FILED

16-0854
12/30/2016 7:36:58 AM
tex-14500944
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK

NO. 16-0854

IN THE SUPREME COURT OF TEXAS

HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS,

and ROOSEVELT COLEMAN, JR., on behalf of
themselves and for all other similarly situated

Petitioner

v.

CASH BIZ, LP, CASH ZONE, LLC

D/B/A CASH BIZ and REDWOOD FINANCIALS, LLC

Respondent

FROM THE COURT OF APPEALS FOR THE FOURTH DISTRICT OF TEXAS

NO. 04-15-00469-CV

RESPONDENT’S RESPONSE TO PETITION FOR REVIEW

Edward S. Hubbard Patrick E. Gaas

State Bar No. 10131700 State Bar No. 07562790
ehubbard@coatsrose.com pgaas@coatsrose.com

COATS ROSE, P.C.

9 Greenway Plaza, Suite 1100
Houston, Texas 77046
(713) 651-0111
(713) 651-0220 Facsimile

COUNSEL FOR RESPONDENTS

 _____________________________________________________________________

STATEMENT OF THE CASE

_____________________________________________________________________

Although the Petitioner’s Statement of the Case accurately presents certain

portions of the procedural history of the case, it is not complete. The following

Statement of the Case supplements the Petitioner’s Statement of the Case.

The Petition seeks review of a decision of the Fourth Court of Appeals,

which resolved an interlocutory appeal brought by Respondents Cash Biz, LP,

Cash Zone, LLC d/b/a Cash Biz, and Redwood Financials, LLC (“Respondents”)

pursuant to Sections 51.016 and 171.098(a)(1) of the Texas Civil Practice and

Remedies Code, and in accordance with Rule 28.1 of the Texas Rules of Appellate

Procedure.

This case arises from separate, individual credit services agreements and

credit services disclosures statements, between each of the Petitioners and the

Respondents, as well as Loan Disclosures, Promissory Note and Security

Agreements (hereinafter collectively referred to as “Loan Contracts”). Each of the

Loan Contracts with each Petitioner was in writing and contained a provision

requiring arbitration, and waiving class action lawsuits and arbitrations. After the

Petitioners defaulted on the repayment obligation under their respective Loan

Contracts, the Respondents conducted separate investigations that, in each

i
instance, uncovered information that led them to believe that each Petitioner had

engaged in separate, specific criminal acts during the formation and performance

of their respective Loan Contracts. Based on the concerns raised by the

information that the Respondents uncovered, they separately reported this

information to each state prosecutor with jurisdiction over each Petitioner.

Prosecutors subsequently pursued criminal actions against some of the Petitioners.

Meanwhile, the Respondents took no action against any of the Petitioners in any

civil proceeding.

The Petitioners joined together and filed this malicious prosecution, fraud

and statutory action against Cash Biz, seeking class action status, in the 224th

District Court of Bexar County, Texas. The core of the Petitioners’ claim is that

when the Respondents provided information or complaints to state prosecutors,

they engaged in improper loan collection activities. In response to this suit, the

Respondents filed a motion to compel arbitration, to enforce the contractual waiver

of class action lawsuits, and to stay the litigation pursuant to the Texas Arbitration

Act (“TAA”), Sections 171.001-171.098 of the Texas Civil Practice and Remedies

Code, and the Federal Arbitration Act (“FAA”), 9 U.S.C.A. §§ 1-16.

The motion was assigned for hearing to the 166th District Court of Bexar

County, Texas. After conducting an oral hearing on the motion, the trial court

denied the motion in its entirety and signed the order from which the Respondents

ii
appealed.

The interlocutory appeal was submitted for ruling after oral argument and

full briefing, including several supplemental briefs filed by both parties. A three-

judge panel of the Fourth Court of Appeals reversed the ruling of the trial court,

and rendered judgment in favor of arbitration and the waiver of the class actions,

with one justice dissenting. After the ruling was issued, Petitioners’ moved for

rehearing and en banc review. Both motions were considered by the appellate

court (together with the Respondents’ response) and were denied.

iii
 TABLE OF CONTENTS

STATEMENT OF THE CASE .................................................................................. i

SUMMARY OF THE ARGUMENT ........................................................................9

STATEMENT OF FACTS ......................................................................................12

ARGUMENT ...........................................................................................................13

A. The Majority Opinion correctly applied the proper standards of review to

questions of law and findings of fact.................................................................13

B. The Majority Opinion correctly applied the law governing the burdens of proof
on the issues raised by the parties in the trial court ...........................................17
C. There is no split of authority justifying further review by this Court ...............21

I. The PLS Memorandum Opinion ..................................................................22

II. The Harrison Opinion ...................................................................................25

CONCLUSION ........................................................................................................26

PRAYER ..................................................................................................................27
CERTIFICATE OF COMPLIANCE .......................................................................28
CERTIFICATE OF SERVICE ................................................................................29

iv
 TABLE OF AUTHORITIES

Page(s)

Cases
Amalgamated Local No. 55, United Automobile, Aerospace &
Agricultural Implement Workers of Am. v. Metal and Alloy Div. of
Silver Creek Precision Corp.,
396 F.Supp. 667 (W.D. N.Y. 1975) .................................................................... 16

AT&T Mobility v. Concepcion,

563 U.S. 333 (2011) .......................................................................................... 2, 9
AT&T Technologies, Inc. v. Communications Workers of Am.,
475 U.S. 643 (1986) ................................................................................1, 3, 7, 11
Capital Income Properties v. Blackmon,
843 S.W.2d 22 (Tex. 1992)................................................................................... 9

Consorcio Rive, S.A. De C.V. v. Briggs of Cancun, Inc.,

134 F.Supp.2d 789 (E.D. La. 2001) .................................................................... 16

Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling Co., Inc.,

2015 Tex. App. LEXIS 8882 (Tex. App.—Houston [14th Dist.],
August 25, 2015)................................................................................................... 9

DirectTV, Inc. v. Imburgia,

___ U.S. ___, 136 S.Ct. 463 (2015).................................................................. 2, 9
G.T. Leach Builders, LLC v. Sapphire V.P., L.P.,
458 S.W.3d 502 (Tex. 2015) ......................................................................6, 7, 12

Garcia v. Huerta,
340 S.W.3d 864 (Tex. App.—San Antonio 2011, pet. denied) ............................ 7

Gatlin v. P.O.A. Criscione Star #16195,

2008 WL 2745956 .............................................................................................. 16

Griffin v. Burlington Volkswagon, Inc.,

411 N.J.Super. 515, 988 A.2d 101 (NJ. App. Div. 2010) .................................. 16

v
Horizon Health Corp. v. Tyler-Holmes Memorial Hosp.,
284 F. Supp. 2d 439 (N.D. Miss. 2003)........................................2, 3, 5, 8, 10, 11

In re Amos,
397 S.W.3d 309 (Tex. App.—Dallas 2013, orig. proceeding)
(following Bell v. State, 2006 WL 3628916, at *5 (Tex. App.—
Houston [1st Dist.] 2006, no pet.)....................................................................... 15

In re Christus Spohn Health System Corp.,

231 S.W.3d 475 (Tex. App.—Corpus Christi-Edinburg 2007, orig.
proceeding) ...................................................................................................14, 15

In re Fleetwood Homes,
257 S.W.3d 692 (Tex. 2008) ................................................................................ 7
In re Flores,
2016 WL 890969 (Tex. App.—Dallas 2016, orig. proceeding) ......................... 15
In re Jeffory Blackard,
Cause Nos. 5-16-00478, 5-16-00479, 5-16-00480 (Tex. App.—
Dallas, April 29, 2016, orig. proceeding) ........................................................... 15
In re Kellogg Brown & Root,
166 S.W.3d 732 (Tex. 2005) ................................................................................ 6

In re Labatt Food Serv., L.P.,

279 S.W.3d 640 (Tex. 2009) (orig. proceeding) .................................................. 7
In re Rubiola,
334 S.W.3d 220 (Tex. 2011) ................................................................................ 6

In re Weekley Homes, L.P.,

180 S.W.3d 127 (Tex. 2005) ................................................................................ 9

In re Wingfield, 171 S.W.3d 374, 381 (Tex. App.—Tyler 2005, orig.

proceeding) ......................................................................................................... 15

J.M. Davidson, Inc. v. Webster,

128 S.W.3d 223 (Tex. 2003) ......................................................................6, 7, 11
Kennedy Hodges, L.L.P. v. Gobellan,
433 S.W.3d 542 (Tex. 2014) ................................................................................ 7

vi
McReynolds v. Elston,
222 S.W.3d 731 (Tex. App.—Houston [14th Dist.] 2007, orig.
proceeding) ......................................................................................................... 11

Mendelsohn v. A&D Catering Corp.,

119 Misc.2d 581, 464 N.Y.S.2d 331 (N.Y. 1983) .............................................. 16
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp.,
804 F.2d 338 (5th Cir. 1986) ............................................................2, 3, 7, 10, 11
Myers v. Rosenberg,
1986 WL 3329 (N.D. Ill. 1986) .......................................................................... 16

NCP Finance Ltd. Partnership v. Escatiola,

350 S.W.3d 152 (Tex. App.—San Antonio 2011, no pet.) ........................2, 9, 17
Perry Homes v. Cull,
258 S.W.3d 580 (Tex. 2008) .............................................................................. 12
Pilot Travel Ctrs., LLC v. McCray,
416 S.W.3d 168 (Tex. App.—Dallas 2103, no pet.) .......................................... 11

Prescott-Follett & Assocs., Inc. v. Delasa/Prescott Folett & Assocs.,

2002 WL 31528463 (E.D. La. 2002) .................................................................. 16

Preston v. Ferrer,
552 U.S 346 (2008) ............................................................................................... 9
Primerica Life Ins. Co. v. Brown,
304 F.3d 469 (5th Cir. 2002) ........................................................2, 3, 5, 7, 10, 11

Principal Investments v. Harrison,

2016 WL 166011, 132 Nev. Adv. Op. 2, ___ P.3d ___ (2016).......................... 17

Smith Barney Shearson, Inc. v. Boone,

838 F. Supp. 1156 (N.D. Tex. 1993) ................................................2, 3, 8, 10, 11

Snap-On Tools Corp. v. Mason,

18 F.3d 1261 (5th Cir. 1994) ..................................................................2, 3, 7, 11

Southland Corp. v. Keating,

465 U.S. 1 (1984) .................................................................................................. 9

vii
Southwind Group, Inc. v. Landwehr,
188 S.W.3d 730 (Tex. App.—Eastland 2006, orig. proceeding) ....................... 11

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc.,

468 F.3d 523 (8th Cir. 2006) .............................................................................. 10

Subway Equip. Leasing Corp. v. Forte,

169 F.3d 324 (5th Cir. 1999) .............................................................................. 16

Taft v. Burttram,
254 Ga. 687, 333 S.E.2d 585 (1985) .................................................................. 17

Tuscan Builders, L.P. v. 1437 SH6 L.L.C.,

438 S.W.3d 717 (Tex. App.—Houston [1st Dist.] 2014, pet.
denied)............................................................................................................. 7, 11
Venture Cotton Co-op v. Freeman,
435 S.W.3d 222 (Tex. 2014) ................................................................................ 6

Statutes
Federal Arbitration Act (FAA) ................................. 3, 5, 7, 9, 10, 11, 13, 14, 17, 18

Texas Arbitration Act (TAA)..................................................................... iii, 5, 9, 11

TEX. CIV. PRAC. & REM. CODE § 51.016 .....................................................................i

TEX. CIV. PRAC. & REM. CODE § 171.021(b) ...................................................6, 7, 11

TEX. CIV. PRAC. & REM. CODE §§ 171.001-171.098 ................................................ ii

9 U.S.C.A. §§ 1-16.................................................................................................... ii

Other Authorities
Federal Rules of Civil Procedure Rule 12(b).........................................10, 11, 12, 14

Texas Rules of Appellate Procedure Rule 28.1 ........................................................ ii

viii
TO THE HONORABLE SUPREME COURT:

Respondents, Cash Biz, LP, Cash Zone, LLC d/b/a Cash Biz, and Redwood

Financials, LLC (“Respondents”), present this Response in opposition to the

Petition for Review filed by Petitioners, Hiawatha Henry, Addie Harris, Montray

Norris, and Roosevelt Coleman, Jr., on behalf of themselves and for all other

similarly situated (“Petitioners”).

_____________________________________________________________________

SUMMARY OF THE ARGUMENT

_____________________________________________________________________

The Respondents recognize that they are members of an industry whose

business model and practices have been the subject of recent public criticism. This

criticism, regardless of its accuracy or fairness, has fostered a negative public

perception of the industry. The Petitioners’ (as well as the Amicus’) substantive

allegations about the merit of the underlying action (including their reliance on

materials such as a Texas Appleseed Report and various newspaper articles)

present arguments, inferences, conclusions and unverified quotes from out-of-court

interviews that build-on and re-enforce this public perception. The Petitioners

promote this public perception as a reason for granting their Petition for Review.

However, the merit of the Petitioners’ underlying allegations was not for the

lower courts, or for this Court, to decide at this stage of the proceeding. AT&T
Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 649 (1986);

Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002); Snap-On Tools

Corp. v. Mason, 18 F.3d 1261, 1267 (5th Cir. 1994); Municipal Energy Agency of

Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338, 342 (5th Cir. 1986); Horizon

Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F. Supp. 2d 439, 441 (N.D.

Miss. 2003); Smith Barney Shearson, Inc. v. Boone, 838 F. Supp. 1156, 1158 (N.D.

Tex. 1993). The Fourth Court of Appeals’ Majority Opinion (“Majority

Opinion”), and its decisions to deny a rehearing or en banc review, are consistent

with this principle, as well as federal and Texas law enforcing arbitration and

waiver-of-class-action provisions. See DirectTV, Inc. v. Imburgia, ___ U.S. ___,

136 S.Ct. 463 (2015); AT&T Mobility v. Concepcion, 563 U.S. 333 (2011); NCP

Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152, 155 (Tex. App.—San

Antonio 2011, no pet.).

In fact, the fallacy at the heart of the Petitioners’ (and Amicus’) argument

has been, and continues to be, their total reliance upon the alleged merit of the

underlying case to establish defenses to substantive arbitrability. That is, the

Petitioners argue that the alleged operative facts giving rise to their causes of

action (i.e., that the Respondents’ presentation of information and criminal

complaints to various district attorneys allegedly constituted an improper attempt

to collect a civil debt in violation of tort and statutory law) prove their defenses to

10
substantive arbitrability. Actually, the Petitioners presented no defense to

substantive arbitrability other than their reliance on the operative facts of their

underlying claim. So, when it denied the motion to compel arbitration based on

the Petitioners’ arguments, the trial court necessarily analyzed and pre-judged the

merit of the Petitioners’ underlying allegations. Unfortunately, the dissenting

opinion in the Fourth Court of Appeals makes this same fundamental error.

When deciding the issue of arbitrability under the Federal Arbitration Act

(“FAA”), a trial court is legally prohibited from considering the merits of an

underlying claim or defense. AT&T Technologies, Inc., 475 U.S. at 649; Primerica

Life Ins. Co., 304 F.3d at 471; Snap-On Tools Corp., 18 F.3d at 1267; Municipal

Energy Agency of Mississippi, 804 F.2d at 342; Horizon Health Corp., 284 F.

Supp. 2d at 441; Smith Barney Shearson, Inc., 838 F. Supp. at 1158. Applying this

rule to the present case, the Petitioners never presented a cognizable defense to

substantive arbitrability to either the trial court, or the Court of Appeals. Instead,

they simply have argued the merit of their allegations in underlying case as the

reason for denying arbitration.1

1
Petitioners now refer to a recent, pre-election newspaper article from the San Antonio Express-
News, which prominently contained an interview with Petitioners’ counsel. This self-serving
article discusses the Fourth Court’s decision, and campaign contributions to the authoring justice
of the Majority Opinion by the law firm representing the Respondents, largely from the
perspective of Petitioners’ counsel. Petitioners argue that the mere existence of this article is
evidence as to why this Court should grant review. This tactic of impugning the integrity of
those who refuse to adopt the Petitioners’ arguments adds nothing to the merit of the Petition.
The reference to the article is not evidence, and should be disregarded by this Court.

11
 Consequently, the Majority Opinion correctly avoided wading into the merit

of the Petitioners’ underlying allegations, and correctly applied the well-

established Texas and Federal law governing substantive arbitrability to reverse the

trial court’s order.

Because the Majority Opinion correctly applied the law to this case, this

Petition for Review should be denied.

_____________________________________________________________________

STATEMENT OF FACTS
_____________________________________________________________________

It is the Respondents’ position that the Petitioners’ Statement of Facts is

essentially a lengthy argument of the allegations they believe support their

underlying lawsuit. As such, that section of the Petition is mostly irrelevant to the

resolution of the issue of substantive arbitrability before this Court, regardless of

its accuracy—which the Respondents vehemently contest.

Instead, the Respondents present the following uncontested facts, which are

relevant to the issue before this Court:

 the Petitioners entered into transactions with the Respondents memorialized

by the Loan Contracts, which contained a broad-form arbitration and waiver-
of-class-action provision;

 the Respondents submitted information and complaints to various state

prosecutors concerning behavior of the Petitioners, which the Respondents

12
 believed constituted criminal conduct, but otherwise did not pursue any civil
proceedings against the Petitioners;

 the Petitioners brought the present action alleging that they were damaged as
result of the Respondents’ conduct, which the Petitioners allege constituted
an improper attempt to collect a civil debt in violation of tort and statutory
law;

 the Respondents sought to enforce the Loan Contracts by moving to compel

arbitration and enforce the waiver-of-class action provision;

 the trial court denied the motion, finding that the Respondents conduct
giving rise to the Petitioners’ substantive allegations also waived
enforcement of the arbitration provision; and

 the Fourth Court of Appeals, in a 2-1 opinion, reversed the trial court order,
and rendered judgment enforcing the arbitration and waiver-of-class action
provision of the Loan Contracts.

_____________________________________________________________________

ARGUMENT
_____________________________________________________________________

A. The Majority Opinion correctly applied the proper standards of

review to questions of law and findings of fact
Under both the TAA and the FAA, the movant seeking to compel has the

initial burden to prove, and the court must initially decide, only two issues:2

1. Is there a valid arbitration agreement; and

2. If so, does the agreement encompass the claim.

2
Federal Courts also recognize another step, which requires the trial court to determine whether
arbitration of the dispute would be prohibited by another law. Primerica Life Ins. Co., 304 F.3d
at 471; Horizon Health Corp., 284 F. Supp. 2d at 441. The Appellees did not raise this issue in
the trial court, or to this Court, and they have not presented any such law to this Court in their
Motion.

13
In re Rubiola, 334 S.W.3d 220, 223 (Tex. 2011); In re Kellogg Brown & Root, 166

S.W.3d 732, 737 (Tex. 2005); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,

227 (Tex. 2003). Once the movant meets its burden on these two elements, the

burden of proof shifts to the non-movants to prove defenses to arbitrability,

including waiver and prejudice. Venture Cotton Co-op v. Freeman, 435 S.W.3d

222, 227 (Tex. 2014); J.M. Davidson, Inc., 128 S.W.3d at 227.

As the Majority Opinion correctly noted, the first element of the

Respondents’ burden of proof—whether a valid arbitration agreement existed

between the parties—was not contested by the Petitioners. Therefore, the only

element of the Respondents’ initial burden of proof contested by the Petitioners in

the trial court was whether the dispute fell within the scope of the arbitration

provision. Once that burden was met by the Respondents, the burden of proof

shifted to the Petitioners to provide relevant evidence of waiver and prejudice,

which this Court has found to be a “high hurdle” to overcome. G.T. Leach

Builders, LLC v. Sapphire V.P., L.P., 458 S.W.3d 502, 512 (Tex. 2015).

The questions as to whether the disputes come within the scope of the

arbitration provision, and whether the relevant evidence presented by the non-

movant proves waiver and prejudice, are questions of law to be resolved by the

trial court. TEX. CIV. PRAC. & REM. CODE § 171.021(b); J.M. Davidson, Inc., 128

S.W.3d at 227; G.T. Leach Builders, LLC, L.P., 458 S.W.3d at 519-20. Then,

14
appellate courts apply the de novo standard of review to the trial court’s

determinations of these legal questions. G.T. Leach, Builders L.L.C., 458 S.W.3d

at 511; Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014); In

re Fleetwood Homes, 257 S.W.3d 692, 694 (Tex. 2008) (citing Perry Homes v.

Cull, 258 S.W.3d 580, 590, 598 (Tex. 2008)); J.M. Davidson, Inc., 128 S.W.3d at

227.

If the trial court has to make findings of fact in order to resolve the questions

of law, the trial court makes those findings by comparing the arbitration provision

with the pleadings and any supporting affidavits or discovery. TEX. CIV. PRAC. &

REM. CODE § 171.021(b); J.M. Davidson, Inc., 128 S.W.3d at 227. Although the

appellate courts defer to the trial court’s findings of fact under the “abuse of

discretion” standard, that deference is limited to those fact findings supported by

the record. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig.

proceeding); Garcia v. Huerta, 340 S.W.3d 864, 868 (Tex. App.—San Antonio

2011, pet. denied). Federal law governing the FAA further limits the trial court’s

scope of review by prohibiting courts from considering the merits of the

underlying action when making findings of fact and resolving questions of law.

AT&T Technologies, Inc., 475 U.S. at 649; Primerica Life Ins. Co., 304 F.3d at

471; Snap-On Tools Corp., 18 F.3d at 1267; Municipal Energy Agency of

15
Mississippi, 804 F.2d at 342; Horizon Health Corp., 284 F. Supp. 2d at 441; Smith

Barney Shearson, Inc., 838 F. Supp. at 1158.

The Majority Opinion correctly applied these standards of review, and the

legal presumptions that strongly favor arbitration, by considering the factual

findings of the trial court relevant to the legal questions that were addressed and

decided by the trial court. Applying the de novo standard to the second element of

the Respondents’ burden, the Majority found that the dispute as pled by the

Petitioners fell within the scope of the broad-form arbitration provision. Then, the

Majority looked at the relevant factual evidence produced by the Petitioners to

support their claim of waiver and prejudice—proof that the Respondents were the

complainants in several criminal actions involving the Petitioners—and correctly

determined that those facts do not clear the “high hurdle” of proof required to show

waiver or prejudice.

What the Petitioners continue to seek is not a proper application of the

“abuse of discretion” standard to the trial court’s factual findings, but rather a

ruling on the merit of their underlying action by relying on third-party reports and

newspaper articles to argue that their claims have merit, and that the merit of those

claims should defeat enforcement of the arbitration provision. Instead, the

Majority Opinion correctly refused to follow the trial court’s fact findings to the

extent that they were based on an analysis of the merits of the underlying action.

16
 Because the Majority Opinion correctly applied both the proper standards of

review to the trial court’s order, this Petition for Review should be denied.

B. The Majority Opinion correctly applied the law governing the

burdens of proof on the issues raised by the parties in the trial
court
The Respondents seek to enforce the arbitration agreement containing the

waiver-of-class-action provision under both the TAA and the FAA. When

applying FAA, state courts must recognize and apply the federal substantive law of

arbitrability. Preston v. Ferrer, 552 U.S 346, 349 (2008); see Southland Corp. v.

Keating, 465 U.S. 1 (1984). For example, Texas courts applying the FAA are

generally required to enforce broad-form arbitration provisions that contain

waiver-of-class clauses. See generally, DirectTV, Inc., supra.; AT&T Mobility,

supra.; see also, NCP Finance Ltd. Partnership, 350 S.W.3d at 155.

Consistent with this requirement, this Court has found that the federal

substantive law of arbitration embodied in the FAA is part of the substantive law

of Texas. Capital Income Properties v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992).

Therefore, when applying the FAA, Texas trial courts are required to apply the

procedural rules and substantive law of Texas, which includes the federal

substantive law of embodied in the FAA, to determine whether the parties must

arbitrate. In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Cooper

17
Indus., LLC v. Pepsi-Cola Metro. Bottling Co., Inc., 2015 Tex. App. LEXIS 8882,

*6-8 (Tex. App.—Houston [14th Dist.], August 25, 2015).

The Petitioners note that Federal courts procedurally treat a motion to

compel arbitration as a form of motion to dismiss under Rule 12(b) of the Federal

Rules of Civil Procedure. In accordance with that rule, Federal courts treat the

non-movants factual pleadings as true when reviewing the motion to compel. See

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523, 525

(8th Cir. 2006). But, this Federal rule of procedure is neither a substantive rule of

law under the FAA, nor is it used by the Federal courts to expand the evidence that

is relevant to the issues of arbitrability, waiver, or prejudice. See, e.g., Id., at 525-

27. Simply put, Rule 12(b) of the Federal Rules of Civil Procedure is not part of

the federal substantive law of arbitrability embodied in the FAA.

In fact, even Federal courts limit the application of the rule that the factual

pleadings are to be taken as true in the arbitration context to the legal

determination as to whether the nature of the dispute falls within the scope of the

arbitration provision. Primerica Life Ins. Co., 304 F.3d at 471; Municipal Energy

Agency of Mississippi, 804 F.2d at 342; Horizon Health Corp., 284 F. Supp. 2d at

441; Smith Barney Shearson, Inc., 838 F. Supp. at 1158; see, e.g., Suburban

Leisure Center, Inc., 468 F.3d at 525-27. In making that determination, the

Federal courts focus only on the nature of the dispute as pled and are prohibited

18
from analyzing the merits of the underlying action. AT&T Technologies, Inc., 475

U.S. at 649; Primerica Life Ins. Co., 304 F.3d at 471; Snap-On Tools Corp., 18

F.3d at 1267; Municipal Energy Agency of Mississippi, 804 F.2d at 342; Horizon

Health Corp., 284 F. Supp. 2d at 441; Smith Barney Shearson, Inc., 838 F. Supp. at

1158.

This application of the pleading rule under Federal Rule 12(b) is consistent

with the burdens each party has during the summary proceeding on substantive

arbitrability as applied by Texas courts. The two initial elements for which the

movant has the burden are satisfied by a review of the pleadings and the arbitration

provision. TEX. CIV. PRAC. & REM. CODE § 171.021(b); J.M. Davidson, Inc., 128

S.W.3d at 227. Once the movant’s burden is met, however, the non-movant has

the burden to present additional evidence of waiver and prejudice to defeat

enforcement of the arbitration provision, and the standard for determining waiver

is the same under both the FAA and the TAA (the non-movant must show that the

movant substantially invoked the judicial process). Tuscan Builders, L.P. v. 1437

SH6 L.L.C., 438 S.W.3d 717, 720 (Tex. App.—Houston [1st Dist.] 2014, pet.

denied); Pilot Travel Ctrs., LLC v. McCray, 416 S.W.3d 168, 182 (Tex. App.—

Dallas 2103, no pet.); McReynolds v. Elston, 222 S.W.3d 731, 741 (Tex. App.—

Houston [14th Dist.] 2007, orig. proceeding); Southwind Group, Inc. v. Landwehr,

188 S.W.3d 730, 735 (Tex. App.—Eastland 2006, orig. proceeding). Courts are to

19
determine whether the non-movant met its burden using the “totality of the

circumstances” standard. G. Leach Builders, LLC, 458 S.W.3d at 512; Perry

Homes, 258 S.W.3d 589-90. Because this portion of the proceeding requires the

presentation of “additional evidence,” the Federal pleading rule is simply

inapplicable to determining whether the burden has been met by the non-movant.

So, even assuming that a rule of pleading similar to the rule under Federal

Rule 12(b) applies to a proceeding in a Texas state court, it does not apply as

broadly as the Petitioners argue so as to relieve them from producing admissible

relevant evidence on the issues of waiver and prejudice. Again, the only relevant

evidence presented in the trial court by the Petitioners to meet their high burden on

the issues of waiver and prejudice was a compilation of online records showing

that the Respondents were complainants in several criminal cases—a point that

Respondents concede. The other materials presented to the trial court by the

Petitioners—the Petitioners’ conclusory pleadings, the Texas Appleseed Report

and newspaper articles—contain arguments, inferences, conclusions and unverified

quotes from out-of-court interviews that, at most, support the alleged merit of the

Petitioners’ underlying claims; they present no admissible evidence relevant to the

“totality of the circumstances” standard applicable to the issue of waiver or

prejudice. G. Leach Builders, LLC, 458 S.W.3d at 512; Perry Homes, 258 S.W.3d

589-90.

20
 Based on this record from the trial court, the Majority Opinion correctly

applied the law pertaining to waiver and prejudice to find that being the

complainant in criminal proceedings pre-dating the Petitioners’ current suit does

not constitute waiver or prejudice of the contractual right to arbitrate the

Petitioners’ underlying civil action. To have considered the arguments, inferences,

conclusions and unverified quotes from out-of-court interviews submitted by the

Petitioners as evidence of waiver and prejudice, the appellate court would have had

to analyze and pre-judge the merit of the Petitioners’ underlying action, which it is

legally prohibited from doing under federal law when resolving the issue of

substantive arbitrability.

Therefore, the Majority Opinion correctly applied the pleading rules to

review the trial court’s order, and this Petition for Review should be denied.

C. There is no split of authority justifying further review by this

Court
Although Texas courts look to the decisions of Federal courts and other

sister-state courts when construing and applying the FAA, they are not bound by

distinguishable decisions by those courts. Again, the Petitioners want this Court to

find that the Majority Opinion conflicts with the decisions of one Federal district

court and one sister-state court, when those opinions are clearly distinguishable

21
and when both courts impermissibly analyzed and pre-judged the merits of the

non-movants’ underlying actions.

I. The PLS Memorandum Opinion

The federal district court’s memorandum opinion in Lucinda Vine, Kristy

Pond, on behalf of themselves and for all others similarly situated v. PLS Financial

Services, Inc. and PLS Loan Store of Texas, Inc., Civil Action No. 3:16-cv-00031-

PRM (W.D. Tex. [El Paso Division] June 6, 2016) (“PLS Opinion”), is

distinguishable for several reasons.

First, the district court broadly applied the Federal rule of pleading under

Rule 12(b) beyond a review of the movant’s initial burden on the two elements of

arbitrability, to find that the non-movants met their burden of proof on the issues of

waiver and prejudice simply based on the allegations contained in their pleading.

By reaching its decision in this way, the district court relied on a federal procedural

rule, rather than the federal substantive law embodied in the FAA. Moreover, by

using the procedural rule in this way, the district court arguably misapplied the

pleading rule to relieve the non-movants of their burden to produce evidence of

waiver and prejudice and impermissibly analyzed and pre-judged the merit of the

underlying action. In fact, the district court even delved into an analysis of the

elements of the underlying action as it made its determination, which federal law

prohibits.

22
 Second, the PLS Opinion relies too extensively on In re Christus Spohn

Health System Corp., 231 S.W.3d 475 (Tex. App.—Corpus Christi-Edinburg 2007,

orig. proceeding), which was briefed and argued extensively to the appellate court.

The circumstances that gave rise to the ruling in Christus Spohn are extraordinarily

unique, because a private party was inexplicably allowed to intervene in a criminal

case to pursue a contempt motion when Texas law prohibits such an intervention

by a private party. See In re Amos, 397 S.W.3d 309, 314 (Tex. App.—Dallas

2013, orig. proceeding) (following Bell v. State, 2006 WL 3628916, at *5 (Tex.

App.—Houston [1st Dist.] 2006, no pet.), and In re Wingfield, 171 S.W.3d 374, 381

(Tex. App.—Tyler 2005, orig. proceeding)); In re Flores, 2016 WL 890969, at *1

(Tex. App.—Dallas 2016, orig. proceeding); In re Jeffory Blackard, Cause Nos. 5-

16-00478, 5-16-00479, 5-16-00480 (Tex. App.—Dallas, April 29, 2016, orig.

proceeding). This factor alone makes the Christus Spohn opinion an outlier with

little or no precedential value beyond its unique facts.

However, the PLS Opinion also ignores the fact that the court in Christus

Spohn narrowed the application of its ruling by stating that the civil litigant’s

intervention in the criminal case would not alone establish waiver of the right to

arbitration. Id., at 481-82. Instead, the PLS Opinion read Christus Spohn as

broadly concluding “that a party can invoke the judicial process by strategically

23
filing a contempt motion in a related criminal matter.” That conclusion is a

misreading of Christus Spohn.

Third, the PLS Opinion misapplies the definition of “invoking” provided by

the Fifth Circuit in Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th

Cir. 1999). Although the opinion contains a correct quotation of the Subway

definition, it ignores Texas law by assuming that a private party can implement or

enforce the criminal judicial process when it presents a complaint to a district

attorney, and by failing to address the many analogous Texas cases (cited in the

Majority Opinion) that have found that the mere filing of pleadings in a civil case

does not constitute a “substantial invocation of the judicial process.” Instead, the

majority of courts that have ever addressed the question of the whether the filing of

a criminal complaint can constitute “substantial invocation of the judicial process,”

have followed the reasoning of Subway to determine that it does not. See, e.g.,

Griffin v. Burlington Volkswagon, Inc., 411 N.J.Super. 515, 988 A.2d 101, 104

(NJ. App. Div. 2010); Gatlin v. P.O.A. Criscione Star #16195, 2008 WL 2745956,

at *3; Prescott-Follett & Assocs., Inc. v. Delasa/Prescott Folett & Assocs., 2002

WL 31528463, *4-5 (E.D. La. 2002); Myers v. Rosenberg, 1986 WL 3329, *2

(N.D. Ill. 1986); Amalgamated Local No. 55, United Automobile, Aerospace &

Agricultural Implement Workers of Am. v. Metal and Alloy Div. of Silver Creek

Precision Corp., 396 F.Supp. 667, (W.D. N.Y. 1975); c.f., Mendelsohn v. A&D

24
Catering Corp., 119 Misc.2d 581, 464 N.Y.S.2d 331 (N.Y. 1983); c.f., Consorcio

Rive, S.A. De C.V. v. Briggs of Cancun, Inc., 134 F.Supp.2d 789, 795-97 (E.D. La.

2001); but see, Taft v. Burttram, 254 Ga. 687, 333 S.E.2d 585, 586 (1985)

(analyzing the facts in the context of the rules of the National Association of

Securities Dealers, rather than the FAA).

For these reasons, the PLS Opinion is distinguishable from the present case,

and it should not be given weight by this Court in determining whether to grant the

Petition.

II. The Harrison Opinion

In Principal Investments v. Harrison, 2016 WL 166011, 132 Nev. Adv. Op.

2, ___ P.3d ___ (2016), the Nevada Supreme Court was not dealing with a criminal

case, and the movant had been the plaintiff in the prior civil actions at issue.

Moreover, the arbitration provision had allowed the plaintiff to choose whether to

proceed in a justice court or arbitration, and the proceeding being reviewed was

analogous to a Bill of Review proceeding under Texas law. So, unlike the present

case, the Court in Harrison found that the lender had invoked the judicial process

in a civil proceeding within the scope of the arbitration agreement. Therefore,

25
Harrison is distinguishable, but not inconsistent with, the Majority Opinion in this

case.3

CONCLUSION
Although the allegations involving prior criminal proceedings make the

underlying factual dispute in this case somewhat unique, the law to be applied to

the question of arbitrability is well-settled, and was correctly analyzed and applied

by the appellate court. Therefore, this case does not involve an issue of importance

to the jurisprudence of this State, which would require this Court’s review and

resolution.

Instead, the Majority Opinion of the Fourth Court of Appeals carefully and

correctly avoided pre-judging the merits of the Petitioners’ underlying action, and

was subject to further review and sustained by the full appellate court when it

denied rehearing and en banc review. The lower court correctly applied Texas and

Federal law construing and applying the FAA to the relevant evidence in the trial

court record.

In reality, what the Appellees seek is a de facto exception to the law

governing substantive arbitrability based on the nature of the allegations giving rise

to their underlying action. However, Federal and Texas law are clear that the
3
Finally, the Fourth Court’s prior decision in NCP Finance Ltd. Partnership is itself evidence
that there is no real split of authority in Texas on how to apply the broad-form provision at issue
in this case.

26
consideration of the merits is for the ultimate trier of fact—the arbitrator—not for

the court to decide in a summary proceeding to determine substantive arbitrability.

Therefore, this Petition for Review should be denied.

PRAYER
WHEREFORE, PREMISES CONSIDERED, Respondents request that the

Petition for Review be denied, and that they receive such other and further relief to

which they are justly entitled.

Respectfully submitted,

COATS ROSE, P.C.

By: /s/ Edward S. Hubbard

Edward S. Hubbard
State Bar No. 10131700
ehubbard@coatsrose.com
Patrick E. Gaas
State Bar No. 07562790
pgaas@coatsrose.com
Sam Arora
State Bar No. 24034287
sarora@coatsrose.com
9 Greenway Plaza, Suite 1100
Houston, Texas 77046-0307
(713) 651-0111
(713) 651-0220 facsimile

27
 ATTORNEYS FOR THE APPELLANTS

CERTIFICATE OF COMPLIANCE
Pursuant to Rule 9.4(i)(3) of the Texas Rules of Appellate Procedure, the

undersigned certifies that this Response complies with the 4,500 word limit for this

Response in accordance with Rule 9.4(i)(2)(D). The word count from page 1

through the Prayer on page 19 is 4,266 words, excluding the parts of the brief

exempted by Rule 9.4(i)(1). This word court is based on the count provided by the

“word count” function of Microsoft Word 2010, which is the computer program

used to prepare this Response.

/s/ Edward S. Hubbard

Edward S. Hubbard

28
 CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document has
been sent to the following counsel via e-filing in accordance with the Texas Rules
of Appellate Procedure, on this 30th day of December, 2016:

Daniel R. Dutko
Hanszen LaPorte, L.L.P.
11767 Katy Freeway, Suite 850
Houston, Texas 77079
Counsel for Petitioners

Ricardo G. Cedillo
Davis, Cedillo & Mendoza, Inc.
755 E. Mulberry, Suite 500
San Antonio, Texas 78212
Counsel for Amicus Curiae Texas Appleseed

/s/ Edward S. Hubbard

Edward S. Hubbard

29
 APPENDIX

Attached and incorporated by reference in Respondent’s Response to

Petition for Review is the following:

TAB 1 Memorandum Opinion in In re Jeffory Blackard

Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051
396 F.Supp. 667
United States District Court, W.D. New York.
AMALGAMATED LOCAL NO. 55, UNITED
AUTOMOBILE, AEROSPACE & AGRICULTURAL
IMPLEMENT WORKERS OF AMERICA, Plaintiff,
v.
METAL AND ALLOY DIVISION OF SILVER
CREEK PRECISION CORPORATION, Defendant.
No. Civ-74-397.
| Management Relations Act, 1947, § 301, 29
June 19, 1975.
Union brought action to compel arbitration under
collective bargaining agreement. On union's motion for
summary judgment, the District Court, Curtin, Chief
Judge, held that arbitration clause applied to dispute as
to whether there were arrearages in payments to union
welfare fund required by the contract; and that union had
not waived arbitration either by filing a criminal charge
against one of the employer's officers or by filing unfair
labor practice charge with the NLRB.
Plaintiff's motion for summary judgment granted.
West Headnotes (3)
[1] Labor and Employment
Arbitration Favored; Presumption of
Arbitrability
Labor and Employment
Scope of Inquiry; Merits of Controversy
Where party seeks to compel arbitration
under a collective bargaining agreement,
court's role is narrowly limited to a
consideration whether the reluctant party did
agree to arbitrate the grievance, and order
to arbitrate particular grievance should not
be denied unless it may be said with positive
assurance that the arbitration clause is not
susceptible of an interpretation that covers
the asserted dispute. Labor Management
Relations Act, 1947, § 301, 29 U.S.C.A. § 185.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Cases that cite this headnote
[2] Labor and Employment
Pensions and Other Benefits
Arbitration clause in collective bargaining
agreement requiring arbitration of all issues
regarding interpretation or application of any
term of the agreement applied to dispute
as to whether there were arrearages of
employer's contributions to union welfare
fund required by the contract. Labor
U.S.C.A. § 185.
3 Cases that cite this headnote
[3] Labor and Employment
Waiver and Estoppel
Union did not waive arbitration under
collective bargaining agreement by filing
criminal charge against one of employer's
officers under state labor law with respect to
the subject matter of the dispute, particularly
where union had already informed employer
of intention to arbitrate, or by filing unfair
labor practice charge with the NLRB,
particularly where the NLRB dismissed the
charge because union's remedy was deemed
to be under contract arbitration provision.
Labor Law N.Y. § 198–c.
2 Cases that cite this headnote
Attorneys and Law Firms
*667 Lipsitz, Green, Fahringer, Roll, Schuller & James,
Buffalo, N.Y. (Richard Lipsitz, and Stuart M. Pohl,
Buffalo, N.Y., of counsel), for plaintiff.
Moot, Sprague, Marcy, Landy, Fernbach & Smythe,
Buffalo, N.Y. (John J. Phelan, Buffalo N.Y., of counsel),
for defendant.
Opinion
CURTIN, Chief Judge.
1
Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051
This is an action brought by Amalgamated Local No. 55
pursuant to § 301 of the Labor Management Relations
Act, 29 U.S.C. § 185, to compel arbitration under a
collective bargaining agreement. The agreement, which
was executed in 1968 and amended on September 1, 1972,
*668 contains an arbitration clause requiring all issues
regarding interpretation or application of any term of
the agreement upon which the parties cannot agree to be
submitted to the office of the New York State Board of
Mediation for a panel of nine names, from which the name
of an arbitrator could be chosen to arbitrate the dispute. 1
The issue the plaintiff seeks to submit to arbitration
stems from defendant's alleged failure to contribute to an
employee welfare fund, as required by Article XI, Section
5 of the amended agreement. 2 The case is now before
the court on plaintiff's motion for summary judgment
brought pursuant to Rule 56 of the Federal Rules of Civil
Procedure.
The facts in this case are not in dispute. Defendant
corporation terminated its manufacturing operations on
or about August 13, 1973, at which time employees
represented by plaintiff were laid off. 3 On September 14,
1973, plaintiff union informed defendant that an arrearage
in its contributions payable to the Local 55 UAW Welfare
Fund, pursuant to Article XI, Section 5 of their collective
bargaining agreement, had developed. Plaintiff received
no response and, therefore, again notified defendant
of the arrearage on February 27, 1974. At that time
plaintiff also stated that if the amount was not paid
within ten days, the plaintiff would submit the dispute
to arbitration. Further letters followed in March and
April 1974, reiterating plaintiff's intention to arbitrate the
dispute. Thereafter plaintiff contacted the New York State
Mediation Board on March 26, 1974 and requested that
a panel of nine names be submitted to the parties from
which an arbitrator could be selected pursuant to their
agreement. On April 11, 1974, plaintiff was informed by
both the Mediation Board and defendant's attorney that
defendant refused to arbitrate the dispute. This action was
then begun on August 16, 1974.
[1] The precise question raised by the plaintiff's summary
judgment motion is whether the defendant's alleged failure
to pay into the union's welfare fund is an arbitrable dispute
subject to the arbitration clause. In deciding this *669
question, the role of the court under § 301 of the Labor
Management Relations Act has been narrowly limited to a
consideration of ‘whether the reluctant party did agree to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitrate the grievance.’ United Steelworkers of America
v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80
S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). Furthermore,
an order to arbitrate the particular grievance should not
be denied unless it may be said with positive assurance
that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute. Doubts
should be resolved in favor of coverage. Id. at 582-83, 80
S.Ct. at 1353.
In another case, United Steelworkers of America v.
American Mfg. Co., 363 U.S. 564, 567-68, 80 S.Ct. 1343,
1346, 4 L.Ed.2d 1403 (1960), decided on the same day as
the above cited case, the role of the court was similarly
delineated:
The function of the court is very limited when the
parties have agreed to submit all questions of contract
interpretation to the arbitrator. It is confined to
ascertaining whether the party seeking arbitration is
making a claim which on its face is governed by the
contract. Whether the moving party is right or wrong is
a question of contract interpretation for the arbitrator.
In these circumstances the moving party should not be
deprived of the arbitrator's judgment, when it was his
judgment and all that it connotes that was bargained for.
Under the standards set forth above, and reiterated in
other Supreme Court cases, 4 this court must therefore
initially make a determination whether the company
contractually bound itself to arbitrate. John Wiley & Sons,
Inc. v. Livingston, 376 U.S. 543, 547, 84 S.Ct. 909, 11
L.Ed.2d 898 (1964); Atkinson v. Sinclair Refining Co.,
370 U.S. 238, 241, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962);
Necchi v. Necchi Sewing Machine Sales Corp., 348 F.2d
693 (2d Cir. 1965), cert. denied, 383 U.S. 909, 86 S.Ct. 892,
15 L.Ed.2d 664 (1966). After this primary determination
has been made, the decision of whether or not arbitration
should be compelled can be made.
[2] Plaintiff has submitted both the text of the arbitration
clause, Article VI, Section 4, and the insurance provision,
Article XI, Section 5, contained in the September 1, 1972
contract, as amended. 5 Defendant has acknowledged
both the existence of this contract and the provisions
in question. An issue has clearly arisen regarding
contributions to the welfare fund. 6 The arbitration
clause, in concise, unambiguous language, requires that all
disputes regarding any such term of the agreement must
2
Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

be submitted to arbitration. Since defendant has not given dispute between the parties; nor could it have served that
purpose since it was a criminal complaint based upon
the court any positive assurance that the insurance issue
different issues than those before this court and brought
is not covered by the arbitration clause, it is clear that
against an individual, Manuel Llop, not the defendant
the company has agreed to arbitrate disputes such as this.
corporation. The criminal court action was brought
John Wiley & Sons, Inc. v. Livingston, supra.
after plaintiff had informed defendant of its intention
to arbitrate the dispute if the amount was not paid
[3] Defendant has argued that plaintiff's motion for
to the welfare fund, clearly indicating that the criminal
summary judgment directing defendant to submit to
action was not brought in lieu of arbitration. Nor can
arbitration should not be granted because plaintiff has
plaintiff's action in filing a charge with the National Labor
repudiated its right to arbitration. This repudiation
Relations Board be construed as a waiver of their contract
occurred, according to defendant, through plaintiff's filing
rights to arbitration, Glass Bottle Blowers Association
of a criminal information *670 in the City Court
of the United States and Canada, AFL-CIO, et al. v.
of Buffalo on December 12, 1973, charging one of
Arkansas Glass Container Corp., 183 F.Supp. 829, 830-31
defendant's officers with a violation of § 198-c of the New
(E.D.Ark.1960), especially since the N.L.R.B. dismissed
York State Labor Law, 7 and through plaintiff's filing
the charge because defendant's remedy was deemed to be
an unfair labor practice charge with the National Labor
under the contract provision for arbitration. 9
Relations Board on April 18, 1974. 8 The court finds no
merit to defendant's argument that plaintiff has waived
arbitration. Only one circuit court of appeals has found Therefore, since it appears from the record that there is a
that a union's action in bringing suit in a federal district valid collective bargaining agreement between the parties
court against their employer for back wages, instead of which provides for arbitration of the present dispute,
seeking arbitration, was a waiver of the union's right to summary judgment *671 is granted for the plaintiff
compel arbitration. Morales Rivera v. Sea Land of Puerto against the defendant directing the defendant to submit to
Rico, Inc., 418 F.2d 725 (1st Cir. 1969). However, the arbitration. Plaintiff shall prepare judgment and present it
Morales Rivera case differs from the instant case in that to the court after notice to defendant.
the union had decided to file suit in the district court
instead of compelling arbitration under the collective So ordered.
bargaining agreement. In this case the action in City Court
All Citations
was not brought instead of arbitration. To the contrary,
plaintiff had informed defendant of the arrearage at the 396 F.Supp. 667, 89 L.R.R.M. (BNA) 2922, 77 Lab.Cas.
time the complaint was filed. The action instituted in P 11,051
City Court was not instituted to resolve the merits of the

Footnotes
1 Article VI, § 4 of the collective bargaining agreement, as amended, provides:
4. If the third step should fail to secure satisfactory settlement, the grievance may be submitted to the office of the New
York State Board of Mediation for a panel of nine (9) names.
(a) In the event that an arbitrator is required, he shall be selected from the arbitration panel provided either by mutual
agreement or by each party alternately striking off a name from the panel. The remaining name shall be the arbitrator
who shall arbitrate the grievance or grievances pending.
(b) The arbitrator shall fix and notify the parties of the time and place for arbitration of the grievance.
(c) Any issue involving the interpretation or application of any term of this agreement shall be initiated by the Union directly
at step 3. Upon the failure of the parties to agree, the Union may then appeal the issue to arbitration for a decision.
(d) The decision of the arbitrator shall be final and binding upon both parties, but he shall have no power either to
add to, subtract from or modify any of the terms, conditions or limitations of this agreement or any agreement made
supplementary hereto . . ..
2 Article XI, § 5 of the collective bargaining agreement, as amended, provides:
5. INSURANCE:

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3

Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

(a) Effective February 1, 1972, the Company shall continue as a contributing employer to Local 55, UAW Welfare
Fund which has been established under an Agreement and Declaration of Trust dated September 1, 1958 which said
Agreement and Declaration of Trust the Company hereby ratifies and is deemed to be a part of this Agreement. The
Company will contribute the cost of $26.46 for each single, active working employee and $52.62 for each married, active
working employee to the Local 55, UAW Welfare Fund including employees on sick leave not to exceed twelve (12)
months for any one sick leave with an initial master list and subsequent monthly supplemental list for those for whom
premiums have been paid by the fifth (5th) day of each calendar mont . . ..
3 Defendant, in P6 of his answer, filed October 8, 1974, denies that the plaintiff's employee members were laid off.
4 For the third case in the famous Steelworkers' trilogy, see United States Steelworkers of America v. Enterprise Wheel
and Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). The Second Circuit has applied the standard set
in the Steelworkers' trilogy, stating:
Only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail. Strauss v. Silvercup Bakers,
353 F.2d 555, 557 (2d Cir. 1965). See also Publishers Association of New York City v. New York Mailers Union No. 6,
317 F.2d 624 (2d Cir. 1963).
5 Supra, nn. 1 and 2.
6 Plaintiff has stated that there have been arrearages in payments to the welfare fund, while defendant has denied the
allegation. Although it is not within the province of this court to pass on the merits of the allegation, it is clear that a
dispute does exist.
7 N.Y. Labor Law § 198-c (McKinney's Supp.1975) states:
1. In addition to any other penalty or punishment otherwise prescribed by law, any employer who is party to an agreement
to pay or provide benefits or wage supplements to employees or to a third party or fund for the benefit of employees
and who fails, neglects or refuses to pay the amount or amounts necessary to provide such benefits or furnish such
supplements within thirty days after such payments are required quired to be made, shall be guilty of a misdemeanor, and
upon conviction shall be punished as provided in section one hundred ninety-eight-a this article. Where such employer
is a corporation, the president, secretary, treasurer or officers exercising corresponding functions shall each be guilty
of a misdemeanor. 2. As used in this section, the term ‘benefits or wage supplements' includes, but is not limited to,
reimbursement for expenses; health, welfare and retirement benefits; and vacation, separation or holiday pay.
This charge was dismissed on February 24, 1974 because the court felt that plaintiff should seek other means of collecting
the monies due.
8 This charge was dismissed on May 24, 1974.
9 The reasons for the dismissal of the unfair labor charge by the National Labor Relations Board, similar to the reasons
of the City Court judge, did not go to the merits. According to a letter of the National Labor Relations Board dated May
24, 1974, the reasons for dismissal were as follows:
As a result of the investigation, it does not appear that further proceedings on the charge are warranted inasmuch as the
investigation revealed that all employees represented by the Charging Party were terminated more than eight months
ago as the Respondent closed its business for economic reasons. Furthermore, there was no successor to take over
and honor the collective bargaining agreement negotiated on behalf of the predecessor. It is also noted that the Union's
remedy for an enforcement of a contract in the circumstances herein is not within the jurisdiction of this Agency. I am,
therefore, refusing to issue complaint in this matter.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
KeyCite Yellow Flag - Negative Treatment
Not Followed on State Law Grounds Local No. 1119, American 
Federation State, County, and Mun. Employees, AFL-CIO v. Mesabi
Regional Medical Center, Minn.App., November 20, 1990
106 S.Ct. 1415
Supreme Court of the United States
AT & T TECHNOLOGIES, INC., Petitioner
v.
COMMUNICATIONS
WORKERS OF AMERICA et al.
No. 84-1913.
| court is not to rule on potential merits of
Argued Jan. 22, 1986.
|
Decided April 7, 1986.
Union sought intervention of court to compel arbitration
of dispute concerning company's layoff of employees. The
United States District Court for the Northern District
of Illinois, John F. Grady, J., ordered arbitration of
arbitrability issue, and employer appealed. The Court
of Appeals, 751 F.2d 203, affirmed, and certiorari
was granted. The Supreme Court, Justice White, held
that it was for court, not arbitrator, to decide in
first instance whether parties to collective bargaining
agreement intended to arbitrate grievances concerning
layoffs predicated on “lack of work” determination by
company.
Vacated and remanded.
Justice Brennan filed concurring opinion in which Chief
Justice Burger and Justice Marshall joined.
West Headnotes (5)
[1] Alternative Dispute Resolution
Contractual or Consensual Basis
Arbitration is matter of contract and party
cannot be required to submit to arbitration
any dispute which he has not agreed so to
submit.
1596 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[2] Alternative Dispute Resolution
Existence and Validity of Agreement
Unless parties clearly and unmistakably
provide otherwise, question of whether parties
agreed to arbitrate is to be decided by court,
not arbitrator.
2505 Cases that cite this headnote
[3] Alternative Dispute Resolution
Merits of Controversy
In deciding whether parties have agreed to
submit particular grievance to arbitration,
underlying claims.
2258 Cases that cite this headnote
[4] Alternative Dispute Resolution
Construction in Favor of Arbitration
Order to arbitrate particular grievance should
not be denied unless it may be said with
positive assurance that arbitration clause is
not susceptible of interpretation that covers
asserted dispute; doubts should be resolved in
favor of coverage.
1332 Cases that cite this headnote
[5] Labor and Employment
Discharge and Layoff
It was for court, not arbitrator, to decide
in first instance whether parties to collective
bargaining agreement intended to arbitrate
grievances concerning layoffs predicated on
“lack of work” determination by company.
900 Cases that cite this headnote
**1415 *643 Syllabus *
Petitioner employer and respondent Union are parties
to a collective-bargaining agreement covering telephone
equipment installation workers. Article 8 of the agreement
1
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
provides for arbitration of differences arising over
interpretation of the agreement. Article 9 provides that
subject to certain limitations, but otherwise not subject to
the arbitration clause, petitioner is free to exercise certain
management functions, including the hiring, placement,
and termination of employees. Article 20 prescribes the
order in which employees will be laid off “[w]hen lack of
work necessitates Layoff.” The Union filed a grievance
challenging petitioner's decision to lay off 79 installers
from its Chicago location, claiming that there was no
lack of work at that location and that therefore the
layoffs would violate Article 20. But petitioner laid off
the installers and refused to submit the grievance to
arbitration on the ground that under Article 9 the layoffs
were not arbitrable. The Union then sought to compel
arbitration by filing suit in Federal District Court, which,
after finding that the Union's interpretation of Article 20
was at least “arguable,” held that it was for the arbitrator,
not the court, to decide whether that interpretation had
merit, and, accordingly, ordered petitioner to arbitrate.
The Court of Appeals affirmed.
Held: The issue whether, because of express exclusion or
other evidence, the dispute over interpretation of Article
20 was subject to the arbitration clause, **1416 should
have been decided by the District Court and reviewed by
the Court of Appeals, and should not have been referred
to the arbitrator. Pp. 1418-20.
(a) Under the principles set forth in the Steelworkers
Trilogy (Steelworkers v. American Mfg. Co., 363 U.S. 564,
80 S.Ct. 1343, 4 L.Ed.2d 1403; Steelworkers v. Warrior
& Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347,
4 L.Ed.2d 1409; and Steelworkers v. Enterprise Wheel
& Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d
1424), it was the District Court's duty to interpret the
collective-bargaining agreement and to determine whether
the parties intended to arbitrate grievances concerning
layoffs predicated on a “lack of work” determination
by petitioner. If the court should determine that the
agreement so provides, then it would be for the arbitrator
to determine the relative merits of the parties' substantive
interpretations of the agreement. Pp. 1418-20.
*644 (b) This Court will not examine the collective-
bargaining agreement for itself and affirm the Court
of Appeals on the ground that the parties had agreed
to arbitrate the dispute over the layoffs. It is not this
Court's function in the first instance to construe collective-
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
bargaining agreements and arbitration clauses, or to
consider any other evidence that might demonstrate that
a particular grievance was not subject to arbitration. P.
1420.
751 F.2d 203 (CA 7th 1984), vacated and remanded.
WHITE, J., delivered the opinion for a unanimous Court.
BRENNAN, J., filed a concurring opinion, in which
BURGER, C.J., and MARSHALL, J., joined, post, p. ---.
Attorneys and Law Firms
Rex E. Lee argued the cause for petitioner. With him on
the briefs were David W. Carpenter, Gerald D. Skoning,
Charles C. Jackson, Howard J. Trienens, Alfred A. Green,
and Joseph Ramirez.
Laurence Gold argued the cause for respondents. With him
on the brief were Irving M. Friedman, Stanley Eisenstein,
Harold A. Katz, David Silberman, and James Coppess.*
* Briefs of amici curiae urging reversal were filed for the
Chamber of Commerce of the United States by John S.
Irving, Carl L. Taylor, and Stephen A. Bokat; and for
the National Association of Manufacturers by Jan S.
Admundson and Gary D. Lipkin.
David E. Feller filed a brief for the National Academy of
Arbitrators as amicus curiae urging affirmance.
Opinion
Justice WHITE delivered the opinion of the Court.
The issue presented in this case is whether a court
asked to order arbitration of a grievance filed under a
collective-bargaining agreement must first determine that
the parties intended to arbitrate the dispute, or whether
that determination is properly left to the arbitrator.
I
AT & T Technologies, Inc. (AT & T or the Company), and
the Communications Workers of America (the Union)
are parties to a collective-bargaining agreement which
covers telephone equipment installation workers. Article
8 of this agreement *645 establishes that “differences
arising with respect to the interpretation of this contract
2
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
or the performance of any obligation hereunder” must
be referred to a mutually agreeable arbitrator upon the
written demand of either party. This Article expressly does
not cover disputes “excluded from arbitration by other
provisions of this contract.” 1 Article 9 provides that,
“subject to the limitations contained in the provisions
of this contract, but otherwise not subject to the
provisions of the arbitration clause,” AT & T is free
to exercise certain management functions, including the
hiring and placement of employees and the termination of
employment. 2 “When lack of work necessitates Layoff,”
Article 20 prescribes the order in which employees are to
be laid off. 3
**1417 On September 17, 1981, the Union filed a
grievance challenging AT & T's decision to lay off 79
installers from its Chicago base location. The Union
claimed that, because there was no lack of work at the
Chicago location, the *646 planned layoffs would violate
Article 20 of the agreement. Eight days later, however,
AT & T laid off all 79 workers, and soon thereafter, the
Company transferred approximately the same number of
installers from base locations in Indiana and Wisconsin to
the Chicago base. AT & T refused to submit the grievance
to arbitration on the ground that under Article 9 the
Company's decision to lay off workers when it determines
that a lack of work exists in a facility is not arbitrable.
The Union then sought to compel arbitration by filing
suit in federal court pursuant to § 301(a) of the
Labor Management Relations Act, 29 U.S.C. § 185(a). 4
Communications Workers of America v. Western Electric
Co., No. 82 C 772 (ND Ill., Nov. 18, 1983). Ruling on
cross-motions for summary judgment, the District Court
reviewed the provisions of Articles 8, 9, and 20, and set
forth the parties' arguments as follows:
“Plaintiffs interpret Article 20 to require that there be
an actual lack of work prior to employee layoffs and
argue that there was no such lack of work in this
case. Under plaintiffs' interpretation, Article 20 would
allow the union to take to arbitration the threshold
issue of whether the layoffs were justified by a lack of
work. Defendant interprets Article 20 as merely providing
a sequence for any layoffs which management, in its
exclusive judgment, determines are necessary. Under
defendant's interpretation, Article 20 would not allow for
an arbitrator to decide whether the layoffs were warranted
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
by a lack of work but only whether the company *647
followed the proper order in laying off the employees.”
App. to Pet. for Cert. 10A.
Finding that “the union's interpretation of Article 20 was
at least ‘arguable,’ ” the court held that it was “for the
arbitrator, not the court to decide whether the union's
interpretation has merit,” and accordingly, ordered the
Company to arbitrate. Id., at 11A.
The Court of Appeals for the Seventh Circuit affirmed.
Communications Workers of America v. Western Electric
Co., 751 F.2d 203 (1984). The Court of Appeals
understood the District Court to have ordered arbitration
of the threshold issue of arbitrability. Id., at 205, n. 4. The
court acknowledged the “general rule” that the issue of
arbitrability is for the courts to decide unless the parties
stipulate otherwise, but noted that this Court's decisions
in Steelworkers v. Warrior & Gulf Navigation Co., 363
U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960), and
Steelworkers v. American Mfg. Co., 363 U.S. 564, 80 S.Ct.
1343, 4 L.Ed.2d 1403 (1960), caution courts to avoid
becoming entangled in the merits of a labor dispute under
the guise of deciding arbitrability. From this observation,
the court announced an “exception” to the general
rule, under which “a court should compel arbitration
of the arbitrability issue where the collective bargaining
agreement contains a standard arbitration clause, the
parties have not clearly excluded the arbitrability issue
from arbitration, and deciding the issue would entangle
the court in interpretation of substantive provisions of
the collective bargaining agreement and thereby involve
consideration of the merits of the dispute.” 751 F.2d, at
206.
**1418 All of these factors were present in this case.
Article 8 was a “standard arbitration clause,” and there
was “no clear, unambiguous exclusion from arbitration of
terminations predicated by a lack of work determination.”
Id., at 206-207. Moreover, although there were “colorable
arguments” on both sides of the exclusion issue, if the
court were to decide this question it would have to
interpret not only Article 8, but Articles 9 and 20 as well,
both of which are “substantive *648 provisions of the
Agreement.” The court thus “decline[d] the invitation to
decide arbitrability,” and ordered AT & T “to arbitrate
the arbitrability issue.” Id., at 207.
The court admitted that its exception was “difficult to
reconcile with the Supreme Court's discussion of a court's
3
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
duty to decide arbitrability in [John Wiley & Sons, Inc.
v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898
(1964) ].” The court asserted, however, that the discussion
was “dicta,” and that this Court had reopened the issue
in Nolde Brothers, Inc. v. Bakery Workers, 430 U.S. 243,
255, n. 8, 97 S.Ct. 1067, 1074, n. 8, 51 L.Ed.2d 300 (1977).
751 F.2d, at 206.
We granted certiorari, 474 U.S. 814, 106 S.Ct. 56, 88
L.Ed.2d 46 (1985), and now vacate the Seventh Circuit's
decision and remand for a determination of whether the
Company is required to arbitrate the Union's grievance.
II
The principles necessary to decide this case are not new.
They were set out by this Court over 25 years ago in a series
of cases known as the Steelworkers Trilogy: Steelworkers
v. American Mfg. Co., supra; Steelworkers v. Warrior &
Gulf Navigation Co., supra; and Steelworkers v. Enterprise
Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d
1424 (1960). These precepts have served the industrial
relations community well, and have led to continued
reliance on arbitration, rather than strikes or lockouts, as
the preferred method of resolving disputes arising during
the term of a collective-bargaining agreement. We see no
reason either to question their continuing validity, or to
eviscerate their meaning by creating an exception to their
general applicability.
[1] The first principle gleaned from the Trilogy is that
“arbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which
he has not agreed so to submit.” Warrior & Gulf, supra,
363 U.S., at 582, 80 S.Ct., at 1353; American Mfg.
Co., supra, 363 U.S., at 570-571, 80 S.Ct., at 1364-1365
(BRENNAN, J., concurring). This axiom recognizes the
fact that arbitrators derive their authority to resolve
disputes only because the parties have agreed in advance
to submit such grievances to *649 arbitration. Gateway
Coal Co. v. Mine Workers, 414 U.S. 368, 374, 94 S.Ct. 629,
635, 38 L.Ed.2d 583 (1974).
[2] The second rule, which follows inexorably from
the first, is that the question of arbitrability-whether a
collective-bargaining agreement creates a duty for the
parties to arbitrate the particular grievance-is undeniably
an issue for judicial determination. Unless the parties
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
clearly and unmistakably provide otherwise, the question
of whether the parties agreed to arbitrate is to be decided
by the court, not the arbitrator. Warrior & Gulf, supra,
363 U.S., at 582-583, 80 S.Ct., at 1352-1353. See Operating
Engineers v. Flair Builders, Inc., 406 U.S. 487, 491, 92 S.Ct.
1710, 1712, 32 L.Ed.2d 248 (1972); Atkinson v. Sinclair
Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8
L.Ed.2d 462 (1962), overruled in part on other grounds,
Boys Markets, Inc. v. Retail Clerks, 398 U.S. 235, 90 S.Ct.
1583, 26 L.Ed.2d 199 (1970). Accord, Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626,
105 S.Ct. 3346, 3353-3354, 87 L.Ed.2d 444 (1985).
The Court expressly reaffirmed this principle in John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct.
909, 11 L.Ed.2d 898 (1964). The “threshold question”
there was whether the court or an arbitrator **1419
should decide if arbitration provisions in a collective-
bargaining contract survived a corporate merger so as to
bind the surviving corporation. Id., at 546, 84 S.Ct., at
912. The Court answered that there was “no doubt” that
this question was for the courts. “ ‘Under our decisions,
whether or not the company was bound to arbitrate, as
well as what issues it must arbitrate, is a matter to be
determined by the Court on the basis of the contract
entered into by the parties.’ ... The duty to arbitrate
being of contractual origin, a compulsory submission to
arbitration cannot precede judicial determination that the
collective bargaining agreement does in fact create such
a duty.” Id., at 546-547, 84 S.Ct., at 912-913 (citations
omitted).
[3] The third principle derived from our prior cases is
that, in deciding whether the parties have agreed to submit
a particular grievance to arbitration, a court is not to rule
on the potential merits of the underlying claims. Whether
“arguable” or not, indeed even if it appears to the court
to be *650 frivolous, the union's claim that the employer
has violated the collective-bargaining agreement is to be
decided, not by the court asked to order arbitration,
but as the parties have agreed, by the arbitrator. “The
courts, therefore, have no business weighing the merits
of the grievance, considering whether there is equity
in a particular claim, or determining whether there
is particular language in the written instrument which
will support the claim. The agreement is to submit all
grievances to arbitration, not merely those which the court
will deem meritorious.” American Mfg. Co., 363 U.S., at
568, 80 S.Ct., at 1346 (footnote omitted).
4
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
[4] Finally, it has been established that where the contract
contains an arbitration clause, there is a presumption
of arbitrability in the sense that “[a]n order to arbitrate
the particular grievance should not be denied unless it
may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers
the asserted dispute. Doubts should be resolved in favor
of coverage.” Warrior & Gulf, 363 U.S., at 582-583,
80 S.Ct., at 1352-1353. See also Gateway Coal Co. v.
Mine Workers, supra, 414 U.S., at 377-378, 94 S.Ct., at
636-637. Such a presumption is particularly applicable
where the clause is as broad as the one employed in this
case, which provides for arbitration of “any differences
arising with respect to the interpretation of this contract or
the performance of any obligation hereunder....” In such
cases, “[i]n the absence of any express provision excluding
a particular grievance from arbitration, we think only the
most forceful evidence of a purpose to exclude the claim
from arbitration can prevail.” Warrior & Gulf, supra, 363
U.S., at 584-585, 80 S.Ct., at 1353-1354.
This presumption of arbitrability for labor disputes
recognizes the greater institutional competence
of arbitrators in interpreting collective-bargaining
agreements, “furthers the national labor policy of peaceful
resolution of labor disputes and thus best accords with
the parties' presumed objectives in pursuing collective
bargaining.” Schneider Moving & Storage Co. v. Robbins,
466 U.S. 364, 371-372, 104 S.Ct. 1844, 1849-1850,
80 L.Ed.2d 366 (1984) (citation *651 omitted). See
Gateway Coal Co., supra, 414 U.S., at 378-379, 94
S.Ct., at 637-638. The willingness of parties to enter
into agreements that provide for arbitration of specified
disputes would be “drastically reduced,” however, if
a labor arbitrator had the “power to determine his
own jurisdiction ....” Cox, Reflections Upon Labor
Arbitration, 72 Harv.L.Rev. 1482, 1509 (1959). Were this
the applicable rule, an arbitrator would not be constrained
to resolve only those disputes that the parties have agreed
in advance to settle by arbitration, but, instead, would be
empowered “to impose obligations outside the contract
limited only by his understanding and conscience.” Ibid.
This result undercuts the longstanding federal policy
of promoting industrial harmony through the use of
collective-bargaining agreements, and is antithetical to the
function of a collective- **1420 bargaining agreement as
setting out the rights and duties of the parties.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[5] With these principles in mind, it is evident that
the Seventh Circuit erred in ordering the parties to
arbitrate the arbitrability question. It is the court's duty
to interpret the agreement and to determine whether the
parties intended to arbitrate grievances concerning layoffs
predicated on a “lack of work” determination by the
Company. If the court determines that the agreement so
provides, then it is for the arbitrator to determine the
relative merits of the parties' substantive interpretations of
the agreement. It was for the court, not the arbitrator, to
decide in the first instance whether the dispute was to be
resolved through arbitration.
The Union does not contest the application of these
principles to the present case. Instead, it urges the Court to
examine the specific provisions of the agreement for itself
and to affirm the Court of Appeals on the ground that the
parties had agreed to arbitrate the dispute over the layoffs
at issue here. But it is usually not our function in the
first instance to construe collective-bargaining contracts
and arbitration clauses, or to consider any other evidence
that might unmistakably demonstrate that a particular
grievance was not to *652 be subject to arbitration. The
issue in the case is whether, because of express exclusion or
other forceful evidence, the dispute over the interpretation
of Article 20 of the contract, the layoff provision, is not
subject to the arbitration clause. That issue should have
been decided by the District Court and reviewed by the
Court of Appeals; it should not have been referred to the
arbitrator.
The judgment of the Court of Appeals is vacated, and the
case is remanded for proceedings in conformity with this
opinion.
It is so ordered.
Justice BRENNAN, with whom THE CHIEF JUSTICE
and Justice MARSHALL join, concurring.
I join the Court's opinion and write separately only to
supplement what has been said in order to avoid any
misunderstanding on remand and in future cases.
The Seventh Circuit's erroneous conclusion that the
arbitrator should decide whether this dispute is arbitrable
resulted from that court's confusion respecting the
“arbitrability” determination that we have held must be
judicially made. Despite recognizing that Article 8 of the
5
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...
collective-bargaining agreement “is a standard arbitration
clause, providing for arbitration of ‘any differences arising
with respect to the interpretation of this contract or
the performance of any obligation hereunder,’ ” and
that “there is no clear, unambiguous exclusion [of this
dispute] from arbitration,” the Court of Appeals thought
that “there [were] colorable arguments both for and
against exclusion.” Communications Workers of America
v. Western Electric Co., 751 F.2d 203, 206-207 (1984). The
“colorable arguments” referred to by the Court of Appeals
were the parties' claims concerning the meaning of Articles
9 and 20 of the collective-bargaining agreement: the Court
of Appeals thought that if the Union's interpretation of
Article 20 was correct and management *653 could not
order layoffs for reasons other than lack of work, the
dispute was arbitrable; but if AT & T's interpretation of
Article 20 was correct and management was free to order
layoffs for other reasons, the dispute was not arbitrable
under Article 9. Id., at 207. Because these were the very
issues that would be presented to the arbitrator if the
dispute was held to be arbitrable, the court reasoned that
“determining arbitrability would enmesh a court in the
merits of th[e] dispute,” ibid., and concluded that the
arbitrability issue should be submitted to the arbitrator.
The Court of Appeals was mistaken insofar as it thought
that determining arbitrability required resolution of the
parties' dispute with respect to the meaning of Articles
9 and 20 of the collective-bargaining agreement. This
is clear from our opinion in Steelworkers v. Warrior
& Gulf **1421 Navigation Co., 363 U.S. 574, 80
S.Ct. 1347, 4 L.Ed.2d 1409 (1960). In Warrior & Gulf,
the Union challenged management's contracting out of
labor that had previously been performed by Company
employees. The parties failed to resolve the dispute
through grievance procedures, and the Union requested
arbitration; the Company refused, and the Union sued to
compel arbitration under § 301 of the Labor Management
Relations Act, 29 U.S.C. § 185. The collective-bargaining
agreement contained a standard arbitration clause similar
to Article 8 of the AT & T/CWA contract, i.e., providing
for arbitration of all differences with respect to the
meaning or application of the contract. We held that, in
light of the congressional policy making arbitration the
favored method of dispute resolution, such a provision
requires arbitration “unless it may be said with positive
assurance that the arbitration clause is not susceptible of
an interpretation that covers the asserted dispute. Doubts
should be resolved in favor of coverage.” Warrior &
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Gulf, supra, at 582-583, 80 S.Ct., at 1352-1353 (footnote
omitted).
The Company in Warrior & Gulf relied for its argument
that the dispute was not arbitrable on a “Management
Functions” clause which, like Article 9 of the AT &
T/CWA agreement, *654 excluded “matters which are
strictly a function of management,” 363 U.S., at 576,
80 S.Ct., at 1349, from the arbitration provision. We
recognized that such a clause “might be thought to
refer to any practice of management in which, under
particular circumstances prescribed by the agreement, it
is permitted to indulge.” Id., at 584, 80 S.Ct., at 1353.
However, we also recognized that to read the clause this
way would make arbitrability in every case depend upon
whether management could take the action challenged
by the Union; the arbitrability of every dispute would
turn upon a resolution of the merits, and “the arbitration
clause would be swallowed up by the exception.” Ibid.
Therefore, we held that, where a collective-bargaining
agreement contains a standard arbitration clause and
the “exception” found in the Management Functions
clause is general, “judicial inquiry ... should be limited
to the search for an explicit provision which brings the
grievance under the cover of the [Management Functions]
clause....” Steelworkers v. American Mfg. Co., 363 U.S.
564, 572, 80 S.Ct. 1343, 1365, 4 L.Ed.2d 1403 (1960)
(BRENNAN, J., concurring); Warrior & Gulf, supra, 363
U.S., at 584, 80 S.Ct., at 1353. “In the absence of any
express provision excluding a particular grievance from
arbitration, ... only the most forceful evidence of a purpose
to exclude the claim from arbitration can prevail....” 363
U.S., at 584-585, 80 S.Ct., at 1353-1354.
The Seventh Circuit misunderstood these rules of contract
construction and did precisely what we disapproved
of in Warrior & Gulf -it read Article 9, a general
Management Functions clause, to make arbitrability
depend upon the merits of the parties' dispute. As
Warrior & Gulf makes clear, the judicial inquiry required
to determine arbitrability is much simpler. The parties'
dispute concerns whether Article 20 of the collective-
bargaining agreement limits management's authority to
order layoffs for reasons other than lack of work. The
question for the court is “strictly confined,” id., at 582,
80 S.Ct., at 1353, to whether the parties agreed to submit
disputes over the meaning of Article 20 to arbitration.
Because the collective-bargaining agreement contains a
standard arbitration *655 clause, the answer must be
6
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

affirmative unless the contract contains explicit language bargaining agreement only where there is some special
reason to do so. Thus, it is appropriate for this Court
stating that disputes respecting Article 20 are not subject
to construe a collective-bargaining agreement where-as
to arbitration, or unless the party opposing arbitration-
in the Steelworkers Trilogy -our decision announces a
here AT & T-adduces “the most forceful evidence” to
new principle of law, since applying this principle may
this effect from the bargaining history. Under Warrior &
help to clarify our meaning. There is no such need,
Gulf, determining arbitrability does not require the court
however, where-as here-we simply reaffirm established
even to consider which party is correct with respect to the
principles. Moreover, since the determination left for
meaning of Article 20.
the Court of Appeals on remand is straightforward and
will require little time or effort, concerns for efficient
The Court remands this case so that the court below may
judicial administration do not require us to interpret the
apply the proper standard to determine arbitrability. The
agreement. Finally, because the parties have submitted to
Court **1422 states that “it is usually not our function
us only fragmentary pieces of the bargaining history, we
in the first instance to construe collective-bargaining
are not in a position properly to evaluate whether there
contracts and arbitration clauses, or to consider any other
is “the most forceful evidence” that the parties *656
evidence that might unmistakably demonstrate that a
did not intend for this dispute to be arbitrable. Therefore,
particular grievance was not to be subject to arbitration.”
I join the Court's opinion and concur in the Court's
Ante, at 1420. Of course, we have on numerous occasions
judgment remanding to the Court of Appeals.
construed collective-bargaining agreements “in the first
instance”; we did so, for example, in the three cases
comprising the Steelworkers Trilogy. See also John Wiley
& Sons, Inc. v. Livingston, 376 U.S. 543, 552-555, 84 All Citations
S.Ct. 909, 916-917, 11 L.Ed.2d 898 (1964); Packinghouse
Workers v. Needham Packing Co., 376 U.S. 247, 249-253, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648, 121
84 S.Ct. 773, 774-777, 11 L.Ed.2d 680 (1964). Nonetheless, L.R.R.M. (BNA) 3329, 54 USLW 4339, 104 Lab.Cas. P
I agree with the Court that we should interpret a collective- 11,758

Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 287, 50 L.Ed. 499.
1 Article 8 provides, in pertinent part, as follows:
“If the National and the Company fail to settle by negotiation any differences arising with respect to the interpretation of
this contract or the performance of any obligation hereunder, such differences shall (provided that such dispute is not
excluded from arbitration by other provisions of this contract, and provided that the grievance procedures as to such
dispute have been exhausted) be referred upon written demand of either party to an impartial arbitrator mutually agreeable
to both parties.” App. 21.
2 Article 9 states:
“The Union recognizes the right of the Company (subject to the limitations contained in the provisions of this contract, but
otherwise not subject to the provisions of the arbitration clause) to exercise the functions of managing the business which
involve, among other things, the hiring and placement of Employees, the termination of employment, the assignment of
work, the determination of methods and equipment to be used, and the control of the conduct of work.” Id., at 22.
3 Article 20 provides, in pertinent part, that “[w]hen lack of work necessitates Layoff, Employees shall be Laid-Off in
accordance with Term of Employment and by Layoff groups as set forth in the following [subparagraphs stating the order
of layoff].” Id., at 23. Article 1.11 defines the term “Layoff” to mean “a termination of employment arising out of a reduction
in the force due to lack of work.” Id., at 20.
4 Section 301(a), 61 Stat. 156, 29 U.S.C. § 185(a) states:
“Suits for violation of contracts between an employer and a labor organization representing
employees in an industry affecting commerce as defined in this chapter, or between any such
organizations, may be brought in any district court of the United States having jurisdiction of the
parties, without respect of the amount in controversy or without regard to the citizenship of the
parties.”

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End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
KeyCite Yellow Flag - Negative Treatment
Disagreement Recognized by Wallace v. Red Bull Distributing Co., 
N.D.Ohio, July 23, 2013
131 S.Ct. 1740
Supreme Court of the United States
AT&T MOBILITY LLC, Petitioner,
v.
Vincent CONCEPCION et ux.
No. 09–893.
| grounds as exist at law or in equity for the
Argued Nov. 9, 2010.
| liberal federal policy favoring arbitration and
Decided April 27, 2011.
Synopsis
Background: Customers brought putative class action
against telephone company, alleging that company's offer
of a free phone to anyone who signed up for its cellphone
service was fraudulent to the extent that the company
charged the customer sales tax on the retail value of
the free phone. The United States District Court for the
Southern District of California, Dana M. Sabraw, J.,
2008 WL 5216255, denied company's motion to compel
arbitration. Company appealed. The United States Court
of Appeals for the Ninth Circuit, Carlos T. Bea, Circuit
Judge, 584 F.3d 849, affirmed. Certiorari was granted.
[Holding:] The Supreme Court, Justice Scalia, held that
the Federal Arbitration Act preempts California's judicial
rule regarding the unconscionability of class arbitration
waivers in consumer contracts, abrogating Discover Bank
v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113
P.3d 1100.
Reversed and remanded.
Justice Thomas filed a concurring opinion.
Justice Breyer filed a dissenting opinion, in which Justices
Ginsburg, Sotomayor, and Kagan, joined.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
West Headnotes (13)
[1] Alternative Dispute Resolution
Constitutional and statutory provisions
and rules of court
The provision of the Federal Arbitration Act
(FAA) stating that arbitration agreements in
maritime transactions or contracts evidencing
transactions involving commerce are valid,
irrevocable, and enforceable, save upon such
revocation of any contract, reflects both a
the fundamental principle that arbitration is a
matter of contract. 9 U.S.C.A. § 2.
674 Cases that cite this headnote
[2] Alternative Dispute Resolution
Constitutional and statutory provisions
and rules of court
In light of the liberal federal policy
favoring arbitration and the fundamental
principle that arbitration is a matter
of contract, which are reflected in the
provision of the Federal Arbitration Act
(FAA) stating that arbitration agreements in
maritime transactions or contracts evidencing
transactions involving commerce are valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for
the revocation of any contract, courts must
place arbitration agreements on an equal
footing with other contracts, and enforce
them according to their terms. 9 U.S.C.A. § 2.
902 Cases that cite this headnote
[3] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
The Federal Arbitration Act (FAA) preempts
California's judicial rule stating that a
class arbitration waiver is unconscionable
1
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
under California law if it is found in a
consumer contract of adhesion in a setting
in which disputes between the contracting
parties predictably involve small amounts of
damages, and if it is alleged that the party with
superior bargaining power has carried out a
scheme to deliberately cheat large numbers of
consumers out of individually small sums of
money, because that rule stands as an obstacle
to the accomplishment and execution of the
full purposes and objectives of Congress in
enacting the FAA, which include ensuring
the enforcement of arbitration agreements
according to their terms so as to facilitate
streamlined proceedings; abrogating Discover
Bank v. Superior Court, 36 Cal.4th 148, 30
Cal.Rptr.3d 76, 113 P.3d 1100. 9 U.S.C.A. § 2;
West's Ann.Cal.Civ.Code §§ 1668, 1670.5(a).
149 Cases that cite this headnote
[4] Alternative Dispute Resolution
Validity
Alternative Dispute Resolution
Validity of assent
Alternative Dispute Resolution
Unconscionability
Under the saving clause in the provision
of the Federal Arbitration Act (FAA)
stating that arbitration agreements in
maritime transactions or contracts evidencing
transactions involving commerce are valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for
the revocation of any contract, arbitration
agreements may 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 arbitrate is at issue. 9 U.S.C.A.
§ 2.
888 Cases that cite this headnote
[5] Contracts
Procedural unconscionability
Contracts
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Substantive unconscionability
Under California law, a finding that
a contract is unconscionable requires a
procedural and a substantive element, the
former focusing on oppression or surprise
due to unequal bargaining power, the latter
on overly harsh or one-sided results. West's
Ann.Cal.Civ.Code §§ 1668, 1670.5(a).
47 Cases that cite this headnote
[6] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
When state law prohibits outright the
arbitration of a particular type of claim,
the conflicting state rule is displaced by the
Federal Arbitration Act (FAA). 9 U.S.C.A. §
2.
137 Cases that cite this headnote
[7] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
In light of the preemptive effect of the Federal
Arbitration Act (FAA), a court may not
rely on the uniqueness of an agreement to
arbitrate as a basis for a state-law holding
that enforcement would be unconscionable,
for this would enable the court to effect what
the state legislature cannot. 9 U.S.C.A. § 2.
173 Cases that cite this headnote
[8] Alternative Dispute Resolution
Constitutional and statutory provisions
and rules of court
While the saving clause, in the provision
of the Federal Arbitration Act (FAA)
stating that arbitration agreements in
maritime transactions or contracts evidencing
transactions involving commerce are valid,
2
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for
the revocation of any contract, preserves
generally applicable contract defenses,
nothing in it suggests an intent to preserve
state-law rules that stand as an obstacle to
the accomplishment of the FAA's objectives.
9 U.S.C.A. § 2.
259 Cases that cite this headnote
[9] States
Congressional intent
A federal statute's preemption saving clause
cannot in reason be construed as allowing a
common law right, the continued existence of
which would be absolutely inconsistent with
the provisions of the act; in other words, the
act cannot be held to destroy itself.
5 Cases that cite this headnote
[10] Alternative Dispute Resolution
Constitutional and statutory provisions
and rules of court
The principal purpose of the Federal
Arbitration Act (FAA) is to ensure that
private arbitration agreements are enforced
according to their terms. 9 U.S.C.A. §§ 2–4.
248 Cases that cite this headnote
[11] Alternative Dispute Resolution
Nature, purpose, and right to arbitration
in general
In bilateral arbitration, parties forgo the
procedural rigor and appellate review of the
courts in order to realize the benefits of
private dispute resolution: lower costs, greater
efficiency and speed, and the ability to choose
expert adjudicators to resolve specialized
disputes.
8 Cases that cite this headnote
[12] Judgment
Persons represented by parties
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
For a class-action money judgment to bind
absentees in litigation, class representatives
must at all times adequately represent absent
class members, and absent members must be
afforded notice, an opportunity to be heard,
and a right to opt out of the class.
16 Cases that cite this headnote
[13] Alternative Dispute Resolution
Contractual or consensual basis
Alternative Dispute Resolution
Constitutional and statutory provisions
and rules of court
Arbitration is a matter of contract, and
the Federal Arbitration Act (FAA) requires
courts to honor parties' expectations. 9
U.S.C.A. § 1 et seq.
130 Cases that cite this headnote
**1742 *333 Syllabus *
The cellular telephone contract between respondents
(Concepcions) and petitioner (AT & T) provided for
arbitration of all disputes, but did not permit classwide
arbitration. After the Concepcions were charged sales
tax on the retail value of phones provided free
under their service contract, they sued AT & T in
a California Federal District Court. Their suit was
consolidated with a class action alleging, inter alia,
that AT & T had engaged in false advertising and
fraud by charging sales tax on “free” phones. The
District Court denied AT & T's motion to compel
arbitration under the Concepcions' contract. Relying on
the California Supreme Court's Discover Bank decision,
it found the arbitration provision unconscionable because
it disallowed classwide proceedings. The Ninth Circuit
agreed that the provision was unconscionable under
California law and held that the Federal Arbitration
Act (FAA), which makes arbitration agreements “valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract,” 9 U.S.C. § 2, did not preempt its ruling.
3
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
Held: Because it “stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress,” Hines v. Davidowitz, 312 U.S. 52,
67, 61 S.Ct. 399, 85 L.Ed. 581, California's Discover Bank
rule is pre-empted by the FAA. Pp. 1745 – 1753.
(a) Section 2 reflects a “liberal federal policy favoring
arbitration,” Moses H. Cone Memorial Hospital v.
Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927,
74 L.Ed.2d 765, and the “fundamental principle that
arbitration is a matter of contract,” Rent–A–Center, West,
Inc. v. Jackson, 561 U.S. ––––, ––––, 130 S.Ct. 2772, 177
L.Ed.2d 403 (2010). Thus, courts must place arbitration
agreements on an equal footing with other contracts,
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
443, 126 S.Ct. 1204, 163 L.Ed.2d 1038, and enforce them
according to their terms, Volt Information Sciences, Inc.
v. Board of Trustees of Leland Stanford Junior Univ., 489
U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488. Section
2's saving clause permits agreements to be invalidated
by “generally applicable contract defenses,” but not by
defenses that apply **1743 only to arbitration or derive
their meaning from the fact that an agreement to arbitrate
is at issue. Doctor's Associates, Inc. v. Casarotto, 517 U.S.
681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902. Pp. 1745 – 1746.
(b) In Discover Bank, the California Supreme Court held
that class waivers in consumer arbitration agreements are
unconscionable if the *334 agreement is in an adhesion
contract, disputes between the parties are likely to involve
small amounts of damages, and the party with inferior
bargaining power alleges a deliberate scheme to defraud.
Pp. 1745 – 1747.
(c) The Concepcions claim that the Discover Bank rule is a
ground that “exist[s] at law or in equity for the revocation
of any contract” under FAA § 2. When state law prohibits
outright the arbitration of a particular type of claim,
the FAA displaces the conflicting rule. But the inquiry
is more complex when a generally applicable doctrine is
alleged to have been applied in a fashion that disfavors
or interferes with arbitration. Although § 2's saving 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. Cf. Geier v. American Honda Motor Co., 529
U.S. 861, 872, 120 S.Ct. 1913, 146 L.Ed.2d 914. The
FAA's overarching purpose is to ensure the enforcement
of arbitration agreements according to their terms so as to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
facilitate informal, streamlined proceedings. Parties may
agree to limit the issues subject to arbitration, Mitsubishi
Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S.
614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444, to arbitrate
according to specific rules, Volt, supra, at 479, 109 S.Ct.
1248, and to limit with whom they will arbitrate, Stolt–
Nielsen, supra, at ––––. Pp. 1746 – 1750.
(d) Class arbitration, to the extent it is manufactured
by Discover Bank rather than consensual, interferes
with fundamental attributes of arbitration. The switch
from bilateral to class arbitration sacrifices arbitration's
informality and makes the process slower, more costly,
and more likely to generate procedural morass than
final judgment. And class arbitration greatly increases
risks to defendants. The absence of multilayered review
makes it more likely that errors will go uncorrected. That
risk of error may become unacceptable when damages
allegedly owed to thousands of claimants are aggregated
and decided at once. Arbitration is poorly suited to these
higher stakes. In litigation, a defendant may appeal a
certification decision and a final judgment, but 9 U.S.C. §
10 limits the grounds on which courts can vacate arbitral
awards. Pp. 1750 – 1753.
584 F.3d 849, reversed and remanded.
SCALIA, J., delivered the opinion of the Court, in which
ROBERTS, C. J., and KENNEDY, THOMAS, and
ALITO, JJ., joined. THOMAS, J., filed a concurring
opinion. BREYER, J., filed a dissenting opinion, in which
GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.
Attorneys and Law Firms
Andrew J. Pincus, Washington, DC, for Petitioner.
Deepak Gupta, for Respondents.
Donald M. Falk, Mayer Brown LLP, Palo Alto, CA,
Neal Berinhout, Atlanta, GA, Kenneth S. Geller, Andrew
J. Pincus, Evan M. Tager, Archis A. Parasharami,
Kevin Ranlett, Mayer Brown LLP, Washington, DC, for
Petitioner.
Opinion
**1744 Justice SCALIA delivered the opinion of the
Court.
4
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
*336 Section 2 of the Federal Arbitration Act (FAA)
makes agreements to arbitrate “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C.
§ 2. We consider whether the FAA prohibits States
from conditioning the enforceability of certain arbitration
agreements on the availability of classwide arbitration
procedures.
I
In February 2002, Vincent and Liza Concepcion entered
into an agreement for the sale and servicing of cellular
telephones with AT & T Mobility LCC (AT & T). 1 The
contract provided for arbitration of all disputes between
the parties, but required that claims be brought in the
parties' “individual capacity, and not as a plaintiff or
class member in any purported class or representative
proceeding.” App. to Pet. for Cert. 61a. 2 The agreement
authorized AT & T to make unilateral amendments, which
it did to the arbitration provision on several occasions.
The version at issue in this case reflects revisions made in
December 2006, which the parties agree are controlling.
The revised agreement provides that customers may
initiate dispute proceedings by completing a one-page
Notice of Dispute form available on AT & T's Web site.
AT & T may *337 then offer to settle the claim; if it
does not, or if the dispute is not resolved within 30 days,
the customer may invoke arbitration by filing a separate
Demand for Arbitration, also available on AT & T's Web
site. In the event the parties proceed to arbitration, the
agreement specifies that AT & T must pay all costs for
nonfrivolous claims; that arbitration must take place in
the county in which the customer is billed; that, for claims
of $10,000 or less, the customer may choose whether the
arbitration proceeds in person, by telephone, or based
only on submissions; that either party may bring a claim
in small claims court in lieu of arbitration; and that
the arbitrator may award any form of individual relief,
including injunctions and presumably punitive damages.
The agreement, moreover, denies AT & T any ability to
seek reimbursement of its attorney's fees, and, in the event
that a customer receives an arbitration award greater than
AT & T's last written settlement offer, requires AT & T to
pay a $7,500 minimum recovery and twice the amount of
the claimant's attorney's fees. 3
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
The Concepcions purchased AT & T service, which was
advertised as including the provision of free phones; they
were not charged for the phones, but they were charged
$30.22 in sales tax based on the phones' retail value. In
March 2006, the Concepcions filed a complaint against
AT & T in the United States District Court for the
Southern District of California. The complaint was later
consolidated with a putative class action alleging, among
other things, that AT & T had engaged in false advertising
and fraud by charging sales tax on phones it advertised as
free.
In March 2008, AT & T moved to compel
arbitration under the terms of its contract **1745
with the Concepcions. The Concepcions opposed the
motion, contending that the arbitration agreement was
unconscionable and unlawfully exculpatory *338 under
California law because it disallowed classwide procedures.
The District Court denied AT & T's motion. It described
AT & T's arbitration agreement favorably, noting, for
example, that the informal dispute-resolution process was
“quick, easy to use” and likely to “promp[t] full or ...
even excess payment to the customer without the need to
arbitrate or litigate”; that the $7,500 premium functioned
as “a substantial inducement for the consumer to pursue
the claim in arbitration” if a dispute was not resolved
informally; and that consumers who were members of a
class would likely be worse off. Laster v. T–Mobile USA,
Inc., 2008 WL 5216255, *11–*12 (S.D.Cal., Aug.11, 2008).
Nevertheless, relying on the California Supreme Court's
decision in Discover Bank v. Superior Court, 36 Cal.4th
148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), the court
found that the arbitration provision was unconscionable
because AT & T had not shown that bilateral arbitration
adequately substituted for the deterrent effects of class
actions. Laster, 2008 WL 5216255, *14.
The Ninth Circuit affirmed, also finding the provision
unconscionable under California law as announced in
Discover Bank. Laster v. AT & T Mobility LLC, 584
F.3d 849, 855 (2009). It also held that the Discover
Bank rule was not preempted by the FAA because that
rule was simply “a refinement of the unconscionability
analysis applicable to contracts generally in California.”
584 F.3d, at 857. In response to AT & T's argument
that the Concepcions' interpretation of California law
discriminated against arbitration, the Ninth Circuit
rejected the contention that “ ‘class proceedings will
5
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...

reduce the efficiency and expeditiousness of arbitration’
” and noted that “ ‘Discover Bank placed arbitration
agreements with class action waivers on the exact same
footing as contracts that bar class action litigation outside
the context of arbitration.’ ” Id., at 858 (quoting Shroyer
v. New Cingular Wireless Services, Inc., 498 F.3d 976, 990
(C.A.9 2007)).
We granted certiorari, 560 U.S. 923, 130 S.Ct. 3322, 176
L.Ed.2d 1218 (2010).
agreements to arbitrate 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 arbitrate is at issue. Doctor's Associates,
Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134
L.Ed.2d 902 (1996); see also Perry v. Thomas, 482 U.S.
483, 492–493, n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987).
*340 The question in this case is whether § 2 preempts
California's rule classifying most collective-arbitration
waivers in consumer contracts as unconscionable. We
refer to this rule as the Discover Bank rule.

*339 II
[1] [2] The FAA was enacted in 1925 in response to
widespread judicial hostility to arbitration agreements.
See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. of any unconscionable clause.” Cal. Civ.Code Ann. §
576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Section
2, the “primary substantive provision of the Act,” Moses
H. Cone Memorial Hospital v. Mercury Constr. Corp., 460
U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), provides, unequal bargaining power, the latter on ‘overly harsh’
in relevant part, as follows:
“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 ... shall be valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2.
We have described this provision as reflecting both a
“liberal federal policy favoring arbitration,” Moses H.
Cone, supra, at 24, 103 S.Ct. 927, and the “fundamental
principle that arbitration is a matter of contract,” Rent–
A–Center, West, Inc. v. Jackson, 561 U.S. ––––, ––––, 130
S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010). In line with
these principles, courts must place arbitration agreements
on an equal footing with other contracts, Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126
S.Ct. 1204, 163 L.Ed.2d 1038 (2006), and enforce them
according to their terms, Volt Information Sciences, Inc.
v. **1746 Board of Trustees of Leland Stanford Junior
Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488
(1989).
[3] [4] The final phrase of § 2, however, permits find arbitration agreements unconscionable. See, e.g.,
arbitration agreements to be declared unenforceable
“upon such grounds as exist at law or in equity for the
revocation of any contract.” This saving clause permits
[5] Under California law, courts may refuse to enforce
any contract found “to have been unconscionable at
the time it was made,” or may “limit the application
1670.5(a) (West 1985). A finding of unconscionability
requires “a ‘procedural’ and a ‘substantive’ element, the
former focusing on ‘oppression’ or ‘surprise’ due to
or ‘one-sided’ results.” Armendariz v. Foundation Health
Pyschcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d
745, 6 P.3d 669, 690 (2000); accord, Discover Bank, 36
Cal.4th, at 159–161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1108.
In Discover Bank, the California Supreme Court applied
this framework to class-action waivers in arbitration
agreements and held as follows:
“[W]hen the waiver is found in a consumer contract
of adhesion in a setting in which disputes between the
contracting parties predictably involve small amounts
of damages, and when it is alleged that the party with
the superior bargaining power has carried out a scheme
to deliberately cheat large numbers of consumers out
of individually small sums of money, then ... the waiver
becomes in practice the exemption of the party ‘from
responsibility for [its] own fraud, or willful injury
to the person or property of another.’ Under these
circumstances, such waivers are unconscionable under
California law and should not be enforced.” Id., at
162, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110 (quoting Cal.
Civ.Code Ann. § 1668).
California courts have frequently applied this rule to
Cohen v. DirecTV, Inc., 142 Cal.App.4th 1442, 1451–1453,
48 Cal.Rptr.3d 813, 819–821 (2006); Klussman v. Cross
Country *341 Bank, 134 Cal.App.4th 1283, 1297, 36

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Cal.Rptr.3d 728, 738–739 (2005); Aral v. EarthLink, Inc., Discover Bank. A court might reason that no consumer
134 Cal.App.4th 544, 556–557, 36 Cal.Rptr.3d 229, 237– would knowingly waive his right to full discovery, as
239 (2005). this would enable companies to hide their wrongdoing.
Or the court might simply say that such agreements are
exculpatory—restricting discovery would be of greater
benefit to the company than the consumer, since the
III
former is more likely to be sued than to sue. See Discover
Bank, supra, at 161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1109
A (arguing that class waivers are similarly one-sided). And,
the reasoning would continue, because such a rule applies
The Concepcions argue that the Discover Bank rule, the general principle of unconscionability or public-policy
given its origins in California's unconscionability doctrine disapproval of exculpatory agreements, it is applicable
and California's policy against exculpation, is a ground to “any” contract and thus preserved by § 2 of the
that “exist[s] at law or in equity for the revocation of FAA. In practice, of course, the rule would have a
any contract” under FAA § 2. Moreover, they argue disproportionate impact on arbitration agreements; but
that even if we construe the Discover Bank rule as it would presumably apply to contracts purporting to
a prohibition on collective-action waivers rather than restrict discovery in litigation as well.
simply an application of unconscionability, the rule would
still be applicable to all dispute-resolution contracts,
Other examples are easy to imagine. The same argument
since California prohibits waivers of class litigation as might apply to a rule classifying as unconscionable
well. See America Online, Inc. v. Superior **1747 Ct., arbitration agreements that fail to abide by the Federal
90 Cal.App.4th 1, 17–18, 108 Cal.Rptr.2d 699, 711–713 Rules of Evidence, or that disallow an ultimate disposition
(2001). by a jury (perhaps termed “a panel of twelve lay
arbitrators” to help avoid preemption). Such examples
[6] [7] When state law prohibits outright the are not fanciful, since the judicial hostility towards
arbitration of a particular type of claim, the analysis is arbitration that prompted the FAA had manifested itself
straightforward: The conflicting rule is displaced by the in “a great variety” of “devices and formulas” declaring
FAA. Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. arbitration against public policy. Robert Lawrence Co.
978, 169 L.Ed.2d 917 (2008). But the inquiry becomes v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (C.A.2
more complex when a doctrine normally thought to be 1959). And although these statistics are not definitive, it
generally applicable, such as duress or, as relevant here, is worth noting that California's courts have been more
unconscionability, is alleged to have been applied in a likely to hold contracts to arbitrate unconscionable than
fashion that disfavors arbitration. In Perry v. Thomas, other contracts. Broome, An Unconscionable Applicable
482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), for of the Unconscionability Doctrine: How the California
example, we noted that the FAA's preemptive effect might Courts are Circumventing the Federal Arbitration Act,
extend even to grounds traditionally thought to exist “ 3 Hastings Bus. L.J. 39, 54, 66 (2006); Randall,
‘at law or in equity for the revocation of any contract.’ *343 Judicial Attitudes Toward Arbitration and the
” Id., at 492, n. 9, 107 S.Ct. 2520 (emphasis deleted). We Resurgence of Unconscionability, 52 Buffalo L.Rev. 185,
said that a court may not “rely on the uniqueness of an 186–187 (2004).
agreement to arbitrate as a basis for a state-law holding
that enforcement would be unconscionable, for this would The Concepcions suggest that all this is just a parade
enable the court to effect what ... the state legislature of horribles, and no genuine worry. “Rules aimed
cannot.” Id., at 493, n. 9, 107 S.Ct. 2520. at destroying arbitration” or “demanding procedures
incompatible with arbitration,” they concede, **1748
An obvious illustration of this point would be a case “would be preempted by the FAA because they
finding unconscionable or unenforceable as against public cannot sensibly be reconciled with Section 2.” Brief for
policy *342 consumer arbitration agreements that Respondents 32. The “grounds” available under § 2's
fail to provide for judicially monitored discovery. The saving clause, they admit, “should not be construed to
rationalizations for such a holding are neither difficult to include a State's mere preference for procedures that
imagine nor different in kind from those articulated in

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are incompatible with arbitration and ‘would wholly
eviscerate arbitration agreements.’ ” Id., at 33 (quoting
Carter v. SSC Odin Operating Co., LLC, 237 Ill.2d 30, 50,
340 Ill.Dec. 196, 927 N.E.2d 1207, 1220 (2010)). 4 “in accordance with the terms of the agreement” upon the
[8] [9] We largely agree. Although § 2's saving clause the “making of the arbitration agreement or the failure ...
preserves generally applicable contract defenses, nothing
in it suggests an intent to preserve state-law rules that
stand as an obstacle to the accomplishment of the FAA's
objectives. Cf. Geier v. American Honda Motor Co., 529
U.S. 861, 872, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000);
Crosby v. National Foreign Trade Council, 530 U.S. 363,
372–373, 120 S.Ct. 2288, 147 L.Ed.2d 352 (2000). As we
have said, a federal statute's saving clause “ ‘cannot in
reason be construed as [allowing] a common law right,
the continued existence of which would be absolutely
inconsistent with the provisions of the act. In other words, arbitration processes is to allow for efficient, streamlined
the act cannot be held to destroy itself.’ ” American
Telephone & Telegraph Co. v. Central Office Telephone,
Inc., 524 U.S. 214, 227–228, 118 S.Ct. 1956, 141 L.Ed.2d
222 (1998) (quoting Texas & Pacific R. Co. v. Abilene
Cotton Oil Co., 204 U.S. 426, 446, 27 S.Ct. 350, 51 L.Ed.
553 (1907)).
*344 We differ with the Concepcions only in the
application of this analysis to the matter before us. We
do not agree that rules requiring judicially monitored
discovery or adherence to the Federal Rules of Evidence
are “a far cry from this case.” Brief for Respondents
32. The overarching purpose of the FAA, evident in
the text of §§ 2, 3, and 4, is to ensure the enforcement
of arbitration agreements according to their terms
so as to facilitate streamlined proceedings. Requiring
the availability of classwide arbitration interferes with
fundamental attributes of arbitration and thus creates a
scheme inconsistent with the FAA.
B the legislation for expedited resolution of disputes. Far
[10] The “principal purpose” of the FAA is to
“ensur[e] that private arbitration agreements are enforced
according to their terms.” Volt, 489 U.S., at 478, 109
S.Ct. 1248; see also Stolt–Nielsen S.A. v. AnimalFeeds Int'l
Corp., 559 U.S. ––––, ––––, 130 S.Ct. 1758, 1763, 176
L.Ed.2d 605 (2010). This purpose is readily apparent from
the FAA's text. Section 2 makes arbitration agreements
“valid, irrevocable, and enforceable” as written (subject,
of course, to the saving clause); § 3 requires courts
to stay litigation of arbitral claims pending arbitration
of those claims “in accordance with the terms of the
agreement”; and § 4 requires courts to compel arbitration
motion of either party to the agreement (assuming that
to perform the same” is not at issue). In light of these
provisions, we have held that parties may agree to limit
the issues subject to arbitration, Mitsubishi Motors Corp.
v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105
S.Ct. 3346, 87 L.Ed.2d 444 (1985), **1749 to arbitrate
according to specific rules, Volt, supra, at 479, 109 S.Ct.
1248, and to limit with whom a party will arbitrate its
disputes, Stolt–Nielsen, supra, at ––––, 130 S.Ct. at 1773.
The point of affording parties discretion in designing
procedures tailored to the type of dispute. It can be
specified, *345 for example, that the decisionmaker be a
specialist in the relevant field, or that proceedings be kept
confidential to protect trade secrets. And the informality
of arbitral proceedings is itself desirable, reducing the cost
and increasing the speed of dispute resolution. 14 Penn
Plaza LLC v. Pyett, 556 U.S. 247, ––––, 129 S.Ct. 1456,
1460, 173 L.Ed.2d 398 (2009); Mitsubishi Motors Corp.,
supra, at 628, 105 S.Ct. 3346.
The dissent quotes Dean Witter Reynolds Inc. v. Byrd,
470 U.S. 213, 219, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985),
as “ ‘reject[ing] the suggestion that the overriding goal
of the Arbitration Act was to promote the expeditious
resolution of claims.’ ” Post, at 4 (opinion of BREYER,
J.). That is greatly misleading. After saying (accurately
enough) that “the overriding goal of the Arbitration Act
was [not] to promote the expeditious resolution of claims,”
but to “ensure judicial enforcement of privately made
agreements to arbitrate,” 470 U.S., at 219, 105 S.Ct.
1238, Dean Witter went on to explain: “This is not to
say that Congress was blind to the potential benefit of
from it ....” Id., at 220, 105 S.Ct. 1238. It then quotes a
House Report saying that “the costliness and delays of
litigation ... can be largely eliminated by agreements for
arbitration.” Ibid. (quoting H.R.Rep. No. 96, 68th Cong.,
1st Sess., 2 (1924)). The concluding paragraph of this part
of its discussion begins as follows:
“We therefore are not persuaded by the argument that
the conflict between two goals of the Arbitration Act—
enforcement of private agreements and encouragement

