ENFORCEABILITY OF ARBITRATION CLAUSES

ALICE OLIVER-PARROTT Burrow & Parrott, L.L.P.

1301 McKinney, Ste. 3500 Houston, Texas 77010

Telephone: (713) 222-6333 Telecopier: (713) 650-6333

State Bar of Texas ARBITRATION AND THE VANISHING JURY TRIAL

January 23, 2007 Via Webcast

THE HONORABLE ALICE OLIVER-PARROTT

Alice Oliver-Parrott, a partner with Burrow & Parrott, L.L.P. in Houston, Texas, served as Judge of the 151st District Court in Houston from 1986 through May, 1991. In 1991, she was appointed as Chief Justice of the First Court of Appeals and became the first woman in the history of Texas to serve as chief of an appellate court. Upon her retirement in 1996, she rejoined her former law partner, David H. Burrow, a past president of the Texas Trial Lawyers Association and the American Board of Trial Advocates. Ms. Oliver-Parrott is a member of the National Board of Directors of the American Board of Trial Advocates and has received recognition as the Outstanding Judge from the Houston Bar Association; the Outstanding Civil Trial Judge awarded by the Texas Civil Trial Specialist Association; the Outstanding Young Lawyer of Texas, and Texas Trial Lawyer of the Year by the American Board of Trial Advocates. Ms. Oliver-Parrott has been listed in The Best Lawyers in America since 2000 and is a “Texas Monthly” Super Lawyer. Ms. Oliver-Parrott is also an active mediator primarily mediating post verdict, class action, and multi-party disputes.

TABLE OF CONTENTS

I. How are Trial Court’s Rulings Evaluated ..........................................1 II. Defenses ...........................................................................................2 A. Existence and Scope of Arbitration Agreement ..............................2 B. Unconscionability ............................................................................2 C. Plaintiff Not a Party to the Agreement ............................................4 D. Other Possible General Contract Defenses .....................................4 1. Lack of Capacity and Minority ........................................................4 2. Other Defenses .................................................................................5

Appendix A

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“Trial by jury is a privilege of the highest and most beneficial nature and our most important guardian both of public and private liberty. Our liberties cannot but subsist so long as the palladium remains sacred and inviolate, not only from open attacks, but also from all secret machinations which may sap and undermine it.” Justice William Blackstone 1768-691.

Speaking of the trial by jury as an essential star in “the bright constellation which has gone before us and guided our steps through an age of revolution and reformation,” Thomas Jefferson explained in his inaugural address (1801):

“The wisdom of our sages and the blood of our heroes have been denoted to [its] attainment. [I]t should be the creed of our political faith, the text of civil instructions, the touchstone by which we try the services of those we trust; and should we wander from [it] in moments of error or alarm, let us hasten to retrace our steps and to regain the road which alone leads to peace, liberty and safety.”2

Justice Blackstone, President Jefferson, welcome to the arbitration clause, the personification of “secret machination” and a long “moment of error” that has been embraced with enthusiasm by courts throughout Texas. The following paper is a discussion of current Texas law concerning the enforcement of arbitration clauses and potential defenses to enforcement. The arbitration clause discussed herein is not one which has been negotiated at arms length by sophisticated business consumers. Clearly, parties should have the right to contract for arbitration in lieu of a jury trial. The issue becomes more complex, however, when the arbitration clause is in the consumer or employment context. In those transactions, many times the parties to the agreement have unequal positions insofar as bargaining power and knowledge. Nevertheless, this seemingly innocuous arbitration clause that one encounters when obtaining even minimum wage employment, buying a home, applying for a credit card or even booking a hotel room online have been enforced by Texas Courts with regularity. In many cases, defenses to arbitration were not developed at the trial court level, and the appellate court has had little choice. In others, trial courts have refused to grant motions to compel arbitration based on the facts before them and appellate courts, with no discussion on the

