                                                                                            ACCEPTED
                                                                                       04-14-00829-cv
                                                                                      04-14-00829-CV
                                                                           FOURTH COURT OF APPEALS
                                                                                SAN ANTONIO, TEXAS
                                                                                12/24/2014
                                                                                12/31/2014 9:16:08
                                                                                            4:25:35 AM
                                                                                                    PM
                                                                                        KEITH HOTTLE
                                                                                                CLERK


                                             ORAL ARGUMENT REQUESTED
                                                                      FILED IN
                              No. 04-14-00829-CV               4th COURT OF APPEALS
                                                                SAN ANTONIO, TEXAS
                                                               12/31/2014 4:25:35 PM
                     IN THE COURT OF APPEALS                       KEITH E. HOTTLE
                                                                        Clerk
            FOR THE FOURTH JUDICIAL DISTRICT OF TEXAS
                          AT SAN ANTONIO


                      Western Rim Property Services, Inc.,
                                                          Appellant,

                                       v.

                              Paula Bazan-Garcia,
                                                          Appellee.



    ON APPEAL FROM THE COUNTY COURT AT LAW NO. CC# 03 OF
         BEXAR COUNTY, TEXAS, CAUSE NO. 2014CV01064


                      APPELLANT’S OPENING BRIEF


BAKER BOTTS L.L.P.                          BAKER BOTTS L.L.P.
Jennifer M. Trulock                         Stephanie F. Cagniart
State Bar No. 90001515                      State Bar No. 24079786
jennifer.trulock@bakerbotts.com             stephanie.cagniart@bakerbotts.com
2001 Ross Avenue, Suite 600                 98 San Jacinto Boulevard, Suite 1500
Dallas, Texas 75201-2980                    Austin, Texas 78701-4078
(214) 953-6500                              (512) 322-2500
(214) 953-6503 (Facsimile)                  (512) 322-2501 (Facsimile)


           Attorneys for Appellant Western Rim Property Services, Inc.
                        Identity of Parties and Counsel


Appellant                Western Rim Property Services

Counsel for Appellant    BAKER BOTTS L.L.P.
                         Jennifer M. Trulock
                         State Bar No. 90001515
                         2001 Ross Avenue
                         Suite 600
                         Dallas, Texas 75201

                         Stephanie F. Cagniart
                         State Bar No. 24079786
                         98 San Jacinto Blvd
                         Suite 1500
                         Austin, Texas 78701

Appellee                 Paula Bazan-Garcia

Counsel for Appellee     The Espinoza Law Firm, PLLC
                         Javier Espinoza
                         State Bar No. 24036534
                         Josue Garza
                         State Bar No. 24072737
                         503 E. Ramsay
                         Suite 103
                         San Antonio, Texas 78216




                                       i
                                                Table of Contents

                                                                                                                      Page
Identity of Parties and Counsel .................................................................................. i

Table of Authorities ................................................................................................. iv

Statement of the Case.............................................................................................. vii

Issue Presented ....................................................................................................... viii

Statement of Facts ......................................................................................................1
         I.        Bazan-Garcia agreed to arbitrate her disputes with WRPS. ................. 1
         II.       Despite the parties’ agreement to arbitrate their disputes,
                   Bazan-Garcia files a lawsuit against WRPS in state court.................... 3
Standard of Review ....................................................................................................4

Summary of the Argument.........................................................................................6

Argument....................................................................................................................7
         I.        The trial court erred in refusing to compel arbitration because
                   Bazan-Garcia agreed to arbitrate her disputes with WRPS. ................. 7
                   A.       WRPS proved that Bazan-Garcia agreed to arbitrate her
                            disputes with WRPS. .................................................................. 8
                   B.       WRPS proved that Bazan-Garcia’s claims fall within the
                            scope of her agreement to arbitrate. .......................................... 10

         II.       The trial court abused its discretion by denying WRPS’s motion
                   to compel arbitration on the grounds that the parties’ agreement
                   was unconscionable, because that defense is itself subject to
                   arbitration. ........................................................................................... 12

                   A.       The parties’ arbitration agreement clearly and
                            unmistakably delegated issues of arbitrability to the
                            arbitrator. ................................................................................... 13




                                                             ii
                  B.       Bazan-Garcia is bound to arbitrate her unconscionability
                           defense because she failed to prove that the delegation
                           clause was invalid. .................................................................... 17

         III.     In the alternative, the trial court erred in denying WRPS’s
                  motion to compel arbitration because Bazan-Garcia did not
                  prove that the parties’ arbitration agreement is unconscionable. ........ 20

                  A.       Legal Standard .......................................................................... 20

                  B.       Bazan-Garcia failed to prove that arbitration under the
                           parties’ agreement would be more expensive than
                           litigation, and effectively prevent her from vindicating
                           her statutory rights. ................................................................... 22
                           1.        Bazan-Garcia failed to prove that arbitrating her
                                     claims is likely to cost upwards of $20,000. .................. 23

                           2.        Under the parties’ agreement, WRPS will bear
                                     almost all of the costs of arbitration. .............................. 26

                  C.       An    arbitration  agreement             cannot           be        found
                           unconscionable based on provisions that the arbitrator is
                           empowered to modify. .............................................................. 28
         IV.      If any provision of the arbitration agreement is unconscionable,
                  this Court should sever it and enforce the remainder of the
                  agreement. ........................................................................................... 32
Conclusion and Prayer for Relief.............................................................................33

Certificate of Compliance ........................................................................................35

Certificate of Service ...............................................................................................35

Index to Appendix ....................................................................................................36




                                                           iii
                                               Table of Authorities

                                                                                                                    Page(s)
CASES
Aspen Tech., Inc. v. Shasha,
   253 S.W.3d 857 (Tex. App.—Houston [14th Dist.] 2008, no pet.) .............23, 24

Burlington Res. Oil & Gas Co. LP v. San Juan Basin Royalty Trust,
  249 S.W.3d 34 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) ................. 16
Cantella & Co., Inc. v. Goodwin,
  924 S.W.2d 943 (Tex. 1996) .......................................................................... 5, 10
Contec Corp. v. Remote Solution, Co., Ltd.,
  398 F.3d 205 (2d Cir. 2005) ............................................................................... 15
D.R. Horton-Tex., Ltd. v. Dragseth,
   02-12-000435, 2013 WL 3377121 (Tex. App.—Fort Worth July 3, 2013,
   no pet.) .................................................................................................................. 5
Ernst & Young LLP v. Martin,
   278 S.W.3d 497 (Tex. App.—Houston [14th Dist.] 2009, no pet.) .............13, 17
Forest Oil Corp. v. McAllen,
  268 S.W.3d 51 (Tex. 2008).............................................................6, 8, 12, 13, 20
Garcia v. Huerta,
  340 S.W.3d 864 (Tex. App.—San Antonio 2011, pet. denied)............................ 5
Gilmer v. Interstate/Johnson Lane Corp.,
   500 U.S. 20 (1991) .............................................................................................. 28

Green Tree Fin. Corp.-Ala. v. Randolph,
  531 U.S. 79 (2000) ..................................................................................22, 23, 24
Haddock v. Quinn,
  287 S.W.3d 158 (Tex. App.—Fort Worth 2009, pet. denied) ............................ 16
Hoover Slovacek LLP v. Walton,
  206 S.W.3d 557 (Tex. 2006) .............................................................................. 20




                                                              iv
Howsam v. Dean Witter Reynolds, Inc.,
  537 U.S. 79 (2002) .............................................................................................. 13
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz,
  387 S.W.3d 799 (Tex. App.—El Paso 2012, no pet.) ........................................ 19

In re Dallas Peterbilt, L.L.P.,
    196 S.W.3d 161 (Tex. 2006) .............................................................................. 10

In re FirstMerit Bank, N.A.,
    52 S.W.3d 749 (Tex. 2001).................................................................8, 23, 29, 31

In re Halliburton Co.,
    80 S.W.3d 566 (Tex. 2002)............................................................................. 8, 10

In re J.D. Edwards World Solutions Co.,
    87 S.W.3d 546 (Tex. 2002)............................................................................... 5, 8
In re Olshan Found. Repair Co., LLC,
    328 S.W.3d 883 (Tex. 2010) ..................................... 6, 20, 21, 22, 23, 25, 27, 28
In re Palm Harbor Homes, Inc.,
    195 S.W.3d 672 (Tex. 2006) ................................................................................ 9
In re Poly-America, L.P.,
    262 S.W.3d 337 (Tex. 2008) ......................... 5, 20, 21, 22, 28, 29, 30, 31, 32, 33
In re Rubiola,
    334 S.W.3d 220 (Tex. 2011) .............................................................................. 10
In re Weekley Homes, L.P.,
    180 S.W.3d 127 (Tex. 2005) .............................................................................. 13
J.M. Davidson, Inc. v. Webster,
   128 S.W.3d 223 (Tex. 2003) ................................................................................ 4
Jack B. Anglin Co., Inc. v. Tipps,
   842 S.W.2d 266 (Tex. 1992) .......................................................................... 8, 27

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
   473 U.S. 614 (1985) ............................................................................................ 21




                                                          v
Palm Harbor Homes, Inc. v. McCoy,
   944 S.W.2d 716 (Tex. App.—Fort Worth 1997, no writ) .................................... 5
Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co.,
   687 F.3d 671 (5th Cir. 2012) .............................................................................. 15

Prudential Sec. Inc. v. Marshall,
   909 S.W.2d 896 (Tex. 1995) .............................................................................. 10

Rent-A-Center, West v. Jackson,
  561 U.S. 63 (2010) ......................................................................13, 17, 18, 19, 20

Saxa Inc. v. DFD Architecture Inc.,
   312 S.W.3d 224 (Tex. App.—Dallas 2010, pet. denied)..............................14, 15

Ski River Dev., Inc. v. McCalla,
   167 S.W.3d 121 (Tex. App.—Waco 2005, pet. denied) .................................... 31
Venture Cotton Co-op v. Freeman,
  435 S.W.3d 222 (Tex. 2014) ............................................................21, 22, 32, 33

STATUTES
9 U.S.C. § 2 .............................................................................................................. 13
Tex. Civ. Prac. & Rem. Code § 171.001 ................................................................... 8

Tex. Civ. Prac. & Rem. Code § 171.001(b)......................................................... 5, 13
Tex. Civ. Prac. & Rem. Code § 171.002(a)(4) ........................................................ 16

Tex. Civ. Prac. & Rem. Code § 171.021(c) ......................................................... 5, 12

Tex. Civ. Prac. & Rem. Code § 171.025(a) ............................................................... 8

OTHER AUTHORITIES
AAA Employment Rules ..................................................................................passim
Restatement (Second) of Contracts § 208 (1981) .................................................... 32

Tex. R. App. P. 9.4 ................................................................................................... 35




                                                             vi
                                 Statement of the case
             This is an accelerated interlocutory appeal from denial of a motion to

compel arbitration. Plaintiff-Appellee Paula Bazan-Garcia (“Bazan-Garcia”), who

worked as an at-will employee for Defendant-Appellant Western Rim Property

Services (“WRPS”), agreed in and after her initial employment agreement that any

dispute between her and WRPS would be resolved by binding arbitration. Bazan-

Garcia also agreed that any dispute over the validity and enforceability of the

parties’ arbitration agreement would be decided by the arbitrator, not by the court.

Despite these promises, Bazan-Garcia sued WRPS on various claims arising from

her employment and termination, see CR 9–13, all of which fall within the scope

of the parties’ arbitration agreement, see App. 3–13.1

             After Bazan-Garcia refused to submit her claims to arbitration in

accordance with the agreement, WRPS moved to compel arbitration in the trial

court. CR 16–70. The trial court denied WRPS’s motion on November 17, 2014.

App. 1.    WRPS timely filed its notice of accelerated interlocutory appeal on

November 24, 2014. CR 156–57. On December 3, 2014, this Court granted

WRPS’s Emergency Motion to Stay Proceedings in the trial court pending

resolution of this appeal.



1
       The Clerk’s Record is referred to herein as “CR,” the Supplemental Clerk’s Record as
“Supp. CR,” the Reporter’s Record as “RR,” and the Appendix as “App.”


                                            vii
                                 Issue Presented
            Did the trial court err by denying WRPS’s motion to compel

arbitration, where it was undisputed that Bazan-Garcia agreed to arbitrate her

disputes with WRPS, where Bazan-Garcia’s only challenge to the arbitration

agreement was based on an unconscionability defense that the parties also agreed

would be decided by the arbitrator rather than the court, and where Bazan-Garcia

failed to prove that she would not be able to vindicate her statutory rights in the

forum of arbitration?




                                        viii
                                 Statement of Facts

I.    Bazan-Garcia agreed to arbitrate her disputes with WRPS.
              Paula Bazan-Garcia was employed as a housekeeper by WRPS from

September 26, 2011 until October 22, 2013. CR 32. Both upon hire and during

her employment with WRPS, Bazan-Garcia signed and assented to several written

agreements.     See CR 32–33.        Among these agreements were an Employee

Acknowledgement Form (“Acknowledgement”) and an Arbitration Agreement

(“Arbitration Agreement”), both of which contained mandatory and binding

arbitration provisions. App. 3, 4.

              The Acknowledgement stated that Bazan-Garcia had received a copy

of WRPS’s Employee Handbook, and that she understood that “it [was her]

responsibility to read and comply with the policies contained in this handbook and

any revisions made to it.” App. 4. The Employee Handbook included a section

entitled “Problem Resolution.” App. 12. It had an arbitration provision stating:

              Problems, disputes, or claims not resolved through
              [voluntary internal dispute] resolution steps are subject to
              final and binding arbitration. The arbitration proceeding
              will be conducted under the Employment Dispute
              Resolution Rules of the American Arbitration
              Association [(the “AAA Rules”)].

App. 13. This same provision was included in every version of the Employee

Handbook in place during Bazan-Garcia’s employment. See CR 33, 53, 63, 70.

Bazan-Garcia signed the Acknowledgement on September 20, 2011. App. 4.


                                           1
            Bazan-Garcia signed the Arbitration Agreement on September 27,

2011. App. 3. The agreement was clearly entitled “Arbitration Agreement,” and

also stated that disputes between Bazan-Garcia and WRPS would be decided by

binding arbitration under the AAA Rules:

            [O]ther than a worker’s compensation claim covered by
            insurance, no dispute between [WRPS] and the
            undersigned which is in any way related to the
            employment of the undersigned, including but not limited
            to a claim for wrongful termination, discrimination
            and/or harassment, and worker’s compensation not
            covered by insurance, shall be the subject of a lawsuit
            filed in any state or federal court. Instead, any such
            dispute shall be submitted to arbitration in accordance
            with the rules of the American Arbitration Association
            (“AAA”).
Id. Under the AAA Rules, “[t]he arbitrator shall have the power to rule on his or

her own jurisdiction, including any objections with respect to the existence, scope

or validity of the arbitration agreement.”    AAA Rule 6(a) (App. 30).2        The

Arbitration Agreement also specified that “[e]ach party to arbitration shall be

entitled to take only one deposition,” and that “[a]ny arbitration relating to any

dispute covered by this Agreement shall be arbitrated in Dallas County, Texas.”

App. 3.




2
        AAA Employment Rules are available online at
https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004362.


                                        2
            On October 22, 2013, WRPS terminated Bazan-Garcia’s employment.

CR 32.     Because Bazan-Garcia’s employment was “at-will,” WRPS could

terminate it “at any time without a cause or reason.” CR 35.

II.   Despite the parties’ agreement to arbitrate their disputes, Bazan-Garcia
      files a lawsuit against WRPS in state court.
            More than eight months after her termination, on July 1, 2014, Bazan-

Garcia initiated this lawsuit in Bexar County Court at Law. CR 9. In her Original

Petition, Bazan-Garcia alleged that WRPS’s stated reasons for terminating her

employment were pretextual. CR 11. The real reason for her discharge, she

claimed, was that she had sustained and notified WRPS of an “on-the-job injury

and/or initiated the filing of a workers’ compensation claim.” CR 11. WRPS

answered with a general denial on September 12, 2014. CR 14–15. Bazan-Garcia

then served her initial discovery requests on WRPS, including 72 requests for

production, 23 interrogatories, and 13 requests for admission. Supp. CR 10–35.

            Shortly after receiving Bazan-Garcia’s discovery requests, WRPS sent

a copy of Bazan-Garcia’s signed arbitration agreement to Bazan-Garcia’s counsel

and demanded that Bazan-Garcia submit her claims to arbitration in accordance

with her agreement. CR 30. Bazan-Garcia refused, and WRPS filed a Motion to

Compel Arbitration on October 16, 2014. CR 16. WRPS also filed a Motion for

Protective Order from Discovery, asking the trial court for relief from the

obligation to respond to Bazan-Garcia’s burdensome discovery requests until the


                                        3
court decided whether arbitration was required. Supp. CR 4–8. In her response

brief and supporting affidavits, Bazan-Garcia did not dispute that she had agreed to

arbitrate her disputes with WRPS.          Instead, she claimed that the arbitration

agreement was unconscionable and therefore unenforceable. CR 72–97.

             The trial court held a hearing on WRPS’s motion to compel

arbitration and motion for a protective order, found the arbitration agreement was

unconscionable, see RR 18, and denied WRPS’s motions on November 17, 2014

on that ground, see App. 1. On November 19, 2014, Bazan-Garcia filed her First

Amended Petition, alleging for the first time that WRPS interfered with Bazan-

Garcia’s attempts to exercise her rights under the Family Medical Leave Act

(“FMLA”), and/or terminated her employment in retaliation for invoking those

rights. CR 150.

             WRPS timely filed this accelerated interlocutory appeal on November

24, 2014. CR 156–57. On December 3, 2014, this Court stayed all proceedings

pending in the trial court “until further order of this court.”

                                 Standard of Review
             Arbitration agreements are contracts and “interpreted under traditional

contract principles.” J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.

2003). “[O]n appeals of orders denying arbitration under the Texas Arbitration Act

(“TAA”), [the court] appl[ies] a no-evidence standard to the trial court’s factual



                                            4
determinations and a de novo standard to legal determinations.” Garcia v. Huerta,

340 S.W.3d 864, 868 (Tex. App.—San Antonio 2011, pet. denied). Because “a

presumption exists in favor of agreements to arbitrate . . . [c]ourts must resolve any

doubts about an agreement to arbitrate in favor of arbitration.” Cantella & Co.,

Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (internal citations omitted).

             If a claim is subject to an arbitration agreement, then “the trial court

has no discretion but to compel arbitration and stay its own proceedings” until

arbitration is complete. In re J.D. Edwards World Solutions Co., 87 S.W.3d 546,

549 (Tex. 2002); see also Tex. Civ. Prac. & Rem. Code § 171.021(c) (App. 67).

The party opposing arbitration has the heavy burden of proving that “grounds exist

at law or equity for [the arbitration agreement’s] revocation . . . such as fraud or

unconscionability.” Palm Harbor Homes, Inc. v. McCoy, 944 S.W.2d 716, 721

(Tex. App.—Fort Worth 1997, no writ); see also Tex. Civ. Prac. & Rem. Code §

171.001(b) (App. 66). “Because a trial court has no discretion to determine what

the law is or to apply the law incorrectly, its clear failure to properly analyze or

apply the law of unconscionability constitutes an abuse of discretion.”          D.R.

Horton-Tex., Ltd. v. Dragseth, 02-12-000435, 2013 WL 3377121, at *3 (Tex.

App.—Fort Worth July 3, 2013, no pet.) (citing In re Poly-America, L.P., 262

S.W.3d 337, 348 (Tex. 2008)).




                                          5
              Generally, the trial court is empowered to decide challenges to the

validity of an arbitration agreement. Forest Oil Corp. v. McAllen, 268 S.W.3d 51,

61 (Tex. 2008).       However, if the parties’ arbitration agreement clearly and

unmistakably delegates questions regarding the agreement’s validity and

enforceability to the arbitrator, the court must enforce that provision. Id. If the

trial court refuses to do so, the court of appeals has “no discretion but to direct the

trial court to compel arbitration [of that issue] and stay [the] litigation.” Id.

                              Summary of the Argument
              Arbitration agreements are favored by Texas public policy and must

be enforced by the courts. In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883,

892 (Tex. 2010). The evidence is uncontroverted that Bazan-Garcia agreed to

arbitrate her disputes with WRPS. In addition, the parties expressly agreed that the

arbitrator rather than the court would decide any question regarding the validity of

their arbitration agreement—including the unconscionability defense that Bazan-

Garcia raised before the trial court. Under these circumstances, the trial court had

no discretion but to grant WRPS’s motion to compel arbitration and stay the

litigation. Its failure to do so here is clear error.

              Additionally, even if Bazan-Garcia’s unconscionability defense to

arbitration could have been considered by the trial court, it was without merit.

Bazan-Garcia claimed that under the parties’ agreement, arbitration would be



                                             6
prohibitively costly and prevent her from vindicating her statutory rights.         In

making her case, Bazan-Garcia entirely disregarded provisions of the contract that

contradicted her interpretation, as well as the fact that the arbitrator can modify the

complained-of provisions. Her arguments have already been rejected in similar

cases by the Texas Supreme Court and Texas courts of appeals, and should have

been rejected by the trial court. Finally, even if this Court concludes that it has the

authority to consider Bazan-Garcia’s defense and finds that one or more of the

agreement’s provisions is unconscionable, it is required to sever that provision so

that the remainder of the arbitration agreement can be enforced.

             Because WRPS met its burden of proving that the parties agreed to

arbitrate this dispute, and because Bazan-Garcia failed to prove any valid defense

to arbitration, this Court must reverse the judgment of the trial court and order it to

compel arbitration of Bazan-Garcia’s claims.

                                     Argument

I.    The trial court erred in refusing to compel arbitration because Bazan-
      Garcia agreed to arbitrate her disputes with WRPS.
             WRPS presented uncontroverted evidence to the trial court that (1)

Bazan-Garcia agreed to arbitrate her disputes with WRPS, and (2) all of Bazan-

Garcia’s claims fell within the scope of this agreement. See infra at 7–12. Bazan-

Garcia did not contest any of this evidence, or deny that she signed and assented to

the written arbitration agreements. Under the TAA, the trial court therefore had no


                                          7
discretion to refuse to compel arbitration in this case. See J.D. Edwards World

Solutions, 87 S.W.3d at 549; Tex. Civ. Prac. & Rem. Code § 171.001 (App. 66).

Its refusal to do so denied WRPS the benefit of its bargain, and was error as a

matter of law. See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex.

1992).

      A.     WRPS proved that Bazan-Garcia agreed to arbitrate her disputes
             with WRPS.
             Texas and federal policy strongly favor arbitration agreements. Tipps,

842 S.W.2d at 268. Under the TAA, if the party seeking to compel arbitration

shows that the parties entered into a written and valid arbitration agreement and

that their dispute falls within the scope of the agreement, “the ‘[trial] court has no

discretion but to compel arbitration and stay its own proceedings.’” Forest Oil,

268 S.W.3d at 56 n.14 (quoting In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753–

54 (Tex. 2001)); Tex. Civ. Prac. & Rem. Code § 171.025(a) (App. 68) (“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.”). This

rule extends to arbitration provisions that are incorporated by reference into the

agreement. See In re Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2002).

             It is undisputed that Bazan-Garcia agreed to the written arbitration

provisions contained in the Arbitration Agreement and incorporated by reference

in the Acknowledgement. Bazan-Garcia signed the Arbitration Agreement on


                                          8
September 27, 2011. App. 3. The contract was clearly entitled “Arbitration

Agreement,” and contained an express provision stating that, other than a worker’s

compensation claim covered by insurance, all disputes between WRPS and Bazan-

Garcia “shall be submitted to arbitration in accordance with the rules of the

American Arbitration Association.” Id.        By presenting a signed copy of the

Arbitration Agreement to the trial court, WRPS proved the existence of an

arbitration agreement between the parties. In re Palm Harbor Homes, Inc., 195

S.W.3d 672, 676 (Tex. 2006) (“Because the [defendant] presented a signed

arbitration agreement to the court . . . and the [plaintiffs] have presented no

evidence that they did not sign the agreement, we conclude that, as a matter of law,

the existence of an arbitration agreement among the parties was established.”).

             WRPS also presented a signed and uncontroverted copy of the

Acknowledgement to the trial court. See App. 4. The Acknowledgement was

signed by Bazan-Garcia on September 20, 2011, and represented that she had

received the Employee Handbook and “underst[oo]d that it [was her] responsibility

to read and comply with the policies contained in this handbook and any revisions

made to it.” Id. The Employee Handbook contained an arbitration provision

stating that any “[p]roblems, disputes, or claims not resolved through [voluntary

internal dispute] resolution steps are subject to final and binding arbitration.” App.

13.   By signing the Acknowledgement that incorporated by reference the



                                          9
Employee Handbook’s policies, Bazan-Garcia accepted the Handbook’s arbitration

provision. See In re Dallas Peterbilt, L.L.P., 196 S.W.3d 161, 163 (Tex. 2006)

(holding that an at-will employee who signed an acknowledgement form stating he

had “received and carefully read or been given the opportunity to read” a summary

of the employer’s arbitration policy had assented to arbitration); Halliburton, 80

S.W.3d at 569 (holding that an at-will employee who accepted an agreement that

incorporated an arbitration provision by reference had assented to arbitrate his

disputes with his employer).

      B.    WRPS proved that Bazan-Garcia’s claims fall within the scope of
            her agreement to arbitrate.
            WRPS also proved, and Bazan-Garcia did not dispute, that all of

Bazan-Garcia’s claims in this litigation fall within the scope of the arbitration

provisions contained in the Arbitration Agreement and Acknowledgement.

            “When deciding whether claims fall within an arbitration agreement,

courts employ a strong presumption in favor of arbitration.” In re Rubiola, 334

S.W.3d 220, 225 (Tex. 2011) (citing Cantella & Co, 924 S.W.2d at 944). “The

policy in favor of arbitration agreements is so compelling that a court should not

deny arbitration unless it can be said with positive assurance that an arbitration

clause is not susceptible of an interpretation which would cover the dispute at

issue. Id. (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.

1995)) (emphasis in original).


                                       10
             In her Original Petition, Bazan-Garcia alleged that she was wrongfully

discharged by WRPS after she notified WRPS of an “on-the-job injury and/or

initiated the filing of a workers’ compensation claim.” CR 11. In her Amended

Petition, filed after the trial court denied WRPS’s motion to compel arbitration,

Bazan-Garcia also alleged that WRPS prevented her from exercising her FMLA

rights and/or “terminated her [employment] in retaliation for invoking her FMLA

rights.” CR 150.

             The arbitration provision in the parties’ Arbitration Agreement clearly

encompasses these disputes. It states that “other than a worker’s compensation

claim covered by insurance, no dispute between [WRPS] and [Bazan-Garcia]

which is in any way related to the employment of [Bazan-Garcia], including but

not limited to a claim for wrongful termination . . . shall be the subject of a lawsuit

filed in any state or federal court.” App. 3. Both of Bazan-Garcia’s claims are

related to her employment and expressly allege she was wrongfully terminated,

and neither are a “worker’s compensation claim covered by insurance.” These

claims must therefore be submitted to arbitration under the express terms of the

Arbitration Agreement.

             Bazan-Garcia’s claims are also within the scope of the Employee

Handbook’s     arbitration   provision,   incorporated    by    reference   into   the

Acknowledgement.       Pursuant to that provision, Bazan-Garcia agreed that she



                                          11
would arbitrate any “[p]roblems, disputes, or claims not resolved through

[voluntary internal dispute] resolution steps.” App. 13. None of the claims alleged

by Bazan-Garcia in this litigation have been resolved through WRPS’s voluntary

internal dispute resolution process.

             WRPS met its burden before the trial court by proving that the parties

agreed to arbitrate their disputes, and that all of Bazan-Garcia’s claims are within

the scope of that agreement. Under the TAA, this Court must therefore reverse and

remand this case for the trial court to compel arbitration of Bazan-Garcia’s claims.

See Forest Oil, 268 S.W.3d at 56, 61; Tex. Civ. Prac. & Rem. Code § 171.021(c)

(App. 67).

II.   The trial court abused its discretion by denying WRPS’s motion to
      compel arbitration on the grounds that the parties’ agreement was
      unconscionable, because that defense is itself subject to arbitration.
             Bazan-Garcia raised a single challenge against arbitration: she argued

that the parties’ agreement is substantively unconscionable because it limits

discovery, requires both parties to pay some arbitration costs, and requires

arbitration to take place in Dallas County, Texas. CR 72. At the hearing the trial

court agreed with Bazan-Garcia, see RR 18, and subsequently denied WRPS’s

motion to compel arbitration on this ground, see App. 1.          But the parties’

arbitration agreement clearly and unmistakably empowered the arbitrator—not the

court—to decide any issues of arbitrability, including whether the arbitration



                                        12
agreement is unconscionable. The trial court was therefore required under the

TAA to compel arbitration of Bazan-Garcia’s unconscionability defense, and

abused its discretion by denying WRPS’s motion on this ground. See Ernst &

Young LLP v. Martin, 278 S.W.3d 497, 500 (Tex. App.—Houston [14th Dist.]

2009, no pet.) (“[A]n arbitration clause that reallocates traditional court functions

to the arbitrator is enforceable and cannot serve as a basis for denying a motion to

compel arbitration.”).

      A.     The parties’ arbitration agreement clearly and unmistakably
             delegated issues of arbitrability to the arbitrator.
             Under the TAA, like under the FAA, a party may revoke a written

arbitration agreement “only on a ground that exists at law or in equity for the

revocation of a contract,” such as fraud or unconscionability. Tex. Civ. Prac. &

Rem. Code § 171.001(b) (App. 66); see also Forest Oil, 268 S.W.3d at 56 n.12; 9

U.S.C. § 2 (FAA savings clause). The default rule is that the court decides such

“gateway questions of arbitrability.” Rent-A-Center, West v. Jackson, 561 U.S. 63,

68–69 (2010) (internal quotation marks omitted).          However, the parties can

delegate these issues to the arbitrator rather than the court, so long as the

agreement “clearly and unmistakably” demonstrates that this was the parties’

intent. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 79 (2002); see also In

re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005). Because “[t]he issue

of arbitrability is subject to virtually identical analysis under either the FAA or the


                                          13
TAA,” courts may rely on authorities applying either statute in evaluating an

agreement. Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224, 229 n.4 (Tex.

App.—Dallas 2010, pet. denied).

            “When, as here, parties agree to a broad arbitration clause and

explicitly incorporate rules that empower an arbitrator to decide issues of

arbitrability, the incorporation serves as clear and unmistakable evidence of the

parties’ intent to delegate such issues to an arbitrator.” Saxa, 312 S.W.3d at 230.

In Saxa, for example, the parties agreed to arbitrate “any claim, dispute or other

matter” related to their contract, “in accordance with the Construction Industry

Arbitration Rules of the American Arbitration Association.”            Id. at 226

(modification omitted). The AAA Construction Rules contain a delegation clause

empowering the arbitrator “to rule on his or her own jurisdiction, including any

objections with respect to the existence, scope or validity of the arbitration

agreement.” Id. at 228–29.

            Because the parties’ broad arbitration agreement incorporated the

AAA Rules, the court of appeals held that the parties’ arbitrability dispute—in that

case, whether joinder was permissible—had to be decided by the arbitrator rather

than the court. Id. at 230. It emphasized that a majority of courts have reached

this same conclusion. Id. (collecting cases); see also Aspri Inv., LLC, 04-10-

00573-CV, 2011 WL 3849487, at *9 (Tex. App.—San Antonio 2011, pet. dism’d)



                                        14
(enforcing the AAA Rules’ delegation clause because incorporating the Rules into

an agreement to arbitrate all disputes related to the parties’ lease “constitutes clear

and unmistakable evidence of the parties’ intent to delegate issues of arbitration to

the arbitrator”); Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687

F.3d 671, 675 (5th Cir. 2012) (“We agree with most of our sister circuits that the

express adoption of the [AAA] rules presents clear and unmistakable evidence that

the parties agreed to arbitrate arbitrability.”).

              The same result is required here.      The AAA Employment Rules

contain a delegation clause that is identical to the one enforced in Saxa: “[t]he

arbitrator shall have the power to rule on his or her own jurisdiction, including any

objections to the existence, scope or validity of the arbitration agreement.” AAA

Rule 6(a) (App. 30). The Employee Handbook, incorporated by reference into the

Acknowledgement, states that all “[p]roblems, disputes, or claims not resolved

through [voluntary internal dispute] resolution steps are subject to final and

binding arbitration . . . conducted under the Employment Dispute Resolution Rules

of the American Arbitration Association.” App. 13. See Contec Corp. v. Remote

Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005) (agreement clearly and

unmistakably delegated issues of arbitrability to the arbitrator by requiring parties

to use “best efforts” to resolve their dispute or submit it to arbitration under the

AAA Rules). The Arbitration Agreement provides that “to resolve in a speedy and



                                            15
inexpensive way any legal controversy which may arise,” the parties must arbitrate

any dispute “which is in any way related to the employment of [Bazan-Garcia] . . .

in accordance with the rules of the American Arbitration Association.” App 3.

Only a “worker’s compensation claim covered by insurance” is exempt, see id., as

such claims cannot be the subject of an arbitration agreement under state law. See

Tex. Civ. Prac. & Rem. Code § 171.002(a)(4).

            Bazan-Garcia and WRPS entered into agreements with broad

arbitration provisions that incorporated all of the AAA Employment Rules,

including the delegation clause. The parties did not reserve the right to seek

judicial relief for a broad array of claims, or specify that the AAA Rules would

only apply to their agreement in a limited manner. Compare with Burlington Res.

Oil & Gas Co. LP v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 42–43 (Tex.

App.—Houston [1st Dist.] 2007, pet. denied) (holding agreement did not

incorporate delegation clause where parties agreed to arbitrate only certain “audit

disputes” and specified the agreement’s terms controlled over the AAA Rules in

the event of a conflict); Haddock v. Quinn, 287 S.W.3d 158, 174–75 (Tex. App.—

Fort Worth 2009, pet. denied) (holding agreement did not delegate arbitrability to

arbitrator because it only incorporated the AAA Rules “to the extent not

inconsistent” with the agreement and specified in detail the procedures and scope

of arbitration (internal quotation marks omitted)). Consequently, Bazan-Garcia



                                        16
and WRPS clearly and unmistakably agreed that the arbitrator rather than the court

would decide any arbitrability disputes between them, and the trial court abused its

discretion by refusing to enforce that bargain. See Ernst & Young LLP, 278

S.W.3d at 501 (granting mandamus relief where trial court failed to enforce an

unchallenged delegation clause).

      B.     Bazan-Garcia is bound to arbitrate her unconscionability defense
             because she failed to prove that the delegation clause was invalid.
             Because she agreed to delegate issues of arbitrability to the arbitrator,

Bazan-Garcia could only have the trial court decide her unconscionability defense

if she proved that the delegation clause itself was invalid and unenforceable. Rent-

A-Center, 561 U.S. 63. Instead, Bazan-Garcia focused on proving the merits of her

unconscionability defense, see CR 72–82, and erroneously claimed that the trial

court could decide that issue because her petition alleged a statutory cause of

action, see RR 13. Neither of these grounds allows Bazan-Garcia to avoid the

delegation clause in her agreements.

             Bazan-Garcia’s unconscionability defense is nearly identical to one

raised by the plaintiff in Rent-A-Center, which the U.S. Supreme Court held had to

be decided by the arbitrator rather than the court. See 561 U.S. 63. The plaintiff in

Rent-A-Center filed a statutory employment-discrimination lawsuit against his

former employer, and opposed arbitration on the grounds that the agreement was

unconscionable because it limited discovery and required the parties to split the


                                         17
costs of arbitration. Id. at 74. The parties’ arbitration agreement included a

provision delegating issues of arbitrability to the arbitrator. Id. at 66. Despite this

provision, the U.S. Court of Appeals for the Ninth Circuit held that “the threshold

question of unconscionability [was] for the court” to decide. Id. at 67.

             The Supreme Court reversed. Id. at 74–76. Because a “delegation

provision is an agreement to arbitrate threshold issues concerning the arbitration

agreement” and must be enforced like any other contract, the plaintiff could only

avoid it by proving that the clause itself was invalid. Id. at 69–70. Before the trial

court, however, the plaintiff focused solely on proving the merits of his

unconscionability defense. Id. at 73–74 (explaining that plaintiff “did not make

any arguments specific to the delegation provision; [instead] he argued that the fee-

sharing and discovery procedures rendered the entire Agreement invalid”)

(emphasis in original). Consequently, the Supreme Court held that the trial court

was required to compel arbitration of the plaintiff’s unconscionability defense. Id.

at 75. It refused to consider a challenge to the delegation provision that the

plaintiff raised for the first time in his brief to the Supreme Court, on the grounds

that it was “too late.” Id. at 75–76.

             Like the plaintiff in Rent-A-Center, Bazan-Garcia opposed WRPS’s

motion to compel arbitration on the grounds that the agreement limited the parties’

access to discovery and required them to split arbitration costs, and is therefore



                                          18
unconscionable. See CR 72. But even though WRPS’s motion discussed and

analyzed the delegation clause that was incorporated into the parties’ arbitration

agreement, see CR 25–28, Bazan-Garcia’s response did not address that clause at

all. Instead, Bazan-Garcia focused solely on the merits of her unconscionability

defense. See CR 72–82. Because Bazan-Garcia failed to prove that the delegation

clause is invalid, she is bound to that agreement. See Rent-A-Center, 561 U.S. at

74.

            In addition, Bazan-Garcia cannot avoid arbitration based on the

statutory nature of her claims. At the hearing, Bazan-Garcia suggested that the

trial court was not required to enforce the delegation clause because her asserted

causes of action are based on a statute. See RR 13. But Bazan-Garcia has failed to

identify any case in which a court refused to enforce a delegation clause on the

grounds that the party opposing arbitration was asserting statutory claims, and

WRPS is aware of no such authority. To the contrary, the claims that the plaintiff

filed against his employer in Rent-A-Center were statutory in nature, and that fact

had no bearing on the Court’s decision to enforce the delegation clause. See 561

U.S. at 74–75; see also IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d

799, 808 (Tex. App.—El Paso 2012, no pet.) (enforcing delegation clause in

arbitration agreement in case where plaintiff alleged gender-discrimination claims

against employer).



                                        19
             “[A] trial court has no discretion to determine what the law is or to

apply the law incorrectly.” Poly-America, 262 S.W.3d at 349.         The law in this

area is clear: a court has no discretion to refuse to enforce an unchallenged

delegation clause. See Rent-A-Center, 561 U.S. at 75–76; Forest Oil, 268 S.W.3d

at 61 (holding that because the arbitration agreement’s delegation clause was “not

challenged on any legal or public policy grounds,” the Court had “no discretion but

to direct the court to compel arbitration and stay [this] litigation”). If Bazan-

Garcia believes that the arbitration agreement is unconscionable, she can still make

that argument. In accordance with her agreements, however, she must do so in the

forum of arbitration.

III.   In the alternative, the trial court erred in denying WRPS’s motion to
       compel arbitration because Bazan-Garcia did not prove that the
       parties’ arbitration agreement is unconscionable.
             A party opposing arbitration on the grounds of unconscionability

bears the heavy burden of proving this defense. In re Olshan Found. Repair Co.,

LLC, 328 S.W.3d 883, 893 (Tex. 2010). Bazan-Garcia failed to meet that rigorous

standard. Arbitration of her claims was therefore required, even if the trial court

had authority to consider the merits of this defense.

       A.    Legal Standard
             “Whether a contract is . . . unconscionable at the time it is formed is a

question of law.” Poly-America, 262 S.W.3d at 349 (citing Hoover Slovacek LLP



                                          20
v. Walton, 206 S.W.3d 557, 562 (Tex. 2006)). “In general, a contract will be found

unconscionable if it is grossly one-sided.” Id. at 348; see also Venture Cotton Co-

op v. Freeman, 435 S.W.3d 222, 228 (Tex. 2014) (“One of the earliest decisions to

apply the defense described an unconscionable contract as one that ‘no man in his

senses and not under delusion would make on the one hand, and as no honest and

fair man would accept on the other.’”) (internal citation omitted).        Because

arbitration is a favored method of dispute resolution, the Texas Supreme Court has

cautioned that courts “‘should be wary of setting the bar for holding arbitration

clauses unconscionable too low’ as that would undermine the ‘liberal federal

policy favoring arbitration agreements.’” Venture Cotton, 435 S.W.3d at 232

(quoting Olshan, 328 S.W.3d at 893).

            “Agreements to arbitrate disputes between employers and employees

are generally enforceable under Texas law; there is nothing per se unconscionable

about an agreement to arbitrate employment disputes and, in fact, Texas law has

historically favored agreements to resolve such disputes by arbitration.” Poly-

America, 262 S.W.3d at 348. Nor is there anything inherently unconscionable

about an agreement to arbitrate a statutory claim. “When parties agree to arbitrate

a statutory claim, ‘a party does not forego the substantive rights afforded by the

statute; it only submits to their resolution in an arbitral, rather than a judicial,

forum.’” Venture Cotton, 435 S.W.3d at 229 (quoting Mitsubishi Motors Corp. v.



                                        21
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). Thus, “an arbitration

agreement covering statutory claims is valid so long as the arbitration agreement

does not waive substantive rights and remedies of the statute and the arbitration

procedures are fair so that the employee may effectively vindicate his statutory

right.” Id. (quoting Poly-America, 262 S.W.3d at 352).

      B.    Bazan-Garcia failed to prove that arbitration under the parties’
            agreement would be more expensive than litigation, and
            effectively prevent her from vindicating her statutory rights.
            Bazan-Garcia claims that the parties’ agreement requires her to split

the costs of arbitration equally with WRPS, and that AAA arbitration of her claims

could cost upward of $20,000.       CR 77–78.      She contends that this would

effectively force her to abandon these claims, because she cannot “risk incurring a

substantial debt exceeding $10,000.00 in arbitrator fees.” CR 81.

            In assessing whether an arbitration agreement is unconscionable, the

court must determine whether the cost of arbitration would effectively prevent the

claimant from pursuing and vindicating her statutory rights. Poly-America, 262

S.W.3d at 356. The agreement may be “unconscionable if ‘the existence of large

arbitration costs could preclude a litigant from effectively vindicating his or her

federal [or state] statutory rights in the arbitral forum.’” Olshan, 328 S.W.3d at

892 (quoting Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000))

(internal modifications omitted). Because arbitration is favored, it is not enough



                                        22
for the claimant to show there is a “risk” that arbitration will be prohibitively

expensive. Id. at 892. Instead, “[t]he party opposing arbitration bears the burden

to show that the costs of arbitration render it unconscionable . . . [by] ‘showing the

likelihood of incurring such costs.’” Id. at 893 (quoting Green Tree, 531 U.S. at

92); see also FirstMerit Bank, 52 S.W.3d at 757 (“Because the record contains no

specific evidence that the [plaintiffs] will actually be charged excessive arbitration

fees, we conclude that there is legally insufficient evidence that the plaintiffs

would be denied access to arbitration based on excessive costs.”). In making this

determination, “a comparison of the total cost of [arbitration and litigation] is the

most important factor.” Olshan, 328 S.W.3d at 894–95.

             1.    Bazan-Garcia failed to prove that arbitrating her claims is
                   likely to cost upwards of $20,000.
             Bazan-Garcia estimated that arbitration in this case would cost more

than $20,000, based on the costs of three allegedly similar arbitrations that were

conducted through the AAA. CR 85–94. The parties’ agreement, however, does

not require them to pursue arbitration through the AAA; it only states that

arbitration will be conducted “in accordance with” and “under” the AAA Rules.

App. 3, 13. “Under this language, the AAA may administer the arbitration, but the

parties are not required to have the arbitration administered by the AAA.” Aspen

Tech., Inc. v. Shasha, 253 S.W.3d 857, 864 (Tex. App.—Houston [14th Dist.]

2008, no pet.). Moreover, evidence of what costs were incurred by other parties in


                                         23
other arbitrations is, by itself, legally insufficient to meet Bazan-Garcia’s burden of

proving what arbitration will cost her in this particular case.

             In Shasha, the parties entered into an arbitration agreement stating

that arbitration would be “in accordance with the [AAA] Rules.” 253 S.W.3d at

864. In support of its argument that arbitration would prohibitively expensive, the

plaintiff presented evidence showing what amounts were likely to be charged by

the AAA and AAA arbitrators. Id. The court of appeals found that this evidence

was “legally insufficient to support the trial court’s implied finding that [the

plaintiff] satisfied his burden of providing specific evidence showing a likelihood

that he would be denied access to arbitration based on excessive arbitration costs,”

since the parties were not obligated to arbitrate through the AAA. Id. The court of

appeals held the trial court had abused its discretion by denying the defendant’s

motion to compel arbitration on this basis. Id. at 865. Bazan-Garcia’s evidence in

support of her unconscionability defense is also “legally insufficient,” as it

similarly presumes that arbitration will take place through the AAA. See also

Green Tree, 531 U.S. at 91 n.6 (holding that plaintiff failed to provide any “basis

on which to ascertain the actual costs and fees to which she would be subject in

arbitration” because she “failed to make any factual showing that the [AAA] would

conduct the arbitration, or that, if it did, she would be charged the filing fee or

arbitrator’s fee that she identified”).



                                          24
             In addition, Bazan-Garcia’s evidence was inadequate because it relied

entirely on fees that other parties have incurred. In Olshan, the plaintiffs argued

that arbitration would be prohibitively costly, and in support of this claim

“provided two invoices from the AAA for arbitration in, as the [plaintiffs] allege,

‘similar cases’ to show the likelihood of excessive litigation costs.” 328 S.W.3d at

897. The Supreme Court held that “[m]erely showing that other claimants have

incurred arbitration costs of some amount falls well short of specific evidence that

these particular parties will be charged excessive fees.” Id. The Court also noted

that there was no evidence that the plaintiffs had “made any effort to reduce the

likely charges through requests for fee waivers, pro bono, arbitrators, or even

simply requesting a one arbitrator panel.”            Id.    Because “[s]ubstantive

unconscionability threatens to become the exception that swallows the rule if all

that must be done to avoid arbitration is to assume the most expensive possible

scenario,” the Court concluded that “there is no legally sufficient evidence that [the

arbitration] fees prevent the [plaintiffs] from effectively pursuing their claim in the

arbitral forum.” Id. at 897. Like the plaintiffs in Olshan, Bazan-Garcia’s evidence

consisted entirely of invoices from other arbitrations, see CR 85–95, and therefore

did not support the trial court’s finding that the parties’ agreement was

unconscionable.




                                          25
             2.    Under the parties’ agreement, WRPS will bear almost all of
                   the costs of arbitration.
             Regardless of what the overall cost of arbitrating her claims may be,

Bazan-Garcia’s contention that she will be forced to bear half of these costs is

directly contradicted by the terms of the parties’ agreement.         The Employee

Handbook, on which Bazan-Garcia relies, states that “[e]mployees who choose to

use the arbitration process to resolve a problem will be expected to share the cost

of the arbitration proceeding with WRPS, LP.” App. 13. This provision does not

require the parties to equally split the costs of arbitration, and Bazan-Garcia

provides no authority in support of her interpretation of this language.

             Moreover, pursuant to the AAA Rules that the parties agreed to,

arbitration costs under an employer-promulgated plan such as the one at issue in

this case are almost entirely borne by the employer, rather than divided evenly

between the parties. See App. 45–47. Bazan-Garcia is only required to pay an

initial filing fee—$200 if she files with the AAA—and may also have to pay

additional fees if she postpones or cancels a scheduled hearing, as well as bear any

expenses for witnesses that she chooses to produce at the hearing. AAA Rule 45

(App. 43); AAA Rule 48(i) (App. 45); AAA Rule 48(iii) (App. 47).              These

administrative fees may be “defer[red] or reduce[d]” if Bazan-Garcia shows that

they would cause her “extreme hardship.” AAA Rule 43 (App. 43). WRPS, in

contrast, will be responsible for paying a non-refundable filing fee in the amount of


                                         26
$1,350. WRPS must also pay all fees associated with the hearings, and all of the

arbitrator’s fees and expenses. AAA Rule 48(i)–(iii) (App. 45–47).

             The AAA Rules are controlling over any allegedly contrary provision

in the parties’ arbitration agreement, and would therefore defeat Bazan-Garcia’s

unconscionability argument even if her reading of the Employee Handbook’s cost-

sharing clause was correct. See AAA Rule 1 (App. 28) (arbitrator must apply

AAA Rules if “an adverse material inconsistency exists between the arbitration

agreement and these rules”). Far from causing Bazan-Garcia to “risk incurring a

substantial debt exceeding $10,000.00,” CR 82, therefore, the agreement only

requires Bazan-Garcia to pay a filing fee of $200.00—less than the fee she paid to

file this lawsuit in state court, see id. at 81 (stating that Bazan-Garcia paid 280.00

in expenses to file her lawsuit in state court). Even that small fee could be avoided

or reduced if Bazan-Garcia shows that it would be overly burdensome, see AAA

Rule 43 (App. 43), or files the arbitration outside of the AAA. Furthermore, by

pursuing her claims in arbitration rather than litigation, Bazan-Garcia could

decrease her overall expenses by avoiding lengthy and expensive discovery and

appeals. See Olshan, 328 S.W.3d at 894 (“The desire to avoid steep litigation

expenses—including the costs of longer proceedings, more complicated appeals on

the merits, discovery, investigations, fees, and expert witnesses—is the purpose of

arbitration in the first place.” (citing Tipps, 842 S.W.2d at 272–73)).



                                          27
             Because Bazan-Garcia failed to prove that arbitration will be more

costly than litigation and thereby prevent her from vindicating her statutory rights,

she failed to show that the arbitration agreement is unconscionable. See Olshan,

328 S.W.3d at 894–95.

      C.     An arbitration agreement cannot be found unconscionable based
             on provisions that the arbitrator is empowered to modify.
             Bazan-Garcia took issue with three provisions in the parties’

agreement: (1) the requirement that the parties “share” some costs of arbitration,

(2) the prohibition on either party taking more than one deposition; and (3)

conducting the arbitration hearing in Dallas County, Texas. CR 72. None of these

provisions is inherently unconscionable, and Bazan-Garcia does not claim they are.

See, e.g., Poly-America, 262 S.W.3d at 355–56 (holding that “fee-splitting

provisions that operate to prohibit an employee from fully and effectively

vindicating statutory rights are not enforceable,” but declining to hold that fee-

splitting or fee-sharing agreements are “unenforceable per se”); see also id. at 357

(enforcing an arbitration agreement limiting the parties to one deposition each

because the plaintiff failed to prove it was “insufficient to allow [him] a fair

opportunity to present his claims” (quoting Gilmer v. Interstate/Johnson Lane

Corp., 500 U.S. 20, 31 (1991)). Moreover, if circumstances cause any of these

provisions to become unconscionable, the arbitrator has the power to modify them.




                                         28
The trial court therefore abused its discretion by finding that the arbitration is

unconscionable.

             As a matter of law, an agreement is not unconscionable if its

potentially objectionable provisions can be modified by the arbitrator. In Poly-

America, for example, the parties entered into an agreement that required them to

equally split the costs of arbitration up to a particular amount, and limited the

amount of discovery that each party could pursue, including only allowing each

side to take “one oral deposition of no more than six hours.” 262 S.W.3d at 344.

Like Bazan-Garcia, the plaintiff in Poly-America alleged that his employer had

wrongfully discharged him in retaliation for filing a workers’ compensation claim,

and opposed arbitration on the grounds that the agreement’s cost-splitting

provisions and discovery limitations would effectively prevent him from

vindicating his statutory rights. Id.

             The Supreme Court rejected both of these challenges. The parties’

agreement “specifically provide[d] that the arbitrator may modify unconscionable

terms.” Id. at 357. As a result, at this stage of the proceedings the plaintiff could

not show a likelihood that he would be forced to pay the complained-of costs, or

unable to obtain necessary discovery. Id. at 357–58 (describing the plaintiff’s

arguments as “speculative”); see also FirstMerit Bank, N.A., 52 S.W.3d at 757

(holding plaintiffs failed to prove arbitration agreement was unconscionable



                                         29
because “the AAA may, in the event of extreme hardship on the part of any party,

defer or reduce the administrative fees”). The Court also emphasized that the

arbitrator, rather than the court, “is better situated to assess” whether the cost or

discovery provisions in the agreement would hinder the plaintiff’s ability to

vindicate his statutory rights, and “to modify the contract’s terms accordingly.”

Poly-America, 262 S.W.3d at 357–58.

             For the reasons given by the Supreme Court in Poly-America, Bazan-

Garcia cannot prove that any of the provisions she complains of make the

arbitration agreement unconscionable. Under the AAA Rules, Bazan-Garcia is

only required to pay an initial filing fee, while WRPS must pay virtually all other

expenses of arbitration. See App. 45–47. If paying the $200 filing fee would

cause Bazan-Garcia “extreme hardship,” then the AAA may “defer or reduce” it.

AAA Rule 43 (App. 43). Likewise, limiting each party to taking one deposition is

not unconscionable, since “[t]he arbitrator shall have the authority to order such

discovery, by way of deposition, interrogatory, document production, or otherwise,

as the arbitrator considers necessary to a full and fair exploration of the issues in

dispute, consistent with the expedited nature of arbitration.” AAA Rule 9 (App.

32). Finally, the agreement’s venue provision is not unconscionable because the

arbitrator may ultimately decide the locale of the arbitration, “having regard for the




                                         30
contentions of the parties and the circumstances of the arbitration.” AAA Rule 10

(App. 32).3

              An arbitration agreement is unconscionable only if it is “so one-sided

that it is unconscionable under the circumstances existing when the parties made

the contract,” FirstMerit Bank, 52 S.W.3d at 757, and “sufficiently shocking or

gross to compel the court to intercede.” Ski River Dev., Inc. v. McCalla, 167

S.W.3d 121, 136 (Tex. App.—Waco 2005, pet. denied). The agreements between

Bazan-Garcia and WRPS do not meet this standard. They incorporate the AAA

Rules and are typical for arbitration agreements between employers and their

employees, as well as similar to those upheld by the Supreme Court in Poly-

America. Indeed, it will be less expensive for Bazan-Garcia to arbitrate her claims

than to try (and appeal) those claims in state court, see infra at Part III.B., and she

will also have the opportunity to ask the arbitrator to change any objectionable

cost, discovery, and venue provisions, see infra at Part III.C. By finding such an

agreement unconscionable, the trial court abused its discretion, and its judgment

must be reversed. See Poly-America, 262 S.W.3d at 349.




3
       In addition, none of these provisions is “one-sided,” which is generally required for a
provision to be deemed unconscionable. See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757
(Tex. 2001).


                                             31
IV.   If any provision of the arbitration agreement is unconscionable, this
      Court should sever it and enforce the remainder of the agreement.
             Finally, if this Court concludes that any of the arbitration agreement’s

terms is unconscionable, then it should sever that term and remand the case for the

trial court to compel arbitration under the remainder of the agreement.

             “[W]here a term rather than the entire contract is unconscionable, the

appropriate remedy is ordinarily to deny effect to the unconscionable term.”

Venture Cotton, 435 S.W.3d at 230 (quoting Restatement (Second) of Contracts §

208 cmt. g (1981)) (internal modification omitted); see also Poly-America, 262

S.W.3d at 360 (“An illegal or unconscionable provision of a contract may

generally be severed so long as it does not constitute the essential purpose of the

agreement.”).    In Venture Cotton, the issue was whether a provision in an

arbitration agreement that prohibited the plaintiff from recovering attorneys’ fees

under the Texas Deceptive Trade Practices Act was unconscionable. The Texas

Supreme Court held that if the provision was unconscionable, then the court of

appeals should have severed it and enforced the remainder of the agreement, even

though the defendant had not requested this remedy from the trial court. 435

S.W.3d at 230 (explaining that on interlocutory appeal, “[c]onservation of time and

resources recommend that we consider the issue now because nothing prevents [the

defendant] from urging severance in the trial court and, if denied, from renewing

its complaint in yet another interlocutory appeal”).


                                         32
              Bazan-Garcia claims that three provisions in the parties’ arbitration

agreement are unconscionable: the cost-sharing provision, the limitation on

depositions, and the venue clause.       None of these provisions constitutes the

“essential purpose of the agreement,” Poly-America, 262 S.W.3d at 360, which is

“to resolve in a speedy and inexpensive way, any legal controversy that may arise,”

App. 3.      Consequently, if any or all of these provisions is found to be

unconscionable, it must be severed so that the remainder of the arbitration

agreement can be enforced. See Venture Cotton, 435 S.W.3d at 230–31 (holding

that “the court of appeals erred in declining to sever the objectionable limitation”

from the arbitration agreement).

                         Conclusion and Prayer for Relief
              For the reasons set forth above, WRPS respectfully requests the Court

reverse the trial court’s Order denying WRPS’s motion to compel arbitration, and

direct the trial court to compel arbitration of all of Bazan-Garcia’s claims and abate

this litigation.




                                         33
Respectfully submitted,

BAKER BOTTS L.L.P.

By: /s/ Jennifer M. Trulock
  Jennifer M. Trulock
  State Bar No. 90001515
  2001 Ross Avenue, Suite 600
  Dallas, Texas 75201
  (214) 953-6500 Telephone
  (214) 953-6503 Facsimile
  jennifer.trulock@bakerbotts.com

   Stephanie F. Cagniart
   State Bar No. 24079786
   98 San Jacinto Boulevard, Suite 1500
   Austin, Texas 78701-4078
   (512) 322-2500 Telephone
   (512) 322-2501 Facsimile
   stephanie.cagniart@bakerbotts.com

ATTORNEYS FOR APPELLANT
WESTERN RIM PROPERTY
SERVICES, INC.




  34
                           Certificate of Compliance
              This brief complies with the type-volume limitations of Tex. R. App.
P. 9.4, as it contains 7,637 words, excluding the parts of the brief exempted by
Rule 9.4(i)(1).

                                      /s/ Stephanie F. Cagniart
                                      Stephanie F. Cagniart




                              Certificate of Service
             I hereby certify that on December 24, 2014, a copy of the foregoing
was served by the Court’s CM/ECF electronic service and by electronic mail on
the following parties:

            Javier Espinoza
            Josue F. Garza
            The Espinoza Law Firm, PLLC
            503 E. Ramsey, Ste. 103
            San Antonio, Texas 78216
            210-229-1302 (Facsimile)
            josue@espinozafirm.com




                                      /s/ Stephanie F. Cagniart
                                      Stephanie F. Cagniart




                                        35
                            Index to Appendix
A.   Trial Court’s Order Concerning Defendant’s Motion to Compel Arbitration
     and Motion for Protective Order (App. 1–2)

B.   Arbitration Agreement (App. 3)

C.   Employee Acknowledgement Form (App. 4)
D.   Employee Handbook, WRPS, LP (App. 5–13)

E.   Employment Arbitration Rules and Mediation Procedures, American
     Arbitration Association (App. 14–65)
F.   Tex. Civ. Prac. & Rem. Code §§ 171.001, 171.021 and 171.025 (App. 66–
     68)




                                      36
APPENDIX
EXHIBIT A
, ..
                                                                                           E-FILED
                                             20 14CVO 1064                                 Bexar County, County Clerk
                                                                                           Gerard Rickhoff
                                                                                           Accepted Date:11/10/2014 9:10:58 AM
                                                 CAUSE NO. 2014CV01064                     Accepted By: Leticia Silva
                                                                                                             Leticia Silva
       PAULA BAZAN-GARCIA,                                    §                   IN THE COUNTY COUR'Peputy Clerk
                                                              §
                         Pli!intiff.                          §
                                                              §
       v.                                                     §                       ATLAWN0.03
                                                              §
       WESTERN RIM PROPERTY SERVICES,                         §
       nNC.                                                   §
                                                              §
                       Defendant                              §             BEXAR COUNI'YJ TEXAS

            OROER OONCERN£NG DEFENDANT'S MOTION TO COMPID.tARBITRATlON
                        AND MOT!ON FQR PROTJ}CTIY~ .ORDER

               On this the 61h day of November 2014 <;ame to be he!l!d Defendant's Motion to Compel

       Arbitration and   M~tion        for P.totectlve Otder. The Court having considered the Motions :md all

       applicable 11rB'lments, case law and evidence is of the opinion thl\t the arbitxation policy contained in

       Defendant's dispute tesolution policy is unconscionable and unenf().J:ceab1e.

               1T IS THEREFORE ORDERED, ADJUDGED AND DECREED that Defendant's

       Motion ro Compel Arbitration is heteby in all t:h.ings DENIED.

               lT IS FURTI-IER ORDERED, ADJUDGED AND DECREED that Defendant's Motion

       for P1ote<:.tive O.tdet is heJ:eby in all things DENIED.          /f       /



                                                this~day of._ __,/~~~___;;,(]"'
                                                                              1

               SIGNED 2nd ENTERED                                         _ _ ___, 2014.




                                                          BON. JUDGE PRESIDING




       APPROVED AS 'I'O FORM:


                                                                                                             13



                                                          144
                                                                                              Submit Date:11/10/2014 9:09:081 AM
                                                                                                                        App.001
....



       JOSUE F.   '-I£1JllL1

       Espinoza Law Firm, PLLC
       Atto1ueys fo.t: Plaintiff
       503 E. R:unsey, Ste. 103
       San An            xas 7B216



       JENNIFER . 'f_,.....~'""'"'·
       STEPHANIE F. CAGNIART
       98 Slm J~clnto 'Boulev:ud. Suite 1500
       Austin, Texas 78701-4078




                                                     14




                                               145
                                                            2
                                                          App.002
EXHIBIT B
                             ARBITRATION AGREEMENT


lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
 inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's   _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including     ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to        ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty      _
(20) days prior written notice:

Each party to arbitration shall be entitled to tab only one deposition. Any arbitration      _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.

N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.



BY:




                                        39
                                                                                                     1
                                                                                                   App.003
EXHIBIT C
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP


EM'LOYEE ACKNOWLEDGEMENT FORM



Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.

I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.

Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..

Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.


EMPLOYEE'S NAME       (printed~/a Q.J~::DZEtJ.:·~a._y ("~---­
     SfGNAn.JR~(!. 4~ ~
EMPLOYEE'S


DATE,~ ?Q,'ZtJlL.~---




                                                37
                                                                                                             1
                                                                                                           App.004
EXHIBIT D
     WR
     p         s

Employee Handbook
    WRPS,LP
      10/01/2011




         45
                    App.005
IIIli
1111
WRPSI LP


                                      Table of Contents

No. Polley                                         Effective    Revision    Page
                                                   Date:        J2!!!i
INTRODUCTION
020 Employee Welcome Message                       1211/1999    11112006    1
030 Organization Description                       1211/1999    1/1/2006    2
040 Introductory Statement                         12/111999    1/1/2006    3
051 Employee Acknowledgement Form                  121111999    1/112006    4

EMPLOYMENI'
101 Nature of Employment                           1211/1999    1/1/2000    5
102 Employee Relations                             1211/1999    1/1/2006    6
103 Equal Employment Opportunity                   12/1/1999    111/2006    7
104 Business Ethics and Conduct                    12/1/1999    111/2006    8
107 Immigration Law Compliance                     12/1/1999    11112000    9
108 Conflicts oflnterest                           12/111999    1/112006    10
110 Outside Employment                             12/111999    1/112006    11
112 Non-Disclosure                                 12/1/1999    1/1/2006    12
114 Disability Accommodation                       12/1/1999    1/112006    13
180 Personal Relationships in the Workplace        11/19/2004   1/1/2006    14

EMPLOYMENT STATUS & RECORDS
201 Employment Categories                          12/1/1999    1/1/2006    16
202 Access to Personnel Files                      12/1/1999    111/2006    18
203 Employment Reference Checks                    12/1/1999    1/1/2000    19
204 Personnel Data Changes                         12/111999    111/2006    20
205 Introductory Period                            12/1/1999    1/1/2006    21
208 Employment Applications                        12/111999    1/1/2006    22
209 Perfonnan.ce Evaluation                        1211/1999    1/1/2006    23
210 Job Descriptions                               12/1/1999    1/1/2006    24
280 Confidentiality of Salary                      12/111999    1/1/2006    25

EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits                              12/1/1999    1/112006    26
303 Vacation Benefits                              12/1/1999    10/1/2009   27
304. Child Care Benefits                           12/1/1999    111/2006    29
305 Holidays                                       12/111999    1/1/2006    30




                                              46
                                                                                   App.006
WRPS, LP


307   Sick Leave Benefits                    12/l/1999   10/1/2009   31
308   Time Off to Vote                       12/1/1999   1/1/2006    33
309   Bereavement Leave                      12/111999   1/112006    34
310   Relocation Benefits                    12/1/1999   1/1/2006    35
311   Jury Duty                              12/1/1999   1/112006    36
312   Witness Duty                           12/111999   1/1/2006    37
313   Benefits Continuation (COBRA)          12/1/1999   1/1/2006    38
314   Educational Assistance                 1211/1999   1/112006    39
316   Health Insurance                       12/1/1999   1/112006    40
317   Life Insurance                         12/1/1999   1/1/2006    41
320   401 (k) Savings Plan                   12/1/1999   111/2006    42
326   Flexible Spending Account (FSA)        12/1/1999   1/1/2006    43
328   Partnership Participation Units        1211/1999   1/1/2006    44
330   Annual Incentive Trip                  12/1/1999   1/112006    45

TIMEKEEPING/PAYR.OLL
401 Timekeeping                              12/1/1999   1/1/2000    46
403 Paydays                                  12/1/1999   1/1/2000    47
405 Employment Termination                   12/111999   1/112006    48
407 Severance Pay                            12/1/1999   1/1/2006    49
409 Administrative Pay Corrections           12/111999   1/1/2006    so
410 Pay Deductions and Setoffs               12/111999   111/2006    Sl

WORK CONDITIONS & HOURS
502 Work Schedules                           1211/1999   1/1/2006    52
504 Use of Phone and Mail Systems            12/1/1999   1/1/2006    53
505 Smoking                                  12/1/1999   111/2006    54

506 Rest and Meal Periods                    12/1/1999   1/1/2006    55
507 Overtime                                 121111999   1/1/2006    56
512 Business Travel Expenses                 12/111999   1/1/2009    57
514 Visitors in the Workplace                121111999   1/1/2006    58
516 Computer and Email Usage                 12/1/1999   1/112006    60
517 Internet Usage                           1211/1999   111/2006    61
522 Workplace Violence Prevention            1211/1999   l/1/2006    63
526 Cell Phone Usage                         12/111999   11112006    65

LEAVES OF ABSENCE
60 l Medical Leave                           1211/1999   1/1/2006    66




                                        47
                                                                          App.007
II
WRPS., LP


602 Family Leave                                       12/1/1999   1/1/2006   68
605 Military Leave                                     1/1/2006    111/2000   70

EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules      12/1/1999                 111/2006   71
702 Drug and Alcohol Use                 1211/1999                 111/2000   73
703 Sexual and Other Unlawful Harassment 12/1/1999                 111/2006   74
704 Attendance and Punctuality           12/1/1999                 11112000   76
705 Personal Appearance                  12/1/1999                 1/1/2000   77
706 Return of Property                   12/1/1999                 1/112000   78
708 Resignation                          12/1/1999                 1/1/2000   79
714 Drug Testing                         12/1/1999                 1/1/2006   80
716 Progressive Discipline               12/1/1999                 1/1/2006   81
718 Problem Resolution                   12/111999                 111/2006   83
720 Casual Days                          12/1/1999                 1/1/2006   85

MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace        12/1/1999   111/2006   87
806 Suggestion Program                                 12/1/1999   111/2006   88




                                                  48
                                                                                   App.008
WRPS,LP
WRPS,LP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.

We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.

We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                   1



                                                 49
                                                                                                            App.009
1111
1111
WRPS,LP
WRPS,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.

The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2



                                              50
                                                                                                   App.010
II
WRPS,LP
WRPS,LP


INTRODUCTORY STATEMENT


This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.




                                                     3



                                                  51
                                                                                                              App.011
1111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.                                           ·

If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem.                                                                                            ·

5. Employee presents problem to the President in writing.




                                                    83



                                                   52
                                                                                                              App.012
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.




                                                     84



                                                    53
                                                                                                                 App.013
EXHIBIT E
Employment
Arbitration Rules & Mediation Procedures




Available online at   adr.org/employment
Rules Amended and Effective November 1, 2009
Fee Schedule Amended and Effective May 15, 2013


                                                    1
                                                  App.014
        Regional Vice Presidents and Directors

        States: Delaware, District of Columbia, Maryland,    States: Alaska, Arizona, California, Colorado,
        New Jersey, Pennsylvania, West Virginia              Hawaii, Idaho, Montana, Nevada, Oregon, Utah,
        Kenneth Egger                                        Washington, Wyoming
        Vice President                                       John English
        Phone: 215.731.2281                                  Vice President
        Email: EggerK@adr.org                                Phone: 619.239.3051
                                                             Email: EnglishJ@adr.org
        States: Connecticut, Maine, Massachusetts,
        New Hampshire, New York, Vermont                     States: Rhode Island
        Ann Lesser, Esq.                                     Heather Santo
        Vice President                                       Director
        Phone: 212.484.4084                                  Phone: 866.293.4053
        Email: LesserA@adr.org                               Email: SantoH@adr.org

        States: Alabama, Arkansas, Florida, Georgia,         States: Louisiana, New Mexico, Oklahoma, Texas
        Mississippi, North Carolina, South Carolina,         Molly Bargenquest
        Virginia                                             Vice President
        Charles Dorsey                                       Phone: 972.702.8222
        Director                                             Email: BargenquestM@adr.org
        Phone: 866.686.6024
        Email: DorseyC@adr.org

        States: Illinois, Indiana, Iowa, Kansas, Kentucky,
        Michigan, Minnesota, Missouri, Nebraska,
        North Dakota, Ohio, South Dakota, Tennessee,
        Wisconsin
        Jan Holdinski
        Vice President
        Phone: 248.352.5509
        Email: HoldinskiJ@adr.org




        Case Management Vice Presidents and Directors
        Molly Bargenquest                                    Charles Dorsey
        Vice President                                       Director
        Phone: 972.702.8222                                  Phone: 866.686.6024
        Email: BargenquestM@adr.org                          Email: DorseyC@adr.org
        Administers cases in AR, IL, IA, KS, LA, MN, MS,     Administers cases in FL, GA
        MO, NE, ND, OK, SD, TX, WI
                                                             Heather Santo
        Patrick Tatum                                        Director
        Director                                             Phone: 866.293.4053
        Phone: 559.490.1905                                  Email: SantoH@adr.org
        Email: TatumP@adr.org                                Administers cases in AL, CT, DC, DE,
        Administers cases in AK, AZ, CA, CO, HI, ID, MT,     IN, KY, MA, MD, ME, MI, NC, NH, NJ,
        NV, NM, OR, UT, WA, WY                               NY, OH, PA, RI, SC, TN, VA, VT, WV




2   RULES AND MEDIATION PROCEDURES                                                         American Arbitration Association
                                                                                                                      2
                                                                                                                    App.015
Table of Contents
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
Role of the American Arbitration Association®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
Legal Basis of Employment ADR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
The Fairness Issue: The Due Process Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
AAA’s Employment ADR Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
AAA’s Policy on Employment ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
Costs of Employment Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
Designing an ADR Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11


Alternative Dispute Resolution Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
   Open Door Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
   Ombuds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
   Peer Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13	
   Internal Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
   Fact-Finding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
   Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14


Types of Disputes Covered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
Employment Arbitration Rules and Mediation Procedures. . . . . . . . . . . . . . . . . . . . .  15
   1. Applicable Rules of Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
   2. Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
   3. AAA as Administrator of the Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
   4. Initiation of Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
   5. Changes of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
   6. Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
   7. Administrative and Mediation Conferences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
   8. Arbitration Management Conference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
   9. Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
   10. Fixing of Locale (the city, county, state, territory, and/or country of the Arbitration).19
   11. Date, Time and Place (the physical site of the hearing within the designated locale) 			
   	 of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
   12. Number, Qualifications and Appointment of Neutral Arbitrators . . . . . . . . . . . . . . .  20
   13. Party Appointed Arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21



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                                                                                                                                         App.016
      14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties. . . . . . . . . . 21
      15. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
      16. Disqualification of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
      17. Communication with Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
      18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
      19. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
      20. Stenographic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
      21. Interpreters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
      22. Attendance at Hearings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      23. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      24. Postponements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      25. Oaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      26. Majority Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      27. Dispositive Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      28. Order of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
      29. Arbitration in the Absence of a Party or Representative. . . . . . . . . . . . . . . . . . . . . . .  25
      30. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
      31. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
      32. Interim Measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
      33. Closing of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
      34. Reopening of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
      35. Waiver of Oral Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
      36. Waiver of Objection/Lack of Compliance with These Rules. . . . . . . . . . . . . . . . . . . .  28
      37. Extensions of Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
      38. Serving of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
      39. The Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
      40. Modification of Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
      41. Release of Documents for Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
      42. Applications to Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
      43. Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
      44. Neutral Arbitrator’s Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
      45. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
      46. Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
      47. Suspension for Non-Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
      48. Interpretation and Application of Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
      Costs of Arbitration (including AAA Administrative Fees). . . . . . . . . . . . . . . . . . . . . . . . .  31

4   RULES AND MEDIATION PROCEDURES                                                                                   American Arbitration Association
                                                                                                                                                4
                                                                                                                                              App.017
For Disputes Arising Out of Employer-Promulgated Plans*: . . . . . . . . . . . . . . . . . . .  32
   (i) Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
   (ii) Hearing Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
   (iii) Postponement/Cancellation Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
   (iv) Hearing Room Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
   (v) Abeyance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
   (vi) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34


For Disputes Arising Out of Individually-Negotiated Employment Agreements
and Contracts:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34


Administrative Fee Schedules (Standard and Flexible Fees) . . . . . . . . . . . . . . . . . . .  35
   (i) Standard Fee Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
   (ii) Refund Schedule for Standard Fee Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
   (iii) Flexible Fee Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
   (iv) Hearing Room Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
   (v) Abeyance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
   (vi) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41


For Disputes Proceeding Under the Supplementary Rules for Class Action
Arbitration (“Supplementary Rules”):. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42


Optional Rules for Emergency Measures of Protection. . . . . . . . . . . . . . . . . . . . . . . .  42
   O-1. Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
   O-2. Appointment of Emergency Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
   O-3. Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
   O-4. Interim Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
   O-5. Constitution of the Panel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
   O-6. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
   O-7. Special Master. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
   O-8. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43




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                                                                                                                                            5
                                                                                                                                          App.018
    Employment Mediation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
       M-1. Agreement of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
       M-2. Initiation of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
       M-3. Fixing of Locale (the city, county, state, territory and, if applicable, country of
           the mediation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
       M-4. Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
       M-5. Appointment of the Mediator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
       M-6. Mediator’s Impartiality and Duty to Disclose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
       M-7. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
       M-8. Duties and Responsibilities of the Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
       M-9. Responsibilities of the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
       M-10. Privacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
       M-11. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48
       M-12. No Stenographic Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48
       M-13. Termination of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
       M-14. Exclusion of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
       M-15. Interpretation and Application of Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
       M-16. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
       M-17. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
       M-18. Cost of the Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49




6   RULES AND MEDIATION PROCEDURES                                                                                 American Arbitration Association
                                                                                                                                              6
                                                                                                                                            App.019
     Employment Arbitration
     Rules and Mediation Procedures


Introduction

Federal and state laws reflecting societal intolerance for certain workplace
conduct, as well as court decisions interpreting and applying those statutes,
have redefined responsible corporate practice and employee relations.
Increasingly, employers and employees face workplace disputes involving
alleged wrongful termination, sexual harassment, or discrimination based on
race, color, religion, sex, national origin, age and disability.

As courts and administrative agencies become less accessible to civil litigants,
employers and their employees now see alternative dispute resolution (“ADR”)
as a way to promptly and effectively resolve workplace disputes. ADR procedures
are becoming more common in contracts of employment, personnel manuals,
and employee handbooks.

Increasingly, corporations and their employees look to the American Arbitration
Association® as a resource in developing prompt and effective employment
procedures for employment-related disputes.

These Rules have been developed for employers and employees who wish
to use a private alternative to resolve their disputes, enabling them to have
complaints heard by an impartial person with expertise in the employment
field. These procedures benefit both the employer and the individual employee
by making it possible to resolve disputes without extensive litigation.

Role of the American Arbitration Association

The American Arbitration Association, founded in 1926, is a not-for-profit, public
service organization dedicated to the resolution of disputes through mediation,
arbitration, elections and other voluntary dispute resolution procedures. Millions
of workers are now covered by employment ADR plans administered by the AAA®.



Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 7
                                                                                                                7
                                                                                                              App.020
    In addition, the AAA provides education and training, specialized publications,
    and research on all forms of dispute settlement. With 30 offices worldwide
    and cooperative agreements with arbitral institutions in 63 other nations, the
    American Arbitration Association is the nation’s largest private provider of
    ADR services.

    For over 80 years, the American Arbitration Association has set the standards
    for the development of fair and equitable dispute resolution procedures. The
    development of the Employment Arbitration Rules and Mediation Procedures
    and the reconstitution of a select and diverse roster of expert neutrals to hear
    and resolve disputes, are the most recent initiatives of the Association to provide
    private, efficient, and cost-effective procedures for out-of-court settlement of
    workplace disputes.


    Legal Basis of Employment ADR

    Since 1990, Congress has twice re-affirmed the important role of ADR in the
    area of employment discrimination — in the Americans with Disabilities Act in
    1990, and a year later in Section 118 of the Civil Rights Act of 1991.

    The United States Supreme Court has also spoken on the importance of ADR
    in the employment context. In Gilmer v. Interstate/Johnson Lane, 500 U.S. 20,
    111 S.Ct. 1647 (1991), the Supreme Court refused to invalidate Gilmer’s agreement
    with the New York Stock Exchange that he would arbitrate disputes with his
    employer (Interstate/Johnson Lane) simply because he was obliged to sign it in
    order to work as a securities dealer whose trades were executed on the Exchange.
    Although the Gilmer Court found that the Age Discrimination in Employment Act
    did not preclude arbitration of age discrimination claims, it specifically declined
    to decide whether employment arbitration agreements were “contracts of
    employment” excluded under the Federal Arbitration Act.

    The specific issue left open by Gilmer was decided 10 years later by the United
    States Supreme Court in Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.
    Ct. 1302, 149 L. Ed. 2d 234 (2001). In Circuit City, the Supreme Court concluded
    that except for transportation workers such as seamen or railroad workers, the
    FAA covers all contracts of employment and that the Act may be used to compel
    arbitration of employment-related claims. While Circuit City involved only state
    law claims, the Supreme Court had determined previously in Gilmer that federal
    age discrimination claims (and presumably other federal civil rights claims) were
    arbitrable under the FAA.


8   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association
                                                                                                 8
                                                                                               App.021
The Fairness Issue: The Due Process Protocol

The Due Process Protocol for Mediation and Arbitration of Statutory Disputes
Arising Out of the Employment Relationship was developed in 1995 by a special
task force composed of individuals representing management, labor, employment,
civil rights organizations, private administrative agencies, government, and the
American Arbitration Association. The Due Process Protocol, which was endorsed
by the Association in 1995, seeks to ensure fairness and equity in resolving
workplace disputes. The Due Process Protocol encourages mediation and
arbitration of statutory disputes, provided there are due process safeguards. It
conveys the hope that ADR will reduce delays caused by the huge backlog of
cases pending before administrative agencies and the courts. The Due Process
Protocol “recognizes the dilemma inherent in the timing of an agreement to
mediate and/or arbitrate statutory disputes” but does not take a position on
whether an employer can require a pre-dispute, binding arbitration program as
a condition of employment.

The Due Process Protocol has been endorsed by organizations representing a
broad range of constituencies. They include the American Arbitration Association,
the American Bar Association Labor and Employment Section, the American
Civil Liberties Union, the Federal Mediation and Conciliation Service, the National
Academy of Arbitrators, and the National Society of Professionals in Dispute
Resolution. The National Employment Lawyers Association has endorsed the
substantive provisions of the Due Process Protocol.

It has been incorporated into the Report of the United States Secretary of Labor’s
Task Force in Excellence in State and Local Government and cited with approval
in numerous court opinions.


AAA’s Employment ADR Rules

On June 1, 1996, the Association issued National Rules for the Resolution of
Employment Disputes (now known as the Employment Arbitration Rules and
Mediation Procedures). The rules reflected the guidelines outlined in the
Due Process Protocol and were based upon the AAA’s California Employment
Dispute Resolution Rules, which were developed by a committee of employment
management and plaintiff attorneys, retired judges and arbitrators, in addition
to Association executives. The revised rules were developed for employers and
employees who wish to use a private alternative to resolve their disputes.
The rules enabled parties to have complaints heard by an impartial person of


Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 9
                                                                                                                9
                                                                                                              App.022
     their joint selection, with expertise in the employment field. Both employers and
     individual employees benefit by having experts resolve their disputes without the
     costs and delay of litigation. The rules included procedures which ensure due
     process in both the mediation and arbitration of employment disputes. After a
     year of use, the rules were amended to address technical issues.


     AAA’s Policy on Employment ADR

     The AAA’s policy on employment ADR is guided by the state of existing law, as
     well as its obligation to act in an impartial manner. In following the law, and in
     the interest of providing an appropriate forum for the resolution of employment
     disputes, the Association administers dispute resolution programs which meet
     the due process standards as outlined in its Employment Arbitration Rules
     and Mediation Procedures and the Due Process Protocol. If the Association
     determines that a dispute resolution program on its face substantially and
     materially deviates from the minimum due process standards of the Employment
     Arbitration Rules and Mediation Procedures and the Due Process Protocol, the
     Association may decline to administer cases under that program. Other issues
     will be presented to the arbitrator for determination.

     Notification

     If an employer intends to utilize the dispute resolution services of the Association
     in an employment ADR plan, it shall, at least 30 days prior to the planned effective
     date of the program: (1) notify the Association of its intention to do so; and (2)
     provide the Association with a copy of the employment dispute resolution plan.
     If an employer does not comply with this requirement, the Association reserves
     the right to decline its administrative services. Copies of all plans should be sent
     to the American Arbitration Association, 725 South Figueroa Street, Suite 2400,
     Los Angeles, CA 90017; FAX: 213.622.6199.


     Costs of Employment Arbitration

     These Rules contain two separate and distinct arbitration costs sections; one
     for disputes arising out of employer-promulgated plans and the other for
     disputes arising out of individually-negotiated employment agreements and
     contracts. When the arbitration is filed, the AAA makes an initial administrative
     determination as to whether the dispute arises from an employer-promulgated
     plan or an individually-negotiated employment agreement or contract. This



10   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association
                                                                                                 10
                                                                                                App.023
determination is made by reviewing the documentation provided to the AAA
by the parties, including, but not limited to, the demand for arbitration, the
parties’ arbitration program or agreement, and any employment agreements
or contracts between the parties.

When making its determination on the applicable costs of arbitration section in
a given arbitration, the AAA’s review is focused on two primary issues. The first
component of the review focuses on whether the arbitration program and/or
agreement between the individual employee and the employer is one in which
it appears that the employer has drafted a standardized arbitration clause with
its employees. The second aspect of the review focuses on the ability of the
parties to negotiate the terms and conditions of the parties’ agreement.

If a party disagrees with the AAA’s initial determination, the parties may bring
the issue to the attention of the arbitrator for a final determination.


Designing an ADR Program

The guiding principle in designing a successful employment ADR system is
that it must be fair in fact and perception. The American Arbitration Association
has considerable experience in administering and assisting in the design of
employment ADR plans, which gives it an informed perspective on how to
effectively design ADR systems, as well as the problems to avoid. Its guidance
to those designing employment ADR systems is summarized as follows:

»	 The American Arbitration Association encourages employers to consider the
	  wide range of legally-available options to resolve workplace disputes outside the
	courtroom.
»	 A special emphasis is placed by the Association on encouraging the development
	  of in-house dispute resolution procedures, such as open door policies, ombuds,
	  peer review and internal mediation.
»	 The Association recommends an external mediation component to resolve disputes
	  not settled by the internal dispute resolution process.
»	 Programs which use arbitration as a final step may employ:

     •	    pre-dispute, voluntary final and binding arbitration;

     •	    pre-dispute, mandatory nonbinding arbitration;

     •	    pre-dispute, mandatory final and binding arbitration; or

     •	    post-dispute, voluntary final and binding arbitration.




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     »	 Although the AAA administers binding arbitration systems that have been required
     	  as a condition of initial or continued employment, such programs must be consistent
     	  with the Association’s Employment Arbitration Rules and Mediation Procedures.


     Specific guidance on the responsible development and design of employment
     ADR systems is contained in the Association’s publication, Resolving Employment
     Disputes: A Practical Guide, which is available from the AAA’s website,
     www.adr.org.




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                                                                                                    12
                                                                                                   App.025
Alternative Dispute Resolution Options

Open Door Policy

Employees are encouraged to meet with their immediate manager or supervisor
to discuss problems arising out of the workplace environment. In some systems,
the employee is free to approach anyone in the chain of command.

Ombuds

A neutral third party (either from within or outside the company) is designated
to confidentially investigate and propose settlement of employment complaints
brought by employees.

Peer Review

A panel of employees (or employees and managers) works together to resolve
employment complaints. Peer review panel members are trained in the handling
of sensitive issues.

Internal Mediation

A process for resolving disputes in which a neutral third person from within the
company, trained in mediation techniques, helps the disputing parties negotiate
a mutually acceptable settlement. Mediation is a nonbinding process in which
the parties discuss their disputes with an impartial person who assists them in
reaching a settlement. The mediator may suggest ways of resolving the dispute
but may not impose a settlement on the parties.

Fact-Finding

The investigation of a complaint by an impartial third person (or team) who
examines the complaint and the facts and issues a nonbinding report. Fact-finding
is particularly helpful for allegations of sexual harassment, where a fact-finding
team, composed of one male and one female neutral, investigates the
allegations and presents its findings to the employer and the employee.




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     Arbitration

     Arbitration is generally defined as the submission of disputes to one or more
     impartial persons for final and binding determination. It can be the final step in
     a workplace program that includes other dispute resolution methods. There are
     many possibilities for designing this final step.

     They include:

     »	 Pre-Dispute, Voluntary Final and Binding Arbitration
     	   The parties agree in advance, on a voluntary basis, to use arbitration to
     	   resolve disputes and they are bound by the outcome.
     »	 Pre-Dispute, Mandatory Nonbinding Arbitration
     	   The parties must use the arbitration process to resolve disputes, but they
     	   are not bound by the outcome.
     »	 Pre-Dispute, Mandatory Final and Binding Arbitration
     	   The parties must arbitrate unresolved disputes and they are bound by
     	   the outcome.
     »	 Post-Dispute, Voluntary Final and Binding Arbitration
     	   The parties have the option of deciding whether to use final and binding
     	   arbitration after a dispute arises.


     Types of Disputes Covered

     The dispute resolution procedures contained in this booklet were developed
     for arbitration agreements contained in employee personnel manuals, an
     employment application of an individual employment agreement, other types
     of employment agreements, or can be used for a specific dispute. They do not
     apply to disputes arising out of collective bargaining agreements or independent
     contractor agreements.




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                                                                                                 14
                                                                                                App.027
Employment Arbitration Rules and Mediation Procedures

1. Applicable Rules of Arbitration

The parties shall be deemed to have made these rules a part of their arbitration
agreement whenever they have provided for arbitration by the American
Arbitration Association (hereinafter “AAA”) or under its Employment Arbitration
Rules and Mediation Procedures or for arbitration by the AAA of an employment
dispute without specifying particular rules*. If a party establishes that an adverse
material inconsistency exists between the arbitration agreement and these rules,
the arbitrator shall apply these rules.

If, within 30 days after the AAA’s commencement of administration, a party
seeks judicial intervention with respect to a pending arbitration and provides the
AAA with documentation that judicial intervention has been sought, the AAA
will suspend administration for 60 days to permit the party to obtain a stay of
arbitration from the court.These rules, and any amendment of them, shall apply
in the form in effect at the time the demand for arbitration or submission is
received by the AAA.

*
  The National Rules for the Resolution of Employment Disputes have been re-named the Employment Arbitration
Rules and Mediation Procedures. Any arbitration agreements providing for arbitration under its National Rules for
the Resolution of Employment Disputes shall be administered pursuant to these Employment Arbitration Rules and
Mediation Procedures.


2. Notification

An employer intending to incorporate these rules or to refer to the dispute
resolution services of the AAA in an employment ADR plan, shall, at least 30 days
prior to the planned effective date of the program:

a.	 notify the Association of its intention to do so and,

b.	 provide the Association with a copy of the employment dispute resolution plan.


Compliance with this requirement shall not preclude an arbitrator from
entertaining challenges as provided in Section 1. If an employer does not
comply with this requirement, the Association reserves the right to decline its
administrative services.




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     3. AAA as Administrator of the Arbitration

     When parties agree to arbitrate under these rules, or when they provide for
     arbitration by the AAA and an arbitration is initiated under these rules, they
     thereby authorize the AAA to administer the arbitration. The authority and duties
     of the AAA are prescribed in these rules, and may be carried out through such of
     the AAA’s representatives as it may direct. The AAA may, in its discretion, assign
     the administration of an arbitration to any of its offices.

     4. Initiation of Arbitration

     Arbitration shall be initiated in the following manner.

     a.	 The parties may submit a joint request for arbitration.
     b.	 In the absence of a joint request for arbitration:
         (i) The initiating party (hereinafter “Claimant[s]”) shall:
              (1)	   File a written notice (hereinafter “Demand”) of its intention to arbitrate at any
              	      office of the AAA, within the time limit established by the applicable statute
              	      of limitations. Any dispute over the timeliness of the demand shall be referred
              	      to the arbitrator. The filing shall be made in duplicate, and each copy shall
              	      include the applicable arbitration agreement. The Demand shall set forth the
              	      names, addresses, and telephone numbers of the parties; a brief statement
              	      of the nature of the dispute; the amount in controversy, if any; the remedy
              	      sought; and requested hearing location.
              (2)	 Simultaneously provide a copy of the Demand to the other party (hereinafter
              	“Respondent[s]”).
              (3)	 Include with its Demand the applicable filing fee, unless the parties agree to
              	    some other method of fee advancement.
         (ii)	 The Respondent(s) may file an Answer with the AAA within 15 days after the
         	     date of the letter from the AAA acknowledging receipt of the Demand. The
         	     Answer shall provide the Respondent’s brief response to the claim and the issues
         	     presented. The Respondent(s) shall make its filing in duplicate with the AAA, and
         	     simultaneously shall send a copy of the Answer to the Claimant. If no answering
         	     statement is filed within the stated time, Respondent will be deemed to deny the 	
         	     claim. Failure to file an answering statement shall not operate to delay the
         	arbitration.
         (iii)	 The Respondent(s):
              (1)	   May file a counterclaim with the AAA within 15 days after the date of the
              	      letter from the AAA acknowledging receipt of the Demand. The filing shall
              	      be made in duplicate. The counterclaim shall set forth the nature of the claim,
              	      the amount in controversy, if any, and the remedy sought.



16   RULES AND MEDIATION PROCEDURES                                               American Arbitration Association
                                                                                                            16
                                                                                                           App.029
           (2)	 Simultaneously shall send a copy of any counterclaim to the Claimant.
           (3)	 Shall include with its filing the applicable filing fee provided for by these rules.
      (iv)	 The Claimant may file an Answer to the counterclaim with the AAA within
      	     15 days after the date of the letter from the AAA acknowledging receipt of
      	     the counterclaim. The Answer shall provide Claimant’s brief response to the
      	     counterclaim and the issues presented. The Claimant shall make its filing in
      	     duplicate with the AAA, and simultaneously shall send a copy of the Answer to 		
      	     the Respondent(s). If no answering statement is filed within the stated time, 		
      	     Claimant will be deemed to deny the counterclaim. Failure to file an answering
      	     statement shall not operate to delay the arbitration.
c.	 The form of any filing in these rules shall not be subject to technical pleading
	requirements.

5. Changes of Claim

Before the appointment of the arbitrator, if either party desires to offer a new or
different claim or counterclaim, such party must do so in writing by filing a written
statement with the AAA and simultaneously provide a copy to the other party(s),
who shall have 15 days from the date of such transmittal within which to file an
answer with the AAA. After the appointment of the arbitrator, a party may offer
a new or different claim or counterclaim only at the discretion of the arbitrator.

6. Jurisdiction

a.	 The arbitrator shall have the power to rule on his or her own jurisdiction, including
	   any objections with respect to the existence, scope or validity of the arbitration
	agreement.
b.	   The arbitrator shall have the power to determine the existence or validity of a contract 	
	     of which an arbitration clause forms a part. Such an arbitration clause shall be treated
	     as an agreement independent of the other terms of the contract. A decision by the
	     arbitrator that the contract is null and void shall not for that reason alone render
	     invalid the arbitration clause.
c.	   A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
	     claim or counterclaim no later than the filing of the answering statement to the claim
	     or counterclaim that gives rise to the objection. The arbitrator may rule on such
	     objections as a preliminary matter or as part of the final award.

7. Administrative and Mediation Conferences

Before the appointment of the arbitrator, any party may request, or the AAA, in
its discretion, may schedule an administrative conference with a representative
of the AAA and the parties and/or their representatives. The purpose of the


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     administrative conference is to organize and expedite the arbitration, explore
     its administrative aspects, establish the most efficient means of selecting an
     arbitrator, and to consider mediation as a dispute resolution option. There is
     no administrative fee for this service.

     At any time after the filing of the Demand, with the consent of the parties, the
     AAA will arrange a mediation conference under its Mediation Procedures to
     facilitate settlement. The mediator shall not be any arbitrator appointed to the
     case, except by mutual written agreement of the parties. There is no additional
     filing fee for initiating a mediation under the AAA Mediation Procedures for
     parties to a pending arbitration.

     8. Arbitration Management Conference

     As promptly as practicable after the selection of the arbitrator(s), but not later than
     60 days thereafter, an arbitration management conference shall be held among
     the parties and/or their attorneys or other representatives and the arbitrator(s).
     Unless the parties agree otherwise, the Arbitration Management Conference
     will be conducted by telephone conference call rather than in person. At the
     Arbitration Management Conference the matters to be considered shall include,
     without limitation:

     a.	 the issues to be arbitrated;
     b.	 the date, time, place, and estimated duration of the hearing;
     c.	 the resolution of outstanding discovery issues and establishment of discovery
     	parameters;
     d.	 the law, standards, rules of evidence and burdens of proof that are to apply to the
     	proceeding;
     e.	 the exchange of stipulations and declarations regarding facts, exhibits, witnesses,
     	   and other issues;
     f.	 the names of witnesses (including expert witnesses), the scope of witness testimony, 		
     	   and witness exclusion;
     g.	 the value of bifurcating the arbitration into a liability phase and damages phase;
     h.	 the need for a stenographic record;
     i.	 whether the parties will summarize their arguments orally or in writing;
     j.	 the form of the award;
     k.	 any other issues relating to the subject or conduct of the arbitration;
     l.	 the allocation of attorney’s fees and costs;
     m.	 the specification of undisclosed claims;


18   RULES AND MEDIATION PROCEDURES                                            American Arbitration Association
                                                                                                         18
                                                                                                        App.031
n.	 the extent to which documentary evidence may be submitted at the hearing;
o.	 the extent to which testimony may be admitted at the hearing telephonically, over the
	   internet, by written or video-taped deposition, by affidavit, or by any other means;
p.	 any disputes over the AAA’s determination regarding whether the dispute arose
	   from an individually-negotiated employment agreement or contract, or from an
	   employer-promulgated plan (see Costs of Arbitration section).


The arbitrator shall issue oral or written orders reflecting his or her decision on the
above matters and may conduct additional conferences when the need arises.

There is no AAA administrative fee for an Arbitration Management Conference.

9. Discovery

The arbitrator shall have the authority to order such discovery, by way of
deposition, interrogatory, document production, or otherwise, as the arbitrator
considers necessary to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.

The AAA does not require notice of discovery related matters and
communications unless a dispute arises. At that time, the parties should notify
the AAA of the dispute so that it may be presented to the arbitrator for
determination.

10. Fixing of Locale (the city, county, state, territory, and/or country of the
Arbitration)

If the parties disagree as to the locale, the AAA may initially determine the place
of arbitration, subject to the power of the arbitrator(s), after their appointment to
make a final determination on the locale. All such determinations shall be made
having regard for the contentions of the parties and the circumstances of the
arbitration.

11. Date, Time and Place (the physical site of the hearing within the designated
locale) of Hearing

The arbitrator shall set the date, time, and place for each hearing. The parties
shall respond to requests for hearing dates in a timely manner, be cooperative in
scheduling the earliest practicable date, and adhere to the established hearing
schedule. The AAA shall send a notice of hearing to the parties at least 10 days
in advance of the hearing date, unless otherwise agreed by the parties.


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     12. Number, Qualifications and Appointment of Neutral Arbitrators

     a.	 If the arbitration agreement does not specify the number of arbitrators or the parties
     	   do not agree otherwise, the dispute shall be heard and determined by one arbitrator.
     b.	Qualifications
         i.	     Neutral arbitrators serving under these rules shall be experienced in the field of
         	       employment law.
         ii.	    Neutral arbitrators serving under these rules shall have no personal or financial
         	       interest in the results of the proceeding in which they are appointed and shall
         	       have no relation to the underlying dispute or to the parties or their counsel
         	       that may create an appearance of bias.
         iii.	 The roster of available arbitrators will be established on a non-discriminatory
         	     basis, diverse by gender, ethnicity, background, and qualifications.
         iv.	    The AAA may, upon request of a party within the time set to return their list or
         	       upon its own initiative, supplement the list of proposed arbitrators in disputes
         	       arising out of individually-negotiated employment contracts with persons from
         	       the Commercial Roster, to allow the AAA to respond to the particular need of
         	       the dispute. In multi-arbitrator disputes, at least one of the arbitrators shall be
         	       experienced in the field of employment law.
     c.	 If the parties have not appointed an arbitrator and have not provided any method of
     	   appointment, the arbitrator shall be appointed in the following manner:
         i.	     Shortly after it receives the Demand, the AAA shall send simultaneously to each
         	       party a letter containing an identical list of names of persons chosen from the
         	       Employment Dispute Resolution Roster. The parties are encouraged to agree to 		
         	       an arbitrator from the submitted list and to advise the AAA of their agreement.
         ii.	    If the parties are unable to agree upon an arbitrator, each party to the dispute
         	       shall have 15 days from the transmittal date in which to strike names objected
         	       to, number the remaining names in order of preference, and return the list to
         	       the AAA. If a party does not return the list within the time specified, all persons
         	       named therein shall be deemed acceptable.
         iii.	   From among the persons who have been approved on both lists, and in
         	       accordance with the designated order of mutual preference, the AAA shall invite
         	       the acceptance of an arbitrator to serve. If the parties fail to agree on any of the 		
         	       persons named, or if acceptable arbitrators are unable to act, or if for any other
         	       reason the appointment cannot be made from the submitted list, the AAA shall 		
         	       have the power to make the appointment from among other members of the 		
         	       panel without the submission of additional lists.




20   RULES AND MEDIATION PROCEDURES                                                 American Arbitration Association
                                                                                                              20
                                                                                                             App.033
13. Party Appointed Arbitrators

a.	 If the agreement of the parties names an arbitrator or specifies a method of appointing
	   an arbitrator, that designation or method shall be followed.
b.	   Where the parties have agreed that each party is to name one arbitrator, the arbitrators
	     so named must meet the standards of Section R-16 with respect to impartiality and
	     independence unless the parties have specifically agreed pursuant to Section R-16(a)
	     that the party-appointed arbitrators are to be non-neutral and need not meet those
	     standards. The notice of appointment, with the name, address, and contact information
	     of the arbitrator, shall be filed with the AAA by the appointing party. Upon the request
	     of any appointing party, the AAA shall submit a list of membersof the National Roster
	     from which the party may, if it so desires, make the appointment.
c.	 If the agreement specifies a period of time within which an arbitrator shall be
	   appointed and any party fails to make the appointment within that period, the AAA
	   shall make the appointment.
d.	 If no period of time is specified in the agreement, the AAA shall notify the party to
	   make the appointment. If within 15 days after such notice has been sent, an arbitrator
	   has not been appointed by a party, the AAA shall make the appointment.

14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties

a.	   If, pursuant to Section R-13, either the parties have directly appointed arbitrators, or 		
	     the arbitrators have been appointed by the AAA, and the parties have authorized
	     them to appoint a chairperson within a specified time and no appointment is made
	     within that time or any agreed extension, the AAA may appoint the chairperson.
b.	   If no period of time is specified for appointment of the chairperson and the
	     party-appointed arbitrators or the parties do not make the appointment within
	     15 days from the date of the appointment of the last party-appointed arbitrator,
	     the AAA may appoint the chairperson.
c.	   If the parties have agreed that their party-appointed arbitrators shall appoint the
	     chairperson from the National Roster, the AAA shall furnish to the party-appointed
	     arbitrators, in the manner provided in Section R-12, a list selected from the National
	     Roster, and the appointment of the chairperson shall be made as provided in
	     that Section.

15. Disclosure

a.	   Any person appointed or to be appointed as an arbitrator shall disclose to the AAA
	     any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality
	     or independence, including any bias or any financial or personal interest in the
	     result of the arbitration or any past or present relationship with the parties or their
	     representatives. Such obligation shall remain in effect throughout the arbitration.




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                                                                                                              App.034
     b.	 Upon receipt of such information from the arbitrator or another source, the AAA shall
     	 communicate the information to the parties and, if it deems it appropriate to do so,
     	 to the arbitrator and others.
     c.	 In order to encourage disclosure by arbitrators, disclosure of information pursuant to
     	 this Section R-15 is not to be construed as an indication that the arbitrator considers
     	 that the disclosed circumstance is likely to affect impartiality or independence.

     16. Disqualification of Arbitrator

     a.	 Any arbitrator shall be impartial and independent and shall perform his or her duties
     	   with diligence and in good faith, and shall be subject to disqualification for:
           i.	     partiality or lack of independence,
           ii.	 inability or refusal to perform his or her duties with diligence and in good faith,
           	and
           iii.	   any grounds for disqualification provided by applicable law. The parties may
           	       agree in writing, however, that arbitrators directly appointed by a party pursuant
           	       to Section R-13 shall be nonneutral, in which case such arbitrators need not be
           	       impartial or independent and shall not be subject to disqualification for partiality
           	       or lack of independence.
     b.	   Upon objection of a party to the continued service of an arbitrator, or on its own
     	     initiative, the AAA shall determine whether the arbitrator should be disqualified under
     	     the grounds set out above, and shall inform the parties of its decision, which decision
     	     shall be conclusive.

     17. Communication with Arbitrator

     a.	   No party and no one acting on behalf of any party shall communicate ex parte with
     	     an arbitrator or a candidate for arbitrator concerning the arbitration, except that a
     	     party, or someone acting on behalf of a party, may communicate ex parte with a
     	     candidate for direct appointment pursuant to Section R-13 in order to advise the
     	     candidate of the general nature of the controversy and of the anticipated proceedings
     	     and to discuss the candidate’s qualifications, availability, or independence in relation
     	     to the parties or to discuss the suitability of candidates for selection as a third arbitrator
     	     where the parties or party-designated arbitrators are to participate in that selection.
     b.	   Section R-17(a) does not apply to arbitrators directly appointed by the parties who,
     	     pursuant to Section R-16(a), the parties have agreed in writing are non-neutral. Where
     	     the parties have so agreed under Section R-16(a), the AAA shall as an administrative
     	     practice suggest to the parties that they agree further that Section R-17(a) should
     	     nonetheless apply prospectively.




22   RULES AND MEDIATION PROCEDURES                                                  American Arbitration Association
                                                                                                               22
                                                                                                              App.035
18. Vacancies

If for any reason an arbitrator is unable to perform the duties of the office, the
AAA may, on proof satisfactory to it, declare the office vacant. Vacancies shall be
filled in accordance with applicable provisions of these Rules.

In the event of a vacancy in a panel of neutral arbitrators after the hearings have
commenced, the remaining arbitrator or arbitrators may continue with the hearing
and determination of the controversy, unless the parties agree otherwise.

In the event of the appointment of a substitute arbitrator, the panel of arbitrators
shall determine in its sole discretion whether it is necessary to repeat all or part
of any prior hearings.

19. Representation

Any party may be represented by counsel or other authorized representatives.
For parties without representation, the AAA will, upon request, provide
reference to institutions which might offer assistance. A party who intends to be
represented shall notify the other party and the AAA of the name and address
of the representative at least 10 days prior to the date set for the hearing or
conference at which that person is first to appear. If a representative files a
Demand or an Answer, the obligation to give notice of representative status is
deemed satisfied.

20. Stenographic Record

Any party desiring a stenographic record shall make arrangements directly with
a stenographer and shall notify the other parties of these arrangements at least
three days in advance of the hearing. The requesting party or parties shall pay
the cost of the record. If the transcriptis agreed by the parties, or determined by
the arbitrator to be the official record of the proceeding, it must be provided to
the arbitrator and made available to the other parties for inspection, at a date,
time, and place determined by the arbitrator.

21. Interpreters

Any party wishing an interpreter shall make all arrangements directly with the
interpreter and shall assume the costs of the service.




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                                                                                                              App.036
     22. Attendance at Hearings

     The arbitrator shall have the authority to exclude witnesses, other than a party,
     from the hearing during the testimony of any other witness. The arbitrator also
     shall have the authority to decide whether any person who is not a witness may
     attend the hearing.

     23. Confidentiality

     The arbitrator shall maintain the confidentiality of the arbitration and shall have
     the authority to make appropriate rulings to safeguard that confidentiality, unless
     the parties agree otherwise or the law provides to the contrary.

     24. Postponements

     The arbitrator: (1) may postpone any hearing upon the request of a party for
     good cause shown; (2) must postpone any hearing upon the mutual agreement
     of the parties; and (3) may postpone any hearing on his or her own initiative.

     25. Oaths

     Before proceeding with the first hearing, each arbitrator shall take an oath of office.
     The oath shall be provided to the parties prior to the first hearing. The arbitrator
     may require witnesses to testify under oath administered by any duly qualified
     person and, if it is required by law or requested by any party, shall do so.

     26. Majority Decision

     All decisions and awards of the arbitrators must be by a majority, unless the
     unanimous decision of all arbitrators is expressly required by the arbitration
     agreement or by law.

     27. Dispositive Motions

     The arbitrator may allow the filing of a dispositive motion if the arbitrator
     determines that the moving party has shown substantial cause that the motion
     is likely to succeed and dispose of or narrow the issues in the case.

     28. Order of Proceedings

     A hearing may be opened by: (1) recording the date, time, and place of the
     hearing; (2) recording the presence of the arbitrator, the parties, and their

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                                                                                                    24
                                                                                                   App.037
representatives, if any; and (3) receiving into the record the Demand and the
Answer, if any. The arbitrator may, at the beginning of the hearing, ask for
statements clarifying the issues involved.

The parties shall bear the same burdens of proof and burdens of producing
evidence as would apply if their claims and counterclaims had been brought
in court.

Witnesses for each party shall submit to direct and cross examination.

With the exception of the rules regarding the allocation of the burdens of proof
and going forward with the evidence, the arbitrator has the authority to set the
rules for the conduct of the proceedings and shall exercise that authority to
afford a full and equal opportunity to all parties to present any evidence that
the arbitrator deems material and relevant to the resolution of the dispute.
When deemed appropriate, the arbitrator may also allow for the presentation
of evidence by alternative means including web conferencing, internet
communication, telephonic conferences and means other than an in-person
presentation of evidence. Such alternative means must still afford a full and
equal opportunity to all parties to present any evidence that the arbitrator
deems material and relevant to the resolution of the dispute and when involving
witnesses, provide that such witness submit to direct and cross-examination.

The arbitrator, in exercising his or her discretion, shall conduct the proceedings
with a view toward expediting the resolution of the dispute, may direct the order
of proof, bifurcate proceedings, and direct the parties to focus their presentations
on issues the decision of which could dispose of all or part of the case.

Documentary and other forms of physical evidence, when offered by either party,
may be received in evidence by the arbitrator.

The names and addresses of all witnesses and a description of the exhibits in the
order received shall be made a part of the record.

29. Arbitration in the Absence of a Party or Representative

Unless the law provides to the contrary, the arbitration may proceed in the
absence of any party or representative who, after due notice, fails to be present
or fails to obtain a postponement. An award shall not be based solely on the
default of a party. The arbitrator shall require the party who is in attendance to
present such evidence as the arbitrator may require for the making of the award.

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                                                                                                              App.038
     30. Evidence

     The parties may offer such evidence as is relevant and material to the dispute
     and shall produce such evidence as the arbitrator deems necessary to an
     understanding and determination of the dispute. All evidence shall be taken
     in the presence of all of the arbitrators and all of the parties, except where
     any party or arbitrator is absent, in default, or has waived the right to be
     present, however “presence” should not be construed to mandate that the
     parties and arbitrators must be physically present in the same location.

     An arbitrator or other person authorized by law to subpoena witnesses or
     documents may do so upon the request of any party or independently.

     The arbitrator shall be the judge of the relevance and materiality of the evidence
     offered, and conformity to legal rules of evidence shall not be necessary. The
     arbitrator may in his or her discretion direct the order of proof, bifurcate
     proceedings, exclude cumulative or irrelevant testimony or other evidence,
     and direct the parties to focus their presentations on issues the decision of
     which could dispose of all or part of the case. All evidence shall be taken in the
     presence of all of the arbitrators and all of the parties, except where any party
     is absent, in default, or has waived the right to be present.

     If the parties agree or the arbitrator directs that documents or other evidence
     may be submitted to the arbitrator after the hearing, the documents or other
     evidence shall be filed with the AAA for transmission to the arbitrator, unless the
     parties agree to a different method of distribution. All parties shall be afforded
     an opportunity to examine such documents or other evidence and to lodge
     appropriate objections, if any.

     31. Inspection

     Upon the request of a party, the arbitrator may make an inspection in connection
     with the arbitration. The arbitrator shall set the date and time, and the AAA shall
     notify the parties. In the event that one or all parties are not present during the
     inspection, the arbitrator shall make an oral or written report to the parties and
     afford them an opportunity to comment.




26   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association
                                                                                                 26
                                                                                                App.039
32. Interim Measures

At the request of any party, the arbitrator may grant any remedy or relief that
would have been available to the parties had the matter been heard in court,
as stated in Rule 39(d), Award.

A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with the agreement to arbitrate or a waiver of the
right to arbitrate.

33. Closing of Hearing

The arbitrator shall specifically inquire of all parties whether they have any
further proofs to offer or witnesses to be heard. Upon receiving negative replies
or if satisfied that the record is complete, the arbitrator shall declare the hearing
closed.

If briefs are to be filed, the hearing shall be declared closed as of the final
date set by the arbitrator for the receipt of briefs. If documents are to be filed as
provided in Rule 30 and the date set for their receipt is later than that set for the
receipt of briefs, the later date shall be the date of closing the hearing. The time
limit within which the arbitrator is required to make the award shall commence
to run, in the absence of other agreements by the parties, upon closing of
the hearing.

34. Reopening of Hearing

The hearing may be reopened by the arbitrator upon the arbitrator’s initiative,
or upon application of a party for good cause shown, at any time before the
award is made. If reopening the hearing would prevent the making of the award
within the specific time agreed on by the parties in the contract(s) out of which
the controversy has arisen, the matter may not be reopened unless the parties
agree on an extension of time. When no specific date is fixed in the contract, the
arbitrator may reopen the hearing and shall have 30 days from the closing of the
reopened hearing within which to make an award.

35. Waiver of Oral Hearing

The parties may provide, by written agreement, for the waiver of oral hearings.
If the parties are unable to agree as to the procedure, upon the appointment of
the arbitrator, the arbitrator shall specify a fair and equitable procedure.


Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 27
                                                                                                               27
                                                                                                              App.040
     36. Waiver of Objection/Lack of Compliance with These Rules

     Any party who proceeds with the arbitration after knowledge that any provision
     or requirement of these rules has not been complied with, and who fails to state
     objections thereto in writing or in a transcribed record, shall be deemed to have
     waived the right to object.

     37. Extensions of Time

     The parties may modify any period of time by mutual agreement. The AAA or the
     arbitrator may for good cause extend any period of time established by these
     Rules, except the time for making the award. The AAA shall notify the parties of
     any extension.

     38. Serving of Notice

     a.	   Any papers, notices, or process necessary or proper for the initiation or continuation
     	     of an arbitration under these rules, for any court action in connection therewith, or for
     	     the entry of judgment on any award made under these rules may be served on a party 	
     	     by mail addressed to the party, or its representative at the last known address or by 		
     	     personal service, in or outside the state where the arbitration is to be held, provided 		
     	     that reasonable opportunity to be heard with regard to the dispute is or has been
     	     granted to the party.
     b.	   The AAA, the arbitrator, and the parties may also use overnight delivery or electronic
     	     facsimile transmission (fax), to give the notices required by these rules. Where all
     	     parties and the arbitrator agree, notices may be transmitted by electronic mail (e-mail),
     	     or other methods of communication.
     c.	 Unless otherwise instructed by the AAA or by the arbitrator, any documents submitted
     	   by any party to the AAA or to the arbitrator shall simultaneously be provided to the
     	   other party or parties to the arbitration.

     39. The Award

     a.	   The award shall be made promptly by the arbitrator and, unless otherwise agreed by
     	     the parties or specified by law, no later than 30 days from the date of closing of the
     	     hearing or, if oral hearings have been waived, from the date of the AAA’s transmittal
     	     of the final statements and proofs to the arbitrator. Three additional days are provided
     	     if briefs are to be filed or other documents are to be transmitted pursuant to Rule 30.
     b.	 An award issued under these rules shall be publicly available, on a cost basis.
     	   The names of the parties and witnesses will not be publicly available, unless a party
     	   expressly agrees to have its name made public in the award.
     c.	 The award shall be in writing and shall be signed by a majority of the arbitrators and
     	   shall provide the written reasons for the award unless the parties agree otherwise.
     	   It shall be executed in the manner required by law.

28   RULES AND MEDIATION PROCEDURES                                              American Arbitration Association
                                                                                                           28
                                                                                                          App.041
d.	   The arbitrator may grant any remedy or relief that would have been available to
	     the parties had the matter been heard in court including awards of attorney’s fees
	     and costs, in accordance with applicable law. The arbitrator shall, in the award, assess
	     arbitration fees, expenses, and compensation as provided in Rules 43, 44, and 45 in
	     favor of any party and, in the event any administrative fees or expenses are due the
	     AAA, in favor of the AAA, subject to the provisions contained in the Costs of
	     Arbitration section.
e.	 If the parties settle their dispute during the course of the arbitration and mutually
	   request, the arbitrator may set forth the terms of the settlement in a consent award.
f.	   The parties shall accept as legal delivery of the award the placing of the award or a
	     true copy thereof in the mail, addressed to a party or its representative at the last
	     known address, personal service of the award, or the filing of the award in any manner
	     that may be required by law.

g.	 The arbitrator’s award shall be final and binding.

40. Modification of Award

Within 20 days after the transmittal of an award, any party, upon notice to the
other parties, may request the arbitrator to correct any clerical, typographical,
technical, or computational errors in the award. The arbitrator is not empowered
to redetermine the merits of any claim already decided. The other parties shall
be given 10 days to respond to the request. The arbitrator shall dispose of the
request within 20 days after transmittal by the AAA to the arbitrator of the request
and any response thereto. If applicable law requires a different procedural time
frame, that procedure shall be followed.

41. Release of Documents for Judicial Proceedings

The AAA shall, upon the written request of a party, furnish to the party, at that
party’s expense, certified copies of any papers in the AAA’s case file that may
be required in judicial proceedings relating to the arbitration.

42. Applications to Court

a.	 No judicial proceeding by a party relating to the subject matter of the arbitration shall
	   be deemed a waiver of the party’s right to arbitrate.
b.	 Neither the AAA nor any arbitrator in a proceeding under these rules is or shall
	   be considered a necessary or proper party in judicial proceedings relating to the
	arbitration.
c.	 Parties to these procedures shall be deemed to have consented that judgment upon
	   the arbitration award may be entered in any federal or state court having jurisdiction.



Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 29
                                                                                                               29
                                                                                                              App.042
     d.	   Parties to an arbitration under these rules shall be deemed to have consented
     	     that neither the AAA nor any arbitrator shall be liable to any party in any action for
     	     damages or injunctive relief for any act or omission in connection with any arbitration
     	     under these rules.

     43. Administrative Fees

     As a not-for-profit organization, the AAA shall prescribe filing and other
     administrative fees to compensate it for the cost of providing administrative
     services. The AAA administrative fee schedule in effect at the time the demand
     for arbitration or submission agreement is received shall be applicable.

     AAA fees shall be paid in accordance with the Costs of Arbitration Section
     (see page 33-43).

     The AAA may, in the event of extreme hardship on any party, defer or reduce the
     administrative fees. (To ensure that you have the most current information, see
     our website at www.adr.org).

     44. Neutral Arbitrator’s Compensation

     Arbitrators shall charge a rate consistent with the arbitrator’s stated rate of
     compensation. If there is disagreement concerning the terms of compensation,
     an appropriate rate shall be established with the arbitrator by the AAA and
     confirmed to the parties.

     Any arrangement for the compensation of a neutral arbitrator shall be made
     through the AAA and not directly between the parties and the arbitrator.
     Payment of the arbitrator’s fees and expenses shall be made by the AAA from
     the fees and moneys collected by the AAA for this purpose.

     Arbitrator compensation shall be borne in accordance with the Costs of
     Arbitration section.

     45. Expenses

     Unless otherwise agreed by the parties or as provided under applicable law, the
     expenses of witnesses for either side shall be borne by the party producing such
     witnesses.




30   RULES AND MEDIATION PROCEDURES                                             American Arbitration Association
                                                                                                          30
                                                                                                         App.043
All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator shall be borne in accordance with the Costs of
Arbitration section.

46. Deposits

The AAA may require deposits in advance of any hearings such sums of money
as it deems necessary to cover the expenses of the arbitration, including the
arbitrator’s fee, if any, and shall render an accounting and return any unexpended
balance at the conclusion of the case.

47. Suspension for Non-Payment

If arbitrator compensation or administrative charges have not been paid in full,
the AAA may so inform the parties in order that one of them may advance the
required payment. If such payments are not made, the arbitrator may order the
suspension or termination of the proceedings. If no arbitrator has yet been
appointed, the AAA may suspend or terminate the proceedings.

48. Interpretation and Application of Rules

The arbitrator shall interpret and apply these rules as they relate to the arbitrator’s
powers and duties. When there is more than one arbitrator and a difference arises
among them concerning the meaning or application of these Rules, it shall be
resolved by a majority vote. If that is not possible, either an arbitrator or a party
may refer the question to the AAA for final decision. All other procedures shall
be interpreted and applied by the AAA.

Costs of Arbitration (including AAA Administrative Fees)

This Costs of Arbitration section contains two separate and distinct sub-sections.
Initially, the AAA shall make an administrative determination as to whether the
dispute arises from an employer-promulgated plan or an individually-negotiated
employment agreement or contract.

If a party disagrees with the AAA’s determination, the parties may bring the
issue to the attention of the arbitrator for a final determination. The arbitrator’s
determination will be made on documents only, unless the arbitrator deems a
hearing is necessary.



Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 31
                                                                                                               31
                                                                                                              App.044
     For Disputes Arising Out of Employer-Promulgated Plans*:

     Arbitrator compensation is not included as part of the administrative fees charged
     by the AAA. Arbitrator compensation is based on the most recent biography
     sent to the parties prior to appointment. The employer shall pay the arbitrator’s
     compensation unless the employee, post dispute, voluntarily elects to pay a
     portion of the arbitrator’s compensation. Arbitrator compensation, expenses as
     defined in section (iv) below, and administrative fees are not subject to reallocation
     by the arbitrator(s) except upon the arbitrator’s determination that a claim or
     counterclaim was filed for purposes of harassment or is patently frivolous.

     *
      Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
     less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
     of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
     consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
     the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
     Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
     fees. (Effective January 1, 2003.)


     A party making a demand for treatment of a claim, counterclaim, or additional
     claim as a collective action arbitration will be subject to the administrative
     fees as outlined in the standard and flexible fee schedules below. Arbitrator
     compensation is not included as a part of the administrative fees charged by
     the AAA. Arbitrator compensation in cases involving a collective action claim
     will be charged in accordance with the determination as to whether the dispute
     arises from an employer-promulgated plan or an individually negotiated
     employment agreement or contract.

     (i) Filing Fees

     Cases Filed by Employee Against Employer

     In cases before a single arbitrator, a non-refundable filing fee capped in the
     amount of $200 is payable in full by the employee when a claim is filed, unless
     the plan provides that the employee pay less. A non-refundable fee in the
     amount of $1350 is payable in full by the employer, unless the plan provides
     that the employer pay more.

     In cases before three or more arbitrators, a non-refundable filing fee capped
     in the amount of $200 is payable in full by the employee when a claim is filed,
     unless the plan provides that the employee pay less. A non-refundable fee in
     the amount of $1,800 is payable in full by the employer, unless the plan provides
     that the employer pay more.


32   RULES AND MEDIATION PROCEDURES                                                               American Arbitration Association
                                                                                                                            32
                                                                                                                           App.045
The employer’s share is due as soon as the employee meets his or her filing
requirements, even if the matter settles.

There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually negotiated
employment agreements.

The above fee schedule will also apply where the employer files on behalf of
the employee pursuant to the terms of the employer promulgated plan.

Cases Filed by Employer Against Employee

In cases before a single arbitrator, a non-refundable fee in the amount of $1,550
is payable in full by the employer.

In cases before three or more arbitrators, a non-refundable fee in the amount
of $2,000 is payable in full by the employer.

There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually-negotiated
employment agreements.

(ii) Hearing Fees

For each day of hearing held before a single arbitrator, an administrative fee of
$350 is payable by the employer.

For each day of hearing held before a multi-arbitrator panel, an administrative
fee of $500 is payable by the employer.

There is no AAA hearing fee for the initial Arbitration Management Conference.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 33
                                                                                                               33
                                                                                                              App.046
     (iii) Postponement/Cancellation Fees

     A fee of $150 is payable by a party causing a postponement of any hearing
     scheduled before a single arbitrator.

     A fee of $250 is payable by a party causing a postponement of any hearing
     scheduled before a multi-arbitrator panel.

     (iv) Hearing Room Rental

     The hearing fees described above do not cover the rental of hearing rooms.
     The AAA maintains hearing rooms in most offices for the convenience of the
     parties. Check with the administrator for availability and rates. Hearing room
     rental fees will be borne by the employer.

     (v) Abeyance Fee

     Parties on cases held in abeyance for one year will be assessed an annual
     abeyance fee of $300. A case may only be held in abeyance after the initial filing
     fees have been paid. If a party refuses to pay the assessed fee, the other party
     or parties may pay the entire fee on behalf of all parties, otherwise the matter
     will be administratively closed.

     (vi) Expenses

     All expenses of the arbitrator, including required travel and other expenses, and
     any AAA expenses, as well as the costs relating to proof and witnesses produced
     at the direction of the arbitrator, shall be borne by the employer.


     For Disputes Arising Out of Individually-Negotiated Employment
     Agreements and Contracts:

     The AAA’s Fee Schedule, as modified below, will apply to disputes arising out
     of individually-negotiated employment agreements and contracts, even if such
     agreements and contracts reference or incorporate an employer-promulgated
     plan. Arbitrator compensation is not included as part of the administrative fees
     charged by the AAA. Arbitrator compensation is based on the most recent
     biography sent to the parties prior to appointment.




34   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association
                                                                                                 34
                                                                                                App.047
Administrative Fee Schedules (Standard and Flexible Fee)

The AAA has two administrative fee options for parties filing claims or
counterclaims, the Standard Fee Schedule and Flexible Fee Schedule. The
Standard Fee Schedule has a two-payment schedule, and the Flexible Fee
Schedule has a three-payment schedule which offers lower initial filing fees, but
potentially higher total administrative fees of approximately 12% to 19% for cases
that proceed to a hearing. The administrative fees of the AAA are based on the
amount of the claim or counterclaim. Arbitrator compensation is not included in
this schedule. Unless the parties agree otherwise, arbitrator compensation and
administrative fees are subject to allocation by the arbitrator in the award.

In an effort to make arbitration costs reasonable for consumers, the AAA has a
separate fee schedule for consumer-related disputes. Please refer to Section C-8
of the Supplementary Procedures for Consumer-Related Disputes when filing a
consumer-related claim. Note that the Flexible Fee Schedule is not available on
cases administered under these supplementary procedures.

The AAA applies the Supplementary Procedures for Consumer-Related Disputes
to arbitration clauses in agreements between individual consumers and businesses
where the business has a standardized, systematic application of arbitration
clauses with customers and where the terms and conditions of the purchase of
standardized, consumable goods or services are non-negotiable or primarily
non-negotiable in most or all of its terms, conditions, features, or choices.
The product or service must be for personal or household use. The AAA will
have the discretion to apply or not to apply the Supplementary Procedures and
the parties will be able to bring any disputes concerning the application or
non-application to the attention of the arbitrator. Consumers are not prohibited
from seeking relief in a small claims court for disputes or claims within the scope
of its jurisdiction, even in consumer arbitration cases filed by the business.

Fees for incomplete or deficient filings: Where the applicable arbitration
agreement does not reference the AAA, the AAA will attempt to obtain the
agreement of the other parties to the dispute to have the arbitration administered
by the AAA. However, where the AAA is unable to obtain the agreement of the
parties to have the AAA administer the arbitration, the AAA will administratively
close the case and will not proceed with the administration of the arbitration. In
these cases, the AAA will return the filing fees to the filing party, less the amount
specified in the fee schedule below for deficient filings.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 35
                                                                                                               35
                                                                                                              App.048
     Parties that file demands for arbitration that are incomplete or otherwise do not
     meet the filing requirements contained in these Rules shall also be charged the
     amount specified below for deficient filings if they fail or are unable to respond
     to the AAA’s request to correct the deficiency.

     Fees for additional services: The AAA reserves the right to assess additional
     administrative fees for services performed by the AAA beyond those provided for
     in these Rules which may be required by the parties’ agreement or stipulation.

     (i) Standard Fee Schedule

     An Initial Filing Fee is payable in full by a filing party when a claim, counterclaim,
     or additional claim is filed. A Final Fee will be incurred for all cases that proceed
     to their first hearing. This fee will be payable in advance at the time that the first
     hearing is scheduled. This fee will be refunded at the conclusion of the case if
     no hearings have occurred. However, if the Association is not notified at least
     24 hours before the time of the scheduled hearing, the Final Fee will remain
     due and will not be refunded.




36   RULES AND MEDIATION PROCEDURES                                       American Arbitration Association
                                                                                                    36
                                                                                                   App.049
These fees will be billed in accordance with the following schedule:


            AMOUNT OF CLAIM                                  INITIAL FILING FEE                    FINAL FEE


             Above $0 to $10,000                                       $775                           $200



          Above $10,000 to $75,000                                     $975                           $300



         Above $75,000 to $150,000                                    $1,850                          $750



         Above $150,000 to $300,000                                   $2,800                          $1,250



       Above to $300,000 to $500,000                                  $4,350                          $1,750



      Above to $500,000 to $1,000,000                                 $6,200                          $2,500



       Above $1,000,000 to $5,000,000                                 $8,200                          $3,250



      Above $5,000,000 to $10,000,000                                $10,200                          $4,000


                                                      Base fee of $12,800 plus .01% of the
              Above $10,000,000                           amount above $10,000,000                    $6,000
                                                            Fee Capped at $65,000


            Nonmonetary claims1                                       $3,350                          $1,250



          Collective Action Claims2                                   $3,350                          $1,250



          Deficient Claim Filing Fee3                                  $350



             Additional Services4


1	
  This fee is applicable when a claim or counterclaim is not for a monetary amount. Where a
	 monetary claim amount is not known, parties will be required to state a range of claims or be
	 subject to a filing fee of $10,200.
2	
  This fee is applicable where a party makes a demand for treatment of a claim, counterclaim, or
	 additional claim as a collective action arbitration.
3	
  The Deficient Claim Filing Fee shall not be charged in cases filed by a consumer in an arbitration
	 governed by the Supplementary Procedures for the Resolution of Consumer-Related Disputes, or 	
	 in cases filed by an Employee who is submitting their dispute to arbitration pursuant to an employer 	
	 promulgated plan.
4
 	The AAA may assess additional fees where procedures or services outside the Rules sections are
	 required under the parties’ agreement or by stipulation.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 37
                                                                                                                37
                                                                                                               App.050
     Fees are subject to increase if the amount of a claim or counterclaim is modified
     after the initial filing date. Fees are subject to decrease if the amount of a claim
     or counterclaim is modified before the first hearing.

     The minimum fees for any case having three or more arbitrators are $2,800 for
     the Initial Filing Fee, plus a $1,250 Final Fee. Expedited Procedures are applied in
     any case where no disclosed claim or counterclaim exceeds $75,000, exclusive of
     interest and arbitration costs.

     Parties on cases filed under either the Flexible Fee Schedule or the Standard
     Fee Schedule that are held in abeyance for one year will be assessed an annual
     abeyance fee of $300. A case may only be held in abeyance after the filing fees
     have been paid. If a party refuses to pay the assessed fee, the other party or
     parties may pay the entire fee on behalf of all parties, otherwise the matter will
     be administratively closed.

     For more information, please contact your local AAA office, case management
     center, or our Customer Service desk at 1-800-778-7879.

     (ii) Refund Schedule for Standard Fee Schedule

     The AAA offers a refund schedule on filing fees connected with the Standard Fee
     Schedule. For cases with claims up to $75,000, a minimum filing fee of $350 will
     not be refunded. For all other cases, a minimum fee of $600 will not be refunded.
     Subject to the minimum fee requirements, refunds will be calculated as follows:

         >	 100% of the filing fee, above the minimum fee, will be refunded if the case is
         	  settled or withdrawn within five calendar days of filing.
         >	 50% of the filing fee, will be refunded if the case is settled or withdrawn between
         	  six and 30 calendar days of filing.
         >	 25% of the filing fee will be refunded if the case is settled or withdrawn between
         	  31 and 60 calendar days of filing.


     No refund will be made once an arbitrator has been appointed (this includes
     one arbitrator or a three-arbitrator panel). No refunds will be granted on
     awarded cases.

     Note: The date of receipt of the demand for arbitration with the AAA will be
     used to calculate refunds of filing fees for both claims and counterclaims.




38   RULES AND MEDIATION PROCEDURES                                          American Arbitration Association
                                                                                                       38
                                                                                                      App.051
(iii) Flexible Fee Schedule

A non-refundable Initial Filing Fee is payable in full by a filing party when a
claim, counterclaim, or additional claim is filed. Upon receipt of the Demand for
Arbitration, the AAA will promptly initiate the case and notify all parties as well as
establish the due date for filing of an Answer, which may include a Counterclaim.
In order to proceed with the further administration of the arbitration and
appointment of the arbitrator(s), the appropriate, non-refundable Proceed Fee
outlined below must be paid.

If a Proceed Fee is not submitted within ninety (90) days of the filing of the
Claimant’s Demand for Arbitration, the Association will administratively close
the file and notify all parties.

No refunds or refund schedule will apply to the Filing or Proceed Fees once
received.

The Flexible Fee Schedule below also may be utilized for the filing of
counterclaims. However, as with the Claimant’s claim, the counterclaim will not
be presented to the arbitrator until the Proceed Fee is paid.

A Final Fee will be incurred for all claims and/or counterclaims that proceed to
their first hearing. This fee will be payable in advance when the first hearing is
scheduled, but will be refunded at the conclusion of the case if no hearings
have occurred. However, if the Association is not notified of a cancellation at
least 24 hours before the time of the scheduled hearing, the Final Fee will remain
due and will not be refunded.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 39
                                                                                                               39
                                                                                                              App.052
     All fees will be billed in accordance with the following schedule:


              AMOUNT OF CLAIM               INITIAL FILING FEE        PROCEED FEE                 FINAL FEE


               Above $0 to $10,000                 $400                     $475                       $200



             Above $10,000 to $75,000              $625                     $500                       $300



            Above $75,000 to $150,000              $850                    $1,250                      $750



            Above $150,000 to $300,000            $1,000                   $2,125                     $1,250



          Above to $300,000 to $500,000           $1,500                   $3,400                     $1,750



          Above to $500,000 to $1,000,000         $2,500                   $4,500                     $2,500



          Above $1,000,000 to $5,000,000          $2,500                   $6,700                     $3,250



          Above $5,000,000 to $10,000,000         $3,500                   $8,200                     $4,000


                                                                      $10,300 plus .01%
                Above $10,000,000                 $4,500            of claim amount over              $6,000
                                                                  $10,000,000 up to $65,000


                  Nonmonetary 1                   $2,000                   $2,000                     $1,250



             Collective Action Claims2            $2,000                   $2,000                     $1,250



             Deficient Claim Filing Fee            $350



                Additional Services3



     1	
       This fee is applicable when a claim or counterclaim is not for a monetary amount. Where a monetary 		
     	 claim amount is not known, parties will be required to state a range of claims or be subject to a filing
     	 fee of $3,500 and a proceed fee of $8,200.
     2
      	This fee is applicable where a party makes a demand for treatment of a claim, counterclaim, or
     	 additional claim as a collective action arbitration.
     3
      	The AAA reserves the right to assess additional administrative fees for services performed by the 		
     	 AAA beyond those provided for in these Rules and which may be required by the parties’ agreement 	
     	 or stipulation.




40   RULES AND MEDIATION PROCEDURES                                                      American Arbitration Association
                                                                                                                   40
                                                                                                                  App.053
For more information, please contact your local AAA office, case management
center, or our Customer Service desk at 1-800-778-7879. All fees are subject to
increase if the amount of a claim or counterclaim is modified after the initial filing
date. Fees are subject to decrease if the amount of a claim or counterclaim is
modified before the first hearing.

The minimum fees for any case having three or more arbitrators are $1,000 for
the Initial Filing Fee; $2,125 for the Proceed Fee; and $1,250 for the Final Fee.

Under the Flexible Fee Schedule, a party’s obligation to pay the Proceed Fee
shall remain in effect regardless of any agreement of the parties to stay,
postpone or otherwise modify the arbitration proceedings. Parties that, through
mutual agreement, have held their case in abeyance for one year will be assessed
an annual abeyance fee of $300. If a party refuses to pay the assessed fee, the
other party or parties may pay the entire fee on behalf of all parties, otherwise
the matter will be closed.

Note: The date of receipt by the AAA of the demand for arbitration will be used
to calculate the ninety (90) day time limit for payment of the Proceed Fee.

There is no Refund Schedule in the Flexible Fee Schedule.

(iv) Hearing Room Rental

The fees described above do not cover the cost of hearing rooms, which are
available on a rental basis. Check with the AAA for availability and rates.

(v) Abeyance Fee

Parties on cases filed under the Standard Fee Schedule that are held in abeyance
for one year will be assessed an annual abeyance fee of $300. A case may only
be held in abeyance after the filing fees have been paid. If a party refuses to pay
the assessed fee, the other party or parties may pay the entire fee on behalf of all
parties, otherwise the matter will be administratively closed.

(vi) Expenses

All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne equally by the parties.



Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 41
                                                                                                               41
                                                                                                              App.054
     For Disputes Proceeding Under the Supplementary Rules for Class
     Action Arbitration (“Supplementary Rules”):

     The AAA’s Administered Fee Schedule, as listed in Section 11 of the
     Supplementary Rules for Class Action Arbitration, shall apply to disputes
     proceeding under the Supplementary Rules.

     Optional Rules for Emergency Measures of Protection

     O-1. Applicability

     Where parties by special agreement or in their arbitration clause have adopted
     these rules for emergency measures of protection, a party in need of emergency
     relief prior to the constitution of the panel shall notify the AAA and all other
     parties in writing of the nature of the relief sought and the reasons why such
     relief is required on an emergency basis. The application shall also set forth the
     reasons why the party is entitled to such relief. Such notice may be given by
     facsimile transmission, or other reliable means, but must include a statement
     certifying that all other parties have been notified or an explanation of the
     steps taken in good faith to notify other parties.

     O-2. Appointment of Emergency Arbitrator

     Within one business day of receipt of notice as provided in Section O-1, the
     AAA shall appoint a single emergency arbitrator from a special AAA panel of
     emergency arbitrators designated to rule on emergency applications. The
     emergency arbitrator shall immediately disclose any circumstance likely, on
     the basis of the facts disclosed in the application, to affect such arbitrator’s
     impartiality or independence. Any challenge to the appointment of the emergency
     arbitrator must be made within one business day of the communication by the
     AAA to the parties of the appointment of the emergency arbitrator and the
     circumstances disclosed.

     O-3. Schedule

     The emergency arbitrator shall as soon as possible, but in any event within
     two business days of appointment, establish a schedule for consideration of the
     application for emergency relief. Such schedule shall provide a reasonable
     opportunity to all parties to be heard, but may provide for proceeding by
     telephone conference or on written submissions as alternatives to a formal hearing.


42   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association
                                                                                                 42
                                                                                                App.055
O-4. Interim Award

If after consideration the emergency arbitrator is satisfied that the party seeking
the emergency relief has shown that immediate and irreparable loss or damage
will result in the absence of emergency relief, and that such party is entitled to
such relief, the emergency arbitrator may enter an interim award granting the
relief and stating the reasons therefore.

O-5. Constitution of the Panel

Any application to modify an interim award of emergency relief must be based
on changed circumstances and may be made to the emergency arbitrator until
the panel is constituted; thereafter such a request shall be addressed to the
panel. The emergency arbitrator shall have no further power to act after the
panel is constituted unless the parties agree that the emergency arbitrator is
named as a member of the panel.

O-6. Security

Any interim award of emergency relief may be conditioned on provision by the
party seeking such relief of appropriate security.

O-7. Special Master

A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with the agreement to arbitrate or a waiver of the
right to arbitrate. If the AAA is directed by a judicial authority to nominate a
special master to consider and report on an application for emergency relief, the
AAA shall proceed as provided in Section O-1 of this article and the references
to the emergency arbitrator shall be read to mean the special master, except that
the special master shall issue a report rather than an interim award.

O-8. Costs

The costs associated with applications for emergency relief shall be apportioned
in the same manner as set forth in the Costs of Arbitration section.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 43
                                                                                                               43
                                                                                                              App.056
     Employment Mediation Procedures

     M-1. Agreement of Parties

     Whenever, by stipulation or in their contract, the parties have provided for
     mediation or conciliation of existing or future disputes under the auspices of the
     American Arbitration Association (AAA) or under these procedures, the parties
     and their representatives, unless agreed otherwise in writing, shall be deemed to
     have made these procedures, as amended and in effect as of the date of filing of
     a request for mediation, a part of their agreement and designate the AAA as the
     administrator of their mediation.

     The parties by mutual agreement may vary any part of these procedures
     including, but not limited to, agreeing to conduct the mediation via telephone
     or other electronic or technical means.

     M-2. Initiation of Mediation

     Any party or parties to a dispute may initiate mediation under the AAA’s auspices
     by making a Request for Mediation to any of the AAA’s regional offices or case
     management centers via telephone, email, regular mail or fax. Requests for
     Mediation may also be filed online via AAA WebFile at www.adr.org.

     The party initiating the mediation shall simultaneously notify the other party or
     parties of the request. The initiating party shall provide the following information
     to the AAA and the other party or parties as applicable:

         i.	   A copy of the mediation provision of the parties’ contract or the parties’
         	     stipulation to mediate.
         ii.	 The names, regular mail addresses, email addresses (if available), and telephone
         	    numbers of all parties to the dispute and representatives, if any, in the mediation.
         iii.	 A brief statement of the nature of the dispute and the relief requested.

         iv.	 Any specific qualifications the mediator should possess.


     Where there is no preexisting stipulation or contract by which the parties have
     provided for mediation of existing or future disputes under the auspices of the
     AAA, a party may request the AAA to invite another party to participate in
     “mediation by voluntary submission”. Upon receipt of such a request, the AAA
     will contact the other party or parties involved in the dispute and attempt to
     obtain a submission to mediation.


44   RULES AND MEDIATION PROCEDURES                                             American Arbitration Association
                                                                                                          44
                                                                                                         App.057
M-3. Fixing of Locale (the city, county, state, territory and, if applicable, country of
the mediation)

     i.	     When the parties’ agreement to mediate is silent with respect to locale and the
     	       parties are unable to agree upon a locale, the AAA shall have the authority to
     	       consider the parties’ arguments and determine the locale.
     ii.	 When the parties’ agreement to mediate requires a specific locale, absent the
     	    parties’ agreement to change it, the locale shall be that specified in the
     	    agreement to mediate.
     iii.	 If the reference to a locale in the agreement to mediate is ambiguous, the
     	     AAA shall have the authority to consider the parties’ arguments and determine
     	     the locale.

M-4. Representation

Any party may participate without representation (pro-se), or by any representative
of that party’s choosing, or by counsel, unless such choice is prohibited by
applicable law. A party intending to have representation shall notify the other
party and the AAA of the name, telephone number and address, and email
address if available of the representative.

M-5. Appointment of the Mediator

Parties may search the online profiles of the AAA’s Panel of Mediators at
www.adr.org/mediation in an effort to agree on a mediator. If the parties have
not agreed to the appointment of a mediator and have not provided any other
method of appointment, the mediator shall be appointed in the following manner:

     i.	 Upon receipt of a request for mediation, the AAA will send to each party a list
     	   of mediators from the AAA’s Panel of Mediators. The parties are encouraged to
     	   agree to a mediator from the submitted list and to advise the AAA of their
     	agreement.
     ii.	    If the parties are unable to agree upon a mediator, each party shall strike
     	       unacceptable names from the list, number the remaining names in order of
     	       preference, and return the list to the AAA. If a party does not return the list within
     	       the time specified, all mediators on the list shall be deemed acceptable to that
     	       party. From among the mediators who have been mutually approved by the
     	       parties, and in accordance with the designated order of mutual preference, the
     	       AAA shall invite a mediator to serve.
     iii.	   If the parties fail to agree on any of the mediators listed, or if acceptable
     	       mediators are unable to serve, or if for any other reason the appointment cannot
     	       be made from the submitted list, the AAA shall have the authority to make the
     	       appointment from among other members of the Panel of Mediators without the
     	       submission of additional lists.
Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 45
                                                                                                               45
                                                                                                              App.058
     M-6. Mediator’s Impartiality and Duty to Disclose

     AAA mediators are required to abide by the Model Standards of Conduct for
     Mediators in effect at the time a mediator is appointed to a case. Where there
     is a conflict between the Model Standards and any provision of these Mediation
     Procedures, these Mediation Procedures shall govern. The Standards require
     mediators to (i) decline a mediation if the mediator cannot conduct it in an
     impartial manner, and (ii) disclose, as soon as practicable, all actual and potential
     conflicts of interest that are reasonably known to the mediator and could
     reasonably be seen as raising a question about the mediator’s impartiality.

     Prior to accepting an appointment, AAA mediators are required to make a
     reasonable inquiry to determine whether there are any facts that a reasonable
     individual would consider likely to create a potential or actual conflict of interest
     for the mediator. AAA mediators are required to disclose any circumstance likely
     to create a presumption of bias or prevent a resolution of the parties’ dispute
     within the time-frame desired by the parties. Upon receipt of such disclosures,
     the AAA shall immediately communicate the disclosures to the parties for their
     comments.

     The parties may, upon receiving disclosure of actual or potential conflicts of
     interest of the mediator, waive such conflicts and proceed with the mediation.
     In the event that a party disagrees as to whether the mediator shall serve, or in
     the event that the mediator’s conflict of interest might reasonably be viewed as
     undermining the integrity of the mediation, the mediator shall be replaced.

     M-7. Vacancies

     If any mediator shall become unwilling or unable to serve, the AAA will appoint
     another mediator, unless the parties agree otherwise, in accordance with
     section M-5.

     M-8. Duties and Responsibilities of the Mediator

         i.	    The mediator shall conduct the mediation based on the principle of party
         	      self-determination. Self-determination is the act of coming to a voluntary,
         	      uncoerced decision in which each party makes free and informed choices as to
         	      process and outcome.
         ii.	   The mediator is authorized to conduct separate or ex parte meetings and other
         	      communications with the parties and/or their representatives, before, during, and
         	      after any scheduled mediation conference. Such communications may be
         	      conducted via telephone, in writing, via email, online, in person or otherwise.

46   RULES AND MEDIATION PROCEDURES                                            American Arbitration Association
                                                                                                         46
                                                                                                        App.059
     iii.	   The parties are encouraged to exchange all documents pertinent to the relief
     	       requested. The mediator may request the exchange of memoranda on issues,
     	       including the underlying interests and the history of the parties’ negotiations.
     	       Information that a party wishes to keep confidential may be sent to the mediator,
     	       as necessary, in a separate communication with the mediator.
     iv.	    The mediator does not have the authority to impose a settlement on the parties
     	       but will attempt to help them reach a satisfactory resolution of their dispute.
     	       Subject to the discretion of the mediator, the mediator may make oral or written
     	       recommendations for settlement to a party privately or, if the parties agree, to all
     	       parties jointly.
     v.	     In the event a complete settlement of all or some issues in dispute is not 	
     	       achieved within the scheduled mediation session(s), the mediator may continue
     	       to communicate with the parties, for a period of time, in an ongoing effort to
     	       facilitate a complete settlement.
     vi.	 The mediator is not a legal representative of any party and has no fiduciary duty
     	    to any party.
     vii.	 The mediator shall set the date, time, and place for each session of the mediation 	
     	     conference. The parties shall respond to requests for conference dates in a timely
     	     manner, be cooperative in scheduling the earliest practicable date, and adhere
     	     to the established conference schedule. The AAA shall provide notice of the
     	     conference to the parties in advance of the conference date, when timing permits.

M-9. Responsibilities of the Parties

The parties shall ensure that appropriate representatives of each party, having
authority to consummate a settlement, attend the mediation conference.

Prior to and during the scheduled mediation conference session(s) the parties
and their representatives shall, as appropriate to each party’s circumstances,
exercise their best efforts to prepare for and engage in a meaningful and
productive mediation.

M-10. Privacy

Mediation sessions and related mediation communications are private
proceedings. The parties and their representatives may attend mediation
sessions. Other persons may attend only with the permission of the parties and
with the consent of the mediator.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 47
                                                                                                               47
                                                                                                              App.060
     M-11. Confidentiality

     Subject to applicable law or the parties’ agreement, confidential information
     disclosed to a mediator by the parties or by other participants (witnesses) in the
     course of the mediation shall not be divulged by the mediator. The mediator
     shall maintain the confidentiality of all information obtained in the mediation,
     and all records, reports, or other documents received by a mediator while serving
     in that capacity shall be confidential.

     The mediator shall not be compelled to divulge such records or to testify in
     regard to the mediation in any adversary proceeding or judicial forum.

     The parties shall maintain the confidentiality of the mediation and shall not rely
     on, or introduce as evidence in any arbitral, judicial, or other proceeding the
     following, unless agreed to by the parties or required by applicable law:

         i.	   Views expressed or suggestions made by a party or other participant with respect
         	     to a possible settlement of the dispute;
         ii.	 Admissions made by a party or other participant in the course of the mediation
         	proceedings;
         iii.	 Proposals made or views expressed by the mediator; or
         iv.	 The fact that a party had or had not indicated willingness to accept a proposal
         	    for settlement made by the mediator.

     M-12. No Stenographic Record

     There shall be no stenographic record of the mediation process.

     M-13. Termination of Mediation

     The mediation shall be terminated:

         i.	   By the execution of a settlement agreement by the parties; or
         ii.	 By a written or verbal declaration of the mediator to the effect that further efforts 		
         	    at mediation would not contribute to a resolution of the parties’ dispute; or
         iii.	 By a written or verbal declaration of all parties to the effect that the mediation 		
         	     proceedings are terminated; or
         iv.	 When there has been no communication between the mediator and any party
         	    or party’s representative for 21 days following the conclusion of the mediation
         	conference.



48   RULES AND MEDIATION PROCEDURES                                              American Arbitration Association
                                                                                                           48
                                                                                                          App.061
M-14. Exclusion of Liability

Neither the AAA nor any mediator is a necessary party in judicial proceedings
relating to the mediation. Neither the AAA nor any mediator shall be liable to any
party for any error, act or omission in connection with any mediation conducted
under these procedures. Parties to a mediation under these procedures may not
call the mediator, the AAA or AAA employees as a witness in litigation or any
other proceeding relating to the mediation. The mediator, the AAA and AAA
employees are not competent to testify as witnesses in any such proceeding.

M-15. Interpretation and Application of Procedures

The mediator shall interpret and apply these procedures insofar as they relate
to the mediator’s duties and responsibilities. All other procedures shall be
interpreted and applied by the AAA.

M-16. Deposits

Unless otherwise directed by the mediator, the AAA will require the parties
to deposit in advance of the mediation conference such sums of money as it,
in consultation with the mediator, deems necessary to cover the costs and
expenses of the mediation and shall render an accounting to the parties and
return any unexpended balance at the conclusion of the mediation.

M-17. Expenses

All expenses of the mediation, including required traveling and other expenses
or charges of the mediator, shall be borne equally by the parties unless they
agree otherwise. The expenses of participants for either side shall be paid by
the party requesting the attendance of such participants.

M-18. Cost of the Mediation

There is no filing fee to initiate a mediation or a fee to request the AAA to invite
parties to mediate.

The cost of mediation is based on the hourly or daily mediation rate published
on the mediator’s AAA profile. This rate covers both mediator compensation
and an allocated portion for the AAA’s services. There is a four-hour or one
half-day minimum charge for a mediation conference. Expenses referenced in
Section M-17 may also apply.


Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 49
                                                                                                               49
                                                                                                              App.062
     If a matter submitted for mediation is withdrawn or cancelled or results in a
     settlement after the request to initiate mediation is filed but prior to the
     mediation conference the cost is $200 plus any mediator time and charges
     incurred. These costs shall be borne by the initiating party unless the parties
     agree otherwise.

     If you have questions about mediation costs or services visit
     www.adr.org/mediation or contact your local AAA office.




50   RULES AND MEDIATION PROCEDURES                                     American Arbitration Association
                                                                                                  50
                                                                                                 App.063
© 2013 American Arbitration Association, Inc. All rights reserved. These Rules are the copyrighted property of the
American Arbitration Association (AAA) and are intended to be used in conjunction with the AAA’s administrative services.
Any unauthorized use or modification of these Rules may violate copyright laws and other applicable laws.
Please contact 800.778.7879 or websitemail@adr.org for additional information.




                                                                                                                             51
                                                                                                                            App.064
Regional Vice Presidents and Directors

States: Delaware, District of Columbia, Maryland,    States: Alaska, Arizona, California, Colorado,
New Jersey, Pennsylvania, West Virginia              Hawaii, Idaho, Montana, Nevada, Oregon, Utah,
Kenneth Egger                                        Washington, Wyoming
Vice President                                       John English
Phone: 215.731.2281                                  Vice President
Email: EggerK@adr.org                                Phone: 619.239.3051
                                                     Email: EnglishJ@adr.org
States: Connecticut, Maine, Massachusetts,
New Hampshire, New York, Vermont                     States: Rhode Island
Ann Lesser, Esq.                                     Heather Santo
Vice President                                       Director
Phone: 212.484.4084                                  Phone: 866.293.4053
Email: LesserA@adr.org                               Email: SantoH@adr.org

States: Alabama, Arkansas, Florida, Georgia,         States: Louisiana, New Mexico, Oklahoma, Texas
Mississippi, North Carolina, South Carolina,         Molly Bargenquest
Virginia                                             Vice President
Charles Dorsey                                       Phone: 972.702.8222
Director                                             Email: BargenquestM@adr.org
Phone: 866.686.6024
Email: DorseyC@adr.org

States: Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska,
North Dakota, Ohio, South Dakota, Tennessee,
Wisconsin
Jan Holdinski
Vice President
Phone: 248.352.5509
Email: HoldinskiJ@adr.org




Case Management Vice Presidents and Directors
Molly Bargenquest                                    Charles Dorsey
Vice President                                       Director
Phone: 972.702.8222                                  Phone: 866.686.6024
Email: BargenquestM@adr.org                          Email: DorseyC@adr.org
Administers cases in AR, IL, IA, KS, LA, MN,         Administers cases in FL, GA
MS, MO, NE, ND, OK, SD, TX, WI
                                                     Heather Santo
Patrick Tatum                                        Director
Director                                             Phone: 866.293.4053
Phone: 559.490.1905                                  Email: SantoH@adr.org
Email: TatumP@adr.org                                Administers cases in AL, CT, DC, DE,
Administers cases in AK, AZ, CA, CO, HI, ID,         IN, KY, MA, MD, ME, MI, NC, NH, NJ,
MT, NV, NM, OR, UT, WA, WY                           NY, OH, PA, RI, SC, TN, VA, VT, WV




            800.778.7879 | websitemail@adr.org | adr.org
                                                                                                       52
                                                                                                      App.065
EXHIBIT F
§ 171.001. Arbitration Agreements Valid, TX CIV PRAC & REM§ 171.001




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annas)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annas)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter A. General Provisions (Refs & Annas)

                                    V.T.C.A., Civil Practice & Remedies Code § 171.001

                                          § 171.001. Arbitration Agreements Valid

                                                              Currentness


(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that:


  (I) exists at the time of the agreement; or


  (2) arises between the parties after the date of the agreement.


(b) A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.


Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. I, 1997.



