Mandamus issued in a failure-to-rule case when: “Megatel filed its motion to compel arbitration on June 30, 2022, and the motion was initially set for hearing two years ago on November 2, 2022. For various reasons and despite three hearings, two additional settings, and multiple requests, the trial judge failed to rule on the motion to compel arbitration and instead set a jury trial date.” In re Megatel, No. 05-24-01161-CV (Nov. 18, 2024).

An arbitration provision was not illusory when:

“[T]he arbitration provisions apply equally to all parties. The arbitration provisions cannot be amended or terminated unilaterally by the LPs—that would require the approval of partners owning the requisite supermajority of capital interests under the partnership agreements. As previously discussed, amendments to partnership agreements may be duly adopted in accordance with the terms of the partnership agreement to which the limited partner initially agreed.”

Caprocq Core Real Estate Fund, LP v. Essa K. Alley Revocable Trust No. 2, No. 05-22-01021-CV (Oct. 25, 2024) (mem. op.).

The Texas Supreme Court rejected a challenge to the unconscionabilty of an arbitration award (and thus, the delegation of arbitrability to the arbitrator) in Lennar Homes of Texas Inc. v. Rafiei, No. 22-0830 (Tex. Apr. 4, 2024). The challenge involved the cost of arbitration; the Court held:

Rafiei has presented no evidence that he sought a deferral or reduction of the administrative fees or an agreement to proceed with a single arbitrator. Without evidence that Rafiei sought to estimate the actual costs associated with arbitrating the arbitrability question, it is speculative to conclude that the delegation provision is itself unconscionable.

Zurvita Holdings, Inc. v. Jarvis offers a detailed analysis of an arbitration-waiver issue. Its holdings are, inter alia:

• In its 2023 TotalEnergies opinion, the supreme court clarified “who decides arbitrability when the agreement incorporates the AAA or similar rules that delegate arbitrability to the arbitrator,” but “dot not address waiver of the right to arbitrate.”
• “[A]n agreement that is silent about arbitraing claims against non-signatories does not unmistakably mandate arbitration or arbitrability in such cases.”
• “Substantial invocation of the judicial process” was established by a record involving an 11-month delay in asserting an arbitraion right, actively pursuing expedited discovery, and pursuing a summary judgment motion. (Consistent with current Texas law, the Court also reviewed whether the delay caused prejudice–an issue that the Texas Supreme Court is likely to consider after the U.S. Supreme Court recently did away with that additional waiver requirement under the Federal Arbitration Act.)

No. 05-23-00661-CV (March 14, 2024) (mem. op.)

The settlement agreement in Clendening v. Blucora, Inc. resolved an arbitration by requiring a series of settlement payments by one party (the former employer), conditioned on the acceptable provision of information by the other (the former employee). The arbitrator “retain[ed] jurisdiction” to hear a dispute about the adequacy of that information and order a deposition “to occur not later than February 27, 2022.”

A dispute arose, and the arbitrator ordered a deposition to occur after February 27. The Fifth Court held that this award exceeded the arbitrator’s powers and vacated it. No. 05-22-01190-CV (March 7, 2024) (mem. op.).

This language was sufficient–notwithstanding additional, similar language in other cases on the point–to allow a right of appeal from an artbitration award under the Texas Arbitration Act:

Notwithstanding the applicable provisions of Texas law the parties agree that the decision of the arbitrator and the findings of fact and conclusions of law shall be reviewable on appeal upon the same grounds and standards of review as if said decision and supporting findings of fact and conclusions of law were entered by a court with subject matter and present jurisdiction.

Multi-Housing Tax Credit Partners XXXI v. White Settlement Senior Living, LLC, No. 05-22-00721-CV (Jan. 26, 2024) (mem. op.).

In the atypical setting of an appeal from an arbitration award (under the TAA), the Fifth Court concluded that the price set by an option agreement was sufficiently definite:

[T]he Option Provision included a formula to determine the purchase price, limiting the purchase price to the greater of the mutually agreed upon appraiser’s calculations, including assumption guidelines for same, or a definite sum of taxes owing, present value of anticipated tax credits not yet received by limited partner, and $100.00. In reaching this conclusion, we reject MHT’s argument that this case is similar to that of Playoff Corp. v. Blackwell, in which the parties entered into an employment contract that promised the employee 25% of a portion of the company’s fair market value upon his termination but did not agree, however, on how the company’s fair market value would be determined, instead agreeing that it would be determined based on a specific formula that the parties would have to agree to in the future after “later negotiations.”

The Court also said: “[W]e agree with other courts that have held that when parties to an agreement specify that a third person is to fix the price, the contract is not unenforceable for lack of definiteness.” Multi-Housing Tax Credit Partners XXXI v. White Settlement Senior Living, LLC, No. 05-22-00721-CV (Jan. 26, 2024) (mem. op.).

The parties’ agreement said that “[Arbitrator’s] determination may not be appealed to any court or other third party but will be binding on all parties.” The Fifth Court held that this language was not a waiver of the right to vacate or modify an award under the Texas Arbitration Act: “[A] waiver of appeal in the arbitration agreement does not preclude judicial review of matters concerning [statutory modification].” Tye v. Shuffield, No. 05-02-00163-CV (Jan. 5, 2024) (mem. op.) (citations omitted).

The Fifth Court rejected a challenge, based on a contract’s venue clause, to the confirmation of an arbitration award, in Picone v. Cruciani:

The concept of venue speaks to the  place where a lawsuit is to proceed. See id. It does not speak to the manner in which a dispute will be resolved. Nor is a provision calling for venue in Dallas County courts mutually exclusive from an arbitration provision: even if the parties agree to arbitrate their differences, a court must confirm the arbitrator’s award, and a venue provision determines where that confirmation will take place. The venue provision in the 2020 Release and Settlement has no bearing on the arbitrability of any claim between these parties.

No. 05-22-00841-CV (Dec. 21, 2023) (mem. op.) (citations omitted).

The Fifth Court confirmed the confirmation of an arbitration award arising from a dispute about the purchase of a surgical center in Minimally Invasive Surgery Inst., LLC v. MISI Realty CC Dallas, LP. It reminded about two basic points in challenging arbitration awards:

• “‘Manifest disregard of the law‘ is not a valid ground for vacating an arbitration award under the FAA or TAA.”
• “[T]he Final Award notes the four-day arbitration included offers of proof, counsel statements, witness testimony, deposition and documentary evidence, and post-arbitration briefs. The arbitration award also states: ‘All issues have been determined by the evidence presented during the full arbitration.’ The award provides findings and conclusions with analysis. But the record contains little more than the arbitration award, the lease agreement, and the trial court order granting the motion to confirm the arbitration award. There is no list of exhibits or witnesses, no record of exhibits admitted into evidence or rulings on evidentiary objections, and no transcript of the proceedings. The trial court and appellate records do not include a complete record of the arbitration, and what is included is insufficient to allow this Court to conduct a meaningful review of any claimed ‘manifest disregard of the law’ by the arbitrator.”

No. 05-22-00581-CV (Oct. 19, 2023) (mem. op.) (emphasis added).

A good example of when direct-benefits estoppel will not support a motion to compel arbitration appears in Strucsure Home Warranty LLC v. 2RH Bros. Props., LLC, where:

“2RH’s third-party petition indicates that its breach of contract claim against StrucSure is based on StrucSure’s alleged breach to provide the Limited Warranty, not a breach of any terms of the Limited Warranty itself.”

No. 05-22-01214-CV (July 17, 2023) (mem. op.).

In the 2021 case of Aerotek v. Boyd, the Texas Supreme Court differed with the Fifth Court about the interplay of evidence rules and the Federal Arbitration Act. That case involved electronic signatures. he Fifth Court returned to this general subject, but on a different issue, in Fox v. Rehab. & Wellness Centre of Dallas, LLC, a wrongful death action against a nursing home.

The supreme court has observed that the statute requires consideration of submitted “affidavits, pleadings, discovery, or stipulations.” Here, “[r]ather than submitting with their motion [to compel arbitration] any ‘affidavits, pleadings, discovery, or stipulations’ to support their motion, appellees attached to their motion only the two-page unauthenticated Agreement, and they submitted no evidence at the later non-evidentiary hearing.” (citation omitted).

The Fifth Court noted its precedent that would allow rejection of the motion on that record, but did not decide on that basis. It instead holding that the record had no evidence establishing the authority of a husband (the plaintiff) to sign the agreement on behalf of his wife (the decedent) – despite a “certification” to that effect in the agreement.

The case presents an interesting return to a potentially fruitful topic for opponents of arbitration–reminding that arbitration rights are favored if proven, but still must be proven. The case also suggests that nursing homes should be careful about documentation, as the requisite power and authority will not always be presumed. No. 05-21-000904-CV (June 5, 2023) (mem. op.).

Kirk v. Atkins enforced a straightforward arbitration agreement (my apologies for the tilt, which appears in the original record) with broad, “any dispute” language:despite similarly broad “all remedies” language in another section about remedies: Held: “[I]t is possible to harmonize and give effect to both provisions of the agreement. The ADR paragraph, in which the arbitration clause is found, controls the process of resolving disputes between the parties, while the remedies paragraph describes the substantive relief that may flow from decisions on those controversies.” No. 05-21-00639-CV (Feb. 1, 2023) (mem. op.).

The Stantons sued a construction contractor who did work on a commercial property near their home. The contractor sought to compel arbitration, arguing that their claim implicated an arbitration agreement in its contract with the relevant subcontractor. But the Stantons countered with evidence that the excavation work at issue was performed under a separate contract, directly with the property owners.

The trial court denied the motion to compel arbitration. The Fifth Court affirmed. It noted the principle that “a bilateral agreement to arbitrate under the AAA rules constitutes clear and unmistakable evidence of the parties’ intent to delegate the issue of arbitrability to the arbitrator.” But that said, “[t]he subcontract between [the general] and [the sub] is not a bilateral contract with the Stantons.” Therefore, the trial court retained the authority to determine arbitrability. Scott + Reid General Contractors, Inc. v. Stanton, No. 05-22-00400-CV (Oct. 7, 2022) (mem. op.).