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of efficient and speedy dispute resolution—must be
resolved in favor of the latter in order to realize the
intent of the drafters.” 470 U.S., at 221, 105 S.Ct. 1238.
In the present case, of course, those “two goals” do not
conflict—and it is the dissent's view that would frustrate
both of them.
Contrary to the dissent's view, our cases place it
beyond dispute that the FAA was designed to promote
arbitration. *346 They have repeatedly described the Act
as “embod[ying] [a] national policy favoring arbitration,”
Buckeye Check Cashing, 546 U.S., at 443, 126 S.Ct.
1204, and “a liberal federal policy favoring arbitration
agreements, notwithstanding any state substantive or
procedural policies to the contrary,” Moses H. Cone, 460
U.S., at 24, 103 S.Ct. 927; see also Hall Street Assocs., 552
U.S., at 581, 128 S.Ct. 1396. Thus, in Preston v. Ferrer,
holding preempted a state-law rule requiring exhaustion
of administrative remedies before arbitration, we said: “A
prime objective of an agreement to arbitrate is to achieve
‘streamlined proceedings and expeditious results,’ ” which
objective would be “frustrated” by requiring a dispute to
be heard by an agency first. 552 U.S., at 357–358, 128 S.Ct.
978. That rule, we said, would “at the least, hinder speedy
resolution of the controversy.” Id., at 358, 128 S.Ct. 978. 5
**1750 California's Discover Bank rule similarly
interferes with arbitration. Although the rule does not
require classwide arbitration, it allows any party to a
consumer contract to demand it ex post. The rule is
limited to adhesion contracts, Discover Bank, 36 Cal.4th,
at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110, but
the times in which consumer contracts were anything
*347 other than adhesive are long past. 6 Carbajal v.
H & R Block Tax Servs., Inc., 372 F.3d 903, 906 (7th
Cir.2004); see also Hill v. Gateway 2000, Inc., 105 F.3d
1147, 1149 (C.A.7 1997). The rule also requires that
damages be predictably small, and that the consumer
allege a scheme to cheat consumers. Discover Bank, supra,
at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110. The
former requirement, however, is toothless and malleable
(the Ninth Circuit has held that damages of $4,000 are
sufficiently small, see Oestreicher v. Alienware Corp., 322
Fed.Appx. 489, 492 (2009) (unpublished)), and the latter
has no limiting effect, as all that is required is an allegation.
Consumers remain free to bring and resolve their disputes
on a bilateral basis under Discover Bank, and some may
well do so; but there is little incentive for lawyers to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitrate on behalf of individuals when they may do so for
a class and reap far higher fees in the process. And faced
with inevitable class arbitration, companies would have
less incentive to continue resolving potentially duplicative
claims on an individual basis.
Although we have had little occasion to examine
classwide arbitration, our decision in Stolt–Nielsen is
instructive. In that case we held that an arbitration panel
exceeded its power under § 10(a)(4) of the FAA by
imposing class procedures based on policy judgments
rather than the arbitration agreement itself or some
background principle of contract law that would affect
its interpretation. 559 U.S., at ––––, 130 S.Ct. at 1773–
1776. We then held that the agreement at issue, which
was silent on the question of class procedures, could
not be interpreted to allow them because the “changes
brought about by the shift from bilateral arbitration
to class-action arbitration” are “fundamental.” Id., at
––––, 130 S.Ct. at 1776. This is obvious as a *348
structural matter: Classwide arbitration includes absent
parties, necessitating additional and different procedures
and involving higher stakes. Confidentiality becomes
more difficult. And while it is theoretically possible to
select an arbitrator with some expertise relevant to the
class-certification question, arbitrators are not generally
knowledgeable in the often-dominant procedural aspects
of certification, such as the protection of absent parties.
The conclusion follows that **1751 class arbitration, to
the extent it is manufactured by Discover Bank rather than
consensual, is inconsistent with the FAA.
[11] First, the switch from bilateral to class arbitration
sacrifices the principal advantage of arbitration—its
informality—and makes the process slower, more costly,
and more likely to generate procedural morass than
final judgment. “In bilateral arbitration, parties forgo the
procedural rigor and appellate review of the courts in
order to realize the benefits of private dispute resolution:
lower costs, greater efficiency and speed, and the ability
to choose expert adjudicators to resolve specialized
disputes.” 559 U.S., at ––––, 130 S.Ct. at 1775. But
before an arbitrator may decide the merits of a claim in
classwide procedures, he must first decide, for example,
whether the class itself may be certified, whether the
named parties are sufficiently representative and typical,
and how discovery for the class should be conducted.
A cursory comparison of bilateral and class arbitration
illustrates the difference. According to the American
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Arbitration Association (AAA), the average consumer
arbitration between January and August 2007 resulted in
a disposition on the merits in six months, four months if
the arbitration was conducted by documents only. AAA,
Analysis of the AAA's Consumer Arbitration Caseload,
online at http://www.adr.org/ si.asp?id=5027 (all Internet
materials as visited Apr. 25, 2011, and available in Clerk
of Court's case file). As of September 2009, the AAA
had opened 283 class arbitrations. Of those, 121 remained
active, and 162 had been settled, withdrawn, or dismissed.
Not a single one, however, had *349 resulted in a final
award on the merits. Brief for AAA as Amicus Curiae
in Stolt–Nielsen, O.T.2009, No. 08–1198, pp. 22–24. For
those cases that were no longer active, the median time
from filing to settlement, withdrawal, or dismissal—not
judgment on the merits—was 583 days, and the mean was
630 days. Id., at 24. 7
[12] Second, class arbitration requires procedural
formality. The AAA's rules governing class arbitrations
mimic the Federal Rules of Civil Procedure for class
litigation. Compare AAA, Supplementary Rules for Class
Arbitrations (effective Oct. 8, 2003), online at http://
www.adr.org/ sp.asp? id=21936, with Fed. Rule Civ. Proc.
23. And while parties can alter those procedures by
contract, an alternative is not obvious. If procedures are
too informal, absent class members would not be bound
by the arbitration. For a class-action money judgment to
bind absentees in litigation, class representatives must at
all times adequately represent absent class members, and
absent members must be afforded notice, an opportunity
to be heard, and a right to opt out of the class. Phillips
Petroleum Co. v. Shutts, 472 U.S. 797, 811–812, 105 S.Ct.
2965, 86 L.Ed.2d 628 (1985). At least this amount of
process would presumably be required for absent parties
to be bound by the results of arbitration.
We find it unlikely that in passing the FAA Congress
meant to leave the disposition of these procedural
requirements to an arbitrator. Indeed, class arbitration
was not even envisioned by Congress when it passed the
FAA in 1925; as the California Supreme Court admitted
in Discover Bank, class arbitration is a “relatively recent
development.” 36 Cal.4th, at 163, 30 Cal.Rptr.3d 76, 113
P.3d, at 1110. And it **1752 is at the very *350 least
odd to think that an arbitrator would be entrusted with
ensuring that third parties' due process rights are satisfied.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Third, class arbitration greatly increases risks to
defendants. Informal procedures do of course have a
cost: The absence of multilayered review makes it more
likely that errors will go uncorrected. Defendants are
willing to accept the costs of these errors in arbitration,
since their impact is limited to the size of individual
disputes, and presumably outweighed by savings from
avoiding the courts. But when damages allegedly owed to
tens of thousands of potential claimants are aggregated
and decided at once, the risk of an error will often
become unacceptable. Faced with even a small chance of a
devastating loss, defendants will be pressured into settling
questionable claims. Other courts have noted the risk of
“in terrorem” settlements that class actions entail, see, e.g.,
Kohen v. Pacific Inv. Management Co. LLC, 571 F.3d 672,
677–678 (C.A.7 2009), and class arbitration would be no
different.
Arbitration is poorly suited to the higher stakes of
class litigation. In litigation, a defendant may appeal a
certification decision on an interlocutory basis and, if
unsuccessful, may appeal from a final judgment as well.
Questions of law are reviewed de novo and questions of
fact for clear error. In contrast, 9 U.S.C. § 10 allows a court
to vacate an arbitral award only where the award “was
procured by corruption, fraud, or undue means”; “there
was evident partiality or corruption in the arbitrators”;
“the arbitrators were guilty of misconduct in refusing to
postpone the hearing ... or in refusing to hear evidence
pertinent and material to the controversy[,] or of any
other misbehavior by which the rights of any party
have been prejudiced”; or if the “arbitrators exceeded
their powers, or so imperfectly executed them that a
mutual, final, and definite award ... was not made.” The
AAA rules do authorize judicial review of certification
decisions, but this review is unlikely to have much effect
given these limitations; review under § 10 focuses on
misconduct *351 rather than mistake. And parties may
not contractually expand the grounds or nature of judicial
review. Hall Street Assocs., 552 U.S., at 578, 128 S.Ct.
1396. We find it hard to believe that defendants would bet
the company with no effective means of review, and even
harder to believe that Congress would have intended to
allow state courts to force such a decision. 8
[13] The Concepcions contend that because parties may
and sometimes do agree to aggregation, class procedures
are not necessarily incompatible with arbitration. But the
same could be said about procedures that the Concepcions
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admit States may not superimpose on arbitration: Parties
could agree to arbitrate pursuant to the Federal Rules
of Civil Procedure, or pursuant to a discovery process
rivaling that in litigation. Arbitration is a matter of
contract, and the FAA requires courts to honor parties'
expectations. Rent–A– **1753 Center, West, 561 U.S.,
at ––––, 130 S.Ct. 2772, 2774. But what the parties in
the aforementioned examples would have agreed to is not
arbitration as envisioned by the FAA, lacks its benefits,
and therefore may not be required by state law.
The dissent claims that class proceedings are necessary
to prosecute small-dollar claims that might otherwise slip
through the legal system. See post, at 9. But States cannot
require a procedure that is inconsistent with the FAA,
even if it is desirable for unrelated reasons. Moreover, the
claim here was most unlikely to go unresolved. As noted
earlier, the arbitration agreement provides that AT & T
will *352 pay claimants a minimum of $7,500 and twice
their attorney's fees if they obtain an arbitration award
greater than AT & T's last settlement offer. The District
Court found this scheme sufficient to provide incentive for
the individual prosecution of meritorious claims that are
not immediately settled, and the Ninth Circuit admitted
that aggrieved customers who filed claims would be
“essentially guarantee[d]” to be made whole, 584 F.3d,
at 856, n. 9. Indeed, the District Court concluded that
the Concepcions were better off under their arbitration
agreement with AT & T than they would have been as
participants in a class action, which “ could take months,
if not years, and which may merely yield an opportunity
to submit a claim for recovery of a small percentage of a
few dollars.” Laster, 2008 WL 5216255, at *12.
***
Because it “stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of
Congress,” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct.
399, 85 L.Ed. 581 (1941), California's Discover Bank rule
is preempted by the FAA. The judgment of the Ninth
Circuit is reversed, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.
Justice THOMAS, concurring.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Section 2 of the Federal Arbitration Act (FAA) provides
that an arbitration provision “shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. §
2. The question here is whether California's Discover Bank
rule, see Discover Bank v. Superior Ct., 36 Cal.4th 148, 30
Cal.Rptr.3d 76, 113 P.3d 1100 (2005), is a “groun[d] ... for
the revocation of any contract.”
It would be absurd to suggest that § 2 requires only
that a defense apply to “any contract.” If § 2 means
anything, it *353 is that courts cannot refuse to enforce
arbitration agreements because of a state public policy
against arbitration, even if the policy nominally applies
to “any contract.” There must be some additional limit
on the contract defenses permitted by § 2. Cf. ante, at
17 (opinion of the Court) (state law may not require
procedures that are “not arbitration as envisioned by the
FAA” and “lac[k] its benefits”); post, at 5 (BREYER, J.,
dissenting) (state law may require only procedures that are
“consistent with the use of arbitration”).
I write separately to explain how I would find that limit
in the FAA's text. As I would read it, the FAA requires
that an agreement to arbitrate be enforced unless a party
successfully challenges the formation of the arbitration
agreement, such as by proving fraud or duress. 9 U.S.C.
§§ 2, 4. Under this reading, I would reverse the Court of
Appeals because a district court cannot follow both the
FAA and the Discover Bank rule, which does not relate to
defects in the making of an agreement.
**1754 This reading of the text, however, has not been
fully developed by any party, cf. Brief for Petitioner 41,
n. 12, and could benefit from briefing and argument in
an appropriate case. Moreover, I think that the Court's
test will often lead to the same outcome as my textual
interpretation and that, when possible, it is important in
interpreting statutes to give lower courts guidance from
a majority of the Court. See US Airways, Inc. v. Barnett,
535 U.S. 391, 411, 122 S.Ct. 1516, 152 L.Ed.2d 589 (2002)
(O'Connor, J., concurring). Therefore, although I adhere
to my views on purposes-and-objectives pre-emption, see
Wyeth v. Levine, 555 U.S. 555, ––––, 129 S.Ct. 1187, 173
L.Ed.2d 51 (2009) (opinion concurring in judgment), I
reluctantly join the Court's opinion.
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I
The FAA generally requires courts to enforce arbitration
agreements as written. Section 2 provides that “[a] written
provision in ... a contract ... to settle by arbitration a
controversy thereafter arising out of such contract ...
shall *354 be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
revocation of any contract.” Significantly, the statute
does not parallel the words “valid, irrevocable, and
enforceable” by referencing the grounds as exist for
the “ invalidation, revocation, or nonenforcement” of
any contract. Nor does the statute use a different
word or phrase entirely that might arguably encompass
validity, revocability, and enforce-ability. The use of
only “revocation” and the conspicuous omission of
“invalidation” and “nonenforcement” suggest that the
exception does not include all defenses applicable to any
contract but rather some subset of those defenses. See
Duncan v. Walker, 533 U.S. 167, 174, 121 S.Ct. 2120,
150 L.Ed.2d 251 (2001) (“It is our duty to give effect, if
possible, to every clause and word of a statute” (internal
quotation marks omitted)).
Concededly, the difference between revocability, on the
one hand, and validity and enforceability, on the other,
is not obvious. The statute does not define the terms,
and their ordinary meanings arguably overlap. Indeed,
this Court and others have referred to the concepts of
revocability, validity, and enforceability interchangeably.
But this ambiguity alone cannot justify ignoring Congress'
clear decision in § 2 to repeat only one of the three
concepts.
To clarify the meaning of § 2, it would be natural to look
to other portions of the FAA. Statutory interpretation
focuses on “the language itself, the specific context in
which that language is used, and the broader context of
the statute as a whole.” Robinson v. Shell Oil Co., 519
U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997).
“A provision that may seem ambiguous in isolation is
often clarified by the remainder of the statutory scheme ...
because only one of the permissible meanings produces
a substantive effect that is compatible with the rest of
the law.” United Sav. Assn. of Tex. v. Timbers of Inwood
Forest Associates, Ltd., 484 U.S. 365, 371, 108 S.Ct. 626,
98 L.Ed.2d 740 (1988).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Examining the broader statutory scheme, § 4 can be read
to clarify the scope of § 2's exception to the enforcement
of *355 arbitration agreements. When a party seeks to
enforce an arbitration agreement in federal court, § 4
requires that “upon being satisfied that the making of
the agreement for arbitration or the failure to comply
therewith is not in issue,” the court must order arbitration
“in accordance with the terms of the agreement.”
Reading §§ 2 and 4 harmoniously, the “grounds ... for
the revocation” preserved in § 2 would mean grounds
related to the **1755 making of the agreement. This
would require enforcement of an agreement to arbitrate
unless a party successfully asserts a defense concerning the
formation of the agreement to arbitrate, such as fraud,
duress, or mutual mistake. See Prima Paint Corp. v. Flood
& Conklin Mfg. Co., 388 U.S. 395, 403–404, 87 S.Ct. 1801,
18 L.Ed.2d 1270 (1967) (interpreting § 4 to permit federal
courts to adjudicate claims of “fraud in the inducement
of the arbitration clause itself” because such claims “g[o]
to the ‘making’ of the agreement to arbitrate”). Contract
defenses unrelated to the making of the agreement—such
as public policy—could not be the basis for declining to
enforce an arbitration clause. *
*356 II
Under this reading, the question here would be whether
California's Discover Bank rule relates to the making of an
agreement. I think it does not.
In Discover Bank, 36 Cal.4th 148, 30 Cal.Rptr.3d 76,
113 P.3d 1100, the California Supreme Court held that
“class action waivers are, under certain circumstances,
unconscionable as unlawfully exculpatory.” Id., at 65, 30
Cal.Rptr.3d 76, 113 P.3d, at 1112; see also id., at 161,
30 Cal.Rptr.3d 76, 113 P.3d, at 1108 (“[C]lass action
waivers [may be] substantively unconscionable inasmuch
as they may operate effectively as exculpatory contract
clauses that are contrary to public policy”). The court
concluded that where a class-action waiver is found in
an arbitration agreement in certain consumer contracts
of adhesion, such waivers “should not be enforced.” Id.,
at 163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110. In practice,
the court explained, such agreements “operate to insulate
a party from liability that otherwise would be imposed
under California law.” Id., at 161, 30 Cal.Rptr.3d 76, 113
P.3d, at 1108, 1109. The court did not conclude that a
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customer would sign such an agreement only if under
**1756 the influence of fraud, duress, or delusion.
The court's analysis and conclusion that the arbitration
agreement was exculpatory reveals that the Discover Bank
rule does not concern the making of the arbitration
agreement. Exculpatory contracts are a paradigmatic
example of contracts that will not be enforced because of
public policy. *357 15 G. Giesel, Corbin on Contracts
§§ 85.1, 85.17, 85.18 (rev. ed.2003). Indeed, the court
explained that it would not enforce the agreements
because they are “ ‘against the policy of the law.’ ” 36
Cal.4th, at 161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1108
(quoting Cal. Civ.Code Ann. § 1668); see also 36 Cal.4th,
at 166, 30 Cal.Rptr.3d 76, 113 P.3d, at 1112 (“Agreements
to arbitrate may not be used to harbor terms, conditions
and practices that undermine public policy” (internal
quotation marks omitted)). Refusal to enforce a contract
for public-policy reasons does not concern whether the
contract was properly made.
Accordingly, the Discover Bank rule is not a “groun[d] ...
for the revocation of any contract” as I would read § 2
of the FAA in light of § 4. Under this reading, the FAA
dictates that the arbitration agreement here be enforced
and the Discover Bank rule is pre-empted.
Justice BREYER, with whom Justice GINSBURG,
Justice SOTOMAYOR, and Justice KAGAN join,
dissenting.
The Federal Arbitration Act says that an arbitration
agreement “shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2 (emphasis added).
California law sets forth certain circumstances in which
“class action waivers” in any contract are unenforceable.
In my view, this rule of state law is consistent with the
federal Act's language and primary objective. It does not
“stan[d] as an obstacle” to the Act's “accomplishment and
execution.” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct.
399, 85 L.Ed. 581 (1941). And the Court is wrong to hold
that the federal Act pre-empts the rule of state law.
I
The California law in question consists of an authoritative
state-court interpretation of two provisions of the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
California Civil Code. The first provision makes unlawful
all contracts “which have for their object, directly or in-
directly, to exempt anyone from responsibility for his
own ... violation of law.” *358 Cal. Civ.Code Ann. § 1668
(West 1985). The second provision authorizes courts to
“limit the application of any unconscionable clause” in
a contract so “as to avoid any unconscionable result.” §
1670.5(a).
The specific rule of state law in question consists of
the California Supreme Court's application of these
principles to hold that “some” (but not “all”) “class action
waivers” in consumer contracts are exculpatory and
unconscionable under California “law.” Discover Bank v.
Superior Ct., 36 Cal.4th 148, 160, 162, 30 Cal.Rptr.3d 76,
113 P.3d 1100, 1108, 1110 (2005). In particular, in Discover
Bank the California Supreme Court stated that, when a
class-action waiver
“is found in a consumer contract of adhesion in
a setting in which disputes between the contracting
parties predictably involve small amounts of damages,
and when it is alleged that the party with the
superior bargaining power has carried out a scheme to
deliberately cheat large numbers of consumers out of
individually small sums of money, then ... the waiver
becomes in practice the exemption of the party ‘from
responsibility for [its] own fraud, or willful injury
**1757 to the person or property of another.’ ” Id., at
162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
In such a circumstance, the “waivers are unconscionable
under California law and should not be enforced.” Id., at
163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
The Discover Bank rule does not create a “blanket policy
in California against class action waivers in the consumer
context.” Provencher v. Dell, Inc., 409 F.Supp.2d
1196, 1201 (C.D.Cal.2006). Instead, it represents the
“application of a more general [unconscionability]
principle.” Gentry v. Superior Ct., 42 Cal.4th 443,
457, 64 Cal.Rptr.3d 773, 165 P.3d 556, 564 (2007).
Courts applying California law have enforced class-action
waivers where they satisfy general unconscionability
standards. See, e.g., *359 Walnut Producers of Cal.
v. Diamond Foods, Inc., 187 Cal.App.4th 634, 647–650,
114 Cal.Rptr.3d 449, 459–462 (2010); Arguelles–Romero
v. Superior Ct., 184 Cal.App.4th 825, 843–845, 109
Cal.Rptr.3d 289, 305–307 (2010); Smith v. Americredit
Financial Servs., Inc., No. 09cv1076, 2009 WL 4895280
13
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
(S.D.Cal., Dec.11, 2009); cf. Provencher, supra, at 1201
(considering Discover Bank in choice-of-law inquiry). And
even when they fail, the parties remain free to devise other
dispute mechanisms, including informal mechanisms,
that, in context, will not prove unconscionable. See Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248,
103 L.Ed.2d 488 (1989).
II
A 917 (2008) (discussing “prime objective of an agreement
The Discover Bank rule is consistent with the federal Act's
language. It “applies equally to class action litigation
waivers in contracts without arbitration agreements as it
does to class arbitration waivers in contracts with such
agreements.” 36 Cal.4th, at 165–166, 30 Cal.Rptr.3d 76,
113 P.3d, at 1112. Linguistically speaking, it falls directly
within the scope of the Act's exception permitting courts to
refuse to enforce arbitration agreements on grounds that
exist “for the revocation of any contract.” 9 U.S.C. § 2
(emphasis added). The majority agrees. Ante, at 9.
B Congress” requires us to apply the terms of the Act
The Discover Bank rule is also consistent with the
basic “purpose behind” the Act. Dean Witter Reynolds
Inc. v. Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 84
L.Ed.2d 158 (1985). We have described that purpose as
one of “ensur[ing] judicial enforcement” of arbitration
agreements. Ibid.; see also Marine Transit Corp. v.
Dreyfus, 284 U.S. 263, 274, n. 2, 52 S.Ct. 166, 76 L.Ed.
282 (1932) (“ ‘The purpose of this bill is to make valid
and enforceable agreements for arbitration’ ” (quoting
H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924); emphasis
added)); 65 Cong. Rec.1931 (1924) ( “It creates no new
legislation, grants no new rights, except a remedy to
enforce an agreement in commercial contracts and in
*360 admiralty contracts”). As is well known, prior
to the federal Act, many courts expressed hostility to
arbitration, for example by refusing to order specific
performance of agreements to arbitrate. See S.Rep. No.
536, 68th Cong., 1st Sess., 2 (1924). The Act sought to
eliminate that hostility by placing agreements to arbitrate
“ ‘upon the same footing as other contracts.’ ” Scherk v.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Alberto–Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449,
41 L.Ed.2d 270 (1974) (quoting H.R.Rep. No. 96, at 2;
emphasis added).
Congress was fully aware that arbitration could provide
procedural and cost advantages. The House Report
emphasized the “appropriate[ness]” of making arbitration
**1758 agreements enforceable “at this time when there
is so much agitation against the costliness and delays of
litigation.” Id., at 2. And this Court has acknowledged
that parties may enter into arbitration agreements in
order to expedite the resolution of disputes. See Preston
v. Ferrer, 552 U.S. 346, 357, 128 S.Ct. 978, 169 L.Ed.2d
to arbitrate”). See also Mitsubishi Motors Corp. v. Soler
Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct.
3346, 87 L.Ed.2d 444 (1985).
But we have also cautioned against thinking that
Congress' primary objective was to guarantee these
particular procedural advantages. Rather, that primary
objective was to secure the “enforcement” of agreements
to arbitrate. Dean Witter, 470 U.S., at 221, 105 S.Ct.
1238. See also id., at 219, 105 S.Ct. 1238 (we “reject the
suggestion that the overriding goal of the Arbitration Act
was to promote the expeditious resolution of claims”);
id., at 219, 217–218, 105 S.Ct. 1238 (“[T]he intent of
without regard to whether the result would be “possibly
inefficient”); cf. id., at 220, 105 S.Ct. 1238 (acknowledging
that “expedited resolution of disputes” might lead parties
to prefer arbitration). The relevant Senate Report points
to the Act's basic purpose when it says that “[t]he purpose
of the [Act] is clearly set forth in section 2,” S.Rep. No.
536, at 2 (emphasis added), namely, the section that says
that an arbitration agreement “shall be valid, irrevocable,
*362 and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract,” 9
U.S.C. § 2.
Thus, insofar as we seek to implement Congress' intent,
we should think more than twice before invalidating a
state law that does just what § 2 requires, namely, puts
agreements to arbitrate and agreements to litigate “upon
the same footing.”
III
14
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
The majority's contrary view (that Discover Bank stands as
an “obstacle” to the accomplishment of the federal law's
objective, ante, at 9–18) rests primarily upon its claims
that the Discover Bank rule increases the complexity
of arbitration procedures, thereby discouraging parties
from entering into arbitration agreements, and to that
extent discriminating in practice against arbitration.
These claims are not well founded.
For one thing, a state rule of law that would sometimes
set aside as unconscionable a contract term that forbids
class arbitration is not (as the majority claims) like a rule
that would require “ultimate disposition by a jury” or
“judicially monitored discovery” or use of “the Federal
Rules of Evidence.” Ante, at 8, 9. Unlike the majority's
examples, class arbitration is consistent with the use of
arbitration. It is a form of arbitration that is well known
in California and followed elsewhere. See, e.g., Keating
v. Superior Ct., 109 Cal.App.3d 784, 167 Cal.Rptr. 481,
492 (1980) (officially depublished); American Arbitration
Association (AAA), Supplementary Rules for Class
Arbitrations (2003), http://www.adr.org/sp.asp?id=21936
(as visited Apr. 25, 2011, and available in Clerk of Court's
case file); JAMS, The Resolution Experts, Class Action
Procedures (2009). Indeed, the AAA has told us that it
has found class arbitration to be “a fair, balanced, and
efficient means of resolving class disputes.” Brief for AAA
as Amicus Curiae in Stolt–Nielsen S.A. v. AnimalFeeds
Int'l Corp., O.T.2009, No. 08–1198, p. 25 (hereinafter
AAA Amicus Brief). And unlike the majority's examples,
the Discover Bank rule imposes equivalent limitations on
litigation; hence it cannot **1759 fairly be characterized
as a targeted attack on arbitration.
Where does the majority get its contrary idea—that
individual, rather than class, arbitration is a “fundamental
attribut[e]” of arbitration? Ante, at 9. The majority does
not explain. And it is unlikely to be able to trace its present
view to the history of the arbitration statute itself.
When Congress enacted the Act, arbitration procedures
had not yet been fully developed. Insofar as Congress
considered detailed forms of arbitration at all, it may well
have thought that arbitration would be used primarily
where merchants sought to resolve disputes of fact, not
law, under the customs of their industries, where the
parties possessed roughly equivalent bargaining power.
See Mitsubishi Motors, supra, at 646, 105 S.Ct. 3346
(Stevens, J., dissenting); Joint Hearings on S. 1005 and
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
H.R. 646 before the Subcommittees of the Committees on
the Judiciary, 68th Cong., 1st Sess., 15 (1924); Hearing
on S. 4213 and S. 4214 before a Subcommittee of
the Senate Committee on the Judiciary, 67th Cong.,
4th Sess., 9–10 (1923); Dept. of Commerce, Secretary
Hoover Favors Arbitration—Press Release (Dec. 28,
1925), Herbert Hoover Papers—Articles, Addresses, and
Public Statements File—No. 536, p. 2 (Herbert Hoover
Presidential Library); Cohen & Dayton, The New Federal
Arbitration Law, 12 Va. L.Rev. 265, 281 (1926); AAA,
Year Book on Commercial Arbitration in the United
States (1927). This last mentioned feature of the history
—roughly equivalent bargaining power—suggests, if
anything, that California's statute is consistent with, and
indeed may help to further, the objectives that Congress
had in mind.
Regardless, if neither the history nor present practice
suggests that class arbitration is fundamentally
incompatible with arbitration itself, then on what basis
can the majority hold California's law pre-empted?
*363 For another thing, the majority's argument that
the Discover Bank rule will discourage arbitration rests
critically upon the wrong comparison. The majority
compares the complexity of class arbitration with that
of bilateral arbitration. See ante, at 14. And it finds the
former more complex. See ibid. But, if incentives are at
issue, the relevant comparison is not “arbitration with
arbitration” but a comparison between class arbitration
and judicial class actions. After all, in respect to the
relevant set of contracts, the Discover Bank rule similarly
and equally sets aside clauses that forbid class procedures
—whether arbitration procedures or ordinary judicial
procedures are at issue.
Why would a typical defendant (say, a business) prefer a
judicial class action to class arbitration? AAA statistics
“suggest that class arbitration proceedings take more time
than the average commercial arbitration, but may take less
time than the average class action in court.” AAA Amicus
Brief 24 (emphasis added). Data from California courts
confirm that class arbitrations can take considerably less
time than in-court proceedings in which class certification
is sought. Compare ante, at 14 (providing statistics for
class arbitration), with Judicial Council of California,
Administrative Office of the Courts, Class Certification
in California: Second Interim Report from the Study of
California Class Action Litigation 18 (2010) (providing
15
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
statistics for class-action litigation in California courts).
And a single class proceeding is surely more efficient
than thousands of separate proceedings for identical
claims. Thus, if speedy resolution of disputes were all that
mattered, then the Discover Bank rule would reinforce,
**1760 not obstruct, that objective of the Act.
The majority's related claim that the Discover Bank
rule will discourage the use of arbitration because
“[a]rbitration is poorly suited to ... higher stakes” lacks
empirical support. Ante, at 16. Indeed, the majority
provides no convincing reason to believe that parties are
unwilling to submit High-Stake disputes to Arbitration.
and There are numerous counterexamples. Loftus, Rivals
Resolve Dispute Over Drug, Wall Street Journal, Apr. 16,
2011, p. B2 (discussing $500 million settlement in dispute
submitted to arbitration); Ziobro, Kraft Seeks Arbitration
In Fight With Starbucks Over Distribution, Wall Street
Journal, Nov. 30, 2010, p. B10 (describing initiation of an
arbitration in which the payout “could be higher” than
$1.5 billion); Markoff, Software Arbitration Ruling Gives
I.B.M. $833 Million From Fujitsu, N.Y. Times, Nov. 30,
1988, p. A1 (describing both companies as “pleased with
the ruling” resolving a licensing dispute).
Further, even though contract defenses, e.g., duress
and unconscionability, slow down the dispute resolution
process, federal arbitration law normally leaves such
matters to the States. Rent–A–Center, West, Inc. v.
Jackson, 561 U.S. ––––, ––––, 130 S.Ct. 2772, 2775
(2010) (arbitration agreements “may be invalidated
by ‘generally applicable contract defenses' ” (quoting
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687,
116 S.Ct. 1652, 134 L.Ed.2d 902 (1996))). A provision in a
contract of adhesion (for example, requiring a consumer
to decide very quickly whether to pursue a claim) might
increase the speed and efficiency of arbitrating a dispute,
but the State can forbid it. See, e.g., Hayes v. Oakridge
Home, 122 Ohio St.3d 63, 67, 2009–Ohio–2054, ¶ 19,
908 N.E.2d 408, 412 (“Unconscionability is a ground
for revocation of an arbitration agreement”); In re
Poly–America, L. P., 262 S.W.3d 337, 348 (Tex.2008)
(“Unconscionable contracts, however—whether relating
to arbitration or not—are unenforceable under Texas
law”). The Discover Bank rule amounts to a variation on
this theme. California is free to define unconscionability
as it sees fit, and its common law is of no federal concern
so long as the State does not adopt a special rule that
disfavors arbitration. Cf. Doctor's Associates, supra, at
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
687. See also ante, at 4, n. (THOMAS, J., concurring)
(suggesting that, under certain circumstances, California
might remain free to apply its unconscionability doctrine).
*365 Because California applies the same legal principles
to address the unconscionability of class arbitration
waivers as it does to address the unconscionability of
any other contractual provision, the merits of class
proceedings should not factor into our decision. If
California had applied its law of duress to void an
arbitration agreement, would it matter if the procedures
in the coerced agreement were efficient?
Regardless, the majority highlights the disadvantages of
class arbitrations, as it sees them. See ante, at 15–16
(referring to the “greatly increase[d] risks to defendants”;
the “chance of a devastating loss” pressuring defendants
“into settling questionable claims”). But class proceedings
have countervailing advantages. In general agreements
that forbid the consolidation of claims can lead small-
dollar claimants to abandon their claims rather than to
litigate. I suspect that it is true even here, for as the
Court of Appeals recognized, AT & T can avoid the
$7,500 payout (the payout that supposedly makes the
Concepcions' arbitration worthwhile) simply by paying
the claim's face value, such that “the maximum gain to a
customer for the hassle of arbitrating a $30.22 dispute is
still just $30.22.” Laster v. AT & T Mobility **1761 LLC,
584 F.3d 849, 855, 856 (C.A.9 2009).
What rational lawyer would have signed on to represent
the Concepcions in litigation for the possibility of fees
stemming from a $30.22 claim? See, e.g., Carnegie v.
Household Int'l, Inc., 376 F.3d 656, 661 (C.A.7 2004)
(“The realistic alternative to a class action is not 17
million individual suits, but zero individual suits, as only
a lunatic or a fanatic sues for $30”). In California's
perfectly rational view, nonclass arbitration over such
sums will also sometimes have the effect of depriving
claimants of their claims (say, for example, where claiming
the $30.22 were to involve filling out many forms that
require technical legal knowledge or waiting at great
length while a call is placed on hold). Discover Bank sets
forth circumstances in which the California courts believe
that the terms of consumer contracts can be manipulated
to *366 insulate an agreement's author from liability for
its own frauds by “deliberately cheat[ing] large numbers of
consumers out of individually small sums of money.” 36
Cal.4th, at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
16
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...
Why is this kind of decision—weighing the pros and cons
of all class proceedings alike—not California's to make?
Finally, the majority can find no meaningful support
for its views in this Court's precedent. The federal Act
has been in force for nearly a century. We have decided
dozens of cases about its requirements. We have reached
results that authorize complex arbitration procedures.
E.g., Mitsubishi Motors, 473 U.S., at 629, 105 S.Ct.
3346 (antitrust claims arising in international transaction
are arbitrable). We have upheld nondiscriminatory state
laws that slow down arbitration proceedings. E.g., Volt
Information Sciences, 489 U.S., at 477–479, 109 S.Ct.
1248 (California law staying arbitration proceedings until
completion of related litigation is not pre-empted). But we
have not, to my knowledge, applied the Act to strike down
a state statute that treats arbitrations on par with judicial
and administrative proceedings. Cf. Preston, 552 U.S., at
355–356, 128 S.Ct. 978 (Act pre-empts state law that vests
primary jurisdiction in state administrative board).
At the same time, we have repeatedly referred to the Act's
basic objective as assuring that courts treat arbitration
agreements “like all other contracts.” Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 447, 126 S.Ct.
1204, 163 L.Ed.2d 1038 (2006). See also, e.g., Vaden v.
Discover Bank, 556 U.S. 49, ––––, 129 S.Ct. 1262, 1273–
1274, 173 L.Ed.2d 206 (2009);; Doctor's Associates, supra,
at 687, 116 S.Ct. 1652; Allied–Bruce Terminix Cos. v.
Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753
(1995); Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 483–484, 109 S.Ct. 1917, 104 L.Ed.2d
526 (1989); Perry v. Thomas, 482 U.S. 483, 492–493, n. 9,
107 S.Ct. 2520, 96 L.Ed.2d 426 (1987); Mitsubishi Motors,
supra, at 627, 105 S.Ct. 3346. And we have recognized
that “[t]o immunize an arbitration agreement from judicial
challenge” on grounds applicable to all other contracts
“would be to elevate it over other forms of contract.”
*367 Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404, n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270
(1967); see also Marchant v. Mead–Morrison Mfg. Co.,
252 N.Y. 284, 299, 169 N.E. 386, 391 (1929) (Cardozo,
C.J.) (“Courts are not at liberty to shirk the process of
[contractual] construction under the empire of a belief that
arbitration is beneficent any more than they may shirk
Footnotes
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
it if their belief happens to be the contrary”); Cohen &
Dayton, 12 Va. L.Rev., at 276 (the Act “is no infringement
upon the right of each State to decide for itself what
**1762 contracts shall or shall not exist under its laws”).
These cases do not concern the merits and demerits of
class actions; they concern equal treatment of arbitration
contracts and other contracts. Since it is the latter question
that is at issue here, I am not surprised that the majority
can find no meaningful precedent supporting its decision.
IV
By using the words “save upon such grounds as exist
at law or in equity for the revocation of any contract,”
Congress retained for the States an important role incident
to agreements to arbitrate. 9 U.S.C. § 2. Through those
words Congress reiterated a basic federal idea that has
long informed the nature of this Nation's laws. We
have often expressed this idea in opinions that set forth
presumptions. See, e.g., Medtronic, Inc. v. Lohr, 518
U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996)
(“[B]ecause the States are independent sovereigns in our
federal system, we have long presumed that Congress does
not cavalierly pre-empt state-law causes of action”). But
federalism is as much a question of deeds as words. It often
takes the form of a concrete decision by this Court that
respects the legitimacy of a State's action in an individual
case. Here, recognition of that federalist ideal, embodied
in specific language in this particular statute, should lead
us to uphold California's law, not to strike it down. We do
not honor federalist principles in their breach.
With respect, I dissent.
19 NO. 4 Westlaw Journal Class Action 319 NO. 4
Westlaw Journal Class Action 319 NO. 4 Westlaw Journal
Class Action 319 NO. 4 Westlaw Journal Class Action 3
All Citations
563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW
4279, 161 Lab.Cas. P 10,368, 11 Cal. Daily Op. Serv. 4842,
2011 Daily Journal D.A.R. 5846, 52 Communications
Reg. (P&F) 1179, 22 Fla. L. Weekly Fed. S 957
17
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...

* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 The Conceptions' original contract was with Cingular Wireless. AT & T acquired Cingular in 2005 and renamed the
company AT & T Mobility in 2007. Laster v. AT & T Mobility LLC, 584 F.3d 849, 852, n. 1 (C.A.9 2009).
2 That provision further states that “the arbitrator may not consolidate more than one person's claims, and may not otherwise
preside over any form of a representative or class proceeding.” App. to Pet. for Cert. 61a.
3 The guaranteed minimum recovery was increased in 2009 to $10,000. Brief for Petitioner 7.
4 The dissent seeks to fight off even this eminently reasonable concession. It says that to its knowledge “we have not ...
applied the Act to strike down a state statute that treats arbitrations on par with judicial and administrative proceedings,”
post, at 10 (opinion of BREYER, J.), and that “we should think more than twice before invalidating a state law that ... puts
agreements to arbitrate and agreements to litigate ‘upon the same footing’ ” post, at 4–5.
5 Relying upon nothing more indicative of congressional understanding than statements of witnesses in committee hearings
and a press release of Secretary of Commerce Herbert Hoover, the dissent suggests that Congress “thought that
arbitration would be used primarily where merchants sought to resolve disputes of fact ... [and] possessed roughly
equivalent bargaining power.” Post, at 6. Such a limitation appears nowhere in the text of the FAA and has been explicitly
rejected by our cases. “Relationships between securities dealers and investors, for example, may involve unequal
bargaining power, but we [have] nevertheless held ... that agreements to arbitrate in that context are enforceable.” Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); see also id., at 32–33, 111 S.Ct.
1647 (allowing arbitration of claims arising under the Age Discrimination in Employment Act of 1967 despite allegations of
unequal bargaining power between employers and employees). Of course the dissent's disquisition on legislative history
fails to note that it contains nothing—not even the testimony of a stray witness in committee hearings—that contemplates
the existence of class arbitration.
6 Of course States remain free to take steps addressing the concerns that attend contracts of adhesion—for example,
requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted. Such steps cannot,
however, conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according
to their terms.
7 The dissent claims that class arbitration should be compared to class litigation, not bilateral arbitration. Post, at 6–7.
Whether arbitrating a class is more desirable than litigating one, however, is not relevant. A State cannot defend a rule
requiring arbitration-by-jury by saying that parties will still prefer it to trial-by-jury.
8 The dissent cites three large arbitration awards (none of which stems from classwide arbitration) as evidence that parties
are willing to submit large claims before an arbitrator. Post, at 7–8. Those examples might be in point if it could be
established that the size of the arbitral dispute was predictable when the arbitration agreement was entered. Otherwise, all
the cases prove is that arbitrators can give huge awards—which we have never doubted. The point is that in class-action
arbitration huge awards (with limited judicial review) will be entirely predictable, thus rendering arbitration unattractive. It
is not reasonably deniable that requiring consumer disputes to be arbitrated on a classwide basis will have a substantial
deterrent effect on incentives to arbitrate.
* The interpretation I suggest would be consistent with our precedent. Contract formation is based on the consent of the
parties, and we have emphasized that “[a]rbitration under the Act is a matter of consent.” Volt Information Sciences, Inc.
v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
The statement in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), suggesting that § 2 preserves
all state-law defenses that “arose to govern issues concerning the validity, revocability, and enforceability of contracts
generally,” id., at 493, n. 9, 107 S.Ct. 2520, is dicta. This statement is found in a footnote concerning a claim that the
Court “decline[d] to address.” Id., at 493, n. 9, 107 S.Ct. 2520. Similarly, to the extent that statements in Rent–A–Center,
West, Inc. v. Jackson, 561 U.S. ––––, –––– n. 1, 130 S.Ct. 2772, 2778 n. 1 (2010), can be read to suggest anything
about the scope of state-law defenses under § 2, those statements are dicta, as well. This Court has never addressed
the question whether the state-law “grounds” referred to in § 2 are narrower than those applicable to any contract.
Moreover, every specific contract defense that the Court has acknowledged is applicable under § 2 relates to contract
formation. In Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996),
this Court said that fraud, duress, and unconscionability “may be applied to invalidate arbitration agreements without
contravening § 2.” All three defenses historically concern the making of an agreement. See Morgan Stanley Capital
Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527, 547, 128 S.Ct. 2733, 171 L.Ed.2d 607 (2008)
(describing fraud and duress as “traditional grounds for the abrogation of [a] contract” that speak to “unfair dealing

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AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...

at the contract formation stage”); Hume v. United States, 132 U.S. 406, 411, 414, 10 S.Ct. 134, 33 L.Ed. 393 (1889)
(describing an unconscionable contract as one “such as no man in his senses and not under delusion would make” and
suggesting that there may be “contracts so extortionate and unconscionable on their face as to raise the presumption
of fraud in their inception” (internal quotation marks omitted)).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 19

Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22 (1992)
KeyCite Yellow Flag - Negative Treatment
Distinguished by Loy v. Harter, Tex.App.-Texarkana, February 10, 2004 
843 S.W.2d 22
Supreme Court of Texas.
CAPITAL INCOME PROPERTIES–LXXX;
CRI, Inc.; William B. Dockser; Martin C.
Schwartzberg; H. William Willoughby;
C.R.C.C. of Corpus Christi, Ltd.; CRICO–
Texas Growth Partners Limited Partnership
and Crico Securities Corporation, Relators,
v.
The Honorable Robert M.
BLACKMON, Judge, Respondent.
No. D–2848.
|
Dec. 16, 1992.
Limited partnership petitioned for writ of mandamus
to compel arbitration of limited partners' claims against
limited partnership. The Supreme Court held that
arbitration was required.
Petition granted.
West Headnotes (1)
[1] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Limited partners' claims that limited
partnership breached fiduciary duty in
operating and managing partnership,
repeatedly misrepresenting financial health
of operation, and fraudulently inducing
investments arose out of and related to
limited partnership agreement, and, thus,
arbitration was required under provision
of agreement requiring arbitration of any
dispute, controversy, or claim arising out of or
in connection with or relating to agreement.
42 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Attorneys and Law Firms
*22 Kelly M. Crawford and C. Kent Adams, Dallas,
Scott G. Campbell, New York City, for relators.
Cary N. Goldberg, Chicago, IL, Thomas L. Busby,
Corpus Christi, Ronald A. Schy, Chicago, IL, Kathryn
F. Green, Corpus Christi, Bruce W. Collins, Dallas, for
respondent.
Opinion
PER CURIAM.
Capital Income Properties–LXXX and seven other
defendants (collectively CIP) have filed a motion for leave
to file a petition for writ of mandamus, requesting that
we direct the trial court to compel arbitration of the
claims raised by thirty plaintiffs in the underlying suit.
Concluding that CIP has established that the trial court
abused its discretion in refusing to order arbitration and
that CIP does not have an adequate remedy by appeal, we
conditionally grant the relief requested. 1
Plaintiffs, residents of fourteen different states, purchased
shares in CIP, a District *23 of Columbia limited
partnership formed to develop and operate a Corpus
Christi hotel. Article 12.01 of the limited partnership
agreement provided that “any dispute, controversy or
claim arising out of or in connection with or relating to
this Agreement ... shall, upon the request of any party
involved, be submitted to and settled by arbitration....”
Plaintiffs filed suit in 1991, seeking return of their
initial investments plus damages based on fraud, breach
of fiduciary duty, negligent misrepresentation, and
violation of the Deceptive Trade Practices Act. Urging
the application of the Texas General Arbitration Act,
TEX.REV.CIV.STAT.ANN. art. 224—238–6 (the Texas
Act), and the Federal Arbitration Act, 9 U.S.C. § 1–16 (the
Federal Act), CIP requested that the trial court compel
arbitration.
At the conclusion of a hearing on the motion to compel
arbitration, the trial court determined that the agreement
to arbitrate was binding and enforceable but that the
claims raised were not within the scope of the arbitration
clause. CIP's request for mandamus relief from the
Thirteenth Court of Appeals was denied.
1
Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22 (1992)

After reviewing the mandamus record before us, we Painter, 827 S.W.2d 103, 105 (Tex.App.—Austin 1992,
writ denied).
conclude that although the trial court correctly concluded
that the arbitration clause is valid and enforceable, it
It is also undisputed that the Plaintiffs claim that CIP
abused its discretion in failing to compel arbitration
breached its fiduciary duty to them in operating and
under the Federal Act. 2 We have recently reiterated the
managing the partnership, in repeatedly misrepresenting
strong policy preference for enforcing arbitration clauses.
the financial health of the operation, and in fraudulently
Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266 (Tex.1992)
inducing them to invest in the partnership. These claims
(orig. proceeding). The Federal Act, which applies to
arise out of and relate to the limited partnership
transactions “involving commerce,” dictates enforcement
agreement. In Anglin we held that Deceptive Trade
of an arbitration agreement upon evidence that a written
Practice Act claims may be subject to arbitration, 842
agreement to arbitrate exists and that the claims raised
S.W.2d at 271, and the United States Supreme Court
are within the scope of the agreement. The Federal Act
has held that a claim of fraud in the inducement unless
is part of the substantive law of Texas. Southland Corp.
specifically directed to the making of the arbitration clause
v. Keating, 465 U.S. 1, 14–16, 104 S.Ct. 852, 860–61, 79
does not defeat application of that clause to the agreement
L.Ed.2d 1 (1984); Anglin, 842 S.W.2d at 271; Batton v.
as a whole. Prima Paint Corp., 388 U.S. at 406, 87 S.Ct. at
Green, 801 S.W.2d 923, 927 (Tex.App.—Dallas 1990, no
1807; Mesa Operating, 797 F.2d at 244.
writ). In Anglin we also concluded that a party denied
the benefit of an agreement to arbitrate is without an
*24 Accordingly, because CIP has shown that a written
adequate remedy by appeal when pursuing application
arbitration agreement exists and that the Plaintiffs' claims
of the Federal Act in state court, and that mandamus is
fall within the scope of that agreement, without hearing
therefore appropriate. 842 S.W.2d at 271.
oral argument and pursuant to Texas Rule of Appellate
Procedure 122, a majority of the court conditionally
The undisputed facts of this case establish the applicability
grants the writ of mandamus and directs the trial court
of the Federal Act: citizens from a number of different
to order that all claims proceed to arbitration under the
states have purchased interests from a business entity in
Federal Arbitration Act. The clerk is instructed to issue
one state for the purpose of carrying out a commercial
the writ only should the trial court fail to follow our
venture in another state. See Prima Paint v. Flood &
direction.
Conklin Mfg. Co., 388 U.S. 395, 401 n. 7, 87 S.Ct. 1801,
1805 n. 7, 18 L.Ed.2d 1270 (1967); Mesa Operating Ltd.
Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d All Citations
238, 243 (5th Cir.1986); Lost Creek Util. v. Travis Indep.
843 S.W.2d 22

Footnotes
1 CIP also filed an application for writ of error from the judgment of the Thirteenth Court of Appeals dismissing CIP's
interlocutory appeal for want of jurisdiction. Capital Income Properties–LXXX v. Waldman, 835 S.W.2d 152 (Tex.App.—
Corpus Christi 1992). The court of appeals held that the arbitration clause was not enforceable under Texas law and that
federal law did not permit an interlocutory appeal in state court. That application is denied by separate order.
2 Section 2 of the Federal Act provides that:
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, ... shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
134 F.Supp.2d 789
United States District Court,
E.D. Louisiana.
CONSORCIO RIVE, S.A. DE C.V.
v.
BRIGGS OF CANCUN, INC., et al
No. Civ.A. 99–2204.
|
March 14, 2001.
Mexican lessor brought action under Convention on
the Recognition and Enforcement of Foreign Arbitral
Awards to enforce arbitration award entered in Mexico
against American lessee. After bench trial, the District
Court, Barbier, J., held that: (1) lessor did not waive its
right to arbitrate dispute by filing criminal complaint in
Mexico against lessee's president, and (2) lessee was not
“unable to present its case.”
Award enforced.
West Headnotes (7)
[1] Alternative Dispute Resolution
Enforcement and recognition of awards
Waiver of right to arbitrate is not defense
to enforcement of foreign arbitral award
under Convention on the Recognition
and Enforcement of Foreign Arbitral
Awards. Convention on the Recognition and
Enforcement of Foreign Arbitral Awards,
Art. I et seq., 9 U.S.C.A. § 201 note.
Cases that cite this headnote
[2] Alternative Dispute Resolution
Suing or participating in suit
Waiver or right to arbitrate requires both
substantial invocation of judicial process and
either detriment or prejudice to other party.
2 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[3] Alternative Dispute Resolution
Suing or participating in suit
In order to substantially invoke judicial
process, for purposes of determining waiver
of right to arbitrate, party must have actively
participated in lawsuit or some other type of
act inconsistent with desire to arbitrate.
2 Cases that cite this headnote
[4] Alternative Dispute Resolution
Suing or participating in suit
Merely initiating litigation, without more,
does not effect waiver of right to arbitrate
because no actual prejudice results from that
isolated action.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Proceedings
Mexican lessor did not waive its right
under Convention on the Recognition and
Enforcement of Foreign Arbitral Awards to
arbitrate dispute with American lessee by
filing criminal complaint in Mexico against
lessee's president; criminal complaint did
not amount to substantial invocation of
judicial process, was not inconsistent with
lessor's intention to arbitrate, and did not
prejudice lessee with respect to ongoing
arbitration. Convention on the Recognition
and Enforcement of Foreign Arbitral Awards,
Art. I et seq., 9 U.S.C.A. § 201 note.
1 Cases that cite this headnote
[6] Alternative Dispute Resolution
Proceedings
American lessee was not “unable to present
its case,” for purposes of Convention on
the Recognition and Enforcement of Foreign
Arbitral Awards, as result of Mexican lessor's
filing of criminal complaint against lessee's
president; lessee could have participated
by means other than president's physical
presence at arbitration, and lessee did
1
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
participate to extent that it designated
arbitrator and filed over 80 pages of legal
argument and documentation in support of
its position. Convention on the Recognition
and Enforcement of Foreign Arbitral Awards,
Art. I et seq., 9 U.S.C.A. § 201 note.
Cases that cite this headnote
[7] Alternative Dispute Resolution
Failure to Arbitrate
Fear of arrest and extradition do not
constitute inability to attend arbitration
hearing.
Cases that cite this headnote
Attorneys and Law Firms
*790 Randall A. Smith, Andrew Lewis Kramer, Smith,
Jones & Fawer, New Orleans, LA, for Plaintiff.
Robert A. Kutcher, Nicole S. Tygier, Vicki A. Turko,
Choplin, Wagner, Cole, Richard, Reboul & Kutcher,
LLP, Metairie, LA, for Defendants.
Opinion
BARBIER, District Judge.
This matter came on for trial before the Court, sitting
without a jury, on February 5 and 6, 2001. At the
conclusion of the trial, and upon consideration of all of
the evidence and arguments of counsel, the Court dictated
oral findings of fact and conclusions of law on the issue
of whether Briggs of Cancun, Inc., and David Briggs
Enterprises, Inc. should be considered a single business
enterprise for purposes of the instant dispute. In summary,
the Court found that these two entities do not comprise
a single business enterprise, and thus that any arbitration
award confirmed in this proceeding may only be enforced
against Briggs of Cancun, Inc.
At that time, the Court also allowed the parties until
February 14, 2001 to file post-trial memoranda on the
remaining issues, after which it took the matter under
submission.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In accordance with Federal Rule of Civil Procedure
52(a), the Court now renders its findings of fact and
conclusions of law on the two remaining 1 and related
issues: (1) whether plaintiff, Consorcio Rive (“Rive”),
waived its right to invoke arbitration of the dispute
between the parties by filing a criminal Statement
of Facts; and (2) whether the filing of the criminal
Statement of Facts precluded Briggs of Cancun, Inc.
(“Briggs of Cancun”) from meaningfully participating
in the arbitration proceedings, thus providing it with
a defense to the enforcement of the arbitral award
pursuant to article V(1)(b) of the Convention on
the Recognition and Enforcement of Foreign Arbitral
Awards (“Convention”), codified at 9 U.S.C. § 201 et seq.
To the extent the findings of fact are more properly
classified as conclusions of law, they should be so
considered; and to the extent the conclusions of law are
more properly classified as findings of fact, they should be
so considered.
I. FINDINGS OF FACT
1. Rive is a corporation organized and existing under the
laws of the Country of Mexico, with its principal place of
business in Mexico City, Mexico.
2. Briggs of Cancun is a corporation organized and
existing under the laws of the State of Louisiana, with its
principal place of business in Metairie, Louisiana.
3. On October 1, 1991, Rive, represented by Eugenio
Riquelme Valdez, and Briggs of Cancun, represented
by David A. Briggs, Jr. (“David Briggs”) entered into
an “Agreement” by which Rive provided property and
permits for Briggs of Cancun *791 to open a restaurant
and bar called Fat Tuesdays in Cancun, Mexico.
4. As memorialized in clause 35 of the Agreement, both
parties specifically agreed as follows:
THIRTY FIFTH.—Any
controversy or claim arising out
of, or related to, this agreement,
or the making, performance,
or interpretation thereof, shall
be finally settled by arbitration
pursuant to the then-prevailing
2
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
rules of the INTERAMERICAN
COMMERCIAL ARBITRATION
COMMISSION and the arbitrators
shall be appointed in accordance
with such rules. All arbitration
proceedings shall take place
in Monterrey, N.L., Mexico,
and the laws applicable to
the arbitration procedure shall
be the laws of Mexico. The
award of the arbitrator shall be
the sole and exclusive remedy
between the parties regarding any
claims, counterclaims, issues, or
accountings presented or pled to
the arbitrator; shall be made and
shall promptly be payable free of
any tax, deduction, or offset; and
any costs, fees, or taxes incident
to enforcing the award shall, to
the maximum extent permitted
by law, be charged against the
party resisting such enforcement.
Judgment upon the award of the
arbitrator may be entered in the
court having jurisdiction thereof,
or application may be made to
such court for a judicial acceptance
of the award or an order of
enforcement. The prevailing party in
any such arbitration shall be entitled
to recovery of all administration fees
and arbitration fees paid. All other
costs expenses and fees incurred by
either party in connection with such
arbitration (including attorneys' fees
incurred) shall be borne by the party
so incyurring [sic] such fees.
5. On November 2, 1991, Rive and Briggs of Cancun
also entered into an “Management Agreement” and
a “Commodatum Agreement” for the operation of
the Fat Tuesdays restaurant in Cancun. Like the
original Agreement, the Management and Commodatum
Agreements also provided for controversies or claims to
be resolved by arbitration.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
6. As a result of a dispute relating to payments due under
the Agreement, Rive initiated an arbitration proceeding
against Briggs of Cancun in January of 1996 in Mexico.
7. On or about February 14, 1996, David Briggs,
Jr. responded to the Inter–American Commercial
Arbitration Commission, designating an arbitrator.
8. On or about March 26, 1996, Rive submitted its formal
arbitration demand.
9. On or about August 14, 1996, Rive attorney Jose
Manuel Gomez Mont Ureta filed a criminal Statement
of Facts requesting that the Attorney General for the
State of Quintana Roo, Mexico initiate an investigation of
Adalberto de Luna Zuniga, Javier Ramirez Meza, David
A. Briggs, Jr., and Raul Torres Rivera, alleging a criminal
conspiracy by them to prevent Rive “from exercising its
full rights in its capacity as lessor regarding the property
in question.” Exh. 174, 4.
10. David Briggs testified that following the filing of the
criminal Statement of Facts, he did not enter Mexico for
fear of being detained until after the criminal matter was
cleared up in 1998.
11. On or about November 26, 1996, Briggs of Cancun
answered the allegations of Rive in the arbitration matter
by filing a brief and attaching relevant exhibits.
12. Thereafter, the arbitration continued and the parties
were given the opportunity to offer further evidence,
which was only presented by Rive, because Briggs of
Cancun refused to participate in the arbitration due to
alleged criminal proceedings in Cancun.
*792 13. On or about August 22, 1997, David Briggs,
and Danny Drago, Chief Financial Officer of David
Briggs Enterprises, Inc., 2 received a letter from the
United Mexican States Solicitor of the General Republic,
requesting their appearance on October 5, 1997. The letter
stated that failure to appear would result in a “remand
[of] the current investigation to the Federal Penal Court
so that the corresponding arrest warrant may be issued.”
Exh. 181.
14. David Briggs testified that he voluntarily chose not to
comply with the request to appear on October 5, 1997.
3
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
15. There was conflicting testimony at trial as to whether
an arrest warrant was actually issued for David Briggs.
While a document was introduced which appears to
reference a pending arrest warrant against David Briggs
(Rec.Doc. 178), as well as a document denominated an
“amparo” which purports to suspend a warrant (Rec.Doc.
176), no actual arrest warrant for David Briggs was
introduced at trial.
16. At trial, David Briggs testified that he did not seek
alternative ways to appear at the hearings, such as by
telephone, nor did he send a Briggs of Cancun company
representative to appear on behalf of the company.
17. In addition, for reasons not explained by the evidence
adduced at trial, Briggs of Cancun attorney Andres
Gonzalez also failed to appear at the hearings. David
Briggs testified that he did not instruct Mr. Gonzales not
to attend the arbitration hearing.
18. Briggs of Cancun has never presented to this Court
a single piece of evidence or information that it alleges
it would have presented to the arbitrators, but did not,
because it was precluded from participating fully in the
arbitration.
19. On November 6, 1997, the Mexican arbitration board
held a final hearing, of which all parties were given
proper notice. 3 Although Briggs of Cancun did not
appear, Rive's counsel presented written conclusions, and
subsequently answered questions from the arbitrators.
Rec. Docs. 142 & 172 at 256 (“Laudo Definitivo”). No
oral testimony was presented at that hearing.
20. On June 24, 1998, the Mexican arbitration board: (1)
ruled that the Agreement was rescinded due to Briggs
of Cancun's breaches; (2) awarded Rive $150,000 from
Briggs of Cancun for obligations under the October 1,
1991 agreement; (3) awarded Rive $110,000 from Briggs
of Cancun for costs and expenses; (4) awarded Rive
$2,500,000 from Briggs of Cancun for damages resulting
from the breach; and (5) awarded Rive 15% interest after
Briggs of Cancun was notified of decision.
21. The arbitration award, totaling $2,760,000, excluding
interest, was not served on the parties until March 8, 1999.
22. Rive paid all arbitration costs, totaling approximately
$33,000.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
23. In April 1999, Rive made formal demand on Briggs
of Cancun at the address set forth in the Agreement for
the *793 arbitration award and costs, but received no
response.
24. To date, Briggs of Cancun has not paid Rive any
amount in satisfaction of the arbitration award.
25. Rive has never expressly waived its right to arbitration
under the agreements between Rive and Briggs of Cancun.
26. Neither Rive nor Briggs of Cancun were parties to any
criminal proceedings in Cancun, Mexico.
II. CONCLUSIONS OF LAW
1. The instant litigation has been filed pursuant to the
Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (the “Convention”), codified at
9 U.S.C. § 201 et seq., to which both Mexico and the
United States are signatories.
2. Because the Convention was negotiated pursuant to
the Treaty power set forth in the U.S. Constitution,
and Congress passed enabling legislation to make the
Convention the highest law of the land, the Convention
must be enforced over all prior inconsistent rules of law.
Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil
Co., 767 F.2d 1140, 1145 (5th Cir.1985).
3. An action or proceeding falling under the Convention is
deemed to arise under the laws and treaties of the United
States. 9 U.S.C. § 203.
4. Federal district courts have original jurisdiction over
such an action or proceeding, and venue is proper in
any district in which, save for the arbitration agreement,
an action or proceeding with respect to the controversy
between the parties could be brought, or in such district
which embraces the place designated in the agreement as
the place of arbitration if such place is within the United
States. 9 U.S.C. § 204.
5. Under 9 U.S.C. § 202, the following arbitration awards
fall under the Convention:
4
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
An arbitration agreement or arbitral
award arising out of a legal
relationship, whether contractual
or not, which is considered as
commercial, including a transaction,
contract, or agreement described in
section 2 of this title, falls under the
Convention. An agreement or award
arising out of such a relationship
which is entirely between citizens of
the United States shall be deemed
not to fall under the Convention
unless that relationship involves
property located abroad, envisages
performance or enforcement
abroad, or has some other
reasonable relation with one or
more foreign states. For the purpose
of this section a corporation is a
citizen of the United States if it
is incorporated or has its principal
place of business in the United
States.
6. Under Article III of the Convention, “[e]ach
Contracting State shall recognize arbitral awards as
binding and enforce them in accordance with the rules
of procedure of the territory where the award is relied
upon ...” 9 U.S.C. § 201 note.
6. The Fifth Circuit has stated that awards of foreign
arbitrators that fall under the Convention are to be
enforced by U.S. courts “just as easily as domestic arbitral
awards.” Schlumberger Technology Corp. v. United States,
195 F.3d 216, 217 (5th Cir.1999).
8. The Convention requires a U.S. court to treat a foreign
arbitral award as it would a domestic award, subject to
limited defenses, including incapacity of a party, illegality
of the agreement, lack of due process, an award outside
the scope of arbitration, an improper arbitration panel,
or when the arbitration award has been vacated or is not
final. Id., citing Convention, arts. III & V.
9. Article IV of the Convention provides the procedure for
enforcing arbitral awards and reads, in part:
*794 1. To obtain the recognition and enforcement
mentioned in the preceding article, the party applying
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
for recognition and enforcement shall, at the time of
the application, supply:
(a) The duly authenticated original award or a duly
certified copy thereof;
(b) The original agreement referred to in article II or
a duly certified copy thereof.
10. Article II of the Convention requires that there be an
“agreement in writing” under which the parties agree to
submit to arbitration all or any differences which have
arisen or may arise between them in respect of a defined
legal relationship, whether contractual or not, concerning
a subject matter capable of settlement by arbitration. The
term “agreement in writing” includes an arbitral clause
in a contract or an arbitration agreement, signed by the
parties or contained in an exchange of letters of telegrams.
11. There is no dispute in this matter that the arbitral
award and the relevant agreements between Rive and
Briggs of Cancun have been supplied to the Court.
12. Thus, under the terms of the Convention and the
enabling federal statute, this Court has the authority to
recognize and enforce the arbitral award at issue in this
matter.
13. Numerous federal courts have recognized that “[T]he
1958 Convention clearly shifted the burden of proof to
the party defending against enforcement and limited his
defenses to seven set forth in Article V.” Parsons &
Whittemore Overseas Co. v. Societe Generale de L'Industrie
du Papier, 508 F.2d 969, 973 (2d Cir.1974).
14. Under Article V(1), recognition and enforcement may
be refused if the party resisting the award furnished
to the competent authority where the recognition and
enforcement is sought, proves that:
(a) the parties to the agreement were under some
incapacity, or the agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law of the country where
the award was made; or
(b) the party against whom the award is invoked was not
given proper notice of the appointment of the arbitrator
or of the arbitration proceedings or was otherwise
unable to present his case; or
5
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
(c) the award deals with a difference not contemplated
by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond
the scope of the submission to arbitration; however, if
the decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of the
award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
(d) the composition of the arbitral authority or the
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement, was
not in accordance with the law of the country where the
arbitration took place; or
(e) the award has not yet become binding on the parties,
or has been set aside or suspended by a competent
authority of the country in which, or under the law of
which, that award was made.
9 U.S.C. § 201 note.
15. Additionally, Article V(2) provides that recognition
and enforcement may be refused if the competent
authority finds that:
(a) the subject matter of the difference is not capable
of settlement by arbitration under the law of that [the
forum] country; or
*795 (b) the recognition or enforcement of the award
would be contrary to the public policy of that [the
forum] country.
9 U.S.C. § 201 note.
16. According to the Convention and repeated federal
decisions in this and other circuits, these are the only
available defenses to an action to enforce a foreign arbitral
award.
[1] 17. Waiver of the right to arbitrate is not among the
seven defenses to enforcement of a foreign arbitral award
set forth in the Convention. Thus, as a matter of law,
defendant's argument that the arbitration award should
not be enforced by this Court because plaintiff waived it
is unavailing. 4
[2] 18. Alternatively, even if defendant's waiver defense
was not precluded by the Convention, in the Fifth Circuit,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
“[w]aiver will be found when the party seeking arbitration
substantially invokes the judicial process to the detriment
or prejudice of the other party.” Miller Brewing Co. v.
Fort Worth Dist. Co., 781 F.2d 494, 497 (5th Cir.1986).
Thus, waiver (if permissible at all in the context presented)
requires both a substantial invocation of the judicial
process and either detriment or prejudice to the other
party.
19. Further, in evaluating whether a waiver occurred
under applicable law, it must be borne in mind that
“[w]aiver of arbitration is not a favored finding, and there
is a presumption against it.” Id. at 496.
20. In the same vein, the United States Supreme Court has
stated that “any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration, whether
the problem at hand is the construction of the contract
itself or an allegation of waiver, delay, or a like defense to
arbitrability.” Moses H. Cone Memorial Hosp. v. Mercury
Construction Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 941,
74 L.Ed.2d 765 (1983).
[3] 21. In considering what amounts to a substantial
invocation of the judicial process, federal courts have
required active participation in a lawsuit or some other
type of act inconsistent with the desire to arbitrate. For
example, in Parcel Tankers, Inc. v. Formosa Plastics Corp.,
569 F.Supp. 1459, 1467 (S.D.Tex.1983), the district court
found that “[a]ctions constituting waiver may include,
inter alia, 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.”
22. With respect to prejudice, the Fifth Circuit has found
that “[w]hen one party reveals a disinclination to resort to
arbitration on any phase of suit involving all parties, those
parties are prejudiced by being forced to bear the expenses
of a trial ... Arbitration is designed to avoid this very
expense. Substantially invoking the litigation machinery
qualifies as the kind of prejudice ... that is the essence of
waiver.” E.C. Ernst, Inc. v. Manhattan Construction Co. of
Texas, 559 F.2d 268, 269 (5th Cir.1977).
[4] 23. “[M]erely initiating litigation, without more, does
not effect a waiver” because no actual prejudice results
from that isolated action. Lauricia v. Microstrategy Inc.,
114 F.Supp.2d 489 (E.D.Va.2000).
6
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)
[5] 24. The Court finds that Rive's filing of a Statement of
Facts with the Attorney General in Quintana Roo did not
amount to substantial invocation of the judicial process,
and was not inconsistent *796 with Rive's intention
to arbitrate, especially given the fact that the Statement
of Facts was filed eight months after arbitration was
requested. Further, Rive's actions in filing the Statement
of Facts did not prejudice Briggs of Cancun with respect to
the ongoing arbitration. Accordingly, Rive did not waive
its right to arbitration in this matter.
25. Article V(1)(b) of the Convention states that a foreign
arbitration award can be refused confirmation where a
party lacked notice or was “otherwise unable to present
his case.” 9 U.S.C. § 201 note. This defense “basically
corresponds to the due process defense that a party was
not given ‘the opportunity to be heard at a meaningful
time and in a meaningful manner’ as defined in Mathews v.
Eldridge, 424 U.S. 319, 333, 96 S.Ct. 893, 902, 47 L.Ed.2d
18.” Generica Ltd. v. Pharmaceutical Basics, Inc., 125 F.3d
1123, 1129 (7th Cir.1997) (other citations omitted).
26. Because Briggs of Cancun was continuously informed
of all hearing dates and was provided sufficient
opportunity to present witnesses and evidence in defense
of the action, Briggs of Cancun was given proper notice of
the arbitration proceedings.
27. The due process guarantee incorporated in article V(1)
(b) of the Convention requires that “an arbitrator must
provide a fundamentally fair hearing.” Generica Ltd., 125
F.3d at 1130. “A fundamentally fair hearing is one that
‘meets “the minimal requirements of fairness”—adequate
notice, a hearing on the evidence, and an impartial
decision by the arbitrator.’ ” Id. “[P]arties that have
chosen to remedy their disputes through arbitration rather
than litigation should not expect the same procedures
they would find in the judicial arena.” Id. Essentially, in
exchange for the convenience and other benefits obtained
through arbitration, parties lose “the right to seek redress
from the court for all but the most exceptional errors at
arbitration.” Dean v. Sullivan, 118 F.3d 1170, 1173 (7th
Cir.1997).
28. Consistent with the federal policy of encouraging
arbitration and enforcing arbitration awards, the defense
that a party was “unable to present its case” raised
pursuant to article V(1)(b) of the Convention is narrowly
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
construed. Parsons & Whittemore Overseas Co. v. Societe
Generale de L'Industrie du Papier, 508 F.2d 969, 975 (2d
Cir.1974).
[6] 29. In the instant case, the Court finds that Briggs
of Cancun was not “unable to present its case,” because
Briggs of Cancun could have participated by means other
than David Briggs's physical presence at the arbitration.
For instance, Briggs of Cancun could have sent a company
representative to attend; could have sent its attorney to
attend; or David Briggs could have attended by telephone.
30. Moreover, the evidence indicates that Briggs of
Cancun did participate to the extent that it designated an
arbitrator and filed over 80 pages of legal argument and
documentation in support of its position. Because Briggs
of Cancun has brought forward no additional information
or evidence that it would have presented at the arbitration
if it had the opportunity to do so, the Court finds that
Briggs of Cancun did have an opportunity to meaningfully
participate in the arbitration.
31. In a case presenting analogous facts, the district
court in Empresa Constructora Contex Limitada v. Iseki,
106 F.Supp.2d 1020, 1026 (S.D.Cal.2000), held that the
defendant's due process rights under the Convention
were not violated when the corporate defendant's owner
and C.E.O., as well as other corporate representatives,
failed to attend the arbitration held in Chile claiming
that they feared arrest. Finding that because the
defendant was a corporate entity distinct from *797
its owners and representatives and could therefore be
adequately represented by counsel competent to handle
the company's defense, defendant did not prevail in its
V(1)(b) defense.
[7] 32. Additionally, it has also been held that fear
of arrest and extradition do not constitute an inability
to attend an arbitration hearing. See, Nat'l Dev. Co. v.
Khashoggi, 781 F.Supp. 959 (S.D.N.Y.1992).
33. For the foregoing reasons, the Court finds that
Briggs of Cancun's defense under article V(1)(b) of the
Convention must fail. The Court also specifically finds
that even if there was a valid arrest warrant pending
against David Briggs for some period of time, Briggs of
Cancun is not entitled to a defense under article V(1)(b)
of the Convention because Briggs of Cancun could have
participated through its Mexican attorney or corporate
7
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F.Supp.2d 789 (2001)

representative or by telephone. Further, Briggs of Cancun 35. Similarly, the Court does not revisit the issue of
whether the arbitration award is final, because the
has not demonstrated that it was prejudiced in any way
issue was previously determined by Judge Schwartz, and
by whatever restrictions the alleged criminal action might
further, is mooted by the fact that Briggs of Cancun did
have imposed, because it has not pointed to exonerating
not post a bond as requested by the Court.
evidence that it would have presented, but could not, but
for the filing of the criminal Statement of Facts.
36. Thus, the Court ORDERS that the Mexican
arbitration award dated June 24, 1998 be and it is hereby
34. The Court need not consider the parties' discussion
recognized and enforced against Briggs of Cancun, Inc. in
of the public policy defense under the Convention,
all respects.
because that defense is not one of the narrow issues
preserved for trial following Judge Schwartz's ruling on
37. The Court FURTHER ORDERS the parties to
the Motion to Reconsider the grant of summary judgment
submit, within ten days from entry of this order, a joint
in plaintiff's favor. However, if it were before the Court,
proposed form for final judgment in accordance with these
the Court would find that its conclusion that due process
findings and conclusions.
requirements were met undermines this argument, and
that enforcement of this award does not violate the public
policies of Mexico, the United States, or the State of All Citations
Louisiana.
134 F.Supp.2d 789

Footnotes
1 On September 20, 2000, Judge Schwartz entered an order granting reconsideration of his prior order dismissing Briggs'
counterclaims. The issue for reconsideration was limited solely to the waiver issue (Briggs' Ninth Defense). Rec. Doc. 91.
2 David Briggs Enterprises, Inc. is a related entity which the Court has previously ruled is not an “alter ego” for Briggs of
Cancun, Inc.
3 The notice defense is not one that was specifically preserved by Judge Schwartz. Nonetheless, the Court observes that
the documentary evidence presented at trial demonstrated that Briggs was informed that the arbitration would take place
on November 6, 1997 at 11:00 a.m. See, e.g., Rec. Doc. 169, at 10285. While Briggs' attorney subsequently misstated
the date in correspondence to the Chamber of Commerce of Mexico City (Rec.Doc. 141), the error was pointed out to him
in a subsequent letter from the Chairman of the Chamber of Commerce. Rec. Doc 170. At any rate, Gonzalez' mistake
and its correction do not alter the fact that notice that the hearing would occur on November 6, 1997 was provided, and
the hearing was subsequently held on November 6, 1997.
4 Moreover, it appears from the evidence that the argument that the filing of the criminal Statement of Facts resulted in
a waiver of arbitration by Rive was considered and rejected by the arbitration committee. See Rec. Doc. 169, ¶ c; Rec.
Doc. 141 ¶ c.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

No Shepard’s Signal™
As of: August 28, 2015 3:43 PM EDT

Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling Co.

Court of Appeals of Texas, Fourteenth District, Houston
August 25, 2015, Opinion Filed
NO. 14-14-00562-CV

Reporter
2015 Tex. App. LEXIS 8882

COOPER INDUSTRIES, LLC, COOPER INDUSTRIES, LTD., Judgment reversed and remanded.
COOPER US, INC., AND COOPER INDUSTRIES, PLC,
Appellants v. PEPSI-COLA METROPOLITAN BOTTLING LexisNexis® Headnotes
CO., INC., AND WHITMAN INSURANCE COMPANY LTD.,
Appellees Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Arbitrability
Prior History: [*1] On Appeal from the 80th District Court,
Civil Procedure > ... > Arbitration > Federal Arbitration Act > General
Harris County, Texas. Trial Court Cause No. 2011-77606. Overview

Civil Procedure > Appeals > Standards of Review > Questions of Fact
Core Terms & Law

arbitration, appellees, parties, Guaranty, Mutual, discovery, Civil Procedure > Appeals > Standards of Review > De Novo Review
termination, compel arbitration, waive, arbitration clause, pet, Contracts Law > Contract Conditions & Provisions > Arbitration
right to arbitration, trial court, settlement, invoked, motion to Clauses
compel arbitration, tortious interference, estoppel, dealer, merits,
obligations, signatory, judicial process, non-signatory, disputes, HN1 When the Federal Arbitration Act governs an arbitration
movant, surety, arbitration agreement, fraudulent transfer, denial clause, a Texas trial court conducts a summary proceeding under
of motion Texas procedural rules to make the gateway determination of
arbitrability, and it applies Texas substantive law regarding
whether a litigant must arbitrate. When the trial court does not
Case Summary sign written findings or conclusions, an appellate court may
uphold the court's order on any theory supported by the evidence,
Overview and the appellate court implies all factual findings supported by
the record that are necessary to the order. Appellate courts defer to
HOLDINGS: [1]-An order denying appellants' motion to compel
the trial court's factual determinations that are supported by
arbitration was improper because the agreements required
sufficient evidence, but we review the trial court's legal
arbitration and appellees did not show that appellants waived their
determinations de novo.
right to arbitrate since appellants never opposed arbitration before
filing its motion to compel; [2]-Because appellee's tortious
Governments > Courts > Judicial Comity
interference claims depended on the existence of the
manufacturer's obligation in the Stock Purchase Agreement HN2 Texas courts may presume that another state's law is the
(SPA), which appellants guaranteed, appellants could compel same as Texas law absent proof or argument to the contrary. The
signatory appellee to arbitrate those claims under the SPA; [3]- party requesting application of a foreign law has the initial burden
The record did not demonstrate the extent to which appellees pre- of showing that the foreign law conflicts with Texas law.
trial costs were self-inflicted and accordingly, there was no
showing that appellants unequivocally waived their right to Contracts Law > Contract Conditions & Provisions > Arbitration
arbitration by substantially invoking the judicial process. Clauses

Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Outcome
General Overview

EDWARD HUBBARD
 Page 2 of 14
2015 Tex. App. LEXIS 8882, *1

HN3 Arbitration cannot be ordered in the absence of an Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
General Overview
agreement to arbitrate. The party moving for arbitration has the
initial burden to present evidence that a valid arbitration HN7 A guarantor or surety of a party's obligation under a contract
agreement exists. If there is an agreement to arbitrate, the party containing an arbitration clause may invoke or be bound by that
must also establish that the claims asserted fall within the scope of clause in a suit regarding the obligation.
the agreement.
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview
General Overview
Contracts Law > Contract Conditions & Provisions > Arbitration
HN4 Whether a non-signatory can compel arbitration questions Clauses
the existence of a valid arbitration agreement between the parties
HN8 In general, an arbitration agreement contained within a
and therefore is a gateway matter for the court to decide.
contract survives the termination or repudiation of the contract as
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > a whole. If the contract does not state that the duty to arbitrate
General Overview ends with the termination of the contract, the strong policies
favoring arbitration should ordinarily lead the court to conclude
Contracts Law > Contract Conditions & Provisions > Arbitration
that the obligation to arbitrate, especially as to claims that accrued
Clauses
during the term of the contract, survives the expiration of the
Contracts Law > ... > Estoppel > Equitable Estoppel > General contract.
Overview

Torts > Business Torts > Commercial Interference > General Overview Contracts Law > Contract Interpretation > General Overview

HN5 A person who has agreed to arbitrate disputes with one party
may in some cases be required to arbitrate related disputes with
others. In particular, a signatory plaintiff who seeks to derive a
direct benefit from a contract with an arbitration clause may be
equitably estopped from refusing arbitration. Although the
boundaries of direct-benefits estoppel are not always clear, the
signatory generally must arbitrate claims if liability arises from a
contract with an arbitration clause, but not if liability arises from
general obligations imposed by law. 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. Tortious
interference claims do not fall comfortably within either category.
Torts > ... > Commercial Interference > Contracts > General Overview
HN9 No single contractual provision taken alone should be given
controlling effect; rather, all the provisions must be considered
with reference to the whole instrument.
Contracts Law > Contract Conditions & Provisions > Arbitration
Clauses
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Waiver
Contracts Law > Defenses > General Overview
HN10 Once an arbitration movant establishes a valid arbitration
agreement that encompasses the claims at issue, a trial court has
no discretion to deny the motion to compel arbitration unless the
opposing party proves a defense to arbitration such as waiver.

HN6 The obligation not to interfere with existing contracts is a Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
general obligation imposed by law, but it is not imposed on the Waiver
parties to that contract because a party cannot interfere tortiously
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
with its own contract. A person must be a stranger to a contract to
General Overview
interfere tortiously with it. Thus, a signatory generally is not
required to arbitrate a tortious interference claim against a Civil Procedure > Appeals > Standards of Review > De Novo Review
complete stranger to his contract and its arbitration clause. But if Civil Procedure > Appeals > Standards of Review > Questions of Fact
the signatory plaintiff's right to recover and its damages depend & Law
on the existence of the contract containing the arbitration clause,
or if the non-signatory defendant is an agent or affiliate of a HN11 A party can waive a contractual right to arbitrate either
signatory, then the plaintiff can be compelled to arbitrate its claim. expressly or by implication. Whether waiver has

Contracts Law > Contract Conditions & Provisions > Arbitration

Clauses

EDWARD HUBBARD
 Page 3 of 14
2015 Tex. App. LEXIS 8882, *1
occurred is a question of law for the court that is reviewed de
novo. Because public policy favors arbitration, there is a strong HN16 Whether a party has waived an arbitration right is a
presumption against waiver of the right to arbitrate. Express question of law that is reviewed de novo. If the trial court is called
waiver arises when a party affirmatively indicates that it wishes to upon to resolve factual disputes about the conduct in which the
resolve the case in the judicial forum rather than in arbitration. party engaged, an appellate court defers to the trial court's implied
fact findings if they are supported by sufficient evidence.
Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over
Actions > Exclusive Jurisdiction Contracts Law > Contract Conditions & Provisions > Arbitration
Clauses
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Waiver Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
Waiver
Civil Procedure > ... > Venue > Motions to Transfer > General
Overview HN15 With regard to waiving an arbitration clause, courts
consider a wide variety of factors in deciding whether a party
HN12 Moving to dismiss in favor of exclusive jurisdiction in
substantially invoked the litigation process, such as: whether the
another court is equivalent to moving to transfer venue or filing a
party who pursued arbitration was the plaintiff or the defendant;
notice of removal to another court. The Supreme Court of Texas
how long the party who pursued arbitration delayed before
and many other courts have held that such actions do not waive a
seeking arbitration; when the party who pursued arbitration
right to arbitrate.
learned of the arbitration clause's existence; how much of the
pretrial activity related to the merits rather than to arbitrability or
Civil Procedure > ... > Venue > Motions to Transfer > General
jurisdiction; how much time and expense has been incurred in
Overview
litigation; whether the party who pursued arbitration sought or
HN13 A motion to transfer venue does not seek a final opposed arbitration earlier in the case; whether the party who
determination of the litigation. pursued arbitration filed affirmative claims or dispositive motions;
how much discovery has been conducted and who initiated the
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > discovery; whether the discovery sought would be useful in
Waiver arbitration; what discovery would be unavailable in arbitration;
whether activity in court would be duplicated in arbitration; when
Contracts Law > Contract Conditions & Provisions > Arbitration
Clauses the case was to be tried; and whether the party who pursued
arbitration sought judgment on the merits.
HN14 A party waives an arbitration clause by implication when it
substantially invokes the judicial process to the other party's Contracts Law > Contract Conditions & Provisions > Arbitration
detriment or prejudice. The hurdle of proving implied waiver is a Clauses
high bar. In close cases, the strong presumption against waiver Civil Procedure > ... > Alternative Dispute Resolution > Arbitration >
should govern. Waiver must be decided on a case-by-case basis, Waiver
and we look to the totality of the circumstances. The party's
conduct must be unequivocally inconsistent with claiming a HN17 The quantum of litigation conduct that constitutes
known right to arbitration. "substantial" invocation of the litigation process depends on the
context. A party who enjoys substantial direct benefits by gaining
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > an advantage in the pretrial litigation process should be barred
Waiver from turning around and seeking arbitration with the spoils. Delay
alone generally does not establish waiver. Even substantially
Contracts Law > Contract Conditions & Provisions > Arbitration
Clauses invoking the judicial process does not waive a party's arbitration
rights unless the opposing party proves that it suffered prejudice
Civil Procedure > Appeals > Standards of Review > Questions of Fact as a result. The arbitration opponent must provide proof of
& Law
prejudice to overcome the strong presumption against waiver. In
Civil Procedure > Appeals > Standards of Review > De Novo Review the context of waiver of an arbitration right, prejudice relates to
the inherent unfairness in terms of delay, expense, or damage to a
Evidence > Weight & Sufficiency
party's legal position that occurs when the

EDWARD HUBBARD
 Page 4 of 14
2015 Tex. App. LEXIS 8882, *1
party's opponent forces it to litigate an issue and later seeks to
arbitrate that same issue. A party cannot attempt to have it both Opinion
ways by switching between litigation and arbitration to its own
advantage. This is an interlocutory appeal from an order denying a motion to
compel arbitration. Appellee Pepsi-Cola Metropolitan Bottling
Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > Co. ("Metro") sued appellants Cooper Industries, LLC, Cooper
Mediation Industries, Ltd., Cooper US, Inc., and Cooper Industries, PLC
Civil Procedure > Settlements > General Overview (collectively, "Cooper"), seeking to enforce two agreements.
Appellee Whitman Insurance Company Ltd. later joined the suit
Civil Procedure > Preliminary Considerations > Venue > General
as a plaintiff. Cooper filed a motion to compel arbitration pursuant
Overview
to the agreements. The trial court denied the motion after a
Contracts Law > Contract Conditions & Provisions > Forum Selection hearing without making findings of fact or conclusions of law.
Clauses
On appeal, Cooper argues the trial court erred because the
HN18 Settlement negotiations and mediation do not substantially agreements require arbitration and appellees did not show that
invoke the judicial process, nor are they inconsistent with a desire Cooper waived its right to arbitrate. We agree that the trial court
to arbitrate. Likewise, venue and jurisdictional motions do not erred in denying Cooper's motion to compel arbitration. We
constitute substantial invocation of the judicial process because therefore reverse the trial court's order, render judgment ordering
they do not relate to the merits of the case. A dismissal of all arbitration of appellees' claims against the Cooper defendants who
claims to enforce a clause requiring litigation in another forum is are parties to this appeal,1 and remand this case to the trial court
a determination that the merits of the claims should be determined for further proceedings [*2] consistent with this opinion,
elsewhere; therefore, enforcement of such a forum-selection including the grant of an appropriate stay.
clause is a non-merits basis for dismissal.
Background
Contracts Law > Contract Conditions & Provisions > Arbitration
Clauses This case concerns indemnification obligations regarding asbestos
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > claims. Appellees' second amended petition and Cooper's motion
Waiver to compel arbitration provide the pertinent background of the
parties' dispute.2 We begin by discussing the various transactions
Civil Procedure > Discovery & Disclosure > Discovery
that resulted in the current alignment of the parties because they
HN19 Propounding discovery will not, in and of itself, result in are relevant to our disposition of the case.
waiver of the right to compel arbitration. Length of delay alone is
IC Industries—Metro's predecessor—acquired Abex Corporation
not a basis for inferring waiver.
and Pneumo Corporation, two companies that manufactured
products containing asbestos. IC Industries sold its stock in both
Counsel: For Appellants: J. Christopher Reynolds, Solace
companies to PA Holdings under a Stock Purchase Agreement
Kirkland Southwick, HOUSTON, TX.
("SPA"). [*3] Under the SPA, IC Industries agreed to indemnify
PA Holdings against certain claims filed between August 29,
For Appellee: Winstol D. Carter, Jr., David J. Levy, John M.
1988 and August 29, 1998, and PA Holdings agreed to indemnify
Deck, HOUSTON, TX; Allyson Newton Ho, DALLAS TX.
IC Industries and its affiliates against claims filed after August 29,
1998. As explained below, a Cooper entity later guaranteed an
Judges: Panel consists of Justices Jamison, Busby, and Brown.
indemnity of PA Holdings' successor. The SPA provides that if
any controversy or claim arising out of or relating to the
Opinion by: J. Brett Busby

1 Although Cooper Holdings, Ltd. joined appellants in the motion to compel arbitration, the trial court did not rule on the motion with respect to
Cooper Holdings, Ltd. The notice of appeal does not list Cooper Holdings, Ltd. as an appellant. Accordingly, Cooper Holdings, Ltd. is not an
appellant in this case. We therefore do not address whether it was entitled to arbitration of Metro's and Whitman's claims.
2 Appellees filed a third amended petition after Cooper had filed its motion to compel arbitration.

EDWARD HUBBARD
 Page 5 of 14
2015 Tex. App. LEXIS 8882, *3
agreement has not been resolved within twenty-one days after trust received [*5] a cash payment and notes to be paid over five
notice is given, either party may initiate arbitration to resolve the years.
dispute.
In response to the 2011 settlement agreement, Metro filed this
PA Holdings subsequently became Pneumo Abex, LLC. IC lawsuit alleging various causes of action, among them tortious
Industries became appellee Metro through a merger and name interference with contractual relations, conspiracy to commit
change. Whitman's predecessor was a captive insurance carrier tortious interference, fraudulent transfers, and conspiracy to
affiliated with IC Industries, and Whitman is now a subsidiary of commit fraudulent transfers.3 The suit named several defendants,
Metro. including the Cooper appellants.4 Whitman later joined the suit as
a plaintiff, claiming that as successor to an affiliate of IC
Pneumo Abex eventually sold one of its product lines to Wagner Industries, it is entitled to indemnification from Pneumo Abex
Electronic Corporation through an Asset Purchase Agreement under the SPA. Metro and Whitman alleged that the settlement
("APA"). Under the APA, Wagner agreed to indemnify and hold agreement was the end result of collusive efforts by the
Pneumo Abex harmless for any obligations Pneumo Abex owed defendants that left Pneumo Abex and the trust with a finite
to Metro and Whitman. Like the SPA, the APA contains an amount of assets. In particular, Metro and Whitman alleged that
arbitration provision. In section 13.2(c), the APA provides that the defendants "conspired to buy their way out of uncapped
any dispute arising in connection with the agreement [*4] and not guaranty obligations" and made Pneumo Abex's performance of
settled by the parties within sixty days after notice is given "shall its indemnity obligations to Metro and Whitman more
be finally settled by arbitration . . . ." The provision states that "burdensome, difficult, and expensive, if not impossible."
"[a]ny party may request a court to provide interim relief without
waiving the agreement to arbitrate." Citing the Federal Arbitration Act, Cooper filed a motion to
compel arbitration under various agreements, including the SPA
Wagner's then-parent company, Cooper Industries, LLC, and the Mutual Guaranty. After an unreported hearing, the court
guaranteed Wagner's indemnification of Pneumo Abex under a denied the motion. This interlocutory appeal followed. See 9
Mutual Guaranty agreement signed in 1994. Section 6 of the U.S.C. § 16(a)(1)(B) (West 2009); Tex. Civ. Prac. & Rem. Code
Mutual Guaranty provides that any claim or dispute "arising in Ann. § 51.016 (West 2015).
connection with" this agreement shall be resolved in accordance
with sections 13.2(b) and (c) of the APA, thus explicitly Analysis
incorporating the arbitration provision of the APA.
On appeal, Cooper argues that the trial court erred in denying the
Pneumo Abex filed a lawsuit in New York against various motion to compel arbitration because (1) Metro's and Whitman's
Cooper defendants, contending that Cooper Industries, LLC was claims are subject to arbitration under the SPA and the Mutual
mismanaging its assets and thus endangering the Mutual Guaranty, and (2) Cooper has not waived the right to arbitrate as
Guaranty. Metro and Whitman were not parties to that suit. In to either Metro or Whitman. We address each issue in turn.
2011, the Cooper defendants and Pneumo Abex reached a
settlement agreement, which the judge in the New York lawsuit HN1 When the Federal Arbitration Act governs an arbitration
approved. Under the settlement agreement, PCT International clause, a Texas trial court conducts a summary proceeding under
Holdings, Inc.—then-owner of Pneumo Abex—transferred its Texas procedural rules to make the gateway determination of
ownership interest to a trust. Cooper Industries' indemnities were arbitrability, and it applies Texas substantive law regarding
released and, in exchange, the whether a litigant must arbitrate. [*7] 5 See In

3 Appellees pled additional causes of action later abandoned; therefore, we need not analyze them.

4 Metro originally brought this action against Cooper Industries, LLC, Cooper [*6] Industries Ltd., Cooper Holdings, Ltd., Cooper US, Inc., Cooper
Industries, PLC, M & F Worldwide Corp., MAFCO Worldwide Corp., MAFCO Consolidated Group, LLC, PCT International Holdings, Inc., and the
Pneumo Abex Asbestos Claims Settlement Trust. The third amended petition also names Mcg Intermediate Holdings Inc. as a defendant.
5 The APA states that it is governed by Delaware law, but the parties do not discuss Delaware law. The SPA contains a clause stating that the "law of
the State of New York shall govern the parties' dispute." In appellees' response to Cooper's motion to compel arbitration, they argued that New York
law governs the arbitration provision in the SPA. On appeal, however, appellees assert that we need not

EDWARD HUBBARD

2015 Tex. App. LEXIS 8882, *7
re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005) (orig.
proceeding). Because the trial court did not sign written findings
or conclusions, we may uphold the court's order on any theory
supported by the evidence, and we imply all factual findings
supported by the record that are necessary to the order. In re
W.E.R., 669 S.W.2d 716, 717 (Tex. 1984) (per curiam); Rush v.
Barrios, 56 S.W.3d 88, 96 (Tex. App.—Houston [14th Dist.] 2001,
pet. denied). We defer to the trial court's factual determinations
that are supported by sufficient evidence, but we review the trial
court's legal determinations de novo. In re Labatt Food Serv.,
L.P., 279 S.W.3d 640, 643 (Tex. 2009).
I. Cooper established that appellees' claims fall within the
scope of valid arbitration agreements that Cooper can invoke.
Cooper's first issue asks whether the trial court erred in refusing to
compel arbitration because appellees' claims are founded on two
contracts that contain mandatory arbitration provisions. HN3
Arbitration cannot be ordered in the absence of an agreement to
arbitrate. Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994) (orig.
proceeding) (per curiam). The party moving for arbitration has the
initial burden to present evidence that a valid arbitration
agreement exists. In re Koch Indus., Inc., 49 S.W.3d 439, 444
(Tex. App.—San Antonio 2001, orig. proceeding). If there is an
agreement to arbitrate, the party must also establish that the
claims asserted fall within the scope of the agreement. In re
Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005).
A. Cooper may compel arbitration against Metro under the
SPA.
Cooper argues that Metro's claims are subject to arbitration under
the SPA, which contains a broad clause requiring arbitration of
[*9] any controversy or claim arising out of or relating to the
agreement. The parties to the SPA are Pneumo Abex and a
company that later became known as Metro. Metro is thus a
signatory to the agreement, but Cooper is not. Appellees Metro
and Whitman respond that Cooper cannot compel arbitration as a
non-signatory. HN4
Page 6 of 14
Whether a non-signatory can compel arbitration questions the
existence of a valid arbitration agreement between the parties and
therefore is a gateway matter for the court to decide. See In re
Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005).
The supreme court has recognized that HN5 "[a] person who has
agreed to arbitrate disputes with one party may in some cases be
required to arbitrate related disputes with others." Meyer v.
WMCO-GP, LLC, 211 S.W.3d 302, 304 (Tex. 2006). In particular,
a signatory plaintiff who seeks to derive a "direct benefit" from a
contract with an arbitration clause may be equitably estopped
from refusing arbitration. Id. at 305; see also In re Kellogg, 166
S.W.3d at 739 (discussing direct-benefits estoppel of non-
signatories). Although the boundaries of direct-benefits estoppel
are not always clear, the signatory generally must arbitrate claims
if liability arises from a contract with an arbitration clause, but not
if liability arises from general obligations imposed by law. In re
Vesta Ins. Group, Inc., 192 S.W.3d 759, 761 (Tex. 2006) (per
curiam). When the [*10] facts are not disputed, the application of
estoppel is a question of law, not a matter committed to the trial
court's discretion. See Meyer, 211 S.W.3d at 308.
Tortious interference claims do not fall comfortably within either
category. In re Vesta, 192 S.W.3d at 761. HN6 The obligation not
to interfere with existing contracts is a general obligation imposed
by law, but it is not imposed on the parties to that contract because
a party cannot interfere tortiously with its own contract. Id. (citing
Holloway v. Skinner, 898 S.W.2d 793, 796 (Tex. 1995)). A person
must be a stranger to a contract to interfere tortiously with it. Id.
(citing Morgan Stanley & Co. v. Texas Oil Co., 958 S.W.2d 178,
179 (Tex. 1997)). Thus, a signatory generally is not "required to
arbitrate a tortious interference claim against a complete stranger
to his contract and its arbitration clause." Id. at 763. But if the
signatory plaintiff's right to recover and its damages depend on
the existence of the contract containing the arbitration clause, or if
the non-signatory defendant is an agent or affiliate of a signatory,
then the plaintiff can be compelled to arbitrate its claim. Meyer,
211 S.W.3d at 306-07; In re Vesta, 192 S.W.3d at 762; PER

address the question whether Texas or New York law applies because Cooper is not entitled to compel arbitration under either state's laws. Cooper,
for its part, contends that Texas law is entirely consistent with New York law, and that it is entitled to arbitration under the law of both states.

HN2 Texas courts may presume that another state's law is the same as Texas [*8] law absent proof or argument to the contrary. Coca-Cola Co. v.
Harmar Bottling Co., 218 S.W.3d 671, 685 (Tex. 2006). The party requesting application of a foreign law has the initial burden of showing that the
foreign law conflicts with Texas law. Greenberg Traurig of New York, P.C. v. Moody, 161 S.W.3d 56, 70 (Tex. App.—Houston [14th Dist.] 2004, no
pet.). Because all parties assert the outcome is the same under both New York and Texas law, and the parties do not address Delaware law, we apply
Texas law.

EDWARD HUBBARD
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2015 Tex. App. LEXIS 8882, *10
Group, L.P. v. Dava Oncology, L.P., 294 S.W.3d 378, 387-88 Ford, although nonsignatories to the agreement between WMCO
(Tex. App.—Dallas 2009, no pet.); see also In re Kellogg, 166 and the dealer, could compel arbitration under the agreement's
S.W.3d at 739 (listing estoppel and agency among the theories for arbitration clause. Id. at 308.6
requiring arbitration with non-signatory).
Similarly, appellees' tortious interference claims against Cooper in
Cooper contends that it may enforce the arbitration clause under their second amended petition depend on the existence of the SPA
the supreme court's opinion in Meyer. Appellees argue [*11] that and Cooper's guaranty of Pneumo Abex's performance
Meyer is distinguishable because the non-signatories in that case thereunder. See Smith v. Kenda Capital, LLC, 451 S.W.3d 453,
were not strangers to the agreement, as they contend Cooper is 460 (Tex. App.—Houston [14th Dist.] 2014, no pet.) ("[D]irect
here. benefits estoppel analysis focuses on whether a contract
containing the clause at issue also [*13] includes other terms on
In Meyer, Ford Motor Company's agreement with one of its which the signatory plaintiff must rely to prosecute its claims.").
dealers provided Ford with an assignable right of first refusal to As discussed above, the SPA required Pneumo Abex to
acquire the dealer's business if the dealer decided to sell. 211 indemnify Metro's predecessor, and Cooper and its then-
S.W.3d at 304. When the dealer later signed an agreement to sell subsidiary guaranteed that indemnity in 1994. Appellees allege
its business to WMCO, Ford exercised its right and assigned that that in 2011, Cooper tortiously caused (and conspired with others
right to Meyer and his company. Id. WMCO then sued the dealer, to cause) Pneumo Abex to breach its indemnity obligation to
Meyer, and Ford, alleging, among other things, that Meyer Metro under the SPA, which contains an arbitration clause.7 If
tortiously interfered with WMCO's agreement to buy the dealer's Pneumo Abex did not breach the SPA in restructuring the
business. Id. Meyer and Ford moved to compel arbitration under a guaranty and other commitments backing its indemnity
clause in the agreement between the dealer and WMCO. Id. at obligation, then there would be no claim for tortious interference
304-05. Meyer and Ford contended that because WMCO made or conspiracy. Moreover, the remedies appellees seek under each
the agreement with the dealer, WMCO was equitably estopped cause of action are the direct benefit of the indemnity obligation
from refusing arbitration. Id. at 305. The supreme court agreed, to Metro under the SPA: they request injunctive relief obligating
noting that WMCO's claims against Ford and Meyer "depend on Cooper to fund any shortfall in the trust set up to pay the
the existence of" WMCO's agreement with the dealer: indemnity, or alternatively damages for the loss of Cooper's
guaranty of that indemnity—damages that cannot be calculated
If [the dealer] properly terminated the [agreement with without reference to the terms of the indemnity obligation in the
WMCO], based on Ford's exercise of its right of first refusal, SPA. For these reasons, Meyer supports Cooper's ability to
then there would be no claim for tortious interference, no [*12] compel Metro to arbitrate its tortious interference claims under the
need to decide whether Ford validly exercised the right of first SPA's [*14] arbitration clause.
refusal, and no need to decide whether Meyer and Ford
conspired to violate statutes protecting dealers from certain Relying on our decision in Brewer & Pritchard, P.C. v. AMKO
actions by manufacturers. Resources International, LLC,8 appellees argue that Cooper
nevertheless cannot compel arbitration because it is a complete
Id. at 307. The court also considered it important that WMCO's stranger to the SPA. They point out that Cooper had no
damages "cannot be calculated without reference to the relationship with the SPA's signatories—Metro's predecessor and
[agreement]." Id. The court thus held that Meyer and Pneumo Abex—when the SPA was executed, and that the SPA
itself did not require Cooper to

6 In a portion of the Meyer opinion, the supreme court also noted allegations of substantially interdependent and concerted misconduct. 211 S.W.3d at
307-08. But the court compelled arbitration on a theory of direct-benefits estoppel, and it declined to adopt a theory of concerted-misconduct estoppel
in a subsequent case. In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191 & n.22 (Tex. 2007) (orig. proceeding). We rely solely on the theory of
direct-benefits estoppel here.
7 Alternatively, appellees allege that Cooper's actions rendered Pneumo Abex's performance of its obligations to Metro under the SPA more difficult,
if not impossible.
8 No. 14-13-00113-CV, 2014 Tex. App. LEXIS 7627, 2014 WL 3512836, at *11 (Tex. App.—Houston [14th Dist.] July 15, 2014, no. pet.) (mem.
op.) (holding buyer of leases was stranger to seller's fee agreement with law firm that had represented seller in dispute with lease operator, and
therefore firm could not use arbitration clause in fee agreement to compel buyer to arbitrate claims regarding buyer's failure to pay firm a portion of
sales price).

EDWARD HUBBARD
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2015 Tex. App. LEXIS 8882, *14
guarantee Pneumo Abex's performance. We do not agree that agreement. The parties to the Mutual Guaranty are Pneumo Abex
these facts defeat direct-benefits estoppel. and Cooper Industries, LLC. Thus, appellees Whitman and Metro
are not parties to the Mutual Guaranty. Nevertheless, direct-
Unlike in Brewer & Pritchard, Cooper guaranteed the benefits estoppel can also require non-signatory plaintiffs to
performance of one of the agreement's signatories, Pneumo Abex, arbitrate if they seek to derive a direct benefit from a contract
in 1994—long before the allegedly tortious 2011 transactions containing an arbitration clause. See In re Kellogg, 166 S.W.3d at
made the basis of this suit. [*15] Moreover, Brewer & Pritchard 739-741 (considering whether plaintiff's claims seek to enforce
did not involve a non-signatory defendant seeking to compel contract [*18] or stand independently of contract).
arbitration with a signatory plaintiff (as our inquiry under the SPA
does), nor did it address whether the plaintiff's right to recover and In their second amended petition, appellees seek to enforce
its damages depended on the existence of the agreement Cooper's obligations under the Mutual Guaranty. They allege that
containing the arbitration clause. Metro's tortious interference Cooper's acts of tortious interference in connection with the 2011
claims do depend on the existence of the SPA, so Meyer supports settlement (and its agreement with the other defendants to
arbitration of those claims as explained above. Other courts agree interfere) were undertaken with a specific intent to cap its
that HN7 a guarantor or surety of a party's obligation under a guaranty obligation, and that Cooper engaged in fraudulent
contract containing an arbitration clause may invoke or be bound transfers (and conspired to do so) when it obtained a release of its
by that clause in a suit regarding the obligation.9 Because Metro's guaranty obligation in exchange for certain payments to the trust.
tortious interference claims depend on the existence of Pneumo The remedies appellees seek include an injunction obligating
Abex's indemnity obligation in the SPA, which Cooper Cooper to fund any shortfall in the trust set up to pay the
guaranteed, we hold Cooper may compel signatory Metro to indemnity Cooper had guaranteed, or alternatively damages in the
arbitrate those claims under the SPA.10 amount of the shortfall. In short, appellees are claiming the benefit
of the Mutual Guaranty, so they are estopped from avoiding the
B. Cooper may compel arbitration against Whitman and burden of its arbitration clause. See In re Kellogg, 166 S.W.3d at
Metro under the Mutual Guaranty despite its termination. 739.

Cooper also argues that both Whitman's and Metro's claims are
independently subject to arbitration under the 1994 Mutual
Guaranty agreement, which broadly requires arbitration of any
dispute arising in connection with the
Appellees respond that arbitration can no longer be compelled
under the Mutual Guaranty because Cooper, Pneumo Abex, and
others terminated that agreement following the 2011 settlement.
They point to the following language in the termination
agreement:

9 See, e.g.,Choctaw Generation L.P. v. Am. Home Assur. Co., 271 F.3d 403, 406-08 (2d Cir. 2001) (holding surety for one party's obligation under a
construction contract containing arbitration clause could compel other party to arbitrate its claims against surety even though surety was not a party to
construction contract and surety contract contained no arbitration clause because the controversy presented [*16] was linked to the construction
contract); T-Mobile USA, Inc. v. Montijo, No. C12-1317RSM, 2012 U.S. Dist. LEXIS 176236, 2012 WL 6194204, at *4 (W.D. Wa. Dec. 11, 2012)
(same as to guarantors); Bimota SPA v. Rousseau, 628 F. Supp. 2d 500, 505-06 (S.D.N.Y. 2009) (same); Fujian Pac. Elec. Co. v. Bechtel Power
Corp., No. C 04-3126 MHP, 2004 U.S. Dist. LEXIS 23472, 2004 WL 2645974, at *6-7 (N.D. Cal. Nov. 19, 2004) (same); see also Bell v. Campbell,
143 S.W. 953, 956-57 (Tex. Civ. App.—Amarillo 1911, writ ref'd) (holding sureties bound by arbitration agreement and award against principal);
Empire Steel Corp. v. Omni Steel Corp., 378 S.W.2d 905, 911 (Tex. Civ. App.—Fort Worth 1964, writ ref'd n.r.e.) (same as to guarantors). We note
that in a subsequent case, the Second Circuit described Choctaw as involving a situation in which the non-signatory surety (American Home) was
explicitly named in the underlying contract as having certain tasks to perform thereunder. Ross v. Am. Exp. Co., 547 F.3d 137, 145 (2d Cir. 2008).
The Choctaw opinion does not appear to support this characterization. See 271 F.3d at 403-05, 407 (noting that underlying contract required party to
post and replenish letter of credit, and that American Home contracted separately with party to issue bond securing party's performance but was not
party to underlying contract). In any event, none of the cases cited at the beginning of this footnote attach importance to whether the surety or
guarantor is identified by name in the underlying agreement containing the arbitration clause.
10 Because we conclude that Whitman is bound to arbitrate its claims under the 1994 [*17] Mutual Guaranty, as discussed below, we do not address
whether Cooper could compel Whitman to arbitrate under the SPA. We also note that the parties have not separately addressed whether Cooper could
compel Metro to arbitrate its claims of fraudulent transfer and conspiracy to commit fraudulent transfer. We likewise need not address that issue under
the SPA given our conclusion below that Metro is bound to arbitrate those claims under the Mutual Guaranty.

EDWARD HUBBARD

2015 Tex. App. LEXIS 8882, *18
Effective as of the Closing, and notwithstanding [*19] any
provision of the Mutual Guaranty to the contrary, the Mutual
Guaranty shall be fully, finally and irrevocably terminated and
of no further force or effect, and no Party nor any other Person
shall have any further obligation or liability under the Mutual
Guaranty from and after Closing.
...
Each Party hereby irrevocably consents and agrees that any
dispute regarding this Agreement shall be brought only to the
exclusive jurisdiction of the federal or state courts located in
New York County, New York . . . .
We disagree with appellees that this language cuts off the estoppel
effect of the Mutual Guaranty's arbitration clause.
HN8 In general, as our sister court has held, an "arbitration
agreement contained within a contract survives the termination or
repudiation of the contract as a whole." Cleveland Constr. Inc. v.
Levco Constr. Inc., 359 S.W.3d 843, 854 (Tex. App.—Houston
[1st Dist.] 2012, pet. dism'd)) (citing Henry v. Gonzalez, 18
S.W.3d 684, 690 (Tex. App.—San Antonio 2000, pet. dism'd)).11
Our facts illustrate the sensible result of applying this rule here.
Appellees' position is that the Mutual Guaranty was tortiously and
fraudulently terminated by Cooper and that the court should, in
effect, require Cooper to honor its guaranty notwithstanding the
termination. Having asked the court to ignore the Mutual
Guaranty's termination, appellees can hardly complain if its clause
requiring [*20] arbitration of any dispute "arising in connection
with" the agreement is also given effect.
Appellees urge us instead to follow TransCore Holdings, Inc. v.
Rayner, 104 S.W.3d 317 (Tex. App.—Dallas 2003, pet. denied). In
TransCore, parties including TransCore and Rayner entered into a
stock purchase agreement containing an arbitration clause. Id. at
319. Subsequently, the parties entered into a termination
agreement that included a backward-looking mutual release of
obligations and claims and a forward-looking provision requiring
actions relating to the agreement to be brought in court. Id. at 320-
21, 323. Rayner argued that the termination agreement released
him from his obligation to arbitrate TransCore's claim that he
made misrepresentations prior to termination. Id. at 321.
11 See also Butchers, Food Handlers & Allied Workers Union, Local 174 v. Hebrew Nat'l Kosher Foods, Inc., 818 F.2d 283, 287 (2d Cir. 1987) ("If
the contract does not state that the duty to arbitrate ends with the termination of the contract, the strong policies favoring arbitration should ordinarily
lead the court to conclude that the obligation to arbitrate—especially as to claims that accrued during the term of the contract—survives the expiration
of the contract.").
12 See Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 587 (Tex. App.—Houston [14th Dist.] 1999, no pet.).
EDWARD HUBBARD
Page 9 of 14
The Dallas Court of Appeals agreed, noting that the termination
agreement was a new agreement with new consideration that
unconditionally released the parties from all previous obligations.
[*21] Id. at 321-22, 323.
This case differs from TransCore in two critical respects. First,
the backward-looking release language in the TransCore
termination agreement is absent here. This termination agreement,
which was entered into effective April 5, 2011, only eliminates
any "further obligation" to arbitrate under the Mutual Guaranty
"from and after" termination. The provision agreeing to bring
disputes regarding the termination agreement only to New York
courts does not address the handling of disputes under the Mutual
Guaranty.12 Thus, the termination agreement leaves intact the
obligation under the Mutual Guaranty to arbitrate disputes
"arising in connection with the agreement" up to the point of
termination. Appellees' claims challenge Cooper's acts leading up
to and including the 2011 settlement, which was entered into as of
February 1, 2011. Because those claims arise in connection with
the Mutual Guaranty agreement as explained above, the
termination agreement does not affect the obligation to arbitrate
them.
Second, the termination agreement in TransCore was between the
parties to the original agreement: one party seeking to compel
arbitration under the original agreement, and another party [*22]
arguing that the termination agreement ended its obligation to
arbitrate. Here, appellees are not parties to the termination
agreement. Instead, appellees are third parties trying to revive the
obligations of the original agreement. The logical force of the
doctrine of direct-benefits estoppel—which was not at issue in
TransCore—supports requiring appellees to arbitrate their claims.
Appellees' claims against Cooper hinge on the existence of the
Mutual Guaranty, and the gist of their case is to undo its
termination. If Cooper "properly terminated the" Mutual
Guaranty, then "there would be no claim for tortious interference"
or fraudulent transfer and no need to determine whether Cooper
"conspired" with the other defendants to do so. Meyer, 211
S.W.3d at 307. Appellees cannot have it both ways, picking and
choosing which portions of the Mutual Guaranty should be
enforced and which portions should not. See id. at 306; cf. Coker
v. Coker, 650 S.W.2d 391, 393 (Tex.
 Page 10 of 14
2015 Tex. App. LEXIS 8882, *22
1983) (HN9 "No single [contractual] provision taken alone waived the right to arbitrate by first moving to dismiss the case in
[should] be given controlling effect; rather, all the provisions must favor of adjudication in New York based on principles of
be considered with reference to the whole instrument"). exclusive jurisdiction, comity, and forum non conveniens. In its
motion, Cooper argued that the New York court that approved the
We hold that the termination of the Mutual Guaranty agreement 2011 settlement had exclusive jurisdiction over questions
between Cooper and Pneumo Abex did not abrogate Cooper's regarding that settlement.
ability [*23] to compel arbitration of appellees' claims under that
agreement. In addition, as explained above, Cooper may compel HN12 Moving to dismiss in favor of exclusive jurisdiction in
arbitration of Metro's claims under the SPA. Accordingly, we another court is equivalent, for present purposes, to moving to
sustain Cooper's first issue and hold that the trial court erred to the transfer venue or filing a notice of removal to another court. The
extent it denied Cooper's motion to compel arbitration on the Supreme Court of Texas and many other courts have held that
ground that appellees' claims do not fall within the scope of valid such actions do not waive a right to arbitrate. E.g., Richmont
arbitration agreements that Cooper can invoke. Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455 S.W.3d 573,
576 (Tex. 2015) (per curiam); In re Citigroup Global Markets,
II. Cooper did not expressly waive its right to arbitrate Inc., 258 S.W.3d 623, 626 (Tex. 2008).13
appellees' claims.
In Richmont Holdings, Superior and Richmont signed an asset
HN10 Once the arbitration movant establishes a valid arbitration purchase agreement with an arbitration clause, and Superior's
agreement that encompasses the claims at issue, a trial court has part-owner, Blake, signed a related employment agreement with
no discretion to deny the motion to compel arbitration unless the Richmont that contained a Dallas County forum selection clause.
opposing party proves a defense to arbitration such as waiver. 455 S.W.3d at 575. Superior and Blake later sued Richmont in
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Denton County on various causes of action and sought a
In re First Merit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001) declaration that a covenant not to compete in the employment
(orig. proceeding). Cooper's second and third issues ask whether agreement was unenforceable. Id. In response, Richmont moved
the trial court erred to the extent it denied the motion to compel by to transfer venue to Dallas County and also filed a separate suit
finding that Cooper waived its right to arbitration against Metro against Blake in Dallas County to enforce the covenant not to
and Whitman. compete. Id. Richmont later filed a motion to compel arbitration
in the Denton County suit, but the trial court denied the motion.
HN11 A party can waive a contractual right to arbitrate either Id. at 576.
expressly or by implication. Sedillo v. Campbell, 5 S.W.3d 824,
826 (Tex. App.—Houston [14th Dist.] 1999, no pet.). Whether The supreme court held that the motion should have been granted
waiver has occurred is a question of law for the court that we because Richmont had not waived arbitration. Id. The court
review de novo. Perry Homes v. Cull, 258 S.W.3d 580, 598 (Tex. explained that "[m]erely filing suit does not waive arbitration,
2008). Because public policy favors arbitration, there is [*24] a even when the movant, as in this case, files a second, separate suit
strong presumption against waiver of the right to arbitrate. In re in another county based in [*26] part on a contract at issue in the
Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (orig. first action. Nor, we think, does moving to transfer venue. The
proceeding). motion does not address the merits of the case." Id. (citations
omitted).
Express waiver arises when a party affirmatively indicates that it
wishes to resolve the case in the judicial forum rather than in Thus, Richmont went far beyond asserting—as Cooper did
arbitration. See Okorafor v. Uncle Sam & Assocs., Inc., 295 here—that another forum was the only correct place to decide the
S.W.3d 27, 39 (Tex. App.—Houston [1st Dist.] 2009, pet. struck). parties' disputes. Richmont actually filed a second suit in the other
Appellees contend that Cooper expressly forum, yet the supreme court held that act did not waive
Richmont's ability to compel

13 See also In re Bruce Terminix Co., 988 S.W.2d at 704 (citing case holding no waiver by defendant who removed case from state to federal court);
In re Frost Nat'l Bank, 13-07-00748-CV, 2008 Tex. App. LEXIS 8570, 2008 WL 4889836, at *3 (Tex. App.—Corpus Christi Nov. 7, 2008, no pet.)
(holding party did not waive right to compel arbitration by moving to transfer venue [*25] based on provision in agreement) (mem. op.); Global Fin.
Servs., L.L.C. v. Estate of McLean, No. 04-07-627-CV, 2008 Tex. App. LEXIS 1034, 2008 WL 372521, at *3 (Tex. App.—San Antonio Feb. 13,
2008, no pet.) (mem. op.); Granite Constr. Co. v. Beaty, 130 S.W.3d 362, 367 (Tex. App.—Beaumont 2004, no pet.) (HN13 "[A] motion to transfer
venue does not seek a final determination of the litigation.").

EDWARD HUBBARD
 Page 11 of 14
2015 Tex. App. LEXIS 8882, *26
arbitration in the original suit. Richmont therefore supports the
conclusion that Cooper did not waive its right to arbitration. • whether the party who pursued arbitration was the plaintiff or
the defendant;
Similarly, in In re Citigroup Global Markets, the supreme court
• how long the party who pursued arbitration delayed before
held that Citigroup did not waive arbitration despite its previous
seeking arbitration;
attempts to transfer the case to a federal multidistrict litigation
court in New York. 258 S.W.3d at 626. The court held that despite • when the party who pursued arbitration learned of the
statements in various transfer pleadings about the case's similarity arbitration clause's existence;
to others already transferred, the potential savings in consolidated
• how much of the pretrial activity related to the merits rather
discovery, and the potential convenience of parties and witnesses
than to arbitrability or jurisdiction;
in consolidated proceedings, Citigroup did not expressly waive its
right to arbitrate. Id. As the court explained, "we disagree . . . that • how much time and expense has been incurred in litigation;
transfer to an MDL court is necessarily inconsistent [*27] with
• whether the party who pursued arbitration sought or opposed
seeking arbitration." Id.
arbitration earlier in the case;
Appellees urge that Citigroup is distinguishable because in that • whether the party who pursued arbitration filed affirmative
case, the party seeking to compel arbitration expressly reserved claims or dispositive motions;
the right to request arbitration early on. See id. But the court in
Citigroup did not hold that a party must expressly reserve its right • how much discovery has been conducted and who initiated
the discovery;
to arbitrate before seeking to transfer a case. Rather, Citigroup
simply noted that the party "never opposed arbitration." Id. The • whether the discovery sought would be useful in arbitration;
same is true here: Cooper never opposed arbitration before filing
• what discovery would be unavailable in arbitration;
its motion to compel. Accordingly, we hold the trial court erred to
the extent it denied the motion to compel arbitration on the ground • whether activity in court would be duplicated in arbitration;
that Cooper expressly waived its right to arbitrate.
• when the case was to be tried; and

III. Cooper did not waive its right to arbitrate by implication.
HN14 A party waives an arbitration clause by implication when it
substantially invokes the judicial process to the other party's
detriment or prejudice. Perry Homes, 258 S.W.3d at 589-90. The
hurdle of proving implied waiver is a high bar. Kennedy Hodges,
L.L.P. v. Gobellan, 433 S.W.3d 542, 545 (Tex. 2014) (per curiam).
In close cases, the "strong presumption against waiver" should
govern. Perry Homes, 258 S.W.3d at 593.
Waiver must be decided on a case-by-case basis, and we look to
the totality of the circumstances. Id. at 592. The party's conduct
must be unequivocally inconsistent with claiming [*28] a known
right to arbitration. See Van Indep. Sch. Dist. v. McCarty, 165
S.W.3d 351, 353 (Tex. 2005).14 HN15 We consider a wide variety
of factors in deciding whether a party substantially invoked the
litigation process, such as:
• whether the party who pursued arbitration sought judgment on
the merits.
Baty v. Bowen, Miclette & Britt, Inc., 423 S.W.3d 427, 433 (Tex.
App.—Houston [14th Dist.] 2013, pet. denied) (citing Perry
Homes, 258 S.W.3d at 591-92).
HN17 The quantum of litigation conduct that constitutes
"substantial" invocation of the litigation process depends on the
context. See Perry Homes, 258 S.W.3d at 593. A party who
enjoys substantial direct benefits by gaining an advantage in the
pretrial litigation process should be barred from turning around
and seeking arbitration with the spoils. Id. Delay alone generally
does not establish waiver. See In re Serv. Corp. Int'l, 85 S.W.3d
171, 174 (Tex. 2002) (orig. proceeding).
"Even substantially invoking the judicial process does not waive a
party's arbitration rights unless the opposing party proves that it
suffered prejudice as a result." In re Bruce

14 As noted above, HN16 whether a party has waived an arbitration right is a question [*29] of law that this Court reviews de novo. See Perry
Homes, 258 S.W.3d at 598. If the trial court is called upon to resolve factual disputes about the conduct in which the party engaged, this Court defers
to the trial court's implied fact findings if they are supported by sufficient evidence. See id.

EDWARD HUBBARD
 Page 12 of 14
2015 Tex. App. LEXIS 8882, *29
Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998). The arbitration incurred approximately $3,500,000 in fees and $94,000 in other
opponent must provide proof of prejudice to overcome the strong costs." Appellees also argue that Cooper substantially
presumption against waiver. In re Vesta, 192 S.W.3d at 763. In the invoked the judicial process by moving for a continuance and
context of waiver of an arbitration right, "prejudice" relates to the agreeing to an extension of discovery.
inherent unfairness in terms of delay, expense, or damage to a
party's legal position that occurs when the party's opponent forces We disagree with appellees' position that Cooper substantially
it to litigate an issue and later seeks to arbitrate [*30] that same invoked the judicial process. In holding that substantial invocation
issue. Perry Homes, 258 S.W.3d at 597. A party cannot attempt to had occurred in Perry Homes, the Supreme Court of Texas noted
have it both ways by switching between litigation and arbitration the extensive discovery propounded by the movants but stated
to its own advantage. See Okorafor, 295 S.W.3d at 40 (citing In re that discovery is not the only measure of waiver under the totality-
Fleetwood Homes of Texas, L.P., 257 S.W.3d 692, 694 (Tex. of-the-circumstances test. Perry Homes, 258 S.W.3d at 596.15 The
2008)). court then pointed out that the movants had objected stridently to
arbitration before changing their minds and seeking arbitration
To support their position that Cooper substantially invoked the shortly before the trial setting. Id. The court also invoked the rule
judicial process, appellees assert that Cooper "inexplicably [*32] that one cannot wait until the eve of trial to request
delayed" moving to compel arbitration until May 2014, twenty- arbitration, observing that "most of the discovery in the case had
eight months after it was sued. Appellees further contend that already been completed before [movants] requested arbitration."
Cooper participated in extensive discovery related to the merits. Id.
They point out that Cooper sought admissions that Metro is
"seeking to void and/or avoid the transfers incident to the The facts here are different from those in Perry Homes and more
creations of the [trust]" and that Pneumo Abex did "not owe a analogous to In re Vesta, in which the supreme court held that
duty to [Metro] to ensure that it obtained consideration that was at arbitration had not been waived. 192 S.W.3d at 763-64. The
least equal to the value" of Cooper's obligations. Appellees argue parties moving for arbitration in Vesta had litigated for two years
that those requests relate directly to their claims of fraudulent and engaged in discovery, but they did not initially oppose
transfer and tortious interference. arbitration. See Perry Homes, 258 S.W.3d at 600 (distinguishing
Vesta on those grounds). Furthermore, the Vesta case was not
They also point to Cooper's request for the production of "all close to trial, and the party opposing arbitration incurred most of
documents and communications that show what amount would its discovery expenses in obtaining discovery rather than
have constituted 'equivalent value' with respect to the settlement providing it. Id.
of the New York Lawsuit" and "all documents (if any) in which
Whitman Insurance Company . . . is identified, as an entity and/or Like the parties moving to compel arbitration in Vesta, Cooper
a party [*31] that is entitled to indemnification . . . pursuant to the did not oppose arbitration at any time during the case. In addition,
terms of the SPA." Appellees declare that they have produced although the parties had engaged in some merits discovery, this
more than 21,000 documents, and argue that Cooper is trying to case was not on the eve of trial when Cooper filed its motion to
have it both ways by moving to compel arbitration only after compel arbitration in May 2014—approximately four months
16
receiving extensive discovery responses. The affidavit of after Whitman joined the case as [*33] a plaintiff. The record
appellees' counsel states that, "[t]o date, [appellees'] attorneys and shows that during the first ten months of the case, from December
staff have spent over 9,000 hours working on the lawsuit and 2011 to October 2012, the parties were engaged in settlement
negotiations and Metro sought to extend trial deadlines for

15See also G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 514 (Tex. 2015) (collecting cases in which "we have declined to find
waiver even when the movant itself propounded written discovery").
16 Although appellees point to evidence (summarized above) that substantial merits discovery had occurred, the record also contains indications that
the situation was not like that in Perry Homes, in which most discovery had been completed. According to a filing by appellees in [*34] February
2014, no "meaningful merits discovery" had yet been received from Cooper given the litigation over jurisdictional issues. In April 2014, appellees
moved to modify the docket control order, stating that the parties had been "prevented . . . from being able to engage in meaningful document
discovery on the merits until recently," and that "no fact-witness depositions have been taken on the merits as of this date."

