TEXAS: HISTORY OF ARBITRATION

AND ITS ENFORCEABILITY

K. B. BATTAGLINI
STRONG PIPKIN BISSELL & LEDYARD LLP
4900 WOODWAY DRIVE, SUITE 1200
HOUSTON, TEXAS 77056
713.210.4371
kbattaglini@strongpipkin.com

© 2016 K. B. Battaglini
Arbitration in Texas: History and Enforceability
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Table of Contents

I. WHAT IS ARBITRATION? ........................................................................................................... 1

II. TEXAS ARBITRATION HISTORY .............................................................................................. 1

III. TEXAS ARBITRATION ACT ........................................................................................................ 3

A. Agreements to Arbitrate ...................................................................................................... 3

B. Scope ................................................................................................................................... 3
C. Compelling Arbitration ....................................................................................................... 4
D. Fraud ................................................................................................................................... 5
E. Unconscionability ............................................................................................................... 5
F. Waiver ................................................................................................................................. 6
G. Illegality .............................................................................................................................. 6
H. Stay Orders.......................................................................................................................... 7
I. Appointment of Arbitrators ................................................................................................. 7
J. Discovery ............................................................................................................................ 8
K. Arbitration Hearing ............................................................................................................. 8
L. Arbitrator’s Award .............................................................................................................. 8
M. Confirmation of Award ....................................................................................................... 9
N. Vacating an Award ........................................................................................................... 10
O. Modifying or Correcting Award ....................................................................................... 11
P. Jurisdiction and Venue of Courts ...................................................................................... 12
Q. Appeals ............................................................................................................................. 14

IV. FEDERAL ARBITRATION ACT................................................................................................. 15

A. Agreements to Arbitrate .................................................................................................... 15

B. Stay Orders........................................................................................................................ 16
C. Compelling Arbitration ..................................................................................................... 17
D. Fraud ................................................................................................................................. 19
E. Unconscionability ............................................................................................................. 19
F. Waiver ............................................................................................................................... 20
G. Other Contract Defenses ................................................................................................... 21
H. Appointment of Arbitrators ............................................................................................... 22
I. Arbitration Hearing ........................................................................................................... 23
J. Confirmation of Award ..................................................................................................... 23
K. Vacating Awards ............................................................................................................... 24
L. Modifying or Correcting Award ....................................................................................... 24
M. Appeals ............................................................................................................................. 25