Notes of Decisions (636)

V. T. C. A., Civil Practice & Remedies Code§ 171.001, TX CIV PRAC & REM§ 171.001
Current through the end of the 2013 Third Called Session of the 83rd Legislature




         Next                                       ' l   •           I J               111   ) "\




                                                                                                                          App.066
§ 171.021. Proceeding to Compel Arbitration, TX CIV PRAC & REM § 171.021




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

                                     V.T.C.A., Civil Practice & Remedies Code§ 171.021

                                         § 171.021. Proceeding to Compel Arbitration

                                                          Currentness


(a) A court shall order the parties to arbitrate on application of a party showing:



  (I) an agreement to arbitrate; and



  (2) the opposing party's refusal to arbitrate.


(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily
determine that issue. The court shall order the arbitration if it finds for the party that made the application. If the court does
not find for that party, the court shall deny the application.


(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.



Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.




Notes of Decisions (138)

V. T . C. A., Civil Practice & Remedies Code§ 171.021, TX CIV PRAC & REM§ 171.021
Current through the end of the 2013 Third Called Session of the 83rd Legislature

Cnd   ,,r Oonun<:ut




           Next        I I               ,   t ..   II,            1 IJ        VG 11



                                                                                                                                     App.067
§ 171.025. Stay of Related Proceeding, TX CIV PRAC & REM§ 171.025




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

                                    V.T.C.A., Civil Practice & Remedies Code§        171.025

                                            § 171.025. Stay of Related Proceeding

                                                          Currentness


(a) The court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an application
for that order is made under this subchapter.


(b) The stay applies only to the issue subject to arbitration if that issue is severable from the remainder of the proceeding,


Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



Notes of Decisions (5)

V. T. C. A., Civil Practice & Remedies Code§ 171.025, TX CIV PRAC & REM§ 171.025
Current through the end of the 2013 Third Called Session of the 83rd Legislature

 End of l)ocnnwut




                                                                      tJ S. Govemrnont VVorks


                                                                                                                                    App.068
, ..
                                                                                                E-FILED
                                             20 14CVO 1064                                      Bexar County, County Clerk
                                                                                                Gerard Rickhoff
                                                                                                Accepted Date:11/10/2014 9:10:58 AM
                                                 CAUSE NO. 2014CV01064                          Accepted By: Leticia Silva
                                                                                                                 Leticia Silva
       PAULA BAZAN-GARCIA,                                    §                  IN THE COUNTY COUR'Peputy Clerk
                                                              §
                         Pli!intiff.                          §
                                                              §
       v.                                                     §                      ATLAWN0.03
                                                              §
       WESTERN RIM PROPERTY SERVICES,                         §
       nNC.                                                   §
                                                              §
                       Defendant                              §             BEXAR COUNI'YJ TEXAS

            OROER OONCERN£NG DEFENDANT'S MOTION TO COMPID.tARBITRATlON
                                       AND MOT!ON FQR PROTJ}CTIYI.:; .ORDER

               On this the 61h day of November 2014 <;ame to be he!l!d Defendant's Motion to Compel

       Arbitration and   M~tion        for P.totectlve Otder. The Court having considered the Motions :md all

       applicable 11rB'lments, case law and evidence is of the opinion thl\t the arbitxation policy contained in

       Defendant's dispute tesolution policy is unconscionable and unenf().J:ceab1e.

               1T IS THEREFORE ORDERED, ADJUDGED AND DECREED that Defendant's

       Motion ro Compel Arbitration is heteby in all t:h.ings DENIED.

               lT IS FURTI-IER ORDERED, ADJUDGED AND DECREED that Defendant's Motion

                                                        /f
       for P1ote<:.tive O.tdet is heJ:eby in all things DENIED.                  /



               SIGNED 2nd ENTERED this ~day of~___./.,...-;~~__;;;,0"'
                                                                             1

                                                                 ___                     ..-J   2014.




                                                          BON. JUDGE PRESIDING




       APPROVED AS 'I'O FORM:


                                                                                                                13




                                                                                                  Submit Date:11/10/2014 9:09:08 AM
                                                                                                                            App.001
....



       JOSUE F.
       Espinoza Law Firm, PLLC
       Atto1ueys fo.t: Plaintiff
       503 E. R:unsey, Ste. 103
       San An            xas 7B216



       JENNIFER . LJ~CUb"CCvn­
       STEP~F.CAGNIART
       98 Slm J~clnto 'Boulev:ud. Suite 1500
       Austin, Texas 78701-4078




                                               14




                                                    App.002
1111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.                                           ·

If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem.                                                                                            ·

5. Employee presents problem to the President in writing.




                                                    83




                                                                                                              App.012
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.




                                                     84




                                                                                                                 App.013
Employment Arbitration Rules and Mediation Procedures

1. Applicable Rules of Arbitration

The parties shall be deemed to have made these rules a part of their arbitration
agreement whenever they have provided for arbitration by the American
Arbitration Association (hereinafter “AAA”) or under its Employment Arbitration
Rules and Mediation Procedures or for arbitration by the AAA of an employment
dispute without specifying particular rules*. If a party establishes that an adverse
material inconsistency exists between the arbitration agreement and these rules,
the arbitrator shall apply these rules.

If, within 30 days after the AAA’s commencement of administration, a party
seeks judicial intervention with respect to a pending arbitration and provides the
AAA with documentation that judicial intervention has been sought, the AAA
will suspend administration for 60 days to permit the party to obtain a stay of
arbitration from the court.These rules, and any amendment of them, shall apply
in the form in effect at the time the demand for arbitration or submission is
received by the AAA.

*
  The National Rules for the Resolution of Employment Disputes have been re-named the Employment Arbitration
Rules and Mediation Procedures. Any arbitration agreements providing for arbitration under its National Rules for
the Resolution of Employment Disputes shall be administered pursuant to these Employment Arbitration Rules and
Mediation Procedures.


2. Notification

An employer intending to incorporate these rules or to refer to the dispute
resolution services of the AAA in an employment ADR plan, shall, at least 30 days
prior to the planned effective date of the program:

a.	 notify the Association of its intention to do so and,

b.	 provide the Association with a copy of the employment dispute resolution plan.


Compliance with this requirement shall not preclude an arbitrator from
entertaining challenges as provided in Section 1. If an employer does not
comply with this requirement, the Association reserves the right to decline its
administrative services.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 15
                                                                                                              App.028
                             ARBITRATION AGREEMENT


lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
 inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's   _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including     ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to        ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty      _
(20) days prior written notice:

Each party to arbitration shall be entitled to tab only one deposition. Any arbitration      _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.

N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.



BY:




                                                                                                   App.003
           (2)	 Simultaneously shall send a copy of any counterclaim to the Claimant.
           (3)	 Shall include with its filing the applicable filing fee provided for by these rules.
      (iv)	 The Claimant may file an Answer to the counterclaim with the AAA within
      	     15 days after the date of the letter from the AAA acknowledging receipt of
      	     the counterclaim. The Answer shall provide Claimant’s brief response to the
      	     counterclaim and the issues presented. The Claimant shall make its filing in
      	     duplicate with the AAA, and simultaneously shall send a copy of the Answer to 		
      	     the Respondent(s). If no answering statement is filed within the stated time, 		
      	     Claimant will be deemed to deny the counterclaim. Failure to file an answering
      	     statement shall not operate to delay the arbitration.
c.	 The form of any filing in these rules shall not be subject to technical pleading
	requirements.

5. Changes of Claim

Before the appointment of the arbitrator, if either party desires to offer a new or
different claim or counterclaim, such party must do so in writing by filing a written
statement with the AAA and simultaneously provide a copy to the other party(s),
who shall have 15 days from the date of such transmittal within which to file an
answer with the AAA. After the appointment of the arbitrator, a party may offer
a new or different claim or counterclaim only at the discretion of the arbitrator.

6. Jurisdiction

a.	 The arbitrator shall have the power to rule on his or her own jurisdiction, including
	   any objections with respect to the existence, scope or validity of the arbitration
	agreement.
b.	   The arbitrator shall have the power to determine the existence or validity of a contract 	
	     of which an arbitration clause forms a part. Such an arbitration clause shall be treated
	     as an agreement independent of the other terms of the contract. A decision by the
	     arbitrator that the contract is null and void shall not for that reason alone render
	     invalid the arbitration clause.
c.	   A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
	     claim or counterclaim no later than the filing of the answering statement to the claim
	     or counterclaim that gives rise to the objection. The arbitrator may rule on such
	     objections as a preliminary matter or as part of the final award.

7. Administrative and Mediation Conferences

Before the appointment of the arbitrator, any party may request, or the AAA, in
its discretion, may schedule an administrative conference with a representative
of the AAA and the parties and/or their representatives. The purpose of the


Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 17
                                                                                                              App.030
                             ARBITRATION AGREEMENT


lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
 inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's   _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including     ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to        ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty      _
(20) days prior written notice:

Each party to arbitration shall be entitled to tab only one deposition. Any arbitration      _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.

N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.



BY:




                                                                                                   App.003
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP


EM'LOYEE ACKNOWLEDGEMENT FORM



Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.

I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.

Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..

Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.


EMPLOYEE'S NAME       (printed~/a Q.J~::DZEtJ.:·~a._y ("~---­
eMPLOYEE'S     SlGNAnJR~(}, t;)~ ~
DATE,~ 1Q,'ZclL_____




                                                                                                           App.004
     WR
     p s


Employee Handbook
    WRPS,LP
      10/01/2011




                    App.005
IIIli
1111
WRPSI LP


                                      Table of Contents

No. Polley                                       Effective   Revision    Page
                                                 Date:       J2!!!i
INTRODUCTION
020 Employee Welcome Message                     1211/1999   11112006    1
030 Organization Description                     1211/1999   1/1/2006    2
040 Introductory Statement                       12/111999   1/1/2006    3
051 Employee Acknowledgement Form                121111999   1/112006    4

EMPLOYMENI'
101 Nature of Employment                        1211/1999    1/1/2000    5
102 Employee Relations                          1211/1999    1/1/2006    6
103 Equal Employment Opportunity                12/1/1999    111/2006    7
104 Business Ethics and Conduct                 12/1/1999    111/2006    8
107 Immigration Law Compliance                  12/1/1999    11112000    9
108 Conflicts oflnterest                        12/111999    1/112006    10
110 Outside Employment                          12/111999    1/112006    11
112 Non-Disclosure                              12/1/1999    1/1/2006    12
114 Disability Accommodation                    12/1/1999    1/112006    13
180 Personal Relationships in the Workplace     11/19/2004   1/1/2006    14

EMPLOYMENT STATUS & RECORDS
201 Employment Categories                       12/1/1999    1/1/2006    16
202 Access to Personnel Files                   12/1/1999    111/2006    18
203 Employment Reference Checks                 12/1/1999    1/1/2000    19
204 Personnel Data Changes                      12/111999    111/2006    20
205 Introductory Period                         12/1/1999    1/1/2006    21
208 Employment Applications                     12/111999    1/1/2006    22
209 Perfonnan.ce Evaluation                     1211/1999    1/1/2006    23
210 Job Descriptions                            12/1/1999    1/1/2006    24
280 Confidentiality of Salary                   12/111999    1/1/2006    25

EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits                            12/1/1999   1/112006    26
303 Vacation Benefits                            12/1/1999   10/1/2009   27
304. Child Care Benefits                         12/1/1999   111/2006    29
305 Holidays                                     12/111999   1/1/2006    30




                                                                                App.006
WRPS, LP


307   Sick Leave Benefits               12/l/1999   10/1/2009   31
308   Time Off to Vote                  12/1/1999   1/1/2006    33
309   Bereavement Leave                 12/111999   1/112006    34
310   Relocation Benefits               12/1/1999   1/1/2006    35
311   Jury Duty                         12/1/1999   1/112006    36
312   Witness Duty                      12/111999   1/1/2006    37
313   Benefits Continuation (COBRA)     12/1/1999   1/1/2006    38
314   Educational Assistance            1211/1999   1/112006    39
316   Health Insurance                  12/1/1999   1/112006    40
317   Life Insurance                    12/1/1999   1/1/2006    41
320   401 (k) Savings Plan              12/1/1999   111/2006    42
326   Flexible Spending Account (FSA)   12/1/1999   1/1/2006    43
328   Partnership Participation Units   1211/1999   1/1/2006    44
330   Annual Incentive Trip             12/1/1999   1/112006    45

TIMEKEEPING/PAYR.OLL
401 Timekeeping                         12/1/1999   1/1/2000    46
403 Paydays                             12/1/1999   1/1/2000    47
405 Employment Termination              12/111999   1/112006    48
407 Severance Pay                       12/1/1999   1/1/2006    49
409 Administrative Pay Corrections      12/111999   1/1/2006    so
410 Pay Deductions and Setoffs          12/111999   111/2006    Sl

WORK CONDITIONS & HOURS
502 Work Schedules                      1211/1999   1/1/2006    52
504 Use of Phone and Mail Systems       12/1/1999   1/1/2006    53
505 Smoking                             12/1/1999   111/2006    54

506 Rest and Meal Periods               12/1/1999   1/1/2006    55
507 Overtime                            121111999   1/1/2006    56
512 Business Travel Expenses            12/111999   1/1/2009    57
514 Visitors in the Workplace           121111999   1/1/2006    58
516 Computer and Email Usage            12/1/1999   1/112006    60
517 Internet Usage                      1211/1999   111/2006    61
522 Workplace Violence Prevention       1211/1999   l/1/2006    63
526 Cell Phone Usage                    12/111999   11112006    65

LEAVES OF ABSENCE
60 l Medical Leave                      1211/1999   1/1/2006    66




                                                                     App.007
WRPS., LP


602 Family Leave                                  12/1/1999   1/1/2006   68
605 Military Leave                                1/1/2006    111/2000   70

EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules      12/1/1999            111/2006   71
702 Drug and Alcohol Use                 1211/1999            111/2000   73
703 Sexual and Other Unlawful Harassment 12/1/1999            111/2006   74
704 Attendance and Punctuality           12/1/1999            11112000   76
705 Personal Appearance                  12/1/1999            1/1/2000   77
706 Return of Property                   12/1/1999            1/112000   78
708 Resignation                          12/1/1999            1/1/2000   79
714 Drug Testing                         12/1/1999            1/1/2006   80
716 Progressive Discipline               12/1/1999            1/1/2006   81
718 Problem Resolution                   12/111999            111/2006   83
720 Casual Days                          12/1/1999            1/1/2006   85

MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace   12/1/1999   111/2006   87
806 Suggestion Program                            12/1/1999   111/2006   88




                                                                              App.008
WRPS,LP
WRPS,LP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.

We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.

We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                   1




                                                                                                            App.009
1111
1111
WRPS,LP
WRPS,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.

The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2




                                                                                                   App.010
II
WRPS,LP
WRPS,LP


INTRODUCTORY STATEMENT


This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.




                                                     3




                                                                                                              App.011
1111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.                                           ·

If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem.                                                                                            ·

5. Employee presents problem to the President in writing.




                                                    83




                                                                                                              App.012
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.




                                                     84




                                                                                                                 App.013
n.	 the extent to which documentary evidence may be submitted at the hearing;
o.	 the extent to which testimony may be admitted at the hearing telephonically, over the
	   internet, by written or video-taped deposition, by affidavit, or by any other means;
p.	 any disputes over the AAA’s determination regarding whether the dispute arose
	   from an individually-negotiated employment agreement or contract, or from an
	   employer-promulgated plan (see Costs of Arbitration section).


The arbitrator shall issue oral or written orders reflecting his or her decision on the
above matters and may conduct additional conferences when the need arises.

There is no AAA administrative fee for an Arbitration Management Conference.

9. Discovery

The arbitrator shall have the authority to order such discovery, by way of
deposition, interrogatory, document production, or otherwise, as the arbitrator
considers necessary to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.

The AAA does not require notice of discovery related matters and
communications unless a dispute arises. At that time, the parties should notify
the AAA of the dispute so that it may be presented to the arbitrator for
determination.

10. Fixing of Locale (the city, county, state, territory, and/or country of the
Arbitration)

If the parties disagree as to the locale, the AAA may initially determine the place
of arbitration, subject to the power of the arbitrator(s), after their appointment to
make a final determination on the locale. All such determinations shall be made
having regard for the contentions of the parties and the circumstances of the
arbitration.

11. Date, Time and Place (the physical site of the hearing within the designated
locale) of Hearing

The arbitrator shall set the date, time, and place for each hearing. The parties
shall respond to requests for hearing dates in a timely manner, be cooperative in
scheduling the earliest practicable date, and adhere to the established hearing
schedule. The AAA shall send a notice of hearing to the parties at least 10 days
in advance of the hearing date, unless otherwise agreed by the parties.


Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 19
                                                                                                              App.032
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP


EM'LOYEE ACKNOWLEDGEMENT FORM



Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.

I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.

Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..

Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.


EMPLOYEE'S NAME       (printed~/a Q.J~::DZEtJ.:·~a._y ("~---­
eMPLOYEE'S     SlGNAnJR~(}, t;)~ ~
DATE,~ 1Q,'ZclL_____




                                                                                                           App.004
     d.	   Parties to an arbitration under these rules shall be deemed to have consented
     	     that neither the AAA nor any arbitrator shall be liable to any party in any action for
     	     damages or injunctive relief for any act or omission in connection with any arbitration
     	     under these rules.

     43. Administrative Fees

     As a not-for-profit organization, the AAA shall prescribe filing and other
     administrative fees to compensate it for the cost of providing administrative
     services. The AAA administrative fee schedule in effect at the time the demand
     for arbitration or submission agreement is received shall be applicable.

     AAA fees shall be paid in accordance with the Costs of Arbitration Section
     (see page 33-43).

     The AAA may, in the event of extreme hardship on any party, defer or reduce the
     administrative fees. (To ensure that you have the most current information, see
     our website at www.adr.org).

     44. Neutral Arbitrator’s Compensation

     Arbitrators shall charge a rate consistent with the arbitrator’s stated rate of
     compensation. If there is disagreement concerning the terms of compensation,
     an appropriate rate shall be established with the arbitrator by the AAA and
     confirmed to the parties.

     Any arrangement for the compensation of a neutral arbitrator shall be made
     through the AAA and not directly between the parties and the arbitrator.
     Payment of the arbitrator’s fees and expenses shall be made by the AAA from
     the fees and moneys collected by the AAA for this purpose.

     Arbitrator compensation shall be borne in accordance with the Costs of
     Arbitration section.

     45. Expenses

     Unless otherwise agreed by the parties or as provided under applicable law, the
     expenses of witnesses for either side shall be borne by the party producing such
     witnesses.




30   RULES AND MEDIATION PROCEDURES                                             American Arbitration Association

                                                                                                         App.043
     For Disputes Arising Out of Employer-Promulgated Plans*:

     Arbitrator compensation is not included as part of the administrative fees charged
     by the AAA. Arbitrator compensation is based on the most recent biography
     sent to the parties prior to appointment. The employer shall pay the arbitrator’s
     compensation unless the employee, post dispute, voluntarily elects to pay a
     portion of the arbitrator’s compensation. Arbitrator compensation, expenses as
     defined in section (iv) below, and administrative fees are not subject to reallocation
     by the arbitrator(s) except upon the arbitrator’s determination that a claim or
     counterclaim was filed for purposes of harassment or is patently frivolous.

     *
      Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
     less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
     of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
     consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
     the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
     Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
     fees. (Effective January 1, 2003.)


     A party making a demand for treatment of a claim, counterclaim, or additional
     claim as a collective action arbitration will be subject to the administrative
     fees as outlined in the standard and flexible fee schedules below. Arbitrator
     compensation is not included as a part of the administrative fees charged by
     the AAA. Arbitrator compensation in cases involving a collective action claim
     will be charged in accordance with the determination as to whether the dispute
     arises from an employer-promulgated plan or an individually negotiated
     employment agreement or contract.

     (i) Filing Fees

     Cases Filed by Employee Against Employer

     In cases before a single arbitrator, a non-refundable filing fee capped in the
     amount of $200 is payable in full by the employee when a claim is filed, unless
     the plan provides that the employee pay less. A non-refundable fee in the
     amount of $1350 is payable in full by the employer, unless the plan provides
     that the employer pay more.

     In cases before three or more arbitrators, a non-refundable filing fee capped
     in the amount of $200 is payable in full by the employee when a claim is filed,
     unless the plan provides that the employee pay less. A non-refundable fee in
     the amount of $1,800 is payable in full by the employer, unless the plan provides
     that the employer pay more.


32   RULES AND MEDIATION PROCEDURES                                                               American Arbitration Association

                                                                                                                           App.045
     For Disputes Arising Out of Employer-Promulgated Plans*:

     Arbitrator compensation is not included as part of the administrative fees charged
     by the AAA. Arbitrator compensation is based on the most recent biography
     sent to the parties prior to appointment. The employer shall pay the arbitrator’s
     compensation unless the employee, post dispute, voluntarily elects to pay a
     portion of the arbitrator’s compensation. Arbitrator compensation, expenses as
     defined in section (iv) below, and administrative fees are not subject to reallocation
     by the arbitrator(s) except upon the arbitrator’s determination that a claim or
     counterclaim was filed for purposes of harassment or is patently frivolous.

     *
      Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers with a gross monthly income of
     less than 300% of the federal poverty guidelines are entitled to a waiver of arbitration fees and costs, exclusive
     of arbitrator fees. This law applies to all consumer agreements subject to the California Arbitration Act, and to all
     consumer arbitrations conducted in California. If you believe that you meet these requirements, you must submit to
     the AAA a declaration under oath regarding your monthly income and the number of persons in your household.
     Please contact Case Filing Services at 877-495-4185 if you have any questions regarding the waiver of administrative
     fees. (Effective January 1, 2003.)


     A party making a demand for treatment of a claim, counterclaim, or additional
     claim as a collective action arbitration will be subject to the administrative
     fees as outlined in the standard and flexible fee schedules below. Arbitrator
     compensation is not included as a part of the administrative fees charged by
     the AAA. Arbitrator compensation in cases involving a collective action claim
     will be charged in accordance with the determination as to whether the dispute
     arises from an employer-promulgated plan or an individually negotiated
     employment agreement or contract.

     (i) Filing Fees

     Cases Filed by Employee Against Employer

     In cases before a single arbitrator, a non-refundable filing fee capped in the
     amount of $200 is payable in full by the employee when a claim is filed, unless
     the plan provides that the employee pay less. A non-refundable fee in the
     amount of $1350 is payable in full by the employer, unless the plan provides
     that the employer pay more.

     In cases before three or more arbitrators, a non-refundable filing fee capped
     in the amount of $200 is payable in full by the employee when a claim is filed,
     unless the plan provides that the employee pay less. A non-refundable fee in
     the amount of $1,800 is payable in full by the employer, unless the plan provides
     that the employer pay more.


32   RULES AND MEDIATION PROCEDURES                                                               American Arbitration Association

                                                                                                                           App.045
The employer’s share is due as soon as the employee meets his or her filing
requirements, even if the matter settles.

There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually negotiated
employment agreements.

The above fee schedule will also apply where the employer files on behalf of
the employee pursuant to the terms of the employer promulgated plan.

Cases Filed by Employer Against Employee

In cases before a single arbitrator, a non-refundable fee in the amount of $1,550
is payable in full by the employer.

In cases before three or more arbitrators, a non-refundable fee in the amount
of $2,000 is payable in full by the employer.

There shall be no filing fee charged for a counterclaim. If a determination is
made that the dispute arises out of an individually-negotiated employment
agreement, the filing fee for a counterclaim will be charged in accordance with
the fee schedules below for disputes arising out of individually-negotiated
employment agreements.

(ii) Hearing Fees

For each day of hearing held before a single arbitrator, an administrative fee of
$350 is payable by the employer.

For each day of hearing held before a multi-arbitrator panel, an administrative
fee of $500 is payable by the employer.

There is no AAA hearing fee for the initial Arbitration Management Conference.




Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013.   EMPLOYMENT RULES 33
                                                                                                              App.046
     (iii) Postponement/Cancellation Fees

     A fee of $150 is payable by a party causing a postponement of any hearing
     scheduled before a single arbitrator.

     A fee of $250 is payable by a party causing a postponement of any hearing
     scheduled before a multi-arbitrator panel.

     (iv) Hearing Room Rental

     The hearing fees described above do not cover the rental of hearing rooms.
     The AAA maintains hearing rooms in most offices for the convenience of the
     parties. Check with the administrator for availability and rates. Hearing room
     rental fees will be borne by the employer.

     (v) Abeyance Fee

     Parties on cases held in abeyance for one year will be assessed an annual
     abeyance fee of $300. A case may only be held in abeyance after the initial filing
     fees have been paid. If a party refuses to pay the assessed fee, the other party
     or parties may pay the entire fee on behalf of all parties, otherwise the matter
     will be administratively closed.

     (vi) Expenses

     All expenses of the arbitrator, including required travel and other expenses, and
     any AAA expenses, as well as the costs relating to proof and witnesses produced
     at the direction of the arbitrator, shall be borne by the employer.


     For Disputes Arising Out of Individually-Negotiated Employment
     Agreements and Contracts:

     The AAA’s Fee Schedule, as modified below, will apply to disputes arising out
     of individually-negotiated employment agreements and contracts, even if such
     agreements and contracts reference or incorporate an employer-promulgated
     plan. Arbitrator compensation is not included as part of the administrative fees
     charged by the AAA. Arbitrator compensation is based on the most recent
     biography sent to the parties prior to appointment.




34   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association

                                                                                                App.047
     (iii) Postponement/Cancellation Fees

     A fee of $150 is payable by a party causing a postponement of any hearing
     scheduled before a single arbitrator.

     A fee of $250 is payable by a party causing a postponement of any hearing
     scheduled before a multi-arbitrator panel.

     (iv) Hearing Room Rental

     The hearing fees described above do not cover the rental of hearing rooms.
     The AAA maintains hearing rooms in most offices for the convenience of the
     parties. Check with the administrator for availability and rates. Hearing room
     rental fees will be borne by the employer.

     (v) Abeyance Fee

     Parties on cases held in abeyance for one year will be assessed an annual
     abeyance fee of $300. A case may only be held in abeyance after the initial filing
     fees have been paid. If a party refuses to pay the assessed fee, the other party
     or parties may pay the entire fee on behalf of all parties, otherwise the matter
     will be administratively closed.

     (vi) Expenses

     All expenses of the arbitrator, including required travel and other expenses, and
     any AAA expenses, as well as the costs relating to proof and witnesses produced
     at the direction of the arbitrator, shall be borne by the employer.


     For Disputes Arising Out of Individually-Negotiated Employment
     Agreements and Contracts:

     The AAA’s Fee Schedule, as modified below, will apply to disputes arising out
     of individually-negotiated employment agreements and contracts, even if such
     agreements and contracts reference or incorporate an employer-promulgated
     plan. Arbitrator compensation is not included as part of the administrative fees
     charged by the AAA. Arbitrator compensation is based on the most recent
     biography sent to the parties prior to appointment.




34   RULES AND MEDIATION PROCEDURES                                    American Arbitration Association

                                                                                                App.047
§ 171.001. Arbitration Agreements Valid, TX CIV PRAC & REM § 171.001




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter A. General Provisions (Refs & Annos)

                                    V.T.C.A., Civil Practice & Remedies Code § 171.001

                                          § 171.001. Arbitration Agreements Valid

                                                          Currentness


(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that:


  (1) exists at the time of the agreement; or


  (2) arises between the parties after the date of the agreement.


(b) A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.


Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



Notes of Decisions (636)

V. T. C. A., Civil Practice & Remedies Code § 171.001, TX CIV PRAC & REM § 171.001
Current through the end of the 2013 Third Called Session of the 83rd Legislature

End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                   1
                                                                                                                                          App.066
§ 171.021. Proceeding to Compel Arbitration, TX CIV PRAC & REM § 171.021




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

                                    V.T.C.A., Civil Practice & Remedies Code § 171.021

                                        § 171.021. Proceeding to Compel Arbitration

                                                          Currentness


(a) A court shall order the parties to arbitrate on application of a party showing:


  (1) an agreement to arbitrate; and


  (2) the opposing party's refusal to arbitrate.


(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily
determine that issue. The court shall order the arbitration if it finds for the party that made the application. If the court does
not find for that party, the court shall deny the application.


(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.


Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



Notes of Decisions (138)

V. T. C. A., Civil Practice & Remedies Code § 171.021, TX CIV PRAC & REM § 171.021
Current through the end of the 2013 Third Called Session of the 83rd Legislature

End of Document                                                      © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                    1
                                                                                                                                           App.067
§ 171.025. Stay of Related Proceeding, TX CIV PRAC & REM § 171.025




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

                                    V.T.C.A., Civil Practice & Remedies Code § 171.025

                                            § 171.025. Stay of Related Proceeding

                                                          Currentness


(a) The court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an application
for that order is made under this subchapter.


(b) The stay applies only to the issue subject to arbitration if that issue is severable from the remainder of the proceeding.


Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



Notes of Decisions (5)

V. T. C. A., Civil Practice & Remedies Code § 171.025, TX CIV PRAC & REM § 171.025
Current through the end of the 2013 Third Called Session of the 83rd Legislature

End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                   1
                                                                                                                                          App.068
WRPS,LP
WRPS,LP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.

We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.

We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                   1




                                                                                                            App.009
1111
1111
WRPS,LP
WRPS,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.

The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2




                                                                                                   App.010
II
WRPS,LP
WRPS,LP


INTRODUCTORY STATEMENT


This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.




                                                     3




                                                                                                              App.011
1111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.                                           ·

If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem.                                                                                            ·

5. Employee presents problem to the President in writing.




                                                    83




                                                                                                              App.012
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.




                                                     84




                                                                                                                 App.013
         10.       Throughout Plaintiff's employment with Defendant, Plaintiff consistendy was told

she was doing a good job. Plaintiff seldom--if ever--received any negative evaluations. Plaintiff was

never written up for any serious violations while employed by Defendant.

         11.       Plaintiff had a good attendance record until March 20, 2013, when she suffered an

on-the-job injury. Plaintiff promptly notified her supervisor of her injury and upon information and

belief, a workers' compensation claim was flied.

         12.       On or about June 4, 2013, Plaintiff was prohibited from working by her doctor as a

result of the injury she sustained while working in the course and scope of her employment.

Because Plaintiff was being taken off work pending surgery, in addition to being prohibited ftom

working by her doctor, Plaintiff requested to take FMLA leave and submitted the paperwork to

Defendant's corporate office.

         13.       Plaintiff was released to return to work on light duty on or about August 19, 2013;

however, Plaintiff was prohibited from working by Defendant, who clain1ed to not have any light

duty positions.

         14.       On or about October 22, 2013, soon after Plaintiff was released on full duty,

Defendant terminated Plaintiff for a pre-textual reason.

         15.       As a result of her discharge and the company's continuing refusal to reinstate her,

Plaintiff has suffered substantial economic losses and severe mental anguish, and she will continue

to suffer such losses in the future.

                                   WORKERS' COMPENSATION RETALIATION

         16.       Plaintiff incorporates by reference the allegations contained in paragraphs 1 through

16 as if those allegations were set forth verbatim.

         17.       Plaintiff alleges that Defendant, violated Section 451.001 of the Texas Labor Code

by discharging Plaintiff because she notified her employer of her on-the-job injury and/ or initiated

the filing of a workers' compensation claim in good faith, and by not reinstating her.

0R1G1NAL PF.m'l'ION AND RP.QUES'l' l'OR DISCLOSURP.                                               PAGE3




                                                      11
         18.     Plaintiff seeks the maximum damages allowed by Section 451.002 of the Texas Labor

Code and at common law.

         19.     Plaintiffs injuries resulted from Defendant's fraud and/or malice as set forth in Tex.

Civ. Prac. & Rem. Code§ 41.001 et seq. Accordingly, Plaintiff is entitled to an award of exemplary

damages in accordance with Texas law.

                                FAMILY MEDICAL LEAVE ACT VIOLATION

         20.     Pleading in the alternative and without waiving the foregoing, Plaintiff rellages the

allegations contained in Paragraphs 1 through 20 as if fully stated herein.

         21.     Plaintiff has satisfied all jurisdictional prerequisites in connection with her claitn

under the Family Medical Leave Act ("F.MI.A"), 29 U.S. C. §§ 2601 ct. seq.

        22.      Defendant is an "employer" as defmed by the FMLA in 29 U.S.C. § 2611 (4).

        23.      During the titne that Plaintiff was employed by Defendant, she was an "eligible

employee" as defmed by the FMLA in 29 U.S.C. § 2611 (2).

        24.      While Plaintiff was employed by Defendant, Plaintiff had an illness that can be

defined as a "serious health condition" under the FMLA as outlined in 29 U.S. C. § 2611 (11).

        25.      Plaintiff was entitled to medical leave for her serious health condition as provided for

in the FMLA (in 29 U.S.C. § 2612(a)(1)(C)) without fear of retaliation.

        26.      Plaintiff attempted to exercise her FMLA rights and Defendant illegititnately

interference and denied Plaintiffs right to exercise her FMLA rights.

        27.      Tn d1e alternative and without waving the foregoing, Plaintiff alleges that Defendant

terminated Plaintiff in retaliation for invoking her FMLA rights. PL'lintiff suffered an adverse

employment action as a result of her termination by Defendant.




0RTGTNAT. PmTflON AND REQUESl'l'OR DISCLOSURE                                                      PAGE4




                                                  150
                                                                               E-FILED
                                                                               Bexar County, County Clerk
                                                                               Gerard Rickhoff
                                                                               Accepted Date:10/16/2014 8:08:46 AM
                                                                               Accepted By: Marylou Gaylord
                                    CAUSE NO. 2014CV01064
                                                                               Deputy Clerk

PAULA BAZAN-GARCIA,                                  §        IN THE COUNTY COURT
                                                     §
                Plaintiff,                           §
                                                     §
vs.                                                  §        AT LAW NO. CC# 03
                                                     §
WESTERN RJM PROPERTY                                 §
SERVICES INC.,                                       §
                                                     §
                Defendant.                           §        BEXAR COUNTY, TEXAS


               DEFENDANT WESTERN RIM PROPERTY SERVICES. INC.'S
                      MOTION TO COMPEL ARBITRATION

                               I.   SUMMARY OF THE ARGUMENT

                When Plaintiff Paula Bazan-Garcia ("Bazan-Garcia") accepted employment with

WRPS III, LP ("WRPS"), she agreed to arbitrate any future dispute with WRPS related to her

employment, including a claim for wrongful termination. In addition, Bazan-Garcia agreed that

the arbitrator-not the court-would have authority to resolve any controversy over whether a

particular dispute is subject to arbitration. Despite this, Bazan-Garcia has filed a lawsuit against

WRPS alleging that she was wrongfully terminated, and has refused to submit her claim to

arbitration.   Bazan-Garcia's claim falls within the scope of the parties' valid arbitration

agreement, and any challenge to the arbitrability of the dispute must be decided by the arbitrator.

WRPS therefore respectfully requests that this Court compel arbitration, and abate and stay this

lawsuit until the arbitration proceeding is complete.

                                    II. FACTUAL BACKGROUND

               Paula Bazan-Garcia worked as a housekeeper for WRPS from September 26,

2011 until October 22, 2013. Aff.      at~   2. As an at-will employee, Bazan-Garcia agreed to,

signed, and submitted multiple fonns to WRPS. Aff.       ~   3. These fonns included an Arbitration


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                    Paget

                                                16
                                                                                    Submit Date:10/15/2014 4:03:13 PM
                                                                               E-FILED
                                                                               Bexar County, County Clerk
                                                                               Gerard Rickhoff
                                                                               Accepted Date:10/16/2014 8:08:46 AM
                                                                               Accepted By: Marylou Gaylord
                                    CAUSE NO. 2014CV01064
                                                                               Deputy Clerk

PAULA BAZAN-GARCIA,                                  §        IN THE COUNTY COURT
                                                     §
                Plaintiff,                           §
                                                     §
vs.                                                  §        AT LAW NO. CC# 03
                                                     §
WESTERN RJM PROPERTY                                 §
SERVICES INC.,                                       §
                                                     §
                Defendant.                           §        BEXAR COUNTY, TEXAS


               DEFENDANT WESTERN RIM PROPERTY SERVICES. INC.'S
                      MOTION TO COMPEL ARBITRATION

                               I.   SUMMARY OF THE ARGUMENT

                When Plaintiff Paula Bazan-Garcia ("Bazan-Garcia") accepted employment with

WRPS III, LP ("WRPS"), she agreed to arbitrate any future dispute with WRPS related to her

employment, including a claim for wrongful termination. In addition, Bazan-Garcia agreed that

the arbitrator-not the court-would have authority to resolve any controversy over whether a

particular dispute is subject to arbitration. Despite this, Bazan-Garcia has filed a lawsuit against

WRPS alleging that she was wrongfully terminated, and has refused to submit her claim to

arbitration.   Bazan-Garcia's claim falls within the scope of the parties' valid arbitration

agreement, and any challenge to the arbitrability of the dispute must be decided by the arbitrator.

WRPS therefore respectfully requests that this Court compel arbitration, and abate and stay this

lawsuit until the arbitration proceeding is complete.

                                    II. FACTUAL BACKGROUND

               Paula Bazan-Garcia worked as a housekeeper for WRPS from September 26,

2011 until October 22, 2013. Aff.      at~   2. As an at-will employee, Bazan-Garcia agreed to,

signed, and submitted multiple fonns to WRPS. Aff.       ~   3. These fonns included an Arbitration


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                    Paget

                                                16
                                                                                    Submit Date:10/15/2014 4:03:13 PM
Agreement     ("Arbitration   Agreement")       and    an   Employee     Acknowledgement    Fonn

("Acknowledgement"). Aff.     ~   3(b)-(c); see also Aff. Exhs. B & C.

               The Arbitration Agreement expressly provided that disputes between Bazan-

Garcia and WRPS would be decided by binding arbitration, in accordance with the rules of the

American Arbitration Association ("AAA"):

               [O]ther than a worker's compensation claim covered by insurance,
               no dispute between [WRPS] and the undersigned which is in any
               way related to the employment of the undersigned, including but
               not limited to a claim for wrongful termination, discrimination
               and/or harassment, and worker's compensation not covered by
               insurance, shall be the subject of a lawsuit filed in any state or
               federal .court. Instead, any such dispute shall be submitted to
               arbitration in accordance with the rules of the American
               Arbitration Association ("AAA").

Aff. Exh. C. The agreement specified that any arbitration would occur in Dallas County, Texas.

Id Bazan-Garcia signed the Arbitration Agreement on September 27, 2011. Jd

               Bazan-Garcia also signed the Acknowledgement. Aff. at ~ 3(b ); Aff. Exh. B. The

Acknowledgement represented that Bazan-Garcia had received a copy of the Employee

Handbook, and understood that "it [was her] responsibility to read and comply with the policies

contained in this handbook and any revisions made to it." Aff. Exh. B.

              The Employee Handbook contained an arbitration provision. See Aff. Exh. F.

Section 718, entitled ''Problem Resolution," stated: "Problems, disputes, or claims not resolved

through [voluntary intemal] resolution steps are subject to tinal and binding arbitration. The

arbitration proceeding will be conducted under the Employment Dispute Resolution Rules of the

American Arbitration Association."         Aff. Exh. F at 84.      The arbitration provision also

"requir[ed]" every employee to "sign the attached Arbitration Agreement." Id Garcia-Bazan

signed the Arbitration Agreement on September 27, 20 ll. Ati. Exh. C.



DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                               Page 2

                                                 17
               In addition, the Acknowledgement stated that revisions could be made to the

Employee Handbook that "supersede, modify, or eliminate existing policies." Aff. Exh. B.

While Bazan-Garcia was employed by WRPS, the Employee Handbook was revised several

times. See Aff. Exhs. G & H. Every version of the Employee Handbook in place during Bazan-

Garcia's employment with WRPS contained the same arbitration provision as the one described

above. See Aff. Exh. Fat 84; AfT. Exh. Gat 85; Aff. Exh. Hat 87. Bazan-Garcia also signed

and returned to WRPS acknowledgements stating she had received addendums to the Employee

Handbooks and understood it was her responsibility "to read and comply with the revision that

has been made." Exhs. D & E.

               As an at-will employee, Bazan-Garcia could "quit [her] employment at any time

without a cause or reason," and WRPS could terminate her employment "at any time without a

cause or reason." Aff. Ex. A.     Bazan-Garcia's employment with WRPS was terminated on

October 22,2013. Aff. at, 2. On July I, 2014, Bazan-Garcia initiated this lawsuit, alleging that

WRPS discharged her from employment because she had notified WRPS of an "on-the-job

injury and/or initiated the filing of a workers' compensation claim." Orig. Pet. at, 17. WRPS

answered with a general denial on September 12, 2014. Orig. Ans. at 1.

               By signing the Arbitration Agreement and Acknowledgement, and by beginning

and continuing her employment with WRPS after receiving notice of the those agreements'

tenns, Bazan-Garcia agreed to arbitrate all of the claims alleged in her Original Petition. Bazan-

Garcia is bound by those agreements.




DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                Page3


                                               18
                              III.   ARGUMENT AND AUTHORITIES

       A.      The Texas Arbitration Act governs this dispute and requires, at a minimum,
               that trial of this action be stayed until arbitration is complete.

               Bazan-Garcia is a Texas resident and WRPS is a Texas-based company, and their

contractual relationship was based in San Antonio, Texas. Orig. Pet.      at~   3. Their arbitration

agreement does not fall into one of the categories that is excluded from coverage by the Texas

Arbitration Act ("TAA''). See Tex. Civ. Prac. & Rem. Code § 171.002 (excluding certain

arbitration agreements from the statute). Consequently, these agreements are governed by the

TAA. See id. at§§ 171.001 et seq.

               Texas and federal policy strongly favor arbitration agreements. Jack B. Anglin

Co., Inc. v. Tipps, 842 S.W.2d 266,268 (Tex. 1992). Under the TAA, "[i]fa trial court finds that

the claim falls within the scope of a valid arbitration agreement, the 'court has no discretion but

to compel arbitration and stay its own proceedings."' Forest Oil Corp. v. McAllen, 268 S.W.3d

51, 56 (Tex. 2008) (quoting In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001));

see also Tex. Civ. Prac. & Rem. Code §§ 171.021(c) ("An order compelling arbitration must

include a stay of any proceeding subject to Section 171.025."); id. at § 171.025(a) ("The court

shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or

an application for that order is made under this subchapter.").

               ln deciding whether to compel arbitration, the trial court must resolve the

following issues: '"(1) whether a valid, enforceable arbitration agreement exists, and (2) if so,

whether the claims asserted fall within the scope of that agreement." Henry v. Gonzalez, 18

S.W.3d 684, 688 (Tex. App.-San Antonio 2000, pet. dism'd by agr.). Unless the party resisting

arbitration shows there is a material issue of disputed fact that requires an evidentiary hearing,

the trial court "may summarily decide whether to compel arbitration on the basis of affidavits,


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page 4

                                                19
pleadings, discovery, and stipulations." Jack B. Anglin, 842 S.W.2d at 269. The court may

generally also "rei [y] interchangeably on cases that discuss the [Federal Arbitration Act

("FAA")] and [the] TAA," because "many of the underlying substantive principles are- the

same." Forest Oil Corp., 268 S.W.3d at 56 n. 10.

               As explained below, WRPS and Bazan-Garcia entered into a valid arbitration

agreement, and all of the claims asserted by Garcia against WRPS are within the scope of that

agreement.    The Court must therefore compel arbitration, and stay this lawsuit until that

proceeding is complete.

       B.      The agreement to arbitrate this dispute is valid.

               When deciding whether arbitration is mandatory under the TAA, the Court must

first determine whether the parties have a valid arbitration agreement. Henry, 18 S.W.3d at 688.

This is a question of law. J.M Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).

"Arbitration agreements are interpreted under traditional contract principles." Id.; see also

Garcia v. Huerta, 340 S.W.3d 864, 869 (Tex. App.-San Antonio 2011, pet. denied) ("Under

both the FAA and the TAA, we apply ordinary state contract law principles in order to decide

whether a valid arbitration agreement exists.").

               1.      Bazan-Garcia agreed to arbitrate this dispute by signing the
                       arbitration agreement.

               Assent is an essential element of contractual formation.   A party who signs a

contract "must be held to have known what words were used in the contract and to have known

their meaning, and he must also be held to have known and fully comprehended the legal effect

of the contract." In re Big 8 Food Stores, Ltd., 166 S.W.3d 869, 878 (Tex. App.-El Paso 2005,

no pet.) (quoting Nguyen Ngoc Giao v. Smith & Lamm, P.C., 714 S.W.2d 144, 146 (Tex. App.-

Houston [1st Dist.] 1986, no writ)). Consequently, a party's "signature on a written contract is


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                              Page 5

                                               20
'strong evidence' that the party unconditionally assented to its terms." !d. (holding that the

arbitration agreement plaintiff signed with her employer was enforceable, even though she

claimed she was "rushed" into signing the agreement and did not understand its terms).

               The Texas Supreme Court has held that proving a plaintiff signed an arbitration

agreement establishes the agreement's existence as a matter of law.       In In re Palm Harbor

Homes, inc., the plaintiffs signed two documents containing arbitration agreements. 195 S.W.3d

672, 676 (Tex. 2006). Nonetheless, they argued they should not be bound by those agreements

because

               [1] the documents were not explained to them; [2] they were told
               that the documents were necessary to complete the purchase; [3]
               they were w1aware that they had signed arbitration agreements; ...
               [41 the [defendant] did not sign the arbitration agreements; and [51
               they were unaware of what arbitration entailed and did not
               voluntarily waive their right to a jury trial.

!d. The Supreme Court held that this was insufficient to disprove the existence of the arbitration

agreement and show it was invalid. "Because the [defendant] presented a signed arbitration

agreement to the court ... and the [plaintiffs] have presented no evidence that they did not sign

the agreement, we conclude that, as a matter of law, the existence of an arbitration agreement

among the parties was established." !d. at 676.

               Bazan-Garcia signed the Arbitration Agreement on September 27, 2011. Aff.

Exh. C. That agreement provided that, other than certain worker's compensation claim disputes,

all disputes between WRPS and Bazan-Garcia "shall be submitted to arbitration in accordance

with the rules of the American Arbitration Association." !d.       Bazan-Garcia also signed the

Employee Acknowledgement form, which represented that she would comply with the Employee

Handbook. Aff. Exh. B. The Employee Handbook also required the parties to submit their

disputes "to final and binding arbitration." Aff. Exh. Fat 84; see also In re Halliburton Co., 80


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                Page6

                                              21
S.W.3d 566, 569 (Tex. 2002) (holding that an employee who accepted an agreement that

incorporated an arbitration provision by reference had accepted that arbitration provision).

Bazan-Garcia is therefore bound to arbitrate her disputes with WRPS pursuant to a valid

arbitration agreement.

               2.        Bazan-Garcia also agreed to arbitrate this dispute because she
                         commenced and continued employment with WRPS after receiving
                         notice of its arbitration policy.

               In addition, "[a]n at-will employee who receives notice of an employer's

arbitration policy and continues or commences employment accepts the terms of the agreement

as a matter of law." D.R. Horton, Inc. v. Brooks, 207 S.W.3d 862, 867 (Tex. App.-Houston

[14th Dist.] 2006, no pet.) (citing In re Halliburton Co., 80 S.W.3d 566, 56 (Tex. 2002)). This

applies to arbitration agreements that are incorporated by reference into another contract,

because a party who signs a contract is responsible for ensuring that it knows and accepts the

terms ofthat contract. See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 190 (Tex. 2007)

("Additionally, the plaintiffs' testimony that they failed to read the arbitration provisions until

this dispute arose is not a valid ground for setting aside their signed agreements."); In re

December Nine Co., Ltd., 225 S.W.3d 693, 702 (Tex. App.-El Paso 2006, no pet.) (enforcing

incorporated arbitration provisions even though employees did not receive copies of the

incorporated documents, since employees presented no evidence that they were actually

prevented from obtaining copies).

               When the plaintiff in In re Dallas Peterbilt, Ltd., L.L.P. began his at-will

employment, he received a summary of his employer's dispute resolution program, as well as an

acknowledgment form stating he had "received and carefully read or been given the opportunity

to read the [Summary]." 196 S.W.3d 161, 163 (Tex. 2006) (modification in original). The

plaintiff signed the form, and began working for the employer. !d. The Texas Supreme Court

DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page 7

                                               22
held that the employee had received notice of the arbitration policy from the acknowledgement

form, and that "by signing the acknowledgement form and commencing his employment,

[plaintiffj accepted the [arbitration] agreement as a matter of law." !d. He was therefore bound

to arbitrate his dispute with his employer. !d.; see also In re Autotainment Partners Ltd. P 'ship,

183 S.W.3d 532, 535-36 (Tex. App.-Houston [14th Dist.] 2006, no pet.) (employee who signed

acknowledgement stating she had "received a copy of the [employer's] Program, received

training on the Program, and understood such a Program was in use" had "agreed to the terms

contained in the Program documents.'' including an arbitration agreement).

               Like the plaintiffs in Dallas Peterbilt and Autotainment Partners, Bazan-Garcia

accepted the arbitration agreement contained in the Employee Handbook by beginning and

continuing to work for WRPS after she had notice of that agreement. At the time she accepted

employment, Bazan-Garcia received and signed the Acknowledgement. Aff. Exh. B. In that

acknowledgement, she expressly represented that she had "received the handbook," and that she

understood it was her "responsibility to read and comply with the policies contained this

handbook and any revisions to it." !d. The Employee Handbook required Bazan-Garcia to sign

the separate Arbitration Agreement, which she did on September 27, 2011. Aff. Exh. C. It also

contained its own arbitration agreement, stating that disputes not resolved internally "are subject

to final and binding arbitration . . . under the Employment Dispute Resolution Rules of the

American Arbitration Association." Aff. Exh. F at 84. This provision was not conditioned on

Bazan-Garcia signing the separate and additional Arbitration Agreement.            See id.; In re

AdvancePCS Health, L.P., 172 S.W.3d 603,606 (Tex. 2002) ("[N)either the FAA nor Texas law

requires that arbitration clauses be signed, so long as they are written and agreed to by the

parties.").



DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page 8


                                               23
               Bazan-Garcia began working for WRPS after receiving notice of the Employee

Handbook's arbitration agreement through the Acknowledgement. Aff.        at~   2; Aff. Exh. B. She

continued working for, and accepting payment from, WRPS for fifteen months. Aff. at            ~   2.

During this period, Bazan-Garcia also received addenda to the Employee Handbook informing

her of revisions, and signed those addenda acknowledging that it was her responsibility to

comply with all of the Employee Handbook's provisions. Atl Exhs. D & E. All of the versions

of the Employee Handbook that were in place during Bazan-Garda's employment included the

same arbitration clause, requiring the parties to submit any "[p]roblems, disputes, or claims ...

to final and binding arbitration . . . under the Employment Dispute Resolution Rules of the

American Arbitration Association." See Aff. Exh. Fat 84; Aff. Exh. Gat 85; Aff. Exh. Hat 87.

Having agreed to the terms of the Employee Handbook through her signature and conduct,

Bazan-Garcia is bound to its arbitration provision.

       C.      Bazan-Garcia's claims fall within the scope of the agreement to arbitrate.

               The second and final inquiry in determining whether arbitration of a party's

claims is mandatory under the TAA is whether those claims fall within the scope of the parties'

arbitration agreement. If they do, the Court must compel arbitration. Henry, 18 S. W.3d at 688.

               "When deciding whether claims fall within an arbitration agreement, courts

employ a strong presumption in favor of arbitration." In re Rubiola, 334 S. W.3d 220, 225 (Tex.

2011). Thus, the court "must resolve any doubts about the scope of an arbitration agreement in

favor of arbitration." Dennis v. Coli. Station Hosp., L.P., 169 S.W.3d 282, 285 (Tex. App.-

Waco 2005, pet. denied).     "The policy in favor of compelling arbitration agreements is so

compelling that a court should not deny arbitration unless it can be said with positive assurance

that an arbitration clause is not susceptible of an interpretation which would cover the dispute at



DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page9

                                               24
issue." In re Rubiola, 334 S.W.3d at 225 (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d

896, 899 (Tex. 1995)).

                Bazan-Garcia claims she was wrongfully discharged by WRPS after allegedly

notifying WRPS of an "on-the-job injury and/or initiat[ing] the filing of a workers'

compensation claim." Orig. Pet. at      ~   17. The parties' agreement clearly encompasses that

dispute.    The Arbitration Agreement states that "other than a worker's compensation claim

covered by insurance, no dispute between [WRPS] and the undersigned which is in any way

related to the employment of the undersigned, including but not limited to a claim for wrongful

termination ... shall be the subject of a lawsuit filed in any state or federal court." Aff. Exh. C

(emphasis added). Bazan-Garcia is making a claim for wrongful termination, and is not making

a claim for worker's compensation. The Arbitration Agreement expressly requires arbitration of

the wrongful termination claim, which is therefore within the scope of the agreement.

                The arbitration provision contained in the Employee Handbook also clearly

covers the parties' dispute.    That provision states that "[p]roblems, disputes, or claims not

resolved through [voluntary internal] resolution steps are subject to final and binding

arbitration." Aff. Exh. F at 84. Bazan-Garcia's claim was not resolved through a voluntary

internal resolution process, and therefore falls within the scope of the arbitration agreement.

                Because the TAA requires the arbitration of all disputes in this case, the Court

must compel arbitration and stay this lawsuit. See Forest Oil, 268 S.W.3d at 56; Tex. Civ. Prac.

& Rem. Code§ 171.02l(c).

       D.       Any defenses to arbitration raised by Bazan-Garcia must be decided by the
                arbitrator rather than the Court.

                If Bazan-Garcia raises any defense to arbitration, including any argument about

the existence, validity, or enforceability of the parties' arbitration agreements, that challenge


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page 10

                                                25
must be decided by the arbitrator and not the Court.          Bazan-Garcia therefore cannot avoid

arbitration on any of those grounds.

                The default rule is that the court decides issues of substantive arbitrability, such as

the validity of the arbitration agreement. Forest Oil, 268 S.W.3d at 61. However, the parties

may agree to have those issues decided by the arbitrator instead, so long as the agreement

''clearly and unmistakably" demonstrates that this was the parties' intent. Howsam v. Dean

Witter Reynoldr;, Inc., 537 U.S. 79, 79 (2002); see also Saxa Inc. v. DFD Architec/Ure Inc., 312

S. W.3d 224, 229 n. 4 (Tex. App.-Dallas 2010, pet. denied) (explaining that the trial court could

rely on FAA and T AA precedents in analyzing whether the parties had delegated issues of

arbitrability to the arbitrator, because it "is subject to a virtually identical analysis under either"

statute).

               Such a delegation clause can empower the arbitrator to decide, among other

things, whether the agreement is valid, binding and enforceable against a particular          plaintitr~


illusory, unconscionable, or sufficiently broad to cover the parties' dispute. See, e.g., Rent-A-

Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2775, 2779 (20 I 0) (delegation clause empowered

arbitrator to decide whether arbitration agreement was unconscionable); Forest Oil, 268 S.W.3d

at 61 (delegation clause empowered arbitrator to decide whether the parties' dispute was within

the scope of the arbitration agreement); IHS Acquisitions No. 171, Inc. v. Beatty-Ortiz, 387

S.W.3d 799, 808 (Tex. App.-El Paso 2012, no pet.) (delegation clause empowered arbitrator to

decide whether arbitration agreement was illusory); Saxa, 312 S. W.3d at 229 (delegation clause

empowered arbitrator to decide whether joinder of parties was proper under the arbitration

agreement). In deciding a motion to compel arbitration, the trial court has no discretion to refuse

to enforce a clause that authorizes the arbitrator to decide these issues. Ernst & Young LLP v.



DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                   Page 11

                                                 26
Martin, 278 S.W.3d 497, 500 (Tex. App.-Houston [14th Dist.] 2009, no pet.) ("[A]n arbitration

clause that reallocates traditional court functions to the arbitrator is enforceable and crumot serve

as a basis for denying a motion to compel arbitration.").

                 The     Arbitration Agreement and the Employee Handbook                             clearly and

unmistakably vest jurisdiction over arbitrability to the arbitrator. The Arbitration Agreement

specifies that arbitration will occur "in accordance with the rules of the American Arbitration

Association." Aff. Exh. C. The Employee Handbook states that "[t]he arbitration proceeding

will be conducted under the Employment Dispute Resolution Rules of the American Arbitration

Association." Aff. Exh. Fat 84. Under the AAA's Rules for employment cases, "[t]he arbitrator

shall have the power to rule on his or her own jurisdiction, including any objections with respect

to the existence, scope or validity of the arbitration agreement." AAA Employment Arbitration

Rules at 17, ~ 6(a). 1

                 A provision that incorporates the AAA Rules clearly and unmistakably delegates

substantive arbitrability to the arbitrator.         See Saxa Inc., 312 S.W.3d at 229.               In Saxa, for

example, the parties' arbitration agreement provided that "any claim, dispute or other matter in

question arising out of or related to" the contract "shall be subject to arbitration." /d.                     In

addition, the agreement stated that arbitration would occur in accordance with the AAA's

Construction Industry Arbitration Rules, which give the arbitrator power "to rule on his or her

own jurisdiction, including any objections with respect to the existence, scope or validity of the

arbitration agreement." /d. at 228-29. The Court compelled arbitration of the parties' dispute

over arbitrability-in that case, whether the joinder of parties was appropriate. ''When, as here,

the parties agree to a broad arbitration clause and explicitly incorporate rules that empower an


1
 A copy of the AAA Employment Arbitration Rules & Mediation Procedures is available at
https:/ /www .adr. org/aaa!Show Property?nodel d=/U CM/AD RSTG.~ 004362&revi sion=latestre leased.

DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                              Page 12

                                                       27
arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable

evidence of the parties' intent to delegate such issues to an arbitrator." /d. at 230. The Court

emphasized that a majority of courts have reached this same conclusion. !d. (collecting cases);

see also Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.

2012) ("We agree with most of our sister circuits that the express adoption of the [the AAA]

rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.").

               Bazan-Garcia assented to an arbitration agreement that empowers the arbitrator to

decide arbitrability because the Arbitration Agreement and the Employee Handbook incorporate

the AAA Rules' delegation provision-the same provision at issue in Saxa. See Aff. Exh. C;

Aff. Exh. F at 84. This delegation provision does not prohibit Bazan-Garcia from raising any

challenges to the parties' arbitration agreement, including challenges based on the validity of the

parties' signatures, the scope of the agreement, any alleged waiver of arbitration by WRPS, or

whether the agreement is illusory or unconscionable. It does, however, require Bazan-Garcia to

pursue these challenges in the forum of arbitration, not the court.

                                           IV. Prayer

               WRPS prays that the Court grant its Motion to Compel Arbitration and abate and

stay a11 proceedings in this lawsuit until arbitration has been completed.




DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRA TJON                                                                 Page 13

                                                28
                               Respectfully submitted,

                               BAKER BOTTS L.L.P.



                               By: Is/ Jennifer M Trulock
                                  Jennifer M. Trulock
                                  State Bar No. 90001515
                                  2001 Ross Avenue, Suite 600
                                  Dallas, Texas 75201
                                  (214) 953-6500 Telephone
                                  (214) 953-6503 Facsimile
                                  jennifer.trulock@bakerbotts.com

                                  Stephanie F. Cagniart
                                  98 San Jacinto Boulevard, Suite 1500
                                  Austin, Texas 78701-4078
                                  (512) 322-2500 Telephone
                                  (512) 322-2501 Facsimile
                                  stephanie.cagniart@bakerbotts.com

                               ATTORNEYS FOR DEFENDANT WESTERN
                               RIM PROPERTY SERVICES, INC.




DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                             Page 14

                                29
                             CERTIFICATE OF CONFERENCE

        I certify that on September 23,2014 and on October 15,2014, I conferred by e-mail with
Josue Garza, counsel for Plaintiff, regarding this motion. Mr. Garza stated on both dates that
Plaintiff opposes the relief requested in this motion.


                                            Is/ Stephanie F. Cagniart
                                            Stephanie F. Cagniart




                                CERTIFICATE OF SERVICE

               I certify that on this the 15th day of October, 2014, a copy of the foregoing was
served by certified mail, return receipt requested, and by facsimile on the following counsel for
Plaintiff:

       Javier Espinoza
       Steven Sachs
       Josue F. Garza
       The Espinoza Law Firm, PLLC
       503 E. Ramsey, Ste. 103
       San Antonio, Texas 78216
       210-229-1302 (Facsimile)




                                             Is/ Steehanie F. Cagniart
                                             Stephanie F. Cagniart




DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                              Page 15

                                              30
EXHIBIT 1




    31
                                      CAUSE NO. 2014CV01064

PAULA BAZAN-GARCIA,                                    §        IN THE COUNTY COURT
                                                       §
                  Plaintiff,                           §
                                                       §
VS.                                                    §        AT LAW NO. CC# 03
                                                       §
WESTERN RIM PROPERTY                                   §
SERVICES INC.,                                         §
                                                       §
                  Defendant.                           §        BEXAR COUNTY, TEXAS


                               A.FFIDAVIT OF CHARLES D. SMITH

        Before me, the undersigned authority, personally appeared Charles D. Smith, who, being

duly sworn, testified as follows:

        I.        My narne is Charles D. "Doug" Smith. I am over the age of 18, of sound mind,

and competent to testify to the matters stated in this Affidavit. I have personal knowledge of the

facts set forth in this Aflidavit, and all of these facts are true.

        2.        Paula Bazan-Garcia was employed as a housekeeper by WRPS III, LP from

September 26,2011 to October 22, 2013.

        3.        I am the custodian of the records of WRPS III, LP. In Bazan-Garcia' s personnel

file are located the following documents:

             a. An At- Will Employee Agreement, a true and correct copy of which is attached to
                  this Affidavit as Exhjbit A.

             b. An Employee Acknowledgement Form, a true and correct copy of which is
                attached to this Affidavit as Exhibit B.

             c. An Arbitration Agreement, a true and correct copy of which is attac.hed to this
                Affidavit as Exhibit C.

             d.    Two Employee Handbook Addendum forms, true and correct copies of which are
                  attached to this Affidavit as Exhibits D & E.




AFFIDA VlT OF CHARLES D. SMITH                                                              Page I




                                                    32
       4.      True and correct copies of the Employee Handbooks that were used by WRPS III,

LP during Bazan-Garcia's employment are also attached to this Affidavit as Exhibits F. G, & H.

       5.      The documents attached to this Affidavit as Exhibits A through H are kept by

WRPS lii, LP in the regular course of business, and it was the regular course of business of

WRPS III, LP for an employee or representative of WRPS III, LP, who had knowledge of the

event recorded to keep copies of these docmm::nts in WRPS III, LP's personnel files.              The

records attached hereto are the originul or exact duplicates of the original.


       FURTHER, AFFIANT SA YETH NOT.




       SUBSCIUBED AND SWORN TO BEFORE ME by Charles D. Smith on this                             1'[~
day of October, 2014.




                                                                   CHERYL ANN
                                                                           .  NUGENT   --·]
                                                                Notary Public. State of Texas
                                                                  My Cornrntssion Exolres

                                                               -      August 30, 2016
                                                                            --~--




AFFIDAVIT OF CHARLES D. SMITH                                                                   Page 2




                                                 33
AFFIDAVIT
EXHIBIT A




    34
                                        WRPSni1 LP
                         A~~LLEMPLOYEEAGREEMENT



 To:     WRPS III, LP employee

         I hereby acknowledge that WRPS lll, LP has given me ample private time to sit
 and review the Company's Policy and Procedure Handbook dated August l, 2006. r
 understand clearly aU tho statements made in this. hllruiboolc and will comply with alttbe
 rules and regulations of the Company SCit forth in this handbook along with those thac r
 learn of during my employment I understand clearly that failure to do so may result in
 my silspension or discharge.     ·     ·      ·

          I recognize that 1 am an "at will" employee and that I can quit my om.ploymentat
 any time without a cause or reason, and the Company may tenninate my emplilyment at
 au{ti..tne without a cause or reason. I realiz.~ that the various "causes" for termirurtion
 listod in this handbook are not exclusive; rathar, they illustrate reasons when termination
 is ·appropriate. Tennination may bo appropriate for many other reasons net specifically
 listed h~in.




 Employee's Si

~~    C1 fr.w.Ll @tCi ~ · - -
 mployee's Printed Name




                                          35
AFFIDAVIT
EXHIBITB




    36
II
WilPS 111, LP
En.ployee Handbook WRPS lll, LP


EM'LOYEE ACKNOWLEDGEMENT FORM



Tht employee handbook describes important information about WR.PS III, LP, and J understand that I
sboold consult the Human Resources Department regarding any questions not answered in the bimdbook.

I have entered into my employment relationship with WRPS In, LP voluntarily and acknowledge that
ti;teJC is no specified length of employment. Accordingly, either I or WRPS III, LP can terminate the
relationship at will, with or without cause, at any time, so long as there is no violation of applicable
federal or state law.

Since the information, policies, and benefits described here are necessarily subject to change, I
acknowledge that revisions to the handbook may occur, except to WRPS Ill, LP's policy of employment·
at-will. All such changes will be communicated through official notices, and I understand that revised
lnfamation may supersede, modify, or eliminate existing policies. Only the chief executive officer of
WRPS IU, LP has the ability to adopt any revisions to the policies in this handbook..

Punhermore, I acknowledge that this handbook is neither a contract of employment nor a legal document.
I have received tho handbook, and I understand that it is my responsibility to read and comply with the
policies contained in this handbook and any revisions made to it.


EMPLOYEE'S NAME       (printed~/a Q.J~::DZEtJ.:·~a._y ("~---­
     SfGNAn.JR~(!. 4~ ~
EMPLOYEE'S


DATE,~ ?Q,'ZtJlL.~---




                                                37
AFFIDAVIT
EXHIBIT C




    38
                             ARBITRATION AGREEMENT


lt is in the interest of WRPS ill, LP and their employees to resolve in a speedy and
 inex.pens.ive way, any legal controversy that may arise. Therefore, other than a worker's   _
compensation claim covered by insurance, no dispute between the companies and the
undersigned which is ir. any way related to tbe empJoyment of the undersigned, including     ·-
but not limited to a clllim for wrongtJI termination, discrimination and/or harassment,
and worker's compensation not covered by insurance, shall be the subject of a Ja~suit
filed in. any state or federal court. Instead, any such dispute Shall be submitted to        ...
arbitration in accordance with the roles of the American Arbitration A3sociation
("AAA"). Prior to the filing of any such proceeding, the filing party shall give twenty      _
(20) days prior written notice:

Each party to arbitration shall be entitled to tab only one deposition. Any arbitration      _
relating to any dispute covered by this Agreement shall be arbitrated in Dallas County,
Texas.

N the conclusion of the arbitration. the arbitrator shall make such findings of fact and
state tho evidentiary basis of such finding. The Arbitrator shall also issue a ruling and
explain how the findings of fact justify his ruling. Any court of competent jurisdiction
shall enter judgment on the arbitration award and soan review che award as permitted by
law.



BY:




                                        39
AFFIDAVIT
EXHIBITD




    40
 WRPSIII,LP
WRPSID,LP




Dcccmber28, 2012

E~LOYEEHANDBOOKADDENDU:M



The attached addendum desoribes important information about WRPS Jli, LP. f understand that l should
consult the Human Resources Dapartmmt regarding any questions.

I acknowledge that I have received tlle addendum nrul I understand that it is my responsibility to read and
comply with the revi8ion that has been made.




EMPLOYEE'S SIGNATURE:           @~f~''..~-~-v------­
DA tE: __1:-_2:1~




                                                    4




                                                  41
AFFIDAVIT
EXHIBITE




    42
Ill
 WRPSIII,LP
WRPSill,LP




March 1, 2013

KMPLOYEEHANDBOOKADDENDUM

Tho attached addendum dcscrlbcs important information about WRPS III. LP. J understand that 1 should
consult the Humao. Resources Department Jegarding any questions.

I acknowledge that 1 have received. the addendum and I understand that it Is my responsibility to read and
comply with the revision that bas been made.




EMPLOYEE'S NAME (printed): _      _F~t D-.              !2az.M- bPfC~/6
I!MPLOYBB'S     SlONATtlRll:~-·&~-·                                               --·

DATE: __   .3..1:::/2 ..~- . -· ·"'··-




                                                    4




                                                 43
AFFIDAVIT
EXHIBITF




    44
     WR
     p         s

Employee Handbook
    WRPS,LP
      10/01/2011




         45
IIIli
1111
WRPSI LP


                                      Table of Contents

No. Polley                                         Effective    Revision    Page
                                                   Date:        J2!!!i
INTRODUCTION
020 Employee Welcome Message                       1211/1999    11112006    1
030 Organization Description                       1211/1999    1/1/2006    2
040 Introductory Statement                         12/111999    1/1/2006    3
051 Employee Acknowledgement Form                  121111999    1/112006    4

EMPLOYMENI'
101 Nature of Employment                           1211/1999    1/1/2000    5
102 Employee Relations                             1211/1999    1/1/2006    6
103 Equal Employment Opportunity                   12/1/1999    111/2006    7
104 Business Ethics and Conduct                    12/1/1999    111/2006    8
107 Immigration Law Compliance                     12/1/1999    11112000    9
108 Conflicts oflnterest                           12/111999    1/112006    10
110 Outside Employment                             12/111999    1/112006    11
112 Non-Disclosure                                 12/1/1999    1/1/2006    12
114 Disability Accommodation                       12/1/1999    1/112006    13
180 Personal Relationships in the Workplace        11/19/2004   1/1/2006    14

EMPLOYMENT STATUS & RECORDS
201 Employment Categories                          12/1/1999    1/1/2006    16
202 Access to Personnel Files                      12/1/1999    111/2006    18
203 Employment Reference Checks                    12/1/1999    1/1/2000    19
204 Personnel Data Changes                         12/111999    111/2006    20
205 Introductory Period                            12/1/1999    1/1/2006    21
208 Employment Applications                        12/111999    1/1/2006    22
209 Perfonnan.ce Evaluation                        1211/1999    1/1/2006    23
210 Job Descriptions                               12/1/1999    1/1/2006    24
280 Confidentiality of Salary                      12/111999    1/1/2006    25

EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits                              12/1/1999    1/112006    26
303 Vacation Benefits                              12/1/1999    10/1/2009   27
304. Child Care Benefits                           12/1/1999    111/2006    29
305 Holidays                                       12/111999    1/1/2006    30




                                              46
WRPS, LP


307   Sick Leave Benefits                    12/l/1999   10/1/2009   31
308   Time Off to Vote                       12/1/1999   1/1/2006    33
309   Bereavement Leave                      12/111999   1/112006    34
310   Relocation Benefits                    12/1/1999   1/1/2006    35
311   Jury Duty                              12/1/1999   1/112006    36
312   Witness Duty                           12/111999   1/1/2006    37
313   Benefits Continuation (COBRA)          12/1/1999   1/1/2006    38
314   Educational Assistance                 1211/1999   1/112006    39
316   Health Insurance                       12/1/1999   1/112006    40
317   Life Insurance                         12/1/1999   1/1/2006    41
320   401 (k) Savings Plan                   12/1/1999   111/2006    42
326   Flexible Spending Account (FSA)        12/1/1999   1/1/2006    43
328   Partnership Participation Units        1211/1999   1/1/2006    44
330   Annual Incentive Trip                  12/1/1999   1/112006    45

TIMEKEEPING/PAYR.OLL
401 Timekeeping                              12/1/1999   1/1/2000    46
403 Paydays                                  12/1/1999   1/1/2000    47
405 Employment Termination                   12/111999   1/112006    48
407 Severance Pay                            12/1/1999   1/1/2006    49
409 Administrative Pay Corrections           12/111999   1/1/2006    so
410 Pay Deductions and Setoffs               12/111999   111/2006    Sl

WORK CONDITIONS & HOURS
502 Work Schedules                           1211/1999   1/1/2006    52
504 Use of Phone and Mail Systems            12/1/1999   1/1/2006    53
505 Smoking                                  12/1/1999   111/2006    54

506 Rest and Meal Periods                    12/1/1999   1/1/2006    55
507 Overtime                                 121111999   1/1/2006    56
512 Business Travel Expenses                 12/111999   1/1/2009    57
514 Visitors in the Workplace                121111999   1/1/2006    58
516 Computer and Email Usage                 12/1/1999   1/112006    60
517 Internet Usage                           1211/1999   111/2006    61
522 Workplace Violence Prevention            1211/1999   l/1/2006    63
526 Cell Phone Usage                         12/111999   11112006    65

LEAVES OF ABSENCE
60 l Medical Leave                           1211/1999   1/1/2006    66




                                        47
II
WRPS., LP


602 Family Leave                                       12/1/1999   1/1/2006   68
605 Military Leave                                     1/1/2006    111/2000   70

EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules      12/1/1999                 111/2006   71
702 Drug and Alcohol Use                 1211/1999                 111/2000   73
703 Sexual and Other Unlawful Harassment 12/1/1999                 111/2006   74
704 Attendance and Punctuality           12/1/1999                 11112000   76
705 Personal Appearance                  12/1/1999                 1/1/2000   77
706 Return of Property                   12/1/1999                 1/112000   78
708 Resignation                          12/1/1999                 1/1/2000   79
714 Drug Testing                         12/1/1999                 1/1/2006   80
716 Progressive Discipline               12/1/1999                 1/1/2006   81
718 Problem Resolution                   12/111999                 111/2006   83
720 Casual Days                          12/1/1999                 1/1/2006   85

MISCELLANEOUS
800 Life·Tbreatening Illnesses in the Workplace        12/1/1999   111/2006   87
806 Suggestion Program                                 12/1/1999   111/2006   88




                                                  48
WRPS,LP
WRPS,LP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.

We believe that each employee contributes directly to WR.PS, LP's growth and success, and we hope you
will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about ·
employment with WRPS, LP.

We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                   1



                                                 49
1111
1111
WRPS,LP
WRPS,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Riin has a home to satisfy
your requirements.

The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet,. and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadiwn
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Mariy are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2



                                              50
II
WRPS,LP
WRPS,LP


INTRODUCTORY STATEMENT


This handbook is designed to acquaint you with WRPS, LP and provide you with infonnation about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-wiU policy pennitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.




                                                     3



                                                  51
1111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 8/1/2006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.                                           ·

If a situation occurs when employees believe that -a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's managet\s), if necessary, and directs employee to the President for review of
problem.                                                                                            ·

5. Employee presents problem to the President in writing.




                                                    83



                                                   52
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President infonns employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. ~ employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration proeess to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confiden~ is important to the operation of an efficient and luUmonious work environment, and helps to
ensure everyone's job security.




                                                     84



                                                    53
AFFIDAVIT
EXHIBIT G




    54
     WR
      p        s

Employee Handbook
  WRPS III, LP
                    '\
                    \


      09/21/2012    i




                    Il
                         I
                         I
                         i;




          55
1111
1111
WRPSIII, LP


                                       Table of Contents

No. Policy                                          Effe~tive    Revision    f.i9!
                                                    Date:        Dam:
INTRODUCTION
    Employee Welcome Message                        12/1/1999    1/1/2006    1
    Organization Description                        12/1/1999    1/1/2006    2
    Introductory Statement                          12/1/1999    1/1/2006    3
    Employee Acknowledgement Fonn                   12/1/1999    1/1/2006    4


EMPLOYMENT
10 I Nature of Employment                           12/1/1999    1/112000    5
102 Employee Relations                              12/111999    1/1/2006    6
l 03 Equal Employment Opportunity                   12/1/1999    111/2006    7
104 Business Etbies and Conduct                     12/111999    I/lt2006    8
107 Immigration Law Compliance                      12/1/1999    1/1/2000    9
108 Conflicts of Interest                           12/1/1999    1/112006    10
11 0 Outside Employment                             12/1/1999    l/112006    12
112 Non-Disclosure                                  12/l/1999    111/2006    13
114 Disability Accommodation                        1211/1999    111/2006    14
180 Personal Rei ationships in the Workplace        11/19/2004   111/2006    15

EMPLOYMENT STATUS & RECORDS
201 Employment Categories                           1211/1999    1/1/2006    17
202 Access to Personnel Files                       12/1/1999    1/112006    19
203 Employment Reference Checks                     12/1/1999    1/1/2000    20
204 Personnel Data Changes                          12/111999    1/112006    21
205 Introductory Period                             1211/1999    1/1/2006    22
208 Employment Applications                         1211/1999    1/1/2006    23
209 Perfonnance Evaluation                          12/1/1999    1/l/2006    24
21 0 Job Descriptions                               1211/1999    1/1/2006    25
280 Confidentiality of Salary                       1211/1999    1/1/2006    26

EMPLOYEE BENEFIT PROGRAMS
301 Employee Benefits                               1211/1999    l/l/2006    27
303 Vacation Benefits                               12/l/1999    10/1/2009   28
304 Child Care Benefits                             12/111999    1/1/2006    30




                                               56
1111
1111
WRPSII/1 LP


305 Holidays                                 12/111999   1/1/2006    31
307   Sick Leave Benefits                    12/1/1999   10/1/2009   32
308   Time Offto Vote                        12/1/1999   1/1/2006    34
309   Bereavement Leave                      12/1/1999   1/1/2006    35
310   Relocation Benefits                    12/I/1999   lll/2006    36
311   Jury Duty                              12/l/1999   1/1/2006    37
312   Witness Duty                           1211/1999   1/112006    38
313   Benefits Continuation (COBRA)          12/1/1999   111/2006    39
314   Educational Assistance                 12/1/1999   1/1/2006    40
316   Health Insurance                       1211/1999   1/112006    41
317   Life Insurance                         12/1/1999   1/1/2006    42
320   401 (k) Savings Plan                   12/1/1999   1/112006    43
326   Flexible Spending Account (FSA)        12/1/1999   1/112006    44
328   Partnership Participation Units        12/1/1999   11112006    45
330   Annuallncentive Trip                   12/111999   1/1/2006    46

TIMEKEEPlNGIPAYROLL
401 Timekeeping                              12/1/1999   1/1/2000    41
403 Paydays                                  12/1/1999   1/112000    48
405 Employment Termination                   12/1/1999   1/1/2006    49
407 Severance Pay                            12/111999   1/112006    50
409 Administrative Pay Corrections           12/1/1999   1/l/2006    51
410 Pay Deductions and Setoffs               12/1/1999   1/112006    52

WORK CONDITIONS & HOURS
502 Work Schedules                           12/1/1999   1/112006    53
504 Use of Phone and Mail Systems            12/1/1999   1/112006    54
505 Smoking                                  12/1/1999   1/1/2006    55
506 Meal Periods                             12/l/1999   1/1/2006    56
507 Overtime                                 12/1/1999   1/112006    57
512 Business Travel Expenses                 12/1/1999   1/112006    58
514 Visitors in the Workplace                12/1/1999   11112006    60
5 16 Computer and Email Usage                12/1/1999   1/1/2006    61
517 Internet Usage                           12/1/1999   1/1/2006    62
522 Workplace Violence Prevention            12/111999   111/2006    64
526 Cell Phone Usage                         12/1/1999   11112006    66

LEAVES OF ABSENCE
601 Medical Leave                            12/1/1999   1/112006    67
                                                                          I
                                                                          !
                                                                          I'
                                                                          i

                                                                          j
                                                                          I
                                                                          'l
                                                                          I
                                        57
WRPS Ill, LP


602 Family Leave                                    12/1/1999    l/112006   69
605 Military Leave                                  111/2006     1/112000   71

EMPLOYEE CONDUCT & DISCIPLINARY ACTION
701 Employee Conduct and Work Rules                 12/I/1999    1/1/2006   72
702 Drug and Alcohol Use                            12/1/1999    1/112000   74
703 Sexual and Other Unlawful Harassment            12!111999    1/1/2006   75
704 Attendance and Punctuality                       121111999   111/2000   77
70S Personal Appearance                              1211/1999   I/1/2000   78
706 Return of Property                               121111999   111/2000   79
708 Resignation                                      1211/1999   1/1/2000   80
714 Drug Testing                                   ' 12/111999   1/112006   81
716 Progressive Discipline                           12/l/1999   1/l/2006   82
718 Problem Resolution                               12/1/1999   111/2006   84
720 Casual Days                                      12/1/1999   1/112006   86

MJSCELLANEOUS
800 Life-Threatening Illnesses in the Workplace     12/1/1999    1/1/2006   88
806 Suggestion Program                              121111999    111/2006   89




                                              58
II
WRPSIII,LP
WRPSDitLP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS Ill, LP and wish you every success here.

We believe that each employee contributes directly to WRPS III, LP's growth and success, and we hope
you will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about
employment with WRPS III, LP.

We hope that your experience here will be challenging. enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                    1




                                                 59
II
WRPSIII,LP
WRPSffi,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever your needs, Western Rim has a home to satisfy
your requirements.
The Mansion trademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet, and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadium
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Our philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Many are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry'' for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2



                                             60
WRPSIII,LP
WRPSlli,LP


rnTRODUCTORYSTATEMENT

This handbook is designed to acquaint you with WRPS III, LP and provide you with infonnation about
working conditions, employee benefrts, and some oftbe policies affecting your employment. You should
read, understand. and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS fii, LP to benefit
employees. One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS III, LP
continues to grow, the need may arise and WRPS III, LP reserves the right to revise. supplemen~ or
rescind any policies or portion of the handbook from time to time as it deems appropriate. in its sole and
absolute discretion. The only exception to any changes is our employment-at-will policy pennitting you
or WRPS m, LP to end our relationship for any reason at any time. Employees will, of course, be notified
of such changes to the handbook as they occur.




                                                    3



                                                 61
 IIIII
1111
WRPSIII,LP
WRPSIU,LP




718 Problem Resolution
Effective Date: 12/1/1999
Revision Date: 811/2006


WRPS Ill, LP is committed to providing the best possible working conditions for its employees. Part of
this commitment is encouraging an open and frank atmosphere in which any problem, complaint,
suggestion, or question receives a timely response from WRPS lll, LP supervisors and management.

WRPS III, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee wiU be penalized, formally or
informally, for voicing a complaint with WRPS III, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.

If a situation occurs when employees believe that a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

1. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Departrnent or any other member of
management.

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's manager(s), if necessary, and directs employee to the President for review of
problem.

5. Employee presents problem to the President in writing.




                                                    84




                                                   62
WRPSIII,LP
WRPSIII, LP


6. The President reviews and considers problem. The President informs employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has full authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties arid may not be discussed or complained about _again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
fmal and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under tttese rules is exclusive, final, and binding on both parties, their beneficiaries, executors,
administrators, successors, and assigns. mo: employee must sign the attached Arbitration Agreement.
This is an absolute requirement.

Employees who choose to use the arbitration process to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS Ill, LP. A complete description of the arbitration procedure
is available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confidence is important to the operation of an efficient and harmonious work environment, and helps to
ensure everyone's job security.




                                                   85



                                                 63
AFFIDAVIT
EXHIBITH




    64
     WR
      p        s

Employee Handbook
    WRPS,LP
      05/01/2013




          65
WRPS,LP
WRPS,LP


Welcome new employee!

On behalf of your colleagues, I welcome you to WRPS, LP and wish you every success here.

We believe that each employee contributes directly to WRPS, LP's growth and success, and we hope you
will take pride in being a member of our team.

This handbook was developed to describe some of the expectations of our employees and to outline the
policies, programs, and benefits available to eligible employees. Employees should familiarize themselves
with the contents of the employee handbook as soon as possible, for it will answer many questions about
employment with WRPS, LP.

We hope that your experience here will be challenging, enjoyable, and rewarding. Again, welcome!

Sincerely,




Marcus D. Hiles
Chairman and CEO




                                                    1



                                                  66
1111
1111
WRPS,LP
WRPS,LP


ORGANIZATION DESCRIPTION

Western Rim Property Services currently manages over 6,000 apartment homes in Texas. These
apartment homes include luxury, moderate, and affordable housing communities. Currently
Western Rim has in excess of 1,200 LIHTC apartments with its major growth emphasis
consisting of luxury AAA properties. Whatever yom needs, Western Rim has a home to satisfy
your requirements.

The Mansion 1rademark is the brand name for its AAA luxury units. These properties are
unmatched in their amenities such as attached garages, marble baths with Jacuzzi tubs, granite
kitchens, Berber carpet, and upgraded kitchen appliances. The most spectacular clubhouses in
the industry, which include full impact aerobics floors, free weight and exercise room, stadium
seating theater rooms, pool tables, tanning beds, saunas and an outside pool area that is beyond
belief. Om philosophy is not that we are renting living space but are instead marketing a life
style.


Western Rim Properties are on the cutting edge of design. Many are regularly referenced in the
industry publications and are finalist for national awards such as the 1998 National Award
"Pillars of the Industry" for best signage (Mansions by Vineyard) and 1999 National Apartment
Association's "Pillars of the Industry" for best brochure (Mansions by the Lake).




                                               2



                                             67
WRPS,LP
WRPS,LP


mTRODUCTORYSTATEMrnNT

This handbook is designed to acquaint you with WRPS, LP and provide you with information about
working conditions, employee benefits, and some of the policies affecting your employment. You should
read, understand, and comply with all provisions of the handbook. It describes many of your
responsibilities as an employee and outlines the programs developed by WRPS, LP to benefit employees.
One of our objectives is to provide a work environment that is conducive to both personal and
professional growth.

No employee handbook can anticipate every circumstance or question about policy. As WRPS, LP
continues to grow, the need may arise and WRPS, LP reserves the right to revise, supplement, or rescind
any policies or portion of the handbook from time to time as it deems appropriate, in its sole and absolute
discretion. The only exception to any changes is our employment-at-will policy permitting you or WRPS,
LP to end our relationship for any reason at any time. Employees will, of course, be notified of such
changes to the handbook as they occur.




                                                    3



                                                  68
11111
1111
WRPS,LP
WRPS,LP




718 Problem Resolution
Effective Date: 1211/1999
Revision Date: 8/112006


WRPS, LP is committed to providing the best possible working conditions for its employees. Part of this
commitment is encouraging an open and frank atmosphere in which any problem, complaint, suggestion,
or question receives a timely response from WRPS, LP supervisors and management.

WRPS, LP strives to ensure fair and honest treatment of all employees. Supervisors, managers, and
employees are expected to treat each other with mutual respect. Employees are encouraged to offer
positive and constructive criticism.

If employees disagree with established rules of conduct, policies, or practices, they can express their
concern through the problem resolution procedure. No employee will be penalized, formally or
informally, for voicing a complaint with WRPS, LP in a reasonable, business-like manner, or for using
the problem resolution procedure.

If a situation occurs when employees believe that a condition of employment or a decision affecting them
is unjust or inequitable, they are encouraged to make use of the following steps. The employee may
discontinue the procedure at any step.

l. Employee presents problem promptly to immediate supervisor within 3 calendar days, after incident
occurs. If supervisor is unavailable or employee believes it would be inappropriate to contact that person,
employee may present problem to the Human Resources Department or any other member of
management.

2. Supervisor responds to problem during discussion or within 3 calendar days, after consulting with
appropriate management, when necessary. Supervisor documents discussion.

3. Employee presents problem to the Human Resources Department within 3 calendar days, if problem is
unresolved.

4. Human Resources Department counsels and advises employee, assists in putting problem in writing,
visits with employee's manager(s), if necessary, and directs employee to the President for review of
problem.

5. Employee presents problem to the President in writing.




                                                    86



                                                  69
1111
1111
WRPS,LP
WRPS,LP


6. The President reviews and considers problem. The President informs employee of decision within 3
calendar days, and forwards copy of written response to the Human Resources Department for employee's
file. The President has futl authority to make any adjustment deemed appropriate to resolve the problem.
This decision is final and binding on all parties and may not be discussed or complained about again.

Problems, disputes, or claims not resolved through the preceding problem resolution steps are subject to
final and binding arbitration. The arbitration proceeding will be conducted under the Employment Dispute
Resolution Rules of the American Arbitration Association. The decision or award of the Arbitrator made
under these rules is exclusive, final, and binding on parties, their beneficiaries, executors, administrators,
successors, and assigns. Every employee must sign the attached Arbitration Agreement. This is an
absolute requirement.

Employees who choose to use the arbitration process to resolve a problem will be expected to share the
cost of the arbitration proceeding with WRPS, LP. A complete description of the arbitration procedure is
available from the Human Resources Department for review.

Not every problem can be resolved to everyone's total satisfaction, but only through understanding and
discussion of mutual problems can employees and management develop confidence in each other. This
confidence is important to the operation of an efficient and harmonious work environment, and helps to
ensure everyone's job security.




                                                      87



                                                    70
issue." In re Rubiola, 334 S.W.3d at 225 (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d

896, 899 (Tex. 1995)).

                Bazan-Garcia claims she was wrongfully discharged by WRPS after allegedly

notifying WRPS of an "on-the-job injury and/or initiat[ing] the filing of a workers'

compensation claim." Orig. Pet. at      ~   17. The parties' agreement clearly encompasses that

dispute.    The Arbitration Agreement states that "other than a worker's compensation claim

covered by insurance, no dispute between [WRPS] and the undersigned which is in any way

related to the employment of the undersigned, including but not limited to a claim for wrongful

termination ... shall be the subject of a lawsuit filed in any state or federal court." Aff. Exh. C

(emphasis added). Bazan-Garcia is making a claim for wrongful termination, and is not making

a claim for worker's compensation. The Arbitration Agreement expressly requires arbitration of

the wrongful termination claim, which is therefore within the scope of the agreement.

                The arbitration provision contained in the Employee Handbook also clearly

covers the parties' dispute.    That provision states that "[p]roblems, disputes, or claims not

resolved through [voluntary internal] resolution steps are subject to final and binding

arbitration." Aff. Exh. F at 84. Bazan-Garcia's claim was not resolved through a voluntary

internal resolution process, and therefore falls within the scope of the arbitration agreement.

                Because the TAA requires the arbitration of all disputes in this case, the Court

must compel arbitration and stay this lawsuit. See Forest Oil, 268 S.W.3d at 56; Tex. Civ. Prac.

& Rem. Code§ 171.02l(c).

       D.       Any defenses to arbitration raised by Bazan-Garcia must be decided by the
                arbitrator rather than the Court.

                If Bazan-Garcia raises any defense to arbitration, including any argument about

the existence, validity, or enforceability of the parties' arbitration agreements, that challenge


DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                 Page 10

                                                25
must be decided by the arbitrator and not the Court.          Bazan-Garcia therefore cannot avoid

arbitration on any of those grounds.

                The default rule is that the court decides issues of substantive arbitrability, such as

the validity of the arbitration agreement. Forest Oil, 268 S.W.3d at 61. However, the parties

may agree to have those issues decided by the arbitrator instead, so long as the agreement

''clearly and unmistakably" demonstrates that this was the parties' intent. Howsam v. Dean

Witter Reynoldr;, Inc., 537 U.S. 79, 79 (2002); see also Saxa Inc. v. DFD Architec/Ure Inc., 312

S. W.3d 224, 229 n. 4 (Tex. App.-Dallas 2010, pet. denied) (explaining that the trial court could

rely on FAA and T AA precedents in analyzing whether the parties had delegated issues of

arbitrability to the arbitrator, because it "is subject to a virtually identical analysis under either"

statute).

               Such a delegation clause can empower the arbitrator to decide, among other

things, whether the agreement is valid, binding and enforceable against a particular          plaintitr~


illusory, unconscionable, or sufficiently broad to cover the parties' dispute. See, e.g., Rent-A-

Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2775, 2779 (20 I 0) (delegation clause empowered

arbitrator to decide whether arbitration agreement was unconscionable); Forest Oil, 268 S.W.3d

at 61 (delegation clause empowered arbitrator to decide whether the parties' dispute was within

the scope of the arbitration agreement); IHS Acquisitions No. 171, Inc. v. Beatty-Ortiz, 387

S.W.3d 799, 808 (Tex. App.-El Paso 2012, no pet.) (delegation clause empowered arbitrator to

decide whether arbitration agreement was illusory); Saxa, 312 S. W.3d at 229 (delegation clause

empowered arbitrator to decide whether joinder of parties was proper under the arbitration

agreement). In deciding a motion to compel arbitration, the trial court has no discretion to refuse

to enforce a clause that authorizes the arbitrator to decide these issues. Ernst & Young LLP v.



DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                   Page 11

                                                 26
Martin, 278 S.W.3d 497, 500 (Tex. App.-Houston [14th Dist.] 2009, no pet.) ("[A]n arbitration

clause that reallocates traditional court functions to the arbitrator is enforceable and crumot serve

as a basis for denying a motion to compel arbitration.").

                 The     Arbitration Agreement and the Employee Handbook                             clearly and

unmistakably vest jurisdiction over arbitrability to the arbitrator. The Arbitration Agreement

specifies that arbitration will occur "in accordance with the rules of the American Arbitration

Association." Aff. Exh. C. The Employee Handbook states that "[t]he arbitration proceeding

will be conducted under the Employment Dispute Resolution Rules of the American Arbitration

Association." Aff. Exh. Fat 84. Under the AAA's Rules for employment cases, "[t]he arbitrator

shall have the power to rule on his or her own jurisdiction, including any objections with respect

to the existence, scope or validity of the arbitration agreement." AAA Employment Arbitration

Rules at 17, ~ 6(a). 1

                 A provision that incorporates the AAA Rules clearly and unmistakably delegates

substantive arbitrability to the arbitrator.         See Saxa Inc., 312 S.W.3d at 229.               In Saxa, for

example, the parties' arbitration agreement provided that "any claim, dispute or other matter in

question arising out of or related to" the contract "shall be subject to arbitration." /d.                     In

addition, the agreement stated that arbitration would occur in accordance with the AAA's

Construction Industry Arbitration Rules, which give the arbitrator power "to rule on his or her

own jurisdiction, including any objections with respect to the existence, scope or validity of the

arbitration agreement." /d. at 228-29. The Court compelled arbitration of the parties' dispute

over arbitrability-in that case, whether the joinder of parties was appropriate. ''When, as here,

the parties agree to a broad arbitration clause and explicitly incorporate rules that empower an


1
 A copy of the AAA Employment Arbitration Rules & Mediation Procedures is available at
https:/ /www .adr. org/aaa!Show Property?nodel d=/U CM/AD RSTG.~ 004362&revi sion=latestre leased.

DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRATION                                                                              Page 12

                                                       27
arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable

evidence of the parties' intent to delegate such issues to an arbitrator." /d. at 230. The Court

emphasized that a majority of courts have reached this same conclusion. !d. (collecting cases);

see also Petrofac, Inc. v. Dyn McDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.

2012) ("We agree with most of our sister circuits that the express adoption of the [the AAA]

rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.").

               Bazan-Garcia assented to an arbitration agreement that empowers the arbitrator to

decide arbitrability because the Arbitration Agreement and the Employee Handbook incorporate

the AAA Rules' delegation provision-the same provision at issue in Saxa. See Aff. Exh. C;

Aff. Exh. F at 84. This delegation provision does not prohibit Bazan-Garcia from raising any

challenges to the parties' arbitration agreement, including challenges based on the validity of the

parties' signatures, the scope of the agreement, any alleged waiver of arbitration by WRPS, or

whether the agreement is illusory or unconscionable. It does, however, require Bazan-Garcia to

pursue these challenges in the forum of arbitration, not the court.

                                           IV. Prayer

               WRPS prays that the Court grant its Motion to Compel Arbitration and abate and

stay a11 proceedings in this lawsuit until arbitration has been completed.




DEFENDANT WRPS'S
MOTION TO COMPEL ARBITRA TJON                                                                 Page 13

                                                28
                                                                                    E-FILED
                                  2014CV01064                                       Bexar County, County Clerk
                                                                                    Gerard Rickhoff
                                                                                    Accepted Date: 11/5/2014 4:29:41 PM
                                                                                    Accepted By: Elizabeth Torres
                                       CAUSE NO. 2014CV01064                               lsi Elizabeth Torres
                                                                                    Deputy Clerk

PAULA BAZAN-GARCIA)                                  §                     IN THE COUNTY COURT
                                                     §
                Plaintiff.                           §
                                                     §
v.                                                   §                       ATLAWN0.03
                                                     §
WESlERN RIM PROPERTY SERVICES1                       §
INC.                                                 §
                                                     §
                Defendant.                           §               BEXAR COUN1YJ TEXAS

                 PLAINTIFF'S RESPONSE IN OPPOSITION TO
              DEFENDANTlS MOTION TO COMPEL ARBITRATION,
     REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS

TO THE HONORABLE JUDGE OF SAID COURT:

        COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition

to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an

Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully

show the Cow:t :as follows~

                                        I. RELIEF REQUESTED

        Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged

Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:

        1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
        permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
        her burden of proof;
        2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
        split the cost of the 1u:bitrarion fees with the Defendant; and
        3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
        arbitrate her claims in Dalb.s County.

        Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
 '
Compel.Atbitmtion.




                                                                                                             1

                                                   72
                                                                                          Submit Date:11/5/2014 4:06:30 PM
                                                                                    E-FILED
                                  2014CV01064                                       Bexar County, County Clerk
                                                                                    Gerard Rickhoff
                                                                                    Accepted Date: 11/5/2014 4:29:41 PM
                                                                                    Accepted By: Elizabeth Torres
                                       CAUSE NO. 2014CV01064                               lsi Elizabeth Torres
                                                                                    Deputy Clerk

PAULA BAZAN-GARCIA)                                  §                     IN THE COUNTY COURT
                                                     §
                Plaintiff.                           §
                                                     §
v.                                                   §                       ATLAWN0.03
                                                     §
WESlERN RIM PROPERTY SERVICES1                       §
INC.                                                 §
                                                     §
                Defendant.                           §               BEXAR COUN1YJ TEXAS

                 PLAINTIFF'S RESPONSE IN OPPOSITION TO
              DEFENDANTlS MOTION TO COMPEL ARBITRATION,
     REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS

TO THE HONORABLE JUDGE OF SAID COURT:

        COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition

to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an

Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully

show the Cow:t :as follows~

                                        I. RELIEF REQUESTED

        Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged

Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:

        1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
        permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
        her burden of proof;
        2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
        split the cost of the 1u:bitrarion fees with the Defendant; and
        3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
        arbitrate her claims in Dalb.s County.

        Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
 '
Compel.Atbitmtion.




                                                                                                             1

                                                   72
                                                                                          Submit Date:11/5/2014 4:06:30 PM
                                         II. BRIEF BACKGROUND

        At sll times t:elevant to this cause of action Plaintiff was employed by Defendnnt and was

working .in the course and scope of her employment Defendant                   is 1an employer that is a

'{subscriber'' to the wotk.ets' compensation system at all times material to this action. On or about

Octobet 22, 2013, soon aftet Plaintiff sustained an on-the-j,ob injuty and filed a. wodrers'

oo.tnpensation claim, Pl'.!inriffwas tennin;u.ed for a pte--textual tes.son.

        Prior to filing suit in this caseJ on o:t about Decernbru: 9, 2013> Phintiff sent a let.te.t to

Defendant. requesting any existing atbittation ~gteetnent be produced to OOWlsel within th.il:ty days,

so that Plaintiff tnay emuate any existing arbittation 11greement and file her suit .in the ptopet

forum. Plaintiffs counsel never 1-eceived a tesponse, so, .months later) Plaintiff filed this action in

the County Court of Bexar County, Texas. On or 11.bout September 12, 2014. Plaintiff received

Defendant's Original .Answer, wlllch did not include a .tequest for the Coutt to compel arbitration.

It was not until Octo bet 15, 2014, that Defendant ftled its Motion to Compel Arbitration.

        Subsequently, it was discovered that as a pretequisite to Plaintiffs employment with

Defendant, Plaintiff was gi~en an .Arbit.tation Agtee:tnent.      The Agreernent provides the following

selected pmvis.ions:

         Each Patty to arbitration shall be entitled to take only one deposition. Any
        11


        atbitration relating to any dispute covered by this Agreement shall be arbitrated in
        Dallas County, Texas.)) S11e Defendant's Motion to Compel Arbitration, Exhibit C.

        In addition, Defen.dant>s Employee H:mdbook, which contains the Arbitration Ag.~:eement)

requites Plaintiff to split the costs. of the arbitration. The Handbook states, ,..[e]mployees who

choose to use the atbittation process to resolve a ptoblem will be expected to shate the cost of the

atb.i.tration proceeding with WRPS, LP.') SB~ Defendant's Motion to Compel Atbitrntion, Exhibit

G.




                                                                                                      2

                                                    73
           Pliililtiff argues that these provisions make the Arbitration Agteement unconscionable

because it (1) is one-sided and significantly limits the discovery tools available to Plaintiff hll.d

Pl~intiff.s   case been bmught in a Bexat County Cou:rt; (2) requires Plaintiff to split the asttonomical

cost of arbit:tation and .incm substantii!l debt in order to proceed with her case; snd (3) tequites

Plaintiff to conduct atbittation in DallM County, Texas, which further requites Plaintiff to incut

substantial addition~! debt to continue with her case, Fot these reasons, Pl~intif£ respectfully tequest

this Court deny Defendant's Motion to Compel Arbittation.

           Should this Court grant Defend~nt's Motion to Compel Arbitration, Plaintiff respectfully

tequests this Court grant Pl~intiff costs and attorneys} fees stelil!IUng ftom Defendant's fllilute to

provtde this Arbitration Agreement prior to the time of filing suit. Plruntiff attetnpted to discover

this information prim:     to   filing suit io otdet to avo.id incurring these costs ~nd, due to Defendant's

f~ilute to tespond, Plaintiff incutted approximately $261.34           in filing fees~ $85.00 in process serving

fees) and $750.00 .in attorneys' fees. As a s~nction for Defendants conduct. Plaintiff requests a total

~mount     of$1,096.34 be awarded to Plaintiff to cover the costs incurted,

                                     III. ARGUMENTS AND AUTHORITIES

A.         REQUEST FOR EVIDENTIARY HEARING ON DISPUTED FACTS

           A p~rty seeking- to compel arbitration must fu:st establish the existence of an atbittation

agteernent -and show the cWms raised fall within the scope of the agteem.ent. See JM David!YJn, Inc,

1!.   Webster, 128 S.W.3d 223, 227 (Tex.       2003)~   In re Oakwood MJJbils   Home~, Inc.~ 987 S.W.2d 571~ 573

(fex. 1999); I11   tt   Btmzl USA,    Inc.~   155 S.W.3d 202) 209     (T~.   App.-El Paso 2004). The party

m.oving fot atblttation must show that the claim is subject. to a valid atbit:tation 11greement. In rc

Oifymy Healrb    ccm~   Inc. 310 S.W.3d 419, 422 (Tex. 2010).        When~ patty resists ubitration, the trial

coutt must determine whethex a valid ru:hittation agreement exists. Id.; TRx. Crv. PRAC. & REM.

CODE§ 171.021.



                                                                                                              3

                                                          74
           The trial coutt may sutnmarily decide whether to cotnpel atbittation on the basis of

 affidavits, pleadings, discovery, ~md stipulations. However, if the material facts necessaxy to

 determine the issue ate controverted) by an opposing affidavit or otherwise admissible evidence, the

 trial court tnust conduct ~n evidentiary hearing to detemline the disputed matetial facts. Hofl.flofl Pipe

 line Co., LP.      tJ.   O'Conmr.& H,JVitt, Ltd.• 269 S.W.3d 90) 99 (Tex. App.-Corpus Christi 2008); TEx.

 CIV. PRAC. &REM. CODE§ 171.021; In~ Bwr{/ USA, Inc:, 155 S.WJd 202. 209 (rex. App.-El Paso

 2004).

          There are nume:tou~ disputed ruatetial facts that go directly to the question whether the.re is

 an enforceable agteetnent to arbitrate. Plaintiff accordingly requests an evid.entiaty hearing, and

 fw:thet tequests the Court to allow limited discovery prior to the evidentiary                        h~ring   on issues

 tekted to whether there is an enforceable agreement to a:tbitrate in this case, as .tnore fully described

 below.

B.        ARBITRATION AND SUBSTANTIVE UNCONSCIONABlUTY

          Under Texas law, as with any other contract. agteeruents to arbitrate are valid unless grounds

exist jlt law o.t .in equity for .revocation of the agteem.ent. In re PofyAmcrica, LP., 262 S.W.3d 337, 348

 (Tex. 2008). The burden of pt:oving .such a ground--such                   jlS   fraud, unconscionability or voidness

_under public policy-falls on the party opposing the cont:ract. Id. Agreetnents to arbitrate disputes

between employets and employees 111e generQUy enforceable unde1 Texas law. There is nothing per te

unconscion11ble about an agreement to atbi.tnte employment disputes and, in fact. Texas 1~w has

historically favored agteements to 1esolve such disputes by atbit.r'ation. SM Ad(Jemce PCS, 172 S.W.3d

jlt   608; EZ Paw11 Corp.        11.   Manr:ia.t, 934 S.W.2d 87, 90 (Tex. 1996);       Cant~lla   & Co. v. Good111in, 924

S.W.2d       943}         944    (I'ex.      1996).          However.     unconscionability       is   a    defense   to

·an atbittation agreement. TMJ, I~c:            Z>J,   Brook.r. 225 S.W.3d 783, 792 (fe:x-. App.-Houston 14111 Dist.

2007), Accordingly) an agteernent to arbitrate is valid absent grounds fo.r the .revocation of a



                                                                                                                       4

                                                                75
contract, such as unconscionability. TEX. Civ. PRAC. & REM. CODE§ 171.001 (Vernon 2005); OJ.rhnn

Fbund. fupairCo. tJ.Ayalo, 180 S.W.3d 212, 214~215 (Tex. App.--San Antonio 2005).

        As a general rule, the term '•unconscionability'" describes a contract that is unfair   be·~use   of

its overall on~sidedness or the gross one--s.ideclness of one of its tet:m~. ld. NeV'etthdess,

"un<:onscionability" has no precise legal definition because it is not a concept but a detenninatio.n.to

                                                                                                  a
be rna.de in light of a variety of factors. Id. Unconscionability is to be deteunined in light of variety

of fitcto.tst which aim to prevent opptessioo and unfair sutprise; in general, a contract will be foWld

unconscionable if it .is grossly one-sided. Set Dw B. Dobbs, 2 LAw OF REMEDIES 703t 706 (2d ed.

1993)~ Jet   p/.Jo RESTATEMENT (SECOND) OF CONTRACTS§ 208, Clllt. a (1979). Whethet a contract is

contt-.ary to public policy ot unconscionable at the time it is fortned is a question of law.       HfJffVBr


Sht1t.1ce.k 1LP v. Walt1Jn1 206 S.W.3d 557, 562 (fex. 2006).

        Coutts may consider both subswulve and procedural unconscionability when evaluating the

"t'lilidity of an arbitration provision. I11 ~ Hallib11rton Co., 80 S.W.3d 566> 572 (fex. 2002).

((Substantive wiconscionab.llity refers to the fairness of the athitr9.tion provision itself, whereas

p.tocedw:al unconscionability refers to the circumstances suttounding adoption of the w;bitration

provision.>t Inn: Palm Haroor Ho11m, [lfc.~ 195 S.W.3d 672, 677 (Tex. 2006).

              a) LlMlTING PLAINTIFF'S AIIILITY TO UTIUZE DISCOVERY PROCEDURES PERMlT'IED

                 BY THE TEXAS RULES O:F CIVIL PROCEDURE IS SUBSTANTIVELY UNCONSCIONABLE


        The Texas Supretne Coutt hru; held that <cwhete the undetlying substantive tight is not

wruvable, ex ante funitl\tions   OD disCO'Q'ery   that unteasonably ttn.pede effectiYe prosecution of such

rights are likewise unenfo.tceable!' In'~ Po!J·Am6rica, 262 S.W.3d at 358. In this case, since Plaintiff

beats the butden of ptoof in this case, the Agtee.tnent's limitation on discovery to only pe..tmit one

deposition, 5e-rerely handi<:aps Pbintiff's ability to litigate her claims. This caS'e is cUite.ady being

conducted undet a level two-discovery plan. Therefo.te, Should Plaintiff be able to litigate het: cbitns



                                                                                                          5

                                                      76
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine

Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that

Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to

depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo

depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the

ciJ:cums~ntial   evidence of .reblliation with just one deposition. See Exhibit A,     Af.fid~vlt   of J~vi.et

Espinon.

         These lliniu.tions again have been placed to limit the employee's claims while not inhibiting

Defendant's ability to defend these suits.        Genually, an. employer in workers' compensation

retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the

documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that

must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of

proof in these cases.

        Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s

dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
  .                                                                                                 .

S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.

            b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
            SUBSTANTIVELY UNCONSCIONABLE.

        The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of

~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement             substanti"'ely

unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215 (Tex. App.---San Antonio

2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb, 531 U.S. 79, 91(2000)~ In~~ Fu-sf Merit Bank, N.A., 52

S.W.3d 749, 745 (I'ex. 2001).

        The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation

with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet


                                                                                                            6

                                                   77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,

PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will

probably not pursue het claim in arbitration should she be compelled to submit her claim before an

atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.

The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be

incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of

Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of

blking a risk of incuning a debt   exceeding $1 0)000.00. is "   (;OSt significandy   too high fat the Plaintiff

to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.

        The United States Sup.[eme Coutt recognized .in Gmn Tree Financial             Corp~       Akl.   l!.   Rnndolph

that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating

her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala.   tr,   Rt:Jndolph, 531 U.S.

79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs

arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims

in atbitnttion.

        One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:

longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~

OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has

further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient

alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld

effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the

atbit.tation agreement may be substantively unconscion1thle. !d.           Addition~lly, the United States


1
 In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.


                                                                                                                      7

                                                     78
Supterne Cmnt has held that statutory claims may be arblttated "'so long as the ptospecti'lre litigant

effectively may vindicate (his or herJ statutory cause of action in the atbittal forum." Green TmJ 531

U.S. at 90 (citing Giln.~en•. Interstate/John.rrm Lme Cotp., 500 U.S. 20 1 28 (1991)). Further, an arbitration

agreement may render a contract substantively unconscionable if ('the existence of latge arbitration

costs could preclude a litigant ... ftom effectively vindicating (his or her] federal statutory tjghts in

the arbitral forum." Id.J· JM also In re Pofy.AmeJica, 262 S.WJd at 355-57; FirstMerit Bemk. 52 S.W.3d ~t

756 (citing Grmr Tm, 531 U.S. at 91).

        \Vhen '<a party seeks to     inv~date      an atbitration agteem.ent on the gtound that arbitration

would be prohibitively expensive. thflt patty heAts the butden of show.ing the likelihood of incurting

S'Uch costs."G1l'M Tne, 531 U.S.    ll.t   92. The courts likewise requite some evidence tlutt a complaining

patty will likely incur arbitration costs in such an     iltnOunt   as to deter enforcement of statutory rjghts

in the arbil:t1;!1 fo.tuln, Sef Inn 0/sh(J'JI Found. &pair Co. LLC. 328 S.W.3d 883,895 (Tex.2010).

        The Coutt in Gre~fJ T~e did n.oc explain haw deta.il.ed the showing of prohibitive expense

need to be in o.tdet to invalidate an arbitration agreement. Gr~en Tm, 531 U.S. at 92 ("How detailed .
         '
the showing of prohibitive expense must be before the party seeking atbitration must come forward

with contrary evidence is a lnll.ttet we need not discuss ... •} Howeve.t, a numbex of federal courts

of appeals, relying on Gree11 Tree. have a.pplied·a caS8-by-case ana!J.fi! of the effect the ~rbitration clause

has on a patticulat plaintiffs ability to effectively vindicate his or her tights. Sf?e, e.g., MK.rnick v. Ki11g

Motor Co. ojFort Landmiale, 325 F.3d 1255, 1259 (11m Cit. 2003) ("Since Gm11 Trw, all but one of the

other Citcuits thar have reconsidered this issue have applied a similat case-by-case approll.ch.';); Blilir

v. Scott Spetialtp G,:ms, 283 F.3d 595, 609-10 (3d Cir. 2002); BratftJrd v. Rnckwell Semuond1ttt1Jr Sy.r. 1 Inc.,

238 F.3d 549, 556 (4th Cir. 2001); L1Prade v. Kidd~r, Peabot!J & Co., !lie., 246 F.3d 702, 708, (D.C. Cir.

2001). But m Circuit Ci!J Stores, Int. v. Adams, 279 F.3d 889, 895 (9th Cir. 2002) (holding that plaintiff

employees should not <•h11Ye to pay either unreasonable costs ox any arbitratots' fees ot expenses as          i\




                                                                                                               8

                                                        79
condition of access to the arbitration fonun'). Coutts acwss the countty hl\'O"e univetsally

condenm.ed the use of fee-splitting agtee:nents in employment contracts that have the effect of

det.e.rring potential litigants from vindicating theit statutory rights in an arbittal forutn. Se, Gmn

Tm, 531 U.S. at 90-91. Some courts have gone so faa: as to find fee-sharing agreements

unenforceableptrs8. S86', e.g.• Cole v. B11m! Int 'I Sec. See al.ro SeroJ., 105 F.3d 1465. 1483-BS (D.C. Cit.

1995), cimd in Ha!Jil:nlr!MJ 80 S.W.3d at 572; Slxmkk v. B-G Mflint. Mgmt.     of Com., Iru:., 163 F.3d 1230,
1233-35 (10th Cit. 1999); P(J/atliflo t~. Aunet Campxt~r nrhJ.~ Inc., 134 F.3d 1054, 1062 (11th Cit. 1998).

Coutts   :te~son   that "an employee   Qltl   never be required) as a condition of employment:, to pay Qn

arbittator's compensation in orde.t to secure the resolution of statutory claims ... [I'Jhis would

sutely deteJ: the b.tinging of !u:bitration and constitute a de facto fotfeitute of statutory tights."

CfJiq, 105 F.3d at 1468.

         The court in Col, reasoned that an employee can fi~V~r be tequired, as a condition of

employment, to pay an arbittatot's compensation in ordet to s.eC'l::!re the resolution of statutory

daims under Title VII any tnote than an etnpfoyee can be made to pay a judge's salary. CfJk, 105

F.3d Jtt 1468. The Court fu.tthet .reasoned that) if there is any risk thtl.t an atbittation agreement can

be consttued to requite this tesul~ it would surely detet the brmging of arbit.ratioO: ru1d constitute a

de facto foo::feiture of the employee's statutory rights. The only way that an ~bittation agtee.tnent of

the son at issue hete can be lawful is if the employer assumes responsibility for the payment of the

arbimtor's rompens'.l.tion. Id.

         The Fourth Cir.cuirs apptaa.ch in Bradford v. &ckJJI8!/ SemicohdJKI()f Sy!tfms, Inc. is particulatly

instructive in determining that the proper antl.lysis "evalut~tes whethex the arbitral forum in a

pauicuhu: case is an adequate and accessible substitute to litigation.» In re O!sha11 Fo11nd. fupair Co.,

LLC., 32B S.W.3d 883, 893-894 (Tex-.2010) affirmatively citing Bra4ford v. Rod":we/1 SemkfJnd11dor

.fyJfems. !11~, 238 F.3d   549t 556 (4th Ch:. 2001). That inquiry requites '<a case-by-case    ilni~lysis   thllt



                                                                                                               9

                                                      80
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the

expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost

diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,

328 S.W.3d 883, 893-894 (I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes,

but what the totil.l cost to the claimant to plll:sue the claim is. Id.

          Requiring   Pl~intiff   to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,

fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to

b:cing het statutory wwngful termination claim          ~gainst her etnployet is a strong deterient from


bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect

of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur

even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of

Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.

          If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in

Dallas County, wd risk having to        pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she

will ptobably not continue with her dl.im.          See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since

there is a risk that Plmtiff be xequiled to pRy the            a.~:bitration fees, the   alleged Agreement .is

substantively unconscionable and un.enforceJ\ble.            In iiddition, the .risk of inc:uning such        11


prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn

in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-

rights~   exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore

making it unenforceable undet: Texas law.

                                               III. CONCLUSION
          The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds

when considering the sophistication of both parties. The agreement .requires Plaintiff to split the



                                                                                                             10

                                                      81
cost of the Atbitrat:ion and risk i.acmting debt in excess of $10,000. Moreover, the Atblttation

Agreement requites Pl2indff incut e~en mote debt by conducting the arbittation in Dallas County.

Fu.tthertnote, when consider.ing the additional discovery funitations. it is obvious that the Agreement

was drafted and designed to favor Defendant over its unsophisticated, uneducated employees and

should therefore also be consideted unconscioruble by this Coutt, For these teasom. Defendant's

Motion to Compel Atbittation should be denied. and Plaintiff should be peimitted to continue to

pursue het statutory claitns ag1l.inst Defendant in this forum.

                                              IV. PRAYER
        WHEREFORE PREMISES CONSIDEREDt Plafutiff preys that m evidenti!UJ hearing

be set and that the Judge deny Defendant's Motion to Compel Arbitration and for such futther relief

that Plaintiff ruay show is justly entitkd.



                                                        Respectfully submitted,

                                                        THE ESPINOZA LAW FIRMt PLLC
                                                        Attome)III for Claitnant
                                                        5()3 E. Ratmey) St.e. 103
                                                        Sr.tn Antonio, Texas 78216
                                                        210.229' 1300 t
                                                        210.229.1302 f
                                                        www.espinozafittn.com




                                                 ~      Tex11s Bat No. 24036534
                                                        Steven Sachs
                                                        Texa.s Bar No. 24074995
                                                        JOSUE F. GARZA
                                                        Texas Bar No. 24072737




                                                                                                    11

                                                  82
                                                                                    E-FILED
                                  2014CV01064                                       Bexar County, County Clerk
                                                                                    Gerard Rickhoff
                                                                                    Accepted Date: 11/5/2014 4:29:41 PM
                                                                                    Accepted By: Elizabeth Torres
                                       CAUSE NO. 2014CV01064                               lsi Elizabeth Torres
                                                                                    Deputy Clerk

PAULA BAZAN-GARCIA)                                  §                     IN THE COUNTY COURT
                                                     §
                Plaintiff.                           §
                                                     §
v.                                                   §                       ATLAWN0.03
                                                     §
WESlERN RIM PROPERTY SERVICES1                       §
INC.                                                 §
                                                     §
                Defendant.                           §               BEXAR COUN1YJ TEXAS

                 PLAINTIFF'S RESPONSE IN OPPOSITION TO
              DEFENDANTlS MOTION TO COMPEL ARBITRATION,
     REQUEST FORAN EVIDENTIARY HEARING, AND MOTION FQR SANCTIONS

TO THE HONORABLE JUDGE OF SAID COURT:

        COMES NOW Plaintiff PAULA BAZAN-GARCIA and files her Response in Opposition

to Defendant Western Illin Property Services. Inc.'s Motion to Cotnpel Atbittation, Request for an

Evidentiaty Hearing, a.nd Motion for Sanctions on same, and in suppoo:t of same would respectfully

show the Cow:t :as follows~

                                        I. RELIEF REQUESTED

        Defendant's Motion to Compel Atbit:rarion should be DENIED because the alleged

Albitr'Ation Agtee:tnent is unconscionsble for the following r.easons:

        1. The Atbit:r~<tion Agteernent limits Pl1tintifPs ability to utilize discovery procedures
        permitted by the Texas Rules of C:Wil Ptoced'ure, snd severely li:tn.its Plaintiffs ability to meet
        her burden of proof;
        2. The Arbitration Agtee.rnent imposes excessive cost upon Plaintiff by requiring Plaintiff to
        split the cost of the 1u:bitrarion fees with the Defendant; and
        3. The Arbitration Agreement i1nposes excessive cost upon Plllintiff by requiting Plaintiff to
        arbitrate her claims in Dalb.s County.

        Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to·
 '
Compel.Atbitmtion.




                                                                                                             1

                                                   72
                                                                                          Submit Date:11/5/2014 4:06:30 PM
                                         II. BRIEF BACKGROUND

        At sll times t:elevant to this cause of action Plaintiff was employed by Defendnnt and was

working .in the course and scope of her employment Defendant                   is 1an employer that is a

'{subscriber'' to the wotk.ets' compensation system at all times material to this action. On or about

Octobet 22, 2013, soon aftet Plaintiff sustained an on-the-j,ob injuty and filed a. wodrers'

oo.tnpensation claim, Pl'.!inriffwas tennin;u.ed for a pte--textual tes.son.

        Prior to filing suit in this caseJ on o:t about Decernbru: 9, 2013> Phintiff sent a let.te.t to

Defendant. requesting any existing atbittation ~gteetnent be produced to OOWlsel within th.il:ty days,

so that Plaintiff tnay emuate any existing arbittation 11greement and file her suit .in the ptopet

forum. Plaintiffs counsel never 1-eceived a tesponse, so, .months later) Plaintiff filed this action in

the County Court of Bexar County, Texas. On or 11.bout September 12, 2014. Plaintiff received

Defendant's Original .Answer, wlllch did not include a .tequest for the Coutt to compel arbitration.

It was not until Octo bet 15, 2014, that Defendant ftled its Motion to Compel Arbitration.

        Subsequently, it was discovered that as a pretequisite to Plaintiffs employment with

Defendant, Plaintiff was gi~en an .Arbit.tation Agtee:tnent.      The Agreernent provides the following

selected pmvis.ions:

         Each Patty to arbitration shall be entitled to take only one deposition. Any
        11


        atbitration relating to any dispute covered by this Agreement shall be arbitrated in
        Dallas County, Texas.)) S11e Defendant's Motion to Compel Arbitration, Exhibit C.

        In addition, Defen.dant>s Employee H:mdbook, which contains the Arbitration Ag.~:eement)

requites Plaintiff to split the costs. of the arbitration. The Handbook states, ,..[e]mployees who

choose to use the atbittation process to resolve a ptoblem will be expected to shate the cost of the

atb.i.tration proceeding with WRPS, LP.') SB~ Defendant's Motion to Compel Atbitrntion, Exhibit

G.




                                                                                                      2

                                                    73
           Pliililtiff argues that these provisions make the Arbitration Agteement unconscionable

because it (1) is one-sided and significantly limits the discovery tools available to Plaintiff hll.d

Pl~intiff.s   case been bmught in a Bexat County Cou:rt; (2) requires Plaintiff to split the asttonomical

cost of arbit:tation and .incm substantii!l debt in order to proceed with her case; snd (3) tequites

Plaintiff to conduct atbittation in DallM County, Texas, which further requites Plaintiff to incut

substantial addition~! debt to continue with her case, Fot these reasons, Pl~intif£ respectfully tequest

this Court deny Defendant's Motion to Compel Arbittation.

           Should this Court grant Defend~nt's Motion to Compel Arbitration, Plaintiff respectfully

tequests this Court grant Pl~intiff costs and attorneys} fees stelil!IUng ftom Defendant's fllilute to

provtde this Arbitration Agreement prior to the time of filing suit. Plruntiff attetnpted to discover

this information prim:     to   filing suit io otdet to avo.id incurring these costs ~nd, due to Defendant's

f~ilute to tespond, Plaintiff incutted approximately $261.34           in filing fees~ $85.00 in process serving

fees) and $750.00 .in attorneys' fees. As a s~nction for Defendants conduct. Plaintiff requests a total

~mount     of$1,096.34 be awarded to Plaintiff to cover the costs incurted,

                                     III. ARGUMENTS AND AUTHORITIES

A.         REQUEST FOR EVIDENTIARY HEARING ON DISPUTED FACTS

           A p~rty seeking- to compel arbitration must fu:st establish the existence of an atbittation

agteernent -and show the cWms raised fall within the scope of the agteem.ent. See JM David!YJn, Inc,

1!.   Webster, 128 S.W.3d 223, 227 (Tex.       2003)~   In re Oakwood MJJbils   Home~, Inc.~ 987 S.W.2d 571~ 573

(fex. 1999); I11   tt   Btmzl USA,    Inc.~   155 S.W.3d 202) 209     (T~.   App.-El Paso 2004). The party

m.oving fot atblttation must show that the claim is subject. to a valid atbit:tation 11greement. In rc

Oifymy Healrb    ccm~   Inc. 310 S.W.3d 419, 422 (Tex. 2010).        When~ patty resists ubitration, the trial

coutt must determine whethex a valid ru:hittation agreement exists. Id.; TRx. Crv. PRAC. & REM.

CODE§ 171.021.



                                                                                                              3

                                                          74
           The trial coutt may sutnmarily decide whether to cotnpel atbittation on the basis of

 affidavits, pleadings, discovery, ~md stipulations. However, if the material facts necessaxy to

 determine the issue ate controverted) by an opposing affidavit or otherwise admissible evidence, the

 trial court tnust conduct ~n evidentiary hearing to detemline the disputed matetial facts. Hofl.flofl Pipe

 line Co., LP.      tJ.   O'Conmr.& H,JVitt, Ltd.• 269 S.W.3d 90) 99 (Tex. App.-Corpus Christi 2008); TEx.

 CIV. PRAC. &REM. CODE§ 171.021; In~ Bwr{/ USA, Inc:, 155 S.WJd 202. 209 (rex. App.-El Paso

 2004).

          There are nume:tou~ disputed ruatetial facts that go directly to the question whether the.re is

 an enforceable agteetnent to arbitrate. Plaintiff accordingly requests an evid.entiaty hearing, and

 fw:thet tequests the Court to allow limited discovery prior to the evidentiary                        h~ring   on issues

 tekted to whether there is an enforceable agreement to a:tbitrate in this case, as .tnore fully described

 below.

B.        ARBITRATION AND SUBSTANTIVE UNCONSCIONABlUTY

          Under Texas law, as with any other contract. agteeruents to arbitrate are valid unless grounds

exist jlt law o.t .in equity for .revocation of the agteem.ent. In re PofyAmcrica, LP., 262 S.W.3d 337, 348

 (Tex. 2008). The burden of pt:oving .such a ground--such                   jlS   fraud, unconscionability or voidness

_under public policy-falls on the party opposing the cont:ract. Id. Agreetnents to arbitrate disputes

between employets and employees 111e generQUy enforceable unde1 Texas law. There is nothing per te

unconscion11ble about an agreement to atbi.tnte employment disputes and, in fact. Texas 1~w has

historically favored agteements to 1esolve such disputes by atbit.r'ation. SM Ad(Jemce PCS, 172 S.W.3d

jlt   608; EZ Paw11 Corp.        11.   Manr:ia.t, 934 S.W.2d 87, 90 (Tex. 1996);       Cant~lla   & Co. v. Good111in, 924

S.W.2d       943}         944    (I'ex.      1996).          However.     unconscionability       is   a    defense   to

·an atbittation agreement. TMJ, I~c:            Z>J,   Brook.r. 225 S.W.3d 783, 792 (fe:x-. App.-Houston 14111 Dist.

2007), Accordingly) an agteernent to arbitrate is valid absent grounds fo.r the .revocation of a



                                                                                                                       4

                                                                75
contract, such as unconscionability. TEX. Civ. PRAC. & REM. CODE§ 171.001 (Vernon 2005); OJ.rhnn

Fbund. fupairCo. tJ.Ayalo, 180 S.W.3d 212, 214~215 (Tex. App.--San Antonio 2005).

        As a general rule, the term '•unconscionability'" describes a contract that is unfair   be·~use   of

its overall on~sidedness or the gross one--s.ideclness of one of its tet:m~. ld. NeV'etthdess,

"un<:onscionability" has no precise legal definition because it is not a concept but a detenninatio.n.to

                                                                                                  a
be rna.de in light of a variety of factors. Id. Unconscionability is to be deteunined in light of variety

of fitcto.tst which aim to prevent opptessioo and unfair sutprise; in general, a contract will be foWld

unconscionable if it .is grossly one-sided. Set Dw B. Dobbs, 2 LAw OF REMEDIES 703t 706 (2d ed.

1993)~ Jet   p/.Jo RESTATEMENT (SECOND) OF CONTRACTS§ 208, Clllt. a (1979). Whethet a contract is

contt-.ary to public policy ot unconscionable at the time it is fortned is a question of law.       HfJffVBr


Sht1t.1ce.k 1LP v. Walt1Jn1 206 S.W.3d 557, 562 (fex. 2006).

        Coutts may consider both subswulve and procedural unconscionability when evaluating the

"t'lilidity of an arbitration provision. I11 ~ Hallib11rton Co., 80 S.W.3d 566> 572 (fex. 2002).

((Substantive wiconscionab.llity refers to the fairness of the athitr9.tion provision itself, whereas

p.tocedw:al unconscionability refers to the circumstances suttounding adoption of the w;bitration

provision.>t Inn: Palm Haroor Ho11m, [lfc.~ 195 S.W.3d 672, 677 (Tex. 2006).

              a) LlMlTING PLAINTIFF'S AIIILITY TO UTIUZE DISCOVERY PROCEDURES PERMlT'IED

                 BY THE TEXAS RULES O:F CIVIL PROCEDURE IS SUBSTANTIVELY UNCONSCIONABLE


        The Texas Supretne Coutt hru; held that <cwhete the undetlying substantive tight is not

wruvable, ex ante funitl\tions   OD disCO'Q'ery   that unteasonably ttn.pede effectiYe prosecution of such

rights are likewise unenfo.tceable!' In'~ Po!J·Am6rica, 262 S.W.3d at 358. In this case, since Plaintiff

beats the butden of ptoof in this case, the Agtee.tnent's limitation on discovery to only pe..tmit one

deposition, 5e-rerely handi<:aps Pbintiff's ability to litigate her claims. This caS'e is cUite.ady being

conducted undet a level two-discovery plan. Therefo.te, Should Plaintiff be able to litigate het: cbitns



                                                                                                          5

                                                      76
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine

Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that

Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to

depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo

depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the

ciJ:cums~ntial   evidence of .reblliation with just one deposition. See Exhibit A,     Af.fid~vlt   of J~vi.et

Espinon.

         These lliniu.tions again have been placed to limit the employee's claims while not inhibiting

Defendant's ability to defend these suits.        Genually, an. employer in workers' compensation

retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the

documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that

must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of

proof in these cases.

        Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s

dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
  .                                                                                                 .

S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.

            b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
            SUBSTANTIVELY UNCONSCIONABLE.

        The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of

~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement             substanti"'ely

unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215 (Tex. App.---San Antonio

2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb, 531 U.S. 79, 91(2000)~ In~~ Fu-sf Merit Bank, N.A., 52

S.W.3d 749, 745 (I'ex. 2001).

        The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation

with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet


                                                                                                            6

                                                   77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,

PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will

probably not pursue het claim in arbitration should she be compelled to submit her claim before an

atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.

The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be

incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of

Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of

blking a risk of incuning a debt   exceeding $1 0)000.00. is "   (;OSt significandy   too high fat the Plaintiff

to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.

        The United States Sup.[eme Coutt recognized .in Gmn Tree Financial             Corp~       Akl.   l!.   Rnndolph

that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating

her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala.   tr,   Rt:Jndolph, 531 U.S.

79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs

arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims

in atbitnttion.

        One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:

longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~

OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has

further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient

alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld

effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the

atbit.tation agreement may be substantively unconscion1thle. !d.           Addition~lly, the United States


1
 In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.


                                                                                                                      7

                                                     78
Supterne Cmnt has held that statutory claims may be arblttated "'so long as the ptospecti'lre litigant

effectively may vindicate (his or herJ statutory cause of action in the atbittal forum." Green TmJ 531

U.S. at 90 (citing Giln.~en•. Interstate/John.rrm Lme Cotp., 500 U.S. 20 1 28 (1991)). Further, an arbitration

agreement may render a contract substantively unconscionable if ('the existence of latge arbitration

costs could preclude a litigant ... ftom effectively vindicating (his or her] federal statutory tjghts in

the arbitral forum." Id.J· JM also In re Pofy.AmeJica, 262 S.WJd at 355-57; FirstMerit Bemk. 52 S.W.3d ~t

756 (citing Grmr Tm, 531 U.S. at 91).

        \Vhen '<a party seeks to     inv~date      an atbitration agteem.ent on the gtound that arbitration

would be prohibitively expensive. thflt patty heAts the butden of show.ing the likelihood of incurting

S'Uch costs."G1l'M Tne, 531 U.S.    ll.t   92. The courts likewise requite some evidence tlutt a complaining

patty will likely incur arbitration costs in such an     iltnOunt   as to deter enforcement of statutory rjghts

in the arbil:t1;!1 fo.tuln, Sef Inn 0/sh(J'JI Found. &pair Co. LLC. 328 S.W.3d 883,895 (Tex.2010).

        The Coutt in Gre~fJ T~e did n.oc explain haw deta.il.ed the showing of prohibitive expense

need to be in o.tdet to invalidate an arbitration agreement. Gr~en Tm, 531 U.S. at 92 ("How detailed .
         '
the showing of prohibitive expense must be before the party seeking atbitration must come forward

with contrary evidence is a lnll.ttet we need not discuss ... •} Howeve.t, a numbex of federal courts

of appeals, relying on Gree11 Tree. have a.pplied·a caS8-by-case ana!J.fi! of the effect the ~rbitration clause

has on a patticulat plaintiffs ability to effectively vindicate his or her tights. Sf?e, e.g., MK.rnick v. Ki11g

Motor Co. ojFort Landmiale, 325 F.3d 1255, 1259 (11m Cit. 2003) ("Since Gm11 Trw, all but one of the

other Citcuits thar have reconsidered this issue have applied a similat case-by-case approll.ch.';); Blilir

v. Scott Spetialtp G,:ms, 283 F.3d 595, 609-10 (3d Cir. 2002); BratftJrd v. Rnckwell Semuond1ttt1Jr Sy.r. 1 Inc.,

238 F.3d 549, 556 (4th Cir. 2001); L1Prade v. Kidd~r, Peabot!J & Co., !lie., 246 F.3d 702, 708, (D.C. Cir.

2001). But m Circuit Ci!J Stores, Int. v. Adams, 279 F.3d 889, 895 (9th Cir. 2002) (holding that plaintiff

employees should not <•h11Ye to pay either unreasonable costs ox any arbitratots' fees ot expenses as          i\




                                                                                                               8

                                                        79
condition of access to the arbitration fonun'). Coutts acwss the countty hl\'O"e univetsally

condenm.ed the use of fee-splitting agtee:nents in employment contracts that have the effect of

det.e.rring potential litigants from vindicating theit statutory rights in an arbittal forutn. Se, Gmn

Tm, 531 U.S. at 90-91. Some courts have gone so faa: as to find fee-sharing agreements

unenforceableptrs8. S86', e.g.• Cole v. B11m! Int 'I Sec. See al.ro SeroJ., 105 F.3d 1465. 1483-BS (D.C. Cit.

1995), cimd in Ha!Jil:nlr!MJ 80 S.W.3d at 572; Slxmkk v. B-G Mflint. Mgmt.     of Com., Iru:., 163 F.3d 1230,
1233-35 (10th Cit. 1999); P(J/atliflo t~. Aunet Campxt~r nrhJ.~ Inc., 134 F.3d 1054, 1062 (11th Cit. 1998).

Coutts   :te~son   that "an employee   Qltl   never be required) as a condition of employment:, to pay Qn

arbittator's compensation in orde.t to secure the resolution of statutory claims ... [I'Jhis would

sutely deteJ: the b.tinging of !u:bitration and constitute a de facto fotfeitute of statutory tights."

CfJiq, 105 F.3d at 1468.

         The court in Col, reasoned that an employee can fi~V~r be tequired, as a condition of

employment, to pay an arbittatot's compensation in ordet to s.eC'l::!re the resolution of statutory

daims under Title VII any tnote than an etnpfoyee can be made to pay a judge's salary. CfJk, 105

F.3d Jtt 1468. The Court fu.tthet .reasoned that) if there is any risk thtl.t an atbittation agreement can

be consttued to requite this tesul~ it would surely detet the brmging of arbit.ratioO: ru1d constitute a

de facto foo::feiture of the employee's statutory rights. The only way that an ~bittation agtee.tnent of

the son at issue hete can be lawful is if the employer assumes responsibility for the payment of the

arbimtor's rompens'.l.tion. Id.

         The Fourth Cir.cuirs apptaa.ch in Bradford v. &ckJJI8!/ SemicohdJKI()f Sy!tfms, Inc. is particulatly

instructive in determining that the proper antl.lysis "evalut~tes whethex the arbitral forum in a

pauicuhu: case is an adequate and accessible substitute to litigation.» In re O!sha11 Fo11nd. fupair Co.,

LLC., 32B S.W.3d 883, 893-894 (Tex-.2010) affirmatively citing Bra4ford v. Rod":we/1 SemkfJnd11dor

.fyJfems. !11~, 238 F.3d   549t 556 (4th Ch:. 2001). That inquiry requites '<a case-by-case    ilni~lysis   thllt



                                                                                                               9

                                                      80
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the

expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost

diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,

328 S.W.3d 883, 893-894 (I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes,

but what the totil.l cost to the claimant to plll:sue the claim is. Id.

          Requiring   Pl~intiff   to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,

fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to

b:cing het statutory wwngful termination claim          ~gainst her etnployet is a strong deterient from


bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect

of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur

even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of

Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.

          If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in

Dallas County, wd risk having to        pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she

will ptobably not continue with her dl.im.          See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since

there is a risk that Plmtiff be xequiled to pRy the            a.~:bitration fees, the   alleged Agreement .is

substantively unconscionable and un.enforceJ\ble.            In iiddition, the .risk of inc:uning such        11


prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn

in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-

rights~   exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore

making it unenforceable undet: Texas law.

                                               III. CONCLUSION
          The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds

when considering the sophistication of both parties. The agreement .requires Plaintiff to split the



                                                                                                             10

                                                      81
cost of the Atbitrat:ion and risk i.acmting debt in excess of $10,000. Moreover, the Atblttation

Agreement requites Pl2indff incut e~en mote debt by conducting the arbittation in Dallas County.

Fu.tthertnote, when consider.ing the additional discovery funitations. it is obvious that the Agreement

was drafted and designed to favor Defendant over its unsophisticated, uneducated employees and

should therefore also be consideted unconscioruble by this Coutt, For these teasom. Defendant's

Motion to Compel Atbittation should be denied. and Plaintiff should be peimitted to continue to

pursue het statutory claitns ag1l.inst Defendant in this forum.

                                              IV. PRAYER
        WHEREFORE PREMISES CONSIDEREDt Plafutiff preys that m evidenti!UJ hearing

be set and that the Judge deny Defendant's Motion to Compel Arbitration and for such futther relief

that Plaintiff ruay show is justly entitkd.



                                                        Respectfully submitted,

                                                        THE ESPINOZA LAW FIRMt PLLC
                                                        Attome)III for Claitnant
                                                        5()3 E. Ratmey) St.e. 103
                                                        Sr.tn Antonio, Texas 78216
                                                        210.229' 1300 t
                                                        210.229.1302 f
                                                        www.espinozafittn.com




                                                 ~      Tex11s Bat No. 24036534
                                                        Steven Sachs
                                                        Texa.s Bar No. 24074995
                                                        JOSUE F. GARZA
                                                        Texas Bar No. 24072737




                                                                                                    11

                                                  82
                                 CERTIFICATE OF SERVICE_

                                    S
       I hereby certify thltt on this u. day of Novetnbet 2014, a true and conect copy of the
foregoing was DELIVERED. MAILED or FAXED to:

Jennifer . Trulock
Stephanie F, <Agniart
98 San Jacinto Boulevat:d, Suite 1500
Austin, Texas 78701-4078
512.322.2500
512.322.25'01




                                                                                           12

                                             83
Exhibit A




    84
                                                    AFFIDAYIT
STATE OF TEXAS                                 §
                                               §
COUNTY OF BEXAR                                §

        BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:

           "My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.

         I 11m the lead attorney for Plaintiff Paula Bazan-Ga£cia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.

          The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 £hose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.

          If Ms. Bnan-Garci'll ls r~qu.ired to 1!£bitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those £hat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. Acco£ding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.

          I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms.   Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.

        Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According



                                                                                                                       1

                                                          85
 to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
 d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
 estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
 (S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
 on the Defendant's inju.qr and termination policie.!!, the supe£V1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
 the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
 to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,

           Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt       The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.roo£

        For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.

         Further affiant says naught,''




                                                                  ern OJwtJ-(_j!~
         SWORN TO AND SUBSCRmE                                       this   lhe~-~~~ day ofNovembex-, 2014.

My corru:nlssion expires:                                       NOTARY PUBLIC in ttnd fur the
                                                                State of Texas
~r.AA l qf            1Qlt-
                                                                 ~~·~~           MAIIiSOL CASON
                                                                1~1r-\   Nolory PubliC, Sloleo1le~o~
                                                                \~~Jj Mv Commission E~epi1EJ5
                                                                ~.r.w.~~       June n, 2018




                                                                                                                      2

                                                         86
Exhibit 1




    87
                                                                                                                 l 3727 N'ocl Rud, Suite: 700
                                                                                                                 DaUas, TX 7$24{)
                                                                                                                Telephone.: (.91:1)701·8222
                                                                                                                I'm::: (85.5)267-4082




                                                                                         Detail Invoice/Statement
   l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~                                                                        Re)I!Cicnllog: N'abars Completion 1od                            Prodoe~ioo        Ser\'ioe Co.
   Com;p~~n~
                                                                                                                             Rc;; Mllrto Cortel
   Sl$ Wosl Ore~ s ~«lad
   Suite 1200                                                                                                                              Vs.
   Ho~st.cm, Teoras 779(,7                                                                                                                 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
                                                                                                                                           ~-
 Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
 ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------




e                       AM!m.lCAN
                        A:&BlmA'1'10N
                        ASSOCrA'l'YON&



   Nabor&: (:'ompleLion and Prodtrdfcn .Service
                                                        I   I N1"£'R NATIONAL CENT R"E
                                                            FOil OISP'UTIO RESOLUnoN•



                                                                                                                   R~pre9enl.iog;       WaborS Comple lion and.
                                                                                                                                                                         I :!1727 Nac:L Read. Suire 7DD

                                                                                                                                                                           T~hono~
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                                                                                                                                                                                            (P72J1()2..82ll
                                                                                                                                                                                        Pall;: (SSS)~67·4082

                                                                                                                                                                                         Prod~cLiM           Servf\\0
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   51.5 W~l Gremu Road                                                                                                              Re: Muco Cortez
   SoiLe 1200                                                                                                                               VB.
   Housr.on, Teus77967
                                                                                                                                            Nabors Compl~1lon                ~~d    Prod\lcLioll Servko
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                                                                                                                 88
                     AMBRJCAN
                     ARBITRATION
                                              I   INTE:~NATIONAL
                                                FOR DISPUH
                                                                      CENTRE
                                                                  f~ESOU)'fiOW
                                                                                      J3127 Noel Ri>id, .S:ui1~ 7()0
                                                                                      D.alla~;.'l'X75lAO
                     ASSOCIA'llON'                                                    Telephone: (972)10~82:22
                                                                                      P~:   (3.55)26'1-4082


                                       Compensation Depmil coYertDf 4
                                       d•ys offle.adng
09·M• ·2.013                           AlloC~~Cion                                                     S7.200.00
1:2.-A.pr"rlO!J       (Q.fo19so        YoYt  h-ofrhe N'cllll:!ll                 S4,800.00                                 ro.oo   I:Z..Apr-2013
                                       Co~nsatian Dcpoalr cov~ring
                                       US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB                             Allocalian                                                      S4 SOO.OO
II-Apr-2<113          104157730        Adrnini&lnllivc ~ for He~ring -            $300.00                                  ro.oo   ll-Apr·20 13
                                       OA'Tii: 11114/2()13
09--M, ·2013                           AlloeaJ[cn                                                          5300.00
11-AlJ'I"-2013        1046'1729        Admin!sJn.Jive Foe for HearlDf •           $)00.00                                 .w.oa    11-Apr-2013
                                       DATl!: 11{13r.!013

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09-Ju~-"2014                           CaM<~lls~toD                                                        S950.00
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il9-Jun-llll4                         AI[QC.allofl                                                     -S9SCI.OO


Remarlu           For any 111qulrl~s please ca.ll: (800}1!04 ·9'308            Steltnltct lla!an~o
                                                                                                           $'0.00
Pli!Jise mall c~e~ to          13727 Noel Ro~d, Suire 100                   Please- Iru:l icarc Caso No. on

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                               DaUas, TX'1S:2.40                            cllecl:


                                                                                                                      f,tt-~1/,1,1\.
                               'T~l~pho.ne: (912)7Q2..S222
                               PIIX: (&55)267-4 Dll2




                                                                                      89
Exhibit 2




    90
 e Amt~rkmt                      Arbitration
  l>i•pJII~ fl.tl~tlllliiHI ,,·~"·ir~·
                                                           A~S()cia~inn
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               Qtlllll ~;, Adarn11U                                                                        RapreaMlRIISisO\I Re6111W1nl,, LLO
               ~~ SIM'Ilat;l &Mli~                twr Burna                                                ~Chrl&llr.tT«rN
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               8snAnlmiQTXUZ!O




          I' lcas;e De !uclund Rclu1·n \\'ltll PII,)UrcltlUO tTie Abtm~ M(fJ'~Iil                                                                             ND. ml e[t~ck
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              II:J118aa l'adto
              Sui~!! 1100
              Soul Ml011fo11(78!1S




0111W2012                   {0288376
011o5ml'l!                     :11!11111:1

®1111'20]2                  t0081>8n VOir Sl>llt8 01 Ill• Nawa! Compenaallon Depolll ~a hWt~                                              20a0,00
                                      ~ Prfiiii'IIIWY lolallara                                                                                                                                 i
031091:!0 12                   tOOO!I Potjt'TWinL l'1tGiol Jrcm: $1agg Jto.~lllunlni•                                                                                          ;tOOO,OO •       1


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                   HgA,RINWPOS1PmiEMENTII"IOOI.II'AOOl!SSI i'IS Pl!e!l                                                '100.00                       (),(0                        900.00
                   1\IW.l..OCATlDn AT CAS !!I l!Nl) fE:~9                                                                0.00                       0,00                           0.00
                   HE!I.ImAI. tOI.oiPENsA'I'tOWE:XPI!NSe~                                                           1e35C.oo                   200D.Il0                        1639l.OQ EIN: 1~Ool~~14&




                                                                                                              91
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                                                                                          HiBJ; BILLED                      N&.TI'AII>     ~
lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~                                                    015..oa                     ~75,00         0..00
                          HEN11NM09TPOHEN ENT.Ifi0Q.IIWROOI!8911i<J FE!eS                          90&..00                         0.00     900.00
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                          NEliTRAl. CllMPI!H$r\TtOt4i!Xl'~!ll6                                   183511.00                    2030.00          183150.0~   EIN: 13-009145




                                                                                        92
Exhibit 3




    93
          Nonnandy Financial Closing 1·     '.                                                     PagcJ of3
i   ...




            ~~-----·-                      ~7 r'··---~----...,...4$+·~




            70-16D~OD432-10
            H.E,B. Grocery Company, L.P.
            =
            Admlnlsfratr11e Fees and Expenses:

                                 Filing Fees                       $925.00
                         Case Services Fee                           $0.00

                               He~rlng   Fees                      $750.00

                     AM Room Rental Fee                                  $0.0[}

                  Abeyanoo/Misc.   AAA Fees                          $0.(]0

                Non-AM Cooferenca Room
                                                                         $0.00
                              Expenses

                              Mise Expenses                              $0.00
                     Yoor Share of Administrative Fees and Expenses:               $Ul75.00
                   Amount Paid for Administrative Fees and Expenses:               $2,875.00

                          Balimce Admlnlslmtive Fees and Expenses:                ($1 ,200.00)

            llleutra\ CompensaliQn and E)tper.eos:

                  Your Shere of Neutral Compansation and Expenses:                $19,B07.24

                Amount Paid for Neutral Compensation and Expenses:                $20,470.00

                        Balance Neutral Compensation and Expenses:                  {$662.711)




                                                          Party   Ba~an<:e:       ($1,862.761




          file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011



                                                                   94
. Exhibit B




     95
                                              AFFIDAVIT

STATE OF TEXAS                           §
                                         §
COUNTY OF BEXAR                          §

       BEFORE ME, the undersigned authority, on this. day personally appeued PAULA
BAZAN-G.All..CIA, who is personally known to rue md being fttst duly sworn according to hw
upon this oath deposed and said:

        "1fy n11me is PAULA BAZAN-GARCIA. I ~ln 0'9'et the age of twenty-one and am fully
competent in all respects to m-ake this affidavit. The facts stated in this affidavit are within my
p etsonal knowledge and are true and correct.

I atn the plaintiff in thili case. I worked for WESTERN RIM PROPERlY SERVICES, INC. I w~s
hited in Bexar County, Texas and worked in Bexar County, Texas, On or about October 22, 2013, l
was tertnini!ted ftOlll my job aftet filing a workers' compensation clAim. I was tei:tninated in Bexar
County, Texas. I worked as 1l housekeepet fot Westexn lUm Property Services. Inc. earning apptox.
$12.98 pet hout. As a result of this tennin~tion, I am on an e:xt:remely tight budget. as it w-as
difficult f01 sne to find work aftet l wg_s ftted f.torn Defendant. I reside in Bexar County, and I do
not have any family ot lodgings in D~llas County. I nEWet had to ttavel to Dallas County in the
course and scope of my employment at Western Ritn P.roperty, Services, Inc.

If it is detetmirt.ed th~t I must bring ruy lawsuit against my employer in aJ:bitration, and risk having to
pay over $10~000.00 in arbit.mtor fees~ I will probably not continue with rny claim. In addition, if it is
detennined that I rnust bring my lawsuit against my employer in arbittation in Dallas CoWlty, Tex~s.
I will incur substantial additional expenses in travel and lodging, and I will probably not continue
with my claim, This risk is too gtea t for rue and I do not h1we that type of money. I wish to sue my
employer in stRte court for my w.tongful termination bec11use I cannot afford the cost of incuuing
such a substantial debt to tltbittate my claims in Dallas County.

In addition, l worked fot Defendllnt in Bexat County, Te::&:as. I was dso injuted and terminated in
Bexat County, Texas. Therefore, the majority of the witnesses that my attorneys would cill at trial
are located in BexBt County, Texas. This includes sotne of tny family metnbets who may testify in
my case. I do not believe th11t they will be able to sffutd the expense of tra"9'eling to Dall~ County
to testify at an atbittation hearing. Thetefote., if my case is heard in Dall~s County, I will not be able
to call all the witnesses I would call if the case remained in Bexat County.


        Further affiant says naught."




                                                  96
•




    2014.
            SWORN TO AND SUBSCRIBED BEFORE ME on this the        -4--th     day   of Novembet.
                                              ~CJJLu:;~{L {IJ4JL                             r
    My cornrnission expites~                 NOTARY PUBLIC in and fat the
                                             State ofTexas
     ,Jv\1\R > {,q r;J,CJ/8
                                               A~~~~Jt~
                                                  · ··.~ No1orvMA~I$0l  CASON
                                                                Publtc, Slaleor Tewr;
                                               \1 1.-!;.i   My commlsifoo Expires
                                                ~~:r.~:~        June 19, 201 B




                                        97
in state cow:t, Plaintiff would be permitted up to 50 houts of deposition time to exatnine

Defendant's supetvisors, Anthori2ed Represenuti"'e, and experts. The Arbitration Agreement that

Defendant seeks to enforce, l.itnits Plaintiff to only one deposition. Therefore, if Plaintiff choses to

depose her fonne.r supervisor or Deiendanrs Authorized Representative, Plaintiff rnust forgo

depos.ing any expett(s) designated by Defendant. In addition) Plaintiff 'Will be unable to establish the

ciJ:cums~ntial   evidence of .reblliation with just one deposition. See Exhibit A,     Af.fid~vlt   of J~vi.et

Espinon.

         These lliniu.tions again have been placed to limit the employee's claims while not inhibiting

Defendant's ability to defend these suits.        Genually, an. employer in workers' compensation

retaliation cases will only t>a.ke the deposition of the plaintiff and usually do not rely on the

documents produced by the plaintiff in defending a~ses. Rathet, it is the agg.cie-ved employee that

must rely on the discovery process) including depositionst in o.rder to sustiloin the required burden of

proof in these cases.

        Because Plaintiff can reasonably show that these limitations will severely limit Plaindff.s

dlility to meet her burden of pwof in this case, this provision of the Agteement ls unconscionable.
  .                                                                                                 .

S ~e In rr PtJfy-Amm"ro, 262 S.W.3d at 358.

            b) PROH)'BITIVELY ExCESSIVE COSTS TO INJURED EMPLOYEE IS
            SUBSTANTIVELY UNCONSCIONABLE.

        The United States and Texas Supreme Cout:t have recognized that the exc.essrve costs of

~rbitration .might? under certain circumsunces, rendeJ: an atbitrntion agreement             substanti"'ely

unconscionable. Ol.rht~h FQ;IItd. fupair Co. v. Ayald. 180 S.W.3d 212, 215 (Tex. App.---San Antonio

2005); J~~ oiso Green 1i-ee H'tl. Corp. v. Rtmdolpb, 531 U.S. 79, 91(2000)~ In~~ Fu-sf Merit Bank, N.A., 52

S.W.3d 749, 745 (I'ex. 2001).

        The Arbitration Agreement in this case requites Plaintiff to split the costs of the at:bittation

with Defendant and to arbitrate hex claims in Dallas. County. See Ex'hiblt A, Affidavit of Javiet


                                                                                                            6

                                                   77
Espinoza ll.nd Invoices of the Arnerican.A:tb.i.tntionAssociation.( As a $12.98 pez hou:t wage-eamet,

PIRi.ntiff would demonstrate she is not financially able to bear the costs and risk, and the.tefo.te will

probably not pursue het claim in arbitration should she be compelled to submit her claim before an

atbil:.hltoi in Dallas, County rathet than st:ate·cow:t. See Exhibjt B, Affidavit of Paula Bazan-Gatcia.

