Morohunfola,268 S.W.3d 784
, 792 âinterpretive ruleâ); Marie v. Allied Home Mtg. Corp., 402 n. 4 (Tex.App.-Fort Worth 2008, no pet.) (again declining F.3d 1, 3 (1st Cir.2005) (noting question of who decides to follow Vireo ); Practicehwy.com, Inc. v. Albany IVF waiver is one of âdivision of laborâ between courts and Fertility and Gynecology, PLLC, No. 05â06â00222âCV, arbitrators).2006 WL 2960838
, at *3 (Tex.App.-Dallas Oct. 18, 2006, no pet.) (mem.op.) (rejecting Vireo as conflating repudiation We recently decided this very issue against Haddock's and waiver). We decline to revisit this issue. We hold that position in another case. Nw. Constr. Co. v. Oak Partners, the trial court abused its discretion by basing its order L.P.,248 S.W.3d 837, 847
(Tex.App.-Fort Worth 2008, pet.
staying arbitration on mutual repudiation of the arbitration denied) (holding question of who decides issue of waiver of
agreement. However, this is but the beginning of our inquiry. arbitration not one of subject matter jurisdiction). We hold
that the trial court had jurisdiction to decide the issue of
In addition to asserting repudiation, Real Parties in Interest waiver. 5
contend that Haddock waived the arbitration agreement by
inconsistent conduct in the prior lawsuit that resulted in
prejudice to them. The trial court made additional findings 3. Who decides the question of waiver by inconsistent
that Haddock's conduct in filing and prosecuting the prior conduct?
lawsuit to final judgment substantially invoked the litigation [16] [17] [18] Haddock next argues that who decides
process and prejudiced the Crescent Entities. In Perry the question of waiver is a matter of contract and that the
Homes v. Cull, handed down after briefs were filed and parties to this arbitration agreement clearly and unmistakably
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
Haddock v. Quinn, 287 S.W.3d 158(2009) referred all questions of arbitrability to an arbitration panel. 6 www.adr.org/sp.asp? id=22440# R7 (last accessed February We agree that âarbitration is a matter of contract.â Howsam, 25, 2009).537 U.S. at 83
,123 S.Ct. at 591
. The question of â âwho has
the primary power to decide arbitrabilityâ turns upon what the Real Parties in Interest respond that the supreme court
parties agreed about that matter.â First Options, 514 U.S. at in Perry Homes has now decided, contrary to Haddock's
944, 115 S.Ct. at 1923. position, that the issue of waiver in a case governed by the
FAA is for the court, not an arbitrator. 258 S.W.3d at 587. [19] There is a âqualificationâ to that general rule, which Although we agree that this was the holding in Perry Homes, is also an exception to the liberal policy favoring arbitration the arbitration agreement at issue in that case contained no agreements. Howsam,537 U.S. at 83
,123 S.Ct. at 591
. reference to the AAA rules. And the supreme court in that âThe question whether the parties have submitted a particular case noted, albeit in another section of its opinion, that there dispute to arbitration, i.e., the question of arbitrability, is âan was no indication in that contract that the parties had âclearly issue for judicial determination [u]nless the parties clearly and unmistakably agreedâ that the arbitrator should decide and unmistakably provide otherwise.â âId.
(quoting AT & T arbitrability. Id. at 587, n. 15 (citing First Options, 514 U.S. Techs., Inc. v. Commc'ns Workers,475 U.S. 643, 649
, 106 at 947â48, 115 S.Ct. at 1924). Therefore, we do not read S.Ct. 1415, 1418,89 L.Ed.2d 648
(1986)); see also First Perry Homes as abandoning the âclear and unmistakableâ Options,514 U.S. at 944
,115 S.Ct. at 1924
; In re Weekley qualification to the presumption that the court is to decide Homes, L.P.,180 S.W.3d 127, 130
(Tex.2005) (â[A]bsent issues of arbitrability.
unmistakable evidence that the parties intended the contrary,
it is the courts rather than the *172 arbitrators that must The majority of courts have concluded that express
decide âgateway matters,â such as whether a valid arbitration incorporation of rules empowering the arbitrator to decide
agreement exists.â). arbitrability (including ruling upon his or her own
jurisdiction) clearly and unmistakably evidences the parties'
In First Options, the Supreme Court noted, in discussing intent to delegate issues of arbitrability to the arbitrator.
the âclear and unmistakable evidenceâ requirement, that âthe See, e.g., Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, law treats silence or ambiguity about the question âwho 1372â73 (Fed.Cir.2006) (holding incorporation of AAA (primarily) should decide arbitrabilityâ differently from the rules, including Rule 7(a), clearly and unmistakably showed way it treats silence or ambiguity about the question whether parties' intent to delegate issue of arbitrability to arbitrator); a particular merits-related dispute is arbitrable because it Contec Corp. v. Remote Solution Co.,398 F.3d 205
, 208
is within the scope of a valid arbitration agreement,' â so (2nd Cir.2005) (holding that incorporation of AAA Rules,
as to not âforce unwilling parties to arbitrate a matter they including Rule 7(a), clearly and unmistakably evinced intent
reasonably would have thought a judge, not an arbitrator, for arbitrator to decide whether nonsignatory party bound
would decide.â 514 U.S. at 944â45, 115 S.Ct. at 1924â25. by arbitration agreement); Terminix Int'l Co., L.P. v. Palmer
Ranch Ltd. P'ship, 432 F.3d 1327, 1332â33 (11th Cir.2005)
(holding by incorporating AAA Rules into agreement, parties
a. No âclear and unmistakableâ evidence of agreement clearly and unmistakably agreed arbitrator should decide
to delegate questions of arbitrability to arbitrator whether arbitration clause was valid); Citifinancial, Inc.
Haddock argues that the arbitration agreement of the limited v. Newton, 359 F.Supp.2d 545, 549â52 (S.D.Miss.2005) partnership agreement âclearly and unmistakablyâ delegates (same); see also Burlington Res. Oil & Gas Co. L.P. v. San arbitrability issues, including waiver, to an arbitration panel Juan Basin Royalty Trust,249 S.W.3d 34, 40
(Tex.App.- by expressly incorporating the Commercial Arbitration Houston [1st Dist.] 2007, pet. denied) (collecting cases). Rules of the American Arbitration Association (âAAAâ). Specifically, Haddock relies upon Rule 7(a) of those rules, *173 But the majority view does not âmandate that which provides that the arbitrator âshall have the power to rule arbitrators decide arbitrability in all cases where an arbitration on his or her own jurisdiction, including any objections with clause incorporates the AAA rules.â San Juan Basin, 249 respect to the existence, scope, or validity of the arbitration S.W.3d at 42 (quoting James & Jackson, LLC v. Willie agreement.â American Arbitration Association, Commercial Gary, LLC,906 A.2d 76, 78, 80
(Del.2006)). Haddock
Arbitration Rules and Mediation Procedures, R7, http:// points out that, in James & Jackson, the Delaware Supreme
Court adopted the majority federal rule that incorporation
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 13
Haddock v. Quinn, 287 S.W.3d 158(2009) of AAA rules requires submission of issues of arbitrability decide such a question is an âarcaneâ to the arbitrator rather than the court. 906 A.2d at 80â81. one that employees are unlikely to However, the court in that case also held that this rule have considered unless clearly spelled would only apply in cases where (1) an arbitration clause out by the employer. generally provides for arbitration of all disputes and also (2) incorporates a set of arbitration rules that empowersId.
arbitrators to decide arbitrability.Id.
Because the arbitration agreement there did not generally provide for arbitration of all The Third Circuit has followed Marie in Ehleiter v. Grapetree disputes but expressly allowed the parties to seek injunctive Shores, Inc., holding that waiver by litigation conduct relief and specific performance in the courts, the court held inconsistent with arbitration is presumptively an issue for the that something other than mere incorporation of AAA rules court.482 F.3d 207, 222
(3rd Cir.2007). It additionally held would be needed in order to establish clear and unmistakable that, even though the arbitration agreement there expressly intent to delegate issues of arbitrability to the arbitrator.Id.
stated that all claims or matters arising out of or relating in
at 81. any fashion to the agreement âshall be considered arbitrableâ
including âthe issue of arbitrability of any claim or dispute,â
In Marie v. Allied Home Mortgage Corp., the arbitration the agreement did not manifest a clear and unmistakable
clause referred to binding arbitration âany and all disputes, intent to have an arbitrator decide the *174 issue of waiver
claims (whether in tort, contract, statutory, or otherwise), and based on litigation conduct. Id. at 221. The court reasoned:
disagreements concerning the interpretation or application
[W]e do not believe that this
of this Agreement ... including the arbitrability of any
provision ... evidences a clear and
such controversy or claim.â 402 F.3d at 14â15. The First
unmistakable intent to have an
Circuit in that case acknowledged that, while the issue of
arbitrator decide procedural questions
waiver by litigation conduct is presumptively for the court,
of arbitrability that arise only
the parties may by agreement shift the waiver issue to an
after the parties have bypassed a
arbitrator by clear and unmistakable expression of intent in
gateway determination of substantive
the agreement. Id. at 14 (citing First Options, 514 U.S. at
arbitrability by the arbitrator and
945, 115 S.Ct. at 1925). But the court held in that case that
actively litigated the underlying
express delegation of âarbitrabilityâ issues to the arbitrator
dispute in court.
in the arbitration agreement at issue there did not evince
âclear and unmistakableâ intent for the arbitrator to decide the Id. at 222. The court in Ehleiter also noted that there
issue of waiver by litigation conduct. Id. at 15. The court in was no reference to waiver of arbitration in the agreement.
Marie noted that the arbitration agreement at issue there also Id. That court refused to interpret the agreement's âsilence
incorporated the AAA rules but that it was silent regarding regarding who decides the waiver issueâ as giving arbitrators
whether the issue of waiver or any similar issue was intended that power â âfor doing so ... [would] force [an] unwilling
to be referred to an arbitrator. Id. part[y] to arbitrate a matter [he] reasonably would have
thought a judge, not an arbitrator, would decide.â â Id.
The court in Marie did not expressly decide the effect of the (quoting First Options, 514 U.S. at 945,115 S.Ct. 1920
, incorporation of the AAA rules but broadly held as follows:131 L.Ed.2d 985
); see also San Juan Basin, 249 S.W.3d
at 41â42 (reasoning that, although reference to AAA rules
We cannot say that the use of the
might otherwise be construed as âclear and unmistakable
term [arbitrability] here evinces a clear
intentâ to refer arbitrability issues to arbitrator, language of
and unmistakable intent to have waiver
agreement was silent as to referral of âarbitrabilityâ issues
issues decided by the arbitrator. There
to arbitrator and limiting language of agreement negated
are no references to waiver or similar
such intent); In re Ford Motor Co., 220 S.W.3d 21, 23
terms anywhere in the arbitration
(Tex.App.-San Antonio 2006, orig. proceeding) (holding,
agreement. Neither party should be
despite reference to AAA rules, that agreement did not clearly
forced to arbitrate the issue of waiver
and unmistakably evidence intent that issue of whether a
by conduct without a clearer indication
nonparty was bound by arbitration agreement be decided by
in the agreement that they have agreed
arbitrator).
to do so. The issue of who would
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 14
Haddock v. Quinn, 287 S.W.3d 158 (2009)
cannot assume from silence in the agreement as to the issue
[20] Haddock seeks to distinguish Marie on the basis that of arbitrability or as to which version of the AAA rules
the conduct constituting waiver arose in the same litigation is to apply, that the parties intended to incorporate Rule
in that case, as contrasted with the prior litigation instituted 7(a), which did not exist when the arbitration agreement was
by Haddock in a different court. 7 We disagree. The conduct added. See Marie, 402 F.3d at 15; see also Ehleiter, 482 F.3d
found to constitute waiver in Marie was in a separate at 222.
proceeding in a different litigation forum, the EEOC. Marie,
402 F.3d. at 14. Silence is not âclear and unmistakable evidenceâ of intent.
The agreement is silent as to whether the parties intended to
Haddock also argues that the First Circuit held that sending incorporate the current rules, silent as to whether the arbitrator
the waiver issue to the arbitrator in Marie would be is to decide issues of âarbitrability,â and silent specifically
âexceptionally inefficientâ given that the case started in regarding who is to decide waiver, repudiation, or similar
court, whereas Haddock claims this matter began with a matters. We hold that the general reference in the arbitration
demand for arbitration so that the issue of waiver could agreement to the AAA rules, without more, does not clearly
more easily be resolved in that forum. To the contrary, the and unmistakably manifest these parties' intent to refer the
conduct complained of by Real Parties in Interest started issue of waiver by litigation conduct to the arbitrator.
when Haddock instituted and pursued his prior litigation to an
adverse decision in court. As the court in Marie recognized,
b. Substantial invocation of the litigation process still an
â[i]f the arbitrator were to find that the defendant had waived
issue for the court after Howsam
its right to arbitrat[ion], then the case would inevitably end up
By part of his second issue, Haddock argues that, even
back in court.â Id. at 13. The same would be true here.
if this court concludes that the trial court had power to
consider some arbitrability issues, the trial court lacked
Finally, Haddock argues that Marie did not address the
power specifically to decide the waiver issue, based upon
incorporation of the AAA rules into the arbitration agreement.
language contained in the United States Supreme Court's
But the court clearly considered that language, because it
decision in Howsam v. Dean Witter Reynolds Inc., which
specifically pointed out that the agreement so stated; yet the
stated that the âpresumption is that the arbitrator should
court found no clear and unmistakable evidence of intent in
decide âallegation[s] of waiver, delay, or a like defense to
the agreement to shift the issue of waiver to the arbitrator. Id.
arbitrability.â â 537 U.S. at 84,123 S.Ct. at 592
(quoting
at 14.
Moses H. Cone Mem'l Hosp., 460 U.S. at 24â25, 103 S.Ct. at
941). In Perry Homes, the Culls made the identical argument
Additionally, as in the San Juan Basin and James & Jackson
made here by Haddock, asserting that whether a party has
cases, the arbitration agreement here is not unequivocal but
waived the right to arbitrate by litigation conduct is an issue to
contains limiting language with regard to the incorporation of
be decided by the arbitrator, rather than the court, based upon
the AAA rules, incorporating those rules âto the extent not
the same language from Howsam. 258 S.W.3d at 588â90. The
inconsistentâ with the remainder of the detailed provisions of
supreme court in Perry Homes rejected that argument, flatly
the arbitration agreement, which contains five sections *175
stating,
and ten paragraphs of information prescribing the procedure
and scope of any arbitration. Every federal court that has addressed
this issue since Howsam has continued
We also note that there is no designation in the arbitration to hold that substantial invocation of
agreement here as to which version of the AAA rules is the litigation process is a question for
to apply, the version in existence when the agreement was the court rather than the arbitratorâ
made or that in existence at the time of the dispute. Haddock including the First, Third, Fifth, and
acknowledges that the rule now designated as Rule 7(a), Eighth Circuit. Legal commentators
upon which he relies, did not exist when the arbitration appear to agree. So do we.
agreement was added to the limited partnership agreement
in 1994. Although, as Haddock points out, the partnership Id. at 589; see JPD, Inc. v. Chronimed Holdings, Inc., 539
agreement has been amended several times since its inception F.3d 388, 393â94 (6th Cir.2008) (holding Howsam limited to
without change to the arbitration agreement language, we contractually based waiver, not waiver by litigation conduct
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 15
Haddock v. Quinn, 287 S.W.3d 158(2009) inconsistent with arbitration); Ehleiter,482 F.3d at 217
; the arbitration agreement by filing and prosecuting the prior Marie, 402 F.3d at 13â14; Republic Ins. Co. v. PAICO lawsuit. We overrule Haddock's first issue. 8 Receivables, LLC,383 F.3d 341
, 344â47 (5th Cir.2004); Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am.,97 Fed.Appx. 462, 464
(5th Cir.2004). We overrule that portion D. Waiver by Prior Litigation Conduct Inconsistent with
of Haddock's second issue. Arbitration
Having dealt with the preliminary arguments that consumed
the vast bulk of the briefing by both sides, we now address the
c. The âNoâWaiverâ Rule main issue. Haddock contends that the trial court abused its
Haddock also argues that Rule 48â(a) of the AAA rules discretion and misapplied the law to the facts by concluding
incorporated into the arbitration agreement is a factor to that he waived arbitration by his conduct in initiating and
be taken *176 into consideration in determining whether prosecuting the prior lawsuit. Haddock maintains that his
he waived the agreement. That rule provides, âNo judicial prior lawsuit did not assert the same issues raised by his
proceeding by a party relating to the subject matter of the demand for arbitration and that the issue in the prior lawsuit
arbitration shall be deemed a waiver of a party's right to did not âaris[e] out of or in connection with th[e] [Partnership]
arbitrate.â American Arbitration Association, Commercial Agreement or the Partnershipâ but, instead, arose from an
Arbitration Rules and Mediation Procedures, R48, http:// entirely *177 separate contractâthe severance agreement
www.adr.org/sp.asp?id=22440# R48 (last accessed February âwhich was not subject to arbitration.
25, 2009). Haddock acknowledges that this rule does not
preclude a finding of waiver but argues that this rule, as Real Parties in Interest do not contest the validity of the
incorporated into the agreement, is further indication of the arbitration agreement in the limited partnership agreement.
parties' intent to favor arbitration, specifically with regard to Their position is that the severance agreement is subject to
waiver. the arbitration agreement contained in the limited partnership
agreement that Haddock raised and litigated in the prior
[21] The presence of such a âno waiverâ clause in an litigation, that his conduct in the prior litigation was
arbitration agreement does not alter the ordinary analysis inconsistent with an intent to arbitrate that claim, and that they
undertaken to determine if a party has waived its right to suffered prejudice; thus, they argue, Haddock waived his right
arbitration by litigation conduct. PAICO, 383 F.3d at 348. to arbitrate his current claims. The Fifth Circuit in that case agreed with those courts that have interpreted such a âno waiverâ clause as intended to [22] [23] Whether a party has waived its arbitration rights permit parties to seek provisional remedies or other judicial under the FAA by inconsistent litigation conduct is a question proceedings that would not function to displace arbitration of law that we review de novo. Perry Homes, 258 S.W.3d at on the underlying dispute.Id.
Specifically, the court in 598 & n. 102; see also In re Citigroup Global Mkts., Inc., 258 PAICO stated, â â[T]he fact that an arbitration agreement S.W.3d 623, 625 (Tex.2008) (orig.proceeding) (per curiam); incorporates such a provision would not prevent a court In re Serv. Corp. Int'l,85 S.W.3d 171, 174
(Tex.2002) from finding that a party waived arbitration by protracted (orig.proceeding) (per curiam). Because public policy favors litigation of an arbitrable dispute.â âId.
(quoting S & R Co. arbitration, there is a strong presumption against waiver of v. Latona Trucking, Inc.,159 F.3d 80
, 85 (2nd Cir.1998), arbitration. Moses H. Cone Mem'l Hosp., 460 U.S. at 24â25, cert. dism'd,528 U.S. 1058
,120 S.Ct. 629
,145 L.Ed.2d 506
103 S.Ct. at 941; In re D. Wilson Constr. Co., 196 S.W.3d (1999)); see also Home Gas Corp. v. Walter's of Hadley, at 783. Inc.,403 Mass. 772
,532 N.E.2d 681
, 684â85 (1989) (holding âno waiverâ clause did not prevent finding of waiver by [24] [25] [26] The party asserting waiver bears a heavy litigation conduct); Seidman & Seidman v. Wolfson, 50 burden of proof, and the court must resolve all doubts in favor Cal.App.3d 826, 835,123 Cal.Rptr. 873
(Cal.Ct.App.1975) of arbitration. In re Bruce Terminix Co.,988 S.W.2d 702, 704
(stating purpose behind âno waiverâ rule is not to allow a (Tex.1998). Waiver must be intentional. In re Bank One, N.A., party to seek judicial relief of a controversy âand later to216 S.W.3d at 827
. Waiver may be express or implied from switch course and demand arbitrationâ). a party's conduct, but that conduct must be unequivocal.Id.
Additionally, waiver in the context of arbitration agreements
We hold that the trial court properly determined that it, rather subject to the FAA requires more than is required for general
than an arbitrator, should decide whether Haddock waived
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 16
Haddock v. Quinn, 287 S.W.3d 158 (2009)
waiverâit requires proof that the party asserting waiver as to each of the terms and conditions of the partnership
a defense to arbitration has suffered prejudice. Perry Homes, agreement.â That option plan further provides that upon
258 S.W.3d at 594â95 & n. 80 (reaffirming requirement of exercising an option thereunder, each participant is âdeemed
prejudice and collecting cases). to have accepted and agreed to be bound by each of the
terms and conditions of the Partnership Agreement for all
[27] Under the FAA, â[a] party waives an arbitration clause purposes.â [Emphasis added.] As amended in 1994 and
by substantially invoking the judicial process to the other thereafter, the partnership agreement, in turn, contains the
party's detriment.â In re Citigroup Global Mkts., Inc., 258 arbitration agreement under which Haddock seeks to arbitrate
S.W.3d at 625 (quoting Perry Homes, 258 S.W.3d at 594). his CREELP unit option and his CEI stock option claims. 9 [28] [29] To demonstrate waiver, the party opposing While Haddock claims that he initially sought only to reform arbitration must establish both that (1) the party seeking the unfavorable-comments clause of the severance agreement arbitration substantially invoked the judicial process and (2) in the prior lawsuit, he had a stated purpose for doing soâ the party opposing arbitration suffered prejudice thereby. In so that he could plead and litigate his claims of risky loans re Bruce Terminix,988 S.W.2d at 704
. To invoke the judicial and mismanagement of the Crescent Entities, which allegedly process, a party âmust, at the very least, engage in some overt resulted in devaluing his CREELP and CEI options, without act in court that evinces a desire to resolve the arbitrable fear of violating that clause. Moreover, he also sought and dispute through litigation rather than arbitration.â PAICO, obtained affirmative injunctive relief against the Crescent383 F.3d at 344
(quoting Subway Equip. Leasing Corp. v. Entities, preventing them from threatening or taking action Forte,169 F.3d 324, 326
(5th Cir.1999)). to forfeit his rights in the CREELP unit options vested in
him by the severance agreement. Haddock expressly stated
his intent to file an additional suit to assert his claims
1. The prior suit substantially invoked the judicial
against the Crescent Entities or, alternatively, to assert those
process
claims in that same suit, and he sought the protection of the
[30] Haddock contends that waiver could not have occurred
court through a ruling that he would not risk interference
because the prior suit concerned only the unfavorable-
or forfeiture of his options by proceeding with his proposed
comments clause in the severance agreement, which had no
litigation.
arbitration agreement, and that his current arbitration demand
asserts entirely different claims that arise only out of a
Only after ultimately suffering an adverse result in his suit
separate contract, i.e., the partnership agreement. Therefore,
did Haddock turn to arbitration. Haddock alleged in his
we first determine whetherâas Real Parties in Interest
arbitration demand that the option claims he now asserts in
contendâthe prior suit invoked the judicial process regarding
that demand are âcovered by the arbitration provision in the
the same claims that Haddock now seeks to arbitrate. See id.
at 344â47 (holding waiver applies only where the same claim Limited Partnership Agreement.â 10 The fact is that both his
sought to be arbitrated was previously litigated but upholding prior suit and his arbitration demand assert the same conduct
finding of waiver where jurisdiction of court was previously of Real Parties in Interest, namely, allegedly refusing to honor
invoked *178 on all issues). We agree with Real Parties in and reducing in value his CREELP unit options and CEI stock
Interest on this key issue. options.
Although the severance agreement contains no arbitration Haddock cannot have it both ways. If, as he says, his claims
clause, the CREELP unit option planâas amended and regarding option rights asserted in his arbitration demand are
attached to the severance agreementâdoes. Both the prior covered by the arbitration agreement, then so were the claims
suit and the arbitration demand concern claims that âaris[e] regarding the *179 option rights that he sought to protect in
out of or in connection withâ the limited partnership or the the previous lawsuit and planned to litigate once he obtained
limited partnership agreement by virtue of the CREELP unit a declaration that the unfavorable-comments clause of his
option plan, which is subject to all terms of the limited severance agreement did not preclude such a suit. By his prior
partnership agreement. Section 6.26 of the 1996 CREELP lawsuit, Haddock invoked the judicial process with respect to
Unit Option Incentive Plan, attached as an appendix to the same claims specifically regarding his options in CREELP
Haddock's severance agreement, expressly provides that that he now seeks to arbitrate.
âthe rights granted thereunder are governed by and subject
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 17
Haddock v. Quinn, 287 S.W.3d 158(2009) [31] Was his invocation of the judicial process in the prior claims in that lawsuit or in another suit as to mismanagement litigation âsubstantialâ? Waiver by litigation conduct must be and refusal of the Crescent Entities to allow him to exercise decided under a totality-of-the-circumstances test on a case- his options. Throughout the prior litigation, Haddock never by-case basis. Perry Homes,258 S.W.3d at 591
. Factors listed mentioned the arbitration agreement under which he now in that case in considering the totality of the circumstances seeks to arbitrate his option claims. Yet he was clearly aware include whether the party seeking arbitration chose to file of it because he admits in his brief in this court that he desired in court as plaintiff, how long the party seeking arbitration that it be included in the limited partnership agreement in delayed before seeking that process, whether that party knew 1994. of the arbitration clause from the outset, how much discovery was conducted, how much pretrial activity went to the merits, [32] Further, waiver may be found where a party has tried how much time and expense was incurred in litigation, and failed to achieve a satisfactory result before turning whether the party seeking arbitration filed dispositive motions to arbitration. See, e.g., Oak Partners,248 S.W.3d at 848
; or sought judgment on the merits, and when the case was to Loudermilk,208 S.W.3d at 704
; Williams Indus., Inc. v. Earth be tried.Id.
at 591â92. Dev. Sys. Corp.,110 S.W.3d 131, 135
(Tex.App.-Houston
[1st Dist.] 2003, no pet.); *180 In re Winter Park Constr.
Real Parties in Interest assert that Haddock âsubstantiallyâ Inc., 30 S.W.3d 576, 579 (Tex.App.-Texarkana 2000, orig.
invoked the judicial process with respect to his claim proceeding); compare In re Bruce Terminix Co., 988 S.W.2d
regarding his rights in the CREELP unit options because at 704 (finding no waiver where defendant did not ask court
for any judicial decision such as by requesting summary
(1) Haddock chose to file the prior lawsuit in court rather judgment).
than arbitrate (âwhether the movant was the plaintiff (who
chose to file in court) or the defendant (who merely [33] Indeed, failing to seek arbitration until after proceeding
responded)â); in litigation to an adverse result is the clearest form of
inconsistent litigation conduct and is inevitably found to
(2) Haddock filed the prior lawsuit in March 2005,
constitute substantial invocation of the litigation process
pursued it through final judgment, appealed it to this court,
resulting in waiver. See, e.g., Jones v. Citibank (S.D.), N.A.,
and waited until July of 2006 to file his demand for
235 S.W.3d 333, 340â41 (Tex.App.-Fort Worth 2007, no
arbitration (âhow long the movant delayed before seeking
pet.) (holding defendant waived arbitration of counterclaim
arbitrationâ);
by litigating over two years and after summary judgment
(3) Haddock was âthe primary signatory on the First was rendered against her); see also Frye v. Paine, Webber,
Amended Limited Partnership Agreementâ and âintended Jackson & Curtis, Inc., 877 F.2d 396, 398(5th Cir.1989) for the arbitration agreement to be broad and encompass (holding party waived arbitration by participating in litigation all claims and disputes (âwhether the movant knew of the that ended in mistrial), cert. denied,494 U.S. 1016
, 110 S.Ct. arbitration clause all alongâ)â; 1318,108 L.Ed.2d 493
(1990); Miller Brewing Co. v. Fort
Worth Distrib. Co., 781 F.2d 494, 497â98 (5th Cir.1986) (4) Haddock knew of the arbitration agreement in 1994 (finding waiver by filing state court lawsuit and permitting it when he signed the First Amended Limited Partnership to be dismissed for want of prosecution); see also Carbajal v. Agreement (âwhen the movant knew of the arbitration Household Bank F.S.B., No. 00 C 0626,2003 WL 22159473
,
clauseâ); at *10 (N.D.Ill. Sept. 18, 2003) (noting â[p]articipation in
litigation raises concerns of forum-shopping. If a party first
(5) Haddock was the plaintiff in the prior lawsuit and filed demands arbitration only after it receives an adverse ruling in
two motions for summary judgment (âwhether the movant the lawsuit, courts inevitably will find waiverâ and collecting
filed affirmative claims and dispositive motionsâ); and cases), aff'd, 372 F.3d 903(7th Cir.2004); Oak Partners,248 S.W.3d at 849
(holding trial court's waiver finding based
(6) Haddock pursued the prior lawsuit to a final judgment
on totality of circumstances including engaging in extensive
(âwhether the movant sought judgment on the meritsâ).
discovery over nineteen-month period, filing of counterclaim,
cross-claims, and motion for partial summary judgment, and
Haddock does not dispute these facts. Haddock chose to file
seeking arbitration only after failure of mediation).
his prior suit rather than to arbitrate, sought and obtained
affirmative relief, and expressed his intent to pursue his
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 18
Haddock v. Quinn, 287 S.W.3d 158(2009) Haddock filed his arbitration demand after filing suit, of complex litigation served as waiver of right to arbitrate obtaining injunctive relief, litigating for some nine months, when opposing parties were prejudiced by being forced to filing two motions for summary judgment, and finally bear expenses of a quite lengthy trial, which is the kind of suffering an adverse result in the prior lawsuit. All of these prejudice arbitration is designed to avoid). facts support the trial court's finding that he substantially invoked the litigation process and thereby waived his right to [39] [40] âPrejudiceâ has many meanings. Perry Homes, arbitration.258 S.W.3d at 597
. However, prejudice or âdetrimentâ in
the context of litigation conduct inconsistent with arbitration
[34] Moreover, participation in litigation to gain an relates to âinherent unfairnessâ caused by âa party's attempt
advantage in future litigation can result in waiver. See In to have it both ways by switching between litigation and
re Christus Spohn Health Sys. Corp., 231 S.W.3d 475, 481 arbitration to its own advantage.â Id.; see also Subway, 169 (Tex.App.-Corpus Christi 2007, orig. proceeding) (holding F.3d at 327 (referring to âinherent unfairnessâin terms of hospital's prior litigation conduct in criminal case constituted delay, expense, or damage to a party's legal positionâthat waiver of right to arbitrate where prior litigation involved occurs when the party's opponent forces it to litigate an issue developing evidence as part of strategic plan for defense of and later seeks to arbitrate that same issueâ). â[A] party should civil suit for damages). Haddock made clear in his pleadings not be allowed purposefully and unjustifiably to manipulate in his prior suit that his strategy and plan was to obtain an the exercise of its arbitral rights simply to gain an unfair interpretation of the severance agreement that would permit tactical advantage over the opposing party.âId.
(citing In re him to assert his claims in a lawsuit without violating the Tyco Int'l Ltd. Securities Litigation,422 F.3d 41
, 46 n. 5 (1st
unfavorable-comments clause while preventing Real Parties Cir.2005)).
in Interest from taking any action to interfere with the option
rights he sought to protect by injunctive relief and which he [41] [42] [43] [44] Ultimately, what constitutes waiver
now seeks to arbitrate. of the right to arbitrate depends on the facts of each case.
PAICO, 383 F.3d at 346(citing Tenneco Resins, Inc. v. Haddock filed his arbitration demand for his option claims Davy Int'l, AG,770 F.2d 416, 420
(5th Cir.1985)). Three over a year and a half after filing suit, prosecuting that suit, factors are particularly relevant in determining prejudice.Id.
suffering an adverse summary judgment in the trial court, First, pretrial activity related to all claims including those and after dismissing his appeal to this court. Considering the that are arbitrable may result in prejudice.Id.
(citing Price totality of the circumstances as articulated in Perry Homes, v. Drexel Burnham Lambert, Inc.791 F.2d 1156
, 1161â
we hold that Haddock substantially invoked the judicial 62 (5th Cir.1986)). Second, time and expense incurred in
process. defending against a motion for summary judgment could
prejudice the party opposing arbitration. Price, 791 F.2d at
1162. Thus, both delay and the extent of the moving party's 2. Prejudice participation in judicial proceedings are material factors in [35] [36] [37] [38] Substantially invoking the judicialassessing prejudice. Frye,877 F.2d at 398
. Third, failure to process does not waive a party's arbitration rights unless the assert the right to demand arbitration is a factor bearing on the opposing party also proves that it suffered prejudice as a question of prejudice along with other considerations. Price, result. *181 Perry Homes, 258 S.W.3d at 593â94 (citing 791 F.2d at 1161â62. A demand for arbitration puts the other In re Bruce Terminix Co.,988 S.W.2d at 704
). âCourts party on notice that arbitration is forthcoming and affords that will not find that a party has waived its right to enforce an party the opportunity to avoid compromising its position with arbitration clause by merely taking part in litigation unless it regard to arbitrable and nonarbitrable claims. PAICO, 383 has substantially invoked the judicial process to its opponent's F.3d at 347. detriment.â In re Service Corp. Int'l,85 S.W.3d at 174
. âWhen one party reveals a disinclination to resort to arbitration on [45] If a party has asserted the right to arbitrate at or before any phase of suit involving all parties, those parties are commencement of litigation, the party opposing arbitration prejudiced by being forced to bear the expense of a trial.... will necessarily carry a heavy burden to show waiver. Substantially invoking the litigation machinery qualifies asId.
Conversely, when a party fails to demand arbitration the kind of prejudice that is the essence of waiver.â E.C. and also engages in pretrial activity inconsistent with the Ernst, Inc. v. Manhattan Constr. Co.,559 F.2d 268, 269
(5th intent to arbitrate, the opposing party seeking to show
Cir.1977) (holding extensive postsuit actions in all phases
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 19
Haddock v. Quinn, 287 S.W.3d 158 (2009)
filed the prior lawsuit, until July 2006, when he filed his
waiver âmay more easily show that its position has been
statement of claims with the AAA. During that time, among
compromised, i.e., prejudiced.â Id.; see Oak Partners, 248
other things, he obtained a temporary injunction, filed two
S.W.3d at 851 (concluding that plaintiff showed prejudice
motions for summary judgment, litigated his claims to an
when defendant delayed nineteen months before moving to
adverse judgment, and filed and dismissed an appeal from
compel arbitration, during which time it actively pursued
that judgment. The trial court specifically found that the
litigation in the trial court, sought discovery from plaintiff,
âCrescent Entities were prejudiced by Haddock's invocation
*182 and actively sought relief from the trial court, which
of the judicial system in the Prior Lawsuit. In reliance on
forced plaintiff to respond and to incur attorney's fees); Jones,
Haddock's actions, the Crescent Entities spent substantial
235 S.W.3d at 340â41 (holding appellant waived her right
sums defending Haddock's claims in the Prior Lawsuit and
to arbitrate when she waited for over two years after card
prosecuting a counterclaim.â Haddock has not challenged that
issuer's first petition was filed before requesting arbitration,
finding.
and by that time had filed numerous motions including a
motion to dismiss, a counterclaim, and opposition to summary
We hold that the trial court did not abuse its discretion by
judgment); see also Fraser v. Merrill Lynch Pierce, Fenner
staying the arbitration because Haddock made his choice:
& Smith, Inc., 817 F.2d 250, 253 (4th Cir.1987) (finding
he substantially invoked the judicial process as to his option
sufficient prejudice to support waiver where brokerage firm
delayed four-and-one-half years before seeking arbitration, claims to the prejudice of Real Parties in Interest in the
two trial dates passed, and opposing party was required to prior litigation and thereby waived his right to arbitrate those
respond to two motions for partial summary judgment and claims. We overrule Haddock's third issue.
three motions to dismiss); Miller Brewing, 781 F.2d at 497â
98 (finding waiver where plaintiff unconditionally filed suit,
IV. Conclusion
waited eight months to assert right to arbitrate, and did not Haddock does not challenge the trial court's ruling that
pursue arbitration until after its suit was dismissed three his claims based on his stock options in CEI or his
years later for want of prosecution). Likewise, in Price, the SarbanesâOxley claim are beyond the scope of the arbitration
Fifth Circuit Court of Appeals held that prejudice resulted in agreement. Nor has he raised an issue on appeal as to the
waiver when the party opposing arbitration had been put to trial court's ruling that his claims against Quinn, Rowsey, and
the expense and time of defending a motion to dismiss and Worrell are beyond the scope of the arbitration agreement.
for summary judgment because unlike a perfunctory motion Therefore, we need not reach the propriety of the trial court's
to dismiss before answering, a federal rule 12(b) motion to order as to those claims. Having overruled Haddock's three
dismiss and for summary judgment âcould not have caused issues, we deny the petition for writ of mandamus, and we
anything but substantial prejudice to the Prices.â 791 F.2d at dismiss the interlocutory appeal for want of jurisdiction.
1162.
[46] Haddock failed to seek arbitration before initiating
the prior litigation. Then he waited over fourteen months WALKER, J., concurs without opinion.
before requesting arbitration, from March 2005, when he
Footnotes
1 Each of several amended partnership agreements contain the identical arbitration provision.
2 When an abuse of discretion standard of review applies to a trial court's ruling, findings of fact and conclusions of law aid us in
reviewing the propriety of the ruling by providing us with an explanation for the ruling. Chrysler Corp. v. Blackmon, 841 S.W.2d 844,
852(Tex.1992); Samuelson v. United Healthcare of Tex., Inc.,79 S.W.3d 706, 710
(Tex.App.-Fort Worth 2002, no pet.). But while
findings of fact and conclusions of law can be helpful in applying the abuse of discretion standard, they are not required. Samuelson,
79 S.W.3d at 710. To determine whether a trial court abused its discretion, we must decide whether it acted without reference to any
guiding rules or principles; in other words, whether the act was arbitrary or unreasonable. See Downer v. Aquamarine Operators, Inc.,
701 S.W.2d 238, 241â42 (Tex.1985), cert. denied,476 U.S. 1159
,106 S.Ct. 2279
,90 L.Ed.2d 721
(1986). Any factual issues decided
by the court in reaching the decision under review are not reviewed by legal- and factual-sufficiency standards, although when the
decision under review is based on facts determined by the court, those facts must have some support in the evidence. Crouch v.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 20
Haddock v. Quinn, 287 S.W.3d 158 (2009)
Tenneco, Inc., 853 S.W.2d 643, 649 & n. 2 (Tex.App.-Waco 1993, writ denied) (op. on reh'g). However, neither party has challenged
the trial court's findings of fact in this case.
3 The facts in this case are undisputed. Relator's position is that the trial court misapplied the law to the facts and abused its discretion.
See In re Dillard Dep't Stores, Inc., 198 S.W.3d 778, 780 (Tex.2006).
4 Indeed, Haddock has argued from the outset that ârepudiationâ and âwaiverâ in the context of a party's litigation conduct that is
inconsistent with arbitration have no substantive difference.
5 Although the trial court did not make an explicit finding or conclusion as to whether it possessed the power to determine the issue of
waiver, it implicitly so concluded because it proceeded to determine the essential elements of waiver against Haddock.
6 The limited partnership agreement requires that Delaware law be used when construing the agreement, specifically including the
arbitration agreement. The parties agree that, to the extent that any state substantive law applies, Delaware law âmirrors federal law.â
When applying the FAA, Texas courts also look to federal law to decide substantive issues. Jack B. Anglin Co., 842 S.W.2d at 271â
72. We thus look to federal law to determine this issue.
7 Haddock does not discuss the differences between or attempt to distinguish Ehleiter or James & Jackson from this case.
8 We also overrule the second part of Haddock's second issue, in which he argues that whether the arbitration agreement forbids his
SarbanesâOxley derivative claim is for the arbitrator to decide, not the court, similar to a like issue regarding class arbitration under
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 449,123 S.Ct. 2402, 2405
,156 L.Ed.2d 414
(2003) (holding question of whether
an arbitration agreement forbade class arbitration was for the arbitrator, not the court, because it involved contract interpretation and
arbitration procedures). The trial court did not determine that the derivative claim was forbidden by the arbitration agreement; rather,
it determined that the claim was outside the scope of the arbitration agreement because most CEI stockholders were not parties to the
partnership agreement. Haddock has not challenged that ruling or the findings of the court to that effect.
9 The trial court found, and Haddock has not challenged that finding, that he raised some of the same issues in the prior suit that
he now seeks to arbitrate, alleging in his petition in that suit that the Crescent Entities âmay be acting adversely to the interests of
stockholders and unitholdersâ and that âHaddock further believes the management of the Employer Group is not acting in the best
interests of the shareholders and unitholders by providing risky loans to executives which seriously jeopardize the financial health
and stability of the Employer Group.â
10 Although Haddock points out that he had and retains to this day a limited partnership interest in CREELP, he has never explained
how the arbitration demand involves that limited partnership interest, other than through the identical options that were involved
in the prior suit.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 21
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847...
Arbitrability
123 S.Ct. 588 of Dispute
Supreme Court of the United States
A gateway dispute about whether the parties
Karen HOWSAM, Individually and as Trustee are bound by a given arbitration clause
raises a âquestion of arbitrabilityâ for a court
for the E. Richard Howsam, Jr., Irrevocable Life
to decide; similarly, a disagreement about
Insurance Trust Dated May 14, 1982, Petitioner,
whether an arbitration clause in a concededly
v.
binding contract applies to a particular type of
DEAN WITTER REYNOLDS, INC. controversy is for the court.
No. 01-800. | Argued Oct. 9, 578 Cases that cite this headnote
2002. | Decided Dec. 10, 2002.
Brokerage firm brought suit seeking to enjoin customer from [3] Alternative Dispute Resolution
arbitrating dispute with National Association of Securities
Matters
Dealers (NASD). The United States District Court for the
to Be Determined by Court
District of Colorado dismissed suit, but the Court of Appeals
for the Tenth Circuit, Ebel, Circuit Judge, 261 F.3d 956, Alternative Dispute Resolution
reversed. After granting certiorari, the United States Supreme
Waiver,
Court, Justice Breyer, held that: (1) interpretation of NASD
Laches, or Estoppel
rule imposing six-year time limit for arbitration was a matter
presumptively for the arbitrator, not for the court, abrogating âProceduralâ questions which grow out of the
J.E. Liss & Co. v. Levin, 201 F.3d 848, and (2) parties' contract dispute and bear on its final disposition are
did not call for judicial determination of whether arbitration presumptively not for the judge, but for an
was time-barred. arbitrator, to decide; the presumption is that the
arbitrator should decide allegations of waiver,
Reversed. delay, or a like defense to arbitrability.
393 Cases that cite this headnote
Justice Thomas filed an opinion concurring in the judgment.
Justice O'Connor did not participate. [4] Alternative Dispute Resolution
Relations
Between Customer-Investors and Broker-
West Headnotes (5) Dealers
Issue of whether arbitration of dispute between
[1] Alternative Dispute Resolution brokerage firm and its customer was time-barred
under the National Association of Securities
Arbitrability Dealers (NASD) Code of Arbitration Procedure
of Dispute was a gateway procedural dispute that did not
The question whether the parties have submitted present a âquestion of arbitrability,â and thus
a particular dispute to arbitration, i.e., the interpretation of NASD time limit rule was a
âquestion of arbitrability,â is an issue for judicial matter presumptively for the arbitrator, not for
determination unless the parties clearly and the court; NASD arbitrators were comparatively
unmistakably provide otherwise. more expert about meaning of their own rule and
better able to interpret and apply it; abrogating
544 Cases that cite this headnote J.E. Liss & Co. v. Levin, 201 F.3d 848.
247 Cases that cite this headnote
[2] Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847...
L.Ed.2d 1409. The question whether parties have submitted
[5] Alternative Dispute Resolution a particular dispute to arbitration, i.e., the âquestion of
arbitrability,â is âan issue for judicial determination [u]nless
Agreements
the parties clearly and unmistakably provide otherwise.â AT
to Arbitrate
& T Technologies, Inc. v. Communications Workers, 475
Contract between brokerage firm and its
U.S. 643, 649, 106 S.Ct. 1415,89 L.Ed.2d 648
. The phrase
customer, which incorporated the National
âquestion of arbitrabilityâ has a limited scope, applicable in
Association of Securities Dealers (NASD) Code
the kind of narrow circumstance where contracting parties
of Arbitration Procedure, did not call for judicial
would likely have expected a court to have decided the
determination of whether arbitration was time-
gateway matter. But **590 the phrase is not applicable
barred under NASD arbitration time limit rule,
in other kinds of general circumstance where parties would
although rule limited arbitration to âeligibleâ
likely expect that an arbitrator would decide the question-â
disputes, where rule's use of term âeligibleâ did
âproceduralâ questions which grow out of the dispute and
not indicate parties' intent for time limit issue to
bear on its final disposition,â John Wiley & Sons, Inc. v.
be resolved by court prior to arbitration, since
Livingston, 376 U.S. 543, 557,84 S.Ct. 909
,11 L.Ed.2d 898
,
parties to an arbitration contract would normally
and âallegation [s] of waiver, delay, or a like *80 defense to
expect a forum-based decisionmaker to decide
arbitrability,â Moses H. Cone Memorial Hospital v. Mercury
forum-specific procedural gateway matters.
Constr. Corp., 460 U.S. 1, 24-25,103 S.Ct. 927
,74 L.Ed.2d 372
Cases that cite this headnote 765. Following this precedent, the application of the NASD
rule is not a âquestion of arbitrabilityâ but an âaspec[t] of
the [controversy] which called the grievance procedures into
play.â John Wiley & Sons, Inc., supra, at 559, 84 S.Ct. 909.
NASD arbitrators, comparatively more expert about their
own rule's meaning, are comparatively better able to interpret
**589 Syllabus *
and to apply it. In the absence of any statement to the contrary
Per respondent Dean Witter Reynolds, Inc.'s standard client in the arbitration agreement, it is reasonable to infer that the
agreement, petitioner Howsam chose to arbitrate her dispute parties intended the agreement to reflect that understanding.
with the company before the National Association of And for the law to assume an expectation that aligns (1)
Securities Dealers (NASD). NASD's Code of Arbitration decisionmaker with (2) comparative expertise will help better
Procedure § 10304 states that no dispute âshall be eligible to secure the underlying controversy's fair and expeditious
for submission ... where six (6) years have elapsed from the resolution. Pp. 591-593.
occurrence or event giving rise to the ... dispute.â Dean Witter
filed this suit, asking the Federal District Court to declare the (b) Dean Witter's argument that, even without an
dispute ineligible for arbitration because it was more than six antiarbitration presumption, the contracts call for judicial
years old and seeking an injunction to prohibit Howsam from determination is unpersuasive. The word âeligibleâ in the
proceeding in arbitration. The court dismissed the action, NASD Code's time limit rule does not, as Dean Witter
stating that the NASD arbitrator should interpret and apply claims, indicate the parties' intent for the rule to be resolved
the NASD rule. In reversing, the Tenth Circuit found that by the court prior to arbitration. Parties to an arbitration
the rule's application presented a question of the underlying contract would normally expect a forum-based decisionmaker
dispute's âarbitrabilityâ; and the presumption is that a court to decide forum-specific procedural gateway matters, and any
will ordinarily decide an arbitrability question. temptation here to place special antiarbitration weight on the
word âeligibleâ in § 10304 is counterbalanced by the NASD
Held: An NASD arbitrator should apply the time limit rule to rule that âarbitrators shall be empowered to interpret and
the underlying dispute. Pp. 591-593. determine the applicabilityâ of all code provisions, § 10324.
P. 593.
(a) â[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which 261 F.3d 956, reversed. he has not agreed so to submit.â Steelworkers v. Warrior & Gulf Nav. Co.,363 U.S. 574, 582
,80 S.Ct. 1347
, 4
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847...
BREYER, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and STEVENS, SCALIA, KENNEDY, *82 The agreement also provides that Howsam can select
SOUTER, and GINSBURG, JJ., joined. THOMAS, J., the arbitration forum. And Howsam chose arbitration before
filed an opinion concurring in the judgment, post, p. 593. the NASD.
O'CONNOR, J., took no part in the consideration or decision
of the case. To obtain NASD arbitration, Howsam signed the NASD's
Uniform Submission Agreement. That agreement specified
that the âpresent matter in controversyâ was submitted
Attorneys and Law Firms for arbitration âin accordance withâ the NASD's âCode of
Arbitration Procedure.â Id., at 24. And that Code contains
Alan C. Friedberg, Denver, CO, for petitioners. the provision at issue here, a provision stating that no dispute
âshall be eligible for submission ... where six (6) years have
Matthew D. Roberts, for the United States as amicus curiae,
elapsed from the occurrence or event giving rise to the ...
by special leave of the Court supporting the petitioners.
dispute.â NASD Code § 10304.
Kenneth W. Starr, Arlington, VA, for respondent.
After the Uniform Submission Agreement was executed,
Opinion Dean Witter filed this lawsuit in Federal District Court. It
asked the court to declare that the dispute was âineligible
*81 Justice BREYER delivered the opinion of the Court. for arbitrationâ because it was more than six years old.
App. 45. And it sought an injunction that would prohibit
This case focuses upon an arbitration rule of the National
Howsam from proceeding in arbitration. The District Court
Association of Securities Dealers (NASD). The rule states
dismissed the action on the ground that the NASD arbitrator,
that no dispute âshall be eligible for submission to
not the court, should interpret and apply the NASD rule.
arbitration ... where six (6) years have elapsed from the
The Court of Appeals for the Tenth Circuit, however,
occurrence or event giving rise to the ... dispute.â NASD
reversed. 261 F.3d 956 (2001). In its view, application of the
Code of Arbitration Procedure § 10304 (1984) (NASD Code
NASD rule presented a question of the underlying dispute's
or Code). We must decide whether a court or an NASD
âarbitrabilityâ; and the presumption is that a court, not an
arbitrator should apply the rule to the underlying controversy.
arbitrator, will ordinarily decide an âarbitrabilityâ question.
We conclude that the matter is for the arbitrator.
See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995).
I The Courts of Appeals have reached different conclusions
about whether a court or an arbitrator primarily should
The underlying controversy arises out of investment advice
interpret and apply this particular NASD rule. Compare, e.g.,
that Dean Witter Reynolds, Inc. (Dean Witter), provided its
261 F.3d 956 (C.A.10 2001) (case below) (holding that the
client, Karen Howsam, when, some time between 1986 and
question is for the court); J.E. Liss & Co. v. Levin, 201 F.3d
1994, it recommended that she buy and hold interests in
848, 851 (C.A.7 2000) (same), with PaineWebber Inc. v.
four limited partnerships. Howsam says that Dean Witter
Elahi, 87 F.3d 589 (C.A.1 1996) (holding that NASD § 15,
misrepresented the virtues of the partnerships. The resulting
currently § 10304, is presumptively for the arbitrator); Smith
controversy **591 falls within their standard Client Service
Barney Shearson, Inc. v. Boone, 47 F.3d 750 (C.A.5 1995)
Agreement's arbitration clause, which provides:
(same). We *83 granted Howsam's petition for certiorari to
â[A]ll controversies ... concerning or arising from ... any resolve this disagreement. And we now hold that the matter
account ..., any transaction ..., or ... the construction, is for the arbitrator.
performance or breach of ... any ... agreement between
us ... shall be determined by arbitration before any self-
regulatory organization or exchange of which Dean Witter II
is a member.â App. 6-7.
[1] This Court has determined that âarbitration is a matter
of contract and a party cannot be required to submit to
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847... arbitration any dispute which he has not agreed so to submit.â management layoff controversy falls within the arbitration Steelworkers v. Warrior & Gulf Nav. Co.,363 U.S. 574
, clause of a collective-bargaining agreement); Atkinson v. 582,80 S.Ct. 1347
,4 L.Ed.2d 1409
(1960); see also First Sinclair Refining Co.,370 U.S. 238, 241-243
, 82 S.Ct.Options, supra, at 942-943
,115 S.Ct. 1920
. Although the 1318,8 L.Ed.2d 462
(1962) (holding that a court should Court has also long recognized and enforced a âliberal federal decide whether a clause providing for arbitration of various policy favoring arbitration agreements,â Moses H. Cone âgrievancesâ covers claims for damages for breach of a no- Memorial Hospital v. Mercury Constr. Corp.,460 U.S. 1
, strike agreement). 24-25,103 S.Ct. 927
,74 L.Ed.2d 765
(1983), it has made clear that there is an exception to this policy: The question [3] At the same time the Court has found the phrase whether the parties have submitted a particular dispute to âquestion of arbitrabilityâ not applicable in other kinds arbitration, i.e., the âquestion of arbitrability,â is âan issue of general circumstance where parties would likely expect for judicial determination [u]nless the parties clearly and that an arbitrator would decide the gateway matter. Thus â unmistakably provide otherwise.â AT & T Technologies, âproceduralâ questions which grow out of the dispute and bear Inc. v. Communications Workers,475 U.S. 643, 649
, 106 on its final dispositionâ are presumptively not for the judge, S.Ct. 1415,89 L.Ed.2d 648
(1986) (emphasis added); First but for an arbitrator, to decide. JohnWiley, supra, at 557
, 84Options, supra, at 944
,115 S.Ct. 1920
. We must decide here S.Ct. 909 (holding that an arbitrator should decide whether
whether application of the NASD time limit provision falls the first two steps of a grievance procedure were completed,
into the scope of this last-mentioned interpretive rule. where these steps are prerequisites to arbitration). So, too, the
presumption is that the arbitrator should decide âallegation[s]
**592 Linguistically speaking, one might call any of waiver, delay, or a like defense to arbitrability.â Moses
potentially dispositive gateway question a âquestion of H. Cone Memorial Hospital, supra, at 24-25, 103 S.Ct.
arbitrability,â for its answer will determine whether the 927. Indeed, the Revised Uniform Arbitration Act of 2000
underlying controversy will proceed to arbitration on the (RUAA), seeking to âincorporate *85 the holdings of the
merits. The Court's case law, however, makes clear that, vast majority of state courts and the law that has developed
for purposes of applying the interpretive rule, the phrase under the [Federal Arbitration Act],â states that an âarbitrator
âquestion of arbitrabilityâ has a far more limited scope. See shall decide whether a condition precedent to arbitrability has
514 U.S., at 942, 115 S.Ct. 1920. The Court has found the been fulfilled.â RUAA § 6(c), and comment 2, 7 U.L.A. 12-13 phrase applicable in the kind of narrow circumstance where (Supp.2002). And the comments add that âin the absence of an contracting parties would likely have expected a court to have agreement to the contrary, issues of substantive arbitrability ... decided the gateway matter, where they are not likely to have are for a court to decide and issues of procedural arbitrability, thought that they had agreed that an arbitrator would do so, i.e., whether prerequisites such as time limits, notice, laches, and, consequently, where reference of the gateway dispute to estoppel, and other conditions precedent to an obligation to the court avoids the risk of *84 forcing parties to arbitrate a arbitrate have been met, are for the arbitrators to decide.â Id., matter that they may well not have agreed to arbitrate. § 6, comment 2, 7 U.L.A., at 13 (emphasis added). [2] Thus, a gateway dispute about whether the parties [4] Following this precedent, we find that the applicability are bound by a given arbitration clause raises a âquestion of the NASD time limit rule is a matter presumptively for of arbitrabilityâ for a court to decide. See id., at 943-946, the arbitrator, not for the judge. The time limit rule closely115 S.Ct. 1920
(holding that a court should decide whether resembles the gateway questions that this Court has found the arbitration contract bound parties who did not sign not to be âquestions of arbitrability.â E.g., **593 Moses the agreement); John Wiley & Sons, Inc. v. Livingston, H. Cone Memorial Hospital, supra, at 24-25,103 S.Ct. 927
376 U.S. 543, 546-547
,84 S.Ct. 909
,11 L.Ed.2d 898
(referring to âwaiver, delay, or a like defenseâ). Such a dispute (1964) (holding that a court should decide whether an seems an âaspec[t] of the [controversy] which called the arbitration agreement survived a corporate merger and bound grievance procedures into play.â JohnWiley, supra, at 559
, the resulting corporation). Similarly, a disagreement about84 S.Ct. 909
. whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court. Moreover, the NASD arbitrators, comparatively more expert See, e.g., AT & TTechnologies, supra, at 651-652
, 106 S.Ct. about the meaning of their own rule, are comparatively
1415 (holding that a court should decide whether a labor- better able to interpret and to apply it. In the absence of
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847... any statement to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the Reversed. agreement to reflect that understanding. Cf. First Options,514 U.S., at 944-945
,115 S.Ct. 1920
. And for the law to Justice O'CONNOR took no part in the consideration or
assume an expectation that aligns (1) decisionmaker with (2) decision of this case.
comparative expertise will help better to secure a fair and
expeditious resolution of the underlying controversy-a goal
of arbitration systems and judicial systems alike. *87 Justice THOMAS, concurring in the judgment.
As our precedents make clear and as the Court notes,
We consequently conclude that the NASD's time limit rule arbitration is a matter of contract. Ante, at 591. In Volt
falls within the class of gateway procedural disputes that Information Sciences, Inc. v. Board of Trustees of Leland
do not present what our cases have called âquestions of Stanford Junior Univ., 489 U.S. 468,109 S.Ct. 1248
, arbitrability.â *86 And the strong pro-court presumption as103 L.Ed.2d 488
(1989), we held that under the Federal
to the parties' likely intent does not apply. Arbitration Act courts must enforce private agreements to
arbitrate just as they would ordinary contracts: in accordance
with their terms. Under Volt, when an arbitration agreement
contains a choice-of-law provision, that provision must be
III honored, and a court interpreting the agreement must follow
the law of the jurisdiction selected by the parties. See
[5] Dean Witter argues that, in any event, i.e., even
id., at 478-479,109 S.Ct. 1248
(enforcing a choice-of-law
without an antiarbitration presumption, we should interpret
provision that incorporated a state procedural rule concerning
the contracts between the parties here as calling for judicial
arbitration proceedings); see also **594 Mastrobuono v.
determination of the time limit matter. Howsam's execution
Shearson Lehman Hutton, Inc., 514 U.S. 52, 67, 115 S.Ct.
of a Uniform Submission Agreement with the NASD in 1997
1212, 131 L.Ed.2d 76 (1995) (THOMAS, J., dissenting)
effectively incorporated the NASD Code into the parties'
(concluding that the choice-of-law provision in question was
agreement. Dean Witter notes the Code's time limit rule
indistinguishable from the one in Volt and, thus, should have
uses the word âeligible.â That word, in Dean Witter's view,
been given effect). A straightforward application of these
indicates the parties' intent for the time limit rule to be
principles easily resolves the question presented in this case.
resolved by the court prior to arbitration.
The agreement now before us provides that it âshall be
We do not see how that is so. For the reasons stated in Part
construed and enforced in accordance with the laws of the
II, supra, parties to an arbitration contract would normally
State of New York.â App. 6. Interpreting two agreements
expect a forum-based decisionmaker to decide forum-specific
containing provisions virtually identical to the ones in dispute
procedural gateway matters. And any temptation here to place
here, the New York Court of Appeals held that issues
special antiarbitration weight on the appearance of the word
implicating § 15 (now § 10304) of the National Association
âeligibleâ in the NASD Code rule is counterbalanced by a
of Securities Dealers Code of Arbitration Procedure are for
different NASD rule; that rule states that âarbitrators shall be
arbitrators to decide. See Smith Barney Shearson Inc. v.
empowered to interpret and determine the applicability of all
Sacharow, 91 N.Y.2d 39,666 N.Y.S.2d 990
,689 N.E.2d 884
provisions under this Code.â NASD Code § 10324.
(1997). Because the parties agreed to be bound by New York
law and because Volt requires us to enforce their agreement,
Consequently, without the help of a special arbitration-
I would permit arbitrators to resolve the § 10304 issues
disfavoring presumption, we cannot conclude that the parties
that have arisen in this case, just as New York case law
intended to have a court, rather than an arbitrator, interpret
provides. The Court follows a different route to reach the
and apply the NASD time limit rule. And as we held in Part
same conclusion; accordingly, I concur only in the judgment.
II, supra, that presumption does not apply.
IV
For these reasons, the judgment of the Tenth Circuit is
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79(2002)123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847... Parallel Citations123 S.Ct. 588
,154 L.Ed.2d 491
,71 USLW 4019
,02 Cal. Daily Op. Serv. 11
,847,2002 Daily Journal D.A.R. 13,897
,16 Fla. L. Weekly Fed. S 20
Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337,26 S.Ct. 282
,50 L.Ed. 499
.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
Cases that cite this headnote
387 S.W.3d 799
Court of Appeals of Texas,
El Paso. [2] Alternative Dispute Resolution
IHS ACQUISITION NO. 171, INC. d/b/a Mesa Hills Validity
Specialty Hospital, Encore Healthcare, LLC, and Alternative Dispute Resolution
Lyric Health Care Holdings III, Inc., Appellants,
Disputes
v. and Matters Arbitrable Under Agreement
Joann BEATTYâORTIZ, Appellee.
A party seeking to compel arbitration must first
satisfy a two-pronged burden of proof: first,
No. 08â11â00195âCV. | May 9, 2012.
it must demonstrate the existence of a valid
| Rehearing Overruled May 30, 2012.
agreement to arbitrate the dispute, and second, it
Synopsis must prove that the claims asserted are within the
Background: Employee sued employer for gender scope of the agreement.
discrimination following her termination. Employer filed a
Cases that cite this headnote
motion to compel arbitration. The County Court at Law, El
Paso County, Carlos Villa, J., denied employer's motion, and
employer appealed. [3] Alternative Dispute Resolution
Evidence
If the party seeking arbitration carries its initial
Holdings: The Court of Appeals, Ann Crawford McClure,
burden that there is a valid arbitration agreement,
C.J., held that:
and that the claims asserted are within the scope
of the agreement, then the burden shifts to
[1] the arbitration agreement conferred authority of deciding
the party opposite to present evidence of an
validity and enforceability on the arbitrator and not the court;
affirmative defense.
[2] issue of whether the arbitration agreement was, as a whole, Cases that cite this headnote
illusory, was a matter for the arbitrator; and
[3] employer met its burden to show that employee signed the [4] Alternative Dispute Resolution
arbitration agreement and intended to be bound by its terms. Evidence
While a strong presumption favoring arbitration
Reversed and remanded. exists, the presumption arises only after the party
seeking to compel arbitration proves that a valid
arbitration agreement exists.
West Headnotes (30) 1 Cases that cite this headnote
[1] Alternative Dispute Resolution [5] Alternative Dispute Resolution
Remedies Evidence
and Proceedings for Enforcement in General In deciding whether a party seeking to compel
A trial court abuses its discretion when it refuses arbitration has met its initial burden, courts do
to compel arbitration pursuant to a valid and not resolve doubts or indulge a presumption in
enforceable arbitration agreement. favor of arbitration; rather, the party attempting
to compel arbitration must show that the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
arbitration agreement meets all requisite contract Federal Arbitration Act (FAA) requires courts to
requirements. honor parties' expectations. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote Cases that cite this headnote
[6] Alternative Dispute Resolution [10] Alternative Dispute Resolution
Evidence What
If the trial court determines that a valid law governs
arbitration agreement exists, the burden shifts When determining the validity of arbitration
to the party opposing arbitration to raise agreements that are subject to the Federal
an affirmative defense to enforcement of the Arbitration Act (FAA), courts apply ordinary
arbitration agreement. state law contract principles that govern the
formation of contracts. 9 U.S.C.A. § 1 et seq.
4 Cases that cite this headnote
Cases that cite this headnote
[7] Alternative Dispute Resolution
[11] Alternative Dispute Resolution
Constitutional
and statutory provisions and rules of court In
The Federal Arbitration Act (FAA) places general; formation of agreement
arbitration agreements on an equal footing with The party attempting to compel arbitration must
other contracts, and requires courts to enforce show that the arbitration agreement meets all
them according to their terms. 9 U.S.C.A. § 2. requisite state law contract elements.
Cases that cite this headnote Cases that cite this headnote
[8] Alternative Dispute Resolution [12] Contracts
Contractual Elements
or consensual basis in general
An agreement to arbitrate is a contract, the The following elements are required for the
relation of the parties is contractual, and the formation of a valid and binding contract: (1) an
rights and liabilities of the parties are controlled offer; (2) acceptance in strict compliance with
by the law of contracts; as such, a party cannot the terms of the offer; (3) a meeting of the minds;
be required to submit to arbitration any dispute (4) each party's consent to the term; and (5)
which she has not agreed to submit. execution and delivery of the contract with the
intent that it be mutual and binding.
Cases that cite this headnote
1 Cases that cite this headnote
[9] Alternative Dispute Resolution
[13] Alternative Dispute Resolution
Contractual
or consensual basis Consideration
Because arbitration is based on a contractual Like other contracts, an agreement to arbitrate
relationship, a party who has not consented must be supported by consideration.
cannot not be forced to arbitrate a dispute; since
arbitration is generally a matter of contract, the Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
When a dispute involving an agreement to
[14] Contracts arbitrate is brought to a court for resolution, it
is the court's obligation to determine whether
Mutual
the parties agreed to submit a particular issue to
Promises
arbitration.
Mutual, reciprocal promises which bind both
parties may constitute consideration for a Cases that cite this headnote
contract.
Cases that cite this headnote [19] Alternative Dispute Resolution
Existence
[15] Alternative Dispute Resolution and validity of agreement
Alternative Dispute Resolution
In
general; formation of agreement Arbitrability
In the case of a stand-alone arbitration of dispute
agreement, both sides are required to enter into An arbitration provision may give the arbitrator
binding promises to arbitrate. the power to resolve gateway issues regarding
validity and enforceability of the arbitration
Cases that cite this headnote
agreement, and in that event, the entire matter of
arbitrability is transferred from the courts to the
[16] Contracts arbitrator.
Mutuality Cases that cite this headnote
of Obligation
A promise which does not bind the
[20] Alternative Dispute Resolution
promisor, as when the promisor retains the
option to discontinue performance, is illusory; Arbitrability
consequently, when a purported bilateral of dispute
contract is supported only by illusory promises, Unless an arbitration agreement clearly
there is no contract. demonstrates that the parties intended to confer
on the arbitrator the power to determine what
Cases that cite this headnote
disputes are arbitrable, the court retains the
duty to decide that issue; arbitration agreements
[17] Alternative Dispute Resolution that clearly and unmistakably show intent to
assign gateway issues to the arbitrator are fully
Consideration
enforceable.
Where an employer cannot avoid its promise to
arbitrate by amending a termination provision or Cases that cite this headnote
terminating it altogether, the dispute resolution
plan is not illusory.
[21] Alternative Dispute Resolution
Cases that cite this headnote Arbitrability
of dispute
[18] Alternative Dispute Resolution Gateway questions regarding validity and
enforceability which are normally decided by
Arbitrability
a court will be submitted to an arbitrator
of dispute
where the arbitration agreement was clear and
unmistakable.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
of delegation, then the court must resolve the
Cases that cite this headnote challenge.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Existence
[25] Alternative Dispute Resolution
and validity of agreement
Issue of whether the arbitration agreement Existence
between employer and employee was supported and validity of agreement
by valid consideration was an issue for the Whether term provision of an arbitration
arbitrator to decide, where the agreement agreement between employee and employer
conferred authority of deciding gateway issues rendered the agreement illusory was an issue for
of validity and enforceability on the arbitrator the arbitrator and not the court, where agreement
and not the court, and employee signed the contained delegation provision, and employee
agreement and assented to its terms. challenged the entire agreement and not merely
the specific delegation provision.
Cases that cite this headnote
Cases that cite this headnote
[23] Alternative Dispute Resolution
[26] Alternative Dispute Resolution
Existence
and validity of agreement Validity
The arbitrator, and not any federal, state, or local A misnomer does not render an arbitration
court or agency, shall have exclusive authority agreement unenforceable.
to resolve any dispute relating to interpretation,
applicability, enforceability or formation of an Cases that cite this headnote
agreement including, but not limited to any claim
that all or any part of the agreement is void or [27] Alternative Dispute Resolution
voidable.
Validity
Cases that cite this headnote Employer met its burden to show that it and
employee entered into a valid and binding
[24] Alternative Dispute Resolution arbitration agreement and intended to be bound
by its terms, although, due to a misnomer, the
Existence entity named on the arbitration agreement was
and validity of agreement an associated business of employer, and not
Alternative Dispute Resolution the employer itself; employee did not present
evidence that she had ever worked for the entity
Arbitrability named on the agreement, that she did not intend
of dispute to be bound by the agreement, and failed to raise
The analysis in situations challenging a any affirmative defenses that would render the
standalone arbitration agreement containing a arbitration agreement void or voidable.
delegation provision depends on the kind of
challenge being made, if the challenge relates Cases that cite this headnote
to the arbitration agreement as a whole, and
the agreement contains a provision delegating [28] Alternative Dispute Resolution
issues of arbitrability to the arbitrator, then
the challenge must be directed to arbitration; Construction
however, if the challenge is specific to the issue
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
In construing an arbitration agreement, the court
should attempt to give effect to the parties' Before McCLURE, C.J., RIVERA, and ANTCLIFF, JJ.
intentions, in light of the usual and ordinary
meaning of the contractual language and the
circumstances under which the agreement was OPINION
made.
ANN CRAWFORD McCLURE, Chief Justice.
Cases that cite this headnote
IHS Acquisition No. 171, Inc. d/b/a Mesa Hills Specialty
Hospital, Encore Healthcare, L.L.C., and Lyric Healthcare
[29] Alternative Dispute Resolution Holdings III, Inc., (collectively Appellants), file this
interlocutory appeal challenging the trial court's denial of its
Evidence
motion to compel arbitration. Finding error, we reverse.
If the party seeking arbitration carries its initial
burden, then the burden shifts to the party
opposing arbitration to present evidence on an
affirmative defense to the arbitration agreement. FACTUAL SUMMARY
3 Cases that cite this headnote IHS Acquisitions No. 171, doing business as Mesa Hills
Specialty Hospital, hired Joann BeattyâOrtiz (Beatty) in
May 2000. On June 30, 2006, Beatty was promoted to
[30] Alternative Dispute Resolution Chief Executive Officer (CEO) where she remained until her
termination on February 3, 2010.
Validity
of assent
On March 31, 2010, Beatty filed a complaint with the Texas
Alternative Dispute Resolution
Workforce Commission Civil Rights Division against âIHS
Acquisitions # 171 d/b/a Mesa Hills Specialty Hospitalâ
Unconscionability
alleging continuing gender discrimination from November
Alternative Dispute Resolution
2008 until the date of her termination. She claimed constant
harassment and belittlement from the Regional Director of
Modification
or termination Operations, Paul Miller, and that she was not the only
Alternative Dispute Resolution female subjected to Miller's demeaning behavior and double
standards. Beatty further asserted that prior to her termination,
she had not received a single disciplinary action warning
Evidence
In the context of enforcement of an arbitration that her job was in jeopardy or a negative performance
agreement, defenses refer to unconscionability, evaluation. She was the only female CEO in her region and
duress, fraudulent inducement, and revocation; upon her termination, the position was filled by a man who
because the law favors arbitration, the burden of was previously the director of environmental services.
proving a defense to arbitration is on the party
opposing it. On October 28, 2010, Beatty filed suit against Appellants,
alleging essentially the same gender discrimination
4 Cases that cite this headnote allegations contained in her Texas Workforce Commission
Complaint against IHS. The only explanation she was
given was that âthe hospital was not going in the
direction they wanted to.â Beatty sought front and back
Attorneys and Law Firms pay benefits, compensatory damages, punitive damages,
attorney's fees, costs, and prejudgment and post-judgment
*803 Shawn R. Oller, Little Mendelson, PC, Phoenix, AZ, interest. Appellants collectively filed a motion to compel
for Appellants. arbitration, attaching a copy of a document signed by Beatty
on September 23, 2008.