V. RELATED STATUTES…………………………………………………………………………..26

VI. ENFORCEABILITY OF ARBITRATION IN ATTORNEY EMPLOYMENT CONTRACTS .. 27

VII. RELEVANT DECISIONS FROM THE TEXAS SUPREME COURT ........................................ 28

VIII. RELEVANT DECISIONS FROM THE FIFTH CIRCUIT COURT OF APPEALS .................... 37

IX. RELEVANT DECISIONS FROM THE UNITED STATES SUPREME COURT……………...41

Arbitration in Texas: History and Enforceability
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ARBITRATION IN TEXAS:
HISTORY AND ENFORCEABILITY
This paper is a concise and abridged digest of the
history, development, procedure and interpretation of
arbitration in Texas. Content and emphasis reflect the
writer’s perspective.
Commemorative note: Co-author Milton C. Colia
of El Paso passed away on December 1, 2015, at a
much too-early age. His guidance, efforts and
assistance in launching and maintaining this project
are much appreciated and sorely missed.
I. WHAT IS ARBITRATION?
Arbitration is not uniformly defined. It is
understood simply to mean the use of an arbitrator to
settle a dispute, or more complexly to mean an extra-
judicial process by which parties submit their
grievances to an impartial neutral chosen by mutual
consent or compelled by statute. Arbitration has been
characterized thusly:
• method of trial: Texas Constitution of 1845.
• proceeding: Offeciers v. Dirks, 2 Tex. 468
(1847).
• mode of suit: Forshey v. The Galveston H. & H.
RR Co., 16 Tex. 516 (1856).
• contractual proceeding: Alderman v. Alderman,
296 S.W.2d 312, 315 (Tex.Civ.App.--San Antonio
1956, writ ref'd)(quoting 6 C.J.S. Arbitration and
Award §1), and Jack B. Anglin Co. Inc. v. Tipps, 842
S.W.2d 266, 268 (Tex. 1992).
• method to adjudicate: BDO Seidman v. Miller,
949 S.W.2d 858, 861 (Tex. App.—Austin 1997, writ
dism’d w.o.j.).
• procedural vehicle: In re Education
Management Corp. Inc., 14 S.W.3d 418, 425 (Tex.
App.—Houston [14th Dist.] 2000, orig. proceeding).
• forum: TEX. CIV. PRAC. & REM. CODE §
154.027 (pertaining to non-binding arbitration)
• arrangement: Black’s Law Dictionary
• time-tested, cost-effective alternative to
litigation: American Arbitration Association.
1
Parties may agree to arbitrate for reasons other
than speed or cost, such as flexibility, privacy and, in
some instances, expertise. Peter F. Gazda, Comment,
Arbitration: Making Court-Annexed Arbitration an
Attractive Alternative in Texas, 16 St. Mary’s Law
Journal 409, 426 (1985).
II. TEXAS ARBITRATION HISTORY
The Texas heritage of arbitration can be traced to
the Spanish influence. Paul Carrington, The 1965
General Arbitration Statute of Texas, 20 Sw. L.J. 21,
22 (1966). For example, Title III, Art. 178, of the
Constitution of the Free State of Coahuila y Tejas
(1827) stated:
“Every inhabitant of the state shall be
perfectly free to terminate his
controversies, whatever be the state of
the trial, by means of arbitrators, or in
any other extrajudicial manner. His
agreements in this particular shall be
strictly observed, and the decisions of
the arbitrators executed, should the
parties on making the mutual promise
not reserve the right of appeal.”
Although the subsequent Constitution of the
Republic of Texas (1836) made no reference to
arbitration, it did declare that “all laws now in force in
Texas and not inconsistent with this constitution shall
remain in force…” thus leaving parties free to
arbitrate disputes. Paul Carrington, The 1965 General
Arbitration Statute of Texas, 20 SW L.J. 21, 22
(1966).
In 1845, the first Constitution of the State of
Texas directed the Legislature to pass laws providing
for arbitration of differences when the parties shall
elect that method of trial. TEX. CONST. of 1845, art.
VII, § 15 (repealed). Carpenter v. North River
Insurance Co., 436 S.W.2d 549, 551 (Tex. Civ.
App.—Houston [14th Dist] 1968, writ ref’d
n.r.e.)(citing 2 H.P.N. Gammel, The Laws of Texas
1822-1897, at 1293). In 1846, in response to that
mandate, the first Legislature of the State of Texas
enacted a statute establishing a procedure for
arbitration of existing disputes or accrued causes of
action. Id. (citing 2 H.P.N. Gammel, The Laws of
Texas 1822-1897, at 1433). It further provided that
an award made in keeping with the statutory
Arbitration in Texas: History and Enforceability
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procedure, subject to the right of appeal if such right
was reserved, be entered as judgment of the court
having appropriate jurisdiction. Id. An agreement
made in accordance with that statute was not
revocable, as was an agreement made at common law.
Id.
Thus, from its earliest days, permissive arbitration
was established as a constitutionally protected right in
Texas. This right was acknowledged by the Texas
Supreme Court in 1856, when it held that arbitration is
a proceeding so favored by Texas law that both the
Texas Constitution and statutes provide for the
submission of differences to arbitration. County of
Brazoria v. Knutson, 176 S.W.2d 740, 743, 142 Tex.
172 (1944) (citing Forshey v. The Galveston H. & H.
R. Co., 16 Tex. 516 (1856)).
In 1960, the Texas Legislative Counsel
recommended to the 57th Texas Legislature that the
arbitration provision of the Texas Constitution be
deleted, supported by the following commentary:
“Permissive, as distinguished from
compulsory, arbitration has been long
recognized in the common law as
being a mode of settling disputes to
which parties, in exercise of their
general right of freedom of contract,
may agree to submit. Statutes have
been enacted in recognition and aid of
voluntary arbitration in England, by
the United States Congress, and many
states. In no case has it been found
that any specific constitutional
enablement is a condition precedent
to validity of such statutes.”
“It appears that this provision in the
Texas Constitution, substantially
carried forward from earlier
provisions to like effect, with its
qualifying phrase, ‘when the parties
shall elect that method of trial,’
possibly was inserted not so much
affirmatively to enable the ‘voluntary
arbitration’ type of statute, which the
Texas Legislature now has enacted, as
impliedly to prohibit enactment of a
so-called ‘compulsory arbitration’
type. Since such latter type of statute
is today recognized to be
unconstitutional as being violative of
the constitutional guaranty of right to
2
trial by jury and also works an
unconstitutional deprivation of
property and liberty of contract if
such type of statute purports to make
the decision of the arbitrators the
final determination of the rights of
the parties, it now appears that any
prohibition against such ‘compulsory
arbitration’ type of statutes that is
implicit in the last clause of this
section is effectively secured by
other provisions of both the Texas
and Federal Constitutions and that
this provision in the Texas
Constitution is superfluous.”
Report of the Texas Legislative Council on
Constitutional Revision, December 1960, Report 56-
10, vol. 1, p. 122).
Nevertheless, until 1969, the Texas Constitution,
Art. 16, § 13, expressly directed the Legislature “to
enact such laws as may be necessary for arbitration.”
Section 13 was then repealed because permissive
arbitration had long been recognized at common law
without the necessity of a constitutional provision
authorizing arbitration statutes. L. H. Lacy Co. v. City
of Lubbock, 559 S.W.2d 348, 351 n.4 (Tex. 1977).
Before the repeal of Section 13, the Texas
Legislature in 1965 enacted the Texas Arbitration
Act, sometimes called the Texas General Arbitration
Act, which was codified in 1995 as Chapter 171 of
the Texas Civil Practice & Remedies Code. [Note:
the title of Chapter 171 is “General Arbitration” but
the Act is abbreviated as “TAA.”] The bill analysis
states that “arbitration is an alternative to litigation
that is becoming increasingly popular, and the
arbitration statutes would be more conveniently
located in the Civil Practices and Remedies Code.”
SENATE COMM. ON JURISPRUDENCE, BILL
ANALYSIS, Tex. S.B. 1439, 74th Leg., R.S. (1995).
The codification of arbitration in Texas addressed
and rejected the public policy argument against
allowing private persons to oust the courts of their
jurisdiction to determine the rights and liabilities of
parties to a contract. L. H. Lacy Co. v. City of
Lubbock, 559 S.W.2d 348, 352 (Tex. 1977) (common
law arbitration continues to be a viable alternative to
the statutory method).
Following the codification of arbitration in Texas,
the Texas Supreme Court reiterated that arbitration
Arbitration in Texas: History and Enforceability
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has become a mainstay of the dispute resolution
process. Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013)
(citing AT&T Mobility LLC v. Concepcion, 131 S.Ct.
1740, 1749 (U.S. 2011); Nafta Traders Inc. v. Quinn,
339 S.W.3d 84, 94 & n.48 (Tex. 2011); Ellis v.
Schlimmer, 337 S.W.3d 860, 862 (Tex. 2011)).
The codification of binding arbitration under
Chapter 171 is not to be confused with arbitration
under Chapter 154 (the ADR Act), which expresses the
general policy that peaceable resolution of disputes is
to be encouraged through voluntary settlement
procedures, and which provides a forum for non-
binding arbitration. TEX. CIV. PRAC. & REM. CODE §
154.027. To advance this purpose, the ADR Act
permits a court, either on its own motion or on
agreement of the parties, to refer a dispute to a
statutorily-established ADR procedure, an ADR
organization, or a “nonjudicial and informally
conducted forum for the voluntary settlement of
citizens’ disputes through the intervention of an
impartial third party.” § 154.021. A party may object
to the referral within ten days of receiving notice of it.
§ 154.022. The court may not refer the dispute if it
determines that there is a reasonable basis for the
objection. In an arbitration proceeding under §
154.027, if the parties stipulate beforehand the
arbitrator’s award will be binding, it “is enforceable in
the same manner as any contract obligation.” §
154.027(b).
III. TEXAS ARBITRATION ACT
A. Agreements to Arbitrate
Under the Texas Arbitration Act (“TAA”), a
written agreement to arbitrate is valid and enforceable
if the agreement is to arbitrate a controversy that:
• exists at the time of the agreement, or
• arises between the parties after the date of the
agreement.
TEX. CIV. PRAC. & REM. CODE § 171.001(a).
A party may revoke the agreement only on a
ground that exists at law or in equity for the revocation
of a contract.”
TEX. CIV. PRAC. & REM. CODE § 171.001(b).
Arbitration agreements can be enforced under
either statutory provisions or the common law. L.H.
Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351
3
(Tex. 1977).
The purpose of the TAA is to facilitate arbitration
agreements. In re AIU Ins. Co., 148 S.W.3d 109, 122
(Tex. 2004).
The authority of arbitrators is derived from the
arbitration agreement. City of Pasadena v. Smith, 292
S.W.3d 14, 20 (Tex. 2009) (citing Gulf Oil Corp. v.
Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959).
B. Scope
The TAA does not apply to:
• a collective bargaining agreement between an
employer and a labor union;
• 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, unless the parties agree in writing to
arbitrate and the agreement is signed by each
party and each party’s attorney;
• a claim for personal injury, unless each party to
the claim, on the advice of counsel, agrees in
writing to arbitrate and the agreement is signed
by each party and each party’s attorney;
• a claim for workers compensation benefits; or
• an agreement made before January 1, 1966.
TEX. CIV. PRAC. & REM. CODE § 171.002.
Courts interpreting the FAA have held that the
FAA preempts state statutes to the extent they are
inconsistent with the FAA. In re D. Wilson
Construction Co., 196 S.W.3d 774 (Tex. 2006); Volt
Information Sciences Inc. v. Board of Trustees, 489
U.S. 468, 478, 109 S.Ct. 1248, 1253, 103 L.Ed.2d
488 (1989).
Section 2 of the FAA preempts state law that
would otherwise render arbitration agreements
unenforceable in a contract involving interstate
commerce. 9 U.S. C. § 2; Southland Corp. v.
Keating, 465 U.S. 1, 10-11, 104 S.Ct. 852, 79
L.Ed.2d 1 (1984).
The FAA preempts parts of the TAA, including
section 171.002(a)(2). See Jack B. Anglin Co. v.
Arbitration in Texas: History and Enforceability
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Tipps, 842 S.W.2d 266, 271 (Tex. 1992) (discussing
FAA preemption of non-waiver provision of DTPA);
In re Nexion Health at Humble Inc., 173 S.W.3d 67, 69
(Tex. 2005) (discussing FAA preemption of TAA
section 171.002(a)(3)(personal injury cases).
C. Compelling Arbitration
A court shall order the parties to arbitrate on
application of a party showing:
• an agreement to arbitrate, and
• the opposing party’s refusal to arbitrate.
TEX. CIV. PRAC. & REM. CODE § 171.021(a).
If a party opposing an application denies the
existence of the arbitration agreement, the court shall
summarily determine that issue.
TEX. CIV. PRAC. & REM. CODE § 171.021(b).
If there is a substantial bona fide dispute as to
whether an agreement to arbitrate exists, the court shall
try the issue promptly and summarily.
TEX. CIV. PRAC. & REM. CODE § 171.023(b).
A court may not refuse to order arbitration because
the claim lacks merit or bona fides, or the fault or
ground for the claim is not shown.
TEX. CIV. PRAC. & REM. CODE § 171.026.
Because the main benefits of arbitration lie in
expedited and less expensive disposition of a dispute,
and the legislature has mandated that a motion to
compel arbitration be decided summarily, we think it
unlikely that the legislature intended the issue to be
resolved following a full evidentiary hearing in all
cases. The trial court may summarily decide whether
to compel arbitration on the basis of affidavits,
pleadings, discovery, and stipulations. However, if the
material facts necessary to determine the issue are
controverted, by an opposing affidavit or otherwise
admissible evidence, the trial court must conduct an
evidentiary hearing to determine the disputed material
facts. Jack B. Anglin Co. Inc. v. Tipps, 842 S.W.2d
266, 269 (Tex. 1992).
When there is a broad arbitration clause, arbitration
of a particular claim should not be denied unless it can
be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers
4
the asserted dispute. Kline v. O'Quinn, 874 S.W.2d
776, 782 (Tex. App.—Houston [14th Dist.] 1994, writ
denied).
Historically, Texas courts did not compel
arbitration unless a party clearly agreed to arbitrate
and be bound by the arbitrator's decision. See, for
example, Phillips v. ACS Municipal Brokers Inc., 888
S.W.2d 872, 875 (Tex. App.–Dallas 1994, no writ).
However, recent decisions by Texas courts do not
adhere to the historical tradition. There are at least six
theories in contract and agency law that may bind
non-signatories to arbitration agreements:
(1) Incorporation by reference,
(2) Assumption,
(3) Agency,
(4) Alter ego,
(5) Equitable estoppel, and
(6) Third-party beneficiary.
In re Kellogg Brown & Root Inc., 166 S.W.3d 732,
739 (Tex. 2005); In re Weekley Homes L.P., 180
S.W.3d 127, 131 (Tex. 2005) (arbitration clause was
found to be binding on a non-signatory under direct-
benefits estoppel theory); Meyer v. WMCO-GP LLC,
211 S.W.3d 302, 305 (Tex. 2007) (person who seeks
“to derive a direct benefit from the contract containing
the arbitration provision” may be equitably estopped
from refusing arbitration).
Although we have repeatedly expressed a strong
presumption favoring arbitration, the presumption
arises only after the party seeking to compel
arbitration proves that a valid arbitration agreement
exists. Prudential Securities Inc. v. Marshall, 909
S.W.2d 896, 898 (Tex. 1995).
A party attempting to compel arbitration must first
establish that the dispute in question falls within the
scope of a valid arbitration agreement. If the trial
court finds a valid agreement, the burden shifts to the
party opposing arbitration to raise an affirmative
defense to enforcing arbitration. In re Oakwood
Mobile Homes Inc., 987 S.W.2d 571, 573 (Tex. 1999).
Delaying a decision on the merits of arbitrability
until after discovery substantially defeats the policy
behind Section 171.021’s abbreviated procedure and
violates Section 171.021’s mandate to decide issues
Arbitration in Texas: History and Enforceability
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summarily. A trial judge has no discretion to defer his
ruling until after discovery has been completed. In re
MHI Partnership Ltd., 7 S.W.3d 918 (Tex. App.—
Houston [1st Dist.] 1999, orig. proceeding).
The trial court's determination of the arbitration
agreement’s validity is a legal question subject to de
novo review. J.M. Davidson Inc. v. Webster, 128
S.W.3d 223, 227 (Tex. 2003).
The strong presumption favoring arbitration
generally requires that we resolve doubts as to the
scope of the agreements in favor of coverage. In re
Kellogg Brown & Root Inc., 166 S.W.3d 732, 737
(Tex. 2005).
The mere fact that a contract affects interstate
commerce, thus triggering the FAA, does not preclude
enforcement under the TAA as well. In re D. Wilson
Construction Co., 196 S.W.3d 774, 780 (Tex. 2006).
Arbitration of a claim cannot be compelled unless
it falls within the scope of a valid arbitration
agreement. But sometimes a person who is not a party
to the agreement can compel arbitration with one who
is, and vice versa. We have held that a person who
seeks by his claim “to derive a direct benefit from the
contract containing the arbitration provision” may be
equitably estopped from refusing arbitration. Meyer v.
WMCO-GP LLC, 211 S.W.3d 302, 305 (Tex. 2006).
Pre-arbitration discovery is expressly authorized
under the TAA when a trial court cannot fairly and
properly make its decision on the motion to compel
because it lacks sufficient information regarding the
scope of an arbitration provision or other issues of
arbitrability. In re Houston Pipe Line Co., 311 S.W.3d
449, 451 (Tex. 2009).
A party seeking to compel arbitration under the
TAA must: (1) establish the existence of a valid,
enforceable arbitration agreement; and (2) show that
the claims asserted fall within the scope of that
agreement. Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex.
2013).
D. Fraud
While an arbitration agreement procured by fraud
is unenforceable, the party opposing arbitration must
show that the fraud relates to the arbitration provision
specifically, not to the broader contract in which it
appears. Forest Oil Corp. v. McAllen, 268 S.W.3d 51,
56 (Tex. 2008).
5
Texas appellate courts have affirmed trial courts’
judgments to stay arbitration or to refuse to compel
arbitration based on findings of fraud in the
inducement of arbitration agreements. EZ Pawn
Corp. v. Gonzalez, 921 S.W.2d 320, 324-325 (Tex.
App.–Corpus Christi 1996, writ denied); Gulf
Interstate Engineering Co. v. Pecos Pipeline and
Production Co., 680 S.W.2d 879, 881 (Tex. App.–
Houston [1st Dist.] 1984, writ dism'd w.o.j.).
E. Unconscionability
A court may not enforce an agreement to arbitrate
if the court finds that the agreement was
unconscionable at the time the agreement was made.
TEX. CIV. PRAC. & REM. CODE § 171.022.
Texas law renders unconscionable contracts
unenforceable. Whether a contract is unconscionable
at the time it is formed is a question of law. A clear
failure to properly analyze or apply the law of
unconscionability is an abuse of discretion. In re
Poly–America L.P., 262 S.W.3d 337, 348 (2008)
(orig. proceeding).
Arbitration agreements may be either
substantively or procedurally unconscionable, or both.
In re Halliburton Co., 80 S.W.3d 566, 572 (Tex.
2002).
Procedural unconscionability refers to the
circumstances surrounding the adoption of the
arbitration provision and relates to the making or
inducement of the contract, focusing on the facts
surrounding the bargaining process. In re Palm
Harbor Homes Inc., 195 S.W.3d 672, 677 (Tex.
2006); TMI Inc. v. Brooks, 225 S.W.3d 783, 792 (Tex.
App.—Houston [14th Dist.] 2007, pet. denied) (op. on
reh'g).
Substantive unconscionability concerns the
fairness of the arbitration provision itself. Palm
Harbor Homes, 195 S.W.3d at 677; Halliburton Co.,
80 S.W.3d at 571. A contract is substantively
unconscionable if, “given the parties’ general
commercial background and the commercial needs of
the particular trade or case, the clause involved is so
one-sided that it is unconscionable under the
circumstances existing when the parties made the
contract.” In re Poly–America L.P., 262 S.W.3d 337,
348 (2008) (orig. proceeding) (quoting In re First
Merit Bank, 52 S.W.3d 749, 757 (Tex. 2001) (orig.
proceeding)).
Arbitration in Texas: History and Enforceability
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A challenge that arbitration is cost prohibitive is
grounded in substantive unconscionability. In re
Olshan Foundation Repair Co. LLC, 328 S.W.3d 883,
892 (Tex. 2010). Excessive costs imposed by an
arbitration agreement render a contract unconscionable
if the costs prevent a litigant from effectively
vindicating his or her rights in the arbitral forum. Id. at
893. The party bears the burden of showing the
likelihood of incurring excessive costs. Id. Courts will
consider the party's ability to pay the arbitration fee,
the actual amount of the fee in relation to the amount of
the underlying claim, and the cost differential between
arbitration and litigation in court. Honrubia Properties
Ltd. v. Gilliland, __ S.W.3d __ (Tex. App.—Corpus
Christi-Edinburg 2007, no pet.) (mem. op.)
Arbitration agreements are not inherently
unconscionable. In re Poly–America L.P., 262 S.W.3d
337, 348 (Tex. 2008) (orig. proceeding); In re Palm
Harbor Homes Inc., 195 S.W.3d 672, 678 (Tex. 2006).
F. Waiver
There is a strong presumption against waiver of
arbitration. Prudential Securities Inc. v. Marshall, 909
S.W.2dd 896, 899 (Tex. 1995) (waiver of an arbitration
right must be intentional).
Waiver may be found when it is shown that a party
acted inconsistently with its right to arbitrate and such
actions prejudiced the other party. In re Oakwood
Mobile Homes, 987 S.W.2d 571, 574 (Tex. 1999).
Parties that conduct full discovery, file motions
going to the merits, and seek arbitration only on the eve
of trial waive any contractual right to arbitration. In re
Vesta Ins. Group, 192 S.W.3d 759, 764 (Tex. 2006).
The filing of a motion to set aside a default
judgment and to set a new trial does not expressly
waive arbitration rights. In re Bank One, 216 S.W.3d
825, 827 (Tex. 2007).
A party waives arbitration by substantially
invoking the judicial process to the other party's
detriment or prejudice. Perry Homes v. Cull, 258
S.W.3d 580, 589–90 (Tex. 2008), cert. denied, 555
U.S. 1103, 129 S.Ct. 952, 173 L.Ed.2d 116 (2009) (the
hurdle is a high one, and the Texas Supreme Court has
never found waiver in the following instances:
• filing suit,
• moving to dismiss a claim for lack of
standing,
6
• moving to set aside a default judgment and
requesting a new trial,
• opposing a trial setting and seeking to move
the litigation to federal court,
• moving to strike an intervention and
opposing discovery,
• sending 18 interrogatories and 19 requests
for production,
• requesting an initial round of discovery,
noticing but not taking a single deposition, and
agreeing to a trial resetting, or
• seeking initial discovery, taking four
depositions, and moving for dismissal based on
standing.
Whether a party has substantially involved the
judicial process depends upon the totality of the
circumstances. Perry Homes v. Cull, 258 S.W.3d 580,
589-90 (Tex. 2008).
Waiver can be implied from a party’s unequivocal
conduct, but not by inaction. In re ADM Investor
Services Inc., 304 S.W.2d 371, 374 (Tex. 2010).
Agreement to entry of a scheduling order and to a
new trial date does not expressly repudiate and
relinquish the right to arbitration. G.T. Leach Builders
LLC v. Sapphire V.P. LP, 458 S.W.3d 502, 511 (Tex.
2015).
A party asserting implied waiver as a defense to
arbitration has the burden to prove that (1) the other
party has substantially invoked the judicial process,
and (2) the inconsistent conduct has caused it to suffer
detriment or prejudice. G.T. Leach Builders LLC v.
Sapphire V.P. LP, 458 S.W.3d 502, 512 (Tex. 2015).
Detriment or prejudice refers to an inherent
unfairness caused by a party’s attempt to have it both
ways by switching between litigation and arbitration
to its own advantage. G.T. Leach Builders LLC v.
Sapphire V.P. LP, 458 S.W.3d 502, 515 (Tex. 2015).
G. Illegality
Arbitration agreements under the TAA may be
held unenforceable either for violating state law
unrelated to arbitration issues or for failing to comply
with the provisions of the TAA. In re Godt, 28
S.W.3d 732, 738-739 (Tex. App.–Corpus Christi
Arbitration in Texas: History and Enforceability
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2000, no pet.).
In Texas, any illegality argument must address the
specific arbitration provision, and not the contract as a
whole. See In re FirstMerit Bank, N.A., 52 S.W.3d
749; see also generally Women’s Regional
Healthcare, P.A. v. FemPartners of North Texas, Inc.,
175 S.W.3d 365 (Tex. App. –Houston [1st Dist.] 2005,
no pet.). Any argument that the contract as a whole is
illegal will be decided by the arbitrator. See In re
First Merit Bank, N.A., 52 S.W.3d at 756-757; see
also In re H.E. Butt Grocery Co., 17 S.W.3d 360, 367
(Tex. App.–Houston [14th Dist.] 2000, orig.
proceeding).
H. Stay Orders
An order compelling arbitration must include a stay
of any proceeding subject to § 171.025 (stay of related
proceeding).
TEX. CIV. PRAC. & REM. CODE § 171.021(c)
A court may stay an arbitration commenced or
threatened on application and a showing that there is
not an agreement to arbitrate.
TEX. CIV. PRAC. & REM. CODE § 171.023(a).
If there is a substantial bona fide dispute as to
whether an agreement to arbitrate exists, the court shall
try the issue promptly and summarily.
TEX. CIV. PRAC. & REM. CODE § 171.023(b).
The court shall stay the arbitration if the court finds
for the party moving for the stay. If the court finds for
the party opposing the stay, the court shall order the
parties to arbitrate.
TEX. CIV. PRAC. & REM. CODE § 171.023(c).
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 Subchapter
B (proceedings to compel or stay arbitration).
TEX. CIV. PRAC. & REM. CODE § 171.025(a).
The stay applies only to the issue subject to
arbitration is that issue is severable from the remainder
of the proceeding.
TEX. CIV. PRAC. & REM. CODE § 171.025(b).
7
A party may appeal an order granting an
application to stay arbitration made under § 171.023.
TEX. CIV. PRAC. & REM. CODE § 171.098(a)(2).
Neither § 171.098, nor any other statute, provides
for an interlocutory appeal of an order denying a
motion to stay or abate the trial court’s proceedings
until the arbitration is complete unless the party first
filed an application or motion to compel arbitration.
Walker Sand Inc. v. Baytown Asphalt Materials Ltd.,
95 S.W.3d 511, 516 (Tex. App.—Houston [1st Dist.]
2002, no pet.)
Interlocutory appeal may be taken from an order
denying an application to compel arbitration made
under § 171.021 or an order granting an application to
stay arbitration made under § 171.023. Interlocutory
appeal statutes are strictly construed. Atlas Gulf-
Coast Inc. v. Stanford, 299 S.W.3d 356, 359 (Tex.
App.—Houston [14th Dist.] 2009, no pet.).
Section 171.098(a)(1) requires, as a predicate to
interlocutory appellate jurisdiction, the filing of an
application to compel arbitration made under §
171.021 and an order denying that application.
Schlumberger Technology Corporation v. Baker
Hughes Inc., 355 S.W.3d 791, 797 (Tex. App.—
Houston [1st Dist.] 2011, no pet.).
There must be an order denying a motion to
compel arbitration before an interlocutory appeal is
permitted, and it is insufficient for an order to merely
have the effect of denying arbitration. Ground Force
Construction LLC v. Coastline Homes LLC, __
S.W.3d __ (Tex. App.—Houston [14th Dist.] 2014,
___).
I. Appointment of Arbitrators
The method for appointing the arbitrators is as
specified in the arbitration agreement. TEX. CIV.
PRAC. & REM. CODE § 171.041(a).
A court shall appoint one or more qualified
arbitrators if:
• the agreement to arbitrate does not specify a
method of appointment,
• the agreed method fails or cannot be followed,
or
• an appointed arbitrator fails or is unable to act
and a successor has not been appointed.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
TEX. CIV. PRAC. & REM. CODE § 171.041(b).
Arbitrators must be selected pursuant to the method
specified in the parties’ agreement. Americo Life Inc.
v. Myer, 440 S.W.3d 18, 21 (Tex. 2014). An
arbitration panel selected contrary to the contract-
specified method lacks jurisdiction over the dispute,
and courts do not hesitate to vacate an award when an
arbitrator is not selected according to the contract-
specified method. Id. In the arbitration context,
“independent” and “impartial” carry distinct meanings.
Id. at 22. Unless the parties agree otherwise, an
arbitrator selected unilaterally by one party is a party-
appointed arbitrator and not subject to disqualification
as being impartial or non-neutral. Id. at 23.
If the parties have agreed upon the qualifications of
the arbitrators, it is not the function of the court to
change them or prescribe other qualifications.
Mewbourne Oil Co. v. Blackburn, 793 S.W.2d 735, 737
(Tex. App.—Amarillo 1990, orig. proceeding).
J. Discovery
The arbitrators may authorize a deposition for use
as evidence to be taken of a witness who cannot be
required by subpoena to appear before the arbitrators or
who is unable to attend the hearing.
TEX. CIV. PRAC. & REM. CODE § 171.050.
The arbitrators may issue a subpoena for
attendance of a witness or production of books, records
documents or other evidence.
TEX. CIV. PRAC. & REM. CODE § 171.051(a).
Arbitrators are empowered by the TAA to
authorize discovery, and such discovery can be
enforced by orders of the court. Transwestern Pipeline
Co. v. Blackburn, 831 S.W.2d 72, 78 (Tex. App.—
Amarillo 1992, orig. proceeding).
Arbitration agreements are construed to incorporate
the discovery rules, if any, of a sponsoring organization
identified in the agreement.
K. Arbitration Hearing
Unless otherwise provided by the agreement, all
arbitrators shall conduct the hearing, and a majority of
the arbitrators may determine a question and render a
final award.
TEX. CIV. PRAC. & REM. CODE § 171.043.
8
Unless otherwise provided by the agreement, the
arbitrators shall set a time and place for the hearing
and notify each party.
TEX. CIV. PRAC. & REM. CODE § 171.044(a).
The court on application may direct the arbitrators
to proceed promptly with the hearing and
determination of the controversy.
TEX. CIV. PRAC. & REM. CODE § 171.044(b).
Unless otherwise provided by the agreement, the
arbitrators may adjourn the hearing as necessary, and,
on the request of a party and for good cause, may
postpone the hearing.
TEX. CIV. PRAC. & REM. CODE § 171.045.
Unless otherwise provided by the agreement, the
arbitrators may hear and determine the controversy on
the evidence produced without regard to whether a
party who has been notified fails to appear.
TEX. CIV. PRAC. & REM. CODE § 171.046.
Unless otherwise provided by the agreement, a
party at a hearing is entitled to:
• be heard,
• present evidence material to the controversy, and
• cross-examine any witness.
TEX. CIV. PRAC. & REM. CODE § 171.047.
A party is entitled to be represented by an
attorney at an arbitration proceeding, and a waiver of