Reminding that the Family Code has some unique features not found in the more general Texas Arbitration Act, “which are expressly designed to avoid subjecting parties in divorce cases to arbitration when the contract containing the agreement to arbitrate is invalid or unenforceable,” the Texas Supreme Court held in In re Ayad that “[t]o comply with these statutes, a trial court must: (1) try the issue by giving each party an opportunity to be heard on all validity or enforceability challenges to the contract containing the arbitration clause, as well as an opportunity to offer evidence concerning any factual disputes or questions of foreign law material to the challenges; and (2) decide the challenges before ordering arbitration.” No. 22-0078 (Sept. 23, 2022) (per curiam).

The agreement at issue was an “Islamic Pre-Nuptial Agreement,” but the Court’s ruling did not require it to address any matters about the substance of that agreement.

The well-known poem Antigonish begins:

Yesterday, upon the stair,
I met a man who wasn’t there
He wasn’t there again today
I wish, I wish he’d go away.

In that general spirit, in recent days, both the U.S. Court of Appeals for the Fifth Circuit and the Court of Appeals for the Fifth District at Dallas had close en banc votes involving questions of arbitrability, as to a party who “wasn’t there”–who had not signed an arbitration agreement, but was nevertheless potentially subject to it. (The Dallas case is discussed here; the Fifth Circuit’s, here.)

Whether the timing is an example of synchronicity I will leave to others. The courts’ difficulty with these issues shows the strong feelings provoked by the issue of court access, even among very sophisticated jurists, in an area of the law with well-developed case law on many key points.

The en banc Fifth Court divided 7-6 on a difficult arbitration issue; specifically, whether a court or the AAA should resolve arbitrability as to wrongful-death claims brought by estate representatives. Agreeing with the panel majority, the full-court majority  saw it as an issue for the AAA; the dissent, one for court. A concurrence urged consistency with applicable federal law. Prestonwood Tradition, LP v. Jennings, Nos. 05-20-00380 and -00387 et seq. (Aug. 5, 2022).

Justice Pedersen wrote the majority opinion, joined by Justices Myers, Schenck (who wrote a concurring opinion), Osborne, Reichek, Goldstein, and Smith. Justice Partida-Kipness wrote the dissent, joined by Chief Justice Burns and Justices Molberg, Nowell, Carlyle, and Garcia. The panel consisted of Justices Pedersen and Goldstein in the majority and Justice Partida-Kipness in dissent.

Important arbitration-waiver case earlier this week from SCOTUS:

“Most Courts of Appeals have answered that question by applying a rule of waiver specific to the arbitration context. Usually, a federal court deciding whether a litigant has waived a right does not ask if its actions caused harm. But when the right concerns arbitration, courts have held, a finding of harm is essential: A party can waive its arbitration right by litigating only when its conduct has prejudiced the other side. That special rule, the courts say, derives from the FAA’s ‘policy favoring arbitration.’  We granted certiorari to decide whether the FAA authorizes federal courts to create such an arbitration-specific procedural rule. We hold it does not.”

Morgan v. Sundance Inc., No. 21-328 (May 23, 2022).

After a split decision from the Fifth Court declined to send a personal-injury case to arbitration, the Texas Supreme Court ruled otherwise in Baby Dolls v. Sotero: “The Family’s argument, and the court of appeals’ holding, that Hernandez and the Club never had a meeting of the minds on the contract blinks the reality that they operated under it for almost two years, week after week, before Hernandez’s tragic death. We hold that the parties formed the agreement reflected in the contract they signed.” No. 20-0782 (Tex. March 18, 2022).

The standard for waiver of a contractual arbitration right can be demanding, especially if the record does not contain all referenced material:

“Mary’s response to appellants’ amended motion to compel arbitration stated that appellants served responses to discovery in December 2016 and sent discovery requests of their own in February 2017. Appellants contend that the discovery they propounded was minimal, consisting of nine interrogatories, nine requests for admission, and one request for production. As no party attached any of the requests or responses to their filings in connection with the motions to compel arbitration, we cannot weigh any of the discovery-related factors in favor of or against waiver. Mary has not shown that the discovery in question was extensive, related to the merits of her claims, or would be unavailable in arbitration.”

Haddington Fund v. Kidwell, No. 05-19-01202 (Jan. 11, 2022) (mem. op.) (citations omitted).

The majority opinion in Prestonwood Tradition, LP v. Jennings, No. 05-20-00380-CV et seq. (Oct. 22, 2021).concluded that wrongful-death and survival claims were controlled by the decedents’ arbitration agreements, including their delegation of arbitrability to the arbitrator. A dissent saw matters differently, citing Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.–Dallas 2010, no pet.)).

Even on a court that has strong differences of opinion about the law that defines the boundary between the judicial process and arbitration, some questions command consensus–in Holifield v. Barclay Properties, Ltd., the Fifth Court agreed that “a bilateral agreement to arbitrate under the AAA rules constitutes clear and unmistakable evidence of the parties’ intent to delegate the issue of arbitrability to the arbitrator.” No. 05-21-00239-CV (Oct. 5, 2021) (mem. op.) (citations omitted).

“The preservation requirements of appellate rule 33.1 apply to arbitrations.” And just as in a traditional litigation setting, the lack of a record created preservation problems in Alia Realty LLC v. Alhalwani: “In addition to a silent record as to whether appellees informed the arbitrator that the extended time to file a supplemental expert report was insufficient before proceeding to arbitration, appellees failed to make any such complaints in two postarbitration briefs. Instead, they argued the evidence was insufficient to support the arbitration award because appellants’ expert’s opinions were unsupported speculation, and their expert, unlike appellant’s expert, used the proper accounting analysis by reconciling bank accounts.” No. 05-21-00265-CV (Sept. 23, 2021) (mem. op.).

The successful party in an arbitration obtained confirmation of the award before the trial court ruled on the other party’s special appearance. The Fifth Court reversed, citing TRCP 84 and 120a as well as its own precedent: “Jayco was entitled to have its special appearance adjudicated prior to any decision on the merits.  The rules of civil procedure give a trial court no discretion to hear a plea or pleading, including a motion to confirm an arbitration award, before hearing and determining a special appearance.”  Jayco Hawaii LLC v. Viva Railings, LLC, No. 05-20-00528-CV (Aug. 25, 2021) (mem. op.) (citations omitted, emphasis added).

In an 8-1 decision, the Texas Supreme Court reversed the Fifth Court’s judgment in Fifth Court’s judgment in Aerotek v. Boyd, a dispute about whether employees agreed to arbitration via their employer’s electronic system. The court observed:

“It may be that the use of electronic contracts already exceeds the use of paper contracts or that it will soon. The [Texas Uniform Electronic Transactions Act] does not limit the ways in which electronic contracts may be proved valid, but it specifically states that proof of the efficacy of the security procedures used in generating a contract can prove that an electronic signature is attributable to an alleged signatory. An opposing party may, of course, offer evidence that security procedures lack integrity or effectiveness and therefore cannot reliably be used to connect a computer record to a particular person. But that attribution cannot be cast into doubt merely by denying the result that reliable procedures generate.”

(footnote omitted). A dissent would have evaluated the record differently. No. 20-0290 (Tex. May 28, 2021).

The parties in Ninety Nine Physician Services, PLLC v. Murray arbitrated a business dispute; the lingering issue at confirmation was an award of $341,680 in attorneys’ fees. The Fifth Court found that the award was proper, reasoning as follows:

1. “[U]nder the parties’ distinct agreement and incorporation of the AAA rules, there were three circumstances in which the arbitrator was vested with the authority to award attorney’s fees (1) if all parties requested such an award or (2) if it was separately authorized by law or (3) if it is authorized by the arbitration agreement.” (emphasis in original); and then
2. “Both parties submitted posthearing briefs in which they requested attorney’s fees. In their briefing, Appellees urged, as they do here, there was no basis in the general law to award fees to Appellant. … Appellees contend Appellant’s post-hearing brief is not a proper request for attorney’s fees. The arbitrator in interpreting the Commercial Rules evidently disagreed with Appellees and found the post-hearing briefs to be requests for attorney’s fees under Rule 47(d)(ii).” 

The Court thus reversed a trial-court ruling that vacated that portion of the award. A concurrence would have reached the same result for a different reason: “Because appellant did not file any pleading affirmatively seeking attorneys’ fees until after the arbitration hearing, the arbitrator abused his discretion in awarding attorneys’ fees to appellant. The arbitrator’s mistake of law, however, is not grounds to vacate the award,  and the trial court erred in doing so. Consequently, appellant was entitled to enforcement of the attorneys’ fees award but not on the basis relied upon by the majority.” No. 05-19-01216-CV (Feb. 22, 2021) (mem. op.).

The movants in GN Ventures v. Stanley won their argument that the TCPA applied to a motion in a dispute about arbitrability: “[E]ven though a request for a pre-arbitration temporary restraining order and temporary injunction merely seeks equitable remedies, and is not an independent cause of action, such a request is a ‘filing that requests . . . equitable relief’ and, therefore, a ‘legal action’ as defined by section 27.001(6). And because in this case, there is no underlying cause of action and appellants’ TCPA motion solely sought dismissal of the request for temporary restraining order and temporary injunction, that requested injunctive relief is the ‘claim’ the elements of which the Stanley affiliates must demonstrate a prima facie case by clear and specific evidence in the second step of the TCPA analysis we discuss below.” (citations omitted). Despite that win, however, they lost their motion because the nonmovants established a prima facie case for their requested injunctive relief. No. 05-19-01076-CV (Oct. 2, 2020).