1 Trial by Jury, Vol. 2., p. ii 2 Trial by Jury Vol. 2., p. 234, First Inaugural Address, March 4, 1801, in The Annals of America, Vol. 4, pp. 143-146 (Encyclopedia Britannica 1976)

value of a party’s access to a jury trial, have reversed the trial court’s finding. I. How are Trial Court’s Rulings Evaluated? Before one contests a motion to compel arbitration, it is important to understand the standards of appellate review. Arbitration clauses can be governed by the Federal Arbitration Act or the Texas General Arbitration Act. 9 U.S.C.S. §§ 1-16 (1997); TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.001-.098 (Vernon 2005). The Federal Act allows for a complaint about the trial court’s ruling to be made by way of mandamus. See In re Weekley, 180 S.W.3d 127, 130 (Tex.2005)(Mandamus is proper to enforce arbitration agreements under the Federal Arbitration Act). The Texas Act provides for interlocutory appeal. See TEX. CIV. PRAC. & REM.CODE ANN. § 171.098. Nevertheless, in determining whether an arbitration agreement should be enforced under either the Federal Arbitration Act or the Texas General Arbitration Act, the standard of review is the same – an appellate court reviews the trial court’s decision for an abuse of discretion. Dewey v. Wegner, 138 S.W.3d 591, 597 (Tex. App.--Houston [14th Dist.] 2004, writ denied); Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 820 (Tex. App.--San Antonio 1996, no writ). A trial court abuses its discretion only if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if it clearly fails to correctly analyze or apply the law. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985), cert. den’d, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). In applying the abuse of discretion standard, an appellate court should defer to the trial court’s factual determinations and review the legal conclusions de novo. Dewey, 138 S.W.3d at 597. In other words, a court of appeals cannot review the record, make its own inferences from the evidence contained therein, resolve conflicts in same, or decide what evidence to believe and what evidence not to believe. The power to do those things - to find facts - lies with the trial court. Once the trial court has exercised that power, a court of appeals must defer to the factual findings made. See Downer, 701 S.W.2d at 241-242; see also, e.g., In re Luna, 175 S.W.3d 315 (Tex. App.-- Houston [1st Dist.] 2004)(orig. proceeding); Olshan Foundation Repair Co. v. Ayala, 180 S.W.3d 212 (Tex. App.-- San Antonio 2005, pet. filed. When reviewing matters committed to a trial court’s discretion, an appellate court should never substitute its own judgment for that of the trial court. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. Feb 19, 1992).

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II. Defenses Both state and federal policies favor arbitration, and a presumption exists in favor of arbitration. But, while there is a presumption favoring arbitration, state and federal courts also specifically recognize that under certain circumstances affirmative defenses exist to arbitration. See In re FirstMerit Bank, 52 S.W.3d 757, 749 (Tex. 2004)(orig. proceeding). Additionally, the burden always begins with the party seeking to compel arbitration. A party seeking to compel arbitration must first prove the existence of an arbitration agreement and that the claims asserted fall within the scope of the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding). A. Existence and Scope of Arbitration Agreement

Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit. United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); Trico Marine Services, Inc. v. Stewart & Stevenson Technical Services, Inc. 73 S.W.3d 545, 548 (Tex. App.—Houston[1st Dist.] 2002, orig. proceeding). In determining whether an arbitration provision encompasses a claim, courts focus on the facts alleged, not the causes of action asserted. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995); Hou-Scape v. Lloyd, 945 S.W.2d 202, 205 (Tex. App.—Houston [1st Dist.] 1997, orig. proceeding). Courts consider whether the facts alleged are “factually intertwined” with the contract containing the arbitration clause. Jack B. Anglin v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); Hou-Scape, 945 S.W.2d at 205; see also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (whether facts alleged “touch” matters covered by the underlying agreement); American Recover Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir. 1996) (“significant relationship” to the contract); Griffin v. Semper of Am., Inc., 414 F.Supp. 1384, 1389 (S.D.Tex. 1976) (“inextricably enmeshed” with the contract). That a tort claim would not have arisen “but for” the parties’ contract does not necessarily determine whether that claim is arbitrable. Tracer Research Corp. v. National Environ. Serv. Co., 42 F.3d 1292, 1295 (9th Cir. 1994).

The intent to have disputes resolved through arbitration must be expressed with certainty. Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d 386 (Tex. App.—Houston [14th Dist.] 1997, pet. dism’d w.o.j.). In Ikon Office Solutions, Inc. v. Eifert, the appellate court held that a claim was outside the scope of the

arbitration clause where it involved a dispute about an employee’s tort claims and only tangentially touched on the employment contract that contained the arbitration provision. 2 S.W.3d 688, 696 (Tex. App.—Houston [14th Dist.] 1999, no pet.).

The first point of attack must be on the wording of the clause itself and whether or not the claims are “factually intertwined” with the contract. It is incumbent upon the trial court to resolve any doubts it has regarding the existence or scope of an agreement in favor of arbitration as an initial inquiry. In re Trust Merit Bank, N.A., 52 S.W.3d at 753. Once the court has determined that the dispute is governed by the arbitration clause, a party opposing arbitration must then assert defenses to arbitration.

