Western Rim Property Services Inc. v. Paula Bazan-Garcia

Opinion

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

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

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:

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

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

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).

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.

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.

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.

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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 3 3 App.016 14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties. . . . . . . . . . 21 15. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16. Disqualification of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 17. Communication with Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 19. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 20. Stenographic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 21. Interpreters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 22. Attendance at Hearings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 23. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24. Postponements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 25. Oaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 26. Majority Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 27. Dispositive Motions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 28. Order of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 29. Arbitration in the Absence of a Party or Representative. . . . . . . . . . . . . . . . . . . . . . . 25 30. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 31. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 32. Interim Measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 33. Closing of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 34. Reopening of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 35. Waiver of Oral Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 36. Waiver of Objection/Lack of Compliance with These Rules. . . . . . . . . . . . . . . . . . . . 28 37. Extensions of Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 38. Serving of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 39. The Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 40. Modification of Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 41. Release of Documents for Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 42. Applications to Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 43. Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 44. Neutral 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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 5 5 App.018 Employment Mediation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 M-1. Agreement of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 M-2. Initiation of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 M-3. Fixing of Locale (the city, county, state, territory and, if applicable, country of the mediation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 M-4. Representation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 M-5. Appointment of the Mediator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 M-6. 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.

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 11 11 App.024 » Although the AAA administers binding arbitration systems that have been required as a condition of initial or continued employment, such programs must be consistent with the 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.

12 RULES AND MEDIATION PROCEDURES American Arbitration Association 12 App.025 Alternative Dispute Resolution Options

Open Door Policy

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

Ombuds

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

Peer Review

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

Internal Mediation

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

Fact-Finding

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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 13 13 App.026 Arbitration

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

They include:

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

Types of Disputes Covered

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

14 RULES AND MEDIATION PROCEDURES American Arbitration Association 14 App.027 Employment Arbitration Rules and Mediation Procedures

1. Applicable Rules of Arbitration

The parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by the American Arbitration Association (hereinafter “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 15 App.028 3. AAA as Administrator of the Arbitration

When parties agree to arbitrate under these rules, or when they provide for arbitration by the AAA and an arbitration is initiated under these rules, they thereby authorize the AAA to administer the arbitration. The authority and duties of the AAA are prescribed in these rules, and may be carried out through such of the 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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 17 17 App.030 administrative conference is to organize and expedite the arbitration, explore its administrative aspects, establish the most efficient means of selecting an arbitrator, and to consider mediation as a dispute resolution option. There is no administrative fee for this service.

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

8. Arbitration Management Conference

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

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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 19 19 App.032 12. Number, Qualifications and Appointment of Neutral Arbitrators

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

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

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

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

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

15. Disclosure

a. Any person appointed or to be appointed as an arbitrator shall disclose to the AAA any circumstance likely to give rise to justifiable doubt as to the 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.

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 21 21 App.034 b. Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others. c. In order to encourage disclosure by arbitrators, disclosure of information pursuant to this Section R-15 is not to be construed as an indication that the arbitrator considers that the disclosed circumstance is likely to affect impartiality or independence.

16. Disqualification of Arbitrator

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

17. Communication with Arbitrator

a. No party and no one acting on behalf of any party shall communicate ex parte with an arbitrator or a candidate for arbitrator concerning the arbitration, except that a party, or someone acting on behalf of a party, may communicate ex parte with a candidate for direct appointment pursuant to Section R-13 in order to advise the candidate of the general nature of the controversy and of the anticipated proceedings and to discuss the 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.

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 23 23 App.036 22. Attendance at Hearings

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

23. Confidentiality

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

24. Postponements

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

25. Oaths

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

26. Majority Decision

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

27. Dispositive Motions

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

28. Order of Proceedings

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

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

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

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

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

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

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

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

29. Arbitration in the Absence of a Party or Representative

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

Rules Amended and Effective November 1, 2009. Fee Schedule Amended and Effective May 15, 2013. EMPLOYMENT RULES 25 25 App.038 30. Evidence

The parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the arbitrator deems necessary to an understanding and determination of the dispute. All evidence shall be taken in the presence of all of the arbitrators and all of the parties, except where any party or arbitrator is absent, in default, or has waived the right to be present, however “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.

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.

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.

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

(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

(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.

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

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. ·

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.

App.013 Employment Arbitration Rules and Mediation Procedures

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.

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:

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.

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.

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.

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.

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.

App.003 II WilPS 111, LP En.ployee Handbook WRPS lll, LP

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

App.005 IIIli 1111 WRPSI LP

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

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

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!

App.009 1111 1111 WRPS,LP WRPS,LP

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).

App.010 II WRPS,LP WRPS,LP

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.

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. ·

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.

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.

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

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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)

(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.