EDWARD HUBBARD
 Page 13 of 14
2015 Tex. App. LEXIS 8882, *33
that reason.17 Much of the second year was spent on venue by itself is insufficient to waive the right to arbitrate. See In re
motions, jurisdictional motions, and mediation, which failed in Serv. Corp. Int'l, 85 S.W.3d at 174; see also [*36] Granite, 130
November 2013. HN18 Settlement negotiations and mediation do S.W.3d at 367 ("Length of delay alone is not a basis for inferring
not substantially invoke the judicial process, nor are they waiver.").
inconsistent with a desire to arbitrate. See Tex. Residential Mortg.,
L.P. v. Portman, 152 S.W.3d 861, 863-64 (Tex. App.—Dallas Cooper is in court because appellees sued it, and Cooper did not
2005, no pet.). Likewise, venue and jurisdictional motions do not seek disposition on the merits. See G.T. Leach Builders, LLC v.
constitute substantial invocation of the judicial process because Sapphire V.P., LP, 458 S.W.3d 502, 512-13 (Tex. 2015) (noting
they do not relate to the merits of the case. See Granite, 130 similar factors in holding right to arbitrate had not been waived).
S.W.3d at 367; Deep Water Slender Wells, Ltd. v. Shell Intern. Appellees have not shown that Cooper obtained discovery it
Exploration & Prod., Inc., 234 S.W.3d 679, 695 (Tex. App.— otherwise would not have obtained, and this case was not on the
Houst.[14th Dist.] 2007, pet. denied) ("A dismissal of all claims eve of trial. As for the expenses appellees incurred in prosecuting
to enforce a clause requiring litigation in another forum is a their suit, the affidavit does not delineate which costs were
determination that the merits of the claims should be determined incurred in litigating against Cooper and which costs were
elsewhere; therefore, enforcement of such a forum-selection incurred in litigating against the other named defendants. Nor
clause is a nonmerits basis for dismissal."). does it address which costs were incurred in obtaining or
responding to discovery. The costs thus likely include those
Appellees cite Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 associated with litigating the claims against the other named
S.W.3d 717 (Tex. App.—Houston [1st Dist.] 2014, pet. denied), a defendants and those associated with appellees' efforts at
case in which the First Court of Appeals held that the movant obtaining discovery from Cooper. The record does not
substantially invoked the judicial process. Appellees assert that demonstrate the extent to which appellees "pre-trial costs were . . .
this case is similar because the movant in Tuscan waited for more self-inflicted." In re Vesta, 192 S.W.3d at 763. Accordingly, we
than a year after the lawsuit was filed before seeking [*35] hold appellants have not shown that Cooper unequivocally
arbitration, did not accompany its answer with a notice to pursue waived its right to arbitration by substantially invoking the
arbitration, completed written discovery on the merits, inspected judicial process. Perry Homes, 258 S.W.3d at 593.
property at issue in the lawsuit, designated experts, and joined in a
motion to extend the discovery period and postpone trial. Id. at Having concluded that under the totality of the [*37]
722-23. circumstances, Cooper did not substantially invoke the judicial
process, we need not address whether appellees suffered
This case is distinguishable from Tuscan Builders. The party prejudice. We sustain Cooper's second and third issues and hold
seeking to compel arbitration in Tuscan Builders filed a third- the trial court erred to the extent it ruled that Cooper waived its
party action and conducted a building inspection that likely would right to arbitration of appellees' claims.
not have been available in arbitration. Id. at 723. The court
concluded that the motion to compel arbitration was "more Conclusion
consistent with a late-game tactical decision than an intent to
preserve the right to arbitrate." Id. at 722. In this case, by contrast, For these reasons, the trial court erred in denying the Cooper
Cooper did not file counterclaims, and appellees do not contend appellants' motion to compel arbitration. We reverse the trial
that any merits discovery obtained would not have been available court's order denying the motion, render judgment ordering
in arbitration. Appellees also "do[] not allege that the discovery arbitration of appellees' claims against the Cooper defendants who
already conducted would not be useful in arbitration." In re Vesta, are parties to this appeal, and remand this case to the trial court for
192 S.W.3d at 763; see also Granite, 130 S.W.3d at 367 (HN19 further proceedings consistent with this opinion, including the
"Propounding discovery will not, in and of itself, result in waiver grant of an appropriate stay. See Tex. Civ. Prac. & Rem. Code
of the right to compel arbitration"). Cooper's twenty-eight-month Ann. § 171.025(a) (West 2011).
delay is but one factor, which
/s/ J. Brett Busby

17 Metro filed its original petition on December 30, 2011. On October 31, 2012, Metro filed an unopposed motion to modify the scheduling order and
request for Rule 166 Conference. Metro asserted that the "parties have been engaged in extensive settlement negotiations in an effort to resolve this
case. Because the parties' efforts have been focused on resolving the matter short of litigating the issue, the parties request an extension and
modification of this Court's docket control order."

EDWARD HUBBARD
 Page 14 of 14
2015 Tex. App. LEXIS 8882, *37

Justice

EDWARD HUBBARD
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...

KeyCite Yellow Flag - Negative Treatment West Headnotes (9)

Declined to Extend by 24th Senatorial Dist. Republican Committee v. 
Alcorn, 4th Cir.(Va.), April 19, 2016
136 S.Ct. 463 [1] Courts
Supreme Court of the United States Decisions of United States Courts as
Authority in State Courts
DIRECTV, INC., Petitioner States
v. Federal Supremacy; Preemption
Amy IMBURGIA et al. Lower court judges are free to note their
disagreement with a decision of the Supreme
No. 14–462.
Court, but the Supremacy Clause forbids state
|
courts to dissociate themselves from federal
Argued Oct. 6, 2015.
law because of disagreement with its content
|
or a refusal to recognize the superior authority
Decided Dec. 14, 2015.
of its source. U.S.C.A. Const. Art. 6, cl. 2.
Synopsis
3 Cases that cite this headnote
Background: Consumer brought action against satellite
television service provider, seeking damages for early
termination fees that allegedly violated California law. [2] Alternative Dispute Resolution
The Superior Court, Los Angeles County, No. BC398295, Preemption
John Shepard Wiley, Jr., J., denied provider's motion States
to compel arbitration, and provider appealed. The Particular cases, preemption or
California Court of Appeal, Rothschild, Acting P.J., 225 supersession
Cal.App.4th 338, 170 Cal.Rptr.3d 190, affirmed, and Federal Arbitration Act is a law of the United
certiorari was granted. States; consequently, the judges of every State
must follow it. U.S.C.A. Const. Art. 6, cl. 2; 9
U.S.C.A. § 1 et seq.
[Holding:] The Supreme Court, Justice Breyer, held that
5 Cases that cite this headnote
under arbitration clause in parties' contract, providing
that it was invalid if “law of your state” made its class
arbitration waiver unenforceable, “law of your state” did [3] Alternative Dispute Resolution
not include California law invalidating class arbitration Validity
waivers that was valid at time the contract was entered Alternative Dispute Resolution
into, but was later ruled preempted by the Federal Choice of law
Arbitration Act.
The Federal Arbitration Act allows parties to
an arbitration contract considerable latitude
Reversed and remanded. to choose what law governs some or all of
its provisions, including the law governing
Justice Thomas filed a dissenting opinion. enforceability of a class-arbitration waiver. 9
U.S.C.A. § 1 et seq.
Justice Ginsburg filed a dissenting opinion in which
17 Cases that cite this headnote
Justice Sotomayor joined.

[4] Federal Courts

Review of State Courts

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
Interpretation of a contract is ordinarily a
matter of state law to which the Supreme
Court defers.
3 Cases that cite this headnote
[5] Courts
Decisions of United States Courts as
Authority in State Courts
California courts are the ultimate authority on
California law.
1 Cases that cite this headnote
[6] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
Under arbitration clause in contract between
consumer and satellite television service
provider, providing that it was invalid if
“law of your state” made its class arbitration
waiver unenforceable, “law of your state” did
not include California law invalidating class
arbitration waivers that was valid at time
the contract was entered into, but was later
ruled preempted by the Federal Arbitration
Act; interpreting the provision as applying
to invalid state law did not place arbitration
contracts on equal footing with all other
contracts or give due regard to federal policy
favoring arbitration. 9 U.S.C.A. § 2.
23 Cases that cite this headnote
[7] Contracts
Existing law as part of contract
Under general California contract principles,
references in a contract to California law
incorporate the California Legislature's power
to change the law retroactively.
1 Cases that cite this headnote
[8] Statutes
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Judicial construction; role, authority,
and duty of courts
Judicial construction of a statute ordinarily
applies retroactively.
Cases that cite this headnote
[9] Contracts
Construction against party using words
The reach of the canon construing contract
language against the drafter must have limits,
no matter who the drafter was.
Cases that cite this headnote
West Codenotes
Recognized as Preempted
West's Ann.Cal.Civ.Code §§ 1751, 1781(a)
*464 Syllabus *
Petitioner DIRECTV, Inc., and its customers entered
into a service agreement that included a binding
arbitration provision with a class-arbitration waiver.
It specified that the entire arbitration provision was
unenforceable if the “law of your state” made class-
arbitration waivers unenforceable. The agreement also
declared that the arbitration clause was governed by the
Federal Arbitration Act. At the time that respondents,
California residents, entered into that agreement with
DIRECTV, California law made class-arbitration waivers
unenforceable, see Discover Bank v. Superior Court, 36
Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100. This Court
subsequently held in AT & T Mobility LLC v. Concepcion,
563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742, however,
that California's Discover Bank rule was pre-empted by the
Federal Arbitration Act, 9 U.S.C. § 2.
When respondents sued petitioner, the trial court denied
DIRECTV's request to order the matter to arbitration,
and the California Court of Appeal affirmed. The court
thought that California law would render class-arbitration
waivers unenforceable, so it held the entire arbitration
provision was unenforceable under the agreement. The
fact that the Federal Arbitration Act pre-empted that
California law did not change the result, the court said,
2
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
because the parties were free to refer in the contract to
California law as it would have been absent federal pre-
emption. The court reasoned that the phrase “law of your
state” was both a specific provision that should govern
more general provisions and an ambiguous provision that
should be construed against the drafter. Therefore, the
court held, the parties had in fact included California law
as it would have been without federal pre-emption.
Held : Because the California Court of Appeal's
interpretation is pre-empted by the Federal Arbitration
Act, that court must enforce the arbitration agreement.
Pp. 467 – 471.
(a) No one denies that lower courts must follow
Concepcion, but that elementary point of law does not
resolve the case because the parties are free to choose
the law governing an arbitration provision, including
California law as it would have been if not pre-empted.
The state court interpreted the contract to mean that
the parties did so, and the interpretation of a contract
is ordinarily a matter of state law to which this Court
defers, Volt Information Sciences, Inc. v. Board of Trustees
of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109
S.Ct. 1248, 103 L.Ed.2d 488. The issue here is not whether
the court's decision is a correct statement of California
law but whether it is consistent with *465 the Federal
Arbitration Act. Pp. 467 – 468.
(b) The California court's interpretation does not place
arbitration contracts “on equal footing with all other
contracts,” Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038, because
California courts would not interpret contracts other than
arbitration contracts the same way. Several considerations
lead to this conclusion.
First, the phrase “law of your state” is not ambiguous
and takes its ordinary meaning: valid state law.
Second, California case law—that under “general contract
principles,” references to California law incorporate
the California Legislature's power to change the law
retroactively, Doe v. Harris, 57 Cal.4th 64, 69–70, 158
Cal.Rptr.3d 290, 302 P.3d 598, 601–602—clarifies any
doubt about how to interpret it. Third, because the court
nowhere suggests that California courts would reach the
same interpretation in any other context, its conclusion
appears to reflect the subject matter, rather than a general
principle that would include state statutes invalidated by
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
other federal law. Fourth, the language the court uses
to frame the issue focuses only on arbitration. Fifth, the
view that state law retains independent force after being
authoritatively invalidated is one courts are unlikely to
apply in other contexts. Sixth, none of the principles of
contract interpretation relied on by the California court
suggests that other California courts would reach the same
interpretation elsewhere. The court applied the canon that
contracts are construed against the drafter, but the lack of
any similar case interpreting similar language to include
invalid laws indicates that the antidrafter canon would
not lead California courts to reach a similar conclusion in
cases not involving arbitration. Pp. 468 – 471.
225 Cal.App. 4th 338, 170 Cal.Rptr.3d 190, reversed and
remanded.
BREYER, J., delivered the opinion of the Court, in which
ROBERTS, C.J., and SCALIA, KENNEDY, ALITO,
and KAGAN, JJ., joined. THOMAS, J., filed a dissenting
opinion. GINSBURG, J., filed a dissenting opinion, in
which SOTOMAYOR, J., joined.
Attorneys and Law Firms
Christopher Landau, Washington, DC, for Petitioner.
Thomas C. Goldstein, Bethesda, MD, for Respondents.
Melissa D. Ingalls, Robyn E. Bladow, Shaun Paisley,
Kirkland & Ellis LLP, Los Angeles, CA, Christopher
Landau, P.C. Kirkland & Ellis LLP, Washington, DC, for
Petitioner.
F. Edie Mermelstein, Law Offices of F. Edie Mermelstein,
Huntington Beach, CA, Paul D. Stevens, Milstein
Adelman, LLP, Santa Monica, CA, Ingrid Maria
Evans, Evans Law Firm, Inc., San Francisco, CA,
Thomas C. Goldstein, Counsel of Record, Goldstein &
Russell, P.C., Bethesda, MD, Harvey Rosenfield, Pamela
Pressley, Consumer Watchdog, Santa Monica, CA, for
Respondents.
Opinion
Justice BREYER delivered the opinion of the Court.
The Federal Arbitration Act states that a “written
provision” in a contract providing for “settle[ment] by
arbitration” of “a controversy ... arising out of” that
3
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
“contract ... shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for
the revocation *466 of any contract.” 9 U.S.C. § 2.
We here consider a California court's refusal to enforce
an arbitration provision in a contract. In our view, that
decision does not rest “upon such grounds as exist ... for
the revocation of any contract,” and we consequently set
that judgment aside.
I
DIRECTV, Inc., the petitioner, entered into a service
agreement with its customers, including respondents Amy
Imburgia and Kathy Greiner. Section 9 of that contract
provides that “any Claim either of us asserts will be
resolved only by binding arbitration.” App. 128. It
then sets forth a waiver of class arbitration, stating
that “[n]either you nor we shall be entitled to join or
consolidate claims in arbitration.” Id., at 128–129. It
adds that if the “law of your state” makes the waiver of
class arbitration unenforceable, then the entire arbitration
provision “is unenforceable.” Id., at 129. Section 10 of the
contract states that § 9, the arbitration provision, “shall be
governed by the Federal Arbitration Act.” Ibid.
In 2008, the two respondents brought this lawsuit
against DIRECTV in a California state court. They
seek damages for early termination fees that they believe
violate California law. After various proceedings not
here relevant, DIRECTV, pointing to the arbitration
provision, asked the court to send the matter to
arbitration. The state trial court denied that request, and
DIRECTV appealed.
The California Court of Appeal thought that the critical
legal question concerned the meaning of the contractual
phrase “law of your state,” in this case the law of
California. Does the law of California make the contract's
class-arbitration waiver unenforceable? If so, as the
contract provides, the entire arbitration provision is
unenforceable. Or does California law permit the parties
to agree to waive the right to proceed as a class in
arbitration? If so, the arbitration provision is enforceable.
At one point, the law of California would have made
the contract's class-arbitration waiver unenforceable. In
2005, the California Supreme Court held in Discover
Bank v. Superior Court, 36 Cal.4th 148, 162–163, 30
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Cal.Rptr.3d 76, 113 P.3d 1100, 1110, that a “waiver” of
class arbitration in a “consumer contract of adhesion”
that “predictably involve[s] small amounts of damages”
and meets certain other criteria not contested here is
“unconscionable under California law and should not be
enforced.” See Cohen v. DirecTV, Inc., 142 Cal.App.4th
1442, 1446–1447, 48 Cal.Rptr.3d 813, 815–816 (2006)
(holding a class-action waiver similar to the one at issue
here unenforceable pursuant to Discover Bank ); see also
Consumers Legal Remedies Act, Cal. Civ.Code Ann.
§§ 1751, 1781(a) (West 2009) (invalidating class-action
waivers for claims brought under that statute). But in
2011, this Court held that California's Discover Bank
rule “ ‘stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress' ”
embodied in the Federal Arbitration Act. AT & T Mobility
LLC v. Concepcion, 563 U.S. 333, 352, 131 S.Ct. 1740, 179
L.Ed.2d 742 (2011) (quoting Hines v. Davidowitz, 312 U.S.
52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)); see Sanchez v.
Valencia Holding Co., LLC, 61 Cal.4th 899, 923–924, 190
Cal.Rptr.3d 812, 353 P.3d 741, 757 (2015) (holding that
Concepcion applies to the Consumers Legal Remedies Act
to the extent that it would have the same effect as Discover
Bank ). The Federal Arbitration Act therefore pre-empts
and invalidates that rule. 563 U.S., at 352, 131 S.Ct. 1740;
see U.S. Const., Art. VI, cl. 2.
*467 The California Court of Appeal subsequently
held in this case that, despite this Court's holding
in Concepcion, “the law of California would find the
class action waiver unenforceable.” 225 Cal.App.4th 338,
342, 170 Cal.Rptr.3d 190, 194 (2014). The court noted
that Discover Bank had held agreements to dispense
with class-arbitration procedures unenforceable under
circumstances such as these. 225 Cal.App.4th, at 341,
170 Cal.Rptr.3d, at 194. It conceded that this Court in
Concepcion had held that the Federal Arbitration Act
invalidated California's rule. 225 Cal.App.4th, at 341, 170
Cal.Rptr.3d, at 194. But it then concluded that this latter
circumstance did not change the result—that the “class
action waiver is unenforceable under California law.” Id.,
at 347, 170 Cal.Rptr.3d, at 198.
In reaching that conclusion, the Court of Appeal referred
to two sections of California's Consumers Legal Remedies
Act, §§ 1751, 1781(a), rather than Discover Bank itself.
See 225 Cal.App.4th, at 344, 170 Cal.Rptr.3d, at 195.
Section 1751 renders invalid any waiver of the right
under § 1781(a) to bring a class action for violations of
4
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
that Act. The Court of Appeal thought that applying
“state law alone” (that is, those two sections) would
render unenforceable the class-arbitration waiver in § 9
of the contract. Id., at 344, 170 Cal.Rptr.3d, at 195. But
it nonetheless recognized that if it applied federal law
“then the class action waiver is enforceable and any state
law to the contrary is preempted.” Ibid. As far as those
sections apply to class-arbitration waivers, they embody
the Discover Bank rule. The California Supreme Court has
recognized as much, see Sanchez, supra, at 923–924, 190
Cal.Rptr.3d 812, 353 P.3d, at 757, and no party argues
to the contrary. See Supp. Brief for Respondents 2 (“The
ruling in Sanchez tracks respondents' position precisely”).
We shall consequently refer to the here-relevant rule as the
Discover Bank rule.
The court reasoned that just as the parties were free in their
contract to refer to the laws of different States or different
nations, so too were they free to refer to California law as it
would have been without this Court's holding invalidating
the Discover Bank rule. The court thought that the parties
in their contract had done just that. And it set forth two
reasons for believing so.
First, § 10 of the contract, stating that the Federal
Arbitration Act governs § 9 (the arbitration provision), is
a general provision. But the provision voiding arbitration
if the “law of your state” would find the class-arbitration
waiver unenforceable is a specific provision. The court
believed that the specific provision “ ‘is paramount to’ ”
and must govern the general. 225 Cal.App.4th, at 344, 170
Cal.Rptr.3d, at 195 (quoting Prouty v. Gores Technology
Group, 121 Cal.App.4th 1225, 1235, 18 Cal.Rptr.3d 178,
185–186 (2004); brackets omitted).
Second, the court said that “ ‘a court should construe
ambiguous language against the interest of the party that
drafted it.’ ” 225 Cal.App.4th, at 345, 170 Cal.Rptr.3d,
at 196 (quoting Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 62, 115 S.Ct. 1212, 131 L.Ed.2d
76 (1995)). DIRECTV had drafted the language; to
void the arbitration provision was against its interest.
Hence the arbitration provision was void. The Court of
Appeal consequently affirmed the trial court's denial of
DIRECTV's motion to enforce the arbitration provision.
The California Supreme Court denied discretionary
review. App. to Pet. for Cert. 1a. DIRECTV then filed
a petition for a writ of certiorari, noting that the Ninth
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Circuit had reached the opposite *468 conclusion on
precisely the same interpretive question decided by the
California Court of Appeal. Murphy v. DirecTV, Inc., 724
F.3d 1218, 1226–1228 (2013). We granted the petition.
II
[1] [2] No one denies that lower courts must follow this
Court's holding in Concepcion. The fact that Concepcion
was a closely divided case, resulting in a decision from
which four Justices dissented, has no bearing on that
undisputed obligation. Lower court judges are certainly
free to note their disagreement with a decision of this
Court. But the “Supremacy Clause forbids state courts
to dissociate themselves from federal law because of
disagreement with its content or a refusal to recognize the
superior authority of its source.” Howlett v. Rose, 496 U.S.
356, 371, 110 S.Ct. 2430, 110 L.Ed.2d 332 (1990); cf. Khan
v. State Oil Co., 93 F.3d 1358, 1363–1364 (C.A.7 1996),
vacated, 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997).
The Federal Arbitration Act is a law of the United States,
and Concepcion is an authoritative interpretation of that
Act. Consequently, the judges of every State must follow
it. U.S. Const., Art. VI, cl. 2 (“[T]he Judges in every State
shall be bound” by “the Laws of the United States”).
[3] [4] While all accept this elementary point of law, that
point does not resolve the issue in this case. As the Court of
Appeal noted, the Federal Arbitration Act allows parties
to an arbitration contract considerable latitude to choose
what law governs some or all of its provisions, including
the law governing enforceability of a class-arbitration
waiver. 225 Cal.App.4th, at 342–343, 170 Cal.Rptr.3d,
at 194. In principle, they might choose to have portions
of their contract governed by the law of Tibet, the law
of pre-revolutionary Russia, or (as is relevant here) the
law of California including the Discover Bank rule and
irrespective of that rule's invalidation in Concepcion. The
Court of Appeal decided that, as a matter of contract law,
the parties did mean the phrase “law of your state” to
refer to this last possibility. Since the interpretation of a
contract is ordinarily a matter of state law to which we
defer, Volt Information Sciences, Inc. v. Board of Trustees
of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109
S.Ct. 1248, 103 L.Ed.2d 488 (1989), we must decide not
whether its decision is a correct statement of California
law but whether (assuming it is) that state law is consistent
with the Federal Arbitration Act.
5
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...

Indeed, neither the parties nor the dissent refer us to any

contract case from California or from any other State
that interprets similar language to refer to state laws
III
authoritatively held to be invalid. While we recognize that
[5] [6] Although we may doubt that the Court of Appeal the dissent believes this phrase to be “ambiguous,” post,
has correctly interpreted California law, we recognize at 474 – 475, 475 – 476, or “anomalous,” post, at 476, we
that California courts are the ultimate authority on that cannot agree with that characterization.
law. While recognizing this, we must decide whether
the decision of the California court places arbitration [7] [8] Second, California case law itself clarifies any
contracts “on equal footing with all other contracts.” doubt about how to interpret the language. The California
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, Supreme Court has held that under “general contract
443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). And in principles,” references to California law incorporate
doing so, we must examine whether the Court of Appeal's the California Legislature's power to change the law
decision in fact rests upon “grounds as exist at law or in retroactively. See Doe v. Harris, 57 Cal.4th 64, 69–70, 158
equity for the revocation of any contract.” 9 U.S.C. § 2. Cal.Rptr.3d 290, 302 P.3d 598, 601–602 (2013) (holding
That is to say, we look not to grounds that the California that plea agreements, which are governed by general
court might have offered but rather to those it did in fact contract principles, are “ ‘ “deemed to incorporate and
offer. Neither this approach nor our result “steps beyond contemplate not only the existing law but the reserve
Concepcion ” or any other aspect of federal arbitration power of the state to amend the law or enact additional
law. See post, at 475 – 476 (GINSBURG, J., dissenting) laws” ’ ” (quoting People v. Gipson, 117 Cal.App.4th
(hereinafter the dissent). 1065, 1070, 12 Cal.Rptr.3d 478, 481 (2004))). And judicial
construction of a statute ordinarily applies retroactively.
We recognize, as the dissent points out, post, at 473, that Rivers v. Roadway Express, Inc., 511 U.S. 298, 312–313,
when DIRECTV drafted the contract, the parties likely 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994). As far as we
believed *469 that the words “law of your state” included are aware, the principle of California law announced in
California law that then made class-arbitration waivers Harris, not the Court of Appeal's decision here, would
unenforceable. But that does not answer the legal question ordinarily govern the scope of phrases such as “law of your
before us. That is because this Court subsequently held in state.”
Concepcion that the Discover Bank rule was invalid. Thus
the underlying question of contract law at the time the Third, nothing in the Court of Appeal's reasoning
Court of Appeal made its decision was whether the “law of suggests that a California court would reach the same
your state” included invalid California law. We must now interpretation of “law of your state” in any context other
decide whether answering that question in the affirmative than arbitration. The Court of Appeal did not explain
is consistent with the Federal Arbitration Act. After why parties might generally intend the words “law of
examining the grounds upon which the Court of Appeal your state” to encompass “invalid law of your state.”
rested its decision, we conclude that California courts To the contrary, the contract refers to “state law” that
would not interpret contracts other than arbitration makes the waiver of class arbitration “unenforceable,”
contracts the same way. Rather, several considerations while an invalid state law would not make a contractual
lead us to conclude that the court's interpretation of this provision unenforceable. Assuming—as we must—that
arbitration contract is unique, restricted to that field. the court's reasoning is a correct statement as to the
meaning of “law of your state” in this arbitration
First, we do not believe that the relevant contract language provision, we can find nothing in that opinion (nor
is ambiguous. The contract says that “[i]f ... the law in any other California case) suggesting that California
of your state would find this agreement to dispense would generally interpret words such as “law of your
with class arbitration procedures unenforceable, then this state” to include state laws held invalid because they
entire Section 9 [the arbitration section] is unenforceable.” conflict with, say, federal labor statutes, federal pension
App. 129. Absent any indication in the contract that statutes, federal antidiscrimination *470 laws, the Equal
this language is meant to refer to invalid state law, it Protection Clause, or the like. Even given our assumption
presumably takes its ordinary meaning: valid state law. that the Court of Appeal's conclusion is correct, its

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DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
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conclusion appears to reflect the subject matter at issue
here (arbitration), rather than a general principle that
would apply to contracts using similar language but
involving state statutes invalidated by other federal law.
Fourth, the language used by the Court of Appeal focused
only on arbitration. The court asked whether “law of your
state” “mean[s] ‘the law of your state to the extent it is not
preempted by the [Federal Arbitration Act],’ or ‘the law
of your state without considering the preemptive effect, if
any of the [Federal Arbitration Act].’ ” 225 Cal.App.4th,
at 344, 170 Cal.Rptr.3d, at 195. Framing the question
in such terms, rather than in generally applicable terms,
suggests that the Court of Appeal could well have meant
that its holding was limited to the specific subject matter
of this contract—arbitration.
Fifth, the Court of Appeal reasoned that invalid
state arbitration law, namely the Discover Bank rule,
maintained legal force despite this Court's holding in
Concepcion. The court stated that “[i]f we apply state
law alone ... to the class action waiver, then the
waiver is unenforceable.” 225 Cal.App.4th, at 344, 170
Cal.Rptr.3d, at 195. And at the end of its opinion it
reiterated that “[t]he class action waiver is unenforceable
under California law, so the entire arbitration agreement
is unenforceable.” Id., at 347, 170 Cal.Rptr.3d, at 198.
But those statements do not describe California law. See
Concepcion, 563 U.S., at 344, 352, 131 S.Ct. 1740; Sanchez,
61 Cal.4th, at 923–924, 190 Cal.Rptr.3d 812, 353 P.3d, at
757. The view that state law retains independent force even
after it has been authoritatively invalidated by this Court
is one courts are unlikely to accept as a general matter and
to apply in other contexts.
Sixth, there is no other principle invoked by the Court
of Appeal that suggests that California courts would
reach the same interpretation of the words “law of
your state” in other contexts. The court said that the
phrase “law of your state” constitutes “ ‘a specific
exception ’ ” to the agreement's “ ‘general adoption of
the [Federal Arbitration Act].’ ” 225 Cal.App.4th, at
344, 170 Cal.Rptr.3d, at 195. But that tells us nothing
about how to interpret the words “law of your state”
elsewhere. It does not answer the relevant question:
whether those words encompass laws that have been
authoritatively held invalid. Cf. Prouty, 121 Cal.App.4th,
at 1235, 18 Cal.Rptr.3d, at 185–186 (specific words govern
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
only “when a general and a particular provision are
inconsistent”).
[9] The court added that it would interpret “ ‘ambiguous
language against the interest of the party that drafted
it,’ ” namely DIRECTV. 225 Cal.App.4th, at 345, 170
Cal.Rptr.3d, at 196 (quoting Mastrobuono, 514 U.S., at
62, 115 S.Ct. 1212). The dissent adopts a similar argument.
See post, at 474 – 476. But, as we have pointed out,
supra, at 469 – 470, were the phrase “law of your state”
ambiguous, surely some court would have construed that
term to incorporate state laws invalidated by, for example,
federal labor law, federal pension law, or federal civil
rights law. Yet, we have found no such case. Moreover, the
reach of the canon construing contract language against
the drafter must have limits, no matter who the drafter
was. The fact that we can find no similar case interpreting
the words “law of your state” to include invalid state laws
indicates, at the least, that the antidrafter canon would not
lead California courts to *471 reach a similar conclusion
in similar cases that do not involve arbitration.
***
Taking these considerations together, we reach a
conclusion that, in our view, falls well within the confines
of (and goes no further than) present well-established
law. California's interpretation of the phrase “law of your
state” does not place arbitration contracts “on equal
footing with all other contracts,” Buckeye Check Cashing,
Inc., 546 U.S., at 443, 126 S.Ct. 1204. For that reason, it
does not give “due regard ... to the federal policy favoring
arbitration.” Volt Information Sciences, 489 U.S., at 476,
109 S.Ct. 1248. Thus, the Court of Appeal's interpretation
is pre-empted by the Federal Arbitration Act. See Perry
v. Thomas, 482 U.S. 483, 493, n. 9, 107 S.Ct. 2520, 96
L.Ed.2d 426 (1987) (noting that the Federal Arbitration
Act pre-empts decisions that take their “meaning precisely
from the fact that a contract to arbitrate is at issue”).
Hence, the California Court of Appeal must “enforc[e]”
the arbitration agreement. 9 U.S.C. § 2.
The judgment of the California Court of Appeal is
reversed, and the case is remanded for further proceedings
not inconsistent with this opinion.
It is so ordered.
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DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
Justice THOMAS, dissenting.
I remain of the view that the Federal Arbitration Act
(FAA), 9 U.S.C. § 1 et seq., does not apply to proceedings
in state courts. See Allied–Bruce Terminix Cos. v. Dobson,
513 U.S. 265, 285–297, 115 S.Ct. 834, 130 L.Ed.2d 753
(1995) (dissenting opinion); see also Preston v. Ferrer, 552
U.S. 346, 363, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008)
(same); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 449, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (same);
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 460,
123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (same); Doctor's
Associates, Inc. v. Casarotto, 517 U.S. 681, 689, 116 S.Ct.
1652, 134 L.Ed.2d 902 (1996) (same). Thus, the FAA does
not require state courts to order arbitration. Accordingly,
I would affirm the judgment of the California Court of
Appeal.
Justice GINSBURG, with whom Justice SOTOMAYOR
joins, dissenting.
It has become routine, in a large part due to this Court's
decisions, for powerful economic enterprises to write into
their form contracts with consumers and employees no-
class-action arbitration clauses. The form contract in this
case contains a Delphic provision stating that “if the
law of your state” does not permit agreements barring
class arbitration, then the entire agreement to arbitrate
becomes unenforceable, freeing the aggrieved customer to
commence class-based litigation in court. This Court reads
that provision in a manner most protective of the drafting
enterprise. I would read it, as the California court did, to
give the customer, not the drafter, the benefit of the doubt.
Acknowledging the precedent so far set by the Court, I
would take no further step to disarm consumers, leaving
them without effective access to justice.
I extent it is not preempted by the FAA,’ or ‘the law of your
This case began as a putative class action in state
court claiming that DIRECTV, by imposing hefty early-
termination fees, violated California consumer-protective
legislation, including the Consumers Legal Remedies
Act (CLRA), Cal. Civ.Code Ann. § 1750 et seq. (West
2015). App. 58. DIRECTV did not initially seek to
stop the lawsuit and compel bilateral arbitration. See
id., at 52–53. The reason for DIRECTV's failure to
oppose the litigation is no mystery. The version of
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
DIRECTV's *472 service agreement applicable in this
case (the 2007 version) requires consumers to arbitrate all
disputes and to forgo class arbitration. Id., at 128–129.
If the relevant provision stopped there, the Court's recent
precedent, see American Express Co. v. Italian Colors
Restaurant, 570 U.S. ––––, 133 S.Ct. 2304, 186 L.Ed.2d
417 (2013); AT & T Mobility LLC v. Concepcion, 563
U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), would
control, and DIRECTV could have resisted the lawsuit.
But DIRECTV's form contract continued: The entire
arbitration clause is unenforceable “[i]f ... the law of your
state would find” unenforceable the agreement's class-
arbitration prohibition. App. 129. At the time plaintiff-
respondents Imburgia and Greiner commenced their court
action, class-arbitration bars like the one in DIRECTV's
agreement were per se unenforceable as unconscionable
under the law of California. See Discover Bank v. Superior
Court, 36 Cal.4th 148, 162–163, 30 Cal.Rptr.3d 76, 113
P.3d 1100, 1110 (2005).
Nearly three years into the litigation, this Court held
in Concepcion, 563 U.S., at 338–351, 131 S.Ct. 1740,
that the Federal Arbitration Act (FAA), 9 U.S.C. § 1
et seq., preempts state rules that render class-arbitration
bans unenforceable. DIRECTV then moved to halt the
long-pending lawsuit and compel bilateral arbitration.
App. to Pet. for Cert. 4a. The California Superior Court
denied DIRECTV's motion, No. BC398295 (Super. Ct.
Los Angeles Cty., Cal., Jan. 26, 2012), App. to Pet.
for Cert. 17a–20a, and the California Court of Appeal
affirmed. The Court of Appeal first observed that, under
the California law DIRECTV confronted when it drafted
the clause in question, provisions relinquishing the right
to proceed under the CLRA on behalf of a class would not
be enforced. 225 Cal.App.4th 338, 342, 170 Cal.Rptr.3d
190, 194 (2014). The question dispositive of DIRECTV's
motion, the California court explained, trains on the
meaning of the atypical contractual phrase “the law of
your state”: “does it mean ‘the law of your state to the
state without considering the preemptive effect, if any, of
the FAA’?” Id., at 344, 170 Cal.Rptr.3d, at 195.
In resolving this question, the California court emphasized
that DIRECTV drafted the service agreement, giving its
customers no say in the matter, and reserving to itself the
right to modify the agreement unilaterally at any time.
Id., at 345, 170 Cal.Rptr.3d, at 196. See also Brief for
Respondents 1–2. DIRECTV used the same take-it-or-
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DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...
leave-it contract everywhere it did business. Ibid. “[T]o
protect the party who did not choose the language from an
unintended or unfair result,” the California court applied
“the common-law rule of contract interpretation that a
court should construe ambiguous language against the
interest of the party that drafted it.” 225 Cal.App.4th,
at 345, 170 Cal.Rptr.3d, at 196 (quoting Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62–63,
115 S.Ct. 1212, 131 L.Ed.2d 76 (1995)). That rule was
particularly appropriate in this case, the court reasoned,
for, “as a practical matter, it seems unlikely that plaintiffs
anticipated in 2007 that the Supreme Court would hold in
2011 that the FAA preempts” state-law protection against
compelled class-arbitration waivers. 225 Cal.App.4th, at
345, 170 Cal.Rptr.3d, at 196 (internal quotation marks
omitted).
II
The Court today holds that the California Court of
Appeal interpreted the language in DIRECTV's service
agreement so unreasonably as to suggest discrimination
against arbitration in violation of the *473 FAA. Ante, at
469 – 470. As I see it, the California court's interpretation
of the “law of your state” provision is not only reasonable,
it is entirely right.
Arbitration is a matter of “consent, not coercion.” Stolt–
Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662,
681, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (internal
quotation marks omitted). The FAA “requires courts to
enforce privately negotiated agreements to arbitrate, like
other contracts, in accordance with their terms.” Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248,
103 L.Ed.2d 488 (1989). “[T]he interpretation of private
contracts is ordinarily a question of state law, which
this Court does not sit to review.” Id., at 474, 109 S.Ct.
1248. See also First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985
(1995) (when interpreting arbitration agreements, courts
“should apply ordinary state-law principles that govern
the formation of contracts”). Historically, this Court
has respected state-court interpretations of arbitration
agreements. See Mastrobuono, 514 U.S., at 60, n. 4, 115
S.Ct. 1212; Volt Information Sciences, 489 U.S., at 484, 109
S.Ct. 1248. Indeed, in the more than 25 years between Volt
Information Sciences and this case, not once has this Court
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
reversed a state-court decision on the ground that the state
court misapplied state contract law when it determined the
meaning of a term in a particular arbitration agreement.
Today's decision is a dangerous first.
Beyond genuine debate, DIRECTV originally meant the
“law of your state” clause to refer to its customer's home
state law untouched by federal preemption. As DIRECTV
explained in a state-court filing, the clause prevented
enforcement of the arbitration agreement in those States,
California among them, where the class-arbitration
proscription was unenforceable as a matter of state
law, while requiring bilateral arbitration in States that
did not outlaw purported waivers of class proceedings.
App. 52 (“The Customer Agreement between DIRECTV
and its customers provides that the customer's home
state laws will govern the relationship, and that any
disputes will be resolved in individual arbitration if the
customer's home state laws enforce the parties' arbitration
agreement.” (emphasis added)).
According to DIRECTV, because the class-arbitration
ban, post-Concepcion, is enforceable in all States, this case
must now be resolved, if at all, in bilateral arbitration. The
Court agrees. After Concepcion, the Court maintains, it
no longer matters whether DIRECTV meant California's
“home state laws” when it drafted the 2007 version of
its service agreement. But Concepcion held only that a
State cannot compel a party to engage in class arbitration
when the controlling agreement unconditionally prohibits
class procedures. See 563 U.S., at 351, 131 S.Ct. 1740
(“Arbitration is a matter of contract, and the FAA
requires courts to honor parties' expectations,” so parties
may consent to class procedures even though such
procedures “may not be required by state law.”). Just
as a contract itself may provide for class arbitration, so
the parties may choose to be bound by a particular state
law, in this case, the CLRA, even if the FAA would
otherwise displace that state law. Hall Street Associates,
L.L.C. v. Mattel, Inc., 552 U.S. 576, 586, 128 S.Ct. 1396,
170 L.Ed.2d 254 (2008) (“[T]he FAA lets parties tailor
some, even many, features of arbitration by contract,
including ... procedure and choice of substantive law.”). 1
“In principle,” the Court acknowledges, *474 parties
“might choose to have portions of their contract governed
by the law of Tibet, [or] the law of pre-revolutionary
Russia.” Ante, at 468; see Brief for Petitioner 20 (observing
that the FAA would allow parties “to bind themselves by
reference to the rules of a board game”). Pre-revolutionary
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DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
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Russian law, but not California's “home state laws”
operative and unquestionably valid in 2007? Makes little
sense to me.
Nothing in Concepcion or the FAA nullifies provisions
of the CLRA. They hold sway when parties elect judicial
resolution of their disputes, and should similarly control
when parties choose that consumer-protective law to
govern their arbitration agreements. See Volt Information
Sciences, 489 U.S., at 475, 109 S.Ct. 1248 (where parties
had “incorporat[ed] ... California rules of arbitration into
their agreement,” they had “no FAA-guaranteed right
to compel arbitration” on terms inconsistent with those
California rules). 2 Thus, even after Concepcion, one could
properly refer to the CLRA's class-waiver proscription
as “California law.” To repeat, the dispositive question
in this case is whether the parties intended the “law of
your state” provision to mean state law as preempted by
federal law, as the Court today reads the provision, or
home state law as framed by the California Legislature,
without considering the preemptive effect of federal law,
as the California court read it.
The latter reading is the better one. DIRECTV had no
occasion to refer to “the law of [its customer's] state”
had it meant to incorporate state law as preempted by
the FAA. That is, DIRECTV, like virtually every other
company with a similar service agreement, could have
employed a clause directly conditioning enforceability
of the arbitration agreement on the exclusion of class
arbitration. Indeed, DIRECTV has done just that in
service agreements both before and after 2007. App. 121
(the 2004 version provides that “[a] Court may sever any
portion of [the arbitration agreement] that it finds to
be unenforceable, except for the prohibition on class or
representative arbitration”); Brief for Respondents 35–
36 (stating that the June 2015 version of DIRECTV's
agreement provides that “[a] court may sever any
portion of [the arbitration agreement] that it finds
to be unenforceable, except for the prohibition on
[class arbitration]” (internal quotation marks omitted)).
Had DIRECTV followed this pattern in its 2007 form
contract, the arbitration agreement, post-Concepcion,
unquestionably would have been enforceable in all States.
In the 2007 version, however, DIRECTV *475 chose
a different formulation, one referring to the “law of [its
customer's] state.” I would not translate that term to be
synonymous with “federal law.” If DIRECTV meant to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
exclude the application of California legislation, it surely
chose a bizarre way to accomplish that result.
As earlier noted, see supra, at 472 – 473, and
as the California court appreciated, courts generally
construe ambiguous contractual terms against the drafter.
See Mastrobuono, 514 U.S., at 63, 115 S.Ct. 1212
(“Respondents drafted an ambiguous document, and
they cannot now claim the benefit of the doubt.”). This
“common-law rule of contract interpretation,” id., at 62,
115 S.Ct. 1212, reflects the principle that a party should
not be permitted to write an ambiguous term, lock another
party into agreeing to that term, and then reap the benefit
of the ambiguity once a dispute emerges. The rule has
particular force where, as here, a court is interpreting
a “standardized contrac[t]” that was not the product of
bilateral bargaining. Restatement (Second) of Contracts §
206, Comment a (1979).
Allowing DIRECTV to reap the benefit of an ambiguity
it could have avoided would ignore not just the hugely
unequal bargaining power of the parties, but also their
reasonable expectations at the time the contract was
formed. See Mastrobuono, 514 U.S., at 63, 115 S.Ct.
1212 (it is particularly appropriate to construe terms
against the drafter where the other party had no reason
to anticipate or intend the drafter's preferred result). See
also Trans World Airlines, Inc. v. Franklin Mint Corp.,
466 U.S. 243, 262, 104 S.Ct. 1776, 80 L.Ed.2d 273 (1984)
(“[C]ontract[s] ... are to be read in the light of the
conditions and circumstances existing at the time they
were entered into, with a view to effecting the objects and
purposes of the [parties] thereby contracting.” (quoting
Rocca v. Thompson, 223 U.S. 317, 331–332, 32 S.Ct.
207, 56 L.Ed. 453 (1912); ellipsis in original)). At
the time DIRECTV imposed this agreement on its
customers, it assumed that the arbitration clause would
be unenforceable in California. App. 52 (explaining in
state-court filing that, “[b]ecause California law would
not enforce the arbitration agreement ..., DIRECTV
has not sought and will not seek to arbitrate disputes
with California customers”). Likewise, any California
customer who read the agreement would scarcely have
understood that she had submitted to bilateral arbitration
of any and all disputes with DIRECTV. She certainly
would have had no reason to anticipate the Court's
decision in Concepcion, rendered four years later, or to
consider whether “law of your state” is a chameleon
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DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
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term meaning California legislation when she received her
service contract, but preemptive federal law later on.
DIRECTV primarily responds that the FAA requires
construction of all terms in arbitration agreements in
favor of arbitrability. True, this Court has found in
the FAA a “federal policy favoring arbitration.” Ante,
at 471 (quoting Volt Information Sciences, 489 U.S., at
476, 109 S.Ct. 1248). But the Court has also cautioned
that an arbitration-favoring presumption applies “only
where it reflects, and derives its legitimacy from, a judicial
conclusion that arbitration of a particular dispute is what
the parties intended because their express agreement to
arbitrate was validly formed[, is] legally enforceable[,] and
[is] best construed to encompass the dispute.” Granite
Rock Co. v. Teamsters, 561 U.S. 287, 303, 130 S.Ct.
2847, 177 L.Ed.2d 567 (2010). DIRECTV acknowledges
that “[t]his case ... involves a threshold dispute over the
enforceability of the parties' arbitration agreement” in its
entirety. Reply Brief 7. Like the California court, I would
resolve that dispute by employing *476 traditional rules
of contract interpretation sans any arbitration-favoring
presumption, including the rule that ambiguous language
should be construed against the drafter. See supra, at 472
– 473, 474 – 475.
III
Today's decision steps beyond Concepcion and Italian
Colors. There, as here, the Court misread the FAA to
deprive consumers of effective relief against powerful
economic entities that write no-class-action arbitration
clauses into their form contracts. In Concepcion, 563
U.S., at 336, 131 S.Ct. 1740, customers brought a class
action claiming that AT & T Mobility had improperly
charged $30.22 in sales tax while advertising cellular
telephones as free. AT & T Mobility's form consumer
contract contained a mandatory arbitration clause and a
class-arbitration proscription. Because consumers lacked
input into the contractual terms, and because few rational
consumers would go through the hassle of pursuing
a $30.22 claim in bilateral arbitration, the California
courts deemed the arbitration agreement unenforceable as
unconscionable. See id., at 365, 131 S.Ct. 1740 (BREYER,
J., dissenting) (“ ‘[T]he maximum gain to a customer
for the hassle of arbitrating a $30.22 dispute is still
just $30.22.’ ” (quoting Laster v. AT & T Mobility
LLC, 584 F.3d 849, 856 (C.A.9 2009))); Carnegie v.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Household Int'l, Inc., 376 F.3d 656, 661 (C.A.7 2004)
(“The realistic alternative to a class action is not 17
million individual suits, but zero individual suits, as
only a lunatic or a fanatic sues for $30.”), cert. denied,
543 U.S. 1051, 125 S.Ct. 877, 160 L.Ed.2d 772 (2005).
Nonetheless, the Court held that the FAA mandated
enforcement of the entire arbitration agreement, including
the class-arbitration ban. Concepcion, 563 U.S., at 343,
131 S.Ct. 1740. Two years later, in Italian Colors, 570
U.S., at ––––, 133 S.Ct., at 2310, the Court reaffirmed
that class-arbitration prohibitions are enforceable even
where claimants “have no economic incentive to pursue
their ... claims individually in arbitration.” Today, the
Court holds that consumers lack not only protection
against unambiguous class-arbitration bans in adhesion
contracts. They lack even the benefit of the doubt when
anomalous terms in such contracts reasonably could be
construed to protect their rights. 3
*477 These decisions have predictably resulted in
the deprivation of consumers' rights to seek redress
for losses, and, turning the coin, they have insulated
powerful economic interests from liability for violations of
consumer-protection laws. See N.Y. Times, Nov. 1, 2015,
p. A1, col. 5 (“By inserting individual arbitration clauses
into a soaring number of consumer and employment
contracts, companies [have] devised a way to circumvent
the courts and bar people from joining together in class-
action lawsuits, realistically the only tool citizens have
to fight illegal or deceitful business practices.”). Studies
confirm that hardly any consumers take advantage
of bilateral arbitration to pursue small-dollar claims.
Resnik, Diffusing Disputes: The Public in the Private of
Arbitration, the Private in Courts, and the Erasure of
Rights, 124 Yale L.J. 2804, 2900–2910 (2015) (Resnik,
Diffusing Disputes). Because consumers lack bargaining
power to change the terms of consumer adhesion
contracts ex ante, “[t]he providers [have] won the power
to impose a mandatory, no-opt-out system in their
own private ‘courts' designed to preclude aggregate
litigation.” Resnik, Fairness in Numbers: A Comment
on AT & T v. Concepcion, Wal–Mart v. Dukes, and
Turner v. Rogers, 125 Harv. L. Rev. 78, 133 (2011).
See also Miller, Simplified Pleading, Meaningful Days
in Court, and Trials on the Merits: Reflections on
the Deformation of Federal Procedure, 88 N.Y.U. L.
Rev. 286, 323 (2013) (“[P]owerful economic entities
can impose no-class-action-arbitration clauses on people
with little or no bargaining position—through adhesion
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contracts involving securities accounts, credit cards,
mobile phones, car rentals, and many other social
amenities and necessities.”). 4 The proliferation of take-it-
or-leave-it agreements mandating arbitration and banning
class procedures, and this Court's readiness to enforce
such one-sided agreements, have disabled consumers
from “shop[ping] to avoid arbitration mandates.” Resnik,
Diffusing Disputes 2839. See also id., at 2872 (“[T]he
numbers of clauses mandating arbitration are soaring
across many sectors.”).
The Court has suggested that these anticonsumer
outcomes flow inexorably from the text and purpose of the
FAA. But Congress passed the FAA in 1925 as a response
to the reluctance of some judges to enforce commercial
arbitration agreements between merchants with relatively
equal bargaining power. Moses, Arbitration Law: Who's
in Charge? 40 Seton Hall L. Rev. 147, 170–171 (2010).
See also id., at 170 (contract disputes between merchants
have been a proper subject of arbitration since the 1600's).
The FAA's purpose was to “make the contracting party
live up to his agreement.” H.R.Rep. No. 68–96, at 1
(1924). See also Moses, supra, at 147 (Congress sought
to “provide federal courts with procedural law that
would permit the enforcement of arbitration agreements
between merchants in diversity cases.”). Congress in 1925
could not have anticipated that the Court would apply
the FAA to render consumer adhesion *478 contracts
invulnerable to attack by parties who never meaningfully
agreed to arbitration in the first place. See Resnik,
Diffusing Disputes 2860 (“The merchants and lawyers
who forged the public law of arbitration in the United
States sought federal legislation to enforce consensual
agreements.” (emphasis added)).
Nor does the text of the FAA compel this result.
Section 2, on which the Court relied in Concepcion,
Italian Colors, and this case, prescribes simply that
arbitration provisions are to be treated the same as other
contractual terms: “[a] written provision in ... a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy ... shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.”
9 U.S.C. § 2. As Justice O'Connor observed when the
Court was just beginning to transform the FAA into what
it has become, “the Court has abandoned all pretense
of ascertaining congressional intent with respect to the
Federal Arbitration Act, building instead, case by case, an
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
edifice of its own creation.” Allied–Bruce Terminix Cos.
v. Dobson, 513 U.S. 265, 283, 115 S.Ct. 834, 130 L.Ed.2d
753 (1995) (concurring opinion). See also Miller, supra,
at 324 (“[O]ver the years the Act has been transformed
by the Supreme Court through constant expansion into
an expression of a ‘federal policy’ favoring arbitration,
whether it involves a bilateral business dispute or not.”).
The Court's ever-larger expansion of the FAA's scope
contrasts sharply with how other countries treat
mandatory arbitration clauses in consumer contracts of
adhesion. A 1993 European Union Directive forbids
binding consumers to unfair contractual terms, defined
as those “not ... individually negotiated” that “caus[e]
a significant imbalance in the parties' rights and
obligations ... to the detriment of the consumer.”
Coun. Directive 93/13, Art. 3, 1993 O.J. (L. 95) 31.
A subsequent EU Recommendation interpreted this
Directive to bar enforcement of one-party-dictated
mandatory consumer arbitration agreements. Comm'n
Recommendation 98/257, 1998 O.J. (L. 115) 34 (“The
consumer's recourse to the out-of-court procedure may
not be the result of a commitment prior to the
materialisation of the dispute, where such commitment
has the effect of depriving the consumer of his
right to bring an action before the courts for the
settlement of the dispute.”). As a result of this Directive
and Recommendation, disputes between providers and
consumers in the EU are arbitrated only when the parties
mutually agree to arbitration on a “post-dispute basis.”
Sternlight, Is the U.S. Out on a Limb? Comparing the U.S.
Approach to Mandatory Consumer and Employment
Arbitration to That of the Rest of the World, 56 U.
Miami L. Rev. 831, 847–848 (2002) (emphasis deleted); see
id., at 852 (enforcement of mandatory arbitration clauses
in consumer contracts of adhesion “is quite rare, if not
nonexistent,” outside the United States).
***
The California Court of Appeal appropriately applied
traditional tools of state contract law to interpret
DIRECTV's reference to the home state laws of its
customers. Demeaning that court's judgment through
harsh construction, this Court has again expanded
the scope of the FAA, further degrading the rights
of consumers and further insulating already powerful
economic entities from liability for unlawful acts. I resist
12
DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015)
193 L.Ed.2d 365, 84 USLW 4018, 166 Lab.Cas. P 61,659...

the Court's bent, and would affirm the judgment of the
California Court of Appeal.
All Citations
136 S.Ct. 463, 193 L.Ed.2d 365, 84 USLW 4018, 166
Lab.Cas. P 61,659, 15 Cal. Daily Op. Serv. 13,165, 2015
Daily Journal D.A.R. 13,261, 63 Communications Reg.
(P&F) 1442, 25 Fla. L. Weekly Fed. S 567

Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 FAA preemption is distinct from federal preemption in other contexts. Unlike “state laws invalidated by, for example,
federal labor law, federal pension law, or federal civil rights law,” ante, at 470, state laws are preempted by the FAA only
to the extent that they conflict with the contracting parties' intent. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514
U.S. 52, 59, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (“[I]n the absence of contractual intent to the contrary, the FAA would
pre-empt” a particular state law. (emphasis added)); Brief for Law Professors as Amicus Curiae 10 (“FAA preemption
cannot occur without reference to a particular agreement of the parties....”).
2 The Court refers to the relevant California law as the “Discover Bank rule” and suggests that, “under ‘general contract
principles,’ references to California law incorporate the California Legislature's power to change the law retroactively.”
Ante, at 469. But despite this Court's rejection of the Discover Bank rule in Concepcion, the California Legislature has
not capitulated; it has retained without change the CLRA's class-waiver prohibition. The Discover Bank rule relied on
an interpretation of the FAA, see 36 Cal.4th 148, 162–173, 30 Cal.Rptr.3d 76, 113 P.3d 1100, 1100–1117 (2005); in
contrast, the CLRA's class-waiver proscription reflects California's legislative policy judgment.
3 It has not always been this way. In Wilko v. Swan, 346 U.S. 427, 435, 438, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the
Court unanimously held that an arbitration clause in a brokerage agreement was unenforceable. The Court noted that
the Securities Act was “drafted with an eye to the disadvantages under which buyers labor” when negotiating brokerage
agreements, id., at 435, 74 S.Ct. 182, and described arbitration as less protective of the rights of stock buyers than
litigation, id., at 435–437, 74 S.Ct. 182. The Court later overruled Wilko, rejecting what it described as Wilko 's “suspicion
of arbitration as a method of weakening the protections afforded in the substantive law.” Rodriguez de Quijas v. Shearson/
American Express, Inc., 490 U.S. 477, 481, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989). See also Gilmer v. Interstate/
Johnson Lane Corp., 500 U.S. 20, 33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (relying on Rodriguez de Quijas to
conclude that “[m]ere inequality in bargaining power ... is not a sufficient reason to hold that arbitration agreements
are never enforceable in the employment context”). Similarly, before Italian Colors, the Court had suggested that “the
existence of large arbitration costs could preclude a litigant ... from effectively vindicating her federal statutory rights in the
arbitral forum,” and when that is so, an arbitration agreement may be unenforceable. Green Tree Financial Corp.–Ala. v.
Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). Although the Court in Italian Colors did not expressly
reject this “effective vindication” principle, the Court's refusal to apply the principle in that case suggests that the principle
will no longer apply in any case. See 570 U.S., at ––––, 133 S.Ct., at 2320 (KAGAN, J., dissenting); CompuCredit Corp.
v. Greenwood, 565 U.S. ––––, –––– – ––––, 132 S.Ct. 665, 676, 181 L.Ed.2d 586 (2012) (GINSBURG, J., dissenting)
(criticizing the Court for ignoring a federal statutory “right to sue” and for holding “that credit repair organizations can
escape suit by providing in their take-it-or-leave-it contracts that arbitration will serve as the parties' sole dispute-resolution
mechanism”).
4 The Consumer Financial Protection Bureau recently published a study documenting the proliferation of mandatory
arbitration clauses containing class-arbitration waivers in consumer financial-services contracts, as well as the vanishingly
small number of claims brought by financial-services consumers in bilateral arbitration. See Consumer Financial
Protection Bureau, Arbitration Study § 1, pp. 9–13 (2015).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 13

Garcia v. Huerta, 340 S.W.3d 864 (2011)
KeyCite Yellow Flag - Negative Treatment
Distinguished by Hogg v. Lynch, Chappell & Alsup, P.C., Tex.App.-El 
Paso, November 10, 2015
340 S.W.3d 864
Court of Appeals of Texas,
San Antonio.
Albert GARCIA, Appellant,
v.
Edward HUERTA and Margarita A.
Huerta, Individually and as Next Friends
of Heather L. Huerta, Edward Timothy
Huerta and Danara L. Huerta, Appellees.
No. 04–10–00688–CV.
|
March 30, 2011.
|
Rehearing Overruled May 9, 2011.
Synopsis
Background: Borrowers who defaulted on home equity
loan filed suit against secured lender, lender's real estate
agent that assisted lender in evicting borrowers from
property during foreclosure, and others, with claims
against real estate agent for violations of Texas Debt
Collection Act and for trespass, theft, burglary and
conversion, and invasion of privacy. Defendants filed
motions to compel arbitration. The 229th Judicial District
Court, Duval County, Alex William Gabert, J., denied
motions. Defendants filed petition for writ of mandamus
to compel District Court to vacate order and to compel
arbitration. The Court of Appeals, 300 S.W.3d 818,
conditionally granted writ. The Judicial District Court
ordered parties to submit to arbitration. Borrowers
subsequently settled with lender and other defendants,
and pursuant to agreement, lender waived arbitration and
assigned its claims against real estate agent to borrowers.
The District Court granted borrowers' motion to amend
arbitration order and ordered that litigation against agent
could proceed. Real estate agent appealed.
Holdings: The Court of Appeals, Phylis J. Speedlin, J.,
held that:
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[1] interlocutory order amending prior order compelling
arbitration of borrowers' claims against real estate agent
were subject to review for abuse of discretion, and
[2] lender's waiver of right to enforce arbitration
agreement could not be imputed to real estate agent.
Reversed and remanded.
West Headnotes (12)
[1] Alternative Dispute Resolution
Scope and standards of review
Interlocutory order that granted borrowers'
motion to amend order compelling arbitration
by not requiring arbitration of claim
against lender's real estate agent that
evicted borrowers from home in process of
foreclosure, and which permitted borrowers'
litigation of claims against agent to proceed,
was subject to appellate review for abuse
of discretion, pursuant to which appellate
court would defer to trial court's factual
determinations, and would review questions
of law de novo. V.T.C.A., Civil Practice &
Remedies Code § 51.016.
2 Cases that cite this headnote
[2] Alternative Dispute Resolution
Scope and standards of review
On appeals of orders denying arbitration
under the Texas Arbitration Act (TAA),
the appellate court will apply a no-
evidence standard to the trial court's factual
determinations and a de novo standard to
legal determinations. V.T.C.A., Civil Practice
& Remedies Code § 51.016.
4 Cases that cite this headnote
[3] Appeal and Error
Cases Triable in Appellate Court
Appeal and Error
1
Garcia v. Huerta, 340 S.W.3d 864 (2011)
Allowance of remedy and matters of
procedure in general
When a matter involving both factual
determinations and legal conclusions is
decided by the trial court, the appellate
court will generally employ the abuse of
discretion standard, in which it defers to
the trial court's factual determinations while
determining questions of law de novo.
4 Cases that cite this headnote
[4] Alternative Dispute Resolution
Scope and standards of review
Whether there is a valid and enforceable
agreement to arbitrate is a legal question
subject to de novo review.
7 Cases that cite this headnote
[5] Alternative Dispute Resolution
Evidence
There is a strong presumption favoring
arbitration, which arises only after the party
seeking to compel arbitration proves a valid
arbitration agreement exists.
6 Cases that cite this headnote
[6] Alternative Dispute Resolution
Validity
Under both the Federal Arbitration Act and
the Texas Arbitration Act, the court will
apply ordinary state contract law principles
in order to decide whether a valid arbitration
agreement exists. 9 U.S.C.A. § 1 et seq.;
V.T.C.A., Civil Practice & Remedies Code §
171.001 et seq.
2 Cases that cite this headnote
[7] Alternative Dispute Resolution
Evidence
Once a valid agreement to arbitrate has been
established, a presumption attaches favoring
arbitration and the burden shifts to the party
resisting arbitration to establish a defense to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
enforcing arbitration. 9 U.S.C.A. § 1 et seq.;
V.T.C.A., Civil Practice & Remedies Code §
171.001 et seq.
4 Cases that cite this headnote
[8] Alternative Dispute Resolution
Waiver or Estoppel
Secured lender's waiver of its right to compel
arbitration pursuant to arbitration agreement
provision of home equity loan agreement
was not imputed to real estate agent
that assisted lender in evicting borrowers
during foreclosure proceedings, and therefore,
real estate agent did not waive right to
compel arbitration; agent never acted in any
way to indicate that he was repudiating
right to enforce arbitration agreement, or
otherwise acted inconsistently with intent
to rely on arbitration agreement, but in
fact consistently invoked right to enforce
arbitration agreement throughout course of
borrower's litigation of tort claims against
agent.
2 Cases that cite this headnote
[9] Alternative Dispute Resolution
Scope and standards of review
Whether a party has waived his right to
arbitration is a question of law that the
appellate court reviews de novo, giving no
deference to the trial court's ruling.
1 Cases that cite this headnote
[10] Estoppel
Nature and elements of waiver
Estoppel
Implied waiver and conduct constituting
waiver
“Waiver” is an intentional relinquishment
of a known right or intentional conduct
inconsistent with claiming that right.
1 Cases that cite this headnote
[11] Estoppel
2
Garcia v. Huerta, 340 S.W.3d 864 (2011)
Implied waiver and conduct constituting
waiver
There can be no waiver of a right if the person
sought to be charged with waiver says or does
nothing inconsistent with an intent to rely
upon such right.
1 Cases that cite this headnote
[12] Alternative Dispute Resolution
Evidence
There is a strong presumption against waiver
of an arbitration agreement under the Federal
Arbitration Act, and any doubts regarding
waiver are resolved in favor of arbitration. 9
U.S.C.A. § 1 et seq.
3 Cases that cite this headnote
Attorneys and Law Firms
*866 Wade C. Crosnoe, Thompson, Coe, Cousins &
Irons, L.L.P., Austin, TX, for Appellant.
Andrew M. Greenwell, Harris & Greenwell, Corpus
Christi, TX, for Appellee.
Sitting: PHYLIS J. SPEEDLIN, Justice, REBECCA
SIMMONS, Justice, and MARIALYN BARNARD,
Justice.
OPINION
Opinion by: PHYLIS J. SPEEDLIN, Justice.
Albert Garcia challenges the trial court's rendition of an
amended order denying him arbitration. We reverse the
judgment of the trial court, and remand the cause to the
trial court for further proceedings.
BACKGROUND
The facts underlying this case are summarized in this
court's earlier opinion in In re Wells Fargo Bank, N.A., 300
S.W.3d 818, 821–23 (Tex.App.-San Antonio 2009, orig.
proceeding), as follows. The underlying dispute involves
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
allegations that Wells Fargo Bank, N.A., America's
Servicing Company, Premiere Asset Services, Langley &
Banack, Inc., Robert Carl Jones (an attorney employed
by the law firm of Langley & Banack), and Albert
Garcia wrongfully foreclosed on Edward and Margarita
Huerta's (“the Huertas”) property. The Huertas obtained
a home equity loan from Wells Fargo. In connection
with this loan, the Huertas and Wells Fargo entered
into an arbitration agreement. The arbitration agreement
provided that:
Any party to this Agreement or to any Loan Document
may require that any Dispute be resolved by binding
arbitration in accordance with the terms of this
Arbitration Program, administered by the American
Arbitration Association (the “AAA”) ... and the
Federal Arbitration Act....
A ‘Dispute’ shall include any dispute, claim or
controversy of any kind, whether in contract or in
tort, legal or equitable, now existing or hereafter
arising, relating in any way to this Note or Loan
Documents or any related agreement incorporating
this Arbitration Program (the “Documents”), or any
past, present, or future loans, transactions, contracts,
agreements, relationships, incidents, or injuries of any
kind whatsoever relating to or involving consumer
lending, business banking, community banking, Private
Client Services, or any successor group or department
of Lender.... Arbitration may be demanded at any time,
and may be compelled by summary proceedings in
Court.
Subsequently, the Huertas defaulted on the home equity
loan; they eventually filed for bankruptcy and the loan was
discharged.
Thereafter, Wells Fargo, through its counsel Langley &
Banack, sought a non-judicial foreclosure of the home
equity loan. The property was purchased by Wells Fargo
at the foreclosure sale. Wells Fargo and its wholly-
owned subsidiary, *867 Premier Asset Services, then
hired Garcia, a real estate agent, to evict the Huertas and
to remove their belongings from their home. Premiere
asked Garcia to use his best efforts to sell the property,
and specifically directed him to clean up and repair
the property. Following the eviction, the Huertas filed
suit against Wells Fargo, America's Servicing Company,
Langley & Banack, Jones, Premiere, and Garcia. As to
Garcia, the Huertas asserted claims under the Texas Debt
3
Garcia v. Huerta, 340 S.W.3d 864 (2011)
Collection Act and alleged that he committed trespass,
theft, burglary and conversion, and invasion of privacy.
Thereafter, all defendants, including Garcia, moved to
compel arbitration. In response to the motions to compel
arbitration, the Huertas asserted there was not a valid
and binding arbitration agreement because, among other
reasons, the agreement was only between “Wells Fargo
Bank Texas, N.A.” and the Huertas, not any of the actual
parties to the lawsuit. The trial court denied all of the
motions to compel arbitration.
Wells Fargo, America's Servicing Company, Premiere,
Langley & Banack, Jones, and Garcia then filed a petition
for writ of mandamus in this court, seeking to compel
the trial court to vacate the order denying their motions
to compel arbitration. We held that Wells Fargo had
the right to enforce the arbitration agreement. 1 Id.
at 824. We further held that although the remaining
defendants, including Garcia, were nonsignatories to the
arbitration agreement, they acted as agents of Wells
Fargo and their allegedly wrongful acts related to their
behavior as agents of Wells Fargo; therefore, they were
also entitled to enforce the arbitration agreement. Id.
at 825. Finally, we held that none of the defendants
had waived their right to compel arbitration based on
invocation of the judicial process. Id. at 830–31. We
conditionally granted mandamus and directed the trial
court to withdraw its order denying the defendants'
motions to compel arbitration. Id. at 832. The trial court
complied, and signed an “Amended Order on Motion
to Compel Arbitration” which granted the defendants'
motions to compel arbitration and stayed the district
court litigation pending the outcome of the arbitration
proceedings.
Thereafter, the Huertas negotiated a settlement with Wells
Fargo and the remaining defendants, except for Garcia.
The Settlement Agreement provides for the assignment of
Wells Fargo's claims against Garcia to the Huertas and
contains a provision requiring the settling defendants to
execute (1) an assignment of their claims against Garcia
to the Huertas and (2) a waiver of the defendants' rights
to enforce the arbitration agreement with respect to any
claim against Garcia:
17. Cooperation. The Parties agree to cooperate with
one another to execute and file or deliver such other
documentation as may be necessary or appropriate to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
accomplish the intent and purpose of this Agreement,
including papers: (1) to assign any and all claims that
Wells Fargo and/or its Affiliates might have against
Albert Garcia, First Texas Realty, Blue Star Services
and/or their Affiliates related to or arising from the
events made the basis of this Lawsuit; (2) to waive
any rights to enforce any arbitration agreement as it
may relate to any claims asserted against Garcia, First
Texas Realty, and Blue Star Services, as agents for
Wells Fargo, whether brought as a result of assignment
*868 from Wells Fargo or brought independently from
such assignment; ... (4) to vacate the order compelling
arbitration; ...
A month after the Settlement Agreement was executed,
the Huertas filed their “Motion to Amend the Amended
Order on Motions to Compel Arbitration, Motion for
Leave to File Fifth Amended Petition and Motion to
Set Case on Trial Docket and Enter Docket Control
Order” (“Motion to Amend”). The Motion to Amend
asked the trial court to amend its prior amended order
compelling arbitration, and to deny arbitration as to
the Huertas' claims against Garcia. In support of the
motion, the Huertas introduced portions of the Settlement
Agreement and argued that Wells Fargo's express waiver
of its right to arbitrate under the arbitration agreement
operated as a waiver of Garcia's right to arbitrate
under the same agreement. After a hearing, the trial
court granted the Motion to Amend, and amended the
order compelling arbitration “so as to deny arbitration
as to Albert Garcia and his assumed names and
related companies based on the additional evidence of
express waiver of the arbitration agreement by the Wells
Fargo Parties.” Garcia now appeals. See TEX. CIV.
PRAC. & REM.CODE ANN. § 51.016 (West Supp.2010)
(permitting interlocutory appeal of order denying motion
to compel arbitration under the Federal Arbitration Act).
On appeal, Garcia contends the trial court erred in
granting the Motion to Amend because (1) it conflicts with
our prior mandamus opinion ordering the trial court to
compel arbitration and (2) Wells Fargo was not entitled to
waive arbitration on Garcia's behalf. Garcia alternatively
argues he is entitled to enforce the arbitration agreement
under the doctrine of equitable estoppel.
STANDARD OF REVIEW AND APPLICABLE LAW
4
Garcia v. Huerta, 340 S.W.3d 864 (2011)
[1] Until recently, orders denying motions to compel
arbitration in matters subject to the Federal Arbitration
Act (FAA) were not subject to interlocutory appeal;
instead, they were reviewed in mandamus proceedings
using an abuse of discretion standard. See Jack B. Anglin
Co. v. Tipps, 842 S.W.2d 266, 272–73 (Tex.1992). Under
that standard, “we defer to the trial court's factual
determinations if they are supported by evidence, but
we review the trial court's legal determinations de novo.”
In re Labatt Food Service, L.P., 279 S.W.3d 640, 643
(Tex.2009).
[2] [3] Section 51.016 now permits courts to review such In re Hartigan, 107 S.W.3d 684, 687–88 (Tex.App.-San
orders by appeal. See TEX. CIV. PRAC. & REM.CODE
ANN. § 51.016; In re 24R, Inc., 324 S.W.3d 564, 566 n. 1
(Tex.2010). This court has not addressed the standard of
review applicable to such appeals. However, on appeals
of orders denying arbitration under the Texas Arbitration
Act (TAA), we apply a no-evidence standard to the trial
court's factual determinations and a de novo standard
to legal determinations. See MacIvor v. Zuehl Airport
Flying Cmty. Owners Assoc., No. 04–10–00053–CV, 2010
WL 2298906, at *2 (Tex.App.-San Antonio June 9,
2010, no pet.) (mem. op) (applying de novo review to
interlocutory appeal of order denying motion to compel
arbitration under TAA when order turns on a legal
determination); Pony Exp. Courier Corp. v. Morris, 921
S.W.2d 817, 820 (Tex.App.-San Antonio 1996, no writ)
(noting that “no evidence” is the appropriate standard
when reviewing factual questions concerning an order
denying arbitration). When a matter involving both
factual determinations and legal conclusions is decided
by the trial court, we generally employ the abuse of
discretion standard, in which we defer to the trial court's
factual determinations while determining questions of law
de *869 novo. Morris, 921 S.W.2d at 820. Accordingly,
we will apply the abuse of discretion standard of review
to interlocutory appeals under section 51.016. See Sidley
Austin Brown & Wood, LLP v. J.A. Green Dev. Corp.,
327 S.W.3d 859, 862–63 (Tex.App.-Dallas 2010, no
pet.) (applying abuse of discretion standard in reviewing
interlocutory appeal under section 51.016).
[4] [5] [6] [7] Whether there is a valid and enforceablenow determine whether Wells Fargo's express waiver of
agreement to arbitrate is a legal question subject to de novo its own right to arbitrate contained in the Settlement
review. In re Labatt Food Service, 279 S.W.3d at 643; J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).
There is a strong presumption favoring arbitration, which
arises only after the party seeking to compel arbitration
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
proves a valid arbitration agreement exists. Webster, 128
S.W.3d at 227. Under both the FAA and the TAA, we
apply ordinary state contract law principles in order to
decide whether a valid arbitration agreement exists. See In
re D. Wilson Const. Co., 196 S.W.3d 774, 781 (Tex.2006)
(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). Once
a valid agreement to arbitrate has been established, a
presumption attaches favoring arbitration and the burden
shifts to the party resisting arbitration to establish a
defense to enforcing arbitration. See In re AdvancePCS
Health L.P., 172 S.W.3d 603, 607 (Tex.2005) (per curiam);
Antonio 2003, orig. proceeding [mand. denied] ).
DISCUSSION
We first address Garcia's contention that Wells Fargo's
waiver of arbitration contained in the Settlement
Agreement did not extend to waive Garcia's right to
arbitration. In our prior opinion, we noted that Garcia
was an agent of Wells Fargo, and that the Huertas'
claims against Garcia related to his behavior as Wells
Fargo's agent. Wells Fargo, 300 S.W.3d at 825; see also
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739
(Tex.2005) (nonsignatory may be bound to arbitration
agreement by agency law). We thus held that Garcia was
entitled to enforce the arbitration agreement as an agent of
Wells Fargo. Wells Fargo, 300 S.W.3d at 825; see also In re
Merrill Lynch Trust Co., 123 S.W.3d 549, 556 (Tex.App.-
San Antonio 2003, orig. proceeding), mand. granted, 235
S.W.3d 217 (Tex.2007) (orig. proceeding) (per curiam)
(“The scope of an arbitration agreement may be extended
to claims against agents of the principal when all the
agents' allegedly wrongful acts relate to their behavior
as agents of the principal signatory company, and those
acts were within the scope of the claims covered by the
arbitration provisions for which the principal would be
liable.”).
[8] [9] Having already established that Garcia is
entitled to enforce the arbitration agreement, we must
Agreement operated to deny Garcia his right to enforce
the arbitration agreement. Whether a party has waived
his right to arbitration is a question of law that we
review de novo, giving no deference to the trial court's
5
Garcia v. Huerta, 340 S.W.3d 864 (2011)

ruling. Wells Fargo, 300 S.W.3d at 830 (citing Perry agreement during the entire course of this proceeding,
both before and after this Court issued its opinion in In re
Homes v. Cull, 258 S.W.3d 580, 598 (Tex.2008)). In the
Wells Fargo. The mere fact that Wells Fargo subsequently
arbitration context, the majority of cases alleging waiver
waived “any rights to enforce the arbitration agreement
involve the invocation of the legal process to one party's
as it ... relate[s] to any claims asserted against Garcia”
detriment. See, e.g., In re Citigroup Global Mkts., Inc.,
does not mean that Garcia—who relied upon this Court's
258 S.W.3d 623, 625 (Tex.2008) (orig. proceeding); Perry,
holding that he had the right to enforce the agreement—
258 S.W.3d at 589–90. The Huertas did not allege waiver
also waived his right to enforce the arbitration agreement.
based on invocation of the judicial process; rather, they
asserted that Wells Fargo's express waiver contained in the
[12] Further, there is a strong presumption against
Settlement Agreement must be imputed to *870 Garcia
waiver under the FAA, In re D. Wilson, 196 S.W.3d
because he acted as an agent of Wells Fargo, and his right
at 783, and any doubts regarding waiver are resolved
to arbitration was therefore derivative of Wells Fargo's.
in favor of arbitration. In re Bruce Terminix Co., 988
The Huertas cite no authority for this proposition, and
S.W.2d 702, 705 (Tex.1998). In light of this presumption,
we cannot agree that one party's waiver of the right to
and acknowledging the lack of evidence of waiver by
arbitration can be imputed to another.
Garcia, we cannot conclude that Wells Fargo's waiver of
[10] [11] Waiver is “an intentional relinquishment of arbitration was imputed to Garcia. Accordingly, we hold
the trial court erred in denying arbitration to Garcia on
a known right or intentional conduct inconsistent with
the basis of express waiver by Wells Fargo. We reverse
claiming that right.” Jernigan v. Langley, 111 S.W.3d 153,
the judgment of the trial court, and remand the cause
156 (Tex.2003). “There can be no waiver of a right if the
to the trial court with instructions to enter an order
person sought to be charged with waiver says or does
compelling arbitration as to Garcia and staying all other
nothing inconsistent with an intent to rely upon such
proceedings pending the outcome of arbitration. Based
right.” Id. Here, the Huertas did not allege that Garcia
on our resolution, we need not reach Garcia's arguments
himself acted in such a way so as to repudiate his right
relative to the law of the case or equitable estoppel.
to enforce the arbitration agreement, and there is no
evidence in the record of a knowing or intentional waiver
by Garcia. Additionally, the Huertas have not alleged that All Citations
Garcia did anything inconsistent with an intent to rely
on the arbitration process. To the contrary, Garcia has 340 S.W.3d 864
consistently invoked his right to enforce the arbitration

Footnotes
1 We specifically held that Wells Fargo Bank, N.A. established that Wells Fargo Bank Texas, N.A. was consolidated and
resulted in Wells Fargo Bank, N.A., which had the right to enforce the arbitration agreement. Id. at 824.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Gatlin v. Criscione, Not Reported in F.Supp.2d (2008)
2008 WL 2745956
2008 WL 2745956
Only the Westlaw citation is currently available.
United States District Court,
N.D. Illinois,
Eastern Division.
George GATLIN, Plaintiff,
v.
P.O. A. CRISCIONE, Star # 16195, P.O. S.
Mulkerrin, Star # 17071, and Anthony Caputo,
Individually, and the City of Chicago, Illinois
Solution Group, and Bill Kay Chrysler, Defendants.
No. 1:07-cv-7212.
| the sale was contingent on Bill Kay's securing third party
July 11, 2008.
Attorneys and Law Firms
Edward M. Fox, Leslie C. Mccoy, Ed Fox & Associates,
Chicago, IL, for Plaintiff.
Tiffany Yvette Harris, City of Chicago Law Department,
Stuart David Gordon, James Hjalmar Whalen, John
C. Eggert, Gordon & Karr LLP, Chicago, IL, for
Defendants.
MEMORANDUM OPINION AND ORDER
JOAN HUMPHREY LEFKOW, District Judge.
*1 Plaintiff George Gatlin filed a seven count complaint
in this case. He alleges the following: (1) false arrest
under 42 U.S.C. § 1983 against Chicago Police Officer
defendants Criscione and Mulkerrin; (2) false arrest under
42 U.S.C. § 1983 against defendant Anthony Caputo;
(3) excessive force under 42 U.S.C. § 1983 against
defendants Criscione and Mulkerrin; (4) failure to provide
medical care under 42 U.S.C. § 1983 against defendants
Criscione and Mulkerrin; (5) false arrest under Illinois
law against defendants Criscione, Mulkerrin, Caputo,
Illinois Solution Group (“ISG”), and Bill Kay Chrysler
(“Bill Kay”); (6) an Illinois law claim of willful and
wanton conduct for failure to provide medical care against
defendants Criscione, Mulkerrin, and the City of Chicago;
and (7) malicious prosecution under Illinois law against
defendants Caputo, ISG, and Bill Kay.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Before the court is the motion of Ogden Chrysler
Plymouth, Inc., the corporate name of Bill Kay, to stay
and compel arbitration of the claims against it pursuant
to an arbitration agreement between Gatlin and Bill Kay.
For the reasons set forth below, the motion [# 12] will
be granted; however, the arbitration will be stayed until
Gatlin's nonarbitrable claims have been resovled by the
court. 1
I. Background
On May 2, 2007, Gatlin signed an agreement to purchase a
used vehicle from Bill Kay (“the purchase agreement”). 2
The purchase agreement provided that, while Gatlin was
permitted to take the vehicle home that day, completion of
financing for the sale. Gatlin was required to cooperate
in Bill Kay's efforts to secure financing, including filling
out an accurate credit application as well as providing any
necessary documentation. The purchase agreement also
stated that if Bill Kay was unable to secure financing,
Gatlin would be required to return the vehicle within 24
hours. Should Gatlin fail to do so, he authorized Bill Kay
to repossess the vehicle, “with or without legal process.”
Greater Suburban Acceptance Corporation (“GSAC”)
subsequently agreed to provide financing for Gatlin if it
was able to confirm the information provided in his credit
application. When GSAC was unable to confirm Gatlin's
stated residence, employer, or income, it determined that it
would not fund Gatlin's purchase. Bill Kay then requested
that Gatlin return the vehicle, and when he failed to do so,
Bill Kay hired ISG, a repossession company, to secure its
return. Anthony Caputo was ISG's employee.
At some time before 3:00 on the afternoon of June
4, 2007, Caputo falsely informed officers Criscione and
Mulkerrin that Gatlin was in possession of a weapon
while driving on Chicago Avenue near Pine Avenue in
Chicago. Caputo arranged with the officers that they be
present “when Caputo caused Plaintiff's vehicle to be
stopped.” When stopped, the officers searched Gatlin and
his vehicle without lawful cause, arrested him without
probable cause, and used excessive force against him.
Also on June 4, Caputo on behalf of Bill Kay filed a
police report alleging that Gatlin had submitted false
information in his credit application in violation of Illinois
law. Gatlin was criminally charged with defrauding a
1
Gatlin v. Criscione, Not Reported in F.Supp.2d (2008)
2008 WL 2745956
financial institution. On July 11, 2007, that charge was
terminated in Gatlin's favor.
*2 As relevant to the pending motion, Gatlin alleges
arrest without probable cause in violation of the Fourth
Amendment against Caputo individually on the basis that
he willfully acted in concert with the officers in causing the
unlawful arrest (Count II), as well as Illinois common law
false arrest and malicious prosecution. He alleges that ISG
and Bill Kay are liable for Caputo's state law torts based
on the doctrine of respondeat superior (Count VII). Gatlin
seeks compensatory and punitive damages against all the
defendants.
Bill Kay maintains that Gatlin's claims of false arrest
and malicious prosecution fall within the scope of an
arbitration agreement signed by the parties in conjunction
with the vehicle purchase agreement. That arbitration
agreement provides, in relevant part, that it
[s]hall apply to any dispute, issue,
controversy or claim arising from
any events which occurred prior to,
on or subsequent to the execution
of this Arbitration Agreement. A
‘dispute’ includes any controversy
or claim arising from or relating
to the vehicle you have purchased
or leased on the date shown
above. The term “dispute” also
includes, but is not limited to, claims
relating to the negotiation of the
purchase or lease of the vehicle,
and any dispute relating to any
vehicle service contract purchased or
provided at the time the vehicle was
purchased or leased, or thereafter. In
addition, the term ‘dispute’ includes
any question regarding whether a
matter is subject to arbitration under
this Arbitration Agreement.
II. Legal Standard
The central purpose of the Federal Arbitration Act
(“FAA”) is to “ensure that private agreements to arbitrate
are enforced according to their terms.” Mastrobouno v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54, 115
S.Ct. 1212, 131 L.Ed.2d 76 (1995) (citations omitted). 3
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
“[W]hen a contract contains an arbitration clause, a strong
presumption in favor of arbitration exists and courts have
no choice but to order arbitration unless it may be said
with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted
dispute.” CK Witco Corp. v. Paper Allied Indus., Chem.
& Energy Workers Int'l Union, 272 F.3d 419, 421-22
(7th Cir.2001) (internal citations and quotations omitted).
“To compel arbitration, a party need only show: (1) an
agreement to arbitrate, (2) a dispute within the scope of the
arbitration agreement, and (3) a refusal by the opposing
party to proceed to arbitration.” Zurich American Ins. Co.
v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir.2006)
(citations omitted). “[A]ny doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration,
whether the problem at hand is the construction of the
contract language itself or an allegation of waiver, delay,
or a like defense to arbitrability.” Mastrobouno, 514 U.S.
at 62 n. 8 (quoting Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct.
927, 74 L.Ed.2d 765 (1983)). To further this policy in favor
of arbitration, Section 3 of the FAA provides, in relevant
part:
*3 If any suit or proceeding be 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 or proceeding is
pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration ... shall
on application of one of the parties stay the trial of the
action until such arbitration has been had in accordance
with the terms of the agreement, providing the applicant
for the stay is not in default in proceeding with such
arbitration.
9 U.S.C. § 3. 4
“[The opponent of arbitration] bears the burden of
establishing that the arbitration clause is unenforceable.”
Stewart v. Molded Plastic's Research of Ill., Inc., 2001 WL
1607464, at * 1 (N.D.Ill.Dec.17, 2001) (citing Shearson/
Am. Express, Inc. v. McMahon, 482 U.S. 220, 226-27,
107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (“The burden
is on the party opposing arbitration, however, to show
that Congress intended to preclude a waiver of judicial
remedies for the statutory rights at issue.”)).
III. DISCUSSION
2
Gatlin v. Criscione, Not Reported in F.Supp.2d (2008)
2008 WL 2745956
A. Bill Kay Did Not Waive its Right to Arbitration
Gatlin first contends that because Caputo, acting on
behalf of Bill Kay, initiated criminal proceedings against
Gatlin, Bill Kay waived its right to arbitration. Choosing
to submit issues which are arbitrable under a contract to
a court for decision is a presumptive waiver of the right
to arbitrate. Cabinetree of Wisconsin, Inc. v. Kraftmaid
Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.1995); Kennedy
v. Commercial Carriers, Inc., 630 N.E.2d 1059, 1062, 258
Ill.App.3d 939, 943, 196 Ill.Dec. 894, 897 (Ill.App.Ct.
1st Dist.1994). This is an unusual fact pattern. At least,
neither party has cited any case authority specifically
addressing the issue whether initiation of a criminal case
in court to resolve a contractual dispute amounts to
submitting arbitrable issues to a court for decision. Here,
as the facts are presented, Bill Kay through its agent
was not seeking resolution of a dispute contemplated
by the arbitration clause; it was attempting to effect
its contractual right to take possession of the vehicle.
Certainly, Bill Kay would not have had a justiciable claim
at that point. It follows that Bill Kay has not waived its
right to arbitration.
B. The Arbitrability of Gatlin's Claims against Bill
Kay is an Issue to be Determined by the Arbitrator
Gatlin next contends that these claims do not fall within
the scope of the arbitration agreement because false arrest
and malicious prosecution claims are too attenuated to
have been reasonably considered by the plaintiff at the
time he signed the arbitration agreement. One of Bill
Kay's points in support of its motion, however, is that
the parties agreed to submit the question of arbitrability
itself to an arbitrator. As quoted above, the arbitration
agreement provides that “ ‘dispute’ includes any question
regarding whether a matter is subject to arbitration under
this Arbitration Agreement.”
*4 Under both federal and Illinois law, “courts have
recognized that parties are free to agree to submit the
question of arbitrability itself to arbitration.” Bahuriak
v. Bill Kay Chrysler Plymouth, Inc., 786 N.E.2d 1045,
1050, 337 Ill.App.3d 714, 719, 272 Ill.Dec. 211 (2003)
(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 943-45, 115 S.Ct. 1920, 1923-25, 131 L.Ed.2d 985,
992-94 (1995)); Int'l Bhd. of Elec. Workers, Local 21
v. Ill. Bell Tel. Co., 491 F.3d 685, 687 (7th Cir.2007)
(Issues of arbitrability are to be decided by the court
unless the parties have clearly provide otherwise). Gatlin
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
has not responded to this argument in his response
brief. The arbitration agreement at issue clearly stipulates
that questions of arbitrability will be submitted to
arbitration. The court must therefore submit the question
of arbitrability to the arbitrator.
C. Arbitration will be Stayed
Until the Conclusion of this Case
Gatlin's final contention is that his claims against those
defendants who were not signatories of the arbitration
agreement are intertwined with the claims against Bill Kay
and it would therefore be prejudicial to pursue these claims
separately. His argument overlooks the fact that “the
Federal Arbitration Act ‘requires piecemeal resolution
when necessary to give effect to an arbitration agreement’
and mandates enforcement of an arbitration agreement
‘notwithstanding the presence of other persons who are
parties to the underlying dispute but not to the arbitration
agreement.’ ” Board of Managers of the Courtyards at
the Woodlands Condominium Ass'n v. IKO Chicago, Inc.,
697 N.E.2d 727, 732, 183 Ill.2d 66, 75, 231 Ill.Dec. 942,
947 (1998) (citing Moses H. Cone Memorial Hospital, 460
U.S. at 20)). Immediate submission of Gatlin's claims
against Bill Kay, however, would undermine the court's
jurisdiction over Gatlin's nonarbitrable claims against the
other defendants in this case. Because Bill Kay's liability
is premised on respondeat superior, it will depend on the
liability of Caputo and Illinois Solutions Group and on
findings of fact regarding their actions. The arbitrator
could not determine Bill Kay's liability without deciding
whether Caputo and ISG are liable, and if it decides
those issues before the court could do so, its decision
could potentially have a res judicata effect on the claims
against those parties in this case. When a similar situation
arose in Dickinson v. Heinold Securities, Inc., 661 F.2d
638, 644 (7th Cir.1981), the Seventh Circuit said that the
district court did not have discretion to force the parties
to litigate otherwise arbitrable claims in order to preserve
its jurisdiction over nonarbitrable claims, but noted that
it did have discretion to stay the arbitration of those
claims until the nonarbitrable claims had been decided by
the court. Because that course of action would preserve
the court's jurisdiction over Gatlin's nonarbitrable claims
and would also promote efficiency, arbitration of Gatlin's
claims against Bill Kay will be stayed until the conclusion
of this case. If the arbitrator determines that those claims
are not arbitrable, they will return to the court, and their
resolution will be likely to have been simplified by the
proceedings in the interim.
3
Gatlin v. Criscione, Not Reported in F.Supp.2d (2008)
2008 WL 2745956

arbitration is stayed until Gatlin's nonarbitrable claims

have been resolved by the court.
IV. Conclusion and Order
*5 For the foregoing reasons, Bill Kay's motion to stay
and to compel arbitration [# 12] is granted; however, the All Citations

Not Reported in F.Supp.2d, 2008 WL 2745956

Footnotes
1 The court has jurisdiction over this case pursuant to 28 U.S.C. §§ 1331, 1343, and 1367.
2 The court has taken the facts concerning the purchase agreement and related events, which are not materially disputed,
from the Complaint and from Bill Kay's Reply in Support of its Motion. The facts concerning Caputo and the defendant
officers are derived from the complaint and are disputed by the defendants but will be presumed true for the purpose of
this motion. Safranek v. Copart, Inc., 379 F.Supp.2d 927, 928 (N.D.Ill.2005)
3 Professor Margaret Moses argues forcefully, however, that judges have misinterpreted the FAA, granting it far greater
breadth than Congress contemplated when it passed the law:
“... [The Federal Arbitration Act]-which has been construed to preempt state law, eliminate the
requirement of consent to arbitration, permit arbitration of statutory rights, and remove the jury
trial right from citizens without their knowledge or consent-is a statute that would not likely have
commanded a single vote in the 1925 Congress.”
Margaret L. Moses, Statutory Misconstruction: How the Supreme Court Created a Federal Arbitration Law Never
Enacted by Congress, 34 FLA. ST. U.L.REV. 99 (2006).
4 Bill Kay argues that Illinois law also supports his motion, but the plaintiff responds only within the context of the FAA.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Griffin v. Burlington Volkswagen, Inc., 411 N.J.Super. 515 (2010)
988 A.2d 101

malicious prosecution against automobile

dealership and dealership employee arose
KeyCite Yellow Flag - Negative Treatment out of and related to his purchase of
Distinguished by Barr v. Bishop Rosen & Co., Inc., N.J.Super.A.D., 
automobile, and thus were subject to the
October 26, 2015
arbitration clause in the retail order form
411 N.J.Super. 515
signed by purchaser; purchaser's claims
Superior Court of New Jersey,
related to the actions dealership took after
Appellate Division.
purchaser retained possession of the car, even
Joseph GRIFFIN, Plaintiff-Appellant, though financing for the transaction was not
v. obtained, including its actions in attempting
to repossess the car by reporting to the police
BURLINGTON VOLKSWAGEN, INC., and
department that the car had been stolen.
Augustine Staino, Defendants-Respondents.
4 Cases that cite this headnote
Submitted Oct. 27, 2009.
|
Decided Feb. 8, 2010. [2] Alternative Dispute Resolution
Liberal or strict construction
Synopsis
Alternative Dispute Resolution
Background: Purchaser of automobile filed a complaint
Construction in favor of arbitration
alleging claims for false arrest, false imprisonment,
An agreement to arbitrate should be read
malicious prosecution, abuse of process, invasion of
liberally in favor of arbitration.
privacy, and intentional infliction of emotional distress
and a statutory claim under the New Jersey Civil Rights 20 Cases that cite this headnote
Act against car dealership and dealership employee
after defendants reported the vehicle dealership had sold
to purchaser as stolen, resulting in purchaser's arrest. [3] Alternative Dispute Resolution
Dealership filed a motion to compel arbitration. The Evidence
Superior Court, Law Division, Burlington County, No. Courts operate under a presumption of
L-2756-08, granted the motion, Purchaser appealed. arbitrability in the sense that an order to
arbitrate the particular grievance should not
be denied unless it may be said with positive
assurance that the arbitration clause is not
[Holding:] The Superior Court, Appellate Division,
susceptible of an interpretation that covers the
Skillman, P.J.A.D., held that purchaser's claims against
asserted dispute.
automobile dealership and dealership employee arose out
of and related to his purchase of automobile, and thus 6 Cases that cite this headnote
were subject to the arbitration clause in the retail order
form signed by purchaser.

Affirmed. Attorneys and Law Firms

**101 J. Craig Currie (J. Craig Currie & Associates),

attorney for appellant.
West Headnotes (3)
Wardell, Craig, Annin & Baxter, attorneys for
respondents (Jeffrey S. Craig and Domenic B. Sanginiti,
[1] Alternative Dispute Resolution Jr., Haddonfield, on the brief).
Sales contracts disputes
Before Judges SKILLMAN, GILROY and
Automobile purchaser's claims for false arrest,
SIMONELLI.
false imprisonment, abuse of process, and

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Griffin v. Burlington Volkswagen, Inc., 411 N.J.Super. 515 (2010)
988 A.2d 101
Opinion
The opinion of the court was delivered by
SKILLMAN, P.J.A.D.
*516 In August 2006, plaintiff Joseph Griffin purchased
a car from defendant Burlington Volkswagen. This
purchase required Griffin to obtain financing. According
to Griffin, he was assured at the time of the sale by
defendant Augustine Staino, an employee of Burlington
Volkswagen, that he had already been approved **102
for such financing. After paying a $1,000 deposit and
signing a retail order form, Griffin obtained possession
of the car and thereafter received what he described as a
“certificate of ownership.” Griffin subsequently drove the
car to Texas where he was enrolled in college.
*517 Approximately a month after entering into
this transaction, Griffin was informed by Burlington
Volkswagen that the third-party lender it had expected
to provide financing for Griffin's purchase of the car had
changed its mind and was unwilling to provide financing.
Moreover, Burlington Volkswagen declined to finance the
purchase itself and instead undertook efforts to repossess
the car from Griffin. According to Griffin, these efforts
consisted of harassing telephone calls to Griffin and his
employer at Griffin's place of employment and to Griffin
and his girlfriend at their residence.
According to Griffin, Burlington Volkswagen also
reported to the Burlington Police Department that Griffin
had stolen the car by forcibly removing it from their
premises. As a result of this report, a warrant was
issued for Griffin's arrest. Based on this warrant, Griffin
was arrested while driving the car in Mississippi and
incarcerated overnight. Griffin had to retain local counsel,
post a bond, and remain in Mississippi until he provided
an explanation for his possession of the car sufficient
for Mississippi law enforcement authorities to allow his
release. Griffin also alleges that the Mississippi police
seized the car and that he has not seen the car since.
Thereafter, Griffin had to return to New Jersey to respond
to the criminal charges brought against him as a result of
Burlington Volkswagen's report of his theft of the car. On
May 7, 2007, those charges were dismissed.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Griffin subsequently brought this damages action
against Burlington Volkswagen and Staino in the Law
Division, asserting common law claims for false arrest,
false imprisonment, malicious prosecution, abuse of
process, invasion of privacy, and intentional infliction of
emotional distress and a statutory claim under the New
Jersey Civil Rights Act of 2004, N.J.S.A. 10:6-1 to -2.
Before filing an answer, Burlington Volkswagen moved
to dismiss Griffin's complaint on the ground that he
was required to arbitrate his claims under an arbitration
provision contained in the *518 retail order form. The
trial court granted this motion. Griffin appeals.
[1] The arbitration provision that the trial court
concluded requires Griffin to arbitrate his claims against
Burlington Volkswagen states in pertinent part:
The parties to this agreement agree
to arbitrate any claim, dispute, or
controversy, including all statutory
claims and any state or federal
claims, that may arise out of or
relating to the purchase or lease
identified in this Motor Vehicle
Retail Order and the financing
thereof. By agreeing to arbitration,
the parties understand and agree
that they are waiving their rights to
maintain other available resolution
processes, such as a court action
or administrative proceeding, to
settle their disputes. New Jersey
Consumer Fraud Act, Used Car
Lemon Law, and Truth-in-Lending
claims are just three examples of the
various types of claims subject to
arbitration under this agreement....
There are no limitations on the type
of claims that must be arbitrated,
except for New Car Lemon Law
and Magnuson-Moss Warranty Act
claims which are excluded from
arbitration under this agreement.
[2] [3] It is firmly established in this State that “[b]ecause
of the favored status **103 afforded to arbitration, ‘[a]n
agreement to arbitrate should be read liberally in favor
of arbitration.’ ” Garfinkel v. Morristown Obstetrics &
2
Griffin v. Burlington Volkswagen, Inc., 411 N.J.Super. 515 (2010)
988 A.2d 101
Gynecology Assocs., 168 N.J. 124, 132, 773 A.2d 665
(2001) (quoting Marchak v. Claridge Commons, Inc., 134
N.J. 275, 282, 633 A.2d 531 (1993)). Therefore, “courts
operate under a ‘presumption of arbitrability in the
sense that an order to arbitrate the particular grievance
should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible
of an interpretation that covers the asserted dispute.’
” EPIX Holdings Corp. v. Marsh & McLennan Cos.,
410 N.J.Super. 453, 471, 982 A.2d 1194 (App.Div.2009)
(quoting Caldwell v. KFC Corp., 958 F.Supp. 962, 973
(D.N.J.1997)).
Courts have generally read the terms “arising out of” or
“relating to” a contract as indicative of an “extremely
broad” agreement to arbitrate any dispute relating in
any way to the contract. Angrisani v. Financial Tech.
Ventures, L.P., 402 N.J.Super. 138, 149, 952 A.2d
1140 (App.Div.2008); accord EPIX Holdings, supra, 410
N.J.Super. at 472, 982 A.2d 1194 (quoting with approval
the court's “expansive interpretation” in *519 Sweet
Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Inc., 1
F.3d 639, 642 (7th Cir.1993), of “an arbitration clause
applying to disputes ‘arising out of the agreement’ as
including ‘any dispute between the contracting parties that
is in any way connected with their contract.’ ”).
Arbitration provisions using such expansive language
are construed to require arbitration of statutory claims
such as alleged civil rights violations and common law
torts. See, e.g., EPIX Holdings, supra, 410 N.J.Super.
at 461, 468-75, 982 A.2d 1194 (tort claims including
breach of fiduciary duty, negligent misrepresentation, and
fraud); Alfano v. BDO Seidman, LLP., 393 N.J.Super.
560, 575-77, 925 A.2d 22 (App.Div.2007) (tort claims
including fraud and civil conspiracy); Gras v. Assocs. First
Capital Corp., 346 N.J.Super. 42, 54-57, 786 A.2d 886
(App.Div.2001) (Consumer Fraud Act claim); Young v.
Prudential Ins. Co., 297 N.J.Super. 605, 608, 614-21, 688
A.2d 1069 (App.Div.1997) (Law Against Discrimination
and Conscientious Employee Protection Act claims).
The retail order form signed by Griffin included an
expansive form of arbitration clause under which he
agreed “to arbitrate any claim, dispute, or controversy ...
that may arise out of or relating to the purchase ...
identified in the Motor Vehicle Retail Order and the
financing thereof.” Griffin's claims “arise out of” and
“relate to” the actions that Burlington Volkswagen took
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
after Griffin retained possession of the car even though
financing for this transaction was not obtained and
Griffin made no payments beyond his initial $1,000
deposit. Specifically, Griffin alleges that Burlington
Volkswagen attempted to repossess the car by wrongfully
reporting to the Burlington Police Department that he
had stolen it, as a result of which he was arrested and
incarcerated in Mississippi and had to defend himself
against criminal charges. Griffin's claims of false arrest,
false imprisonment, abuse of process, and malicious
prosecution based on Burlington Volkswagen's actions
will depend, at least in part, on a determination of
the parties' respective interests in the car under the
Motor Vehicle Retail Order in light of the failure to
obtain financing for Griffin's *520 purchase. Therefore,
Griffin's claims “arise out of” and “relate to” this
consumer transaction and are thus subject to the
arbitration clause contained in the retail order form. See
Dan Wachtel Ford, Lincoln, Mercury, Inc. v. Modas, 891
So.2d 287 (Ala.2004) (holding that plaintiff's claims of
“malicious prosecution ... and abuse of process [arose] out
of **104 actions taken by [defendant upon plaintiff's]
refusal to return” a car after defendant was unable to
find financing). But see Mannix v. Hosier, 249 A.D.2d
966, 672 N.Y.S.2d 574, 575 (App.Div.1998) (holding that
plaintiff's claim of malicious prosecution that resulted
from harassment charges brought by plaintiff's broker
“only collaterally related to the financial relationship
between the parties”).
Griffin analogizes Burlington Volkswagen's action in
reporting that the car had been stolen to the police to
a Burlington Volkswagen employee assaulting him in
order to regain possession of the car. However, a tort
claim based on such an assault would not require a
determination of the parties' respective rights in the car
under the Motor Vehicle Retail Order. A Missouri court
has concluded that
for a tort claim to be subject to arbitration under a
broad arbitration clause, it must raise some issue the
resolution of which requires reference to or construction
of some portion of the parties' contract. Where,
however, a tort claim is independent of the contract
terms and does not require reference to the underlying
contract, arbitration is not compelled.
[Estate of Athon v. Conseco Finance Servicing Corp., 88
S.W.3d 26, 30 (Mo.Ct.App.2002) (citations omitted).]
3
Griffin v. Burlington Volkswagen, Inc., 411 N.J.Super. 515 (2010)
988 A.2d 101

See also EPIX Holdings, supra, 410 N.J.Super. at 475, As alternative grounds for reversal of the judgment
dismissing his complaint, Griffin also argues that
982 A.2d 1194 (requiring arbitration under expansive
Burlington Volkswagen should be foreclosed from relying
arbitration clause because plaintiff could not “maintain
upon the arbitration clause because its invocation of
its claim for damages without reference to, and reliance
the criminal process to regain possession of the car
upon, the underlying contract”). Under this approach
constituted a waiver or equitably estopped Burlington
to determining arbitrability under the broad form of
Volkswagen from seeking arbitration of Griffin's claims.
arbitration clause involved in this case, a tort claim based
These arguments are clearly without merit. R. 2:11-3(e)(1)
on an assault upon Griffin to regain possession of the car
(E).
would not be subject to arbitration because it would not
require “reference to the underlying contract.” However,
Affirmed.
Griffin's tort claims against Burlington Volkswagen are
subject to arbitration because they *521 depend in part
on an interpretation of the parties' rights under the Motor All Citations
Vehicle Retail Order.
411 N.J.Super. 515, 988 A.2d 101

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
KeyCite Yellow Flag - Negative Treatment
Declined to Extend by In Interest of C.C., Tex.App.-Amarillo, 
September 1, 2015
458 S.W.3d 502
Supreme Court of Texas.
G.T. Leach Builders, LLC, et al., Petitioners,
v.
Sapphire V.P., LP, Respondent
NO. 13–0497
|
Argued November 5, 2014
| subcontractor did not require developer to arbitrate its
Opinion delivered: March 20, 2015.
Synopsis
Background: Property developer sued insurance brokers
for negligence and breach of contract after a hurricane
caused extensive damages to a development project,
alleging that brokers allowed a builder's risk insurance
policy to expire and be replaced by a permanent insurance
policy even though construction of the project was
not complete. Brokers designated general contractor,
subcontractors, and engineers as responsible third parties.
Developer amended its petition to name those parties
as defendants. Subsequently, general contractor and the
other defendants filed motions to compel arbitration.
The 404th District Court, Cameron County, Elia Cornejo
Lopez, J., denied the motions. The defendants pursued
an interlocutory appeal. The Corpus Christi - Edinburg
Court of Appeals, 2013 WL 2298447, affirmed. The
defendants filed petitions for review, which the Supreme
Court granted.
Holdings: The Supreme Court, Boyd, J., held that:
[1] general contractor's acts of requesting a continuance
and then agreeing to a new trial did not constitute an
express waiver of its arbitration rights as set forth in a
contract between general contractor and developer;
[2] general contractor did not impliedly waive its
arbitration rights;
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[3] question of whether a contractual deadline for
initiating arbitration operated to bar general contractor's
demand for arbitration was one for arbitrators to decide;
[4] brokers, subcontractors, and engineers did not have
a legal right to enforce the arbitration provisions in the
general contract;
[5] direct benefit estoppel did not apply to allow brokers,
subcontractors, and engineers to compel developer to
arbitrate its claims against them pursuant to the general
contract; and
[6] contracts between general contractor and
claims against subcontractors.
Affirmed in part, reversed in part, and remanded.
West Headnotes (39)
[1] Courts
Review by or certificate to Supreme
Court by Court of Civil Appeals of questions
where its decision conflicts with or overrules
that of another Court of Civil Appeals or
that of the Supreme Court
Supreme Court had jurisdiction to review
a judgment of the court of appeals in an
interlocutory appeal from trial court's denial
of motions to compel arbitration in a dispute
between property developer and various
defendants, including general contractor, over
responsibility for an expiration of a builder's
risk insurance policy; the holding of the
court of appeals created an inconsistency
with prior precedent regarding the issue of
whether courts or arbitrators should decide
whether a contractual deadline barred a
demand for arbitration, and clarification of
the inconsistency would remove unnecessary
certainty in the law and unfairness to litigants.
Tex. Gov't Code Ann. § 22.225(c, e).
1 Cases that cite this headnote
1
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
[2] Estoppel
Nature and elements of waiver
Estoppel
Implied waiver and conduct constituting
waiver
“Waiver,” which is the intentional
relinquishment of a known right, can occur
either expressly, through a clear repudiation
of the right, or impliedly, through conduct
inconsistent with a claim to the right.
5 Cases that cite this headnote
[3] Alternative Dispute Resolution
Trial or hearing
When the relevant facts are undisputed,
whether a party waived its right to arbitrate is
a question of law.
4 Cases that cite this headnote
[4] Alternative Dispute Resolution
Suing or participating in suit
General contractor's acts of requesting a
continuance and then agreeing to a new
trial date in an insurance-related dispute
with property developer did not constitute
an express waiver of general contractor's
arbitration rights as set forth in a contract
between the parties.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Suing or participating in suit
General contractor, in an insurance-related
dispute with property developer, did not
impliedly waive its arbitration rights as set
forth in a contract between the parties, absent
proof by developer that general contractor
substantially invoked the judicial process or
that developer was prejudiced by general
contractor's litigation conduct.
Cases that cite this headnote
[6] Alternative Dispute Resolution
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Suing or participating in suit
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,” which is
conduct inconsistent with a claimed right to
compel arbitration, and (2) the inconsistent
conduct has caused it to suffer detriment
or prejudice; because the law favors and
encourages arbitration, this hurdle is a high
one.
3 Cases that cite this headnote
[7] Alternative Dispute Resolution
Suing or participating in suit
When a party asserts implied waiver as a
defense to arbitration, which requires the
party to prove, inter alia, that the other
party has substantially invoked the judicial
process, courts consider a wide variety of
factors in determining the invocation issue,
including how long the party moving to
compel arbitration waited to do so, the
reasons for the movant's delay, whether and
when the movant knew of the arbitration
agreement during the period of delay, how
much discovery the movant conducted before
moving to compel arbitration and whether
that discovery related to the merits, whether
the movant requested the court to dispose
of claims on the merits, whether the movant
asserted affirmative claims for relief in court,
the extent of the movant's engagement in
pretrial matters related to the merits as
opposed to matters related to arbitrability or
jurisdiction, the amount of time and expense
the parties have committed to the litigation,
whether the discovery conducted would be
unavailable or useful in arbitration, whether
activity in court would be duplicated in
arbitration, and when the case was to be tried.
7 Cases that cite this headnote
[8] Alternative Dispute Resolution
Suing or participating in suit
2
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
General contractor did not substantially
invoke the litigation process in contravention
of its arbitration rights as set forth in its
contract with property developer, so as to
support a conclusion that general contractor
did not impliedly waive its arbitration rights
in an insurance-related dispute, even though
general contractor filed certain motions and
participated in pretrial discovery, and general
contractor could have been more prompt in
seeking arbitration; general contractor was in
the lawsuit because it was sued by developer,
general contractor's motions were defensive
in nature, general contractor's participation
in discovery was because developer engaged
it in discovery, and a delay of two or
three months between trial court's denial of
general contractor's motion to transfer venue
and general contractor's motion to compel
arbitration was not a substantial delay relative
to the timeline of the case as a whole.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Suing or participating in suit
Merely taking part in litigation is not
enough to show that a party substantially
invoked the judicial process, for the purpose
of determining whether the party impliedly
waived an arbitration right; rather, the
litigation conduct must demonstrate that the
party has substantially invoked the judicial
process to its opponent's detriment.
5 Cases that cite this headnote
[10] Alternative Dispute Resolution
Suing or participating in suit
A party's litigation conduct aimed at
defending itself and minimizing its litigation
expenses, rather than at taking advantage
of the judicial forum, does not amount to
substantial invocation of the judicial process,
for the purpose of determining whether the
party impliedly waived an arbitration right.
1 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[11] Alternative Dispute Resolution
Suing or participating in suit
Responding to discovery and simply being
named in a lawsuit while discovery is ongoing
do not amount to waiver of an arbitration
right.
Cases that cite this headnote
[12] Alternative Dispute Resolution
Suing or participating in suit
Property developer did not prove that it
suffered unfair prejudice as a result of
general contractor's litigation conduct in an
insurance-related dispute, so as to support
a conclusion that general contractor did not
impliedly waive its arbitration rights as set
forth in a contract between the parties, even
though general contractor might have had
access to more information as a result of the
litigation than if the dispute had originated in
arbitration; developer, not general contractor,
chose to initiate proceedings in the courts
rather than in arbitration, and general
contractor did not serve any request for
production, interrogatory, or deposition
notice in the case.
Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing or participating in suit
Detriment or prejudice from a party's
litigation conduct, for the purpose of
determining whether the party impliedly
waived an arbitration right, 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.
1 Cases that cite this headnote
[14] Alternative Dispute Resolution
Suing or participating in suit
Prejudice may result when a party seeking
arbitration first sought to use the judicial
3
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

process to gain access to information that arbitration regardless of whether general

would not have been available in arbitration,
but propounding discovery will not, in and
of itself, result in waiver of a right to compel
arbitration.
[18]
6 Cases that cite this headnote
[15] Alternative Dispute Resolution
Suing or participating in suit
Although a delay may be a factor both in
terms of whether a party moving to compel
arbitration has substantially invoked the
judicial process and whether the nonmovant
has suffered prejudice, mere delay is not
ordinarily enough to result in a waiver of
a right to compel arbitration, even if it is
substantial.
contractor waived any right to arbitration.
1 Cases that cite this headnote
Appeal and Error
Necessity of presentation in general
Appeal and Error
Incorporation of assignment of errors
An issue presented in a petition for review to
the Supreme Court must have been preserved
for appellate review in the trial court and
assigned as error in the court of appeals, but
only if the matter complained of originated in
the trial court. Tex. R. App. P. 53.2(f).
1 Cases that cite this headnote

2 Cases that cite this headnote [19] Appeal and Error

Nature of remedy by dismissal
Disposing of appeals for harmless procedural
[16] Alternative Dispute Resolution
defects is disfavored.
Waiver or Estoppel
Waiver of an arbitration right can be implied Cases that cite this headnote
from a party's unequivocal conduct, but not
by inaction.
[20] Appeal and Error
5 Cases that cite this headnote Defects, objections, and amendments
Appellate briefs are to be construed
reasonably, yet liberally, so that the right to
[17] Alternative Dispute Resolution
appellate review is not lost by waiver.
Presentation and reservation of grounds
for review Cases that cite this headnote
General contractor did not waive its argument
in the Supreme Court that arbitrators,
[21] Appeal and Error
not the courts, had to decide whether a
Scope of Inquiry in General
contractual deadline for initiating arbitration
When an error asserted in a petition for
of disputes with property developer barred
review in the Supreme Court first arose from
general contractor's demand for arbitration,
the judgment of the court of appeals, the
even though general contractor raised the
Supreme Court is not required to address and
argument for the first time in its petition
resolve the petitioner's related argument; in
for review in the Supreme Court; the alleged
the exercise of its discretionary jurisdiction,
error of which general contractor complained
the Supreme Court may elect to address the
did not originate in trial court but instead
issue, or not. Tex. R. App. P. 53.2(f).
first arose from the judgment of the court of
appeals, which, in response to an argument Cases that cite this headnote
raised for the first time by property developer
on appeal, held that the deadline precluded
[22] Appeal and Error