B. Unconscionability

In Texas, arbitration agreements are interpreted under general contract principles. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Accordingly, an agreement to arbitrate is invalid when there are grounds for the revocation of a contract, such as unconscionability. TEX. CIV. PRAC. & REM. CODE ANN. §171.001 (Vernon 2005); Pony Express Carrier Corp. v. Morris, 921 S.W.2d 817, 821 (Tex. App.—San Antonio 1996, no pet.). There is no precise legal definition of the term “unconscionability” because it is not a concept but a factual determination to be made on a case-by-case basis and in light of a variety of factors. Id.

The analysis of “unconscionability” has a variety of factors but includes two broad components: (1) substantive unconscionability, which refers to the fairness of the arbitration provision as applied; and (2) procedural unconscionability, which refers to the circumstances surrounding the adoption of the arbitration provision or to the clause itself. In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (orig. proceeding); see also Walton v. Hoover, Bax & Slovacek, L.L.P., 149 S.W.3d 834 (Tex. App.—El Paso 2004, pet. granted) (holding professional service agreement was substantively unconscionable because of the one-sidedness of the agreement) In re Palm Harbor Homes, 129 S.W.3d 636, 645 (Tex. App.—Houston [1st Dist.] 2003, orig. proceeding) (upholding trial court’s finding of procedural unconscionability in home purchase contract); Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (Tex. App.—Waco 2005 reh’g overruled) (holding 99 year lease was procedurally unconscionable).

An interesting discussion of the costs of arbitration can be found in Olshan Foundation Repair Company v. Ayala, 180 S.W.3d 212 (Tex. App.—San Antonio, 2005 pet. filed). In Ayala, homeowners

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contracted with Olshan for foundation repairs. The Ayala’s ultimately filed suit against Olshan, asserting claims for breach of contract, violations of the DTPA, fraud and negligence. Olshan filed a motion to stay the proceeding and compel arbitration pursuant to an arbitration clause in their service contract. Initially, the trial court agreed with Olshan and ordered arbitration. Some months later, the Ayalas were notified by the American Arbitration Association (AAA) that the arbitration would cost them in excess of $33,000.00. The Ayala’s then reurged their objections to arbitration asserting their inability to pay the cost of arbitration rendered the clause substantively unconscionable. After a hearing, the trial court found that the cost of the arbitration rendered the agreement unconscionable. The majority opinion affirmed the trial court’s ruling, explaining as follows:

“Here, the Ayalas argued that the cost of the proposed arbitration was so prohibitive as to render the arbitration agreement substantively unconscionable. On this issue, both the United States and Texas Supreme Courts have recognized the possibility that the excessive costs of an arbitration might, under certain circumstances, render an arbitration agreement unconscionable. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 3763 (2000); In re FrstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001). Specifically, in FirstMerit Bank, the Texas Supreme Court noted that “the existence of large arbitration costs could preclude a litigant from vindicating her…rights [in the arbitral forum].” FirstMerit Bank, 52S.W.ed at 757 (quoting Green Tree Fin. Corp., 531 U.S. at 91). Given the strong policy favoring arbitration agreements, however, the party opposing the arbitration must prove the likelihood of incurring such costs. Id. While neither court specified “how detailed the showing of prohibitive expenses must be,” the Texas Supreme Court did hold that “there is no doubt that some specific information of future costs is required.” Id. (quoting Green Fin Corp., 531 U.S. at 91 holding that the mere possibility or “risk” that a plaintiff might bear such cost was too speculative). Here, unlike the parties seeking to avoid arbitration in Green Tree and

FirstMerit, the Ayalas supported their motion to the trial court with specific information regarding the fees they would be required to pay for the arbitration. The Ayalas produced evidence establishing that (1) the AAA will preside over the arbitration; (2) a panel of three structural engineers approved by the AAA will conduct the arbitration; and (3) the arbitration will cost the parties over $63, 670.00. The Ayalas further presented the court with a copy of an invoice from the AAA showing that they owed $33,150.00, “payment due upon receipt,” for their part of the arbitration expenses. At the hearing, the evidence concerning the Ayalas’ costs and expense was uncontroverted by Olshan. In addition, the Ayalas asserted that these costs would serve to effectively deprive them the opportunity to bring their claim against Olshan. During the hearing, the trial judge asked Mr. Ayala, “[i]f you have to arbitrate this case, will you be in a position to adjudicate your legal rights?” To this question, Mr. Ayala responded, “[n]o sir, I just—no…I don’t have the money to—to do that.” Mr. Ayala attested that the costs of arbitration under the AAA represented approximately 45 percent of his annual gross earnings, as well as 28 percent of the Ayalas’ combined annual gross income. Based upon these facts, Mr. Ayala testified that he could not afford to vindicate his claims or proceed with the arbitration. Even more compelling than Ayala’s personal inability to pay the arbitration fee, is the actual amount of the fee in relation to the amount of the underlying claim. The cost of arbitration as proposed by the AAA was almost three times the cost of the original contract between the Ayalas and Olshan. Pursuant to the contract with Olshan, the Ayalas paid $22,650 for the installation of foundation stabilization to their home. The arbitration fees, however, total nearly $70,000. This disparity between the amount in controversy and the amount charged to arbitrate the controversy is so large that the trial court acted within