If arguing that the plaintiff’s pleadings judicially admit arbitrability, be sure the record all lines up: “[T[]o the extent WorldVentures seeks to rely on a ‘judicial admission’ that TTF ‘consented to the 2019 agreements,’ the record does not show that the section 7.1 quoted in TTF’s petition necessarily came from the 2019 documents. The petition is silent as to what version of WorldVentures’ Policies & Procedures the quotation is from. Although the quoted section does not appear in the 2011 version, there were at least six additional versions in effect between 2012 and 2019. The record includes only the arbitration provision portions of those documents and does not show whether the quoted section 7.1 was unique to the 2019 version. Thus, the petition does not contain a ‘clear, deliberate, and unequivocal” statement of fact regarding consent to the 2019 agreements.'” WorldVentures Marketing v. Travel to Freedom, No. 05-20-00169-CV (Sept. 23, 2020) (mem. op.).

The trial court did not abuse its discretion in finding an arbitration agreement procedurally unconscionable when: “Herman testified in his affidavits that the meeting with appellant [law firm]’s employee was less than ten minutes. Herman made a brief statement to the employee explaining the accident, and the employee told Herman to sign a document. Herman asked the employee if the document was a contract, and the employee answered, ‘No, we are just gathering information,’ that the Daspit firm would review the facts, and that a lawyer would call him. The employee was ‘very impatient’  and told Herman ‘he could not stay to explain things.’ Herman also testified that when he signed the document, he ‘did not understand . . . that it contained an arbitration clause.’ Herman argues appellant’s employee did not permit Herman to read the arbitration provision before signing the document.” Daspit Law Firm v. Herman, No. 05-19-00615-CV (Aug. 25, 2020) (mem. op.)

After an earlier dispute about the merits of an interlocutory stay, the Fifth Court reached the substantive issue of arbitrability in Baby Dolls v. Sotero, a personal-injury lawsuit about a serious car accident involving two dancers after they left work. The key question was the interplay of the terms “License” and “Agreement” in the relevant contract; the panel majority concluded: “On this record, we conclude the trial court could have properly determined the parties’ minds could not have met regarding the contract’s subject matter and all its essential terms such that the contract is not an enforceable agreement. Consequently, the trial court did not abuse its discretion by denying the motions to compel arbitration.” (citations omitted). A dissent disputed whether that conclusion was a proper legal basis to deny a motion to compel arbitration, and would have reached a different result about the construction of the parties’ contract. No. 05-19-01443-CV (Aug. 21, 2020) (mem. op.)

Sometimes to state the issue is to decide it. For example, the Fifth Court’s opinion in Ruff v. Ruff began: “A pivotal question we address is whether a party can initiate an arbitration proceeding pursuant to a specific arbitration agreement, demand that a signatory to that agreement be compelled to participate in that arbitration, and then disavow the resulting award by alleging that he (the initiating party) did not agree to arbitrate according to that arbitration agreement.” The Court answered that question “no,” reviewing the invited-error and several estoppel doctrines. No. 05-18-00326-CV (Aug. 11, 2020).

Lunch-buying did not create arbitrator bias in Texas Health Management v. Healthspring: “THM next claims the Tribunal was partial because it received free beverages and meals from Healthspring every day of the hearing. THM claims it received this information from a December 5, 2017 letter from Healthspring to the Tribunal. However, on the first day of arbitration, Appel acknowledged, “I understand, Mr. Leckerman, you ordered in lunch.” Leckerman, Healthspring’s attorney, confirmed lunch would arrive around noon. THM did not question or object to Healthspring providing lunch.” (footnote omitted).

The philosophy of aesthetics finds practical application in the law of website user agreements, as illustrated in Home Advisor, Inc. v. Waddell. The plaintiffs sought to avoid arbitration of their claims, arguing that the notice about “terms and conditions” on this screen was not sufficiently conspicuous:

The Fifth Court disagreed. Citing the recent Northern District of Texas opinion in Phillips v. Neutron Holdings, the Court noted a distinction among “clickwrap” agreements, “browsewrap” agreements, and “sign-in-wrap” agreements. This case involved a sign-in wrap agreement, which “notifies the user of the existence of the website’s terms and conditions and advises the user that he or she is agreeing to the terms when registering an account or signing up,” and is “typically enforce[d] . . . when notice of the existence of the terms was ‘reasonably conspicuous.'” The Court found that this agreement was conspicuous enough, noting that “more cluttered and complicated sign-in-wrap screens have been found to provide sufficient notice” of similar contract terms. No. 05-19-00669-CV  (June 4, 2020) (mem. op.)

Alcala sought to avoid arbitration of a premises-liability claim against her employer, arguing, inter alia, that she did not understand English. Her argument did not prevail because of direct-benefits estoppel:

‘The record reflects Alcala received $5,116.46 under the Plan in the form of benefits paid to cover medical expenses related to the subject of her suit against appellants: her February 2016 on-the-job injury. The Plan itself provided, “there is an Arbitration Policy attached to the back of this booklet.” The Agreement provided, “Payments made under [the] Plan . . . constitute consideration for this Agreement.” Having obtained the benefits under the Plan, which incorporates the Agreement by reference, Alcala cannot legally or equitably object to the arbitration provision in the Agreement.’

Multipacking Solutions v. Alcala, No. 05-19-00303-CV (April 14, 2020).

The appellants in Trubenbach v. Energy Exploration “urge[d] that ‘context matters.’ They argue that as non-signatories, they can compel Energy Exploration to arbitration but Energy Exploration cannot compel them to arbitration. But this is not a case in which non-signatories first moved to compel arbitration, then later changed their minds, withdrew their consent, and proceeded with the litigation in a judicial forum. Here, appellants urged diametrically opposing positions in two different courts at the same time.” (emphasis in original).

As a result, “[t]heir conduct in claiming rights under the arbitration agreement and their conduct throughout the course of this proceeding clearly reflected their willingness to forego their right to a judicial forum.” No. 05-18-01090-CV (March 27, 2020) (mem. op.). The Court also observed: “Appellants’ actions are akin to behavior prohibited by the invited error doctrine—a party may not complain of an error which the party invited.” (citations omitted).

In a dispute about arbitrability, the plaintiff claimed never to have seen the arbitration agreement, and after receiving evidence about the defendant’s computer system, the trial judge agreed.

A panel majority affirmed the denial of the motion to compel arbitration: “Aerotek made the choice to forego in-person wet-ink signatures on paper contracts. This may be a good business decision that allows it to more efficiently process more business than otherwise possible. And in this case, Aerotek made the choice to bring only one person, an employee without apparent IT experience specific to the type of computer system whose technical reliability and security she sought to vouch for. Aerotek did this in the face of admitting it had contracted out creation and implementation of this system to another entity altogether and brought no witness from that entity. We conclude Aerotek did not present evidence establishing the opposite of a vital fact, here that appellees’ denials of ever seeing the arbitration contracts were physically impossible given Aerotek’s computer system.” 

A dissent had a different view of the evidence and warned that as a policy matter: “This would allow any party to a contract signed electronically to deny the existence of the contract even in the face of overwhelming evidence that the contract was signed. Further, this holding amounts to a state rule discriminating on its face against arbitration, which is expressly prohibited.”

The en banc court denied review in a brief order (Justices Molberg (the trial judge) and Whitehill did not participate); a dissent by Justice Schenck reiterated the dissent’s warnings and “urge[d] prompt review by the Texas Supreme Court.” (joined by Justices Bridges (the panel dissenter), Evans, and Myers).

Section 171.025 of the Civil Practice & Remedies Code says: “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.” The dispute in In re: Baby Dolls Topless Saloon involved a mandamus petition from a defendant’s perceived inability to obtain an order implementing this stay, during its interlocutory appeal from denial of its motion to compel arbitration.

The panel majority denied the petition, finding  that the issue of arbitrability “has been briefed in the interlocutory appeal and will be decided by the panel of justices assigned to decide that appeal, which is just as the legislature intended when it enacted section 51.016 and provided for an interlocutory appeal of an order denying a motion to compel arbitration. Because we follow the rule of law, we, as one panel of this Court, will not depart from this Court’s prior holding that mandamus will not issue when the legislature has expressly provided an adequate remedy by appeal.”

A dissent would have granted a stay as part of resolution of the mandamus petition, noting: “While our own statute and rules appear to compel the same result by dictating a stay of the overlapping proceedings of whatever court is first asked, we have not  done so here. Accordingly, relator has properly brought the issue before us for mandamus relief that should be available under long recognized mandamus standards and without the need of further machination or a fifth request for stay.” No. 05-20-00015-CV (Feb. 24, 2020) (mem. op.)

In an unusually nutty case, the parties’ arbitration clause provided:

All disputes, claims, or controversies arising out of or relating to this Agreement, or the breach thereof, except as to the quality of the product delivered, shall be settled solely by arbitration held in Dallas, Texas, in accordance with the rules then obtaining of the American Arbitration Association, and judgment upon any award may be entered in any court having jurisdiction thereof.

(emphasis added). The plaintiff’s allegations “[a]ll . . . concern whether the pecan pieces San Saba sold contained pecan weevil larvae so that they were not merchantable and were unfit for human consumption” – in other words, claims about “the quality of the produce delivered” within the meaning of the above carveout. The Fifth Court thus affirmed the trial court’s denial of a motion to compel arbitration. San Saba Pecan LP v. Give & Go Prepared Foods Corp., No. 05-19-00214-CV (Dec. 6, 2019) (mem. op.)

Ward sued Gray, alleging that “Gray forced Ward’s resignation to preclude the Partnership’s obligation to purchase Ward’s [partnership] interest. . . . In addition, Ward alleges that [the general partner] made defamatory statements about his employment status when Partnership employees were told that Ward resigned.”

The relevant limited-partnership agreement, signed by both Gray and Ward, said: “All disputes and claims relating to this Agreement, the rights and obligations of the parties hereto, or any claims or causes of action relating to the performance of either party that have not been settled through mediation will be settled by arbitration.”