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
Scope of Inquiry in General
Supreme Court's decision on whether to
address and resolve an argument by a
petitioner for review related to an asserted
error that first arose from the judgment
of the court of appeals involves important
prudential considerations, such as the need to
conserve judicial resources, whether allowing
lower courts to first consider and rule on
the issue will further the goal of accuracy
in judicial decision-making, and the Supreme
Court's duty to promote fairness among
litigants. Tex. R. App. P. 53.2(f).
Cases that cite this headnote
[23] Alternative Dispute Resolution
Arbitrability of dispute
Alternative Dispute Resolution
Conditions precedent to arbitration;
procedural arbitrability
Question of whether a deadline in a contract
between property developer and general for
initiating arbitration operated to bar general
contractor's demand for arbitration of an
insurance-related dispute with developer was
a question of procedural arbitrability for
arbitrators to decide, as opposed to a question
of substantive arbitrability for the courts to
decide; the deadline did not determine the
present existence, enforceability, or scope of
the agreement to arbitrate the parties' disputes
but instead imposed a procedural limit on
the parties' rights under that agreement,
given that developer conceded the existence
of an enforceable arbitration agreement
that applied to its claims against general
contractor. Tex. Civ. Prac. & Rem. Code Ann.
§ 171.021(b).
5 Cases that cite this headnote
[24] Alternative Dispute Resolution
Right to Enforcement and Defenses in
General
When parties have contractually agreed to
arbitrate their future disputes, the courts'
obligation to honor and enforce that
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
agreement requires that they refer those
disputes to arbitration. Tex. Civ. Prac. &
Rem. Code Ann. § 171.021(a).
Cases that cite this headnote
[25] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Whether disputing parties made a valid and
presently enforceable agreement to arbitrate
and, if so, whether the present disputes
fall within the scope of that agreement
are sometimes referred to as “questions of
arbitrability.” Tex. Civ. Prac. & Rem. Code
Ann. § 171.021(b).
6 Cases that cite this headnote
[26] Alternative Dispute Resolution
Construction
In deciding questions of arbitrability, i.e.,
whether disputing parties made a valid and
presently enforceable agreement to arbitrate
and, if so, whether the present disputes fall
within the scope of that agreement, courts
apply the common principles of general
contract law to determine the parties' intent.
Tex. Civ. Prac. & Rem. Code Ann. §
171.021(b).
6 Cases that cite this headnote
[27] Alternative Dispute Resolution
Suing or participating in suit
Question of whether a party has waived its
right to arbitration by its conduct in litigation
is another way of asking the first question of
arbitrability, i.e., whether there is a presently
enforceable arbitration agreement; if a party's
conduct in litigation equates to a waiver of
its rights under the arbitration agreement,
there is no presently enforceable agreement to
arbitrate. Tex. Civ. Prac. & Rem. Code Ann.
§ 171.021(b).
9 Cases that cite this headnote
5
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
[28] Alternative Dispute Resolution
Persons affected or bound
Nonparties may be bound to an arbitration
clause when the rules of law or equity would
bind them to the contract generally.
Cases that cite this headnote
[29] Alternative Dispute Resolution
Persons entitled to enforce
Nonparties to a contract between property
developer and general contractor did not
have a legal right to enforce the contract's
arbitration provisions in an insurance-
related dispute with developer, even though
nonparties, which were insurance brokers,
subcontractor, and engineers, pointed to the
contract's joinder provision and definition of
“contractor”; the joinder provision permitted
the parties to the contract to consent to the
joinder of additional parties in the arbitration
but did not require them to do so, and the
contract expressly provided that the contract
documents were not to be construed to create
a contractual relationship between any person
or entities other than developer and general
contractor. Tex. Civ. Prac. & Rem. Code Ann.
§ 171.021(a).
Cases that cite this headnote
[30] Alternative Dispute Resolution
Persons entitled to enforce
As a general rule, an arbitration clause cannot
be invoked by a nonparty to the arbitration
contract.
4 Cases that cite this headnote
[31] Alternative Dispute Resolution
Waiver or Estoppel
Property developer's claims against
nonparties to a contract between developer
and general contractor for negligence and
breach of contract did not seek a direct
benefit under the general contract, and
thus direct benefit estoppel did not apply
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to allow nonparties, which were insurance
brokers, subcontractors, and engineers, to
compel developer to arbitrate its claims
against them pursuant to the general contract;
developer did not sue nonparties for breach
of obligations under the general contract but,
instead, alleged that they each breached duties
that each contractually agreed to perform
and failed to perform them as a reasonable
professional would have performed them, the
allegations referred to other contracts, not the
general contract, and even if developer's tort
claims sounded in contract, they did not arise
solely out of or otherwise seek direct benefits
under the general contract.
1 Cases that cite this headnote
[32] Alternative Dispute Resolution
Waiver or Estoppel
Under principles of equitable estoppel, a
litigant who sues based on a contract with an
arbitration provision cannot, on the one hand,
seek to hold a nonsignatory liable pursuant
to duties imposed by the contract but, on the
other hand, deny arbitration's applicability
because the defendant is a nonsignatory.
1 Cases that cite this headnote
[33] Alternative Dispute Resolution
Waiver or Estoppel
Equitable principle that a claimant cannot
both seek to hold a nonsignatory liable
pursuant to duties imposed by a contract
containing an arbitration provision and
deny arbitration's applicability because the
defendant is a nonsignatory applies when
a claimant seeks direct benefits under the
contract.
Cases that cite this headnote
[34] Alternative Dispute Resolution
Waiver or Estoppel
Whether a claim seeks a direct benefit from
a contract containing an arbitration clause
turns on the substance of the claim, not
6
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
artful pleading, for the purpose of determining
the applicability of “direct benefits estoppel,”
which bars a claimant from both seeking to
hold a nonsignatory liable pursuant to duties
imposed by contract and denying arbitration's
applicability because the defendant is a
nonsignatory.
4 Cases that cite this headnote
[35] Alternative Dispute Resolution
Waiver or Estoppel
For direct benefits estoppel to apply to
bar a claimant from both seeking to
hold a nonsignatory liable pursuant to
duties imposed by a contract containing
an arbitration provision and denying
arbitration's applicability because the
defendant is a nonsignatory, it is not enough
that a party's claim relates to the contract;
instead, the party must seek to derive a “direct
benefit,” that is, a benefit that stems directly,
from that contract.
1 Cases that cite this headnote
[36] Alternative Dispute Resolution
Waiver or Estoppel
For a claim to seek a direct benefit from a
contract containing an arbitration provision,
as required for direct benefit estoppel to
apply to bar a claimant from both seeking
to hold a nonsignatory liable pursuant
to duties imposed by the contract and
denying arbitration's applicability because the
defendant is a nonsignatory, the claim must
depend on the existence of the contract and
be unable to stand independently without the
contract.
4 Cases that cite this headnote
[37] Alternative Dispute Resolution
Waiver or Estoppel
For a claim to seek a direct benefit from a
contract containing an arbitration provision,
as required for direct benefit estoppel to
apply to bar a claimant from both seeking
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to hold a nonsignatory liable pursuant
to duties imposed by the contract and
denying arbitration's applicability because
the defendant is a nonsignatory, the alleged
liability must arise solely from the contract or
must be determined by reference to it.
2 Cases that cite this headnote
[38] Alternative Dispute Resolution
Waiver or Estoppel
When the substance of a claim arises from
general obligations imposed by state law,
including statutes, torts, and other common
law duties, or federal law, rather than from a
contract containing an arbitration provision,
direct benefits estoppel does not apply, even if
the claim refers to or relates to the contract.
4 Cases that cite this headnote
[39] Alternative Dispute Resolution
Operation and Effect
Contracts between general contractor and
subcontractors did not require property
developer to arbitrate its claims against
subcontractors for negligence and breach
of contractual duties, even assuming that
the subcontracts were binding on developer,
and even though the subcontracts contained
arbitration provisions; another provision in
each subcontract stated that subcontractor
expressly agreed, notwithstanding any
provision to the contrary in the
contract documents, that the subcontract
did not contain a provision for the
mandatory arbitration of disputes, and
even though the arbitration provisions and
the notwithstanding provision conflicted,
the notwithstanding provision specifically
provided that in the event of any conflict, the
notwithstanding provision would prevail.
4 Cases that cite this headnote
7
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
*508 ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE THIRTEENTH
DISTRICT OF TEXAS
Attorneys and Law Firms
Calvin Burgess, John B. Wallace, Timothy Leo Nebel,
Hartline Dacus Barger Dreyer LLP, Houston, for
Petitioner ZCA Residential, LLC.
Charles Clayton Conrad, Edward S. Hubbard, Coats,
Rose, Yale, Ryman & Lee, PC, Gilberto Hinojosa,
Law Offices of Gilberto Hinojosa & Associates, P.C.,
Brownsville, Lawrence J. West, Stephen Douglas Pritchett
Jr., Johnson, Trent, West & Taylor, L.L.P., Houston, for
Petitioner G.T. Leach Builders, L.L.C.
Aaron Tilley, Cozen O'Connor, Dallas, Joseph
A. Ziemianski, Stephen Bender Edmundson, Cozen
O'Connor, Houston, for Petitioner CHP and Associates,
Consulting Engineers, Inc.
Brian Christopher Lopez, Engvall & Lopez, L.L.P.,
Jennifer Bruch Hogan, Richard P. Hogan Jr., Hogan &
Hogan, Houston, for Petitioner Comfort Systems USA–
South Central.
Andrew T. McKinney IV, Daniel W. Burrows, Litchfield
Cavo, LLP, Houston, for Petitioner Power Design, Inc.
Ethan Dennis Carlyle, James M. Cleary Jr., Martin
Disiere Jefferson & Wisdom LLP, Houston, for Petitioner
Adams Insurance Service, Inc.
Jeremy J. Gaston, Walter J. Cicack, Hawash, Meade,
Gaston, Neese & Cicack LLP, Houston, for Petitioner
Arthur J. Gallagher Risk Management Services, Inc.
Frank Costilla, Law Offices of Frank Costilla, L.P.,
Brownsville, Jonathan Daniel Simon, Simon Law Firm,
Richard D. Daly, Daly & Black, P.C., Houston, Melissa
Waden Wray, Daly & Black, P.C., Waco, for Respondent
Sapphire VP, LP.
Opinion
Justice Boyd delivered the opinion of the Court.
Texas law encourages parties to resolve disputes through
arbitration, 1 but it will not force them to arbitrate unless
they have agreed to that alternative. 2
If they have,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
or if they are equitably estopped *509 from denying
their assent to such an agreement, courts must honor
the agreement by referring the disputes to arbitration
unless the party demanding arbitration has waived that
right by substantially participating in the litigation. We
apply these principles in this case to determine whether
a property developer must arbitrate its claims against
several defendants involved in a construction project.
The trial court denied all of the defendants' motions to
compel arbitration, and the court of appeals affirmed. We
hold that (1) the developer agreed to arbitrate its claims
against the general contractor and the general contractor
did not waive its right to demand arbitration; (2) the
developer's argument that a contractual deadline bars
the general contractor's demand for arbitration is itself a
claim that must be arbitrated; (3) the developer did not
agree in the general contract to arbitrate its claims against
the other defendants; (4) the developer is not equitably
estopped from denying any such agreement; and (5) the
subcontracts do not contain an enforceable arbitration
agreement. In short, we hold that the developer must
arbitrate its claims against the general contractor but not
its claims against the other defendants.
I.
Background
In July 2008, Hurricane Dolly caused extensive damage
to a luxury condominium project that Sapphire V.P., L.P.
was in the process of developing on South Padre Island.
Sapphire filed suit against Adams Insurance Services,
Inc., Arthur J. Gallagher Risk Management, and Tracy
Williams (collectively, the Insurance Brokers), asserting
claims for negligence and breach of contract. Sapphire
alleged that, eight days before the hurricane hit, the
Insurance Brokers allowed a builder's risk insurance
policy to expire and be replaced by a permanent insurance
policy even though construction of the project was not yet
complete. Sapphire sought to recover millions of dollars
for water damage, increased construction costs, delay
costs, lost revenue, and other losses that the builder's risk
policy allegedly covered or should have covered but the
permanent policy did not.
More than two-and-a-half years after the hurricane
struck, the Insurance Brokers designated several others
as responsible third parties: (1) the project's general
8
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
contractor, G.T. Leach Builders, L.L.C.; (2) two of
G.T. Leach's subcontractors, Power Design, Inc. and
Atlas Comfort Systems USA, LLC 3 (collectively, the
Subcontractors); and (3) an engineering contractor, CHP
& Associates Consulting Engineers, Inc., and its employee
Mark Janneck (collectively, the Engineers). 4 Sapphire,
in turn, promptly amended its petition to name these
parties as defendants, alleging that their negligence and
contractual breaches resulted in construction defects that
caused the condominium project to sustain the water
damage that resulted in the uncovered losses. Although
Sapphire asserted these claims within the four-year statute
of limitations applicable to claims *510 for breach of
contract, the two-year statute of limitations on negligence
claims had already expired. At that time, however, Texas
law allowed a claimant to assert claims against a party
designated as a responsible third party even though the
statute of limitations barred the claim. 5
[1] After pursuing pretrial motions and participating
in discovery, G.T. Leach—the general contractor—
moved to compel arbitration and stay the litigation,
relying on an arbitration agreement contained in its
general contract with Sapphire. The Insurance Brokers,
Subcontractors, and Engineers (collectively, the Other
Defendants) subsequently filed similar motions, also
relying on the arbitration agreement in the general
contract, even though they never signed that contract.
The Subcontractors relied, in addition, on language in
their subcontracts with G.T. Leach, even though Sapphire
never signed the subcontracts. The trial court denied
all of the motions without explaining its reasons. The
defendants pursued an interlocutory appeal, the court
of appeals affirmed, 6 and we granted the defendants'
petitions for review. 7
II.
G.T. Leach
We first consider whether G.T. Leach can compel
arbitration. In the general contract, G.T. Leach and
Sapphire agreed that “[a]ny Claim arising out of or
related to the Contract ... shall ... be subject to agreed
private arbitration” and “shall be decided by binding
arbitration.” 8 Sapphire *511 concedes that this is a valid
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitration agreement and that it applies to Sapphire's
claims against G.T. Leach, but contends that G.T. Leach
expressly and impliedly waived its right to demand
arbitration. Alternatively, Sapphire argues that G.T.
Leach failed to demand arbitration prior to a deadline
that the contract expressly imposes. The court of appeals
agreed with Sapphire's second argument and did not
reach its first. We conclude that (1) G.T. Leach did not
waive its arbitration rights, and (2) the issue of whether
the contractual deadline bars G.T. Leach's demand for
arbitration is one that the arbitrators—not the courts—
must decide. Because the waiver argument challenges G.T.
Leach's ability to rely on the arbitration agreement at all,
we address it first.
A. Waiver of Right to Arbitration
[2] [3] Sapphire asserts that G.T. Leach has waived
its right to enforce their arbitration agreement. Waiver
—the “intentional relinquishment of a known right”—
can occur either expressly, through a clear repudiation
of the right, or impliedly, through conduct inconsistent
with a claim to the right. Perry Homes, 258 S.W.3d at
590–91, 594; Moayedi v. Interstate 35/Chisam Rd., L.P.,
438 S.W.3d 1, 6 (Tex.2014). Sapphire argues that G.T.
Leach both expressly and impliedly waived its right to
compel arbitration in this case. The trial court agreed
and denied G.T. Leach's motion to compel arbitration,
but the court of appeals did not reach the issue. Both
parties have fully briefed the issue and urge us to decide
it here. When, as here, the relevant facts are undisputed,
whether a party waived its right to arbitrate is a question of
law. Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542,
545 (Tex.2014) (per curiam); Perry Homes, 258 S.W.3d at
598 & n.102. At the parties' mutual request, we reach the
issue here to avoid unnecessary delay. See, e.g., Placencio
v. Allied Indus. Int'l, Inc., 724 S.W.2d 20, 22 (Tex.1987)
(reaching, rather than remanding, issue of law not reached
by court of appeals “[t]o avoid unnecessary delay”). Based
on the undisputed facts, we conclude that G.T. Leach has
not waived its right to arbitration.
1. Express Waiver
[4] Sapphire first argues that G.T. Leach expressly waived
its arbitration rights by seeking a continuance and
agreeing to a new trial date. Specifically, Sapphire notes
that G.T. Leach filed (jointly with the other defendants) a
motion for continuance stating that “there is insufficient
time for the parties to prepare this case with the current
9
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
trial setting” and discovery “cannot be completed prior
to the current trial setting.” When the parties agreed
to postpone the trial setting, G.T. Leach then signed
a Rule 11 agreement in which all parties agreed to a
scheduling order and a new trial date. We do not agree that
the statements contained in these documents expressly
relinquish and repudiate a right to arbitration. As we
explained when addressing nearly identical statements in
In re Fleetwood Homes of Texas, L.P., “[n]othing in [these
statements] expressly waives arbitration or revokes [an]
arbitration demand.” 257 S.W.3d 692, 694 (Tex.2008); see
also In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007)
(per curiam) (holding that filing of motion to set aside
default judgment and set new trial date does not expressly
waive arbitration rights). Although the acts of requesting
and then agreeing to a new trial date could be inconsistent
with an intent to exercise the right to arbitrate, they do not
constitute an express waiver of that right.
2. Implied Waiver
[5] [6] A party asserting implied waiver as a defense
to arbitration has the burden *512 to prove that
(1) the other party has “substantially invoked the
judicial process,” which is conduct inconsistent with
a claimed right to compel arbitration, and (2) the
inconsistent conduct has caused it to suffer detriment
or prejudice. Perry Homes, 258 S.W.3d at 593–94; see
also Gobellan, 433 S.W.3d at 545. Because the law favors
and encourages arbitration, “this hurdle is a high one.”
Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C.,
455 S.W.3d 573, 575 (Tex.2014) (per curiam) (quoting
Perry Homes, 258 S.W.3d at 589–90). We conclude that
Sapphire has not cleared the hurdle in this case.
a. Litigation Conduct
[7] Whether a party has substantially invoked the judicial
process depends on the totality of the circumstances. Perry
Homes, 258 S.W.3d at 589–90. Courts consider a “wide
variety” of factors, including:
• how long the party moving to compel arbitration
waited to do so;
• the reasons for the movant's delay;
• whether and when the movant knew of the arbitration
agreement during the period of delay;
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
• how much discovery the movant conducted before
moving to compel arbitration, and whether that
discovery related to the merits;
• whether the movant requested the court to dispose of
claims on the merits;
• whether the movant asserted affirmative claims for
relief in court;
• the extent of the movant's engagement in pretrial
matters related to the merits (as opposed to matters
related to arbitrability or jurisdiction);
• the amount of time and expense the parties have
committed to the litigation;
• whether the discovery conducted would be unavailable
or useful in arbitration;
• whether activity in court would be duplicated in
arbitration;
• when the case was to be tried.
Perry Homes, 258 S.W.3d at 590–91.
[8] [9] Sapphire first initiated this lawsuit against the
Insurance Brokers in 2009. In the summer of 2010, it
filed a separate lawsuit in Harris County, Texas, against
the architects who designed the condominium project,
seeking to recover essentially the same damages arising
from Hurricane Dolly. Six months later, Sapphire added
G.T. Leach to the Harris County lawsuit, and four
months after that, Sapphire named G.T. Leach as a
defendant in this lawsuit. G.T. Leach moved to compel
arbitration the following November. Sapphire asserts that
G.T. Leach's actions in this case between May 2011
and November 2012 amount to waiver of any right it
has to arbitrate Sapphire's claims. Sapphire contends
that G.T. Leach waived its arbitration rights through its
actions between May 2011 and November 2012, primarily
by filing counterclaims, filing motions for relief, and
participating in pretrial discovery. “Merely taking part
in litigation,” however, “is not enough.” In re D. Wilson
Constr. Co., 196 S.W.3d 774, 783 (Tex. 2006) (citations
omitted). Rather, that conduct must demonstrate that the
party “has substantially invoked the judicial process to
[its] opponent's detriment.” Id. (citing In re Vesta Ins. Grp.,
Inc., 192 S.W.3d 759, 762 (Tex. 2006) (per curiam)).
10
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
In considering the relevant factors, we note first that G.T.
Leach did not elect to resolve its disputes with Sapphire
in court; rather, it is in this lawsuit because Sapphire
sued it. See Perry Homes, 258 S.W.3d at 591 (noting that
one factor is whether party seeking arbitration was *513
plaintiff who chose to file suit or defendant responding
to suit filed against it). Although G.T. Leach asserted a
counterclaim against Sapphire in the Harris County suit,
it did not assert counterclaims seeking affirmative relief in
this lawsuit. The counterclaim G.T. Leach filed in Harris
County was defensive in nature, and our rules required
G.T. Leach to file it or risk losing it altogether. See TEX.
R. CIV. P. 97(a) (defining compulsory counterclaims).
We have held that “[m]erely filing suit does not waive
arbitration,” Richmont Holdings, 455 S.W.3d at 576,
and we have declined to find waiver of the right to
arbitrate when a movant filed cross-actions in litigation,
see D. Wilson Constr., 196 S.W.3d at 783. Moreover,
G.T. Leach never sought disposition of its Harris County
counterclaim on the merits; instead it merely took the
action necessary to preserve that claim once Sapphire
initiated a lawsuit arising out of the same subject matter.
Nor did G.T. Leach ever seek summary judgment or
dismissal of Sapphire's claims on the merits. See Richmont
Holdings, 455 S.W.3d at 575 (observing that whether
movant sought “disposition on the merits” is key factor in
deciding waiver); see also Perry Homes, 258 S.W.3d at 592
(observing that “whether the movant sought judgment on
the merits” is a factor).
Instead, G.T. Leach first and primarily sought to transfer
venue of this case to Harris County, or alternatively to
abate this case while the Harris County case was resolved.
Rather than driving up litigation costs—another factor
courts consider for waiver—G.T. Leach endeavored to
create efficiency by defending Sapphire's claims in a
single venue. Perry Homes, 258 S.W.3d at 591. We
have rejected arguments relying on venue challenges to
establish waiver because such challenges do not relate
to the merits of the case. See Richmont Holdings, 455
S.W.3d at 576 (also noting that under rules of procedure,
“objections to improper venue must be made at the outset
of the case”); In re Serv. Corp. Int'l, 85 S.W.3d 171,
175 (Tex.2002) (holding that parties did not waive right
to arbitrate by seeking to move litigation from state to
federal court); In re ADM Investor Servs., Inc., 304 S.W.3d
371, 374 (Tex.2010) (applying Perry Homes test in context
of forum-selection clauses and holding that motion to
transfer venue did not waive contractual right).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[10] In addition to its venue challenge, G.T. Leach
filed motions to designate responsible third parties, for
continuance, and to quash depositions. These motions,
however, were defensive, rather than offensive, in nature.
A party's litigation conduct aimed at defending itself
and minimizing its litigation expenses, rather than at
taking advantage of the judicial forum, does not amount
to substantial invocation of the judicial process. See
Richmont Holdings, ––– S.W.3d at ––––; see also Keytrade
USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897
(5th Cir.2005) (declining to find waiver where movant
sought summary judgment “from a defensive posture”);
Rodriguez v. Transnave Inc., 8 F.3d 284, 288 (5th Cir.1993)
(declining to find waiver where movant voluntarily
appeared in suit and sought removal because it was
“purely defensive action to preserve its right of removal
and to avoid any possibility of a default judgment”).
[11] Finally, G.T. Leach participated in pretrial
discovery, but it did so because Sapphire engaged it in
discovery. Sapphire complains that because the parties
agreed to conduct discovery jointly for both cases, all
discovery propounded by any party was available to
all parties, such that G.T. Leach has received copies of
documents produced by other parties and transcripts of
depositions taken by other *514 parties. Sapphire asserts
that G.T. Leach acted inconsistently with its right to
arbitrate both when it responded to discovery requests
and when it resisted discovery by seeking to quash a
deposition notice. Responding to discovery and simply
being named in the lawsuit while discovery is ongoing do
not amount to waiver. To the contrary, we have declined
to find waiver even when the movant itself propounded
written discovery. See, e.g., Fleetwood Homes, 257 S.W.3d
at 694; In re Bruce Terminix, Co., 988 S.W.2d 702, 703–
04 (Tex.1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d
87, 88–89 (Tex.1996). Nor does G.T. Leach's motion to
quash, in which it objected to the time and place of a
deposition notice served on it by Sapphire, amount to an
affirmative invocation of the judicial forum.
The only discovery that G.T. Leach actually propounded
was a form request for disclosure that G.T. Leach included
in its answer in the case. See TEX. R. CIV. P. 194.1
(providing required form for requests for disclosure). Such
requests seek basic information about a lawsuit: who are
the parties and witnesses, what are the theories, and how
much is at stake? A defendant needs this information to
11
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
make intelligent decisions about how to defend the suit,
and as we have stated, a party may protect its existing
litigation rights from forfeiture without waiving its right to
arbitration. We have declined to find waiver of the right to
arbitrate in other cases where the movant made a request
for disclosure. See Richmont Holdings, 455 S.W.3d at 575;
Vesta Ins., 192 S.W.3d at 763.
G.T. Leach also designated experts and responsible third
parties, but these actions were also defensive in nature
and necessary to preserve G.T. Leach's rights. If G.T.
Leach had failed to timely designate experts, it would have
forfeited the right to present expert witnesses if the suits
went to trial. See TEX. R. CIV. P. 193.6(a). Likewise,
G.T. Leach had to designate responsible third parties by
the deadline imposed in the scheduling order. G.T. Leach
did not create the need to timely designate experts and
responsible third parties by agreeing to a scheduling order:
the rules of civil procedure impose a default deadline for
expert designations when the court has not set one, and
the Civil Practice and Remedies Code imposes a deadline
for designating responsible third parties. TEX. R. CIV. P.
195.2; TEX. CIV. PRAC. & REM. CODE § 33.004(a).
While we agree that G.T. Leach could have been more
prompt in seeking arbitration, most of the delay of
which Sapphire complains occurred either during the
eighteen months before Sapphire added G.T. Leach to this
case or during the four-plus months during which G.T.
Leach sought to transfer venue. See TEX. R. CIV. P.
86 (governing order of pleadings for motion to transfer
venue). The delay between the trial court's denial of the
motion to transfer venue and G.T. Leach's motion to
compel arbitration was between two and three months.
We conclude that three months is not a substantial delay
relative to the timeline of this case as a whole. Cf.
Fleetwood Homes, 257 S.W.3d at 694 (no waiver despite
eight-month delay); Vesta Ins., 192 S.W.3d at 763 (no
waiver despite two-year delay).
Considering the totality of the circumstances, we hold that
G.T. Leach has not substantially invoked the litigation
process in contravention of its contractual right to
arbitration. See Perry Homes, 258 S.W.3d at 589–90
(adopting totality-of-the-circumstances test). As in several
cases involving similar or greater participation in litigation
than occurred here, we decline to find waiver under these
circumstances. See Richmont Holdings, 455 S.W.3d at 576
*515 (holding that movant did not waive arbitration
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
rights by initiating lawsuit, invoking forum-selection
clause, moving to transfer venue, propounding request for
disclosure, and waiting nineteen months after being sued
to move for arbitration); Fleetwood Homes, 257 S.W.3d
at 694 (holding that movant did not waive arbitration
rights by noticing deposition, serving written discovery,
and waiting eight months to move for arbitration); Bruce
Terminix, 988 S.W.2d at 703–04 (holding that movant did
not waive arbitration rights by propounding requests for
production and interrogatories and waiting six months
to seek arbitration); Mancias, 934 S.W.2d at 88–89
(holding that movant did not waive arbitration rights
by propounding written discovery, noticing deposition,
agreeing to reset trial date, and waiting nearly a year to
move for arbitration).
b. Prejudice
[12] [13] [14] [15] [16] Nor has Sapphire proven
that it suffered unfair prejudice as a result of G.T.
Leach's litigation conduct. Detriment or prejudice, in
this context, 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.’
” In re Citigroup Global Mkts., Inc., 258 S.W.3d 623,
625 (Tex.2008) (per curiam) (quoting Perry Homes, 258
S.W.3d at 597). Prejudice may result when a party seeking
arbitration first sought to use the judicial process to gain
access to information that would not have been available
in arbitration, but propounding discovery will not, in and
of itself, result in waiver of a right to compel arbitration.
Bruce Terminix, 988 S.W.2d at 704. Similarly, while delay
may be a factor both in terms of whether the movant
has substantially invoked the judicial process and whether
the nonmovant has suffered prejudice, mere delay is not
ordinarily enough, even if it is substantial. Richmont
Holdings, 455 S.W.3d at 576; see also Fleetwood Homes,
257 S.W.3d at 694 (eight-month delay); Vesta Ins., 192
S.W.3d at 763 (two-year delay). “Waiver can be implied
from a party's unequivocal conduct, but not by inaction.”
ADM Investor, 304 S.W.3d at 374 (citing Perry Homes,
258 S.W.3d at 593).
G.T. Leach may have had access to more information as a
result of this litigation than if Sapphire's dispute with G.T.
Leach had originated in arbitration. But Sapphire, not
G.T. Leach, chose to initiate this suit in the courts rather
than arbitration, and G.T. Leach did not serve a single
12
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
request for production, interrogatory, or deposition notice
in the case. Sapphire's contention (discussed below) that it
has been prejudiced by the delay because the contractual
deadline for initiating arbitration expired before G.T.
Leach moved to compel arbitration is unavailing because
that deadline expired before Sapphire even named G.T.
Leach a party to this suit.
In summary, although we agree that G.T. Leach could
have demanded waiver more promptly than it did, we hold
that the totality of the circumstances do not establish that
G.T. Leach substantially invoked the judicial process to
the extent required to demonstrate a waiver of its right
to arbitration, and its participation in the litigation has
not caused Sapphire the kind of prejudice necessary to
clear the “high hurdle” of waiver. We thus conclude that
G.T. Leach has not impliedly waived its right to demand
arbitration in this case.
B. Contractual Deadline
We now turn to Sapphire's contention that a contractual
deadline bars G.T. Leach's arbitration demand. The
deadline at issue provides that any
*516 demand for arbitration shall
be made within ... a reasonable time
after the Claim has arisen, and in no
event shall it be made after the date
when institution of legal or equitable
proceedings based on such Claim
would be barred by the applicable
statute of limitations as determined
pursuant to Section 13.7.
The court of appeals agreed with Sapphire that this
deadline bars G.T. Leach's demand for arbitration
because the statute of limitations had run on Sapphire's
claims by the time G.T. Leach made its demand. 9 G.T.
Leach argues that the court should not have addressed the
contractual deadline at all, because Sapphire's contention
that the deadline bars G.T. Leach's arbitration demand
is itself an issue that Sapphire agreed to resolve through
arbitration. In other words, G.T. Leach argues that only
the arbitrators—and not the courts—can decide whether
the contractual deadline bars G.T. Leach's demand for
arbitration. In response, Sapphire asserts that G.T. Leach
waived this argument by failing to raise it in the trial court
or the court of appeals. We conclude that G.T. Leach
did not waive the argument, and we agree that the courts
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
must defer to the arbitrators to determine the meaning and
effect of the contractual deadline.
1. Waiver
[17] [18] Sapphire contends that G.T. Leach waived its
argument that only the arbitrators can decide Sapphire's
contractual-deadline defense because G.T. Leach failed
to raise the argument in the trial court or in the court
of appeals. In support, Sapphire relies on our well-
established error-preservation rules, which preclude a
party from seeking appellate review of an issue that the
party did not properly raise in the trial court. See TEX.
R. APP. P. 33.1(a)(1) (“As a prerequisite to presenting
a complaint for appellate review, the record must show
that ... the complaint was made to the trial court ....”); see
also In re B.L.D., 113 S.W.3d 340, 350 (Tex.2003) (listing
cases for proposition that “error [must be] preserved in the
trial court”). 10 These rules do not apply here, however,
because Sapphire first raised its contractual-deadline
defense in the court of appeals, not in the trial court.
Under our rules, an issue *517 presented in a petition
for review to this Court must have “been preserved for
appellate review in the trial court and assigned as error in
the court of appeals,” but only “[i]f the matter complained
of originated in the trial court.” TEX. R. APP. P. 53.2(f).
In the trial court, Sapphire argued only that G.T.
Leach waived its right to arbitration by participating in
the litigation. The only time Sapphire referred to the
contractual deadline in the trial court was to support
its waiver-by-litigation defense and, in particular, its
contention that G.T. Leach's participation in the litigation
was prejudicial to Sapphire. 11 Sapphire never asserted in
the trial court that the contractual deadline independently
bars G.T. Leach's arbitration demand. G.T. Leach thus
had no reason to argue in the trial court that the
arbitrators, rather than the court, must resolve that
assertion. On this point, there was no error for G.T. Leach
to preserve in the trial court.
[19] [20] Sapphire first relied on the contractual deadline
as an independent bar to G.T. Leach's arbitration demand
in its appellee's brief in the court of appeals, and the
error that G.T. Leach now complains of (i.e., that the
court of appeals should not have decided that issue) first
arose from the court of appeals' judgment. Although G.T.
Leach could have made this argument in its reply brief
or in a motion for rehearing in the court of appeals, 12
13
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
our rules do not require petitioners to have made in the
court of appeals all arguments that are responsive to
arguments that a respondent raised for the first time in
that court. See Key Operating & Equip., Inc. v. Hegar,
435 S.W.3d 794, 797 (Tex.2014) (“An issue raised in this
Court must have been assigned as error in the court
of appeals if it originated in the trial court.”) (emphasis
added). Instead, we have held that when the petitioner's
argument or complaint first arises “from the court of
appeals' judgment,” it “may be raised either in a motion
for rehearing in the court of appeals or in a petition for
review in this Court.” Bunton v. Bentley, 153 S.W.3d 50,
53 (Tex.2004) (holding that petitioner's *518 “complaint
that the exemplary damages were unconstitutionally
excessive arose from the court of appeals' judgment and
may therefore be raised in this Court for the first time”)
(citing Larsen v. FDIC/Manager Fund, 835 S.W.2d 66, 74
n.12 (Tex.1992)).
Our decision in Gilbert Texas Construction, L.P. v.
Underwriters at Lloyd's London illustrates this point. 327
S.W.3d 118, 125 (Tex.2010). In that case, Gilbert sued
Underwriters for breach of contract after Underwriters
denied coverage of Gilbert's insurance claim. On cross-
motions for summary judgment, the trial court agreed
with Gilbert, and having won on the issue of coverage,
Gilbert had no obligation to preserve any error in the trial
court's judgment. Id. Underwriters appealed, however,
and argued in the court of appeals that an exclusion
to the policy's coverage applied. In that court, Gilbert
did not dispute that the exclusion applied, but instead
argued that an exception to the exclusion also applied,
thus resulting in coverage. The court of appeals reversed
and rendered judgment for Underwriters, finding that the
exclusion applied and the exception did not. Id. In its
petition for review in this Court, Gilbert argued both that
the exclusion did not apply and, if it did, the exception to
the exclusion applied as well. Pet. for Review at ix, Gilbert
Tex. Constr., 327 S.W.3d 118, 2008 WL 2195918, at *6,
*12. Underwriters then asserted that Gilbert had waived
its argument that the exclusion did not apply by failing to
raise it in the court of appeals, but we disagreed. Gilbert
Tex. Constr., 327 S.W.3d at 125. “While ordinarily a party
waives a complaint not raised in the court of appeals,” we
explained, “a complaint arising from the court of appeals'
judgment may be raised either in a motion for rehearing
in that court or in a petition for review in this Court.” Id.
(citing TEX. R. APP. P. 53.2(f); Bunton, 153 S.W.3d at
53). 13
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Here, when Sapphire argued for the first time in the court
of appeals that the contractual deadline is an independent
bar to G.T. Leach's arbitration demand, G.T. Leach
neither conceded nor disputed that the court of appeals
could decide that issue, and instead argued only that the
bar did not apply. After the court of appeals held, for the
first time in this case, that the bar applied and precluded
arbitration regardless of whether G.T. Leach waived any
right to arbitration, G.T. Leach asserted in its petition for
review in this Court both that the court could not decide
that issue and, if it could, the bar does not apply. Because
the error of which G.T. Leach complains did not originate
in the *519 trial court and first arose from the court of
appeals' judgment, G.T. Leach did not waive its complaint
by raising it for the first time in its petition for review in
this Court.
[21] [22] That is not to say that we must address and
resolve an argument that the petitioner failed to raise
in the court of appeals whenever the asserted error
arose from that court's judgment. In the exercise of its
discretionary jurisdiction, a court may elect to address
the issue, or not. See, e.g., United States v. Williams,
504 U.S. 36, 41, 44–45, 112 S.Ct. 1735, 118 L.Ed.2d 352
(1992) (finding it “a permissible exercise of our discretion”
to address an issue that was not “pressed or passed
upon” in the appellate court in the case presently before
the Court). The decision involves “[i]mportant prudential
considerations,” such as the need to conserve judicial
resources, whether allowing lower courts to first consider
and rule on the issue will “further the goal of accuracy
in judicial decision-making,” and our duty to “promote
fairness among litigants.” In re B.L.D., 113 S.W.3d at 350.
We conclude that G.T. Leach did not waive its right to
argue that the arbitrators, rather than the courts, must
decide the effect of the contractual-deadline issues, and we
elect to exercise our discretionary jurisdiction to resolve
that argument now.
2. Arbitrability of the Deadline
[23] [24] We now turn to the question of who should
decide whether the contractual deadline bars G.T. Leach's
demand for arbitration in this case. Ultimately, this is a
question of the parties' intent as expressed in their written
agreement. When parties have contractually agreed to
arbitrate their future disputes, the courts' obligation to
honor and enforce that agreement requires that they
refer those disputes to arbitration. The Texas Arbitration
14
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
Act (TAA) 14 thus provides that courts “shall order the
parties to arbitrate on application of a party showing: (1)
an agreement to arbitrate; and (2) the opposing party's
refusal to arbitrate.” TEX. CIV. PRAC. & REM. CODE §
171.021(a) (emphasis added); In re FirstMerit Bank, N.A.,
52 S.W.3d 749, 753–54 (Tex.2001) (“Once the trial court
concludes that the arbitration agreement encompasses the
claims, and that the party opposing arbitration has failed
to prove its defenses, the trial court has no discretion but to decide. See BG Group, PLC v. Republic of Arg., –––U.S.
to compel arbitration and stay its own proceedings.”)
[25] [26] The courts' role, then, is first to decide 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). In Howsam, a
whether the parties made a valid and presently enforceable
agreement to arbitrate. TEX. CIV. PRAC. & REM.
CODE § 171.021(b) (“If a party opposing an application
[for arbitration] denies the existence of the agreement, the adopted as part of their arbitration agreement. 537 U.S.
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. See id.; In re
Hous. Pipe Line Co., 311 S.W.3d 449, 451 (Tex.2009);
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227
(Tex.2003). These questions that courts must resolve are
sometimes referred to as questions of “arbitrability.”
*520 See, e.g., Hous. Pipe Line, 311 S.W.3d at 451–52;
Perry Homes, 258 S.W.3d at 587–92. 15 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. See TEX. CIV. PRAC. & REM. CODE
§ 171.021; Venture Cotton Co-op. v. Freeman, 435 S.W.3d
222, 232 (Tex.2014).
[27] We have also recognized that the question of whether
a party has waived its right to arbitration through its
litigation conduct is a question of arbitrability for the
courts to decide. Perry Homes, 258 S.W.3d at 588.
We concluded that this is a question of arbitrability,
rather than a question to be arbitrated, because (1)
“[c]ontracting parties would expect the court to decide
whether one party's conduct before the court waived the
right to arbitrate,” (2) it is a “gateway” matter regarding
“whether the parties have submitted a particular dispute
to arbitration,” and (3) “courts decide defenses relating
solely to the arbitration clause.” Id. at 588–89. In essence,
the question of whether a party has waived its right to
arbitration by its conduct in litigation is just another
way of asking the first question of arbitrability: whether
there is a presently enforceable arbitration agreement. If a
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
party's conduct in litigation equates to a waiver of its rights
under the arbitration agreement, there is no presently
enforceable agreement to arbitrate.
In this regard, the United States Supreme Court has
recognized a distinction between questions of “substantive
arbitrability”—which courts decide—and “procedural
arbitrability”—which courts must refer to the arbitrators
––––, 134 S.Ct. 1198, 1206–07, 188 L.Ed.2d 220 (2014);
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 81,
brokerage firm argued that its client could not initiate
an arbitration because the client failed to do so within
a six-year deadline that the parties had contractually
at 81, 123 S.Ct. 588. The Court held that this was not a
question of arbitrability for the courts to decide. Id. at
83, 123 S.Ct. 588. Although the Court acknowledged that,
“[l]inguistically speaking, one might call any potentially
dispositive gateway question a ‘question of arbitrability,’
” it explained that “the phrase ‘question of arbitrability’
has a far more limited scope” and does not encompass “
‘procedural’ questions which grow out of the dispute and
bear on its final disposition” or “allegation[s] of waiver,
delay, or a like defense.” Id. at 84, 123 S.Ct. 588 (citation
omitted). Quoting the Revised Uniform Arbitration Act
of 2000, the Court explained that, “in the absence
of an agreement to the contrary, issues of substantive
arbitrability ... are for a court to decide and issues of
procedural arbitrability, i.e., whether prerequisites such as
time limits, notice, laches, estoppel, and other conditions
precedent to an obligation to arbitrate have been met,
are for the arbitrators to decide.” Id. at 81, 123 S.Ct. 588
(emphasis and citation omitted, ellipsis in Howsam ).
The Supreme Court reiterated this distinction in
BG Group, further clarifying the difference between
substantive arbitrability questions addressing the
existence, enforceability, and scope of an agreement
*521 to arbitrate (which courts decide), and procedural
arbitrability questions addressing the construction and
application of limits on that agreement (which only
arbitrators can decide):
On the one hand, courts presume that the parties intend
courts, not arbitrators, to decide what we have called
disputes about “arbitrability.” These include questions
such as “whether the parties are bound by a given
arbitration clause,” or “whether an arbitration clause
15
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
in a concededly binding contract applies to a particular
type of controversy.”
On the other hand, courts presume that the parties
intend arbitrators, not courts, to decide disputes
about the meaning and application of particular
procedural preconditions for the use of arbitration.
These procedural matters include claims of “waiver,
delay, or a like defense to arbitrability.” And they
include the satisfaction of “prerequisites such as time
limits, notice, laches, estoppel, and other conditions
precedent to an obligation to arbitrate.”
134 S.Ct. at 1206–07 (citations omitted).
We applied these distinctions when we decided in Perry
Homes that waiver by litigation conduct presents a
question of substantive arbitrability that courts must
decide. 258 S.W.3d at 588–89. We held that, although
Howsam referenced “waiver” and “delay” as “procedural
matters” for arbitrators to decide, it did not mean that
the issue of waiver by litigation conduct was one for
arbitrators, rather than courts. Id. Instead, we held that
courts should defer to arbitrators to resolve the issue
of waiver when “waiver concerns limitations periods or
waiver of particular claims or defenses,” but courts should
decide issues of waiver by litigation conduct. Id. at 588.
We stated that “parties generally intend arbitrators to
decide matters that ‘grow out of the dispute and bear on its
final disposition,’ ” such as “waiver of a substantive claim
or delay beyond a limitations deadline.” Id. at 589. Our
explanation in Perry Homes is consistent with our prior
recognition that, once the party seeking arbitration proves
the existence of an enforceable agreement to arbitrate,
Texas and federal law recognize a strong 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.”
Poly–Am., 262 S.W.3d at 348. 16
In this case, the contractual deadline in the general
contract falls squarely within the category of “matters that
‘grow out of the dispute and bear on [the arbitrators']
final disposition’ ” of the claims. See Perry Homes,
258 S.W.3d at 588. The deadline does not determine
the present existence, enforceability, or scope of the
agreement to arbitrate the parties' disputes, but instead
imposes a procedural limit on the parties' rights under that
agreement. It bears on the arbitrators' final disposition
of Sapphire's claims—specifically, whether the arbitrators
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
can award Sapphire a remedy on its negligence claims
in light of Sapphire's more than two-year delay in
asserting them. More pointedly, it involves an alleged
“delay beyond a limitations deadline.” Perry Homes, 258
S.W.3d at 589; see also id. at 588 (noting that “federal
courts ... consistently [defer to arbitrators] when waiver
concerns limitations periods” *522 ). We explained in
Perry Homes that, absent express contractual agreement
to the contrary, issues of this nature must be resolved by
arbitrators rather than courts. See id. at 588–89; see also
BG Grp., 134 S.Ct. at 1207 (observing that “satisfaction
of ‘prerequisites such as time limits' ” are questions of
procedural arbitrability for the arbitrator to decide).
Stated another way, the parties' dispute over the meaning
and effect of the contractual deadline does not touch
upon the issue of whether an enforceable agreement to
arbitrate Sapphire's claims exists. Neither party disputes
that such an agreement does exist. Instead, they dispute
whether, in light of the contractual deadline, the existing,
enforceable agreement limits G.T. Leach's rights under the
agreement itself. Sapphire's contention that it does and
G.T. Leach's contention that it does not are themselves
“Claim[s] arising out of or related to the Contract,”
which the parties expressly agreed to arbitrate. 17 See In
re Wood, 140 S.W.3d 367, 369 (Tex.2004) (holding that
dispute over whether contract prohibited class arbitration
was a contract construction issue, which was a “dispute
arising out of” the contract that the parties had committed
to the arbitrator) (citing Green Tree Fin. Co. v. Bazzle,
539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003),
for the proposition that whether contract prohibited class
arbitration was a “dispute about what the arbitration
contract [meant,]” which was “a dispute ‘relating to this
contract’ ” that the parties had agreed “an arbitrator, not
a judge, would answer”).
We do not hold that disputes over a contractual deadline
in an arbitration agreement will always present questions
of procedural arbitrability that arbitrators must decide. If
a party contends, for example, that a contractual deadline
renders the agreement to arbitrate unconscionable or that
the deadline operates to limit the scope of the claims
the parties agreed to arbitrate, those contentions might
raise issues of substantive arbitrability for the courts to
decide. Cf. Quilloin v. Tenet HealthSystem Phila., Inc.,
673 F.3d 221, 234 (3d Cir.2012) (considering argument
that time limit in arbitration agreement was substantively
unconscionable); but see Kristian v. Comcast Corp., 446
16
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
F.3d 25, 43–44 (1st Cir.2006) (holding that arbitrator
should decide whether contract's one-year limitations
provision conflicted with Clayton Act's four-year statute
of limitations for antitrust claims). But Sapphire asserts
no such contentions in this case. Instead, it concedes the
existence of an enforceable arbitration agreement that
applies to its claims against G.T. Leach, and argues only
that the terms of that agreement limit G.T. Leach's rights
under the agreement itself. Consistent with the decisions
of numerous federal courts, 18 we *523 conclude that
Sapphire's argument presents questions of procedural
arbitrability that only the arbitrators can decide, and the
court of appeals thus erred by deciding the issue.
In summary, with respect to Sapphire's claims against
G.T. Leach, we hold that G.T. Leach did not expressly
or impliedly waive its right to arbitration, and the courts
must defer to the arbitrators to decide whether and how
the contractual deadline affects that right. We therefore
reverse the court of appeals' judgment with respect to
the trial court's denial of G.T. Leach's motion to compel
arbitration.
III.
The Other Defendants
[28] We now turn to the arbitrability of Sapphire's claims
against the Other Defendants, which include (1) the
Insurance Brokers and Engineers, who each allegedly
contracted directly with Sapphire in agreements that
undisputedly did not include an enforceable arbitration
agreement, and (2) the Subcontractors, who contracted
directly with G.T. Leach in agreements that allegedly
did include enforceable arbitration agreements. The
Other Defendants contend that Sapphire agreed to
arbitrate its claims against them in the general contract
and the subcontracts, and alternatively, that Sapphire
is equitably estopped from denying its assent to the
arbitration agreements in those contracts. Although the
Other Defendants did not sign the general contract
and Sapphire did not sign the subcontracts, we have
recognized that “sometimes a person who is not a party
to the agreement can compel arbitration with one who is,
and vice versa.” Meyer v. WMCO–GP, LLC, 211 S.W.3d
302, 305 (Tex.2006). More specifically, “nonparties may
be bound to an arbitration clause when the rules of law
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
or equity would bind them to the contract generally.” In
re Weekley Homes, L.P., 180 S.W.3d 127, 129 (Tex.2005).
We conclude here, however, that neither law nor equity
requires Sapphire to arbitrate these claims.
A. Arbitration Under the General Contract
We begin with the Other Defendants' reliance on the
general contract as support for their arbitration demands.
We conclude that Sapphire did not agree in the *524
general contract to arbitrate its claims against the Other
Defendants and is not equitably estopped from refusing
to do so.
1. No Agreement to Arbitrate
As we have explained, a party seeking to compel
arbitration must establish that a valid arbitration
agreement exists and that the claims at issue fall within
the scope of that agreement. TEX. CIV. PRAC. & REM.
CODE § 171.021(a); FirstMerit Bank, 52 S.W.3d at 753.
Sapphire concedes that the general contract contains a
valid arbitration agreement, but contends that the Other
Defendants cannot enforce that agreement because they
are not signatories or parties to the general contract. See
In re Rubiola, 334 S.W.3d 220, 224 (Tex.2011) (holding
that, generally, “parties must sign arbitration agreements
before being bound by them”). We have recognized,
however, that in some circumstances a non-signatory can
be bound to, or permitted to enforce, an arbitration
agreement. See, e.g., In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732, 739 (Tex.2005) (listing “(1) incorporation
by reference; (2) assumption; (3) agency; (4) alter ego; (5)
equitable estoppel, and (6) third-party beneficiary”).
[29] [30] With regard to the Other Defendants and the
general contract, the question in this case, as in Rubiola,
“is not whether a non-signatory may be compelled to
arbitrate but rather whether a non-signatory may compel
arbitration.” 334 S.W.3d at 224. As a general rule, “an
arbitration clause cannot be invoked by a non-party
to the arbitration contract.” Grigson v. Creative Artists
Agency, L.L.C., 210 F.3d 524, 532 (5th Cir.2000). “[The]
policy favoring arbitration is strong, but it alone cannot
authorize a non-party to invoke arbitration.” Id. Thus, the
Other Defendants must establish that they have a valid
legal right to enforce the general contract's arbitration
agreement even though they are not parties to that
contract. The Other Defendants contend that Sapphire
agreed in the general contract that the Other Defendants
17
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
could enforce its arbitration provisions. See Rubiola, 334
S.W.3d at 222 (holding that “parties to an arbitration
agreement may grant non-signatories the right to compel
arbitration”). 19
This contention raises questions about “the existence of
a valid arbitration clause between specific parties and is
therefore a gateway matter for the court to decide.” Id.
at 224. Ultimately, the question requires us to determine
“the intent of the parties, as expressed in the terms
of the agreement,” so we apply “ordinary principles of
state contract law [to] determine whether there is a valid
agreement to arbitrate.” Id. (quoting Bridas S.A.P.I.C. v.
Gov't of Turkm., 345 F.3d 347, 355, 358 (5th Cir.2003));
see also Kellogg Brown & Root, 166 S.W.3d at 738 (holding
that, “[u]nder the FAA, ordinary principles of state
contract law determine whether there is a valid agreement
to arbitrate”). The Other Defendants argue that several
provisions of the contract demonstrate Sapphire's intent
to allow them to require arbitration, but we find none of
them persuasive.
a. The “Scope” of Arbitration
First, the Other Defendants contend that Sapphire's
claims against them fall *525 within the scope of
the general contract's arbitration agreement because the
scope includes “[a]ny Claim arising out of or related to
the Contract,” and Sapphire expressly agreed that the
arbitration could include parties other than G.T. Leach.
Specifically, the Other Defendants rely on a provision
of the general contract in which Sapphire and G.T.
Leach agreed that “[a]ny arbitration may include, by
consolidation or joinder or any other manner, parties
other than the Owner, Contractor, a Subcontractor, a
separate contractor ... and other persons substantially
involved in a common question of fact or law whose
presence is required if complete relief is to be accorded in
arbitration.”
The Other Defendants argue that, through this “joinder
provision,” Sapphire agreed that the scope of the
arbitration would include Sapphire's claims against
the Other Defendants because those claims “arise out
of or relate to” the general contract, those claims
and Sapphire's claims against G.T. Leach involve
common questions of law or fact, and the Other
Defendants' presence is “required” for complete relief
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to be accorded in the arbitration. We conclude that
the Other Defendants' reliance on the scope of the
agreement between Sapphire and G.T. Leach to establish
the existence and enforceability of an agreement between
Sapphire and the Other Defendants is misplaced. As we
have explained, a party seeking to compel arbitration
must establish both (1) the existence of a valid enforceable
agreement to arbitrate and (2) that the claims at issue fall
within the scope of that agreement. TEX. CIV. PRAC. &
REM. CODE § 171.021(a); FirstMerit Bank, 52 S.W.3d
at 753. The Other Defendants' argument that Sapphire
agreed that they, as non-signatories, could enforce the
arbitration agreement addresses the first issue, not the
second. Although Sapphire's claims may fall within the
scope of the agreement, the scope of the arbitration clause
“does not answer whether [Sapphire] must arbitrate” with
the Other Defendants. Kellogg Brown & Root, 166 S.W.3d
at 739–40.
b. The Joinder Provisions
The Other Defendants contend that the joinder provision
itself constitutes Sapphire's agreement that they could
enforce the general contract's arbitration agreement.
Specifically, they contend that, through the joinder
provision, Sapphire agreed to allow non-parties to
“require” arbitration if their presence is “required” for
complete relief to be afforded in the arbitration. The
Subcontractors, in particular, note that Sapphire and G.T.
Leach specifically revised the AIA form to add a reference
to “a Subcontractor” as a party whose presence would
be expected in the arbitration. Because Sapphire seeks to
recover the same damages from each of the defendants and
to hold all of the defendants jointly and severally liable
for those damages, they assert, the arbitration can only
provide “complete relief” if all of them are parties to it.
We do not agree.
To begin with, the joinder provision states that an
arbitration “may include” other parties, and we find no
basis on which to conclude that the parties intended the
word “may” to be mandatory rather than permissive in
this context. Cf. Iliff v. Iliff, 339 S.W.3d 74, 81 (Tex.2011)
(stating that the word “may” is “permissive” and “imports
the exercise of discretion”); Dall. Cnty. Cmty. Coll. Dist.
v. Bolton, 185 S.W.3d 868, 874 (Tex.2005) (“The words
‘may’ and ‘shall’ mean different things, and ... [t]he context
in this case does not require an interpretation of the
18
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
permissive word ‘may’ to mean something other than
its plain meaning.”); Wichita Cnty., Tex. v. Hart, 917
S.W.2d 779, 782 (Tex.1996) (“The Legislature's use of
the permissive *526 term ‘may’ in the Whistleblower
Act's venue provision, in light of its contemporaneous
reorganization of the venue statute, strongly suggests
that the Act's venue provision is permissive.”). The
original AIA form provided that “[n]o arbitration shall
include, ... parties other than the Owner, Contractor, a
separate Contractor, ... and other persons substantially
involved in a common question of fact or law whose
presence is required if complete relief is to be accorded
in arbitration.” In its original form, the provision thus
prohibited joinder of any but the listed parties (at least,
absent written consent of all the parties), but it did not
require joinder of the listed parties. Sapphire and G.T.
Leach revised this provision to state that “Any [instead of
“No”] arbitration may [instead of “shall”] include parties
other than” the listed parties, and added “Subcontractors”
to the list. The effect of their revisions was to remove
the prohibition against including parties “other than”
those listed. Because they changed “shall” to “may,”
they did not require the joinder of unlisted parties, but
neither did they require the joinder of the listed parties.
In fact, they retained a sentence from the original form
providing that a party's “[c]onsent to arbitration involving
an additional person or entity ... shall not constitute
consent to arbitration of a claim not described therein or
with a person or entity not named or described therein.”
The provision thus permits the parties to the general
contract to consent to the joinder of additional parties
in the arbitration, but it does not require them to do so.
Ultimately, the Other Defendants concede as much by
repeatedly acknowledging throughout their briefs that the
joinder provision “allows inclusion or joinder,” “allow[s]
them to be joined” so that they “could participate” in
the arbitration, and “permits all parties to arbitrate”
together. Nevertheless, they contend that, because this
clause is ambiguous as to whether it is mandatory or
permissive, we must construe it as mandatory in support
of the law's presumption in favor of arbitration. This
presumption, however, requires that doubt “as to waiver,
scope, and other issues not relating to enforceability—
must be resolved in favor of arbitration.” Poly–Am., 262
S.W.3d at 348 (emphasis added). And, in any event, we
do not find the language here to be ambiguous. The fact
that the provision refers to other parties as those whose
presence “is required” to accord complete relief does not
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
make their joinder “required”; rather, it allows for their
joinder, but only if their joinder is “required” to provide
complete relief. We conclude that the joinder provision
does not give the Other Defendants, who are not parties
to the general contract, a legal right to require Sapphire to
arbitrate with them.
The Other Defendants contend that, at a minimum,
the joinder provision gives G.T. Leach a contractual
right to join others whose presence is “necessary to
completely resolve the dispute,” even if it does not give
those other parties the right to join themselves. In light
of the provision's permissive language and references to
the necessity of each party's “consent,” as we have just
discussed, we disagree. Moreover, even if the contract gave
G.T. Leach such a right, G.T. Leach has not requested
that relief in this Court. G.T. Leach asks this Court
to “order the claims brought by Sapphire against [G.T.
Leach] to arbitration,” without reference to the claims
brought by Sapphire against the Other Defendants.
c. The Definition of “Contractor”
The Engineers and Insurance Brokers point out that the
general contract states that it is an agreement between
“the Owner” and “the Contractor,” and that Sapphire
*527 and G.T. Leach each signed the agreement in
those respective capacities. They note, however, that the
contract provides that the term “Contractor” includes
any contractor who executes a separate agreement with
the owner. Since Sapphire is suing them for breach of
separate agreements directly between each of them and
Sapphire, they contend that they are each a “Contractor”
under the general contract and thus entitled to enforce its
arbitration agreement. The contract, however, expressly
provides that the “Contract Documents shall not be
construed to create a contractual relationship of any
kind ... between [Sapphire] and a Subcontractor ... or [ ]
between any persons or entities other than [Sapphire] and
[G.T. Leach].” 20
In summary, we find no language in the general contract
that gives the Other Defendants rights to enforce the
general contract's arbitration clause against Sapphire.
We thus conclude that Sapphire did not agree in the
general contract to arbitrate its claims against the Other
Defendants.
19
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

to compel arbitration under contract between contractor

2. No Equitable Estoppel
[31] As an alternative to the argument that Sapphire
expressly agreed that they can enforce the general
contract's arbitration provisions, the Other Defendants
argue that Sapphire is equitably estopped from denying its
assent to such an agreement. We do not agree.
[32] [33] [34] We have recognized that, under principles assert that the work that they performed was necessary
of equitable estoppel, “a litigant who sues based on a
contract subjects him or herself to the contract's terms ..., general contract they would have had no duties of their
including the Arbitration Addendum.” FirstMerit Bank,
52 S.W.3d at 755–56; see Meyer, 211 S.W.3d at 305
(listing cases so holding). This is because the claimant
cannot “have it both ways”; it cannot, “on the one hand,
seek to hold the non-signatory liable pursuant to duties
imposed by the agreement, which contains an arbitration
provision, but, on the other hand, deny arbitration's
applicability because the defendant is a non-signatory.”
Meyer, 211 S.W.3d at 306. This equitable principle applies
when a claimant seeks “direct benefits” under the contract
that contains the arbitration agreement. Kellogg Brown &
Root, 166 S.W.3d at 739. “Whether a claim seeks a direct
benefit from a contract containing an arbitration clause
turns on the substance of the claim, not artful pleading.”
Weekley Homes, 180 S.W.3d at 131–32.
[35] [36] [37] [38] It is not enough, however, that therefer to separate agreements in which the Engineers
party's claim “relates to” the contract that contains the
arbitration agreement. Kellogg Brown & Root, 166 S.W.3d
at 741. Instead, the party must seek “to derive a direct
benefit”—that is, a benefit that “stems directly”—from
that contract. Id.; In re Morgan Stanley & Co., 293 S.W.3d
182, 184 (Tex.2009). The claim must “depend *528 on the
existence” of the contract, Meyer, 211 S.W.3d at 307, and
be unable to “stand independently” without the contract,
Kellogg Brown & Root, 166 S.W.3d at 739–40. The alleged
liability must “arise[ ] solely from the contract or must
be determined by reference to it.” Weekley Homes, 180
S.W.3d at 132. But “when the substance of the claim arises
from general obligations imposed by state law, including
statutes, torts and other common law duties, or federal
law,” rather than from the contract, “direct benefits”
estoppel does not apply, even if the claim refers to or
relates to the contract. 21 Morgan Stanley, 293 S.W.3d at
184 n.2; see also Kellogg Brown & Root, 166 S.W.3d at 740– that agreement thereby damaging Sapphire.” These claims
41 (holding that subcontractor's quantum meruit claim
against contractor did not justify direct benefits estoppel between Sapphire and the Insurance Brokers, not the
and owner).
The Other Contractors contend that Sapphire's claims
against them seek a “direct benefit” under the general
contract, even though they are not parties to that contract,
because the claims “arise from and must be determined by
reference to” the general contract. More specifically, they
only because of the general contract, and without the
own to perform. Sapphire's claims thus “relate to and
arise out of” the general contract, they contend, because
they are claims for work performed “pursuant to” the
general contract. The Subcontractors also note that the
general contract required G.T. Leach to “include terms
in the subcontracts ... binding its subcontractors ... to the
applicable terms of this agreement.”
Sapphire is not suing the Other Defendants, however, for
breach of obligations under the general contract. Rather,
Sapphire alleges in its petition that the Other Defendants
each breached duties that they each “contractually
agreed” to perform, and failed to perform them as a
reasonable professional would have performed them. We
agree that Sapphire is not seeking direct benefits under
the general contract. We read Sapphire's allegations to
agreed with Sapphire to provide engineering services,
the Insurance Brokers agreed with Sapphire to provide
insurance services, and the Subcontractors agreed with
G.T. Leach to provide construction-related services. 22
The record and briefs in this case reflect that Sapphire
contends that the Engineers and Insurance Brokers
contracted directly with Sapphire and are what the general
contract refers to as a “separate contractor” rather than a
“subcontractor.” Thus, *529 although Sapphire's breach
of contract claims against the Engineers may “relate to”
the general contract, they “arise out of” and directly
seek the benefits of a separate alleged agreement between
Sapphire and the Engineers. Similarly, Sapphire alleges
that the Insurance Brokers “contracted with Sapphire to
procure adequate insurance to protect Sapphire while the
Sapphire condominiums were being built” and “breached
depend on an alleged insurance-procurement agreement
general contract between Sapphire and G.T. Leach.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 20

G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
And finally, Sapphire asserts that the Subcontractors
breached obligations they accepted in their subcontracts
with G.T. Leach, not in the general contract to which
Sapphire was a party. While these claims may bear some
relationship to the general contract, the fact that the
claims would not have arisen but for the existence of
the general contract is not enough to establish equitable
estoppel. See Kellogg Brown & Root, 166 S.W.3d at
739–40. Sapphire's contract claims against the Other
Defendants do not, on their face, seek a “direct benefit”
under the general contract; rather, the record at this stage
indicates that they seek direct benefits under other alleged
contracts. Under these circumstances, we cannot conclude
that the “direct benefits” theory of equitable estoppel
authorizes the Other Defendants to rely on the arbitration
provision in Sapphire's general contract with G.T. Leach.
See Morgan Stanley, 293 S.W.3d at 184; Weekley Homes,
180 S.W.3d at 133; Kellogg Brown & Root, 166 S.W.3d at
739–40.
In addition, the Other Defendants argue that, even if
Sapphire is not suing them for breach of the general
contract, it is seeking to hold them jointly and severally
liable for the damages that Sapphire alleges G.T. Leach's
breach of that contract caused. Specifically, the Insurance
Brokers contend that, “if Sapphire seeks to hold the
Insurance Defendants liable for damages arising from
G.T. Leach's alleged breach of the [general contract],
then Sapphire must necessarily rely on the existence of
the [general contract].” 23 But contrary to the Insurance
Brokers' argument, Sapphire's pleadings do not assert
that the Insurance Brokers are jointly and severally liable
for the damages allegedly resulting from G.T. Leach's
breach of contract, 24 and the parties have not identified
any doctrine that would permit Sapphire to hold them
jointly and severally liable *530 under the facts of this
case. 25 “Texas law permits joint and several liability for
most actions based in tort, as long as ‘the percentage of
responsibility attributed to the defendant with respect to
a cause of action is greater than 50 percent.’ ” Sharyland
Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 424
(Tex.2011) (quoting TEX. CIV. PRAC. & REM. CODE §
33.013(b)(1)). But the Insurance Brokers' “direct benefits”
estoppel argument is premised on Sapphire seeking to hold
them jointly and severally liable for G.T. Leach's breach
of contract, not its torts.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Finally, the Other Defendants argue that Sapphire is
equitably estopped from refusing to arbitrate its tort
claims against them because those claims assert only
negligent performance of contractual duties, and thus seek
only damages resulting from the breach of contractual
duties rather than duties imposed by law. Under these
circumstances, they contend, the allegedly negligent
breaches can “only be characterized as a breach of
contract,” and the claims thus “sound in contract, not
tort.” This argument raises a complex legal doctrine: the
“economic loss” rule, sometimes referred to in this context
as the law of “contorts.” See, e.g., Sw. Bell Tel. Co.
v. DeLanney, 809 S.W.2d 493, 494–95 (Tex.1991); id. at
495 (Gonzales, J., concurring). We need not address this
doctrine here, however, because even if Sapphire's tort
claims sound in contract, they do no arise solely out of or
otherwise seek direct benefits under the general contract.
See Kellogg Brown & Root, 166 S.W.3d at 740–41. While
they have some relationship to the general contract, the
mere fact that the claims would not have arisen but for that
contract is not enough to establish equitable estoppel. See
id. at 739–40. We therefore hold that equitable estoppel
does not apply to enable the Other Defendants to compel
Sapphire to arbitrate its tort claims against them under the
general contract.
B. Arbitration Under the Subcontracts
[39] Finally, we turn to the Subcontractors' arguments
that Sapphire agreed through the subcontracts to arbitrate
its claims against the Subcontractors, or alternatively, that
Sapphire is equitably estopped from denying its assent to
the arbitration agreement in the subcontracts. While we
note that Sapphire is not a signatory to the subcontracts,
its claims that the Subcontractors “contractually agreed”
to perform their services and are liable to Sapphire
for having breached those agreements at least appear
to be “based on” and “directly seek benefits” under
the subcontracts, and thus Sapphire may be equitably
estopped to deny obligations under the subcontracts. See
FirstMerit Bank, 52 S.W.3d at 755–56. We need not decide
that issue, however, because we conclude that, even if the
subcontracts are binding on Sapphire, they do not require
the parties to arbitrate these claims.
*531 The Subcontractors provided their respective
services pursuant to essentially identical subcontracts
that they entered into with G.T. Leach. Both of these
subcontracts contain three sections that pertain to the
21
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532
arbitration of disputes between the parties. First, section
11.1 states the parties' agreement to arbitrate disputes:
All claims, disputes and other
matters in question arising out of,
or relating to, this Subcontract
or the breach thereof shall be
decided by arbitration in accordance
with the Construction Industry
Arbitration Rules of the American
Arbitration Association unless the
parties mutually agree otherwise.
Section 11.3 then states that, if G.T. Leach “enter[s]
into arbitration with [Sapphire] or others regarding
matters relating to this Subcontract, Subcontractor will
agree, if requested by [G.T. Leach] to consolidation
of this arbitration with [G.T. Leach's] arbitration with
[Sapphire],” and in that case the Subcontractors “shall
be bound by the result of the arbitration with [Sapphire]
to the same degree as [G.T. Leach].” Finally, however,
section 12.13 states that the parties do not agree to
mandatory arbitration:
Notwithstanding any provision
to the contrary contained
in the Contract Documents,
Subcontractor expressly agrees that
this Subcontract does not contain
a provision for the mandatory
arbitration of disputes, nor does
it incorporate by reference such a
provision if such is contained in
the [general] contract between [G.T.
Leach] and [Sapphire].
The court of appeals held that the disclaimer in this section
12.13 “nullif [ies]” the arbitration agreement in section
11.1, and Sapphire relies on that holding here.
The Subcontractors contend that section 12.13's
disclaimer does not nullify the agreement in section
11.1 because (1) the agreement appears earlier within
the contract, and “terms stated earlier in an agreement
must be favored over subsequent terms” in that same
agreement, Coker v. Coker, 650 S.W.2d 391, 393
(Tex.1983); (2) the agreement is more specific than the
disclaimer, and specific provisions control over general
provisions, see Forbau v. Aetna Life Ins. Co., 876 S.W.2d
132, 133–34 (Tex.1994); (3) we must consider and give
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
effect to all of the provisions with reference to the whole
instrument, Myers v. Gulf Coast Minerals Mgmt. Corp.,
361 S.W.2d 193, 196 (Tex.1962); and (4) we must construe
the provisions together if we can, rather than allow one to
cancel the other, In re U.S. Home Corp., 236 S.W.3d 761,
765 (Tex.2007).
We conclude that there is no way to give full effect to
both provisions, and that one must necessarily “nullify”
the other at least to some extent. If we give effect to
the agreement to arbitrate in section 11.1, for example,
then we must necessarily conclude that the agreement
does “contain a provision for the mandatory arbitration
of disputes,” and thus nullify section 12.13's disclaimer.
The Subcontractors argue that we can give effect to both
by construing the disclaimer to mean that arbitration
is “mandatory” unless all parties mutually agree not
to arbitrate, in which case arbitration would not be
mandatory. But parties can always mutually agree not
to do what they previously agreed to do, and in any
event, section 11.1 already provides that the parties can
“mutually agree” not to arbitrate.
Generally, we must give the subcontracts their plain
meaning and enforce them without rendering either
provision entirely superfluous. Cf. El Paso Field Servs.,
L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 808
(Tex.2012) (prohibiting such a result); see also Moayedi,
438 S.W.3d at 7; Mercer v. Hardy, 444 S.W.2d 593, 595
(Tex.1969). But we cannot do *532 that when the plain
meaning of one provision unambiguously requires that
we not enforce another. See Tex. Lottery Comm'n v. First
State Bank of DeQueen, 325 S.W.3d 628, 637 (Tex.2010).
There is a direct conflict between section 11.1's provision
that all disputes “shall be decided by arbitration” and
section 12.13's provision that “this Subcontract does not
contain a provision for the mandatory arbitration of
disputes.” And if that were all that the two provisions
provided, an ambiguity might exist that requires us to rely
on canons of construction to determine the parties' intent.
But section 12.13 explicitly states that the
Subcontract does not require mandatory arbitration
“[n]otwithstanding any provision to the contrary” in any
of the contract documents. Cf. In re Lee, 411 S.W.3d 445,
454 (Tex.2013) ( “The use of the word ‘notwithstanding’
indicates that the Legislature intended section 153.0071
to be controlling.”). Like the statute at issue in DeQueen,
which expressly provided that any conflicting “rule of
22
G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

law, statute, or regulation ... is ineffective,” the language

of section 12.13 “specifically provide[s] the means for
resolving conflicts” by providing that, in the event
of any conflict, section 12.13 prevails. DeQueen, 325
S.W.3d at 632, 637. There is thus no ambiguity, and
we need not rely on canons of construction like the
rules that earlier or more specific provisions prevail. Id.
Although these canons provide useful tools for resolving
conflicting provisions, there is no conflict to resolve here
because the plain language of section 12.13 resolves the
conflict. Id. at 638. We therefore conclude that, even if
Sapphire is equitably estopped from denying its assent
to the agreements contained in the subcontracts, those
agreements do not include a valid, enforceable agreement
to arbitrate its claims against the Subcontractors. The
court of appeals, therefore, did not err in affirming the trial
court's denial of the Subcontractors' motions to compel
arbitration.
We therefore affirm the court of appeals with respect
to the trial court's denial of the Insurance Brokers',
Engineers', and Subcontractors' motions to compel
arbitration.
IV.
Conclusion
We affirm in part and reverse in part. We affirm the
portion of the court of appeals' judgment affirming the
trial court's denial of the Engineers', Insurance Brokers',
and Subcontractors' motions to compel arbitration of
Sapphire's claims against them, and we reverse the portion
of the court of appeals' judgment affirming the trial court's
denial of G.T. Leach's motion to compel arbitration of
Sapphire's claims against it. We remand this case to the
trial court for further proceedings consistent with this
opinion.
All Citations
458 S.W.3d 502, 58 Tex. Sup. Ct. J. 532

Footnotes
1 “It is the policy of this state to encourage the peaceable resolution of disputes ... through voluntary settlement procedures,”
including binding and nonbinding arbitration. TEX. CIV. PRAC. & REM. CODE §§ 154.002, 154.027.
2 “A court shall order the parties to arbitrate on application of a party showing ... an agreement to arbitrate;” otherwise, “the
court shall deny the application.” Id. § 171.021(a)(1), (b).
3 Atlas Comfort is now known as Comfort Systems USA—South Central.
4 Sapphire initially filed two separate lawsuits, one against the Insurance Brokers and another against the architects who
designed the project. The architects first named G.T. Leach, the Subcontractors, and the Engineers as responsible third
parties, and Sapphire amended its pleadings to name them as defendants in that suit. When the Insurance Brokers
learned of these developments in that suit, they named G.T. Leach, the Subcontractors, and the Engineers as responsible
third parties in this suit. The architects later settled and resolved all claims asserted by and against them.
5 See Act of May 4, 1995, 74th Leg., R.S., ch. 136, § 1, sec. 33.004(e), 1995 Tex. Gen. Laws 971, 973, amended by Act
of June 2, 2003, 78th Leg., R.S., ch. 204, § 4.04, sec. 33.004(e), 2003 Tex. Gen. Laws 847, 856, repealed by Act of May
24, 2011, 82d Leg., R.S., ch. 203, § 5.02, sec. 33.004(e), 2011 Tex. Gen. Laws 757, 759.
6 456 S.W.3d 570.
7 Although we generally lack jurisdiction over interlocutory appeals, see TEX. GOV'T CODE § 22.225(b)(3), we have
jurisdiction to review a court of appeals' interlocutory judgment when its holding creates an inconsistency with prior
precedent “that should be clarified to remove unnecessary uncertainty in the law and unfairness to litigants.” Id. §
22.225(c), (e); see also Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 392 S.W.3d 633, 635 n.3 (Tex.2013)
(per curiam) (“We have jurisdiction to hear an appeal from an interlocutory order denying arbitration when the court of
appeals' decision conflicts with prior precedent.”). In this case, the court of appeals' holding creates such an inconsistency
with our decision in Perry Homes v. Cull, 258 S.W.3d 580, 587–92 (Tex.2008), and with the court of appeals' decision
in In re Global Constr. Co., 166 S.W.3d 795, 798–99 (Tex.App.—Houston [14th Dist.] 2005, no pet.), regarding the
issue of whether courts or arbitrators should decide whether a contractual deadline bars a demand for arbitration. The
inconsistency on this issue gives us jurisdiction, which permits us to address and resolve all of the issues that all of the

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G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

parties raise in this case. See, e.g., Brown v. Todd, 53 S.W.3d 297, 301 (Tex.2001) (“As we have repeatedly recognized,
if our jurisdiction is properly invoked on one issue, we acquire jurisdiction of the entire case.”).
8 The general contract utilized a “Standard Form of Agreement Between Owner and Contractor” (Form A111–1997) and a
form of “General Conditions of the Contract for Construction” (Form A201–1997), both published by the American Institute
of Architects. Sapphire and G.T. Leach substantially revised these forms, however, by striking and adding language
throughout the contract to reflect their specific agreements. As revised, the arbitration section addresses numerous details
including the process for selecting the arbitrator(s), the rules governing the arbitration, the location and timing of the
arbitration, rights to discovery, finality and appeals from the arbitration award, and the duty to continue performing under
the contract while the arbitration is pending. As discussed further below, one section addresses the consolidation and
joinder of other parties within the arbitration proceeding.
9 By the time Sapphire named G.T. Leach as a defendant—and thus by the time G.T. Leach filed its motion to compel
arbitration—the two-year statute of limitations applicable to Sapphire's negligence claims had already run, but the four-
year statute applicable to Sapphire's breach-of-contract claims had not. The court of appeals did not mention this
distinction, but instead stated broadly that “[t]he parties do not dispute that the applicable statute of limitations had expired
when G.T. Leach sought arbitration.” 455 S.W.3d at 575 n.6; see also id. at 577 (stating that “G.T. Leach does not contest
that the statute of limitations for Sapphire's claims had expired when it filed its motion to compel arbitration.”). These
statements were incorrect. Although the parties did agree that the two-year statute on Sapphire's negligence claims had
expired, they also agreed that the four-year statute on Sapphire's breach-of-contract claims had not. Since we conclude
that the arbitrators must resolve Sapphire's contractual-deadline arguments, however, we need not consider the court
of appeals' error on this point, and we leave it to the arbitrators to resolve all issues related to the construction and
application of the contractual deadline in this case.
10 Sapphire cites to Parks v. Developers Surety & Indemnity Co., 302 S.W.3d 920, 924 (Tex.App.–Dallas 2010, no pet.)
(refusing to consider unconscionability as a defense to contract claim because the defendant failed to plead and assert
it in the trial court), and Posey v. Southwestern Bell Yellow Pages, Inc., 878 S.W.2d 275, 281 (Tex.App.–Corpus Christi
1994, no writ) (“Because the Poseys failed to assert in the court below that the limitation of liability clause was void,
unconscionable or unenforceable, we may not reverse that portion of the summary judgment on appeal.”).
11 Specifically, Sapphire argued: “The most prejudicial aspect of allowing arbitration this late in the game is that the Statute
of Limitations has already run on all of Plaintiff's negligence claims against all Defendants. This effect is so prejudicial
that the express language of the contract prohibits arbitration in this situation.”
12 Although G.T. Leach did not specifically argue in the court of appeals that the arbitrators must decide the contractual-
deadline issue, it did more broadly assert that “there is no legitimate issue as to the arbitrability of all of the issues between
Sapphire and GTL,” and “[b]ecause all of Sapphire's claims against [G.T. Leach] are clearly arbitrable under a valid and
enforceable arbitration provision, the only potentially viable argument Sapphire presents against enforcement is waiver.”
Because “disposing of appeals for harmless procedural defects is disfavored,” and “[a]ppellate briefs are to be construed
reasonably, yet liberally, so that the right to appellate review is not lost by waiver,” Perry v. Cohen, 272 S.W.3d 585, 587
(Tex.2008) (per curiam), G.T. Leach's broad assertions were arguably sufficient to encompass all supporting arguments,
including the argument that Sapphire's claim that the contractual deadline bars G.T. Leach's arbitration demand was
“clearly arbitrable.” See, e.g., Plexchem Int'l, Inc. v. Harris Cnty. Appraisal Dist., 922 S.W.2d 930, 930–31 (Tex.1996)
(holding that the assertion in the court of appeals that “[t]he trial court erred by granting ... summary judgment” was
“sufficient to preserve error and to allow argument as to all possible grounds upon which summary judgment should
have been denied”); see also TEX. R. APP. P. 38.1(f) (“The statement of an issue or point [in an appellate brief] will be
treated as covering every subsidiary question that is fairly included.”). We need not decide that issue, however, since we
conclude that G.T. Leach did not waive its argument even if it failed to raise it in the court of appeals.
13 We appear to have once held to the contrary in In re K.A.F., 160 S.W.3d 923 (Tex.2005), in which we stated that, although
petitioner's “constitutional complaints relate to her appeal and therefore could not have been asserted in the trial court,
she was required to raise them in the court of appeals in order to preserve error.” Id. at 928 (holding that petitioner “waived
these arguments by failing to raise them in the court of appeals”). In support of these statements, however, we cited
two cases in which we had addressed only the well-established rule that a party must preserve error by asserting its
complaints in the trial court. Id. at 928 (citing In re B.L.D., 113 S.W.3d at 350–51 (citing cases for the proposition that
objections and errors “must be preserved in the trial court”); Tex. Dep't of Protective & Regulatory Servs. v. Sherry, 46
S.W.3d 857, 861 (Tex.2001) (refusing to consider constitutional arguments that petitioner did not assert in the trial court).
We cited no rule or authority in K.A.F. to support the proposition that a petitioner waives an argument by failing to raise it
in the court of appeals when the petitioner's complaint first arises from that court's judgment. Consistent with our holdings

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G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

in Bunton and Gilbert, as well as our holding today, our statement in K.A.F. should be read to mean that we may treat
such an argument as waived, as we did in that case, but we are not required to do so.
14 The general contract provides for arbitration under the TAA, and each of the defendants sought to compel arbitration
under that Act. While the Federal Arbitration Act (FAA) might also apply, no party argues that the FAA preempts the
TAA on any issue in this case, or that the TAA and FAA materially differ on any such issue. We therefore presume that
the TAA governs, but we may find guidance in court decisions addressing both acts. Cf. Ellis v. Schlimmer, 337 S.W.3d
860, 862 (Tex.2011) (observing that FAA preempts TAA “only when it or other state law would not allow enforcement
of an arbitration agreement that the FAA would enforce” and that party seeking to avoid application of TAA has burden
of raising that issue).
15 In deciding these questions of arbitrability, courts apply the common principles of general contract law to determine the
parties' intent. In re Poly–Am., L.P., 262 S.W.3d 337, 348 (Tex.2008).
16 The Court in Poly–America referenced a “strong federal presumption” in favor of arbitration because the contracts in that
case provided for arbitration under the FAA. Poly–Am., 262 S.W.3d at 348. But the Court has observed in other cases
that Texas law also strongly favors arbitration of disputes and recognizes a presumption in favor of arbitrability. See, e.g.,
Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex.1995).
17 The general contract defines a “Claim” as
a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract
terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term “Claim”
also includes other disputes and matters in question between [Sapphire] and [G.T. Leach] arising out of or relating
to the Contract.
18 See, e.g., United SteelWorkers of Am., AFL–CIO–CLC v. Saint Gobain Ceramics & Plastics, Inc., 505 F.3d 417, 418 (6th
Cir.2007) (holding that application of contractual time limit was issue for arbitrators rather than courts); Marie v. Allied
Home Mortg. Corp., 402 F.3d 1, 11 (1st Cir.2005) (holding that trial court erred in interpreting and applying contractual
requirement that “[a]rbitration under this section must be initiated within sixty days” of event giving rise to the claim
because that issue was for arbitrators to decide); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 120–21 (2d
Cir.1991) (“Although Conticommodity [Services Inc. v. Philipp & Lion, 613 F.2d 1222, 1224–25 (2d Cir.1980) ] involved
a one-year time limitation set forth in the arbitration agreement itself, we stated emphatically that any limitations defense
—whether stemming from the arbitration agreement, arbitration association rule, or state statute—is an issue to be
addressed by the arbitrators.”); Nursing Home & Hosp. Union No. 434 AFL–CIO–LDIU by Mackson v. Sky Vue Terrace,
Inc., 759 F.2d 1094, 1097 (3d Cir.1985) (rejecting argument that grievances were “not subject to the arbitration process
because [the other party] did not comply with the specific time limits for filing grievances under the agreement” and
stating that “[e]ven assuming [that] argument has merit, the law is clear that matters of procedural arbitrability, such
as time limits, are to be left for the arbitrator once the court determines that the parties have agreed in the contract to
submit the subject-matter of the dispute to arbitration”); see also McNamara v. Yellow Transp., Inc., 570 F.3d 950, 957
(8th Cir.2009) (adopting reasoning of Marie in context of a party's argument that it was harmed by other party's delay
in seeking arbitration because by that time party would be contractually barred from initiating arbitration, but directing
trial court to retain jurisdiction on remand so that party opposing arbitration would not be left without a forum); Glass v.
Kidder Peabody & Co., 114 F.3d 446, 455 (4th Cir.1997) (“Defenses of laches, mere delay, statute of limitations, and
untimeliness constitute a broad category of waiver defenses that may be raised to defeat compelled arbitration. Laches,
like its companion defenses, however, is a matter of ‘procedural arbitrability’ solely for the arbitrators' decision and not
for the court.”).
19 The agreement at issue in Rubiola gave the “parties” the right to demand arbitration and defined “parties” to include
not only “each and all persons and entities signing this agreement,” but also all “individual partners, affiliates, officers,
directors, employees, agents, and/or representatives of any party to such documents, and ... any other owner and holder
of this agreement.” Rubiola, 334 S.W.3d at 222–23. We agreed that it thus “expressly provides that certain non-signatories
are to be parties to the agreement.” Id. at 224.
20 In addition, a supplemental provision of the general contract states that “[n]o person or entity shall be deemed to be
a third party beneficiary of any provisions of the Contract, nor shall any provisions thereof be interpreted to create
a right of action or otherwise permit anyone not a signatory party to the Contract to maintain an action for personal
injury or property damage.” While the Other Defendants contend that this provision was in an unsigned supplement
to the general contract and, in any event, does not expressly prohibit demands for arbitration, they concede that the
contract expressly incorporates these provisions as part of the “Contract Documents.” In any event, this provision reflects
Sapphire's intent that other parties not have rights under the general contract more clearly than any provision on which

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G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502 (2015)
58 Tex. Sup. Ct. J. 532

the Other Defendants rely reflects an intent that they have such rights. Even ignoring this provision, the lack of any
provision by which Sapphire agrees to allow the Other Defendants to compel arbitration of Sapphire's claims against
them defeats their attempts to do so.
21 Even if “direct benefits” estoppel does not apply based on the claims in the lawsuit, we have recognized that “a nonparty
may seek or obtain direct benefits from a contract by means other than a lawsuit” and that application of the doctrine
may be based on “conduct during the performance of the contract” rather than conduct during the lawsuit. See Weekley
Homes, 180 S.W.3d at 132–33, 135 (holding that “when a nonparty consistently and knowingly insists that others treat
it as a party, it cannot later ‘turn[ ] its back on the portions of the contract, such as an arbitration clause, that it finds
distasteful’ ”) (citations omitted). The parties do not advance this theory here.
22 The Other Defendants point out that Sapphire's experts filed reports in the trial court in which they relied in part on the
general contract's specification and notes to establish the standards for the Other Defendants' contractual performance.
These reports, however, do not suggest that the general contract imposed the duty to meet these specifications. Instead,
it appears that Sapphire contends that the Other Defendants' separate contractual agreements included promises to
comply with these specifications.
23 Alternatively, the Insurance Brokers argue that
if Sapphire seeks to hold [them] jointly and severally liable for damages with respect to Sapphire's tort claims
against [G.T. Leach], then Sapphire must necessarily rely on allegations of interdependent and concerted misconduct
between those parties. Either way, Sapphire satisfies one or both bases for imposing equitable estoppel under this
Court's decision in Meyer and thus must be compelled to arbitrate its claims against the Insurance Defendants.
But we declined to adopt the “concerted misconduct” theory of equitable estoppel in In re Merrill Lynch Trust Co. FSB,
235 S.W.3d 185, 191–92 (Tex.2007). The Insurance Brokers do not address Merrill Lynch or raise any argument that
this case is distinguishable in any manner material to our analysis of the “concerted misconduct” theory in that case.
We therefore decline to reconsider that decision here.
24 In fact, Sapphire's fourth amended petition does not reference “joint and several liability” at all. The Other Defendants
quote Sapphire's counsel as having orally argued to the trial court that the defendants are jointly and severally liable for
all damages, but we must look to the pleadings to determine the nature of Sapphire's claims.
25 Cf. S. Union Co. v. City of Edinburg, 129 S.W.3d 74, 87 (Tex.2003) (noting that Texas law has recognized specific
legal theories under which corporate structure can be disregarded to hold corporate actors jointly and severally liable
for corporation's contractual obligations); TEX. BUS. ORGS. CODE § 152.304(a) (imposing joint and several liability on
partners for “all” partnership obligations); TEX. GOV'T CODE § 60.152(b)(1) (authorizing contractual assumption of joint
and several liability in certain government contracts); TEX. LAB. CODE § 407A.056 (requiring contractual assumption
of joint and several liability for group and employer under certain group self-insurance agreements); TEX. NAT. RES.
CODE § 161.323 (imposing joint and several liability on “veteran purchaser” and subsequent assignees of veteran with
respect to certain land contracts under some circumstances).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 26

Horizon Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F.Supp.2d 439 (2003)
284 F.Supp.2d 439
United States District Court,
N.D. Mississippi,
Western Division.
HORIZON HEALTH CORP., Plaintiff,
v.
TYLER–HOLMES MEMORIAL HOSPITAL;
Board of Trustees of Tyler–Holmes Memorial
Hospital; and Board of Supervisors of
Montgomery County, Mississippi, Defendants.
No. 3:02CV093–D–D.
| Merits of controversy
Aug. 18, 2003.
Successor to management consultation company brought
action against hospital, its board of trustees, and
board of supervisors of county arising out of breach
of a management contract pertaining to company's
management of a geropsychiatric treatment program
at hospital. Plaintiff moved to compel arbitration.
The District Court, Davidson, Chief Judge, held that
arguments advanced by hospital went to the merits of the
underlying dispute, thus should be decided by arbitrator.
Motion granted.
West Headnotes (9)
[1] Alternative Dispute Resolution
Arbitration favored; public policy
Alternative Dispute Resolution
Construction in favor of arbitration
The Federal Arbitration Act (FAA) expresses
a strong national policy in favor of
arbitration, and any doubts concerning the
scope of arbitrable issues should be resolved
in favor of arbitration. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[2] Alternative Dispute Resolution
Arbitrability of dispute
Alternative Dispute Resolution
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Remedies and Proceedings for
Enforcement in General
When determining whether parties should be
compelled to arbitrate a dispute, first, the
court must determine whether the parties
agreed to arbitrate the dispute; once the court
finds that the parties agreed to arbitrate, it
must consider whether any federal statute
or policy renders the claims nonarbitrable. 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[3] Alternative Dispute Resolution
When conducting the two-pronged analysis
in determining whether parties should be
compelled to arbitrate a dispute, courts must
not consider the merits of the underlying
action. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[4] Alternative Dispute Resolution
Arbitrability of dispute
Alternative Dispute Resolution
Merits of controversy
Under the Federal Arbitration Act (FAA), the
federal district court ascertains only whether
the arbitration clause covers the allegations
at issue; if the dispute is within the scope
of the arbitration clause, the court may not
delve further into the merits of the dispute. 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Merits of controversy
Arguments advanced by hospital, in response
to motion to compel arbitration brought by
management company related to a contract
dispute with hospital, that the Mississippi
Community Hospital Act (MCHA) did
not require public hospitals to submit to
arbitration, that the arbitration agreement
violated the MCHA, and that the MCHA
did not permit public entities from making a
1
Horizon Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F.Supp.2d 439 (2003)
contract that extended beyond the term of the
majority of the board members went to the
merits of the underlying dispute, thus should
be decided by arbitrator. 9 U.S.C.A. § 1 et seq.;
West's A.M.C. § 41–13–35.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Matters to Be Determined by Court
Where a defense relates to a contract as a
whole, and not specifically to an arbitration
clause, then there is no distinction between
defenses which render a contract voidable
and defenses which render a contract void;
both should be submitted to the arbitrator. 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[7] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
The strong federal policy favoring arbitration
preempts state laws that act to limit the
availability of arbitration. 9 U.S.C.A. § 1 et
seq.
Cases that cite this headnote
[8] Commerce
Arbitration
The Federal Arbitration Act (FAA), resting
on Congress's authority under the Commerce
Clause, creates a body of federal substantive
law that is applicable in both federal and state
courts. U.S.C.A. Const. Art. 1, § 8, cl. 3; 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Persons affected or bound
Because arbitration is a creature of contract
law, when asked to enforce an arbitration
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
agreement against a non-signatory, courts
should ask whether she is bound by that
agreement under traditional principles of
contract and agency law.
Cases that cite this headnote
Attorneys and Law Firms
*440 John B. Clark, Daniel, Coker, Horton & Bell,
Jackson, MS, for plaintiff.
Eugene R. Naylor, Wise, Carter, Child & Caraway,
Jackson, MS, Alan D. Lancaster, Liston/Lancaster,
Winona, MS, for defendants.
OPINION GRANTING MOTION
TO COMPEL ARBITRATION
DAVIDSON, Chief Judge.
Presently before the court is the Plaintiff's motion to
compel arbitration. Upon due consideration, the court
finds that the motion should be granted.
A. Factual Background
Plaintiff Horizon Health Corporation (“Horizon”) is a
corporation organized under the laws of the State of Texas
with its principal place of business in Texas. Horizon
has asserted claims against Tyler–Holmes Memorial
Hospital (“Tyler–Holmes”), the Board of Trustees of
Tyler–Holmes (“Trustees”), and the Board of Supervisors
of Montgomery County, Mississippi (“Supervisors”),
arising out of a breach of a management contract
pertaining to a geropsychiatric treatment program at
Tyler–Holmes hospital. Tyler–Holmes is a community
hospital organized under the laws of the State of
Mississippi, with its principal place of business in Winona,
Mississippi.
On or about March 1, 2000, Tyler–Holmes
and Perspectives Health Management Corporation
(“Perspectives”), entered into an agreement for
Perspectives to provide management-consultation services
to Tyler–Holmes at Winona, Mississippi. Subsequently,
2
Horizon Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F.Supp.2d 439 (2003)
on or about June 4, 2001, Tyler–Holmes and
Perspectives executed an amended agreement (“Amended
Management Agreement”), in which Perspectives agreed
to reduce the monthly management fee. This was
done, at least partially, to assist Tyler–Holmes with
financial *441 difficulties. The Amended Management
Agreement contains a mandatory arbitration clause,
requiring that all disputes and claims relating to the
Agreement shall be settled by arbitration. On or about
October 5, 2001, Horizon purchased most, if not all, of
the assets from Perspectives, including certain accounts
receivable. Horizon thus became the successor to the
rights of Perspectives as Manager under the Amended
Management Agreement. According to Tyler–Holmes,
the geropsychiatric program experienced decreases in
patient numbers, and the services provided through the
Amended Management Agreement became unnecessary.
Tyler–Holmes inquired about new terms for a new,
and presumably more favorable, agreement. Apparently,
Horizon was not interested in the proposed terms.
Thereafter, Tyler–Holmes terminated the Agreement.
Horizon filed this suit on or about June 12, 2002, to collect
approximately $778,000 which, according to Horizon,
Tyler–Holmes owes in arrears and lost profits. The
complaint asserts a cause of action for, inter alia, breach of
contract. Thereafter, Horizon filed this motion to compel
arbitration and to stay this case pending arbitration.
B. Discussion
1. The Agreement's Arbitration Provision
[1] Congress provided in the Federal Arbitration Act
(FAA) that a written agreement to arbitrate in a contract
involving interstate commerce “shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.” 9
U.S.C. § 2 (1999). Section Three of the FAA specifically
contemplates that parties, such as the Plaintiff, that are
aggrieved by another party's failure to arbitrate under a
written agreement, may file a motion to stay the trial of an
action until such arbitration has been had in accordance
with the terms of the agreement. 9 U.S.C. § 3 (1999).
In addition, the FAA expresses a strong national policy
in favor of arbitration, and any doubts concerning the
scope of arbitrable issues should be resolved in favor
of arbitration. Southland Corp. v. Keating, 465 U.S. 1,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
10, 104 S.Ct. 852, 857, 79 L.Ed.2d 1 (1984); Mouton
v. Metropolitan Life Ins. Co., 147 F.3d 453, 456 (5th
Cir.1998).
[2] [3] [4] The Fifth Circuit has directed that courts
are to perform a two-step inquiry to determine whether
parties should be compelled to arbitrate a dispute.
Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th
Cir.2002); R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d
534, 538 (5th Cir.1992) (citing Mitsubishi Motors Corp. v.
Soler Chrysler–Plymouth, 473 U.S. 614, 105 S.Ct. 3346,
87 L.Ed.2d 444 (1985)). “First, the court must determine
whether the parties agreed to arbitrate the dispute. Once
the court finds that the parties agreed to arbitrate, it must
consider whether any federal statute or policy renders the
claims nonarbitrable.” Primerica Life Ins. Co., 304 F.3d
at 471 (citations omitted). “When conducting this two-
pronged analysis, courts must not consider the merits of
the underlying action.” Id. (citing Snap–On Tools Corp.
v. Mason, 18 F.3d 1261, 1267 (5th Cir.1994)). “Under ...
the FAA, the federal district court ascertains only whether
the arbitration clause covers the allegations at issue. If the
dispute is within the scope of the arbitration clause, the
court may not delve further into the merits of the dispute.”
Id. (citations and internal quotes omitted).
C. Discussion
The parties do not dispute that the Agreement at issue
contains the following mandatory arbitration provision:
*442 X.
ARBITRATION, ATTORNEYS' FEES
All disputes and claims relating to any provision
hereof or relating to or arising out of the parties'
relationship or the creation or termination thereof
(including, without limitation, any claim that any
provision of this Agreement, or any specification,
standard or procedure or any other obligation of
Hospital or Manager or both is illegal or otherwise
unenforceable or voidable under any law, ordinance, or
ruling) shall be settled by arbitration at the Office of the
American Arbitration Association in Mississippi which
is nearest to the Hospital, in accordance with the United
3
Horizon Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F.Supp.2d 439 (2003)

States Arbitration Act (9 U.S.C. Section 1 et seq.) And not permit a public entity to make a contract that extends
the Rules of American Arbitration Association. All beyond the term of a majority of the board's members
awards of the arbitration shall be binding and non- might ultimately excuse Tyler–Holmes from compliance
appealable except as otherwise provided in the United with the contract. However, that also involves getting
States Arbitration Act.... The parties hereby agree the to the merits and should be decided by an arbitrator.
rendering of an award by the arbitrator or arbitrators Both of these arguments go the Amended Management
shall be a condition precedent to the initiation of any Agreement as a whole, and are not directed at the
legal proceeding with respect to any dispute arising in arbitration provision. The Fifth Circuit has stated “unless
connection with this Agreement. a defense relates specifically to the arbitration *443
Tyler–Holmes does not argue, and the court does not agreement, it must be submitted to the arbitrator as part of
find any federal statute or policy that renders the claims the underlying dispute.” Primerica Life Ins. Co., 304 F.3d
nonarbitrable. As such, the court must determine whether at 472. Where a defense relates to a contract as a whole,
the parties agreed to arbitrate the dispute. The arbitration and not specifically to an arbitration clause, then there is
clause is broad, and clearly the dispute in question falls no distinction between defenses which render a contract
within the scope of the arbitration agreement. voidable and defenses which render a contract void; both
should be submitted to the arbitrator. Id. at n. 2 (citing
Tyler–Holmes argues that the Amended Management Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
Agreement is invalid and/or voidable under Mississippi 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)).
law, and as such, the arbitration agreement is not
enforceable. Tyler–Holmes advances three reasons to [7] [8] Tyler–Holmes' second assertion is that the
support such a position. First, Tyler–Holmes argues that MCHA and opinions of the Mississippi Attorney General
the arbitration agreement cannot be enforced because a hold that public bodies such as Tyler–Holmes may not
material term of the Amended Management Agreement be required to submit to arbitration. “Even if [Tyler–
violates Miss.Code § 41–13–35(5)(k) of the Mississippi Holmes is correct], the strong federal policy favoring
Community Hospital Act (“MCHA”). Tyler–Holmes arbitration preempts state laws that act to limit the
asserts that the MCHA requires that certain “financing availability of arbitration.” Saturn Distribution Corp.
arrangement[s],” such as are supposedly in the Amended v. Paramount Saturn, Ltd., 326 F.3d 684, 687 (5th
Management Agreement, be approved by the owner of the Cir.2003)(citing Southland Corp., 465 U.S. at 16, 104
hospital by virtue of a resolution. As such, Tyler–Holmes S.Ct. 852). Furthermore, “[t]he Arbitration Act, resting on
argues that because the entire agreement is invalid, the Congress's authority under the Commerce Clause, creates
arbitration clause cannot be enforced. Second, Tyler– a body of federal substantive law that is applicable in both
Holmes asserts that the MCHA and opinions of the federal and state courts.” IP Timberlands Operating Co.
Mississippi Attorney General hold that public bodies v. Denmiss Corp., 726 So.2d 96, 107 (Miss.1998)(citing
such as Tyler–Holmes may not be required to submit to Moses H. Cone Memorial Hosp. v. Mercury Constr.
arbitration. Third, Tyler–Holmes asserts that the MCHA Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983))
does not permit a public entity to make a contract (emphasis added). As such, Tyler–Holmes' arguments
that extends beyond the term of a majority of the about state law limiting the FAA are not well taken.
board's members. Tyler–Holmes asserts that the Amended
Management Agreement extends beyond the term of the [9] Finally, the court notes that Tyler–Holmes does
majority of the Tyler–Holmes' Trustees. not contest that the Trustees and Supervisors can be
compelled to arbitrate as well under traditional agency
[5] [6] As to the first and third reasons submitted principles. Horizon notes that Supervisors grant Trustees
by Tyler–Holmes, the court is of the opinion that these broad powers to govern community hospitals. Trustees
arguments are getting into the merits of the underlying in turn are authorized to employ administrators, such
dispute. Whether the Amended Management Agreement as Greg Mullen, the hospital administrator who signed
can be enforced because a material term of the Agreement the agreements in the case sub judice. Because arbitration
violates certain “financing arrangement[s]” in Miss.Code is a creature of contract law, when asked to enforce
§ 41–13–35(5)(k) should be decided by the arbitrator. an arbitration agreement against a non-signatory, courts
Similarly, Tyler–Holmes' assertion that the MCHA does should ask “whether ... she is bound by that agreement

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Horizon Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F.Supp.2d 439 (2003)

under traditional principles of contract and agency the claims in this case are arbitrable. As *444 such, the
parties' claims shall be dismissed without prejudice.
law.” Mississippi Fleet Card, LLC v. Bilstat, Inc., 175
F.Supp.2d 894, 901 (S.D.Miss.2001) (citation omitted).
A separate order in accordance with this opinion shall
See also Fleetwood Enterprises, Inc. v. Gaskamp, 280
issue this day.
F.3d 1069, 1076 (5th Cir.2002)(quoting Thomson–CSF,
S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776
(2d. Cir.1995))(Stating there are several “theories under
‘common law principles of contract and agency law’ that ORDER GRANTING MOTION
provide a basis ‘for binding non-signatories to arbitration TO COMPEL ARBITRATION
agreements.’ ”). As such, the court finds that Horizon's
arguments are well taken, and Plaintiff's motion to compel Pursuant to an opinion issued this day, it is hereby
arbitration shall be granted against all Defendants. ORDERED that

(1) the Plaintiff's motion to compel arbitration (docket

entry 14–2) is GRANTED;
D. Conclusion
(2) the Plaintiff's claims shall be submitted to
For the above stated reasons, the Plaintiff's motion to arbitration, in accordance with the arbitration
compel arbitration is granted. The court is of the opinion agreement;
that the parties agreed to arbitrate the dispute. The court
is also of the opinion that no federal statute or policy (3) the Plaintiff's motion to stay the case (docket entry
renders the claims nonarbitrable. Finally, the court finds 14–1) is DENIED as moot;
that this cause should be dismissed without prejudice. The
(4) as arbitration has been compelled and all issues in
Fifth Circuit has held that Section Three of the FAA
this case disposed of, this case is CLOSED. Any of
(which provides that the court “shall ... stay the trial of
the parties may seek, by motion, to reopen this case
the action”) was not intended to limit dismissal of a case
in the event further action is required by the court.
in the proper circumstances and that if all of the issues
raised in the district court are arbitrable, dismissal of the
case is proper. See Alford v. Dean Witter Reynolds, Inc., All Citations
975 F.2d 1161, 1164 (5th Cir.1992) (holding that retaining
jurisdiction and staying “serve[s] no purpose” when all 284 F.Supp.2d 439
issues are arbitrable). As was the case in Alford, all of

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

In re Amos, 397 S.W.3d 309 (2013)

The Court of Appeals has concurrent

mandamus jurisdiction with the Court of
397 S.W.3d 309
Criminal Appeals in criminal law matters.
Court of Appeals of Texas,
Dallas. Cases that cite this headnote
In re Heidi AMOS, Relator.
[2] Mandamus
No. 05–12–01500–CV. Remedy at Law
|
Mandamus
March 6, 2013.
Criminal prosecutions
Synopsis Prohibition
Background: Defendant filed motion to recuse original Existence and Adequacy of Other
trial judge. An assigned recusal hearing judge granted Remedies
the motion. Original trial judge filed motion for Prohibition
reconsideration. The recusal hearing judge scheduled a Proceedings in criminal prosecutions
hearing on the motion for reconsideration. Defendant
Mandamus and prohibition are available in
petitioned for writs of mandamus and prohibition as
a criminal proceeding if the relator shows (1)
means to challenging the recusal hearing judge's decision.
that the act she seeks to compel or prohibit
does not involve a discretionary or judicial
decision and (2) that she has no adequate
Holdings: The Court of Appeals, Fitzgerald, J., held that: remedy at law to redress the harm that she
alleges will ensue.
[1] recusal rule prohibited original trial judge's motion for
reconsideration; Cases that cite this headnote

[2] assigned recusal hearing judge exceeded her authority
when she attempted to entertain original trial judge's
motion for reconsideration;
[3] any failure to notify judge of the hearing on defendant's
motion to recuse did not violate judge's due process rights;
and
[4] claims challenging original trial judge's motion for
reconsideration and appointed recusal hearing judge's
order granting a rehearing on the matter would be
reviewed for the first time in original mandamus and
prohibition proceedings.
Petition for writ of mandamus conditionally granted.
[3] Mandamus
Nature and existence of rights to be
protected or enforced
Mandamus
Nature of acts to be commanded
Prohibition
Acts and Proceedings of Courts, Judges,
and Judicial Officers
To establish that the act sought to be
compelled or prohibited does not involve a
discretionary or judicial decision, for purposes
of seeking writs of mandamus or prohibition,
the relator must show that she has a clear right
to the relief sought, meaning that the facts
and circumstances dictate only one rational
decision under unequivocal, well settled, and
clearly controlling legal principles.

West Headnotes (16) 2 Cases that cite this headnote

[1] Mandamus [4] Mandamus

Jurisdiction and authority

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Amos, 397 S.W.3d 309 (2013)

Courts and judicial officers subject to

mandamus
Prohibition
Acts and Proceedings of Courts, Judges,
and Judicial Officers
When a relator seeks extraordinary relief that
amounts to the undoing of an accomplished
judicial act, that relief is more in the nature of
mandamus than prohibition.
Cases that cite this headnote
[7] Judges
Effect on acts and proceedings of judge
If a judge recuses himself or herself, the judge
thereby voluntarily steps out of the case for
all purposes and another judge is immediately
assigned to hear and dispose of the case.
Vernon's Ann.Texas Rules Civ.Proc., Rule
18a(f)(2)(A).
Cases that cite this headnote

[8] Judges
[5] Judges
Determination of objections
Effect on acts and proceedings of judge
The “refer rule” requires the challenged judge
Original trial judge's motion for
to refer a recusal motion to another judge to
reconsideration of order granting criminal
decide the motion in the first instance and
defendant's recusal motion was improper in
allows only the newly assigned judge, a judge
the first instance, such that the assigned
other than the challenged judge, to hear and
recusal hearing judge's act of signing the
rule upon the motion to recuse; this process
order granting reconsideration and setting
affords the State and the defendant a fair and
defendant's motion to recuse for a new hearing
impartial forum in which each may litigate
was also improper; once the original trial
the merits of the motion. Vernon's Ann.Texas
judge referred the recusal motion for another
Rules Civ.Proc., Rule 18a.
judge to decide, the recusal rule prohibited
original trial judge from taking any further Cases that cite this headnote
action in the case until the motion was
decided, except for good cause stated in
writing or on the record, and rule even [9] Judges
prohibited original trial judge from filing Determination of objections
a response to the recusal motion. Vernon's Recusal process contemplates the resolution
Ann.Texas Rules Civ.Proc., Rules 18a(f)(2) of the recusal motion through the exercise
(A), 18a(c)(2). of the independent judgment of the assigned
judge absent any outside pressure; it would
2 Cases that cite this headnote defeat the purpose of the refer rule, requiring
the challenged judge to refer a recusal motion
[6] Judges to another judge to decide the motion in the
Determination of objections first instance, to permit the challenged judge
to insert herself in her official capacity as
The purpose of the “recuse-or-refer rule”
judge in order to exert pressure upon and
requiring the challenged judge to either
influence the assigned judge's judgment, as
recuse or refer a recusal motion to another
such a situation is not just inappropriate but
judge to decide the motion is to preserve
blatantly improper for a challenged judge to
public confidence in the impartiality of the
take action designed to influence the outcome
judiciary by minimizing a judge's involvement
of the matter at issue. Vernon's Ann.Texas
in recusal proceedings. Vernon's Ann.Texas
Rules Civ.Proc., Rule 18a.
Rules Civ.Proc., Rule 18a.
Cases that cite this headnote
1 Cases that cite this headnote

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

In re Amos, 397 S.W.3d 309 (2013)
[10] Judges
Determination of objections
Judges
Effect on acts and proceedings of judge
When enforcing the refer rule, requiring the
challenged judge to refer a recusal motion to
another judge to decide the motion in the first
instance, courts make no distinction between
that period during which the recusal motion is
pending and the period immediately following
the ruling by the assigned judge; once a judge
has been recused, the prudent approach is for
the recused judge and the assigned judge to
have no further communications with each
other concerning any aspect of that case.
Vernon's Ann.Texas Rules Civ.Proc., Rule
18a.
2 Cases that cite this headnote
[11] Judges
Effect on acts and proceedings of judge
Assigned recusal hearing judge exceeded
her authority when she attempted to
entertain original trial judge's motion for
reconsideration after assigned recusal hearing
judge had decided the motion to recuse
and the presiding administrative judge had
transferred and reassigned the case to a new
judge in a new court.
Cases that cite this headnote
[12] Judges
Duration of authority
The terms of the assignment order control
the extent of the visiting judge's authority
and when it terminates; thus, an otherwise
qualified assigned judge's action outside the
scope of his or her assignment presents a
procedural irregularity.
Cases that cite this headnote
[13] Judges
Authority and Proceedings of Special or
Substitute Judges
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
When an otherwise qualified assigned judge
renders an order in a criminal case that
exceeds the authority conferred by his or her
order of assignment, the order is erroneous,
although not void.
Cases that cite this headnote
[14] Constitutional Law
Removal; recusal
Judges
Determination of objections
Original trial judge had no protected interest
in presiding over defendant's particular
criminal case, and thus, any failure to notify
judge of the hearing on defendant's motion
to recuse did not violate judge's due process
rights. U.S.C.A. Const.Amend. 14.
Cases that cite this headnote
[15] Mandamus
Criminal prosecutions
Prohibition
Proceedings in criminal prosecutions
Claims challenging original trial judge's
motion for reconsideration of recusal order
and appointed recusal hearing judge's order
granting a rehearing on the matter would
be reviewed for the first time in original
mandamus and prohibition proceedings even
though criminal defendant failed to oppose
or object to appointed recusal hearing
judge's reconsideration order, where original
trial judge and appointed recusal hearing
judge each acted without authorization and
directing defendant to make her objections
before appointed recusal hearing judge
possibly would have resulted in yet another
original proceeding, and defendant was
afforded little or no time to respond to original
trial judge's motion for reconsideration.
Cases that cite this headnote
[16] Mandamus
Vacation of judgment or order
3
In re Amos, 397 S.W.3d 309 (2013)
If a district judge enters an order for which he
has no authority, mandamus will issue.
Cases that cite this headnote
Attorneys and Law Firms
*311 Michael R. Casillas, Assistant District Attorney,
Chief Prosecutor, Dallas, TX, for Appellant.
L.T. Butch Bradt, Houston, TX, Brady T. Wyatt III,
Attorney at Law, Dallas, TX, for Appellees.
Before Justices MOSELEY, FITZGERALD, and
MYERS.
OPINION
Opinion by Justice FITZGERALD.
Relator Heidi Amos is the defendant in a pending criminal
case. She filed a motion to recuse the trial judge presiding
over her case, a former judge was assigned to decide the
motion to recuse, and that judge granted the motion. The
recused judge then filed a motion for reconsideration, and
the assigned judge signed an order purporting to grant
rehearing of the motion to recuse and to set the motion
for a new hearing. By a petition for writ of mandamus and
writ of prohibition, Amos asks us to prevent the assigned
judge from reconsidering her recusal order. We conclude
that Amos has a clear right to the relief sought and that
she has no adequate remedy by appeal. Accordingly, we
conditionally grant the writ of mandamus.
I. FACTS
Amos filed a motion to recuse the trial judge presiding
in her criminal case, the Honorable Etta Mullin, Dallas
County *312 Criminal Court No. 5. The presiding
administrative judge assigned the motion to a former
judge, the Honorable Sue Pirtle, for decision. On
September 28, 2012, Judge Pirtle conducted a hearing on
the motion. Counsel for Amos and the State appeared;
Amos did not appear. Counsel for Amos and counsel for
the State testified at the hearing. 1 The State presented no
other evidence and had no objections to the motion. Judge
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Pirtle orally found “the appearance of impropriety, the
appearance of prejudice ... sufficient” to justify recusal,
and she signed an order granting the motion to recuse
that same day. On October 1, the presiding administrative
judge transferred the case to a new judge, the Honorable
Jeffrey Rosenfield, Dallas County Criminal Court of
Appeals No. 2.
About three weeks later, Judge Mullin filed a motion for
reconsideration addressed to Judge Pirtle. Judge Mullin
argued that Judge Pirtle should reconsider and deny
Amos's motion for recusal because Judge Mullin was a
necessary party to the hearing, had not received notice of
the hearing, and therefore had no opportunity to “cross-
examine [the] witnesses, nor to present any witnesses
or evidence to contravene the issues addressed.” 2 She
also argued that the motion for recusal did not establish
bias or prejudice sufficient to justify recusal. On October
26, Judge Pirtle signed an order granting Judge Mullin's
motion for reconsideration and setting the motion to
recuse for a new hearing on November 1.
Amos filed a petition for writ of mandamus or writ of
prohibition in this Court on October 30, see In re Amos,
No. 05–12–01463–CV, 2012 WL 5397108 (Tex.App.-
Dallas Nov. 6, 2012, orig. proceeding) (mem. op.)
(denying the petition for noncompliance with the Texas
Rules of Appellate Procedure), and she filed a revised
petition seeking the same relief on November 6. Thus, in
this mandamus proceeding, Amos is the relator, Judge
Pirtle is the respondent, and the State is the real party
in interest. See TEX. R. APP. P. 52.2. We stayed Judge
Pirtle's order granting rehearing pending the disposition
of this original proceeding.
II. ANALYSIS
A. Criminal mandamus standards
[1] [2] [3] [4] We have concurrent mandamus
jurisdiction with the Texas Court of Criminal Appeals
in criminal-law matters. Padilla v. McDaniel, 122 S.W.3d
805, 807 (Tex.Crim.App.2003) (orig. proceeding) (per
curiam). Mandamus and prohibition are available in a
criminal proceeding if the relator shows (1) that the
act she seeks to compel or prohibit does not involve a
discretionary or judicial decision and (2) that she has
no adequate remedy at law to redress the harm that
she alleges will ensue. Simon v. Levario, 306 S.W.3d
4
In re Amos, 397 S.W.3d 309 (2013)

318, 320 (Tex.Crim.App.2009) (orig. proceeding); see
also In re State ex rel. Weeks, 391 S.W.3d 117, 122–
23 (Tex.Crim.App. 2013) (orig. proceeding); De Leon
v. Aguilar, 127 S.W.3d 1, 5 (Tex.Crim.App.2004) (orig.
proceeding). The first prong requires the relator to
show that she has a clear right to the relief sought,
meaning that the facts and circumstances dictate only
one rational decision under unequivocal, well-settled, and
clearly controlling legal principles. Simon, 306 S.W.3d
at 320. When a relator seeks extraordinary relief that
amounts to the undoing of an accomplished judicial act,
that relief is more in *313 the nature of mandamus than
prohibition. Id. at 320 n. 2.
B. Clear right to relief
1. Impropriety of the motion for reconsideration
[5] We conclude that Judge Mullin's motion for
reconsideration was improper, and thus that Judge Pirtle
clearly erred by signing the order granting reconsideration
and setting Amos's motion to recuse for a new hearing.
[6] “Recuse” means both to remove oneself as a judge
in a particular case and to challenge or object to a
judge as being disqualified from hearing a particular
case, such as because of prejudice. BLACK'S LAW
DICTIONARY 1303 (8th ed. 2004). Texas Rule of Civil
Procedure 18a, which governs motions to recuse, applies
in criminal cases. Arnold v. State, 853 S.W.2d 543, 544
(Tex.Crim.App.1993). Under that rule, the challenged
judge must either recuse or refer the motion for another
judge to decide. De Leon, 127 S.W.3d at 5. The purpose of
the recuse-or-refer rule is to preserve public confidence in
the impartiality of the judiciary “by minimizing a judge's
involvement in recusal proceedings.” Carmody v. State
Farm Lloyds, 184 S.W.3d 419, 422 (Tex.App.-Dallas 2006,
no pet.).
(A) (concerning motions to recuse filed before evidence
has been offered at trial). The rules even provide that
the challenged judge “should not file a response to the
motion.” TEX. R. CIV. P. 18a(c)(2).
[8] [9] The “refer rule” requires a challenged judge to
refer the recusal motion to the presiding judge in the
first instance, and allows only the newly assigned judge,
a judge other than the challenged judge, to hear and
rule upon the motion to recuse. This process affords the
parties—the State and the defendant—a fair and impartial
forum in which each may litigate the merits of the motion.
Further, this process contemplates the resolution of the
motion through the exercise of the independent judgment
of the assigned judge absent any outside pressure. It
would defeat the purpose of the “refer rule” to permit the
challenged judge to insert herself in her official capacity
as judge in order to exert pressure upon and influence
the assigned judge's judgment. It is not just inappropriate
but blatantly improper for a challenged judge to take
action designed to influence the outcome of the matter
at issue. To hold otherwise would seriously compromise
the independence of the assigned judge and undermine the
integrity of the judicial recusal process.
[10] We make no distinction between that period during
which the motion is pending and the period immediately
following the ruling by the assigned judge. Once a
judge has been recused, the prudent approach is for
the recused judge and the assigned judge to have no
further communications with each other concerning any
aspect of that case. See Mosley v. State, 141 S.W.3d
816, 833 (Tex.App.-Texarkana 2004, pet. ref'd). Judicial
action prohibited during the pendency of the recusal
motion should not be tolerated after *314 the assigned
judge rules on the motion. In both instances, the rules
plainly discourage any attempt by the challenged judge to
influence the judgment of the assigned judge.