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its discretion when it ruled the arbitration agreement unconscionable”. Id.

On appeal, Olshan defended the fees charged by asserting that since they were the same for both parties, they were not unconscionable. The appellate court rejected this assertion and found that owing a “similar amount” by both parties did not make the fees fair, reasonable or conscionable. In fact, the court concluded the fees were “shocking.”3 The dissent in Ayala, noted that the Ayalas had developed the proof of costs lacking in Green Tree and FirstMerit Bank, and even conceded the costs were “high,” but argued that the Ayalas had failed to find the arbitration agreement was unconscionable “at the time the agreement was made.” TEX. CIV. PRAC. & REM. CODE ANN. § 171.022. The dissent asserted that Texas contract law requires unconscionability be evaluated only on the circumstances that existed at the time of contract formation. See Tex. Bus. & Com Code Ann.§ 2.302(a) (Vernon 1994); see also El Paso Natural Gas Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 61 (Tex. App.—Amarillo 1997) (holding that “[unconscionability] must be assessed as of the time it occurred, not via hindsight”), rev’d on other grounds, 8 S.W.3d 309 (Tex. 1999). Because the Ayalas had never developed evidence or argued that the clause was unconscionable at formation, the dissent said affirming the trial court would “negate the long-standing public policy in favor of arbitration.” Id. Under the dissent’s reasoning, no cost would be so excessive as to cause an arbitration clause to be unconscionable in Texas, unless that cost potential could be established with some degree of certainty at the time of formation of the contract. C. Plaintiff Not a Party to the Agreement

Arbitration clauses, like any contract, generally only bind the parties to the contract. There are instances, however, when the courts have enforced arbitration agreements against nonparties under the theory of direct benefits estoppel. See In re Weekly Homes, 189 S.W.3d 127 (Tex. 2005)(Brister J.); In re Kellogg, Brown & Root, 166 S.W.3d 732 (Tex. 2005)(adopting the rule of direct benefits estoppel). The doctrine holds that when a nonparty has received a direct benefit from the contract containing the 3 The fact that the court was “shocked” is indicative of lack of knowledge of the practicalities of arbitration. It is incumbent upon trial counsel opposing arbitration to develop a complete record as to all costs associated with the arbitration process. Ayala’s trial counsel also noted for the court that the fees for arbitration were in addition to $4,130.00, the Ayala’s had already paid to secure the AAA’s services.

arbitration clause, that party is estopped from relying on their nonparty status. See, e.g., In re Weekley Homes, supra; Washington Mut. Finance Group, LLC v. Bailey, 364 F.3d 260, 267-68 (5th Cir. 2004)(“’the same contract’”); InterGen N.V. v. Grina, 344 F.3d 134, 145 (1st Cir. 2003)(“the same contract”); International Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000)(“the same contract”). For direct benefits estoppel to apply, the benefits must have come from the same contract containing the arbitration clause. Zurich American Ins. Co. v. Watts Industries, Inc., 417 F.3d 682, 688 (7th Cir. 2005); International Ambassador Programs, Inc. v. Archexpo, 68 F.3d 337, 340 (9th Cir. 1995). The Court in Zurich explained:

But case law consistently requires a direct benefit under the contract containing the arbitration clause before a reluctant party can be forced into arbitration. Jones has not sought to enforce any rights it has under the deductible agreements. . . . We conclude that there are not grounds for compelling Jones to arbitrate, and we will affirm the district court’s decision with respect to this issue.