John P. Mobbs, Attorney at Law, El Paso, TX, for Appellee.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
injury) for injuries, trauma or illness I may sustain in the
course and scope of my employment;
THE ARBITRATION AGREEMENT
3. claims for wrongful termination, demotion, or
The document, entitled âMutual Arbitration Agreementâ
discharge under statutory of common law, including
provides in relevant part:
retaliatory discharge claims related to workplace
IHS Acquisition No. 174, Inc. (âEmployerâ) as an affiliate injuries, illnesses or trauma;
of Lyric Health Care Holdings, III, Inc. maintains an
4. claims for a violation of any federal, state or other
Employee Injury Benefit Plan (the âPlanâ) to pay benefits
government law, statute, regulation or ordinance relating
to Participants due to injuries or illnesses incurred in
directly or indirectly to my workplace injury, illness or
the course and scope of employment with Company or
trauma; and
affiliates of Company who adopt the Plan. The Plan pays
defined: (i) disability wage replacement benefits; (ii) death 5. any and all claims challenging the validity or
benefits to Participant's beneficiaries; (iii) dismemberment/ enforceability of this Agreement (in whole or in part)
loss of use benefits; and (iv) medical benefits. or challenging the applicability of this Agreement to a
particular dispute or claim.
The Mutual Arbitration Agreement (âAgreementâ) binds
Employer and Employee to arbitrate claims covered by The appeal of a full or partial denial of benefits under the
this Agreement. The Effective Date of this Agreement is Plan is not covered by this Agreement.
for employees currently employed by Employer, three (3)
business days following the notice date of the Plan (through BY ARBITRATING THESE CLAIMS, EMPLOYER
receipt of the Summary Plan Description) (âNotice Dateâ). AND EMPLOYEE UNDERSTAND THAT FOR
*804 The Notice Date is August 8, 2008. If an Employee EACH PARTY ANY CAUSE OF ACTION
is hired after the Notice Date, the Employee shall be DESCRIBED IN THIS AGREEMENT WILL BE
provided a copy of the Summary Plan Description and SUBJECT TO RESOLUTION IN ARBITRATION
this Agreement and will be bound by this Agreement and ACCORDING TO THE PROCEDURES PROVIDED
covered by the Plan. IN THIS AGREEMENT.
I. ARBITRATION II. ARBITRATION PROCEDURES
(This is our agreement to binding arbitration.) (This is how the arbitration will be conducted)
The Employer and Employee each agree to binding ...
arbitration of all claims and disputes described hereafter,
whether these claims and disputes exist now or arise III. TERM
in the future. All claims subject to arbitration must be
Employer may modify or terminate this Agreement at
submitted to arbitration within one year of the date
any time. Any such change shall be prospective only.
of the incident giving rise to the claim or is forever
No change, amendment, modification or termination shall
barred. The claims, disputes and allegations subject to
affect the obligation of both parties to arbitrate, whether the
binding arbitration under this Agreement include my
request for arbitration was before or after any modification,
claims involving Employer, as well as Employer's claims
amendment, or termination of this Agreement. The
against me, for:
Agreement in place at the time of the occurrence of the
1. Employer's negligence, gross negligence, strict arbitration event shall govern.
liability, intentional act, omission or any other claim or
cause of action with respect to any employment-related
death, injuries, trauma or illness; THE MISNOMER
2. tort claims (including, but not limited to, any claims The agreement binds the âEmployer,â listed as IHS
for bodily injury or physical, mental or psychological Acquisition No. 174 as an affiliate of Lyric Health Care
Holdings, *805 III, Inc. But Beatty was employed by
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799(2012) IHS Acquisition No. 171, filed her complaint against IHS the party opposing arbitration to raise an affirmative defense Acquisition No. 171, and ultimately sued IHS Acquisition to enforcement of the arbitration agreement.Id.
at 227â28.
No. 171. While Appellants maintain the contract contains a
simple scrivener's error, Beatty counters that because IHS
does not claim to be the same entity as IHS Acquisition No.
APPLICABLE LAW
174 and does not claim to be an alter ego of IHS Acquisition
No. 174, IHS is not a party to the arbitration policy and cannot
enforce it. The Federal Arbitration Act (FAA)
[7] The FAA provides, in relevant part:
STANDARD OF REVIEW A written provision in ... a contract
evidencing a transaction involving
[1] The parties do not dispute that the FAA applies to this commerce to settle by arbitration
proceeding. See 9 U.S.C.A. §§ 1â16 (West 2009). Section a controversy thereafter arising out
51.016 of the Texas Civil Practice and Remedies Code of such contract ... shall be valid,
permits the interlocutory appeal of an order denying a motion irrevocable, and enforceable, save
to compel arbitration under the Federal Arbitration Act. TEX. upon such grounds as exist at law or
CIV. PRAC. & REM. CODE ANN.. § 51.016 (West Supp. in equity for the revocation of any
2011). A trial court's determination regarding the validity of contract.
an agreement to arbitrate is a question of law which we review
de novo. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 See9 U.S.C. § 2
(West 2009); RentâAâCenter West, Inc. v. (Tex.2003). A trial court abuses its discretion when it refuses Jackson, âââU.S. ââââ,130 S.Ct. 2772, 2776
, 177 L.Ed.2d to compel arbitration pursuant to a valid and enforceable 403 (2010), quoting Moses H. Cone Memorial Hospital v. arbitration agreement. In re Halliburton Co.,80 S.W.3d 566
, Mercury Constr. Corp.,460 U.S. 1, 24
,103 S.Ct. 927, 573
(Tex.2002)(orig. proceeding).74 L.Ed.2d 765
(1983). The above provision has been
described as reflecting both a âliberal federal policy favoring
[2] [3] A party seeking to compel arbitration must arbitration,â and the âfundamental principle that arbitration
first satisfy a two-pronged burden of proof: first, it must is a matter of contract.â See AT & T Mobility *806
demonstrate the existence of a valid agreement to arbitrate LLC v. Concepcion, âââ U.S. ââââ, 131 S.Ct. 1740, 1745, the dispute, and second, it must prove that the claims179 L.Ed.2d 742
(2011) citing Moses H. Cone Memorial asserted are within the scope of the agreement. In re Hospital,460 U.S. at 24
,103 S.Ct. at 927
and RentâAâ Dillard Dept. Stores, Inc.,186 S.W.3d 514, 515
(Tex.2006); Center, âââ U.S. at ââââ,130 S.Ct. at 2776
. âThe FAA In re AdvancePCS Health L.P.,172 S.W.3d 603
, 605 thereby places arbitration agreements on an equal footing (Tex.2005)(orig. proceeding); Budd v. Max International with other contracts, and requires courts to enforce them LLC,339 S.W.3d 915, 918
(Tex.App.-Dallas 2011, no pet.). according to their terms.â RentâAâCenter, âââ U.S. ââââ, If the party seeking arbitration carries its initial burden, then130 S.Ct. at 2776
(internal citations omitted); citing Buckeye the burden shifts to the party opposite to present evidence of Check Cashing, Inc. v. Cardegna,546 U.S. 440, 443
, 126 an affirmative defense.Id.
S.Ct. 1204,163 L.Ed.2d 1038
(2006) and Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
[4] [5] [6] While a strong presumption favoring Univ., 489 U.S. 468, 478,109 S.Ct. 1248
,103 L.Ed.2d 488
arbitration exists, the presumption arises only after the party (1989). seeking to compel arbitration proves that a valid arbitration agreement exists. J.M. Davidson, Inc.,128 S.W.3d at 227
. [8] [9] An agreement to arbitrate is a contract, the relation In deciding whether a party has met its initial burden, we of the parties is contractual, and the rights and liabilities of the do not resolve doubts or indulge a presumption in favor parties are controlled by the law of contracts. As such, a party of arbitration.Id.
Rather, the party attempting to compel cannot be required to submit to arbitration any dispute which arbitration must show that the arbitration agreement meets all she has not agreed to submit. See AT & T Mobility LLC, 131 requisite contract requirements.Id. at 228
. If the trial court S.Ct. at 1740 (arbitration is a creature of contract; a person can
determines that a valid agreement exists, the burden shifts to be compelled to arbitrate a dispute only if, to the extent that,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799(2012) and in the manner which, he has agreed so to do). Because to support an arbitration *807 agreement between the arbitration is based on a contractual relationship, a party who employer and the at-will employee). has not consented cannot not be forced to arbitrate a dispute. Since arbitration is generally a matter of contract, the FAA requires courts to honor parties' expectations.9 U.S.C.A. § 1
Illusory Promises
et seq.; AT & T Mobility LLC, 131 S.Ct. at 1740.
[16] A promise which does not bind the promisor, as when
the promisor retains the option to discontinue performance,
Texas LawâFormation of Contracts is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex.2010),
citing Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
[10] [11] [12] [13] When determining the validity289 S.W.3d 844, 849 (Tex.2009); see also J.M. Davidson,
of arbitration agreements that are subject to the FAA, we Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co., apply ordinary state law contract principles that govern the883 S.W.2d 642, 645
(Tex.1994)(employer's promises were formation of contracts. In re Palm Harbor Homes, Inc., 195 illusory because they were dependent upon at-will employee's S.W.3d 672, 676 (Tex.2006), citing First Options of Chicago, period of continued employment; thus, employer could avoid Inc. v. Kaplan,514 U.S. 938, 944
,115 S.Ct. 1920
, 131 performance by terminating at-will employee's employment L.Ed.2d 985 (1995); In re Kellogg Brown & Root, Inc., 166 while the employee was bound to her promise whether or S.W.3d 732, 738 (Tex.2005). The party attempting to compel not she remained employed). Consequently, when a purported arbitration must show that the arbitration agreement meets all bilateral contract is supported only by illusory promises, there requisite contract elements. J.M. Davidson, Inc., 128 S.W.3d is no contract. In re 24R, Inc.,324 S.W.3d at 567
, citing at 228. The following elements are required for the formation Vanegas v. American Energy Services,302 S.W.3d 299
, 302 of a valid and binding contract: (1) an offer; (2) acceptance (Tex.2009), quoting Light, 883 S.W.2d at 644â45. in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the term; and (5) [17] However, where an employer cannot avoid its execution and delivery of the contract with the intent that it be promise to arbitrate by amending a termination provision mutual and binding. Cessna Aircraft Co. v. Aircraft Network, or terminating it altogether, the dispute resolution plan is L.L.C.,213 S.W.3d 455, 465
(Tex.App.-Dallas 2006, pet. not illusory. See J.M. Davidson, Inc.,128 S.W.3d at 228
; denied). Like other contracts, an agreement to arbitrate must In re Polymerica, LLC,296 S.W.3d 74, 76
(Tex.2009); see be supported by consideration. In re Palm Harbor Homes, also In re Halliburton Co., 80 S.W.3d at 569â70 (when Inc.,195 S.W.3d at 676
; In re AdvancePCS Health L.P., 172 mutual promises to submit employment disputes to arbitration
S.W.3d 603, 607 (Tex.2005) (per curiam ). bind both parties to their promises to arbitrate, sufficient
consideration exists to support an arbitration agreement
between the employer and the at-will employee).
Mutual Promises and Consideration
[14] [15] Mutual, reciprocal promises which bind both ANALYSIS
parties may constitute consideration for a contract. Texas
Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309 Appellants bring two issues for review. In Issue One, they
(Tex.App.-El Paso 2009, no pet.). In the case of a stand- complain that the trial court erred in denying the motion
alone arbitration agreement, both sides are required to enter to compel because pursuant to the contractual language, the
into binding promises to arbitrate. In re AdvancePCS, 172 arbitrator, not the trial court, should decide gateway issues
S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d of validity, enforceability, and arbitrability. Alternatively, in
564, 566 (Tex.2010) (mutual promises to submit a dispute Issue Two, Appellants suggest that even if the trial court had
to arbitration are sufficient consideration to support an the authority to decide arbitrability, it abused its discretion
arbitration agreement); see also In re Halliburton Co., 80 in denying the motion to compel. The crux of the dispute
S.W.3d at 569â70 and J.M. Davidson, Inc., 128 S.W.3d is the misnomer. Appellants argue that this clerical error
at 228 (cases noting that when mutual promises to submit is itself a gateway issue and therefore must be arbitrated
employment disputes to arbitration bind both parties to under the express terms of the Agreement. In contrast, Beatty
their promises to arbitrate, sufficient consideration exists focuses on two arguments: (1) a court should decide whether
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
the Agreement is enforceable, not an arbitrator; and (2) no
agreement exists between the parties because IHS is not the [23] [24] In RentâAâCenter, the Supreme Court clarified
âEmployerâ referenced in the Agreement. how courts must treat challenges to an arbitration agreement's
delegation provision. See RentâAâCenter âââ U.S. ââââ, 130
S.Ct. 2772,177 L.Ed.2d 403
.
Court Or Arbitrator? The Arbitrator, and not any
federal, state, or local court
[18] [19] [20] [21] [22] When a dispute involving an
or agency, shall have exclusive
agreement to arbitrate is brought to a court for resolution,
authority to resolve any dispute
it is the court's obligation to determine whether the parties
relating to interpretation, applicability,
agreed to submit a particular issue to arbitration. See United
enforceability or formation of this
Steelworkers of America v. American Mfg. Co., 363 U.S.
Agreement including, but not limited
564, 80 S.Ct. 1343,4 L.Ed.2d 1403
(1960); Del E. Webb
to any claim that all or any part of this
Const. v. Richardson Hosp. Authority, 823 F.2d 145 (5th
Agreement is void or voidable.
Cir.1987). An arbitration provision may give the arbitrator
the power to resolve gateway issues regarding validity and Id. at 2775â76. According to the Supreme Court, the analysis
enforceability of the arbitration agreement. In that event, the in situations challenging a standalone arbitration agreement
entire matter of arbitrability is transferred from the courts containing a delegation provision depends on the kind of
to the arbitrator. Unless the agreement clearly demonstrates challenge being made. Id. If the challenge relates to the
that the parties intended to confer on the arbitrator the power arbitration agreement as a whole, and the agreement contains
to determine what disputes are arbitrable, the court retains a provision delegating issues of arbitrability to the arbitrator,
the duty to decide that issue. Arbitration agreements that then the challenge must be directed to arbitration. Id. If the
clearly and unmistakably show intent to assign gateway issues challenge is specific to the issue of delegation, however, then
to the arbitrator are fully enforceable. See *808 RentâAâ the court must resolve the challenge. Id.
Center, âââU.S. ââââ, 130 S.Ct. at 2777,177 L.Ed.2d 403
; First Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 943
, [25] The Agreement presented clearly and unmistakably115 S.Ct. 1920
,131 L.Ed.2d 985
(1995) (holding question provides that issues of validity and enforceability go to of primary power to decide arbitrability âturns upon what the arbitrator. Beatty signed the Agreement, manifesting the parties agreed about that matterâ); AT & T Technologies, her intent that gateway issues be arbitrated. Additionally, Inc. v. Communications Workers,475 U.S. 643, 649
, 106 Beatty challenges the entire arbitration agreement based on S.Ct. 1415, 1418,89 L.Ed.2d 648
(1986) (holding parties the assertion that the term provision renders the Agreement may agree to arbitrate arbitrability). Accordingly, under First illusory. Under RentâAâCenter, because there is a specific Options, gateway questions which are normally decided by a delegation provision, and Beatty challenges the Agreement court will be submitted to an arbitrator where the agreement as a whole, rather than the specific delegation provision, the was clear and unmistakable. See First Options, 514 U.S. at issue goes to the arbitrator. Therefore, the determination of 943,115 S.Ct. 1920
; AT & T Technologies, Inc., 475 U.S. at whether the agreement is illusory is for the arbitrator and not 649,106 S.Ct. at 1418
. the court.
Here, the Agreement provided that âany and all
claims challenging the validity or enforceability of this
Agreement ...â are subject to arbitration. It thus clearly Effect of the Misnomer
and unmistakably provided for issues of validity and
[26] [27] We have already highlighted the misnomer in
enforceability to go to the arbitrator. Beatty argues that
the Agreement. Beatty was employed by IHS Acquisition No.
whether the contract is supported by adequate consideration
171 d/b/a Mesa Hills Specialty Hospital but the Agreement
is not an issue of validity or enforceability but rather an
defines âEmployerâ to mean âIHS Acquisition No. 17 4.
issue of formation for the court to decide. We disagree. The
Beatty argues that the Appellants failed to demonstrate the
Agreement bears Beatty's signature evidencing her assent to
existence of an arbitration agreement between the parties.
its terms and clearly provides for an arbitrator to decide all
A misnomer does not render an arbitration agreement
issues of arbitrability.
unenforceable. See Fogal v. Stature Construction, Inc., 294
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
to the plain language of the agreement. Appellants not only
S.W.3d 708, 716 (Tex.App.-Houston [1st Dist.] 2009, pet.
presented the signed Agreement, it is undisputed that Beatty
denied). In *809 Fogal, the arbitration clause was signed by
was employed by IHS 171 at the time the Agreement was
the Fogals and Tremont Homes, and the entity named Stature
signed. Beatty did not present evidence that she did not intend
Construction appeared at first to be a non-signatory to the
to enter into an Agreement with her Employer or that she
arbitration agreement. Fogal, 294 S.W.3d at 717. However,
evidence was produced showing that Stature Construction was not employed by IHS 171 at the time she signed the
was doing business as âTremont Custom Homesâ (which was Agreement. Nor does Beatty present any evidence that she
the entity that should have been listed on the earnest-money ever worked for IHS 174.
contract that referred to Tremont Homes). Id. Moreover,
evidence showed that the deed for the house purchased by To meet their burden, Appellants must demonstrate the
the Fogals reflected that Stature was the seller referred to in existence of a valid agreement to arbitrate the claimed
the earnest-money contract. Id. The Fogals did not dispute disputes. Although not always expressly stated, part of this
requirement is that the Agreement be between the parties.
that Stature was the seller or that Stature was doing business
Even though the Agreement provides that issues of validity
as Tremont Custom Homes. Instead, the Fogals built their
and enforceability must go to an arbitrator, Appellants still
non-arbitration argument on the technical error mentioning
bear the burden of producing some evidence that they
âTremont Homesâ rather than âTremont Custom Homes,â
were either a party to the Agreement or otherwise had
and claimed that since there was not an assumed name
rights to enforce it. They presented an Agreement which
certificate filed with the Texas Secretary of State, Stature
is clearly between an Employer and Employee. Although
could not enforce the arbitration agreement. Id. The Houston
the Agreement defines the Employer as IHS Acquisition
Court noted that:
174, Appellants also produced evidence that at the time the
Because arbitration is contractual in nature, the FAA Agreement was signed, Beatty *810 was employed by IHS
generally âdoes not require parties to arbitrate when they Acquisitions 171 and that Beatty had never been employed
have not agreed to do so.â Federal and Texas state courts by IHS 174.
have recognized, however, that â â[i]t does not follow ...
that under the [FAA] an obligation to arbitrate attaches only
to one who has personally signed the written arbitration
Affirmative Defense
provisionâ; instead, under certain circumstances, principles
of contract law and agency may bind a non-signatory to an [29] [30] If the party seeking arbitration carries its
arbitration agreement.â initial burden, then the burden shifts to the party opposing
arbitration to present evidence on an affirmative defense to
Id., citing Kellogg Brown & Root, 166 S.W.3d at 738.
the arbitration agreement. J.M. Davidson, Inc., 128 S.W.3d
Although that case dealt with whether or not an assumed
at 227. In the context of enforcement of an arbitration
named certificate was required, the Houston Court of Appeals
agreement, defenses refer to unconscionability, duress,
ultimately held that Stature could enforce the arbitration
fraudulent inducement, and revocation. In re FirstMerit Bank,
agreement, despite the technical deficiencies. Id. at 717â18.
N.A., 52 S.W.3d 749, 756 (Tex.2001). Because the law favors
arbitration, the burden of proving a defense to arbitration is
[28] In construing an arbitration agreement, the court
on the party opposing it. See J.M. Davidson, Inc., 128 S.W.3d
should attempt to give effect to the parties' intentions, in
at 227.
light of the usual and ordinary meaning of the contractual
language and the circumstances under which the agreement
Beatty has not offered evidence as to any of the applicable
was made. See In re Kaplan Higher Educ. Corp., 235 S.W.3d
affirmative defenses. Her only claims related to issues of
206, 210 (Tex.2007) (âArbitration agreements are enforced
arbitrability which we have already determined must be
according to their terms and according to the intentions of the
presented to the arbitrator. We conclude that the trial court
parties.â) (internal quotations and citations omitted). Here,
erred in refusing to compel arbitration. We sustain both issues
the Agreement clearly evidences an intent for the âEmployerâ
for review and reverse and remand for orders compelling
and âEmployeeâ to mutually arbitrate a specific and detailed
arbitration.
list of disputes. The parties' intent is ascertained by looking
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161(2006)152 Lab.Cas. P 60,227
,24 IER Cases 1304
,49 Tex. Sup. Ct. J. 759
notified employee that arbitration would be
required for resolving covered claims and
196 S.W.3d 161
specifically described which claims were
Supreme Court of Texas.
covered under the plan.
In re DALLAS PETERBILT, LTD., L.L.P., Relator.
15 Cases that cite this headnote
No. 05â0706. | June 16, 2006.
[2] Alternative Dispute Resolution
Synopsis
Background: Former employee sued employer for race In
discrimination, retaliation, defamation, and other torts. general; formation of agreement
The 116th Judicial District Court, Dallas County, denied
An employer may enforce an arbitration
employer's motion to stay proceedings and to compel
agreement entered into during an at-will
arbitration, and the Court of Appeals summarily denied
employment relationship if the employee
mandamus relief. Employer filed petition for writ of
received notice of the employer's arbitration
mandamus.
policy and accepted it.
17 Cases that cite this headnote
Holdings: The Supreme Court held that:
[3] Alternative Dispute Resolution
[1] former employee received notice of arbitration agreement;
Writing,
[2] former employee accepted the arbitration agreement as a signature, and acknowledgment
matter of law; and At-will employee accepted arbitration agreement
as a matter of law, such that employer
[3] former employee's claims were covered by the arbitration could enforce the agreement in employee's
agreement. action alleging discrimination and other claims
arising from his termination, where employee
commenced employment after he signed
Mandamus relief conditionally granted. acknowledgment form indicating that he had
received summary plan description of arbitration
agreement and understood that by accepting his
West Headnotes (5) employment, he was relinquishing his right to
resolve covered claims by filing lawsuit.
[1] Alternative Dispute Resolution 17 Cases that cite this headnote
Writing,
[4] Alternative Dispute Resolution
signature, and acknowledgment
At-will employee received notice of arbitration Employment
agreement, as required for employer to enforce disputes
the agreement in employee's action alleging To compel arbitration of discharged at-will
discrimination and other claims arising from his employee's race discrimination, retaliation, and
termination, though employee never received a tort claims, employer was required to show that
copy of the agreement at time he commenced the claims raised fell within the scope of the
his employment, where employee received a applicable arbitration agreement.
copy of a six-page summary plan description
which outlined the arbitration agreement, and Cases that cite this headnote
accompanying signed acknowledgment form
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161(2006)152 Lab.Cas. P 60,227
,24 IER Cases 1304
,49 Tex. Sup. Ct. J. 759
to Arbitrate Claims. Harris claims he never received the
[5] Alternative Dispute Resolution Mutual Agreement to Arbitrate Claims, which is part of the
record, but he signed an acknowledgment form indicating that
Employment
he received the Summary and understood that by accepting
disputes
employment, he was relinquishing his right to resolve covered
Former employee's claims for race
claims âby filing a lawsuit or seeking damages in any federal,
discrimination, retaliation, tortious interference,
state, or municipal court of law ....â The Summary's list
defamation, and intentional infliction of
of covered claims includes tort, discrimination, harassment,
emotional distress were covered by arbitration
wrongful termination, and also â[c]laims for a violation of any
agreement containing a list of covered claims
federal, state, or other governmental law.â In March 2002,
that included tort, discrimination, harassment,
Peterbilt terminated Harris's employment, and in 2003, rather
wrongful termination, and claims for a violation
than request arbitration, Harris filed suit against Peterbilt in
of any federal, state, or other governmental law,
state district court for discrimination, retaliation, defamation,
and thus employer could compel arbitration of
and other torts. Peterbilt then sought to compel arbitration
former employee's claims.
under the Federal Arbitration Act, 9 U.S.C. §§ 1â16.
3 Cases that cite this headnote
[1] [2] An employer may enforce an arbitration agreement
entered into during an at-will employment relationship if
the employee received notice of the employer's arbitration
policy and accepted it. In re Dillard Dep't Stores, Inc., 181
Attorneys and Law Firms
S.W.3d 370, 375 (Tex.App.2005) (per curiam) (citing In
*161 David Watkins, Kevin Robinowitz, Jenkins & re Halliburton Co., 80 S.W.3d 566, 568 (Tex.2002)). In
Watkins, Dallas, for Relator. granting mandamus relief in Halliburton, we stressed the
importance of notice and emphasized that the employee there
*162 Jeffrey C. Mateer, Randal Craig Shaffer, Mateer & received a one-page summary of the agreement to arbitrate.
Shaffer, L.L.P., Dallas, for Real Party In Interest. 80 S.W.3d at 568â69; see also Hathaway v. Gen. Mills,
Inc., 711 S.W.2d 227, 229 (Tex.1986) (holding that notice is
Opinion provided if the employee has knowledge of the employment
terms). Harris argues that the Summary is immaterial and that
PER CURIAM.
only the underlying agreement itself, which he says he never
In this original proceeding, relator Dallas Peterbilt, Ltd., received, can provide notice. We disagree. When determining
L.L.P. seeks to compel arbitration of claims filed by its former whether an employee received notice of a binding arbitration
employee, William Harris. The trial court denied Peterbilt's agreement, our cases do not confine that ânotice analysisâ
motion to stay proceedings and to compel arbitration, to the underlying agreement, but to all communications
and the court of appeals summarily denied mandamus between the employer and employee. See In re Halliburton
relief. 193 S.W.3d 580. Because the parties entered into a Co.,80 S.W.3d at 569
(holding that a notice and summary binding arbitration agreement that covers Harris's claims, we given to the employee was unequivocal notice); Hathaway, conclude that the trial court abused its discretion in denying711 S.W.2d at 229
(holding that contradicting written and
Peterbilt's motion to compel arbitration. We conditionally oral communications did not constitute conclusive proof of
grant mandamus relief. unequivocal notice).
On January 1, 1999, American TruckSource, Inc., Peterbilt's The six-page Summary and accompanying signed
holding company, instituted a dispute resolution program. acknowledgment form notified Harris that arbitration would
Part of this program required employees to resolve certain be required for resolving covered claims and specifically
work-related disputes via binding arbitration. When Harris described which claims are covered under *163 the plan.
commenced his at-will employment with Peterbilt in Harris contends he did not receive the Summary either. But
December 1999, he received a copy of a âSummary the acknowledgment form states, right above his signature: âI
Plan Description of Mutual Agreement to Arbitrate acknowledge that I have received and carefully read or been
Claimsâ (Summary), which outlined the Mutual Agreement given the opportunity to read the [Summary].â Consequently,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161(2006)152 Lab.Cas. P 60,227
,24 IER Cases 1304
,49 Tex. Sup. Ct. J. 759
tort, discrimination, wrongful termination, and violation of
we find that Peterbilt's Summary constitutes effective notice
law. The Mutual Agreement to Arbitrate Claims confirms that
because it unequivocally provided Harris with knowledge of
those claims are covered. We hold that the claims covered
the arbitration agreement. See In re Dillard Dep't Stores, Inc.,
under the agreement include all claims that Harris brought
181 S.W.3d at 373.
against Peterbilt.
[3] Having established that Harris received notice of the
We conclude that a valid arbitration agreement exists and that
binding arbitration agreement, we next determine whether
Harris's claims fall within the scope of the agreement. The
Harris accepted the agreement. An at-will employee who
trial court clearly abused its discretion in denying Peterbilt's
receives notice of an employer's arbitration policy and
motion to compel arbitration. See Jack B. Anglin Co. v.
continues working with knowledge of the policy accepts the
Tipps, 842 S.W.2d 266, 272â73 (Tex.1992) (noting there is no terms as a matter of law.Id.
It is undisputed that Harris was
adequate remedy by appeal for a party denied its contracted-
an at-will employee, and his signed acknowledgment form
for arbitration right under the FAA). Accordingly, without
indicates that continuing or accepting employment will result
hearing oral argument, we conditionally grant the writ of
in automatic coverage under the dispute resolution program.
mandamus. TEX. R. APP. P. 52.8(c). We order the trial
Therefore, we find that by signing the acknowledgment
court to vacate its order denying Peterbilt's motion to compel
form and commencing his employment, Harris accepted the
arbitration and to enter a new order compelling arbitration of
agreement as a matter of law.
Harris's claims. The writ will issue only if the trial court fails
[4] [5] In order to compel arbitration, Peterbilt must also to comply.
show that the claims raised fall within the scope of the
agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d
Parallel Citations
571, 573 (Tex.1999) (per curiam). Harris sued Peterbilt
for race discrimination, retaliation, tortious interference, 152 Lab.Cas. P 60,227,24 IER Cases 1304
, 49 Tex. Sup. Ct.
defamation, and intentional infliction of emotional distress. J. 759
The Summary provides that the agreement covers claims for
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
A court should issue mandamus only to correct
a clear abuse of discretion or the violation of
52 S.W.3d 749
a legal duty when there is no other adequate
Supreme Court of Texas.
remedy at law.
In re FIRSTMERIT BANK, N.A. f/k/a Signal
8 Cases that cite this headnote
Bank, N.A. and Mobile Consultants, Inc., Relators.
No. 00â0548. | Argued Feb. 14, [3] Mandamus
2001. | Decided June 14, 2001.
Remedy
Mobile home buyers and donees, their child and son-in- at Law
law, brought action against lender and its servicing agent When a trial court erroneously denies a party's
to recover for breach of contract, revocation of acceptance, motion to compel arbitration under the Federal
breach of warranty, negligence, and fraud in connection Arbitration Act (FAA), the movant has no
with condition of the home. The trial court denied motion adequate remedy at law and is entitled to a writ
by lender and agent to compel arbitration. Lender and of mandamus. 9 U.S.C.A. § 1 et seq.
agent petitioned for writ of mandamus. The Supreme Court,
Enoch, J., held that: (1) the installment contract related to 30 Cases that cite this headnote
interstate commerce and, therefore, was subject to the Federal
Arbitration Act (FAA); (2) claims by buyers and donees
[4] Mandamus
were subject to arbitration; (3) the donees were subject to the
arbitration clause; (4) the clause was not unconscionable; (5) Civil
sellers' alleged fraud did not invalidate the agreement; and (6) proceedings other than actions
the revocation issue concerning the installment contract was A party seeking to compel arbitration by
subject to arbitration. mandamus must first establish the existence of
an arbitration agreement subject to the Federal
Writ conditionally granted. Arbitration Act (FAA). 9 U.S.C.A. § 1 et seq.
54 Cases that cite this headnote
West Headnotes (24)
[5] Alternative Dispute Resolution
[1] Mandamus Disputes
and Matters Arbitrable Under Agreement
Nature
Once the movant seeking arbitration establishes
and scope of remedy in general
an agreement, the court must then determine
Mandamus is an extraordinary remedy available whether the arbitration agreement covers the
only in limited circumstances. nonmovant's claims.
5 Cases that cite this headnote 26 Cases that cite this headnote
[2] Mandamus [6] Alternative Dispute Resolution
Remedy Evidence
at Law
A presumption exists favoring agreements to
Mandamus arbitrate under the Federal Arbitration Act
Nature (FAA). 9 U.S.C.A. § 1 et seq.
of acts to be commanded
24 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
[7] Alternative Dispute Resolution 59 Cases that cite this headnote
Construction
in favor of arbitration [11] Alternative Dispute Resolution
Courts must resolve any doubts about an Sales
arbitration agreement's scope in favor of contracts disputes
arbitration.
Mobile home buyers' claims against lender and
40 Cases that cite this headnote its agent to challenge right to repossess the home
and to recover for condition of the home and
sellers' failure to remedy defects were covered
[8] Alternative Dispute Resolution by agreement to arbitrate all disputes, claims,
or other matters arising out of or relating to the
Discretion
loan, its interpretation, validity, performance, or
Alternative Dispute Resolution
breach; the arbitration clause defined âloanâ to
Remedies include the installment contract and all other loan
and Proceedings for Enforcement in General documents and was thus not limited to claims
relating directly to financing.
Once the trial court concludes that an arbitration
agreement encompasses the claims and that the 33 Cases that cite this headnote
party opposing arbitration has failed to prove its
defenses, the trial court has no discretion but to
compel arbitration and stay its own proceedings. [12] Alternative Dispute Resolution
Sales
49 Cases that cite this headnote
contracts disputes
The question whether mobile home sellers made
[9] Commerce
any misrepresentations in the inducement of
Arbitration the underlying contract related to the validity
of the contract and, therefore, was subject to
Installment contract for sale of mobile home
arbitration in buyers' suit against lender and its
related to interstate commerce and, therefore,
agent; the agreement required arbitration of all
was subject to the Federal Arbitration Act
disputes, claims, or other matters arising out of
(FAA); secured lender and its servicing agent
or relating to the loan, its interpretation, validity,
were corporations in another state and received
performance, or breach and defined âloanâ to
installment payments there, and the arbitration
include the installment contract and all other loan
addendum stated that the loan involved interstate
documents.
commerce and was governed by the FAA. 9
U.S.C.A. § 1 et seq. 23 Cases that cite this headnote
16 Cases that cite this headnote
[13] Alternative Dispute Resolution
[10] Alternative Dispute Resolution Persons
affected or bound
Disputes
and Matters Arbitrable Under Agreement Mobile home donees' suit against lender and
its agent based on parents' installment contract
To determine whether a party's claims fall within
as buyers and borrowers subjected residents to
an arbitration agreement's scope, courts focus on
the contract's terms, including the arbitration
the complaint's factual allegations, rather than
agreement, even though they never signed it.
the legal causes of action asserted.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
9 Cases that cite this headnote 23 Cases that cite this headnote
[14] Alternative Dispute Resolution [18] Alternative Dispute Resolution
Validity Unconscionabi
of assent Some specific information of future costs is
Alternative Dispute Resolution required in order to show that an arbitration
agreement is made unconscionable by subjecting
Unconscionability
parties to substantial costs and fees.
Defenses of unconscionability, duress,
fraudulent inducement, and revocation needed to 31 Cases that cite this headnote
specifically relate to the arbitration agreement
itself, not the contract as a whole, in order to [19] Alternative Dispute Resolution
defeat arbitration; defenses that pertained to the
entire installment contract could be arbitrated. Unconscionabi
Lender's right to seek judicial relief to enforce
36 Cases that cite this headnote
its security agreement, recover payments from
mobile home buyers, and foreclose did not
[15] Alternative Dispute Resolution render unconscionable an arbitration agreement
covering their claims against the lender to
Evidence challenge right to repossess the home and to
Since the law favors arbitration, the burden of recover for condition of the home and sellers'
proving a defense to arbitration is on the party failure to remedy defects.
opposing arbitration.
10 Cases that cite this headnote
29 Cases that cite this headnote
[20] Contracts
[16] Alternative Dispute Resolution
Unconscionabl
Unconscionability
Contracts
The possibility that arbitration could subject The basic test for unconscionability is
mobile home buyers to substantial costs and whether, given the parties' general commercial
fees did not make the arbitration agreement background and the commercial needs of the
unconscionable without specific evidence that particular trade or case, the clause involved is
the buyers would actually be charged excessive so one-sided that it is unconscionable under
fees to arbitrate claims against lender and its the circumstances existing when the parties
agent. made the contract; the principle is one of
preventing oppression and unfair surprise and
14 Cases that cite this headnote
not of disturbing allocation of risks because of
superior bargaining power.
[17] Alternative Dispute Resolution
42 Cases that cite this headnote
Unconscionability
The party opposing arbitration on the ground [21] Alternative Dispute Resolution
that fees and costs make the arbitration clause
unconscionable must prove the likelihood of Validity
incurring such costs. of assent
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
Mobile home sellers did not commit duress by The issue of whether the underlying installment
stating only that they would not sell the home contract for sale of a mobile home was revoked
if the buyers refused to sign the arbitration was subject to arbitration in buyers' suit against
agreement; the sellers had a legal right to refuse lender and its agent; the issue arose from or
to sell under that condition. related to the contract.
2 Cases that cite this headnote 8 Cases that cite this headnote
[22] Alternative Dispute Resolution
Validity
Attorneys and Law Firms
of assent
*752 John A. Seib, Jr., The Seib Law Firm, Dallas, Michael
Mobile home sellers' alleged fraud by
Deitch, Law Offices of Michael Deitch, Austin, Steven Marc
representing ownership of the land under the
Reback, Law Offices of Michael Deitch, Austin, for Relator.
home and the existence of a septic system
and driveway, by failing to refer to an F. Terry Callahan, Law Offices of F. Terry Callahan, San
arbitration clause in advertisements and pre- Antonio, for Respondent.
sale statements, and by inadequately explaining
the consequences of signing the agreement did Opinion
not invalidate the agreement; nothing indicated
that the sellers actually misrepresented the Justice ENOCH delivered the opinion of the Court.
agreement's terms or made any false material
FirstMerit Bank and Mobile Consultants seek mandamus
representations with regard to the agreement
relief after the trial court denied their motion to compel
itself.
arbitration. Because the Federal Arbitration Act (FAA)
29 Cases that cite this headnote requires the trial court to compel arbitration in this case, we
conditionally grant their petition and order the trial court to
compel arbitration in accordance with the parties' agreement.
[23] Fraud
Elements
of Actual Fraud I. BACKGROUND
The elements of fraud are that: (1) a material
Pete and Janie de los Santos purchased a mobile home
representation was made; (2) the representation
for their daughter, Sarah, and her husband, Gary Alvarez.
was false; (3) when the representation was
They bought the home from Verde Homes under Verde's
made, the speaker knew it was false or made it
retail installment financing agreement. Verde assigned this
recklessly without any knowledge of the truth
contract, which Pete and Janie signed, to Signal Bank (now
and as a positive assertion; (4) the speaker made
FirstMerit Bank). The agreement contained an Arbitration
the representation with the intent that the other
Addendum, which required binding arbitration for âall
party should act upon it; (5) the party acted in
disputes, claims, or other matters in question arising out of or
reliance on the representation; and (6) the party
relating to this Loan, its interpretation, validity, performance
thereby suffered injury.
or the breach thereof.â The word âLoanâ referred to âall
220 Cases that cite this headnote manufactured home loan documents, including but not
limited to the retail installment contract....â The Addendum
further stated that âthe scope of arbitrability is broad and
[24] Alternative Dispute Resolution
includes, without limitation, contractual, tort, statutory, and
caselaw claims.â The Addendum also permitted the bank to
Existence
and validity of agreement seek judicial relief to enforce its security interest, recover the
buyers' monetary loan obligation, and foreclose. *753 But
aside from these three exceptions, the Addendum required
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
arbitration for all other disputes relating to the installment arbitration, 7 a presumption exists favoring agreements to
contract.
arbitrate under the FAA, 8 and courts must resolve any
doubts about an arbitration agreement's scope in favor of
After Verde delivered the home, the de los Santoses tried to
revoke their acceptance, claiming that the home was defective arbitration. 9 Once the trial court *754 concludes that the
and that Verde failed to perform certain promised repairs. arbitration agreement encompasses the claims, and that the
Although Verde Homes refused to rescind the sale, the de party opposing arbitration has failed to prove its defenses, 10
los Santoses apparently stopped making their monthly loan the trial court has no discretion but to compel arbitration and
payments. In response, Signal Bank took possession of the stay its own proceedings. 11
home. The de los Santoses then sued Signal Bank, Mobile
Consultants (Signal's servicing agent), Verde Homes, and two
Verde employees, alleging breach of contract, revocation of
acceptance, breach of warranty, negligence, and fraud. They A. SCOPE OF ARBITRATION
also alleged violations of the Deceptive Trade Practices Act,
[9] Here, there is no dispute about the Arbitration
Fair Debt Collection Practices Act, Equal Credit Opportunity
Addendum's existence. The de los Santoses instead contend
Act, and Fair Credit Reporting Act. Additionally, the de
that the installment contract was completed entirely in Texas,
los Santoses claimed that their successful revocation of
did not involve interstate commerce, and, accordingly, was
acceptance entitled them to a security interest in the home,
not subject to the FAA. As defined in the FAA, however,
equal to the amount they had paid on the installment contract.
âinterstate commerceâ is not limited to the interstate shipment
To enforce their security interest, they requested an injunction
of goods, but includes all contracts ârelating toâ interstate
forcing FirstMerit to return possession of the home until it
refunded the de los Santoses' loan payments. commerce. 12 In fact, the United States Supreme Court has
construed the FAA to extend as far as the Commerce Clause
In response, FirstMerit and Mobile moved to compel of the United States Constitution will reach. 13 In this case,
arbitration. 1 The trial court denied their motion. FirstMerit the evidence demonstrates that the loan was made in interstate
Bank and Mobile then petitioned the Third Court of Appeals commerce. Signal Bank and Mobile Consultants were Ohio
for a writ of mandamus, which the court denied. FirstMerit corporations, while the de los Santoses were Texas residents.
and Mobile now ask this Court for mandamus relief. The installment contract stated that Signal Bank was located
in Ohio. The record includes several photocopies of loan
payment checks drawn on a Texas bank that Signal Bank had
deposited in Ohio. And both Signal and Mobile Consultants
II. WHETHER TO ORDER ARBITRATION corresponded with the de los Santoses from Ohio. The de los
Santoses also listed Signal's Ohio address at the top of their
[1] [2] [3] Mandamus is an extraordinary remedy
revocation of acceptance letter. Moreover, the Arbitration
available only in limited circumstances. 2 A court should Addendum, which Pete and Janie de los Santos both signed,
issue mandamus only to correct a clear abuse of discretion or states that the loan âinvolves interstate commerce ... and shall
the violation of a legal duty when there is no other adequate be governed by the Federal Arbitration Act....â In light of
remedy at law. 3 When a trial court erroneously denies a these facts, we conclude that the installment contract relates
party's motion to compel arbitration under the FAA, the to interstate commerce and is subject to the FAA. 14
movant has no adequate remedy at law and is entitled to a
writ of mandamus. 4 Thus, we must determine whether the [10] [11] Because FirstMerit and Mobile have established
movants established their right to arbitration. the existence of an agreement to arbitrate under the FAA,
we must next determine whether the Arbitration Addendum
[4] [5] [6] [7] [8] A party seeking to compel arbitrationcovers the de los Santoses' claims. To determine whether a
by mandamus must first establish the existence of an party's claims fall within an arbitration agreement's scope,
5
arbitration agreement subject to the FAA. Once the movant we focus on the complaint's factual allegations rather than
establishes an agreement, the court must then determine the legal causes of action asserted. 15 And again, we resolve
whether the arbitration agreement covers the nonmovant's any doubts about the Arbitration Addendum's factual scope
claims. 6 Because state and federal policies continue to favor in favor of coverage. Further, we reiterate that the parties'
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
Arbitration Addendum covers âall disputes, claims, or other or to the performance or alleged breach of the installment
matters in question arising out of or relating to this Loan, its contract. Furthermore, while fraud in the inducement of an
interpretation, validity, performance, or the breach thereofâ arbitration agreement is a defense to arbitration, whether the
and states that âthe scope of arbitrability is broad and sellers made any misrepresentations in the inducement of
includes, without limitation, contractual, tort, statutory, and the underlying contract relates to the contract's validity and
case law claims.â can be arbitrated. 17 As for the de los Santoses' wrongful
repossession allegations, the Addendum provides that âany
We now turn to the de los Santoses' factual allegations. The counterclaims in suits brought by Seller/Assignee pursuant
de los Santoses asserted that the sellers misrepresented that to this provision,â including complaints about foreclosure,
they owned the homesite, and that the homesite included may be arbitrated. Given the Addendum's language on
a driveway and septic system. They also claimed that the counterclaims, the Arbitration Addendum covers all of the de
sellers were not properly licensed, misrepresented *755 los Santoses' complaints about the bank's right to repossess
the terms of the loan, failed to provide a credit report to the home.
Sarah and Gary Alvarez, and failed to make other disclosures
regarding interest rates and credit. The de los Santoses further [13] As a specific challenge, Sarah and Gary Alvarez
alleged that the sellers fraudulently double-charged them for contend that their claims are exempt from the Arbitration
insurance that was already paid for in the installment contract. Addendum because they did not sign the contract. But a
In addition, the de los Santoses asserted that after taking litigant who sues based on a contract subjects him or herself
possession of the home, they learned that the home was not
to the contract's terms. 18 Here, the Alvarezes fully joined the
yet complete, that it lacked carpeting and air conditioning,
de los Santoses' contract claims. In fact, the de los Santoses'
and that it was not installed properly. They also charged
original petition *756 makes no distinction between the
that the sellers failed to repair these defects in a timely
parents' claims and the Alvarezes' claims. Thus, by suing
and workmanlike manner, that they never installed an air
FirstMerit based on the de los Santoses' installment contract,
conditioner, and that the sellers' attempts to repair the septic
the Alvarezes subjected themselves to the contract's terms,
tank were untimely and defective. Finally, the de los Santoses
including the Arbitration Addendum.
asserted that the bank wrongfully denied their attempt to
revoke the contract, criminally trespassed on their property,
Accordingly, unless the de los Santoses can prove one of
and wrongfully repossessed the home.
their defenses to the Arbitration Addendum, the FAA requires
[12] In light of the Addendum's broad language, all of arbitration. 19
the de los Santoses' factual allegations fall within the
Addendum's scope. The de los Santoses contend that because
the Addendum ârelat(es) to the Loan,â it only covers claims B. DEFENSES TO ARBITRATION
that relate directly to the home's financing, and does not
cover their allegations about the home's post-sale condition [14] [15] The de los Santoses assert the defenses
and repairs. But this interpretation ignores the Addendum's of unconscionability, duress, fraudulent inducement, and
broad definition of âLoanâ to include the installment contract revocation. We again note that these defenses must
and all other loan documents. Further, irrespective of the specifically relate to the Arbitration Addendum itself, not
Addendum's broad language, we also note that the home the contract as a whole, if they are to defeat arbitration. 20
was the bank's collateral under the Loan. The de los Defenses that pertain to the entire installment contract can
Santoses alleged that the sellers' failure to remedy the home's
be arbitrated. 21 We further note that the de los Santoses'
physical problems entitled them to a security interest in
defenses against the Addendum are governed by Texas
the home, which would prevent the bank from repossessing
law. 22 Again, since the law favors arbitration, the burden
its collateral. 16 Thus, the home's post-sale condition, and
of proving a defense to arbitration is on the party opposing
the sellers' post-sale failure to remedy the home's problems,
relate to the bank's right to repossess its collateral under the arbitration. 23
loan. In sum, all of the de los Santoses' factual allegations
arise out of or relate to either the sellers' conduct in [16] [17] The de los Santoses contend that the Arbitration
selling the home and negotiating the installment contract, Addendum is unconscionable because arbitration might
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
subject them to substantial costs and fees. On this issue, that the de los Santoses will actually be charged excessive
in Green Tree Financial Corp. v. Randolph, the United arbitration fees, we conclude that there is legally insufficient
States Supreme Court recognized that âthe existence of large evidence that the plaintiffs would be denied access to
arbitration costs could preclude a litigant ... from vindicating arbitration based on excessive costs.
her federal statutory rights....â 24 Nonetheless, the Supreme
Court concluded that an arbitration agreement's mere silence [19] [20] The de los Santoses also argue that the
with respect to costs and fees, by itself, is a âplainly agreement's terms are unconscionable because they force
the weaker party to arbitrate their claims, while permitting
insufficientâ basis for invalidating the agreement. 25 Instead,
the party opposing arbitration must prove the likelihood of the stronger party to litigate their claims. 33 They point
us to decisions in other jurisdictions that have found this
incurring such costs. 26 To hold otherwise would âundermine
type of clause to be unconscionable. 34 Most federal courts,
the liberal federal policy favoring arbitration agreements.â 27
however, have rejected similar challenges on the grounds
that an arbitration clause does not require mutuality of
[18] While the Supreme Court did not specify âhow detailed
obligation, so long as the underlying contract is supported
the showing of prohibitive expense must be,â there is no doubt
by adequate consideration. 35 In any event, the basic test
that some specific information of future costs is required. 28
for unconscionability is whether, given the parties' general
In Green Tree, the party resisting arbitration cited what
commercial background and the commercial needs of the
she claimed were American Arbitration Association (AAA)
particular trade or case, the clause involved is so one-sided
figures on arbitration costs, but she provided no evidence that
that it is unconscionable under the circumstances existing
the AAA would actually conduct the arbitration or charge
when the parties made the contract. 36 The principle is one
her the fees she identified. 29 Because of this uncertainty, the
of preventing oppression and unfair surprise and not of
Supreme Court deemed the evidence insufficient to defeat
disturbing allocation of risks because of superior bargaining
arbitration. 30
power. 37 Here, the Arbitration Addendum allows the bank
to seek judicial relief to enforce its security agreement,
Here, the de los Santoses testified, in two sworn affidavits,
recover the buyers' monetary loan obligation, and foreclose.
that the AAA charged a minimum $2,000 filing fee and
Given the weight of federal precedent and the routine nature
a $250/day/party hearing fee, along with several other
unspecified fees, for hearings before a three-member panel. of mobile *758 home financing agreements, 38 we find
But we *757 need not decide whether these costs would be that the Arbitration Addendum in this case, by excepting
excessive. As in Green Tree, the de los Santoses provided no claims essentially protecting the bank's security interest, is not
evidence that the AAA would actually conduct the arbitration unconscionable. 39 We also recognize that the plaintiffs are
or charge the specified fees. The Arbitration Addendum does free to pursue their unconscionability defense in the arbitral
not state that the AAA will conduct the arbitration, and it forum.
makes no mention of arbitration costs. We also note that
the most recent AAA commercial arbitration rules provide [21] Moreover, the de los Santoses cannot prevail on their
that âthe AAA may, in the event of extreme hardship on duress defense, since there is no evidence that the sellers
the part of any party, defer or reduce the administrative threatened to do anything they did not have a legal right to
fees.â 31 Moreover, in the event the de los Santoses do not do. 40 At most, the sellers stated only that they would not sell
avail themselves of FirstMerit Bank's choice of arbitrators, the home if the de los Santoses would not sign the Addendum,
the FAA permits the trial court to choose an alternate set which is not evidence of duress. 41
of arbitrators. 32 The de los Santoses also complain that
the requirement of three arbitrators is inherently costly. But [22] [23] The de los Santoses also alleged fraud in the
again, without any specific information on what the costs inducement of the Arbitration Addendum. The elements of
will be, this requirement is not evidence of unconscionability. fraud are: (1) that a material representation was made; (2)
Finally, in agreeing to the Addendum, Pete and Janie de los the representation was false; (3) when the representation was
Santos agreed âthat arbitration is a less expensive method made, the speaker knew it was false or made it recklessly
of dispute resolution that decreases servicing costs of this without any knowledge of the truth and as a positive assertion;
loan....â Because the record contains no specific evidence (4) the speaker made the representation with the intent that
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
Addendum's validity is a separate issue from the validity of
the other party should act upon it; (5) the party acted in
reliance on the representation; and (6) the party thereby the whole contract. 43 And given that the FAA's primary
objective is to encourage the arbitration of contract-related
suffered injury. 42 In this case, the de los Santoses alleged
issues, the issue of whether the underlying contract was
that the sellers fraudulently represented that they owned the
revoked is an issue that should be arbitrated, since it âarises
land under the home, and that the home had a septic system
and driveway. They also allege that the sellers' advertisements from or relates toâ the contract. 44
and pre-sale statements made no reference to an arbitration
clause, and that the sellers did not adequately explain the
consequences of signing the Addendum. However, there III. CONCLUSION
is no evidence that the sellers actually misrepresented the
Addendum's terms, or that they made any false material Because the claims in this lawsuit are within the scope of the
representations with regard to the Arbitration Addendum parties' agreement to arbitrate, we conditionally grant the writ
itself. Accordingly, we decline to invalidate the Arbitration of mandamus and direct the trial court to order that all claims
Addendum based on fraud. proceed to arbitration. The clerk is instructed to issue *759
the writ only if the trial court fails to do so.
[24] Finally, the de los Santoses argue that their alleged
revocation of the installment contract also applies to the
Arbitration Addendum, rendering it unenforceable. But this Parallel Citations
claim really pertains to the entire installment contract and
44 Tex. Sup. Ct. J. 900not just the Arbitration Addendum. Again, the Arbitration Footnotes 1 The other parties did not answer the suit, and a default judgment was entered against them. 2 In re Masonite Corp.,997 S.W.2d 194, 197
(Tex.1999). 3Id.
4 EZ Pawn Corp. v. Mancias,934 S.W.2d 87, 88
(Tex.1996). 5 In re Oakwood Mobile Homes,987 S.W.2d 571, 573
(Tex.1999). 6 Cantella & Co. v. Goodwin,924 S.W.2d 943, 944
(Tex.1996). 7 Id.; Green Tree Fin. Corp. v. Randolph,531 U.S. 79, 91
,121 S.Ct. 513, 522
,148 L.Ed.2d 373
(2000). 8 Cantella,924 S.W.2d at 944
. 9 Mitsubishi Motors Corp. v. Soler ChryslerâPlymouth, Inc.,473 U.S. 614, 626
,105 S.Ct. 3346
,87 L.Ed.2d 444
(1985); Prudential
Sec., Inc. v. Marshall, 909 S.W.2d 896, 899(Tex.1995). 10 See In re Oakwood,987 S.W.2d at 573
. 11 Cantella,924 S.W.2d at 944
. 12 See Lost Creek Mun. Util. Dist. v. Travis Indus. Painters, Inc.,827 S.W.2d 103, 105
(Tex.App.âAustin 1992, writ denied). 13 AlliedâBruce Terminix Cos. v. Dobson,513 U.S. 265
, 272â74, 276â78,115 S.Ct. 834
,130 L.Ed.2d 753
(1995). 14 See, e.g., Mesa Operating Ltd. P'ship v. Louisiana Intrastate Gas Corp.,797 F.2d 238, 243
(5th Cir.1986); Snyder v. Smith,736 F.2d 409, 418
(7th Cir.1984), cert. denied,469 U.S. 1037
,105 S.Ct. 513
,83 L.Ed.2d 403
(1984). 15 Prudential Sec.,909 S.W.2d at 900
. 16 See TEX. BUS. & COM.CODE § 2.608(a), 2.711(c). 17 See Pepe Int'l Dev. Co. v. Pub Brewing Co.,915 S.W.2d 925, 930
(Tex.App.âHouston [1st Dist.] 1996, no writ); New Process Steel
Corp. v. Titan Indus. Corp., 555 F.Supp. 1018, 1022(S.D.Tex.1983). 18 See Nationwide of Bryan, Inc. v. Dyer,969 S.W.2d 518, 520
(Tex.App.âAustin 1998, no pet.). 19 See In re Oakwood,987 S.W.2d at 573
. 20 See Prima Paint Corp. v. Flood & Conklin Mfg. Co.,388 U.S. 395
, 403â04,87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967). 21 Seeid.
22 In re Oakwood,987 S.W.2d at 574
. 23Id. at 573
.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
In re FirstMerit Bank, N.A., 52 S.W.3d 749(2001)44 Tex. Sup. Ct. J. 900
24531 U.S. 79, 91
, 121 S.Ct. at 522,148 L.Ed.2d 373
. 25Id.
26Id.
27Id.
28Id.
at 522â23. 29Id.
at 522 & n. 6. 30 Seeid.
31 American Arbitration Association, Arbitration Rules for the Real Estate Industry, Rule 51. 32 See9 U.S.C. § 5
. 33 See In re Conseco Fin. Servicing Corp.,19 S.W.3d 562
, 569 n. 3 (Tex.App.âWaco 2000, pet. dism'd by agr.). 34 See, e.g., Armendariz v. Foundation Health Psychcare Servs.,24 Cal.4th 83
,99 Cal.Rptr.2d 745
,6 P.3d 669
, 691â94 (Cal.2000);
Iwen v. U.S. West Direct, 293 Mont. 512,977 P.2d 989
, 995â96 (1999). 35 See, e.g., Harris v. Green Tree Fin. Corp.,183 F.3d 173, 183
(3d Cir.1999); Doctor's Assoc., Inc. v. Distajo,66 F.3d 438
, 451â53 (2d
Cir.1995); Wilson Elec. Contractors, Inc. v. Minnotte Contracting Corp., 878 F.2d 167, 168â69 (6th Cir.1989); Young v. Jim Walter
Homes, Inc., 110 F.Supp.2d 1344, 1350(M.D.Ala.2000); Pridgen v. Green Tree Fin. Servicing Corp.,88 F.Supp.2d 655
, 658â59
(S.D.Miss.2000); Gray v. Conseco, Inc., 2000 WL 1480273,2000 U.S. Dist. LEXIS 14821
, 13â16 (C.D.Cal. Sept. 29, 2000). 36 TEX. BUS. & COM.CODE § 2.302 cmt. 1. 37 Id. 38 See Palm Harbor Homes, Inc. v. McCoy,944 S.W.2d 716
, 723 n. 8 (Tex.App.âFort Worth 1997, orig. proceeding). 39 See Pridgen, 88 F.Supp.2d at 658â59; see also Conseco Fin. Servicing Corp. v. Wilder,47 S.W.3d 335
(Ky.App.2001). 40 In re Oakwood,987 S.W.2d at 574
. 41 Seeid.
42 Formosa Plastics Corp. v. Presidio Engrs. & Contractors, Inc.,960 S.W.2d 41, 47
(Tex.1998). 43 See Miller v. Puritan Fashions Corp.,516 S.W.2d 234
, 238â39 (Tex.Civ.App.âWaco 1974, writ ref'd n.r.e.). 44 See Mewbourne Oil Co. v. Blackburn,793 S.W.2d 735, 737
(Tex.App.âAmarillo 1990, orig. proceeding).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
Courts may consider both procedural and
substantive unconscionability of an arbitration
80 S.W.3d 566
clause in evaluating the validity of an arbitration
Supreme Court of Texas.
provision.
In re HALLIBURTON COMPANY and
97 Cases that cite this headnote
Brown & Root Energy Services, Relators.
No. 00â1206. | Argued Nov. 7, [3] Alternative Dispute Resolution
2001. | Decided May 30, 2002.
| Rehearing Denied Aug. 22, 2002. Unconscionabi
Disparity in bargaining power between employer
At-will employee brought action alleging discrimination and at-will employer did not render employer's
based on race and age. The trial court denied motion imposition of new employment term requiring all
to compel arbitration. Employer petitioned for writ of employment disputes to be resolved in binding
mandamus. The Court of Appeals denied relief. Employer arbitration, which was offered on âtake it or
appealed. The Supreme Court, Phillips, C.J., held that: leave itâ basis, unconscionable, as employer had
(1) employer's promise to arbitrate disputes was adequate general right to discharge at-will employees.
consideration to support change in terms of employment;
(2) disparity in bargaining power between parties did not 75 Cases that cite this headnote
render arbitration clause unconscionable; and (3) arbitration
program was not substantively unconscionable. [4] Labor and Employment
Petition for writ of mandamus granted. Termination;
cause or reason in general
Baker, J., concurred in judgment only. Because an employer has a general right under
Texas law to discharge an at-will employee, it
cannot be unconscionable, without more, merely
West Headnotes (6) to premise continued employment on acceptance
of new or additional employment terms.
[1] Alternative Dispute Resolution 21 Cases that cite this headnote
Consideration
[5] Alternative Dispute Resolution
Employer's promise to submit all employment
disputes to arbitration constituted adequate Unconscionabi
consideration for change in employment terms Mandatory arbitration program, which required
resulting from at-will employee's acceptance as condition of continued employment that
of dispute resolution program adopted by all disputes arising out of employment be
employer, where participation in dispute resolved in arbitration, was not substantively
resolution program was not dependent on unconscionable, where company agreed to pay
continuing employment, and employer could all expenses of arbitration except filing fee, both
not avoid its promise to arbitrate by amending parties were to participate in selection of neutral
arbitration provision or terminating it altogether. arbitrator, program provided employees with up
to $2,500 to consult with attorney, rules provided
104 Cases that cite this headnote
for pre-arbitration discovery, and all remedies
employee could have pursued in court system
[2] Alternative Dispute Resolution were available in arbitration.
Unconscionability
100 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
James D. Myers has been an at-will employee of Brown
[6] Mandamus & Root Energy Services, now a subsidiary of Halliburton
Company, for approximately thirty years. In November 1997,
Remedy
Halliburton sent notice to all employees of Halliburton
by Appeal or Writ of Error
companies that it was adopting a Dispute Resolution
Employer was entitled to writ of mandamus
Program. 1 As part of that program, binding arbitration was
requiring trial court to grant motion to
designated as the exclusive method for resolving all disputes
compel arbitration pursuant to dispute resolution
between the company and its employees. The notice informed
program that was condition of employment,
employees that by continuing to work after January 1, 1998,
where employer had no adequate remedy by
appeal. they would be accepting the new program. 2
13 Cases that cite this headnote Myers does not dispute that he received this notice, but he
claims that he did not fully understand it. Nevertheless, he
continued working for Halliburton after January 1, 1998.
Sometime in 1998, Halliburton demoted him from his
Attorneys and Law Firms position as a General Welding Foreman. Although he was
told this demotion was due to âa lack of interpersonal skills,â
*567 Russell J. Weintraub, Austin, W. Carl Jordan, Vanessa Myers alleges that the real reason was discrimination based
M. Clem, Vinson & Elkins, Houston, for Relators. on his race and age. In October 1999, Myers brought this
suit in district court alleging wrongful demotion in violation
Barbara J. Gardner, Barbara Gardner & Associates, David W.
of the Texas Commission on Human Rights Act, TEX.
Holman, Holman & Keeling, PC, Houston, for Respondent.
LAB.CODE § 21.001. Halliburton asked the trial court to
Opinion compel arbitration under the Program and to either stay or
dismiss the lawsuit. The trial court denied the motion, and
Chief Justice PHILLIPS delivered the opinion of the the court of appeals denied Halliburton's petition for writ of
Court in which Justice HECHT, Justice ENOCH, Justice mandamus.
OWEN, Justice HANKINSON, Justice O'NEILL, Justice
JEFFERSON, and Justice RODRIGUEZ joined.
We are once again asked to decide whether mandamus II
should issue to enforce an arbitration provision, in this
[1] Under the Federal Arbitration Act (FAA), an agreement
instance between an employer and an at-will employee. The
to arbitrate that is valid under general principles of state
employer sent notice of a new dispute resolution program
contract law and involves interstate commerce is âvalid,
(the Program) to the employee informing him that continuing
irrevocable, and enforceable.â 9 U.S.C. § 2. The parties here
employment would constitute acceptance of the new plan.
do not dispute that the contract involves interstate commerce.
When the employee was later demoted, he filed suit rather
We must determine whether, under state law, the Program's
than following the Program. The district court denied the
arbitration clause is valid. 9 U.S.C. § 2.
employer's motion to compel arbitration under the Federal
Arbitration Act and stay or dismiss the trial court proceedings.
In Hathaway v. General Mills, Inc., 711 S.W.2d 227The court of appeals also denied relief.80 S.W.3d 611
. We
(Tex.1986), we outlined the manner in which an employer
conclude that the Program meets the requirements for altering
may change the terms of an at-will employment contract.
an at-will employment contract, is not unconscionable, and
We held that the party asserting a change to an at-will
is otherwise enforceable under general contract principles.
employment contract must prove two things: (1) notice of
Because the employer has no adequate remedy on appeal, we
the change, and (2) acceptance of the change. Id. at 229.
conditionally grant the writ.
We stated that âto prove notice, an employer asserting a
modification must prove that he unequivocally notified the
employee of definite changes in employment terms.â Id. Yet
*568 I we made clear that when an employer notifies an employee of
changes to the at-will employment contract and the employee
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
âcontinues working with knowledge of the changes, he has the ability of either to terminate the accepted the changes as a matter of law.âId.
(citation employment at-will, a promise by
omitted). either which is dependent on a period
of continued employment is illusory
Here, it is undisputed that Halliburton notified Myers of the and thus insufficient to support a
proposed changes. The notice explained the Program, stated bilateral contract because it would
its effective date, and explained that by working after that fail to bind the promisor who always
date an employee would indicate that he or she accepted the retains the option of discontinuing
provision. Myers argues that he only briefly *569 looked employment in lieu of performance.
at the documents and that he did not understand them.
The materials, however, unequivocally notified him that his Id. at 645.
employment terms would be changing. A one-page summary
included in the materials stated: This is a correct statement of the law, but it does not apply
to the situation here. In Light, we considered the validity of
While both you and Halliburton a covenant not to compete between an at-will employee and
retain all substantive legal rights and her employer. Light, 883 S.W.2d at 643. We held that certain
remedies under this Program, you and promises made by the employer in the covenant were illusory
Halliburton are both waiving all rights because they were dependent on the at-will employee's
which either may have with regard to continued employment. Id. at 645â46. The employer could
trial by jury for employment related avoid performance simply by terminating the employment
matters in state or federal court. relationship, while the employee was bound whether she
stayed or left. Id. at 645.
The accompanying materials set forth that adopting the new
Program meant that By contrast, the Program is not dependent on continuing
employment. Instead, it was accepted by the employee's
if you accept or continue your
continuing employment. When Myers reported for work after
employment after January 1, 1998,
January 1, 1998, he accepted Halliburton's offer; both Myers
you will agree to resolve all legal
and Halliburton became bound to arbitrate any disputes
claims against Halliburton through this
between them. Even if Myers' employment had ended shortly
process instead of through the court
thereafter, the promise to arbitrate would have been binding
system.
and enforceable on both parties. In Light, the employer was
After receiving this notice, Myers continued to work for bound only while the employee continued to work. Thus,
Halliburton after January 1, 1998, thus accepting the changes following Myers' acceptance, the Program was not dependent
as a matter of law. on continuing employment and was not illusory. See also
In re Jebbia, 26 S.W.3d 753, 758 (Tex.App.-Houston [14th
This is not a case in which the written notice was contradicted Dist.] 2000, orig. proceeding) (rejecting the argument that
by other written or oral communications between the an arbitration provision lacked consideration because the
employer and the employee. See Hathaway, 711 S.W.2d at employment relationship was at-will).
229. On this record we conclude that Halliburton's offer was
unequivocal and that Myers' conduct was an acceptance of Myers also asserts that Halliburton's promises were illusory
that offer. because the company retained the right to modify or
discontinue the Program. But the Program also provided
The court of appeals held that Halliburton's promises were that âno amendment shall apply *570 to a Dispute of
illusory, and therefore could not constitute consideration for which the Sponsor [Halliburton] had actual notice on the
Myers' promise to arbitrate. 80 S.W.3d 611. The court relied date of amendment.â As to termination, the plan stated on Light v. Centel Cellular Co.,883 S.W.2d 642
(Tex.1994), that âtermination shall not be effective until 10 days after
for the proposition that reasonable notice of termination is given to Employees or
as to Disputes which arose prior to the date of termination.â
because an at-will employer and Therefore, Halliburton cannot avoid its promise to arbitrate
employee may not contract to limit
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
by amending the provision or terminating it altogether. to contracts of employment. Id. at 113,121 S.Ct. 1302
. The
Accordingly, the provision is not illusory. Court stated that it âhad been clear in rejecting the supposition
that the advantages of the arbitration process somehow
Myers further asserts that because his statutory rights disappear when transferred to the employment context,â and
under the Texas Commission on Human Rights Act are held for the employer. Id. at 123,121 S.Ct. 1302
. Requiring implicated, a higher standard applies in determining if Lai's heightened standard would undermine these principles he agreed to binding arbitration. For this proposition, he by allowing an arbitration agreement covering statutory cites Prudential Insurance Co. v. Lai,42 F.3d 1299
(9th claims to be declared unenforceable on some basis other than Cir.1994). Lai held that the employer must establish at least one required at law or in equity for contract revocation. a âknowing agreement to arbitrate employment disputesâ before an employee may be deemed to have waived a *571 Myers also urges this Court to require a heightened judicial determination of his or her rights under Title VII and standard because a Federal Equal Employment Opportunity related state statutes. Lai,42 F.3d at 1304
. The court held Commission policy disfavors compulsory arbitration of that because the arbitration agreement did not specifically discrimination claims. Policy Statement on Mandatory mention the type of claim the plaintiffs alleged, the plaintiffs Binding Arbitration of Employment Discrimination Disputes, could not have âknowinglyâ agreed to arbitrate those claims. EEOC Notice No. 915.00 (July 10, 1997). While we mayId. at 1305
. However, nearly every subsequent decision has give some deference to the statutory interpretation of the rejected Lai's âknowing waiverâ standard. See, e.g., Penn v. government agency charged with implementing that statute, Ryan's Family Steak Houses, Inc.,269 F.3d 753, 761
(7th that cannot trump our deference to a United States Supreme Cir.2001); Haskins v. Prudential Ins. Co. of Am., 230 F.3d Court decision. See In re American Homestar of Lancaster, 231, 239â40 (6th Cir.2000); Seus v. John Nuveen & Co., Inc.,50 S.W.3d 480
, 490â91 (Tex.2001).146 F.3d 175
, 183 n. 2 (3rd Cir.1998); Battle v. Prudential Ins. Co. of Am.,973 F.Supp. 861, 866
(D.Minn.1997); Finally, Myers argues that this provision should not be Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., enforced because it is unconscionable. Unconscionability957 F.Supp. 1460
, 1474â75 (N.D.Ill.1997); Maye v. Smith includes two aspects: (1) procedural unconscionability, which Barney, Inc.,897 F.Supp. 100, 107
(S.D.N.Y.1995); Bryant refers to the circumstances surrounding the adoption of the v. American Exp. Fin. Advisors, Inc.,595 N.W.2d 482
, 486 arbitration provision, and (2) substantive unconscionability, (Iowa 1999); DeCaminada v. Coopers & Lybrand, L.L.P., which refers to the fairness of the arbitration provision232 Mich.App. 492
,591 N.W.2d 364, 368
(App.1998); but itself. See Southwestern Bell Tel. Co. v. DeLanney, 809 see Hooters of Am., Inc. v. Phillips,39 F.Supp.2d 582
,612 S.W.2d 493
, 498â99 (Tex.1991) (Gonzalez, J., concurring). (D.S.C.1998); Hoffman v. Aaron Kamhi, Inc., 927 F.Supp. In In re Oakwood Mobile Homes, Inc.,987 S.W.2d 571, 640, 645
(S.D.N.Y.1996). Moreover, Lai's âknowing waiverâ 573 n. 3 (Tex.1999), we observed in dicta that substantive standard is inconsistent with the United States Supreme unconscionability of an arbitration clause cannot be asserted Court's decisions in Gilmer v. Interstate/Johnson Lane Corp., to the court as a reason not to compel arbitration, and that500 U.S. 20
,111 S.Ct. 1647
,114 L.Ed.2d 26
(1991), and such a claim must instead be âsubmitted to the designated Circuit City Stores, Inc. v. Adams,532 U.S. 105
, 121 S.Ct. arbitrator.â 3 1302,149 L.Ed.2d 234
(2001). In Gilmer, a suit under the Age Discrimination in Employment Act, the Court noted that This proposition first appeared in Texas jurisprudence in In under the FAA, arbitration agreements are âvalid, irrevocable, re Foster Mold, Inc.,979 S.W.2d 665, 667
(Tex.App.-El and enforceable save upon such grounds as exist at law or Paso 1998) (orig. proceeding). That case relied on the United in equity for the revocation of any contract.âGilmer, 500
States Supreme Court's decision in Prima Paint Corp. v. U.S. at 24â25,111 S.Ct. 1647
. The Court concluded that Flood & Conklin Manufacturing Co.,388 U.S. 395
, 403â04, such statutory causes of action may be the subject of an87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967), and on two cases arbitration agreement. Id. at 26,111 S.Ct. 1647
. In Circuit from the Fifth Circuit Court of Appeals: Miller v. Public City, an employer brought an action in federal court under the Storage Management, Inc.,121 F.3d 215
(5th Cir.1997), and FAA seeking to enjoin a suit in state court under a California R.M. Perez & Associates, Inc. v. Welch,960 F.2d 534
(5th employment discrimination statute, because the employee Cir.1992). had agreed to arbitration. Circuit City,532 U.S. at 110
,121 S.Ct. 1302
. The employee argued that the FAA does not apply
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
In Prima Paint Corp., the Supreme Court held that under [5] Myers also argues that the arbitration plan is so unfair to section 4 of the FAA, âif the claim is fraud in the inducement employees that the Program is substantively unconscionable. of the arbitration clause itself ... the federal court may But Myers has failed to make such a showing here. The proceed to adjudicate it,â but âthe statutory language does Program has several terms that provide protection to the not permit the federal court to consider claims of fraud in employee in the process. For example, the company agreed the inducement of the contract generally.â Prima Paint Corp., to pay all the expenses of an arbitration except a $50 filing 388 U.S. at 403â04,87 S.Ct. 1801
. The Fifth Circuit cases fee. Both parties are to participate in the selection of the
have similar language. See Miller, 121 F.3d at 218â19; R.M. neutral arbitrator. The Program provides up to $2,500 for
Perez, 960 F.2d at 538â39. Neither Miller nor R.M. Perez an employee to consult with an attorney. The rules provide
addressed the distinction between procedural and substantive for pre-arbitration discovery under the Federal Rules of Civil
unconscionability of an arbitration clause. They each noted Procedure. All remedies the employee could have pursued
that courts may consider claims relating to the arbitration in the court system are available in the arbitration. And
clause itself but not regarding the contract as a whole. These the arbitrator may award reasonable attorney's fees to an
cases simply do not support Foster Mold's conclusion that employee who receives a favorable award regardless of
a court may not address claims that the arbitration clause is whether such an award would be available in court. On this
substantively unconscionable. record, we conclude that Myers has failed to carry his burden
to show that the Program is unconscionable.