the right—before the proceeding—is ineffective.
TEX. CIV. PRAC. & REM. CODE § 171.048.
L. Arbitrator’s Award
The arbitrator’s award must be in writing and
signed by each arbitrator joining in the award.
TEX. CIV. PRAC. & REM. CODE § 171.053(a).
The arbitrators shall deliver a copy of the award to
each party personally, by registered mail, or as
provided in the agreement.
TEX. CIV. PRAC. & REM. CODE § 171.053(b).
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
The arbitrators shall make the award:
(1) within the time established by the agreement to
arbitrate, or
(2) if a time is not established by the agreement,
within the time established by the court on
application of a party.
TEX. CIV. PRAC. & REM. CODE § 171.053(c).
The parties may extend the time for making the
award either before or after the time expires. The
extension must be in writing.
TEX. CIV. PRAC. & REM. CODE § 171.053(d).
A party waives the objection that an award was not
made within the time required unless the party notifies
the arbitrators of the objection before delivery of the
award to that party.
TEX. CIV. PRAC. & REM. CODE § 171.053(e).
The arbitrators shall award attorney’s fees as
additional sums required to be paid under the award
only if the fees are provided for:
• in the agreement to arbitrate, or
• by law for recovery in a civil action in the
district court on a cause of action on which any
party of the award is based.
TEX. CIV. PRAC. & REM. CODE § 171.048(c).
The arbitrators' expenses and fees, including other
expenses incurred in conducting the arbitration, shall
be paid pursuant to the terms of the award unless
otherwise provided in the arbitration agreement.
TEX. CIV. PRAC. & REM. CODE § 171.055.
Arbitrators do not have to specify the basis for their
award. Thomas v. Prudential Securities, Inc., 921
S.W.2d 847, 851 (Tex. App.–Austin 1996, no writ)
(citing Babcock & Wilcox Co. v. PMAC, Ltd., 863
S.W.2d 225, 235 (Tex. App.–Houston [14th Dist.]
1993, writ denied)).
An award is not valid if one of the arbitrators is
subsequently disqualified. Johnson v. Korn, 117
S.W.2d 514 (Tex. Civ. App.–El Paso 1938, writ ref'd).
An arbitration award has the effect of a judgment
9
of a court of last resort and is entitled to great
deference in a court of law. City of San Antonio v.
McKenzie Constr. Co., 136 Tex. 315, 150 S.W.2d
989, 996 (1941); Bailey & Williams v. Westfall, 727
S.W.2d 86, 90 (Tex. App.-Dallas 1987, writ ref'd
n.r.e.). Every reasonable presumption is indulged to
uphold an arbitrator's decision. City of San Antonio,
150 S.W.2d at 996; Johnson v. Korn, 117 S.W.2d 514,
519 (Tex. Civ. App.--El Paso 1938, writ ref'd).
The parties may provide by contract that the court
shall award the prevailing party’s attorney's fees in a
suit to enforce an arbitration agreement. Monday v.
Cox, 881 S.W.2d 381 (Tex. App.–San Antonio 1994,
writ denied).
Expert witness fees may also be awarded to the
prevailing party in an arbitration award. Thomas v.
Prudential Securities Inc., 921 S.W.2d 847 (Tex.
App.–Austin 1996, no writ).
Under Texas law, an arbitration award bears
interest in the same manner as judgment of a court of
last resort. Executone Information Systems Inc. v.
Davis, 26 F.3d 1314, 1329 (5th Cir. 1994).
M. Confirmation of Award
Unless grounds are offered for vacating,
modifying or correcting an award, the court, upon
application of a party, shall confirm the award.
TEX. CIV. PRAC. & REM. CODE § 171.087.
An application for an order confirming an award
invokes the jurisdiction of the court, and the clerk
shall docket the proceeding as a civil action pending
in that court.
TEX. CIV. PRAC. & REM. CODE § 171.082.
On granting an order that confirms an award, the
court shall enter a judgment or decree conforming to
the order, which may be enforced in the same manner
as any other judgment or decree.
TEX. CIV. PRAC. & REM. CODE § 171.092(a).
The court may award costs of the application and
of the proceedings subsequent to the application, and
disbursements.
TEX. CIV. PRAC. & REM. CODE § 171.092(b).
Review of a trial court’s decision as to
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
confirmation of an arbitration award is de novo and an
appellate court reviews the entire record. In re
Chestnut Energy Partners Inc., 300 S.W.3d 386, 397
(Tex. App.––Dallas 2009, pet. denied).
The statute authorizing recovery of costs does not
cover attorney fees. Monday v. Cox, 881 S.W.2d 381,
386 (Tex. App.—San Antonio 1994, writ denied).
By providing that a trial court shall confirm an
award, the TAA necessarily contemplates that the
arbitration award will be binding, and the confirmed
award has the same effect as a judgment of a court of
last resort. Porter & Clements LLP v. Stone, 935
S.W.2d 217, 221 (Tex. App.—Houston [1st Dist.] 1996,
orig. proceeding).
N. Vacating an Award
On application of a party, the court shall vacate an
award if:
(1) the award was obtained by corruption, fraud, or
other undue means;
(2) the rights of a party were prejudiced by (a)
evident partiality by an arbitrator, (b)
corruption in an arbitrator, or (c) misconduct or
willful misbehavior of an arbitrator;
(3) the arbitrators (a) exceeded their powers, (b)
refused to postpone the hearing after a showing
of sufficient cause for the postponement, (c)
refused to hear evidence material to the
controversy, or (d) conducted the hearing in a
manner that substantially prejudiced the rights
of a party; or
(4) there was no agreement to arbitrate, the issue
was not adversely determined, and the party
did not participate in the arbitration hearing
without raising an objection.
TEX. CIV. PRAC. & REM. CODE § 171.088(a).
A party must make an application to vacate an
award not later than the 90th day after the date of
delivery of a copy of the award to the applicant.
TEX. CIV. PRAC. & REM. CODE § 171.088(b).
If the application to vacate is denied and a motion
to modify or correct the award is not pending, the
court shall confirm the award.
10
TEX. CIV. PRAC. & REM. CODE § 171.088(c).
Once an award is vacated, the court may order a
rehearing before new arbitrators.
TEX. CIV. PRAC. & REM. CODE § 171.089.
The fact that the relief granted by the arbitrators
could not or would not be granted by a court of law or
equity is not a ground for vacating or refusing to
confirm an award.
TEX. CIV. PRAC. & REM. CODE § 171.090.
The authority of arbitrators is derived from the
arbitration agreement and is limited to a decision of
the matters submitted therein either expressly or by
necessary implication. Gulf Oil Corp. v. Guidry, 160
Tex. 139, 327 S.W.2d 406, 408 (1959).
A court shall vacate an arbitration award if there
has been “evident partiality” by the arbitrator,
meaning that the arbitrator failed to disclose facts
which might, to an objective observer, create a
reasonable impression of the arbitrator’s partiality,
and that “evident partiality” is established from the
nondisclosure itself. Burlington Northern R.R. Co. v.
Tuco Inc., 960 S.W.2d 629, 636 (Tex. 1997).
An arbitration award alone cannot establish
evident partiality. In re C.A.K., 155 S.W.3d 554, 564
(Tex. App.—San Antonio 2004, pet. denied).
Bossley v. Mariner Financial Group, 11 S.W.3d 349
(Tex. App.–Houston [1st Dist.] 2000, pet. granted)
aff’d by Mariner Financial Group Inc. v. Bossley, 79
S.W.3d 30 (Tex. 2002) (discussion of evident
partiality).
A trial court may set aside an arbitration award
only in limited circumstances. CVN Group Inc. v.
Delgado, 95 S.W.3d 234, 245 (Tex. 2002).
An arbitration award cannot be set aside on public
policy grounds except in extraordinary circumstances
in which the award clearly violates carefully
articulated fundamental policy. CVN Group Inc. v.
Delgado, 95 S.W.3d 234, 239 (Tex. 2002).
An award can be vacated based upon arbitrator
misconduct only if the conduct deprives a party of
the right to a fair hearing. GJR Management
Holdings LP v. Jack Raus Ltd., 126 S.W.3d 257, 263
(Tex. App.—San Antonio 2003, pet. denied).
Review of an arbitration award is so limited that
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
even a mistake of fact or law by the arbitrator in the
application of substantive law is not a proper ground
for vacating an award. Crossmark, Inc. v. Hazar, 124
S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied).
Gross mistake is a Texas state common law
standard that has been used to attack arbitration
awards. Callahan & Assocs. v. Orangefield ISD, 92
S.W.3d 841, 844 (Tex. 2002). A “gross mistake” is a
mistake by the arbitrator that implies bad faith or
failure to exercise honest judgment. Anzilotti v. Gene
D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.-
Houston [14th Dist.] 1995, no writ) (quoting Carpenter
v. N. River Ins. Co., 436 S.W.2d 549, 551 (Tex. App.-
Houston [14th Dist.] 1968, writ ref’d n.r.e.)).
An arbitrator is not bound to hear all the evidence
tendered by the parties as long as each party is given an
adequate opportunity to present evidence and
arguments. Kosty v. South Shore Harbour Community
Association, 226 S.W.3d 459, 463 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied).
Arbitrators exceed their powers when they decide
matters not properly before them. Allstyle Coil Co.
L.P. v. Carreon, 295 S.W.3d 42, 44 (Tex. App.-
Houston [1st Dist.] 2009, no pet.) (scope of authority
depends on the agreement); Ancor Holdings LLC v.
Peterson, Goldman & Villani Inc., 294 S.W.3d 818,
829 (Tex. App.-Dallas 2009, no pet.); Pettus v. Pettus,
237 S.W.3d 405, 419 (Tex. App.—Fort Worth 2007,
pet. denied) (authority of arbitrators is derived from the
arbitration agreement and is limited to the matters
submitted therein either expressly or by necessary
implication); Barsness v. Scott, 126 S.W.3d 232, 241
(Tex. App.-San Antonio 2003, pet. denied); Gulf Oil
Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408
(1959).
Review of a trial court’s decision as to vacatur of
an arbitration award is de novo and an appellate court
reviews the entire record. In re Chestnut Energy
Partners Inc., 300 S.W.3d 386, 397 (Tex. App.––
Dallas 2009, pet. denied).
The TAA permits the parties to agree to expanded
judicial review of arbitration awards and the FAA does
not preempt state law allowing parties to agree to
greater review of arbitration awards. Nafta Traders
Inc. v. Quinn, 339 S.W.3d 84, 101 (Tex. 2011). The
TAA presents no impediment to an agreement that
limits the authority of an arbitrator in deciding a matter,
and thus allows for judicial review of an arbitration
award for reversible error. Id. at 97.
11
A mere mistake of law is insufficient to vacate an
arbitration award on the basis of “undue means.” Las
Palmas Medical Center v. Moore, 349 S.W.3d 57, 69
(Tex. App.—El Paso 2010, pet. denied). Instead, a
party must show immoral, illegal or bad-faith
conduct by the arbitrator. Id. at 71. Evident
partiality can be shown by actual bias. Id. at 73.
Absent the statutory grounds for vacating an
award, a reviewing court lacks jurisdiction to review
complaints regarding the sufficiency of the evidence
supporting the award. Blue Cross Blue Shield v.
Juneau, 114 S.W.3d 126, 135 (Tex. App.—Austin
2003, no pet.).
Because courts favor arbitration as a means of
disposing of disputes, the courts indulge every
reasonable presumption in favor of upholding
arbitration awards. Nuno v. Pulido, 946 S.W.2d 448,
452 (Tex. App.–Corpus Christi 1997, no writ).
Under the TAA, review of an arbitration award is
so limited that even a mistake of fact or law by the
arbitrator in the application of substantive law is not a
proper ground for vacating an award. Centex/Vestal v.
Friendship W. Baptist Church, 314 S.W.3d 677, 683
(Tex. App.—Dallas 2010, pet. denied). We consider
the parties' agreement and the matters submitted in
arbitration to determine whether the arbitrator
exceeded his power. Id. at 685.
O. Modifying or Correcting Award
On application, the court shall modify or correct
an award if:
(1) the award contains (a) an evident
miscalculation of numbers, or (b) an evident
mistake in the description of a person, thing,
or property referred to in the award;
(2) the arbitrators have made an award with
respect to a matter not submitted to them and
the award may be corrected without affecting
the merits of the decision made with respect
to the issues that were submitted; or
(3) the form of the award is imperfect, but only to
the extent such imperfection does not affect
the merits of the controversy.
TEX. CIV. PRAC. & REM. CODE § 171.091(a).
A party must seek an order modifying or
correcting an award not later than the 90th day after
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
the date of delivery of a copy of the award to the
applicant.
TEX. CIV. PRAC. & REM. CODE § 171.091(b).
The TAA does not allow a reviewing court to
modify or correct an award based on an arbitrator’s
“evident mistake” in failing to award damages. Rather,
it only permits a court to modify or correct an award
that contains an “evident miscalculation” of figures or
an “evident mistake” in the description of a person,
thing or property referred to in the award. A mere
failure to award damages is not a ground under the
TAA or the common law for modification or correction
of an award. Callahan & Associates v. Orangefield
ISD, 92 S.W.3d 841, 844 (Tex. 2002).
P. Jurisdiction and Venue of Courts
The making of an agreement that provides for or
authorizes arbitration in Texas confers jurisdiction on
the court to enforce the agreement and to render
judgment on an award.
TEX. CIV. PRAC. & REM. CODE § 171.081.
The filing with the clerk of the court of an
application for an order, judgment or decree invokes
the jurisdiction of the court.
TEX. CIV. PRAC. & REM. CODE § 171.082(a).
On the filing of the initial application and the
payment to the clerk of court fees, the clerk shall
docket the proceeding as a civil action pending in that
court.
TEX. CIV. PRAC. & REM. CODE § 171.082(b).
An applicant for a court order may file the
application:
(1) before the arbitration proceedings begin,
(2) during the period the arbitration is pending, or
(3) after the conclusion of the arbitration.
TEX. CIV. PRAC. & REM. CODE § 171.083.
After an initial application is filed, the court may
stay a proceeding:
(1) under a later filed application in another court
to invoke the jurisdiction of that court or to
12
obtain an order under § 171, or
(2) instituted after the initial application has
been filed
TEX. CIV. PRAC. & REM. CODE § 171.084(a).
A stay affects only an issue subject to arbitration.
TEX. CIV. PRAC. & REM. CODE § 171.084(b).
A court may require that an application filed with
the court:
(1) show the jurisdiction of the court,
(2) have attached a copy of the agreement to
arbitrate,
(3) define the issue subject to arbitration,
(4) specify the status of the arbitration, and
(5) show the need for a court order.
TEX. CIV. PRAC. & REM. CODE § 171.085(a).
Before arbitration proceedings begin, in support
of arbitration, a party may file an application for a
court order to:
(1) invoke the jurisdiction of the court over the
adverse party and to effect jurisdiction by
service of process on the adverse party before
arbitration proceedings begin;
(2) invoke the jurisdiction of the court over an
ancillary proceeding in rem, including by
attachment, garnishment, or sequestration, in
the manner and subject to the conditions
under which the proceeding may be instituted
and conducted ancillary to a civil action in a
district court;
(3) restrain or enjoin the destruction of all or an
essential part of the subject matter of the
controversy; or the destruction or alteration of
books, records, documents, or other evidence
needed for the arbitration;
(4) obtain a deposition for discovery,
perpetuation of testimony or evidence needed
before the arbitration proceedings begin;
(5) appoint one or more arbitrators so that the
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
arbitration under the agreement may proceed;
or
(6) obtain other relief, which the court can grant in
its discretion, needed to permit the arbitration
to be conducted in an orderly manner and to
prevent improper interference or delay of the
arbitration.
TEX. CIV. PRAC. & REM. CODE § 171.086(a).
A court’s authority to order discovery under the
TAA extends only to activities prior to the
commencement of the arbitration, which begins with
the selection of the first arbitrator. After the arbitration
begins, a court does not possess authority under the
TAA to order discovery. Transwestern Pipeline Co. v.
Blackburn, 831 S.W.2d 72, 78 (Tex. App.–Amarillo
1992, orig. proceeding).
During the pendency, or after the conclusion, of an
arbitration proceeding, a party may file an application
for a court order:
(1) that was referred to or that would serve a
purpose under TEX. CIV. PRAC. & REM. CODE
§ 171.085(a);
(2) to require compliance by an adverse party or
any witness with an order made by the
arbitrator during the arbitration;
(3) to require the issuance and service under a
court order, rather than under an arbitrator’s
order, of a subpoena, notice or other court
process in support of the arbitration or in an
ancillary proceeding in rem, including by
attachment, garnishment or sequestration, in
the manner and subject to the conditions under
which the proceeding may be conducted
ancillary to a civil action in a district court;
(4) to require security for the satisfaction of a court
judgment that may be later entered under an
award;
(5) to support the enforcement of a court order,
judgment or other decree made under the TAA;
or
(6) to obtain relief under Sections 171.087,
171.088, 171.089 or 171.091 of the TAA.
TEX. CIV. PRAC. & REM. CODE § 171.086(b).
13
Unless grounds are offered for vacating,
modifying or correcting an award under Section
171.088 or 171.091, a court, on application of a party,
shall confirm the arbitration award.
TEX. CIV. PRAC. & REM. CODE § 171.087.
Venue for an initial application relating to an
arbitration agreement, whether the application is to
compel arbitration or stay arbitration, is set by statute.
The initial application must be filed in:
(1) the county in which the adverse party resides
or has a place of business;
(2) if the adverse party does not have a residence
or place of business in Texas, in any county;
or
(3) any county designated by the arbitration
agreement.
TEX. CIV. PRAC. & REM. CODE § 171.096(a) and (b).
Further, if a hearing before the arbitrators has
already been held, the initial application must be filed
in the county where the arbitration hearing was held.
TEX. CIV. PRAC. & REM. CODE § 171.096(c).
Finally, when a proceeding is already pending in
court relating to an issue subject to arbitration under
an agreement, the initial application and any
subsequent application must be filed in that court.
TEX. CIV. PRAC. & REM. CODE § 171.096(d).
The responding party to an initial application may
file a motion to transfer venue. If the initial
application is not filed in one of the counties set forth
in section 171.096, the court must transfer the action
to one of the counties of venue under the statute.
TEX. CIV. PRAC. & REM. CODE § 171.097(a).
The motion to transfer venue must be filed within
twenty days of service of the initial application and
before any other appearance, other than a challenge to
the court's jurisdiction.
TEX. CIV. PRAC. & REM. CODE § 171.097(c).
The procedure for transferring the case is the same
as that for a motion to transfer venue in a civil case in
district court.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
TEX. CIV. PRAC. & REM. CODE § 171.097(b).
Q. Appeals
A party may appeal a judgment or decree entered
under this chapter or an order:
(1) denying an application to compel arbitration
made under Section 171.021;
(2) granting an application to stay arbitration made
under Section 171.023;
(3) confirming or denying confirmation of an
award;
(4) modifying or correcting an award; or
(5) vacating an award without directing a
rehearing.
TEX. CIV. PRAC. & REM. CODE § 171.098(a).
The appeal shall be taken in the manner and to the
same extent as an appeal from an order or judgment in
a civil action.
TEX. CIV. PRAC. & REM. CODE § 171.098(b).
An arbitration award is to be given the same weight
as a trial court's judgment, and the reviewing court may
not substitute its judgment for the arbitrator's merely
because it would have reached a different result.
Riha v. Smulcer, 843 S.W.2d 289, 293-94 (Tex. App.–
Houston [14th Dist.] 1992, writ denied). In reviewing
an arbitration case, the court reviews the entire record.
Id. at 294.
When there is no transcript of the arbitration
hearing, the appellate court will presume the evidence
was adequate to support the award. Jamison & Harris
v. National Loan Investors, 939 S.W.2d 735, 737 (Tex.
App.—Houston [14th Dist.] 1997, writ denied).
The TAA provides that an appeal from an order
denying a motion to compel arbitration shall be taken
in the manner and to the same extent as an appeal from
an order or judgment in a civil action. However, the
Texas Supreme Court does not have jurisdiction over
appeals under the TAA from an interlocutory order
denying arbitration in the absence of a dissent or
conflict in the court of appeals. Certain Underwriters
at Lloyds of London v. Celebrity Inc., 988 S.W.2d 731,
733 (Tex. 1998).
14
There is no statutory authority recognizing an
interlocutory right to appeal from an order compelling
arbitration under the TAA. Mohamed v. Auto Nation
USA Corp., 89 S.W.3d 830, 833 (Tex. App.–Houston
[1st Dist.] 2002, no pet.); In re Godt, 28 S.W.3d 732
(Tex. App.– Corpus Christi 2000, orig. proceeding);
Materials Evolution Dev. USA Inc. v. Jablonowski,
949 S.W.2d 31, 33 (Tex. App.--San Antonio 1997, no
writ).
An arbitration award has the same effect as a
judgment of a court of last resort; accordingly, all
reasonable presumptions are indulged in favor of the
award and the award is conclusive on the parties as to
all matters of fact and law. CVN Group Inc. v.
Delgado, 95 S.W.3d 234, 238 (Tex. 2002).
Because Texas law favors arbitration, appellate
review is “extremely narrow.” See Hisaw & Assocs.
Gen. Contractors, Inc. v. Cornerstone Concrete Sys.,
Inc., 115 S.W.3d 16, 18 (Tex. App.––Fort Worth
2003, pet. denied); IPCO–G. & C. Joint Venture v.
A.B. Chance Co., 65 S.W.3d 252, 256 (Tex. App.-
Houston [1st Dist.] 2001, pet. denied).
Under the TAA, when an appeal from a denial of
an application to compel arbitration turns on a legal
question, courts will apply a de novo review standard.
J.M. Davidson Inc. v. Webster, 128 S.W.3d 223, 227
(Tex. 2003).
Review of an arbitration award is so limited that
even a mistake of fact or law by the arbitrator in the
application of substantive law is not a proper ground
for vacating an award. Crossmark Inc. v. Hazar, 124
S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet.
denied).
Under Texas law, review of an arbitration award
is so limited that an award may not be vacated even if
there is a mistake of fact or law. Universal Comp.
Sys. Inc. v. Dealer Solutions LLC, 183 S.W.3d 741,
752 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied).
Under the TAA, review of a trial court’s decision
as to vacatur or confirmation of an arbitration award is
de novo and an appellate court reviews the entire
record. In re Chestnut Energy Partners Inc., 300
S.W.3d 386, 397 (Tex. App.—Dallas 2009, pet.
denied).
The TAA permits the parties to agree to expanded
judicial review of arbitration awards and the FAA
does not preempt state law allowing parties to agree to
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
greater review of arbitration awards. Nafta Traders
Inc. v. Quinn, 339 S.W.3d 84, 101 (Tex. 2011). The
TAA presents no impediment to an agreement that
limits the authority of an arbitrator in deciding a matter,
and thus allows for judicial review of an arbitration
award for reversible error. Id. at 97.
An appellate court has no jurisdiction over
arbitration awards that are incomplete. Bison Bldg.
Materials Ltd. v. Aldridge, No. 06–1084, 2012 WL
3870493, *4 (Tex. Aug. 17, 2012) (discussing East
Texas Salt Water Disposal Co. v. Werline, 307 S.W.3d
267 (Tex. 2010) and Forsythe Int'l S.A. v. Gibbs Oil
Co. of Tex., 915 F.2d 1017 (5th Cir. 1990)).
Appellate courts review a denial of a motion to
compel arbitration for abuse of discretion, reviewing
questions of law de novo and factual determinations
under a no-evidence standard of review. U.S. Lawns
Inc. v. Castillo, 347 S.W.3d 844, 846 (Tex. App.—
Corpus Christi 2011, pet. denied).
A court may not substitute its judgment for that of
the arbitrators merely because it would have reached a
different decision. Humitech Dev. Corp. v. Perlman,
424 S.W.3d 782, 790 (Tex. App.—Dallas 2014, no
pet.).
A court's decision to confirm or vacate an
arbitration award is reviewed de novo, but, such review
“is extraordinarily narrow” and “[e]very reasonable
presumption must be indulged to uphold the arbitrator's
decision. Forest Oil Corp. v. El Rucio Land & Cattle
Co. Inc., 446 S.W.3d 58, 75 (Tex. App.—Houston [1st
Dist.] 2014).
IV. FEDERAL ARBITRATION ACT
A. Agreements to Arbitrate
Under the Federal Arbitration Act ("FAA"):
• a written provision in any maritime transaction
or a contract evidencing a transaction involving
commerce to settle by arbitration a controversy
thereafter arising out of such contract or
transaction, or the refusal to perform the whole
or any part thereof, or
• an agreement in writing to submit to arbitration
an existing controversy arising out of such a
contract, transaction, or refusal,
shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the
15
revocation of any contract.
9 U.S.C. § 2.
Under the FAA, an agreement to arbitrate is valid
if it meets the requirements of the general contract law
of the applicable state. First Options of Chicago Inc.
v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131
L.Ed.2d 985 (1995).
The FAA applies to all suits in state and federal
court when the dispute concerns “a contract
evidencing a transaction involving commerce.” Jack
B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269-70 (Tex.
1992) (citing 9 U.S.C. § 2).
The FAA will extend to “any contract affecting
commerce, as far as the Commerce Clause of the
United States Constitution will reach.” In re L&L
Kempwood Associates LP, 9 S.W.3d 125, 127 (1999)
(per curiam) (citing Allied-Bruce Terminix Co. v.
Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130
L.Ed.2d 753 (1995)); In re Nexion Health at Humble
Inc., 173 S.W.3d 67, 69 (Tex. 2005).
The FAA is broad in scope, and the amount of
interstate commerce need not be substantial. Lost
Creek Municipal Utilities Dist. v. Travis Industrial
Painters Inc., 827 S.W.2d 103, 105 (Tex. App.–
Austin 1992, writ denied).
Whether the parties contemplated that their
transaction would substantially affect interstate
commerce is irrelevant. If the transaction affects
interstate commerce “in fact,” the arbitration
provision is governed by the FAA. Palm Harbor
Homes Inc. v. McCoy, 944 S.W.2d 716, 719 (Tex.
App.—Fort Worth 1997, orig. proceeding) (Allied-
Bruce Terminix Co. v. Dobson, 513 U.S. 265, 281,
115 S.Ct. 834, 130 L.Ed.2d 753 (1995)).
The question of whether the transaction affects
interstate commerce, and is thereby governed by the
FAA, is a question of fact. In re Education
Management Corp Inc., 14 S.W.3d 418, 423 (Tex.
App.–Houston [14th Dist.] 2000, orig. proceeding).
Once it is determined that a dispute is covered by
the FAA, federal law applies to all questions of
interpretation, construction, validity, revocability and
enforceability. Coenen v. R.W. Pressprich & Co., 453
F.2d 1209 (2nd Cir. 1972); see also Wydel Associates
v. Thermasol Ltd., 452 F.Supp. 739, 742 (W.D. Tex.
1978).
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
Federal courts, like Texas courts, determine
whether a written agreement to arbitrate exists and
whether any of the issues raised are within the reach of
that agreement. Pennzoil Exploration & Production
Co. v. Ramco Energy, 139 F.3d 1061, 1065 (5th Cir.
1998).
Because federal law strongly favors arbitration, a
presumption exists in favor of agreements to arbitrate
under the FAA. Cantella & Co. v. Goodwin, 924
S.W.2d 943, 944 (Tex. 1996). However, a party
seeking to compel arbitration must first establish its
right to arbitrate under the FAA. Stewart Title Guar.
Co. v. Mack, 945 S.W.2d 330, 333 (Tex. App.-Houston
[1st Dist.] 1997, dism'd w.o.j. [leave denied]). If it
does, and the opposing party does not defeat that right,
the trial court is obliged to compel arbitration. Id.
While doubts will be decided in favor of
arbitration, the strong federal presumption does not
apply to the determination of whether there is a valid
agreement to arbitrate between the parties or to the
determination of who is bound by the arbitration
agreement. See American Heritage Life Ins. Co. v.
Lang, 321 F.3d 533, 537-538 (5th Cir. 2003).
Texas has long favored arbitration of disputes.
Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898
(Tex. 1995) (an FAA case). Any doubts about whether
claims fall within the scope of the arbitration
agreement must be resolved in favor of arbitration.
Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899
(Tex. 1995).
The policy in favor of enforcing 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.” Neal v. Hardee's Food Systems Inc., 918 F.2d
34, 37 (5th Cir. 1990) (quoting Commerce Park at
DFW Freeport v. Mardian Constr. Co., 729 F.2d 334,
338 (5th Cir. 1984)).
The legislative history of the FAA establishes that
the purpose behind its passage was to ensure judicial
enforcement or privately made agreements to arbitrate,
and the suggestion that the overriding goal of the FAA
was to promote the expeditious resolution of claims is
rejected. Dean Witter Reynolds Inc. v. Byrd, 470 U.S.
213, 219, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).
The FAA has been interpreted by federal courts to
establish a federal policy favoring arbitration, requiring
16
that courts rigorously enforce arbitration agreements,
and the primary purpose of the FAA is to require the
courts to compel arbitration when the parties have so
provided in their contract, despite any state legislative
attempts to limit the enforceability of arbitration
agreements. Shearson/American Express Inc. v.
McMahon, 482 U.S. 220, 225, 107 S.Ct. 2332, 2337,
96 L.Ed 2d 185 (1987).
The FAA preempts state statutes to the extent they
are inconsistent with the FAA. Volt Information
Sciences v. Board of Trustees, 489 U.S. 468, 478, 109
S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989).
FAA preemption is aimed at state law hindrances
to enforcement of arbitration agreements not
applicable to contracts generally. The FAA preempts
the TAA if:
(1) the agreement is in writing;
(2) it involves interstate commerce;
(3) it can withstand scrutiny under traditional
contract defenses under state law; and
(4) state law affects the enforceability of the
agreement.
Nafta Traders Inc. v. Quinn, 339 S.W.3d 84, 98 (Tex.
2011).
The mere fact that a contract affects interstate
commerce, thus triggering the FAA, does not preclude
enforcement under the TAA as well. In re D. Wilson
Construction Co., 196 S.W.3d 774, 780 (Tex. 2006).
For the FAA to preempt the TAA, state law must
refuse to enforce an arbitration agreement that the
FAA would enforce, either because the TAA has
expressly exempted the agreement from coverage, or
the TAA has imposed an enforceability requirement
not found in the FAA. In re D. Wilson Construction
Co., 196 S.W.3d 774, 780 (Tex. 2006).
B. Stay Orders
If any suit or proceeding is brought in any of the
courts of the United States upon any issue referable
to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under