The costs incun:ed by Plaintiff in arbitration 11te significantly higher: than those that would be

incurred if Plaintiff continued with his claitns in this judicial fotum. "see Exhibit A, Affi.d1l.vit of

Javie.t Espinoza. Pl9intiffs out-of-pocket expenses in state coutt are minimal, at most, The cost of

blking a risk of incuning a debt   exceeding $1 0)000.00. is "   (;OSt significandy   too high fat the Plaintiff

to bear. See Exhibit B, Affidavit of Paula Bazan-G2tcia.

        The United States Sup.[eme Coutt recognized .in Gmn Tree Financial             Corp~       Akl.   l!.   Rnndolph

that c(the existence of large a:tbitration costs could preclude a litigant ... from effectil'ely vindicating

her fedend statutory rights in an arbillil fo.tuJn,') Green Trt~e Fi'ndJtcidl Corp- Ala.   tr,   Rt:Jndolph, 531 U.S.

79t 90 (2000). When looking at the facts in this paJ:ticula.r case. it is evident th-at the potential costs

arising from this claim would be so high as to p1:ohibit Plaintiff from being able to assett her claims

in atbitnttion.

        One prupose behind arbitration is to a~oid large litigation expenses, pattic.ul~ally the costs fo.t:

longet proceedings, complicated appeals, disoovery, investigations, fees and expett witnesses. !11 ~

OI.Jhan Found. &pmr Co, LLC. 328 S.W.3d 883, 895 (Tex. 2010). The Texas Supreme Court has

further recognized that lllthough atbittation is intended to be less expens-ive ;md more efficient

alternative to litigation~ when the costs imposed by an a.tbitration il{Steement ate excess.hre liUld

effecttvely prevent a party from asserting his or he.t rights in an ~:u.:bimtion ptoceeding, the

atbit.tation agreement may be substantively unconscion1thle. !d.           Addition~lly, the United States


1
 In a one-day atbitn.tion conducted by this law fll:ln, the '.l.rhitration costs exceeded $23,479.00.
This firm haslllsO conducted arbittations in thtee sim.ilar employment cases where the costs were
$2~225.00 and 20,470.00, .respectively. s~e fuhibit A) Affidavit of Javier Espinoza.


                                                                                                                      7

                                                     78
focuses) atnong other things, upon the clai.s:n'.!.nt's ability to pay the atbitration fees ~nd costs, the

expected cost diffetential between ~rbitration and litigation in coutt:,. and whether that cost

diffetenti<l.l is so substantiiil as to deter the bringing- of claims.~' In rr Olshan Fo11nd. Repair Co., LLC.,

328 S.W.3d 883, 893-894 (I'ex.2010). The key f~ctor is not where the cost to pu1:sue. the claim goes,

but what the totil.l cost to the claimant to plll:sue the claim is. Id.

          Requiring   Pl~intiff   to risk incurring a substantial debt exceeding $10,000.00~ in atbitrators,

fees compared to tnetely incuning $280.00 in expenses fot filing the claim in state cowt~ .in otdet to

b:cing het statutory wwngful termination claim          ~gainst her etnployet is a strong deterient from


bringing het claims. See Exhibit B~ Affida'\"it of Paula Eaz~n-Gatcia. In addition, the deterrent effect

of the A:a:bitration Agreement in this case is only inueMed by the fact that Plaintiff w:ill have to incur

even more expenses by conducting the Arbittation in D~lla.s County. s~ Exhibit Bt Affidavit of

Paula Baziln-Gatcia. Therefore, DefendQnt's Motion to Cotnpel A:a:bitration should be denied.

          If it is detettnined that Pli.inti.ff must bring her lawsuit against her e.1nployer in. atbitration in

Dallas County, wd risk having to        pay O"let $1 0~000.00 in arbittator fees. Plaintiff has stated that she

will ptobably not continue with her dl.im.          See Exhibit B, Affl.davit of Paula Baz~n-Gatcia. Since

there is a risk that Plmtiff be xequiled to pRy the            a.~:bitration fees, the   alleged Agreement .is

substantively unconscionable and un.enforceJ\ble.            In iiddition, the .risk of inc:uning such        11


prohibitively excessive debt and the evldence of expected cost diffetentillll between brining her clRitn

in state cou:a:t versus the atbitral foruru deters Plll.intiff employee ftotn '9indicating be.t: statutory-

rights~   exac.etbating the substantive unconscionability of the pUtported Agteetnellt, and therefore

making it unenforceable undet: Texas law.

                                               III. CONCLUSION
          The one-sided Arbittation Agteement is unconsciooa;ble under cutrent Texas standatds

when considering the sophistication of both parties. The agreement .requires Plaintiff to split the



                                                                                                             10

                                                      81
                                                    AFFIDAYIT
STATE OF TEXAS                                 §
                                               §
COUNTY OF BEXAR                                §

        BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:

           "My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.

         I 11m the lead attorney for Plaintiff Paula Bazan-Ga£cia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.

          The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 £hose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.

          If Ms. Bnan-Garci'll ls r~qu.ired to 1!£bitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those £hat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. Acco£ding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.

          I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms.   Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.

        Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According



                                                                                                                       1

                                                          85
 to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
 d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
 estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
 (S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
 on the Defendant's inju.qr and termination policie.!!, the supe£V1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
 the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
 to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,

           Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt       The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.roo£

        For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.

         Further affiant says naught,''




                                                                  ern OJwtJ-(_j!~
         SWORN TO AND SUBSCRmE                                       this   lhe~-~~~ day ofNovembex-, 2014.

My corru:nlssion expires:                                       NOTARY PUBLIC in ttnd fur the
                                                                State of Texas
~r.AA l qf            1Qlt-
                                                                 ~~·~~           MAIIiSOL CASON
                                                                1~1r-\   Nolory PubliC, Sloleo1le~o~
                                                                \~~Jj Mv Commission E~epi1EJ5
                                                                ~.r.w.~~       June n, 2018




                                                                                                                      2

                                                         86
Exhibit 1




    87
                                                                                                                 l 3727 N'ocl Rud, Suite: 700
                                                                                                                 DaUas, TX 7$24{)
                                                                                                                Telephone.: (.91:1)701·8222
                                                                                                                I'm::: (85.5)267-4082




                                                                                         Detail Invoice/Statement
   l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~                                                                        Re)I!Cicnllog: N'abars Completion 1od                            Prodoe~ioo        Ser\'ioe Co.
   Com;p~~n~
                                                                                                                             Rc;; Mllrto Cortel
   Sl$ Wosl Ore~ s ~«lad
   Suite 1200                                                                                                                              Vs.
   Ho~st.cm, Teoras 779(,7                                                                                                                 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
                                                                                                                                           ~-
 Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
 ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------




e                       AM!m.lCAN
                        A:&BlmA'1'10N
                        ASSOCrA'l'YON&



   Nabor&: (:'ompleLion and Prodtrdfcn .Service
                                                        I   I N1"£'R NATIONAL CENT R"E
                                                            FOil OISP'UTIO RESOLUnoN•



                                                                                                                   R~pre9enl.iog;       WaborS Comple lion and.
                                                                                                                                                                         I :!1727 Nac:L Read. Suire 7DD

                                                                                                                                                                           T~hono~
                                                                                                                                                                                          Dall""· TX75:MD
                                                                                                                                                                                            (P72J1()2..82ll
                                                                                                                                                                                        Pall;: (SSS)~67·4082

                                                                                                                                                                                         Prod~cLiM           Servf\\0
   Compliny                                                                                                                             01.
   51.5 W~l Gremu Road                                                                                                              Re: Muco Cortez
   SoiLe 1200                                                                                                                               VB.
   Housr.on, Teus77967
                                                                                                                                            Nabors Compl~1lon                ~~d    Prod\lcLioll Servko
                                                                                                                                            cO.


  O.'i-Nov-14                   71>-10·1300-o014                                       $0.00

- · : · "fl.l.'~·.f!?~~ ~"·R;•~c~_i.i~L, ,t;·--·•. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .:                              t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . ,
                                                                                                                     :-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..;
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  09-Jun-2014               11~30009            Flllros Fe"- CLa!m due alcue                                 $9SDJJO                                                    50.00 09-Jun-2014
                                                closios. .&lr Sm'i~s incurred
  09-Jun-2014                                    Allocalion                                                                                  $930.00
  0!1-run-2014              11D299S4             Atbilrlltors     Compe11s~tio~                           $2 ,61)4.00                                                       jll)..(lO      09-Ju~-2()14

  09-Jllll-2014                                  C~noeii.-Efon                                                                               S2S8.65
   U-Aus-20t4                                   Allocation                                                                               Sl,1~HS
  (19-Jun·20 !4                                 .Allocallon                                                                                 5600.00
  07-J•~-20!4               JOS81i0l4           ,o\dmlnJsl••![~~ ~for Ht.~~dMg-                              $300.00                                                        SO.OG          07-J•Il-2014
                                                OA'l"E: 03/WUll~
  28-1~~-20 14                                  Billed jn l!nor                                                                             s'oo..oo
  07-Jan-20 14              IOSS6013            Aclmlnlstr~~LIWlOP~ forH~<ioa-                               $300.00                                                        $0.00         07-l&tt-ZOl4
                                                DATB:OJ~[..f

  U-lm-~14                                      Billod in Bcror                                                                             SJOO.OO
  07-.1&11-2014            l0.586012            Admlni;Lczlivo Poe rar frearlfll: -                         $300Jl0                                                         so.oo         1)1..Jall·l014
                                                DA'fB; 0312512014
  09-Juo-201~                                   AIL~Lion                                                                                   -:%00.00
  10-Peb·2014                                   Allocation                                                                                  5900.00
  01-0ct-201)              LOS460l0             A~mlllistrali\leFeeo        for lfearll'lg-                 $300110                                                        ro..oo         01-0CI-20(~
                                                DATEc 0210512014

  14-0cL>2013                                   allied In Error                                                                             s~uu.oo
  01-0ct-Z!Jl:l            10546009             Adml~i~l:ra1iveFI!Ie-       for HQ3o1Pg-                    ~00.00                                                         .rooo          01-0rr-2011
                                                DATE: D2104121l14

  14-0ct-201:!                                  Billed im :&roT                                                                             S300.00
  ()1.0ct-'1013            lOSHIODS             l'cslpcoemro~ cl' 2 h~llri~(S);                               S7S.OO                                                       :ro.oa         1)1-0ct-2013
                                                l JIJ 312013,11!141201 ~
  3!-Qct-1013                                   Alfoclllico                                                                                   ST$..00
  J2-Apr-l(JI3             10467!152            Ycrur Shre of 1he N'ellutl                               $4,800.00                                                         SO.()!)        12-Apr-2013
                                                CornpensliLion D~~t rove no~
                                                16 hou[S ofS'kldy
 09-Mav-201:3                                   Alloc.ation                                                                             S4,800.00
 11-Apr-20 L3              10>16/951            Yo'llr &hllr~OfLhe tlleuCI'lll                           ~7,200110                                                         ro..oo         I:Z..Apr-Zill3




                                                                                                                 88
                     AMBRJCAN
                     ARBITRATION
                                              I   INTE:~NATIONAL
                                                FOR DISPUH
                                                                      CENTRE
                                                                  f~ESOU)'fiOW
                                                                                      J3127 Noel Ri>id, .S:ui1~ 7()0
                                                                                      D.alla~;.'l'X75lAO
                     ASSOCIA'llON'                                                    Telephone: (972)10~82:22
                                                                                      P~:   (3.55)26'1-4082


                                       Compensation Depmil coYertDf 4
                                       d•ys offle.adng
09·M• ·2.013                           AlloC~~Cion                                                     S7.200.00
1:2.-A.pr"rlO!J       (Q.fo19so        YoYt  h-ofrhe N'cllll:!ll                 S4,800.00                                 ro.oo   I:Z..Apr-2013
                                       Co~nsatian Dcpoalr cov~ring
                                       US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB                             Allocalian                                                      S4 SOO.OO
II-Apr-2<113          104157730        Adrnini&lnllivc ~ for He~ring -            $300.00                                  ro.oo   ll-Apr·20 13
                                       OA'Tii: 11114/2()13
09--M, ·2013                           AlloeaJ[cn                                                          5300.00
11-AlJ'I"-2013        1046'1729        Admin!sJn.Jive Foe for HearlDf •           $)00.00                                 .w.oa    11-Apr-2013
                                       DATl!: 11{13r.!013

()~-Ma -WB                             Allooalion                                                       s~oo.oo
17·J8Q•:Wl3           10419204         Jni lial Adm I~ lscnuve Pee                mo.oo                                    so.oo   Ji-J en-2l) I j

09-Ju~-"2014                           CaM<~lls~toD                                                        S950.00
12-PW.wn                              Al!oi:.I!Lton                                                        59.50.00
il9-Jun-llll4                         AI[QC.allofl                                                     -S9SCI.OO


Remarlu           For any 111qulrl~s please ca.ll: (800}1!04 ·9'308            Steltnltct lla!an~o
                                                                                                           $'0.00
Pli!Jise mall c~e~ to          13727 Noel Ro~d, Suire 100                   Please- Iru:l icarc Caso No. on

                                                                                                                                                oo
                               DaUas, TX'1S:2.40                            cllecl:


                                                                                                                      f,tt-~1/,1,1\.
                               'T~l~pho.ne: (912)7Q2..S222
                               PIIX: (&55)267-4 Dll2




                                                                                      89
Exhibit 2




    90
 e Amt~rkmt                      Arbitration
  l>i•pJII~ fl.tl~tlllliiHI ,,·~"·ir~·
                                                           A~S()cia~inn
                                                  fllr, /~ll!'itlr
                                                                                                     1:l-tM Noel RwJ- S\ii~G
                                                                                                           D•~ ... TI( 76Z«l
                                                                                                                               mo



                                                                             INVOICE/S~A~BMSN~



               Qtlllll ~;, Adarn11U                                                                        RapreaMlRIISisO\I Re6111W1nl,, LLO
               ~~ SIM'Ilat;l &Mli~                twr Burna                                                ~Chrl&llr.tT«rN
               ~ltSa-lPm
               Stills 800
               8snAnlmiQTXUZ!O




          I' lcas;e De !uclund Rclu1·n \\'ltll PII,)UrcltlUO tTie Abtm~ M(fJ'~Iil                                                                             ND. ml e[t~ck
--~::~;i;.~~~~~·~~i-t~~~-~·i-~-1~~~;;:;,·~~~·i~~1                     . . -.. . . .              i~ 5 ·~~~:~~~··17m·~··
                                                                                      h ..........
                                                                                                                           l'~~c IJ111i~afu Cas~
                                                                                                                                    ......... ~.-·~·~·- ......._.,.. ~ . - ..........-·-···-·
 fJi.,pflt6 f(o~LI-fllliCJII -'~' t•l1·p, l~'r•l'lrl~·i·l~
N~ME          Gl'llntE.Mamlill                                                                            R&~enltig S\llllQ ReW~Urenl!l, U.c
              Mtnll'lhid:lld Sahl!lh~ aM ll~l                                                             R~ Ctlrlalfne TII!Y'II!I
              II:J118aa l'adto
              Sui~!! 1100
              Soul Ml011fo11(78!1S




0111W2012                   {0288376
011o5ml'l!                     :11!11111:1

®1111'20]2                  t0081>8n VOir Sl>llt8 01 Ill• Nawa! Compenaallon Depolll ~a hWt~                                              20a0,00
                                      ~ Prfiiii'IIIWY lolallara                                                                                                                                 i
031091:!0 12                   tOOO!I Potjt'TWinL l'1tGiol Jrcm: $1agg Jto.~lllunlni•                                                                                          ;tOOO,OO •       1


                                                                                                                                                                                                           ~.DO
~12

                                                                                                                                                                                                           $C,IIO
                                                                                                                                           300,00
                                                                                                                                                                                                           ~UO.IIO
TOI1fi'20t~                 1!m77112 Y«J :~~Tare o, fla Nculnil C!llllpGDSe.tlon C.POtl ~ ~ IIIGWI                                         76Q.OO
                                     at f'flli'nlllay !.tillore
                                                                                                                                                                                                          110.00
                            1ooe!l224 YN' Sh;d Of IIIII NM!ltal (:qnpar!IUIIkm Oapo rl[ ~ ~ <hiYJ                                        7&10.00


{013112012
                                             ~fHollllilg


                            100952:1" Y~ .Sil&~e ot lila NawaJ COJnlflDIIMIIa)B Polposl\ --'nci 24 hGun
                                      Of$*udy
                                                                                                                                         7601.\.00                                   J                    7600.00




----L----·...!~------~---~-------....1....--------C-~--. -                                                                                                                                          --·   7~00


                                                                                                               ~B,WQ_                       tH!l PAlO                     Nl!fDUE
JkM!!C& SUM.MAA'f: INI'(I.WCQI.rtlr!:n..CLIIII\I FI!~S                                                                916.00                     trMXI                          0.00
                   HgA,RINWPOS1PmiEMENTII"IOOI.II'AOOl!SSI i'IS Pl!e!l                                                '100.00                       (),(0                        900.00
                   1\IW.l..OCATlDn AT CAS !!I l!Nl) fE:~9                                                                0.00                       0,00                           0.00
                   HE!I.ImAI. tOI.oiPENsA'I'tOWE:XPI!NSe~                                                           1e35C.oo                   200D.Il0                        1639l.OQ EIN: 1~Ool~~14&




                                                                                                              91
                                                                                                                                                                              f!
                                                                            114511 tul A~ • Sulla 1750

•          Amerka n Ari) i tra.t i fJ n As.>oc ia ti.nn
                                                                                   08lllit,TlC '/'8zj0
                                                                                                                                           ~iiM!~
                                                                                                                                           z                   i.                  -
lli\~nl~ J(n•l},.jjq,. .~u11lrr• ll'~t•'/d~r-ltlr
                                                                                                                                           llWl\1im~li~
                                                                                                                                           l     70-1~1102LDR                      1

                                                                 INVOICE/S'I'A'l!EMEN~                                                         ~Ill DaG      Upon UC>IlCLpl




             OIWII E. AMI!! Ul
             MMlr .:!f!IAIIeW Sdl$11lllll and lklm~
             t!t 1 9.an P&dm
             u.eoo
             Ball   AII QI'I O TX lB216

         Plea.'!~    DclllCh Dncl Relum with I'LcymCitt tu lhc Abov~: Adc~                                 l'lemn~   lnrllcutc C11se No. on cbcclc
·····~::l.~~:~t~;~~~~·::~:=·~~~-~~·;:~~~·~~··-····~···~·······~··•·1-8W'=~;:~~-'1ieo·-··w~·---·~·····'"·'-''''·'·'········w . . . . ~.- . . . ~
Ui'f~~   r.- f!t•llflrli111f .f;J \'('~~   ~nu   IJwirl•
MAMa          Gnrd.E.Adamll~                                                     ~~~JII'""III'lllflld   ISII!QI Resl~'fiiiU, ~Ul
              Alhlbllihllftllld SCI'It~     af'ld lluma                          R.: ~rflliJo Tarru
              ll31 H;.., P«!ro
              1>.11!8 8QO
              8811 Arl:unlo TX 7~~fe




                                                                                          HiBJ; BILLED                      N&.TI'AII>     ~
lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~                                                    015..oa                     ~75,00         0..00
                          HEN11NM09TPOHEN ENT.Ifi0Q.IIWROOI!8911i<J FE!eS                          90&..00                         0.00     900.00
                          fiEAU,.QCI\liON Kr CI.!IE eND nes                                          0.00                        0.00              o.ao
                          NEliTRAl. CllMPI!H$r\TtOt4i!Xl'~!ll6                                   183511.00                    2030.00          183150.0~   EIN: 13-009145




                                                                                        92
Exhibit 3




    93
          Nonnandy Financial Closing 1·     '.                                                     PagcJ of3
i   ...




            ~~-----·-                      ~7 r'··---~----...,...4$+·~




            70-16D~OD432-10
            H.E,B. Grocery Company, L.P.
            =
            Admlnlsfratr11e Fees and Expenses:

                                 Filing Fees                       $925.00
                         Case Services Fee                           $0.00

                               He~rlng   Fees                      $750.00

                     AM Room Rental Fee                                  $0.0[}

                  Abeyanoo/Misc.   AAA Fees                          $0.(]0

                Non-AM Cooferenca Room
                                                                         $0.00
                              Expenses

                              Mise Expenses                              $0.00
                     Yoor Share of Administrative Fees and Expenses:               $Ul75.00
                   Amount Paid for Administrative Fees and Expenses:               $2,875.00

                          Balimce Admlnlslmtive Fees and Expenses:                ($1 ,200.00)

            llleutra\ CompensaliQn and E)tper.eos:

                  Your Shere of Neutral Compansation and Expenses:                $19,B07.24

                Amount Paid for Neutral Compensation and Expenses:                $20,470.00

                        Balance Neutral Compensation and Expenses:                  {$662.711)




                                                          Party   Ba~an<:e:       ($1,862.761




          file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011



                                                                   94
                                                    AFFIDAYIT
STATE OF TEXAS                                 §
                                               §
COUNTY OF BEXAR                                §

        BEFORE ME. the undersigned authority, on this d~y personally appeared JAVIER ESPINOZA,
who is person-ally known to me ~nd being f1rst duly sworn according to taw upon this oath deposed and said:

           "My name is JAVIER ESPINOZA- I am ove.r the llge of twenty-one and run fully competent U1 an
.respect:s IO maJ.re this aftidllvit. The facts 3tflood mthis affidavit are within my pusonal knowledge and ate true
and correct.

         I 11m the lead attorney for Plaintiff Paula Bazan-Ga£cia in the present case. My firm recently
arbitrated a similar case lllleging ~iolfttions of §451 of the Texas L~bor Code styled M(Jrco Co11ez lJ. NaborJ'
Compktion (lTJd Prod:Hctio1r Servk~ Co. with the American Atbitration Association (AAA). Attached
hereto as E>::hibit 1 is a copy of the invoice fo.r said ~u:bitration, which lasted thtee days, .in the
amount of $23t479.00. Fw:thettnote, my fum has ptevlously atbiuated other labo.r cases with the
AAA that were similar in nature, cotnple.Jcity and amount of witnesses <ts Ms. Bazan~Garda's case.
Att~ched he.teto as Exhibit 2 is the invoice for the case styled Chri.rtine Torm" .,.~. S.ta.gg Rula11rttnil, LLC.
Cause No. 70-160-00850-11 before the Ametican Arbitr~ttion Associ'iltion. The Torres Cl\Sf. w"s arbitrated for
twO days and the charges fo~: said 1ubitratioa were 1201225.00. Ltstly, .in 2011, my fum also lUbitrflt.ed another
similar case fot: three days with the AAA styled, .Arrlho'!_Y Castillo 1), HEB, Cause No. 70-160-00432-10.
Attached hereto as Exhibit 3 is rhe jnvoice for thl\tatbltr1!1tiOn for a totall!mount of$2.0,47().00.

          The amount of d't1m11ges claimed in the above J:eferenced arbitrations and the difficulty of those c!ISes
is ves:y similftt to Ms. Baun-Garcia's clsim against Western Rim P.rope.rty Services. Inc. The arbiu11tions aU
took place in San Antonio, TX so the invoices were solely for the atbitrator expense, not for any tri!vel,
witness expenses or any other expenses iequired for PJaintiff to present their cases! The invoices were all pajd
by the employ~r U1 £hose 1Ubitrations, ~dusi"lte of the initial minim11l filing fee paid by t:he PJRintiff.

          If Ms. Bnan-Garci'll ls r~qu.ired to 1!£bitmte her cllse through a similar arb.ltration al!sociation; the cost
for the 1nbitration :.nd litigation process will reasonably exceed 110,000.00 soJely fat the Plflintiffs shaJ:e-
this is 1lsauming the con~ aJ:e split equally. The cmt potentially incurred by Ms. Bazan-Garc.la in ubitration
compated to those £hat would be .inwned if Plaintiff continued wit:h her claims in the. judicilll forum, are
ast:conomically highe[ and cost prohibitive. Plaintiff's out-of-pocket expenses in state court are minim~l, at
most they include 11. .Elling fee unde.t Pt~OO.OO and all hearings in court and t.cia.l Ate free to the p~rties.
Conversely. in Rrbitration. every time theie is ~ hearing on status and scheduling conferences or discovery
disputes and pre-trial matte.rs, the arbitrator's time is chaxged to the puty tesponsible for payment accotding
ro the agreement. Acco£ding ro the teems of the a.::bitration agreement, Ms. Bazan-Garci1l. would be pllrtiaUy
responsible for parr of these costs. ln ~tdditio.n. :M:s. Bazan-Garcia would also h11.ve to incur substllnlial
traveling and lodging expenses if the arbitration takes place i:n Dall11.s County.

          I do not belien that Ms. Bazan-Garda has the fi11ancial resoutxes to tisk going forward wjth he.r
chums if it were det:ecmined that Ms.   Bazao-Garci~ must ftle her claim through arbitration .r~tthu than the
stare court and that the provision$ of the pw:porte.d arbitration agreement in this case u.e a l>trong det:e.n:e.nt
to potent:.ial claimants, Enforcement of the purpo.ued arbitration agre.une.nt would serve a strong .injustice to
the PJ'Ilintiff in this case.

        Furthermore, the discovery limitations included in the atbitration ag;ceeme.nt are severe and would
impede rny cliea.t's ability to litigate her clsirns. In wotkers' compensation .retaliation c11.ses, I usu:a.Uy t~tke two
to four depositions: (1) The supervisor who terminated the Plaintiff> (2) the Defendant's designated
authorized .~:e.p.resentative.; (3) any witnesses to the injury; and (4) any witnesses to the termination. According



                                                                                                                       1

                                                          85
 to the Texils Supreme Cow:t in Continenk:ll Cojfoe Pmdr. Co. v. Cazy1J:I} 937 S.W.2d 444 (Tex. 1996), Jetaliation
can be proved tiu:ough the following types of circumstantial evidence: (1) knowledge of the compensation
 d:;~im; {2) e:qu:~sion of a negRtive Jtttlrude to~rll."td the employee's injured condition; (3) failure to adhere to
 estl\blished company policies; (4) diso:im.imtory treatment in comparison to simil.,..rly .sitllllted employees; and
 (S) evidence that the stllted reilson Cot: the dischuge was Mse. In workers' compenu.tion cetalil!tion ca.se~,
this type of circumstantial evidence of .retaliation cannot be obtained through just one deposition. P.laintiff
would be forced to choose whether to depose a corporate representative that would list~ exp.lain. :and elaborate
 on the Defendant's inju.qr and termination policie.!!, the supe£V1soc(s) ce.aponsibJe fo.r the actual tecm.inRtiOn, o.r
 the witnesses that would corroborate the Plaintiff's 1:1Uegations. On the cont:racy, Defendant would only- have
 to depose the Plaintiff to find out his evidence and then could file a oo-evldence summa:t:y judgment motion.
This would be. gzo.s5ly unfair to the Phuntiff, especiatly since the Plruntiff curies the burden of proof on her
allegacion$.1'114 5ame principle .is true for p.ro'(J'jng the othtt elements of circumstantiill evidence of ret~1\lion
.lis ted by the Court in Ca.z11n.z,

           Moieover, th~e d~ositions Rre separate and aside from the deposition of my experts designated
by· the Defend11nt       The arbitr.~tion 11greem.ent in this case would preclude our office from effectively
litigating rhis case and providing adequate representlltion becau5e it limit$ the plaintiff to only one deposition,
including experts. Therefore, if Defendant designates an expetr, Plftintiff would be fo.tced to depose lhe
exput at the expense of deposing any of the fact witnesse-s. This pxovU;.ion. of the purponed ilrbit:ratlon
agreement is i!lso il Str:ollg deteccent to potential chums beatuse it limits the potential plaintiffs ability to
investigate and meet her .reqlilied burden of p.roo£

        For these teasons, I strongly believe that the purported arbitration 11greement is substantively
unconscionable and should be une..nfocceable.

         Further affiant says naught,''




                                                                  ern OJwtJ-(_j!~
         SWORN TO AND SUBSCRmE                                       this   lhe~-~~~ day ofNovembex-, 2014.

My corru:nlssion expires:                                       NOTARY PUBLIC in ttnd fur the
                                                                State of Texas
~r.AA l qf            1Qlt-
                                                                 ~~·~~           MAIIiSOL CASON
                                                                1~1r-\   Nolory PubliC, Sloleo1le~o~
                                                                \~~Jj Mv Commission E~epi1EJ5
                                                                ~.r.w.~~       June n, 2018




                                                                                                                      2

                                                         86
Exhibit 1




    87
                                                                                                                 l 3727 N'ocl Rud, Suite: 700
                                                                                                                 DaUas, TX 7$24{)
                                                                                                                Telephone.: (.91:1)701·8222
                                                                                                                I'm::: (85.5)267-4082




                                                                                         Detail Invoice/Statement
   l'hOOrs Com,pl"ti.Gn and Pmd~ction S~l~                                                                        Re)I!Cicnllog: N'abars Completion 1od                            Prodoe~ioo        Ser\'ioe Co.
   Com;p~~n~
                                                                                                                             Rc;; Mllrto Cortel
   Sl$ Wosl Ore~ s ~«lad
   Suite 1200                                                                                                                              Vs.
   Ho~st.cm, Teoras 779(,7                                                                                                                 Nabo[S Camplei ioniUl.d Pr0<1uc1io.. Servi~e
                                                                                                                                           ~-
 Pleii!Se de11cll1locd relurn wltb h)'l'llent to A. bove Ad.:lre~
 ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------




e                       AM!m.lCAN
                        A:&BlmA'1'10N
                        ASSOCrA'l'YON&



   Nabor&: (:'ompleLion and Prodtrdfcn .Service
                                                        I   I N1"£'R NATIONAL CENT R"E
                                                            FOil OISP'UTIO RESOLUnoN•



                                                                                                                   R~pre9enl.iog;       WaborS Comple lion and.
                                                                                                                                                                         I :!1727 Nac:L Read. Suire 7DD

                                                                                                                                                                           T~hono~
                                                                                                                                                                                          Dall""· TX75:MD
                                                                                                                                                                                            (P72J1()2..82ll
                                                                                                                                                                                        Pall;: (SSS)~67·4082

                                                                                                                                                                                         Prod~cLiM           Servf\\0
   Compliny                                                                                                                             01.
   51.5 W~l Gremu Road                                                                                                              Re: Muco Cortez
   SoiLe 1200                                                                                                                               VB.
   Housr.on, Teus77967
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                                                                                                                                            cO.


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  09-Jun-2014                                    Allocalion                                                                                  $930.00
  0!1-run-2014              11D299S4             Atbilrlltors     Compe11s~tio~                           $2 ,61)4.00                                                       jll)..(lO      09-Ju~-2()14

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  07-.1&11-2014            l0.586012            Admlni;Lczlivo Poe rar frearlfll: -                         $300Jl0                                                         so.oo         1)1..Jall·l014
                                                DA'fB; 0312512014
  09-Juo-201~                                   AIL~Lion                                                                                   -:%00.00
  10-Peb·2014                                   Allocation                                                                                  5900.00
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                                                DATEc 0210512014

  14-0cL>2013                                   allied In Error                                                                             s~uu.oo
  01-0ct-Z!Jl:l            10546009             Adml~i~l:ra1iveFI!Ie-       for HQ3o1Pg-                    ~00.00                                                         .rooo          01-0rr-2011
                                                DATE: D2104121l14

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 11-Apr-20 L3              10>16/951            Yo'llr &hllr~OfLhe tlleuCI'lll                           ~7,200110                                                         ro..oo         I:Z..Apr-Zill3




                                                                                                                 88
                     AMBRJCAN
                     ARBITRATION
                                              I   INTE:~NATIONAL
                                                FOR DISPUH
                                                                      CENTRE
                                                                  f~ESOU)'fiOW
                                                                                      J3127 Noel Ri>id, .S:ui1~ 7()0
                                                                                      D.alla~;.'l'X75lAO
                     ASSOCIA'llON'                                                    Telephone: (972)10~82:22
                                                                                      P~:   (3.55)26'1-4082


                                       Compensation Depmil coYertDf 4
                                       d•ys offle.adng
09·M• ·2.013                           AlloC~~Cion                                                     S7.200.00
1:2.-A.pr"rlO!J       (Q.fo19so        YoYt  h-ofrhe N'cllll:!ll                 S4,800.00                                 ro.oo   I:Z..Apr-2013
                                       Co~nsatian Dcpoalr cov~ring
                                       US hau1 of ?Mifmtnll)' M'IIX:rs
09-Ma -2DB                             Allocalian                                                      S4 SOO.OO
II-Apr-2<113          104157730        Adrnini&lnllivc ~ for He~ring -            $300.00                                  ro.oo   ll-Apr·20 13
                                       OA'Tii: 11114/2()13
09--M, ·2013                           AlloeaJ[cn                                                          5300.00
11-AlJ'I"-2013        1046'1729        Admin!sJn.Jive Foe for HearlDf •           $)00.00                                 .w.oa    11-Apr-2013
                                       DATl!: 11{13r.!013

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09-Ju~-"2014                           CaM<~lls~toD                                                        S950.00
12-PW.wn                              Al!oi:.I!Lton                                                        59.50.00
il9-Jun-llll4                         AI[QC.allofl                                                     -S9SCI.OO


Remarlu           For any 111qulrl~s please ca.ll: (800}1!04 ·9'308            Steltnltct lla!an~o
                                                                                                           $'0.00
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                               'T~l~pho.ne: (912)7Q2..S222
                               PIIX: (&55)267-4 Dll2




                                                                                      89
Exhibit 2




    90
 e Amt~rkmt                      Arbitration
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                                                           A~S()cia~inn
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               ~~ SIM'Ilat;l &Mli~                twr Burna                                                ~Chrl&llr.tT«rN
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                                                                                                              91
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lijV~IHi!IMI!I~'i: INITIAJ'CClUIIIJE!R.CU.I~ ~~                                                    015..oa                     ~75,00         0..00
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                                                                                        92
Exhibit 3




    93
          Nonnandy Financial Closing 1·     '.                                                     PagcJ of3
i   ...




            ~~-----·-                      ~7 r'··---~----...,...4$+·~




            70-16D~OD432-10
            H.E,B. Grocery Company, L.P.
            =
            Admlnlsfratr11e Fees and Expenses:

                                 Filing Fees                       $925.00
                         Case Services Fee                           $0.00

                               He~rlng   Fees                      $750.00

                     AM Room Rental Fee                                  $0.0[}

                  Abeyanoo/Misc.   AAA Fees                          $0.(]0

                Non-AM Cooferenca Room
                                                                         $0.00
                              Expenses

                              Mise Expenses                              $0.00
                     Yoor Share of Administrative Fees and Expenses:               $Ul75.00
                   Amount Paid for Administrative Fees and Expenses:               $2,875.00

                          Balimce Admlnlslmtive Fees and Expenses:                ($1 ,200.00)

            llleutra\ CompensaliQn and E)tper.eos:

                  Your Shere of Neutral Compansation and Expenses:                $19,B07.24

                Amount Paid for Neutral Compensation and Expenses:                $20,470.00

                        Balance Neutral Compensation and Expenses:                  {$662.711)




                                                          Party   Ba~an<:e:       ($1,862.761




          file:f/C:\Users\giUeys\AppData\Local\M:icrosoft\Windows\Temporaey Internet Files\OLK3 ... l 0/6/2011



                                                                   94
                                     CAUSE No?O 14CVO 1              06'1      E-FILED
                                                                               Bexar County, County Clerk
                                                                               Gerard Rickhoff
                                                                               Accepted Date:?/1/2014 10:45:56 AM
PAULA BAZAN-GARCIA,                                  §                    INTHt~J.
                                                     §
Plaintiff,                                           §
                                                     §
v.                                                   §                       ATLAWNO.CC# 03
                                                     §
WESTERN RIM PROPERTY                                 §
SERVICES INC.,                                       §
                                                     §
Defendant.                                           §                    BEXAR COUNTY, TEXAS


        PLAINTIFF,S ORIGINAL PETITION AND REQUEST FOR DISCLOSURE
                             AND JURY DEMAND

TO THE HONORABLE JUDGE OF SAID COURT:

         COMES NOW PAULA BAZAN-GARCIA, (hereinafter referred to as "Plaintiff'),

complaining of WESTERN RIM PROPERTY SERVICES, INC., (hereinafter referred to as

"Defendant''), and for a cause of action would respectfully show unto the Court as follows:

                                               DISCOVERY

         1.     Discovery Control Plan. Pursuant to Rule 190.3 of the Texas Rules of Civil Procedure,

Discovery Control Plan Level Two governs this lawsuit.

         2.     &quest .For Disclosure. Pursuant to Rule 194 of the Texas Rules of Civil Procedure,

Defendant is requested to disclose, within 50 days of service of this request, the information

described in Rule 194.2 of the Texas Rules of Civil Procedure.

                                                PARTIES

         3.     Plaintiff is a resident of the State of Texas. She currently resides in Bexar County,

Texas, and she has resided there at all times material to this lawsuit.

         4.     Defendant is a private corporation organized under the laws of Texas, and its

principal place of business is in Tarrant County, Texas, located at 2505 N. Highway 360, Suite 800,

Grand Prairie, Tarrant County, Texas 75050 and may be served with process by serving its registered


ORIGINAL PETmON AND RBQUEST FOR DISCJ.OSURE                                                    PAGJ:ll




                                                    9
                                                                                    S"bm;t Date:61251201411:20:51   J
agent, Matthew J. Hiles, at 2505 N. Highway 360, Suite 800, Grand Prairie, Texas 75050 and/or

wherever any duly authorized agent tnay be found.

                                     MISNOMER/MISIDENTIFICATION

         5.      In the event any parties are misnamed or are not included herein, it is Plaintiffs

contention that such was a "misidentification," "misnomer" and/ or such parties were "alter egos"

of parties named herein. Alternatively, Plaintiff contends that such "corporate veils" should be

pierced to hold such parties properly included in the interest of justice.

                                           JURISDICTION & VENUE

        6.       This court has personal jurisdiction, both specific and general, over Defendant,

because it does business in Bexar County, Texas and Defendant is amenable to service by a Texas

court. Additionally, venue is proper in Bexar County because a substantial part of the events or

omissions giving 1-ise to Plaintiffs claim occurred in Bexar County. TEX. CIV. PRAC. & REM. CODE

§15.002(a)(1).

        7.       Plaintiff has suffered damages in an amount within the jurisdictional limits of this

Court. Pursuant to Rule 47 of the Texas Rules of Civil Procedure, Plaintiff in good faith pleads the

value of this case is over one hundred thousand dollars ($100,000.00) but less than two hundted

thousand dollars ($200,000.00). Plaintiff reserves the right to amend these amounts if a jury awards

an atnount in excess of two hundred thousand dollars ($200,000.00).

                                            STATEMENT OF FACTS

        8.       Defendant has been a "subscriber" of workers' compensation insurance at all times

material to this action.

        9.       Plaintiff was employed by Defendant since approximately September, 26, 2011 at

Defendant's apartment complex, The Towers at TPC, located at 5505 TPC Parkway, San Antonio,

Bexar County, Texas.



ORIGINAL PETITION AND REQUEST l'Oit DlS<:WSURE                                                 PAGE2




                                                   10
         10.       Throughout Plaintiff's employment with Defendant, Plaintiff consistendy was told

she was doing a good job. Plaintiff seldom--if ever--received any negative evaluations. Plaintiff was

never written up for any serious violations while employed by Defendant.

         11.       Plaintiff had a good attendance record until March 20, 2013, when she suffered an

on-the-job injury. Plaintiff promptly notified her supervisor of her injury and upon information and

belief, a workers' compensation claim was flied.

         12.       On or about June 4, 2013, Plaintiff was prohibited from working by her doctor as a

result of the injury she sustained while working in the course and scope of her employment.

Because Plaintiff was being taken off work pending surgery, in addition to being prohibited ftom

working by her doctor, Plaintiff requested to take FMLA leave and submitted the paperwork to

Defendant's corporate office.

         13.       Plaintiff was released to return to work on light duty on or about August 19, 2013;

however, Plaintiff was prohibited from working by Defendant, who clain1ed to not have any light

duty positions.

         14.       On or about October 22, 2013, soon after Plaintiff was released on full duty,

Defendant terminated Plaintiff for a pre-textual reason.

         15.       As a result of her discharge and the company's continuing refusal to reinstate her,

Plaintiff has suffered substantial economic losses and severe mental anguish, and she will continue

to suffer such losses in the future.

                                   WORKERS' COMPENSATION RETALIATION

         16.       Plaintiff incorporates by reference the allegations contained in paragraphs 1 through

16 as if those allegations were set forth verbatim.

         17.       Plaintiff alleges that Defendant, violated Section 451.001 of the Texas Labor Code

by discharging Plaintiff because she notified her employer of her on-the-job injury and/ or initiated

the filing of a workers' compensation claim in good faith, and by not reinstating her.

0R1G1NAL PF.m'l'ION AND RP.QUES'l' l'OR DISCLOSURP.                                               PAGE3




                                                      11
          18.    Plaintiff seeks the maximum damages allowed by Section 451.002 of the Texas Labor

Code and at common law.

          19.    Plaintiffs injuries resulted from Defendant's fraud and/ or malice as set forth in Tex.

Civ. Prac. & Rem. Code § 41.001 et seq. Accordingly, Plaintiff is entitled to an award of exemplary

damages in accordance with Texas law.

                                            REQUEST FOR REUEF

          20.    Based on the foregoing, Plaintiff requests that Defendant appear and answer, and

that on final trial of this lawsuit Plaintiff have final judgment against Defendant for the following

relief:

          a)     All reasonable damages;

          b)     Lost earnings and employee benefits in the past;

          c)     Lost earnings and employee benefits that in reasonable probability will be lost in the
                 futw:e;

          d)     Compensat01y damages, past and future (which may include emotional pain and
                 suffering, inconvenience, mental anguish, loss of enjoyment of life, and other non-
                 pecuniary losses);

          e)     Exemphuy damages;

          f)     Pre-judgment and post-judgment interest at the maximum amount allowed by law;

          g)     Costs of suit;

          h)     The award of such other and further relief, both at law and in equity, including
                 injunctive relief and reinstatement, to which Plaintiff may be justly entitled.

                                                 PRAYER

           21.   WHEREFORE, PREMISES CONSIDERED, Plaintiff requests that the

Defendant be cited to appear and answer, and that upon final trial, Plaintiff have judgment against

Defendant for all relief requested, for pre-judgment interest, for costs of this suit, punitive damages

and for such other and further relief, general and special, at law or in equity, to which Plaintiff may

be justly entitled.

ORIGINAL PETITION AND REQU&'T l'OH DISO.OSURE!                                                      PAGE4




                                                   12
                                                        Respectfully submitted,

                                                        THE ESPINOZA LAW FIR..M, PLLC
                                                        503 E. Ramsey, Ste. 103
                                                        San Antonio, Texas 78216
                                                        210.229~1300 t
                                                        210.229.1302 f
                                                        ~a~com

                                                        ~~
                                                        JAVI R..~OZA
                                                        Texas Bar No. 24036534
                                                        STEVEN SACHS
                                                        Texas Bar No. 24074995
                                                        JOSUE F. GARZA
                                                        Texas Bar No. 24072737




ORIGINAL PITI'J'l10N AND REQUEST !'OR DISCLOSURE                                        PAGE5




                                                   13
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)



                                                                                                                              Modification
                    253 S.W.3d 857                                       or vacation of judgment or order
                Court of Appeals of Texas,
                                                                         Mandamus
                  Houston (14th Dist.).
                                                                                                                              Civil
        ASPEN TECHNOLOGY, INC., Appellant
                                                                         proceedings other than actions
                      v.
                                                                         Mandamus relief was potentially available to
              Abe SHASHA, Appellee.
                                                                         employer challenging trial court's decision
          In re Aspen Technology, Inc., Relator.                         on employer's motion to compel arbitration,
                                                                         pursuant to arbitration agreement governed by
            Nos. 14–07–00303–CV, 14–07–
                                                                         the Federal Arbitration Act, although under the
           00469–CV. | March 27, 2008.
                                                                         Act, employer had an adequate remedy by law
Synopsis                                                                 by interlocutory appeal. 9 U.S.C.A. § 1 et seq.
Background: Former employee brought action against
                                                                         2 Cases that cite this headnote
employer, challenging payment of commissions. The 165th
District Court, Harris County, Elizabeth Ray, J., granted
employer's motion to compel arbitration, but on employee's         [2]   Alternative Dispute Resolution
motion to clarify, enforced first of two arbitration agreements,
                                                                                                                              Constitutional
ordering arbitration in Texas. Employer appealed and
                                                                         and statutory provisions and rules of court
filed petition for writ of mandamus. Proceedings were
consolidated.                                                            Commerce

                                                                                                                              Arbitration
                                                                         The Federal Arbitration Act applies to an
Holdings: The Court of Appeals, Kem Thompson Frost, J.,                  arbitration agreement in any contract involving
held that:                                                               interstate commerce, to the full extent of
                                                                         the Commerce Clause of the United States
[1] fact that trial court did not deny employer's motion to              Constitution. U.S.C.A. Const. Art. 1, § 8, cl. 3;
compel did not deprive Court of Appeals of jurisdiction over             9 U.S.C.A. § 2.
petition for writ of mandamus;
                                                                         Cases that cite this headnote
[2] employer did not retain a unilateral, unrestricted right
to modify or terminate the arbitration agreement, as would
                                                                   [3]   Mandamus
render the agreement illusory; and
                                                                                                                              Civil
[3] agreement was not unconscionable because employee                    proceedings other than actions
failed to demonstrate a likelihood he would be denied access             Mandamus relief is available when the trial
to arbitration by excessive arbitration costs.                           court clearly abuses its discretion by erroneously
                                                                         denying a party its contracted-for arbitration
                                                                         rights under the Federal Arbitration Act. 9
Writ granted.
                                                                         U.S.C.A. § 1 et seq.

                                                                         3 Cases that cite this headnote
 West Headnotes (14)
                                                                   [4]   Mandamus
 [1]     Mandamus                                                                                                             Matters
                                                                         of discretion




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           1
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


       On mandamus review of factual issues, a trial
       court will be held to have abused its discretion              [9]    Contracts
       only if the party requesting mandamus relief
                                                                                                                                  Existence
       establishes that the trial court reasonably could
                                                                            of ambiguity
       have reached only one decision, and not the
                                                                            Contracts
       decision the trial court made.
                                                                                                                                  Ambiguity
       1 Cases that cite this headnote
                                                                            in general
                                                                            When a written contract is worded such that it
 [5]   Mandamus                                                             can be given a certain or definite legal meaning
                                                               Matters      or interpretation, it is unambiguous, and the court
       of discretion                                                        construes it as a matter of law.

       On mandamus review of issues of law, the trial                       Cases that cite this headnote
       court will be found to have abused its discretion
       if it clearly fails to analyze the law correctly or
                                                                     [10]   Mandamus
       apply the law to the facts.
                                                                                                                                  Civil
       Cases that cite this headnote
                                                                            proceedings other than actions
                                                                            Mandamus
 [6]   Alternative Dispute Resolution
                                                                                                                                  Jurisdiction
                                                               Construction and authority
       To ascertain the parties' true intentions in an                      Fact that trial court did not deny employer's
       arbitration agreement, a court examines the                          motion to compel arbitration did not deprive
       entire agreement in an effort to harmonize and                       the Court of Appeals of jurisdiction over
       give effect to all provisions of the contract so that                employer's petition for writ of mandamus;
       none will be rendered meaningless.                                   trial court granted the motion to compel,
                                                                            but in response to employee's motion for
       2 Cases that cite this headnote
                                                                            reconsideration and clarification, ordered parties
                                                                            to arbitrate claim in Texas, impliedly finding that
 [7]   Contracts                                                            the second of two arbitration agreements was
                                                                            illusory and substantively unconscionable, thus
                                                               Ambiguity
                                                                            denying employer its contracted-for arbitration
       in general
                                                                            rights under the second agreement, which was
       Whether a contract is ambiguous is a question of                     governed by the Federal Arbitration Act. 9
       law for the court.                                                   U.S.C.A. § 1 et seq.

       1 Cases that cite this headnote                                      Cases that cite this headnote


 [8]   Contracts                                                     [11]   Alternative Dispute Resolution
                                                               Existence                                                          In
       of ambiguity                                                         general; formation of agreement
       A contract is ambiguous when its meaning                             Under language of arbitration agreement stating
       is uncertain and doubtful or is reasonably                           that employer's vice president would “be
       susceptible to more than one interpretation.                         responsible for the periodic review of the
                                                                            plan and may make revisions from time to
       Cases that cite this headnote
                                                                            time,” employer did not retain a unilateral,


              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


        unrestricted right to modify or terminate
        the arbitration agreement, and therefore the
        arbitration agreement, as a matter of law, was not          Attorneys and Law Firms
        illusory.
                                                                    *859 Laura Gibson for Aspen Technology, Inc.
        1 Cases that cite this headnote
                                                                    Mark G. Lazarz, Michael Todd Slobin, for Abe Shasha.

 [12]   Alternative Dispute Resolution                              Panel consists of Chief Justice HEDGES and Justices
                                                                    ANDERSON and FROST.
                                                              In
        general; formation of agreement
        If one party to an arbitration agreement retains                                     OPINION
        a unilateral, unrestricted right to terminate,
        then the arbitration agreement is illusory and              KEM THOMPSON FROST, Justice.
        unenforceable.
                                                                  An employer and its employee entered into two arbitration
        Cases that cite this headnote                             agreements—one in which they did not specify the arbitration
                                                                  rules, arbitration site, or number of arbitrators and a
                                                                  subsequent agreement in which they specified a three-
 [13]   Alternative Dispute Resolution                            arbitrator panel in Boston, Massachusetts, in accordance with
                                                                  the commercial arbitration rules of the American Arbitration
                                                              Unconscionability
                                                                  Association. The trial court compelled arbitration in Houston,
        Employee failed to demonstrate a likelihood
                                                                  Texas, before a single arbitrator under the first agreement but
        that he would be denied access to arbitration
                                                                  refused to compel arbitration under the second agreement,
        by excessive arbitration costs, as would support
                                                                  impliedly ruling that the second agreement is illusory and
        trial court's finding that arbitration clause
                                                                  substantively unconscionable. We conclude mandamus relief
        requiring arbitration in Boston was substantively
                                                                  is warranted. For the reasons explained below, we direct the
        unconscionable; even if American Arbitration
                                                                  trial court to vacate its orders compelling arbitration under the
        Association (AAA) conducted and administered
                                                                  first agreement and to issue an order compelling arbitration
        the arbitration and costs were allocated equally,
                                                                  under the second agreement. Given this ruling, the employer's
        as assumed by employee, cost to employee of
                                                                  interlocutory appeal is rendered moot.
        $17,862 was not unconscionable in view of
        his asserted claim of between $300,000 and
        $500,000, and employee provided no evidence of
        his ability to pay at time the parties entered into          I. FACTUAL AND PROCEDURAL BACKGROUND
        the arbitration agreement.
                                                              Appellee/real party in interest Abe Shasha began his
        1 Cases that cite this headnote                       employment in December 2001, with the predecessor of
                                                              appellant/relator Aspen Technology, Inc. At that time,
                                                              Shasha signed an agreement regarding his employment, in
 [14]   Alternative Dispute Resolution
                                                              which he and Aspen's predecessor agreed to arbitrate any
                                                              and all disputes or controversies that might arise between
                                                         Evidence
                                                              Shasha and Aspen's predecessor, including without limitation
        A party seeking to invalidate an arbitration
                                                              employment disputes (hereinafter “2001 Agreement”). On
        agreement on the ground that arbitration would
                                                              October 28, 2005, Shasha signed an agreement regarding
        be prohibitively expensive bears the burden of
                                                              his incentive compensation for Aspen fiscal year 2006
        providing specific evidence showing a likelihood
                                                              (hereinafter “2006 Agreement”). In the 2006 Agreement,
        that he would incur excessive arbitration costs.
                                                              Shasha agreed that any legal action against Aspen would
        Cases that cite this headnote                         be settled exclusively by arbitration before a three- *860
                                                              member panel in Boston, Massachusetts in accordance with



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              3
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


the commercial arbitration rules of the American Arbitration       in support of its position that there is no merit in Shasha's
Association (hereinafter “AAA”).                                   two objections to the enforceability of the arbitration clause
                                                                   in the 2006 Agreement. Aspen asserted that the Federal
Early in 2006, Shasha notified Aspen that he had a dispute         Arbitration Act (“Federal Act”) and the Texas Arbitration
regarding his commissions. In May 2006, Shasha resigned            Act (“Texas Act”) both mandate that Shasha's claims be
from his position with Aspen and soon thereafter filed suit        arbitrated in Boston, Massachusetts before a panel of three
against Aspen in the trial court below asserting contract          arbitrators pursuant to the commercial arbitration rules of
and tort claims. Aspen filed a motion to compel arbitration,       the AAA (“Commercial Rules”) and that the proceedings in
relying on both the 2001 Agreement and the 2006 Agreement.         the trial court be stayed pending completion of arbitration.
In response, Shasha admitted that he executed both the 2001        Aspen submitted to the trial court a proposed order denying
Agreement and the 2006 Agreement. Shasha argued that the           Shasha's motion. In this proposed order, the trial court would
arbitration provision in the 2006 Agreement replaced the           compel arbitration in Boston, Massachusetts, before a panel
arbitration provision in the 2001 Agreement. Shasha did not        of three arbitrators pursuant to the Commercial Rules and stay
dispute that his claims fall within the scope of the arbitration   the proceedings in the trial court until the conclusion of the
clause in the 2006 Agreement; rather, Shasha asserted that         arbitration. Instead of signing this proposed order, the trial
this arbitration clause is unenforceable because (1) the clause    court signed an order in which it granted Shasha's motion and
is illusory given that Aspen allegedly retains a unilateral,       compelled arbitration in Houston, Texas, with a single *861
unrestricted right to terminate this arbitration agreement; and    arbitrator under the 2001 Agreement. Aspen has appealed this
(2) the clause imposes such exorbitant costs on Shasha that it     order under section 171.098(a)(1) of the Texas Civil Practice
is substantively unconscionable.                                   and Remedies Code. See TEX. CIV. PRAC. & REM.CODE
                                                                   ANN. § 171.098(a)(1) (Vernon 2005). Aspen also filed a
The trial court granted Aspen's motion to compel, ordered          petition for writ of mandamus. This court has consolidated
all claims to arbitration, and stayed the case pending the         these two proceedings.
conclusion of the arbitration. However, the trial court's first
order did not specify the site for the arbitration or the
agreement under which the trial court ordered the parties
                                                                                 II. STANDARD OF REVIEW
to arbitrate the claims. Confusion arose as to whether the
trial court had ordered arbitration under the 2006 Agreement.       [1]     [2]   [3]    [4]    [5] The Federal Act applies to an
Aspen asserted that the trial court had ordered the parties        arbitration agreement in any contract involving interstate
to arbitrate the claims in Boston, Massachusetts, under the        commerce, to the full extent of the Commerce Clause of the
2006 Agreement. Shasha filed a motion for reconsideration          United States Constitution. See 9 U.S.C. § 2 (1999); Allied–
and clarification. In this motion, Shasha stated that the trial    Bruce Terminix Co. v. Dobson, 513 U.S. 265, 277–81, 115
court's order was ambiguous as to whether the trial court had      S.Ct. 834, 839–41, 130 L.Ed.2d 753 (1995); In re L & L
compelled the parties to arbitrate the claims under the 2001       Kempwood Assocs., 9 S.W.3d 125, 127 (Tex.1999). Shasha
Agreement or under the 2006 Agreement. Shasha asserted             does not dispute that the Federal Act applies. The 2001
that he had no issue with the court to the extent it intended      Agreement and the 2006 Agreement both involve interstate
to compel arbitration under the 2001 Agreement. However,           commerce, and therefore, the Federal Act applies. Mandamus
to the extent the trial court had ordered arbitration under the    relief is available when the trial court clearly abuses its
2006 Agreement, Shasha moved the court to reconsider its           discretion by erroneously denying a party its contracted-
rejection of the two grounds upon which Shasha had asserted        for arbitration rights under the Federal Act. See In re D.
that this arbitration agreement is unenforceable. Shasha           Wilson Const. Co., 196 S.W.3d 774, 780–81 (Tex.2006) (orig.
requested the trial court to order the parties to arbitration      proceeding); In re Igloo Prods. Corp., 238 S.W.3d 574,
under the 2001 Agreement in Houston, Texas, with a single          577 (Tex.App.-Houston [14th Dist.] 2007, orig. proceeding
arbitrator.                                                        [mand. denied] ). Therefore, Aspen's right to mandamus relief
                                                                   hinges on whether the trial court erred by refusing to compel
Aspen filed a response in opposition in which it argued that
                                                                   arbitration under the 2006 Agreement. 1 On mandamus
no clarification was necessary because the trial court already
                                                                   review of factual issues, a trial court will be held to have
had ordered the parties to arbitrate in Boston, Massachusetts,
                                                                   abused its discretion only if the party requesting mandamus
under the 2006 Agreement. Aspen again presented argument
                                                                   relief establishes that the trial court reasonably could have


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           4
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


reached only one decision, and not the decision the trial court discretion by erroneously denying a party its contracted-for
made. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992)          arbitration rights under the Federal Act. See In re D. Wilson
(orig. proceeding). Mandamus review of issues of law is less    Const. Co., 196 S.W.3d 774, 780–81. Impliedly finding that
                                                                the arbitration clause in the 2006 Agreement is illusory and
deferential. A trial court abuses its discretion if it clearly fails
to analyze the law correctly or apply the law to the facts.     substantively unconscionable, the trial court denied Aspen its
In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382         contracted-for arbitration rights under the 2006 Agreement,
(Tex.2005).                                                     which is governed by the Federal Act. Therefore, this court
                                                                has mandamus jurisdiction to consider whether the trial court
 [6]    [7]     [8]    [9] In construing the 2006 Agreement,clearly abused its discretion in so ruling. See In re D. Wilson
our primary concern is to ascertain and give effect to the      Const. Co., 196 S.W.3d 774, 780–81.
intentions of the parties as expressed in the contract. Kelley–
Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
464 (Tex.1998). To ascertain the parties' true intentions, we   B. Did the trial court err by concluding that the
examine the entire agreement in an effort to harmonize and      arbitration clause in the 2006 Agreement is illusory?
give effect to all provisions of the contract so that none       [11]     [12] Shasha asserted in the trial court that the
will be rendered meaningless. MCI Telecomms. Corp. v. Tex.      arbitration clause in the 2006 Agreement is illusory because
Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex.1999). Whether       Aspen allegedly retains a unilateral, unrestricted right
a contract is ambiguous is a question of law for the court.     to terminate this arbitration agreement. If one party to
Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121         an arbitration agreement retains such a right, then the
(Tex.1996). A contract is ambiguous when its meaning is         arbitration agreement is illusory and unenforceable. See
 *862 uncertain and doubtful or is reasonably susceptible to    In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677
more than one interpretation. Id. However, when a written       (Tex.2006). Shasha asserts that Aspen retains a unilateral,
contract is worded such that it can be given a certain or       unrestricted right to terminate the arbitration provision in the
definite legal meaning or interpretation, it is unambiguous,    2006 Agreement based on the following language in that
and the court construes it as a matter of law. Am. Mfrs. Mut.   agreement:
Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003).
                                                                                   The incentive compensation plan
                                                                                   administrator (Vice President of
                                                                                   Worldwide Sales Operations) is
                III. ISSUES AND ANALYSIS                                           responsible for the interpretation of the
                                                                                   plan. If the meaning or interpretation
A. Does this court lack mandamus jurisdiction because                              of the plan wording requires
the trial court did not deny a motion to compel                                    clarification after consideration of
arbitration?                                                                       all the facts, the Senior Vice
 [10] Shasha first argues that this court lacks jurisdiction                       President, Worldwide Sales and
to consider Aspen's mandamus petition because the trial                            Business Development (SVP Sales) or
court allegedly did not deny Aspen's application to compel                         his/her designee(s), if any [,] will issue
arbitration. According to Shasha, Aspen moved to compel                            a written ruling, which will be final.
arbitration under either the 2001 Agreement or the 2006                            In addition, the SVP Sales will be
Agreement, and the trial court granted this request by                             responsible for the periodic review of
compelling arbitration under the 2001 Agreement. Though                            the plan and may make revisions from
Aspen based its motion to compel on both agreements,                               time to time.
in response to Shasha's motion for reconsideration and
clarification, Aspen relied on the 2006 Agreement and                  (emphasis added). The title of the 2006 Agreement is “Aspen
requested the trial court to order arbitration of Shasha's claims      Technology, Inc. FY 2006 Incentive Compensation Plan
in Boston, before a panel of three arbitrators pursuant to             Global Account Manager (GAM).” In the 2006 Agreement,
the Commercial Rules. The trial court refused to do so,                there is no definition of the term “plan.” Shasha asserts
and instead, it ordered the parties to arbitrate the claims in         that, under *863 the above language, the SVP Sales may
Houston, with a single arbitrator under the 2001 Agreement.            make revisions to the 2006 Agreement from time to time.
Mandamus relief is available if a trial court abuses its               Presuming that the above language refers to the 2006



                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            5
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


Agreement as “the plan,” and presuming that the SVP Sales            such exorbitant costs on him that it is substantively
may review the 2006 Agreement and make revisions from                unconscionable. Under certain circumstances, arbitration
time to time, this is not equivalent to stating that the SVP Sales   costs could be so high that they preclude a litigant from
has a unilateral, unrestricted right to terminate the arbitration    effectively vindicating his rights through arbitration. See
provision in the 2006 Agreement. Under the 2006 Agreement,           Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90–92,
“[a]ny additional terms or conditions, or verbal or written          121 S.Ct. 513, 522–23, 148 L.Ed.2d 373 (2000). A party
agreements between [Shasha] and [Aspen] will not apply               seeking to invalidate an arbitration agreement on the ground
unless explicitly agreed to and approved in a signed writing         that arbitration would be prohibitively expensive bears the
by both the SVP Sales and [Shasha].”                                 burden of providing specific evidence showing a likelihood
                                                                     that he would incur excessive arbitration costs. See Green
We conclude that, under the unambiguous language of                  Tree Fin. Corp., 531 U.S. at 90–92, 121 S.Ct. at 522–23; In
the 2006 Agreement, Aspen does not retain a unilateral,              re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex.2007); In
unrestricted right to modify or terminate the arbitration            re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex.2001);
provision in that agreement; therefore, that arbitration             TMI, Inc. v. Brooks, 225 S.W.3d 783, 796 (Tex.App.-Houston
provision, as a matter of law, is not illusory. See In re Dillard    [14th Dist.] 2007, pet. denied).
Dept. Stores, Inc., 186 S.W.3d 514, 516 (Tex.2006) (holding
that arbitration agreement did not give employer unilateral,          *864 The 2006 Agreement is silent as to arbitration costs.
unrestricted right to modify the arbitration agreement).             In the trial court Shasha offered an affidavit from one of
The cases on which Shasha relies are not on point. See               his lawyers. In this affidavit, Shasha's counsel testifies, in
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 228–                 pertinent part, to the following:
30 (Tex.2003) (concluding that it was unclear whether
employer retained unilateral right to terminate arbitration            • Based on his personal knowledge of the Commercial
agreement without notice in case in which agreement stated               Rules and the AAA employment arbitration rules
that the employer “reserves the right to unilaterally abolish            (“Employment Rules”), claims arbitrated under the
or modify any personnel policy without prior notice”); In re             Commercial Rules are significantly more costly to
C & H News Co., 133 S.W.3d 642, 646 (Tex.App.-Corpus                     the employee/claimant than claims arbitrated under
Christi 2003, orig. proceeding) (concluding agreement was                the Employment Rules. This is because under the
illusory because it contained provision giving employer                  Employment Rules, the employee/claimant is only
the ability to modify or delete provisions as the employer               responsible for a filing fee of $50–150; whereas
deems appropriate, with or without prior notification to                 under the Commercial Rules, the employee/claimant is
employees); Tenet Healthcare Ltd. v. Cooper, 960 S.W.2d                  responsible for the filing fee, the case service fee, and
386, 386–88 (Tex.App.-Houston [14th Dist.] 1998, pet.                    one-half of all the arbitrator fees unless the arbitration
dism'd w.o.j.) (holding arbitration agreement contained in               agreement states otherwise.
employee handbook was not supported by consideration, in
                                                                       • The AAA's filing fee for this case would be $4,250, and
case in which handbook stated that (1) it was not intended
                                                                          the AAA case service fee would be $1,750. The AAA
to constitute a legal contract with any employee because that
                                                                          administration fee would be $325. Although arbitrator
could only occur with a written agreement executed by a
                                                                          fees vary for each arbitrator, a “median estimate” is
facility executive director and (2) the employer reserved the
                                                                          $305.50 per hour for each arbitrator based on ten
right to amend or rescind any provision of the handbook as
                                                                          arbitrator resumes for the Boston area from the AAA
it deemed appropriate in its sole and absolute discretion).
                                                                          website. A conservative estimate of total arbitrator fees
Therefore, the trial court clearly abused its discretion to the
                                                                          based on four days of work per arbitrator is $24,000 (32
extent it concluded that the arbitration clause in the 2006
                                                                          hours x $250/hour per arbitrator).
Agreement is illusory.
                                                                       • Shasha's air fare and hotel costs for an arbitration in
                                                                         Boston would be at least $2,700.
C. Did the trial court err by concluding that the
arbitration clause in the 2006 Agreement is substantively
                                                          Presuming that arbitrations under the Commercial Rules
unconscionable?
                                                          are significantly more costly than arbitrations under the
 [13]    [14]     Shasha asserted in the trial court that
                                                          Employment Rules, this testimony alone does not provide
the arbitration clause in the 2006 Agreement imposes


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             6
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


specific evidence as to Shasha's likely costs to arbitrate under      projected aggregate costs and fees of $30,325, which would
the 2006 Agreement. Though Shasha's counsel provides                  make Shasha's portion $15,162.50. Presuming that the extra
projected fees for filing with the AAA, AAA case service,             expense of traveling to Boston for the arbitration is $2,700
and AAA administration, this projection is based on the               (the figure stated in the affidavit of Shasha's counsel) the total
premise that the AAA would administer the arbitration. 2              financial burden on Shasha would be $17,862.50. However,
However, the arbitration provision in the 2006 Agreement              Shasha is asserting a claim of between $300,000 and
does not require that the AAA conduct or administer the               $500,000, and Shasha's base salary, without commissions,
arbitration; rather the provision states that arbitration shall       when he entered into the 2006 Agreement was $120,000.
be “in accordance with the [Commercial Rules].” Under this            Though Shasha provided his own affidavit, in which he states
language, the AAA may administer the arbitration, but the             that the costs of pursuing his claim through arbitration in
parties are not required to have the arbitration administered         Boston under the 2006 Agreement would be extraordinary,
by the AAA. See TMI, Inc., 225 S.W.3d at 797. Although                oppressive, unaffordable, and would deprive him of the
the party seeking to compel arbitration in TMI, Inc. presented        opportunity to litigate his claim, these conclusory statements
evidence that arbitration under the same arbitration provision        are legally insufficient. See, e.g., Green Tree Fin. Corp., 531
was available by a non-AAA arbitrator at a cost significantly         U.S. at 90 n. 6, 121 S.Ct. at 522 n. 6 (concluding that party's
lower that the costs of a AAA arbitration, such proof is              unsupported statement that she did not have the resources
not necessary for Shasha to be required to make a factual             to pay the high costs of arbitration was insufficient). Shasha
showing that the AAA would administer the arbitration.                does state that he is currently paying for the university studies
See Green Tree Fin. Corp., 531 U.S. at 90 n. 6, 121 S.Ct.             of his three children and that since he stopped working at
at 522 n. 6 (concluding that party asserting substantive              Aspen he has been unable to find “equivalent fixed income
unconscionability could not carry her burden of proof based           work.” However, we determine substantive unconscionability
on AAA fees unless she, made a factual showing, among other           based on the circumstances existing when the parties entered
things, that the AAA would administer the arbitration).               into the contract in October 2005, and Shasha provided no
                                                                      evidence as to his finances or ability to pay $17,862.50 at this
As to arbitrator fees, again, Shasha's projected fees appear          time. 3 See In re FirstMerit Bank, N.A., 52 S.W.3d at 757.
to be based on fees charged by AAA arbitrators. In addition,
Shasha's counsel testifies that, under the Commercial Rules,          Under the applicable standard of review, we conclude that the
absent agreement by the parties, Shasha must pay half of              trial court clearly abused its discretion by impliedly ruling that
the arbitrator fees. However, under the Commercial Rules              the arbitration clause in the 2006 Agreement is substantively
attached to counsel's affidavit, the arbitration panel in its final   unconscionable. 4
award *865 shall apportion the arbitration fees, expenses,
and compensation among the parties in such amounts as the
panel determines is appropriate.
                                                                                           IV. CONCLUSION
We conclude that the evidence is legally insufficient to
                                                                      The Federal Act governs the arbitration clause in the 2006
support the trial court's implied finding that Shasha satisfied
                                                                      Agreement. Therefore, this court has mandamus jurisdiction
his burden of providing specific evidence showing a
                                                                      to consider whether the trial court erred in denying Aspen its
likelihood that he would be denied access to arbitration based
                                                                      contracted-for arbitration rights under the 2006 Agreement.
on excessive arbitration costs. See Green Tree Fin. Corp., 531
                                                                      The trial court clearly abused its discretion (1) by impliedly
U.S. at 90–92, 121 S.Ct. at 522–23; In re U.S. Home Corp.,
                                                                      finding that the arbitration *866 clause in the 2006
236 S.W.3d at 764; In re FirstMerit Bank, N.A., 52 S.W.3d at
                                                                      Agreement is illusory; (2) by impliedly finding that the
756–57; TMI, Inc., 225 S.W.3d at 796. On the record before
                                                                      clause is substantively unconscionable; and (3) by refusing
it, the only finding the trial court could have made was that
                                                                      to order the parties to arbitrate the claims under the 2006
Shasha did not satisfy this burden. By impliedly ruling to the
                                                                      Agreement. Accordingly, we conditionally grant a writ of
contrary, the trial court clearly abused its discretion.
                                                                      mandamus directing the trial court to vacate its orders
                                                                      compelling arbitration under the 2001 Agreement and to issue
In addition, even presuming that the AAA would administer
                                                                      an order (1) compelling arbitration under the 2006 Agreement
the arbitration and that the arbitration costs and fees would
                                                                      before a three-arbitrator panel in Boston, Massachusetts,
be allocated equally by the arbitration panel, Shasha's counsel
                                                                      in accordance with the Commercial Rules and (2) staying


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  7
Aspen Technology, Inc. v. Shasha, 253 S.W.3d 857 (2008)


                                                                          mandamus relief, we dismiss Aspen's interlocutory appeal as
the proceedings in the trial court pending completion of
                                                                          moot.
arbitration. We are confident the respected trial judge will
comply with this opinion. Only in the unlikely event she fails
to do so will the writ issue. Because we have granted this


Footnotes
1      In 1992, addressing whether a party is entitled to mandamus relief for wrongful denial of its arbitration rights under an agreement
       subject to the Federal Act, the Texas Supreme Court concluded that the Texas Act does not provide such a party the ability to assert
       an interlocutory appeal. See Jack B. Anglin, Inc. v. Tipps, 842 S.W.2d 266, 272–73 (Tex.1992). In 2006, the Texas Supreme Court
       decided that such a party can file an interlocutory appeal of the trial court's denial of a motion to compel arbitration under an agreement
       governed by the Federal Act. See In re D. Wilson Const. Co., 196 S.W.3d 774, 778–80 (Tex.2006). It might appear that Aspen is
       not entitled to mandamus relief in this case because the Federal Act governs the Agreement and, under In re D. Wilson Const. Co.,
       Aspen has an adequate remedy at law by interlocutory appeal. See id. However, the Texas Supreme Court reaffirmed in In re D.
       Wilson Const. Co. that mandamus relief remains available when a party is erroneously denied its contracted-for arbitration rights
       under the Federal Act. See In re D. Wilson Const. Co., 196 S.W.3d at 780–81. Therefore, we conclude that mandamus relief is still
       potentially available to Aspen.
2      Shasha's counsel attaches a copy of the Commercial Rules and the fee schedule for arbitrations conducted by the AAA, but the AAA
       fee schedule is not part of the Commercial Rules.
3      In any event, Shasha did not provide specific evidence in his affidavit that would prove his present ability to pay this amount.
4      Shasha relies on In re Luna, 175 S.W.3d 315, 319 (Tex.App.-Houston [1st Dist.] 2004, orig. proceeding [mand. pending] ). We are
       not bound by In re Luna, and, in any event, in that case, there was evidence establishing that arbitration would force the former
       employee to pay fees that amounted to one-half of his annual compensation. See In re Luna, 175 S.W.3d 315, 321 (Tex.App.-Houston
       [1st Dist.] 2004, orig. proceeding [mand. pending] ). Therefore, In re Luna is not on point.


End of Document                                                       © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                            8
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487

                                                              lessees. The leased property was used as a convenience store,
                                                              gas station, and car wash.
                 2011 WL 3849487
   Only the Westlaw citation is currently available.
                                                              On October 3, 2006, ENM attempted to exercise an option
         SEE TX R RAP RULE 47.2 FOR                           to purchase the property in accordance with the terms of the
   DESIGNATION AND SIGNING OF OPINIONS.                       lease. However, Aspri contended ENM was in default of the
                                                              lease, and on October 6, sent ENM a notice to vacate the
            MEMORANDUM OPINION                                premises and terminating the lease. On October 10, 2006,
             Court of Appeals of Texas,                       Aspri filed a demand for arbitration of its claim for forcible
                   San Antonio.                               detainer with the American Arbitration Association. A few
                                                              days later, Aspri filed a lawsuit in Bexar County District
        ASPRI INVESTMENTS, LLC, Appellant
                                                              Court against ENM, Mrs. Afeef, and her son and store
                      v.                                      manager, Ahmed “Tony” Afeef. The petition and attached
            Maryam Begum AFEEF and                            affidavit asserted that ENM owed past-due rent and that
          ENM Food Mart, Inc., Appellees.                     Aspri owned or had a security interest in the inventory and
                                                              equipment in the store. Aspri sought damages, a temporary
         No. 04–10–00573–CV. | Aug. 31,                       restraining order, and permanent injunction. The trial court
    2011. | Rehearing Overruled Oct. 27, 2011.                issued a temporary restraining order on October 17, 2006,
                                                              that prohibited ENM from removing anything from the store
From the 73rd Judicial District Court, Bexar County, Texas,
                                                              and from interfering with Aspri's possession. ENM filed
Trial Court No. 2010–CI–03099; Solomon Casseb, III, Judge
                                                              counterclaims for tortious interference with contract and
Presiding.
                                                              business relationships, conversion, malicious prosecution,
Attorneys and Law Firms                                       and wrongful injunction. ENM also requested the court abate
                                                              the proceedings for arbitration of all issues relating to the
Lori D. Massey, Samuel V. Houston, III, Ford & Massey,        lease. However, ENM asserted that its tort claims against
P.C., San Antonio, TX, for Appellant.                         Aspri did not relate to the terms of the lease and were not
                                                              subject to arbitration. In November 2006, the district court
George H. Spencer, Jr., Clemens & Spencer, P.C., San          issued a temporary injunction, set the case for final trial on
Antonio, TX, for Appellees.
                                                              April 2, 2007, and abated the case for arbitration. 1 Soon after
Sitting: PHYLIS J. SPEEDLIN, Justice, REBECCA                 the suit was filed, Aspri filed a landlord's lien for unpaid rent
SIMMONS, Justice, STEVEN C. HILBIG, Justice.                  pursuant to sections 54.021 and 54.022 of the Texas Property
                                                              Code.


              MEMORANDUM OPINION                              The arbitrator issued an award in March 2007, finding that
                                                              Aspri had no right to terminate the leasehold and that the lease
STEVEN C. HILBIG, Justice.                                    termination, eviction, and restraining order were wrongful.
                                                              The arbitrator found that Aspri breached the lease and was
 *1 Aspri Investments, LLC appeals the trial court's          not owed any past rent, but that ENM's attempt to exercise
judgment confirming an arbitration award in favor of Maryam   the option was faulty. The arbitrator found that ENM had not
Begum Afeef and ENM Food Mart, Inc. We affirm.                demanded arbitration of claims for damages and that issue
                                                              was not before the tribunal.


  FACTUAL AND PROCEDURAL BACKGROUND                           After the arbitration award was filed in the trial court, ENM
                                                              filed a jury demand on its counterclaims and a motion for
The underlying dispute arose out of a commercial property     continuance of the April 2, 2007 trial setting in order to
lease entered into in February 2005 between Aspri             conduct discovery on its claims for damages. After a lengthy
Investments, LLC (“Aspri”) as lessor and Maryam Begum         discussion at the April 2, 2007 hearing, the trial court denied
Afeef and ENM Food Mart, Inc. (collectively “ENM”) as         the motion for continuance and ruled that it would render
                                                              final judgment based on the arbitration award. The trial court's



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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487

judgment was signed the same day. The judgment recited                ENM filed suit in district court, seeking confirmation of the
the court was confirming the arbitration award by: declaring          award. Aspri answered and filed a motion to vacate, correct,
that Aspri's termination of the lease and eviction of ENM             or modify the award. The trial court held an evidentiary
were wrongful and ENM's attempt to exercise the option was            hearing and later signed a judgment confirming the award.
ineffective; awarding possession of the premises to ENM; and          The judgment, which includes interest to the date of the
denying ENM's counterclaims. Aspri appealed the judgment              judgment and attorney's fees awarded by the arbitration
and posted a $25,000 supersedeas bond to suspend issuance of          panel, is for $1,713,011.69. Aspri appeals the judgment,
a writ of possession. ENM did not appeal. In February, 2008,          complaining the trial court erred in confirming and not
this court affirmed the judgment. The Supreme Court denied            vacating the award because (1) ENM waived its right to
review in August 2008.                                                arbitrate any claims arising from the 2006 lease termination
                                                                      and eviction; (2) all claims arising out of the 2006 lease
 *2 After the Supreme Court denied review, Aspri sent ENM             termination and eviction are barred by res judicata; (3) the
a letter purporting to tender possession of the premises and          arbitration panel exceeded its powers; and (4) the panel
demanding payment of rent. However, Aspri did not deliver             manifestly disregarded the law and committed gross mistake.
keys to the property and did not tender a return of any
of ENM's property, equipment, or inventory which it had
seized. Additionally, another tenant was in possession of the
                                                                              FEDERAL ARBITRATION ACT OR
premises and demanded $150,000 to vacate. When ENM
                                                                            TEXAS GENERAL ARBITRATION ACT?
objected to the purported tender, Aspri sent a letter again
stating the lease was terminated for nonpayment of rent.              The parties' lease contained an agreement to arbitrate. The
                                                                      agreement does not specify whether the Federal Arbitration
On October 27, 2008, ENM filed a demand for arbitration,              Act (“FAA”) or the Texas General Arbitration Act (“TAA”)
alleging wrongful eviction, wrongful injunction, failure to           would govern; however, the lease contains a choice of law
tender possession in compliance with prior arbitration award          clause, providing that the laws of the State of Texas governs
and judgment, breach of contract, fraud, theft, conversion,           enforcement of the lease.
and intentional infliction of emotional distress. ENM sought
lost profits, damages for loss of business reputation, the             *3 The TAA applies to written agreements to arbitrate
value of property, equipment, and inventory seized, mental            unless the agreement is excluded from coverage by section
anguish damages, exemplary damages, attorney's fees, and              171.002 of the Act. Tex. Civ. Prac. & Rem.Code Ann.
release of the lien Aspri filed during the first arbitration. Aspri   §§ 171.001, 171.002 (West 2011). Neither party contends
filed a counterclaim for $20,000 in past due rents and for a          their agreement is excluded from coverage under the TAA.
declaration of its rights and responsibilities under the April 2,     However, ENM argues that Texas law regarding enforcement
2007 judgment. In addition, Aspri asserted that ENM's claims          of the arbitration award is preempted by the Federal
were barred by res judicata, by the statute of limitations, and       Arbitration Act. We disagree. For the FAA to preempt
because they were compulsory counterclaims in the previous            the TAA, the agreement must involve interstate commerce
arbitration and court proceeding. Aspri did not assert ENM            and“state law must refuse to enforce [the] arbitration
had waived its right to arbitration nor did it attempt to stay the    agreement that the FAA would enforce, either because (1) the
arbitration via a court proceeding.                                   TAA has expressly exempted the agreement from coverage,
                                                                      or (2) the TAA has imposed an enforceability requirement not
Arbitration was conducted in November 2009 before a panel             found in the FAA.”In re D. Wilson Constr. Co., 196 S.W.3d
of three arbitrators. The panel issued a unanimous 24 page            774, 780 (Tex.2006) (citations omitted); see Nafta Traders,
decision, including 131 findings of fact and 43 conclusions of        Inc. v. Quinn, 339 S.W.3d 84, 97–98 (Tex.2011), petition
law, on February 12, 2010. The panel found in ENM's favor             for cert. filed,––– U.S.L.W. –––– (U.S. Aug. 11, 2011)
on all claims except the claims for mental anguish damages,           (No. 11–1188). The FAA does not preempt all inconsistent
and considered and rejected all of Aspri's defenses. The award        state laws relating to arbitration; rather it only “preempts
gave ENM an option of restoring the lease plus damages or             state-law impediments to arbitration agreements.”Nafta, 339
damages only, and ordered Aspri to release the lien. ENM              S.W.3d at 100. The only argument made in this appeal against
subsequently opted to recover damages only.                           enforcement of the arbitration agreement is Aspri's argument
                                                                      that ENM waived its right to arbitrate these claims. However,



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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
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because Texas law on waiver of arbitration is consistent with          an adverse result in the first suit, and to allow arbitration at
federal law, there is no preemption. See Perry Homes v. Cull,          this late date is inherently unfair.
258 S.W.3d 580, 595 (Tex.2008), cert. denied,555 U.S. 1103,
129 S.Ct. 952, 173 L.Ed.2d 116 (2009) (in order to keep state          Waiver, in the context of arbitration, “relates to inherent
and federal arbitration law consistent, court holds proof of           unfairness—that is, a party's attempt to have it both ways
waiver in arbitration context requires showing of prejudice).          by switching between litigation and arbitration to its own
                                                                       advantage.”Id. at 597.ENM argues that Aspri engaged in the
Because the TAA applies to the parties' arbitration agreement          same inherently unfair conduct it accuses ENM of, and should
and its application is not preempted by federal law, we apply          not be allowed to raise a waiver argument for the first time
the TAA in our review of the trial court's judgment.                   after the arbitration award was rendered. We agree with ENM.

                                                                       Aspri acquiesced to ENM's demand for arbitration of its
                                                                       damage claims. Although Aspri pled and pursued various
                 STANDARD OF REVIEW
                                                                       procedural and merits-based defenses in the arbitration, it did
We review de novo the trial court's judgment confirming                not assert that ENM had waived a right to arbitrate any of
an arbitration award “while giving strong deference to                 its claims and took no action to have the claims adjudicated
the arbitrator with respect to issues properly left to the             in court instead of arbitration. Instead, Aspri waited until
arbitrator's resolution.”Xtria L.L.C. v. Int'l Ins. Alliance           after the entire arbitration proceedings had concluded and an
Inc., 286 S.W.3d 583, 591 (Tex.App.-Texarkana 2009, pet.               adverse award entered, before asserting a right to judicial
denied); see Centex/Vestal v. Friendship W. Baptist Church,            determination of the claims and defenses based on ENM's
314 S.W.3d 677, 683 (Tex.App.-Dallas 2010, pet. denied);               waiver.
GJR Mgmt. Holdings, L.P. v. Jack Rous, Ltd., 126 S.W.3d
257, 262 (Tex.App.-San Antonio 2003, pet. denied). Judicial            Aspri contends it could raise waiver for the first time in its
review of arbitration awards is “extraordinarily narrow.” E.           motion to vacate the arbitration award. However, in each
Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271           of the cases it relies upon, waiver was urged to the court
(Tex.2010). Courts are to indulge all reasonable presumptions          before the arbitration, either in response to a motion to
in favor of the award, and neither an arbitrator's mistake of          compel arbitration or in a motion to stay or enjoin arbitration.
fact or error in applying substantive law is ground for vacating       See, e.g., Perry Homes, 258 S.W.3d at 584–85; Haddock
an award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238               v. Quinn, 287 S.W.3d 158, 167–68 (Tex.App.-Fort Worth
(Tex.2002); Centex/Vestal, 314 S.W.3d at 683.                          2009, mandamus denied & pet. denied). Aspri has not cited
                                                                       any cases in which a party was allowed to remain silent on
                                                                       waiver throughout the arbitration and then obtain a vacatur
                                                                       of an unfavorable arbitration award, claiming the case should
                            WAIVER                                     be tried because arbitration was waived. Rather, Aspri cites
In its first issue, Aspri contends the trial court erred by failing    Holcim (Tex.) Ltd. P'ship v. Humboldt Wedag, Inc., 211
to vacate the arbitration award on the ground that ENM                 S.W.3d 796, 803 (Tex.App.-Waco 2006, no pet.) for the
waived any right to arbitrate the underlying dispute. The trial        contention that waiver is an “issue of arbitrability” that it may
court's rejection of this argument is a question of law we             raise in a motion to vacate without having first sought a stay
review de novo. Perry Homes, 258 S.W.3d at 598 & n. 102.               of the arbitration. In Holcim, the party sought to vacate an
                                                                       arbitration award on the ground there was no agreement to
                                                                       arbitrate. The court held the issue could be raised in a motion
 *4 There is a strong presumption against waiver of
                                                                       to vacate the arbitration award even though no motion to
arbitration. In re D. Wilson, 196 S.W.3d at 783. The burden
                                                                       stay had been filed. 211 S.W.3d at 802–03. The holding was
is on the party seeking to have claims heard in a court instead
                                                                       based on section 171.088(a)(4) of the TAA, which authorizes
of in arbitration to prove it has been prejudiced by the other
                                                                       vacatur of an arbitration award if “there was no agreement
party's substantial invocation of the judicial process. Perry
                                                                       to arbitrate,” provided “the party did not participate in the
Homes, 258 S.W.3d at 593–94. Aspri argues ENM waived its
                                                                       arbitration hearing without raising the objection .”Id. at 803;
right to arbitrate by filing its claims in the first suit, asserting
                                                                       TEX. CIV. PRAC. & REM.CODE ANN. § 171.088(a)(4)
the claims should not be arbitrated, and demanding a jury trial.
                                                                       (West 2011). Because the party had filed a motion in the
Aspri contends ENM turned to arbitration only after suffering



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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
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arbitration proceeding, seeking to bar the claims on the basis      only matters of substantive arbitrability, such as whether
there was no arbitration agreement, the issue could be asserted     dispute falls within scope of arbitration provision; arbitrator
in the motion to vacate.Holcim, 211 S.W.3d at 803. In               determines matters of procedural arbitrability—those that
contrast, Aspri did not assert that ENM had waived its right to     “grow out of the dispute and bear on its final disposition,”
arbitration in any of the arbitration pleadings contained in the    such as delay, time limits, notice, laches, and estoppel). Some
record or in its oral arguments to the arbitration panel. Aspri     courts have recognized a limited exception to the rule when
never sought to stay or enjoin the arbitration or otherwise         the prior judgment arose from a court proceeding, rather
move ENM's claims from the arbitration forum to a judicial          than an arbitration. See W. Dow Hamm, 237 S.W.3d at 755.
forum. Thus, even if a waiver argument is within the scope of       “The rationale for the prior-court-judgment exception is that
section 171.088(a)(4), which we do not decide, it would not         a court is inherently empowered to protect the integrity and
apply in this case because Aspri participated in the arbitration    finality of its own prior judgment, and this policy outweighs
hearing without raising the objection.                              even the strong policy in favor of arbitration.”Id. However,
                                                                    when the prior judgment was simply a confirmation of an
 *5 In conclusion we hold that, although ENM's pursuit of its       arbitration award, rather than a result of an independent court
counterclaims in the 2006 litigation may have been a waiver         adjudication, the same institutional concerns are not present,
of its right to arbitrate those claims, Aspri waived its right to   and the application of res judicata remains an issue for the
assert waiver by acquiescing in the 2009 arbitration without        arbitrator. Id. at 756.
complaining of ENM's waiver and without seeking to have
the claims adjudicated in a judicial forum.                         The parties disagree as to whether the 2007 judgment against
                                                                    ENM on its counterclaims was simply a confirmation of
                                                                    the arbitration award or the result of an independent court
                                                                    adjudication. Aspri contends ENM's claims were not decided
                      RES JUDICATA
                                                                    in the first arbitration and that the district court independently
The April 2, 2007 judgment denied ENM's counterclaims for           adjudicated them; 2 ENM contends the trial court did not
damages arising out of the 2006 lease termination, eviction,        adjudicate its claims and merely confirmed what it believed
TRO, and injunction. ENM did not appeal the judgment and            the arbitrator had awarded. To decide this issue, we review the
the judgment became final. In its second issue on appeal,           2007 arbitration award, the record of the subsequent hearing
Aspri argues the trial court erred by failing to vacate the         in the trial court, and the 2007 judgment.
2010 arbitration award because most of ENM's claims are
barred by res judicata. Aspri contends that res judicata was         *6 When the first arbitration occurred, ENM had pending
an issue for the district court to decide, not the arbitration      in the trial court various claims arising out of the lease
panel, and that Aspri conclusively established its res judicata     termination and eviction. However, ENM had asserted
defense in the trial court. Alternatively, Aspri argues the         in its trial court pleadings a desire to try those claims
trial court erred in denying the motion to vacate because the       and did not demand arbitration of the claims or present
arbitrators committed a gross mistake by ignoring the res           them in the arbitration. The March 2007 arbitration award
judicata effect of the 2007 judgment and because the award          included findings that the lease termination and eviction were
violates fundamental Texas policy regarding the finality of         wrongful, but with respect to any damages incurred by ENM,
judgments.                                                          the award stated:

                                                                      The issue of [ENM's] damages for the wrongful
A. Is the res judicata effect of the 2007 judgment decided            termination has not been submitted by demand and
by the court or the arbitration panel?                                payment of the appropriate fee to the American Arbitration
As a general rule, res judicata is an affirmative defense             Association. Therefore, that issue is not properly before
for the arbitrator to decide. W. Dow Hamm III Corp. v.                this tribunal.
Millennium Income Fund, L.L.C., 237 S.W.3d 745, 754
(Tex.App.-Houston [1st Dist.] 2007, orig. proceeding); see            ...
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84–85,
                                                                      This Award is in full settlement of all claims submitted
123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (holding that unless
                                                                      to this Arbitration. All damages, claims, or other relief
arbitration agreement provides otherwise, court determines
                                                                      requested by Claimants or Respondents which are not


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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487

  expressly granted or awarded herein, are hereby expressly        that award, and the opinion on appeal. 3 The panel found
  denied.                                                          that Aspri filed the first arbitration demand as a forcible
                                                                   detainer action and that the only issue in that arbitration
At the subsequent April 2, 2007 hearing in the trial
                                                                   was possession. It found that ENM's claims for damages
court, ENM contended that its counterclaims had not been
                                                                   were not compulsory counterclaims in the first arbitration
submitted to arbitration and remained pending in the district
                                                                   and the arbitrator did not consider or dispose of the claims.
court, and that it was entitled to a continuance to conduct
                                                                   The panel found the first arbitration resulted in the March
discovery. Aspri took the position that the counterclaims were
                                                                   2007 award that Aspri wrongfully terminated the lease and
compulsory in the arbitration and that the arbitrator found
                                                                   wrongfully evicted ENM by temporary restraining order, and
ENM had waived them by not submitting any evidence. After
                                                                   that the award in favor of ENM was confirmed by the district
reviewing the award and hearing argument, the trial court
                                                                   court on April 2, 2007. In addition, the panel found that
construed the award as disposing of the entire case and stated:
                                                                   ENM's claims for damages related to the termination of the
             The Court is going to enter judgment                  lease and wrongful eviction were not tried on the merits
             based on the arbitrator's ruling that                 in the district court, and that all those claims were matters
             there was no right to terminate                       for arbitration pursuant to the parties' agreement. The panel
             the lease; that the eviction of the                   concluded that because the district court did not conduct a
             respondent by the TRO was wrongful;                   hearing on the merits on ENM's damage claims and those
             that the respondent failed to bring forth             claims were matters for arbitration, the district court did not
             damages to the arbitration tribunal;                  have authority (or “jurisdiction”) to dispose of the claims.
             therefore, there are no damages....                   The panel also concluded that the 2007 judgment confirming
             That's what the arbitrator ruled in my                the arbitration award “did not address the damage claims
             opinion.                                              the subject of this arbitration.”Based on these findings and
                                                                   conclusions, the arbitration panel declined to hold that res
The 2007 judgment recites the court is “enter[ing] and             judicata barred ENM from pursuing its claims in the second
confirm[ing] the Award of the Arbitrator as follows:” There        arbitration.
follows four numbered paragraphs, one of which awards
ENM possession of the premises, but otherwise denies its
counterclaims. The judgment concludes by stating, “This is a       C. Did the trial court err in denying the motion to vacate
Final Judgment. All other claims presented in the arbitration      because the panel made a gross mistake in deciding res
are expressly denied.”                                             judicata?
                                                                    *7 Aspri argues the trial court erred in confirming the award
Although we agree with Aspri that ENM's counterclaims              and denying its motion to vacate because the arbitration
were not submitted or decided in the first arbitration, we         panel committed a gross mistake by rejecting its res judicata
disagree that the trial court independently adjudicated them. It   defense. Under the TAA, a court must confirm an arbitration
is apparent from the record of the 2007 confirmation hearing       award on the application of a party unless a statutory
and the judgment itself that the trial court construed the 2007    ground for vacating, modifying, or correcting the award under
arbitration award as denying ENM's counterclaims, and the          section 171.088 or 171.091 is shown. TEX. CIV. PRAC.
trial court purported simply to be confirming the award. That      & REM.CODE ANN. § 171.087 (West 2011). However,
the court may have misinterpreted the award does not mean          the Texas courts of appeals recognize some common law
it independently adjudicated ENM's claims. Accordingly,            defenses as being cumulative of the statutory grounds for
this case comes within the general rule that the res judicata      vacatur. See Collins v. TexMall, L.P., 297 S.W.3d 409,
defense was for the arbitration panel to decide. See id. at 756.   415 (Tex.App.–2009 Fort Worth, no pet.); Werline v. E.
                                                                   Tex. Salt Water Disposal Co., Inc., 209 S.W.3d 888,
                                                                   897–98 (Tex.App.-Texarkana 2006), aff'd,307 S.W.3d 267
B. The arbitration panel's res judicata decision                   (Tex.2010); GJR, 126 S.W.3d at 263;but see E. Tex. Salt
In rendering its decision on Aspri's res judicata defense, the     Water Disposal Co., Inc. v. Werline, 307 S.W.3d 267, 282
arbitration panel appears to have examined at least some           n. 7 (Tex.2010) (noting that court of appeals held arbitration
of the pleadings from the first arbitration and district court     award could be set aside under common law for fraud,
suit, the 2007 arbitration award, the judgment confirming          misconduct, or gross mistake, but “express[ing] no opinion on



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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
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this issue”); Callahan & Assocs. v. Orangefield Indep. Sch.        S.W.3d at 239. Because of the strong policy in favor of
Dist., 92 S.W.3d 841, 844 (Tex.2002) ( “assuming without           enforcing arbitration awards, any claim that an award should
deciding” party could attack arbitration award on common           be vacated for violating public policy “must be carefully
law ground of gross mistake, failure to award any damages          scrutinized to protect the arbitration award from unwarranted
was not gross mistake). 4                                          judicial interference.”Id. at 239.


The trial court must indulge every reasonable presumption          To justify overturning an arbitration award on public policy
in favor of upholding an arbitration award. CVN Group, 95          grounds, the policy must be well-defined and dominant. See
S.W.3d at 238. An arbitrator's failure to correctly apply the      id. at 238–39 (citing W.R. Grace & Co. v. Local Union
law will not justify vacating an arbitration award. Id.;Xtria,     759, 461 U.S. 757, 766, 103 S.Ct. 2177, 76 L.Ed.2d 298
286 S.W.3d at 591. The common law ground of gross mistake          (1983)). If the arbitrator “wholly disregard[s]” such a policy
“does not mean an egregious mistake of fact or law.”Xtria,         and makes an arbitration award “in direct contravention of the
286 S.W.3d at 598. To set aside an arbitration award on the        policy, the award might be set aside. Id. at 239.But when the
ground of gross mistake, there must be more; the record must       facts are disputed and the issue is submitted to the arbitrator,
show bad faith or failure to exercise honest judgment on the       “an arbitrator's mere disagreement with a judge” about the
part of an arbitrator. See id.;Werline, 209 S.W.3d at 898.         application of the law does not violate public policy. Id.


It is clear from the arbitration hearing record and the panel's    In CVN, the petitioner contended the arbitration award
lengthy written decision that it gave serious consideration        violated homestead protections found in the Texas
to the parties' contentions, evidence, and arguments. The          Constitution. Id. The court agreed that the homestead is given
arbitration panel did not ignore Aspri's res judicata defense,     special protection in the Texas Constitution and the Texas
but gave it serious consideration. Nothing in the record           Property Code, and that an arbitration award that wholly
suggests the panel made its decision in bad faith or failed        contravened those protections would violate public policy.
to exercise honest judgment. Moreover, although Aspri              Id. The court also noted that an award based on a claim
conclusorily urged the panel to bar ENM's claims on res            arising out of an illegal transaction would violate public
judicata grounds in its pleading and argument, nothing in the      policy. Id. at 237 (citing Smith v. Gladney, 128 Tex. 354,
record Aspri filed in the trial court shows that it provided       98 S.W.2d 351, 351 (1936)); see also Symetra Nat'l Life Ins.
the arbitrators relevant law on res judicata or substantive        Co. v. Rapid Settlements, Ltd., No. 14–07–00880–CV, 2009
guidance on how to apply the law to the facts of this case. The    WL 1057339, at *3 (Tex.App.-Houston [14th Dist.] Apr.
trial court should not overturn an arbitration award rendered      21, 2009, no pet.)(mem.op.) (vacating arbitration award that
after honest consideration given to claims and defenses            required transfer of structured settlement payment without
presented to it, no matter how erroneous. See Xtria, 286           court approval, in direct contravention of Texas Structured
S.W.3d at 598; Werline, 209 S.W.3d at 898. Accordingly, we         Settlement Protection Act); Lee v. Daniels & Daniels, 264
hold the trial court did not err in denying the motion to vacate   S.W.3d 273, 279–81 (Tex.App.-San Antonio 2008, pet.
on this ground.                                                    denied) (vacating award enforcing provision in attorney
                                                                   services contract that allowed recovery of fee prohibited by
                                                                   Texas Disciplinary Rules of Professional Conduct); Lee v. El
D. Did the trial court err in denying the motion to vacate         Paso County, 965 S.W.2d 668, 673 (Tex.App.-El Paso 1998,
the award because the award violates public policy ?               pet. denied) (affirming trial court's order vacating arbitration
 *8 Aspri next argues the trial court should have vacated          award that directly conflicted with Texas constitutional
the arbitration award because it violates fundamental Texas        provision that prohibits granting extra compensation for
public policy. In CVN Group, the Texas Supreme Court               services already rendered).
assumed, but did not decide, that a common law challenge
to an arbitration award on the ground it violates public           We recognize that the common law doctrine of res judicata
policy is not preempted by the TAA. 95 S.W.3d at 237–38.           is rooted in public policies favoring the finality of judgments
Subject to that assumption, the court held that “an arbitration    and disfavoring seriatim litigation. See Frost Nat'l Bank
award cannot be set aside on public policy grounds except          v. Fernandez, 315 S.W.3d 494, 510 (Tex.2010), cert.
in an extraordinary case in which the award clearly violates       denied,––– U.S. ––––, 131 S.Ct. 1017, 178 L.Ed.2d 829
carefully articulated, fundamental policy.”CVN Group, 95           (2011); Hallco Texas, Inc. v. McMullen County, 221 S.W.3d



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Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
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50, 60 (Tex.2006). Although res judicata is public policy          concluded that where the parties' agreement did not limit
in the sense that it is well-defined, it “must at times be         the issues to be arbitrated or the applicability of the AAA
weighed against competing interests and other public policy,       rules, incorporation of the AAA rules constitutes clear and
and must, on occasion, yield to other policies.”Sullivan v.        unmistakable evidence of the parties' intent to delegate issues
State, 572 S.W.2d 778, 784 (Tex.Civ.App.-El Paso 1978, writ        of arbitrability to the arbitrator. See Haddock, 287 S.W.3d at
ref'd n.r.e.).                                                     172–73 (discussing cases); Burlington, 249 S.W.3d at 40–42
                                                                   (same). We conclude the parties agreed to submit arbitrability
 *9 We do not believe that under the circumstances                 issues to the arbitrators.
of this case the common law policy of res judicata
dominates over Texas policy enacted into law in the TAA            Because the arbitration panel had the primary power to decide
in favor of enforcing agreements to arbitrate disputes and         the scope of arbitration, the court's standard for reviewing the
enforcing arbitration awards except in extraordinarily narrow      panel's decision on that matter is the same as the standard
circumstances. The arbitration award does not arise out of         used in reviewing the panel's decision on substantive matters.
an illegal transaction and does not award anything or require      First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943,
any act that violates the Texas Constitution or any legislative    115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). That is, the trial
enactment. The decision of what res judicata effect to give the    court reviews the panel's determination with great deference,
prior confirmed arbitration award was a matter of procedural       indulging all reasonable presumptions in favor of the panel's
arbitrability that was committed to the arbitration panel for      decision. See CVN Group, 95 S.W.3d at 238; Roe v. Ladymon,
decision. See W. Dow Hamm, 237 S.W.3d at 755–56. Under             318 S.W.3d 502, 511 (Tex. App–Dallas 2010, no pet.). Any
these circumstances, we will not hold that the award, made         doubts concerning the scope of what is arbitrable should be
after the arbitration panel gave due consideration to the res      resolved in favor of arbitration. Centex/Vestal, 314 S.W.3d at
judicata defense, violates public policy merely because this       684.
court may disagree with how the panel applied the law.
                                                                    *10 The scope of the arbitration panel's authority begins
                                                                   with the arbitration agreement, in which Aspri and ENM
                                                                   agreed the lease was subject to arbitration and that any
              DID THE ARBITRATION
                                                                   “controversy or claim arising out of or relating to this
            PANEL EXCEED ITS POWERS?
                                                                   agreement or the breach of this agreement” would be settled
In its next issue, Aspri argues the trial court erred in denying   by arbitration. The agreement is very broad, encompasses a
its motion to vacate the award pursuant to section 171.088(a)      wide range of disputes, and the language used is construed
(3)(A) of the TAA because the arbitration panel exceeded           “as evidencing the parties' intent to be inclusive rather than
its powers. Aspri contends the arbitration panel exceeded          exclusive.”See Centex/Vestal, 314 S.W.3d at 685. Moreover,
its powers by arbitrating issues not related to the lease and      the parties may, by their oral and written submissions to the
beyond the scope of the arbitration agreement.                     arbitrator, broaden the scope of the arbitrators' authority. In
                                                                   this case, at the end of the arbitration, after all the evidence
The scope of the arbitration is a matter of substantive            had been presented, one of Aspri's attorneys emphatically
arbitrability for a court to decide unless the parties clearly     asked the panel to decide all of the issues between the parties:
agreed otherwise. See Howsam, 537 U.S. at 84; Burlington
                                                                                These parties need a ruling on all the
Res. Oil & Gas Co. LP v. San Juan Basin Royalty Trust,
                                                                                issues, and I think this panel has the
249 S.W.3d 34, 39 (Tex.App.-Houston [1st Dist.] 2007, pet.
                                                                                power to do that. And we are asking
denied). Here, the lease's arbitration provision requires all
                                                                                the panel to render all relief that's
controversies and claims arising out of or relating to the
                                                                                possibly due at law or in equity so that
lease or its breach to be arbitrated in accordance with the
                                                                                all the issues between the parties are
rules of the American Arbitration Association. Those rules,
                                                                                resolved.
which were introduced into evidence at the confirmation
hearing in the trial court, provide that the arbitrator “shall     Finally, it is evident from the award that the parties made
have the power to rule on his or her own jurisdiction,             written submissions to the panel that were not included in
including any objections with respect to the existence, scope      the record filed in the trial court. We presume the omitted
or validity of the arbitration agreement.”Most courts have         portions of the record support the award. See In re Chestnut


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             7
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487

Energy Partners, Inc., 300 S.W.3d 386, 401 (Tex.App.-               Aspri failed to show the trial court erred by not deferring to
Dallas 2009, pet. denied).                                          the arbitration panel's determinations that these matters were
                                                                    issues the parties agreed to arbitrate.
Aspri contends the arbitration panel exceeded its powers by
awarding damages related to a lien that arose from a note           Lastly, Aspri contends the arbitrators determined Tony
to a third party, awarding an “offset” for amounts unrelated        Afeef's individual rights and obligations and adjudicated
to the lease, and by “entertaining claims of Tony Afeef—a           his individual tort claims. 5 The arbitration award does not
nonparty—and treating him as if he was owner of ENM.”The            adjudicate any causes of action by or against Tony Afeef,
panel awarded damages for loss of business reputation and           individually, nor does it award any sum of money to him.
lost profits caused in part by Aspri's wrongful filing and          Aspri suggests that the $50,000 punitive damage award
failure to remove a lien. Aspri asserts this issue is unrelated     was based solely on torts committed against Afeef. We
to the lease and adjudicates the rights of third parties. Aspri     disagree. Although the panel found that Aspri intentionally
contends the lien arose out of a note ENM gave to a third           inflicted emotional distress against Maryam Begum Afeef
party in 2005, when ENM assumed the lease. As part of the           and “the corporate representative” Tony Afeef, it found that
transaction, ENM signed a note and granted a security interest      damages had not been proven and none were awarded. The
to the third party. The note and security interest were later       panel's award of exemplary damages is supported by its
assigned to Aspri. Aspri argues the arbitrators exceeded their      unchallenged findings and conclusions that Aspri committed
powers by awarding damages “resulting from the filing of a          theft and conversion and that ENM proved fraud by clear and
lien for the debt owed under the ... note.”Regardless of the        convincing evidence.
actual legal basis for any lien, Aspri filed a landlord's lien in
the real property records during the first arbitration pursuant     We conclude that Aspri has not shown grounds for the trial
to sections 54.021 and 54.022 of the Texas Property Code.           court to do anything other than defer to the arbitration panel's
The lien statement asserted that ENM owed Aspri past-due            determinations about the scope of the arbitration, and we hold
rent and attorney's fees totaling over $40,000. During the          the trial court did not err in failing to vacate on the ground the
presentation of evidence, one of the arbitrators stated that the    arbitrators exceeded their powers.
lien should have “gone away” if the eviction was wrongful
and ENM did not owe rent. Aspri's attorney responded, “I
completely agree.” The panel found that Aspri did not remove
or release the lien after the 2007 arbitration award declared                   DID THE ARBITRATION PANEL
that ENM did not owe Aspri any rent or attorney's fees, and                      COMMIT GROSS MISTAKE?
that such failure to act was wrongful and was intended to harm
                                                                    In its final issue, Aspri argues the trial court erred by not
ENM.
                                                                    vacating the award for gross mistake. Aspri challenges the
                                                                    competence and sufficiency of the evidence supporting the
 *11 Aspri also contends that approximately $160,000 of the
                                                                    damage awards and concludes “the panel obviously sought to
arbitration award was for amounts unrelated to the lease or its
                                                                    punish Mr. Virani” (Aspri's agent).
breach. The panel found as a matter of fact that when Aspri
terminated the lease in 2006, Aspri owed ENM $116,119.61
                                                                    As discussed above, a party challenging an arbitration
“related to the Business and this Lease”; that Aspri had agreed
                                                                    award on the ground of gross mistake has the burden of
to offset this amount against rents owed under the lease and/
                                                                    demonstrating the arbitrators acted in bad faith or failed to
or the purchase price pursuant to the lease's purchase option;
                                                                    exercise honest judgment. Xtria, 286 S.W.3d at 598; Werline,
that Aspri did not dispute the amount of the offset; and
                                                                    209 S.W.3d at 898; Pheng Inv., Inc. v. Rodriquez, 196 S.W.3d
that, as of the date of the award, Aspri had not paid any of
                                                                    322, 330–31 (Tex.App.Fort Worth 2006, no pet.).“Gross
this amount to ENM or offset it against any amounts Aspri
                                                                    mistake results in a decision that is arbitrary and capricious;”
claimed was due it. Aspri does not directly challenge any
                                                                    whereas “a judgment rendered after honest consideration
of the arbitration panel's findings of fact in its briefs, and at
                                                                    given to conflicting claims, no matter how erroneous, is not
oral argument of this appeal, Aspri's attorney stated it was
                                                                    arbitrary or capricious.”Xtria at 598.An arbitrator's decision
not contesting any of the findings of fact. The arbitration
                                                                    is arbitrary and capricious if it is the product of “willful
panel could rationally have concluded that both these matters
                                                                    and unreasoning action, action without consideration and in
arose out of or were related to the lease or its breach, and
                                                                    disregard of the facts and circumstances of the case.”Grand


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                8
Aspri Investments, LLC v. Afeef, Not Reported in S.W.3d (2011)
2011 WL 3849487

                                                                           amount to nothing more than challenges to the legal and
Int'l Bhd. Of Locomotive Eng'rs v. Wilson, 341 S.W.2d 206,
                                                                           factual sufficiency of the evidence and alleged errors in the
211 (Tex.Civ.App.-Fort Worth 1960, writ ref'd n.r.e.).
                                                                           application of the substantive law, which we have no power
                                                                           to review. See id.;Crossmark, Inc. v. Hazar, 124 S.W.3d
 *12 The arbitration panel's extensive findings of fact
                                                                           422, 435 (Tex.App.-Dallas 2004, pet. denied); J.J. Gregory
set forth in detail the evidence it relied upon and the
                                                                           Gourmet Servs., Inc. v. Anton's Imp. Co., 927 S.W.2d 31, 35
qualifications of the witnesses whose testimony it relied on,
                                                                           (Tex.App.-Houston [1st Dist.] 1995, no writ). Aspri has not
and explains how it arrived at its conclusions. The reporter's
                                                                           pointed to anything other than the result as evidence of bad
record of the arbitration and panel's written decision evidence
                                                                           faith or bad motive. It did not establish gross mistake and the
an attempt to ascertain disputed facts and to justly decide
                                                                           trial court therefore did not err in denying the motion to vacate
the claims and defenses presented in a fair hearing. See
                                                                           on that ground.
Pheng, 196 S.W.3d at 330–31. That Aspri may disagree
with the panel's credibility determinations or the weight to
be given to particular evidence does not render the panel's                For these reasons, we affirm the trial court's judgment.
decision arbitrary and capricious, evidence bad faith, or show
a failure to exercise honest judgment. Aspri's arguments


Footnotes
1      The trial court's 2006 order abating the case for arbitration is not in the record.
2      Aspri took the opposite position in the 2007 hearing on confirmation of the award, convincing the trial court that the arbitrator had
       denied ENM's counterclaims on the merits for failure to present evidence of damages.
3      Aspri filed an incomplete record of the arbitration in the trial court. Although a reporter's record of the testimony and oral arguments
       presented at the arbitration was filed, no exhibit volume was filed in the trial court and only some of the arbitration pleadings were filed.
       The reporter's record of the arbitration includes an exhibit list. However, the list does not specifically identify each document admitted
       before the panel. Some of the descriptions are generic, e.g., “judgment,” “claim summary,” and others reflect exhibits were admitted
       in clusters, e.g., “Notices and approvals,” “Previous Arbitration: # 70115E68506 Certified Copy of AAA Documents,”“District court
       Bexar County Court Orders.”Aspri filed numerous documents and pleadings as exhibits to its pleadings in the trial court and at the
       confirmation hearing. However, it did not establish which of these were before the arbitration panel. Nor did Aspri identify what
       additional, unfiled, documents and pleadings were before the arbitration panel.
4      ENM briefly questions whether the arbitration award is subject to challenge on common law grounds following the United States
       Supreme Court decision in Hall St. Assocs., LLC. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) (holding
       parties could not by agreement expand statutory grounds for judicial review of arbitration award under FAA). However, ENM did not
       provide any argument on this issue. Moreover, the Hall Street opinion itself states that the Court was “deciding nothing about other
       possible avenues for judicial enforcement of arbitration awards” such as “enforcement under state statutory or common law.”552 U.S.
       at 590;see also Nafta Traders, 339 S.W.3d at 91–101 (extensively discussing Hall Street opinion and declining to apply its principal
       holding to case under the TAA). We therefore decline to hold that Hall Street forecloses Aspri's common law challenge to the award.
5      Tony Afeef is the son of Maryam Afeef, ENM's owner. Tony Afeef was the manager of ENM's store and had responsibility for its
       day-to-day operations. In addition, he acted as ENM's corporate representative throughout the proceedings.


End of Document                                                       © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                              9
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)



                                                                                                                                 Arbitrability
                     249 S.W.3d 34                                         of Dispute
                Court of Appeals of Texas,
                                                                           Operator of oil and gas properties, and holder
                  Houston (1st Dist.).
                                                                           of net overriding royalty interest, in their
         BURLINGTON RESOURCES OIL                                          agreement to arbitrate their audit disputes, did
                                                                           not clearly and unmistakably submit the issue
          & GAS COMPANY LP, Appellant,
                                                                           of arbitrability to arbitration, though arbitration
                     v.
                                                                           agreement stated that arbitration would be
    SAN JUAN BASIN ROYALTY TRUST, Appellee.
                                                                           conducted in accordance with Commercial
       No. 01–06–00485–CV.           |     Aug. 16, 2007.                  Arbitration Rules of American Arbitration
                                                                           Association (AAA), and those Rules provided
Synopsis                                                                   that arbitrator had power to rule on his or her own
Background: Operator of oil and gas properties filed                       jurisdiction, including objections with respect
application to vacate or modify arbitrator's award to holder               to scope of arbitration agreement; arbitration
of net overriding royalty interest. Holder filed counterclaim              agreement also stated that terms of arbitration
for confirmation of award. The 281st District Court, Harris                agreement would control in event of any conflict
County, David J. Bernal, J., confirmed the award. Operator                 with such Rules, and arbitration agreement
appealed.                                                                  stated that audit exceptions identified in attached
                                                                           exhibit were the only items that would be
                                                                           subjected to arbitration.

Holdings: The Court of Appeals, Terry Jennings, J., held that:             11 Cases that cite this headnote

[1] parties did not clearly and unmistakably submit the issue
of arbitrability to arbitration, and                                 [3]   Alternative Dispute Resolution

                                                                                                                                 Arbitrability
[2] parties did not agree to arbitrate holder's claim for share            of Dispute
of settlement with third-party gas company.
                                                                           In determining whether arbitration agreement
                                                                           provides clear and unmistakable language
Reversed and rendered in part; remanded in part.                           delegating to arbitrators the power to decide
                                                                           arbitrability, Texas courts consider specific
                                                                           language of arbitration agreement and also
                                                                           apply general principles of Texas contract law
 West Headnotes (8)                                                        governing formation of contracts.

                                                                           9 Cases that cite this headnote
 [1]    Alternative Dispute Resolution

                                                               Evidence
                                                                     [4]   Alternative Dispute Resolution
        When courts decide whether a party has agreed
                                                                                                                                 Disputes
        that arbitrators should decide arbitrability, courts
                                                                           and Matters Arbitrable Under Agreement
        should not assume that the parties agreed to
        arbitrate arbitrability unless there is clear and                  Operator of oil and gas properties, and holder
        unmistakable evidence that they did so.                            of net overriding royalty interest, in their
                                                                           agreement to arbitrate their audit disputes,
        12 Cases that cite this headnote                                   agreed to arbitrate only holder's complaint that
                                                                           its gross proceeds were understated due to excess
 [2]    Alternative Dispute Resolution                                     royalties charged against it for its share of
                                                                           settlement of other royalty interest holders' claim



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               1
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


       for royalty payments on portion of operator's
       settlement with third-party gas company, which                                                                             Construction
       portion of settlement the operator had originally                    in Favor of Arbitration
       allocated to non-royalty-bearing take-or-pay                         The policy that favors resolving doubts in
       claims, and its complaint that it was owed                           favor of arbitration cannot serve to stretch an
       interest on the understated gross proceeds,                          arbitration clause beyond the scope intended by
       which disputes were identified in arbitration                        the parties or authorize an arbiter to disregard or
       agreement as involving stated “arbitrate amount”                     modify the plain and unambiguous provisions of
       of $374,978; operator and holder did not agree                       the agreement.
       to arbitrate holder's claim for share of settlement
                                                                            Cases that cite this headnote
       with third-party gas company, which dispute
       involved over $6 million.

       1 Cases that cite this headnote
                                                                   Attorneys and Law Firms
 [5]   Alternative Dispute Resolution                               *36 David J. Beck, David M. Gunn, Beck, Redden &
                                                             Arbitration L.L.P., Houston, TX, for Appellant.
                                                                   Secrest,
       Favored; Public Policy
                                                                   Guy S. Lipe, Vinson & Elkins LLP, Houston, TX, for
       There is strong presumption under the Federal               Appellee.
       Arbitration Act (FAA) of favoring arbitration. 9
       U.S.C.A. § 1 et seq.                                        Panel consists of Justices NUCHIA, JENNINGS, and
                                                                   HIGLEY.
       Cases that cite this headnote


 [6]   Alternative Dispute Resolution                                                        OPINION

                                                                  TERRY JENNINGS, Justice.
                                                             Construction
       in Favor of Arbitration
                                                                  Appellant, Burlington Resources Oil & Gas Company LP
       Any doubt as to whether a party's claim falls
                                                                  (“Burlington”), challenges the trial court's judgment rendered
       within the scope of an arbitration agreement must
                                                                  in favor of appellee, San Juan Basin Royalty Trust (the
       be resolved in favor of arbitration.
                                                                  “Trust”), confirming a portion of an arbitration award in
       1 Cases that cite this headnote                            favor of the Trust and ordering that the Trust recover
                                                                  from Burlington damages in the amount of $6,019,370, plus
                                                                  interest, for a total disputed award of $6,243,990. In its first
 [7]   Alternative Dispute Resolution                             issue, Burlington contends that the parties did not agree,
                                                                  by clear and unmistakable language, to submit questions
                                                             Construction
                                                                  regarding the scope of arbitrable issues to the arbitrator. In its
       in Favor of Arbitration
                                                                  second issue, Burlington contends that “construing the scope
       A court should not deny arbitration unless it can
                                                                  of the arbitration agreement de novo,” the parties' dispute is
       be said with positive assurance that an arbitration
                                                                  not within the scope of the arbitration agreement.
       clause is not susceptible to an interpretation that
       would cover the dispute at issue.
                                                                   We reverse and render in part and remand in part.
       Cases that cite this headnote


 [8]   Alternative Dispute Resolution                                         Factual and Procedural Background




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)



Burlington 1 owns and operates several oil and gas properties     payments due and owing to them from the proceeds of the
in New Mexico. The Trust holds a net overriding royalty           GCNM settlement.
interest in those properties and, pursuant to the terms of a
“Conveyance,” is entitled to receive a 75% interest in the        The Trust asserts that as part of its MMS/Jicarilla settlement,
                                                                  Burlington agreed to pay MMS and Jicarilla royalties on
net proceeds from those properties. 2 Burlington is required
                                                                  the $6.7 million portion of the GCNM settlement that had
by the Conveyance to issue quarterly accounting statements
                                                                  been originally allocated to “non-royalty-bearing take-or-pay
to the Trust, and the Trust has 180 days to except to those
                                                                  claims.” Burlington disputes the Trust's claim and asserts, to
statements.
                                                                  the contrary, that MMS and Jicarilla expressly acknowledged
                                                                  that they were not entitled to royalty payments on the $6.7
In October 2004, in order to resolve a number of specific
                                                                  million portion of the GCNM settlement. Although the parties
existing “audit disputes,” the parties entered into an
                                                                  disagree as to the whether MMS and Jicarilla received
“Agreement Dealing with the Resolution of Existing Audit
                                                                  royalty payments on the $6.7 million portion of the GCNM
Disputes” (the “Arbitration Agreement”). However, the
                                                                  settlement, the Trust asserts that, following the MMS/Jicarilla
parties ultimately disagreed regarding the arbitrability of one
                                                                  settlement, Burlington erroneously charged the Trust with
of the Trust's claims ruled upon by the arbitrator. After
                                                                  its 75% share of the MMS/Jicarilla settlement payment by
the arbitrator ruled in favor of the Trust on this claim,
                                                                  deducting this charge from the amount of proceeds due to the
Burlington filed its application to vacate, modify, or correct
                                                                  Trust for its net overriding royalty interest on the properties.
the arbitration award.
                                                                  The Trust complained that the charge assessed against it by
                                                                  Burlington had been calculated based on the full amount
The parties' dispute relevant to this appeal originates from
                                                                  of the MMS/Jicarilla settlement, including the $6.7 million
Burlington's entry into a settlement agreement in 1990 with
                                                                  originally allocated to take-or-pay claims.
the Gas Company of New Mexico (“GCNM”) to resolve
litigation involving properties covered by the Conveyance
                                                                  The parties entered into the Arbitration Agreement to settle
(the “GCNM settlement agreement”). Pursuant to the terms of
                                                                  this “audit dispute” and a number of other existing audit
the GCNM settlement agreement, Burlington received $54.5
                                                                  disputes, many of which are not relevant to this appeal. The
million in settlement payments. At that time, Burlington
                                                                  Arbitration Agreement, our focus in resolving the parties'
allocated $6.7 million of those proceeds to take-or-pay
                                                                  dispute, states, in relevant part,
claims, $21 million *37 to past-pricing claims, and $26.8
million to future-pricing claims. In accordance with the terms      3. Exhibit “C” attached hereto identifies audit exceptions
of the Conveyance, in calculating the amount of the GCNM            that the parties have identified for submission to binding
settlement proceeds owed to the Trust for its net overriding        arbitration pursuant to the procedures set forth hereafter....
royalty interest, Burlington did not include the $6.7 million       [T]he exceptions identified in Exhibit “C” constitute the
allocated to the take-or-pay claims. As the Trust notes,            only items that will be subjected to arbitration.
however, the Trust also was not burdened with a charge for
any royalty payments due to other royalty owners on that            4. Arbitration Agreement
portion of the GCNM settlement. At that time, the Trust did
not challenge Burlington's allocation of the GCNM settlement        The existing audit disputes described on attached Exhibit
proceeds or Burlington's exclusion of the $6.7 million portion      “C,” ... shall be finally settled by arbitration pursuant to
of the settlement in calculating the amounts owed to the Trust.     the provisions hereof. This agreement to arbitrate applies
                                                                    only to the audit disputes identified on Exhibit “C” ...
In 2001, Burlington entered into a settlement agreement             all of which shall be collectively referred to as the “Audit
with the Minerals Management Service of the United States           Disputes.”
Department of Interior (“MMS”) and the Jicarilla Apache
                                                                       (a) The Audit Disputes shall be heard and determined by
Indian Nation (“Jicarilla”), other royalty interest holders in
                                                                          one Arbitrator.....
properties covered by the Conveyance (the “MMS/Jicarilla
settlement”). Burlington, MMS, and Jicarilla entered into              (b) The proceeding shall be conducted in accordance
the MMS/Jicarilla settlement in order to resolve MMS's                    with the Commercial Arbitration Rules of the
and Jicarilla's complaints regarding the amount of royalty                American Arbitration Association, unless otherwise
                                                                          specified herein.... In the event of a conflict *38


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Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


        between such Commercial Arbitration Rules and this           proportionate share of the $6.7 million proceeds [from
        Agreement, this Agreement shall control.                     the 1990 GCNM settlement] is within the scope of
                                                                     the Arbitration Agreement.” The arbitrator contended that
(Emphasis added).                                                    Exhibit C identified “an exception related to the MMS/
                                                                     Jicarilla settlement” and that the Trust's claim arose from
Exhibit C, attached to the Arbitration Agreement, lists a            Burlington's charging the Trust for additional royalty
number of audit disputes, and, as Burlington emphasizes,             payments Burlington made to Jicarilla and MMS to settle
includes a column entitled “Arbitrate Amount,” which details         their claims even though Burlington had not shared the $6.7
specific amounts at issue for each of the identified audit           million portion on which the additional royalty payments had
disputes. On the first page of Exhibit C, the sum total              been calculated. Based on this, the arbitrator stated,
“arbitrate amount” for all of the audit disputes listed in Exhibit
C, including many of which that are not relevant to the                           From the testimony and documents
underlying award or this appeal, is identified as $1,528,223.                     attached to the Arbitration Agreement,
In fact, among the numerous audit disputes identified on                          it is clear that the dispute between
Exhibit C, only two specific disputes are relevant to this                        the parties over the MMS/Jicarilla
appeal, and the total “arbitrate amount” for these two                            [settlement] flows directly from
disputes is identified as $374,978. The parties identified                        Burlington's charge of royalty on the
the first dispute as “Gross Proceeds under stated due to                          $6.7 million initially attributed to take-
excess royalties charged from MMS/Jicarilla settlement,” and                      or-pay.
the total arbitrate amount for that dispute is identified as
$342,477. The parties labeled their second dispute as “Interest      The arbitrator further concluded that there was a “nexus
Overcharged on MMS/Jicarilla Settlement,” and the total              between the royalty charge and the excluded $6.7 million”
arbitrate amount for that dispute is identified as $32,501.          and that “an adjustment to gross proceeds to include the
There is no mention of the GCNM settlement or any audit              Trust's proportionate share of *39 the $6.7 million on which
issues specifically relating to the GCNM settlement anywhere         it has been charged royalty is an arbitrable claim.”
in the Arbitration Agreement or Exhibit C.
                                                                     After determining the scope of its jurisdiction, the arbitrator
At the conclusion of the arbitration, the arbitrator entered an      stated that “[b]y making this reallocation, Burlington
arbitration award in favor of the Trust, including an award          characterized the entire $54.5 million GCNM settlement
of over $6 million on the two relevant audit disputes for            proceeds (including the $6.7 million Burlington originally
the Trust's “75% share of additional gross proceeds resulting        allocated to take-or-pay) as past pricing in which the Trust is
from the reallocation of $6.7 million [of the 1990 GCNM              entitled to share.” Thus, the arbitrator ruled that the Trust was
settlement] to past pricing.” In its award, the arbitrator           entitled to a 75% share of additional gross proceeds from the
conceded that Burlington had objected to consideration of the        reallocation of the $6.7 million to past-pricing claims.
Trust's claim for its share of the $6.7 million in reallocated
proceeds. However, the arbitrator determined that it had             Following arbitration, Burlington filed an application to
jurisdiction to decide its “own jurisdiction” pursuant to the        vacate or modify the arbitration award. See 9 U.S.C. §§
terms of the Arbitration Agreement, which provided that              10, 11; see also TEX. CIV. PRAC. & REM.CODE ANN.
the arbitration would be conducted “in accordance with the           §§ 171.088(a)(3)(A), 171.091(a)(2) (Vernon 2005). In its
Commercial Arbitration Rules of the American Arbitration             application, Burlington asserted that, in awarding the Trust
Association unless otherwise specificed.” The arbitrator then        $6,243,990 on its claim for a portion of the allegedly
cited in his opinion Rule 7(a) of the Commercial Rules,              reallocated proceeds from the 1990 GCNM settlement
which provides, “The Arbitrator shall have the power to              (referred to in the arbitration award as “MMS/Jicarilla—
rule on his or her own jurisdiction, including any objections        Case A”), the arbitrator rendered an award on a matter
with respect to the existence, scope or validity of the              not submitted to him and thereby exceeded his powers.
Arbitration Agreement.” COMMERCIAL RULES OF THE                      Burlington asserted that this portion of the arbitration award
AMERICAN ARBITRATION ASSOCIATION, Rule 7(a).                         should be modified, corrected, or vacated. Burlington also
                                                                     asserted a claim for breach of the Arbitration Agreement on
After determining that it had the power to decide arbitrability,     the ground that the Trust's attempt to assert a claim for a
the arbitrator concluded that “the Trust's claim to its              portion of the GCNM settlement, i.e., its newly crafted MMS/


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                4
Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


Jicarilla–Case A, violated the agreement and caused it to incur   to arbitrate their dispute, that party must bear the burden
substantial unnecessary expenses in defending the arbitration     of demonstrating clearly and unmistakably that the parties
and pursuing relief in the trial court. The Trust filed a         agreed to have the arbitrator decide that threshold question
counterclaim for confirmation of the arbitration award. The       of arbitrability.”); In re Weekley Homes, L.P., 180 S.W.3d
trial court rendered judgment in favor of the Trust, denying      127, 130 (Tex.2005) (“[A]bsent unmistakable evidence that
Burlington's application and granting the Trust's application     the parties intended the contrary, it is the courts rather than
to confirm the arbitration award. The trial court denied all      the arbitrators that must decide ‘gateway matters' such as
other requested relief, including Burlington's claim for breach   whether a valid arbitration agreement exists. Whether an
of the Arbitration Agreement.                                     arbitration agreement is binding on a nonparty is one of those
                                                                  gateway matters.”); In re Ford Motor Co., 220 S.W.3d 21, 23
                                                                  (Tex.App.-San Antonio 2006, no pet.) (same).

                        Arbitrability
                                                                   [2] Paragraphs 3 and 4 of the Arbitration Agreement
In its first issue, Burlington argues that the parties did        expressly state that the audit exceptions identified in Exhibit
not agree, by clear and unmistakable language, to submit          C “constitute the only items that will be subjected to
questions regarding the scope of arbitrable issues to the         arbitration” and that the Arbitration Agreement “applies only
arbitrator because the Arbitration Agreement itself “carefully    to the audit disputes identified on Exhibit C.” Here, there
limited the scope of arbitration to identified audit disputes”    is no clear and unmistakable statement in the Arbitration
and “withheld from the arbitrator [the] power to decide any       Agreement that matters of arbitrability will be submitted to
additional questions, including the question of arbitrability.”   an arbitrator. In fact, Burlington and the Trust purposefully
The Trust counters that the parties' incorporation of the         drafted an Arbitration Agreement of very narrow scope.
American Arbitration Association (“AAA”) rules clearly and
unmistakably granted the arbitrator the power to determine        Although, as the Trust emphasizes, the Arbitration
Burlington's objection to the scope of the arbitration.           Agreement generally provides that the proceeding “shall be
                                                                  conducted in accordance with the Commercial Arbitration
 [1] In First Options of Chicago, Inc. v. Kaplan, the United      Rules of the [AAA], unless otherwise specified herein,”
States Supreme Court stated that “[w]hen deciding whether         the Arbitration Agreement further provides that the terms
the parties agreed to arbitrate a certain matter (including       of the Arbitration Agreement control in the event of any
arbitrability), courts generally [ ] should apply ordinary        conflict with the rules. We conclude that there is no
state-law principles that govern the formation of contracts,”     conflict because the parties, in their Arbitration Agreement,
with the qualification that, “when courts decide whether a        unambiguously detailed the specific subjects and amounts
party has agreed that arbitrators should decide arbitrability,”   subject to arbitration, and arbitrability was not one of those
courts “should not assume that the parties agreed to arbitrate    matters. Even if we were to conclude, based, in part, on the
arbitrability unless there is ‘clea [r] and unmistakabl[e]’       authority cited below, that some ambiguity was created by the
evidence that they did so.” 514 U.S. 938, 944, 115 S.Ct.          parties' reference to the AAA rules, the parties simply did not
1920, 1924, 131 L.Ed.2d 985 (1995) (citations omitted).           clearly and unmistakably submit the issue of arbitrability to
The Supreme Court noted that “the law treats silence or           arbitration.
ambiguity about the question ‘who (primarily) should decide
arbitrability’ differently from the way it treats silence or      We recognize that Rule 7(a) of the Commercial Arbitration
ambiguity about the question ‘whether a particular merits-        Rules of the AAA grants an arbitrator “the power to rule
related dispute is arbitrable because it is within the scope of   on his or her own jurisdiction, including any objections
a valid arbitration agreement’ ” so as to not “force unwilling    with respect to the existence, scope or validity of the
parties to arbitrate a matter they reasonably would have          Arbitration Agreement.” COMMERCIAL RULES OF THE
 *40 thought a judge, not an arbitrator, would decide.”           AMERICAN ARBITRATION ASSOCIATION, Rule 7(a).
Id., 514 U.S. at 944–45, 115 S.Ct. at 1924–25; see also           We further recognize that, “[a]lthough the United States
Gen. Motors Corp. v. Pamela Equities Corp., 146 F.3d              Court of Appeals for the Fifth Circuit has not addressed the
242, 249 (5th Cir.1998) ( “[W]hen a party to a dispute            effect of a reference to AAA Rules contained in an arbitration
contends that he and the other disputant agreed to submit         clause,” 3 other courts have generally concluded that an
... the question of whether that arbitrator had authority         arbitration agreement's incorporation of rules empowering



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Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


an arbitrator to decide arbitrability clearly and unmistakably      the construction of an unambiguous contract”). Here, the
evidences the parties' intent to allow the arbitrator to decide     Arbitration Agreement restricted the arbitrator's reach only
issues of arbitrability. See, e.g., Qualcomm Inc. v. Nokia          to specifically identified “audit disputes,” and for specific
Corp., 466 F.3d 1366, 1372–73 (Fed.Cir.2006) (concluding            amounts. There is not a clear and unmistakable indication that
that agreement's incorporation of AAA rules clearly and             the parties authorized an arbitrator to decide the arbitrability
unmistakably showed parties' intent to delegate issue of            of claims or amounts not specifically identified in the
determining arbitrability to arbitrator); Terminix Int'l Co.,       Arbitration Agreement. Moreover, the agreement provided
LP v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332–33              that to the extent there was any conflict between the parties'
(11th Cir.2005) (holding that by incorporating AAA Rules            agreement and the AAA rules, any such conflict would be
into arbitration agreement, parties clearly and unmistakably        resolved in favor of the agreement.
agreed that arbitrator should decide whether arbitration
 *41 clause was valid); Contec Corp. v. Remote Solution,            Although not directly on point, we note that the San
Co., 398 F.3d 205, 208 (2d Cir.2005) (“[W]hen ... parties           Antonio Court of Appeals has recently concluded that an
explicitly incorporate rules that empower an arbitrator to          arbitration agreement providing for any dispute to be settled
decide issues of arbitrability, the incorporation serves as clear   “in accordance with the rules and procedures of the AAA” did
and unmistakable evidence of the parties' intent to delegate        not contain unmistakable evidence that the parties intended
such issues to an arbitrator.”); Citifinancial, Inc. v. Newton,     for an arbitrator to decide whether nonparties were bound by
359 F.Supp.2d 545, 549–52 (S.D.Miss.2005) (holding that             the arbitration agreement. In re Ford Motor Co., 220 S.W.3d
by agreeing to be bound by procedural rules of AAA,                 at 23–24. In so holding, the court highlighted “the established
including rule giving arbitrator power to rule on his or her        Texas law [of] placing the initial burden of proving the
own jurisdiction, defendant agreed to arbitrate questions of        existence of a valid arbitration agreement and claims within
jurisdiction before arbitrator); Sleeper Farms v. Agway, Inc.,      the scope of that agreement on the party seeking to compel
211 F.Supp.2d 197, 200 (D.Me.2002) (holding arbitration             arbitration.” Id.
clause stating that arbitration shall proceed according to rules
of AAA provides clear and unmistakable delegation of scope-         We also find the opinion of the United States Court of Appeals
determining authority to arbitrator). We are also mindful that,     for the Second Circuit in Katz v. Feinberg helpful to our
in certain circumstances, the incorporation of AAA rules may        analysis. See 290 F.3d 95 (2d Cir.2002). In Katz, the court
constitute clear and unmistakable evidence of an intent to          found that the parties did not agree to arbitrate questions
allow an arbitrator to decide issues of arbitrability.              of arbitrability. Id. at 96–97. The Katz court recognized
                                                                    that a “broadly worded *42 arbitration clause committing
 [3] However, we conclude, based on the express terms of            resolution of all disputes to arbitration” would satisfy the
the Arbitration Agreement before us, that the agreement's           clear and unmistakable standard. Id. at 97. However, the court
mere reference to the AAA's rules does not provide clear            could not conclude that “where a single agreement contains
and unmistakable evidence of the parties' delegation of             both a broadly worded arbitration clause and a specific clause
issues of arbitrability to an arbitrator. In determining whether    assigning a certain decision to an independent accountant,
an agreement provides clear and unmistakable language of            that the parties intention to arbitrate questions of arbitrability
such delegation, we consider the specific language of the           under the broad clause remains clear.” Id.
Arbitration Agreement. See Kaplan, 514 U.S. at 944, 115
S.Ct. at 1924 (“When deciding whether the parties agreed            Similarly, in James & Jackson, LLC v. Willie Gary, LLC,
to arbitrate a certain matter (including arbitrability), courts     the Delaware Supreme Court recognized the “majority view”
generally [ ] should apply ordinary state-law principles            that an arbitration agreement's reference to AAA rules might
that govern the formation of contracts.”). We also apply            provide clear and unmistakable evidence of the parties' intent
general principles of Texas contract law governing the              to have an arbitrator determine arbitrability. 906 A.2d 76, 78,
formation of contracts. See In re Dillard Dep't Stores,             80 (Del.2006). However, the court stated that the majority
Inc., 186 S.W.3d 514, 515 (Tex.2006) (stating that ordinary         view did not “mandate that arbitrators decide arbitrability
principles of “[c]ontract law determine [ ] the validity of         in all cases where an arbitration clause incorporates the
arbitration agreements,” a “trial court's determination of an       AAA rules.” Id. at 80. Rather, the court stated, the majority
arbitration agreement's validity is a legal question,” and          view “applies in those cases where the arbitration clause
“[t]he objective intent as expressed in the agreement controls      generally provides for arbitration of all disputes and also



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Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


incorporates a set of arbitration rules that empower arbitrators     *43 [4] Burlington asserts that the audit disputes identified
to decide arbitrability.” Id. The court noted that although the     in Exhibit C to the Arbitration Agreement confirm that (1)
arbitration agreement before it required arbitration of “any        the parties agreed to arbitrate only the Trust's complaint
controversy arising out of or related to [the agreement],” it       that its “gross proceeds were understated due to excess
also expressly authorized the non-breaching parties to obtain       royalties” charged against it based on the full value of
some limited types of relief in the courts. Id. at 81. Thus, the    the GCNM settlement and (2) the Trust's claim for a 75%
court concluded, “despite the broad language” at the outset of      share of the $6.7 million portion of the allegedly reallocated
the arbitration agreement and the reference in the agreement        GCNM settlement proceeds was never contemplated by
to the AAA rules, that “[s]ince this arbitration clause does        the parties to be an arbitrable claim. Rather, Burlington
not generally refer all controversies to arbitration, the federal   complains that the Trust asserted this new claim only after
majority rule does not apply, and something other than the          the commencement of arbitration. Burlington notes that the
incorporation of the AAA rules would be needed to establish         expressly stated subject matter of the first audit dispute was
that the parties intended to submit arbitrability questions to      that Burlington, “in adjusting gross proceeds to reflect the
an arbitrator.” Id.                                                 MMS/Jicarilla settlement[,] ... improperly deducted royalties
                                                                    paid supposedly on account of the $6.7 million in take-or-pay
We recognize that the arbitration agreements in both                claims not covered by the Conveyance.”
Katz and James & Jackson, LLC are quite different than
the Arbitration Agreement before us. For example, the               In fact, the dispute to be arbitrated arose from the Trust's
Arbitration Agreement here does not contain any provisions          allegation that the MMS/Jicarilla settlement was based upon
assigning decision-making authority on the specifically             the full amount of the GCNM settlement, including the $6.7
identified existing audit disputes to anyone other than the         million take-or-pay portion, that 12.3% of the MMS/Jicarilla
arbitrator. However, both Katz and James & Jackson, LLC             settlement, or approximately $500,000, was allocable to
illustrate the application of the principle that a court must       production in which the Trust had no interest, and that
carefully consider the language of the specific arbitration         the Trust should not have been charged for 75% of those
agreement before it in determining whether the parties have         payments. Moreover, the Trust's complaint about the second
clearly and unmistakably ceded authority to decide matters of       audit dispute simply concerned its claim for interest on the
arbitrability to an arbitrator. See id.; Katz, 290 F.3d at 97. A    amount at issue in the first audit dispute. In spite of these
court should not blindly apply the majority view regarding the      specifically identified and narrowly limited audit disputes,
effect of mere reference to AAA rules and ignore the “clear         the arbitrator ruled on a claim by the Trust that its “gross
and unmistakable standard” set forth by the Supreme Court           proceeds were understated, not due to the deduction or
in Kaplan. See Kaplan, 514 U.S. at 944, 115 S.Ct. at 1924.          charge of royalties paid to MMS and the Jicarilla tribe,
                                                                    but, instead, due to the exclusion of $6.7 million of receipts
Accordingly, we hold that Burlington and the Trust did              under gas purchase contracts in the GCNM settlement that
not agree in the Arbitration Agreement, by clear and                [Burlington] has attributed to take-or-pay obligations.” Yet,
unmistakable language, to submit questions regarding the            as Burlington highlights, there is absolutely no mention of the
scope of arbitrable issues to the arbitrator. See id., 514 U.S.     GCNM settlement in Exhibit C, nor is there any suggestion
at 942–44, 115 S.Ct. at 1923–25.                                    that the Trust would be seeking to recover in arbitration
                                                                    approximately $6 million based on its theory that Burlington
We sustain Burlington's first issue.                                had reallocated funds from its 1990 settlement. Burlington
                                                                    argues that “the sheer numbers involved” in the Trust's newly
                                                                    asserted claim preclude it “from being shoehorned into the
                                                                    ‘excess royalties' concept” identified in Exhibit C.
              Scope of Arbitration Agreement

In its second issue, Burlington argues that “construing the         The Trust, on the other hand, asserts that the audit disputes
scope of the arbitration agreement de novo,” the Trust's claim      describe its complaint that Burlington had charged it with
for its “75% share of additional gross proceeds resulting from      excess royalties relating to Burlington's reallocation of the
the reallocation of $6.7 million to past pricing” is not within     $6.7 million in take-or-pay claims without sharing those
                                                                    proceeds with the Trust. The Trust notes that, despite the
the scope of the Arbitration Agreement. 4
                                                                    specific arbitrate amounts, Exhibit C states that “[a]ll amounts



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Burlington Resources Oil & Gas Co. LP v. San Juan Basin..., 249 S.W.3d 34 (2007)


stated are subject to change.” The Trust asserts that this          shall modify or correct award if “the arbitrators have made
language justifies the arbitration award of over $6 million,        an award with respect to a matter not submitted to them
even though the relevant “arbitrate amount” for the two             and the award may be corrected without affecting the merits
audit disputes was $374,978. The Trust, as additional support       of the decision made with respect to the issues that were
for its claim for a 75% share of the full value of the              submitted”).
GCNM settlement, cites a November 1, 2002 letter from it to
Burlington stating,                                                  [5]    [6]    [7]    [8] In reviewing the arbitrator's decision
                                                                    independently, we recognize the strong presumption under
  The Trust was not paid any royalties on the take-or-pay           the Federal Arbitration Act of favoring arbitration. See In re
  settlement [of 6.7 million]. The Trust did not pursue a claim     D. Wilson Constr. Co., 196 S.W.3d 774, 782–83 (Tex.2006).
  for royalties on that amount, and does not now want to            Furthermore, we note that any doubt as to whether a party's
  be assessed any portion of the current settlement which           claim falls within the scope of an arbitration agreement
  is attributable to royalties which should *44 have been           must be resolved in favor of arbitration. Id. Also, a court
  paid to the MMS or Jicarillas on the take-or-pay portion          should not deny arbitration unless it can be said with positive
  because the Trust did not share in the economic benefits          assurance that an arbitration clause is not susceptible to an
  attributable to the take-or-pay settlement in 1990. If the        interpretation that would cover the dispute at issue. Id.; see
  “major portion” settlement took into account the take-or-         also In re Dillard Dept. Stores, Inc., 186 S.W.3d at 516. Of
  pay claim, the amount allocated to the Trust should be            course, “the policy that favors resolving doubts in favor of
  reduced ...                                                       arbitration cannot serve to stretch a contractual clause beyond
                                                                    the scope intended by the parties or authorize an arbiter to
  If instead the 1990 settlement was “reallocated” such
                                                                    disregard or modify the plain and unambiguous provisions
  that more or all of the amount received by Burlington's
                                                                    of the agreement.” Smith v. Transp. Workers Union of Am.,
  successor [sic] was treated as “past pricing” or “contract
                                                                    AFL–CIO Air Transp. Local 556, 374 F.3d 372, 375 (5th
  buyout,” then the Trust is entitled to 75% net overriding
                                                                    Cir.2004) (citations omitted); see also Belmont Constructors,
  royalty interest on the 6.7 [million] no longer allocable to
                                                                    Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 356
  take-or-pay.
                                                                    (Tex.App.-Houston [1st Dist.] 1995, no writ) (stating that
                                                                    “federal policy of resolving doubts in favor of arbitration”
Based on this letter, the Trust asserts that it “made
                                                                    cannot stretch contractual clause beyond scope intended or
clear” throughout its dispute “its complaint that Burlington
                                                                    allow modification of plain and unambiguous provisions).
improperly had charged the Trust with royalty on settlement
proceeds without sharing those proceeds with the Trust” and
                                                                    With these principles in mind, and reviewing the arbitrator's
“the alternative remedies that it was seeking ... [to] either
                                                                    decision independently, we conclude that the relevant audit
eliminate the charge to the Trust of the royalties on the
                                                                    disputes describing the Trust's complaint *45 about its
proceeds or give the Trust its share of the proceeds.”
                                                                    understated gross proceeds due to Burlington's charge of
                                                                    excess royalties from the MMS/Jicarilla settlement is not
The Supreme Court stated in Kaplan that if “the parties did not
                                                                    susceptible to an interpretation for an alternative claim by the
agree to submit the arbitrability question itself to arbitration,
                                                                    Trust for a 75% interest in the allegedly reallocated proceeds
then the court should decide that question just as it would
                                                                    of $6.7 million portion of the 1990 GCNM settlement. We
decide any other question that the parties did not submit to
                                                                    can say, with positive assurance, that by making a claim for
arbitration, namely, independently.” Kaplan, 514 U.S. at 943,
                                                                    reallocated proceeds from the 1990 GCNM settlement, the
115 S.Ct. at 1923–24. The Federal Arbitration Act provides
                                                                    Trust was making a separate and new claim rather than a
that a court may vacate an arbitration award “where the
                                                                    claim covered by the “audit disputes” contemplated by the
arbitrators exceeded their powers, or so imperfectly executed
                                                                    parties in the Arbitration Agreement. The inescapable fact is
them that a mutual, final, and definite award upon the subject
                                                                    that the Arbitration Agreement provided specific “arbitrate
matter submitted was not made” and may modify or correct
                                                                    amounts” for each of the identified audit disputes, and the
an arbitration award “[w]here the arbitrators have awarded
                                                                    amount ultimately awarded by the arbitrator on the Trust's
upon a matter not submitted to them.” 9 U.S.C. §§ 10, 11; see
                                                                    newly asserted claim greatly exceeded, beyond any amount
also TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.088(a)
                                                                    that could have reasonably been contemplated by the parties,
(3)(A) (providing that court shall vacate award if arbitrators
                                                                    the amounts identified in the Arbitration Agreement. As the
exceed their powers), 171.091(a)(2) (providing that court


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                                                                         Rather, the unambiguous provisions of the Arbitration
Trust points out, the Arbitration Agreement did provide that
                                                                         Agreement, setting forth detailed descriptions of the relevant
the arbitrate amounts were “subject to change”; however, the
                                                                         audit disputes and the associated arbitrate amounts, control
inclusion of this language cannot justify the assertion of a
                                                                         our inquiry. See In re Dillard Dept. Stores, Inc., 186 S.W.3d
wholly separate claim. Again, the 1990 GCNM settlement
                                                                         at 515 (stating that “[t]he objective intent as expressed in
is not mentioned in the Arbitration Agreement. Allowing
                                                                         the agreement controls the construction of an unambiguous
the Trust to assert a claim for over $6 million shortly after
                                                                         contract”).
executing an agreement identifying the arbitration amounts
for the relevant audit disputes to be approximately $375,000
                                                                         In sum, the Arbitration Agreement cannot reasonably be
stretches the Arbitration Agreement beyond its breaking
                                                                         interpreted as authorizing the Trust's claim for its 75% share
point. Had the parties intended to arbitrate the Trust's claim
                                                                         of the full value of the 1990 GCNM settlement proceeds.
for reallocated proceeds from the 1990 GCNM settlement, the
                                                                         Accordingly, we hold that the Trust's claim was “clearly
parties could have included a reference to this settlement in
                                                                         beyond the agreed scope of the arbitration,” the arbitrator
the Arbitration Agreement and stated the appropriate arbitrate
                                                                         exceeded his powers in ruling on the Trust's claim, and the
amount.
                                                                         arbitrator entered an award on a matter not properly submitted
                                                                         to him. We further hold that the trial *46 court erred in
The Trust contends, in post-submission briefing, that “the
                                                                         confirming the arbitration award.
parties were not required to include in Exhibit C all sub-
issues entailed within that general description of the dispute
                                                                         We sustain Burlington's second issue.
and the alternative remedies to which the Trust might be
entitled, depending on facts that were solely within the control
of Burlington and which became known to the Trust only
following discovery undertaken in the course of arbitration                                          Conclusion
proceedings.” First, one cannot reasonably conclude that a
claim for over $6 million for allegedly reallocated proceeds             We reverse the portion of the trial court's judgment
from the 1990 GCNM settlement qualifies as a “sub-issue”                 confirming the portion of the arbitration award awarding the
of a specific “audit dispute” over understated gross proceeds            Trust $6,243,990 (labeled in the arbitration award as “MMS/
in the amount of $374,978. Second, the Trust's admission                 Jicarilla–Case A”), vacate that portion of the arbitration
that it did not learn of the underlying facts supporting                 award, and modify the award to reflect that this award
its newly asserted claim until after the commencement of                 has been vacated. We render a take-nothing judgment in
arbitration establishes that such a claim was not one of                 Burlington's favor on the Trust's claim giving rise to the
the “existing” audit disputes between the parties to be                  arbitration award of $6,243,990. We also reverse the portion
resolved by the Arbitration Agreement. Finally, we cannot,               of the trial court's judgment denying Burlington's claim for
as suggested by the Trust, rely on its November 2002 letter              breach of the Arbitration Agreement, and we remand for
as “clearly” putting Burlington “on notice of the Trust's                further proceedings consistent with this opinion.
position” that it was always seeking alternative remedies.


Footnotes
1      To avoid confusion, we make no distinction between Burlington and its predecessor, Southland Royalty Company (“Southland”).
2      The Trust explains that “[t]he overriding royalty interest is a ‘net’ interest, in the sense that Burlington, in calculating the payments
       to which the Trust is entitled, includes certain revenues (including proceeds from the sale of production from the properties) and
       certain expenses incurred in the operation of the properties (including royalties on production paid to royalty owners holding royalty
       interests in the properties).”
3      Citifinancial, Inc. v. Newton, 359 F.Supp.2d 545, 551 (S.D.Miss.2005).
4      Having held that the Arbitration Agreement does not clearly and unmistakably evidence the parties' intent to delegate the issue of
       determining arbitrability to the arbitrator, we need not consider Burlington's alternative contention in its second issue that even if
       the arbitrator is afforded “considerable leeway” in construing the scope of the arbitration agreement, the parties' dispute is “clearly
       beyond the agreed scope of the arbitration.” See Kaplan, 514 U.S. at 943, 115 S.Ct. at 1923–24.




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              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                      10
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)



                                                                                                                                 Scope
                     398 F.3d 205                                         and Standards of Review
             United States Court of Appeals,
                                                                          Court of Appeals reviewed de novo district
                    Second Circuit.
                                                                          court's decision that issue of arbitrability was for
          CONTEC CORPORATION, Plaintiff-                                  arbitrator, not court.
             Counter-Defendant-Appellee,                                  10 Cases that cite this headnote
                         v.
           REMOTE SOLUTION CO., LTD.,
                                                                    [2]   Alternative Dispute Resolution
         Defendant-Counterclaimant-Appellant.
                                                                                                                                 Evidence
         Docket No. 04-0382-CV. | Argued
                                                                          Under Federal Arbitration Act, there is general
       Dec. 9, 2004. | Decided Feb. 14, 2005.
                                                                          presumption that issue of arbitrability is resolved
Synopsis                                                                  by courts; presumption may be rebutted by
Background: Corporation/buyer sought to compel                            clear and unmistakable evidence from arbitration
arbitration of indemnification dispute with manufacturer                  agreement, as construed by relevant state law,
pursuant to arbitration clause of sales contract between                  that parties intended that question of arbitrability
manufacturer and corporation's predecessor, a limited                     shall be decided by arbitrator. 9 U.S.C.A. § 1 et
partnership. Manufacturer counterclaimed, contending that it              seq.
could not be compelled to arbitrate with non-signatory to
                                                                          90 Cases that cite this headnote
contract. The United States District Court for the Northern
District of New York, David N. Hurd, J., dismissed
action, ruling that issue of arbitrability was for arbitrator.      [3]   Alternative Dispute Resolution
Manufacturer appealed.
                                                                                                                                 Evidence
                                                                          When parties to arbitration agreement explicitly
                                                                          incorporate rules that empower arbitrator to
Holdings: The Court of Appeals, Oakes, Senior Circuit
                                                                          decide issues of arbitrability, incorporation
Judge, held that:
                                                                          serves as clear and unmistakable evidence
                                                                          of parties' intent to delegate such issues to
[1] arbitration of arbitrability issue was appropriate
                                                                          arbitrator, thus rebutting Federal Arbitration
for indemnification claim, even though corporation was
                                                                          Act's general presumption in favor of courts'
nonsignatory to contract, and
                                                                          deciding arbitrability. 9 U.S.C.A. § 1 et seq.