[2] Several federal courts have examined substantive
unconscionability of an arbitration clause when ruling on Several courts have found arbitration provisions with similar
a motion to compel. See, e.g., Dobbins v. Hawk's Enters., terms to be enforceable. See Cole v. Burns Int'l Sec. Servs.,
198 F.3d 715, 717 (8th Cir.1999); Harris v. Green Tree105 F.3d 1465, 1482
(D.C.Cir.1997) (arbitration agreement Fin. Corp.,183 F.3d 173
, 181â84 (3rd.Cir.1999); We Care valid which (1) required a neutral arbitrator, (2) allowed Hair Dev., Inc. v. Engen,180 F.3d 838, 843
(7th Cir.1999); more than minimal discovery, (3) resulted in a written Doctor's Assocs., Inc. v. Hamilton,150 F.3d 157
, 163 award, (4) allowed all remedies that would be available in (2nd Cir.1998); Stedor *572 Enters., Ltd. v. Armtex, Inc., court, and (5) did not require the employee to pay either947 F.2d 727, 733
(4th Cir.1991). These cases seem to unreasonable costs or any arbitrator's fees or expenses); us clearly correct. See also In re Conseco Fin. Servicing Beauchamp v. Great West Life Assurance Co., 918 F.Supp. Corp.,19 S.W.3d 562
, 568 n. 3 (Tex.App.-Waco 2000, orig. 1091, 1098 (E.D.Mich.1996) (an agreement to arbitrate is not proceeding) (questioning the validity of the dicta in Oakwood substantively unconscionable because the employee did not Homes ). We therefore clarify that courts may consider both waive any substantive rights, the employee simply agreed to procedural and substantive unconscionability of an arbitration have those rights determined in a different forum); Rembert clause in evaluating the validity of an arbitration provision. v. Ryan's Family Steak Houses, Inc.,235 Mich.App. 118
,
596 N.W.2d 208, 226 (App.1999) (an arbitration agreement
[3] [4] Myers first asserts that the provision is procedurally covering statutory claims is valid so long as âthe arbitration
unconscionable as there was gross disparity in bargaining agreement does not waive the substantive rights and remedies
power between the parties because Myers had no opportunity of the statute and the arbitration procedures are fair so that the
to negotiate; Halliburton told him to accept the Program or employee may effectively vindicate his statutory rightsâ).
leave. But in Hathaway, we recognized that an employer may
make precisely such a âtake it or leave itâ offer to its at-will
employees. Hathaway, 711 S.W.2d at 228â29. Because an
III
employer has a general right under Texas law to discharge an
at-will employee, it cannot be unconscionable, without more, [6] We conclude that Myers clearly had notice of the
merely to premise continued employment on acceptance of proposed changes to his at-will employment contract and
new or additional employment terms. See also Smith v. H.E. accepted them by continuing to work after January *573
Butt Grocery Co., 18 S.W.3d 910, 912 (Tex.App.-Beaumont 1, 1998. We also conclude that Myers has failed to show
2000, pet. denied) (rejecting the argument that an arbitration that the arbitration provision is unconscionable. Because
provision is unconscionable merely because the parties did the arbitration provision is otherwise enforceable under
not negotiate its terms). general contract principles, a valid arbitration provision exists
between Myers and Halliburton, and the trial court should
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Halliburton Co., 80 S.W.3d 566(2002)18 IER Cases 1121
,45 Tex. Sup. Ct. J. 720
have granted Halliburton's motion to compel arbitration. Mandamus relief is appropriate because Halliburton has no Justice BAKER concurred in the Court's judgment only. adequate remedy by appeal. See Jack B. Anglin Co. v. Tipps,842 S.W.2d 266, 271
(Tex.1992). Accordingly, we Parallel Citations
conditionally grant the petition for writ of mandamus. The
18 IER Cases 1121,45 Tex. Sup. Ct. J. 720
writ will issue only if the trial court fails to act promptly.
Footnotes
1 Brown & Root apparently adopted the same program in 1993. The parties provided this Court with a cover letter for materials sent
to Brown & Root employees in 1993. However, the materials were not provided to us. Even if Myers' at-will employment contract
was modified when Brown & Root adopted the program in 1993, it was further modified in 1998 when Halliburton adopted the
program for all of its employees.
2 In its motion to compel arbitration, Halliburton also argued that Myers had agreed to arbitration by signing a document entitled
âAssignment Authority Supplement,â which contained a statement acknowledging the new Dispute Resolution Program and agreeing
to submit to binding arbitration. When Myers asserted that the signature on the document was not his, Halliburton abandoned this
argument.
3 Several courts of appeals have relied on this language in examining arbitration provisions. See In re Rangel, 45 S.W.3d 783, 786
(Tex.App.-Waco 2001, orig. proceeding); Smith v. H.E. Butt Grocery Co., 18 S.W.3d 910, 912 (Tex.App.-Beaumont 2000, pet.
denied); In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367 (Tex.App.-Houston [14th Dist.] 2000, orig. proceeding).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
328 S.W.3d 883 West Headnotes (17)
Supreme Court of Texas.
In re OLSHAN FOUNDATION REPAIR [1] Mandamus
COMPANY, LLC and Olshan Foundation
Remedy
Repair Company of Dallas, Ltd., Relators.
by Appeal or Writ of Error
Nos. 09â0432, 09â0433, 09â0474, 09â0703. | Mandamus
Argued March 23, 2010. | Decided Dec. 3, 2010.
Matters
Synopsis of discretion
Background: Homeowners brought separate actions against Mandamus will not issue unless: (1) the trial
foundation repair company before the 40th District Court, judge has committed a clear abuse of discretion;
Ellis County, Gene Knize, J., the 44th District Court, Dallas and (2) there is no adequate remedy on appeal.
County, Carlos Raul Cortez, J., and the 271st District
Court, Wise County, John H. Fostel, J. Foundation repair 31 Cases that cite this headnote
company's pleas in abatement were denied, and it petitioned
for writs of mandamus, seeking order to compel arbitration of [2] Appeal and Error
homeowners' claims. The Waco Court of Appeals, 2009 WL
1886648, the Dallas Court of Appeals,277 S.W.3d 124
, and Abuse the Fort Worth Court of Appeals,2008 WL 4661815
, denied of discretion
petitions. Foundation repair company filed petitions for writs A trial court abuses its discretion if it reaches
of mandamus, which were consolidated. a decision so arbitrary and unreasonable it
amounts to a clear and prejudicial error of law or
it clearly fails to correctly analyze or apply the
law.
Holdings: The Supreme Court, Wainwright, J., held that:
39 Cases that cite this headnote
[1] choice of law provision in some homeowners' contracts
did not preclude application of Federal Arbitration Act
(FAA); [3] Alternative Dispute Resolution
Constitutional
[2] choice of law provision in remaining homeowners'
and statutory provisions and rules of court
contract precluded application of FAA;
The Federal Arbitration Act (FAA) does not
[3] evidence of two invoices from other arbitrations was confer a right to compel arbitration of any dispute
not some evidence in support of finding that arbitration at any time; rather, the FAA policy is simply to
agreements were unconscionable, and ensure that private agreements to arbitrate are
enforced according to their terms. 9 U.S.C.A. §
[4] claim that agreement violated Texas Home Solicitation 1 et seq.
Act (THSA) was to be determined by arbitrator.
2 Cases that cite this headnote
Writs granted in part and denied in part. [4] Alternative Dispute Resolution
Hecht, J., filed concurring opinion in which Medina, J., Preemption
joined. Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
arbitration agreements unenforceable if they
Operation contained arbitration clauses for services in
and Effect which total consideration to be furnished was
Commerce not more than $50,000 and agreements were
not in writing and signed by parties and
Arbitration
parties' counsel, in homeowners' action against
Choice of law provision in contracts between company. 9 U.S.C.A. § 2; V.T.C.A., Civil
homeowners and foundation repair company, Practice & Remedies Code § 171.002(a)(2).
stating that disputes arising out of contracts
were to be resolved by mandatory and 8 Cases that cite this headnote
binding arbitration administered pursuant to
arbitration laws in state of homeowners, did
[6] Alternative Dispute Resolution
not preclude application of Federal Arbitration
Act (FAA) provision, which preempted state Validity
law that would otherwise render arbitration Arbitration agreements are enforceable under the
agreements unenforceable in contract involving Federal Arbitration Act (FAA) only if they meet
interstate commerce, to provision of Texas the requirements of the general contract law of
General Arbitration Act (TAA), which rendered the applicable state. 9 U.S.C.A. § 2.
arbitration agreements unenforceable if they
contained arbitration clauses for services in 4 Cases that cite this headnote
which total consideration to be furnished was
not more than $50,000 and agreements were
[7] Alternative Dispute Resolution
not in writing and signed by parties and
parties' counsel, in homeowners' action against What
company, absent any provision specifically law governs
excluding federal law. 9 U.S.C.A. § 2; V.T.C.A.,
When determining whether an agreement to
Civil Practice & Remedies Code § 171.002(a)
arbitrate is valid under the Federal Arbitration
(2).
Act (FAA), state law, whether of legislative
or judicial origin, is applicable if that law
9 Cases that cite this headnote
arose to govern issues concerning the validity,
revocability, and enforceability of contracts
[5] Alternative Dispute Resolution generally. 9 U.S.C.A. § 2.
What 6 Cases that cite this headnote
law governs
Alternative Dispute Resolution
[8] Alternative Dispute Resolution
Operation
Unconscionabi
and Effect
State law renders unconscionable contracts
Choice of law provision in contracts between
unenforceable, and recognizes both substantive
homeowners and foundation repair company,
and procedural unconscionability with regard
stating that disputes arising out of contract
to arbitration agreements: âsubstantive
were to be resolved by mandatory and binding
unconscionabilityâ refers to the fairness
arbitration administered pursuant to Texas
of the arbitration provision itself, whereas
General Arbitration Act (TAA), precluded
âprocedural unconscionabilityâ refers to the
application of Federal Arbitration Act (FAA)
circumstances surrounding adoption of the
provision, which preempted state law that
arbitration provision.
would otherwise render arbitration agreements
unenforceable in contract involving interstate 10 Cases that cite this headnote
commerce, to provision of TAA, which rendered
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
claim goes, but what the total cost to the claimant
[9] Contracts to pursue the claim is.
Unconscionable
8 Cases that cite this headnote
Contracts
Generally, a contract is unconscionable if, given
[13] Alternative Dispute Resolution
the parties general commercial background and
the commercial needs of the particular trade or Evidence
case, the clause involved is so one-sided that it is
When a party seeks to invalidate an arbitration
unconscionable under the circumstances existing
agreement on the ground that arbitration
when the parties made the contract.
would be prohibitively expensive so as to be
2 Cases that cite this headnote unconscionable, that party bears the burden of
showing the likelihood of incurring such costs;
once met, the burden shifts to the party seeking
[10] Alternative Dispute Resolution arbitration who must come forward with contrary
evidence.
Unconscionability
There is nothing per se unconscionable about 1 Cases that cite this headnote
arbitration agreements.
4 Cases that cite this headnote [14] Alternative Dispute Resolution
Evidence
[11] Alternative Dispute Resolution Evidence of the risk of possible costs of
arbitration is insufficient evidence of the
Validity
prohibitive cost of the arbitration forum, for
Excessive costs imposed by an arbitration
purposes of determining whether an arbitration
agreement render a contract unconscionable if
agreement is unconscionable; for evidence to be
the costs prevent a litigant from effectively
sufficient, it must show that excessive arbitration
vindicating his or her rights in the arbitral forum.
fees are likely to be charged.
4 Cases that cite this headnote
8 Cases that cite this headnote
[12] Alternative Dispute Resolution
[15] Alternative Dispute Resolution
Unconscionability
Evidence
In determining whether an arbitration agreement
Parties seeking to invalidate an arbitration
is unconscionable based on the ground that
agreement on the ground of prohibitive cost
arbitration would be prohibitively expensive, the
of arbitration need not actually incur the
analysis evaluates whether the arbitral forum in
cost of arbitration in order to demonstrate
a particular case is an adequate and accessible
excessiveness, but must at least provide evidence
substitute to litigation, which in turn requires a
of the likely cost of their particular arbitration,
case-by-case analysis that focuses, among other
through invoices, expert testimony, reliable cost
things, upon the claimant's ability to pay the
estimates, or other comparable evidence.
arbitration fees and costs, the expected cost
differential between arbitration and litigation in 4 Cases that cite this headnote
court, and whether that cost differential is so
substantial as to deter the bringing of claims; the
[16] Alternative Dispute Resolution
key factor is not where the cost to pursue the
Evidence
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
Evidence of two invoices from similar disputes Janota, Henslee Schwartz, *886 LLP, Austin, for Olshan
showing claims worth between approximately Foundation Repair Company, LLC.
$75,000 to $200,000, and arbitration costs
between approximately $11,000 to $35,000, did Robert W. Loree, Edwin Todd Lipscomb, Loree, Hernandez
not constitute some evidence to support finding & Lipscomb, PLLC, San Antonio, Steven W. Thornton,
that homeowners would be charged excessive McCorkle Westerburg & Thornton, P.C., David M. Walsh IV,
fees to arbitrate their claims against foundation Chamblee & Ryan, P.C., Dallas, for Real Parties in Interest
repair company for alleged improper foundation Kenneth Kilpatrick in No. 09â0432, Charley Tisdale in No.
repair, as required to invalidate arbitration 09â0433, Craig Waggoner in No. 09â0474.
agreements between parties on ground of
Robert W. Loree, Edwin Todd Lipscomb, Christopher Dean
substantive unconscionability; homeowners'
Below, Loree, Hernandez & Lipscomb, PLLC, San Antonio,
respective claims did not exceed $20,000 each,
Steven W. Thornton, McCorkle Westerburg & Thornton,
nothing indicated that homeowners sought to
P.C., David M. Walsh IV, Chamblee & Ryan, P.C., Dallas,
reduce any likely arbitration charges through
for Real Party in Interest Robert Tingdale in No. 09â0703.
fee waivers, pro bono arbitrators, or single-
arbitrator panels, and homeowners did not Opinion
provide comparison of evidence to their expected
costs, amount of claims, or ability to pay such Justice WAINWRIGHT delivered the opinion of the Court.
costs.
Olshan Foundation Repair Company filed these petitions for
Cases that cite this headnote writs of mandamus in four different cases in which three
separate trial courts denied Olshan's pleas in abatement,
refusing to compel arbitration of consumer claims against
[17] Alternative Dispute Resolution
it. Three different courts of appeals also declined to order
the disputes to arbitration. We consolidated these cases for
Existence
and validity of agreement argument and now issue a consolidated opinion. Because the
Texas General Arbitration Act (TAA), and not the Federal
Claim of homeowners, who entered into
Arbitration Act (FAA), governs the arbitration dispute in
arbitration agreement with foundation repair
one of the cases (Waggoner, No. 09â0474), we deny Olshan
company, that agreement violated Texas Home
mandamus relief in that case. We conclude that for the
Solicitation Act (THSA) by failing to include
other three cases, the trial courts erred in holding that the
in agreements certain language regarding
TAA governs the arbitrations, there is no evidence that
cancellation and that such violation rendered
the arbitration agreements were unconscionable as a matter
agreement and arbitration clauses void, was to
of law, and all other disputed issues are questions for the
be determined by arbitrator, rather than trial
arbitrator. Because the trial court erred by denying Olshan's
court, in action by homeowners against company
pleas in abatement in the arbitrations governed by the FAA,
arising out of alleged improper foundation
we conditionally grant mandamus relief in those three actions.
repairs, as trial court could consider only
issues relating to making and performance of
agreement to arbitrate. V.T.C.A., Bus. & C. §§
601.002(a), 601.052, 601.053, 601.201. I. Factual and Procedural Background
1 Cases that cite this headnote Olshan is a national company that repairs residential
home foundations. In 1998, Craig and Joy Waggoner
contracted with Olshan to repair their home's foundation.
The Waggoners subsequently discovered new damage to
Attorneys and Law Firms the foundation and hired an engineer, Peter De la Mora,
to investigate the problems. In a 2007 report, De la Mora
*885 Stephan B. Rogers, Rogers & Moore, Boerne, Duncan concluded that Olshan had not properly repaired the home.
Roderick MacRae II, Henslee Schwartz, LLP, Austin, Mark The Waggoners filed suit against Olshan for breach of
C. Roberts, Henslee Schwartz, LLP, Dallas, Jeffrey D.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
contract, breach of warranty, negligence, violations of the the contract itself was undisputably unenforceable under the
Texas Deceptive Trade Practices Act, and violations of the Texas Home Solicitation Act.
Texas Home Solicitation Act.
The trial court denied Olshan's plea in the Waggoners' action.
In three other cases, similar circumstances unfolded. In 2002, It held that the TAA applies to the agreement, and thus the
Olshan contracted with Vickie and Kenneth Kilpatrick, who arbitration agreement was unenforceable pursuant to Chapter
filed suit against Olshan in 2007. The Kilpatricks' case was 171 of the Texas Civil Practice and Remedies Code. See
consolidated at the appellate court level with claims brought TEX. CIV. PRAC. & REM.CODE § 171.002(a)(2) (requiring
by Charley and Gladys Tisdale, again with nearly identical arbitration agreements in service contracts for less than
facts. In June 2007, Robert and Marta Tingdale, who initially $50,000 be signed by all parties and their attorneys). The trial
contracted with Olshan in 2004, filed another similar case. All court alternatively held that the prohibitive cost of arbitration
plaintiffs are represented by the same counsel, and each case rendered the agreement to arbitrate unconscionable. Olshan
includes a report from De la Mora opining that Olshan had petitioned for mandamus relief with the court of appeals,
not properly repaired each home. which was denied. The court of appeals held the TAA was
not preempted by the FAA, and section 171.002(a)(2) of
The four repair contracts were in writing, and each contained the TAA rendered the agreement unenforceable. It denied
arbitration clauses. The arbitration clauses in Kilpatrick (No. Olshan's writ of mandamus without reaching the other issues.
09â0432), Tisdale (No. 09â0433), and Tingdale (No. 09â In the remaining three actions, the trial courts denied Olshan's
0703) provide: pleas in abatement and the courts of appeals denied Olshan's
petitions for writs of mandamus. 1
Notwithstanding, any provision in
this agreement to the contrary,
any dispute, controversy, or lawsuit
between any of the parties to this II. Standard for Mandamus
agreement about any matter arising
out of this agreement, shall be [1] [2] At the time these petitions were filed, there was no
resolved by mandatory and *887 method under Texas procedure for parties to file interlocutory
binding arbitration administered by appeals of a trial court's refusal to compel arbitration under
the American Arbitration Association the FAA. 2 Olshan sought relief through petitions for writs of
(âAAAâ) pursuant to the arbitration mandamus. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266,
laws in your state and in accordance 272 (Tex.1992). Mandamus will not issue unless: (1) the trial
with this arbitration agreement and judge has committed a clear abuse of discretion; and (2) there
the commercial arbitration rules of the is no adequate remedy on appeal. In re Odyssey Healthcare,
AAA.... *888 Inc., 310 S.W.3d 419, 422 (Tex.2010) (per curiam)
(citing In re Prudential Ins. Co. of Am., 148 S.W.3d 124, (emphasis added). The arbitration clause in the Waggoner 135â36 (Tex.2004)). A trial court abuses its discretion if it (No. 09â0474) agreement is identical except for the language reaches a decision so arbitrary and unreasonable it amounts in bold, which states âpursuant to the Texas General to a clear and prejudicial error of law or it clearly fails Arbitration Act.â (emphasis added). None of the agreements to correctly analyze or apply the law. Walker v. Packer, addressed in this opinion was signed by the consumers'827 S.W.2d 833, 840
(Tex.1992) (citations omitted). The
attorney or exceeded $50,000 in consideration. second requirement for mandamus relief, that the relator
has no adequate remedy by appeal, âhas no comprehensive
Olshan filed a plea in abatement in each case and sought to definition.â See In re Ford Motor Co., 165 S.W.3d 315, 317 compel arbitration under the Federal Arbitration Act (FAA). (Tex.2005) (citing Prudential,148 S.W.3d at 136
). However,
The homeowners responded to the pleas, arguing that: (1) we have determined that relators have no adequate remedy
the TAA applies to the agreements to the exclusion of the by appeal when a trial judge erroneously refuses to compel
FAA, rendering the arbitration agreements unenforceable arbitration under the FAA. In re FirstMerit Bank, N.A., 52
because the agreements were not signed by the homeowners' S.W.3d 749, 753 (Tex.2001).
attorney; and (2) arbitration with the AAA is substantively
unconscionable because of the expense required and because
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
This Court must decide whether the trial courts abused their 474,109 S.Ct. 1248
. The FAA policy is simply to âensur[e] discretion by not compelling arbitration pursuant to the FAA, that private agreements to arbitrate are enforced according to as requested in Olshan's pleas in abatement. The trial courts their terms.âId. at 479
,109 S.Ct. 1248
. In Volt, the Court abuse their discretion by refusing to compel arbitration if the upheld the application of a California statute that allowed a FAA preempts the TAA and the arbitration agreements are stay of arbitration proceedings pending resolution of related not unconscionable. However, the trial courts did not err by litigation because the contract *889 also contained a choice- denying Olshan's pleas in abatement if the TAA applies to the of-law clause providing that â[t]he Contract shall be governed agreements or the agreements are unconscionable. by the law of the place where the Project is located.âId. at 470
,109 S.Ct. 1248
. The Court reiterated that âthe FAA
pre-empts state laws which ârequire a judicial forum for the
resolution of claims which the contracting parties agreed to
III. Federal Preemption
resolve by arbitration.â â Id. at 478,109 S.Ct. 1248
(quoting
Southland Corp., 465 U.S. at 10, 104 S.Ct. 852). But the FAA
A. The FAA and Choice of Law does not prevent
The TAA renders arbitration agreements unenforceable if the the enforcement of agreements to
agreements containing the arbitration clauses are agreements arbitrate under different rules than
for services âin which the total consideration to be furnished those set forth in the Act itself....
by the individual is not more than $50,000â and the Arbitration under the Act is a matter
agreements are not in writing, signed by each party, and of consent, not coercion, and parties
each party's attorney. TEX. CIV. PRAC. & REM.CODE § are generally free to structure their
171.002(a)(2). The homeowners contend that the arbitration arbitration agreements as they see fit.
agreements are governed by the TAA and are unenforceable Just as they may limit by contract
for failure to meet the two identified TAA requirements. the issues which they will arbitrate,
Olshan argues that the FAA applies to the agreements and so too may they specify by contract
preempts the TAA's exemption from coverage under section the rules under which that arbitration
171.002(a)(2), making the arbitration clauses enforceable. will be conducted.... By permitting
See In re Nexion Health at Humble, Inc., 173 S.W.3d 67, the courts to ârigorously enforceâ
69 (Tex.2005) (per curiam) (addressing a similar exemption such agreements according to their
under the TAA for personal injury cases). terms, we give effect to the contractual
rights and expectations of the parties,
Section 2 of the FAA preempts state law that would otherwise without doing violence to the policies
render arbitration agreements unenforceable in a contract behind by the FAA.
involving interstate commerce. 9 U.S.C. § 2; Southland Corp. v. Keating,465 U.S. 1
, 10â11,104 S.Ct. 852
, 79 Id. at 479,104 S.Ct. 852
(citations omitted). L.Ed.2d 1 (1984). âThe Act was designed to overrule the judiciary's longstanding refusal to enforce agreements to Subsequently, in Mastrobuono v. Shearson Lehman Hutton, arbitrate, and place such agreements upon the same footing Inc., the Court held that the FAA preempted New York's as other contracts.â Volt Info. Scis., Inc. v. Bd. of Trs. of prohibition against arbitral awards of punitive damages Leland Stanford Junior Univ.,489 U.S. 468, 474
, 109 S.Ct. despite a choice of law provision in an arbitration agreement 1248,103 L.Ed.2d 488
(1989) (internal quotations omitted). that stated the agreement âshall be governed by the laws We have recognized that the FAA preempts parts of the of the State of New York.â514 U.S. 52
, 63â64, 115 S.Ct. TAA, including section 171.002(a)(2) of the Civil Practice 1212,131 L.Ed.2d 76
(1995). The Court first stressed that the and Remedies Code. See Jack B. Anglin Co., 842 S.W.2d at agreement would be enforced as written, stating that âthe case 271 (discussing FAA's preemption of non-waiver provision before us comes down to what the contract has to say about of DTPA); Nexion,173 S.W.3d at 69
(Tex.2005) (discussing the arbitrability of petitioners' claim for punitive damages.â FAA's preemption of TAA section 171.002(a)(3)). Id. at 58,115 S.Ct. 1212
. Where the Court in Volt read the
choice-of-law provision as definitively choosing state law
[3] But the FAA does not âconfer a right to compel over federal law, the Court in Mastrobuono read the provision
arbitration of any dispute at any time.â Volt, 489 U.S. at differently:
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
law, further language specifically excluding application of
The choice-of-law provision, when viewed in isolation, the FAA is necessary for a court to apply the TAA to
may reasonably be read as merely a substitute for the the FAA's exclusion. âThe choice-of-law provision did not
conflict-of-laws analysis that otherwise would determine specifically exclude the application of federal law, and absent
what law to apply to disputes arising out of the contractual such an exclusion we decline to read the choice-of-law clause
relationship. as having such an effect.â L & L Kempwood, 9 S.W.3d
at 127â28. Rather, a general choice-of-law provision âmay
...
reasonably be read as merely a substitute for the conflict-of-
At most, [it] introduces an ambiguity into an arbitration laws analysis that otherwise would determine what law to
agreement that would otherwise allow punitive damages apply to disputes.â Id.at 127 n. 16 (citing Mastrobuono, 514 awards. U.S. at 59â60,115 S.Ct. 1212
). Courts apply the FAA unless
language in the arbitration agreement indicates its exclusion.
Id. at 59, 62,115 S.Ct. 1212
. Then, using FAA mandated
rules of contract construction, the Court concluded that
the provision should be read âto encompass substantive
C. The Law the Parties Chose
principles that New York courts would apply, but not to
include special rules limiting the authority of arbitrators.â Id.[4] Three of the arbitration agreements state that disputes at 62â64,115 S.Ct. 1212
. arising out of the contract âshall be resolved by mandatory
and binding arbitration administered ... pursuant to the
Thus, courts treat arbitration agreements as other contracts arbitration laws in your state....â Courts rarely read such
in applying the legal rules to interpret them. The goal is general choice-of-law provisions to choose state law to the
to discern the true intentions of the parties, as the FAA's exclusion of federal law. See Mastrobuono, 514 U.S. at 59, primary purpose is to ensure private agreements to arbitrate115 S.Ct. 1212
; L & L Kempwood,9 S.W.3d at 127
n. 16. are enforced according to their terms, no more, no less. Further, just as the FAA is part of the substantive law of Volt,489 U.S. at 479
,109 S.Ct. 1248
; see also Baravati Texas, the FAA would be part of the arbitration laws in v. Josephthal, Lyon & Ross, Inc.,28 F.3d 704, 709
(7th Texas. See L & L Kempwood,9 S.W.3d at 127
n. 15 (quoting
Cir.1994) (Posner, C.J.) (â[S]hort of authorizing trial by battle Capital Income Props., 843 S.W.2d at 23). The language of
or ordeal or, more doubtfully, by a panel of three monkeys, ... the arbitration clause designating arbitration pursuant to âthe
parties are as free to specify idiosyncratic terms of arbitration arbitrations laws in your stateâ includes the FAA. See id.
as they are to specify any other terms in their contract.â). at 127â28. Thus, the FAA applies to the three agreements
that include the âarbitration laws in your stateâ language,
and the FAA preempts the provisions of section 171.002(a)
B. This Court's Treatment of ChoiceâofâLaw (2) of the TAA that would otherwise render the agreements
Provisions Relating to Arbitration Agreements unenforceable. The trial courts abused their discretion in
denying Olshan's requests to compel arbitration based on the
This Court analyzed contractual language in the context of unenforceability of the arbitration under section 171.002(a)
the relationship *890 between an arbitration clause and a (2) in the Kilpatrick, Tisdale and Tingdale cases.
general choice-of-law provision in In re L & L Kempwood
Associates, L.P., 9 S.W.3d 125, 127â28 (Tex.1999) (per [5] In contrast, the Waggoner agreement states that curiam). We held that an agreement containing a general disputes arising out of the contract âshall be resolved by choice-of-law provision stating that the entire contract will mandatory and binding arbitration ... pursuant to the Texas be governed by âthe law of the place where the Project is General Arbitration Act....â This provision distinguishes the located,â does not preclude application of the FAA.Id.
The Waggoner agreement from the other agreements and the Court observed that the Project was located in Houston, thus agreements in L & L Kempwood and Mastrobuono. This is the FAA was part of âthe law of the place where the Project not the same general choice-of-law provision. This provision is located.â Id.; see also Capital Income Props. v. Blackmon, chooses a state's substantive law, specifically the TAA, to843 S.W.2d 22, 23
(Tex.1992) (per curiam) (stating that â[t]he govern disputes under the agreement. A valid choice-of-law
Federal [Arbitration] Act is part of the substantive law of provision makes a conflicts-of-law analysis unnecessary; this
Texasâ). When the language of the provision included federal provision expresses a preference between federal and state
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
law.Id.
The FAA is part of the arbitration laws of Texas and in accordance with this arbitration agreement and the
can be applied to arbitration administered pursuant to the laws commercial arbitration rules of the AAAâ is prohibitively
of Texas. However, the FAA is not part of the TAA, at least expensive, preventing their ability to vindicate their claims.
to the extent the two are inconsistent. Further, they contend the contracts are clearly void because
Olshan violated the Home Solicitation Act, exacerbating the
*891 The Fifth Circuit has likewise interpreted an unconscionability of the agreement.
arbitration clause specifically invoking the TAA as
designating the TAA to govern all aspects of arbitration under
the agreement, to the exclusion of the FAA. Ford v. NYLCare
A. Unconscionability of Arbitration Agreements
Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 246(5th Cir.1998) (applying Texas law). The court stated the [6] [7] Section 2 of the FAA states arbitration agreements parties may âspecify the law governing interpretation of the âshall be valid, irrevocable, and enforceable, save upon such scope of the arbitration clause.âId. at 248
. The focus of the grounds as exist at law or in equity for the revocation of any determination is on the parties' choice. Thus, the court held contract.â9 U.S.C. § 2
. A central purpose of the FAA is
that the parties intended the TAA to govern the scope of the âto reverse the longstanding judicial hostility to arbitration
arbitration clause. Id. at 249. agreements ... and to place arbitration agreements upon the
same footing as other contracts.â Gilmer v. Interstate/Johnson
The language of the Waggoner agreement also indicates the Lane Corp., 500 U.S. 20, 24,111 S.Ct. 1647
,114 L.Ed.2d 26
parties' intention that the TAA govern the scope of their (1991) (citations omitted). Such agreements are enforceable arbitration agreement. The plain language clearly indicates only if they meet âthe requirements of the general contract law that the parties intend their arbitration to be governed of the applicable state.â In re PolyâAmerica, L.P., 262 S.W.3d by the TAA rather than merely âthe law of the stateâ 337, 347 (Tex.2008) (citation omitted). When determining or âTexas law.â The parties' intention that arbitration be whether an agreement to arbitrate is valid, âstate law, whether administered pursuant to the TAA would be thwarted if of legislative or judicial origin, is applicable if that law arose the FAA preempted the TAA's specific provisions. Thus, to govern issues concerning the validity, *892 revocability, an agreement specifying that arbitration occur âpursuant and enforceability of contracts generally.â Perry v. Thomas, to the Texas General Arbitration Actâ excludes the FAA's482 U.S. 483
, 493 n. 9,107 S.Ct. 2520
,96 L.Ed.2d 426
preemption of section 171.002(a)(2) of the TAA. 3 (1987). Because the TAA would render the Waggoners' arbitration [8] [9] Texas law renders unconscionable contracts agreement unenforceable, and because the FAA was not unenforceable. PolyâAmerica,262 S.W.3d at 348
. Texas chosen by the parties, the trial court correctly denied further recognizes both substantive and procedural Olshan's plea in abatement, seeking to compel arbitration unconscionability. âSubstantive unconscionability refers to of Waggoner's action against Olshan. However, because the the fairness of the arbitration provision itself, whereas parties in the Kilpatrick, Tisdale, and Tingdale contracts procedural unconscionability refers to the circumstances chose to arbitrate pursuant to the laws of Texas, which surrounding adoption of the arbitration provision.â In re include the FAA, the FAA preempts section 171.002(a)(2) Palm Harbor Homes, Inc.,195 S.W.3d 672, 677
(Tex.2006).
of the TAA and precludes those requirements from barring Because the homeowners complain of the prohibitive
arbitration. cost of arbitration, their claim is grounded in substantive
unconscionability. Generally, a contract is unconscionable
if, âgiven the parties' general commercial background and
the commercial needs of the particular trade or case, the
IV. Unconscionability
clause involved is so one-sided that it is unconscionable
Even though the FAA governs the arbitration agreements under the circumstances existing when the parties made the
in the Kilpatrick, Tisdale, and Tingdale contracts, if those contract.â FirstMerit Bank, 52 S.W.3d at 757 (citing TEX.
agreements are unconscionable, they are unenforceable. BUS. & COM.CODE § 2.302 cmt. 1). âThe principle is
The homeowners contend that the arbitration agreements one of the prevention of oppression and unfair surprise and
are unconscionable because âmandatory binding arbitration not of disturbance of allocation of risks because of superior
administered by the American Arbitration Association ...
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
bargaining power.â TEX. BUS. & COM.CODE § 2.302 cmt. consumer in the form of lower prices. Thus, a fairly
1 (internal citation omitted). administered *893 arbitration should not create a gross
disparity in the values exchanged. Stephen J. Ware, Paying
The U.S. Supreme Court has held that statutory claims may the Price of Process: Judicial Regulation of Consumer
be arbitrated âso long as the prospective litigant effectively Arbitration Agreements, 2001 J. DISP. RESOL.. 89, 89
may vindicate [his or her] statutory cause of action in the (2001); see generally Steven Shavell, Alternative Dispute
arbitral forum.â Green Tree Fin. Corp.-Ala. v. Randolph, 531 Resolution: An Economic Analysis, 24 J. LEGAL STUD.
U.S. 79, 90, 121 S.Ct. 513,148 L.Ed.2d 373
(2000) (citing 1 (1995). However, we also recognize that arbitration is Gilmer,500 U.S. at 28
,111 S.Ct. 1647
). Conversely, an intended as a lower cost, efficient alternative to litigation. arbitration agreement may render a contract unconscionable See PolyâAmerica,262 S.W.3d at 347
(â[A]rbitration is if âthe existence of large arbitration costs could preclude a intended to provide a lower-cost, expedited means to resolve litigant ... from effectively vindicating [his or her] federal disputes....â). Where these justifications are vanquished statutory rights in the arbitral forum.â Id.; see also Polyâ by excessive arbitration costs that deter individuals from America, 262 S.W.3d at 355â57; FirstMerit Bank, 52 S.W.3d bringing valid claims, the unconscionability doctrine may at 756 (citing Green Tree,531 U.S. at 91
,121 S.Ct. 513
). protect unfairly disadvantaged consumers. We agree, as in
Green Tree, that excessive costs imposed by an arbitration
[10] [11] We should be wary of setting the bar for holding agreement render a contract unconscionable if the costs
arbitration clauses unconscionable too low. First, arbitration prevent a litigant from effectively vindicating his or her rights
is favored in both federal and Texas law, and to conclude that in the arbitral forum. See Green Tree, 531 U.S. at 90, 121 an arbitration agreement is unconscionable based merely on S.Ct. 513. the â âriskâ that [the claimant] will be saddled with prohibitive costsâ would undermine the â âliberal federal policy favoring arbitration agreements.â â Green Tree,531 U.S. at 91
, 121
B. Application of the Standard
S.Ct. 513 (quoting Moses H. Cone Mem. Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24,103 S.Ct. 927
, 74 L.Ed.2d The party opposing arbitration bears the burden to show 765 (1983)); FirstMerit Bank,52 S.W.3d at 756
. Second, the that the costs of arbitration render it unconscionable. When theory behind unconscionability in contract law is that courts âa party seeks to invalidate an arbitration agreement on the should not enforce a transaction so one-sided, with so gross a ground that arbitration would be prohibitively expensive, that disparity in the values exchanged, that no rational contracting party bears the burden of showing the likelihood of incurring party would have entered the contract. RESTATEMENT such costs.â Green Tree,531 U.S. at 92
,121 S.Ct. 513
. This
(SECOND) OF CONTRACTS § 208 cmt. b (1981). But as Court likewise requires âsome evidence that a complaining
we have recognized previously, party will likely incur arbitration costs in such an amount as
to deter enforcement of statutory rights in the arbitral forum.â
there is nothing per se unconscionable
PolyâAmerica, 262 S.W.3d at 356; accord In re U.S. Home
about arbitration agreements. In fact,
Corp., 236 S.W.3d 761, 764 (Tex.2007); FirstMerit Bank, 52
historically, Texas law favors settling
S.W.3d at 756â57.
disputes by arbitration. Arbitration
agreements, like the one here, offer
[12] The Court in Green Tree did not explain how detailed
a permissible choice to traditional
the showing of prohibitive expense need be to invalidate an
litigation that does not favor either
arbitration agreement. Green Tree, 531 U.S. at 92, 121 S.Ct.
party. Moreover, assuming unequal
513 (âHow detailed the showing of prohibitive expense must
bargaining power between [the
be before the party seeking arbitration must come forward
parties] exists does not establish
with contrary evidence is a matter we need not discuss....â).
grounds for defeating an agreement to
However, a number of federal courts of appeals, relying on
arbitrate under the FAA.
Green Tree, have applied a case-by-case analysis of the effect
EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90â91 the arbitration clause has on the particular plaintiff's ability (Tex.1996) (per curiam) (citations omitted). Furthermore, to effectively vindicate his rights. 4 The Fourth Circuit's arbitration clauses in consumer contracts reduce merchants' approach in Bradford v. Rockwell Semiconductor Systems, operating costs and produce savings passed on to the Inc. is particularly instructive.238 F.3d 549
(4th Cir.2001).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
The court noted the proper analysis âevaluates whether in the first place. See Jack B. Anglin Co., 842 S.W.2d the arbitral forum in a particular case is an adequate and at 272â73 (â[T]he purpose of [arbitration is] providing a accessible substitute to litigation.âId.
According to the court, rapid, inexpensive alternative to traditional litigation....â). that inquiry requires âa case-by-case analysis that focuses, In the absence of unusual animus between the parties or among other things, upon the claimant's ability to pay the external motives, plaintiffs continue to pursue claims when arbitration fees and costs, the expected cost differential the expected benefits of the lawsuit outweigh the total cost between arbitration and litigation in court, and whether that of bringing it. If the total cost of arbitration is comparable cost differential is so substantial as to deter the bringing of to the total cost of litigation, the arbitral forum is equally claims.âId.
(quotations omitted). The key factor is not where accessible. 5 Thus, a comparison of the total costs of the two the cost to pursue the claim goes, but what the total cost to forums is the most important factor in determining *895 the claimant to pursue the claim is. The *894 court âfail[ed] whether the arbitral forum is an adequate and accessible to see how a claimant could be deterred from pursuing his substitute to litigation. Other factors include the actual cost statutory rights in arbitration simply by the fact that his of arbitration compared to the total amount of damages the fees would be paid to the arbitrator where the overall cost claimant is seeking and the claimant's overall ability to pay of arbitration is otherwise equal to or less than the cost of the arbitration fees and costs. These factors may also show litigation in court.âId.
arbitration to be an inadequate and inaccessible forum for the
particular claimants to vindicate their rights. However, these
Likewise, in Honrubia Properties, Ltd. v. Gilliland, the considerations are less relevant if litigation costs more than
Corpus ChristiâEdinburg Court of Appeals essentially arbitration.
accepted Bradford's conceptual framework. Nos. 13â
07â210âCV, 13â07â249âCV, 2007 WL 2949567 at *6
(Tex.App.-Corpus ChristiâEdinburg Oct. 11 2007, no pet.)
(mem.op.). It considered the party's ability to pay the C. Sufficiency of the Evidence
arbitration fee, the actual amount of the fee in relation to
[13] Green Tree creates a burden-shifting test in which the
the amount of the underlying claim, and the cost differential
âparty seek [ing] to invalidate an arbitration agreement on the
between arbitration and litigation in court. Id. (citations
ground that arbitration would be prohibitively expensive ...
omitted). Applying the standard, the court held the arbitration
bears the burden of showing the likelihood of incurring
agreement was not substantively unconscionable where
such costs.â Green Tree, 531 U.S. at 92,121 S.Ct. 513
.
evidence showed the arbitration would cost approximately
Once met, the burden shifts to âthe party seeking arbitration
$15,000 to $20,283, plus expenses and other possible fees; the
[who] must come forward with contrary evidence.â Id.; see
claimant was seeking more than $4,000,000 in compensatory
also PolyâAmerica, 262 S.W.3d at 348 (âThe burden of
and punitive damages; and arbitration costs would range from
proving such a groundâsuch as fraud, unconscionability or
11 percent to 15 percent of the claimant's gross income. Id.
voidness under public policyâfalls on the party opposing the
at *7. The claimant failed to submit any evidence pertaining
contract.â); FirstMerit Bank, 52 S.W.3d at 756 (âAgain, since
to the expected cost differential between arbitration and
the law favors arbitration, the burden of proving a defense to
litigation. Id.
arbitration is on the party opposing arbitration.â).
In applying the unconscionability standard, the crucial
[14] Evidence of the âriskâ of possible costs of arbitration is
inquiry is whether the arbitral forum in a particular case is an
insufficient evidence of the prohibitive cost of the arbitration
adequate and accessible substitute to litigation, a forum where
forum. Green Tree, 531 U.S. at 91,121 S.Ct. 513
(âThe
the litigant can effectively vindicate his or her rights. With
âriskâ that [the plaintiff] will be saddled with prohibitive
this in mind, we agree that the approach taken by the Fourth
costs is too speculative to justify the invalidation of an
Circuit in Bradford effectively pursues this inquiry. We note
arbitration agreement.â). Rather, âboth the United States
all of the analyses previously discussed correctly assume
Supreme Court and this Court require specific evidence that
that litigation allows claimants to effectively vindicate their
a party will actually be charged excessive arbitration fees.â
rights, despite the expense. The desire to avoid steep litigation
U.S. Home Corp., 236 S.W.3d at 764; see also FirstMerit
expenseâincluding the costs of longer proceedings, more
Bank, 52 S.W.3d at 757 (âBecause the record contains no
complicated appeals on the merits, discovery, investigations,
specific evidence that the [plaintiffs] will actually be charged
fees, and expert witnessesâis the purpose of arbitration
excessive arbitration fees, we conclude that there is legally
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
insufficient evidence that the plaintiffs would be denied
access to arbitration based on excessive costs.â). The party AAA Commercial Arbitration Rule Râ1 (2007, 2009). The
opposing arbitration must show the likelihood of incurring Supplementary Procedures for ConsumerâRelated Disputes
such costs in her particular case. have a separate fee schedule for consumer arbitration:
Administrative Fees
[15] Thus, for evidence to be sufficient, it must show that
the plaintiffs are likely to be charged excessive arbitration Administrative fees are based on the size of the claim
fees. While we do not mandate that claimants actually incur and counterclaim in a dispute. They are based only on the
the cost of arbitration before they can show its excessiveness, actual damages and not on any additional damages, such as
parties must at least provide evidence of the likely cost of their attorneys' fees or punitive damages. Portions of these fees
particular arbitration, through invoices, expert testimony, are refundable pursuant to the Commercial Fee Schedule.
reliable cost estimates, or other comparable evidence. See
PolyâAmerica, 262 S.W.3d at 354â55 (concluding that the Arbitrator Fees
plaintiff's âown affidavit and that of an expert witness
For cases in which no claim exceeds $75,000, arbitrators
providing detailed estimates of the likely cost of arbitration
are paid based on the type of proceeding that is used.
in [the plaintiff's] caseâ constituted sufficient evidence);
The parties make deposits as set forth below. Any unused
Olshan Found. Repair Co. v. Ayala, 180 S.W.3d 212, 215â16
(Tex.App.-San Antonio 2005, pet. denied) (holding invoice deposits are returned at the end of the case.
for party's share of arbitration expenses sufficient). Evidence
Desk Arbitration or Telephone Hearing $250 for service on
that merely speculates about the risk of possible cost is the case
insufficient.
In Person Hearing $750 per day of hearing
For cases in which a claim or counterclaim exceeds
D. Application to the Facts $75,000, arbitrators are compensated at the rates set forth
on their panel biographies.
[16] In applying this analysis to the facts at hand, we begin
with the agreement itself, which states, âany matter arising Fees and Deposits to be Paid by the Consumer:
out of this agreement shall be resolved by mandatory and
binding arbitration administered by the American Arbitration If the consumer's claim or counterclaim does not exceed
Association ... in accordance with this arbitration agreement $10,000, then the consumer is responsible for one-half the
and the commercial arbitration rules of the AAA.â According arbitrator's fees up to a maximum of $125. This deposit is
to the commercial arbitration rules, the AAA: used to pay the arbitrator. It is refunded if not used.
*896 applies the Supplementary If the consumer's claim or counterclaim is greater than
Procedures for ConsumerâRelated $10,000, but does not exceed $75,000, then the consumer
Disputes to arbitration clauses is responsible for one-half the arbitrator's fees up to
in agreements between individual a maximum of $375. This deposit is used to pay the
consumers and businesses where arbitrator. It is refunded if not used.
the business has a standardized,
systematic application of arbitration If the consumer's claim or counterclaim exceeds $75,000,
clauses with customers and where or if the consumer's claim or counterclaim is non-monetary,
the terms and conditions of the then the consumer must pay an Administrative Fee
purchase of standardized, consumable in accordance with the Commercial Fee Schedule. 6 A
goods or services are nonnegotiable or portion of this fee is refundable pursuant to the Commercial
primarily non-negotiable in most or all Fee Schedule. The consumer must also deposit one-half
of its terms, conditions, features, or of the arbitrator's compensation. This deposit is used to
choices. pay the arbitrator. This deposit is refunded if not used.
The arbitrator's compensation rate is set forth on the panel
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
biography provided to the parties when the arbitrator is *7 (Tex.App.-Houston [14th Dist.] May 29, 2008, no pet.) appointed. (mem.op.). AAA Supplementary Procedures for ConsumerâRelated Even if we took these invoices as evidence of the likely Disputes, Administrative Fees, Arbitrator Fees, Fees and arbitration charges to the homeowners, they have provided Deposits to be Paid by the Consumer (2005, 2010). Thus, for a no comparison of these charges to the expected cost of consumer claim up to $75,000, the most a consumer will have litigation, the amount of their claim, or their ability to pay to pay under these rules is $375 for the arbitrator. *897 Id.; these costs. See Green Tree,531 U.S. at 90
n. 6, 121 S.Ct. see also Green Tree,531 U.S. at 95
,121 S.Ct. 513
(Ginsburg, 513 (concluding that a party's unsupported statement that she J., dissenting) (describing the AAA's Consumer Arbitration did not have the resources to pay the high costs of arbitration Rules as a model âfor fair cost and fee allocationâ). was insufficient); Bradford,238 F.3d at 556
n. 5 (âThe cost of
arbitration, as far as its deterrent effect, cannot be measured in
The homeowners bear the burden to show the likelihood of a vacuum or premised upon a claimant's abstract contention
incurring excessive costs, yet no homeowners provided any that arbitration costs are âtoo high.â â). The record contains
concrete idea of the amount of their claims. It is impossible to no specific evidence that the homeowners will actually be
know how much they will be charged under the AAA rules, charged excessive arbitration fees, and thus there is no legally
even if the fees charged by AAA were excessive. Instead, sufficient evidence that such fees prevent the homeowners
the homeowners provided two invoices from the AAA for from effectively pursuing their claim in the arbitral forum.
arbitration in, as the homeowners allege, âsimilar casesâ to
show the likelihood of excessive litigation costs. The first
was a copy of the invoice from the AAA to the Ayalas who
E. Unconscionability in Light of
were plaintiffs in a different lawsuit against Olshan. It shows
the Texas Home Solicitation Act
that the Ayalas' claim against Olshan was for $200,000, and
that the Ayalas' were charged $35,900 to arbitrate that claim. [17] Finally, the homeowners argue that the arbitration is
The second was an invoice from the AAA to an anonymous unconscionable because the parties will expend time, energy,
claimant for the arbitration of a construction dispute, a similar *898 and money needlessly going to arbitration when the
type of case using only one arbitrator. 7 The amount of arbitrator will find the contractâincluding the arbitration
this claim is not stated on this invoice, but based on the clauseâvoid, sending the case back to court. 8 They assert
administrative fee and case service fee charged by the AAA, that their contract with Olshan violated the Texas Home
we can deduce that it was between $75,000 and $150,000. Solicitation Act (THSA), which would render the agreements,
The anonymous claimants were charged $11,406 to arbitrate. including the arbitration clauses, void. The alleged basis for
violation of the THSA is Olshan's failure to include in the
Merely showing that other claimants have incurred arbitration agreements certain language regarding cancellation in at least
costs of some amount falls well short of specific evidence 10âpoint boldfaced type, where the transactions occurred
that these particular parties will be charged excessive fees. by personal solicitation outside Olshan's place of business.
There is no evidence that the homeowners' claims are similar TEX. BUS. & COM.CODE §§ 601.002(a), .052, .053, .201.
in amount or difficulty as the claims of the Ayalas or the Further, the homeowners contend that there is no dispute over
anonymous claimant. In fact, the Ayalas' invoice shows that whether the contract violates the THSA, and the arbitrator
their claim was for $200,000, while none of the homeowners'
will thus certainly find the contract void. 9
claims in this case exceeded $20,000. Moreover, there is
no evidence that the homeowners have made any effort to
It is tempting to avoid the unnecessary costs that would
reduce the likely charges through requests for fee waivers, pro
accompany an allegedly unnecessary arbitration. But to do
bono arbitrators, or even simply requesting a one arbitrator
so requires the trial court to make a determination of issues
panel. As the court in In re MHI Partnership, Ltd. aptly
relating to the contract generally, even if it seems clear that
noted, âSubstantive unconscionability threatens to become
one party or the other will prevail. As the U.S. Supreme
the exception that swallows the rule if all that must be done
Court stated in Prima Paint Corp. v. Flood & Conklin
to avoid arbitration is to assume the most expensive possible
Manufacturing Co., when the parties have contracted for
scenario.â No. 14â07â00851âCV, 2008 WL 2262157 at
arbitration of their disputes, a trial court âmay consider
only issues relating to the making and performance of the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
agreement to arbitrate.â388 U.S. 395, 404
,87 S.Ct. 1801
, Tingdale (No. 09â0703) agreements that use such language,18 L.Ed.2d 1270
(1967); see also RentâAâCtr., W., Inc. v. the FAA preempts the provisions of section 171.002(a)(2) Jackson, âââ U.S. ââââ,130 S.Ct. 2772, 2778
, 177 L.Ed.2d that would otherwise render those agreements unenforceable. 403 (2010); Buckeye Check Cashing, Inc. v. Cardegna, 546 And the parties opposing arbitration in those three cases U.S. 440, 445â46,126 S.Ct. 1204
,163 L.Ed.2d 1038
(2006) did not submit legally sufficient evidence that arbitration of
( â[U]nless the challenge is to the arbitration clause itself, the their claims would be unconscionable. Therefore, the trial
issue of the contract's validity is considered by the arbitrator court erred by denying Olshan's pleas in abatement, and
in the first instance.â). There is no way to fashion a standard to we conditionally grant mandamus relief in the Kilpatrick,
determine whether arbitration is unnecessary without giving Tisdale, and Tingdale cases and remand those cases to the trial
the trial court some discretion over issues relating to the court for further proceedings consistent with this opinion. We
making and performance of the contract generallyâexactly are confident that the trial courts will comply, and the writs
what Prima Paint, and later Buckeye and RentâAâCenter, will issue only if they fail to do so.
sought to avoid. Allowing courts to make this determination
under an unconscionability analysis would provide an end
run around the rule. While in some cases this ârule permits
Justice HECHT filed a concurring opinion, in which Justice
a court to enforce an arbitration agreement in a contract that
MEDINA joined.
the arbitrator later finds to be void[,] ... it is equally true that
[the opposite] approach permits a court to deny effect to an Justice HECHT, concurring, in which Justice MEDINA
arbitration provision in a contract that the court later finds joined.
to be perfectly enforceable.â Buckeye, 546 U.S. at 448â49, I join fully in the Court's opinion and write only with this
126 S.Ct. 1204. This conundrum is solved with a rule that further observation.
allocates such decisions to arbitration, which is consistent
with the liberal policy favoring arbitration in the FAA, U.S. The homeowners contend that the contracts at issue violated
Supreme Court decisions, and decisions of this Court. The
the Texas Home Solicitation Act 1 because they did not
homeowners failed to provide legally sufficient evidence of
contain the requisite notice of their right to cancellation and
the prohibitive cost of arbitration to prove unconscionability,
and this failure cannot be remedied by allowing the trial court are therefore void by express provision of the Act. 2 In
to determine if it believes the contract itself is void. response, Olshan tells us in its briefing only that it âwill
present its defenses ... in the arbitral forumâ. Asked at oral
argument what defenses it has to the homeowners' contention
that their contracts, including the arbitration provisions,
V. Conclusion are void and unenforceable, counsel answered that âthere
might be an estoppel defenseâ because the homeowners did
This Court endeavors to interpret agreements, including those
not challenge the validity of the contracts until work was
to arbitrate, as they *899 are written. When an agreement
completed. Counsel also argued that even if the contracts
specifically states that it is to be governed by the Texas
are void, the arbitration provision is severable and valid, and
General Arbitration Act, we hold that it will be governed by
the homeowners *900 must still submit their complaints to
the Act, which may mean that disputes arising from its terms
arbitration. Olshan has cited no authority for either of these
will be excluded from arbitration. Thus, the TAA applies to
arguments.
the arbitration agreement between the Waggoners (No. 09â
0474) and Olshan and renders it unenforceable. See TEX.
The homeowners acknowledge that, as the Court notes, the
CIV. PRAC. & REM.CODE § 171.002(a)(2). The trial court
validity of the contracts is a matter for the arbitrator to
did not err by denying Olshan's plea in abatement, and the
court of appeals denied relief. We also deny mandamus relief decide. 3 But the homeowners argue that the invalidity of
in the Waggoner case. the contracts is a foregone conclusion and that âthe entire
process ... will be a needless waste of time, energy, and
However, where an arbitration agreement states that it is to moneyâ. 4 I agree with the Court that even if this is true, the
be governed by the law of this state, that law includes the contracts are not unconscionable. But being led on a wild
Federal Arbitration Act. Because it is proper to apply the FAA goose chase, 5 if that is all arbitration comes to, is not without
to the Kilpatrick (No. 09â0432), Tisdale (No. 09â0433), and remedy.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 13
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
the arbitrator's authority to determine the predicate issueâ
that the contracts are unenforceable. If the dispute returns
If, as the homeowners predict, the arbitrator concludes that the
to the trial court, the homeowners may seek full redress for
contracts are indeed void, Olshan and its counsel are subject
Olshan's lark.
to being sanctioned by the trial court for filing a groundless
motion to compel arbitration. 6 The trial court certainly has
the authority to sanction frivolous resistance to arbitration, Parallel Citations
and sanctions are not a one-way ratchet. The court's authority
to sanction a frivolous motion to compel is not displaced by 54 Tex. Sup. Ct. J. 300
Footnotes
1 The Tingdale, Kilpatrick and Tisdale trial courts issued memorandum opinions, which are addressed by the courts of appeals,
respectively, in No. 10â09â00119âCV, 2009 WL 1886648 (Tex.App.-Waco July 1, 2009, orig. proceeding); Nos. 2â08â336âCV, 2â
08â342âCV, 2008 WL 4661815 (Tex.App.-Fort Worth Oct. 2, 2008, orig. proceeding).
2 The Legislature recently amended the Texas Civil Practice and Remedies Code to allow an interlocutory appeal âto the court of
appeals from the judgment or interlocutory order of a district court ... under the same circumstance that an appeal from a federal
district court's order or decision would be permitted by 9 U.S.C. Section 16.â TEX. CIV. PRAC. & REM CODE § 51.016. However,
this act is not applicable to appeals of an interlocutory order in an action pending as of September 1, 2009. Act of June 19, 2009,
81st Leg., R.S., ch. 820, § 2, 2009 Tex. Gen. Laws 2061. Because all four actions in this consolidated opinion were pending as of
September 1, 2009, section 51.016 does not allow an interlocutory appeal of these causes.
3 We do not believe the choice-of-law provision to be ambiguous.
4 See Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1259 (11th Cir.2003) (âSince Green Tree, all but one of the other
Circuits that have reconsidered this issue have applied a similar case-by-case approach.â); see also Blair v. Scott Specialty Gases,
283 F.3d 595, 609â10 (3d Cir.2002); Bradford v. Rockwell Semiconductor Sys., Inc.,238 F.3d 549, 556
(4th Cir.2001); LaPrade v.
Kidder, Peabody & Co., Inc., 246 F.3d 702, 708(D.C.Cir.2001). But see Circuit City Stores, Inc. v. Adams,279 F.3d 889, 895
(9th
Cir.2002) (holding that plaintiff employees should not âhave to pay either unreasonable costs or any arbitrators' fees or expenses as
a condition of access to the arbitration forumâ).
5 âTotal costâ refers to the total cost of pursuing a claim in either forum, notwithstanding who will be financing the claim. Some courts
have noted the argument that attorneys will be unwilling to represent plaintiffs on a contingency fee basis in the arbitral forum and
that contingent fee arrangements make litigation less expensive for plaintiffs than arbitration. See Morrison v. Circuit City Stores,
Inc., 317 F.3d 646, 664(6th Cir.2003); PolyâAmerica,262 S.W.3d at 355
. But other commentators argue that there is no reason
why plaintiffs cannot secure the same financing when arbitration is mandated if both the value of their claim and the cost to pursue
it remain constant. See Christopher R. Drahozal, Arbitration Costs and Contingent Fee Contracts, 59 VAND. L.REV. . 729, 768
(2006) (âOn the face of it, there is no reason to expect contingent fee contracts to treat arbitration costs differently than they treat other
litigation expenses.â). We recognize arbitration is not always a lower-cost, efficient litigation alternative. Forcing consumer plaintiffs
into an arbitral forum may affect their ability to pursue remedies when small claims are at issue. However, this does not excuse
parties opposing arbitration from providing sufficient evidence to demonstrate that excessive costs make arbitration unconscionable
in their particular case.
6 âThe filing fee shall be advanced by the party or parties making a claim or counterclaim, subject to final apportionment by the
arbitrator in the award. The AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative
fees.â AAA Commercial Arbitration Rule Râ49 (2007, 2009). In 2008, when Olshan sought to compel arbitration, the total initial
filing fee and case service fee ranges from $2,550 for claims between $75,000â$150,000 to $8,500 for claims above $500,000. AAA
Commercial Arbitration Administrative Fees, Fees (2007).
7 It is unclear whether this means that the Ayalas requested three arbitrators. That the cost of the arbitrator to the Ayalas per day of
hearing was $3,350, compared to $1,250 per day in the anonymous case, leads us to believe they did.
8 The homeowners concede that the arbitrator and not a court decides a contractual defense to the contract as a whole as opposed to a
contractual defense to just the arbitration provision. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445â46,126 S.Ct. 1204
,163 L.Ed.2d 1038
(2006); In re Labatt Food Serv., L.P.,279 S.W.3d 640
, 647â49 (Tex.2009).
9 Olshan states in its brief and stated at argument to the contrary that it will present certain defenses to this claim. It is neither our
province nor the province of the trial court to determine the merits of these defenses when the parties have contracted to arbitrate
such disputes.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 14
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883(2010)54 Tex. Sup. Ct. J. 300
1 Act of May 18, 1973, 63rd Leg., R.S., ch. 246, § 1,1973 Tex. Gen. Laws 574
, codified as TEX.REV.CIV. STAT. ANN.. art. 5069â
13.01, amended by Act of April 4, 1975, 64th Leg., R.S., ch. 59, § 1, 1975 Tex. Gen. Laws 124, and by Act of May 27, 1995, 74th
Leg., R.S., ch. 926, § 1, 1995 Tex. Gen. Laws 4649, recodified by Act of May 24, 1997, 75th Leg., R.S., ch. 1008, § 3,1997 Tex. Gen. Laws 3091
, 3583, as TEX. BUS. & COM.CODE §§ 39.001â.009, and by Act of May 15, 2007, 80th Leg., R.S., ch. 885, § 2.01,
2007 Tex. Gen. Laws 1905, 2026, as TEX. BUS. & COM.CODE §§ 601.001â.205.
2 Section 601.201, TEX. BUS. & COM.CODE, provides that â[a] sale or contract entered into under a consumer transaction in violation
of ... Subchapter D is void.â Section 601.152, in subchapter D, states: âA merchant may not: (1) at the time the consumer signs the
contract pertaining to a consumer transaction or purchases the goods, services, or real property, fail to inform the consumer orally of
the right to cancel the transaction; or (2) misrepresent in any manner the consumer's right to cancel.â The prior versions of the Act
contained substantively identical provisions. Former TEX. BUS. & COM.CODE. § 39.008(a)(3)-(4) & (b); TEX.REV.CIV. STAT.
ANN. art. 5069â13.03(a)(3)â(4) & (b).
3 Ante at 898 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404,87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967)).
4 E.g., Brief of Real Parties in Interest Kenneth and Vickie Kilpatrick at 21.
5 See WILLIAM SHAKESPEARE, ROMEO AND JULIET act 2, sc. 4:
âRomeo: Switch and spurs, switch and spurs; or I'll cry a match.
âMercutio: Nay, if thy wits run the wild-goose chase, I have done; for thou hast more of the wild-goose in one of thy wits than,
I am sure, I have in my whole five.â
6 TEX.R. CIV. P. 14; TEX. CIV. PRAC. & REM.CODE §§ 9.001â.014, 10.001â.006.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 15
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
Validity
195 S.W.3d 672 of assent
Supreme Court of Texas.
Manufactured home buyers were bound by
In re PALM HARBOR HOMES, INC., arbitration agreement with seller in the
absence of an assertion of fraud, deceit, or
and Palm Harbor Homes I, L.P. d/
misrepresentation involved in their signing of the
b/a Palm Harbor Village, Relator.
agreement.
No. 04â0490. | Argued March
3 Cases that cite this headnote
23, 2005. | Decided June 9, 2006.
Synopsis [2] Alternative Dispute Resolution
Background: Manufactured home buyers sued manufacturer
and seller for breach of contract, breach of warranty, and Presumptions
statutory violations of the Residential Construction Liability Failure of manufactured home seller and
Act. The 239th District Court, Brazoria County, J. Ray Gayle, manufacturer to present transcripts of hearings
III, and Sherry Sebesta, JJ., denied defendants' motions did not create a presumption that matters
to compel arbitration. Defendants petitioned for a writ of occurring during the hearings would support an
mandamus. The Court of Appeals, Frank G. Evans, J., implied finding that an arbitration agreement did
129 S.W.3d 636, denied petition. Defendants filed another not exist; the buyers conceded that the transcripts
petition for writ of mandamus. would not show the introduction of evidence,
and buyers did not dispute that they had signed
arbitration agreement.
Holdings: The Supreme Court, Johnson, J., held that: 1 Cases that cite this headnote
[1] consideration provided by seller supported the agreement;
[3] Alternative Dispute Resolution
[2] manufacturer was not required to give consideration as a
Writing,
third-party beneficiary;
signature, and acknowledgment
[3] the agreement was not illusory as to the manufacturer, The existence of an arbitration agreement
even though it had right to opt out of arbitration; among manufactured home buyers, seller, and
manufacturer was established in proceeding to
[4] the agreement was not substantively unconscionable; and compel arbitration; the seller and manufacturer
presented a signed arbitration agreement along
[5] it was not procedurally unconscionable. with other documents signed by buyers, and they
presented no evidence that they did not sign the
agreement.
Writ conditionally granted.
2 Cases that cite this headnote
O'Neill, J., concurred and filed opinion.
[4] Alternative Dispute Resolution
What
West Headnotes (20) law governs
In determining validity of agreements to arbitrate
[1] Alternative Dispute Resolution which are subject to the Federal Arbitration
Act (FAA), courts generally apply state-law
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
principles governing the formation of contracts.
9 U.S.C.A. § 1 et seq. Agreement
for Benefit of Third Person
35 Cases that cite this headnote A third-party beneficiary may enforce a contract
to which it is not a party if the parties to the
[5] Alternative Dispute Resolution contract intended to secure a benefit to that third
party and entered into the contract directly for the
Consideration third party's benefit.
Arbitration agreements, like other contracts,
15 Cases that cite this headnote
must be supported by consideration.
15 Cases that cite this headnote [10] Alternative Dispute Resolution
Consideration
[6] Alternative Dispute Resolution
Manufacturer was not required to give
Consideration consideration for agreement which created its
Consideration may take the form of bilateral status as third-party beneficiary of contract for
promises to arbitrate. sale of manufactured home, and, thus, buyers'
obligation to arbitrate with the manufacturer did
4 Cases that cite this headnote not fail for lack of consideration, even though
manufacturer had right to opt out of arbitration;
it was irrelevant that the agreement did not bind
[7] Alternative Dispute Resolution
the manufacturer to arbitrate since the agreement
Consideration was supported by consideration in the form of
When an arbitration clause is part of a both the underlying contract and promises of the
larger, underlying contract, the remainder of the retailer.
contract may suffice as consideration for the
16 Cases that cite this headnote
arbitration clause.
10 Cases that cite this headnote [11] Alternative Dispute Resolution
Consideration
[8] Alternative Dispute Resolution
Manufactured home buyers' agreement to
Consideration arbitrate disputes with manufacturer was not
Consideration for manufactured home buyers' illusory as to the manufacturer, even though it
agreement to arbitrate disputes with seller was had right to opt out of arbitration; consideration
provided by the underlying sales contract and the supported buyers' contract with seller, and the
mutual promises to arbitrate disputes involving manufacturer was third-party beneficiary.
the manufactured home or its sale; even though
13 Cases that cite this headnote
manufacturer had right to opt out of arbitration
and even if the agreement were illusory as to
manufacturer, consideration was not illusory as [12] Alternative Dispute Resolution
between buyers and seller.
Unconscionabi
19 Cases that cite this headnote âSubstantive unconscionability â refers to the
fairness of the arbitration provision itself,
whereas âprocedural unconscionabilityâ refers to
[9] Contracts
the circumstances surrounding adoption of the
arbitration provision.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
28 Cases that cite this headnote [17] Alternative Dispute Resolution
Unconscionabi
[13] Contracts
The fact that the buyers would not have been
Substantive able to buy the manufactured home unless they
unconscionability signed the arbitration agreement did not, in
and of itself, make the agreement substantively
The test for âsubstantive unconscionabilityâ is
unconscionable.
whether, given the parties' general commercial
background and the commercial needs of the 4 Cases that cite this headnote
particular trade or case, the clause involved is
so one-sided that it is unconscionable under the
circumstances existing when the parties made the [18] Contracts
contract.