such agreement, shall on application of one of the
parties stay the trial of the action until such
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
arbitration has been had in accordance with the terms
of the agreement, providing the applicant is not in
default in proceeding with such arbitration.
9 U.S.C. § 3.
To obtain a stay of litigation under § 3, a movant
must show (1) that an agreement between the parties to
arbitrate exists, and (2) that the issues raised are within
the reach of that agreement. Complaint of Hornbeck
Offshore Corp., 981 F.2d 752, 754 (5th Cir. 1993).
The court has no discretion to deny the stay if the
issues in litigation are within the reach of the
arbitration agreement. Gutierrez v. Academy Corp.,
967 F.Supp. 945 (S.D. Tex. 1997).
A motion to stay litigation under § 3 “requests the
district court to refrain from further action in a suit
pending arbitration.” Midwest Mech. Contractors Inc.
v. Commonwealth Const. Co., 801 F.2d 748, 750 (5th
Cir. 1986).
The court may dismiss, rather than stay, a pending
case when all of the claims in the pending case must be
submitted to arbitration. Alford v. Dean Witter
Reynolds Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); see
also Reynolds v. Halliburton Co., 217 F.Supp.2d 756
(S.D. Tex. 2002).
Claims against a non-signatory to an arbitration
agreement may be stayed where the claims are
inherently inseparable from other claims in the same
action that must be arbitrated pursuant to an agreement.
See Hill v. G.E. Power Systems Inc., 282 F.3d 343 (5th
Cir. 2002).
C. Compelling Arbitration
A party aggrieved by the alleged failure, neglect, or
refusal of another to arbitrate under a written
agreement for arbitration may petition any United
States district court which, save for such agreement,
would have jurisdiction under Title 28 in a civil action
or in admiralty of the subject matter of a suit arising
out of the controversy between the parties, for an order
directing that such arbitration proceed in the manner
provided for in such agreement.
9 U.S.C. § 4.
The court shall hear the parties and, upon being
satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not an
issue, the court shall make an order directing the parties
17
to proceed to arbitration in accordance with the terms
of the agreement.
9 U.S.C. § 4.
If the making of the arbitration agreement or the
failure, neglect or refusal to perform the arbitration is
an issue, the court shall proceed summarily to the trial
thereof.
9 U.S.C. § 4.
If no jury trial is demanded by the party alleged to
be in default, or if the matter in dispute is within
admiralty jurisdiction, the court shall hear and
determine such issue.
9 U.S.C. § 4.
The party alleged to be in default may, except in
cases of admiralty, demand a jury trial of such issue,
and upon such demand the court shall make an order
referring the issue to a jury in the manner provided in
the Federal Rules of Civil Procedure or may specially
call a jury for that purpose.
9 U.S.C. § 4.
If the jury finds that no agreement in writing for
arbitration was made or that there is no default in
proceeding thereunder, the proceeding shall be
dismissed.
9 U.S.C. § 4.
If the jury finds that an agreement for arbitration
was made in writing and that there is a default in
proceedings thereunder, the court shall make an order
summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
9 U.S.C. § 4.
The FAA does not create independent subject
matter jurisdiction. United Offshore Co. v. Southern
Deepwater Pipeline Co., 899 F.2d 405, 407 (5th Cir.
1990).
When Texas courts are called on to decide if
disputed claims fall within the scope of an arbitration
clause under the FAA, Texas procedure controls that
determination. Southland Corp. v. Keating, 465 U.S.
1, 16, n. 10, 104 S.Ct. 852, 861, n. 10, 79 L.Ed.2d 1
(1984) (citing “national policy favoring arbitration”);
Jack B. Anglin Co. Inc. v. Tipps, 842 S.W.2d 266, 268
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
(Tex. 1992) (whether claims are arbitrable under FAA
or TAA).
Arbitration is a matter of contract. AT&T Tech.
Inc. v. Communications Workers of America, 475 U.S.
643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).
In determining validity of agreements to arbitrate
which are subject to the FAA, we generally apply state-
law principles governing the formation of contracts.
First Options of Chicago Inc. v. Kaplan, 514 U.S. 938,
944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
The determination of whether parties agreed to
arbitrate generally requires a court to summarily
answer two questions: (1) is there a valid agreement to
arbitrate between the parties, and (2) is the dispute
before the court within the scope of the arbitration
agreement. Webb v. Investacorp, Inc., 89 F.3d 252,
257-258 (5th Cir. 1996).
Generally, courts have considered the same types
of challenges that are raised with respect to the
enforcement of contracts in general such as fraud,
unconscionability, illegality and waiver. Doctor’s
Associates Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.
Ct. 1652, 134 L. Ed. 2d 902 (1996). Care must be used
in addressing these defenses as they must relate directly
to the arbitration provision itself and not to contract as
a whole. See In re FirstMerit Bank, 52 S.W.3d
749,756 (Tex. 2001)(citing Prima Paint Corp. v. Flood
& Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct.
1801, 18 L.Ed.2d 1270 (1967)).
To determine whether a dispute falls within the
scope of an arbitration agreement, courts look the
language of the agreement and decide whether the
clause is “narrow” or “broad.” Pennzoil Exploration
and Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061,
1067 (5th Cir. 1998). A “narrow” arbitration clause
contains language such as “arising out of the contract,”
whereas a “broad” arbitration clause contains language
such as “related to” or “connected with” the contract.
If the language is “narrow,” arbitration must not be
compelled unless the dispute “arises from the contract,”
but if the clause is “broad,” it embraces all disputes
between the parties regardless of the label attached to
the dispute. Prima Paint Corp. v. Flood & Conklin
Manufacturing Co., 388 U.S. 395, 397-98 (1967)
(labeling as “broad” a clause requiring arbitration of
“any controversy or claim arising out of or relating to”
the agreement).
A party seeking to compel arbitration under the
FAA must establish the existence of an arbitration
18
agreement and show that the claims raised fall within
the scope of the agreement. Once a party establishes a
claim within the arbitration agreement, the trial court
must compel arbitration and stay its own proceedings.
In re Oakwood Mobile Homes Inc., 987 S.W.2d 571,
573 (Tex. 1999).
A party denied the right to arbitrate pursuant to an
agreement subject to the FAA does not have an
adequate remedy by appeal and is entitled to
mandamus relief to correct a clear abuse of discretion.
In re L & L Kempwood Assocs. L.P., 9 S.W.3d 125,
128 (Tex. 1999).
To sue in federal court to enforce an arbitration
claim, a petitioner must demonstrate the existence of
federal subject matter jurisdiction on the underlying
contract claim. Bank One N.A. v. Shumake, 281 F.3d
507, 513 (5th Cir. 2002).
Under the FAA, whether an arbitration agreement
binds a non-signatory is a gateway matter to be
determined by courts rather than arbitrators unless the
parties clearly and unmistakably provide otherwise.
In re Weekley Homes L.P., 180 S.W.3d 127, 130
(Tex.2005).
Although arbitration is a matter of contract that
generally binds only signatories, non-signatories can
compel arbitration. Brown v. Pacific Life Ins. Co.,
462 F.3d 384, 398 (5th Cir. 2006).
When a party disputes the scope of an arbitration
provision or raises a defense to the provision, the trial
court, not the arbitrator, must decide the issues.
Buckeye Check Cashing Inc. v. Cardegna, 546 U.S.
440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006).
Under the FAA, we have applied estoppel when
non-signatories seek a direct benefit from a contract
with an arbitration clause, but we have never
compelled arbitration based solely on substantially
interdependent and concerted misconduct, and for
several reasons we decline to do so here. In re Merrill
Lynch Trust Co. FSB, 235 S.W.3d 185 (Tex. 2007).
The FAA bestows no federal question jurisdiction,
but rather requires an “independent jurisdictional
basis” over the parties’ dispute. Vaden v. Discover
Bank, 556 U.S. 49, 59, 129 S.Ct. 1262, 173 L.Ed.2d
206 (2009).
Traditional principles of state law allow a contract
to be enforced by or against nonparties to the contract
through assumption, piercing the corporate veil, alter
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel. Arthur Anderson LLP v.
Carlisle, 556 U.S. 624, 631 (2009).
A party seeking to compel arbitration under the
FAA must establish that the dispute falls within the
scope of an existing agreement to arbitrate. In re
Rubiola, 334 S.W.3d 220, 223 (Tex. 2011).
The Fifth Circuit has yet to determine the
appropriate standard for reviewing a magistrate judge's
ruling on motions to compel arbitration. Lee v.
Plantation of Louisiana LLC, 454 F. App'x 358, 360
(5th Cir. 2011) ("[W]e need not reach the question of
whether a motion to compel arbitration is a dispositive
or non-dispositive motion for purposes of the standard
of review by the district judge of the magistrate judge's
order.")
The FAA requires a court to make at least a
threshold determination of arbitrability—that the
dispute is subject to an enforceable agreement to
arbitrate—before enforcing the arbitration agreement
by compelling arbitration or staying litigation. Venture
Cotton Co-op v. Freeman, 435 S.W.3d 222, 227 (Tex.
2014).
The U.S. Supreme Court has recognized a
distinction between questions of “substantive
arbitrability,” which courts decide, and “procedural
arbitrability,” which courts must defer to the arbitrators
to decide. Substantive arbitrability addresses the
existence, enforceability and scope of an arbitration
agreement, whereas procedural arbitrability addresses
the construction and application of limits on that
agreement. G.T. Leach Builders LLC v. Sapphire VP
LP, 458 S.W.3d 502 (Tex. 2015).
D. Fraud
If the fraud claim relates to the making of the
arbitration agreement itself, the court should address
the fraud claim before enforcing the arbitration
agreement. If, however, the fraud claim relates to the
entire contract, the court should compel the parties to
arbitrate leaving the fraud claim to be decided by the
arbitrator. Prima Paint Corp. v. Flood & Conklin Mfg.
Co., 388 U.S. 395, 403-404, 18 L. Ed. 2d 1270, 87 S.
Ct. 1801 (1967); Miller v. Public Storage Mgmt., 121
F.3d 215, 219 (5th Cir. 1997)(citing R.M. Perez &
Associates, Inc., v. Welch, 960 F.2d 534, 538 (5th Cir.
1992).
E. Unconscionability
19
Arbitration agreements which are unconscionable
are not enforceable under the FAA. Doctor’s
Associates, Inc. v. Casarotto, 517 U.S. 681, 687-688,
116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996). Whether a
contract is unconscionable is a question to be decided
under applicable state law. Id. Unconscionability is a
question of law for the court to decide. American
Employers’ Ins. Co. v. Aiken, 942 S.W.2d 156, 160
(Tex. App.–Fort Worth 1997, no writ).
Adhesion contracts are not automatically
unconscionable, and there is nothing per se
unconscionable about arbitration agreements. In re
Oakwood Mobile Homes Inc., 987 S.W.2d 571, 574
(Tex.1999). Parties claiming unconscionability bear
the burden of demonstrating it. Id.
Under the FAA, unequal bargaining power does
not establish grounds for defeating an agreement to
arbitrate absent a well-supported claim that the clause
resulted from the sort of fraud or overwhelming
economic power that would provide grounds for
revocation of any contract. Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111
S.Ct. 1647, 114 L.Ed.2d 26 (1991); EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 90-91 (Tex. 1996) (per
curiam).
Unconscionability of arbitration clauses includes
two aspects: procedural and substantive. Procedural
unconscionability refers to the circumstances
surrounding adoption of arbitration provision, and
substantive refers to the fairness of the arbitration
provision itself. In re Halliburton Co., 80 S.W.3d
566, 571 (Tex. 2002). In evaluating the validity of an
arbitration provision, courts may consider both
procedural and substantive unconscionability. Id. at
571-572.
This determination involves looking at all the
circumstances surrounding the making of the
agreement, including the relative bargaining strengths
of the parties, whether the contract was illegal or
against public policy and whether the contract was
oppressive or unreasonable. Unconscionability must
be determined on a case-by-case basis. In re Turner
Brothers Trucking Co. Inc. 8 S.W.3d 370, 376 (Tex.
App.–Texarkana 1999, no pet.); American Employers’
Ins. Co. v. Aiken, 942 S.W.2d 156, 160 (Tex. App.–
Fort Worth 1997, no writ).
Only claims of unconscionability relating to how
the agreement was made should be considered by a
court. Claims that the terms of the arbitration
agreement are unconscionable should be decided in
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
arbitration and should not keep a court from
compelling arbitration. In re Oakwood Mobile Homes,
Inc., 987 S.W.2d 571, 573 n.3 (Tex. 1999); Smith v.
H.E. Butt Grocery Co., 18 S.W.3d 910, 912 (Tex.
App.–Beaumont 2000, pet. denied); In re Foster Mold
Inc., 979 S.W.2d 665, 667 (Tex. App.–El Paso 1998,
no pet.).
In Texas, mere inequality of bargaining power
alone does not make an agreement unconscionable.
Smith v. H.E. Butt Grocery Co., 18 S.W.3d 910 (Tex.
App.–Beaumont 2000, pet. denied)(unequal bargaining
power of employer employee relationship cannot defeat
arbitration agreement under FAA). Nor is it
unconscionable for the fact there is no bargaining, that
the contract is a contract of adhesion, or that the
contract is presented as a take-it-or-leave-it
proposition. In re Turner Brothers Trucking Co. Inc., 8
S.W.3d 370, 376 (Tex. App.–Texarkana 1999, no pet.).
Employers may make a “take it or leave it” offer to at-
will employees premising continued employment on
acceptance of a new or different arbitration provision.
Without more, such an arbitration agreement is not
unconscionable. See In re Halliburton Co., 80 S.W.3d
566 (Tex. 2002).
The existence of large arbitration costs could
support a finding of an unconscionable arbitration
agreement. Green Tree Financial Corp. v. Randolph,
531 U.S. 79 (2000). An arbitration agreement that is
silent as to costs and fees is a “plainly insufficient”
basis for invalidating the same. Id. Any party
opposing arbitration must prove the likelihood of
incurring such costs. Id. Following the reasoning in
Green Tree Financial Corp v. Randolph, the Texas
Supreme Court held that the possibility of an
arbitration subjecting a party to substantial costs and
fees does not make an arbitration agreement
unconscionable. The objecting party must present
specific evidence they would be charged excessive fees
(specific evidence of the future costs) and the
likelihood of incurring such costs. See In re FirstMerit
Bank, N.A., 52 S.W.3d at 756-757.
The following are examples of decisions under the
FAA finding arbitration agreements unenforceable
because they are unconscionable or against public
policy:
a. Terms of arbitration agreement failed to
preserve the plaintiff’s statutory rights as a
result of steep filing fees and other high costs
of arbitration. Paladino v. Avnet Computer
Technologies Inc., 134 F.3d 1054, 1062 (11th
20
Cir. 1998); but see, Green Tree Financial
Corp. v. Randolph, 531 U.S. 79, 89-92, 121 S.
Ct. 513, 148 L. Ed. 2d 373 (2000).
b. Hooters’ arbitration agreement with its
employees violated public policy, and
contained multiple one-sided, unconscionable
provisions. Hooters of America Inc. v.
Phillips, 39 F. Supp. 2d 582 (D.S.C. 1998).
c. Arbitration agreement required arbitration in
New York City. Miller v. AAACon Auto
Transport Inc., 434 F. Supp. 40 (S.D. Fla.
1977).
d. Arbitration agreement was presented but not
explained to a functionally illiterate person.
In re Turner Brothers Trucking Co. Inc., 8
S.W.3d 370, 376 (Tex. App.–Texarkana 1999,
no pet.).
F. Waiver
Arbitration of disputes is strongly favored under
federal law. Moses H. Cone Memorial Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct.
927, 941-42, 74 L.Ed.2d 765 (1983). Accordingly, a
presumption exists against the waiver of a contractual
right to arbitration. Moses H. Cone, 460 U.S. at 24-
25, 103 S.Ct. at 941-42.
Whether a party’s conduct waives its arbitration
rights under the FAA is a question of law. In re Bruce
Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998)
(courts will not find that a party has waived its right to
enforce an arbitration clause by merely taking part in
litigation unless it has substantially invoked the
judicial process to its opponent’s detriment).
The decision to arbitrate is one best made at the
onset of the case. Walker v. J.C. Bradford, 938 F.2d
575, 577 (5th Cir. 1991).
A party waives its right to arbitration when it
“substantially invokes the judicial process to the
detriment or prejudice of the other party.” Miller
Brewing Co. v. Fort Worth Distributing Co., 781 F.2d
494, 497 (5th Cir. 1986) (plaintiff’s decision to file suit
without mentioning its desire to arbitrate was an
indication of disinclination to arbitrate).
In order to substantially invoke the judicial
process, a party must have litigated the claim that the
party now proposes to arbitrate by engaging in some
overt act in court that demonstrates a desire to resolve
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
the arbitrable dispute through litigation rather than
arbitration. Subway Equipment Leasing Corp. v. Forte,
169 F.3d 324, 328-29 (5th Cir. 1999).
However, waiver of arbitration is not to be lightly
inferred considering the overriding federal policy
favoring arbitration. See Id., Valero Refining Inc. v.
MIT Lauberhorn, 813 F.2d 60, 66 (5th Cir. 1987).
Because waiver is typically defined as the knowing and
voluntary relinquishment of a known right, “the
invocation of the judicial process that affects a waiver
requires the waiving party to demonstrate a desire to
resolve the arbitrable dispute through litigation rather
than arbitration.” See In re Enron, 391 F.Supp.2d at
566-567. Actions constituting waiver of the right to
arbitrate may include the movant's engaging in some
combination of filing an answer, setting up a
counterclaim, pursuing discovery and moving for a
continuance prior to moving for a stay pending
arbitration. Parcel Tankers Inc. v. Formosa Plastics
Corp., 569 F.Supp. 1459 (S.D. Tex. 1983).
An agreement to arbitrate can be waived just like
any other contractual right. Generally, courts find
waiver when a party has substantially invoked the
judicial process to the detriment or prejudice of the
other party. Williams v. CIGNA Financial Advisors
Inc., 56 F.3d 656, 661 (5th Cir. 1995). Factors to be
considered include how long the litigation has been
proceeding, the activity in and status of the litigation,
the advantage gained by activity in litigation such as
conducting discovery not available in arbitration, the
delay and expense involved and the rulings obtained
from the court. In re Certain Underwriters at Lloyd’s,
18 S.W.3d 867, 872 (Tex. App.–Beaumont 2000, no
pet.). The determination of whether there has been a
waiver can be left to the arbitrator to decide but often
the determination is made by the court. In re Certain
Underwriters at Lloyd’s, 18 S.W.3d 867, 871 (Tex.
App.–Beaumont 2000, no pet.). The following are
examples of courts finding waiver:
a. A party engaged in substantial pre-trial
litigation for almost fifteen months, failed to
assert right to arbitrate as affirmative defense,
asserted a counterclaim, and actively
participated in pre-trial discovery. S & R
Co. v. Latona Trucking Inc., 984 F. Supp. 95,
103 (N.D. N.Y. 1997).
b. A party participated in pretrial proceedings
for eleven months, filed a motion to dismiss
and a motion to disqualify opposing counsel,
participated in discovery including
depositions, participated in discovery
21
disputes, and opposed class certification.
Hoxworth v. Blinder Robinson & Co. Inc.,
980 F.2d 912, 925 (3rd Cir. 1992).
c. A party participated in litigation for seventeen
months, initiated extensive discovery, filed
two answers, filed motions to dismiss and a
motion for summary judgment. Price v.
Drexel Burnham Lambert Inc., 791 F.2d 1156
(5th Cir. 1986).
d. A party did not seek arbitration until one
month before trial. Marble Slab Creamery
Inc., v. Wesic Inc., 823 S.W.2d 436, 438 (Tex.
App.–Houston [1st Dist.] 1992, no writ).
e. A party delayed seeking arbitration and
participated in the judicial process for almost
one year, resulting prejudice to the other
party. EZ Pawn Corp. v. Gonzalez, 921
S.W.2d 320, 324 (Tex. App.–Corpus Christi
1996, writ denied).
Waiver was not found when party removed case
to federal court, filed motion to dismiss, motion to
stay, an answer, asserted a counterclaim and
participated in discovery and filed a motion to compel
arbitration about four months after the removal of the
suit which was when the arbitration agreement was
discovered. Williams v. CIGNA Financial Advisors
Inc., 56 F.3d 656, 661 (5th Cir. 1995).
G. Other Contract Defenses
An arbitration agreement in a contract may be
unenforceable if the contract is void for illegality.
Eastern Marine Corp. v. Fukaya Trading Co., 364
F.2d 80, 83 (5th Cir. 1966). However, courts will
often enforce arbitration clauses upon finding the
illegal clause in the contract was not so central to the
contract as to require the entire contract to be held
void. This can be true regardless of whether the
contract contains a savings or severability clause.
Chattanooga Mailers Union Local No. 92 v.
Chattanooga News-Free Press Co., 524 F.2d 1305,
1313 (6th Cir. 1975). In addition, when the illegality
is not a part of the arbitration agreement, courts have
held the arbitration agreement is to be enforced even
if the contract might be declared illegal and the
determination of whether the contract is illegal is to
be resolved by the arbitrator and not the court.
Hydrick v. Management Recruiters International,
Inc., 738 F. Supp. 1434, 1435- 1436 (N.D. Ga. 1990).
Even illegal provisions in the arbitration agreement
itself, such as requirements illegally imposing
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
arbitration fees on a party, have been stricken in order
to allow the remainder of the arbitration agreement to
be enforced. Fuller v. Pep-Boys - Manny, Moe &
Jack of Delaware, Inc., 88 F. Supp. 2d 1158, 1162 (D.
Colo. 2000).
If the arbitration agreement is governed by the
FAA, courts may not invalidate arbitration agreements
under state laws applicable only to arbitration
agreements. Arbitration agreements under the FAA
are only subject to state laws generally applicable to
all contracts. Doctor’s Associates Inc. v. Casarotto,
517 U.S. 681, 687, 116 S. Ct.1652, 134 L. Ed. 2d 902
(1996).
An allegation by a party that the arbitration
agreement was entered into under duress must
specifically concern the arbitration agreement itself,
and not the contract as a whole. Service Corp. Intern.
v. Lopez, 162 S.W.3d 801, 809 (Tex. App.—Corpus
Christi 2005, no pet.). Economic duress is sufficient
to set aside arbitration agreement and avoid
arbitration. See In re RLS Legal Solutions LLC, 156
S.W.3d 160 (Tex. App.–Beaumont 2005, no pet.
h.)(court found economic duress sufficient to avoid
arbitration where employer withheld payment to
employee for worker already performed until
employee signed employment agreement with
arbitration clause where employee was sole income
provider for her household and needed pay). Cases
addressing the issue of duress include In re First
Merit, 52 S.W.3d 749 (Tex. 2001) and In re Oakwood
Mobile Homes, 987 S.W.2d 571, 573 (Tex. 1999).
If the allegation is that duress caused a party to
enter into the arbitration agreement, that allegation is to
be decided by the court prior to compelling arbitration.
However, if the allegation is that duress caused a party
to enter into the entire contract, the court should
compel arbitration and let the arbitrator determine
claims of duress. Acquaire v. Canada Dry Bottling,
906 F. Supp. 819, 826 (E.D. N.Y. 1995). Proving a
claim of duress is both difficult and rare. Id.; S + L +
H S.p.A. v. Miller - St. Nazianz Inc., 988 F.2d 1518,
1528 (7th Cir. 1993); Hellenic Lines Ltd. v. Louis
Dreyfus Corp., 372 F.2d 753, 758 (2nd Cir. 1967).
If the allegation is that the entire contract fails for
lack of consideration, the arbitration agreement will
still be enforced because the mutual agreement to
arbitrate a claim is sufficient consideration for the
arbitration agreement alone. Lacheney v. Profitkey
International Inc., 818 F. Supp. 922, 925 (E.D. Va.
1993). However, if the arbitration agreement is not
mutual, but applies only to one party, the arbitration
22
agreement may be unenforceable for lack of
consideration even when there is other and adequate
consideration for the entire contract. Hull v. Norcom
Inc., 750 F.2d 1547 (11th Cir. 1985).
A statute of limitations defense can relate to the
specific cause of action involved, or can relate to
temporal limitations within the contract or arbitration
agreement, such as the time within which an
arbitration claim must be brought. Ultimately, who
decides a limitations defense begins with a
determination of the intent of the parties as expressed
in their agreement. More often than not, the courts
decide this issue is one to be determined by the
arbitrator, however, there are numerous decisions
placing the decision in the court’s hands. The issues
involved in determining whether a limitations
defense is to be decided by the court or by the
arbitrator are complex, but a good introduction to the
issues involved can be found in the following
opinions: Porter Hayden Co. v. Century Indemnity
Co., 136 F.3d 380 (4th Cir. 1998), Painwebber Inc., v.
Elahi, 87 F.3d 589 (1st Cir. 1996) and FSC Securities
Corp. v. Freel, 14 F.3d 1310 (8th Cir. 1994).
Arbitration agreements in Texas may modify
existing statutory limitations. See generally EZ Pawn
Corp. v. Mancias, 934 S.W.2d 87 (Tex. 1996).
An arbitration agreement contained within a
contract survives the termination or repudiation of the
contract as a whole. See Henry v. Gonzalez, 18
S.W.3d 684, (Tex. App.–San Antonio, 2000, pet.
dism’d by agr.). This is so unless the parties have
expressly stated or clearly implied their intention that
their arbitration obligations cease with the contract.
Mississippi Ins. Managers Inc. v. Providence
Washington Ins. Co., 72 F. Supp. 2d 689, 695 (S.D.
Miss. 1999).
Res judicata is a defense that a court could leave
to an arbitrator to decide. However, most courts will
determine a claim of res judicata, and, if appropriate,
order a stay or injunction of, or bar to arbitration.
Kelly v. Merrill Lynch Pierce Fenner & Smith Inc.,
985 F.2d 1067, 1070 (11th Cir. 1993); and Miller
Brewing Co. v. Fort Worth Distributing Co. Inc., 781
F.2d 494 (5th Cir. 1986).
H. Appointment of Arbitrators
If in the agreement provision be made for a
method of naming or appointing an arbitrator,
arbitrators or an umpire, such method shall be
followed.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
9 U.S.C. § 5.
If no method be provided therein, or if a method be
provided and any party thereto shall fail to avail
himself of such method, or if for any other reason there
shall be a lapse in the naming of an arbitrator or
arbitrators or umpire, or in filling a vacancy, then upon
the application of either party to the controversy the
court shall designate and appoint an arbitrator or
arbitrators or umpire, as the case may require, who
shall act under the agreement with the same force and
effect as if he or they had been specifically named
therein.
9 U.S.C. § 5.
The arbitrator's authority is ultimately governed by
the arbitration agreement. See generally, General
Motors Corp. v. Pamela Equities Corp., 146 F.3d 242
(5th Cir. 1998); see also Lundgren v. Freeman, 307
F.2d 104 (9th Cir. 1962). Accordingly, it may be well
worthwhile to include in arbitration agreement
provisions concerning the number and appointment of
arbitrators, disqualification and/or objection to
arbitrators, filling of vacancies of arbitrators, and
authority and recusal of arbitrators in contracts
involving interstate commerce. Once a dispute actually
arises, the parties should supplement the contract with
an agreement defining the issue to be submitted to the
arbitrator and by explicitly giving the arbitrator(s)
authority to act. Pamela Equities Corp., 146 F.3d at
244.
I. Arbitration Hearing
The arbitrators may summon in writing any person
to attend before them or any of them as a witness and
in a proper case to bring with him or them any book,
record, document or paper which may be deemed
material as evidence in the case.
9 U.S.C. § 7.
If any person so summoned to testify shall refuse
or neglect to obey the summons, upon petition the
United States district court for the district in which
such arbitrators are sitting may compel the attendance
of such person before the arbitrators or punish the
person for contempt in the same manner provided by
law for securing the attendance of a witness or their
punishment for neglect or refusal to attend in the courts
of the United States.
9 U.S.C. § 7.
23
J. Confirmation of Award
If the parties in their agreement have agreed that a
judgment of the court shall be entered upon the award
made pursuant to the arbitration, and shall specify the
court, then at any time within one year after the award
is made any party to the arbitration may apply to the
court so specified for an order confirming the award,
and thereupon the court must grant such an order
unless the award is vacated, modified, or corrected.
9 U.S.C. § 9.
If no court is specified in the agreement of the
parties, then such application may be made to the
United States court in and for the district within which
such award was made.
9 U.S.C. § 9.
Notice of the application shall be served upon the
adverse party, and thereupon the court shall have
jurisdiction of such party as though he had appeared
generally in the proceeding.
9 U.S.C. § 9.
If the adverse party is a resident of the district
within which the award was made, such service shall
be made upon the adverse party or his attorney as
prescribed by law for service of notice of motion in an
action in the same court. If the adverse party shall be a
nonresident, then the notice of the application shall be
served by the marshal of any district within which the
adverse party may be found in like manner as other
process of the court.
9 U.S.C. § 9.
Federal procedure applies in federal courts
applying the FAA, but federal procedure does not
apply in Texas courts, even when Texas courts apply
the FAA. Jack B. Anglin Co. v. Tipps, 842 S.W.2d
266, 272 (Tex. 1992); see also Roehrs v. FSI Holdings
Inc., 246 S.W.3d 796, 804 (Tex. App.-Dallas 2008,
pet. denied) (procedural matters relating to the
confirmation of arbitration awards in Texas courts are
governed by Texas law even if the FAA supplies the
substantive rules of decision); Holcim (Tex.) Ltd.
P'ship v. Humboldt Wedag Inc., 211 S.W.3d 796, 800-
01 (Tex. App.-Waco 2006, no pet.) (when Texas
courts confront procedural issues involving case
subject to FAA, Texas procedural rules apply instead
of federal rules); J.D. Edwards World Solutions Co. v.