[7] If a judge recuses himself or herself, the judge thereby

Additionally, there is some authority holding that the
voluntarily steps out of the case for all purposes and
parties to a criminal case are the State and the accused,
another judge is immediately assigned to hear and dispose
and that no third party may intervene in a criminal
of the case. If a judge refers the motion to recuse to
case. See Bell v. State, No. 01–05–01180–CR, 2006 WL
the presiding administrative judge, the rules require the
3628916, at *5 (Tex.App.-Houston [1st Dist.] Dec. 14,
challenged judge to step aside and another judge to
2006, no pet.) (mem. op., not designated for publication)
be assigned to resolve the motion. Once the challenged
(trial judge was not required to refer motion to recuse
judge refers the motion for another judge to decide, the
filed by third-party “public interest organization”); In re
challenged judge must take no further action in the case
Wingfield, 171 S.W.3d 374, 381 (Tex.App.-Tyler 2005,
until the motion is decided, except for good cause stated
orig. proceeding) (“Unlike the Rules of Civil Procedure,
in writing or on the record. TEX. R. CIV. P. 18a(f)(2)

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

In re Amos, 397 S.W.3d 309 (2013)
the Code of Criminal Procedure makes no provision for
a third party to intervene in a ‘criminal action.’ ”). In
Wingfield, the court went so far as to state that the trial
judge “had no discretion to consider the issues raised”
by purported intervenors in a criminal case. 171 S.W.3d
at 381. By analogy, Judge Pirtle had no discretion to
consider the issues raised by Judge Mullin in her motion
for reconsideration.
Based on the foregoing authorities, we conclude that
Judge Mullin's motion for reconsideration was wholly
improper and without authority. Under the circumstances
of this case, after Amos filed the motion to recuse and
Judge Mullin declined to recuse herself, Rule 18a(f)(2)
(A) obliged Judge Mullin to take no further action in
the case until the issue of her recusal was decided. Once
Judge Pirtle granted the motion to recuse, Judge Mullin
should not have involved herself in the case further. Cf.
Dunn v. Cnty. of Dallas, 794 S.W.2d 560, 562 (Tex.App.-
Dallas 1990, no writ) (once judge recused himself, he
could take no further action in the case except for good
cause stated in the order). Rule 18a(c)(2) states expressly
that a challenged judge should not file a response to the
motion; it follows that a judge who has actually been
recused should not file a motion for reconsideration of
that decision. See Mosley, 141 S.W.3d at 833 (stating that
a recused judge generally should have no communications
with the judge ultimately assigned to the case). Any
involvement by the recused judge after recusal can only
disserve the public policy of preserving public confidence
in the impartiality of the judiciary. See Carmody, 184
S.W.3d at 422. We conclude that Judge Mullin should not
have filed the motion for reconsideration, and that Judge
Pirtle acted contrary to settled law when she granted the
motion for reconsideration.
2. The termination of Judge Pirtle's authority
[11] In addition to the foregoing, we conclude that
Judge Pirtle exceeded her authority when she attempted
to entertain Judge Mullin's motion for reconsideration
after Judge Pirtle had decided the motion to recuse and
the presiding administrative judge had transferred and
reassigned the case to a new judge in a new court.
[12] [13] “The terms of the assignment order control
the extent of the visiting judge's authority and when it
terminates.” Mangone v. State, 156 S.W.3d 137, 139–
40 (Tex.App.-Fort Worth 2005, pet. ref'd) (footnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
omitted). 3 Thus, an otherwise qualified assigned judge's
action outside the scope of his or her assignment presents
a “procedural irregularity.” Wilson v. State, 977 S.W.2d
379, 380 (Tex.Crim.App.1998). In Wilson, a former judge
was *315 assigned to a particular trial court for a specific
five-week period, and he presided over the appellant's trial
in that court even though his assignment had expired three
days before the trial started. Id. at 379. The appellant
complained about the judge's lack of authority for the
first time on appeal. Id. at 379–80. The court of criminal
appeals held that a defendant may challenge an otherwise
qualified judge's authority to preside in a particular case
by means of a pretrial objection (rather than a quo
warranto proceeding, as had been the rule previously),
but the challenge cannot be raised for the first time on
appeal. Id. at 380; accord Jackson v. State, No. 05–10–
01190–CR, 2012 WL 955361, at *2 (Tex.App.-Dallas Mar.
22, 2012, no pet.) (not designated for publication) (“An
appellant may not object, for the first time on appeal, to
a procedural irregularity in the assignment of a former
judge who is otherwise qualified.”). We conclude, based
on Wilson, that when an otherwise qualified assigned
judge renders an order in a criminal case that exceeds the
authority conferred by his or her order of assignment, the
order is erroneous, although not void.
In this case, the order of assignment by the presiding
administrative judge provided as follows:
Pursuant to Rule 18a, Texas Rules of Civil Procedure,
I [hereby] assign the:
Honorable Sue Pirtle
Former Judge of The 382nd District Court
to the
County Criminal Court # 5 of Dallas County, Texas
This assignment is for the purpose of the assigned judge
hearing a Motion to Recuse as stated in the Conditions
of Assignment. This assignment is effective immediately
and shall continue for such time as may be necessary for
the assigned judge to hear and pass on such motion.
CONDITION(S) OF ASSIGNMENT:
Cause No. MA–10–6876: The State of Texas vs. Heidi
Amos.
6
In re Amos, 397 S.W.3d 309 (2013)
Based on the language of this order, Judge Pirtle's
authority in the case arguably expired on September 28,
2012, when she ruled on Amos's motion to recuse. But we
need not decide this issue because in our view Judge Pirtle
definitely lost any authority she had on October 1, 2012,
when the presiding administrative judge transferred and
reassigned Amos's criminal case to a new court, Dallas
County Criminal Court of Appeals No. 2. The transfer
order does not recognize or mention any continuing power
in Judge Pirtle to exercise any judicial authority in the case.
Judge Pirtle's attempt to continue acting in the case after
the case had been transferred in its entirety to a new judge
and court was improper and without authority.
3. The State's response
[14] At our request, the State filed a response to Amos's
petition. The State suggests that Judge Pirtle's order
granting reconsideration may have been proper as a way
of vindicating Judge Mullin's due-process rights. In her
motion for reconsideration, Judge Mullin averred that
she had not been given notice of the recusal hearing
before Judge Pirtle, and she argued, among other things,
that the lack of notice violated her rights under the
Due Course of Law Clause of the Texas Constitution.
See TEX. CONST. art. I, § 19. One element of a claim
under this clause is the existence of a constitutionally
protected interest. See In re J.W.T., 872 S.W.2d 189,
194 (Tex.1994). Although the Texas Supreme Court has
said that a public officer's interest in his or her elected
position is a protected interest, Tarrant Cnty. v. Ashmore,
635 S.W.2d 417, 422 (Tex.1982), *316 we have found no
authority that a trial judge's interest in presiding over a
particular case is constitutionally protected such that she
must be given notice of a hearing of a motion to recuse. In
cases decided under the federal Due Process Clause, courts
have held that possession of a constitutionally protected
interest in public employment generally does not give the
holder a protected interest in any particular job duties or
responsibilities. See Richards v. City of Weatherford, 145
F.Supp.2d 786, 790–91 (N.D.Tex.2001), aff'd, 275 F.3d 46
(5th Cir.2001). We generally construe the Due Course of
Law Clause in the same way as its federal counterpart.
Tex. Workers Comp. Comm'n v. Patient Advocates of
Tex., 136 S.W.3d 643, 658 (Tex.2004). By analogy, Judge
Mullin had no protected interest in presiding over Amos's
particular criminal case. We conclude that the order
recusing Judge Mullin in a single case did not infringe any
interest protected by the Due Course of Law Clause, and
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
therefore any failure to notify Judge Mullin of the recusal
hearing did not violate Judge Mullin's constitutional
rights.
We conclude Amos has shown a clear right to relief from
Judge Pirtle's order granting reconsideration of Amos's
motion to recuse.
C. Error preservation and adequate remedy at law
[15] We next consider whether we should deny Amos's
petition because she did not present any of her arguments
to Judge Pirtle before filing this original proceeding. See
In re Watkins, 369 S.W.3d 702, 706 (Tex.App.-Dallas
2012, orig. proceeding). Under the particular facts of this
case, we conclude that Amos's failure to oppose or object
to Judge Pirtle's reconsideration order is excusable. The
record indicates that Judge Mullin served her motion for
reconsideration by first-class mail on October 23, 2012,
and Judge Pirtle granted reconsideration, apparently
without a hearing, by order signed on Friday, October 26.
Thus, depending on when Amos received the motion for
reconsideration, she had little or no time to respond to
the motion for reconsideration before Judge Pirtle granted
it. Moreover, Judge Pirtle's October 26 order set the new
hearing on Amos's motion to recuse at 10:00 a.m. on
Thursday, November 1, again giving Amos little time to
react. Amos's decision to seek emergency and mandamus
relief from this Court, which she did on October 30, was
understandable under the circumstances. Although she
could have presented her argument at the November 1
hearing, her contention is that Judge Pirtle could not
properly set or conduct such a hearing in the first place.
Under these circumstances, we conclude it is proper for us
to address the merits in this proceeding instead of directing
Amos to make her objections before Judge Pirtle, possibly
resulting in yet another original proceeding afterwards.
[16] The court of criminal appeals has said that appeal
is ordinarily an adequate remedy for an erroneous ruling
on a motion to recuse. De Leon, 127 S.W.3d at 6. But
Amos is not challenging an order granting or denying a
motion to recuse; she is challenging an assigned judge's
consideration of an improper motion for reconsideration
filed by a recused judge. “ ‘If a district judge enters
an order for which he has no authority, mandamus
will issue.’ ” State ex rel. Cobb v. Godfrey, 739 S.W.2d
47, 48 (Tex.Crim.App.1987) (orig. proceeding) (quoting
State ex rel. Holmes v. Denson, 671 S.W.2d 896, 899
(Tex.Crim.App.1984) (orig. proceeding)). In Godfrey, the
7
In re Amos, 397 S.W.3d 309 (2013)

trial judge attempted to grant a new trial after the authority over the case. In the civil context, mandamus
will lie when a court issues an order that actively
defendant's motion for new trial had been overruled by
interferes with the jurisdiction of another court possessing
operation of law. See id. at 47–48. The court of criminal
dominant jurisdiction. See In re Puig, 351 S.W.3d 301, 306
appeals granted mandamus relief, concluding *317 that
(Tex.2011) (orig. proceeding) (per curiam). We conclude
the judge lacked authority to take that action. Id. at 50.
that mandamus should issue to forestall any interference
with Judge Rosenfield's authority over this criminal case.
We conclude that mandamus is appropriate on the facts
of this case. Judge Mullin acted without authority when
she filed the motion for reconsideration, and Judge Pirtle
acted contrary to settled law when she granted the motion III. CONCLUSION
for reconsideration. If we withhold mandamus relief, any
further proceedings by Judge Pirtle will be improper, and For the foregoing reasons, we conditionally grant Amos's
any orders or judgments resulting from those proceedings petition for writ of mandamus. The writ will issue only
will be erroneous and subject to reversal, resulting in a if Judge Pirtle fails to vacate her October 26, 2012 Order
waste of judicial resources. Cf. De Leon, 127 S.W.3d at Granting Motion for Reconsideration of Order of Recusal
7 (indicating that mandamus may be appropriate where and Setting Hearing Date. We deny Amos's petition to the
reversal is so certain that a trial would be a waste extent she requests a writ of prohibition.
of judicial resources). Moreover, Judge Pirtle's attempt
to continue taking judicial action conflicts with the
All Citations
order of the presiding administrative judge transferring
Amos's case to Judge Rosenfield and interferes with his 397 S.W.3d 309

Footnotes
1 Counsel for the State testified in part, “I don't think that she [Judge Mullin] can be fair and impartial in your case with
Ms. Amos.”
2 Judge Mullin did not categorically state that she had no prior knowledge of the hearing.
3 The rule is the same in civil cases. See, e.g., Davis v. Crist Indus., Inc., 98 S.W.3d 338, 341 (Tex.App.-Fort Worth
2003, pet. denied) (“The terms of the assignment order control[ ] the extent of the visiting judge's authority and when
it terminates.”).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
231 S.W.3d 475
Court of Appeals of Texas,
Corpus Christi–Edinburg.
In re CHRISTUS SPOHN HEALTH
SYSTEM CORPORATION d/b/
a Christus Spohn Hospital Shoreline.
No. 13–07–399–CV.
|
July 31, 2007.
Synopsis
Background: Decedent's survivors brought wrongful
death action against decedent's former employer arising
out of murder in employer's parking garage. Employer
filed motion to compel arbitration. The trial court
denied the motion, and employer petitioned for writ of
mandamus.
Holdings: The Court of Appeals, Corpus Christi–
Edinburg, Valdez, C.J., held that:
[1] employer substantially invoked the judicial process,
and
[2] survivors were prejudiced by employer's action.
Writ denied.
West Headnotes (23)
[1] Mandamus
Remedy by Appeal or Writ of Error
Mandamus
Matters of Discretion
A writ of mandamus will issue to correct a
clear abuse of discretion when there is no
adequate remedy by appeal; a trial court
abuses its discretion if it reaches a decision so
arbitrary and unreasonable as to amount to a
clear and prejudicial error of law or if it clearly
fails to correctly analyze or apply the law.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Cases that cite this headnote
[2] Mandamus
Presumptions and Burden of Proof
The relator requesting a writ of mandamus
has the burden to establish that the trial court
abused its discretion.
Cases that cite this headnote
[3] Mandamus
Acts and Proceedings of Courts, Judges,
and Judicial Officers
Mandamus
Civil Proceedings Other Than Actions
If a trial court erroneously denies a party's
motion to compel arbitration under the
Federal Arbitration Act (FAA), the movant
has no adequate remedy at law and is entitled
to a writ of mandamus.
1 Cases that cite this headnote
[4] Alternative Dispute Resolution
Evidence
There is a strong presumption against waiver
of arbitration rights.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Evidence
A heavy burden of proof is required to
establish waiver of arbitration rights, and
the court must resolve all doubt in favor of
arbitration.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Trial or Hearing
Whether a party has waived its contractual
right to arbitrate is a question of law.
1 Cases that cite this headnote
1
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
[7] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of the right to arbitration may be
express or implied.
Cases that cite this headnote
[8] Alternative Dispute Resolution
Waiver or Estoppel
Whether waiver of the right to arbitration has
occurred depends on the individual facts and
circumstances of each case.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of the right to arbitration occurs only
where a party has acted inconsistently with its
right to arbitrate and such actions prejudiced
the other party.
Cases that cite this headnote
[10] Alternative Dispute Resolution
Suing or Participating in Suit
A party waives an arbitration clause when it
substantially invokes the judicial process to
the other party's detriment.
1 Cases that cite this headnote
[11] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of an arbitration right must be
intentional.
Cases that cite this headnote
[12] Alternative Dispute Resolution
Suing or Participating in Suit
The test for determining waiver of the right
to arbitration is two-pronged: (1) whether
the party seeking arbitration substantially
invoked the judicial process, and (2) whether
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
opposing party proved that it suffered
prejudice as a result.
2 Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing or Participating in Suit
The judicial process has been substantially
invoked such that a right to arbitration
has been waived when the party seeking
arbitration has taken specific and deliberate
actions, after the filing of suit, that are
inconsistent with a right to arbitrate or
has actively tried, but failed, to achieve a
satisfactory result through litigation before
turning to arbitration.
5 Cases that cite this headnote
[14] Alternative Dispute Resolution
Suing or Participating in Suit
Actions that are inconsistent with the right to
arbitrate and thus raise the issue of waiver of
that right may include some combination of
filing an answer, setting up a counterclaim,
pursuing extensive discovery, moving for a
continuance, and failing to timely request
arbitration.
2 Cases that cite this headnote
[15] Alternative Dispute Resolution
Suing or Participating in Suit
Examples that indicate the party is attempting
to achieve a satisfactory result through
litigation before turning to arbitration such
that the right to arbitration is waived include
moving for summary judgment or seeking a
final resolution of the dispute.
2 Cases that cite this headnote
[16] Alternative Dispute Resolution
Suing or Participating in Suit
Attempts at settlement do not evidence waiver
of the right to arbitration.
2
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
Cases that cite this headnote
[17] Alternative Dispute Resolution
Waiver or Estoppel
Delay alone generally does not establish
waiver of the right to arbitration.
Cases that cite this headnote
[18] Alternative Dispute Resolution
Suing or Participating in Suit
Purely defensive measures do not
substantially invoke the judicial process as
required to waive a right to arbitration.
2 Cases that cite this headnote
[19] Alternative Dispute Resolution
Suing or Participating in Suit
A party does not substantially invoke
the judicial process and waive a right
to arbitration merely by participating in
discovery; in contrast, pursuing extensive
discovery may substantially invoke the
judicial process.
1 Cases that cite this headnote
[20] Alternative Dispute Resolution
Suing or Participating in Suit
Even when a party has substantially invoked
the judicial process, a party's right to
arbitration is not waived absent a clear
showing that the opposing party has been
prejudiced.
1 Cases that cite this headnote
[21] Alternative Dispute Resolution
Waiver or Estoppel
In determining whether a party has been
prejudiced such that the right to arbitration
has been waived, courts focus on factors such
as: (1) the movant's access to information that
is not discoverable in arbitration and (2) the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
opponent's incurring costs and fees due to the
movant's actions or delay.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Suing or Participating in Suit
Decedent's employer substantially invoked
the judicial process for purposes of waiver
of right to arbitration in wrongful death
action brought by decedent's survivors, where
employer did not request arbitration until
14 months after lawsuit was filed, two
separate trial settings had been passed and the
matter had already been set for trial a third
time, at employer's request, before employer
moved to compel arbitration, employer had
sought substantive discovery on the merits,
pertaining to both liability and damages,
through numerous discovery requests and
motions, and employer had filed a third-party
petition, had filed a motion for contempt,
and had attempted to impose sanctions which
suggested that it was attempting to achieve
a satisfactory result through the judicial
process.
1 Cases that cite this headnote
[23] Alternative Dispute Resolution
Suing or Participating in Suit
Decedent's survivors were prejudiced by
employer's act in invoking the judicial
process such that employer waived right
to arbitration in wrongful death action;
survivors' counsel testified by affidavit as
to the expenses incurred and the time
spend on depositions and discovery, that
he would have used a different discovery
strategy had employer timely requested
arbitration, and that he would have limited
the depositions and expenses incurred because
of the limits customarily proposed in
arbitration proceedings, and survivor testified
by affidavit that he and his children had been
receiving counseling and were expecting the
matter to be resolved.
3
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
Cases that cite this headnote
Attorneys and Law Firms
*477 Charles W. Hurd, III, Joy M. Soloway, Fulbright
& Jaworski, Christine Kirchner, Jennifer Simons, Stephen
J. Knight, Chamberlain, Hrdlicka, White, Williams &
Martin, Houston, Darrell L. Barger, Hartline, Dacus,
Barger, Dreyer, Corpus Christi, for relator.
David T. Bright, Watts Law Firm, Robert C. Hilliard,
Hilliard & Munoz, Corpus Christi, for real party in
interest.
Before Chief Justice VALDEZ and Justices BENAVIDES
and VELA.
OPINION
Opinion by Chief Justice VALDEZ.
Relator, Christus Spohn Health System Corporation d/
b/a Christus Spohn Hospital Shoreline, seeks a writ of
mandamus ordering the trial court to compel arbitration
of a wrongful death claim brought by real parties in
interest, the family of a deceased employee. We deny the
petition for writ of mandamus.
I. Standard of Review
[1] [2] [3] A writ of mandamus will issue to correct
a clear abuse of discretion when there is no adequate
remedy by appeal. See Walker v. Packer, 827 S.W.2d 833,
840 (Tex.1992). A trial court abuses its discretion if it
reaches a decision so arbitrary and unreasonable as to
amount to a clear and prejudicial error of law or if it
clearly fails to correctly analyze or apply the law. In re
Ford Motor Co., 165 S.W.3d 315, 317 (Tex.2005). The
relator has the burden to establish that the trial court
abused its discretion. See id. If a trial court erroneously
denies a party's motion to compel arbitration under the
FAA, the movant has no adequate remedy at law and
is entitled *478 to a writ of mandamus. In re Nexion
Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005)
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
(orig.proceeding); Serv. Corp. Int'l v. Lopez, 162 S.W.3d
801, 808 (Tex.App.-Corpus Christi 2005, no pet.).
II. Background
This is a premises liability case. Debra Slough worked
as a nurse at Christus Spohn Shoreline. Jesus Alvarez
abducted Slough from Christus Spohn's parking garage
and murdered her. Debra Slough's husband, Corey
Slough, filed suit against Christus Spohn individually and
on behalf of their three minor children. Relator contends
that the trial court erred in failing to grant its motion
to compel arbitration based on an arbitration clause
included in its employee benefit plan. Real parties in
interest contend, inter alia, that there is neither a valid
arbitration agreement nor that their claims fall within
the scope of that agreement. Real parties in interest raise
further defenses to arbitration, including waiver, estoppel,
and procedural and substantive unconscionability. We
conclude that the issue of waiver is dispositive of this
matter. See Tex.R.App. P. 47.1.
III. Applicable Law
[4] [5] [6] [7] [8] There is a strong presumption
against waiver of arbitration rights. In re Bank One, 216
S.W.3d 825, 827 (Tex.2007); In re D. Wilson Constr.
Co., 196 S.W.3d 774, 783 (Tex.2006) (orig.proceeding);
see In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763
(Tex.2006) (orig.proceeding). A “heavy burden of proof”
is required to establish waiver of arbitration rights, and
the court must resolve all doubt in favor of arbitration. In
re Bruce Terminix Co., 988 S.W.2d 702, 702 (Tex.1998).
Whether a party has waived its contractual right to
arbitrate is a question of law. See In re Oakwood Mobile
Homes, 987 S.W.2d 571, 574 (Tex.1999) (orig.proceeding).
Waiver may be express or implied. EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 89 (Tex.1996) (orig.proceeding);
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730,
735 (Tex.App.-Eastland 2006, orig. proceeding). Whether
waiver has occurred depends on the individual facts and
circumstances of each case. Southwind Group, Inc., 188
S.W.3d at 735; Williams Indus., Inc. v. Earth Dev. Sys.
Corp., 110 S.W.3d 131, 135 (Tex.App.-Houston [1st Dist.]
2003, no pet.); Sedillo v. Campbell, 5 S.W.3d 824, 827
(Tex.App.-Houston [14th Dist.] 1999, no pet.).
4
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)

[9] [10] [11] [12] Waiver occurs only where “a partydispute. Williams Indus., Inc., 110 S.W.3d at 135. In this
has acted inconsistently with its right to arbitrate and regard, we would note that attempts at settlement do not
such actions prejudiced the other party.” In re Oakwood evidence waiver. In re Certain Underwriters at Lloyd's, 18
Homes, 987 S.W.2d at 574. Stated differently, “a party S.W.3d at 876; D. Wilson Constr. Co. v. McAllen Indep.
waives an arbitration clause when it substantially invokes Sch. Dist., 848 S.W.2d 226, 230 (Tex.App.-Corpus Christi
the judicial process to the other party's detriment.” In re 1992, writ dism'd w.o.j.).
Bank One, 216 S.W.3d at 827; see In re Vesta, 192 S.W.3d
at 763. Waiver of an arbitration right must be intentional. [17] [18] [19] Delay alone generally does not establish
In re Bank One, 216 S.W.3d at 827; EZ Pawn Corp., waiver. In re Vesta, 192 S.W.3d at 763. Similarly, purely
934 S.W.2d at 89; In re Certain Underwriters at Lloyd's, defensive measures do not substantially invoke the judicial
18 S.W.3d 867, 872 (Tex.App.-Beaumont 2000, orig. process. See Transwestern Pipeline Co. v. Horizon Oil &
proceeding). Therefore, the test for determining waiver Gas Co., 809 S.W.2d 589, 593 (Tex.App.-Dallas 1991,
is two-pronged: (1) did the party seeking arbitration writ dism'd w.o.j.) (citing filing of general denial to
substantially invoke the judicial process, and (2) did the preclude default judgment and filing of protective order
opposing party prove that it suffered prejudice as a result. in response to discovery request as examples of defensive
Perry Homes v. Cull, 173 S.W.3d 565, 569–70 (Tex.App.- measures); see also In re Serv. Corp. Int'l, 85 S.W.3d 171,
Fort Worth 2005, pet. granted). 174 (Tex.2002) (orig.proceeding) (holding that objecting
to trial setting showed intent to avoid rather than to
[13] The judicial process has been substantially invoked participate in judicial process). A party does not, for
when the party seeking arbitration has taken specific instance, substantially invoke the judicial process merely
and deliberate actions, after the filing of suit, that are by participating in discovery. In re Bruce Terminix Co.,
inconsistent with a right to arbitrate or has actively 988 S.W.2d at 704; Southwind Group, Inc., 188 S.W.3d
tried, but failed, to achieve a satisfactory result through at 736–737; In re Nasr, 50 S.W.3d 23, 27 (Tex.App.-
litigation before turning to arbitration. In re Vesta Group, Beaumont 2001, orig. proceeding). In contrast, pursuing
*479 Inc., 192 S.W.3d at 763; Williams Indus., 110 extensive discovery may substantially invoke the judicial
S.W.3d at 135. Compare Sedillo, 5 S.W.3d at 827 (waiver process. Southwind Group, Inc., 188 S.W.3d at 736–737;
may occur when a party has taken specific and deliberate Nationwide of Bryan, Inc., 969 S.W.2d at 522.
acts after suit has been filed that are inconsistent with the
right to arbitrate), and Nationwide of Bryan v. Dyer, 969 [20] [21] Even when a party has substantially invoked
S.W.2d 518, 521 (Tex.App.-Austin 1998, no pet.) (same), the judicial process, a party's right to arbitration is not
with Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, waived absent a clear showing that the opposing party has
703–704 (Tex.App.-Fort Worth 2006, pet. filed) (waiver been prejudiced. See In re Vesta Ins. Group, 192 S.W.3d
may occur when a party has actively tried, but failed, to at 763; In re Bruce Terminix Co., 988 S.W.2d at 704. In
achieve a satisfactory result in litigation before turning determining whether or not a party has been prejudiced,
to arbitration); Southwind Group, Inc., 188 S.W.3d at 736 courts focus on factors such as: (1) the movant's access to
(same); Williams Indus., Inc., 110 S.W.3d at 135 (same). information that is not discoverable in arbitration; and (2)
the opponent's incurring costs and fees due to the movant's
[14] [15] [16] Actions that are inconsistent with the actions or delay. See In re Bruce Terminix Co., 988 S.W.2d
right to arbitrate and thus raise the issue of waiver may at 704; Southwind Group, Inc., 188 S.W.3d at 737; Williams
include some combination of filing an answer, setting up Indus., Inc., 110 S.W.3d at 135.
a counterclaim, pursuing extensive discovery, moving for
a continuance, and failing to timely request arbitration.
See In re Certain Underwriters at Lloyd's, 18 S.W.3d at
IV. Analysis
872–873; Sedillo, 5 S.W.3d at 827; Central Nat'l Ins. Co.
v. Lerner, 856 S.W.2d 492, 494 (Tex.App.-Houston [1st We now turn to the procedural history of this matter. The
Dist.] 1993, orig. proceeding). Examples that indicate the underlying lawsuit was originally filed on December 16,
party is attempting to achieve a satisfactory result through 2005. Spohn did not move to compel arbitration *480
litigation before turning to arbitration include moving for until February 8, 2007, after the case had been set for
summary judgment or seeking a final resolution of the trial on three separate dates and almost fourteen months

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
after the inception of the lawsuit. Spohn filed an amended
motion to compel arbitration on February 22, 2007. The
trial court heard arguments on the motion to compel
arbitration on March 2, 2007, and requested supplemental
briefing, which was subsequently filed in April and May.
On June 20, 2007, Spohn filed a petition for writ of
mandamus complaining of the trial court's failure to rule
and argued that the trial court's failure to rule was a denial
of the motion to compel “[f]or all practical purposes.” The
trial court entered an order denying Spohn's motion to
compel arbitration on June 28, 2007. During the fourteen-
month interval before the motion to compel arbitration
was filed, the parties substantially litigated this case. The
real parties added an additional defendant to the lawsuit,
and Spohn filed a motion for leave to designate Jesus
Alvarez as a responsible third party and filed an original
third party petition seeking to add claims against Jesus
Alvarez to the lawsuit. Spohn also applied for a temporary
restraining order and temporary injunction against real
parties in interest, which were granted by the trial court.
As mentioned previously, the matter was set for trial on
no less than three occasions before Spohn first mentioned
the issue of arbitration. Spohn participated in a docket
control conference and a docket control order was entered
setting this matter for trial on December 3, 2006, with an
alternate setting for April 2, 2007. After plaintiffs added
an additional defendant, the parties agreed to pass the
December setting and proceed with the April 2, 2007
setting. On January 3, 2007, Spohn filed a verified motion
for continuance, requesting that the trial date be reset, and
also requested entry of a Level III discovery plan. The
trial court granted Spohn's motion for continuance and,
on January 8, 2007, reset the case for trial in August of
2007.
During this same fourteen-month period of time before
Spohn moved to compel arbitration, the parties engaged
in voluminous discovery. Spohn initiated and commenced
a significant amount of affirmative discovery. In addition
to standard requests for disclosure, Spohn sent seven
separate sets of written discovery to real parties in
interest. These discovery requests, which are part of
the record, are substantive and address the merits of
the case, including both liability and damage issues. 1
Spohn also ordered nineteen sets of business records from
third parties. Spohn filed numerous discovery motions,
including eight motions to compel, and requested entry
of an agreed protective order. Without referencing or
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
mentioning *481 an alleged right to arbitration, Spohn
presented seventeen of its employees for deposition.
The parties, including Spohn, sought affirmative relief
regarding their discovery efforts. In the criminal cause
pending against Jesus Alvarez filed in the 156th District
Court of Bee County, Texas, Spohn moved to hold
counsel for real parties in interest in contempt of court
based on alleged discovery abuse. While we ordinarily
would not consider actions in a separate cause as
indicative of waiver, we would note that Spohn's motion
for contempt expressly stated that:
Movant seeks a contempt finding
from this Court, so it may
present such finding to [respondent
in this underlying proceeding] in
connection with various steps civil
defense counsel will take to suppress
the use of the improperly obtained
video and/or transcript of Mr.
Alvarez's sworn statement, for any
purpose, in the civil matter.
Accordingly, we construe Spohn's actions in this separate
lawsuit as part of its strategic plan of defense in the
underlying matter that would be inconsistent with a right
to arbitrate. Moreover, real parties in interest sought and
received sanctions against Spohn in the instant case for its
failure to identify persons with relevant knowledge and its
representations regarding the lack of video surveillance of
Spohn's premises, when it possessed, but failed to identify
or produce, video surveillance of Spohn's premises on the
date of Debra Slough's abduction and murder.
Finally, counsel for real parties in interest testified, by
affidavit, that he had asked counsel for Spohn early
in the litigation whether there were any reasons real
parties could not bring the claims set out in their petition
because he was concerned that Spohn might consider
decedent Debra Slough to be an employee within the
course and scope of her employment, and thus subject
to the employee benefit plan containing the arbitration
agreement. Counsel stated that Spohn repeatedly and
expressly denied this. Counsel for Spohn also took the
position that Slough's murder did not qualify as an
“event” under the employee benefit plan because of a
“criminal act by a third party.” Further, Spohn has denied
any benefits to the Slough family under the employee
benefit plan.
6
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)
[22] Considering the individual facts and circumstances
of this case, we conclude that Spohn substantially
invoked the judicial process. Although delay alone does
not establish waiver, fourteen months passed before
Christus moved to compel arbitration, and, under these
circumstances, we would conclude that Spohn failed to
timely request arbitration. See In re Certain Underwriters
at Lloyd's, 18 S.W.3d at 872–873; Sedillo, 5 S.W.3d at 827.
Two separate trial settings had been passed and the matter
had already been set for trial a third time, at Spohn's
request via a verified motion for continuance, before
Spohn moved to compel arbitration. Cf. Interconex, Inc.
v. Ugarov, 224 S.W.3d 523, 534–35 (Tex.App.-Houston
[1st Dist.] 2007, no pet.) (movant acted inconsistently with
its right to arbitrate when it requested that the case be
reset and failed to file a motion to compel arbitration until
shortly before trial, which it had specifically requested
and caused to be set at a certain date). According to
the written discovery contained in the record, Spohn
sought substantive discovery on the merits, pertaining to
both liability and damages, through numerous discovery
requests and motions. Southwind Group, Inc., 188 S.W.3d
at 736–737; Nationwide of Bryan, Inc., 969 S.W.2d at
522. Moreover, Spohn's third-party petition, motion for
contempt, and attempt to impose sanctions constitute
specific and deliberate actions that are inconsistent *482
with the right to arbitrate and suggest that Spohn was
attempting to achieve a satisfactory result through the
judicial process.
While none of these factors alone would establish waiver
of the right to arbitration, the combination herein does.
See In re Certain Underwriters at Lloyd's, 18 S.W.3d at
872–873; Sedillo, 5 S.W.3d at 827; Central Nat'l Ins. Co.
v. Lerner, 856 S.W.2d 492, 494 (Tex.App.-Houston [1st
Dist.] 1993, orig. proceeding).
[23] Having determined that Spohn substantially
invoked the judicial process, we next consider whether
real parties in interest have made a clear showing that
they have been prejudiced. See In re Vesta Ins. Group, 192
S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d at
704.
In the instant case, counsel for real parties in interest
testified by affidavit that compelling arbitration would
“greatly prejudice” real parties in interest. Counsel
testified that real parties in interest spent approximately
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
$60,000 to $70,000 in expenses in developing this matter
for trial. Counsel further testified that he and co-counsel
spent more than 1,000 hours on the case in preparing
it for trial, and, estimating their hourly rate at $350
per hour, had invested more than $350,000 in attorney's
fees. Counsel deposed seventeen witnesses before Spohn
moved to compel arbitration and ordered records through
depositions on written questions from twenty-three non-
parties. Counsel propounded twelve substantive sets of
written discovery to Spohn. Counsel testified that, had
Spohn requested arbitration before discovery, he would
have used a different discovery strategy and limited
the depositions and expenses incurred because of the
limits customarily proposed in arbitration proceedings.
Counsel further testified that Spohn's failure to identify
fact witnesses and failure to acknowledge the existence of,
or produce, video surveillance of its premises on the date
of the incident, greatly increased the time and expense of
this lawsuit. Finally, counsel for real parties testified that
he had relied on representations by Spohn's counsel that
this was not an “event” under Spohn's plan because of a
“criminal act by a third party.”
Corey Slough testified by affidavit that he and his children
were expecting this matter to be resolved by trial in
April or August, and having to continue this matter via
arbitration, with no specific end date in sight, would be
“highly prejudicial and detrimental” to him and his three
daughters. “We have been receiving counseling to get
through this ordeal, and it will be very prejudicial for this
to keep going because of Spohn's agreement to the trial
setting, and now trying to back out of it....”
Based on the record, we conclude that real parties in
interest have made a clear showing of prejudice. See In re
Vesta Ins. Group, 192 S.W.3d at 763.
V. Conclusion
Even given the strong presumption against waiver, we
conclude that Spohn substantially invoked the judicial
process to its opponents' detriment. Real parties in interest
have identified acts by Spohn that are inconsistent with
its right to arbitrate and have further shown resultant
prejudice on their part. Accordingly, the Court, having
examined and fully considered the petition for writ
of mandamus and response thereto is of the opinion
that relator has not shown itself entitled to the relief
7
In re Christus Spohn Health System Corp., 231 S.W.3d 475 (2007)

sought. Accordingly, the petition for writ of mandamus All Citations

is DENIED. See Tex.R.App. P. 52.8(a). Any pending
motions are dismissed as moot. 231 S.W.3d 475

Footnotes
1 Written discovery propounded by Spohn includes: (1) Spohn's first set of interrogatories and first request for production
to Corey Slough, individually (thirteen interrogatories and thirteen requests for production); (2) Spohn's first request for
production to Corey Slough, as representative of the estate of Debra Slough, deceased (nine interrogatories); (3) Spohn's
second request for production and first set of interrogatories to Corey Slough, as representative of the estate of Debra
Slough, deceased (seven requests for production and one interrogatory); (4) Spohn's third request for production to Corey
Slough, as representative of the estate of Debra Slough, deceased (twelve requests for production); (5) Spohn's first set
of interrogatories and requests for production to Corey Slough, as next friend to Katelyn Slough (fourteen interrogatories
and ten requests for production); (6) Spohn's first set of interrogatories and requests for production to plaintiff, Corey
Slough, as next friend to Holly Slough (same); and (7) Spohn's first set of interrogatories and requests for production to
plaintiff, Corey Slough, as next friend to Stacey Slough (same).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

In re Fleetwood Homes of Texas, L.P., 257 S.W.3d 692 (2008)
51 Tex. Sup. Ct. J. 1066

A party waives an arbitration clause in a

contract by substantially invoking the judicial
KeyCite Yellow Flag - Negative Treatment process to the other party's detriment or
Distinguished by El Paso Healthcare System, Ltd. v. Green, Tex.App.- 
prejudice.
El Paso, February 29, 2016
257 S.W.3d 692 19 Cases that cite this headnote
Supreme Court of Texas.

In re FLEETWOOD HOMES OF TEXAS, L.P. [3] Alternative Dispute Resolution

and Fleetwood Enterprises, Inc., Relators.
No. 06–0943.
| totality of the circumstances.
June 20, 2008.
Synopsis
Background: Owner of mobile home parks brought
action against manufacturer of mobile homes, relating to
manufacturer's cancellation of parties' dealer agreement.
The 278th District Court, Walker County, Kenneth
H. Keeling, J., denied defendant's motion to compel
arbitration. Manufacturer petitioned for writ of
mandamus. The Waco Court of Appeals, 2006 WL
3028222, denied the petition. Manufacturer petitioned for
writ of mandamus.
[Holding:] The Supreme Court held that defendant did not
impliedly waive its contractual right to arbitration.
Writ conditionally granted.
Waiver, laches, or estoppel
Waiver of the contractual right to arbitration
is a legal question for the court, based on the
17 Cases that cite this headnote
[4] Alternative Dispute Resolution
Suing or participating in suit
Defendant manufacturer of mobile homes did
not impliedly waive its right to arbitration,
under dealer agreement with plaintiff owner
of mobile home parks, by failing to pursue
its arbitration demand for eight months
while discussing a trial setting and allowing
limited discovery, where plaintiff was not
prejudiced; defendant took no depositions
and instead merely noticed one deposition
before canceling it and merely served one set
of written discovery the day before it moved
to compel arbitration, and defendant filed no
dispositive motions, nor did it wait until eve of
trial to move to compel.

12 Cases that cite this headnote

West Headnotes (7)
[5] Alternative Dispute Resolution
[1] Alternative Dispute Resolution Unconscionability
Suing or participating in suit Arbitration clause of dealer agreement
Parties that conduct full discovery, file between manufacturer of mobile homes
motions going to the merits, and seek and owner of mobile home parks was
arbitration only on the eve of trial waive any not substantively unconscionable, though it
contractual right to arbitration. limited both parties' right to discovery; limited
discovery was one of arbitration's most
17 Cases that cite this headnote distinctive features.

2 Cases that cite this headnote

[2] Alternative Dispute Resolution
Suing or participating in suit
[6] Costs
Prevailing party

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Fleetwood Homes of Texas, L.P., 257 S.W.3d 692 (2008)
51 Tex. Sup. Ct. J. 1066
Absent a contractual agreement, Texas law
allows attorney fees only for a prevailing
plaintiff. V.T.C.A., Civil Practice & Remedies
Code §§ 38.001, 38.002.
3 Cases that cite this headnote
[7] Alternative Dispute Resolution
Unconscionability
Arbitration clause of dealer agreement
between manufacturer of mobile homes and
owner of mobile home parks, allowing either
party to recover attorney fees as prevailing
party, was not substantively unconscionable.
2 Cases that cite this headnote
Attorneys and Law Firms
*693 Michael J. Craddock, Felicia Norvell, David
Charles Routzon Jr., Craddock Reneker & Davis, L.L.P.,
Rachel Elizabeth Khirallah, Dallas, TX, for Relator.
Michael Allen Starzyk, April Lee Walter, Starzyk &
Associates, P.C., Alan M. Bush, Woodlands, TX, for Real
Party in Interest.
Opinion
PER CURIAM.
[1] 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, Inc., 192 S.W.3d 759, 764
(Tex.2006). The relators here did none of those, instead
merely discussing a potential trial setting and sending
a set of written discovery the day before moving to
compel arbitration. The trial court held the relators
waived arbitration, and a divided court of appeals denied
mandamus relief. 2006 WL 3028222. We disagree, and
thus conditionally grant it. See In re Weekley, 180 S.W.3d
127, 130 (Tex.2005) (“Mandamus relief is proper to
enforce arbitration agreements governed by the FAA.”).
Fleetwood Enterprises, Inc., manufactures mobile homes.
In January 2005 it signed a dealer agreement with Gulf
Regional Services, Inc., an owner and developer of mobile
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
home parks in southeast Texas that also sells and leases
mobile homes. The agreement included an arbitration
clause covering “any dispute, controversy or claim among
the Parties.” In August 2005 Fleetwood cancelled the
agreement on the ground that Gulf was planning to sell or
use mobile homes at a location other than that specified
in the dealer agreement.
After Gulf filed suit in October 2005, Fleetwood filed
an answer demanding arbitration, *694 but did not
actually move to compel arbitration until July 2006. Gulf
opposed the motion on two grounds: express waiver and
unconscionability.
[2] [3] “[A] party waives an arbitration clause by
substantially invoking the judicial process to the other
party's detriment or prejudice.” Perry Homes v. Cull, 2008
WL 1922978, at *4, 258 S.W.3d 589, 590 (Tex.2008).
Waiver is a legal question for the court based on the
totality of the circumstances, and asks whether a party has
substantially invoked the judicial process to an opponent's
detriment, the latter term meaning inherent unfairness
caused by “a party's attempt to have it both ways by
switching between litigation and arbitration to its own
advantage.” Id. 2008 WL 1922978, at *8, at 596.
Gulf argues that Fleetwood expressly waived arbitration,
pointing to several emails from Fleetwood's counsel
regarding a proposed trial setting, culminating in the
following:
I have reviewed the Setting Request
and would ask that we try to
get a setting in March.... Given
the documentation I received last
week and the work we need to
do as a result of those documents,
Fleetwood is not going to be in
a position to try this case in
December. If you are agreeable to
this, we could sign an agreed Setting
Request, otherwise, I will have to
oppose the request after you submit
it and request a later setting.
We need not decide whether Gulf is correct that express
waiver is governed by different rules than those that
govern implied waiver, as we disagree that this rises to the
level of an express waiver. Nothing in this communication
2
In re Fleetwood Homes of Texas, L.P., 257 S.W.3d 692 (2008)
51 Tex. Sup. Ct. J. 1066

expressly waives arbitration or revokes the arbitration arbitration limits its right to discovery. But limited
discovery is one of arbitration's “most distinctive
demand Fleetwood included in every answer it filed.
features.” Perry Homes, 2008 WL 1922978, at *9, 258
S.W.3d at 587; see also Preston v. Ferrer, 552 U.S.
[4] Instead, the question here is whether Fleetwood
346, ––––, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (“A
impliedly waived arbitration by failing to pursue its
prime objective of an agreement to arbitrate is to achieve
arbitration demand for eight months while discussing
streamlined proceedings and expeditious results.”). Gulf's
a trial setting and allowing limited discovery. We have
argument that “streamlined” discovery makes arbitration
already answered that question “No.” In EZ Pawn Corp.
unconscionable would nullify almost all arbitration
v. Mancias, we held a party had not waived arbitration
agreements. We hold that arbitration's limits on discovery
by filing an answer, discussing a docket-control order,
for both parties does not make it unconscionable. See In re
sending written discovery, noticing a deposition, and
Palm Harbor Homes, Inc., 195 S.W.3d 672, 678 (Tex.2006)
agreeing to postpone a trial setting. 934 S.W.2d 87, 90
(“The test for substantive unconscionability is whether,
(Tex.1996). Gulf points out correctly that the movant in
given the parties' general commercial background and
EZ Pawn had not yet “discovered” the arbitration clause
the commercial needs of the particular trade or case, the
until after these actions had already taken place. Id. at 89.
clause involved is so one-sided that it is unconscionable
But our opinion was based on the nonmovant's failure to
under the circumstances existing when the parties made
show any prejudice, id. at 90, a requirement we recently
the contract.” (internal quotation marks omitted)).
reaffirmed. See Perry Homes, 2008 WL 1922978, at *7,
258 S.W.3d at 595.
[6] [7] Second, Gulf asserts the agreement here is
unconscionable because it allows the prevailing party to
As in EZ Pawn, the evidence here is legally insufficient
recover attorney's fees. It is true that absent a contractual
to support a finding of prejudice. Gulf does not
agreement like this, Texas law allows attorney's fees
explain how it possibly could have been prejudiced by
only for a prevailing plaintiff. See TEX. CIV. PRAC. &
exchanging emails about a trial setting. Moreover, while
REM.CODE § 3 8.001–.002. But allowing both parties to
these communications are a factor to be considered in
recover fees hardly makes an agreement “one-sided”; such
the totality-of-the-circumstances, they are not the only
agreements, common in commercial contexts, surely make
factors. See id. 2008 WL 1922978, at *10, at 599. Here,
them less so.
Fleetwood took no depositions, although it noticed one
deposition before cancelling it. 1 It served one set of
Because Gulf has failed to show that Fleetwood waived
written discovery the day before it moved to compel
its contractual right to arbitration, we conditionally grant
arbitration. It filed no dispositive motions, nor did it
Fleetwood's petition for writ of mandamus and direct the
wait until the eve of *695 trial to move to compel.
trial court to compel arbitration. We are confident that the
Taken together, these actions are not enough to overcome
trial court will promptly comply, and our writ will issue
the presumption against waiver. See In re Vesta Ins.
only if it does not.
Group, Inc., 192 S.W.3d 759, 763 (Tex.2006); In re Bruce
Terminix, 988 S.W.2d 702, 704 (Tex.1998).
All Citations
[5] Gulf also argues the arbitration clause is substantively
unconscionable, citing two reasons. First, it asserts that 257 S.W.3d 692, 51 Tex. Sup. Ct. J. 1066

Footnotes
1 Gulf deposed three Fleetwood representatives, but does not explain how it was prejudiced in being allowed to do so. See
Perry Homes, 2008 WL 1922978, at *10, 258 S.W.3d at 599 (“[A] party who requests lots of discovery is not prejudiced by
getting it and taking it to arbitration in the same way [as] a party who produces lots of discovery ....”) (emphasis in original).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3

In re Flores, Not Reported in S.W.3d (2016)
2016 WL 890969
2016 WL 890969
Only the Westlaw citation is currently available.
SEE TX R RAP RULE 47.2 FOR
DESIGNATION AND SIGNING OF OPINIONS.
Court of Appeals of Texas,
Dallas.
In re Eric Flores, Relator
No. 05–16–00210–CV
|
Opinion Filed March 9, 2016
Original Proceeding from the 416th Judicial District
Court, Collin County, Texas, Trial Court Cause No. 416–
81913–2015
Attorneys and Law Firms
Eric Flores, El Paso, TX, for relator.
Brian W. Wice, Houston, TX, for real party in interest.
Before Justices Bridges, Brown, and Stoddart
MEMORANDUM OPINION
Opinion by Justice Stoddart
*1 In this petition for writ of mandamus relator, who
is an inmate, complains that the trial court has refused
to allow him to file a motion in a criminal case pending
against another criminal defendant “for joinder of certain
offense[s] stating that the defendant had also committed
other criminal offense[s] such as conspiracy of fabrication
End of Document
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to cover mass murder, computer crimes resulting in mass
murder, and mass murder which could be constituted
as a threat to the public interest of health and safety.”
Relator's petition for writ of mandamus does not comply
with the rules of appellate procedure. It does not include
the certification required by rule 52.3(j) and does not
include an appendix or record. See TEX.R.APP. P.
52.3(j), 52.3(k), 52.7(a). Although these deficiencies alone
are sufficient to deny the petition, see In re Butler, 270
S.W.3d 757, 759 (Tex.App.—Dallas 2008, no pet.), in the
interest of judicial economy, we consider the petition.
Mandamus relief is appropriate in a criminal case only
when a relator establishes (1) that he has no adequate
remedy at law to redress his alleged harm, and (2)
that what he seeks to compel is a ministerial act, not
a discretionary or judicial decision. In re Allen, 462
S.W.3d 47, 49 (Tex.Crim.App.2015) (orig.proceeding).
The parties to a criminal case are the State and the
accused, and no third party may intervene in a criminal
case. In re Amos, 397 S.W.3d 309, 314 (Tex.App.—Dallas
2013, orig. proceeding); see also In re Wingfield, 171
S.W.3d 374, 381 (Tex.App.—Tyler 2005, orig. proceeding)
(“Unlike the Rules of Civil Procedure, the Code of
Criminal Procedure makes no provision for a third party
to intervene in a ‘criminal action.’ ”). A trial court has
no discretion to consider issues raised by third parties in
a criminal case. In re Amos, 397 S.W.3d at 314; In re
Wingfield, 171 S.W.3d at 381. Thus, the trial court had
no ministerial duty to allow relator to seek joinder of
additional offenses against the defendant in this case.
We DENY the petition for writ of mandamus.
All Citations
Not Reported in S.W.3d, 2016 WL 890969
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
1
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678

KeyCite Yellow Flag - Negative Treatment West Headnotes (20)

Distinguished by Zbranek Custom Homes, Ltd. v. Allbaugh, Tex.App.- 
Austin, December 23, 2015
166 S.W.3d 732 [1] Action
Supreme Court of Texas. Moot, Hypothetical or Abstract
Questions
In re KELLOGG BROWN & ROOT, INC., Relator. Appeal and Error
Want of Actual Controversy
No. 03–1129.
A case becomes moot if a controversy ceases
|
to exist between the parties at any stage of the
Argued Dec. 1, 2004.
legal proceedings, including the appeal.
|
Decided May 20, 2005. 114 Cases that cite this headnote
Synopsis
Background: Second-tier subcontractor brought action [2] Alternative Dispute Resolution
against first-tier subcontractor and contractor to recover Review
damages on breach of contract and quantum meruit Conclusion of arbitration between contractor
theories and obtain a declaratory judgment on ownership and first-tier subcontractor did not render
of collateral and liens. Contractor moved to abate suit or moot second-tier subcontractor's challenge to
compel second-tier subcontractor to join arbitration with order compelling arbitration, even though
first-tier subcontractor despite second-tier subcontractor's court could no longer compel the second-tier
status as non-signatory. The District Court, Harris subcontractor to join the arbitration.
County, Mark D. Davidson, J., denied motion.
Contractor appealed and sought writ of mandamus. The Cases that cite this headnote
Houston Court of Appeals, First District, Evelyn V.
Keyes, J., 126 S.W.3d 176, conditionally granted writ
[3] Appeal and Error
and ordered trial court to issue order compelling second-
Want of Actual Controversy
tier subcontractor to arbitrate. Second-tier subcontractor
petitioned for writ of mandamus. A case is not rendered moot simply because
some of the issues become moot during the
appellate process.

Holdings: The Supreme Court, Jefferson, C.J., held that: 28 Cases that cite this headnote

[1] conclusion of arbitration between contractor and

[4] Alternative Dispute Resolution
first-tier subcontractor did not render moot second-tier
Validity
subcontractor's challenge to order compelling arbitration,
Alternative Dispute Resolution
and
Disputes and Matters Arbitrable Under
Agreement
[2] second-tier subcontractor was not required to arbitrate
its quantum meruit claim against contractor under direct In general, a party seeking to compel
benefits estoppel theory. arbitration under the Federal Arbitration Act
(FAA) must establish that: (1) there is a
valid arbitration agreement, and (2) the claims
Relief conditionally granted. raised fall within that agreement's scope. 9
U.S.C.A. § 1 et seq.

108 Cases that cite this headnote

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
[5] Alternative Dispute Resolution
Construction in Favor of Arbitration
Alternative Dispute Resolution
Evidence
Doubts regarding an agreement's scope are
resolved in favor of arbitration because there
is a presumption favoring agreements to
arbitrate under the Federal Arbitration Act
(FAA). 9 U.S.C.A. § 1 et seq.
59 Cases that cite this headnote
[6] Alternative Dispute Resolution
Constitutional and Statutory Provisions
and Rules of Court
Alternative Dispute Resolution
Evidence
The presumption in favor of agreements to
arbitrate arises only after the party seeking
to compel arbitration proves that a valid
arbitration agreement exists; the purpose of
the Federal Arbitration Act (FAA) is to make
arbitration agreements as enforceable as other
contracts, not more so. 9 U.S.C.A. § 1 et seq.
121 Cases that cite this headnote
[7] Alternative Dispute Resolution
What Law Governs
Under the Federal Arbitration Act (FAA),
ordinary principles of state contract law
determine whether there is a valid agreement
to arbitrate. 9 U.S.C.A. § 1 et seq.
34 Cases that cite this headnote
[8] Alternative Dispute Resolution
Contractual or Consensual Basis
Because arbitration is contractual in nature,
the Federal Arbitration Act (FAA) generally
does not require parties to arbitrate when they
have not agreed to do so. 9 U.S.C.A. § 1 et seq.
7 Cases that cite this headnote
[9] Alternative Dispute Resolution
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Persons Affected or Bound
Under certain circumstances, principles of
contract law and agency may bind a non-
signatory to an arbitration agreement. 9
U.S.C.A. § 1 et seq.
23 Cases that cite this headnote
[10] Alternative Dispute Resolution
Waiver or Estoppel
Estoppel
Contracts
Under “direct benefits estoppel,” a non-
signatory plaintiff seeking the benefits of
a contract is estopped from simultaneously
attempting to avoid the contract's burdens,
such as the obligation to arbitrate disputes.
33 Cases that cite this headnote
[11] Alternative Dispute Resolution
Waiver or Estoppel
A non-signatory plaintiff may be compelled
by direct benefits estoppel to arbitrate if it
seeks to enforce terms of a contract containing
an arbitration provision.
43 Cases that cite this headnote
[12] Alternative Dispute Resolution
Waiver or Estoppel
If a non-signatory's claims can stand
independently of the underlying contract, then
arbitration generally should not be compelled
under theory of direct benefits estoppel.
13 Cases that cite this headnote
[13] Implied and Constructive Contracts
Work and Labor in General; Quantum
Meruit
“Quantum meruit” is an equitable remedy
that is based upon the promise implied by
law to pay for beneficial services rendered and
knowingly accepted.
36 Cases that cite this headnote
2
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
[14] Implied and Constructive Contracts
Contract for Services
A party generally cannot recover under
quantum meruit when there is a valid contract
covering the services or materials furnished.
44 Cases that cite this headnote
[15] Implied and Constructive Contracts
Effect of Express Contract
A party to a contract may seek alternative
relief under both contract and quasi-contract
theories.
19 Cases that cite this headnote
[16] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Alternative Dispute Resolution
Pleading
Pleading in the alternative under both
contract and quasi-contract theories does not
defeat the effect of an arbitration clause
that broadly covers all disputes between
signatories that arise out of the underlying
agreement.
18 Cases that cite this headnote
[17] Alternative Dispute Resolution
Persons Affected or Bound
Alternative Dispute Resolution
Waiver or Estoppel
Under direct benefits estoppel, a non-
signatory plaintiff cannot be compelled to
arbitrate on the sole ground that, but for the
contract containing the arbitration provision,
it would have no basis to sue.
27 Cases that cite this headnote
[18] Estoppel
Contracts
Under direct benefits estoppel, although a
non-signatory's claim may relate to a contract
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
containing an arbitration provision, that
relationship does not, in itself, bind the
non-signatory to the arbitration provision;
instead, a non-signatory should be compelled
to arbitrate a claim only if it seeks, through
the claim, to derive a direct benefit from the
contract containing the arbitration provision.
48 Cases that cite this headnote
[19] Estoppel
Contracts
Non-signatory second-tier subcontractor
was not bound by arbitration clause
in contractor's agreement with first-tier
subcontractor and, therefore, was not
required to arbitrate its quantum meruit
claim against contractor under direct
benefits estoppel theory; the second-tier
subcontractor's asserted right to payment
stemmed directly from the agreement with
the first-tier subcontractor, and the second-
tier subcontractor was effectively precluded
from asserting rights under main contract
which stated that the approved use of
any subcontractor created no contractual
relationship between the subcontractor and
contractor.
5 Cases that cite this headnote
[20] Mechanics' Liens
Mechanics and Artisans
Mechanics' Liens
Materialmen
The self-executing constitutional lien attaches
to buildings and special-order articles that are
made or repaired by mechanics, materialmen,
and artisans who have a direct contractual
relationship with the owner of the property.
Vernon's Ann.Texas Const. Art. 16, § 37.
5 Cases that cite this headnote
3
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
Attorneys and Law Firms
*734 Jack G. Carnegie, John L. Hagan, Jones Day,
Kevin B. Finkel, Johnson Finkel DeLuca & Kennedy,
P.C., Houston, for relator.
Jeffrey Raizner, Doyle Raizner LLP, Jack F. Burleigh,
Houston, Ira E. Hoffman, Grayson Kubli & Hoffman,
P.C., McLean, Jeff H. Galloway, John Fellas, Hughes
Hubbard & Reed LLP, New York, NY, for real party in
interest.
Jeffery T. Nobles, Beirne Maynard & Parsons, L.L.P.,
Robert Bryan Tobor, Houston, Clint Alexander Corrie,
Joseph Lawrence Mira, Bierne, Maynard & Parsons, LLP,
Dallas, John D. White, Jones Walker Waechter Poitevent
Carrere & Denegre, The Woodlands, for Gulf Coast
Holdings Inc.
Opinion
Chief Justice JEFFERSON delivered the opinion of the
Court.
In this original proceeding, the question is whether
Kellogg Brown & Root, Inc. (“KBR”), as a non-
signatory to a contract containing an arbitration
clause, must arbitrate its claims against Unidynamics,
Inc. (“Unidynamics”) and MacGREGOR (FIN) Oy
(“MacGregor”)—the signatories to the contract. The
trial court denied MacGregor's motion, which sought to
compel KBR to pursue its claims in an ongoing arbitration
between MacGregor and Unidynamics. The court of
appeals held that the trial court abused its discretion and
conditionally granted mandamus relief, ordering the trial
court to vacate its order denying MacGregor's motion and
“issue an order compelling KBR to arbitrate all claims.”
126 S.W.3d 176, 184. KBR sought mandamus relief in this
Court.
Approximately two months after KBR filed its
petition here, the arbitration between MacGregor and
Unidynamics concluded. As a result, the relief MacGregor
requested in the lower courts—that KBR be compelled “to
pursue its claims in the arbitration between MacGregor
(FIN) and Unidynamics”—is no longer available. The
case is not moot, however, because the parties continue to
dispute whether KBR should be compelled to “arbitrate
all claims” pursuant to the court of appeals' order. Id.
at 184. Because we conclude that KBR cannot be so
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
compelled, we conditionally grant mandamus relief and
order the court of appeals to vacate its order.
I
Factual Background
In October 1999, MacGREGOR (USA), Inc. contracted
with Ingalls Shipbuilding, Inc. (“Ingalls”) to build
elevator trunks for two cruise ships. MacGREGOR
(USA) assigned the contract to its sister company,
*735 MacGREGOR (FIN) Oy 1 (“MacGregor”). In
August 2000, MacGregor subcontracted part of the
job to Unidynamics, which agreed to fabricate a set
of the elevator trunks for one of the ships. 2 In June
2001, Unidynamics and KBR entered into a second-tier
subcontract, under which KBR agreed to furnish labor,
equipment, and facilities to fabricate the elevator trunks.
In the fabrication subcontract between MacGregor and
Unidynamics, the parties agreed that: “Any disputes
arising from the interpretation or application of this
contract including any document pertaining thereto, shall
be settled by arbitration in accordance with General
Conditions (ECE 188), (Appendix 10).” 3 The second-
tier subcontract between Unidynamics and KBR did not
contain an arbitration provision.
After the ship buyer declared bankruptcy in November
2001, Ingalls directed MacGregor to cease work and
notify its subcontractors to do the same. MacGregor
directed Unidynamics to comply with “the same
instructions that Ingalls gave MacGregor.” Unidynamics
conveyed those instructions to KBR. On or around
November 5, 2001, KBR ceased work, stored the elevator
trunks and other equipment, and sent Unidynamics
invoices for unpaid fabrication services and storage costs.
Because KBR had not been paid in full, it asserted liens on
the elevator trunk fabrications, parts, and other materials
(the “collateral”).
A dispute then arose between MacGregor and
Unidynamics regarding who owned the collateral and
who owed KBR for the fabrication services and
storage costs. The dispute stemmed from MacGregor
and Unidynamics' Agreement Concerning Passing of
Title (the “Title Agreement”), executed on December
5, 2001, and fully incorporated into their fabrication
4
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
subcontract. Among other things, the Title Agreement
provided that full title to the collateral would pass
irrevocably to MacGregor immediately after MacGregor
made two payments to Unidynamics, which were to
occur no later than December 19, 2001. The Title
Agreement further required Unidynamics to release the
collateral to MacGregor upon MacGregor's request. It
is undisputed that MacGregor timely paid Unidynamics;
however, Unidynamics asserted that the payments were
ineffective to pass title to MacGregor. When MacGregor
demanded that Unidynamics release the elevator trunks,
Unidynamics refused. The collateral remained in KBR's
possession.
II
Procedural Background
In May 2002, pursuant to the arbitration provision
in the fabrication subcontract, MacGregor asked the
International Chamber of Commerce (“ICC”) to arbitrate
its dispute with Unidynamics. Among other things,
MacGregor sought: (1) damages for breach of contract
by Unidynamics for failure to release the collateral, (2)
a determination *736 as to which defendant owned the
collateral, and (3) a determination regarding MacGregor's
proportionate responsibility for the storage costs KBR
billed Unidynamics. Unidynamics filed an answer and
asserted counterclaims. MacGregor and Unidynamics
then commenced arbitration in Paris, France.
While the arbitration was proceeding, both MacGregor
and Unidynamics demanded that KBR release the
collateral. KBR refused the demands and, on September
17, 2002, filed suit against both companies in Harris
County. KBR claimed that Unidynamics breached its
contract and, in the alternative, that it was entitled to
recover quantum meruit damages against Unidynamics
and MacGregor. KBR also sued for declaratory relief to
determine which defendant owned the collateral. Subject
to the court's ruling on ownership, KBR sought a judicial
declaration that it possessed valid constitutional and
statutory liens against the collateral in its possession. 4
MacGregor answered and sought a temporary restraining
order, temporary injunction, and permanent injunction
directing KBR to release the collateral. Unidynamics
opposed MacGregor's application, arguing that the court
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
action should be abated because the collateral's ownership
was “the very issue ... being arbitrated before the ICC.”
MacGregor, Unidynamics, and KBR then negotiated an
agreement, which the trial court entered as an Agreed
Order. Pursuant to that order, MacGregor agreed to post
a $1,000,000 bond and, upon presentation of the bond,
KBR agreed to release the collateral to MacGregor. 5
MacGregor posted the bond on October 28, 2002.
Meanwhile, on October 18, 2002, MacGregor filed a
motion to abate the state court proceedings pending
its arbitration with Unidynamics or, in the alternative,
to compel KBR to pursue its claims in the ongoing
arbitration between MacGregor and Unidynamics. The
trial court denied MacGregor's motion. On December
19, 2002, MacGregor filed an interlocutory appeal and
a petition for writ of mandamus in the court of appeals,
contending that the trial court abused its discretion.
The court of appeals dismissed the interlocutory appeal
as moot and conditionally granted mandamus relief,
ordering the trial court “to vacate its order denying
MacGregor's plea in abatement and motion to compel
arbitration, to issue an order compelling KBR to
arbitrate all claims, and to stay all proceedings pending
arbitration.” 6 126 S.W.3d at 184–85.
On December 9, 2003, KBR petitioned this Court for
a writ of mandamus. On February 4, 2004, while the
petition was pending before us, the arbitration between
MacGregor and Unidynamics concluded, and the ICC
issued a final arbitration award. KBR does not contest
that award.
III
Mootness
[1] [2] As a preliminary matter, we must decide
whether the ICC's final arbitration *737 award moots
this mandamus proceeding. A case becomes moot if a
controversy ceases to exist between the parties at any stage
of the legal proceedings, including the appeal. Allstate
Ins. Co. v. Hallman, 159 S.W.3d 640, 642 (Tex.2005);
Bd. of Adjustment of San Antonio v. Wende, 92 S.W.3d
424, 427 (Tex.2002); Williams v. Lara, 52 S.W.3d 171,
184 (Tex.2001). This case stems from the lower courts'
action on MacGregor's motion to “compel [ ] KBR to
5
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
pursue its claims in the arbitration between [MacGregor]
and Unidynamics.” Because that arbitration is over, KBR
can no longer be compelled to “join the arbitration.”
See 126 S.W.3d at 183 (concluding that the trial court
abused its discretion by refusing to compel KBR to join
the ongoing arbitration). The question, then, is whether
this proceeding is moot.
[3] A case is not rendered moot simply because some
of the issues become moot during the appellate process.
See Allstate, 159 S.W.3d at 642–43 (holding that a dispute
concerning attorney's fees preserved a live controversy in
an otherwise moot appeal); Camarena v. Tex. Employment
Comm'n, 754 S.W.2d 149, 151 (Tex.1988) (same). In this
case, the court of appeals ordered the trial court “to issue
an order compelling KBR to arbitrate all claims.” 126
S.W.3d at 184. Although it is no longer possible for KBR
to join the Paris arbitration, the court of appeals' ultimate
directive has no temporal component. It requires KBR to
“arbitrate all claims.”
The live controversy in this proceeding is whether
KBR must arbitrate those claims that remain now that
the arbitration between MacGregor and Unidynamics
has concluded. KBR's petition consisted of: (1) a
breach-of-contract claim against Unidynamics; (2) in the
alternative, a quantum meruit claim against Unidynamics
and MacGregor; and (3) a declaratory judgment action to
determine the collateral's owner and to establish that KBR
possessed valid liens. The arbitrator determined that,
pursuant to the Title Agreement between MacGregor
and Unidynamics, title to the collateral passed from
Unidynamics to MacGregor on December 10, 2001. KBR
is satisfied with this resolution of the ownership dispute,
and thus, we need not address whether the ownership
dispute must be arbitrated. Additionally, we need not
address whether KBR should be compelled to arbitrate
its claims against Unidynamics, because the parties now
agree that those claims are not subject to arbitration.
Our inquiry is accordingly limited to determining whether
KBR must arbitrate its quantum meruit and lien-validity
claims against MacGregor.
IV
Discussion
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[4] [5] [6] The parties do not dispute the court of
appeals' holding that the arbitration provision at issue
is governed by the Federal Arbitration Act (“FAA”).
See 9 U.S.C. §§ 1–16; 126 S.W.3d at 181. In general,
a party seeking to compel arbitration under the FAA
must establish that: (1) there is a valid arbitration
agreement, and (2) the claims raised fall within that
agreement's scope. In re FirstMerit Bank, 52 S.W.3d
749, 753 (Tex.2001); In re Oakwood Mobile Homes, Inc.,
987 S.W.2d 571, 573 (Tex.1999). Doubts regarding an
agreement's scope are resolved in favor of arbitration
because there is a presumption favoring agreements to
arbitrate under the FAA. In re FirstMerit Bank, 52 S.W.3d
at 753; Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944
(Tex.1996). However, “the presumption arises only after
the party seeking to compel arbitration proves that a valid
arbitration agreement exists,” *738 J.M. Davidson, Inc.
v. Webster, 128 S.W.3d 223, 227 (Tex.2003), because “the
purpose of the FAA was to make arbitration agreements
as enforceable as other contracts, not more so.” Bridas
S.A.P.I.C. v. Gov't of Turkm., 345 F.3d 347, 354 n. 4 (5th
Cir.2003) (citations omitted); see also E.E.O.C. v. Waffle
House, Inc., 534 U.S. 279, 293, 122 S.Ct. 754, 151 L.Ed.2d
755 (2002) (“The FAA directs courts to place arbitration
agreements on equal footing with other contracts....”).
[7] [8] [9] Under the FAA, ordinary principles of state
contract law determine whether there is a valid agreement
to arbitrate. First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Wash.
Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 264 (5th
Cir.2004); J.M. Davidson, Inc., 128 S.W.3d at 227–28; In re
Halliburton Co., 80 S.W.3d 566, 568 (Tex.2002). Because
arbitration is contractual in nature, the FAA generally
“does not require parties to arbitrate when they have
not agreed to do so.” Volt Info. Scis., Inc. v. Bd. of Trs.
of Leland Stanford Junior Univ., 489 U.S. 468, 478–79,
109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ( “Arbitration
under the [FAA] is a matter of consent, not coercion....”),
quoted in E.E.O.C., 534 U.S. at 293–94, 122 S.Ct. 754;
see also Bridas, 345 F.3d at 361 (citing J. Douglas Uloth
& J. Hamilton Rial, III, Equitable Estoppel as a Basis
for Compelling Nonsignatories to Arbitrate—A Bridge Too
Far?, 21 Rev. Litig. 593, 632 (2002)). Federal and Texas
state courts have recognized, however, that “[i]t does
not follow ... that under the [FAA] an obligation to
arbitrate attaches only to one who has personally signed
the written arbitration provision”; instead, under certain
circumstances, principles of contract law and agency may
6
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
bind a non-signatory to an arbitration agreement. Fisser
v. Int'l Bank, 282 F.2d 231, 233 (2d Cir.1960), quoted in
Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen,
206 F.3d 411, 416 (4th Cir.2000), and Thomson–CSF, S.A.
v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir.1995);
see also Bailey, 364 F.3d at 267 (quoting Thomson–
CSF, 64 F.3d at 776); In re FirstMerit Bank, 52 S.W.3d
at 755 (citing Nationwide of Bryan, Inc. v. Dyer, 969
S.W.2d 518, 520 (Tex.App.-Austin 1998, no pet.)); S.W.
Tex. Pathology Assocs. v. Roosth, 27 S.W.3d 204, 208
(Tex.App.-San Antonio 2000, pet. dism'd w.o.j.).
Although state law determines the validity of an
arbitration agreement, courts have applied both federal
and state law to determine the related, but distinct, issue
of whether non-signatory plaintiffs should be compelled
to arbitrate their claims. See, e.g., Bailey, 364 F.3d at
267–68 (applying federal law); Bridas, 345 F.3d at 355–
63 (applying federal law); Fleetwood Enters. v. Gaskamp,
280 F.3d 1069, 1074–77 (5th Cir.2002) (applying state
law); Roosth, 27 S.W.3d at 208–09 (applying state law);
Dyer, 969 S.W.2d at 520 (applying state law); Lakeland
Anesthesia, Inc. v. United Healthcare of La., Inc., 871
So.2d 380, 392–95 (La.Ct.App.2004) (applying federal
and state law). The FAA does not specify whether state or
federal law governs, and the United States Supreme Court
has not directly addressed the issue.
Federal courts of appeals, however, have frequently
applied federal substantive law when deciding whether
a non-signatory must arbitrate. See, e.g., Bailey, 364
F.3d at 267 n. 6; Bridas, 345 F.3d at 355–63; InterGen
N.V. v. Grina, 344 F.3d 134, 142–50 (1st Cir.2003);
Dominium Austin Partners v. Emerson, 248 F.3d 720,
728 (8th Cir.2001); Int'l Paper Co., 206 F.3d at 417 n.
4; Thomson–CSF, 64 F.3d at 778–79. The Fourth and
Fifth Circuits have reasoned that “ ‘federal substantive
law of arbitrability’... resolve[s] this question,” because
the determination of whether a non-signatory is bound
“presents no state *739 law question of contract
formation or validity.” R.J. Griffin & Co. v. Beach Club II
Homeowners Ass'n, 384 F.3d 157, 160 n. 1 (4th Cir.2004)
(quoting Int'l Paper Co., 206 F.3d at 417 n. 4); Bailey,
364 F.3d at 267 n. 6 (same). We are not convinced that
state law plays no role in making this determination. See
Roosth, 27 S.W.3d at 208–09 (applying state law); Dyer,
969 S.W.2d at 520 (applying state law). Nevertheless, we
are mindful of the extensive body of federal precedent that
has explored the extent to which non-signatories can be
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
compelled to arbitrate. Moreover, we recognize that 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. See Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Our decision
today rests on state law, but it is informed by persuasive
and well-reasoned federal precedent.
Federal courts have 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. See, e.g., Bridas, 345 F.3d at 356. 7 Here,
MacGregor asserts that KBR is bound to arbitrate
under the doctrine of “direct benefits estoppel”—a type
of equitable estoppel that federal courts apply in the
arbitration context. See, e.g., Bailey, 364 F.3d at 268;
Bridas, 345 F.3d at 361–62; E.I. DuPont de Nemours & Co.
v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269
F.3d 187, 199–201 (3d Cir.2001); Int'l Paper Co., 206 F.3d
at 418. 8
[10] [11] [12] Under “direct benefits estoppel,” a non-
signatory plaintiff seeking the benefits of a contract is
estopped from simultaneously attempting to avoid the
contract's burdens, such as the obligation to arbitrate
disputes. R.J. Griffin & Co. at 160–61; Bailey, 364 F.3d
at 268; Int'l Paper Co., 206 F.3d at 418 (“[T]he doctrine
recognizes that a party may be estopped from asserting
that the lack of his signature precludes enforcement of
the contract's arbitration clause when he has consistently
maintained that other provisions of the same contract
should be enforced to benefit him.”); Thomson–CSF,
64 F.3d at 778. Thus, a non-signatory plaintiff may be
compelled to arbitrate if it seeks to enforce terms of a
contract containing an arbitration provision. See R.J.
Griffin & Co., 384 F.3d at 161–64; Bailey, 364 F.3d at
268; Bridas, 345 F.3d at 361–62 (“Direct benefits estoppel
applies when a nonsignatory ‘knowingly exploits the
agreement containing the arbitration clause.’ ”) (quoting
E.I. DuPont de Nemours & Co., 269 F.3d at 199); Int'l
Paper Co., 206 F.3d at 418. For example, if a non-
signatory's breach-of-warranty and breach-of-contract
claims are based on certain terms of a written contract,
then the non-signatory cannot avoid an arbitration
provision within that contract. See Int'l Paper Co., 206
F.3d at 418. If, however, a non-signatory's *740 claims
7
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678
can stand independently of the underlying contract, then
arbitration generally should not be compelled under this
theory. See, e.g., R.J. Griffin & Co., 384 F.3d at 164;
Bridas, 345 F.3d at 362.
Consistent with the federal doctrine of “direct benefits
estoppel,” this Court has held that a non-signatory
plaintiff may be compelled to arbitrate if its claims
are “based on a contract” containing an agreement to
arbitrate. In re FirstMerit Bank, 52 S.W.3d at 755 (“[A]
litigant who sues based on a contract subjects him or
herself to the contract's terms.”). In FirstMerit Bank,
the non-signatory plaintiffs sued the signatory defendant
for, among other things, breach of contract, revocation
of acceptance, and breach of warranty. Id. at 752–53,
755. By bringing the breach-of-contract and breach-
of-warranty claims, the plaintiffs sought benefits that
stemmed directly from the contract's terms. We concluded
that, by seeking to enforce the contract, the non-signatory
plaintiffs “subjected themselves to the contract's terms,
including the Arbitration Addendum.” Id. at 756; see
also Roosth, 27 S.W.3d at 208 (“The nonsignatory cannot
enforce specific terms of the agreement while seeking to
avoid the arbitration provision.”).
The issue here is whether KBR sought to enforce
terms of the fabrication subcontract by (1) bringing a
quantum meruit claim against MacGregor, or (2) seeking
a declaration that it possessed valid liens. We begin with
quantum meruit.
[13] [14] [15] [16] Quantum meruit is an equitablenot, in itself, bind the non-signatory to the arbitration
remedy that “ ‘is based upon the promise implied by
law to pay for beneficial services rendered and knowingly
accepted.’ ” Vortt Exploration Co., Inc. v. Chevron U.S.A., derive a direct benefit from the contract containing the
Inc., 787 S.W.2d 942, 944 (Tex.1990) (quoting Truly v.
Austin, 744 S.W.2d 934, 936 (Tex.1988)). A party generally
cannot recover under quantum meruit when there is a
valid contract covering the services or materials furnished. —which is to say, flowing directly from the agreement.”);
Murray v. Crest Constr., Inc., 900 S.W.2d 342, 345
(Tex.1995); Woodard v. S.W. States, Inc., 384 S.W.2d 674,
675 (Tex.1964) (“Recovery on an express contract and on
quantum meruit are inconsistent.”). A party to a contract
may, however, seek alternative relief under both contract
and quasi-contract theories. Pleading in the alternative
does not defeat the effect of an arbitration clause that
broadly covers all disputes between signatories that arise
out of the underlying agreement. But in this case, KBR
is not a signatory to the fabrication subcontract between
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
MacGregor and Unidynamics; therefore, the scope of that
subcontract's arbitration clause does not answer whether
KBR must arbitrate.
[17] To advance its estoppel theory, MacGregor
contends that KBR's quantum meruit claim is “based on”
the fabrication subcontract in the sense that KBR's labor
and services were linked inextricably to that subcontract.
It is true, of course, that KBR was fabricating trunks
that were at the contract's core and that, in performing
the work, KBR relied on the fabrication subcontract's
specifications. However, under “direct benefits estoppel,”
a non-signatory plaintiff cannot be compelled to arbitrate
on the sole ground that, but for the contract containing
the arbitration provision, it would have no basis to sue.
The work to be performed under a second-tier subcontract
will inherently be related to and, to a certain extent,
defined by contracts higher in the chain. See Black's Law
Dictionary 1464 (8th ed.2004) (defining subcontractor as
“[o]ne who is awarded a portion of an existing contract
by a contractor, esp. a general contractor”). If this were a
sufficient basis for binding a non-signatory subcontractor,
arbitration agreements would become easier to enforce
than other contracts, counter to the FAA's purpose. See
*741 InterGen, 344 F.3d at 145–46 (noting that federal
courts have “been hesitant to estop a nonsignatory seeking
to avoid arbitration”).
[18] We conclude that, under “direct benefits estoppel,”
although a non-signatory's claim may relate to a contract
containing an arbitration provision, that relationship does
provision. Instead, a non-signatory should be compelled
to arbitrate a claim only if it seeks, through the claim, to
arbitration provision. See Bailey, 364 F.3d at 268; MAG
Portfolio Consult., GMBH v. Merlin Biomed Group LLC,
268 F.3d 58, 61 (2d Cir.2001) (“The benefits must be direct
Int'l Paper Co., 206 F.3d at 417–18; Thomson–CSF, 64
F.3d at 778–79; In re FirstMerit Bank, 52 S.W.3d at 755. 9
[19] In its quantum meruit claim against MacGregor,
KBR seeks payment for services rendered. KBR provided
services pursuant to its contract with Unidynamics. KBR's
asserted right to payment therefore stems directly from
the KBR–Unidynamics contract, not the fabrication
subcontract. The fabrication subcontract includes no
provision for paying KBR. In fact, KBR is effectively
8
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678

precluded from asserting rights under that contract, Corpus Christi 1972, no writ) (discussing validity and
enforceability of warehouseman's lien).
which expressly provides that “Approved use of any
subcontractor creates no contractual relationship between
In this Court, MacGregor's sole argument for compelling
the subcontractor and [MacGregor].” 10 Thus, we
arbitration of KBR's lien-validity claims is that the claims
conclude that the court of appeals abused its discretion
require a determination of ownership, and thus, they are
to the extent it compelled KBR to arbitrate its quantum
“based on” the Title Agreement within the fabrication
meruit claim against MacGregor.
subcontract. 11 Ownership was, of course, a central
issue before and during the Paris arbitration. When the
[20] Having determined that KBR's quantum meruit
arbitration award resolved the ownership dispute, it also
claim is not subject to arbitration, we turn to KBR's
eliminated the only rationale that MacGregor has asserted
lien-validity claims. KBR sought a judicial declaration
thus far for arbitrating the liens' validity.
that it possessed valid constitutional and warehouseman's
statutory liens. See Tex. Const. art. XVI, § 37; Tex. Bus. &
We do not decide whether other arguments may exist to
Com.Code § 7.209(a)(1). The self-executing constitutional
compel KBR to arbitrate the validity of its liens. To the
lien attaches to buildings and special-order articles that
extent a lien dispute still remains, the trial court is in the
are made or repaired by mechanics, material men, and
best position to determine, on principles we have declared
artisans who have a direct contractual relationship with
today, whether it must be arbitrated.
the owner of the property. See Tex. Const. art. XVI,
§ 37; CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 240
(Tex.2002) (“[F]or constitutional liens that *742 are
self-executing, there are no technical requirements....”); V
First Nat'l Bank v. Whirlpool Corp., 517 S.W.2d 262,
268 (Tex.1974) (holding that “the constitutional lien on
Conclusion
manufactured chattels is available ... only upon articles
made especially for a purchaser pursuant to a special We conditionally grant mandamus relief and order the
order and in accordance with the purchaser's plans or court of appeals to vacate its order compelling KBR to
specifications”); Hayek v. W. Steel Co., 478 S.W.2d 786, “arbitrate all claims.” See 126 S.W.3d at 184. The writ will
790 (Tex.1972); Strang v. Pray, 89 Tex. 525, 35 S.W. 1054, issue only if the court of appeals fails to comply.
1056 (1896). The warehouseman's lien arises “against the
bailor on the goods covered by a warehouse receipt or
on the proceeds thereof in his possession for charges for
storage or transportation ..., insurance, labor, or charges Justice JOHNSON did not participate in the decision.
present or future in relation to the goods, and for expenses
All Citations
necessary for preservation of the goods....” Tex. Bus. &
Com.Code § 7.209(a)(1); see also Flores v. Didear Van 166 S.W.3d 732, 48 Tex. Sup. Ct. J. 678
& Storage Co., 489 S.W.2d 406, 407–09 (Tex.Civ.App.-

Footnotes
1 The term “Oy” for Finnish companies is an abbreviation of “osakeyhtiö” (“osake” means “share,” “yhtiö” means “society”).
See http://encyclopedia. laborlawtalk.com/Oy (last visited May 18, 2005, and available in Clerk of Court's file).
2 In October 2000, MacGregor and Unidynamics entered into another subcontract, under which Unidynamics agreed to
preassemble and install the elevator trunks. That subcontract is not at issue in this case.
3 The arbitration provision in ECE 188 provided: “Any dispute arising out of the Contract shall be finally settled, in
accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce [“ICC”], by one or
more arbitrators designated in conformity with those Rules.”
4 See Tex. Const. art. XVI, § 37; Tex. Bus. & Com.Code § 7.209.
5 The parties agreed that the bond would be enforceable and payable in Texas, and that it would “constitute an unconditional
promise to pay upon demand accompanied by proof of Final Judgment adjudicating the validity and amount, if any, of
[KBR's] lien or liens against ... the collateral.”

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (2005)
48 Tex. Sup. Ct. J. 678

6 As of the date of this opinion, the trial court has not acted on the court of appeals' orders. Proceedings have not resumed
in the trial court since the court of appeals ordered a stay on January 9, 2003. See 126 S.W.3d at 180–81.
7 Most federal courts, however, list only five of these theories, omitting third-party beneficiary as a separate ground. See
Local Union No. 38, Sheet Metal Workers' Int'l Ass'n v. Custom Air Sys., Inc., 357 F.3d 266, 268 (2d Cir.2004); Javitch
v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir.2003); Fleetwood, 280 F.3d at 1076; Employers Ins. of Wausau v.
Bright Metal Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir.2001); Bel–Ray Co. v. Chemrite (Pty) Ltd., 181 F.3d 435,
446 (3d Cir.1999); Int'l Paper Co., 206 F.3d at 417; Thomson–C.S.F., 64 F.3d at 776.
8 While not all federal courts use the phrase “direct benefits estoppel,” we adopt that terminology from Bridas to describe
this form of estoppel. See 345 F.3d at 361–62.
9 Federal courts have also applied “direct benefits estoppel” to bind “non-signatories who, during the life of the contract,
have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the
arbitration clause in the agreement.” E.I. DuPont de Nemours & Co., 269 F.3d at 200; see also InterGen, 344 F.3d at 146
(holding equitable estoppel theory inapplicable to non-signatory that did not seek to derive direct benefits from contracts
“during their currency”); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir.1999) (holding
non-signatory who received lower insurance rates and ability to sail under French flag due to contract was bound by
arbitration clause within contract); In re VMS Ltd. P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir.1994) (holding wife bound by
arbitration clause that only her husband signed as she accepted benefits of investment services). We do not reach this
application of “direct benefits estoppel” here. MacGregor's argument for arbitration rests not on KBR's actions during the
life of the fabrication subcontract, but on KBR's attempt to benefit from that contract through litigation.
10 See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex.1999) (“The intention to contract or confer
a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third party must be denied.”);
City of LaPorte v. Taylor, 836 S.W.2d 829, 831 (Tex.App.-Houston [1st Dist.] 1992, no writ) (“Generally, in construction
contracts, in the absence of an express agreement to the contrary, a subcontractor is not in privity with the owner....”).
11 KBR's petition included the following:
29. Ownership. Given the Defendants' competing claims known to Plaintiff by the Defendants, Plaintiff seeks a
declaration from the Court as to which Defendant(s) possesses the ownership rights, title and interest in the elevator
shaft fabrications, component parts and other materials....
30. Constitutional Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that
Plaintiff possesses a valid constitutional lien to the elevator shaft fabrications, component parts and other materials
pursuant to Article 16, § 37 of the Texas Constitution.
31. Statutory Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that Plaintiff
possesses a valid statutory lien to the elevator shaft fabrications, component parts and other materials pursuant to
§ 7.209 of the Texas Business and Commerce Code.
(Emphasis added.)

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352

KeyCite Yellow Flag - Negative Treatment West Headnotes (15)

Declined to Follow by Boler v. Security Health Care, L.L.C., Okla., 
September 30, 2014
279 S.W.3d 640 [1] Mandamus
Supreme Court of Texas. Modification or Vacation of Judgment or
Order
In re LABATT FOOD SERVICE, L.P., Relator. Mandamus
Civil Proceedings Other Than Actions
No. 07–0419.
A party denied the right to arbitrate pursuant
|
to an agreement subject to the Federal
Argued Sept. 9, 2008.
Arbitration Act (FAA) does not have an
|
adequate remedy by appeal and is entitled to
Decided Feb. 13, 2009.
mandamus relief to correct a clear abuse of
|
discretion. 9 U.S.C.A. § 1 et seq.
Rehearing Denied May 1, 2009.
6 Cases that cite this headnote
Synopsis
Background: Parents and children of employee brought
wrongful death action, in the 150th Judicial District [2] Appeal and Error
Court, Bexar County, Janet Littlejohn, J., against Cases Triable in Appellate Court
employer. The 57th Judicial District Court, Bexar County, Appeal and Error
Joe Frazier Brown, Jr., J., denied employer's motion Abuse of Discretion
to compel arbitration. Employer petitioned for writ of
Under an abuse of discretion standard, the
mandamus. The San Antonio Court of Appeals, 2007 WL
appellate court defers to the trial court's
1424092, denied the petition. Employer petitioned for writ
factual determinations if they are supported
of mandamus.
by evidence, but reviews the trial court's legal
determinations de novo.

Holdings: The Supreme Court, Johnson, J., held that: 97 Cases that cite this headnote

[1] under Texas law, the arbitration provision in an [3] Alternative Dispute Resolution
agreement between an employee and his employer, signed Scope and Standards of Review
before the employee's death and requiring arbitration
Whether an arbitration agreement is
pursuant to the Federal Arbitration Act, requires the
enforceable is subject to de novo review.
employee's wrongful death beneficiaries to arbitrate their
wrongful death claims against the employer even though 54 Cases that cite this headnote
they did not sign the agreement, disapproving of In re
Kepka, 178 S.W.3d 279, and Gomez v. Zardenetta, 1998
[4] Alternative Dispute Resolution
WL 19858, and
Matters to Be Determined by Court
[2] it was for the arbitrator, rather than the court, to Under the Federal Arbitration Act (FAA),
resolve beneficiaries' claim that entire contract signed by whether an arbitration agreement binds a
employee, including the arbitration clause, was invalid. nonsignatory is a gateway matter to be
determined by courts rather than arbitrators
unless the parties clearly and unmistakably
Writ conditionally granted. provide otherwise. 9 U.S.C.A. § 1 et seq.

19 Cases that cite this headnote

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
[5] Alternative Dispute Resolution
What Law Governs
Texas courts apply Texas procedural rules
in determining whether nonsignatories are
bound by an arbitration agreement that is
subject to the Federal Arbitration Act (FAA).
9 U.S.C.A. § 1 et seq.
9 Cases that cite this headnote
[6] Alternative Dispute Resolution
What Law Governs
Under the Federal Arbitration Act (FAA),
state law generally governs whether a litigant
agreed to arbitrate, and federal law governs
the scope of the arbitration clause. 9 U.S.C.A.
§ 1 et seq.
8 Cases that cite this headnote
[7] Alternative Dispute Resolution
What Law Governs
Texas Supreme Court would apply
Texas substantive law rather than federal
substantive law when determining whether
nonsignatories were bound by an arbitration
agreement that was subject to the Federal
Arbitration Act (FAA), and would endeavor
to keep it consistent with federal law. 9
U.S.C.A. § 1 et seq.
12 Cases that cite this headnote
[8] Alternative Dispute Resolution
Constitutional and Statutory Provisions
and Rules of Court
A purpose of the Federal Arbitration Act
(FAA) is to make arbitration agreements as
enforceable as other contracts, but not more
so. 9 U.S.C.A. § 1 et seq.
16 Cases that cite this headnote
[9] Alternative Dispute Resolution
Persons Affected or Bound
Nonsignatories to an arbitration agreement
subject to the Federal Arbitration Act (FAA)
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
may be bound to an arbitration clause when
rules of law or equity would bind them to the
contract generally. 9 U.S.C.A. § 1 et seq.
22 Cases that cite this headnote
[10] Death
Creation of New Cause of Action
Death
Persons Entitled to Sue
Because, at common law, there was no
recognized cause of action for the wrongful
death of another person, the Texas Legislature
enacted the Wrongful Death Act in order to
create a cause of action to allow a deceased
tort victim's surviving parents, children, and
spouse to recover damages for their losses
from the victim's death. V.T.C.A., Civil
Practice & Remedies Code § 71.002 et seq.
4 Cases that cite this headnote
[11] Death
Right of Action of Person Injured
Death
Defenses
Statutory wrongful death beneficiaries' claims
place them in the exact “legal shoes” of the
decedent, and they are subject to the same
defenses to which the decedent's claims would
have been subject. V.T.C.A., Civil Practice &
Remedies Code § 71.003(a).
9 Cases that cite this headnote
[12] Alternative Dispute Resolution
Persons Affected or Bound
Under Texas law, the arbitration provision
in an agreement between an employee and
his employer, signed before the employee's
death and requiring arbitration pursuant to
the Federal Arbitration Act (FAA), requires
the employee's wrongful death beneficiaries to
arbitrate their wrongful death claims against
the employer even though they did not sign the
agreement; disapproving of In re Kepka, 178
S.W.3d 279, and Gomez v. Zardenetta, 1998
2
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
WL 19858. 9 U.S.C.A. § 1 et seq.; V.T.C.A.,
Civil Practice & Remedies Code § 71.003(a).
26 Cases that cite this headnote
[13] Death
Right of Action of Person Injured
While damages for a wrongful death
action are for the exclusive benefit of the
wrongful death beneficiaries and are meant to
compensate them for their own personal loss,
the cause of action is entirely derivative of the
decedent's rights. V.T.C.A., Civil Practice &
Remedies Code §§ 71.003(a), 71.004(a).
24 Cases that cite this headnote
[14] Alternative Dispute Resolution
Existence and Validity of Agreement
It was for the arbitrator, rather than
the court, to resolve claim by employee's
wrongful death beneficiaries that employer
could not compel them to arbitrate their
wrongful death claims pursuant to “Election
of Comprehensive Benefits, Indemnity, and
Arbitration Agreement” that employee had
executed with employer, which employer did
not provide workers' compensation insurance
but provided an occupational injury plan;
beneficiaries did not specifically challenge
validity of arbitration clause and instead
broadly challenged the contract by asserting
that the contract as a whole was invalid
because the indemnity clause violated the
Labor Code's provision that an employee's
cause of action against a non-subscriber
employer to recover damages for personal
injuries or death sustained in the course and
scope of employment could not be waived
by an employee before the employee's injury
or death, with beneficiaries also asserting
that the arbitration clause was not severable.
V.T.C.A., Labor Code § 406.033(e).
24 Cases that cite this headnote
[15] Alternative Dispute Resolution
Existence and Validity of Agreement
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
A court may determine a specific challenge
to the validity of the arbitration clause in a
contract, but a broader challenge to the entire
contract, either on a ground that directly
affects the entire contract or on the ground
that one of the contract's provisions is illegal
and renders the whole contract invalid, must
go to the arbitrator.
18 Cases that cite this headnote
Attorneys and Law Firms
*642 Robert A. Valadez, Mark A. Giltner, Shelton &
Valadez, San Antonio, Nissa M. Dunn, for relator.
Fidel Rodriguez Jr., San Antonio, Leo D. Figueroa, for
real party in interest.
Opinion
Justice JOHNSON delivered the opinion of the Court.
Under Texas law, wrongful death beneficiaries are
generally bound by a decedent's pre-death contractual
agreement because of the derivative nature of their claims.
In this case, we consider whether the arbitration provision
in an agreement between a decedent and his employer
requires the employee's wrongful death beneficiaries to
arbitrate their wrongful death claims against the employer
even though they did not sign the agreement. We hold that
it does.
I. Background
Labatt Food Service, L.P. does not provide workers'
compensation insurance to cover its employees in the
event of on-the-job injuries. Rather, it provides an
“occupational injury plan” (the plan) under which
its employees may elect to participate. To become
participants in the plan, employees sign an agreement
entitled “Election of Comprehensive Benefits, Indemnity,
and Arbitration Agreement.” The agreement contains
several numbered paragraphs. Of primary relevance to
this proceeding are three of those paragraphs. Paragraph
three provides that the employee elects to be covered
under the plan “individually and on behalf of heirs
and beneficiaries.” Paragraph three also provides that
3
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
the employee will indemnify Labatt from claims and
suits based on injury to or death of the employee from
occupational causes, except for claims filed pursuant to
the plan. Paragraph four consists of an arbitration clause
providing that disputes related to either the agreement,
the plan, or to an employee's occupational injury or
death must be submitted to binding arbitration pursuant
to the Federal Arbitration Act (FAA). See 9 U.S.C. §§
1–16. Paragraph eight provides for the severability of any
invalid provision.
Carlos Dancy, Jr., an employee of Labatt, elected to
participate in the plan and signed an agreement. Dancy
later died from an apparent asthma attack that occurred
while he was working. His parents and children filed a
wrongful death action against Labatt. Labatt responded
by filing a motion to compel arbitration in which it
asserted the arbitration agreement bound the wrongful
death beneficiaries. The beneficiaries argued they were not arbitration agreement. In re Weekley Homes, 180 S.W.3d
bound by Dancy's arbitration agreement for two reasons:
(1) they were not signatories to the agreement, and (2) the federal substantive law governs whether nonsignatories
entire agreement was void because the indemnity clause
was a pre-injury waiver in violation of Texas Labor Code
section 406.033(e).
The trial court denied Labatt's motion without stating its to arbitrate, and federal law governs the scope of the
reasons. The court of appeals denied mandamus relief.
Labatt now seeks mandamus relief from this Court.
II. Are the Beneficiaries Bound to Arbitrate?
A. Standard of Review
[1] [2] [3] A party denied the right to arbitrate pursuant
to an agreement subject to *643 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). Under an abuse of discretion standard,
we defer to the trial court's factual determinations if
they are supported by evidence, but we review the trial
court's legal determinations de novo. Brainard v. State,
12 S.W.3d 6, 30 (Tex.1999); see Walker v. Packer, 827
S.W.2d 833, 839–40 (Tex.1992). Whether an arbitration
agreement is enforceable is subject to de novo review.
See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227
(Tex.2003).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
B. Governing Law
[4] Under the FAA, whether an arbitration agreement
binds a nonsignatory 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); see Howsam
v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–84, 123
S.Ct. 588, 154 L.Ed.2d 491 (2002). As this arbitration
agreement is silent about who is to determine whether
particular persons are bound by the agreement, courts,
rather than the arbitrator, should determine the issue. See
First Options of Chic., Inc. v. Kaplan, 514 U.S. 938, 944–
45, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
[5] [6] [7] [8] We apply Texas procedural rules in
determining whether nonsignatories are bound by an
at 130. It is not entirely clear, however, if state or
are bound to arbitrate under an agreement subject to the
FAA. Id.; see Wash. Mut. Fin. Group, LLC v. Bailey,
364 F.3d 260, 267 n. 6 (5th Cir.2004). Under the FAA,
state law generally governs whether a litigant agreed
arbitration clause. In re Weekley Homes, 180 S.W.3d
at 130. But whether nonsignatories are bound by an
arbitration agreement is a distinct issue that may involve
either or both of these matters. Id. at 130–31; see also
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738
(Tex.2005) (noting whether nonsignatory plaintiffs should
be compelled to arbitrate their claims is related to validity
but is also a distinct issue). The FAA does not specify
whether state or federal law governs, and the United
States Supreme Court has not directly addressed the issue.
In re Weekley Homes, 180 S.W.3d at 130. Pending an
answer from the United States Supreme Court, we have
determined to apply state substantive law and endeavor
to keep it consistent with federal law. Id. We keep in
mind that a purpose of the FAA is “to make arbitration
agreements as enforceable as other contracts, but not
more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270
(1967); see Fleetwood Enter., Inc. v. Gaskamp, 280 F.3d
1069, 1074 n. 5 (5th Cir.2002).
Mindful of the foregoing, we move to the issue before us
—whether an arbitration agreement governed by the FAA
4
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
binds the nonsignatory wrongful death beneficiaries of a
party to the agreement.
C. Beneficiaries as Nonsignatories
[9] We have previously determined that nonsignatories
to an agreement subject to the FAA may be bound to
an arbitration clause when rules of law or equity would
bind them to the contract generally. In re Weekley Homes,
180 S.W.3d at 131 (noting that if state law would bind
a nonparty to a contract generally, the FAA appears to
preempt an exception for arbitration clauses because the
FAA requires states to place arbitration *644 contracts
on equal footing with other contracts); see also Allied–
Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281,
115 S.Ct. 834, 130 L.Ed.2d 753 (2005) (noting that a
state “may not ... decide that a contract is fair enough to
enforce all its basic terms ... [yet] not fair enough to enforce
its arbitration clause”). Therefore, we look to whether
the agreement signed by Dancy would generally bind his
beneficiaries under Texas law.
Several rules of law and equity may bind nonsignatories to
a contract. For example, we have held that the principles
of equitable estoppel and agency may bind nonsignatories
to an arbitration agreement. In re Weekley Homes, 180
S.W.3d at 131–35; see also In re Kellogg Brown & Root,
166 S.W.3d at 739 (noting nonsignatories may be bound to
arbitration agreement under “direct benefits estoppel”); In
re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191–95
(Tex.2007) (recognizing estoppel may bind a nonsignatory
to an arbitration agreement but holding plaintiffs were
not bound to arbitration agreement under “concerted
misconduct estoppel” because it was not a recognized
theory of estoppel under Texas law); In re FirstMerit
Bank, N.A., 52 S.W.3d 749, 755–56 (Tex.2001) (holding
a nonsignatory who sues based on a contract subjects
himself to the contract's terms, including its arbitration
agreement).
Labatt argues that under these circumstances the
beneficiaries should be bound by the agreement because
(1) they are third party beneficiaries of the agreement; (2)
they are bound by the agreement because of the derivative
nature of their claims; and (3) Texas Family Code section
151.001 afforded Dancy the legal authority to bind his
minor children to the agreement. Because we determine it
is dispositive, we first consider Labatt's argument that the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
beneficiaries are bound to arbitrate due to the derivative
nature of their claims.
[10] [11] At common law there was no recognized cause
of action for the wrongful death of another person. Russell
v. Ingersoll–Rand Co., 841 S.W.2d 343, 344 (Tex.1992).
The Legislature enacted the Wrongful Death Act in
order to create a cause of action to allow a deceased
tort victim's surviving parents, children, and spouse to
recover damages for their losses from the victim's death.
Shepherd v. Ledford, 962 S.W.2d 28, 31 (Tex.1998); see
TEX. CIV. PRAC. & REM.CODE §§ 71.002–.004. Under
the Wrongful Death Act as it applies here, wrongful
death beneficiaries may pursue a cause of action “only if
the individual injured would have been entitled to bring
an action for the injury if the individual had lived.”
TEX. CIV. PRAC. & REM.CODE § 71.003(a). This
language is not a recent innovation but is a recodification
of language which has consistently been part of the
Wrongful Death Act. See Russell, 841 S.W.2d at 346.
And we have consistently held that the right of statutory
beneficiaries to maintain a wrongful death action is
entirely derivative of the decedent's right to have sued for
his own injuries immediately prior to his death. See id. at
345–47. Thus, it is well established that statutory wrongful
death beneficiaries' claims place them in the exact “legal
shoes” of the decedent, and they are subject to the same
defenses to which the decedent's claims would have been
subject. Id. at 347.
Accordingly, we long ago held that a decedent's pre-
death contract may limit or totally bar a subsequent
action by his wrongful death beneficiaries. See Sullivan–
Sanford Lumber Co. v. Watson, 106 Tex. 4, 155 S.W.
179, 180 (1913); Thompson v. Fort Worth & R.G. Ry.
Co., 97 Tex. 590, 80 S.W. 990, 992 (1904); see also
Russell, 841 S.W.2d at 347 (affirming holdings *645
in Thompson and Sullivan–Sanford Lumber Co.). In
Thompson, R.K. Thompson sued to recover damages for
injuries he suffered while riding a train. He accepted a
settlement offer and executed a full release of the railway
company. 80 S.W. at 990. Shortly after signing the release,
Thompson died from his injuries. Id. at 991. His wife
and children then sued the railway company seeking to
recover damages for his death. Id. at 990. The Court noted
that if Thompson had survived, he would not have been
entitled to bring suit because of the contractual release and
because the Wrongful Death Act provided, in language
similar to the current Act, that beneficiaries were only
5
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
entitled to bring suit if the decedent would have been
entitled to maintain an action for the injury. Id. at 991–
92. The Court held that although the beneficiaries were
not parties to the release, the contractual release signed
by Thompson barred their wrongful death claims because
they stood in the same legal shoes as Thompson and were
subject to the same contractual defenses. Id. at 992.
In Sullivan–Sanford Lumber Co., the Court again held
that a pre-death contractual release signed by a decedent
barred a subsequent action by his wrongful death
beneficiaries. 155 S.W. at 180. The Sullivan–Sanford
Lumber Company allowed non-employees to ride their
trains without charge but issued them boarding passes
containing the following language:
The user of this pass rides only
on the following conditions: (1)
This permit is accepted with the
understanding that the person using
it assumes all risk of injury of
any character while using the same
and hereby waives any claim for
damages in case of injury....
135 S.W. 635, 636 (Tex.Civ.App.-Texarkana 1911), rev'd,
106 Tex. 4, 155 S.W. 179 (1913). J.A. Watson was riding a
train courtesy of a boarding pass when the train collided
with another train killing Watson. Id. His wife and
children sued the Lumber Company. Id. The Court held,
as it did in Thompson, that the beneficiaries were not
entitled to recover under the Wrongful Death Act because
Watson himself could not have recovered for his injuries
if he had survived, and his wrongful death beneficiaries
were subject to the same contractual defenses that Watson
would have been subject to had he sued. 155 S.W. at 180.
Consistent with our holdings in Thompson and Watson,
many courts of appeals have held that a decedent's
pre-death contract may limit or bar a subsequent
wrongful death action. See Newman v. Tropical Visions,
Inc., 891 S.W.2d 713, 719 (Tex.App.-San Antonio
1994, writ denied) (pre-injury liability release signed
by decedent before taking scuba diving lessons barred
subsequent wrongful death and survival action against
scuba instructor); Winkler v. Kirkwood Atrium Office
Park, 816 S.W.2d 111, 115 (Tex.App.-Houston [14th
Dist.] 1991, writ denied) (release executed by decedent
before joining health club precluded his beneficiaries from
bringing wrongful death and survival action); McClellan
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
v. Boehmer, 700 S.W.2d 687, 690 (Tex.App.-Corpus
Christi 1985, no writ) (release and settlement signed by
automobile accident victim barred survival and wrongful
death actions after victim died from injuries sustained in
accident).
[12] Despite this line of authority, the wrongful death
beneficiaries argue that agreements to arbitrate are
different than other contracts, and they should not be
bound by Dancy's agreement. We reject their argument.
If we agreed with them, then wrongful death beneficiaries
in Texas would be bound by a decedent's contractual
agreement that completely disposes of the beneficiaries'
claims, but they would not be bound by a contractual
agreement that merely changes the forum in which *646
the claims are to be resolved. Not only would this be an
anomalous result, we believe it would violate the FAA's
express requirement that states place arbitration contracts
on equal footing with other contracts. 9 U.S.C. § 2; see
Volt Info. Scs., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488
(1989).
[13] The beneficiaries also argue that they should not
be bound because Dancy did not have the authority to
bind them to the arbitration agreement when the wrongful
death cause of action actually belongs to the surviving
spouse, children, and parents of the deceased. While it
is true that damages for a wrongful death action are for
the exclusive benefit of the beneficiaries and are meant to
compensate them for their own personal loss, the cause of
action is still entirely derivative of the decedent's rights.
TEX. CIV. PRAC. & REM.CODE §§ 71.003(a), .004(a);
Russell, 841 S.W.2d at 347. Thus, regardless of the fact
that Dancy's beneficiaries are seeking compensation for
their own personal loss, they still stand in Dancy's legal
shoes and are bound by his agreement.
In the alternative, the beneficiaries urge us to circumvent
the derivative claim rule by holding that wrongful
death actions are analogous to and should be treated
similarly to loss of consortium claims. A tort action
seeking damages for loss of consortium, however, is
fundamentally different than a statutory wrongful death
action. If Dancy had suffered a severe but nonfatal
injury, his children would have been entitled to bring a
claim to recover for the loss of care, guidance, love, and
protection ordinarily provided by their father. 1 Reagan
v. Vaughn, 804 S.W.2d 463, 466 (Tex.1990). Their lost
6
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
consortium claims would be derivative in the sense that
the beneficiaries would be required to establish Labatt
was liable for their father's underlying injury in order to
recover damages. Whittlesey v. Miller, 572 S.W.2d 665,
668 (Tex.1978). But loss of consortium claims are not
entirely derivative as are wrongful death claims; instead,
they are separate and independent claims distinct from
the underlying action. Id. at 667, 669. Thus, a settlement
agreement signed by an injured spouse does not bar a
subsequent loss of consortium claim by the non-injured
spouse. Id. at 669.
A wrongful death action is different than a loss of
consortium claim because the Wrongful Death Act
expressly conditions the beneficiaries' claims on the
decedent's right to maintain suit for his injuries. TEX.
CIV. PRAC. & REM.CODE § 71.003(a); see Russell,
841 S.W.2d at 346. The Legislature created an entirely
derivative cause of action when it enacted the Wrongful
Death Act, and Dancy's beneficiaries are bringing an
entirely derivative claim. Their wrongful death action is
not in the same category as a loss of consortium claim
for purposes of derivative status analysis. We decline
their invitation to circumvent the clear language of the
Wrongful Death Act.
In addition, other states have resolved this issue based on
whether the wrongful death action is an independent or
derivative cause of action under state law. See Cleveland
v. Mann, 942 So.2d 108, 118–19 (Miss.2006) (beneficiaries
bound by decedent's arbitration agreement because
under Mississippi Wrongful Death Act, beneficiaries may
bring suit only if decedent would have been entitled
to bring action immediately before death); Briarcliff
Nursing Home, Inc. v. Turcotte, 894 So.2d 661, 665
(Ala.2004) (administrator of estate bringing wrongful
death claim bound because administrator stands in
legal shoes of decedent); Ballard v. Sw. Detroit *647
Hosp., 119 Mich.App. 814, 327 N.W.2d 370, 372 (1982)
(administrator bringing wrongful death action bound
by arbitration agreement because wrongful death is
a derivative cause of action under Michigan law);
but see Bybee v. Abdulla, 189 P.3d 40, 43 (Utah
2008) (beneficiaries not bound because wrongful death
is an independent cause of action under Utah law);
Finney v. Nat'l Healthcare Corp., 193 S.W.3d 393, 395
(Mo.Ct.App.2006) (beneficiary not bound because under
Missouri law the wrongful death act creates a new cause
of action belonging to the beneficiaries). Other states,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
however, resolve the issue based on what the contracting
parties intended. Allen v. Pacheco, 71 P.3d 375, 379–80
(Colo.2003) (beneficiaries bound when contract reflects
intent of the parties to bind beneficiaries); Herbert v.
Superior Court, 169 Cal.App.3d 718, 215 Cal.Rptr. 477,
480 (1985) (beneficiaries bound when contract reflects
intent of the parties to bind beneficiaries).
A review of the cases decided based on statutory language
indicates that courts in states where wrongful death
actions are recognized as independent and separate causes
of action are more likely to hold that the beneficiaries are
not bound by a decedent's agreement to arbitrate, see, e.g.,
Bybee, 189 P.3d at 46–47; Finney, 193 S.W.3d at 395, while
beneficiaries in states where wrongful death actions are
wholly derivative in nature are generally held to be bound
by a decedent's arbitration agreement. See Cleveland, 942
So.2d at 118–19; Ballard, 327 N.W.2d at 372; Bybee,
189 P.3d at 46 (“Courts that compel nonsignatory heirs
to abide by arbitration agreements often do so because
under their law a wrongful death cause of action is wholly
derivative of and dependent on the underlying personal
injury claim.”). Our holding is consistent with those in the
majority of states that have statutes similar to the Texas
statute and have considered the issue.
Some Texas courts of appeals have held that wrongful
death beneficiaries are not bound by a decedent's
agreement to arbitrate. See In re Kepka, 178 S.W.3d 279,
288 (Tex.App.-Houston [1st Dist.] 2005, orig. proceeding
[mand. dismissed] ); Gomez v. Zardenetta, No. 04–97–
0019–CV, 1998 WL 19858, at *7 (Tex.App.-San Antonio
Jan.21, 1998, no pet.) (not designated for publication). To
the extent the holdings of courts of appeals conflict with
our decision, we disapprove of them.
III. The Indemnity Clause
[14] The Labor Code provides that an employee's cause
of action against a non-subscriber employer to recover
damages for personal injuries or death sustained in the
course and scope of employment
may not be waived by an employee
before the employee's injury or
death. Any agreement by an
employee to waive [such] a cause
of action ... before the employee's
7
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352
injury or death is void and
unenforceable.
TEX. LAB.CODE § 406.033(e). The beneficiaries
challenge the validity of the entire agreement on the
basis that the indemnification clause in paragraph three
is in substance a pre-injury waiver that violates Labor
Code section 406.033(e). They, however, specify that their
challenge to the agreement's validity “is not dependent on
or directed solely to the arbitration provision.” Instead,
they argue that the contract as a whole, including its
arbitration clause, is rendered invalid by the allegedly
illegal indemnity clause because the clause is not severable.
[15] There are two types of challenges to an arbitration
provision: (1) a specific challenge to the validity of
the arbitration agreement or clause, and (2) a broader
challenge to the entire contract, either on a ground that
directly affects the entire agreement, or on the ground
that one of *648 the contract's provisions is illegal
and renders the whole contract invalid. Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, 126 S.Ct.
1204, 163 L.Ed.2d 1038 (2006). A court may determine
the first type of challenge, but a challenge to the validity
of the contract as a whole, and not specifically to the
arbitration clause, must go to the arbitrator. Id. at 448–
49, 126 S.Ct. 1204; see Prima Paint, 388 U.S. at 403–
04, 87 S.Ct. 1801 (claim of fraud in the inducement of
arbitration clause itself may be adjudicated by court, but
court may not consider claim of fraud in the inducement
of the contract generally); Forest Oil Corp. v. McAllen,
268 S.W.3d 51, 56 (Tex.2008) (“[T]he party opposing
arbitration must show that the fraud relates to the
arbitration clause specifically, not to the broader contract
in which it appears.”); Perry Homes v. Cull, 258 S.W.3d
580, 589 (Tex.2008) (“[A]rbitrators generally must decide
defenses that apply to the whole contract, while courts
decide defenses relating solely to the arbitration clause.”);
In re Merrill Lynch, 235 S.W.3d at 190 & n. 12 (noting
that a defense relating to the parties' entire contract rather
than the arbitration clause alone is a question for the
arbitrators); In re FirstMerit Bank, 52 S.W.3d at 756
(noting that the defenses of unconscionability, duress,
fraudulent inducement, and revocation must specifically
relate to the arbitration part of a contract and not the
contract as a whole if they are to defeat arbitration, and
that validity of an arbitration provision is a separate issue
from validity of the whole contract).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
We recently considered the first type of challenge in
In re Poly–America, L.P., 262 S.W.3d 337 (Tex.2008).
There, Johnny Luna and his employer, Poly–America,
entered into a five-page-long arbitration agreement.
Id. at 345, 360. After Luna was fired, he sued for
retaliatory discharge and sought a declaratory judgment
that the arbitration agreement was unenforceable because
it contained provisions that violated public policy and
were unconscionable. Id. at 345. One of his arguments
was that provisions prohibiting the arbitrator from
awarding punitive damages or ordering reinstatement
violated Labor Code provisions authorizing such relief.
Id. at 352. We determined that those provisions were
unconscionable and void, but they were severable and
did not invalidate the rest of the agreement to arbitrate.
Id. at 359–60. We stated that “where a particular waiver
of substantive remedies or other provision of a contract
is unconscionable—independent of the agreement to
arbitrate—it will be unenforceable even though included
in an agreement to arbitrate.” Id. at 349. But that
statement must be read in context of the case as it was
presented to us. We were considering only provisions
that were part of the arbitration agreement. There was
no challenge to an invalid or illegal provision outside
of the arbitration agreement because the entire contract
at issue was an arbitration agreement. Because we were
considering the various challenged provisions only as they
were part of the arbitration agreement itself, the Court
could properly adjudicate Luna's challenge. Buckeye, 546
U.S. at 444, 126 S.Ct. 1204; Prima Paint, 388 U.S. at 409,
87 S.Ct. 1801. At oral argument in this case, Labatt urged
the Court to similarly sever the indemnity clause if we
found it violated Labor Code section 406.033(e). But as
we explain below, we do not reach the issue of whether
the indemnity clause is void because it is a question for the
arbitrator.
The case now before us presents a challenge of the second
type that we refer to above: a broad challenge to the
entire contract on the ground that one of the contract's
provisions is illegal and renders the whole contract invalid,
but not specifically challenging the arbitration clause. The
Supreme Court addressed a similar challenge in *649
Buckeye, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d
1038. There, Buckeye Check Cashing operated a deferred
deposit service by which its customers obtained cash
in exchange for the customer's check in the amount
received plus a finance charge. Id. at 442, 126 S.Ct.
1204. For each transaction, Buckeye's customers signed
8
In re Labatt Food Service, L.P., 279 S.W.3d 640 (2009)
28 IER Cases 1268, 52 Tex. Sup. Ct. J. 352

a “Deferred Deposit and Disclosure Agreement,” which
included an arbitration clause. Id. Buckeye customers
brought a class action suit in Florida state court. Id. at
443, 126 S.Ct. 1204. They alleged the finance charges
in the agreement violated Florida lending and consumer
protection laws. Id. Buckeye moved to compel arbitration,
but the plaintiffs argued the contract as a whole, including
the arbitration clause, was rendered invalid by the
usurious finance charges. Id. The trial court denied the
motion to compel, holding that the court rather than an
arbitrator should resolve the claim that a contract is void
and illegal. Id. The Florida Supreme Court affirmed, but
the United States Supreme Court reversed. Id. at 449, 126
S.Ct. 1204. The United States Supreme Court held that
“regardless of whether the challenge is brought in federal
or state court, a challenge to the validity of the contract
as a whole, and not specifically to the arbitration clause,
must go to the arbitrator.” Id.
Like the plaintiffs in Buckeye, the beneficiaries in this
case challenge the contract on the ground that an illegal
clause renders the whole contract void. The beneficiaries
challenge the arbitration clause only in the sense that
they also challenge all parts of the agreement because the
parts comprise the whole. But, unless a challenge is to the
arbitration clause or arbitration agreement itself, as it was
in In re Poly–America, the question of a contract's validity
is for the arbitrator and not the courts. Accordingly, the
beneficiaries' challenge to the validity of the agreement
must be determined by the arbitrator, and we do not
address it. Buckeye, 546 U.S. at 445–46, 126 S.Ct. 1204;
In re Merrill Lynch, 235 S.W.3d at 190 & n. 12; In re
FirstMerit Bank, 52 S.W.3d at 756, 758.
Because of our disposition of the case, we do not address
Labatt's alternative argument that the FAA preempts
Labor Code section 406.033(e) to the extent the state
statute would prevent or restrict enforcement of the
arbitration provision. See In re Bison Bldg. Materials,
Ltd., Nos. 01–07–00003–CV, 01–07–00029–CV, 2008 WL
2548568, at *8 (Tex.App.-Houston [1st Dist.] June 26,
2008, orig. proceeding) (mem.op.); In re Border Steel,
Inc., 229 S.W.3d 825, 831–32 (Tex.App.-El Paso 2007,
orig. proceeding); In re R & R Pers. Specialists of Tyler,
Inc., 146 S.W.3d 699, 703–04 (Tex.App.-Tyler 2004, orig.
proceeding).
IV. Conclusion
If Dancy had sued Labatt for his own injuries immediately
prior to his death, he would have been compelled to
arbitrate his claims pursuant to his agreement. His
beneficiaries, therefore, must arbitrate as their right to
maintain a wrongful death action is entirely derivative of
Dancy's rights. The trial court clearly abused its discretion
by refusing to compel arbitration.
We conditionally grant Labatt's petition for writ of
mandamus. The trial court is directed to enter an order
compelling arbitration of the beneficiaries' claims. We are
confident the trial court will comply, and the writ will issue
only if it fails to do so.
All Citations
279 S.W.3d 640, 28 IER Cases 1268, 52 Tex. Sup. Ct. J.
352

Footnotes
1 Dancy's parents would not have been entitled to recover lost consortium damages had he survived his injuries. See
Roberts v. Williamson, 111 S.W.3d 113, 119 (Tex.2003).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

Civil proceedings other than actions

A party denied the right to arbitrate pursuant
KeyCite Yellow Flag - Negative Treatment
to an agreement subject to the Federal
Declined to Extend by Osornia v. AmeriMex Motor & Controls, Inc., 
Tex.App.-Hous. (14 Dist.), March 29, 2012 Arbitration Agreement (FAA) does not have
334 S.W.3d 220 an adequate remedy by appeal and is entitled
Supreme Court of Texas. to mandamus relief to correct a clear abuse of
discretion. 9 U.S.C.A. § 4.
In re Joseph Charles RUBIOLA et al., Relators.
4 Cases that cite this headnote
No. 09–0309.
|
[3] Alternative Dispute Resolution
Argued Sept. 16, 2010.
Validity
|
Alternative Dispute Resolution
Decided March 11, 2011.
Disputes and Matters Arbitrable Under
Synopsis Agreement
Background: Vendors of home petitioned for writ of A party seeking to compel arbitration under
mandamus seeking to compel arbitration of underlying the Federal Arbitration Act (FAA) must
claims by purchasers regarding repair of the home establish that there is a valid arbitration
based on arbitration agreement signed by purchasers and clause, and that the claims in dispute fall
mortgagee during financing. within that agreement's scope. 9 U.S.C.A. § 2.