Adhesion
18 Cases that cite this headnote contracts; standardized contracts
Contracts
[14] Alternative Dispute Resolution Unconscionabl
Contracts
Unconscionability
Adhesion contracts are not per se unconscionable
There is nothing inherently unconscionable
or void.
about arbitration agreements.
2 Cases that cite this headnote
11 Cases that cite this headnote
[19] Alternative Dispute Resolution
[15] Contracts
Unconscionabi
Unconscionable
Contracts Manufactured home buyers' arbitration
agreement was not procedurally unconscionable
Contracts
as to seller or manufacturer, even though it
Agreement had right to opt out of arbitration and buyers
for Benefit of Third Person claimed that they would not have signed the
agreement if arbitration had been explained to
There is nothing unconscionable about
them; the agreement was clearly labeled as
contracting to benefit a third party.
arbitration agreement, it was relatively short and
10 Cases that cite this headnote specifically provided that it did not constitute
a waiver of any substantive rights or remedies
except as to the forum for resolving disputes, it
[16] Alternative Dispute Resolution highlighted statement on jury trial waiver, and
neither unfair surprise nor oppression occurred.
Unconscionability
Manufacturer's limited right as a third-party 20 Cases that cite this headnote
beneficiary to refuse to arbitrate dispute with
manufactured home buyer did not render the
arbitration agreement so one-sided as to be [20] Contracts
substantively unconscionable. Unconscionabl
Contracts
20 Cases that cite this headnote
Unconscionability principles are applied to
prevent unfair surprise or oppression.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
*675 The agreement provided that all disputes between the
3 Cases that cite this headnote Ripples and the retailer arising out of or relating in any way
to the sale, purchase, or occupancy of the home would be
resolved through binding arbitration. The agreement is one
page long; is labeled âARBITRATION AGREEMENTâ at
Attorneys and Law Firms the top of the page in large bold-face capital letters; sets
out in the first paragraph that it inures to the benefit of the
*674 Craig Madison Patrick, Michael J. Craddock, Eric L. manufacturer as well as binds the purchasers and retailer;
Lindstrom, Craddock Reneker & Davis, L.L.P., Dallas, for and provides that it does not constitute a waiver of any
Relator.
substantive rights or remedies available under applicable
Douglas Vance Colvin, Law Offices of Wes Griggs, West law, but is an election to resolve claims, disputes and
Columbia, for Real Party In Interest. controversies by arbitration rather than the judicial process.
The next-to-the-last sentence provides, in all capital letters,
Opinion that âTHE PARTIES KNOWINGLY WAIVE ANY RIGHT
TO A JURY TRIAL.â The agreement also provides that the
Justice JOHNSON delivered the opinion of the Court, in manufacturer âin its sole discretion, may opt out of, and elect
which Chief Justice JEFFERSON, Justice HECHT, Justice not to be bound by, the arbitration by giving written notice of
WAINWRIGHT, Justice BRISTER, Justice MEDINA, the election to all parties within twenty (20) days after receipt
Justice GREEN, and Justice WILLETT joined. ofâ notice that another party intended to arbitrate a dispute.
This original proceeding presents the issue of whether the
After the manufactured home was purchased by the Ripples,
purchasers of a manufactured home must arbitrate their
they began experiencing problems with it and lodged a series
claims against both the retailer and manufacturer of the
of complaints. They eventually sued both the retailer and the
home pursuant to a written arbitration agreement between
manufacturer, alleging breach of contract, breach of warranty,
the purchasers and the retailer. The agreement specified that
and statutory liability under the Residential Construction
it inured to the benefit of the manufacturer and gave the
Liability Act.
manufacturer a twenty-day period during which it could
opt out of arbitration. We conclude that the manufacturer's
The retailer and manufacturer moved to compel arbitration
opt-out right did not render the arbitration agreement
under the Federal Arbitration Act (FAA). See 9 U.S.C. §§
unenforceable and that the purchasers must arbitrate their
1â16. The trial court denied the motion as to both. A divided
claims against both parties.
court of appeals denied mandamus relief. 129 S.W.3d 636,
646.
I. Background Both the retailer and manufacturer seek a writ of mandamus
directing the trial court to order the Ripples to arbitrate. The
Raymond and Crystal Ripple contracted with Palm Harbor Ripples do not dispute applicability of the FAA, but oppose
Village (the retailer) to purchase a manufactured home which arbitrating any claims because (1) relators have not carried
was to be, and subsequently was, manufactured by Palm their burden to establish a valid agreement to arbitrate; (2)
Harbor Homes, Inc. During the process of contracting for the signed arbitration agreement lacks consideration; (3) the
and purchasing the home, the Ripples and the retailer entered agreement is substantively and procedurally unconscionable;
into several separate agreements. Two of the agreements were and (4) the manufacturer was not a signatory to the agreement
arbitration agreements. The first was dated October 1, 1998, and has not shown itself to be a third-party beneficiary entitled
and the second was dated December 17, 1998. The Ripples to enforce the agreement.
urge that the second agreement is applicable to the issues
in this appeal. Relators do not contend otherwise. We will
assume, without deciding, that the second agreement governs
II. Agreement to Arbitrate
the issues presented and reference it as âthe agreement.â 1
The Ripples contend that the retailer and manufacturer have
not met their burden to establish an agreement to arbitrate
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
because they have not presented complete records of the three pretrial hearing when there was no indication evidence was
hearings held by the trial court en route to its final order presented at that hearing). Because the relators presented a
denying arbitration. They assert that absent such records, the signed arbitration agreement to the court along with other
trial court's ruling cannot be determined to have been an documents the Ripples signed, and the Ripples have presented
abuse of discretion. They do not contend, however, that any no evidence that they did not sign the agreement, we conclude
evidence contesting validity of the agreement was introduced that, as a matter of law, the existence of an arbitration
at any of the three hearings. agreement among the parties was established.
Relators' original answer to the Ripples' suit included a plea in
abatement seeking dismissal or abatement of the suit based on
III. Consideration
the arbitration agreement. The arbitration agreement, along
with other documents signed by the Ripples, was attached to [4] [5] [6] [7] Next, the Ripples claim the arbitration
the pleading. The Ripples do not claim to have at any point provision lacks consideration. In determining validity of
disputed that they signed the arbitration agreement as part agreements to arbitrate which are subject to the FAA, we
of the process by which they purchased their manufactured generally apply state-law principles governing the formation
home. Their position as to the arbitration agreement is of contracts. See First Options of Chicago, Inc. v. Kaplan,
encapsulated *676 by their response to relators' second 514 U.S. 938, 944,115 S.Ct. 1920
,131 L.Ed.2d 985
motion for reconsideration of the motion to compel arbitration (1995). Arbitration agreements, like other contracts, must be and their affidavits attached to that response: (1) in the course supported by consideration. See In re AdvancePCS Health of contracting for the purchase of the home they signed L.P.,172 S.W.3d 603, 607
(Tex.2005) (per curiam); In several documents, including two documents âpurportingâ re Halliburton Co.,80 S.W.3d 566
, 569â70 (Tex.2002). to be arbitration agreements; (2) the documents were not Such consideration may take the form of bilateral promises explained to them; (3) they were told that the documents were to arbitrate. See In re AdvancePCS,172 S.W.3d at 607
. necessary to complete the purchase; (4) they were unaware Further, when an arbitration clause is part of a larger, that they had signed arbitration agreements; (5) they never underlying contract, the remainder of the contract may suffice were in contact with the manufacturer during the purchase as consideration for the arbitration clause. Id.; see also In re process; (6) the manufacturer did not sign the arbitration FirstMerit Bank, N.A.,52 S.W.3d 749, 757
(Tex.2001). agreements; and (7) they were unaware of what arbitration entailed and did not voluntarily waive their right to a jury trial. [1] The Ripples have not asserted that there was fraud, A. The Retailer deceit, or misrepresentation involved in their signing of the [8] The arbitration agreement was part of a larger agreement. Accordingly, they are bound by the agreement. contractual relationship between the Ripples and the retailer. See In re McKinney,167 S.W.3d 833, 835
(Tex.2005) (per The underlying contract between the Ripples and the retailer
curiam) (holding that absent fraud, misrepresentation, or constituted valid consideration for the arbitration agreement
deceit, parties are bound by the terms of the contract signed, as between them, as did their mutual promises to arbitrate
regardless of whether they read it). disputes involving the manufactured home or its sale. See
In re AdvancePCS, 172 S.W.3d at 607(holding *677 [2] [3] Given the Ripples' concession at oral argument there was a valid arbitration agreement, as the underlying that records of the hearings in the trial court would not show contract provided adequate consideration). The agreement's that evidence was introduced, and their consistent position provision extending to the manufacturer a right to opt out taken before the trial court as reflected by the record which is of arbitration, even if it were illusory because it did not before us, the failure of relators to present transcripts of the bind the manufacturer to arbitrate, did not make either the hearings does not create a presumption that matters occurring consideration of the underlying contract or the promises to during the hearings would support an implied finding that arbitrate any disagreements between themselves illusory as an arbitration agreement did not exist. See Michiana Easy between the retailer and the Ripples. Cf. Light v. Centel Livin' Country, Inc. v. Holten,168 S.W.3d 777
, 781â84 Cellular Co.,883 S.W.2d 642, 645
(Tex.1994) (noting that a
(Tex.2005) (rejecting a claim that we must presume evidence promise is illusory if it fails to bind the promisor).
that supported the trial court's order was presented at a
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
B. The Manufacturer
IV. Unconscionability
[9] A third-party beneficiary may enforce a contract to
which it is not a party if the parties to the contract intended to [12] The Ripples also challenge the agreement as being both
secure a benefit to that third party and entered into the contract substantively and procedurally unconscionable. Substantive
directly for the third party's benefit. See Stine v. Stewart, 80 unconscionability refers to the fairness of the arbitration
S.W.3d 586, 589 (Tex.2002); see also MCI Telecomms. Corp. provision itself, whereas procedural unconscionability refers
v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651(Tex.1999). As to the circumstances surrounding adoption of the arbitration previously noted, the arbitration agreement provided that it provision. In re Halliburton,80 S.W.3d at 571
. Such issues âinure[d] to the benefit of the manufacturer of the Home.â By are properly considered by courts in determining the validity its own terms, the agreement was entered into, in part, directly of an arbitration provision.Id. at 572
.
for the manufacturer's benefit. Because the manufacturer is a
third-party beneficiary of the underlying contract and not a
first party to it, our analysis as to the Ripples' obligation to
*678 A. Substantive Unconscionability
arbitrate with the manufacturer is different from our analysis
as to the retailer. [13] The Ripples claim the arbitration agreement is
substantively unconscionable because it binds them to
[10] As a third-party beneficiary, the manufacturer was not a arbitrate with the manufacturer but does not bind the
promisor and therefore was not required to give consideration manufacturer to arbitrate with them. The test for substantive
for the agreement which created its third-party beneficiary unconscionability is whether, âgiven the parties' general
status. See Stine, 80 S.W.3d at 589. For purposes of commercial background and the commercial needs of the
determining whether the arbitration agreement was supported particular trade or case, the clause involved is so one-sided
by consideration under such circumstances, it is not relevant that it is unconscionable under the circumstances existing
that the agreement did not bind the manufacturer to arbitrate, when the parties made the contract.â In re FirstMerit Bank,
for as we have concluded, the agreement was supported by 52 S.W.3d at 757. consideration in the form of both the underlying contract and promises of the retailer. It follows that the Ripples' obligation Even though the Ripples have asserted claims in addition to arbitrate with the manufacturer did not fail for lack of to breach of contract, their agreement to purchase the consideration. Seeid.
home and their use of the home underlie all their claims.
We have recently held that under certain circumstances
We have recognized that an arbitration agreement may be a party to an arbitration agreement may be compelled to
illusory if a party can unilaterally avoid the agreement to arbitrate claims with a nonparty if the controversy arises
arbitrate. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d from a contract containing an arbitration clause. In re Vesta
223, 230 & n. 2 (Tex.2003). In Davidson, we remanded a Ins. Group, Inc., 192 S.W.3d 759, 761(Tex.2006) (per case for the trial court to determine whether an ambiguous curiam); see Grigson v. Creative Artists Agency, L.L.C., contract allowed an employer to modify or terminate an210 F.3d 524
, 527â28 (5th Cir.2000) (stating that equitable arbitration agreement at any time.Id.
at 230â31. We noted estoppel allows a nonsignatory to compel arbitration when that most courts which have considered the issue have held a signatory must rely on the contract with the arbitration that if one party retains a unilateral, unrestricted right to provision in asserting its claims or when the claims against terminate an arbitration agreement, the agreement is illusory. the nonsignatory are interwoven with the claims against aId.
at 230 & n. 2. Unlike the facts before us in this signatory); see also In re Weekley Homes, L.P., 180 S.W.3d matter, however, Davidson addressed illusoriness in regard 127, 130 (Tex.2005) (holding that equitable estoppel doctrine to promises between direct parties to an agreement. In this may in some instances require a nonparty to an arbitration matter the manufacturer was a third-party beneficiary, not a agreement to arbitrate with a party); In re Kellogg Brown direct party promisor. & Root, Inc.,166 S.W.3d 732
, 738â39 (Tex.2005) (same).
Also, the manufacturer had a limited period in which to
[11] We hold that the agreement was not illusory as to the refuse arbitration. Such a circumstance does not create a
manufacturer. different relationship than provisions usually found in third-
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
party beneficiary situations, because third-party beneficiaries the contract they signed, regardless of whether they read it generally have the right to disclaim benefits proffered by a or thought it had different terms); EZ Pawn, 934 S.W.2d at contract. See Rau v. Modern Sales & Serv., Inc.,414 S.W.2d 90
(holding that a party who has the opportunity to read an
203, 206 (Tex.Civ.App.âSan Antonio 1967, writ ref'd arbitration agreement and signs it is charged with knowing its
n.r.e.); RESTATEMENT (SECOND) OF CONTRACTS § contents); see also In re Halliburton, 80 S.W.3d at 568â69
306 (1981). (holding an arbitration clause was accepted by an employee
despite employee's claim that he did not understand it).
[14] [15] [16] There is nothing inherently unconscionable
about arbitration agreements, In re AdvancePCS, 172 S.W.3d [20] The principles of unconscionability do not negate a
at 608, and there is nothing unconscionable about contracting bargain because one party to the agreement may have been
to benefit a third party. See Stine, 80 S.W.3d at 589â in a less advantageous bargaining position. Unconscionability
90. The Ripples have not met their burden to prove the principles are applied to prevent unfair surprise or oppression. agreement was so one-sided as to be unconscionable when See In re FirstMerit Bank,52 S.W.3d at 757
. The agreement its provisions effectively incorporate established principles of before us is clearly labeled as an agreement providing that contract law. Considered in light of the remaining provisions disputes will be settled by arbitration. It is relatively short and of the agreement, the manufacturer's limited right as a third- specifically provides that it does not constitute a waiver of party beneficiary to refuse to arbitrate does not render the any substantive rights or remedies except as to the forum for arbitration agreement so one-sided as to be substantively resolving disputes, and it highlights the statement that a jury unconscionable. trial is being waived. [17] The Ripples also contend that the agreement is We find neither unfair surprise nor oppression in the substantively unconscionable because it is a contract of agreement as a whole nor in the substance of the adhesion: they were required to execute the document in order manufacturer's opt-out provision. Accordingly, we disagree to purchase the home. But, the fact that the Ripples would with the Ripples' contention that the agreement was, as not have been able to buy the manufactured home unless they to either the retailer or the manufacturer, procedurally signed the arbitration agreement does not, in and of itself, unconscionable. make the agreement substantively unconscionable. See In re AdvancePCS,172 S.W.3d at 608
.
V. Conclusion
[18] Furthermore, assuming arguendo that the agreement
constituted a contract of adhesion, we have held that adhesion We conclude that the trial court abused its discretion in
contracts are not per se unconscionable or void. Id. at 608; failing to order the Ripples to arbitrate their claims against the see also EZ Pawn Corp. v. Mancias,934 S.W.2d 87
, 90â91 retailer and manufacturer. We conditionally grant the writ of
(Tex.1996) (per curiam). mandamus and direct the trial court to compel arbitration of
the Ripples' claims. The writ will issue only if the trial court
fails to comply with our directive.
B. Procedural Unconscionability
[19] Finally, the Ripples urge that the agreement is
Justice O'NEILL filed a concurrence.
procedurally unconscionable. *679 They point to their
affidavits as establishing that they did not voluntarily waive Justice O'NEILL, concurring.
their rights to a jury trial and that they are unsophisticated In my view, the unilateral right that the retail contract
persons who, if the concept of arbitration had been explained conferred on the manufacturer to compel or avoid arbitration
to them, would not have signed the arbitration agreements. with the parties to that contract after the events giving rise
Such assertions, however, presuming the trial court found to the Ripples' claim arose rendered the contract's arbitration
them to be true, fail to establish procedural unconscionability clause unconscionable as to the manufacturer and non-
as to adoption of the arbitration agreement. See In re binding on the Ripples. See J.M. Davidson, Inc. v. Webster,
McKinney, 167 S.W.3d at 835 (holding that absent fraud, 128 S.W.3d 223, 230 & n. 2 (Tex.2003). Because I agree
misrepresentation, or deceit, parties are bound by terms of with the trial court and the court of appeals on this point, I
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
In re Palm Harbor Homes, Inc., 195 S.W.3d 672(2006)49 Tex. Sup. Ct. J. 711
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th
do not join part IV, A, of the Court's opinion. Nevertheless,
Cir.2000). On this basis, I concur in the Court's judgment.
the Ripples' claims against the manufacturer in this case
necessarily rely on the terms of the retail contract and
raise substantially interdependent and concerted misconduct;
Parallel Citations
accordingly, I believe the Ripples are equitably estopped from
seeking to avoid arbitration with the manufacturer. See, e.g., 49 Tex. Sup. Ct. J. 711
Footnotes
1 The court of appeals construed the two arbitration agreements together in determining that the second agreement's opt-out language
applied. See 129 S.W.3d 636, 643. Whether we construe the agreements together as the court of appeals construed them, or consider
the second agreement as the operative agreement as the Ripples urge, we must address the effect of the opt-out language which is
only in the second agreement.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
Civil
262 S.W.3d 337 proceedings other than actions
Supreme Court of Texas.
Mandamus is the proper means by which to seek
In re POLYâAMERICA, L.P., Ind. review of an order compelling arbitration under
the Federal Arbitration Act (FAA). 9 U.S.C.A. §
and d/b/a PolâTex International, and
1 et seq.
PolyâAmerica GP, L.L.C., Relators.
9 Cases that cite this headnote
No. 04â1049. | Aug. 29, 2008.
Synopsis [2] Mandamus
Background: Former employee sought mandamus relief
from order of the 344th District Court, Chambers County, Nature
Carroll E. Wilborn, Jr., J., granting employer's motion to and scope of remedy in general
compel arbitration and to stay employee's action for wrongful Although mandamus review is generally
discharge and retaliation for filing a workers' compensation available in federal courts to review non-
claim. The Houston Court of Appeals, First District, 175 appealable interlocutory rulings, mandamus is
S.W.3d 315, conditionally granted a writ. Review was granted only in exceptional cases.
granted.
1 Cases that cite this headnote
Holdings: The Supreme Court, Harriet O'Neill, J., held that: [3] Mandamus
Existence
[1] provisions of arbitration agreement, eliminating two
and Adequacy of Other Remedy in General
types of remedies available under anti-retaliation provisions
of Texas Workers' Compensation Act, were substantively Mandamus
unconscionable; Discretion
as to grant of writ
[2] fee-splitting provision of arbitration agreement was not
Mandamus
substantively unconscionable;
Nature
[3] as a matter of first impression, discovery limits in and existence of rights to be protected or
arbitration agreement were not substantively unconscionable; enforced
and
Federal courts grant mandamus only upon
demonstration of clear and indisputable right to
[4] substantively unconscionable provisions of arbitration
issuance of the writ: (1) party seeking issuance
agreement were severable.
of writ must have no other adequate means
to attain the relief he desires; (2) such party
Writ conditionally granted. must satisfy burden of showing that his right to
issuance of writ is clear and indisputable; and (3)
Scott Brister, J., filed a dissenting opinion. issuing court, in exercise of its discretion, must
be satisfied that the writ is appropriate under the
circumstances.
West Headnotes (47) Cases that cite this headnote
[1] Mandamus [4] Mandamus
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
States
Remedy
by Appeal or Writ of Error Particular
Mandamus cases, preemption or supersession
Federal Arbitration Act (FAA) does not preempt
Matters Texas public policies that may make contractual
of discretion provisions generally unenforceable. 9 U.S.C.A.
Under Texas law, issuance of writ of mandamus § 2.
requires a demonstration that trial court clearly
abused its discretion by failing to correctly 1 Cases that cite this headnote
analyze or apply the law, and a determination
that benefits of mandamus outweigh detriments, [8] Alternative Dispute Resolution
such that an appellate remedy is inadequate.
Validity
5 Cases that cite this headnote
An agreement to arbitrate is valid under the
Federal Arbitration Act (FAA) if it meets the
[5] Mandamus requirements of the general contract law of the
applicable state. 9 U.S.C.A. § 2.
Civil
proceedings other than actions 5 Cases that cite this headnote
Because arbitration under the Federal Arbitration
Act (FAA) is intended to provide a lower-cost, [9] Alternative Dispute Resolution
expedited means to resolve disputes, mandamus
proceedings will often, if not always, deprive What
the parties of an arbitration agreement's intended law governs
benefits when a trial court's compel-and-stay State law, whether of legislative or judicial
order, compelling arbitration and staying the origin, is applicable to the determination of
court proceedings while arbitration is pending, is the validity of an agreement to arbitrate under
at issue; accordingly, appellate courts should be the Federal Arbitration Act (FAA), if that law
hesitant to intervene through issuance of a writ arose to govern issues concerning the validity,
of mandamus. 9 U.S.C.A. § 16(b)(1). revocability, and enforceability of contracts
generally. 9 U.S.C.A. § 2.
8 Cases that cite this headnote
2 Cases that cite this headnote
[6] Alternative Dispute Resolution
[10] Alternative Dispute Resolution
Evidence
The Federal Arbitration Act's (FAA) strong What
presumption favoring arbitration does not apply law governs
to a state court's assessment of whether parties Under the Federal Arbitration Act (FAA),
have entered into a valid and enforceable courts may not invalidate arbitration agreements
agreement to arbitrate under state contract law. 9 under state laws applicable only to arbitration
U.S.C.A. § 2. provisions. 9 U.S.C.A. § 2.
11 Cases that cite this headnote 3 Cases that cite this headnote
[7] Alternative Dispute Resolution [11] Alternative Dispute Resolution
Preemption
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
Constitutional Employment
and statutory provisions and rules of court disputes
The purpose and language of the Federal Alternative Dispute Resolution
Arbitration Act (FAA) require only that
agreements to arbitrate be placed upon the Unconscionabi
same footing as other contracts, with respect to Agreements to arbitrate disputes between
enforceability under state law. 9 U.S.C.A. § 2. employers and employees are generally
enforceable under Texas law, because there
Cases that cite this headnote is nothing per se unconscionable about an
agreement to arbitrate employment disputes.
[12] Alternative Dispute Resolution
6 Cases that cite this headnote
Evidence
Once an enforceable contract to arbitrate is [16] Alternative Dispute Resolution
found, there is a strong federal presumption,
under the Federal Arbitration Act (FAA), in Unconscionabi
favor of arbitration, such that myriad doubts, as Contracts
to waiver, scope, and other issues not relating
Unconscionabl
to enforceability, must be resolved in favor of
Contracts
arbitration. 9 U.S.C.A. § 2.
Unconscionable contracts, whether relating to
4 Cases that cite this headnote arbitration or not, are unenforceable under Texas
law.
[13] Alternative Dispute Resolution 14 Cases that cite this headnote
Validity
Under Texas law, as with any other contract, [17] Contracts
agreements to arbitrate under the Federal
Unconscionabl
Arbitration Act (FAA) are valid unless grounds
Contracts
exist at law or in equity for revocation of the
agreement. 9 U.S.C.A. § 2. A contract is unenforceable if, given the
parties' general commercial background and the
9 Cases that cite this headnote commercial needs of the particular trade or case,
the clause involved is so one-sided that it is
unconscionable under the circumstances existing
[14] Alternative Dispute Resolution
when the parties made the contract.
Evidence
8 Cases that cite this headnote
Under Texas law, the burden of proving a
ground, at law or in equity, for revoking
an arbitration agreement, such as fraud, [18] Contracts
unconscionability, or voidness under public
Unconscionabl
policy, falls on the party opposing the agreement.
Contracts
6 Cases that cite this headnote Unconscionability of a contract is to be
determined in light of a variety of factors, which
aim to prevent oppression and unfair surprise.
[15] Alternative Dispute Resolution
8 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
[19] Contracts [23] Alternative Dispute Resolution
Unconscionable Employment
Contracts disputes
In general, a contract will be found Alternative Dispute Resolution
unconscionable if it is grossly one-sided.
Validity
10 Cases that cite this headnote In the context of federal statutory claims, either
an expression of federal intent to exclude certain
[20] Contracts categories of claims from arbitration, or the
excessive waiver of statutory rights in the
Questions arbitration agreement, may render a particular
for jury dispute un-arbitrable.
Contracts
Cases that cite this headnote
Questions
for jury [24] Alternative Dispute Resolution
Whether a contract is contrary to public policy
or unconscionable at the time it is formed is a Preemption
question of law. States
3 Cases that cite this headnote Particular
cases, preemption or supersession
[21] Appeal and Error In light of the Supremacy Clause, the Federal
Arbitration Act (FAA) preempts state laws that
Abuse specifically disfavor arbitration. U.S.C.A. Const.
of discretion Art. 6, cl. 2; 9 U.S.C.A. § 2.
Because a trial court has no discretion to
Cases that cite this headnote
determine what the law is or apply the law
incorrectly, its clear failure to properly analyze
or apply the law of unconscionability of contracts [25] Alternative Dispute Resolution
constitutes an abuse of discretion.
Preemption
5 Cases that cite this headnote States
Particular
[22] Alternative Dispute Resolution
cases, preemption or supersession
Validity While the Federal Arbitration Act (FAA), in
An arbitration agreement covering an employee's light of the Supremacy Clause, preempts state
statutory claims is valid so long as the arbitration laws that specifically disfavor arbitration, if a
agreement does not waive the substantive particular waiver of substantive remedies or
rights and remedies the statute affords and the other provision of a contract is unconscionable
arbitration procedures are fair, such that the under state law, independent of the agreement to
employee may effectively vindicate his statutory arbitrate, it will be unenforceable even though
rights. included in an agreement to arbitrate. U.S.C.A.
Const. Art. 6, cl. 2; 9 U.S.C.A. § 2.
6 Cases that cite this headnote
2 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
[26] Workers' Compensation 6 Cases that cite this headnote
Fault
or negligence as element of liability [29] Labor and Employment
Workers' Compensation Workers'
Compensation
Exclusiveness
of Remedies Afforded by Acts Since recovery of benefits under the Workers'
Compensation Act is the exclusive remedy
In order to ensure compensation for injured
available to injured employees of subscribing
employees while protecting employers from
employers, the availability of remedies under
costs of litigation, the Texas legislature provided,
the Act for retaliatory discharge, for seeking to
through the Texas Workers' Compensation Act,
collect workers' compensation benefits, protects
a mechanism by which workers can recover
employees' exercise of their statutory rights to
from subscribing employers without regard to
compensation under the Act. V.T.C.A., Labor
the workers' own negligence, while limiting
Code §§ 408.001(a), 451.001 et seq.
employers' exposure to uncertain and possibly
high awards of damages under the common law. 3 Cases that cite this headnote
V.T.C.A., Labor Code § 401.001 et seq.
1 Cases that cite this headnote [30] Labor and Employment
Workers'
[27] Workers' Compensation Compensation
Liberal The anti-retaliation provisions of the Workers'
or strict construction in general Compensation Act must protect employees even
before they have actually filed a workers'
In light of the purposes of the Texas Workers'
compensation claim, because otherwise the law
Compensation Act as a whole, it is the
would be completely useless and would not
settled policy of Texas to construe liberally the
accomplish the purpose for which the Act was
provisions of the Act, in order to effectuate the
enacted; all the employer would have to do in
purposes for which it was enacted. V.T.C.A.,
order to avoid the consequences of the Act would
Labor Code § 401.001 et seq.
be to fire the injured employee before he filed the
5 Cases that cite this headnote claim. V.T.C.A., Labor Code § 451.001 et seq.
2 Cases that cite this headnote
[28] Workers' Compensation
Construction
[31] Workers' Compensation
in favor of employee or beneficiary
Express
Because courts should liberally construe the waiver
Texas Workers' Compensation Act in favor
Texas courts do not look with favor upon
of the injured worker, a strained or narrow
contracts waiving rights arising under the
construction of the Act would be improper, and
Workers' Compensation Act, because such
moreover, it would be injudicious to construe
waivers affect not only the individual employee
the Act in a manner that supplies by implication
subject to the waiver, but also the public, which
restrictions on an employee's rights that are not
bears the cost of the workers' compensation
found in the plain language of the Act. V.T.C.A.,
program. V.T.C.A., Labor Code § 401.001 et
Labor Code § 401.001 et seq.
seq.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
Cases that cite this headnote Operation
and Effect
[32] Labor and Employment By agreeing to arbitrate a statutory claim, a party
does not forgo the substantive rights afforded by
Grounds the statute; it only submits to their resolution in
and subjects an arbitral, rather than a judicial, forum.
Labor and Employment
2 Cases that cite this headnote
Exemplary
or punitive damages [35] Alternative Dispute Resolution
âReasonable damages,â for purposes of
provision of Workers' Compensation Act making Trial
an employer who retaliates against a claimant or hearing
liable for reasonable damages, are not limited to A trial court may summarily decide whether to
actual damages, but may include future damages, compel arbitration, on the basis of affidavits,
as well as exemplary or punitive damages, when pleadings, discovery, and stipulations; however,
it is shown that the employer acted with actual if the material facts necessary to determine
malice in retaliating against the employee for the issue are controverted by an opposing
filing a workers' compensation claim. V.T.C.A., affidavit or otherwise admissible evidence, the
Labor Code §§ 451.001, 451.002. trial court must conduct an evidentiary hearing to
determine the disputed material facts.
1 Cases that cite this headnote
3 Cases that cite this headnote
[33] Alternative Dispute Resolution
[36] Mandamus
Unconscionability
Provisions of arbitration agreement governed Civil
by Federal Arbitration Act (FAA) and proceedings other than actions
executed by employee as condition of Court of Appeals, on employee's petition for
employment, which provisions eliminated two writ of mandamus relating to trial court's
types of remedies available under anti-retaliation order compelling arbitration of employee's
provisions of Texas Workers' Compensation claim against employer under anti-retaliation
Act by prohibiting arbitrator from ordering provisions of Workers' Compensation Act,
reinstatement or awarding punitive damages, could consider, when deciding whether fee-
were substantively unconscionable and therefore splitting provision of arbitration agreement
void under Texas law; such provisions was substantively unconscionable, the detailed
would allow subscribing employer to enjoy estimates, in affidavits of employee and of
Act's limited-liability benefits while exposing employee's expert witness which had been
employee to exactly the sort of costs, i.e., costs presented to trial court in opposition to
of injuries paid for by employee for fear of employer's motion to compel arbitration and
retribution for making a workers' compensation which were attached to petition for writ of
claim, that the Act was specifically designed to mandamus, regarding likely cost of arbitration in
shift onto employer. 9 U.S.C.A. § 2; V.T.C.A., employee's case and employee's expected share
Labor Code §§ 451.001, 451.002(a, b). of those costs under agreement's capped fee-
splitting provision based on employee's monthly
7 Cases that cite this headnote salary; employer did not dispute, in trial court
or in Court of Appeals, the facts asserted in the
[34] Alternative Dispute Resolution affidavits and instead asserted in both trial court
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
and Court of Appeals legal arguments that fee- claims under anti-retaliation provisions of
splitting provision was not unconscionable, and Texas Workers' Compensation Act; agreement
affidavits did not present merely subjective and specifically provided that arbitrator could
incontrovertible factual allegations. V.T.C.A., modify unconscionable terms, and nothing
Labor Code § 451.001 et seq. in Texas law would prevent arbitrator from
fairly adjusting fee-splitting provisions when
6 Cases that cite this headnote necessary to allow full vindication of employee's
statutory rights in arbitral forum. 9 U.S.C.A. § 2;
[37] Alternative Dispute Resolution V.T.C.A., Labor Code § 451.001 et seq.
16 Cases that cite this headnote
Unconscionability
Fee-splitting provisions, in an arbitration
agreement executed by an employee, that [40] Alternative Dispute Resolution
operate to prohibit the employee from fully
and effectively vindicating statutory rights, are Unconscionabi
substantively unconscionable. Discovery limits in arbitration agreement
executed by employee and governed by Federal
2 Cases that cite this headnote Arbitration Act (FAA) were not substantively
unconscionable under Texas law, with respect
[38] Alternative Dispute Resolution to employee's claims under anti-retaliation
provisions of Texas Workers' Compensation
Unconscionability
Act, where agreement limited each party to
Fee-splitting provisions, in an arbitration serving on the other a single set of 25
agreement executed by an employee, are not per interrogatories including sub-parts and one set
se substantively unconscionable; the employee of 25 requests for production or inspection
must present some evidence that he or she will of documents or tangible things, limited each
likely incur arbitration costs in such an amount party to a single, six-hour deposition, prohibited
as to deter enforcement of statutory rights in the requests for admission, banned inquiry into
arbitral forum. employer's finances, and required that parties
and their attorneys maintain confidentiality
7 Cases that cite this headnote regarding all aspects of arbitration; agreement
specifically provided that arbitrator could
[39] Alternative Dispute Resolution modify unconscionable terms, and arbitrator
would not be required to enforce discovery limits
Unconscionability
if arbitrator found them to be unconscionable. 9
Fee-splitting provision of arbitration agreement U.S.C.A. § 2; V.T.C.A., Labor Code § 451.001
executed by employee and governed by Federal et seq.
Arbitration Act (FAA), stating that all fees
6 Cases that cite this headnote
related to arbitration, including but not limited
to mediation fees, arbitrators' fees, costs of
procuring a location for arbitration hearing, [41] Alternative Dispute Resolution
and court reporter fees, would be split
equally between employer and employee, with Unconscionabi
employee's contribution capped at amount equal Limits on discovery, in an arbitration
to gross compensation earned by employee agreement executed by an employee, that
in employee's highest earning month in the unreasonably impede the employee from
12 months prior to issuance of arbitration effectively vindicating statutory rights, are
award, was not substantively unconscionable substantively unconscionable.
under Texas law, with respect to employee's
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
punitive damages, were severable from general
1 Cases that cite this headnote agreement to arbitrate; arbitration agreement was
over five pages long and it contained numerous
[42] Alternative Dispute Resolution provisions not challenged by employee as
imposing any unconscionable burdens, e.g.,
Unconscionability
procedures for mediation, procedures for
Limits on discovery, in an arbitration agreement selection of neutral arbitrator, procedures for
executed by an employee, are not per se filing of motions, and other general provisions
substantively unconscionable; the employee governing arbitration procedures, the intent of
must present some evidence that the discovery the parties, as expressed by the severability
limits will deprive the employee of a fair clause, was that unconscionable provisions
opportunity to present statutory claims in the would excised if possible, and the main purpose
arbitral forum. of the agreement was that the parties would
submit their disputes to arbitral forum rather
1 Cases that cite this headnote than proceed in court. 9 U.S.C.A. § 2; V.T.C.A.,
Labor Code § 451.001 et seq.
[43] Alternative Dispute Resolution
7 Cases that cite this headnote
Unconscionability
Provision of arbitration agreement executed by [45] Contracts
employee and governed by Federal Arbitration
Act (FAA), prohibiting arbitrator from applying Severability
a âjust causeâ or âgood causeâ standard to Contracts
claims relating to the employment or separation
Partial
therefrom, was not substantively unconscionable
Illegality
under Texas law, with respect to employee's
claims under anti-retaliation provisions of Texas An illegal or unconscionable provision of a
Workers' Compensation Act; provision simply contract may generally be severed so long as it
emphasized that the arbitration agreement does not constitute the essential purpose of the
related to at-will employment, and it would agreement.
not prohibit inquiry into whether employer
7 Cases that cite this headnote
improperly terminated employee in retaliation
for his filing of workers' compensation claim. 9
U.S.C.A. § 2; V.T.C.A., Labor Code § 451.001 [46] Contracts
et seq.
Partial
2 Cases that cite this headnote Illegality
Whether the invalidity of a particular provision
[44] Alternative Dispute Resolution of a contract affects the rest of the contract,
for purposes of determining whether the invalid
Severability provision is severable, depends upon whether
Substantively unconscionable provisions of the remaining provisions are independent or
arbitration agreement governed by Federal mutually dependent promises, which courts
Arbitration Act (FAA) and containing a determine by looking to the language of the
severability clause, which provisions eliminated contract itself.
two types of remedies available under anti-
2 Cases that cite this headnote
retaliation provisions of Texas Workers'
Compensation Act by prohibiting arbitrator
from ordering reinstatement or awarding [47] Contracts
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
agreement's fee-splitting and discovery-limitation provisions
Severability
as applied in the course of arbitration. We further hold that
Contracts the arbitration agreement's provisions precluding remedies
under the Workers' Compensation Act are substantively
Partial
unconscionable and void under Texas law. However, those
Illegality
provisions are not integral to the parties' overall intended
With regard to whether illegal or unconscionable purpose to arbitrate their disputes and, pursuant to the
provisions of a contract are severable, the agreement's severability clause, are severable from the
relevant inquiry is whether parties would remainder of the arbitration agreement, which we conclude is
have entered into the agreement absent the otherwise enforceable. Accordingly, we conditionally grant
unenforceable provisions. the petition for mandamus.
4 Cases that cite this headnote
I. Facts
Johnny Luna began his employment with PolâTex
Attorneys and Law Firms
International, d/b/a PolyâAmerica, L.P., in October 1998.
*343 Erica W. Harris, Susman Godfrey L.L.P., Houston, Upon his hiring, Luna signed an agreement to submit
Craig T. Enoch, Winstead PC, Austin, Adam Brian Ross, âall claims or disputesâ to arbitration. Approximately
PolyâAmerica, LP, Grand Prairie, TX, for Relator. four years later, Luna signed an amended agreement to
arbitrate that contained substantially the same provisions.
Scott Fiddler, Law Office of G. Scott Fiddler, P.C., Houston Both the 1998 and 2002 agreements provide that they are
TX, for Real Party in Interest. governed by the Federal Arbitration Act (FAA). 9 U.S.C.
§§ 1â14. Additionally, both agreements contain a series
Jeffrey C. Londa, Ogletree Deakins Nash Smoak & Stewart, of requirements for the arbitration between the parties. All
P.C., Houston, Audrey Elaine Mross, Davis Munck Butrus, claims must be asserted within a maximum of one year from
P.C., Kirk L. Pittard, Durham & Pattard, LLP, Dallas, Peter the occurrence of the event from which the claim arises.
M. Kelly, Law Office Of Peter M. Kelly, P.C., Houston TX, Fees associated with arbitrationâincluding but not limited to
for Amicus Curiae. mediation fees, the arbitrators' fees, court reporter fees, and
fees to secure a place for a hearingâare to be split between
Justice O'NEILL delivered the opinion of the Court, in
the parties, with the employee's share capped at âthe gross
which Chief Justice JEFFERSON, Justice HECHT, Justice
compensation earned by the Employee in Employee's highest
WAINWRIGHT, Justice MEDINA, Justice GREEN, and
earning month in the twelve months prior to the time the
Justice JOHNSON joined.
arbitrator issues his award.â Each side is permitted limited
Opinion forms of discovery: twenty-five interrogatories (including
sub-parts), twenty-five requests for production or inspection
*344 HARRIET O'NEILL, Justice. of documents or tangible things, and one oral deposition
of no more than six hours. Parties may not use written
In this retaliatory-discharge case, the employee's employment
depositions or requests for admission; the agreement prohibits
contract contains an arbitration agreement that requires
discovery of either party's financial information except for
the employee to split arbitration costs up to a capped
the employee's earnings if the employee seeks lost wages,
amount, limits discovery, eliminates punitive damages
back pay, and/or front pay; and all aspects of the arbitration
and reinstatement remedies available under the Workers'
are deemed confidential. Finally, the arbitrator is stripped
Compensation Act, and imposes other conditions on the
of authority to award punitive, exemplary, or liquidated
arbitration process. We must decide whether any or all of
damages, or to order reinstatement of employment.
these provisions are unconscionable and, if they are, whether
the contract's severability clause preserves the arbitration
In December 2002, Luna suffered a work-related neck injury
right. We hold that the trial court did not abuse its discretion in
when he accidentally hit his head on a pipe. PolyâAmerica's
allowing the arbitrator to assess the unconscionability of the
company doctor examined Luna and diagnosed him with an
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
acute cervical spine flexion injury. Luna subsequently filed 483 (Tex.2001). In In re Palacios, we recognized that it a workers' compensation claim and began receiving physical is âimportant for federal and state law to be as consistent therapy. Approximately two weeks later, Luna returned to as possibleâ in enforcement and review of provisions under work on a release for light duty; however, Luna continued the FAA.221 S.W.3d 564, 565
(Tex.2006) (per curiam) to suffer pain and utilized previously scheduled vacation (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d time to recover from his injury. After being warned by the 732, 739 (Tex.2005)). Federal courts may not review orders company doctor that he needed to return to work and get off compelling arbitration and staying litigation (âcompel-and- of workers' compensation if he wanted to keep his job, *345 stay ordersâ) by interlocutory appeal. See9 U.S.C. § 16
(b) Luna returned to work without restrictions on January 10, (1) (â[A]n appeal may not be taken from an interlocutory 2003. Upon his return, Luna noticed that another person was order ... granting a stay of any action under Section 3 already being trained for his position, and he claims that his of this title.â). Accordingly, as we noted in Palacios, it supervisor began to harass him. One month later, Luna told would be inappropriate to exercise our own mandamus power his supervisor that his neck continued to bother him and that in a manner inconsistent with the federal courts' practice. he needed to return to the company doctor; the next day that See Palacios,221 S.W.3d at 565
. Although mandamus
Luna was scheduled to work, he was fired. review is generally available in federal courts to review non-
appealable interlocutory rulings, mandamus is granted only in
Luna filed this suit asserting claims for unlawful retaliatory exceptional cases. See generally Gulfstream Aerospace Corp.
discharge under section 451.001 of the Labor Code v. Mayacamas Corp., 485 U.S. 271, 288â90 & n. 13, 108 S.Ct. (âthe Workers' Compensation Actâ). TEX. LAB.CODE 1133,99 L.Ed.2d 296
(1988) (holding that, where a particular § 451.001â.003. Claiming that PolyâAmerica acted with order is not appealable, mandamus is available and âwill be malice, ill will, spite, or specific intent to cause injury, Luna appropriate in exceptional casesâ). As we acknowledged in sought both reinstatement and the imposition of punitive Palacios, federal courts have applied this template to orders damages. He additionally sought a declaratory judgment that that cannot be appealed under the FAA, although they almost the arbitration agreement was unenforceable because, among never grant mandamus relief. 221 S.W.3d at 565â66 (âEven other reasons, its provisions violated public policy and were after Green Tree [Financial Corp.âAlabama v. Randolph, unconscionable. Luna submitted two affidavitsâhis own,531 U.S. 79
,121 S.Ct. 513
,148 L.Ed.2d 373
(2000)], the
and that of an expert witnessâin support of his claims. Fifth Circuit has held that federal mandamus review of an
PolyâAmerica responded with a motion to compel arbitration order staying a case for arbitration may still be available if
which, after a hearing, the trial court granted. a party can meet a âparticularly *346 heavyâ mandamus
burden to show âclearly and indisputably that the district
Luna sought a writ of mandamus in the court of appeals, court did not have the discretion to stay the proceedings
reasserting his argument that provisions of the arbitration pending arbitration.â â) (quoting Apache Bohai Corp. v.
agreement were substantively unconscionable. The court of Texaco China, B.V., 330 F.3d 307, 310â11 (5th Cir.2003)). appeals held that, in light of the fee-splitting provisions This general rule has been broadly applied to unappealable and limitations on remedies, the arbitration agreement as a ancillary interlocutory orders in proceedings under the FAA, whole was substantively unconscionable.175 S.W.3d 315
, see, e.g., Georgiou v. Mobil Exploration & Prod. Servs., Inc. 318. PolyâAmerica sought review in this Court. We hold U.S.,190 F.3d 538
,1999 WL 642871
at *3 (5th Cir. July
that the arbitration agreement's provision that eliminates 27, 1999) (dismissing appeal of order staying litigation in
available remedies under the Workers' Compensation Act favor of arbitration proceeding in foreign forum, and denying
is unenforceable, but we find that provision severable from mandamus because plaintiffs failed to carry the âparticularly
the arbitration agreement as a whole and conditionally grant heavy burdenâ to warrant mandamus relief from such an
PolyâAmerica's writ of mandamus. order); Cofab Inc. v. Phila. Joint Bd., Amalgamated Clothing
& Textile Workers Union, AFLâCIOâCLC, 141 F.3d 105, 110
(3d Cir.1998); and appears to also apply to compel-and-stay
orders under section 16(b)(1), see Douglas v. U.S. Dist. Court,
II. Standard of Review
495 F.3d 1062, 1065(9th Cir.2007) (granting mandamus [1] [2] Mandamus is the proper means by which to seek relief from compel-and-stay order); Manion v. Nagin, 255 review of an order compelling arbitration under the FAA. F.3d 535, 538â40 & n. 4 (8th Cir.2001) (dismissing appeal In re Am. Homestar of Lancaster, Inc.,50 S.W.3d 480
, of various interlocutory orders, including order compelling
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
arbitration, and denying mandamus because Manion had furthermore that the FAA preempts all state public-policy not made âany showing that he [was] entitled to such grounds for finding the agreement to arbitrate unenforceable. extraordinary reliefâ); McDermott Int'l, Inc. v. Underwriters See In re R & R Personnel Specialists of Tyler, Inc., 146 at Lloyds Subscribing to Memorandum of Ins. No. 104207, S.W.3d 699, 705 (Tex.App.âTyler2004) (holding that the981 F.2d 744, 748
(5th Cir.1993) (âThis court has recognized FAA preempts âany public policy underlying the Texas
that [mandamus review of an order compelling arbitration] workers' compensation statutes that is contrary to the
may be available [but] McDermott has failed to satisfy [the] enforceability of arbitration agreementsâ). Because neither
demanding standard.â). 1 this presumption nor federal preemption applies in a state
court's assessment of whether parties have entered into a valid
[3] [4] [5] Although federal precedent in this area and enforceable agreement to arbitrate under state contract
is not uniformly clear, it appears a federal court would law, we disagree.
be permittedâalbeit not compelledâto address the merits
of the mandamus arguments in this case. If such [8] Section 2 of the FAA provides that arbitration
review were categorically unavailable and unconscionability agreements âshall be valid, irrevocable, and enforceable,
determinations the sole realm of arbitrators, as the dissenting save upon such grounds as exist at law or in equity for the
Justice proposes, development of the law as to this threshold revocation of any contract.â 9 U.S.C. § 2(emphasis added). issue would be substantially hindered if not precluded Thus, an agreement to arbitrate is valid under the FAA if altogether. Nevertheless, federal precedent counsels against it meets the requirements of the general contract law of the granting relief unless the stringent requirements for applicable state. In re AdvancePCS Health L.P., 172 S.W.3d mandamus are met. See Gulfstream,485 U.S. at 289
, 108 603, 606 (Tex.2005) (citing First Options of Chicago, Inc. S.Ct. 1133. Federal courts grant mandamus only upon v. Kaplan,514 U.S. 938, 944
,115 S.Ct. 1920
, 131 L.Ed.2d demonstration of a âclear and indisputableâ right to issuance 985 (1995)). In determining the validity of an agreement to of the writ: âFirst, the party seeking the issuance of the writ arbitrate under the FAA, courts must first apply state law must have no other adequate means to attain the relief he governing contract formation. See9 U.S.C. § 2
; First Options, desires.... Second, the petitioner must satisfy the burden of 514 U.S. at 944,115 S.Ct. 1920
. showing that his right to issuance of the writ is clear and indisputable. Third ... the issuing court, in the exercise of its [9] [10] The United States Supreme Court has repeatedly discretion, must be satisfied that the writ is appropriate under emphasized that âstate law, whether of legislative or judicial the circumstances.â Cheney v. U.S. Dist. Court,542 U.S. 367
, origin, is applicable [to the determination of the validity of 380â81,124 S.Ct. 2576
,159 L.Ed.2d 459
(2004). Our own an agreement to arbitrate] if that law arose to govern issues mandamus standard is similar, requiring a demonstration that concerning the validity, revocability, and enforceability of *347 the trial court clearly abused its discretion by failing contracts generally.â Perry v. Thomas,482 U.S. 483
, 493 to correctly analyze or apply the law and a determination that n. 9,107 S.Ct. 2520
,96 L.Ed.2d 426
(1987). Thus, courts the benefits of mandamus outweigh the detriments such that âmay not ... invalidate arbitration agreements under state laws an appellate remedy is inadequate. See In re Prudential Ins. applicable only to arbitration provisions.â Doctor's Assocs., Co. of Am.,148 S.W.3d 124
, 135â36 (Tex.2004). Because Inc. v. Casarotto,517 U.S. 681, 687
,116 S.Ct. 1652
, 134 arbitration is intended to provide a lower-cost, expedited L.Ed.2d 902 (1996); see also Perry,482 U.S. at 493
n. 9, means to resolve disputes, mandamus proceedings will often,107 S.Ct. 2520
(âA state-law principle that takes its meaning
if not always, deprive the parties of an arbitration agreement's precisely from the fact that a contract to arbitrate is at issue
intended benefits when a compel-and-stay order is at issue; does not comport with [section 2].â).
accordingly, courts should be hesitant to intervene. With these
standards in mind, we turn to the compel-and-stay order in [11] [12] However, the purpose and language of the FAA
this case. require only that agreements to arbitrate be placed âupon
the same footing as other contracts.â Doctor's Assocs., 517
U.S. at 687,116 S.Ct. 1652
(quoting Scherk v. Albertoâ
Culver Co., 417 U.S. 506, 511,94 S.Ct. 2449
,41 L.Ed.2d 270
III. Unconscionability and the Federal Arbitration Act (1974)) (emphasis added); see also H.R. REP. NO. 68â96, at
1 (1924) (noting that by enacting section 2, Congress sought
[6] [7] PolyâAmerica argues that the FAA's âstrong
to place agreements to arbitrate âupon the same footing as
presumptionâ favoring arbitration applies in this case, and
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
other contracts, where [they] belong[ ]â). Perry makes clear Corp. v. Mancias,934 S.W.2d 87, 90
(Tex.1996); Cantella & that state courts may not fashion special rules regarding Co. v. Goodwin,924 S.W.2d 943, 944
(Tex.1996). the enforceability *348 of arbitration contracts per se. See Perry,482 U.S. at 492
n. 9,107 S.Ct. 2520
. Furthermore, [16] [17] [18] [19] Unconscionable contracts, however once an enforceable contract to arbitrate is found, there is âwhether relating to arbitration or notâare unenforceable a strong federal presumption in favor of arbitration such under Texas law. A contract is unenforceable if, âgiven the that myriad doubtsâas to waiver, scope, and other issues parties' general commercial background and the commercial not relating to enforceabilityâmust be resolved in favor needs of the particular trade or case, the clause involved is so of arbitration. See, e.g., In re FirstMerit Bank, 52 S.W.3d one-sided that it is unconscionable under the circumstances 749, 752 (Tex.2001); Prudential Sec. Inc. v. Marshall, 909 existing when the parties made the contract.â FirstMerit S.W.2d 896, 898â99 (Tex.1995). However, a state court Bank,52 S.W.3d at 757
; see also In re Halliburton must initially determineâthrough the neutral application of Co.,80 S.W.3d 566, 571
(Tex.2002) (â[S]ubstantive its own contract lawâwhether an enforceable agreement unconscionability ... refers to the fairness of the arbitration exists in the first instance, and whether âgenerally applicableprovision itself.â). Unconscionability is to be determined in contract defenses ... may be applied to invalidate arbitration light of a variety of factors, which aim to prevent oppression agreements without contraveningâ the policies of the FAA. and unfair surprise; in general, a contract will be found Doctor's Assocs.,517 U.S. at 687
,116 S.Ct. 1652
. Thus, in unconscionable if it is grossly one-sided. See DAN B.
this case, if a contract limiting damages or restricting other DOBBS, 2 LAW OF REMEDIES 703, 706 (2d ed.1993);
remedies under the Workers' Compensation Act is generally see also RESTATEMENT (SECOND) OF CONTRACTSS
unenforceable under Texas law, an arbitration contract with § 208, cmt. a (1979) (âThe determination that a contract
these same limitations will also be unenforceable. or term is or is not unconscionable is made in the light
of its setting, purpose, and effect. Relevant factors include
[13] [14] Nevertheless, under Texas law, as with any weaknesses in the contracting process like those involved in
other contract, agreements to arbitrate are valid unless more specific rules as to contractual capacity, fraud, and other
grounds exist at law or in equity for revocation of the invalidating causes; the policy also overlaps with rules which
agreement. The burden of proving such a groundâsuch render particular *349 bargains or terms unenforceable on
as fraud, unconscionability or voidness under public policy grounds of public policy.â). Although not subject to precise
âfalls on the party opposing the contract. See FirstMerit doctrinal definition, see Sw. Bell Tel. Co. v. DeLanney, 809
Bank, 52 S.W.3d at 756. Thus, while we reject Polyâ S.W.2d 493, 498 (Tex.1991) (GONZALEZ, J., concurring), America's assertions that we must apply a presumption unconscionabilityâas delineated by the above principlesâ favoring arbitration in assessing whether the parties entered has been recognized and applied by this Court for well over into an enforceable agreement under Texas law and that a century. See, e.g., Flanagan v. Pearson,61 Tex. 302
, the FAA preempts Texas public policies that may make 307 (1884); Fowler v. Stoneum,11 Tex. 478, 493
(1854); certain contractual provisions generally unenforceable, Luna Hemming v. Zimmerschitte,4 Tex. 159, 166
(1849); Luckett nevertheless bears the burden to establish that the challenged v. Townsend,3 Tex. 119, 131
(1848).
provisions are unenforceable.
[20] [21] Whether a contract is contrary to public policy
or unconscionable at the time it is formed is a question
of law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557,
IV. Arbitration and Unconscionability Under Texas Law
562 (Tex.2006). Because a trial court has no discretion to
determine what the law is or apply the law incorrectly,
A. General Standard its clear failure to properly analyze or apply the law of
unconscionability constitutes an abuse of discretion. See
[15] Agreements to arbitrate disputes between employers Walker v. Packer, 827 S.W.2d 833, 840(Tex.1992). and employees are generally enforceable under Texas law; there is nothing per se unconscionable about an agreement to arbitrate employment disputes and, in fact, Texas law has historically favored agreements to resolve such disputes by B. Arbitration and Statutory Rights arbitration. See Advance PCS,172 S.W.3d at 608
; EZ Pawn
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
[22] [23] [24] An arbitration agreement covering [26] [27] [28] The Texas Workers' Compensation Act statutory claims is valid so long as the arbitration agreement was enacted to protect Texas *350 workers and employees. does not waive the substantive rights and remedies the Fid. & Cas. Co. of N.Y. v. McLaughlin,134 Tex. 613
, 135 statute affords and the arbitration procedures are fair, such S.W.2d 955, 956 (1940). The Texas Legislature enacted the that the employee may âeffectively vindicate his statutory original Workers' Compensation Act in 1913 in response to rights.â In re Halliburton,80 S.W.3d at 572
. Federal courts, the needs of workers who, despite a growing incidence of analyzing the enforceability of arbitration provisions relating industrial accidents, were increasingly being denied recovery. to federal statutory claims, have noted that such contracts Kroger Co. v. Keng,23 S.W.3d 347, 350
(Tex.2000); Tex. are not enforceable when a party is forced to âforgo the Workers' Compensation Comm'n v. Garcia,893 S.W.2d 504
, substantive rights afforded by the statute,â as opposed to 510 (Tex.1995). In order to ensure compensation for injured merely âsubmit[ting] to resolution in an arbitral, rather than a employees while protecting employers from the costs of judicial, forum.â Mitsubishi Motors Corp. v. Soler Chryslerâ litigation, the Legislature provided a mechanism by which Plymouth, Inc.,473 U.S. 614, 628
,105 S.Ct. 3346
, 87 workers could recover from subscribing employers without L.Ed.2d 444 (1985). In the context of federal claims, either regard to the workers' own negligence, see Kroger, 23 an expression of federal intent to exclude certain categories S.W.3d at 351, while limiting the employers' exposure to of claims from arbitration, see Gilmer v. Interstate/Johnson uncertain, possibly high damage awards permitted under the Lane Corp.,500 U.S. 20, 26
,111 S.Ct. 1647
, 114 L.Ed.2d common law, see Reed Tool Co. v. Copelin,689 S.W.2d 26
(1991), or the excessive waiver of statutory rights, see 404, 407 (Tex.1985). In light of the purposes of the Workers' Mitsubishi,473 U.S. at 628
,105 S.Ct. 3346
, may render a Compensation Act as a whole, â[i]t is the settled policy particular dispute un-arbitrable. State courts, bound by the of this State to construe liberally the provisions of the ... FAA under the supremacy clause, have more limited power, [l]aw, in order to effectuate the purposes for which it was as the FAA preempts state laws that specifically disfavor enacted.â Huffman v. S. Underwriters,133 Tex. 354
, 128 arbitration. Perry,482 U.S. at 492
n. 9,107 S.Ct. 2520
; see S.W.2d 4, 6 (1939) (citations omitted). As we have recently Jack B. Anglin Co. v. Tipps,842 S.W.2d 266, 271
(Tex.1992) noted, â[b]ecause we should liberally construe the Workers'
(holding that the FAA preempts state statutes to the extent Compensation Act in favor of the injured worker, a strained
they are inconsistent with the FAA's purpose to require courts or narrow construction of [the Act] would be improper.
to compel arbitration when the parties have so provided in Moreover, it would be injudicious to construe the statute
their contracts). in a manner that supplies by implication restrictions on
an employee's rights that are not found in ... [the] plain
[25] However, where a particular waiver of substantive language.â Kroger, 23 S.W.3d at 349. remedies or other provision of a contract is unconscionable âindependent of the agreement to arbitrateâit will be [29] [30] The Texas Workers' Compensation Act provides unenforceable even though included in an agreement to that a subscriber to the workers' compensation system may arbitrate. See Gilmer,500 U.S. at 33
,111 S.Ct. 1647
not âdischarge or in any other manner discriminate against (â[A]rbitration agreements are enforceable, âsave upon such an employee because the employee has ... filed a workers' grounds as exist at law or in equity for the revocation of compensation claim in good faith.â TEX. LAB.CODE any contract.â â) (quoting9 U.S.C. § 2
). To determine the § 451.001â.001(1). The Legislature's purpose in enacting permissibility of restrictions on a particular worker's access to section 451.001 was to protect persons entitled to benefits statutory rights, we analyze the provisions of the actual statute under the Act and to prevent them from being discharged at issue; thus, to analyze the enforceability of the various for seeking to collect those benefits. See Tex. Steel Co. v. restrictions and waivers in the employment contract at issue Douglas,533 S.W.2d 111, 115
(Tex.Civ.App.-Fort Worth
in this case, we turn to the retaliatory-discharge provisions of 1976, writ ref'd n.r.e.). Since recovery of benefits under
the Texas Workers' Compensation Act, TEX. LAB.CODE §§ the Workers' Compensation Act is the exclusive remedy
451.001â.003. available to injured employees of subscribing employers, see
TEX. LAB.CODE § 408.001(a), the availability of remedies
for retaliatory discharge protects employees' exercise of
their statutory rights to compensation under the Act. See
C. Purpose and Structure of the Texas Workers'
Padilla v. Carrier Air Conditioning, 67 F.Supp.2d 650, 664
Compensation Act's AntiâRetaliation Provisions
(E.D.Tex.1999); MidâSouth Bottling Co. v. Cigainero, 799
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 13
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
S.W.2d 385, 389 (Tex.App.-Texarkana 1990, writ denied). of procedural and substantive limits on the employee's rights. In accordance with these principles, the anti-retaliation We must analyze the challenged limitations in light of the provisions of the Act must protect employees even before policies underlying the Workers' Compensation Act, and they have actually filed a claim, because otherwise âthe law the purposes of its anti-retaliation provisions, to determine would be completely useless and would not accomplish the whether they improperly shift the cost of injury from a purpose for which it was enacted.... [A]ll the employer would subscribing employer onto its employees in contravention of have to do in order to avoid the consequences of the statute the Act's provisions. Cf. Lawrence v. CDB Servs., Inc., 44 would be to fire the injured workman before he filed the S.W.3d 544, 550 (Tex.2001) (noting that the agreements did claim.â Tex. Steel Co.,533 S.W.2d at 115
. not âshift the risk of on-the-job injuries to the employeesâ);
see also Gentry v. Superior Court, 42 Cal.4th 443, 456, 64[31] âThe decisions of this State do not look with favor Cal.Rptr.3d 773, 782,165 P.3d 556
(2007), cert. denied 552 upon contracts waiving rights arising under the Workmen's U.S. 1296,128 S.Ct. 1743
,170 L.Ed.2d 541
(2008) (noting Compensation Law.â Huffman,128 S.W.2d at 6
. Such that under California law, when an employee is bound by a waivers affect not only the individual employee subject to predispute arbitration agreement to adjudicate nonwaivable the waiver, but also the public, which bears the cost of the statutory employment rights, the arbitration agreement may workers' compensation program. See Holt v. Cont'l Group, not limit damages, discovery must be sufficient to arbitrate Inc.,708 F.2d 87, 91
(2d Cir.1983) (âA retaliatory discharge the claim, there must be a written arbitration decision, and the
carries with it the distinct risk that other employees may employer must pay all costs âunique to arbitrationâ).
be deterred from protecting their rights under the Act.â).
Therefore, we *351 have invalidated contracts that purport
to relieve employers of their obligations under the Workers'
V. The Challenged Arbitration Provisions
Compensation Act. See James v. Vernon Calhoun Packing
Co., 498 S.W.2d 160, 162 (Tex.1973) (noting that â[w]e are
much impressed with the idea that there is a large element A. Limitation of Remedies
of public interest in the administration of [the Workers'
[32] [33] The Workers' Compensation Act specifies that
Compensation Act]â); Hazelwood v. Mandrell Indus. Co.,
â[a] person who violates section 451.001 is liable for
596 S.W.2d 204, 206 (Tex.Civ.App.-Houston [1st Dist.]
reasonable damages incurred by the employee as a result
1990, writ ref'd n.r.e.) (âIf ... this balance [established by the
of the violation,â and that â[a]n employee discharged in
Act] is tipped so that the employee's benefits under the statute
are substantially reduced, the clear intent of the legislature is violation of section 451.001 is entitled to reinstatement
thwarted.â). We have likewise held unenforceable contracts in the former position of employment.â TEX. LAB.CODE
§ 451.002(a)-(b). We have previously explained that
that explicitly relieve employers of tort liability, relying
âreasonable damagesâ are not limited to actual damages, see
either on common law prohibitions against such contracts,
see Barnhart v. Kansas City M. & O. Ry. Co. of Tex., 107 Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex.1987),
but may include future damages, as well as exemplary or
Tex. 638, 184 S.W. 176, 179 (1916), or upon the Workers'
punitive damages when it is shown that the employer acted
Compensation Act, see Petroleum Cas. Co. v. Smith, 274
with actual malice in retaliating against the employee for
S.W.2d 150, 151 (Tex.Civ.App.-San Antonio 1954, writ
filing a workers' compensation claim. See Cont'l Coffee
ref'd) (noting that â[t]he right to workmen's compensation is
Prods. v. Cazarez, 937 S.W.2d 444, 454 (Tex.1996);
statutory, and cannot be abridged by private agreements or
*352 Carnation Co. v. Borner, 610 S.W.2d 450, 454â55
special applications for employmentâ); Clevenger v. Burgess,
(Tex.1980). The arbitration agreement in this case eliminates
31 S.W.2d 675, 678 (Tex.Civ.App.-Beaumont 1930, writ
two types of remedies available under the anti-retaliation
ref'd); Tex. Employers Ins. Ass'n v. Peppers, 133 S.W.2d
provisions of the Workers' Compensation Act, prohibiting the
165, 167 (Tex.Civ.App.-Galveston 1939, writ dism'd) (â[T]he
arbitrator from ordering reinstatement or awarding punitive
courts will not enforce contracts which are either expressly or
damages. See TEX. LAB.CODE § 451.002 (providing
impliedly prohibited by the [Workers' Compensation] Act.â).
for reinstatement and an award of reasonable damages).
Luna contends these limitations render the agreement
This case concerns the validity of a subscribing employer's
unconscionable and unenforceable because they prevent him
use of an agreement that, in the course of requiring arbitration
from effectively vindicating his statutory rights in arbitration,
between the parties in work-related disputes, imposes a series
thus undercutting the basic assumptions of the FAA. See
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 14
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
Gilmer,500 U.S. at 28
,111 S.Ct. 1647
(noting that claims endorse PolyâAmerica's position and permit enforcement of under other federal statutes are appropriate for arbitration so these remedy limitations, a subscribing employer could avoid long as the litigant can effectively vindicate any statutory the Act's penalties by conditioning employment upon waiver rights). The court of appeals agreed with Luna. 175 S.W.3d at of the very provisions designed to protect employees who 323â24. Although it noted other courts' decisions upholding have been the subject of wrongful retaliation. punitive-damages waivers, id. at 323, and further noted that preclusion of statutory remedies may not always portend Our decision in Lawrence,44 S.W.3d 544
, is fully consistent unconscionability,id.,
the court held that the preclusion of with this view. There, employees of a non-subscribing remedies here interfered with Luna's ability to bring his employer *353 elected, after they were hired, to participate retaliatory-discharge claim under the Workers' Compensation in an employer benefit plan that would provide injured Act and thus weighed toward the contract's unconscionability, employees with specified benefits in lieu of common lawid.
remedies.Id.
at 545â46. We refused to void the agreement
on public-policy grounds, discerning âno clear legislative
PolyâAmerica argues that the court of appeals' decision intent to prohibit agreements such as those presented.â Id.conflicts with Pony Express Courier Corp. v. Morris, 921 at 545. We emphasized that participation in the workers' S.W.2d 817, 822 (Tex.App.-San Antonio 1996, no writ), compensation program is voluntary for employers in Texas, and decisions of other courts indicating that limitations of and that courts are ill equipped to weigh whether a remedies are permissible, e.g., Inv. Partners v. Glamour non-subscribing employer's particular benefits plan would Shots Licensing, Inc.,298 F.3d 314
, 318 n. 1 (5th Cir.2002). undermine the purposes of the Workers' Compensation Act. Because we view the anti-retaliation provisions of the Seeid.
at 551â53. 2 Our decision was specifically tailored
Workers' Compensation Act as a non-waivable legislative to non-subscribing employers who elected not to participate
system for deterrence necessary to the nondiscriminatory in the workers' compensation program. Importantly, we
and effective operation of the Texas Workers' Compensation distinguished cases involving contracts imposed as a
system as a whole, we agree with Luna that the provisions condition of employment, emphasizing that â[t]he distinction
eliminating key remedies under the statute are unenforceable. between an employment contract that requires a prospective
employee, as a condition of the receipt or retention of
[34] An arbitration agreement covering statutory claims employment, to agree to limit the employer's liability ... and
is valid so long as âthe arbitration agreement does not a voluntary occupational insurance program, in which the
waive substantive rights and remedies of the statute and the employee has the option to enroll ... is decisive.â Lawrence,
arbitration procedures are fair so that the employee may 44 S.W.3d at 550(quoting Brito v. Intex Aviation Servs., Inc., effectively vindicate his statutory rights.â In re Halliburton,879 F.Supp. 650, 654
(N.D.Tex.1995)) (citing Clevenger, 31 80 S.W.3d at 572. â â[B]y agreeing to arbitrate a statutory S.W.2d at 678; Barnhart,184 S.W. at 176
)). claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, This case presents just such a liability-limiting provision, rather than a judicial, forum.â â Gilmer,500 U.S. at 26
, imposed as a condition of employment, which we suggested111 S.Ct. 1647
(quoting Mitsubishi,473 U.S. at 628
, 105 in Lawrence would violate public policy. Seeid.
Such waivers S.Ct. 3346). In this case, Luna contends PolyâAmerica acted would allow subscribing employers to enjoy the Act's limited- with actual malice in unlawfully discharging him, a claim liability benefits while exposing workers to exactly the sort for which the Workers' Compensation Act allows punitive of costsâof injuries paid for by the employee for fear of damages. See TEX. LAB.CODE § 451.002; Azar Nut Co., retribution for making a claimâthat the Act is specifically734 S.W.2d at 668
. Permitting an employer to contractually designed to shift onto the employer. The balance established absolve itself of this statutory remedy would undermine by the Act is thus âtipped so that the employee's benefits the deterrent purpose of the Workers' Compensation Act's under the statute are substantially reduced, [and] the clear anti-retaliation provisions. In creating the Texas Workers' intent of the legislature is thwarted.â Hazelwood, 596 S.W.2d Compensation Act, the Legislature carefully balanced at 206. As we have previously refused to enforce private competing interestsâof employees subject to the risk of agreements that allow subscribing employers to reap the injury, employers, and insurance carriersâin an attempt to system's benefits while burdening employees with the cost design a viable compensation system, all within constitutional of injury, so too we find the provisions of the present limitations. See Garcia,893 S.W.2d at 521
. Were we to contractâwhich substantively limit PolyâAmerica's liability
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 15
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
for wrongful retaliation and thereby undermine the deterrent proper circumstances under which a trial court should hold a regime the Legislature specifically designed to protect Texas full evidentiary hearing on a motion to compel arbitration: workersâvoid under Texas law. See Tex. Steel,533 S.W.2d at 115
; Holt,708 F.2d at 91
. Because the main benefits of
arbitration lie in expedited and less
expensive disposition of a dispute,
and the legislature has mandated
B. FeeâSplitting Provision that a motion to compel arbitration
be decided summarily, we think it
The arbitration agreements provide that, in the event of a
unlikely that the legislature intended
claim, all fees related to arbitrationâincluding but not limited
the issue to be resolved following
to mediation fees, the arbitrators' fees, costs of procuring a
a full evidentiary hearing in all
location for a hearing, and court reporter feesâwill be split
cases. We also envision that the
equally between the employer and the employee, with the
hearing at which a motion to compel
employee's contribution capped at an amount equal to âthe
arbitration is decided would ordinarily
gross compensation earned by the Employee in Employee's
involve application of the terms of the
highest earning month in the twelve months prior to the time
arbitration agreement to undisputed
the arbitrator issues his award.â The court of appeals held
facts, amenable to proof by affidavit.
that this provision âweigh[ed] heavily toward a finding of
With these considerations in mind, we
substantive unconscionability.â 175 S.W.3d at 322. Polyâ
hold that the trial court may summarily
America argues that this was clear error: first, because the
decide whether to compel arbitration
court of appeals improperly inferred that Luna could not
on the basis of affidavits, pleadings,
afford likely arbitration costs based solely on subjective
discovery, and stipulations. However,
evidence and, second, because it failed to compare such costs
if the material facts necessary to
to the *354 expected costs of litigation. 3 Luna responds that determine the issue are controverted,
it was PolyâAmerica that failed to present evidence of the by an opposing affidavit or otherwise
comparative cost of litigation and that the evidence presented admissible evidence, the trial court
was sufficient to allow an objective determination that the must conduct an evidentiary hearing to
likely costs of arbitration were beyond Luna's financial determine the disputed material facts.
means. We begin with the evidentiary challenge.