Estes Inc., 91 S.W.3d 836, 839 (Tex. App.-Fort Worth
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
2002, pet. denied) (citing Jack B. Anglin Co., 842
S.W.2d at 272).
K. Vacating Awards
In any of the following cases the United States
court in and for the district wherein the award was
made may make an order vacating the award upon the
application of any party to the arbitration:
(1) where the award was procured by corruption,
fraud, or undue means;
(2) where there was evident partiality or corruption
in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct
in refusing to postpone the hearing...or refusing
to hear evidence pertinent to and material to
the controversy; or any other behavior by
which the rights of any party had been
prejudiced;
(4) where the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual,
final, and definite award upon the subject
matter was not made.
9 U.S.C. § 10(a).
If an award is vacated, and the time within which
the agreement required the award to be made has not
expired, the court may, in its discretion, direct a
rehearing by the arbitrators.
9 U.S.C. § 10(b).
In light of the strong federal policy favoring
arbitration, judicial review of an arbitration award is
extraordinarily narrow. Gulf Coast Indus. Worker's
Union v. Exxon Co., 70 F.3d 847, 850 (5th Cir. 1995).
An appellate court reviews an order vacating an
arbitration award de novo, a standard that is "intended
to reinforce the strong deference due an arbitrative
tribunal." Mcllroy v. PaineWebber Inc., 989 F.2d 817,
820 (5th Cir. 1993); In re Chestnut Energy Partners
Inc., 300 S.W.3d 386, 397 (Tex. App.-Dallas 2009, pet.
denied).
A party may vacate an arbitration award when
"there was evident partiality or corruption in the
arbitrators, or either of them." 9 U.S.C. § 10(b).
"Evident partiality" means more than a mere
appearance of bias. International Produce v. A/S
24
Rosshavet, 638 F.2d 548, 552 (2d Cir.), cert. denied,
451 U.S. 1017, 101 S.Ct. 3006, 69 L.Ed.2d 389
(1981). As arbitrators are usually knowledgeable
individuals in a given field, often they have interests
and relationships that overlap with the matter they are
considering as arbitrators. The mere appearance of
bias that might disqualify a judge will not disqualify
an arbitrator. Id.
A reviewing court examining whether arbitrators
exceeded their powers must resolve all doubts in favor
of arbitration. Executone Information Systems Inc. v.
Davis, 26 F.3d 1314, 1320-21 (5th Cir. 1994).
Appellate courts indulge all reasonable
presumptions in favor of the award and none against
it. CVN Group Inc. v. Delgado, 95 S.W.3d 234, 238
(Tex. 2002).
An arbitration award has the same effect as a
judgment of a court of last resort, and a court
reviewing the award may not substitute its judgment
for the arbitrator's merely because the court would
have reached a different decision. CVN Group Inc. v.
Delgado, 95 S.W.3d 234, 238 (Tex. 2002); Statewide
Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568
(Tex. App.-Dallas 2008, no pet.).
The FAA’s grounds for vacatur are exclusive and
cannot be supplemented by contract. Hall Street
Associates LLC v. Mattel Inc., 552 U.S. 576, 578, 128
S.Ct. 1396, 170 L.Ed.2d 254 (2008).
Vacatur or enforcement proceedings are
exceptional, occurring in only 11% of all arbitrations.
PriceWaterhouseCoopers, International Arbitration:
Corporate Attitudes and Practices (2008).
Manifest disregard of the law is no longer an
independent ground for vacating an arbitration award
under the FAA. Citigroup Global Markets Inc. v.
Bacon, 562 F.3d 349, 350 (5th Cir. 2009).
Texas follows Hall Street when applying the
FAA. Nafta Traders Inc. v. Quinn, 339 S.W.3d 84, 91
(Tex. 2011).
In confirming an arbitration award, appellate
courts review the district court’s factual findings for
clear error, and review the district court’s conclusions
of law de novo. Tricon Energy Ltd. v. Vinmar
International Ltd., 718 F.3d 448, 452-53 (5th Cir.
2013).
L. Modifying or Correcting Award
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
In either of the following cases the United States
court in and for the district wherein the award was
made may make an order modifying or correcting the
award upon the application of any party to the
arbitration:
(a) Where there was an evident material
miscalculation of figures or an evident material
mistake in the description of any person, thing
or property referred to in the award.
(b) Where the arbitrators have awarded upon a
matter not submitted to them, unless it is a
matter not affecting the merits of the decision
upon the matter submitted.
(c) Where the award is imperfect in matter of form
not affecting the merits of the controversy.
The order may modify and correct the award so
as to affect the intent thereof and promote justice
between the parties.
9 U.S.C. § 11.
Notice of a motion to vacate, modify, or correct an
award must be served upon the adverse party or his
attorney within three months after the award is filed or
delivered.
9 U.S.C. § 12.
Arbitrators derive their authority from the
arbitration agreement, and that authority is limited to a
decision of the matters submitted therein, either
expressly or by necessary implication. Gulf Oil Corp.
v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959); Allstyle
Coil Co. L.P. v. Carreon, 295 S.W.3d 42, 44 (Tex.
App.—Houston [1st Dist.] 2009, no pet.) (scope of
authority depends on the agreement).
Arbitrators exceed their powers when they decide
matters not properly before them. Ancor Holdings LLC
v. Peterson, Goldman & Villani Inc., 294 S.W.3d 818,
829 (Tex. App.—Dallas 2009, no pet.); Barsness v.
Scott, 126 S.W.3d 232, 241 (Tex. App.—San Antonio
2003, pet. denied).
When determining whether an arbitrator has
exceeded his powers, any doubts concerning the scope
of what is arbitrable should be resolved in favor of
arbitration. See Myer v. Americo Life Inc., 232 S.W.3d
401, 408 (Tex. App.—Dallas 2007, no pet.).
It is only when the arbitrator departs from the
25
agreement, and, in effect, dispenses his own idea of
justice that the award may be unenforceable. Major
League Baseball Players Assn v. Garvey, 532 U.S.
504, 509 (2001).
An arbitrator has broad discretion in fashioning an
appropriate remedy. Roe v. Ladymon, 318 S.W.3d
502, 523 (Tex. App.—Dallas 2010, no pet.).
An arbitrator's award is “legitimate only so long
as it draws its essence” from the parties' agreement.
United Steelworkers of Am. v. Enter. Wheel & Car.
Corp., 363 U.S. 593, 597 (1960); Ancor Holdings, 294
S.W.3d at 830. To draw its essence from the
agreement, the arbitrator's award “must have a basis
that is at least rationally inferable, if not obviously
drawn, from the letter or purpose of the ...
agreement.... [T]he award must, in some logical way,
be derived from the wording or purpose of the
contract.” Executone Info. Sys. Inc. v. Davis, 26 F.3d
1314, 1325 (5th Cir. 1994); see Ancor Holdings, 294
S.W.3d at 830 (quoting Executone). “The arbitrator's
selection of a particular remedy is given even more
deference than his reading of the underlying contract,
... [and] the remedy lies beyond the arbitrator's
jurisdiction only if ‘there is no rational way to explain
the remedy handed down by the arbitrator as a logical
means of furthering the aims of the contract.’”
Executone, 26 F.3d at 1325 (quoting Brotherhood of
R.R. Trainmen v. Cent. of Ga. Ry. Co., 415 F.2d 403,
412 (5th Cir. 1969)). However, “[w]here an arbitrator
exceeds his contractual authority, vacation or
modification of the award is an appropriate remedy.”
Am. Eagle Airlines, Inc. v. Air Line Pilots Ass'n Int'l,
343 F.3d 401, 406 (5th Cir. 2001) (quoting Delta
Queen Steamboat Co. v. Dist. 2 Marine Eng'rs
Beneficial Ass'n, AFL–CIO, 889 F.2d 599, 602 (5th
Cir. 1989)).
To determine whether an award is beyond the
scope of the arbitrator's powers, courts look only at
the result. “The single question is whether the award,
however arrived at, is rationally inferable from the
contract.” Anderman/Smith Operating Co. v. Tenn.
Gas Pipeline Co., 918 F.2d 1215, 1219 n. 3 (5th Cir.
1990); see Ancor Holdings, 294 S.W.3d at 829 (“The
award must be derived in some way from the wording
and purpose of the agreement, and we look to the
result reached to determine whether the award is
rationally inferable from the contract.”).
M. Appeals
Under the FAA, an appeal may be taken from
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
(1) an order
(a) refusing a stay of any action under 9 U.S.C
§ 3,
(b) denying a petition under 9 U.S.C. § 4 to
order arbitration to proceed,
(c) denying an application under 9 U.S.C. §
206 to compel arbitration,
(d) confirming or denying confirmation of an
award or partial award, or
(e) modifying, correcting or vacating an
award.
(2) an interlocutory order granting, continuing, or
modifying an injunction against an arbitration
that is subject to 9 U.S.C., or
(3) a final decision with respect to an arbitration
that is subject to 9 U.S.C.
9 U.S.C. § 16(a).
Except as otherwise provided in 28 U.S.C. §
1292(b), an appeal may not be taken from an
interlocutory order
(1) granting a stay of any action under 9 U.S.C. §
3,
(2) directing arbitration to proceed under 9 U.S.C.
§ 4,
(3) compelling arbitration under 9 U.S.C. § 206,
or
(4) refusing to enjoin an arbitration that is subject
to 9 U.S.C.
9 U.S.C. § 16(b).
Fifth Circuit precedent firmly establishes that in
pending, non-independent suits, an order compelling
arbitration accompanied by a stay of the proceedings
pending arbitration is not a final decision for purposes
of § 16(a)(3). McDermott Int’l v. Underwriters at
Lloyds, 981 F.2d 744, 748 (5th Cir. 1993).
The FAA prohibits appeals from interlocutory
orders compelling arbitration, but permits appeals from
final orders compelling arbitration. An order is final if
it ends the litigation on the merits and leaves nothing
26
for the court to do but execute the judgment. In
determining whether an order affecting arbitration is
final or interlocutory, most courts distinguish between
arbitration actions that are “independent” and those
that are “embedded” among other claims. If the only
issue before the court is the dispute’s arbitrability, the
action is considered independent and a court’s
decision on that issue constitutes a final decision. If,
however, the case includes other claims for relief, an
arbitrability ruling does not end the litigation on the
merits, and is considered interlocutory only. Sphere
Drake Ins. PLC v. Marine Towing Inc., 16 F.3d 666,
668 (5th Cir. 1994).
First Options does not specifically displace or
allude to the jurisprudence that has developed under §
16 limiting appeals of orders to arbitrate, and does not
answer the question of whether the finality of an
arbitration order should be judged by considering as a
threshold matter whether the proceeding is
“embedded” or “independent.” Rather, First Options
places the burden on the district court to look closely
at the agreement between the parties to determine
whether the parties agreed to arbitrate the issue of
arbitrability. F.C. Schaffer & Associates Inc. v.
Demech Contractors Ltd., 101 F.3d 40, 42 (5th Cir.
1996).
A party denied the right to arbitrate under the
FAA by a state court has no adequate remedy by
appeal and is entitled to mandamus relief to correct a
clear abuse of discretion. L&L Kempwood Associates
v. Omega Builders Inc., 9 S.W.3d 125, 128 (Tex.
1999).
A party denied the right to arbitrate under the
FAA is entitled to mandamus relief. In re Wood, 140
S.W.3d 367, 370 (Tex. 2004) (per curiam).
The FAA does not bestow federal jurisdiction, but
requires an independent jurisdictional basis. Hall
Street Associates LLC v. Mattel Inc., 552 U.S. 576,
581-82 (2008).
V. RELATED STATUTES
In a matter subject to the FAA, a person may take
an appeal to the court of appeals from the judgment or
interlocutory order of a district court, county court at
law, or county court under the same circumstances
that an appeal form a federal district court’s order or
decision would be permitted by 9 U.S.C. § 16.
TEX. CIV. PRAC. & REM. CODE § 51.016.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
TCPRC now provides for the interlocutory appeal
of a trial court’s denial of a motion to compel
arbitration under the FAA. Cotton Commercial USA
Inc. v. Clear Creek ISD, 387 S.W.3d 99, 103 n.3 (Tex.
App.—Houston [14th Dist.] 2012, no pet.).
The Texas Legislature did not enact TEX. CIV.
PRAC. & REM. CODE § 74.451 (Medical Liability Act
arbitration) for the purpose of “regulating the business
of insurance” as that phrase has been interpreted under
the McCarran-Ferguson Act, such that § 74.451 is
preempted by the FAA. Fredericksburg Care Co. v.
Perez, 461 S.W.3d 513 (Tex. 2015).
It is the policy of the State of Texas to encourage
the peaceful resolution of disputes, and the early
settlement of pending litigation through voluntary
settlement procedures.
TEX. CIV. PRAC. & REM. CODE § 154.002.
Section 154.002 expresses the general policy that
peaceable resolution of disputes is to be encouraged
through voluntary settlement procedures. However, a
court cannot force the disputants to peaceably resolve
or negotiate their differences. Hanson v. Sullivan, 886
S.W.2d 467, 469 (Tex. App.—Houston [1st Dist.] 1994,
orig. proceeding.
It is the responsibility of all trial and appellate
courts and their court administrators to carry out the
policy under § 154.002.
TEX. CIV. PRAC. & REM. CODE § 154.003.
The Texas legislature has expressly declared the
state’s policy of encouraging the peaceable settlement
of citizens’ disputes, and has placed on the courts the
responsibility for carrying out that policy. Adams v.
Petrade International, 754 S.W.2d 696, 715 (Tex.
App.—Houston [1st Dist.] 1988, writ denied).
The ADR Act establishes a definite state policy to
encourage the early settlement of pending litigation
through voluntary settlement procedures and places the
responsibility for carrying out this procedure on both
the trial and appellate courts. Downey v. Gregory, 757
S.W.2d 524, 525 (Tex. App.—Houston [1st Dist.] 1988,
orig. proceeding).
A court may, on its own motion or the motion of a
party, refer a pending dispute for resolution by an
alternative dispute resolution procedure, including an
ADR system established by counties under Chapter
152, a dispute resolution organization, or a non-judicial
27
and informally conducted forum for the voluntary
settlement of citizens’ disputes through the
intervention of an impartial third party, including
those ADR procedures described in Chapter 154,
Subchapter B. The court shall confer with the parties
in the determination of the most appropriate ADR
procedure.
TEX. CIV. PRAC. & REM. CODE § 154.021.
Under Chapter 154, a trial judge on its own
motion or on the motion of a party may refer a
pending dispute for resolution by an ADR procedure.
Gleason v. Lawson, 850 S.W.2d 714, 717 (Tex.
App.—Corpus Christi 1993, no writ).
The parties may file, within the time for filing
objections to the referral, a written proposal
suggesting the most appropriate ADR procedure.
Paul v. Paul, 870 S.W.2d 349, 350 (Tex. App.—Waco
1994, no writ).
With certain exceptions, a communication relating
to the subject matter of any civil or criminal dispute
made by a participant in an ADR procedure, whether
before or after the institution of formal judicial
proceedings, is confidential, is not subject to
disclosure, and may not be used as evidence against
the participant in any judicial or administrative
proceeding.
TEX. CIV. PRAC. & REM. CODE § 154.073(a).
Any record made at an ADR procedure is
confidential, and the participants or the third party
facilitating the procedure may not be required to
testify in any proceedings relating to or arising out of
the matter in dispute or be subject to process requiring
disclosure of confidential information or data relating
to or arising out of the matter in dispute.
TEX. CIV. PRAC. & REM. CODE § 154.073(b).
An oral communication or written material used
in or made a part of an ADR procedure is admissible
or discoverable if it is admissible or discoverable
independent of the procedure.
TEX. CIV. PRAC. & REM. CODE § 154.073(c).
VI. ENFORCEABILITY OF ARBITRATION
IN ATTORNEY EMPLOYMENT CONTRACTS
Arbitration clauses in attorney-client employment
contracts are not presumptively unconscionable.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
Royston v. Lopez, 2015 Tex. LEXIS 622 (the mere fact
that an arbitration clause is one-sided does not make it
illusory).
A legal malpractice claim is not classified as a
personal injury claim for purposes of TAA §
171.002(a)(3). In re Pham (Pham v. Letney), 314
S.W.3d 520, 526 (Tex. App.—Houston [14th Dist.]
2010, orig. proceeding); In re Hartigan, 107 S.W.3d
684, 692 (Tex. App.—San Antonio 2003, orig.
proceeding); Porter & Clements LLP. v. Stone, 935
S.W.2d 217, 219-22 (Tex. App.—Houston [1st Dist.]
1996, no writ).
The Houston Courts of Appeals have issued several
opinions regarding attorney-client arbitration
agreements and have taken a strong position in favor of
such agreements. Pham, 314 S.W.3d at 526; Chambers
v. O'Quinn, 305 S.W.3d 141, 149 (Tex. App.—
Houston [1st Dist] 2009, pet. denied). Under this line
of opinions, a fiduciary relationship between attorney
and client does not exist before the client signs the
employment contract containing the arbitration
agreement, and therefore attorneys are not required to
fully explain all implications of the arbitration clause.
See, .e.g., Pham, 314 S.W.3d at 526. Further, courts
should defer to the Legislature with regard to the
imposition of any conditions on arbitration provisions
between attorney and client. Id. at 528; Chambers v.
O'Quinn, 305 S.W.3d 141, 149 (Tex. App.—Houston
[1st Dist] 2009, pet. denied). Cases upholding attorney-
client arbitration proceedings have engendered
passionate and articulate dissenting opinions:
“Notwithstanding the application of
settled contract law and public policy
favoring alternate dispute resolution,
many respected jurists and lawyers
oppose arbitration because it is not
cost effective, disgorges unwary
consumers of the right to a jury trial,
and eliminates appellate review for
errors of law. I remain a proponent of
arbitration. However, when the
legislature and rule-making authority
in the legal profession fail to protect
consumers of legal services, I believe
the courts have an obligation to act
because public perception of the legal
profession's ability to self-police is not
favorable.”
Pham, 314 S.W.3d at 528-29 (Seymore, J., dissenting);
see also Henry v. Gonzalez, 18 S.W.3d 684, 692 (Tex.
App.—San Antonio 2000, pet. dism'd); (Hardberger,
28
C.J., dissenting).
Under the TAA, there are enforceability issues
which arise above and beyond the public policy
concerns related to arbitration agreements between
lawyers and their clients. In In re Godt, 28 S.W.3d
732, 738 (Tex. App.–Corpus Christi 2000, no pet.),
the court determined that a legal malpractice claim is a
personal injury action. Therefore, under the TAA, an
arbitration agreement covering such a claim would
have to be signed by each party and by each party’s
counsel. As a result, the Corpus Christi Court of
Appeals refused to enforce the arbitration agreement
in Godt. The court in Godt expressly chose not to
address the argument that the arbitration agreement
was unenforceable on policy grounds. In re Godt, 28
S.W.3d 732, 738-739 (Tex. App.–Corpus Christi
2000, no pet.). However, the court did note that Rule
1.08(g) of the Texas Disciplinary Rules of
Professional Conduct provides in relevant part: “[A]
lawyer shall not make an agreement prospectively
limiting the lawyer’s liability to a client for
malpractice unless permitted by law and the client is
independently represented in making the agreement.”
Id. at 739 n.7.
In contrast, Taylor v. Wilson, 180 S.W.3d 627
(Tex. App.–-Houston [14 Dist.] 2005)(pet. filed) held
a legal malpractice claim against a law firm was not a
claim for “personal injury” within the meaning of the
personal injury exception of the TAA. The court,
therefore, reversed the trial court’s denial of the
motion to compel and remanded with instructions for
the trial court to enter an order compelling arbitration.
The San Antonio and Amarillo Courts of Appeals
have used similar reasoning. See In re Hartigan, 107
S.W.3d 684, 690 (Tex. App.–-San Antonio 2003, no
pet. h.); Miller v. Brewer, 118 S.W.3d 896, 898-899
(Tex. App.–Amarillo 2003, no pet.).
VII. RELEVANT DECISIONS FROM
THE TEXAS SUPREME COURT
City of San Antonio v. McKenzie Construction
Co., 150 S.W.2d 989 (Tex. 1941). When parties to a
building contract agree to submit questions which may
arise thereunder to the decision of the engineer, his
decision is final and conclusive unless in making it he
is guilty of fraud, misconduct, or such gross mistake
as would imply bad faith or failure to exercise an
honest judgment.
Brazoria County v. Knutson, 176 S.W.2d 740
(Tex. 1943). Arbitration is a proceeding so favored by
Texas law that both our Constitution and statutes
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
provide for the submission of differences to arbitration.
L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348
(Tex. 1977). The settlement of disputes by arbitration
has been favored in Texas law, and a policy
encouraging agreements to arbitrate is preferable.
Arbitration in Texas can be pursuant to statute or
common law.
Jack B. Anglin Co. Inc. v. Tipps, 842 S.W.2d 266
(Tex. 1992). When Texas courts are called on to
decide if disputed claims fall within the scope of an
arbitration clause under the FAA, Texas procedure
controls that determination. Federal law preempts
application of the non-waiver provision of the DTPA to
prevent or restrict enforcement of an arbitration
agreement.
Capital Income Properties-LXXX v. Blackmon, 843
S.W.2d 22 (Tex. 1992). The FAA, which applies to
transactions “involving commerce,” dictates
enforcement of an arbitration agreement upon evidence
that a written agreement to arbitrate exists and that the
claims raised are within the scope of the agreement.
The FAA is part of the substantive law of Texas. A
party denied the benefit of an agreement to arbitrate is
without an adequate remedy by appeal when pursuing
application of the FAA in state court, and mandamus is
therefore appropriate.
Penrod Drilling Corp. v. Williams, 868 S.W.2d
294, 296 (Tex. 1993). On issues of federal law, such as
the proper interpretation of the FAA, courts must
follow the decisions of the United States Supreme
Court and the Texas Supreme Court. The decisions of
other federal courts may be persuasive but are not
binding.
Freis v. Canales, 877 S.W.2d 283 (Tex. 1994). A
party who has not agreed to arbitration has a right to
have disputes resolved by litigation. Arbitration cannot
be ordered in the absence of an arbitration agreement.
Prudential Securities Inc. v. Marshall, 909 S.W.2d
896 (Tex. 1995). Arbitration of disputes is strongly
favored under federal and state law. Under the FAA,
doubts as to whether a claim falls within the scope of
arbitration is determined under federal law and must be
resolved in favor of arbitration. The policy in favor of
enforcing 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.” A presumption exists against the
waiver of a contractual right to arbitration. A party
29
does not waive a right to arbitration merely by delay.
A party urging waiver must establish that any delay
resulted in prejudice.
Cantella & Co. Inc. v. Goodwin, 924 S.W.2d 943
(Tex. 1996). A presumption exists in favor of
agreements to arbitrate under the FAA, and courts
must resolve any doubts about an agreement to
arbitrate in favor of arbitration. Once a party seeking
to compel arbitration establishes that an agreement
exists under the FAA and that claims raised are within
the agreement’s scope, the trial court has no discretion
but to compel arbitration and stay its proceedings
pending arbitration.
EZ Pawn Corp. v. Mancias, 934 S.W.2d 87 (Tex.
1996). The FAA disfavors waiver. There is a strong
presumption against waiver, and the burden to prove
waiver is a heavy one. Waiver of arbitration must be
intentional, and in cases where litigation has begun
will be found only when the party seeking to enforce
the agreement substantially invokes the judicial
process to the other party’s detriment. Propounding
interrogatories and requests for production of
documents, noticing a single deposition, and agreeing
to a trial resetting did not amount to a waiver of
arbitration, nor is there waiver where party waited ten
months before moving to arbitrate because the party
did not learn of the agreement’s existence until
litigation had already begun.
Morgan Stanley & Co. v. Texas Oil Co., 958
S.W.2d 178 (Tex. 1997). A person must be a stranger
to a contract to tortiously interfere with it. Thus, a
signatory generally is not requited to arbitrate a
tortious interference claim against a complete stranger
to his contract and its arbitration clause.
Burlington Northern Railroad Company v. TUCO
Inc., 960 S.W.2d 629 (Tex. 1997). Under the TAA, a
neutral arbitrator selected by the parties or their
representatives exhibits evident partiality if the
arbitrator does not disclose facts which might, to an
objective observer, create a reasonable impression of
the arbitrator's partiality. Applying this standard, a
neutral arbitrator's failure to disclose his acceptance,
during the course of the arbitration proceedings, of a
substantial referral from the law firm of a non-neutral
co-arbitrator established evident partiality as a matter
of law.
In re Valero Energy Corporation, 968 S.W.2d 916
(Tex. 1998). By statute, a denial of a motion to
compel arbitration under the TAA is appealable.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
There is no similar provision for an appeal based on the
FAA when proceeding in the state courts. However,
mandamus is appropriate when a state court
erroneously denies a motion to compel arbitration
under the federal scheme. The better course of action
for a court of appeals confronted with an interlocutory
appeal and a mandamus proceeding seeking to compel
arbitration would be to consolidate the two proceedings
and render a decision disposing of both simultaneously,
thereby conserving judicial resources and the resources
of the parties.
In re Oakwood Mobile Homes Inc., 987 S.W.2d
571 (Tex. 1999). A party attempting to compel
arbitration must first establish that the dispute in
question falls within the scope of a valid arbitration
agreement. If the other party resists arbitration, the
trial court must determine whether a valid agreement to
arbitrate exists. If the trial court finds a valid
agreement, the burden shifts to the party opposing
arbitration to raise an affirmative defense to enforcing
arbitration. To establish fraud in the formation of an
arbitration agreement, a party must prove that a
material misrepresentation was made, and that it was
false. Adhesion contracts are not automatically
unconscionable or void, and there is nothing per se
unconscionable about arbitration agreements.
In re Bruce Terminix Co., 988 S.W.2d 702 (Tex.
1998). Because public policy favors arbitration, there
is a strong presumption against waiver of the right to
arbitrate.
Certain Underwriters at Lloyds of London v.
Celebrity Inc., 988 S.W.2d 731, 733 (Tex. 1998). The
TAA provides that an appeal from an order denying a
motion to compel arbitration shall be taken in the
manner and to the same extent as an appeal from an
order or judgment in a civil action. However, the
Texas Supreme Court does not have jurisdiction over
appeals under the TAA from an interlocutory order
denying arbitration in the absence of a dissent or
conflict in the court of appeals.
In re L&L Kempwood Associates LP, 9 S.W.3d 125
(Tex. 1999). The FAA makes enforceable a written
arbitration provision in a contract evidencing a
transaction involving commerce, and extends to any
contract affecting commerce. Absent a choice-of-law
provision specifically excluding the application of
federal law, both the TAA and the FAA apply.
In re FirstMerit Bank, 52 S.W.3d 749 (Tex. 2001).
Whether a case is governed by the FAA or the TAA,
30
many of the underlying substantive principles are the
same. Doubts regarding the scope of the arbitration
agreement are resolved in favor of arbitration.
Mandamus relief is proper to enforce arbitration
agreements governed by the FAA. A litigant who
sues based on a contract subjects himself to the
contract’s terms. Defenses of unconscionability,
duress, fraudulent inducement and revocation must
specifically relate to the arbitration agreement itself,
and not to the contract as a whole.
Perry v. Del Rio, 66 S.W.3d 239 (Tex. 2001). An
appellate court’s review is confined to the record in
the trial court when the trial court acted.
Mariner Financial Group v. Bossley, 79 S.W.3d
30 (Tex. 2002). An arbitrator is evidently partial by
failing to disclose an adverse relationship with an
expert witness.
In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002).
Under the FAA, an employee’s at-will status did not
render an arbitration agreement illusory because the
employer did not rely upon continued employment as
consideration for the agreement. Instead, mutual
promises to submit all employment disputes to
arbitration constituted sufficient consideration.
Procedural unconscionability refers to circumstances
surrounding the adoption of the arbitration provision,
and substantive unconscionability refers to fairness of
the arbitration provision itself. Courts may consider
both procedural and substantive unconscionability in
evaluating the validity of an arbitration provision. A
trial court abuses its discretion when it refuses to
compel arbitration in the face of a valid arbitration
agreement.
In re Service Corporation International, 85
S.W.3d 171 (Tex. 2002). Length of delay alone is not
a basis for inferring waiver.
In re J. D. Edwards World Solutions Co., 87
S.W.3d 546 (Tex. 2002). An agreement to arbitrate
all disputes “involving” the underlying contract
encompasses a fraudulent inducement claim.
Callahan & Associates v. Orangefield
Independent School District, 92 S.W.3d 841 (Tex.
2002). The TAA requires a court to confirm an
arbitrator’s award upon a party’s application unless a
party offers grounds for vacating, modifying, or
correcting the award. The statutory grounds allowing
a court to vacate, modify, or correct an award are
limited to those identified in the TAA. Gross mistake,
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
a common law ground for setting aside an arbitration
award, is a mistake that implies bad faith or failure to
exercise honest judgment. An arbitrator’s mere failure
to award damages is not a ground under the TAA or the
common law for modifying or correcting an award.
CVN Group Inc. v. Delgado, 95 S.W.3d 234 (Tex.
2002). An award of arbitrators upon matters submitted
to them is given the same effect as the judgment of a
court of last resort. All reasonable presumptions are
indulged in favor of the award, and none against it. An
arbitration award cannot be set aside on public policy
grounds except in an extraordinary case in which the
award clearly violates carefully articulated fundamental
policy. The public policy must be carefully defined
and fundamental, and is to be ascertained by reference
to the laws and legal precedents and not from general
considerations of supposed public interests. Here, the
validity of a lien claim was within the scope of the
arbitration agreement, and the award did not violate
public policy.
In re First Texas Homes Inc., 120 S.W.3d 868
(Tex. 2003). Whether claims are arbitrable under the