[2] corporation as non-signatory could compel arbitration                 141 Cases that cite this headnote
of indemnification claim, since issue of whether contract's
arbitration rights were validly assigned by limited partnership
to corporation was issue of arbitrability and thus was              [4]   Alternative Dispute Resolution
within arbitrator's jurisdiction pursuant to arbitration clause's                                                                Persons
delegation provision.                                                     Affected or Bound
                                                                          In determining whether arbitration of
Affirmed.                                                                 arbitrability question is appropriate as between
                                                                          signatory to arbitration agreement and non-
                                                                          signatory, court must first determine whether
                                                                          parties have sufficient relationship to each
 West Headnotes (6)                                                       other and to rights created under agreement. 9
                                                                          U.S.C.A. § 1 et seq.
 [1]     Alternative Dispute Resolution


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              1
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)




        45 Cases that cite this headnote                                  51 Cases that cite this headnote


 [5]    Alternative Dispute Resolution

                                                             Persons
                                                                  Attorneys and Law Firms
        Affected or Bound
                                                                   *206 David L. Finger, Wilmington, DE (Finger & Slanina,
        Alternative Dispute Resolution
                                                                   LLC; and Madeline H. Kibrick Kauffman, Nolan & Heller,
                                                             Sales LLP, Albany, NY, of counsel), for Appellant.
        Contracts Disputes
                                                                  Kenneth L. Stein, New York, N.Y. (Jones Day, of counsel),
        Under arbitration clause of sales contract
                                                                  for Appellee.
        between manufacturer and corporation's
        predecessor, which contained clear delegation             Before OAKES, JACOBS, and CABRANES, Circuit Judges.
        to arbitrator of question of arbitrability,
        arbitration of arbitrability issue was appropriate        Opinion
        for corporation's indemnification claim against
                                                                   *207 OAKES, Senior Circuit Judge.
        manufacturer arising under contract, even
        though corporation was nonsignatory to                    This case originated when Contec Corporation filed suit
        contract; there was undisputed relationship               to compel Remote Solution Co., Ltd. (“Remote Solution”)
        between manufacturer and both corporation and             to arbitrate an indemnification dispute. Remote Solution
        predecessor, and dispute arose because parties            argued that it could not be compelled to participate in
        had continued to conduct themselves as subject            arbitration because Contec Corporation was a non-signatory
        to sales contract regardless of any changes in            to the arbitration agreement Remote Solution had signed with
        corporate form. 9 U.S.C.A. § 1 et seq.                    Contec L.P. in 1999. The United States District Court for
                                                                  the Northern District of New York, David N. Hurd, Judge,
        28 Cases that cite this headnote
                                                                  dismissed the suit, finding that whether a valid arbitration
                                                                  agreement existed between Remote Solution and Contec
 [6]    Alternative Dispute Resolution                            Corporation was an issue to be decided by the arbitrator.
                                                                  We agree with the district court that Remote Solution is
                                                            Arbitrability
                                                                  compelled under the agreement it signed with Contec L.P. to
        of Dispute
                                                                  arbitrate the question of arbitration with Contec Corporation.
        Under arbitration clause of sales contract                Accordingly, we affirm.
        between manufacturer and corporation's
        predecessor, which contained clear delegation
        to arbitrator of question of arbitrability,
        corporation could compel arbitration of its                                      BACKGROUND
        indemnification claim against manufacturer
                                                                  In 1999, Contec L.P. and Hango Electronics, a Korean
        arising under contract, even though contract
                                                                  electronics company that subsequently changed its name
        prohibited assignment of rights and excluded
                                                                  to Remote Solution, entered into an agreement for the
        third-party rights; whether contract's arbitration
                                                                  manufacturing and purchase of remote control devices (“the
        rights were validly assigned by predecessor to
                                                                  1999 Agreement”). Later in 1999, Contec L.P. was converted
        corporation was issue that pertained directly
                                                                  to Contec LLC and then, in 2001, merged with Contec
        to continued existence, scope or validity of
                                                                  Corporation, leaving Contec Corporation as the surviving
        contract, i.e. was issue of arbitrability, and thus
                                                                  entity. These changes in corporate form did not alter Contec's
        was within jurisdiction of arbitrator pursuant
                                                                  address or ownership and allegedly did not impact its business
        to arbitration clause's delegation provision. 9
                                                                  relationship with Remote Solution.
        U.S.C.A. § 1 et seq.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            2
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)


In 2000 and 2002, Contec Corporation was sued for alleged                    arbitration. This is the agreement that
patent infringement. Under an indemnification provision of                   Remote Solution ... agreed to.
the 1999 Agreement, Remote Solution was required to defend
Contec L.P. in any patent infringement suit and pay any         This appeal followed.
and all costs or damages awarded. Remote Solution did not
make any indemnification payments to Contec Corporation
for costs Contec Corporation incurred in connection with the                            DISCUSSION
suit. Contec Corporation therefore withheld payment on a
shipment of remote control units as a setoff against amounts     [1] Our review of “whether the issue of arbitrability is for the
it believed it was owed by Remote Solution.                     court or for the arbitrator” is de novo. Bell v. Cendant Corp.,
                                                                293 F.3d 563, 565-66 (2d Cir.2002); see also Shaw Group
In June 2003, Remote Solution filed suit against Contec         Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 120 (2d Cir.2003).
Corporation in Korea. Relying on Paragraph 19 of the 1999
Agreement, which required that all disputes arising under the    [2]    The 1999 Agreement, as a contract involving
agreement be arbitrated, Contec Corporation filed a demand      international commerce, is governed by the Federal
for arbitration with the American Arbitration Association.      Arbitration Act (“FAA”). See 9 U.S.C. §§ 1, 2 (2004); David
Additionally, it filed suit in the district court seeking to    L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245,
compel arbitration and an order to dismiss or stay Remote       249 (2d Cir.1991) (noting that the Supreme Court held in
Solution's lawsuit in Korea.                                    Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
                                                                395, 402, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), that the
In the district court proceedings, Remote Solution contended    FAA “applies in federal court to diversity suits which relate
that Contec Corporation was not a signatory to the              to contracts involving interstate or international commerce”).
1999 Agreement and was therefore barred from seeking            Under the FAA, there is a general presumption that the issue
its enforcement. In response, Contec Corporation argued         of arbitrability should be resolved by the courts. See First
that arbitration, not the court, was the proper forum for       Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45,
determining whether a valid arbitration agreement existed       115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Acknowledging
between itself and Remote Solution.                             this presumption, we have held that “the issue of arbitrability
                                                                may only be referred to the arbitrator if there is clear and
In December 2003, the district court dismissed the suit,        unmistakable evidence from the arbitration agreement, as
finding that “all claims set forth in the complaint and         construed by the relevant state law, that the parties intended
counterclaim are subject to arbitration.” The district court    that the question of arbitrability shall be decided by the
explained its reasoning as follows:                             arbitrator.” Bell, 293 F.3d at 566 (emphasis in original)
                                                                (internal quotations omitted). 1
            [T]he threshold question is whether
            Contec Corp.'s purported right to
                                                                The arbitration clause at issue here appears in paragraph 19
            enforce the agreement falls within
                                                                of the 1999 Agreement and provides:
            the scope of the arbitration clause.
            The agreement clearly provides                                   In the event of any controversy arising
            that any dispute arising under the                               with respect to this Agreement, both
            agreement will be resolved by                                    parties shall use its best efforts to
            arbitration in accordance with the                               resolve the controversy. In the event
            Commercial Arbitration Rules of                                  the parties are unable to arrive at
            the American Arbitration Association.                            a resolution, such controversy shall
            The Commercial Arbitration Rules                                 be determined by arbitration held
            provide that issues of jurisdiction,                             in the City of Albany, New York
            including objections regarding the                               in accordance with the Commercial
            scope or validity of the arbitration                             Arbitration Rules of the American
            agreement, are subject *208 to                                   Arbitration Association (the “AAA”)




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Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)


            or any organization that is the                       referring issues of arbitrability to arbitrators). A useful
            successor thereto ....                                benchmark for relational sufficiency can be found in our
                                                                  estoppel decision in Choctaw Generation Ltd. P'ship v. Am.
Rule 7 of the AAA Commercial Arbitration Rules states with        Home Assurance Co., where we held that the signatory to an
respect to jurisdiction that “[t]he arbitrator shall have the     arbitration agreement “is estopped from avoiding arbitration
power to rule on his or her own jurisdiction, including any       with a non-signatory ‘when the issues the non-signatory is
objections with respect to the existence, scope or validity of    seeking to resolve in arbitration are intertwined with the
the arbitration agreement.” AAA Rule R-7(a).                      agreement that the estopped party has signed.’ ” 271 F.3d
                                                                  403, 404 (2d Cir.2001)(quoting Smith/Enron Cogeneration
 [3] We have held that when, as here, parties explicitly          Ltd. P'ship v. Smith Cogeneration Int'l Inc., 198 F.3d 88, 98
incorporate rules that empower an arbitrator to decide            (2d Cir.1999)). In Choctaw, we summarized the factors laid
issues of arbitrability, the incorporation serves as clear and    out in Smith/Enron as “the relationship among the parties, the
unmistakable evidence of the parties' intent to delegate          contracts they signed (or did not), and the issues that ha[ve]
such issues to an arbitrator. See Shaw Group, 322 F.3d            arisen.” Id. at 406.
at 122; PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1202
(2d Cir.1996). There can be no doubt that the 1999                 [5] In the present case, neither we nor the district court
Agreement bound its signatory Remote Solution to arbitrate        must reach the question whether Remote Solution is estopped
any disputes with the Agreement's other signatory, namely,        from avoiding arbitration with Contec Corporation because,
Contec L.P. If Contec remained in its original corporate          under the 1999 Agreement, the circumstances indicate that
form, Remote Solution would be compelled to arbitrate the         arbitration of the issue of arbitrability is appropriate. First,
indemnification dispute at the heart of this case. Contec L.P.,   there is or was an undisputed relationship between each
however, has become Contec Corporation. The question,             corporate form of Contec and Remote Solution. Secondly,
therefore, is whether *209 Contec Corporation's ability           Remote Solution signed the 1999 Agreement. Finally, the
as a non-signatory to enforce the arbitration clause is an        dispute at issue arose because the parties apparently continued
issue pertaining to the “existence, scope or validity of the      to conduct themselves as subject to the 1999 Agreement
arbitration agreement” between Remote Solution and Contec         regardless of change in corporate form. These factors
L.P.                                                              demonstrate that a sufficient relationship existed between
                                                                  Contec Corporation and Remote Solution to permit Contec
Remote Solution argues that it cannot be compelled to             Corporation to compel arbitration even if, in the end, an
arbitrate with a stranger to the 1999 Agreement because the       arbitrator were to determine that the dispute itself is not
contractual language is effective only between the contracting    arbitrable because Contec Corporation cannot claim rights
parties. It contends that the 1999 Agreement included both a      under the 1999 Agreement.
prohibition on the assignment of rights under the Agreement
and an exclusion of third party rights, and that, therefore,       [6] Having determined that a sufficient relationship exists
there is no contractual evidence of Remote Solution's intent      between the parties, we must now address the more precise
to grant third parties the right to seek arbitration. According   question presented here: whether a non-signatory can compel
to Remote Solution, Contec Corporation's rights under the         a signatory to arbitrate under an agreement where the question
1999 Agreement, if any, fall outside the arbitration clause and   of arbitrability is itself subject to arbitration. Although our
thus cannot be an issue pertaining to the “existence, scope or    circuit has not previously considered this question, we are not
validity of the arbitration agreement.”                           without guidance in federal law.

 [4] As an initial matter, we recognize that just because         *210 In Apollo Computer, Inc. v. Berg, 886 F.2d 469
a signatory has agreed to arbitrate issues of arbitrability
                                                                  (1st Cir.1989), 2 the First Circuit decided a case virtually
with another party does not mean that it must arbitrate with
                                                                  indistinguishable from this one. The court considered whether
any non-signatory. In order to decide whether arbitration
                                                                  Apollo, a signatory to an arbitration agreement with another
of arbitrability is appropriate, a court must first determine
                                                                  company called Dico, could be compelled to arbitrate by
whether the parties have a sufficient relationship to each
                                                                  Dico's trustees in bankruptcy, who were non-signatories
other and to the rights created under the agreement. See First
                                                                  to the agreement. As in the instant case, the agreement
Options, 514 U.S. at 944-45, 115 S.Ct. 1920 (discussing
                                                                  between Apollo and Dico contained a non-assignment clause.
the necessity of threshold determination by courts before


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            4
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)


                                                                       unmistakable evidence of the parties' intent to arbitrate issues
Rejecting the argument that Apollo could not be compelled to
                                                                       of arbitrability. Moreover, in Microchip, the party that urged
arbitrate because there was no agreement between it and the
                                                                       arbitration was the signatory to the arbitration agreement
defendants, the court held:
                                                                       and the party that sought to avoid arbitration was *211
                                                                       the non-signatory. Id. at 1353. In this case, as in Apollo,
   The relevant agreement here is the one between Apollo               the party seeking to avoid arbitration was a signatory to the
   and Dico. The defendants claim that Dico's right to compel          arbitration agreement. Although the Microchip court found
   arbitration under that agreement has been assigned to               this distinction irrelevant, id. at 1358, we find it an important
   them.... Whether the right to compel arbitration ... was            indicator of Remote Solution's expectation and intent when
   validly assigned to the defendants and whether it can be            binding itself to the 1999 Agreement. See Motorola Credit
   enforced by them against Apollo are issues relating to the          Corp. v. Uzan, 388 F.3d 39, 52 (2d Cir.2004) (recognizing the
   continued existence and validity of the agreement.                  “principle [that] an arbitration clause is binding ... on those
   Id. at 473. Similarly, the relevant agreement here is               parties which have entered into a contractual agreement to
   the one Remote Solution signed with Contec L.P., in                 submit to arbitration”).
   which Remote Solution agreed to submit all disputes to
   arbitration. Under the reasoning of Apollo, whether the             After review of Apollo and Microchip, we find the reasoning
   arbitration rights under the 1999 Agreement were validly            of Apollo to be more persuasive and explicitly adopt it here. In
   assigned by Contec L.P. to Contec Corporation is an issue           Apollo, the court recognized that the question of arbitrability
   that pertains directly to the continued “existence, scope           would ordinarily be subject to judicial determination rather
   or validity” of the Agreement. As such, it is within the            than arbitration. Id. (citing Am. Safety Equip. Corp. v. J.P.
   jurisdiction of the arbitrator pursuant to AAA Rule R-7(a)          Maguire & Co., 391 F.2d 821, 828-29 (2d Cir.1968)).
   as incorporated into the 1999 Agreement.                            However, because Apollo, like Remote Solution, “agreed
In direct contrast to the holding in Apollo, the Federal Circuit       to be bound” by provisions that “clearly and unmistakably
held recently in a very similar case that “the question of             allow the arbitrator to determine her own jurisdiction” over
whether the parties agreed to arbitrate is to be decided by the        an agreement to arbitrate “whose continued existence and
court, not the arbitrator.” Microchip Tech. Inc. v. U.S. Philips       validity is being questioned,” it is the province of the
Corp., 367 F.3d 1350, 1358 (Fed.Cir.2004). In reaching this            arbitrator to “decide whether a valid arbitration agreement
conclusion, the Federal Circuit did not examine Apollo, but            exists.” Id. We therefore conclude that as a signatory to a
instead relied on Supreme Court cases that either did not              contract containing an arbitration clause and incorporating
address whether there was clear and unmistakable evidence of           by reference the AAA Rules, Remote Solution cannot now
the parties' intent to submit arbitrability to an arbitrator, id. at   disown its agreed-to obligation to arbitrate all disputes,
1357 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S.            including the question of arbitrability.
79, 83-84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (holding
that applicability of a National Association of Securities             We agree with the district court that Contec Corporation's
Dealers time limit provision is not the type of “gateway               purported right to enforce the 1999 Agreement is a matter
dispute” presumptively decided by the court)); AT & T Techs.,          of the Agreement's continued existence, validity and scope,
Inc. v. Communications Workers of Am., 475 U.S. 643,                   and is therefore subject to arbitration under the terms of
651, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (holding that               the arbitration clause. Accordingly, we hold that Remote
it was court's duty to determine whether layoff provision              Solution is compelled under the 1999 Agreement to arbitrate
was expressly excluded from labor agreement arbitration                the question of arbitrability with Contec Corporation.
clause), or found that such clear and unmistakable evidence
was absent; id. (citing First Options, 514 U.S. at 944-47,
115 S.Ct. 1920; John Wiley & Sons, Inc. v. Livingston,
                                                                                              CONCLUSION
376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964)). In
our view, these cases are not determinative when analyzing             For the foregoing reasons, the decision of the district court to
the factual situation presented by Microchip, Apollo, and              dismiss this case in favor of arbitration is affirmed.
the instant case, where incorporation of arbitration rules
giving jurisdiction to the arbitrator provides clear and




                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 5
Contec Corp. v. Remote Solution, Co., Ltd., 398 F.3d 205 (2005)




Footnotes
1      The 1999 Agreement is governed by New York law, which follows the same standard as federal law with respect to who determines
       arbitrability: generally, it is a question for the court unless there is “a ‘clear and unmistakable’ agreement to arbitrate arbitrability.”
       Shaw Group, 322 F.3d at 121 (quoting Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 45-46, 666 N.Y.S.2d 990, 993, 689
       N.E.2d 884 (1997)).
2      We have previously cited Apollo with approval for the proposition that parties who contract for arbitration in accordance with
       arbitration rules such as the AAA Commercial Arbitration Rules have “thereby agreed to submit questions of arbitrability to the
       arbitrator.” Shaw Group, 322 F.3d at 122-23.


End of Document                                                       © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                            6
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)


                                                                         Alternative Dispute Resolution
                    278 S.W.3d 497                                                                                              Disputes
                Court of Appeals of Texas,                               and Matters Arbitrable Under Agreement
                  Houston (14th Dist.).
                                                                         A party seeking to compel arbitration must
           ERNST & YOUNG LLP, Appellant,                                 establish that a valid arbitration agreement exists
                                                                         and that the claims asserted are within the scope
                            v.
                                                                         of the agreement. 9 U.S.C.A. § 1, et seq.
        J. David MARTIN, Michael Covarrubias,
            and Cathy Greenwold, Appellees.                              Cases that cite this headnote
            In re Ernst & Young LLP, Relator.

              Nos. 14–07–00821–CV, 14–                             [3]   Alternative Dispute Resolution
           07–00896–CV. | Feb. 5, 2009.                                                                                         Right
                                                                         to Enforcement and Defenses in General
Synopsis
Background: Clients brought suit against tax advisors after              Alternative Dispute Resolution
tax benefits claimed from implementing advisors' advice
                                                                                                                                Remedies
were disallowed. Advisors moved to compel arbitration under
                                                                         and Proceedings for Enforcement in General
Federal Arbitration Act (FAA) based on clients' engagement
letter with advisor. The 113th District Court, Harris County,            If a valid arbitration agreement exists and the
Patricia Ann Hancock, J., denied motion without explanation.             claims asserted are within the scope of the
Advisors made consolidated request for writ of mandamus                  agreement, a challenger must present a valid
and direct appeal.                                                       defense to the agreement; in absence of a valid
                                                                         defense, a trial court has no discretion to exercise
                                                                         and must compel arbitration. 9 U.S.C.A. § 1, et
                                                                         seq.
[Holding:] The Court of Appeals, Leslie B. Yates, J.,
held that clause of arbitration agreement that reallocated               Cases that cite this headnote
traditional court functions to the arbitrator was enforceable.

                                                                   [4]   Mandamus
Writ granted; direct appeal dismissed as moot.
                                                                                                                                Civil
                                                                         Proceedings Other Than Actions
                                                                         When a trial court improperly denies a motion to
 West Headnotes (7)                                                      compel arbitration under the Federal Arbitration
                                                                         Act (FAA), mandamus relief is appropriate. 9
                                                                         U.S.C.A. § 1, et seq.
 [1]    Alternative Dispute Resolution
                                                                         1 Cases that cite this headnote
                                                            What
        Law Governs
        Courts honor agreements to be bound by the                 [5]   Alternative Dispute Resolution
        Federal Arbitration Act (FAA). 9 U.S.C.A. § 1,
                                                                                                                                Arbitrability
        et seq.
                                                                         of Dispute
        3 Cases that cite this headnote                                  The Federal Arbitration Act (FAA) allows the
                                                                         parties to determine which issues are arbitrable,
                                                                         and the rule that courts usually decide issues of
 [2]    Alternative Dispute Resolution
                                                                         arbitrability is a default rule that applies unless
                                                            Validity



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              1
Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)


        the contract provides otherwise. 9 U.S.C.A. § 1,
        et seq.                                                  John E. Chapoton, Leif Alexander Olson, H. Ronald Welsh,
                                                                 Sarah A. Duckers, Houston, for appellees in 14-07-00821-
        2 Cases that cite this headnote                          CV.

                                                                 Leif Alexander Olson, H. Ronald Welsh, John E. Chapoton,
 [6]    Alternative Dispute Resolution                           Houston, for real party in interest in 14-07-00896-CV.
                                                            ScopePanel consists of Justices YATES, SEYMORE, and BOYCE.
        of Submission
        Parties to a contract can agree to submit
        any issue to arbitration, including questions of                                *499 OPINION
        arbitrability.
                                                                 LESLIE B. YATES, Justice.
        2 Cases that cite this headnote
                                                                This is a consolidated request for a writ of mandamus and
                                                                direct appeal by appellant Ernst & Young LLP (“E & Y”)
 [7]    Alternative Dispute Resolution
                                                                arising out of the trial court's denial of its motion to compel
                                                            As arbitration of the claims filed against it by appellees J. David
        Ousting Jurisdiction of or Precluding Resort to         Martin, Michael Covarrubias, and Cathy Greenwold. We
        Courts                                                  conclude the trial court abused its discretion in denying E &
        Alternative Dispute Resolution                          Y's motion to compel arbitration. We conditionally grant E
                                                                & Y's request for a writ of mandamus and dismiss its direct
                                                            Remedies
                                                                appeal as moot.
        and Proceedings for Enforcement in General
        Clause of arbitration agreement between tax
        advisors and clients that reallocated traditional                                Background
        court functions to the arbitrator was enforceable
        and could not serve as a basis for denying a             In 1999, appellees, California residents, hired E &
        motion to compel arbitration, absent argument            Y in California to provide tax advice. Appellees had
        that specific provision of agreement to have             anticipated that the actions they took pursuant to this advice
        the arbitrator decide all arbitrability issues           would provide tax benefits and potential economic profit.
        and resolve any contention that any arbitration          However, the IRS disallowed the tax benefits claimed from
        procedure was unenforceable was itself invalid;          implementing E & Y's tax advice, costing appellees millions
        clients never argued that they did not knowingly         of dollars in back taxes, penalties, and interest.
        agree to arbitration.
                                                                 Appellees sued E & Y, among other parties, asserting claims
        1 Cases that cite this headnote                          for malpractice and various other common law theories,
                                                                 including fraud and unjust enrichment. E & Y filed a motion
                                                                 to compel arbitration under the Federal Arbitration Act
                                                                 (“FAA”) and, in the alternative, under the Texas Arbitration
Attorneys and Law Firms                                          Act. This request was based on language in appellees'
                                                                 engagement letters with E & Y agreeing to submit all disputes
*498 J. Brett Busby, Mark Manela, Lee B. Kovarsky,               that could not be solved by mediation to arbitration. Appellees
Houston, Seth Farber, New York, NY, Paul Mogin,                  opposed arbitration, arguing that their contract with E &
Washington, DC, for appellant in 14-07-00821-CV.                 Y was unconscionable. The trial court denied the motion
                                                                 without explanation.
J. Brett Busby, Mike Stenglein, Mark D. Manela, Lee
B. Kovarsky, Houston, Justin Warf, Austin, for relator in
14-07-00896-CV.




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Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)


                                                                itself rather than contract as a whole). Regardless of which
                                                                analysis would otherwise apply, neither is relevant because
                           Analysis
                                                                the parties' agreement controls. The FAA allows the parties to
 [1] The parties all agree that the FAA controls in this case. determine which issues are arbitrable. See Hall Street Assocs.,
Indeed, the arbitration clause provides that disputes regarding L.L.C. v. Mattel, Inc., –––U.S. ––––, 128 S.Ct. 1396, 1404,
the enforceability of any part of the arbitration agreement     170  L.Ed.2d 254 (2008). The rule that courts usually decide
“shall be governed by the Federal Arbitration Act.” Courts      issues of arbitrability is a default rule that applies unless the
honor agreements to be bound by the FAA. In re Jim Walter       contract provides otherwise. See Howsam, 537 U.S. at 83,
Homes, Inc., 207 S.W.3d 888, 896 (Tex.App.-Houston [14th        123 S.Ct. 588. Parties to a contract can agree to submit any
Dist.2006], orig. proceeding).                                  issue to arbitration, including questions of arbitrability. See
                                                                First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943,
 [2] [3] [4] A party seeking to compel arbitration must 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); see also Forest Oil
establish that a valid arbitration agreement exists and that    Corp. v. McAllen, 268 S.W.3d 51, 61 n. 38 (Tex.2008) (noting
the claims asserted are within the scope of the agreement. In   general rule that parties can contract as they see fit).
re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex.2006)
(orig.proceeding); In re Igloo Prods. Corp., 238 S.W.3d 574,        [7]   The agreement here states:
577 (Tex.App.-Houston [14th Dist.] 2007, orig. proceeding
                                                                                Any issue concerning the extent
[mand. denied] ). If these showings are made, the burden
                                                                                to which any dispute is subject
shifts to the party opposing arbitration to present a valid
                                                                                to     arbitration, or    concerning
defense to the agreement. In re Igloo Prods. Corp., 238
                                                                                the applicability, interpretation, or
S.W.3d at 577. In the absence of a valid defense, the trial court
                                                                                enforceability of these procedures,
has no discretion to exercise and must compel arbitration.
                                                                                including any contention that all or
In re D. Wilson Constr. Co., 196 S.W.3d at 781; In re
                                                                                part of these procedures are invalid
Igloo Prods. Corp., 238 S.W.3d at 577. When a trial court
                                                                                or unenforceable, shall be governed
improperly denies a motion to compel arbitration under the
                                                                                by the [FAA] and resolved by the
FAA, mandamus relief is appropriate. In re Bank One, N.A.,
                                                                                arbitrators.
216 S.W.3d 825, 826 (Tex.2007) (orig.proceeding).
                                                                  As they acknowledged during oral argument, appellees
Appellees argue that arbitration is improper because the          make no argument that this specific provision—that is, the
contract is unconscionable under California law, which they       agreement to have the arbitrator decide all arbitrability issues
contend controls. They claim E & Y fraudulently induced           and resolve any contention that any arbitration procedure is
them to enter in to the agreement and that many terms of the      unenforceable—is itself invalid. Absent such an argument, an
agreement, such as limiting their damages to the fees paid to E   arbitration clause that reallocates traditional court functions
& Y, render the agreement unconscionable. E & Y argues that       to the arbitrator is enforceable and cannot serve as a basis for
California law does not apply, that even if it should, appellees  denying a motion to compel arbitration. See Forest Oil Corp.,
have not properly invoked it, and that the *500 agreement is      268 S.W.3d at 61 (finding trial court had no discretion but to
not unconscionable. We need not decide any of these issues        enforce contract provision “shrinking the court's traditional
because, under the terms of the contract, the arbitrator must     role and expanding the arbitrators' ” when nonmovant did
make these decisions.                                             not challenge that provision on any legal or public policy
                                                                  grounds); Anderson v. Pitney Bowes, Inc., No. C 04–4808
 [5]    [6] The parties disagree as to whether appellees' SBA, 2005 WL 1048700, at *2 & n. 4 (N.D.Cal. May 4, 2005)
unconscionability defense is the type of issue that should be     (granting motion to compel arbitration, despite allegation
decided by the court or the arbitrator. Compare Howsam v.         that arbitration was unconscionable, because contract stated
Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588,       arbitrator was to decide arbitrability issues and there was no
154 L.Ed.2d 491 (2002) (noting that arbitrability is generally    allegation that the provision giving arbitrator this power was
a question for the court), with Buckeye Check Cashing, Inc.       unconscionable); Carbajal v. Household Bank, FSB, No. 00
v. Cardegna, 546 U.S. 440, 446, 126 S.Ct. 1204, 163 L.Ed.2d       C 0626, 2003 WL 22159473, at *8 (N.D.Ill. Sept.18, 2003)
1038 (2006) (stating that issue of a contract's validity is to be (same), aff'd sub nom. Carbajal v. H & R Block Tax. Servs.,
decided by arbitrator unless challenge is to arbitration clause   372 F.3d 903 (7th Cir.2004).


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Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)




                                                                        The parties' arbitration clause clearly states that arguments
For the first time in post-submission briefing, appellees
                                                                        such as those made by appellees are to be decided by the
point to California case law purporting to hold that even
                                                                        arbitrator. Based on this unchallenged provision, the trial
when the arbitration agreement states that the arbitrator is to
                                                                        court had no discretion to deny E & Y's motion for arbitration.
decide arbitrability issues, an allegation of unconscionability
                                                                        Therefore, we conditionally grant the writ of mandamus and
effectively shifts that determination to the court. However,
                                                                        direct the trial court to (1) vacate its order denying E & Y's
unlike here, those cases involved a challenge to the agreement
                                                                        motion to compel arbitration and (2) grant E & Y's motion to
to arbitrate itself. See Bruni v. Didion, 160 Cal.App.4th
                                                                        compel arbitration. The writ will issue only if the trial court
1272, 73 Cal.Rptr.3d 395, 400, 408 (2008); *501 Murphy
                                                                        fails to comply. Insofar as we have granted full relief pursuant
v. Check ‘N Go, 156 Cal.App.4th 138, 67 Cal.Rptr.3d 120,
                                                                        to E & Y's request for a writ of mandamus, we dismiss E &
124–25 (2007); cf. Anderson, 2005 WL 1048700, at *2
                                                                        Y's direct appeal as moot. See In re D. Wilson Constr. Co.,
& n. 4. Appellees have never argued that they did not
                                                                        196 S.W.3d at 784 (granting mandamus relief for improperly
knowingly agree to arbitration or that the specific agreement
                                                                        denying arbitration and dismissing related direct appeal as
to allow the arbitrator to decide the issues of arbitrability and
                                                                        moot).
enforceability of the contract is unconscionable or otherwise
invalid.

End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  4
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

                                                                            When an appeal from a denial of a motion
                                                                            to compel arbitration turns on a legal
                     268 S.W.3d 51
                                                                            determination, the appellate court applies a de
                 Supreme Court of Texas.
                                                                            novo standard of review.
         FOREST OIL CORPORATION and
                                                                            10 Cases that cite this headnote
           Daniel B. Worden, Petitioners,
                         v.
  James Argyle McALLEN, El Rucio Land and Cattle                      [2]   Alternative Dispute Resolution
    Company, Inc., San Juanito Land Partnership,                                                                                     Arbitration
    and McAllen Trust Partnership, Respondents.                             favored; public policy

           No. 06–0178. | Argued Oct. 16,                                   Federal law and Texas law strongly favor
                                                                            arbitration. 9 U.S.C.A. § 1 et seq.; V.T.C.A.,
         2007. | Decided Aug. 29, 2008.
                                                                            Civil Practice & Remedies Code § 171.001 et
         | Rehearing Denied Nov. 14, 2008.
                                                                            seq.
Synopsis
                                                                            3 Cases that cite this headnote
Background: After mediated settlement in which parties
released claims relating to oil and gas royalties and mineral
underdevelopment but specifically excluded from the release           [3]   Alternative Dispute Resolution
claims for environmental liability and personal injury and
provided for arbitration of such unreleased claims, plaintiffs                                                                       Validity
brought action asserting environmental and personal injury                  Arbitration agreements that comport with
claims. After an evidentiary hearing, the 206th District Court,             traditional principles of contract law are upheld
Hidalgo County, Rose Guerra Reyna, J., 2005 WL 6036449,                     by the court.
denied defendants' motion to compel arbitration. Defendants
                                                                            4 Cases that cite this headnote
brought interlocutory appeal. The Corpus Christi–Edinburg
Court of Appeals, 2005 WL 3435061, affirmed. Review was
granted.                                                              [4]   Alternative Dispute Resolution

                                                                                                                                     Validity
                                                                            of assent
[Holding:] The Supreme Court, Don R. Willett, J.,
                                                                            While an arbitration agreement procured by
held that waiver-of-reliance provision precluded fraudulent
                                                                            fraud is unenforceable, the party opposing
inducement claim, with respect to arbitration clause.
                                                                            arbitration must show that the fraud relates to
                                                                            the arbitration provision specifically, not to the
Reversed and remanded.                                                      broader contract in which it appears.

                                                                            10 Cases that cite this headnote
Wallace B. Jefferson, C.J., filed a dissenting opinion, in which
Medina, J., joined.
                                                                      [5]   Alternative Dispute Resolution

                                                                                                                                     Discretion
 West Headnotes (10)                                                        If a trial court finds that the claim falls within the
                                                                            scope of a valid arbitration agreement, the court
 [1]     Alternative Dispute Resolution                                     has no discretion but to compel arbitration and
                                                                            stay its own proceedings.
                                                              Scope
         and standards of review                                            25 Cases that cite this headnote




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  1
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309


 [6]    Release                                                             4 Cases that cite this headnote

                                                             Fraud
        and Misrepresentation                                         [9]   Alternative Dispute Resolution
        A disclaimer of reliance on representations, in a                                                                         Disputes
        release, negates a fraudulent inducement claim,                     and Matters Arbitrable Under Agreement
        where the parties' intent to waive fraudulent
                                                                            Generally, after finding an arbitration agreement
        inducement claims is clear and specific.
                                                                            is valid, the court considers the agreement's
        30 Cases that cite this headnote                                    terms, to determine which issues are arbitrable.

                                                                            9 Cases that cite this headnote
 [7]    Alternative Dispute Resolution

                                                             Validity[10]   Alternative Dispute Resolution
        of assent
                                                                                                                                  Matters
        Waiver-of-reliance provision in mediated                            to Be Determined by Court
        settlement agreement, which agreement released
                                                                            Provision of arbitration agreement, taking away
        claims relating to oil and gas royalties
                                                                            court's traditional role of deciding the scope of
        and mineral underdevelopment but specifically
                                                                            an arbitration agreement once the court finds the
        excluded from the release claims for
                                                                            agreement is valid, and instead placing with the
        environmental liability and personal injury and
                                                                            arbitration panel the role of deciding the scope of
        provided for arbitration of such unreleased
                                                                            issues subject to arbitration, would be enforced,
        claims, precluded fraudulent inducement claim
                                                                            in absence of a challenge of such provision on
        with respect to arbitration clause; waiver-
                                                                            legal or public policy grounds.
        of-reliance provision constituted all-embracing
        disclaimer of any and all representations                           11 Cases that cite this headnote
        and thereby clearly and specifically expressed
        parties' intent to waive fraudulent inducement
        claims with respect to arbitration clause, terms
        of settlement agreement, including arbitration
                                                                     Attorneys and Law Firms
        clause, were negotiated rather than boilerplate,
        during negotiations the parties specifically                  *52 Geoffrey L. Harrison, Johnny W. Carter, Richard
        discussed arbitration of environmental and                   Wolf Hess, Susman Godfrey LLP, Houston, TX, Mitchell
        personal injury claims, party asserting fraudulent           C. Chaney, Aaron Pena Jr., Rodriguez Colvin Chaney
        inducement had been represented by counsel,                  & Saenz, L.L.P., Brownsville, TX, Neil E. Norquest,
        parties had dealt with each other in arm's length            Rodriguez, Colvin, Chaney & Saenz, L.L.P., Edinburg, TX,
        transaction, and parties were knowledgeable in               for Petitioners.
        business matters.
                                                                  Jon Christian Amberson, Larissa Janee Hood, Jon Christian
        42 Cases that cite this headnote                          Amberson, P.C., John F. Carroll, San Antonio, TX, Rolando
                                                                  Cantu, Rolando Cantu & Associates, P.L.L.C., McAllen, TX,
                                                                  Craig T. Enoch, David Scott Morris, Winstead Sechrest &
 [8]    Compromise and Settlement
                                                                  Minick P.C., Austin, TX, for Respondents.
                                                             Nature
        and Requisites                                            Joseph R. Knight, Baker & Botts, L.L.P., Austin, TX, for
                                                                  Amicus Curiae.
        Settlement agreement are highly favored by the
        law.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309


Opinion                                                           In 2004, McAllen sued Forest Oil to recover for
                                                                  environmental damage caused when Forest Oil allegedly
Justice WILLETT delivered the opinion of the Court,
                                                                  “used its access under the leases to the surface estate to bury
in which Justice HECHT, Justice O'NEILL, Justice
                                                                  highly toxic mercury-contaminated” material on the McAllen
WAINWRIGHT, Justice BRISTER, Justice GREEN, and
                                                                  Ranch. McAllen also alleged environmental and personal
Justice JOHNSON joined.
                                                                  injuries caused when Forest Oil moved oilfield drilling pipe
This commercial contract case asks whether an unambiguous         contaminated with radioactive material from the McAllen
waiver-of-reliance provision precludes a fraudulent-              Ranch to a nearby property, the Santillana Ranch, which
inducement claim as a matter of law. Here, sophisticated          housed a sanctuary for endangered rhinoceroses. 5
parties represented by counsel in an arm's-length transaction
negotiated a settlement agreement that included clear and         Forest Oil sought to compel arbitration under the settlement
broad waiver-of-reliance and release-of-claims language.          agreement, but *55 McAllen argued the arbitration
Because that agreement conclusively negates reliance on           provision was induced by fraud and thus unenforceable.
representations made by either side, any *53 fraudulent-          McAllen recounts assurances during the 1999 settlement
inducement claim, lodged here to avoid an arbitration             negotiations that no environmental pollutants or contaminants
provision, is contractually barred. We enforce the parties'       existed on the property. McAllen claims an unidentified
contract as written. Thus, we reverse the court of appeals'       lawyer for one of the four defendants “assured [McAllen]
judgment and remand to the trial court to compel arbitration      that there was no problem, no issue at all that [he] would be
in accordance with our opinion.                                   concerned about,” and McAllen says he signed the agreement
                                                                  based on that specific representation. McAllen claims that
                                                                  when this assurance of “no environmental issues” was given,
                                                                  Forest Oil knew all about the radioactive-contaminated pipe
          1. Factual and Procedural Background
                                                                  and the mercury-contaminated material.
In 1999, Forest Oil Corporation settled a long-running lawsuit
over oil and gas royalties and leasehold development with         After an evidentiary hearing on Forest Oil's motion to compel
James McAllen and others with interests in the McAllen            arbitration, the trial court denied the motion, and the court of
                                                                  appeals affirmed, applying a no-evidence standard of review
Ranch. 1 The settlement agreement resulted from a week-
                                                                  because the case was “an interlocutory appeal from an order
long mediation and released Forest Oil from “any and all”
                                                                  denying a motion to compel arbitration that involves the
claims “of any type or character known or unknown” that
are “in any manner relating to” the McAllen Ranch Leases          defense of fraudulent inducement.” 6 After examining the
and the covered lands, whether the claims sound in contract,      testimony of McAllen and a former Forest Oil employee,
                                                                  the court of appeals concluded there was some evidence
tort, trespass or any other theory. 2 While this sweeping
                                                                  to support the trial court's determination that the arbitration
release resolved the royalty and nondevelopment disputes, the
parties reserved the right to arbitrate under the Texas General   provision was induced by fraud. 7
Arbitration Act (TAA) claims “for environmental liability,
surface damages, personal *54 injury, or wrongful death            [1] This interlocutory appeal followed. 8 Although the court
occurring at any time and relating to the McAllen Ranch           of appeals treated Forest Oil's argument as an evidentiary
Leases.” The parties also incorporated into the settlement        challenge, this case fundamentally poses a legal question, not
agreement a separate surface agreement that detailed ongoing      a factual one: does McAllen's disclaimer of reliance on Forest
care and remediation of the surface estate. 3                     Oil's representations negate the fraudulent-inducement claim
                                                                  as a matter of law? We review this legal question de novo. 9
Importantly, the settlement agreement specifically disclaimed
reliance “upon any statement or any representation of any
agent of the parties” in executing the releases contained in
                                                                         2. Enforcement of the Parties' Arbitration
the agreement. 4 The parties also acknowledged they were            Agreement Under the Texas General Arbitration Act
“fully advised” by legal counsel as to both the contents and
consequences of the release.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             3
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

 [2] [3] [4] [5] We first address application of the TAA,
which the parties' settlement *56 agreement specifically         [E]ach of us [the Swansons] expressly warrants and
                                                                 represents and does hereby state ... and represent ... that no
invoked. Federal and Texas law strongly favor arbitration, 10
                                                                 promise or agreement which is not herein expressed has
and we uphold arbitration agreements that comport with
                                                                 been made to him or her in executing this release, and that
traditional principles of contract law. 11 While an arbitration  none of us is relying upon any statement or representation
agreement procured by fraud is unenforceable, 12 the party       of any agent of the parties being released hereby. Each
opposing arbitration must show that the fraud relates to the     of us is relying on his or her own judgment and each has
arbitration provision specifically, not to the broader contract  been represented by Hubert Johnson as legal counsel in this
                     13
in which it appears. If a trial court finds that the claim falls matter. The aforesaid legal counsel has read and explained
within the scope of a valid arbitration agreement, the “court    to each of us the entire contents of this Release in Full, as
has no discretion but to compel arbitration and stay its own         well as the legal consequences of this Release.... 18
proceedings.” 14                                                  After learning that Schlumberger later sold the interest
                                                                  to DeBeers for about $4 million, the Swansons sued,
Forest Oil challenges the trial court's refusal to compel         claiming Schlumberger had fraudulently induced them to
arbitration on three grounds: (1) the waiver-of-reliance          accept the low-price buyout. 19 They maintained that when
provision in the contract precludes as a matter of law            Schlumberger entered into the settlement, it knew that the
McAllen's ability to show the reliance element of fraudulent      Swansons' interest had a far higher value. 20
inducement; (2) McAllen cannot establish justifiable reliance
on oral representations that directly contradict the terms of a   Our decision in Schlumberger assumed that (1) the company
signed contract; and (3) McAllen cannot establish justifiable     knew during negotiations that it was misrepresenting the
reliance on statements made by an adversary. Because Forest       value of the interest, and (2) the misrepresentations were
Oil's first argument defeats McAllen's claim, we do not reach
                                                                  made with the intent of inducing the Swansons to settle. 21
the other two.
                                                                  Despite these assumptions, we held as a matter of law that the
                                                                  Swansons could not show fraudulent inducement. 22

3. Schlumberger Controls this Relevantly Similar Case:             [7] McAllen argues that Schlumberger is not controlling
The Parties' Broad Disclaimer of Reliance is Dispositive          because we restricted that holding to the record,
                                                                  and today's case involves “notable distinctions” and
Forest Oil contends the waiver-of-reliance provision in
                                                                  “material fact differences.” McAllen's chief argument to
the settlement agreement conclusively defeats McAllen's
                                                                  distinguish Schlumberger is that Schlumberger “focuses on
fraudulent inducement claim. We agree.
                                                                  representations that were made regarding the underlying
                                                                  agreement's core subject matter.” The dispute in
 [6]    We considered today's question in Schlumberger
                                                                  Schlumberger concerned the value of the Swansons' interest
Technology Corp. v. Swanson, holding that a disclaimer
                                                                  in the sea-diamond project, and the alleged misrepresentation,
of reliance on representations, “where the parties' intent is
                                                                  as described by McAllen, “pertained to the very thing
clear and specific, should be effective to negate a fraudulent
                                                                  disputed, which was resolved ‘once and for all’ in the
inducement claim.” 15 In that case—decided eighteen months
                                                                  settlement.” 23 This case is different, says McAllen, because
before the settlement in the instant case and construing
                                                                  the litigation that led to the 1999 settlement concerned royalty
virtually identical disclaimer language—Schlumberger and
                                                                  underpayments and mineral underdevelopment, issues having
the Swansons agreed to a complete release of claims to settle a
                                                                  nothing to do with the environmental and personal-injury torts
dispute involving an underwater diamond-mining project off
                                                                  that sparked the current litigation and were excepted from
the South African coast. 16 The Swansons sold their interests     the settlement agreement. That is, while the misrepresentation
in the venture to Schlumberger for roughly $1 million, 17         in Schlumberger “pertained to the very matter negotiated,
and *57 the parties signed a settlement agreement, which          settled, and released”—a factor that McAllen terms “the
included this waiver-of-reliance provision:                       primary basis” for the Court's holding—the misrepresentation
                                                                  here did not concern known disputed matters (which were
                                                                  settled and released) but potential future disputes (which were



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             4
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

set aside and reserved). And the disclaimer applies solely to    and remediate past and future contamination. Therefore,
representations about the former, not the latter. Under this     the parties expressly negotiated the treatment of surface
banner, McAllen makes three subsidiary arguments.                issues; environmental issues were an important aspect of
                                                                 the contract. Although the settlement agreement does not
First, McAllen stresses that the parties' settlement in          preclude all future environmental disputes, it does require
Schlumberger definitively ended their valuation dispute.         arbitration of them.
McAllen points out that the settled dispute was the
only dispute, meaning that the agreed-to disclaimer was          Second, McAllen contends the settlement language itself
sufficiently specific to bar a *58 later fraudulent-             compels a different result from Schlumberger. McAllen
inducement suit alleging one side misled the other about         maintains that the disclaimer he signed is limited by its terms
valuation. 24 By contrast, in this case, ending the royalty      to representations about the matters released and settled, not
underpayment and mineral underdevelopment dispute was            to misrepresentations about matters reserved and excluded
not the sole purpose of the settlement agreement, McAllen        from the settlement. Here, the waiver-of-reliance provision
argues, making the disclaimer insufficiently specific to be      states: “Each of the [plaintiffs] expressly warrants and
applied to every representation made by Forest Oil.              represents and does hereby state and represent that no promise
                                                                 or agreement which is not herein expressed has been made
McAllen identifies a valid factual distinction, but we fail      to him, her, or it in executing the releases contained in this
to see how the disclaimer's preclusive effect should be          Agreement....” 27 McAllen claims the isolated *59 phrase
different where, as here, the parties agreed to resolve          “in executing the releases” limits the waiver's application only
litigated claims and arbitrate future ones. Although we noted    to released claims because the phrase refers to “releases”
in Schlumberger that the company's representations about         in the plural. Because an arbitration provision is not a
the project's value and feasibility led to “the very dispute     release, he reasons, the parties did not waive reliance with
that the release was supposed to resolve,” 25 this language      respect to misrepresentations concerning the matters reserved
is more accurately interpreted as emphatic language, not         for arbitration. This argument discounts the second half of
limiting language. Our analysis in Schlumberger rested on        the same sentence, which makes clear the parties intended
the paramount principle that Texas courts should uphold          an exhaustive waiver unconfined to claims specifically
contracts negotiated at arm's length by “knowledgeable           released: “none of them is relying upon any statement
and sophisticated business players” represented by “highly       or any representation of any agent of the parties being
competent and able legal counsel,” a principle that applies      released hereby.” 28 Contrary to McAllen's interpretation, a
with equal force to contracts that reserve future claims as to   natural and contextual reading, given the repeated and all-
contracts that settle all claims. 26 Essentially, Schlumberger   encompassing “any” modifier, is not nearly so restrictive. It
holds that when knowledgeable parties expressly discuss          rather plainly means the parties, “in executing the releases,”
material issues during contract negotiations but nevertheless    were not led astray by any representations whatsoever, even
elect to include waiver-of-reliance and release-of-claims        representations about nonreleased claims since those, too,
provisions, the Court will generally uphold the contract.        can induce someone to release other claims. The disclaimer's
An all-embracing disclaimer of any and all representations,      words do not say what McAllen construes them to say,
as here, shows the parties' clear intent. A “once and for        that there was “no promise or agreement concerning the
all” settlement may constitute an additional factor urging       released claims which is not herein expressed”; those four
rejection of fraud-based claims, but a freely negotiated         italicized words do not exist. Waiving reliance on statements
agreement to settle present disputes and arbitrate future ones   made in executing the release provisions encompasses both
should also be enforceable. Moreover, contrary to McAllen's      claims released and reserved because even statements about
assertions, the parties' discussions here did in fact address    the latter can nudge assent to settle the former. Notably, in
environmental matters. Not only were such matters “very          this case, the release itself (in a section titled “Releases” no
important” to McAllen during settlement negotiations, as he      less) specifically requires arbitration, making clear that at
testified, the parties also negotiated the surface agreement,    the time of the agreement, the parties disclaimed reliance
which directly touches on the subject of Forest Oil's alleged    with respect to all decisions being made during negotiations,
fraud: environmental contamination on the McAllen Ranch.         including the decision to resolve future disputes regarding
The surface agreement, incorporated into the settlement          environmental and personal-injury claims via arbitration. It is
agreement, required Forest Oil to remove hazardous material      difficult to argue that Forest Oil's alleged fraud in obtaining


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            5
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

arbitration bears no relation to the release when the arbitration   complaining party was represented by counsel; (3) the parties
requirement appears in the release. It is similarly difficult to    dealt with each other in an arm's length transaction; (4) the
square McAllen's argument with this explicit language from          parties were knowledgeable in business matters; and (5) the
the settlement agreement, which incorporated the surface            release language was clear. These factors were each present
agreement: “disputes relating to this Agreement ... will be         in Schlumberger, and they are each present in this case.
resolved by arbitration.” 29
                                                                    [8]     Refusing to honor a settlement agreement—an
Third, McAllen argues that fraudulent inducement “is                agreement highly favored by the law 33 —under these facts
essentially a meeting-of-the-minds argument,” and there was         would invite unfortunate consequences for everyday business
no such meeting here regarding the arbitration agreement            transactions and the efficient settlement of disputes. After-
because Forest Oil knew all along of the potential                  the-fact protests of misrepresentation are easily lodged, and
for environmental claims while simultaneously assuring              parties who contractually promise not to rely on extra-
McAllen “there [were] no issues having to do with the               contractual statements—more than that, promise that they
surface.” The parties thus had no common understanding              have in fact not relied upon such statements—should be held
of the facts underlying the contract, according to McAllen.         to their word. Parties should not sign contracts while crossing
But the settlement agreement itself belies this argument.           their fingers behind their backs. McAllen accuses Forest Oil
The parties agreed that they might disagree and decided to          of deceit, but Forest Oil could make the same allegation
arbitrate any environmental or personal-injury disputes that        against McAllen—who by his own admission and in writing
might later arise. If they were certain such disagreements          is claiming the opposite now of what he expressly disclaimed
would never arise, there would have been no need to                 then. It is not asking too much that parties not rely on extra-
reserve future claims for arbitration. The act of specifically      contractual statements that they contract not to rely on (or
carving out this discrete category of contamination claims          else set forth the relied-upon representations in the contract
shows that McAllen in fact placed little trust in Forest Oil's      or except them from the disclaimer). *61 If disclaimers of
assurances that there were “no issues having to do with             reliance cannot ensure finality and preclude post-deal claims
the surface” and that both parties recognized the possibility       for fraudulent inducement, then freedom of contract, even
that McAllen might pursue future claims. Moreover, there            among the most knowledgeable parties advised by the most
is an arbitration provision in the environment-focused              knowledgeable legal counsel, is grievously impaired.
surface agreement itself, not only in the broader settlement
agreement. According to the surface agreement, *60                  We conclude the arbitration requirement is integral to
“[s]urface issues which arise in connection with the Leases”        the overall release and the settlement agreement's waiver-
must be arbitrated. McAllen knew environmental disputes             of-reliance language applies by its terms to the parties'
might arise and agreed to arbitrate these disputes.                 commitment to arbitrate. None of McAllen's arguments
                                                                    materially distinguishes our holding in Schlumberger: “a
It is true that Schlumberger noted a disclaimer of reliance         release that clearly expresses the parties' intent to waive
“will not always bar a fraudulent inducement claim,” 30             fraudulent inducement claims, or one that disclaims reliance
but this statement merely acknowledges that facts may               on representations about specific matters in dispute, can
exist where the disclaimer lacks “the requisite clear and           preclude a claim of fraudulent inducement.” 34 Today's
unequivocal expression of intent necessary to disclaim              holding should not be construed to mean that a mere
reliance” on the specific representations at issue. 31 Courts       disclaimer standing alone will forgive intentional lies
must always examine the contract itself and the totality of         regardless of context. We decline to adopt a per se rule that a
the surrounding circumstances when determining if a waiver-         disclaimer automatically precludes a fraudulent-inducement
of-reliance provision is binding. We did so in Schlumberger,        claim, but we hold today, as in Schlumberger, that “on
but since courts of appeals seem to disagree over which             this record,” the disclaimer of reliance refutes the required
                                                                    element of reliance.
Schlumberger facts were most relevant, 32 we now clarify
those that guided our reasoning: (1) the terms of the
contract were negotiated, rather than boilerplate, and during
negotiations the parties specifically discussed the issue which                 4. Scope of the Arbitration Clause
has become the topic of the subsequent dispute; (2) the



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             6
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

 [9]   [10] Having determined that McAllen's fraudulent-          a matter of law the element of reliance needed to support
inducement claim cannot defeat the arbitration provision in       McAllen's fraudulent-inducement claim. Because Forest Oil
the 1999 settlement agreement, we now turn to whether             has demonstrated that a valid arbitration agreement exists,
McAllen's claims fall within the scope of that arbitration        an agreement that empowers the arbitrators to determine
provision. 35 Generally, after finding an agreement valid, a      what issues are arbitrable, we reverse the court of appeals'
court considers the agreement's terms to determine which          judgment and remand this case to the trial court to compel
                                                                  arbitration in accordance with our opinion.
issues are arbitrable. 36 This arbitration agreement, however,
removes the “scope determination” from the court and places
it with the arbitration panel. 37 This provision, shrinking the
court's traditional role and expanding the arbitrators', is not   Chief Justice JEFFERSON filed a dissenting opinion, in
                                                                  which Justice MEDINA joined.
challenged on legal or public policy grounds. 38 Accordingly,
we have no discretion but to direct the trial court to compel     Chief Justice JEFFERSON, joined by Justice MEDINA,
                                             39                   dissenting.
arbitration and stay McAllen's litigation.
                                                                  According to the Court, the considerations most relevant to
The remaining question is what should happen to the claims        our analysis in Schlumberger Technology Corp. v. Swanson,
brought by the nonsignatory plaintiffs who are not parties        959 S.W.2d 171 (Tex.1997), were:
to the arbitration requirement (or to this appeal). Forest
Oil concedes the trial court cannot order the nonsignatory                     (1) the terms of the contract were
plaintiffs to arbitration. Section 171.025(a) of the Civil                     negotiated, rather than boilerplate,
Practice and Remedies Code provides that “[t]he court shall                    and during negotiations the parties
stay a proceeding that *62 involves an issue subject to                        specifically discussed the issue which
arbitration if an order for arbitration or an application for                  has become the topic of the subsequent
that order is made under this subchapter.” Section 171.025(b)                  dispute; (2) the complaining party was
                                                                               represented by counsel; (3) the parties
expressly allows for the severance of nonarbitrable issues. 40
                                                                               dealt with each other in an arm'slength
Because the trial court is better positioned to make that
                                                                               transaction; (4) the parties were
determination in this instance, we remand the severance issue
                                                                               knowledgeable in business matters;
to that court.
                                                                               and (5) the release language was clear.

However, as noted above, McAllen and Forest Oil agreed to         268 S.W.3d 60. My disagreement with the Court centers
arbitrate disputes over what the agreement covers. In terms       on the first point. Under the Court's analysis, a party may
of timing, the arbitrators should decide scope before the         intentionally misrepresent facts essential to the bargain to
trial court decides severance. It is impractical (and probably    induce the other to sign, as long as the agreement says reliance
impossible) for the trial court to decide the severability of     is waived. This is not sound policy, and Schlumberger does
the nonsignatories' claims before the arbitration panel has       not support this result. I would hold that McAllen's fraudulent
decided the scope of the signatories' claims. Accordingly, the    inducement claim survives the disclaimer of reliance at issue
trial court, in order to make an informed severance decision,     here. Because the Court does not, I respectfully dissent.
should defer its decision until the arbitrators decide which
issues are arbitrable.

                                                                                                 I

                        5. Conclusion
                                                                                          Schlumberger
McAllen may be correct that “[t]he facts of this case
are not the facts of Schlumberger ”—every case involves           In Schlumberger, we noted that we had previously held “as a
unique facts—but the decisive ones are assuredly close            matter of policy, that a merger clause can be avoided based
enough that Schlumberger binds this relevantly similar            on fraud in the inducement and that the parol evidence rule
case. The unequivocal disclaimer of reliance in the parties'      does not bar proof of such fraud,” and that “[i]n doing so,
bargained-for settlement agreement conclusively negates as        we brought *63 the law on the subject ‘into harmony with



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             7
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

the great weight of authority, with the rule of the Restatement    [d]” in Schlumberger “that a disclaimer of reliance or merger
of the Law of Contracts, and with the views of eminent             clause will not always bar a fraudulent inducement claim.” Id.
textwriters.’ ” Schlumberger, 959 S.W.2d at 179 (quoting           We cited Prudential Insurance Co. of America v. Jefferson
Dallas Farm Mach. Co. v. Reaves, 158 Tex. 1, 307 S.W.2d            Associates, in which we said “[a] buyer is not bound by an
233, 239 (1957)). This remains the general rule in Texas. See      agreement to purchase something ‘as is' that he is induced to
Prudential Ins. Co. of Am. v. Jefferson Assocs., 896 S.W.2d        make because of a fraudulent representation or concealment
156, 162 (Tex.1995); see also Weitzel v. Barnes, 691 S.W.2d        of information by the seller.” Prudential, 896 S.W.2d 156,
598, 600 (Tex.1985) (admitting parol evidence to establish         162 (Tex.1995). This would be a strange authority to cite if
misrepresentation in DTPA claim); Restatement (Second) of          Schlumberger were as sweeping as the Court suggests: it is
Contracts, § 214 cmt. c (“What appears to be a complete            difficult to imagine a party making fraudulent representations
and binding integrated agreement may be a forgery, a joke,         on a subject that has not been discussed. And while the
a sham, or an agreement without consideration, or it may be        Court states that “this statement merely acknowledges that
voidable for fraud, duress, mistake, or the like, or it may be     facts may exist where the disclaimer lacks ‘the requisite clear
illegal. Such invalidating causes need not and commonly do         and unequivocal expression of intent necessary to disclaim
not appear on the face of the writing. They are not affected       reliance’ on the specific representations at issue,” it does
even by a ‘merger’ clause.”) (emphasis added). We then noted       so without addressing Prudential, instead quoting an earlier
that “[j]uxtaposed to this authority, we have a competing          passage *64 from Schlumberger. 268 S.W.3d at 55 (quoting
concern—the ability of parties to fully and finally resolve        Schlumberger, 959 S.W.2d at 179).
disputes between them.” Schlumberger, 959 S.W.2d at 179.
The Court reads Schlumberger as settling these competing           In sum, in Schlumberger we balanced parties' need to settle
concerns by precluding a fraudulent inducement claim where         disputes against our strong aversion to fraud. The result was a
there is a disclaimer of reliance and the factors listed above     narrow exception to the rule that integration clauses do not bar
are present.                                                       fraudulent inducement claims. By expanding Schlumberger,
                                                                   the Court's holding will force courts to honor contracts
But Schlumberger is not so broad. There, we held that, where       indisputably induced by fraud on the basis of blanket reliance
the four other factors listed by the Court are present, “a         waivers, like the one at issue here. I would not.
release that clearly expresses the parties' intent to waive
fraudulent inducement claims, or one that disclaims reliance
on representations about specific matters in dispute, can
                                                                                                 II
preclude a claim of fraudulent inducement.” Id. at 181. The
release in Schlumberger did not contain an express waiver of
fraudulent inducement claims, but did disclaim reliance on                 McAllen's Fraudulent Inducement Claim
representations about specific matters in dispute. Id. at 180.
                                                                   As discussed above, under Schlumberger, to bar a
The release itself noted that “ ‘there [wa]s considerable doubt,
                                                                   fraudulent inducement claim, a disclaimer of reliance must
disagreement, dispute and controversy with reference to the
                                                                   either expressly waive the claim or disclaim reliance
validity of the [claim being settled],’ ” and the “sole purpose
                                                                   on representations about the specific disputed matter,
of the release was to end [that] dispute.” Id. The Schlumberger
                                                                   Schlumberger, 959 S.W.2d at 181; otherwise, the general
Court therefore concluded “that the parties contemplated, by
                                                                   rule that integration clauses do not bar fraudulent inducement
the inclusion of [the disclaimer of reliance], that the Swansons
                                                                   claims applies. The disclaimer in this case does neither. The
would not rely on any representations of Schlumberger about
                                                                   relevant portion of the disclaimer reads:
the commercial feasibility and value of this project, which,
after all, was the very dispute that the release was supposed                   Each of the Plaintiffs and Intervenors
to resolve.” Id.                                                                expressly warrants and represents and
                                                                                does hereby state and represent that
That the Schlumberger Court limited its holding to a                            no promise or agreement which is
release “that clearly expresses the parties' intent to waive                    not herein expressed has been made
fraudulent inducement claims, or one that disclaims reliance                    to him, her, or it in executing the
on representations about specific matters in dispute” is clear                  releases contained in this Agreement,
from the rest of the opinion. Id. at 181. Indeed, we “emphasize                 and that none of them is relying upon



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             8
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

            any statement or any representation of               the Restatement (Second) of Torts section 552. Id. at 795
            any agent of the parties being released              (concluding “that there is no reason to exempt lawyers
            hereby.                                              from the operation of section 552”). Regardless, there is
                                                                 evidence that McAllen relied not only on the statements of
This disclaimer makes no explicit reference to fraudulent        “an unidentified lawyer for one of the four defendants,” 268
inducement. The question, then, is whether it disclaims          S.W.3d at 55, but on representations made by the parties
reliance on representations about a specific disputed matter     themselves:
in the agreement. While the disclaimers in this case and
Schlumberger may appear to be “virtually identical,” 268           Q. (By Mr. Mancias) Yes, sir. Were you told in no uncertain
S.W.3d at 60, the factual differences between this case            terms by the oil companies, including Forest Oil Company,
and Schlumberger are critical. In Schlumberger, there              that there were no contaminants or pollutants on the surface
was essentially one dispute—specifically described in the          of your property?
agreement—being settled, and therefore, “[b]ecause courts
are to assume that the parties intended every contractual          A. (By Mr. McAllen) Yes. And all the Forest attorneys were
provision to have some meaning,” the Court was able to             there. I believe Forest Doran himself was there.
“presume” that the disclaimer of reliance applied specifically
                                                                   Q. Who is Forest Doran?
to representations about that sole dispute. Schlumberger,
959 S.W.2d at 180. In the instant case, in contrast, the           A. I believe he's the majority stockholder of Forest Oil
settlement agreement covered a number of topics, chiefly           Company.
royalty underpayment and mineral underdevelopment. Thus,
unlike Schlumberger, we cannot presume that the disclaimer         Q. Can you tell the Judge whether or not Mr. Doran was
of reliance referred specifically to environmental issues, and     present when those representations you just testified about
the general rule that fraudulent inducement claims are not         were made to you?
barred by integration clauses should apply.
                                                                   A. That, I can't recall.

                                                                   Q. All right, sir. But the attorneys were present?
                             III
                                                                   A. The attorneys—his attorneys were present.

              Forest Oil's Remaining Issues                        ***

Forest Oil argues that McAllen could not have justifiably          A. But during the process, the owners for Forest and
relied on Forest Oil's representation that there were no           Conoco and everybody else who was involved in the lawsuit
existing issues with the surface because that representation       assured me that there was no issues [sic] having to do with
was contradicted by the agreement's express terms. Because         the surface, and if I wanted to get this settlement agreement
the surface agreement contains no contrary statement               behind us, I had to do that. But they were very convincing.
regarding surface conditions, it is not necessary to examine
this claim in detail.                                            (Emphasis added.) McAllen's reliance on these statements
                                                                 was not, therefore, unjustifiable as a matter of law.
Forest Oil also argues that McAllen could not justifiably
rely on the representation of his litigation adversary during
settlement negotiations. Forest Oil cites McCamish, Martin,                                      IV
Brown & Loeffler v. F.E. Appling Interests, for the
proposition that “a third party's reliance on an attorney's
                                                                                              Conclusion
representation is not justified when the representation takes
place in an adversarial context.” McCamish, 991 S.W.2d           Today the Court replaces Schlumberger's requirement that a
787, 794 (Tex.1999). This statement, however, refers not         release must “clearly express[ ] the parties' intent to waive
to whether attorneys' *65 statements can provide the             fraudulent inducement claims, or ... disclaim[ ] reliance on
grounds for a fraudulent inducement claim, but to individual     representations about specific matters in dispute” in order
attorneys' liability for negligent misrepresentation under       to preclude a fraudulent inducement claim, 959 S.W.2d at


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           9
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

                                                                          day be a weapon in the hands of those who profit from it. I
181, with the requirement that the parties merely “specifically
                                                                          respectfully dissent.
discussed the issue which has become the topic of the
subsequent dispute” during negotiations, 268 S.W.3d 60.
Courts, including this one, have long battled the specter of
                                                                          Parallel Citations
fraud in contracts; I fear that the Court's opinion may one
                                                                          168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309


Footnotes
1      This appeal does not involve every party to the 1999 settlement agreement at issue. The defendants in the litigation that resulted in
       that settlement were Forest Oil Corporation, Shell Oil Company, Conoco Incorporated, and Fina Oil & Chemical Company, along
       with divisions of these entities. The plaintiffs included various business entities, individuals, and individual trusts. These parties
       settled their dispute in June 1999.
          Five years later, James McAllen and several others filed suit against Forest Oil, its employee (Daniel B. Worden), and
          ConocoPhillips Corporation. ConocoPhillips was nonsuited, so only Forest Oil and Worden are petitioners here. They are referred
          to collectively as “Forest Oil.” Four plaintiffs to the pending litigation—James McAllen, El Rucio Land & Cattle Company, San
          Juanito Land Partnership, and McAllen Trust Partnership—are respondents to this appeal and referred to collectively as “McAllen,”
          unless otherwise noted. These four plaintiffs admit they are bound by the 1999 settlement agreement either as signatories or
          successors in interest thereto. Several other plaintiffs are not parties to this appeal, and Forest Oil concedes the trial court lacked
          authority to require these other plaintiffs to arbitrate the current dispute.
2      The release language reads:
             [The plaintiffs] generally and unconditionally RELEASE, DISCHARGE, and ACQUIT [the defendants] of and from any and all
             claims and causes of action of any type or character known or unknown, which they presently have or could assert, including but
             not limited to all claims and causes of action (i) in any manner relating to, arising out of or connected with the McAllen Ranch
             Leases, or any of them, (ii) in any manner relating to, arising out of or connected with the Lands covered by the McAllen Ranch
             Leases, or any of them, (iii) in any manner relating to, arising out of or connected with any implied covenants pertaining to the
             McAllen Ranch Leases, or any of them, including (without limitation) implied covenants or obligations with respect to drainage,
             development, unitization, marketing or the administration of the McAllen Ranch Leases ... (vi) all claims and causes of action
             that the [plaintiffs] asserted or could have asserted in the Lawsuit including (without limitation) matters arising or sounding in
             contract, in tort (including intentional torts, fraud, conspiracy, and negligence), in trespass, for forfeiture, or under any other
             theory or doctrine, including any claim for attorneys fees, costs, and sanctions; and the [plaintiffs] hereby declare that all such
             claims and causes of action have been fully compromised, satisfied, paid and discharged; except that the [plaintiffs] reserve and
             except from this release only (a) their rights to receive the consideration (monetary and otherwise) provided in this Agreement,
             (b) their rights to accrued but unpaid royalties ..., (c) any rights and claims arising under the McAllen Ranch Leases ... after the
             Effective Date of this Agreement, (d) any rights or claims they may have, if any, for environmental liability, surface damages,
             personal injury, or wrongful death occurring at any time and relating to the McAllen Ranch Leases, (e) the funds held [pursuant
             to this Agreement], and (f) any intentional act done in contravention of this Agreement or the McAllen Ranch Leases between
             the date of execution hereof and the Effective Date. Any disputes over any of the above items excepted and reserved from this
             release shall be resolved in arbitration pursuant to [this Agreement].
3      The surface agreement required that oil companies remove nonnatural materials from the sites of abandoned wells and “not store
       or dispose of any hazardous materials on the surface of the Leases.” In addition, the surface agreement states plainly that surface
       issues shall be addressed by arbitration: “Surface issues which arise in connection with the Leases shall be subject to that certain
       Arbitration Agreement set forth and described in the Settlement Agreement. The specific issues addressed below shall become part
       of the Settlement Agreement and shall be enforceable in accordance with the terms of such Agreement.”
4      The waiver-of-reliance provision reads:
             [1] Each party acknowledges and confirms that each has had the opportunity to consult with counsel and has been fully advised
             by counsel prior to the execution of this Agreement.
             [2] Each of the Plaintiffs and Intervenors expressly warrants and represents and does hereby state and represent that no promise
             or agreement which is not herein expressed has been made to him, her, or it in executing the releases contained in this Agreement,
             and that none of them is relying upon any statement or any representation of any agent of the parties being released hereby. Each
             of the Plaintiffs and Intervenors is relying on his, her, or its own judgment and each has been represented by his, her, or its own




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                         10
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

            legal counsel in this matter. The legal counsel for Plaintiffs have read and explained to each of the Plaintiffs the entire contents
            of the releases contained in this Agreement as well as the legal consequences of the releases....
            [3] Defendants expressly represent and warrant and do hereby state and represent that no promise or agreement which is not
            herein expressed has been made to them in executing the releases contained in this Agreement, and that they are not relying
            upon any statement or representation of any of the parties being released hereby. Defendants, and each of them are relying upon
            its own judgment and each has been represented by its own legal counsel in this matter. The legal counsel for Defendants have
            read and explained to them the entire contents of the releases contained in this Agreement as well as the legal consequences
            of the releases.
5      The plaintiffs filed a joint petition asserting negligence, gross negligence, trespass, nuisance, strict liability, negligence per se,
       misrepresentation, fraud, fraudulent concealment, and intentional battery. The facts giving rise to these causes of action took place
       on two properties: the Santillana Ranch and the McAllen Ranch. We will refer to the claims arising on the McAllen Ranch as the
       “McAllen Ranch claims” and claims arising on the Santillana Ranch as the “Santillana Ranch claims.”
         Forest Oil produces oil on the McAllen Ranch pursuant to the McAllen Ranch Leases; this relationship was the basis of the
         original 1999 litigation that produced the now-disputed settlement agreement. The Santillana Ranch is owned by John R. Willis
         Management Partnership; this entity is one of the plaintiffs to the underlying suit that are not parties to this appeal. See supra note 1.
         The Third Amended Petition claims Forest Oil buried radioactive material on the McAllen Ranch, resulting in groundwater and soil
         contamination. The petition does not assert personal injuries related to the McAllen Ranch. McAllen tried to establish a rhinoceros
         sanctuary on the Santillana Ranch and asked Forest Oil, which has no lease on that ranch, to donate oilfield pipe to be used as pen
         enclosures. Forest Oil took pipe from the McAllen Ranch to the Santillana Ranch, where McAllen and his employees worked on
         the rhinoceros pens. McAllen claims this pipe was radioactive and has produced both environmental and personal injuries.
         Forest Oil claims that because the pipe giving rise to the Santillana Ranch claims came from the McAllen Ranch, the Santillana
         Ranch claims also fall within the settlement agreement's arbitration clause, which requires arbitration of claims “arising out of or
         relating to the McAllen Ranch Leases.” We do not reach this issue.
6      268 S.W.3d 63.
7      Id. at 64.
8      We have jurisdiction to hear an appeal from an interlocutory order denying arbitration if the court of appeals' decision conflicts
       with our precedent. See TEX. GOV'T CODE §§ 22.001(a)(2), 22.225(c); TEX. CIV. PRAC. & REM.CODE § 171.098; Certain
       Underwriters at Lloyd's of London v. Celebrity, Inc., 988 S.W.2d 731, 733 (Tex.1998). As explained below, the court of appeals'
       decision conflicts with Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex.1997).
9      When an appeal from a denial of a motion to compel arbitration turns on a legal determination—here, the preclusive effect of the
       contract's disclaimer—we apply a de novo standard. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003) (“The trial
       court's determination of the arbitration agreement's validity is a legal question subject to de novo review.”); see also In re D. Wilson
       Constr. Co., 196 S.W.3d 774, 781 (Tex.2006).
10     Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex.1995); see also In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753
       (Tex.2001). Whether a case is governed by the Federal Arbitration Act (FAA) or the TAA, many of the underlying substantive
       principles are the same; where appropriate, this opinion relies interchangeably on cases that discuss the FAA and TAA.
11     In re D. Wilson Constr. Co., 196 S.W.3d at 781; Webster, 128 S.W.3d at 227.
12     TEX. CIV. PRAC. & REM.CODE § 171.001(b) (“A party may revoke the agreement only on a ground that exists at law or in equity
       for the revocation of a contract.”); see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902
       (1996); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex.2005).
13     See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). If a fraudulent-
       inducement claim attacks the broader contract, then the arbitrator, not a court, considers the matter. See In re FirstMerit Bank, N.A.,
       52 S.W.3d at 758. In this case, we assume that the alleged fraud went to the arbitration agreement itself since Forest Oil does not
       argue otherwise. See TEX.R.APP. P. 53.2(f); Ramos v. Richardson, 228 S.W.3d 671, 673 (Tex.2007).
14     In re FirstMerit Bank, N.A., 52 S.W.3d at 753–54; see also TEX. CIV. PRAC. & REM.CODE § 171.021.
15     959 S.W.2d 171, 179 (Tex.1997).
16     Id. at 174.
17     Id.
18     Id. at 180. The disclaimer in today's case is virtually the same. See supra note 4.
19     Id. at 174.
20     Id.
21     Id. at 178.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           11
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (2008)
168 Oil & Gas Rep. 450, 51 Tex. Sup. Ct. J. 1309

22     Id. at 181.
23     Id. at 179–81.
24     Id. at 180 (“The sole purpose of the release was to end the dispute about the value of this commercial project between Schlumberger
       and the Swansons once and for all.”).
25     Id. The reasoning of the case applies broadly to contracts generally, and we see no reason to accept McAllen's restrictive interpretation.
26     Id.
27     See supra note 4.
28     Id.
29     See also supra note 3 (“Surface issues which arise in connection with the Leases shall be subject to that certain Arbitration Agreement
       set forth and described in the Settlement Agreement.”).
30     959 S.W.2d at 181.
31     Id. at 179.
32     See, e.g., Warehouse Assocs. Corporate Ctr. II, Inc. v. Celotex Corp., 192 S.W.3d 225, 230–34 (Tex.App.–Houston [14th Dist.]
       2006, pet. filed) (limiting Schlumberger to cases in which the parties resolve a long-running dispute that is also the topic of the
       alleged fraudulent representation); Coastal Bank SSB v. Chase Bank of Texas, N.A., 135 S.W.3d 840, 844 (Tex.App.–Houston [1st
       Dist.] 2004, no pet.) (considering the broad language of the waiver-of-reliance provision to be the controlling factor); IKON Office
       Solutions, Inc. v. Eifert, 125 S.W.3d 113, 124–28 (Tex.App.–Houston [14th Dist.] 2003, pet. denied) (applying Schlumberger in a
       factual situation that did not involve a settlement agreement or a contract that terminated the parties' relationship); John v. Marshall
       Health Servs., Inc., 91 S.W.3d 446, 450 (Tex.App.–Texarkana 2002, pet. denied) (refusing to apply Schlumberger because “[h]ere,
       the contract was the beginning, not the end, of the relationship between” the parties).
33     See Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex.1995) (“Settlements are favored because they avoid the uncertainties
       regarding the outcome of litigation, and the often exorbitant amounts of time and money to prosecute or defend claims at trial.”);
       Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 855 (Tex.1980) (Campbell, J., concurring) (“Settlement agreements are highly
       favored in the law because they are a means of amicably resolving doubts and preventing lawsuits.”).
34     959 S.W.2d at 181.
35     The TAA allows personal-injury claims to be arbitrated when each party, on advice of counsel, has agreed to do so in a writing signed
       by the parties and their attorneys. TEX. CIV. PRAC. & REM.CODE § 171.002(c). All parties to this appeal—or their predecessors
       in interest—and their attorneys signed the settlement agreement, which contains the arbitration agreement, so there is no statutory
       prohibition to arbitrating these claims.
36     In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex.2001).
37     The arbitration provision reads: “All disputes arising out of or relating to the McAllen Ranch Leases, including, without in any way
       limiting the foregoing, disputes relating to this Agreement or disputes over the scope of this arbitration clause, will be resolved by
       arbitration in Houston, Texas, using three neutral arbitrators.” While this provision clearly encompasses the McAllen Ranch claims,
       it is not clear that it includes the Santillana Ranch claims.
38     In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129–30 (Tex.2004) (“As a rule, parties have the right to contract as they see fit
       as long as their agreement does not violate the law or public policy.”); see also Fairfield Ins. Co. v. Stephens Martin Paving, LP,
       246 S.W.3d 653, 663–64 (Tex.2008).
39     TEX. CIV. PRAC. & REM.CODE § 171.021; In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999).
40     TEX. CIV. PRAC. & REM.CODE § 171.025(b) (“The stay applies only to the issue subject to arbitration if that issue is severable
       from the remainder of the proceeding.”).


End of Document                                                      © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                         12
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...


                                                                                                                               Decisions
                    121 S.Ct. 513                                        reviewable; finality
           Supreme Court of the United States
                                                                         District court order compelling arbitration and
   GREEN TREE FINANCIAL CORP.–ALABAMA                                    dismissing a party's underlying claims is a
                                                                         “final decision with respect to an arbitration”
  and Green Tree Financial Corporation, Petitioners,
                                                                         within meaning of Federal Arbitration Act
                         v.
                                                                         (FAA) provision governing appellate review
               Larketta RANDOLPH.
                                                                         of arbitration orders, and thus is immediately
            No. 99–1235. | Argued Oct. 3,                                appealable. 9 U.S.C.A. § 16(a)(3).
           2000. | Decided Dec. 11, 2000.                                252 Cases that cite this headnote
Purchaser of mobile home brought purported class action
against lender which had financed purchase, asserting claims       [2]   Alternative Dispute Resolution
under Truth in Lending Act (TILA) and Equal Credit
Opportunity Act (ECOA). The United States District Court                                                                       Decisions
for the Middle District of Alabama, No. CV-96-D-11-N, Ira                reviewable; finality
De Ment, J., 991 F.Supp. 1410, granted motion to compel                  Federal Arbitration Act (FAA) provision
arbitration and dismissed purchaser's claims with prejudice.             governing appeal from district court's arbitration
Purchaser appealed. The Court of Appeals for the Eleventh                order preserves immediate appeal of any
Circuit, Carnes, Circuit Judge, 178 F.3d 1149, reversed                  “final decision with respect to an arbitration,”
and remanded. Certiorari was granted. The Supreme Court,                 regardless of whether the decision is favorable or
Chief Justice Rehnquist, held that: (1) order compelling                 hostile to arbitration. 9 U.S.C.A. § 16(a)(3).
arbitration and dismissing a party's underlying claims is a
“final decision with respect to an arbitration” within meaning           66 Cases that cite this headnote
of Federal Arbitration Act (FAA), and thus is immediately
appealable; abrogating - Seacoast Motors of Salisbury, Inc.        [3]   Federal Courts
v. Chrysler Corp., 143 F.3d 626 (C.A.1 1998); Altman
Nursing, Inc. v. Clay Capital Corp., 84 F.3d 769 (C.A.5                                                                        What
1996); Napleton v. General Motors Corp., 138 F.3d 1209                   constitutes finality in general
(C.A.7 1998); Gammaro v. Thorp Consumer Discount Co.,                    “Final decision” is a decision that ends the
15 F.3d 93 (C.A.8 1994); McCarthy v. Providential Corp.,                 litigation on the merits and leaves nothing more
122 F.3d 1242 (C.A.9 1997), and (2) arbitration agreement                for the court to do but execute the judgment.
that does not mention arbitration costs and fees is not per se
unenforceable on theory that it fails to affirmatively protect a         51 Cases that cite this headnote
party from potentially steep arbitration costs.
                                                                   [4]   Alternative Dispute Resolution
Affirmed in part and reversed in part.
                                                                                                                               Decisions
Justice Ginsburg filed opinion concurring in part and                    reviewable; finality
dissenting in part, in which Justices Stevens and Souter                 Because Federal Arbitration Act (FAA) does not
joined, and in which Justice Breyer joined in part.                      define phrase “a final decision with respect to an
                                                                         arbitration,” as used in FAA provision governing
                                                                         appeal from district court's arbitration order, nor
                                                                         does FAA otherwise suggest that the ordinary
 West Headnotes (12)
                                                                         meaning of “final decision” should not apply,
                                                                         court should accord the term its well-established
 [1]     Alternative Dispute Resolution                                  meaning. 9 U.S.C.A. § 16(a)(3).




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            1
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

                                                                             prohibitive costs in arbitration; mere “risk” that
        95 Cases that cite this headnote                                     plaintiff would be saddled with prohibitive costs
                                                                             was too speculative to justify invalidation of
 [5]    Alternative Dispute Resolution                                       arbitration agreement. 9 U.S.C.A. § 2; Truth in
                                                                             Lending Act, § 102 et seq., 15 U.S.C.A. § 1601
                                                                Decisions    et seq.
        reviewable; finality
        For purposes of Federal Arbitration Act (FAA)                        657 Cases that cite this headnote
        appeal provisions, phrase “final decision”
        includes an order compelling arbitration and                  [8]    Alternative Dispute Resolution
        dismissing the other claims in the action even
        when that order occurs in an “embedded”                                                                                     Validity
        proceeding involving both a request for                              In considering whether particular agreement
        arbitration and other claims for relief; abrogating                  to arbitrate is unenforceable, court is mindful
        - Seacoast Motors of Salisbury, Inc. v. Chrysler                     of Federal Arbitration Act's (FAA) purpose to
        Corp., 143 F.3d 626 (C.A.1 1998); Altman                             reverse the longstanding judicial hostility to
        Nursing, Inc. v. Clay Capital Corp., 84 F.3d                         arbitration agreements and to place arbitration
        769 (C.A.5 1996); Napleton v. General Motors                         agreements upon the same footing as other
        Corp., 138 F.3d 1209 (C.A.7 1998); Gammaro                           contracts. 9 U.S.C.A. § 2.
        v. Thorp Consumer Discount Co., 15 F.3d 93
        (C.A.8 1994); McCarthy v. Providential Corp.,                        313 Cases that cite this headnote
        122 F.3d 1242 (C.A.9 1997). 9 U.S.C.A. § 16(a)
        (3).                                                          [9]    Alternative Dispute Resolution

        58 Cases that cite this headnote                                                                                            Statutory
                                                                             rights and obligations
 [6]    Alternative Dispute Resolution                                       Even claims arising under a statute designed
                                                                             to further important social policies may be
                                                                Review       arbitrated because, so long as the prospective
        “Embedded proceedings” are those actions                             litigant effectively may vindicate his or her
        involving both a request for arbitration and                         statutory cause of action in the arbitral forum, the
        other claims for relief, while “independent                          statute serves its functions. 9 U.S.C.A. § 2.
        proceedings” are actions in which a request to
        order arbitration is the sole issue before the court.                203 Cases that cite this headnote
        9 U.S.C.A. § 1 et seq.
                                                                      [10]   Alternative Dispute Resolution
        17 Cases that cite this headnote
                                                                                                                                    Statutory
 [7]    Alternative Dispute Resolution                                       rights and obligations
                                                                             In determining whether statutory claims may be
                                                                Validity     arbitrated, court first asks whether the parties
        Arbitration agreement that did not mention                           agreed to submit their claims to arbitration,
        arbitration costs and fees was not unenforceable                     and then asks whether Congress has evinced
        on theory that such an agreement failed to                           an intention to preclude a waiver of judicial
        provide Truth in Lending Act (TILA) plaintiff                        remedies for the statutory rights at issue. 9
        with protection from potentially steep costs of                      U.S.C.A. § 2.
        pursuing her federal statutory claims in the
        arbitral forum, where plaintiff presented no                         102 Cases that cite this headnote
        evidence as to likelihood that she would incur



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  2
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

                                                                (3) of the Federal Arbitration Act (FAA), which **516
 [11]    Alternative Dispute Resolution                         allows appeals from “a final decision with respect to an
                                                                arbitration that is subject to this title.” The court determined
                                                           Evidence
                                                                that a final, appealable order within this provision is one that
         Where party seeks to invalidate an arbitration
                                                                disposes of all the issues framed by the litigation, leaving
         agreement on the ground that arbitration would
                                                                nothing to be done but execute the order, and found the
         be prohibitively expensive, that party bears the
                                                                District Court's order within that definition. Determining also
         burden of showing the likelihood of incurring
                                                                that the arbitration agreement failed to provide the minimum
         such costs. 9 U.S.C.A. § 2.
                                                                guarantees that Randolph could vindicate her statutory rights
         656 Cases that cite this headnote                      under the TILA, the court observed that the agreement was
                                                                silent with respect to payment of arbitration expenses, and
                                                                therefore held the agreement unenforceable because it posed
 [12]    Federal Courts                                         a risk that Randolph's ability to vindicate her statutory rights
                                                                would be undone by “steep” arbitration costs.
                                                           Scope
         and Extent of Review
                                                                Held:
         Supreme Court would not reach respondent's
         argument that Court of Appeals' conclusion             1. Where, as here, the District Court has ordered the parties
         as to unenforceability of arbitration agreement        to proceed to arbitration, and dismissed all the claims before
         could be affirmed on alternative ground that the       it, the decision is “final” under § 16(a)(3), and therefore
         agreement precluded respondent from bringing           appealable. The term “final decision” has a well-developed
         her claims under Truth in Lending Act (TILA)           and longstanding meaning: It is a decision that ends the
         as a class action, where Court of Appeals did not      litigation on the merits and leaves nothing more for the court
         pass on that question. 9 U.S.C.A. § 2; Truth in        to do but execute the judgment. E.g., Digital Equipment Corp.
         Lending Act, § 102 et seq., 15 U.S.C.A. § 1601         v. Desktop Direct, Inc., 511 U.S. 863, 867, 114 S.Ct. 1992,
         et seq.                                                128 L.Ed.2d 842. Because the FAA does not *80 define
                                                                   “a final decision with respect to an arbitration” or otherwise
         15 Cases that cite this headnote
                                                                   suggest that the ordinary meaning of “final decision” should
                                                                   not apply, this Court accords the term its well-established
                                                                   meaning. See Evans v. United States, 504 U.S. 255, 259–260,
                                                                   112 S.Ct. 1881, 119 L.Ed.2d 57. The District Court's order
                                                                   plainly falls within that meaning because it disposed of the
                      **515 Syllabus *
                                                                   entire case on the merits and left no part of it pending before
Respondent Randolph's mobile home financing agreement              the court. The fact that the FAA permits parties to arbitration
with petitioners, financial institutions, required that Randolph   agreements to bring a separate proceeding to enter judgment
buy insurance protecting petitioners from the costs of her         on an arbitration award once it is made (or to vacate or modify
default and also provided that all disputes under the contract     it) does not vitiate the finality of the District Court's resolution
would be resolved by binding arbitration. Randolph later sued      of the claims below. Moreover, this Court disagrees with
petitioners, alleging that they violated the Truth in Lending      petitioners' contention that the phrase “final decision” does
Act (TILA) by failing to disclose the insurance requirement        not include an order compelling arbitration and dismissing
as a finance charge and that they violated the Equal Credit        the other claims in the action when that order occurs in an
Opportunity Act by requiring her to arbitrate her statutory        “embedded” proceeding, such as this one, involving both an
causes of action. Among its rulings, the District Court            arbitration request and other claims for relief, as distinguished
granted petitioners' motion to compel arbitration, dismissed       from an “independent” proceeding in which a request to
Randolph's claims with prejudice, and denied her request for       order arbitration is the sole issue before the court. It does not
reconsideration, which asserted that she lacked the resources      appear that, at the time of § 16(a)(3)' s enactment, Court of
to arbitrate, and as a result, would have to forgo her claims      Appeals decisions attaching significance to this independent/
against petitioners. The Eleventh Circuit held that it had         embedded distinction, and its consequences for finality, were
jurisdiction to review the District Court's order under § 16(a)    so firmly established that this Court should assume Congress



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 3
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

meant to incorporate them into § 16(a)(3). Certainly the          discuss how detailed such a showing would have to be, for
statute's plain language does not suggest such an intent. Pp.     in this case, there was no timely showing at all on the point.
519–521.                                                          Pp. 521–523.

2. Randolph's agreement to arbitrate is not rendered              178 F.3d 1149, affirmed in part and reversed in part.
unenforceable simply because it says nothing about
arbitration costs, and thus fails to provide her protection       REHNQUIST, C. J., delivered the opinion of the Court, Part
from potentially substantial costs of pursuing her federal        II of which was unanimous and Parts I and III of which
statutory claims in the arbitral forum. In light of the           were joined by O'CONNOR, SCALIA, KENNEDY, and
FAA's purpose to reverse longstanding judicial hostility to       THOMAS, JJ. GINSBURG, J., filed an opinion concurring
arbitration agreements and to place them on the same footing      in part and dissenting in part, in which STEVENS and
as other contracts, Gilmer v. Interstate/Johnson Lane Corp.,      SOUTER, JJ., joined, and in which BREYER, J., joined as to
500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26, this             Parts I and III, post, p. 523.
Court has recognized that federal statutory claims can be
appropriately resolved through arbitration and has enforced
agreements involving such claims, see, e.g., Rodriguez de         Attorneys and Law Firms
Quijas v. Shearson/American Express, Inc., 490 U.S. 477,
                                                                  Carter G. Phillips, Washington, DC, Robert A. Huffaker,
109 S.Ct. 1917, 104 L.Ed.2d 526. In determining whether
                                                                  William H. Webster, Rushton, Stakely, Johnston & Garrett,
such claims may be arbitrated, the Court asks whether the
                                                                  P.A., Montgomery, AL, Carter G. Phillips, Paul J. Zidlicky,
parties agreed to submit the claims to arbitration and whether
                                                                  Michael L. Post, Laurel E. Shanks, Sidley & Austin,
Congress has evinced an intention to preclude a waiver of
                                                                  Washington, D.C., for petitioners.
judicial remedies for the statutory rights at issue. See, e.g.,
Gilmer, supra, at 26, 111 S.Ct. 1647. Here, it is undisputed      Joseph M. Sellers, Washington, DC, C. Knox McLaney, III,
 **517 that the parties agreed to arbitrate all claims relating   McLaney & Associates, P.C., Montgomery, AL, Lynn W.
to their contract, including claims involving statutory rights,   Jinks, III, Jinks, Daniel & Crow, L.L.C., Union Springs, AL,
and Randolph does not contend that the TILA evinces an            Joseph M. Sellers, Suzette M. Malveaux, Deborah J. Vagins,
intention to preclude a waiver of judicial remedies. She          Cohen, Milstein, Hausfeld & Toll, P.L.L.C., Washington,
contends instead that the arbitration agreement's silence with    DC, Angela L. Kimbrough, Ford & Kimbrough, Eutaw, AL,
respect to costs creates a “risk” that she will be required to    for respondent.
bear prohibitive arbitration *81 costs and thereby be unable
to vindicate her statutory rights in arbitration. Although        Opinion
the existence of large arbitration costs may well preclude
                                                                  *82 Chief Justice REHNQUIST delivered the opinion of the
a litigant like Randolph from effectively vindicating such
                                                                  Court.
rights, the record does not show that Randolph will bear such
costs if she goes to arbitration. Indeed, it contains hardly      In this case we first address whether an order compelling
any information on the matter, revealing only the agreement's     arbitration and dismissing a party's underlying claims is
silence on the subject. That fact alone is plainly insufficient   a “final decision with respect to an arbitration” within
to render it unenforceable. To invalidate the agreement would     the meaning of § 16(a)(3) of the Federal Arbitration Act,
undermine the liberal federal policy favoring arbitration         9 U.S.C. § 16(a)(3), and thus is immediately appealable
agreements, Moses H. Cone Memorial Hospital v. Mercury            pursuant to that Act. Because we decide that question in
Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765,     the affirmative, we also address the question whether an
and would conflict with this Court's holdings that the party      arbitration agreement that does not mention arbitration costs
resisting arbitration bears the burden of proving that Congress   and fees is unenforceable because it fails to affirmatively
intended to preclude arbitration of the statutory claims at       protect a party from potentially steep arbitration costs. We
issue, see, e.g., Gilmer, supra, at 26, 111 S.Ct. 1647. Thus,     conclude that an arbitration agreement's silence with respect
a party seeking to invalidate an arbitration agreement on         to such matters does not render the agreement unenforceable.
the ground that arbitration would be prohibitively expensive
bears the burden of showing the likelihood of incurring such
costs. Randolph did not meet that burden. The Court need not



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           4
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

                                                                   The Court of Appeals found the District Court's order within
                                                                   that definition.
                               I

Respondent Larketta Randolph purchased a mobile home               The court then determined that the arbitration agreement
from Better Cents Home Builders, Inc., in Opelika,                 failed to provide the minimum guarantees that respondent
Alabama. She financed this purchase through petitioners            could vindicate her statutory rights under the TILA. Critical
Green Tree Financial Corporation and its wholly owned              to this determination was the court's observation that the
subsidiary, Green Tree Financial Corp.-Alabama. Petitioners'       arbitration agreement was silent with respect to payment of
Manufactured Home Retail Installment Contract and Security         filing fees, arbitrators' costs, and other arbitration expenses.
Agreement required that Randolph buy Vendor's Single               On that basis, the court held that the agreement to arbitrate
Interest insurance, which protects the vendor or **518             posed a risk that respondent's ability to vindicate her statutory
lienholder against the costs of repossession in the event of       rights would be undone by “steep” arbitration costs, and
default. The agreement also provided that all disputes arising     therefore was unenforceable. We granted certiorari, 529 U.S.
from, *83 or relating to, the contract, whether arising under      1052, 120 S.Ct. 1552, 146 L.Ed.2d 458 (2000), and we now
case law or statutory law, would be resolved by binding            affirm the Court of Appeals with respect **519 to the first
                                                                   conclusion, and reverse it with respect to the second.
arbitration. 1

Randolph later sued petitioners, alleging that they violated
the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et                                              II
seq., by failing to disclose as a finance charge the Vendor's
Single Interest insurance requirement. She later amended            [1] Section 16 of the Federal Arbitration Act, enacted in
her complaint to add a claim that petitioners violated the         1988, governs appellate review of arbitration orders. 9 U.S.C.
Equal Credit Opportunity Act, 15 U.S.C. §§ 1691–1691f,             § 16. It provides:
by requiring her to arbitrate her statutory causes of action.
                                                                      *85 “(a) An appeal may be taken from—
She brought this action on behalf of a similarly situated
class. In lieu of an answer, petitioners filed a motion to           “(1) an order—
compel arbitration, to stay the action, or, in the alternative,
to dismiss. The District Court granted petitioners' motion to        “(A) refusing a stay of any action under section 3 of this
compel arbitration, denied the motion to stay, and dismissed         title,
Randolph's claims with prejudice. The District Court also
denied her request to certify a class. 991 F.Supp. 1410              “(B) denying a petition under section 4 of this title to order
(M.D.Ala.1997). She requested reconsideration, asserting             arbitration to proceed,
that *84 she lacked the resources to arbitrate, and as a
                                                                     “(C) denying an application under section 206 of this title
result, would have to forgo her claims against petitioners. See
                                                                     to compel arbitration,
Plaintiff's Motion for Reconsideration, Record Doc. No. 53,
p. 9. The District Court denied reconsideration. 991 F.Supp.,        “(D) confirming or denying confirmation of an award or
at 1425–1426. Randolph appealed.                                     partial award, or

The Court of Appeals for the Eleventh Circuit first held that        “(E) modifying, correcting, or vacating an award;
it had jurisdiction to review the District Court's order because
                                                                     “(2) an interlocutory order granting, continuing, or
that order was a final decision. 178 F.3d 1149 (1999). The
                                                                     modifying an injunction against an arbitration that is
Court of Appeals looked to § 16 of the Federal Arbitration
                                                                     subject to this title; or
Act (FAA), 9 U.S.C. § 16, which governs appeal from a
district court's arbitration order, and specifically § 16(a)(3),     “(3) a final decision with respect to an arbitration that is
which allows appeal from “a final decision with respect to an        subject to this title.
arbitration that is subject to this title.” The court determined
that a final, appealable order within the meaning of the             “(b) Except as otherwise provided in section 1292(b) of
FAA is one that disposes of all the issues framed by the             title 28, an appeal may not be taken from an interlocutory
litigation, leaving nothing to be done but execute the order.        order—


                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             5
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

                                                                   The District Court's order directed that the dispute be
  “(1) granting a stay of any action under section 3 of this       resolved by arbitration and dismissed respondent's claims
  title;                                                           with prejudice, leaving the court nothing to do but **520
                                                                   execute the judgment. That order plainly disposed of the
  “(2) directing arbitration to proceed under section 4 of this
                                                                   entire case on the merits and left no part of it pending
  title;
                                                                   before the court. The FAA does permit parties to arbitration
  “(3) compelling arbitration under section 206 of this title;     agreements to bring a separate proceeding in a district court
  or                                                               to enter judgment on an arbitration award once it is made
                                                                   (or to vacate or modify it), but the existence of that remedy
  “(4) refusing to enjoin an arbitration that is subject to this   does not vitiate the finality of the District Court's resolution
  title.”                                                          of the claims in the instant proceeding. 9 U.S.C. §§ 9, 10,
                                                                   11. The District Court's order was therefore “a final decision
The District Court's order directed that arbitration proceed       with respect to an arbitration” within the meaning of § 16(a)
and dismissed respondent's claims for relief. The question         (3), and *87 an appeal may be taken. 2 See Sears, Roebuck
before us, then, is whether that order can be appealed as          & Co. v. Mackey, 351 U.S. 427, 431, 76 S.Ct. 895, 100
“a final decision with respect to an arbitration” within the       L.Ed. 1297 (1956) (explaining that had the District Court
meaning of § 16(a)(3). Petitioners urge us to hold that it         dismissed all the claims in an action, its decision would be
cannot. They rely, in part, on the FAA's policy favoring           final and appealable); Catlin, supra, at 236, 65 S.Ct. 631
arbitration agreements and its goal of “mov[ing] the parties       (noting that had petitioners' motion to dismiss been granted
to an arbitrable dispute out of court and into arbitration as      and a judgment of dismissal entered, “clearly there would
quickly and easily as possible.” Moses H. Cone Memorial            have been an end of the litigation and appeal would lie ...”).
 *86 Hospital v. Mercury Constr. Corp., 460 U.S. 1, 22,
103 S.Ct. 927, 74 L.Ed.2d 765 (1983); id., at 24, 103 S.Ct.     [5] [6] Petitioners contend that the phrase “final decision”
927. In accordance with that purpose, petitioners point out,   does not include an order compelling arbitration and
§ 16 generally permits immediate appeal of orders hostile to   dismissing the other claims in the action, when that order
arbitration, whether the orders are final or interlocutory, butoccurs in an “embedded” proceeding, such as this one. Brief
bars appeal of interlocutory orders favorable to arbitration.  for Petitioners 26. “Embedded” proceedings are simply those
                                                               actions involving both a request for arbitration and other
 [2]      [3]     [4]    Section 16(a)(3), however, preserves claims for relief. “Independent” proceedings, by contrast, are
immediate appeal of any “final decision with respect to an     actions in which a request to order arbitration is the sole
arbitration,” regardless of whether the decision is favorable  issue before the court. Those Courts of Appeals attaching
or hostile to arbitration. And as petitioners and respondent   significance to this distinction hold that an order compelling
agree, the term “final decision” has a well-developed and      arbitration in an “independent” proceeding is final within
longstanding meaning. It is a decision that “ ‘ends the        the meaning of § 16(a)(3), but that such an order in an
litigation on the merits and leaves nothing more for the court “embedded” proceeding is not, even if the district court
to do but execute the judgment.’ ” Digital Equipment Corp.
                                                               dismisses the remaining claims. 3 Petitioners contend that
v. Desktop Direct, Inc., 511 U.S. 863, 867, 114 S.Ct. 1992,
                                                               the distinction *88 between independent and embedded
128 L.Ed.2d 842 (1994), and Coopers & Lybrand v. Livesay,
                                                               proceedings and its consequences for finality were so firmly
437 U.S. 463, 467, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978)
                                                               established at the time of § 16's enactment that we should
(both quoting Catlin v. United States, 324 U.S. 229, 233, 65
                                                               assume Congress meant to incorporate them into § 16(a)(3).
S.Ct. 631, 89 L.Ed. 911 (1945)). See also St. Louis, I.M. &
                                                               See Brief for Petitioners 23–26.
S.R. Co. v. Southern Express Co., 108 U.S. 24, 28–29, 2 S.Ct.
6, 27 L.Ed. 638 (1883). Because the FAA does not define
                                                               We disagree. It does not appear that, at the time of § 16(a)
“a final decision with respect to an arbitration” or otherwise
                                                               (3)'s enactment, the rules of finality were firmly established
suggest that the ordinary meaning of “final decision” should
                                                               in cases like this one, where the District Court both
not apply, we accord the term its well-established meaning.
See Evans v. United States, 504 U.S. 255, 259–260, 112 S.Ct.   ordered arbitration and dismissed the remaining claims. 4
1881, 119 L.Ed.2d 57 (1992).                                   We also note that at that time, Courts of Appeals did not
                                                               have a uniform approach to finality with respect to orders



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              6
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

directing arbitration in “embedded” proceedings. 5 The term        S.Ct. 1917. These cases demonstrate that even claims arising
 **521 “final decision,” by contrast, enjoys a consistent and      under a statute designed to further important social policies
longstanding interpretation. Certainly the plain language of       may be arbitrated because “ ‘so long as the prospective litigant
the statutory text does not suggest that Congress intended to      effectively may vindicate [his or her] statutory cause of action
incorporate the rather complex independent/ *89 embedded           in the arbitral forum,’ ” the statute serves its functions. See
distinction, and its consequences for finality, into § 16(a)       Gilmer, supra, at 28, 111 S.Ct. 1647 (quoting Mitsubishi,
(3). We therefore conclude that where, as here, the District       supra, at 637, 105 S.Ct. 3346).
Court has ordered the parties to proceed to arbitration, and
dismissed all the claims before it, that decision is “final”       [10] In determining whether statutory claims may be
within the meaning of § 16(a)(3), and therefore appealable.       arbitrated, we first ask whether the parties agreed to submit
                                                                  their claims to arbitration, and then ask whether Congress has
                                                                  evinced an intention to preclude a waiver of judicial remedies
                                                                  for the statutory rights at issue. See Gilmer, supra, at 26,
                              III                                 111 S.Ct. 1647; Mitsubishi, supra, at 628, 105 S.Ct. 3346.
                                                                  In this case, **522 it is undisputed that the parties agreed
 [7] [8] We now turn to the question whether Randolph's
                                                                  to arbitrate all claims relating to their contract, including
agreement to arbitrate is unenforceable because it says
                                                                  claims involving statutory rights. Nor does Randolph contend
nothing about the costs of arbitration, and thus fails to provide
                                                                  that the TILA evinces an intention to preclude a waiver of
her protection from potentially substantial costs of pursuing
                                                                  judicial remedies. She contends instead that the arbitration
her federal statutory claims in the arbitral forum. Section 2 of
                                                                  agreement's silence with respect to costs and fees creates a
the FAA provides that “[a] written provision in any maritime
                                                                  “risk” that she will be required to bear prohibitive arbitration
transaction or a contract evidencing a transaction involving
                                                                  costs if she pursues her claims in an arbitral forum, and
commerce to settle by arbitration a controversy thereafter
                                                                  thereby forces her to forgo any claims she may have against
arising out of such contract ... shall be valid, irrevocable,
                                                                  petitioners. Therefore, she argues, she is unable to vindicate
and enforceable, save upon such grounds as exist at law or
                                                                  her statutory rights in arbitration. See Brief for Respondent
in equity for the revocation of any contract.” 9 U.S.C. § 2.
                                                                  29–30.
In considering whether respondent's agreement to arbitrate
is unenforceable, we are mindful of the FAA's purpose
                                                                  It may well be that the existence of large arbitration costs
“to reverse the longstanding judicial hostility to arbitration
                                                                  could preclude a litigant such as Randolph from effectively
agreements ... and to place arbitration agreements upon the
                                                                  vindicating her federal statutory rights in the arbitral forum.
same footing as other contracts.” Gilmer v. Interstate/Johnson
                                                                  But the record does not show that Randolph will bear such
Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26
                                                                  costs if she goes to arbitration. Indeed, it contains hardly any
(1991).
                                                                  information on the matter. 6 As the Court of Appeals *91
 [9] In light of that purpose, we have recognized that recognized, “we lack ... information about how claimants fare
federal statutory claims can be appropriately resolved through    under Green Tree's arbitration clause.” 178 F.3d, at 1158. The
arbitration, and we have enforced agreements to arbitrate         record reveals only the arbitration agreement's silence on the
that involve such claims. See, e.g., Rodriguez de Quijas v.       subject, and that fact alone is plainly insufficient to render it
Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct.          unenforceable. The “risk” that Randolph will be saddled with
1917, 104 L.Ed.2d 526 (1989) (Securities Act of 1933);            prohibitive costs is too speculative to justify the invalidation
Shearson/American Express Inc. v. McMahon, 482 U.S.               of an arbitration agreement.
220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (Securities
Exchange Act of 1934 and Racketeer Influenced and                   [11] [12] To invalidate the agreement on that basis would
Corrupt Organizations Act); Mitsubishi Motors Corp. v.             undermine the “liberal federal policy favoring arbitration
Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 105 S.Ct.             agreements.” Moses H. Cone Memorial Hospital, 460 U.S.,
3346, 87 L.Ed.2d 444 (1985) (Sherman Act). We have                 at 24, 103 S.Ct. 927. It would also conflict with our
likewise rejected generalized attacks on arbitration that rest     prior holdings that the party resisting arbitration bears the
on “suspicion of arbitration as a method of weakening the          burden of proving that the claims at issue are unsuitable
protections *90 afforded in the substantive law to would-          for arbitration. See Gilmer, supra, at 26, 111 S.Ct. 1647;
be complainants.” Rodriguez de Quijas, supra, at 481, 109          McMahon, supra, at 227, 107 S.Ct. 2332. We have *92 held



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              7
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

that the party seeking to avoid arbitration bears the burden of     if imposed on her, will be prohibitive. Ante, at 522–523. As
establishing that Congress intended to preclude arbitration of      I see it, the case in its current posture is not ripe for such a
the statutory claims at issue. See Gilmer, supra; McMahon,          disposition.
supra. Similarly, we believe that where, as here, a party
seeks to invalidate an arbitration agreement on the ground          The Court recognizes that “the existence of large arbitration
that arbitration would be prohibitively expensive, that party       costs could preclude a litigant such as Randolph from
bears the burden of showing the likelihood of incurring such        effectively vindicating her federal statutory rights in the
costs. Randolph did not meet that burden. How detailed the          arbitral forum.” Ante, at 522. But, the Court next determines,
showing of prohibitive expense **523 must be before the             “the party resisting arbitration bears the burden of proving
party seeking arbitration must come forward with contrary           that the claims at issue are unsuitable for arbitration” and
evidence is a matter we need not discuss; for in this case          “Randolph did not meet that burden.” Ante, at 522. In
neither during discovery nor when the case was presented on         so ruling, the Court blends two discrete inquiries: First,
the merits was there any timely showing at all on the point.        is the arbitral forum adequate to adjudicate the claims at
The Court of Appeals therefore erred in deciding that the           issue; second, is that forum accessible to the party resisting
arbitration agreement's silence with respect to costs and fees      arbitration.
rendered it unenforceable. 7
                                                                    Our past decisions deal with the first question, the adequacy
The judgment of the Court of Appeals is affirmed in part and        of the arbitral forum to adjudicate various statutory claims.
reversed in part.                                                   See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500
                                                                    U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (Age
It is so ordered.                                                   Discrimination in Employment Act claims are amenable to
                                                                    arbitration); Shearson/American Express Inc. v. McMahon,
                                                                    482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (Claims
Justice GINSBURG, with whom Justice STEVENS and                     under Racketeer Influenced and Corrupt Organizations Act
Justice SOUTER join, and with whom Justice BREYER joins             and Securities Exchange Act are amenable to arbitration).
as to Parts I and III, concurring in part and dissenting in part.    *94 These decisions hold that the party resisting arbitration
                                                                    bears the burden of establishing the inadequacy of the arbitral
                                                                    forum for adjudication of claims of a particular genre. See
                               I
                                                                    Gilmer, 500 U.S., at 26, 111 S.Ct. 1647; McMahon, 482 U.S.,
I join Part II of the Court's opinion, which holds that the         at 227, 107 S.Ct. 2332. It does not follow like the night the
District Court's order, dismissing all the claims before it, was    day, however, that the party resisting arbitration should also
a “final,” and therefore immediately appealable, decision.          bear the **524 burden of showing that the arbitral forum
Ante, at 519–521. On the matter the Court airs in Part III, *93     would be financially inaccessible to her.
ante, at 521 to this page—allocation of the costs of arbitration
—I would not rule definitively. Instead, I would vacate the         The arbitration agreement at issue is contained in a form
Eleventh Circuit's decision, which dispositively declared the       contract drawn by a commercial party and presented to an
arbitration clause unenforceable, and remand the case for           individual consumer on a take-it-or-leave-it basis. The case
closer consideration of the arbitral forum's accessibility.         on which the Court dominantly relies, Gilmer, also involved a
                                                                    nonnegotiated arbitration clause. But the “who pays” question
                                                                    presented in this case did not arise in Gilmer. Under the
                                                                    rules that governed in Gilmer—those of the New York Stock
                               II
                                                                    Exchange—it was the standard practice for securities industry
The Court today deals with a “who pays” question,                   parties, arbitrating employment disputes, to pay all of the
specifically, who pays for the arbitral forum. The Court holds      arbitrators' fees. See Cole v. Burns Int'l Security Servs., 105
that Larketta Randolph bears the burden of demonstrating            F.3d 1465, 1483 (C.A.D.C.1997). Regarding that practice, the
that the arbitral forum is financially inaccessible to her.         Court of Appeals for the District of Columbia Circuit recently
Essentially, the Court requires a party, situated as Randolph       commented:
is, either to submit to arbitration without knowing who will
                                                                      “[I]n Gilmer, the Supreme Court endorsed a system of
pay for the forum or to demonstrate up front that the costs,
                                                                      arbitration in which employees are not required to pay for


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              8
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

                                                                        a particular fact may be assigned to “party who presumably
    the arbitrator assigned to hear their statutory claims. There
                                                                        has peculiar means of knowledge” of the fact); Restatement
    is no reason to think that the Court would have approved
                                                                        (Second) of Contracts § 206 (1979) ( “In choosing among the
    arbitration in the absence of this arrangement. Indeed, we
                                                                        reasonable meanings of ... [an] agreement or a term thereof,
    are unaware of any situation in American jurisprudence in
                                                                        that meaning is generally preferred which operates against the
    which a beneficiary of a federal statute has been required
                                                                        [drafting] party ....”). In these circumstances, it is hardly clear
    to pay for the services of the judge assigned to hear her or
                                                                        that Randolph should bear the burden of demonstrating up
    his case.” Id., at 1484.
                                                                        front the arbitral forum's inaccessibility, or that she should be
                                                                        required to submit to arbitration without knowing how much
                                                                        it will cost her.
                                III
                                                                        As I see it, the Court has reached out prematurely to resolve
The form contract in this case provides no indication of
                                                                        the matter in the lender's favor. If Green Tree's practice under
the rules under which arbitration will proceed or the costs
                                                                        the form contract with retail installment sales purchasers
a *95 consumer is likely to incur in arbitration. 1 Green               resembles that of the employer in Gilmer, Randolph would
Tree, drafter of the contract, could have filled the void by            be insulated from prohibitive costs. And if the arbitral forum
specifying, for instance, that arbitration would be governed            were in this case financially accessible to Randolph, there
by the rules of the American Arbitration Association (AAA).             would be no occasion to reach the decision today rendered
Under the AAA's Consumer Arbitration Rules, consumers                   by the Court. Before writing a term into the form contract, as
in small-claims arbitration incur no filing fee and pay only            the District of Columbia Circuit did, see Cole, 105 F.3d, at
$125 of the total fees charged by the arbitrator. All other
                                                                        1485, 3 or leaving cost allocation initially to each arbitrator,
fees and costs are to be paid by the business party. Brief
                                                                        as the Court does, I would remand for clarification of Green
for American Arbitration Association as Amicus Curiae 15–
                                                                        Tree's practice.
16. Other national arbitration organizations have developed
similar models for fair cost and fee allocation. 2 It may be             *97 The Court's opinion, if I comprehend it correctly, does
that in this case, as in Gilmer, there is a standard practice on        not prevent Randolph from returning to court, postarbitration,
arbitrators' fees and expenses, one that fills the blank space          if she then has a complaint about cost allocation. If that is so,
in the arbitration agreement. Counsel for Green Tree offered            the issue reduces to when, not whether, she can be spared from
a hint in that direction. See Tr. of Oral Arg. 26 (“Green Tree          payment of excessive costs. Neither certainty nor judicial
does pay [arbitration] costs in a lot of instances ....”). But          economy is served by leaving that issue unsettled until the
there is no reliable indication in this record that Randolph's          end of the line.
claim will be arbitrated under any consumer-protective fee
arrangement.                                                            For the reasons stated, I dissent from the Court's reversal of
                                                                        the Eleventh Circuit's decision on the cost question. I would
 *96 As a repeat player in the arbitration required by its form         instead vacate and remand for further consideration of the
contract, Green Tree has superior information about the cost
                                                                        accessibility of the arbitral forum to Randolph. 4
to consumers of pursuing arbitration. Cf. **525 Raleigh v.
Illinois Dept. of Revenue, 530 U.S. 15, 21, 120 S.Ct. 1951,
147 L.Ed.2d 13 (2000) (“the very fact that the burden of                Parallel Citations
proof has often been placed on the taxpayer [to disprove
tax liability] ... reflects several compelling rationales ...           121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148
[including] the taxpayer's readier access to the relevant               L.Ed.2d 373, 69 USLW 4023, 00 Cal. Daily Op. Serv. 9799,
information”); 9 J. Wigmore, Evidence § 2486 (J. Chadbourn              2000 Daily Journal D.A.R. 13,051, 14 Fla. L. Weekly Fed.
rev. ed.1981) (where fairness so requires, burden of proof of           S 21


Footnotes
*        The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
         of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.




                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                     9
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

1      The arbitration provision states in pertinent part: “All disputes, claims, or controversies arising from or relating to this Contract or
       the relationships which result from this Contract, or the validity of this arbitration clause or the entire contract, shall be resolved by
       binding arbitration by one arbitrator selected by Assignee with consent of Buyer(s). This arbitration Contract is made pursuant to a
       transaction in interstate commerce, and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the
       award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead
       of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes through a court,
       but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND
       KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER PURSUANT TO ARBITRATION UNDER
       THIS CLAUSE OR PURSUANT TO A COURT ACTION BY ASSIGNEE (AS PROVIDED HEREIN). The parties agree and
       understand that all disputes arising under case law, statutory law, and all other laws, including, but not limited to, all contract, tort,
       and property disputes, will be subject to binding arbitration in accord with this Contract. The parties agree and understand that the
       arbitrator shall have all powers provided by the law and the Contract.” Joint Lodging 37.
2      Had the District Court entered a stay instead of a dismissal in this case, that order would not be appealable. 9 U.S.C. § 16(b)(1). The
       question whether the District Court should have taken that course is not before us, and we do not address it.
3      The majority of Courts of Appeals have so opined, contrary to the instant decision of the Court of Appeals for the Eleventh Circuit.
       See, e.g., Seacoast Motors of Salisbury, Inc. v. Chrysler Corp., 143 F.3d 626, 628–629 (C.A.1 1998); Altman Nursing, Inc. v. Clay
       Capital Corp., 84 F.3d 769, 771 (C.A.5 1996); Napleton v. General Motors Corp., 138 F.3d 1209, 1212 (C.A.7 1998); Gammaro v.
       Thorp Consumer Discount Co., 15 F.3d 93, 95 (C.A.8 1994); McCarthy v. Providential Corp., 122 F.3d 1242, 1244 (C.A.9 1997). But
       see Arnold v. Arnold Corp.—Printed Communications for Business, 920 F.2d 1269, 1276 (C.A.6 1990) (order compelling arbitration
       in an “embedded” proceeding treated as a final judgment when the District Court dismissed the action in deference to arbitration
       and had nothing left to do but execute the judgment); Armijo v. Prudential Insurance Co. of America, 72 F.3d 793, 797 (C.A.10
       1995) (same).
4      Seacoast Motors of Salisbury, Inc., supra, at 628 (noting in 1998 that the Court had not before addressed the question whether a
       district court order directing arbitration and dismissing the proceedings was a “final decision” within the meaning of § 16(a)(3));
       Napleton,supra, at 1212 (noting in 1998 that the appeal at issue adds an “unfamiliar ingredient” because the District Court ordered
       arbitration and dismissed the proceedings).
5      Cincinnati Gas & Elec. Co. v. Benjamin F. Shaw Co., 706 F.2d 155, 158 (C.A.6 1983) (rejecting the argument that because a
       declaratory judgment and other relief was sought in suit where arbitration was ordered, order to arbitrate should not be appealable);
       Howard Elec. & Mechanical Co. v. Frank Briscoe Co., 754 F.2d 847, 849 (C.A.9 1985) (plaintiff brought suit for work performed
       under contract and then sought arbitration; order compelling arbitration held appealable). Cf. In re Hops Antitrust Litigation, 832
       F.2d 470, 472–473 (C.A.8 1987) (District Court order requiring arbitration of some claims before it is not a final appealable order
       because other matters remained pending before the court); County of Durham v. Richards & Assocs., Inc., 742 F.2d 811, 813, n. 3
       (C.A.4 1984) (noting that a number of Courts of Appeals have held that an order compelling arbitration may be appealed even when
       it is entered in the course of a dispute over the underlying claim). See generally 15B C. Wright, A. Miller, & E. Cooper, Federal
       Practice and Procedure § 3914.17, pp. 19–25 (1992).
6      In Randolph's motion for reconsideration in the District Court, she asserted that “[a]rbitration costs are high” and that she did not
       have the resources to arbitrate. But she failed to support this assertion. She first acknowledged that petitioners had not designated a
       particular arbitration association or arbitrator to resolve their dispute. Her subsequent discussion of costs relied entirely on unfounded
       assumptions. She stated that “[f]or the purposes of this discussion, we will assume filing with the [American Arbitration Association],
       the filing fee is $500 for claims under $10,000 and this does not include the cost of the arbitrator or administrative fees.” Randolph
       relied on, and attached as an exhibit, what appears to be informational material from the American Arbitration Association that does
       not discuss the amount of filing fees. She then noted: “[The American Arbitration Association] further cites $700 per day as the
       average arbitrator's fee.” For this proposition she cited an article in the Daily Labor Report, February 15, 1996, published by the
       Bureau of National Affairs, entitled Labor Lawyers at ABA Session Debate Role of American Arbitration Association. Plaintiff's
       Motion for Reconsideration, Record Doc. No. 53, pp. 8–9. The article contains a stray statement by an association executive that the
       average arbitral fee is $700 per day. Randolph plainly failed to make any factual showing that the American Arbitration Association
       would conduct the arbitration, or that, if it did, she would be charged the filing fee or arbitrator's fee that she identified. These
       unsupported statements provide no basis on which to ascertain the actual costs and fees to which she would be subject in arbitration.
          In this Court, Randolph's brief lists fees incurred in cases involving other arbitrations as reflected in opinions of other Courts
          of Appeals, while petitioners' counsel states that arbitration fees are frequently waived by petitioners. None of this information
          affords a sufficient basis for concluding that Randolph would in fact have incurred substantial costs in the event her claim went
          to arbitration.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                         10
Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000)
121 S.Ct. 513, 84 Fair Empl.Prac.Cas. (BNA) 769, 148 L.Ed.2d 373, 69 USLW 4023...

7      We decline to reach respondent's argument that we may affirm the Court of Appeals' conclusion that the arbitration agreement is
       unenforceable on the alternative ground that the agreement precludes respondent from bringing her claims under the TILA as a class
       action. See Brief for Respondent 39–48. The Court of Appeals did not pass on this question, and we need not decide here issues not
       decided below. Roberts v. Galen of Va., Inc., 525 U.S. 249, 119 S.Ct. 685, 142 L.Ed.2d 648 (1999) (per curiam).
1      In Alabama, as in most States, courts interpret a contract's silence (about arbitration fees and costs) according to “usage or custom.”
       Green Tree Financial Corp. of Ala. v. Wampler, 749 So.2d 409, 415 (Ala.1999); see also Restatement (Second) of Contracts § 204,
       Comment d (1979) (where an essential term is missing, “the court should supply a term which comports with community standards of
       fairness and policy”). Cf. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (courts
       should generally apply state contract law principles when deciding whether parties agreed to arbitrate a certain matter); Mastrobuono
       v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62–64, and n. 9, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (interpreting arbitration clause
       according to New York and Illinois law).
2      They include National Arbitration Forum provisions that limit small-claims consumer costs to between $49 and $175 and a
       National Consumer Disputes Advisory Committee protocol recommending that consumer costs be limited to a reasonable amount.
       National Arbitration Forum, Code of Procedure, App. C, Fee Schedule (July 1, 2000); National Consumer Disputes Advisory
       Committee, Consumer Due Process Protocol, Principle 6, Comment (Apr. 17, 1998), http://www.adr.org/education/education/
       consumer_ protocol.html.
3      The court interpreted a form contract to arbitrate employment disputes, silent as to costs, to require the employer “to pay all of the
       arbitrator's fees necessary for a full and fair resolution of [the discharged employee's] statutory claims.” 105 F.3d, at 1485.
4      Randolph alternatively urges affirmance on the ground that the arbitration agreement is unenforceable because it precludes pursuit
       of her statutory claim as a class action. But cf. Johnson v. West Suburban Bank, 225 F.3d 366 (C.A.3 2000) (holding arbitration
       clause in short-term loan agreement enforceable even though it may render class action to pursue statutory claims unavailable). The
       class-action issue was properly raised in the District Court and the Court of Appeals. I do not read the Court's opinion to preclude
       resolution of that question now by the Eleventh Circuit. Nothing Randolph has so far done in seeking protection against prohibitive
       costs forfeits her right to a judicial determination whether her claim may proceed either in court or in arbitration as a class action.


End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                       11
Haddock v. Quinn, 287 S.W.3d 158 (2009)




                                                                  [4] prior litigation substantially prejudiced REIT, limited
                    287 S.W.3d 158
                                                                  partnership, and members of REIT's board of trustees, for
                Court of Appeals of Texas,
                                                                  purposes of determining whether CEO waived arbitration.
                       Fort Worth.

          Gerald W. HADDOCK, Appellant,
                                                                  Petition for writ of mandamus denied.
                         v.
 William F. QUINN, Paul E. Rowsey, III, John Goff,
                                                                  See also 2006 WL 909470.
   Terry N. Worrell, Crescent Real Estate Equities
 Company, Crescent Real Estate Limited Partnership
  and Crescent Real Estate Equities, Ltd., Appellees.
                                                                   West Headnotes (46)
                        and
         In re Gerald W. Haddock, Relator.
                                                                   [1]    Mandamus
        Nos. 2–06–472–CV, 2–07–048–CV.
       | Feb. 26, 2009. | Rehearing and                                                                                        Civil
     Rehearing En Banc Overruled July 9, 2009.                            Proceedings Other Than Actions
                                                                          A party seeking relief pursuant to the Federal
Synopsis                                                                  Arbitration Act (FAA) from a denial or stay of
Background: Former chief executive officer (CEO) of                       arbitration must pursue relief by way of petition
real estate investment trust (REIT) filed arbitration claim               for writ of mandamus. 9 U.S.C.A. §§ 1–16.
alleging that the REIT and limited partnership controlled
by REIT refused to allow him to exercise partnership unit                 1 Cases that cite this headnote
options and exchange them for REIT stock. REIT, limited
partnership, and members of REIT's board of trustees brought
                                                                   [2]    Mandamus
action seeking a stay of arbitration proceedings and a
judgment declaring that former CEO had repudiated limited                                                                      Remedy
partnership's arbitration agreement. The 67th District Court              by Appeal or Writ of Error
of Tarrant County, Donald J. Cosby, J., permanently enjoined
                                                                          Mandamus
former CEO from pursuing arbitration. Former CEO sought
review by petition for writ of mandamus and interlocutory                                                                      Nature
appeal.                                                                   of Acts to Be Commanded
                                                                          Mandamus will issue to correct a clear abuse
                                                                          of discretion for which the remedy by appeal is
Holdings: The Court of Appeals, Anne Gardner, J., held that:              inadequate.

                                                                          Cases that cite this headnote
[1] a party seeking relief from a stay of arbitration had to
pursue relief by way of a petition for writ of mandamus, rather
than interlocutory appeal;                                         [3]    Mandamus

[2] issue of whether CEO waived arbitration by initiating and                                                                  Matters
pursuing prior litigation was for the trial court, rather than            of Discretion
arbitration panel;                                                        A trial court has no discretion, for purposes of
                                                                          mandamus relief, in determining what the law is
[3] prior litigation initiated by CEO substantially invoked               or in applying the law to the facts, and a clear
the judicial process on the same claims that CEO sought to                failure to analyze or apply the law correctly will
arbitrate, for purposes of determining whether CEO waived                 constitute an abuse of discretion.
arbitration; and



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             1
Haddock v. Quinn, 287 S.W.3d 158 (2009)




       Cases that cite this headnote                                                                                             Disputes
                                                                          and Matters Arbitrable Under Agreement

 [4]   Mandamus                                                         Once the moving party establishes the existence
                                                                        of a valid arbitration agreement, a trial court then
                                                           Modification determines whether the nonmovant's claims fall
       or Vacation of Judgment or Order                                 within the scope of the arbitration clause.
       Mandamus
                                                                          2 Cases that cite this headnote
                                                           Civil
       Proceedings Other Than Actions                              [8]    Alternative Dispute Resolution
       When a motion to compel arbitration under
       the Federal Arbitration Act (FAA) has been                                                                                Evidence
       erroneously denied or when a motion to stay                        If a trial court determines that a valid arbitration
       arbitration is erroneously granted, there is no                    agreement exists, the burden shifts to the party
       adequate remedy by appeal, and mandamus will                       opposing arbitration to prove its defenses.
       issue. 9 U.S.C.A. §§ 1–16.
                                                                          Cases that cite this headnote
       1 Cases that cite this headnote

                                                                   [9]    Alternative Dispute Resolution
 [5]   Alternative Dispute Resolution
                                                                                                                                 Scope
                                                           Validity       and Standards of Review
       Alternative Dispute Resolution                                     Whether a valid arbitration agreement exists is a
                                                                          legal question subject to de novo review.
                                                           Disputes
       and Matters Arbitrable Under Agreement                             Cases that cite this headnote
       A party seeking to enforce an arbitration
       agreement must establish the existence of a valid           [10]   Appeal and Error
       arbitration agreement and show that the claims in
       dispute fall within the scope of that agreement.                                                                          Allowance
                                                                          of Remedy and Matters of Procedure in General
       1 Cases that cite this headnote
                                                                          Trial

 [6]   Alternative Dispute Resolution                                                                                            Duty
                                                                          to Make in General
                                                           What           When an abuse of discretion standard of review
       Law Governs                                                        applies to a trial court's ruling, findings of
       In determining the validity of arbitration                         fact and conclusions of law aid the appellate
       agreements under the Federal Arbitration                           court in reviewing the propriety of the ruling
       Act (FAA), courts generally apply state-law                        by providing the reviewing court with an
       principles governing the formation of contracts.                   explanation for the ruling, but, while findings of
       9 U.S.C.A. §§ 1–16.                                                fact and conclusions of law can be helpful in
                                                                          applying the abuse of discretion standard, they
       Cases that cite this headnote                                      are not required.

                                                                          Cases that cite this headnote
 [7]   Alternative Dispute Resolution

                                                                   [11]   Appeal and Error



             © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
Haddock v. Quinn, 287 S.W.3d 158 (2009)



                                                              Abuse                                                                Arbitrability
        of Discretion                                                        of Dispute
        To determine whether a trial court abused                            Who decides arbitrability is a matter of contract
        its discretion, an appellate court must decide                       interpretation regarding the division of labor
        whether it acted without reference to any guiding                    or responsibility between the court and the
        rules or principles; in other words, whether the                     arbitrator, not jurisdiction.
        act was arbitrary or unreasonable.
                                                                             Cases that cite this headnote
        1 Cases that cite this headnote

                                                                      [16]   Alternative Dispute Resolution
 [12]   Appeal and Error
                                                                                                                                   Contractual
                                                              Abuse          or Consensual Basis
        of Discretion                                                        Arbitration is a matter of contract.
        Any factual issues decided by a trial court
        in reaching a decision under review are                              Cases that cite this headnote
        not reviewed by legal- and factual-sufficiency
        standards, when the abuse of discretion standard              [17]   Alternative Dispute Resolution
        of review applies, although when the decision
        under review is based on facts determined by the                                                                           Arbitrability
        court, those facts must have some support in the                     of Dispute
        evidence.                                                            The question of who has the primary power to
                                                                             decide arbitrability turns upon what the parties
        1 Cases that cite this headnote                                      agreed about that matter.

                                                                             Cases that cite this headnote
 [13]   Alternative Dispute Resolution

                                                              Suing
                                                                      [18]   Alternative Dispute Resolution
        or Participating in Suit
        When a party files suit on an arbitrable claim, and                                                                        What
        the defendant elects not to arbitrate, the issue is                  Law Governs
        not whether there was a mutual repudiation of the                    When applying the Federal Arbitration Act
        arbitration agreement, but whether arbitration                       (FAA), both Texas and Delaware courts look
        has been waived.                                                     to federal law to decide substantive issues. 9
                                                                             U.S.C.A. §§ 1–16.
        Cases that cite this headnote
                                                                             Cases that cite this headnote
 [14]   Courts
                                                                    [19]     Alternative Dispute Resolution
                                                              Exclusive
        or Concurrent Jurisdiction                                                                                                 Arbitrability
        Federal and state courts have concurrent                             of Dispute
        jurisdiction to enforce the Federal Arbitration                      The question whether the parties have submitted
        Act (FAA). 9 U.S.C.A. §§ 1–16.                                       a particular dispute to arbitration, i.e., the
                                                                             question of arbitrability, is an issue for judicial
        Cases that cite this headnote                                        determination, unless the parties clearly and
                                                                             unmistakably provide otherwise.
 [15]   Alternative Dispute Resolution



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 3
Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                             Whether a party has waived its arbitration rights
        1 Cases that cite this headnote                                      under the Federal Arbitration Act (FAA) by
                                                                             inconsistent litigation conduct is a question of
 [20]   Alternative Dispute Resolution                                       law that reviewed de novo. 9 U.S.C.A. §§ 1–16.

                                                              Arbitrability Cases that cite this headnote
        of Dispute
        Issue of whether former chief executive officer               [23]   Alternative Dispute Resolution
        (CEO) of real estate investment trust (REIT)
        waived arbitrability, by instituting and pursuing                                                                          Evidence
        prior litigation to an adverse decision in court,                    Because public policy favors arbitration, there
        was for the trial court in which defendants sought                   is a strong presumption against waiver of
        a stay of arbitration, rather than arbitration                       arbitration.
        panel, when former CEO filed arbitration claim
        alleging REIT and limited partnership controlled                     Cases that cite this headnote
        by REIT refused to allow him to exercise limited
        partnership unit options and exchange them                    [24]   Alternative Dispute Resolution
        for REIT stock, as there was not clear and
        unmistakable evidence that the parties intended                                                                            Evidence
        the arbitrators to determine arbitrability; though                   A party asserting a waiver of arbitration bears
        provision in arbitration agreement expressly                         a heavy burden of proof, and the court must
        incorporated rules of arbitration association,                       resolve all doubts in favor of arbitration.
        provision in current version rules stating that the
        arbitrator had the power to rule on objections to                    Cases that cite this headnote
        arbitration was not in association's rules when the
        parties entered into arbitration agreement.                   [25]   Alternative Dispute Resolution

        7 Cases that cite this headnote                                                                                            Waiver
                                                                             or Estoppel
 [21]   Alternative Dispute Resolution                                       Waiver of arbitration may be express or implied
                                                                             from a party's conduct, but that conduct must be
                                                              Suing          unequivocal.
        or Participating in Suit
        The presence of a “no waiver” clause in an                           Cases that cite this headnote
        arbitration agreement, stating that no judicial
        proceeding by a party relating to the subject                 [26]   Alternative Dispute Resolution
        matter of an arbitration would be deemed a
        waiver of a right to arbitrate, does not alter                                                                             Waiver
        the ordinary analysis undertaken to determine                        or Estoppel
        if a party has waived its right to arbitration by                    Waiver in the context of arbitration agreements
        litigation conduct.                                                  subject to the Federal Arbitration Act (FAA)
                                                                             requires more than is required for general waiver;
        1 Cases that cite this headnote
                                                                             it requires proof that the party asserting waiver
                                                                             as a defense to arbitration has suffered prejudice.
 [22]   Alternative Dispute Resolution                                       9 U.S.C.A. §§ 1–16.

                                                              Scope          Cases that cite this headnote
        and Standards of Review

                                                                      [27]   Alternative Dispute Resolution


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 4
Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                              arose in connection with the partnership's unit
                                                               Suing          option plan which was expressly subject to
        or Participating in Suit                                              the terms of the partnership agreement which
        Under the Federal Arbitration Act (FAA), a party                      contained arbitration agreement, though in
        waives an arbitration clause by substantially                         prior litigation CEO initially sought to reform
        invoking the judicial process to the other party's                    unfavorable-comments clause in severance
        detriment. 9 U.S.C.A. §§ 1–16.                                        agreement he did so in order to litigate claims
                                                                              of mismanagement which allegedly resulted in
        1 Cases that cite this headnote
                                                                              devaluation of unit options, and CEO only
                                                                              invoked arbitration after litigating his claims to
 [28]   Alternative Dispute Resolution                                        an unfavorable result. 9 U.S.C.A. §§ 1–16.

                                                               Suing          Cases that cite this headnote
        or Participating in Suit
        To demonstrate waiver of arbitration, the party                [31]   Alternative Dispute Resolution
        opposing arbitration must establish both that:
        (1) the party seeking arbitration substantially                                                                              Suing
        invoked the judicial process, and (2) the party                       or Participating in Suit
        opposing arbitration suffered prejudice thereby.                      Waiver of arbitration by litigation conduct must
                                                                              be decided under a totality-of-the-circumstances
        2 Cases that cite this headnote
                                                                              test on a case-by-case basis.

 [29]   Alternative Dispute Resolution                                        Cases that cite this headnote

                                                               Suing
                                                                       [32]   Alternative Dispute Resolution
        or Participating in Suit
        To invoke the judicial process so as to waive                                                                                Suing
        arbitration, a party must, at the very least, engage                  or Participating in Suit
        in some overt act in court that evinces a desire to                   Waiver of arbitration by litigation conduct may
        resolve the arbitrable dispute through litigation                     be found where a party has tried and failed to
        rather than arbitration.                                              achieve a satisfactory result before turning to
                                                                              arbitration.
        3 Cases that cite this headnote
                                                                              3 Cases that cite this headnote
 [30]   Alternative Dispute Resolution
                                                                       [33]   Alternative Dispute Resolution
                                                               Suing
        or Participating in Suit                                                                                                     Suing
        Prior litigation by former chief executive officer                    or Participating in Suit
        (CEO) of real estate investment trust (REIT)                          Failing to seek arbitration until after proceeding
        substantially invoked the judicial process on the                     in litigation to an adverse result is the clearest
        same claims that CEO sought to arbitrate, for                         form of inconsistent litigation conduct and
        purposes of determining whether CEO waived                            constitutes substantial invocation of the litigation
        arbitration under the Federal Arbitration Act                         process resulting in waiver.
        (FAA) of claims alleging REIT and limited
        partnership controlled by REIT refused to allow                       4 Cases that cite this headnote
        him to exercise partnership unit options and
        exchange them for REIT stock; both prior                       [34]   Alternative Dispute Resolution
        litigation claims and CEO's arbitration claims



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                               Substantially invoking the litigation machinery
                                                                Suing          qualifies as the kind of prejudice that is the
        or Participating in Suit                                               essence of waiver of arbitration.
        Participation in litigation to gain an advantage
        in future litigation can result in waiver of                           Cases that cite this headnote
        arbitration.
                                                                        [39]   Alternative Dispute Resolution
        1 Cases that cite this headnote
                                                                                                                                     Suing
 [35]   Alternative Dispute Resolution                                         or Participating in Suit
                                                                               “Prejudice” or detriment in the context of
                                                                Suing          litigation conduct inconsistent with arbitration
        or Participating in Suit                                               relates to inherent unfairness caused by a party's
        Substantially invoking the judicial process does                       attempt to have it both ways by switching
        not waive a party's arbitration rights unless                          between litigation and arbitration to its own
        the opposing party also proves that it suffered                        advantage.
        prejudice as a result.
                                                                               1 Cases that cite this headnote
        Cases that cite this headnote

                                                                        [40]   Alternative Dispute Resolution
 [36]   Alternative Dispute Resolution
                                                                                                                                     Right
                                                                Suing          to Enforcement and Defenses in General
        or Participating in Suit                                               A party should not be allowed purposefully and
        Courts will not find that a party has waived its                       unjustifiably to manipulate the exercise of its
        right to enforce an arbitration clause by merely                       arbitral rights simply to gain an unfair tactical
        taking part in litigation unless it has substantially                  advantage over the opposing party.
        invoked the judicial process to its opponent's
        detriment.                                                             Cases that cite this headnote

        2 Cases that cite this headnote
                                                                        [41]   Alternative Dispute Resolution

 [37]   Alternative Dispute Resolution                                                                                               Waiver
                                                                               or Estoppel
                                                                Suing          Ultimately, what constitutes waiver of the right
        or Participating in Suit                                               to arbitrate depends on the facts of each case.
        When one party reveals a disinclination to resort
        to arbitration on any phase of suit involving all                      Cases that cite this headnote
        parties, those parties are prejudiced by being
        forced to bear the expense of a trial.                          [42]   Alternative Dispute Resolution
        Cases that cite this headnote                                                                                                Suing
                                                                               or Participating in Suit
 [38]   Alternative Dispute Resolution                                         Three factors are particularly relevant in
                                                                               determining prejudice, for purposes of
                                                                Suing          determining whether a party has waived
        or Participating in Suit                                               arbitration by litigation conduct; first, pretrial
                                                                               activity related to all claims including those that
                                                                               are arbitrable may result in prejudice, second,



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


        time and expense incurred in defending against
        a motion for summary judgment could prejudice                           Cases that cite this headnote
        the party opposing arbitration, and three, failure
        to assert the right to demand arbitration is a factor            [46]   Alternative Dispute Resolution
        bearing on the question of prejudice along with
        other considerations.                                                                                                       Suing
                                                                                or Participating in Suit
        1 Cases that cite this headnote                                         Prior litigation initiated by former chief
                                                                                executive officer (CEO) of real estate investment
 [43]   Alternative Dispute Resolution                                          trust (REIT), seeking to reform unfavorable-
                                                                                comments clause in severance agreement in
                                                                Suing           order to litigate claims of mismanagement
        or Participating in Suit                                                which allegedly resulted in devaluation of his
        Both delay and the extent of the moving party's                         unit options in limited partnership controlled
        participation in judicial proceedings are material                      by REIT, prejudiced REIT, partnership and
        factors in assessing prejudice, for purposes                            members of REIT's board of trustees, for
        of determining whether a party has waived                               purposes of determining whether CEO waived
        arbitration.                                                            arbitration under the Federal Arbitration Act
                                                                                (FAA) of claims alleging REIT and limited
        Cases that cite this headnote                                           partnership refused to allow him to exercise
                                                                                partnership unit options and exchange them for
 [44]   Alternative Dispute Resolution                                          REIT stock; CEO failed to seek arbitration
                                                                                under partnership agreement before initiating
                                                                Waiver          litigation, CEO waited over 14 months before
        or Estoppel                                                             requesting arbitration, during such time he
        A demand for arbitration puts the other party                           obtained a temporary injunction, filed two
        on notice that arbitration is forthcoming and                           motions for summary judgment and litigated his
        affords that party the opportunity to avoid                             claims to an adverse judgment, and defendants
        compromising its position with regard to                                spent a substantial sums defending CEO's
        arbitrable and nonarbitrable claims, for purposes                       claims. 9 U.S.C.A. §§ 1–16.
        of determining whether a party has waived
        arbitration.                                                            Cases that cite this headnote

        1 Cases that cite this headnote


 [45]   Alternative Dispute Resolution                                  Attorneys and Law Firms

                                                                Suing *163 Wolf Law PC and Jeffrey J. Wolf, Fort Worth, and
        or Participating in Suit                                     Beatie and Osborn LLP and *164 Russel H. Beatie, New
                                                                     York, NY, for appellant/relator.
        If a party has asserted the right to arbitrate
        at or before commencement of litigation, the                    Jackson & Walker LLP and Charles L. Babcock, David
        party opposing arbitration will necessarily carry               T. Moran, Patrick R. Cowlishaw, William R. Jenkins, Jr.,
        a heavy burden to show waiver; conversely,                      Amanda L. Bush, Fort Worth, for appellees/real parties in
        when a party fails to demand arbitration and also               interest.
        engages in pretrial activity inconsistent with the
        intent to arbitrate, the opposing party seeking                 PANEL: GARDNER and WALKER, JJ.; and DIXON
        to show waiver may more easily show that its                    W. HOLMAN, J. (Senior Justice, Retired, Sitting by
        position has been compromised, i.e., prejudiced.                Assignment).




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Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                    partnership. This organizational structure (referred to as an
                                                                    “UPREIT”) allows owners of investment real estate to sell
                          OPINION                                   their properties to CREELP in exchange for CREELP units,
                                                                    which the seller may later convert into CEI common stock.
ANNE GARDNER, Justice.                                              The real estate owners incur no income tax liability until they
                                                                    sell the stock. CREE, a Delaware corporation, is a wholly
I. Introduction                                                     owned subsidiary of CEI and serves as CREELP's general
In this consolidated interlocutory appeal and mandamus              partner.
proceeding, Relator and Appellant Gerald W. Haddock
seeks relief from the trial court's order staying arbitration
proceedings that he initiated against Appellees and Real            2. The Individuals
Parties in Interest William F. Quinn, Paul E. Rowsey, III,          In 1994, Haddock and two cofounders created the Crescent
John Goff, Terry N. Worrell, Crescent Real Estate Equities          Entities and related companies. Prior to 1994, Haddock had
Company (“CEI”), Crescent Real Estate Equities Limited              served in various capacities in companies formed by one
Partnership (“CREELP”), and Crescent Real Estate Equities,          of the cofounders, including serving as lead transactional
Limited (“CREE”).                                                   attorney and chief negotiator. Of the individual Real Parties in
                                                                    Interest, John Goff currently *165 serves as CEI's CEO and
Haddock raises three issues. In his first issue, Haddock            Vice Chairman. William Quinn, Paul Rowsey III, and Terry
argues that the trial court improperly assumed jurisdiction         Worrell serve as members of CEI's Board of Trust Managers.
because the parties contracted to have all issues—including
questions of arbitrability—decided by arbitration. Second,
Haddock contends that even if the trial court had jurisdiction      B. The CREELP Partnership Agreement and
to decide some issues of arbitrability, the main issue in this      Arbitration Clause
case—whether he repudiated or waived arbitration—should             In February 1994, Haddock, as CEI's President, signed a
be decided by an arbitrator. Third, Haddock argues that the         limited partnership agreement on behalf of CEI, CREE,
trial court erred and abused its discretion by concluding that      and several limited partners to form the CREELP limited
he repudiated or waived arbitration by engaging in prior            partnership. CREE was CREELP's general partner. Haddock
litigation that was inconsistent with arbitration.                  became a limited partner in CREELP as well as President of
                                                                    CEI, and he became CEO of CEI in 1996. As an officer and
Real Parties in Interest contend that the issue of repudiation or   senior management employee, Haddock received options to
waiver was properly for the court to decide and that the trial      purchase units in CREELP in 1995 and 1996, which were
court correctly determined that Haddock repudiated, or in the       exchangeable for CEI common stock. The options for both the
alternative waived, arbitration of his claims by substantially      CREELP units and CEI stock were created by incentive plans
invoking the judicial process to their detriment. They argue        adopted by those entities' respective governance committees.
that the trial court correctly concluded that the remaining
claims asserted by Haddock, individually and derivatively on        The original CREELP limited partnership agreement did not
behalf of CEI stockholders and against nonsignatories, are not      contain an arbitration agreement. However, in May 1994,
within the scope of the arbitration agreement.                      the limited partnership agreement was amended to add an
                                                                    arbitration agreement that provides, in pertinent part: 1

II. Factual and Procedural Background
                                                                      Section 16.1 Arbitration
A. The Parties
                                                                         Notwithstanding anything to the contrary contained in
1. The Crescent Entities                                                 this Agreement, all claims, disputes and controversies
CEI is a publicly held real estate investment trust (commonly            between the parties hereto (including, without limitation,
referred to as a “REIT”) organized under the laws of the state           any claims, disputes, and controversies between the
of Texas. CEI is structured as an Umbrella Partnership Real              Partnership and any one or more of the Partners and any
Estate Investment Trust whereby CEI owns a majority of the               claims, disputes and controversies among any two or
limited partnership interests in CREELP, a Delaware limited              more Partners) arising out of or in connection with this



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


     Agreement or the Partnership created hereby, relating       compensation as well as the accelerated vesting of certain
     to the validity, construction, performance, breach,         stock and partnership unit options and that he thereby became
     enforcement or termination thereof, or otherwise, shall     immediately vested in a large number of stock and unit
     be resolved by binding arbitration in the State of Texas,   options in both CEI and CREELP.
     in accordance with this Article 16 and, to the extent
     not inconsistent herewith, the Expedited Procedures         In his petition, Haddock further explained that he had become
     and Commercial Arbitration Rules of the American            “concerned” that the Crescent Entities were being managed
     Arbitration Association.                                    and operated adversely to interests of shareholders and
                                                                 unitholders by offering executives excessive compensation
  The arbitration agreement contains additional paragraphs       packages and risky loans that seriously jeopardized the
  of detailed procedures to be followed in any arbitration       financial health and stability of the entities. Haddock alleged
  proceedings under the agreement, including an expedited        that he desired to discuss these concerns with fellow
  schedule for selection of an arbitration panel, for            shareholders and unitholders and to further investigate but
  commencement and completion of the arbitration                 feared that doing so might be construed by the Crescent
  proceeding within sixty days after selection, and for          entities as a breach of the unfavorable comments clause in the
  rendition by the panel of its award within thirty days         severance agreement. Haddock alleged that he had received
  thereafter.                                                    threats that the Crescent Entities would forfeit his options as a
                                                                 result of his conduct in discussing those matters and exposing
C. The Severance Agreement
                                                                 their “questionable practices.”
In June 1999, Haddock resigned from his executive positions
and entered into a confidential severance agreement with
                                                                 Haddock sought to clarify or reform the severance agreement
CEI and CREELP, which provided for him to receive certain
                                                                 by a declaratory judgment that the unfavorable comments
cash compensation and which, together with simultaneously
                                                                 clause of the severance agreement was void or limited to
executed amended unit option and stock option agreements,
                                                                 statements rising to the level of actionable defamation. He
accelerated the vesting of certain of his CREELP unit options
                                                                 also sought and obtained a temporary restraining order against
and CEI stock options that he had previously received as
                                                                 the Crescent Entities from “[t]hreatening or taking any action
part of his compensation. The agreement called for Haddock
                                                                 to declare forfeited or interfere with” his rights in any shares
to relinquish all of his remaining unvested unit options and
                                                                 of CREE or CREELP, already owned by him or shares or
stock options. Paragraph 13 of the severance agreement (the
                                                                 units subject to an unexercised option held by him. The
“unfavorable-comments clause”) restricted both Haddock
                                                                 restraining order granted by the trial court also provided that
and the Crescent Entities from making unfavorable comments
                                                                 all parties were to abide by the unfavorable-comments clause.
about the other or about Haddock's job performance. The
                                                                 The parties later agreed to an order extending the temporary
severance agreement did not contain an arbitration clause.
                                                                 restraining order until the date of trial, originally scheduled
                                                                 for August 29, 2005.
D. The Prior Lawsuit
 *166 In March 2005, Haddock filed a suit for a declaratory      The Crescent Entities filed a counterclaim asserting that
judgment and for temporary and permanent injunctions             Haddock had breached the terms of both the severance
against the Crescent Entities in the 17th District Court of      agreement and a subsequent 2001 settlement agreement,
Tarrant County, Texas. Haddock pleaded his prior status as       general release, and covenant not to sue for claims and causes
CEO and President of CEI, CREE, and other related entities       of action in any way connected with his prior employment or
referred to in his petition as “the Employer Group,” that        termination.
he and the Employer Group had agreed to terminate his
employment relationship in June 1999, and that the parties       In June 2005, Haddock filed a motion to clarify or modify
had entered into a confidential severance agreement that he      the temporary restraining order, alleging that he proposed
would file under seal with the court. Haddock stated that as     to exercise his rights as a unitholder in CREELP and the
consideration for his resignation from all directorships and     right to have the value of his options adjusted in accordance
offices held in the Employer Group, the severance agreement      with “relevant agreements and plans” under which the options
provided that, in addition to stock and units in CEI and         were created. Haddock alleged in that motion that he had
CREELP that he already owned, he was promised certain cash       reason to believe he had one or more common law and



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


statutory causes of action against the Crescent Entities related   Haddock further alleged that the Entities' Compensation
to management and desired “to assert these claims in this suit,    Committee refused to adjust the exercise price of his
or in another suit.” Haddock requested in his motion that the      options as provided by anti-dilution provisions in the option
court remove all doubt that filing those lawsuits would not        agreements, prevented him from converting his options to
violate the terms of the severance *167 agreement and that         CEI common stock, and refused to allow him to exercise
it either clarify or modify the temporary restraining order to     his options with a recourse promissory note as provided by
permit him to file the lawsuits.                                   the CREELP unit option agreement, resulting in damages
                                                                   of over $8.2 million. Haddock also asserted a claim, in a
Haddock subsequently filed two motions for summary                 derivative capacity on behalf of CEI shareholders, asserting
judgment, one as to the enforceability of the severance            that loans to company insiders violated the Sarbanes–Oxley
agreement and the other as to the Crescent Entities'               Act, resulting in damages to the shareholders of at least $39.7
counterclaim; the Crescent Entities likewise moved for             million, including lost interest. He named Quinn, Rowsey,
summary judgment. After a two-day hearing, the trial court         and Worrell as parties based upon their service on a Special
signed a final judgment on December 1, 2005, ordering that         Litigation Committee for the Crescent Entities that refused
Haddock and the Crescent Entities take nothing on their            his demand regarding the derivative claim.
respective claims and counterclaims. Haddock appealed to
this court from the take-nothing summary judgment against
him, but he later moved to dismiss the appeal, and we              F. The Underlying Proceeding
dismissed it on April 6, 2006. See Haddock v. Crescent             Real Parties in Interest filed this action in the 67th District
Real Estate Equities Co., No. 02–06–00096–CV, 2006 WL              Court of Tarrant County seeking a stay of the arbitration
909470, at *1 (Tex.App.-Fort Worth Apr. 6, 2006, no pet.).         proceedings and a declaratory judgment that Haddock had
                                                                   repudiated the CREELP arbitration agreement by filing his
                                                                   March 2005 suit and proceeding to a final judgment rather
E. The Arbitration Demand                                          than arbitrating the issues in that case and that the remaining
On December 6, 2005, six days after the trial court signed         claims were not within the scope of the arbitration agreement.
its final judgment, Haddock wrote to the CEI Compensation          Haddock answered with a general denial and a plea to *168
Committee, requesting that it adjust the exercise price for his    the jurisdiction asserting that the trial court lacked jurisdiction
options pursuant to the antidilution provisions of the stock       to decide any issues of arbitrability, including waiver or
and unit option plans, which request was refused. Thereafter,      repudiation. Alternatively, he asserted that even if the court
according to Haddock, CREELP and CEI continually refused           had jurisdiction over some arbitrability issues, its jurisdiction
to allow him to exercise CREELP unit options and to                was limited in scope and did not allow it to decide the waiver
exchange them for CEI stock.                                       or repudiation issue.