Id. Because the only facts Luna presented on the motion
to compel were uncontroverted under this standardâLuna's
affidavits accompanying his original petition were neither
1. Evidentiary Challenge
contradicted nor challenged in PolyâAmerica's responseâwe
[35] [36] PolyâAmerica claims that the court of appeals, by believe the court of appeals acted properly in crediting those
crediting Luna's factual allegations concerning his financial facts on appeal.
inability to share arbitration costs, improperly applied a new
evidentiary standard that will require all parties seeking Luna attached to his original petition his own affidavit and
to compel arbitration to engage in expensive discovery that of an expert witness providing detailed estimates of the
whenever a resisting party submits cursory and subjective likely cost of arbitration in Luna's case, and Luna's expected
evidence that arbitration costs are âunaffordable.â This share under the agreement's capped fee-splitting provision
evidentiary burden, PolyâAmerica argues, is contrary to based on his monthly salary (approximately $3,300.00) as
Texas law and policy that supports summary disposition of a PolyâAmerica supervisor. Luna described his anticipated
motions to compel arbitration. In response, Luna contends share of the arbitration costs as âway more money than I can
the facts upon which the court of appeals relied could have afford,â and averred that, if he *355 had to pay such an
been controverted by affidavit or cross-examination, which amount to have his claim determined, he would be unable to
PolyâAmerica failed to do; consequently, the court of appeals pursue his claim against the company unless he could find
based its ruling on the undisputed facts established by Luna's an attorney willing to pay those fees. Luna recounted that he
affidavits. Both parties cite Anglin, 842 S.W.2d at 269, to had attempted to retain two attorneys, but they had refused
support their respective positions. There, we defined the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 16
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
to represent him on a contingent-fee basis because of the America's estimates, would greatly exceed the capped cost
arbitration agreement. of arbitrationâand Luna failed to provide any evidence of
the actual cost of arbitration that he would bear. Although we
PolyâAmerica did not dispute these facts but asserted legal have no doubt that some fee-splitting provisions may operate
arguments in its pleadings that the cost provisions, as written to discourage employees like Luna from seeking vindication
or as applied, were not unconscionable under Texas law. At of their rights under the Workers' Compensation Act, we must
the hearing on its motion to compel, PolyâAmerica again agree with PolyâAmerica that the trial court did not abuse its
asserted only legal arguments in response to Luna's challenge discretion in ordering arbitration in this case.
to the cost-splitting provision. There is no indication in the
record that the trial court discredited or otherwise viewed the Courts across the country have universally condemned the use
facts recited in Luna's affidavits as insufficient; rather, on of fee-splitting agreements in employment contracts that have
the basis of PolyâAmerica's legal arguments, the trial court the effect of deterring potential litigants from vindicating their
granted the motion to compel. This disposition was consistent statutory rights in an arbitral forum. See Green Tree, 531
with our statements in Anglin in which we indicated that U.S. at 90â91, 121 S.Ct. 513. Some courts have gone so far motions to compel should be decided summarily unless as to find fee-sharing agreements unenforceable per se. See, disputed issues of fact require a full evidentiary hearing. See e.g., Cole v. Burns Int'l Sec. *356 Servs.,105 F.3d 1465
,id.
1483â85 (D.C.Cir.1995), cited in Halliburton,80 S.W.3d at 572
; Shankle v. BâG Maint. Mgmt. of Colo., Inc., 163 F.3d However, the court of appeals clearly differed from the 1230, 1233â35 (10th Cir.1999); Paladino v. Avnet Computer trial court in its view of the law. It held that the trial Techs., Inc.,134 F.3d 1054
, 1062 (11th Cir.1998). These court's granting of the motion to compelâin light of Luna's courts reason that âan employee can never be required, as a averred inability to afford his likely arbitration costs and the condition of employment, to pay an arbitrator's compensation agreement's other limitationsâwas an abuse of discretion. in order to secure the resolution of statutory claims.... [T]his 175 S.W.3d at 318â20. In doing so, the court of appeals would surely deter the bringing of arbitration and constitute a properly credited the undisputed facts contained in Luna's de facto forfeiture of statutory rights.â Cole,105 F.3d at 1468
; affidavits as to the total expected cost of arbitration and Luna's accord Shankle,163 F.3d at 1235
(âSuch a result clearly anticipated share based upon his pre-termination monthly undermines the remedial and deterrent functions of ... anti- income.Id.
at 319â20. PolyâAmerica contends the court of discrimination laws.â). appeals improperly ruled based on Luna's subjective, and thus practically incontrovertible, belief that he could not afford [37] [38] We agree that fee-splitting provisions that arbitration, which does not satisfy this Court's requirements operate to prohibit an employee from fully and effectively of âspecificâ evidence to support claims of unconscionably vindicating statutory rights are not enforceable. See expensive arbitration. See In re U.S. Home Corp., 236 S.W.3d Halliburton, 80 S.W.3d at 572. However, this Court joins the 761, 764 (Tex.2007). However, the court of appeals relied not majority of other courts whichâthough recognizing the same solely upon Luna's belief but upon his and his expert's specific policy concerns articulated by courts holding fee-splitting monetary estimates, which provided objective support for arrangements per se unconscionableârequire some evidence Luna's uncontroverted claim that arbitration costs would that a complaining party will likely incur arbitration costs in preclude his pursuit of the lawsuit. See 175 S.W.3d at such an amount as to deter enforcement of statutory rights in 319. The court of appeals did not, therefore, rely solely on the arbitral forum. See U.S. Home Corp.,236 S.W.3d at 764
;
subjective and incontrovertible allegations. FirstMerit Bank, 52 S.W.3d at 756â57. As federal courts have
likewise recognized:
[I]n some cases, the potential of
2. Unconscionability of FeeâSplitting Provisions incurring large arbitration costs and
fees will deter potential litigants from
PolyâAmerica alternatively challenges the court of appeals'
seeking to vindicate their rights in the
conclusion that the agreement's cost-allocation provisions
arbitral forum.... [I]f the fees and costs
favor a finding of unconscionability because the court did
of the arbitral forum deter potential
not consider the relative costs that Luna would likely incur if
litigants, then that forum is clearly
the case were litigated in courtâcosts that, based on Polyâ
not an effective, or even adequate,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 17
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
substitute for the judicial forum.... based estimation of Luna's wages in the relevant time period
[T]he burden of demonstrating that and, thus, no evidence of his likely share of arbitration costs.
incurring such costs is likely under
a given set of circumstances rests, at Just as we allow litigants who demonstrate an inability to
least initially, with the party opposing pay costs to proceed with their claims in court, however,
arbitration. we see nothing that would prevent arbitrators from fairly
adjusting employee cost provisions when necessary to allow
Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659â60 full vindication of statutory rights in the arbitral forum. (6th Cir.2003); accord Bradford v. Rockwell Semiconductor See TEX.R. CIV. P. 145. The contract presented in this Sys., Inc.,238 F.3d 549, 556
(4th Cir.2001); Rosenberg v. case specifically provides that the arbitrator may modify Merrill Lynch, Pierce, Fenner & Smith, Inc.,170 F.3d 1
, 16 unconscionable terms; if the cost provisions precluded Luna's
(1st Cir.1999). enforcement of his non-waivable statutory rights, they would
surely be unconscionable for the reasons we have explained
[39] Luna contends the magnitude of the fee he could and the arbitrator would be free to modify them. The arbitrator
incur under the arbitration agreement, which he estimates to is better situated to assess whether the cost provision in
be as high as $3,300, will prevent him from pursuing his this case will hinder effective vindication of Luna's statutory
claim. PolyâAmerica counters that litigation costs would be rights and, if so, to modify the contract's terms accordingly.
much higher, and therefore the arbitration agreement's capped See Halliburton, 80 S.W.3d at 572. We conclude the trial cost-splitting provision benefits the employee and cannot be court did not abuse its discretion in refusing to declare the unconscionable. It is true that in evaluating the enforceability contract's cost-splitting provision unconscionable and nullify of fee-splitting provisions, some courts take into account the arbitration agreement. the relative costs of arbitration versus litigation. See, e.g., Bradford,238 F.3d at 556
n. 5 (focusing upon âa claimant's
expected or actual arbitration costs and his ability to pay
those costs, measured against a baseline of the claimant's C. Discovery Limitations
expected costs for litigation and his ability to pay those
[40] The 2002 agreement provides that each party may
costsâ). However, at this stage of the proceedings, much of
serve on the other a single set of twenty-five interrogatories
this evidence is necessarily speculative, and thus counsels
(including sub-parts) and one set of twenty-five requests for
against a court's ex ante interference with arbitration.
production or inspection of documents or tangible things.
Additionally, the agreement includes limitations alleged by
We do not doubt that arbitration costs might be so high in
Luna to be unconscionable: (1) a limitation of each party to a
a given case as to preclude access to the forum. But âthe
single, six-hour deposition; (2) a prohibition on requests for
âriskâ that [a claimant] will be saddled with prohibitive costs
admission; (3) a ban on inquiry into PolyâAmerica's finances;
is too speculative to justify the invalidation of an arbitration
and (4) a confidentiality provision requiring confidentiality
agreement.â Green Tree, 531 U.S. at 91,121 S.Ct. 513
. Luna
of the parties and their attorneys regarding all aspects of the
has not demonstrated that the ability to pursue his claim in
arbitration. Luna contends these limitations make it virtually
the arbitral forum hinges upon his payment of the estimated
impossible for him to prove his claim of retaliatory discharge
costs; to the contrary, depending upon the circumstances,
and render the arbitration agreement unconscionable.
Luna may not have to bear any cost at all, and *357
PolyâAmerica has presented some evidence that the capped
Although an issue of first impression in this Court, several
cost-splitting arrangement may even benefit Luna. The fee-
courts around the country have analyzed the enforceability
splitting provision in Luna's arbitration agreement caps his
of similar arbitration provisions limiting parties' access to
share of costs at âthe gross compensation earned by Employee
various forms of discovery. Applying a rule functionally
in Employee's highest earning month in the twelve months
equivalent to that used to analyze fee-splitting provisions,
prior to the time the arbitrator issues his award.â (Emphasis
these courts refuse to enforce such limitations when adequate
added). Luna, however, presented evidence of his âhighest
evidence is presented that a plaintiff's ability to present
monthly salary in the year preceding [his] termination from
his or her claims in an arbitral forum is thereby hindered.
the company,â a period necessarily earlier than that relevant
See, e.g., Hulett v. Capitol Auto Group, Inc., No. 07â
under the arbitration agreement. The record contains no fact-
6151âAA, 2007 WL 3232283, at *4â*5 (D.Or. Oct.29,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 18
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237 2007
) (holding discovery restrictions that prohibited requests of Luna's claim they would be unenforceable. But at this for admission or interrogatories and limited parties to point in the proceedings, without knowing what the particular three depositions unconscionable because they âserve to claims and defensesâand the evidence needed to prove unreasonably withhold information from plaintiff that would themâwill be, discerning the discovery limitations' potential otherwise be available through discovery, thus hindering her preclusive effect is largely speculative. The assessment of ability to present her claims in an arbitration forumâ); accord particular discovery needs in a given case and, in turn, the Ostroff v. Alterra Healthcare Corp.,433 F.Supp.2d 538
, enforceability of limitations thereon, is a determination we 547 (E.D.Pa.2006). Courts upholding arbitration provisions believe best suited to the arbitrator as the case unfolds. containing discovery limitations have done so in recognition As with cost-sharing, discovery limitations that prevent of the same principle, but determined that a particular *358 vindication of non-waivable rights or âprove insufficient to party failed to provide adequate evidence that the provisions allow [Luna] a fair opportunity to present [his] claims,â âprove insufficient to allow ... claimants ... a fair opportunity Gilmer,500 U.S. at 31
,111 S.Ct. 1647
, would be to present their claims.â Gilmer,500 U.S. at 31
, 111 S.Ct. unconscionable and thus not binding on the arbitrator, as 1647; see, e.g., In re Cotton Yarn Antitrust Litig., 505 F.3d the agreement in this case specifically acknowledges. At this 274, 286â87 (4th Cir.2007); Amisil Holdings, Ltd. v. Clarium point in the proceedings, though, we cannot conclude that the Capital Mgmt., No. C06â05255MJJ,2007 WL 2768995
, at evidence presented to the trial court compelled a finding that
*4 (N.D.Cal. Sept.20, 2007) (â[Claimant] has not adequately the discovery limitations were per se unconscionable. Thus,
demonstrated why arbitration under the AAA rules would the trial court did not abuse its discretion.
deny it a fair opportunity to present its claims.â).
[41] [42] We agree with these courts that, where
D. Prohibition on Inquiry into âGood Causeâ
the underlying substantive right is not waivable, ex ante
limitations on discovery that unreasonably impede effective [43] Luna claims the arbitration provision that prohibits the
prosecution of such rights are likewise unenforceable. arbitrator's ability âto apply a âjust causeâ or âgood causeâ
However, because the relevant inquiry depends upon the standard to claims relating to Employee's claims concerning
facts presented in a given case and the particular discovery his employment or separation therefromâ is substantively
limitations' effect upon the relevant statutory regime, we unconscionable because it prohibits, in a retaliatory-discharge
are doubtful that courtsâassessing claims and discovery case, inquiry into whether the employer had a valid,
limitations before arbitration beginsâare in the best position nondiscriminatory reason for firing the employee. Polyâ
to accurately determine which limits on discovery will have America contends the contract cannot be read as Luna claims,
such impermissible effect. and in fact does not *359 prevent such an inquiry. We
agree with PolyâAmerica, and with the court of appeals,
In this case, Luna's expert witness testified that in most that this prohibition does not operate as Luna asserts; rather,
employment-discharge cases the employer only needs to the prohibition simply emphasizes that the contract relates
take the plaintiff's deposition, while the plaintiff generally to at-will employment. See Montgomery County Hosp. Dist.
needs testimony from a number of witnesses to disprove v. Brown, 965 S.W.2d 501, 502 (Tex.1998). Thus, the
the employer's likely defense that termination was based prohibition prevents the arbitrator from substituting a âgood
on poor performance. Additionally, the expert stated, the causeâ requirement for the âat willâ standard. The provision
employee will likely wish to depose additional witnesses to does not, however, prohibit inquiry into whether Polyâ
show a pattern or practice of discrimination, whereas the America improperly terminated Luna in retaliation for his
employer typically has a ready pool of available employees filing of a workers' compensation claim. Because we read the
and managers to assist in preparing for the arbitration. provision merely to articulate an accepted rule of employment
For these reasons, the expert concluded, the arbitration contracts, and not to restrict a necessary inquiry into the
agreement's discovery limitations âsignificantly reduce the motivations behind PolyâAmerica's termination of Luna in
plaintiff's ability to prevail in arbitration, regardless of how this case, we agree with the court of appeals that the provision
strong a plaintiff's case is on the merits.â is not unconscionable. See In re Palm Harbor Homes, Inc.,
195 S.W.3d 672, 678 (Tex.2006) (rejecting a claim that
We agree that if the discovery limitations the arbitration an arbitration provision was substantively unconscionable
agreement imposes operate to prevent effective presentation
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 19
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
where the challenged provision âeffectively incorporate[d]
established provisions of contract lawâ). PolyâAmerica argues that, even if elements of its arbitration
agreement with Luna are unconscionable, arbitration is
nevertheless required because the unconscionable provisions
are severable from the general agreement to arbitrate. 4
E. OneâYear Limitations Period
Luna *360 contends the unconscionable provisions are
The arbitration agreement includes a clause that requires integral to the entire contract and are therefore not severable.
written notice of a claim to be filed within a maximum of one The court of appeals agreed with Luna, stating that the
year from the events giving rise to an arbitrable claim. Luna fee-splitting and remedies-limitation provisions âtogether
contends this provision unconscionably shortens the two- deprive Luna of his opportunity to vindicate his claim in
year statute of limitations applicable to claims of retaliatory the arbitral forumâ and concluding that âthose provisions
discharge. See Johnson & Johnson Med., Inc. v. Sanchez, 924 are integral to the purpose of the agreement and cannot
S.W.2d 925, 927 (Tex.1996). However, as Luna filed this be severed.â 175 S.W.3d at 328. The court of appeals
case well within the one-year period and thus suffered no came to this conclusion, it appears, by identifying the fee-
prejudice from this provision, it is immaterial to Luna's claims splitting and remedies-limitation provisions as weighing in
of substantive unconscionability. favor of unconscionability âas a whole,â but the court did
not identify any particular provision that, by itself, would
defeat the agreement's purpose. See id. at 322, 324. We have
determined, however, that the remedies-limitation provisions
F. Lifetime Application are individually unconscionable and void, and see no reason
why they cannot be easily excised from the contract without
Finally, Luna argues that the arbitration agreement
defeating its underlying purpose.
unconscionably applies even to claims that may arise after
Luna's employment with PolyâAmerica has ended and which
[45] [46] [47] An illegal or unconscionable provision
may have nothing to do with Luna's employment. While
of a contract may generally be severed so long as it does
we can imagine circumstances that might present a closer
not constitute the essential purpose of the agreement. See
question, Luna's claims here concern his employment and
Williams v. Williams, 569 S.W.2d 867, 871 (Tex.1978);
termination, the central focus of the agreement. We thus agree
see also Hoover Slovacek, 206 S.W.3d at 565 (citing
with the court of appeals that this provision does not render
RESTATEMENT (SECOND) OF CONTRACTS § 208
the arbitration agreement per se unconscionable. See 175
(1981)). Whether or not the invalidity of a particular provision
S.W.3d at 326.
affects the rest of the contract depends upon whether the
remaining provisions are independent or mutually dependent
promises, which courts determine by looking to the language
VI. Severability of the contract itself. See John R. Ray & Sons, Inc. v. Stroman,
923 S.W.2d 80, 86 (Tex.App.-Houston [14th Dist.] 1996, writ
[44] The arbitration agreement in this case contains a
denied) (citing Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d
severability clause, which provides as follows:
707, 708 (Tex.1982)). The relevant inquiry is whether or
Should any term of this Agreement not parties would have entered into the agreement absent
be declared illegal, unenforceable, the unenforceable provisions. See Patrizi v. McAninch, 153
or unconscionable, the remaining Tex. 389, 269 S.W.2d 343, 348 (1954); see also City of
terms of the Agreement shall remain Beaumont v. Int'l Ass'n of Firefighters, Local Union No. 399,
in full force and effect. To the 241 S.W.3d 208, 215 (Tex.App.-Beaumont 2007, no pet.)
extent possible, both Employee (citing Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex.App.-
and Company desire that the Dallas 1989, writ denied)); Stroman, 923 S.W.2d at 86 (citing
Arbitrator modify the term(s) declared Frankiewicz v. Nat'l Comp. Assocs., 633 S.W.2d 505, 507â08
to be illegal, unenforceable, or (Tex.1982)). We have previously allowed severance of illegal
unconscionable in such a way as to contract provisions where the invalid provisions were âonly
retain the intended meaning of the a part of the many reciprocal promises in the agreementâ
term(s) as closely as possible.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 20
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
and âdid not constitute the main or essential purpose of the agreement.â Williams,569 S.W.2d at 871
. Only two years ago, we held in In re Palacios that mandamus
review was available for âorders that deny arbitration, but
The 2002 version of the arbitration agreement in this case is not orders that compel it.â 1 We noted that this was a
over five pages long and contains numerous provisions not
reversal of previous practice, 2 but was necessitated by the
challenged by Luna as imposing any unconscionable burdens:
Supreme Court's 2000 opinion in Green Tree Financial
procedures for mediation, selection of a neutral arbitrator,
Corp. v. Randolph, which said that orders compelling
filing of motions, and other general provisions governing
arbitration âwould not be appealableâ unless they included
arbitration procedures. We agree with PolyâAmerica that the
intent of the parties, as expressed by the severability clause, final dismissal of the case. 3 Today the Court comes full
is that unconscionable provisions be excised where possible. circle, saying once again that mandamus review of orders
Furthermore, it is clear by the contract's terms that the main compelling arbitration is âproper,â though courts should be
purpose of the agreement is for the parties to submit their âhesitantâ about it. 4 Apparently, so long as one expresses
disputes to an arbitral forum rather than proceed in court. See qualms, Palacios is a dead letter.
id.Excising the unconscionable provisions we have identified will not defeat or undermine this purpose, which we have Of course, firm rules governing mandamus are made to be upheld in the context of agreements to arbitrate employment broken, as issuance of the writ is primarily a matter of disputes. See AdvancePCS,172 S.W.3d at 608
; EZ Pawn judgment and prudence. 5 As the United States Supreme Corp.,934 S.W.2d at 90
; Cantella & Co.,924 S.W.2d at 944
. Court said in 2004, mandamus is appropriate if a party shows
a clear right, no alternative remedy, and that mandamus is
âappropriate under the circumstances.â 6 This test (especially
VII. Conclusion the last prong) defies precise application, but years of
judicial effort have failed to produce a better one. As a
We hold invalid, as substantively unconscionable and void, result, reasonable judges will sometimes *362 disagree
provisions of the parties' *361 contract that prohibit the whether mandamus is âprudentâ or âappropriate under the
award of punitive damages or reinstatement and thus inhibit circumstances,â and sometimes decide differently in one case
effective vindication of Luna's retaliatory-discharge claim in than the next. But departing from Palacios is neither prudent
an arbitral forum. We further hold that the trial court did not nor appropriate for at least five reasons.
abuse its discretion in allowing the arbitrator to determine
whether the fee-splitting agreement and discovery limitations First, Congress amended the Federal Arbitration Act in
âas applied in the course of arbitrationâare unconscionable. 1988 so that it âpermits immediate appeal of orders hostile
Because we find the invalid remedies-limitation provisions to arbitration, ... but bars appeal of interlocutory orders
severable from the agreement to arbitrate, which we conclude
favorable to arbitration.â 7 Texas law is to the same effect. 8
is otherwise enforceable, the trial court did not abuse
As the trial court's order here was favorable to arbitration, we
its discretion in compelling arbitration. Accordingly, we
should defer to the cost-benefit analysis already conducted
conditionally grant the writ of mandamus.
by the federal and state legislatures. 9 We cannot simply
substitute mandamus when interlocutory appeal is prohibited
without running into serious Supremacy Clause problems; 10
Justice BRISTER filed a dissenting opinion.
â[f]requent pre-arbitration review would inevitably frustrate
Justice WILLETT did not participate in the decision. Congress's intent to move the parties to an arbitrable dispute
out of court and into arbitration as quickly and easily as
Justice BRISTER, dissenting. possible.â 11
The hard thing about granting mandamus relief is knowing
when to stop. This Court has tried over the years to set Second, the trial court ordered these parties to arbitration
mandamus boundaries through various tests, all of which five years ago. Had mandamus proceedings not intervened,
soon generated exceptions, and most of which were met with this dispute would have long since been concluded. Surely
objections that the âestablishedâ boundaries of mandamus the time and expense incurred arbitrating this case would
were being ignored. have been less than that incurred in mandamus review. And
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 21
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
now that mandamus review is concluded, the parties must clause is just as fact-based, and just as speculative until all the
go to arbitration anyway. Given our state's strong public facts are arbitrated. The fairness of such clauses is not as one-
policy favoring freedom of contract, 12 claims that a contract sided as the Court suggests; many employees might actually
is unconscionable are asserted far more often than they prefer cash for lost wages (and no appellate delays) rather
are sustained. After today's decision, it is hard to see how than reinstatement or a long shot at punitive damages. As the
any arbitration cannot be stopped in its tracks by alleging Court notes, several courts have held that such âlimitations
unconscionability. of remedies are permissible.â 16 Twice in 2003 the Supreme
Court declined to hold that a remedy-stripping arbitration
Third, today's opinion is purely advisory; if an arbitrator clause violates the FAAâeach time deferring the question
ignores it, there is little we can do. Both federal and until after arbitrators had addressed it. 17 We should do the
state law require courts to enforce an arbitrator's decision, same here.
no matter what it is, with very few exceptions. 13 The
allowable exceptions concern extrinsic or procedural matters We have never held (as the Court holds repeatedly today)
14
like corruption, fraud, or refusing to hear evidence; they do that an arbitration agreement is invalid unless an employee
not include (as the Supreme Court just held) disregarding the can âeffectively vindicate his statutory rights.â 18 We did not
law, even if a legal error is âmanifest.â 15 What is the benefit say so in In re Halliburton Co. (as the Court's citations aver),
of mandamus review if the resulting order can be ignored? where that phrase appears only in a parenthetical describing
an opinion by an intermediate appellate court in Michigan,
*363 Fourth, even if most arbitrators would comply with an opinion we neither approved nor adopted. 19 Nor does
an appellate court's mandamus rulings, issuing them creates a the Court's judgment comply with this new standard. Despite
hybrid procedure unknown to the arbitration acts. As already the remedy limits imposed here, an arbitrator could still
noted, those statutes commit matters concerning the law and award Johnny Luna 50 years of future lost wages, which
the merits to the arbitrators and foreclose judicial review of would certainly seem to âeffectively vindicate his statutory
the details of the result. This also appears to violate the parties' rights.â Even more than the fee-splitting or discovery-limiting
agreement in this case, which authorized the arbitrator to provisions, it is simply too early to tell whether the remedy-
address unconscionability: stripping provisions will be unfair to Luna at all.
Should any term of this Agreement Such an important and controversial question should not be
be declared illegal, unenforceable, decided in such an offhanded and abstract way. We should
or unconscionable, the remaining instead wait to see whether the arbitration *364 award
terms of the Agreement shall remain makes such a decision necessary; âif it is not necessary to
in full force and effect. To the
decide more, it is necessary not to decide more.â 20
extent possible, both Employee
and Company desire that the
The Court overlooks all these problems on the ground that
Arbitrator modify the term(s) declared
mandamus âhas been broadly appliedâ by federal courts
to be illegal, unenforceable, or
unconscionable in such a way as to to review orders compelling arbitration. 21 But the string
retain the intended meaning of the citations that follow do not support that claim. Of the five
term(s) as closely as possible. cases cited, three predated Green Tree, 22 and a fourth did
not involve a trial court order favorable to arbitration. 23
Telling the arbitrators in advance what legal rulings they
The single case granting mandamus relief from an order
should make (as the Court does today) is an improper way to
favorable to arbitration was by the Ninth Circuit, the court
circumvent these restrictions.
widely recognized as the âmost hostile,â 24 âfar to the
Fifth and finally, the Court decides an important question left of center,â 25 and ârenegadeâ court in the country in
in the abstract that the arbitration may render moot. The employment arbitration cases. 26 Even so, mandamus was
Court concedes that unconscionability of the fee-splitting granted in that case only because arbitrating the single class
and discovery-limiting clauses should be deferred to the representative's case could moot the class action he had
arbitrator. But unconscionability of the remedy-stripping
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 22
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
brought, wiping it out without appellate review. 27 In short,
While appeal from arbitration awards is very limited,
there is no âbroadâ consensus for doing precisely the opposite
that appeal is an adequate remedy unless the benefits of
of what Congress and the Texas Legislature intended.
mandamus outweigh the costs. 29 Considering the costs
*365 It is certainly true that leaving matters like expended so far, I doubt Johnny Luna would consider them
unconscionability to arbitrators will mean development of outweighed by getting the right to seek reinstatement in
arbitration (which employees rarely request) and punitive
the law is âsubstantially hindered,â 28 but the same could be
damages (which they rarely get). Accordingly, I agree with
said of arbitration in all cases. It is hard to see the allure
the Court that the court of appeals erred in reviewing and
of a system in which decision-makers can ignore the law,
reversing the trial court's order compelling arbitration. But
unless of course one is planning to ignore the law oneself.
I disagree that we have any place reviewing those matters
Based on its popularity, few arbitrators apparently go that far.
either. To that extent, I respectfully dissent.
But even carefully selected judges and jurors make mistakes,
and carefully selected arbitrators are surely no less fallible.
Nevertheless, these are policy matters that only Congress can Parallel Citations
address or amend; we cannot disregard the express legislative
limits on interlocutory review merely by calling it mandamus 156 Lab.Cas. P 60,669,28 IER Cases 140
, 51 Tex. Sup. Ct.
when we think the questions are important and the issues well- J. 1237
briefed.
Footnotes
1 While it is true that several of these cases pre-date the Supreme Court's decision in Green Tree, they do not pre-date the authority
on which the Supreme Court relied in noting that an order compelling arbitration and staying rather than dismissing the underlying
litigation âwould not be appealable.â 531 U.S. at 87n. 2,121 S.Ct. 513
(citing9 U.S.C. § 16
(b)(1)) (emphasis added). Unlike the
present case, the two cases in which the courts denied mandamus relief from compel-and-stay orders did not involve claims that
enforcement of the arbitration provisions would prevent the plaintiffs from vindicating important statutory rights. See Manion, 255
F.3d 535; McDermott Int'l, Inc.,981 F.2d 744
. In Douglas, the Ninth Circuit granted mandamus relief, concluding that a choice-of-
law provision in the arbitration agreement would not allow enforcement of the agreement under circumstances that the forum state
would deem unconscionable. Douglas, 495 F.3d at 1068.
2 The Texas Legislature, exercising its policy-making role, responded immediately and outlawed such plans. See TEX. LAB.CODE
§ 406.033(e).
3 The Society for Human Resource Management Texas State Council submitted an amicus brief supporting PolyâAmerica's arguments,
arguing that the court of appeals wrongfully failed to compare Luna's alleged costs with the prospective cost of litigation. The Texas
Trial Lawyers Association likewise submitted an amicus brief supporting Luna, arguing that unconscionability should be determined
by comparing âthe general financial condition of the claimant's peer groupâ to estimated arbitration costs.
4 The Court received briefs from amici curiae the Texas Association of Business and the Society for Human Resource Management
Texas State Council, both of which argue that the court of appeals erred in refusing to sever the provisions it deemed unconscionable
from the remainder of the arbitration agreement. The brief submitted by amicus curiae the Texas Trial Lawyers Association argues
that such severance would be improper.
1 221 S.W.3d 564, 566(Tex.2006) (emphasis added). 2Id. at 565
(noting abrogation of Freis v. Canales,877 S.W.2d 283, 284
(Tex.1994)). 3531 U.S. 79
, 87 n. 2,121 S.Ct. 513
,148 L.Ed.2d 373
(2000). 4262 S.W.3d 337, 347
. 5 See, e.g., CSR Ltd. v. Link,925 S.W.2d 591, 597
(Tex.1996) ( âBecause of the size and complexity of the asbestos litigation, the most
prudent use of judicial resources in this case is to permit a preliminary resolution of the fundamental issue of personal jurisdiction
by writ of mandamus.â) (emphasis added); In re Dean, 527 F.3d 391, 396 (5th Cir.2008) (âThe decision whether to grant mandamus
is largely prudential.â); In re Atlantic Pipe Corp., 304 F.3d 135, 140 (1st Cir.2002) (concluding mandamus was âprudent under the
circumstancesâ); In re Chimenti, 79 F.3d 534, 539 (6th Cir.1996) (noting availability of interlocutory appeal was merely one of
several factors affecting court's âprudential considerationsâ regarding issuance of mandamus).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 23
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
6 Cheney v. U.S. Dist. Court for Dist. of Columbia,542 U.S. 367
, 380â81,124 S.Ct. 2576
,159 L.Ed.2d 459
(2004) (holding mandamus
should issue when there is (1) no other adequate remedy, (2) a âclear and indisputableâ right, and (3) âthe writ is appropriate under
the circumstancesâ).
7 Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86,121 S.Ct. 513
,148 L.Ed.2d 373
(2000) (construing9 U.S.C. § 16
) (emphasis
added).
8 See TEX. CIV. PRAC. & REM.CODE § 171.098; In re Palacios, 221 S.W.3d 564, 566(Tex.2006). 9 In re McAllen Med. Ctr., Inc.,275 S.W.3d 458
, ââââ,2008 WL 4051053, at *1
(Tex.2008) (âAlthough mandamus review is generally
a matter within our discretion, our place in a government of separated powers requires us to consider also the priorities of the other
branches of Texas government.â).
10 See U.S. CONST. art. VI, cl. 2 (â[T]he Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every
State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.â).
11 Perry Homes v. Cull, 258 S.W.3d 580, 599(Tex.2008) (quoting Preston v. Ferrer,552 U.S. 346
, ââââ,128 S.Ct. 978
,169 L.Ed.2d 917
(2008) and Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 22
,103 S.Ct. 927
,74 L.Ed.2d 765
(1983))
(internal quotations omitted).
12 Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664(Tex.2008); Fortis Benefits v. Cantu,234 S.W.3d 642, 649
(Tex.2007); Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 553(Tex.2001). 13 See 9 U.S.C. §§ 9â11; TEX. CIV. PRAC. & REM.CODE §§ 171.087â171.088, 171.091. 14 Id. 15 Hall St. Assocs., L.L.C. v. Mattel, Inc., 552U.S. 576, ââââ,128 S.Ct. 1396, 1404
,170 L.Ed.2d 254
(2008). 16262 S.W.3d at 352
. 17 See PacifiCare Health Sys., Inc. v. Book,538 U.S. 401
, 406â07,123 S.Ct. 1531
,155 L.Ed.2d 578
(2003) (holding that âsince we do not
know how the arbitrator will construe the remedial limitationsâ barring treble damages, âthe proper course is to compel arbitrationâ);
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 454,123 S.Ct. 2402
,156 L.Ed.2d 414
(2003) (remanding for arbitrator to determine
whether contracts prohibited class arbitration).
18 262 S.W.3d at 349, 352, 352, & 356. 1980 S.W.3d 566, 572
(citing Rembert v. Ryan's Family Steak Houses, Inc.,235 Mich.App. 118
,596 N.W.2d 208, 226
(1999)). 20 PDK Labs. Inc. v. U.S. D.E.A.,362 F.3d 786, 799
(D.C.Cir.2004) (Roberts, J., concurring). 21262 S.W.3d at 346
. 22 Georgiou v. Mobil Exploration & Prod. Servs., Inc. US,190 F.3d 538
(5th Cir.1999); Cofab Inc. v. Phil. Joint Bd., Amalgamated
Clothing & Textile Workers Union, 141 F.3d 105 (3d Cir.1998); McDermott Intern., Inc. v. Underwriters at Lloyds Subscribing to
Memorandum of Ins. No. 104207, 981 F.2d 744(5th Cir.1993). 23 Manion v. Nagin,255 F.3d 535, 540
(8th Cir.2001) (involving injunction to obtain salary payments pending arbitration); see also
Cofab, 141 F.3d at 110 (involving temporary stay of motion to enforce arbitration award pending NLRB review of related matter).
24 See Adam Borstein, Arbitrary Enforcement: When Arbitration Agreements Contain Unlawful Provisions, 39 LOY. L.A.L.REV..
1259, 1275 (2006) (âThis combination of finding unconscionability and favoring public policy over enforcement of the FAA has
made the Ninth Circuit more hostile towards unlawful arbitration provisions than any other federal circuit.â); Michael G. McGuinness
& Adam J. Karr, California's âUniqueâ Approach to Arbitration: Why This Road Less Traveled Will Make All the Difference on the
Issue of Preemption Under the Federal Arbitration Act, 2005 J. DISP. RESOL. . 61, 91â92 (2005)(â[T]he conclusion that California
courtsâand the Ninth Circuitâare imposing their own biases against arbitration is inescapable.â); Steven M. Warshawsky, Gilmer,
the Contractual Exhaustion Doctrine, and Federal Statutory Employment Discrimination Claims, 19 LAB. LAW. 285, 303 n. 180
(2004) (âThe Ninth Circuit continues to be hostile to mandatory arbitration agreements.â); Dennis R. Nolan, Employment Arbitration
After Circuit City, 41 BRANDEIS L.J. 853, 890 (2003) ( â[D]espite Congress's broad endorsement of arbitration in the FAA and the
Supreme Court's repeated confirmation of that policy, many judges (not all of them on the Ninth Circuit) remain deeply skeptical if
not openly hostile.â); Hai Jiang, Do We Allow Contract Law to Administer Civil Rights Remedies? Casenote on Haskins v. Prudential
Insurance Co., 2003 L.REV. MICH. ST. U. DET. C.L. 251, 260 (2003) (âThe Ninth Circuit is the most hostile to arbitration of
employment discrimination claims among the circuit courts....â).
25 See Earl Greene III, Note, Armendariz v. Foundation Health Psychcare Services, Inc.: The California Supreme Court Searches For
a Middle Ground, 1 J. AM. ARB. 105, 108â09 (2001) (âOn a mandatory arbitration agreement enforcement continuum, the Ninth
Circuit would be sitting far to the left of center as it seems to be more concerned with protecting the statutory rights of employees
than toeing the line with the Supreme Court.â)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 24
In re Poly-America, L.P., 262 S.W.3d 337(2008)156 Lab.Cas. P 60,669
,28 IER Cases 140
,51 Tex. Sup. Ct. J. 1237
26 See Jennifer LaFond, Notes, The Private Enforcement of Public Laws in Armendariz v. Foundation Health Psychcare Servs., 29
PEPP. L.REV. . 401, 414 n. 127 (2002) (âThe Ninth Circuit is the renegade circuit with respect to ... [whether] employees can be
compelled to arbitrate statutory claims.â).
27 Douglas v. U.S. Dist. Court, 495 F.3d 1062, 1068â69 (9th Cir.2007). 28262 S.W.3d at 346
. 29 In re BP Products N. Am., Inc.,244 S.W.3d 840, 845
(Tex.2008); In re Prudential Ins. Co. of Am.,148 S.W.3d 124, 136
(Tex.2004).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 25
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
A party denied the right to arbitrate pursuant to
an agreement subject to the Federal Arbitration
334 S.W.3d 220
Agreement (FAA) does not have an adequate
Supreme Court of Texas.
remedy by appeal and is entitled to mandamus
In re Joseph Charles RUBIOLA et al., Relators. relief to correct a clear abuse of discretion. 9
U.S.C.A. § 4.
No. 09â0309. | Argued Sept. 16,
2010. | Decided March 11, 2011. Cases that cite this headnote
Synopsis
[3] Alternative Dispute Resolution
Background: Vendors of home petitioned for writ of
mandamus seeking to compel arbitration of underlying Validity
claims by purchasers regarding repair of the home based on Alternative Dispute Resolution
arbitration agreement signed by purchasers and mortgagee
during financing. Disputes
and Matters Arbitrable Under Agreement
A party seeking to compel arbitration under the
Holdings: The Supreme Court, Medina, J., held that: Federal Arbitration Act (FAA) must establish
that there is a valid arbitration clause, and that
[1] purchasers granted vendors right to enforce arbitration the claims in dispute fall within that agreement's
agreement, and scope. 9 U.S.C.A. § 2.
34 Cases that cite this headnote
[2] claims fell within arbitration agreement.
[4] Alternative Dispute Resolution
Writ conditionally granted.
What
law governs
Under the Federal Arbitration Act (FAA),
West Headnotes (11)
ordinary principles of state contract law
determine whether there is a valid agreement to
[1] Alternative Dispute Resolution arbitrate. 9 U.S.C.A. § 2.
What 17 Cases that cite this headnote
law governs
Parties may expressly agree to arbitrate under [5] Alternative Dispute Resolution
the Federal Arbitration Agreement (FAA). 9
U.S.C.A. § 2. Persons
affected or bound
17 Cases that cite this headnote
An obligation to arbitrate not only attaches to one
who has personally signed the written arbitration
[2] Mandamus agreement but may also bind a non-signatory
under principles of contract law and agency.
Modification
or vacation of judgment or order 6 Cases that cite this headnote
Mandamus
[6] Alternative Dispute Resolution
Civil
proceedings other than actions
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
could be amended by later writing and arbitration
Persons agreement at issue was executed one month later.
affected or bound
Generally, parties must sign arbitration 4 Cases that cite this headnote
agreements before being bound by them.
[10] Alternative Dispute Resolution
7 Cases that cite this headnote
Evidence
[7] Alternative Dispute Resolution When deciding whether claims fall within an
arbitration agreement, courts employ a strong
Persons presumption in favor of arbitration.
affected or bound
Although arbitration agreements apply to 13 Cases that cite this headnote
nonsignatories only in rare circumstances, the
question of who is actually bound by an [11] Alternative Dispute Resolution
arbitration agreement is ultimately a function of
the intent of the parties, as expressed in the terms Disputes
of the agreement. and Matters Arbitrable Under Agreement
To determine whether a claim falls within the
4 Cases that cite this headnote
scope of the arbitration agreement, courts must
focus on the factual allegations of the complaint,
[8] Alternative Dispute Resolution rather than the legal causes of action asserted.
Persons 5 Cases that cite this headnote
entitled to enforce
Purchasers and mortgagee, who were parties
to arbitration agreement concerning financing
for sale of home, granted vendors right to Attorneys and Law Firms
enforce arbitration agreement, where agreement
expressly provided that certain non-signatories *221 Bernard Lee Shub, The Law Office of Ben Shub,
were parties to the agreement, including all Elizabeth Conry Davidson, San Antonio TX, for Joseph
parties that were part of the transaction. Charles Rubiola.
3 Cases that cite this headnote *222 Bryan A. Woods, Law Office of Bryan A. Woods, San
Antonio TX, for Real Party in Interest Brian Salmon.
[9] Alternative Dispute Resolution Opinion
Building
Justice MEDINA delivered the opinion of the Court.
contracts disputes
In this original mandamus proceeding, Relators seek to
Claims by purchasers against vendors and
compel arbitration under an arbitration agreement they did
listing agent regarding repairs of home at
not sign. The real parties in interest, who are signatories to
issue fell within arbitration agreement in
the arbitration agreement, object to arbitration and contend
financing agreement between purchasers and
that Relators cannot compel arbitration because Relators
mortgagee, where listing agent and vendors were
are not parties to the arbitration agreement. The trial court
non-signatory parties to arbitration agreement,
apparently agreed because it denied Relators' motion to
agreement broadly covered all controversies,
compel arbitration. The underlying arbitration agreement,
including real estate sales contract and complaint
however, designated certain non-signatories as parties to the
regarding sale, and sales contract stated that it
agreement.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
We must decide whether the parties who actually agree to or expiration of the agreement in
arbitrate may also grant third parties the right to enforce which this agreement is contained,
their arbitration agreement and, if so, whether the signatories unless all of the parties expressly agree
here intended to grant such rights to these Relators. We in writing.
conclude that parties to an arbitration agreement may grant
non-signatories the right to compel arbitration and that the The agreement further defined âpartiesâ to include:
Relators here were granted that right. The trial court therefore
Rubiola Mortgage Company, and each
erred in denying the motion to compel arbitration, and we
and all persons and entities signing this
conditionally grant the writ.
agreement or any other agreements
between or among any of the parties
as part of this transaction. âThe
I partiesâ shall also include individual
partners, affiliates, *223 officers,
The underlying case concerns the sale and financing of directors, employees, agents, and/or
a home. Brian and Christina Salmon agreed to purchase representatives of any party to such
the home from Greg Rubiola and his wife Catherine. The documents, and shall include any other
transaction was handled by J.C. Rubiola, Greg's brother, who owner and holder of this agreement.
served as the listing broker for the property. The Salmons
and Rubiolas signed a standard form Texas real estate sales J.C. Rubiola signed the agreement on behalf of Rubiola
contract, which did not contain an arbitration clause. Mortgage Company, and the Salmons signed a form
acknowledging J.C.'s dual role as a real estate agent and
Greg and J.C. Rubiola operate a number of real estate related mortgage broker. The sale closed, and the Salmons moved
businesses in San Antonio. The Rubiola brothers buy and into their new home.
sell real estate through Rubiola Management, L.L.C., which
is the general partner of Rubiola Realty, Ltd. and Rubiola Several months later, the Salmons sued the Rubiolas and
Properties, Ltd. Greg and J.C. are also president and vice- other entities and individuals involved in repairing the home
president, respectively, of Rubiola Mortgage Company, a (collectively referred to as the Rubiolas). 1 The Salmons
corporation the brothers use to obtain financing for real estate alleged that J.C. Rubiola, acting as both the listing agent and
buyers. The Rubiola brothers' business interests are operated a principal involved in the home's construction and repair,
at the same location under the name Rubiola Mortgage and made a series of misrepresentations that induced the Salmons
Realty, which they advertise as a one-stop shop for customers' to purchase the home. They also alleged violations of the
real estate needs: offering the ability to buy, sell, build, Deceptive Trade Practices Act and negligent supervision of
finance, and manage real estate through a single company. repairs made to the home. The Salmons sought either to
rescind the sale or to collect damages. The Rubiolas answered
After agreeing to purchase Greg Rubiola's home, the Salmons and moved to compel arbitration, relying on the arbitration
applied for mortgage financing with Rubiola Mortgage agreement signed by the Salmons and Rubiola Mortgage
Company, using J.C. Rubiola as their mortgage broker and Company during financing.
loan officer. As part of the loan process, the Salmons executed
an arbitration agreement with the mortgage company. This The trial court denied the Rubiolas' motion to compel, causing
agreement provided that: the Rubiolas to seek mandamus relief in the court of appeals.
The court of appeals also refused to compel arbitration, and
Arbitrable disputes include any and all
the Rubiolas filed the present mandamus proceeding, seeking
controversies or claims between the
again to enforce the underlying arbitration agreement as a
parties of whatever type or manner,
non-signatory.
including without limitation, all past,
present and/or future credit facilities
and/or agreements involving the
parties. This arbitration provision shall II
survive any termination, amendment,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
[1] The Federal Arbitration Act (FAA) generally governs and is therefore a gateway matter for the court to decide. In arbitration provisions in contracts involving interstate re Weekley Homes, L.P.,180 S.W.3d 127, 130
(Tex.2005); commerce. See9 U.S.C. § 2
; see also In re L & L Kempwood Sherer v. Green Tree Servicing LLC,548 F.3d 379
, 381 Assocs., L.P.,9 S.W.3d 125, 127
(Tex.1999) (per curiam). (5th Cir.2008). Under the FAA, ordinary principles of state Parties may also expressly agree to arbitrate under the FAA. contract law determine whether there is a valid agreement In re AdvancePCS Health L.P.,172 S.W.3d 603
, 605â06 to arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d & n. 3 (Tex.2005) (per curiam). The arbitration agreement at 738 (citing First Options of Chi., Inc. v. Kaplan, 514 here expressly provides for arbitration under the FAA, and U.S. 938, 944,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995)).
although the Salmons oppose arbitration, generally, they do An obligation to arbitrate not only attaches to one who
not contest the application of the FAA. has personally signed the written arbitration agreement but
may also bind a non-signatory under principles of contract
[2] Under Section 4 of the FAA, â[a] party aggrieved by the law and agency. Id. at 738. Generally, however, parties
alleged failure, neglect, or refusal of another to arbitrate under must sign arbitration agreements before being bound by
a written agreement for arbitration may petition ... for an order them. See Grigson v. Creative Artists Agency, L.L.C., 210
directing that such arbitration proceed in the manner provided F.3d 524, 528 (5th Cir.2000) (noting that âarbitration is a
for in such agreement.â 9 U.S.C. § 4; see In re Halliburton matter of contract and cannot, in general, be required for a Co.,80 S.W.3d 566, 573
(Tex.2002). âA party denied the matter involving an arbitration agreement non-signatoryâ). right to arbitrate pursuant to an agreement subject to the FAA Although â[a]rbitration agreements apply to nonsignatories does not have an adequate remedy by appeal and is entitled to only in rare circumstances [,]â the question of â[w]ho is mandamus relief to correct a clear abuse of discretion.â In re actually bound by an arbitration agreement is [ultimately] a Labatt Food Serv., L.P.,279 S.W.3d 640
, 642â43 (Tex.2009). function of the intent of the parties, as expressed in the terms
of the agreement.â Bridas S.A.P.I.C. v. Gov't of Turkmenistan,
345 F.3d 347, 355, 358 (5th Cir.2003). Here the question is
not whether a non-signatory may be compelled to arbitrate
III
but rather whether a non-signatory may compel arbitration.
[3] A party seeking to compel arbitration under the FAA
must establish that (1) there is a valid arbitration clause, [8] The Salmons argue that because none of the Rubiolas
and (2) the claims in dispute fall within that agreement's signed the arbitration agreement, except J.C., who signed
scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, only as the representative of Rubiola Mortgage Company,
737 (Tex.2005). The Rubiolas contend that the arbitration that none of them are entitled to compel the Salmons to
agreement, executed during financing, is broad enough to arbitrate. The Salmons thus equate signing with being a
cover all of the Salmon's claims against them. The Salmons party to the agreement. The arbitration agreement, however,
argue, however, that the arbitration agreement extends only expressly provides that certain non-signatories are to be
to disputes under the financing agreement, as opposed to parties to the agreement. The agreement defines parties
the real estate *224 sales agreement, and that its breadth to include âRubiola Mortgage Company, and each and
cannot be used by non-signatories to compel arbitration. all persons and entities that sign this agreement or any
This disagreement raises two issues: do the Rubiolas, as other agreements between or among any of the parties as
non-signatories to the arbitration agreement, have authority part of this transaction.â Parties further include âindividual
to compel the Salmons to arbitrate, and, if so, does the partners, affiliates, officers, directors, employees, agents,
arbitration clause cover the Salmons' claims. The first issue and/or representatives of any party to such documents.â
questions the validity of the arbitration clause, while the
second questions the clause's scope. The Rubiolas argue, and we agree, that the arbitration
agreement's broad definition of parties, at a minimum,
made J.C. and Greg Rubiola parties to the arbitration
agreement. 2 Rubiola Mortgage Company signed the
A
arbitration agreement, and the Rubiola brothers are clearly
[4] [5] [6] [7] Whether a non-signatory can compelofficers and representatives of the mortgage company *225
arbitration pursuant to an arbitration clause questions the and thus non-signatory parties to the arbitration agreement
existence of a valid arbitration clause between specific parties under the agreement's terms. Because the arbitration
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
agreement expressly provides that certain non-signatories executed contemporaneously as part of the same transaction are considered parties, we conclude that such parties may and because the mortgage agreement was essential to the compel arbitration under the agreement. See Sherer, 548 overall deal. The Salmons argue, on the other hand, that F.3d at 382 (noting that trial court's application of equitable the arbitration clause does not cover their claims because estoppel to determine whether non-signatory might compel those claims relate only to J.C.'s role as the listing agent arbitration, was unnecessary because the terms of the Loan to the real estate contract. The Salmons further deny that Agreement clearly identify when a party might be compelled their alleged facts intertwine with the mortgage agreement, or to arbitrate with a non-signatory); Bridas,345 F.3d at 356
that the contracts should be construed together because they (noting that ordinary principles of contract and agency law were signed by different parties at different times and without may be called upon to bind a non-signatory to an agreement reference to each other. whose terms have not clearly done so); see also Carolyn Lamm, Defining The PartyâWho is a Proper Party in an [11] To determine whether a claim falls within the scope of International Arbitration Before the American Arbitration the agreement, courts must âfocus on the factual allegations of Association and Other International Institutions, 34 GEO. the complaint, rather than the legal causes of action asserted.â WASH. INT'L L.REV.. 711, 720 (2003) (noting that courts Marshall,909 S.W.2d at 900
. The factual allegations in
prohibit enforcement by non-signatories âwhere (1) the the Salmons' complaint center around a variety of alleged
contract does not expressly grant third parties the ability misrepresentations that J.C. Rubiola made in his capacity as
to participate in the arbitration; (2) the parties have not the listing agent to the real estate *226 transaction. J.C.
contemplated the idea; and (3) non-signatory involvement allegedly promised that certain repairs would be made to
would constitute an invasion of the consensual nature of the Salmons' satisfaction after closing. When they were not
arbitration.â). But even though the Rubiolas are identified as and other serious problems materialized after closing, J.C.
non-signatories who may compel arbitration, there remains allegedly made more promises to fix the problems or to
the question whether the Salmons' underlying claims fall repurchase the home if the repairs were not satisfactory.
within the arbitration agreement's scope.
The underlying arbitration agreement defines arbitrable
disputes to include âany and all controversies between
the parties of whatever type or manner, including without
B
limitation, all past, present and/or future credit facilities
[9] [10] When deciding whether claims fall within an and/or agreements involving the parties.â The Rubiola
arbitration agreement, courts employ a strong presumption brothers were, as we have already concluded, non-signatory
in favor of arbitration. Cantella & Co., Inc. v. Goodwin, parties to the arbitration agreement, which broadly covers
924 S.W.2d 943, 944(Tex.1996) (per curiam) (holding that all controversies between the parties and all past, present â[f]ederal and state law strongly favor arbitration,â and that âa or future agreements involving the parties. This language presumption exists in favor of agreements to arbitrate under indicates that the arbitration agreement was not limited to the the FAAâ); Prudential Sec. Inc. v. Marshall,909 S.W.2d 896
, financing part of the transaction but rather extended to the real
899 (Tex.1995) (holding that under the FAA âany doubts as estate sales contract and the Salmons complaints regarding
to whether claims fall within the scope of the agreement must that sale.
be resolved in favor of arbitration,â and that â[t]he policy in
favor of enforcing arbitration agreements is so compelling The Salmons argue, however, that including the real estate
that a court should not deny arbitration âunless it can be sales contract as part of the transaction subject to arbitration is
said with positive assurance that an arbitration clause is not contrary to the terms of that contract. The real estate contract
susceptible of an interpretation which would cover the dispute stated that it constituted the entire agreement between the
at issueâ â). The Rubiolas advance three arguments for why parties and further provided that the parties could enforce
the arbitration clause covers the Salmons' claims: (1) the it in court. The contract, however, also states that it could
language of the clause covers the claims, (2) J.C.'s alleged be amended by a later writing. In the arbitration agreement,
actions occurred while he was acting under both the mortgage executed a month later as part of the process for obtaining
and real estate contracts, so his alleged actions were factually financing, the Salmons agreed to arbitrate all controversies
intertwined with the mortgage agreement, and (3) the two between the parties and all past agreements involving the
instruments should be read together because they were parties.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Rubiola, 334 S.W.3d 220(2011)54 Tex. Sup. Ct. J. 654
arbitration. Finally, we conclude that the trial court's order
denying arbitration is an abuse of discretion for which we
***
conditionally grant Relators' request for mandamus relief.
TEX.R.APP. P. 52.8(c). The writ will issue only if the trial
We conclude that signatories to an arbitration agreement may
court fails to enforce the arbitration agreement.
identify other parties in their agreement who may enforce
arbitration as though they signed the agreement themselves.
We further conclude that the underlying arbitration agreement
Parallel Citations
in this case identified the Rubiolas as parties to the
agreement and that they accordingly had the right to compel 54 Tex. Sup. Ct. J. 654
Footnotes
1 J.C. Rubiola, Gregory Rubiola, Catherine Rubiola, JGLâDesign Build, L.L.C., Michael Cortez individually and d/b/a The Heights
Design and Construction are defendants in the underlying suit and Relators in this Court.
2 J.C. and Greg Rubiola are the President and Vice President of Rubiola Mortgage Company. JGL Design Builders L.L.C. is a Texas
limited liability corporation, owned and managed by J.C. and Greg Rubiola. Michael Cortez individually and d/b/a the Heights Design
and Construction was the original contractor hired by the Rubiolas to remediate the mold and water damage at the property.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
[3] Alternative Dispute Resolution
180 S.W.3d 127
Supreme Court of Texas. Existence
and validity of agreement
In re WEEKLEY HOMES, L.P.
Under the Federal Arbitration Act (FAA), absent
No. 04â0119. | Argued Nov. 30, unmistakable evidence that the parties intended
the contrary, the courts, rather than arbitrators,
2004. | Decided Oct. 28, 2005.
must decide gateway matters such as whether a
Synopsis valid arbitration agreement exists and whether an
Background: House purchaser's adult child brought personal arbitration agreement is binding on a nonparty. 9
injury action against builder to recover for asthma allegedly U.S.C.A. § 1 et seq.
caused by dust from house repairs. Purchaser and trust that
38 Cases that cite this headnote
owned the house also sued. The 192nd District Court, Merrill
Hartman, J., refused to compel arbitration of personal injury
action. Builder petitioned for writ of mandamus. [4] Alternative Dispute Resolution
What
law governs
[Holding:] The Supreme Court, Brister, J., held as a matter of
Texas procedural rules govern gateway matters
first impression that arbitration clause was binding on child,
such as whether a valid arbitration agreement
even though she was not party to contract.
exists and an arbitration agreement is binding on
a nonparty. 9 U.S.C.A. § 1 et seq.
Writ conditionally granted.
15 Cases that cite this headnote
[5] Alternative Dispute Resolution
West Headnotes (19)
Evidence
[1] Alternative Dispute Resolution Party moving to compel arbitration bears burden
to show a valid agreement to arbitrate.
Persons
affected or bound 14 Cases that cite this headnote
Nonparties may be bound to an arbitration clause
when the rules of law or equity would bind them [6] Alternative Dispute Resolution
to the contract generally.
What
5 Cases that cite this headnote law governs
Generally, under the Federal Arbitration Act
[2] Mandamus (FAA), state law governs whether a litigant
agreed to arbitrate, and federal law governs the
Civil scope of an arbitration clause. 9 U.S.C.A. § 1 et
proceedings other than actions seq.
Mandamus relief is proper to enforce arbitration
19 Cases that cite this headnote
agreements governed by the Federal Arbitration
Act (FAA). 9 U.S.C.A. § 1 et seq.
[7] Alternative Dispute Resolution
16 Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
would benefit from suit by trust and purchaser on
What contract.
law governs
State law applies to whether a nonparty must 28 Cases that cite this headnote
arbitrate pursuant to agreement governed by
the Federal Arbitration Act (FAA), but courts [10] Negligence
will endeavor to keep state law as consistent as
possible with federal law. 9 U.S.C.A. § 1 et seq. Contractors
A contractor performing repairs has an
14 Cases that cite this headnote
independent duty under tort law not to injure
bystanders by its activities or by premises
[8] Alternative Dispute Resolution conditions it leaves behind.
Disputes 3 Cases that cite this headnote
and Matters Arbitrable Under Agreement
Under Texas and federal law, whether a claim [11] Alternative Dispute Resolution
seeks a direct benefit from a contract containing
an arbitration clause and must be arbitrated turns Persons
on the substance of the claim, not artful pleading; affected or bound
thus, claims must be brought on the contract A nonparty to a contract with an arbitration
and arbitrated if liability arises solely from the clause may seek or obtain direct benefits from
contract or must be determined by reference to it, a contract by means other than a lawsuit, and,
but claims can be brought in tort and in court if therefore, may be bound by the arbitration
liability arises from general obligations imposed clause.
by law.
12 Cases that cite this headnote
44 Cases that cite this headnote
[12] Alternative Dispute Resolution
[9] Alternative Dispute Resolution
Persons
Persons affected or bound
affected or bound
In some cases, a nonparty may be compelled
Arbitration clause in house purchaser's contract to arbitrate if it deliberately seeks and obtains
with builder was binding on purchaser's substantial benefits from the contract itself.
adult child, even though she was nonparty
or nonsignatory to the contract, and the 11 Cases that cite this headnote
clause required arbitration of her personal
injury action to recover for asthma allegedly [13] Estoppel
caused by dust from house repairs; the child
resided in the house, directed construction Future
of many features, repeatedly demanded events; promissory estoppel
extensive repairs, personally requested and When a promisor induces substantial action or
received financial reimbursement for expenses, forbearance by another, âpromissory estoppelâ
conducted settlement negotiations with builder, prevents any denial of that promise if injustice
obtained substantial and direct benefits from can be avoided only by enforcement.
the contract, and could not equitably object to
the arbitration clause, and she was beneficiary 20 Cases that cite this headnote
and trustee of trust that owned the house and
[14] Estoppel
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
Future 3 Cases that cite this headnote
events; promissory estoppel
Promissory estoppel does not create liability [18] Alternative Dispute Resolution
where none otherwise exists, but prevents a party
from insisting upon his strict legal rights when it Persons
would be unjust to allow him to enforce them. affected or bound
Direct-benefits estoppel against a nonparty
9 Cases that cite this headnote
avoiding arbitration clause after receiving direct
benefits from contract does not apply when the
[15] Trusts benefits alleged are insubstantial or indirect.
Capacity 20 Cases that cite this headnote
of trustee to sue and be sued in general
Trusts [19] Alternative Dispute Resolution
Parties Persons
A suit involving a trust generally must be brought affected or bound
by or against the trustee and can be binding on When a nonparty consistently and knowingly
the beneficiaries whether they join it or not. insists that others treat it as a party to the contract,
it cannot later turn its back on the portions of
Cases that cite this headnote
the contract, such as an arbitration clause, that it
finds distasteful.
[16] Alternative Dispute Resolution
5 Cases that cite this headnote
Persons
affected or bound
Alternative Dispute Resolution
Attorneys and Law Firms
Persons
entitled to enforce *128 Raul A. Gonzalez, Susan Kidwell, Locke Liddell &
Direct-benefits estoppel against a nonparty Sapp, LLP, Austin, and N. Terry Adams, Beirne Maynard &
avoiding arbitration clause requires a nonparty's Parsons, L.L.P., Houston, for relator.
colorable claim to the benefits of the contract; a
meddlesome stranger cannot compel arbitration James Craig Orr Jr. and Spencer P. Browne, Heygood Orr &
by merely pleading a claim that quotes someone Reyes, L.L.P., Irving, for real party in interest.
else's contract.
Opinion
19 Cases that cite this headnote
*129 Justice BRISTER delivered the opinion of the Court.
[17] Alternative Dispute Resolution We are asked to decide whether Weekley Homes, L.P., a party
to a contract containing an arbitration clause, can compel
Persons
arbitration of a personal injury claim brought by Patricia
affected or bound Von Bargen, a nonparty. We have previously compelled
Direct-benefits estoppel against a nonparty arbitration by nonparties to an arbitration agreement when
avoiding arbitration clause does not create they brought suit âbased on a contract,â 1 which Von Bargen
liability for noncontracting parties that does not purports to avoid here.
otherwise exist.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
[1] But as both state and federal courts have recognized, According to the plaintiffs' pleadings, numerous problems
nonparties may be bound to an arbitration clause when the arose with the home after completion. When the family
rules of law or equity would bind them to the contract moved out of the house briefly so Weekley could perform
generally. Because we find those rules applicable here, we some of those repairs, it was Von Bargen who requested
conditionally grant mandamus relief. and received reimbursement. Indeed, Von Bargen admitted
handling âalmost ... all matters related to the house, the
problems and the warranty work and even the negotiations.â
I. Background
Unsatisfied with the home and Weekley's efforts to repair
In the summer of 2000, Vernon Forsting contracted with it, Forsting, Von Bargen, and the Trust filed suit against
Weekley for construction of a 4,000 square foot home at Weekley in December 2002. Forsting and the Trust asserted
a purchase price of $240,000. At the time, Forsting was a claims for negligence, breach of contract, statutory violations,
seventy-eight year-old widower with an assortment of health and breach of warranty. Von Bargen sued only for personal
problems. His intention in purchasing such a large home was injuries, alleging Weekley's negligent repairs caused her to
to live with his daughter, Von Bargen (his only child) and her develop asthma.
husband and three sons.
Weekley moved to compel arbitration of all claims under
Von Bargen and her husband negotiated directly with the Federal Arbitration *130 Act (FAA). 2 The trial court
Weekley on many issues before and after constructionâ concluded the FAA applied, and granted the motion as to all
paying a $1,000 deposit, selecting the floor plan, signing a claims by Forsting and the Trust. But the trial court refused
letter of intent as âpurchasers,â and making custom design to compel arbitration of Von Bargen's claim because she did
choices. not sign the Purchase Agreement.
But only Forsting executed the various financing and closing [2] Mandamus relief is proper to enforce arbitration
documents on the home, including the Real Estate Purchase agreements governed by the FAA. 3 After the Fifth Court of
Agreement that contained the following arbitration clause: Appeals denied Weekley's request for such relief, Weekley
filed a similar request in this Court.
Any claim, dispute or cause of action
between Purchaser and Seller ...,
whether sounding in contract, tort, or
otherwise, shall be resolved by binding II. Governing Law
arbitration.... Such claims, disputes or
causes of action include, but are not [3] Neither party challenges the trial court's conclusion that
limited to, those arising out of or the FAA governs the arbitration clause here. 4 Under the
relating to ... the design, construction, FAA, absent unmistakable evidence that the parties intended
preparation, maintenance or repair of the contrary, it is the courts rather than arbitrators that must
the Property. decide âgateway mattersâ such as whether a valid arbitration
agreement exists. 5 Whether an arbitration agreement is
Shortly after closing, Forsting transferred the home to the binding on a nonparty is one of those gateway matters. 6
Forsting Family Trust, a revocable trust established ten years
earlier whose sole beneficiary was Von Bargen. At his [4] [5] Texas courts apply Texas procedural rules
deposition, Forsting testified that the only reason he signed
in making that determination. 7 Those rules call for
the Purchase Agreement individually rather than as trustee
was because he âforgot to put [the home] in the trust.â determination by summary proceedings, 8 with the burden on
Forsting and Von Bargen served as the only trustees of the the moving party to show a valid agreement to arbitrate. 9
Trust, the purpose of which was to transfer Forsting's property
to Von Bargen after his death. [6] [7] But as we recently noted, it is not entirely clear what
substantive law governs whether a nonparty must arbitrate. 10
Generally under the FAA, state law governs whether a litigant
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
agreed to arbitrate, 11 and federal law governs the scope of can be brought in tort (and in court) if liability arises from
an arbitration clause. 12 Whether *131 a nonparty must general obligations imposed by law. 24
arbitrate can involve aspects of either or both. Pending an
We question Weekley's conclusion that this rule will
answer from the United States Supreme Court, 13 we apply
inevitably drive claimants to plead only noncontractual
state law while endeavoring to keep it as consistent as possible
claims to avoid arbitration. Nonparties face a choice when
with federal law. 14 they may plead in either contract or tort, but pleading the
former invokes an arbitration clause broad enough to cover
both (as most do). If they pursue a claim âon the contract,â
III. Estoppel and Nonsignatories then they must pursue all claimsâtort and contractâin
arbitration. 25 Conversely, if they choose not to sue âon
Texas law has long recognized that nonparties may be bound the contract,â they may pursue the tort claims in court, but
to a contract under various legal principles. 15 Although the contract claims will thereby likely be waived under the
we have never considered these principles in the context of election-of-remedies doctrine. 26 Given these options, it is
arbitration, we recently noted that contract and agency law not clear at this point that nonparties will always choose
may bind a nonparty to an arbitration agreement. 16 Indeed, to forfeit potentially viable contract claims solely to avoid
if Texas law would bind a nonparty to a contract generally, arbitration.
the FAA would appear to preempt an exception for arbitration
clauses alone. 17 [9] [10] In this case, Von Bargen purports to make no claim
on the Weekley contract, claiming only that she developed
In the one case in which we have compelled nonparties to asthma from dust created by Weekley's repairs of the home.
arbitrate, In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. While Weekley's duty to perform those repairs arose from
2001) we stated that âa litigant who sues based on a contract the Purchase Agreement, a contractor performing repairs
has an independent duty under Texas tort law not to injure
subjects him or herself to the contract's terms.â 18 Because the
nonparties there asserted claims identical to the signatories' bystanders by its activities, 27 or by premises conditions
contract claims, we held all had to be arbitrated. 19 it leaves behind. 28 There is nothing in the sparse record
here to suggest Von Bargen's claim is different from what
We did not describe in FirstMerit what it means to sue âbased any bystander might assert, or what she might assert if the
on a contract.â Von Bargen asserts a narrow interpretation contractor were not Weekley.
that would apply only to explicit contract claims, and thus
not to hers for personal injury; Weekley argues for a broad [11] [12] But a nonparty may seek or obtain direct benefits
application to any claim that âarises from or relates toâ the from a contract by means other than a lawsuit. In some cases,
contract involved. a nonparty may be compelled to arbitrate if it deliberately
seeks and obtains substantial benefits from the contract
We recently adopted an approach between these two itself. 29 The analysis here focuses on the *133 nonparty's
extremes, holding that a nonparty may be compelled to conduct during the performance of the contract. 30 Thus,
arbitrate âif it seeks, through the claim, to derive a for example, a firm that uses a trade name pursuant to an
direct benefit from the contract containing the arbitration agreement containing an arbitration clause cannot later avoid
provisions.â 20 As we noted, this rule is consistent with arbitration by claiming to have been a nonparty. 31 Nor can
21
federal law of âdirect benefits estoppel.â nonsignatories who received lower insurance rates and the
ability to sail under the French flag due to a contract avoid the
[8] Under both Texas and federal law, whether a claim arbitration clause in that contract. 32
seeks a direct benefit from a contract containing an arbitration
*132 clause turns on the substance of the claim, not artful [13] [14] This Court has never addressed such an
pleading. 22 Claims must be brought on the contract (and estoppel claim in the arbitration context. 33 But we have
arbitrated) if liability arises solely from the contract or must long recognized in other contexts the defensive theory of
be determined by reference to it. 23 On the other hand, claims promissory estoppel. 34 When a promisor induces substantial
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
action or forbearance by another, promissory estoppel
[17] [18] Like the equitable doctrine of promissory
prevents any denial of that promise if injustice can be avoided
estoppel, we do not understand direct-benefits estoppel to
only by enforcement. 35 Promissory estoppel does not create
create liability for noncontracting parties that does not
liability where none otherwise exists, 36 but âprevents a party otherwise exist. As Von Bargen and Weekley had no contract
from insisting upon his strict legal rights when it would be between them, estoppel alone cannot grant either a right to
unjust to allow him to enforce them.â 37 sue for breach. 42 Nor do we understand the doctrine to apply
when the benefits alleged are insubstantial or indirect. But
Here, Von Bargen has not merely resided in the home. once Von Bargen deliberately sought substantial and direct
Claiming the authority of the Purchase Agreement, she benefits from the contract, and Weekley agreed to comply,
directed how Weekley should construct many of its features, equity prevents her from avoiding the arbitration clause that
repeatedly demanded extensive repairs to âour home,â 38 was part of that agreement.
personally requested and received financial reimbursement
for expenses âI incurredâ while those repairs were made, and We recognize that direct-benefits estoppel has yet to be
conducted settlement negotiations with Weekley (apparently endorsed by the United States Supreme Court, and that
never consummated) about moving the family to a new home. its application and boundaries are not entirely clear. 43
Having obtained these substantial actions from Weekley For example, while federal courts often state the test as
by demanding compliance with provisions of the contract,
whether a nonsignatory has âembraced the contract,â 44
Von Bargen cannot equitably object to the arbitration clause
the *135 metaphor gives little guidance in deciding what
attached to them.
particular conduct embraces or merely shakes hands with
it. Indeed, the equitable nature of the doctrine may render
[15] In addition to these benefits, Forsting and the Trust have
firm standards inappropriate, requiring trial courts to exercise
sued Weekley on claims which are explicitly based on the
some discretion based on the facts of each case. 45
contract. Under Texas law, a suit involving a trust generally
must be brought by or against the trustee, and can be binding
[19] But we agree with the federal courts that when a
on the beneficiaries whether they join it or *134 not. 39
nonparty consistently 46 and knowingly 47 insists that others
Although Von Bargen did not purport to sue as either trustee
treat it as a party, it cannot later âturn[ ] its back on the
or beneficiary, she was both, and any recovery will inure
portions of the contract, such as an arbitration clause, that
to her direct benefit as the sole beneficiary and equitable
it finds distasteful.â 48 A nonparty cannot both have his
titleholder of the home. 40 As one Texas court has noted, if
contract and defeat it too.
a trustee's agreement to arbitrate can be avoided by simply
having the beneficiaries bring suit, âthe strong state policy
While Von Bargen never based her personal injury claim
favoring arbitration would be effectively thwarted.â 41
on the contract, her prior exercise of other contractual
rights and her equitable entitlement to other contractual
[16] While we based our decision in FirstMerit Bank on the
benefits prevents her from avoiding the arbitration clause
nonparties' contract-based claims, more was involved in that
here. Accordingly, the trial court abused its discretion in
case than the format of the pleadings. Direct-benefits estoppel
failing to compel arbitration. We conditionally grant the writ
requires a colorable claim to the benefits; a meddlesome
of mandamus and order the trial court to vacate that part
stranger cannot compel arbitration by merely pleading a
of its order denying Weekley's motion, and to enter a new
claim that quotes someone else's contract. The nonparties
order compelling arbitration of Von Bargen's claim. We are
in FirstMerit Bank were the daughter and son-in-law of the
confident the trial court will comply, and our writ will issue
signatories, the actual occupants of the mobile home, and
only if it does not.