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

(a) A court shall order the parties to arbitrate on application of a party showing:

(1) an agreement to arbitrate; and

(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.

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

(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.

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

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!

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).

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.

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. ·

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.

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

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

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

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

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,

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

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

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.

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~

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 ..~- . -· ·"'··-

43 AFFIDAVIT EXHIBITF

44 WR p s

45 IIIli 1111 WRPSI LP

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

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

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!

49 1111 1111 WRPS,LP WRPS,LP

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).

50 II WRPS,LP WRPS,LP

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.

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. ·

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.

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

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

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!

59 II WRPSIII,LP WRPSffi,LP

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).

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.

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.

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.

63 AFFIDAVIT EXHIBITH

64 WR p s

Employee Handbook WRPS,LP 05/01/2013

65 WRPS,LP WRPS,LP

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!

66 1111 1111 WRPS,LP WRPS,LP

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).

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.

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.

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.

70 issue." In re Rubiola, 334 S.W.3d at 225 (quoting Prudential Sec. Inc. v. Marshall, 909 S.W.2d

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.

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

25 must be decided by the arbitrator and not the Court. Bazan-Garcia therefore cannot avoid

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"

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.

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

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

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.

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.

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.

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~

Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to· ' Compel.Atbitmtion.

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

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

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~

Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to· ' Compel.Atbitmtion.

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.

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.

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

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

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

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

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.

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 '

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\

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 '

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

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

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

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

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

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~

Therefore, it is wholly within this Court's disctetion to DENY Defendants Motion to· ' Compel.Atbitmtion.

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

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

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,

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.

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

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

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

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

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

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

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

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

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. . .

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

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

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

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

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.

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

\Vhen '

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\

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."

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

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 '

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

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

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

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

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

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,

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

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

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

86 Exhibit 1

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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~ ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------

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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

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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 . 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

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

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. . .

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

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

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

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

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.

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

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

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

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

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

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.

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

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~ ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------

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

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.

- · : · "fl.l.'~·.f!?~~ ~"·R;•~c~_i.i~L, ,t;·--·•. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .: t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . , :-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..; ·.\i \!~~-=:..i'~,~.,_ . .t=.:: r.-... ~ .:zJ·.. ~-~--~P. ';..\1·~.-....·..~·- ...~~-.-~ ;1=·1..· .:~·._:.,_ ..., ~. 09-Jun-2014 11~30009 Flllros Fe"- CLa!m due alcue $9SDJJO 50.00 09-Jun-2014 closios. .&lr Sm'i~s incurred 09-Jun-2014 Allocalion $930.00 0!1-run-2014 11D299S4 Atbilrlltors Compe11s~tio~ $2 ,61)4.00 jll)..(lO 09-Ju~-2()14

09-Jllll-2014 C~noeii.-Efon S2S8.65 U-Aus-20t4 Allocation Sl,1~HS (19-Jun·20 !4 .Allocallon 5600.00 07-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~

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

f,tt-~1/,1,1\. 'T~l~pho.ne: (912)7Q2..S222 PIIX: (&55)267-4 Dll2

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

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

®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

$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[ ~ ~

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&

• 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

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

70-16D~OD432-10 H.E,B. Grocery Company, L.P. = Admlnlsfratr11e Fees and Expenses:

Mise Expenses $0.00 Yoor Share of Administrative Fees and Expenses: $Ul75.00 Amount Paid for Administrative Fees and Expenses: $2,875.00

Amount Paid for Neutral Compensation and Expenses: $20,470.00

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

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

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.

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

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~ ......... -- .. -------------------------------------------------------------------------------------------------------------------------------------------------

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

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.

- · : · "fl.l.'~·.f!?~~ ~"·R;•~c~_i.i~L, ,t;·--·•. ·::·:· -,.. .: ·~ ···A:a!Qunt'. · .: t:l:ti'lidlt~::.'·.·. ·.:·;. 'llir.\.:clc.,:··, .·.·, lbu60il:~ia:· ..... . , :-~ -.-·.:.'.. ·...... ~= .... :_:· >:: =·~.. :-.i,·. --~· ...:l .. _._ -~· .:: ..·. ·.:·.·.:: ·..; ·.\i \!~~-=:..i'~,~.,_ . .t=.:: r.-... ~ .:zJ·.. ~-~--~P. ';..\1·~.-....·..~·- ...~~-.-~ ;1=·1..· .:~·._:.,_ ..., ~. 09-Jun-2014 11~30009 Flllros Fe"- CLa!m due alcue $9SDJJO 50.00 09-Jun-2014 closios. .&lr Sm'i~s incurred 09-Jun-2014 Allocalion $930.00 0!1-run-2014 11D299S4 Atbilrlltors Compe11s~tio~ $2 ,61)4.00 jll)..(lO 09-Ju~-2()14

09-Jllll-2014 C~noeii.-Efon S2S8.65 U-Aus-20t4 Allocation Sl,1~HS (19-Jun·20 !4 .Allocallon 5600.00 07-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~

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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

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

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

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

14. On or about October 22, 2013, soon after Plaintiff was released on full duty,

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

16. Plaintiff incorporates by reference the allegations contained in paragraphs 1 through

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

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

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

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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

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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

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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.

