Arbitration Trumps Discovery on Petition for Mandamus

The Court of Appeals has granted mandamus to prevent three depositions sought by a homebuyer seeking to avoid an arbitration agreement. The trial court granted the builder’s motion to compel arbitration, but had not yet ruled whether the buyer’s claims against two individual employees of the builder were also arbitrable. While their motion was pending, the trial court granted a motion to compel the depositions of the employees and the company to explore whether they had engaged in any fraudulent or criminal conduct. The Court of Appeals held that order was an abuse of discretion. Under In re Kaplan Higher Education Corp., 235 S.W.3d 206 (Tex. 2007), agents who are nonsignatories to their principal’s arbitration agreement may still invoke equity to compel arbitration unless the claimant can demonstrate the agents had unclean hands in the formation of the arbitration provision. In this instance, the buyer alleged only that the individuals had unclean hands in the performance of the contract, not the formation of the arbitration clause. Accordingly, the issue of their unclean hands was an issue for the merits of the case that had to be determined in arbitration, making discovery of those facts inappropriate for a judicial proceeding. The Court therefore directed the trial court to stay the case so that all of the parties could proceed to arbitration. The Court also wrote separately to summarily deny the buyer’s mandamus petition challenging the arbitration order for her claims against the company.

In re Susan Newell Custom Home Builders, Inc., No. 05-13-01474-CV