(according to the briefs) the future owners to whom the
signatories planned to transfer title. It is hard to see what
direct benefits they expected from that contract that Von
Bargen did not expect from this one. Justice WILLETT did not participate in the decision.
Footnotes
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
In re Weekley Homes, L.P., 180 S.W.3d 127(2005) 1 In re FirstMerit Bank, N.A.,52 S.W.3d 749, 755
(Tex.2001). 2 See 9 U.S.C. §§ 1â16. 3 In re Oakwood Mobile Homes, Inc.,987 S.W.2d 571
, 573 n.2 (Tex.1999) (per curiam); EZ Pawn Corp. v. Mancias, 934 S.W.2d
87â88 (Tex.1996) (per curiam).
4 Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as it was not signed
by an attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002((a)(3), (C), she does not challenge the trial court's conclusion that
the FAA governs here. The FAA not only contains no such limitation, but also preempts any state requirements that apply only to
arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686â87,116 S.Ct. 1652
,134 L.Ed.2d 902
(1996). 5 Green Tree Fin. Corp. v. Bazzle,539 U.S. 444, 452
,123 S.Ct. 2402
,156 L.Ed.2d 414
(2003); PacifiCare Health Sys., Inc. v. Book,
538 U.S. 401, 407,123 S.Ct. 1531
,155 L.Ed.2d 578 n.2
(2003). 6 John Wiley & Sons, Inc. v. Livingston,376 U.S. 543
, 546â47,84 S.Ct. 909
,11 L.Ed.2d 898
(1964). 7 Jack B. Anglin Co. v. Tipps,842 S.W.2d 266, 268
(Tex.1992). 8Id. at 269
. 9 J.M. Davidson, Inc. v. Webster,128 S.W.3d 223, 227
(Tex.2003). 10 In re Kellogg Brown & Root, Inc.,166 S.W.3d 732
, 738â39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc.,537 U.S. 79, 87
,123 S.Ct. 588
,154 L.Ed.2d 491
(2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law
and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004) (noting that
whether state or federal law of arbitrability applies âis often an uncertain questionâ).
11 Doctor's Assocs., 517 U.S. at 686â87, 116 S.Ct. 1652; First Options of Chi., Inc. v. Kaplan,514 U.S. 938, 944
,115 S.Ct. 1920
,
131 L.Ed.2d 985(1995); Perry v. Thomas,482 U.S. 483, 492
,107 S.Ct. 2520
,96 L.Ed.2d 426, n.9
(1987). Parties may also agree
that state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476,109 S.Ct. 1248
,103 L.Ed.2d 488
(1989). 12 Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 24
,103 S.Ct. 927
,74 L.Ed.2d 765
(1983).
13 The United State Supreme Court has not answered this question, though it has applied federal substantive law to bind a nonparty to
labor-union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law principles. See John
Wiley & Sons, 376 U.S. at 548,84 S.Ct. 909
(citing Textile Workers Union of Am. v. Lincoln Mills,353 U.S. 448, 456
,77 S.Ct. 912
,1 L.Ed.2d 972
(1957)).
14 Kellogg, 166 S.W.3d at 739.
15 See, e.g., TEX. BUS. CORP. Act art. 2.21(A)(2) (holding shareholders may be liable for corporation's contracts under alter ego theory
if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586, 590 (Tex.2002)
(holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629 (Tex.1981) (holding agent
acting within the scope of apparent authority binds the principal).
16 Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true that âthe [Texas] decisions do not even mention the possibility of
additional bases for binding non-signatories to arbitration.â Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir. 2002). 17 Doctor's Assocs., 517 U.S. at 686â87,116 S.Ct. 1652
; AlliedâBruce Terminix Cos., Inc. v. Dobson,513 U.S. 265, 281
,115 S.Ct. 834
,130 L.Ed.2d 753
(1995) (âWhat States may not do is decide that a contract is fair enough to enforce all its basic terms (price,
service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of
policy would place arbitration clauses on an unequal âfooting,â directly contrary to the Act's language and Congress' intent.â).
18 52 S.W.3d at 755. 19Id.
at 755â56. 20 Kellogg,166 S.W.3d at 741
. 21Id.
22 Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp.,659 F.2d 836
, 838â39 (7th Cir. 1981); Southwestern Bell Tel.
Co. v. DeLanney, 809 S.W.2d 493, 495(Tex.1991). 23 Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH,206 F.3d 411, 418
(4th Cir. 2000); DeWitt County Elec. Coop., Inc.
v. Parks, 1 S.W.3d 96, 105(Tex.1999); DeLanney,809 S.W.2d at 494
. 24 See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n,384 F.3d 157
, 163â164 (4th Cir. 2004); InterGen N.V. v. Grina,344 F.3d 134
, 145â46 (1st Cir. 2003); Westmoreland v. Sadoux,299 F.3d 462, 467
(5th Cir. 2002); Fleetwood Enters., Inc. v. Gaskamp,
280 F.3d 1069, 1076â77 (5th Cir. 2002); DeLanney,809 S.W.2d at 494
; see also Formosa Plastics Corp. USA v. Presidio Eng'rs
& Contractors, Inc., 960 S.W.2d 41, 47(Tex.1998). 25 See, e.g., Jack B. Anglin Co. v. Tipps,842 S.W.2d 266, 271
(Tex.1992) (holding DTPA claim was factually intertwined with contract
claim and thus subject to arbitration clause).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
In re Weekley Homes, L.P., 180 S.W.3d 127(2005) 26 Bocanegra v. Aetna Life Ins. Co.,605 S.W.2d 848, 851
(Tex.1980) (holding election-of-remedies doctrine prevents pursuit of
inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598â99 (Tex.1996)
(holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit against employer for intentional
act).
27 See Redinger v. Living, Inc., 689 S.W.2d 415, 417 (Tex.1985) (noting general contractor on a construction site in control of the
premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or instrumentality).
28 Strakos v. Gehring, 360 S.W.2d 787, 790(Tex.1962). 29 Astra Oil Co., Inc. v. Rover Navigation, Ltd.,344 F.3d 276, 281
(2d Cir. 2003) (holding affiliate of signatories could enforce arbitration
clause as opposing party treated affiliate as part of charter contract during occurrence involved); Am. Bureau of Shipping v. Tencara
Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail
under French flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd. P'ship Sec. Litig., 26 F.3d 50,
52 (7th Cir. 1994) (holding wife bound by settlement agreement related to investment services contract signed only by her husband,
but under which she had accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as
nonsignatory never sought to derive direct benefits from contracts during their currency).
30 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir. 2001). 31 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S.,9 F.3d 1060, 1064
(2d Cir. 1993). 32 Tencara Shipyard,170 F.3d at 353
. 33 See Kellogg,166 S.W.3d at 741
n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from contract
rather than subsequent litigation).
34 See, e.g., âMooreâ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934(Tex.1972). 35 Trammell Crow Co. No. 60 v. Harkinson,944 S.W.2d 631, 636
(Tex.1997). 36 Hruska v. First State Bank of Deanville,747 S.W.2d 783, 785
(Tex.1988). 37 Wheeler v. White,398 S.W.2d 93, 96
(Tex.1965).
38 In various lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and windows,
cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting the bathrooms
and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the yard, and a noisy
garage door.
39 See TEX. PROP. CODEE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.1996)(holding trusts are
not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476â77 (Tex.1979) (holding beneficiaries were
bound by judgment against trust and trustees, as some participated in trial in their capacity as trustees, and remainder showed neither
prejudice, conflict of interest, nor inadequate representation by trustees).
40 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex.1988) (holding trust beneficiaries hold
equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003) (holding arbitration agreements
were binding on receiver who succeeded to interests of entities that signed them); Hays & Co. v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 885 F.2d 1149, 1153â54 (3d Cir. 1989) (holding arbitration agreements were binding on successor trustee in bankruptcy). 41 Merrill Lynch, Pierce, Fenner & Smith v. Eddings,838 S.W.2d 874, 879
(Tex.App.-Waco 1992, writ denied). 42 See Sun Oil Co. v. Madeley,626 S.W.2d 726, 734
(Tex.1981) (holding estoppel based on division orders could not permanently
amend underlying lease).
43 See e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to ArbitrateâA
Bride Too Far?, 21 REV. LITIG. 593 (2002).
44 See, e.g. InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co.,367 F.Supp.2d 711, 721
(E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107, 1138 (D.Kan. 2003); Amkor Tech., Inc.
v. Alcatel Bus. Sys., 278 F.Supp.2d 519, 521â22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v. Hallmark Mktg. Corp.,
176 F.Supp.2d 1091, 1098(D.Colo. 2001). 45 See, e.g., Bridas S.A.P.I.C. v. Turkmenistan,345 F.3d 347, 360
(5th Cir. 2003) (âThe use of equitable estoppel is within a district
court's discretion.â); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists Agency,
L.L.C., 210 F.3d 524, 528(5th Cir. 2000). 46 See Int'l Paper,206 F.3d at 418
(estopping nonsignatory from denying agreement to arbitrate âwhen he has consistently maintained
that other provisions of the same contract should be enforced to benefit him.â) (emphasis added).
47 See Bridas, 345 F.3d at 361â62 (âDirect[-]benefits estoppel applies when a nonsignatory âknowingly exploits the agreement containing
the arbitration clause.â â) (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard,170 F.3d at 353
(requiring
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to obtain that
contract and received copies of it).
48 DuPont, 269 F.3d at 200; accord Astra Oil Co.,344 F.3d at 281
.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)
but the review of the underlying award is
exceedingly deferential.
687 F.3d 671
United States Court of Appeals, 3 Cases that cite this headnote
Fifth Circuit.
PETROFAC, INCORPORATED, PlaintiffâAppellee, [2] Alternative Dispute Resolution
v.
Disputes
DYNMcDERMOTT PETROLEUM OPERATIONS
and Matters Arbitrable Under Agreement
COMPANY, DefendantâAppellant.
Alternative Dispute Resolution
No. 11â20141. | July 17, 2012.
Arbitrability
Synopsis of dispute
Background: Subcontractor for design and installation of Just as the arbitrability of the merits of a dispute
transportable degas plant sought confirmation of arbitration depends upon whether the parties agreed to
award against contractor for operation of Strategic Petroleum arbitrate that dispute, so the question of who has
Reserve for Department of Energy. The United States District the primary power to decide arbitrability turns
Court for the Southern District of Texas, Lynn N. Hughes, J., upon what the parties agreed about that matter.
2011 WL 675353, confirmed the award. Contractor appealed.
2 Cases that cite this headnote
Holdings: The Court of Appeals, Jennifer Walker Elrod, [3] Alternative Dispute Resolution
Circuit Judge, held that:
Evidence
The court will not assume that the parties agreed
[1] arbitration agreement, by incorporating the rules of
to arbitrate arbitrability unless the parties clearly
the American Arbitration Association (AAA), clearly and
and unmistakably provide otherwise.
unmistakably expressed parties' intent to leave the question
of arbitrability to an arbitrator; 25 Cases that cite this headnote
[2] record did not support contractor's allegation that
subcontractor procured the award through fraud; and [4] Alternative Dispute Resolution
Arbitrability
[3] running of prejudgment interest on arbitration award
of dispute
recommenced when contractor failed to pay the award within
required 30-day period. Arbitration agreement between contractor for
operation of Strategic Petroleum Reserve for
Department of Energy and subcontractor for
Affirmed. design and installation of transportable degas
plant, by incorporating the rules of the American
Arbitration Association (AAA), clearly and
unmistakably expressed parties' intent to leave
West Headnotes (8)
the question of arbitrability to an arbitrator; AAA
rules provided that arbitrator had the power to
[1] Alternative Dispute Resolution rule on his or her own jurisdiction, including any
objections with respect to the existence, scope,
Scope or validity of the arbitration agreement.
and Standards of Review
The court of appeals reviews a district court's 24 Cases that cite this headnote
confirmation of an arbitration award de novo,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)
[5] Alternative Dispute Resolution Cases that cite this headnote
Arbitrability
of dispute [8] Interest
Express adoption, in an arbitration agreement, Particular
of the rules of the American Arbitration cases and issues
Association (AAA) presents clear and
Running of prejudgment interest on arbitration
unmistakable evidence that the parties agreed to
award, which award ordered payment of
arbitrate arbitrability.
damages and prejudgment interest within 30
26 Cases that cite this headnote days of award, recommenced when losing party
failed to pay the award within the required 30-
day period.
[6] Alternative Dispute Resolution
Cases that cite this headnote
Parties'
fraud or misconduct
Record from arbitration proceeding did not
support allegation of contractor for operation Attorneys and Law Firms
of Strategic Petroleum Reserve for Department
of Energy that subcontractor for design and *673 Robert Anthony Plessala, Sr. Counsel (argued),
installation of transportable degas plant procured Andrews Myers, P.C., Houston, TX, David James Bush,
the overtime premium portion of arbitration Kent, Good Anderson & Bush, P.C., Tyler, TX, for Plaintiffâ
award through fraud, as basis under Federal Appellee.
Arbitration Act (FAA) for vacating the award,
based on subcontractor allegedly pulling a bait- Henry A. King (argued), John A. Cangelosi, Timothy S.
and-switch by representing that it had abandoned Madden, King, Krebs & Jurgens, P.L.L.C., New Orleans, LA,
its âimpact on other jobsâ claim but then slipping for DefendantâAppellant.
those damages back in through its overtime
Appeal from the United States District Court for the Southern
premium claim. 9 U.S.C.A. § 10(a)(1).
District of Texas.
Cases that cite this headnote
Before DeMOSS, CLEMENT and ELROD, Circuit Judges.
[7] Federal Courts Opinion
JENNIFER WALKER ELROD, Circuit Judge:
Alternative
dispute resolution
DynMcDermott Petroleum Operations Company (DM)
Federal Courts appeals the district court's confirmation of an arbitration
award in favor of Petrofac, Incorporated. Because DM fails
Interest
to show any reversible error, we AFFIRM.
Interest
Particular
cases and issues I.
Texas law governs the award of prejudgment
interest on an arbitration award under the Federal DM operates the Strategic Petroleum Reserve for the
Arbitration Act (FAA), and under Texas law, Department of Energy. DM subcontracted with Petrofac to
prevailing parties receive prejudgment interest as design and install a transportable degas plant to service the
a matter of course. 9 U.S.C.A. § 1 et seq. reserve. On July 30, 2003, DM and Petrofac agreed to resolve
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)
any claim under the subcontract through binding arbitration. The arbitration panel dismissed DM's objection because âthe
The contract stated: arbitration agreement is clear and encompasses all of the
issues between the parties arising out of this contract. It is also
Petrofac and DM agree to enter clear that DM waived any objection it had to the arbitration
into binding arbitration for any of a constructive change claim.â The arbitration panel
Request for Equitable Adjustment subsequently awarded Petrofac damages for the âcontract
or claim submitted against the balance, damages for a constructive change to the contract, an
referenced subcontract, in lieu of award for the benefit of Womack, and interest from August
litigation, in the event that a 24, 2006 to July 26, 2010â to be paid âwithin thirty days of
mutually agreeable resolution cannot the Award.â
be bilaterally achieved between DM
and Petrofac through negotiations. The district court confirmed the award. The district court
rejected DM's argument that the REA and the Adams report
In May 2004, Petrofac sent DM a multi-volume Request represented different claims. Therefore, the district court
for Equitable Adjustment (REA). There, Petrofac asserted ruled that the arbitration panel did not exceed its authority
that DM disrupted Petrofac's ability to perform its work by awarding damages as presented in the Adams report.
and sought damages for differing site conditions, delays, The court also determined that the award was not procured
disruption costs, lost productivity, and acceleration costs. through fraud or undue means under 9 U.S.C. § 10(a)
(1). Finally, the district court ordered prejudgment interest
On December 6, 2005, Petrofac agreed to release DM from after August 26, 2010, ruling that prejudgment interest
all but a few specifically preserved claims. Among these recommenced after DM failed to pay the award within the
preserved claims, the release included Petrofac's REA âas thirty-day period.
may be amended or supplemented.â 1
By July 2006, the parties had failed to resolve the II.
REA dispute via negotiation. *674 Pursuant to the
2003 arbitration agreement, DM and Petrofac entered [1] This court reviews âa district court's confirmation of
into an âAgreement for Arbitration and for Location and an award de novo, but the review of the underlying award
Methodology of Arbitration.â There, the parties agreed that is exceedingly deferential.â Apache Bohai Corp. LDC v.
â[t]hey shall submit to binding arbitration the [REA] and all Texaco China BV, 480 F.3d 397, 401 (5th Cir.2007) (internal
claims and disputes between them arising out of or relating quotation marks omitted).
to the Subcontract.â In addition, the parties agreed that the
arbitration would be conducted by the American Arbitration
Association under its Construction Industry Arbitration Rules
A.
(AAA Rules).
On appeal, DM argues that the arbitration panel exceeded its
Petrofac subsequently filed its demand for arbitration. In powers by issuing an award on a claim not covered by the
June 2008, Petrofac provided DM the report of its damages parties' arbitration agreement. 9 U.S.C. § 10(a)(4) (allowing
expert, Frank Adams. The Adams report calculated Petrofac's a district court to vacate an award âwhere the arbitrators
damages using a different methodology and reached a exceeded their powersâ). Specifically, DM contends that the
different amount than the original REA. The arbitration calculations in the expert report were extinguished by the
began in March 2009. After five days of hearings, however, 2005 release and therefore fall outside the parties' agreement
the arbitration panel recessed for seven months. When the to arbitrate. Petrofac responds that the parties contracted
arbitration reconvened, DM objected to the arbitration panel for the arbitration panel (and not the courts) to decide this
hearing any claims stemming from the different damages question of arbitrability, and even if the arbitration panel did
methodology used in the Adams report, claiming that it not have the power to decide arbitrability, the district court
effectively created a new constructive change claim outside properly determined that the claims at issue were within the
the parties' agreement to arbitrate. arbitration agreement.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671(2012) [2] [3] We first consider if the arbitration panel properly in the original REA, Petrofac brought two distinct claims for determined the initial *675 question of arbitrability, i.e. damages: (1) an overtime premium claim for the additional whether the claim is within the parties' agreement to arbitrate. overtime on the degas project; and (2) a claim for DM's âJust as the arbitrability of the merits of a dispute depends impact on other projects. 4 Petrofac made a strategic decision upon whether the parties agreed to arbitrate that dispute, to abandon the latter claim, while *676 maintaining the so the question âwho has the primary power to decide former. DM argues that Petrofac pulled a bait-and-switch by arbitrabilityâ turns upon what the parties agreed about that representing that it had abandoned its impact on other jobs matter.â First Options of Chi., Inc. v. Kaplan, 514 U.S. claim, but then slipped those damages back in through its 938, 943,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995) (internal overtime premium claim. Rather than a covert legerdemain citations omitted). We will not assume that the parties agreed hidden from the arbitration panel, DM thoroughly advocated to arbitrate arbitrability â[u]nless the parties clearly and these arguments to the arbitration panel (both before and unmistakably provide otherwise.â AT & T Techs., Inc. v. during the arbitration) and to the district court. In each case, Commc'ns Workers of Am.,475 U.S. 643, 649
, 106 S.Ct. the arbitration panel or court rejected DM's arguments. See 1415,89 L.Ed.2d 648
(1986). Accordingly, we must decide Forsythe Int'l, S.A. v. Gibbs Oil Co. of Tex.,915 F.2d 1017
,
if DM and Petrofac âclearly and unmistakablyâ provided for 1022â23 (5th Cir.1990) (reversing a district court's vacatur
the arbitration panel to decide arbitrability. of award where the arbitration panel heard evidence of the
fraud and ruled it immaterial). Having examined the record,
[4] [5] Here, the parties expressly incorporated into their we conclude that DM's allegation of fraud misunderstands the
arbitration agreement the AAA Rules. These rules state that distinct nature of Petrofac's claims.
â[t]he arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the
existence, scope or validity of the arbitration agreement.â We
agree with most of our sister circuits that the express adoption C.
of these rules presents clear and unmistakable evidence that
[7] [8] Finally, DM argues the district court committed
the parties agreed to arbitrate arbitrability. See Fallo v. Highâ
reversible error by ordering prejudgment interest. âTexas law
Tech Inst., 559 F.3d 874, 878 (8th Cir.2009) (â[W]e conclude
governs the award of prejudgment interest on the [arbitration]
that the arbitration provision's incorporation of the AAA
award,â and â[u]nder Texas law, prevailing parties receive
Rules ... constitutes a clear and unmistakable expression of
prejudgment interest as a matter of course.â Executone Info.
the parties' intent to leave the question of arbitrability to an
Sys., Inc. v. Davis, 26 F.3d 1314, 1329(5th Cir.1994). On July arbitrator.â); Qualcomm Inc. v. Nokia Corp.,466 F.3d 1366, 26, 2010
, the arbitration panel ruled that Petrofac was entitled
1372â73 (Fed.Cir.2006) (same); Terminix Int'l Co., LP v.
to interest, calculated the amount of interest as of the date of
Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332â33 (11th
the award, and ordered payment of âinterest from August 24,
Cir.2005) (same); Contec Corp. v. Remote Solution Co., 398
2006 to July 26, 2010, within thirty days of the Award.â DM
F.3d 205, 208 (2d Cir.2005) (same); Apollo Computer, Inc.
did not pay within the required thirty-day period. The district
v. Berg, 886 F.2d 469, 473 (1st Cir.1989) (same result under
court ordered that DM pay additional interest, reasoning that
the similar ICC Rules). But see Riley Mfg. Co. v. Anchor
by ordering payment by August 25, 2010, the arbitration panel
Glass Container Corp., 157 F.3d 775, 780 (10th Cir.1998). 2 created âa thirty-day interest-free window from the date of the
Therefore, the arbitration panel properly made the decision award,â and DM âis not permitted to discount the arbitration
that the damages calculations in the Adams report fell within panel's award by recalcitrantly delaying payment.â We agree.
3 The district court properly reinstated the arbitration panel's
the agreement to arbitrate.
interest award after DM refused to pay within the required
period. 5
B.
[6] Next, DM contends that Petrofac procured the overtime
III.
premium portion of the award through fraud or undue means.
9 U.S.C. § 10(a)(1) (permitting the district court to vacate The district court properly confirmed the arbitration panel's
an award âwhere the award was procured by corruption, arbitration award. On appeal, DM has failed to demonstrate
fraud, or undue meansâ). Among the many claims brought
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)
reversible error. Consequently, the judgment of the district
court is AFFIRMED.
Footnotes
1 The release stated that:
In consideration of payments made heretofore, or to be made, by DM ... [Petrofac] hereby unconditionally releases DM ... from
any and all liens and claims whatsoever arising out of or during the performance of said Subcontract other than such claims, if
any, that may ... be specifically excepted from the terms of this Release and Certificate, stated below:
1. Request for Equitable Adjustment submitted by Petrofac, Inc. as may be amended or supplemented;
2. Invoice No. 2004â79â855 in the amount of $995,718.00 ...;
3. Invoice No. 2005â01â855 in the amount of $338,400.00;
4. All rights and claims of [Petrofac] in connection with its disputes and objections to DM's Unilateral Change Orders 17,
18, and 22;
5. Claim for Equitable Adjustment in the amount of $536,128.08 submitted by L.S. Womack, Inc. a subcontractor of Petrofac,
Inc.; and
6. Specified claims in full and precise amounts to be received by the Subcontract Manager within ninety (90) calendar days
from the issuance of final acceptance by the Subcontract Manager.
2 Today's holding complies with our own prior suggestions that the incorporation of the AAA Rules âmay be sufficient to show that
the parties to those agreements intended to confer that power on the arbitration panel.â DK Joint Venture 1 v. Weyand, 649 F.3d 310,
317 n. 9 (5th Cir.2011) (emphasis omitted). Also, while the Texas Supreme Court has not weighed in on the issue, Texas appellate
courts have adopted the same approach. See Schlumberger Tech. Corp. v. Baker Hughes, Inc., 355 S.W.3d 791, 802â03 (Tex.App.
âHouston [1st Dist.] Oct. 12, 2011).
3 Although DM characterizes its contracts as narrow arbitration agreements for only a few preserved disputes, nothing limits the parties'
broad agreement to arbitrate âall claims and disputesâ that related to the subcontract. Indeed, the 2006 arbitration agreement covered
all disputes âincluding but not limited toâ those preserved in the 2005 release.
4 Under the overtime claim, Petrofac sought to recover the amount of overtime paid to employees who were billed on other projects
but, because of DM's disruption, needed to work overtime on the degas project. Under the impact on other projects claim, Petrofac
demanded damages because DM's disruption of the degas project required Petrofac to hire additional subcontractors and pay overtime
for work on two other projects to keep them on schedule.
5 The arbitration panel's award of interestâand order that it be paid within thirty daysâdistinguishes this case from others where the
arbitration panel decided not to award interest to the prevailing party. See Glover v. IBP, Inc., 334 F.3d 471, 477 (5th Cir.2003).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
[2] Alternative Dispute Resolution
130 S.Ct. 2772
Supreme Court of the United States Validity
of assent
RENTâAâCENTER, WEST, INC., Petitioner,
Alternative Dispute Resolution
v.
Antonio JACKSON. Unconscionabi
Like other contracts, arbitration agreements
No. 09â497. | Argued April 26, may be invalidated by generally applicable
2010. | Decided June 21, 2010. contract defenses, such as fraud, duress, or
unconscionability.
Synopsis
Background: In former employee's § 1981 action alleging 119 Cases that cite this headnote
race discrimination and retaliation by his former employer,
employer moved to dismiss and to compel arbitration
pursuant to the Federal Arbitration Act (FAA). The United [3] Alternative Dispute Resolution
States District Court for the District of Nevada, Larry R.
Severability
Hicks, J., granted the motion, and employee appealed. The
United States Court of Appeals for the Ninth Circuit, Sidney Under the Federal Arbitration Act (FAA), a
R. Thomas, Circuit Judge, 581 F.3d 912, reversed in part and party's challenge to another provision of the
remanded. Certiorari was granted. contract, or to the contract as a whole, does
not prevent a court from enforcing a specific
agreement to arbitrate; as a matter of substantive
federal arbitration law, an arbitration provision is
[Holding:] The Supreme Court, Justice Scalia, held that severable from the remainder of the contract. 9
provision of employment agreement which delegated to an U.S.C.A. § 2.
arbitrator exclusive authority to resolve any dispute relating
to the agreement's enforceability was a valid delegation under 455 Cases that cite this headnote
the FAA.
[4] Alternative Dispute Resolution
Reversed. Existence
and validity of agreement
Justice Stevens filed dissenting opinion, in which Justices
Under the Federal Arbitration Act (FAA), if
Ginsburg, Breyer, and Sotomayor joined.
a party challenges the validity of the precise
agreement to arbitrate at issue, federal court
must consider the challenge before ordering
West Headnotes (6) compliance with that agreement, but if a party
challenges the enforceability of the agreement
as a whole, the challenge is for the arbitrator. 9
[1] Alternative Dispute Resolution
U.S.C.A. §§ 2, 4.
Contractual
295 Cases that cite this headnote
or consensual basis
Federal Arbitration Act (FAA) reflects
fundamental principle that arbitration is a matter [5] Alternative Dispute Resolution
of contract. 9 U.S.C.A. § 1 et seq. Existence
and validity of agreement
128 Cases that cite this headnote
Provision of employment agreement which
delegated to an arbitrator the exclusive authority
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
to resolve any dispute relating to the agreement's Held: Under the FAA, where an agreement to arbitrate
enforceability, including any claim that all or any includes an agreement that the arbitrator will determine
part of the agreement was void or voidable, was the enforceability of the agreement, if a party challenges
a valid delegation under the Federal Arbitration specifically the enforceability of that particular agreement,
Act (FAA), where employee challenged only the the district court considers the challenge, but if a party
agreement as a whole and did not specifically challenges the enforceability of the agreement as a whole, the
challenge the delegation clause. 9 U.S.C.A. § 2. challenge is for the arbitrator. Pp. 2776 â 2781.
190 Cases that cite this headnote (a) Section 2 of the FAA places arbitration agreements on an
equal footing with other contracts, Buckeye Check Cashing,
[6] Federal Courts Inc. v. Cardegna, 546 U.S. 440, 443,126 S.Ct. 1204
,163 L.Ed.2d 1038
, and requires courts to enforce them according
Presentation
to their terms, Volt Information Sciences, Inc. v. Board of
of Questions Below or on Review; Record; Trustees of Leland Stanford Junior Univ., 489 U.S. 468,
Waiver 478, 109 S.Ct. 1248,103 L.Ed.2d 488
, âsave upon such
Former employee forfeited argument that grounds as exist under law or in equity for the revocation
delegation provision of arbitration agreement of any contract,â § 2. Here, the Agreement included two
with employer was unconscionable because relevant arbitration provisions: it provided for arbitration of
benefit employee received for such provision all disputes arising out of Jackson's employment, including
was negated by subsequently-issued Supreme discrimination claims, and it gave the âArbitrator ... exclusive
Court decision; although decision was issued authority to resolve any dispute relating to the [Agreement's]
after employee submitted his brief to Court of enforceability ... including ... any claim that all or any part
Appeals on his initial appeal, employee could of this Agreement is void or voidable.â RentâAâCenter seeks
have submitted supplemental brief during year enforcement of the second provision, which delegates to
and a half between the decision and the Court of the arbitrator the âgatewayâ question of enforceability. See,
Appeals' judgment, and Supreme Court decision e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
affirmed a rule that had already been in place in 83â85, 123 S.Ct. 588,154 L.Ed.2d 491
. The court must
that circuit. enforce the delegation provision under §§ 3 and 4 unless it is
unenforceable under § 2. Pp. 2776 â 2778.
5 Cases that cite this headnote
(b) There are two types of validity challenges under § 2:
one âchallenges specifically the validity of the agreement
to arbitrate,â and â[t]he other challenges the contract as a
whole,â Buckeye, supra, at 444,126 S.Ct. 1204
. Only the
**2773 Syllabus * first is relevant to a court's determination of an arbitration
agreement's *64 enforceability, see, e.g., Prima Paint Corp.
*63 Respondent Jackson filed an employment- v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403â404, 87 S.Ct. discrimination suit against petitioner RentâAâCenter, his 1801,18 L.Ed.2d 1270
, because under § 2 âan arbitration former employer, in a Nevada Federal District Court. Rentâ provision is severable from the remainder of the contract,â AâCenter filed a motion, under the Federal Arbitration ActBuckeye, supra, at 445
,126 S.Ct. 1204
. That does not (FAA), to dismiss or stay the proceedings,9 U.S.C. § 3
, mean that agreements to arbitrate are unassailable. If a party
and to compel arbitration, § 4, based on the arbitration challenges the validity under § 2 of the precise agreement
agreement (Agreement) Jackson signed as a condition of to arbitrate at issue, the federal court must consider the
his employment. Jackson opposed the motion on the ground challenge before ordering compliance with the agreement
**2774 that the Agreement was unenforceable in that it under § 4. That is no less true when the precise agreement
was unconscionable under Nevada law. The District Court to arbitrate is itself part of a larger arbitration agreement.
granted RentâAâCenter's motion. The Ninth Circuit reversed Because here the agreement to arbitrate enforceability (the
in relevant part. delegation provision) is severable from the remainder of
the Agreement, unless Jackson challenged the delegation
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
provision specifically, it must be treated as valid under § 2
and enforced under §§ 3 and 4. Pp. 2778 â 2779.
I
(c) The District Court correctly concluded that Jackson On February 1, 2007, the respondent here, Antonio Jackson,
challenged only the validity of the contract as a whole. In filed an employment-discrimination suit under Rev. Stat. §
his brief to this Court he raised a challenge to the delegation 1977, 42 U.S.C. § 1981, against his former employer in provision for the first time, but that is too late and will not be the United States District Court for the District of Nevada. considered. See 14 Penn Plaza LLC v. Pyett,556 U.S. 247
, The defendant and petitioner here, RentâAâCenter, West, ââââ,129 S.Ct. 1456
, ââââ,173 L.Ed.2d 398
. Pp. 2729 â Inc., filed a motion under the FAA to dismiss or stay the 2781. proceedings,9 U.S.C. § 3
, and to compel arbitration, §
4. RentâAâCenter argued that the Mutual Agreement to
581 F.3d 912, reversed. Arbitrate Claims (Agreement), which Jackson signed on
February 24, 2003 as a condition of his employment there,
SCALIA, J., delivered the opinion of the Court, in which precluded Jackson from pursuing his claims in court. The
ROBERTS, C.J., and KENNEDY, THOMAS, and ALITO, Agreement provided for arbitration of all âpast, present or
JJ., joined. STEVENS, J., filed a dissenting opinion, in which futureâ disputes arising out of Jackson's employment with
GINSBURG, BREYER, and SOTOMAYOR, JJ., joined. RentâAâCenter, including âclaims for discriminationâ and
*66 âclaims for violation of any federal ... law.â App.
29â30. It also provided that â[t]he Arbitrator, and not any
Attorneys and Law Firms
federal, state, or local court or agency, shall have exclusive
**2775 Robert F. Friedman, Dallas, TX, for Petitioner. authority to resolve any dispute relating to the interpretation,
applicability, enforceability or formation of this Agreement
Ian E. Silverberg, Reno, NV, for Respondent. including, but not limited to any claim that all or any part of
this Agreement is void or voidable.â Id., at 34.
Michael T. Garone, Schwabe, Williamson & Wyatt, P.C.,
Portland, OR, Ronald D. DeMoss, Andrew Trusevich, Mary Jackson opposed the motion on the ground that âthe
Harokopus, Plano, TX, Robert F. Friedman, Edward F. arbitration agreement in question is clearly unenforceable
Berbarie, Littler Mendelson, P.C., Dallas, TX, Henry D. in that it is unconscionableâ under Nevada law. Id., at 40.
Lederman, Littler Mendelson, P.C., Walnut Creek, CA, RentâAâCenter responded that Jackson's unconscionability
Carter G. Phillips, Sidley Austin LLP, Washington, DC, for claim was not properly before the court because Jackson
Petitioner. had expressly agreed that the arbitrator would have exclusive
authority to resolve any dispute about the enforceability
Ian E. Silverberg, Del Hardy, Hardy & Associates, Reno,
of the Agreement. It also disputed the merits of Jackson's
NV, Scott L. Nelson, Deepak Gupta Public Citizen Litigation
unconscionability claims.
Group, Washington, D.C., F. Paul Bland, Jr., Matthew
Wessler, Amy Radon, Melanie Hirsch, Public Justice, P.C.,
The District Court granted RentâAâCenter's motion to
Washington, D.C., Arthur H. Bryant, Leslie A. Bailey,
dismiss the proceedings and to compel arbitration. The court
Leslie N. Brueckner, Public Justice, P.C., Oakland, CA, for
found that the Agreement â â âclearly and unmistakenly [sic]
Respondent.
â â â gives the arbitrator exclusive authority to decide whether
Opinion the Agreement is enforceable, App. to Pet. for Cert. 4a.
(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
Justice SCALIA delivered the opinion of the Court. 79, 83, 123 S.Ct. 588,154 L.Ed.2d 491
(2002)), and, because
Jackson challenged the validity of the Agreement as a whole,
*65 We consider whether, under the Federal Arbitration Act the issue was for **2776 the arbitrator, App. to Pet. for
(FAA or Act), 9 U.S.C. §§ 1â16, a district court may decide a Cert. 4a (citing Buckeye Check Cashing, Inc. v. Cardegna,
claim that an arbitration agreement is unconscionable, where 546 U.S. 440, 444â445,126 S.Ct. 1204
,163 L.Ed.2d 1038
the agreement explicitly assigns that decision to the arbitrator. (2006)). The court noted that even if it were to examine
the merits of Jackson's unconscionability claims, it would
have rejected the claim that the agreement to split arbitration
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
... fees was substantively unconscionable under Nevada law. of Trustees of Leland *68 Stanford Junior Univ., 489 It did not address Jackson's procedural or other substantive U.S. 468, 478,109 S.Ct. 1248
,103 L.Ed.2d 488
(1989).
unconscionability arguments. Like other contracts, however, they may be invalidated by
âgenerally applicable contract defenses, such as fraud, duress,
Without oral argument, a divided panel of the Court of or unconscionability.â Doctor's Associates, Inc. v. Casarotto,
Appeals for the Ninth Circuit reversed in part, affirmed in 517 U.S. 681, 687,116 S.Ct. 1652
,134 L.Ed.2d 902
(1996). part, and remanded.581 F.3d 912
(2009). The court reversed
on the question of who (the court or arbitrator) had *67 the The Act also establishes procedures by which federal courts
authority to decide whether the Agreement is enforceable. implement § 2's substantive rule. Under § 3, a party may apply
It noted that âJackson does not dispute that the language of to a federal court for a stay of the trial of an action âupon any
the Agreement clearly assigns the arbitrability determination issue referable to arbitration under an agreement in writing
to the arbitrator,â but held that where âa party challenges for such arbitration.â Under § 4, a party âaggrievedâ by the
an arbitration agreement as unconscionable, and thus asserts failure of another party âto arbitrate under a written agreement
that he could not meaningfully assent to the agreement, the for arbitrationâ may petition a federal court âfor an order
threshold question of unconscionability is for the court.â directing that such arbitration proceed in the manner provided
Id., at 917. The Ninth Circuit affirmed the District Court's for in such agreement.â The court âshallâ order arbitration
alternative conclusion that the fee-sharing provision was not âupon being satisfied that the making of the agreement for
substantively unconscionable and remanded for consideration arbitration or the failure to comply therewith is not in issue.â
of Jackson's other unconscionability arguments. Id., at 919â Ibid.
920, and n. 3. Judge Hall dissented on the ground that âthe
question of the arbitration agreement's validity should have **2777 The Agreement here contains multiple âwritten
gone to the arbitrator, as the parties âclearly and unmistakably
provision[s]â to âsettle by arbitration a controversy,â § 2.
provide[d]â in their agreement.â Id., at 921. Two are relevant to our discussion. First, the section titled
âClaims Covered By The Agreementâ provides for arbitration
We granted certiorari, 558 U.S. 1142,130 S.Ct. 1133
, 175 of all âpast, present or futureâ disputes arising out of Jackson's
L.Ed.2d 941 (2010). employment with RentâAâCenter. App. 29. Second, the
section titled âArbitration Proceduresâ provides that â[t]he
Arbitrator ... shall have exclusive authority to resolve any
dispute relating to the ... enforceability ... of this Agreement
II
including, but not limited to any claim that all or any part of
this Agreement is void or voidable.â Id., at 32, 34. The current
A âcontroversyâ between the parties is whether the Agreement
is unconscionable. It is the second provision, which delegates
[1] [2] The FAA reflects the fundamental principle that
resolution of that controversy to the arbitrator, that RentâAâ
arbitration is a matter of contract. Section 2, the âprimary
Center seeks to enforce. Adopting the terminology used by
substantive provision of the Act,â Moses H. Cone Memorial
the parties, we will refer to it as the delegation provision.
Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24,103 S.Ct. 927
,74 L.Ed.2d 765
(1983), provides: The delegation provision is an agreement to arbitrate
threshold issues concerning the arbitration agreement. We
âA written provision in ... a contract evidencing a
have recognized that parties can agree to arbitrate âgateway
transaction involving commerce to settle by arbitration a
*69 â questions of âarbitrability,â such as whether the
controversy thereafter arising out of such contract ... shall
parties have agreed to arbitrate or whether their agreement
be valid, irrevocable, and enforceable, save upon such
covers a particular controversy. See, e.g., Howsam, 537 U.S.,
grounds as exist at law or in equity for the revocation of
at 83â85, 123 S.Ct. 588; Green Tree Financial Corp. v. any contract.â9 U.S.C. § 2
.
Bazzle, 539 U.S. 444, 452,123 S.Ct. 2402
, 156 L.Ed.2d The FAA thereby places arbitration agreements on an equal 414 (2003) (plurality opinion). This line of cases merely footing with other contracts,Buckeye, supra, at 443
, 126 reflects the principle that arbitration is a matter of contract.1 S.Ct. 1204
, and requires courts to enforce them according SEE *70 FIrst options of ChicaGO, inc. v. Kaplan, 514 to their terms, Volt Information Sciences, Inc. v. Board U.s. 938, 943,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995). An
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
... agreement to arbitrate a gateway issue is simply an additional, 1801. âTo immunize an arbitration agreement from judicial antecedent agreement the party seeking arbitration asks the challenge on the ground of fraud in the inducement would be federal **2778 court to enforce, and the FAA operates on to elevate it over other forms of contract,â id., at 404, n. 12, this additional arbitration agreement just as it does on any87 S.Ct. 1801
. In some cases the claimed basis of invalidity
other. The additional agreement is valid under § 2 âsave upon for the contract as a whole will be much easier to establish
such grounds as exist at law or in equity for the revocation of than the same basis as applied only to the severable agreement
any contract,â and federal courts can enforce the agreement by to arbitrate. Thus, in an employment contract many elements
staying federal litigation under § 3 and compelling arbitration of alleged unconscionability applicable to the entire contract
under § 4. The question before us, then, is whether the (outrageously low wages, for example) would not affect the
delegation provision is valid under § 2. agreement to arbitrate alone. But even where that is not the
caseâas in Prima Paint itself, where the alleged fraud that
induced the whole contract equally induced the agreement
to arbitrate which was part of that contractâwe nonetheless
B
require the basis of challenge to be directed specifically to the
[3] There are two types of validity challenges under § agreement to arbitrate before the court will intervene.
2: âOne type challenges specifically the validity of the
agreement to arbitrate,â and â[t]he other challenges the **2779 Here, the âwritten provision ... to settle by
contract as a whole, either on a ground that directly affects arbitration a controversy,â 9 U.S.C. § 2, that RentâAâCenter the entire agreement (e.g., the agreement was fraudulently asks us to enforce is the delegation provisionâthe provision induced), or on the ground that the illegality of one of the that gave the arbitrator âexclusive authority to resolve any contract's provisions renders the whole contract invalid.â dispute relating to the ... enforceability ... of this Agreement,â Buckeye,546 U.S., at 444
,126 S.Ct. 1204
. In a line of App. 34. The âremainder of the contract,âBuckeye, supra,
at cases neither party has asked us to overrule, we held that 445,126 S.Ct. 1204
, is the rest of the agreement to arbitrate
only the first type of challenge is relevant to a court's claims arising out of Jackson's employment with RentâAâ
determination whether the arbitration agreement at issue is Center. To be sure this case differs from Prima Paint,
Buckeye, and Preston, *72 in that the arbitration provisions
enforceable. 2 See Prima Paint Corp. v. Flood & Conklin
sought to be enforced in those cases were contained in
Mfg. Co., 388 U.S. 395, 403â404,87 S.Ct. 1801
, 18 L.Ed.2d
contracts unrelated to arbitrationâcontracts for consulting
1270 (1967); Buckeye, supra,at 444â446,126 S.Ct. 1204
;
services, see Prima Paint, supra, at 397, 87 S.Ct. 1801, Preston v. Ferrer,552 U.S. 346
, 353â354,128 S.Ct. 978
,
check-cashing services, see Buckeye, supra, at 442, 126169 L.Ed.2d 917
(2008). That is because § 2 states that a
S.Ct. 1204, and âpersonal managementâ or âtalent agentâ
âwritten provisionâ âto settle by arbitration a controversyâ
services, see Preston, supra, at 352,128 S.Ct. 978
. In
is âvalid, irrevocable, and enforceableâ without mention of
this case, the underlying contract is itself an arbitration
the validity of the contract in which it is contained. Thus,
a party's challenge to another provision of the contract, or agreement. But that makes no difference. 3 Application of
to the contract as a whole, does not prevent a court from the severability rule does not depend on the substance of the
enforcing a specific agreement to arbitrate. â[A]s a matter remainder of the contract. Section 2 operates on the specific
of substantive federal *71 arbitration law, an arbitration âwritten provisionâ to âsettle by arbitration a controversyâ
provision is severable from the remainder of the contract.â that the party seeks to enforce. Accordingly, unless Jackson
Buckeye, 546 U.S., at 445,126 S.Ct. 1204
; see alsoid., at 447
, challenged the delegation provision specifically, we must126 S.Ct. 1204
(the severability rule is based on § 2). treat it as valid under § 2, and must enforce it under §§ 3 and
4, leaving any challenge to the validity of the Agreement as
[4] But that agreements to arbitrate are severable does not a whole for the arbitrator.
mean that they are unassailable. If a party challenges the
validity under § 2 of the precise agreement to arbitrate at
issue, the federal court must consider the challenge before C
ordering compliance with that agreement under § 4. In Prima
Paint, for example, if the claim had been âfraud in the [5] The District Court correctly concluded that Jackson
inducement of the arbitration clause itself,â then the court challenged only the validity of the contract as a whole.
would have considered it. 388 U.S., at 403â404, 87 S.Ct. Nowhere in his opposition to RentâAâCenter's motion to
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
compel arbitration did he even mention the delegation delegation provision rendered that provision unconscionable,
provision. See App. 39â47. RentâAâCenter noted this fact the challenge should have been considered by the court.
in its reply: *73 â[Jackson's response] fails to rebut or To make such a claim based on the discovery procedures,
otherwise address in any way [RentâAâCenter's] argument Jackson would have had to argue that the limitation upon
that the Arbitrator must decide [Jackson's] challenge to the the number of depositions causes the arbitration of his claim
enforceability of the Agreement. Thus, [RentâAâCenter's] that the Agreement is unenforceable to be unconscionable.
argument is uncontested.â Id., at 50 (emphasis in original). That would be, of course, a much more difficult argument
to sustain than the argument that the same limitation renders
The arguments Jackson made in his response to Rentâ arbitration of his factbound employment-discrimination
AâCenter's motion to compel arbitration support this claim unconscionable. Likewise, the unfairness of the fee-
conclusion. Jackson stated that âthe entire agreement seems splitting arrangement may be more difficult to establish
drawn to provide [RentâAâCenter] with undue advantages for the arbitration of enforceability than for arbitration
should an employment-related dispute arise.â Id., at 44 of more complex and fact-related aspects of the alleged
(emphasis added). At one point, he argued that the employment discrimination. Jackson, however, did not make
limitations on discovery âfurther suppor[t][his] contention any arguments specific to the delegation provision; he argued
that the arbitration agreement as a whole is substantively that the fee-sharing and discovery procedures rendered the
unconscionable.â Ibid. (emphasis added). And before this entire Agreement invalid.
Court, Jackson describes his challenge in the District Court
as follows: He âopposed the motion to compel on the ground Jackson's appeal to the Ninth Circuit confirms that he did not
that the entire arbitration agreement, including the delegation contest the validity of the delegation provision in particular.
clause, was unconscionable.â Brief for Respondent 55 His brief noted the existence of the delegation provision, Brief
(emphasis added). **2780 That is an accurate description of for Appellant in No. 07â16164, p. 3, but his unconscionability
his filings. arguments made no mention of it, id., at 3â7. He also repeated
the arguments he had made before the District Court, see
As required to make out a claim of unconscionability supra, at 2779, that the âentire agreementâ favors Rentâ
under Nevada law, see 581 F.3d, at 919, he contended AâCenter and that the limitations on discovery further his that the Agreement was both procedurally and substantively âcontention that the arbitration agreement as a whole is unconscionable. It was procedurally unconscionable, he substantively unconscionable,â Brief for Appellant *75 7â8. argued, because it âwas imposed as a condition of Finally, he repeated the argument made in his District Court employment and was non-negotiable.â App. 41. But we need filings, that under state law the unconscionable clauses could not consider that claim because none of Jackson's substantive not be severed from the arbitration agreement, seeid.,
at 8â unconscionability challenges was specific to the delegation 9. 4 The **2781 point of this argument, of course, is that the provision. First, he argued that the Agreement's coverage Agreement as a whole is unconscionable under state law. was one sided in that it required arbitration of claims an employee was likely to bringâcontract, tort, discrimination, Jackson repeated that argument before this Court. At oral and statutory claimsâbut did not require arbitration of claims argument, counsel stated: âThere are certain elements of RentâAâCenter was likely to bringâintellectual property, the arbitration agreement that are unconscionable and, under unfair competition, and trade secrets claims.Id.,
at 42â43. Nevada law, which would render the entire arbitration
This one-sided-coverage argument clearly did not go to the agreement unconscionable.â Tr. of Oral Arg. 43 (emphasis
validity of the delegation provision. added). And again, he stated, âwe've got both certain
provisions that are unconscionable, that under Nevada law
*74 Jackson's other two substantive unconscionability render the entire agreement unconscionable ..., and that's
arguments assailed arbitration procedures called for by the what the Court is to rely on.â Id., at 43â44 (emphasis added).
contractâthe fee-splitting arrangement and the limitations
on discoveryâprocedures that were to be used during [6] In his brief to this Court, Jackson made the contention,
arbitration under both the agreement to arbitrate employment- not mentioned below, that the delegation provision itself is
related disputes and the delegation provision. It may be substantively unconscionable because the quid pro quo he
that had Jackson challenged the delegation provision by was supposed to receive for itâthat âin exchange for initially
arguing that these common procedures as applied to the allowing an arbitrator to decide certain gateway questions,â
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
... he would receive âplenary post-arbitration judicial reviewââ exclusively arbitration makes all the difference in the Prima was eliminated by the Court's subsequent holding in Hall Paint analysis. Street Associates, L.L.C. v. Mattel, Inc.,552 U.S. 576
,128 S.Ct. 1396
,170 L.Ed.2d 254
(2008), that the nonplenary
grounds for judicial review in § 10 of the FAA are exclusive.
I
Brief for Respondent 59â60. He brought this challenge to the
delegation provision too late, *76 and we will not consider Under the Federal Arbitration Act (FAA), 9 U.S.C. §§
it. 5 See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, ââââ, 129 1â16, parties generally have substantial leeway to define S.Ct. 1456, 1473â74,173 L.Ed.2d 398
(2009). the terms and scope of their agreement to settle disputes
in an arbitral forum. â[A]rbitration is,â after all, âsimply a
matter of contract between the parties; it is a way to resolve
those disputesâbut only those disputesâthat the parties have
***
agreed to submit to arbitration.â First Options of Chicago,
We reverse the judgment of the Court of Appeals for the Ninth Inc. v. Kaplan, 514 U.S. 938, 943,115 S.Ct. 1920
, 131
Circuit. L.Ed.2d 985 (1995). The FAA, therefore, envisions a limited
role for courts asked to stay litigation and refer disputes to
It is so ordered. arbitration.
Certain issuesâthe kind that âcontracting parties would
Justice STEVENS, with whom Justice GINSBURG, Justice likely have expected a court to have decidedââremain
BREYER, and Justice SOTOMAYOR join, dissenting. within the province of judicial review. Howsam v. Dean
Neither petitioner nor respondent has urged us to adopt Witter Reynolds, Inc., 537 U.S. 79, 83,123 S.Ct. 588
, 154 the rule the Court does today: Even when a litigant has L.Ed.2d 491 (2002); see also Green Tree Financial Corp. specifically challenged the validity of an agreement to v. Bazzle,539 U.S. 444, 452
,123 S.Ct. 2402
, 156 L.Ed.2d arbitrate he must submit that challenge to the arbitrator 414 (2003) (plurality opinion); AT & T Technologies, Inc. v. unless he has lodged an objection to the particular line in Communications Workers,475 U.S. 643, 649
,106 S.Ct. 1415
, the agreement that purports to assign such challenges to the89 L.Ed.2d 648
(1986). These issues are âgateway matter[s]â
arbitratorâthe so-called âdelegation clause.â because they are necessary antecedents to enforcement of an
arbitration agreement; they raise questions the parties âare not
The Court asserts that its holding flows logically from Prima likely to have thought that they had agreed that an arbitrator
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, wouldâ decide. Howsam,537 U.S., at 83
,123 S.Ct. 588
.87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967), in which the Court Quintessential gateway matters include âwhether the parties held that consideration of a contract revocation defense is have a valid arbitration agreement at all,â Bazzle, 539 U.S., at generally a matter for the arbitrator, unless the defense is 452,123 S.Ct. 2402
(plurality opinion); âwhether the parties specifically directed at the arbitration clause, id., at 404, 87 are bound by a given arbitration clause,â Howsam, *78537 S.Ct. 1801
. We have treated this holding as a severability rule: U.S., at 84, 123 S.Ct. 588
; and âwhether an arbitration clause When a party challenges a contract, âbut not specifically its in a concededly binding contract applies to a particular type arbitration provisions, those provisions are enforceable apart of controversy,âibid.
It would be bizarre to send these types from the remainder of the contract.â Buckeye Check Cashing, of gateway matters to the arbitrator as a matter of course, Inc. v. Cardegna,546 U.S. 440, 446
,126 S.Ct. 1204
, 163 because they raise a â âquestion of arbitrability.â â 1 See, e.g., L.Ed.2d 1038 (2006). The Court's decision today goes beyond ibid.; First Options,514 U.S., at 947
,115 S.Ct. 1920
.
Prima *77 Paint. Its breezy assertion that the subject matter
of the contract at issueâin this case, an arbitration **2782 â[Q]uestion[s] of arbitrabilityâ thus include questions
agreement and nothing moreââ makes no difference,â ante, regarding the existence of a legally binding and valid
at 2779, is simply wrong. This written arbitration agreement arbitration agreement, as well as questions regarding the
is but one part of a broader employment agreement between scope of a concededly binding arbitration agreement. In this
the parties, just as the arbitration clause in Prima Paint was case we are concerned with the first of these categories:
but one part of a broader contract for services between those whether the parties have a valid arbitration agreement. This
parties. Thus, that the subject matter of the agreement is
is an issue the FAA assigns to the courts. 2 Section 2 of the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
... FAA dictates that covered arbitration agreements âshall be challenges the validity of the arbitration agreement itself, on valid, irrevocable, and enforceable, save upon such grounds a ground arising from an infirmity in that agreement. The as exist at law or in equity for the revocation of any contract.â other challenges the validity of the arbitration agreement9 U.S.C. § 2
. **2783 â[S]uch grounds,â which relate to tangentiallyâvia a claim that the entire contract (of which contract validity and formation, include the claim at issue in the arbitration agreement is but a part) is invalid for **2784 this case, unconscionability. See Doctor's Associates, Inc. v. some reason. See Buckeye,546 U.S., at 444
,126 S.Ct. 1204
. Casarotto,517 U.S. 681, 687
,116 S.Ct. 1652
, 134 L.Ed.2d Under Prima Paint, a challenge of the first type goes to the
902 (1996). court; a challenge of the second type goes to the arbitrator. See
388 U.S., at 403â404, 87 S.Ct. 1801; see also Buckeye, 546 Two different lines of cases bear on the issue of who decides U.S., at 444â445,126 S.Ct. 1204
. The Prima Paint rule is akin
a question of arbitrability respecting validity, such as whether to a pleading standard, whereby a party seeking to challenge
an arbitration agreement is unconscionable. Although this the validity of an arbitration agreement must expressly say so
issue, as a gateway matter, is typically for the court, we have in order to get his dispute into court.
explained that such an issue can be delegated to the arbitrator
in some circumstances. When the parties have purportedly In sum, questions related to the validity of an arbitration
done so, courts must examine two distinct rules to decide agreement are usually matters for a court to resolve before it
whether the delegation is valid. refers a dispute to arbitration. But questions of arbitrability
may go to the arbitrator in two instances: (1) when the
*79 The first line of cases looks to the parties' intent. parties have demonstrated, clearly and unmistakably, that
In AT & T Technologies, we stated that âquestion[s] of it is their intent to do so; or (2) when the validity of an
arbitrabilityâ may be delegated to the arbitrator, so long arbitration agreement depends exclusively on the validity of
as the delegation is clear and unmistakable. 475 U.S., at the substantive contract of which it is a part.
649, 106 S.Ct. 1415. We reaffirmed this rule, and added
some nuance, in First Options. Against the background
presumption that questions of arbitrability go to the court, we
II
stated that federal courts should âgenerallyâ apply âordinary
state-law principles that govern the formation of contractsâ We might have resolved this case by simply applying the First
to assess âwhether the parties agreed to arbitrate a certain Options rule: Does the arbitration agreement at issue âclearly
matter (including arbitrability).â 514 U.S., at 944, 115 S.Ct. and unmistakablyâ evince petitioner's and respondent's intent
1920. But, we added, a more rigorous standard applies when
to submit questions of arbitrability to the arbitrator? 6 The
the inquiry is whether the parties have âagreed to arbitrate
answer to that question is no. Respondent's *81 claim that
arbitrabilityâ: â Courts should not assume that the parties
the arbitration agreement is unconscionable undermines any
agreed to arbitrate arbitrability unless there is clear and
suggestion that he âclearlyâ and âunmistakablyâ assented
unmistakable evidence that they did so.â 3 Ibid. (internal to submit questions of arbitrability to the arbitrator. See
quotation marks and brackets omitted). Justice BREYER's Restatement (Second) of Contracts § 208, Comment d (1979)
unanimous opinion for the Court described this standard as (â[G]ross inequality of bargaining power, together with
a type of ârevers [e]â âpresumptionâ 4 âone in favor of a terms unreasonably favorable to the stronger party, may
judicial, rather than an arbitral, forum. Id., at 945, 115 S.Ct. confirm indications that the transaction involved elements of
1920. Clear and unmistakable â evidenceâ of agreement to deception or compulsion, or may show that the weaker party
arbitrate arbitrability might include, as was urged in First had no meaningful choice, no real alternative, or did not in
Options, a course of conduct demonstrating assent, 5 id., at fact assent or appear to assent to the unfair termsâ); American
946, 115 S.Ct. 1920, or, as is urged in this case, an express Airlines, Inc. v. Wolens,513 U.S. 219, 249
,115 S.Ct. 817
, 130
*80 agreement to do so. In any event, whether such evidence L.Ed.2d 715 (1995) (O'Connor, J., concurring in judgment
exists is a matter for the court to determine. and dissenting in part) (â[A] determination that a contract
is âunconscionableâ may in fact be a determination that one
The second line of cases bearing on who decides the validity party did not intend to agree to the terms of the contractâ). 7
of an arbitration agreement, as the Court explains, involves The *82 fact that the **2785 agreement's âdelegationâ
the Prima Paint rule. See ante, at 2777 â 2778. That provision suggests assent is beside the point, because the
rule recognizes two types of validity challenges. One type
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
... gravamen of respondent's claim is that he never consented to cases like Prima Paint, we are concerned with how the parties the terms in his agreement. challenge the validity of the agreement. In other words, when a party raises a good-faith validity Under the Prima Paint inquiry, recall, we consider whether challenge to the arbitration agreement itself, that issue the parties are actually challenging the validity of the must be resolved before a court can say that he clearly arbitration agreement, or whether they are challenging, and unmistakably intended to arbitrate that very validity **2786 more generally, the contract within which an question. This case well illustrates the point: If respondent's arbitration clause is nested. In the latter circumstance, we unconscionability claim is correctâi.e., if the terms of the assume there is no infirmity per se with the arbitration agreement are so one-sided and the process of its making agreement, i.e., there are no grounds for revocation of so unfairâit would contravene the existence of clear and the arbitration agreement itself under § 2 of the FAA. unmistakable assent to arbitrate the very question petitioner Accordingly, we *84 commit the parties' general contract now seeks to arbitrate. Accordingly, it is necessary for the dispute to the arbitrator, as agreed. court to resolve the merits of respondent's unconscionability claim in order to decide whether the parties have a valid The claim in Prima Paint was that one party would not arbitration agreement under § 2. Otherwise, that section's have agreed to contract with the other for services had it preservation of revocation issues for the Court would be known the second party was insolvent (a fact known but meaningless. not disclosed at the time of contracting).388 U.S., at 398
,
87 S.Ct. 1801. There was, therefore, allegedly fraud in the This is, in essence, how I understand the Court of Appeals to inducement of the contractâa contract which also delegated have decided the issue below. See581 F.3d 912, 917
(C.A.9 disputes to an arbitrator. Despite the fact that the claim raised 2009) (â[W]e hold that where, as here, a party challenges would have, if successful, rendered the embedded arbitration an arbitration agreement as unconscionable, and thus asserts clause void, the Court held that the merits of the dispute that he could not meaningfully assent to the agreement, the were for the arbitrator, so long as the claim of âfraud in threshold question of unconscionability is for the courtâ). I the inducementâ did not go to validity of âthe arbitration would therefore affirm its judgment, leaving, as it did, the clause itself.â Id., at 403,87 S.Ct. 1801
(emphasis added).
merits of respondent's unconscionability claim for the District Because, in Prima Paint, âno claim ha[d] been advanced
Court to resolve on remand. by Prima Paint that [respondent] fraudulently induced it
to enter into the agreement to arbitrate,â and because the
arbitration agreement was broad enough to cover the dispute,
the arbitration agreement was enforceable with respect to the
*83 III
controversy at hand. Id., at 406,87 S.Ct. 1801
.
Rather than apply First Options, the Court takes us down a
different path, one neither briefed by the parties nor relied The Prima Paint rule has been denominated as one related to
upon by the Court of Appeals. In applying Prima Paint, severability. Our opinion in Buckeye, set out these guidelines:
the Court has unwisely extended a âfantasticâ and likely
âFirst, as a matter of substantive federal arbitration law,
erroneous decision. 388 U.S., at 407,87 S.Ct. 1801
(Black,
an arbitration provision is severable from the remainder
J., dissenting). 8 of the contract. Second, unless the challenge is to the
arbitration clause itself, the issue of the contract's validity is
As explained at the outset, see supra, at 2783 â 2785, this case considered by the arbitrator in the first instance.â 546 U.S.,
lies at a seeming crossroads in our arbitration jurisprudence. It at 445â446, 126 S.Ct. 1204. implicates cases such as First Options, which address whether the parties intended to delegate questions of arbitrability, and Whether the general contract defense renders the entire also those cases, such as Prima Paint, which address the agreement void or voidable is irrelevant.Id., at 446
, 126 S.Ct. severability of a presumptively valid arbitration agreement 1204. All that matters is whether the party seeking to present from a potentially invalid contract. The question of âWho the issue to a court has brought a âdiscrete challenge,â Preston decides?ââarbitrator or courtâanimates both lines of cases, v. Ferrer,552 U.S. 346, 354
,128 S.Ct. 978
,169 L.Ed.2d 917
but they are driven by different concerns. In cases like First (2008), âto the validity of the ... arbitration clause.â Buckeye, Options, we are concerned with the parties' intentions. In546 U.S., at 449
,126 S.Ct. 1204
.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
1204. If respondent then came into court claiming that the
*85 Prima Paint and its progeny allow a court to pluck from contract was illegal as a whole for some reason unrelated to
a potentially invalid contract a potentially valid arbitration the arbitration provision, the Prima Paint rule would apply,
agreement. Today the Court adds a new layer of severability and such a general challenge to the subject matter of the
âsomething akin to Russian nesting dollsâinto the mix: contract would go to the arbitrator. Such a challenge would
Courts may now pluck from a potentially invalid arbitration not call into question the making of the arbitration agreement
agreement even narrower provisions that refer particular or its invalidity per se.
arbitrability disputes to an arbitrator. See ante, at 2777 â 2778.
I do not think an agreement to arbitrate can ever manifest a Before today, however, if respondent instead raised a
clear and unmistakable intent to arbitrate its own validity. But challenge specific to âthe validity of the agreement to
even assuming otherwise, I certainly would not hold that the arbitrateââfor example, that the agreement to arbitrate was
Prima Paint rule extends this far. void under state lawâthe challenge would have gone to the
court. That is what Buckeye says. See 546 U.S., at 444, 126 In my view, a general revocation challenge to a standalone S.Ct. 1204. But the Court now declares that Prima Paint's arbitration agreement is, invariably, a challenge to the pleading rule requires more: A party must lodge a challenge â âmakingâ â of the arbitration agreement itself, Prima with even greater specificity than what would have satisfied Paint,388 U.S., at 403
,87 S.Ct. 1801
, and therefore, the Prima Paint Court. A claim that an entire arbitration under Prima Paint, must be decided by the court. A agreement is invalid will not go to the court unless the party claim of procedural unconscionability aims to undermine challenges the particular sentences that delegate such claims the formation of the arbitration agreement, much like a to the arbitrator, on some contract ground that is particular claim of unconscionability aims to undermine the clear- and unique to those sentences. See ante, at 2779 â 2780. and-unmistakable-intent requirement necessary for a valid delegation of a âdiscreteâ challenge to the validity of the It would seem the Court reads Prima Paint to require, arbitration agreement itself, Preston,552 U.S., at 354
, 128 as a matter of course, infinite layers of severability: We
S.Ct. 978. Moreover, because we are dealing in this case must always pluck from an arbitration agreement the
with a challenge **2787 to an independently executed specific delegation *87 mechanism that wouldâbut for
arbitration agreementârather than a clause contained in a present judicial reviewâcommend the matter to arbitration,
contract related to another subject matterâany challenge to even if this delegation clause is but one sentence within
the contract itself is also, necessarily, a challenge to the one paragraph within a standalone agreement. And, most
arbitration agreement. 9 They are one and the same. importantly, the party must identify this one sentence and
lodge a specific challenge to its validity. Otherwise, he will
The Court, however, reads the delegation clause as a distinct be bound to pursue his validity claim in arbitration.
mini-arbitration agreement divisible from the contract in
which it residesâwhich just so happens also to be an Even if limited to separately executed arbitration agreements,
arbitration agreement. Ante, at 2777 â 2778. Although the however, such an infinite severability rule is divorced from
Court *86 simply declares that it âmakes no differenceâ that the underlying rationale of Prima Paint. The notion that a
the underlying subject matter of the agreement is itself an party may be bound by an arbitration clause in a contract that
arbitration agreement, ante, at 2777 â 2778, that proposition is nevertheless invalid may be difficult for any lawyerâor
does not follow fromârather it is at odds withâPrima Paint any personâto accept, but this is the law of Prima Paint.
's severability rule. It reflects **2788 a judgment that the â ânational policy
favoring arbitration,â â Preston, 552 U.S., at 353, 128 S.Ct. Had the parties in this case executed only one contract, on 978, outweighs the interest in preserving a judicial forum two sheets of paperâone sheet with employment terms, and a for questions of arbitrabilityâbut only when questions of second with arbitration termsâthe contract would look much arbitrability are bound up in an underlying dispute. Prima like the one in Buckeye. There would be some substantive Paint,388 U.S., at 404
,87 S.Ct. 1801
. When the two are terms, followed by some arbitration terms, including what we so bound up, there is actually no gateway matter at all: The now call a delegation clauseâi.e., a sentence or two assigning question âWho decidesâ is the entire ball game. Were a to the arbitrator any disputes related to the validity of the court to decide the fraudulent inducement question in Prima arbitration provision. See Buckeye,546 U.S., at 442
, 126 S.Ct. Paint, in order to decide the antecedent question of the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
underlying dispute, which involves a claim of employment
validity of the included arbitration agreement, then it would
discrimination. This is true for all gateway matters, and for
also, necessarily, decide the merits of the underlying dispute.
this reason Prima Paint has no application in this case.
Same, too, for the question of illegality in Buckeye; on its
way to deciding the arbitration agreement's validity, the court
would have to decide whether the contract was illegal, and in
so doing, it would decide the merits of the entire dispute. IV
In this case, however, resolution of the unconscionability While I may have to accept the âfantasticâ holding in Prima
question will have no bearing on the merits of the underlying Paint, id., at 407, 87 S.Ct. 1801 (Black, J., dissenting), I
employment dispute. It will only, as a preliminary matter, most certainly do not accept the Court's even more fantastic
resolve who should decide the merits of that dispute. reasoning today. I would affirm the judgment of the Court of
Resolution of the unconscionability question will, however, Appeals, and therefore respectfully dissent.
decide whether the arbitration agreement itself is âvalidâ
under âsuch grounds as exist at law or in equity for the
Parallel Citations
revocation *88 of any contract.â 9 U.S.C. § 2. As Prima Paint recognizes, the FAA commits those gateway matters,130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
, 93 specific to the arbitration agreement, to the court. 388 U.S.,Empl. Prac. Dec. P 43,916
,177 L.Ed.2d 403
,78 USLW 4643
, at 403â404,87 S.Ct. 1801
. Indeed, it is clear that the10 Cal. Daily Op. Serv. 7707
, 2010 Daily Journal D.A.R. present controversy over whether the arbitration agreement 9338,22 Fla. L. Weekly Fed. S 518
is unconscionable is itself severable from the merits of the
Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337,26 S.Ct. 282
,50 L.Ed. 499
. 1 There is one caveat. First Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 944
,115 S.Ct. 1920
,131 L.Ed.2d 985
(1995), held that
â[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is âclea[r] and unmistakabl[e]â evidence that
they did so.â The parties agree the heightened standard applies here. See Brief for Petitioner 21; Brief for Respondent 54. The District
Court concluded the âAgreement to Arbitrate clearly and unmistakenly [sic] provides the arbitrator with the exclusive authority to
decide whether the Agreement to Arbitrate is enforceable.â App. to Pet. for Cert. 4a. The Ninth Circuit noted that Jackson did not
dispute that the text of the Agreement was clear and unmistakable on this point. 581 F.3d 912, 917 (2009). He also does not dispute
it here. What he argues now, however, is that it is not âclear and unmistakableâ that his agreement to that text was valid, because
of the unconscionability claims he raises. See Brief for Respondent 54â55. The dissent makes the same argument. See post, at 2783
â 2785 (opinion of STEVENS, J.).