The Gray v. Ward majority found that all of Ward’s claims were subject to arbitration: “As Ward’s petition demonstrates, the factual allegations supporting his contract and fiduciary duty breach claims are intertwined with the LP Agreement and Ward’s wrongful termination and defamation claims. Indeed, the only way the statement about Ward’s resignation could be defamatory is in the context of the limited partnership’s operation. The LP Agreement controls the terms of the buy-out from which the entire dispute arises. Under these circumstances, we cannot conclude that Ward’s wrongful termination and defamation claims are completely independent of and can be maintained without reference to the LP Agreement.”

A dissent reasoned: “Ward’s employment-related claims have no significant relationship to the limited partnership agreement, and . . . the arbitration agreement here applies only to Ward’s role as a limited partner . . . , and not to his distinct role as an employee,” and concluded: “This is yet another case in which arbitration becomes a matter of coercion, not consent, with the right to trial by jury as the recurrent fatality.”

No. 05-18-00266-CV (Aug. 9, 2019).

The recent case of  SIG-TX Assets v. Serrato, over a dissent, declined to require arbitration of nonsignatories’ claims about mishandled funeral services. It would be wrong to read too much into that case, in light of Meritage Homes v. Mudda, which required nonsignatories to arbitrate claims about a home’s construction: “Here, we are presented with facts requiring application of the exception because the Muddas are seeking benefits under the Limited Warranty while simultaneously attempting to avoid its arbitration provision.” No. 05-18-00934-CV (July 3, 2019) (unpublished).

In a macabre echo of the old English case about the two ships Peerless, in SIG-TX Assets, LLC v. Serrato, Serrato family members accused a funeral home of confusing the bodies of two women named Maria. The funeral home sought to compel arbitration under a theory of direct-benefits estoppel, and the panel majority disagreed: “[A]though SIG-TX’s duty to prepare and inter Maria’s body arose from the contracts, there is an independent duty under Texas tort law to immediate family members not to negligently mishandle a corpse.” A dissent saw the family-members’ claims as directly analogous to those of the nonsignatory to the construction contract in In re: Weekley Homes, 180 S.W.3d 127 (Tex. 2005). No. 05-18-00462-CV (April 23, 2019) (mem. op.) (Partida-Kipness, J., for the majority, joined by Carlyle, J.; Bridges, J., dissenting).

AMX brought an arbitration against an architect; the architect moved to dismiss because AMX did not obtain a certificate of merit, and when that motion was unsuccessful sought appellate review. The Fifth Court, noting that this was an issue of first impression, concluded that “the right to interlocutory appeal granted by section 150.002 does not apply to an order rendered by an arbitration panel, and the Texas Arbitration Act (TAA) does not provide a means for judicial review of such an order . . . .” Accordingly, it vacated the trial court’s order of dismissal as void and dismissed the appeal for lack of jurisdiction. SM Architects v. AMX Veteran Specialty Services, 05-17-01064-CV (Nov. 9, 2018).

The appellant in CBRE, Inc. v. Turner sought to avoid arbitration based on a long line of Texas authority about “illusory” arbitration clauses, see, e.g., In re: Halliburton Co., 80 S.W.3d 566 (Tex. 2002). This clause, however, “unlike the employment agreements in other cases . . . did not give CBRE the right to modify the employment agreement unilaterally or the right to terminate the arbitration policy without terminating the employment agreement,” and thus was not illusory. No. 05-18-00404-CV (Oct. 22, 2018).

The party opposing arbitration in Camp v. Potts pointed to a year-long delay in moving to compel arbitration, during which the underlying matter was set for trial and required travel and expense to be available during that setting. Unfortunately, as to other parts of the framework in Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008), “[t]he record . . . contains no evidence the trial preparation would not be useful in arbitrating their claims as well,” and the parties “have not argued, and we see no evidence in the record, that the delay caused any harm caused to their legal position.” Accordingly, the Fifth Court reversed the denial of the motion to compel arbitration. No. 05-18-00149-CV (Oct. 1, 2018) (mem. op.)

The third prong of the Craddock test for setting aside a default judgment – that the defendant “file the motion at a time when granting it will occasion no delay or otherwise work an injury to the plaintiff” – is commonly cited when awarding attorneys’ fees to the plaintiff. The plaintiff in In re: CGI Construction went a step further and also obtained a requirement that the defendant waive its contractual right to arbitrate. The Fifth Court conditionally granted mandamus relief, finding as a matter of law (in light of the strong policy favoring arbitration) that “the trial court may not condition the granting of a new trial and motion to set aside default judgment on waiver of contractual arbitration rights,” and that the plaintiff did not otherwise establish evidence of injury (a lost witness, etc.) if arbitration proceeded. No. 05-18-00320-CV (June 18, 2018) (mem. op.)

Assuming arguendo – a considerable assumption given recent opinions on the point – that “manifest disregard of the law” is a viable challenge to an arbitration award, it did not apply even to a threshold issue such as standing when: “The parties agree that the arbitrator heard evidence and argument offered by both parties on the question of Sricom’s capacity to recover on its counterclaim. This evidence included Sricom’s certificate of authority to do business in Texas, the parties’ contract, and evidence of the parties’ alleged breaches and when those breaches occurred. The arbitrator’s acceptance of Sricom’s arguments and evidence instead of C Tekk’s, even if erroneous, was not manifest disregard of the law.” C Tekk Solutions, Inc. v. Sricom, Inc., No. 05-17-00845-CV (May 1, 2018) (mem. op.)

A clean example of mootness appears in Tru Exploration LLC v. Energy Exploration I LLC: “The dispute on appeal centers on whether arbitration is required. Arbitration having been conducted and an award having been issued, the controversy no longer exists and the appeal is moot.” No. 05-15-00217-CV (April 27, 2018) (mem. op.) (applying Trulock v. City of Duncanville, 277 S.W.3d 920, 923 (Tex. App.–Dallas 2009, no pet.).

The parties’ arbitration clause said that, after a three-arbitrator panel was selected, the arbitrators “shall hold a hearing and make an award within sixty (60) days of the filing for arbitration.” The panel issued a “Partial Final Award” within sixty days and a complete award later; the trial court found the final award was untimely and declined to confirm it. The Fifth Court found that the agreement only required “an award,” not a final award, and that the arbitration panel had the last word on the issue because the parties had incorporated AAA ruled, which give “[t]he arbitrator . . . the power to rule on his or her own jurisdiction . . . ” Signature Pharmaceuticals LLC v. Ranbaxy, Inc., No. 05-17-00412-CV (March 12, 2018) (mem. op.)

A defendant can rely on factual allegations to establish the proper forum, when the defendant will later strive to negate the merits of those same allegations. That idea was vividly illustrated in Buck’s Cabaret v. Lantrip, in which an entertainer at a Dallas club sued for her injuries in a car accident after leaving the premises, alleging that the club served her excessive alcohol. The Fifth Court reversed the denial of the club’s motion to compel arbitration under a provision in its agreement with the dancer that reached “ANY CONTROVERSY, DISPUTE, OR CLAIM … ARISING OUT OF THIS LEASE OR OUT OF ENTERTAINER PERFORMING AND/OR WORKING AT THE CLUB AT ANY TIME.” The Court noted:

The factual allegations giving rise to Lantrip’s claims are that Buck’s (1) sold her alcoholic beverages after it was apparent she was obviously intoxicated, and (2) required her to consume alcoholic beverages, a breach of Buck’s duty to use ordinary care in providing a reasonably safe workplace. Although Lantrip urges that she was a patron because Buck’s sold her alcoholic beverages, the fact that she purchased drinks is not necessarily inconsistent with her working under the terms of the Lease at the time. Indeed, Buck’s could not require Lantrip to purchase drinks if she was merely a patron.

The club will certainly dispute those allegations at the arbitration hearing, but for purposes of determining the forum, they proved dispositive.No. 05-17-00647-CV (Feb. 23, 2018) (mem. op.)

Craig moved to vacate an arbitration award: “Thus, under [Tex. Civ. Prac. & Rem. Code] section 171.094, she was required to arrange for service of process on appellees upon filing the motion. Craig did not arrange for service of process until she filed her supplemental motion to vacate on September 1, 2016, more than five months after the arbitration panel entered its award. Because she did not serve notice of her motion to vacate within [FAA] Section 12’s three-month limitations period, the service was untimely and the trial court was required to dismiss her motion as untimely.” The Fifth Court declined to apply any equitable tolling doctrine, and rejected an earlier emailing of the motion as inadequate under the TAA’s procedural requirements. Craig v. Southwest Securities, No. 05-16-01378-CV (Dec. 18, 2017) (mem. op.)

In FC Background LLC v. Fritze, the Fifth Court affirmed the trial court’s conclusion that a merger clause extinguished an arbitration clause in an earlier agreement between the parties. Distinguishing other cases on the general topic, the Court observed that those opinions involved a “subsequent agreement with the merger clause [that] expressly provided for the continued enforceability of prior agreements.” Here, however, the clause “does not contain the limiting language, ‘with respect to the subject matter hereof,’ and thenon-compete agreement incorporates by reference only the December 28 employment agreement but not the employment application that has the arbitration clause sought to be enforced. The merger clause here expressly supersedes any previous written or oral agreements between [the parties] relating to employment.” No. 05-17-00277-CV (Nov. 16, 2017) (mem. op.) (emphasis in original).

A challenge to AAA’s notice of hearing was rejected, and the award confirmed, in Heriage v. BNSF Logistics: “The record shows the AAA sent notice of the May 4th arbitration hearing to appellants on two occasions via both electronic and certified mail––one was approximately two months before the hearing; the other six days before the hearing. The written notices were sent to the physical address listed in the agreement, and the electronic notices were sent to an email address that Herriage admitted he conducted business from in the past but that he no longer bothered to check and had never closed.” 05-16-01232-CV (Nov. 17, 2017) (mem. op.)