FAA must be determined under federal law. An
agreement to arbitrate “all disputes” between the
parties is broad, and is not limited to conduct occurring
prior to execution of the contract.
J.M. Davidson Inc. v. Webster, 128 S.W.3d 223
(Tex. 2003). A party moving to compel arbitration
must establish the existence of a valid arbitration
agreement and that the claims asserted fall within the
scope of that agreement. Whether an employer’s
unrestricted right to unilaterally abolish or modify a
personnel policy gave it the right to terminate an
arbitration agreement without notice created an
ambiguity requiring remand. In interpreting an
agreement to arbitrate, courts apply ordinary contract
principles. An ambiguity in the arbitration agreement
must be resolved by an evidentiary hearing. Whether
an arbitration agreement is enforceable is a question of
law reviewed de novo.
In re Wood, 140 S.W.3d 367 (Tex. 2004). Where
parties agreed to submit all disputes to an arbitrator
under the FAA, and where a dispute over whether
contract prohibited class arbitration was a contract
construction issue (i.e. a dispute arising out of the
contract), the parties committed the issue to the
arbitrator to decide.
Van Independent School District v. McCarty, 165
S.W.3d 351 (Tex. 2005). To constitute waiver, a
31
party’s conduct must be unequivocally inconsistent
with claiming a known right to arbitration.
In re Kellogg Brown & Root Inc., 166 S.W.3d 732
(Tex. 2005). Whether there is an enforceable
arbitration agreement is a question of law and is
reviewed de novo. Courts will uphold choice of law
provisions. Under the FAA, ordinary principles of
state contract law determine whether there is a valid
agreement to arbitrate. However, when there is no
express agreement to arbitrate under the FAA, a party
may establish the applicability of the FAA by showing
the transaction affects or involves interstate
commerce. A non-signatory should be compelled to
arbitrate a claim only if it seeks, through the claim, to
derive a benefit from the contract containing the
arbitration provision.
In re McKinney, 167 S.W.3d 833 (Tex. 2005).
Absent fraud, misrepresentation, or deceit, a party is
bound by the terms of the contract he signed,
incorporating an agreement to arbitrate, regardless of
whether he read it or thought it had different terms.
In re AdvancePCS Health LP, 172 S.W.3d 603
(Tex. 2005). Under the FAA, an agreement to
arbitrate is valid if it meets the requirements of the
general contract law of the applicable state. Neither
the FAA nor Texas law requires that an arbitration
clause be signed, so long as it is written and agreed to
by the parties. Nor does an arbitration agreement
have to be included in each of the contract documents
it purports to cover. Unequal bargaining power does
not establish grounds for defeating an arbitration
agreement absent a well-supported claim that the
agreement resulted from the sort of fraud or
overwhelming economic power that would provide
grounds for revocation of any contract.
In re Nexion Health at Humble Inc., 173 S.W.3d
67 (Tex. 2005). Medicare funds crossing state lines
constitutes interstate commerce thereby bringing a
contract within the FAA. Because the TAA interferes
with the enforceability of the arbitration agreement by
adding an additional requirement in personal injury
cases—the signature of a party’s counsel—the FAA
preempts Section 171.002(a)(3) of the TAA.
In re Weekley Homes L.P., 180 S.W.3d 127 (Tex.
2005). Under the FAA, a non-party to a contract
containing an arbitration provision can be compelled
to arbitrate a personal injury claim under the equitable
doctrine of direct-benefits estoppel.
In re Dillard Department Stores Inc., 186 S.W.3d
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
514 (Tex. 2006). Mandamus relief is available when a
trial court erroneously denies a motion to compel
arbitration under the FAA. 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.
Any ambiguity as to whether “arising from” should
mean intertwined, or occurring as a direct result from,
is resolved in favor of arbitration.
In re Vesta Ins. Group Inc., 192 S.W.3d 759 (Tex.
2006). Parties that conduct full discovery, file motions
going to the merits, and seek arbitration only on the eve
of trial waive any contractual right to arbitration. A
party to an arbitration agreement must arbitrate tortious
interference claims against the other party’s agents and
affiliates.
In re Palm Harbor Homes Inc., 195 S.W.3d 672
(Tex. 2006). Contracts that are unconscionable will not
be enforced. Unconscionability principles are applied
to prevent unfair surprise or oppression. There are two
types of unconscionability claims: substantive and
procedural. Substantive unconscionability refers to the
fairness of the arbitration provision itself, whereas
procedural unconscionability refers to the
circumstances surrounding adoption of the arbitration
provision. Unconscionability is measured at the date
the agreements are made. The test of substantive
unconscionability is whether, given the parties’ general
commercial background and the commercial needs of
the particular trade or case, the clause involved is so
one-sided that it is unconscionable under the
circumstances existing when the parties made the
contract. Under the FAA, a manufacturer “opt out”
right did not render the arbitration agreement
unenforceable, and it was abuse of discretion for trial
court to fail to compel purchasers of a manufactured
home to arbitrate their claims against both the retailer
and the manufacturer. The court considered the
purchasers’ claims to implicate “substantially
interdependent and concerted misconduct.”
In re Dallas Peterbilt Ltd., 196 S.W.3d 161 (Tex.
2006). Under the FAA, 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, signed an
acknowledgement form, and commenced employment.
In re D. Wilson Construction Co., 196 S.W.3d 774
(Tex. 2006). The existence of a valid arbitration
agreement is a legal question subject to de novo review.
Once an agreement is established, a court should not
deny arbitration unless it can be said with positive
32
assurance that an arbitration clause is not susceptible
of an interpretation which would cover the dispute at
issue. The FAA and TAA are not mutually exclusive.
The FAA only preempts contrary state law, but not
consonant state law. The mere fact that a contract
affects interstate commerce, thus triggering the FAA,
does not preclude enforcement under the TAA as well.
In re Dillard Department Stores Inc., 198 S.W.3d
778 (Tex. 2006). The scope of an employment-related
arbitration agreement included a claim for retaliatory
discharge.
Meyer v. WMCO-GP LLC, 211 S.W.3d 302 (Tex.
2006). A person who has agreed to arbitrate disputes
with one party may in some cases be required to
arbitrate related disputes with others. Equitable
estoppel allows a non-signatory to a contract
containing an arbitration clause to compel arbitration
when the signatory to a written agreement containing
an arbitration clause must rely on the terms of the
written agreement in asserting its claims against the
non-signatory. When the facts are not disputed, the
application of estoppel is a question of law, not a
matter committed to the trial court’s discretion.
In re Bank One, 216 S.W.3d 825 (Tex. 2007).
When a trial court denies a motion to compel
arbitration and the underlying contract is governed by
the FAA, mandamus relief is appropriate. The
arbitration agreement in this case was incorporated by
reference on the account signature card. Signature
cards are valid contracts under Texas law. Document
incorporated by reference in the signature card are
part of the contract. Texas law presumes that a party
who signs a contract knows its contents. Therefore,
an arbitration agreement incorporated by reference in
a signature card is valid. There is a strong
presumption against waiver. Waiver must be
intentional. A party waives arbitration when it
substantially invokes the judicial process to the other
party’s detriment. Moving to set aside a default
judgment and requesting a new trial does not
substantially invoke the judicial process.
In re Palacios, 221 S.W.3d 564 (Tex. 2006).
Texas courts applying the FAA follow Texas rather
than federal procedure. Nevertheless, it is important
for federal and state law to be as consistent as possible
in this area, because federal and state courts have
concurrent jurisdiction to enforce the FAA. There is
some one-sidedness in reviewing only orders that
deny arbitration, but not orders that compel it. Yet
both the Federal and Texas acts leave little uncertainty
that this is precisely what the respective legislatures
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
intended.
In re RLS Legal Solutions LLC, 221 S.W.3d 629
(Tex. 2007). Unless the arbitration provision alone is
singled out from the rest of the agreement, a claim of
duress goes to the validity of the agreement generally
and must be decided in arbitration.
In re Merrill Lynch Trust Co., 235 S.W.3d 185
(Tex. 2007). The purpose of the FAA is to make
arbitration agreements as enforceable as other
contracts, but not more so. When a plaintiff’s claims
against a defendant are in substance claims against the
defendant’s employer and the plaintiff has agreed to
arbitrate claims against the employer, the plaintiff must
arbitrate the claims against the employee. Based upon
an estoppel theory of substantially interdependent and
concerted misconduct, claims by investors against
Merrill Lynch employees relating to investments must
be arbitrated even though the employees were non-
signatories to the arbitration agreement.
In re Kaplan Higher Education Corp., 235 S.W.3d
206 (Tex. 2007). Under the FAA, arbitration
agreements are enforced according to their terms and
according to their intentions. Arbitrability turns on the
substance of the claim, not artful pleading.
In re U. S. Home Corp., 236 S.W.3d 761 (Tex.
2007). Under the FAA, purchasers of home raised
seven contract defenses to arbitration enforcement: (1)
the arbitration clauses were contracts of adhesion, (2)
the arbitration clauses were procured by fraud, (3) the
arbitration clauses were not supported by mutual
consideration, (4) a fee schedule from the American
Arbitration Association is enough to establish
excessive fees, (5) the builder failed to invoke
mediation as a condition precedent to arbitration, (6)
use of the words “may request arbitration” renders the
arbitration clause ambiguous, and (7) purchasers
cannot be compelled to arbitrate against non-
signatories who benefitted from the contract. The trial
court found for purchasers, but the Texas Supreme
Court reversed and remanded to compel arbitration.
Chambers v. Quinn, 242 S.W.3d 30 (Tex. 2007).
Under the TAA, a party can appeal an order or
judgment that either: (1) denies an application to
compel arbitration made under § 171.021, or (2) grants
an application to stay arbitration under § 171.023. See
TEX. CIV. PRAC. & REM. CODE § 171.098(a)(1), (2).
The Act is one-sided, allowing interlocutory appeals
solely from orders that deny arbitration. Similarly, the
FAA makes no provision for an interlocutory appeal
from an order compelling arbitration.
33
In re Fleetwood Homes of Texas L.P., 257 S.W.3d
692 (Tex. 2008). A party substantially invokes the
judicial process when it participates in full discovery,
files motions going to the merits, and waits until the
eve of trial to seek arbitration.
Perry Homes v. Cull, 258 S.W.3d 580 (Tex.
2008). The rule that one cannot wait until the eve of
trial to request arbitration is not limited to the evening
before trial. It is a rule of proportion. Waiver may be
express or implied. Whether waiver of arbitration has
occurred is a question of law for the court that is
reviewed de novo. After conducting about a year of
discovery in litigation, the Culls moved to compel
arbitration. Four days before trial, the trial court
granted the motion to compel arbitration. Perry
Homes sought mandamus relief, but was denied by
both the court of appeals and the Texas Supreme
Court. The arbitration commenced and was
concluded and an award was rendered in favor of the
Culls. Perry Homes moved to vacate the award,
contending that the Culls had waived their right to
arbitration. Prejudice refers to the inherent unfairness
in terms of delay, expense, or damage to a party’s
legal position that occurs when the party’s opponent
forces it to litigate an issue and later seeks to arbitrate
that same issue. The Texas Supreme Court vacated
the arbitration award and held that the Culls
manipulated the litigation to its advantage and to their
opponents’ detriment which is precisely the kind of
inherent unfairness that constitutes prejudice under
federal and state law.
In re Citigroup Global, 258 S.W.3d 623 (Tex.
2008). Litigation conduct limited to jurisdictional
transfers, and not to merits, does not constitute waiver
of contractual right to arbitration.
In re Poly-America L.P., 262 S.W.3d 337 (Tex.
2008). Arbitration is intended to provide a lower-cost,
expedited means to resolve disputes. Neither the
strong presumption favoring arbitration nor federal
preemption applies in a state court’s assessment of
whether parties have entered into a valid and
enforceable arbitration agreement under state law. An
agreement to arbitrate is valid under the FAA if it
meets the requirements of the general contract law of
the applicable state. In determining the validity of an
agreement to arbitrate under the FAA, courts must
first apply state law governing contract formation.
Courts may not invalidate arbitration agreements
under state laws applicable only to arbitration
provisions. Once an enforceable contract to arbitrate
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
is found, there is a strong federal presumption in favor
of arbitration such that myriad doubts—as to waiver,
scope and other issues not relating to enforceability—
must be resolved in favor of arbitration. Agreements to
arbitrate disputes between employers and employees
are generally enforceable under Texas law, and there is
nothing per se unconscionable about an agreement to
arbitrate employment disputes.
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex.
2008). Whether a case is governed by the FAA or the
TAA, many of the underlying substantive principles are
the same. The trial court’s determination of an
arbitration agreement’s validity is a legal question
subject to de novo review. While an arbitration
agreement procured by fraud is unenforceable, the
party opposing arbitration must show that the fraud
relates to the arbitration provision specifically and not
to the broader contract in which it appears. If a
fraudulent inducement claim attacks the broader
contract, then the arbitrator, not the court, considers the
matter. If a valid arbitration agreement empowers the
arbitrator to determine what issues are arbitrable, the
“scope determination” is removed from the trial court
and placed with the arbitrator.
In re Next Financial Group Inc., 271 S.W.3d 263
(Tex. 2008). Under the FAA, tort claims and other
extra-contractual claims can arise from a commercial
transaction and thus may be subject to arbitration
agreements.
In re Labatt Food Service L.P., 279 S.W.3d 640
(Tex. 2009). Whether an arbitration agreement is
enforceable is subject to de novo review. Under the
FAA, whether an arbitration agreement binds a non-
signatory is a gateway matter to be determined by
courts rather than arbitrators unless the parties clearly
and unmistakably provide otherwise. State law
generally governs whether a litigant agreed to arbitrate,
and federal law governs the scope of an arbitration
clause. Wrongful death beneficiaries are generally
bound by a decedent’s pre-death contractual agreement
and must arbitrate wrongful death claims.
In re Jindal Saw Limited, 289 S.W.3d 827 (Tex.
2009). An arbitration agreement between a decedent
and his employer requires the employee’s wrongful
death beneficiaries to arbitrate their wrongful death
claims against the employer.
In re Gulf Exploration LLC, 289 S.W.3d 836 (Tex.
2009). Most states (including Texas) have adopted the
Uniform Arbitration Act, which, like the FAA,
34
authorizes immediate appeal only from orders denying
arbitration. In Texas, courts may also review an order
compelling arbitration if the order also dismisses the
underlying litigation so it is final rather than
interlocutory. Even when an order is not reviewable
by interlocutory appeal, it does not always preclude
review by mandamus. To be entitled to mandamus, a
petitioner must show that the trial court clearly abused
its discretion and that the relator has no adequate
remedy by appeal. If appeal is an adequate remedy
for an order compelling arbitration, mandamus must
be denied. Under the FAA, where the Joint Operating
Agreement between the parties contained an
arbitration agreement, a claim by oil and gas working
interest owners against the operator was compelled to
arbitration.
In re Macy’s Texas Inc., 291 S.W.3d 418 (Tex.
2009). The FAA contains no requirements for the
form or specificity of arbitration agreements except
that they be in writing. They need not be signed.
In re Morgan Stanley, 293 S.W.3d 182 (Tex.
2009). Courts have distinguished between issues of a
contract's very “formation” from other issues
impacting a contract's “validity.” With respect to
contract “formation,” where the very existence of a
contract containing the relevant arbitration agreement
is called into question, courts have authority and
responsibility to decide the matter. Under the FAA,
when the issue of mental capacity is raised as a
defense to arbitration, the very existence of the
contract is at issue. Courts are the proper forum to
decide the issue of mental capacity to assent to a
contract containing an arbitration clause.
In re Golden Peanut Co. LLC, 298 S.W.3d 629
(Tex. 2009). Wrongful death beneficiaries are bound
to decedent’s agreement to arbitrate any personal
injury or wrongful death claims under the decedent’s
employee benefit plan.
In re ADM Investor Services Inc., 304 S.W.3d 371
(Tex. 2010). Waiver can be implied from a party’s
unequivocal conduct, but not by inaction.
East Texas Salt Water Disposal Co. Inc. v.
Werline, 307 S.W.3d 267 (Tex. 2010). A party may
seek immediate appellate review of a trial court’s
order denying confirmation of an arbitration award,
vacating the award, and directing arbitration to be
undertaken again, and that an appellate court has
jurisdiction under section 171.098(a) of the TAA.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
In Re Odyssey Healthcare Inc., 310 S.W.3d 419
(Tex. 2010). The FAA does not violate the 10th
Amendment by encroaching on a state power to enact
and regulate its own workers' compensation system.
Statutory claims under the Texas Workers’
Compensation Act are arbitrable so long as the
arbitration agreement does not waive substantive rights
and remedies of the statute.
In re Houston Pipe Line Company, 311 S.W.3d
449 (Tex. 2009). When deciding a motion to compel
arbitration under the FAA, a Texas trial court applies
Texas procedure, which permits discovery to be taken
when it is needed before the arbitration or to permit the
arbitration to be conducted in an orderly manner.
When a party disputes the scope of an arbitration
provision or raises a defense to the provision, the trial
court, not the arbitrator, must decide the issues. When
Texas courts are called on to decide if disputed claims
fall within the scope of an arbitration clause under the
FAA, Texas procedure controls that determination.
Pre-arbitration discovery is expressly authorized under
the TAA when a trial court cannot fairly and properly
make its decision on a motion to compel arbitration
because it lacks sufficient information regarding the
scope of an arbitration provision or other issues of
arbitrability. Motions to compel arbitration and any
reasonably needed discovery should be resolved
without delay.
In re 24R Inc., 324 S.W.3d 564 (Tex. 2010). A
party seeking to compel arbitration must establish that
a valid arbitration agreement exists between the parties.
The party seeking to avoid arbitration then bears the
burden of proving its defenses against enforcing an
otherwise valid arbitration provision. A trial court that
refuses to compel arbitration under a valid and
enforceable arbitration agreement has clearly abused its
discretion. The enforceability of an arbitration
agreement is a question of law. Mutual agreement to
arbitrate claims provides sufficient consideration to
support an arbitration agreement. A promise is illusory
if it does not bind the promisor, such as when the
promisor retains the option to discontinue performance.
When illusory promises are all that support a purported
bilateral contract, there is no mutuality of obligation
and therefore no contract.
In re Olshan Foundation Repair Co., 328 S.W.3d
883 (Tex. 2010). The FAA preempts state laws which
require a judicial forum for the resolution of claims
which the contracting parties agreed to resolve by
arbitration. The FAA preempts TAA § 171.002(a)(2)
(an agreement for the acquisition by one or more
35
individuals of property, services, money or credit in
which the total consideration to be furnished by the
individual is not more than $50,000) and TAA §
171.002(a)(3) (a claim for personal injury).
Contractual language stipulating that arbitration will
be conducted pursuant to “the arbitration laws of your
state” includes the FAA. Courts apply the FAA
unless language in the arbitration agreement indicates
its exclusion. However, an agreement specifying that
arbitration occur “pursuant to the TAA” excludes
preemption of TAA § 171.002(a)(2). Excessive costs
imposed by an arbitration agreement render a contract
unconscionable if the costs prevent a litigant from
effectively vindicating rights in the arbitral forum.
In re Rubiola, 334 S.W.3d 220 (Tex. 2011).
When considering a motion to compel arbitration, the
court must determine first whether a valid arbitration
agreement exists and, if so, whether the claims in
dispute fall within that agreement's scope. Generally,
parties must sign arbitration agreements before being
bound by them. However, an obligation to arbitrate
not only attaches to one who signed a written
arbitration agreement but may also bind a non-
signatory under principles of contract law and agency.
Parties to an arbitration agreement may grant non-
signatories the right to compel arbitration. Whether a
non-signatory can compel arbitration is a gateway
matter for the court to decide.
Ellis v. Schlimmer, 337 S.W.3d 860 (Tex. 2011).
A party attempting to compel arbitration must first
establish the existence of a valid arbitration
agreement. The party must also establish that the
subject of the sought arbitration falls within the scope
of the agreement. Once the party seeking arbitration
does so, a strong presumption favoring arbitration
arises, and the burden shifts to the party opposing
arbitration to raise an affirmative defense to the
agreement’s enforcement. Courts should resolve any
doubts as to the agreement’s scope, waiver, and other
issues unrelated to its validity in favor of arbitration.
If a trial court denies a motion to compel arbitration,
appellate review may be available under both the
TAA and the FAA so long as the TAA is not
preempted.
Nafta Traders Inc. v. Quinn, 339 S.W.3d 84 (Tex.
2011). The TAA does not preclude parties from
modifying the scope of judicial review of arbitration
awards, and the U.S. Supreme Court’s Hall Street
decision, requiring strict adherence to FAA Sections
10 and 11, does not control.
CMH Homes v. Perez, 340 S.W.3d 444 (Tex.
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
2011). TEX. CIV. PRAC. & REM. CODE § 51.016
expressly incorporates federal law, permitting the
interlocutory appeal of an order refusing to compel
arbitration under the same circumstances that an appeal
from a federal district court’s order or decision would
be permitted under 9 U.S.C. 16. However, that code
section does not allow an interlocutory appeal of an
order appointing an arbitrator.
Italian Cowboy Partners Ltd. v. Prudential Ins. Co
of Am., 341 S.W.3d 323 (Tex. 2011). To determine the
parties’ intent, courts examine the express language of
the arbitration agreement. A disclaimer of reliance
clause must be clear and unequivocal.
Richmont Holdings Inc. v. Superior Recharge
Systems LLC, 392 S.W.3d 633 (Tex. 2013). The
existence of an arbitration agreement mandates
enforcement absent proof of a defense. The Texas
Supreme Court has jurisdiction to hear an appeal from
an interlocutory order denying arbitration when the
court of appeals decision conflicts with prior precedent.
Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013). A
party seeking to compel arbitration under the TAA
must: (1) establish the existence of a valid, enforceable
arbitration agreement; and (2) show that the claims
asserted fall within the scope of that agreement. An
arbitration provision contained within a trust is
enforceable against a beneficiary.
Kennedy Hodges LLP v. Gobellan, 433 S.W.3d 542
(Tex. 2014). A question of law material to the
disposition of the case confers jurisdiction on the Texas
Supreme Court to consider an interlocutory appeal of
the denial of a motion to compel arbitration. Whether a
party waived its right to arbitrate is a question of law
reviewed de novo. A party waives the right to arbitrate
“by substantially invoking the judicial process to the
other party’s detriment or prejudice.” The strong
presumption against waiver of arbitration renders this
hurdle a high bar.
Venture Cotton Cooperative v. Freeman, 435
S.W.3d 222 (Tex. 2014). Although the FAA 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 revocation of any contract.” This
savings clause permits arbitration agreements to be
invalidated by generally applicable contract defenses,
such as fraud, duress, or unconscionability, but not by
defenses that apply only to arbitration or that derive
their meaning from the fact that an agreement to
36
arbitrate is at issue. In determining the arbitration
agreement’s validity then, a court may not construe
the agreement differently from how it would construe
contracts generally under state law, nor may a court
rely on the uniqueness of an arbitration agreement as a
basis for a state-law holding that enforcement would
be unconscionable. Special state rules for interpreting
arbitration agreements cannot coexist with the FAA.
But if the circumstances would render any contract
unconscionable under Texas law, they are appropriate
to invalidate the agreement to arbitrate as well.
Tenaska Energy Inc. v. Ponderosa Pine Energy
LLC, 437 S.W.3d 518 (Tex. 2014). Evident partiality
exists if an arbitrator fails to disclose facts which
might, to an objective observer, create a reasonable
impression of the arbitrator’s partiality.
Americo Life Inc. v. Myer, 440 S.W.3d 18 (Tex.
2014). An arbitration panel selected contrary to the
contract-specified method lacks jurisdiction over the
dispute. Because the arbitration panel was formed
contrary to the express terms of the arbitration
agreement, the panel exceeded its authority when it
resolved the dispute and the award must be vacated.
Richmont Holdings Inc. v. Superior Recharge
Systems LLC, 455 S.W.3d 573 (Tex. 2014). Filing
suit, moving to transfer venue, conducting minimal
discovery, and delaying the filing of a motion to
compel arbitration does not “substantially invoke the
judicial process” and does not constitute waiver of
arbitration.
G.T. Leach Builders LLC v. Sapphire V.P. LP,
458 S.W.3d 502 (Tex. 2015). The law favors and
encourages arbitration. Whether the parties have
agreed to submit a dispute to arbitration is a gateway
matter. The court’s role, then, is first to decide
whether the parties made a valid and presently
enforceable agreement to arbitrate. If a party
opposing an application for arbitration denies the
existence of the agreement, the court shall summarily
determine that issue. If they did, then the court must
decide whether the present disputes fall within the
scope of that agreement. These questions that courts
must resolve are sometimes referred to as questions of
arbitrability. If, by answering these questions, the
court determines that the present disputes are in fact
arbitrable under the parties’ agreement, the court must
complete its role by ordering the parties to arbitration
and leaving it to the arbitrators to resolve those
disputes. Courts must decide questions of substantive
arbitrability (existence, enforceability, scope of an
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
agreement), but issues of procedural arbitrability
(construction and application of limits on that
agreement) are referred to the arbitrator for resolution.
Procedural matters include claims of waiver,
delay, or a like defense to arbitrability, and include
the satisfaction of prerequisites such as time limits,
notice, laches, estoppel, and other conditions
precedent to an obligation to arbitrate. Procedural
waiver concerns limitations periods or waiver of
particular claims or defenses. In contrast, waiver
by litigation conduct presents a question of
substantive arbitrability that courts must decide.
Fredericksburg Care Co. v. Perez, 461 S.W.3d 513
(Tex. 2015). The Texas Legislature did not enact TEX.
CIV. PRAC. & REM. CODE § 74.451 (Medical Liability
Act arbitration) for the purpose of “regulating the
business of insurance” as that phrase has been
interpreted under the McCarran-Ferguson Act, such
that § 74.451 is preempted by the FAA.
Royston Rayzor Vickery & Williams LLP v. Lopez,
467 S.W.3d 494 (Tex. 2015). Arbitration provisions
can be enforced under either statutory provisions or
common law. A trial court’s ruling on a motion to
compel arbitration may be challenged by interlocutory
appeal (under the TAA) and by an original mandamus
proceeding (under common law). Arbitration
agreements may be substantively or procedurally
unconscionable or both. Attorney-client arbitration
agreements are the subject of ongoing debate because
of competing public polices.
Cardwell v. Whataburger Restaurants LLC, 484
S.W.3d 426 (Tex. 2016). TEX. CIV. PRAC & REM.
CODE § 171.098(a)(1) authorizes appeal of an order
denying an application to compel arbitration. The
Texas Supreme Court has jurisdiction over appeals of
interlocutory orders denying arbitration when the court
of appeals decision conflicts with prior precedent.
VIII. RELEVANT DECISIONS FROM THE
FIFTH CIRCUIT COURT OF APPEALS
Mar-Len of Louisiana Inc. v. Parsons-Gilbane, 773
F.2d 633 (5th Cir. 1985). Whenever the scope of an
arbitration clause is fairly debatable or reasonably in
doubt, the court should decide the question of
construction in favor of arbitration. The weight of this
presumption is heavy. Consequently, a valid
agreement to arbitrate applies unless it can be said with
positive assurance that the arbitration clause is not
susceptible of an interpretation which would cover the
dispute at issue.
37
Bhatia v. Johnston, 818 F.2d 418 (5th Cir. 1987).
As the party resisting arbitration, plaintiff has the
burden of showing that he is entitled to a jury trial
under FAA § 4.
Forsythe International S.A. v. Gibbs Oil Co. of
Texas, 915 F.2d 1017 (5th Cir. 1990). The arbitrator
has broad discretion to make evidentiary decisions.
The evidentiary decision in question must have "so
affected the party's rights that it may be said he was
deprived of a fair hearing."
Dillard v. Merrill Lynch Pierce Fenner & Smith
Inc., 961 F.2d 1148 (5th Cir. 1992). A party contesting
the making of the arbitration agreement must make at