On July 10, 2006, Haddock filed a forty-three page Statement       After a hearing on the application to stay arbitration, the
of Claims with the American Arbitration Association under          trial court—the presiding judge being the same judge who
the arbitration provision contained in the CREELP limited          had earlier entered the temporary restraining order in the
partnership agreement. In his Statement of Claims, Haddock         prior suit, sitting for the regular judge of the 17th District
asserted causes of action against all of the Crescent Entities     Court—signed an order granting the stay and permanently
as well as the individual Real Parties in Interest for breach      enjoining Haddock from pursuing his arbitration demand.
of contract, breach of the duty of good faith and fair dealing,    After Haddock perfected his appeal in this case, the trial court
violation of securities laws, and breach of fiduciary duty. As     filed findings of fact and conclusions of law, finding that
in his prior suit, Haddock set forth the events regarding his      Haddock had repudiated the CREELP arbitration agreement
resignation as director and officer from the Crescent Entities     by litigating the March 2005 suit to a final judgment, that he
in 1999, and alleged that since that time, those entities'         was estopped from relying on the arbitration agreement, that
operations had declined and the entities had begun to liquidate    Real Parties in Interest accepted that repudiation by defending
their real estate properties, using the proceeds to continue       against Haddock's claims and filing a counterclaim, and that
to award extraordinary dividends to stockholders, thereby          Real Parties in Interest suffered prejudice.
diluting the value of his CREELP unit options.
                                                                   Haddock seeks review of the trial court's order both
                                                                   by petition for writ of mandamus and by interlocutory


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Haddock v. Quinn, 287 S.W.3d 158 (2009)


appeal. We have consolidated the two proceedings for               [5] [6] A party seeking to enforce an arbitration agreement
a decision disposing of both simultaneously. See In re            must establish the existence of a valid arbitration agreement
Valero Energy Corp., 968 S.W.2d 916, 916–17 (Tex.1998)            and show that the claims in dispute fall within the scope
(orig.proceeding). The trial court has stayed all proceedings     of that agreement. In re Bank One, N.A., 216 S.W.3d
in this case pending the outcome of the mandamus proceeding       825, 826 (Tex.2007) (orig.proceeding) (per curiam); In
and interlocutory appeal.                                         re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737
                                                                  (Tex.2005) (orig.proceeding); see BWI Cos., Inc. v. Beck, 910
                                                                  S.W.2d 620, 621 (Tex.App.-Austin 1995, orig. proceeding).
III. Discussion                                                   In determining the validity of arbitration agreements under
                                                                  the FAA, we generally apply state-law principles governing
A. Mandamus or Interlocutory Appeal?
                                                                  the formation of contracts. In re Palm Harbor Homes, Inc.,
 [1] The parties agree that the Federal Arbitration Act
                                                                  195 S.W.3d 672, 676 (Tex.2006) (citing First Options of
(“FAA”) applies to the arbitration agreement in this case.
                                                                  Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920,
See generally 9 U.S.C. §§ 1–16 (West 2009). A party
                                                                  1924, 131 L.Ed.2d 985 (1995)).
seeking relief pursuant to the FAA from a denial or stay of
arbitration must pursue relief by way of petition for writ of
                                                                   [7]     [8]     [9] Once the moving party establishes the
mandamus. In re D. Wilson Constr. Co., 196 S.W.3d 774,
                                                                  existence of a valid arbitration agreement, the trial court then
780 (Tex.2006) (orig.proceeding) ( “Mandamus is proper to
                                                                  determines whether the nonmovant's claims fall within the
correct a clear abuse of discretion when there is no adequate
                                                                  scope of the arbitration clause. In re FirstMerit Bank, N.A.,
remedy by appeal, ... as when a party is denied its contracted-
                                                                  52 S.W.3d 749, 753 (Tex.2001) (orig.proceeding). If the trial
for arbitration rights under the FAA.”); In re Valero Energy
                                                                  court determines that a valid arbitration agreement exists, the
Corp., 968 S.W.2d at 917 (holding mandamus available for
                                                                  burden shifts to the party opposing arbitration to prove its
denial of arbitration because party has no remedy by appeal
                                                                  defenses. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,
under FAA); Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266,
                                                                  227 (Tex.2003). Whether a valid arbitration agreement exists
272 (Tex.1992) (orig.proceeding); see also W. Dow Hamm III
                                                                  is a legal question subject to de novo review. In re D. Wilson
Corp. v. Millennium Income Fund, L.L.C., 237 S.W.3d 745,
                                                                  Constr. Co., 196 S.W.3d at 781.
751 (Tex.App.-Houston [1st Dist.] 2007, no pet.) (holding
mandamus only means of reviewing order granting stay
of arbitration). Therefore, we will dismiss the interlocutory    C. The Arbitration Agreement
appeal for want of jurisdiction and proceed to determine         Haddock contends by his first issue that repudiation and
whether Haddock as Relator is entitled to mandamus relief.       waiver are matters of substantive arbitrability and that the
See Tex.R.App. P. 42.3(a), 43.2(f).                              parties clearly and unmistakably agreed to have all issues,
                                                                 including questions of arbitrability, decided by an arbitrator.
                                                                 Therefore, he asserts, the trial court lacked jurisdiction to
B. Standard of Review
                                                                 decide the issues of repudiation and waiver. Real Parties in
 [2] [3] [4] Mandamus will issue to correct a clear abuse
                                                                 Interest contend that no valid arbitration agreement continued
of discretion for which the remedy by appeal is inadequate.
                                                                 to exist because Haddock “repudiated” it by filing the prior
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36
                                                                 lawsuit. They argue that when Haddock commenced the prior
(Tex.2004). A trial court has no discretion in determining
                                                                 lawsuit, the Crescent Entities were put to an “election” to
what the law is or in applying the law to the facts, and a clear
                                                                 either terminate or insist on performance of the arbitration
failure to analyze or apply the law correctly will constitute
                                                                 agreement and that, by filing a counterclaim and allowing the
an abuse of discretion. Walker v. Packer, 827 S.W.2d 833,
                                                                 prior lawsuit to go to final judgment, the Crescent Entities and
840 (Tex.1992). When a motion to compel arbitration under
                                                                 Haddock mutually terminated the arbitration agreement.
the FAA has been erroneously denied or when a motion to
stay arbitration is erroneously granted, there is no adequate
remedy by appeal, and mandamus will issue. In re D. Wilson       1. The issue is waiver, not repudiation by election.
Constr. *169 Co., 196 S.W.3d at 780; see also In re
                                                                  [10] [11] [12] In findings of fact 2 and conclusions of
Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005)
                                                                 law that it entered after the parties *170 filed their briefs in
(orig.proceeding) (per curiam).
                                                                 this court and that have not been challenged by either party,



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


the trial court found in favor of Real Parties in Interest that   after submission in this court, the Supreme Court of Texas
Haddock                                                           extensively addressed the defense of waiver of arbitration by
                                                                  substantially invoking the judicial process to the other party's
                                                                  detriment or prejudice. 258 S.W.3d 580, 589–90 (Tex.2008),
  repudiated the Arbitration Agreement by filing and              cert. denied, ––– U.S. ––––, 129 S.Ct. 952, 173 L.Ed.2d 116
  prosecuting the Prior Lawsuit to a final judgment. The          (2009). By postsubmission supplemental briefs, the parties
  Crescent Entities accepted that repudiation by defending        have joined issue on whether Haddock waived his right to
  against Haddock's claims ... and by prosecuting a               arbitration by inconsistent litigation conduct, although Real
  counterclaim. The Arbitration Agreement ceased to exist         Parties in Interest still say this is an issue of both waiver and
  as between these parties on or before April 6, 2006, the date
                                                                  repudiation. 4
                                                        3
  Haddock dismissed his appeal of the Prior Lawsuit.
To support their argument that Haddock repudiated the
arbitration agreement, Real Parties in Interest rely on Vireo,     *171 2. The trial court has jurisdiction to decide
P.L.L.C. v. Cates, 953 S.W.2d 489, 491 (Tex.App.-Austin           waiver.
1997, pet. denied). In Vireo, the Austin court held that when      [14] [15] As a threshold issue, Haddock argues that the
a plaintiff filed suit on an arbitrable claim, the defendant      trial court lacked subject matter jurisdiction to decide the
had an election to insist or not on arbitration; when the         issue of waiver. Federal and state courts have concurrent
defendant elected not to arbitrate, the parties therefore         jurisdiction to enforce the FAA. In re Palacios, 221 S.W.3d
mutually repudiated the arbitration agreement. Id.                564, 565 (Tex.2006) (orig.proceeding); In re Kellogg Brown
                                                                  & Root, Inc., 166 S.W.3d at 739 (citing Moses H. Cone Mem'l
 [13] Although the Supreme Court of Texas has not spoken          Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n. 32, 103
on this issue, Vireo's approach, that of “mutual repudiation      S.Ct. 927, 942 n. 32, 74 L.Ed.2d 765 (1983)). Waiver in
and waiver based on election” when a plaintiff files suit and     the context of this case is a question of arbitrability, and
then seeks arbitration, has been rejected by this court on two    who decides arbitrability is a matter of contract interpretation
occasions as well as by other Texas courts of appeals. See        regarding the division of labor or responsibility between the
Grand Homes, 96, LP v. Loudermilk, 208 S.W.3d 696, 704            court and the arbitrator, not jurisdiction. See Howsam v. Dean
(Tex.App.-Fort Worth 2006, pet. denied) (noting that Vireo        Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 592,
holding would undermine policy promoting arbitration and          154 L.Ed.2d 491 (2002) (characterizing presumption that
observing that TGAA was enacted to abrogate common law            questions of arbitrability are to be presented to court unless
“right of election” doctrine in arbitration context); see also    parties have clearly and unmistakably agreed otherwise as
Wee Tots Pediatrics v. Morohunfola, 268 S.W.3d 784, 792           “interpretive rule”); Marie v. Allied Home Mtg. Corp., 402
n. 4 (Tex.App.-Fort Worth 2008, no pet.) (again declining         F.3d 1, 3 (1st Cir.2005) (noting question of who decides
to follow Vireo ); Practicehwy.com, Inc. v. Albany IVF            waiver is one of “division of labor” between courts and
Fertility and Gynecology, PLLC, No. 05–06–00222–CV,               arbitrators).
2006 WL 2960838, at *3 (Tex.App.-Dallas Oct. 18, 2006,
no pet.) (mem.op.) (rejecting Vireo as conflating repudiation     We recently decided this very issue against Haddock's
and waiver). We decline to revisit this issue. We hold that       position in another case. Nw. Constr. Co. v. Oak Partners,
the trial court abused its discretion by basing its order         L.P., 248 S.W.3d 837, 847 (Tex.App.-Fort Worth 2008, pet.
staying arbitration on mutual repudiation of the arbitration      denied) (holding question of who decides issue of waiver of
agreement. However, this is but the beginning of our inquiry.     arbitration not one of subject matter jurisdiction). We hold
                                                                  that the trial court had jurisdiction to decide the issue of
In addition to asserting repudiation, Real Parties in Interest    waiver. 5
contend that Haddock waived the arbitration agreement by
inconsistent conduct in the prior lawsuit that resulted in
prejudice to them. The trial court made additional findings       3. Who decides the question of waiver by inconsistent
that Haddock's conduct in filing and prosecuting the prior        conduct?
lawsuit to final judgment substantially invoked the litigation     [16]     [17]     [18] Haddock next argues that who decides
process and prejudiced the Crescent Entities. In Perry            the question of waiver is a matter of contract and that the
Homes v. Cull, handed down after briefs were filed and            parties to this arbitration agreement clearly and unmistakably



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Haddock v. Quinn, 287 S.W.3d 158 (2009)



referred all questions of arbitrability to an arbitration panel. 6    www.adr.org/sp.asp? id=22440# R7 (last accessed February
We agree that “arbitration is a matter of contract.” Howsam,          25, 2009).
537 U.S. at 83, 123 S.Ct. at 591. The question of “ ‘who has
the primary power to decide arbitrability’ turns upon what the        Real Parties in Interest respond that the supreme court
parties agreed about that matter.” First Options, 514 U.S. at         in Perry Homes has now decided, contrary to Haddock's
944, 115 S.Ct. at 1923.                                               position, that the issue of waiver in a case governed by the
                                                                      FAA is for the court, not an arbitrator. 258 S.W.3d at 587.
 [19] There is a “qualification” to that general rule, which          Although we agree that this was the holding in Perry Homes,
is also an exception to the liberal policy favoring arbitration       the arbitration agreement at issue in that case contained no
agreements. Howsam, 537 U.S. at 83, 123 S.Ct. at 591.                 reference to the AAA rules. And the supreme court in that
“The question whether the parties have submitted a particular         case noted, albeit in another section of its opinion, that there
dispute to arbitration, i.e., the question of arbitrability, is ‘an   was no indication in that contract that the parties had “clearly
issue for judicial determination [u]nless the parties clearly         and unmistakably agreed” that the arbitrator should decide
and unmistakably provide otherwise.’ ” Id. (quoting AT & T            arbitrability. Id. at 587, n. 15 (citing First Options, 514 U.S.
Techs., Inc. v. Commc'ns Workers, 475 U.S. 643, 649, 106              at 947–48, 115 S.Ct. at 1924). Therefore, we do not read
S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986)); see also First              Perry Homes as abandoning the “clear and unmistakable”
Options, 514 U.S. at 944, 115 S.Ct. at 1924; In re Weekley            qualification to the presumption that the court is to decide
Homes, L.P., 180 S.W.3d 127, 130 (Tex.2005) (“[A]bsent                issues of arbitrability.
unmistakable evidence that the parties intended the contrary,
it is the courts rather than the *172 arbitrators that must           The majority of courts have concluded that express
decide ‘gateway matters,’ such as whether a valid arbitration         incorporation of rules empowering the arbitrator to decide
agreement exists.”).                                                  arbitrability (including ruling upon his or her own
                                                                      jurisdiction) clearly and unmistakably evidences the parties'
In First Options, the Supreme Court noted, in discussing              intent to delegate issues of arbitrability to the arbitrator.
the “clear and unmistakable evidence” requirement, that “the          See, e.g., Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366,
law treats silence or ambiguity about the question ‘who               1372–73 (Fed.Cir.2006) (holding incorporation of AAA
(primarily) should decide arbitrability’ differently from the         rules, including Rule 7(a), clearly and unmistakably showed
way it treats silence or ambiguity about the question whether         parties' intent to delegate issue of arbitrability to arbitrator);
a particular merits-related dispute is arbitrable because it          Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208
is within the scope of a valid arbitration agreement,' ” so           (2nd Cir.2005) (holding that incorporation of AAA Rules,
as to not “force unwilling parties to arbitrate a matter they         including Rule 7(a), clearly and unmistakably evinced intent
reasonably would have thought a judge, not an arbitrator,             for arbitrator to decide whether nonsignatory party bound
would decide.” 514 U.S. at 944–45, 115 S.Ct. at 1924–25.              by arbitration agreement); Terminix Int'l Co., L.P. v. Palmer
                                                                      Ranch Ltd. P'ship, 432 F.3d 1327, 1332–33 (11th Cir.2005)
                                                                      (holding by incorporating AAA Rules into agreement, parties
a. No “clear and unmistakable” evidence of agreement                  clearly and unmistakably agreed arbitrator should decide
to delegate questions of arbitrability to arbitrator                  whether arbitration clause was valid); Citifinancial, Inc.
Haddock argues that the arbitration agreement of the limited          v. Newton, 359 F.Supp.2d 545, 549–52 (S.D.Miss.2005)
partnership agreement “clearly and unmistakably” delegates            (same); see also Burlington Res. Oil & Gas Co. L.P. v. San
arbitrability issues, including waiver, to an arbitration panel       Juan Basin Royalty Trust, 249 S.W.3d 34, 40 (Tex.App.-
by expressly incorporating the Commercial Arbitration                 Houston [1st Dist.] 2007, pet. denied) (collecting cases).
Rules of the American Arbitration Association (“AAA”).
Specifically, Haddock relies upon Rule 7(a) of those rules,            *173 But the majority view does not “mandate that
which provides that the arbitrator “shall have the power to rule      arbitrators decide arbitrability in all cases where an arbitration
on his or her own jurisdiction, including any objections with         clause incorporates the AAA rules.” San Juan Basin, 249
respect to the existence, scope, or validity of the arbitration       S.W.3d at 42 (quoting James & Jackson, LLC v. Willie
agreement.” American Arbitration Association, Commercial              Gary, LLC, 906 A.2d 76, 78, 80 (Del.2006)). Haddock
Arbitration Rules and Mediation Procedures, R7, http://               points out that, in James & Jackson, the Delaware Supreme
                                                                      Court adopted the majority federal rule that incorporation



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


of AAA rules requires submission of issues of arbitrability                      decide such a question is an ‘arcane’
to the arbitrator rather than the court. 906 A.2d at 80–81.                      one that employees are unlikely to
However, the court in that case also held that this rule                         have considered unless clearly spelled
would only apply in cases where (1) an arbitration clause                        out by the employer.
generally provides for arbitration of all disputes and also
(2) incorporates a set of arbitration rules that empowers           Id.
arbitrators to decide arbitrability. Id. Because the arbitration
agreement there did not generally provide for arbitration of all    The Third Circuit has followed Marie in Ehleiter v. Grapetree
disputes but expressly allowed the parties to seek injunctive       Shores, Inc., holding that waiver by litigation conduct
relief and specific performance in the courts, the court held       inconsistent with arbitration is presumptively an issue for the
that something other than mere incorporation of AAA rules           court. 482 F.3d 207, 222 (3rd Cir.2007). It additionally held
would be needed in order to establish clear and unmistakable        that, even though the arbitration agreement there expressly
intent to delegate issues of arbitrability to the arbitrator. Id.   stated that all claims or matters arising out of or relating in
at 81.                                                              any fashion to the agreement “shall be considered arbitrable”
                                                                    including “the issue of arbitrability of any claim or dispute,”
In Marie v. Allied Home Mortgage Corp., the arbitration             the agreement did not manifest a clear and unmistakable
clause referred to binding arbitration “any and all disputes,       intent to have an arbitrator decide the *174 issue of waiver
claims (whether in tort, contract, statutory, or otherwise), and    based on litigation conduct. Id. at 221. The court reasoned:
disagreements concerning the interpretation or application
                                                                                 [W]e do not believe that this
of this Agreement ... including the arbitrability of any
                                                                                 provision ... evidences a clear and
such controversy or claim.” 402 F.3d at 14–15. The First
                                                                                 unmistakable intent to have an
Circuit in that case acknowledged that, while the issue of
                                                                                 arbitrator decide procedural questions
waiver by litigation conduct is presumptively for the court,
                                                                                 of arbitrability that arise only
the parties may by agreement shift the waiver issue to an
                                                                                 after the parties have bypassed a
arbitrator by clear and unmistakable expression of intent in
                                                                                 gateway determination of substantive
the agreement. Id. at 14 (citing First Options, 514 U.S. at
                                                                                 arbitrability by the arbitrator and
945, 115 S.Ct. at 1925). But the court held in that case that
                                                                                 actively litigated the underlying
express delegation of “arbitrability” issues to the arbitrator
                                                                                 dispute in court.
in the arbitration agreement at issue there did not evince
“clear and unmistakable” intent for the arbitrator to decide the    Id. at 222. The court in Ehleiter also noted that there
issue of waiver by litigation conduct. Id. at 15. The court in      was no reference to waiver of arbitration in the agreement.
Marie noted that the arbitration agreement at issue there also      Id. That court refused to interpret the agreement's “silence
incorporated the AAA rules but that it was silent regarding         regarding who decides the waiver issue” as giving arbitrators
whether the issue of waiver or any similar issue was intended       that power “ ‘for doing so ... [would] force [an] unwilling
to be referred to an arbitrator. Id.                                part[y] to arbitrate a matter [he] reasonably would have
                                                                    thought a judge, not an arbitrator, would decide.’ ” Id.
The court in Marie did not expressly decide the effect of the       (quoting First Options, 514 U.S. at 945, 115 S.Ct. 1920,
incorporation of the AAA rules but broadly held as follows:         131 L.Ed.2d 985); see also San Juan Basin, 249 S.W.3d
                                                                    at 41–42 (reasoning that, although reference to AAA rules
             We cannot say that the use of the
                                                                    might otherwise be construed as “clear and unmistakable
             term [arbitrability] here evinces a clear
                                                                    intent” to refer arbitrability issues to arbitrator, language of
             and unmistakable intent to have waiver
                                                                    agreement was silent as to referral of “arbitrability” issues
             issues decided by the arbitrator. There
                                                                    to arbitrator and limiting language of agreement negated
             are no references to waiver or similar
                                                                    such intent); In re Ford Motor Co., 220 S.W.3d 21, 23
             terms anywhere in the arbitration
                                                                    (Tex.App.-San Antonio 2006, orig. proceeding) (holding,
             agreement. Neither party should be
                                                                    despite reference to AAA rules, that agreement did not clearly
             forced to arbitrate the issue of waiver
                                                                    and unmistakably evidence intent that issue of whether a
             by conduct without a clearer indication
                                                                    nonparty was bound by arbitration agreement be decided by
             in the agreement that they have agreed
                                                                    arbitrator).
             to do so. The issue of who would


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Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                    cannot assume from silence in the agreement as to the issue
 [20] Haddock seeks to distinguish Marie on the basis that          of arbitrability or as to which version of the AAA rules
the conduct constituting waiver arose in the same litigation        is to apply, that the parties intended to incorporate Rule
in that case, as contrasted with the prior litigation instituted    7(a), which did not exist when the arbitration agreement was
by Haddock in a different court. 7 We disagree. The conduct         added. See Marie, 402 F.3d at 15; see also Ehleiter, 482 F.3d
found to constitute waiver in Marie was in a separate               at 222.
proceeding in a different litigation forum, the EEOC. Marie,
402 F.3d. at 14.                                                    Silence is not “clear and unmistakable evidence” of intent.
                                                                    The agreement is silent as to whether the parties intended to
Haddock also argues that the First Circuit held that sending        incorporate the current rules, silent as to whether the arbitrator
the waiver issue to the arbitrator in Marie would be                is to decide issues of “arbitrability,” and silent specifically
“exceptionally inefficient” given that the case started in          regarding who is to decide waiver, repudiation, or similar
court, whereas Haddock claims this matter began with a              matters. We hold that the general reference in the arbitration
demand for arbitration so that the issue of waiver could            agreement to the AAA rules, without more, does not clearly
more easily be resolved in that forum. To the contrary, the         and unmistakably manifest these parties' intent to refer the
conduct complained of by Real Parties in Interest started           issue of waiver by litigation conduct to the arbitrator.
when Haddock instituted and pursued his prior litigation to an
adverse decision in court. As the court in Marie recognized,
                                                                    b. Substantial invocation of the litigation process still an
“[i]f the arbitrator were to find that the defendant had waived
                                                                    issue for the court after Howsam
its right to arbitrat[ion], then the case would inevitably end up
                                                                    By part of his second issue, Haddock argues that, even
back in court.” Id. at 13. The same would be true here.
                                                                    if this court concludes that the trial court had power to
                                                                    consider some arbitrability issues, the trial court lacked
Finally, Haddock argues that Marie did not address the
                                                                    power specifically to decide the waiver issue, based upon
incorporation of the AAA rules into the arbitration agreement.
                                                                    language contained in the United States Supreme Court's
But the court clearly considered that language, because it
                                                                    decision in Howsam v. Dean Witter Reynolds Inc., which
specifically pointed out that the agreement so stated; yet the
                                                                    stated that the “presumption is that the arbitrator should
court found no clear and unmistakable evidence of intent in
                                                                    decide ‘allegation[s] of waiver, delay, or a like defense to
the agreement to shift the issue of waiver to the arbitrator. Id.
                                                                    arbitrability.’ ” 537 U.S. at 84, 123 S.Ct. at 592 (quoting
at 14.
                                                                    Moses H. Cone Mem'l Hosp., 460 U.S. at 24–25, 103 S.Ct. at
                                                                    941). In Perry Homes, the Culls made the identical argument
Additionally, as in the San Juan Basin and James & Jackson
                                                                    made here by Haddock, asserting that whether a party has
cases, the arbitration agreement here is not unequivocal but
                                                                    waived the right to arbitrate by litigation conduct is an issue to
contains limiting language with regard to the incorporation of
                                                                    be decided by the arbitrator, rather than the court, based upon
the AAA rules, incorporating those rules “to the extent not
                                                                    the same language from Howsam. 258 S.W.3d at 588–90. The
inconsistent” with the remainder of the detailed provisions of
                                                                    supreme court in Perry Homes rejected that argument, flatly
the arbitration agreement, which contains five sections *175
                                                                    stating,
and ten paragraphs of information prescribing the procedure
and scope of any arbitration.                                                    Every federal court that has addressed
                                                                                 this issue since Howsam has continued
We also note that there is no designation in the arbitration                     to hold that substantial invocation of
agreement here as to which version of the AAA rules is                           the litigation process is a question for
to apply, the version in existence when the agreement was                        the court rather than the arbitrator—
made or that in existence at the time of the dispute. Haddock                    including the First, Third, Fifth, and
acknowledges that the rule now designated as Rule 7(a),                          Eighth Circuit. Legal commentators
upon which he relies, did not exist when the arbitration                         appear to agree. So do we.
agreement was added to the limited partnership agreement
in 1994. Although, as Haddock points out, the partnership           Id. at 589; see JPD, Inc. v. Chronimed Holdings, Inc., 539
agreement has been amended several times since its inception        F.3d 388, 393–94 (6th Cir.2008) (holding Howsam limited to
without change to the arbitration agreement language, we            contractually based waiver, not waiver by litigation conduct



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


inconsistent with arbitration); Ehleiter, 482 F.3d at 217;          the arbitration agreement by filing and prosecuting the prior
Marie, 402 F.3d at 13–14; Republic Ins. Co. v. PAICO                lawsuit. We overrule Haddock's first issue. 8
Receivables, LLC, 383 F.3d 341, 344–47 (5th Cir.2004);
Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97
Fed.Appx. 462, 464 (5th Cir.2004). We overrule that portion         D. Waiver by Prior Litigation Conduct Inconsistent with
of Haddock's second issue.                                          Arbitration
                                                                    Having dealt with the preliminary arguments that consumed
                                                                    the vast bulk of the briefing by both sides, we now address the
c. The “No–Waiver” Rule                                             main issue. Haddock contends that the trial court abused its
Haddock also argues that Rule 48–(a) of the AAA rules               discretion and misapplied the law to the facts by concluding
incorporated into the arbitration agreement is a factor to          that he waived arbitration by his conduct in initiating and
be taken *176 into consideration in determining whether             prosecuting the prior lawsuit. Haddock maintains that his
he waived the agreement. That rule provides, “No judicial           prior lawsuit did not assert the same issues raised by his
proceeding by a party relating to the subject matter of the         demand for arbitration and that the issue in the prior lawsuit
arbitration shall be deemed a waiver of a party's right to          did not “aris[e] out of or in connection with th[e] [Partnership]
arbitrate.” American Arbitration Association, Commercial            Agreement or the Partnership” but, instead, arose from an
Arbitration Rules and Mediation Procedures, R48, http://            entirely *177 separate contract—the severance agreement
www.adr.org/sp.asp?id=22440# R48 (last accessed February            —which was not subject to arbitration.
25, 2009). Haddock acknowledges that this rule does not
preclude a finding of waiver but argues that this rule, as          Real Parties in Interest do not contest the validity of the
incorporated into the agreement, is further indication of the       arbitration agreement in the limited partnership agreement.
parties' intent to favor arbitration, specifically with regard to   Their position is that the severance agreement is subject to
waiver.                                                             the arbitration agreement contained in the limited partnership
                                                                    agreement that Haddock raised and litigated in the prior
 [21] The presence of such a “no waiver” clause in an               litigation, that his conduct in the prior litigation was
arbitration agreement does not alter the ordinary analysis          inconsistent with an intent to arbitrate that claim, and that they
undertaken to determine if a party has waived its right to          suffered prejudice; thus, they argue, Haddock waived his right
arbitration by litigation conduct. PAICO, 383 F.3d at 348.          to arbitrate his current claims.
The Fifth Circuit in that case agreed with those courts that
have interpreted such a “no waiver” clause as intended to            [22] [23] Whether a party has waived its arbitration rights
permit parties to seek provisional remedies or other judicial       under the FAA by inconsistent litigation conduct is a question
proceedings that would not function to displace arbitration         of law that we review de novo. Perry Homes, 258 S.W.3d at
on the underlying dispute. Id. Specifically, the court in           598 & n. 102; see also In re Citigroup Global Mkts., Inc., 258
PAICO stated, “ ‘[T]he fact that an arbitration agreement           S.W.3d 623, 625 (Tex.2008) (orig.proceeding) (per curiam);
incorporates such a provision would not prevent a court             In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002)
from finding that a party waived arbitration by protracted          (orig.proceeding) (per curiam). Because public policy favors
litigation of an arbitrable dispute.’ ” Id. (quoting S & R Co.      arbitration, there is a strong presumption against waiver of
v. Latona Trucking, Inc., 159 F.3d 80, 85 (2nd Cir.1998),           arbitration. Moses H. Cone Mem'l Hosp., 460 U.S. at 24–25,
cert. dism'd, 528 U.S. 1058, 120 S.Ct. 629, 145 L.Ed.2d 506         103 S.Ct. at 941; In re D. Wilson Constr. Co., 196 S.W.3d
(1999)); see also Home Gas Corp. v. Walter's of Hadley,             at 783.
Inc., 403 Mass. 772, 532 N.E.2d 681, 684–85 (1989) (holding
“no waiver” clause did not prevent finding of waiver by              [24] [25] [26] The party asserting waiver bears a heavy
litigation conduct); Seidman & Seidman v. Wolfson, 50               burden of proof, and the court must resolve all doubts in favor
Cal.App.3d 826, 835, 123 Cal.Rptr. 873 (Cal.Ct.App.1975)            of arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704
(stating purpose behind “no waiver” rule is not to allow a          (Tex.1998). Waiver must be intentional. In re Bank One, N.A.,
party to seek judicial relief of a controversy “and later to        216 S.W.3d at 827. Waiver may be express or implied from
switch course and demand arbitration”).                             a party's conduct, but that conduct must be unequivocal. Id.
                                                                    Additionally, waiver in the context of arbitration agreements
We hold that the trial court properly determined that it, rather    subject to the FAA requires more than is required for general
than an arbitrator, should decide whether Haddock waived


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Haddock v. Quinn, 287 S.W.3d 158 (2009)


waiver—it requires proof that the party asserting waiver as       to each of the terms and conditions of the partnership
a defense to arbitration has suffered prejudice. Perry Homes,     agreement.” That option plan further provides that upon
258 S.W.3d at 594–95 & n. 80 (reaffirming requirement of          exercising an option thereunder, each participant is “deemed
prejudice and collecting cases).                                  to have accepted and agreed to be bound by each of the
                                                                  terms and conditions of the Partnership Agreement for all
 [27] Under the FAA, “[a] party waives an arbitration clause      purposes.” [Emphasis added.] As amended in 1994 and
by substantially invoking the judicial process to the other       thereafter, the partnership agreement, in turn, contains the
party's detriment.” In re Citigroup Global Mkts., Inc., 258       arbitration agreement under which Haddock seeks to arbitrate
S.W.3d at 625 (quoting Perry Homes, 258 S.W.3d at 594).           his CREELP unit option and his CEI stock option claims. 9

 [28]     [29] To demonstrate waiver, the party opposing          While Haddock claims that he initially sought only to reform
arbitration must establish both that (1) the party seeking        the unfavorable-comments clause of the severance agreement
arbitration substantially invoked the judicial process and (2)    in the prior lawsuit, he had a stated purpose for doing so—
the party opposing arbitration suffered prejudice thereby. In     so that he could plead and litigate his claims of risky loans
re Bruce Terminix, 988 S.W.2d at 704. To invoke the judicial      and mismanagement of the Crescent Entities, which allegedly
process, a party “must, at the very least, engage in some overt   resulted in devaluing his CREELP and CEI options, without
act in court that evinces a desire to resolve the arbitrable      fear of violating that clause. Moreover, he also sought and
dispute through litigation rather than arbitration.” PAICO,       obtained affirmative injunctive relief against the Crescent
383 F.3d at 344 (quoting Subway Equip. Leasing Corp. v.           Entities, preventing them from threatening or taking action
Forte, 169 F.3d 324, 326 (5th Cir.1999)).                         to forfeit his rights in the CREELP unit options vested in
                                                                  him by the severance agreement. Haddock expressly stated
                                                                  his intent to file an additional suit to assert his claims
1. The prior suit substantially invoked the judicial
                                                                  against the Crescent Entities or, alternatively, to assert those
process
                                                                  claims in that same suit, and he sought the protection of the
 [30] Haddock contends that waiver could not have occurred
                                                                  court through a ruling that he would not risk interference
because the prior suit concerned only the unfavorable-
                                                                  or forfeiture of his options by proceeding with his proposed
comments clause in the severance agreement, which had no
                                                                  litigation.
arbitration agreement, and that his current arbitration demand
asserts entirely different claims that arise only out of a
                                                                  Only after ultimately suffering an adverse result in his suit
separate contract, i.e., the partnership agreement. Therefore,
                                                                  did Haddock turn to arbitration. Haddock alleged in his
we first determine whether—as Real Parties in Interest
                                                                  arbitration demand that the option claims he now asserts in
contend—the prior suit invoked the judicial process regarding
                                                                  that demand are “covered by the arbitration provision in the
the same claims that Haddock now seeks to arbitrate. See id.
at 344–47 (holding waiver applies only where the same claim       Limited Partnership Agreement.” 10 The fact is that both his
sought to be arbitrated was previously litigated but upholding    prior suit and his arbitration demand assert the same conduct
finding of waiver where jurisdiction of court was previously      of Real Parties in Interest, namely, allegedly refusing to honor
invoked *178 on all issues). We agree with Real Parties in        and reducing in value his CREELP unit options and CEI stock
Interest on this key issue.                                       options.


Although the severance agreement contains no arbitration          Haddock cannot have it both ways. If, as he says, his claims
clause, the CREELP unit option plan—as amended and                regarding option rights asserted in his arbitration demand are
attached to the severance agreement—does. Both the prior          covered by the arbitration agreement, then so were the claims
suit and the arbitration demand concern claims that “aris[e]      regarding the *179 option rights that he sought to protect in
out of or in connection with” the limited partnership or the      the previous lawsuit and planned to litigate once he obtained
limited partnership agreement by virtue of the CREELP unit        a declaration that the unfavorable-comments clause of his
option plan, which is subject to all terms of the limited         severance agreement did not preclude such a suit. By his prior
partnership agreement. Section 6.26 of the 1996 CREELP            lawsuit, Haddock invoked the judicial process with respect to
Unit Option Incentive Plan, attached as an appendix to            the same claims specifically regarding his options in CREELP
Haddock's severance agreement, expressly provides that            that he now seeks to arbitrate.
“the rights granted thereunder are governed by and subject


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Haddock v. Quinn, 287 S.W.3d 158 (2009)


 [31] Was his invocation of the judicial process in the prior     claims in that lawsuit or in another suit as to mismanagement
litigation “substantial”? Waiver by litigation conduct must be    and refusal of the Crescent Entities to allow him to exercise
decided under a totality-of-the-circumstances test on a case-     his options. Throughout the prior litigation, Haddock never
by-case basis. Perry Homes, 258 S.W.3d at 591. Factors listed     mentioned the arbitration agreement under which he now
in that case in considering the totality of the circumstances     seeks to arbitrate his option claims. Yet he was clearly aware
include whether the party seeking arbitration chose to file       of it because he admits in his brief in this court that he desired
in court as plaintiff, how long the party seeking arbitration     that it be included in the limited partnership agreement in
delayed before seeking that process, whether that party knew      1994.
of the arbitration clause from the outset, how much discovery
was conducted, how much pretrial activity went to the merits,      [32] Further, waiver may be found where a party has tried
how much time and expense was incurred in litigation,             and failed to achieve a satisfactory result before turning
whether the party seeking arbitration filed dispositive motions   to arbitration. See, e.g., Oak Partners, 248 S.W.3d at 848;
or sought judgment on the merits, and when the case was to        Loudermilk, 208 S.W.3d at 704; Williams Indus., Inc. v. Earth
be tried. Id. at 591–92.                                          Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex.App.-Houston
                                                                  [1st Dist.] 2003, no pet.); *180 In re Winter Park Constr.
Real Parties in Interest assert that Haddock “substantially”      Inc., 30 S.W.3d 576, 579 (Tex.App.-Texarkana 2000, orig.
invoked the judicial process with respect to his claim            proceeding); compare In re Bruce Terminix Co., 988 S.W.2d
regarding his rights in the CREELP unit options because           at 704 (finding no waiver where defendant did not ask court
                                                                  for any judicial decision such as by requesting summary
  (1) Haddock chose to file the prior lawsuit in court rather     judgment).
  than arbitrate (“whether the movant was the plaintiff (who
  chose to file in court) or the defendant (who merely             [33] Indeed, failing to seek arbitration until after proceeding
  responded)”);                                                   in litigation to an adverse result is the clearest form of
                                                                  inconsistent litigation conduct and is inevitably found to
  (2) Haddock filed the prior lawsuit in March 2005,
                                                                  constitute substantial invocation of the litigation process
  pursued it through final judgment, appealed it to this court,
                                                                  resulting in waiver. See, e.g., Jones v. Citibank (S.D.), N.A.,
  and waited until July of 2006 to file his demand for
                                                                  235 S.W.3d 333, 340–41 (Tex.App.-Fort Worth 2007, no
  arbitration (“how long the movant delayed before seeking
                                                                  pet.) (holding defendant waived arbitration of counterclaim
  arbitration”);
                                                                  by litigating over two years and after summary judgment
  (3) Haddock was “the primary signatory on the First             was rendered against her); see also Frye v. Paine, Webber,
  Amended Limited Partnership Agreement” and “intended            Jackson & Curtis, Inc., 877 F.2d 396, 398 (5th Cir.1989)
  for the arbitration agreement to be broad and encompass         (holding party waived arbitration by participating in litigation
  all claims and disputes (“whether the movant knew of the        that ended in mistrial), cert. denied, 494 U.S. 1016, 110 S.Ct.
  arbitration clause all along”)”;                                1318, 108 L.Ed.2d 493 (1990); Miller Brewing Co. v. Fort
                                                                  Worth Distrib. Co., 781 F.2d 494, 497–98 (5th Cir.1986)
  (4) Haddock knew of the arbitration agreement in 1994           (finding waiver by filing state court lawsuit and permitting it
  when he signed the First Amended Limited Partnership            to be dismissed for want of prosecution); see also Carbajal v.
  Agreement (“when the movant knew of the arbitration             Household Bank F.S.B., No. 00 C 0626, 2003 WL 22159473,
  clause”);                                                       at *10 (N.D.Ill. Sept. 18, 2003) (noting “[p]articipation in
                                                                  litigation raises concerns of forum-shopping. If a party first
  (5) Haddock was the plaintiff in the prior lawsuit and filed    demands arbitration only after it receives an adverse ruling in
  two motions for summary judgment (“whether the movant           the lawsuit, courts inevitably will find waiver” and collecting
  filed affirmative claims and dispositive motions”); and         cases), aff'd, 372 F.3d 903 (7th Cir.2004); Oak Partners, 248
                                                                  S.W.3d at 849 (holding trial court's waiver finding based
  (6) Haddock pursued the prior lawsuit to a final judgment
                                                                  on totality of circumstances including engaging in extensive
  (“whether the movant sought judgment on the merits”).
                                                                  discovery over nineteen-month period, filing of counterclaim,
                                                                  cross-claims, and motion for partial summary judgment, and
Haddock does not dispute these facts. Haddock chose to file
                                                                  seeking arbitration only after failure of mediation).
his prior suit rather than to arbitrate, sought and obtained
affirmative relief, and expressed his intent to pursue his



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Haddock v. Quinn, 287 S.W.3d 158 (2009)


Haddock filed his arbitration demand after filing suit,            of complex litigation served as waiver of right to arbitrate
obtaining injunctive relief, litigating for some nine months,      when opposing parties were prejudiced by being forced to
filing two motions for summary judgment, and finally               bear expenses of a quite lengthy trial, which is the kind of
suffering an adverse result in the prior lawsuit. All of these     prejudice arbitration is designed to avoid).
facts support the trial court's finding that he substantially
invoked the litigation process and thereby waived his right to      [39] [40] “Prejudice” has many meanings. Perry Homes,
arbitration.                                                       258 S.W.3d at 597. However, prejudice or “detriment” in
                                                                   the context of litigation conduct inconsistent with arbitration
 [34]     Moreover, participation in litigation to gain an         relates to “inherent unfairness” caused by “a party's attempt
advantage in future litigation can result in waiver. See In        to have it both ways by switching between litigation and
re Christus Spohn Health Sys. Corp., 231 S.W.3d 475, 481           arbitration to its own advantage.” Id.; see also Subway, 169
(Tex.App.-Corpus Christi 2007, orig. proceeding) (holding          F.3d at 327 (referring to “inherent unfairness—in terms of
hospital's prior litigation conduct in criminal case constituted   delay, expense, or damage to a party's legal position—that
waiver of right to arbitrate where prior litigation involved       occurs when the party's opponent forces it to litigate an issue
developing evidence as part of strategic plan for defense of       and later seeks to arbitrate that same issue”). “[A] party should
civil suit for damages). Haddock made clear in his pleadings       not be allowed purposefully and unjustifiably to manipulate
in his prior suit that his strategy and plan was to obtain an      the exercise of its arbitral rights simply to gain an unfair
interpretation of the severance agreement that would permit        tactical advantage over the opposing party.” Id. (citing In re
him to assert his claims in a lawsuit without violating the        Tyco Int'l Ltd. Securities Litigation, 422 F.3d 41, 46 n. 5 (1st
unfavorable-comments clause while preventing Real Parties          Cir.2005)).
in Interest from taking any action to interfere with the option
rights he sought to protect by injunctive relief and which he     [41] [42] [43] [44] Ultimately, what constitutes waiver
now seeks to arbitrate.                                          of the right to arbitrate depends on the facts of each case.
                                                                 PAICO, 383 F.3d at 346 (citing Tenneco Resins, Inc. v.
Haddock filed his arbitration demand for his option claims       Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.1985)). Three
over a year and a half after filing suit, prosecuting that suit, factors are particularly relevant in determining prejudice. Id.
suffering an adverse summary judgment in the trial court,        First, pretrial activity related to all claims including those
and after dismissing his appeal to this court. Considering the   that are arbitrable may result in prejudice. Id. (citing Price
totality of the circumstances as articulated in Perry Homes,     v. Drexel Burnham Lambert, Inc. 791 F.2d 1156, 1161–
we hold that Haddock substantially invoked the judicial          62 (5th Cir.1986)). Second, time and expense incurred in
process.                                                         defending against a motion for summary judgment could
                                                                 prejudice the party opposing arbitration. Price, 791 F.2d at
                                                                 1162. Thus, both delay and the extent of the moving party's
2. Prejudice                                                     participation in judicial proceedings are material factors in
 [35] [36] [37] [38] Substantially invoking the judicialassessing prejudice. Frye, 877 F.2d at 398. Third, failure to
process does not waive a party's arbitration rights unless the   assert the right to demand arbitration is a factor bearing on the
opposing party also proves that it suffered prejudice as a       question of prejudice along with other considerations. Price,
result. *181 Perry Homes, 258 S.W.3d at 593–94 (citing           791 F.2d at 1161–62. A demand for arbitration puts the other
In re Bruce Terminix Co., 988 S.W.2d at 704). “Courts            party on notice that arbitration is forthcoming and affords that
will not find that a party has waived its right to enforce an    party the opportunity to avoid compromising its position with
arbitration clause by merely taking part in litigation unless it regard to arbitrable and nonarbitrable claims. PAICO, 383
has substantially invoked the judicial process to its opponent's F.3d at 347.
detriment.” In re Service Corp. Int'l, 85 S.W.3d at 174. “When
one party reveals a disinclination to resort to arbitration on    [45] If a party has asserted the right to arbitrate at or before
any phase of suit involving all parties, those parties are       commencement of litigation, the party opposing arbitration
prejudiced by being forced to bear the expense of a trial....    will necessarily carry a heavy burden to show waiver.
Substantially invoking the litigation machinery qualifies as     Id. Conversely, when a party fails to demand arbitration
the kind of prejudice that is the essence of waiver.” E.C.       and also engages in pretrial activity inconsistent with the
Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268, 269 (5th     intent to arbitrate, the opposing party seeking to show
Cir.1977) (holding extensive postsuit actions in all phases


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           19
Haddock v. Quinn, 287 S.W.3d 158 (2009)


                                                                         filed the prior lawsuit, until July 2006, when he filed his
waiver “may more easily show that its position has been
                                                                         statement of claims with the AAA. During that time, among
compromised, i.e., prejudiced.” Id.; see Oak Partners, 248
                                                                         other things, he obtained a temporary injunction, filed two
S.W.3d at 851 (concluding that plaintiff showed prejudice
                                                                         motions for summary judgment, litigated his claims to an
when defendant delayed nineteen months before moving to
                                                                         adverse judgment, and filed and dismissed an appeal from
compel arbitration, during which time it actively pursued
                                                                         that judgment. The trial court specifically found that the
litigation in the trial court, sought discovery from plaintiff,
                                                                         “Crescent Entities were prejudiced by Haddock's invocation
 *182 and actively sought relief from the trial court, which
                                                                         of the judicial system in the Prior Lawsuit. In reliance on
forced plaintiff to respond and to incur attorney's fees); Jones,
                                                                         Haddock's actions, the Crescent Entities spent substantial
235 S.W.3d at 340–41 (holding appellant waived her right
                                                                         sums defending Haddock's claims in the Prior Lawsuit and
to arbitrate when she waited for over two years after card
                                                                         prosecuting a counterclaim.” Haddock has not challenged that
issuer's first petition was filed before requesting arbitration,
                                                                         finding.
and by that time had filed numerous motions including a
motion to dismiss, a counterclaim, and opposition to summary
                                                                         We hold that the trial court did not abuse its discretion by
judgment); see also Fraser v. Merrill Lynch Pierce, Fenner
                                                                         staying the arbitration because Haddock made his choice:
& Smith, Inc., 817 F.2d 250, 253 (4th Cir.1987) (finding
                                                                         he substantially invoked the judicial process as to his option
sufficient prejudice to support waiver where brokerage firm
delayed four-and-one-half years before seeking arbitration,              claims to the prejudice of Real Parties in Interest in the
two trial dates passed, and opposing party was required to               prior litigation and thereby waived his right to arbitrate those
respond to two motions for partial summary judgment and                  claims. We overrule Haddock's third issue.
three motions to dismiss); Miller Brewing, 781 F.2d at 497–
98 (finding waiver where plaintiff unconditionally filed suit,
                                                                         IV. Conclusion
waited eight months to assert right to arbitrate, and did not            Haddock does not challenge the trial court's ruling that
pursue arbitration until after its suit was dismissed three              his claims based on his stock options in CEI or his
years later for want of prosecution). Likewise, in Price, the            Sarbanes–Oxley claim are beyond the scope of the arbitration
Fifth Circuit Court of Appeals held that prejudice resulted in           agreement. Nor has he raised an issue on appeal as to the
waiver when the party opposing arbitration had been put to               trial court's ruling that his claims against Quinn, Rowsey, and
the expense and time of defending a motion to dismiss and                Worrell are beyond the scope of the arbitration agreement.
for summary judgment because unlike a perfunctory motion                 Therefore, we need not reach the propriety of the trial court's
to dismiss before answering, a federal rule 12(b) motion to              order as to those claims. Having overruled Haddock's three
dismiss and for summary judgment “could not have caused                  issues, we deny the petition for writ of mandamus, and we
anything but substantial prejudice to the Prices.” 791 F.2d at           dismiss the interlocutory appeal for want of jurisdiction.
1162.

 [46] Haddock failed to seek arbitration before initiating
the prior litigation. Then he waited over fourteen months                WALKER, J., concurs without opinion.
before requesting arbitration, from March 2005, when he


Footnotes
1       Each of several amended partnership agreements contain the identical arbitration provision.
2       When an abuse of discretion standard of review applies to a trial court's ruling, findings of fact and conclusions of law aid us in
        reviewing the propriety of the ruling by providing us with an explanation for the ruling. Chrysler Corp. v. Blackmon, 841 S.W.2d 844,
        852 (Tex.1992); Samuelson v. United Healthcare of Tex., Inc., 79 S.W.3d 706, 710 (Tex.App.-Fort Worth 2002, no pet.). But while
        findings of fact and conclusions of law can be helpful in applying the abuse of discretion standard, they are not required. Samuelson,
        79 S.W.3d at 710. To determine whether a trial court abused its discretion, we must decide whether it acted without reference to any
        guiding rules or principles; in other words, whether the act was arbitrary or unreasonable. See Downer v. Aquamarine Operators, Inc.,
        701 S.W.2d 238, 241–42 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). Any factual issues decided
        by the court in reaching the decision under review are not reviewed by legal- and factual-sufficiency standards, although when the
        decision under review is based on facts determined by the court, those facts must have some support in the evidence. Crouch v.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                      20
Haddock v. Quinn, 287 S.W.3d 158 (2009)


      Tenneco, Inc., 853 S.W.2d 643, 649 & n. 2 (Tex.App.-Waco 1993, writ denied) (op. on reh'g). However, neither party has challenged
      the trial court's findings of fact in this case.
3     The facts in this case are undisputed. Relator's position is that the trial court misapplied the law to the facts and abused its discretion.
      See In re Dillard Dep't Stores, Inc., 198 S.W.3d 778, 780 (Tex.2006).
4     Indeed, Haddock has argued from the outset that “repudiation” and “waiver” in the context of a party's litigation conduct that is
      inconsistent with arbitration have no substantive difference.
5     Although the trial court did not make an explicit finding or conclusion as to whether it possessed the power to determine the issue of
      waiver, it implicitly so concluded because it proceeded to determine the essential elements of waiver against Haddock.
6     The limited partnership agreement requires that Delaware law be used when construing the agreement, specifically including the
      arbitration agreement. The parties agree that, to the extent that any state substantive law applies, Delaware law “mirrors federal law.”
      When applying the FAA, Texas courts also look to federal law to decide substantive issues. Jack B. Anglin Co., 842 S.W.2d at 271–
      72. We thus look to federal law to determine this issue.
7     Haddock does not discuss the differences between or attempt to distinguish Ehleiter or James & Jackson from this case.
8     We also overrule the second part of Haddock's second issue, in which he argues that whether the arbitration agreement forbids his
      Sarbanes–Oxley derivative claim is for the arbitrator to decide, not the court, similar to a like issue regarding class arbitration under
      Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 449, 123 S.Ct. 2402, 2405, 156 L.Ed.2d 414 (2003) (holding question of whether
      an arbitration agreement forbade class arbitration was for the arbitrator, not the court, because it involved contract interpretation and
      arbitration procedures). The trial court did not determine that the derivative claim was forbidden by the arbitration agreement; rather,
      it determined that the claim was outside the scope of the arbitration agreement because most CEI stockholders were not parties to the
      partnership agreement. Haddock has not challenged that ruling or the findings of the court to that effect.
9     The trial court found, and Haddock has not challenged that finding, that he raised some of the same issues in the prior suit that
      he now seeks to arbitrate, alleging in his petition in that suit that the Crescent Entities “may be acting adversely to the interests of
      stockholders and unitholders” and that “Haddock further believes the management of the Employer Group is not acting in the best
      interests of the shareholders and unitholders by providing risky loans to executives which seriously jeopardize the financial health
      and stability of the Employer Group.”
10    Although Haddock points out that he had and retains to this day a limited partnership interest in CREELP, he has never explained
      how the arbitration demand involves that limited partnership interest, other than through the identical options that were involved
      in the prior suit.


End of Document                                                      © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           21
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...


                                                                                                                                 Arbitrability
                     123 S.Ct. 588                                          of Dispute
            Supreme Court of the United States
                                                                            A gateway dispute about whether the parties
     Karen HOWSAM, Individually and as Trustee                              are bound by a given arbitration clause
                                                                            raises a “question of arbitrability” for a court
    for the E. Richard Howsam, Jr., Irrevocable Life
                                                                            to decide; similarly, a disagreement about
    Insurance Trust Dated May 14, 1982, Petitioner,
                                                                            whether an arbitration clause in a concededly
                          v.
                                                                            binding contract applies to a particular type of
           DEAN WITTER REYNOLDS, INC.                                       controversy is for the court.
              No. 01-800. | Argued Oct. 9,                                  578 Cases that cite this headnote
            2002. | Decided Dec. 10, 2002.

Brokerage firm brought suit seeking to enjoin customer from         [3]     Alternative Dispute Resolution
arbitrating dispute with National Association of Securities
                                                                                                                                 Matters
Dealers (NASD). The United States District Court for the
                                                                            to Be Determined by Court
District of Colorado dismissed suit, but the Court of Appeals
for the Tenth Circuit, Ebel, Circuit Judge, 261 F.3d 956,                   Alternative Dispute Resolution
reversed. After granting certiorari, the United States Supreme
                                                                                                                                 Waiver,
Court, Justice Breyer, held that: (1) interpretation of NASD
                                                                            Laches, or Estoppel
rule imposing six-year time limit for arbitration was a matter
presumptively for the arbitrator, not for the court, abrogating             “Procedural” questions which grow out of the
J.E. Liss & Co. v. Levin, 201 F.3d 848, and (2) parties' contract           dispute and bear on its final disposition are
did not call for judicial determination of whether arbitration              presumptively not for the judge, but for an
was time-barred.                                                            arbitrator, to decide; the presumption is that the
                                                                            arbitrator should decide allegations of waiver,
Reversed.                                                                   delay, or a like defense to arbitrability.

                                                                            393 Cases that cite this headnote
Justice Thomas filed an opinion concurring in the judgment.

Justice O'Connor did not participate.                               [4]     Alternative Dispute Resolution

                                                                                                                                 Relations
                                                                            Between Customer-Investors and Broker-
 West Headnotes (5)                                                         Dealers
                                                                             Issue of whether arbitration of dispute between
 [1]     Alternative Dispute Resolution                                      brokerage firm and its customer was time-barred
                                                                             under the National Association of Securities
                                                               Arbitrability Dealers (NASD) Code of Arbitration Procedure
         of Dispute                                                          was a gateway procedural dispute that did not
         The question whether the parties have submitted                     present a “question of arbitrability,” and thus
         a particular dispute to arbitration, i.e., the                      interpretation of NASD time limit rule was a
         “question of arbitrability,” is an issue for judicial               matter presumptively for the arbitrator, not for
         determination unless the parties clearly and                        the court; NASD arbitrators were comparatively
         unmistakably provide otherwise.                                     more expert about meaning of their own rule and
                                                                             better able to interpret and apply it; abrogating
         544 Cases that cite this headnote                                   J.E. Liss & Co. v. Levin, 201 F.3d 848.

                                                                            247 Cases that cite this headnote
 [2]     Alternative Dispute Resolution



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Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

                                                                   L.Ed.2d 1409. The question whether parties have submitted
 [5]     Alternative Dispute Resolution                            a particular dispute to arbitration, i.e., the “question of
                                                                   arbitrability,” is “an issue for judicial determination [u]nless
                                                              Agreements
                                                                   the parties clearly and unmistakably provide otherwise.” AT
         to Arbitrate
                                                                   & T Technologies, Inc. v. Communications Workers, 475
         Contract between brokerage firm and its
                                                                   U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648. The phrase
         customer, which incorporated the National
                                                                   “question of arbitrability” has a limited scope, applicable in
         Association of Securities Dealers (NASD) Code
                                                                   the kind of narrow circumstance where contracting parties
         of Arbitration Procedure, did not call for judicial
                                                                   would likely have expected a court to have decided the
         determination of whether arbitration was time-
                                                                   gateway matter. But **590 the phrase is not applicable
         barred under NASD arbitration time limit rule,
                                                                   in other kinds of general circumstance where parties would
         although rule limited arbitration to “eligible”
                                                                   likely expect that an arbitrator would decide the question-“
         disputes, where rule's use of term “eligible” did
                                                                   ‘procedural’ questions which grow out of the dispute and
         not indicate parties' intent for time limit issue to
                                                                   bear on its final disposition,” John Wiley & Sons, Inc. v.
         be resolved by court prior to arbitration, since
                                                                   Livingston, 376 U.S. 543, 557, 84 S.Ct. 909, 11 L.Ed.2d 898,
         parties to an arbitration contract would normally
                                                                   and “allegation [s] of waiver, delay, or a like *80 defense to
         expect a forum-based decisionmaker to decide
                                                                   arbitrability,” Moses H. Cone Memorial Hospital v. Mercury
         forum-specific procedural gateway matters.
                                                                   Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d
         372 Cases that cite this headnote                         765. Following this precedent, the application of the NASD
                                                                   rule is not a “question of arbitrability” but an “aspec[t] of
                                                                   the [controversy] which called the grievance procedures into
                                                                   play.” John Wiley & Sons, Inc., supra, at 559, 84 S.Ct. 909.
                                                                   NASD arbitrators, comparatively more expert about their
                                                                   own rule's meaning, are comparatively better able to interpret
                       **589 Syllabus *
                                                                   and to apply it. In the absence of any statement to the contrary
Per respondent Dean Witter Reynolds, Inc.'s standard client        in the arbitration agreement, it is reasonable to infer that the
agreement, petitioner Howsam chose to arbitrate her dispute        parties intended the agreement to reflect that understanding.
with the company before the National Association of                And for the law to assume an expectation that aligns (1)
Securities Dealers (NASD). NASD's Code of Arbitration              decisionmaker with (2) comparative expertise will help better
Procedure § 10304 states that no dispute “shall be eligible        to secure the underlying controversy's fair and expeditious
for submission ... where six (6) years have elapsed from the       resolution. Pp. 591-593.
occurrence or event giving rise to the ... dispute.” Dean Witter
filed this suit, asking the Federal District Court to declare the   (b) Dean Witter's argument that, even without an
dispute ineligible for arbitration because it was more than six     antiarbitration presumption, the contracts call for judicial
years old and seeking an injunction to prohibit Howsam from         determination is unpersuasive. The word “eligible” in the
proceeding in arbitration. The court dismissed the action,          NASD Code's time limit rule does not, as Dean Witter
stating that the NASD arbitrator should interpret and apply         claims, indicate the parties' intent for the rule to be resolved
the NASD rule. In reversing, the Tenth Circuit found that           by the court prior to arbitration. Parties to an arbitration
the rule's application presented a question of the underlying       contract would normally expect a forum-based decisionmaker
dispute's “arbitrability”; and the presumption is that a court      to decide forum-specific procedural gateway matters, and any
will ordinarily decide an arbitrability question.                   temptation here to place special antiarbitration weight on the
                                                                    word “eligible” in § 10304 is counterbalanced by the NASD
Held: An NASD arbitrator should apply the time limit rule to        rule that “arbitrators shall be empowered to interpret and
the underlying dispute. Pp. 591-593.                                determine the applicability” of all code provisions, § 10324.
                                                                    P. 593.
(a) “[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which              261 F.3d 956, reversed.
he has not agreed so to submit.” Steelworkers v. Warrior
& Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4



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Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

BREYER, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and STEVENS, SCALIA, KENNEDY,                     *82 The agreement also provides that Howsam can select
SOUTER, and GINSBURG, JJ., joined. THOMAS, J.,                    the arbitration forum. And Howsam chose arbitration before
filed an opinion concurring in the judgment, post, p. 593.        the NASD.
O'CONNOR, J., took no part in the consideration or decision
of the case.                                                      To obtain NASD arbitration, Howsam signed the NASD's
                                                                  Uniform Submission Agreement. That agreement specified
                                                                  that the “present matter in controversy” was submitted
Attorneys and Law Firms                                           for arbitration “in accordance with” the NASD's “Code of
                                                                  Arbitration Procedure.” Id., at 24. And that Code contains
Alan C. Friedberg, Denver, CO, for petitioners.                   the provision at issue here, a provision stating that no dispute
                                                                  “shall be eligible for submission ... where six (6) years have
Matthew D. Roberts, for the United States as amicus curiae,
                                                                  elapsed from the occurrence or event giving rise to the ...
by special leave of the Court supporting the petitioners.
                                                                  dispute.” NASD Code § 10304.
Kenneth W. Starr, Arlington, VA, for respondent.
                                                                  After the Uniform Submission Agreement was executed,
Opinion                                                           Dean Witter filed this lawsuit in Federal District Court. It
                                                                  asked the court to declare that the dispute was “ineligible
*81 Justice BREYER delivered the opinion of the Court.            for arbitration” because it was more than six years old.
                                                                  App. 45. And it sought an injunction that would prohibit
This case focuses upon an arbitration rule of the National
                                                                  Howsam from proceeding in arbitration. The District Court
Association of Securities Dealers (NASD). The rule states
                                                                  dismissed the action on the ground that the NASD arbitrator,
that no dispute “shall be eligible for submission to
                                                                  not the court, should interpret and apply the NASD rule.
arbitration ... where six (6) years have elapsed from the
                                                                  The Court of Appeals for the Tenth Circuit, however,
occurrence or event giving rise to the ... dispute.” NASD
                                                                  reversed. 261 F.3d 956 (2001). In its view, application of the
Code of Arbitration Procedure § 10304 (1984) (NASD Code
                                                                  NASD rule presented a question of the underlying dispute's
or Code). We must decide whether a court or an NASD
                                                                  “arbitrability”; and the presumption is that a court, not an
arbitrator should apply the rule to the underlying controversy.
                                                                  arbitrator, will ordinarily decide an “arbitrability” question.
We conclude that the matter is for the arbitrator.
                                                                  See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S.
                                                                  938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

                              I                                   The Courts of Appeals have reached different conclusions
                                                                  about whether a court or an arbitrator primarily should
The underlying controversy arises out of investment advice
                                                                  interpret and apply this particular NASD rule. Compare, e.g.,
that Dean Witter Reynolds, Inc. (Dean Witter), provided its
                                                                  261 F.3d 956 (C.A.10 2001) (case below) (holding that the
client, Karen Howsam, when, some time between 1986 and
                                                                  question is for the court); J.E. Liss & Co. v. Levin, 201 F.3d
1994, it recommended that she buy and hold interests in
                                                                  848, 851 (C.A.7 2000) (same), with PaineWebber Inc. v.
four limited partnerships. Howsam says that Dean Witter
                                                                  Elahi, 87 F.3d 589 (C.A.1 1996) (holding that NASD § 15,
misrepresented the virtues of the partnerships. The resulting
                                                                  currently § 10304, is presumptively for the arbitrator); Smith
controversy **591 falls within their standard Client Service
                                                                  Barney Shearson, Inc. v. Boone, 47 F.3d 750 (C.A.5 1995)
Agreement's arbitration clause, which provides:
                                                                  (same). We *83 granted Howsam's petition for certiorari to
  “[A]ll controversies ... concerning or arising from ... any     resolve this disagreement. And we now hold that the matter
  account ..., any transaction ..., or ... the construction,      is for the arbitrator.
  performance or breach of ... any ... agreement between
  us ... shall be determined by arbitration before any self-
  regulatory organization or exchange of which Dean Witter                                      II
  is a member.” App. 6-7.
                                                                   [1] This Court has determined that “arbitration is a matter
                                                                  of contract and a party cannot be required to submit to



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Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

arbitration any dispute which he has not agreed so to submit.”     management layoff controversy falls within the arbitration
Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574,             clause of a collective-bargaining agreement); Atkinson v.
582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); see also First          Sinclair Refining Co., 370 U.S. 238, 241-243, 82 S.Ct.
Options, supra, at 942-943, 115 S.Ct. 1920. Although the           1318, 8 L.Ed.2d 462 (1962) (holding that a court should
Court has also long recognized and enforced a “liberal federal     decide whether a clause providing for arbitration of various
policy favoring arbitration agreements,” Moses H. Cone             “grievances” covers claims for damages for breach of a no-
Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1,            strike agreement).
24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), it has made
clear that there is an exception to this policy: The question       [3] At the same time the Court has found the phrase
whether the parties have submitted a particular dispute to         “question of arbitrability” not applicable in other kinds
arbitration, i.e., the “question of arbitrability,” is “an issue   of general circumstance where parties would likely expect
for judicial determination [u]nless the parties clearly and        that an arbitrator would decide the gateway matter. Thus “
unmistakably provide otherwise.” AT & T Technologies,              ‘procedural’ questions which grow out of the dispute and bear
Inc. v. Communications Workers, 475 U.S. 643, 649, 106             on its final disposition” are presumptively not for the judge,
S.Ct. 1415, 89 L.Ed.2d 648 (1986) (emphasis added); First          but for an arbitrator, to decide. John Wiley, supra, at 557, 84
Options, supra, at 944, 115 S.Ct. 1920. We must decide here        S.Ct. 909 (holding that an arbitrator should decide whether
whether application of the NASD time limit provision falls         the first two steps of a grievance procedure were completed,
into the scope of this last-mentioned interpretive rule.           where these steps are prerequisites to arbitration). So, too, the
                                                                   presumption is that the arbitrator should decide “allegation[s]
 **592 Linguistically speaking, one might call any                 of waiver, delay, or a like defense to arbitrability.” Moses
potentially dispositive gateway question a “question of            H. Cone Memorial Hospital, supra, at 24-25, 103 S.Ct.
arbitrability,” for its answer will determine whether the          927. Indeed, the Revised Uniform Arbitration Act of 2000
underlying controversy will proceed to arbitration on the          (RUAA), seeking to “incorporate *85 the holdings of the
merits. The Court's case law, however, makes clear that,           vast majority of state courts and the law that has developed
for purposes of applying the interpretive rule, the phrase         under the [Federal Arbitration Act],” states that an “arbitrator
“question of arbitrability” has a far more limited scope. See      shall decide whether a condition precedent to arbitrability has
514 U.S., at 942, 115 S.Ct. 1920. The Court has found the          been fulfilled.” RUAA § 6(c), and comment 2, 7 U.L.A. 12-13
phrase applicable in the kind of narrow circumstance where         (Supp.2002). And the comments add that “in the absence of an
contracting parties would likely have expected a court to have     agreement to the contrary, issues of substantive arbitrability ...
decided the gateway matter, where they are not likely to have      are for a court to decide and issues of procedural arbitrability,
thought that they had agreed that an arbitrator would do so,       i.e., whether prerequisites such as time limits, notice, laches,
and, consequently, where reference of the gateway dispute to       estoppel, and other conditions precedent to an obligation to
the court avoids the risk of *84 forcing parties to arbitrate a    arbitrate have been met, are for the arbitrators to decide.” Id.,
matter that they may well not have agreed to arbitrate.            § 6, comment 2, 7 U.L.A., at 13 (emphasis added).

 [2] Thus, a gateway dispute about whether the parties              [4] Following this precedent, we find that the applicability
are bound by a given arbitration clause raises a “question         of the NASD time limit rule is a matter presumptively for
of arbitrability” for a court to decide. See id., at 943-946,      the arbitrator, not for the judge. The time limit rule closely
115 S.Ct. 1920 (holding that a court should decide whether         resembles the gateway questions that this Court has found
the arbitration contract bound parties who did not sign            not to be “questions of arbitrability.” E.g., **593 Moses
the agreement); John Wiley & Sons, Inc. v. Livingston,             H. Cone Memorial Hospital, supra, at 24-25, 103 S.Ct. 927
376 U.S. 543, 546-547, 84 S.Ct. 909, 11 L.Ed.2d 898                (referring to “waiver, delay, or a like defense”). Such a dispute
(1964) (holding that a court should decide whether an              seems an “aspec[t] of the [controversy] which called the
arbitration agreement survived a corporate merger and bound        grievance procedures into play.” John Wiley, supra, at 559,
the resulting corporation). Similarly, a disagreement about        84 S.Ct. 909.
whether an arbitration clause in a concededly binding contract
applies to a particular type of controversy is for the court.      Moreover, the NASD arbitrators, comparatively more expert
See, e.g., AT & T Technologies, supra, at 651-652, 106 S.Ct.       about the meaning of their own rule, are comparatively
1415 (holding that a court should decide whether a labor-          better able to interpret and to apply it. In the absence of



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              4
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

any statement to the contrary in the arbitration agreement,
it is reasonable to infer that the parties intended the            Reversed.
agreement to reflect that understanding. Cf. First Options,
514 U.S., at 944-945, 115 S.Ct. 1920. And for the law to           Justice O'CONNOR took no part in the consideration or
assume an expectation that aligns (1) decisionmaker with (2)       decision of this case.
comparative expertise will help better to secure a fair and
expeditious resolution of the underlying controversy-a goal
of arbitration systems and judicial systems alike.                  *87 Justice THOMAS, concurring in the judgment.
                                                                   As our precedents make clear and as the Court notes,
We consequently conclude that the NASD's time limit rule           arbitration is a matter of contract. Ante, at 591. In Volt
falls within the class of gateway procedural disputes that         Information Sciences, Inc. v. Board of Trustees of Leland
do not present what our cases have called “questions of            Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248,
arbitrability.” *86 And the strong pro-court presumption as        103 L.Ed.2d 488 (1989), we held that under the Federal
to the parties' likely intent does not apply.                      Arbitration Act courts must enforce private agreements to
                                                                   arbitrate just as they would ordinary contracts: in accordance
                                                                   with their terms. Under Volt, when an arbitration agreement
                                                                   contains a choice-of-law provision, that provision must be
                              III                                  honored, and a court interpreting the agreement must follow
                                                                   the law of the jurisdiction selected by the parties. See
 [5] Dean Witter argues that, in any event, i.e., even
                                                                   id., at 478-479, 109 S.Ct. 1248 (enforcing a choice-of-law
without an antiarbitration presumption, we should interpret
                                                                   provision that incorporated a state procedural rule concerning
the contracts between the parties here as calling for judicial
                                                                   arbitration proceedings); see also **594 Mastrobuono v.
determination of the time limit matter. Howsam's execution
                                                                   Shearson Lehman Hutton, Inc., 514 U.S. 52, 67, 115 S.Ct.
of a Uniform Submission Agreement with the NASD in 1997
                                                                   1212, 131 L.Ed.2d 76 (1995) (THOMAS, J., dissenting)
effectively incorporated the NASD Code into the parties'
                                                                   (concluding that the choice-of-law provision in question was
agreement. Dean Witter notes the Code's time limit rule
                                                                   indistinguishable from the one in Volt and, thus, should have
uses the word “eligible.” That word, in Dean Witter's view,
                                                                   been given effect). A straightforward application of these
indicates the parties' intent for the time limit rule to be
                                                                   principles easily resolves the question presented in this case.
resolved by the court prior to arbitration.

                                                                   The agreement now before us provides that it “shall be
We do not see how that is so. For the reasons stated in Part
                                                                   construed and enforced in accordance with the laws of the
II, supra, parties to an arbitration contract would normally
                                                                   State of New York.” App. 6. Interpreting two agreements
expect a forum-based decisionmaker to decide forum-specific
                                                                   containing provisions virtually identical to the ones in dispute
procedural gateway matters. And any temptation here to place
                                                                   here, the New York Court of Appeals held that issues
special antiarbitration weight on the appearance of the word
                                                                   implicating § 15 (now § 10304) of the National Association
“eligible” in the NASD Code rule is counterbalanced by a
                                                                   of Securities Dealers Code of Arbitration Procedure are for
different NASD rule; that rule states that “arbitrators shall be
                                                                   arbitrators to decide. See Smith Barney Shearson Inc. v.
empowered to interpret and determine the applicability of all
                                                                   Sacharow, 91 N.Y.2d 39, 666 N.Y.S.2d 990, 689 N.E.2d 884
provisions under this Code.” NASD Code § 10324.
                                                                   (1997). Because the parties agreed to be bound by New York
                                                                   law and because Volt requires us to enforce their agreement,
Consequently, without the help of a special arbitration-
                                                                   I would permit arbitrators to resolve the § 10304 issues
disfavoring presumption, we cannot conclude that the parties
                                                                   that have arisen in this case, just as New York case law
intended to have a court, rather than an arbitrator, interpret
                                                                   provides. The Court follows a different route to reach the
and apply the NASD time limit rule. And as we held in Part
                                                                   same conclusion; accordingly, I concur only in the judgment.
II, supra, that presumption does not apply.



                              IV

For these reasons, the judgment of the Tenth Circuit is



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             5
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002)
123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

Parallel Citations

123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal.
Daily Op. Serv. 11,847, 2002 Daily Journal D.A.R. 13,897,
16 Fla. L. Weekly Fed. S 20


Footnotes
*      The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
       of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.


End of Document                                                   © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                     6
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)




                                                                          Cases that cite this headnote
                    387 S.W.3d 799
                Court of Appeals of Texas,
                         El Paso.                                   [2]   Alternative Dispute Resolution

  IHS ACQUISITION NO. 171, INC. d/b/a Mesa Hills                                                                                 Validity
   Specialty Hospital, Encore Healthcare, LLC, and                        Alternative Dispute Resolution
   Lyric Health Care Holdings III, Inc., Appellants,
                                                                                                                                 Disputes
                          v.                                              and Matters Arbitrable Under Agreement
          Joann BEATTY–ORTIZ, Appellee.
                                                                          A party seeking to compel arbitration must first
                                                                          satisfy a two-pronged burden of proof: first,
       No. 08–11–00195–CV. | May 9, 2012.
                                                                          it must demonstrate the existence of a valid
        | Rehearing Overruled May 30, 2012.
                                                                          agreement to arbitrate the dispute, and second, it
Synopsis                                                                  must prove that the claims asserted are within the
Background: Employee sued employer for gender                             scope of the agreement.
discrimination following her termination. Employer filed a
                                                                          Cases that cite this headnote
motion to compel arbitration. The County Court at Law, El
Paso County, Carlos Villa, J., denied employer's motion, and
employer appealed.                                                  [3]   Alternative Dispute Resolution

                                                                                                                                 Evidence
                                                                          If the party seeking arbitration carries its initial
Holdings: The Court of Appeals, Ann Crawford McClure,
                                                                          burden that there is a valid arbitration agreement,
C.J., held that:
                                                                          and that the claims asserted are within the scope
                                                                          of the agreement, then the burden shifts to
[1] the arbitration agreement conferred authority of deciding
                                                                          the party opposite to present evidence of an
validity and enforceability on the arbitrator and not the court;
                                                                          affirmative defense.

[2] issue of whether the arbitration agreement was, as a whole,           Cases that cite this headnote
illusory, was a matter for the arbitrator; and

[3] employer met its burden to show that employee signed the        [4]   Alternative Dispute Resolution
arbitration agreement and intended to be bound by its terms.                                                                     Evidence
                                                                          While a strong presumption favoring arbitration
Reversed and remanded.                                                    exists, the presumption arises only after the party
                                                                          seeking to compel arbitration proves that a valid
                                                                          arbitration agreement exists.

 West Headnotes (30)                                                      1 Cases that cite this headnote


 [1]     Alternative Dispute Resolution                             [5]   Alternative Dispute Resolution

                                                               Remedies                                                          Evidence
         and Proceedings for Enforcement in General                       In deciding whether a party seeking to compel
         A trial court abuses its discretion when it refuses              arbitration has met its initial burden, courts do
         to compel arbitration pursuant to a valid and                    not resolve doubts or indulge a presumption in
         enforceable arbitration agreement.                               favor of arbitration; rather, the party attempting
                                                                          to compel arbitration must show that the



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              1
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


        arbitration agreement meets all requisite contract                   Federal Arbitration Act (FAA) requires courts to
        requirements.                                                        honor parties' expectations. 9 U.S.C.A. § 1 et seq.

        Cases that cite this headnote                                        Cases that cite this headnote


 [6]    Alternative Dispute Resolution                               [10]    Alternative Dispute Resolution

                                                               Evidence                                                            What
        If the trial court determines that a valid                           law governs
        arbitration agreement exists, the burden shifts                      When determining the validity of arbitration
        to the party opposing arbitration to raise                           agreements that are subject to the Federal
        an affirmative defense to enforcement of the                         Arbitration Act (FAA), courts apply ordinary
        arbitration agreement.                                               state law contract principles that govern the
                                                                             formation of contracts. 9 U.S.C.A. § 1 et seq.
        4 Cases that cite this headnote
                                                                             Cases that cite this headnote

 [7]    Alternative Dispute Resolution
                                                                      [11] Alternative Dispute Resolution
                                                               Constitutional
        and statutory provisions and rules of court                                                                                In
        The Federal Arbitration Act (FAA) places                             general; formation of agreement
        arbitration agreements on an equal footing with                      The party attempting to compel arbitration must
        other contracts, and requires courts to enforce                      show that the arbitration agreement meets all
        them according to their terms. 9 U.S.C.A. § 2.                       requisite state law contract elements.

        Cases that cite this headnote                                        Cases that cite this headnote


 [8]    Alternative Dispute Resolution                               [12]    Contracts

                                                               Contractual                                                         Elements
        or consensual basis                                                  in general
        An agreement to arbitrate is a contract, the                         The following elements are required for the
        relation of the parties is contractual, and the                      formation of a valid and binding contract: (1) an
        rights and liabilities of the parties are controlled                 offer; (2) acceptance in strict compliance with
        by the law of contracts; as such, a party cannot                     the terms of the offer; (3) a meeting of the minds;
        be required to submit to arbitration any dispute                     (4) each party's consent to the term; and (5)
        which she has not agreed to submit.                                  execution and delivery of the contract with the
                                                                             intent that it be mutual and binding.
        Cases that cite this headnote
                                                                             1 Cases that cite this headnote

 [9]    Alternative Dispute Resolution
                                                                     [13]    Alternative Dispute Resolution
                                                               Contractual
        or consensual basis                                                                                                        Consideration
        Because arbitration is based on a contractual                        Like other contracts, an agreement to arbitrate
        relationship, a party who has not consented                          must be supported by consideration.
        cannot not be forced to arbitrate a dispute; since
        arbitration is generally a matter of contract, the                   Cases that cite this headnote




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


                                                                          When a dispute involving an agreement to
 [14]   Contracts                                                         arbitrate is brought to a court for resolution, it
                                                                          is the court's obligation to determine whether
                                                            Mutual
                                                                          the parties agreed to submit a particular issue to
        Promises
                                                                          arbitration.
        Mutual, reciprocal promises which bind both
        parties may constitute consideration for a                        Cases that cite this headnote
        contract.

        Cases that cite this headnote                              [19]   Alternative Dispute Resolution

                                                                                                                                Existence
 [15]   Alternative Dispute Resolution                                    and validity of agreement
                                                                          Alternative Dispute Resolution
                                                            In
        general; formation of agreement                                                                                         Arbitrability
        In the case of a stand-alone arbitration                          of dispute
        agreement, both sides are required to enter into                  An arbitration provision may give the arbitrator
        binding promises to arbitrate.                                    the power to resolve gateway issues regarding
                                                                          validity and enforceability of the arbitration
        Cases that cite this headnote
                                                                          agreement, and in that event, the entire matter of
                                                                          arbitrability is transferred from the courts to the
 [16]   Contracts                                                         arbitrator.

                                                            Mutuality     Cases that cite this headnote
        of Obligation
        A promise which does not bind the
                                                                   [20]   Alternative Dispute Resolution
        promisor, as when the promisor retains the
        option to discontinue performance, is illusory;                                                                         Arbitrability
        consequently, when a purported bilateral                          of dispute
        contract is supported only by illusory promises,                  Unless an arbitration agreement clearly
        there is no contract.                                             demonstrates that the parties intended to confer
                                                                          on the arbitrator the power to determine what
        Cases that cite this headnote
                                                                          disputes are arbitrable, the court retains the
                                                                          duty to decide that issue; arbitration agreements
 [17]   Alternative Dispute Resolution                                    that clearly and unmistakably show intent to
                                                                          assign gateway issues to the arbitrator are fully
                                                            Consideration
                                                                          enforceable.
        Where an employer cannot avoid its promise to
        arbitrate by amending a termination provision or                  Cases that cite this headnote
        terminating it altogether, the dispute resolution
        plan is not illusory.
                                                                   [21]   Alternative Dispute Resolution
        Cases that cite this headnote                                                                                           Arbitrability
                                                                          of dispute
 [18]   Alternative Dispute Resolution                                    Gateway questions regarding validity and
                                                                          enforceability which are normally decided by
                                                            Arbitrability
                                                                          a court will be submitted to an arbitrator
        of dispute
                                                                          where the arbitration agreement was clear and
                                                                          unmistakable.



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               3
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


                                                                             of delegation, then the court must resolve the
        Cases that cite this headnote                                        challenge.

                                                                             Cases that cite this headnote
 [22]   Alternative Dispute Resolution

                                                               Existence
                                                                      [25]   Alternative Dispute Resolution
        and validity of agreement
        Issue of whether the arbitration agreement                                                                               Existence
        between employer and employee was supported                          and validity of agreement
        by valid consideration was an issue for the                          Whether term provision of an arbitration
        arbitrator to decide, where the agreement                            agreement between employee and employer
        conferred authority of deciding gateway issues                       rendered the agreement illusory was an issue for
        of validity and enforceability on the arbitrator                     the arbitrator and not the court, where agreement
        and not the court, and employee signed the                           contained delegation provision, and employee
        agreement and assented to its terms.                                 challenged the entire agreement and not merely
                                                                             the specific delegation provision.
        Cases that cite this headnote
                                                                             Cases that cite this headnote

 [23]   Alternative Dispute Resolution
                                                                      [26]   Alternative Dispute Resolution
                                                               Existence
        and validity of agreement                                                                                                Validity
        The arbitrator, and not any federal, state, or local                 A misnomer does not render an arbitration
        court or agency, shall have exclusive authority                      agreement unenforceable.
        to resolve any dispute relating to interpretation,
        applicability, enforceability or formation of an                     Cases that cite this headnote
        agreement including, but not limited to any claim
        that all or any part of the agreement is void or              [27]   Alternative Dispute Resolution
        voidable.
                                                                                                                                 Validity
        Cases that cite this headnote                                        Employer met its burden to show that it and
                                                                             employee entered into a valid and binding
 [24]   Alternative Dispute Resolution                                       arbitration agreement and intended to be bound
                                                                             by its terms, although, due to a misnomer, the
                                                               Existence     entity named on the arbitration agreement was
        and validity of agreement                                            an associated business of employer, and not
        Alternative Dispute Resolution                                       the employer itself; employee did not present
                                                                             evidence that she had ever worked for the entity
                                                               Arbitrability named on the agreement, that she did not intend
        of dispute                                                           to be bound by the agreement, and failed to raise
        The analysis in situations challenging a                             any affirmative defenses that would render the
        standalone arbitration agreement containing a                        arbitration agreement void or voidable.
        delegation provision depends on the kind of
        challenge being made, if the challenge relates                       Cases that cite this headnote
        to the arbitration agreement as a whole, and
        the agreement contains a provision delegating                 [28]   Alternative Dispute Resolution
        issues of arbitrability to the arbitrator, then
        the challenge must be directed to arbitration;                                                                           Construction
        however, if the challenge is specific to the issue



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IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


        In construing an arbitration agreement, the court
        should attempt to give effect to the parties'                Before McCLURE, C.J., RIVERA, and ANTCLIFF, JJ.
        intentions, in light of the usual and ordinary
        meaning of the contractual language and the
        circumstances under which the agreement was                                            OPINION
        made.
                                                                     ANN CRAWFORD McCLURE, Chief Justice.
        Cases that cite this headnote
                                                                    IHS Acquisition No. 171, Inc. d/b/a Mesa Hills Specialty
                                                                    Hospital, Encore Healthcare, L.L.C., and Lyric Healthcare
 [29]   Alternative Dispute Resolution                              Holdings III, Inc., (collectively Appellants), file this
                                                                    interlocutory appeal challenging the trial court's denial of its
                                                               Evidence
                                                                    motion to compel arbitration. Finding error, we reverse.
        If the party seeking arbitration carries its initial
        burden, then the burden shifts to the party
        opposing arbitration to present evidence on an
        affirmative defense to the arbitration agreement.                              FACTUAL SUMMARY

        3 Cases that cite this headnote                             IHS Acquisitions No. 171, doing business as Mesa Hills
                                                                    Specialty Hospital, hired Joann Beatty–Ortiz (Beatty) in
                                                                    May 2000. On June 30, 2006, Beatty was promoted to
 [30]   Alternative Dispute Resolution                              Chief Executive Officer (CEO) where she remained until her
                                                                    termination on February 3, 2010.
                                                               Validity
        of assent
                                                                    On March 31, 2010, Beatty filed a complaint with the Texas
        Alternative Dispute Resolution
                                                                    Workforce Commission Civil Rights Division against “IHS
                                                                    Acquisitions # 171 d/b/a Mesa Hills Specialty Hospital”
                                                               Unconscionability
                                                                    alleging continuing gender discrimination from November
        Alternative Dispute Resolution
                                                                    2008 until the date of her termination. She claimed constant
                                                                    harassment and belittlement from the Regional Director of
                                                               Modification
        or termination                                              Operations, Paul Miller, and that she was not the only
        Alternative Dispute Resolution                              female subjected to Miller's demeaning behavior and double
                                                                    standards. Beatty further asserted that prior to her termination,
                                                                    she had not received a single disciplinary action warning
                                                               Evidence
        In the context of enforcement of an arbitration             that her job was in jeopardy or a negative performance
        agreement, defenses refer to unconscionability,             evaluation. She was the only female CEO in her region and
        duress, fraudulent inducement, and revocation;              upon her termination, the position was filled by a man who
        because the law favors arbitration, the burden of           was previously the director of environmental services.
        proving a defense to arbitration is on the party
        opposing it.                                                 On October 28, 2010, Beatty filed suit against Appellants,
                                                                     alleging essentially the same gender discrimination
        4 Cases that cite this headnote                              allegations contained in her Texas Workforce Commission
                                                                     Complaint against IHS. The only explanation she was
                                                                     given was that “the hospital was not going in the
                                                                     direction they wanted to.” Beatty sought front and back
Attorneys and Law Firms                                              pay benefits, compensatory damages, punitive damages,
                                                                     attorney's fees, costs, and prejudgment and post-judgment
 *803 Shawn R. Oller, Little Mendelson, PC, Phoenix, AZ,             interest. Appellants collectively filed a motion to compel
for Appellants.                                                      arbitration, attaching a copy of a document signed by Beatty
                                                                     on September 23, 2008.
John P. Mobbs, Attorney at Law, El Paso, TX, for Appellee.



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IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


                                                                      injury) for injuries, trauma or illness I may sustain in the
                                                                      course and scope of my employment;
         THE ARBITRATION AGREEMENT
                                                                      3. claims for wrongful termination, demotion, or
The document, entitled “Mutual Arbitration Agreement”
                                                                      discharge under statutory of common law, including
provides in relevant part:
                                                                      retaliatory discharge claims related to workplace
  IHS Acquisition No. 174, Inc. (‘Employer’) as an affiliate          injuries, illnesses or trauma;
  of Lyric Health Care Holdings, III, Inc. maintains an
                                                                      4. claims for a violation of any federal, state or other
  Employee Injury Benefit Plan (the ‘Plan’) to pay benefits
                                                                      government law, statute, regulation or ordinance relating
  to Participants due to injuries or illnesses incurred in
                                                                      directly or indirectly to my workplace injury, illness or
  the course and scope of employment with Company or
                                                                      trauma; and
  affiliates of Company who adopt the Plan. The Plan pays
  defined: (i) disability wage replacement benefits; (ii) death       5. any and all claims challenging the validity or
  benefits to Participant's beneficiaries; (iii) dismemberment/       enforceability of this Agreement (in whole or in part)
  loss of use benefits; and (iv) medical benefits.                    or challenging the applicability of this Agreement to a
                                                                      particular dispute or claim.
  The Mutual Arbitration Agreement (‘Agreement’) binds
  Employer and Employee to arbitrate claims covered by              The appeal of a full or partial denial of benefits under the
  this Agreement. The Effective Date of this Agreement is           Plan is not covered by this Agreement.
  for employees currently employed by Employer, three (3)
  business days following the notice date of the Plan (through      BY ARBITRATING THESE CLAIMS, EMPLOYER
  receipt of the Summary Plan Description) (‘Notice Date’).         AND EMPLOYEE UNDERSTAND THAT FOR
   *804 The Notice Date is August 8, 2008. If an Employee           EACH PARTY ANY CAUSE OF ACTION
  is hired after the Notice Date, the Employee shall be             DESCRIBED IN THIS AGREEMENT WILL BE
  provided a copy of the Summary Plan Description and               SUBJECT TO RESOLUTION IN ARBITRATION
  this Agreement and will be bound by this Agreement and            ACCORDING TO THE PROCEDURES PROVIDED
  covered by the Plan.                                              IN THIS AGREEMENT.

  I. ARBITRATION                                                    II. ARBITRATION PROCEDURES

  (This is our agreement to binding arbitration.)                   (This is how the arbitration will be conducted)

  The Employer and Employee each agree to binding                                                 ...
  arbitration of all claims and disputes described hereafter,
  whether these claims and disputes exist now or arise              III. TERM
  in the future. All claims subject to arbitration must be
                                                                    Employer may modify or terminate this Agreement at
  submitted to arbitration within one year of the date
                                                                    any time. Any such change shall be prospective only.
  of the incident giving rise to the claim or is forever
                                                                    No change, amendment, modification or termination shall
  barred. The claims, disputes and allegations subject to
                                                                    affect the obligation of both parties to arbitrate, whether the
  binding arbitration under this Agreement include my
                                                                    request for arbitration was before or after any modification,
  claims involving Employer, as well as Employer's claims
                                                                    amendment, or termination of this Agreement. The
  against me, for:
                                                                    Agreement in place at the time of the occurrence of the
    1. Employer's negligence, gross negligence, strict              arbitration event shall govern.
    liability, intentional act, omission or any other claim or
    cause of action with respect to any employment-related
    death, injuries, trauma or illness;                                                THE MISNOMER

    2. tort claims (including, but not limited to, any claims     The agreement binds the “Employer,” listed as IHS
    for bodily injury or physical, mental or psychological        Acquisition No. 174 as an affiliate of Lyric Health Care
                                                                  Holdings, *805 III, Inc. But Beatty was employed by


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              6
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


IHS Acquisition No. 171, filed her complaint against IHS            the party opposing arbitration to raise an affirmative defense
Acquisition No. 171, and ultimately sued IHS Acquisition            to enforcement of the arbitration agreement. Id. at 227–28.
No. 171. While Appellants maintain the contract contains a
simple scrivener's error, Beatty counters that because IHS
does not claim to be the same entity as IHS Acquisition No.
                                                                                       APPLICABLE LAW
174 and does not claim to be an alter ego of IHS Acquisition
No. 174, IHS is not a party to the arbitration policy and cannot
enforce it.                                                                     The Federal Arbitration Act (FAA)

                                                                    [7]   The FAA provides, in relevant part:

                STANDARD OF REVIEW                                               A written provision in ... a contract
                                                                                 evidencing a transaction involving
 [1] The parties do not dispute that the FAA applies to this                     commerce to settle by arbitration
proceeding. See 9 U.S.C.A. §§ 1–16 (West 2009). Section                          a controversy thereafter arising out
51.016 of the Texas Civil Practice and Remedies Code                             of such contract ... shall be valid,
permits the interlocutory appeal of an order denying a motion                    irrevocable, and enforceable, save
to compel arbitration under the Federal Arbitration Act. TEX.                    upon such grounds as exist at law or
CIV. PRAC. & REM. CODE ANN.. § 51.016 (West Supp.                                in equity for the revocation of any
2011). A trial court's determination regarding the validity of                   contract.
an agreement to arbitrate is a question of law which we review
de novo. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227      See 9 U.S.C. § 2 (West 2009); Rent–A–Center West, Inc. v.
(Tex.2003). A trial court abuses its discretion when it refuses   Jackson, –––U.S. ––––, 130 S.Ct. 2772, 2776, 177 L.Ed.2d
to compel arbitration pursuant to a valid and enforceable         403 (2010), quoting Moses H. Cone Memorial Hospital v.
arbitration agreement. In re Halliburton Co., 80 S.W.3d 566,      Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927,
573 (Tex.2002)(orig. proceeding).                                 74 L.Ed.2d 765 (1983). The above provision has been
                                                                  described as reflecting both a “liberal federal policy favoring
 [2]     [3] A party seeking to compel arbitration must arbitration,” and the “fundamental principle that arbitration
first satisfy a two-pronged burden of proof: first, it must       is a matter of contract.” See AT & T Mobility *806
demonstrate the existence of a valid agreement to arbitrate       LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1745,
the dispute, and second, it must prove that the claims            179 L.Ed.2d 742 (2011) citing Moses H. Cone Memorial
asserted are within the scope of the agreement. In re             Hospital, 460 U.S. at 24, 103 S.Ct. at 927 and Rent–A–
Dillard Dept. Stores, Inc., 186 S.W.3d 514, 515 (Tex.2006);       Center,   ––– U.S. at ––––, 130 S.Ct. at 2776. “The FAA
In re AdvancePCS Health L.P., 172 S.W.3d 603, 605                 thereby places arbitration agreements on an equal footing
(Tex.2005)(orig. proceeding); Budd v. Max International           with other contracts, and requires courts to enforce them
LLC, 339 S.W.3d 915, 918 (Tex.App.-Dallas 2011, no pet.).         according to their terms.” Rent–A–Center, ––– U.S. ––––,
If the party seeking arbitration carries its initial burden, then 130 S.Ct. at 2776 (internal citations omitted); citing Buckeye
the burden shifts to the party opposite to present evidence of    Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126
an affirmative defense. Id.                                       S.Ct. 1204, 163 L.Ed.2d 1038 (2006) and Volt Information
                                                                  Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
 [4]     [5]     [6]     While a strong presumption favoring Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488
arbitration exists, the presumption arises only after the party   (1989).
seeking to compel arbitration proves that a valid arbitration
agreement exists. J.M. Davidson, Inc., 128 S.W.3d at 227.          [8] [9] An agreement to arbitrate is a contract, the relation
In deciding whether a party has met its initial burden, we        of the parties is contractual, and the rights and liabilities of the
do not resolve doubts or indulge a presumption in favor           parties are controlled by the law of contracts. As such, a party
of arbitration. Id. Rather, the party attempting to compel        cannot be required to submit to arbitration any dispute which
arbitration must show that the arbitration agreement meets all    she has not agreed to submit. See AT & T Mobility LLC, 131
requisite contract requirements. Id. at 228. If the trial court   S.Ct. at 1740 (arbitration is a creature of contract; a person can
determines that a valid agreement exists, the burden shifts to    be compelled to arbitrate a dispute only if, to the extent that,



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             7
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


and in the manner which, he has agreed so to do). Because         to support an arbitration *807 agreement between the
arbitration is based on a contractual relationship, a party who   employer and the at-will employee).
has not consented cannot not be forced to arbitrate a dispute.
Since arbitration is generally a matter of contract, the FAA
requires courts to honor parties' expectations. 9 U.S.C.A. § 1
                                                                                        Illusory Promises
et seq.; AT & T Mobility LLC, 131 S.Ct. at 1740.
                                                                   [16] A promise which does not bind the promisor, as when
                                                                  the promisor retains the option to discontinue performance,
             Texas Law—Formation of Contracts                     is illusory. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex.2010),
                                                                  citing Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
 [10]      [11]   [12]    [13] When determining the validity289 S.W.3d 844, 849 (Tex.2009); see also J.M. Davidson,
of arbitration agreements that are subject to the FAA, we         Inc., 128 S.W.3d at 228; Light v. Centel Cellular Co.,
apply ordinary state law contract principles that govern the      883 S.W.2d 642, 645 (Tex.1994)(employer's promises were
formation of contracts. In re Palm Harbor Homes, Inc., 195        illusory because they were dependent upon at-will employee's
S.W.3d 672, 676 (Tex.2006), citing First Options of Chicago,      period of continued employment; thus, employer could avoid
Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131            performance by terminating at-will employee's employment
L.Ed.2d 985 (1995); In re Kellogg Brown & Root, Inc., 166         while the employee was bound to her promise whether or
S.W.3d 732, 738 (Tex.2005). The party attempting to compel        not she remained employed). Consequently, when a purported
arbitration must show that the arbitration agreement meets all    bilateral contract is supported only by illusory promises, there
requisite contract elements. J.M. Davidson, Inc., 128 S.W.3d      is no contract. In re 24R, Inc., 324 S.W.3d at 567, citing
at 228. The following elements are required for the formation     Vanegas v. American Energy Services, 302 S.W.3d 299, 302
of a valid and binding contract: (1) an offer; (2) acceptance     (Tex.2009), quoting Light, 883 S.W.2d at 644–45.
in strict compliance with the terms of the offer; (3) a meeting
of the minds; (4) each party's consent to the term; and (5)        [17]     However, where an employer cannot avoid its
execution and delivery of the contract with the intent that it be promise to arbitrate by amending a termination provision
mutual and binding. Cessna Aircraft Co. v. Aircraft Network,      or terminating it altogether, the dispute resolution plan is
L.L.C., 213 S.W.3d 455, 465 (Tex.App.-Dallas 2006, pet.           not illusory. See J.M. Davidson, Inc., 128 S.W.3d at 228;
denied). Like other contracts, an agreement to arbitrate must     In re Polymerica, LLC, 296 S.W.3d 74, 76 (Tex.2009); see
be supported by consideration. In re Palm Harbor Homes,           also In re Halliburton Co., 80 S.W.3d at 569–70 (when
Inc., 195 S.W.3d at 676; In re AdvancePCS Health L.P., 172        mutual promises to submit employment disputes to arbitration
S.W.3d 603, 607 (Tex.2005) (per curiam ).                         bind both parties to their promises to arbitrate, sufficient
                                                                  consideration exists to support an arbitration agreement
                                                                  between the employer and the at-will employee).

            Mutual Promises and Consideration

 [14]     [15] Mutual, reciprocal promises which bind both                                 ANALYSIS
parties may constitute consideration for a contract. Texas
Custom Pools, Inc. v. Clayton, 293 S.W.3d 299, 309                Appellants bring two issues for review. In Issue One, they
(Tex.App.-El Paso 2009, no pet.). In the case of a stand-         complain that the trial court erred in denying the motion
alone arbitration agreement, both sides are required to enter     to compel because pursuant to the contractual language, the
into binding promises to arbitrate. In re AdvancePCS, 172         arbitrator, not the trial court, should decide gateway issues
S.W.3d at 607; see also In re 24R, Inc., 324 S.W.3d               of validity, enforceability, and arbitrability. Alternatively, in
564, 566 (Tex.2010) (mutual promises to submit a dispute          Issue Two, Appellants suggest that even if the trial court had
to arbitration are sufficient consideration to support an         the authority to decide arbitrability, it abused its discretion
arbitration agreement); see also In re Halliburton Co., 80        in denying the motion to compel. The crux of the dispute
S.W.3d at 569–70 and J.M. Davidson, Inc., 128 S.W.3d              is the misnomer. Appellants argue that this clerical error
at 228 (cases noting that when mutual promises to submit          is itself a gateway issue and therefore must be arbitrated
employment disputes to arbitration bind both parties to           under the express terms of the Agreement. In contrast, Beatty
their promises to arbitrate, sufficient consideration exists      focuses on two arguments: (1) a court should decide whether


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              8
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


the Agreement is enforceable, not an arbitrator; and (2) no
agreement exists between the parties because IHS is not the        [23] [24] In Rent–A–Center, the Supreme Court clarified
“Employer” referenced in the Agreement.                           how courts must treat challenges to an arbitration agreement's
                                                                  delegation provision. See Rent–A–Center ––– U.S. ––––, 130
                                                                  S.Ct. 2772, 177 L.Ed.2d 403.

                   Court Or Arbitrator?                                       The Arbitrator, and not any
                                                                              federal, state, or local court
 [18] [19] [20] [21] [22] When a dispute involving an
                                                                              or agency, shall have exclusive
agreement to arbitrate is brought to a court for resolution,
                                                                              authority to resolve any dispute
it is the court's obligation to determine whether the parties
                                                                              relating to interpretation, applicability,
agreed to submit a particular issue to arbitration. See United
                                                                              enforceability or formation of this
Steelworkers of America v. American Mfg. Co., 363 U.S.
                                                                              Agreement including, but not limited
564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); Del E. Webb
                                                                              to any claim that all or any part of this
Const. v. Richardson Hosp. Authority, 823 F.2d 145 (5th
                                                                              Agreement is void or voidable.
Cir.1987). An arbitration provision may give the arbitrator
the power to resolve gateway issues regarding validity and      Id. at 2775–76. According to the Supreme Court, the analysis
enforceability of the arbitration agreement. In that event, the in situations challenging a standalone arbitration agreement
entire matter of arbitrability is transferred from the courts   containing a delegation provision depends on the kind of
to the arbitrator. Unless the agreement clearly demonstrates    challenge being made. Id. If the challenge relates to the
that the parties intended to confer on the arbitrator the power arbitration agreement as a whole, and the agreement contains
to determine what disputes are arbitrable, the court retains    a provision delegating issues of arbitrability to the arbitrator,
the duty to decide that issue. Arbitration agreements that      then the challenge must be directed to arbitration. Id. If the
clearly and unmistakably show intent to assign gateway issues   challenge is specific to the issue of delegation, however, then
to the arbitrator are fully enforceable. See *808 Rent–A–       the court must resolve the challenge. Id.
Center, –––U.S. ––––, 130 S.Ct. at 2777, 177 L.Ed.2d 403;
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943,     [25] The Agreement presented clearly and unmistakably
115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (holding question        provides that issues of validity and enforceability go to
of primary power to decide arbitrability “turns upon what       the arbitrator. Beatty signed the Agreement, manifesting
the parties agreed about that matter”); AT & T Technologies,    her intent that gateway issues be arbitrated. Additionally,
Inc. v. Communications Workers, 475 U.S. 643, 649, 106          Beatty challenges the entire arbitration agreement based on
S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (holding parties        the assertion that the term provision renders the Agreement
may agree to arbitrate arbitrability). Accordingly, under First illusory. Under Rent–A–Center, because there is a specific
Options, gateway questions which are normally decided by a      delegation provision, and Beatty challenges the Agreement
court will be submitted to an arbitrator where the agreement    as a whole, rather than the specific delegation provision, the
was clear and unmistakable. See First Options, 514 U.S. at      issue goes to the arbitrator. Therefore, the determination of
943, 115 S.Ct. 1920; AT & T Technologies, Inc., 475 U.S. at     whether the agreement is illusory is for the arbitrator and not
649, 106 S.Ct. at 1418.                                         the court.

Here, the Agreement provided that “any and all
claims challenging the validity or enforceability of this
Agreement ...” are subject to arbitration. It thus clearly                          Effect of the Misnomer
and unmistakably provided for issues of validity and
                                                                   [26] [27] We have already highlighted the misnomer in
enforceability to go to the arbitrator. Beatty argues that
                                                                  the Agreement. Beatty was employed by IHS Acquisition No.
whether the contract is supported by adequate consideration
                                                                  171 d/b/a Mesa Hills Specialty Hospital but the Agreement
is not an issue of validity or enforceability but rather an
                                                                  defines “Employer” to mean “IHS Acquisition No. 17 4.
issue of formation for the court to decide. We disagree. The
                                                                  Beatty argues that the Appellants failed to demonstrate the
Agreement bears Beatty's signature evidencing her assent to
                                                                  existence of an arbitration agreement between the parties.
its terms and clearly provides for an arbitrator to decide all
                                                                  A misnomer does not render an arbitration agreement
issues of arbitrability.
                                                                  unenforceable. See Fogal v. Stature Construction, Inc., 294


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           9
IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)


                                                                  to the plain language of the agreement. Appellants not only
S.W.3d 708, 716 (Tex.App.-Houston [1st Dist.] 2009, pet.
                                                                  presented the signed Agreement, it is undisputed that Beatty
denied). In *809 Fogal, the arbitration clause was signed by
                                                                  was employed by IHS 171 at the time the Agreement was
the Fogals and Tremont Homes, and the entity named Stature
                                                                  signed. Beatty did not present evidence that she did not intend
Construction appeared at first to be a non-signatory to the
                                                                  to enter into an Agreement with her Employer or that she
arbitration agreement. Fogal, 294 S.W.3d at 717. However,
evidence was produced showing that Stature Construction           was not employed by IHS 171 at the time she signed the
was doing business as “Tremont Custom Homes” (which was           Agreement. Nor does Beatty present any evidence that she
the entity that should have been listed on the earnest-money      ever worked for IHS 174.
contract that referred to Tremont Homes). Id. Moreover,
evidence showed that the deed for the house purchased by          To meet their burden, Appellants must demonstrate the
the Fogals reflected that Stature was the seller referred to in   existence of a valid agreement to arbitrate the claimed
the earnest-money contract. Id. The Fogals did not dispute        disputes. Although not always expressly stated, part of this
                                                                  requirement is that the Agreement be between the parties.
that Stature was the seller or that Stature was doing business
                                                                  Even though the Agreement provides that issues of validity
as Tremont Custom Homes. Instead, the Fogals built their
                                                                  and enforceability must go to an arbitrator, Appellants still
non-arbitration argument on the technical error mentioning
                                                                  bear the burden of producing some evidence that they
“Tremont Homes” rather than “Tremont Custom Homes,”
                                                                  were either a party to the Agreement or otherwise had
and claimed that since there was not an assumed name
                                                                  rights to enforce it. They presented an Agreement which
certificate filed with the Texas Secretary of State, Stature
                                                                  is clearly between an Employer and Employee. Although
could not enforce the arbitration agreement. Id. The Houston
                                                                  the Agreement defines the Employer as IHS Acquisition
Court noted that:
                                                                  174, Appellants also produced evidence that at the time the
  Because arbitration is contractual in nature, the FAA           Agreement was signed, Beatty *810 was employed by IHS
  generally ‘does not require parties to arbitrate when they      Acquisitions 171 and that Beatty had never been employed
  have not agreed to do so.’ Federal and Texas state courts       by IHS 174.
  have recognized, however, that “ ‘[i]t does not follow ...
  that under the [FAA] an obligation to arbitrate attaches only
  to one who has personally signed the written arbitration
                                                                                      Affirmative Defense
  provision’; instead, under certain circumstances, principles
  of contract law and agency may bind a non-signatory to an        [29]     [30] If the party seeking arbitration carries its
  arbitration agreement.”                                         initial burden, then the burden shifts to the party opposing
                                                                  arbitration to present evidence on an affirmative defense to
Id., citing Kellogg Brown & Root, 166 S.W.3d at 738.
                                                                  the arbitration agreement. J.M. Davidson, Inc., 128 S.W.3d
Although that case dealt with whether or not an assumed
                                                                  at 227. In the context of enforcement of an arbitration
named certificate was required, the Houston Court of Appeals
                                                                  agreement, defenses refer to unconscionability, duress,
ultimately held that Stature could enforce the arbitration
                                                                  fraudulent inducement, and revocation. In re FirstMerit Bank,
agreement, despite the technical deficiencies. Id. at 717–18.
                                                                  N.A., 52 S.W.3d 749, 756 (Tex.2001). Because the law favors
                                                                  arbitration, the burden of proving a defense to arbitration is
 [28] In construing an arbitration agreement, the court
                                                                  on the party opposing it. See J.M. Davidson, Inc., 128 S.W.3d
should attempt to give effect to the parties' intentions, in
                                                                  at 227.
light of the usual and ordinary meaning of the contractual
language and the circumstances under which the agreement
                                                                  Beatty has not offered evidence as to any of the applicable
was made. See In re Kaplan Higher Educ. Corp., 235 S.W.3d
                                                                  affirmative defenses. Her only claims related to issues of
206, 210 (Tex.2007) (“Arbitration agreements are enforced
                                                                  arbitrability which we have already determined must be
according to their terms and according to the intentions of the
                                                                  presented to the arbitrator. We conclude that the trial court
parties.”) (internal quotations and citations omitted). Here,
                                                                  erred in refusing to compel arbitration. We sustain both issues
the Agreement clearly evidences an intent for the “Employer”
                                                                  for review and reverse and remand for orders compelling
and “Employee” to mutually arbitrate a specific and detailed
                                                                  arbitration.
list of disputes. The parties' intent is ascertained by looking




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IHS Acquisition No. 171, Inc. v. Beatty-Ortiz, 387 S.W.3d 799 (2012)




End of Document                                           © 2014 Thomson Reuters. No claim to original U.S. Government Works.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                        11
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161 (2006)
152 Lab.Cas. P 60,227, 24 IER Cases 1304, 49 Tex. Sup. Ct. J. 759

                                                                          notified employee that arbitration would be
                                                                          required for resolving covered claims and
                    196 S.W.3d 161
                                                                          specifically described which claims were
                Supreme Court of Texas.
                                                                          covered under the plan.
   In re DALLAS PETERBILT, LTD., L.L.P., Relator.
                                                                          15 Cases that cite this headnote
            No. 05–0706.      |   June 16, 2006.
                                                                    [2]   Alternative Dispute Resolution
Synopsis
Background: Former employee sued employer for race                                                                           In
discrimination, retaliation, defamation, and other torts.                 general; formation of agreement
The 116th Judicial District Court, Dallas County, denied
                                                                          An employer may enforce an arbitration
employer's motion to stay proceedings and to compel
                                                                          agreement entered into during an at-will
arbitration, and the Court of Appeals summarily denied
                                                                          employment relationship if the employee
mandamus relief. Employer filed petition for writ of
                                                                          received notice of the employer's arbitration
mandamus.
                                                                          policy and accepted it.

                                                                          17 Cases that cite this headnote
Holdings: The Supreme Court held that:
                                                                    [3]   Alternative Dispute Resolution
[1] former employee received notice of arbitration agreement;
                                                                                                                             Writing,
[2] former employee accepted the arbitration agreement as a               signature, and acknowledgment
matter of law; and                                                        At-will employee accepted arbitration agreement
                                                                          as a matter of law, such that employer
[3] former employee's claims were covered by the arbitration              could enforce the agreement in employee's
agreement.                                                                action alleging discrimination and other claims
                                                                          arising from his termination, where employee
                                                                          commenced employment after he signed
Mandamus relief conditionally granted.                                    acknowledgment form indicating that he had
                                                                          received summary plan description of arbitration
                                                                          agreement and understood that by accepting his
 West Headnotes (5)                                                       employment, he was relinquishing his right to
                                                                          resolve covered claims by filing lawsuit.

 [1]    Alternative Dispute Resolution                                    17 Cases that cite this headnote

                                                              Writing,
                                                                    [4]   Alternative Dispute Resolution
        signature, and acknowledgment
        At-will employee received notice of arbitration                                                                      Employment
        agreement, as required for employer to enforce                    disputes
        the agreement in employee's action alleging                       To compel arbitration of discharged at-will
        discrimination and other claims arising from his                  employee's race discrimination, retaliation, and
        termination, though employee never received a                     tort claims, employer was required to show that
        copy of the agreement at time he commenced                        the claims raised fell within the scope of the
        his employment, where employee received a                         applicable arbitration agreement.
        copy of a six-page summary plan description
        which outlined the arbitration agreement, and                     Cases that cite this headnote
        accompanying signed acknowledgment form



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           1
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161 (2006)
152 Lab.Cas. P 60,227, 24 IER Cases 1304, 49 Tex. Sup. Ct. J. 759

                                                                 to Arbitrate Claims. Harris claims he never received the
 [5]     Alternative Dispute Resolution                          Mutual Agreement to Arbitrate Claims, which is part of the
                                                                 record, but he signed an acknowledgment form indicating that
                                                             Employment
                                                                 he received the Summary and understood that by accepting
         disputes
                                                                 employment, he was relinquishing his right to resolve covered
         Former     employee's        claims     for    race
                                                                 claims “by filing a lawsuit or seeking damages in any federal,
         discrimination, retaliation, tortious interference,
                                                                 state, or municipal court of law ....” The Summary's list
         defamation, and intentional infliction of
                                                                 of covered claims includes tort, discrimination, harassment,
         emotional distress were covered by arbitration
                                                                 wrongful termination, and also “[c]laims for a violation of any
         agreement containing a list of covered claims
                                                                 federal, state, or other governmental law.” In March 2002,
         that included tort, discrimination, harassment,
                                                                 Peterbilt terminated Harris's employment, and in 2003, rather
         wrongful termination, and claims for a violation
                                                                 than request arbitration, Harris filed suit against Peterbilt in
         of any federal, state, or other governmental law,
                                                                 state district court for discrimination, retaliation, defamation,
         and thus employer could compel arbitration of
                                                                 and other torts. Peterbilt then sought to compel arbitration
         former employee's claims.
                                                                 under the Federal Arbitration Act, 9 U.S.C. §§ 1–16.
         3 Cases that cite this headnote
                                                                    [1] [2] An employer may enforce an arbitration agreement
                                                                   entered into during an at-will employment relationship if
                                                                   the employee received notice of the employer's arbitration
                                                                   policy and accepted it. In re Dillard Dep't Stores, Inc., 181
Attorneys and Law Firms
                                                                   S.W.3d 370, 375 (Tex.App.2005) (per curiam) (citing In
*161 David Watkins, Kevin Robinowitz, Jenkins &                    re Halliburton Co., 80 S.W.3d 566, 568 (Tex.2002)). In
Watkins, Dallas, for Relator.                                      granting mandamus relief in Halliburton, we stressed the
                                                                   importance of notice and emphasized that the employee there
 *162 Jeffrey C. Mateer, Randal Craig Shaffer, Mateer &            received a one-page summary of the agreement to arbitrate.
Shaffer, L.L.P., Dallas, for Real Party In Interest.               80 S.W.3d at 568–69; see also Hathaway v. Gen. Mills,
                                                                   Inc., 711 S.W.2d 227, 229 (Tex.1986) (holding that notice is
Opinion                                                            provided if the employee has knowledge of the employment
                                                                   terms). Harris argues that the Summary is immaterial and that
PER CURIAM.
                                                                   only the underlying agreement itself, which he says he never
In this original proceeding, relator Dallas Peterbilt, Ltd.,       received, can provide notice. We disagree. When determining
L.L.P. seeks to compel arbitration of claims filed by its former   whether an employee received notice of a binding arbitration
employee, William Harris. The trial court denied Peterbilt's       agreement, our cases do not confine that “notice analysis”
motion to stay proceedings and to compel arbitration,              to the underlying agreement, but to all communications
and the court of appeals summarily denied mandamus                 between the employer and employee. See In re Halliburton
relief. 193 S.W.3d 580. Because the parties entered into a         Co., 80 S.W.3d at 569 (holding that a notice and summary
binding arbitration agreement that covers Harris's claims, we      given to the employee was unequivocal notice); Hathaway,
conclude that the trial court abused its discretion in denying     711 S.W.2d at 229 (holding that contradicting written and
Peterbilt's motion to compel arbitration. We conditionally         oral communications did not constitute conclusive proof of
grant mandamus relief.                                             unequivocal notice).

On January 1, 1999, American TruckSource, Inc., Peterbilt's        The six-page Summary and accompanying signed
holding company, instituted a dispute resolution program.          acknowledgment form notified Harris that arbitration would
Part of this program required employees to resolve certain         be required for resolving covered claims and specifically
work-related disputes via binding arbitration. When Harris         described which claims are covered under *163 the plan.
commenced his at-will employment with Peterbilt in                 Harris contends he did not receive the Summary either. But
December 1999, he received a copy of a “Summary                    the acknowledgment form states, right above his signature: “I
Plan Description of Mutual Agreement to Arbitrate                  acknowledge that I have received and carefully read or been
Claims” (Summary), which outlined the Mutual Agreement             given the opportunity to read the [Summary].” Consequently,



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            2
In re Dallas Peterbilt, Ltd., L.L.P., 196 S.W.3d 161 (2006)
152 Lab.Cas. P 60,227, 24 IER Cases 1304, 49 Tex. Sup. Ct. J. 759

                                                                       tort, discrimination, wrongful termination, and violation of
we find that Peterbilt's Summary constitutes effective notice
                                                                       law. The Mutual Agreement to Arbitrate Claims confirms that
because it unequivocally provided Harris with knowledge of
                                                                       those claims are covered. We hold that the claims covered
the arbitration agreement. See In re Dillard Dep't Stores, Inc.,
                                                                       under the agreement include all claims that Harris brought
181 S.W.3d at 373.
                                                                       against Peterbilt.
 [3] Having established that Harris received notice of the
                                                              We conclude that a valid arbitration agreement exists and that
binding arbitration agreement, we next determine whether
                                                              Harris's claims fall within the scope of the agreement. The
Harris accepted the agreement. An at-will employee who
                                                              trial court clearly abused its discretion in denying Peterbilt's
receives notice of an employer's arbitration policy and
                                                              motion to compel arbitration. See Jack B. Anglin Co. v.
continues working with knowledge of the policy accepts the
                                                              Tipps, 842 S.W.2d 266, 272–73 (Tex.1992) (noting there is no
terms as a matter of law. Id. It is undisputed that Harris was
                                                              adequate remedy by appeal for a party denied its contracted-
an at-will employee, and his signed acknowledgment form
                                                              for arbitration right under the FAA). Accordingly, without
indicates that continuing or accepting employment will result
                                                              hearing oral argument, we conditionally grant the writ of
in automatic coverage under the dispute resolution program.
                                                              mandamus. TEX. R. APP. P. 52.8(c). We order the trial
Therefore, we find that by signing the acknowledgment
                                                              court to vacate its order denying Peterbilt's motion to compel
form and commencing his employment, Harris accepted the
                                                              arbitration and to enter a new order compelling arbitration of
agreement as a matter of law.
                                                              Harris's claims. The writ will issue only if the trial court fails
 [4] [5] In order to compel arbitration, Peterbilt must also to comply.
show that the claims raised fall within the scope of the
agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d
                                                              Parallel Citations
571, 573 (Tex.1999) (per curiam). Harris sued Peterbilt
for race discrimination, retaliation, tortious interference,  152 Lab.Cas. P 60,227, 24 IER Cases 1304, 49 Tex. Sup. Ct.
defamation, and intentional infliction of emotional distress. J. 759
The Summary provides that the agreement covers claims for

End of Document                                                    © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 3
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

                                                                             A court should issue mandamus only to correct
                                                                             a clear abuse of discretion or the violation of
                      52 S.W.3d 749
                                                                             a legal duty when there is no other adequate
                  Supreme Court of Texas.
                                                                             remedy at law.
    In re FIRSTMERIT BANK, N.A. f/k/a Signal
                                                                             8 Cases that cite this headnote
  Bank, N.A. and Mobile Consultants, Inc., Relators.

            No. 00–0548. | Argued Feb. 14,                             [3]   Mandamus
           2001. | Decided June 14, 2001.
                                                                                                                                Remedy
Mobile home buyers and donees, their child and son-in-                       at Law
law, brought action against lender and its servicing agent                   When a trial court erroneously denies a party's
to recover for breach of contract, revocation of acceptance,                 motion to compel arbitration under the Federal
breach of warranty, negligence, and fraud in connection                      Arbitration Act (FAA), the movant has no
with condition of the home. The trial court denied motion                    adequate remedy at law and is entitled to a writ
by lender and agent to compel arbitration. Lender and                        of mandamus. 9 U.S.C.A. § 1 et seq.
agent petitioned for writ of mandamus. The Supreme Court,
Enoch, J., held that: (1) the installment contract related to                30 Cases that cite this headnote
interstate commerce and, therefore, was subject to the Federal
Arbitration Act (FAA); (2) claims by buyers and donees
                                                                       [4]   Mandamus
were subject to arbitration; (3) the donees were subject to the
arbitration clause; (4) the clause was not unconscionable; (5)                                                                  Civil
sellers' alleged fraud did not invalidate the agreement; and (6)             proceedings other than actions
the revocation issue concerning the installment contract was                 A party seeking to compel arbitration by
subject to arbitration.                                                      mandamus must first establish the existence of
                                                                             an arbitration agreement subject to the Federal
Writ conditionally granted.                                                  Arbitration Act (FAA). 9 U.S.C.A. § 1 et seq.

                                                                             54 Cases that cite this headnote

 West Headnotes (24)
                                                                       [5]   Alternative Dispute Resolution

 [1]     Mandamus                                                                                                               Disputes
                                                                             and Matters Arbitrable Under Agreement
                                                              Nature
                                                                             Once the movant seeking arbitration establishes
         and scope of remedy in general
                                                                             an agreement, the court must then determine
         Mandamus is an extraordinary remedy available                       whether the arbitration agreement covers the
         only in limited circumstances.                                      nonmovant's claims.
         5 Cases that cite this headnote                                     26 Cases that cite this headnote

 [2]     Mandamus                                                      [6]   Alternative Dispute Resolution
                                                              Remedy                                                            Evidence
         at Law
                                                                             A presumption exists favoring agreements to
         Mandamus                                                            arbitrate under the Federal Arbitration Act
                                                              Nature         (FAA). 9 U.S.C.A. § 1 et seq.
         of acts to be commanded
                                                                             24 Cases that cite this headnote



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             1
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900


 [7]    Alternative Dispute Resolution                                     59 Cases that cite this headnote

                                                             Construction
        in favor of arbitration                                    [11] Alternative Dispute Resolution
        Courts must resolve any doubts about an                                                                                     Sales
        arbitration agreement's scope in favor of                          contracts disputes
        arbitration.
                                                                           Mobile home buyers' claims against lender and
        40 Cases that cite this headnote                                   its agent to challenge right to repossess the home
                                                                           and to recover for condition of the home and
                                                                           sellers' failure to remedy defects were covered
 [8]    Alternative Dispute Resolution                                     by agreement to arbitrate all disputes, claims,
                                                                           or other matters arising out of or relating to the
                                                             Discretion
                                                                           loan, its interpretation, validity, performance, or
        Alternative Dispute Resolution
                                                                           breach; the arbitration clause defined “loan” to
                                                             Remedies      include the installment contract and all other loan
        and Proceedings for Enforcement in General                         documents and was thus not limited to claims
                                                                           relating directly to financing.
        Once the trial court concludes that an arbitration
        agreement encompasses the claims and that the                      33 Cases that cite this headnote
        party opposing arbitration has failed to prove its
        defenses, the trial court has no discretion but to
        compel arbitration and stay its own proceedings.           [12]    Alternative Dispute Resolution

                                                                                                                                    Sales
        49 Cases that cite this headnote
                                                                           contracts disputes
                                                                           The question whether mobile home sellers made
 [9]    Commerce
                                                                           any misrepresentations in the inducement of
                                                             Arbitration   the underlying contract related to the validity
                                                                           of the contract and, therefore, was subject to
        Installment contract for sale of mobile home
                                                                           arbitration in buyers' suit against lender and its
        related to interstate commerce and, therefore,
                                                                           agent; the agreement required arbitration of all
        was subject to the Federal Arbitration Act
                                                                           disputes, claims, or other matters arising out of
        (FAA); secured lender and its servicing agent
                                                                           or relating to the loan, its interpretation, validity,
        were corporations in another state and received
                                                                           performance, or breach and defined “loan” to
        installment payments there, and the arbitration
                                                                           include the installment contract and all other loan
        addendum stated that the loan involved interstate
                                                                           documents.
        commerce and was governed by the FAA. 9
        U.S.C.A. § 1 et seq.                                               23 Cases that cite this headnote

        16 Cases that cite this headnote
                                                                   [13]    Alternative Dispute Resolution

 [10]   Alternative Dispute Resolution                                                                                              Persons
                                                                           affected or bound
                                                             Disputes
        and Matters Arbitrable Under Agreement                             Mobile home donees' suit against lender and
                                                                           its agent based on parents' installment contract
        To determine whether a party's claims fall within
                                                                           as buyers and borrowers subjected residents to
        an arbitration agreement's scope, courts focus on
                                                                           the contract's terms, including the arbitration
        the complaint's factual allegations, rather than
                                                                           agreement, even though they never signed it.
        the legal causes of action asserted.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  2
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900


        9 Cases that cite this headnote                                   23 Cases that cite this headnote


 [14]   Alternative Dispute Resolution                             [18]   Alternative Dispute Resolution

                                                             Validity                                                         Unconscionabi
        of assent                                                        Some specific information of future costs is
        Alternative Dispute Resolution                                   required in order to show that an arbitration
                                                                         agreement is made unconscionable by subjecting
                                                             Unconscionability
                                                                         parties to substantial costs and fees.
        Defenses      of    unconscionability,     duress,
        fraudulent inducement, and revocation needed to                   31 Cases that cite this headnote
        specifically relate to the arbitration agreement
        itself, not the contract as a whole, in order to           [19]   Alternative Dispute Resolution
        defeat arbitration; defenses that pertained to the
        entire installment contract could be arbitrated.                                                                      Unconscionabi
                                                                          Lender's right to seek judicial relief to enforce
        36 Cases that cite this headnote
                                                                          its security agreement, recover payments from
                                                                          mobile home buyers, and foreclose did not
 [15]   Alternative Dispute Resolution                                    render unconscionable an arbitration agreement
                                                                          covering their claims against the lender to
                                                             Evidence     challenge right to repossess the home and to
        Since the law favors arbitration, the burden of                   recover for condition of the home and sellers'
        proving a defense to arbitration is on the party                  failure to remedy defects.
        opposing arbitration.
                                                                          10 Cases that cite this headnote
        29 Cases that cite this headnote

                                                                   [20]   Contracts
 [16]   Alternative Dispute Resolution
                                                                                                                              Unconscionabl
                                                             Unconscionability
                                                                         Contracts
        The possibility that arbitration could subject                    The basic test for unconscionability is
        mobile home buyers to substantial costs and                       whether, given the parties' general commercial
        fees did not make the arbitration agreement                       background and the commercial needs of the
        unconscionable without specific evidence that                     particular trade or case, the clause involved is
        the buyers would actually be charged excessive                    so one-sided that it is unconscionable under
        fees to arbitrate claims against lender and its                   the circumstances existing when the parties
        agent.                                                            made the contract; the principle is one of
                                                                          preventing oppression and unfair surprise and
        14 Cases that cite this headnote
                                                                          not of disturbing allocation of risks because of
                                                                          superior bargaining power.
 [17]   Alternative Dispute Resolution
                                                                         42 Cases that cite this headnote
                                                             Unconscionability
        The party opposing arbitration on the ground               [21]   Alternative Dispute Resolution
        that fees and costs make the arbitration clause
        unconscionable must prove the likelihood of                                                                           Validity
        incurring such costs.                                             of assent




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            3
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

        Mobile home sellers did not commit duress by                        The issue of whether the underlying installment
        stating only that they would not sell the home                      contract for sale of a mobile home was revoked
        if the buyers refused to sign the arbitration                       was subject to arbitration in buyers' suit against
        agreement; the sellers had a legal right to refuse                  lender and its agent; the issue arose from or
        to sell under that condition.                                       related to the contract.

        2 Cases that cite this headnote                                     8 Cases that cite this headnote


 [22]   Alternative Dispute Resolution

                                                             Validity
                                                                  Attorneys and Law Firms
        of assent
                                                                   *752 John A. Seib, Jr., The Seib Law Firm, Dallas, Michael
        Mobile home sellers' alleged fraud by
                                                                   Deitch, Law Offices of Michael Deitch, Austin, Steven Marc
        representing ownership of the land under the
                                                                   Reback, Law Offices of Michael Deitch, Austin, for Relator.
        home and the existence of a septic system
        and driveway, by failing to refer to an                    F. Terry Callahan, Law Offices of F. Terry Callahan, San
        arbitration clause in advertisements and pre-              Antonio, for Respondent.
        sale statements, and by inadequately explaining
        the consequences of signing the agreement did              Opinion
        not invalidate the agreement; nothing indicated
        that the sellers actually misrepresented the               Justice ENOCH delivered the opinion of the Court.
        agreement's terms or made any false material
                                                                   FirstMerit Bank and Mobile Consultants seek mandamus
        representations with regard to the agreement
                                                                   relief after the trial court denied their motion to compel
        itself.
                                                                   arbitration. Because the Federal Arbitration Act (FAA)
        29 Cases that cite this headnote                           requires the trial court to compel arbitration in this case, we
                                                                   conditionally grant their petition and order the trial court to
                                                                   compel arbitration in accordance with the parties' agreement.
 [23]   Fraud

                                                             Elements
        of Actual Fraud                                                                  I. BACKGROUND
        The elements of fraud are that: (1) a material
                                                                   Pete and Janie de los Santos purchased a mobile home
        representation was made; (2) the representation
                                                                   for their daughter, Sarah, and her husband, Gary Alvarez.
        was false; (3) when the representation was
                                                                   They bought the home from Verde Homes under Verde's
        made, the speaker knew it was false or made it
                                                                   retail installment financing agreement. Verde assigned this
        recklessly without any knowledge of the truth
                                                                   contract, which Pete and Janie signed, to Signal Bank (now
        and as a positive assertion; (4) the speaker made
                                                                   FirstMerit Bank). The agreement contained an Arbitration
        the representation with the intent that the other
                                                                   Addendum, which required binding arbitration for “all
        party should act upon it; (5) the party acted in
                                                                   disputes, claims, or other matters in question arising out of or
        reliance on the representation; and (6) the party
                                                                   relating to this Loan, its interpretation, validity, performance
        thereby suffered injury.
                                                                   or the breach thereof.” The word “Loan” referred to “all
        220 Cases that cite this headnote                          manufactured home loan documents, including but not
                                                                   limited to the retail installment contract....” The Addendum
                                                                   further stated that “the scope of arbitrability is broad and
 [24]   Alternative Dispute Resolution
                                                                   includes, without limitation, contractual, tort, statutory, and
                                                                   caselaw claims.” The Addendum also permitted the bank to
                                                             Existence
        and validity of agreement                                  seek judicial relief to enforce its security interest, recover the
                                                                   buyers' monetary loan obligation, and foreclose. *753 But
                                                                   aside from these three exceptions, the Addendum required


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               4
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

arbitration for all other disputes relating to the installment     arbitration, 7 a presumption exists favoring agreements to
contract.
                                                                   arbitrate under the FAA, 8 and courts must resolve any
                                                                   doubts about an arbitration agreement's scope in favor of
After Verde delivered the home, the de los Santoses tried to
revoke their acceptance, claiming that the home was defective      arbitration. 9 Once the trial court *754 concludes that the
and that Verde failed to perform certain promised repairs.         arbitration agreement encompasses the claims, and that the
Although Verde Homes refused to rescind the sale, the de           party opposing arbitration has failed to prove its defenses, 10
los Santoses apparently stopped making their monthly loan          the trial court has no discretion but to compel arbitration and
payments. In response, Signal Bank took possession of the          stay its own proceedings. 11
home. The de los Santoses then sued Signal Bank, Mobile
Consultants (Signal's servicing agent), Verde Homes, and two
Verde employees, alleging breach of contract, revocation of
acceptance, breach of warranty, negligence, and fraud. They                     A. SCOPE OF ARBITRATION
also alleged violations of the Deceptive Trade Practices Act,
                                                                    [9]    Here, there is no dispute about the Arbitration
Fair Debt Collection Practices Act, Equal Credit Opportunity
                                                                   Addendum's existence. The de los Santoses instead contend
Act, and Fair Credit Reporting Act. Additionally, the de
                                                                   that the installment contract was completed entirely in Texas,
los Santoses claimed that their successful revocation of
                                                                   did not involve interstate commerce, and, accordingly, was
acceptance entitled them to a security interest in the home,
                                                                   not subject to the FAA. As defined in the FAA, however,
equal to the amount they had paid on the installment contract.
                                                                   “interstate commerce” is not limited to the interstate shipment
To enforce their security interest, they requested an injunction
                                                                   of goods, but includes all contracts “relating to” interstate
forcing FirstMerit to return possession of the home until it
refunded the de los Santoses' loan payments.                       commerce. 12 In fact, the United States Supreme Court has
                                                                   construed the FAA to extend as far as the Commerce Clause
In response, FirstMerit and Mobile moved to compel             of the United States Constitution will reach. 13 In this case,
arbitration. 1 The trial court denied their motion. FirstMerit the evidence demonstrates that the loan was made in interstate
Bank and Mobile then petitioned the Third Court of Appeals     commerce. Signal Bank and Mobile Consultants were Ohio
for a writ of mandamus, which the court denied. FirstMerit     corporations, while the de los Santoses were Texas residents.
and Mobile now ask this Court for mandamus relief.             The installment contract stated that Signal Bank was located
                                                               in Ohio. The record includes several photocopies of loan
                                                               payment checks drawn on a Texas bank that Signal Bank had
                                                               deposited in Ohio. And both Signal and Mobile Consultants
      II. WHETHER TO ORDER ARBITRATION                         corresponded with the de los Santoses from Ohio. The de los
                                                               Santoses also listed Signal's Ohio address at the top of their
 [1]     [2]    [3] Mandamus is an extraordinary remedy
                                                               revocation of acceptance letter. Moreover, the Arbitration
available only in limited circumstances. 2 A court should      Addendum, which Pete and Janie de los Santos both signed,
issue mandamus only to correct a clear abuse of discretion or  states that the loan “involves interstate commerce ... and shall
the violation of a legal duty when there is no other adequate  be governed by the Federal Arbitration Act....” In light of
remedy at law. 3 When a trial court erroneously denies a       these facts, we conclude that the installment contract relates
party's motion to compel arbitration under the FAA, the        to interstate commerce and is subject to the FAA. 14
movant has no adequate remedy at law and is entitled to a
writ of mandamus. 4 Thus, we must determine whether the    [10] [11] Because FirstMerit and Mobile have established
movants established their right to arbitration.           the existence of an agreement to arbitrate under the FAA,
                                                          we must next determine whether the Arbitration Addendum
 [4] [5] [6] [7] [8] A party seeking to compel arbitrationcovers the de los Santoses' claims. To determine whether a
by mandamus must first establish the existence of an      party's claims fall within an arbitration agreement's scope,
                                         5
arbitration agreement subject to the FAA. Once the movant we focus on the complaint's factual allegations rather than
establishes an agreement, the court must then determine            the legal causes of action asserted. 15 And again, we resolve
whether the arbitration agreement covers the nonmovant's           any doubts about the Arbitration Addendum's factual scope
claims. 6 Because state and federal policies continue to favor     in favor of coverage. Further, we reiterate that the parties'


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            5
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

Arbitration Addendum covers “all disputes, claims, or other        or to the performance or alleged breach of the installment
matters in question arising out of or relating to this Loan, its   contract. Furthermore, while fraud in the inducement of an
interpretation, validity, performance, or the breach thereof”      arbitration agreement is a defense to arbitration, whether the
and states that “the scope of arbitrability is broad and           sellers made any misrepresentations in the inducement of
includes, without limitation, contractual, tort, statutory, and    the underlying contract relates to the contract's validity and
case law claims.”                                                  can be arbitrated. 17 As for the de los Santoses' wrongful
                                                                   repossession allegations, the Addendum provides that “any
We now turn to the de los Santoses' factual allegations. The       counterclaims in suits brought by Seller/Assignee pursuant
de los Santoses asserted that the sellers misrepresented that      to this provision,” including complaints about foreclosure,
they owned the homesite, and that the homesite included            may be arbitrated. Given the Addendum's language on
a driveway and septic system. They also claimed that the           counterclaims, the Arbitration Addendum covers all of the de
sellers were not properly licensed, misrepresented *755            los Santoses' complaints about the bank's right to repossess
the terms of the loan, failed to provide a credit report to        the home.
Sarah and Gary Alvarez, and failed to make other disclosures
regarding interest rates and credit. The de los Santoses further    [13] As a specific challenge, Sarah and Gary Alvarez
alleged that the sellers fraudulently double-charged them for      contend that their claims are exempt from the Arbitration
insurance that was already paid for in the installment contract.   Addendum because they did not sign the contract. But a
In addition, the de los Santoses asserted that after taking        litigant who sues based on a contract subjects him or herself
possession of the home, they learned that the home was not
                                                                   to the contract's terms. 18 Here, the Alvarezes fully joined the
yet complete, that it lacked carpeting and air conditioning,
                                                                   de los Santoses' contract claims. In fact, the de los Santoses'
and that it was not installed properly. They also charged
                                                                   original petition *756 makes no distinction between the
that the sellers failed to repair these defects in a timely
                                                                   parents' claims and the Alvarezes' claims. Thus, by suing
and workmanlike manner, that they never installed an air
                                                                   FirstMerit based on the de los Santoses' installment contract,
conditioner, and that the sellers' attempts to repair the septic
                                                                   the Alvarezes subjected themselves to the contract's terms,
tank were untimely and defective. Finally, the de los Santoses
                                                                   including the Arbitration Addendum.
asserted that the bank wrongfully denied their attempt to
revoke the contract, criminally trespassed on their property,
                                                                   Accordingly, unless the de los Santoses can prove one of
and wrongfully repossessed the home.
                                                                   their defenses to the Arbitration Addendum, the FAA requires

 [12] In light of the Addendum's broad language, all of            arbitration. 19
the de los Santoses' factual allegations fall within the
Addendum's scope. The de los Santoses contend that because
the Addendum “relat(es) to the Loan,” it only covers claims                    B. DEFENSES TO ARBITRATION
that relate directly to the home's financing, and does not
cover their allegations about the home's post-sale condition        [14]     [15]    The de los Santoses assert the defenses
and repairs. But this interpretation ignores the Addendum's        of unconscionability, duress, fraudulent inducement, and
broad definition of “Loan” to include the installment contract     revocation. We again note that these defenses must
and all other loan documents. Further, irrespective of the         specifically relate to the Arbitration Addendum itself, not
Addendum's broad language, we also note that the home              the contract as a whole, if they are to defeat arbitration. 20
was the bank's collateral under the Loan. The de los               Defenses that pertain to the entire installment contract can
Santoses alleged that the sellers' failure to remedy the home's
                                                                   be arbitrated. 21 We further note that the de los Santoses'
physical problems entitled them to a security interest in
                                                                   defenses against the Addendum are governed by Texas
the home, which would prevent the bank from repossessing
                                                                   law. 22 Again, since the law favors arbitration, the burden
its collateral. 16 Thus, the home's post-sale condition, and
                                                                   of proving a defense to arbitration is on the party opposing
the sellers' post-sale failure to remedy the home's problems,
relate to the bank's right to repossess its collateral under the   arbitration. 23
loan. In sum, all of the de los Santoses' factual allegations
arise out of or relate to either the sellers' conduct in           [16] [17] The de los Santoses contend that the Arbitration
selling the home and negotiating the installment contract,         Addendum is unconscionable because arbitration might



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             6
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

subject them to substantial costs and fees. On this issue,         that the de los Santoses will actually be charged excessive
in Green Tree Financial Corp. v. Randolph, the United              arbitration fees, we conclude that there is legally insufficient
States Supreme Court recognized that “the existence of large       evidence that the plaintiffs would be denied access to
arbitration costs could preclude a litigant ... from vindicating   arbitration based on excessive costs.
her federal statutory rights....” 24 Nonetheless, the Supreme
Court concluded that an arbitration agreement's mere silence        [19]   [20] The de los Santoses also argue that the
with respect to costs and fees, by itself, is a “plainly           agreement's terms are unconscionable because they force
                                                                   the weaker party to arbitrate their claims, while permitting
insufficient” basis for invalidating the agreement. 25 Instead,
the party opposing arbitration must prove the likelihood of        the stronger party to litigate their claims. 33 They point
                                                                   us to decisions in other jurisdictions that have found this
incurring such costs. 26 To hold otherwise would “undermine
                                                                   type of clause to be unconscionable. 34 Most federal courts,
the liberal federal policy favoring arbitration agreements.” 27
                                                                   however, have rejected similar challenges on the grounds
                                                                   that an arbitration clause does not require mutuality of
 [18] While the Supreme Court did not specify “how detailed
                                                                   obligation, so long as the underlying contract is supported
the showing of prohibitive expense must be,” there is no doubt
                                                                   by adequate consideration. 35 In any event, the basic test
that some specific information of future costs is required. 28
                                                                   for unconscionability is whether, given the parties' general
In Green Tree, the party resisting arbitration cited what
                                                                   commercial background and the commercial needs of the
she claimed were American Arbitration Association (AAA)
                                                                   particular trade or case, the clause involved is so one-sided
figures on arbitration costs, but she provided no evidence that
                                                                   that it is unconscionable under the circumstances existing
the AAA would actually conduct the arbitration or charge
                                                                   when the parties made the contract. 36 The principle is one
her the fees she identified. 29 Because of this uncertainty, the
                                                                   of preventing oppression and unfair surprise and not of
Supreme Court deemed the evidence insufficient to defeat
                                                                   disturbing allocation of risks because of superior bargaining
arbitration. 30
                                                                   power. 37 Here, the Arbitration Addendum allows the bank
                                                                   to seek judicial relief to enforce its security agreement,
Here, the de los Santoses testified, in two sworn affidavits,
                                                                   recover the buyers' monetary loan obligation, and foreclose.
that the AAA charged a minimum $2,000 filing fee and
                                                                   Given the weight of federal precedent and the routine nature
a $250/day/party hearing fee, along with several other
unspecified fees, for hearings before a three-member panel.        of mobile *758 home financing agreements, 38 we find
But we *757 need not decide whether these costs would be           that the Arbitration Addendum in this case, by excepting
excessive. As in Green Tree, the de los Santoses provided no       claims essentially protecting the bank's security interest, is not
evidence that the AAA would actually conduct the arbitration       unconscionable. 39 We also recognize that the plaintiffs are
or charge the specified fees. The Arbitration Addendum does        free to pursue their unconscionability defense in the arbitral
not state that the AAA will conduct the arbitration, and it        forum.
makes no mention of arbitration costs. We also note that
the most recent AAA commercial arbitration rules provide            [21] Moreover, the de los Santoses cannot prevail on their
that “the AAA may, in the event of extreme hardship on             duress defense, since there is no evidence that the sellers
the part of any party, defer or reduce the administrative          threatened to do anything they did not have a legal right to
fees.” 31 Moreover, in the event the de los Santoses do not        do. 40 At most, the sellers stated only that they would not sell
avail themselves of FirstMerit Bank's choice of arbitrators,       the home if the de los Santoses would not sign the Addendum,
the FAA permits the trial court to choose an alternate set         which is not evidence of duress. 41
of arbitrators. 32 The de los Santoses also complain that
the requirement of three arbitrators is inherently costly. But      [22] [23] The de los Santoses also alleged fraud in the
again, without any specific information on what the costs          inducement of the Arbitration Addendum. The elements of
will be, this requirement is not evidence of unconscionability.    fraud are: (1) that a material representation was made; (2)
Finally, in agreeing to the Addendum, Pete and Janie de los        the representation was false; (3) when the representation was
Santos agreed “that arbitration is a less expensive method         made, the speaker knew it was false or made it recklessly
of dispute resolution that decreases servicing costs of this       without any knowledge of the truth and as a positive assertion;
loan....” Because the record contains no specific evidence         (4) the speaker made the representation with the intent that



                  © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             7
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

                                                                       Addendum's validity is a separate issue from the validity of
the other party should act upon it; (5) the party acted in
reliance on the representation; and (6) the party thereby              the whole contract. 43 And given that the FAA's primary
                                                                       objective is to encourage the arbitration of contract-related
suffered injury. 42 In this case, the de los Santoses alleged
                                                                       issues, the issue of whether the underlying contract was
that the sellers fraudulently represented that they owned the
                                                                       revoked is an issue that should be arbitrated, since it “arises
land under the home, and that the home had a septic system
and driveway. They also allege that the sellers' advertisements        from or relates to” the contract. 44
and pre-sale statements made no reference to an arbitration
clause, and that the sellers did not adequately explain the
consequences of signing the Addendum. However, there                                         III. CONCLUSION
is no evidence that the sellers actually misrepresented the
Addendum's terms, or that they made any false material                 Because the claims in this lawsuit are within the scope of the
representations with regard to the Arbitration Addendum                parties' agreement to arbitrate, we conditionally grant the writ
itself. Accordingly, we decline to invalidate the Arbitration          of mandamus and direct the trial court to order that all claims
Addendum based on fraud.                                               proceed to arbitration. The clerk is instructed to issue *759
                                                                       the writ only if the trial court fails to do so.
 [24] Finally, the de los Santoses argue that their alleged
revocation of the installment contract also applies to the
Arbitration Addendum, rendering it unenforceable. But this             Parallel Citations
claim really pertains to the entire installment contract and
                                                                       44 Tex. Sup. Ct. J. 900
not just the Arbitration Addendum. Again, the Arbitration


Footnotes
1      The other parties did not answer the suit, and a default judgment was entered against them.
2      In re Masonite Corp., 997 S.W.2d 194, 197 (Tex.1999).
3      Id.
4      EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88 (Tex.1996).
5      In re Oakwood Mobile Homes, 987 S.W.2d 571, 573 (Tex.1999).
6      Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996).
7      Id.; Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 522, 148 L.Ed.2d 373 (2000).
8      Cantella, 924 S.W.2d at 944.
9      Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Prudential
       Sec., Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.1995).
10     See In re Oakwood, 987 S.W.2d at 573.
11     Cantella, 924 S.W.2d at 944.
12     See Lost Creek Mun. Util. Dist. v. Travis Indus. Painters, Inc., 827 S.W.2d 103, 105 (Tex.App.—Austin 1992, writ denied).
13     Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272–74, 276–78, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).
14     See, e.g., Mesa Operating Ltd. P'ship v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 243 (5th Cir.1986); Snyder v. Smith, 736 F.2d
       409, 418 (7th Cir.1984), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984).
15     Prudential Sec., 909 S.W.2d at 900.
16     See TEX. BUS. & COM.CODE § 2.608(a), 2.711(c).
17     See Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d 925, 930 (Tex.App.—Houston [1st Dist.] 1996, no writ); New Process Steel
       Corp. v. Titan Indus. Corp., 555 F.Supp. 1018, 1022 (S.D.Tex.1983).
18     See Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518, 520 (Tex.App.—Austin 1998, no pet.).
19     See In re Oakwood, 987 S.W.2d at 573.
20     See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).
21     See id.
22     In re Oakwood, 987 S.W.2d at 574.
23     Id. at 573.




                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                    8
In re FirstMerit Bank, N.A., 52 S.W.3d 749 (2001)
44 Tex. Sup. Ct. J. 900

24     531 U.S. 79, 91, 121 S.Ct. at 522, 148 L.Ed.2d 373.
25     Id.
26     Id.
27     Id.
28     Id. at 522–23.
29     Id. at 522 & n. 6.
30     See id.
31     American Arbitration Association, Arbitration Rules for the Real Estate Industry, Rule 51.
32     See 9 U.S.C. § 5.
33     See In re Conseco Fin. Servicing Corp., 19 S.W.3d 562, 569 n. 3 (Tex.App.—Waco 2000, pet. dism'd by agr.).
34     See, e.g., Armendariz v. Foundation Health Psychcare Servs., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 691–94 (Cal.2000);
       Iwen v. U.S. West Direct, 293 Mont. 512, 977 P.2d 989, 995–96 (1999).
35     See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183 (3d Cir.1999); Doctor's Assoc., Inc. v. Distajo, 66 F.3d 438, 451–53 (2d
       Cir.1995); Wilson Elec. Contractors, Inc. v. Minnotte Contracting Corp., 878 F.2d 167, 168–69 (6th Cir.1989); Young v. Jim Walter
       Homes, Inc., 110 F.Supp.2d 1344, 1350 (M.D.Ala.2000); Pridgen v. Green Tree Fin. Servicing Corp., 88 F.Supp.2d 655, 658–59
       (S.D.Miss.2000); Gray v. Conseco, Inc., 2000 WL 1480273, 2000 U.S. Dist. LEXIS 14821, 13–16 (C.D.Cal. Sept. 29, 2000).
36     TEX. BUS. & COM.CODE § 2.302 cmt. 1.
37     Id.
38     See Palm Harbor Homes, Inc. v. McCoy, 944 S.W.2d 716, 723 n. 8 (Tex.App.—Fort Worth 1997, orig. proceeding).
39     See Pridgen, 88 F.Supp.2d at 658–59; see also Conseco Fin. Servicing Corp. v. Wilder, 47 S.W.3d 335 (Ky.App.2001).
40     In re Oakwood, 987 S.W.2d at 574.
41     See id.
42     Formosa Plastics Corp. v. Presidio Engrs. & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998).
43     See Miller v. Puritan Fashions Corp., 516 S.W.2d 234, 238–39 (Tex.Civ.App.—Waco 1974, writ ref'd n.r.e.).
44     See Mewbourne Oil Co. v. Blackburn, 793 S.W.2d 735, 737 (Tex.App.—Amarillo 1990, orig. proceeding).


End of Document                                                    © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                      9
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

                                                                           Courts may consider both procedural and
                                                                           substantive unconscionability of an arbitration
                    80 S.W.3d 566
                                                                           clause in evaluating the validity of an arbitration
                Supreme Court of Texas.
                                                                           provision.
        In re HALLIBURTON COMPANY and
                                                                           97 Cases that cite this headnote
       Brown & Root Energy Services, Relators.

           No. 00–1206. | Argued Nov. 7,                            [3]    Alternative Dispute Resolution
         2001. | Decided May 30, 2002.
         | Rehearing Denied Aug. 22, 2002.                                                                                       Unconscionabi
                                                                           Disparity in bargaining power between employer
At-will employee brought action alleging discrimination                    and at-will employer did not render employer's
based on race and age. The trial court denied motion                       imposition of new employment term requiring all
to compel arbitration. Employer petitioned for writ of                     employment disputes to be resolved in binding
mandamus. The Court of Appeals denied relief. Employer                     arbitration, which was offered on “take it or
appealed. The Supreme Court, Phillips, C.J., held that:                    leave it” basis, unconscionable, as employer had
(1) employer's promise to arbitrate disputes was adequate                  general right to discharge at-will employees.
consideration to support change in terms of employment;
(2) disparity in bargaining power between parties did not                  75 Cases that cite this headnote
render arbitration clause unconscionable; and (3) arbitration
program was not substantively unconscionable.                       [4]    Labor and Employment

Petition for writ of mandamus granted.                                                                                           Termination;
                                                                            cause or reason in general
Baker, J., concurred in judgment only.                                     Because an employer has a general right under
                                                                           Texas law to discharge an at-will employee, it
                                                                           cannot be unconscionable, without more, merely
 West Headnotes (6)                                                        to premise continued employment on acceptance
                                                                           of new or additional employment terms.

 [1]    Alternative Dispute Resolution                                     21 Cases that cite this headnote

                                                              Consideration
                                                                    [5]     Alternative Dispute Resolution
        Employer's promise to submit all employment
        disputes to arbitration constituted adequate                                                                             Unconscionabi
        consideration for change in employment terms                       Mandatory arbitration program, which required
        resulting from at-will employee's acceptance                       as condition of continued employment that
        of dispute resolution program adopted by                           all disputes arising out of employment be
        employer, where participation in dispute                           resolved in arbitration, was not substantively
        resolution program was not dependent on                            unconscionable, where company agreed to pay
        continuing employment, and employer could                          all expenses of arbitration except filing fee, both
        not avoid its promise to arbitrate by amending                     parties were to participate in selection of neutral
        arbitration provision or terminating it altogether.                arbitrator, program provided employees with up
                                                                           to $2,500 to consult with attorney, rules provided
        104 Cases that cite this headnote
                                                                           for pre-arbitration discovery, and all remedies
                                                                           employee could have pursued in court system
 [2]    Alternative Dispute Resolution                                     were available in arbitration.

                                                              Unconscionability
                                                                          100 Cases that cite this headnote



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               1
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

                                                                  James D. Myers has been an at-will employee of Brown
 [6]     Mandamus                                                 & Root Energy Services, now a subsidiary of Halliburton
                                                                  Company, for approximately thirty years. In November 1997,
                                                              Remedy
                                                                  Halliburton sent notice to all employees of Halliburton
         by Appeal or Writ of Error
                                                                  companies that it was adopting a Dispute Resolution
         Employer was entitled to writ of mandamus
                                                                   Program. 1 As part of that program, binding arbitration was
         requiring trial court to grant motion to
                                                                   designated as the exclusive method for resolving all disputes
         compel arbitration pursuant to dispute resolution
                                                                   between the company and its employees. The notice informed
         program that was condition of employment,
                                                                   employees that by continuing to work after January 1, 1998,
         where employer had no adequate remedy by
         appeal.                                                   they would be accepting the new program. 2

         13 Cases that cite this headnote                          Myers does not dispute that he received this notice, but he
                                                                   claims that he did not fully understand it. Nevertheless, he
                                                                   continued working for Halliburton after January 1, 1998.
                                                                   Sometime in 1998, Halliburton demoted him from his
Attorneys and Law Firms                                            position as a General Welding Foreman. Although he was
                                                                   told this demotion was due to “a lack of interpersonal skills,”
*567 Russell J. Weintraub, Austin, W. Carl Jordan, Vanessa         Myers alleges that the real reason was discrimination based
M. Clem, Vinson & Elkins, Houston, for Relators.                   on his race and age. In October 1999, Myers brought this
                                                                   suit in district court alleging wrongful demotion in violation
Barbara J. Gardner, Barbara Gardner & Associates, David W.
                                                                   of the Texas Commission on Human Rights Act, TEX.
Holman, Holman & Keeling, PC, Houston, for Respondent.
                                                                   LAB.CODE § 21.001. Halliburton asked the trial court to
Opinion                                                            compel arbitration under the Program and to either stay or
                                                                   dismiss the lawsuit. The trial court denied the motion, and
Chief Justice PHILLIPS delivered the opinion of the                the court of appeals denied Halliburton's petition for writ of
Court in which Justice HECHT, Justice ENOCH, Justice               mandamus.
OWEN, Justice HANKINSON, Justice O'NEILL, Justice
JEFFERSON, and Justice RODRIGUEZ joined.