In an uncommon but fundamental challenge to an arbitration agreement, the plaintiff relied upon his inability to understand English. The Fifth Court rejected this challenge under general principles of contract formation:

“It is unusual that MiCocina translated the Mutual Agreement to Arbitrate, summary plan description, and handbook into Spanish, but not the one-page Acknowledgment form. However, on this record, there is no evidence of a fraudulent misrepresentation or trickery that would relieve Balderas of the consequences of failing to read or have read to him a document he voluntarily signed. In light of the obligation an illiterate party has to have a document read to them before they sign it and the lack of evidence of a fraudulent misrepresentation or trickery, we conclude Balderas is bound by his signature on the Acknowledgment. Accordingly, Balderas failed to prove procedural unconscionability and fraudulent inducement.”

MiCocina v. Balderas, No. 05-16-01507-CV (Oct. 27, 2017) (mem. op.) (citations omitted; distinguishing Delfingen US-Texas, LP v. Valenzuela, 407 S.W.3d 791
(Tex. App.—El Paso 2013, no pet.)).T

At issue in Galaxy Builers, Ltd. v. Globus Management Group was a trial court order denying enforcemement of an arbitrator’s subpoena. While the order said that it was final, section 171.098 of the Texas Arbitration Act does not list it as an appealable category of arbitration-related ruling; thus, the appeal was dismissed for lack of jurisdiction. No. 05-17-00831-CV (Oct. 2, 2017) (mem. op.)

Among other holdings related to the arbitrability of a dispute between a business and a former employee, the Fifth Court rejected an argument that the defendant business had waived its right to invoke arbitration: “In short, many factors weigh against a waiver finding: (i) Tantrum is the defendant, not the plaintiff, (ii) Tantrum’s delay in seeking arbitration was not extreme, and Carson has not shown an improper reason for the delay, (iii) Tantrum did not seek a merits disposition of Carson’s claims, and it did not conduct an inordinate amount of discovery, (iv) Tantrum’s counterclaims are arguably compulsory counterclaims, (v) Carson did not show that the parties have spent an inordinate amount of time or money litigating this case, and (vi) Carson did not show that the discovery Tantrum conducted would have been unavailable in arbitration or would not be useful in the arbitration.” Tantrum Street LLC v. Carson, No. 05-16-01096-CV (July 24, 2017).

The arbitration clause in Employee Solutions v. Wilkerson said, in part, that it applied to “. . . any and all claims challenging the existence, validity or enforceability of this [agreement] (in whole or in part) or challenging the applicability of this [agreement] to a particular dispute or claim.” To get around this broad language, the party opposing arbitration contended that it did not reach a “purely procedural” matter – the alleged failure to serve a written demand for arbitration on him and file it with the arbitral authority within the statute of limitations for negligence. The Fifth Court disagreed, noting the parties’ dispute as to whether this matter was a condition precedent to arbitration, which brought it squarely within the above language. No. 05-16-00283-CV (May 10, 2017) (mem. op.)

Heath’s employment agreement incorporated a confidentiality agreement, which in turn required arbitration of “any controversy, dispute or claim arising out of or in any way related to or involving the interpretation, performance or breach of this Agreement . . .” The Fifth Court noted that phrases such as “any controversy” are viewed, by federal and state courts, as “broad arbitration clauses capable of expansive reach.” It rejected the argument that the term “this Agreement” referred only to the confidentiality agreement, even though that agreement had a merger clause, because the arbitration clause refers to both claims “arising out of” and “in any way related to” the agreement. The Court also noted that the employment and confidentiality agreement were executed at the same time, and that its holding would apply fully to Heath’s tort claims as well. Advocare GP LLC v. Heath, No. 05-16-0049-CV (Jan. 5, 2017) (mem. op.)

In Heritage Numismatic Auctions v. Stiel, a dispute about the the sale of rare coins, the Fifth Court affirmed the denial of a motion to compel arbitration, finding that the relevant documents were not adequately proved up by the sponsoring affidavit. The witness “did not testify that the documents in Exhibit F were ‘true and correct’ copies of the contracts or otherwise state that they were the originals or exact duplicates of the originals.” While the affidavit began with the phrase, “The facts contained herein are true and correct,” the Court held that “[t]he trial court could interpret this statement as asserting the factual averments in the affidavit were true and correct but not asserting the documents in Exhibit F were the originals or exact duplicates of the originals as required by Rule 902(10)(B)(2).” Finally, from a general description of the documents as “the various Terms and Conditions . . . ,” the Court held that “[t]he trial court could have concluded that [the witness’s] statement did not constitute testimony that the documents in Exhibit F were the originals or exact copies of the contracts.” No. 05-16-00299-CV (Dec. 16, 2016) (mem. op.)

In its order denying a mandamus petition in the case of In re: Adelphi Group, the Fifth Court reminds: “Although parties may expend time and money if they are ordered to arbitration improperly, delay and expense—standing alone—will not render the final appeal inadequate. Further, mandamus as a remedy for review of orders compelling arbitration should be limited to the comparatively rare cases where the legislature has through statute expressed a public policy that overrides the public policy favoring arbitration.” No. 05-16-01060-CV (Sept. 22, 2016) (mem. op.)

Jenner & Block took on the representation of Parallel Networks in patent infringement litigation. Their contingency fee agreement provided that Parallel was responsible for the payment of expenses, but Parallel ran up a $500,000 deficit before expenses were finally paid out of proceeds from settlement in another lawsuit. Jenner withdrew from the case, citing a termination clause that allowed it to withdraw if continuing was not in its economic interest. After the patent cases settled under successor counsel, Jenner invoked arbitration and sought to recover $10 million in fees. The arbitrator ruled that Jenner’s withdrawal was justified and awarded $3 million as an “appropriate and fair” portion of the contingent fee recovery, as provided in the parties’ contract. The trial court confirmed the award, and the Dallas Court of Appeals affirmed. The Court declined Parallel’s invitation to declare that the fee agreement was against public policy, holding that the statutory grounds for vacating an award under the FAA are exclusive, and that public policy therefore could not serve to vacate the award.

Parallel Networks, LLC v. Jenner & Block LLP, No. 05-13-00748-CV

A group of plaintiffs collectively named as Nemaha Water Services moved to compel arbitration before FINRA. In a cross-motion, Esposito Securities moved to compel arbitration before the AAA. The trial court denied Nemaha’s motion and granted Esposito’s, sending the case to AAA arbitration. In a hybrid interlocutory appeal and mandamus proceeding, the Dallas Court of Appeals reversed and sent the case to FINRA. Nemaha had signed a letter agreement in which it had agreed to pay Esposito 5% of the total consideration received in a qualifying investment or merger. The contract included a AAA arbitration provision, but the Court of Appeals held that clause was trumped by the FINRA rules, at least in this instance. The case turned on the question of whether Nemaha was a “customer” of Esposito, which would entitle it to invoke arbitration under the FINRA rules. Applying the ordinary meaning of “customer,” the Court held that Nemaha qualified even though it had not paid Esposito the contractual commission. Because Nemaha had contracted with Esposito — a member of FINRA — to purchase financial services for a fee, the Court concluded that Nemaha was entitled to invoke FINRA arbitration. The Court noted, however, that there is authority for the proposition that FINRA arbitration can be superseded by contract, although that was not the case this time.

Morford v. Esposito Sec., LLC, No. 05-14-01223-CV

The Dallas Court of Appeals has affirmed the order confirming an arbitration award in favor of our firm’s client, Steven Pully. As explained in the Court’s opinion, Mr. Pully sued his former employer, Newcastle Capital Management, alleging that the company owed him substantial amounts of unpaid compensation. But some of his claims were also subject to arbitration, and the arbitrator ruled in favor of Mr. Pully. The district court affirmed the arbitration award, and that portion of the case was eventually severed from the remaining claims in the lawsuit. On appeal, Newcastle challenged the scope of the arbitration clause, which covered “[a]ny dispute, controversy or claim arising out of or relating to” the parties’ agreements. The Court noted that the phrase “relates to” is very broad, and that a claim relates to a contract “if it has a significant relationship with or touches matters covered by the contract.” Under that standard, Mr. Pully’s claims did indeed relate to the parties’ contracts, making the dispute arbitrable. The Court also rejected Newcastle’s argument that the parties’ oral agreement was against public policy, and therefore affirmed the arbitration award in its entirety.

Schwarz v. Pully, No. 05-14-00615-CV

The Dallas Court of Appeals has reversed a trial court order denying a motion to compel arbitration. The arbitration clause was contained in a contract between a temporary employee and his employment agency, which gave both parties the right to “elect mandatory, binding arbitration for any claim, dispute, or controversy between you, and our clients or us” [sic]. The plaintiff claimed that the arbitration agreement was unenforceable due to substantive unconscionability, lack of consideration, and lack of essential terms. The Court held that nothing in the arbitration agreement demonstrated that the specific manner of arbitration was a material consideration to the parties, noting that the FAA specifically contemplates circumstances in which the parties have not provided for a method of appointment for an arbitrator. The Court also held that the consideration for the overall contract was sufficient to support the arbitration clause as well. Finally, the Court held that the provision was not substantively unconscionable despite its inclusion of a waiver of the right “to take any legal action” because it was not clear that potentially-unconscionable waiver was actually aimed at waiving substantive claims instead of just waiving the right to do so in court instead of arbitration.

Stride Staffing v. Holloway, No. 05-14-00811-CV

The parties in a workplace injury lawsuit entered into a Rule 11 agreement to abate the suit while they conducted limited discovery and mediation. A second Rule 11 agreement continued the abatement until one of the parties would file a motion to re-open the case. Notwithstanding those Rule 11 agreements, the parties were also subject to a binding arbitration clause contained in the employer’s injury benefit plan. The parties disputed whether they had each complied with their discovery obligations under the Rule 11 agreements, which led the employer to move to re-open and to compel arbitration. The trial court denied the motion and ordered that the case remain abated until the Rule 11 discovery was completed.