54 Cases that cite this headnote

Holdings: The Supreme Court, Medina, J., held that:

[4] Alternative Dispute Resolution
[1] purchasers granted vendors right to enforce arbitration What law governs
agreement, and Under the Federal Arbitration Act (FAA),
ordinary principles of state contract law
[2] claims fell within arbitration agreement. determine whether there is a valid agreement
to arbitrate. 9 U.S.C.A. § 2.

Writ conditionally granted. 26 Cases that cite this headnote

[5] Alternative Dispute Resolution

West Headnotes (11) Persons affected or bound
An obligation to arbitrate not only attaches
to one who has personally signed the written
[1] Alternative Dispute Resolution
arbitration agreement but may also bind a
What law governs
non-signatory under principles of contract
Parties may expressly agree to arbitrate under
law and agency.
the Federal Arbitration Agreement (FAA). 9
U.S.C.A. § 2. 8 Cases that cite this headnote

27 Cases that cite this headnote

[6] Alternative Dispute Resolution
Persons affected or bound
[2] Mandamus
Generally, parties must sign arbitration
Modification or vacation of judgment or
agreements before being bound by them.
order
Mandamus

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654
18 Cases that cite this headnote
[7] Alternative Dispute Resolution
Persons affected or bound
Although arbitration agreements apply to
nonsignatories only in rare circumstances, the
question of who is actually bound by an
arbitration agreement is ultimately a function
of the intent of the parties, as expressed in the
terms of the agreement.
7 Cases that cite this headnote
[8] Alternative Dispute Resolution
Persons entitled to enforce
Purchasers and mortgagee, who were parties
to arbitration agreement concerning financing
for sale of home, granted vendors right
to enforce arbitration agreement, where
agreement expressly provided that certain
non-signatories were parties to the agreement,
including all parties that were part of the
transaction.
7 Cases that cite this headnote
[9] Alternative Dispute Resolution
Building contracts disputes
Claims by purchasers against vendors and
listing agent regarding repairs of home at
issue fell within arbitration agreement in
financing agreement between purchasers and
mortgagee, where listing agent and vendors
were non-signatory parties to arbitration
agreement, agreement broadly covered all
controversies, including real estate sales
contract and complaint regarding sale, and
sales contract stated that it could be amended
by later writing and arbitration agreement at
issue was executed one month later.
5 Cases that cite this headnote
[10] Alternative Dispute Resolution
Evidence
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
When deciding whether claims fall within an
arbitration agreement, courts employ a strong
presumption in favor of arbitration.
15 Cases that cite this headnote
[11] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
To determine whether a claim falls within
the scope of the arbitration agreement, courts
must focus on the factual allegations of the
complaint, rather than the legal causes of
action asserted.
11 Cases that cite this headnote
Attorneys and Law Firms
*221 Bernard Lee Shub, The Law Office of Ben Shub,
Elizabeth Conry Davidson, San Antonio TX, for Joseph
Charles Rubiola.
*222 Bryan A. Woods, Law Office of Bryan A. Woods,
San Antonio TX, for Real Party in Interest Brian Salmon.
Opinion
Justice MEDINA delivered the opinion of the Court.
In this original mandamus proceeding, Relators seek
to compel arbitration under an arbitration agreement
they did not sign. The real parties in interest, who
are signatories to the arbitration agreement, object
to arbitration and contend that Relators cannot
compel arbitration because Relators are not parties to
the arbitration agreement. The trial court apparently
agreed because it denied Relators' motion to compel
arbitration. The underlying arbitration agreement,
however, designated certain non-signatories as parties to
the agreement.
We must decide whether the parties who actually agree
to arbitrate may also grant third parties the right to
enforce their arbitration agreement and, if so, whether
the signatories here intended to grant such rights to
these Relators. We conclude that parties to an arbitration
agreement may grant non-signatories the right to compel
2
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654
arbitration and that the Relators here were granted that
right. The trial court therefore erred in denying the motion
to compel arbitration, and we conditionally grant the writ.
I each and all persons and entities
The underlying case concerns the sale and financing of
a home. Brian and Christina Salmon agreed to purchase
the home from Greg Rubiola and his wife Catherine. The
transaction was handled by J.C. Rubiola, Greg's brother,
who served as the listing broker for the property. The
Salmons and Rubiolas signed a standard form Texas real
estate sales contract, which did not contain an arbitration
clause.
Greg and J.C. Rubiola operate a number of real estate
related businesses in San Antonio. The Rubiola brothers
buy and sell real estate through Rubiola Management,
L.L.C., which is the general partner of Rubiola Realty,
Ltd. and Rubiola Properties, Ltd. Greg and J.C. are
also president and vice-president, respectively, of Rubiola
Mortgage Company, a corporation the brothers use to
obtain financing for real estate buyers. The Rubiola
brothers' business interests are operated at the same
location under the name Rubiola Mortgage and Realty,
which they advertise as a one-stop shop for customers' real
estate needs: offering the ability to buy, sell, build, finance,
and manage real estate through a single company.
After agreeing to purchase Greg Rubiola's home, the
Salmons applied for mortgage financing with Rubiola
Mortgage Company, using J.C. Rubiola as their mortgage
broker and loan officer. As part of the loan process,
the Salmons executed an arbitration agreement with the
mortgage company. This agreement provided that:
Arbitrable disputes include any
and all controversies or claims
between the parties of whatever
type or manner, including without
limitation, all past, present and/
or future credit facilities and/
or agreements involving the
parties. This arbitration provision
shall survive any termination,
amendment, or expiration of the
agreement in which this agreement
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
is contained, unless all of the parties
expressly agree in writing.
The agreement further defined “parties” to include:
Rubiola Mortgage Company, and
signing this agreement or any
other agreements between or
among any of the parties as
part of this transaction. “The
parties” shall also include individual
partners, affiliates, *223 officers,
directors, employees, agents, and/
or representatives of any party to
such documents, and shall include
any other owner and holder of this
agreement.
J.C. Rubiola signed the agreement on behalf of Rubiola
Mortgage Company, and the Salmons signed a form
acknowledging J.C.'s dual role as a real estate agent and
mortgage broker. The sale closed, and the Salmons moved
into their new home.
Several months later, the Salmons sued the Rubiolas
and other entities and individuals involved in repairing
the home (collectively referred to as the Rubiolas). 1
The Salmons alleged that J.C. Rubiola, acting as
both the listing agent and a principal involved in
the home's construction and repair, made a series of
misrepresentations that induced the Salmons to purchase
the home. They also alleged violations of the Deceptive
Trade Practices Act and negligent supervision of repairs
made to the home. The Salmons sought either to rescind
the sale or to collect damages. The Rubiolas answered and
moved to compel arbitration, relying on the arbitration
agreement signed by the Salmons and Rubiola Mortgage
Company during financing.
The trial court denied the Rubiolas' motion to compel,
causing the Rubiolas to seek mandamus relief in the
court of appeals. The court of appeals also refused to
compel arbitration, and the Rubiolas filed the present
mandamus proceeding, seeking again to enforce the
underlying arbitration agreement as a non-signatory.
II
3
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654
[1] The Federal Arbitration Act (FAA) generally governs
arbitration provisions in contracts involving interstate
commerce. See 9 U.S.C. § 2; see also In re L & L Kempwood
Assocs., L.P., 9 S.W.3d 125, 127 (Tex.1999) (per curiam).
Parties may also expressly agree to arbitrate under the
FAA. In re AdvancePCS Health L.P., 172 S.W.3d 603,
605–06 & n. 3 (Tex.2005) (per curiam). The arbitration
agreement here expressly provides for arbitration under
the FAA, and although the Salmons oppose arbitration,
generally, they do not contest the application of the FAA.
[2] Under Section 4 of the FAA, “[a] party aggrieved
by the alleged failure, neglect, or refusal of another to
arbitrate under a written agreement for arbitration may
petition ... for an order directing that such arbitration
proceed in the manner provided for in such agreement.” 9
U.S.C. § 4; see In re Halliburton Co., 80 S.W.3d 566, 573
(Tex.2002). “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 Labatt
Food Serv., L.P., 279 S.W.3d 640, 642–43 (Tex.2009).
III
[3] A party seeking to compel arbitration under the FAA
must establish that (1) there is a valid arbitration clause,
and (2) the claims in dispute fall within that agreement's
scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,
737 (Tex.2005). The Rubiolas contend that the arbitration
agreement, executed during financing, is broad enough
to cover all of the Salmon's claims against them. The
Salmons argue, however, that the arbitration agreement
extends only to disputes under the financing agreement, as
opposed to the real estate *224 sales agreement, and that
its breadth cannot be used by non-signatories to compel
arbitration. This disagreement raises two issues: do the
Rubiolas, as non-signatories to the arbitration agreement,
have authority to compel the Salmons to arbitrate, and, if
so, does the arbitration clause cover the Salmons' claims.
The first issue questions the validity of the arbitration
clause, while the second questions the clause's scope.
The Rubiolas argue, and we agree, that the arbitration
A agreement's broad definition of parties, at a minimum,
[4] [5] [6] [7] Whether a non-signatory can compelmade J.C. and Greg Rubiola parties to the arbitration
arbitration pursuant to an arbitration clause questions agreement. 2 Rubiola Mortgage Company signed the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
the existence of a valid arbitration clause between specific
parties and is therefore a gateway matter for the court
to decide. In re Weekley Homes, L.P., 180 S.W.3d 127,
130 (Tex.2005); Sherer v. Green Tree Servicing LLC, 548
F.3d 379, 381 (5th Cir.2008). Under the FAA, ordinary
principles of state contract law determine whether there
is a valid agreement to arbitrate. In re Kellogg Brown
& Root, Inc., 166 S.W.3d at 738 (citing First Options
of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct.
1920, 131 L.Ed.2d 985 (1995)). An obligation to arbitrate
not only attaches to one who has personally signed
the written arbitration agreement but may also bind
a non-signatory under principles of contract law and
agency. Id. at 738. Generally, however, parties must sign
arbitration agreements before being bound by them. See
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d
524, 528 (5th Cir.2000) (noting that “arbitration is a
matter of contract and cannot, in general, be required
for a matter involving an arbitration agreement non-
signatory”). Although “[a]rbitration agreements apply to
nonsignatories only in rare circumstances [,]” the question
of “[w]ho is actually bound by an arbitration agreement
is [ultimately] a function of the intent of the parties,
as expressed in the terms of the agreement.” Bridas
S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 355,
358 (5th Cir.2003). Here the question is not whether a
non-signatory may be compelled to arbitrate but rather
whether a non-signatory may compel arbitration.
[8] The Salmons argue that because none of the Rubiolas
signed the arbitration agreement, except J.C., who signed
only as the representative of Rubiola Mortgage Company,
that none of them are entitled to compel the Salmons
to arbitrate. The Salmons thus equate signing with being
a party to the agreement. The arbitration agreement,
however, expressly provides that certain non-signatories
are to be parties to the agreement. The agreement defines
parties to include “Rubiola Mortgage Company, and
each and all persons and entities that sign this agreement
or any other agreements between or among any of
the parties as part of this transaction.” Parties further
include “individual partners, affiliates, officers, directors,
employees, agents, and/or representatives of any party to
such documents.”
4
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654
arbitration agreement, and the Rubiola brothers are
clearly officers and representatives of the mortgage
company *225 and thus non-signatory parties to the
arbitration agreement under the agreement's terms.
Because the arbitration agreement expressly provides
that certain non-signatories are considered parties, we
conclude that such parties may compel arbitration under
the agreement. See Sherer, 548 F.3d at 382 (noting that
trial court's application of equitable estoppel to determine
whether non-signatory might compel arbitration, was
unnecessary because the terms of the Loan Agreement
clearly identify when a party might be compelled to
arbitrate with a non-signatory); Bridas, 345 F.3d at 356
(noting that ordinary principles of contract and agency
law may be called upon to bind a non-signatory to
an agreement whose terms have not clearly done so);
see also Carolyn Lamm, Defining The Party—Who is a
Proper Party in an International Arbitration Before the
American Arbitration Association and Other International
Institutions, 34 GEO. WASH. INT'L L.REV.. 711, 720
(2003) (noting that courts prohibit enforcement by non-
signatories “where (1) the contract does not expressly
grant third parties the ability to participate in the
arbitration; (2) the parties have not contemplated the idea;
and (3) non-signatory involvement would constitute an
invasion of the consensual nature of arbitration.”). But
even though the Rubiolas are identified as non-signatories
who may compel arbitration, there remains the question
whether the Salmons' underlying claims fall within the
arbitration agreement's scope.
B
[9] [10] When deciding whether claims fall within disputes to include “any and all controversies between
an arbitration agreement, courts employ a strong
presumption in favor of arbitration. Cantella & Co.,
Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996) (per
curiam) (holding that “[f]ederal and state law strongly
favor arbitration,” and that “a presumption exists in favor signatory parties to the arbitration agreement, which
of agreements to arbitrate under the FAA”); Prudential
Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.1995)
(holding that under the FAA “any doubts as to whether
claims fall within the scope of the agreement must be
resolved in favor of arbitration,” and that “[t]he policy in rather extended to the real estate sales contract and the
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
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
dispute at issue’ ”). The Rubiolas advance three arguments
for why the arbitration clause covers the Salmons' claims:
(1) the language of the clause covers the claims, (2) J.C.'s
alleged actions occurred while he was acting under both
the mortgage and real estate contracts, so his alleged
actions were factually intertwined with the mortgage
agreement, and (3) the two instruments should be read
together because they were executed contemporaneously
as part of the same transaction and because the mortgage
agreement was essential to the overall deal. The Salmons
argue, on the other hand, that the arbitration clause
does not cover their claims because those claims relate
only to J.C.'s role as the listing agent to the real estate
contract. The Salmons further deny that their alleged
facts intertwine with the mortgage agreement, or that the
contracts should be construed together because they were
signed by different parties at different times and without
reference to each other.
[11] To determine whether a claim falls within the scope
of the agreement, courts must “focus on the factual
allegations of the complaint, rather than the legal causes of
action asserted.” Marshall, 909 S.W.2d at 900. The factual
allegations in the Salmons' complaint center around a
variety of alleged misrepresentations that J.C. Rubiola
made in his capacity as the listing agent to the real
estate *226 transaction. J.C. allegedly promised that
certain repairs would be made to the Salmons' satisfaction
after closing. When they were not and other serious
problems materialized after closing, J.C. allegedly made
more promises to fix the problems or to repurchase the
home if the repairs were not satisfactory.
The underlying arbitration agreement defines arbitrable
the parties of whatever type or manner, including without
limitation, all past, present and/or future credit facilities
and/or agreements involving the parties.” The Rubiola
brothers were, as we have already concluded, non-
broadly covers all controversies between the parties and
all past, present or future agreements involving the parties.
This language indicates that the arbitration agreement was
not limited to the financing part of the transaction but
Salmons complaints regarding that sale.
The Salmons argue, however, that including the real
estate sales contract as part of the transaction subject
5
In re Rubiola, 334 S.W.3d 220 (2011)
54 Tex. Sup. Ct. J. 654

to arbitration is contrary to the terms of that contract. enforce arbitration as though they signed the agreement
themselves. We further conclude that the underlying
The real estate contract stated that it constituted the
arbitration agreement in this case identified the Rubiolas
entire agreement between the parties and further provided
as parties to the agreement and that they accordingly
that the parties could enforce it in court. The contract,
had the right to compel arbitration. Finally, we conclude
however, also states that it could be amended by a later
that the trial court's order denying arbitration is an abuse
writing. In the arbitration agreement, executed a month
of discretion for which we conditionally grant Relators'
later as part of the process for obtaining financing, the
request for mandamus relief. TEX.R.APP. P. 52.8(c). The
Salmons agreed to arbitrate all controversies between the
writ will issue only if the trial court fails to enforce the
parties and all past agreements involving the parties.
arbitration agreement.
***
All Citations
We conclude that signatories to an arbitration agreement
may identify other parties in their agreement who may 334 S.W.3d 220, 54 Tex. Sup. Ct. J. 654

Footnotes
1 J.C. Rubiola, Gregory Rubiola, Catherine Rubiola, JGL–Design Build, L.L.C., Michael Cortez individually and d/b/a The
Heights Design and Construction are defendants in the underlying suit and Relators in this Court.
2 J.C. and Greg Rubiola are the President and Vice President of Rubiola Mortgage Company. JGL Design Builders L.L.C.
is a Texas limited liability corporation, owned and managed by J.C. and Greg Rubiola. Michael Cortez individually and
d/b/a the Heights Design and Construction was the original contractor hired by the Rubiolas to remediate the mold and
water damage at the property.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)

Federal Arbitration Act (FAA). 9 U.S.C.A. §

1 et seq.
KeyCite Yellow Flag - Negative Treatment
Distinguished by Rocha v. Marks Transport, Inc., Tex.App.-Hous. (1  17 Cases that cite this headnote
Dist.), December 13, 2016
180 S.W.3d 127
Supreme Court of Texas. [3] Alternative Dispute Resolution
Existence and validity of agreement
In re WEEKLEY HOMES, L.P. Under the Federal Arbitration Act (FAA),
absent unmistakable evidence that the parties
No. 04–0119.
intended the contrary, the courts, rather than
|
arbitrators, must decide gateway matters such
Argued Nov. 30, 2004.
as whether a valid arbitration agreement
|
exists and whether an arbitration agreement is
Decided Oct. 28, 2005.
binding on a nonparty. 9 U.S.C.A. § 1 et seq.
Synopsis
49 Cases that cite this headnote
Background: House purchaser's adult child brought
personal injury action against builder to recover for
asthma allegedly caused by dust from house repairs. [4] Alternative Dispute Resolution
Purchaser and trust that owned the house also sued. What law governs
The 192nd District Court, Merrill Hartman, J., refused Texas procedural rules govern gateway
to compel arbitration of personal injury action. Builder matters such as whether a valid arbitration
petitioned for writ of mandamus. agreement exists and an arbitration agreement
is binding on a nonparty. 9 U.S.C.A. § 1 et seq.

18 Cases that cite this headnote

[Holding:] The Supreme Court, Brister, J., held as a matter
of first impression that arbitration clause was binding on
child, even though she was not party to contract. [5] Alternative Dispute Resolution
Evidence
Party moving to compel arbitration bears
Writ conditionally granted. burden to show a valid agreement to arbitrate.

19 Cases that cite this headnote

West Headnotes (19)

[6] Alternative Dispute Resolution
What law governs
[1] Alternative Dispute Resolution
Generally, under the Federal Arbitration Act
Persons affected or bound
(FAA), state law governs whether a litigant
Nonparties may be bound to an arbitration agreed to arbitrate, and federal law governs
clause when the rules of law or equity would the scope of an arbitration clause. 9 U.S.C.A.
bind them to the contract generally. § 1 et seq.
5 Cases that cite this headnote 23 Cases that cite this headnote

[2] Mandamus [7] Alternative Dispute Resolution

Civil proceedings other than actions What law governs
Mandamus relief is proper to enforce State law applies to whether a nonparty must
arbitration agreements governed by the arbitrate pursuant to agreement governed by

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
the Federal Arbitration Act (FAA), but courts
will endeavor to keep state law as consistent as
possible with federal law. 9 U.S.C.A. § 1 et seq.
20 Cases that cite this headnote
[8] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Under Texas and federal law, whether a
claim seeks a direct benefit from a contract
containing an arbitration clause and must
be arbitrated turns on the substance of the
claim, not artful pleading; thus, claims must
be brought on the contract and arbitrated if
liability arises solely from the contract or must
be determined by reference to it, but claims
can be brought in tort and in court if liability
arises from general obligations imposed by
law.
64 Cases that cite this headnote
[9] Alternative Dispute Resolution
Persons affected or bound
Arbitration clause in house purchaser's
contract with builder was binding on
purchaser's adult child, even though she was
nonparty or nonsignatory to the contract,
and the clause required arbitration of
her personal injury action to recover for
asthma allegedly caused by dust from house
repairs; the child resided in the house,
directed construction of many features,
repeatedly demanded extensive repairs,
personally requested and received financial
reimbursement for expenses, conducted
settlement negotiations with builder, obtained
substantial and direct benefits from the
contract, and could not equitably object to
the arbitration clause, and she was beneficiary
and trustee of trust that owned the house and
would benefit from suit by trust and purchaser
on contract.
28 Cases that cite this headnote
[10] Negligence
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Contractors
A contractor performing repairs has an
independent duty under tort law not to injure
bystanders by its activities or by premises
conditions it leaves behind.
5 Cases that cite this headnote
[11] Alternative Dispute Resolution
Persons affected or bound
A nonparty to a contract with an arbitration
clause may seek or obtain direct benefits from
a contract by means other than a lawsuit, and,
therefore, may be bound by the arbitration
clause.
23 Cases that cite this headnote
[12] Alternative Dispute Resolution
Persons affected or bound
In some cases, a nonparty may be compelled
to arbitrate if it deliberately seeks and obtains
substantial benefits from the contract itself.
14 Cases that cite this headnote
[13] Estoppel
Future events; promissory estoppel
When a promisor induces substantial action
or forbearance by another, “promissory
estoppel” prevents any denial of that
promise if injustice can be avoided only by
enforcement.
22 Cases that cite this headnote
[14] Estoppel
Future events; promissory estoppel
Promissory estoppel does not create liability
where none otherwise exists, but prevents a
party from insisting upon his strict legal rights
when it would be unjust to allow him to
enforce them.
9 Cases that cite this headnote
[15] Trusts
2
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
Capacity of trustee to sue and be sued in
general
Trusts
Parties
A suit involving a trust generally must be
brought by or against the trustee and can be
binding on the beneficiaries whether they join
it or not.
1 Cases that cite this headnote
[16] Alternative Dispute Resolution
Persons affected or bound
Alternative Dispute Resolution
Persons entitled to enforce
Direct-benefits estoppel against a nonparty
avoiding arbitration clause requires a
nonparty's colorable claim to the benefits of
the contract; a meddlesome stranger cannot
compel arbitration by merely pleading a claim
that quotes someone else's contract.
23 Cases that cite this headnote
[17] Alternative Dispute Resolution
Persons affected or bound
Direct-benefits estoppel against a nonparty
avoiding arbitration clause does not create
liability for noncontracting parties that does
not otherwise exist.
4 Cases that cite this headnote
[18] Alternative Dispute Resolution
Persons affected or bound
Direct-benefits estoppel against a nonparty
avoiding arbitration clause after receiving
direct benefits from contract does not apply
when the benefits alleged are insubstantial or
indirect.
33 Cases that cite this headnote
[19] Alternative Dispute Resolution
Persons affected or bound
When a nonparty consistently and knowingly
insists that others treat it as a party to the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
contract, it cannot later turn its back on the
portions of the contract, such as an arbitration
clause, that it finds distasteful.
12 Cases that cite this headnote
Attorneys and Law Firms
*128 Raul A. Gonzalez, Susan Kidwell, Locke Liddell &
Sapp, LLP, Austin, and N. Terry Adams, Beirne Maynard
& Parsons, L.L.P., Houston, for relator.
James Craig Orr Jr. and Spencer P. Browne, Heygood Orr
& Reyes, L.L.P., Irving, for real party in interest.
Opinion
*129 Justice BRISTER delivered the opinion of the
Court.
We are asked to decide whether Weekley Homes,
L.P., a party to a contract containing an arbitration
clause, can compel arbitration of a personal injury claim
brought by Patricia Von Bargen, a nonparty. We have
previously compelled arbitration by nonparties to an
arbitration agreement when they brought suit “based on a
contract,” 1 which Von Bargen purports to avoid here.
[1] But as both state and federal courts have recognized,
nonparties may be bound to an arbitration clause when
the rules of law or equity would bind them to the contract
generally. Because we find those rules applicable here, we
conditionally grant mandamus relief.
I. Background
In the summer of 2000, Vernon Forsting contracted with
Weekley for construction of a 4,000 square foot home at
a purchase price of $240,000. At the time, Forsting was
a seventy-eight year-old widower with an assortment of
health problems. His intention in purchasing such a large
home was to live with his daughter, Von Bargen (his only
child) and her husband and three sons.
Von Bargen and her husband negotiated directly with
Weekley on many issues before and after construction—
paying a $1,000 deposit, selecting the floor plan, signing a
3
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
letter of intent as “purchasers,” and making custom design
choices.
But only Forsting executed the various financing and
closing documents on the home, including the Real
Estate Purchase Agreement that contained the following
arbitration clause:
Any claim, dispute or cause of action
between Purchaser and Seller ...,
whether sounding in contract, tort,
or otherwise, shall be resolved by
binding arbitration.... Such claims,
disputes or causes of action include,
but are not limited to, those
arising out of or relating to ... the
design, construction, preparation,
maintenance or repair of the
Property.
Shortly after closing, Forsting transferred the home to the
Forsting Family Trust, a revocable trust established ten
years earlier whose sole beneficiary was Von Bargen. At
his deposition, Forsting testified that the only reason he
signed the Purchase Agreement individually rather than
as trustee was because he “forgot to put [the home] in
the trust.” Forsting and Von Bargen served as the only
trustees of the Trust, the purpose of which was to transfer
Forsting's property to Von Bargen after his death.
According to the plaintiffs' pleadings, numerous problems
arose with the home after completion. When the family
moved out of the house briefly so Weekley could
perform some of those repairs, it was Von Bargen
who requested and received reimbursement. Indeed, Von
Bargen admitted handling “almost ... all matters related to
the house, the problems and the warranty work and even
the negotiations.”
Unsatisfied with the home and Weekley's efforts to
repair it, Forsting, Von Bargen, and the Trust filed
suit against Weekley in December 2002. Forsting and
the Trust asserted claims for negligence, breach of
contract, statutory violations, and breach of warranty.
Von Bargen sued only for personal injuries, alleging
Weekley's negligent repairs caused her to develop asthma.
Weekley moved to compel arbitration of all claims under
the Federal Arbitration *130 Act (FAA). 2 The trial
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
court concluded the FAA applied, and granted the motion
as to all claims by Forsting and the Trust. But the trial
court refused to compel arbitration of Von Bargen's claim
because she did not sign the Purchase Agreement.
[2] Mandamus relief is proper to enforce arbitration
agreements governed by the FAA. 3 After the Fifth
Court of Appeals denied Weekley's request for such relief,
Weekley filed a similar request in this Court.
II. Governing Law
[3] Neither party challenges the trial court's conclusion
that the FAA governs the arbitration clause here. 4
Under the FAA, absent unmistakable evidence that the
parties intended the contrary, it is the courts rather than
arbitrators that must decide “gateway matters” such as
whether a valid arbitration agreement exists. 5 Whether
an arbitration agreement is binding on a nonparty is one
of those gateway matters. 6
[4] [5] Texas courts apply Texas procedural rules
in making that determination. 7 Those rules call for
determination by summary proceedings, 8 with the
burden on the moving party to show a valid agreement to
arbitrate. 9
[6] [7] But as we recently noted, it is not entirely clear
what substantive law governs whether a nonparty must
arbitrate. 10 Generally under the FAA, state law governs
whether a litigant agreed to arbitrate, 11 and federal law
governs the scope of an arbitration clause. 12 Whether
*131 a nonparty must arbitrate can involve aspects of
either or both. Pending an answer from the United States
Supreme Court, 13 we apply state law while endeavoring
to keep it as consistent as possible with federal law. 14
III. Estoppel and Nonsignatories
Texas law has long recognized that nonparties may be
bound to a contract under various legal principles. 15
Although we have never considered these principles in
the context of arbitration, we recently noted that contract
and agency law may bind a nonparty to an arbitration
4
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
agreement. 16 Indeed, if Texas law would bind a nonparty
to a contract generally, the FAA would appear to preempt
an exception for arbitration clauses alone. 17
In the one case in which we have compelled nonparties
to arbitrate, In re FirstMerit Bank, N.A., 52 S.W.3d 749
(Tex. 2001) we stated that “a litigant who sues based on a
contract subjects him or herself to the contract's terms.” 18
Because the nonparties there asserted claims identical to
the signatories' contract claims, we held all had to be
arbitrated. 19
We did not describe in FirstMerit what it means to sue
“based on a contract.” Von Bargen asserts a narrow
interpretation that would apply only to explicit contract
claims, and thus not to hers for personal injury; Weekley
argues for a broad application to any claim that “arises
from or relates to” the contract involved.
We recently adopted an approach between these two
extremes, holding that a nonparty may be compelled
to arbitrate “if it seeks, through the claim, to derive a
direct benefit from the contract containing the arbitration
provisions.” 20 As we noted, this rule is consistent with
federal law of “direct benefits estoppel.” 21
[8] Under both Texas and federal law, whether a claim
seeks a direct benefit from a contract containing an
arbitration *132 clause turns on the substance of the
claim, not artful pleading. 22 Claims must be brought on
the contract (and arbitrated) if liability arises solely from
the contract or must be determined by reference to it. 23
On the other hand, claims can be brought in tort (and in
court) if liability arises from general obligations imposed
by law. 24
We question Weekley's conclusion that this rule will
inevitably drive claimants to plead only noncontractual
claims to avoid arbitration. Nonparties face a choice when
they may plead in either contract or tort, but pleading
the former invokes an arbitration clause broad enough
to cover both (as most do). If they pursue a claim “on
the contract,” then they must pursue all claims—tort and
contract—in arbitration. 25 Conversely, if they choose not
to sue “on the contract,” they may pursue the tort claims
in court, but the contract claims will thereby likely be
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
waived under the election-of-remedies doctrine. 26 Given
these options, it is not clear at this point that nonparties
will always choose to forfeit potentially viable contract
claims solely to avoid arbitration.
[9] [10] In this case, Von Bargen purports to make no
claim on the Weekley contract, claiming only that she
developed asthma from dust created by Weekley's repairs
of the home. While Weekley's duty to perform those
repairs arose from the Purchase Agreement, a contractor
performing repairs has an independent duty under Texas
tort law not to injure bystanders by its activities, 27 or by
premises conditions it leaves behind. 28 There is nothing
in the sparse record here to suggest Von Bargen's claim is
different from what any bystander might assert, or what
she might assert if the contractor were not Weekley.
[11] [12] But a nonparty may seek or obtain direct
benefits from a contract by means other than a lawsuit. In
some cases, a nonparty may be compelled to arbitrate if
it deliberately seeks and obtains substantial benefits from
the contract itself. 29 The analysis here focuses on the
*133 nonparty's conduct during the performance of the
contract. 30 Thus, for example, a firm that uses a trade
name pursuant to an agreement containing an arbitration
clause cannot later avoid arbitration by claiming to have
been a nonparty. 31 Nor can nonsignatories who received
lower insurance rates and the ability to sail under the
French flag due to a contract avoid the arbitration clause
in that contract. 32
[13] [14] This Court has never addressed such an
estoppel claim in the arbitration context. 33 But we have
long recognized in other contexts the defensive theory
of promissory estoppel. 34 When a promisor induces
substantial action or forbearance by another, promissory
estoppel prevents any denial of that promise if injustice
can be avoided only by enforcement. 35 Promissory
estoppel does not create liability where none otherwise
exists, 36 but “prevents a party from insisting upon his
strict legal rights when it would be unjust to allow him to
enforce them.” 37
Here, Von Bargen has not merely resided in the home.
Claiming the authority of the Purchase Agreement, she
directed how Weekley should construct many of its
5
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)
features, repeatedly demanded extensive repairs to “our
home,” 38 personally requested and received financial
reimbursement for expenses “I incurred” while those
repairs were made, and conducted settlement negotiations
with Weekley (apparently never consummated) about
moving the family to a new home. Having obtained
these substantial actions from Weekley by demanding
compliance with provisions of the contract, Von Bargen
cannot equitably object to the arbitration clause attached
to them.
[15] In addition to these benefits, Forsting and the Trust
have sued Weekley on claims which are explicitly based
on the contract. Under Texas law, a suit involving a trust
generally must be brought by or against the trustee, and
can be binding on the beneficiaries whether they join it
or *134 not. 39 Although Von Bargen did not purport
to sue as either trustee or beneficiary, she was both, and
any recovery will inure to her direct benefit as the sole
beneficiary and equitable titleholder of the home. 40 As
one Texas court has noted, if a trustee's agreement to
arbitrate can be avoided by simply having the beneficiaries
bring suit, “the strong state policy favoring arbitration
would be effectively thwarted.” 41
[16] While we based our decision in FirstMerit Bank on
the nonparties' contract-based claims, more was involved
in that case than the format of the pleadings. Direct-
benefits estoppel requires a colorable claim to the benefits;
a meddlesome stranger cannot compel arbitration by
merely pleading a claim that quotes someone else's
contract. The nonparties in FirstMerit Bank were the
daughter and son-in-law of the signatories, the actual
occupants of the mobile home, and (according to the
briefs) the future owners to whom the signatories planned
to transfer title. It is hard to see what direct benefits they
expected from that contract that Von Bargen did not
expect from this one.
[17] [18] Like the equitable doctrine of promissory
Justice WILLETT did not participate in the decision.
estoppel, we do not understand direct-benefits estoppel
to create liability for noncontracting parties that does All Citations
not otherwise exist. As Von Bargen and Weekley
had no contract between them, estoppel alone cannot 180 S.W.3d 127
Footnotes
1 In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex.2001).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
grant either a right to sue for breach. 42 Nor do we
understand the doctrine to apply when the benefits
alleged are insubstantial or indirect. But once Von Bargen
deliberately sought substantial and direct benefits from
the contract, and Weekley agreed to comply, equity
prevents her from avoiding the arbitration clause that was
part of that agreement.
We recognize that direct-benefits estoppel has yet to be
endorsed by the United States Supreme Court, and that
its application and boundaries are not entirely clear. 43
For example, while federal courts often state the test as
whether a nonsignatory has “embraced the contract,” 44
the *135 metaphor gives little guidance in deciding what
particular conduct embraces or merely shakes hands with
it. Indeed, the equitable nature of the doctrine may render
firm standards inappropriate, requiring trial courts to
exercise some discretion based on the facts of each case. 45
[19] But we agree with the federal courts that when
a nonparty consistently 46 and knowingly 47 insists that
others treat it as a party, it cannot later “turn[ ] its back on
the portions of the contract, such as an arbitration clause,
that it finds distasteful.” 48 A nonparty cannot both have
his contract and defeat it too.
While Von Bargen never based her personal injury claim
on the contract, her prior exercise of other contractual
rights and her equitable entitlement to other contractual
benefits prevents her from avoiding the arbitration clause
here. Accordingly, the trial court abused its discretion in
failing to compel arbitration. We conditionally grant the
writ of mandamus and order the trial court to vacate that
part of its order denying Weekley's motion, and to enter a
new order compelling arbitration of Von Bargen's claim.
We are confident the trial court will comply, and our writ
will issue only if it does not.
6
In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)

2 See 9 U.S.C. §§ 1–16.

3 In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2 (Tex.1999) (per curiam); EZ Pawn Corp. v. Mancias, 934
S.W.2d 87–88 (Tex.1996) (per curiam).
4 Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as it
was not signed by an attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002((a)(3), (C), she does not challenge the
trial court's conclusion that the FAA governs here. The FAA not only contains no such limitation, but also preempts any
state requirements that apply only to arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116
S.Ct. 1652, 134 L.Ed.2d 902 (1996).
5 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003); PacifiCare Health Sys.,
Inc. v. Book, 538 U.S. 401, 407, 123 S.Ct. 1531, 155 L.Ed.2d 578 n.2 (2003).
6 John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546–47, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).
7 Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 (Tex.1992).
8 Id. at 269.
9 J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).
10 In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738–39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 87, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes
looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n.6
(5th Cir. 2004) (noting that whether state or federal law of arbitrability applies “is often an uncertain question”).
11 Doctor's Assocs., 517 U.S. at 686–87, 116 S.Ct. 1652; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct.
1920, 131 L.Ed.2d 985 (1995); Perry v. Thomas, 482 U.S. 483, 492, 107 S.Ct. 2520, 96 L.Ed.2d 426, n.9 (1987). Parties
may also agree that state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ.,
489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
12 Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
13 The United State Supreme Court has not answered this question, though it has applied federal substantive law to bind a
nonparty to labor-union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law
principles. See John Wiley & Sons, 376 U.S. at 548, 84 S.Ct. 909 (citing Textile Workers Union of Am. v. Lincoln Mills,
353 U.S. 448, 456, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957)).
14 Kellogg, 166 S.W.3d at 739.
15 See, e.g., TEX. BUS. CORP. Act art. 2.21(A)(2) (holding shareholders may be liable for corporation's contracts under
alter ego theory if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart,
80 S.W.3d 586, 590 (Tex.2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611
S.W.2d 624, 629 (Tex.1981) (holding agent acting within the scope of apparent authority binds the principal).
16 Kellogg, 166 S.W.3d at 738. Accordingly, it is no longer true that “the [Texas] decisions do not even mention the possibility
of additional bases for binding non-signatories to arbitration.” Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076
(5th Cir. 2002).
17 Doctor's Assocs., 517 U.S. at 686–87, 116 S.Ct. 1652; Allied–Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281,
115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (“What States may not do is decide that a contract is fair enough to enforce all
its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause. The Act makes any such state
policy unlawful, for that kind of policy would place arbitration clauses on an unequal ‘footing,’ directly contrary to the Act's
language and Congress' intent.”).
18 52 S.W.3d at 755.
19 Id. at 755–56.
20 Kellogg, 166 S.W.3d at 741.
21 Id.
22 Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838–39 (7th Cir. 1981); Southwestern
Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991).
23 Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec.
Coop., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex.1999); DeLanney, 809 S.W.2d at 494.
24 See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 163–164 (4th Cir. 2004); InterGen N.V.
v. Grina, 344 F.3d 134, 145–46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood
Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076–77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa
Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998).

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)

25 See, e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992) (holding DTPA claim was factually intertwined
with contract claim and thus subject to arbitration clause).
26 Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980) (holding election-of-remedies doctrine prevents pursuit
of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927 S.W.2d 597, 598–
99 (Tex.1996) (holding election-of-remedies doctrine barred pursuit of both workers' compensation claim and suit against
employer for intentional act).
27 See Redinger v. Living, Inc., 689 S.W.2d 415, 417 (Tex.1985) (noting general contractor on a construction site in control
of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or (2) an activity or
instrumentality).
28 Strakos v. Gehring, 360 S.W.2d 787, 790 (Tex.1962).
29 Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce
arbitration clause as opposing party treated affiliate as part of charter contract during occurrence involved); Am. Bureau
of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower
insurance rates and ability to sail under French flag due to contract were bound by arbitration clause in it); see also Matter
of VMS Ltd. P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by settlement agreement related to
investment services contract signed only by her husband, but under which she had accepted services as well); see also
InterGen, 344 F.3d at 146 (holding equitable estoppel inapplicable as nonsignatory never sought to derive direct benefits
from contracts during their currency).
30 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir.
2001).
31 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).
32 Tencara Shipyard, 170 F.3d at 353.
33 See Kellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained
from contract rather than subsequent litigation).
34 See, e.g., ‘Moore’ Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex.1972).
35 Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997).
36 Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex.1988).
37 Wheeler v. White, 398 S.W.2d 93, 96 (Tex.1965).
38 In various lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls
and windows, cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets,
regrouting the bathrooms and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage
problems in the yard, and a noisy garage door.
39 See TEX. PROP. CODEE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.1996)(holding
trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476–77 (Tex.1979)
(holding beneficiaries were bound by judgment against trust and trustees, as some participated in trial in their capacity
as trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation by trustees).
40 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220 (Tex.1988) (holding trust
beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir. 2003)
(holding arbitration agreements were binding on receiver who succeeded to interests of entities that signed them); Hays &
Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153–54 (3d Cir. 1989) (holding arbitration agreements
were binding on successor trustee in bankruptcy).
41 Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex.App.-Waco 1992, writ denied).
42 See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734 (Tex.1981) (holding estoppel based on division orders could not
permanently amend underlying lease).
43 See e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate
—A Bride Too Far?, 21 REV. LITIG. 593 (2002).
44 See, e.g. InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F.Supp.2d
711, 721 (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F.Supp.2d 1107, 1138 (D.Kan. 2003);
Amkor Tech., Inc. v. Alcatel Bus. Sys., 278 F.Supp.2d 519, 521–22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop,
Inc. v. Hallmark Mktg. Corp., 176 F.Supp.2d 1091, 1098 (D.Colo. 2001).
45 See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) (“The use of equitable estoppel is within
a district court's discretion.”); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative
Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000).

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

In re Weekley Homes, L.P., 180 S.W.3d 127 (2005)

46 See Int'l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate “when he has consistently
maintained that other provisions of the same contract should be enforced to benefit him.”) (emphasis added).
47 See Bridas, 345 F.3d at 361–62 (“Direct[-]benefits estoppel applies when a nonsignatory ‘knowingly exploits the
agreement containing the arbitration clause.’ ”) (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard, 170
F.3d at 353 (requiring nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed,
as they had duty to obtain that contract and received copies of it).
48 DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

In re Wingfield, 171 S.W.3d 374 (2005)
171 S.W.3d 374
Court of Appeals of Texas,
Tyler.
In re Raymond WINGFIELD, State
Counsel for Offenders and Kim Vernon,
Director, State Counsel for Offenders.
No. 12–05–00151–CV.
| Nature of acts to be commanded
July 7, 2005.
Synopsis
Background: State Counsel for Offenders (SCFO), which
had been appointed to represent two indigent inmates
charged with crimes allegedly committed during escape
attempt, brought motion to withdraw as counsel for
one inmate, citing likely conflict of interest. The 3rd
Judicial District Court, Houston County, Jim Parsons,
P.J., sitting in the 349th Judicial District, denied the
motion and ordered SCFO to erect a “Chinese Wall”
during dual representation. Private attorneys on county
indigent defense appointment list intervened, opposing
possible withdrawal state counsel and appointment of
private attorneys. The District Court, Jim Parsons, J.,
denied SCFO's motions to strike the intervention and
to reconsider the denial of the motion to withdraw, and
found SCFO's Director in contempt. SCFO and Director
petitioned for writ of mandamus.
Holdings: The Court of Appeals, James T. Worthen, C.J.,
held that:
[1] trial court had no authority to allow private attorneys
to intervene in criminal proceeding, and
[2] Director's request for mandamus relief was premature.
Petition conditionally granted in part and denied in part.
West Headnotes (14)
[1] Mandamus
Remedy at Law
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Mandamus
Nature of acts to be commanded
Mandamus relief is appropriate if the relator
demonstrates that the act sought to be
compelled is purely ministerial and that the
relator has no other adequate legal remedy.
Cases that cite this headnote
[2] Mandamus
For a duty to be “ministerial,” for mandamus
purposes, the law must clearly spell out the
duty to be performed with such certainty that
nothing is left to the exercise of discretion
or judgment; in other words, the act must
be positively commanded and so plainly
prescribed under the law as to be free from
doubt.
Cases that cite this headnote
[3] Mandamus
Nature and existence of rights to be
protected or enforced
The “ministerial act” requirement for
mandamus relief is a requirement that the
relator have a clear right to the relief sought;
this means that the relief sought must be
clear and undisputable, and its merits must
be beyond dispute, with nothing left to the
exercise of discretion or judgment.
Cases that cite this headnote
[4] Mandamus
Ministerial acts in general
For purposes of ministerial act requirement
for mandamus relief, if there is any discretion
or judicial determination attendant to the act,
it is not “ministerial,” nor is it a “ministerial”
act if the trial court must weigh conflicting
claims or collateral matters that require legal
resolution.
Cases that cite this headnote
[5] Mandamus
1
In re Wingfield, 171 S.W.3d 374 (2005)
Exercise of judicial powers and functions
in general
Mandamus may be used to correct judicial
action that is contrary to well-settled law,
whether the law is derived from statute, rule,
or clear, binding precedent from a court of
superior jurisdiction.
Cases that cite this headnote
[6] Mandamus
Specific acts
A court's ruling on withdrawal of counsel is a
proper subject of mandamus.
1 Cases that cite this headnote
[7] Parties
Intervention
The civil procedure rule on intervention
by pleading does not apply to criminal
proceedings. Vernon's Ann.Texas Rules
Civ.Proc., Rules 2, 60.
[11]
3 Cases that cite this headnote
[8] Parties
Actions in which intervention is
authorized
The Code of Criminal Procedure makes no
[12]
provision for a third party to intervene in a
criminal action. Vernon's Ann.Texas C.C.P.
arts. 1.02, 3.02.
3 Cases that cite this headnote
[9] Amicus Curiae
Right to appear and act in general
A true amicus curiae is without interest in
[13]
the proceeding in which he appears; he is a
bystander whose mission is to aid the court to
act only for the personal benefit of the court.
2 Cases that cite this headnote
[10] Parties
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Actions in which intervention is
authorized
Trial court had no authority to allow
private attorneys on county indigent defense
appointment list to intervene in criminal
proceeding so that attorneys could oppose
trial court's reconsideration of its denial
of motion by State Counsel for Offenders
(SCFO) to withdraw in part, based on
likely conflict of interest, from its appointed
dual representation of two indigent inmates
charged with crimes allegedly committed
during escape attempt; civil procedure rule
on intervention by pleading did not apply to
criminal proceedings, and Code of Criminal
Procedure made no provision for a third party
to intervene in a criminal action. Vernon's
Ann.Texas Rules Civ.Proc., Rules 2, 60;
Vernon's Ann.Texas C.C.P. arts. 1.02, 3.02,
26.051(g).
6 Cases that cite this headnote
Contempt
Nature and form of remedy and
jurisdiction
An order of contempt is not appealable.
Cases that cite this headnote
Mandamus
Acts and proceedings of courts, judges,
and judicial officers
Generally, if the contemnor has not been
confined, she has no other adequate remedy at
law but mandamus.
Cases that cite this headnote
Mandamus
Acts and proceedings of courts, judges,
and judicial officers
Director of State Counsel for Offenders
(SCFO) had adequate remedy at law as to
trial court's order finding her in contempt
for failing to comply with prior order
to erect “Chinese Wall” so that SCFO
could perform dual representation, without
2
In re Wingfield, 171 S.W.3d 374 (2005)
conflict of interest, of two indigent inmates
charged with crimes allegedly committed
during escape attempt, and thus, her request
for mandamus relief was premature; Director,
as attorney who was officer of court, had
the right, upon proper motion filed in the
offended court, to be released on her own
personal recognizance pending a de novo
determination of her guilt or innocence
by a judge other than the judge of the
offended court. Vernon's Ann.Texas C.C.P.
art. 26.051(g); V.T.C.A., Government Code §
21.002(d).
1 Cases that cite this headnote
[14] Mandamus
Change of venue and transfer of causes
Once a finding of contempt has been
entered against an attorney and the attorney
has filed a motion for referral for de
novo consideration by another judge of the
offended court, the court has a ministerial
duty, for mandamus purposes, to make
the referral. V.T.C.A., Government Code §
21.002(d).
Cases that cite this headnote
Attorneys and Law Firms
*376 Daniel E. Maeso, Adrian L. Young, Austin, for
relator.
Susan Lea Hays, for respondent.
Mark D. Mullin, Melinda Mayo, Potter County Dist.
Atty., Amarillo, Barbara Law, for real party in interest.
Panel consisted of WORTHEN, C.J., GRIFFITH, J., and
DeVASTO, J.
OPINION
JAMES T. WORTHEN, Chief Justice.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Relators Raymond Wingfield, State Counsel for
Offenders (SCFO), and Kim Vernon, SCFO Director,
seek mandamus relief from two orders signed on
December 15, 2004 and April 6, 2005, respectively, by
Respondent, the Honorable Jim Parsons, presiding judge
of the 3rd Judicial District Court of Houston County,
Texas, sitting in the 349th Judicial District Court of
Houston County. We conditionally grant the petition in
part and deny in part.
BACKGROUND
The underlying proceeding is a criminal case brought
against Wingfield by the State of Texas. Wingfield,
along with his codefendant, Dalton Collins, is charged
with multiple serious crimes allegedly committed during
an escape attempt from a prison unit operated by the
Texas Department of Criminal Justice. On November 1,
2004, Respondent signed an order appointing SCFO 1 to
represent Wingfield *377 and Collins. Approximately
two weeks later, SCFO filed a motion to withdraw as
Wingfield's counsel citing a likely conflict in representing
both defendants. On December 15, 2004, without a
hearing, Respondent overruled SCFO's motion and
ordered SCFO to take all reasonable steps to erect
a “Chinese Wall” during its dual representation of
Wingfield and Collins. On February 16, 2005, at SCFO's
request, the trial court set a hearing for April 4 to permit
SCFO to re-urge its motion to withdraw.
On February 18, eleven of the thirteen attorneys on
the Houston County indigent defense appointment
list filed a plea in intervention. Intervenors alleged
that the county is to pay $250 of the fee charged
by non-SCFO defense counsel appointed to represent
indigent inmate defendants and that the state comptroller
“shall” pay the remainder that is properly certified.
See TEX.CODE CRIM. PROC. ANN. § 26.051(h)
(Vernon Supp.2004–05). However, Intervenors averred
that “[d]espite certification [of the fee] ..., the comptroller
has repeatedly refused to issue payment to court
appointed attorneys in these types of cases in the
past due to insufficient funds available.” Consequently,
Intervenors concluded, allowing SCFO to withdraw and
appointing any of the intervenors to represent Wingfield
would violate appointed counsel's rights under the United
States and Texas constitutions.
3
In re Wingfield, 171 S.W.3d 374 (2005)
On February 21, Respondent signed an order permitting
the intervention “for the limited purpose of representing
Intervenors' interests at the hearing on the State Counsel
for Offenders Motion to Withdraw.” On April 4, SCFO
filed a motion to strike the plea in intervention. On the
same day, the court held an evidentiary hearing.
At the hearing, Respondent first heard argument on
SCFO's motion to strike. Respondent then ruled that he
would “leave [Intervenors] in limited to this sole issue with
regard to your withdrawal of my prior order. I view it,
though, as an amicus curiae. Their participation will not
in any way help or harm the substantive rights of the
defendants involved.”
SCFO presented uncontroverted evidence that it could not
provide conflict-free representation to Wingfield. During
Director Vernon's testimony, Respondent asked what
steps had been taken to comply with the Chinese Wall
portion of the December 15, 2004 order. Director Vernon
informed Respondent that no steps had been taken.
Intervenors pointed out that payments for indigent inmate
defense counsel claims are limited to $25,000 per claim
and to $25,000 in cumulative payments to a single
claimant during a biennium. See TEX. GOV'T CODE
ANN. § 403.074(d) (Vernon 2005). If insufficient funds
are available to pay the claim, it may not be paid
until the Legislature provides for payment. See id. §
403.074(d). Intervenors presented evidence that any claim
over $25,000 must be submitted in its entirety to the
Legislature for payment and that the attorney's fee for
representing Wingfield could exceed $25,000. Intervenors
also presented evidence that (1) even for claims under
$25,000, the Legislature has not appropriated dedicated
funds; (2) the miscellaneous fund from which those claims
are paid had a balance of approximately $9 on the date
of the hearing; (3) no further claims can be paid from
the miscellaneous fund this fiscal year; (4) additional
funds will *378 not be available until September 2005,
provided the Legislature makes that appropriation; and
(5) the comptroller had no claims pending for attorney's
fees. Finally, Intervenors presented evidence to support
their contention that “only the very small class of rural
criminal defense lawyers living in prison counties is
bearing the burden of Texas'[s] failure to adequately fund
indigent inmate defense.”
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Intervenors argued that the payment system for non-
SCFO counsel requires appointed counsel to undertake
representation without adequate, timely compensation
and is therefore unconstitutional as a taking, a violation
of the equal protection clause, and a violation of a
defendant's right to effective counsel. At the conclusion
of the hearing, Respondent denied SCFO's motion to
reconsider his prior order denying SCFO's motion to
withdraw. Respondent also found Director Vernon in
contempt for her “open court admissions” that she had
taken no steps to erect a Chinese Wall as required by
Respondent's prior order. Respondent sentenced Director
Vernon to three days in the Houston County Jail,
probated until May 6, 2005 at 1:00 p.m., which was
the time set for Wingfield's arraignment. On April 6,
Respondent signed an order incorporating his rulings
on SCFO's motions and Director Vernon's contempt.
Respondent made a finding in the order that appointing
non-SCFO counsel to represent an indigent inmate
defendant where the anticipated reasonable fee would
equal or exceed $25,000 would be an appointment without
a reasonable expectation of payment. 2 Respondent
further concluded that appointment without a reasonable
expectation of payment violates appointed counsel's
“constitutional privilege against unreasonable taking.” 3
This original proceeding followed. We granted SCFO's
motion for emergency relief pending our disposition on
the merits.
AVAILABILITY OF MANDAMUS
[1] [2] Mandamus relief is appropriate if the relator
demonstrates that the act sought to be compelled is
purely “ministerial” and that the relator has no other
adequate legal remedy. State ex rel. Rosenthal v. Poe,
98 S.W.3d 194, 198 (Tex.Crim.App.2003). For a duty
to be ministerial, the law must “clearly spell [ ] out the
duty to be performed ... with such certainty that nothing
is left to the exercise of discretion or judgment.” State
ex rel. Hill v. Court of Appeals for the Fifth District,
34 S.W.3d 924, 928 (Tex.Crim.App.2001) (quoting Texas
Dep't of Corrections v. Dalehite, 623 S.W.2d 420, 424
(Tex.Crim.App.1981)). In other words, the act must be
“positively commanded and so plainly prescribed” under
the law “as to be free from doubt.” State ex rel. Hill, 34
S.W.3d at 928 (quoting Buntion v. Harmon, 827 S.W.2d
945, 949 (Tex.Crim.App.1992)).
4
In re Wingfield, 171 S.W.3d 374 (2005)
[3] [4] [5] The “ministerial act” requirement has also
been described as a requirement that the relator have “a
clear right to the relief sought.” State ex rel. Hill, 34
S.W.3d at 928. This means that the relief sought must be
clear and undisputable. State ex rel. Rosenthal, 98 S.W.3d
at 198. *379 Thus, its merits must be beyond dispute with
nothing left to the exercise of discretion or judgment. Id. If
there is any discretion or judicial determination attendant
to the act, it is not ministerial, nor is it a ministerial act if
the trial court must weigh conflicting claims or collateral
matters that require legal resolution. State ex rel. Hill v.
Court of Appeals for the Fifth District, 67 S.W.3d 177,
181 (Tex.Crim.App.2001). Mandamus may be used to
correct judicial action that is contrary to well-settled law,
whether the law is derived from statute, rule, or clear,
binding precedent from a court of superior jurisdiction.
See State ex rel. Healey v. McMeans, 884 S.W.2d 772, 774
(Tex.Crim.App.1994).
DENIAL OF MOTION TO WITHDRAW
[6] Relators first argue that Respondent had a ministerial
duty to appoint a non-SCFO attorney to represent
Wingfield. See TEX.CODE CRIM. PROC. ANN. art.
26.051(g). Relators further contend that they have no
adequate remedy at law to challenge Respondent's denial
of SCFO's motion to withdraw and, therefore, mandamus
is appropriate. Withdrawal of counsel is a proper subject
of mandamus. Haley v. Boles, 824 S.W.2d 796, 798
(Tex.App.-Tyler 1992, orig. proceeding). Consequently,
we must address only whether Relator had a ministerial
duty to appoint non-SCFO counsel for Wingfield.
Article 26.051(g) provides as follows:
The court shall appoint an attorney other than an
attorney provided by the [Texas Board of Criminal
Justice] if the court determines for any of the following
reasons that a conflict of interest could arise from the
use of an attorney provided by the board [for an inmate
who is charged with an offense committed while in the
custody of the Texas Department of Criminal Justice]:
(1) the case involves more than one inmate and the
representation of more than one inmate could impair the
attorney's effectiveness;
(2) the case is appealed and the court is satisfied that
conflict of interest would prevent the presentation of a
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
good faith allegation of ineffective assistance of counsel
by a trial attorney provided by the board; or
(3) any conflict exists under the Texas Disciplinary
Rules of Professional Conduct of the State Bar of Texas
that precludes representation by an attorney appointed
by the board.
TEX.CODE CRIM. PROC. ANN. art. 26.051(g)
(emphasis added). The plain language of the statute
requires the trial court to appoint non-SCFO counsel if
at least one of the three criteria is met. No exceptions
are stated. Thus, the act of appointing non-SCFO counsel
becomes ministerial once SCFO makes the required
showing.
In its motion to withdraw, SCFO alleged that Wingfield's
interest in the defense of the respective charges differed
from the interest of his codefendant. For that reason,
SCFO alleged, its judgment in behalf of codefendant
Collins is likely to adversely affect its representation of
Wingfield, which necessitated its withdrawal from the
representation. See Almanzar v. State, 702 S.W.2d 653,
655 (Tex.Crim.App.1986) (“We wish to stress how vital
it is for a defense attorney not to become entangled
in a web of conflicting interests between two or more
defendants.”). The December 15, 2004 order provides in
pertinent part as follows:
5. The creation of a “Chinese Wall” is an adequate
remedy at law, in lieu of withdrawal which is equally
convenient, beneficial and effective. The creation of
a “Chinese Wall” will both satisfy the professional
requirements of independent representation *380
and assure legal counsel for inmate defendants.
6. The Court has a duty to protect a defendant's
right to due process of law under both the United
States and Texas Constitutions. These constitutional
considerations override the inconvenience to State
Counsel for Offenders in the creation of a “Chinese
Wall” to prevent the anticipated conflicts in
representation of multiple defendants.
7. Through the creation of a “Chinese Wall” between
defense counsels the preservation of the secrets and
confidences of respective defendant clients as well
as the independent professional judgment of defense
counsel may be maintained.
5
In re Wingfield, 171 S.W.3d 374 (2005)
It is therefore Ordered that State Counsel for Offenders
take all reasonable steps to create a “Chinese Wall”
to protect the confidentiality, secrets, and work
product and independent professional judgment of
separate defense counsel within the State Counsel for
Offenders as they discharge their statutory obligation of
representation.
These findings indicate Respondent recognized that a
conflict could arise from SCFO's dual representation of
Wingfield and Collins and that the conflict could impair
defense counsel's effectiveness. 4 As such, the statutory
prerequisites for appointment of non-SCFO counsel were
satisfied. See TEX.CRIM. PROC. ANN. art. 26.051(g)
(1). However, that is not the end of the matter.
DENIAL OF MOTION TO STRIKE
PLEA IN INTERVENTION
Respondent contends that in making his ruling, he was
required to balance the interest asserted by Intervenors
and Wingfield's right to conflict-free representation,
which, in turn, necessitated resolution of the conflict
between Code of Criminal Procedure article 26.051(g) and
Government Code section 403.074. 5
In response to Relators' mandamus petition, Respondent
contends that “[t]he appointment of private counsel
without reliable compensation raises takings and equal
protection violations for the attorney and adequate
representation issues for the defendant.” Consequently,
Respondent argues, a “constitutional conundrum” exists
and he “made the most palatable decision possible under
the difficult circumstances not of the judiciary's making.”
Relators, on the other hand, contend that no provision
or precedent exists in Texas criminal law for pleas in
intervention. Therefore, Relators contend, Respondent
should have granted SCFO's motion to strike.
[7] Intervention in civil actions has long been permitted in
Texas. See Legg v. McNeill, 2 Tex. 428, 430–31 (Tex.1847).
In approving the practice, the Texas Supreme Court
reasoned that “[h]aving in our system but one form of
action, we cannot perceive how the interest of parties not
embraced in the suit can always be protected without
allowing them to come in as intervenors....” Id. at 430.
The current rule permits any party to intervene *381
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
by filing a pleading, subject to being stricken out by the
court for sufficient cause on the motion of any party. See
TEX.R. CIV. P. 60. However, Rule 60 applies to civil
cases only. See TEX.R. CIV. P. 2 (Texas Rules of Civil
Procedure govern the procedure in all actions of a civil
nature.); see also Holloway v. State, 147 Tex.Crim. 106,
108, 178 S.W.2d 688, 689 (Tex.1944) (rules governing civil
actions are applicable and controlling in criminal matters
only when expressly made so by statute). 6
[8] Criminal proceedings are governed by the Texas
Code of Criminal Procedure. TEX.CODE CRIM. PROC.
ANN. art. 1.02 (Vernon 2005). A “criminal action,” such
as the underlying proceeding, is prosecuted in the name of
the State of Texas against the accused and is conducted
by some person acting under the authority of the State,
in accordance with its laws. TEX.CODE CRIM. PROC.
ANN. art. 3.02 (Vernon 2005). Unlike the Rules of Civil
Procedure, the Code of Criminal Procedure makes no
provision for a third party to intervene in a “criminal
action.” In his response to Relators' petition, Respondent
does not cite authority permitting intervention in a
criminal action. Intervenors rely on Rule 60, but admit
that “there may be some question whether an intervention
per se is permitted in criminal matters, in the absence of
specific authority to do so under the Code of Criminal
Procedure.” We have been unable to locate any authority
that Rule 60 is an exception to the general rule that the
Texas Rules of Civil Procedure are controlling in criminal
matters only when expressly made so by statute. See
Holloway, 147 Tex.Crim. at 108, 178 S.W.2d at 689.
[9] Additionally, we note that the April 6 order includes
findings that Intervenors “had an interest in the issue
before the Court, sufficient for them to intervene” and
that the intervention was “in the nature of an amicus
curie [sic].” A true amicus curiae is without interest in
the proceeding in which he appears. Burger v. Burger,
156 Tex. 584, 298 S.W.2d 119, 120–21 (Tex.1957). He is
a “bystander” whose mission is to aid the court to act
only for the personal benefit of the court. Id. Neither
Respondent nor Intervenors have cited any authority
permitting one claiming an interest in a proceeding to
appear in the proceeding as amicus curiae, and we have
been unable to locate any such authority.
[10] Based upon the foregoing authority and the absence
of contrary authority, we agree with Relators that
Respondent had no discretion to deny SCFO's motion
6
In re Wingfield, 171 S.W.3d 374 (2005)

to strike the plea in intervention. It therefore follows withdraw from representing an indigent inmate accused
of committing an offense while incarcerated. We are not
that if Respondent had no discretion to deny SCFO's
unsympathetic to the situation. However, our charge is to
motion to strike, he had no discretion to consider the
determine whether the acts Relators seek to compel are
issues raised by Intervenors. Because SCFO satisfied the
ministerial and whether Relators have an adequate legal
statutory prerequisites, Respondent had a ministerial duty
remedy. State ex rel. Rosenthal, 98 S.W.3d at 198.
to grant SCFO's motion to withdraw and appoint non-
SCFO counsel.
We have concluded that Respondent had a ministerial
duty to grant SCFO's motion to withdraw and appoint
non-SCFO counsel to represent Wingfield. Therefore,
CONTEMPT ORDER Respondent had no discretion to order the creation of a
Chinese Wall in lieu of the withdrawal mandated by article
[11] [12] [13] [14] An order of contempt is
26.051(g). We have also concluded that Respondent had
not appealable. Ex parte Gray, 649 S.W.2d 640, 642
no discretion to deny SCFO's motion to strike Intervenors'
(Tex.Crim.App.1983). Generally, if the contemnor has
plea in intervention. Moreover, Wingfield and SCFO have
not been confined, she has no other adequate remedy
no adequate remedy at law. See Haley, 824 S.W.2d at 798.
at law but mandamus. Id. However, as an officer of the
However, Director Vernon has an adequate remedy at law
court, an attorney has a right, upon proper motion filed
for challenging the contempt order.
in the offended court, *382 to be released on her own
personal recognizance pending a de novo determination
We conditionally grant the writ of mandamus as to (1)
of her guilt or innocence by a judge other than the
those portions of the April 6 order overruling SCFO's
judge of the offended court. See TEX. GOV'T CODE
motion to reconsider Respondent's denial of SCFO's
ANN. § 21.002(d) (Vernon 2004); Ex parte Waters,
motion to withdraw and overruling SCFO's motion to
499 S.W.2d 309, 310–11 (Tex.Crim.App.1973). Once a
strike Intervenors' plea in intervention and as to (2) the
finding of contempt has been entered and an attorney
portion of the December 15, 2004 order requiring the
has filed a motion for referral, the trial court has a
creation of a Chinese Wall. We are confident that on
ministerial duty to refer the contempt proceeding to the
or before fifteen days from the date of this opinion
presiding judge of the administrative judicial region in
and corresponding order, Respondent will vacate these
which the alleged contempt occurred for assignment of
provisions of the respective orders and enter an order
a judge to re-adjudicate the issues of guilt or innocence
granting SCFO's motion for reconsideration of its motion
and punishment. TEX. GOV'T ANN.CODE ANN. §
to withdraw and granting SCFO's motion to strike the
21.002(d); see Ex parte Howell, 488 S.W.2d 123, 126
plea in intervention. The writ will issue only if he does
(Tex.Crim.App.1972). Therefore, Director Vernon has an
not. Because Director Vernon has an adequate remedy at
adequate remedy at law for the contempt order, and her
law, she has not shown herself entitled to mandamus relief.
request for mandamus relief is premature. See Ex parte
Therefore, we deny the writ as to the contempt portion of
Waters, 499 S.W.2d at 311.
the April 6 order.

The stay of May 2, 2005 is lifted.

CONCLUSION

Relators' petition, the various responses, and the All Citations

supporting record identify the legal issues and resulting
dilemma in rural prison counties when SCFO, because 171 S.W.3d 374
of a potential or an actual conflict of interest, must

Footnotes
1 SCFO represents indigent inmates who are charged with offenses committed while in the custody of Texas Department
of Criminal Justice, Institutional Division. See TEX.CODE CRIM. PROC. ANN. art. 26.051(e) (Vernon 2004–05).
2 During the hearing, Respondent expressed doubt that the Legislature would approve payment of these claims.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

In re Wingfield, 171 S.W.3d 374 (2005)

3 On June 20, 2005, Respondent notified this Court by letter that the appropriations bill for the upcoming biennium (fiscal
years 2006–07) provides additional funding for the payment of miscellaneous claims, but the $25,000 statutory cap
remains. Respondent also reiterated his conclusion that “it is only in cases likely to hit the $25,000 statutory cap where
free world counsel does not have a reasonable expectation of payment and thus constitutional takings concerns override.”
4 In this proceeding, Respondent states that “[t]he use of dual representation by the State Counsel even with a Chinese
Wall admittedly raises legitimate conflicted representation concerns.”
5 As an aside, we perceive no conflict between the two statutes. Article 26.051(g) prescribes the circumstances under which
non-SCFO counsel must be appointed for indigent inmate offenders, and section 403.074 creates a payment system for
those appointed. The real issue, as presented by Intervenors at the evidentiary hearing and as argued by Intervenors
and Respondent in this proceeding, is the constitutionality of the payment system.
6 An exception is Texas Rule of Civil Procedure 18a relating to the recusal of judges. See Arnold v. State, 853 S.W.2d 543,
544 (Tex.Crim.App.1993) (holding that Rule 18a, formerly codified in Tex.Rev.Civ. Stat. Ann. art. 200a, § 6 but repealed
by Act of June 12, 1985, 69th Leg., R.S., ch 480, § 26(1), 1985 Gen. Laws 2048, applies in criminal cases).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196

KeyCite Yellow Flag - Negative Treatment West Headnotes (13)

Declined to Follow by Soto v. State Industrial Products, Inc., 1st Cir. 
(Puerto Rico), April 15, 2011
128 S.W.3d 223 [1] Alternative Dispute Resolution
Supreme Court of Texas. Arbitrability of Dispute
Party attempting to compel arbitration must
J.M. DAVIDSON, INC. first establish that dispute in question falls
v. within scope of valid arbitration agreement.
Chelsey J. WEBSTER.
107 Cases that cite this headnote
No. 01–0774.
| [2] Alternative Dispute Resolution
Argued Dec. 11, 2002. Scope and Standards of Review
|
Trial court's determination of arbitration
Decided Dec. 31, 2003.
agreement's validity is legal question subject to
Synopsis de novo review.
Background: Employer filed motion to compel arbitration
90 Cases that cite this headnote
of former employee's retaliatory discharge claim. The
343rd District Court, San Patricio County, Alonzo
Torres Rodriguez, J., denied motion, and employer filed [3] Alternative Dispute Resolution
interlocutory appeal. The Corpus Christi-Edinburg Court Evidence
of Appeals, Hinojosa, J., 49 S.W.3d 507, affirmed, and If trial court finds valid arbitration agreement,
employer appealed. burden shifts to party opposing arbitration
to raise affirmative defense to enforcing
arbitration.
[Holding:] The Supreme Court, Wallace B. Jefferson, J.,
153 Cases that cite this headnote
held that provision of arbitration agreement, indicating
that employer reserves right to unilaterally abolish
or modify any personnel policy without prior notice, [4] Alternative Dispute Resolution
was ambiguous as to whether unilateral termination Evidence
right applied to parties' agreement to arbitrate or only Presumption favoring arbitration arises only
to personnel policies concerning at-will employment after party seeking to compel arbitration
relationship, warranting remand for determination of proves that valid arbitration agreement exists.
what parties intended by provision.
171 Cases that cite this headnote

Reversed and remanded.

[5] Alternative Dispute Resolution
Schneider, J., dissented and filed opinion in which O'Neill, Construction
J., joined. Arbitration agreements are interpreted under
traditional contract principles.
Smith, J., dissented and filed opinion.
51 Cases that cite this headnote

[6] Alternative Dispute Resolution

Formal Requisites

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
Employer attempting to enforce arbitration
agreement must show that agreement meets all
requisite contract elements.
32 Cases that cite this headnote
[7] Labor and Employment
Formation; Requisites and Validity
Labor and Employment
Renewal or Continuation
At-will employment does not preclude
formation of other contracts between
employer and employee, so long as neither
party relies on continued employment as
consideration for contract.
11 Cases that cite this headnote
[8] Alternative Dispute Resolution
Modification or Termination
Provision of arbitration agreement, indicating
that employer reserves right to unilaterally
abolish or modify any personnel policy
without prior notice, was ambiguous as to
whether unilateral termination right applied
to parties' agreement to arbitrate or only
to personnel policies concerning at-will
employment relationship, warranting remand
for determination of what parties intended
by provision; additional personnel policy
language was not included in paragraph
that contained such provision, but was
only included in subsequent paragraph that
discussed unrelated unemployment issues.
56 Cases that cite this headnote
[9] Contracts
Ambiguity in General
Deciding whether contract is ambiguous is
question of law for court.
85 Cases that cite this headnote
[10] Contracts
Language of Contract
Contracts
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Construing Whole Contract Together
In construing written contract, court's
primary concern is to ascertain true intentions
of parties as expressed in instrument; to
achieve this objective, court must examine and
consider entire writing in effort to harmonize
and give effect to all provisions of contract so
that none will be rendered meaningless.
296 Cases that cite this headnote
[11] Contracts
Construction as a Whole
No single contract provision, taken alone,
will be given controlling effect; rather, all
provisions must be considered with reference
to whole instrument.
116 Cases that cite this headnote
[12] Contracts
Existence of Ambiguity
Contract is unambiguous if it can be given
definite or certain legal meaning.
94 Cases that cite this headnote
[13] Contracts
Existence of Ambiguity
Contracts
Ambiguity in General
If contract is subject to two or more
reasonable interpretations after applying
pertinent rules of construction, contract is
ambiguous, creating fact issue on parties'
intent.
128 Cases that cite this headnote
Attorneys and Law Firms
*225 Myra K. Morris, Corpus Christi, Chester J.
Makowski, Nathan Wesely, Houston, Royston Rayxor
Vickery & Williams, for petitioner.
Richard Daniel Nielsen, Corpus Christi, for respondent.
2
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
Opinion
Justice JEFFERSON delivered the opinion of the Court,
joined by Chief Justice PHILLIPS, Justice HECHT,
Justice OWEN, Justice WAINWRIGHT, and Justice
BRISTER.
This is an interlocutory appeal of a trial court's order
denying an employer's motion to compel arbitration under
the company's alternative dispute resolution policy. We
recently held that arbitration agreements between an
employer and an at-will employee are enforceable when
there is an agreement that is valid under traditional
contract principles. In re Halliburton Co., 80 S.W.3d 566,
573 (Tex.2002). Here, we consider whether an arbitration
agreement between an employer and an employee is
enforceable if the employer reserves the unilateral right
to modify or terminate personnel policies without notice.
The trial court denied the employer's motion to compel
arbitration, and the court of appeals affirmed. 49 S.W.3d
507.
We conclude that the arbitration agreement is ambiguous
because it is not possible to determine from the document
itself whether the unilateral termination right applies to
the parties' agreement to arbitrate, or only to “personnel
policies” concerning the at-will employment relationship.
Accordingly, we reverse the court of appeals' judgment
and remand to the trial court for further proceedings
consistent with this opinion.
I “Company” permission to verify such information and
Background
J.M. Davidson, Inc. hired Chelsey Webster as a mechanic
in December 1997. Soon after, Davidson asked Webster
to sign a one-page document as a condition of his at-
will employment. Webster signed the document, which
provided:
J.M. Davidson, Inc.
ALTERNATIVE DISPUTE RESOLUTION POLICY
EMPLOYMENT APPLICATION LANGUAGE
I, the applicant whose signature is affixed hereto, and
the above listed Company, (hereinafter referred to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
as the “Company”), for itself and all of its officers,
directors, agents and employees, all of which mutually
agree and contract that any and all claims, disputes
or controversies, whether based on the Construction
[sic], Statutes, Code(s), Ordinances, Rules, Orders
Regulations, and/or common law of he [sic] United
States and/or of any State, and/or all subdivisions, of
either, and/or asserted on the basis of contract, quasi-
contract, personal injury, tort, offenses, quasi-offenses
or otherwise, or arising out of, or in any way relating
to this application for employment, or any other
application for employment that I may have previously
submitted, or may submit in the future, or the
Company's decision to hire or not to hire me; including
the arbitrability of any claim, dispute or controversy
shall be exclusively and finally settled by binding
arbitration administered by, Conducted [sic] under
the Arbitration Rules of, and before the Arbitrator(s)
of *226 an Arbitration Tribunal of the National
Association for Dispute Resolution, Inc., pursuant to
the provisions of the Federal Arbitration Act and/or
any applicable Alternative Dispute Resolutions Act,
whichever shall have the broadest effect, all claims
of any rights to the contrary, including any right to
trail [sic] by jury, being hereby expressly waived. The
Arbitration Tribunal shall be the sole and existence [sic]
of its jurisdiction over all parties and issues. Judgment
upon any award may be entered in any Court—State or
Federal—having jurisdiction.
I hereby certify that all of the information and
statements made or furnished on this application
are true and correct and I hereby grant the
statements. I understand that any false statement or
omission on this application may be considered as
sufficient cause for rejection of this application, or
for dismissal, if such false statement or omission is
discovered subsequent to my employment. I further
understand that the “Company” may perform a pre-
employment investigation to determine my suitability
for employment and I authorize the “Company” to have
access to any and all records concerning my education
or employment background. I hereby authorize any
person or Entity having such information to release
same to the “Company”. I understand that the pre-
employment investigation may include contacting my
previous employers, and I hereby authorize such
previous employers to release any and all information
relating to my employment to the “Company”.
3
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
I understand that if I am extended an offer of
employment, I will have to pass a physical examination
as a condition of such employment. If employed, I agree
to abide by and comply with all of the rules, policies
and procedures of the “Company.” I understand that if
I am employed by the “Company”, such employment
will be “at-will” and that the “Company” may terminate
my employment at any time and for any reason. I
understand and agree that, in the event of my separation
from any employment with the “Company”, any and
all information concerning my employment history may
be furnished to any other employer with whom I seek
employment and I hereby release and hold harmless
the “Company”, its affiliates, parents, subsidiaries, and
successors, and its and their officers, directors, trustees,
employees and agents from and against any and all
claims and liability for furnishing such information.
No supervisor or person other than the President of
the “Company”, can change or otherwise modify any
employment agreement. The “Company” reserves the
right to unilaterally abolish or modify any personnel
policy without prior notice. I understand that this
application will be considered valid and current for a
period of not more than thirty (30) days.
In November 1998, Webster was injured at work
and subsequently filed a workers' compensation claim.
Although his condition improved temporarily, his doctor
eventually placed him on “no work” status. Shortly
thereafter, Webster's employment with Davidson ceased.
The parties dispute whether Webster quit or was
terminated.
Webster sued Davidson for wrongful termination under
section 451 of the Texas Labor Code, alleging he
was terminated in retaliation for filing a workers'
compensation claim. See TEX. LAB. CODE § 451.001.
Davidson denied Webster's allegations and filed a
motion to compel binding arbitration under the
company's alternative dispute resolution policy. Webster
*227 responded that the arbitration agreement was
unenforceable because it was illusory, unconscionable,
and lacked mutuality. Following a hearing, the trial court
denied Davidson's motion without explanation.
Davidson then filed an interlocutory appeal seeking to
compel arbitration under the Texas Arbitration Act, and
a mandamus action to compel arbitration pursuant to the
Federal Arbitration Act. The court of appeals denied the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
petition for writ of mandamus, held that the arbitration
agreement was illusory, and affirmed the trial court's
order denying Davidson's motion to compel arbitration.
49 S.W.3d 507, 514. One justice dissented, concluding
that the arbitration agreement was enforceable because
both parties mutually agreed to arbitrate workplace
injury disputes. Id. at 519. The dissent observed that
the reservation language—concerning the company's
unilateral right to modify or terminate personnel policies
without notice—did not render Davidson's promise
illusory, because it was “separable” from the promise to
arbitrate. Id. at 518.
Davidson asks us to reverse the court of appeals' judgment
and order the trial court to stay the trial pending binding
arbitration pursuant to the Texas Arbitration Act. 1 See
TEX. CIV. PRAC. & REM. CODE § 171.098.
II
Standard of Review
[1] [2] [3] A party attempting to compel arbitration
must first establish that the dispute in question falls within
the scope of a valid arbitration agreement. In re Oakwood
Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999). If
the other party resists arbitration, the trial court must
determine whether a valid agreement to arbitrate exists.
Id.; TEX. CIV. PRAC. & REM. CODE § 171.021. The
trial court's determination of the arbitration agreement's
validity is a legal question subject to de novo review. In
re Kellogg Brown & Root, 80 S.W.3d 611, 615 (Tex.App.-
Houston [1st Dist.] 2002, orig. proceeding). If the trial
court finds a valid agreement, the burden shifts to the
party opposing arbitration to raise an affirmative defense
to enforcing arbitration. Oakwood, 987 S.W.2d at 573.
III
Analysis
[4] [5] [6] [7] 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. See,
e.g., Prudential Secs., Inc. v. Marshall, 909 S.W.2d 896,
4
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
898 (Tex.1995); High Valley Homes, Inc. v. Fudge, 2003
WL 1882261, at *3 (Tex.App.-Austin April 17, 2003, no
pet.) (memorandum opinion); see also Fleetwood Enters.,
Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002)
(federal policy favoring arbitration does not apply to
the determination of whether there is a valid agreement
to arbitrate; instead, ordinary contract principles are
applied). Arbitration agreements are interpreted under
traditional contract principles. Jenkens & Gilchrist v.
Riggs, 87 S.W.3d 198, 201 (Tex.App.-Dallas 2002, no
pet.); Pepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d
925, 930 (Tex.App.-Houston [1st Dist.] 1996, no writ);
see also First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)
(holding that, when deciding whether the parties agreed
to *228 arbitrate, “courts generally ... should apply
ordinary state-law principles that govern the formation of
contracts”). Thus, an employer attempting to enforce an
arbitration agreement must show the agreement meets all
requisite contract elements. At-will employment does not
preclude formation of other contracts between employer
and employee, so long as neither party relies on continued
employment as consideration for the contract. See Light
v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex.1994)
(because at-will employer always retains the option
to discontinue employment at any time, the promise
of continued employment is illusory and insufficient
consideration for employee's promise not to compete).
Here, the parties dispute whether the reciprocal promises
to arbitrate are sufficient consideration to support
enforcing the arbitration agreement.
We recently considered whether an arbitration agreement
between an employer and at-will employee was supported
by sufficient consideration. See In re Halliburton Co.,
80 S.W.3d at 566. We note, however, that the court
of appeals' decision and both parties' submissions to
this Court occurred before we decided Halliburton. In
Halliburton, the employer notified employees of a new
alternative dispute resolution program that required
both the employer and the employees to submit all
employment-related disputes to binding arbitration. Id. at
568. The terms included the employer's right to modify or
discontinue the program, but also required the employer
to give its employees notice of changes and stated that any
amendments would apply only prospectively. Id. at 569–
70.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
We upheld the arbitration agreement between Halliburton
and its employee. Id. at 570. We concluded that the
employee's at-will employment status did not render
the agreement illusory because Halliburton did not
rely on continued employment as consideration for
the agreement. Instead, mutual promises to submit all
employment disputes to arbitration constituted sufficient
consideration, because both parties were bound to the
promises to arbitrate. Id. at 569.
Halliburton's right to modify or terminate the policy did
not allow the employer to avoid its promise to arbitrate
because it was limited by express contract provisions. Id.
at 569–70. First, the policy stated that any changes only
applied prospectively to unknown claims. Id. And second,
if Halliburton terminated the policy, such termination
required notice and applied to both Halliburton's and the
employees' rights. Id. Therefore, Halliburton could not
avoid its promise to arbitrate by amending or terminating
the dispute resolution program. Id. Because the express
terms of the policy provided that both the employee and
Halliburton were bound to their promises to arbitrate, we
held the agreement was not illusory. Id. at 570. Here, we
are asked to decide whether the terms of the agreement
between Davidson and Webster are distinguishable from
Halliburton.
Davidson argues that its dispute resolution policy is
enforceable because, like Halliburton, the agreement
includes reciprocal promises to waive the right to
litigation and submit all employment disputes to binding
arbitration. See In re Alamo Lumber Co., 23 S.W.3d
577, 579–80 (Tex.App.-San Antonio 2000, pet. denied)
(“Since the parties surrendered their rights to trial by
jury, these mutual promises supply valid consideration.”).
Thus, Davidson contends there is sufficient consideration
to support the arbitration agreement. On the other hand,
Webster argues that the arbitration agreement is illusory
because the express terms of the agreement provide that
Davidson was not bound by its terms.
*229 [8] It is clear that Davidson and Webster
“mutually agree[d] and contract[ed]” to submit disputes
to arbitration. At the end of the one-page document
containing their agreement, however, is the following
statement: “The Company reserves the right to
unilaterally abolish or modify any personnel policy
without prior notice.” Our resolution of this case depends
on the relationship between those two provisions.
5
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
[9] [10] [11] [12] [13] In construing this agreement,
we first determine whether it is possible to enforce the
contract as written, without resort to parol evidence.
Deciding whether a contract is ambiguous is a question
of law for the court. Coker v. Coker, 650 S.W.2d 391, 394
(Tex.1983). In construing a written contract, the primary
concern of the court is to ascertain the true intentions
of the parties as expressed in the instrument. R & P
Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d
517, 518 (Tex.1980); City of Pinehurst v. Spooner Addition
Water Co., 432 S.W.2d 515, 518 (Tex.1968). To achieve
this objective, we must examine and consider the entire
writing in an effort to harmonize and give effect to all the
provisions of the contract so that none will be rendered
meaningless. Universal C.I.T. Credit Corp. v. Daniel, 150
Tex. 513, 243 S.W.2d 154, 158 (1951). No single provision
taken alone will be given controlling effect; rather, all
the provisions must be considered with reference to the
whole instrument. Myers v. Gulf Coast Minerals Mgmt.
Corp., 361 S.W.2d 193, 196 (Tex.1962); Citizens Nat'l
Bank v. Tex. & P. Ry. Co., 136 Tex. 333, 150 S.W.2d
1003, 1006 (1941). A contract is unambiguous if it can be
given a definite or certain legal meaning. Columbia Gas
Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d
587, 589 (Tex.1996). On the other hand, if the contract
is subject to two or more reasonable interpretations after
applying the pertinent rules of construction, the contract
is ambiguous, creating a fact issue on the parties' intent. Id. agreement at issue was illusory because, among other
In this case, we cannot give the arbitration agreement
a definite or certain legal meaning because it is unclear
whether Davidson's unrestricted right to “unilaterally
abolish or modify any personnel policies” gives it the
right to terminate the arbitration agreement without
notice. (Emphasis added.) Stated more succinctly, is the
arbitration agreement a “personnel policy”?
We cannot answer this question by reading the
agreement's terms. The agreement is titled “Alternative
Dispute Resolution Policy” on one line, and
“Employment Application Language” on the next. The
document addresses several issues that refer specifically to
the employment application process but have no bearing
on alternative dispute resolution. For example, Webster
agreed to submit to a background check and physical
examination. He promised to abide by company policies
and acknowledged that his employment was at-will. The
“personnel policy” language is not in the first paragraph,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
which contains the promise to arbitrate, but appears only
in the second paragraph, which discusses these other,
unrelated employment issues.
In their attempt to construe the agreement, the court
of appeals' justices could not agree on the scope of
Davidson's right to terminate the agreement. Although
silent on ambiguity, the majority held that the “personnel
policy” language permitted Davidson to terminate the
arbitration agreement at any time. 49 S.W.3d at 514
(“Although Davidson agreed to submit ‘any and all
claims, disputes or controversies' arising between it and
appellee to arbitration, it explicitly retained the absolute
right to modify or terminate the policy at any time.”).
Conversely, the dissent held that Davidson's unilateral
right to terminate or modify personnel policies did not
*230 affect the parties' separate agreement to arbitrate;
in fact, the dissent noted that “[i]n the event the employer
exercised that right [to modify or terminate] the employee
retained the right to force arbitration on the issue.” Id. at
518 (emphasis added). If the dissent had interpreted the
“personnel policy” language as applying to the arbitration
agreement itself, Webster would not have the right to
seek arbitration on the issue following termination of the
arbitration agreement.
The proper interpretation of this language is critical. 2 In
Halliburton, we rejected the argument that the arbitration
things, it required ten days notice of any modification or
termination and stated that any such amendment would
apply prospectively only. 80 S.W.3d at 569–70. Thus,
we held that “Halliburton cannot avoid its promise to
arbitrate by amending the provision or terminating it
altogether.” Id. at 570. The termination provision in this
case does not contain similar limitations. Accordingly,
we hold that the agreement is ambiguous and must be
remanded to the trial court to determine what the parties
intended by the clause “The ‘Company’ reserves the *231
right to unilaterally abolish or modify any personnel
policy without prior notice.”
We add a brief response to the dissents. The proper
interpretation of this document has split both the court
of appeals and this Court. Justice Smith contends the
agreement is unambiguous and clearly compels Webster
to arbitrate. Justice Schneider says the agreement is
unambiguous but clearly illusory. We will not reiterate
our thoughts on ambiguity, but believe it helpful to
6
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
respond to some of the dissents' concerns. Both dissents
assert that the title of the document must be considered
insofar as it references arbitration, but they omit from
consideration that portion of the title, and contents
of the document, that pertain to personnel policies.
Justice Smith determines that the document is “primarily
devoted to setting forth an arbitration policy,” even
though arbitration is discussed in only the first paragraph,
which comprises less than fifty percent of the text (and,
as Justice Schneider points out, only two of fifteen
sentences). 128 S.W.3d at 240. The document is set
out in full in this opinion, and we need not belabor
the point. Suffice it to say that—as evidenced by the
multiple disagreements about its meaning among this
Court's justices—the agreement is subject to more than
one reasonable interpretation. Under our precedent, the
document is ambiguous. Columbia, 940 S.W.2d at 589.
Rather than follow this precedent, however, Justice Smith
would enforce a deeply flawed agreement that he admits is
“far from a model of precise drafting.” 128 S.W.3d at 239.
Indeed, the one-page document is rife with grammatical
errors, misspellings, and omitted words. Webster waived
his right to “trail by jury,” even for claims “based
on the Construction of ... he United States.” He also
agreed that “[t]he Arbitration Tribunal shall be the sole
and existence of its jurisdiction over all parties and
issues,” whatever that means. While we generally favor
arbitration agreements, we should not reflexively endorse
an agreement so lacking in precision that a court must first
edit the document for comprehension, and then rewrite it
to ensure its enforceability.
Justice Schneider implies that, because the parties do
not contend the agreement is ambiguous, we may not
hold that it is. This is contrary to Texas law. See Sage
St. Assoc. v. Northdale Constr. Co., 863 S.W.2d 438,
444–45 (Tex.1993) (holding jury question was presented
by ambiguity in construction agreement; a court may
conclude that a contract is ambiguous even in the
absence of such a pleading by either party); Coker, 650
S.W.2d at 393 (concluding agreement was ambiguous
even though both parties asserted property settlement
agreement was unambiguous and moved for summary
judgment); Acadian Geophysical Servs., Inc. v. Cameron,
119 S.W.3d 290, 302 (Tex.App.-Waco 2003, no pet.
h.); W.W. Laubach Trust/The Georgetown Corp. v. The
Georgetown Corp./W.W. Laubach Trust, 80 S.W.3d 149,
155 (Tex.App.-Austin 2002, pet. denied); Arredondo v.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
City of Dallas, 79 S.W.3d 657, 667 (Tex.App.-Dallas 2002,
pet. denied); Z.A.O., Inc. v. Yarbrough Drive Ctr. Joint
Venture, 50 S.W.3d 531, 540 (Tex.App.-El Paso 2001, no
pet.); N. Cent. Oil Corp. v. Louisiana Land & Exploration
Co., 22 S.W.3d 572, 576 (Tex.App.-Houston [1st Dist.]
2000, pet. denied); Curbo v. State, 998 S.W.2d 337, 343
(Tex.App.-Austin 1999, no pet.).
Finally, Justice Schneider states that he is reluctant to
send this matter back to the trial court “because [he]
cannot imagine what such a hearing would look like.”
128 S.W.3d at 232. It is not necessary to speculate on the
character of that proceeding: the trial court will conduct
an evidentiary *232 hearing to determine the parties'
intent. See Anglin, 842 S.W.2d at 269 (noting that, “if
the material facts necessary to determine [a motion to
compel arbitration] are controverted, by an opposing
affidavit or otherwise admissible evidence, the trial court
must conduct an evidentiary hearing to determine the
disputed material facts”); see also Armijo v. Prudential
Ins. Co., 72 F.3d 793, 801 (10th Cir.1995) (Jenkins, J.,
concurring) (if arbitration agreement is ambiguous “the
issue then becomes a factual question, to be decided from
external evidence of the parties' intent, unless only one
conclusion can be drawn from the undisputed evidence”);
Montgomery County Cmty. Coll. Dist. v. Donnell, Inc., 141
Ohio App.3d 593, 752 N.E.2d 342, 345 (2001) (holding
that “an ambiguity in the [arbitration] agreement ... must
be resolved by an evidentiary hearing”).
Because we cannot discern whether Davidson's unilateral
right to terminate “personnel policies” applies to the
agreement to arbitrate, we conclude that the arbitration
agreement is ambiguous. We reverse the court of appeals'
judgment and remand this case to the trial court for
further proceedings consistent with this opinion. TEX. R.
APP. P. 60.2(d).
Justice SCHNEIDER filed a dissenting opinion, joined by
Justice O'NEILL.
Justice SMITH filed a dissenting opinion.
Justice SCHNEIDER, joined by Justice O'NEILL,
dissenting.
I respectfully dissent. The controversy in this case involves
a company's arbitration policy that an employee agreed to
sign after beginning his employment. When the company
7
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
sought to enforce the arbitration policy, the trial court
denied the motion to compel arbitration. A divided court
of appeals affirmed the trial court's order. The Court says
that the wording in the arbitration policy is ambiguous
and that the case should be sent back to the trial court to
hear evidence concerning the parties' intent. But I would
not be as hasty as the Court to send this matter back to the
trial court because I cannot imagine what such a hearing
would look like. I would, in the first instance, hold that the
policy provisions are not ambiguous. Then, in the second
instance, I would hold the employee is entitled to complete
relief in this Court. The arbitration promise made by the
company is illusory, and because it is, I would affirm the
court of appeals' judgment denying the motion to compel
arbitration.
FACTS
Chelsey Webster (“Webster”) went to work for J.M.
Davidson, Inc. (“Davidson”). A few days after beginning
employment, Webster signed the agreement that is at the
heart of the controversy in this matter. The document,
prepared by Davidson, is titled “Alternative Dispute
Resolution Policy” (“ADR Policy”). 1 It is undisputed
that *233 Webster was employed by Davidson at the time
he signed the agreement.
Approximately eleven months after commencing his
employment, Webster was injured on the job. Webster
filed for workers' compensation benefits. Then, about one
month later, Davidson terminated Webster. Webster filed
suit, alleging Davidson fired him in retaliation for filing a
workers' compensation claim. Davidson sought to enforce
the arbitration clause contained in the ADR Policy that
Webster had signed.
A hearing on Davidson's Motion to Compel Arbitration
was held before the trial court. During the hearing,
Davidson introduced a copy of the arbitration policy
signed by Webster. Davidson never signed the agreement.
But, Webster has never complained about the absence of
Davidson's signature.
Davidson had the initial burden of proof to establish
the arbitration agreement's existence and to show that
the claims asserted against it fell within the arbitration
agreement's scope. See Williams Indus. Inc. v. Earth Dev.
Sys. Corp., 110 S.W.3d 131, 134 (Tex.App.-Houston [1st
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Dist.] 2003, no pet.). If Davidson had met its burden of
proof, then the burden would have shifted to Webster to
show why the arbitration agreement did not apply. Id.
At the Motion to Compel Arbitration hearing, the trial
court properly considered the pleadings of the parties, the
motion to compel arbitration, and responses. See Jack B.
Anglin Co. Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex.1992)
(“the trial court may summarily decide whether to compel
arbitration on the basis of affidavits, pleadings, discovery,
and stipulations.”). But, the trial court heard no live
testimony about the ADR Policy. Cf. id. (noting that
“if the material facts necessary to determine the issue
are controverted,” “the trial court must conduct an
evidentiary hearing to determine the disputed material
facts”).
After considering the evidence, the trial court denied the
motion to compel arbitration without stating a reason
for the denial. The record must be construed in a light
favorable to supporting the judgment. See Keller v. Nevel,
699 S.W.2d 211, 212 (Tex.1985). Davidson appealed, and
the court of appeals affirmed the trial court.
ANALYSIS
In deciding the motion to compel arbitration, the trial
court should have considered two issues: 1) was there a
valid arbitration agreement; and 2) if so, did the agreement
encompass the claim? See In re Oakwood Mobile Homes,
Inc., 987 S.W.2d 571, 573 (Tex.1999); Dallas Cardiology
Assocs., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex.App.-
Texarkana 1998, pet. denied); Dalton Contractors, Inc.
v. Bryan Autumn Woods, Ltd., 60 S.W.3d 351, 353
(Tex.App.-Houston [1st Dist.] 2001, no pet.). The first of
these issues is the subject of this appeal; thus, we must
decide if the trial court was correct in concluding there was
no valid arbitration agreement.
A. Standard of Review
We review a trial court's decision to deny a motion
to compel arbitration under a legal sufficiency or “no
evidence” standard of review when factual findings are
in dispute. See Certain Underwriters v. Celebrity Inc., 950
S.W.2d 375, 377 (Tex.App.-Tyler 1996, writ dism'd w.o.j.).
However, in this case, the only issue before us is the
trial court's legal interpretation of the arbitration clause;
no findings of fact were made. Thus, de novo review is
8
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
appropriate. Id.; see also Nationwide of Bryan, Inc. v. Dyer,
969 S.W.2d 518, 520 (Tex.App.-Austin 1998, no pet.);
Dalton Contractors, Inc., 60 S.W.3d at 353.
*234 B. Construction of the ADR Policy
Under the guise of a de novo review of the trial court's
legal interpretation of the agreement, the Court may not
create an agreement for the parties that is different from
the one they entered. But, the Court attempts to do
just that. The ADR Policy expressly reserves Davidson's
right to “unilaterally abolish or modify any personnel
policy without prior notice.” The Court raises ambiguity
as an issue sua sponte and concludes that this unilateral
termination provision in the ADR Policy is ambiguous
because “it is not possible to determine from the document
itself whether the unilateral termination right applies to
the parties' agreement to arbitrate, or only to ‘personnel
policies' concerning the at-will employment relationship.”
128 S.W.3d at 225. But neither Webster, Davidson, the
trial court, nor the Court of Appeals have suggested
the language quoted above is ambiguous. I would hold
that this language regarding the unilateral termination
right unambiguously applies to the entire agreement,
including the agreement to arbitrate. Although ultimately
the contract fails for lack of consideration (see discussion
below), it cannot be said that the ADR Policy is
ambiguous.
1. The ADR Policy is not ambiguous.
There are several reasons why the document can be
unambiguously read so that the universal termination
right language applies to the entire document. First,
the document is entitled “Alternative Dispute Resolution
Policy,” which suggests that the unilateral termination
right contained within it would apply to arbitration, as the
title would be applicable to the entire document. See e.g.
Neece v. A.A.A. Realty Co., 159 Tex. 403, 322 S.W.2d 597,
606 (1959) (Calvert, J., dissenting) (recognizing that the
title of an agreement can have the legal effect of importing
words into the contract).
Secondly, the unilateral termination right applies to “any
personnel policy,” and it is reasonable to conclude that
an arbitration policy would fall under the category of a
personnel policy. Arbitration agreements are often a part
of employee manuals or personnel policies. See e.g., In
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
re Tenet Healthcare Ltd., 84 S.W.3d 760, 763 (Tex.App.-
Houston [1st Dist.] 2002, orig. proceeding) (analyzing
a legally binding arbitration agreement appearing in
an employee handbook containing personnel policies).
Moreover, the ADR Policy was provided by an employer
to be signed by an employee, suggesting it is a personnel
policy. It is not only reasonable to believe the arbitration
provision is a personnel policy of the company, it is
unreasonable to reach any other conclusion. The Court
seems to suggest that the “personnel policy” must be one
or the other—either a policy, or an agreement. Surely a
reasonable interpretation is that it could be both.
Webster even promises to abide by all of Davidson's
“policies” in the ADR Policy, and it is reasonable to
conclude that Davidson wanted to retain the right to
unilaterally terminate all parts of the ADR Policy because
the policy did not specifically exempt the arbitration
agreement from the unilateral termination right.
Finally, neither Davidson nor Webster have ever argued
that the unilateral termination right did not apply to the
arbitration agreement. The actions of both the parties
throughout their litigation reflect the belief that the
arbitration policy is a personnel policy. They both came to
the Motion to Compel Arbitration hearing arguing about
several issues, none of which ever raised the question of
whether the arbitration policy was a personnel policy. All
of their actions throughout the litigation are consistent
with the notion that the right to unilaterally terminate
applied to the arbitration policy.
*235 Webster and Davidson do offer different
interpretations of the unilateral termination clause.
But their differences have nothing to do with factual
issues; rather, they differ in the legal significance
of the arbitration policy. Nevertheless, the fact that
their explanations differ does not render the contract
ambiguous. See Columbia Gas Transmission Corp. v. New
Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996) (noting
that an ambiguity does not arise simply because parties
offer conflicting interpretations of the contract). For an
ambiguity to exist, both explanations must be reasonable.
Id. Conversely, a contract is ambiguous if its language
is subject to two or more reasonable interpretations. See
Monsanto v. Boustany, 73 S.W.3d 225, 229 (Tex.2002).
Here, there is only one reasonable interpretation of
the ADR Policy, and the Court's insistence that it is
9
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196

ambiguous flies in the face of well-established rules of promises are binding on both parties, they may constitute
construction. consideration for a contract. Texas Gas Util. Co. v.
Barrett, 460 S.W.2d 409, 412 (Tex.1970); Johnson v.
Breckenridge–Stephens Title Co., 257 S.W. 223, 225
2. Finding the ADR Policy ambiguous is (Tex.Com.App.1924).
contrary to well-established rules of construction.
But, if the terms of a promise make performance
One of the basic tenets of contract interpretation is
optional, the promise is illusory and cannot constitute
the assumption that the parties intend every part of an
valid consideration. Light v. Centel Cellular Co. of
agreement to mean something. When construing a written
Texas, 883 S.W.2d 642, 645 (Tex.1994) (“When illusory
contract, we are to ascertain the intent of the parties as
promises are all that support a purported bilateral
expressed in the instrument. Nat'l Union Fire Ins. Co.
contract, there is no *236 contract.”); RESTATEMENT
of Pittsburgh, PA. v. CBI Indus. Inc., 907 S.W.2d 517,
(SECOND) OF CONTRACTS §§ 2 cmt. e; 77 cmt.
520 (Tex.1995); 718 Assocs., Ltd. v. Sunwest N.O.P., Inc.,
a. Valid consideration exists if a party reserves the
1 S.W.3d 355, 360 (Tex.App.-Waco 1999, pet. denied)
right to terminate an agreement with notice. See
(courts will enforce an “unambiguous instrument as
RESTATEMENT (SECOND) OF CONTRACTS § 77
written, and ordinarily, the writing alone will be deemed
cmt. b, illus. 5. But, a termination clause that allows a
to express the parties intentions”). Contracts are to be
party to terminate the contract at will makes performance
read as a whole, and an interpretation that gives effect to
optional, and thus, makes any promise illusory. See
every part of the agreement is favored so that no provision
Light, 883 S.W.2d at 645; see also, Tenet Healthcare Ltd.
is rendered meaningless or as surplusage. See Westwind
v. Cooper, 960 S.W.2d 386, 388–89 (Tex.App.-Houston
Exploration Inc. v. Homestate Savings Ass'n., 696 S.W.2d
[14th Dist.] 1998, pet. dism'd w.o.j.).
378, 382 (Tex.1985).

Here, the ADR Policy reserves Davidson's right to

The Court ignores these well-settled principles of contract
interpretation when it concludes the agreement is
ambiguous. Davidson's right to unilaterally abolish or
modify any personnel policy without prior notice must
be given its plain and ordinary meaning. Thus, the
unilateral termination language must mean that Davidson
can cancel or alter any personnel policy without informing
Webster. Although I ultimately conclude that the ADR
Policy is not binding because it is illusory, the agreement
is not ambiguous.
C. The ADR Policy is unenforceable because it is illusory.
In my view, the unilateral termination right in the ADR
Policy makes Davidson's performance optional as to the
entire policy, and thus, renders the ADR Policy illusory.
Thus, I would find that the agreement between Davidson
and Webster fails to rise to the level of a contract as it lacks
consideration.
1. The ADR Policy does not contain consideration.
Consideration is an essential element for a valid,
enforceable contract. Federal Sign v. Texas S. Univ., 951
S.W.2d 401, 408–09 (Tex.1997). If mutual, reciprocal
“unilaterally abolish or modify any personnel policy
without prior notice.” Under the plain language of the
contract, Davidson reserved the right to abolish or modify
any personnel policy. As explained above, the unilateral
termination right would also apply to the agreement to
arbitrate all claims. By retaining the right to terminate the
ADR Policy at any time, Davidson can avoid arbitration.
Thus, Davidson is not bound to its promise to arbitrate,
and its promise to avoid litigation does not amount
to consideration. See In re Halliburton, 80 S.W.3d 566,
570 (Tex.2002) (reciprocal promises are not sufficient
if one party can avoid its promise). Because there is
no consideration for the ADR Policy, the agreement is
illusory and unenforceable.
2. Davidson's attempts to create consideration fail.
In an attempt to create consideration where none
exists, Davidson claims that the language regarding the
unilateral termination right complied with contractual
mutuality requirements because, “If ... Davidson changed
the ADR policy, or abolished it altogether, the changes
would have applied to both parties.” However, because
Davidson alone had the unilateral right to terminate or
change the agreement, the agreement is illusory. It is

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
irrelevant that any changes made by Davidson would
apply to both parties.
Davidson also argues that the promise to arbitrate is
not illusory because, under Halliburton, 80 S.W.3d at
570, it is bound to resolve any dispute according to
the ADR plan in effect at the time the dispute arises.
However, the express contract terms we relied on to find
the Halliburton agreement enforceable are missing here.
The plain language of the Halliburton ADR plan required
the employer to provide notice before enacting any
modifications or terminating the plan. Davidson suggests
that because the agreement we upheld in Halliburton
required notice and prospective application, the same
protective language can be implied here. I disagree.
In Halliburton, we relied on the ADR policy's notice
provisions to conclude that Halliburton could not “avoid
its promise to arbitrate by amending the [policy] or
terminating it altogether.” Halliburton, 80 S.W.3d at 570.
Here, we cannot imply the obligations that precluded
Halliburton from avoiding its promise to arbitrate.
The agreement's plain language establishes Davidson's
unhindered right to modify or terminate the agreement
without notice. It is not proper to imply terms that
contradict the express contract language. See Haws &
Garrett Gen. Contractors, Inc. v. Gorbett Bros. Welding
Co., 480 S.W.2d 607, 609–610 (Tex.1972) (the terms of an
implied contract are inferred from the circumstances).
Davidson further attempts to explain the unilateral
termination language as simply acknowledging an
employer's right to make changes to at-will employment
terms, as in Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227,
229 (Tex.1986). But, the arbitration agreement's language
contradicts Davidson's explanation.
*237 In Hathaway, we held that an employer may enforce
changes to an at-will employment contract if the employer
unequivocally provides notice of a definite change and the
employee accepts the change by continuing employment.
Hathaway, 711 S.W.2d at 229. Here, the contract expressly
allows Davidson to effect a change in the ADR plan's
terms without notice. Thus, it is inconsistent to explain
the reservation language as merely restating our holding
in Hathaway, because the arbitration agreement's terms
contradict the Hathaway requirements.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Additionally, whether an employer has satisfied the
Hathaway requirements is a separate inquiry from the
determination of whether the arbitration agreement is
enforceable under traditional contract principles. If an
employer seeks to change the terms of an employment
relationship by implementing an agreement to arbitrate
all disputes, the employer must show the arbitration
agreement, standing alone, satisfies all requisite elements
of a valid contract. See Light, 883 S.W.2d at 645–
46; Halliburton, 80 S.W.3d at 569. This showing is
separate from the employer's duty to meet the Hathaway
requirements of notice and acceptance. Id.
Davidson's attempts to create consideration via an
alternate reading of the language of the agreement are not
reasonable. When the meaning of an agreement is plain
and unambiguous, a party's construction is immaterial.
718 Associates, Ltd., 1 S.W.3d at 360. I would find
the contract unenforceable because it fails for lack of
consideration and is illusory.
3. The Court incorrectly concludes that the
unilateral termination right is ambiguous.
The Court sends this case back for the trial court to
consider parol evidence, finding that a fact issue exists
concerning the applicability of the language in question
to the arbitration agreement. But, as discussed above,
the language unambiguously gives Davidson the right to
unilaterally terminate any part of the agreement. Thus,
there is no fact issue to be determined by the trial court
and there is no need for parole evidence to be taken.
4. The unilateral termination right
does not only apply prospectively.
Although I agree with Justice Smith that the contract is
unambiguous and the arbitration agreement is a personnel
policy subject to Davidson's unilateral termination right, I
cannot agree that the right to abolish or modify personnel
policies only applies prospectively with contemporaneous
notice. The ADR Policy allows Davidson to unilaterally
abolish or modify any personnel policy “without prior
notice.” Justice Smith looks to England to determine how
to interpret the phrase “without prior notice.”
However, applicable precedent can be found closer to
home. For example, in Shumway v. Horizon Credit Corp.,
11
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196

801 S.W.2d 890 (Tex.1991), we held that the language
“without prior notice” waived the right to all notice.
801 S.W.2d at 893–94. Similarly, in Musgrave v. HCA
Mideast, Ltd., 856 F.2d 690 (4th Cir.1988), the court
interpreted a contract providing that the employer had
the right to terminate an employee's service “without prior
notice.” The Fourth Circuit concluded that this language
“states simply that [the employee] could be terminated
during the probation period without notice.” 856 F.2d
at 694. Justice Smith's interpretation that “without prior
notice” means “with contemporaneous notice” is not
supported—and indeed, is contradicted—by caselaw from
American jurisdictions.
Justice Smith is essentially inserting a qualifying phrase
into Davidson's unilateral, unqualified right to terminate.
Even *238 though the ADR Policy permits Davidson
to “unilaterally abolish or modify any personnel policy
without prior notice,” Justice Smith interprets this
as requiring contemporaneous notice. The agreement
contains no such limitation.
Moreover, Justice Smith confuses the Hathaway
requirements for changes to an at-will employment
agreement with the requirements for a valid, enforceable
arbitration agreement. They are two separate inquiries.
Even assuming Justice Smith is correct that Davidson
may give contemporaneous notice of a change to the
terms of Webster's employment terms under Hathaway,
the arbitration clause of the ADR Policy remains illusory
and unenforceable. If contemporaneous notice to cancel
the arbitration agreement is permissible, Davidson retains
the right to discontinue performance at any time. Under
this scenario, there is no consideration, as Davidson is
not giving up a benefit or suffering a detriment. See e.g.,
In re C & H News Co., No. 13–02–529–CV, ––– S.W.3d
––––, ––––, 2003 WL 131770 at *4 (Tex.App.-Corpus
Christi 2003, orig. proceeding). Thus, the arbitration
clause would still be illusory and unenforceable.
D. Enforceable arbitration agreements must
bind both the employer and the employee.