We are once again asked to decide whether mandamus                                               II
should issue to enforce an arbitration provision, in this
                                                                    [1] Under the Federal Arbitration Act (FAA), an agreement
instance between an employer and an at-will employee. The
                                                                   to arbitrate that is valid under general principles of state
employer sent notice of a new dispute resolution program
                                                                   contract law and involves interstate commerce is “valid,
(the Program) to the employee informing him that continuing
                                                                   irrevocable, and enforceable.” 9 U.S.C. § 2. The parties here
employment would constitute acceptance of the new plan.
                                                                   do not dispute that the contract involves interstate commerce.
When the employee was later demoted, he filed suit rather
                                                                   We must determine whether, under state law, the Program's
than following the Program. The district court denied the
                                                                   arbitration clause is valid. 9 U.S.C. § 2.
employer's motion to compel arbitration under the Federal
Arbitration Act and stay or dismiss the trial court proceedings.
                                                                   In Hathaway v. General Mills, Inc., 711 S.W.2d 227
The court of appeals also denied relief. 80 S.W.3d 611. We
                                                                   (Tex.1986), we outlined the manner in which an employer
conclude that the Program meets the requirements for altering
                                                                   may change the terms of an at-will employment contract.
an at-will employment contract, is not unconscionable, and
                                                                   We held that the party asserting a change to an at-will
is otherwise enforceable under general contract principles.
                                                                   employment contract must prove two things: (1) notice of
Because the employer has no adequate remedy on appeal, we
                                                                   the change, and (2) acceptance of the change. Id. at 229.
conditionally grant the writ.
                                                                   We stated that “to prove notice, an employer asserting a
                                                                   modification must prove that he unequivocally notified the
                                                                   employee of definite changes in employment terms.” Id. Yet
                            *568 I                                 we made clear that when an employer notifies an employee of
                                                                   changes to the at-will employment contract and the employee


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            2
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

“continues working with knowledge of the changes, he has                        the ability of either to terminate the
accepted the changes as a matter of law.” Id. (citation                         employment at-will, a promise by
omitted).                                                                       either which is dependent on a period
                                                                                of continued employment is illusory
Here, it is undisputed that Halliburton notified Myers of the                   and thus insufficient to support a
proposed changes. The notice explained the Program, stated                      bilateral contract because it would
its effective date, and explained that by working after that                    fail to bind the promisor who always
date an employee would indicate that he or she accepted the                     retains the option of discontinuing
provision. Myers argues that he only briefly *569 looked                        employment in lieu of performance.
at the documents and that he did not understand them.
The materials, however, unequivocally notified him that his       Id. at 645.
employment terms would be changing. A one-page summary
included in the materials stated:                                 This is a correct statement of the law, but it does not apply
                                                                  to the situation here. In Light, we considered the validity of
            While both you and Halliburton                        a covenant not to compete between an at-will employee and
            retain all substantive legal rights and               her employer. Light, 883 S.W.2d at 643. We held that certain
            remedies under this Program, you and                  promises made by the employer in the covenant were illusory
            Halliburton are both waiving all rights               because they were dependent on the at-will employee's
            which either may have with regard to                  continued employment. Id. at 645–46. The employer could
            trial by jury for employment related                  avoid performance simply by terminating the employment
            matters in state or federal court.                    relationship, while the employee was bound whether she
                                                                  stayed or left. Id. at 645.
The accompanying materials set forth that adopting the new
Program meant that                                                By contrast, the Program is not dependent on continuing
                                                                  employment. Instead, it was accepted by the employee's
            if you accept or continue your
                                                                  continuing employment. When Myers reported for work after
            employment after January 1, 1998,
                                                                  January 1, 1998, he accepted Halliburton's offer; both Myers
            you will agree to resolve all legal
                                                                  and Halliburton became bound to arbitrate any disputes
            claims against Halliburton through this
                                                                  between them. Even if Myers' employment had ended shortly
            process instead of through the court
                                                                  thereafter, the promise to arbitrate would have been binding
            system.
                                                                  and enforceable on both parties. In Light, the employer was
After receiving this notice, Myers continued to work for          bound only while the employee continued to work. Thus,
Halliburton after January 1, 1998, thus accepting the changes     following Myers' acceptance, the Program was not dependent
as a matter of law.                                               on continuing employment and was not illusory. See also
                                                                  In re Jebbia, 26 S.W.3d 753, 758 (Tex.App.-Houston [14th
This is not a case in which the written notice was contradicted   Dist.] 2000, orig. proceeding) (rejecting the argument that
by other written or oral communications between the               an arbitration provision lacked consideration because the
employer and the employee. See Hathaway, 711 S.W.2d at            employment relationship was at-will).
229. On this record we conclude that Halliburton's offer was
unequivocal and that Myers' conduct was an acceptance of          Myers also asserts that Halliburton's promises were illusory
that offer.                                                       because the company retained the right to modify or
                                                                  discontinue the Program. But the Program also provided
The court of appeals held that Halliburton's promises were        that “no amendment shall apply *570 to a Dispute of
illusory, and therefore could not constitute consideration for    which the Sponsor [Halliburton] had actual notice on the
Myers' promise to arbitrate. 80 S.W.3d 611. The court relied      date of amendment.” As to termination, the plan stated
on Light v. Centel Cellular Co., 883 S.W.2d 642 (Tex.1994),       that “termination shall not be effective until 10 days after
for the proposition that                                          reasonable notice of termination is given to Employees or
                                                                  as to Disputes which arose prior to the date of termination.”
            because an at-will employer and                       Therefore, Halliburton cannot avoid its promise to arbitrate
            employee may not contract to limit


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           3
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

by amending the provision or terminating it altogether.            to contracts of employment. Id. at 113, 121 S.Ct. 1302. The
Accordingly, the provision is not illusory.                        Court stated that it “had been clear in rejecting the supposition
                                                                   that the advantages of the arbitration process somehow
Myers further asserts that because his statutory rights            disappear when transferred to the employment context,” and
under the Texas Commission on Human Rights Act are                 held for the employer. Id. at 123, 121 S.Ct. 1302. Requiring
implicated, a higher standard applies in determining if            Lai's heightened standard would undermine these principles
he agreed to binding arbitration. For this proposition, he         by allowing an arbitration agreement covering statutory
cites Prudential Insurance Co. v. Lai, 42 F.3d 1299 (9th           claims to be declared unenforceable on some basis other than
Cir.1994). Lai held that the employer must establish at least      one required at law or in equity for contract revocation.
a “knowing agreement to arbitrate employment disputes”
before an employee may be deemed to have waived a                   *571 Myers also urges this Court to require a heightened
judicial determination of his or her rights under Title VII and    standard because a Federal Equal Employment Opportunity
related state statutes. Lai, 42 F.3d at 1304. The court held       Commission policy disfavors compulsory arbitration of
that because the arbitration agreement did not specifically        discrimination claims. Policy Statement on Mandatory
mention the type of claim the plaintiffs alleged, the plaintiffs   Binding Arbitration of Employment Discrimination Disputes,
could not have “knowingly” agreed to arbitrate those claims.       EEOC Notice No. 915.00 (July 10, 1997). While we may
Id. at 1305. However, nearly every subsequent decision has         give some deference to the statutory interpretation of the
rejected Lai's “knowing waiver” standard. See, e.g., Penn v.       government agency charged with implementing that statute,
Ryan's Family Steak Houses, Inc., 269 F.3d 753, 761 (7th           that cannot trump our deference to a United States Supreme
Cir.2001); Haskins v. Prudential Ins. Co. of Am., 230 F.3d         Court decision. See In re American Homestar of Lancaster,
231, 239–40 (6th Cir.2000); Seus v. John Nuveen & Co.,             Inc., 50 S.W.3d 480, 490–91 (Tex.2001).
146 F.3d 175, 183 n. 2 (3rd Cir.1998); Battle v. Prudential
Ins. Co. of Am., 973 F.Supp. 861, 866 (D.Minn.1997);               Finally, Myers argues that this provision should not be
Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,             enforced because it is unconscionable. Unconscionability
957 F.Supp. 1460, 1474–75 (N.D.Ill.1997); Maye v. Smith            includes two aspects: (1) procedural unconscionability, which
Barney, Inc., 897 F.Supp. 100, 107 (S.D.N.Y.1995); Bryant          refers to the circumstances surrounding the adoption of the
v. American Exp. Fin. Advisors, Inc., 595 N.W.2d 482, 486          arbitration provision, and (2) substantive unconscionability,
(Iowa 1999); DeCaminada v. Coopers & Lybrand, L.L.P.,              which refers to the fairness of the arbitration provision
232 Mich.App. 492, 591 N.W.2d 364, 368 (App.1998); but             itself. See Southwestern Bell Tel. Co. v. DeLanney, 809
see Hooters of Am., Inc. v. Phillips, 39 F.Supp.2d 582, 612        S.W.2d 493, 498–99 (Tex.1991) (Gonzalez, J., concurring).
(D.S.C.1998); Hoffman v. Aaron Kamhi, Inc., 927 F.Supp.            In In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571,
640, 645 (S.D.N.Y.1996). Moreover, Lai's “knowing waiver”          573 n. 3 (Tex.1999), we observed in dicta that substantive
standard is inconsistent with the United States Supreme            unconscionability of an arbitration clause cannot be asserted
Court's decisions in Gilmer v. Interstate/Johnson Lane Corp.,      to the court as a reason not to compel arbitration, and that
500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), and            such a claim must instead be “submitted to the designated
Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.Ct.        arbitrator.” 3
1302, 149 L.Ed.2d 234(2001). In Gilmer, a suit under the
Age Discrimination in Employment Act, the Court noted that         This proposition first appeared in Texas jurisprudence in In
under the FAA, arbitration agreements are “valid, irrevocable,     re Foster Mold, Inc., 979 S.W.2d 665, 667 (Tex.App.-El
and enforceable save upon such grounds as exist at law or          Paso 1998) (orig. proceeding). That case relied on the United
in equity for the revocation of any contract.” Gilmer, 500         States Supreme Court's decision in Prima Paint Corp. v.
U.S. at 24–25, 111 S.Ct. 1647. The Court concluded that            Flood & Conklin Manufacturing Co., 388 U.S. 395, 403–04,
such statutory causes of action may be the subject of an           87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and on two cases
arbitration agreement. Id. at 26, 111 S.Ct. 1647. In Circuit       from the Fifth Circuit Court of Appeals: Miller v. Public
City, an employer brought an action in federal court under the     Storage Management, Inc., 121 F.3d 215 (5th Cir.1997), and
FAA seeking to enjoin a suit in state court under a California     R.M. Perez & Associates, Inc. v. Welch, 960 F.2d 534 (5th
employment discrimination statute, because the employee            Cir.1992).
had agreed to arbitration. Circuit City, 532 U.S. at 110, 121
S.Ct. 1302. The employee argued that the FAA does not apply



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              4
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

In Prima Paint Corp., the Supreme Court held that under             [5] Myers also argues that the arbitration plan is so unfair to
section 4 of the FAA, “if the claim is fraud in the inducement     employees that the Program is substantively unconscionable.
of the arbitration clause itself ... the federal court may         But Myers has failed to make such a showing here. The
proceed to adjudicate it,” but “the statutory language does        Program has several terms that provide protection to the
not permit the federal court to consider claims of fraud in        employee in the process. For example, the company agreed
the inducement of the contract generally.” Prima Paint Corp.,      to pay all the expenses of an arbitration except a $50 filing
388 U.S. at 403–04, 87 S.Ct. 1801. The Fifth Circuit cases         fee. Both parties are to participate in the selection of the
have similar language. See Miller, 121 F.3d at 218–19; R.M.        neutral arbitrator. The Program provides up to $2,500 for
Perez, 960 F.2d at 538–39. Neither Miller nor R.M. Perez           an employee to consult with an attorney. The rules provide
addressed the distinction between procedural and substantive       for pre-arbitration discovery under the Federal Rules of Civil
unconscionability of an arbitration clause. They each noted        Procedure. All remedies the employee could have pursued
that courts may consider claims relating to the arbitration        in the court system are available in the arbitration. And
clause itself but not regarding the contract as a whole. These     the arbitrator may award reasonable attorney's fees to an
cases simply do not support Foster Mold's conclusion that          employee who receives a favorable award regardless of
a court may not address claims that the arbitration clause is      whether such an award would be available in court. On this
substantively unconscionable.                                      record, we conclude that Myers has failed to carry his burden
                                                                   to show that the Program is unconscionable.
 [2] Several federal courts have examined substantive
unconscionability of an arbitration clause when ruling on        Several courts have found arbitration provisions with similar
a motion to compel. See, e.g., Dobbins v. Hawk's Enters.,        terms to be enforceable. See Cole v. Burns Int'l Sec. Servs.,
198 F.3d 715, 717 (8th Cir.1999); Harris v. Green Tree           105 F.3d 1465, 1482 (D.C.Cir.1997) (arbitration agreement
Fin. Corp., 183 F.3d 173, 181–84 (3rd.Cir.1999); We Care         valid which (1) required a neutral arbitrator, (2) allowed
Hair Dev., Inc. v. Engen, 180 F.3d 838, 843 (7th Cir.1999);      more than minimal discovery, (3) resulted in a written
Doctor's Assocs., Inc. v. Hamilton, 150 F.3d 157, 163            award, (4) allowed all remedies that would be available in
(2nd Cir.1998); Stedor *572 Enters., Ltd. v. Armtex, Inc.,       court, and (5) did not require the employee to pay either
947 F.2d 727, 733 (4th Cir.1991). These cases seem to            unreasonable costs or any arbitrator's fees or expenses);
us clearly correct. See also In re Conseco Fin. Servicing        Beauchamp v. Great West Life Assurance Co., 918 F.Supp.
Corp., 19 S.W.3d 562, 568 n. 3 (Tex.App.-Waco 2000, orig.        1091, 1098 (E.D.Mich.1996) (an agreement to arbitrate is not
proceeding) (questioning the validity of the dicta in Oakwood    substantively unconscionable because the employee did not
Homes ). We therefore clarify that courts may consider both      waive any substantive rights, the employee simply agreed to
procedural and substantive unconscionability of an arbitration   have those rights determined in a different forum); Rembert
clause in evaluating the validity of an arbitration provision.   v. Ryan's Family Steak Houses, Inc., 235 Mich.App. 118,
                                                                 596 N.W.2d 208, 226 (App.1999) (an arbitration agreement
 [3] [4] Myers first asserts that the provision is procedurally covering statutory claims is valid so long as “the arbitration
unconscionable as there was gross disparity in bargaining        agreement does not waive the substantive rights and remedies
power between the parties because Myers had no opportunity       of the statute and the arbitration procedures are fair so that the
to negotiate; Halliburton told him to accept the Program or      employee may effectively vindicate his statutory rights”).
leave. But in Hathaway, we recognized that an employer may
make precisely such a “take it or leave it” offer to its at-will
employees. Hathaway, 711 S.W.2d at 228–29. Because an
                                                                                                 III
employer has a general right under Texas law to discharge an
at-will employee, it cannot be unconscionable, without more,      [6] We conclude that Myers clearly had notice of the
merely to premise continued employment on acceptance of          proposed changes to his at-will employment contract and
new or additional employment terms. See also Smith v. H.E.       accepted them by continuing to work after January *573
Butt Grocery Co., 18 S.W.3d 910, 912 (Tex.App.-Beaumont          1, 1998. We also conclude that Myers has failed to show
2000, pet. denied) (rejecting the argument that an arbitration   that the arbitration provision is unconscionable. Because
provision is unconscionable merely because the parties did       the arbitration provision is otherwise enforceable under
not negotiate its terms).                                        general contract principles, a valid arbitration provision exists
                                                                   between Myers and Halliburton, and the trial court should



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             5
In re Halliburton Co., 80 S.W.3d 566 (2002)
18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720

have granted Halliburton's motion to compel arbitration.
Mandamus relief is appropriate because Halliburton has no            Justice BAKER concurred in the Court's judgment only.
adequate remedy by appeal. See Jack B. Anglin Co. v.
Tipps, 842 S.W.2d 266, 271 (Tex.1992). Accordingly, we               Parallel Citations
conditionally grant the petition for writ of mandamus. The
                                                                     18 IER Cases 1121, 45 Tex. Sup. Ct. J. 720
writ will issue only if the trial court fails to act promptly.



Footnotes
1      Brown & Root apparently adopted the same program in 1993. The parties provided this Court with a cover letter for materials sent
       to Brown & Root employees in 1993. However, the materials were not provided to us. Even if Myers' at-will employment contract
       was modified when Brown & Root adopted the program in 1993, it was further modified in 1998 when Halliburton adopted the
       program for all of its employees.
2      In its motion to compel arbitration, Halliburton also argued that Myers had agreed to arbitration by signing a document entitled
       “Assignment Authority Supplement,” which contained a statement acknowledging the new Dispute Resolution Program and agreeing
       to submit to binding arbitration. When Myers asserted that the signature on the document was not his, Halliburton abandoned this
       argument.
3      Several courts of appeals have relied on this language in examining arbitration provisions. See In re Rangel, 45 S.W.3d 783, 786
       (Tex.App.-Waco 2001, orig. proceeding); Smith v. H.E. Butt Grocery Co., 18 S.W.3d 910, 912 (Tex.App.-Beaumont 2000, pet.
       denied); In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367 (Tex.App.-Houston [14th Dist.] 2000, orig. proceeding).


End of Document                                                  © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  6
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300



                    328 S.W.3d 883                               West Headnotes (17)
                 Supreme Court of Texas.

        In re OLSHAN FOUNDATION REPAIR                           [1]   Mandamus
       COMPANY, LLC and Olshan Foundation
                                                                                                                             Remedy
       Repair Company of Dallas, Ltd., Relators.
                                                                       by Appeal or Writ of Error
   Nos. 09–0432, 09–0433, 09–0474, 09–0703. |                          Mandamus
  Argued March 23, 2010. | Decided Dec. 3, 2010.
                                                                                                                             Matters
Synopsis                                                               of discretion
Background: Homeowners brought separate actions against                Mandamus will not issue unless: (1) the trial
foundation repair company before the 40th District Court,              judge has committed a clear abuse of discretion;
Ellis County, Gene Knize, J., the 44th District Court, Dallas          and (2) there is no adequate remedy on appeal.
County, Carlos Raul Cortez, J., and the 271st District
Court, Wise County, John H. Fostel, J. Foundation repair               31 Cases that cite this headnote
company's pleas in abatement were denied, and it petitioned
for writs of mandamus, seeking order to compel arbitration of    [2]   Appeal and Error
homeowners' claims. The Waco Court of Appeals, 2009 WL
1886648, the Dallas Court of Appeals, 277 S.W.3d 124, and                                                                    Abuse
the Fort Worth Court of Appeals, 2008 WL 4661815, denied               of discretion
petitions. Foundation repair company filed petitions for writs         A trial court abuses its discretion if it reaches
of mandamus, which were consolidated.                                  a decision so arbitrary and unreasonable it
                                                                       amounts to a clear and prejudicial error of law or
                                                                       it clearly fails to correctly analyze or apply the
                                                                       law.
Holdings: The Supreme Court, Wainwright, J., held that:
                                                                       39 Cases that cite this headnote
[1] choice of law provision in some homeowners' contracts
did not preclude application of Federal Arbitration Act
(FAA);                                                           [3]   Alternative Dispute Resolution

                                                                                                                             Constitutional
[2] choice of law provision in remaining homeowners'
                                                                       and statutory provisions and rules of court
contract precluded application of FAA;
                                                                       The Federal Arbitration Act (FAA) does not
[3] evidence of two invoices from other arbitrations was               confer a right to compel arbitration of any dispute
not some evidence in support of finding that arbitration               at any time; rather, the FAA policy is simply to
agreements were unconscionable, and                                    ensure that private agreements to arbitrate are
                                                                       enforced according to their terms. 9 U.S.C.A. §
[4] claim that agreement violated Texas Home Solicitation              1 et seq.
Act (THSA) was to be determined by arbitrator.
                                                                       2 Cases that cite this headnote


Writs granted in part and denied in part.                        [4]   Alternative Dispute Resolution

Hecht, J., filed concurring opinion in which Medina, J.,                                                                     Preemption
joined.                                                                Alternative Dispute Resolution




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           1
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

                                                                         arbitration agreements unenforceable if they
                                                           Operation     contained arbitration clauses for services in
        and Effect                                                       which total consideration to be furnished was
        Commerce                                                         not more than $50,000 and agreements were
                                                                         not in writing and signed by parties and
                                                           Arbitration
                                                                         parties' counsel, in homeowners' action against
        Choice of law provision in contracts between                     company. 9 U.S.C.A. § 2; V.T.C.A., Civil
        homeowners and foundation repair company,                        Practice & Remedies Code § 171.002(a)(2).
        stating that disputes arising out of contracts
        were to be resolved by mandatory and                             8 Cases that cite this headnote
        binding arbitration administered pursuant to
        arbitration laws in state of homeowners, did
                                                                  [6]    Alternative Dispute Resolution
        not preclude application of Federal Arbitration
        Act (FAA) provision, which preempted state                                                                          Validity
        law that would otherwise render arbitration                      Arbitration agreements are enforceable under the
        agreements unenforceable in contract involving                   Federal Arbitration Act (FAA) only if they meet
        interstate commerce, to provision of Texas                       the requirements of the general contract law of
        General Arbitration Act (TAA), which rendered                    the applicable state. 9 U.S.C.A. § 2.
        arbitration agreements unenforceable if they
        contained arbitration clauses for services in                    4 Cases that cite this headnote
        which total consideration to be furnished was
        not more than $50,000 and agreements were
                                                                  [7]    Alternative Dispute Resolution
        not in writing and signed by parties and
        parties' counsel, in homeowners' action against                                                                     What
        company, absent any provision specifically                       law governs
        excluding federal law. 9 U.S.C.A. § 2; V.T.C.A.,
                                                                         When determining whether an agreement to
        Civil Practice & Remedies Code § 171.002(a)
                                                                         arbitrate is valid under the Federal Arbitration
        (2).
                                                                         Act (FAA), state law, whether of legislative
                                                                         or judicial origin, is applicable if that law
        9 Cases that cite this headnote
                                                                         arose to govern issues concerning the validity,
                                                                         revocability, and enforceability of contracts
 [5]    Alternative Dispute Resolution                                   generally. 9 U.S.C.A. § 2.

                                                           What          6 Cases that cite this headnote
        law governs
        Alternative Dispute Resolution
                                                                  [8]    Alternative Dispute Resolution
                                                           Operation
                                                                                                                            Unconscionabi
        and Effect
                                                                         State law renders unconscionable contracts
        Choice of law provision in contracts between
                                                                         unenforceable, and recognizes both substantive
        homeowners and foundation repair company,
                                                                         and procedural unconscionability with regard
        stating that disputes arising out of contract
                                                                         to    arbitration    agreements:  “substantive
        were to be resolved by mandatory and binding
                                                                         unconscionability” refers to the fairness
        arbitration administered pursuant to Texas
                                                                         of the arbitration provision itself, whereas
        General Arbitration Act (TAA), precluded
                                                                         “procedural unconscionability” refers to the
        application of Federal Arbitration Act (FAA)
                                                                         circumstances surrounding adoption of the
        provision, which preempted state law that
                                                                         arbitration provision.
        would otherwise render arbitration agreements
        unenforceable in contract involving interstate                   10 Cases that cite this headnote
        commerce, to provision of TAA, which rendered


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                          2
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

                                                                            claim goes, but what the total cost to the claimant
 [9]    Contracts                                                           to pursue the claim is.
                                                               Unconscionable
                                                                           8 Cases that cite this headnote
        Contracts
        Generally, a contract is unconscionable if, given
                                                                     [13]   Alternative Dispute Resolution
        the parties general commercial background and
        the commercial needs of the particular trade or                                                                           Evidence
        case, the clause involved is so one-sided that it is
                                                                           When a party seeks to invalidate an arbitration
        unconscionable under the circumstances existing
                                                                           agreement on the ground that arbitration
        when the parties made the contract.
                                                                           would be prohibitively expensive so as to be
        2 Cases that cite this headnote                                    unconscionable, that party bears the burden of
                                                                           showing the likelihood of incurring such costs;
                                                                           once met, the burden shifts to the party seeking
 [10]   Alternative Dispute Resolution                                     arbitration who must come forward with contrary
                                                                           evidence.
                                                               Unconscionability
        There is nothing per se unconscionable about                        1 Cases that cite this headnote
        arbitration agreements.

        4 Cases that cite this headnote                              [14]   Alternative Dispute Resolution

                                                                                                                                  Evidence
 [11]   Alternative Dispute Resolution                                      Evidence of the risk of possible costs of
                                                                            arbitration is insufficient evidence of the
                                                               Validity
                                                                            prohibitive cost of the arbitration forum, for
        Excessive costs imposed by an arbitration
                                                                            purposes of determining whether an arbitration
        agreement render a contract unconscionable if
                                                                            agreement is unconscionable; for evidence to be
        the costs prevent a litigant from effectively
                                                                            sufficient, it must show that excessive arbitration
        vindicating his or her rights in the arbitral forum.
                                                                            fees are likely to be charged.
        4 Cases that cite this headnote
                                                                            8 Cases that cite this headnote

 [12]   Alternative Dispute Resolution
                                                                     [15]   Alternative Dispute Resolution
                                                               Unconscionability
                                                                                                                                  Evidence
        In determining whether an arbitration agreement
                                                                            Parties seeking to invalidate an arbitration
        is unconscionable based on the ground that
                                                                            agreement on the ground of prohibitive cost
        arbitration would be prohibitively expensive, the
                                                                            of arbitration need not actually incur the
        analysis evaluates whether the arbitral forum in
                                                                            cost of arbitration in order to demonstrate
        a particular case is an adequate and accessible
                                                                            excessiveness, but must at least provide evidence
        substitute to litigation, which in turn requires a
                                                                            of the likely cost of their particular arbitration,
        case-by-case analysis that focuses, among other
                                                                            through invoices, expert testimony, reliable cost
        things, upon the claimant's ability to pay the
                                                                            estimates, or other comparable evidence.
        arbitration fees and costs, the expected cost
        differential between arbitration and litigation in                  4 Cases that cite this headnote
        court, and whether that cost differential is so
        substantial as to deter the bringing of claims; the
                                                                     [16]   Alternative Dispute Resolution
        key factor is not where the cost to pursue the
                                                                                                                                  Evidence



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                3
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

        Evidence of two invoices from similar disputes         Janota, Henslee Schwartz, *886 LLP, Austin, for Olshan
        showing claims worth between approximately             Foundation Repair Company, LLC.
        $75,000 to $200,000, and arbitration costs
        between approximately $11,000 to $35,000, did          Robert W. Loree, Edwin Todd Lipscomb, Loree, Hernandez
        not constitute some evidence to support finding        & Lipscomb, PLLC, San Antonio, Steven W. Thornton,
        that homeowners would be charged excessive             McCorkle Westerburg & Thornton, P.C., David M. Walsh IV,
        fees to arbitrate their claims against foundation      Chamblee & Ryan, P.C., Dallas, for Real Parties in Interest
        repair company for alleged improper foundation         Kenneth Kilpatrick in No. 09–0432, Charley Tisdale in No.
        repair, as required to invalidate arbitration          09–0433, Craig Waggoner in No. 09–0474.
        agreements between parties on ground of
                                                               Robert W. Loree, Edwin Todd Lipscomb, Christopher Dean
        substantive unconscionability; homeowners'
                                                               Below, Loree, Hernandez & Lipscomb, PLLC, San Antonio,
        respective claims did not exceed $20,000 each,
                                                               Steven W. Thornton, McCorkle Westerburg & Thornton,
        nothing indicated that homeowners sought to
                                                               P.C., David M. Walsh IV, Chamblee & Ryan, P.C., Dallas,
        reduce any likely arbitration charges through
                                                               for Real Party in Interest Robert Tingdale in No. 09–0703.
        fee waivers, pro bono arbitrators, or single-
        arbitrator panels, and homeowners did not              Opinion
        provide comparison of evidence to their expected
        costs, amount of claims, or ability to pay such        Justice WAINWRIGHT delivered the opinion of the Court.
        costs.
                                                             Olshan Foundation Repair Company filed these petitions for
        Cases that cite this headnote                        writs of mandamus in four different cases in which three
                                                             separate trial courts denied Olshan's pleas in abatement,
                                                             refusing to compel arbitration of consumer claims against
 [17]   Alternative Dispute Resolution
                                                             it. Three different courts of appeals also declined to order
                                                             the disputes to arbitration. We consolidated these cases for
                                                       Existence
        and validity of agreement                            argument and now issue a consolidated opinion. Because the
                                                             Texas General Arbitration Act (TAA), and not the Federal
        Claim of homeowners, who entered into
                                                             Arbitration Act (FAA), governs the arbitration dispute in
        arbitration agreement with foundation repair
                                                             one of the cases (Waggoner, No. 09–0474), we deny Olshan
        company, that agreement violated Texas Home
                                                             mandamus relief in that case. We conclude that for the
        Solicitation Act (THSA) by failing to include
                                                             other three cases, the trial courts erred in holding that the
        in agreements certain language regarding
                                                             TAA governs the arbitrations, there is no evidence that
        cancellation and that such violation rendered
                                                             the arbitration agreements were unconscionable as a matter
        agreement and arbitration clauses void, was to
                                                             of law, and all other disputed issues are questions for the
        be determined by arbitrator, rather than trial
                                                             arbitrator. Because the trial court erred by denying Olshan's
        court, in action by homeowners against company
                                                             pleas in abatement in the arbitrations governed by the FAA,
        arising out of alleged improper foundation
                                                             we conditionally grant mandamus relief in those three actions.
        repairs, as trial court could consider only
        issues relating to making and performance of
        agreement to arbitrate. V.T.C.A., Bus. & C. §§
        601.002(a), 601.052, 601.053, 601.201.                          I. Factual and Procedural Background

        1 Cases that cite this headnote                        Olshan is a national company that repairs residential
                                                               home foundations. In 1998, Craig and Joy Waggoner
                                                               contracted with Olshan to repair their home's foundation.
                                                               The Waggoners subsequently discovered new damage to
Attorneys and Law Firms                                        the foundation and hired an engineer, Peter De la Mora,
                                                               to investigate the problems. In a 2007 report, De la Mora
*885 Stephan B. Rogers, Rogers & Moore, Boerne, Duncan         concluded that Olshan had not properly repaired the home.
Roderick MacRae II, Henslee Schwartz, LLP, Austin, Mark        The Waggoners filed suit against Olshan for breach of
C. Roberts, Henslee Schwartz, LLP, Dallas, Jeffrey D.


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                      4
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

contract, breach of warranty, negligence, violations of the       the contract itself was undisputably unenforceable under the
Texas Deceptive Trade Practices Act, and violations of the        Texas Home Solicitation Act.
Texas Home Solicitation Act.
                                                                  The trial court denied Olshan's plea in the Waggoners' action.
In three other cases, similar circumstances unfolded. In 2002,    It held that the TAA applies to the agreement, and thus the
Olshan contracted with Vickie and Kenneth Kilpatrick, who         arbitration agreement was unenforceable pursuant to Chapter
filed suit against Olshan in 2007. The Kilpatricks' case was      171 of the Texas Civil Practice and Remedies Code. See
consolidated at the appellate court level with claims brought     TEX. CIV. PRAC. & REM.CODE § 171.002(a)(2) (requiring
by Charley and Gladys Tisdale, again with nearly identical        arbitration agreements in service contracts for less than
facts. In June 2007, Robert and Marta Tingdale, who initially     $50,000 be signed by all parties and their attorneys). The trial
contracted with Olshan in 2004, filed another similar case. All   court alternatively held that the prohibitive cost of arbitration
plaintiffs are represented by the same counsel, and each case     rendered the agreement to arbitrate unconscionable. Olshan
includes a report from De la Mora opining that Olshan had         petitioned for mandamus relief with the court of appeals,
not properly repaired each home.                                  which was denied. The court of appeals held the TAA was
                                                                  not preempted by the FAA, and section 171.002(a)(2) of
The four repair contracts were in writing, and each contained     the TAA rendered the agreement unenforceable. It denied
arbitration clauses. The arbitration clauses in Kilpatrick (No.   Olshan's writ of mandamus without reaching the other issues.
09–0432), Tisdale (No. 09–0433), and Tingdale (No. 09–            In the remaining three actions, the trial courts denied Olshan's
0703) provide:                                                    pleas in abatement and the courts of appeals denied Olshan's
                                                                  petitions for writs of mandamus. 1
            Notwithstanding, any provision in
            this agreement to the contrary,
            any dispute, controversy, or lawsuit
            between any of the parties to this                                    II. Standard for Mandamus
            agreement about any matter arising
            out of this agreement, shall be                        [1] [2] At the time these petitions were filed, there was no
            resolved by mandatory and *887                        method under Texas procedure for parties to file interlocutory
            binding arbitration administered by                   appeals of a trial court's refusal to compel arbitration under
            the American Arbitration Association                  the FAA. 2 Olshan sought relief through petitions for writs of
            (“AAA”) pursuant to the arbitration                   mandamus. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266,
            laws in your state and in accordance                  272 (Tex.1992). Mandamus will not issue unless: (1) the trial
            with this arbitration agreement and                   judge has committed a clear abuse of discretion; and (2) there
            the commercial arbitration rules of the               is no adequate remedy on appeal. In re Odyssey Healthcare,
            AAA....                                                *888 Inc., 310 S.W.3d 419, 422 (Tex.2010) (per curiam)
                                                                  (citing In re Prudential Ins. Co. of Am., 148 S.W.3d 124,
(emphasis added). The arbitration clause in the Waggoner          135–36 (Tex.2004)). A trial court abuses its discretion if it
(No. 09–0474) agreement is identical except for the language      reaches a decision so arbitrary and unreasonable it amounts
in bold, which states “pursuant to the Texas General              to a clear and prejudicial error of law or it clearly fails
Arbitration Act.” (emphasis added). None of the agreements        to correctly analyze or apply the law. Walker v. Packer,
addressed in this opinion was signed by the consumers'            827 S.W.2d 833, 840 (Tex.1992) (citations omitted). The
attorney or exceeded $50,000 in consideration.                    second requirement for mandamus relief, that the relator
                                                                  has no adequate remedy by appeal, “has no comprehensive
Olshan filed a plea in abatement in each case and sought to       definition.” See In re Ford Motor Co., 165 S.W.3d 315, 317
compel arbitration under the Federal Arbitration Act (FAA).       (Tex.2005) (citing Prudential, 148 S.W.3d at 136). However,
The homeowners responded to the pleas, arguing that: (1)          we have determined that relators have no adequate remedy
the TAA applies to the agreements to the exclusion of the         by appeal when a trial judge erroneously refuses to compel
FAA, rendering the arbitration agreements unenforceable           arbitration under the FAA. In re FirstMerit Bank, N.A., 52
because the agreements were not signed by the homeowners'         S.W.3d 749, 753 (Tex.2001).
attorney; and (2) arbitration with the AAA is substantively
unconscionable because of the expense required and because


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              5
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

This Court must decide whether the trial courts abused their      474, 109 S.Ct. 1248. The FAA policy is simply to “ensur[e]
discretion by not compelling arbitration pursuant to the FAA,     that private agreements to arbitrate are enforced according to
as requested in Olshan's pleas in abatement. The trial courts     their terms.” Id. at 479, 109 S.Ct. 1248. In Volt, the Court
abuse their discretion by refusing to compel arbitration if the   upheld the application of a California statute that allowed a
FAA preempts the TAA and the arbitration agreements are           stay of arbitration proceedings pending resolution of related
not unconscionable. However, the trial courts did not err by      litigation because the contract *889 also contained a choice-
denying Olshan's pleas in abatement if the TAA applies to the     of-law clause providing that “[t]he Contract shall be governed
agreements or the agreements are unconscionable.                  by the law of the place where the Project is located.” Id.
                                                                  at 470, 109 S.Ct. 1248. The Court reiterated that “the FAA
                                                                  pre-empts state laws which ‘require a judicial forum for the
                                                                  resolution of claims which the contracting parties agreed to
                  III. Federal Preemption
                                                                  resolve by arbitration.’ ” Id. at 478, 109 S.Ct. 1248 (quoting
                                                                  Southland Corp., 465 U.S. at 10, 104 S.Ct. 852). But the FAA
              A. The FAA and Choice of Law                        does not prevent

The TAA renders arbitration agreements unenforceable if the                    the enforcement of agreements to
agreements containing the arbitration clauses are agreements                   arbitrate under different rules than
for services “in which the total consideration to be furnished                 those set forth in the Act itself....
by the individual is not more than $50,000” and the                            Arbitration under the Act is a matter
agreements are not in writing, signed by each party, and                       of consent, not coercion, and parties
each party's attorney. TEX. CIV. PRAC. & REM.CODE §                            are generally free to structure their
171.002(a)(2). The homeowners contend that the arbitration                     arbitration agreements as they see fit.
agreements are governed by the TAA and are unenforceable                       Just as they may limit by contract
for failure to meet the two identified TAA requirements.                       the issues which they will arbitrate,
Olshan argues that the FAA applies to the agreements and                       so too may they specify by contract
preempts the TAA's exemption from coverage under section                       the rules under which that arbitration
171.002(a)(2), making the arbitration clauses enforceable.                     will be conducted.... By permitting
See In re Nexion Health at Humble, Inc., 173 S.W.3d 67,                        the courts to “rigorously enforce”
69 (Tex.2005) (per curiam) (addressing a similar exemption                     such agreements according to their
under the TAA for personal injury cases).                                      terms, we give effect to the contractual
                                                                               rights and expectations of the parties,
Section 2 of the FAA preempts state law that would otherwise                   without doing violence to the policies
render arbitration agreements unenforceable in a contract                      behind by the FAA.
involving interstate commerce. 9 U.S.C. § 2; Southland
Corp. v. Keating, 465 U.S. 1, 10–11, 104 S.Ct. 852, 79            Id. at 479, 104 S.Ct. 852 (citations omitted).
L.Ed.2d 1 (1984). “The Act was designed to overrule the
judiciary's longstanding refusal to enforce agreements to         Subsequently, in Mastrobuono v. Shearson Lehman Hutton,
arbitrate, and place such agreements upon the same footing        Inc., the Court held that the FAA preempted New York's
as other contracts.” Volt Info. Scis., Inc. v. Bd. of Trs. of     prohibition against arbitral awards of punitive damages
Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct.        despite a choice of law provision in an arbitration agreement
1248, 103 L.Ed.2d 488 (1989) (internal quotations omitted).       that stated the agreement “shall be governed by the laws
We have recognized that the FAA preempts parts of the             of the State of New York.” 514 U.S. 52, 63–64, 115 S.Ct.
TAA, including section 171.002(a)(2) of the Civil Practice        1212, 131 L.Ed.2d 76 (1995). The Court first stressed that the
and Remedies Code. See Jack B. Anglin Co., 842 S.W.2d at          agreement would be enforced as written, stating that “the case
271 (discussing FAA's preemption of non-waiver provision          before us comes down to what the contract has to say about
of DTPA); Nexion, 173 S.W.3d at 69 (Tex.2005) (discussing         the arbitrability of petitioners' claim for punitive damages.”
FAA's preemption of TAA section 171.002(a)(3)).                   Id. at 58, 115 S.Ct. 1212. Where the Court in Volt read the
                                                                  choice-of-law provision as definitively choosing state law
 [3] But the FAA does not “confer a right to compel               over federal law, the Court in Mastrobuono read the provision
arbitration of any dispute at any time.” Volt, 489 U.S. at        differently:


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           6
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

                                                                    law, further language specifically excluding application of
  The choice-of-law provision, when viewed in isolation,            the FAA is necessary for a court to apply the TAA to
  may reasonably be read as merely a substitute for the             the FAA's exclusion. “The choice-of-law provision did not
  conflict-of-laws analysis that otherwise would determine          specifically exclude the application of federal law, and absent
  what law to apply to disputes arising out of the contractual      such an exclusion we decline to read the choice-of-law clause
  relationship.                                                     as having such an effect.” L & L Kempwood, 9 S.W.3d
                                                                    at 127–28. Rather, a general choice-of-law provision “may
  ...
                                                                    reasonably be read as merely a substitute for the conflict-of-
  At most, [it] introduces an ambiguity into an arbitration         laws analysis that otherwise would determine what law to
  agreement that would otherwise allow punitive damages             apply to disputes.” Id. at 127 n. 16 (citing Mastrobuono, 514
  awards.                                                           U.S. at 59–60, 115 S.Ct. 1212). Courts apply the FAA unless
                                                                    language in the arbitration agreement indicates its exclusion.
Id. at 59, 62, 115 S.Ct. 1212. Then, using FAA mandated
rules of contract construction, the Court concluded that
the provision should be read “to encompass substantive
                                                                                   C. The Law the Parties Chose
principles that New York courts would apply, but not to
include special rules limiting the authority of arbitrators.” Id.    [4] Three of the arbitration agreements state that disputes
at 62–64, 115 S.Ct. 1212.                                           arising out of the contract “shall be resolved by mandatory
                                                                    and binding arbitration administered ... pursuant to the
Thus, courts treat arbitration agreements as other contracts        arbitration laws in your state....” Courts rarely read such
in applying the legal rules to interpret them. The goal is          general choice-of-law provisions to choose state law to the
to discern the true intentions of the parties, as the FAA's         exclusion of federal law. See Mastrobuono, 514 U.S. at 59,
primary purpose is to ensure private agreements to arbitrate        115 S.Ct. 1212; L & L Kempwood, 9 S.W.3d at 127 n. 16.
are enforced according to their terms, no more, no less.            Further, just as the FAA is part of the substantive law of
Volt, 489 U.S. at 479, 109 S.Ct. 1248; see also Baravati            Texas, the FAA would be part of the arbitration laws in
v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th             Texas. See L & L Kempwood, 9 S.W.3d at 127 n. 15 (quoting
Cir.1994) (Posner, C.J.) (“[S]hort of authorizing trial by battle   Capital Income Props., 843 S.W.2d at 23). The language of
or ordeal or, more doubtfully, by a panel of three monkeys, ...     the arbitration clause designating arbitration pursuant to “the
parties are as free to specify idiosyncratic terms of arbitration   arbitrations laws in your state” includes the FAA. See id.
as they are to specify any other terms in their contract.”).        at 127–28. Thus, the FAA applies to the three agreements
                                                                    that include the “arbitration laws in your state” language,
                                                                    and the FAA preempts the provisions of section 171.002(a)
        B. This Court's Treatment of Choice–of–Law                  (2) of the TAA that would otherwise render the agreements
        Provisions Relating to Arbitration Agreements               unenforceable. The trial courts abused their discretion in
                                                                    denying Olshan's requests to compel arbitration based on the
This Court analyzed contractual language in the context of          unenforceability of the arbitration under section 171.002(a)
the relationship *890 between an arbitration clause and a           (2) in the Kilpatrick, Tisdale and Tingdale cases.
general choice-of-law provision in In re L & L Kempwood
Associates, L.P., 9 S.W.3d 125, 127–28 (Tex.1999) (per               [5]    In contrast, the Waggoner agreement states that
curiam). We held that an agreement containing a general             disputes arising out of the contract “shall be resolved by
choice-of-law provision stating that the entire contract will       mandatory and binding arbitration ... pursuant to the Texas
be governed by “the law of the place where the Project is           General Arbitration Act....” This provision distinguishes the
located,” does not preclude application of the FAA. Id. The         Waggoner agreement from the other agreements and the
Court observed that the Project was located in Houston, thus        agreements in L & L Kempwood and Mastrobuono. This is
the FAA was part of “the law of the place where the Project         not the same general choice-of-law provision. This provision
is located.” Id.; see also Capital Income Props. v. Blackmon,       chooses a state's substantive law, specifically the TAA, to
843 S.W.2d 22, 23 (Tex.1992) (per curiam) (stating that “[t]he      govern disputes under the agreement. A valid choice-of-law
Federal [Arbitration] Act is part of the substantive law of         provision makes a conflicts-of-law analysis unnecessary; this
Texas”). When the language of the provision included federal        provision expresses a preference between federal and state



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             7
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

law. Id. The FAA is part of the arbitration laws of Texas and     in accordance with this arbitration agreement and the
can be applied to arbitration administered pursuant to the laws   commercial arbitration rules of the AAA” is prohibitively
of Texas. However, the FAA is not part of the TAA, at least       expensive, preventing their ability to vindicate their claims.
to the extent the two are inconsistent.                           Further, they contend the contracts are clearly void because
                                                                  Olshan violated the Home Solicitation Act, exacerbating the
 *891 The Fifth Circuit has likewise interpreted an               unconscionability of the agreement.
arbitration clause specifically invoking the TAA as
designating the TAA to govern all aspects of arbitration under
the agreement, to the exclusion of the FAA. Ford v. NYLCare
                                                                       A. Unconscionability of Arbitration Agreements
Health Plans of the Gulf Coast, Inc., 141 F.3d 243, 246
(5th Cir.1998) (applying Texas law). The court stated the          [6] [7] Section 2 of the FAA states arbitration agreements
parties may “specify the law governing interpretation of the      “shall be valid, irrevocable, and enforceable, save upon such
scope of the arbitration clause.” Id. at 248. The focus of the    grounds as exist at law or in equity for the revocation of any
determination is on the parties' choice. Thus, the court held     contract.” 9 U.S.C. § 2. A central purpose of the FAA is
that the parties intended the TAA to govern the scope of the      “to reverse the longstanding judicial hostility to arbitration
arbitration clause. Id. at 249.                                   agreements ... and to place arbitration agreements upon the
                                                                  same footing as other contracts.” Gilmer v. Interstate/Johnson
The language of the Waggoner agreement also indicates the         Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26
parties' intention that the TAA govern the scope of their         (1991) (citations omitted). Such agreements are enforceable
arbitration agreement. The plain language clearly indicates       only if they meet “the requirements of the general contract law
that the parties intend their arbitration to be governed          of the applicable state.” In re Poly–America, L.P., 262 S.W.3d
by the TAA rather than merely “the law of the state”              337, 347 (Tex.2008) (citation omitted). When determining
or “Texas law.” The parties' intention that arbitration be        whether an agreement to arbitrate is valid, “state law, whether
administered pursuant to the TAA would be thwarted if             of legislative or judicial origin, is applicable if that law arose
the FAA preempted the TAA's specific provisions. Thus,            to govern issues concerning the validity, *892 revocability,
an agreement specifying that arbitration occur “pursuant          and enforceability of contracts generally.” Perry v. Thomas,
to the Texas General Arbitration Act” excludes the FAA's          482 U.S. 483, 493 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426
preemption of section 171.002(a)(2) of the TAA. 3                 (1987).

Because the TAA would render the Waggoners' arbitration            [8]     [9] Texas law renders unconscionable contracts
agreement unenforceable, and because the FAA was not              unenforceable. Poly–America, 262 S.W.3d at 348. Texas
chosen by the parties, the trial court correctly denied           further recognizes both substantive and procedural
Olshan's plea in abatement, seeking to compel arbitration         unconscionability. “Substantive unconscionability refers to
of Waggoner's action against Olshan. However, because the         the fairness of the arbitration provision itself, whereas
parties in the Kilpatrick, Tisdale, and Tingdale contracts        procedural unconscionability refers to the circumstances
chose to arbitrate pursuant to the laws of Texas, which           surrounding adoption of the arbitration provision.” In re
include the FAA, the FAA preempts section 171.002(a)(2)           Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex.2006).
of the TAA and precludes those requirements from barring          Because the homeowners complain of the prohibitive
arbitration.                                                      cost of arbitration, their claim is grounded in substantive
                                                                  unconscionability. Generally, a contract is unconscionable
                                                                  if, “given the parties' general commercial background and
                                                                  the commercial needs of the particular trade or case, the
                   IV. Unconscionability
                                                                  clause involved is so one-sided that it is unconscionable
Even though the FAA governs the arbitration agreements            under the circumstances existing when the parties made the
in the Kilpatrick, Tisdale, and Tingdale contracts, if those      contract.” FirstMerit Bank, 52 S.W.3d at 757 (citing TEX.
agreements are unconscionable, they are unenforceable.            BUS. & COM.CODE § 2.302 cmt. 1). “The principle is
The homeowners contend that the arbitration agreements            one of the prevention of oppression and unfair surprise and
are unconscionable because “mandatory binding arbitration         not of disturbance of allocation of risks because of superior
administered by the American Arbitration Association ...


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In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

bargaining power.” TEX. BUS. & COM.CODE § 2.302 cmt.              consumer in the form of lower prices. Thus, a fairly
1 (internal citation omitted).                                    administered *893 arbitration should not create a gross
                                                                  disparity in the values exchanged. Stephen J. Ware, Paying
The U.S. Supreme Court has held that statutory claims may         the Price of Process: Judicial Regulation of Consumer
be arbitrated “so long as the prospective litigant effectively    Arbitration Agreements, 2001 J. DISP. RESOL.. 89, 89
may vindicate [his or her] statutory cause of action in the       (2001); see generally Steven Shavell, Alternative Dispute
arbitral forum.” Green Tree Fin. Corp.-Ala. v. Randolph, 531      Resolution: An Economic Analysis, 24 J. LEGAL STUD.
U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (citing        1 (1995). However, we also recognize that arbitration is
Gilmer, 500 U.S. at 28, 111 S.Ct. 1647). Conversely, an           intended as a lower cost, efficient alternative to litigation.
arbitration agreement may render a contract unconscionable        See Poly–America, 262 S.W.3d at 347 (“[A]rbitration is
if “the existence of large arbitration costs could preclude a     intended to provide a lower-cost, expedited means to resolve
litigant ... from effectively vindicating [his or her] federal    disputes....”). Where these justifications are vanquished
statutory rights in the arbitral forum.” Id.; see also Poly–      by excessive arbitration costs that deter individuals from
America, 262 S.W.3d at 355–57; FirstMerit Bank, 52 S.W.3d         bringing valid claims, the unconscionability doctrine may
at 756 (citing Green Tree, 531 U.S. at 91, 121 S.Ct. 513).        protect unfairly disadvantaged consumers. We agree, as in
                                                                  Green Tree, that excessive costs imposed by an arbitration
 [10] [11] We should be wary of setting the bar for holding agreement render a contract unconscionable if the costs
arbitration clauses unconscionable too low. First, arbitration    prevent a litigant from effectively vindicating his or her rights
is favored in both federal and Texas law, and to conclude that    in the arbitral forum. See Green Tree, 531 U.S. at 90, 121
an arbitration agreement is unconscionable based merely on        S.Ct. 513.
the “ ‘risk’ that [the claimant] will be saddled with prohibitive
costs” would undermine the “ ‘liberal federal policy favoring
arbitration agreements.’ ” Green Tree, 531 U.S. at 91, 121
                                                                                  B. Application of the Standard
S.Ct. 513 (quoting Moses H. Cone Mem. Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d          The party opposing arbitration bears the burden to show
765 (1983)); FirstMerit Bank, 52 S.W.3d at 756. Second, the       that the costs of arbitration render it unconscionable. When
theory behind unconscionability in contract law is that courts    “a party seeks to invalidate an arbitration agreement on the
should not enforce a transaction so one-sided, with so gross a    ground that arbitration would be prohibitively expensive, that
disparity in the values exchanged, that no rational contracting   party bears the burden of showing the likelihood of incurring
party would have entered the contract. RESTATEMENT                such costs.” Green Tree, 531 U.S. at 92, 121 S.Ct. 513. This
(SECOND) OF CONTRACTS § 208 cmt. b (1981). But as                 Court likewise requires “some evidence that a complaining
we have recognized previously,                                    party will likely incur arbitration costs in such an amount as
                                                                   to deter enforcement of statutory rights in the arbitral forum.”
            there is nothing per se unconscionable
                                                                   Poly–America, 262 S.W.3d at 356; accord In re U.S. Home
            about arbitration agreements. In fact,
                                                                   Corp., 236 S.W.3d 761, 764 (Tex.2007); FirstMerit Bank, 52
            historically, Texas law favors settling
                                                                   S.W.3d at 756–57.
            disputes by arbitration. Arbitration
            agreements, like the one here, offer
                                                                    [12] The Court in Green Tree did not explain how detailed
            a permissible choice to traditional
                                                                   the showing of prohibitive expense need be to invalidate an
            litigation that does not favor either
                                                                   arbitration agreement. Green Tree, 531 U.S. at 92, 121 S.Ct.
            party. Moreover, assuming unequal
                                                                   513 (“How detailed the showing of prohibitive expense must
            bargaining power between [the
                                                                   be before the party seeking arbitration must come forward
            parties] exists does not establish
                                                                   with contrary evidence is a matter we need not discuss....”).
            grounds for defeating an agreement to
                                                                   However, a number of federal courts of appeals, relying on
            arbitrate under the FAA.
                                                                   Green Tree, have applied a case-by-case analysis of the effect
EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90–91                     the arbitration clause has on the particular plaintiff's ability
(Tex.1996) (per curiam) (citations omitted). Furthermore,          to effectively vindicate his rights. 4 The Fourth Circuit's
arbitration clauses in consumer contracts reduce merchants'        approach in Bradford v. Rockwell Semiconductor Systems,
operating costs and produce savings passed on to the               Inc. is particularly instructive. 238 F.3d 549 (4th Cir.2001).


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In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

The court noted the proper analysis “evaluates whether              in the first place. See Jack B. Anglin Co., 842 S.W.2d
the arbitral forum in a particular case is an adequate and          at 272–73 (“[T]he purpose of [arbitration is] providing a
accessible substitute to litigation.” Id. According to the court,   rapid, inexpensive alternative to traditional litigation....”).
that inquiry requires “a case-by-case analysis that focuses,        In the absence of unusual animus between the parties or
among other things, upon the claimant's ability to pay the          external motives, plaintiffs continue to pursue claims when
arbitration fees and costs, the expected cost differential          the expected benefits of the lawsuit outweigh the total cost
between arbitration and litigation in court, and whether that       of bringing it. If the total cost of arbitration is comparable
cost differential is so substantial as to deter the bringing of     to the total cost of litigation, the arbitral forum is equally
claims.” Id. (quotations omitted). The key factor is not where      accessible. 5 Thus, a comparison of the total costs of the two
the cost to pursue the claim goes, but what the total cost to       forums is the most important factor in determining *895
the claimant to pursue the claim is. The *894 court “fail[ed]       whether the arbitral forum is an adequate and accessible
to see how a claimant could be deterred from pursuing his           substitute to litigation. Other factors include the actual cost
statutory rights in arbitration simply by the fact that his         of arbitration compared to the total amount of damages the
fees would be paid to the arbitrator where the overall cost         claimant is seeking and the claimant's overall ability to pay
of arbitration is otherwise equal to or less than the cost of       the arbitration fees and costs. These factors may also show
litigation in court.” Id.                                           arbitration to be an inadequate and inaccessible forum for the
                                                                    particular claimants to vindicate their rights. However, these
Likewise, in Honrubia Properties, Ltd. v. Gilliland, the            considerations are less relevant if litigation costs more than
Corpus Christi–Edinburg Court of Appeals essentially                arbitration.
accepted Bradford's conceptual framework. Nos. 13–
07–210–CV, 13–07–249–CV, 2007 WL 2949567 at *6
(Tex.App.-Corpus Christi–Edinburg Oct. 11 2007, no pet.)
(mem.op.). It considered the party's ability to pay the                            C. Sufficiency of the Evidence
arbitration fee, the actual amount of the fee in relation to
                                                                     [13] Green Tree creates a burden-shifting test in which the
the amount of the underlying claim, and the cost differential
                                                                    “party seek [ing] to invalidate an arbitration agreement on the
between arbitration and litigation in court. Id. (citations
                                                                    ground that arbitration would be prohibitively expensive ...
omitted). Applying the standard, the court held the arbitration
                                                                    bears the burden of showing the likelihood of incurring
agreement was not substantively unconscionable where
                                                                    such costs.” Green Tree, 531 U.S. at 92, 121 S.Ct. 513.
evidence showed the arbitration would cost approximately
                                                                    Once met, the burden shifts to “the party seeking arbitration
$15,000 to $20,283, plus expenses and other possible fees; the
                                                                    [who] must come forward with contrary evidence.” Id.; see
claimant was seeking more than $4,000,000 in compensatory
                                                                    also Poly–America, 262 S.W.3d at 348 (“The burden of
and punitive damages; and arbitration costs would range from
                                                                    proving such a ground—such as fraud, unconscionability or
11 percent to 15 percent of the claimant's gross income. Id.
                                                                    voidness under public policy—falls on the party opposing the
at *7. The claimant failed to submit any evidence pertaining
                                                                    contract.”); FirstMerit Bank, 52 S.W.3d at 756 (“Again, since
to the expected cost differential between arbitration and
                                                                    the law favors arbitration, the burden of proving a defense to
litigation. Id.
                                                                    arbitration is on the party opposing arbitration.”).

In applying the unconscionability standard, the crucial
                                                                     [14] Evidence of the “risk” of possible costs of arbitration is
inquiry is whether the arbitral forum in a particular case is an
                                                                    insufficient evidence of the prohibitive cost of the arbitration
adequate and accessible substitute to litigation, a forum where
                                                                    forum. Green Tree, 531 U.S. at 91, 121 S.Ct. 513 (“The
the litigant can effectively vindicate his or her rights. With
                                                                    ‘risk’ that [the plaintiff] will be saddled with prohibitive
this in mind, we agree that the approach taken by the Fourth
                                                                    costs is too speculative to justify the invalidation of an
Circuit in Bradford effectively pursues this inquiry. We note
                                                                    arbitration agreement.”). Rather, “both the United States
all of the analyses previously discussed correctly assume
                                                                    Supreme Court and this Court require specific evidence that
that litigation allows claimants to effectively vindicate their
                                                                    a party will actually be charged excessive arbitration fees.”
rights, despite the expense. The desire to avoid steep litigation
                                                                    U.S. Home Corp., 236 S.W.3d at 764; see also FirstMerit
expense—including the costs of longer proceedings, more
                                                                    Bank, 52 S.W.3d at 757 (“Because the record contains no
complicated appeals on the merits, discovery, investigations,
                                                                    specific evidence that the [plaintiffs] will actually be charged
fees, and expert witnesses—is the purpose of arbitration
                                                                    excessive arbitration fees, we conclude that there is legally


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            10
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

insufficient evidence that the plaintiffs would be denied
access to arbitration based on excessive costs.”). The party         AAA Commercial Arbitration Rule R–1 (2007, 2009). The
opposing arbitration must show the likelihood of incurring           Supplementary Procedures for Consumer–Related Disputes
such costs in her particular case.                                   have a separate fee schedule for consumer arbitration:

                                                                       Administrative Fees
 [15] Thus, for evidence to be sufficient, it must show that
the plaintiffs are likely to be charged excessive arbitration          Administrative fees are based on the size of the claim
fees. While we do not mandate that claimants actually incur            and counterclaim in a dispute. They are based only on the
the cost of arbitration before they can show its excessiveness,        actual damages and not on any additional damages, such as
parties must at least provide evidence of the likely cost of their     attorneys' fees or punitive damages. Portions of these fees
particular arbitration, through invoices, expert testimony,            are refundable pursuant to the Commercial Fee Schedule.
reliable cost estimates, or other comparable evidence. See
Poly–America, 262 S.W.3d at 354–55 (concluding that the                Arbitrator Fees
plaintiff's “own affidavit and that of an expert witness
                                                                       For cases in which no claim exceeds $75,000, arbitrators
providing detailed estimates of the likely cost of arbitration
                                                                       are paid based on the type of proceeding that is used.
in [the plaintiff's] case” constituted sufficient evidence);
                                                                       The parties make deposits as set forth below. Any unused
Olshan Found. Repair Co. v. Ayala, 180 S.W.3d 212, 215–16
(Tex.App.-San Antonio 2005, pet. denied) (holding invoice              deposits are returned at the end of the case.
for party's share of arbitration expenses sufficient). Evidence
                                                                       Desk Arbitration or Telephone Hearing $250 for service on
that merely speculates about the risk of possible cost is              the case
insufficient.
                                                                       In Person Hearing $750 per day of hearing

                                                                       For cases in which a claim or counterclaim exceeds
                 D. Application to the Facts                           $75,000, arbitrators are compensated at the rates set forth
                                                                       on their panel biographies.
 [16] In applying this analysis to the facts at hand, we begin
with the agreement itself, which states, “any matter arising           Fees and Deposits to be Paid by the Consumer:
out of this agreement shall be resolved by mandatory and
binding arbitration administered by the American Arbitration           If the consumer's claim or counterclaim does not exceed
Association ... in accordance with this arbitration agreement          $10,000, then the consumer is responsible for one-half the
and the commercial arbitration rules of the AAA.” According            arbitrator's fees up to a maximum of $125. This deposit is
to the commercial arbitration rules, the AAA:                          used to pay the arbitrator. It is refunded if not used.

              *896 applies the Supplementary                           If the consumer's claim or counterclaim is greater than
             Procedures for Consumer–Related                           $10,000, but does not exceed $75,000, then the consumer
             Disputes to arbitration clauses                           is responsible for one-half the arbitrator's fees up to
             in agreements between individual                          a maximum of $375. This deposit is used to pay the
             consumers and businesses where                            arbitrator. It is refunded if not used.
             the business has a standardized,
             systematic application of arbitration                     If the consumer's claim or counterclaim exceeds $75,000,
             clauses with customers and where                          or if the consumer's claim or counterclaim is non-monetary,
             the terms and conditions of the                           then the consumer must pay an Administrative Fee
             purchase of standardized, consumable                      in accordance with the Commercial Fee Schedule. 6 A
             goods or services are nonnegotiable or                    portion of this fee is refundable pursuant to the Commercial
             primarily non-negotiable in most or all                   Fee Schedule. The consumer must also deposit one-half
             of its terms, conditions, features, or                    of the arbitrator's compensation. This deposit is used to
             choices.                                                  pay the arbitrator. This deposit is refunded if not used.
                                                                       The arbitrator's compensation rate is set forth on the panel




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In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

  biography provided to the parties when the arbitrator is          *7 (Tex.App.-Houston [14th Dist.] May 29, 2008, no pet.)
  appointed.                                                        (mem.op.).

AAA Supplementary Procedures for Consumer–Related                   Even if we took these invoices as evidence of the likely
Disputes, Administrative Fees, Arbitrator Fees, Fees and            arbitration charges to the homeowners, they have provided
Deposits to be Paid by the Consumer (2005, 2010). Thus, for a       no comparison of these charges to the expected cost of
consumer claim up to $75,000, the most a consumer will have         litigation, the amount of their claim, or their ability to pay
to pay under these rules is $375 for the arbitrator. *897 Id.;      these costs. See Green Tree, 531 U.S. at 90 n. 6, 121 S.Ct.
see also Green Tree, 531 U.S. at 95, 121 S.Ct. 513 (Ginsburg,       513 (concluding that a party's unsupported statement that she
J., dissenting) (describing the AAA's Consumer Arbitration          did not have the resources to pay the high costs of arbitration
Rules as a model “for fair cost and fee allocation”).               was insufficient); Bradford, 238 F.3d at 556 n. 5 (“The cost of
                                                                    arbitration, as far as its deterrent effect, cannot be measured in
The homeowners bear the burden to show the likelihood of            a vacuum or premised upon a claimant's abstract contention
incurring excessive costs, yet no homeowners provided any           that arbitration costs are ‘too high.’ ”). The record contains
concrete idea of the amount of their claims. It is impossible to    no specific evidence that the homeowners will actually be
know how much they will be charged under the AAA rules,             charged excessive arbitration fees, and thus there is no legally
even if the fees charged by AAA were excessive. Instead,            sufficient evidence that such fees prevent the homeowners
the homeowners provided two invoices from the AAA for               from effectively pursuing their claim in the arbitral forum.
arbitration in, as the homeowners allege, “similar cases” to
show the likelihood of excessive litigation costs. The first
was a copy of the invoice from the AAA to the Ayalas who
                                                                                  E. Unconscionability in Light of
were plaintiffs in a different lawsuit against Olshan. It shows
                                                                                  the Texas Home Solicitation Act
that the Ayalas' claim against Olshan was for $200,000, and
that the Ayalas' were charged $35,900 to arbitrate that claim.       [17] Finally, the homeowners argue that the arbitration is
The second was an invoice from the AAA to an anonymous              unconscionable because the parties will expend time, energy,
claimant for the arbitration of a construction dispute, a similar    *898 and money needlessly going to arbitration when the
type of case using only one arbitrator. 7 The amount of             arbitrator will find the contract—including the arbitration
this claim is not stated on this invoice, but based on the          clause—void, sending the case back to court. 8 They assert
administrative fee and case service fee charged by the AAA,         that their contract with Olshan violated the Texas Home
we can deduce that it was between $75,000 and $150,000.             Solicitation Act (THSA), which would render the agreements,
The anonymous claimants were charged $11,406 to arbitrate.          including the arbitration clauses, void. The alleged basis for
                                                                    violation of the THSA is Olshan's failure to include in the
Merely showing that other claimants have incurred arbitration       agreements certain language regarding cancellation in at least
costs of some amount falls well short of specific evidence          10–point boldfaced type, where the transactions occurred
that these particular parties will be charged excessive fees.       by personal solicitation outside Olshan's place of business.
There is no evidence that the homeowners' claims are similar        TEX. BUS. & COM.CODE §§ 601.002(a), .052, .053, .201.
in amount or difficulty as the claims of the Ayalas or the          Further, the homeowners contend that there is no dispute over
anonymous claimant. In fact, the Ayalas' invoice shows that         whether the contract violates the THSA, and the arbitrator
their claim was for $200,000, while none of the homeowners'
                                                                    will thus certainly find the contract void. 9
claims in this case exceeded $20,000. Moreover, there is
no evidence that the homeowners have made any effort to
                                                                    It is tempting to avoid the unnecessary costs that would
reduce the likely charges through requests for fee waivers, pro
                                                                    accompany an allegedly unnecessary arbitration. But to do
bono arbitrators, or even simply requesting a one arbitrator
                                                                    so requires the trial court to make a determination of issues
panel. As the court in In re MHI Partnership, Ltd. aptly
                                                                    relating to the contract generally, even if it seems clear that
noted, “Substantive unconscionability threatens to become
                                                                    one party or the other will prevail. As the U.S. Supreme
the exception that swallows the rule if all that must be done
                                                                    Court stated in Prima Paint Corp. v. Flood & Conklin
to avoid arbitration is to assume the most expensive possible
                                                                    Manufacturing Co., when the parties have contracted for
scenario.” No. 14–07–00851–CV, 2008 WL 2262157 at
                                                                    arbitration of their disputes, a trial court “may consider
                                                                    only issues relating to the making and performance of the


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In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

agreement to arbitrate.” 388 U.S. 395, 404, 87 S.Ct. 1801,             Tingdale (No. 09–0703) agreements that use such language,
18 L.Ed.2d 1270 (1967); see also Rent–A–Ctr., W., Inc. v.              the FAA preempts the provisions of section 171.002(a)(2)
Jackson, ––– U.S. ––––, 130 S.Ct. 2772, 2778, 177 L.Ed.2d              that would otherwise render those agreements unenforceable.
403 (2010); Buckeye Check Cashing, Inc. v. Cardegna, 546               And the parties opposing arbitration in those three cases
U.S. 440, 445–46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006)              did not submit legally sufficient evidence that arbitration of
( “[U]nless the challenge is to the arbitration clause itself, the     their claims would be unconscionable. Therefore, the trial
issue of the contract's validity is considered by the arbitrator       court erred by denying Olshan's pleas in abatement, and
in the first instance.”). There is no way to fashion a standard to     we conditionally grant mandamus relief in the Kilpatrick,
determine whether arbitration is unnecessary without giving            Tisdale, and Tingdale cases and remand those cases to the trial
the trial court some discretion over issues relating to the            court for further proceedings consistent with this opinion. We
making and performance of the contract generally—exactly               are confident that the trial courts will comply, and the writs
what Prima Paint, and later Buckeye and Rent–A–Center,                 will issue only if they fail to do so.
sought to avoid. Allowing courts to make this determination
under an unconscionability analysis would provide an end
run around the rule. While in some cases this “rule permits
                                                                       Justice HECHT filed a concurring opinion, in which Justice
a court to enforce an arbitration agreement in a contract that
                                                                       MEDINA joined.
the arbitrator later finds to be void[,] ... it is equally true that
[the opposite] approach permits a court to deny effect to an           Justice HECHT, concurring, in which Justice MEDINA
arbitration provision in a contract that the court later finds         joined.
to be perfectly enforceable.” Buckeye, 546 U.S. at 448–49,             I join fully in the Court's opinion and write only with this
126 S.Ct. 1204. This conundrum is solved with a rule that              further observation.
allocates such decisions to arbitration, which is consistent
with the liberal policy favoring arbitration in the FAA, U.S.          The homeowners contend that the contracts at issue violated
Supreme Court decisions, and decisions of this Court. The
                                                                       the Texas Home Solicitation Act 1 because they did not
homeowners failed to provide legally sufficient evidence of
                                                                       contain the requisite notice of their right to cancellation and
the prohibitive cost of arbitration to prove unconscionability,
and this failure cannot be remedied by allowing the trial court        are therefore void by express provision of the Act. 2 In
to determine if it believes the contract itself is void.               response, Olshan tells us in its briefing only that it “will
                                                                       present its defenses ... in the arbitral forum”. Asked at oral
                                                                       argument what defenses it has to the homeowners' contention
                                                                       that their contracts, including the arbitration provisions,
                         V. Conclusion                                 are void and unenforceable, counsel answered that “there
                                                                       might be an estoppel defense” because the homeowners did
This Court endeavors to interpret agreements, including those
                                                                       not challenge the validity of the contracts until work was
to arbitrate, as they *899 are written. When an agreement
                                                                       completed. Counsel also argued that even if the contracts
specifically states that it is to be governed by the Texas
                                                                       are void, the arbitration provision is severable and valid, and
General Arbitration Act, we hold that it will be governed by
                                                                       the homeowners *900 must still submit their complaints to
the Act, which may mean that disputes arising from its terms
                                                                       arbitration. Olshan has cited no authority for either of these
will be excluded from arbitration. Thus, the TAA applies to
                                                                       arguments.
the arbitration agreement between the Waggoners (No. 09–
0474) and Olshan and renders it unenforceable. See TEX.
                                                                       The homeowners acknowledge that, as the Court notes, the
CIV. PRAC. & REM.CODE § 171.002(a)(2). The trial court
                                                                       validity of the contracts is a matter for the arbitrator to
did not err by denying Olshan's plea in abatement, and the
court of appeals denied relief. We also deny mandamus relief           decide. 3 But the homeowners argue that the invalidity of
in the Waggoner case.                                                  the contracts is a foregone conclusion and that “the entire
                                                                       process ... will be a needless waste of time, energy, and
However, where an arbitration agreement states that it is to           money”. 4 I agree with the Court that even if this is true, the
be governed by the law of this state, that law includes the            contracts are not unconscionable. But being led on a wild
Federal Arbitration Act. Because it is proper to apply the FAA         goose chase, 5 if that is all arbitration comes to, is not without
to the Kilpatrick (No. 09–0432), Tisdale (No. 09–0433), and            remedy.


                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                13
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

                                                                            the arbitrator's authority to determine the predicate issue—
                                                                            that the contracts are unenforceable. If the dispute returns
If, as the homeowners predict, the arbitrator concludes that the
                                                                            to the trial court, the homeowners may seek full redress for
contracts are indeed void, Olshan and its counsel are subject
                                                                            Olshan's lark.
to being sanctioned by the trial court for filing a groundless
motion to compel arbitration. 6 The trial court certainly has
the authority to sanction frivolous resistance to arbitration,              Parallel Citations
and sanctions are not a one-way ratchet. The court's authority
to sanction a frivolous motion to compel is not displaced by                54 Tex. Sup. Ct. J. 300


Footnotes
1      The Tingdale, Kilpatrick and Tisdale trial courts issued memorandum opinions, which are addressed by the courts of appeals,
       respectively, in No. 10–09–00119–CV, 2009 WL 1886648 (Tex.App.-Waco July 1, 2009, orig. proceeding); Nos. 2–08–336–CV, 2–
       08–342–CV, 2008 WL 4661815 (Tex.App.-Fort Worth Oct. 2, 2008, orig. proceeding).
2      The Legislature recently amended the Texas Civil Practice and Remedies Code to allow an interlocutory appeal “to the court of
       appeals from the judgment or interlocutory order of a district court ... under the same circumstance that an appeal from a federal
       district court's order or decision would be permitted by 9 U.S.C. Section 16.” TEX. CIV. PRAC. & REM CODE § 51.016. However,
       this act is not applicable to appeals of an interlocutory order in an action pending as of September 1, 2009. Act of June 19, 2009,
       81st Leg., R.S., ch. 820, § 2, 2009 Tex. Gen. Laws 2061. Because all four actions in this consolidated opinion were pending as of
       September 1, 2009, section 51.016 does not allow an interlocutory appeal of these causes.
3      We do not believe the choice-of-law provision to be ambiguous.
4      See Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1259 (11th Cir.2003) (“Since Green Tree, all but one of the other
       Circuits that have reconsidered this issue have applied a similar case-by-case approach.”); see also Blair v. Scott Specialty Gases,
       283 F.3d 595, 609–10 (3d Cir.2002); Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir.2001); LaPrade v.
       Kidder, Peabody & Co., Inc., 246 F.3d 702, 708 (D.C.Cir.2001). But see Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 895 (9th
       Cir.2002) (holding that plaintiff employees should not “have to pay either unreasonable costs or any arbitrators' fees or expenses as
       a condition of access to the arbitration forum”).
5      “Total cost” refers to the total cost of pursuing a claim in either forum, notwithstanding who will be financing the claim. Some courts
       have noted the argument that attorneys will be unwilling to represent plaintiffs on a contingency fee basis in the arbitral forum and
       that contingent fee arrangements make litigation less expensive for plaintiffs than arbitration. See Morrison v. Circuit City Stores,
       Inc., 317 F.3d 646, 664 (6th Cir.2003); Poly–America, 262 S.W.3d at 355. But other commentators argue that there is no reason
       why plaintiffs cannot secure the same financing when arbitration is mandated if both the value of their claim and the cost to pursue
       it remain constant. See Christopher R. Drahozal, Arbitration Costs and Contingent Fee Contracts, 59 VAND. L.REV. . 729, 768
       (2006) (“On the face of it, there is no reason to expect contingent fee contracts to treat arbitration costs differently than they treat other
       litigation expenses.”). We recognize arbitration is not always a lower-cost, efficient litigation alternative. Forcing consumer plaintiffs
       into an arbitral forum may affect their ability to pursue remedies when small claims are at issue. However, this does not excuse
       parties opposing arbitration from providing sufficient evidence to demonstrate that excessive costs make arbitration unconscionable
       in their particular case.
6      “The filing fee shall be advanced by the party or parties making a claim or counterclaim, subject to final apportionment by the
       arbitrator in the award. The AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative
       fees.” AAA Commercial Arbitration Rule R–49 (2007, 2009). In 2008, when Olshan sought to compel arbitration, the total initial
       filing fee and case service fee ranges from $2,550 for claims between $75,000–$150,000 to $8,500 for claims above $500,000. AAA
       Commercial Arbitration Administrative Fees, Fees (2007).
7      It is unclear whether this means that the Ayalas requested three arbitrators. That the cost of the arbitrator to the Ayalas per day of
       hearing was $3,350, compared to $1,250 per day in the anonymous case, leads us to believe they did.
8      The homeowners concede that the arbitrator and not a court decides a contractual defense to the contract as a whole as opposed to a
       contractual defense to just the arbitration provision. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–46, 126 S.Ct.
       1204, 163 L.Ed.2d 1038 (2006); In re Labatt Food Serv., L.P., 279 S.W.3d 640, 647–49 (Tex.2009).
9      Olshan states in its brief and stated at argument to the contrary that it will present certain defenses to this claim. It is neither our
       province nor the province of the trial court to determine the merits of these defenses when the parties have contracted to arbitrate
       such disputes.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                             14
In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883 (2010)
54 Tex. Sup. Ct. J. 300

1      Act of May 18, 1973, 63rd Leg., R.S., ch. 246, § 1, 1973 Tex. Gen. Laws 574, codified as TEX.REV.CIV. STAT. ANN.. art. 5069–
       13.01, amended by Act of April 4, 1975, 64th Leg., R.S., ch. 59, § 1, 1975 Tex. Gen. Laws 124, and by Act of May 27, 1995, 74th
       Leg., R.S., ch. 926, § 1, 1995 Tex. Gen. Laws 4649, recodified by Act of May 24, 1997, 75th Leg., R.S., ch. 1008, § 3, 1997 Tex.
       Gen. Laws 3091, 3583, as TEX. BUS. & COM.CODE §§ 39.001–.009, and by Act of May 15, 2007, 80th Leg., R.S., ch. 885, § 2.01,
       2007 Tex. Gen. Laws 1905, 2026, as TEX. BUS. & COM.CODE §§ 601.001–.205.
2      Section 601.201, TEX. BUS. & COM.CODE, provides that “[a] sale or contract entered into under a consumer transaction in violation
       of ... Subchapter D is void.” Section 601.152, in subchapter D, states: “A merchant may not: (1) at the time the consumer signs the
       contract pertaining to a consumer transaction or purchases the goods, services, or real property, fail to inform the consumer orally of
       the right to cancel the transaction; or (2) misrepresent in any manner the consumer's right to cancel.” The prior versions of the Act
       contained substantively identical provisions. Former TEX. BUS. & COM.CODE. § 39.008(a)(3)-(4) & (b); TEX.REV.CIV. STAT.
       ANN. art. 5069–13.03(a)(3)–(4) & (b).
3      Ante at 898 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)).
4      E.g., Brief of Real Parties in Interest Kenneth and Vickie Kilpatrick at 21.
5      See WILLIAM SHAKESPEARE, ROMEO AND JULIET act 2, sc. 4:
         “Romeo: Switch and spurs, switch and spurs; or I'll cry a match.
         “Mercutio: Nay, if thy wits run the wild-goose chase, I have done; for thou hast more of the wild-goose in one of thy wits than,
         I am sure, I have in my whole five.”
6      TEX.R. CIV. P. 14; TEX. CIV. PRAC. & REM.CODE §§ 9.001–.014, 10.001–.006.


End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                       15
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711


                                                                                                                             Validity
                     195 S.W.3d 672                                    of assent
                 Supreme Court of Texas.
                                                                       Manufactured home buyers were bound by
          In re PALM HARBOR HOMES, INC.,                               arbitration agreement with seller in the
                                                                       absence of an assertion of fraud, deceit, or
           and Palm Harbor Homes I, L.P. d/
                                                                       misrepresentation involved in their signing of the
            b/a Palm Harbor Village, Relator.
                                                                       agreement.
            No. 04–0490. | Argued March
                                                                       3 Cases that cite this headnote
         23, 2005. | Decided June 9, 2006.

Synopsis                                                         [2]   Alternative Dispute Resolution
Background: Manufactured home buyers sued manufacturer
and seller for breach of contract, breach of warranty, and                                                                   Presumptions
statutory violations of the Residential Construction Liability         Failure of manufactured home seller and
Act. The 239th District Court, Brazoria County, J. Ray Gayle,          manufacturer to present transcripts of hearings
III, and Sherry Sebesta, JJ., denied defendants' motions               did not create a presumption that matters
to compel arbitration. Defendants petitioned for a writ of             occurring during the hearings would support an
mandamus. The Court of Appeals, Frank G. Evans, J.,                    implied finding that an arbitration agreement did
129 S.W.3d 636, denied petition. Defendants filed another              not exist; the buyers conceded that the transcripts
petition for writ of mandamus.                                         would not show the introduction of evidence,
                                                                       and buyers did not dispute that they had signed
                                                                       arbitration agreement.
Holdings: The Supreme Court, Johnson, J., held that:                   1 Cases that cite this headnote

[1] consideration provided by seller supported the agreement;
                                                                 [3]   Alternative Dispute Resolution
[2] manufacturer was not required to give consideration as a
                                                                                                                             Writing,
third-party beneficiary;
                                                                       signature, and acknowledgment

[3] the agreement was not illusory as to the manufacturer,             The existence of an arbitration agreement
even though it had right to opt out of arbitration;                    among manufactured home buyers, seller, and
                                                                       manufacturer was established in proceeding to
[4] the agreement was not substantively unconscionable; and            compel arbitration; the seller and manufacturer
                                                                       presented a signed arbitration agreement along
[5] it was not procedurally unconscionable.                            with other documents signed by buyers, and they
                                                                       presented no evidence that they did not sign the
                                                                       agreement.
Writ conditionally granted.
                                                                       2 Cases that cite this headnote
O'Neill, J., concurred and filed opinion.
                                                                 [4]   Alternative Dispute Resolution

                                                                                                                             What
 West Headnotes (20)                                                   law governs
                                                                       In determining validity of agreements to arbitrate
 [1]    Alternative Dispute Resolution                                 which are subject to the Federal Arbitration
                                                                       Act (FAA), courts generally apply state-law




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In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711

        principles governing the formation of contracts.
        9 U.S.C.A. § 1 et seq.                                                                                                  Agreement
                                                                          for Benefit of Third Person
        35 Cases that cite this headnote                                 A third-party beneficiary may enforce a contract
                                                                         to which it is not a party if the parties to the
 [5]    Alternative Dispute Resolution                                   contract intended to secure a benefit to that third
                                                                         party and entered into the contract directly for the
                                                           Consideration third party's benefit.
        Arbitration agreements, like other contracts,
                                                                          15 Cases that cite this headnote
        must be supported by consideration.

        15 Cases that cite this headnote                          [10]    Alternative Dispute Resolution

                                                                                                                                Consideration
 [6]    Alternative Dispute Resolution
                                                                        Manufacturer was not required to give
                                                          Consideration consideration for agreement which created its
        Consideration may take the form of bilateral                    status as third-party beneficiary of contract for
        promises to arbitrate.                                          sale of manufactured home, and, thus, buyers'
                                                                        obligation to arbitrate with the manufacturer did
        4 Cases that cite this headnote                                 not fail for lack of consideration, even though
                                                                        manufacturer had right to opt out of arbitration;
                                                                        it was irrelevant that the agreement did not bind
 [7]    Alternative Dispute Resolution
                                                                        the manufacturer to arbitrate since the agreement
                                                          Consideration was supported by consideration in the form of
        When an arbitration clause is part of a                         both the underlying contract and promises of the
        larger, underlying contract, the remainder of the               retailer.
        contract may suffice as consideration for the
                                                                        16 Cases that cite this headnote
        arbitration clause.

        10 Cases that cite this headnote                          [11]    Alternative Dispute Resolution

                                                                                                                                Consideration
 [8]    Alternative Dispute Resolution
                                                                        Manufactured home buyers' agreement to
                                                          Consideration arbitrate disputes with manufacturer was not
        Consideration for manufactured home buyers'                     illusory as to the manufacturer, even though it
        agreement to arbitrate disputes with seller was                 had right to opt out of arbitration; consideration
        provided by the underlying sales contract and the               supported buyers' contract with seller, and the
        mutual promises to arbitrate disputes involving                 manufacturer was third-party beneficiary.
        the manufactured home or its sale; even though
                                                                        13 Cases that cite this headnote
        manufacturer had right to opt out of arbitration
        and even if the agreement were illusory as to
        manufacturer, consideration was not illusory as         [12] Alternative Dispute Resolution
        between buyers and seller.
                                                                                                                                Unconscionabi
        19 Cases that cite this headnote                                  “Substantive unconscionability ” refers to the
                                                                          fairness of the arbitration provision itself,
                                                                          whereas “procedural unconscionability” refers to
 [9]    Contracts
                                                                          the circumstances surrounding adoption of the
                                                                          arbitration provision.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              2
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711


        28 Cases that cite this headnote                         [17]    Alternative Dispute Resolution

                                                                                                                           Unconscionabi
 [13]   Contracts
                                                                         The fact that the buyers would not have been
                                                           Substantive   able to buy the manufactured home unless they
        unconscionability                                                signed the arbitration agreement did not, in
                                                                         and of itself, make the agreement substantively
        The test for “substantive unconscionability” is
                                                                         unconscionable.
        whether, given the parties' general commercial
        background and the commercial needs of the                       4 Cases that cite this headnote
        particular trade or case, the clause involved is
        so one-sided that it is unconscionable under the
        circumstances existing when the parties made the         [18]    Contracts
        contract.
                                                                                                                           Adhesion
        18 Cases that cite this headnote                                 contracts; standardized contracts
                                                                         Contracts

 [14]   Alternative Dispute Resolution                                                                                     Unconscionabl
                                                                       Contracts
                                                           Unconscionability
                                                                       Adhesion contracts are not per se unconscionable
        There is nothing inherently unconscionable
                                                                       or void.
        about arbitration agreements.
                                                                         2 Cases that cite this headnote
        11 Cases that cite this headnote

                                                                 [19]    Alternative Dispute Resolution
 [15]   Contracts
                                                                                                                           Unconscionabi
                                                        Unconscionable
        Contracts                                                   Manufactured home buyers' arbitration
                                                                    agreement was not procedurally unconscionable
        Contracts
                                                                    as to seller or manufacturer, even though it
                                                        Agreement had right to opt out of arbitration and buyers
        for Benefit of Third Person                                 claimed that they would not have signed the
                                                                    agreement if arbitration had been explained to
        There is nothing unconscionable           about
                                                                    them; the agreement was clearly labeled as
        contracting to benefit a third party.
                                                                    arbitration agreement, it was relatively short and
        10 Cases that cite this headnote                            specifically provided that it did not constitute
                                                                    a waiver of any substantive rights or remedies
                                                                    except as to the forum for resolving disputes, it
 [16]   Alternative Dispute Resolution                              highlighted statement on jury trial waiver, and
                                                                    neither unfair surprise nor oppression occurred.
                                                        Unconscionability
        Manufacturer's limited right as a third-party                    20 Cases that cite this headnote
        beneficiary to refuse to arbitrate dispute with
        manufactured home buyer did not render the
        arbitration agreement so one-sided as to be              [20]    Contracts
        substantively unconscionable.                                                                                      Unconscionabl
                                                                         Contracts
        20 Cases that cite this headnote
                                                                         Unconscionability principles are applied to
                                                                         prevent unfair surprise or oppression.


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                         3
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711

                                                                 *675 The agreement provided that all disputes between the
        3 Cases that cite this headnote                         Ripples and the retailer arising out of or relating in any way
                                                                to the sale, purchase, or occupancy of the home would be
                                                                resolved through binding arbitration. The agreement is one
                                                                page long; is labeled “ARBITRATION AGREEMENT” at
Attorneys and Law Firms                                         the top of the page in large bold-face capital letters; sets
                                                                out in the first paragraph that it inures to the benefit of the
*674 Craig Madison Patrick, Michael J. Craddock, Eric L.        manufacturer as well as binds the purchasers and retailer;
Lindstrom, Craddock Reneker & Davis, L.L.P., Dallas, for        and provides that it does not constitute a waiver of any
Relator.
                                                                substantive rights or remedies available under applicable
Douglas Vance Colvin, Law Offices of Wes Griggs, West           law, but is an election to resolve claims, disputes and
Columbia, for Real Party In Interest.                           controversies by arbitration rather than the judicial process.
                                                                The next-to-the-last sentence provides, in all capital letters,
Opinion                                                         that “THE PARTIES KNOWINGLY WAIVE ANY RIGHT
                                                                TO A JURY TRIAL.” The agreement also provides that the
Justice JOHNSON delivered the opinion of the Court, in          manufacturer “in its sole discretion, may opt out of, and elect
which Chief Justice JEFFERSON, Justice HECHT, Justice           not to be bound by, the arbitration by giving written notice of
WAINWRIGHT, Justice BRISTER, Justice MEDINA,                    the election to all parties within twenty (20) days after receipt
Justice GREEN, and Justice WILLETT joined.                      of” notice that another party intended to arbitrate a dispute.

This original proceeding presents the issue of whether the
                                                                After the manufactured home was purchased by the Ripples,
purchasers of a manufactured home must arbitrate their
                                                                they began experiencing problems with it and lodged a series
claims against both the retailer and manufacturer of the
                                                                of complaints. They eventually sued both the retailer and the
home pursuant to a written arbitration agreement between
                                                                manufacturer, alleging breach of contract, breach of warranty,
the purchasers and the retailer. The agreement specified that
                                                                and statutory liability under the Residential Construction
it inured to the benefit of the manufacturer and gave the
                                                                Liability Act.
manufacturer a twenty-day period during which it could
opt out of arbitration. We conclude that the manufacturer's
                                                                The retailer and manufacturer moved to compel arbitration
opt-out right did not render the arbitration agreement
                                                                under the Federal Arbitration Act (FAA). See 9 U.S.C. §§
unenforceable and that the purchasers must arbitrate their
                                                                1–16. The trial court denied the motion as to both. A divided
claims against both parties.
                                                                court of appeals denied mandamus relief. 129 S.W.3d 636,
                                                                646.

                       I. Background                            Both the retailer and manufacturer seek a writ of mandamus
                                                                directing the trial court to order the Ripples to arbitrate. The
Raymond and Crystal Ripple contracted with Palm Harbor          Ripples do not dispute applicability of the FAA, but oppose
Village (the retailer) to purchase a manufactured home which    arbitrating any claims because (1) relators have not carried
was to be, and subsequently was, manufactured by Palm           their burden to establish a valid agreement to arbitrate; (2)
Harbor Homes, Inc. During the process of contracting for        the signed arbitration agreement lacks consideration; (3) the
and purchasing the home, the Ripples and the retailer entered   agreement is substantively and procedurally unconscionable;
into several separate agreements. Two of the agreements were    and (4) the manufacturer was not a signatory to the agreement
arbitration agreements. The first was dated October 1, 1998,    and has not shown itself to be a third-party beneficiary entitled
and the second was dated December 17, 1998. The Ripples         to enforce the agreement.
urge that the second agreement is applicable to the issues
in this appeal. Relators do not contend otherwise. We will
assume, without deciding, that the second agreement governs
                                                                                 II. Agreement to Arbitrate
the issues presented and reference it as “the agreement.” 1
                                                                The Ripples contend that the retailer and manufacturer have
                                                                not met their burden to establish an agreement to arbitrate



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In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711

because they have not presented complete records of the three         pretrial hearing when there was no indication evidence was
hearings held by the trial court en route to its final order          presented at that hearing). Because the relators presented a
denying arbitration. They assert that absent such records, the        signed arbitration agreement to the court along with other
trial court's ruling cannot be determined to have been an             documents the Ripples signed, and the Ripples have presented
abuse of discretion. They do not contend, however, that any           no evidence that they did not sign the agreement, we conclude
evidence contesting validity of the agreement was introduced          that, as a matter of law, the existence of an arbitration
at any of the three hearings.                                         agreement among the parties was established.

Relators' original answer to the Ripples' suit included a plea in
abatement seeking dismissal or abatement of the suit based on
                                                                                          III. Consideration
the arbitration agreement. The arbitration agreement, along
with other documents signed by the Ripples, was attached to            [4] [5] [6] [7] Next, the Ripples claim the arbitration
the pleading. The Ripples do not claim to have at any point           provision lacks consideration. In determining validity of
disputed that they signed the arbitration agreement as part           agreements to arbitrate which are subject to the FAA, we
of the process by which they purchased their manufactured             generally apply state-law principles governing the formation
home. Their position as to the arbitration agreement is               of contracts. See First Options of Chicago, Inc. v. Kaplan,
encapsulated *676 by their response to relators' second               514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985
motion for reconsideration of the motion to compel arbitration        (1995). Arbitration agreements, like other contracts, must be
and their affidavits attached to that response: (1) in the course     supported by consideration. See In re AdvancePCS Health
of contracting for the purchase of the home they signed               L.P., 172 S.W.3d 603, 607 (Tex.2005) (per curiam); In
several documents, including two documents “purporting”               re Halliburton Co., 80 S.W.3d 566, 569–70 (Tex.2002).
to be arbitration agreements; (2) the documents were not              Such consideration may take the form of bilateral promises
explained to them; (3) they were told that the documents were         to arbitrate. See In re AdvancePCS, 172 S.W.3d at 607.
necessary to complete the purchase; (4) they were unaware             Further, when an arbitration clause is part of a larger,
that they had signed arbitration agreements; (5) they never           underlying contract, the remainder of the contract may suffice
were in contact with the manufacturer during the purchase             as consideration for the arbitration clause. Id.; see also In re
process; (6) the manufacturer did not sign the arbitration            FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex.2001).
agreements; and (7) they were unaware of what arbitration
entailed and did not voluntarily waive their right to a jury trial.

 [1] The Ripples have not asserted that there was fraud,                                    A. The Retailer
deceit, or misrepresentation involved in their signing of the     [8]    The arbitration agreement was part of a larger
agreement. Accordingly, they are bound by the agreement.         contractual relationship between the Ripples and the retailer.
See In re McKinney, 167 S.W.3d 833, 835 (Tex.2005) (per          The underlying contract between the Ripples and the retailer
curiam) (holding that absent fraud, misrepresentation, or        constituted valid consideration for the arbitration agreement
deceit, parties are bound by the terms of the contract signed,   as between them, as did their mutual promises to arbitrate
regardless of whether they read it).                             disputes involving the manufactured home or its sale. See
                                                                 In re AdvancePCS, 172 S.W.3d at 607 (holding *677
 [2]    [3] Given the Ripples' concession at oral argument there was a valid arbitration agreement, as the underlying
that records of the hearings in the trial court would not show   contract provided adequate consideration). The agreement's
that evidence was introduced, and their consistent position      provision extending to the manufacturer a right to opt out
taken before the trial court as reflected by the record which is of arbitration, even if it were illusory because it did not
before us, the failure of relators to present transcripts of the bind the manufacturer to arbitrate, did not make either the
hearings does not create a presumption that matters occurring    consideration of the underlying contract or the promises to
during the hearings would support an implied finding that        arbitrate any disagreements between themselves illusory as
an arbitration agreement did not exist. See Michiana Easy        between the retailer and the Ripples. Cf. Light v. Centel
Livin' Country, Inc. v. Holten, 168 S.W.3d 777, 781–84           Cellular Co., 883 S.W.2d 642, 645 (Tex.1994) (noting that a
(Tex.2005) (rejecting a claim that we must presume evidence      promise is illusory if it fails to bind the promisor).
that supported the trial court's order was presented at a



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             5
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711



                    B. The Manufacturer
                                                                                        IV. Unconscionability
 [9] A third-party beneficiary may enforce a contract to
which it is not a party if the parties to the contract intended to    [12] The Ripples also challenge the agreement as being both
secure a benefit to that third party and entered into the contract   substantively and procedurally unconscionable. Substantive
directly for the third party's benefit. See Stine v. Stewart, 80     unconscionability refers to the fairness of the arbitration
S.W.3d 586, 589 (Tex.2002); see also MCI Telecomms. Corp.            provision itself, whereas procedural unconscionability refers
v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex.1999). As         to the circumstances surrounding adoption of the arbitration
previously noted, the arbitration agreement provided that it         provision. In re Halliburton, 80 S.W.3d at 571. Such issues
“inure[d] to the benefit of the manufacturer of the Home.” By        are properly considered by courts in determining the validity
its own terms, the agreement was entered into, in part, directly     of an arbitration provision. Id. at 572.
for the manufacturer's benefit. Because the manufacturer is a
third-party beneficiary of the underlying contract and not a
first party to it, our analysis as to the Ripples' obligation to
                                                                               *678 A. Substantive Unconscionability
arbitrate with the manufacturer is different from our analysis
as to the retailer.                                                   [13]     The Ripples claim the arbitration agreement is
                                                                     substantively unconscionable because it binds them to
 [10] As a third-party beneficiary, the manufacturer was not a       arbitrate with the manufacturer but does not bind the
promisor and therefore was not required to give consideration        manufacturer to arbitrate with them. The test for substantive
for the agreement which created its third-party beneficiary          unconscionability is whether, “given the parties' general
status. See Stine, 80 S.W.3d at 589. For purposes of                 commercial background and the commercial needs of the
determining whether the arbitration agreement was supported          particular trade or case, the clause involved is so one-sided
by consideration under such circumstances, it is not relevant        that it is unconscionable under the circumstances existing
that the agreement did not bind the manufacturer to arbitrate,       when the parties made the contract.” In re FirstMerit Bank,
for as we have concluded, the agreement was supported by             52 S.W.3d at 757.
consideration in the form of both the underlying contract and
promises of the retailer. It follows that the Ripples' obligation    Even though the Ripples have asserted claims in addition
to arbitrate with the manufacturer did not fail for lack of          to breach of contract, their agreement to purchase the
consideration. See id.                                               home and their use of the home underlie all their claims.
                                                                     We have recently held that under certain circumstances
We have recognized that an arbitration agreement may be              a party to an arbitration agreement may be compelled to
illusory if a party can unilaterally avoid the agreement to          arbitrate claims with a nonparty if the controversy arises
arbitrate. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d            from a contract containing an arbitration clause. In re Vesta
223, 230 & n. 2 (Tex.2003). In Davidson, we remanded a               Ins. Group, Inc., 192 S.W.3d 759, 761 (Tex.2006) (per
case for the trial court to determine whether an ambiguous           curiam); see Grigson v. Creative Artists Agency, L.L.C.,
contract allowed an employer to modify or terminate an               210 F.3d 524, 527–28 (5th Cir.2000) (stating that equitable
arbitration agreement at any time. Id. at 230–31. We noted           estoppel allows a nonsignatory to compel arbitration when
that most courts which have considered the issue have held           a signatory must rely on the contract with the arbitration
that if one party retains a unilateral, unrestricted right to        provision in asserting its claims or when the claims against
terminate an arbitration agreement, the agreement is illusory.       the nonsignatory are interwoven with the claims against a
Id. at 230 & n. 2. Unlike the facts before us in this                signatory); see also In re Weekley Homes, L.P., 180 S.W.3d
matter, however, Davidson addressed illusoriness in regard           127, 130 (Tex.2005) (holding that equitable estoppel doctrine
to promises between direct parties to an agreement. In this          may in some instances require a nonparty to an arbitration
matter the manufacturer was a third-party beneficiary, not a         agreement to arbitrate with a party); In re Kellogg Brown
direct party promisor.                                               & Root, Inc., 166 S.W.3d 732, 738–39 (Tex.2005) (same).
                                                                     Also, the manufacturer had a limited period in which to
[11] We hold that the agreement was not illusory as to the           refuse arbitration. Such a circumstance does not create a
manufacturer.                                                        different relationship than provisions usually found in third-



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             6
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711

party beneficiary situations, because third-party beneficiaries    the contract they signed, regardless of whether they read it
generally have the right to disclaim benefits proffered by a       or thought it had different terms); EZ Pawn, 934 S.W.2d at
contract. See Rau v. Modern Sales & Serv., Inc., 414 S.W.2d        90 (holding that a party who has the opportunity to read an
203, 206 (Tex.Civ.App.—San Antonio 1967, writ ref'd                arbitration agreement and signs it is charged with knowing its
n.r.e.); RESTATEMENT (SECOND) OF CONTRACTS §                       contents); see also In re Halliburton, 80 S.W.3d at 568–69
306 (1981).                                                        (holding an arbitration clause was accepted by an employee
                                                                   despite employee's claim that he did not understand it).
 [14] [15] [16] There is nothing inherently unconscionable
about arbitration agreements, In re AdvancePCS, 172 S.W.3d          [20] The principles of unconscionability do not negate a
at 608, and there is nothing unconscionable about contracting      bargain because one party to the agreement may have been
to benefit a third party. See Stine, 80 S.W.3d at 589–             in a less advantageous bargaining position. Unconscionability
90. The Ripples have not met their burden to prove the             principles are applied to prevent unfair surprise or oppression.
agreement was so one-sided as to be unconscionable when            See In re FirstMerit Bank, 52 S.W.3d at 757. The agreement
its provisions effectively incorporate established principles of   before us is clearly labeled as an agreement providing that
contract law. Considered in light of the remaining provisions      disputes will be settled by arbitration. It is relatively short and
of the agreement, the manufacturer's limited right as a third-     specifically provides that it does not constitute a waiver of
party beneficiary to refuse to arbitrate does not render the       any substantive rights or remedies except as to the forum for
arbitration agreement so one-sided as to be substantively          resolving disputes, and it highlights the statement that a jury
unconscionable.                                                    trial is being waived.

 [17] The Ripples also contend that the agreement is               We find neither unfair surprise nor oppression in the
substantively unconscionable because it is a contract of           agreement as a whole nor in the substance of the
adhesion: they were required to execute the document in order      manufacturer's opt-out provision. Accordingly, we disagree
to purchase the home. But, the fact that the Ripples would         with the Ripples' contention that the agreement was, as
not have been able to buy the manufactured home unless they        to either the retailer or the manufacturer, procedurally
signed the arbitration agreement does not, in and of itself,       unconscionable.
make the agreement substantively unconscionable. See In re
AdvancePCS, 172 S.W.3d at 608.

                                                                                           V. Conclusion
 [18] Furthermore, assuming arguendo that the agreement
constituted a contract of adhesion, we have held that adhesion     We conclude that the trial court abused its discretion in
contracts are not per se unconscionable or void. Id. at 608;       failing to order the Ripples to arbitrate their claims against the
see also EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90–91            retailer and manufacturer. We conditionally grant the writ of
(Tex.1996) (per curiam).                                           mandamus and direct the trial court to compel arbitration of
                                                                   the Ripples' claims. The writ will issue only if the trial court
                                                                   fails to comply with our directive.
             B. Procedural Unconscionability

 [19] Finally, the Ripples urge that the agreement is
                                                                   Justice O'NEILL filed a concurrence.
procedurally unconscionable. *679 They point to their
affidavits as establishing that they did not voluntarily waive     Justice O'NEILL, concurring.
their rights to a jury trial and that they are unsophisticated     In my view, the unilateral right that the retail contract
persons who, if the concept of arbitration had been explained      conferred on the manufacturer to compel or avoid arbitration
to them, would not have signed the arbitration agreements.         with the parties to that contract after the events giving rise
Such assertions, however, presuming the trial court found          to the Ripples' claim arose rendered the contract's arbitration
them to be true, fail to establish procedural unconscionability    clause unconscionable as to the manufacturer and non-
as to adoption of the arbitration agreement. See In re             binding on the Ripples. See J.M. Davidson, Inc. v. Webster,
McKinney, 167 S.W.3d at 835 (holding that absent fraud,            128 S.W.3d 223, 230 & n. 2 (Tex.2003). Because I agree
misrepresentation, or deceit, parties are bound by terms of        with the trial court and the court of appeals on this point, I



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                7
In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006)
49 Tex. Sup. Ct. J. 711

                                                                      Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th
do not join part IV, A, of the Court's opinion. Nevertheless,
                                                                      Cir.2000). On this basis, I concur in the Court's judgment.
the Ripples' claims against the manufacturer in this case
necessarily rely on the terms of the retail contract and
raise substantially interdependent and concerted misconduct;
                                                                      Parallel Citations
accordingly, I believe the Ripples are equitably estopped from
seeking to avoid arbitration with the manufacturer. See, e.g.,        49 Tex. Sup. Ct. J. 711


Footnotes
1      The court of appeals construed the two arbitration agreements together in determining that the second agreement's opt-out language
       applied. See 129 S.W.3d 636, 643. Whether we construe the agreements together as the court of appeals construed them, or consider
       the second agreement as the operative agreement as the Ripples urge, we must address the effect of the opt-out language which is
       only in the second agreement.


End of Document                                                  © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                    8
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


                                                                                                                            Civil
                      262 S.W.3d 337                                  proceedings other than actions
                  Supreme Court of Texas.
                                                                      Mandamus is the proper means by which to seek
            In re POLY–AMERICA, L.P., Ind.                            review of an order compelling arbitration under
                                                                      the Federal Arbitration Act (FAA). 9 U.S.C.A. §
          and d/b/a Pol–Tex International, and
                                                                      1 et seq.
           Poly–America GP, L.L.C., Relators.
                                                                      9 Cases that cite this headnote
             No. 04–1049.       |    Aug. 29, 2008.

Synopsis                                                        [2]   Mandamus
Background: Former employee sought mandamus relief
from order of the 344th District Court, Chambers County,                                                                    Nature
Carroll E. Wilborn, Jr., J., granting employer's motion to            and scope of remedy in general
compel arbitration and to stay employee's action for wrongful         Although mandamus review is generally
discharge and retaliation for filing a workers' compensation          available in federal courts to review non-
claim. The Houston Court of Appeals, First District, 175              appealable interlocutory rulings, mandamus is
S.W.3d 315, conditionally granted a writ. Review was                  granted only in exceptional cases.
granted.
                                                                      1 Cases that cite this headnote


Holdings: The Supreme Court, Harriet O'Neill, J., held that:    [3]   Mandamus

                                                                                                                            Existence
[1] provisions of arbitration agreement, eliminating two
                                                                      and Adequacy of Other Remedy in General
types of remedies available under anti-retaliation provisions
of Texas Workers' Compensation Act, were substantively                Mandamus
unconscionable;                                                                                                             Discretion
                                                                      as to grant of writ
[2] fee-splitting provision of arbitration agreement was not
                                                                      Mandamus
substantively unconscionable;
                                                                                                                            Nature
[3] as a matter of first impression, discovery limits in              and existence of rights to be protected or
arbitration agreement were not substantively unconscionable;          enforced
and
                                                                      Federal courts grant mandamus only upon
                                                                      demonstration of clear and indisputable right to
[4] substantively unconscionable provisions of arbitration
                                                                      issuance of the writ: (1) party seeking issuance
agreement were severable.
                                                                      of writ must have no other adequate means
                                                                      to attain the relief he desires; (2) such party
Writ conditionally granted.                                           must satisfy burden of showing that his right to
                                                                      issuance of writ is clear and indisputable; and (3)
Scott Brister, J., filed a dissenting opinion.                        issuing court, in exercise of its discretion, must
                                                                      be satisfied that the writ is appropriate under the
                                                                      circumstances.

 West Headnotes (47)                                                  Cases that cite this headnote


 [1]     Mandamus                                               [4]   Mandamus




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                         1
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

                                                                            States
                                                             Remedy
        by Appeal or Writ of Error                                                                                             Particular
        Mandamus                                                            cases, preemption or supersession
                                                                            Federal Arbitration Act (FAA) does not preempt
                                                             Matters        Texas public policies that may make contractual
        of discretion                                                       provisions generally unenforceable. 9 U.S.C.A.
        Under Texas law, issuance of writ of mandamus                       § 2.
        requires a demonstration that trial court clearly
        abused its discretion by failing to correctly                       1 Cases that cite this headnote
        analyze or apply the law, and a determination
        that benefits of mandamus outweigh detriments,               [8]    Alternative Dispute Resolution
        such that an appellate remedy is inadequate.
                                                                                                                               Validity
        5 Cases that cite this headnote
                                                                            An agreement to arbitrate is valid under the
                                                                            Federal Arbitration Act (FAA) if it meets the
 [5]    Mandamus                                                            requirements of the general contract law of the
                                                                            applicable state. 9 U.S.C.A. § 2.
                                                             Civil
        proceedings other than actions                                      5 Cases that cite this headnote
        Because arbitration under the Federal Arbitration
        Act (FAA) is intended to provide a lower-cost,               [9]    Alternative Dispute Resolution
        expedited means to resolve disputes, mandamus
        proceedings will often, if not always, deprive                                                                         What
        the parties of an arbitration agreement's intended                  law governs
        benefits when a trial court's compel-and-stay                       State law, whether of legislative or judicial
        order, compelling arbitration and staying the                       origin, is applicable to the determination of
        court proceedings while arbitration is pending, is                  the validity of an agreement to arbitrate under
        at issue; accordingly, appellate courts should be                   the Federal Arbitration Act (FAA), if that law
        hesitant to intervene through issuance of a writ                    arose to govern issues concerning the validity,
        of mandamus. 9 U.S.C.A. § 16(b)(1).                                 revocability, and enforceability of contracts
                                                                            generally. 9 U.S.C.A. § 2.
        8 Cases that cite this headnote
                                                                            2 Cases that cite this headnote
 [6]    Alternative Dispute Resolution
                                                                   [10]     Alternative Dispute Resolution
                                                             Evidence
        The Federal Arbitration Act's (FAA) strong                                                                             What
        presumption favoring arbitration does not apply                     law governs
        to a state court's assessment of whether parties                    Under the Federal Arbitration Act (FAA),
        have entered into a valid and enforceable                           courts may not invalidate arbitration agreements
        agreement to arbitrate under state contract law. 9                  under state laws applicable only to arbitration
        U.S.C.A. § 2.                                                       provisions. 9 U.S.C.A. § 2.

        11 Cases that cite this headnote                                    3 Cases that cite this headnote


 [7]    Alternative Dispute Resolution                               [11]   Alternative Dispute Resolution

                                                             Preemption



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              2
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


                                                             Constitutional                                                        Employment
        and statutory provisions and rules of court                           disputes
        The purpose and language of the Federal                               Alternative Dispute Resolution
        Arbitration Act (FAA) require only that
        agreements to arbitrate be placed upon the                                                                                 Unconscionabi
        same footing as other contracts, with respect to                      Agreements to arbitrate disputes between
        enforceability under state law. 9 U.S.C.A. § 2.                       employers and employees are generally
                                                                              enforceable under Texas law, because there
        Cases that cite this headnote                                         is nothing per se unconscionable about an
                                                                              agreement to arbitrate employment disputes.
 [12]   Alternative Dispute Resolution
                                                                              6 Cases that cite this headnote
                                                             Evidence
        Once an enforceable contract to arbitrate is               [16]       Alternative Dispute Resolution
        found, there is a strong federal presumption,
        under the Federal Arbitration Act (FAA), in                                                                                Unconscionabi
        favor of arbitration, such that myriad doubts, as                     Contracts
        to waiver, scope, and other issues not relating
                                                                                                                                   Unconscionabl
        to enforceability, must be resolved in favor of
                                                                              Contracts
        arbitration. 9 U.S.C.A. § 2.
                                                                              Unconscionable contracts, whether relating to
        4 Cases that cite this headnote                                       arbitration or not, are unenforceable under Texas
                                                                              law.
 [13]   Alternative Dispute Resolution                                        14 Cases that cite this headnote
                                                             Validity
        Under Texas law, as with any other contract,               [17]       Contracts
        agreements to arbitrate under the Federal
                                                                                                                                   Unconscionabl
        Arbitration Act (FAA) are valid unless grounds
                                                                              Contracts
        exist at law or in equity for revocation of the
        agreement. 9 U.S.C.A. § 2.                                            A contract is unenforceable if, given the
                                                                              parties' general commercial background and the
        9 Cases that cite this headnote                                       commercial needs of the particular trade or case,
                                                                              the clause involved is so one-sided that it is
                                                                              unconscionable under the circumstances existing
 [14]   Alternative Dispute Resolution
                                                                              when the parties made the contract.
                                                             Evidence
                                                                              8 Cases that cite this headnote
        Under Texas law, the burden of proving a
        ground, at law or in equity, for revoking
        an arbitration agreement, such as fraud,                   [18]       Contracts
        unconscionability, or voidness under public
                                                                                                                                   Unconscionabl
        policy, falls on the party opposing the agreement.
                                                                              Contracts
        6 Cases that cite this headnote                                       Unconscionability of a contract is to be
                                                                              determined in light of a variety of factors, which
                                                                              aim to prevent oppression and unfair surprise.
 [15]   Alternative Dispute Resolution
                                                                              8 Cases that cite this headnote




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  3
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


 [19]   Contracts                                                      [23]   Alternative Dispute Resolution

                                                               Unconscionable                                                      Employment
        Contracts                                                          disputes
        In general, a contract will be found                                  Alternative Dispute Resolution
        unconscionable if it is grossly one-sided.
                                                                                                                                   Validity
        10 Cases that cite this headnote                                      In the context of federal statutory claims, either
                                                                              an expression of federal intent to exclude certain
 [20]   Contracts                                                             categories of claims from arbitration, or the
                                                                              excessive waiver of statutory rights in the
                                                               Questions      arbitration agreement, may render a particular
        for jury                                                              dispute un-arbitrable.
        Contracts
                                                                              Cases that cite this headnote
                                                               Questions
        for jury                                                       [24]   Alternative Dispute Resolution
        Whether a contract is contrary to public policy
        or unconscionable at the time it is formed is a                                                                            Preemption
        question of law.                                                      States

        3 Cases that cite this headnote                                                                                            Particular
                                                                              cases, preemption or supersession

 [21]   Appeal and Error                                                      In light of the Supremacy Clause, the Federal
                                                                              Arbitration Act (FAA) preempts state laws that
                                                               Abuse          specifically disfavor arbitration. U.S.C.A. Const.
        of discretion                                                         Art. 6, cl. 2; 9 U.S.C.A. § 2.
        Because a trial court has no discretion to
                                                                              Cases that cite this headnote
        determine what the law is or apply the law
        incorrectly, its clear failure to properly analyze
        or apply the law of unconscionability of contracts             [25]   Alternative Dispute Resolution
        constitutes an abuse of discretion.
                                                                                                                                   Preemption
        5 Cases that cite this headnote                                       States

                                                                                                                                   Particular
 [22]   Alternative Dispute Resolution
                                                                              cases, preemption or supersession
                                                               Validity       While the Federal Arbitration Act (FAA), in
        An arbitration agreement covering an employee's                       light of the Supremacy Clause, preempts state
        statutory claims is valid so long as the arbitration                  laws that specifically disfavor arbitration, if a
        agreement does not waive the substantive                              particular waiver of substantive remedies or
        rights and remedies the statute affords and the                       other provision of a contract is unconscionable
        arbitration procedures are fair, such that the                        under state law, independent of the agreement to
        employee may effectively vindicate his statutory                      arbitrate, it will be unenforceable even though
        rights.                                                               included in an agreement to arbitrate. U.S.C.A.
                                                                              Const. Art. 6, cl. 2; 9 U.S.C.A. § 2.
        6 Cases that cite this headnote
                                                                              2 Cases that cite this headnote




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 4
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


 [26]   Workers' Compensation                                                  6 Cases that cite this headnote

                                                               Fault
        or negligence as element of liability                          [29]    Labor and Employment
        Workers' Compensation                                                                                                        Workers'
                                                                               Compensation
                                                               Exclusiveness
        of Remedies Afforded by Acts                                           Since recovery of benefits under the Workers'
                                                                               Compensation Act is the exclusive remedy
        In order to ensure compensation for injured
                                                                               available to injured employees of subscribing
        employees while protecting employers from
                                                                               employers, the availability of remedies under
        costs of litigation, the Texas legislature provided,
                                                                               the Act for retaliatory discharge, for seeking to
        through the Texas Workers' Compensation Act,
                                                                               collect workers' compensation benefits, protects
        a mechanism by which workers can recover
                                                                               employees' exercise of their statutory rights to
        from subscribing employers without regard to
                                                                               compensation under the Act. V.T.C.A., Labor
        the workers' own negligence, while limiting
                                                                               Code §§ 408.001(a), 451.001 et seq.
        employers' exposure to uncertain and possibly
        high awards of damages under the common law.                           3 Cases that cite this headnote
        V.T.C.A., Labor Code § 401.001 et seq.

        1 Cases that cite this headnote                                [30]    Labor and Employment

                                                                                                                                     Workers'
 [27]   Workers' Compensation                                                  Compensation
                                                               Liberal         The anti-retaliation provisions of the Workers'
        or strict construction in general                                      Compensation Act must protect employees even
                                                                               before they have actually filed a workers'
        In light of the purposes of the Texas Workers'
                                                                               compensation claim, because otherwise the law
        Compensation Act as a whole, it is the
                                                                               would be completely useless and would not
        settled policy of Texas to construe liberally the
                                                                               accomplish the purpose for which the Act was
        provisions of the Act, in order to effectuate the
                                                                               enacted; all the employer would have to do in
        purposes for which it was enacted. V.T.C.A.,
                                                                               order to avoid the consequences of the Act would
        Labor Code § 401.001 et seq.
                                                                               be to fire the injured employee before he filed the
        5 Cases that cite this headnote                                        claim. V.T.C.A., Labor Code § 451.001 et seq.

                                                                               2 Cases that cite this headnote
 [28]   Workers' Compensation

                                                               Construction
                                                                     [31] Workers' Compensation
        in favor of employee or beneficiary
                                                                                                                                     Express
        Because courts should liberally construe the                           waiver
        Texas Workers' Compensation Act in favor
                                                                               Texas courts do not look with favor upon
        of the injured worker, a strained or narrow
                                                                               contracts waiving rights arising under the
        construction of the Act would be improper, and
                                                                               Workers' Compensation Act, because such
        moreover, it would be injudicious to construe
                                                                               waivers affect not only the individual employee
        the Act in a manner that supplies by implication
                                                                               subject to the waiver, but also the public, which
        restrictions on an employee's rights that are not
                                                                               bears the cost of the workers' compensation
        found in the plain language of the Act. V.T.C.A.,
                                                                               program. V.T.C.A., Labor Code § 401.001 et
        Labor Code § 401.001 et seq.
                                                                               seq.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                   5
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


        Cases that cite this headnote                                                                                          Operation
                                                                         and Effect

 [32]   Labor and Employment                                             By agreeing to arbitrate a statutory claim, a party
                                                                         does not forgo the substantive rights afforded by
                                                             Grounds     the statute; it only submits to their resolution in
        and subjects                                                     an arbitral, rather than a judicial, forum.
        Labor and Employment
                                                                         2 Cases that cite this headnote
                                                             Exemplary
        or punitive damages                                       [35]   Alternative Dispute Resolution
        “Reasonable damages,” for purposes of
        provision of Workers' Compensation Act making                                                                          Trial
        an employer who retaliates against a claimant                    or hearing
        liable for reasonable damages, are not limited to                A trial court may summarily decide whether to
        actual damages, but may include future damages,                  compel arbitration, on the basis of affidavits,
        as well as exemplary or punitive damages, when                   pleadings, discovery, and stipulations; however,
        it is shown that the employer acted with actual                  if the material facts necessary to determine
        malice in retaliating against the employee for                   the issue are controverted by an opposing
        filing a workers' compensation claim. V.T.C.A.,                  affidavit or otherwise admissible evidence, the
        Labor Code §§ 451.001, 451.002.                                  trial court must conduct an evidentiary hearing to
                                                                         determine the disputed material facts.
        1 Cases that cite this headnote
                                                                         3 Cases that cite this headnote
 [33]   Alternative Dispute Resolution
                                                                  [36] Mandamus
                                                             Unconscionability
        Provisions of arbitration agreement governed                                                                           Civil
        by Federal Arbitration Act (FAA) and                             proceedings other than actions
        executed by employee as condition of                             Court of Appeals, on employee's petition for
        employment, which provisions eliminated two                      writ of mandamus relating to trial court's
        types of remedies available under anti-retaliation               order compelling arbitration of employee's
        provisions of Texas Workers' Compensation                        claim against employer under anti-retaliation
        Act by prohibiting arbitrator from ordering                      provisions of Workers' Compensation Act,
        reinstatement or awarding punitive damages,                      could consider, when deciding whether fee-
        were substantively unconscionable and therefore                  splitting provision of arbitration agreement
        void under Texas law; such provisions                            was substantively unconscionable, the detailed
        would allow subscribing employer to enjoy                        estimates, in affidavits of employee and of
        Act's limited-liability benefits while exposing                  employee's expert witness which had been
        employee to exactly the sort of costs, i.e., costs               presented to trial court in opposition to
        of injuries paid for by employee for fear of                     employer's motion to compel arbitration and
        retribution for making a workers' compensation                   which were attached to petition for writ of
        claim, that the Act was specifically designed to                 mandamus, regarding likely cost of arbitration in
        shift onto employer. 9 U.S.C.A. § 2; V.T.C.A.,                   employee's case and employee's expected share
        Labor Code §§ 451.001, 451.002(a, b).                            of those costs under agreement's capped fee-
                                                                         splitting provision based on employee's monthly
        7 Cases that cite this headnote                                  salary; employer did not dispute, in trial court
                                                                         or in Court of Appeals, the facts asserted in the
 [34]   Alternative Dispute Resolution                                   affidavits and instead asserted in both trial court



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              6
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

        and Court of Appeals legal arguments that fee-                     claims under anti-retaliation provisions of
        splitting provision was not unconscionable, and                    Texas Workers' Compensation Act; agreement
        affidavits did not present merely subjective and                   specifically provided that arbitrator could
        incontrovertible factual allegations. V.T.C.A.,                    modify unconscionable terms, and nothing
        Labor Code § 451.001 et seq.                                       in Texas law would prevent arbitrator from
                                                                           fairly adjusting fee-splitting provisions when
        6 Cases that cite this headnote                                    necessary to allow full vindication of employee's
                                                                           statutory rights in arbitral forum. 9 U.S.C.A. § 2;
 [37]   Alternative Dispute Resolution                                     V.T.C.A., Labor Code § 451.001 et seq.

                                                                         16 Cases that cite this headnote
                                                             Unconscionability
        Fee-splitting provisions, in an arbitration
        agreement executed by an employee, that                    [40]    Alternative Dispute Resolution
        operate to prohibit the employee from fully
        and effectively vindicating statutory rights, are                                                                        Unconscionabi
        substantively unconscionable.                                    Discovery limits in arbitration agreement
                                                                         executed by employee and governed by Federal
        2 Cases that cite this headnote                                  Arbitration Act (FAA) were not substantively
                                                                         unconscionable under Texas law, with respect
 [38]   Alternative Dispute Resolution                                   to employee's claims under anti-retaliation
                                                                         provisions of Texas Workers' Compensation
                                                             Unconscionability
                                                                         Act, where agreement limited each party to
        Fee-splitting provisions, in an arbitration                      serving on the other a single set of 25
        agreement executed by an employee, are not per                   interrogatories including sub-parts and one set
        se substantively unconscionable; the employee                    of 25 requests for production or inspection
        must present some evidence that he or she will                   of documents or tangible things, limited each
        likely incur arbitration costs in such an amount                 party to a single, six-hour deposition, prohibited
        as to deter enforcement of statutory rights in the               requests for admission, banned inquiry into
        arbitral forum.                                                  employer's finances, and required that parties
                                                                         and their attorneys maintain confidentiality
        7 Cases that cite this headnote                                  regarding all aspects of arbitration; agreement
                                                                         specifically provided that arbitrator could
 [39]   Alternative Dispute Resolution                                   modify unconscionable terms, and arbitrator
                                                                         would not be required to enforce discovery limits
                                                             Unconscionability
                                                                         if arbitrator found them to be unconscionable. 9
        Fee-splitting provision of arbitration agreement                 U.S.C.A. § 2; V.T.C.A., Labor Code § 451.001
        executed by employee and governed by Federal                     et seq.
        Arbitration Act (FAA), stating that all fees
                                                                           6 Cases that cite this headnote
        related to arbitration, including but not limited
        to mediation fees, arbitrators' fees, costs of
        procuring a location for arbitration hearing,              [41]    Alternative Dispute Resolution
        and court reporter fees, would be split
        equally between employer and employee, with                                                                              Unconscionabi
        employee's contribution capped at amount equal                     Limits on discovery, in an arbitration
        to gross compensation earned by employee                           agreement executed by an employee, that
        in employee's highest earning month in the                         unreasonably impede the employee from
        12 months prior to issuance of arbitration                         effectively vindicating statutory rights, are
        award, was not substantively unconscionable                        substantively unconscionable.
        under Texas law, with respect to employee's



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                7
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

                                                                        punitive damages, were severable from general
        1 Cases that cite this headnote                                 agreement to arbitrate; arbitration agreement was
                                                                        over five pages long and it contained numerous
 [42]   Alternative Dispute Resolution                                  provisions not challenged by employee as
                                                                        imposing any unconscionable burdens, e.g.,
                                                            Unconscionability
                                                                        procedures for mediation, procedures for
        Limits on discovery, in an arbitration agreement                selection of neutral arbitrator, procedures for
        executed by an employee, are not per se                         filing of motions, and other general provisions
        substantively unconscionable; the employee                      governing arbitration procedures, the intent of
        must present some evidence that the discovery                   the parties, as expressed by the severability
        limits will deprive the employee of a fair                      clause, was that unconscionable provisions
        opportunity to present statutory claims in the                  would excised if possible, and the main purpose
        arbitral forum.                                                 of the agreement was that the parties would
                                                                        submit their disputes to arbitral forum rather
        1 Cases that cite this headnote                                 than proceed in court. 9 U.S.C.A. § 2; V.T.C.A.,
                                                                        Labor Code § 451.001 et seq.
 [43]   Alternative Dispute Resolution
                                                                          7 Cases that cite this headnote
                                                            Unconscionability
        Provision of arbitration agreement executed by            [45]    Contracts
        employee and governed by Federal Arbitration
        Act (FAA), prohibiting arbitrator from applying                                                                      Severability
        a “just cause” or “good cause” standard to                        Contracts
        claims relating to the employment or separation
                                                                                                                             Partial
        therefrom, was not substantively unconscionable
                                                                          Illegality
        under Texas law, with respect to employee's
        claims under anti-retaliation provisions of Texas                 An illegal or unconscionable provision of a
        Workers' Compensation Act; provision simply                       contract may generally be severed so long as it
        emphasized that the arbitration agreement                         does not constitute the essential purpose of the
        related to at-will employment, and it would                       agreement.
        not prohibit inquiry into whether employer
                                                                          7 Cases that cite this headnote
        improperly terminated employee in retaliation
        for his filing of workers' compensation claim. 9
        U.S.C.A. § 2; V.T.C.A., Labor Code § 451.001              [46]    Contracts
        et seq.
                                                                                                                             Partial
        2 Cases that cite this headnote                                   Illegality
                                                                         Whether the invalidity of a particular provision
 [44]   Alternative Dispute Resolution                                   of a contract affects the rest of the contract,
                                                                         for purposes of determining whether the invalid
                                                            Severability provision is severable, depends upon whether
        Substantively unconscionable provisions of                       the remaining provisions are independent or
        arbitration agreement governed by Federal                        mutually dependent promises, which courts
        Arbitration Act (FAA) and containing a                           determine by looking to the language of the
        severability clause, which provisions eliminated                 contract itself.
        two types of remedies available under anti-
                                                                          2 Cases that cite this headnote
        retaliation provisions of Texas Workers'
        Compensation Act by prohibiting arbitrator
        from ordering reinstatement or awarding                   [47]    Contracts



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            8
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

                                                                agreement's fee-splitting and discovery-limitation provisions
                                                          Severability
                                                                as applied in the course of arbitration. We further hold that
         Contracts                                              the arbitration agreement's provisions precluding remedies
                                                                under the Workers' Compensation Act are substantively
                                                          Partial
                                                                unconscionable and void under Texas law. However, those
         Illegality
                                                                provisions are not integral to the parties' overall intended
         With regard to whether illegal or unconscionable       purpose to arbitrate their disputes and, pursuant to the
         provisions of a contract are severable, the            agreement's severability clause, are severable from the
         relevant inquiry is whether parties would              remainder of the arbitration agreement, which we conclude is
         have entered into the agreement absent the             otherwise enforceable. Accordingly, we conditionally grant
         unenforceable provisions.                              the petition for mandamus.

         4 Cases that cite this headnote

                                                                                                 I. Facts

                                                                      Johnny Luna began his employment with Pol–Tex
Attorneys and Law Firms
                                                                      International, d/b/a Poly–America, L.P., in October 1998.
 *343 Erica W. Harris, Susman Godfrey L.L.P., Houston,                Upon his hiring, Luna signed an agreement to submit
Craig T. Enoch, Winstead PC, Austin, Adam Brian Ross,                 “all claims or disputes” to arbitration. Approximately
Poly–America, LP, Grand Prairie, TX, for Relator.                     four years later, Luna signed an amended agreement to
                                                                      arbitrate that contained substantially the same provisions.
Scott Fiddler, Law Office of G. Scott Fiddler, P.C., Houston          Both the 1998 and 2002 agreements provide that they are
TX, for Real Party in Interest.                                       governed by the Federal Arbitration Act (FAA). 9 U.S.C.
                                                                      §§ 1–14. Additionally, both agreements contain a series
Jeffrey C. Londa, Ogletree Deakins Nash Smoak & Stewart,              of requirements for the arbitration between the parties. All
P.C., Houston, Audrey Elaine Mross, Davis Munck Butrus,               claims must be asserted within a maximum of one year from
P.C., Kirk L. Pittard, Durham & Pattard, LLP, Dallas, Peter           the occurrence of the event from which the claim arises.
M. Kelly, Law Office Of Peter M. Kelly, P.C., Houston TX,             Fees associated with arbitration—including but not limited to
for Amicus Curiae.                                                    mediation fees, the arbitrators' fees, court reporter fees, and
                                                                      fees to secure a place for a hearing—are to be split between
Justice O'NEILL delivered the opinion of the Court, in
                                                                      the parties, with the employee's share capped at “the gross
which Chief Justice JEFFERSON, Justice HECHT, Justice
                                                                      compensation earned by the Employee in Employee's highest
WAINWRIGHT, Justice MEDINA, Justice GREEN, and
                                                                      earning month in the twelve months prior to the time the
Justice JOHNSON joined.
                                                                      arbitrator issues his award.” Each side is permitted limited
Opinion                                                               forms of discovery: twenty-five interrogatories (including
                                                                      sub-parts), twenty-five requests for production or inspection
*344 HARRIET O'NEILL, Justice.                                        of documents or tangible things, and one oral deposition
                                                                      of no more than six hours. Parties may not use written
In this retaliatory-discharge case, the employee's employment
                                                                      depositions or requests for admission; the agreement prohibits
contract contains an arbitration agreement that requires
                                                                      discovery of either party's financial information except for
the employee to split arbitration costs up to a capped
                                                                      the employee's earnings if the employee seeks lost wages,
amount, limits discovery, eliminates punitive damages
                                                                      back pay, and/or front pay; and all aspects of the arbitration
and reinstatement remedies available under the Workers'
                                                                      are deemed confidential. Finally, the arbitrator is stripped
Compensation Act, and imposes other conditions on the
                                                                      of authority to award punitive, exemplary, or liquidated
arbitration process. We must decide whether any or all of
                                                                      damages, or to order reinstatement of employment.
these provisions are unconscionable and, if they are, whether
the contract's severability clause preserves the arbitration
                                                                      In December 2002, Luna suffered a work-related neck injury
right. We hold that the trial court did not abuse its discretion in
                                                                      when he accidentally hit his head on a pipe. Poly–America's
allowing the arbitrator to assess the unconscionability of the
                                                                      company doctor examined Luna and diagnosed him with an



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               9
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

acute cervical spine flexion injury. Luna subsequently filed      483 (Tex.2001). In In re Palacios, we recognized that it
a workers' compensation claim and began receiving physical        is “important for federal and state law to be as consistent
therapy. Approximately two weeks later, Luna returned to          as possible” in enforcement and review of provisions under
work on a release for light duty; however, Luna continued         the FAA. 221 S.W.3d 564, 565 (Tex.2006) (per curiam)
to suffer pain and utilized previously scheduled vacation         (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d
time to recover from his injury. After being warned by the        732, 739 (Tex.2005)). Federal courts may not review orders
company doctor that he needed to return to work and get off       compelling arbitration and staying litigation (“compel-and-
of workers' compensation if he wanted to keep his job, *345       stay orders”) by interlocutory appeal. See 9 U.S.C. § 16(b)
Luna returned to work without restrictions on January 10,         (1) (“[A]n appeal may not be taken from an interlocutory
2003. Upon his return, Luna noticed that another person was       order ... granting a stay of any action under Section 3
already being trained for his position, and he claims that his    of this title.”). Accordingly, as we noted in Palacios, it
supervisor began to harass him. One month later, Luna told        would be inappropriate to exercise our own mandamus power
his supervisor that his neck continued to bother him and that     in a manner inconsistent with the federal courts' practice.
he needed to return to the company doctor; the next day that      See Palacios, 221 S.W.3d at 565. Although mandamus
Luna was scheduled to work, he was fired.                         review is generally available in federal courts to review non-
                                                                  appealable interlocutory rulings, mandamus is granted only in
Luna filed this suit asserting claims for unlawful retaliatory    exceptional cases. See generally Gulfstream Aerospace Corp.
discharge under section 451.001 of the Labor Code                 v. Mayacamas Corp., 485 U.S. 271, 288–90 & n. 13, 108 S.Ct.
(“the Workers' Compensation Act”). TEX. LAB.CODE                  1133, 99 L.Ed.2d 296 (1988) (holding that, where a particular
§ 451.001–.003. Claiming that Poly–America acted with             order is not appealable, mandamus is available and “will be
malice, ill will, spite, or specific intent to cause injury, Luna appropriate in exceptional cases”). As we acknowledged in
sought both reinstatement and the imposition of punitive          Palacios, federal courts have applied this template to orders
damages. He additionally sought a declaratory judgment that       that cannot be appealed under the FAA, although they almost
the arbitration agreement was unenforceable because, among        never grant mandamus relief. 221 S.W.3d at 565–66 (“Even
other reasons, its provisions violated public policy and were     after Green Tree [Financial Corp.—Alabama v. Randolph,
unconscionable. Luna submitted two affidavits—his own,            531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000)], the
and that of an expert witness—in support of his claims.           Fifth Circuit has held that federal mandamus review of an
Poly–America responded with a motion to compel arbitration        order staying a case for arbitration may still be available if
which, after a hearing, the trial court granted.                  a party can meet a ‘particularly *346 heavy’ mandamus
                                                                  burden to show ‘clearly and indisputably that the district
Luna sought a writ of mandamus in the court of appeals,           court did not have the discretion to stay the proceedings
reasserting his argument that provisions of the arbitration       pending arbitration.’ ”) (quoting Apache Bohai Corp. v.
agreement were substantively unconscionable. The court of         Texaco China, B.V., 330 F.3d 307, 310–11 (5th Cir.2003)).
appeals held that, in light of the fee-splitting provisions       This general rule has been broadly applied to unappealable
and limitations on remedies, the arbitration agreement as a       ancillary interlocutory orders in proceedings under the FAA,
whole was substantively unconscionable. 175 S.W.3d 315,           see, e.g., Georgiou v. Mobil Exploration & Prod. Servs., Inc.
318. Poly–America sought review in this Court. We hold            U.S., 190 F.3d 538, 1999 WL 642871 at *3 (5th Cir. July
that the arbitration agreement's provision that eliminates        27, 1999) (dismissing appeal of order staying litigation in
available remedies under the Workers' Compensation Act            favor of arbitration proceeding in foreign forum, and denying
is unenforceable, but we find that provision severable from       mandamus because plaintiffs failed to carry the “particularly
the arbitration agreement as a whole and conditionally grant      heavy burden” to warrant mandamus relief from such an
Poly–America's writ of mandamus.                                  order); Cofab Inc. v. Phila. Joint Bd., Amalgamated Clothing
                                                                  & Textile Workers Union, AFL–CIO–CLC, 141 F.3d 105, 110
                                                                  (3d Cir.1998); and appears to also apply to compel-and-stay
                                                                  orders under section 16(b)(1), see Douglas v. U.S. Dist. Court,
                    II. Standard of Review
                                                                  495 F.3d 1062, 1065 (9th Cir.2007) (granting mandamus
 [1] [2] Mandamus is the proper means by which to seek relief from compel-and-stay order); Manion v. Nagin, 255
review of an order compelling arbitration under the FAA.          F.3d 535, 538–40 & n. 4 (8th Cir.2001) (dismissing appeal
In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480,             of various interlocutory orders, including order compelling



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           10
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

arbitration, and denying mandamus because Manion had            furthermore that the FAA preempts all state public-policy
not made “any showing that he [was] entitled to such            grounds for finding the agreement to arbitrate unenforceable.
extraordinary relief”); McDermott Int'l, Inc. v. Underwriters   See In re R & R Personnel Specialists of Tyler, Inc., 146
at Lloyds Subscribing to Memorandum of Ins. No. 104207,         S.W.3d 699, 705 (Tex.App.—Tyler2004) (holding that the
981 F.2d 744, 748 (5th Cir.1993) (“This court has recognized    FAA preempts “any public policy underlying the Texas
that [mandamus review of an order compelling arbitration]       workers' compensation statutes that is contrary to the
may be available [but] McDermott has failed to satisfy [the]    enforceability of arbitration agreements”). Because neither
demanding standard.”).    1                                     this presumption nor federal preemption applies in a state
                                                                court's assessment of whether parties have entered into a valid
 [3]    [4]     [5] Although federal precedent in this area and enforceable agreement to arbitrate under state contract
is not uniformly clear, it appears a federal court would        law, we disagree.
be permitted—albeit not compelled—to address the merits
of the mandamus arguments in this case. If such                  [8]    Section 2 of the FAA provides that arbitration
review were categorically unavailable and unconscionability     agreements    “shall be valid, irrevocable, and enforceable,
determinations the sole realm of arbitrators, as the dissenting save  upon  such  grounds as exist at law or in equity for the
Justice proposes, development of the law as to this threshold   revocation of any contract.” 9 U.S.C. § 2 (emphasis added).
issue would be substantially hindered if not precluded          Thus, an agreement to arbitrate is valid under the FAA if
altogether. Nevertheless, federal precedent counsels against    it meets the requirements of the general contract law of the
granting relief unless the stringent requirements for           applicable state. In re AdvancePCS Health L.P., 172 S.W.3d
mandamus are met. See Gulfstream, 485 U.S. at 289, 108          603, 606 (Tex.2005) (citing First Options of Chicago, Inc.
S.Ct. 1133. Federal courts grant mandamus only upon             v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d
demonstration of a “clear and indisputable” right to issuance   985  (1995)). In determining the validity of an agreement to
of the writ: “First, the party seeking the issuance of the writ arbitrate under the FAA, courts must first apply state law
must have no other adequate means to attain the relief he       governing contract formation. See 9 U.S.C. § 2; First Options,
desires.... Second, the petitioner must satisfy the burden of   514 U.S. at 944, 115 S.Ct. 1920.
showing that his right to issuance of the writ is clear and
indisputable. Third ... the issuing court, in the exercise of its    [9] [10] The United States Supreme Court has repeatedly
discretion, must be satisfied that the writ is appropriate under    emphasized that “state law, whether of legislative or judicial
the circumstances.” Cheney v. U.S. Dist. Court, 542 U.S. 367,       origin, is applicable [to the determination of the validity of
380–81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004). Our own             an agreement to arbitrate] if that law arose to govern issues
mandamus standard is similar, requiring a demonstration that        concerning the validity, revocability, and enforceability of
 *347 the trial court clearly abused its discretion by failing      contracts generally.” Perry v. Thomas, 482 U.S. 483, 493
to correctly analyze or apply the law and a determination that      n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). Thus, courts
the benefits of mandamus outweigh the detriments such that          “may not ... invalidate arbitration agreements under state laws
an appellate remedy is inadequate. See In re Prudential Ins.        applicable only to arbitration provisions.” Doctor's Assocs.,
Co. of Am., 148 S.W.3d 124, 135–36 (Tex.2004). Because              Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134
arbitration is intended to provide a lower-cost, expedited          L.Ed.2d 902 (1996); see also Perry, 482 U.S. at 493 n. 9,
means to resolve disputes, mandamus proceedings will often,         107 S.Ct. 2520 (“A state-law principle that takes its meaning
if not always, deprive the parties of an arbitration agreement's    precisely from the fact that a contract to arbitrate is at issue
intended benefits when a compel-and-stay order is at issue;         does not comport with [section 2].”).
accordingly, courts should be hesitant to intervene. With these
standards in mind, we turn to the compel-and-stay order in   [11] [12] However, the purpose and language of the FAA
this case.                                                  require only that agreements to arbitrate be placed “upon
                                                            the same footing as other contracts.” Doctor's Assocs., 517
                                                            U.S. at 687, 116 S.Ct. 1652 (quoting Scherk v. Alberto–
                                                            Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41 L.Ed.2d 270
  III. Unconscionability and the Federal Arbitration Act    (1974)) (emphasis added); see also H.R. REP. NO. 68–96, at
                                                            1 (1924) (noting that by enacting section 2, Congress sought
 [6]    [7] Poly–America argues that the FAA's “strong
                                                            to place agreements to arbitrate “upon the same footing as
presumption” favoring arbitration applies in this case, and


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                          11
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

other contracts, where [they] belong[ ]”). Perry makes clear      Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex.1996); Cantella &
that state courts may not fashion special rules regarding         Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996).
the enforceability *348 of arbitration contracts per se. See
Perry, 482 U.S. at 492 n. 9, 107 S.Ct. 2520. Furthermore,       [16] [17] [18] [19] Unconscionable contracts, however
once an enforceable contract to arbitrate is found, there is   —whether relating to arbitration or not—are unenforceable
a strong federal presumption in favor of arbitration such      under Texas law. A contract is unenforceable if, “given the
that myriad doubts—as to waiver, scope, and other issues       parties' general commercial background and the commercial
not relating to enforceability—must be resolved in favor       needs of the particular trade or case, the clause involved is so
of arbitration. See, e.g., In re FirstMerit Bank, 52 S.W.3d    one-sided that it is unconscionable under the circumstances
749, 752 (Tex.2001); Prudential Sec. Inc. v. Marshall, 909     existing when the parties made the contract.” FirstMerit
S.W.2d 896, 898–99 (Tex.1995). However, a state court          Bank, 52 S.W.3d at 757; see also In re Halliburton
must initially determine—through the neutral application of    Co., 80 S.W.3d 566, 571 (Tex.2002) (“[S]ubstantive
its own contract law—whether an enforceable agreement          unconscionability ... refers to the fairness of the arbitration
exists in the first instance, and whether “generally applicableprovision itself.”). Unconscionability is to be determined in
contract defenses ... may be applied to invalidate arbitration light of a variety of factors, which aim to prevent oppression
agreements without contravening” the policies of the FAA.      and unfair surprise; in general, a contract will be found
Doctor's Assocs., 517 U.S. at 687, 116 S.Ct. 1652. Thus, in    unconscionable if it is grossly one-sided. See DAN B.
this case, if a contract limiting damages or restricting other DOBBS, 2 LAW OF REMEDIES 703, 706 (2d ed.1993);
remedies under the Workers' Compensation Act is generally      see also RESTATEMENT (SECOND) OF CONTRACTSS
unenforceable under Texas law, an arbitration contract with    § 208, cmt. a (1979) (“The determination that a contract
these same limitations will also be unenforceable.             or term is or is not unconscionable is made in the light
                                                               of its setting, purpose, and effect. Relevant factors include
 [13]     [14] Nevertheless, under Texas law, as with any weaknesses in the contracting process like those involved in
other contract, agreements to arbitrate are valid unless       more specific rules as to contractual capacity, fraud, and other
grounds exist at law or in equity for revocation of the        invalidating causes; the policy also overlaps with rules which
agreement. The burden of proving such a ground—such            render particular *349 bargains or terms unenforceable on
as fraud, unconscionability or voidness under public policy    grounds of public policy.”). Although not subject to precise
—falls on the party opposing the contract. See FirstMerit      doctrinal definition, see Sw. Bell Tel. Co. v. DeLanney, 809
Bank, 52 S.W.3d at 756. Thus, while we reject Poly–            S.W.2d 493, 498 (Tex.1991) (GONZALEZ, J., concurring),
America's assertions that we must apply a presumption          unconscionability—as delineated by the above principles—
favoring arbitration in assessing whether the parties entered  has been recognized and applied by this Court for well over
into an enforceable agreement under Texas law and that         a century. See, e.g., Flanagan v. Pearson, 61 Tex. 302,
the FAA preempts Texas public policies that may make           307 (1884); Fowler v. Stoneum, 11 Tex. 478, 493 (1854);
certain contractual provisions generally unenforceable, Luna   Hemming v. Zimmerschitte, 4 Tex. 159, 166 (1849); Luckett
nevertheless bears the burden to establish that the challenged v. Townsend, 3 Tex. 119, 131 (1848).
provisions are unenforceable.
                                                                [20] [21] Whether a contract is contrary to public policy
                                                               or unconscionable at the time it is formed is a question
                                                               of law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557,
IV. Arbitration and Unconscionability Under Texas Law
                                                               562 (Tex.2006). Because a trial court has no discretion to
                                                               determine what the law is or apply the law incorrectly,
                    A. General Standard                        its clear failure to properly analyze or apply the law of
                                                               unconscionability constitutes an abuse of discretion. See
 [15] Agreements to arbitrate disputes between employers Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992).
and employees are generally enforceable under Texas law;
there is nothing per se unconscionable about an agreement
to arbitrate employment disputes and, in fact, Texas law has
historically favored agreements to resolve such disputes by                 B. Arbitration and Statutory Rights
arbitration. See Advance PCS, 172 S.W.3d at 608; EZ Pawn




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                      12
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

 [22]      [23]     [24]     An arbitration agreement covering [26] [27] [28] The Texas Workers' Compensation Act
statutory claims is valid so long as the arbitration agreement    was enacted to protect Texas *350 workers and employees.
does not waive the substantive rights and remedies the            Fid. & Cas. Co. of N.Y. v. McLaughlin, 134 Tex. 613, 135
statute affords and the arbitration procedures are fair, such     S.W.2d 955, 956 (1940). The Texas Legislature enacted the
that the employee may “effectively vindicate his statutory        original Workers' Compensation Act in 1913 in response to
rights.” In re Halliburton, 80 S.W.3d at 572. Federal courts,     the needs of workers who, despite a growing incidence of
analyzing the enforceability of arbitration provisions relating   industrial accidents, were increasingly being denied recovery.
to federal statutory claims, have noted that such contracts       Kroger Co. v. Keng, 23 S.W.3d 347, 350 (Tex.2000); Tex.
are not enforceable when a party is forced to “forgo the          Workers' Compensation Comm'n v. Garcia, 893 S.W.2d 504,
substantive rights afforded by the statute,” as opposed to        510 (Tex.1995). In order to ensure compensation for injured
merely “submit[ting] to resolution in an arbitral, rather than a  employees while protecting employers from the costs of
judicial, forum.” Mitsubishi Motors Corp. v. Soler Chrysler–      litigation, the Legislature provided a mechanism by which
Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87             workers could recover from subscribing employers without
L.Ed.2d 444 (1985). In the context of federal claims, either      regard to the workers' own negligence, see Kroger, 23
an expression of federal intent to exclude certain categories     S.W.3d at 351, while limiting the employers' exposure to
of claims from arbitration, see Gilmer v. Interstate/Johnson      uncertain, possibly high damage awards permitted under the
Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d          common law, see Reed Tool Co. v. Copelin, 689 S.W.2d
26 (1991), or the excessive waiver of statutory rights, see       404, 407 (Tex.1985). In light of the purposes of the Workers'
Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346, may render a         Compensation Act as a whole, “[i]t is the settled policy
particular dispute un-arbitrable. State courts, bound by the      of this State to construe liberally the provisions of the ...
FAA under the supremacy clause, have more limited power,          [l]aw, in order to effectuate the purposes for which it was
as the FAA preempts state laws that specifically disfavor         enacted.” Huffman v. S. Underwriters, 133 Tex. 354, 128
arbitration. Perry, 482 U.S. at 492 n. 9, 107 S.Ct. 2520; see     S.W.2d 4, 6 (1939) (citations omitted). As we have recently
Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992)       noted, “[b]ecause we should liberally construe the Workers'
(holding that the FAA preempts state statutes to the extent       Compensation Act in favor of the injured worker, a strained
they are inconsistent with the FAA's purpose to require courts    or narrow construction of [the Act] would be improper.
to compel arbitration when the parties have so provided in        Moreover, it would be injudicious to construe the statute
their contracts).                                                 in a manner that supplies by implication restrictions on
                                                                  an employee's rights that are not found in ... [the] plain
 [25] However, where a particular waiver of substantive language.” Kroger, 23 S.W.3d at 349.
remedies or other provision of a contract is unconscionable
—independent of the agreement to arbitrate—it will be              [29] [30] The Texas Workers' Compensation Act provides
unenforceable even though included in an agreement to             that a subscriber to the workers' compensation system may
arbitrate. See Gilmer, 500 U.S. at 33, 111 S.Ct. 1647             not “discharge or in any other manner discriminate against
(“[A]rbitration agreements are enforceable, ‘save upon such       an employee because the employee has ... filed a workers'
grounds as exist at law or in equity for the revocation of        compensation claim in good faith.” TEX. LAB.CODE
any contract.’ ”) (quoting 9 U.S.C. § 2). To determine the        § 451.001–.001(1). The Legislature's purpose in enacting
permissibility of restrictions on a particular worker's access to section 451.001 was to protect persons entitled to benefits
statutory rights, we analyze the provisions of the actual statute under the Act and to prevent them from being discharged
at issue; thus, to analyze the enforceability of the various      for seeking to collect those benefits. See Tex. Steel Co. v.
restrictions and waivers in the employment contract at issue      Douglas, 533 S.W.2d 111, 115 (Tex.Civ.App.-Fort Worth
in this case, we turn to the retaliatory-discharge provisions of  1976, writ ref'd n.r.e.). Since recovery of benefits under
the Texas Workers' Compensation Act, TEX. LAB.CODE §§             the Workers' Compensation Act is the exclusive remedy
451.001–.003.                                                     available to injured employees of subscribing employers, see
                                                                  TEX. LAB.CODE § 408.001(a), the availability of remedies
                                                                  for retaliatory discharge protects employees' exercise of
                                                                  their statutory rights to compensation under the Act. See
     C. Purpose and Structure of the Texas Workers'
                                                                  Padilla v. Carrier Air Conditioning, 67 F.Supp.2d 650, 664
     Compensation Act's Anti–Retaliation Provisions
                                                                  (E.D.Tex.1999); Mid–South Bottling Co. v. Cigainero, 799



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                      13
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

S.W.2d 385, 389 (Tex.App.-Texarkana 1990, writ denied).              of procedural and substantive limits on the employee's rights.
In accordance with these principles, the anti-retaliation            We must analyze the challenged limitations in light of the
provisions of the Act must protect employees even before             policies underlying the Workers' Compensation Act, and
they have actually filed a claim, because otherwise “the law         the purposes of its anti-retaliation provisions, to determine
would be completely useless and would not accomplish the             whether they improperly shift the cost of injury from a
purpose for which it was enacted.... [A]ll the employer would        subscribing employer onto its employees in contravention of
have to do in order to avoid the consequences of the statute         the Act's provisions. Cf. Lawrence v. CDB Servs., Inc., 44
would be to fire the injured workman before he filed the             S.W.3d 544, 550 (Tex.2001) (noting that the agreements did
claim.” Tex. Steel Co., 533 S.W.2d at 115.                           not “shift the risk of on-the-job injuries to the employees”);
                                                                     see also Gentry v. Superior Court, 42 Cal.4th 443, 456, 64
 [31] “The decisions of this State do not look with favor            Cal.Rptr.3d 773, 782, 165 P.3d 556 (2007), cert. denied 552
upon contracts waiving rights arising under the Workmen's            U.S. 1296, 128 S.Ct. 1743, 170 L.Ed.2d 541 (2008) (noting
Compensation Law.” Huffman, 128 S.W.2d at 6. Such                    that under California law, when an employee is bound by a
waivers affect not only the individual employee subject to           predispute arbitration agreement to adjudicate nonwaivable
the waiver, but also the public, which bears the cost of the         statutory employment rights, the arbitration agreement may
workers' compensation program. See Holt v. Cont'l Group,             not limit damages, discovery must be sufficient to arbitrate
Inc., 708 F.2d 87, 91 (2d Cir.1983) (“A retaliatory discharge        the claim, there must be a written arbitration decision, and the
carries with it the distinct risk that other employees may           employer must pay all costs “unique to arbitration”).
be deterred from protecting their rights under the Act.”).
Therefore, we *351 have invalidated contracts that purport
to relieve employers of their obligations under the Workers'
                                                                             V. The Challenged Arbitration Provisions
Compensation Act. See James v. Vernon Calhoun Packing
Co., 498 S.W.2d 160, 162 (Tex.1973) (noting that “[w]e are
much impressed with the idea that there is a large element                            A. Limitation of Remedies
of public interest in the administration of [the Workers'
                                                                      [32] [33] The Workers' Compensation Act specifies that
Compensation Act]”); Hazelwood v. Mandrell Indus. Co.,
                                                                     “[a] person who violates section 451.001 is liable for
596 S.W.2d 204, 206 (Tex.Civ.App.-Houston [1st Dist.]
                                                                     reasonable damages incurred by the employee as a result
1990, writ ref'd n.r.e.) (“If ... this balance [established by the
                                                                     of the violation,” and that “[a]n employee discharged in
Act] is tipped so that the employee's benefits under the statute
are substantially reduced, the clear intent of the legislature is    violation of section 451.001 is entitled to reinstatement
thwarted.”). We have likewise held unenforceable contracts           in the former position of employment.” TEX. LAB.CODE
                                                                     § 451.002(a)-(b). We have previously explained that
that explicitly relieve employers of tort liability, relying
                                                                     “reasonable damages” are not limited to actual damages, see
either on common law prohibitions against such contracts,
see Barnhart v. Kansas City M. & O. Ry. Co. of Tex., 107             Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex.1987),
                                                                     but may include future damages, as well as exemplary or
Tex. 638, 184 S.W. 176, 179 (1916), or upon the Workers'
                                                                     punitive damages when it is shown that the employer acted
Compensation Act, see Petroleum Cas. Co. v. Smith, 274
                                                                     with actual malice in retaliating against the employee for
S.W.2d 150, 151 (Tex.Civ.App.-San Antonio 1954, writ
                                                                     filing a workers' compensation claim. See Cont'l Coffee
ref'd) (noting that “[t]he right to workmen's compensation is
                                                                     Prods. v. Cazarez, 937 S.W.2d 444, 454 (Tex.1996);
statutory, and cannot be abridged by private agreements or
                                                                      *352 Carnation Co. v. Borner, 610 S.W.2d 450, 454–55
special applications for employment”); Clevenger v. Burgess,
                                                                     (Tex.1980). The arbitration agreement in this case eliminates
31 S.W.2d 675, 678 (Tex.Civ.App.-Beaumont 1930, writ
                                                                     two types of remedies available under the anti-retaliation
ref'd); Tex. Employers Ins. Ass'n v. Peppers, 133 S.W.2d
                                                                     provisions of the Workers' Compensation Act, prohibiting the
165, 167 (Tex.Civ.App.-Galveston 1939, writ dism'd) (“[T]he
                                                                     arbitrator from ordering reinstatement or awarding punitive
courts will not enforce contracts which are either expressly or
                                                                     damages. See TEX. LAB.CODE § 451.002 (providing
impliedly prohibited by the [Workers' Compensation] Act.”).
                                                                     for reinstatement and an award of reasonable damages).
                                                                     Luna contends these limitations render the agreement
This case concerns the validity of a subscribing employer's
                                                                     unconscionable and unenforceable because they prevent him
use of an agreement that, in the course of requiring arbitration
                                                                     from effectively vindicating his statutory rights in arbitration,
between the parties in work-related disputes, imposes a series
                                                                     thus undercutting the basic assumptions of the FAA. See


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              14
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

Gilmer, 500 U.S. at 28, 111 S.Ct. 1647 (noting that claims            endorse Poly–America's position and permit enforcement of
under other federal statutes are appropriate for arbitration so       these remedy limitations, a subscribing employer could avoid
long as the litigant can effectively vindicate any statutory          the Act's penalties by conditioning employment upon waiver
rights). The court of appeals agreed with Luna. 175 S.W.3d at         of the very provisions designed to protect employees who
323–24. Although it noted other courts' decisions upholding           have been the subject of wrongful retaliation.
punitive-damages waivers, id. at 323, and further noted that
preclusion of statutory remedies may not always portend               Our decision in Lawrence, 44 S.W.3d 544, is fully consistent
unconscionability, id., the court held that the preclusion of         with this view. There, employees of a non-subscribing
remedies here interfered with Luna's ability to bring his             employer *353 elected, after they were hired, to participate
retaliatory-discharge claim under the Workers' Compensation           in an employer benefit plan that would provide injured
Act and thus weighed toward the contract's unconscionability,         employees with specified benefits in lieu of common law
id.                                                                   remedies. Id. at 545–46. We refused to void the agreement
                                                                      on public-policy grounds, discerning “no clear legislative
Poly–America argues that the court of appeals' decision               intent to prohibit agreements such as those presented.” Id.
conflicts with Pony Express Courier Corp. v. Morris, 921              at 545. We emphasized that participation in the workers'
S.W.2d 817, 822 (Tex.App.-San Antonio 1996, no writ),                 compensation program is voluntary for employers in Texas,
and decisions of other courts indicating that limitations of          and that courts are ill equipped to weigh whether a
remedies are permissible, e.g., Inv. Partners v. Glamour              non-subscribing employer's particular benefits plan would
Shots Licensing, Inc., 298 F.3d 314, 318 n. 1 (5th Cir.2002).         undermine the purposes of the Workers' Compensation Act.
Because we view the anti-retaliation provisions of the                See id. at 551–53. 2 Our decision was specifically tailored
Workers' Compensation Act as a non-waivable legislative               to non-subscribing employers who elected not to participate
system for deterrence necessary to the nondiscriminatory              in the workers' compensation program. Importantly, we
and effective operation of the Texas Workers' Compensation            distinguished cases involving contracts imposed as a
system as a whole, we agree with Luna that the provisions             condition of employment, emphasizing that “[t]he distinction
eliminating key remedies under the statute are unenforceable.         between an employment contract that requires a prospective
                                                                      employee, as a condition of the receipt or retention of
 [34] An arbitration agreement covering statutory claims              employment, to agree to limit the employer's liability ... and
is valid so long as “the arbitration agreement does not               a voluntary occupational insurance program, in which the
waive substantive rights and remedies of the statute and the          employee has the option to enroll ... is decisive.” Lawrence,
arbitration procedures are fair so that the employee may              44 S.W.3d at 550 (quoting Brito v. Intex Aviation Servs., Inc.,
effectively vindicate his statutory rights.” In re Halliburton,       879 F.Supp. 650, 654 (N.D.Tex.1995)) (citing Clevenger, 31
80 S.W.3d at 572. “ ‘[B]y agreeing to arbitrate a statutory           S.W.2d at 678; Barnhart, 184 S.W. at 176)).
claim, a party does not forgo the substantive rights afforded
by the statute; it only submits to their resolution in an arbitral,   This case presents just such a liability-limiting provision,
rather than a judicial, forum.’ ” Gilmer, 500 U.S. at 26,             imposed as a condition of employment, which we suggested
111 S.Ct. 1647 (quoting Mitsubishi, 473 U.S. at 628, 105              in Lawrence would violate public policy. See id. Such waivers
S.Ct. 3346). In this case, Luna contends Poly–America acted           would allow subscribing employers to enjoy the Act's limited-
with actual malice in unlawfully discharging him, a claim             liability benefits while exposing workers to exactly the sort
for which the Workers' Compensation Act allows punitive               of costs—of injuries paid for by the employee for fear of
damages. See TEX. LAB.CODE § 451.002; Azar Nut Co.,                   retribution for making a claim—that the Act is specifically
734 S.W.2d at 668. Permitting an employer to contractually            designed to shift onto the employer. The balance established
absolve itself of this statutory remedy would undermine               by the Act is thus “tipped so that the employee's benefits
the deterrent purpose of the Workers' Compensation Act's              under the statute are substantially reduced, [and] the clear
anti-retaliation provisions. In creating the Texas Workers'           intent of the legislature is thwarted.” Hazelwood, 596 S.W.2d
Compensation Act, the Legislature carefully balanced                  at 206. As we have previously refused to enforce private
competing interests—of employees subject to the risk of               agreements that allow subscribing employers to reap the
injury, employers, and insurance carriers—in an attempt to            system's benefits while burdening employees with the cost
design a viable compensation system, all within constitutional        of injury, so too we find the provisions of the present
limitations. See Garcia, 893 S.W.2d at 521. Were we to                contract—which substantively limit Poly–America's liability



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              15
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

for wrongful retaliation and thereby undermine the deterrent       proper circumstances under which a trial court should hold a
regime the Legislature specifically designed to protect Texas      full evidentiary hearing on a motion to compel arbitration:
workers—void under Texas law. See Tex. Steel, 533 S.W.2d
at 115; Holt, 708 F.2d at 91.                                                  Because the main benefits of
                                                                               arbitration lie in expedited and less
                                                                               expensive disposition of a dispute,
                                                                               and the legislature has mandated
                 B. Fee–Splitting Provision                                    that a motion to compel arbitration
                                                                               be decided summarily, we think it
The arbitration agreements provide that, in the event of a
                                                                               unlikely that the legislature intended
claim, all fees related to arbitration—including but not limited
                                                                               the issue to be resolved following
to mediation fees, the arbitrators' fees, costs of procuring a
                                                                               a full evidentiary hearing in all
location for a hearing, and court reporter fees—will be split
                                                                               cases. We also envision that the
equally between the employer and the employee, with the
                                                                               hearing at which a motion to compel
employee's contribution capped at an amount equal to “the
                                                                               arbitration is decided would ordinarily
gross compensation earned by the Employee in Employee's
                                                                               involve application of the terms of the
highest earning month in the twelve months prior to the time
                                                                               arbitration agreement to undisputed
the arbitrator issues his award.” The court of appeals held
                                                                               facts, amenable to proof by affidavit.
that this provision “weigh[ed] heavily toward a finding of
                                                                               With these considerations in mind, we
substantive unconscionability.” 175 S.W.3d at 322. Poly–
                                                                               hold that the trial court may summarily
America argues that this was clear error: first, because the
                                                                               decide whether to compel arbitration
court of appeals improperly inferred that Luna could not
                                                                               on the basis of affidavits, pleadings,
afford likely arbitration costs based solely on subjective
                                                                               discovery, and stipulations. However,
evidence and, second, because it failed to compare such costs
                                                                               if the material facts necessary to
to the *354 expected costs of litigation. 3 Luna responds that                 determine the issue are controverted,
it was Poly–America that failed to present evidence of the                     by an opposing affidavit or otherwise
comparative cost of litigation and that the evidence presented                 admissible evidence, the trial court
was sufficient to allow an objective determination that the                    must conduct an evidentiary hearing to
likely costs of arbitration were beyond Luna's financial                       determine the disputed material facts.
means. We begin with the evidentiary challenge.
                                                               Id. Because the only facts Luna presented on the motion
                                                               to compel were uncontroverted under this standard—Luna's
                                                               affidavits accompanying his original petition were neither
                  1. Evidentiary Challenge
                                                               contradicted nor challenged in Poly–America's response—we
 [35] [36] Poly–America claims that the court of appeals, by believe the court of appeals acted properly in crediting those
crediting Luna's factual allegations concerning his financial  facts on appeal.
inability to share arbitration costs, improperly applied a new
evidentiary standard that will require all parties seeking     Luna attached to his original petition his own affidavit and
to compel arbitration to engage in expensive discovery         that of an expert witness providing detailed estimates of the
whenever a resisting party submits cursory and subjective      likely cost of arbitration in Luna's case, and Luna's expected
evidence that arbitration costs are “unaffordable.” This       share under the agreement's capped fee-splitting provision
evidentiary burden, Poly–America argues, is contrary to        based on his monthly salary (approximately $3,300.00) as
Texas law and policy that supports summary disposition of      a Poly–America supervisor. Luna described his anticipated
motions to compel arbitration. In response, Luna contends      share of the arbitration costs as “way more money than I can
the facts upon which the court of appeals relied could have    afford,” and averred that, if he *355 had to pay such an
been controverted by affidavit or cross-examination, which     amount to have his claim determined, he would be unable to
Poly–America failed to do; consequently, the court of appeals  pursue his claim against the company unless he could find
based its ruling on the undisputed facts established by Luna's an attorney willing to pay those fees. Luna recounted that he
affidavits. Both parties cite Anglin, 842 S.W.2d at 269, to    had attempted to retain two attorneys, but they had refused
support their respective positions. There, we defined the


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                        16
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

to represent him on a contingent-fee basis because of the            America's estimates, would greatly exceed the capped cost
arbitration agreement.                                               of arbitration—and Luna failed to provide any evidence of
                                                                     the actual cost of arbitration that he would bear. Although we
Poly–America did not dispute these facts but asserted legal          have no doubt that some fee-splitting provisions may operate
arguments in its pleadings that the cost provisions, as written      to discourage employees like Luna from seeking vindication
or as applied, were not unconscionable under Texas law. At           of their rights under the Workers' Compensation Act, we must
the hearing on its motion to compel, Poly–America again              agree with Poly–America that the trial court did not abuse its
asserted only legal arguments in response to Luna's challenge        discretion in ordering arbitration in this case.
to the cost-splitting provision. There is no indication in the
record that the trial court discredited or otherwise viewed the      Courts across the country have universally condemned the use
facts recited in Luna's affidavits as insufficient; rather, on       of fee-splitting agreements in employment contracts that have
the basis of Poly–America's legal arguments, the trial court         the effect of deterring potential litigants from vindicating their
granted the motion to compel. This disposition was consistent        statutory rights in an arbitral forum. See Green Tree, 531
with our statements in Anglin in which we indicated that             U.S. at 90–91, 121 S.Ct. 513. Some courts have gone so far
motions to compel should be decided summarily unless                 as to find fee-sharing agreements unenforceable per se. See,
disputed issues of fact require a full evidentiary hearing. See      e.g., Cole v. Burns Int'l Sec. *356 Servs., 105 F.3d 1465,
id.                                                                  1483–85 (D.C.Cir.1995), cited in Halliburton, 80 S.W.3d at
                                                                     572; Shankle v. B–G Maint. Mgmt. of Colo., Inc., 163 F.3d
However, the court of appeals clearly differed from the              1230, 1233–35 (10th Cir.1999); Paladino v. Avnet Computer
trial court in its view of the law. It held that the trial           Techs., Inc., 134 F.3d 1054, 1062 (11th Cir.1998). These
court's granting of the motion to compel—in light of Luna's          courts reason that “an employee can never be required, as a
averred inability to afford his likely arbitration costs and the     condition of employment, to pay an arbitrator's compensation
agreement's other limitations—was an abuse of discretion.            in order to secure the resolution of statutory claims.... [T]his
175 S.W.3d at 318–20. In doing so, the court of appeals              would surely deter the bringing of arbitration and constitute a
properly credited the undisputed facts contained in Luna's           de facto forfeiture of statutory rights.” Cole, 105 F.3d at 1468;
affidavits as to the total expected cost of arbitration and Luna's   accord Shankle, 163 F.3d at 1235 (“Such a result clearly
anticipated share based upon his pre-termination monthly             undermines the remedial and deterrent functions of ... anti-
income. Id. at 319–20. Poly–America contends the court of            discrimination laws.”).
appeals improperly ruled based on Luna's subjective, and thus
practically incontrovertible, belief that he could not afford         [37]     [38] We agree that fee-splitting provisions that
arbitration, which does not satisfy this Court's requirements        operate to prohibit an employee from fully and effectively
of “specific” evidence to support claims of unconscionably           vindicating statutory rights are not enforceable. See
expensive arbitration. See In re U.S. Home Corp., 236 S.W.3d         Halliburton, 80 S.W.3d at 572. However, this Court joins the
761, 764 (Tex.2007). However, the court of appeals relied not        majority of other courts which—though recognizing the same
solely upon Luna's belief but upon his and his expert's specific     policy concerns articulated by courts holding fee-splitting
monetary estimates, which provided objective support for             arrangements per se unconscionable—require some evidence
Luna's uncontroverted claim that arbitration costs would             that a complaining party will likely incur arbitration costs in
preclude his pursuit of the lawsuit. See 175 S.W.3d at               such an amount as to deter enforcement of statutory rights in
319. The court of appeals did not, therefore, rely solely on         the arbitral forum. See U.S. Home Corp., 236 S.W.3d at 764;
subjective and incontrovertible allegations.                         FirstMerit Bank, 52 S.W.3d at 756–57. As federal courts have
                                                                     likewise recognized:

                                                                                  [I]n some cases, the potential of
     2. Unconscionability of Fee–Splitting Provisions                             incurring large arbitration costs and
                                                                                  fees will deter potential litigants from
Poly–America alternatively challenges the court of appeals'
                                                                                  seeking to vindicate their rights in the
conclusion that the agreement's cost-allocation provisions
                                                                                  arbitral forum.... [I]f the fees and costs
favor a finding of unconscionability because the court did
                                                                                  of the arbitral forum deter potential
not consider the relative costs that Luna would likely incur if
                                                                                  litigants, then that forum is clearly
the case were litigated in court—costs that, based on Poly–
                                                                                  not an effective, or even adequate,


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               17
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

             substitute for the judicial forum....                 based estimation of Luna's wages in the relevant time period
             [T]he burden of demonstrating that                    and, thus, no evidence of his likely share of arbitration costs.
             incurring such costs is likely under
             a given set of circumstances rests, at                Just as we allow litigants who demonstrate an inability to
             least initially, with the party opposing              pay costs to proceed with their claims in court, however,
             arbitration.                                          we see nothing that would prevent arbitrators from fairly
                                                                   adjusting employee cost provisions when necessary to allow
Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659–60        full vindication of statutory rights in the arbitral forum.
(6th Cir.2003); accord Bradford v. Rockwell Semiconductor          See TEX.R. CIV. P. 145. The contract presented in this
Sys., Inc., 238 F.3d 549, 556 (4th Cir.2001); Rosenberg v.         case specifically provides that the arbitrator may modify
Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 16        unconscionable terms; if the cost provisions precluded Luna's
(1st Cir.1999).                                                    enforcement of his non-waivable statutory rights, they would
                                                                   surely be unconscionable for the reasons we have explained
 [39] Luna contends the magnitude of the fee he could              and the arbitrator would be free to modify them. The arbitrator
incur under the arbitration agreement, which he estimates to       is better situated to assess whether the cost provision in
be as high as $3,300, will prevent him from pursuing his           this case will hinder effective vindication of Luna's statutory
claim. Poly–America counters that litigation costs would be        rights and, if so, to modify the contract's terms accordingly.
much higher, and therefore the arbitration agreement's capped      See Halliburton, 80 S.W.3d at 572. We conclude the trial
cost-splitting provision benefits the employee and cannot be       court did not abuse its discretion in refusing to declare the
unconscionable. It is true that in evaluating the enforceability   contract's cost-splitting provision unconscionable and nullify
of fee-splitting provisions, some courts take into account         the arbitration agreement.
the relative costs of arbitration versus litigation. See, e.g.,
Bradford, 238 F.3d at 556 n. 5 (focusing upon “a claimant's
expected or actual arbitration costs and his ability to pay
those costs, measured against a baseline of the claimant's                          C. Discovery Limitations
expected costs for litigation and his ability to pay those
                                                                    [40] The 2002 agreement provides that each party may
costs”). However, at this stage of the proceedings, much of
                                                                   serve on the other a single set of twenty-five interrogatories
this evidence is necessarily speculative, and thus counsels
                                                                   (including sub-parts) and one set of twenty-five requests for
against a court's ex ante interference with arbitration.
                                                                   production or inspection of documents or tangible things.
                                                                   Additionally, the agreement includes limitations alleged by
We do not doubt that arbitration costs might be so high in
                                                                   Luna to be unconscionable: (1) a limitation of each party to a
a given case as to preclude access to the forum. But “the
                                                                   single, six-hour deposition; (2) a prohibition on requests for
‘risk’ that [a claimant] will be saddled with prohibitive costs
                                                                   admission; (3) a ban on inquiry into Poly–America's finances;
is too speculative to justify the invalidation of an arbitration
                                                                   and (4) a confidentiality provision requiring confidentiality
agreement.” Green Tree, 531 U.S. at 91, 121 S.Ct. 513. Luna
                                                                   of the parties and their attorneys regarding all aspects of the
has not demonstrated that the ability to pursue his claim in
                                                                   arbitration. Luna contends these limitations make it virtually
the arbitral forum hinges upon his payment of the estimated
                                                                   impossible for him to prove his claim of retaliatory discharge
costs; to the contrary, depending upon the circumstances,
                                                                   and render the arbitration agreement unconscionable.
Luna may not have to bear any cost at all, and *357
Poly–America has presented some evidence that the capped
                                                                   Although an issue of first impression in this Court, several
cost-splitting arrangement may even benefit Luna. The fee-
                                                                   courts around the country have analyzed the enforceability
splitting provision in Luna's arbitration agreement caps his
                                                                   of similar arbitration provisions limiting parties' access to
share of costs at “the gross compensation earned by Employee
                                                                   various forms of discovery. Applying a rule functionally
in Employee's highest earning month in the twelve months
                                                                   equivalent to that used to analyze fee-splitting provisions,
prior to the time the arbitrator issues his award.” (Emphasis
                                                                   these courts refuse to enforce such limitations when adequate
added). Luna, however, presented evidence of his “highest
                                                                   evidence is presented that a plaintiff's ability to present
monthly salary in the year preceding [his] termination from
                                                                   his or her claims in an arbitral forum is thereby hindered.
the company,” a period necessarily earlier than that relevant
                                                                   See, e.g., Hulett v. Capitol Auto Group, Inc., No. 07–
under the arbitration agreement. The record contains no fact-
                                                                   6151–AA, 2007 WL 3232283, at *4–*5 (D.Or. Oct.29,



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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

2007) (holding discovery restrictions that prohibited requests      of Luna's claim they would be unenforceable. But at this
for admission or interrogatories and limited parties to             point in the proceedings, without knowing what the particular
three depositions unconscionable because they “serve to             claims and defenses—and the evidence needed to prove
unreasonably withhold information from plaintiff that would         them—will be, discerning the discovery limitations' potential
otherwise be available through discovery, thus hindering her        preclusive effect is largely speculative. The assessment of
ability to present her claims in an arbitration forum”); accord     particular discovery needs in a given case and, in turn, the
Ostroff v. Alterra Healthcare Corp., 433 F.Supp.2d 538,             enforceability of limitations thereon, is a determination we
547 (E.D.Pa.2006). Courts upholding arbitration provisions          believe best suited to the arbitrator as the case unfolds.
containing discovery limitations have done so in recognition        As with cost-sharing, discovery limitations that prevent
of the same principle, but determined that a particular *358        vindication of non-waivable rights or “prove insufficient to
party failed to provide adequate evidence that the provisions       allow [Luna] a fair opportunity to present [his] claims,”
“prove insufficient to allow ... claimants ... a fair opportunity   Gilmer, 500 U.S. at 31, 111 S.Ct. 1647, would be
to present their claims.” Gilmer, 500 U.S. at 31, 111 S.Ct.         unconscionable and thus not binding on the arbitrator, as
1647; see, e.g., In re Cotton Yarn Antitrust Litig., 505 F.3d       the agreement in this case specifically acknowledges. At this
274, 286–87 (4th Cir.2007); Amisil Holdings, Ltd. v. Clarium        point in the proceedings, though, we cannot conclude that the
Capital Mgmt., No. C06–05255MJJ, 2007 WL 2768995, at                evidence presented to the trial court compelled a finding that
*4 (N.D.Cal. Sept.20, 2007) (“[Claimant] has not adequately         the discovery limitations were per se unconscionable. Thus,
demonstrated why arbitration under the AAA rules would              the trial court did not abuse its discretion.
deny it a fair opportunity to present its claims.”).