The Dallas Court of Appeals reversed. The Court first held that the case was subject to interlocutory appeal because the trial court’s order “affirmatively denies Baylor’s motion to compel arbitration over at least a portion of the proceeding . . . .” (The opinion noted that this holding conflicts with a pair of decisions out of the El Paso Court of Appeals, possibly setting up the case for further review by the Texas Supreme Court.) As to the discovery, the Court agreed with the defendant that the Rule 11 had expired by its own terms when the employer moved to re-open the lawsuit, mooting the completion of the agreed-upon discovery as an ongoing issue. But because the trial court had not actually ruled on the employer’s motion to compel arbitration, the Court of Appeals remanded for formal consideration of the case’s arbitrability.

Baylor Univ. Med. Ctr. v. Greeson, No. 05-14-01342-CV

Heritage Auctions held a number of items owned by Movie Poster House, Inc. and one of its owners, William Hughes. Hughes owed Kenneth Mauer over $600,000 that was secured by Hughes’ collectibles, and Mauer filed an application for writ of garnishment against Heritage. While that case was pending, Movie Poster House intervened, seeking an accounting to determine which items were owned by Hughes personally and which were owned by MPH. Because MPH’s consignment agreement contained an arbitration provision, the matter was compelled to arbitration. MPH later sought to amend its statement of claims to add additional causes of action for damages, but the arbitrator denied leave to file on the basis that the filing was untimely. The arbitrator ruled in favor of MPH on the original claims, and the trial court subsequently granted summary judgment for Heritage when MPH sought to re-file its additional claims in court. The Court of Appeals affirmed. Because MPH failed to appeal the arbitration award directly, it could not complain about the arbitrator’s decision to deny leave to amend. And because those additional claims arose out of the same set of facts as the claims that were addressed in arbitration, they were barred by res judicata.

Movie Poster House, Inc. v. Heritage Austions, Inc., No. 05-14-01260-CV

Is a party seeking to set aside an arbitration award entitled to take discovery from her opponent’s attorneys and the arbitrator in order to establish a claim of evident partiality? The answer from the Dallas Court of Appeals is a partially qualified yes. Dolores Rodas sued her employer, La Madeleine, for personal injuries sustained during her employment. The case was compelled into arbitration, and the arbitrator issued a take-nothing award in favor of La Madeleine. Rodas moved to set aside the result on the basis of the arbitrator’s evident partiality, claiming that he had failed to disclose two subsequent times he had been appointed as arbitrator in cases involving La Madeleine’s law firm. The trial court confirmed the arbitration award, but the Court of Appeals reversed and remanded. Assuming, without deciding, that Texas law requires a party to make some evidentiary showing of grounds to challenge the arbitration result before discovery is permitted, the Court of Appeals held that Rodas had met that threshold and was therefore entitled to take depositions in support of her claim of evident partiality.

Rodas v. La Madeleine of Tex., Inc., No. 05-14-00054-CV

After Kevin White defrauded investors in a foreign currency trading scheme, a federal court appointed Kelly Crawford as receiver over the estates and assets of White and his companies.  One such entity was a fund operating as a limited partnership called the Revelation Forex Fund.  Crawford determined that investors in Revelation had claims against Forex, the company with which Revelation had maintained foreign currency trading accounts.  Consequently, the investors assigned their claims to Crawford and he then filed suit against Forex in Colin County District Court.

Forex sought to dismiss the lawsuit based on an arbitration provision in its contract with Revelation.  When the trial court denied its motion, Forex appealed.  The Dallas Court of Appeals affirmed based on the crucial distinction that Crawford’s claims were brought as an assignee of the investors’ claims, not in his role as trustee.  Because only Revelation (and not the individual investors) had agreed to arbitrate claims against Forex, venue in Colin County was proper.

Forex Capital Markets, LLC v. Crawford

In the wake of the Texas Supreme Court’s decision vacating a $125 million arbitration award that had been reinstated by the Dallas Court of Appeals, the latter court has rejected another claim that an arbitration award should be vacated on grounds of evident partiality. A group of homeowners sought to recover against Meritage Homes after discovering that their houses were smaller than had been represented. At the start of the final hearing, the arbitrator disclosed his participation in “one or two” arbitrations with the claimants’ attorneys since the case had begun, but Meritage had no objection to proceeding with the hearing. That changed after the arbitrator found in favor of the homeowners and awarded damages and attorney fees.

In seeking to set aside the arbitration award, Meritage claimed that the arbitrator had failed to disclose that he had really held three arbitrations with the claimants’ attorneys, plus one additional mediation. The trial court confirmed the award over Meritage’s objections, and the Court of Appeals affirmed. Although the Court noted that the arbitrator’s disclosure was “vague, at best” as to the number of arbitrations he had conducted with the homeowners’ attorneys, the comment was still “clear as to substance” — namely, that he had arbitrated cases with the attorneys while the case was pending. Because the arbitrator had disclosed that substance, and because Meritage had failed to follow up on the disclosure until after it had already lost the arbitration, the failure to disclose one more arbitration and one mediation would not yield a reasonable impression of the arbitrator’s partiality to an objective observer.

Meritage Homes of Texas LLC v. Ruan, No 05-13-00831-CV

In this interlocutory appeal of a motion to compel arbitration, the Court held that the broad arbitration provision at issue (“[a]ny dispute, claim or controversy arising out of or relating to [the agreement] or breach, termination, enforcement, interpretation or validity thereof” must be arbitrated) required the trial court to grant the defendants’ motion to compel arbitration.  Moreover, because the provision itself stated that “the determination of the scope or applicability of this Agreement to arbitrate” must be determined by an arbitrator, the Court found that the responsibility for establishing whether the provision even applies rests with the arbitration proceeding.

Seven Hills Commercial LLC v. Mirabal Custom Homes, Inc.

The only issue before the Court in this case was whether the trial court erred in denying the defendant’s motion to compel arbitration.  The plaintiffs signed up to be Independent Representatives (apparently, a type of sales rep) for the defendants.  As part of the online application process, plaintiffs clicked a box confirming that they agreed to the defendant’s terms and conditions.  Those terms and conditions contained a provision providing that any dispute between the parties would be resolved by binding arbitration.

It turns out that the Court recently upheld the exact same arbitration provision in a case against the same defendants.  Consequently, without much substantive analysis, the Court referenced its prior opinion and reversed the trial court, holding that there was a valid agreement to arbitrate between the parties.

Momentis U.S. Corp. v. Perissos Holdings Inc.

In this challenge to an arbitration award, the Court of Appeals rejected the losing party’s attempt to vacate the arbitration award on grounds of “manifest disregard” for the law or “gross mistake” by the arbitrators because the appellant failed to submit a record of the arbitration proceedings.  According to the Court, “without a record of the arbitration proceedings showing the evidence or the law that was presented to the arbitrators, we cannot conclude the arbitrators manifestly disregarded the law or committed a gross mistake.”

Beech Street Corp. v. Baylor Health Care Sys.

Len Rao filed suit against his former employer, David Weekley Homes. Weekley moved to abate the lawsuit and initiated an arbitration proceeding with the AAA. The trial court denied the motion to compel arbitration, and the Court of Appeals — after first granting an emergency motion to stay the proceedings — ultimately affirmed the denial of arbitration. After the case moved back to the trial court, however, Rao added new claims against the AAA, which responded with a plea to the jurisdiction based on the doctrine of arbitral immunity. The trial court granted the plea, and the Court of Appeals affirmed. Arbitral immunity, the Court held, extends not only to arbitrators themselves, but also to the association that administers their proceedings.

Rao v. Am. Arbitration Ass’n., No. 05-13-00462-CV

Addressing a motion to compel arbitration, the Court of Appeals found that a provision in the defendant’s employee handbook did not require arbitration because that provision stated, in part, that “[b]inding arbitration requires the employee and [defendant] to commit to resolution of all eligible issues and be bound by the decision of the arbitrator.”  According to the Court, this language established that the parties had not already agreed to arbitrate, but rather that they must still make the decision if a dispute arises in the future.

Texas Health Resources v. Kruse

Addressing the trial court’s denial of the defendant’s motion to compel arbitration, the Court of Appeals held the following language insufficient to require arbitration of this dispute over a trust agreement: “We request that any questions or disputes that may arise during the administration of this trust be resolved by mediation and if necessary, arbitration.”  According to the Court, the trust agreement elsewhere established that the trust would be subject to the jurisdiction of a court if interested parties, such as the appellees, filed a legal proceeding.  Thus, the Court establish that the “request” for arbitration was “precatory, not mandatory.”

Two years ago, the Court of Appeals reinstated a $125 million arbitration award that the trial court had set aside on the basis of evident partiality, after one of the three arbitrators failed to disclose the full extent of his ties to the claimant’s attorneys.  Our report on that decision is here: A Bonanza for Ponderosa. After this morning’s orders from the Texas Supreme Court, that bonanza is no more. That court has reversed the Court of Appeals’ judgment, reinstated the trial court’s order vacating the arbitration award, and will permit the case to once again be arbitrated before a new panel.

Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, No. 12-0789

A long-running dispute between former business parties and their attorneys has resulted in a lengthy opinion affirming the trial court’s determination that it lacked subject matter jurisdiction over the case. The original dispute had been submitted to arbitration, which resulted in a large award of damages and attorney fees against the defendants. The Court of Appeals eventually set aside that award, holding that the arbitrator’s failure to disclose his personal relationship with plaintiffs’ counsel constituted “evident partiality” that, under the circumstances, required vacatur of the arbitration award. Karlseng v. Cooke, 346 S.W.3d 85 (Tex. App.–Dallas 2011, no pet.). Following that ruling, the defendants in the original arbitration filed suit against the lawyers and law firm that represented the plaintiffs, as well as the arbitrator and the arbitration agency, for fraud and other related claims. Despite the fairly complex set of facts, the Court of Appeals affirmed the dismissal of the new lawsuit for lack of subject matter jurisdiction, concluding that jurisdiction was preempted by the Texas Arbitration Act because the substance of the case was a prohibited collateral attack on the vacated arbitration award. Thus, the plaintiffs could not seek to hold the arbitrator, the arbitration agency, or the attorneys liable for the expenses they incurred in defense of the original arbitration proceeding.