Zurich, 417 F.3d at 688 (emphasis added by the court)(internal citations omitted); see also Pacific Unidata, 107 Fed. Appx. At 755 (refusing to apply direct benefits estoppel); Archexpo, 68 F.3d at 340 (same); Horseshoe Entertainment v. Lepinski, 923 So. 2d 929, 935 (La. App. 2006)(“Because Harrah’s is suing to enforce an independent agreement from the Horseshoe Contract, direct benefits estoppel does not apply”). Although the direct benefits doctrine was embraced by the Supreme Court in Kellogg, the Court refused to apply it to the facts of that case. See Kellogg, 166 S.W.3d at 741 (“KBR’s asserted right to payment therefore stems directly from the KBR-Unidynamics contract, not the fabrication subcontract.”). The Weekley Homes decision takes the legal rule adopted in Kellogg and applies it to a specific situation concerning a consumer transaction. The good news for those opposing arbitration, there was only one contract in issue. The bad news, Weekley Homes is an expansive interpretation of the term “direct benefits.” D. Other Possible General Contract Defenses 1. Lack of Capacity and Minority Since arbitration clauses are now found in even minimum wage, employment at will situations, parties

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opposing arbitration should not fail to assert that a contract does not bind a party who lacks capacity. See Mandell & Wright v. Thomas, 441 S.W.2d 841, 845 (Tex. 1969). There are four types of incapacity: (1) a person under guardianships; (2) an infant; (3) a person who is mentally ill or defective; and (4) a person who is intoxicated. RESTATEMENT (SECOND) OF CONTRACTS §12 (1981). A contract made with a minor is voidable at the minor’s election. Dairyland Cty. Mut. Ins. Co. v. Roman, 498 S.W.2d 154, 158 (Tex. 1973). The minor must void the contract within a reasonable time after reaching majority. Searcy v. Hunter, 17 S.W. 372, 372 (Tex. 1891). A minor is a person under the age of 18 whose disability has not been removed. See TEX. CIV. PRAC. & REM. CODE § 129.001.

2. Other Defenses

The Texas Supreme Court has clearly expressed that the analysis of whether or not an arbitration clause is enforceable is made using “traditional contract principles.” J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). The party seeking to avoid arbitration should, therefore, not forget to evaluate whether or not any contractual defenses may exist. For example, fraud, illegality, failure of consideration, duress, mutual mistake, and failure to perform conditions precedent may be applicable to the agreement containing the arbitration clause. Finally, attached at Appendix A is a case survey detailing 2005-2006 cases addressing the enforceability of arbitration clauses.

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APPENDIX A

Enforceability of Arbitration Clauses Case Survey

2005 – July 2006 Case Summary of Case Result In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161 (Tex. 2006)

The trial court denied motion to compel arbitration in employer/employee agreement. The court of appeals denied mandamus relief. The supreme court conditionally granted mandamus relief and held that the trial court abused its discretion in denying motion compelling arbitration because the former employee received notice of arbitration agreement, accepted the arbitration agreement as a matter of law, and the claims fell within the scope of the agreement.

Enforced Arbitration agreement held valid and binding

In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (Tex. 2006)

The trial court denied defendant’s motion to compel arbitration in this manufactured homes agreement. The court of appeals denied writ. The supreme court granted the writ and held that the consideration provided by seller supported the agreement; manufacturer was not required to give consideration as a third-party beneficiary; agreement was not illusory as to manufacturer, agreement was not substantively unconscionable; and it was not procedurally unconscionable.

Enforced Arbitration agreement held valid, binding and not unconscionable

In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex. 2006)

The trial court refused to compel arbitration in this agreement between insurance company and independent agent. The court of appeals denied relief. The supreme court conditionally granted relief and directed the trial court to order that claims proceed to arbitration because the claims were subject to arbitration under former agent’s agreement to arbitrate any dispute

Enforced No waiver because of litigation and claims fell under valid, binding clause

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with insurer under or with respect to contract, and defendants did not waive right to arbitration by litigating for two years.

In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)

The trial court refused to compel arbitration of personal injury action from the arbitration clause in the purchase agreement of a construction contract because adult child did not sign the purchase agreement. The court of appeals denied the request for relief. The supreme court held that the arbitration clause was binding on the child, even though she was not a party to the contract and writ was conditionally granted. The adult child’s prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the arbitration clause.

Enforced Direct benefit estoppel

In re Nexion Health at Humble, Inc., 173 S.W.3d 67 (Tex. 2005)

The trial court denied the defendant’s motion to compel arbitration under TAA in regards to this arbitration agreement with the healthcare facility. The trial court also denied the defendant’s motion to reconsider. The court of appeals denied petition for writ of mandamus. The supreme court conditionally granted the writ of mandamus and directed the trial court to order that all claims proceed to arbitration under the FAA because it held that the provider did not waive right to arbitration under the FAA; Medicare funds crossing state lines were “interstate commerce,” thereby bringing contract within the FAA; and the FAA preempted provision of the TAA requiring the signature of a party's counsel on arbitration agreements in personal injury cases.