 [41]     [42]    We agree with these courts that, where
                                                                          D. Prohibition on Inquiry into “Good Cause”
the underlying substantive right is not waivable, ex ante
limitations on discovery that unreasonably impede effective          [43] Luna claims the arbitration provision that prohibits the
prosecution of such rights are likewise unenforceable.              arbitrator's ability “to apply a ‘just cause’ or ‘good cause’
However, because the relevant inquiry depends upon the              standard to claims relating to Employee's claims concerning
facts presented in a given case and the particular discovery        his employment or separation therefrom” is substantively
limitations' effect upon the relevant statutory regime, we          unconscionable because it prohibits, in a retaliatory-discharge
are doubtful that courts—assessing claims and discovery             case, inquiry into whether the employer had a valid,
limitations before arbitration begins—are in the best position      nondiscriminatory reason for firing the employee. Poly–
to accurately determine which limits on discovery will have         America contends the contract cannot be read as Luna claims,
such impermissible effect.                                          and in fact does not *359 prevent such an inquiry. We
                                                                    agree with Poly–America, and with the court of appeals,
In this case, Luna's expert witness testified that in most          that this prohibition does not operate as Luna asserts; rather,
employment-discharge cases the employer only needs to               the prohibition simply emphasizes that the contract relates
take the plaintiff's deposition, while the plaintiff generally      to at-will employment. See Montgomery County Hosp. Dist.
needs testimony from a number of witnesses to disprove              v. Brown, 965 S.W.2d 501, 502 (Tex.1998). Thus, the
the employer's likely defense that termination was based            prohibition prevents the arbitrator from substituting a “good
on poor performance. Additionally, the expert stated, the           cause” requirement for the “at will” standard. The provision
employee will likely wish to depose additional witnesses to         does not, however, prohibit inquiry into whether Poly–
show a pattern or practice of discrimination, whereas the           America improperly terminated Luna in retaliation for his
employer typically has a ready pool of available employees          filing of a workers' compensation claim. Because we read the
and managers to assist in preparing for the arbitration.            provision merely to articulate an accepted rule of employment
For these reasons, the expert concluded, the arbitration            contracts, and not to restrict a necessary inquiry into the
agreement's discovery limitations “significantly reduce the         motivations behind Poly–America's termination of Luna in
plaintiff's ability to prevail in arbitration, regardless of how    this case, we agree with the court of appeals that the provision
strong a plaintiff's case is on the merits.”                        is not unconscionable. See In re Palm Harbor Homes, Inc.,
                                                                    195 S.W.3d 672, 678 (Tex.2006) (rejecting a claim that
We agree that if the discovery limitations the arbitration          an arbitration provision was substantively unconscionable
agreement imposes operate to prevent effective presentation



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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

where the challenged provision “effectively incorporate[d]
established provisions of contract law”).                          Poly–America argues that, even if elements of its arbitration
                                                                   agreement with Luna are unconscionable, arbitration is
                                                                   nevertheless required because the unconscionable provisions
                                                                   are severable from the general agreement to arbitrate. 4
             E. One–Year Limitations Period
                                                                   Luna *360 contends the unconscionable provisions are
The arbitration agreement includes a clause that requires          integral to the entire contract and are therefore not severable.
written notice of a claim to be filed within a maximum of one      The court of appeals agreed with Luna, stating that the
year from the events giving rise to an arbitrable claim. Luna      fee-splitting and remedies-limitation provisions “together
contends this provision unconscionably shortens the two-           deprive Luna of his opportunity to vindicate his claim in
year statute of limitations applicable to claims of retaliatory    the arbitral forum” and concluding that “those provisions
discharge. See Johnson & Johnson Med., Inc. v. Sanchez, 924        are integral to the purpose of the agreement and cannot
S.W.2d 925, 927 (Tex.1996). However, as Luna filed this            be severed.” 175 S.W.3d at 328. The court of appeals
case well within the one-year period and thus suffered no          came to this conclusion, it appears, by identifying the fee-
prejudice from this provision, it is immaterial to Luna's claims   splitting and remedies-limitation provisions as weighing in
of substantive unconscionability.                                  favor of unconscionability “as a whole,” but the court did
                                                                   not identify any particular provision that, by itself, would
                                                                   defeat the agreement's purpose. See id. at 322, 324. We have
                                                                   determined, however, that the remedies-limitation provisions
                  F. Lifetime Application                          are individually unconscionable and void, and see no reason
                                                                   why they cannot be easily excised from the contract without
Finally, Luna argues that the arbitration agreement
                                                                   defeating its underlying purpose.
unconscionably applies even to claims that may arise after
Luna's employment with Poly–America has ended and which
                                                                    [45]    [46]      [47] An illegal or unconscionable provision
may have nothing to do with Luna's employment. While
                                                                   of a contract may generally be severed so long as it does
we can imagine circumstances that might present a closer
                                                                   not constitute the essential purpose of the agreement. See
question, Luna's claims here concern his employment and
                                                                   Williams v. Williams, 569 S.W.2d 867, 871 (Tex.1978);
termination, the central focus of the agreement. We thus agree
                                                                   see also Hoover Slovacek, 206 S.W.3d at 565 (citing
with the court of appeals that this provision does not render
                                                                   RESTATEMENT (SECOND) OF CONTRACTS § 208
the arbitration agreement per se unconscionable. See 175
                                                                   (1981)). Whether or not the invalidity of a particular provision
S.W.3d at 326.
                                                                   affects the rest of the contract depends upon whether the
                                                                   remaining provisions are independent or mutually dependent
                                                                   promises, which courts determine by looking to the language
                       VI. Severability                            of the contract itself. See John R. Ray & Sons, Inc. v. Stroman,
                                                                   923 S.W.2d 80, 86 (Tex.App.-Houston [14th Dist.] 1996, writ
 [44] The arbitration agreement in this case contains a
                                                                   denied) (citing Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d
severability clause, which provides as follows:
                                                                   707, 708 (Tex.1982)). The relevant inquiry is whether or
             Should any term of this Agreement                     not parties would have entered into the agreement absent
             be declared illegal, unenforceable,                   the unenforceable provisions. See Patrizi v. McAninch, 153
             or unconscionable, the remaining                      Tex. 389, 269 S.W.2d 343, 348 (1954); see also City of
             terms of the Agreement shall remain                   Beaumont v. Int'l Ass'n of Firefighters, Local Union No. 399,
             in full force and effect. To the                      241 S.W.3d 208, 215 (Tex.App.-Beaumont 2007, no pet.)
             extent possible, both Employee                        (citing Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex.App.-
             and Company desire that the                           Dallas 1989, writ denied)); Stroman, 923 S.W.2d at 86 (citing
             Arbitrator modify the term(s) declared                Frankiewicz v. Nat'l Comp. Assocs., 633 S.W.2d 505, 507–08
             to be illegal, unenforceable, or                      (Tex.1982)). We have previously allowed severance of illegal
             unconscionable in such a way as to                    contract provisions where the invalid provisions were “only
             retain the intended meaning of the                    a part of the many reciprocal promises in the agreement”
             term(s) as closely as possible.



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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

and “did not constitute the main or essential purpose of the
agreement.” Williams, 569 S.W.2d at 871.                          Only two years ago, we held in In re Palacios that mandamus
                                                                  review was available for “orders that deny arbitration, but
The 2002 version of the arbitration agreement in this case is     not orders that compel it.” 1 We noted that this was a
over five pages long and contains numerous provisions not
                                                                  reversal of previous practice, 2 but was necessitated by the
challenged by Luna as imposing any unconscionable burdens:
                                                                  Supreme Court's 2000 opinion in Green Tree Financial
procedures for mediation, selection of a neutral arbitrator,
                                                                  Corp. v. Randolph, which said that orders compelling
filing of motions, and other general provisions governing
                                                                  arbitration “would not be appealable” unless they included
arbitration procedures. We agree with Poly–America that the
intent of the parties, as expressed by the severability clause,   final dismissal of the case. 3 Today the Court comes full
is that unconscionable provisions be excised where possible.      circle, saying once again that mandamus review of orders
Furthermore, it is clear by the contract's terms that the main    compelling arbitration is “proper,” though courts should be
purpose of the agreement is for the parties to submit their       “hesitant” about it. 4 Apparently, so long as one expresses
disputes to an arbitral forum rather than proceed in court. See   qualms, Palacios is a dead letter.
id. Excising the unconscionable provisions we have identified
will not defeat or undermine this purpose, which we have          Of course, firm rules governing mandamus are made to be
upheld in the context of agreements to arbitrate employment       broken, as issuance of the writ is primarily a matter of
disputes. See AdvancePCS, 172 S.W.3d at 608; EZ Pawn              judgment and prudence. 5 As the United States Supreme
Corp., 934 S.W.2d at 90; Cantella & Co., 924 S.W.2d at 944.       Court said in 2004, mandamus is appropriate if a party shows
                                                                  a clear right, no alternative remedy, and that mandamus is
                                                                  “appropriate under the circumstances.” 6 This test (especially
                      VII. Conclusion                             the last prong) defies precise application, but years of
                                                                  judicial effort have failed to produce a better one. As a
We hold invalid, as substantively unconscionable and void,        result, reasonable judges will sometimes *362 disagree
provisions of the parties' *361 contract that prohibit the        whether mandamus is “prudent” or “appropriate under the
award of punitive damages or reinstatement and thus inhibit       circumstances,” and sometimes decide differently in one case
effective vindication of Luna's retaliatory-discharge claim in    than the next. But departing from Palacios is neither prudent
an arbitral forum. We further hold that the trial court did not   nor appropriate for at least five reasons.
abuse its discretion in allowing the arbitrator to determine
whether the fee-splitting agreement and discovery limitations     First, Congress amended the Federal Arbitration Act in
—as applied in the course of arbitration—are unconscionable.      1988 so that it “permits immediate appeal of orders hostile
Because we find the invalid remedies-limitation provisions        to arbitration, ... but bars appeal of interlocutory orders
severable from the agreement to arbitrate, which we conclude
                                                                  favorable to arbitration.” 7 Texas law is to the same effect. 8
is otherwise enforceable, the trial court did not abuse
                                                                  As the trial court's order here was favorable to arbitration, we
its discretion in compelling arbitration. Accordingly, we
                                                                  should defer to the cost-benefit analysis already conducted
conditionally grant the writ of mandamus.
                                                                  by the federal and state legislatures. 9 We cannot simply
                                                                  substitute mandamus when interlocutory appeal is prohibited
                                                                  without running into serious Supremacy Clause problems; 10
Justice BRISTER filed a dissenting opinion.
                                                                  “[f]requent pre-arbitration review would inevitably frustrate
Justice WILLETT did not participate in the decision.              Congress's intent to move the parties to an arbitrable dispute
                                                                  out of court and into arbitration as quickly and easily as
Justice BRISTER, dissenting.                                      possible.” 11
The hard thing about granting mandamus relief is knowing
when to stop. This Court has tried over the years to set          Second, the trial court ordered these parties to arbitration
mandamus boundaries through various tests, all of which           five years ago. Had mandamus proceedings not intervened,
soon generated exceptions, and most of which were met with        this dispute would have long since been concluded. Surely
objections that the “established” boundaries of mandamus          the time and expense incurred arbitrating this case would
were being ignored.                                               have been less than that incurred in mandamus review. And


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

now that mandamus review is concluded, the parties must                clause is just as fact-based, and just as speculative until all the
go to arbitration anyway. Given our state's strong public              facts are arbitrated. The fairness of such clauses is not as one-
policy favoring freedom of contract, 12 claims that a contract         sided as the Court suggests; many employees might actually
is unconscionable are asserted far more often than they                prefer cash for lost wages (and no appellate delays) rather
are sustained. After today's decision, it is hard to see how           than reinstatement or a long shot at punitive damages. As the
any arbitration cannot be stopped in its tracks by alleging            Court notes, several courts have held that such “limitations
unconscionability.                                                     of remedies are permissible.” 16 Twice in 2003 the Supreme
                                                                       Court declined to hold that a remedy-stripping arbitration
Third, today's opinion is purely advisory; if an arbitrator            clause violates the FAA—each time deferring the question
ignores it, there is little we can do. Both federal and                until after arbitrators had addressed it. 17 We should do the
state law require courts to enforce an arbitrator's decision,          same here.
no matter what it is, with very few exceptions. 13 The
allowable exceptions concern extrinsic or procedural matters           We have never held (as the Court holds repeatedly today)
                                                        14
like corruption, fraud, or refusing to hear evidence; they do          that an arbitration agreement is invalid unless an employee
not include (as the Supreme Court just held) disregarding the          can “effectively vindicate his statutory rights.” 18 We did not
law, even if a legal error is “manifest.” 15 What is the benefit       say so in In re Halliburton Co. (as the Court's citations aver),
of mandamus review if the resulting order can be ignored?              where that phrase appears only in a parenthetical describing
                                                                       an opinion by an intermediate appellate court in Michigan,
 *363 Fourth, even if most arbitrators would comply with               an opinion we neither approved nor adopted. 19 Nor does
an appellate court's mandamus rulings, issuing them creates a          the Court's judgment comply with this new standard. Despite
hybrid procedure unknown to the arbitration acts. As already           the remedy limits imposed here, an arbitrator could still
noted, those statutes commit matters concerning the law and            award Johnny Luna 50 years of future lost wages, which
the merits to the arbitrators and foreclose judicial review of         would certainly seem to “effectively vindicate his statutory
the details of the result. This also appears to violate the parties'   rights.” Even more than the fee-splitting or discovery-limiting
agreement in this case, which authorized the arbitrator to             provisions, it is simply too early to tell whether the remedy-
address unconscionability:                                             stripping provisions will be unfair to Luna at all.

             Should any term of this Agreement                         Such an important and controversial question should not be
             be declared illegal, unenforceable,                       decided in such an offhanded and abstract way. We should
             or unconscionable, the remaining                          instead wait to see whether the arbitration *364 award
             terms of the Agreement shall remain                       makes such a decision necessary; “if it is not necessary to
             in full force and effect. To the
                                                                       decide more, it is necessary not to decide more.” 20
             extent possible, both Employee
             and Company desire that the
                                                                       The Court overlooks all these problems on the ground that
             Arbitrator modify the term(s) declared
                                                                       mandamus “has been broadly applied” by federal courts
             to be illegal, unenforceable, or
             unconscionable in such a way as to                        to review orders compelling arbitration. 21 But the string
             retain the intended meaning of the                        citations that follow do not support that claim. Of the five
             term(s) as closely as possible.                           cases cited, three predated Green Tree, 22 and a fourth did
                                                                       not involve a trial court order favorable to arbitration. 23
Telling the arbitrators in advance what legal rulings they
                                                                       The single case granting mandamus relief from an order
should make (as the Court does today) is an improper way to
                                                                       favorable to arbitration was by the Ninth Circuit, the court
circumvent these restrictions.
                                                                       widely recognized as the “most hostile,” 24 “far to the
Fifth and finally, the Court decides an important question             left of center,” 25 and “renegade” court in the country in
in the abstract that the arbitration may render moot. The              employment arbitration cases. 26 Even so, mandamus was
Court concedes that unconscionability of the fee-splitting             granted in that case only because arbitrating the single class
and discovery-limiting clauses should be deferred to the               representative's case could moot the class action he had
arbitrator. But unconscionability of the remedy-stripping


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


brought, wiping it out without appellate review. 27 In short,
                                                                        While appeal from arbitration awards is very limited,
there is no “broad” consensus for doing precisely the opposite
                                                                        that appeal is an adequate remedy unless the benefits of
of what Congress and the Texas Legislature intended.
                                                                        mandamus outweigh the costs. 29 Considering the costs
 *365 It is certainly true that leaving matters like                    expended so far, I doubt Johnny Luna would consider them
unconscionability to arbitrators will mean development of               outweighed by getting the right to seek reinstatement in
                                                                        arbitration (which employees rarely request) and punitive
the law is “substantially hindered,” 28 but the same could be
                                                                        damages (which they rarely get). Accordingly, I agree with
said of arbitration in all cases. It is hard to see the allure
                                                                        the Court that the court of appeals erred in reviewing and
of a system in which decision-makers can ignore the law,
                                                                        reversing the trial court's order compelling arbitration. But
unless of course one is planning to ignore the law oneself.
                                                                        I disagree that we have any place reviewing those matters
Based on its popularity, few arbitrators apparently go that far.
                                                                        either. To that extent, I respectfully dissent.
But even carefully selected judges and jurors make mistakes,
and carefully selected arbitrators are surely no less fallible.
Nevertheless, these are policy matters that only Congress can           Parallel Citations
address or amend; we cannot disregard the express legislative
limits on interlocutory review merely by calling it mandamus            156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct.
when we think the questions are important and the issues well-          J. 1237
briefed.


Footnotes
1      While it is true that several of these cases pre-date the Supreme Court's decision in Green Tree, they do not pre-date the authority
       on which the Supreme Court relied in noting that an order compelling arbitration and staying rather than dismissing the underlying
       litigation “would not be appealable.” 531 U.S. at 87 n. 2, 121 S.Ct. 513 (citing 9 U.S.C. § 16(b)(1)) (emphasis added). Unlike the
       present case, the two cases in which the courts denied mandamus relief from compel-and-stay orders did not involve claims that
       enforcement of the arbitration provisions would prevent the plaintiffs from vindicating important statutory rights. See Manion, 255
       F.3d 535; McDermott Int'l, Inc., 981 F.2d 744. In Douglas, the Ninth Circuit granted mandamus relief, concluding that a choice-of-
       law provision in the arbitration agreement would not allow enforcement of the agreement under circumstances that the forum state
       would deem unconscionable. Douglas, 495 F.3d at 1068.
2      The Texas Legislature, exercising its policy-making role, responded immediately and outlawed such plans. See TEX. LAB.CODE
       § 406.033(e).
3      The Society for Human Resource Management Texas State Council submitted an amicus brief supporting Poly–America's arguments,
       arguing that the court of appeals wrongfully failed to compare Luna's alleged costs with the prospective cost of litigation. The Texas
       Trial Lawyers Association likewise submitted an amicus brief supporting Luna, arguing that unconscionability should be determined
       by comparing “the general financial condition of the claimant's peer group” to estimated arbitration costs.
4      The Court received briefs from amici curiae the Texas Association of Business and the Society for Human Resource Management
       Texas State Council, both of which argue that the court of appeals erred in refusing to sever the provisions it deemed unconscionable
       from the remainder of the arbitration agreement. The brief submitted by amicus curiae the Texas Trial Lawyers Association argues
       that such severance would be improper.
1      221 S.W.3d 564, 566 (Tex.2006) (emphasis added).
2      Id. at 565 (noting abrogation of Freis v. Canales, 877 S.W.2d 283, 284 (Tex.1994)).
3      531 U.S. 79, 87 n. 2, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).
4      262 S.W.3d 337, 347.
5      See, e.g., CSR Ltd. v. Link, 925 S.W.2d 591, 597 (Tex.1996) ( “Because of the size and complexity of the asbestos litigation, the most
       prudent use of judicial resources in this case is to permit a preliminary resolution of the fundamental issue of personal jurisdiction
       by writ of mandamus.”) (emphasis added); In re Dean, 527 F.3d 391, 396 (5th Cir.2008) (“The decision whether to grant mandamus
       is largely prudential.”); In re Atlantic Pipe Corp., 304 F.3d 135, 140 (1st Cir.2002) (concluding mandamus was “prudent under the
       circumstances”); In re Chimenti, 79 F.3d 534, 539 (6th Cir.1996) (noting availability of interlocutory appeal was merely one of
       several factors affecting court's “prudential considerations” regarding issuance of mandamus).




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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

6      Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 380–81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004) (holding mandamus
       should issue when there is (1) no other adequate remedy, (2) a “clear and indisputable” right, and (3) “the writ is appropriate under
       the circumstances”).
7      Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (construing 9 U.S.C. § 16) (emphasis
       added).
8      See TEX. CIV. PRAC. & REM.CODE § 171.098; In re Palacios, 221 S.W.3d 564, 566 (Tex.2006).
9      In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, ––––, 2008 WL 4051053, at *1 (Tex.2008) (“Although mandamus review is generally
       a matter within our discretion, our place in a government of separated powers requires us to consider also the priorities of the other
       branches of Texas government.”).
10     See U.S. CONST. art. VI, cl. 2 (“[T]he Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every
       State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”).
11     Perry Homes v. Cull, 258 S.W.3d 580, 599 (Tex.2008) (quoting Preston v. Ferrer, 552 U.S. 346, ––––, 128 S.Ct. 978, 169 L.Ed.2d
       917 (2008) and Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983))
       (internal quotations omitted).
12     Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex.2008); Fortis Benefits v. Cantu, 234 S.W.3d 642, 649
       (Tex.2007); Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 553 (Tex.2001).
13     See 9 U.S.C. §§ 9–11; TEX. CIV. PRAC. & REM.CODE §§ 171.087–171.088, 171.091.
14     Id.
15     Hall St. Assocs., L.L.C. v. Mattel, Inc., 552U.S. 576, ––––, 128 S.Ct. 1396, 1404, 170 L.Ed.2d 254 (2008).
16     262 S.W.3d at 352.
17     See PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 406–07, 123 S.Ct. 1531, 155 L.Ed.2d 578 (2003) (holding that “since we do not
       know how the arbitrator will construe the remedial limitations” barring treble damages, “the proper course is to compel arbitration”);
       Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 454, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (remanding for arbitrator to determine
       whether contracts prohibited class arbitration).
18     262 S.W.3d at 349, 352, 352, & 356.
19     80 S.W.3d 566, 572 (citing Rembert v. Ryan's Family Steak Houses, Inc., 235 Mich.App. 118, 596 N.W.2d 208, 226 (1999)).
20     PDK Labs. Inc. v. U.S. D.E.A., 362 F.3d 786, 799 (D.C.Cir.2004) (Roberts, J., concurring).
21     262 S.W.3d at 346.
22     Georgiou v. Mobil Exploration & Prod. Servs., Inc. US, 190 F.3d 538 (5th Cir.1999); Cofab Inc. v. Phil. Joint Bd., Amalgamated
       Clothing & Textile Workers Union, 141 F.3d 105 (3d Cir.1998); McDermott Intern., Inc. v. Underwriters at Lloyds Subscribing to
       Memorandum of Ins. No. 104207, 981 F.2d 744 (5th Cir.1993).
23     Manion v. Nagin, 255 F.3d 535, 540 (8th Cir.2001) (involving injunction to obtain salary payments pending arbitration); see also
       Cofab, 141 F.3d at 110 (involving temporary stay of motion to enforce arbitration award pending NLRB review of related matter).
24     See Adam Borstein, Arbitrary Enforcement: When Arbitration Agreements Contain Unlawful Provisions, 39 LOY. L.A.L.REV..
       1259, 1275 (2006) (“This combination of finding unconscionability and favoring public policy over enforcement of the FAA has
       made the Ninth Circuit more hostile towards unlawful arbitration provisions than any other federal circuit.”); Michael G. McGuinness
       & Adam J. Karr, California's “Unique” Approach to Arbitration: Why This Road Less Traveled Will Make All the Difference on the
       Issue of Preemption Under the Federal Arbitration Act, 2005 J. DISP. RESOL. . 61, 91–92 (2005)(“[T]he conclusion that California
       courts—and the Ninth Circuit—are imposing their own biases against arbitration is inescapable.”); Steven M. Warshawsky, Gilmer,
       the Contractual Exhaustion Doctrine, and Federal Statutory Employment Discrimination Claims, 19 LAB. LAW. 285, 303 n. 180
       (2004) (“The Ninth Circuit continues to be hostile to mandatory arbitration agreements.”); Dennis R. Nolan, Employment Arbitration
       After Circuit City, 41 BRANDEIS L.J. 853, 890 (2003) ( “[D]espite Congress's broad endorsement of arbitration in the FAA and the
       Supreme Court's repeated confirmation of that policy, many judges (not all of them on the Ninth Circuit) remain deeply skeptical if
       not openly hostile.”); Hai Jiang, Do We Allow Contract Law to Administer Civil Rights Remedies? Casenote on Haskins v. Prudential
       Insurance Co., 2003 L.REV. MICH. ST. U. DET. C.L. 251, 260 (2003) (“The Ninth Circuit is the most hostile to arbitration of
       employment discrimination claims among the circuit courts....”).
25     See Earl Greene III, Note, Armendariz v. Foundation Health Psychcare Services, Inc.: The California Supreme Court Searches For
       a Middle Ground, 1 J. AM. ARB. 105, 108–09 (2001) (“On a mandatory arbitration agreement enforcement continuum, the Ninth
       Circuit would be sitting far to the left of center as it seems to be more concerned with protecting the statutory rights of employees
       than toeing the line with the Supreme Court.”)




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                      24
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

26     See Jennifer LaFond, Notes, The Private Enforcement of Public Laws in Armendariz v. Foundation Health Psychcare Servs., 29
       PEPP. L.REV. . 401, 414 n. 127 (2002) (“The Ninth Circuit is the renegade circuit with respect to ... [whether] employees can be
       compelled to arbitrate statutory claims.”).
27     Douglas v. U.S. Dist. Court, 495 F.3d 1062, 1068–69 (9th Cir.2007).
28     262 S.W.3d at 346.
29     In re BP Products N. Am., Inc., 244 S.W.3d 840, 845 (Tex.2008); In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex.2004).


End of Document                                                  © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 25
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

                                                                          A party denied the right to arbitrate pursuant to
                                                                          an agreement subject to the Federal Arbitration
                     334 S.W.3d 220
                                                                          Agreement (FAA) does not have an adequate
                  Supreme Court of Texas.
                                                                          remedy by appeal and is entitled to mandamus
       In re Joseph Charles RUBIOLA et al., Relators.                     relief to correct a clear abuse of discretion. 9
                                                                          U.S.C.A. § 4.
             No. 09–0309. | Argued Sept. 16,
            2010. | Decided March 11, 2011.                               Cases that cite this headnote

Synopsis
                                                                   [3]    Alternative Dispute Resolution
Background: Vendors of home petitioned for writ of
mandamus seeking to compel arbitration of underlying                                                                            Validity
claims by purchasers regarding repair of the home based on                Alternative Dispute Resolution
arbitration agreement signed by purchasers and mortgagee
during financing.                                                                                                               Disputes
                                                                          and Matters Arbitrable Under Agreement
                                                                          A party seeking to compel arbitration under the
Holdings: The Supreme Court, Medina, J., held that:                       Federal Arbitration Act (FAA) must establish
                                                                          that there is a valid arbitration clause, and that
[1] purchasers granted vendors right to enforce arbitration               the claims in dispute fall within that agreement's
agreement, and                                                            scope. 9 U.S.C.A. § 2.

                                                                          34 Cases that cite this headnote
[2] claims fell within arbitration agreement.

                                                                   [4]    Alternative Dispute Resolution
Writ conditionally granted.
                                                                                                                                What
                                                                          law governs
                                                                          Under the Federal Arbitration Act (FAA),
 West Headnotes (11)
                                                                          ordinary principles of state contract law
                                                                          determine whether there is a valid agreement to
 [1]      Alternative Dispute Resolution                                  arbitrate. 9 U.S.C.A. § 2.

                                                           What           17 Cases that cite this headnote
          law governs
          Parties may expressly agree to arbitrate under           [5]    Alternative Dispute Resolution
          the Federal Arbitration Agreement (FAA). 9
          U.S.C.A. § 2.                                                                                                         Persons
                                                                          affected or bound
          17 Cases that cite this headnote
                                                                          An obligation to arbitrate not only attaches to one
                                                                          who has personally signed the written arbitration
 [2]      Mandamus                                                        agreement but may also bind a non-signatory
                                                                          under principles of contract law and agency.
                                                           Modification
          or vacation of judgment or order                                6 Cases that cite this headnote
          Mandamus
                                                                   [6]    Alternative Dispute Resolution
                                                           Civil
          proceedings other than actions



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             1
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

                                                                            could be amended by later writing and arbitration
                                                               Persons      agreement at issue was executed one month later.
        affected or bound
        Generally, parties must sign arbitration                            4 Cases that cite this headnote
        agreements before being bound by them.
                                                                     [10]   Alternative Dispute Resolution
        7 Cases that cite this headnote
                                                                                                                                 Evidence
 [7]    Alternative Dispute Resolution                                      When deciding whether claims fall within an
                                                                            arbitration agreement, courts employ a strong
                                                               Persons      presumption in favor of arbitration.
        affected or bound
        Although arbitration agreements apply to                            13 Cases that cite this headnote
        nonsignatories only in rare circumstances, the
        question of who is actually bound by an                      [11]   Alternative Dispute Resolution
        arbitration agreement is ultimately a function of
        the intent of the parties, as expressed in the terms                                                                     Disputes
        of the agreement.                                                   and Matters Arbitrable Under Agreement
                                                                            To determine whether a claim falls within the
        4 Cases that cite this headnote
                                                                            scope of the arbitration agreement, courts must
                                                                            focus on the factual allegations of the complaint,
 [8]    Alternative Dispute Resolution                                      rather than the legal causes of action asserted.

                                                               Persons      5 Cases that cite this headnote
        entitled to enforce
        Purchasers and mortgagee, who were parties
        to arbitration agreement concerning financing
        for sale of home, granted vendors right to                  Attorneys and Law Firms
        enforce arbitration agreement, where agreement
        expressly provided that certain non-signatories             *221 Bernard Lee Shub, The Law Office of Ben Shub,
        were parties to the agreement, including all                Elizabeth Conry Davidson, San Antonio TX, for Joseph
        parties that were part of the transaction.                  Charles Rubiola.

        3 Cases that cite this headnote                             *222 Bryan A. Woods, Law Office of Bryan A. Woods, San
                                                                    Antonio TX, for Real Party in Interest Brian Salmon.

 [9]    Alternative Dispute Resolution                              Opinion

                                                               Building
                                                                    Justice MEDINA delivered the opinion of the Court.
        contracts disputes
                                                                    In this original mandamus proceeding, Relators seek to
        Claims by purchasers against vendors and
                                                                    compel arbitration under an arbitration agreement they did
        listing agent regarding repairs of home at
                                                                    not sign. The real parties in interest, who are signatories to
        issue fell within arbitration agreement in
                                                                    the arbitration agreement, object to arbitration and contend
        financing agreement between purchasers and
                                                                    that Relators cannot compel arbitration because Relators
        mortgagee, where listing agent and vendors were
                                                                    are not parties to the arbitration agreement. The trial court
        non-signatory parties to arbitration agreement,
                                                                    apparently agreed because it denied Relators' motion to
        agreement broadly covered all controversies,
                                                                    compel arbitration. The underlying arbitration agreement,
        including real estate sales contract and complaint
                                                                    however, designated certain non-signatories as parties to the
        regarding sale, and sales contract stated that it
                                                                    agreement.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               2
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

We must decide whether the parties who actually agree to                       or expiration of the agreement in
arbitrate may also grant third parties the right to enforce                    which this agreement is contained,
their arbitration agreement and, if so, whether the signatories                unless all of the parties expressly agree
here intended to grant such rights to these Relators. We                       in writing.
conclude that parties to an arbitration agreement may grant
non-signatories the right to compel arbitration and that the       The agreement further defined “parties” to include:
Relators here were granted that right. The trial court therefore
                                                                               Rubiola Mortgage Company, and each
erred in denying the motion to compel arbitration, and we
                                                                               and all persons and entities signing this
conditionally grant the writ.
                                                                               agreement or any other agreements
                                                                               between or among any of the parties
                                                                               as part of this transaction. “The
                               I                                               parties” shall also include individual
                                                                               partners, affiliates, *223 officers,
The underlying case concerns the sale and financing of                         directors, employees, agents, and/or
a home. Brian and Christina Salmon agreed to purchase                          representatives of any party to such
the home from Greg Rubiola and his wife Catherine. The                         documents, and shall include any other
transaction was handled by J.C. Rubiola, Greg's brother, who                   owner and holder of this agreement.
served as the listing broker for the property. The Salmons
and Rubiolas signed a standard form Texas real estate sales        J.C. Rubiola signed the agreement on behalf of Rubiola
contract, which did not contain an arbitration clause.             Mortgage Company, and the Salmons signed a form
                                                                   acknowledging J.C.'s dual role as a real estate agent and
Greg and J.C. Rubiola operate a number of real estate related      mortgage broker. The sale closed, and the Salmons moved
businesses in San Antonio. The Rubiola brothers buy and            into their new home.
sell real estate through Rubiola Management, L.L.C., which
is the general partner of Rubiola Realty, Ltd. and Rubiola         Several months later, the Salmons sued the Rubiolas and
Properties, Ltd. Greg and J.C. are also president and vice-        other entities and individuals involved in repairing the home
president, respectively, of Rubiola Mortgage Company, a            (collectively referred to as the Rubiolas). 1 The Salmons
corporation the brothers use to obtain financing for real estate   alleged that J.C. Rubiola, acting as both the listing agent and
buyers. The Rubiola brothers' business interests are operated      a principal involved in the home's construction and repair,
at the same location under the name Rubiola Mortgage and           made a series of misrepresentations that induced the Salmons
Realty, which they advertise as a one-stop shop for customers'     to purchase the home. They also alleged violations of the
real estate needs: offering the ability to buy, sell, build,       Deceptive Trade Practices Act and negligent supervision of
finance, and manage real estate through a single company.          repairs made to the home. The Salmons sought either to
                                                                   rescind the sale or to collect damages. The Rubiolas answered
After agreeing to purchase Greg Rubiola's home, the Salmons        and moved to compel arbitration, relying on the arbitration
applied for mortgage financing with Rubiola Mortgage               agreement signed by the Salmons and Rubiola Mortgage
Company, using J.C. Rubiola as their mortgage broker and           Company during financing.
loan officer. As part of the loan process, the Salmons executed
an arbitration agreement with the mortgage company. This           The trial court denied the Rubiolas' motion to compel, causing
agreement provided that:                                           the Rubiolas to seek mandamus relief in the court of appeals.
                                                                   The court of appeals also refused to compel arbitration, and
             Arbitrable disputes include any and all
                                                                   the Rubiolas filed the present mandamus proceeding, seeking
             controversies or claims between the
                                                                   again to enforce the underlying arbitration agreement as a
             parties of whatever type or manner,
                                                                   non-signatory.
             including without limitation, all past,
             present and/or future credit facilities
             and/or agreements involving the
             parties. This arbitration provision shall                                           II
             survive any termination, amendment,



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            3
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

 [1] The Federal Arbitration Act (FAA) generally governs             and is therefore a gateway matter for the court to decide. In
arbitration provisions in contracts involving interstate             re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex.2005);
commerce. See 9 U.S.C. § 2; see also In re L & L Kempwood            Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381
Assocs., L.P., 9 S.W.3d 125, 127 (Tex.1999) (per curiam).            (5th Cir.2008). Under the FAA, ordinary principles of state
Parties may also expressly agree to arbitrate under the FAA.         contract law determine whether there is a valid agreement
In re AdvancePCS Health L.P., 172 S.W.3d 603, 605–06                 to arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d
& n. 3 (Tex.2005) (per curiam). The arbitration agreement            at 738 (citing First Options of Chi., Inc. v. Kaplan, 514
here expressly provides for arbitration under the FAA, and           U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)).
although the Salmons oppose arbitration, generally, they do          An obligation to arbitrate not only attaches to one who
not contest the application of the FAA.                              has personally signed the written arbitration agreement but
                                                                     may also bind a non-signatory under principles of contract
 [2] Under Section 4 of the FAA, “[a] party aggrieved by the         law and agency. Id. at 738. Generally, however, parties
alleged failure, neglect, or refusal of another to arbitrate under   must sign arbitration agreements before being bound by
a written agreement for arbitration may petition ... for an order    them. See Grigson v. Creative Artists Agency, L.L.C., 210
directing that such arbitration proceed in the manner provided       F.3d 524, 528 (5th Cir.2000) (noting that “arbitration is a
for in such agreement.” 9 U.S.C. § 4; see In re Halliburton          matter of contract and cannot, in general, be required for a
Co., 80 S.W.3d 566, 573 (Tex.2002). “A party denied the              matter involving an arbitration agreement non-signatory”).
right to arbitrate pursuant to an agreement subject to the FAA       Although “[a]rbitration agreements apply to nonsignatories
does not have an adequate remedy by appeal and is entitled to        only in rare circumstances [,]” the question of “[w]ho is
mandamus relief to correct a clear abuse of discretion.” In re       actually bound by an arbitration agreement is [ultimately] a
Labatt Food Serv., L.P., 279 S.W.3d 640, 642–43 (Tex.2009).          function of the intent of the parties, as expressed in the terms
                                                                     of the agreement.” Bridas S.A.P.I.C. v. Gov't of Turkmenistan,
                                                                     345 F.3d 347, 355, 358 (5th Cir.2003). Here the question is
                                                                     not whether a non-signatory may be compelled to arbitrate
                              III
                                                                     but rather whether a non-signatory may compel arbitration.
 [3] A party seeking to compel arbitration under the FAA
must establish that (1) there is a valid arbitration clause,          [8] The Salmons argue that because none of the Rubiolas
and (2) the claims in dispute fall within that agreement's           signed the arbitration agreement, except J.C., who signed
scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,             only as the representative of Rubiola Mortgage Company,
737 (Tex.2005). The Rubiolas contend that the arbitration            that none of them are entitled to compel the Salmons to
agreement, executed during financing, is broad enough to             arbitrate. The Salmons thus equate signing with being a
cover all of the Salmon's claims against them. The Salmons           party to the agreement. The arbitration agreement, however,
argue, however, that the arbitration agreement extends only          expressly provides that certain non-signatories are to be
to disputes under the financing agreement, as opposed to             parties to the agreement. The agreement defines parties
the real estate *224 sales agreement, and that its breadth           to include “Rubiola Mortgage Company, and each and
cannot be used by non-signatories to compel arbitration.             all persons and entities that sign this agreement or any
This disagreement raises two issues: do the Rubiolas, as             other agreements between or among any of the parties as
non-signatories to the arbitration agreement, have authority         part of this transaction.” Parties further include “individual
to compel the Salmons to arbitrate, and, if so, does the             partners, affiliates, officers, directors, employees, agents,
arbitration clause cover the Salmons' claims. The first issue        and/or representatives of any party to such documents.”
questions the validity of the arbitration clause, while the
second questions the clause's scope.                                 The Rubiolas argue, and we agree, that the arbitration
                                                                     agreement's broad definition of parties, at a minimum,
                                                                     made J.C. and Greg Rubiola parties to the arbitration
                                                                 agreement. 2 Rubiola Mortgage Company signed the
                               A
                                                                 arbitration agreement, and the Rubiola brothers are clearly
 [4]    [5]    [6]     [7] Whether a non-signatory can compelofficers and representatives of the mortgage company *225
arbitration pursuant to an arbitration clause questions the      and thus non-signatory parties to the arbitration agreement
existence of a valid arbitration clause between specific parties under the agreement's terms. Because the arbitration



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               4
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

agreement expressly provides that certain non-signatories           executed contemporaneously as part of the same transaction
are considered parties, we conclude that such parties may           and because the mortgage agreement was essential to the
compel arbitration under the agreement. See Sherer, 548             overall deal. The Salmons argue, on the other hand, that
F.3d at 382 (noting that trial court's application of equitable     the arbitration clause does not cover their claims because
estoppel to determine whether non-signatory might compel            those claims relate only to J.C.'s role as the listing agent
arbitration, was unnecessary because the terms of the Loan          to the real estate contract. The Salmons further deny that
Agreement clearly identify when a party might be compelled          their alleged facts intertwine with the mortgage agreement, or
to arbitrate with a non-signatory); Bridas, 345 F.3d at 356         that the contracts should be construed together because they
(noting that ordinary principles of contract and agency law         were signed by different parties at different times and without
may be called upon to bind a non-signatory to an agreement          reference to each other.
whose terms have not clearly done so); see also Carolyn
Lamm, Defining The Party—Who is a Proper Party in an                 [11] To determine whether a claim falls within the scope of
International Arbitration Before the American Arbitration           the agreement, courts must “focus on the factual allegations of
Association and Other International Institutions, 34 GEO.           the complaint, rather than the legal causes of action asserted.”
WASH. INT'L L.REV.. 711, 720 (2003) (noting that courts             Marshall, 909 S.W.2d at 900. The factual allegations in
prohibit enforcement by non-signatories “where (1) the              the Salmons' complaint center around a variety of alleged
contract does not expressly grant third parties the ability         misrepresentations that J.C. Rubiola made in his capacity as
to participate in the arbitration; (2) the parties have not         the listing agent to the real estate *226 transaction. J.C.
contemplated the idea; and (3) non-signatory involvement            allegedly promised that certain repairs would be made to
would constitute an invasion of the consensual nature of            the Salmons' satisfaction after closing. When they were not
arbitration.”). But even though the Rubiolas are identified as      and other serious problems materialized after closing, J.C.
non-signatories who may compel arbitration, there remains           allegedly made more promises to fix the problems or to
the question whether the Salmons' underlying claims fall            repurchase the home if the repairs were not satisfactory.
within the arbitration agreement's scope.
                                                                  The underlying arbitration agreement defines arbitrable
                                                                  disputes to include “any and all controversies between
                                                                  the parties of whatever type or manner, including without
                                B
                                                                  limitation, all past, present and/or future credit facilities
 [9]     [10] When deciding whether claims fall within an and/or agreements involving the parties.” The Rubiola
arbitration agreement, courts employ a strong presumption         brothers were, as we have already concluded, non-signatory
in favor of arbitration. Cantella & Co., Inc. v. Goodwin,         parties to the arbitration agreement, which broadly covers
924 S.W.2d 943, 944 (Tex.1996) (per curiam) (holding that         all controversies between the parties and all past, present
“[f]ederal and state law strongly favor arbitration,” and that “a or future agreements involving the parties. This language
presumption exists in favor of agreements to arbitrate under      indicates that the arbitration agreement was not limited to the
the FAA”); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896,      financing part of the transaction but rather extended to the real
899 (Tex.1995) (holding that under the FAA “any doubts as         estate sales contract and the Salmons complaints regarding
to whether claims fall within the scope of the agreement must     that sale.
be resolved in favor of arbitration,” and that “[t]he policy in
favor of enforcing arbitration agreements is so compelling        The Salmons argue, however, that including the real estate
that a court should not deny arbitration ‘unless it can be        sales contract as part of the transaction subject to arbitration is
said with positive assurance that an arbitration clause is not    contrary to the terms of that contract. The real estate contract
susceptible of an interpretation which would cover the dispute    stated that it constituted the entire agreement between the
at issue’ ”). The Rubiolas advance three arguments for why        parties and further provided that the parties could enforce
the arbitration clause covers the Salmons' claims: (1) the        it in court. The contract, however, also states that it could
language of the clause covers the claims, (2) J.C.'s alleged      be amended by a later writing. In the arbitration agreement,
actions occurred while he was acting under both the mortgage      executed a month later as part of the process for obtaining
and real estate contracts, so his alleged actions were factually  financing, the Salmons agreed to arbitrate all controversies
intertwined with the mortgage agreement, and (3) the two          between the parties and all past agreements involving the
instruments should be read together because they were             parties.



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               5
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

                                                                      arbitration. Finally, we conclude that the trial court's order
                                                                      denying arbitration is an abuse of discretion for which we
***
                                                                      conditionally grant Relators' request for mandamus relief.
                                                                      TEX.R.APP. P. 52.8(c). The writ will issue only if the trial
We conclude that signatories to an arbitration agreement may
                                                                      court fails to enforce the arbitration agreement.
identify other parties in their agreement who may enforce
arbitration as though they signed the agreement themselves.
We further conclude that the underlying arbitration agreement
                                                                      Parallel Citations
in this case identified the Rubiolas as parties to the
agreement and that they accordingly had the right to compel           54 Tex. Sup. Ct. J. 654


Footnotes
1      J.C. Rubiola, Gregory Rubiola, Catherine Rubiola, JGL–Design Build, L.L.C., Michael Cortez individually and d/b/a The Heights
       Design and Construction are defendants in the underlying suit and Relators in this Court.
2      J.C. and Greg Rubiola are the President and Vice President of Rubiola Mortgage Company. JGL Design Builders L.L.C. is a Texas
       limited liability corporation, owned and managed by J.C. and Greg Rubiola. Michael Cortez individually and d/b/a the Heights Design
       and Construction was the original contractor hired by the Rubiolas to remediate the mold and water damage at the property.


End of Document                                                   © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                     6
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)




                                                                    [3]   Alternative Dispute Resolution
                     180 S.W.3d 127
                 Supreme Court of Texas.                                                                                       Existence
                                                                          and validity of agreement
             In re WEEKLEY HOMES, L.P.
                                                                          Under the Federal Arbitration Act (FAA), absent
            No. 04–0119. | Argued Nov. 30,                                unmistakable evidence that the parties intended
                                                                          the contrary, the courts, rather than arbitrators,
           2004. | Decided Oct. 28, 2005.
                                                                          must decide gateway matters such as whether a
Synopsis                                                                  valid arbitration agreement exists and whether an
Background: House purchaser's adult child brought personal                arbitration agreement is binding on a nonparty. 9
injury action against builder to recover for asthma allegedly             U.S.C.A. § 1 et seq.
caused by dust from house repairs. Purchaser and trust that
                                                                          38 Cases that cite this headnote
owned the house also sued. The 192nd District Court, Merrill
Hartman, J., refused to compel arbitration of personal injury
action. Builder petitioned for writ of mandamus.                    [4]   Alternative Dispute Resolution

                                                                                                                               What
                                                                          law governs
[Holding:] The Supreme Court, Brister, J., held as a matter of
                                                                          Texas procedural rules govern gateway matters
first impression that arbitration clause was binding on child,
                                                                          such as whether a valid arbitration agreement
even though she was not party to contract.
                                                                          exists and an arbitration agreement is binding on
                                                                          a nonparty. 9 U.S.C.A. § 1 et seq.
Writ conditionally granted.
                                                                          15 Cases that cite this headnote


                                                                    [5]   Alternative Dispute Resolution
 West Headnotes (19)
                                                                                                                               Evidence

 [1]    Alternative Dispute Resolution                                    Party moving to compel arbitration bears burden
                                                                          to show a valid agreement to arbitrate.
                                                            Persons
        affected or bound                                                 14 Cases that cite this headnote

        Nonparties may be bound to an arbitration clause
        when the rules of law or equity would bind them             [6]   Alternative Dispute Resolution
        to the contract generally.
                                                                                                                               What
        5 Cases that cite this headnote                                   law governs
                                                                          Generally, under the Federal Arbitration Act
 [2]    Mandamus                                                          (FAA), state law governs whether a litigant
                                                                          agreed to arbitrate, and federal law governs the
                                                            Civil         scope of an arbitration clause. 9 U.S.C.A. § 1 et
        proceedings other than actions                                    seq.
        Mandamus relief is proper to enforce arbitration
                                                                          19 Cases that cite this headnote
        agreements governed by the Federal Arbitration
        Act (FAA). 9 U.S.C.A. § 1 et seq.
                                                                    [7]   Alternative Dispute Resolution
        16 Cases that cite this headnote




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             1
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)


                                                                           would benefit from suit by trust and purchaser on
                                                             What          contract.
       law governs
       State law applies to whether a nonparty must                        28 Cases that cite this headnote
       arbitrate pursuant to agreement governed by
       the Federal Arbitration Act (FAA), but courts                [10]   Negligence
       will endeavor to keep state law as consistent as
       possible with federal law. 9 U.S.C.A. § 1 et seq.                                                                       Contractors
                                                                           A contractor performing repairs has an
       14 Cases that cite this headnote
                                                                           independent duty under tort law not to injure
                                                                           bystanders by its activities or by premises
 [8]   Alternative Dispute Resolution                                      conditions it leaves behind.

                                                             Disputes      3 Cases that cite this headnote
       and Matters Arbitrable Under Agreement
       Under Texas and federal law, whether a claim                 [11]   Alternative Dispute Resolution
       seeks a direct benefit from a contract containing
       an arbitration clause and must be arbitrated turns                                                                      Persons
       on the substance of the claim, not artful pleading;                 affected or bound
       thus, claims must be brought on the contract                        A nonparty to a contract with an arbitration
       and arbitrated if liability arises solely from the                  clause may seek or obtain direct benefits from
       contract or must be determined by reference to it,                  a contract by means other than a lawsuit, and,
       but claims can be brought in tort and in court if                   therefore, may be bound by the arbitration
       liability arises from general obligations imposed                   clause.
       by law.
                                                                           12 Cases that cite this headnote
       44 Cases that cite this headnote

                                                                    [12]   Alternative Dispute Resolution
 [9]   Alternative Dispute Resolution
                                                                                                                               Persons
                                                             Persons       affected or bound
       affected or bound
                                                                           In some cases, a nonparty may be compelled
       Arbitration clause in house purchaser's contract                    to arbitrate if it deliberately seeks and obtains
       with builder was binding on purchaser's                             substantial benefits from the contract itself.
       adult child, even though she was nonparty
       or nonsignatory to the contract, and the                            11 Cases that cite this headnote
       clause required arbitration of her personal
       injury action to recover for asthma allegedly                [13]   Estoppel
       caused by dust from house repairs; the child
       resided in the house, directed construction                                                                             Future
       of many features, repeatedly demanded                               events; promissory estoppel
       extensive repairs, personally requested and                         When a promisor induces substantial action or
       received financial reimbursement for expenses,                      forbearance by another, “promissory estoppel”
       conducted settlement negotiations with builder,                     prevents any denial of that promise if injustice
       obtained substantial and direct benefits from                       can be avoided only by enforcement.
       the contract, and could not equitably object to
       the arbitration clause, and she was beneficiary                     20 Cases that cite this headnote
       and trustee of trust that owned the house and
                                                                    [14]   Estoppel


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



                                                              Future           3 Cases that cite this headnote
        events; promissory estoppel
        Promissory estoppel does not create liability                   [18]   Alternative Dispute Resolution
        where none otherwise exists, but prevents a party
        from insisting upon his strict legal rights when it                                                                               Persons
        would be unjust to allow him to enforce them.                          affected or bound
                                                                               Direct-benefits estoppel against a nonparty
        9 Cases that cite this headnote
                                                                               avoiding arbitration clause after receiving direct
                                                                               benefits from contract does not apply when the
 [15]   Trusts                                                                 benefits alleged are insubstantial or indirect.

                                                              Capacity         20 Cases that cite this headnote
        of trustee to sue and be sued in general
        Trusts                                                          [19]   Alternative Dispute Resolution
                                                              Parties                                                                     Persons
        A suit involving a trust generally must be brought                     affected or bound
        by or against the trustee and can be binding on                        When a nonparty consistently and knowingly
        the beneficiaries whether they join it or not.                         insists that others treat it as a party to the contract,
                                                                               it cannot later turn its back on the portions of
        Cases that cite this headnote
                                                                               the contract, such as an arbitration clause, that it
                                                                               finds distasteful.
 [16]   Alternative Dispute Resolution
                                                                               5 Cases that cite this headnote
                                                              Persons
        affected or bound
        Alternative Dispute Resolution
                                                                   Attorneys and Law Firms
                                                              Persons
        entitled to enforce                                          *128 Raul A. Gonzalez, Susan Kidwell, Locke Liddell &
        Direct-benefits estoppel against a nonparty                 Sapp, LLP, Austin, and N. Terry Adams, Beirne Maynard &
        avoiding arbitration clause requires a nonparty's           Parsons, L.L.P., Houston, for relator.
        colorable claim to the benefits of the contract; a
        meddlesome stranger cannot compel arbitration               James Craig Orr Jr. and Spencer P. Browne, Heygood Orr &
        by merely pleading a claim that quotes someone              Reyes, L.L.P., Irving, for real party in interest.
        else's contract.
                                                                    Opinion
        19 Cases that cite this headnote
                                                                       *129 Justice BRISTER delivered the opinion of the Court.

 [17]   Alternative Dispute Resolution                             We are asked to decide whether Weekley Homes, L.P., a party
                                                                   to a contract containing an arbitration clause, can compel
                                                              Persons
                                                                   arbitration of a personal injury claim brought by Patricia
        affected or bound                                          Von Bargen, a nonparty. We have previously compelled
        Direct-benefits estoppel against a nonparty                arbitration by nonparties to an arbitration agreement when
        avoiding arbitration clause does not create                 they brought suit “based on a contract,” 1 which Von Bargen
        liability for noncontracting parties that does not          purports to avoid here.
        otherwise exist.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                        3
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)


 [1] But as both state and federal courts have recognized,        According to the plaintiffs' pleadings, numerous problems
nonparties may be bound to an arbitration clause when the         arose with the home after completion. When the family
rules of law or equity would bind them to the contract            moved out of the house briefly so Weekley could perform
generally. Because we find those rules applicable here, we        some of those repairs, it was Von Bargen who requested
conditionally grant mandamus relief.                              and received reimbursement. Indeed, Von Bargen admitted
                                                                  handling “almost ... all matters related to the house, the
                                                                  problems and the warranty work and even the negotiations.”

                       I. Background
                                                                  Unsatisfied with the home and Weekley's efforts to repair
In the summer of 2000, Vernon Forsting contracted with            it, Forsting, Von Bargen, and the Trust filed suit against
Weekley for construction of a 4,000 square foot home at           Weekley in December 2002. Forsting and the Trust asserted
a purchase price of $240,000. At the time, Forsting was a         claims for negligence, breach of contract, statutory violations,
seventy-eight year-old widower with an assortment of health       and breach of warranty. Von Bargen sued only for personal
problems. His intention in purchasing such a large home was       injuries, alleging Weekley's negligent repairs caused her to
to live with his daughter, Von Bargen (his only child) and her    develop asthma.
husband and three sons.
                                                                  Weekley moved to compel arbitration of all claims under
Von Bargen and her husband negotiated directly with               the Federal Arbitration *130 Act (FAA). 2 The trial court
Weekley on many issues before and after construction—             concluded the FAA applied, and granted the motion as to all
paying a $1,000 deposit, selecting the floor plan, signing a      claims by Forsting and the Trust. But the trial court refused
letter of intent as “purchasers,” and making custom design        to compel arbitration of Von Bargen's claim because she did
choices.                                                          not sign the Purchase Agreement.

But only Forsting executed the various financing and closing      [2]    Mandamus relief is proper to enforce arbitration
documents on the home, including the Real Estate Purchase         agreements governed by the FAA. 3 After the Fifth Court of
Agreement that contained the following arbitration clause:        Appeals denied Weekley's request for such relief, Weekley
                                                                  filed a similar request in this Court.
            Any claim, dispute or cause of action
            between Purchaser and Seller ...,
            whether sounding in contract, tort, or
            otherwise, shall be resolved by binding                                    II. Governing Law
            arbitration.... Such claims, disputes or
            causes of action include, but are not                 [3]   Neither party challenges the trial court's conclusion that
            limited to, those arising out of or                   the FAA governs the arbitration clause here. 4 Under the
            relating to ... the design, construction,             FAA, absent unmistakable evidence that the parties intended
            preparation, maintenance or repair of                 the contrary, it is the courts rather than arbitrators that must
            the Property.                                         decide “gateway matters” such as whether a valid arbitration
                                                                  agreement exists. 5 Whether an arbitration agreement is
Shortly after closing, Forsting transferred the home to the       binding on a nonparty is one of those gateway matters. 6
Forsting Family Trust, a revocable trust established ten years
earlier whose sole beneficiary was Von Bargen. At his             [4]     [5]    Texas courts apply Texas procedural rules
deposition, Forsting testified that the only reason he signed
                                                                  in making that determination. 7 Those rules call for
the Purchase Agreement individually rather than as trustee
was because he “forgot to put [the home] in the trust.”           determination by summary proceedings, 8 with the burden on
Forsting and Von Bargen served as the only trustees of the        the moving party to show a valid agreement to arbitrate. 9
Trust, the purpose of which was to transfer Forsting's property
to Von Bargen after his death.                                    [6]    [7] But as we recently noted, it is not entirely clear what
                                                                  substantive law governs whether a nonparty must arbitrate. 10
                                                                  Generally under the FAA, state law governs whether a litigant


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



agreed to arbitrate, 11 and federal law governs the scope of       can be brought in tort (and in court) if liability arises from

an arbitration clause. 12 Whether *131 a nonparty must             general obligations imposed by law. 24
arbitrate can involve aspects of either or both. Pending an
                                                                   We question Weekley's conclusion that this rule will
answer from the United States Supreme Court, 13 we apply
                                                                   inevitably drive claimants to plead only noncontractual
state law while endeavoring to keep it as consistent as possible
                                                                   claims to avoid arbitration. Nonparties face a choice when
with federal law. 14                                               they may plead in either contract or tort, but pleading the
                                                                   former invokes an arbitration clause broad enough to cover
                                                                   both (as most do). If they pursue a claim “on the contract,”
             III. Estoppel and Nonsignatories                      then they must pursue all claims—tort and contract—in
                                                                   arbitration. 25 Conversely, if they choose not to sue “on
Texas law has long recognized that nonparties may be bound         the contract,” they may pursue the tort claims in court, but
to a contract under various legal principles. 15 Although          the contract claims will thereby likely be waived under the
we have never considered these principles in the context of        election-of-remedies doctrine. 26 Given these options, it is
arbitration, we recently noted that contract and agency law        not clear at this point that nonparties will always choose
may bind a nonparty to an arbitration agreement. 16 Indeed,        to forfeit potentially viable contract claims solely to avoid
if Texas law would bind a nonparty to a contract generally,        arbitration.
the FAA would appear to preempt an exception for arbitration
clauses alone. 17                                                   [9] [10] In this case, Von Bargen purports to make no claim
                                                                   on the Weekley contract, claiming only that she developed
In the one case in which we have compelled nonparties to           asthma from dust created by Weekley's repairs of the home.
arbitrate, In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex.        While Weekley's duty to perform those repairs arose from
2001) we stated that “a litigant who sues based on a contract      the Purchase Agreement, a contractor performing repairs
                                                                   has an independent duty under Texas tort law not to injure
subjects him or herself to the contract's terms.” 18 Because the
nonparties there asserted claims identical to the signatories'     bystanders by its activities, 27 or by premises conditions
contract claims, we held all had to be arbitrated. 19              it leaves behind. 28 There is nothing in the sparse record
                                                                   here to suggest Von Bargen's claim is different from what
We did not describe in FirstMerit what it means to sue “based      any bystander might assert, or what she might assert if the
on a contract.” Von Bargen asserts a narrow interpretation         contractor were not Weekley.
that would apply only to explicit contract claims, and thus
not to hers for personal injury; Weekley argues for a broad         [11] [12] But a nonparty may seek or obtain direct benefits
application to any claim that “arises from or relates to” the      from a contract by means other than a lawsuit. In some cases,
contract involved.                                                 a nonparty may be compelled to arbitrate if it deliberately
                                                                   seeks and obtains substantial benefits from the contract
We recently adopted       an approach between these two            itself. 29 The analysis here focuses on the *133 nonparty's
extremes, holding that    a nonparty may be compelled to           conduct during the performance of the contract. 30 Thus,
arbitrate “if it seeks,    through the claim, to derive a          for example, a firm that uses a trade name pursuant to an
direct benefit from the   contract containing the arbitration      agreement containing an arbitration clause cannot later avoid
provisions.” 20 As we noted, this rule is consistent with          arbitration by claiming to have been a nonparty. 31 Nor can
                                             21
federal law of “direct benefits estoppel.”                         nonsignatories who received lower insurance rates and the
                                                                   ability to sail under the French flag due to a contract avoid the
 [8] Under both Texas and federal law, whether a claim             arbitration clause in that contract. 32
seeks a direct benefit from a contract containing an arbitration
 *132 clause turns on the substance of the claim, not artful       [13]      [14]    This Court has never addressed such an
pleading. 22 Claims must be brought on the contract (and           estoppel claim in the arbitration context. 33 But we have
arbitrated) if liability arises solely from the contract or must   long recognized in other contexts the defensive theory of
be determined by reference to it. 23 On the other hand, claims     promissory estoppel. 34 When a promisor induces substantial


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



action or forbearance by another, promissory estoppel
                                                                    [17]    [18] Like the equitable doctrine of promissory
prevents any denial of that promise if injustice can be avoided
                                                                   estoppel, we do not understand direct-benefits estoppel to
only by enforcement. 35 Promissory estoppel does not create
                                                                   create liability for noncontracting parties that does not
liability where none otherwise exists, 36 but “prevents a party    otherwise exist. As Von Bargen and Weekley had no contract
from insisting upon his strict legal rights when it would be       between them, estoppel alone cannot grant either a right to
unjust to allow him to enforce them.” 37                           sue for breach. 42 Nor do we understand the doctrine to apply
                                                                   when the benefits alleged are insubstantial or indirect. But
Here, Von Bargen has not merely resided in the home.               once Von Bargen deliberately sought substantial and direct
Claiming the authority of the Purchase Agreement, she              benefits from the contract, and Weekley agreed to comply,
directed how Weekley should construct many of its features,        equity prevents her from avoiding the arbitration clause that
repeatedly demanded extensive repairs to “our home,” 38            was part of that agreement.
personally requested and received financial reimbursement
for expenses “I incurred” while those repairs were made, and       We recognize that direct-benefits estoppel has yet to be
conducted settlement negotiations with Weekley (apparently         endorsed by the United States Supreme Court, and that
never consummated) about moving the family to a new home.          its application and boundaries are not entirely clear. 43
Having obtained these substantial actions from Weekley             For example, while federal courts often state the test as
by demanding compliance with provisions of the contract,
                                                                   whether a nonsignatory has “embraced the contract,” 44
Von Bargen cannot equitably object to the arbitration clause
                                                                   the *135 metaphor gives little guidance in deciding what
attached to them.
                                                                   particular conduct embraces or merely shakes hands with
                                                                   it. Indeed, the equitable nature of the doctrine may render
 [15] In addition to these benefits, Forsting and the Trust have
                                                                   firm standards inappropriate, requiring trial courts to exercise
sued Weekley on claims which are explicitly based on the
                                                                   some discretion based on the facts of each case. 45
contract. Under Texas law, a suit involving a trust generally
must be brought by or against the trustee, and can be binding
                                                                   [19]    But we agree with the federal courts that when a
on the beneficiaries whether they join it or *134 not. 39
                                                                   nonparty consistently 46 and knowingly 47 insists that others
Although Von Bargen did not purport to sue as either trustee
                                                                   treat it as a party, it cannot later “turn[ ] its back on the
or beneficiary, she was both, and any recovery will inure
                                                                   portions of the contract, such as an arbitration clause, that
to her direct benefit as the sole beneficiary and equitable
                                                                   it finds distasteful.” 48 A nonparty cannot both have his
titleholder of the home. 40 As one Texas court has noted, if
                                                                   contract and defeat it too.
a trustee's agreement to arbitrate can be avoided by simply
having the beneficiaries bring suit, “the strong state policy
                                                                   While Von Bargen never based her personal injury claim
favoring arbitration would be effectively thwarted.” 41
                                                                   on the contract, her prior exercise of other contractual
                                                                   rights and her equitable entitlement to other contractual
 [16] While we based our decision in FirstMerit Bank on the
                                                                   benefits prevents her from avoiding the arbitration clause
nonparties' contract-based claims, more was involved in that
                                                                   here. Accordingly, the trial court abused its discretion in
case than the format of the pleadings. Direct-benefits estoppel
                                                                   failing to compel arbitration. We conditionally grant the writ
requires a colorable claim to the benefits; a meddlesome
                                                                   of mandamus and order the trial court to vacate that part
stranger cannot compel arbitration by merely pleading a
                                                                   of its order denying Weekley's motion, and to enter a new
claim that quotes someone else's contract. The nonparties
                                                                   order compelling arbitration of Von Bargen's claim. We are
in FirstMerit Bank were the daughter and son-in-law of the
                                                                   confident the trial court will comply, and our writ will issue
signatories, the actual occupants of the mobile home, and
                                                                   only if it does not.
(according to the briefs) the future owners to whom the
signatories planned to transfer title. It is hard to see what
direct benefits they expected from that contract that Von
Bargen did not expect from this one.                               Justice WILLETT did not participate in the decision.


Footnotes


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


1     In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex.2001).
2     See 9 U.S.C. §§ 1–16.
3     In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2 (Tex.1999) (per curiam); EZ Pawn Corp. v. Mancias, 934 S.W.2d
      87–88 (Tex.1996) (per curiam).
4     Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as it was not signed
      by an attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002((a)(3), (C), she does not challenge the trial court's conclusion that
      the FAA governs here. The FAA not only contains no such limitation, but also preempts any state requirements that apply only to
      arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).
5     Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003); PacifiCare Health Sys., Inc. v. Book,
      538 U.S. 401, 407, 123 S.Ct. 1531, 155 L.Ed.2d 578 n.2 (2003).
6     John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546–47, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).
7     Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 (Tex.1992).
8     Id. at 269.
9     J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).
10    In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738–39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
      79, 87, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law
      and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6 (5th Cir. 2004) (noting that
      whether state or federal law of arbitrability applies “is often an uncertain question”).
11    Doctor's Assocs., 517 U.S. at 686–87, 116 S.Ct. 1652; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920,
      131 L.Ed.2d 985 (1995); Perry v. Thomas, 482 U.S. 483, 492, 107 S.Ct. 2520, 96 L.Ed.2d 426, n.9 (1987). Parties may also agree
      that state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 109 S.Ct.
      1248, 103 L.Ed.2d 488 (1989).
12    Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
13    The United State Supreme Court has not answered this question, though it has applied federal substantive law to bind a nonparty to
      labor-union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law principles. See John
      Wiley & Sons, 376 U.S. at 548, 84 S.Ct. 909 (citing Textile Workers Union of Am. v. Lincoln Mills, 353 U.S. 448, 456, 77 S.Ct.
      912, 1 L.Ed.2d 972 (1957)).
14    Kellogg, 166 S.W.3d at 739.
15    See, e.g., TEX. BUS. CORP. Act art. 2.21(A)(2) (holding shareholders may be liable for corporation's contracts under alter ego theory
      if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586, 590 (Tex.2002)
      (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629 (Tex.1981) (holding agent
      acting within the scope of apparent authority binds the principal).
16    Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true that “the [Texas] decisions do not even mention the possibility of
      additional bases for binding non-signatories to arbitration.” Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir. 2002).
17    Doctor's Assocs., 517 U.S. at 686–87, 116 S.Ct. 1652; Allied–Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct.
      834, 130 L.Ed.2d 753 (1995) (“What States may not do is decide that a contract is fair enough to enforce all its basic terms (price,
      service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of
      policy would place arbitration clauses on an unequal ‘footing,’ directly contrary to the Act's language and Congress' intent.”).
18    52 S.W.3d at 755.
19    Id. at 755–56.
20    Kellogg, 166 S.W.3d at 741.
21    Id.
22    Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838–39 (7th Cir. 1981); Southwestern Bell Tel.
      Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991).
23    Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec. Coop., Inc.
      v. Parks, 1 S.W.3d 96, 105 (Tex.1999); DeLanney, 809 S.W.2d at 494.
24    See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 163–164 (4th Cir. 2004); InterGen N.V. v. Grina, 344
      F.3d 134, 145–46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood Enters., Inc. v. Gaskamp,
      280 F.3d 1069, 1076–77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa Plastics Corp. USA v. Presidio Eng'rs
      & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998).
25    See, e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992) (holding DTPA claim was factually intertwined with contract
      claim and thus subject to arbitration clause).



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


26    Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980) (holding election-of-remedies doctrine prevents pursuit of
      inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598–99 (Tex.1996)
      (holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit against employer for intentional
      act).
27    See Redinger v. Living, Inc., 689 S.W.2d 415, 417 (Tex.1985) (noting general contractor on a construction site in control of the
      premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or instrumentality).
28    Strakos v. Gehring, 360 S.W.2d 787, 790 (Tex.1962).
29    Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce arbitration
      clause as opposing party treated affiliate as part of charter contract during occurrence involved); Am. Bureau of Shipping v. Tencara
      Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance rates and ability to sail
      under French flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd. P'ship Sec. Litig., 26 F.3d 50,
      52 (7th Cir. 1994) (holding wife bound by settlement agreement related to investment services contract signed only by her husband,
      but under which she had accepted services as well); see also InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as
      nonsignatory never sought to derive direct benefits from contracts during their currency).
30    E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir. 2001).
31    Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).
32    Tencara Shipyard, 170 F.3d at 353.
33    See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from contract
      rather than subsequent litigation).
34    See, e.g., ‘Moore’ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex.1972).
35    Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997).
36    Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex.1988).
37    Wheeler v. White, 398 S.W.2d 93, 96 (Tex.1965).
38    In various lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and windows,
      cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting the bathrooms
      and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the yard, and a noisy
      garage door.
39    See TEX. PROP. CODEE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.1996)(holding trusts are
      not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476–77 (Tex.1979) (holding beneficiaries were
      bound by judgment against trust and trustees, as some participated in trial in their capacity as trustees, and remainder showed neither
      prejudice, conflict of interest, nor inadequate representation by trustees).
40    Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex.1988) (holding trust beneficiaries hold
      equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003) (holding arbitration agreements
      were binding on receiver who succeeded to interests of entities that signed them); Hays & Co. v. Merrill Lynch, Pierce, Fenner &
      Smith, Inc., 885 F.2d 1149, 1153–54 (3d Cir. 1989) (holding arbitration agreements were binding on successor trustee in bankruptcy).
41    Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex.App.-Waco 1992, writ denied).
42    See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734 (Tex.1981) (holding estoppel based on division orders could not permanently
      amend underlying lease).
43    See e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate—A
      Bride Too Far?, 21 REV. LITIG. 593 (2002).
44    See, e.g. InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F.Supp.2d 711, 721
      (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107, 1138 (D.Kan. 2003); Amkor Tech., Inc.
      v. Alcatel Bus. Sys., 278 F.Supp.2d 519, 521–22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v. Hallmark Mktg. Corp.,
      176 F.Supp.2d 1091, 1098 (D.Colo. 2001).
45    See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) (“The use of equitable estoppel is within a district
      court's discretion.”); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists Agency,
      L.L.C., 210 F.3d 524, 528 (5th Cir. 2000).
46    See Int'l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate “when he has consistently maintained
      that other provisions of the same contract should be enforced to benefit him.”) (emphasis added).
47    See Bridas, 345 F.3d at 361–62 (“Direct[-]benefits estoppel applies when a nonsignatory ‘knowingly exploits the agreement containing
      the arbitration clause.’ ”) (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard, 170 F.3d at 353 (requiring




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                             8
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)


      nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to obtain that
      contract and received copies of it).
48    DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281.


End of Document                                                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                    9
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)


                                                                         but the review of the underlying award is
                                                                         exceedingly deferential.
                      687 F.3d 671
             United States Court of Appeals,                             3 Cases that cite this headnote
                      Fifth Circuit.

  PETROFAC, INCORPORATED, Plaintiff–Appellee,                      [2]   Alternative Dispute Resolution
                    v.
                                                                                                                                 Disputes
   DYNMcDERMOTT PETROLEUM OPERATIONS
                                                                         and Matters Arbitrable Under Agreement
       COMPANY, Defendant–Appellant.
                                                                         Alternative Dispute Resolution
            No. 11–20141.      |   July 17, 2012.
                                                                                                                                 Arbitrability
Synopsis                                                                 of dispute
Background: Subcontractor for design and installation of                 Just as the arbitrability of the merits of a dispute
transportable degas plant sought confirmation of arbitration             depends upon whether the parties agreed to
award against contractor for operation of Strategic Petroleum            arbitrate that dispute, so the question of who has
Reserve for Department of Energy. The United States District             the primary power to decide arbitrability turns
Court for the Southern District of Texas, Lynn N. Hughes, J.,            upon what the parties agreed about that matter.
2011 WL 675353, confirmed the award. Contractor appealed.
                                                                         2 Cases that cite this headnote


Holdings: The Court of Appeals, Jennifer Walker Elrod,             [3]   Alternative Dispute Resolution
Circuit Judge, held that:
                                                                                                                                 Evidence
                                                                         The court will not assume that the parties agreed
[1] arbitration agreement, by incorporating the rules of
                                                                         to arbitrate arbitrability unless the parties clearly
the American Arbitration Association (AAA), clearly and
                                                                         and unmistakably provide otherwise.
unmistakably expressed parties' intent to leave the question
of arbitrability to an arbitrator;                                       25 Cases that cite this headnote

[2] record did not support contractor's allegation that
subcontractor procured the award through fraud; and                [4]   Alternative Dispute Resolution

                                                                                                                                 Arbitrability
[3] running of prejudgment interest on arbitration award
                                                                         of dispute
recommenced when contractor failed to pay the award within
required 30-day period.                                                  Arbitration agreement between contractor for
                                                                         operation of Strategic Petroleum Reserve for
                                                                         Department of Energy and subcontractor for
Affirmed.                                                                design and installation of transportable degas
                                                                         plant, by incorporating the rules of the American
                                                                         Arbitration Association (AAA), clearly and
                                                                         unmistakably expressed parties' intent to leave
 West Headnotes (8)
                                                                         the question of arbitrability to an arbitrator; AAA
                                                                         rules provided that arbitrator had the power to
 [1]    Alternative Dispute Resolution                                   rule on his or her own jurisdiction, including any
                                                                         objections with respect to the existence, scope,
                                                           Scope         or validity of the arbitration agreement.
        and Standards of Review
        The court of appeals reviews a district court's                  24 Cases that cite this headnote
        confirmation of an arbitration award de novo,



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               1
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)




 [5]   Alternative Dispute Resolution                                     Cases that cite this headnote

                                                            Arbitrability
       of dispute                                                  [8]    Interest
       Express adoption, in an arbitration agreement,                                                                        Particular
       of the rules of the American Arbitration                           cases and issues
       Association (AAA) presents clear and
                                                                          Running of prejudgment interest on arbitration
       unmistakable evidence that the parties agreed to
                                                                          award, which award ordered payment of
       arbitrate arbitrability.
                                                                          damages and prejudgment interest within 30
       26 Cases that cite this headnote                                   days of award, recommenced when losing party
                                                                          failed to pay the award within the required 30-
                                                                          day period.
 [6]   Alternative Dispute Resolution
                                                                          Cases that cite this headnote
                                                            Parties'
       fraud or misconduct
       Record from arbitration proceeding did not
       support allegation of contractor for operation             Attorneys and Law Firms
       of Strategic Petroleum Reserve for Department
       of Energy that subcontractor for design and                *673 Robert Anthony Plessala, Sr. Counsel (argued),
       installation of transportable degas plant procured         Andrews Myers, P.C., Houston, TX, David James Bush,
       the overtime premium portion of arbitration                Kent, Good Anderson & Bush, P.C., Tyler, TX, for Plaintiff–
       award through fraud, as basis under Federal                Appellee.
       Arbitration Act (FAA) for vacating the award,
       based on subcontractor allegedly pulling a bait-           Henry A. King (argued), John A. Cangelosi, Timothy S.
       and-switch by representing that it had abandoned           Madden, King, Krebs & Jurgens, P.L.L.C., New Orleans, LA,
       its “impact on other jobs” claim but then slipping         for Defendant–Appellant.
       those damages back in through its overtime
                                                                  Appeal from the United States District Court for the Southern
       premium claim. 9 U.S.C.A. § 10(a)(1).
                                                                  District of Texas.
       Cases that cite this headnote
                                                                  Before DeMOSS, CLEMENT and ELROD, Circuit Judges.

 [7]   Federal Courts                                             Opinion

                                                                  JENNIFER WALKER ELROD, Circuit Judge:
                                                            Alternative
       dispute resolution
                                                                  DynMcDermott Petroleum Operations Company (DM)
       Federal Courts                                             appeals the district court's confirmation of an arbitration
                                                                  award in favor of Petrofac, Incorporated. Because DM fails
                                                            Interest
                                                                  to show any reversible error, we AFFIRM.
       Interest

                                                            Particular
       cases and issues                                                                        I.
       Texas law governs the award of prejudgment
       interest on an arbitration award under the Federal         DM operates the Strategic Petroleum Reserve for the
       Arbitration Act (FAA), and under Texas law,                Department of Energy. DM subcontracted with Petrofac to
       prevailing parties receive prejudgment interest as         design and install a transportable degas plant to service the
       a matter of course. 9 U.S.C.A. § 1 et seq.                 reserve. On July 30, 2003, DM and Petrofac agreed to resolve




             © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            2
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)


any claim under the subcontract through binding arbitration.    The arbitration panel dismissed DM's objection because “the
The contract stated:                                            arbitration agreement is clear and encompasses all of the
                                                                issues between the parties arising out of this contract. It is also
            Petrofac and DM agree to enter                      clear that DM waived any objection it had to the arbitration
            into binding arbitration for any                    of a constructive change claim.” The arbitration panel
            Request for Equitable Adjustment                    subsequently awarded Petrofac damages for the “contract
            or claim submitted against the                      balance, damages for a constructive change to the contract, an
            referenced subcontract, in lieu of                  award for the benefit of Womack, and interest from August
            litigation, in the event that a                     24, 2006 to July 26, 2010” to be paid “within thirty days of
            mutually agreeable resolution cannot                the Award.”
            be bilaterally achieved between DM
            and Petrofac through negotiations.                  The district court confirmed the award. The district court
                                                                rejected DM's argument that the REA and the Adams report
In May 2004, Petrofac sent DM a multi-volume Request            represented different claims. Therefore, the district court
for Equitable Adjustment (REA). There, Petrofac asserted        ruled that the arbitration panel did not exceed its authority
that DM disrupted Petrofac's ability to perform its work        by awarding damages as presented in the Adams report.
and sought damages for differing site conditions, delays,       The court also determined that the award was not procured
disruption costs, lost productivity, and acceleration costs.    through fraud or undue means under 9 U.S.C. § 10(a)
                                                                (1). Finally, the district court ordered prejudgment interest
On December 6, 2005, Petrofac agreed to release DM from         after August 26, 2010, ruling that prejudgment interest
all but a few specifically preserved claims. Among these        recommenced after DM failed to pay the award within the
preserved claims, the release included Petrofac's REA “as       thirty-day period.
may be amended or supplemented.” 1

By July 2006, the parties had failed to resolve the                                             II.
REA dispute via negotiation. *674 Pursuant to the
2003 arbitration agreement, DM and Petrofac entered              [1] This court reviews “a district court's confirmation of
into an “Agreement for Arbitration and for Location and         an award de novo, but the review of the underlying award
Methodology of Arbitration.” There, the parties agreed that     is exceedingly deferential.” Apache Bohai Corp. LDC v.
“[t]hey shall submit to binding arbitration the [REA] and all   Texaco China BV, 480 F.3d 397, 401 (5th Cir.2007) (internal
claims and disputes between them arising out of or relating     quotation marks omitted).
to the Subcontract.” In addition, the parties agreed that the
arbitration would be conducted by the American Arbitration
Association under its Construction Industry Arbitration Rules
                                                                                                A.
(AAA Rules).
                                                                On appeal, DM argues that the arbitration panel exceeded its
Petrofac subsequently filed its demand for arbitration. In      powers by issuing an award on a claim not covered by the
June 2008, Petrofac provided DM the report of its damages       parties' arbitration agreement. 9 U.S.C. § 10(a)(4) (allowing
expert, Frank Adams. The Adams report calculated Petrofac's     a district court to vacate an award “where the arbitrators
damages using a different methodology and reached a             exceeded their powers”). Specifically, DM contends that the
different amount than the original REA. The arbitration         calculations in the expert report were extinguished by the
began in March 2009. After five days of hearings, however,      2005 release and therefore fall outside the parties' agreement
the arbitration panel recessed for seven months. When the       to arbitrate. Petrofac responds that the parties contracted
arbitration reconvened, DM objected to the arbitration panel    for the arbitration panel (and not the courts) to decide this
hearing any claims stemming from the different damages          question of arbitrability, and even if the arbitration panel did
methodology used in the Adams report, claiming that it          not have the power to decide arbitrability, the district court
effectively created a new constructive change claim outside     properly determined that the claims at issue were within the
the parties' agreement to arbitrate.                            arbitration agreement.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              3
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)


 [2] [3] We first consider if the arbitration panel properly       in the original REA, Petrofac brought two distinct claims for
determined the initial *675 question of arbitrability, i.e.        damages: (1) an overtime premium claim for the additional
whether the claim is within the parties' agreement to arbitrate.   overtime on the degas project; and (2) a claim for DM's
“Just as the arbitrability of the merits of a dispute depends     impact on other projects. 4 Petrofac made a strategic decision
upon whether the parties agreed to arbitrate that dispute,        to abandon the latter claim, while *676 maintaining the
so the question ‘who has the primary power to decide              former. DM argues that Petrofac pulled a bait-and-switch by
arbitrability’ turns upon what the parties agreed about that      representing that it had abandoned its impact on other jobs
matter.” First Options of Chi., Inc. v. Kaplan, 514 U.S.          claim, but then slipped those damages back in through its
938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (internal        overtime premium claim. Rather than a covert legerdemain
citations omitted). We will not assume that the parties agreed    hidden from the arbitration panel, DM thoroughly advocated
to arbitrate arbitrability “[u]nless the parties clearly and      these arguments to the arbitration panel (both before and
unmistakably provide otherwise.” AT & T Techs., Inc. v.           during the arbitration) and to the district court. In each case,
Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct.             the arbitration panel or court rejected DM's arguments. See
1415, 89 L.Ed.2d 648 (1986). Accordingly, we must decide          Forsythe Int'l, S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017,
if DM and Petrofac “clearly and unmistakably” provided for        1022–23 (5th Cir.1990) (reversing a district court's vacatur
the arbitration panel to decide arbitrability.                    of award where the arbitration panel heard evidence of the
                                                                  fraud and ruled it immaterial). Having examined the record,
 [4] [5] Here, the parties expressly incorporated into their we conclude that DM's allegation of fraud misunderstands the
arbitration agreement the AAA Rules. These rules state that       distinct nature of Petrofac's claims.
“[t]he arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the
existence, scope or validity of the arbitration agreement.” We
agree with most of our sister circuits that the express adoption                                 C.
of these rules presents clear and unmistakable evidence that
                                                                   [7] [8] Finally, DM argues the district court committed
the parties agreed to arbitrate arbitrability. See Fallo v. High–
                                                                  reversible error by ordering prejudgment interest. “Texas law
Tech Inst., 559 F.3d 874, 878 (8th Cir.2009) (“[W]e conclude
                                                                  governs the award of prejudgment interest on the [arbitration]
that the arbitration provision's incorporation of the AAA
                                                                  award,” and “[u]nder Texas law, prevailing parties receive
Rules ... constitutes a clear and unmistakable expression of
                                                                  prejudgment interest as a matter of course.” Executone Info.
the parties' intent to leave the question of arbitrability to an
                                                                  Sys., Inc. v. Davis, 26 F.3d 1314, 1329 (5th Cir.1994). On July
arbitrator.”); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366,
                                                                  26, 2010, the arbitration panel ruled that Petrofac was entitled
1372–73 (Fed.Cir.2006) (same); Terminix Int'l Co., LP v.
                                                                  to interest, calculated the amount of interest as of the date of
Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332–33 (11th
                                                                  the award, and ordered payment of “interest from August 24,
Cir.2005) (same); Contec Corp. v. Remote Solution Co., 398
                                                                  2006 to July 26, 2010, within thirty days of the Award.” DM
F.3d 205, 208 (2d Cir.2005) (same); Apollo Computer, Inc.
                                                                  did not pay within the required thirty-day period. The district
v. Berg, 886 F.2d 469, 473 (1st Cir.1989) (same result under
                                                                  court ordered that DM pay additional interest, reasoning that
the similar ICC Rules). But see Riley Mfg. Co. v. Anchor
                                                                  by ordering payment by August 25, 2010, the arbitration panel
Glass Container Corp., 157 F.3d 775, 780 (10th Cir.1998). 2       created “a thirty-day interest-free window from the date of the
Therefore, the arbitration panel properly made the decision       award,” and DM “is not permitted to discount the arbitration
that the damages calculations in the Adams report fell within     panel's award by recalcitrantly delaying payment.” We agree.
                             3                                    The district court properly reinstated the arbitration panel's
the agreement to arbitrate.
                                                                  interest award after DM refused to pay within the required
                                                                   period. 5
                             B.

 [6] Next, DM contends that Petrofac procured the overtime
                                                                                               III.
premium portion of the award through fraud or undue means.
9 U.S.C. § 10(a)(1) (permitting the district court to vacate       The district court properly confirmed the arbitration panel's
an award “where the award was procured by corruption,              arbitration award. On appeal, DM has failed to demonstrate
fraud, or undue means”). Among the many claims brought


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           4
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (2012)



reversible error. Consequently, the judgment of the district
court is AFFIRMED.


Footnotes
1      The release stated that:
             In consideration of payments made heretofore, or to be made, by DM ... [Petrofac] hereby unconditionally releases DM ... from
             any and all liens and claims whatsoever arising out of or during the performance of said Subcontract other than such claims, if
             any, that may ... be specifically excepted from the terms of this Release and Certificate, stated below:
                1. Request for Equitable Adjustment submitted by Petrofac, Inc. as may be amended or supplemented;
                2. Invoice No. 2004–79–855 in the amount of $995,718.00 ...;
                3. Invoice No. 2005–01–855 in the amount of $338,400.00;
                4. All rights and claims of [Petrofac] in connection with its disputes and objections to DM's Unilateral Change Orders 17,
                18, and 22;
                5. Claim for Equitable Adjustment in the amount of $536,128.08 submitted by L.S. Womack, Inc. a subcontractor of Petrofac,
                Inc.; and
                6. Specified claims in full and precise amounts to be received by the Subcontract Manager within ninety (90) calendar days
                from the issuance of final acceptance by the Subcontract Manager.
2      Today's holding complies with our own prior suggestions that the incorporation of the AAA Rules “may be sufficient to show that
       the parties to those agreements intended to confer that power on the arbitration panel.” DK Joint Venture 1 v. Weyand, 649 F.3d 310,
       317 n. 9 (5th Cir.2011) (emphasis omitted). Also, while the Texas Supreme Court has not weighed in on the issue, Texas appellate
       courts have adopted the same approach. See Schlumberger Tech. Corp. v. Baker Hughes, Inc., 355 S.W.3d 791, 802–03 (Tex.App.
       —Houston [1st Dist.] Oct. 12, 2011).
3      Although DM characterizes its contracts as narrow arbitration agreements for only a few preserved disputes, nothing limits the parties'
       broad agreement to arbitrate “all claims and disputes” that related to the subcontract. Indeed, the 2006 arbitration agreement covered
       all disputes “including but not limited to” those preserved in the 2005 release.
4      Under the overtime claim, Petrofac sought to recover the amount of overtime paid to employees who were billed on other projects
       but, because of DM's disruption, needed to work overtime on the degas project. Under the impact on other projects claim, Petrofac
       demanded damages because DM's disruption of the degas project required Petrofac to hire additional subcontractors and pay overtime
       for work on two other projects to keep them on schedule.
5      The arbitration panel's award of interest—and order that it be paid within thirty days—distinguishes this case from others where the
       arbitration panel decided not to award interest to the prevailing party. See Glover v. IBP, Inc., 334 F.3d 471, 477 (5th Cir.2003).


End of Document                                                     © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                         5
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...


                                                                    [2]     Alternative Dispute Resolution
                     130 S.Ct. 2772
            Supreme Court of the United States                                                                                     Validity
                                                                            of assent
       RENT–A–CENTER, WEST, INC., Petitioner,
                                                                            Alternative Dispute Resolution
                       v.
               Antonio JACKSON.                                                                                                    Unconscionabi
                                                                            Like other contracts, arbitration agreements
             No. 09–497. | Argued April 26,                                 may be invalidated by generally applicable
            2010. | Decided June 21, 2010.                                  contract defenses, such as fraud, duress, or
                                                                            unconscionability.
Synopsis
Background: In former employee's § 1981 action alleging                     119 Cases that cite this headnote
race discrimination and retaliation by his former employer,
employer moved to dismiss and to compel arbitration
pursuant to the Federal Arbitration Act (FAA). The United           [3]     Alternative Dispute Resolution
States District Court for the District of Nevada, Larry R.
                                                                                                                                   Severability
Hicks, J., granted the motion, and employee appealed. The
United States Court of Appeals for the Ninth Circuit, Sidney                Under the Federal Arbitration Act (FAA), a
R. Thomas, Circuit Judge, 581 F.3d 912, reversed in part and                party's challenge to another provision of the
remanded. Certiorari was granted.                                           contract, or to the contract as a whole, does
                                                                            not prevent a court from enforcing a specific
                                                                            agreement to arbitrate; as a matter of substantive
                                                                            federal arbitration law, an arbitration provision is
[Holding:] The Supreme Court, Justice Scalia, held that                     severable from the remainder of the contract. 9
provision of employment agreement which delegated to an                     U.S.C.A. § 2.
arbitrator exclusive authority to resolve any dispute relating
to the agreement's enforceability was a valid delegation under              455 Cases that cite this headnote
the FAA.
                                                                    [4]     Alternative Dispute Resolution
Reversed.                                                                                                                          Existence
                                                                            and validity of agreement
Justice Stevens filed dissenting opinion, in which Justices
                                                                            Under the Federal Arbitration Act (FAA), if
Ginsburg, Breyer, and Sotomayor joined.
                                                                            a party challenges the validity of the precise
                                                                            agreement to arbitrate at issue, federal court
                                                                            must consider the challenge before ordering
 West Headnotes (6)                                                         compliance with that agreement, but if a party
                                                                            challenges the enforceability of the agreement
                                                                            as a whole, the challenge is for the arbitrator. 9
 [1]     Alternative Dispute Resolution
                                                                            U.S.C.A. §§ 2, 4.
                                                              Contractual
                                                                            295 Cases that cite this headnote
         or consensual basis
         Federal Arbitration Act (FAA) reflects
         fundamental principle that arbitration is a matter         [5]     Alternative Dispute Resolution
         of contract. 9 U.S.C.A. § 1 et seq.                                                                                       Existence
                                                                            and validity of agreement
         128 Cases that cite this headnote
                                                                            Provision of employment agreement which
                                                                            delegated to an arbitrator the exclusive authority


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 1
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

        to resolve any dispute relating to the agreement's       Held: Under the FAA, where an agreement to arbitrate
        enforceability, including any claim that all or any      includes an agreement that the arbitrator will determine
        part of the agreement was void or voidable, was          the enforceability of the agreement, if a party challenges
        a valid delegation under the Federal Arbitration         specifically the enforceability of that particular agreement,
        Act (FAA), where employee challenged only the            the district court considers the challenge, but if a party
        agreement as a whole and did not specifically            challenges the enforceability of the agreement as a whole, the
        challenge the delegation clause. 9 U.S.C.A. § 2.         challenge is for the arbitrator. Pp. 2776 – 2781.

        190 Cases that cite this headnote                      (a) Section 2 of the FAA places arbitration agreements on an
                                                               equal footing with other contracts, Buckeye Check Cashing,
 [6]    Federal Courts                                         Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 163
                                                               L.Ed.2d 1038, and requires courts to enforce them according
                                                          Presentation
                                                               to their terms, Volt Information Sciences, Inc. v. Board of
        of Questions Below or on Review; Record;               Trustees of Leland Stanford Junior Univ., 489 U.S. 468,
         Waiver                                                478, 109 S.Ct. 1248, 103 L.Ed.2d 488, “save upon such
        Former employee forfeited argument that                grounds as exist under law or in equity for the revocation
        delegation provision of arbitration agreement          of any contract,” § 2. Here, the Agreement included two
        with employer was unconscionable because               relevant arbitration provisions: it provided for arbitration of
        benefit employee received for such provision           all disputes arising out of Jackson's employment, including
        was negated by subsequently-issued Supreme             discrimination claims, and it gave the “Arbitrator ... exclusive
        Court decision; although decision was issued           authority to resolve any dispute relating to the [Agreement's]
        after employee submitted his brief to Court of         enforceability ... including ... any claim that all or any part
        Appeals on his initial appeal, employee could          of this Agreement is void or voidable.” Rent–A–Center seeks
        have submitted supplemental brief during year          enforcement of the second provision, which delegates to
        and a half between the decision and the Court of       the arbitrator the “gateway” question of enforceability. See,
        Appeals' judgment, and Supreme Court decision          e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
        affirmed a rule that had already been in place in      83–85, 123 S.Ct. 588, 154 L.Ed.2d 491. The court must
        that circuit.                                          enforce the delegation provision under §§ 3 and 4 unless it is
                                                               unenforceable under § 2. Pp. 2776 – 2778.
        5 Cases that cite this headnote
                                                                 (b) There are two types of validity challenges under § 2:
                                                                 one “challenges specifically the validity of the agreement
                                                                 to arbitrate,” and “[t]he other challenges the contract as a
                                                                 whole,” Buckeye, supra, at 444, 126 S.Ct. 1204. Only the
                     **2773 Syllabus *                           first is relevant to a court's determination of an arbitration
                                                                 agreement's *64 enforceability, see, e.g., Prima Paint Corp.
 *63     Respondent Jackson filed an employment-                 v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–404, 87 S.Ct.
discrimination suit against petitioner Rent–A–Center, his        1801, 18 L.Ed.2d 1270, because under § 2 “an arbitration
former employer, in a Nevada Federal District Court. Rent–       provision is severable from the remainder of the contract,”
A–Center filed a motion, under the Federal Arbitration Act       Buckeye, supra, at 445, 126 S.Ct. 1204. That does not
(FAA), to dismiss or stay the proceedings, 9 U.S.C. § 3,         mean that agreements to arbitrate are unassailable. If a party
and to compel arbitration, § 4, based on the arbitration         challenges the validity under § 2 of the precise agreement
agreement (Agreement) Jackson signed as a condition of           to arbitrate at issue, the federal court must consider the
his employment. Jackson opposed the motion on the ground         challenge before ordering compliance with the agreement
 **2774 that the Agreement was unenforceable in that it          under § 4. That is no less true when the precise agreement
was unconscionable under Nevada law. The District Court          to arbitrate is itself part of a larger arbitration agreement.
granted Rent–A–Center's motion. The Ninth Circuit reversed       Because here the agreement to arbitrate enforceability (the
in relevant part.                                                delegation provision) is severable from the remainder of
                                                                 the Agreement, unless Jackson challenged the delegation



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                          2
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

provision specifically, it must be treated as valid under § 2
and enforced under §§ 3 and 4. Pp. 2778 – 2779.
                                                                                                    I

(c) The District Court correctly concluded that Jackson              On February 1, 2007, the respondent here, Antonio Jackson,
challenged only the validity of the contract as a whole. In          filed an employment-discrimination suit under Rev. Stat. §
his brief to this Court he raised a challenge to the delegation      1977, 42 U.S.C. § 1981, against his former employer in
provision for the first time, but that is too late and will not be   the United States District Court for the District of Nevada.
considered. See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247,            The defendant and petitioner here, Rent–A–Center, West,
––––, 129 S.Ct. 1456, ––––, 173 L.Ed.2d 398. Pp. 2729 –              Inc., filed a motion under the FAA to dismiss or stay the
2781.                                                                proceedings, 9 U.S.C. § 3, and to compel arbitration, §
                                                                     4. Rent–A–Center argued that the Mutual Agreement to
581 F.3d 912, reversed.                                              Arbitrate Claims (Agreement), which Jackson signed on
                                                                     February 24, 2003 as a condition of his employment there,
SCALIA, J., delivered the opinion of the Court, in which             precluded Jackson from pursuing his claims in court. The
ROBERTS, C.J., and KENNEDY, THOMAS, and ALITO,                       Agreement provided for arbitration of all “past, present or
JJ., joined. STEVENS, J., filed a dissenting opinion, in which       future” disputes arising out of Jackson's employment with
GINSBURG, BREYER, and SOTOMAYOR, JJ., joined.                        Rent–A–Center, including “claims for discrimination” and
                                                                      *66 “claims for violation of any federal ... law.” App.
                                                                     29–30. It also provided that “[t]he Arbitrator, and not any
Attorneys and Law Firms
                                                                     federal, state, or local court or agency, shall have exclusive
**2775 Robert F. Friedman, Dallas, TX, for Petitioner.               authority to resolve any dispute relating to the interpretation,
                                                                     applicability, enforceability or formation of this Agreement
Ian E. Silverberg, Reno, NV, for Respondent.                         including, but not limited to any claim that all or any part of
                                                                     this Agreement is void or voidable.” Id., at 34.
Michael T. Garone, Schwabe, Williamson & Wyatt, P.C.,
Portland, OR, Ronald D. DeMoss, Andrew Trusevich, Mary               Jackson opposed the motion on the ground that “the
Harokopus, Plano, TX, Robert F. Friedman, Edward F.                  arbitration agreement in question is clearly unenforceable
Berbarie, Littler Mendelson, P.C., Dallas, TX, Henry D.              in that it is unconscionable” under Nevada law. Id., at 40.
Lederman, Littler Mendelson, P.C., Walnut Creek, CA,                 Rent–A–Center responded that Jackson's unconscionability
Carter G. Phillips, Sidley Austin LLP, Washington, DC, for           claim was not properly before the court because Jackson
Petitioner.                                                          had expressly agreed that the arbitrator would have exclusive
                                                                     authority to resolve any dispute about the enforceability
Ian E. Silverberg, Del Hardy, Hardy & Associates, Reno,
                                                                     of the Agreement. It also disputed the merits of Jackson's
NV, Scott L. Nelson, Deepak Gupta Public Citizen Litigation
                                                                     unconscionability claims.
Group, Washington, D.C., F. Paul Bland, Jr., Matthew
Wessler, Amy Radon, Melanie Hirsch, Public Justice, P.C.,
                                                                     The District Court granted Rent–A–Center's motion to
Washington, D.C., Arthur H. Bryant, Leslie A. Bailey,
                                                                     dismiss the proceedings and to compel arbitration. The court
Leslie N. Brueckner, Public Justice, P.C., Oakland, CA, for
                                                                     found that the Agreement “ ‘ “clearly and unmistakenly [sic]
Respondent.
                                                                     ” ’ ” gives the arbitrator exclusive authority to decide whether
Opinion                                                              the Agreement is enforceable, App. to Pet. for Cert. 4a.
                                                                     (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
Justice SCALIA delivered the opinion of the Court.                   79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)), and, because
                                                                     Jackson challenged the validity of the Agreement as a whole,
 *65 We consider whether, under the Federal Arbitration Act          the issue was for **2776 the arbitrator, App. to Pet. for
(FAA or Act), 9 U.S.C. §§ 1–16, a district court may decide a        Cert. 4a (citing Buckeye Check Cashing, Inc. v. Cardegna,
claim that an arbitration agreement is unconscionable, where         546 U.S. 440, 444–445, 126 S.Ct. 1204, 163 L.Ed.2d 1038
the agreement explicitly assigns that decision to the arbitrator.    (2006)). The court noted that even if it were to examine
                                                                     the merits of Jackson's unconscionability claims, it would
                                                                     have rejected the claim that the agreement to split arbitration



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               3
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

fees was substantively unconscionable under Nevada law.            of Trustees of Leland *68 Stanford Junior Univ., 489
It did not address Jackson's procedural or other substantive       U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
unconscionability arguments.                                       Like other contracts, however, they may be invalidated by
                                                                   “generally applicable contract defenses, such as fraud, duress,
Without oral argument, a divided panel of the Court of             or unconscionability.” Doctor's Associates, Inc. v. Casarotto,
Appeals for the Ninth Circuit reversed in part, affirmed in        517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).
part, and remanded. 581 F.3d 912 (2009). The court reversed
on the question of who (the court or arbitrator) had *67 the       The Act also establishes procedures by which federal courts
authority to decide whether the Agreement is enforceable.          implement § 2's substantive rule. Under § 3, a party may apply
It noted that “Jackson does not dispute that the language of       to a federal court for a stay of the trial of an action “upon any
the Agreement clearly assigns the arbitrability determination      issue referable to arbitration under an agreement in writing
to the arbitrator,” but held that where “a party challenges        for such arbitration.” Under § 4, a party “aggrieved” by the
an arbitration agreement as unconscionable, and thus asserts       failure of another party “to arbitrate under a written agreement
that he could not meaningfully assent to the agreement, the        for arbitration” may petition a federal court “for an order
threshold question of unconscionability is for the court.”         directing that such arbitration proceed in the manner provided
Id., at 917. The Ninth Circuit affirmed the District Court's       for in such agreement.” The court “shall” order arbitration
alternative conclusion that the fee-sharing provision was not      “upon being satisfied that the making of the agreement for
substantively unconscionable and remanded for consideration        arbitration or the failure to comply therewith is not in issue.”
of Jackson's other unconscionability arguments. Id., at 919–       Ibid.
920, and n. 3. Judge Hall dissented on the ground that “the
question of the arbitration agreement's validity should have  **2777 The Agreement here contains multiple “written
gone to the arbitrator, as the parties ‘clearly and unmistakably
                                                             provision[s]” to “settle by arbitration a controversy,” § 2.
provide[d]’ in their agreement.” Id., at 921.                Two are relevant to our discussion. First, the section titled
                                                             “Claims Covered By The Agreement” provides for arbitration
We granted certiorari, 558 U.S. 1142, 130 S.Ct. 1133, 175    of all “past, present or future” disputes arising out of Jackson's
L.Ed.2d 941 (2010).                                          employment with Rent–A–Center. App. 29. Second, the
                                                             section titled “Arbitration Procedures” provides that “[t]he
                                                             Arbitrator ... shall have exclusive authority to resolve any
                                                             dispute relating to the ... enforceability ... of this Agreement
                             II
                                                             including, but not limited to any claim that all or any part of
                                                             this Agreement is void or voidable.” Id., at 32, 34. The current
                             A                               “controversy” between the parties is whether the Agreement
                                                             is unconscionable. It is the second provision, which delegates
 [1] [2] The FAA reflects the fundamental principle that
                                                             resolution of that controversy to the arbitrator, that Rent–A–
arbitration is a matter of contract. Section 2, the “primary
                                                             Center seeks to enforce. Adopting the terminology used by
substantive provision of the Act,” Moses H. Cone Memorial
                                                             the parties, we will refer to it as the delegation provision.
Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct.
927, 74 L.Ed.2d 765 (1983), provides:                        The delegation provision is an agreement to arbitrate
                                                                   threshold issues concerning the arbitration agreement. We
  “A written provision in ... a contract evidencing a
                                                                   have recognized that parties can agree to arbitrate “gateway
  transaction involving commerce to settle by arbitration a
                                                                    *69 ” questions of “arbitrability,” such as whether the
  controversy thereafter arising out of such contract ... shall
                                                                   parties have agreed to arbitrate or whether their agreement
  be valid, irrevocable, and enforceable, save upon such
                                                                   covers a particular controversy. See, e.g., Howsam, 537 U.S.,
  grounds as exist at law or in equity for the revocation of
                                                                   at 83–85, 123 S.Ct. 588; Green Tree Financial Corp. v.
  any contract.” 9 U.S.C. § 2.
                                                                   Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d
The FAA thereby places arbitration agreements on an equal          414 (2003) (plurality opinion). This line of cases merely
footing with other contracts, Buckeye, supra, at 443, 126          reflects the principle that arbitration is a matter of contract. 1
S.Ct. 1204, and requires courts to enforce them according          SEE *70 FIrst options of ChicaGO, inc. v. Kaplan, 514
to their terms, Volt Information Sciences, Inc. v. Board           U.s. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). An



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               4
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

agreement to arbitrate a gateway issue is simply an additional,    1801. “To immunize an arbitration agreement from judicial
antecedent agreement the party seeking arbitration asks the        challenge on the ground of fraud in the inducement would be
federal **2778 court to enforce, and the FAA operates on           to elevate it over other forms of contract,” id., at 404, n. 12,
this additional arbitration agreement just as it does on any       87 S.Ct. 1801. In some cases the claimed basis of invalidity
other. The additional agreement is valid under § 2 “save upon      for the contract as a whole will be much easier to establish
such grounds as exist at law or in equity for the revocation of    than the same basis as applied only to the severable agreement
any contract,” and federal courts can enforce the agreement by     to arbitrate. Thus, in an employment contract many elements
staying federal litigation under § 3 and compelling arbitration    of alleged unconscionability applicable to the entire contract
under § 4. The question before us, then, is whether the            (outrageously low wages, for example) would not affect the
delegation provision is valid under § 2.                           agreement to arbitrate alone. But even where that is not the
                                                                   case—as in Prima Paint itself, where the alleged fraud that
                                                                   induced the whole contract equally induced the agreement
                                                                   to arbitrate which was part of that contract—we nonetheless
                               B
                                                                   require the basis of challenge to be directed specifically to the
 [3] There are two types of validity challenges under §            agreement to arbitrate before the court will intervene.
2: “One type challenges specifically the validity of the
agreement to arbitrate,” and “[t]he other challenges the            **2779 Here, the “written provision ... to settle by
contract as a whole, either on a ground that directly affects      arbitration a controversy,” 9 U.S.C. § 2, that Rent–A–Center
the entire agreement (e.g., the agreement was fraudulently         asks us to enforce is the delegation provision—the provision
induced), or on the ground that the illegality of one of the       that gave the arbitrator “exclusive authority to resolve any
contract's provisions renders the whole contract invalid.”         dispute relating to the ... enforceability ... of this Agreement,”
Buckeye, 546 U.S., at 444, 126 S.Ct. 1204. In a line of            App. 34. The “remainder of the contract,” Buckeye, supra, at
cases neither party has asked us to overrule, we held that         445, 126 S.Ct. 1204, is the rest of the agreement to arbitrate
only the first type of challenge is relevant to a court's          claims arising out of Jackson's employment with Rent–A–
determination whether the arbitration agreement at issue is        Center. To be sure this case differs from Prima Paint,
                                                                   Buckeye, and Preston, *72 in that the arbitration provisions
enforceable. 2 See Prima Paint Corp. v. Flood & Conklin
                                                                   sought to be enforced in those cases were contained in
Mfg. Co., 388 U.S. 395, 403–404, 87 S.Ct. 1801, 18 L.Ed.2d
                                                                   contracts unrelated to arbitration—contracts for consulting
1270 (1967); Buckeye, supra, at 444–446, 126 S.Ct. 1204;
                                                                   services, see Prima Paint, supra, at 397, 87 S.Ct. 1801,
Preston v. Ferrer, 552 U.S. 346, 353–354, 128 S.Ct. 978,
                                                                   check-cashing services, see Buckeye, supra, at 442, 126
169 L.Ed.2d 917 (2008). That is because § 2 states that a
                                                                   S.Ct. 1204, and “personal management” or “talent agent”
“written provision” “to settle by arbitration a controversy”
                                                                   services, see Preston, supra, at 352, 128 S.Ct. 978. In
is “valid, irrevocable, and enforceable” without mention of
                                                                   this case, the underlying contract is itself an arbitration
the validity of the contract in which it is contained. Thus,
a party's challenge to another provision of the contract, or       agreement. But that makes no difference. 3 Application of
to the contract as a whole, does not prevent a court from          the severability rule does not depend on the substance of the
enforcing a specific agreement to arbitrate. “[A]s a matter        remainder of the contract. Section 2 operates on the specific
of substantive federal *71 arbitration law, an arbitration         “written provision” to “settle by arbitration a controversy”
provision is severable from the remainder of the contract.”        that the party seeks to enforce. Accordingly, unless Jackson
Buckeye, 546 U.S., at 445, 126 S.Ct. 1204; see also id., at 447,   challenged the delegation provision specifically, we must
126 S.Ct. 1204 (the severability rule is based on § 2).            treat it as valid under § 2, and must enforce it under §§ 3 and
                                                                   4, leaving any challenge to the validity of the Agreement as
 [4] But that agreements to arbitrate are severable does not       a whole for the arbitrator.
mean that they are unassailable. If a party challenges the
validity under § 2 of the precise agreement to arbitrate at
issue, the federal court must consider the challenge before                                        C
ordering compliance with that agreement under § 4. In Prima
Paint, for example, if the claim had been “fraud in the             [5] The District Court correctly concluded that Jackson
inducement of the arbitration clause itself,” then the court       challenged only the validity of the contract as a whole.
would have considered it. 388 U.S., at 403–404, 87 S.Ct.           Nowhere in his opposition to Rent–A–Center's motion to


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               5
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

compel arbitration did he even mention the delegation             delegation provision rendered that provision unconscionable,
provision. See App. 39–47. Rent–A–Center noted this fact          the challenge should have been considered by the court.
in its reply: *73 “[Jackson's response] fails to rebut or         To make such a claim based on the discovery procedures,
otherwise address in any way [Rent–A–Center's] argument           Jackson would have had to argue that the limitation upon
that the Arbitrator must decide [Jackson's] challenge to the      the number of depositions causes the arbitration of his claim
enforceability of the Agreement. Thus, [Rent–A–Center's]          that the Agreement is unenforceable to be unconscionable.
argument is uncontested.” Id., at 50 (emphasis in original).      That would be, of course, a much more difficult argument
                                                                  to sustain than the argument that the same limitation renders
The arguments Jackson made in his response to Rent–               arbitration of his factbound employment-discrimination
A–Center's motion to compel arbitration support this              claim unconscionable. Likewise, the unfairness of the fee-
conclusion. Jackson stated that “the entire agreement seems       splitting arrangement may be more difficult to establish
drawn to provide [Rent–A–Center] with undue advantages            for the arbitration of enforceability than for arbitration
should an employment-related dispute arise.” Id., at 44           of more complex and fact-related aspects of the alleged
(emphasis added). At one point, he argued that the                employment discrimination. Jackson, however, did not make
limitations on discovery “further suppor[t][his] contention       any arguments specific to the delegation provision; he argued
that the arbitration agreement as a whole is substantively        that the fee-sharing and discovery procedures rendered the
unconscionable.” Ibid. (emphasis added). And before this          entire Agreement invalid.
Court, Jackson describes his challenge in the District Court
as follows: He “opposed the motion to compel on the ground        Jackson's appeal to the Ninth Circuit confirms that he did not
that the entire arbitration agreement, including the delegation   contest the validity of the delegation provision in particular.
clause, was unconscionable.” Brief for Respondent 55              His brief noted the existence of the delegation provision, Brief
(emphasis added). **2780 That is an accurate description of       for Appellant in No. 07–16164, p. 3, but his unconscionability
his filings.                                                      arguments made no mention of it, id., at 3–7. He also repeated
                                                                  the arguments he had made before the District Court, see
As required to make out a claim of unconscionability              supra, at 2779, that the “entire agreement” favors Rent–
under Nevada law, see 581 F.3d, at 919, he contended              A–Center and that the limitations on discovery further his
that the Agreement was both procedurally and substantively        “contention that the arbitration agreement as a whole is
unconscionable. It was procedurally unconscionable, he            substantively unconscionable,” Brief for Appellant *75 7–8.
argued, because it “was imposed as a condition of                 Finally, he repeated the argument made in his District Court
employment and was non-negotiable.” App. 41. But we need          filings, that under state law the unconscionable clauses could
not consider that claim because none of Jackson's substantive     not be severed from the arbitration agreement, see id., at 8–
unconscionability challenges was specific to the delegation       9. 4 The **2781 point of this argument, of course, is that the
provision. First, he argued that the Agreement's coverage         Agreement as a whole is unconscionable under state law.
was one sided in that it required arbitration of claims an
employee was likely to bring—contract, tort, discrimination,      Jackson repeated that argument before this Court. At oral
and statutory claims—but did not require arbitration of claims    argument, counsel stated: “There are certain elements of
Rent–A–Center was likely to bring—intellectual property,          the arbitration agreement that are unconscionable and, under
unfair competition, and trade secrets claims. Id., at 42–43.      Nevada law, which would render the entire arbitration
This one-sided-coverage argument clearly did not go to the        agreement unconscionable.” Tr. of Oral Arg. 43 (emphasis
validity of the delegation provision.                             added). And again, he stated, “we've got both certain
                                                                  provisions that are unconscionable, that under Nevada law
 *74 Jackson's other two substantive unconscionability            render the entire agreement unconscionable ..., and that's
arguments assailed arbitration procedures called for by the       what the Court is to rely on.” Id., at 43–44 (emphasis added).
contract—the fee-splitting arrangement and the limitations
on discovery—procedures that were to be used during                [6] In his brief to this Court, Jackson made the contention,
arbitration under both the agreement to arbitrate employment-     not mentioned below, that the delegation provision itself is
related disputes and the delegation provision. It may be          substantively unconscionable because the quid pro quo he
that had Jackson challenged the delegation provision by           was supposed to receive for it—that “in exchange for initially
arguing that these common procedures as applied to the            allowing an arbitrator to decide certain gateway questions,”



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             6
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

he would receive “plenary post-arbitration judicial review”—       exclusively arbitration makes all the difference in the Prima
was eliminated by the Court's subsequent holding in Hall           Paint analysis.
Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128
S.Ct. 1396, 170 L.Ed.2d 254 (2008), that the nonplenary
grounds for judicial review in § 10 of the FAA are exclusive.
                                                                                                   I
Brief for Respondent 59–60. He brought this challenge to the
delegation provision too late, *76 and we will not consider        Under the Federal Arbitration Act (FAA), 9 U.S.C. §§
it. 5 See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, ––––, 129      1–16, parties generally have substantial leeway to define
S.Ct. 1456, 1473–74, 173 L.Ed.2d 398 (2009).                       the terms and scope of their agreement to settle disputes
                                                                   in an arbitral forum. “[A]rbitration is,” after all, “simply a
                                                                   matter of contract between the parties; it is a way to resolve
                                                                   those disputes—but only those disputes—that the parties have
                             ***
                                                                   agreed to submit to arbitration.” First Options of Chicago,
We reverse the judgment of the Court of Appeals for the Ninth      Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131
Circuit.                                                           L.Ed.2d 985 (1995). The FAA, therefore, envisions a limited
                                                                   role for courts asked to stay litigation and refer disputes to
It is so ordered.                                                  arbitration.

                                                                   Certain issues—the kind that “contracting parties would
Justice STEVENS, with whom Justice GINSBURG, Justice               likely have expected a court to have decided”—remain
BREYER, and Justice SOTOMAYOR join, dissenting.                    within the province of judicial review. Howsam v. Dean
Neither petitioner nor respondent has urged us to adopt            Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154
the rule the Court does today: Even when a litigant has            L.Ed.2d 491 (2002); see also Green Tree Financial Corp.
specifically challenged the validity of an agreement to            v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d
arbitrate he must submit that challenge to the arbitrator          414 (2003) (plurality opinion); AT & T Technologies, Inc. v.
unless he has lodged an objection to the particular line in        Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415,
the agreement that purports to assign such challenges to the       89 L.Ed.2d 648 (1986). These issues are “gateway matter[s]”
arbitrator—the so-called “delegation clause.”                      because they are necessary antecedents to enforcement of an
                                                                   arbitration agreement; they raise questions the parties “are not
The Court asserts that its holding flows logically from Prima      likely to have thought that they had agreed that an arbitrator
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,             would” decide. Howsam, 537 U.S., at 83, 123 S.Ct. 588.
87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), in which the Court          Quintessential gateway matters include “whether the parties
held that consideration of a contract revocation defense is        have a valid arbitration agreement at all,” Bazzle, 539 U.S., at
generally a matter for the arbitrator, unless the defense is       452, 123 S.Ct. 2402 (plurality opinion); “whether the parties
specifically directed at the arbitration clause, id., at 404, 87   are bound by a given arbitration clause,” Howsam, *78 537
S.Ct. 1801. We have treated this holding as a severability rule:   U.S., at 84, 123 S.Ct. 588; and “whether an arbitration clause
When a party challenges a contract, “but not specifically its      in a concededly binding contract applies to a particular type
arbitration provisions, those provisions are enforceable apart     of controversy,” ibid. It would be bizarre to send these types
from the remainder of the contract.” Buckeye Check Cashing,        of gateway matters to the arbitrator as a matter of course,
Inc. v. Cardegna, 546 U.S. 440, 446, 126 S.Ct. 1204, 163           because they raise a “ ‘question of arbitrability.’ ” 1 See, e.g.,
L.Ed.2d 1038 (2006). The Court's decision today goes beyond        ibid.; First Options, 514 U.S., at 947, 115 S.Ct. 1920.
Prima *77 Paint. Its breezy assertion that the subject matter
of the contract at issue—in this case, an arbitration **2782       “[Q]uestion[s] of arbitrability” thus include questions
agreement and nothing more—“ makes no difference,” ante,           regarding the existence of a legally binding and valid
at 2779, is simply wrong. This written arbitration agreement       arbitration agreement, as well as questions regarding the
is but one part of a broader employment agreement between          scope of a concededly binding arbitration agreement. In this
the parties, just as the arbitration clause in Prima Paint was     case we are concerned with the first of these categories:
but one part of a broader contract for services between those      whether the parties have a valid arbitration agreement. This
parties. Thus, that the subject matter of the agreement is
                                                                   is an issue the FAA assigns to the courts. 2 Section 2 of the


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               7
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

FAA dictates that covered arbitration agreements “shall be          challenges the validity of the arbitration agreement itself, on
valid, irrevocable, and enforceable, save upon such grounds         a ground arising from an infirmity in that agreement. The
as exist at law or in equity for the revocation of any contract.”   other challenges the validity of the arbitration agreement
9 U.S.C. § 2. **2783 “[S]uch grounds,” which relate to              tangentially—via a claim that the entire contract (of which
contract validity and formation, include the claim at issue in      the arbitration agreement is but a part) is invalid for **2784
this case, unconscionability. See Doctor's Associates, Inc. v.      some reason. See Buckeye, 546 U.S., at 444, 126 S.Ct. 1204.
Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d           Under Prima Paint, a challenge of the first type goes to the
902 (1996).                                                         court; a challenge of the second type goes to the arbitrator. See
                                                                    388 U.S., at 403–404, 87 S.Ct. 1801; see also Buckeye, 546
Two different lines of cases bear on the issue of who decides       U.S., at 444–445, 126 S.Ct. 1204. The Prima Paint rule is akin
a question of arbitrability respecting validity, such as whether    to a pleading standard, whereby a party seeking to challenge
an arbitration agreement is unconscionable. Although this           the validity of an arbitration agreement must expressly say so
issue, as a gateway matter, is typically for the court, we have     in order to get his dispute into court.
explained that such an issue can be delegated to the arbitrator
in some circumstances. When the parties have purportedly            In sum, questions related to the validity of an arbitration
done so, courts must examine two distinct rules to decide           agreement are usually matters for a court to resolve before it
whether the delegation is valid.                                    refers a dispute to arbitration. But questions of arbitrability
                                                                    may go to the arbitrator in two instances: (1) when the
 *79 The first line of cases looks to the parties' intent.          parties have demonstrated, clearly and unmistakably, that
In AT & T Technologies, we stated that “question[s] of              it is their intent to do so; or (2) when the validity of an
arbitrability” may be delegated to the arbitrator, so long          arbitration agreement depends exclusively on the validity of
as the delegation is clear and unmistakable. 475 U.S., at           the substantive contract of which it is a part.
649, 106 S.Ct. 1415. We reaffirmed this rule, and added
some nuance, in First Options. Against the background
presumption that questions of arbitrability go to the court, we
                                                                                                   II
stated that federal courts should “generally” apply “ordinary
state-law principles that govern the formation of contracts”        We might have resolved this case by simply applying the First
to assess “whether the parties agreed to arbitrate a certain        Options rule: Does the arbitration agreement at issue “clearly
matter (including arbitrability).” 514 U.S., at 944, 115 S.Ct.      and unmistakably” evince petitioner's and respondent's intent
1920. But, we added, a more rigorous standard applies when
                                                                    to submit questions of arbitrability to the arbitrator? 6 The
the inquiry is whether the parties have “agreed to arbitrate
                                                                    answer to that question is no. Respondent's *81 claim that
arbitrability”: “ Courts should not assume that the parties
                                                                    the arbitration agreement is unconscionable undermines any
agreed to arbitrate arbitrability unless there is clear and
                                                                    suggestion that he “clearly” and “unmistakably” assented
unmistakable evidence that they did so.” 3 Ibid. (internal          to submit questions of arbitrability to the arbitrator. See
quotation marks and brackets omitted). Justice BREYER's             Restatement (Second) of Contracts § 208, Comment d (1979)
unanimous opinion for the Court described this standard as          (“[G]ross inequality of bargaining power, together with
a type of “revers [e]” “presumption” 4 —one in favor of a           terms unreasonably favorable to the stronger party, may
judicial, rather than an arbitral, forum. Id., at 945, 115 S.Ct.    confirm indications that the transaction involved elements of
1920. Clear and unmistakable “ evidence” of agreement to            deception or compulsion, or may show that the weaker party
arbitrate arbitrability might include, as was urged in First        had no meaningful choice, no real alternative, or did not in
Options, a course of conduct demonstrating assent, 5 id., at        fact assent or appear to assent to the unfair terms”); American
946, 115 S.Ct. 1920, or, as is urged in this case, an express       Airlines, Inc. v. Wolens, 513 U.S. 219, 249, 115 S.Ct. 817, 130
 *80 agreement to do so. In any event, whether such evidence        L.Ed.2d 715 (1995) (O'Connor, J., concurring in judgment
exists is a matter for the court to determine.                      and dissenting in part) (“[A] determination that a contract
                                                                    is ‘unconscionable’ may in fact be a determination that one
The second line of cases bearing on who decides the validity        party did not intend to agree to the terms of the contract”). 7
of an arbitration agreement, as the Court explains, involves        The *82 fact that the **2785 agreement's “delegation”
the Prima Paint rule. See ante, at 2777 – 2778. That                provision suggests assent is beside the point, because the
rule recognizes two types of validity challenges. One type


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Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

gravamen of respondent's claim is that he never consented to        cases like Prima Paint, we are concerned with how the parties
the terms in his agreement.                                         challenge the validity of the agreement.

In other words, when a party raises a good-faith validity           Under the Prima Paint inquiry, recall, we consider whether
challenge to the arbitration agreement itself, that issue           the parties are actually challenging the validity of the
must be resolved before a court can say that he clearly             arbitration agreement, or whether they are challenging,
and unmistakably intended to arbitrate that very validity            **2786 more generally, the contract within which an
question. This case well illustrates the point: If respondent's     arbitration clause is nested. In the latter circumstance, we
unconscionability claim is correct—i.e., if the terms of the        assume there is no infirmity per se with the arbitration
agreement are so one-sided and the process of its making            agreement, i.e., there are no grounds for revocation of
so unfair—it would contravene the existence of clear and            the arbitration agreement itself under § 2 of the FAA.
unmistakable assent to arbitrate the very question petitioner       Accordingly, we *84 commit the parties' general contract
now seeks to arbitrate. Accordingly, it is necessary for the        dispute to the arbitrator, as agreed.
court to resolve the merits of respondent's unconscionability
claim in order to decide whether the parties have a valid           The claim in Prima Paint was that one party would not
arbitration agreement under § 2. Otherwise, that section's          have agreed to contract with the other for services had it
preservation of revocation issues for the Court would be            known the second party was insolvent (a fact known but
meaningless.                                                        not disclosed at the time of contracting). 388 U.S., at 398,
                                                                    87 S.Ct. 1801. There was, therefore, allegedly fraud in the
This is, in essence, how I understand the Court of Appeals to       inducement of the contract—a contract which also delegated
have decided the issue below. See 581 F.3d 912, 917 (C.A.9          disputes to an arbitrator. Despite the fact that the claim raised
2009) (“[W]e hold that where, as here, a party challenges           would have, if successful, rendered the embedded arbitration
an arbitration agreement as unconscionable, and thus asserts        clause void, the Court held that the merits of the dispute
that he could not meaningfully assent to the agreement, the         were for the arbitrator, so long as the claim of “fraud in
threshold question of unconscionability is for the court”). I       the inducement” did not go to validity of “the arbitration
would therefore affirm its judgment, leaving, as it did, the        clause itself.” Id., at 403, 87 S.Ct. 1801 (emphasis added).
merits of respondent's unconscionability claim for the District     Because, in Prima Paint, “no claim ha[d] been advanced
Court to resolve on remand.                                         by Prima Paint that [respondent] fraudulently induced it
                                                                    to enter into the agreement to arbitrate,” and because the
                                                                    arbitration agreement was broad enough to cover the dispute,
                                                                    the arbitration agreement was enforceable with respect to the
                            *83 III
                                                                    controversy at hand. Id., at 406, 87 S.Ct. 1801.
Rather than apply First Options, the Court takes us down a
different path, one neither briefed by the parties nor relied       The Prima Paint rule has been denominated as one related to
upon by the Court of Appeals. In applying Prima Paint,              severability. Our opinion in Buckeye, set out these guidelines:
the Court has unwisely extended a “fantastic” and likely
                                                                      “First, as a matter of substantive federal arbitration law,
erroneous decision. 388 U.S., at 407, 87 S.Ct. 1801 (Black,
                                                                      an arbitration provision is severable from the remainder
J., dissenting). 8                                                    of the contract. Second, unless the challenge is to the
                                                                      arbitration clause itself, the issue of the contract's validity is
As explained at the outset, see supra, at 2783 – 2785, this case      considered by the arbitrator in the first instance.” 546 U.S.,
lies at a seeming crossroads in our arbitration jurisprudence. It     at 445–446, 126 S.Ct. 1204.
implicates cases such as First Options, which address whether
the parties intended to delegate questions of arbitrability, and    Whether the general contract defense renders the entire
also those cases, such as Prima Paint, which address the            agreement void or voidable is irrelevant. Id., at 446, 126 S.Ct.
severability of a presumptively valid arbitration agreement         1204. All that matters is whether the party seeking to present
from a potentially invalid contract. The question of “Who           the issue to a court has brought a “discrete challenge,” Preston
decides?”—arbitrator or court—animates both lines of cases,         v. Ferrer, 552 U.S. 346, 354, 128 S.Ct. 978, 169 L.Ed.2d 917
but they are driven by different concerns. In cases like First      (2008), “to the validity of the ... arbitration clause.” Buckeye,
Options, we are concerned with the parties' intentions. In          546 U.S., at 449, 126 S.Ct. 1204.