There is no mystery to drafting an enforceable arbitration

Justice Smith also attempts to distinguish our holding in
agreement. Capable counsel know that limitations on
Hathaway by noting that in that case, while we required
an employer's right to terminate the agreement are
an employer making a change to an at-will employment
necessary so the agreement is not illusory. See, e.g.,
policy to provide notice, we did not specify that the notice
In re Tenet Healthcare, Ltd., 84 S.W.3d at 766–67
had to be given before the change was made. Justice
(arbitration provision was enforceable because the right
Smith contends that under our decision in Hathaway,
to terminate the agreement specifically excepted the
notice could be “either in advance of or contemporaneous
arbitration agreement); In re Kellogg Brown & Root, 80
with the policy change.” 128 S.W.3d 242. However,
S.W.3d 611, 616 (Tex.App.-Houston [1st Dist.] 2002, orig.
Justice Smith misunderstands our holding in Hathaway.
proceeding) (arbitration agreement enforceable because it
In Hathaway, we explained the employee must have
provided that it could be amended or terminated by the
knowledge of the employer's proposed modification to an
company by giving at least 10 days notice to employees
at-will employment policy to constitute effective notice;
and that such amendment would not apply to a dispute
that is, the employee must “know the nature of the
that had been initiated); In re Jebbia, 26 S.W.3d 753, 758
changes and the certainty of their imposition.” Hathaway,
(Tex.App.-Houston [14th Dist.] 2000, orig. proceeding).
711 S.W.2d at 229. Requiring the employer to prove
unequivocal notification of changes to the employment
In this agreement, however, there was no limitation
terms was based, in part, on fairness to the employee.
to Davidson's right to terminate, amend, or cancel
See id. The requirement that an employee be aware
the agreement. *239 The only consideration for the
that changes to the employment policy are certain to
agreement was continued at-will employment, which
be imposed implies that there must be prior notice. It
amounts to no consideration. Light, 883 S.W.2d at
is unreasonable to conclude contemporaneous notice of
644. Thus, the arbitration agreement is illusory and
a policy change is permissible under Hathaway. Indeed,
unenforceable.
permitting an employer to give contemporaneous notice
of changed employment terms undermines Hathaway's
concerns for fairness to an employee and stretches our
holding in Hathaway too far. CONCLUSION

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 12

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
I disagree with the Court's determination that the
arbitration agreement is ambiguous. I also believe the
agreement is illusory. In Halliburton, we said that
an arbitration agreement's terms must bind both the
employer and employee if the agreement relies on mutual
promises to arbitrate for consideration. Davidson's ADR
Policy lacks the protections we relied on in Halliburton
to find the promises to arbitrate mutually binding. The
unilateral right to modify or terminate the agreement
without notice allows Davidson to avoid its promise at
any time. Accordingly, I would hold that the arbitration
agreement between Davidson and Webster fails to bind
Davidson, and thus, the promise is illusory and the
agreement is unenforceable for want of consideration. I
would affirm the court of appeals' judgment.
Justice SMITH, dissenting.
I share the Court's view that the contract executed by
the parties is far from a model of precise drafting,
but I disagree that the phrase “any personnel policy”
cannot be given a definite legal meaning. Like Justice
Schneider, I believe that the arbitration policy falls within
the ambit of the phrase “any personnel policy.” However,
I disagree with the portion of Justice Schneider's dissent
that concludes the entire contract is unenforceable.
I would hold that the contractual provision allowing
Davidson to “abolish or modify any personnel policy
without prior notice” applies to the company's alternative
dispute resolution policy, but that it does not waive
Webster's right under Texas at-will employment law to
contemporaneous notice of any change in Davidson's
ADR policy. The rules of contract interpretation
counsel against construing termination clauses as being
retroactively exercisable and in favor of interpreting
contracts to be valid. Because the relevant provision
is properly construed as applying only prospectively to
disputes arising after contemporaneous notice to Webster
of Davidson's decision to abolish or modify its ADR
policy, it does not render illusory the parties' otherwise
clearly enforceable arbitration agreement.
I to determine the relationship between Davidson and its
Whether an agreement imposes a duty on the parties to
arbitrate a dispute is a matter of contract interpretation
and a question of law for the court. Tenet Healthcare
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Ltd. v. Cooper, 960 S.W.2d 386, 388 (Tex.App.-Houston
[14th Dist.] 1998, pet. dism'd w.o.j.). Similarly, whether a
contract is ambiguous is itself a question of law. Kelley–
Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
464 (Tex.1998). We review questions of law de novo. El
Paso Natural Gas Co. v. Minco Oil & Gas, Inc., 8 S.W.3d
309, 312 (Tex.1999). In a de novo review, no deference
is accorded to the lower court decision. Quick v. City of
Austin, 7 S.W.3d 109, 116 (Tex.1998).
The one-page contract was the only evidence presented by
the parties in the trial court. Accordingly, the only issues
on appeal are the legal questions of whether the contract
is ambiguous and illusory. I apply de novo review to both.
II
The contract states that Davidson “reserves the right
to unilaterally abolish or modify any personnel policy
without prior notice.” The Court professes an inability
to decipher whether the arbitration policy ratified by the
contract is a “personnel *240 policy” and, sua sponte,
therefore concludes that the contract is ambiguous.
However, uncertainty or lack of clarity is not enough
to render a contract ambiguous. Universal C.I.T. Credit
Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157
(1951) (“It must be conceded that there is an absence of
artistry in the grammatical construction and punctuation
of paragraph 1 of the contract, but is its meaning when
properly read and interpreted so dubious as to subject the
contract to the charge of ambiguity, thereby justifying the
court in calling into play the rule of strong construction
against the author of an instrument? We think not.”);
Preston Ridge Fin. Servs. Corp. v. Tyler, 796 S.W.2d 772,
777 (Tex.App.-Dallas 1990, writ denied); Med. Towers,
Ltd. v. St. Luke's Episcopal Hosp., 750 S.W.2d 820, 822
(Tex.App.-Houston [14th Dist.] 1988, writ denied).
Contractual provisions must be considered with reference
to the entire instrument. Myers v. Gulf Coast Minerals
Mgmt. Corp., 361 S.W.2d 193, 196 (Tex.1962). The
main heading of the parties' contract reads “Alternative
Dispute Resolution Policy” and the text below purports
personnel. See E.H. Perry & Co. v. Langbehn, 113 Tex.
72, 252 S.W. 472, 474–75 (1923) (title of an instrument,
like every other portion of a contract, may be consulted
in determining its meaning). In this context, we must give
13
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
the phrase “any personnel policy” its natural and obvious
import. See, e.g., Pagel v. Pumphrey, 204 S.W.2d 58, 64
(Tex.Civ.App.-San Antonio 1947, writ ref'd n.r.e.).
Applying the foregoing rules of construction, it is clear
that the arbitration policy memorialized in the contract
is a “personnel policy” and that the disputed provision
unambiguously provides that Davidson has the right to
abolish or modify its arbitration policy without prior
notice. I simply cannot conclude that an arbitration policy
that governs the conditions of employment for personnel
is not encompassed by the phrase “any personnel policy,”
particularly when that phrase appears in a contract that is
primarily devoted to setting forth an arbitration policy.
III
Justice Schneider asserts, and the Court implies, that
if the disputed termination provision does apply to
Davidson's arbitration policy, the contract is illusory.
Because Davidson retained the ability to unilaterally
abolish or modify its arbitration policy at any time, the
argument goes, it assumed no obligation to Webster,
and therefore Davidson's promise to arbitrate does
not constitute consideration for Webster's reciprocal
promise. 1 In my view, the provision's “without prior
notice” language does not disclaim the requirement set
forth in Hathaway v. General Mills, Inc., 711 S.W.2d 227
(Tex.1986) of contemporaneous notice for modifications
to the at-will employment relationship. The provision
is properly construed as applying only prospectively to
disputes arising after contemporaneous notice to Webster
of Davidson's decision to abolish or modify its ADR
policy.
It is significant that the word “prior” precedes “notice”
in the relevant provision. We must presume that each
word in a contract has some significance and meaning.
Gates v. Asher, 154 Tex. 538, 280 S.W.2d 247, 249 (1955).
For example, courts presume that words that follow one
another are not intended to be redundant. See Gulf Metals
Indus., Inc. v. Chicago *241 Ins. Co., 993 S.W.2d 800,
805 (Tex.App.-Austin 1999, pet. denied) (in construing
the phrase “sudden and accidental,” a temporal meaning
was applied to “sudden” because “accidental” describes
an unforeseen or unexpected event and ascribing the same
meaning to “sudden” would render the terms redundant
and violate the rule that each word in a contract be given
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
effect.). Applying the foregoing Texas case law, we must
presume that the parties in this case did not intend for
the phrase “without prior notice” to mean without any
notice. 2
I have been unable to locate any Texas or federal case law
specifically addressing whether the phrase “without prior
notice” should be given the same meaning as “without
notice.” 3 However, an English appellate court concluded:
A clause providing for termination of the scheme by
the employer “without prior notice” means without
notice in advance. Those words do not suggest that
notice does not have to be given to effect termination
of rights under the contract of employment. The clause
puts the employee on warning that the scheme might not
be permanent and that the employer reserves the right
to terminate it without giving advance warning, but it
does not mean that the employer's obligations can end
without the employee being told.
Bainbridge v. Circuit Foil (UK) Ltd. [1997], Industrial
Relations Law Reports (IRLR) 305 (Eng.C.A.). While
authority authored on this side of the Atlantic is
obviously preferable, an opinion issued by an English
appellate court can surely be considered on a question
such as the one presented here that does not involve
interpretation of a statutory or constitutional provision,
but rather interpretation of three basic English words
contained in a private employment contract.
Consistent with the well-established rule that each word
in a contract be given effect, the phrase “without prior
notice” contained in the parties' contract should be
interpreted to mean without notice in advance rather than
without any notice. Therefore, the “without prior notice”
language does not disclaim the contemporaneous notice
that is required by Texas common law to effect a change
in the terms of an at-will employment relationship. 4
In Hathaway, we held that the party asserting a change to
an at-will employment contract “must prove two things:
(1) notice of the change; and, (2) acceptance of the
change.” 711 S.W.2d at 229. We noted that “[t]o prove
notice, an employer *242 asserting a modification must
prove that he unequivocally notified the employee of
definite changes in employment terms.” Id. We did not
indicate when the notice had to be provided, thereby
implying it could be given either in advance of or
contemporaneous with the policy change. 5
14
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196
The Hathaway requirements are applicable here because
the parties sought to modify their pre-existing at-will
employment relationship to include binding arbitration.
The contract, including the arbitration agreement therein,
is incident to the at-will employment relationship between
Davidson and Webster and refers to this relationship
in several places. Therefore, if Davidson abolished or
modified its arbitration policy, this would effect a change
in the terms of the at-will employment relationship
between it and Webster.
“Words of promise which by their terms make
performance entirely optional with the ‘promisor’ do
not constitute a promise.” RESTATEMENT (SECOND)
OF CONTRACTS § 77 cmt. a (1981). However, “[a]
limitation on the promisor's freedom of choice need not be
stated in words. It may be an implicit term of the promise,
or it may be supplied by law.” Id. cmt. d. The provision at
issue here, while disclaiming advance notice, is consistent
with Hathaway's contemporaneous notice requirement
and, as such, should not be read as an attempt to disclaim
this implied, default legal prerequisite for modifying the
conditions of an at-will employment relationship. 6
Other courts have determined that when a contractual
termination or modification provision does not state
whether it applies prospectively or retroactively, the
default interpretation should be prospective only, as this
avoids nullifying the intent of the parties to form an
agreement. See Barker v. Ceridian Corp., 122 F.3d 628,
638 (8th Cir.1997) (where retirement plan was silent
regarding whether terms could be modified retroactively,
prospective application favored because it avoids finding
promise illusory); Kemmerer v. ICI Ams., Inc., 70 F.3d 281,
287–88 (3d Cir.1995).
Several other courts have adopted Kemmerer's rationale:
The court's reasoning [in Kemmerer]
can be captured in a simple
illustration. If an employee is
promised $10 per hour effective
Monday, and told that her wage
can be reduced at any time, and
on Wednesday her wage is cut to
$5 effective Thursday, her employer
cannot refuse on pay day to give
her $10 per hour for her work on
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Monday through Wednesday. Far
from requiring that the employer
express an explicit intent to pay
$10 per hour for Monday through
Wednesday's work notwithstanding
the employer's freedom to reduce
wages at any time, the Third
Circuit held that what would have
to be preserved explicitly would
be an employer's right to *243
apply the reduced wage retroactively
to Monday through Wednesday's
work. A contrary rule would lack
any basis in contract law....
Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 805
A.2d 547, 559 (Pa.Super.Ct.2002) (quoting Amatuzio v.
Gandalf Sys. Corp., 994 F.Supp. 253, 266 (D.N.J.1998)).
Indeed, Justice Schneider's dissent 7 and, if its second
footnote is more than mere dicta, the Court's
opinion, would render the entire at-will employment
contract between Webster and Davidson illusory because
Webster's rate of compensation and all other “personnel
policies” would be subject to unilateral, retroactive
change by Davidson. Certainly, this is not a reasonable
interpretation.
Because the disputed provision did not expressly authorize
Davidson to retroactively alter the arbitration agreement,
I would follow the rule that, unless expressly stated
otherwise, such provisions should be interpreted to apply
only prospectively. Consequently, Davidson would be
perpetually bound to arbitrate any dispute that arose
prior to Davidson informing Webster of a change in its
arbitration policy. As such, Davidson could not, after a
dispute had arisen, let alone during the final stages of
binding arbitration, implement a change in its arbitration
policy that would be applicable to that dispute.
Finally, reading the contract as allowing Davidson to
unilaterally abolish or modify the arbitration policy only
prospectively with contemporaneous notice is supported
by the long-standing rule that contracts should be
construed in favor of validity. See Wood Motor Co.,
Inc. v. Nebel, 150 Tex. 86, 238 S.W.2d 181, 183 (1951)
(“It is elementary that if a contract is susceptible of two
constructions, one of which would render it valid and the
other void, the former will be adopted.”); Harris v. Rowe,
15
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196

593 S.W.2d 303, 306 (Tex.1979); Lavaca Bay Autoworld v.

Marshall Pontiac Buick Oldsmobile, 103 S.W.3d 650, 657
(Tex.App.-Corpus Christi 2003, no pet.). Since the parties
are presumed to know the law and intend their contract to
have legal effect, their contract will be construed in view
of this presumption. Foard County v. Sandifer, 105 Tex.
420, 151 S.W. 523, 524 (1912); Dewhurst v. Gulf Marine
Inst. of Tech., 55 S.W.3d 91, 97 (Tex.App.-Corpus Christi
2001, pet. denied). We have specifically held that contracts
should be construed in favor of mutuality. Tex. Gas Utils.
Co. v. Barrett, 460 S.W.2d 409, 412 (Tex.1970).
Under this prospective construction, whereby Davidson
is free to alter its arbitration policy after giving
contemporaneous notice only as to claims that had not
yet arisen, it is clear that the contract is not illusory.
Once the parties' contract is read as not disclaiming
the contemporaneous notice requirement set forth in
Hathaway, this case becomes indistinguishable from In
re Halliburton Co., 80 S.W.3d 566 (Tex.2002) in which
we held that a similar arbitration agreement was not
illusory because the unilateral termination provision could
be exercised only with notice.
IV
By binding itself to arbitration until it provides
contemporaneous notice of a new dispute resolution
policy that will apply only prospectively, Davidson
has provided consideration to Webster, and the
parties' contract is therefore not illusory. If the *244
contract were interpreted as allowing Davidson to
retroactively revoke the arbitration agreement without
contemporaneous notice, it would either be illusory or
unconscionable, as Davidson could decide after a dispute
arises whether it prefers to arbitrate or go to court.
However, that is not this case.
Based on the foregoing, I conclude that the contract
is neither ambiguous nor illusory, and therefore validly
compels the parties to arbitrate their dispute. Accordingly,
I respectfully dissent.
All Citations
128 S.W.3d 223, 20 IER Cases 1315, 47 Tex. Sup. Ct. J.
196

Footnotes
1 Davidson has not filed a petition for writ of mandamus with this Court under the Federal Arbitration Act, see Jack B. Anglin
Co. v. Tipps, 842 S.W.2d 266, 272–73 (Tex.1992), and does not dispute that the Texas Arbitration Act controls.
2 We note that most courts that have considered this issue have held that, if a party retains the unilateral, unrestricted right
to terminate the arbitration agreement, it is illusory. Dumais v. Am. Golf Corp., 299 F.3d 1216, 1219 (10th Cir.2002) (“We
join other circuits in holding that an arbitration agreement allowing one party the unfettered right to alter the arbitration
agreement's existence or its scope is illusory.”); Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315–16
(6th Cir.2000) (arbitration agreement was “fatally indefinite” and illusory because employer “reserved the right to alter
applicable rules and procedures without any obligation to notify, much less receive consent from,” other parties) (citing 1
SAMUEL WILLISTON, CONTRACTS § 43, at 140 (3d ed.1957)); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 939 (4th
Cir.1999) (arbitration agreement unenforceable in part because Hooters, but not employee, could cancel agreement with
30 days notice, and Hooters reserved the right to modify the rules “without notice”; “[n]othing in the rules even prohibits
Hooters from changing the rules in the middle of an arbitration proceeding.”); Gibson v. Neighborhood Health Clinics,
121 F.3d 1126, 1133 (7th Cir.1997) (Cudahy, J., concurring) (promise to arbitrate was illusory in part because employer
retained the right to change or revoke the agreement “at any time and without notice”); Snow v. BE & K Constr. Co., 126
F.Supp.2d 5, 14–15 (D.Maine 2001) (citations omitted)(arbitration agreement illusory because employer “reserve[d] the
right to modify or discontinue [the arbitration] program at any time”; “Defendant, who crafted the language of the booklet,
was trying to ‘have its cake and eat it too.’ Defendant wished to bind its employees to the terms of the booklet, while
carving out an escape route that would enable the company to avoid the terms of the booklet if it later realized the booklet's
terms no longer served its interests.”); Trumbull v. Century Mktg. Corp., 12 F.Supp.2d 683, 686 (N.D.Ohio 1998)(no
binding arbitration agreement because “the plaintiff would be bound by all the terms of the handbook while defendant
could simply revoke any term (including the arbitration clause) whenever it desired. Without mutuality of obligation, a
contract cannot be enforced.”); Simpson v. Grimes, 849 So.2d 740, 748 (La.Ct.App.2003) (arbitration agreement lacked
mutuality, making it “unconscionable and unenforceable”: “By retaining the right to modify at will any and all provisions
of the agreement in question, Argent allows itself an escape hatch from its promise to be similarly bound to arbitrate all

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 16

J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (2003)
20 IER Cases 1315, 47 Tex. Sup. Ct. J. 196

disputes arising between the parties. Argent's ability to modify the specific terms of the agreement at will is not shared
by the potential customer signing the agreement.”); In re C & H News Co., No. 13–02–529–CV, ––– S.W.3d ––––,
–––– – ––––, 2003 WL 131770, *3, 2003 Tex.App. LEXIS 393, *11–*12 (Tex.App.-Corpus Christi January 16, 2003,
orig. proceeding) (employer's right to change, modify, delete, or amend the arbitration agreement “with or without prior
notification to employees” made the arbitration agreement illusory).
1 The ADR Policy Webster signed contained only two paragraphs. The first paragraph had two sentences covering thirteen
lines, and the second paragraph had thirteen sentences and nineteen lines, for a total of fifteen sentences spanning
twenty-seven lines of text. Arbitration is only discussed in two of the fifteen sentences. The body of the document occupied
approximately half of a letter size page. The ADR Policy has the company name, J.M. Davidson, Inc., at the top of the
page in an all capitals, bold face font similar to a company letterhead. The title of the agreement, also in all capital,
bold letters, is “ALTERNATIVE DISPUTE RESOLUTION POLICY.” The sub-title of the document is “EMPLOYMENT
APPLICATION LANGUAGE,” styled in all capitals under the title.
1 However, there is no evidence that Davidson ever attempted to abolish or modify the arbitration agreement or that Webster
ever harbored any doubt that he could compel arbitration for any dispute that arose, including the one before the Court.
2 Neither the Court nor Justice Schneider attributes any meaning to “prior” and both repeatedly refer to the disputed
provision as stating “without notice,” thereby, sub silentio, writing the word “prior” out of the parties' contract.
3 Justice Schneider argues that Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex.1991) and Musgrave v. HCA
Mideast, Ltd., 856 F.2d 690 (4th Cir.1988) are “applicable precedent.” 128 S.W.3d at 234. However, neither case is on
point. In both Shumway and Musgrave, whether the phrase “without prior notice” should be given a different meaning
from “without notice” was not at issue and, therefore, was neither addressed nor decided.
4 Another factor counseling in favor of interpreting the relevant provision as applying only prospectively without disclaiming
Texas common law requiring contemporaneous notice is the use of the word “reserves.” This word choice suggests that
Davidson is memorializing a right that is consistent with its existing legal rights. “This word [reserves] means to keep or
retain; that is to say, to keep what one already has. You do not reserve a right which you do not possess.” Baldwin v.
Bd. of Tax–Roll Corrs., 331 P.2d 412, 414 (Okla.1958).
5 Justice Schneider argues that the relevant provision “contradict [s] the Hathaway requirements.” 128 S.W.3d at 237.
However, in Hathaway we required only notice, not advance notice.
6 This case is distinguishable from the following cases cited in the Court's second footnote in which arbitration agreements
were held to be illusory because the provision at issue allowed one party to terminate the agreement at any time without
any notice. Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315–16 (6th Cir.2000) (arbitration agreement was
“fatally indefinite” and illusory because employer reserved the right to alter applicable rules and procedures without any
obligation to notify employee); Gibson v. Neighborhood Health Clinics, 121 F.3d 1126, 1133 (7th Cir.1997) (Cudahy, J.,
concurring) (promise to arbitrate was illusory because employer retained the right to change or revoke the agreement
“at any time and without notice.”).
7 For example, Justice Schneider asserts: “Davidson's right to unilaterally abolish or modify any personnel policy without
prior notice must be given its plain and ordinary meaning. Thus, the unilateral termination language must mean that
Davidson can cancel or alter any personnel policy without informing Webster.” 128 S.W.3d at 235.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 17

Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542 (2014)
57 Tex. Sup. Ct. J. 584
433 S.W.3d 542
Supreme Court of Texas.
KENNEDY HODGES, L.L.P., Petitioner,
v.
Ventura GOBELLAN, Jr. and
Paula Gobellan, Respondents.
No. 13–0321.
| 5 Cases that cite this headnote
May 16, 2014.
Synopsis
Background: Law firm filed suit against former firm
clients under contingency fee agreement, after clients
retained former associate who subsequently left firm.
Law firm subsequently decided to intervene in clients'
wrongful death suit against employer and moved to
compel arbitration of fee agreement dispute in that
action. The 24th District Court, Jackson County, Kemper
Stephen Williams, J. denied motion to compel arbitration
based on determination that it waived arbitration, and
law firm appealed. The Corpus Christi Court of Appeals,
433 S.W.3d 579, 2013 WL 1092239, affirmed. Law firm
petitioned for review.
Holdings: The Supreme Court held that:
[1] law firm did not waive arbitration on claims under
contingency fee agreement by litigating claims against
former associate for breach of employment agreement and
tort claims;
[2] law firm did not waive arbitration by filing pleading
in suit against clients, followed by motion for no-answer
default judgment; and
[3] law firm did not waive arbitration by intervening in
clients' wrongful death suit against client's employer and
by moving to compel arbitration.
Petition for review granted; judgment of Court of Appeals
reversed; remanded to District Court.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
West Headnotes (7)
[1] Alternative Dispute Resolution
Scope and standards of review
Whether a party's conduct waives its right to
arbitrate is a question of law the appellate
court reviews de novo.
[2] Alternative Dispute Resolution
Suing or participating in suit
Alternative Dispute Resolution
Evidence
A party waives the right to arbitrate by
substantially invoking the judicial process to
the other party's detriment or prejudice, and
the strong presumption against waiver renders
this hurdle a high bar.
12 Cases that cite this headnote
[3] Alternative Dispute Resolution
Waiver or Estoppel
Whether a party has waived arbitration is
decided on a case-by-case basis by assessing
the totality of the circumstances.
2 Cases that cite this headnote
[4] Alternative Dispute Resolution
Suing or participating in suit
In the context of a determination as to
whether a party has waived the right to
arbitration by substantially invoking the
judicial process, prejudice to the party
opposing arbitration is 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.
10 Cases that cite this headnote
[5] Alternative Dispute Resolution
1
Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542 (2014)
57 Tex. Sup. Ct. J. 584
Suing or participating in suit
Law firm did not waive arbitration on claims
under contingency fee agreement against
former firm clients by litigating claims against
former associate who took clients with him
when he left firm; clients were not parties in
law firm's suit against former associate for
breach of employment agreement and tort
claims, law firm did not litigate with clients,
and firm's litigation with former associate did
not cause delay, expense, or damage to clients'
legal position.
1 Cases that cite this headnote
[6] Alternative Dispute Resolution
Suing or participating in suit
By filing pleading in suit against former
clients on claims arising out of contingency fee
agreement after clients retained firm's former
associate who then left firm, and filing motion
for no-answer default judgment, law firm did
not substantially invoke judicial process, as
grounds for finding that law firm waived
arbitration of claims.
Cases that cite this headnote
[7] Alternative Dispute Resolution
Suing or participating in suit
Law firm did not waive arbitration of
claims arising out of contingency agreement
with firm clients by intervening in clients'
wrongful death suit against client's employer,
in which suit clients were represented by
former associate who took clients with him
when he left firm, and by moving to compel
arbitration.
1 Cases that cite this headnote
Attorneys and Law Firms
*543 Cory Reed, Thompson, Coe, Cousins & Irons,
Kevin F. Risley, Zandra Elayne Foley, Thompson Coe
Cousins & Irons LLP, Houston, TX, for Petitioner.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
John W. Griffin Jr., Robert Edward McKnight Jr.,
Marek, Griffin & Knaupp L.L.P., Robert P. Houston,
Attorney at Law, Victoria, TX, for Respondents.
Opinion
PER CURIAM.
A party waives its right to arbitration by substantially
invoking the judicial process to the other party's detriment
or prejudice. Proving waiver is a high hurdle due to the
strong presumption against waiver of arbitration. This
appeal concerns whether a law firm waived its right to
arbitrate a fee dispute with former clients by litigating
with a former associate. After the associate left the firm
and took several clients with him, the firm sued the
*544 former associate—with whom it had no arbitration
agreement—over client contingency fees. The firm also
sued the former clients and moved to compel that dispute
to arbitration pursuant to an arbitration clause in the
contingency fee agreement between the firm and the
clients. The trial court and the court of appeals both
concluded that because the firm had litigated the fee
issue with the former associate, it waived its right to
arbitrate any claims stemming from its fee agreement
with the former clients. Importantly, the firm could not
arbitrate its dispute with the former associate because it
had no arbitration agreement with him. Because the firm's
litigation with the former associate neither prejudiced
the former clients nor substantially invoked the litigation
process with them, we reverse the court of appeals'
judgment and remand to the trial court.
Ventura Gobellan was driving an armored car for his
employer when the vehicle became unstable and rolled
over, killing a passenger and injuring Gobellan. Gobellan
and his wife retained Kennedy Hodges, L.L.P. to defend
against a wrongful death suit and to bring suit against
Gobellan's employer and other defendants (the Gobellan
Suit). The Gobellans agreed to pay Kennedy Hodges forty
percent of the gross recovery obtained after suit was filed
but before trial. Their fee agreement provided that the
Gobellans would be liable for the entire contingency fee
if they terminated Kennedy Hodges without cause and
required the Gobellans and Kennedy Hodges to arbitrate
any fee dispute. Kennedy Hodges assigned associate
attorney Canonero Brown to the case.
2
Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542 (2014)
57 Tex. Sup. Ct. J. 584
Brown subsequently left Kennedy Hodges and assured
Gobellan “he would work out a fee splitting arrangement
with Kennedy Hodges and that [they] would not be
affected.” The Gobellans retained Brown to represent
them. Kennedy Hodges sued Brown to recover
contingency fees for former clients he took with him (the
Brown Suit). The Gobellans were not a party to that suit.
Kennedy Hodges later settled with Brown for a portion of
all contingency fees collected from former firm clients who
retained Brown, including the Gobellans.
In the Gobellan Suit, Gobellan's employer and the
Gobellans submitted their dispute to arbitration. The
Gobellans obtained an award that was confirmed in a
final judgment, which Gobellan's employer satisfied by
paying $470,000. Kennedy Hodges sued the Gobellans
in a separate proceeding, and moved for a no-answer
default judgment. But after conferring with the Gobellans,
Kennedy Hodges pursued its claim in the Gobellan Suit
by intervening and moving to compel arbitration. The
trial court denied the motion, and the court of appeals
affirmed, concluding that Kennedy Hodges substantially
invoked the litigation process as to the Gobellan fee based
on the discovery it conducted in the Brown Suit. 433
S.W.3d 579, 585. The court also found the Gobellans
established prejudice because Kennedy Hodges attempted
to “have it both ways” by switching between litigation
and arbitration. Id. at 585. As we explain below, the court
of appeals' decision conflicts with our decision in Perry
Homes v. Cull, 258 S.W.3d 580 (Tex.2008), on a question
of law material to the disposition of the case, which
confers jurisdiction on this Court over this interlocutory
appeal, TEX. CIV. PRAC. & REM.CODE § 171.098(a)
(1); TEX. GOV'T CODE §§ 22.001(a)(2), 22.225(c).
The Gobellans argue Kennedy Hodges's litigation in the
Brown Suit substantially invoked the litigation process
against them. Kennedy Hodges counters that the Brown
Suit contained tort and contract claims not involving the
Gobellans as parties. We agree with Kennedy Hodges.
*545 [1] [2] [3] [4] Because the parties do not disputeparties to the Brown Suit. The Brown Suit involved
the facts, whether Kennedy Hodges's conduct waived its
right to arbitrate is a question of law we review de novo.
Cull, 258 S.W.3d at 598 & n. 102. A party waives the right
to arbitrate “by substantially invoking the judicial process Brown. By contrast, the Gobellan Suit involved an alleged
to the other party's detriment or prejudice.” Id. at 589–
90. The strong presumption against waiver of arbitration
renders this hurdle a high bar. Id. at 590. We decide waiver By litigating with Brown, Kennedy Hodges did not
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
on a case-by-case basis by assessing the totality of the
circumstances. Id. We have considered such factors as
(1) when the movant knew of the arbitration clause; (2)
how much discovery was conducted; (3) who initiated the
discovery; (4) whether the discovery related to the merits
rather than arbitrability or standing; (5) how much of the
discovery would be useful in arbitration; and (6) whether
the movant sought judgment on the merits. Id. at 591–
92. Further, the substantial invocation of the litigation
process must also have prejudiced the opposing party. Id.
at 593. In this context, prejudice is “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.” Id. at 597.
Two cases in particular illuminate how we apply this
standard. First, in Cull, the Culls substantially invoked the
litigation process by initially resisting the opposing party's
motion to compel arbitration, filing motions to compel
discovery, conducting extensive discovery about every
aspect of the merits, and waiting until shortly before trial
to request arbitration. Id. at 595–97. There, we specifically
emphasized the extreme delay the Culls caused, which we
noted undercuts one of the prime benefits of arbitration:
an expedient and cost-effective dispute resolution process.
Id. at 596. Additionally, our statement that waiver occurs
when a party substantially invokes litigation with “the
other party[ ]” indicates the party claiming waiver was the
other party in the litigation. Id. at 590.
More relevant to our inquiry here, we held in In re
Service Corp. International that a party who litigated one
claim with an opponent did not substantially invoke the
litigation process for a related yet distinct claim against
another party with whom it had an arbitration agreement.
85 S.W.3d 171, 175 (Tex.2002).
[5] Here, Kennedy Hodges's litigation with Brown
in the Brown Suit did not substantially invoke the
litigation process with the Gobellans, who were not
alleged breaches of Brown's employment agreement with
Kennedy Hodges as well as tort claims. And there was
no arbitration agreement between Kennedy Hodges and
breach of the Gobellans' contingency fee agreement with
Kennedy Hodges, which contains an arbitration clause.
3
Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542 (2014)
57 Tex. Sup. Ct. J. 584

litigate with the Gobellans. Our holding in Service Corp. Gobellan Suit and moved to compel their dispute to
arbitration. The firm conducted no discovery. In sum, we
International, compels this conclusion. Id. Additionally,
conclude Kennedy Hodges did not substantially invoke
Kennedy Hodges's litigation with Brown did not prejudice
the litigation process with the Gobellans by intervening
the Gobellans as it did not cause delay, expense, or
and moving to compel arbitration. See Vesta, 192 S.W.3d
damage to the Gobellans' legal position. See Cull, 258
at 763–64.
S.W.3d at 597.

To conclude, Kennedy Hodges's litigation conduct

[6] [7] Likewise, we cannot agree that Kennedy
involved suing a third party with whom it had no
Hodges substantially invoked the litigation process with
arbitration agreement and filing limited pleadings against
its pleadings against the Gobellans. Kennedy Hodges
the Gobellans. Such activity did not substantially invoke
filed pleadings against the Gobellans in two suits. First,
the litigation process against the Gobellans or prejudice
Kennedy Hodges initiated litigation against the Gobellans
them. Thus, Kennedy Hodges did not waive its right
in a separate proceeding in Harris County and filed
to arbitrate its dispute with the Gobellans. Accordingly,
a motion for a no-answer default judgment. But these
without hearing oral argument, TEX.R.APP. P. 59.1, we
pleadings alone do not rise to the level required to show
grant the petition for review, reverse the court of appeals'
waiver. See, e.g., id. at 592 (assessing whether a party
judgment, and remand to the trial court to grant Kennedy
*546 moved for judgment on the merits); In re Vesta Ins.
Hodges's motion to compel arbitration.
Grp., Inc., 192 S.W.3d 759, 763–64 (Tex.2006) (holding
that seeking initial discovery, taking four depositions,
and moving for dismissal did not substantially invoke All Citations
the litigation process). Second, after conferring with the
Gobellans, Kennedy Hodges intervened in the existing 433 S.W.3d 542, 57 Tex. Sup. Ct. J. 584

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

McReynolds v. Elston, 222 S.W.3d 731 (2007)

KeyCite Yellow Flag - Negative Treatment West Headnotes (26)

Declined to Follow by Delfingen US-Texas, L.P. v. Valenzuela, 
Tex.App.-El Paso, February 6, 2013
222 S.W.3d 731 [1] Alternative Dispute Resolution
Court of Appeals of Texas, Review
Houston (14th Dist.). Alternative Dispute Resolution
Decisions reviewable; finality
L. Bland McREYNOLDS and Mandamus
Judith Bauman, Appellants Civil proceedings other than actions
v.
Mandamus
Lanelle ELSTON, Appellee. Jurisdiction and authority
In re L. Bland McReynolds
Court of Appeals had interlocutory rather
and Judith Bauman, Relators. than mandamus jurisdiction to consider
denial of former husband's motion to
Nos. 14–06–00974–CV, 14–06–00980–CV.
stay arbitration which former wife initiated
|
under partnership agreement and to compel
March 27, 2007.
arbitration under settlement agreement, as
Synopsis trial court order denied former husband his
Background: Former husband brought motion to compel alleged right to arbitration, where former
arbitration pursuant to settlement agreement with former husband sought not simply to change
wife regarding their partnership and to stay other arbitrators, but rather to enforce his express
arbitration which former wife initiated pursuant to contractual right of arbitration under the
partnership agreement. The 129th District Court, Harris settlement agreement, motion to compel that
County, Samuel Grant Dorfman, J., denied the motion, arbitration constituted the predominant relief
and former husband appealed. sought in former husband's motion, and trial
court's order was titled as a denial of the
motion to compel arbitration. V.T.C.A., Civil
Practice & Remedies Code § 171.098(a)(1).
Holdings: The Court of Appeals, Leslie B. Yates, J., held
that: 6 Cases that cite this headnote

[1] Court of Appeals had interlocutory rather than

[2] Appeal and Error
mandamus jurisdiction;
Interlocutory and Intermediate Decisions
[2] former wife's claims fell under settlement agreement's Court of Appeals has jurisdiction to consider
arbitration clause rather than partnership agreement's appeals of interlocutory orders only if a
arbitration clause; statute explicitly so provides.

Cases that cite this headnote

[3] former husband did not substantially invoked
arbitration under partnership agreement; and
[3] Alternative Dispute Resolution
[4] any act by former husband in invoking arbitration Validity
under partnership agreement did not result in prejudice to Alternative Dispute Resolution
former wife. Disputes and Matters Arbitrable Under
Agreement

Reversed and remanded. Under Texas Arbitration Act (TAA), a party

moving to compel arbitration must establish

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

McReynolds v. Elston, 222 S.W.3d 731 (2007)
(1) the existence of a valid, enforceable
arbitration agreement and (2) that the
claims asserted fall within the scope of
that agreement. V.T.C.A., Civil Practice &
Remedies Code § 171.001 et seq.
6 Cases that cite this headnote
[4] Alternative Dispute Resolution
Evidence
If the movant for arbitration establishes
that an arbitration agreement governs the
dispute, the burden then shifts to the party
opposing arbitration to establish a defense
to the arbitration agreement. V.T.C.A., Civil
Practice & Remedies Code § 171.001 et seq.
5 Cases that cite this headnote
[5] Alternative Dispute Resolution
Modification or termination
A party may revoke an agreement to arbitrate
only on a ground that exists at law or in equity
for the revocation of a contract. V.T.C.A.,
Civil Practice & Remedies Code § 171.001.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Right to Enforcement and Defenses in
General
If the trial court concludes the movant for
arbitration has met its burden and the party
opposing arbitration has failed to prove its
defenses, the trial court has no discretion but
to compel arbitration.
7 Cases that cite this headnote
[7] Alternative Dispute Resolution
Existence and validity of agreement
Issue of whether former husband fraudulently
induced former wife to enter entire settlement
agreement, which contained arbitration
clause, was an issue for the arbitrators rather
than the court.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Cases that cite this headnote
[8] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Former wife's claims against former
husband regarding the acquisition, sale,
and distribution of partnership assets fell
under settlement agreement's arbitration
clause rather than partnership agreement's
arbitration clause; language of settlement
agreement, which expressly stated that
transfers were intended to “effect” the
liquidation and dissolution of the partnership
and which broadly released claims “relating
to” the partnership and “all other matters
relating to assets or liabilities” of the
partnership and former husband and wife,
indicated that it superseded the partnership
agreement, and settlement agreement's
arbitration clause itself contained sweeping
language which purported to cover claims
arising under that agreement or “any matter
relating hereto.”
3 Cases that cite this headnote
[9] Alternative Dispute Resolution
Scope and standards of review
On review of whether a claim falls within
the scope of an arbitration agreement,
the appellate court focuses on the factual
allegations of the complaint rather than the
legal causes of action asserted.
6 Cases that cite this headnote
[10] Alternative Dispute Resolution
Evidence
The burden lies with the party opposing
arbitration to show that the claims fall outside
the scope of the arbitration agreement.
6 Cases that cite this headnote
[11] Alternative Dispute Resolution
Arbitration favored; public policy
2
McReynolds v. Elston, 222 S.W.3d 731 (2007)
Alternative Dispute Resolution
Construction in favor of arbitration
There is a presumption favoring arbitration,
which generally requires that the court resolve
doubts as to the scope of the agreements in
favor of coverage.
1 Cases that cite this headnote
[12] Alternative Dispute Resolution
Construction in favor of arbitration
A court should not deny arbitration unless
it can be said with positive assurance that
an arbitration clause is not susceptible of an
interpretation that would cover the dispute at
issue.
2 Cases that cite this headnote
[13] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
The presumption of arbitrability is
particularly applicable where the clause is
broad; that is, it provides for arbitration of
“any dispute arising between the parties,”
or “any controversy or claim arising out of
or relating to the contract thereof,” or “any
controversy concerning the interpretation,
performance or application of the contract.”
2 Cases that cite this headnote
[14] Alternative Dispute Resolution
Construction in favor of arbitration
The presumption of arbitrability is not
without limits and cannot serve to stretch a
contractual clause beyond the scope intended
by the parties or authorize an arbitrator
to disregard or modify the plain and
unambiguous provisions of the agreement.
2 Cases that cite this headnote
[15] Alternative Dispute Resolution
Scope and standards of review
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Whether a party has waived its right to
arbitrate presents a question of law reviewed
de novo.
4 Cases that cite this headnote
[16] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of an arbitration right must be
intentional.
1 Cases that cite this headnote
[17] Alternative Dispute Resolution
Suing or participating in suit
Merely taking part in litigation is not enough
to waive a right to arbitration unless a party
has (1) substantially invoked the judicial
process (2) to its opponent's prejudice.
1 Cases that cite this headnote
[18] Alternative Dispute Resolution
Evidence
Because of the strong federal and state policies
favoring arbitration, a presumption exists
against the waiver of a contractual right to
arbitration.
Cases that cite this headnote
[19] Alternative Dispute Resolution
Suing or participating in suit
Former husband did not substantially invoke
arbitration under partnership agreement and
thus did not waive right to arbitration under
settlement agreement, even though former
husband filed motion to stay after panel
heard his objections to the arbitration, filed a
counterclaim and paid the filing fee, requested
documents from the arbitration association
and complied with their order to produce
documents, allowed arbitration association
to pre-screen arbitrators and objected to
arbitrators chosen for the panel, participated
in a conference call to discuss the appointment
of the panel, scheduling, discovery, and
other parameters of the arbitration, and
3
McReynolds v. Elston, 222 S.W.3d 731 (2007)
requested the panel for a factual and legal
determination of whether the partnership
agreement's arbitration clause controlled,
where former husband's acts were generally
of a defensive nature, and former husband
expressly took each action subject to his
objections to arbitration.
1 Cases that cite this headnote
[20] Alternative Dispute Resolution
Suing or participating in suit
To substantially invoke the judicial process
and waive a right to arbitration, a party must
make a specific and deliberate act after suit has
been filed that is inconsistent with its right to
arbitrate.
1 Cases that cite this headnote
[21] Alternative Dispute Resolution
Waiver or Estoppel
A party does not demonstrate an intent to
waive arbitration by consistently and timely
seeking to invoke its contractual right to
arbitration.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Suing or participating in suit
Purely defensive measures do not
substantially invoke the judicial process in a
manner that waives a right to arbitration.
Cases that cite this headnote
[23] Alternative Dispute Resolution
Waiver or Estoppel
Delay alone generally does not establish
waiver of a right to arbitration.
Cases that cite this headnote
[24] Alternative Dispute Resolution
Suing or participating in suit
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Any act by former husband in invoking
arbitration under partnership agreement with
former wife did not result in prejudice to
former wife, and thus husband did not
waive right to arbitration under settlement
agreement with former wife, despite her
allegations that she had to fight in two
forums; former wife initiated the arbitration,
former husband timely filed and repeatedly
stood on objections, requesting discovery only
to support his objections and submitting to
discovery only over objection, and there was
no suggestion that the discovery and costs
incurred would not inure to the benefit of the
arbitration under the settlement agreement.
Cases that cite this headnote
[25] Alternative Dispute Resolution
Waiver or Estoppel
Loss of time alone does not constitute
sufficient prejudice to establish waiver of a
right to arbitration.
Cases that cite this headnote
[26] Alternative Dispute Resolution
Waiver or Estoppel
Generalized complaints about delay and
expense, absent explanation and evidentiary
support, will not establish prejudice necessary
to find a waiver of a right to arbitration.
Cases that cite this headnote
Attorneys and Law Firms
*734 Kevin Dubose and John H. Boswell, Houston, for
appellants.
Alex Jerome Brown, Emilio F. Deayala, and Marc E.
Grossberg, Houston, for appellees.
*735 Panel consists of Justices YATES, ANDERSON,
and HUDSON.
4
McReynolds v. Elston, 222 S.W.3d 731 (2007)
OPINION
LESLIE B. YATES, Justice.
In this consolidated interlocutory appeal and mandamus
proceeding, appellants L. Bland McReynolds and Judith
Bauman challenge the trial court's order denying their
motion to compel arbitration. We deny the petition for
writ of mandamus and reverse and remand the trial court's
order under our interlocutory appellate jurisdiction.
BACKGROUND
This proceeding arises from a dispute over competing
arbitration agreements. On March 1, 1997, McReynolds
and Elston executed an agreement incident to their divorce
creating a limited partnership (“Partnership Agreement”)
whose “sole intent and purpose” was to “liquidate all of
the partnership assets ... and distribute the proceeds.” The
partnership assets listed in the agreement consist of the
parties' community property and include, among other
things, a large tract of real property (the “242 Tract”).
The agreement names McReynolds as general partner and
grants him authority to control the partnership assets and,
upon dissolution, to liquidate and sell or distribute the
assets; however, it does not expressly itemize transactions
that will effect liquidation of the assets. The agreement
names Elston as a limited partner and gives her various
rights to the assets. The agreement also contains the
following arbitration clause:
If a dispute among the Partners
arises out of or relates to
this Partnership, or the breach
of this Agreement, and if the
dispute cannot be settled through
direct discussions, the parties agree
to first endeavor to settle the
dispute in an amicable manner by
mediation under the Commercial
Mediation Rules of the American
Arbitration Association, before
resorting to arbitration. Thereafter,
any unresolved controversy or
claim arising out of or relating
to this Partnership or breach
of this Agreement, shall be
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
settled by arbitration in accordance
with the Commercial Arbitration
Rules of the American Arbitration
Association.
The partnership terminated on December 31, 1998
and subsequently entered liquidation. At some point
thereafter, a dispute arose, and Elston initiated arbitration
against McReynolds pursuant to the Partnership
Agreement, alleging he “improperly liquidat[ed]
Partnership assets and treat[ed] them as his sole property.”
As a result of this arbitration, on August 18, 1999, the
parties entered into a “Settlement Agreement and Full
and Complete Joint and Mutual Release” (“Settlement
Agreement”) to “settle[ ] the issues relating to the
various claims made or that could have been made.”
The Settlement Agreement is multifaceted and contains
numerous provisions relating to the partnership and
liquidation of the assets. First, the agreement specifically
outlines how each partnership asset should be liquidated
and contains residual language stating that Elston
“quitclaims to McReynolds all other assets of and
interests in Partnership assets not disposed of herein.”
To this end, the agreement states that “[t]he transfers
contemplated by the settlement are intended to effect
the liquidation and dissolution of the Partnership by
distribution of all its assets and the payment or
assumption of all its liabilities.” Second, the agreement
releases “all ... claims [by McReynolds and/or Elston]
relating to ... the Partnership and any and all other matters
relating to assets or liabilities of McReynolds, Elston,
or the Partnership.” 1 *736 Finally, the Settlement
Agreement contains an arbitration clause of its own:
In the event of any dispute under this Settlement
Agreement or any matter relating hereto ... the parties
agree to submit each dispute to Daniel Goldberg, for
binding disposition.... If the parties cannot agree on
the rules and procedures for the arbitration then the
AAA Rules for Commercial Disputes shall apply.... If
Dan Goldberg is unable to act as the arbitrator and the
parties cannot agree on the selection of an arbitrator[,]
the arbitrator shall be selected pursuant to the AAA
Rules.
Some years later, a further dispute arose between Elston
and McReynolds. On October 5, 2005, pursuant to the
Partnership Agreement's arbitration clause, Elston filed
a claim with the American Arbitration Association (the
5
McReynolds v. Elston, 222 S.W.3d 731 (2007)
“AAA Arbitration”) against McReynolds and his current
wife, Judith Bauman (collectively “McReynolds”),
asserting breach of fiduciary duty, breach of contract,
and fraud. Elston contended that in November 1997,
McReynolds and his business associate purchased for
themselves a 68–acre tract of real property for timber,
which was surrounded by the partnership's 242 Tract
and thus landlocked. Elston alleged McReynolds engaged
in the following improper conduct in connection with
the purchase: (1) failing to disclose this “partnership
opportunity” during the term of the partnership and
“potentially” improperly using partnership funds to
acquire the tract, (2) inducing her into executing the
Settlement Agreement by denying ownership of any other
property in his deposition for the arbitration resulting
in the agreement, (3) in the years after the settlement,
overcharging her for her share of the partnership expenses
on the 242 Tract by failing to segregate amounts for the
68–acre tract, and (4) failing to disclose his interest in the
68–acre tract until after he executed a contract with her
for the sale of a larger partnership tract containing the 68–
acre tract.
Thereafter, on October 23 or 24, 2005, McReynolds
filed objections to the AAA Arbitration, and, subject
to the objections, an answer and counterclaims.
McReynolds objected (1) that the acquisition of the
68–acre tract fell outside the scope of the Partnership
Agreement's arbitration clause, requesting “a factual and
legal determination whether the purported Arbitration
Agreement is binding on the parties to this claim,” (2)
to the “involvement” of the AAA, alleging that Elston's
current husband, an attorney of record in the claim,
had close ties to the designated three-arbitrator panel
and other AAA employees, and (3) to the use of a
three-arbitrator panel instead of a single arbitrator.
McReynolds's counterclaims included causes of action for
libel, slander, breach of contract, and intentional infliction
of emotional “trauma.”
The record reflects that over the next eight months,
McReynolds, through his attorney, John H. Boswell,
reasserted his objections in correspondence to the case
manager handling the AAA Arbitration. On March
29, 2006, Boswell explained that Elston improperly
brought the arbitration before an AAA panel under
the Partnership Agreement rather than before Daniel
Goldberg under the Settlement Agreement *737
(the “Goldberg Arbitration”). Boswell thus sought
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
dismissal of the AAA Arbitration, absent an explanation
from Elston's attorneys regarding why the Partnership
Agreement controlled. On May 15, 2006, Boswell again
informed the case manager that the AAA Arbitration
was improper under the Settlement Agreement and
warned that McReynolds would seek injunctive relief
against Elston if the matter could not be resolved.
Thereafter, on June 28, 2006, the AAA panel conducted
a “preliminary hearing and initial case management
conference,” which set dates for both the hearing
on McReynolds's objections and the final evidentiary
hearing for Elston's claim. Pursuant to the objections,
neither McReynolds nor Boswell participated in this
conference. Rather, on the same day, because of the
AAA's “failure to acknowledge the clear terms of the
Settlement Agreement,” McReynolds filed a declaratory
judgment action in district court requesting the court to
stay the AAA Arbitration and compel Elston to engage in
arbitration under the Settlement Agreement.
The AAA panel then heard McReynolds's objections
on July 28, 2006 and subsequently overruled them.
Thereafter, on September 28, 2006, McReynolds filed
a motion to compel the Goldberg Arbitration pursuant
to the Settlement Agreement and to dismiss or stay
the AAA Arbitration in district court. He maintained
that he “repeatedly requested that [Elston] submit to
contractual arbitration in accordance with [the Settlement
Agreement], but she has refused.” After a hearing, the
court denied the motion on October 24, 2006. 2
McReynolds now challenges the court's denial of his
motion to compel the Goldberg Arbitration and stay
the AAA Arbitration, seeking relief through a petition
for writ of mandamus, or, alternatively, an interlocutory
appeal.
ANALYSIS
I. Mandamus vs. Interlocutory Appeal
[1] We initially address whether we should review
the interlocutory order denying McReynolds's motion
under our interlocutory 3 or mandamus jurisdiction. The
parties agree that the facts of this case are atypical,
if not unique—a party simultaneously seeks to compel
arbitration under one agreement and stay arbitration
initiated under another agreement. McReynolds claims
we have interlocutory jurisdiction over denial of the
6
McReynolds v. Elston, 222 S.W.3d 731 (2007)
“motion to compel” relief because the Texas Arbitration
Act (“TAA”) expressly grants interlocutory jurisdiction
over denials of applications to compel arbitration. See
TEX. CIV. PRAC. & REM. CODE ANN. § 171.098(a)
(1) (Vernon 2005). McReynolds further contends that,
because the TAA requires orders compelling arbitration
to include a stay of other proceedings subject to
the arbitration, we have by extension interlocutory
jurisdiction to review a denial of the “motion to stay”
relief. See *738 id. § 171.021(c) (Vernon 2005). Elston
counters that, because McReynolds's motion sought to
stay pending arbitration and compel arbitration before
a different arbitrator, the court's order did not deny
the “right to arbitration” but merely allowed pending
arbitration to continue. Therefore, Elston reasons, the
trial court's order does not squarely fall under either
TAA section 171.098(a)(1) or section 171.098(a)(2),
which provides for appeals from grants of applications
to stay arbitration made under 171.023 section. See
id. § 171.098(a)(2) (Vernon 2005). As to mandamus,
McReynolds concedes that he believes his challenge to the
trial court's order is appropriate for interlocutory appeal
but has filed the mandamus proceeding “in an abundance
of caution.”
[2] We will first discuss our interlocutory jurisdiction.
We have jurisdiction to consider appeals of interlocutory
orders only if a statute explicitly so provides. See Stary
v. DeBord, 967 S.W.2d 352, 352–53 (Tex.1998). The TAA
explicitly provides that a party may file an interlocutory
appeal from the denial of an application to compel
arbitration brought under section 171.021. See TEX.
CIV. PRAC. & REM. CODE ANN. § 171.098(a)(1).
Under section 171.021, the court must, upon granting an
application to compel arbitration, stay “any proceeding
subject to Section 171.025.” See id. § 171.021(c). Section
171.025 requires the court to stay a “proceeding that
involves an issue subject to arbitration,” and such stay
“applies only to the issue subject to arbitration if that issue
is severable from the remainder of the proceeding.” See id.
§ 171.025 (Vernon 2005).
We disagree with Elston's contentions that the trial court's
order did not deny McReynolds the “right to arbitration”
and that an appeal from the denial of his motion does not
fall under section 171.098(a)(1) of the TAA. The substance
and function of the order viewed in the context of the
record controls our interlocutory jurisdiction. See Walker
Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
511, 515 (Tex.App.-Houston [1st Dist.] 2002, no pet.). The
record indicates McReynolds sought not simply to change
arbitrators, but rather to enforce his express contractual
right of arbitration under the Settlement Agreement,
including arbitration before Daniel Goldberg. The motion
to compel the Goldberg Arbitration constitutes the
predominant relief sought in McReynolds's motion, which
is evidenced by the trial court's order entitled “ORDER
DENYING PLAINTIFFS' MOTION TO COMPEL
ARBITRATION.” As such, although the trial court's
order allowed the AAA Arbitration to continue, it denied
McReynolds's potential contractual right to arbitration
under the Settlement Agreement.
Moreover, in relation to McReynolds's request to compel
the Goldberg Arbitration, he asked the court to stay
a related proceeding involving arbitrable issues—the
AAA Arbitration. Parties moving to compel arbitration
often simultaneously request the trial court to stay
related proceedings—albeit typically the court's own
litigation proceedings—and thereafter appeal from an
order denying such relief under Section 171.098. See
Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d
131, 133 (Tex.App.-Houston [1st Dist.] 2003, no pet.)
(noting that section 171.098(a)(1) authorizes interlocutory
appeal from denial of application to compel arbitration
and to stay proceedings); see, e.g.,Southwind Group, Inc.
v. Landwehr, 188 S.W.3d 730, 735–36 (Tex.App.-Eastland
2006, orig. proceeding); Teal Constr. Co./ Hillside Villas
Ltd. v. Darren Casey Interests, Inc., 46 S.W.3d 417, 419
& n. 1 (Tex.App.-Austin 2001, pet. denied). Accordingly,
under these circumstances, we hold that section 171.098(a)
(1) of the TAA *739 grants us jurisdiction to review the
trial court's denial of McReynolds's motion to compel the
Goldberg Arbitration and stay the AAA Arbitration.
Because we have jurisdiction to hear the interlocutory
appeal under the TAA, and an adequate remedy by appeal
therefore exists, we accordingly deny McReynolds's
petition for writ of mandamus. See TMI, Inc. v. Brooks,
No.14–05–00604–CV, 2007 WL 43814, at *8 (Tex.App.-
Houston [14th Dist.] Jan. 9, 2007, orig. proceeding).
II. Motion to Compel the Goldberg Arbitration
[3] [4] [5] [6] We now turn to the merits of the
appeal to determine whether the trial court erred in
denying McReynolds's motion to compel the Goldberg
Arbitration and stay the AAA Arbitration. Under the
TAA, a party moving to compel arbitration must establish
7
McReynolds v. Elston, 222 S.W.3d 731 (2007)
(1) the existence of a valid, enforceable arbitration
agreement and (2) that the claims asserted fall within the
scope of that agreement. Valero Energy Corp. v. Teco
Pipeline Co., 2 S.W.3d 576, 581 (Tex.App.-Houston [14th
Dist.] 1999, no pet.). If the movant establishes that an
arbitration agreement governs the dispute, the burden
then shifts to the party opposing arbitration to establish a
defense to the arbitration agreement. See In re Oakwood
Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999) (orig.
proceeding). 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 ANN.
§ 171.001 (Vernon 2005). If the trial court concludes
the movant has met its burden and the party opposing
arbitration has failed to prove its defenses, the trial court
has no discretion but to compel arbitration. See Brooks,
2007 WL 43814, at *3.
In reviewing a denial of a motion to compel arbitration,
we review factual conclusions under a legal sufficiency or
“no evidence” standard and legal conclusions de novo. See
Valero, 2 S.W.3d at 581. When the legal interpretation of
the arbitration clause, and no fact issue is before the court,
de novo review is appropriate. See id. at 582.
[7] The parties do not dispute the existence of the
Settlement Agreement's arbitration clause. 4 They instead
disagree over whether Elston's claims fall within the scope
of this clause and whether McReynolds waived his right
to compel the Goldberg Arbitration and stay the AAA
Arbitration. We address each issue in turn.
A. Scope of the Settlement
Agreement's Arbitration Clause
[8] McReynolds contends that Elston's claims fall under
the scope of the Settlement Agreement's arbitration
clause because the clause purports to cover “any
dispute under this Settlement Agreement or any matter
relating hereto,” which language courts have interpreted
broadly. McReynolds further maintains the Settlement
*740 Agreement, because it provides “final closure of
the Partnership” and contains broad release language,
superseded the Partnership Agreement either entirely
or to the extent the arbitration clauses conflict. Thus,
he concludes the arbitration clause in the Settlement
Agreement controls. Elston responds that, because the
dispute turns on whether the 68–acre tract constitutes
a partnership asset, the arbitrator(s) must interpret the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Partnership Agreement, not the Settlement Agreement,
and thus the Partnership Agreement's arbitration clause
applies. Alternatively, Elston argues that her claims
relate to the breach of a duty under the Partnership
Agreement “to enhance Partnership Assets or otherwise
protect or enhance the business of the Partnership,”
which claims accrued after the parties executed the
Settlement Agreement when McReynolds diluted the
value of the 242 Tract by selling it along with the 68–
acre tract. Elston reasons that, since the 68–acre tract
did not constitute a partnership asset and the Settlement
Agreement's arbitration clause applies only to claims
related to partnership assets, her claims do not fall under
this provision.
[9] [10] [11] [12] [13] [14] Determining whether a
claim falls within the scope of an arbitration agreement
involves the trial court's legal interpretation of the
agreement, and we review such interpretations de novo.
See Ikon Office Solutions, Inc. v. Eifert, 2 S.W.3d 688,
694 (Tex.App.-Houston [14th Dist.] 1999, no pet.) (orig.
proceeding). In our review, we focus on the factual
allegations of the complaint rather than the legal causes
of action asserted. Prudential Sec. Inc. v. Marshall,
909 S.W.2d 896, 900 (Tex.1995) (orig. proceeding).
The burden lies with the party opposing arbitration
to show that the claims fall outside the scope of the
arbitration agreement. Id. There is a presumption favoring
arbitration, which generally requires that we resolve
doubts as to the scope of the agreements in favor
of coverage. See Valero, 2 S.W.3d at 590. Thus, a
court should not deny arbitration unless it can be said
with positive assurance that an arbitration clause is not
susceptible of an interpretation that would cover the
dispute at issue. Williams Indus., Inc., 110 S.W.3d at
137. “The presumption of arbitrability is particularly
applicable where the clause is broad; that is, it provides
for arbitration of ‘any dispute arising between the parties,’
or ‘any controversy or claim arising out of or relating
to the contract thereof,’ or ‘any controversy concerning
the interpretation, performance or application of the
contract.’ ” Babcock & Wilcox Co. v. PMAC, Ltd., 863
S.W.2d 225, 230 (Tex.App.-Houston [14th Dist.] 1993,
writ denied). However, the presumption is not without
limits and cannot serve to stretch a contractual clause
beyond the scope intended by the parties or authorize
an arbitrator to disregard or modify the plain and
unambiguous provisions of the agreement. Id.
8
McReynolds v. Elston, 222 S.W.3d 731 (2007)
We conclude that Elston, in contending that her claims
fall under the Partnership Agreement's arbitration clause,
failed to meet her burden to show that her claims
fall outside the scope of the Settlement Agreement's
arbitration clause. The totality of the language in
the Settlement Agreement reveals that it supersedes
the Partnership Agreement, at least to the extent the
two agreements conflict. For example, the Partnership
Agreement generally discusses the liquidation and
distribution of partnership assets, while the Settlement
Agreement specifically outlines how each asset should
be liquidated and includes a broad residual clause
covering all other partnership assets not expressly
addressed. Indeed, the Settlement Agreement expressly
states that the transfers are intended to “effect” the
liquidation and dissolution of the Partnership, which
was the “sole intent and purpose” of the Partnership
Agreement. Moreover, the Settlement Agreement broadly
releases claims *741 “relating to” the Partnership and
“all other matters relating to assets or liabilities of
McReynolds, Elston, or the Partnership.” Accordingly,
to the extent the Settlement Agreement's arbitration
clause conflicts with the Partnership Agreement's clause
—by requiring arbitration before Daniel Goldberg—the
Settlement Agreement controls. See Transcore Holdings,
Inc. v. Rayner, 104 S.W.3d 317, 322–23 (Tex.App.-Dallas
2003, pet. denied) (orig. proceeding) (holding that parties
did not intend to be bound by arbitration agreement in
prior agreement, given that later agreement contained
broad release of “any and all claims” and provision
requiring parties to bring any action “arising out of,
or relating to” later agreement in court); Courage Co.,
L.L.C. v. Chemshare Corp., 93 S.W.3d 323, 333 (Tex.App.-
Houston [14th Dist.] 2002, no pet.) (holding that when
later contract deals with same subject matter as initial
contract made by same parties, but does not specify
whether or to what extent it is intended to operate
in discharge or substitution, both contracts must be
interpreted together, and, to extent they are inconsistent,
later one prevails).
Furthermore, the Settlement Agreement's arbitration
clause itself contains sweeping language encompassing
Elston's claims, as the agreement purports to cover
claims arising under that agreement or “any matter
relating hereto.” Courts have interpreted such language to
require only that a claim “touch upon” or be “factually
intertwined” with matters covered by the arbitration
agreement. See Marshall, 909 S.W.2d at 900; AutoNation
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
USA Corp. v. Leroy, 105 S.W.3d 190, 195–96 (Tex.App.-
Houston [14th Dist.] 2003, orig. proceeding); see also
Pennzoil Exploration & Prod. Co. v. Ramco Energy
Ltd., 139 F.3d 1061, 1067 (5th Cir.1998) (noting that
such language is “capable of expansive reach”). Each of
Elston's allegations involve, either directly or indirectly,
the acquisition, sale, and distribution of partnership
assets, which clearly relate to, touch upon, and are
factually intertwined with the Settlement Agreement's
subject matter. See Marshall, 909 S.W.2d at 900; Dewey
v. Wegner, 138 S.W.3d 591, 602–03 (Tex. App.-Houston
[14th Dist.] 2004, no pet.). As such, given the breadth
of the Settlement Agreement and its arbitration clause,
and the strong presumption in favor of arbitration, we
cannot say with positive assurance that such clause is not
susceptible of an interpretation covering Elston's claims.
B. Waiver
[15] [16] [17] [18] Elston further contends
McReynolds waived his right to stay the pending
arbitration by “participating in the arbitration for a year
before filing the motion [to stay the AAA arbitration].”
McReynolds counters that he expressly took each
action in the AAA Arbitration “subject to” his original
objections, which he filed less than twenty days after
Elston initiated the proceeding. Whether a party has
waived its right to arbitrate presents a question of law that
we review de novo. Sedillo v. Campbell, 5 S.W.3d 824, 826
(Tex.App.-Houston [14th Dist.] 1999, orig. proceeding).
Waiver of an arbitration right must be intentional. EZ
Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996)
(orig. proceeding). Merely taking part in litigation is not
enough unless a party has (1) substantially invoked the
judicial process (2) to its opponent's prejudice. In re Vesta
Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006) (orig.
proceeding). 5 Because *742 of the strong federal and
state policies favoring arbitration, a presumption exists
against the waiver of a contractual right to arbitration. See
Marshall, 909 S.W.2d at 898.
1. Substantial Invocation of the AAA Arbitration
[19] Elston claims the following actions establish that
McReynolds substantially invoked the AAA Arbitration:
(1) waiting an “inordinate” amount of time to file
the motion to stay the AAA Arbitration, which
McReynolds filed after the AAA panel heard his
objections to the arbitration, (2) filing a counterclaim
and paying the filing fee, (3) requesting documents from
9
McReynolds v. Elston, 222 S.W.3d 731 (2007)
the AAA and complying with AAA panel's order to
produce documents, (4) allowing the AAA to pre-screen
arbitrators and objecting to arbitrators chosen for the
panel, (5) participating in a conference call to discuss
the appointment of the panel, scheduling, discovery, and
other parameters of the arbitration, and (6) requesting
the AAA panel for a factual and legal determination of
whether the Partnership Agreement's arbitration clause
controlled.
[20] [21] [22] [23] To substantially invoke the judicialre D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006)
process, a party must make a specific and deliberate act
after suit has been filed that is inconsistent with its right to S.W.3d at 763. In addition, to the extent Elston suggests
arbitrate. Sedillo, 5 S.W.3d at 827. Thus, a party does not
demonstrate an intent to waive arbitration by consistently
and timely seeking to invoke its contractual right to
arbitration. See Marshall, 909 S.W.2d at 898. Similarly,
purely defensive measures do not substantially invoke the
judicial process. See Transwestern Pipeline Co. v. Horizon
Oil & Gas Co., 809 S.W.2d 589, 593 (Tex.App.-Dallas
1991, writ dism'd w.o.j.) (citing filing of general denial to
preclude default judgment and filing of protective order
in response to discovery request as examples of defensive
measures); see also In re Serv. Corp. Int'l, 85 S.W.3d 171,
174 (Tex.2002) (orig. proceeding) (holding that objecting
to trial setting showed intent to avoid rather than to
judicial process). Delay alone generally does not establish
waiver. In re Vesta Ins. Group, Inc., 192 S.W.3d at 763.
We disagree that McReynolds's actions substantially
invoked the AAA Arbitration. Elston asserts that
McReynolds waited nearly a year from the time she
filed the AAA Arbitration to file a motion to stay
that proceeding and only after the panel had ruled
on his objections. Notwithstanding that McReynolds
filed a declaratory judgment seeking a stay of the
arbitration before the hearing on his objections, courts
have held that delays in asserting contractual rights to
arbitration far longer than one year do not constitute
waiver. See id. (holding that litigating in court for two
years did not amount to waiver). Moreover, the record
is replete with correspondence and other documents
supporting McReynolds's position that he took each
action expressly subject to his objections or in an
otherwise defensive posturing. McReynolds expressly
filed his answer and counterclaims “subject [to]” the
objections in the same pleading. See Courage Co., L.L.C.,
93 S.W.3d at 337 (finding no waiver where party made
jurisdictional objections and sought dismissal in same
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
responsive pleading containing claims on merits because
claims on merits were brought subject to court's ruling
on jurisdictional objections). Further, the documents
McReynolds requested pertained to Elston's husband's
potential conflict *743 with the AAA panel, indicating
that such request was defensive and made in support of
his objections. Also, even if McReynolds complied with
the panel's order to produce documents relating to the 68–
acre tract, which is unclear from the record, engaging in
minimal discovery does not alone establish waiver. See In
(orig. proceeding); In re Vesta Ins. Group, Inc., 192
McReynolds's objections to the arbitrators amounted to
participating in the selection of arbitrators, such actions
were made in the context of his objections and request
that the AAA panel dismiss the arbitration; thus, they
were defensive in nature. Cf. Bergquist Co. v. Sunroc
Corp., 777 F.Supp. 1236, 1251 (E.D.Pa.1991) (finding
party did not waive objections to arbitration proceeding
by participating in selection of arbitrators under express
protest that matter was not subject to arbitration).
Accordingly, we cannot say that McReynolds's actions in
the AAA Arbitration were inconsistent with his right to
arbitrate under the Settlement Agreement.
2. Prejudice to Elston
[24] [25] [26] Finally, we note that even if McReynolds
substantially invoked the AAA Arbitration, Elston has
not shown prejudice sufficient to establish waiver. 6
Elston claims she has suffered prejudice due to
McReynolds's delay in filing the motion to stay the AAA
Arbitration and “simply by having to fight McReynolds
in two forums.” Loss of time alone does not constitute
sufficient prejudice to establish waiver. See In re BP Am.
Prod. Co., 97 S.W.3d 366, 372 (Tex.App.-Houston [14th
Dist.] 2003, orig. proceeding). Moreover, generalized
complaints about delay and expense, absent explanation
and evidentiary support, will not establish prejudice. See
id.; Williams Indus., Inc., 110 S.W.3d at 139.
Furthermore, the cases on which Elston relies are
distinguishable. See Cent. Nat'l Ins. Co. of Omaha v.
Lerner, 856 S.W.2d 492, 495 (Tex.App.-Houston [1st
Dist.] 1993, orig. proceeding); Marble Slab Creamery,
Inc. v. Wesic, Inc., 823 S.W.2d 436, 438–39 (Tex.App.-
Houston [14th Dist.] 1992, no writ). Those cases involve
parties who filed claims or counterclaims and conducted
10
McReynolds v. Elston, 222 S.W.3d 731 (2007)

extensive pretrial discovery unavailable in arbitration,
causing the opposing parties to incur significant discovery
costs and attorney's fees. See Lerner, 856 S.W.2d at
495; Wesic, 823 S.W.2d at 438. Here, McReynolds did
not initiate the AAA Arbitration and thereafter make
extensive discovery requests. Rather, Elston initiated the
AAA Arbitration, and McReynolds timely filed and
repeatedly stood on objections, requesting discovery only
to support his objections and submitting to discovery only
over objection. Therefore, any costs Elston has incurred
are “self-inflicted” in the sense that she incurred them
not in response to McReynolds's actions but, rather,
largely in her prosecution of the AAA Arbitration over
McReynolds's repeated objections. See In re Vesta Ins.
Group, Inc., 192 S.W.3d at 763 (finding no prejudice
where party sent far more discovery requests than
received); Transwestern Pipeline Co., 809 S.W.2d at 593
(finding no prejudice where party voluntarily incurred and
assumed liability for legal fees in deciding to initiate and
prosecute lawsuit). Moreover, Elston does not suggest
that the discovery and *744 costs incurred in the AAA
Arbitration would not inure to the benefit of the Goldberg
Arbitration. See In re Vesta Ins. Group, Inc., 192 S.W.3d
at 763 (in finding no prejudice, noting that party opposing
arbitration made no allegation that pretrial discovery
already conducted would not be useful in arbitration);
Transwestern Pipeline Co., 809 S.W.2d at 593 (in finding
no prejudice, noting that nothing in record showed that
litigation expenses would not have been incurred during
arbitration or would not have provided benefit to party
opposing arbitration in resolving dispute in arbitration).
CONCLUSION
We conclude the trial court erred in denying McReynolds's
motion to compel the Goldberg Arbitration and stay
the AAA Arbitration. Elston's claims fall under the
scope of the Settlement Agreement's arbitration provision
because of the broad nature of the clause and the
Settlement Agreement. McReynolds did not waive his
right to the Goldberg Arbitration because he did not
substantially invoke the AAA Arbitration to Elston's
prejudice. Therefore, we sustain McReynolds's issues, and
we reverse and remand the trial court's interlocutory order
for proceedings consistent with this opinion.
All Citations
222 S.W.3d 731

Footnotes
1 The Settlement Agreement also contains the following release language:
Elston ... does hereby RELEASE, ACQUIT AND FOREVER DISCHARGE [McReynolds] and the Partnership of and
from any and all claims, demands, causes of action, damages, loss, or expense, of whatsoever kind or character,
in tort or in contract, under the statutes, constitutions, or the common law, state or federal, including, but not limited
to, causes of action that may be created or recognized after this date by court decision, statute or regulation, which
have been or could have been asserted as one of Elston's Claims, whether known or unknown, existing as of the
date of execution hereof and not including Claims arising out of this Settlement Agreement.
2 McReynolds then filed an emergency motion for temporary relief with this court, seeking a stay of the AAA Arbitration set
for November 7, 2006. We granted his motion on November 3, 2006, pending our final resolution of this proceeding.
3 Neither arbitration agreement specifies whether the Texas Arbitration Act or the Federal Arbitration Act governs; however,
the parties agree that because neither agreement invokes interstate commerce, the federal act does not apply. See In re
Educ. Mgmt. Corp., 14 S.W.3d 418, 422 (Tex.App.-Houston [14th Dist.] 2000, orig. proceeding) (holding that question of
whether transaction affects interstate commerce, and thus whether federal act governs, is one of fact where arbitration
agreement is silent as to application of federal or Texas act). Therefore, we address whether we have interlocutory
jurisdiction only under the Texas Arbitration Act.
4 Elston makes passing reference to her “fraud in the inducement” claim in her briefing on the scope of the Settlement
Agreement's arbitration clause. She appears to refer to her claim that McReynolds fraudulently induced her into signing
the Settlement Agreement by both failing to disclose and affirmatively denying his ownership of other property, namely
the 68–acre tract. We construe this as an argument that McReynolds's alleged fraud induced her to enter the entire
agreement, not the arbitration clause itself. Accordingly, we conclude that the arbitrators, not this court, should properly
decide this issue. See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex.2001) (orig. proceeding); Dewey v. Wegner,
138 S.W.3d 591, 602 (Tex.App.-Houston [14th Dist.] 2004, no pet.). Therefore, to the extent she attempts to challenge the

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 11

McReynolds v. Elston, 222 S.W.3d 731 (2007)

existence of the Settlement Agreement's arbitration clause by attacking the validity of the entire agreement, we overrule
her contention.
5 We recognize that both state and federal waiver cases typically involve an allegation that a party waived its contractual
right to arbitration by substantially invoking the “judicial” process in parallel litigation. Nevertheless, we find such cases
applicable in this unusual but analogous context, involving an allegation that a party waived its contractual right to
arbitration by substantially invoking the arbitration process in a parallel or competing arbitration. Cf. Bergquist Co.
v. Sunroc Corp., 777 F.Supp. 1236, 1251 (E.D.Pa.1991) (holding that party challenging arbitration award for lack of
agreement to arbitrate did not agree to arbitrate or waive its objection to arbitration proceeding by participating in initial
phases of arbitration process because party “had no other choice”).
6 We acknowledge that this and other courts have held that, although waiver is a question of law, the predicate element
of prejudice is a question of fact, and courts differ over which standard of review to apply to this question. See Williams
Indus., Inc., 110 S.W.3d at 136 & n. 8. Because these issues do not affect our conclusion, we need not address them.
See generally id. at 136.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 12

Mendelsohn v A & D Catering Corp., 119 Misc.2d 581 (1983)
464 N.Y.S.2d 331
119 Misc.2d 581, 464 N.Y.S.2d 331
Jacob Mendelsohn et al., Petitioners,
v.
A & D Catering Corporation, Respondent
Supreme Court, Special Term, Kings County
2226/83, 3916
May 24, 1983
CITE TITLE AS: Mendelsohn v A & D Catering Corp.
HEADNOTES
Arbitration
Violation of Statute
Waiver of Right to Arbitrate
([1]) The fact that the agreement between the parties in
connection with the purchase and operation of a catering
business whereby the parties agreed that respondent,
the purchaser of the business, would utilize the liquor
license issued to the entity that formerly operated the
business is in violation of the law and against public policy
(Alcoholic Beverage Control Law, § 111) does not render
the broad arbitration clauses contained in the lease and
management agreements void so as to bar arbitration of
the other disputes that have arisen between the parties
as a result of petitioners' refusal to maintain the liquor
license since respondent is no longer seeking to impose
any obligation upon petitioners to procure a liquor license
and, in any event, any violation of the Alcoholic Beverage
Control Law, although technically a “criminal violation”,
does not rise to the level of a pervasive scheme of
legislation which would oust an arbitrator from exercising
jurisdiction on public policy grounds; respondent did not
waive its right to arbitration by commencing a prior
action for specific performance with respect to petitioners'
obligations to maintain the liquor license and resorting
to discovery proceedings by serving a notice to admit
since respondent's actions were precipitated solely by the
nonpayment proceeding commenced against it and only
manifested an intention to maintain the status quo rather
than forsake its rights under arbitration.
APPEARANCES OF COUNSEL
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Bressler, Lipsitz & Rothenberg (William R. Kutner of
counsel), for petitioners. Vann & Borenstein (Abraham
Borenstein of counsel), for respondent.
OPINION OF THE COURT
Vincent Pizzuto, J.
Motions numbered 28, 87, 108 and 109 of the March 18,
1983 calendar are consolidated for the purposes of this
decision. In brief these motions seek the following types
of relief:
(1) motion number 28 is brought by petitioners, Jacob
Mendelsohn and Mordchai Z. Greenfield, pursuant to
CPLR 7503 (subd [b]) seeking to permanently stay the
arbitration demanded by respondent;
(2) motion number 87 is brought by the respondent, A & D
Catering Corporation, for an order staying the petitioners
from proceeding with a landlord and tenant action in the
Civil Court, Kings County (index No. 40911/83) pending
the outcome of the arbitration between these parties;
(3) motion number 108 is brought by the respondent for
an order seeking to punish petitioners for contempt for
*582 failing to abide by the order of Hon. Frank Pino,
dated March 8, 1983 which enjoined the petitioners from
proceeding with the landlord and tenant proceeding in the
Civil Court, Kings County, under index No. 40911/83;
(4) motion number 109 is brought by the respondent
for an order directing the law firm of Regosin, Edward,
Stone & Feder to turn over to respondent's attorneys all
files relating to the matters in controversy between the
petitioners and respondents.
BACKGROUND
Sometime prior to February 1, 1976 respondent purchased
a catering business known as the Aperion Manor from
Joseph and Moshe Pruzansky, the then landlords of 813
Kings Highway, Brooklyn, New York, and the principals
of W & L Caterers, Inc. In connection with this purchase,
numerous documents were executed between the parties,
including a lease for a 10-year term. Article 30 of said lease
provides as follows:
“30.1 The Lessee shall make application on or before
February 1, 1976 to the State Liquor Authority for a
1
Mendelsohn v A & D Catering Corp., 119 Misc.2d 581 (1983)
464 N.Y.S.2d 331
license to serve liquor at the demised premises and will
diligently prosecute such application by furnishing and
filing all information and all documents required by such
authority.
“30.2 Pending approval or disapproval of this lease by the
State Liquor Authority and the issuance or denial of an
appropriate liquor license to the Lessee, the Lessee shall
operate a catering establishment at the demised premises
but shall in no manner or form serve liquor at the demised
premises. In the event that any customer requests liquor to
be served at an affair then such request shall be submitted
to W & L Caterers, Inc. and independent arrangements
shall be made between the customer and W & L Caterers,
Inc., or the customer may bring in his own liquor, at the
customer's option.
“30.3 In the event that the State Liquor Authority does
not approve an appropriate liquor license to the Lessee
then the arrangement provided for in Section 30.2 shall
continue during the term of the lease.” *583
Additionally, article 31 of this lease provided for a broad
arbitration clause. Finally a management agreement
which the Pruzanskys signed contemporaneously with
the lease also provided for arbitration of any disputes.
Pursuant to these various agreements respondent
operated a catering establishment utilizing the liquor
license issued to W & L Caterers, Inc. On August 15,
1978 the demised premises were sold to the petitioners who
assumed all of the obligations of the Pruzanskys.
Subsequently, relations between the respondent and the
Pruzanskys began to sour, with the Pruzanskys refusing
to sign the necessary papers for maintaining the liquor
license of W & L Caterers, Inc. This dispute ultimately lead
petitioners to institute a nonpayment action on December
9, 1981 (index No. 123260/81). Respondent countered
immediately by securing a temporary restraining order on
December 17, 1981, which stayed the landlord and tenant
proceeding. Concomitant with this relief, respondent
commenced an action, seeking specific performance
against the petitioners with respect to their obligations
to maintain the liquor license. Both of these proceedings
were thereafter discontinued and the parties proceeded to
arbitrate their disputes in front of a rabbinical court. On or
about March, 1982, that court issued a sealed arbitration
award.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
On January 17, 1983 petitioners served a notice of
termination of tenancy upon the respondent alleging
violation of subdivision 7-a of section 3, section 64, section
67 (subd 1, par [b]), subdivision 3 of section 110 and
section 111 of the Alcoholic Beverage Control Law. That
same date, respondent replied by demanding arbitration
pursuant to the terms of the lease and management
agreement. On February 28, 1983 petitioners commenced
a holdover proceeding in the Civil Court, Kings County,
under index No. 40911/83. This proceeding was stayed
pursuant to the temporary restraining order of Hon.
Justice Pino on March 8, 1983. Finally, on March 14,
1983, respondent served petitioners with a notice to admit
pursuant to CPLR 408 and 3123.
ARBITRATION
The threshold issue to be decided by this court is whether
or not the dispute between these parties which arose in
*584 connection with the maintenance of a liquor license
is amenable to arbitration. In this respect petitioners argue
that the strong public policy of this State precludes the
use of a forum in arbitration where the dispute involves
violations of the Alcoholic Beverage Control Law. In
the alternative, petitioners contend that respondent's
institution of an action on or about December 17, 1981
constitutes a waiver of its rights to arbitration.
It is by now a settled proposition that this State favors
and encourages arbitration as a means of conserving the
time and resources of the courts and the contracting
parties (Matter of Nationwide Gen. Ins. Co. v Investors
Ins. Co. of Amer., 37 NY2d 91, 95; Matter of Maye
[Bluestein], 40 NY2d 113). In furtherance of the laudable
purposes served by permitting consenting parties to
submit controversies to arbitration the law has adopted
a policy of noninterference, with few exceptions, in this
mode of dispute resolution (Matter of Sprinzen [Nomberg],
46 NY2d 623, 629). Clearly, arbitration is a recognized
and favored means by which parties expeditiously and
efficiently may settle disputes which might otherwise take
years to resolve.
What must be untangled, however, is the nettlesome
question of whether the public policy of this State
precludes arbitration of the present dispute. In this respect
the statement has been bandied about that excluded from
the ambit of arbitration have been questions of violations
of the criminal law (see, e.g., 8 Weinstein-Korn-Miller,
NY Civ Prac, par 7501.19; Harris v Shearson Hayden
2
Mendelsohn v A & D Catering Corp., 119 Misc.2d 581 (1983)
464 N.Y.S.2d 331
Stone, 82 AD2d 87, 92). At the outset, it should be
noted that there is no quarrel with the proposition that
the proprietary operation by one entity as a catering
establishment by utilizing the liquor license issued to
another entity would be in violation of law and against
public policy (Alcoholic Beverage Control Law, § 111;
Matter of South Shore Yacht Club v State Liq. Auth., 34
AD2d 794; Smith v Pope, 72 AD2d 913). Respondent
has taken the position, that notwithstanding what has
happened in the past, it is not presently using nor will it
attempt to utilize the liquor license of W & L Caterers,
Inc., in the operation of its catering enterprise. It is
not readily apparent, however, whether a violation of
the Alcoholic Beverage Control Law *585 ipso facto
mandates the denial of an arbitration forum. Put another
way, does the label of criminal violation so envelop the
proceeding that the underlying contract of arbitration is
rendered null and void? Notwithstanding the practicable
utility of denominating a breach of statute as being
a “criminal violation” (see, e.g., Alcoholic Beverage
Control Law, § 130, making any violation thereof a
“misdemeanor”), such labeling ought not to prevent a
court from analyzing the various public policies involved
in either allowing a dispute to proceed to arbitration or
barring the parties from this remedy.
Consequently, it is for the courts to decide, as a threshold
question, whether the enforcement of an agreement
to arbitrate a particular matter would so contravene
an important public policy that arbitration should not
proceed (Matter of Board of Educ. [Buffalo Council of
Supervisors & Administrators], 52 AD2d 220, 225; Matter
of National Equip. Rental [American Pecco Corp.], 35
AD2d 132, 135, affd 28 NY2d 639; Durst v Abrash, 22
AD2d 39, 44, affd 17 NY2d 445). Obviously, the function
which W & L Caterers, Inc. was required to perform under
the lease was to act as a conduit for respondent's use
of its liquor license. If this was the sole issue in dispute
between these parties, this court would properly construe
that purported agreement as being against public policy
and invalid. On the other hand, a too rigorous application
of this prohibition would impinge upon and weaken the
broad public policy favoring arbitration. Thus, the law
will not presume an agreement void as illegal or against
public policy when it is capable of a construction which
would make it consistent with the laws and valid (Curtis
v Gokey, 68 NY 300, 304; Bigelow v Benedict, 70 NY 202,
204-205; Lorillard v Clyde, 86 NY 384, 387; Shedlinsky v
Budweiser Brewing Co., 163 NY 437, 439). In addition to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
the dispute over the liquor license there remains a plethora
of unresolved issues between these parties. Accordingly,
there is an element of respondent's dispute which may
properly be resolved by arbitration.
Furthermore, the alleged violation of the Alcoholic
Beverage Control Law should not deprive respondent
of its right to arbitration. Thus, in Matter of *586
National Equip. Rental (American Pecco Corp.) (supra),
the purchaser of two terminal container loaders sought
to avoid arbitration by alleging that the installation of
this equipment violated applicable rules and regulations
of the New York City Fire Department. In rejecting this
attempt to thwart arbitration the Appellate Division, First
Department, declared (supra, p 135) that, “it may be
assumed that the arbitrators will not render an award
which would require the doing of an act prohibited by law
or offensive to public policy. If there is such an award, the
court has the power to vacate it.” Generally, exceptions to
arbitration are narrowly confined to rights and remedies
created by State regulatory statutes, and represent a
determination that the public interest is best served by
maintaining access to the remedies which the Legislature
has provided (Keating v Superior Ct. of Alameda County,
31 Cal 3d 584, 601-602; see, also, Kamakazi Music Corp.
v Robbins Music Corp., 684 F2d 228, 231). In these
exceptional cases arbitration is forbidden not because
matters of public interest are involved, but because
statutes require that the decisions be made by certain
specified authorities. Over the years, therefore, a small
number of problems have been recognized as so interlaced
with strong public policy considerations that they have
been placed beyond the reach of the arbitrators (Matter
of Associated Teachers of Huntington v Board of Educ., 33
NY2d 229, 235).
Consequently, such public policy exceptions to arbitration
have been limited to controversies involving antitrust
law (Matter of Aimcee Wholesale Corp. [Tomar Prods.],
21 NY2d 621; Matter of Allied Van Lines [Hollander
Express & Van Co.], 29 NY2d 35), liquidation of insolvent
insurance companies (Matter of Knickerbocker Agency
[Holz], 4 NY2d 245), and usurious loans (Durst v Abrash,
22 AD2d 39, supra). The area of public policies which
preclude the arbitration forum is not easily defined.
However, it seems apparent that in those cases where the
public policy pendulum has swung away from arbitration
the guiding criteria have been the pervasiveness of the
regulatory scheme rather than the label of criminal
3
Mendelsohn v A & D Catering Corp., 119 Misc.2d 581 (1983)
464 N.Y.S.2d 331
violation. Accordingly, in Matter of Kingswood Mgt.
Corp. (Salzman) (272 App Div 328), the court held that
the Emergency Price Control Act *587 was adopted from
urgent reasons of public policy which the Congress did not
intend to turn over to private arbitrators to administer.
Again in Matter of Kramer & Uchitelle (Eddington Fabrics
Corp.) (288 NY 467) the Court of Appeals found that an
agreement to arbitrate was put to an end by the presence
of the Office of Price Administration. Finally, in Matter
of Goldmar Hotel Corp. (Morning-side Studios) (283 App
Div 935), the Appellate Division prevented a tenant from
arbitrating its obligation to make repairs to the demised
premises where violations of the Multiple Dwelling Law
existed. In this latter case, the court was obviously
more concerned with the health, safety and welfare of
the citizenry (Multiple Dwelling Law, § 2) rather than
with any attendant criminal violations (Multiple Dwelling
Law, § 304). For this reason the court stated (supra, p 935)
that, “The Municipal Court will be concerned solely with
the question of whether there were violations which were
not removed in time. It will not be concerned with any
question as to whether repairs were otherwise necessary or
required by virtue of the contract between the parties.”
It is, of course, the function of the courts to pass upon the
legality of the provision sought to be arbitrated and the
courts will deny arbitration where the performance which
is the subject of the demand for arbitration is prohibited
by statute (Matter of Dairymen's League Co-op. Assn.
[Conrad], 18 AD2d 321). This is not to say however that
the mere mouthing of a criminal violation will suffice
to invalidate an arbitration agreement. Rather, the court
will weigh the public policy considerations against the
parties' agreement to resolve their dispute outside of
the judicial forum. Since it is alleged by the respondent
that it no longer seeks to impose any obligation upon
W & L Caterers, Inc. to procure a liquor license, any
violations of the Alcoholic Beverage Control Law have
been rendered moot. In any event, any violation of those
laws, although concededly a “criminal violation” (see
Alcoholic Beverage Control Law, § 130), does not rise to
the level of a pervasive scheme of legislation which would
oust an arbitrator from exercising jurisdiction on public
policy grounds. This type of statutory violation simply
does not fit into the small category *588 of cases that
have been excepted from the parameters of arbitration on
public policy grounds.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Petitioners argue in the alternative that by previously
resorting to litigation of this very dispute, respondent has
waived its right to arbitration. In this respect petitioners
point to the commencement by respondent of its specific
performance action on or about December 17, 1981 as
manifesting an unequivocal intention to forego any right
to arbitration. It is well established that an arbitration
provision in a contract like any other provision of a
contract may be waived or abandoned by the parties, and
such waiver may be evidenced by their conduct in seeking
judicial relief instead of arbitration (Esquire Inds. v East
Bay Textiles, 68 AD2d 845). Moreover, a party entitled
to demand arbitration waives that right by bringing an
action involving the same claim (Matter of Spirs Trading
Co. v Occidental Yarns, 73 AD2d 542). Consequently, the
courts have held that the right to compel arbitration is
waived by taking any action in a litigation that is deemed
unequivocal and a sufficient use of the judicial process so
as to be inconsistent with the intention to arbitrate (Jade
Press v Packard, 91 Misc 2d 820). Finally, it has been
held that where there has been an intention to abandon
the right to arbitration, that right is irrevocably lost (see
Zurich Ins. Co. v Evans, 89 Misc 2d 717, 720; Matter of
Young v Crescent Dev. Co., 240 NY 244, 251).
Despite the myriad number of situations whereby
arbitration may be waived (i.e., participating in prior
litigation [Van Den Bogaerde v Staub, Warmbold & Assoc.
Int., 80 AD2d 517], seeking arrears in Family Court
[Salisbury v Salisbury, 83 AD2d 990]) it is nevertheless
essential that a court find an intention to proceed in a
judicial arena. A review of the facts herein reveals that
such an intention was not manifested by the respondent
when it commenced the prior action for specific
performance. It is quite clear that respondents' actions
at that time were precipitated solely by the nonpayment
proceeding commenced against them on December 9, 1981
and limited to the extent of seeking specific performance
with respect to petitioners' obligations to maintain the
liquor license. What respondent intended was to maintain
the status quo rather than *589 forsaking its rights under
arbitration. Most significantly that dispute was ultimately
resolved by arbitration in a rabbinical court.
Petitioners also emphasize the fact that respondent has
resorted to discovery proceedings in the instant litigation
by serving a notice to admit. All of the actions taken
together, petitioners argue, bring the respondent within
the ambit of De Sapio v Kohlmeyer (35 NY2d 402) and
4
Mendelsohn v A & D Catering Corp., 119 Misc.2d 581 (1983)
464 N.Y.S.2d 331

mandate a finding that the right to arbitration has been Moreover, the action taken by the plaintiff in Preiss/
Breismeister was no different in either quality or quantity
waived. In that case plaintiff, a block trader on the
than those taken by the respondent herein. Secondly, the
stock exchange, sued his former employer for defamation
case of De Sapio v Kohlmeyer (35 NY2d 402, supra) was
(supra, p 403). Although the defendant raised arbitration
relied on by the dissent in Preiss/Breismeister. Finally, the
as an affirmative defense, it obtained a deposition of
notice to admit which was served by the respondent on
plaintiff prior to moving for a stay of the action based
March 14, 1983, albeit one of the discovery mechanisms,
on arbitration (supra, p 404). On these facts the Court
which can be indicative of an intent to waive arbitration,
of Appeals held that the actions by defendant were “a
may not be so construed under the circumstances of
sufficiently affirmative use of the judicial process so as to
this case. Although the delineation between an intent
be inconsistent with a later motion to stay” (supra, p 406).
to waive the arbitration process and efforts to maintain
the status quo can rarely be made with absolute clarity,
Notwithstanding the raison d'etre of De Sapio v Kohlmeyer
the totality of circumstances herein does not warrant
(supra), that decision is not determinative in a situation
a finding that there was a waiver. There can be little
where the party attempting to enforce arbitration rights
doubt that respondent commenced the action for specific
has resorted to the judicial forum solely for the purpose
performance in 1981 solely to protect its status as a
of maintaining the status quo. In this respect the Court
tenant in the demised premises. Furthermore, the notice to
of Appeals has recently observed that there is neither
admit does little more than seek verification of petitioners'
waiver nor an election of remedies, where, as here, plaintiff
obligations under the various contractual agreements
moves in court for protective relief in order to preserve the
between respondent and the Pruzansky brothers as well
status quo while at the same time exercising its right under
as reiterating respondent's right to arbitration. For all
the contract to demand arbitration. (Preiss/Breismeister
of these reasons, the court finds that respondent did not
Architects v Westin Hotel Co. -- Plaza Hotel Div., 56 NY2d
waive the right to arbitrate this matter.
787.) For several cogent reasons this court holds that
Preiss/Breismeister is controlling on the issue of waiver.
Accordingly, petitioners' motion to stay arbitration is
denied in all respects. Respondent's motion to stay the
In the first place, the plaintiff therein commenced an
Civil Court from proceeding with the holdover action
action seeking an injunction and declaratory relief in order
under index No. 40911/83 pending the outcome of
to recover 80 architectural drawings alleged seized by that
arbitration is granted on condition that respondents
defendant. Thereafter that plaintiff served a deposition
continue to pay any and all moneys due under the lease.
notice, followed several days later by a demand for
Such payments may be accepted by petitioners without
arbitration. At the Appellate Division, Justice Silverman
prejudice to any rights they may have to the ultimate
writing for the dissent argued that “[having] decided
possession of the premises. Finally, both the motion to
against arbitration and in favor of court action with
punish petitioners for contempt and the motion seeking
respect to some portion of the relief to which plaintiff
a turn over of files in the possession of the law firm of
deems itself entitled *590 by reason of the same matters
Regosin, Edward, Stone & Feder are denied in all respects.
'arising out of, or relating to this Agreement or the breach
*591
thereof,' plaintiff has waived the right to arbitration as
to those matters” (Preiss/Breismeister Architects v Westin
Hotel Co. -- Plaza Hotel Div., 86 AD2d 844, 847). Needless Copr. (C) 2016, Secretary of State, State of New York
to say, this argument was rejected by the Court of Appeals.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)

KeyCite Yellow Flag - Negative Treatment West Headnotes (10)

Distinguished by Global Oil Tools v. Barnhill, E.D.La., October 16, 2012 
804 F.2d 338
[1] Alternative Dispute Resolution
United States Court of Appeals,
Decisions reviewable; finality
Fifth Circuit.
Order granting stay pending arbitration is not
MUNICIPAL ENERGY AGENCY OF final appealable order; however, order may be
MISSISSIPPI, Plaintiff-Appellant, appealable as interlocutory order granting or
v. refusing injunction. 28 U.S.C.A. § 1292(a)(1).
BIG RIVERS ELECTRIC
1 Cases that cite this headnote
CORPORATION, Defendant-Appellee.

No. 86–4479 [2] Alternative Dispute Resolution

| Scope and standards of review
Summary Calendar. District court order refusing to enjoin
| electrical company from proceeding with
Nov. 17, 1986. petition to compel arbitration was appealable;
thus, companion order staying declaratory
Municipal energy agency filed declaratory judgment
judgment action of municipal energy agency
action seeking determination that power supply
against company pending arbitration was also
agreement with electrical company had terminated.
reviewable. 28 U.S.C.A. § 1292(a)(1).
Electrical company, which had filed petition in another
district court to compel arbitration, filed motion to stay 6 Cases that cite this headnote
agency's proceeding. The United States District Court
for the Northern District of Mississippi, Neal Biggers,
J., entered order staying arbitration and refused to [3] Alternative Dispute Resolution
enjoin petition to compel arbitration, and appeal was Stay of Proceedings Pending Arbitration
taken. The Court of Appeals, Clark, Chief Judge, held District court should grant application for
that: (1) order refusing to enjoin electrical company stay pending arbitration where arbitration
from proceeding with petition to compel arbitration was clause on its face covers dispute.
appealable; thus, companion order staying declaratory
judgment action was also reviewable; (2) arbitration 3 Cases that cite this headnote
clause was broad enough to cover dispute over whether
agreement terminated; (3) language of arbitration clause [4] Alternative Dispute Resolution
that arbitration provision would survive termination Merits of controversy
of underlying agreement controlled over more general If dispute is within scope of arbitration clause,
provisions of termination clause; and (4) district court court may not delve further into merits of
did not abuse its discretion in refusing to enjoin electrical dispute.
company from proceeding with its action to compel
arbitration. 9 Cases that cite this headnote

Affirmed.
[5] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
See also, 645 F.Supp. 20.
Agreement
Arbitration clause covering “any controversy,
claim, counterclaim, defense, dispute,
difference or misunderstanding arising out

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)
of or relating to this agreement or breach
thereof” was broad enough to cover dispute
over whether agreement terminated.
6 Cases that cite this headnote
[6] Alternative Dispute Resolution
Severability
Arbitration clause is separable from contract
in which it is embedded.
4 Cases that cite this headnote
[7] Alternative Dispute Resolution
Modification or termination
Alternative Dispute Resolution
Construction
Alternative Dispute Resolution
Severability
Language in arbitration clause that
arbitration provisions survived termination
of agreement controlled over more general
provisions of termination clause.
5 Cases that cite this headnote
[8] Federal Courts
Injunction Against Proceedings
District courts have discretion to enjoin filing
of related lawsuits in other United States
district courts.
8 Cases that cite this headnote
[9] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
There is no requirement under Federal
Arbitration Act that petition to compel
arbitration be made in action in which motion
to stay arbitration is made. 9 U.S.C.A. §§ 3, 4.
5 Cases that cite this headnote
[10] Alternative Dispute Resolution
Particular cases
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
District court, which had stayed declaratory
judgment action brought by municipal energy
agency against electrical company pending
arbitration, did not abuse its discretion in
refusing to enjoin electrical company from
proceeding in another United States district
court with petition to compel arbitration. 9
U.S.C.A. §§ 3, 4.
3 Cases that cite this headnote
Attorneys and Law Firms
*339 Hunt, Spell & Henson, David R. Hunt, Clarksdale,
Miss., Gerald, Brand, Watters, Cox & Hemleben, Jack
W. Brand, Scott P. Hemleben, James Kenneth Harmon,
Jackson, Miss., for plaintiff-appellant.
Alex A. Alston, Jr., Jackson, Miss., Holbrook, Gary,
Wible & Sullivan, Morton Joshua Holbrook, Lizabeth
Ann Tully, Allen Woodrow Holbrook, Owensboro, Ky.,
for defendant-appellee.
Appeal from the United States District Court for the
Northern District of Mississippi.
Before CLARK, Chief Judge, GARWOOD, and HILL,
Circuit Judges.
Opinion
CLARK, Chief Judge:
The district court stayed the declaratory judgment action
of the Municipal Energy Agency of Mississippi (MEAM)
against Big Rivers Electric Corporation (Big Rivers)
pending arbitration. The district court also refused to
enjoin Big Rivers from proceeding in another U.S. district
court with a petition to compel arbitration. MEAM
appeals from the orders. We affirm.
*340 I.
MEAM is a joint agency of the State of Mississippi formed
by several Mississippi cities to provide electric power.
On June 1, 1984, MEAM entered into a Power Supply
Agreement with Big Rivers, a Kentucky Rural Electric
Cooperative. MEAM agreed to purchase 50 megawatts
2
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)
of electric power from Big Rivers from June 1, 1984,
through September 30, 1984, at the rate of 85 cents per
kilowatt per week. For power supplied from October 1,
1984, through September 30, 1995, the rate increased to
$11.55 per kilowatt per month.
Big Rivers could not supply the power directly to
MEAM because the transmission systems of Big Rivers
and MEAM do not interconnect. Big Rivers' system
interconnects with the system of the Tennessee Valley
Authority (TVA). MEAM's system interconnects with the
system of Mississippi Power & Light Co. (MP & L),
which interconnects with TVA's system. The Agreement
therefore required MEAM to contract with MP & L
and Big Rivers to contract with TVA for transmission
services for the ten years beginning October 1, 1985. If the
necessary transmission agreements were not reached, the
Power Supply Agreement would terminate. The relevant
portion of the termination provision reads as follows:
SECTION 9—CONDITIONS OF TERMINATION:
This agreement shall terminate in its entirety, unless
otherwise agreed to in writing, and be without further
force and effect without any liability of either party
hereto to the other (except for the obligation to
make payments for any power supplied prior to such
termination for which payment has not been made) in
the event the parties are unable through no fault of their
own in completing on or before October 1, 1985, the
following:
1. Firm transmission services sufficient to transmit the
contracted power during the full term hereof are secured
by Big Rivers and MEAM, as follows: Big Rivers will
obtain the required commitment for firm transmission
services from the Tennessee Valley Authority and
MEAM will acquire the required transmission services
from Mississippi Power and Light Company (MP & L).
The Power Supply Agreement also contained the
following arbitration clause:
SECTION 4—ARBITRATION:
To the extent permitted by law applicable to MEAM
and in force and effect at the time there arises
any controversy, claim, counterclaim, defense, dispute,
difference or misunderstanding arising out of or relating
to this agreement or breach thereof, such controversy,
claim, counterclaim, defense, dispute, difference or
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
misunderstanding shall be settled by arbitration to be
conducted in accordance with the following procedure.
MEAM shall select one arbitrator, Big Rivers shall
select one arbitrator, and the two arbitrators appointed
by MEAM and Big Rivers respectively shall select a
third arbitrator. The arbitration shall be conducted in
accordance with the rules of the American Arbitration
Association then in effect, and judgment upon any
award rendered by the arbitrators may, if permitted
by law, be entered in any court having jurisdiction
thereof. This provision shall survive the termination of
this agreement. The parties expressly agree that this
provision shall constitute a condition precedent to the
institution of any proceedings in any court relating to
the subject matter thereof.
MEAM and Big Rivers both entered into their respective
agreements before October 1, 1985, and MEAM paid the
higher rate for the electricity supplied by Big Rivers. In
March 1986, however, MEAM received a copy of the
transmission agreement between Big Rivers and TVA and
determined that the agreement failed to satisfy the Power
Supply Agreement. On March 28, 1986, MEAM notified
Big Rivers that it considered the Power Supply Agreement
terminated because the transmission agreement *341
between Big Rivers and TVA allowed either party to
terminate the agreement on three years notice MEAM
also stopped purchasing power from Big Rivers.
MEAM filed the present declaratory judgment action on
April 2, 1986, in the United States District Court for the
Northern District of Mississippi. Jurisdiction was based
on diversity of citizenship. 28 U.S.C. § 1332. MEAM
sought a declaratory judgment that the Power Supply
Agreement had terminated and sought repayment of
amounts it paid to Big Rivers after October 1, 1985 in
excess of 85 cents per kilowatt per week. On April 17,
1986, Big Rivers filed in the United States District Court
for the Western District of Kentucky a petition to compel
arbitration against MEAM pursuant to 9 U.S.C. § 4.
On April 18, 1986, Big Rivers filed a motion to dismiss
in the Mississippi action under Federal Rule of Civil
Procedure 12(b)(6). In the alternative, Big Rivers moved
the Mississippi court to stay the proceedings pending
arbitration pursuant to 9 U.S.C. § 3. MEAM then sought
to have the Mississippi district court enjoin Big Rivers
from proceeding in the Kentucky action by motion dated
June 5, 1986, on the ground that the issues in the two
actions were the same and the Mississippi action was filed
3
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)
earlier. In its June 5 motion MEAM also asked the district
court to expedite hearing on all motions then pending.
On June 6, 1986, the Mississippi district court concluded
that “the issue of contract termination falls within the
scope of the arbitration clause of the parties' contract,
and is, thus, referable to arbitration.” It granted Big
Rivers' motion to stay pending arbitration and denied
MEAM's motion to enjoin Big Rivers from proceeding in
the Kentucky action. MEAM appeals.
II.
[1] Big Rivers initially challenges the jurisdiction of
this court to hear MEAM's appeal. An order granting a
stay pending arbitration is not a final order, so it is not
appealable under 28 U.S.C. § 1291. See Jackson Brewing
Co. v. Clarke, 303 F.2d 844, 845 (5th Cir.), cert. denied,
371 U.S. 891, 83 S.Ct. 190, 9 L.Ed.2d 124 (1962). The
order may be appealable under 28 U.S.C. § 1292(a)(1) as
an interlocutory order granting or refusing an injunction,
but
only if (A) the action in which
the order was made is an action
which, before the fusion of law
and equity, was by its nature an
action at law; and (B) the stay
was sought to permit the prior
determination of some equitable
defense or counterclaim.
Jackson Brewing Co., 303 F.2d at 845 (emphasis and
footnote omitted).
Big Rivers' motion based on the existence of a contractual
agreement to arbitrate clearly raises an equitable defense.
Shanferoke Coal & Supply Corp. v. Westchester Service
Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 314–15, 79 L.Ed.
583 (1935). However, the dispute here is whether MEAM's
cause of action is legal or equitable. We must look behind
the declaratory judgment action to determine the form
that the action would have taken if the Declaratory
Judgment Act were not in existence. See American Safety
Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 824
(2d Cir.1968). Big Rivers characterizes MEAM's suit as
seeking “damages based on a reformation of the contract
price,” and points out that contract reformation is an
equitable claim, Mar-Len of Louisiana, Inc. v. Parsons-
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Gilbane, 732 F.2d 444, 445 (5th Cir.1984). MEAM
characterizes its action as a suit for breach of contract to
recover money damages, which is an action at law, Coastal
Industries, Inc. v. Automatic Steam Products Corp., 654
F.2d 375, 377 n. 1 (5th Cir.1981) (Unit B).
[2] In this case, however, we do not need to “resort to
archaic distinctions between law and equity,” Mar-Len,
732 F.2d at 446 (Rubin, J., dissenting), because here there
is an alternative basis of appellate jurisdiction. MEAM
appeals not only the stay but also the district court's denial
of *342 its motion to enjoin Big Rivers from proceeding
in the Kentucky action. This order is appealable under
28 U.S.C. § 1292(a)(1). Cf. A. & E. Plastik Pak Co. v.
Monsanto Co., 396 F.2d 710, 713 (9th Cir.1968) (denial
of motion to enjoin arbitration is appealable); Petroleum
Helicopters, Inc. v. Boeing-Vertol Co., 606 F.2d 114,
114 (5th Cir.1979). Since this denial properly brings the
order before us, we can also review the order staying the
proceedings pending arbitration. Mercury Motor Express,
Inc. v. Brinke, 475 F.2d 1086, 1091 (5th Cir.1973). This
court has jurisdiction over this appeal.
III.
A.
MEAM's first contention is that it is not obligated
to arbitrate the dispute because the arbitration clause
terminated along with the rest of the Power Supply
Agreement when Big Rivers failed to reach a satisfactory
agreement with TVA. MEAM argues that the contractual
requirement that Big Rivers enter a long-term agreement
with TVA was a condition precedent to the “secondary”
ten-year term of the contract, and contends that the
termination clause should override the arbitration clause
because the termination clause goes “to the heart and
substance of the contract.” As a result, MEAM concludes,
the district court erred in staying the proceeding pending
arbitration or, in the alternative, in failing to hold an
evidentiary hearing on the proper construction of the
provisions of the contract.
[3] [4] The issues in this case are governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1–14, because the contract
between MEAM and Big Rivers obviously is “a contract
evidencing a transaction involving commerce.” Id. § 2. In
enacting the Federal Arbitration Act, Congress declared
4
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)
a national policy in favor of arbitration. Southland Corp.
v. Keating, 465 U.S. 1, 104 S.Ct. 852, 858, 79 L.Ed.2d 1
(1984). Congressional intent was “to move the parties to
an arbitrable dispute out of court and into arbitration as
quickly and easily as possible.” Moses H. Cone Memorial
Hospital v. Mercury Construction Corp., 460 U.S. 1, 22,
103 S.Ct. 927, 940, 74 L.Ed.2d 765 (1983). As such, the
district court should grant a 9 U.S.C. § 3 application for
a stay pending arbitration when the arbitration clause on
its face covers a dispute. Seaboard Coast Line Railroad
Co. v. National Rail Passenger Corp., 554 F.2d 657, 660
(5th Cir.1977). If the dispute is within the scope of the
arbitration clause, the court may not delve further into the
merits of the dispute. City of Meridian v. Algernon Blair,
Inc., 721 F.2d 525, 528 (5th Cir.1983).
[5] The language of the arbitration clause in the Power
Supply Agreement is broad enough to cover a dispute over
whether the Agreement terminated. The arbitration clause
covers “any controversy, claim, counterclaim, defense,
dispute, difference or misunderstanding arising out of or
relating to this agreement or breach thereof.” MEAM
does not dispute the broad language of the clause. Rather,
MEAM argues that the arbitration clause was no longer
binding on the parties at the time the dispute arose.
[6] This dispute over contract termination is an arbitrable
dispute under the arbitration clause in this case. An
arbitration clause is separable from the contract in which
it is embedded. Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 402–03, 87 S.Ct. 1801, 1805–
06, 18 L.Ed.2d 1270 (1967). A federal court can only
adjudicate challenges to “the making and performance
of the agreement to arbitrate,” not challenges to the
enforceability of the contract as a whole. Id. at 404, 87
S.Ct. at 1806. Thus, in Prima Paint, the United States
Supreme Court held that the district court properly stayed
proceedings before it when the party seeking to avoid
arbitration did not allege that it was fraudulently *343
induced to enter the arbitration agreement but only
claimed that it was fraudulently induced to execute the
contract. Id. at 406, 87 S.Ct. at 1807.
[7] MEAM does not deny that it was bound by the
Power Supply Agreement before that Agreement allegedly
terminated. It thus necessarily concedes that it was bound
by the arbitration clause as well. Because MEAM does
not contest the making of the arbitration agreement, its
reliance on Pollux Marine Agencies, Inc. v. Louis Dreyfus
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Corp., 455 F.Supp. 211, 216–20 (S.D.N.Y.1978), is
misplaced. Moreover, MEAM's claim that the arbitration
clause terminated when the rest of the contract allegedly
terminated is contradicted by the express language of the
arbitration clause, which provides that “[t]his provision
shall survive the termination of this agreement.” MEAM
does not suggest any meaning of this language other than
the obvious. This specific provision controls the more
general provisions of the termination clause. See Western
Oil Fields, Inc. v. Pennzoil United, Inc., 421 F.2d 387, 389
(5th Cir.1970).
The parties contracted to arbitrate the issue of contract
termination. See Houston General Insurance Co. v. Realex
Group, N.V., 776 F.2d 514, 516 (5th Cir.1985). The
district court properly stayed its own proceedings pending
arbitration. In addition, the unambiguous language of
the arbitration clause made it unnecessary for the district
court to hold an evidentiary hearing. Commerce Park
v. Mardian Construction Co., 729 F.2d 334, 340–41 (5th
Cir.1984). 1
B.
MEAM's second contention is that the district court
erred in refusing to enjoin Big Rivers from proceeding
in its Kentucky action to compel arbitration. MEAM
argues that the facts and issues involved in the Mississippi
action—the circumstances surrounding the making of the
contract and the proper interpretation of the contractual
provisions—are the same facts and issues involved in
the Kentucky action. MEAM finds support in Dupuy-
Busching General Agency, Inc. v. Ambassador Insurance
Co., 524 F.2d 1275, 1277 (5th Cir.1975), in which this
court considered the effect of the defendant's answer and
counterclaim petitioning for an order directing arbitration
as a defense to an action on the contract. Asserting that
the facts and issues in the two actions are similar, MEAM
urges that the district court in the Mississippi action erred
by not asserting “paramount jurisdiction” over the motion
to compel arbitration in the present proceeding. In letter
and spirit, Dupuy-Busching is distinguishable.
[8] District courts have discretion to enjoin the filing
of related lawsuits in other U.S. district courts. Kerotest
Mfg. Co. v. C–O–Two Fire Equipment Co., 342 U.S. 180,
183–84, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952); Schauss v.
Metals Depository Corp., 757 F.2d 649, 654 (5th Cir.1985).
5
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)
“As between federal district courts, ... the general principle
is to avoid duplicative litigation.” Colorado River Water
Conservation District v. United States, 424 U.S. 800, 817,
96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976) (dictum).
Often the case filed first will be allowed to proceed. West
Gulf Maritime Association v. ILA Deep Sea Local 24, 751
F.2d 721, 729–30 (5th Cir.1985). But we will reverse a
district court's decision not to enjoin another proceeding
only if the district court abused its discretion. Cowden
Manufacturing Co. v. Koratron Co., 422 F.2d 371, 372 (6th
Cir.), cert. denied, 398 U.S. 959, 90 S.Ct. 2173, 26 L.Ed.2d
544 (1970) (finding no abuse of discretion in refusal to
enjoin later-filed *344 petition to compel arbitration in
another U.S. district court).
[9] The district court did not abuse its discretion in
refusing to enjoin Big Rivers from proceeding in the
Kentucky action. No part of the language of these two
sections of the Arbitration Act indicates that a section 4
petition to compel arbitration must be made in an action
in which a section 3 motion to stay is made. 2 Indeed,
section 4 provides that a petition to compel arbitration
may be made in “any United States district court which,
save for such agreement, would have jurisdiction under
Title 28.” 9 U.S.C. § 4.
We find further guidance in the United States Supreme
Court's discussion in Moses H. Cone Memorial Hospital
v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct.
927, 74 L.Ed.2d 765 (1983). Although Moses H. Cone
involved duplicate federal and state proceedings, we find it
equally useful in analyzing the allegedly duplicate federal
proceedings in this case. The Court makes clear in Moses
H. Cone that the section 3 stay and the section 4 order to
arbitrate are “parallel devices for enforcing an arbitration
agreement.” Id. at 22, 103 S.Ct. at 940. Moreover, the
Court in Moses H. Cone rejected an argument that the
state action should have been allowed to proceed because
it was filed first.
[T]his argument disregards the
obvious reason for the Hospital's
priority in filing. An indispensable
element of Mercury's cause of action
under § 4 for an arbitration order is
the Hospital's refusal to arbitrate....
That refusal did not occur until less
than a day before the Hospital filed
its state suit. Hence, Mercury simply
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
had no reasonable opportunity to
file its § 4 petition first.
Id. at 21, 103 S.Ct. at 939. Similarly, in this case Big
Rivers had no reasonable opportunity to file its petition
to compel arbitration before MEAM filed its declaratory
judgment action in the district court. MEAM did not
notify Big Rivers of its intention to treat the contract as
terminated until at most five days before filing suit.
The fact that the court in Dupuy-Busching treated the
answer and counterclaim asserting a section 4 petition
to compel arbitration in New Jersey as a compulsory
counterclaim does not alter our conclusion. The holding
in Dupuy-Busching was that a district court in Mississippi
could compel arbitration in New Jersey notwithstanding
the requirement of section 4 that the hearing and
proceedings under the arbitration agreement “be within
the district in which the petition for an order directing
such arbitration is filed.” 524 F.2d at 1278. The
characterization of the defendant's answer *345 and
counterclaim as a compulsory counterclaim in that suit
was collateral to that holding. The characterization is
not controlling here either on a procedural or substantive
basis. Procedurally, we note that in Dupuy-Busching the
defense was presented as part of an answer, whereas in
the present case Big Rivers filed a 12(b)(6) motion to
dismiss. The time for filing an answer and counterclaim
in the present suit had not arrived. In the present case
Big Rivers never filed an answer; thus it would not be
barred in a subsequent suit from raising any compulsory
counterclaim. Fed.R.Civ.P. 13(a); Lawhorn v. Atlantic
Refining Co., 299 F.2d 353, 356–57 (5th Cir.1962).
Substantively, the Dupuy-Busching court distinguished its
holding from decisions of the Third and Ninth Circuits by
pointing out that the party invoking the jurisdiction of the
district court in the suit before it was seeking to avoid, not
enforce, arbitration; whereas, in the other circuit actions,
the party seeking arbitration had initiated the action.
Therefore, Dupuy-Busching could, without conflict, hold
that the defensive actions of the party seeking to enforce
arbitration did not constitute a waiver of the defendant's
right to secure arbitration in another arena. Big Rivers, the
party seeking arbitration in the instant action, did nothing
in the litigation initiated by MEAM, the party seeking to
avoid arbitration, which would invoke the jurisdiction of
the Mississippi court or waive Big Rivers' right to arbitrate
in Kentucky.
6
Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338 (1986)

[10] Finally MEAM appears to be arguing that because it the parties are not bound by the arbitration clause. It
would stand reason on its head to allow MEAM to dictate
filed this action in Mississippi, Big Rivers must petition to
the choice of forum for arbitration by seeking to avoid
compel arbitration in Mississippi, and that the Mississippi
arbitration. The district court did not abuse its discretion
district court erred when it did not compel the arbitration
in refusing to enjoin Big Rivers.
MEAM seeks to avoid to be held in Mississippi. MEAM
hopes its contract action established Mississippi as the
The orders appealed from are
forum for arbitration by clarifying the arbitration clause
which does not specify the forum in which arbitration is
AFFIRMED.
to be held. But MEAM's action is an attempt to avoid its
contractual obligation to arbitrate. See Southland Corp.
v. Keating, 465 U.S. 1, 104 S.Ct. 852, 856, 79 L.Ed.2d 1 All Citations
(1984). Indeed, in opposing Big Rivers' section 3 motion
to stay pending arbitration, MEAM has asserted that 804 F.2d 338

Footnotes
1 MEAM also asserts that the district court erred in failing to rule on Big Rivers' motion to dismiss. MEAM expressly
requested the district court to rule on this motion and the district court declined. Given its actions in staying the proceedings
pending arbitration, the district court did not abuse its discretion.
2 Section 3 provides:
If any suit or proceeding be 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 an agreement, shall on application
of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of
the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
In relevant part, section 4 provides:
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. Five
days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made
in the manner provided by the Federal Rules of Civil Procedure. 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 in issue, the court
shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.
The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order
directing such arbitration is filed.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

Myers v. Rosenberg, Not Reported in F.Supp. (1986)
1986 WL 3329
1986 WL 3329
Only the Westlaw citation is currently available.
United States District Court,
N.D. Illinois, Eastern Division.
Nancy MYERS, Plaintiff,
v.
Robert ROSENBERG, Defendant.
No. 83 C 1342.
| efforts to resolve the controversy without reference to an
March 7, 1986.
MEMORANDUM OPINION AND ORDER
PARSONS, District Judge.
*1 The defendant Rosenberg here presents the
interesting question of whether a defendant, after 2
½ years of litigation, having filed an answer and a
motion to dismiss, and having substantially engaged
in discovery, may thereafter seek to compel arbitration
of the claims all purportedly covered by a standard
arbitration agreement. One of the claims sought to be
arbitrated alleges a violation of the Racketeer Influenced
and Corrupt Organizations Act (“RICO”), 18 U.S.C. §
1961 et seq.; the other claims allege a breach of fiduciary
duty owed to the plaintiff. The plaintiff's claim under the
Securities and Exchange Act of 1934, 15 U.S.C. § 78, has
already been dismissed by the Court.
It is well established that “a waiver of arbitration is not
lightly to be inferred.” See Midwest Window Systems, Inc.
v. Amcor Industries, Inc., 630 F.2d 535, 536 (7th Cir.1980);
Dickinson v. Heinold Securities, Inc., 661 F.2d 638 (1981).
The court must determine whether the defaulting party
acted “inconsistently” with the arbitration right under the
totality of the circumstances. Dickinson, supra, at 641.
Delay alone will not constitute a waiver of arbitration
rights, nor are preliminary negotiations for settlement
inconsistent with the right to arbitrate.
However, when a party has “substantially invoked the
litigation machinery”, waiver will be implied. E.C. Ernst,
Inc. v. Manhattan Construction Co. of Texas, 559 F.2d
268 (5th Cir.1977). While the defendant here did not
instigate the judicial process as the defendant did in
Midwest Window, like in Midwest Window the defendant
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
here accepted a judicial decision in his favor on a motion
to dismiss the securities count. Unlike the defendant in
Dickinson, defendant here has confined neither his motion
to dismiss nor his discovery to “non-arbitrable” claims.
And while the defendant may have had reservations
concerning the arbitrability of the Securities Act claim,
he expressed no reason for postponing his request for
arbitration of certain pendent state claims.
Unlike in Dickinson, here the delay pending the motion
to compel arbitration did not arise from “good faith
adjudicatory body.” Indeed there is little question that had
defendant's motion to dismiss been granted by this Court,
the defendant would not now attempt to insist upon his
arbitration “right”. Having actively sought adjudication
of claims including those subject to the arbitration
agreement, the defendant should not now attempt to
recant from substantive arguments and discovery, and
stand upon a boilerplate arbitration agreement. As the
Seventh Circuit concluded in Midwest Windows, supra, at
537: the case has “gone too far with too much prejudice to
shift part of the responsibility for resolution elsewhere.”
See also Barrantine v. Arkansas Best Freight System, Inc.,
450 U.S. 728, 101 S.Ct. 1427 (1981) at 744–5.
Furthermore, I cannot find that RICO claims are
subject to arbitration agreements. While the defendant
attempts to analogize civil RICO claims with the antitrust
provisions of the Sherman Act, 15 U.S.C. § 1 et
seq., the analogy is not persuasive for the purpose
of determining the scope of an arbitration agreement.
RICO was enacted as part of the criminal code; not
as a criminal provision of a civil code. Its purpose
is to allow victims of a racketeering enterprise to act
as true arms of the state. A plaintiff under RICO
becomes, in essence, a civil prosecutor. The strict pleading
requirements in this Circuit for effectively stating a
claim under RICO are designed to protect the innocent
defendant from the stigma attached to being publically
labelled a criminal “racketeer”. This concern should
not be undermined by allowing a boilerplate arbitration
agreement to circumvent this judicial protection.
*2 And while federal policy promotes arbitration, See: 9
U.S.C. § 4, neither this policy not RICO itself reasonably
contemplates the arbitration of criminal activity. As the
Supreme Court states in Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346 (July 2,
1
Myers v. Rosenberg, Not Reported in F.Supp. (1986)
1986 WL 3329

1985), “just as it is the congressional policy manifested in in which the policy towards arbitration is outweighed by
clear countervailing congressional intent and sound policy
the Federal Arbitration Act that requires courts liberally
reasons.
to construe the scope of arbitration agreements covered
by the Act, it is the congressional intention expressed in
Accordingly, the defendant's motion to compel
some other statute on which the courts must rely to identify
arbitration of the RICO count is denied, and arbitration
any category of claims as to which agreements to arbitrate
as to both counts is deemed waived.
will be held unenforceable.” Id. at 3355. (emphasis added)
Here the statutory intent to provide judicial protection to
the litigants, while not expressly stated, is clearly manifest All Citations
by RICO's placement in the criminal code and by its
legislative history. Under Mitsubishi, then, this is a case Not Reported in F.Supp., 1986 WL 3329

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

for violation of the Deceptive Trade

Practices Act, and violation of the Credit
350 S.W.3d 152
Services Organization Act, where the parties'
Court of Appeals of Texas,
arbitration agreement expressly assigned
San Antonio.
“any dispute about the validity, effect or
NCP FINANCE LIMITED PARTNERSHIP enforceability of the prohibitions against class
and NMCapital, Inc., Appellants, proceedings” to the trial court, not the
v. arbitrator. V.T.C.A. Bus. & C., § 17.41 et seq.
Humberto ESCATIOLA, Appellee. Cases that cite this headnote

No. 04–10–00644–CV.
| [2] Alternative Dispute Resolution
April 27, 2011. Disputes and Matters Arbitrable Under
Agreement
Synopsis
Lender was entitled to compel individual
Background: On behalf of a purported class, borrower
arbitration of borrower's purported class
sued credit services organization and lender for usury,
action claims for violation of the Deceptive
violation of the Deceptive Trade Practices Act, and
Trade Practices Act, and violation of the
violation of the Credit Services Organization Act. Lender
Credit Services Organization Act, where the
filed a motion to compel individual arbitration, to strike
parties' arbitration agreement committed any
borrower's request for class action certification, and to
claim, which it defined as any legal dispute
stay the litigation pending completion of arbitration.
between borrower, on the one hand, and credit
The 150th Judicial District Court, Bexar County,
services organization and/or lender, on the
Antonia Arteaga, J., denied lender's motion to compel
other hand, to the arbitrator, and the clear
individual arbitration and permitted borrower to seek
language of the parties' agreement expressly
class certification before the arbitrator. Lender appealed.
forbade class certification in arbitration.
V.T.C.A. Bus. & C., § 17.41 et seq.