Enforced FAA applied which does not require a signature to the arbitration agreement, therefore the agreement was valid and binding

In re Kellogg The trial court denied the motion of Not enforced

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Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005)

the defendant contractor to compel the plaintiff second tier subcontractor to join arbitration with defendant first tier subcontractor despite plaintiff’s status as non-signatory in the second-tier subcontract. Only the first-tier fabrication subcontract contained the arbitration clause. The court of appeals conditionally granted and ordered trial court to issue order compelling plaintiff to arbitrate. The supreme court conditionally granted mandamus relief to the plaintiff and ordered the court of appeals to vacate its order compelling arbitration and held that conclusion of arbitration between defendants, contractor and first-tier subcontractor, did not render moot plaintiff's, challenge to order compelling arbitration, and plaintiff was not required to arbitrate its quantum meruit claim against defendant contractor under direct benefits estoppel theory.

Claim not under arbitration agreement

In re AdvancePCS Health L.P., 172 S.W.3d 603 (Tex. 2005)

The trial court denied the defendant management company’s motion to compel arbitration from the provider agreements with the plaintiff pharmacy owners. The court of appeal summarily denied mandamus relief. The supreme court conditionally granted the writ and ordered the trial court to compel arbitration of the plaintiffs’ claims in accordance with the arbitration clause because the arbitration clause governed pharmacies' claims; agreements to arbitrate were not without consideration; arbitration clauses were not illusory and were not procedurally unconscionable; and evidence did not support contention that arbitration clause was disclosed only after pharmacies

Enforced Not unconscionable, valid binding and covered claims

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joined benefits network.

Satre v. Dommert, 184 S.W.3d 893 (Tex.App.—Beaumont 2006, no pet.)

The trial court denied the defendants motion to compel the arbitration clause in the Client Agreement with the certified financial planner. The court of appeals found that the trial court abused its discretion in denying the motion and conditionally granted writ of mandamus. The court of appeals held that the new investment account forms incorporated unsigned arbitration provisions contained in client agreements; client's assertion of fact in petition that planner did business as authorized representative of investment firm constituted formal judicial admission that planner was firm's agent; with respect to planner's contractual rights, merger doctrine did not apply to later management agreement; and client's claims fell within scope of client agreement's arbitration clause.

Enforced Although unsigned, arbitration provision was valid and binding

In re RLS Legal Solutions, L.L.C., 156 S.W.3d 160 (Tex.App.—Beaumont 2005, mandamus filed)

The trial court denied the defendant employers motion to compel arbitration from the employment agreement. The court of appeals denied the petition for writ of mandamus because there was no valid, enforceable agreement to arbitrate because it was procured by economic duress.

Not Enforced Found Economic Duress

In re Heritage Bldg. Systems, Inc., 185 S.W.3d 539 (Tex.App.—Beaumont 2006, no pet.)

The trial court granted buyer’s motion to refer case to mediation and held seller’s motion to enforce arbitration in this construction materials agreement. The court of appeals conditionally granted writ and directed the trial court to vacate its order requiring mediation because the trial court lacked discretion under FAA to order mediation before ruling on motion

Enforced FAA applied

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to compel arbitration. The parties to this contract chose to resolve their dispute through arbitration and federal law mandates that a case be ordered “to proceed to arbitration in accordance with the terms of the agreement.”

Service Corp. Intern. v. Lopez, 162 S.W.3d 801 (Tex.App.—Corpus Christi 2005, no pet.)

The trial court denied the defendant funeral homes’ motion to compel arbitration from the arbitration clause in the pre-need funeral contracts because the arbitration agreement contained in the purchase agreements was one of adhesion, unconscionable, and signed under duress. The court of appeals conditionally granted writ of mandamus and found that the trial court abused its discretion by denying defendants’ motion to compel arbitration and ordered it to vacate its order denying arbitration and to issue an order compelling arbitration because the plaintiff's defenses relate to the entire contract and must be decided by the arbitrator, and their claims are within the scope of the agreement. The court of appeals held that the contracts involved interstate commerce and were governed by the FAA; evidence that arbitration agreement was not a negotiated term but was merely part of a standardized form contract did not establish that the arbitration agreement was an unenforceable adhesion contract; arbitration agreement was not procedurally unconscionable; whether arbitration agreement was signed under duress related to funeral services contract as a whole and not solely the arbitration provision, and was therefore an issue to be decided in arbitration; breach of contract

Enforced Trial court abused its discretion in finding unconscionability

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claims were sufficiently related to the transaction to be within the scope of the arbitration agreement in funeral services contract; and widow joined son's cause of action for breach of contract and thus widow's intentional infliction of emotional distress claim was within scope of arbitration agreement even though widow did not sign contract.