least some showing that under prevailing law he
would be relieved of his contractual obligations to
arbitrate if his allegations proved to be true . . . and
produce some evidence to substantiate his factual
allegations.
In re Complaint of Hornbeck Offshore 1984
Corp., 981 F.2d 752 (5th Cir. 1993). Arbitration
clauses containing “any dispute” language are
construed broadly.
Webb v. Investacorp. Inc., 89 F.3d 252 (5th Cir.
1996) (per curiam). The Fifth Circuit follows a two-
step procedure in determining whether to compel
arbitration. First, the court must ascertain whether the
parties agreed to arbitrate the dispute at issue, and is
shown where (1) there exists between the parties a
valid agreement to arbitrate, and (2) the dispute in
question falls within the scope of the agreement.
Once the Court is satisfied that the parties agreed to
arbitrate the dispute, it must then determine whether
any external legal constraints foreclose arbitration of
the dispute. A court, in determining the contractual
validity of an arbitration agreement, applies ordinary
state-law principles that govern the formation of
contracts.
Pennzoil Exploration & Production Co. v. Ramco
Energy, 139 F.3d 1061 (5th Cir. 1998). Arbitration is
a matter of contract between the parties, and a court
cannot compel a party to arbitrate unless the court
determines the parties agreed to arbitrate the dispute
in question. Arbitration provisions containing the
language “related to” are broad clauses that are not
limited to claims that literally arise under the contract,
but rather embrace all disputes having a significant
relationship to the contract regardless of the label
attached to the dispute.
Grigson v. Creative Artists Agency, 210 F.3d 524
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
(5th Cir. 2000). It is not abuse of discretion for a
district court to utilize equitable estoppel to compel a
non-signatory to arbitrate his claim of tortious
interference with a contract containing an arbitration
clause.
Texaco Exploration & Production Co. v. AmClyde
Engineered Products Co., 243 F.3d 906 (5th Cir. 2001).
There is a strong federal policy in favor of enforcing
arbitration agreements.
OPE International LP v. Chet Morrison
Contractors Inc., 258 F.3d 443 (5th Cir. 2001). A two-
pronged inquiry is used to determine whether parties
should be compelled to arbitrate their disputes. The
first prong requires the court to determine whether the
parties agreed to arbitrate their dispute. Two
considerations guide the court in making this
determination: whether a valid agreement to arbitrate
exists between the parties, and whether the dispute in
question is within the scope of the arbitration
agreement. Under the second prong, the court must
ensure that no legal restraints external to the agreement
have foreclosed arbitration.
Fleetwood Enterprises Inc. v. Gascamp, 280 F.3d
1069 (5th Cir. 2002). The federal policy favoring
arbitration does not apply to the determination of
whether there is a valid agreement to arbitrate.
Brook v. Peak International Ltd., 294 F.3d 668,
672 (5th Cir. 2002). Judicial review of an arbitration
award is extraordinarily narrow.
Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702 (5th
Cir. 2002). If the making of the arbitration agreement
be in issue, the court shall proceed summarily to the
trial thereof. Although the FAA permits parties to
demand a jury trial to resolve factual issues
surrounding the making of an arbitration agreement, or
the failure, neglect, or refusal to perform the
agreement, it is well-established that a party to an
arbitration agreement cannot obtain a jury trial merely
by demanding one.
Pers. Sec. & Safety Sys. Inc. v. Motorola Inc., 297
F.3d 388 (5th Cir. 2002). A valid agreement to arbitrate
applies unless it can be said with positive assurance
that the arbitration clause is not susceptible of an
interpretation which would cover the dispute at issue.
Where the parties include a broad arbitration provision
in an agreement that is essential to the overall
transaction, courts presume that they intended the
arbitration clause to reach all aspects of the transaction,
38
including those aspects governed by other
contemporaneously executed agreements that are part
of the same transaction.
International Chemical Workers Union v.
Columbian Chemicals Co., 331 F.3d 491 (5th Cir.
2003). The arbitrator has broad discretion to make
evidentiary decisions.
Pedcor Management Company Inc. Welfare
Benefit Plan v. Nations Personnel of Texas Inc., 343
F.3d 355 (5th Cir. 2003). Just as parties may select the
arbitral rules governing arbitration, they may also
specify the law governing interpretation of the scope
of the arbitration clause.
Hadnot v. Bay Ltd., 344 F.3d 474 (5th Cir. 2003).
A district court’s ruling on a motion to compel
arbitration and to stay litigation is reviewed de novo.
Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345
F.3d 347 (5th Cir. 2003). The Texas Supreme Court
has recognized six theories arising out of common
principles of contract and agency law that may bind
non-signatories to arbitration agreements: (1)
incorporation by reference; (2) assumption; (3)
agency; (4) alter ego; (5) equitable estoppel, and (6)
third-party beneficiary. Being a third-party
beneficiary is more than merely having an interest in,
or receiving some benefit from, a contract. Under
third-party beneficiary theory, a court must look to the
intentions of the parties at the time the contract was
executed. Under equitable estoppel theory, a court
looks to the parties’ conduct after the contract was
executed.
Smith v. Rush Retail Center Inc., 360 F.3d 504 (5th
Cir. 2004). Section 4 of the FAA does not create an
independent basis for federal jurisdiction, and Section
10 does not create federal subject matter jurisdiction.
Carter v. Countrywide Credit Ind. Inc., 362 F.3d
294 (5th Cir. 2004). A party seeking to invalidate an
arbitration agreement bears the burden of establishing
its invalidity. Unconscionability is a matter of state
contract law.
Washington Mutual Financial Group LLC v.
Bailey, 364 F.3d 260 (5th Cir. 2004). In deciding
whether the parties agreed to arbitrate the dispute,
courts apply the contract law of the particular state
that governs the agreement.
Brabham v. A.G. Edwards & Sons Inc., 376 F.3d
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
377 (5th Cir. 2004) Judicial review of an arbitration
award is exceedingly deferential and vacatur is only
available on very narrow grounds.
Iberia Credit Bureau Inc. v. Cingular Wireless
LLC, 379 F.3d 159 (5th Cir. 2004). In making the
second determination—whether legal constraints
external to the parties’ agreement foreclosed the
arbitration of those claims—the court applies the
contract law of the particular state that governs the
agreement.
Freudensprung v. Offshore Technical Services Inc.,
379 F.3d 327 (5th Cir. 2004). Where an arbitration
agreement contains a clause designating Texas law but
does not exclude the FAA, the FAA and TAA apply
concurrently because Texas law incorporates the FAA
as part of the substantive law of that state.
Republic Ins. Co. v. Paico Receivables LLC, 383
F.3d 341 (5th Cir. 2004). Waiver will be found when
the party seeking arbitration substantially invokes the
judicial process to the detriment or prejudice of the
other party.
Brown v. Pacific Life Ins. Co., 462 F.3d 384 (5th
Cir. 2006). So long as a valid agreement to arbitrate is
tendered, the relevant dispute falls within the
agreement’s ambit, and none of the general contract
defenses subsumed into the Savings Clause have been
presented, arbitration must follow, and a federal case is
either stayed or dismissed.
Tittle v. Enron Corp., 463 F.3d 410 (5th Cir. 2006).
In determining the scope of an arbitration clause, the
court is to apply Texas rules of contract interpretation.
Positive Software Solutions Inc. v. New Century
Mortgage Corp., 476 F.3d 278 (5th Cir. 2007) (en
banc). The FAA does not mandate the extreme remedy
of vacatur under § 10(a)(2) (evident partiality) for
nondisclosure by an arbitrator of a trivial past
association. Vacatur is only warranted upon
nondisclosure if it creates a concrete non-speculative
impression of bias or involves a significant
compromising relationship.
Apache Bohai Corp. LDC v. Texaco China BV, 480
F.3d 397 (5th Cir. 2007). An appellate court reviews a
district court’s confirmation of an award de novo, but
the review is exceedingly deferential, and an award
may not be set aside for a mere mistake of fact or law.
J.P. Morgan Chase v. Conegie, 492 F.3d 596 (5th
39
Cir. 2007). Ordinarily, whether a claim is subject to
arbitration is a question for a court.
Sherer v. Green Tree Servicing LLC, 548 F.3d
379 (5th Cir. 2008). In determining whether a party
should be compelled to arbitrate, this Court employs a
two-step analysis. First, the Court decides if the party
has agreed to arbitrate the dispute. The Court then
determines whether there is any federal statute or
policy that renders the claims non-arbitrable.
U.S. v. Ihsan Elashyi, 554 F.3d 480 (5th Cir.
2008). In the arbitration context, the Supreme Court
has given the phrase “arising out of” a very broad
interpretation.
Citigroup Global Markets Inc v. Bacon, 562 F.3d
349 (5th Cir. 2009). Grounds for vacatur of an
arbitration award are restricted to those set forth FAA
§ 10. To the extent that manifest disregard of the law
constitutes a non-statutory ground for vacatur, it is no
longer a basis for vacating awards under the FAA.
Hall Street effectively overrules previous authority to
the contrary. But see Stolt-Nielsen recasting manifest
disregard as shorthand for FAA § 10(a)(4).
Graves v. BP America Inc., 568 F.3d 221 (5th Cir.
2009). To decide whether parties have agreed to
arbitrate a dispute, the Court considers two issues: (1)
whether there is a valid agreement to arbitrate the
claims, and (2) whether the dispute in question falls
within the scope of that arbitration agreement. These
issues are controlled by "ordinary state-law principles
that govern the formation of contracts."
Dealer Computer Services Inc. v. Old Colony
Motors Inc., 588 F.3d 884 (5th Cir. 2009). Courts
perform a two-step inquiry to determine whether to
compel arbitration. First, a court must determine
whether the parties agreed to arbitrate the particular
dispute at issue. With respect to the first inquiry,
there are two separate considerations: whether a valid
agreement to arbitrate some claims exists (contract
formation), and whether the dispute at hand falls
within the terms of that valid agreement (contract
interpretation). If so, the court must next determine
whether any applicable federal statute or policy
renders the claims non-arbitrable. Payment of
arbitration fees is a procedural condition precedent
that the trial court should not review. If the arbitration
fee is not paid, the arbitrator may order the suspension
or termination of the proceedings.
Paper, Allied-Industries Chemical & Energy
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
Workers International Union Local 4-12 v.
ExxonMobil Corp., 657 F.3d 272 (5th Cir. 2011). The
Fifth Circuit reviews an order compelling arbitration de
novo, and reviews the district court’s findings of fact
under the clearly erroneous standard.
Lee v. Plantation of Louisiana LLC, 454 F. App'x
358, 360 (5th Cir. 2011). The Fifth Circuit has yet to
determine the appropriate standard for reviewing a
magistrate judge's ruling on motions to compel
arbitration. "We need not reach the question of
whether a motion to compel arbitration is a dispositive
or non-dispositive motion for purposes of the standard
of review by the district judge of the magistrate judge's
order."
Rain CII Carbon LLC v. Conoco Phillips Co., 674
F.3d 469 (5th Cir. 2012). The FAA allows a court to
vacate an award where the arbitrators exceeded their
powers. Where arbitrators act contrary to express
contractual provisions, they have exceeded their
powers.
Petrofac Inc. v. DynMcDermott Petroleum
Operations Co., 687 F.3d 671 (5th Cir. 2012). Express
incorporation of AAA Rules constitutes clear and
unmistakable evidence that the parties agreed to
arbitrate arbitrability.
Grant v. Houser, 469 Fed. Appx. 310 (5th Cir.
2012) (per curiam). The party seeking to compel
arbitration need only prove the existence of an
agreement to arbitrate by a preponderance of the
evidence.
Hamstein Cumberland Music Group v. Williams,
532 Fed. Appx. 538 (5th Cir. 2013). The FAA is not an
independent grant of federal jurisdiction.
Klein v. Nabors Drilling USA LP, 710 F.3d 234 (5th
Cir. 2013). Whether there is a valid agreement to
arbitrate is governed by ordinary state law contract
principles. It is only in step two of the analysis,
determining the scope of a valid arbitration agreement,
that courts apply the federal policy and resolve
ambiguities in favor of arbitration.
21st Financial Services LLC v. Manchester
Financial Bank, 747 F.3d 331 (5th Cir. 2014).
Generally, parties may limit the scope of arbitration
through contract. If the contract creates a plain
limitation on the authority of an arbitrator, then the
arbitrator exceeds his power by ignoring such
limitation, and the court may therefore vacate the
40
award.
Crawford Professional Drugs Inc. v. CVS
Caremark Corp., 748 F.3d 249 (5th Cir. 2014).
Ordinarily, whether a claim is subject to arbitration is
a question for a court. However, if the parties have
clearly and unmistakably agreed to arbitrate
arbitrability, certain threshold questions—such as
whether a particular claim is subject to arbitration—
are for the arbitrator, and not a court, to decide.
Express incorporation of AAA Rules constitutes clear
and unmistakable evidence that the parties agreed to
arbitrate arbitrability.
Douglas v. Regions Bank, 757 F.3d 460 (5th Cir.
2014). An arbitrator, not the court, must decide
arbitrability if two factors are met: (1) the parties
“clearly and unmistakably” intend to delegate this
power to the arbitrator, and (2) the assertion of
arbitrability is not wholly groundless. A delegation
provision is an agreement to arbitrate gateway
questions of arbitrability, such as whether the parties'
agreement covers a particular controversy. Dissent:
The majority adopts the “wholly groundless” test put
forth by the Federal Circuit, which has not be adopted
by the Fifth Circuit and appears to be contrary to
Supreme Court authority.
Houston Refining LP v. United Steel, Paper &
Forestry, Rubber Mfg., 765 F.3d 396 (5th Cir. 2014).
The law presumes that courts have plenary power to
decide the gateway question of a dispute’s arbitrability
(i.e. whether the parties agreed to arbitrate the merits).
Aviles v. Russell Stover Candies Inc., 559 F.App’x
413 (5th Cir. 2014). Courts find clear and
unmistakable evidence of an agreement to arbitrate
arbitrability when an agreement includes an express
delegation provision.
BNSF R. Co. v. Alstom Transportation Inc., 777
F.3d 785 (5th Cir. 2015). In determining whether the
arbitrator exceeded her authority, district courts
should consult the arbitrator's award itself. Typically,
"several pieces of relevant evidence can be gleaned
from the award's text, including but not limited to: (1)
whether the arbitrator identifies her task as
interpreting the contract, (2) whether she cites and
analyzes the text of the contract, and (3) whether her
conclusions are framed in terms of the contract's
meaning." As with every other ground, "a party
seeking relief under FAA § 10(a)(4) bears a heavy
burden," as "it is not enough...to show that the
arbitrator committed an error—or even a serious
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
error."
Poolre Insurance Corp. v. Organizational
Strategies Inc., 783 F.3d 256 (5th Cir. 2015). Review
of the district court's confirmation or vacatur of an
arbitrator's award is de novo. Review of the arbitration
award itself is very deferential. The Court must sustain
an award as long as the arbitrator's decision draws its
essence from the contract. Where the arbitrator
exceeds the express limitations of his contractual
mandate, judicial deference is at an end. A district
court may vacate an award in limited circumstances,
including where the arbitrators exceeded their powers.
9 U.S.C. § 10(a)(4). It is well-established that courts
may set aside awards when the arbitrator exceeds his
contractual mandate by acting contrary to express
contractual provisions.
Rasheed Al Rushaid v. National Oilwell Varco, 814
F.3d 300 (5th Cir. 2016). FAA § 16 forbids appellate
review of an order granting a motion to compel
arbitration. Generally, an appellate court reviews de
novo the denial of a motion to compel arbitration, but
reviews for abuse of discretion a district court’s
determination of whether equitable estoppel may be
invoked to compel arbitration. A decision by the
district court based upon a mistake of law or a clearly
erroneous assessment of the evidence constitutes an
abuse of discretion.
Cooper v. West End Capital Management LLC,
832 F.3d 534 (5th Cir. 2016). The Fifth Circuit has
held that the adoption of the AAA rules to govern
arbitration proceedings presents clear and unmistakable
evidence that the parties agreed to arbitrate
arbitrability.
IX. RELEVANT DECISIONS FROM THE
UNITED STATES SUPREME COURT
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395 (1967). The FAA was enacted in 1925 in
response to widespread judicial hostility to arbitration
agreements. Its purpose is to make arbitration
agreements as enforceable as other contracts, but not
more so. Under the “separability principle” in
contracts with arbitration clauses, challenges to the
enforceability of contracts are first heard by the
arbitrator unless the claim is that the arbitration clause
itself is unenforceable. If the challenge is to the
making of the agreement to arbitrate, the federal court
may proceed to adjudicate it.
Commonwealth Coatings Corp. v. Continental
41
Casualty Co., 393 U.S. 145 (1968). Arbitrators must
disclose to the parties any dealings that might create
an impression of possible bias, but arbitrators are not
required to sever all ties with the business world. An
arbitrator’s failure to disclose a material relationship
with one of the parties can constitute evident
partiality. An arbitrator’s award may be vacated when
the arbitrator failed to disclose an ongoing financial
relationship between the arbitrator and a party to the
arbitration.
Scherk v. Alberto-Culver Co., 417 U.S. 506
(1974). Arbitration provisions are a species of forum
selection clauses.
Moses H. Cone Memorial Hospital v. Mercury
Construction Corporation, 460 U.S. 1 (1983). The
FAA is a congressional declaration of a liberal federal
policy favoring arbitration, ensuring that private
agreements to arbitrate are enforced according to their
terms, notwithstanding any state substantive or
procedural policies to the contrary, and creates a body
of federal substantive law applicable to state and
federal courts. Doubts concerning the scope of
arbitrable issues should be resolved in favor of
arbitration.
Southland Corp. v. Keating, 465 U.S. 1 (1984).
The FAA rests on the authority of Congress to enact
substantive rules under the Commerce Clause, and is
based upon the incontestable federal foundations of
control over interstate commerce and admiralty. The
FAA declares a national policy favoring arbitration,
and withdraws the power of the states to require a
judicial forum for the resolution of claims which the
contracting parties agreed to resolve by arbitration.
The FAA preempts any attempts by state legislatures
to prevent the enforceability of arbitration agreements.
McDonald v. City of West Branch, 466 U.S. 284
(1984). A federal court should not afford res judicata
or collateral estoppel effect to an arbitration award in
a collective bargaining proceeding.
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213
(1985). The FAA leaves no place for the exercise of
discretion by a district court, but instead mandates that
district courts shall direct the parties to proceed to
arbitration on issues as to which an arbitration
agreement has been signed, absent a ground for
revocation of the contractual agreement.
Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth Inc., 473 U.S. 614 (1985). A primary
objective of an agreement to arbitrate is to achieve
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
streamlined proceedings and expeditious results. A
court must first determine whether the parties agreed to
arbitrate the particular dispute at issue, and must next
determine whether any applicable federal statute or
policy renders the claims non-arbitrable (i.e. whether
legal constraints external to the agreement foreclose the
arbitration of those claims).
Shearson/American Express Inc. v. McMahon, 482
U.S. 220 (1987). The FAA establishes a federal policy
favoring arbitration requiring that courts rigorously
enforce arbitration agreements.
Perry v. Thomas, 482 U.S. 483 (1987). In enacting
FAA § 2, Congress declared a national policy favoring
arbitration and withdrew the States’ power to require a
judicial forum for the resolution of claims that
contracting parties agreed to resolve by arbitration.
Paperworkers v. Misco Inc., 484 U.S. 29 (1987).
Courts do not sit to hear claims of factual or legal error
by an arbitrator as an appellate court does in reviewing
decisions of lower courts.
Volt Information Sciences Inc. v. Board of Trustees
of Leland Stanford Junior University, 489 U.S. 468,
474 (1989). The FAA was designed to overrule the
judiciary’s longstanding refusal to enforce arbitration
agreements. The FAA simply requires courts to
enforce privately negotiated agreements to arbitrate,
like other contracts, in accordance with their terms.
Arbitration under the FAA is a matter of consent, not
coercion, and the parties are generally free to structure
their arbitration agreements as they see fit. The FAA
does not require parties to arbitrate when they have not
agreed to do so, nor does it prevent parties who do
agree to arbitrate from excluding certain claims from
the scope of their arbitration agreement. Interpretation
of a contract is ordinarily a matter of state law to which
the Supreme Court defers.
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20 (1991). Statutory claims may be the subject of an
arbitration agreement, enforceable pursuant to the
FAA. The mere involvement of an administrative
agency in the enforcement of a statute does not limit
private parties' obligation to comply with their
arbitration agreements.
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S.
265 (1995). The FAA’s displacement of conflicting
state law is now well-established.
Mastrobuono v. Shearson Lehman Hutton Inc., 514
42
U.S. 52 (1995). The FAA’s central purpose is to
ensure that private agreements to arbitrate are
enforced according to their terms. A court should
construe ambiguous language against the interest of
the party that drafted it.
First Options of Chicago Inc. v. Kaplan, 514 U.S.
938 (1995). Whether a valid and binding agreement
to arbitrate exists is generally a question for the
courts, without any deference owed to the arbitrator’s
views, and parties are not assumed to have agreed to
arbitrate arbitrability absent clear and unmistakable
evidence that they did so. In determining validity of
agreements to arbitrate which are subject to the FAA,
courts generally apply state-law principles governing
the formation of contracts.
Doctors Associates Inc. v. Casarotto, 517 U.S.
681 (1996). State law governing contracts may be
applied to invalidate an arbitration provision if that
law arose to govern issues concerning the validity,
revocability, and enforceability of contracts generally.
Arbitration agreements may be invalidated by
generally accepted contract defenses, such as fraud,
duress or unconscionability.
Cortez Byrd Chips Inc. v. Bill Harbert
Construction Company, 529 U.S. 193 (2000). The
venue provisions of the FAA are permissive.
Circuit City Stores Inc. v. Saint Clair Adams, 532
U.S. 105 (2001). FAA § 1 defines the key terms
“maritime transactions” and “commerce” and
excludes certain employment contracts from the
FAA’s scope. FAA § 2 covers interstate and foreign
commerce.
Major League Baseball Players Association v.
Garvey, 532 U.S. 504 (2001) (per curiam). An
arbitration decision may be vacated under FAA §
10(a)(4) on the ground that the arbitrator exceeded his
powers only when the arbitrator strays from
interpretation and application of the agreement and
effectively dispenses his own brand of industrial
justice.
EEOC v. Waffle House Inc., 534 U.S. 279 (2002).
To determine the scope of an arbitration agreement,
we look first to whether the parties agreed to arbitrate
a dispute, not to general policy goals. While
ambiguities in the language of the agreement should
be resolved in favor of arbitration, we do not override
the clear intent of the parties, or reach a result
inconsistent with the plain text of the contract, simply
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
because the policy favoring arbitration is implicated.
Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79
(2002). Although in most circumstances the Supreme
Court has recognized a liberal policy in favor of
arbitration, the Court has made clear that there is an
exception to this policy: The question whether the
parties have submitted a particular dispute to
arbitration (i.e. the question of arbitrability) is an issue
for judicial determination unless the parties clearly and
unmistakably provide otherwise. Although the Court's
definition of "question of arbitrability" is narrow, it
includes a disagreement about whether an arbitration
clause in a concededly binding contract applies to a
particular type of controversy. Parties can agree to
arbitrate gateway questions of arbitrability, such as
whether the parties have agreed to arbitrate or whether
their agreement covers a particular controversy.
Citizens Citizens Bank v. Alafabco Inc., 539 U.S.
52 (2003). The FAA provides inter alia that an
arbitration provision in any contract evidencing a
transaction involving commerce shall be valid and
enforceable. The term “involving commerce” is
interpreted broadly. The FAA encompasses a wider
range of transactions than those actually within the
flow of interstate commerce. A debt restructuring
agreement is a contract evidencing a transaction
involving commerce within the meaning of the FAA.
Green Tree Financial Corp. v. Bazzle, 539 U.S.
444 (2003). An arbitrator must determine whether a
contract forbids class arbitration.
Buckeye Check Cashing Inc. v. Cardegna, 546 U.S.
440 (2006). Questions concerning the validity of the
entire contract are to be resolved by the arbitrator in the
first instance, not by the federal or state court.
Preston v. Ferrer, 552 U.S. 346 (2008). When
parties agree to arbitrate all questions arising under
contract, the FAA supersedes state laws lodging
primary jurisdiction in another forum, whether judicial
or administrative.
Hall Street Associates LLC v. Mattel Inc., 552 U.S.
576 (2008). The FAA lets parties tailor some, even
many, features of arbitration by contract, including
procedure and choice of substantive law. The FAA’s
statutory grounds for prompt vacatur and modification
of awards are exclusive, and parties are not free to
supplement or expand by contract the scope of review
to include legal error or manifest disregard of the law.
43
Stolt-Nielsen S. A. v. AnimalFeeds International
Corp., 559 U.S. 662 (2010). A foundational principle
of the FAA is that arbitration is a matter of consent. A
party may not be compelled under the FAA to submit
to class arbitration unless there is a contractual basis
for concluding that the party agreed to do so.
Imposing class arbitration on parties who have not
agreed to authorize class arbitration is inconsistent
with the FAA. In certain contexts, it is appropriate to
presume that parties that enter into an arbitration
agreement implicitly authorize the arbitrator to adopt
such procedures as are necessary to give effect to the
parties' agreement. However, an implicit agreement to
authorize class-action arbitration is not a term that the
arbitrator may infer solely from an agreement to
arbitrate. An arbitration decision may be vacated
under FAA §10(a)(4) on the ground that the arbitrator
exceeded his powers, only when an arbitrator strays
from interpretation and application of the agreement
and effectively dispenses his own brand of industrial
justice. It is not enough to show that the arbitrator
committed an error or even a serious error. An
arbitrator’s task is to interpret and enforce a contract,
not to make public policy. See footnote 3: “We do not
decide whether “manifest disregard” survives our
decision in Hall Street as an independent ground for
review or as a judicial gloss on the enumerated
grounds for vacatur under FAA § 10.”
Rent-A-Center West Inc. v. Jackson, 561 U.S. 63,
130 S.Ct. 2772 (2010). The FAA reflects the
fundamental principle that arbitration is a matter of
contract. Like other contracts, arbitration agreements
may be invalidated by generally applicable contract
defenses, such as fraud, duress or unconscionability.
Under the FAA, a party’s challenge to another
provision of the 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 law, an arbitration provision is severable from
the remainder of the contract. Under the FAA, if a
party challenges the validity of the precise agreement
to arbitrate at issue, federal court must consider the
challenge before ordering compliance with that
agreement, but if a party challenges the enforceability
as a whole, the challenge is for the arbitrator.
Provision of employment agreement which delegated
to an arbitrator exclusive authority to resolve any
dispute relating to the agreement’s enforceability was
a valid delegation under the FAA.
AT&T Mobility LLC v. Concepcion, 563 U.S.333
(2011). FAA § 2 reflects a liberal federal policy
favoring arbitration, and the fundamental principle
Arbitration in Texas: History and Enforceability
_______________________________________________________________________________________________________
that arbitration is a matter of contract. Thus, courts themselves from federal law because of disagreement
must place arbitration agreements on an equal footing with its content or a refusal to recognize the superior
with other contracts and enforce them according to authority of its source. The FAA is a law of the
their terms. Section 2’s savings clause (“save upon United States, and Concepcion is an authoritative
such grounds as exist at law or in equity for the interpretation of the FAA. Consequently, the judges
revocation of any contract”) permits agreements to be of every state must follow it. The FAA allows parties
invalidated by generally applicable contract defenses, to an arbitration contract considerable latitude to
but not by defenses that apply only to arbitration or choose what law governs some or all of its provisions,
derive their meaning from the fact that an agreement to including the law governing enforceability of a class-
arbitrate is at issue. Although Section 2’s savings arbitration waiver.
clause preserves generally applicable contract defenses,
it does not suggest an intent to preserve state-law rules
that stand as an obstacle to the accomplishment of the
FAA’s objectives. The FAA's overarching purpose is
to ensure the enforcement of arbitration agreements
according to their terms so as to facilitate informal,
streamlined proceedings. Parties may agree to limit the
issues subject to arbitration, to arbitrate according to
specific rules, and to limit with whom they will
arbitrate.