Patten v. Johnson, No. 05-12-01695-CV

The Court of Appeals has issued a lengthy opinion affirming the confirmation of a take-nothing arbitration award, but reversing the trial court’s grant of a $10,000 sanction award against the attorney who challenged the award. The case arose out of the sale and subsequent foreclosure on a mineral lease in California. The lender alleged that it had been defrauded because it had not known about a $500,000 finder’s fee paid to the principal of the company that bought the mine for $2 million. The arbitrator rejected that position, finding that the lender’s chief witness was not credible in his allegations that he had not known about the finder’s fee. The opinion disposes of multiple grounds for vacating the award, including arguments that the arbitrator exceeded his authority and manifestly disregarded the law or committed a gross mistake in his award. The Court also denied the lender’s argument that the trial judge should have been disqualified due to her and her husband’s authorship (before she became a judge) of a paper praising arbitration and her husband’s continuing service as an arbitrator. But while the Court of Appeals found no merit to the lender’s challenges, it concluded that the trial court had abused its discretion in sanctioning the lender’s attorney. The largely generic facts alleged in the attorney’s pleading were supported by the record, and his legal contentions, even if not ultimately meritorious, could not serve as a basis for sanctions under Chapter 10 of the Civil Practice & Remedies Code. The Court remanded the case to the trial court for further consideration of alternative grounds for sanctions that the trial court had not ruled upon.

Humitech Dev. Corp. v. Perlman, No. 05-12-00857-CV

Tecore, Inc. purchased equipment from AirWalk Communications and integrated the equipment into its own cellular network products. Tecore originally bought the equipment under an agreement that did not include any arbitration clause, but AirWalk elected to terminate that contract and proposed a new one instead. The proposed contract included an arbitration clause, but the parties were never able to finalize a new agreement. Nevertheless, Tecore sought to purchase additional equipment from AirWalk, and AirWalk’s quotation for that equipment attached and incorporated its own terms and conditions, including an arbitration provision. Tecore sent back a purchase order that made no reference to AirWalk’s terms, and AirWalk responded with a “Purchase Order Acceptance” form that again stated the sale was subject to the same terms attached to its previous quote. When the sale subsequently fell apart, AirWalk filed a demand for arbitration. Tecore objected to the arbitrator’s jurisdiction, but the case proceeded and an award was ultimately entered in favor of AirWalk. The district court confirmed the arbitration award, and the Court of Appeals affirmed.

Tecore argued that AirWalk’s arbitration provision had never become part of their agreement, but the Court of Appeals disagreed. Reviewing the issue de novo, the Court first disposed of Tecore’s claim that the sale had been made subject to the continuing terms of the original sales contract. Tecore also argued that it had not accepted the terms attached to AirWalk’s quote because its purchase order had not complied with the quote’s instruction to reference both the quotation number and the terms and conditions attached to the quote. However, the Court of Appeals did not read that instruction as mandating a particular form of acceptance for the formation of a contract, and even if it had been a requirement, AirWalk’s subsequent assent to Tecore’s defective acceptance confirmed that a contract had still been formed, including AirWalk’s arbitration clause.

Tecore, Inc. v. AirWalk Communications., Inc., No. 05-12-00130-CV

The Texas Supreme Court has also granted the petition for review in another case from the Dallas Court of Appeals. In Ponderosa Pine Energy, LLC v. Tenaska Energy, Inc., 376 S.W.3d 358 (Tex. App.–Dallas 2012, pet. granted), the Court of Appeals reinstated a $125 million arbitration award that had been vacated by the trial court. The Court of Appeals concluded that the defendant had waived its ability to challenge the “evident partiality” of one of the arbitrators by failing to investigate the arbitrator’s disclosures until after the panel had made its award. Oral argument at the Supreme Court has been set for January 7. 

Although the contract at issue in this breach of contract matter included an arbitration provision, the defendant went ahead and actively litigated the case by, among other things, filing a motion for summary judgment, propounding affirmative discovery, deposing expert witnesses and attending mediation.  Then, after 19 months of active litigation (and 4 months before trial), the defendant invoked the arbitration provision in the agreement and moved to compel arbitration.  The Court found that the defendant had waived arbitration by substantially invoking the judicial process.

Ideal Roofing v. Armbruster

A short mandamus opinion from the Dallas Court of Appeals highlights a limit on the ability of courts to interfere with arbitration. In this case, the trial court stayed the arbitration and ordered the relator to dismiss it because the parties did not have an agreement to arbitrate. But the Texas Arbitration Act only authorizes a court to stay arbitration, not to order that it be dismissed. The Court of Appeals therefore directed the trial court to vacate the dismissal order, but leaving the stay in place while the litigation apparently moves forward in the trial court.

In re Seven Hills Commercial, LLC, No. 05-13-01340-CV

The parties entered an operating agreement, which contained a forum selection clause that required them to submit to jurisdiction in Oregon. CKH initiated litigation related to the operating agreement in Texas. The trial court granted appellees motion to dismiss on venue finding that CHK agreed to venue in Oregon, and CKH appealed.

The Court of Appeals affirmed for three reasons. First, the Court found that appellees did not waive the court’s jurisdiction to rule on its motion to dismiss based on a forum selection clause simply because the trial court denied their special appearance. Second, the Court held that whether CKH’s claims are subject to arbitration is irrelevant to the forum selection clause. The operating agreement requires parties to submit to jurisdiction in Oregon “provided such claim is not required to be arbitrated.” CKH initiated a lawsuit rather than filing arbitration; the Court found such “action” to be controlled by the forum selection clause. Further, the parties agreed to arbitration in Oregon, which makes it clear that the parties envisioned all claims–whether brought before a court or an arbitration panel–be filed in Oregon. Third, the Court held that a non-signatory was entitled to rely on and enforce the forum selection clause because the claims against the non-signatory are substantially interdependent on the claims against the signatory.

CKH Family LP v. MGD-CCP Acquisition

The Court of Appeals has affirmed the district court’s order denying two motions to compel arbitration. The plaintiffs had sued for breach of fiduciary duty, fraud, and negligent misrepresentation, arising out of a bad investment promoted by the defendants. The brokerage account documents signed by the plaintiffs contained an arbitration clause, but that clause only required arbitration of claims against “Introducing Firm, Clearing Agent, and any Sub-Advisor” — terms that were not defined in the agreement. While it may have been reasonable to conclude that the arbitration clause was intended to cover claims against the defendants, there was no abuse of discretion by the trial court in failing to find that they were within the scope of the arbitration clause. The Court of Appeals also rejected the defendants’ attempt to invoke “direct benefits estoppel,” a doctrine that allows non-signatory defendants to compel arbitration “if the nature of the underlying claims requires the signatory to rely on the terms of the written agreement containing the arbitration provision in asserting its claims against the non-signatory.” That doctrine did not apply here because the plaintiffs were not seeking any direct benefit under the contracts that contained the arbitration provisions. The order denying arbitration was therefore affirmed.

VSR Financial Services, Inc. v. McLendon, No. 05-12-01016

In April 2009, American Home’s insured allegedly fell asleep while the stove was still on in her apartment, leading to a fire that damaged her unit and that of her neighbor, who was insured through Allstate. Allstate paid its insured’s claim for $18,000 in damages, then sought subrogation from American Home. However, American Home’s policy limit was $100,000, and the claim languished while American Home sought to determine the complete extent of the damage caused by the fire. After a year of waiting, Allstate filed for arbitration with Arbitration Forums, Inc. Both Allstate and American Home are signatories to AFI’s arbitration agreement, which requires parties to arbitrate subrogation claims “not in excess of $100,000.” The AFI arbitrator promptly ruled in favor of Allstate. American Home filed a post-hearing appeal as permitted by the AFI rules, arguing that arbitration was not compulsory because the overall damages from the fire were in excess of $600,000. The AFI arbitrator agreed and voided the prior award.

In the meantime, however, Allstate had filed an application to confirm the initial arbitration award. After the arbitrator voided that award, American Home moved to dismiss the court case. The county court at law apparently agreed with Allstate’s argument that the order declaring the initial award to be void was itself invalid because American Home had allegedly misrepresented its policy limits in order to obtain that order. It entered a final judgment confirming the initial award in favor of Allstate, and American Home appealed, arguing that the trial court lacked jurisdiction to enter judgment on a voided arbitration award. The court of appeals agreed, noting that “Necessarily embedded in the trial court’s ability to confirm an award is the presence of an award itself.” The court of appeals also rejected Allstate’s attempt to argue that the arbitrator’s decision to void the initial award was invalid, ruling that the documents relied upon for that argument did not constitute any evidence of misrepresentations being made by American Home. The case was therefore reversed and remanded with instructions to dismiss for lack of jurisdiction.

American Modern Home Ins. Co. v. Allstate Ins. Co., No. 05-11-00997-CV

Cambridge and Jain entered into an option program agreement. Cambridge later determined the investment programs managed by Jain were not economically feasible and told Jain it intended to terminate them. Jain demanded Cambridge pay certain fees allegedly due him, Cambridge refused, and Jain filed suit for breach of contract. The matter was arbitrated before a Financial Industry Regulatory Authority (FINRA) panel of arbitrators. The panel entered an award in favor of Jain, which the trial court confirmed. Cambridge appealed the judicial confirmation of the award. The court of appeals rejected Jain’s argument that Cambridge waived judicial review of the arbitration award by agreeing to arbitrate pursuant to FINRA rules. However, the court of appeals affirmed the trial court’s judgment because it found that the arbitrators did not exceed their powers by relying on impermissible matters outside the broad scope of the arbitration agreement.