Cappadonna Elec. Management v. Cameron County, 180 S.W.3d 364 (Tex.App.—Corpus Christi 2005, no pet.)

The trial court denied the subcontractor’s motion to compel arbitration but granted the general contractor’s motion to compel arbitration against the county in regards to the arbitration clause used in reference to the construction contractor. The court of appeals granted the relief sought by the subcontractor. Respondent was ordered to vacate his order in so far as it denied subcontractor’s motion and writ of mandamus will issue if respondent refuses to comply. The court of appeals held that the Federal Arbitration Act, not Texas General Arbitration Act, applied to construction contracts governing county jail complex because interstate commerce is involved; the arbitration provision in the prime contract was not incorporated by reference into subcontracts; and the county was equitably estopped from preventing arbitration.

Enforced County was equitably estopped from preventing arbitration

In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d 807 (Tex.App.—Dallas 2006, no pet.)

The trial court denied defendant brokerage firm’s motion to compel arbitration in an employment agreement. The court of appeals rejected defendant’s argument that the trial court abused its discretion because there was no valid arbitration agreement. The claims were brought through plaintiff investment firm and it did not sign the arbitration agreement, therefore

Not enforced Not binding, not signed by party against whom enforcement sought

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the plaintiff was not precluded from asserting its non-signatory status as a basis for avoiding compulsory arbitration.

Town of Highland Park v. Iron Crow Const., Inc., 168 S.W.3d 313 (Tex.App.—Dallas 2005, no pet.)

Plaintiff contractor sought to enforce arbitration provision in contract with defendant town to rehabilitate portions of sanitary sewer lines. Defendant town filed a plea to the jurisdiction on the ground that town had not waived immunity from suit. Trial court denied defendant’s plea. The court of appeals reversed and remanded holding that declaratory judgment action was barred by sovereign immunity and that language in general powers provision of town's charter that stated that town may “sue and be sued” and may “plead and be impleaded in all courts” did not constitute waiver of town's sovereign immunity.

Not enforced Procedural issues

Texas Residential Mortg., L.P. v. Portman, 152 S.W.3d 861 (Tex.App.—Dallas 2005, no pet.)

The trial court denied the defendant employers motion to compel arbitration from the employment agreement on the ground of waiver. The court of appeals reversed and remanded the trial courts order and found that the trial court erroneously denied the motion and held that even if defendant had substantially invoked the judicial process, there was absolutely no evidence that plaintiff employee suffered prejudice as a result of defendants ten-month delay in moving to compel arbitration, and in the absence of evidence of prejudice, defendant did not waive its right to compel arbitration.

Enforced No waiver found

Gene Duke Builders, Inc. v. Abilene Housing Authority, 168 S.W.3d 215

Plaintiff contractor sought to enforce arbitration clause in construction contract against defendant housing authority. The trial court dismissed the action for

Enforced Arbitration agreement was valid, binding

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(Tex.App.—Eastland 2005, pet. filed)

lack of subject matter jurisdiction. The court of appeals dismissed the appeal for lack of jurisdiction. The supreme court granted the petition and reversed and remanded the case back to the court of appeals. The court of appeals then reversed the judgment of the trial court and held that because the trial court withdrew this case from arbitration based upon an erroneous conclusion, then the order by which the trial court withdrew the case from arbitration was likewise in error and the order compelling arbitration would remain in full force and effect.

Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (Tex.App.—Eastland 2006, no pet.)

The trial court denied motion to compel arbitration in this employer/employee agreement. The court of appeals reversed the trial court’s order and remanded the cause with instructions for the trial court to compel arbitration because the arbitration clause in the employment agreement was governed by Texas Arbitration Act rather than Federal Arbitration Act, and thus, interlocutory appeal rather than mandamus was appropriate method for employer to seek relief from trial court's order; employer did not substantially invoke the judicial process, as element for waiver of right to arbitration; and even assuming employer substantially invoked the judicial process, employee was not prejudiced.

Enforced No waiver and employee not prejudiced

In re Big 8 Food Stores, Ltd., 166 S.W.3d 869 (Tex.App.—El Paso 2005, no pet.)