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Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
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                                                                     1204. If respondent then came into court claiming that the
 *85 Prima Paint and its progeny allow a court to pluck from         contract was illegal as a whole for some reason unrelated to
a potentially invalid contract a potentially valid arbitration       the arbitration provision, the Prima Paint rule would apply,
agreement. Today the Court adds a new layer of severability          and such a general challenge to the subject matter of the
—something akin to Russian nesting dolls—into the mix:               contract would go to the arbitrator. Such a challenge would
Courts may now pluck from a potentially invalid arbitration          not call into question the making of the arbitration agreement
agreement even narrower provisions that refer particular             or its invalidity per se.
arbitrability disputes to an arbitrator. See ante, at 2777 – 2778.
I do not think an agreement to arbitrate can ever manifest a         Before today, however, if respondent instead raised a
clear and unmistakable intent to arbitrate its own validity. But     challenge specific to “the validity of the agreement to
even assuming otherwise, I certainly would not hold that the         arbitrate”—for example, that the agreement to arbitrate was
Prima Paint rule extends this far.                                   void under state law—the challenge would have gone to the
                                                                     court. That is what Buckeye says. See 546 U.S., at 444, 126
In my view, a general revocation challenge to a standalone           S.Ct. 1204. But the Court now declares that Prima Paint's
arbitration agreement is, invariably, a challenge to the             pleading rule requires more: A party must lodge a challenge
“ ‘making’ ” of the arbitration agreement itself, Prima              with even greater specificity than what would have satisfied
Paint, 388 U.S., at 403, 87 S.Ct. 1801, and therefore,               the Prima Paint Court. A claim that an entire arbitration
under Prima Paint, must be decided by the court. A                   agreement is invalid will not go to the court unless the party
claim of procedural unconscionability aims to undermine              challenges the particular sentences that delegate such claims
the formation of the arbitration agreement, much like a              to the arbitrator, on some contract ground that is particular
claim of unconscionability aims to undermine the clear-              and unique to those sentences. See ante, at 2779 – 2780.
and-unmistakable-intent requirement necessary for a valid
delegation of a “discrete” challenge to the validity of the          It would seem the Court reads Prima Paint to require,
arbitration agreement itself, Preston, 552 U.S., at 354, 128         as a matter of course, infinite layers of severability: We
S.Ct. 978. Moreover, because we are dealing in this case             must always pluck from an arbitration agreement the
with a challenge **2787 to an independently executed                 specific delegation *87 mechanism that would—but for
arbitration agreement—rather than a clause contained in a            present judicial review—commend the matter to arbitration,
contract related to another subject matter—any challenge to          even if this delegation clause is but one sentence within
the contract itself is also, necessarily, a challenge to the         one paragraph within a standalone agreement. And, most
arbitration agreement. 9 They are one and the same.                  importantly, the party must identify this one sentence and
                                                                     lodge a specific challenge to its validity. Otherwise, he will
The Court, however, reads the delegation clause as a distinct        be bound to pursue his validity claim in arbitration.
mini-arbitration agreement divisible from the contract in
which it resides—which just so happens also to be an                 Even if limited to separately executed arbitration agreements,
arbitration agreement. Ante, at 2777 – 2778. Although the            however, such an infinite severability rule is divorced from
Court *86 simply declares that it “makes no difference” that         the underlying rationale of Prima Paint. The notion that a
the underlying subject matter of the agreement is itself an          party may be bound by an arbitration clause in a contract that
arbitration agreement, ante, at 2777 – 2778, that proposition        is nevertheless invalid may be difficult for any lawyer—or
does not follow from—rather it is at odds with—Prima Paint           any person—to accept, but this is the law of Prima Paint.
's severability rule.                                                It reflects **2788 a judgment that the “ ‘national policy
                                                                     favoring arbitration,’ ” Preston, 552 U.S., at 353, 128 S.Ct.
Had the parties in this case executed only one contract, on          978, outweighs the interest in preserving a judicial forum
two sheets of paper—one sheet with employment terms, and a           for questions of arbitrability—but only when questions of
second with arbitration terms—the contract would look much           arbitrability are bound up in an underlying dispute. Prima
like the one in Buckeye. There would be some substantive             Paint, 388 U.S., at 404, 87 S.Ct. 1801. When the two are
terms, followed by some arbitration terms, including what we         so bound up, there is actually no gateway matter at all: The
now call a delegation clause—i.e., a sentence or two assigning       question “Who decides” is the entire ball game. Were a
to the arbitrator any disputes related to the validity of the        court to decide the fraudulent inducement question in Prima
arbitration provision. See Buckeye, 546 U.S., at 442, 126 S.Ct.      Paint, in order to decide the antecedent question of the



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Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

                                                                         underlying dispute, which involves a claim of employment
validity of the included arbitration agreement, then it would
                                                                         discrimination. This is true for all gateway matters, and for
also, necessarily, decide the merits of the underlying dispute.
                                                                         this reason Prima Paint has no application in this case.
Same, too, for the question of illegality in Buckeye; on its
way to deciding the arbitration agreement's validity, the court
would have to decide whether the contract was illegal, and in
so doing, it would decide the merits of the entire dispute.                                                IV

In this case, however, resolution of the unconscionability               While I may have to accept the “fantastic” holding in Prima
question will have no bearing on the merits of the underlying            Paint, id., at 407, 87 S.Ct. 1801 (Black, J., dissenting), I
employment dispute. It will only, as a preliminary matter,               most certainly do not accept the Court's even more fantastic
resolve who should decide the merits of that dispute.                    reasoning today. I would affirm the judgment of the Court of
Resolution of the unconscionability question will, however,              Appeals, and therefore respectfully dissent.
decide whether the arbitration agreement itself is “valid”
under “such grounds as exist at law or in equity for the
                                                                         Parallel Citations
revocation *88 of any contract.” 9 U.S.C. § 2. As Prima
Paint recognizes, the FAA commits those gateway matters,                 130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93
specific to the arbitration agreement, to the court. 388 U.S.,           Empl. Prac. Dec. P 43,916, 177 L.Ed.2d 403, 78 USLW 4643,
at 403–404, 87 S.Ct. 1801. Indeed, it is clear that the                  10 Cal. Daily Op. Serv. 7707, 2010 Daily Journal D.A.R.
present controversy over whether the arbitration agreement               9338, 22 Fla. L. Weekly Fed. S 518
is unconscionable is itself severable from the merits of the


Footnotes
*      The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience
       of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.
1      There is one caveat. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), held that
       “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that
       they did so.” The parties agree the heightened standard applies here. See Brief for Petitioner 21; Brief for Respondent 54. The District
       Court concluded the “Agreement to Arbitrate clearly and unmistakenly [sic] provides the arbitrator with the exclusive authority to
       decide whether the Agreement to Arbitrate is enforceable.” App. to Pet. for Cert. 4a. The Ninth Circuit noted that Jackson did not
       dispute that the text of the Agreement was clear and unmistakable on this point. 581 F.3d 912, 917 (2009). He also does not dispute
       it here. What he argues now, however, is that it is not “clear and unmistakable” that his agreement to that text was valid, because
       of the unconscionability claims he raises. See Brief for Respondent 54–55. The dissent makes the same argument. See post, at 2783
       – 2785 (opinion of STEVENS, J.).
          This mistakes the subject of the First Options “clear and unmistakable” requirement. It pertains to the parties' manifestation of
          intent, not the agreement's validity. As explained in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154
          L.Ed.2d 491 (2002), it is an “interpretive rule,” based on an assumption about the parties' expectations. In “circumstance[s] where
          contracting parties would likely have expected a court to have decided the gateway matter,” ibid., we assume that is what they
          agreed to. Thus, “[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to
          arbitrate is to be decided by the court, not the arbitrator.” AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643,
          649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).
          The validity of a written agreement to arbitrate (whether it is legally binding, as opposed to whether it was in fact agreed to—
          including, of course, whether it was void for unconscionability) is governed by § 2's provision that it shall be valid “save upon such
          grounds as exist at law or equity for the revocation of any contract.” Those grounds do not include, of course, any requirement that
          its lack of unconscionability must be “clear and unmistakable.” And they are not grounds that First Options added for agreements
          to arbitrate gateway issues; § 2 applies to all written agreements to arbitrate.
2      The issue of the agreement's “validity” is different from the issue whether any agreement between the parties “was ever concluded,”
       and, as in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), we address only the
       former. Id., at 444, n. 1, 126 S.Ct. 1204.
3      The dissent calls this a “breezy assertion,” post, at 2781, but it seems to us self-evident. When the dissent comes to discussing the
       point, post, at 2787, it gives no logical reason why an agreement to arbitrate one controversy (an employment-discrimination claim)




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Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
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       is not severable from an agreement to arbitrate a different controversy (enforceability). There is none. Since the dissent accepts that
       the invalidity of one provision within an arbitration agreement does not necessarily invalidate its other provisions, post, at 2784 –
       2785, n. 7, it cannot believe in some sort of magic bond between arbitration provisions that prevents them from being severed from
       each other. According to the dissent, it is fine to sever an invalid provision within an arbitration agreement when severability is a
       matter of state law, but severability is not allowed when it comes to applying Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
       U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).
4      Jackson's argument fails. The severability rule is a “matter of substantive federal arbitration law,” and we have repeatedly “rejected
       the view that the question of ‘severability’ was one of state law, so that if state law held the arbitration provision not to be severable
       a challenge to the contract as a whole would be decided by the court.” Buckeye, 546 U.S., at 445, 126 S.Ct. 1204 (citing Prima
       Paint, 388 U.S., at 400, 402–403, 87 S.Ct. 1801; Southland Corp. v. Keating, 465 U.S. 1, 10–14, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984);
       Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270–273, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)). For the same reason, the
       Agreement's statement that its provisions are severable, see App. 37, does not affect our analysis.
5      Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), was decided after Jackson
       submitted his brief to the Ninth Circuit, but that does not change our conclusion that he forfeited the argument. Jackson could have
       submitted a supplemental brief during the year and a half between this Court's decision of Hall Street on March 25, 2008 and the
       Ninth Circuit's judgment on September 9, 2009. Moreover, Hall Street affirmed a rule that had been in place in the Ninth Circuit
       since 2003. Id., at 583–584, and n. 5, 128 S.Ct. 1396.
1      Although it is not clear from our precedents, I understand “gateway matters” and “questions of arbitrability” to be roughly
       synonymous, if not exactly so. At the very least, the former includes all of the latter.
2      Gateway issues involving the scope of an otherwise valid arbitration agreement also have a statutory origin. Section 3 of the FAA
       provides that “upon being satisfied that the issue involved in such suit ... is referable to arbitration under such an agreement,” a court
       “shall ... stay the trial of the action until such arbitration has been had.” 9 U.S.C. § 3.
3      We have not expressly decided whether the First Options delegation principle would apply to questions of arbitrability that implicate
       § 2 concerns, i.e., grounds for contract revocation. I do not need to weigh in on this issue in order to resolve the present case.
4      It is a “revers[e]” presumption because it is counter to the presumption we usually apply in favor of arbitration when the question
       concerns whether a particular dispute falls within the scope of a concededly binding arbitration agreement. First Options, 514 U.S.,
       at 944–945, 115 S.Ct. 1920.
5      In First Options we found no clear and unmistakable assent to delegate to the arbitrator questions of arbitrability, given the parties'
       conduct. Respondents in that case had participated in the arbitration, but only to object to proceeding in arbitration and to challenge
       the arbitrators' jurisdiction. That kind of participation—in protest, to preserve legal claims—did not constitute unmistakable assent
       to be bound by the result. Id., at 946–947, 115 S.Ct. 1920.
6      Respondent has challenged whether he “meaningfully agreed to the terms of the form Agreement to Arbitrate, which he contends is
       procedurally and substantively unconscionable.” 581 F.3d 912, 917 (C.A.9 2009). Even if First Options relates only to “manifestations
       of intent,” as the Court states, see ante, at 2777, n. 1 (emphasis deleted), whether there has been meaningful agreement surely bears
       some relation to whether one party has manifested intent to be bound to an agreement.
7      The question of unconscionability in this case is one of state law. See, e.g., Perry v. Thomas, 482 U.S. 483, 492, n. 9,
       107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). Under Nevada law, unconscionability requires a showing of “ ‘both procedural and
       substantive unconscionability,’ ” but “less evidence of substantive unconscionability is required in cases involving great procedural
       unconscionability.” D.R. Horton, Inc. v. Green, 120 Nev. 549, 553–554, 96 P.3d 1159, 1162 (2004). I understand respondent to
       have claimed, in accord with Nevada law, that the arbitration agreement contained substantively unconscionable provisions, and
       was also the product of procedural unconscionability as a whole. See Brief for Respondent 3 (“[Respondent] argued that the clause
       is procedurally unconscionable because he was in a position of unequal bargaining power when it was imposed as a condition of
       employment”); id., at 2776 – 2777 (identifying three distinct provisions of the agreement that were substantively unconscionable);
       accord, 581 F.3d, at 917.
          Some of respondent's arguments, however, could be understood as attacks not on the enforceability of the agreement as a whole but
          merely on the fairness of individual contract terms. Such term-specific challenges would generally be for the arbitrator to resolve
          (at least so long as they do not go to the identity of the arbitrator or the ability of a party to initiate arbitration). Cf. Restatement
          (Second) of Contracts § 208 (1979) (providing that “a contract or term thereof [may be] unconscionable” and that in the latter case
          “the remainder of the contract without the unconscionable term” may be enforced).
8      Justice Black quite reasonably characterized the Court's holding in Prima Paint as “fantastic,” id., at 407, 87 S.Ct. 1801 (dissenting
       opinion), because the holding was, in his view, inconsistent with the text of § 2 of the FAA, 388 U.S., at 412, 87 S.Ct. 1801, as well
       as the intent of the draftsmen of the legislation, id., at 413–416, 87 S.Ct. 1801. Nevertheless, the narrow holding in that case has been
       followed numerous times, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006),



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           12
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)
130 S.Ct. 2772, 109 Fair Empl.Prac.Cas. (BNA) 897, 93 Empl. Prac. Dec. P 43,916...

       and Preston v. Ferrer, 552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008), and, as the Court correctly notes today, neither party
       has asked us to revisit those cases, ante, at 2777 – 2778.
9      As respondent asserted in his opposition to petitioner's motion to compel arbitration, “the lack of mutuality regarding the type of
       claims that must be arbitrated, the fee provision, and the discovery provision, so permeate the Defendant's arbitration agreement that
       it would be impossible to sever the offending provisions.” App. 45.


End of Document                                                    © 2014 Thomson Reuters. No claim to original U.S. Government Works.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                      13
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)


                                                                         Court of Appeals had jurisdiction under the
                                                                         Texas Arbitration Act (TAA) over interlocutory
                    312 S.W.3d 224
                                                                         appeal of order denying request of purported
                Court of Appeals of Texas,
                                                                         successors of professional office condominium
                          Dallas.
                                                                         complex owner to join arbitration between
            SAXA INC., Las Colinas Office                                owner and construction contractor, as effect of
         Investors L.P., and Las Colinas Office                          order was to stay or deny arbitration between
       Condominium Association Inc., Appellants,                         contractor and owner's purported successors
                                                                         on basis that there was no agreement to
                           v.
                                                                         arbitrate, and TAA allowed a party to appeal an
         DFD ARCHITECTURE INC., Appellee.
                                                                         order granting an application to stay arbitration
       No. 05–09–01245–CV.           |   April 29, 2010.                 commenced or threatened on application and
                                                                         a showing that there is not an agreement to
Synopsis                                                                 arbitrate. V.T.C.A., Civil Practice & Remedies
Background: Professional office condominium complex                      Code §§ 171.023, 171.098(a)(2).
owner initiated arbitration proceedings against construction
contractor that designed complex for owner, after buildings              Cases that cite this headnote
in complex were damaged by water penetration. Owner's
purported successors sought to join arbitration. Contractor        [2]   Appeal and Error
filed petition for declaratory judgment, request for injunctive
relief, and motion to stay arbitration under the Texas                                                                        Necessity
Arbitration Act (TAA), asserting that owner's purported                  of final determination
successors were not proper parties to arbitration. The 134th             Appeal and Error
Judicial District Court, Dallas County, James M. Stanton,
J., ruled that owner's purported successors were not proper                                                                   Interlocutory
parties to arbitration. Contractor filed interlocutory appeal.           and Intermediate Decisions
                                                                         Appellate courts have jurisdiction over final
                                                                         judgments and such interlocutory orders as the
                                                                         legislature deems appealable.
Holdings: The Court of Appeals, Fillmore, J., held that:
                                                                         1 Cases that cite this headnote
[1] Court of Appeals had jurisdiction under the TAA over
interlocutory appeal, and
                                                                   [3]   Appeal and Error
[2] contract between owner and contractor delegated                                                                           Jurisdiction
authority to determine substantive arbitrability, including
                                                                         Appellate jurisdiction is never presumed.
joinder of parties, to arbitrator.
                                                                         1 Cases that cite this headnote

Reversed and remanded.
                                                                   [4]   Appeal and Error

                                                                                                                              Want
 West Headnotes (13)                                                     of jurisdiction
                                                                         Unless the record affirmatively shows the
 [1]    Alternative Dispute Resolution                                   propriety of appellate jurisdiction, the appellate
                                                                         court must dismiss.
                                                             Decisions
        reviewable; finality                                             Cases that cite this headnote




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            1
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)




 [5]    Alternative Dispute Resolution                                        3 Cases that cite this headnote

                                                              Arbitrability
        of dispute                                                   [8]    Alternative Dispute Resolution
        Contract       between      professional     office                                                                          Constitutional
        condominium complex owner and construction                            and statutory provisions and rules of court
        contractor delegated authority to determine
                                                                              The issue of arbitrability is subject to a virtually
        substantive arbitrability, including the joinder of
                                                                              identical analysis under either the Federal
        parties, to arbitrator, and, thus, issue of whether
                                                                              Arbitration Act (FAA) or the Texas Arbitration
        owner's purported successors were proper parties
                                                                              Act (TAA). 9 U.S.C.A. § 1 et seq.; V.T.C.A.,
        to join arbitration between owner and contractor
                                                                              Civil Practice & Remedies Code § 171.001 et
        was for arbitrator; parties agreed that any
                                                                              seq.
        claim, dispute, or other matter in question
        arising out of or related to contract was subject                     Cases that cite this headnote
        to arbitration, and that agreement extended
        to owner's partners, successors, assigns, and
                                                                     [9]      Alternative Dispute Resolution
        legal representatives, and they incorporated
        construction industry arbitration rules of the                                                                               Arbitrability
        American Arbitration Association (AAA) into                           of dispute
        their contract, giving arbitration panel the power
                                                                              Parties to an arbitration agreement may agree
        to rule on its own jurisdiction, including any
                                                                              to submit matters of substantive arbitrability to
        objections to existence, scope, or validity of
                                                                              arbitration.
        arbitration agreement.
                                                                              1 Cases that cite this headnote
        Cases that cite this headnote

                                                                     [10]     Alternative Dispute Resolution
 [6]    Alternative Dispute Resolution
                                                                                                                                     Evidence
                                                              Arbitrability
        of dispute                                                            Courts should not assume that the parties agreed
                                                                              to arbitrate the issue of arbitrability unless there
        Generally, the question of arbitrability is a
                                                                              is clear and unmistakable evidence that they did
        gateway issue to be decided by a court rather than
                                                                              so.
        an arbitrator.
                                                                              4 Cases that cite this headnote
        2 Cases that cite this headnote

                                                                     [11]     Alternative Dispute Resolution
 [7]    Alternative Dispute Resolution
                                                                                                                                     Evidence
                                                              Existence
        and validity of agreement                                           In determining whether parties have agreed
                                                                            to submit issue of arbitrability of matter to
        Alternative Dispute Resolution
                                                                            arbitration, silence or ambiguity about who
                                                              Arbitrability should decide the arbitrability issue should not
        of dispute                                                          lead a court to presume the parties intended for
                                                                            the issue to be decided by the arbitrator.
        Gateway matters to be decided by a court rather
        than an arbitrator include whether the parties                        2 Cases that cite this headnote
        agreed to arbitrate and whether a claim or dispute
        is encompassed in the agreement to arbitrate.
                                                                     [12]     Alternative Dispute Resolution


               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                   2
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)


                                                               The trial court granted DFD's motion for summary judgment
                                                         Evidence
                                                               on its request for declaratory relief and found Office Investors
        A broad arbitration clause, purporting to cover        and the Condominium Association are not proper parties to
        all claims, disputes, and other matters arising        the arbitration. Appellants perfected this interlocutory appeal
        out of or relating to the contract, creates a          asserting (1) the trial court did not have authority to determine
        presumption of arbitrability.                          whether Office Investors and the Condominium Association
                                                               are proper parties to the arbitration, (2) the trial court erred
        Cases that cite this headnote
                                                               by admitting portions of DFD's summary judgment evidence,
                                                               (3) Office Investors and the Condominium Association are
 [13]   Alternative Dispute Resolution                         proper parties to the arbitration, and (4) Saxa may assign its
                                                               rights and claims under its contract with DFD. We conclude
                                                         Arbitrability
                                                               the contract between Saxa and DFD delegated the authority to
        of dispute                                             determine substantive arbitrability to the arbitrator. Because
        When the parties agree to a broad arbitration          the trial court erred by granting summary judgment on the
        clause and explicitly incorporate rules that           issue of whether Office Investors and the Condominium
        empower an arbitrator to decide issues of              Association are proper parties to the arbitration, we reverse
        arbitrability, the incorporation serves as clear       the trial court's judgment and remand to the trial court for
        and unmistakable evidence of the parties' intent       further proceedings.
        to delegate such issues to an arbitrator.

        2 Cases that cite this headnote
                                                                                          Background

                                                                  Pursuant to a written contract, DFD agreed to design a
                                                                  professional office condominium complex for Saxa. Saxa
Attorneys and Law Firms                                           and DFD agreed that “[a]ny claim, dispute or other matter
                                                                  in question arising out of or related to” the contract “shall
*225 Jason Clay Spencer, R. Carson Fisk, Ford Nassen &
                                                                  be subject to arbitration.” The parties further agreed any
Baldwin P.C., Austin, TX, for Appellants.
                                                                  arbitration would be conducted “in accordance with the
Gregory N. Ziegler, Bryan Rutherford, Alexander George            Construction Industry Arbitration Rules of the American
Blue, MacDonald Devin, P.C., Dallas, TX, for Appellee.            Arbitration Association currently in effect.” The contract
                                                                  bound Saxa and DFD, as well as their partners, successors,
Before Justices MORRIS, FRANCIS, and FILLMORE.                    assigns, and legal representatives “with respect to all
                                                                  covenants of this Agreement,” but also provided it did not
                                                                  “create a contractual relationship with or a cause of action in
                         OPINION                                  favor of a third party” against either Saxa or DFD. Finally,
                                                                  the parties agreed:
Opinion By Justice FILLMORE.
                                                                              No arbitration arising out of or relating
Saxa Inc. initiated an arbitration proceeding against DFD                     to this Agreement shall include, by
Architecture Inc. (DFD) based on a written contract                           consolidation or joinder or in any
containing an arbitration clause. Las Colinas Office Investors                other manner, an additional person or
L.P. (Office Investors) 1 *226 and the Las Colinas                            entity not a party to this Agreement,
Office Condominium Association Inc. (Condominium                              except by written consent containing
Association) 2 sought to join the arbitration. DFD filed this                 a specific reference to this Agreement
action, requesting declaratory and injunctive relief from the                 and signed by [Saxa], [DFD], and
trial court to prevent the joinder. DFD also requested that the               any other person or entity sought to
trial court stay the arbitration pursuant to the Texas General                be joined.... The foregoing agreement
Arbitration Act (TAA).                                                        to arbitrate and other agreements to
                                                                              arbitrate with an additional person



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            3
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)


             or entity duly consented to by the
             parties to this Agreement shall be
                                                                                              Jurisdiction
             specifically enforceable in accordance
             with applicable law in any court                         [1] We turn first to DFD's contention this Court does
             having jurisdiction thereof.                            not have jurisdiction over this interlocutory appeal under
                                                                     the TAA. 3 DFD asserts the TAA does not provide a right
Saxa alleges that after the office complex was completed,            to interlocutory appeal and, even if there is a right to
the buildings were damaged by water penetration. Saxa                interlocutory appeal under the TAA, the declaratory judgment
filed an arbitration proceeding against *227 DFD and the             signed by the trial court does not stay arbitration and,
construction contractor. Over DFD's objection, the arbitration       therefore, is not subject to interlocutory appeal.
panel allowed Office Investors to join the arbitration. The
Condominium Association subsequently also sought to join              [2] [3] [4] Appellate courts have jurisdiction over final
the arbitration.                                                     judgments and such interlocutory orders as the legislature
                                                                     deems appealable. Bally Total Fitness Corp. v. Jackson, 53
DFD filed a petition for declaratory judgment, request for           S.W.3d 352, 352 (Tex.2001) (“A party may not appeal an
injunctive relief, and motion to stay the arbitration under          interlocutory order unless authorized by statute.”); Lehmann
the TAA in the trial court asserting Office Investors and            v. Har–Con Corp., 39 S.W.3d 191, 195 (Tex.2001). Appellate
the Condominium Association are not proper parties to                jurisdiction is never presumed. Brashear v. Victoria Gardens
the arbitration because neither Office Investors nor the             of McKinney, L.L.C., 302 S.W.3d 542, 546 (Tex.App.-
Condominium Association “has a valid or enforceable                  Dallas 2009, no pet.) (op. on reh'g). Unless the record
agreement to arbitrate with any other party.” DFD filed a            affirmatively shows the propriety of appellate jurisdiction, we
motion for summary judgment on its claim for declaratory             must dismiss. Id.
relief on grounds Saxa and DFD were the only parties to the
contract and the contract prohibited (1) joinder of third-parties    DFD first argues the only jurisdictional basis asserted by
to the arbitration without DFD's consent, (2) assignment             appellants is section 171.098(a)(2) of the TAA and that
of Saxa's claims under the contract, and (3) the creation            statute, on its face, does not provide for an interlocutory
of third-party beneficiaries of the contract. Saxa responded         appeal. Section 171.098(a)(2) of the TAA allows a party to
that the trial court did not have the authority to decide the        appeal an order granting an application to stay arbitration
issue because Saxa and DFD agreed issues of substantive              made under Section 171.023. TEX. CIV. *228 PRAC. &
arbitrability would be decided by the arbitration panel. Saxa        REM.CODE ANN. § 171.098(a)(2) (Vernon 2005). Section
also filed a motion for summary judgment on grounds Office           171.023 provides a trial court may “stay an arbitration
Investors and the Condominium Association are proper                 commenced or threatened on application and a showing
parties to the arbitration as legal representatives or successors    that there is not an agreement to arbitrate.” Id. § 171.023.
to Saxa or as third-party beneficiaries of the contract. The trial   The Texas Supreme Court has concluded section 171.098(a)
court denied appellants' motion for summary judgment and             (2) provides for an interlocutory appeal of the denial
granted DFD's motion for summary judgment. The trial court           of arbitration. Chambers v. O'Quinn, 242 S.W.3d 30, 31
specifically found (1) Office Investors and the Condominium          (Tex.2007) (per curiam); Jack B. Anglin Co. v. Tipps, 842
Association are not proper parties to the arbitration based on       S.W.2d 266, 271–72 & n. 10 (Tex.1992) (orig.proceeding);
the anti-joinder clause in the contract between Saxa and DFD;        see also In re Hawthorne Townhomes, L.P., 282 S.W.3d 131,
(2) Saxa and DFD are proper parties to the arbitration; and          137 (Tex.App.-Dallas 2009, orig. proceeding) (“A denial of
(3) the anti-assignment clause in the contract between Saxa          arbitration under the Texas Arbitration Act may be appealed
and DFD prevented Saxa from assigning its rights or claims           through an interlocutory appeal.”).
against DFD.
                                                                     DFD concedes Texas appellate courts have recognized that
Appellants sought review of the trial court's judgment by            section 171.098(a)(2) of the TAA provides a right to an
interlocutory appeal. DFD filed a motion to dismiss the              interlocutory appeal of an order denying arbitration, but
appeal, asserting this Court does not have jurisdiction over a       argues those courts relied on “older versions” of the TAA.
non-appealable, interlocutory order.                                 However, the relevant substantive language of the current
                                                                     version of the TAA is virtually identical to older versions. See


                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               4
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)


Act of May 29, 1965, 59th Leg., R.S., ch. 689, § 1, art. 238–         *229 any objections with respect to the existence, scope
2, 1965 Tex. Gen. Laws 1593, 1600 (providing for an appeal           or validity of the arbitration agreement” and “to determine
of an “order granting an application to stay arbitration”).          the existence or validity of a contract of which an arbitration
We, therefore, decline DFD's invitation to revisit the issue of      clause forms a part.” Appellants assert Saxa and DFD
whether an interlocutory appeal is available under the TAA           clearly and unmistakably delegated the issue of substantive
for an appropriate order denying arbitration.                        arbitrability, including the joinder of parties, to the arbitration
                                                                     panel. DFD responds the issue is whether Office Investors and
DFD next argues the order in this case does not stay                 the Condominium Association are parties to the contract with
arbitration but only declares Saxa's and DFD's rights under          standing to invoke the arbitration clause and the trial court
a contract that includes an arbitration clause. However,             had authority over this issue of contract interpretation.
DFD sought declaratory and injunctive relief and filed a
motion to stay the arbitration under the TAA on grounds               [6]    [7]    [8] Generally, the question of arbitrability is
it had not agreed to arbitrate with Office Investors or the          a gateway issue to be decided by a court rather than an
Condominium Association. The trial court declared Office             arbitrator. AT & T Techs., Inc. v. Commc'ns Workers of Am.,
Investors and the Condominium Association are not proper             475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). 4
parties to the arbitration. It is the “substance and function of     These “gateway matters” include whether the parties agreed
the order viewed in the context of the record that controls our      to arbitrate and whether a claim or dispute is encompassed in
interlocutory jurisdiction, not [the party's] characterization of    the agreement to arbitrate. In re Labatt Food Serv., L.P., 279
the order.” Walker Sand, Inc. v. Baytown Asphalt Materials,          S.W.3d 640, 643 (Tex.2009) (orig.proceeding); In re Weekley
95 S.W.3d 511, 515 (Tex.App.-Houston [1st Dist.] 2002,               Homes, 180 S.W.3d 127, 130 (Tex.2005) (orig.proceeding);
no pet.). The effect of the trial court's order was to stay or       P. McGregor Enters., Inc. v. Denman Bldg. Prods., Ltd.,
deny arbitration between DFD and Office Investors and the            279 S.W.3d 717, 722 n. 9 (Tex.App.-Amarillo 2007, pet.
Condominium Association because there was no agreement               denied) (“The question of [substantive] arbitrability has two
to arbitrate. Therefore, the trial court's order falls within        aspects: first, whether the parties agreed to arbitration (or
section 171.023 of the TAA, and we have jurisdiction                 are bound by another's agreement to arbitrate); and second,
to consider this interlocutory appeal pursuant to section            whether a particular claim or dispute is within the scope of
171.098(a)(2) of the TAA.                                            the agreement.”).

                                                                      [9] [10] [11] The parties, however, may agree to submit
                  Substantive Arbitrability                          matters of substantive arbitrability to arbitration. Howsam v.
                                                                     Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588,
 [5] In their first issue, appellants assert the trial court erred   154 L.Ed.2d 491 (2002); Ernst & Young LLP v. Martin, 278
by granting DFD's motion for summary judgment requesting             S.W.3d 497, 500 (Tex.App.-Houston [14th Dist.] 2009, no
a declaration that Office Investors and the Condominium              pet.) (“[A]n arbitration clause that reallocates traditional court
Association are not proper parties to the arbitration because        functions to the arbitrator is enforceable....”); ODL Servs.,
Saxa and DFD agreed that issues of substantive arbitrability         Inc. v. ConocoPhillips Co., 264 S.W.3d 399, 413 (Tex.App.-
would be determined by the arbitration panel. We review the          Houston [1st Dist.] 2008, no pet.). But, “[c]ourts should not
trial court's decision to grant summary judgment de novo.            assume that the parties agreed to arbitrate arbitrability unless
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661                there is ‘clear and unmistakable’ evidence that they did so.”
(Tex.2005). To prevail on a summary judgment motion, the             First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944,
movant must demonstrate that there are no genuine issues of          115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (citing AT & T, 475
material fact and that it is entitled to judgment as a matter of     U.S. at 649, 106 S.Ct. 1415); see ODL Servs., 264 S.W.3d
law. See TEX.R. CIV. P. 166a(c).                                     at 413. Silence or ambiguity about who should decide the
                                                                     arbitrability issue should not lead a court to presume the
Saxa and DFD agreed any arbitration under the contract               parties intended for the issue to be decided by the arbitrator.
would be conducted in accordance with the Construction               First Options, 514 U.S. at 944–45, 115 S.Ct. 1920; ODL
Industry Arbitration Rules of the American Arbitration               Servs., 264 S.W.3d at 413. Rather, a court must examine
Association (the Rules). The Rules provide the arbitrator has        the arbitration agreement to decide if, when construed under
the power “to rule on his or her own jurisdiction, including         the relevant state law, the agreement evidences a clear and



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  5
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)


unmistakable intention that the arbitrators will have the        ConocoPhillips without receiving a request for services. ODL
authority to determine the scope of arbitration. ODL Servs.,     was not paid for its services and initiated an arbitration against
264 S.W.3d at 413.                                               ConocoPhillips.

 [12] [13] Here, DFD and Saxa agreed that “[a]ny claim,          On appeal, ODL argued it was entitled to arbitrate its claim
dispute or other matter in question arising out of or related    based on the master agreement and that, by incorporating
to” the contract “shall be subject to arbitration.” “A broad     the AAA International Arbitration Rules into the master
arbitration clause, purporting to cover all claims, disputes,    agreement, the parties had agreed the arbitrator would decide
and other matters arising out of or relating to the contract,    all issues of substantive arbitrability, including whether an
 *230 creates a presumption of arbitrability.” Am. Realty        agreement to arbitrate existed. The Houston First Court of
Trust, Inc. v. JDN Real Estate–McKinney, L.P., 74 S.W.3d         Appeals disagreed, noting the master agreement was triggered
527, 531 (Tex.App.-Dallas 2002, pet. denied). Further,           only by a request for services. ODL Servs., 264 S.W.3d at 415.
Saxa and DFD incorporated the Rules into their contract,         The trial court had the authority to decide the threshold issue
giving the arbitration panel the power to rule on its own        of whether the master agreement had been triggered because
jurisdiction, including any objections to the existence, scope   if “no underlying request for ODL's services existed to trigger
or validity of the arbitration agreement. When, as here, the     the contractually separate arbitration agreement, or that itself
parties agree to a broad arbitration clause and explicitly       contained its own arbitration agreement, then there is no issue
incorporate rules that empower an arbitrator to decide           of substantive arbitrability to send to an arbitrator.” Id.
issues of arbitrability, the incorporation serves as clear and
unmistakable evidence of the parties' intent to delegate such    Unlike ConocoPhillips in ODL, DFD does not dispute it
issues to an arbitrator. See Haddock v. Quinn, 287 S.W.3d        entered into a written agreement to arbitrate with Saxa or that
158, 172 (Tex.App.-Fort Worth 2009, pet. denied) (“The           the agreement extends to partners, successors, assigns and
majority of courts have concluded that express incorporation     legal representatives of Saxa. Further, this dispute does not
of rules empowering the arbitrator to decide arbitrability       involve a third-party attempting to join in the arbitration a
(including ruling upon his or her own jurisdiction) clearly      claim that is unrelated to the contract between Saxa and DFD.
and unmistakably evidences the parties' intent to delegate       Nor are we confronted with a non-signatory to the arbitration
issues of arbitrability to the arbitrator.”); Burlington Res.    agreement contesting whether it is bound by a signatory's
Oil & Gas Co. LP v. San Juan Basin Royalty Trust, 249            agreement *231 to arbitrate. Rather, Office Investors and
S.W.3d 34, 41 (Tex.App.-Houston [1st Dist.] 2007, pet.           the Condominium Association are attempting to assert a
denied) (“We are also mindful that, in certain circumstances,    claim under the contract between Saxa and DFD as partners,
the incorporation of AAA rules may constitute clear and          successors, assigns and legal representatives of Saxa while
unmistakable evidence of an intent to allow an arbitrator        DFD disputes that Office Investors and the Condominium
to decide issues of arbitrability.”); Qualcomm Inc. v. Nokia     Association are entities with which it agreed to arbitrate
Corp., 466 F.3d 1366, 1368, 1373 (Fed.Cir.2006) (concluding      under the arbitration agreement. The scope of the arbitration
arbitration agreement containing broad arbitration clause and    agreement and the claims and parties it encompasses are
incorporating American Arbitration Rules allowing arbitrator     questions of substantive arbitrability that DFD and Saxa
to rule on own jurisdiction “clearly and unmistakably shows      agreed would be decided by the arbitration panel. Contec,
the parties' intent to delegate the issue of determining         398 F.3d at 209, 211 (signatory to contract “containing an
arbitrability to an arbitrator”); Contec Corp. v. Remote         arbitration clause and incorporating by reference the AAA
Solution Co. Ltd., 398 F.3d 205, 208 (2d Cir.2005).              Rules” cannot disown obligation to arbitrate all disputes,
                                                                 including question of arbitrability of non-signatory's claims).
Relying on ODL Services, DFD argues the trial court had the      Accordingly, the trial court erred by granting DFD's motion
authority to make the initial determination of whether there     for summary judgment on the issue of whether Office
was an agreement to arbitrate. In ODL Services, the parties      Investors and the Condominium Association are proper
entered into a master agreement that contained an arbitration    parties to the arbitration. 5
clause. The agreement also provided that if ConocoPhillips
needed technical and support services from ODL under the         We sustain appellants' first issue. Because of our disposition
master agreement, it would send a request for services.          of appellants' first issue, we need not consider appellants'
ODL subsequently performed services for a subsidiary of          remaining issues. TEX.R.APP. P. 47.1. We reverse the trial



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              6
Saxa Inc. v. DFD Architecture Inc., 312 S.W.3d 224 (2010)



court's judgment and remand this case to the trial court for
further proceedings.


Footnotes
1      Saxa was the sole owner of Shea Partners, Inc. Saxa also owned ninety-nine percent of Shea Commercial Properties, L.L.C. Shea
       Partners owned the remaining one percent of Shea Commercial. Shea Commercial was the sole owner of Shea Dallas Properties,
       L.L.C. Shea Commercial also owned ninety-nine percent of Office Investors. Shea Dallas Properties owned the remaining one percent
       of Office Investors. Shea Commercial entered into the contract to purchase the real property on which the project that forms the basis
       of Saxa's claims against DFD was built. Shea Commercial assigned that contract to Office Investors, and Office Investors closed on
       the purchase of the land. Saxa entered into a contract with DFD for design services for the project. Office Investors paid a number
       of the invoices submitted by DFD to Saxa.
2      Office Investors recorded the condominium declaration for the project. The Condominium Association became responsible for the
       management, maintenance, and repair of the common areas of the condominiums.
3      See TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.001–.098 (Vernon 2005).
4      Although this case is brought under the TAA, the parties rely on a number of cases interpreting the Federal Arbitration Act (FAA).
       See 9 U.S.C.A. §§ 1–16 (West 2009). The issue of arbitrability is subject to a virtually identical analysis under either the FAA or
       the TAA. See ODL Servs., Inc. v. ConocoPhillips Co., 264 S.W.3d 399, 418 (Tex.App.-Houston [1st Dist.] 2008, no pet.) (applying
       same analysis of arbitrability under the FAA and the TAA).
5      Saxa argued in its response to DFD's motion for summary judgment that the trial court did not have the authority to rule on the motion
       because the parties had agreed the arbitration panel would determine issues of substantive arbitrability. However, Saxa did not move
       for summary judgment on the ground the trial court did not have authority to rule on the issue. Accordingly, we remand this case
       to the trial court rather than rendering the judgment the trial court should have rendered. See Valence Operating Co., 164 S.W.3d
       at 661 (“When both parties move for partial summary judgment on the same issues and the trial court grants one motion and denies
       the other, as here, the reviewing court considers the summary judgment evidence presented by both sides, determines all questions
       presented, and if the reviewing court determines that the trial court erred, renders the judgment the trial court should have rendered.”).


End of Document                                                      © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           7
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                 [7] landlord was not required to segregate attorney's fees in
                                                                 order to recover them under the Declaratory Judgments Act.
                     167 S.W.3d 121
                Court of Appeals of Texas,
                          Waco.                                  Affirmed in part, reversed in part, reformed in part, and
                                                                 remanded.
      SKI RIVER DEVELOPMENT, INC., Stephen
        R. Davis and Karen Davis, Appellants,
                                                                 Gray, C.J., concurred with opinion.
                         v.
           Anthony L. McCALLA, Cheryl A.
        McCalla, and Walter Baker, Appellees.
                                                                  West Headnotes (57)
        No. 10–03–00316–CV. | April 20,
    2005. | Rehearing Overruled June 7, 2005.
                                                                  [1]    New Trial
Synopsis
                                                                                                                             Nature
Background: Sublessees brought action against landlord and
                                                                         of action or issue and character of evidence
developers, seeking specific performance of their exercised
option to purchase land, tortious interference damages,                  New Trial
and a declaratory judgment. Landlord cross-claimed against                                                                   Impeachment
developers for damages for tortious interference with use and            of witness
enjoyment of his land and prospective contractual relations,
                                                                         Developers' alleged newly discovered evidence
civil conspiracy, a declaratory judgment that 99-year lease
                                                                         that landlord allegedly committed perjury,
with developers was void, and for attorney's fees. Developers
                                                                         which included disclosures made to landlord,
counterclaimed for a declaratory judgment that sublessee's
                                                                         was cumulative of other evidence and would
option to purchase was void and unenforceable and for
                                                                         only have served to impeach landlord's trial
attorney's fees. The 249th District Court, Johnson County, D.
                                                                         testimony, and thus did not entitle developers to
Wayne Bridewell, J., entered judgment against developers,
                                                                         new trial on issued of fraud, undue influence,
declared that sublessees had exercised option to purchase, and
                                                                         and unconscionability in connection with 99-
declared that 99-year lease was void. Developers appealed.
                                                                         year lease.

                                                                         2 Cases that cite this headnote
Holdings: The Court of Appeals, Bill Vance, J., held that:
                                                                  [2]    New Trial
[1] developers' newly discovered evidence of landlord's
alleged perjury was cumulative;                                                                                              Power
                                                                         and duty of court in general
[2] sublease's option to purchase was void due to lack of                New Trial
material terms;
                                                                                                                             Affidavits
[3] 99-year lease was procedurally unconscionable;                       as to Newly Discovered Evidence
                                                                         It is incumbent upon a party who seeks a new
[4] 99-year lease was substantively unconscionable;                      trial on the ground of newly discovered evidence
                                                                         to show that (1) the evidence has come to his
[5] allegation that developers tortiously interfered with use            knowledge since the trial, (2) it was not owing
and enjoyment of property was separate cause of action;                  to the want of due diligence that it did not come
                                                                         sooner, (3) it is not cumulative, and (4) it is
[6] evidence was sufficient to support award of damages                  so material that it would probably produce a
against developer's wife; and                                            different result if a new trial were granted.




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           1
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                            certain. Restatement (Second) of Contracts §
       2 Cases that cite this headnote                                      33(1).

                                                                            3 Cases that cite this headnote
 [3]   Appeal and Error

                                                             New [7]        Contracts
       Trial or Rehearing
       The trial court's ruling on a new trial motion will                                                                        Intent
       not be disturbed on appeal unless an abuse of                        of parties
       discretion occurred.                                                 Contracts

       Cases that cite this headnote                                                                                              Agreement
                                                                            to make contract in future

 [4]   New Trial                                                            The actions of the contracting parties may
                                                                            conclusively establish their intention to enter a
                                                             Power          binding agreement even if some terms are left
       and duty of court in general                                         for future agreement. Restatement (Second) of
       A new trial will not be granted on the ground                        Contracts § 33(1).
       of newly-discovered evidence, unless it is made
                                                                            2 Cases that cite this headnote
       to appear that it has come to the knowledge of
       the applicant since the trial, that it could not
       have been sooner discovered by the exercise of                [8]    Contracts
       diligence, that it is not merely cumulative, and
       that it is not for the purpose of impeachment.                                                                             Construction
                                                                            to give validity and effect to contract
       1 Cases that cite this headnote                                      Texas courts prefer to validate transactions rather
                                                                            than void them.
 [5]   Declaratory Judgment
                                                                            Cases that cite this headnote
                                                             Scope
       and extent of review in general                               [9]    Contracts
       The Court of Appeals reviews declaratory
       judgments under the same standards as other                                                                                Rewriting,
       judgments and decrees; the court looks to the                        remaking, or revising contract
       procedure used to resolve the issue at trial to                      A court may not create a contract where none
       determine the standard of review on appeal.                          exists and generally may not interpolate or
       V.T.C.A., Civil Practice & Remedies Code §                           eliminate material terms.
       37.010.
                                                                            2 Cases that cite this headnote
       4 Cases that cite this headnote
                                                                     [10]   Contracts
 [6]   Contracts
                                                                                                                                  Agreement
                                                             Certainty      to make contract in future
       as to Subject-Matter                                                 Contracting parties may agree on some terms
       The rules regarding indefiniteness of material                       sufficient to create a contract, leaving other
       terms of a contract are based on the concept that                    provisions for later negotiation.
       a party cannot accept an offer to form a contract
                                                                            5 Cases that cite this headnote
       unless the terms of that contract are reasonably



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 2
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)




 [11]   Contracts                                                                                                                   Certainty
                                                                              as to Subject-Matter
                                                              Certainty
                                                                              Uncertainty of contract terms can preclude one
        as to Subject-Matter
                                                                              remedy without affecting others.
        Contracts
                                                                              Cases that cite this headnote
                                                              Terms
        implied as part of contract
                                                                       [16]   Landlord and Tenant
        In certain situations, a court may uphold an
        agreement by supplying missing terms, such as                                                                               Existence,
        implying a reasonable price.                                          scope, and validity

        2 Cases that cite this headnote                                       Sublease's option to purchase “said property”
                                                                              or a portion of it at “market value” upon
                                                                              lessor's “election to sell” was void due to
 [12]   Contracts                                                             lack of material terms, including definition of
                                                                              “said Property,” “portion” of property, “market
                                                              Certainty
                                                                              value,” and “election to sell,” and the failure to
        as to Subject-Matter
                                                                              state the length of time that the option remained
        Contract terms are reasonably certain if they
                                                                              open after lessor's notification of the election to
        provide a basis for determining the existence of
                                                                              sell.
        a breach and for giving an appropriate remedy.
        Restatement (Second) of Contracts § 33(2).                            1 Cases that cite this headnote

        1 Cases that cite this headnote
                                                                       [17]   Contracts

 [13]   Contracts                                                                                                                   Agreement
                                                                              to make contract in future
                                                              Nature
                                                                              An agreement leaving material terms to be
        and Essentials in General
                                                                              agreed upon later is not definite and specific as
        Parties, and not the courts, should make
                                                                              to material and essential terms and is, therefore,
        contracts.
                                                                              unenforceable.
        Cases that cite this headnote
                                                                              5 Cases that cite this headnote

 [14]   Contracts
                                                                       [18]   Contracts
                                                              Certainty
                                                                                                                                    Agreement
        as to Subject-Matter
                                                                              to make contract in future
        Where the parties intended to make an agreement
                                                                              When essential contract terms are missing, the
        and there is a certain basis for granting a remedy,
                                                                              court may find no more than an agreement to
        courts should find the contract terms definite
                                                                              agree.
        enough to provide a remedy. Restatement
        (Second) of Contracts § 33(2).                                        2 Cases that cite this headnote

        1 Cases that cite this headnote
                                                                       [19]   Contracts

 [15]   Contracts                                                                                                                   Agreement
                                                                              to make contract in future



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                  3
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


        A contract providing for an agreement to be
        negotiated in the future is void.                                                                                        Substantive
                                                                             unconscionability
        3 Cases that cite this headnote                                      Proof of unconscionability begins with two
                                                                             broad questions: (1) the procedural aspect, i.e.,
 [20]   Action                                                               how did the parties arrive at the terms in
                                                                             controversy, and (2) the substantive aspect,
                                                                Persons      i.e., are there legitimate commercial reasons
        entitled to sue                                                      justifying the terms of the contract.
        The general test for standing in Texas requires
                                                                             2 Cases that cite this headnote
        that there shall be a real controversy between the
        parties, which will be actually determined by the
        judicial declaration sought.                                  [24]   Contracts

        Cases that cite this headnote                                                                                            Procedural
                                                                             unconscionability

 [21]   Declaratory Judgment                                                 Contracts

                                                                Subjects                                                         Substantive
        of relief in general                                                 unconscionability

        Landlord, who was signatory to 99-year lease                         In deciding the fairness of a contract's
        with developer and the lease amendments, had                         substantive terms, the court must also consider
        standing to request declaratory judgment that                        whether there were procedural abuses, such as an
        lease and its amendments were void, although                         unfair bargaining position between the parties at
        developer had assigned lease, as landlord was in                     the time the agreement was made.
        privity of contract with developer and assignee
                                                                             Cases that cite this headnote
        and thus controversy among them would be
        affected by the declaratory judgment sought.
        V.T.C.A., Civil Practice & Remedies Code §                    [25]   Contracts
        37.006(a).
                                                                                                                                 Procedural
        Cases that cite this headnote                                        unconscionability
                                                                             Contracts
 [22]   Contracts                                                                                                                Substantive
                                                                            unconscionability
                                                                Unconscionable
        Contracts                                                           The party asserting unconscionability of a
                                                                            contract bears the burden of proving both
        If a contract          is   unconscionable,   it   is
                                                                            procedural and substantive unconscionability.
        unenforceable.
                                                                             12 Cases that cite this headnote
        2 Cases that cite this headnote

                                                                      [26]   Contracts
 [23]   Contracts
                                                                                                                                 Unconscionabl
                                                                Procedural
                                                                             Contracts
        unconscionability
                                                                             In determining whether a contract is
        Contracts
                                                                             unconscionable, the court must examine (1) the
                                                                             “entire atmosphere” in which the agreement was



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                               4
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


        made, (2) the alternatives, if any, available to                   Factors that may contribute to an unconscionable
        the parties at the time the contract was made,                     bargaining process include: (1) knowledge of
        (3) the “non-bargaining ability” of one party, (4)                 the stronger party that the weaker party will
        whether the contract was illegal or against public                 be unable to receive substantial benefits from
        policy, and (5) whether the contract is oppressive                 the contract, and (2) knowledge of the stronger
        or unreasonable.                                                   party that the weaker party is unable reasonably
                                                                           to protect his interests by reason of physical
        4 Cases that cite this headnote                                    or mental infirmities, ignorance, illiteracy or
                                                                           inability to understand the language of the
 [27]   Contracts                                                          agreement.

                                                                         4 Cases that cite this headnote
                                                             Unconscionable
        Contracts
        In determining whether a contract is                        [31]   Contracts
        unconscionable, the totality of the circumstances
        must be assessed as of the time the contract was                                                                       Procedural
        formed.                                                            unconscionability
                                                                           Contracts
        2 Cases that cite this headnote
                                                                                                                               Substantive
                                                                           unconscionability
 [28]   Contracts
                                                                         The grounds for substantive abuse must be
                                                             Unconscionable
                                                                         sufficiently shocking or gross to compel the
        Contracts                                                        court to intercede and declare a contract
        In determining whether a contract is                             unconscionable, and the same is true for
        unconscionable, it is important to consider                      procedural abuse; the circumstances surrounding
        whether there is any gross disparity in the values               the negotiations must be shocking.
        exchanged.
                                                                           13 Cases that cite this headnote
        2 Cases that cite this headnote
                                                                    [32]   Contracts
 [29]   Contracts
                                                                                                                               Questions
                                                                         for jury
                                                             Unconscionable
        Contracts                                                        The ultimate question of unconscionability of a
        Gross inequality of bargaining power, together                   contract is one of law, to be decided by the court.
        with terms unreasonably favorable to the
                                                                           3 Cases that cite this headnote
        stronger party may show that the weaker party
        had no meaningful choice, no real alternative,
        or did not in fact assent or appear to assent               [33]   Landlord and Tenant
        to the unfair terms, such that a contract is
        unconscionable.                                                                                                        Unconscionabi
                                                                            adhesion contracts
        3 Cases that cite this headnote                                  Evidence was sufficient to support finding that
                                                                         99-year lease between landlord and developer
 [30]   Contracts                                                        was procedurally unconscionable; there was
                                                                         evidence that developer knew landlords were
                                                             Unconscionable
                                                                         desperate for money, that developer's attorney
        Contracts                                                        drafted the lease, that landlords did not see lease



              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              5
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


        until day they signed it, that landlords felt they                     interfere with other lease between landlord and
        could not change anything in the lease and had                         sublessees which contained option to purchase,
        to sign it, that landlords did not review lease                        as option to purchase was void due to lack of
        or understand its terms, that landlords were not                       material terms.
        experienced with formal contracting, and that
        developer did not provide landlord with copy of                        Cases that cite this headnote
        business plan, which could have affected real
        estate taxes.                                                [37]      Pleading

        1 Cases that cite this headnote                                                                                             Particular
                                                                               causes or grounds of action
 [34]   Landlord and Tenant                                           Allegation that developer who entered into
                                                                      unconscionable 99-year lease, and lease
                                                          Unconscionability;
                                                                      assignee, tortiously interfered with landlord's
         adhesion contracts                                           use and enjoyment of his property was
        Evidence was sufficient to support finding that               a separate cause of action and was not
        99-year lease between landlord and developer                  duplicative of landlord's other claims, including
        was substantively unconscionable; there was                   claim for tortious interference with prospective
        evidence that developer only had to pay $3,000                contractual relations.
        per month rent for 12.5 years, after which
        rent would decrease to less than the estimated                1 Cases that cite this headnote
        monthly tax payment on the property, that all
        sublease income would be assigned to developer,        [38] Torts
        that developer could terminate lease at any time,
        that landlord lost his possessory rights, that                                                                  Interference
        landlord was prohibited from discussing lease,                with property or property rights, in general
        and that landlord could not sell land under                            Torts
        current listing agreement with real estate agent
        or while lease was in effect.                                                                                               Prospective
                                                                               advantage, contract or relations; expectancy
        1 Cases that cite this headnote                                        A cause of action for tortious interference with
                                                                               the right to dispose of property is, in essence, a
 [35]   Declaratory Judgment                                                   claim for tortious interference with a prospective
                                                                               contract or prospective business relation.
                                                               Determination
        and disposition of cause                                               1 Cases that cite this headnote
        Court of Appeals would reform declaratory
        judgment in order to reflect that finding that lease         [39]      Torts
        was unconscionable did not make lease void but
        rather merely unenforceable.                                                                                                Prospective
                                                                               advantage, contract or relations; expectancy
        2 Cases that cite this headnote                                        Texas law protects prospective contracts from
                                                                               interference.
 [36]   Torts
                                                                               Cases that cite this headnote
                                                               Landlord
        and tenant                                                   [40]      Torts
        Developer who leased land under 99-year lease
        and developer's assignee did not intentionally



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                          to support any award of any lost profits and failed
                                                             Interference to challenge the sufficiency of the evidence of
        with property or property rights, in general                      lost use and enjoyment.
        A cause of action for tortious interference with
        peaceful use and enjoyment of property is, in                      Cases that cite this headnote
        essence, a claim for intentional invasion of, or
        interference with, property rights; this cause of           [44]   Appeal and Error
        action exists under Texas law.
                                                                                                                                   Insufficient
        3 Cases that cite this headnote                                    discussion of objections
                                                                           To successfully challenge a multi-element
 [41]   Torts                                                              damages award (one dollar amount for multiple
                                                                           elements of damages) on appeal, an appellant
                                                             Contracts     must address all of the elements and show that
        A party bringing suit for tortious interference                    the evidence is factually insufficient to support
        with a contract must prove four elements: (1)                      the entire damages award; a failure to address
        a contract subject to interference exists, (2) the                 an element of damages results in waiver of the
        act of interference was willful and intentional,                   sufficiency challenge.
        (3) the intentional act proximately caused the
        plaintiff's damage, and (4) actual damage or loss                  1 Cases that cite this headnote
        occurred.
                                                                    [45]   Appeal and Error
        2 Cases that cite this headnote
                                                                                                                                   Insufficient
 [42]   Torts                                                              discussion of objections
                                                                           Developer and lease assignee waived argument
                                                             Existence     that evidence was legally and factually
        of valid or identifiable contract, relationship or                 insufficient to support finding that harm to
        expectancy                                                         landlord resulted from fraud or malice, and thus
        A suit for tortious interference with a contract                   did not support award of exemplary damages
        requires the existence of a valid contract; a void                 for tortious interference with landlord's use
        contract cannot serve as the basis for a tortious                  and enjoyment of his property in connection
        interference claim.                                                with unconscionable 99-year lease, as their
                                                                           appellate brief did not contain a clear and
        2 Cases that cite this headnote
                                                                           concise argument for the contentions made, with
                                                                           appropriate citations to authority and to the
 [43]   Appeal and Error                                                   record; argument was one sentence in their 50-
                                                                           page brief and did not cite to the reporter's record.
                                                             To            Rules App.Proc., Rule 38.2(a)(1).
        verdict, findings, or judgment
        Developer and lease assignee waived claim that                     4 Cases that cite this headnote
        evidence was insufficient to support award of
        damages to landlord for tortious interference               [46]   Damages
        with landlord's the use and enjoyment of his
        land in connection with unconscionable 99-                                                                                 Actual
        year lease; jury question allowed damages for                      damage or compensatory damages; relationship
        lost profits and/or damages for loss of use and                    and ratio
        enjoyment, but developer and assignee alleged                      Exemplary damages must be reasonably
        on appeal only that the evidence was insufficient                  proportioned to compensatory damages.



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                7
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                              A no-evidence point must and can only be
        Cases that cite this headnote                                         sustained on appeal when the record reveals: (1)
                                                                              a complete absence of evidence of a vital fact, (2)
 [47]   Damages                                                               rules of law or rules of evidence bar the appellate
                                                                              court from giving weight to the only evidence
                                                              Actual          offered to prove a vital fact, (3) the evidence
        damage or compensatory damages; relationship                          offered to prove a vital fact is no more than a
        and ratio                                                             mere scintilla, and (4) the evidence conclusively
        There is no set rule between the amount of actual                     establishes the opposite of a vital fact.
        and exemplary damages that will be considered
        reasonable; that determination is dependent upon                      Cases that cite this headnote
        the facts of a particular case.
                                                                       [51]   Torts
        Cases that cite this headnote
                                                                                                                                    Landlord
                                                                              and tenant
 [48]   Damages
                                                                              Evidence was sufficient to support finding
                                                              Measure         that, due to her conduct, developer's wife was
        and Amount of Exemplary Damages                                       liable for share of tortious interference damages
        Factors to consider in determining whether                            awarded to landlord who had entered into
        an award of exemplary damages is reasonable                           unconscionable 99-year lease with developer,
        include: (1) the nature of the wrong, (2) the                         even though wife did not sign lease or
        character of the conduct involved, (3) the degree                     its amendments; wife testified that she very
        of culpability of the wrongdoer, (4) the situation                    familiar with the landmarks on the property,
        and sensibilities of the parties concerned, and (5)                   had an emotional attachment to the property,
        the extent to which such conduct offends a public                     first approached landlords about leasing the
        sense of justice and propriety.                                       property with her husband, was involved in the
                                                                              negotiation process, took the final draft to the
        Cases that cite this headnote                                         landlords with her husband, and was present
                                                                              when everyone signed the lease.
 [49]   Damages
                                                                              Cases that cite this headnote
                                                              Amount
        Awarded in Particular Cases                                    [52]   Specific Performance
        Ratio of $20,000 in exemplary damages, which
        was 0.40 of the amount of the $50,000 in                                                                                    Costs
        compensatory damages awarded for landlord,                            Sublessees were not entitled to attorney's fees
        was not excessive for landlord's claim against                        in action for specific performance of option
        developer and lease assignee for tortious                             to purchase, as option to purchase had been
        interference with the use and enjoyment of                            declared void on appeal. V.T.C.A., Civil Practice
        property, which involved an unconscionable 99-                        & Remedies Code § 37.009.
        year lease.
                                                                              Cases that cite this headnote
        Cases that cite this headnote
                                                                       [53]   Costs
 [50]   Appeal and Error
                                                                                                                                    Form
                                                              Total           and requisites of application in general
        failure of proof



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


        Landlord's cross-claims for declaratory
        judgment that 99-year lease with resort                              1 Cases that cite this headnote
        developer and company was void due to fraud,
        undue influence, and unconscionability were                   [57]   Declaratory Judgment
        so intertwined with cross-claims for tortious
        interference, fraud, breach of contract, and civil                                                                     Determination
        conspiracy that segregation of attorney's fees was                   and disposition of cause
        not required in order for landlord to recover fees                   Remand was required for determination of
        under the Declaratory Judgment Act. V.T.C.A.,                        whether developer and company were entitled
        Civil Practice & Remedies Code § 37.009.                             to “equitable and just” attorney's fees from
                                                                             sublessees, as developer and company prevailed
        Cases that cite this headnote                                        on declaratory judgment claim that sublessees'
                                                                             option to purchase land on which developer and
 [54]   Costs                                                                company wished to put marina and golf course
                                                                             was void. V.T.C.A., Civil Practice & Remedies
                                                             Items           Code § 37.009.
        and amount; hours; rate
        To show the reasonableness and necessity of                          2 Cases that cite this headnote
        attorney's fees, the plaintiff is required to show
        that the fees were incurred while suing the
        defendant sought to be charged with the fees on
        a claim which allows recovery of such fees.                  Attorneys and Law Firms

        Cases that cite this headnote                                 *127 David P. Lein, George & Donaldson, L.L.P., Austin,
                                                                     Christopher C. Cooke, The Cooke Law Firm, Cleburne, for
                                                                     appellants.
 [55]   Costs
                                                                     Peter J. Harry, Brown McCarroll, L.L.P., Charles R. Nichols,
                                                             Form
                                                                     John H. Carney & Associates, Dallas, for appellees.
        and requisites of application in general
        A recognized exception to the duty to segregate              Before Chief Justice GRAY, Justice VANCE, and Justice
        arises when the attorney's fees rendered are in              REYNA.
        connection with claims arising out of the same
        transaction and are so interrelated that their
        prosecution or defense entails proof or denial of                                    OPINION
        essentially the same facts.
                                                                     BILL VANCE, Justice.
        1 Cases that cite this headnote
                                                                   This case concerns a 380–acre piece of property along the
                                                                   Brazos River in Johnson *128 County. Appellees Anthony
 [56]   Costs
                                                                   L. McCalla (“McCalla”) and Cheryl A. McCalla are lessees of
                                                             Items Appellee Walter Baker (“Baker”) under a 1992 lease, known
        and amount; hours; rate                                    as the “Glazier lease.” Appellants, Ski River Development,
                                                                   Inc. (“Ski River”), Stephen R. Davis (“Davis”), and Karen
        When the causes of action involved in a suit
                                                                   Davis, are also lessees of Appellee Walter Baker under a
        are dependent upon the same set of facts or
                                                                   1996 lease, called the “Baker–Davis lease.” In 1996, the
        circumstances and thus are intertwined to the
        point of being inseparable, the party suing for              McCallas sued the Davises, Ski River, 1 and Baker claiming
        attorney's fees may recover the entire amount                they had a right to purchase the property under the Glazier
        covering all claims.                                         lease. The McCallas sought specific performance of their
                                                                     exercised option, tortious interference damages (including



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


exemplary), a declaratory judgment that: (1) Mary Baker             sub-leased a two-acre tract to the McCallas. This sub-lease
elected to sell the property; (2) the McCalla's offer to purchase   states in part:
was sufficient to exercise an option; (3) the Baker–Davis
lease is void because it violated the McCalla's option contract,                 That, in the event Lessees [Bakers]
                                                                                 shall purchase or otherwise obtain
and for attorney's fees under the Declaratory Judgment Act. 2
                                                                                 legal ownership of said Property from
Baker cross-claimed against Ski River and the Davises for
                                                                                 Lessor [Glazier] and later elect to sell,
damages (including exemplary) for tortious interference with
                                                                                 Lessees [Bakers] hereby grant Sub–
use and enjoyment of his land and prospective contractual
                                                                                 Lessees [McCallas] the First Option
relations with the McCallas, civil conspiracy, a declaratory
                                                                                 to Purchase all, or a portion of said
judgment that the Baker–Davis lease is void because it was
                                                                                 Property from Lessees [Bakers] at
procured by fraud, undue influence, and unconscionability,
                                                                                 market value.
and for attorney's fees under the Declaratory Judgment Act. 3
Ski River and the Davises counterclaimed for a declaratory          In 1993, Glazier died, leaving the property to Walter and
judgment that the McCalla's option is void and unenforceable        Mary Baker. Soon thereafter, Walter Baker deeded his
and for attorney's fees under the Declaratory Judgment Act. 4       undivided interest to Mary Baker making her the 100% owner
A jury awarded damages and attorney's fees to the McCallas          of the property.
and Baker against the Davises and Ski River and made other
findings. The court entered judgment on the jury's verdict          In June 1994, Mary Baker signed an exclusive one-year
for tortious interference and declared that (1) the McCallas        listing agreement with Glenna Calahan to sell the entire 380
properly exercised their option to purchase and (2) the Baker–      acres for $2,500 per acre. The listing agreement stated that
Davis lease and its amendments are void and unenforceable.          Baker “shall not rent or lease the Property during the term of
Ski River and the Davises appeal in twelve issues.                  this Listing without the prior written approval of [Calahan]”
                                                                    and “shall not negotiate with any prospective buyer who may
We will reverse that part of the judgment that states (1) the       contact [Mary Baker] directly, but refer all prospective buyers
Davises and Ski River take nothing against the McCallas             to [Calahan].” In August 1994, Calahan wrote to McCalla
and (2) the declaratory judgment that the McCallas properly         notifying him of the listing of the property at $2,500 per acre
exercised their option to purchase the Property. We will            and giving him 72 hours to exercise his option to purchase.
render judgment that the McCalla's option to purchase               Four days later, McCalla responded that he desired to pursue
is void. We will further reform the declaratory judgment            his rights under the Glazier lease, including but not limited to,
to provide that the Baker–Davis lease is unconscionable             his “option to purchase all, or a portion, of said Property at
and unenforceable, not void. We will reverse the tortious           market value.” He also objected to the insertion of a 72–hour
interference damages, exemplary damages, and all attorney's         deadline to exercise his option. He further stated:
fees awarded to the McCallas against the Davises and
                                                                                 the option cannot be evaluated until
Ski River. We will affirm the *129 tortious interference
                                                                                 market value of the property has been
damages, exemplary damages, and all attorney's fees awarded
                                                                                 determined and, as a result, does not
to Baker against the Davises and Ski River. We will remand
                                                                                 have to be exercised until such time
this cause to the trial court to determine whether to award
                                                                                 that either market value has been
attorney's fees for the Davises and Ski River under the
                                                                                 determined or a bonafide offer to
Declaratory Judgment Act. We will overrule or not address
                                                                                 purchase executed by a third party, has
all other issues.
                                                                                 been received by me.

                                                                    McCalla also requested any information Calahan may have
                      BACKGROUND                                    regarding the sale of the property, including any information
                                                                    to establish market value. Seven days later, McCalla again
Arthur William Glazier, Jr. owned 380 acres of land. In             requested the same property information from Calahan. Eight
1992, Glazier entered into a 99–year lease covering the entire      days later, Calahan sent him the MLS information sheet, title
property with Appellee Walter Baker and his mother, Mary            commitment, and other information.
Baker (the “Glazier lease”). In the Glazier lease, the Bakers



                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             10
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


In October 1994, the McCalla's appraisal was completed,           In February 1996, McCalla wrote to Calahan acknowledging
which stated the value to be $1,200 per acre. This value was      the change in the listing price to $2,100 per acre, but stated
not disclosed to the Bakers or Calahan. Later in October,         that his position had not changed since 1994. He stated that he
Coyt Randal Johnston, on behalf of McCalla, sent a letter         continued “to be interested in the property, in connection with
to Calahan stating that they were working on a proposal to        my Right of First Refusal” and asked to be kept informed.
purchase the property and had secured an appraisal to help
evaluate the “current offer of $2,500.00 per acre.” He further    A few days later on February 12, 1996, Davis entered into
stated:                                                           a 99–year lease of the entire property with the Bakers (the
                                                                  “Baker–Davis lease”). The Davises told the Bakers that they
  ... [McCalla] and I have determined that it is in our best      intended to put in a boat marina, landing strip, and golf course.
  interest not to make an offer for the property at this time,    The Davises did not provide a copy of the general business
  since we do not want to run the risk of offending you or the    plan to the Bakers nor did they discuss the plan with the
  Bakers with an offer that is unacceptably low.                  Bakers. The Baker–Davis lease states:

  I want to emphasize that we continue to be interested in the      ...
  property and will continue to evaluate our position as time
   *130 goes on. We believe, however, that Walt and Mary            2.3 For the term of the lease, BAKER will pay real estate
  should have the opportunity to try to sell this property to       taxes on said Property and DAVIS will be responsible for
  someone who is willing to pay their purchase price.               liability insurance.

  Should another buyer submit a contract on the property,           2.4 All subleases (including but not limited to the
  [McCalla] will, of course, review the matter in connection        sublease with ANTHONY MCCALLA and CHERYL A.
  with his right of first refusal at that time. In that regard,     MCCALLA d/b/a C.A.M. PROPERTIES [for two acres] )
  you should be aware that nothing in this letter is intended       and their income are assigned to DAVIS by BAKER by the
  to waive or alter any of the rights or obligations between        execution of this Agreement.
  the Bakers and [McCalla] in connection with their various
  contractual and lease agreements.                               The lease sets the rent at $3,000 per month for 12–1/2 years,
                                                                  then at $75 per month until the lease ends. The lease also
In April 1995, Mary Baker reduced her asking price to $1,950      contains a non-disclosure clause that does not allow Baker, or
per acre. Later in 1995, Davis contacted Calahan to inquire       any member of his family, to discuss with anyone the Baker–
about purchasing 25 acres of the property at $1,800 per acre,     Davis lease or any of its subleases. The First Addendum to
but Mary Baker declined this offer because she wanted to sell     this lease provides for an additional rent payment of $1,000
the entire 380 acres. In October 1995, Mary Baker increased       per month to pay for a house for the Bakers.
her asking price to $2,100 per acre.
                                                                  In March 1996, a First Amendment to the Baker–Davis lease
As early as December 15, 1995, Walter Baker was referring         was executed, which assigned the lease from Davis to Ski
to Stephen Davis as his “money man.” In 1996, the Davises         River. It contains a provision that, if the property is ever sold
friendship with the Bakers increased, and they visited them       to anyone, Ski River would retain a leasehold interest for $75
on a weekly basis.                                                per month in 25 acres of the property.

On January 29, 1996, the Davises presented a “general             In April 1996, McCalla made an offer to purchase the
business plan” for development of the property to a potential     380 acres at $1,200 per acre. Sixteen days later, McCalla's
investor. This included a preliminary sketch of “The Ski          attorney *131 threatened to file suit. Two days later, Mary
Ranch,” including the repair of the boat ramp and roads,          Baker died of a heart attack. Following Mary Baker's death:
establishment of dump stations, building new boat ramp            (1) the Davises executed affidavits of heirship for Walter
and ski lake sites, establishing river front leases, building a   Baker; (2) Walter Baker's attorney drew up a will naming the
runway, building a store and club, installing a fuel farm, and    Davis children as his heirs, Stephen Davis as his executor, and
continuing property studies for new phases.                       Karen Davis as his trustee; and (3) Walter Baker's attorney
                                                                  drew up a statutory power of attorney naming Stephen Davis
                                                                  as his attorney-in-fact.



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                   all amendments are void from their inception and are
In August 1996, a Second Amendment to the Baker–Davis              unenforceable.
lease was executed, which required the Davis's approval
before Baker could sell any of the property's mineral rights.
The Second Amendment stated that if Baker elected to sell,
                                                                                           ISSUES
Davis had a right of first refusal to buy the property for
$600,000 minus any prior lease payments.                         We will address the Davises' and Ski River's issues in the
                                                                 following order:
In September 1996, the McCallas filed the lawsuit against
Walter Baker, Ski River, and the Davises.                          # Error in denying the motion for new trial filed by the
                                                                     Davises and Ski River (issue eleven);

                                                                   # Whether McCalla's option to purchase the entire property
                       JUDGMENT                                      is void and/or was waived (issue three);

The judgment awards tortious interference damages to the           # Whether Baker has standing to request the declaratory
McCallas against Stephen Davis, Karen Davis, and Ski                 judgment that the Baker–Davis lease and its
River in the amount of $69,000, exemplary damages in the             amendments are void (issue seven);
amount of $75,000, attorney's fees in the amount of $247,000,
and pre-judgment interest. In addition, attorney's fees were       # Whether Baker's claims against the Davises and Ski River
awarded of $25,000 in the event the case is appealed to the          were brought in breach of a tolling agreement (issue six);
Court of Appeals and $15,000 in the event the case is appealed
                                                                    *132 # Error in entering declaratory judgment that the
to the Supreme Court of Texas.
                                                                     Baker–Davis lease and its amendments are void and
                                                                     unenforceable (issue one);
The judgment awards tortious interference damages to Walter
Baker against Stephen Davis, Karen Davis, and Ski River in         # Whether the McCallas had standing to request the
the amount of $50,000, exemplary damages in the amount of            declaratory judgment that the Baker–Davis lease and its
$20,000, attorney's fees in the amount of $37,000, and pre-          amendments are void (issue four);
judgment interest. In addition, attorney's fees were awarded
of $15,000 in the event the case is appealed to the Court of       # Error in submitting the issue of tortious interference to
Appeals and $15,000 in the event the case is appealed to the         the jury (issue two);
Supreme Court of Texas.
                                                                   # Whether the evidence is factually sufficient to support
The judgment orders that the Davises and Ski River take              award of lost profits to the McCallas and Baker (issue
nothing by their suit against the McCallas, and contains a           ten);
declaratory judgment that:
                                                                   # Whether the evidence is legally and factually sufficient
  Based on the evidence presented to the Court and the jury's        to support award of exemplary damages to the McCallas
  findings, the Court ENTERS a Declaratory Judgment that             and Baker and whether the exemplary damages were
  Plaintiffs Anthony L. McCalla and Cheryl A. McCalla                excessive (issue twelve);
  properly exercised their option to purchase the Property.
                                                                   # Whether the evidence is legally and factually sufficient
  Based on the evidence presented to the Court and the jury's        to support the award of damages against Karen Davis
  findings, the Court ENTERS a Declaratory Judgment that             (issue nine);
  the 99 year Davis lease executed on or about February
                                                                   # Error in awarding attorney's fees to the McCallas and
  12, 1996 filed for record on February 15, 1996 at BK
                                                                     Baker because they failed to segregate fees between
  1940PG0011, the First Amendment to Lease executed on
                                                                     claims (issue five); and
  or about March 12, 1996 and filed for record on March
  11, 1996 at BK 1945PG0915, and the Second Amendment              # Whether the evidence is legally sufficient to support jury
  to Lease executed on or about August 28, 1996 and                  finding of civil conspiracy (issue eight).



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


                                                                   is void and unenforceable because it is too indefinite and
     ISSUE ELEVEN: Error in denying motion for new                 violates the rule against perpetuities. In the alternative, they
     trial filed by the Davises and Ski River                      argue that it was not exercised or was waived.

 [1] The Davises and Ski River filed a motion for new              The pertinent part of the Glazier lease provides:
trial asserting newly discovered evidence, i.e., that Walter
Baker allegedly committed perjury during the trial regarding                    That, in the event Lessees [Bakers]
disclosures made by the Davises to the Bakers. They argue                       shall purchase or otherwise obtain
that had the jury known this, the outcome of the trial would                    legal ownership of said Property from
have been different because Baker was the central witness on                    Lessor [Glazier] and later elect to sell,
the issues of fraud, undue influence, and unconscionability. In                 Lessees [Bakers] hereby grant Sub–
an affidavit filed in response, Walter Baker contradicts Karen                  Lessees [McCallas] the First Option
Davis's assertion that he told her his attorney asked him “to                   to Purchase all, or a portion of said
forget some things.”                                                            Property from Lessees [Bakers] at
                                                                                market value.
 [2] [3] [4] It is incumbent upon a party who seeks a new
trial on the ground of newly discovered evidence to show that       [5] We review declaratory judgments under the same
(1) the evidence has come to his knowledge since the trial; (2)    standards as other judgments and decrees. Lidawi v.
it was not owing to the want of due diligence that it did not      Progressive County Mut. Ins. Co., 112 S.W.3d 725, 730
come sooner; (3) it is not cumulative; and (4) it is so material   (Tex.App.-Houston [14th Dist.] 2003, no pet.); see also TEX.
that it would probably produce a different result if a new trial   CIV. PRAC. & REM.CODE ANN. § 37.010 (Vernon 1997).
were granted. Jackson v. Van Winkle, 660 S.W.2d 807, 809           We look to the procedure used to resolve the issue at trial
(Tex.1983). The trial court's ruling on such a motion will not     to determine the standard of review on appeal. Lidawi, 112
be disturbed on appeal unless an abuse of discretion occurred.     S.W.3d at 730. Here, the trial court asked the jury whether
Id. “A new trial will not be granted on the ground of newly-       McCalla had a first option to purchase and whether he
discovered evidence, unless it is made to appear that it has       exercised the option. In a second jury question, the jury found
come to the knowledge of the applicant since the trial; that       that the McCallas exercised their option in accordance with
it could not have been sooner discovered by the exercise of        the terms of the first option under the Glazier Lease. However,
diligence; that it is not merely cumulative; that it is not for    the Davises and Ski River attack the option provision as void
the purpose of impeachment.” New Amsterdam Cas. Co. v.             as a matter of law.
Jordan, 359 S.W.2d 864, 866 (Tex.1962) (quoting Conwill v.
Gulf, C. & S.F. Ry. Co., 85 Tex. 96, 19 S.W. 1017 (1892)).          [6]    [7]      [8]    [9]     [10]     [11] The rules regarding
                                                                   indefiniteness of material terms of a contract are based on the
We find the evidence submitted by the Davises and Ski River        concept that a party cannot accept an offer to form a contract
was cumulative and would only have served to impeach               unless the terms of that contract are reasonably certain.
Baker's trial testimony. We cannot say that any impeachment        RESTATEMENT (SECOND) OF CONTRACTS § 33(1)
would have probably produced a different result. See Jackson,      (1981). Thus, the actions of the parties may conclusively
660 S.W.2d at 809; New Amsterdam, 359 S.W.2d at 866. The           establish their intention to enter a binding agreement even if
trial court did not abuse its discretion in denying the motion     some terms are left for future agreement. Id. at cmt. a. To that
for new trial on these grounds. See Jackson, 660 S.W.2d at         end, Texas courts prefer to validate transactions rather than
809. We overrule issue eleven.                                     void them. Dahlberg v. Holden, 150 Tex. 179, 238 S.W.2d
                                                                   699, 701 (1951). A court may not create a contract where none
     ISSUE THREE: Error in denying the Davises' and
                                                                   exists and they generally may not interpolate or eliminate
     Ski River's request for declaratory judgment that
                                                                   material terms. Id. However, parties may agree on some terms
     the McCallas' “first option to purchase” is void and
                                                                   sufficient to create a contract, leaving other provisions for
     unenforceable, and/or was waived
                                                                   later negotiation. See Scott v. Ingle Bros. Pacific, Inc., 489
                                                                   S.W.2d 554, 555 (Tex.1972). In certain situations, a court
 *133 Ski River argues that the trial court erred in denying its
                                                                   may uphold an agreement by supplying missing terms, such
request for declaratory judgment that the McCalla's purported
“first option to purchase,” provided in the Glazier lease,


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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


as implying a reasonable price. Bendalin v. Delgado, 406
S.W.2d 897, 900 (Tex.1966).                                          (6) Whether an election to sell a portion of the property was
                                                                        sufficient for McCalla to exercise the option;
 [12]     [13]      [14]     [15] The Restatement asserts that
                                                                    (7) When market value is to be determined;
contract terms are reasonably certain “if they provide a basis
for determining the existence of a breach and for giving            (8) What is the method to determine market value;
an appropriate remedy.” RESTATEMENT (SECOND) OF
CONTRACTS § 33(2) (1981). This conforms to the policy               (9) How long does McCalla have to exercise his option
that parties, and not the courts, should make contracts. Where         after notification of Baker's election to sell;
the parties intended to make an agreement and there is a
                                                                    (10) Whether the McCallas can ever compel a sale of all or
certain basis for granting a remedy, courts should find the
                                                                       a portion of the Property;
contract terms definite enough to provide a remedy. Id. at
cmt. b. Uncertainty of terms can, however, preclude one             (11) Whether Baker can change her mind after an election
remedy without affecting others. For example, less certainty           to sell the property if she is dissatisfied with an offer
is necessary in a suit for damages than one for specific               from McCalla in comparison with either a bona fide
performance. See Kirkwood & Morgan, Inc. v. Roach, 360                 purchaser offer or retaining the property; and
S.W.2d 173, 176 (Tex.Civ.App.-San Antonio 1962, writ ref'd
n.r.e.); but see Bendalin, 406 S.W.2d at 900 (the Supreme           (12) For how long is the option valid?
Court held that lack of an express agreement on price was not
fatal to maintenance of a suit for specific performance of an     [17]      [18]      [19]    These provisions requiring future
oral agreement to purchase stock).                               negotiation suggest that the parties are only agreeing to make
                                                                 a future contract. An agreement leaving material terms to be
When essential terms are missing, courts often find no more      agreed upon later is not definite and specific as to material and
than an agreement *134 to agree. See Pine v. Gibraltar           essential terms and is, therefore, unenforceable. See Parker
Sav. Ass'n, 519 S.W.2d 238, 244 (Tex.Civ.App.-Houston [1st       Chiropractic Research Foundation v. Fairmont Dallas Hotel
Dist.] 1975, writ ref'd n.r.e.). Courts have, however, implied   Co., 500 S.W.2d 196, 201 (Tex.Civ.App.-Dallas 1973, no
terms when the surrounding circumstances left little doubt as    writ). When essential terms are missing, we may find no more
to the parties' intentions. See Morgan v. Young, 203 S.W.2d      than an agreement to agree. See Pine, 519 S.W.2d at 244.
837, 846 (Tex.Civ.App.-Beaumont 1947, writ ref'd n.r.e.).        Furthermore, a contract providing for an agreement to be
                                                                 negotiated in the future is void. See, e.g., Texas State Optical
 [16] Here, the contract clause sets out with certainty the term v. Caylor, 387 S.W.2d 461, 464 (Tex.Civ.App.-Beaumont
that the Bakers must obtain legal ownership as a prerequisite    1965, writ ref'd n.r.e.). Therefore, we find the “first option to
to validity of any obligation. However, the contract clause      purchase” is a void provision of the Glazier lease. Thus, the
leaves many terms for future negotiation and agreement.          jury findings are immaterial.
These include:
                                                                   It was error for the trial court to deny entering a declaratory
  (1) What is the definition of “said Property” (the entire
                                                                   judgment that the McCalla's first option to purchase is
     380–acre tract or the two acres being subleased by the
                                                                   indefinite and void. In addition, it was error to enter
     McCallas);
                                                                   a declaratory judgment that the McCallas exercised their
  (2) What is the definition of a “portion” of said Property;      option. We need not address whether the option was waived
                                                                   because we have found the option void.
  (3) Whether listing property on the market (i.e., solicitation
     for offers) is an election to sell;                           We sustain issue three. We will reverse that part of
                                                                   the judgment that states (1) the Davises and Ski River
  (4) Whether a listing agreement is an election to sell;          take nothing against the McCallas and (2) the declaratory
                                                                   judgment that the McCallas properly exercised their option to
  (5) Whether a bona fide offer from a third party purchaser
                                                                   purchase the Property. We will render judgment as follows:
     was required before the option could be exercised;




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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)




   *135 Based on the evidence presented to the Court, the           [21] As signatory of the lease and its amendments, Walter
  Court RENDERS a Declaratory Judgment that Plaintiffs             Baker was in privity of contract with the Davises and Ski
  Anthony L. McCalla's and Cheryl A. McCalla's option to           River. Thus, the controversy that exists between Baker, the
  purchase the Property is void as a matter of law.                Davises, and Ski River will be affected by the declaratory
                                                                   judgment sought. See TEX. CIV. PRAC. & REM.CODE
     ISSUE SEVEN: Baker's standing to request
                                                                   ANN. § 37.006(a); Texas Ass'n of Bus., 852 S.W.2d at 446.
     declaratory judgment to declare Baker–Davis lease
                                                                   We find that Walter Baker has standing. We overrule issue
     and its amendments are void.
                                                                   seven.

 [20] The general test for standing in Texas requires that there        ISSUE SIX: Baker's claims against the Davises were
“(a) shall be a real controversy between the parties, which             brought in breach of a tolling agreement
(b) will be actually determined by the judicial declaration
sought.” Texas Ass'n of Bus. v. Texas Air Control Bd.,             On September 4, 2001, Baker, the Davises, and Ski River
852 S.W.2d 440, 446 (Tex.1993) (citing Board of Water              entered a “tolling agreement” that prohibited the Davises and
Engineers v. City of San Antonio, 155 Tex. 111, 114,               Baker from asserting any cross-claims against each other until
283 S.W.2d 722, 724 (1955)). The Declaratory Judgment              the McCalla claims were resolved. In violation of this tolling
Act provides that “all persons who have or claim any               agreement, Baker asserted cross-claims against the Davises
interest that would be affected by the declaration must be         and Ski River on October 23, 2002. However, on November
made parties.” TEX. CIV. PRAC. & REM.CODE ANN. §                   21, 2002, the parties signed a Rule 11 agreement that “Walt
37.006(a) (Vernon 1997).                                           Baker will maintain his cross claims in this case.” Thus, any
                                                                   violation of the tolling agreement was cured by the Rule 11
The Baker–Davis lease states:                                      agreement. We overrule issue six.

  The Parties of this Agreement (“Agreement”) are as                    ISSUE ONE: Error by entering declaratory
  follows:                                                              judgment voiding the Baker–Davis lease and its
                                                                        amendments
  1.1 MARY BAKER and her son, WALT BAKER
  (collectively referred to as “BAKER”)....
                                                                   The trial court entered a declaratory judgment that the Baker–
                                                                   Davis lease and its amendments are void based on the jury
The first amendment to the Baker–Davis lease states:
                                                                   findings that the Baker–Davis lease and its amendments were
            THIS FIRST AMENDMENT TO                                procured by fraud, undue influence, and unconscionability.
            LEASE (this “First Amendment”)
            is dated to be effective as of the                      [22] [23] [24] [25] If a contract is unconscionable, it
            12th day of March, 1996, by and                        is unenforceable. See In re Turner *136 Bros. Trucking
            between MARY BAKER and her son,                        Co., 8 S.W.3d 370, 375 (Tex.App.-Texarkana 1999, no pet.)
            WALT BAKER (collectively referred                      (referring to an arbitration agreement); El Paso Natural
            to herein as “BAKER”)....                              Gas Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 60
                                                                   (Tex.App.-Amarillo 1997), rev'd on other grounds, 8 S.W.3d
                                                                   309 (Tex.1999) (referring to gas purchase agreement under
At the time of the second amendment, Walter Baker was the
                                                                   the Texas Business and Commerce Code § 2.302(a)); Tri–
owner of the property and the second amendment states:
                                                                   Continental Leasing Corp. v. Law Office of Richard W. Burns,
            THIS SECOND AMENDMENT TO                               710 S.W.2d 604, 609 (Tex.App.–Houston [1st Dist.] 1986,
            LEASE (this “Second Amendment”)                        writ ref'd n.r.e.) (referring to disclaimer provisions in a lease);
            is dated to be effective as of the 28th                RESTATEMENT (SECOND) OF CONTRACTSSSSS §
            day of August, 1996, by and between                    208. Proof of unconscionability begins with two broad
            WALT BAKER (“Walt Baker”) and                          questions: (1) the procedural aspect, i.e., how did the parties
            SKI RIVER DEVELOPMENT[S],                              arrive at the terms in controversy; and (2) the substantive
            INC., a Texas Corporation (“Ski                        aspect, i.e., are there legitimate commercial reasons justifying
            River”).                                               the terms of the contract. Pony Express Courier Corp. v.


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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


Morris, 921 S.W.2d 817, 821 (Tex.App.-San Antonio 1996,        unconscionability. And, as to the existence of those facts,
                                                               our review is not de novo. In other words, we cannot
no pet.). In other words, in deciding the fairness of a contract's
substantive terms, the court must also consider whether        review the *137 record, divine our own inferences from
there were “procedural abuses,” such as an unfair bargaining   the evidence contained therein, resolve conflicts in same,
position between the parties at the time the agreement was     or decide what evidence to believe and what not to believe.
made. Tri–Continental, 710 S.W.2d at 609. Under Texas          The power to do those things, that is, to find facts, lies
law, the party asserting unconscionability of a contract       with the trial court. Once it has exercised that power, we
bears the burden of proving both procedural and substantive    must then defer to the findings made. And, as long as the
unconscionability. In re Turner, 8 S.W.3d at 375; Wade v.      findings enjoy sufficient evidentiary support, they cannot
Austin, 524 S.W.2d 79, 86 (Tex.Civ.App.-Texarkana 1975,        be disturbed, even though we may have construed the
no writ.).                                                     evidence differently. Nevertheless, this does not prevent
                                                               us from assessing whether the findings made illustrate
 [26] [27] [28] [29] [30] [31] In determining whetherunconscionability for, again, that is a question of law. Nor
a contract is unconscionable, we must examine (1) the          does it prevent us from deciding whether the evidence
“entire atmosphere” in which the agreement was made; (2)       of record, when viewed in a light most favorable to the
the alternatives, if any, available to the parties at the time court's findings and regardless of its potential inferences,
the contract was made; (3) the “non-bargaining ability” of     illustrates unconscionability, for that too is a question of
one party; (4) whether the contract was illegal or against     law.
public policy; and (5) whether the contract is oppressive or
unreasonable. Wade, 524 S.W.2d at 86. The totality of the      Interestingly, at least one court has likened the mental
circumstances must be assessed as of the time the contract was gymnastics in which we must partake to the standard
formed. El Paso, 964 S.W.2d at 61. It is important to consider of abused discretion. See, e.g., Pony Express Courier
whether there is any gross disparity in the values exchanged.  Corp. v. Morris, 921 S.W.2d at 820. Use of the latter
RESTATEMENT (SECOND) OF CONTRACTS, § 208,                      is helpful in situations involving mixed questions of law
cmt. c. Gross inequality of bargaining power, together with    and fact, according to the Pony Express court. Id. It
terms unreasonably favorable to the stronger party may         enables the reviewing court to reassess de novo that part
show that the weaker party had no meaningful choice,           of the decision involving the law and its application while
no real alternative, or did not in fact assent or appear to    recognizing the trial court's authority to weigh and interpret
assent to the unfair terms. Id. at cmt. d. Factors that may    the evidence. Pony Express Courier Corp. v. Morris, 921
contribute to an unconscionable bargaining process include:    S.W.2d at 820; accord, Walker v. Packer, 827 S.W.2d 833,
(1) knowledge of the stronger party that the weaker party will 839–40 (Tex.1992); see RESTATEMENT (SECOND) OF
be unable to receive substantial benefits from the contract;   CONTRACTS § 208, cmt. f (stating that the appellate court
and (2) knowledge of the stronger party that the weaker        will consider whether the proper standards were applied).
party is unable reasonably to protect his interests by reason  Given this, we too adopt it as indicative of the framework
of physical or mental infirmities, ignorance, illiteracy or    in which the reviewing court must act.
inability to understand the language of the agreement. Id. The
                                                                     El Paso, 964 S.W.2d at 60–61.
grounds for substantive abuse must be sufficiently shocking
or gross to compel the court to intercede, and the same is
                                                                     Here, the trial court submitted the issue of unconscionability
true for procedural abuse—the circumstances surrounding the
                                                                     to the jury, and the jury found the lease, its first addendum,
negotiations must be shocking. El Paso, 964 S.W.2d at 62.
                                                                     first amendment, and second amendment were the result
                                                                     of unconscionability. The declaratory judgment entered
 [32] The ultimate question of unconscionability of a contract
                                                                     stated that the lease and its first and second amendments
is one of law, to be decided by the court. El Paso, 964 S.W.2d
                                                                     are void from their inception and are unenforceable.
at 60; see also In re Turner, 8 S.W.3d at 375; Tri–Continental,
                                                                     Because an unconscionable contract is unenforceable, we
710 S.W.2d at 609. In El Paso, the court stated:
                                                                     will determine if this declaratory judgment resulted from a
  This suggests that our review of the matter is de novo.            proper determination of unconscionability. The trial court
  Yet, it cannot be forgotten that the decision of whether           did not make any separate factual findings regarding
  some agreement is or is not unconscionable is dependent            unconscionability.
  upon the existence of facts which allegedly illustrate


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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


 [33] We find the following evidence supports procedural
unconscionability of the Baker–Davis lease:                         (13) The Davises told the Bakers that they planned to put in
                                                                      a boat marina, landing strip and golf course. However,
  (1) The Davises were aware that the Bakers were in                  the Davises did not provide a copy of their general
     desperate need for money at the time they signed the             business plan and did not mention the contents of this
     lease—the Bakers were living in a trailer home heated by         plan, which could have affected the real estate taxes.
     a stove and were so far in debt that they needed money           These plans included development of dump stations for
     to survive;                                                      trailer waste, a new boat area, an engineered ski lake,
                                                                      electricity, excavation of new channels, installation of
  (2) The Davises told the Bakers that Mary Baker would be            a fuel farm, and marketing of ski lake site lots as long-
     able to get Medicaid if she entered the lease;                   leasehold property;

  (3) Ms. Calahan met with the Bakers and told them that the        (14) Walter Baker testified that he did not think he was
     sale of the property would be better in terms of long-term       selling his property to the Davises;
     income and the tax consequences; the Davises convinced
     the Bakers that the lease was better because it would give     (15) Walter Baker testified that Davis brought so many
     them steady monthly income;                                      papers to him that he was confused as to what was what;

  (4) Walter Baker testified that he and Mary felt they had         (16) The Bakers were not experienced with formal
     to enter the lease;                                              contracting—they had about 35–40 current lake-lot
                                                                      subleases but they were informal agreements without
  (5) The Bakers did not see the final draft of the lease until       any property descriptions;
     the day they signed it;
                                                                    (17) The Bakers did not keep any accounting books for
  (6) Walter Baker testified that he and Mary felt they could         their store;
     not change anything in the lease before signing it;
                                                                    (18) The Bakers filed tax returns for their farm, but never
   *138 (7) Walter Baker testified that he spoke to his               filed tax returns for anything else; and
    CPA in general terms after his first meeting with Davis
    regarding whether it would be easier to sell it in one lump     (19) The Davises' attorney drafted the lease.
    sum or lease it and get a monthly payment—the CPA
    said he needed more details to run the numbers (Baker          [34] We find the following terms support substantive
    never went back to the CPA);                                  unconscionability of the Baker–Davis lease:

  (8) Walter Baker testified that he and Mary were the only         (1) The Bakers were required to pay all real estate taxes for
     ones to review the terms of the lease;                            the 99–year term of the lease, which were estimated by
                                                                       Calahan at $132.92 per month for the next 12–1/2 years
  (9) The Davises did not explain any of the terms to the              ($1,595 per year);
     Bakers before they signed the lease;
                                                                    (2) The Davises had to pay $3,000 per month for only 12–
  (10) Walter Baker testified that he did not understand               1/2 years; after that period, their rent would decrease
    the legal language and did not know what the terms                 to $75 per month, which is less than the estimated tax
    meant (e.g., severability, specific performance, release,          payment;
    warranty, assignment, termination, possessory rights);
                                                                    (3) All current sublease income would be assigned to the
  (11) The Davises never told the Bakers that they had tried to        Davises (this was estimated at $1,668 per month based
    purchase 25 acres of this property the previous summer;            on testimony); thus, the Bakers were already entitled to
                                                                       this amount and would only get $1,332 more per month
  (12) When Davis was asked how he expected the Bakers
                                                                       than they were currently entitled to and substantially less
    to survive after the 12–1/2 years, he testified that they
                                                                       after 12–1/2 years;
    could have survived, Walter Baker could work, and “[i]t
    was a window of opportunity for both of us.”



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)




   *139 (4) The Davises could terminate the lease at any                  ISSUE FOUR: McCalla's standing to request
    time by simply giving written notice;                                 declaratory judgment to void Baker–Davis lease

  (5) The Bakers lost all possessory rights (except the right        Because we found in issues one and seven that Baker has
     to have a small store through December 1996);                   standing to request the declaratory judgment to void the
                                                                     Baker–Davis lease and that the lease and all its amendments
  (6) The Bakers could not discuss or be a party to any
                                                                     unenforceable, we need not address whether the McCallas
     communication about this lease and/or any subleases
                                                                     have standing to do the same.
     that the Davises may enter under this lease;
                                                                          ISSUE TWO: Error in submitting issues of tortious
  (7) The release clause prevented the Bakers from selling the
                                                                          interference to jury
     land under their current listing agreement with Calahan,
     and if the Bakers did sell the land, they would owe the
                                                                      [36] It is unclear which tortious interference jury questions
     Davises $10,000 plus all rent payments made to that
                                                                     are at issue here. Thus, we will review the three jury questions
     point; and
                                                                     relating to tortious interference. In question 5, the jury
  (8) The release clause prevented the Bakers from selling           found that Ski River *140 and the Davises intentionally
     the land while the lease was in effect.                         interfered with the Glazier lease between the McCallas and
                                                                     Baker. In question 24, the jury found that Ski River and the
 [35] This evidence illustrates unfair bargaining positions,         Davises wrongfully interfered with the McCallas' prospective
unfair terms, gross disparity in the value exchanged, no             contractual relation with Baker. Because we have found that
substantial benefit to the Bakers, shocking circumstances            McCallas' option is void, we find that the trial court erred in
of the procurement of the lease, and shocking/gross lease            submitting these two jury questions as a matter of law. There
terms. See Wade, 524 S.W.2d at 86; El Paso, 964 S.W.2d               is no evidence that the Davises and Ski River interfered with
at 61; RESTATEMENT (SECOND) OF CONTRACTS,                            the McCallas' valid lease rights.
§ 208. Evidence of both procedural and substantive
unconscionability of the Baker–Davis lease also supports a            [37] In question 25, the jury found that Ski River and the
determination that the first addendum and the first and second       Davises tortiously interfered with Baker's use and enjoyment
amendments to the lease are unconscionable. We find that the         of his property. Ski River objected that this is not a cause of
trial court did not abuse its discretion in entering a declaratory   action upon which relief can be based and it is duplicative of
judgment finding the Baker–Davis lease and its amendments            other relief requested.
unenforceable. See El Paso, 964 S.W.2d at 60–61. However,
the finding of unconscionability would not make the Baker–            [38] [39] [40] Under the general rule, there are at least
                                                                     two causes of action for tortious interference: (1) tortious
Davis lease void. 5
                                                                     interference with the right to dispose of property; and (2)
                                                                     tortious interference with the peaceful use and enjoyment
We sustain issue one in part and overrule in part. We will
                                                                     of property rights. Suprise v. DeKock, 84 S.W.3d 378, 380
reform the declaratory judgment to read:
                                                                     (Tex.App.-Corpus Christi 2002, no pet.). A cause of action for
  Based on the evidence presented, the Court RENDERS                 tortious interference with the right to dispose of property is,
  a Declaratory Judgment that the 99–year Davis lease                in essence, a claim for tortious interference with a prospective
  executed on or about February 12, 1996, filed for record           contract or prospective business relation. Id. at 381. Texas
  on February 15, 1996, at BK 1940PG0011, the First                  law protects prospective contracts from interference. Id. A
  Amendment to Lease executed on or about March 12,                  cause of action for tortious interference with peaceful use and
  1996, and filed for record on March 11, 1996, at BK                enjoyment of property is, in essence, a claim for intentional
  1945PG0915, and the Second Amendment to Lease                      invasion of, or interference with, property rights. Id. at 382.
  executed on or about August 28, 1996, and all amendments           This cause of action also exists under Texas law. Id. at 383.
  thereto are unconscionable and thus unenforceable from             Thus, tortious interference with Baker's use and enjoyment of
  their inception.                                                   his land is a separate cause of action and is not cumulative.
                                                                     See id. at 380–83.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                            18
Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


We sustain issue two as to questions 5 and 24 and overrule it
as to question 25. We turn to the tortious interference damages         ISSUE TWELVE: Legal and factual sufficiency of
in issue ten.                                                           evidence of exemplary damages awarded to the
                                                                        McCallas and Baker and whether the exemplary
     ISSUE TEN: Factual sufficiency of lost profits                     damages were excessive
     awarded to the McCallas and Baker
                                                                   Because we have reversed the McCallas' tortious interference
 [41]    [42] In Texas, a party bringing suit for tortious         damages in issue ten, we must also reverse the McCallas'
interference with a contract must prove four elements: (1)         accompanying exemplary damages of $75,000 against Ski
a contract subject to interference exists; (2) the act of          River and the Davises. We sustain issue twelve as to the
interference was willful and intentional; (3) the intentional      McCallas' exemplary damages.
act proximately caused the plaintiff's damage; and (4) actual
damage or loss occurred. Juliette Fowler Homes v. Welch            As to Baker, Ski River and the Davises first argue legal and
Assocs., 793 S.W.2d 660, 665 (Tex.1990). The first element         factual sufficiency of the evidence to support a finding that the
requires the existence of a valid contract; a void contract        harm to Baker resulted from fraud or malice. The argument
cannot serve as the basis for a tortious interference claim. See   in their appellate brief consists of: “There was no evidence
id.; Clements v. Withers, 437 S.W.2d 818, 821 (Tex.1969).          to support the jury's findings that the harm to the McCallas
                                                                   and Baker resulted from fraud or malice (Questions 8 and 28);
As to the tortious interference in jury question 5, because        in the alternative, the findings were against the great weight
there can be no tortious interference with a void contract, we     and preponderance of the evidence.” Second, they argue that
reverse the McCallas' tortious interference damages award of       if the evidence supporting an award of exemplary damages
$69,000 against Ski River and the Davises. We sustain issue        is sufficient, the exemplary damages awarded are excessive
ten as to the McCallas' tortious interference damages award.       ($50,000 in actual damages and $20,000 6 in exemplary
                                                                   damages).
 [43] According to question 26, the damages awarded to
Baker for tortious interference with use and enjoyment of his
land were either lost profits and/or damages for loss of use and   Legal and factual sufficiency
enjoyment of his property. Ski River and the Davises argue          [45] Ski River and the Davises' legal and factual sufficiency
only that there was insufficient evidence to support any lost      argument is one sentence in their 50 page brief and contains
profits awarded to Baker.                                          no citations to the reporter's record. The Rules of Appellate
                                                                   Procedure require that “[t]he brief must contain a clear and
 [44] To successfully challenge a multi-element damages            concise argument for the contentions made, with appropriate
award (one dollar amount for multiple elements of damages)         citations to authority and to the record.” TEX.R.APP. P.
on appeal, an appellant must address all of the elements and       38.1(h), 38.2(a)(1). This is especially important in a case
show that the evidence is factually insufficient to support        such as this with a voluminous appellate record. By their
the entire damages award. *141 Price v. Short, 931 S.W.2d          failure, Ski River and the Davises have waived their legal and
677, 688 (Tex.App.-Dallas 1996, no writ); Greater Houston          factual sufficiency complaints about the jury findings. E.g.
Transp. Co. v. Zrubeck, 850 S.W.2d 579, 589 (Tex.App.-             Franklin v. Enserch, Inc., 961 S.W.2d 704, 711 (Tex.App.-
Corpus Christi 1993, writ denied). A failure to address an         Amarillo 1998, no pet.); Sisters of Charity of the Incarnate
element of damages results in waiver of the sufficiency            Word v. Gobert, 992 S.W.2d 25, 31 (Tex.App.-Houston [1st
challenge. Price, 931 S.W.2d at 688.                               Dist.] 1997, no pet.); Leyva v. Leyva, 960 S.W.2d 732, 734
                                                                   (Tex.App.-El Paso 1997, no writ).
Thus, by failing to challenge the sufficiency of the evidence
of lost use and enjoyment, Ski River and the Davises have
waived their factual sufficiency challenge on the damages          Excessive
awarded to Baker. See id.                                           [46] [47] [48] Exemplary damages must be reasonably
                                                                   proportioned to compensatory damages. Alamo Nat'l Bank
We overrule issue ten as to Baker's tortious interference          v. Kraus, 616 S.W.2d 908, 910 (Tex.1981). There is no set
damages award.                                                     rule between the amount of actual and exemplary damages
                                                                   that will be considered reasonable. Id. That determination


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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


is dependent upon the facts of a particular case. Id. Factors        conclusively establishes the opposite of a vital fact. Juliette
to consider in determining whether an award of exemplary             Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660,
damages is reasonable include: (1) the nature of the wrong,          666 n. 9 (Tex.1990) (citing Calvert, “No Evidence” and
(2) the character of the conduct involved, (3) the degree of         “Insufficient Evidence” Points of Error, 38 TEX. L.REV.
culpability of the wrongdoer, (4) the situation and sensibilities    361, 362–63 (1960)).
of the parties concerned, *142 and (5) the extent to which
such conduct offends a public sense of justice and propriety.         [51] We have recited the evidence about procedural
Id.                                                                  unconscionability. Karen Davis also testified that she (1) was
                                                                     very familiar with the landmarks on the property; (2) had an
 [49] The ratio of exemplary damages is approximately 0.40           emotional attachment to the property; (3) first approached the
the amount of compensatory damages for Baker. Considering            Bakers about leasing the property in January 1996 with Mr.
the Kraus factors, we find this ratio is not excessive. See id.      Davis; (4) was involved in the negotiation process with the
                                                                     Bakers; (5) took the final draft to the Bakers with Mr. Davis;
We overrule issue twelve as to Baker's exemplary damages.            and (6) was present when everyone signed the lease.

     ISSUE NINE: Legal sufficiency of evidence to                    Considering only the evidence and all reasonable inferences
     support judgment against Karen Davis                            that support the jury's finding of tortious interference of use
                                                                     and enjoyment of his property by Karen Davis, we find legally
The tortious interference damages awarded to the McCallas            sufficient evidence to support this finding, i.e., more than a
against Karen Davis have been reversed under issue ten. Ski          scintilla of evidence to support the finding. See Orozco, 824
River and the Davises argue that there is no evidence to             S.W.2d at 556; Juliette Fowler, 793 S.W.2d at 666 n. 9. We
support the tortious interference damages awarded to Baker           overrule issue nine.
against Karen Davis. They argue she was only occasionally
present, married to Stephen Davis, and did not sign the lease             ISSUE FIVE: Error in awarding attorney's fees to
or its amendments.                                                        McCallas and Bakers because they failed to segregate
                                                                          fees between claims
We review no-evidence points by considering only the
evidence and all reasonable inferences that support the jury's        *143 Both the Bakers and the McCallas requested attorney's
finding while disregarding all evidence and inferences to the        fees under the Declaratory Judgment Act. See TEX. CIV.
contrary. Orozco v. Sander, 824 S.W.2d 555, 556 (Tex.1992).          PRAC. & REM.CODE ANN. §§ 37.001, 38.001 (Vernon
If there is more than a scintilla of evidence to support the         1997). In a declaratory judgment action, a court “may
finding, the no-evidence challenge must fail. Id. There is           award ... reasonable and necessary attorney's fees as are
“some evidence” when the proof furnishes a reasonable basis          equitable and just.” Id. § 37.009. (Vernon 1997).
for reasonable minds to reach differing conclusions as to the
existence of a crucial fact. Id. If the evidence is so weak as        [52] An award of attorney's fees to the McCallas would
to do no more than create a mere surmise or suspicion of             not be “equitable and just” after finding that their option is
its existence, its legal effect is that it is no evidence. Haynes    void. See id. Thus, we sustain issue five as to the McCallas'
& Boone v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 182                 attorney's fees and reverse all attorney's fees awarded to the
(Tex.1995). Generally, if the court of appeals sustains a “no        McCallas.
evidence” point, it is the court's duty to render judgment for
appellant. Vista Chevrolet, Inc. v. Lewis, 709 S.W.2d 176, 176        [53] [54] [55] [56] Because we reformed the declaratory
(Tex.1986) (quoting Nat'l Life Accident Ins. Co. v. Blagg, 438       judgment that the Baker–Davis lease is unenforceable, we
S.W.2d 905, 909 (Tex.1969)).                                         must assess whether Baker is entitled to attorney's fees for
                                                                     this declaratory judgment. To show the reasonableness and
 [50] A no-evidence point must and can only be sustained             necessity of attorney's fees, the plaintiff is required to show
when the record reveals: (1) a complete absence of evidence          that the fees were incurred while suing the defendant sought
of a vital fact; (2) rules of law or rules of evidence bar           to be charged with the fees on a claim which allows recovery
the appellate court from giving weight to the only evidence          of such fees. Stewart Title Guaranty Co. v. Sterling, 822
offered to prove a vital fact; (3) the evidence offered to prove a   S.W.2d 1, 10 (Tex.1991). A recognized exception to this duty
vital fact is no more than a mere scintilla; and (4) the evidence    to segregate arises when the attorney's fees rendered are in


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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)


connection with claims arising out of the same transaction                        A. McCalla's option to purchase the
and are so interrelated that their “prosecution or defense                        Property is void as a matter of law.
entails proof or denial of essentially the same facts.” Id. at 11.
Therefore, when the causes of action involved in the suit are        We will reform the declaratory judgment to read:
dependent upon the same set of facts or circumstances and
                                                                                  Based on the evidence presented,
thus are “intertwined to the point of being inseparable,” the
                                                                                  the Court RENDERS a Declaratory
party suing for attorney's fees may recover the entire amount
                                                                                  Judgment *144 that the 99–year
covering all claims. Id. We find that Baker's cross-claims
                                                                                  Davis lease executed on or about
were so intertwined with his declaratory judgment cross-
                                                                                  February 12, 1996, filed for record
claims that segregation of attorney's fees was not required.
                                                                                  on February 15, 1996, at BK
See id. at 10–11.
                                                                                  1940PG0011, the First Amendment to
                                                                                  Lease executed on or about March
Thus, we overrule issue five as to the attorney's fees awarded
                                                                                  12, 1996, and filed for record on
to Baker.
                                                                                  March 11, 1996, at BK 1945PG0915,
                                                                                  and the Second Amendment to
 [57] In addition, the jury found the reasonable and necessary
                                                                                  Lease executed on or about August
attorney's fees for the Davises and Ski River are $100,000
                                                                                  28, 1996, and all amendments
for preparation and trial, $15,000 for an appeal to the Court
                                                                                  thereto are unconscionable and thus
of Appeals, and $15,000 for an appeal to the Supreme Court
                                                                                  unenforceable from their inception.
of Texas. We must remand this cause to the trial court to
determine whether to award “equitable and just” attorney's
fees to Ski River and the Davises and against the McCallas           We reverse and delete from the judgment the tortious
under the Declaratory Judgment Act, based on our holding             interference damages, exemplary damages, and all attorney's
under issue one. See TEX. CIV. PRAC. & REM.CODE ANN.                 fees awarded to the McCallas against the Davises and Ski
§ 37.009.                                                            River. We affirm the judgment awarding tortious interference
                                                                     damages, exemplary damages, and all attorney's fees to Baker
     ISSUE EIGHT: Legal sufficiency of civil conspiracy              against the Davises and Ski River. We remand this cause to
     finding.                                                        the trial court to determine whether to award attorney's fees
                                                                     to the Davises and Ski River and against the McCallas under
Because the trial court did not enter a judgment on this jury        the Declaratory Judgment Act.
finding, we need not address this issue.


                                                                     Chief Justice GRAY concurring.
                       CONCLUSION
                                                                     TOM GRAY, Chief Justice, concurring.
We have sustained issue three, overruled issues six, seven,          If it is within our job description to come up with a laundry
nine, and eleven, and overruled in part and sustained in part        list of questions that could pose a problem in the subsequent
issues one, two, five, ten, and twelve. We did not need to           enforcement of a contract, I assure you that only the wealthiest
address issues four and eight. Thus, we reverse that part            of clients could afford to have enforceable contracts drafted.
of the judgment that states (1) the Davises and Ski River            Fortunately that is not the law. That is, however, what the
take nothing against the McCallas and (2) the declaratory            majority has done to determine McCalla's contract is “void.”
judgment that the McCallas properly exercised their option to        I would not.
purchase the Property. We render judgment as follows:
                                                                     In June 1994, Mary Baker took the necessary steps to list the
             Based on the evidence presented to                      property with a broker. At this point, she had affirmatively
             the Court, the Court RENDERS a                          triggered the provisions of her contract with McCalla that if
             Declaratory Judgment that Plaintiffs                    she decided to sell, McCalla had certain rights. I agree with
             Anthony L. McCalla's and Cheryl                         McCalla that Mary's effort to include a 72 hour response time
                                                                     for McCalla to act on the rights was not effective because it



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Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (2005)



was not part of that contract. If time to act in a contract is not
                                                                            Under these circumstances, I have no problem in determining,
specified, a reasonable time is implied.
                                                                            as a matter of law, that McCalla failed to exercise his rights
                                                                            under the contract in a timely manner. His efforts to delay the
By October of 1994, McCalla had an appraisal of the fair
                                                                            exercise, for whatever reason, are ineffective because, like the
market value completed. It would have been a jury issue of
                                                                            72 hour provision, they are not in the contract.
whether this was a reasonable time to obtain such an appraisal
and then immediately act on the contract. We need not decide
                                                                            I do not, however, find any reason to interfere with an
that issue, however, because McCalla did not attempt or
                                                                            agreement freely entered into by these parties by declaring the
endeavor to act on his rights under the contract at that time. In
                                                                            provision void as the majority has done. I would sustain issue
fact, McCalla did not act on this appraisal of the fair market
                                                                            three on the basis that McCalla waived his rights under the
value, by attempting to exercise his rights under the contract,
                                                                            agreement by failing to timely exercise them.
until April 1996, almost two years after Mary decided to
sell the property, and well over a year after the appraisal
                                                                            It does not appear that my disagreement with the majority
was received by McCalla. Many events occurred during this
                                                                            on resolving this issue would substantively impact the
extended delay. The length of the delay alone would raise the
                                                                            disposition of the appeal. I concur.
issue of whether the appraised value had changed, and the jury
did make such findings.


Footnotes
1       Appellant Stephen R. Davis is the principal of Ski River, and Appellant Karen Davis is his wife.
2       The McCallas also sued for fraud and breach of warranty of merchantability.
3       Baker also cross-claimed for breach of contract, fraud, waste, and declaratory judgment that (1) the right of first refusal in the Baker–
        Davis lease is void; and (2) the Baker–Davis lease is void for lack of consideration. Baker counterclaimed against the McCallas
        for tortious interference with use and enjoyment of his land, a declaratory judgment that (1) the McCalla's option is void and
        unenforceable; (2) the McCallas refused to exercise their option and specific performance for the McCallas to sell the boat storage
        business to Baker; (3) the Glazier lease is void and unenforceable because McCalla intentionally placed Baker under duress to induce
        him to sign the Glazier lease, and attorney's fees under the Declaratory Judgment Act. The McCallas and Baker settled their claims
        prior to the judgment now on appeal.
4       Ski River and the Davises also counterclaimed for tortious interference with Baker–Davis relations and lease and a declaratory
        judgment that: (1) the McCallas did not exercise their option; (2) specific performance for the McCallas to sell the boat storage
        business to Baker; and (3) the Baker–Davis lease is legal and binding.
5       We note that even if we were to address the findings of fraud and undue influence, we would not find the lease and its amendments
        void, and at most, we would find the lease voidable based on undue influence. See RESTATEMENT (SECOND) OF CONTRACTS,
        § 177 (1981) (“Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion
        or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his
        welfare;” “If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.”).
6       Ski River and the Davises' brief states $75,000 in exemplary damages; however, the answer to jury question 29 is $20,000 in exemplary
        damages, and the judgment awarded $20,000.


End of Document                                                        © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           22
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

                                                                       Courts
                     435 S.W.3d 222                                                                                         Review
                 Supreme Court of Texas.                               by or certificate to Supreme Court by Court of
                                                                       Civil Appeals of questions where its decision
          VENTURE COTTON COOPERATIVE
                                                                       conflicts with or overrules that of another Court
         and Noble Americas Corp., Petitioners,
                                                                       of Civil Appeals or that of the Supreme Court
                         v.
                                                                       Supreme Court has jurisdiction to hear an appeal
       Shelby Alan FREEMAN, et al., Respondents.
                                                                       from an interlocutory order denying arbitration
            No. 13–0122. | Argued Jan. 9,                              when the court of appeals' decision conflicts with
                                                                       prior precedent.
          2014. | Delivered June 13, 2014.
                                                                       Cases that cite this headnote
Synopsis
Background: Cotton growers who entered into contract
with cooperative marketing pool brought action against           [2]   Alternative Dispute Resolution
cooperative pool. Cooperative pool moved to compel
arbitration pursuant to an arbitration agreement contained                                                                  Preemption
in the contracts between growers and cooperative pool.                 States
The 106th District Court, Gaines County, Kelly Moore,
                                                                                                                            Particular
J., denied motion, finding the arbitration agreement to be
                                                                       cases, preemption or supersession
unconscionable. Cooperative pool appealed, and the Eastland
Court of Appeals, 395 S.W.3d 272, Jim R. Wright, C.J.,                 Although the Federal Arbitration Act (FAA)
affirmed. Cooperative pool filed petition for review.                  preempts state law that conflicts with its
                                                                       objectives, state law remains relevant to declare
                                                                       an arbitration agreement itself unenforceable on
                                                                       such grounds as exist in law or in equity for the
Holdings: The Supreme Court, Devine, J., held that:
                                                                       revocation of any contract. 9 U.S.C.A. § 2.

[1] any implied waiver of growers' statutory right to recover          Cases that cite this headnote
attorney fees was invalid as contrary to public policy;

                                                                 [3]   Alternative Dispute Resolution
[2] unenforceable limitation on growers' right to recover
attorney fees was severable from the remainder of the                                                                       Validity
arbitration agreement; and
                                                                       Alternative Dispute Resolution

[3] one-sided attorney fee provision of the arbitration                                                                     Validity
agreement was insufficient to invalidate agreement as                  of assent
unconscionable.                                                        Alternative Dispute Resolution

                                                                                                                            Unconscionabi
Reversed and remanded.
                                                                       The “saving clause” of the Federal Arbitration
                                                                       Act (FAA) permits agreements to arbitrate
                                                                       to be invalidated by generally applicable
 West Headnotes (17)                                                   contract defenses, such as fraud, duress, or
                                                                       unconscionability, but not by defenses that apply
                                                                       only to arbitration or that derive their meaning
 [1]     Alternative Dispute Resolution                                from the fact that an agreement to arbitrate is at
                                                           Decisions   issue. 9 U.S.C.A. § 2.
         reviewable; finality



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                          1
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730


        Cases that cite this headnote                                        Cases that cite this headnote


 [4]    Alternative Dispute Resolution                               [7]     Contracts

                                                              Unconscionability                                                   Unreasonable
        Alternative Dispute Resolution                                    or Oppressive Contracts
                                                                             Contracts
                                                              Construction
        In determining an arbitration agreement's                                                                                 Presumptions
        validity, a court may not construe the agreement                     and burden of proof
        differently from how it would construe contracts                     Unambiguous contracts are presumed to reflect
        generally under state law, nor may a court                           the intent of the contracting parties and are
        rely on the uniqueness of an arbitration                             generally enforced as written regardless of
        agreement as a basis for a state-law holding                         whether one or more of the parties contracted
        that enforcement would be unconscionable;                            wisely or foolishly, or created a hardship
        but if the circumstances would render any                            for himself; courts therefore do not ordinarily
        contract unconscionable under Texas law, they                        inquire into the reasons for the contract or the
        are appropriate to invalidate the agreement to                       relative fairness of its terms.
        arbitrate as well. 9 U.S.C.A. § 2.
                                                                             Cases that cite this headnote
        1 Cases that cite this headnote
                                                                     [8]     Contracts
 [5]    Alternative Dispute Resolution
                                                                                                                                  Unconscionabl
                                                              Preemption     Contracts
        States                                                               Unconscionable bargains are an exception to the
                                                                             freedom that generally pervades contract law.
                                                              Particular
        cases, preemption or supersession                                    Cases that cite this headnote
        Special state rules for interpreting arbitration
        agreements cannot coexist with the Federal                   [9]     Alternative Dispute Resolution
        Arbitration Act (FAA) because Congress
        intended the act as its response to a longstanding                                                                        Statutory
        judicial hostility to arbitration agreements. 9                      rights and obligations
        U.S.C.A. § 1 et seq.                                                 When parties agree to arbitrate a statutory claim,
                                                                             a party does not forego the substantive rights
        Cases that cite this headnote
                                                                             afforded by the statute; it only submits to their
                                                                             resolution in an arbitral, rather than a judicial,
 [6]    Alternative Dispute Resolution                                       forum.

                                                              Evidence       Cases that cite this headnote
        A party seeking to compel arbitration under the
        Federal Arbitration Act (FAA) must establish                 [10]    Alternative Dispute Resolution
        that the dispute falls within the scope of an
        existing agreement to arbitrate; upon such proof,                                                                         Writing,
        the burden shifts to the party opposing arbitration                  signature, and acknowledgment
        to raise an affirmative defense to the agreement's                   Alternative Dispute Resolution
        enforcement. 9 U.S.C.A. §§ 3, 4.



                 © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                              2
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730


                                                             Validity[13]     Alternative Dispute Resolution
        Any implied waiver of cotton growers' right
                                                                                                                                  Unconscionabi
        to recover attorney fees under the Consumer
        Protection-Deceptive Trade Practices Act arising                      Provision of arbitration agreement between
        out of their execution of arbitration agreement                       cotton growers and cooperative marketing pool
        that incorporated arbitration rules limiting                          that entitled pool, but not growers, to recover
        recovery of attorney fees was invalid as contrary                     attorney fees for any breach of contract
        to public policy; arbitration rules did not comply                    was insufficient to invalidate the arbitration
        with the statutory requirements for waiver of                         agreement as unconscionable, despite contention
        rights under the Consumer Protection-Deceptive                        that it deprived growers of their statutory right
        Trade Practices Act, including that the waiver                        to recover attorney fees on a breach of contract
        be conspicuous and in bold-face type of at least                      claim. V.T.C.A., Civil Practice & Remedies
        10 points in size, and that it include language                       Code § 38.001.
        substantially similar to the form provided by the
                                                                              1 Cases that cite this headnote
        statute. V.T.C.A., Bus. & C. § 17.42(c)(1–3).

        Cases that cite this headnote                                  [14]   Costs

                                                                                                                                  Contracts
 [11]   Alternative Dispute Resolution
                                                                       Parties are generally free to contract for
                                                          Severability attorney's fees as they see fit; thus, a contract that
        Arbitration agreement's unenforceable limitation               expressly provides for one party's attorney fees,
        on cotton growers' right to recover attorney fees              but not another's, is not unconscionable per se.
        on their claim against cooperative marketing
                                                                       Cases that cite this headnote
        pool under the Consumer Protection-Deceptive
        Trade Practices Act was severable from the
        remainder of the arbitration agreement; essential       [15] Alternative Dispute Resolution
        purpose of the arbitration agreement was to
                                                                                                                              Matters
        provide for speedy and efficient resolution of
                                                                       to Be Determined by Court
        disputes to ensure timely performance under the
        contract, and agreement's collateral effect on                 Alternative Dispute Resolution
        statutory rights and remedies appeared to be a
                                                                                                                              Existence
        peripheral concern.
                                                                       and validity of agreement
        Cases that cite this headnote                                         Alternative Dispute Resolution

                                                                                                                                  Waiver,
 [12]   Contracts                                                             laches, or estoppel

                                                             Partial          Questions of waiver, illegality, remedies, and
        Illegality                                                            attorney fees often relate to the broader,
                                                                              container contract, rather than the separable
        In determining an agreement's essential purpose,
                                                                              agreement to arbitrate, and, as such, are matters
        for purposes of severability of unenforceable
                                                                              entrusted to the arbitrators.
        provisions, the issue is whether or not parties
        would have entered into the agreement absent the                      Cases that cite this headnote
        unenforceable provisions.

        Cases that cite this headnote                                  [16]   Alternative Dispute Resolution

                                                                                                                                  Evidence



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                3
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

        When authority over the matters of waiver,
        illegality, remedies, and attorney fees is unclear,        Opinion
        a strong federal presumption favors arbitration.
                                                                   Justice DEVINE delivered the opinion of the Court.
        9 U.S.C.A. § 1 et seq.
                                                                   [1]    Two groups of cotton farmers sue to rescind
        1 Cases that cite this headnote
                                                                  contracts in which they agreed to sell cotton through a
                                                                  cooperative marketing pool. The farmers allege that they
 [17]   Contracts                                                 were fraudulently induced to join the cooperative and seek
                                                                  damages, declaratory relief, and attorney's fees under various
                                                              Unconscionable
                                                                  statutes. Because the agreements provide for arbitration of
        Contracts                                                 all disputes under the Federal Arbitration Act, 9 U.S.C §§
        Courts usually analyze unconscionability issues           1–16, the cotton cooperative moved to stay the litigation
        in light of a variety of factors, which aim to            and compel arbitration. This appeal is from the trial court's
        prevent oppression and unfair surprise.                   interlocutory order, denying those motions. See TEX. CIV.
                                                                  PRAC. & REM.CODE § 51.016 (permitting interlocutory
        Cases that cite this headnote
                                                                   appeals of orders denying arbitration under the FAA). 1

                                                                    *225 The trial court has concluded that the parties'
                                                                   agreement to arbitrate should not be enforced because it
Attorneys and Law Firms
                                                                   is unconscionable, and the court of appeals has affirmed
*224 R. Carson Fisk, Ford Nassen & Baldwin P.C., Austin,           the trial court's order denying arbitration. 395 S.W.3d 272,
TX, for Amicus Curiae Fisk R. Carson.                              275–76 (Tex.App.–Eastland 2013). The court of appeals
                                                                   reasons that the arbitration agreement is unconscionable
Amber S. Miller, ZS Brady & Co., Lubbock, TX, for Amicus           because it prevents the farmers from pursuing the statutory
Curiae Plains Cotton Growers, Inc.                                 remedies and attorney's fees alleged in their pleadings.
                                                                   Id. at 277. We conclude that this limitation of statutory
Zachary S. Brady, ZS Brady & Co., Lubbock, TX, for Amicus          remedies is insufficient to defeat arbitration under the FAA
Curiae Texans for Lawsuit Reform.                                  and accordingly reverse the court of appeals' judgment.
                                                                   We conclude further that, because the court has not
Danica Lynn Milios, Kent C. Sullivan, Sean D. Jordan,
                                                                   fully considered the parties' arguments on the issue of
Sutherland Asbill & Brennan LLP, Austin, H. Grady Terrill
                                                                   unconscionability, the case should be remanded to the court
III, Craig Terrill Hale & Grantham LLP, Lubbock, TX, for
                                                                   of appeals.
Petitioner.

Don David Martinson, McCleskey Harriger Brazill & Graf,
L.L.P., Lubbock, Dustin Slade, Fernando Manuel Bustos,                                   I. Background
Bustos Law Firm, P.C., Lubbock, Jennifer Lea Kelley,
Fanning Harper Martinson Brandt & Kutchin PC, Dallas, TX,          Venture Cotton Cooperative is a cotton cooperative-
for Respondent Freeman, Shelby Alan.                               marketing association, incorporated in Texas, and managed
                                                                   by Noble Americas Corp., a foreign corporation. In 2010,
Dennis R. Burrows, William P. Lane, McCleskey Harriger             Venture operated a pool for the exclusive sale and marketing
Brazill & Graf, L.L.P., Lubbock, Don Martinson, Fanning            of its members' cotton production. Venture promoted this
Harper Martinson Brandt & Kutchin, P.C., Dallas, Jennifer          pool through various cotton-gin companies, which arranged
Lea Kelley, Texans for Lawsuit Reform, Austin, TX, for             meetings with local farmers. Venture would explain the pool's
Respondent Neitsch, Roger.                                         terms and solicit membership at these meetings. One such
                                                                   meeting was arranged by Ocho Gin Company in Seminole,
H. Alan Carmichael, Wetsel & Carmichael, LLP,
                                                                   Texas.
Sweetwater, TX, for Respondent OCHO Gin Company, Ltd.

                                                                   Farmers, who agreed to join the 2010 pool, signed Venture's
                                                                   Membership and Marketing Agreement and other related


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Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

documents. These documents asked each farmer to designate
the acreage committed to the pool and to estimate the               • Any court having or claiming jurisdiction, whether state
production Venture might expect to market. After the meeting        or federal, shall apply the substantive provisions of the
in Seminole, Venture left copies of these documents with            United States Arbitration Act....
Ocho for farmers to execute, should they decide to join the
                                                                    • In the event of a breach of this Agreement by Producer,
cooperative. Several farmers decided to join the pool.
                                                                    Producer agrees to pay all arbitration and court costs, if
                                                                    any, and the reasonable attorney's fees and litigation and
During the growing season, the price of cotton rose
                                                                    arbitration expenses of Venture.
significantly. By harvest, Venture had become concerned that
members of the pool might be tempted to sell their committed      The farmers opposed Venture's motions, asserting a number
production on the open market. This concern blossomed into        of reasons why the arbitration agreement was unconscionable
a dispute with some member-farmers over the quantity of           and should not be enforced. The trial court scheduled an
cotton committed to the pool and ultimately led to a lawsuit      evidentiary hearing.
by Alan Freeman and Perry Brewer, two prominent cotton
farmers in Gaines County, Texas. 2                                At this hearing, Freeman and Brewer testified about their
                                                                  decisions to join the pool. According to their testimony, they
In their lawsuit, Freeman and Brewer asserted claims for          had a question about “overages” a few days after Venture's
fraud, negligent misrepresentation, breach of fiduciary duty,     marketing presentation. “Overages” refers to cotton produced
mutual mistake, civil conspiracy and violations of the Texas      on designated land in excess of the estimate given by a farmer
Consumer Protection—Deceptive Trade Practices Act, and            at the time of land's commitment to the pool. Freeman and
the Texas Free Enterprise and Antitrust Act of 1983. Freeman      Brewer's question, which they directed to Ocho, was whether
and Brewer also sought declaratory and injunctive relief          overages were included in the pool under Venture's contracts.
and attorney's fees under Civil Practice and Remedies Code        An Ocho representative called Venture with this question
section 38.001. Shortly after filing this suit, another group     and allegedly learned that the disposition of overages was at
of farmers filed a second suit against Venture and the other      the farmer's discretion, that is, the farmer could elect to sell
defendants in Gaines County, asserting similar claims. 3          overages under the agreement or not.


 *226 Venture generally denied the allegations in both suits      Venture denies making any such representations. It also
and moved to stay the litigation and compel arbitration under     argues that its contract clearly calls for the commitment of
the United States Arbitration Act (also known as the Federal      acres, not bales, making overages subject to the agreement.
Arbitration Act or FAA). 9 U.S.C §§ 1–16. The farmers'            In any event, Freeman and Brewer maintain that they signed
membership and marketing agreements with the cooperative          with the cooperative after being led to believe that they would
provided for the arbitration of all disputes under the FAA        control overages.
and the arbitration rules of the American Cotton Shippers
Association (ACSA). The arbitration provision referred to the     After considering the parties' pleadings, motions, responses,
farmers as “producers” and provided in pertinent part:            and briefs, as well as evidence presented at the hearing, the
                                                                  trial court refused to stay the litigation or compel arbitration,
  • All disputes will be resolved pursuant to binding             finding the arbitration agreements unconscionable. Findings
  arbitration pursuant to the arbitration rules of the American   of fact and conclusions of law were requested and filed, but
  Cotton Shippers Association.                                    these findings and conclusions shed no light on the court's
                                                                  reasoning. 4
  • The site of the arbitration shall be either Houston, Texas,
  or Memphis, Tennessee, as chosen by Venture, unless
                                                                  Venture filed interlocutory appeals in both cases, and
  otherwise directed by the arbitrator(s).
                                                                  the court of appeals consolidated them for decision. See
  • The cotton sold herein is purchased for shipment out of       TEX. CIV. PRAC. & REM.CODE § 51.016 (permitting
  state of origin in interstate or foreign commerce.              interlocutory *227 appeals of orders denying arbitration
                                                                  under the FAA). Agreeing that the arbitration agreements
                                                                  were unconscionable, the court affirmed the trial court's order
                                                                  denying Venture's motion to compel. 395 S.W.3d at 275–76.


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Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

The court reasoned that the agreements were unconscionable         burden shifts to the party opposing arbitration to raise an
in two respects: (1) they forced the farmers “to forego            affirmative defense to the agreement's enforcement. J.M.
substantive rights and remedies afforded by statute,” id.          Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).
at 275, and (2) they were one-sided because they allowed           The FAA thus requires a court to make at least a threshold
Venture to recover its attorney's fees, if the farmers breached    determination of arbitrability—that the dispute is subject to
the contract, but did not provide reciprocal rights to the         an enforceable agreement to arbitrate—before enforcing the
farmers, id. at 276.                                               arbitration agreement by compelling arbitration or staying
                                                                   litigation. 9 U.S.C. §§ 3–4. 5


                II. The FAA and State Law
                                                                                    *228 A. Unconscionability
 [2] [3] [4] Although the Federal Arbitration Act preempts
state law that conflicts with its objectives, Southland Corp.       [7] [8] The farmers do not dispute that their claims are
v. Keating, 465 U.S. 1, 10–17, 104 S.Ct. 852, 79 L.Ed.2d 1         covered by the agreements with Venture and subject to
(1984), state law remains relevant to declare an arbitration       arbitration under the FAA, if their arbitration agreement itself
agreement itself unenforceable on “such grounds as exist in        is valid and enforceable. They contend, of course, that it
law or in equity for the revocation of any contract.” 9 U.S.C. §   cannot be enforced because the agreement is one-sided and
2 (the saving clause). “This saving clause permits agreements      grossly unfair in several respects. Unambiguous contracts,
to arbitrate to be invalidated by ‘generally applicable contract   however, are presumed to reflect the intent of the contracting
defenses, such as fraud, duress, or unconscionability,’ but        parties and are generally enforced as written “regardless of
not by defenses that apply only to arbitration or that derive      whether one or more of the parties contracted wisely or
their meaning from the fact that an agreement to arbitrate         foolishly, or created a hardship for himself.” Wooten Props.,
is at issue.” AT & T Mobility LLC v. Concepcion, –––               Inc. v. Smith, 368 S.W.2d 707, 709 (Tex.Civ.App.–El Paso
U.S. ––––, ––––, 131 S.Ct. 1740, 1746, 179 L.Ed.2d 742             1963, writ ref'd). Texas courts therefore do not ordinarily
(2011) (quoting Doctor's Associates, Inc. v. Casarotto, 517        inquire into the reasons for the contract or the relative fairness
U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)).            of its terms. El Paso Field Services, L.P. v. MasTec N.
In determining the arbitration agreement's validity then, a        Am., Inc., 389 S.W.3d 802, 810–11 (Tex.2012) (observing
court may not construe the agreement differently from how it       that a court's role “is not to protect parties from their own
would construe contracts generally under state law, nor may        agreements”). But this notion that parties are free to negotiate
a court rely on the uniqueness of an arbitration agreement         their own bargains conflicts with the equally compelling
as a basis for a state-law holding that enforcement would be       notion that grossly unfair bargains should not be enforced. 49
unconscionable. Perry v. Thomas, 482 U.S. 483, 492, 107            DAVID R. DOW & CRAIG SMYSER, TEXAS PRACTICE
S.Ct. 2520, 96 L.Ed.2d 426 (1987). But if the circumstances        SERIES: CONTRACT LAW § 3.9 (2005). Unconscionable
would render any contract unconscionable under Texas law,          bargains are therefore an exception to the freedom that
they are appropriate to invalidate the agreement to arbitrate as   generally pervades contract law.
well. In re Poly–America, 262 S.W.3d 337, 348 (Tex.2008).
                                                                   Unconscionability, however, is not easily defined. The term
 [5]     [6] Special state rules for interpreting arbitration      defies a precise legal definition because “it is not a concept,
agreements cannot coexist with the FAA because Congress            but a determination to be made in light of a variety
intended the act as its response to a “longstanding judicial       of factors not unifiable into a formula.” 27 STEPHEN
hostility to arbitration agreements.” Green Tree Fin. Corp.–       COCHRAN, TEXAS PRACTICE SERIES: CONSUMER
Ala. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d      RIGHTS AND REMEDIES § 4.2 at 394 (3d ed.2002);
373 (2000). Under the FAA, an agreement to arbitrate that is       see also 1 JAMES J. WHITE & ROBERT S. SUMMERS,
valid under general state law principles and involves interstate   UNIFORM COMMERCIAL CODE § 4–3 at 294 (5th
commerce is “valid, irrevocable, and enforceable.” 9 U.S.C.        ed.2006). Although difficult to define, the defense has a long
§ 2. A party seeking to compel arbitration under the FAA,          history. One of the earliest decisions to apply the defense
however, must establish that the dispute falls within the          described an unconscionable contract as one that “no man in
scope of an existing agreement to arbitrate. In re Rubiola,        his senses and not under delusion would make on the one
334 S.W.3d 220, 223 (Tex.2011). Upon such proof, the               hand, and as no honest and fair man would accept on the


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Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

other.” Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100,        S.W.3d 337 (Tex.2008). There, we indicated that it would
2 Ves. Sr. 125, 155 (1751); see also Saunders v. Guinn, 1             be unconscionable for an arbitration agreement to mandate
S.W.2d 363, 366 (Tex.Civ.App.–Eastland 1927, writ ref'd)              arbitration of a statutory claim and at the same time eliminate
(noting this “definition”); Shumway v. Horizon Credit Corp.,          the rights and remedies afforded by the statute. Id. at 349. The
801 S.W.2d 890, 896 (Tex.1991) (Mauzy, J. concurring and              court of appeals concludes that such a possibility exists here
quoting Janssen ). Modern uniform laws add context to the             because the arbitration agreement applies to “all disputes,”
defense but again do not attempt to define it.                        while the ACSA Arbitration Rules, incorporated into the
                                                                      parties' agreement, foreclose the farmers' statutory claims
The Uniform Commercial Code provides that a court should              for attorney's fees and enhanced damages under the DTPA.
afford the parties a reasonable opportunity to present evidence       Specifically, section 8(k) of the ACSA rules limits the arbitral
as to a contract's commercial setting, purpose and effect             award “to the monetary damages arising out of the failure of
to aid the court in evaluating the defense. TEX. BUS.                 either party to perform its obligations pursuant to the contract
& COMM.CODE § 2.302(b); see also RESTATEMENT                          as determined by the Arbitration Committee and shall not
(SECOND) OF CONTRACTS § 208, cmt. a (stating that                     include attorney's fees unless provided for in the contract.”
unconscionability determinations are made in “light of [a
contract's] setting, purpose, and effect”). Under the UCC, an          [9] When parties agree to arbitrate a statutory claim, “a
unconscionability defense is a question of law that involves          party does not forego the substantive rights afforded by the
a highly fact-specific inquiry into the circumstances of the          statute; it only submits to their resolution in an arbitral,
bargain, such as the commercial atmosphere in which the               rather than a judicial, forum.” Mitsubishi Motors Corp.
agreement was made, the alternatives available to the parties         v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105
at the time and their ability to bargain, any illegality or public-   S.Ct. 3346, 87 L.Ed.2d 444 (1985). Thus, in Poly–America,
policy concerns, and the agreement's oppressive or shocking           we observed that arbitration agreements typically function
nature. 49 TEXAS PRACTICE SERIES: CONTRACT LAW                        simply as forum-selection clauses rather than statutory
§ 3.11.                                                               waivers and generalized that “[a]n arbitration agreement
                                                                      covering statutory claims is valid so long as ‘the arbitration
In the court of appeals, the cotton farmers argued that               agreement does not waive substantive rights and remedies of
the arbitration agreement was unconscionable in several               the statute and the arbitration procedures are fair so that the
respects. They complained that the American Cotton Shippers           employee may effectively vindicate his statutory rights.’ ”
Association (ACSA) Arbitration Rules, adopted by the                  Poly–America, 262 S.W.3d at 352 (quoting In re Halliburton,
agreement, were one-sided and designed to foster arbitrator           80 S.W.3d at 572).
bias and that the rules' summary procedures further denied
them adequate discovery and preparation time. They also               An asserted waiver of the anti-retaliation provisions of
 *229 contended that the arbitration was too expensive and            the Workers' Compensation Act was at issue in Poly–
that its prospective cost would prevent them from vindicating         America. The employee in that case sued his employer,
their rights in the arbitral forum. Finally, they argued that the     seeking statutory remedies of reinstatement and punitive
agreement and ACSA rules violated the state's public policy           damages after being allegedly terminated for filing a workers'
by illegally eliminating their statutory right to attorney's fees     compensation claim. Id. at 345. Because the employee had
and other remedies under the Texas Consumer Protection—               agreed to arbitrate all disputes under the FAA, the trial court
Deceptive Trade Practices Act (DTPA).                                 granted the employer's motion to compel arbitration. Id. at
                                                                      344.

                                                                      The employee sought mandamus relief from this order,
                          B. Invalidity
                                                                      arguing that the arbitration agreement was unconscionable
The court of appeals' decision focuses solely on this last            because it eliminated his rights and remedies under the
argument, concluding that the arbitration agreement is                Workers Compensation Act. Id. at 352, 359. We agreed.
unconscionable because it forces the farmers “to forego               Id. at 353, 360. After reviewing the statutory remedies at
substantive rights and remedies afforded by statute.” 395             issue, we held the anti-retaliation provisions to be “a non-
S.W.3d at 275. The court's application of public policy here          waivable legislative system” necessary to the Act's function.
is premised on our decision in In re Poly–America, L.P., 262          Id. at 352. We further concluded that their elimination under



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Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

the arbitration agreement undermined a key purpose of the         limitation of statutory remedies. 395 S.W.3d at 277. But this
Workers' Compensation Act, was contrary to public policy,         is an interlocutory appeal, and the case remains pending in
and could not be enforced. Id. at 353. We did not, however,       the trial court. We are therefore unsure about what Venture
hold the arbitration agreement invalid. Instead, *230 we          has waived. If the court merely means to suggest that
severed the offending limitation from the agreement and           Venture waived the right to complain about severance in
permitted the arbitration to proceed. See id. at 344 (noting      this interlocutory appeal, the waiver argument serves only
that severance was proper because the limitation of statutory     to delay a decision in the case. Conservation of time and
remedies was “not integral to the parties' overall intended       resources recommend that we consider the issue now because
purpose to arbitrate”).                                           nothing prevents Venture from urging severance in the trial
                                                                  court and, if denied, from renewing its complaint in yet
 [10]     In contrast to Poly–America 's anti-retaliation         another interlocutory appeal.
provision, the DTPA remedies at issue here can be
contractually waived. TEX. BUS. & COM.CODE § 17.42.                [12] In Poly–America we noted that “[a]n illegal or
The DTPA provides detailed instructions on how to                 unconscionable provision of a contract may generally be
accomplish this. See id. (detailing requirements for a valid      severed so long as it does not constitute the essential purpose
waiver). Among other requirements, the waiver must be             of the agreement.” Poly–America, 262 S.W.3d at 360. In
“conspicuous and in bold-face type of at least 10 points in       determining an agreement's essential purpose, the issue is
size,” identified by a specific heading indicating the waiver,    “whether or not parties would have entered into the agreement
and include language substantially similar to the form the        absent the unenforceable provisions.” Id. Quite clearly, the
statute provides. Id. § 17.42(c)(1), (2) and (3). The contracts   arbitration agreement's essential purpose here was to provide
here do not comply with the statutory requirements. We            for a speedy and efficient resolution of disputes to ensure
accordingly agree with the court of appeals that any implied      timely performance under the contract. The agreement's
waiver under ACSA Rule 8(k), which likewise does not              collateral effect on statutory rights and remedies appears to be
conform to the DTPA's requirements, is contrary to public         a peripheral concern to this essential purpose. We accordingly
policy and therefore invalid.                                     conclude that the court of appeals erred in declining to sever
                                                                   *231 the objectionable limitation on the farmers' statutory
                                                                  rights.

                      C. Severability

 [11] Venture argues, however, that even if ACSA Rule                                  D. Attorney's Fees
8(k) and the arbitration clause are deemed unconscionable
and incapable of limiting the farmers' statutory rights under     In addition to the agreement's unconscionable limitation on
the DTPA, the court of appeals nevertheless erred when it         potential statutory rights, the court of appeals concludes that
refused to sever the offending rule and require arbitration       the arbitration agreement is also unconscionably one-sided
under the remainder of the agreement. Venture submits that        because it provides for only Venture to recover attorney's
the unconscionability defense, which is codified in the Texas     fees. 395 S.W.3d at 276. The court's opinion further indicates
Business and Commerce Code and applicable to the cotton           that this provision together with an ACSA rule, limiting the
sales at issue here, allows courts to consider severance          award of attorney's fees to those expressed in the contract,
whenever they are confronted with an unconscionable               violates the farmers' statutory right to attorney's fees under
contract term. TEX. BUS. & COM.CODE § 2.302. Similarly,           Civil Practice and Remedies Code section 38.001.
the Restatement provides that “[w]here a term rather than
the entire contract is unconscionable, the appropriate remedy     That section provides, in relevant part, that “[a] person may
is ordinarily to deny effect to the unconscionable term.”         recover reasonable attorney's fees from an individual or
RESTATEMENT (SECOND) OF CONTRACTS § 208 cmt.                      corporation, in addition to the amount of a valid claim and
g.                                                                costs, if the claim is for ... an oral or written contract.”
                                                                  TEX. CIV. PRAC. & REM.CODE 38.001. The court of
The court of appeals concludes, however, that Venture             appeals ultimately decides, however, that the arbitration
waived its right to enforce the remainder of the arbitration      agreement fails effectively to waive the farmers' rights under
clause by not asking the trial court to sever the offending       section 38.001 because the agreement and ACSA rules do



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Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

not reference the statute or otherwise specifically inform the     proof in the particular case of the arbitral forum's inadequacy.
farmers of the intended waiver of such rights. See 395 S.W.3d      Id. at 896. If speculation about possible harm was insufficient
at 276 (concluding that waiver of these statutory rights cannot    to establish unconscionability in Olshan, then clearly the
occur absent specific notice and reference to § 38.001).           court's determination here that no harm has been done will not
                                                                   suffice. See 395 S.W.3d at 276 (concluding that arbitration
Venture, on the other hand, argues that whether the agreement      agreement did not waive cotton farmers' right to attorney's
waives these rights is irrelevant because the statute simply       fees under section 38.001).
does not apply to the farmers' circumstances. The statute does
not apply, according to Venture, because the farmers seek          In Olshan, we cautioned that courts “should be wary of setting
to cancel the contract rather than recover under its terms. In     the bar for holding arbitration clauses unconscionable too
short, Venture contends that the farmers' pleadings do not         low” as that would undermine the “liberal federal policy
assert contractual rights and therefore do no invoke a right to    favoring arbitration agreements.” Olshan, 328 S.W.3d at 893.
attorney's fees under section 38.001.                              Courts should also use care not to intrude upon arbitral
                                                                   jurisdiction under the guise of an unconscionability defense.
 [13] The farmers respond that they have pled a breach of
contact claim. Their pleadings are not clear on the subject,        [15]    [16] Questions of waiver, illegality, remedies, and
but even were we to recognize some deficiency in the present       attorney's fees often relate to the broader, container contract,
pleadings, the result would be merely to postpone the issue,       rather than the separable agreement to arbitrate, and, as such,
much the same as the court of appeals has done with the            are matters entrusted to the arbitrators. 6 And, when authority
severance question. The appeal is interlocutory, and the           over the matter is unclear, “a strong federal presumption”
farmers are free to amend their pleadings to clarify the matter.   favors arbitration. Poly–America, 262 S.W.3d at 348. Thus,
For purposes of this appeal then, we accept that the farmers       the United States Supreme Court has indicated that arbitration
intended to plead an alternative breach of contract claim, as      provisions should not be held unconscionable based on
they assert. We conclude, however, that neither the contract's     speculation about their potential effect. See PacifiCare
attorney's fee provision nor its effect on attorney's fees         Health Sys., Inc. v. Book, 538 U.S. 401, 407 n. 2, 123 S.Ct.
under section 38.001 is sufficient to invalidate the arbitration   1531, 155 L.Ed.2d 578 (2003) (noting that “the preliminary
agreement as unconscionable.                                       question [of] whether the remedial limitations at issue ...
                                                                   prohibit[ed] an award of RICO treble damages [was] not a
 [14] Parties are generally free to contract for attorney's        question of arbitrability”).
fees as they see fit. Intercontinental Group P'ship v. KB
Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex.2009).               In PacifiCare, several physicians filed suit against
Thus, a contract that expressly provides for one party's           managed healthcare organizations, including PacifiCare and
attorney's fees, but not another's, is not unconscionable per      UnitedHealth, alleging breach of contract, unjust enrichment,
se. Although perhaps relevant to a broader inquiry into            and violations of several federal and state statutes, including
contractual oppression or an imbalance in bargaining power,        RICO. Id. at 402, 123 S.Ct. 1531. Because the arbitration
the attorney's fee provision here is not, standing alone,          agreements prohibited awarding punitive damages, the
decisive proof of an unconscionable bargain. Moreover, the         physicians argued that arbitration would prevent them from
court of appeals itself concludes that the arbitration agreement   obtaining “meaningful relief” under RICO's treble-damages
did not waive the farmers' statutory right to attorney's fees      provision. Id. at 403, 123 S.Ct. 1531. The lower courts agreed,
under section 38.001 and so its relevancy to the court's           holding the arbitration clauses to *233 be unenforceable
unconscionability analysis is unclear.                             with respect to the RICO claims. Id.

In Olshan, we observed that the “crucial inquiry” in               The Supreme Court reversed and remanded, concluding that
determining unconscionability was “whether the arbitral            it was “premature” to conclude that the contractual ban on
forum in a particular case is an adequate and accessible           punitive damages acted as a bar to statutory damages and that
substitute to litigation, a forum where the litigant can           the arbitrator should decide the issue as an initial matter. Id. at
effectively vindicate his or her rights.” In re Olshan Found.      404, 123 S.Ct. 1531. The Court thus deferred consideration of
Repair Co., *232 LLC, 328 S.W.3d 883, 894 (Tex.2010).              whether public policy might taint the arbitration agreement's
That inquiry is not satisfied by speculation but by specific       enforceability until the award-enforcement stage, but implicit



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                 9
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

                                                                       at 348. Unconscionability determinations are not isolated
in the Court's analysis was the notion that the arbitration
                                                                       inquiries but rather are made in “light of [a contract's]
clause was prima facie enforceable, notwithstanding the
                                                                       setting, purpose, and effect.” RESTATEMENT (SECOND)
contractual prohibition on punitive damages.
                                                                       OF CONTRACTS § 208, cmt. a.
In summary, we conclude that a contract that fails to provide
                                                                       Thus, in Olshan we observed that a court should consider “the
reciprocal rights to attorney's fees is not unconscionable per
                                                                       parties' general commercial background and the commercial
se. We further disagree with the court of appeals' opinion to
                                                                       needs of the particular trade or case” when determining
the extent it uses the contract's “one-sided” attorney's fees
                                                                       whether “the clause involved is so one-sided that it is
provision as an independent reason to hold the arbitration
                                                                       unconscionable under the circumstances existing when the
agreement unconscionable. See 395 S.W.3d at 276.
                                                                       parties made the contract.” Olshan, 328 S.W.3d at 892
                                                                       (quoting FirstMerit Bank, 52 S.W.3d at 757).

               III. Unaddressed Arguments                              In the court of appeals, Venture has argued the commercial
                                                                       reasonableness and necessity for the arbitration agreement,
Although the court of appeals' refusal to compel arbitration
                                                                       while the farmers have emphasized potential abuses and
in this case rests solely on public-policy grounds,
                                                                       unequal treatment under the arbitral process. In this Court,
unconscionability typically involves a broader inquiry, and,
                                                                       the parties have not briefed or argued these broader concerns.
indeed, the farmers presented a broader case in the trial
                                                                       They have instead focused solely on the court of appeals'
court. In addition to their complaint about the agreement's
                                                                       rationale for affirming the trial court's order. Because
limitation of remedies, the farmers contended they could
                                                                       the court's public-policy analysis is insufficient to defeat
not effectively vindicate their rights through arbitration
                                                                       arbitration, the arguments left unaddressed in the court of
because of arbitrator bias, the lack of adequate discovery
                                                                       appeals should be considered as they are “necessary to the
under the arbitration's summary procedures, the exorbitant
                                                                       final disposition of the appeal.” TEX.R.APP. P. 47.1.
cost of the arbitration itself, and other inequities in the
arbitral process. The court of appeals did not consider
                                                                       ***
these additional concerns once it determined the arbitration
agreement to be “substantively unconscionable” because it
                                                                       The court of appeals' judgment, affirming the trial court's
prevented the farmers from pursuing statutory remedies.
                                                                       order denying arbitration, is reversed, and the case is
See 395 S.W.3d at 277 (concluding that the court did
                                                                       remanded *234 to the court of appeals for consideration of
not need to consider “remaining arguments attacking
                                                                       the remaining arguments.
appellees' other substantive unconscionability and procedural
unconscionability defenses”).
                                                                       Parallel Citations
 [17] Texas courts usually analyze unconscionability issues
“in light of a variety of factors, which aim to prevent                57 Tex. Sup. Ct. J. 730
oppression and unfair surprise ...” Poly–America, 262 S.W.3d


Footnotes
1      We have jurisdiction to hear an appeal from an interlocutory order denying arbitration when the court of appeals' decision conflicts
       with prior precedent. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n. 8 (Tex.2008) (noting that our jurisdiction over the
       interlocutory appeal depends on a dissent or decisional conflict); Certain Underwriters at Lloyd's of London v. Celebrity, Inc., 988
       S.W.2d 731, 733 (Tex.1998) (per curiam) (same).
2      The lawsuit was styled Alan and Christine Freeman d/b/a Alan Freeman Farms, J.V., and Perry and Kathy Brewer d/b/a PDB Joint
       Venture v. Venture Cotton Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho Management Corp.
3      The second lawsuit was styled Roger Neitsch, Gregory Upton, Wayne Upton, Anderson Upton, Jud Cheuvront d/b/a L & ME, Inc.
       and JDC Farms, Max McGuire, Raymond McPherson, Abe Froese d/b/a BAC Farms, Gerardo Froese d/b/a Gerardo Froese Farms,
       George P. Froese d/b/a George P. Froese Farms, Neil Enns, David Bergen, Bradley Peters, Peter Neustaeter Jr., Wilhelm Friesen,
       Cornelius Banman, Gerard Neustaeter, Peter Friesen, Heinrich Friesen, Abe S. Peters, Isaak T. Fehr, Jacob Peters, Abe Loewen,




               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                    10
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

       Isaak Wiebe, Ben Neudorf, and Rudolph Peters v. Venture Cotton Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho
       Management Corp.
4      The trial court's finding of fact stated: “The arbitration clause sought to be enforced is unconscionable.” Its conclusion of law stated:
       “The arbitration clause sought to be enforced is unenforceable because it is unconscionable.”
5      Under FAA § 3, when a party moves to stay litigation pending arbitration, the court shall grant the motion “upon being satisfied that
       the issue involved in such suit or proceeding is referable to arbitration under such an agreement.” 9 U.S.C. § 3. Section 4 requires
       a court to grant a motion to compel arbitration “upon being satisfied that the making of the agreement for arbitration or the failure
       to comply therewith is not in issue.” Id. § 4.
6      Professor Rau explains:
             Suppose that the issue—“whether the plaintiff can recover statutory damages or attorneys' fees”—is treated as one more claim
             or dispute within the scope of the arbitration clause; suppose further that in pursuing this inquiry the decisionmaker is presented
             with some more precise questions:
             . For openers, is the contractual limitation of remedies properly interpreted as a “waiver” by the plaintiff of the recovery otherwise
             made available by statute?
             . If so, is the plaintiff able to waive this recovery? More precisely: Are, say, “sophisticated groups of doctors” who contract
             with a managed care company the sort of plaintiffs who in these circumstances need the protection of an unwaivable rule?
             For commercial parties in high-stakes cases, the appropriate trade-off between litigation and informal justice may sometimes
             take the form of choosing a more intensive form of judicial review; an alternative bargain might call for reducing the risk of
             excessive damage awards.
             And in any event, is it sensible to address either of these concerns in the form of an interim decision preceding the merits? Might
             they not instead be the focus of attention at a later point-once the predicate of liability has been established, and an appropriate
             remedy needs to be crafted?
             Framed in this way, all these questions begin very much to look as if they belonged to the realms of interpretation and
             appreciation of context—that is, to the matters of substance that have been routinely entrusted to arbitrators.
          Alan Scott Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 AM. REV.
          INT'L ARB. 1, 65–66 (2003) (emphasis in original) (footnotes omitted).


End of Document                                                       © 2014 Thomson Reuters. No claim to original U.S. Government Works.




                © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                                           11
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter A. General Provisions (Refs & Annos)

                                      V.T.C.A., Civil Practice & Remedies Code § 171.002

                                                 § 171.002. Scope of Chapter

                                                          Currentness


(a) This chapter does not apply to:


  (1) a collective bargaining agreement between an employer and a labor union;


  (2) an agreement for the acquisition by one or more individuals of property, services, money, or credit in which the total
  consideration to be furnished by the individual is not more than $50,000, except as provided by Subsection (b);


  (3) a claim for personal injury, except as provided by Subsection (c);


  (4) a claim for workers' compensation benefits; or


  (5) an agreement made before January 1, 1966.


(b) An agreement described by Subsection (a)(2) is subject to this chapter if:


  (1) the parties to the agreement agree in writing to arbitrate; and


  (2) the agreement is signed by each party and each party's attorney.


(c) A claim described by Subsection (a)(3) is subject to this chapter if:


  (1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and


  (2) the agreement is signed by each party and each party's attorney.


Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                       1
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002




Notes of Decisions (42)

V. T. C. A., Civil Practice & Remedies Code § 171.002, TX CIV PRAC & REM § 171.002
Current through the end of the 2013 Third Called Session of the 83rd Legislature

End of Document                                            © 2014 Thomson Reuters. No claim to original U.S. Government Works.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           2
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002




  Vernon's Texas Statutes and Codes Annotated
    Civil Practice and Remedies Code (Refs & Annos)
      Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
         Chapter 171. General Arbitration (Refs & Annos)
           Subchapter A. General Provisions (Refs & Annos)

                                      V.T.C.A., Civil Practice & Remedies Code § 171.002

                                                 § 171.002. Scope of Chapter

                                                          Currentness


(a) This chapter does not apply to:


  (1) a collective bargaining agreement between an employer and a labor union;


  (2) an agreement for the acquisition by one or more individuals of property, services, money, or credit in which the total
  consideration to be furnished by the individual is not more than $50,000, except as provided by Subsection (b);


  (3) a claim for personal injury, except as provided by Subsection (c);


  (4) a claim for workers' compensation benefits; or


  (5) an agreement made before January 1, 1966.


(b) An agreement described by Subsection (a)(2) is subject to this chapter if:


  (1) the parties to the agreement agree in writing to arbitrate; and


  (2) the agreement is signed by each party and each party's attorney.


(c) A claim described by Subsection (a)(3) is subject to this chapter if:


  (1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and


  (2) the agreement is signed by each party and each party's attorney.


Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.



               © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                       1
§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002




Notes of Decisions (42)

V. T. C. A., Civil Practice & Remedies Code § 171.002, TX CIV PRAC & REM § 171.002
Current through the end of the 2013 Third Called Session of the 83rd Legislature

End of Document                                            © 2014 Thomson Reuters. No claim to original U.S. Government Works.




              © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                           2