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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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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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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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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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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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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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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

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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

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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

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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

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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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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/

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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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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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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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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

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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.

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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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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

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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.

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© 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

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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.

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2 Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)

itself rather than contract as a whole). Regardless of which analysis would otherwise apply, neither is relevant because Analysis the parties' agreement controls. The FAA allows the parties to [1] The parties all agree that the FAA controls in this case. determine which issues are arbitrable. See Hall Street Assocs., Indeed, the arbitration clause provides that disputes regarding L.L.C. v. Mattel, Inc., –––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).

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3 Ernst & Young LLP v. Martin, 278 S.W.3d 497 (2009)

The parties' arbitration clause clearly states that arguments For the first time in post-submission briefing, appellees such as those made by appellees are to be decided by the point to California case law purporting to hold that even arbitrator. Based on this unchallenged provision, the trial when the arbitration agreement states that the arbitrator is to court had no discretion to deny E & Y's motion for arbitration. decide arbitrability issues, an allegation of unconscionability Therefore, we conditionally grant the writ of mandamus and effectively shifts that determination to the court. However, direct the trial court to (1) vacate its order denying E & Y's unlike here, those cases involved a challenge to the agreement motion to compel arbitration and (2) grant E & Y's motion to to arbitrate itself. See Bruni v. Didion, 160 Cal.App.4th compel arbitration. The writ will issue only if the trial court 1272, 73 Cal.Rptr.3d 395, 400, 408 (2008); *501 Murphy fails to comply. Insofar as we have granted full relief pursuant v. Check ‘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

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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

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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

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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

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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—

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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

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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

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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

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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.

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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.

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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.

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[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

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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

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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

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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

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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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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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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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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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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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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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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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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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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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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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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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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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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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[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 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

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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.

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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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) 123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

L.Ed.2d 1409. The question whether parties have submitted [5] Alternative Dispute Resolution a particular dispute to arbitration, i.e., the “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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) 123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

BREYER, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and STEVENS, SCALIA, KENNEDY, *82 The agreement also provides that Howsam can select SOUTER, and GINSBURG, JJ., joined. THOMAS, J., the arbitration forum. And Howsam chose arbitration before filed an opinion concurring in the judgment, post, p. 593. the NASD. O'CONNOR, J., took no part in the consideration or decision of the case. To obtain NASD arbitration, Howsam signed the NASD's Uniform Submission Agreement. That agreement specified that the “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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) 123 S.Ct. 588, 154 L.Ed.2d 491, 71 USLW 4019, 02 Cal. Daily Op. Serv. 11,847...

arbitration any dispute which he has not agreed so to submit.” 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.

[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.

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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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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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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

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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,

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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

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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

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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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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).

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© 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

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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

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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

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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.

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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

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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:

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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

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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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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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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

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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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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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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.

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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.

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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.

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© 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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1 In re Palm Harbor Homes, Inc., 195 S.W.3d 672 (2006) 49 Tex. Sup. Ct. J. 711

principles governing the formation of contracts. 9 U.S.C.A. § 1 et seq. Agreement for Benefit of Third Person 35 Cases that cite this headnote A third-party beneficiary may enforce a contract to which it is not a party if the parties to the [5] Alternative Dispute Resolution contract intended to secure a benefit to that third party and entered into the contract directly for the Consideration third party's benefit. Arbitration agreements, like other contracts, 15 Cases that cite this headnote must be supported by consideration.

15 Cases that cite this headnote [10] Alternative Dispute Resolution

Consideration [6] Alternative Dispute Resolution Manufacturer was not required to give Consideration consideration for agreement which created its Consideration may take the form of bilateral status as third-party beneficiary of contract for promises to arbitrate. sale of manufactured home, and, thus, buyers' obligation to arbitrate with the manufacturer did 4 Cases that cite this headnote not fail for lack of consideration, even though manufacturer had right to opt out of arbitration; it was irrelevant that the agreement did not bind [7] Alternative Dispute Resolution the manufacturer to arbitrate since the agreement Consideration was supported by consideration in the form of When an arbitration clause is part of a both the underlying contract and promises of the larger, underlying contract, the remainder of the retailer. contract may suffice as consideration for the 16 Cases that cite this headnote arbitration clause.