Oxford Health Plans LLC v. Sutter, 569 U.S.__

(2013). Questions of arbitrability are presumptively for
courts to decide. A court may therefore review an
arbitrator’s determination of such a matter de novo
absent “clear and unmistakable” evidence that the
parties wanted an arbitrator to resolve the dispute.
Under the FAA, courts may vacate arbitrator’s decision
only in very unusual circumstances. A party seeking
relief from an arbitral award on ground that the
arbitrator exceeded his powers bears a heavy burden,
and it is not enough to show that the arbitrator
committed error or even serious error. The sole
question on judicial review is whether the arbitrator
interpreted the parties’ contract, not whether he
construed it correctly.

American Express Co. v. Italian Colors Restaurant,

570 U.S.__ (2013). Courts must rigorously enforce
arbitration agreements according to their terms. Judge-
made exception to the overarching principle reflected
in text of the FAA allows courts to invalidate
arbitration agreements that prevent effective
vindication of a federal statutory right, and finds its
origin in the desire to prevent prospective waiver of a
party’s right to pursue statutory remedies, and the
exception covers a provision in an arbitration
agreement forbidding the assertion of certain statutory
rights, and perhaps covers filing and administrative
fees that are so high as to make access to the forum
impracticable.

DirectTV Inc. v. Imburgia, __ U.S. __ (2015). The

Supremacy Clause forbids state courts to dissociate

44