This mistakes the subject of the First Options âclear and unmistakableâ requirement. It pertains to the parties' manifestation of
intent, not the agreement's validity. As explained in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83,123 S.Ct. 588
,154 L.Ed.2d 491
(2002), it is an âinterpretive rule,â based on an assumption about the parties' expectations. In âcircumstance[s] where
contracting parties would likely have expected a court to have decided the gateway matter,â ibid., we assume that is what they
agreed to. Thus, â[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to
arbitrate is to be decided by the court, not the arbitrator.â AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643,
649,106 S.Ct. 1415
,89 L.Ed.2d 648
(1986).
The validity of a written agreement to arbitrate (whether it is legally binding, as opposed to whether it was in fact agreed toâ
including, of course, whether it was void for unconscionability) is governed by § 2's provision that it shall be valid âsave upon such
grounds as exist at law or equity for the revocation of any contract.â Those grounds do not include, of course, any requirement that
its lack of unconscionability must be âclear and unmistakable.â And they are not grounds that First Options added for agreements
to arbitrate gateway issues; § 2 applies to all written agreements to arbitrate.
2 The issue of the agreement's âvalidityâ is different from the issue whether any agreement between the parties âwas ever concluded,â
and, as in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,126 S.Ct. 1204
,163 L.Ed.2d 1038
(2006), we address only the
former. Id., at 444, n. 1,126 S.Ct. 1204
.
3 The dissent calls this a âbreezy assertion,â post, at 2781, but it seems to us self-evident. When the dissent comes to discussing the
point, post, at 2787, it gives no logical reason why an agreement to arbitrate one controversy (an employment-discrimination claim)
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
is not severable from an agreement to arbitrate a different controversy (enforceability). There is none. Since the dissent accepts that
the invalidity of one provision within an arbitration agreement does not necessarily invalidate its other provisions, post, at 2784 â
2785, n. 7, it cannot believe in some sort of magic bond between arbitration provisions that prevents them from being severed from
each other. According to the dissent, it is fine to sever an invalid provision within an arbitration agreement when severability is a
matter of state law, but severability is not allowed when it comes to applying Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
U.S. 395,87 S.Ct. 1801
,18 L.Ed.2d 1270
(1967).
4 Jackson's argument fails. The severability rule is a âmatter of substantive federal arbitration law,â and we have repeatedly ârejected
the view that the question of âseverabilityâ was one of state law, so that if state law held the arbitration provision not to be severable
a challenge to the contract as a whole would be decided by the court.â Buckeye, 546 U.S., at 445,126 S.Ct. 1204
(citing Prima
Paint, 388 U.S., at 400, 402â403,87 S.Ct. 1801
; Southland Corp. v. Keating,465 U.S. 1
, 10â14,104 S.Ct. 852
,79 L.Ed.2d 1
(1984);
AlliedâBruce Terminix Cos. v. Dobson, 513 U.S. 265, 270â273,115 S.Ct. 834
,130 L.Ed.2d 753
(1995)). For the same reason, the
Agreement's statement that its provisions are severable, see App. 37, does not affect our analysis.
5 Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576,128 S.Ct. 1396
,170 L.Ed.2d 254
(2008), was decided after Jackson
submitted his brief to the Ninth Circuit, but that does not change our conclusion that he forfeited the argument. Jackson could have
submitted a supplemental brief during the year and a half between this Court's decision of Hall Street on March 25, 2008 and the
Ninth Circuit's judgment on September 9, 2009. Moreover, Hall Street affirmed a rule that had been in place in the Ninth Circuit
since 2003. Id.,at 583â584, and n. 5,128 S.Ct. 1396
.
1 Although it is not clear from our precedents, I understand âgateway mattersâ and âquestions of arbitrabilityâ to be roughly
synonymous, if not exactly so. At the very least, the former includes all of the latter.
2 Gateway issues involving the scope of an otherwise valid arbitration agreement also have a statutory origin. Section 3 of the FAA
provides that âupon being satisfied that the issue involved in such suit ... is referable to arbitration under such an agreement,â a court
âshall ... stay the trial of the action until such arbitration has been had.â 9 U.S.C. § 3.
3 We have not expressly decided whether the First Options delegation principle would apply to questions of arbitrability that implicate
§ 2 concerns, i.e., grounds for contract revocation. I do not need to weigh in on this issue in order to resolve the present case.
4 It is a ârevers[e]â presumption because it is counter to the presumption we usually apply in favor of arbitration when the question
concerns whether a particular dispute falls within the scope of a concededly binding arbitration agreement. First Options, 514 U.S.,
at 944â945, 115 S.Ct. 1920.
5 In First Options we found no clear and unmistakable assent to delegate to the arbitrator questions of arbitrability, given the parties'
conduct. Respondents in that case had participated in the arbitration, but only to object to proceeding in arbitration and to challenge
the arbitrators' jurisdiction. That kind of participationâin protest, to preserve legal claimsâdid not constitute unmistakable assent
to be bound by the result. Id.,at 946â947,115 S.Ct. 1920
.
6 Respondent has challenged whether he âmeaningfully agreed to the terms of the form Agreement to Arbitrate, which he contends is
procedurally and substantively unconscionable.â 581 F.3d 912, 917 (C.A.9 2009). Even if First Options relates only to âmanifestations
of intent,â as the Court states, see ante, at 2777, n. 1 (emphasis deleted), whether there has been meaningful agreement surely bears
some relation to whether one party has manifested intent to be bound to an agreement.
7 The question of unconscionability in this case is one of state law. See, e.g., Perry v. Thomas, 482 U.S. 483, 492, n. 9,
107 S.Ct. 2520,96 L.Ed.2d 426
(1987). Under Nevada law, unconscionability requires a showing of â âboth procedural and
substantive unconscionability,â â but âless evidence of substantive unconscionability is required in cases involving great procedural
unconscionability.â D.R. Horton, Inc. v. Green, 120 Nev. 549, 553â554,96 P.3d 1159, 1162
(2004). I understand respondent to
have claimed, in accord with Nevada law, that the arbitration agreement contained substantively unconscionable provisions, and
was also the product of procedural unconscionability as a whole. See Brief for Respondent 3 (â[Respondent] argued that the clause
is procedurally unconscionable because he was in a position of unequal bargaining power when it was imposed as a condition of
employmentâ); id., at 2776 â 2777 (identifying three distinct provisions of the agreement that were substantively unconscionable);
accord, 581 F.3d, at 917.
Some of respondent's arguments, however, could be understood as attacks not on the enforceability of the agreement as a whole but
merely on the fairness of individual contract terms. Such term-specific challenges would generally be for the arbitrator to resolve
(at least so long as they do not go to the identity of the arbitrator or the ability of a party to initiate arbitration). Cf. Restatement
(Second) of Contracts § 208 (1979) (providing that âa contract or term thereof [may be] unconscionableâ and that in the latter case
âthe remainder of the contract without the unconscionable termâ may be enforced).
8 Justice Black quite reasonably characterized the Court's holding in Prima Paint as âfantastic,â id., at 407, 87 S.Ct. 1801 (dissenting
opinion), because the holding was, in his view, inconsistent with the text of § 2 of the FAA, 388 U.S., at 412,87 S.Ct. 1801
, as well
as the intent of the draftsmen of the legislation, id., at 413â416, 87 S.Ct. 1801. Nevertheless, the narrow holding in that case has been
followed numerous times, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,126 S.Ct. 1204
,163 L.Ed.2d 1038
(2006),
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63(2010)130 S.Ct. 2772
,109 Fair Empl.Prac.Cas. (BNA) 897
,93 Empl. Prac. Dec. P 43,916
...
and Preston v. Ferrer, 552 U.S. 346,128 S.Ct. 978
,169 L.Ed.2d 917
(2008), and, as the Court correctly notes today, neither party
has asked us to revisit those cases, ante, at 2777 â 2778.
9 As respondent asserted in his opposition to petitioner's motion to compel arbitration, âthe lack of mutuality regarding the type of
claims that must be arbitrated, the fee provision, and the discovery provision, so permeate the Defendant's arbitration agreement that
it would be impossible to sever the offending provisions.â App. 45.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 13
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)
Court of Appeals had jurisdiction under the
Texas Arbitration Act (TAA) over interlocutory
312 S.W.3d 224
appeal of order denying request of purported
Court of Appeals of Texas,
successors of professional office condominium
Dallas.
complex owner to join arbitration between
SAXA INC., Las Colinas Office owner and construction contractor, as effect of
Investors L.P., and Las Colinas Office order was to stay or deny arbitration between
Condominium Association Inc., Appellants, contractor and owner's purported successors
on basis that there was no agreement to
v.
arbitrate, and TAA allowed a party to appeal an
DFD ARCHITECTURE INC., Appellee.
order granting an application to stay arbitration
No. 05â09â01245âCV. | April 29, 2010. commenced or threatened on application and
a showing that there is not an agreement to
Synopsis arbitrate. V.T.C.A., Civil Practice & Remedies
Background: Professional office condominium complex Code §§ 171.023, 171.098(a)(2).
owner initiated arbitration proceedings against construction
contractor that designed complex for owner, after buildings Cases that cite this headnote
in complex were damaged by water penetration. Owner's
purported successors sought to join arbitration. Contractor [2] Appeal and Error
filed petition for declaratory judgment, request for injunctive
relief, and motion to stay arbitration under the Texas Necessity
Arbitration Act (TAA), asserting that owner's purported of final determination
successors were not proper parties to arbitration. The 134th Appeal and Error
Judicial District Court, Dallas County, James M. Stanton,
J., ruled that owner's purported successors were not proper Interlocutory
parties to arbitration. Contractor filed interlocutory appeal. and Intermediate Decisions
Appellate courts have jurisdiction over final
judgments and such interlocutory orders as the
legislature deems appealable.
Holdings: The Court of Appeals, Fillmore, J., held that:
1 Cases that cite this headnote
[1] Court of Appeals had jurisdiction under the TAA over
interlocutory appeal, and
[3] Appeal and Error
[2] contract between owner and contractor delegated Jurisdiction
authority to determine substantive arbitrability, including
Appellate jurisdiction is never presumed.
joinder of parties, to arbitrator.
1 Cases that cite this headnote
Reversed and remanded.
[4] Appeal and Error
Want
West Headnotes (13) of jurisdiction
Unless the record affirmatively shows the
[1] Alternative Dispute Resolution propriety of appellate jurisdiction, the appellate
court must dismiss.
Decisions
reviewable; finality Cases that cite this headnote
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)
[5] Alternative Dispute Resolution 3 Cases that cite this headnote
Arbitrability
of dispute [8] Alternative Dispute Resolution
Contract between professional office Constitutional
condominium complex owner and construction and statutory provisions and rules of court
contractor delegated authority to determine
The issue of arbitrability is subject to a virtually
substantive arbitrability, including the joinder of
identical analysis under either the Federal
parties, to arbitrator, and, thus, issue of whether
Arbitration Act (FAA) or the Texas Arbitration
owner's purported successors were proper parties
Act (TAA). 9 U.S.C.A. § 1 et seq.; V.T.C.A.,
to join arbitration between owner and contractor
Civil Practice & Remedies Code § 171.001 et
was for arbitrator; parties agreed that any
seq.
claim, dispute, or other matter in question
arising out of or related to contract was subject Cases that cite this headnote
to arbitration, and that agreement extended
to owner's partners, successors, assigns, and
[9] Alternative Dispute Resolution
legal representatives, and they incorporated
construction industry arbitration rules of the Arbitrability
American Arbitration Association (AAA) into of dispute
their contract, giving arbitration panel the power
Parties to an arbitration agreement may agree
to rule on its own jurisdiction, including any
to submit matters of substantive arbitrability to
objections to existence, scope, or validity of
arbitration.
arbitration agreement.
1 Cases that cite this headnote
Cases that cite this headnote
[10] Alternative Dispute Resolution
[6] Alternative Dispute Resolution
Evidence
Arbitrability
of dispute Courts should not assume that the parties agreed
to arbitrate the issue of arbitrability unless there
Generally, the question of arbitrability is a
is clear and unmistakable evidence that they did
gateway issue to be decided by a court rather than
so.
an arbitrator.
4 Cases that cite this headnote
2 Cases that cite this headnote
[11] Alternative Dispute Resolution
[7] Alternative Dispute Resolution
Evidence
Existence
and validity of agreement In determining whether parties have agreed
to submit issue of arbitrability of matter to
Alternative Dispute Resolution
arbitration, silence or ambiguity about who
Arbitrability should decide the arbitrability issue should not
of dispute lead a court to presume the parties intended for
the issue to be decided by the arbitrator.
Gateway matters to be decided by a court rather
than an arbitrator include whether the parties 2 Cases that cite this headnote
agreed to arbitrate and whether a claim or dispute
is encompassed in the agreement to arbitrate.
[12] Alternative Dispute Resolution
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)
The trial court granted DFD's motion for summary judgment
Evidence
on its request for declaratory relief and found Office Investors
A broad arbitration clause, purporting to cover and the Condominium Association are not proper parties to
all claims, disputes, and other matters arising the arbitration. Appellants perfected this interlocutory appeal
out of or relating to the contract, creates a asserting (1) the trial court did not have authority to determine
presumption of arbitrability. whether Office Investors and the Condominium Association
are proper parties to the arbitration, (2) the trial court erred
Cases that cite this headnote
by admitting portions of DFD's summary judgment evidence,
(3) Office Investors and the Condominium Association are
[13] Alternative Dispute Resolution proper parties to the arbitration, and (4) Saxa may assign its
rights and claims under its contract with DFD. We conclude
Arbitrability
the contract between Saxa and DFD delegated the authority to
of dispute determine substantive arbitrability to the arbitrator. Because
When the parties agree to a broad arbitration the trial court erred by granting summary judgment on the
clause and explicitly incorporate rules that issue of whether Office Investors and the Condominium
empower an arbitrator to decide issues of Association are proper parties to the arbitration, we reverse
arbitrability, the incorporation serves as clear the trial court's judgment and remand to the trial court for
and unmistakable evidence of the parties' intent further proceedings.
to delegate such issues to an arbitrator.
2 Cases that cite this headnote
Background
Pursuant to a written contract, DFD agreed to design a
professional office condominium complex for Saxa. Saxa
Attorneys and Law Firms and DFD agreed that â[a]ny claim, dispute or other matter
in question arising out of or related toâ the contract âshall
*225 Jason Clay Spencer, R. Carson Fisk, Ford Nassen &
be subject to arbitration.â The parties further agreed any
Baldwin P.C., Austin, TX, for Appellants.
arbitration would be conducted âin accordance with the
Gregory N. Ziegler, Bryan Rutherford, Alexander George Construction Industry Arbitration Rules of the American
Blue, MacDonald Devin, P.C., Dallas, TX, for Appellee. Arbitration Association currently in effect.â The contract
bound Saxa and DFD, as well as their partners, successors,
Before Justices MORRIS, FRANCIS, and FILLMORE. assigns, and legal representatives âwith respect to all
covenants of this Agreement,â but also provided it did not
âcreate a contractual relationship with or a cause of action in
OPINION favor of a third partyâ against either Saxa or DFD. Finally,
the parties agreed:
Opinion By Justice FILLMORE.
No arbitration arising out of or relating
Saxa Inc. initiated an arbitration proceeding against DFD to this Agreement shall include, by
Architecture Inc. (DFD) based on a written contract consolidation or joinder or in any
containing an arbitration clause. Las Colinas Office Investors other manner, an additional person or
L.P. (Office Investors) 1 *226 and the Las Colinas entity not a party to this Agreement,
Office Condominium Association Inc. (Condominium except by written consent containing
Association) 2 sought to join the arbitration. DFD filed this a specific reference to this Agreement
action, requesting declaratory and injunctive relief from the and signed by [Saxa], [DFD], and
trial court to prevent the joinder. DFD also requested that the any other person or entity sought to
trial court stay the arbitration pursuant to the Texas General be joined.... The foregoing agreement
Arbitration Act (TAA). to arbitrate and other agreements to
arbitrate with an additional person
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)
or entity duly consented to by the
parties to this Agreement shall be
Jurisdiction
specifically enforceable in accordance
with applicable law in any court [1] We turn first to DFD's contention this Court does
having jurisdiction thereof. not have jurisdiction over this interlocutory appeal under
the TAA. 3 DFD asserts the TAA does not provide a right
Saxa alleges that after the office complex was completed, to interlocutory appeal and, even if there is a right to
the buildings were damaged by water penetration. Saxa interlocutory appeal under the TAA, the declaratory judgment
filed an arbitration proceeding against *227 DFD and the signed by the trial court does not stay arbitration and,
construction contractor. Over DFD's objection, the arbitration therefore, is not subject to interlocutory appeal.
panel allowed Office Investors to join the arbitration. The
Condominium Association subsequently also sought to join [2] [3] [4] Appellate courts have jurisdiction over final
the arbitration. judgments and such interlocutory orders as the legislature
deems appealable. Bally Total Fitness Corp. v. Jackson, 53
DFD filed a petition for declaratory judgment, request for S.W.3d 352, 352 (Tex.2001) (âA party may not appeal an
injunctive relief, and motion to stay the arbitration under interlocutory order unless authorized by statute.â); Lehmann
the TAA in the trial court asserting Office Investors and v. HarâCon Corp., 39 S.W.3d 191, 195(Tex.2001). Appellate the Condominium Association are not proper parties to jurisdiction is never presumed. Brashear v. Victoria Gardens the arbitration because neither Office Investors nor the of McKinney, L.L.C.,302 S.W.3d 542, 546
(Tex.App.- Condominium Association âhas a valid or enforceable Dallas 2009, no pet.) (op. on reh'g). Unless the record agreement to arbitrate with any other party.â DFD filed a affirmatively shows the propriety of appellate jurisdiction, we motion for summary judgment on its claim for declaratory must dismiss.Id.
relief on grounds Saxa and DFD were the only parties to the contract and the contract prohibited (1) joinder of third-parties DFD first argues the only jurisdictional basis asserted by to the arbitration without DFD's consent, (2) assignment appellants is section 171.098(a)(2) of the TAA and that of Saxa's claims under the contract, and (3) the creation statute, on its face, does not provide for an interlocutory of third-party beneficiaries of the contract. Saxa responded appeal. Section 171.098(a)(2) of the TAA allows a party to that the trial court did not have the authority to decide the appeal an order granting an application to stay arbitration issue because Saxa and DFD agreed issues of substantive made under Section 171.023. TEX. CIV. *228 PRAC. & arbitrability would be decided by the arbitration panel. Saxa REM.CODE ANN. § 171.098(a)(2) (Vernon 2005). Section also filed a motion for summary judgment on grounds Office 171.023 provides a trial court may âstay an arbitration Investors and the Condominium Association are proper commenced or threatened on application and a showing parties to the arbitration as legal representatives or successors that there is not an agreement to arbitrate.â Id. § 171.023. to Saxa or as third-party beneficiaries of the contract. The trial The Texas Supreme Court has concluded section 171.098(a) court denied appellants' motion for summary judgment and (2) provides for an interlocutory appeal of the denial granted DFD's motion for summary judgment. The trial court of arbitration. Chambers v. O'Quinn,242 S.W.3d 30
, 31 specifically found (1) Office Investors and the Condominium (Tex.2007) (per curiam); Jack B. Anglin Co. v. Tipps, 842 Association are not proper parties to the arbitration based on S.W.2d 266, 271â72 & n. 10 (Tex.1992) (orig.proceeding); the anti-joinder clause in the contract between Saxa and DFD; see also In re Hawthorne Townhomes, L.P.,282 S.W.3d 131
,
(2) Saxa and DFD are proper parties to the arbitration; and 137 (Tex.App.-Dallas 2009, orig. proceeding) (âA denial of
(3) the anti-assignment clause in the contract between Saxa arbitration under the Texas Arbitration Act may be appealed
and DFD prevented Saxa from assigning its rights or claims through an interlocutory appeal.â).
against DFD.
DFD concedes Texas appellate courts have recognized that
Appellants sought review of the trial court's judgment by section 171.098(a)(2) of the TAA provides a right to an
interlocutory appeal. DFD filed a motion to dismiss the interlocutory appeal of an order denying arbitration, but
appeal, asserting this Court does not have jurisdiction over a argues those courts relied on âolder versionsâ of the TAA.
non-appealable, interlocutory order. However, the relevant substantive language of the current
version of the TAA is virtually identical to older versions. See
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224(2010) Act of May 29, 1965, 59th Leg., R.S., ch. 689, § 1, art. 238â *229 any objections with respect to the existence, scope 2,1965 Tex. Gen. Laws 1593
, 1600 (providing for an appeal or validity of the arbitration agreementâ and âto determine
of an âorder granting an application to stay arbitrationâ). the existence or validity of a contract of which an arbitration
We, therefore, decline DFD's invitation to revisit the issue of clause forms a part.â Appellants assert Saxa and DFD
whether an interlocutory appeal is available under the TAA clearly and unmistakably delegated the issue of substantive
for an appropriate order denying arbitration. arbitrability, including the joinder of parties, to the arbitration
panel. DFD responds the issue is whether Office Investors and
DFD next argues the order in this case does not stay the Condominium Association are parties to the contract with
arbitration but only declares Saxa's and DFD's rights under standing to invoke the arbitration clause and the trial court
a contract that includes an arbitration clause. However, had authority over this issue of contract interpretation.
DFD sought declaratory and injunctive relief and filed a
motion to stay the arbitration under the TAA on grounds [6] [7] [8] Generally, the question of arbitrability is
it had not agreed to arbitrate with Office Investors or the a gateway issue to be decided by a court rather than an
Condominium Association. The trial court declared Office arbitrator. AT & T Techs., Inc. v. Commc'ns Workers of Am.,
Investors and the Condominium Association are not proper 475 U.S. 643, 649,106 S.Ct. 1415
,89 L.Ed.2d 648
(1986). 4 parties to the arbitration. It is the âsubstance and function of These âgateway mattersâ include whether the parties agreed the order viewed in the context of the record that controls our to arbitrate and whether a claim or dispute is encompassed in interlocutory jurisdiction, not [the party's] characterization of the agreement to arbitrate. In re Labatt Food Serv., L.P., 279 the order.â Walker Sand, Inc. v. Baytown Asphalt Materials, S.W.3d 640, 643 (Tex.2009) (orig.proceeding); In re Weekley95 S.W.3d 511, 515
(Tex.App.-Houston [1st Dist.] 2002, Homes,180 S.W.3d 127, 130
(Tex.2005) (orig.proceeding); no pet.). The effect of the trial court's order was to stay or P. McGregor Enters., Inc. v. Denman Bldg. Prods., Ltd., deny arbitration between DFD and Office Investors and the279 S.W.3d 717
, 722 n. 9 (Tex.App.-Amarillo 2007, pet.
Condominium Association because there was no agreement denied) (âThe question of [substantive] arbitrability has two
to arbitrate. Therefore, the trial court's order falls within aspects: first, whether the parties agreed to arbitration (or
section 171.023 of the TAA, and we have jurisdiction are bound by another's agreement to arbitrate); and second,
to consider this interlocutory appeal pursuant to section whether a particular claim or dispute is within the scope of
171.098(a)(2) of the TAA. the agreement.â).
[9] [10] [11] The parties, however, may agree to submit
Substantive Arbitrability matters of substantive arbitrability to arbitration. Howsam v.
Dean Witter Reynolds, Inc., 537 U.S. 79, 83,123 S.Ct. 588
, [5] In their first issue, appellants assert the trial court erred154 L.Ed.2d 491
(2002); Ernst & Young LLP v. Martin, 278 by granting DFD's motion for summary judgment requesting S.W.3d 497, 500 (Tex.App.-Houston [14th Dist.] 2009, no a declaration that Office Investors and the Condominium pet.) (â[A]n arbitration clause that reallocates traditional court Association are not proper parties to the arbitration because functions to the arbitrator is enforceable....â); ODL Servs., Saxa and DFD agreed that issues of substantive arbitrability Inc. v. ConocoPhillips Co.,264 S.W.3d 399, 413
(Tex.App.- would be determined by the arbitration panel. We review the Houston [1st Dist.] 2008, no pet.). But, â[c]ourts should not trial court's decision to grant summary judgment de novo. assume that the parties agreed to arbitrate arbitrability unless Valence Operating Co. v. Dorsett,164 S.W.3d 656
, 661 there is âclear and unmistakableâ evidence that they did so.â (Tex.2005). To prevail on a summary judgment motion, the First Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 944
, movant must demonstrate that there are no genuine issues of115 S.Ct. 1920
,131 L.Ed.2d 985
(1995) (citing AT & T, 475 material fact and that it is entitled to judgment as a matter of U.S. at 649, 106 S.Ct. 1415
); see ODL Servs., 264 S.W.3d
law. See TEX.R. CIV. P. 166a(c). at 413. Silence or ambiguity about who should decide the
arbitrability issue should not lead a court to presume the
Saxa and DFD agreed any arbitration under the contract parties intended for the issue to be decided by the arbitrator.
would be conducted in accordance with the Construction First Options, 514 U.S. at 944â45, 115 S.Ct. 1920; ODL Industry Arbitration Rules of the American Arbitration Servs.,264 S.W.3d at 413
. Rather, a court must examine
Association (the Rules). The Rules provide the arbitrator has the arbitration agreement to decide if, when construed under
the power âto rule on his or her own jurisdiction, including the relevant state law, the agreement evidences a clear and
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224(2010) unmistakable intention that the arbitrators will have the ConocoPhillips without receiving a request for services. ODL authority to determine the scope of arbitration. ODL Servs., was not paid for its services and initiated an arbitration against264 S.W.3d at 413
. ConocoPhillips. [12] [13] Here, DFD and Saxa agreed that â[a]ny claim, On appeal, ODL argued it was entitled to arbitrate its claim dispute or other matter in question arising out of or related based on the master agreement and that, by incorporating toâ the contract âshall be subject to arbitration.â âA broad the AAA International Arbitration Rules into the master arbitration clause, purporting to cover all claims, disputes, agreement, the parties had agreed the arbitrator would decide and other matters arising out of or relating to the contract, all issues of substantive arbitrability, including whether an *230 creates a presumption of arbitrability.â Am. Realty agreement to arbitrate existed. The Houston First Court of Trust, Inc. v. JDN Real EstateâMcKinney, L.P., 74 S.W.3d Appeals disagreed, noting the master agreement was triggered 527, 531 (Tex.App.-Dallas 2002, pet. denied). Further, only by a request for services. ODL Servs.,264 S.W.3d at 415
. Saxa and DFD incorporated the Rules into their contract, The trial court had the authority to decide the threshold issue giving the arbitration panel the power to rule on its own of whether the master agreement had been triggered because jurisdiction, including any objections to the existence, scope if âno underlying request for ODL's services existed to trigger or validity of the arbitration agreement. When, as here, the the contractually separate arbitration agreement, or that itself parties agree to a broad arbitration clause and explicitly contained its own arbitration agreement, then there is no issue incorporate rules that empower an arbitrator to decide of substantive arbitrability to send to an arbitrator.âId.
issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such Unlike ConocoPhillips in ODL, DFD does not dispute it issues to an arbitrator. See Haddock v. Quinn, 287 S.W.3d entered into a written agreement to arbitrate with Saxa or that 158, 172 (Tex.App.-Fort Worth 2009, pet. denied) (âThe the agreement extends to partners, successors, assigns and majority of courts have concluded that express incorporation legal representatives of Saxa. Further, this dispute does not of rules empowering the arbitrator to decide arbitrability involve a third-party attempting to join in the arbitration a (including ruling upon his or her own jurisdiction) clearly claim that is unrelated to the contract between Saxa and DFD. and unmistakably evidences the parties' intent to delegate Nor are we confronted with a non-signatory to the arbitration issues of arbitrability to the arbitrator.â); Burlington Res. agreement contesting whether it is bound by a signatory's Oil & Gas Co. LP v. San Juan Basin Royalty Trust, 249 agreement *231 to arbitrate. Rather, Office Investors and S.W.3d 34, 41 (Tex.App.-Houston [1st Dist.] 2007, pet. the Condominium Association are attempting to assert a denied) (âWe are also mindful that, in certain circumstances, claim under the contract between Saxa and DFD as partners, the incorporation of AAA rules may constitute clear and successors, assigns and legal representatives of Saxa while unmistakable evidence of an intent to allow an arbitrator DFD disputes that Office Investors and the Condominium to decide issues of arbitrability.â); Qualcomm Inc. v. Nokia Association are entities with which it agreed to arbitrate Corp.,466 F.3d 1366, 1368, 1373
(Fed.Cir.2006) (concluding under the arbitration agreement. The scope of the arbitration arbitration agreement containing broad arbitration clause and agreement and the claims and parties it encompasses are incorporating American Arbitration Rules allowing arbitrator questions of substantive arbitrability that DFD and Saxa to rule on own jurisdiction âclearly and unmistakably shows agreed would be decided by the arbitration panel. Contec, the parties' intent to delegate the issue of determining398 F.3d at 209, 211
(signatory to contract âcontaining an arbitrability to an arbitratorâ); Contec Corp. v. Remote arbitration clause and incorporating by reference the AAA Solution Co. Ltd.,398 F.3d 205, 208
(2d Cir.2005). Rulesâ cannot disown obligation to arbitrate all disputes,
including question of arbitrability of non-signatory's claims).
Relying on ODL Services, DFD argues the trial court had the Accordingly, the trial court erred by granting DFD's motion
authority to make the initial determination of whether there for summary judgment on the issue of whether Office
was an agreement to arbitrate. In ODL Services, the parties Investors and the Condominium Association are proper
entered into a master agreement that contained an arbitration parties to the arbitration. 5
clause. The agreement also provided that if ConocoPhillips
needed technical and support services from ODL under the We sustain appellants' first issue. Because of our disposition
master agreement, it would send a request for services. of appellants' first issue, we need not consider appellants'
ODL subsequently performed services for a subsidiary of remaining issues. TEX.R.APP. P. 47.1. We reverse the trial
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)
court's judgment and remand this case to the trial court for
further proceedings.
Footnotes
1 Saxa was the sole owner of Shea Partners, Inc. Saxa also owned ninety-nine percent of Shea Commercial Properties, L.L.C. Shea
Partners owned the remaining one percent of Shea Commercial. Shea Commercial was the sole owner of Shea Dallas Properties,
L.L.C. Shea Commercial also owned ninety-nine percent of Office Investors. Shea Dallas Properties owned the remaining one percent
of Office Investors. Shea Commercial entered into the contract to purchase the real property on which the project that forms the basis
of Saxa's claims against DFD was built. Shea Commercial assigned that contract to Office Investors, and Office Investors closed on
the purchase of the land. Saxa entered into a contract with DFD for design services for the project. Office Investors paid a number
of the invoices submitted by DFD to Saxa.
2 Office Investors recorded the condominium declaration for the project. The Condominium Association became responsible for the
management, maintenance, and repair of the common areas of the condominiums.
3 See TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.001â.098 (Vernon 2005).
4 Although this case is brought under the TAA, the parties rely on a number of cases interpreting the Federal Arbitration Act (FAA).
See 9 U.S.C.A. §§ 1â16 (West 2009). The issue of arbitrability is subject to a virtually identical analysis under either the FAA or
the TAA. See ODL Servs., Inc. v. ConocoPhillips Co., 264 S.W.3d 399, 418 (Tex.App.-Houston [1st Dist.] 2008, no pet.) (applying
same analysis of arbitrability under the FAA and the TAA).
5 Saxa argued in its response to DFD's motion for summary judgment that the trial court did not have the authority to rule on the motion
because the parties had agreed the arbitration panel would determine issues of substantive arbitrability. However, Saxa did not move
for summary judgment on the ground the trial court did not have authority to rule on the issue. Accordingly, we remand this case
to the trial court rather than rendering the judgment the trial court should have rendered. See Valence Operating Co., 164 S.W.3d
at 661 (âWhen both parties move for partial summary judgment on the same issues and the trial court grants one motion and denies
the other, as here, the reviewing court considers the summary judgment evidence presented by both sides, determines all questions
presented, and if the reviewing court determines that the trial court erred, renders the judgment the trial court should have rendered.â).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
[7] landlord was not required to segregate attorney's fees in
order to recover them under the Declaratory Judgments Act.
167 S.W.3d 121
Court of Appeals of Texas,
Waco. Affirmed in part, reversed in part, reformed in part, and
remanded.
SKI RIVER DEVELOPMENT, INC., Stephen
R. Davis and Karen Davis, Appellants,
Gray, C.J., concurred with opinion.
v.
Anthony L. McCALLA, Cheryl A.
McCalla, and Walter Baker, Appellees.
West Headnotes (57)
No. 10â03â00316âCV. | April 20,
2005. | Rehearing Overruled June 7, 2005.
[1] New Trial
Synopsis
Nature
Background: Sublessees brought action against landlord and
of action or issue and character of evidence
developers, seeking specific performance of their exercised
option to purchase land, tortious interference damages, New Trial
and a declaratory judgment. Landlord cross-claimed against Impeachment
developers for damages for tortious interference with use and of witness
enjoyment of his land and prospective contractual relations,
Developers' alleged newly discovered evidence
civil conspiracy, a declaratory judgment that 99-year lease
that landlord allegedly committed perjury,
with developers was void, and for attorney's fees. Developers
which included disclosures made to landlord,
counterclaimed for a declaratory judgment that sublessee's
was cumulative of other evidence and would
option to purchase was void and unenforceable and for
only have served to impeach landlord's trial
attorney's fees. The 249th District Court, Johnson County, D.
testimony, and thus did not entitle developers to
Wayne Bridewell, J., entered judgment against developers,
new trial on issued of fraud, undue influence,
declared that sublessees had exercised option to purchase, and
and unconscionability in connection with 99-
declared that 99-year lease was void. Developers appealed.
year lease.
2 Cases that cite this headnote
Holdings: The Court of Appeals, Bill Vance, J., held that:
[2] New Trial
[1] developers' newly discovered evidence of landlord's
alleged perjury was cumulative; Power
and duty of court in general
[2] sublease's option to purchase was void due to lack of New Trial
material terms;
Affidavits
[3] 99-year lease was procedurally unconscionable; as to Newly Discovered Evidence
It is incumbent upon a party who seeks a new
[4] 99-year lease was substantively unconscionable; trial on the ground of newly discovered evidence
to show that (1) the evidence has come to his
[5] allegation that developers tortiously interfered with use knowledge since the trial, (2) it was not owing
and enjoyment of property was separate cause of action; to the want of due diligence that it did not come
sooner, (3) it is not cumulative, and (4) it is
[6] evidence was sufficient to support award of damages so material that it would probably produce a
against developer's wife; and different result if a new trial were granted.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
certain. Restatement (Second) of Contracts §
2 Cases that cite this headnote 33(1).
3 Cases that cite this headnote
[3] Appeal and Error
New [7] Contracts
Trial or Rehearing
The trial court's ruling on a new trial motion will Intent
not be disturbed on appeal unless an abuse of of parties
discretion occurred. Contracts
Cases that cite this headnote Agreement
to make contract in future
[4] New Trial The actions of the contracting parties may
conclusively establish their intention to enter a
Power binding agreement even if some terms are left
and duty of court in general for future agreement. Restatement (Second) of
A new trial will not be granted on the ground Contracts § 33(1).
of newly-discovered evidence, unless it is made
2 Cases that cite this headnote
to appear that it has come to the knowledge of
the applicant since the trial, that it could not
have been sooner discovered by the exercise of [8] Contracts
diligence, that it is not merely cumulative, and
that it is not for the purpose of impeachment. Construction
to give validity and effect to contract
1 Cases that cite this headnote Texas courts prefer to validate transactions rather
than void them.
[5] Declaratory Judgment
Cases that cite this headnote
Scope
and extent of review in general [9] Contracts
The Court of Appeals reviews declaratory
judgments under the same standards as other Rewriting,
judgments and decrees; the court looks to the remaking, or revising contract
procedure used to resolve the issue at trial to A court may not create a contract where none
determine the standard of review on appeal. exists and generally may not interpolate or
V.T.C.A., Civil Practice & Remedies Code § eliminate material terms.
37.010.
2 Cases that cite this headnote
4 Cases that cite this headnote
[10] Contracts
[6] Contracts
Agreement
Certainty to make contract in future
as to Subject-Matter Contracting parties may agree on some terms
The rules regarding indefiniteness of material sufficient to create a contract, leaving other
terms of a contract are based on the concept that provisions for later negotiation.
a party cannot accept an offer to form a contract
5 Cases that cite this headnote
unless the terms of that contract are reasonably
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
[11] Contracts Certainty
as to Subject-Matter
Certainty
Uncertainty of contract terms can preclude one
as to Subject-Matter
remedy without affecting others.
Contracts
Cases that cite this headnote
Terms
implied as part of contract
[16] Landlord and Tenant
In certain situations, a court may uphold an
agreement by supplying missing terms, such as Existence,
implying a reasonable price. scope, and validity
2 Cases that cite this headnote Sublease's option to purchase âsaid propertyâ
or a portion of it at âmarket valueâ upon
lessor's âelection to sellâ was void due to
[12] Contracts lack of material terms, including definition of
âsaid Property,â âportionâ of property, âmarket
Certainty
value,â and âelection to sell,â and the failure to
as to Subject-Matter
state the length of time that the option remained
Contract terms are reasonably certain if they
open after lessor's notification of the election to
provide a basis for determining the existence of
sell.
a breach and for giving an appropriate remedy.
Restatement (Second) of Contracts § 33(2). 1 Cases that cite this headnote
1 Cases that cite this headnote
[17] Contracts
[13] Contracts Agreement
to make contract in future
Nature
An agreement leaving material terms to be
and Essentials in General
agreed upon later is not definite and specific as
Parties, and not the courts, should make
to material and essential terms and is, therefore,
contracts.
unenforceable.
Cases that cite this headnote
5 Cases that cite this headnote
[14] Contracts
[18] Contracts
Certainty
Agreement
as to Subject-Matter
to make contract in future
Where the parties intended to make an agreement
When essential contract terms are missing, the
and there is a certain basis for granting a remedy,
court may find no more than an agreement to
courts should find the contract terms definite
agree.
enough to provide a remedy. Restatement
(Second) of Contracts § 33(2). 2 Cases that cite this headnote
1 Cases that cite this headnote
[19] Contracts
[15] Contracts Agreement
to make contract in future
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
A contract providing for an agreement to be
negotiated in the future is void. Substantive
unconscionability
3 Cases that cite this headnote Proof of unconscionability begins with two
broad questions: (1) the procedural aspect, i.e.,
[20] Action how did the parties arrive at the terms in
controversy, and (2) the substantive aspect,
Persons i.e., are there legitimate commercial reasons
entitled to sue justifying the terms of the contract.
The general test for standing in Texas requires
2 Cases that cite this headnote
that there shall be a real controversy between the
parties, which will be actually determined by the
judicial declaration sought. [24] Contracts
Cases that cite this headnote Procedural
unconscionability
[21] Declaratory Judgment Contracts
Subjects Substantive
of relief in general unconscionability
Landlord, who was signatory to 99-year lease In deciding the fairness of a contract's
with developer and the lease amendments, had substantive terms, the court must also consider
standing to request declaratory judgment that whether there were procedural abuses, such as an
lease and its amendments were void, although unfair bargaining position between the parties at
developer had assigned lease, as landlord was in the time the agreement was made.
privity of contract with developer and assignee
Cases that cite this headnote
and thus controversy among them would be
affected by the declaratory judgment sought.
V.T.C.A., Civil Practice & Remedies Code § [25] Contracts
37.006(a).
Procedural
Cases that cite this headnote unconscionability
Contracts
[22] Contracts Substantive
unconscionability
Unconscionable
Contracts The party asserting unconscionability of a
contract bears the burden of proving both
If a contract is unconscionable, it is
procedural and substantive unconscionability.
unenforceable.
12 Cases that cite this headnote
2 Cases that cite this headnote
[26] Contracts
[23] Contracts
Unconscionabl
Procedural
Contracts
unconscionability
In determining whether a contract is
Contracts
unconscionable, the court must examine (1) the
âentire atmosphereâ in which the agreement was
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
made, (2) the alternatives, if any, available to Factors that may contribute to an unconscionable
the parties at the time the contract was made, bargaining process include: (1) knowledge of
(3) the ânon-bargaining abilityâ of one party, (4) the stronger party that the weaker party will
whether the contract was illegal or against public be unable to receive substantial benefits from
policy, and (5) whether the contract is oppressive the contract, and (2) knowledge of the stronger
or unreasonable. party that the weaker party is unable reasonably
to protect his interests by reason of physical
4 Cases that cite this headnote or mental infirmities, ignorance, illiteracy or
inability to understand the language of the
[27] Contracts agreement.
4 Cases that cite this headnote
Unconscionable
Contracts
In determining whether a contract is [31] Contracts
unconscionable, the totality of the circumstances
must be assessed as of the time the contract was Procedural
formed. unconscionability
Contracts
2 Cases that cite this headnote
Substantive
unconscionability
[28] Contracts
The grounds for substantive abuse must be
Unconscionable
sufficiently shocking or gross to compel the
Contracts court to intercede and declare a contract
In determining whether a contract is unconscionable, and the same is true for
unconscionable, it is important to consider procedural abuse; the circumstances surrounding
whether there is any gross disparity in the values the negotiations must be shocking.
exchanged.
13 Cases that cite this headnote
2 Cases that cite this headnote
[32] Contracts
[29] Contracts
Questions
for jury
Unconscionable
Contracts The ultimate question of unconscionability of a
Gross inequality of bargaining power, together contract is one of law, to be decided by the court.
with terms unreasonably favorable to the
3 Cases that cite this headnote
stronger party may show that the weaker party
had no meaningful choice, no real alternative,
or did not in fact assent or appear to assent [33] Landlord and Tenant
to the unfair terms, such that a contract is
unconscionable. Unconscionabi
adhesion contracts
3 Cases that cite this headnote Evidence was sufficient to support finding that
99-year lease between landlord and developer
[30] Contracts was procedurally unconscionable; there was
evidence that developer knew landlords were
Unconscionable
desperate for money, that developer's attorney
Contracts drafted the lease, that landlords did not see lease
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
until day they signed it, that landlords felt they interfere with other lease between landlord and
could not change anything in the lease and had sublessees which contained option to purchase,
to sign it, that landlords did not review lease as option to purchase was void due to lack of
or understand its terms, that landlords were not material terms.
experienced with formal contracting, and that
developer did not provide landlord with copy of Cases that cite this headnote
business plan, which could have affected real
estate taxes. [37] Pleading
1 Cases that cite this headnote Particular
causes or grounds of action
[34] Landlord and Tenant Allegation that developer who entered into
unconscionable 99-year lease, and lease
Unconscionability;
assignee, tortiously interfered with landlord's
adhesion contracts use and enjoyment of his property was
Evidence was sufficient to support finding that a separate cause of action and was not
99-year lease between landlord and developer duplicative of landlord's other claims, including
was substantively unconscionable; there was claim for tortious interference with prospective
evidence that developer only had to pay $3,000 contractual relations.
per month rent for 12.5 years, after which
rent would decrease to less than the estimated 1 Cases that cite this headnote
monthly tax payment on the property, that all
sublease income would be assigned to developer, [38] Torts
that developer could terminate lease at any time,
that landlord lost his possessory rights, that Interference
landlord was prohibited from discussing lease, with property or property rights, in general
and that landlord could not sell land under Torts
current listing agreement with real estate agent
or while lease was in effect. Prospective
advantage, contract or relations; expectancy
1 Cases that cite this headnote A cause of action for tortious interference with
the right to dispose of property is, in essence, a
[35] Declaratory Judgment claim for tortious interference with a prospective
contract or prospective business relation.
Determination
and disposition of cause 1 Cases that cite this headnote
Court of Appeals would reform declaratory
judgment in order to reflect that finding that lease [39] Torts
was unconscionable did not make lease void but
rather merely unenforceable. Prospective
advantage, contract or relations; expectancy
2 Cases that cite this headnote Texas law protects prospective contracts from
interference.
[36] Torts
Cases that cite this headnote
Landlord
and tenant [40] Torts
Developer who leased land under 99-year lease
and developer's assignee did not intentionally
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
to support any award of any lost profits and failed
Interference to challenge the sufficiency of the evidence of
with property or property rights, in general lost use and enjoyment.
A cause of action for tortious interference with
peaceful use and enjoyment of property is, in Cases that cite this headnote
essence, a claim for intentional invasion of, or
interference with, property rights; this cause of [44] Appeal and Error
action exists under Texas law.
Insufficient
3 Cases that cite this headnote discussion of objections
To successfully challenge a multi-element
[41] Torts damages award (one dollar amount for multiple
elements of damages) on appeal, an appellant
Contracts must address all of the elements and show that
A party bringing suit for tortious interference the evidence is factually insufficient to support
with a contract must prove four elements: (1) the entire damages award; a failure to address
a contract subject to interference exists, (2) the an element of damages results in waiver of the
act of interference was willful and intentional, sufficiency challenge.
(3) the intentional act proximately caused the
plaintiff's damage, and (4) actual damage or loss 1 Cases that cite this headnote
occurred.
[45] Appeal and Error
2 Cases that cite this headnote
Insufficient
[42] Torts discussion of objections
Developer and lease assignee waived argument
Existence that evidence was legally and factually
of valid or identifiable contract, relationship or insufficient to support finding that harm to
expectancy landlord resulted from fraud or malice, and thus
A suit for tortious interference with a contract did not support award of exemplary damages
requires the existence of a valid contract; a void for tortious interference with landlord's use
contract cannot serve as the basis for a tortious and enjoyment of his property in connection
interference claim. with unconscionable 99-year lease, as their
appellate brief did not contain a clear and
2 Cases that cite this headnote
concise argument for the contentions made, with
appropriate citations to authority and to the
[43] Appeal and Error record; argument was one sentence in their 50-
page brief and did not cite to the reporter's record.
To Rules App.Proc., Rule 38.2(a)(1).
verdict, findings, or judgment
Developer and lease assignee waived claim that 4 Cases that cite this headnote
evidence was insufficient to support award of
damages to landlord for tortious interference [46] Damages
with landlord's the use and enjoyment of his
land in connection with unconscionable 99- Actual
year lease; jury question allowed damages for damage or compensatory damages; relationship
lost profits and/or damages for loss of use and and ratio
enjoyment, but developer and assignee alleged Exemplary damages must be reasonably
on appeal only that the evidence was insufficient proportioned to compensatory damages.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
A no-evidence point must and can only be
Cases that cite this headnote sustained on appeal when the record reveals: (1)
a complete absence of evidence of a vital fact, (2)
[47] Damages rules of law or rules of evidence bar the appellate
court from giving weight to the only evidence
Actual offered to prove a vital fact, (3) the evidence
damage or compensatory damages; relationship offered to prove a vital fact is no more than a
and ratio mere scintilla, and (4) the evidence conclusively
There is no set rule between the amount of actual establishes the opposite of a vital fact.
and exemplary damages that will be considered
reasonable; that determination is dependent upon Cases that cite this headnote
the facts of a particular case.
[51] Torts
Cases that cite this headnote
Landlord
and tenant
[48] Damages
Evidence was sufficient to support finding
Measure that, due to her conduct, developer's wife was
and Amount of Exemplary Damages liable for share of tortious interference damages
Factors to consider in determining whether awarded to landlord who had entered into
an award of exemplary damages is reasonable unconscionable 99-year lease with developer,
include: (1) the nature of the wrong, (2) the even though wife did not sign lease or
character of the conduct involved, (3) the degree its amendments; wife testified that she very
of culpability of the wrongdoer, (4) the situation familiar with the landmarks on the property,
and sensibilities of the parties concerned, and (5) had an emotional attachment to the property,
the extent to which such conduct offends a public first approached landlords about leasing the
sense of justice and propriety. property with her husband, was involved in the
negotiation process, took the final draft to the
Cases that cite this headnote landlords with her husband, and was present
when everyone signed the lease.
[49] Damages
Cases that cite this headnote
Amount
Awarded in Particular Cases [52] Specific Performance
Ratio of $20,000 in exemplary damages, which
was 0.40 of the amount of the $50,000 in Costs
compensatory damages awarded for landlord, Sublessees were not entitled to attorney's fees
was not excessive for landlord's claim against in action for specific performance of option
developer and lease assignee for tortious to purchase, as option to purchase had been
interference with the use and enjoyment of declared void on appeal. V.T.C.A., Civil Practice
property, which involved an unconscionable 99- & Remedies Code § 37.009.
year lease.
Cases that cite this headnote
Cases that cite this headnote
[53] Costs
[50] Appeal and Error
Form
Total and requisites of application in general
failure of proof
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
Landlord's cross-claims for declaratory
judgment that 99-year lease with resort 1 Cases that cite this headnote
developer and company was void due to fraud,
undue influence, and unconscionability were [57] Declaratory Judgment
so intertwined with cross-claims for tortious
interference, fraud, breach of contract, and civil Determination
conspiracy that segregation of attorney's fees was and disposition of cause
not required in order for landlord to recover fees Remand was required for determination of
under the Declaratory Judgment Act. V.T.C.A., whether developer and company were entitled
Civil Practice & Remedies Code § 37.009. to âequitable and justâ attorney's fees from
sublessees, as developer and company prevailed
Cases that cite this headnote on declaratory judgment claim that sublessees'
option to purchase land on which developer and
[54] Costs company wished to put marina and golf course
was void. V.T.C.A., Civil Practice & Remedies
Items Code § 37.009.
and amount; hours; rate
To show the reasonableness and necessity of 2 Cases that cite this headnote
attorney's fees, the plaintiff is required to show
that the fees were incurred while suing the
defendant sought to be charged with the fees on
a claim which allows recovery of such fees. Attorneys and Law Firms
Cases that cite this headnote *127 David P. Lein, George & Donaldson, L.L.P., Austin,
Christopher C. Cooke, The Cooke Law Firm, Cleburne, for
appellants.
[55] Costs
Peter J. Harry, Brown McCarroll, L.L.P., Charles R. Nichols,
Form
John H. Carney & Associates, Dallas, for appellees.
and requisites of application in general
A recognized exception to the duty to segregate Before Chief Justice GRAY, Justice VANCE, and Justice
arises when the attorney's fees rendered are in REYNA.
connection with claims arising out of the same
transaction and are so interrelated that their
prosecution or defense entails proof or denial of OPINION
essentially the same facts.
BILL VANCE, Justice.
1 Cases that cite this headnote
This case concerns a 380âacre piece of property along the
Brazos River in Johnson *128 County. Appellees Anthony
[56] Costs
L. McCalla (âMcCallaâ) and Cheryl A. McCalla are lessees of
Items Appellee Walter Baker (âBakerâ) under a 1992 lease, known
and amount; hours; rate as the âGlazier lease.â Appellants, Ski River Development,
Inc. (âSki Riverâ), Stephen R. Davis (âDavisâ), and Karen
When the causes of action involved in a suit
Davis, are also lessees of Appellee Walter Baker under a
are dependent upon the same set of facts or
1996 lease, called the âBakerâDavis lease.â In 1996, the
circumstances and thus are intertwined to the
point of being inseparable, the party suing for McCallas sued the Davises, Ski River, 1 and Baker claiming
attorney's fees may recover the entire amount they had a right to purchase the property under the Glazier
covering all claims. lease. The McCallas sought specific performance of their
exercised option, tortious interference damages (including
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
exemplary), a declaratory judgment that: (1) Mary Baker sub-leased a two-acre tract to the McCallas. This sub-lease
elected to sell the property; (2) the McCalla's offer to purchase states in part:
was sufficient to exercise an option; (3) the BakerâDavis
lease is void because it violated the McCalla's option contract, That, in the event Lessees [Bakers]
shall purchase or otherwise obtain
and for attorney's fees under the Declaratory Judgment Act. 2
legal ownership of said Property from
Baker cross-claimed against Ski River and the Davises for
Lessor [Glazier] and later elect to sell,
damages (including exemplary) for tortious interference with
Lessees [Bakers] hereby grant Subâ
use and enjoyment of his land and prospective contractual
Lessees [McCallas] the First Option
relations with the McCallas, civil conspiracy, a declaratory
to Purchase all, or a portion of said
judgment that the BakerâDavis lease is void because it was
Property from Lessees [Bakers] at
procured by fraud, undue influence, and unconscionability,
market value.
and for attorney's fees under the Declaratory Judgment Act. 3
Ski River and the Davises counterclaimed for a declaratory In 1993, Glazier died, leaving the property to Walter and
judgment that the McCalla's option is void and unenforceable Mary Baker. Soon thereafter, Walter Baker deeded his
and for attorney's fees under the Declaratory Judgment Act. 4 undivided interest to Mary Baker making her the 100% owner
A jury awarded damages and attorney's fees to the McCallas of the property.
and Baker against the Davises and Ski River and made other
findings. The court entered judgment on the jury's verdict In June 1994, Mary Baker signed an exclusive one-year
for tortious interference and declared that (1) the McCallas listing agreement with Glenna Calahan to sell the entire 380
properly exercised their option to purchase and (2) the Bakerâ acres for $2,500 per acre. The listing agreement stated that
Davis lease and its amendments are void and unenforceable. Baker âshall not rent or lease the Property during the term of
Ski River and the Davises appeal in twelve issues. this Listing without the prior written approval of [Calahan]â
and âshall not negotiate with any prospective buyer who may
We will reverse that part of the judgment that states (1) the contact [Mary Baker] directly, but refer all prospective buyers
Davises and Ski River take nothing against the McCallas to [Calahan].â In August 1994, Calahan wrote to McCalla
and (2) the declaratory judgment that the McCallas properly notifying him of the listing of the property at $2,500 per acre
exercised their option to purchase the Property. We will and giving him 72 hours to exercise his option to purchase.
render judgment that the McCalla's option to purchase Four days later, McCalla responded that he desired to pursue
is void. We will further reform the declaratory judgment his rights under the Glazier lease, including but not limited to,
to provide that the BakerâDavis lease is unconscionable his âoption to purchase all, or a portion, of said Property at
and unenforceable, not void. We will reverse the tortious market value.â He also objected to the insertion of a 72âhour
interference damages, exemplary damages, and all attorney's deadline to exercise his option. He further stated:
fees awarded to the McCallas against the Davises and
the option cannot be evaluated until
Ski River. We will affirm the *129 tortious interference
market value of the property has been
damages, exemplary damages, and all attorney's fees awarded
determined and, as a result, does not
to Baker against the Davises and Ski River. We will remand
have to be exercised until such time
this cause to the trial court to determine whether to award
that either market value has been
attorney's fees for the Davises and Ski River under the
determined or a bonafide offer to
Declaratory Judgment Act. We will overrule or not address
purchase executed by a third party, has
all other issues.
been received by me.
McCalla also requested any information Calahan may have
BACKGROUND regarding the sale of the property, including any information
to establish market value. Seven days later, McCalla again
Arthur William Glazier, Jr. owned 380 acres of land. In requested the same property information from Calahan. Eight
1992, Glazier entered into a 99âyear lease covering the entire days later, Calahan sent him the MLS information sheet, title
property with Appellee Walter Baker and his mother, Mary commitment, and other information.
Baker (the âGlazier leaseâ). In the Glazier lease, the Bakers
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
In October 1994, the McCalla's appraisal was completed, In February 1996, McCalla wrote to Calahan acknowledging
which stated the value to be $1,200 per acre. This value was the change in the listing price to $2,100 per acre, but stated
not disclosed to the Bakers or Calahan. Later in October, that his position had not changed since 1994. He stated that he
Coyt Randal Johnston, on behalf of McCalla, sent a letter continued âto be interested in the property, in connection with
to Calahan stating that they were working on a proposal to my Right of First Refusalâ and asked to be kept informed.
purchase the property and had secured an appraisal to help
evaluate the âcurrent offer of $2,500.00 per acre.â He further A few days later on February 12, 1996, Davis entered into
stated: a 99âyear lease of the entire property with the Bakers (the
âBakerâDavis leaseâ). The Davises told the Bakers that they
... [McCalla] and I have determined that it is in our best intended to put in a boat marina, landing strip, and golf course.
interest not to make an offer for the property at this time, The Davises did not provide a copy of the general business
since we do not want to run the risk of offending you or the plan to the Bakers nor did they discuss the plan with the
Bakers with an offer that is unacceptably low. Bakers. The BakerâDavis lease states:
I want to emphasize that we continue to be interested in the ...
property and will continue to evaluate our position as time
*130 goes on. We believe, however, that Walt and Mary 2.3 For the term of the lease, BAKER will pay real estate
should have the opportunity to try to sell this property to taxes on said Property and DAVIS will be responsible for
someone who is willing to pay their purchase price. liability insurance.
Should another buyer submit a contract on the property, 2.4 All subleases (including but not limited to the
[McCalla] will, of course, review the matter in connection sublease with ANTHONY MCCALLA and CHERYL A.
with his right of first refusal at that time. In that regard, MCCALLA d/b/a C.A.M. PROPERTIES [for two acres] )
you should be aware that nothing in this letter is intended and their income are assigned to DAVIS by BAKER by the
to waive or alter any of the rights or obligations between execution of this Agreement.
the Bakers and [McCalla] in connection with their various
contractual and lease agreements. The lease sets the rent at $3,000 per month for 12â1/2 years,
then at $75 per month until the lease ends. The lease also
In April 1995, Mary Baker reduced her asking price to $1,950 contains a non-disclosure clause that does not allow Baker, or
per acre. Later in 1995, Davis contacted Calahan to inquire any member of his family, to discuss with anyone the Bakerâ
about purchasing 25 acres of the property at $1,800 per acre, Davis lease or any of its subleases. The First Addendum to
but Mary Baker declined this offer because she wanted to sell this lease provides for an additional rent payment of $1,000
the entire 380 acres. In October 1995, Mary Baker increased per month to pay for a house for the Bakers.
her asking price to $2,100 per acre.
In March 1996, a First Amendment to the BakerâDavis lease
As early as December 15, 1995, Walter Baker was referring was executed, which assigned the lease from Davis to Ski
to Stephen Davis as his âmoney man.â In 1996, the Davises River. It contains a provision that, if the property is ever sold
friendship with the Bakers increased, and they visited them to anyone, Ski River would retain a leasehold interest for $75
on a weekly basis. per month in 25 acres of the property.
On January 29, 1996, the Davises presented a âgeneral In April 1996, McCalla made an offer to purchase the
business planâ for development of the property to a potential 380 acres at $1,200 per acre. Sixteen days later, McCalla's
investor. This included a preliminary sketch of âThe Ski attorney *131 threatened to file suit. Two days later, Mary
Ranch,â including the repair of the boat ramp and roads, Baker died of a heart attack. Following Mary Baker's death:
establishment of dump stations, building new boat ramp (1) the Davises executed affidavits of heirship for Walter
and ski lake sites, establishing river front leases, building a Baker; (2) Walter Baker's attorney drew up a will naming the
runway, building a store and club, installing a fuel farm, and Davis children as his heirs, Stephen Davis as his executor, and
continuing property studies for new phases. Karen Davis as his trustee; and (3) Walter Baker's attorney
drew up a statutory power of attorney naming Stephen Davis
as his attorney-in-fact.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
all amendments are void from their inception and are
In August 1996, a Second Amendment to the BakerâDavis unenforceable.
lease was executed, which required the Davis's approval
before Baker could sell any of the property's mineral rights.
The Second Amendment stated that if Baker elected to sell,
ISSUES
Davis had a right of first refusal to buy the property for
$600,000 minus any prior lease payments. We will address the Davises' and Ski River's issues in the
following order:
In September 1996, the McCallas filed the lawsuit against
Walter Baker, Ski River, and the Davises. # Error in denying the motion for new trial filed by the
Davises and Ski River (issue eleven);
# Whether McCalla's option to purchase the entire property
JUDGMENT is void and/or was waived (issue three);
The judgment awards tortious interference damages to the # Whether Baker has standing to request the declaratory
McCallas against Stephen Davis, Karen Davis, and Ski judgment that the BakerâDavis lease and its
River in the amount of $69,000, exemplary damages in the amendments are void (issue seven);
amount of $75,000, attorney's fees in the amount of $247,000,
and pre-judgment interest. In addition, attorney's fees were # Whether Baker's claims against the Davises and Ski River
awarded of $25,000 in the event the case is appealed to the were brought in breach of a tolling agreement (issue six);
Court of Appeals and $15,000 in the event the case is appealed
*132 # Error in entering declaratory judgment that the
to the Supreme Court of Texas.
BakerâDavis lease and its amendments are void and
unenforceable (issue one);
The judgment awards tortious interference damages to Walter
Baker against Stephen Davis, Karen Davis, and Ski River in # Whether the McCallas had standing to request the
the amount of $50,000, exemplary damages in the amount of declaratory judgment that the BakerâDavis lease and its
$20,000, attorney's fees in the amount of $37,000, and pre- amendments are void (issue four);
judgment interest. In addition, attorney's fees were awarded
of $15,000 in the event the case is appealed to the Court of # Error in submitting the issue of tortious interference to
Appeals and $15,000 in the event the case is appealed to the the jury (issue two);
Supreme Court of Texas.
# Whether the evidence is factually sufficient to support
The judgment orders that the Davises and Ski River take award of lost profits to the McCallas and Baker (issue
nothing by their suit against the McCallas, and contains a ten);
declaratory judgment that:
# Whether the evidence is legally and factually sufficient
Based on the evidence presented to the Court and the jury's to support award of exemplary damages to the McCallas
findings, the Court ENTERS a Declaratory Judgment that and Baker and whether the exemplary damages were
Plaintiffs Anthony L. McCalla and Cheryl A. McCalla excessive (issue twelve);
properly exercised their option to purchase the Property.
# Whether the evidence is legally and factually sufficient
Based on the evidence presented to the Court and the jury's to support the award of damages against Karen Davis
findings, the Court ENTERS a Declaratory Judgment that (issue nine);
the 99 year Davis lease executed on or about February
# Error in awarding attorney's fees to the McCallas and
12, 1996 filed for record on February 15, 1996 at BK
Baker because they failed to segregate fees between
1940PG0011, the First Amendment to Lease executed on
claims (issue five); and
or about March 12, 1996 and filed for record on March
11, 1996 at BK 1945PG0915, and the Second Amendment # Whether the evidence is legally sufficient to support jury
to Lease executed on or about August 28, 1996 and finding of civil conspiracy (issue eight).
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 12
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
is void and unenforceable because it is too indefinite and
ISSUE ELEVEN: Error in denying motion for new violates the rule against perpetuities. In the alternative, they
trial filed by the Davises and Ski River argue that it was not exercised or was waived.
[1] The Davises and Ski River filed a motion for new The pertinent part of the Glazier lease provides:
trial asserting newly discovered evidence, i.e., that Walter
Baker allegedly committed perjury during the trial regarding That, in the event Lessees [Bakers]
disclosures made by the Davises to the Bakers. They argue shall purchase or otherwise obtain
that had the jury known this, the outcome of the trial would legal ownership of said Property from
have been different because Baker was the central witness on Lessor [Glazier] and later elect to sell,
the issues of fraud, undue influence, and unconscionability. In Lessees [Bakers] hereby grant Subâ
an affidavit filed in response, Walter Baker contradicts Karen Lessees [McCallas] the First Option
Davis's assertion that he told her his attorney asked him âto to Purchase all, or a portion of said
forget some things.â Property from Lessees [Bakers] at
market value.
[2] [3] [4] It is incumbent upon a party who seeks a new
trial on the ground of newly discovered evidence to show that [5] We review declaratory judgments under the same
(1) the evidence has come to his knowledge since the trial; (2) standards as other judgments and decrees. Lidawi v.
it was not owing to the want of due diligence that it did not Progressive County Mut. Ins. Co., 112 S.W.3d 725, 730 come sooner; (3) it is not cumulative; and (4) it is so material (Tex.App.-Houston [14th Dist.] 2003, no pet.); see also TEX. that it would probably produce a different result if a new trial CIV. PRAC. & REM.CODE ANN. § 37.010 (Vernon 1997). were granted. Jackson v. Van Winkle,660 S.W.2d 807
, 809 We look to the procedure used to resolve the issue at trial (Tex.1983). The trial court's ruling on such a motion will not to determine the standard of review on appeal. Lidawi, 112 be disturbed on appeal unless an abuse of discretion occurred. S.W.3d at 730. Here, the trial court asked the jury whether Id. âA new trial will not be granted on the ground of newly- McCalla had a first option to purchase and whether he discovered evidence, unless it is made to appear that it has exercised the option. In a second jury question, the jury found come to the knowledge of the applicant since the trial; that that the McCallas exercised their option in accordance with it could not have been sooner discovered by the exercise of the terms of the first option under the Glazier Lease. However, diligence; that it is not merely cumulative; that it is not for the Davises and Ski River attack the option provision as void the purpose of impeachment.â New Amsterdam Cas. Co. v. as a matter of law. Jordan,359 S.W.2d 864, 866
(Tex.1962) (quoting Conwill v. Gulf, C. & S.F. Ry. Co.,85 Tex. 96
,19 S.W. 1017
(1892)). [6] [7] [8] [9] [10] [11] The rules regarding
indefiniteness of material terms of a contract are based on the
We find the evidence submitted by the Davises and Ski River concept that a party cannot accept an offer to form a contract
was cumulative and would only have served to impeach unless the terms of that contract are reasonably certain.
Baker's trial testimony. We cannot say that any impeachment RESTATEMENT (SECOND) OF CONTRACTS § 33(1)
would have probably produced a different result. See Jackson, (1981). Thus, the actions of the parties may conclusively
660 S.W.2d at 809; New Amsterdam,359 S.W.2d at 866
. The establish their intention to enter a binding agreement even if trial court did not abuse its discretion in denying the motion some terms are left for future agreement.Id.
at cmt. a. To that for new trial on these grounds. See Jackson, 660 S.W.2d at end, Texas courts prefer to validate transactions rather than 809. We overrule issue eleven. void them. Dahlberg v. Holden,150 Tex. 179
,238 S.W.2d 699, 701
(1951). A court may not create a contract where none
ISSUE THREE: Error in denying the Davises' and
exists and they generally may not interpolate or eliminate
Ski River's request for declaratory judgment that
material terms. Id. However, parties may agree on some terms
the McCallas' âfirst option to purchaseâ is void and
sufficient to create a contract, leaving other provisions for
unenforceable, and/or was waived
later negotiation. See Scott v. Ingle Bros. Pacific, Inc., 489
S.W.2d 554, 555 (Tex.1972). In certain situations, a court
*133 Ski River argues that the trial court erred in denying its
may uphold an agreement by supplying missing terms, such
request for declaratory judgment that the McCalla's purported
âfirst option to purchase,â provided in the Glazier lease,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 13
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121(2005) as implying a reasonable price. Bendalin v. Delgado,406 S.W.2d 897, 900
(Tex.1966). (6) Whether an election to sell a portion of the property was
sufficient for McCalla to exercise the option;
[12] [13] [14] [15] The Restatement asserts that
(7) When market value is to be determined;
contract terms are reasonably certain âif they provide a basis
for determining the existence of a breach and for giving (8) What is the method to determine market value;
an appropriate remedy.â RESTATEMENT (SECOND) OF
CONTRACTS § 33(2) (1981). This conforms to the policy (9) How long does McCalla have to exercise his option
that parties, and not the courts, should make contracts. Where after notification of Baker's election to sell;
the parties intended to make an agreement and there is a
(10) Whether the McCallas can ever compel a sale of all or
certain basis for granting a remedy, courts should find the
a portion of the Property;
contract terms definite enough to provide a remedy. Id. at
cmt. b. Uncertainty of terms can, however, preclude one (11) Whether Baker can change her mind after an election
remedy without affecting others. For example, less certainty to sell the property if she is dissatisfied with an offer
is necessary in a suit for damages than one for specific from McCalla in comparison with either a bona fide
performance. See Kirkwood & Morgan, Inc. v. Roach, 360 purchaser offer or retaining the property; and
S.W.2d 173, 176 (Tex.Civ.App.-San Antonio 1962, writ ref'd
n.r.e.); but see Bendalin, 406 S.W.2d at 900 (the Supreme (12) For how long is the option valid?
Court held that lack of an express agreement on price was not
fatal to maintenance of a suit for specific performance of an [17] [18] [19] These provisions requiring future
oral agreement to purchase stock). negotiation suggest that the parties are only agreeing to make
a future contract. An agreement leaving material terms to be
When essential terms are missing, courts often find no more agreed upon later is not definite and specific as to material and
than an agreement *134 to agree. See Pine v. Gibraltar essential terms and is, therefore, unenforceable. See Parker
Sav. Ass'n, 519 S.W.2d 238, 244(Tex.Civ.App.-Houston [1st Chiropractic Research Foundation v. Fairmont Dallas Hotel Dist.] 1975, writ ref'd n.r.e.). Courts have, however, implied Co.,500 S.W.2d 196, 201
(Tex.Civ.App.-Dallas 1973, no terms when the surrounding circumstances left little doubt as writ). When essential terms are missing, we may find no more to the parties' intentions. See Morgan v. Young, 203 S.W.2d than an agreement to agree. See Pine,519 S.W.2d at 244
.
837, 846 (Tex.Civ.App.-Beaumont 1947, writ ref'd n.r.e.). Furthermore, a contract providing for an agreement to be
negotiated in the future is void. See, e.g., Texas State Optical
[16] Here, the contract clause sets out with certainty the term v. Caylor, 387 S.W.2d 461, 464 (Tex.Civ.App.-Beaumont
that the Bakers must obtain legal ownership as a prerequisite 1965, writ ref'd n.r.e.). Therefore, we find the âfirst option to
to validity of any obligation. However, the contract clause purchaseâ is a void provision of the Glazier lease. Thus, the
leaves many terms for future negotiation and agreement. jury findings are immaterial.
These include:
It was error for the trial court to deny entering a declaratory
(1) What is the definition of âsaid Propertyâ (the entire
judgment that the McCalla's first option to purchase is
380âacre tract or the two acres being subleased by the
indefinite and void. In addition, it was error to enter
McCallas);
a declaratory judgment that the McCallas exercised their
(2) What is the definition of a âportionâ of said Property; option. We need not address whether the option was waived
because we have found the option void.