Cambridge Legacy Group v. Jain, No. 05-12-00991-CV

Nationsbuilders Insurances Services sued two of its former employees and their new employer, Houston International Insurance Group, for violating the employees’ covenants not to compete. The case was resolved with a settlement agreement in which the defendants agreed they would not compete with Nationsbuilders for one year by “soliciting, selling, quoting, binding, rating, or producing” certain specialized types of insurance. They also agreed they would not own or be employed by any entity that “conducts or plans to conduct” a competing business. The defendants did not quote or sell any such insurance during the restricted period, but they actively planned to do so by sending out marketing materials, preparing regulator filings, drafting forms, negotiating with re-insurers, and developing agent and customer lists. Nationsbuilders filed a demand for arbitration under the settlement agreement, and the arbitrator ruled that the defendants’ conduct entitled Nationsbuilders to a one-year equitable extension of the noncompete period. The defendants filed suit to vacate the arbitration ruling, and the trial court ruled that the arbitrator had “exceeded his powers” or “so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.”

The court of appeals reversed. Indulging all reasonable presumptions in favor or the arbitration award, and granting great deference to the arbitrator’s decision, the court determined that the equitable extension of the noncompete period was within the arbitrator’s “broad discretion in fashioning an appropriate remedy.” The settlement agreement had required the defendants to refrain from either conducting or planning a competing business for one year, and their actions had deprived Nationsbuilders of that bargained-for entitlement. Extending the noncompete for another year was rationally based on that contractual provision. The court of appeals also rejected the defendants’ claim that the arbitrator’s decision was moot. The court distinguished cases holding that requests for specific performance become moot after the expiration of the restricted period, noting that the remedy in this case was for an extension of the restricted period, not just its enforcement. Finally, the court of appeals rejected the defendants’ argument that the arbitration award was too badly drafted to enable them to understand how they were to comply with it. The line drawn by the arbitrator between “passive contemplation” of competition (which would not be material) and “head start” planning (which would violate the agreement) was clear enough that the defendants could reasonably understand what they were and were not permitted to do during the extended restricted period.

Surprisingly, the court of appeals relegated one obvious issue to a footnote at the end of the opinion. The extended restricted period had expired during the course of the appeal. Although the expiration of the noncompete may have rendered the appeal moot or the opinion advisory, the parties did not address how the expiration affected the case, and the court of appeals chose not to address the matter itself. That may be an issue for the trial court, as the court of appeals remanded the case for consideration of additional grounds for vacating the arbitration award that had not been ruled upon previously.

Nationsbuilders Ins. Servs., Inc. v. Houston Int’l Ins. Group, Ltd., No 05-12-01103-CV

Suzann Ruff asked the probate court to stay arbitration of her dispute with Michael Ruff and Frost Bank. The probate court agreed and issued an order staying the arbitration, denying Michael’s motion to stay the judicial proceedings, and stating that the court would conduct a hearing to determine whether to grant of deny Michael and the bank’s motions to compel arbitration. Michael and the bank filed a notice of interlocutory appeal, and Suzann moved to dismiss. The court of appeals agreed with Suzann. An interlocutory order staying arbitration is appealable under CPRC § 171.098, and an order denying the stay of judicial proceedings in favor of arbitration is appealable under CPRC § 51.016 and 9 U.S.C. 171.098(a)(2), but those statutes first require a final decision as to whether the case is subject to arbitration. No such decision had been made in this case, because the court’s order also stated that it would proceed to a hearing on the merits of the motions to compel arbitration. Since the probate court had not determined whether the dispute was subject to arbitration, the court of appeals had no jurisdiction to hear the attempted appeal.

Ruff v. Ruff, No. 05-13-00317-CV

In July 2011, the Dallas Court of Appeals ruled — in a rare en banc opinion — that an arbitration clause contained in a testamentary trust could not be enforced because there was no contract with the trust’s beneficiary to arbitrate his claims. Rachal v. Reitz, 347 S.W.3d 305 (Tex App.-Dallas 2011). This morning, the Texas Supreme Court reversed that decision, holding that the beneficiary was bound to arbitrate his claims against the trustee due to the doctrine of direct benefits estoppel. In brief, that doctrine means that if the plaintiff accepts the benefits of the trust, he also has to accept the arbitration clause contained in the trust. In reaching that decision, the Supreme Court noted that the Texas Arbitration Act requires an “agreement” to enforce arbitration, not a “contract” with the claimant. Such an agreement could be satisfied through direct benefits estoppel, as the beneficiary failed to disclaim his interest in the trust, thereby accepting both its benefits and its burdens.

Rachal v. Reitz, No. 11-0708

Phytel, Inc. brought an interlocutory appeal after the district court denied its motion to compel arbitration of its former CEO’s claim that his noncompete agreement was unenforceable. The arbitration clause was contained in the CEO’s termination agreement, which also reaffirmed the noncompete provision in his original employment agreement. However, a subsequent agreement for the repurchase of the CEO’s stock did not contain a separate arbitration clause, although it reaffirmed the terms and conditions of the earlier termination agreement and modified the noncompete provision. The court of appeals concluded that the reincorporation of the prior contact necessarily encompassed the dispute resolution provisions of that agreement, and further held that the arbitration requirement applied to the validity of the noncompete because its subject matter related to all three of the parties’ agreements. The court rejected the CEO’s contention that a merger clause in the third contract worked to exclude the arbitration provision of the second contract because the incorporation of the second agreement by reference resulted in it becoming an inherent part of the subsequent document. Finally, the court of appeals also rejected the claim that Phytel had waived its right to invoke arbitration, holding that waiting two months after the lawsuit was filed and exchanging one set of discovery and initial disclosures did not substantially invoke the judicial process to the prejudice of the CEO. The court of appeals therefore reversed and rendered the trial court’s denial of the motion to compel arbitration.

Phytel, Inc. v. Snyder, No. 05-12-00607-CV

In this appeal of a trial court’s confirmation of an arbitration award, the Court of Appeals rejected the argument that the trial court should not have confirmed the award because the arbitrators did not permit appellant to obtain the discovery necessary for him to adequately assert his rights.  In so holding, the Court found that the appellant failed to provide the trial court with a complete record of the arbitration proceedings and thus could not establish that the discovery he sought was, in fact, relevant to his claim.

Goldman v Buchanan

In this Memorandum Opinion, the Court of Appeals addressed who has the authority to determine whether arbitration should be compelled: a court or an arbitrator.  The Court noted that, while, as a general matter, the courts decide whether the parties have agreed to arbitrate an particular issue, “the parties may agree to submit the substantive issue of arbitrability to arbitration.”  In this case, the relevant arbitration provision included the following clause: “Whether such Dispute will be subject to arbitration will likewise be determined in such arbitration as will the determination as to whether all procedural conditions precedent to arbitration have been satisfied.”  According to the Court, this provision presents “clear an unmistakable evidence of the parties’ intent to delegate arbitrability to the arbitrator.”  The Court, however, expressed no opinion on whether the plaintiffs’ claims actually should be submitted to arbitration because that, of course, was an issue for the arbitrator to decide.

Continuum Health Services, LLC v. Sheila Cross, No. 05-11-01520-CV

Being on the wrong end of a $125 million arbitration award might cause anyone to investigate whether any of the arbitrators had any evident partiality in favor of the other side.  Unfortunately for the sellers of an electric power plant in Cleburne, the proper time for that investigation was when the arbitrator made his allegedly inadequate disclosures, not after the panel had already announced its award.

The buyer of the power plant, Ponderosa Pine Energy, invoked arbitration in order to resolve a dispute over the sellers’ alleged breaches of representations and warranties in the purchase agreement.  As the pick for its party-appointed (but neutral) arbitrator, Ponderosa selected a Washington , D.C. attorney named Samuel Stern.  Stern subsequently disclosed that he had been appointed as an arbitrator on several other occasions by Ponderosa’s law firm, Nixon Peabody.  Stern also disclosed that he sat on the advisory board of a company that had pitched its legal outsourcing services to Nixon Peabody.  But Stern only listed those contacts as being with the law firm of Nixon Peabody — he did not disclose that they were all with the two attorneys who were representing Ponderosa in the arbitration.  The sellers subsequently demanded to know whether Stern had ties to any of the financial institutions that owned Ponderosa, but failed to follow up on any of the items Stern had actually disclosed.

The arbitration panel — chaired by former Dallas Court of Appeals and Texas Supreme Court Justice James Baker — eventually split 2-1 in favor of Ponderosa’s demand for $125 million.  Ponderosa filed suit to confirm the award, while the sellers moved to have it set aside.  After post-arbitration discovery, the trial court ruled that Stern showed “evident partiality” by failing to disclose (1) the identities of the Nixon Peabody attorneys he had dealt with, (2) the full extent of his role with the legal outsourcing firm, and (3) that the claimant in one of the arbitration cases on which he had been selected by Nixon Peabody was owned by Ponderosa’s original owner.  The court of appeals reversed, holding that the sellers had waived those challenges.  While Stern’s disclosures had not identified all of the facts that the sellers might have wanted to know about those matters, there was enough information to put them on notice that the relationships and dealings existed.  By electing not to investigate the details and to wait until after the arbitration award had already been issued, the sellers waived their ability to challenge Stern’s impartiality at all.   As a result, the court of appeals reinstated Ponderosa’s arbitration award.

Ponderosa Pine Energy, LLC v. Tenaska Energy, Inc., No. 05-10-00516-CV

The court of appeals has issued a memorandum opinion reinstating an arbitration award.  The case turned on the application of a “dollar-for-dollar credit” provided for in the parties’ written agreement.  The arbitration panel concluded that the credit only applied to certain cases brought by the defendant’s law firm, resulting in an award of $551,000 in damages on the defendant’s counterclaim.  After the plaintiff/counter-defendant filed suit to challenge the arbitration award, the trial court apparently accepted a different interpretation of the contract and lowered the amount of the award.  The court of appeals reversed and reinstated the arbitration award, holding that there was no “evident material miscalculation of figures” and that the award was supported by the parties’ evidence.

Petroff v. Shrager, Spivey & Sachs, No. 05-10-00159.