10 Cases that cite this headnote [11] Alternative Dispute Resolution

Consideration [8] Alternative Dispute Resolution Manufactured home buyers' agreement to Consideration arbitrate disputes with manufacturer was not Consideration for manufactured home buyers' illusory as to the manufacturer, even though it agreement to arbitrate disputes with seller was had right to opt out of arbitration; consideration provided by the underlying sales contract and the supported buyers' contract with seller, and the mutual promises to arbitrate disputes involving manufacturer was third-party beneficiary. the manufactured home or its sale; even though 13 Cases that cite this headnote manufacturer had right to opt out of arbitration and even if the agreement were illusory as to manufacturer, consideration was not illusory as [12] Alternative Dispute Resolution between buyers and seller. Unconscionabi 19 Cases that cite this headnote “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.

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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.

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*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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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

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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-

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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

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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.

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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

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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

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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

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[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

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[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.

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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

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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

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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

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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

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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

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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

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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

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[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

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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

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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

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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

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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,

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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,

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 18 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

2007) (holding discovery restrictions that prohibited requests of Luna's claim they would be unenforceable. But at this for admission or interrogatories and limited parties to point in the proceedings, without knowing what the particular three depositions unconscionable because they “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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 19 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

where the challenged provision “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.

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 20 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

and “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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 21 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

now that mandamus review is concluded, the parties must clause is just as fact-based, and just as speculative until all the go to arbitration anyway. Given our state's strong public facts are arbitrated. The fairness of such clauses is not as one- policy favoring freedom of contract, 12 claims that a contract sided as the Court suggests; many employees might actually is unconscionable are asserted far more often than they prefer cash for lost wages (and no appellate delays) rather are sustained. After today's decision, it is hard to see how than reinstatement or a long shot at punitive damages. As the any arbitration cannot be stopped in its tracks by alleging Court notes, several courts have held that such “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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 22 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

brought, wiping it out without appellate review. 27 In short, While appeal from arbitration awards is very limited, there is no “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).

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 23 In re Poly-America, L.P., 262 S.W.3d 337 (2008) 156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

6 Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 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).

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© 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

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2 In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)

Future 3 Cases that cite this headnote events; promissory estoppel Promissory estoppel does not create liability [18] Alternative Dispute Resolution where none otherwise exists, but prevents a party from insisting upon his strict legal rights when it Persons would be unjust to allow him to enforce them. affected or bound Direct-benefits estoppel against a nonparty 9 Cases that cite this headnote avoiding arbitration clause after receiving direct benefits from contract does not apply when the [15] Trusts benefits alleged are insubstantial or indirect.

Capacity 20 Cases that cite this headnote of trustee to sue and be sued in general Trusts [19] Alternative Dispute Resolution Parties Persons A suit involving a trust generally must be brought affected or bound by or against the trustee and can be binding on When a nonparty consistently and knowingly the beneficiaries whether they join it or not. insists that others treat it as a party to the contract, it cannot later turn its back on the portions of Cases that cite this headnote the contract, such as an arbitration clause, that it finds distasteful. [16] Alternative Dispute Resolution 5 Cases that cite this headnote Persons affected or bound Alternative Dispute Resolution Attorneys and Law Firms Persons entitled to enforce *128 Raul A. Gonzalez, Susan Kidwell, Locke Liddell & Direct-benefits estoppel against a nonparty Sapp, LLP, Austin, and N. Terry Adams, Beirne Maynard & avoiding arbitration clause requires a nonparty's Parsons, L.L.P., Houston, for relator. colorable claim to the benefits of the contract; a meddlesome stranger cannot compel arbitration James Craig Orr Jr. and Spencer P. Browne, Heygood Orr & by merely pleading a claim that quotes someone Reyes, L.L.P., Irving, for real party in interest. else's contract. Opinion 19 Cases that cite this headnote *129 Justice BRISTER delivered the opinion of the Court.

[17] Alternative Dispute Resolution We are asked to decide whether Weekley Homes, L.P., a party to a contract containing an arbitration clause, can compel Persons arbitration of a personal injury claim brought by Patricia affected or bound Von Bargen, a nonparty. We have previously compelled Direct-benefits estoppel against a nonparty arbitration by nonparties to an arbitration agreement when avoiding arbitration clause does not create they brought suit “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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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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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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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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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

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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.

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© 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,

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[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

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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.

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[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

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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

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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

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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,”

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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

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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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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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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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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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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.

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© 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

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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.”).

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© 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.

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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

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[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

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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

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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

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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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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.

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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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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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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

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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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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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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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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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*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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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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[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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*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.

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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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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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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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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.

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© 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

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[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.

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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

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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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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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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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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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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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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

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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,

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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).

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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

(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.

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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

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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)

(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);

(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

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