(3) Whether listing property on the market (i.e., solicitation
for offers) is an election to sell; We sustain issue three. We will reverse that part of
the judgment that states (1) the Davises and Ski River
(4) Whether a listing agreement is an election to sell; take nothing against the McCallas and (2) the declaratory
judgment that the McCallas properly exercised their option to
(5) Whether a bona fide offer from a third party purchaser
purchase the Property. We will render judgment as follows:
was required before the option could be exercised;
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 14
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
*135 Based on the evidence presented to the Court, the [21] As signatory of the lease and its amendments, Walter
Court RENDERS a Declaratory Judgment that Plaintiffs Baker was in privity of contract with the Davises and Ski
Anthony L. McCalla's and Cheryl A. McCalla's option to River. Thus, the controversy that exists between Baker, the
purchase the Property is void as a matter of law. Davises, and Ski River will be affected by the declaratory
judgment sought. See TEX. CIV. PRAC. & REM.CODE
ISSUE SEVEN: Baker's standing to request
ANN. § 37.006(a); Texas Ass'n of Bus., 852 S.W.2d at 446.
declaratory judgment to declare BakerâDavis lease
We find that Walter Baker has standing. We overrule issue
and its amendments are void.
seven.
[20] The general test for standing in Texas requires that there ISSUE SIX: Baker's claims against the Davises were
â(a) shall be a real controversy between the parties, which brought in breach of a tolling agreement
(b) will be actually determined by the judicial declaration
sought.â Texas Ass'n of Bus. v. Texas Air Control Bd., On September 4, 2001, Baker, the Davises, and Ski River
852 S.W.2d 440, 446(Tex.1993) (citing Board of Water entered a âtolling agreementâ that prohibited the Davises and Engineers v. City of San Antonio,155 Tex. 111, 114
, Baker from asserting any cross-claims against each other until283 S.W.2d 722, 724
(1955)). The Declaratory Judgment the McCalla claims were resolved. In violation of this tolling
Act provides that âall persons who have or claim any agreement, Baker asserted cross-claims against the Davises
interest that would be affected by the declaration must be and Ski River on October 23, 2002. However, on November
made parties.â TEX. CIV. PRAC. & REM.CODE ANN. § 21, 2002, the parties signed a Rule 11 agreement that âWalt
37.006(a) (Vernon 1997). Baker will maintain his cross claims in this case.â Thus, any
violation of the tolling agreement was cured by the Rule 11
The BakerâDavis lease states: agreement. We overrule issue six.
The Parties of this Agreement (âAgreementâ) are as ISSUE ONE: Error by entering declaratory
follows: judgment voiding the BakerâDavis lease and its
amendments
1.1 MARY BAKER and her son, WALT BAKER
(collectively referred to as âBAKERâ)....
The trial court entered a declaratory judgment that the Bakerâ
Davis lease and its amendments are void based on the jury
The first amendment to the BakerâDavis lease states:
findings that the BakerâDavis lease and its amendments were
THIS FIRST AMENDMENT TO procured by fraud, undue influence, and unconscionability.
LEASE (this âFirst Amendmentâ)
is dated to be effective as of the [22] [23] [24] [25] If a contract is unconscionable, it
12th day of March, 1996, by and is unenforceable. See In re Turner *136 Bros. Trucking
between MARY BAKER and her son, Co., 8 S.W.3d 370, 375 (Tex.App.-Texarkana 1999, no pet.)
WALT BAKER (collectively referred (referring to an arbitration agreement); El Paso Natural
to herein as âBAKERâ).... Gas Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 60
(Tex.App.-Amarillo 1997), rev'd on other grounds, 8 S.W.3d
309 (Tex.1999) (referring to gas purchase agreement under
At the time of the second amendment, Walter Baker was the
the Texas Business and Commerce Code § 2.302(a)); Triâ
owner of the property and the second amendment states:
Continental Leasing Corp. v. Law Office of Richard W. Burns,
THIS SECOND AMENDMENT TO 710 S.W.2d 604, 609 (Tex.App.âHouston [1st Dist.] 1986,
LEASE (this âSecond Amendmentâ) writ ref'd n.r.e.) (referring to disclaimer provisions in a lease);
is dated to be effective as of the 28th RESTATEMENT (SECOND) OF CONTRACTSSSSS §
day of August, 1996, by and between 208. Proof of unconscionability begins with two broad
WALT BAKER (âWalt Bakerâ) and questions: (1) the procedural aspect, i.e., how did the parties
SKI RIVER DEVELOPMENT[S], arrive at the terms in controversy; and (2) the substantive
INC., a Texas Corporation (âSki aspect, i.e., are there legitimate commercial reasons justifying
Riverâ). the terms of the contract. Pony Express Courier Corp. v.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 15
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121(2005) Morris,921 S.W.2d 817, 821
(Tex.App.-San Antonio 1996, unconscionability. And, as to the existence of those facts,
our review is not de novo. In other words, we cannot
no pet.). In other words, in deciding the fairness of a contract's
substantive terms, the court must also consider whether review the *137 record, divine our own inferences from
there were âprocedural abuses,â such as an unfair bargaining the evidence contained therein, resolve conflicts in same,
position between the parties at the time the agreement was or decide what evidence to believe and what not to believe.
made. TriâContinental, 710 S.W.2d at 609. Under Texas The power to do those things, that is, to find facts, lies law, the party asserting unconscionability of a contract with the trial court. Once it has exercised that power, we bears the burden of proving both procedural and substantive must then defer to the findings made. And, as long as the unconscionability. In re Turner,8 S.W.3d at 375
; Wade v. findings enjoy sufficient evidentiary support, they cannot Austin,524 S.W.2d 79, 86
(Tex.Civ.App.-Texarkana 1975, be disturbed, even though we may have construed the
no writ.). evidence differently. Nevertheless, this does not prevent
us from assessing whether the findings made illustrate
[26] [27] [28] [29] [30] [31] In determining whetherunconscionability for, again, that is a question of law. Nor
a contract is unconscionable, we must examine (1) the does it prevent us from deciding whether the evidence
âentire atmosphereâ in which the agreement was made; (2) of record, when viewed in a light most favorable to the
the alternatives, if any, available to the parties at the time court's findings and regardless of its potential inferences,
the contract was made; (3) the ânon-bargaining abilityâ of illustrates unconscionability, for that too is a question of
one party; (4) whether the contract was illegal or against law.
public policy; and (5) whether the contract is oppressive or
unreasonable. Wade, 524 S.W.2d at 86. The totality of the Interestingly, at least one court has likened the mental circumstances must be assessed as of the time the contract was gymnastics in which we must partake to the standard formed. El Paso,964 S.W.2d at 61
. It is important to consider of abused discretion. See, e.g., Pony Express Courier whether there is any gross disparity in the values exchanged. Corp. v. Morris,921 S.W.2d at 820
. Use of the latter RESTATEMENT (SECOND) OF CONTRACTS, § 208, is helpful in situations involving mixed questions of law cmt. c. Gross inequality of bargaining power, together with and fact, according to the Pony Express court. Id. It terms unreasonably favorable to the stronger party may enables the reviewing court to reassess de novo that part show that the weaker party had no meaningful choice, of the decision involving the law and its application while no real alternative, or did not in fact assent or appear to recognizing the trial court's authority to weigh and interpret assent to the unfair terms. Id. at cmt. d. Factors that may the evidence. Pony Express Courier Corp. v. Morris, 921 contribute to an unconscionable bargaining process include: S.W.2d at 820; accord, Walker v. Packer,827 S.W.2d 833
,
(1) knowledge of the stronger party that the weaker party will 839â40 (Tex.1992); see RESTATEMENT (SECOND) OF
be unable to receive substantial benefits from the contract; CONTRACTS § 208, cmt. f (stating that the appellate court
and (2) knowledge of the stronger party that the weaker will consider whether the proper standards were applied).
party is unable reasonably to protect his interests by reason Given this, we too adopt it as indicative of the framework
of physical or mental infirmities, ignorance, illiteracy or in which the reviewing court must act.
inability to understand the language of the agreement. Id. The
El Paso, 964 S.W.2d at 60â61.
grounds for substantive abuse must be sufficiently shocking
or gross to compel the court to intercede, and the same is
Here, the trial court submitted the issue of unconscionability
true for procedural abuseâthe circumstances surrounding the
to the jury, and the jury found the lease, its first addendum,
negotiations must be shocking. El Paso, 964 S.W.2d at 62.
first amendment, and second amendment were the result
of unconscionability. The declaratory judgment entered
[32] The ultimate question of unconscionability of a contract
stated that the lease and its first and second amendments
is one of law, to be decided by the court. El Paso, 964 S.W.2d
are void from their inception and are unenforceable.
at 60; see also In re Turner, 8 S.W.3d at 375; TriâContinental,
Because an unconscionable contract is unenforceable, we
710 S.W.2d at 609. In El Paso, the court stated:
will determine if this declaratory judgment resulted from a
This suggests that our review of the matter is de novo. proper determination of unconscionability. The trial court
Yet, it cannot be forgotten that the decision of whether did not make any separate factual findings regarding
some agreement is or is not unconscionable is dependent unconscionability.
upon the existence of facts which allegedly illustrate
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 16
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
[33] We find the following evidence supports procedural
unconscionability of the BakerâDavis lease: (13) The Davises told the Bakers that they planned to put in
a boat marina, landing strip and golf course. However,
(1) The Davises were aware that the Bakers were in the Davises did not provide a copy of their general
desperate need for money at the time they signed the business plan and did not mention the contents of this
leaseâthe Bakers were living in a trailer home heated by plan, which could have affected the real estate taxes.
a stove and were so far in debt that they needed money These plans included development of dump stations for
to survive; trailer waste, a new boat area, an engineered ski lake,
electricity, excavation of new channels, installation of
(2) The Davises told the Bakers that Mary Baker would be a fuel farm, and marketing of ski lake site lots as long-
able to get Medicaid if she entered the lease; leasehold property;
(3) Ms. Calahan met with the Bakers and told them that the (14) Walter Baker testified that he did not think he was
sale of the property would be better in terms of long-term selling his property to the Davises;
income and the tax consequences; the Davises convinced
the Bakers that the lease was better because it would give (15) Walter Baker testified that Davis brought so many
them steady monthly income; papers to him that he was confused as to what was what;
(4) Walter Baker testified that he and Mary felt they had (16) The Bakers were not experienced with formal
to enter the lease; contractingâthey had about 35â40 current lake-lot
subleases but they were informal agreements without
(5) The Bakers did not see the final draft of the lease until any property descriptions;
the day they signed it;
(17) The Bakers did not keep any accounting books for
(6) Walter Baker testified that he and Mary felt they could their store;
not change anything in the lease before signing it;
(18) The Bakers filed tax returns for their farm, but never
*138 (7) Walter Baker testified that he spoke to his filed tax returns for anything else; and
CPA in general terms after his first meeting with Davis
regarding whether it would be easier to sell it in one lump (19) The Davises' attorney drafted the lease.
sum or lease it and get a monthly paymentâthe CPA
said he needed more details to run the numbers (Baker [34] We find the following terms support substantive
never went back to the CPA); unconscionability of the BakerâDavis lease:
(8) Walter Baker testified that he and Mary were the only (1) The Bakers were required to pay all real estate taxes for
ones to review the terms of the lease; the 99âyear term of the lease, which were estimated by
Calahan at $132.92 per month for the next 12â1/2 years
(9) The Davises did not explain any of the terms to the ($1,595 per year);
Bakers before they signed the lease;
(2) The Davises had to pay $3,000 per month for only 12â
(10) Walter Baker testified that he did not understand 1/2 years; after that period, their rent would decrease
the legal language and did not know what the terms to $75 per month, which is less than the estimated tax
meant (e.g., severability, specific performance, release, payment;
warranty, assignment, termination, possessory rights);
(3) All current sublease income would be assigned to the
(11) The Davises never told the Bakers that they had tried to Davises (this was estimated at $1,668 per month based
purchase 25 acres of this property the previous summer; on testimony); thus, the Bakers were already entitled to
this amount and would only get $1,332 more per month
(12) When Davis was asked how he expected the Bakers
than they were currently entitled to and substantially less
to survive after the 12â1/2 years, he testified that they
after 12â1/2 years;
could have survived, Walter Baker could work, and â[i]t
was a window of opportunity for both of us.â
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 17
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
*139 (4) The Davises could terminate the lease at any ISSUE FOUR: McCalla's standing to request
time by simply giving written notice; declaratory judgment to void BakerâDavis lease
(5) The Bakers lost all possessory rights (except the right Because we found in issues one and seven that Baker has
to have a small store through December 1996); standing to request the declaratory judgment to void the
BakerâDavis lease and that the lease and all its amendments
(6) The Bakers could not discuss or be a party to any
unenforceable, we need not address whether the McCallas
communication about this lease and/or any subleases
have standing to do the same.
that the Davises may enter under this lease;
ISSUE TWO: Error in submitting issues of tortious
(7) The release clause prevented the Bakers from selling the
interference to jury
land under their current listing agreement with Calahan,
and if the Bakers did sell the land, they would owe the
[36] It is unclear which tortious interference jury questions
Davises $10,000 plus all rent payments made to that
are at issue here. Thus, we will review the three jury questions
point; and
relating to tortious interference. In question 5, the jury
(8) The release clause prevented the Bakers from selling found that Ski River *140 and the Davises intentionally
the land while the lease was in effect. interfered with the Glazier lease between the McCallas and
Baker. In question 24, the jury found that Ski River and the
[35] This evidence illustrates unfair bargaining positions, Davises wrongfully interfered with the McCallas' prospective
unfair terms, gross disparity in the value exchanged, no contractual relation with Baker. Because we have found that
substantial benefit to the Bakers, shocking circumstances McCallas' option is void, we find that the trial court erred in
of the procurement of the lease, and shocking/gross lease submitting these two jury questions as a matter of law. There
terms. See Wade, 524 S.W.2d at 86; El Paso, 964 S.W.2d is no evidence that the Davises and Ski River interfered with
at 61; RESTATEMENT (SECOND) OF CONTRACTS, the McCallas' valid lease rights.
§ 208. Evidence of both procedural and substantive
unconscionability of the BakerâDavis lease also supports a [37] In question 25, the jury found that Ski River and the
determination that the first addendum and the first and second Davises tortiously interfered with Baker's use and enjoyment
amendments to the lease are unconscionable. We find that the of his property. Ski River objected that this is not a cause of
trial court did not abuse its discretion in entering a declaratory action upon which relief can be based and it is duplicative of
judgment finding the BakerâDavis lease and its amendments other relief requested.
unenforceable. See El Paso, 964 S.W.2d at 60â61. However,
the finding of unconscionability would not make the Bakerâ [38] [39] [40] Under the general rule, there are at least
two causes of action for tortious interference: (1) tortious
Davis lease void. 5
interference with the right to dispose of property; and (2)
tortious interference with the peaceful use and enjoyment
We sustain issue one in part and overrule in part. We will
of property rights. Suprise v. DeKock, 84 S.W.3d 378, 380
reform the declaratory judgment to read:
(Tex.App.-Corpus Christi 2002, no pet.). A cause of action for
Based on the evidence presented, the Court RENDERS tortious interference with the right to dispose of property is,
a Declaratory Judgment that the 99âyear Davis lease in essence, a claim for tortious interference with a prospective
executed on or about February 12, 1996, filed for record contract or prospective business relation. Id. at 381. Texas on February 15, 1996, at BK 1940PG0011, the First law protects prospective contracts from interference.Id.
A Amendment to Lease executed on or about March 12, cause of action for tortious interference with peaceful use and 1996, and filed for record on March 11, 1996, at BK enjoyment of property is, in essence, a claim for intentional 1945PG0915, and the Second Amendment to Lease invasion of, or interference with, property rights.Id. at 382
. executed on or about August 28, 1996, and all amendments This cause of action also exists under Texas law.Id. at 383
.
thereto are unconscionable and thus unenforceable from Thus, tortious interference with Baker's use and enjoyment of
their inception. his land is a separate cause of action and is not cumulative.
See id. at 380â83.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 18
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
We sustain issue two as to questions 5 and 24 and overrule it
as to question 25. We turn to the tortious interference damages ISSUE TWELVE: Legal and factual sufficiency of
in issue ten. evidence of exemplary damages awarded to the
McCallas and Baker and whether the exemplary
ISSUE TEN: Factual sufficiency of lost profits damages were excessive
awarded to the McCallas and Baker
Because we have reversed the McCallas' tortious interference
[41] [42] In Texas, a party bringing suit for tortious damages in issue ten, we must also reverse the McCallas'
interference with a contract must prove four elements: (1) accompanying exemplary damages of $75,000 against Ski
a contract subject to interference exists; (2) the act of River and the Davises. We sustain issue twelve as to the
interference was willful and intentional; (3) the intentional McCallas' exemplary damages.
act proximately caused the plaintiff's damage; and (4) actual
damage or loss occurred. Juliette Fowler Homes v. Welch As to Baker, Ski River and the Davises first argue legal and
Assocs., 793 S.W.2d 660, 665(Tex.1990). The first element factual sufficiency of the evidence to support a finding that the requires the existence of a valid contract; a void contract harm to Baker resulted from fraud or malice. The argument cannot serve as the basis for a tortious interference claim. See in their appellate brief consists of: âThere was no evidence id.; Clements v. Withers,437 S.W.2d 818, 821
(Tex.1969). to support the jury's findings that the harm to the McCallas
and Baker resulted from fraud or malice (Questions 8 and 28);
As to the tortious interference in jury question 5, because in the alternative, the findings were against the great weight
there can be no tortious interference with a void contract, we and preponderance of the evidence.â Second, they argue that
reverse the McCallas' tortious interference damages award of if the evidence supporting an award of exemplary damages
$69,000 against Ski River and the Davises. We sustain issue is sufficient, the exemplary damages awarded are excessive
ten as to the McCallas' tortious interference damages award. ($50,000 in actual damages and $20,000 6 in exemplary
damages).
[43] According to question 26, the damages awarded to
Baker for tortious interference with use and enjoyment of his
land were either lost profits and/or damages for loss of use and Legal and factual sufficiency
enjoyment of his property. Ski River and the Davises argue [45] Ski River and the Davises' legal and factual sufficiency
only that there was insufficient evidence to support any lost argument is one sentence in their 50 page brief and contains
profits awarded to Baker. no citations to the reporter's record. The Rules of Appellate
Procedure require that â[t]he brief must contain a clear and
[44] To successfully challenge a multi-element damages concise argument for the contentions made, with appropriate
award (one dollar amount for multiple elements of damages) citations to authority and to the record.â TEX.R.APP. P.
on appeal, an appellant must address all of the elements and 38.1(h), 38.2(a)(1). This is especially important in a case
show that the evidence is factually insufficient to support such as this with a voluminous appellate record. By their
the entire damages award. *141 Price v. Short, 931 S.W.2d failure, Ski River and the Davises have waived their legal and
677, 688 (Tex.App.-Dallas 1996, no writ); Greater Houston factual sufficiency complaints about the jury findings. E.g.
Transp. Co. v. Zrubeck, 850 S.W.2d 579, 589(Tex.App.- Franklin v. Enserch, Inc.,961 S.W.2d 704, 711
(Tex.App.- Corpus Christi 1993, writ denied). A failure to address an Amarillo 1998, no pet.); Sisters of Charity of the Incarnate element of damages results in waiver of the sufficiency Word v. Gobert,992 S.W.2d 25, 31
(Tex.App.-Houston [1st challenge. Price, 931 S.W.2d at 688. Dist.] 1997, no pet.); Leyva v. Leyva,960 S.W.2d 732, 734
(Tex.App.-El Paso 1997, no writ).
Thus, by failing to challenge the sufficiency of the evidence
of lost use and enjoyment, Ski River and the Davises have
waived their factual sufficiency challenge on the damages Excessive
awarded to Baker. See id. [46] [47] [48] Exemplary damages must be reasonably
proportioned to compensatory damages. Alamo Nat'l Bank
We overrule issue ten as to Baker's tortious interference v. Kraus, 616 S.W.2d 908, 910 (Tex.1981). There is no set
damages award. rule between the amount of actual and exemplary damages
that will be considered reasonable. Id. That determination
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 19
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121(2005) is dependent upon the facts of a particular case.Id.
Factors conclusively establishes the opposite of a vital fact. Juliette to consider in determining whether an award of exemplary Fowler Homes, Inc. v. Welch Assocs., Inc.,793 S.W.2d 660
, damages is reasonable include: (1) the nature of the wrong, 666 n. 9 (Tex.1990) (citing Calvert, âNo Evidenceâ and (2) the character of the conduct involved, (3) the degree of âInsufficient Evidenceâ Points of Error, 38 TEX. L.REV. culpability of the wrongdoer, (4) the situation and sensibilities 361, 362â63 (1960)). of the parties concerned, *142 and (5) the extent to which such conduct offends a public sense of justice and propriety. [51] We have recited the evidence about proceduralId.
unconscionability. Karen Davis also testified that she (1) was
very familiar with the landmarks on the property; (2) had an
[49] The ratio of exemplary damages is approximately 0.40 emotional attachment to the property; (3) first approached the
the amount of compensatory damages for Baker. Considering Bakers about leasing the property in January 1996 with Mr.
the Kraus factors, we find this ratio is not excessive. See id. Davis; (4) was involved in the negotiation process with the
Bakers; (5) took the final draft to the Bakers with Mr. Davis;
We overrule issue twelve as to Baker's exemplary damages. and (6) was present when everyone signed the lease.
ISSUE NINE: Legal sufficiency of evidence to Considering only the evidence and all reasonable inferences
support judgment against Karen Davis that support the jury's finding of tortious interference of use
and enjoyment of his property by Karen Davis, we find legally
The tortious interference damages awarded to the McCallas sufficient evidence to support this finding, i.e., more than a
against Karen Davis have been reversed under issue ten. Ski scintilla of evidence to support the finding. See Orozco, 824
River and the Davises argue that there is no evidence to S.W.2d at 556; Juliette Fowler, 793 S.W.2d at 666 n. 9. We
support the tortious interference damages awarded to Baker overrule issue nine.
against Karen Davis. They argue she was only occasionally
present, married to Stephen Davis, and did not sign the lease ISSUE FIVE: Error in awarding attorney's fees to
or its amendments. McCallas and Bakers because they failed to segregate
fees between claims
We review no-evidence points by considering only the
evidence and all reasonable inferences that support the jury's *143 Both the Bakers and the McCallas requested attorney's
finding while disregarding all evidence and inferences to the fees under the Declaratory Judgment Act. See TEX. CIV.
contrary. Orozco v. Sander, 824 S.W.2d 555, 556(Tex.1992). PRAC. & REM.CODE ANN. §§ 37.001, 38.001 (Vernon If there is more than a scintilla of evidence to support the 1997). In a declaratory judgment action, a court âmay finding, the no-evidence challenge must fail. Id. There is award ... reasonable and necessary attorney's fees as are âsome evidenceâ when the proof furnishes a reasonable basis equitable and just.â Id. § 37.009. (Vernon 1997). for reasonable minds to reach differing conclusions as to the existence of a crucial fact. Id. If the evidence is so weak as [52] An award of attorney's fees to the McCallas would to do no more than create a mere surmise or suspicion of not be âequitable and justâ after finding that their option is its existence, its legal effect is that it is no evidence. Haynes void. See id. Thus, we sustain issue five as to the McCallas' & Boone v. Bowser Bouldin, Ltd.,896 S.W.2d 179
, 182 attorney's fees and reverse all attorney's fees awarded to the (Tex.1995). Generally, if the court of appeals sustains a âno McCallas. evidenceâ point, it is the court's duty to render judgment for appellant. Vista Chevrolet, Inc. v. Lewis,709 S.W.2d 176, 176
[53] [54] [55] [56] Because we reformed the declaratory
(Tex.1986) (quoting Nat'l Life Accident Ins. Co. v. Blagg, 438 judgment that the BakerâDavis lease is unenforceable, we
S.W.2d 905, 909 (Tex.1969)). must assess whether Baker is entitled to attorney's fees for
this declaratory judgment. To show the reasonableness and
[50] A no-evidence point must and can only be sustained necessity of attorney's fees, the plaintiff is required to show
when the record reveals: (1) a complete absence of evidence that the fees were incurred while suing the defendant sought
of a vital fact; (2) rules of law or rules of evidence bar to be charged with the fees on a claim which allows recovery
the appellate court from giving weight to the only evidence of such fees. Stewart Title Guaranty Co. v. Sterling, 822
offered to prove a vital fact; (3) the evidence offered to prove a S.W.2d 1, 10 (Tex.1991). A recognized exception to this duty
vital fact is no more than a mere scintilla; and (4) the evidence to segregate arises when the attorney's fees rendered are in
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 20
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
connection with claims arising out of the same transaction A. McCalla's option to purchase the
and are so interrelated that their âprosecution or defense Property is void as a matter of law.
entails proof or denial of essentially the same facts.â Id. at 11.
Therefore, when the causes of action involved in the suit are We will reform the declaratory judgment to read:
dependent upon the same set of facts or circumstances and
Based on the evidence presented,
thus are âintertwined to the point of being inseparable,â the
the Court RENDERS a Declaratory
party suing for attorney's fees may recover the entire amount
Judgment *144 that the 99âyear
covering all claims. Id. We find that Baker's cross-claims
Davis lease executed on or about
were so intertwined with his declaratory judgment cross-
February 12, 1996, filed for record
claims that segregation of attorney's fees was not required.
on February 15, 1996, at BK
See id. at 10â11.
1940PG0011, the First Amendment to
Lease executed on or about March
Thus, we overrule issue five as to the attorney's fees awarded
12, 1996, and filed for record on
to Baker.
March 11, 1996, at BK 1945PG0915,
and the Second Amendment to
[57] In addition, the jury found the reasonable and necessary
Lease executed on or about August
attorney's fees for the Davises and Ski River are $100,000
28, 1996, and all amendments
for preparation and trial, $15,000 for an appeal to the Court
thereto are unconscionable and thus
of Appeals, and $15,000 for an appeal to the Supreme Court
unenforceable from their inception.
of Texas. We must remand this cause to the trial court to
determine whether to award âequitable and justâ attorney's
fees to Ski River and the Davises and against the McCallas We reverse and delete from the judgment the tortious
under the Declaratory Judgment Act, based on our holding interference damages, exemplary damages, and all attorney's
under issue one. See TEX. CIV. PRAC. & REM.CODE ANN. fees awarded to the McCallas against the Davises and Ski
§ 37.009. River. We affirm the judgment awarding tortious interference
damages, exemplary damages, and all attorney's fees to Baker
ISSUE EIGHT: Legal sufficiency of civil conspiracy against the Davises and Ski River. We remand this cause to
finding. the trial court to determine whether to award attorney's fees
to the Davises and Ski River and against the McCallas under
Because the trial court did not enter a judgment on this jury the Declaratory Judgment Act.
finding, we need not address this issue.
Chief Justice GRAY concurring.
CONCLUSION
TOM GRAY, Chief Justice, concurring.
We have sustained issue three, overruled issues six, seven, If it is within our job description to come up with a laundry
nine, and eleven, and overruled in part and sustained in part list of questions that could pose a problem in the subsequent
issues one, two, five, ten, and twelve. We did not need to enforcement of a contract, I assure you that only the wealthiest
address issues four and eight. Thus, we reverse that part of clients could afford to have enforceable contracts drafted.
of the judgment that states (1) the Davises and Ski River Fortunately that is not the law. That is, however, what the
take nothing against the McCallas and (2) the declaratory majority has done to determine McCalla's contract is âvoid.â
judgment that the McCallas properly exercised their option to I would not.
purchase the Property. We render judgment as follows:
In June 1994, Mary Baker took the necessary steps to list the
Based on the evidence presented to property with a broker. At this point, she had affirmatively
the Court, the Court RENDERS a triggered the provisions of her contract with McCalla that if
Declaratory Judgment that Plaintiffs she decided to sell, McCalla had certain rights. I agree with
Anthony L. McCalla's and Cheryl McCalla that Mary's effort to include a 72 hour response time
for McCalla to act on the rights was not effective because it
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 21
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)
was not part of that contract. If time to act in a contract is not
Under these circumstances, I have no problem in determining,
specified, a reasonable time is implied.
as a matter of law, that McCalla failed to exercise his rights
under the contract in a timely manner. His efforts to delay the
By October of 1994, McCalla had an appraisal of the fair
exercise, for whatever reason, are ineffective because, like the
market value completed. It would have been a jury issue of
72 hour provision, they are not in the contract.
whether this was a reasonable time to obtain such an appraisal
and then immediately act on the contract. We need not decide
I do not, however, find any reason to interfere with an
that issue, however, because McCalla did not attempt or
agreement freely entered into by these parties by declaring the
endeavor to act on his rights under the contract at that time. In
provision void as the majority has done. I would sustain issue
fact, McCalla did not act on this appraisal of the fair market
three on the basis that McCalla waived his rights under the
value, by attempting to exercise his rights under the contract,
agreement by failing to timely exercise them.
until April 1996, almost two years after Mary decided to
sell the property, and well over a year after the appraisal
It does not appear that my disagreement with the majority
was received by McCalla. Many events occurred during this
on resolving this issue would substantively impact the
extended delay. The length of the delay alone would raise the
disposition of the appeal. I concur.
issue of whether the appraised value had changed, and the jury
did make such findings.
Footnotes
1 Appellant Stephen R. Davis is the principal of Ski River, and Appellant Karen Davis is his wife.
2 The McCallas also sued for fraud and breach of warranty of merchantability.
3 Baker also cross-claimed for breach of contract, fraud, waste, and declaratory judgment that (1) the right of first refusal in the Bakerâ
Davis lease is void; and (2) the BakerâDavis lease is void for lack of consideration. Baker counterclaimed against the McCallas
for tortious interference with use and enjoyment of his land, a declaratory judgment that (1) the McCalla's option is void and
unenforceable; (2) the McCallas refused to exercise their option and specific performance for the McCallas to sell the boat storage
business to Baker; (3) the Glazier lease is void and unenforceable because McCalla intentionally placed Baker under duress to induce
him to sign the Glazier lease, and attorney's fees under the Declaratory Judgment Act. The McCallas and Baker settled their claims
prior to the judgment now on appeal.
4 Ski River and the Davises also counterclaimed for tortious interference with BakerâDavis relations and lease and a declaratory
judgment that: (1) the McCallas did not exercise their option; (2) specific performance for the McCallas to sell the boat storage
business to Baker; and (3) the BakerâDavis lease is legal and binding.
5 We note that even if we were to address the findings of fraud and undue influence, we would not find the lease and its amendments
void, and at most, we would find the lease voidable based on undue influence. See RESTATEMENT (SECOND) OF CONTRACTS,
§ 177 (1981) (âUndue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion
or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his
welfare;â âIf a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.â).
6 Ski River and the Davises' brief states $75,000 in exemplary damages; however, the answer to jury question 29 is $20,000 in exemplary
damages, and the judgment awarded $20,000.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 22
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
Courts
435 S.W.3d 222 Review
Supreme Court of Texas. by or certificate to Supreme Court by Court of
Civil Appeals of questions where its decision
VENTURE COTTON COOPERATIVE
conflicts with or overrules that of another Court
and Noble Americas Corp., Petitioners,
of Civil Appeals or that of the Supreme Court
v.
Supreme Court has jurisdiction to hear an appeal
Shelby Alan FREEMAN, et al., Respondents.
from an interlocutory order denying arbitration
No. 13â0122. | Argued Jan. 9, when the court of appeals' decision conflicts with
prior precedent.
2014. | Delivered June 13, 2014.
Cases that cite this headnote
Synopsis
Background: Cotton growers who entered into contract
with cooperative marketing pool brought action against [2] Alternative Dispute Resolution
cooperative pool. Cooperative pool moved to compel
arbitration pursuant to an arbitration agreement contained Preemption
in the contracts between growers and cooperative pool. States
The 106th District Court, Gaines County, Kelly Moore,
Particular
J., denied motion, finding the arbitration agreement to be
cases, preemption or supersession
unconscionable. Cooperative pool appealed, and the Eastland
Court of Appeals, 395 S.W.3d 272, Jim R. Wright, C.J., Although the Federal Arbitration Act (FAA)
affirmed. Cooperative pool filed petition for review. preempts state law that conflicts with its
objectives, state law remains relevant to declare
an arbitration agreement itself unenforceable on
such grounds as exist in law or in equity for the
Holdings: The Supreme Court, Devine, J., held that:
revocation of any contract. 9 U.S.C.A. § 2.
[1] any implied waiver of growers' statutory right to recover Cases that cite this headnote
attorney fees was invalid as contrary to public policy;
[3] Alternative Dispute Resolution
[2] unenforceable limitation on growers' right to recover
attorney fees was severable from the remainder of the Validity
arbitration agreement; and
Alternative Dispute Resolution
[3] one-sided attorney fee provision of the arbitration Validity
agreement was insufficient to invalidate agreement as of assent
unconscionable. Alternative Dispute Resolution
Unconscionabi
Reversed and remanded.
The âsaving clauseâ of the Federal Arbitration
Act (FAA) permits agreements to arbitrate
to be invalidated by generally applicable
West Headnotes (17) contract defenses, such as fraud, duress, or
unconscionability, but not by defenses that apply
only to arbitration or that derive their meaning
[1] Alternative Dispute Resolution from the fact that an agreement to arbitrate is at
Decisions issue. 9 U.S.C.A. § 2.
reviewable; finality
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
Cases that cite this headnote Cases that cite this headnote
[4] Alternative Dispute Resolution [7] Contracts
Unconscionability Unreasonable
Alternative Dispute Resolution or Oppressive Contracts
Contracts
Construction
In determining an arbitration agreement's Presumptions
validity, a court may not construe the agreement and burden of proof
differently from how it would construe contracts Unambiguous contracts are presumed to reflect
generally under state law, nor may a court the intent of the contracting parties and are
rely on the uniqueness of an arbitration generally enforced as written regardless of
agreement as a basis for a state-law holding whether one or more of the parties contracted
that enforcement would be unconscionable; wisely or foolishly, or created a hardship
but if the circumstances would render any for himself; courts therefore do not ordinarily
contract unconscionable under Texas law, they inquire into the reasons for the contract or the
are appropriate to invalidate the agreement to relative fairness of its terms.
arbitrate as well. 9 U.S.C.A. § 2.
Cases that cite this headnote
1 Cases that cite this headnote
[8] Contracts
[5] Alternative Dispute Resolution
Unconscionabl
Preemption Contracts
States Unconscionable bargains are an exception to the
freedom that generally pervades contract law.
Particular
cases, preemption or supersession Cases that cite this headnote
Special state rules for interpreting arbitration
agreements cannot coexist with the Federal [9] Alternative Dispute Resolution
Arbitration Act (FAA) because Congress
intended the act as its response to a longstanding Statutory
judicial hostility to arbitration agreements. 9 rights and obligations
U.S.C.A. § 1 et seq. When parties agree to arbitrate a statutory claim,
a party does not forego the substantive rights
Cases that cite this headnote
afforded by the statute; it only submits to their
resolution in an arbitral, rather than a judicial,
[6] Alternative Dispute Resolution forum.
Evidence Cases that cite this headnote
A party seeking to compel arbitration under the
Federal Arbitration Act (FAA) must establish [10] Alternative Dispute Resolution
that the dispute falls within the scope of an
existing agreement to arbitrate; upon such proof, Writing,
the burden shifts to the party opposing arbitration signature, and acknowledgment
to raise an affirmative defense to the agreement's Alternative Dispute Resolution
enforcement. 9 U.S.C.A. §§ 3, 4.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
Validity[13] Alternative Dispute Resolution
Any implied waiver of cotton growers' right
Unconscionabi
to recover attorney fees under the Consumer
Protection-Deceptive Trade Practices Act arising Provision of arbitration agreement between
out of their execution of arbitration agreement cotton growers and cooperative marketing pool
that incorporated arbitration rules limiting that entitled pool, but not growers, to recover
recovery of attorney fees was invalid as contrary attorney fees for any breach of contract
to public policy; arbitration rules did not comply was insufficient to invalidate the arbitration
with the statutory requirements for waiver of agreement as unconscionable, despite contention
rights under the Consumer Protection-Deceptive that it deprived growers of their statutory right
Trade Practices Act, including that the waiver to recover attorney fees on a breach of contract
be conspicuous and in bold-face type of at least claim. V.T.C.A., Civil Practice & Remedies
10 points in size, and that it include language Code § 38.001.
substantially similar to the form provided by the
1 Cases that cite this headnote
statute. V.T.C.A., Bus. & C. § 17.42(c)(1â3).
Cases that cite this headnote [14] Costs
Contracts
[11] Alternative Dispute Resolution
Parties are generally free to contract for
Severability attorney's fees as they see fit; thus, a contract that
Arbitration agreement's unenforceable limitation expressly provides for one party's attorney fees,
on cotton growers' right to recover attorney fees but not another's, is not unconscionable per se.
on their claim against cooperative marketing
Cases that cite this headnote
pool under the Consumer Protection-Deceptive
Trade Practices Act was severable from the
remainder of the arbitration agreement; essential [15] Alternative Dispute Resolution
purpose of the arbitration agreement was to
Matters
provide for speedy and efficient resolution of
to Be Determined by Court
disputes to ensure timely performance under the
contract, and agreement's collateral effect on Alternative Dispute Resolution
statutory rights and remedies appeared to be a
Existence
peripheral concern.
and validity of agreement
Cases that cite this headnote Alternative Dispute Resolution
Waiver,
[12] Contracts laches, or estoppel
Partial Questions of waiver, illegality, remedies, and
Illegality attorney fees often relate to the broader,
container contract, rather than the separable
In determining an agreement's essential purpose,
agreement to arbitrate, and, as such, are matters
for purposes of severability of unenforceable
entrusted to the arbitrators.
provisions, the issue is whether or not parties
would have entered into the agreement absent the Cases that cite this headnote
unenforceable provisions.
Cases that cite this headnote [16] Alternative Dispute Resolution
Evidence
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
When authority over the matters of waiver,
illegality, remedies, and attorney fees is unclear, Opinion
a strong federal presumption favors arbitration.
Justice DEVINE delivered the opinion of the Court.
9 U.S.C.A. § 1 et seq.
[1] Two groups of cotton farmers sue to rescind
1 Cases that cite this headnote
contracts in which they agreed to sell cotton through a
cooperative marketing pool. The farmers allege that they
[17] Contracts were fraudulently induced to join the cooperative and seek
damages, declaratory relief, and attorney's fees under various
Unconscionable
statutes. Because the agreements provide for arbitration of
Contracts all disputes under the Federal Arbitration Act, 9 U.S.C §§
Courts usually analyze unconscionability issues 1â16, the cotton cooperative moved to stay the litigation
in light of a variety of factors, which aim to and compel arbitration. This appeal is from the trial court's
prevent oppression and unfair surprise. interlocutory order, denying those motions. See TEX. CIV.
PRAC. & REM.CODE § 51.016 (permitting interlocutory
Cases that cite this headnote
appeals of orders denying arbitration under the FAA). 1
*225 The trial court has concluded that the parties'
agreement to arbitrate should not be enforced because it
Attorneys and Law Firms
is unconscionable, and the court of appeals has affirmed
*224 R. Carson Fisk, Ford Nassen & Baldwin P.C., Austin, the trial court's order denying arbitration. 395 S.W.3d 272,
TX, for Amicus Curiae Fisk R. Carson. 275â76 (Tex.App.âEastland 2013). The court of appeals
reasons that the arbitration agreement is unconscionable
Amber S. Miller, ZS Brady & Co., Lubbock, TX, for Amicus because it prevents the farmers from pursuing the statutory
Curiae Plains Cotton Growers, Inc. remedies and attorney's fees alleged in their pleadings.
Id. at 277. We conclude that this limitation of statutory
Zachary S. Brady, ZS Brady & Co., Lubbock, TX, for Amicus remedies is insufficient to defeat arbitration under the FAA
Curiae Texans for Lawsuit Reform. and accordingly reverse the court of appeals' judgment.
We conclude further that, because the court has not
Danica Lynn Milios, Kent C. Sullivan, Sean D. Jordan,
fully considered the parties' arguments on the issue of
Sutherland Asbill & Brennan LLP, Austin, H. Grady Terrill
unconscionability, the case should be remanded to the court
III, Craig Terrill Hale & Grantham LLP, Lubbock, TX, for
of appeals.
Petitioner.
Don David Martinson, McCleskey Harriger Brazill & Graf,
L.L.P., Lubbock, Dustin Slade, Fernando Manuel Bustos, I. Background
Bustos Law Firm, P.C., Lubbock, Jennifer Lea Kelley,
Fanning Harper Martinson Brandt & Kutchin PC, Dallas, TX, Venture Cotton Cooperative is a cotton cooperative-
for Respondent Freeman, Shelby Alan. marketing association, incorporated in Texas, and managed
by Noble Americas Corp., a foreign corporation. In 2010,
Dennis R. Burrows, William P. Lane, McCleskey Harriger Venture operated a pool for the exclusive sale and marketing
Brazill & Graf, L.L.P., Lubbock, Don Martinson, Fanning of its members' cotton production. Venture promoted this
Harper Martinson Brandt & Kutchin, P.C., Dallas, Jennifer pool through various cotton-gin companies, which arranged
Lea Kelley, Texans for Lawsuit Reform, Austin, TX, for meetings with local farmers. Venture would explain the pool's
Respondent Neitsch, Roger. terms and solicit membership at these meetings. One such
meeting was arranged by Ocho Gin Company in Seminole,
H. Alan Carmichael, Wetsel & Carmichael, LLP,
Texas.
Sweetwater, TX, for Respondent OCHO Gin Company, Ltd.
Farmers, who agreed to join the 2010 pool, signed Venture's
Membership and Marketing Agreement and other related
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
documents. These documents asked each farmer to designate
the acreage committed to the pool and to estimate the âą Any court having or claiming jurisdiction, whether state
production Venture might expect to market. After the meeting or federal, shall apply the substantive provisions of the
in Seminole, Venture left copies of these documents with United States Arbitration Act....
Ocho for farmers to execute, should they decide to join the
âą In the event of a breach of this Agreement by Producer,
cooperative. Several farmers decided to join the pool.
Producer agrees to pay all arbitration and court costs, if
any, and the reasonable attorney's fees and litigation and
During the growing season, the price of cotton rose
arbitration expenses of Venture.
significantly. By harvest, Venture had become concerned that
members of the pool might be tempted to sell their committed The farmers opposed Venture's motions, asserting a number
production on the open market. This concern blossomed into of reasons why the arbitration agreement was unconscionable
a dispute with some member-farmers over the quantity of and should not be enforced. The trial court scheduled an
cotton committed to the pool and ultimately led to a lawsuit evidentiary hearing.
by Alan Freeman and Perry Brewer, two prominent cotton
farmers in Gaines County, Texas. 2 At this hearing, Freeman and Brewer testified about their
decisions to join the pool. According to their testimony, they
In their lawsuit, Freeman and Brewer asserted claims for had a question about âoveragesâ a few days after Venture's
fraud, negligent misrepresentation, breach of fiduciary duty, marketing presentation. âOveragesâ refers to cotton produced
mutual mistake, civil conspiracy and violations of the Texas on designated land in excess of the estimate given by a farmer
Consumer ProtectionâDeceptive Trade Practices Act, and at the time of land's commitment to the pool. Freeman and
the Texas Free Enterprise and Antitrust Act of 1983. Freeman Brewer's question, which they directed to Ocho, was whether
and Brewer also sought declaratory and injunctive relief overages were included in the pool under Venture's contracts.
and attorney's fees under Civil Practice and Remedies Code An Ocho representative called Venture with this question
section 38.001. Shortly after filing this suit, another group and allegedly learned that the disposition of overages was at
of farmers filed a second suit against Venture and the other the farmer's discretion, that is, the farmer could elect to sell
defendants in Gaines County, asserting similar claims. 3 overages under the agreement or not.
*226 Venture generally denied the allegations in both suits Venture denies making any such representations. It also
and moved to stay the litigation and compel arbitration under argues that its contract clearly calls for the commitment of
the United States Arbitration Act (also known as the Federal acres, not bales, making overages subject to the agreement.
Arbitration Act or FAA). 9 U.S.C §§ 1â16. The farmers' In any event, Freeman and Brewer maintain that they signed
membership and marketing agreements with the cooperative with the cooperative after being led to believe that they would
provided for the arbitration of all disputes under the FAA control overages.
and the arbitration rules of the American Cotton Shippers
Association (ACSA). The arbitration provision referred to the After considering the parties' pleadings, motions, responses,
farmers as âproducersâ and provided in pertinent part: and briefs, as well as evidence presented at the hearing, the
trial court refused to stay the litigation or compel arbitration,
âą All disputes will be resolved pursuant to binding finding the arbitration agreements unconscionable. Findings
arbitration pursuant to the arbitration rules of the American of fact and conclusions of law were requested and filed, but
Cotton Shippers Association. these findings and conclusions shed no light on the court's
reasoning. 4
âą The site of the arbitration shall be either Houston, Texas,
or Memphis, Tennessee, as chosen by Venture, unless
Venture filed interlocutory appeals in both cases, and
otherwise directed by the arbitrator(s).
the court of appeals consolidated them for decision. See
⹠The cotton sold herein is purchased for shipment out of TEX. CIV. PRAC. & REM.CODE § 51.016 (permitting
state of origin in interstate or foreign commerce. interlocutory *227 appeals of orders denying arbitration
under the FAA). Agreeing that the arbitration agreements
were unconscionable, the court affirmed the trial court's order
denying Venture's motion to compel. 395 S.W.3d at 275â76.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
The court reasoned that the agreements were unconscionable burden shifts to the party opposing arbitration to raise an in two respects: (1) they forced the farmers âto forego affirmative defense to the agreement's enforcement. J.M. substantive rights and remedies afforded by statute,âid.
Davidson, Inc. v. Webster,128 S.W.3d 223, 227
(Tex.2003). at 275, and (2) they were one-sided because they allowed The FAA thus requires a court to make at least a threshold Venture to recover its attorney's fees, if the farmers breached determination of arbitrabilityâthat the dispute is subject to the contract, but did not provide reciprocal rights to the an enforceable agreement to arbitrateâbefore enforcing the farmers,id. at 276
. arbitration agreement by compelling arbitration or staying
litigation. 9 U.S.C. §§ 3â4. 5
II. The FAA and State Law
*228 A. Unconscionability
[2] [3] [4] Although the Federal Arbitration Act preempts
state law that conflicts with its objectives, Southland Corp. [7] [8] The farmers do not dispute that their claims are
v. Keating, 465 U.S. 1, 10â17,104 S.Ct. 852
,79 L.Ed.2d 1
covered by the agreements with Venture and subject to (1984), state law remains relevant to declare an arbitration arbitration under the FAA, if their arbitration agreement itself agreement itself unenforceable on âsuch grounds as exist in is valid and enforceable. They contend, of course, that it law or in equity for the revocation of any contract.â 9 U.S.C. § cannot be enforced because the agreement is one-sided and 2 (the saving clause). âThis saving clause permits agreements grossly unfair in several respects. Unambiguous contracts, to arbitrate to be invalidated by âgenerally applicable contract however, are presumed to reflect the intent of the contracting defenses, such as fraud, duress, or unconscionability,â but parties and are generally enforced as written âregardless of not by defenses that apply only to arbitration or that derive whether one or more of the parties contracted wisely or their meaning from the fact that an agreement to arbitrate foolishly, or created a hardship for himself.â Wooten Props., is at issue.â AT & T Mobility LLC v. Concepcion, âââ Inc. v. Smith,368 S.W.2d 707, 709
(Tex.Civ.App.âEl Paso U.S. ââââ, ââââ,131 S.Ct. 1740
, 1746,179 L.Ed.2d 742
1963, writ ref'd). Texas courts therefore do not ordinarily (2011) (quoting Doctor's Associates, Inc. v. Casarotto, 517 inquire into the reasons for the contract or the relative fairness U.S. 681, 687,116 S.Ct. 1652
,134 L.Ed.2d 902
(1996)). of its terms. El Paso Field Services, L.P. v. MasTec N. In determining the arbitration agreement's validity then, a Am., Inc.,389 S.W.3d 802
, 810â11 (Tex.2012) (observing court may not construe the agreement differently from how it that a court's role âis not to protect parties from their own would construe contracts generally under state law, nor may agreementsâ). But this notion that parties are free to negotiate a court rely on the uniqueness of an arbitration agreement their own bargains conflicts with the equally compelling as a basis for a state-law holding that enforcement would be notion that grossly unfair bargains should not be enforced. 49 unconscionable. Perry v. Thomas,482 U.S. 483, 492
, 107 DAVID R. DOW & CRAIG SMYSER, TEXAS PRACTICE S.Ct. 2520, 96 L.Ed.2d 426
(1987). But if the circumstances SERIES: CONTRACT LAW § 3.9 (2005). Unconscionable would render any contract unconscionable under Texas law, bargains are therefore an exception to the freedom that they are appropriate to invalidate the agreement to arbitrate as generally pervades contract law. well. In re PolyâAmerica,262 S.W.3d 337, 348
(Tex.2008).
Unconscionability, however, is not easily defined. The term
[5] [6] Special state rules for interpreting arbitration defies a precise legal definition because âit is not a concept,
agreements cannot coexist with the FAA because Congress but a determination to be made in light of a variety
intended the act as its response to a âlongstanding judicial of factors not unifiable into a formula.â 27 STEPHEN
hostility to arbitration agreements.â Green Tree Fin. Corp.â COCHRAN, TEXAS PRACTICE SERIES: CONSUMER
Ala. v. Randolph, 531 U.S. 79, 89,121 S.Ct. 513
, 148 L.Ed.2d RIGHTS AND REMEDIES § 4.2 at 394 (3d ed.2002); 373 (2000). Under the FAA, an agreement to arbitrate that is see also 1 JAMES J. WHITE & ROBERT S. SUMMERS, valid under general state law principles and involves interstate UNIFORM COMMERCIAL CODE § 4â3 at 294 (5th commerce is âvalid, irrevocable, and enforceable.â 9 U.S.C. ed.2006). Although difficult to define, the defense has a long § 2. A party seeking to compel arbitration under the FAA, history. One of the earliest decisions to apply the defense however, must establish that the dispute falls within the described an unconscionable contract as one that âno man in scope of an existing agreement to arbitrate. In re Rubiola, his senses and not under delusion would make on the one334 S.W.3d 220, 223
(Tex.2011). Upon such proof, the hand, and as no honest and fair man would accept on the
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
other.â Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100, S.W.3d 337 (Tex.2008). There, we indicated that it would 2 Ves. Sr. 125, 155 (1751); see also Saunders v. Guinn, 1 be unconscionable for an arbitration agreement to mandate S.W.2d 363, 366 (Tex.Civ.App.âEastland 1927, writ ref'd) arbitration of a statutory claim and at the same time eliminate (noting this âdefinitionâ); Shumway v. Horizon Credit Corp., the rights and remedies afforded by the statute. Id. at 349. The801 S.W.2d 890, 896
(Tex.1991) (Mauzy, J. concurring and court of appeals concludes that such a possibility exists here
quoting Janssen ). Modern uniform laws add context to the because the arbitration agreement applies to âall disputes,â
defense but again do not attempt to define it. while the ACSA Arbitration Rules, incorporated into the
parties' agreement, foreclose the farmers' statutory claims
The Uniform Commercial Code provides that a court should for attorney's fees and enhanced damages under the DTPA.
afford the parties a reasonable opportunity to present evidence Specifically, section 8(k) of the ACSA rules limits the arbitral
as to a contract's commercial setting, purpose and effect award âto the monetary damages arising out of the failure of
to aid the court in evaluating the defense. TEX. BUS. either party to perform its obligations pursuant to the contract
& COMM.CODE § 2.302(b); see also RESTATEMENT as determined by the Arbitration Committee and shall not
(SECOND) OF CONTRACTS § 208, cmt. a (stating that include attorney's fees unless provided for in the contract.â
unconscionability determinations are made in âlight of [a
contract's] setting, purpose, and effectâ). Under the UCC, an [9] When parties agree to arbitrate a statutory claim, âa
unconscionability defense is a question of law that involves party does not forego the substantive rights afforded by the
a highly fact-specific inquiry into the circumstances of the statute; it only submits to their resolution in an arbitral,
bargain, such as the commercial atmosphere in which the rather than a judicial, forum.â Mitsubishi Motors Corp.
agreement was made, the alternatives available to the parties v. Soler ChryslerâPlymouth, Inc., 473 U.S. 614, 628, 105 at the time and their ability to bargain, any illegality or public- S.Ct. 3346,87 L.Ed.2d 444
(1985). Thus, in PolyâAmerica,
policy concerns, and the agreement's oppressive or shocking we observed that arbitration agreements typically function
nature. 49 TEXAS PRACTICE SERIES: CONTRACT LAW simply as forum-selection clauses rather than statutory
§ 3.11. waivers and generalized that â[a]n arbitration agreement
covering statutory claims is valid so long as âthe arbitration
In the court of appeals, the cotton farmers argued that agreement does not waive substantive rights and remedies of
the arbitration agreement was unconscionable in several the statute and the arbitration procedures are fair so that the
respects. They complained that the American Cotton Shippers employee may effectively vindicate his statutory rights.â â
Association (ACSA) Arbitration Rules, adopted by the PolyâAmerica, 262 S.W.3d at 352 (quoting In re Halliburton,
agreement, were one-sided and designed to foster arbitrator 80 S.W.3d at 572).
bias and that the rules' summary procedures further denied
them adequate discovery and preparation time. They also An asserted waiver of the anti-retaliation provisions of
*229 contended that the arbitration was too expensive and the Workers' Compensation Act was at issue in Polyâ
that its prospective cost would prevent them from vindicating America. The employee in that case sued his employer,
their rights in the arbitral forum. Finally, they argued that the seeking statutory remedies of reinstatement and punitive
agreement and ACSA rules violated the state's public policy damages after being allegedly terminated for filing a workers'
by illegally eliminating their statutory right to attorney's fees compensation claim. Id. at 345. Because the employee had
and other remedies under the Texas Consumer Protectionâ agreed to arbitrate all disputes under the FAA, the trial court
Deceptive Trade Practices Act (DTPA). granted the employer's motion to compel arbitration. Id. at
344.
The employee sought mandamus relief from this order,
B. Invalidity
arguing that the arbitration agreement was unconscionable
The court of appeals' decision focuses solely on this last because it eliminated his rights and remedies under the
argument, concluding that the arbitration agreement is Workers Compensation Act. Id. at 352, 359. We agreed.
unconscionable because it forces the farmers âto forego Id. at 353, 360. After reviewing the statutory remedies at
substantive rights and remedies afforded by statute.â 395 issue, we held the anti-retaliation provisions to be âa non-
S.W.3d at 275. The court's application of public policy here waivable legislative systemâ necessary to the Act's function.
is premised on our decision in In re PolyâAmerica, L.P., 262 Id. at 352. We further concluded that their elimination under
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
the arbitration agreement undermined a key purpose of the limitation of statutory remedies.395 S.W.3d at 277
. But this Workers' Compensation Act, was contrary to public policy, is an interlocutory appeal, and the case remains pending in and could not be enforced.Id. at 353
. We did not, however, the trial court. We are therefore unsure about what Venture hold the arbitration agreement invalid. Instead, *230 we has waived. If the court merely means to suggest that severed the offending limitation from the agreement and Venture waived the right to complain about severance in permitted the arbitration to proceed. Seeid. at 344
(noting this interlocutory appeal, the waiver argument serves only
that severance was proper because the limitation of statutory to delay a decision in the case. Conservation of time and
remedies was ânot integral to the parties' overall intended resources recommend that we consider the issue now because
purpose to arbitrateâ). nothing prevents Venture from urging severance in the trial
court and, if denied, from renewing its complaint in yet
[10] In contrast to PolyâAmerica 's anti-retaliation another interlocutory appeal.
provision, the DTPA remedies at issue here can be
contractually waived. TEX. BUS. & COM.CODE § 17.42. [12] In PolyâAmerica we noted that â[a]n illegal or
The DTPA provides detailed instructions on how to unconscionable provision of a contract may generally be
accomplish this. See id. (detailing requirements for a valid severed so long as it does not constitute the essential purpose
waiver). Among other requirements, the waiver must be of the agreement.â PolyâAmerica, 262 S.W.3d at 360. In âconspicuous and in bold-face type of at least 10 points in determining an agreement's essential purpose, the issue is size,â identified by a specific heading indicating the waiver, âwhether or not parties would have entered into the agreement and include language substantially similar to the form the absent the unenforceable provisions.âId.
Quite clearly, the statute provides.Id.
§ 17.42(c)(1), (2) and (3). The contracts arbitration agreement's essential purpose here was to provide
here do not comply with the statutory requirements. We for a speedy and efficient resolution of disputes to ensure
accordingly agree with the court of appeals that any implied timely performance under the contract. The agreement's
waiver under ACSA Rule 8(k), which likewise does not collateral effect on statutory rights and remedies appears to be
conform to the DTPA's requirements, is contrary to public a peripheral concern to this essential purpose. We accordingly
policy and therefore invalid. conclude that the court of appeals erred in declining to sever
*231 the objectionable limitation on the farmers' statutory
rights.
C. Severability
[11] Venture argues, however, that even if ACSA Rule D. Attorney's Fees
8(k) and the arbitration clause are deemed unconscionable
and incapable of limiting the farmers' statutory rights under In addition to the agreement's unconscionable limitation on
the DTPA, the court of appeals nevertheless erred when it potential statutory rights, the court of appeals concludes that
refused to sever the offending rule and require arbitration the arbitration agreement is also unconscionably one-sided
under the remainder of the agreement. Venture submits that because it provides for only Venture to recover attorney's
the unconscionability defense, which is codified in the Texas fees. 395 S.W.3d at 276. The court's opinion further indicates
Business and Commerce Code and applicable to the cotton that this provision together with an ACSA rule, limiting the
sales at issue here, allows courts to consider severance award of attorney's fees to those expressed in the contract,
whenever they are confronted with an unconscionable violates the farmers' statutory right to attorney's fees under
contract term. TEX. BUS. & COM.CODE § 2.302. Similarly, Civil Practice and Remedies Code section 38.001.
the Restatement provides that â[w]here a term rather than
the entire contract is unconscionable, the appropriate remedy That section provides, in relevant part, that â[a] person may
is ordinarily to deny effect to the unconscionable term.â recover reasonable attorney's fees from an individual or
RESTATEMENT (SECOND) OF CONTRACTS § 208 cmt. corporation, in addition to the amount of a valid claim and
g. costs, if the claim is for ... an oral or written contract.â
TEX. CIV. PRAC. & REM.CODE 38.001. The court of
The court of appeals concludes, however, that Venture appeals ultimately decides, however, that the arbitration
waived its right to enforce the remainder of the arbitration agreement fails effectively to waive the farmers' rights under
clause by not asking the trial court to sever the offending section 38.001 because the agreement and ACSA rules do
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
not reference the statute or otherwise specifically inform the proof in the particular case of the arbitral forum's inadequacy.
farmers of the intended waiver of such rights. See 395 S.W.3d Id. at 896. If speculation about possible harm was insufficient
at 276 (concluding that waiver of these statutory rights cannot to establish unconscionability in Olshan, then clearly the
occur absent specific notice and reference to § 38.001). court's determination here that no harm has been done will not
suffice. See 395 S.W.3d at 276(concluding that arbitration Venture, on the other hand, argues that whether the agreement agreement did not waive cotton farmers' right to attorney's waives these rights is irrelevant because the statute simply fees under section 38.001). does not apply to the farmers' circumstances. The statute does not apply, according to Venture, because the farmers seek In Olshan, we cautioned that courts âshould be wary of setting to cancel the contract rather than recover under its terms. In the bar for holding arbitration clauses unconscionable too short, Venture contends that the farmers' pleadings do not lowâ as that would undermine the âliberal federal policy assert contractual rights and therefore do no invoke a right to favoring arbitration agreements.â Olshan,328 S.W.3d at 893
.
attorney's fees under section 38.001. Courts should also use care not to intrude upon arbitral
jurisdiction under the guise of an unconscionability defense.
[13] The farmers respond that they have pled a breach of
contact claim. Their pleadings are not clear on the subject, [15] [16] Questions of waiver, illegality, remedies, and
but even were we to recognize some deficiency in the present attorney's fees often relate to the broader, container contract,
pleadings, the result would be merely to postpone the issue, rather than the separable agreement to arbitrate, and, as such,
much the same as the court of appeals has done with the are matters entrusted to the arbitrators. 6 And, when authority
severance question. The appeal is interlocutory, and the over the matter is unclear, âa strong federal presumptionâ
farmers are free to amend their pleadings to clarify the matter. favors arbitration. PolyâAmerica, 262 S.W.3d at 348. Thus, For purposes of this appeal then, we accept that the farmers the United States Supreme Court has indicated that arbitration intended to plead an alternative breach of contract claim, as provisions should not be held unconscionable based on they assert. We conclude, however, that neither the contract's speculation about their potential effect. See PacifiCare attorney's fee provision nor its effect on attorney's fees Health Sys., Inc. v. Book,538 U.S. 401
, 407 n. 2, 123 S.Ct. under section 38.001 is sufficient to invalidate the arbitration 1531,155 L.Ed.2d 578
(2003) (noting that âthe preliminary
agreement as unconscionable. question [of] whether the remedial limitations at issue ...
prohibit[ed] an award of RICO treble damages [was] not a
[14] Parties are generally free to contract for attorney's question of arbitrabilityâ).
fees as they see fit. Intercontinental Group P'ship v. KB
Home Lone Star L.P., 295 S.W.3d 650, 653(Tex.2009). In PacifiCare, several physicians filed suit against Thus, a contract that expressly provides for one party's managed healthcare organizations, including PacifiCare and attorney's fees, but not another's, is not unconscionable per UnitedHealth, alleging breach of contract, unjust enrichment, se. Although perhaps relevant to a broader inquiry into and violations of several federal and state statutes, including contractual oppression or an imbalance in bargaining power, RICO. Id. at 402,123 S.Ct. 1531
. Because the arbitration the attorney's fee provision here is not, standing alone, agreements prohibited awarding punitive damages, the decisive proof of an unconscionable bargain. Moreover, the physicians argued that arbitration would prevent them from court of appeals itself concludes that the arbitration agreement obtaining âmeaningful reliefâ under RICO's treble-damages did not waive the farmers' statutory right to attorney's fees provision.Id. at 403
,123 S.Ct. 1531
. The lower courts agreed, under section 38.001 and so its relevancy to the court's holding the arbitration clauses to *233 be unenforceable unconscionability analysis is unclear. with respect to the RICO claims.Id.
In Olshan, we observed that the âcrucial inquiryâ in The Supreme Court reversed and remanded, concluding that determining unconscionability was âwhether the arbitral it was âprematureâ to conclude that the contractual ban on forum in a particular case is an adequate and accessible punitive damages acted as a bar to statutory damages and that substitute to litigation, a forum where the litigant can the arbitrator should decide the issue as an initial matter.Id.
at effectively vindicate his or her rights.â In re Olshan Found. 404,123 S.Ct. 1531
. The Court thus deferred consideration of Repair Co., *232 LLC,328 S.W.3d 883, 894
(Tex.2010). whether public policy might taint the arbitration agreement's
That inquiry is not satisfied by speculation but by specific enforceability until the award-enforcement stage, but implicit
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730 at 348
. Unconscionability determinations are not isolated
in the Court's analysis was the notion that the arbitration
inquiries but rather are made in âlight of [a contract's]
clause was prima facie enforceable, notwithstanding the
setting, purpose, and effect.â RESTATEMENT (SECOND)
contractual prohibition on punitive damages.
OF CONTRACTS § 208, cmt. a.
In summary, we conclude that a contract that fails to provide
Thus, in Olshan we observed that a court should consider âthe
reciprocal rights to attorney's fees is not unconscionable per
parties' general commercial background and the commercial
se. We further disagree with the court of appeals' opinion to
needs of the particular trade or caseâ when determining
the extent it uses the contract's âone-sidedâ attorney's fees
whether âthe clause involved is so one-sided that it is
provision as an independent reason to hold the arbitration
unconscionable under the circumstances existing when the
agreement unconscionable. See 395 S.W.3d at 276.
parties made the contract.â Olshan, 328 S.W.3d at 892
(quoting FirstMerit Bank, 52 S.W.3d at 757).
III. Unaddressed Arguments In the court of appeals, Venture has argued the commercial
reasonableness and necessity for the arbitration agreement,
Although the court of appeals' refusal to compel arbitration
while the farmers have emphasized potential abuses and
in this case rests solely on public-policy grounds,
unequal treatment under the arbitral process. In this Court,
unconscionability typically involves a broader inquiry, and,
the parties have not briefed or argued these broader concerns.
indeed, the farmers presented a broader case in the trial
They have instead focused solely on the court of appeals'
court. In addition to their complaint about the agreement's
rationale for affirming the trial court's order. Because
limitation of remedies, the farmers contended they could
the court's public-policy analysis is insufficient to defeat
not effectively vindicate their rights through arbitration
arbitration, the arguments left unaddressed in the court of
because of arbitrator bias, the lack of adequate discovery
appeals should be considered as they are ânecessary to the
under the arbitration's summary procedures, the exorbitant
final disposition of the appeal.â TEX.R.APP. P. 47.1.
cost of the arbitration itself, and other inequities in the
arbitral process. The court of appeals did not consider
***
these additional concerns once it determined the arbitration
agreement to be âsubstantively unconscionableâ because it
The court of appeals' judgment, affirming the trial court's
prevented the farmers from pursuing statutory remedies.
order denying arbitration, is reversed, and the case is
See 395 S.W.3d at 277 (concluding that the court did
remanded *234 to the court of appeals for consideration of
not need to consider âremaining arguments attacking
the remaining arguments.
appellees' other substantive unconscionability and procedural
unconscionability defensesâ).
Parallel Citations
[17] Texas courts usually analyze unconscionability issues
âin light of a variety of factors, which aim to prevent 57 Tex. Sup. Ct. J. 730
oppression and unfair surprise ...â PolyâAmerica, 262 S.W.3d
Footnotes
1 We have jurisdiction to hear an appeal from an interlocutory order denying arbitration when the court of appeals' decision conflicts
with prior precedent. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n. 8 (Tex.2008) (noting that our jurisdiction over the
interlocutory appeal depends on a dissent or decisional conflict); Certain Underwriters at Lloyd's of London v. Celebrity, Inc., 988
S.W.2d 731, 733 (Tex.1998) (per curiam) (same).
2 The lawsuit was styled Alan and Christine Freeman d/b/a Alan Freeman Farms, J.V., and Perry and Kathy Brewer d/b/a PDB Joint
Venture v. Venture Cotton Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho Management Corp.
3 The second lawsuit was styled Roger Neitsch, Gregory Upton, Wayne Upton, Anderson Upton, Jud Cheuvront d/b/a L & ME, Inc.
and JDC Farms, Max McGuire, Raymond McPherson, Abe Froese d/b/a BAC Farms, Gerardo Froese d/b/a Gerardo Froese Farms,
George P. Froese d/b/a George P. Froese Farms, Neil Enns, David Bergen, Bradley Peters, Peter Neustaeter Jr., Wilhelm Friesen,
Cornelius Banman, Gerard Neustaeter, Peter Friesen, Heinrich Friesen, Abe S. Peters, Isaak T. Fehr, Jacob Peters, Abe Loewen,
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222(2014)57 Tex. Sup. Ct. J. 730
Isaak Wiebe, Ben Neudorf, and Rudolph Peters v. Venture Cotton Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho
Management Corp.
4 The trial court's finding of fact stated: âThe arbitration clause sought to be enforced is unconscionable.â Its conclusion of law stated:
âThe arbitration clause sought to be enforced is unenforceable because it is unconscionable.â
5 Under FAA § 3, when a party moves to stay litigation pending arbitration, the court shall grant the motion âupon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration under such an agreement.â 9 U.S.C. § 3. Section 4 requires
a court to grant a motion to compel arbitration âupon being satisfied that the making of the agreement for arbitration or the failure
to comply therewith is not in issue.â Id. § 4.
6 Professor Rau explains:
Suppose that the issueââwhether the plaintiff can recover statutory damages or attorneys' feesââis treated as one more claim
or dispute within the scope of the arbitration clause; suppose further that in pursuing this inquiry the decisionmaker is presented
with some more precise questions:
. For openers, is the contractual limitation of remedies properly interpreted as a âwaiverâ by the plaintiff of the recovery otherwise
made available by statute?
. If so, is the plaintiff able to waive this recovery? More precisely: Are, say, âsophisticated groups of doctorsâ who contract
with a managed care company the sort of plaintiffs who in these circumstances need the protection of an unwaivable rule?
For commercial parties in high-stakes cases, the appropriate trade-off between litigation and informal justice may sometimes
take the form of choosing a more intensive form of judicial review; an alternative bargain might call for reducing the risk of
excessive damage awards.
And in any event, is it sensible to address either of these concerns in the form of an interim decision preceding the merits? Might
they not instead be the focus of attention at a later point-once the predicate of liability has been established, and an appropriate
remedy needs to be crafted?
Framed in this way, all these questions begin very much to look as if they belonged to the realms of interpretation and
appreciation of contextâthat is, to the matters of substance that have been routinely entrusted to arbitrators.
Alan Scott Rau, Everything You Really Need to Know About âSeparabilityâ in Seventeen Simple Propositions, 14 AM. REV.
INT'L ARB. 1, 65â66 (2003) (emphasis in original) (footnotes omitted).
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 11
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.002
§ 171.002. Scope of Chapter
Currentness
(a) This chapter does not apply to:
(1) a collective bargaining agreement between an employer and a labor union;
(2) an agreement for the acquisition by one or more individuals of property, services, money, or credit in which the total
consideration to be furnished by the individual is not more than $50,000, except as provided by Subsection (b);
(3) a claim for personal injury, except as provided by Subsection (c);
(4) a claim for workers' compensation benefits; or
(5) an agreement made before January 1, 1966.
(b) An agreement described by Subsection (a)(2) is subject to this chapter if:
(1) the parties to the agreement agree in writing to arbitrate; and
(2) the agreement is signed by each party and each party's attorney.
(c) A claim described by Subsection (a)(3) is subject to this chapter if:
(1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and
(2) the agreement is signed by each party and each party's attorney.
Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002
Notes of Decisions (42)
V. T. C. A., Civil Practice & Remedies Code § 171.002, TX CIV PRAC & REM § 171.002
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.002
§ 171.002. Scope of Chapter
Currentness
(a) This chapter does not apply to:
(1) a collective bargaining agreement between an employer and a labor union;
(2) an agreement for the acquisition by one or more individuals of property, services, money, or credit in which the total
consideration to be furnished by the individual is not more than $50,000, except as provided by Subsection (b);
(3) a claim for personal injury, except as provided by Subsection (c);
(4) a claim for workers' compensation benefits; or
(5) an agreement made before January 1, 1966.
(b) An agreement described by Subsection (a)(2) is subject to this chapter if:
(1) the parties to the agreement agree in writing to arbitrate; and
(2) the agreement is signed by each party and each party's attorney.
(c) A claim described by Subsection (a)(3) is subject to this chapter if:
(1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and
(2) the agreement is signed by each party and each party's attorney.
Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002
Notes of Decisions (42)
V. T. C. A., Civil Practice & Remedies Code § 171.002, TX CIV PRAC & REM § 171.002
Current through the end of the 2013 Third Called Session of the 83rd Legislature
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2