The trial court denied the defendant’s motion to compel arbitration in an employment agreement in regards to a Workers Compensation claim. The court of appeals conditionally granted petition for writ of mandamus because they found the arbitration

Enforced Arbitration agreement was valid and binding

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clause to be valid and binding. The court of appeals held that the employee who signed employer's Employee Injury Benefit Plan, which contained the arbitration agreement, was bound by the terms of the Plan, including the arbitration provision and that it was enforceable under FAA.

JNC Partners Denton, LLC v. City of Denton, 190 S.W.3d 790 (Tex.App.—Fort Worth 2006, pet. filed)

The trial court denied the motion to compel arbitration by this landowner. The court of appeals affirmed the trial court’s order because plaintiff presented no evidence that showed that defendant proposed to annex two or more areas and so failed to prove a probable right to arbitration.

Not enforced Not binding on person against whom enforcement was sought

In Re Choice Homes, Inc., 174 S.W.3d 408 (Tex.App.—Houston [14 Dist.] 2005, no pet.)

Trial court granted the motion to compel arbitration based on arbitration agreement between former employees and company as to claims against the company, but granted the motion in part and denied the motion in part as to claims against former co-workers. The court of appeals dismissed the petition for writ of mandamus as to relator for lack of jurisdiction, it granted in part and writ was conditionally issued. It concluded that the arbitration agreement covers all claims asserted in the plaintiff’s live pleadings and that the trial court abused its discretion by failing to compel these claims to arbitration because it was held that the company lacked standing to seek mandamus relief. In regards to the arbitration agreement it was found that claims against co-workers for defamation were covered; claims against co-workers for invasion of privacy were covered; claims against co-workers for civil conspiracy were covered; claim

Enforced Arbitration agreement was valid, binding and covered all claims asserted in pleadings

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against co-worker for breach of promise was covered; and employee benefit plan exclusion did not apply to arbitration agreement.

In re Kepka, 178 S.W.3d 279 (Tex.App.—Houston [1 Dist.] 2005 Mandamus filed)

The trial court granted defendant’s motion to compel arbitration from the arbitration clause in the healthcare context such as the nursing home involved here. The court of appeals conditionally granted mandamus relief and ordered the trial court to deny the defendant’s motion to compel arbitration in its entirety because representative was not party to arbitration agreement with nursing home operator in her individual capacity; the trial court abused its discretion in ordering that representative bring her individual wrongful death claim against nursing home operator to arbitration; and representative was not bound to submit wrongful death claim to arbitration by terms of arbitration agreement, even though representative, as widow of nursing home resident, was resident's heir.

Not enforced Plaintiff not a party to the arbitration agreement

In re Prudential Securities, Inc., 159 S.W.3d 279 (Tex.App.—Houston [14 Dist.] 2005, no pet.)

The trial court denied the defendant’s motion to compel arbitration from the arbitration clause in the investment management agreement with the securities firm. The court of appeals conditionally granted writ of mandamus and said that the trial court abused its discretion because it failed to compel arbitration for all of the plaintiff’s claims and because plaintiff former wife’s claims were factually intertwined with the claims assigned to former wife, and thus, the direct claims were subject to arbitration, even though former wife was not a signatory to the

Enforced Claims were within scope of the agreement

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investment management agreement.

Olshan Foundation Repair Co. v. Ayala, 180 S.W.3d 212 (Tex.App.—San Antonio 2005, pet filed)

The trial court denied the motion to compel arbitration in homeowner’s suit against contractor. The court of appeals affirmed holding that compelling arbitration would be unconscionable in light of extraordinary prospective cost of arbitration. The court of appeals recognized the strong preference for arbitration under Texas law, but stated that it cannot hold that the trial court incorrectly analyzed the law or misapplied the law to the undisputed facts in finding the arbitration clause unconscionable, but that the trial court had the information necessary to reasonably consider the policy of the unconscionability doctrine and evaluate the oppressiveness of the fees and costs of the arbitration in reaching its decision.

Not enforced Trial court did not abuse discretion in finding arbitration agreement unconscionable

In re Olshan Foundation Repair Co. of Dallas, LLC, 192 S.W.3d 922 (Tex.App.—Waco 2006, no pet.)

The trial court denied company’s motion to compel arbitration in agreement between homeowners and foundation repair company. The court of appeals denied petition due to company’s failure to invoke Federal Arbitration Act or raise its applicability at trial court. In the concurring opinion, it was said that even if the FAA was invoked, respondent could have found that no arbitration agreement existed.

Not enforced Procedural issues