Holdings: The Court of Appeals, Sandee Bryan Marion, 1 Cases that cite this headnote
J., held that:

[1] trial court was required to rule on lender's motion to

compel individual arbitration, and Attorneys and Law Firms

[2] lender was entitled to compel individual arbitration of *152 Bryan James Wick, Jeffrey Wallace Hellberg Jr.,
borrower's claims. Wick Phillips, LLC, Dallas, TX, for Appellants.

John Steven Dwyre, John Dwyre & Associates, San

Reversed and remanded. Antonio, TX, for Appellee.

Sitting: SANDEE BRYAN MARION, Justice,

REBECCA SIMMONS, Justice, STEVEN C. HILBIG,
West Headnotes (2) Justice.

[1] Alternative Dispute Resolution

OPINION
Matters to Be Determined by Court
Trial court was required to rule on lender's Opinion by: SANDEE BRYAN MARION, Justice.
motion to compel individual arbitration of
borrower's purported class actions claims

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

In this accelerated appeal, appellants, NCP Finance

Limited Partnership and NMCapital, Inc. (collectively The arbitration agreement commits any “claim,” which
“NCP”), appeal from the trial court's order on their it defines as “any legal dispute between [Escatiola],
motion to compel individual arbitration and stay on the one hand, and ACE and/or [NCP], on the
litigation pending arbitration. We reverse and remand. other hand,” to the arbitrator. However, the arbitration
agreement also states: “[A]ny dispute about the validity,
effect or enforceability of the prohibitions against class
proceedings, private attorney general proceedings and/
*153 BACKGROUND or multiple-party proceedings ... shall be resolved by a
court and not by an arbitrator or arbitration administrator
ACE Credit Service, LLC (“ACE”) is a registered Texas
” (emphasis added). Escatiola refinanced the loan three
credit services organization, and NMCapital is an out-of-
times over the next two months, and he signed identical
state lender and a general partner of NCP Finance Limited
arbitration agreements on each occasion.
Partnership, a Texas limited partnership. On February
16, 2008, appellee, Humberto Escatiola, obtained a loan
On behalf of a purported class, Escatiola sued ACE and
from NCP through credit services provided by ACE. On
NCP for usury, violation of the Texas Deceptive Trade
that same date, Escatiola, ACE, and NCP signed a credit
Practices Act, and violation of the Texas Credit Services
services agreement, a loan agreement, a promissory note,
Organization Act. NCP filed a motion in the trial court to
and an arbitration agreement. The arbitration agreement
compel individual arbitration, to strike Escatiola's request
states:
for class action certification, and to stay the litigation
[U]pon the election of either pending completion of arbitration. The trial court's order
[Escatiola], [ACE] ..., or [NCP] ..., on the motion reads, in part: “IT IS ... ORDERED THAT
any legal dispute between [NCP's] Motion as to individual arbitration is denied and
[Escatiola], on the one hand, that the case shall proceed in arbitration and [Escatiola]
and ACE and/or [NCP], on the may seek class certification therein.” The trial court stayed
other hand, will be resolved the litigation and appointed an arbitrator.
by binding arbitration.... (1) NO
PARTY MAY PARTICIPATE On appeal, NCP argues the trial court was required to
IN A CLASS ACTION IN grant the motion as to individual arbitration because (a)
COURT OR IN CLASS– the parties' arbitration agreement specifically prohibits
WIDE ARBITRATION ...; (2) class arbitration, and (b) the United States Supreme
NO PARTY MAY ACT Court recently ruled in Stolt–Nielsen S.A. v. AnimalFeeds
AS A PRIVATE ATTORNEY International Corp. that class arbitration may not be
GENERAL IN COURT OR IN compelled absent express agreement of the parties.
AN ARBITRATION; (3) CLAIMS
BROUGHT BY OR AGAINST
[ESCATIOLA] MAY NOT BE DISCUSSION
JOINED OR CONSOLIDATED
WITH CLAIMS BROUGHT [1] Several years ago, the United States Supreme Court
BY OR AGAINST ANY held that whether an arbitration agreement forbids a class
OTHER PERSON; AND (4) action is a question for the arbitrator, not the trial court,
THE ARBITRATOR SHALL to decide. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444,
HAVE NO AUTHORITY TO 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (plurality
CONDUCT A CLASS–WIDE opinion). In Green Tree, Lynn and Burt Bazzle (“the
ARBITRATION, PRIVATE Bazzles”) obtained a home improvement loan from Green
ATTORNEY GENERAL Tree *154 Financial Corporation (“Green Tree”). Id. at
ARBITRATION OR MULTIPLE– 447, 123 S.Ct. 2402. The Bazzles and Green Tree signed
PARTY ARBITRATION. a contract, which included this arbitration clause: “ ‘All
disputes, claims, or controversies arising from or relating

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)
to this contract or the relationships which result from
this contract ... shall be resolved by binding arbitration
by one arbitrator selected by [Green Tree] with consent
of [the Bazzles].’ ” Id. at 448, 123 S.Ct. 2402 (emphasis
in original). The Bazzles subsequently sued Green Tree
in South Carolina state court for violation of the South
Carolina Consumer Protection Code and asked the trial
court to certify their claim as a class action. Id. at 449,
123 S.Ct. 2402. The trial court certified a class and entered
an order compelling arbitration. Id. Affirming the trial
court's order, the South Carolina Supreme Court held
class arbitration was authorized because the contract was
silent on the matter. Id. at 450, 123 S.Ct. 2402.
A plurality of the United States Supreme Court vacated
the South Carolina Supreme Court's ruling, holding
that in certain limited circumstances, courts must decide
“gateway” arbitration-related matters, “such as whether
the parties have a valid arbitration agreement at all or
whether a concededly binding arbitration clause applies to
a certain type of controversy.” Id. at 452, 123 S.Ct. 2402.
However, the Court concluded the question involved
in Green Tree—whether the parties' contract forbade
class arbitration—did not fall into that narrow exception
because it concerned neither the validity of the arbitration
clause nor the clause's applicability to the underlying
dispute. Id. According to the Court, whether the parties'
contract forbade class arbitration was a question of what
kind of arbitration the parties agreed to—a matter of
contract interpretation and arbitration procedures. Id. at
452–53, 123 S.Ct. 2402. Given that “[a]rbitrators are well
suited to answer” questions of contract interpretation, and
that the parties' contract contained “sweeping language
concerning the scope of the questions committed to
arbitration,” the Court held the matter should be decided
by the arbitrator, not the trial court. Id. at 453, 123 S.Ct.
2402.
Expressly relying upon the United States Supreme Court's
ruling in Green Tree, the Texas Supreme Court also held
the arbitrator, not the trial court, must rule on class
certification issues. In re Wood, 140 S.W.3d 367, 368
(Tex.2004) (per curiam). In Wood, an attorney and three
of his clients signed fee agreements providing that all
disputes arising from the agreements would be submitted
to binding arbitration. Id. When the clients sued the
attorney over a fee dispute, the trial court ordered the
case to arbitration and signed a second order specifically
authorizing the arbitrator to decide whether the clients
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
could seek class certification in arbitration. Id. The court
of appeals issued a writ of mandamus directing the
trial court to vacate its second order and determine
whether the parties' agreement permitted class arbitration.
Id. However, the Texas Supreme Court concluded the
decision in Green Tree was “directly on point” and held
the court of appeals erred in directing the trial court
to determine the class certification issue. Id. at 369–
70. According to the unanimous Texas Supreme Court,
“when the contracts at issue commit[ ] all disputes arising
out of the agreement to the arbitrator,” the arbitrator
must decide class certification issues. Id. at 368.
Recently, a majority of the United States Supreme
Court recognized Green Tree did not garner a majority
on the question of whether the trial court or the
arbitrator must decide class certification questions. *155
Stolt–Nielsen, ––– U.S. ––––, 130 S.Ct. 1758, 1772,
176 L.Ed.2d 605 (2010). However, the Stolt–Nielsen
majority declined to resolve this unsettled question
because the parties' agreement expressly assigned the class
certification question to the arbitration panel. Id. Instead,
the Court turned to the question the Green Tree Court did
not address—the standard to be applied when determining
whether a contract permits class arbitration. Id. The Court
held that “a party may not be compelled ... to submit
to class arbitration unless there is a contractual basis for
concluding that the party agreed to do so.” Id. at 1775
(emphasis in original). Because the parties conceded their
agreement was silent on the matter of class certification,
the Court found the arbitration panel's certification of
a class “fundamentally at war with the foundational ...
principle that arbitration is a matter of consent.” Id.
Here, the arbitration agreement expressly assigns “any
dispute about the validity, effect or enforceability of the
prohibitions against class proceedings” to the trial court,
not the arbitrator. Accordingly, because the contract at
issue here did not commit all disputes to the arbitrator,
but rather expressly assigned disputes involving the class
action waiver provision to the trial court, the trial
court was required to rule on NCP's motion to compel
individual arbitration.
[2] Turning to whether the trial court's denial of NCP's
motion was correct in light of recent precedent, we
must conclude it was not. The clear language of the
parties' agreement expressly forbids class certification in
arbitration. Because the United States Supreme Court
3
NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

recently held in Stolt–Nielsen that a party cannot be We reverse the trial court's order and remand this matter
to the trial court for proceedings consistent with this
compelled to submit to class arbitration absent its express
opinion.
consent, the trial court erred by denying NCP's motion to
compel individual arbitration and by permitting Escatiola
to seek class certification before the arbitrator. All Citations

350 S.W.3d 152

CONCLUSION

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

KeyCite Yellow Flag - Negative Treatment Judgment of Court of Appeals reversed, arbitration award
Distinguished by RSL Funding, LLC v. Pippins, Tex., July 1, 2016   vacated, and case remanded.
258 S.W.3d 580
Supreme Court of Texas. O'Neill, J., concurred and filed opinion.

PERRY HOMES, A Joint Venture, Home
Owners Multiple Equity, Inc., and Warranty
Underwriters Insurance Company, Petitioners,
v.
Robert E. CULL and S. Jane Cull, Respondents.
Johnson, J., concurred in part, dissented in part, and filed
opinion in which Jefferson, C.J., and Green, J., joined.
Willett, J., concurred in part, dissented in part, and filed
opinion.

No. 05–0882.
|
Argued March 20, 2007. West Headnotes (42)
|
Delivered May 2, 2008. [1] Alternative Dispute Resolution
| Suing or participating in suit
Rehearing Denied Aug. 29, 2008.
A party can not substantially invoke
Synopsis the litigation process and then switch to
Background: Homeowners moved to confirm arbitration arbitration on the eve of trial.
award against home builder and warranty companies
5 Cases that cite this headnote
on faulty construction claim. The 236th District Court,
Tarrant County, Thomas Wilson Lowe III, J., granted
motion. Defendants appealed. The Fort Worth Court of [2] Alternative Dispute Resolution
Appeals, 173 S.W.3d 565, affirmed as modified to delete Evidence
duplicative interest. Defendants' petitioned for review. There is a strong presumption against waiver
of arbitration, but it is not irrebuttable.

15 Cases that cite this headnote

Holdings: The Supreme Court, Brister, J., held that:

[1] order compelling arbitration could be reviewed post- [3] Courts

arbitration; Operation and effect in general
Appellate courts' denial, without comment,
[2] waiver of arbitration by litigation conduct is an issue of home builder and warranty companies'
for the courts, rather than arbitrators; petitions for mandamus relief from trial
court order compelling arbitration of
[3] waiver of arbitration by litigation conduct must be faulty construction claim did not foreclose
decided on a case-by-case basis, and courts should look to Supreme Court's review of order compelling
the totality of the circumstances; arbitration, on appeal from confirmation of
arbitration award.
[4] waiver of arbitration requires a showing of prejudice;
7 Cases that cite this headnote
[5] homeowners substantially invoked the litigation
process to defendants' prejudice and, thus, waived
[4] Mandamus
arbitration; and
Remedy by Appeal or Writ of Error

[6] warranty companies also waived arbitration.

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Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
Mandamus is only available when a final
appeal would be inadequate.
3 Cases that cite this headnote
[5] Alternative Dispute Resolution
Scope and Standards of Review
Trial court order compelling arbitration could
be reviewed post-arbitration.
9 Cases that cite this headnote
[6] Appeal and Error
Interlocutory and Intermediate Decisions
Parties waive nothing by foregoing
interlocutory review and awaiting a final
judgment to appeal.
1 Cases that cite this headnote
[7] Alternative Dispute Resolution
Decisions reviewable; finality
Courts may review an order compelling
arbitration if the order also dismisses the
underlying litigation so it is final rather than
interlocutory.
3 Cases that cite this headnote
[8] Alternative Dispute Resolution
Scope and standards of review
Alternative Dispute Resolution
Scope and Standards of Review
Courts conduct ordinary review of a trial
court's initial referral to arbitration and
deferential review only of the arbitrator's final
award.
3 Cases that cite this headnote
[9] Alternative Dispute Resolution
Waiver, laches, or estoppel
Waiver of arbitration by litigation conduct is
an issue for the courts, rather than arbitrators.
17 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[10] Alternative Dispute Resolution
Matters to Be Determined by Court
Alternative Dispute Resolution
Existence and validity of agreement
Arbitrators generally must decide defenses
that apply to the whole contract, while
courts decide defenses relating solely to the
arbitration clause; thus, arbitrators must
decide if an entire contract was fraudulently
induced, while courts must decide if an
arbitration clause was.
10 Cases that cite this headnote
[11] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
must be decided on a case-by-case basis, and
courts should look to the totality of the
circumstances.
15 Cases that cite this headnote
[12] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
was not ruled out solely because plaintiffs,
who moved to compel arbitration, did not ask
the court to make any judicial decisions on the
merits of their faulty construction claim; while
that was a factor to consider, it was not the
only one.
1 Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
involves substantial invocation of the judicial
process, not just judgment on the merits.
10 Cases that cite this headnote
[14] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
2
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

Parties may file suit in order to compel
arbitration. V.T.C.A., Civil Practice &
Remedies Code § 171.021(a).
1 Cases that cite this headnote
turning around and seeking arbitration with
the spoils.
5 Cases that cite this headnote

[19] Alternative Dispute Resolution

[15] Alternative Dispute Resolution
Suing or participating in suit
While whether the party who moves to compel
arbitration is the plaintiff or the defendant
is a factor to consider in determining waiver
of arbitration by litigation conduct, it does
not alone justify a finding of waiver or
change the basic nature of the totality-of-the-
circumstances test.
8 Cases that cite this headnote
[16] Alternative Dispute Resolution
Suing or participating in suit
How much litigation conduct will be
“substantial,” for purposes of rule that a party
waives arbitration by substantially invoking
the judicial process to the other party's
prejudice, depends very much on the context;
three or four depositions may be all the
discovery needed in one case, but purely
preliminary in another.
52 Cases that cite this headnote
Contractual or consensual basis
The answers to most questions regarding
arbitration flow inexorably from the fact that
arbitration is simply a matter of contract
between the parties.
8 Cases that cite this headnote
[20] Alternative Dispute Resolution
Waiver or Estoppel
Like any other contract right, arbitration can
be waived if the parties agree instead to resolve
a dispute in court.
6 Cases that cite this headnote
[21] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of arbitration can be implied from a
party's conduct, although that conduct must
be unequivocal, and in close cases, the strong
presumption against waiver should govern.
13 Cases that cite this headnote

[17] Estoppel
[22] Estoppel
Nature and Application of Estoppel in
Nature and elements of waiver
Pais
Waiver is essentially unilateral in its character
Estoppel is a defensive theory barring parties
and no act of the party in whose favor it is
from asserting a claim or defense when
made is necessary to complete it.
their representations have induced action or
forbearance of a definite and substantial 1 Cases that cite this headnote
character and injustice can be avoided only by
enforcement.
[23] Estoppel
3 Cases that cite this headnote Prejudice to person setting up estoppel
Estoppel includes a prejudice requirement.
[18] Alternative Dispute Resolution Cases that cite this headnote
Suing or participating in suit
A party who enjoys substantial direct benefits
[24] Alternative Dispute Resolution
by gaining an advantage in the pretrial
Waiver or Estoppel
litigation process should be barred from

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

Waiver of arbitration requires a showing of

prejudice. 33 Cases that cite this headnote

14 Cases that cite this headnote

[25] Alternative Dispute Resolution
Suing or participating in suit
Homeowners who filed action claiming
faulty construction substantially invoked
the litigation process to home builder
and warranty companies' prejudice and,
thus, waived arbitration clause in warranty
agreement, where homeowners vigorously
opposed arbitration in their pleadings and in
open court, then requested hundreds of items
of merits-based information and conducted
months of discovery under the rules of court,
and finally, only four days before the trial
setting, changed their minds and decided they
would prefer to arbitrate after all.
30 Cases that cite this headnote
[29] Alternative Dispute Resolution
Waiver or Estoppel
A party should not be allowed purposefully
and unjustifiably to manipulate the exercise
of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.
8 Cases that cite this headnote
[30] Alternative Dispute Resolution
Suing or participating in suit
Under the Federal Arbitration Act,
“prejudice” relates to inherent unfairness; that
is, a party's attempt to have it both ways by
switching between litigation and arbitration
to its own advantage. 9 U.S.C.A. § 1 et seq.
26 Cases that cite this headnote

[31] Appeal and Error

[26] Alternative Dispute Resolution
Abuse of discretion
Suing or participating in suit
Every abuse-of-discretion review is not
Under the totality-of-the-circumstances test,
identical because a trial judge's discretion may
discovery is not the only measure of waiver of
be applied to scores of situations and in many
arbitration by litigation conduct.
different ways.
Cases that cite this headnote
10 Cases that cite this headnote

[27] Alternative Dispute Resolution

[32]
Applicant's default, delay, or laches
The rule that one can not wait until the eve of
trial to request arbitration is not limited to the
evening before trial; it is a rule of proportion.
6 Cases that cite this headnote
Alternative Dispute Resolution
Suing or participating in suit
The totality-of-the-circumstances test for
determining waiver of arbitration by litigation
conduct presumes a multitude of potential
factors and a balancing of evidence on either
side.

[28] Alternative Dispute Resolution 3 Cases that cite this headnote

Suing or participating in suit
For purposes of a waiver of an arbitration [33] Appeal and Error
agreement, “prejudice” refers to the inherent Power to Review
unfairness in terms of delay, expense, or
Under a proper abuse-of-discretion review,
damage to a party's legal position that occurs
waiver is a question of law for the court, and
when the party's opponent forces it to litigate
an appellate court does not defer to the trial
an issue and later seeks to arbitrate that same
court on questions of law.
issue.

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Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
31 Cases that cite this headnote
[34] Appeal and Error
Sufficiency of Evidence in Support
Appellate court defers to a trial court's factual
findings if they are supported by evidence.
21 Cases that cite this headnote
[35] Alternative Dispute Resolution
Discovery and depositions
Arbitrators have almost unbridled discretion
regarding discovery.
1 Cases that cite this headnote
[36] Alternative Dispute Resolution
Suing or participating in suit
Defendants asserting that plaintiffs waived
their right to arbitration had to show
substantial invocation of the litigation process
that prejudiced them, not precisely how much
it all was.
5 Cases that cite this headnote
[37] Alternative Dispute Resolution
Trial or hearing
Referral to arbitration should be decided
summarily with the evidence limited to
disputed facts. V.T.C.A., Civil Practice &
Remedies Code § 171.021(b).
Cases that cite this headnote
[38] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
The amount of discovery needed to show
prejudice, for purposes of rule that a party
waives arbitration by substantially invoking
the judicial process to the other party's
prejudice, will vary depending on what the
other circumstances are.
36 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[39] Alternative Dispute Resolution
Suing or participating in suit
Prejudice, as required to establish waiver of
arbitration by litigation conduct, should be
easier to show against a party that initially
opposed arbitration than against one who
sought it from the start.
2 Cases that cite this headnote
[40] Alternative Dispute Resolution
Suing or participating in suit
A party who requests lots of discovery is not
prejudiced, as required to establish waiver of
arbitration by litigation conduct, by getting
it and taking it to arbitration in the same
way that a party who produces lots of
discovery outside the stricter discovery limits
in arbitration.
14 Cases that cite this headnote
[41] Alternative Dispute Resolution
Suing or participating in suit
Warranty companies that originally
requested arbitration of homeowners' faulty
construction claim waived arbitration by
extensively co-participating in months of
discovery.
Cases that cite this headnote
[42] Alternative Dispute Resolution
Presentation and reservation of grounds
for review
Fact that the only objection to trial
court's order compelling arbitration was
signed by home builder's attorneys, not
co-defendant warranty companies, did not
preclude warranty companies from objecting
to arbitration on appeal from confirmation
of arbitration award, where, in the motion
objecting to order compelling arbitration
and at the hearing held on it, home
builder's attorneys represented that they were
authorized to do so on behalf of all the
defendants; if the homeowners wanted to
5
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
question home builder's attorneys' authority
to speak for the warranty companies, they
should have done so by sworn motion.
1 Cases that cite this headnote
Attorneys and Law Firms
*584 Geoffrey H. Bracken, Gardere Wynne Sewell,
L.L.P., Houston, TX, Stacy R. Obenhaus, Gardere
Wynne Sewell LLP, Dallas, TX, Kent Hance, Hance
Scarborough Wright Woodward & Weisbart LLP,
Austin, TX, Gary W. Javore, Johnson Cristopher Javore
& Cochran, Inc., San Antonio, TX, for Petitioners.
Thomas M. Michel, Griffith, Jay, & Michel LLP, Fort
Worth, TX, Evan (Van) Lane Shaw, Law Offices of Van
Shaw, Dallas, TX, for Respondent.
M. Scott Norman Jr., Texas Association of Builders,
Austin, TX, for Amicus Curiae.
Opinion
Justice BRISTER delivered the opinion of the Court,
in which Justice HECHT, Justice O'NEILL, Justice
WAINWRIGHT, and Justice MEDINA joined, and
in which Chief Justice JEFFERSON, Justice GREEN,
Justice JOHNSON, and Justice WILLETT joined as to
parts I–V.
[1] [2] Since 1846, Texas law has provided that parties discovery from all of the Defendants.
to a dispute may choose to arbitrate rather than litigate. 1
But that choice cannot be abused; a party cannot
substantially invoke the litigation process and then switch was set for trial, the Culls changed their minds about
2
to arbitration on the eve of trial. There is a strong
presumption against waiver of arbitration, 3 but it is not
irrebuttable and was plainly rebutted here. The Plaintiffs
vigorously opposed (indeed spurned) arbitration in their
pleadings and in open court; then they requested hundreds
of items of merits-based information and conducted
months of discovery under the rules of court; finally
only four days before the trial setting they changed their
minds and decided they would prefer to arbitrate after
all. Having gotten what they wanted from the litigation
process, they could not switch to arbitration at the last
minute like this.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
The Plaintiffs argue—and we agree—that sending them
back to the trial court not only deprives them of a
substantial award but also wastes the time and money
spent in arbitration. But they knew of this risk when
they requested arbitration at the last minute because all
of the Defendants objected. Accordingly, we vacate the
arbitration award and remand the case to the trial court
for a prompt trial.
I. Background
In 1996, Robert and Jane Cull bought a house
from Perry Homes for $233,730. They also bought a
warranty from Home Owners Multiple Equity, Inc.
and Warranty Underwriters Insurance Company. The
warranty agreement included a broad arbitration clause
providing that all disputes the Culls might have against
Perry Homes or the warranty companies were subject to
the Federal Arbitration Act, and would be submitted to
the American Arbitration *585 Association (AAA) or
another arbitrator agreed upon by the parties. 4
Over the next several years, the home suffered serious
structural and drainage problems. According to the Culls,
the Defendants spent more effort shifting blame than
repairing the home. When the Culls sued in October
2000, the warranty companies (but not Perry Homes)
immediately requested arbitration; the Culls vigorously
opposed it, and no one ever pressed for a ruling. At the
same time, the Culls' attorneys began seeking extensive
After most of the discovery was completed and the case
litigating. Instead they asked the trial court to compel
arbitration under precisely the same clause and conditions
to which they had originally objected. The trial judge
expressed reservations, saying:
I really have a problem with people
who have competent counsel who
wait 14 months and after all this
much effort in the courthouse has
taken place, to come in and say
that they have not waived that
arbitration. That arbitration clause
was there when the lawsuit was filed.
6
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
Nevertheless, the trial court ordered arbitration because
the Defendants had not shown any prejudice from
litigation conduct:
[A]ll I have heard from [defense
counsel] insofar as what is the
prejudice suffered by people you
represent is that they have
participated in litigation activities
that may or may not have been
required by the arbitrator. So
without anything further, I am going
to grant the motion to abate the case
for arbitration.
The order was signed December 6, 2001, four days before
the case was set for trial. The Defendants filed petitions
for mandamus in the court of appeals and this Court, both
of which were denied without opinion within a few days. 5
After a year in arbitration, on December 24,
2002, the arbitrator awarded the Culls $800,000,
including restitution of the purchase price of their
home ($242,759), mental anguish ($200,000), exemplary
damages ($200,000), and attorney's fees ($110,000). The
Defendants moved to vacate the award, again arguing
(among other things) that the case should never have been
sent to arbitration after so much activity in court. The trial
court overruled the objection, confirmed the award, and
added post-judgment interest duplicating that already in
the award; the court of appeals affirmed after deleting the
duplicative interest. 6 We granted the Defendants' petition
to consider whether the arbitration award should be set
aside because the Culls waived their right to arbitration.
II. When Should Orders Compelling
Arbitration Be Reviewed?
[3] [4] At the outset, the Culls assert it is too late
to review the trial court's order referring this case
to arbitration. First, they argue the pre-arbitration
mandamus proceedings establish the law of the case
*586 and preclude the Defendants from raising the
same arguments now. We recently rejected this argument,
holding that as mandamus is a discretionary writ, “its
denial, without comment on the merits, cannot deprive
another appellate court from considering the matter in a
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
subsequent appeal.” 7 Mandamus is only available when a
final appeal would be inadequate; 8 if filing for mandamus
precluded a final appeal, that requirement would be self-
fulfilling. Because the earlier proceedings here were denied
without comment on the merits, they do not foreclose our
review.
[5] [6] Second, the Culls argue that an order compelling
arbitration can only be reviewed before arbitration occurs.
The Culls address none of the cases in which this Court
and the United States Supreme Court have reviewed such
orders after arbitration. 9 Nor do they address the general
rule that parties waive nothing by foregoing interlocutory
review and awaiting a final judgment to appeal. 10
[7] But most important, the Culls do not address
section 16 of the Federal Arbitration Act, which expressly
prohibits pre-arbitration appeals:
Except as otherwise provided in
section 1292(b) of title 28 [providing
for certified questions to federal
circuit courts], an appeal may not
be taken from an interlocutory
order ... directing arbitration to
proceed under section 4 of this title
[providing for orders compelling
arbitration].... 11
This ban on interlocutory appeals of orders compelling
arbitration was added by Congress in 1988 to prevent
arbitration from bogging down in preliminary appeals. 12
We have held that routine mandamus review of such
orders in state court would frustrate this federal law. 13
*587 [8] The Culls assert that post-arbitration review is
unavailable because an arbitration award can be vacated
only for statutory grounds like corruption, fraud, or
evident partiality. 14 But reviewing the trial court's initial
referral to arbitration is not the same as reviewing the
arbitrator's final award; as the United States Supreme
Court has held, courts conduct ordinary review of the
former and deferential review only of the latter. 15
We agree that post-arbitration review of referral may
create (as the Culls allege) a “huge waste of the
parties' resources.” But if review is available before
7
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
arbitration, parties may also waste resources appealing
every referral when a quick arbitration might settle the
matter. Frequent pre-arbitration review would inevitably
frustrate Congress's intent “to move the parties to an
arbitrable dispute out of court and into arbitration as
quickly and easily as possible.” 16 We recognize the
potential for waste, but that is a risk a party must take
if it moves for arbitration after substantially invoking the
litigation process.
III. Do Courts or Arbitrators Decide Waiver?
[9] The Culls also assert that waiver of arbitration by
litigation conduct is an issue to be decided by arbitrators
rather than courts. To the contrary, this Court and the
federal courts have held it is a question of law for the
court. 17 Rather than referring such claims to arbitrators,
we have decided them ourselves at least eight times, 18 as
does every federal circuit court. 19
*588 The Culls argue this was all changed in 2002 by
Howsam v. Dean Witter Reynolds, in which the United
States Supreme Court said the “presumption is that the
arbitrator should decide ‘allegation[s] of waiver, delay, or
a like defense to arbitrability.’ ” 20 For several reasons,
we disagree that this single sentence changed the federal
arbitration landscape.
First, “waiver” and “delay” are broad terms used in
many different contexts. Howsam involved the National
Association of Securities Dealers' six-year limitations
period for arbitration claims, not waiver by litigation
conduct; indeed, it does not appear the United States
Supreme Court has ever addressed the latter kind of
waiver. Although the federal courts do not defer to
arbitrators when waiver is a question of litigation conduct,
they consistently do so when waiver concerns limitations
21
periods or waiver of particular claims or defenses. As
22
Howsam involved the latter rather than the former, its
reference to waiver must be read in that context.
Second, the Howsam court specifically stated that “parties
to an arbitration contract would normally expect a
forum-based decisionmaker to decide forum-specific
procedural gateway matters.” 23 Thus, the NASD's six-
year limitations rule in that case was a gateway matter
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
for the NASD arbitrator because “the NASD arbitrators,
comparatively more expert about the meaning of their
own rule, are comparatively better able to interpret and to
apply it.” 24 By contrast, when waiver turns on conduct in
court, the court is obviously in a better position to decide
whether it amounts to waiver. 25 “Contracting parties
would expect the court to decide whether one party's
conduct before the court waived the right to arbitrate.” 26
*589 Third, as the Howsam Court itself stated, parties
generally intend arbitrators to decide matters that “grow
out of the dispute and bear on its final disposition,” while
they intend courts to decide gateway matters regarding
“whether the parties have submitted a particular dispute
to arbitration.” 27 Waiver of a substantive claim or
delay beyond a limitations deadline could affect final
disposition, but waiver by litigation conduct affects only
the gateway matter of where the case is tried. 28
[10] Finally, arbitrators generally must decide defenses
that apply to the whole contract, while courts decide
defenses relating solely to the arbitration clause. 29 Thus,
for example, arbitrators must decide if an entire contract
was fraudulently induced, while courts must decide if an
arbitration clause was. 30 As waiver by litigation conduct
goes solely to the arbitration clause rather than the whole
contract, consistency suggests it is an issue for the courts.
Every federal circuit court that has addressed this issue
since Howsam has continued to hold that substantial
invocation of the litigation process is a question for
the court rather than the arbitrator—including the
First, 31 Third, 32 Fifth, 33 and Eighth Circuits. 34 Legal
commentators appear to agree. 35 So do we.
IV. When Is the Litigation Process Substantially Invoked?
We have said on many occasions that a party waives
an arbitration clause by substantially *590 invoking
the judicial process to the other party's detriment or
prejudice. 36 Due to the strong presumption against
waiver of arbitration, this hurdle is a high one. 37 To date,
we have never found such a waiver, holding in a series of
cases that parties did not waive arbitration by:
8
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
• filing suit; 38
39
• moving to dismiss a claim for lack of standing;
• moving to set aside a default judgment and requesting
40
a new trial;
• opposing a trial setting and seeking to move the
litigation to federal court; 41
• moving to strike an intervention and opposing
42
discovery;
• sending 18 interrogatories and 19 requests for
production; 43
• requesting an initial round of discovery, noticing (but
not taking) a single deposition, and agreeing to a trial
resetting; 44 or
• seeking initial discovery, taking four depositions, and
moving for dismissal based on standing. 45
These cases well illustrate the kind of conduct that falls
short. But because none amounted to a waiver, they are
less instructive about what conduct suffices. We have
stated that “allowing a party to conduct full discovery, file
motions going to the merits, and seek arbitration only on
the eve of trial” would be sufficient. 46 But what if (as in
this case) only two out of these three are met? And how
much is “full discovery”?
We begin by looking to the standards imposed by
the federal courts. They decide questions of waiver by
applying a totality-of-the-circumstances test on a case-by-
case basis. 47 In doing so, they *591 consider a wide
variety of factors including:
• whether the movant was plaintiff (who chose to file in
court) or defendant (who merely responded); 48
• how long the movant delayed before seeking
arbitration; 49
• whether the movant knew of the arbitration clause all
along; 50
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
• how much pretrial activity related to the merits rather
than arbitrability or jurisdiction; 51
• how much time and expense has been incurred in
litigation; 52
• whether the movant sought or opposed arbitration
earlier in the case; 53
• whether the movant filed affirmative claims or
dispositive motions; 54
• what discovery would be unavailable in arbitration; 55
• whether activity in court would be duplicated in
arbitration; 56 and
• when the case was to be tried. 57
Of course, all these factors are rarely presented in a single
case. Federal courts have found waiver based on a few, or
even a single one. 58
[11] We agree waiver must be decided on a case-by-
case basis, and that courts should look to the totality of
the circumstances. Like the federal courts, this Court has
considered factors such as:
• when the movant knew of the arbitration clause; 59
*592 • how much discovery has been conducted; 60
• who initiated it; 61
• whether it related to the merits rather than arbitrability
or standing; 62
• how much of it would be useful in arbitration; 63 and
• whether the movant sought judgment on the merits. 64
[12] [13] Thus, we disagree with the court of appeals that
waiver is ruled out in this case solely because the Culls “did
not ask the court to make any judicial decisions on the
merits of their case.” 65 While this is surely a factor, 66 it is
not the only one. Waiver involves substantial invocation
of the judicial process, not just judgment on the merits.
9
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
[14] [15] We also disagree with the Defendants although that conduct must be unequivocal. 77 And in
that different standards should apply to plaintiffs and
defendants. As parties may begin arbitration without a
court order, it is certainly relevant that a plaintiff chose
to file suit instead. But Texas procedure also contemplates
that parties may file suit in order to compel arbitration. 67
Thus, while the movant's status is a factor to consider, it
does not alone justify a finding of waiver or change the
basic nature of the totality-of-the-circumstances test. 68
[16] We recognize, as we have noted before, “the
difficulty of uniformly applying a test based on nothing
more than the totality of the circumstances.” 69 But
there appears to be no better test for “substantial
invocation.” 70 As the United States Supreme Court
has said about minimum contacts, tests based on
“reasonableness” are never susceptible to mechanical
application—“few answers will be written in black and
white [;] [t]he greys are dominant *593 and even
among them the shades are innumerable.” 71 How much
litigation conduct will be “substantial” depends very much
on the context; three or four depositions may be all the
discovery needed in one case, 72 but purely preliminary in
another. 73
[17] [18] Moreover, this test is quite similar to
one we have long recognized and recently applied to
arbitration—estoppel. Estoppel is a defensive theory
barring parties from asserting a claim or defense when
their representations have induced “action or forbearance
of a definite and substantial character” and “injustice
74
can be avoided only by enforcement.” In arbitration
cases, we have held a nonparty who enjoys substantial
direct benefits from a contract may be estopped from
denying an arbitration clause in the same contract. 75 By
the same token, a party who enjoys substantial direct
benefits by gaining an advantage in the pretrial litigation
process should be barred from turning around and seeking
arbitration with the spoils.
[19] [20] [21] The answer to most questions regarding
arbitration “flow inexorably from the fact that arbitration
is simply a matter of contract between the parties.” 76
Like any other contract right, arbitration can be waived
if the parties agree instead to resolve a dispute in court.
Such waiver can be implied from a party's conduct,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
close cases, the “strong presumption against waiver”
should govern. 78
V. Is a Showing of Prejudice Required?
Although convinced that the Culls had substantially
invoked the litigation process, the trial court compelled
arbitration because the Defendants did not prove an
arbitrator would not have allowed the same discovery.
“Even substantially invoking the judicial process does not
waive a party's arbitration rights unless the opposing party
proves that it suffered prejudice as a result.” 79 On at
least eight occasions, we have said prejudice is a necessary
requirement of waiver by litigation *594 conduct. 80
[22] The Defendants ask us to reconsider this
requirement. They point out that Texas law does not
require a showing of prejudice for waiver, but only an
intentional relinquishment of a known right. 81 Waiver “is
essentially unilateral in its character” and “no act of the
party in whose favor it is made is necessary to complete
it.” 82 Thus, they argue we cannot impose a waiver rule for
arbitration contracts that does not apply to all others. 83
We decline the Defendants' invitation based on both
federal and state law. The Defendants say the federal
courts are split on the issue, but the split is not very wide.
Of the twelve regional circuit courts, ten require a showing
of prejudice, 84 and the other two treat it as a factor
to consider. 85 We have noted before the importance of
keeping federal and state arbitration law consistent. 86
*595 [23] Under Texas law, waiver may not include
a prejudice requirement, but estoppel does. In cases of
waiver by litigation conduct, the precise question is not so
much when waiver occurs as when a party can no longer
take it back. As noted above, Texas estoppel law does
not allow a party to withdraw a representation once the
other party takes “action or forbearance of a definite and
substantial character.” 87 Using precisely the same terms,
the Restatement does not allow a party to withdraw an
option contract when the offeree has taken substantial
action based upon it. 88 In these contexts, prejudice is an
element of the normal contract rules.
10
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
[24] Thus, we agree with the courts below that waiver of
arbitration requires a showing of prejudice.
VI. Was Arbitration Waived Here?
A. Did the Culls Waive Arbitration?
It remains only to apply these rules to this case.
[25] Unquestionably, the Culls substantially invoked
the litigation process, as their conduct here far exceeds
anything we have reviewed before. Before arbitration was
ordered, the Culls did not deny taking ten depositions,
and the court's file (of which the trial judge took judicial
notice) included:
• their initial objection to arbitration covering 79 pages;
• the Defendants' responses to requests for disclosure;
• the Culls' five motions to compel, attached to
which were 76 requests for production of documents
regarding complaints, inspections, repairs, and
settlements relating to eight other homes in the same
subdivision;
• Perry Homes' two motions for protective orders
regarding six designees noticed for deposition by
the Culls on nine issues (including purchase and
preparation of the lot, design and construction of
the foundation, sale of this home and others in the
subdivision, and attempts to deal with the Culls' and
other foundation complaints), with an attachment
requesting 67 categories of documents (including all
photos, videos, correspondence, insurance policies,
plans, soil tests, permits, subcontractors, contracts
for sale, and repairs relating to the house or the suit,
all complaints about any house in the subdivision,
and Perry Homes' articles of incorporation, by-laws,
minutes, and financials); and
• the Culls' notices of depositions for three of the
Defendants' experts with 24 categories of documents
requested from each (including all documents
relating to this case, all their articles, *596
publications, or speeches given in their fields of
expertise, all courses or seminars they had attended,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
all persons they had studied under, and all reference
books or treatises in their libraries).
There is simply no question on this record that the Culls
conducted extensive discovery about every aspect of the
merits. 89
[26] But under the totality-of-the-circumstances test,
discovery is not the only measure of waiver. Here,
when the warranty defendants initially moved to compel
arbitration, the Culls filed a 79–page response opposing
it, asserting that the AAA “is incompetent, is biased, and
fails to provide fair and appropriate arbitration panels.”
They complained of the AAA's fees, and asserted that as a
result the “purported arbitration clause is unconscionable
and unenforceable, and this Court's enforcement of such
would be nothing short of ridiculous and absurd.” This,
plus their prayer asking the trial court to deny the motion
to compel arbitration “in its entirety,” belies the court of
appeals' conclusion that “the Culls merely opposed the
use of the AAA” rather than arbitration itself. 90 In some
federal courts, the Culls' objection alone could suffice to
waive arbitration. 91
[27] The Culls also moved for arbitration very late in
the trial process. It is true that Perry Homes moved
to continue the trial setting when the Culls sought
arbitration, requesting about ten weeks to finish deposing
experts. Because the trial court ordered arbitration, no
one knows whether the case would have gone to trial
(including the unnamed court clerk cited by the dissent).
But in view of the written discovery and depositions
already completed, the record is nevertheless clear that
most of the discovery in the case had already been
completed before the Culls requested arbitration. 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 that is implicated here. 92
Then 14 months after filing suit and shortly before the
December 2001 trial setting, the Culls changed their minds
and requested arbitration. They justified their change of
heart on the basis that they wanted to avoid the delays
of an appeal. But their change unquestionably delayed
adjudication of the merits; instead of a trial beginning in a
few days or weeks, the plenary arbitration hearing did not
begin until late September of 2002—almost ten months
after the Culls abandoned their trial setting. Moreover,
to the extent arbitration reduces delay, it does so by
11
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
severely limiting both pretrial discovery and post-trial
review. Having enjoyed the benefits of extensive discovery
for 14 *597 months, the Culls could not decide only then
that they were in a hurry.
[28] [29] [30] It is also unquestionably true that this
conduct prejudiced the Defendants. “Prejudice” has many
meanings, but in the context of waiver under the FAA it
relates to inherent unfairness—that is, a party's attempt
to have it both ways by switching between litigation and
arbitration to its own advantage:
[F]or purposes of a waiver of an
arbitration agreement[,] 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. 93
Thus, “a party should not be allowed purposefully and
unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over the
opposing party.” 94
Here, the record before the trial court showed that the
Culls objected to arbitration initially, and then insisted
on it after the Defendants acquiesced in litigation. They
got extensive discovery under one set of rules and then
sought to arbitrate the case under another. They delayed
disposition by switching to arbitration when trial was
imminent and arbitration was not. They got the court to
order discovery for them and then limited their opponents'
rights to appellate review. Such manipulation of litigation
for one party's advantage and another's detriment is
precisely the kind of inherent unfairness that constitutes
prejudice under federal and state law.
B. A Response to the Dissents
Although we have repeatedly said arbitration agreements
can be waived, today's dissents would effectively hold they
cannot. That would favor arbitration too much; because
most agreements can be waived by the parties' conduct, 95
arbitration contracts should not be more enforceable than
other contracts. That is not what Congress intended when
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
it enacted the FAA. 96 Indeed, one dissent cannot even
bring itself to say the Culls substantially invoked the
litigation process. If the litigation conduct here is not
enough, it is hard to imagine what would be.
[31] [32] The dissents make several mistakes in their
analyses. First, they misconstrue the standard of review.
Every *598 abuse-of-discretion review is not identical
because “a trial judge's discretion may be applied to
scores of situations and in many different ways.” 97
Reviewing a declaratory judgment fee award (where trial
judges have broad discretion) 98 is not the same as
reviewing admission of hearsay (where trial judges follow
detailed rules), 99 even though an abuse-of-discretion
standard applies to both. 100 Moreover, a totality-of-
the-circumstances test presumes a multitude of potential
factors and a balancing of evidence on either side;
if appellate courts must affirm every time there is
some factor that was not negated or some evidence on
either side, then no ruling based on the totality-of-the-
circumstances could ever be reversed. That standard of
review would be the same as no review at all. By applying
such a standard, both dissents would allow trial judges to
send any case to arbitration no matter what has occurred
in court.
[33] [34] Under a proper abuse-of-discretion review,
waiver is a question of law for the court, 101 and we do
not defer to the trial court on questions of law. 102 We do
defer to a trial court's factual findings if they are supported
by evidence, 103 but there was no factual dispute here
regarding whether the Culls initially opposed arbitration,
whether they conducted extensive merits discovery, or
whether they sought arbitration late in the litigation
process. This leaves only the conclusion whether such
conduct constitutes prejudice, a legal question we cannot
simply abandon to the trial court. 104
*599 [35] Second, the dissents define prejudice in a
way that makes it impossible to prove. While recognizing
that “waiver” has a special definition in the arbitration
context, the dissents overlook that “prejudice” does too.
Instead of the inherent-unfairness standard used by the
federal courts, 105 they impose what appears to be an
irretrievable-loss standard. One dissent would go so far
as to hold that no amount of discovery, no matter how
extensive, can show prejudice if the fees incurred might
12
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
be compensated in the final arbitration award, even if
erroneously. 106
No one could ever show prejudice under
this standard, because even if a contract allowed no
reimbursement of discovery costs (as in this case), 107 it
is always hypothetically possible that a rogue arbitrator
might reimburse costs regardless. The same dissent would
find no prejudice from extensive discovery without proof
that an arbitrator would have prohibited it. That again is
impossible; arbitrators have almost unbridled discretion
regarding discovery, so no one can predict what they
might do in advance. Presuming (as the dissents do)
that broad discovery is generally available in arbitration
simply ignores one of its most distinctive features. 108
[36] [37] Third, both dissents quibble with the
Defendants' proof of prejudice because it was
insufficiently detailed. 109 This confuses proof of the fact
of prejudice with proof of its extent; the Defendants had
to show substantial invocation that prejudiced them, not
precisely how much it all was. Referral to arbitration
should be decided summarily with the evidence limited to
disputed facts; 110 as the Culls did not dispute that the
parties had conducted more than a dozen depositions and
other extensive discovery on the merits, requiring proof
of each one would have merely made the referral hearing
longer and more *600 expensive. The pre-arbitration
record proved that discovery was extensive; the evidence
demanded by the dissents would have merely showed how
much it cost.
[38] [39] Finally, the dissents' focus on discovery depositions (rather than 15); they had also exchanged
ignores all the other circumstances that the totality-of- standard requests for disclosure and one request for
the-circumstances test requires us to consider. Because
we must consider all the circumstances, the amount of
discovery needed to show prejudice will vary depending on discovery related to the merits (as the extensive discovery
what the other circumstances are. As the Fifth Circuit has here clearly did). 114 And while the party opposing
held, prejudice should be easier to show against a party
that initially opposed arbitration than against one who
sought it from the start:
While the mere failure to assert the
right to demand arbitration does
not alone translate into a waiver of
that right, such failure does bear on
the question of prejudice, and may,
along with other considerations,
require a court to conclude that
waiver has occurred. The failure
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to demand arbitration affects the
burden placed upon the party
opposing waiver. When a timely
demand for arbitration was made,
the burden of proving waiver falls
even more heavily on the shoulders
of the party seeking to prove
waiver. A demand for arbitration
puts a party on notice that
arbitration may be forthcoming, and
therefore, affords that party the
opportunity to avoid compromising
its position with respect to
arbitrable and nonarbitrable claims.
In contrast, where a party fails
to demand arbitration ... and in
the meantime engages in pretrial
activity inconsistent with an intent
to arbitrate, the party later opposing
a motion to compel arbitration
may more easily show that its
position has been compromised, i.e.,
prejudiced. 111
[40] It is these other circumstances that make this
case different from In re Vesta. 112 The parties seeking
arbitration in Vesta had not opposed arbitration from the
outset and then invoked it after getting all the discovery
they wanted. 113 Nor was the Vesta case close to trial, as
was the case here. The parties in Vesta had taken four
production, but only one of those documents was in the
record so there was no evidence whether this limited
arbitration in Vesta allegedly incurred more than $200,000
in expenses, most of that was incurred in getting discovery
rather than providing it; 115 a party who requests lots of
discovery is not prejudiced by getting it and taking it to
arbitration in the same way that a party who produces
lots of discovery outside the stricter discovery limits in
arbitration. 116
Applying the proper standard of review and the proper
definition of prejudice, we disagree with the dissents that
the Defendants have failed to show prejudice here.
13
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
*601 C. Did the Warranty
Companies Waive Arbitration?
[41] Finally, the Culls argue the warranty companies
cannot object to arbitration for two reasons.
First, the warranty companies originally requested
arbitration (which the Culls opposed), so it could be
argued that it is unfair to hold the Culls to their original
position without holding the warranty companies to
theirs. Of course, we cannot hold both parties to their
original positions as those positions were contradictory.
More important, while the parties' original demands
are relevant factors, the test is the totality of the
circumstances. Looking to all the circumstances, it is
quite clear from the parties' extensive co-participation in
months of discovery that everyone waived their right to
arbitration—whether they asserted that right early (as did
the warranty companies) or late (as did the Culls).
[42] Second, the Culls argue that the only objection to
the trial court's order compelling arbitration was filed
by Perry Homes, not the warranty companies. It is true
that only Perry Homes' attorneys signed the motion,
but in that motion and at the hearing held on it they
represented that they were authorized to do so on behalf
of all the Defendants. If the Culls wanted to question
their authority to speak for the warranty companies, they
should have done so by sworn motion. 117
***
Accordingly, we reverse the court of appeals' judgment,
vacate the arbitration award, and remand this case to the
trial court for a prompt trial.
Justice O'NEILL filed a concurring opinion.
Justice JOHNSON filed an opinion concurring in part and
dissenting in part, in which Chief Justice JEFFERSON
and Justice GREEN joined.
Justice WILLETT filed an opinion concurring in part and
dissenting in part.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Justice O'NEILL, concurring.
Most members of the Court agree that the Culls
substantially invoked the litigation process before
requesting arbitration; the point of disagreement is
whether Perry Homes adequately proved it suffered
prejudice as a result. I join the Court's opinion, but
write separately to note that I believe the proof required
to demonstrate prejudice in any given case should be
measured by the degree to which the litigation process has
been invoked. In some circumstances, a party's invocation
of the judicial process may be so substantial that a court
could presume the party resisting arbitration has been
prejudiced and the right to arbitration has been waived.
In my view, such a presumption may easily be drawn on
this record.
Justice JOHNSON, joined by Chief Justice JEFFERSON
and Justice GREEN, concurring in part and dissenting in
part.
I disagree that the trial court abused its discretion in
compelling arbitration. I concur with the disposition of
part VI–C. I dissent from parts VI–A and VI–B of the
Court's opinion and dissent from its judgment.
The parties agree that their arbitration agreement covers
the dispute and that the Federal Arbitration Act (FAA)
applies. Thus, whether the Culls waived the right to
arbitrate is a question of law. *602 In re Oakwood Mobile
Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); In re Bruce
Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998). The
Court has said previously, and says again today, that
prejudice is a required element of waiver of the right to
arbitrate cases subject to the FAA. 258 S.W.3d at 595; see
In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007). The
party asserting waiver has the burden to prove prejudice.
See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753–
54 (Tex.2001) (noting that if an agreement to arbitrate
exists and the party opposing arbitration fails to prove
its defenses, then a trial court has no discretion and its
only option is to compel arbitration); In re Bruce Terminix
Co., 988 S.W.2d at 704 (“Even substantially invoking
the judicial process does not waive a party's arbitration
rights unless the opposing party proves that it suffered
prejudice as a result.”). In the context of the issue before
us, prejudice means detriment. See In re Bank One, 216
S.W.3d at 827 (“A party waives an arbitration clause
14
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
when it substantially invokes the judicial process to the
other party's detriment.”). We review a trial court's order
compelling arbitration for an abuse of discretion. See In
re Bruce Terminix Co., 988 S.W.2d at 705. That standard
is in accord with the general practice of reviewing a
trial court's actions for an abuse of discretion when a
trial court has discretion to grant or deny relief based
on its factual determinations. See Bocquet v. Herring,
972 S.W.2d 19, 20–21 (Tex.1998) (noting that the abuse
of discretion standard of review as to a trial court's
factual determinations applies when a trial court has
discretion either to grant or deny relief based on its factual
determinations). The test for abuse of discretion is not
whether, in the opinion of the reviewing court, the trial
court's ruling was proper, but whether the trial court
acted without reference to guiding rules and principles.
See Cire v. Cummings, 134 S.W.3d 835, 838–39 (Tex.2004).
The trial court's ruling should be reversed only if it was
arbitrary or unreasonable. Id. at 839. Generally, if there
is any evidence to support the trial court's ruling then the
court did not abuse its discretion. See In re BP Prods. N.
Am., Inc., 244 S.W.3d 840, 848 (Tex.2008) (citing Butnaru
v. Ford Motor Co., 84 S.W.3d 198, 211 (Tex.2002)). That
is because it is only when the evidence is such that the
trial court could have made but one decision, yet made
another, that we say the trial court abused its discretion.
Id. Our decisions affording deference to trial court rulings
when evidence supports those rulings comport with the
standard of review utilized by the United States Fifth
Circuit Court of Appeals in regard to whether a party
has suffered prejudice for purposes of waiving arbitration
rights subject to the FAA. The Fifth Circuit's position
is that trial court findings on which the legal conclusion
of waiver is based are predicate questions of fact “which
may not be overturned unless clearly erroneous.” Price v.
Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th
Cir.1986); see also Republic Ins. Co. v. Paico Receivables,
LLC, 383 F.3d 341, 347 (5th Cir.2004) (“[T]he district
court's finding that PRLLC would suffer prejudice if
arbitration was compelled is not clearly erroneous.”).
The waiver issue in this matter is not determined by
general waiver elements, but by waiver as that term
is used in regard to avoiding arbitration agreements
subject to the FAA. Generally, “waiver” is the intentional
relinquishment of a right actually or constructively
known, or intentional conduct inconsistent with claiming
that right. See Jernigan v. Langley, 111 S.W.3d 153,
156 (Tex.2003). The elements of waiver include (1) an
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
existing right, benefit, or advantage held by a party; (2)
the party's actual or constructive knowledge *603 of its
existence; and (3) the party's actual intent to relinquish the
right or intentional conduct inconsistent with the right.
See Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640,
643 (Tex.1996). The Culls' actions and their attorneys'
statements in court, taken as a whole, present compelling
evidence of those elements.
Waiver as that term is used in regard to arbitration
agreements subject to the FAA, however, requires more
than is required for general waiver—it requires proof that
the party asserting waiver as a defense to arbitration has
suffered detriment. 258 S.W.3d at 589–90; In re Bank
One, 216 S.W.3d at 827. So, when the Culls finally moved
to compel arbitration and proved applicability of an
arbitration agreement, Defendants unquestionably had
the burden to raise and prove their defense of waiver,
including prejudice, if they wanted to avoid arbitration. In
re Bruce Terminix Co., 988 S.W.2d at 704.
Defendants recognized that to avoid arbitration they
had to prove a defense to the arbitration agreement. As
part of their response to the Culls' motion to compel
arbitration, Defendants pled that (1) after suit was filed,
all parties conducted written and oral discovery, (2) the
Culls filed several motions and obtained two hearings and
court rulings on discovery-related issues, and (3) a trial
setting was imminent. Defendants conceded applicability
of the arbitration clause, then cited authorities for and
took the position that “Plaintiffs have waived arbitration
because they substantially invoked the judicial process to
the detriment of Defendants.” Subsequently, Defendants
more clearly detailed the detriment they were claiming:
In this case, the costs incurred
by Defendants in responding to the
motions to compel filed by Plaintiffs
would not have been incurred during
the course of arbitration. Similarly,
defendants are prejudiced by the
fact that it [sic] was required to
comply with the Court's orders
on such motions to compel, when
such means and methods would not
have been available in arbitration.
Because of Plaintiffs' delay in
seeking arbitration, coupled with
the resulting prejudice by Defendants
being required to respond to multiple
15
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
discovery motions and comply with
orders thereon, Plaintiffs cannot
now rely on the Limited Warranty
Agreement to compel arbitration.
(Emphasis added). A second part of Defendants' response
was a motion for continuance of trial to complete
discovery.
At the hearing on the Culls' motion to compel arbitration,
the trial judge, who noted at the end of the hearing
that “I just finished [an arbitration] with the American
Arbitration Association,” admitted all the evidence
offered, and took judicial notice of the court file as
requested by Defendants. After evidence was introduced
at the hearing, Defendants again argued that there were
two factors involved: “whether or not the parties have
acted inconsistently with the agreement to arbitrate and
then whether those actions and the actions that were taken
actually worked to the detriment or prejudice of the party
that's opposing transference to arbitration.”
During the hearing, the trial judge expressed considerable
concern over the Culls' conduct. He discussed the Culls'
testimony that they had knowledge of the arbitration
clause before suit was filed, the extended time for
which the case had been filed, and the impending trial
setting. He also discussed the arbitration provision itself, 1
its mandatory nature, and pressed *604 the Culls'
attorney about the reason for the delay in requesting
arbitration. Finally, he asked about a provision in
the arbitration provision that provided “if any party
commences litigation in violation of this Agreement, such
party shall reimburse the other parties to the litigation for
their costs and expenses including attorney's fees incurred
in seeking dismissal of such litigation.” The Culls' attorney
acknowledged the provision and asserted that it would be
up to the arbitrator to determine whether the Culls would
be responsible for such fees and costs of Defendants.
Defendants did not dispute the Culls' position. Then,
agreeing with the assertions of the parties, the trial
judge did not address whether the judicial process had
been substantially invoked; rather, the court concluded
Defendants had not shown the prejudice they claimed and
granted the Culls' motion:
The question is, I think, when it deals with waiver is are
the defendants prejudiced by this delay, and if they are not
prejudiced or if there is not proof of prejudice, then the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Court has no alternative but to order the case abated for
arbitration purposes.
And, [counsel for Defendants], all I have heard from
you insofar as what is the prejudice suffered by
people you represent is that they have participated
in litigation activities that may or may not have
been required by the arbitrator. So without anything
further, I'm going to grant the motion to abate the
case for arbitration. 2
(Emphasis added).
Perry Homes filed a motion for reconsideration. In their
motion, Perry Homes again asserted that “all parties have
conducted written and oral discovery under the Texas
Rules of Civil Procedure” but did not complain that they
had been denied any discovery. Perry Homes' motion
recapped the prejudice they were claiming:
Defendants have in fact been
prejudiced by Plaintiffs' last-minute
attempt to disclaim their election
to file suit and instead choose
arbitration. In this case, the costs
incurred by Defendants—including
attorneys' fees and man hours
—in attending 16 depositions,
responding to multiple sets of
written discovery and responding
to the motions to compel filed
by Plaintiffs would not have been
incurred during the course of
arbitration. Similarly, Defendants
are prejudiced by the fact that
they were required to comply with
the Court's orders on such motions
to compel, when such means and
methods would not have been
available in arbitration. The amount
of attorney time Perry Homes
has invested in responding to
Plaintiffs' discovery requests and
related motions thus far is 122
attorney hours and 20 paralegal
hours.
*605 (Emphasis added). An affidavit was attached
setting out that the law firm representing Perry Homes
had spent 122 attorney hours and 20 paralegal hours in
responding to the Culls' discovery requests and related
16
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
motions. 3 The hours were not broken down and no dates,
times, or tasks were set out. There was no specification
as to time spent on actions Defendants claimed as
prejudice—responding to motions to compel discovery
and complying with court orders compelling discovery
that would not have been available in arbitration. The
docket sheet reflects that the trial court denied the motion,
but the record contains neither a transcript from the
hearing nor an order ruling on the motion.
The Court agrees that the standard of review applicable
to the trial court's order compelling arbitration is abuse of
discretion, but its holding that the Culls waived their right
to arbitrate misses the mark. In reaching its conclusion,
the Court says the question of prejudice is a matter of law
because all the relevant facts were undisputed. It seems to
me that (1) there was evidence requiring the trial court to
make evidentiary determinations as to prejudice, and (2)
Defendants did not prove that they were prejudiced or that
the Culls obtained an advantage because of the litigation
process.
As to the evidence that the trial court was required to
weigh and make evidentiary determinations on, the record
reveals that Defendants took depositions and engaged in
written discovery, as did the Culls. Yet Defendants did
not claim prejudice due to the Culls somehow reaping
an unfair advantage through discovery. The trial court
could have considered the advantages accruing to all
parties by depositions and bilateral written discovery
and determined that no prejudice was shown because
all parties were more fully prepared to proceed with
dispute resolution by knowing what the testimony of
witnesses would be, and that such knowledge would
shorten arbitration and reduce further costs.
Next, at the time of the hearing on the motion to compel
there was an imminent trial setting. But Defendants did
not claim they had spent time preparing to go to trial at the
December 10 setting and that those hours would be wasted
unless they went to trial immediately. At the December
6 hearing on the motion to compel, the parties agreed
the case would not be ready for trial at the December 10
setting, and the Culls' attorney stated that, according to
the court clerk, the case probably would not be reached
for trial. In any event, a trial setting and actually going
to trial are different matters. Even though Defendants
moved for a continuance and requested the case to be
reset in two months, there is nothing in the record to show
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
when the next setting actually would have been, much less
when the case would have gone to trial if the motion for
continuance had been granted. The Court speculates that
trial would have occurred sooner than arbitration took
place. To the extent a resetting or actual future trial date
should be considered, however, the trial court was in the
best position to determine when any new setting would
have occurred—whether days, weeks, or months in the
future—and to determine the weight to give the setting and
a potential trial date along with the other factors.
*606 Further, the Court discounts evidence of a
contractual provision in the arbitration clause requiring
any party that commenced litigation in violation of the
arbitration clause to reimburse other parties' litigation
expenses and costs. The clause is not a model of clarity as
to exactly what was recoverable:
Inasmuch as this Agreement
provides for mandatory arbitration
of disputes, if any party commences
litigation in violation of this
Agreement, such party shall
reimburse the other parties to
the litigation for their costs and
expenses including attorney's fees
incurred in seeking dismissal of such
litigation.
It was the trial court's goal, just as it is ours, to ascertain
the true intent of the parties to the agreement. See J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003).
The language used in the agreement is the primary
evidence of that intent. See id.; National Union Fire Ins.
Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517,
520 (Tex.1995). If the contract is subject to two or more
reasonable interpretations after applying the pertinent
rules of construction, the contract is ambiguous, creating
a fact issue on the parties' intent. See J.M. Davidson, 128
S.W.3d at 229.
The Court construes the clause as allowing reimbursement
for expenses and attorneys' fees incurred in seeking
dismissal of the lawsuit, but not for expenses and fees
in preparing the suit for trial. However, the clause can
also be read as requiring reimbursement of all litigation
costs and expenses, including but not limited to attorneys'
fees incurred in seeking dismissal of the litigation. And
that, apparently, is how the parties interpreted the
17
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
agreement. The trial court questioned the Culls' attorney
about whether the Culls would be responsible for the
Defendants' attorneys' fees and costs. When the Culls'
attorney replied that it was an issue for the arbitrator,
the Defendants' attorney did not contend otherwise. See
Mathis v. Lockwood, 166 S.W.3d 743, 744–45 (Tex.2005);
Banda v. Garcia, 955 S.W.2d 270 (Tex.1997). The Culls'
attorney's representations and lack of protestation by
Defendants' attorney is the only evidence in the hearing
record about the parties' intent as to the language in
the clause. 4 Under the abuse of discretion standard by
which we review the trial court's order, the reimbursement
clause and the attorneys' respective representations and
silence is part of the entire record which we must consider
in determining whether the trial court followed guiding
rules and principles. See Chrysler Corp. v. Blackmon, 841
S.W.2d 844, 852 (Tex.1992); Walker v. Packer, 827 S.W.2d
833, 839–40 (Tex.1992).
But even if the Court is right and the reimbursement
clause does not allow for *607 recovery of all Defendants'
litigation attorney's fees, an arbitration award would not
be subject to being vacated if an arbitrator interpreted
the clause to allow recovery of all the fees. If arbitrators
simply misinterpret a contractual clause such as the
reimbursement clause, that type of error is not one which
will justify setting aside an award. 5 See Wise v. Wachovia
Securities, LLC, 450 F.3d 265, 269 (7th Cir.2006) (noting
that in reviewing an arbitration award under the FAA,
“the issue for the court is not whether the contract
interpretation is incorrect or even wacky but whether
the arbitrators had failed to interpret the contract at
all”). Under the circumstances, it was proper for the
trial court to weigh, and the record shows it did, the
reimbursement provision and the parties' representations
in deciding that Defendants had not proved they suffered
prejudice. Regardless of the trial court's interpretation
of what costs and expenses would be recoverable under
the reimbursement provision, the mere existence of the
provision and its reimbursement requirement comprise
evidence supporting the decision to order arbitration and
properly leave construction and application of the clause
to the arbitrator.
In sum, there were decisions for the trial court to make
based upon weighing evidence, drawing inferences from it
in light of the parties' contentions, determining what the
evidence and inferences proved, and drawing a conclusion
as to Defendants' claims of prejudice. That situation
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
requires our deferring to the trial court's findings and
order when the standard of review is abuse of discretion.
Despite evidentiary matters the trial court had before
it which warrant our deferring to its implied and
stated findings, the Court sets out factors that
were uncontroverted, then concludes, without ever
saying exactly how, that Plaintiffs were advantaged or
Defendants were prejudiced by the “inherent unfairness”
of it all:
Here, the record before the trial
court showed that the Culls objected
to arbitration initially, and then
insisted on it after the Defendants
acquiesced in litigation. They got
extensive discovery under one set of
rules and then sought to arbitrate
the case under another. They
delayed disposition by switching to
arbitration when trial was imminent
and arbitration was not. They got
the court to order discovery for them
and then limited their opponents'
rights to appellate review. Such
manipulation of litigation for one
party's advantage and another's
detriment is precisely the kind of
inherent unfairness that constitutes
prejudice under federal and state
law.
258 S.W.3d at 597. No one (but the Culls and their
attorneys) could seriously disagree that the Culls' conduct
smacks of inequity. But even disregarding the evidentiary
questions the trial court had to resolve as set out above,
when the record is searched for evidence that Defendants
suffered prejudice as Defendants *608 claimed—by
incurring expenses in discovery proceedings, responding
to discovery motions, and complying with court orders on
discovery when that type of activity would not be available
in arbitration—there is none. Nor is there evidence that
the Culls were unfairly advantaged. The fact of the matter
is that all parties took part in litigation discovery as part
of the process to resolve their dispute. The Court discusses
at length how the facts are undisputed, how ordering the
parties to arbitration resulted in “inherent unfairness”
to Defendants, and that such “inherent unfairness”
equates to prejudice to Defendants, or conversely, unfair
advantage to the Culls. However, the authorities used
18
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
to support the Court's statements do not cut nearly so
broadly as the Court indicates. The cases cited incorporate
elements such as delay, expense, damage to a party's legal
position, or “tactical advantage” by which to measure
prejudice to one party or unfairness to the other party. 258
S.W.3d at 597 n. 94 (citing In re Tyco Int'l Ltd. Sec. Litig.,
422 F.3d 41, 46 n. 5 (1st Cir.2005) (“[A] party should not
be allowed purposefully and unjustifiably to manipulate
the exercise of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.” (emphasis
added))); Doctor's Assocs. v. Distajo, 107 F.3d 126, 134 (2d
Cir.1997) (“[P]rejudice as defined by our cases 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.” (emphasis added)).
The following passage embodies the substance of the
Court's opinion as to prejudice or unfair advantage:
It is also unquestionably true that [the Cull's] conduct
prejudiced the Defendants. “Prejudice” has many
meanings, but in the context of waiver under the FAA it
relates to inherent unfairness—that is, a party's attempt
to have it both ways by switching between litigation and
arbitration to its own advantage:
[F]or purposes of a waiver of an arbitration
agreement[,] 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.
Thus, “a party should not be allowed purposefully and
unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over
the opposing party.”
... Such manipulation of litigation for one party's
advantage and another's detriment is precisely the kind
of inherent unfairness that constitutes prejudice under
federal and state law.
258 S.W.3d at 597 (citations omitted). As noted
previously, the Court does not specify how Defendants
proved, at the hearing on the Culls' motion to compel
arbitration, detriment from delay, damage to Defendants'
legal position or a tactical advantage achieved by the
Culls, which perhaps is just as well because Defendants
did not claim those types of prejudice in the trial
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
court. Defendants claimed prejudice because of discovery
and court hearings that would not have occurred in
arbitration. But contrary to the Court's conclusion that
discovery would have been limited in arbitration, the
broad arbitration clause did not preclude any particular
type or level of discovery. It provided that arbitration
would be conducted according to the arbitrator's rules so
long as they did not conflict with the FAA. Specifically,
and by way of example, Defendants did not claim
prejudice from or prove that (1) delay because of litigation
interfered with *609 their business activities, caused
them loss of evidence, or interfered with their ability to
arbitrate; (2) if an arbitrator had ordered the lawsuit
discovery pursuant to the arbitration clause, the order
would have violated the arbitration clause; (3) had
the litigation discovery been requested in arbitration,
Defendants would have agreed to it and conferences
with the arbitrator would not have been necessary; (4)
the litigation discovery was not useable in arbitration;
(5) Defendants had already begun trial preparations or
taken other litigation related actions that would have
been wasted effort if the case went to arbitration; or (6)
Defendants suffered compromise of their legal position on
the merits of the Culls' claims.
There was not an offer of proof such as by expert
testimony, Defendants themselves, their attorneys or
otherwise, that all, some, or any arbitrators probably
would not have allowed the discovery, that their
agreement or a rule limited discovery in arbitration, or
Defendants wasted any litigation discovery effort. And to
boot, arbitrators do not come free. Disclosure conferences
in arbitration might well have cost more than discovery
hearings in litigation because arbitrators generally charge
for preparing for and attending conferences while trial
judges do not. Nor have Defendants claimed that their
attorneys would not have charged fees for arbitration
discovery activities. So the possibility exists that the
disclosure process in arbitration could have ended up
costing more than litigation discovery.
The Court questions whether broad discovery is generally
available in arbitration, but the parties here do not argue
that it is. What is argued here is that the parties' contract
provided how the arbitration was to be conducted—
through adherence to the arbitrator's rules so long as those
rules do not conflict with the FAA—and that Defendants
did not prove any litigation discovery that would have
been in violation of the contract. The Court says that
19
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
as of the time of the hearing on the Culls' motion to
compel arbitration, what discovery an arbitrator would
allow was purely speculative. But arbitration is not
new; Defendants could have at least attempted to prove
the custom and practice, if any, of arbitrators as to
discovery in arbitration, even though each arbitration
is governed by the particular agreement between the
parties. Even if such evidence might have been ruled
speculative, as the Court concludes it would have been,
the obligation to overcome the burden of proof still lay
with Defendants. See Borg–Warner Corp. v. Flores, 232
S.W.3d 765, 772–74 (Tex.2007) (recognizing difficulties of
proving asbestos claims against individual defendants, yet
requiring plaintiffs to meet that burden).
The Court says that “a party who enjoys substantial
direct benefits by gaining an advantage in the pretrial
litigation process should be barred from turning around
and seeking arbitration with the spoils.” 258 S.W.3d at
593. I agree with that statement. The problem is that the
Court does not apply the statement in its entirety to this
case. The Court assumes, without requiring Defendants to
prove, that the Culls obtained some advantage or caused
detriment to Defendants by both parties having engaged
in discovery activities. It is hard to see how discovery
of facts, witness names, documents, and testimony about
the controversy can prejudice either party. See Jampole
v. Touchy, 673 S.W.2d 569, 573 (Tex.1984) (noting that
discovery is done so disputes may be decided by what the
facts are, not by what facts are concealed). Defendants
neither alleged nor proved that they were prejudiced
because some privileged, proprietary, or confidential
matter had been disclosed. Discovery in both judicial
proceedings and in arbitration facilitates just *610 and
reasonable resolutions of disputes and helps prevent
unjust and unreasonable resolutions because of ambush,
surprise, or concealment of relevant, nonprotected,
nonprivileged evidence which could sway the outcome.
Furthermore, I disagree with the idea that merely making
discovery disclosures is evidence of wasted effort or other
prejudice. Although the extent to which a party engages in
litigation discovery plays a significant part in determining
whether that party substantially engaged the litigation
process, disclosure of relevant, nonprivileged evidence,
names of witnesses, and information makes just and
reasonable dispute resolution more likely regardless of
whether disclosure is strictly voluntary or is made in
judicial discovery proceedings or arbitration proceedings.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Evidence at the hearing on the Culls' motion to compel
arbitration consisted only of testimony by the Culls
and five documents they introduced: the earnest money
contract, the application for warranty, the limited
warranty agreement containing the arbitration provision,
a letter from the warranty company, and a copy of one
of Defendants' original answers. The Culls acknowledged
in their testimony that discovery and depositions had
occurred, but they were unsure of how many depositions
and how much discovery. Defendants requested the trial
court to take judicial notice of “five separate motions
to compel discovery and two separate orders on some,
but not all, of the motions to compel.” The court took
notice of “its file,” which at that time mostly consisted
of copies of pleadings and discovery requests attached
as exhibits to motions. The file contained only one or
two of the documents actually produced in discovery.
There were two orders on the Culls' motions to compel
discovery. The second order referred only to the Kunkel
defendants who were not ordered to arbitration. Because
the Kunkel defendants were not ordered to arbitration,
the trial court could have determined that any orders or
motions relating solely to them should not be considered
in regard to prejudice as to the other Defendants. In short,
the record on which the trial court ruled on December
6 was not extensive, and although it showed what the
Culls requested, practically none of the record was of
what Defendants produced in discovery, which was filed
later when Defendants sought to set aside the arbitration
award. And Defendants did not allege in the trial court
that some or even any of the discovery would not be
useful in arbitration, only that the discovery would not be
available in arbitration.
Last, the Court says that requiring Defendants to file
detailed proof of the discovery would have made the
record more cumbersome and would have entailed more
expense, and that to show prejudice, Defendants only had
to show substantial wasted effort anyway. The Court then
concludes that the record before the trial court at the time
of the hearing showed substantial wasted effort, and thus
detriment, to Defendants. But in In re Vesta Ins. Group,
Inc., 192 S.W.3d 759 (Tex.2006), the Court declined to
determine that waiver of the right to arbitrate occurred
when the party opposing arbitration failed to introduce
any of the discovery documents, present details about
them, or contend that the discovery would not be useful
in arbitration. The record, the Court stated,
20
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
does not show whether these
requests were limited or extensive,
whether they sought information for
affirmative claims or defensive ones,
or even whether they addressed the
merits or merely the arbitration
issue. Further, [plaintiff] does not
allege that the discovery already
conducted would not be useful in
arbitration; to the contrary, he
concedes *611 it would be useful
whether the case is arbitrated or
tried.
Id. at 763.
Neither party here claimed before arbitration (nor, for
that matter, after arbitration) that the litigation discovery
would not be useful in arbitration. On the other hand, and
as addressed below, Defendants claimed after arbitration
that they suffered prejudice because Plaintiffs' attorney
used the discovery depositions to prepare for arbitration.
In this regard, there are further inferences from the record
that the Court does not credit but that the trial court
could have made when it compelled arbitration: both
parties would use the litigation discovery and depositions
to prepare for arbitration, the discovery would be useful
in arbitration, and neither party was unfairly advantaged
or suffered detriment from the discovery.
In summary, the Court (1) does not limit its review
to Defendants' claims of prejudice made in the trial
court, (2) disregards factors that presented the trial court
with decisions to make based on evidence allowing for
different interpretations and inferences, and (3) assumes
“inherent unfairness” equates to Defendants' prejudice or
the Culls' unfair advantage from litigation conduct and
effectively forgives Defendants' failure to prove detriment
to themselves or advantage to the Culls.
Defendants make other contentions not reached by the
Court, but none of them warrant holding that the trial
court abused its discretion. In their brief to this Court,
Defendants reference rules of the American Arbitration
Association and urge that the AAA Rules of Procedure
provide for limited discovery in that the arbitrator is
limited to directing “(i) the production of documents
and other information, and (ii) the identification of
any witnesses to be called.” Defendants also assert that
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
they were prejudiced because during post-arbitration
proceedings, the Culls' attorney testified that he reviewed
deposition testimony in preparing for the arbitration and
depositions are not generally available in arbitration. 6
First, Defendants did not introduce the AAA rules
into evidence at the hearing or ask the trial court to
take judicial notice of them. Second, to the extent the
arguments encompass discovery depositions, Defendants
did not complain in the trial court that they were
prejudiced by the taking of depositions or that the Culls
planned to use them in arbitration, and the argument
cannot be raised here. See TEX.R.APP. P. 33.1; Mack
Trucks, Inc. v. Tamez, 206 S.W.3d 572, 577 (Tex.2006)
(noting that except for fundamental error, appellate courts
are not authorized to consider issues not properly raised
by the parties). Third, even if the AAA rules had been
before the trial court, there was no evidence that all, most,
or any arbitrators would have refused to require disclosure
of any of the matters disclosed by Defendants. Finally,
Defendants' attorneys had access to the same deposition
testimony to use for arbitration preparation, so there
could not have been an unfair advantage to the Culls by
use of the depositions.
I conclude the record is not conclusive either that
Defendants suffered prejudice as they claimed or that the
Culls obtained an unfair advantage by litigation conduct
as the Court holds. I also conclude that evidence before the
trial court required the court to weigh and draw inferences
from it and that some evidence supports the trial court's
determination that Defendants did not prove prejudice to
themselves *612 or unfair advantage to the Culls by use
of the litigation process. Accordingly, I would hold that
the trial court did not abuse its discretion by compelling
the parties to arbitrate and I would affirm the judgment
of the court of appeals.
Justice WILLETT, concurring in part and dissenting in
part.
Arbitration has become a hot-button topic for the Court
of late—in this Term alone we have decided at least three
arbitration-related cases 1 and heard argument in four
more. 2 As the range of opinions in this case demonstrates,
the invocation and operation of arbitration provisions can
present tricky legal questions that spark honest differences
of opinion. I agree with Parts I–V of the Court's decision,
and also with much of Part VI regarding waiver. However,
I respectfully dissent from the Court's ultimate result, not
21
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

on an arbitration law issue, but on a much more old-
fashioned ground—the applicable standard of review.
The Court properly acknowledges that a trial court's order
compelling arbitration is reviewed for abuse of discretion.
Under this standard, we will reverse the trial court only
when “it acts in an arbitrary or unreasonable manner,
without reference to any guiding rules or principles.” 3 I
agree with the Court, and the trial judge for that matter,
that the record clearly shows that the Culls substantially
invoked the judicial process. I also agree with the Court
that the cost-reimbursement provision in the arbitration
agreement does not prevent Perry Homes from showing
prejudice resulting from the Culls' arbitration flip-flop.
JUSTICE JOHNSON is comforted by the possibility that
an arbitrator might (mis)construe this provision to award
Perry Homes all its litigation-related costs and fees, but
I am not. The provision limits reimbursement to “costs
and expenses including attorney's fees incurred in seeking
dismissal of such litigation,” and we cannot plausibly say
Perry Homes fails on prejudice because an arbitrator may
misread the agreement.
arbitration. I believe in waiver-by-conduct, but Perry
Homes bore the threshold responsibility of building a
record upon which the trial court could find prejudice. The
record on appeal is far more extensive than what the trial
court considered (and the arguments far more refined),
but I agree with JUSTICE JOHNSON that the trial court
—sitting where it sat, seeing what it saw, hearing what
it heard, reviewing what it reviewed—did not abuse its
discretion in concluding “no prejudice.” Trial courts do
not have carte blanche “to send any case to arbitration
no matter what has occurred in court,” 4 but I cannot
conclude that this trial court acted “without reference to
any *613 guiding rules or principles” 5 in ruling that
Perry Homes fell short of building a trial-court record that
showed prejudice. This is admittedly a close call, and the
Court makes the best possible case for going the other
way. Given the relevant record, however, I have a difficult
time saying the trial court acted arbitrarily or disregarded
all guiding standards in not reaching the opposite result.
Accordingly, I dissent from the Court's decision vacating
the arbitration award and remanding for trial.

All Citations
Having said all that, I cannot conclude, as does the Court,
that the trial court abused its discretion by compelling 258 S.W.3d 580, 51 Tex. Sup. Ct. J. 819

Footnotes
1 See L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex.1977).
2 See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 348 (5th Cir.2004); Com–Tech Assocs. v. Computer
Assocs. Int'l, Inc., 938 F.2d 1574, 1576–77 (2d Cir.1991); Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1160
(5th Cir.1986); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006).
3 See, e.g., In re Vesta, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d 702, 704–05 (Tex.1998); EZ Pawn Corp.
v. Mancias, 934 S.W.2d 87, 89–90 (Tex.1996).
4 The warranty provided:
Any “unresolved dispute” (defined below) that you may have with [Perry Homes or the warranty companies] shall
be submitted to binding arbitration governed by the procedures of the Federal Arbitration Act, 9 U.S.C. § 1 et seq....
The dispute will be submitted to the American Arbitration Association, or such other independent arbitration service
as is agreeable to the [warranty administrator] and you....
5 Perry Homes sought mandamus in the court of appeals on April 11, 2002, and was denied 7 days later. It refiled in this
Court on April 26, and was denied 13 days later.
6 173 S.W.3d 565, 568.
7 Chambers v. O'Quinn, 242 S.W.3d 30, 32 (Tex.2007).
8 In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex.2004); Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992).
9 See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Chambers, 242
S.W.3d at 31; see also Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959) (invalidating portion of award
regarding nonarbitrable issues); Fortune v. Killebrew, 86 Tex. 172, 23 S.W. 976, 978 (1893) (same).
10 Pope v. Stephenson, 787 S.W.2d 953, 954 (Tex.1990) (“The decision not to pursue the extraordinary remedy of
mandamus does not prejudice or waive a party's right to complain on appeal.”); accord, City of San Benito v. Rio Grande
Valley Gas Co., 109 S.W.3d 750, 756 (Tex.2003); Walker v. Packer, 827 S.W.2d 833, 842 n.9 (Tex.1992).

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11 See 9 U.S.C. § 16(b)(2); see also TEX. CIV. PRAC. & REM.CODE § 171.098 (providing for interlocutory appeal only of
orders denying motion to compel arbitration).
12 See David D. Siegel, Appeals from Arbitrability Determinations, Practice Commentary to 9 U.S.C. § 16 (“The mission
of § 16 is to assure that if the district court does determine that arbitration is called for, the court system's interference
with the arbitral process will terminate then and there, leaving the arbitration free to go forward. To accomplish this, §
16 provides in general that there may be no appeal from the pro-arbitration determination until after the arbitration has
gone forward to a final award.”); see also CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER,
FEDERAL PRACTICE AND PROCEDURE § 3914.17 (2d ed.1992).
13 In re Palacios, 221 S.W.3d 564, 565 (Tex.2006). Courts may review an order compelling arbitration if the order also
dismisses the underlying litigation so it is final rather than interlocutory. See Green Tree Fin. Corp.-Ala., 531 U.S. at 87
n.2, 121 S.Ct. 513; Childers v. Advanced Found. Repair, L.P., 193 S.W.3d 897, 898 (Tex.2006). As we noted in Palacios,
the Fifth Circuit has indicated it may review a district court's decision to stay rather than dismiss if a petitioner shows
“clearly and indisputably that the district court did not have the discretion to stay the proceedings pending arbitration.” Id.
(citing Apache Bohai Corp., LDC v. Texaco China, B.V., 330 F.3d 307, 310–11 (5th Cir.2003)).
14 See 9 U.S.C. § 10(a).
15 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947–48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The Court noted that
a different rule would apply if the parties clearly and unmistakably indicated in the arbitration contract that the arbitrator
should decide arbitrability, id., but there is no such indication in this contract.
16 Preston v. Ferrer, 552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (quoting Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
17 In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Bruce Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998);
accord, In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d
102, 104 (2d Cir.2002); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 n. 18 (11th Cir.2002); Price v. Drexel
Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir.1986).
18 See In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007) (finding no waiver under FAA); In re D. Wilson Constr. Co.,
196 S.W.3d 774, 783 (Tex.2006) (same); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006) (same); In re Serv.
Corp. Int'l, 85 S.W.3d at 174 (same); In re Bruce Terminix Co., 988 S.W.2d at 704–05 (same); In re Oakwood Mobile
Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999) (same); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89–90 (Tex.1996)
(same); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.1995).
19 See, e.g., Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 32–34 (1st Cir.2001); Doctor's Assocs., Inc.
v. Distajo, 66 F.3d 438, 456 (2d Cir.1995); Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir.2000); Am.
Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 96 (4th Cir.1996); Subway Equip. Leasing Corp. v.
Forte, 169 F.3d 324, 329 (5th Cir.1999); Germany v. River Terminal Ry. Co., 477 F.2d 546, 547 (6th Cir.1973); Ernst &
Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753, 758 (7th Cir.2002); Ritzel Commc'ns v. Mid–American Cellular,
989 F.2d 966, 969–71 (8th Cir.1993); Martin Marietta Aluminum, Inc. v. Gen. Elec. Co., 586 F.2d 143, 146 (9th Cir.1978);
Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489–90 (10th Cir.1994); Ivax Corp., 286 F.3d at 1316;
Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 777–78 (D.C.Cir.1987).
20 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
21 See, e.g., Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 447, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (holding whether
arbitration could proceed by class action was question for arbitrator); John Wiley & Sons, Inc. v. Livingston, 376 U.S.
543, 557, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (holding question whether steps of grievance procedure prerequisite to
arbitration had been completed was for arbitrator); Sleeper Farms v. Agway, Inc., 506 F.3d 98, 104 (1st Cir.2007) (noting
question whether breach of contract voided arbitration clause would normally be for arbitrator); United Steelworkers of
Am. v. Saint Gobain Ceramics & Plastics, Inc., 505 F.3d 417, 422 (6th Cir.2007) (holding question of timely demand
for arbitration was for arbitrator); Ansari v. Qwest Commc'ns Corp., 414 F.3d 1214, 1220–21 (10th Cir.2005) (holding
question whether plaintiffs waived forum selection clause by filing suit elsewhere was for arbitrator); Pro Tech Indus.,
Inc. v. URS Corp., 377 F.3d 868, 871–72 (8th Cir.2004) (holding questions of timely demand and waiver by failing to
initiate arbitration were for arbitrator); Glass v. Kidder Peabody & Co., 114 F.3d 446, 457 (4th Cir.1997) (holding question
of timely demand for arbitration was for arbitrator); Great W. Mortgage Corp. v. Peacock, 110 F.3d 222, 231–32 (3d
Cir.1997) (holding question of waiver of substantive state law rights was for arbitrator).
22 See Howsam, 537 U.S. at 81–82, 123 S.Ct. 588.
23 Id. at 86, 123 S.Ct. 588.

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24 Id. at 85, 123 S.Ct. 588.

25 Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 Fed.Appx. 462, 464 (5th Cir.2004).
26 Id.
27 Howsam, 537 U.S. at 83–84, 123 S.Ct. 588 (internal quotations omitted); see also Green Tree Fin. Corp. v. Bazzle, 539
U.S. 444, 451–52, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003).
28 See Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 13 (1st Cir.2005).
29 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (“We reaffirm
today that ... a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must
go to the arbitrator.”).
30 In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 190 (Tex.2007) (holding claim that contract was illusory went to
contract as a whole and thus was for arbitrators); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex.2001) (“The de
los Santoses assert the defenses of unconscionability, duress, fraudulent inducement, and revocation. We again note
that these defenses must specifically relate to the Arbitration Addendum itself, not the contract as a whole, if they are
to defeat arbitration.”); see also In re Kaplan Higher Educ. Corp., 235 S.W.3d 206, 210 (Tex.2007) (holding claim of
“unclean hands” that went to contract as a whole rather than arbitration clause was question for arbitrators).
31 In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 45–47 (1st Cir.2005); Marie, 402 F.3d at 13–14; In re Citigroup, Inc., 376
F.3d 23, 27–29 (1st Cir.2004); Rankin v. Allstate Ins. Co., 336 F.3d 8, 12–14 (1st Cir.2003); Restoration Pres. Masonry,
Inc. v. Grove Eur. Ltd., 325 F.3d 54, 61–63 (1st Cir.2003).
32 Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217–21 (3d Cir.2007).
33 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344–47 (5th Cir.2004); Tristar Fin. Ins. Agency, Inc. v.
Equicredit Corp. of Am., 97 Fed.Appx. 462, 464 (5th Cir.2004).
34 Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1090–94 (8th Cir.2007); Kelly v. Golden, 352 F.3d 344, 349–
50 (8th Cir.2003). The Eighth Circuit did refer to Howsam in one case as requiring waiver to be referred to arbitrators, but
that case involved an allegation of waiver by previous arbitration, not litigation. See Nat'l Am. Ins. Co. v. Transamerica
Occidental Life Ins. Co., 328 F.3d 462, 463–66 (8th Cir.2003).
35 See David LeFevre, Note, Whose Finding is it Anyway?: The Division of Labor Between Courts and Arbitrators with
Respect to Waiver, 2006 J. DISP. RESOL.. 305, 316–17 (2006); Stephen K. Huber, The Arbitration Jurisprudence of the
Fifth Circuit, Round II, 37 TEX. TECH L.REV. 531, 542 (2005).
36 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007); In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006);
In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006); In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002);
In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); In re Bruce Terminix Co., 988 S.W.2d 702, 704
(Tex.1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996); Prudential Sec. Inc. v. Marshall, 909 S.W.2d
896, 898–99 (Tex.1995).
37 In re Bank One, N.A., 216 S.W.3d at 827; In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta Ins. Group, Inc.,
192 S.W.3d at 763; In re Serv. Corp. Int'l, 85 S.W.3d at 174; In re Bruce Terminix Co., 988 S.W.2d at 704; EZ Pawn
Corp., 934 S.W.2d at 89.
38 In re D. Wilson Constr. Co., 196 S.W.3d at 783.
39 In re Vesta Ins. Group, Inc., 192 S.W.3d at 764.
40 In re Bank One, N.A., 216 S.W.3d at 827.
41 In re Serv. Corp. Int'l, 85 S.W.3d at 174–75.
42 Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex.1995).
43 In re Bruce Terminix Co., 988 S.W.2d at 704.
44 EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex.1996).
45 In re Vesta Ins. Group, Inc., 192 S.W.3d at 763 (holding requests for disclosure, four depositions, and request for
production did not waive arbitration absent proof regarding extent of requests and whether they addressed merits or
arbitrability).
46 Id. at 764.
47 In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir.2005) (“[E]ach case is to be judged on its particular facts.”);
Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (“Ultimately, however, the question of
what constitutes a waiver of the right of arbitration depends on the facts of each case.”); accord, Ivax Corp. v. B. Braun
of Am., Inc., 286 F.3d 1309, 1315 (11th Cir.2002); Grumhaus v. Comerica Sec., Inc., 223 F.3d 648, 650 (7th Cir.2000);

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Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C.Cir.1987); Tenneco Resins,
Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.1985).
48 Grumhaus, 223 F.3d at 650; see also Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir.1995).
49 PAICO, 383 F.3d at 346; In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004); Metz v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 39 F.3d 1482, 1489 (10th Cir.1994); Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 926 (3d Cir.1992).
50 Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir.2005); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc.,
380 F.3d 200, 206 (4th Cir.2004).
51 PAICO, 383 F.3d at 346; Kelly v. Golden, 352 F.3d 344, 349 (8th Cir.2003); Hoxworth, 980 F.2d at 926; Gilmore v.
Shearson/American Express Inc., 811 F.2d 108, 112 (2d Cir.1987); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l
Oil Co., 767 F.2d 1140, 1150–51 (5th Cir.1985).
52 PAICO, 383 F.3d at 346; Patten Grading, 380 F.3d at 205; In re Citigroup, 376 F.3d at 26; Metz, 39 F.3d at 1489;
Hoxworth, 980 F.2d at 927.
53 Hoxworth, 980 F.2d at 927; Com–Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574, 1577 (2d Cir.1991); E.C.
Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1040–41 (5th Cir.1977); Blake Constr. Co. v. U.S. for Use and
Benefit of Lichter, 252 F.2d 658, 662 (5th Cir.1958).
54 In re Citigroup, 376 F.3d at 26; Metz, 39 F.3d at 1489.
55 In re Citigroup, 376 F.3d at 26; Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489.
56 Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489.
57 Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir.1995); Peterson v. Shearson/American
Express, Inc., 849 F.2d 464, 468 (10th Cir.1988) (finding waiver as movant waited until five weeks before trial date to
move to compel).
58 See, e.g., Restoration Preserv. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 62 (1st Cir.2003) (finding three-year delay
alone sufficient to establish waiver); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir.1995)
(finding removal to federal court alone sufficient to establish waiver).
59 See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88–89 (Tex.1996) (finding no waiver as defendant did not discover
existence of arbitration agreement for almost a year).
60 In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006).
61 Id.
62 Id.
63 Id.; In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998).
64 In re Bruce Terminix Co., 988 S.W.2d at 704.
65 173 S.W.3d at 570.
66 See In re Bruce Terminix Co., 988 S.W.2d at 704.
67 See, e.g., TEX. CIV. PRAC. & REM.CODE § 171.021(a) (“A court shall order the parties to arbitrate on application of a
party showing: (1) an agreement to arbitrate; and (2) the opposing party's refusal to arbitrate.”).
68 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006); accord, United Computer Sys., Inc. v. AT & T Corp., 298
F.3d 756, 764 (9th Cir.2002).
69 See R.R. St. & Co. v. Pilgrim Enters., Inc., 166 S.W.3d 232, 242–43 (Tex.2005) (quotation marks omitted) (applying
totality-of-the-circumstances test in determining whether party “otherwise arranged” to dispose of hazardous waste).
70 See Burton–Dixie Corp. v. Timothy McCarthy Constr. Co., 436 F.2d 405, 407–08 (5th Cir.1971) (“There is no set rule,
however, as to what constitutes a waiver or abandonment of the arbitration agreement. The question depends upon
the facts of each case and usually must be determined by the trier of facts.”); Joel E. Smith, Annotation, Defendant's
Participation in Action as Waiver of Right to Arbitration of Dispute Involved Therein, 98 A.L.R.3d 767, 771 (1980) (“In
those cases involving the issue of whether the defendant's participation in an action constitutes a waiver of the right to
arbitrate the dispute involved therein, no general rules are readily apparent for determining waiver other than the general
adherence by the courts to the principle that waiver is to be determined from the particular facts and circumstances of
each case....”).
71 Kulko v. Superior Court of Cal., 436 U.S. 84, 92, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978) (quoting Estin v. Estin, 334 U.S.
541, 545, 68 S.Ct. 1213, 92 L.Ed. 1561 (1948)).
72 See, e.g., TEX.R. CIV. P. 190.2(c)(2) (limiting parties in Level 1 cases to six hours of depositions).
73 See, e.g., In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006) (holding four depositions did not waive arbitration
as record did not show whether they were limited or extensive or whether they addressed merits or merely arbitrability).

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74 Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997); see English v. Fischer, 660 S.W.2d 521, 524
(Tex.1983); Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936–37 (Tex.1972); Wheeler v. White, 398
S.W.2d 93, 96 (Tex.1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 (1979).
75 In re Weekley Homes, L.P., 180 S.W.3d 127, 133–35 (Tex.2005); accord, Meyer v. WMCO–GP, LLC, 211 S.W.3d 302,
305 (Tex.2006).
76 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
77 See Van Indep. Sch. Dist. v. McCarty, 165 S.W.3d 351, 353 (Tex.2005); First Valley Bank of Los Fresnos v. Martin, 144
S.W.3d 466, 471 (Tex.2004); Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex.2003); Equitable Life Assurance Soc'y of
U.S. v. Ellis, 105 Tex. 526, 152 S.W. 625, 628 (1913).
78 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996).
79 In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998).
80 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007); In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta
Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006); In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Bruce
Terminix Co., 988 S.W.2d at 704; In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); EZ Pawn Corp.,
934 S.W.2d at 89; Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex.1995).
81 See In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex.2006); Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d
35, 37 (Tex.1987); Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980); Mass. Bonding & Ins. Co. v.
Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex.1967); Texas & P. Ry. Co. v. Wood, 145 Tex. 534, 199 S.W.2d
652, 656 (1947); Kennedy v. Bender, 104 Tex. 149, 135 S.W. 524, 526 (1911); see also Cabinetree of Wis., Inc. v.
Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.1995) (citing authorities showing that contract law generally holds
waiver effective without proof of detrimental reliance).
82 Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex.1967).
83 See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); Allied–Bruce
Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).
84 In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004) (“We have emphasized that, to succeed on a claim of waiver, plaintiffs
must show prejudice.”); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir.2002); Hoxworth v.
Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir.1992) (“[P]rejudice is the touchstone for determining whether the
right to arbitrate has been waived....”); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 206
(4th Cir.2004) ( “[T]he dispositive question is whether the party objecting to arbitration has suffered actual prejudice.”)
(internal quotations and italics omitted); Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004)
(“In addition to the invocation of the judicial process, there must be prejudice to the party opposing arbitration before we
will find that the right to arbitrate has been waived.”); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th
Cir.2003); Kelly v. Golden, 352 F.3d 344, 349 (8th Cir.2003) (“The actions must result in prejudice to the other party for
waiver to have occurred.”); Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir.2005); Metz v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 39 F.3d 1482, 1490 (10th Cir.1994); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 (11th
Cir.2002) (“[W]e look to see whether, by [invoking the litigation process], that party has in some way prejudiced the other
party.”) (internal quotations omitted).
85 St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 590–91 (7th Cir.1992); Nat'l Found.
for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 777 (D.C.Cir.1987) (holding “a court may consider
prejudice to the objecting party as a relevant factor among the circumstances that the court examines in deciding whether
the moving party has taken action inconsistent with the agreement to arbitrate”).
86 In re Weekley Homes, L.P., 180 S.W.3d 127, 130–31 (Tex.2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,
738–39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87, 123 S.Ct. 588, 154 L.Ed.2d 491
(2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law and sometimes law chosen
by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n. 6 (5th Cir.2004) (noting that whether state or
federal law of arbitrability applies “is often an uncertain question”).
87 Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997); see English v. Fischer, 660 S.W.2d 521,
524 (Tex.1983); Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex.1972); Wheeler v. White, 398
S.W.2d 93, 96 (Tex.1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 (1979).
88 RESTATEMENT (SECOND) OF CONTRACTS § 87(2) (1981) (“An offer which the offeror should reasonably expect to
induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does
induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.”).

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89 Because we limit our review to the record before the trial judge, we do not consider the Defendants' additional seven
volumes of discovery exhibits filed after the arbitration award.
90 173 S.W.3d 565, 570; see also Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d
373 (2000) (holding that unconscionable arbitration fee would render clause unenforceable).
91 See In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir.2005) (holding defendant's objections to arbitration before
criminal trial waived his right to arbitration); Gilmore v. Shearson/American Exp. Inc., 811 F.2d 108, 112 (2d Cir.1987)
(holding party's withdrawal of its prior motion to compel arbitration constituted express waiver of that right).
92 See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006) (citing Com–Tech Assocs. v. Computer Assocs. Int'l,
Inc., 938 F.2d 1574, 1576–77 (2d Cir.1991), in which arbitration was waived by request that did not come until 18 months
after filing and 4 months before trial).
93 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (punctuation omitted); accord, In re Tyco,
422 F.3d at 46 n. 5 (“[A] party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over the opposing party.”); In re Citigroup, Inc., 376 F.3d 23, 28 (1st
Cir.2004); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 327 (5th Cir.1999); PPG Indus., Inc. v. Webster Auto
Parts, Inc., 128 F.3d 103, 107 (2d Cir.1997); Doctor's Assocs. v. Distajo, 107 F.3d 126, 134 (2d Cir.1997) (“[P]rejudice as
defined by our cases 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.”).
94 In re Tyco, 422 F.3d at 46 n. 5.
95 See, e.g., Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 643 (Tex.1996) (holding companies waived contractual
right to approve assignments by treating assignee as full partner); Ford v. State Farm Mut. Auto. Ins. Co., 550 S.W.2d
663, 666 (Tex.1977) (holding insurer waived contractual right to consent to settlement by denying liability under policy).
96 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (“[T]he
purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.”).
97 W. Wendell Hall, Standards of Review in Texas, 38 ST. MARY'S L.J . 43, 67 (2006).
98 TEX. CIV. PRAC. & REM.CODE § 37.009 (“In any proceeding under this chapter, the court may award costs and
reasonable and necessary attorney's fees as are equitable and just.” (emphasis added)).
99 See TEX.R. EVID. 801–806.
100 See Nat'l Liab. and Fire Ins. Co. v. Allen, 15 S.W.3d 525, 529 (Tex.2000) (hearsay); Bocquet v. Herring, 972 S.W.2d
19, 21 (Tex.1998) (declaratory fee award).
101 In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574
(Tex.1999); In re Bruce Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998).
102 Brainard v. State, 12 S.W.3d 6, 30 (Tex.1999) (holding that in abuse-of-discretion standard “we defer to the trial court's
factual determinations if they are supported by the evidence and review its legal determinations de novo”); Walker v.
Packer, 827 S.W.2d 833, 840 (Tex.1992) (“A trial court has no ‘discretion’ in determining what the law is or applying the
law to the facts. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of
discretion ....”); see Hall, supra note 97, at 284 (“When the trial court's findings involve [mixed] questions of law and fact,
the appellate court reviews the trial court's decision for an abuse of discretion. In applying the standard, the reviewing
court defers to the trial court's factual determinations if supported by the evidence and reviews its legal determinations
de novo.”); cf. Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 484 (5th Cir.2002) (“This court reviews
de novo a district court's dismissal of a claim that a party waived its right to arbitrate.”); accord, Ivax Corp. v. B. Braun of
Am., Inc., 286 F.3d 1309, 1316 (11th Cir.2002); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir.1999).
103 Brainard, 12 S.W.3d at 30; Walker, 827 S.W.2d at 840; see Hall, supra note 97, at 284; cf. Gulf Guar., 304 F.3d at 484;
accord, Ivax Corp., 286 F.3d at 1316; Subway Equip., 169 F.3d at 326.
104 See Reliance Nat'l Indem. Co. v. Advance'd Temps., Inc., 227 S.W.3d 46, 50 (Tex.2007) (“What might otherwise be a
question of fact becomes one of law when the fact is not in dispute or is conclusively established.”); Hall, supra note 97,
at 284 (“[A] trial court abuses its discretion [if the court] ... fails to properly apply the law to the undisputed facts....”).
105 See supra Part VI.A.
106 258 S.W.3d at 606–07 (“But even if the Court is right and the reimbursement clause does not allow for recovery of all
Defendants' litigation attorney's fees, an arbitration award would not be subject to being vacated if an arbitrator interpreted
it to allow recovery of all the fees.”).
107 The parties contract limited reimbursement to costs incurred in “seeking dismissal” of litigation, not costs incurred in
preparing it for trial:

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 27

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

Inasmuch as this Agreement provides for mandatory arbitration of disputes, if any party commences litigation in
violation of this Agreement, such party shall reimburse the other parties to the litigation for their costs and expenses
including attorney's fees incurred in seeking dismissal of such litigation.
(emphasis added).
108 See Preston v. Ferrer, 552 U.S. 346, 128 S.Ct. 978, 986, 169 L.Ed.2d 917 (2008) (“A prime objective of an agreement to
arbitrate is to achieve streamlined proceedings and expeditious results.”); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry,
Inc., 50 F.3d 388, 391 (7th Cir.1995) (noting that “the discovery provisions of the Federal Rules of Civil Procedure are
more generous than those of the American Arbitration Association”); cf. Price v. Drexel Burnham Lambert, Inc., 791 F.2d
1156, 1160 (5th Cir.1986) (finding prejudice due to discovery as “discovery—whether meaningful or otherwise—is not
available in arbitration”); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 498 (5th Cir.1986) (“A party to
arbitration does not have a right to the pre-trial discovery procedures that are used in a case at law.”); Developments in the
Law–Discovery, 74 HARV. L.REV.. 940, 943 (1961) (noting expense of discovery as inconsistent with desire to arbitrate).
109 The court of appeals affirmed on this basis. 173 S.W.3d at 570 (“Appellants did not provide any evidence of the work
done, time spent, or costs incurred that would not have been done or incurred in anticipation of an arbitration hearing.”).
110 TEX. CIV. PRAC. & REM.CODE § 171.021(b); see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex.1992).
111 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (internal citations and punctuation
omitted).
112 In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex.2006).
113 Two of the numerous defendants in Vesta initially objected to the remaining defendants' motion to compel arbitration, but
withdrew that objection before the hearing on the motion.
114 Id. at 763.
115 Id.
116 The defendants in Vesta had stipulated that all discovery obtained so far could be used in arbitration.
117 See TEX.R. CIV. P. 12.
1 In relevant part, the provision provided for the homeowners, the builder, the administrator of the warranty program, and
the warranty insurer to submit to arbitration
all claims, demands, disputes, controversies, and differences that may arise between the parties to this Agreement
of whatever kind or nature, including without limitation, disputes: (1) as to events, representations, or omissions
which pre-date this Agreement; (2) arising out of this Agreement or other action performed or to be performed by
the Builder, the Administrator or the Insurer pursuant to this Agreement.
As to procedures in arbitration, the arbitration provision provided that “The Arbitration shall be conducted in accordance
with the Arbitrator's rules and regulations to the extent that they are not in conflict with the Federal Arbitration Act.”
2 The trial court did not order arbitration as to defendants Jerald W. Kunkel, the foundation engineer, and his firm. The Culls
agreed the Kunkel defendants were not covered by the arbitration agreement. The Kunkel defendants are not parties
to this appeal.
3 Defendants referenced depositions in their motion for rehearing. They did not take the position or offer proof at the hearing
on the Culls' motion to compel arbitration that depositions would not have occurred in arbitration either by permission
of the arbitrator or by agreement.
4 Although not before the trial court when it ordered arbitration, the arbitration record now before us shows that Defendants
considered the clause to provide for recovery of all litigation costs and attorneys' fees, not just those incurred in seeking
dismissal of the lawsuit. The arbitration record shows Defendants claimed that pursuant to the reimbursement clause
they were “entitled to recover or setoff [their] attorney's fees from [the Culls], which were incurred in connection, with the
litigation.” Perry Homes' attorney submitted an affidavit to the arbitrator in support of the claim for attorneys' fees recovery
or setoff. The affidavit mirrored the affidavit submitted as part of Defendants' motion for reconsideration that was earlier
filed in the lawsuit. The arbitration affidavit claimed that
Prior to the Court's order compelling arbitration, Perry Homes incurred one-hundred-twenty-two (122) attorney
hours and twenty (20) paralegal hours responding to Claimants' discovery requests and discovery-related motions.
Accordingly, Perry Homes is entitled to an offset in the amount of $26,400.00 against any damages awarded to
Claimants, due to their violation of the arbitration agreement.
5 The Federal Arbitration Act provides that an arbitration award may be set aside for limited reasons:
(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;

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Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
9 U.S.C. § 10(a).
6 Of course, that argument cuts against the idea that discovery was not usable in arbitration.
1 See Chambers v. O'Quinn, 242 S.W.3d 30 (Tex.2007); In re U.S. Home Corp., 236 S.W.3d 761 (Tex.2007). This case
is the third.
2 In re Great Western Drilling, Ltd., 211 S.W.3d 828 (Tex.App.–Eastland 2006), pet. granted, 51 Tex. Sup.Ct. J. 77 (Nov.
2, 2007); Werline v. E. Tex. Salt Water Disposal Co., 209 S.W.3d 888 (Tex.App.–Texarkana 2006), pet. granted, 51 Tex.
Sup.Ct. J. 77 (Nov. 2, 2007); Bison Bldg. Materials v. Aldridge, 2006 WL 2641280 (Tex.App.–Houston [1st Dist.] 2006),
pet. granted, 51 Tex. Sup.Ct. J. 77 (Nov. 2, 2007); Forest Oil Corp. v. McAllen, 2005 WL 3435061 (Tex.App.–Corpus
Christi 2005), pet. granted, 51 Tex. Sup.Ct. J. 667 (Apr. 27, 2007).
3 In re Nitla, 92 S.W.3d 419, 422 (Tex.2002) (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42
(Tex.1985)).
4 258 S.W.3d at 598.
5 Nitla, 92 S.W.3d at 422.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 29

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
416 S.W.3d 168
Court of Appeals of Texas,
Dallas.
PILOT TRAVEL CENTERS, LLC, Appellant
v.
Joan McCRAY, James McCray, and
Shamekia Gullatte, as Next Friend
of Brandon Gullatte, Appellees.
No. 05–13–00002–CV.
|
Nov. 5, 2013.
Synopsis
Background: Wrongful death beneficiaries of employee
who died as a result of injuries sustained within course
and scope of his employment as a maintenance worker
brought wrongful death action against employer, alleging
that employer's negligence proximately caused employee's
death. Employer filed motion to compel arbitration and
to stay litigation. The 298th Judicial District Court,
Dallas County, Emily G. Tobolowsky, J., denied motion.
Employer appealed.
Holdings: The Court of Appeals, Fillmore, J., held that:
[1] valid agreement to arbitrate all claims arising from
a work-related injury or illness under the Federal
Arbitration Act (FAA) existed between employer and
employee;
[2] employee's wrongful death beneficiaries were bound by
employee's agreement to arbitrate;
[3] mere inequality of bargaining power was not
sufficient render arbitration agreement procedurally
unconscionable;
[4] fee provision of arbitration agreement, which required
that party seeking arbitration pay filing fee and that
arbitrators' costs and fees be borne equally by the parties,
was not substantively unconscionable;
[5] provision of arbitration agreement limiting amount
of discovery to be conducted was not substantively
unconscionable;
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[6] employer did not “substantially invoke” litigation
process, as required to establish waiver of employer's
contractual right to arbitration; and
[7] employee did not qualify as “transportation worker”
within meaning of FAA provision exempting contracts of
employment of workers engaged in foreign or interstate
commerce from FAA's coverage.
Reversed and remanded.
West Headnotes (30)
[1] Alternative Dispute Resolution
Review
Employer who sought to compel arbitration
in wrongful death action brought by estate of
deceased employee was entitled to extension
of time limit for filing interlocutory appeal
from trial court's order denying employer's
motion to compel arbitration, pursuant to rule
extending time within which to file appeal
when a party does not receive notice or
knowledge of the judgment within 20 days
after judgment was signed, where employer
obtained requisite finding from trial court
that it did not receive notice of trial court's
original order within 20 days after order was
signed. Rules App.Proc., Rule 4.2; Vernon's
Ann.Texas Rules Civ.Proc., Rule 306a(5).
1 Cases that cite this headnote
[2] Appeal and Error
Extension of Time
In order to invoke benefit of rule extending
time within which to file appeal when a party
does not receive notice or knowledge of the
judgment within 20 days after judgment was
signed, party must obtain an order from the
trial court that reflects the date the party or the
party's attorney first either received notice or
acquired actual knowledge that the order was
signed. Vernon's Ann.Texas Rules Civ.Proc.,
Rules 306a(4, 5).
1
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
1 Cases that cite this headnote
[3] Alternative Dispute Resolution
What law governs
When a party asserts a right to arbitrate
under the Federal Arbitration Act (FAA), the
question of whether the dispute is subject to
arbitration is determined under federal law. 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[4] Alternative Dispute Resolution
Construction in favor of arbitration
As a matter of federal law under the
Federal Arbitration Act (FAA), any doubts
concerning the scope of arbitrable issues
are resolved in favor of arbitration, whether
pertaining to the construction of the contract
or a defense to arbitrability. 9 U.S.C.A. § 1 et
seq.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Validity
Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
In general, a party seeking to compel
arbitration under the Federal Arbitration Act
(FAA) must establish (1) the existence of a
valid, enforceable arbitration agreement and
(2) that the claims at issue fall within that
agreement's scope. 9 U.S.C.A. § 1 et seq.
2 Cases that cite this headnote
[6] Alternative Dispute Resolution
Evidence
Party seeking to avoid arbitration under the
Federal Arbitration Act (FAA) bears the
burden of raising an affirmative defense to
enforcement of the otherwise valid arbitration
provision. 9 U.S.C.A. § 1 et seq.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
2 Cases that cite this headnote
[7] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
A court has no discretion and must compel
arbitration under the Federal Arbitration Act
(FAA) if it is established that there is a valid
arbitration agreement and the claims raised
fall within the scope of that agreement. 9
U.S.C.A. § 1 et seq.
3 Cases that cite this headnote
[8] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Under Federal Arbitration Act (FAA), an
order to arbitrate should not be denied unless
it can be said with positive assurance that
the arbitration cause is not susceptible of an
interpretation that covers the asserted dispute.
9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
To determine if a claim falls within the scope
of an arbitration agreement under the Federal
Arbitration Act (FAA), the court focuses on
the facts alleged, not the causes of action
asserted. 9 U.S.C.A. § 1 et seq.
1 Cases that cite this headnote
[10] Alternative Dispute Resolution
Employment disputes
Under terms of employer's occupational
injury benefit plan, valid agreement to
arbitrate all claims arising from a work-
related injury or illness under the Federal
Arbitration Act (FAA) existed between
employer and employee who died as a
result of injuries sustained within the
course of his employment, even though
2
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
employee's wrongful death beneficiaries
challenged the validity of employee's
signature on document acknowledging
employee's receipt of mandatory arbitration
provision of occupational injury benefit
plan in their wrongful death action
against employer, where wrongful death
beneficiaries failed to file verified pleading
denying that employee had executed
challenged document acknowledging receipt
of arbitration agreement. 9 U.S.C.A. § 1 et
seq.; Vernon's Ann.Texas Rules Civ.Proc.,
Rule 93(7).
Cases that cite this headnote
[11] Alternative Dispute Resolution
Persons affected or bound
Employee's wrongful death beneficiaries,
as derivative claimants, were bound by
employee's agreement to arbitrate, pursuant
to employer's occupational injury benefit plan
that contained an agreement to arbitrate all
claims arising from a work-related injury
or illness under the Federal Arbitration
Act (FAA), even though wrongful death
beneficiaries had not signed the arbitration
agreement. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[12] Alternative Dispute Resolution
Evidence
Because the law favors arbitration, the party
opposing arbitration bears the burden to
prove unconscionability.
2 Cases that cite this headnote
[13] Alternative Dispute Resolution
Unconscionability
Unconscionability of an arbitration
agreement may exist in one or both of
two forms: (1) procedural unconscionability,
which refers to the circumstances surrounding
the adoption of the arbitration provision,
and (2) substantive unconscionability, which
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
refers to the fairness of the arbitration
provision itself.
3 Cases that cite this headnote
[14] Alternative Dispute Resolution
Unconscionability
Mere inequality of bargaining power is
not a sufficient reason to hold an
arbitration agreement unenforceable, on
grounds of procedural unconscionability, in
the employment context.
Cases that cite this headnote
[15] Alternative Dispute Resolution
Unconscionability
Fee provision of arbitration agreement
between employer and employee who died
as a result of injuries sustained within the
course of his employment, which required
that parties arbitrate all claims arising
from a work-related injury or illness, that
party seeking arbitration pay filing fee,
and that arbitrators' costs and fees be
borne equally by the parties, was not
substantively unconscionable, as a defense to
enforcement of agreement in wrongful death
action by deceased employee's wrongful death
beneficiaries; although beneficiaries resided
in Alabama and employer requested that
arbitration be held in Texas, beneficiaries filed
wrongful death action in Texas and failed to
demonstrate that cost of arbitration in Texas
would be greater than cost of litigation in
Texas, and beneficiaries failed to demonstrate
that they lacked financial ability to pay a
portion of arbitrator's fees.
Cases that cite this headnote
[16] Alternative Dispute Resolution
Unconscionability
An arbitration agreement that provides for
fee-splitting is not, by itself, unconscionable.
3 Cases that cite this headnote
3
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
[17] Alternative Dispute Resolution
Unconscionability
Provision of arbitration agreement between
employer and employee, who died as a result
of injuries sustained within the course of his
employment, limiting amount of discovery to
be conducted during arbitration proceedings
in a matter involving work-related injury or
illness was not substantively unconscionable,
as a defense to enforcement of agreement
in wrongful death action by deceased
employee's wrongful death beneficiaries,
where agreement permitted each party the
same amount of discovery, and agreement
provided that, upon a showing of good cause,
either party could obtain an order from the
arbitrator for taking additional depositions
and could obtain approval from the arbitrator
to utilize requests for production and for
admissions.
Cases that cite this headnote
[18] Alternative Dispute Resolution
Unconscionability
Substantive unconscionability refers to
fairness of an arbitration provision.
3 Cases that cite this headnote
[19] Alternative Dispute Resolution
Suing or participating in suit
A party may waive contractual arbitration
rights by substantially invoking the judicial
process to the detriment of the other party.
1 Cases that cite this headnote
[20] Alternative Dispute Resolution
Evidence
Because public policy favors resolving
disputes through arbitration, the law imposes
a strong presumption against the waiver of
contractual arbitration rights.
Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[21] Alternative Dispute Resolution
Evidence
When presented with question of whether a
party waived its contractual arbitration rights,
court is required to resolve any doubts in favor
of arbitration.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Evidence
Waiver of a party's contractual arbitration
rights may be implied from the party's
conduct, so long as that conduct is
unequivocal, and in close cases, the strong
presumption against waiver should govern.
1 Cases that cite this headnote
[23] Alternative Dispute Resolution
Suing or participating in suit
The judicial process is “substantially
invoked,” as required to establish waiver of
arbitration by litigation conduct, when the
party seeking arbitration has taken specific
and deliberate actions, after the filing of the
suit, that are inconsistent with the right to
arbitrate or has actively tried, but failed, to
achieve a satisfactory result through litigation
before turning to arbitration.
2 Cases that cite this headnote
[24] Alternative Dispute Resolution
Suing or participating in suit
Factors considered in determining whether a
movant has substantially invoked the judicial
process, as required to establish waiver of
arbitration by litigation conduct, include
when the movant knew of the arbitration
clause, how much discovery has been initiated
and who initiated it, the extent to which
discovery related to the merits rather than
arbitrability or standing, how much of the
discovery would be useful in arbitration,
whether the movant sought judgment on the
4
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
merits, and whether the movant sought to
compel arbitration on the eve of trial.
2 Cases that cite this headnote
[25] Alternative Dispute Resolution
Suing or participating in suit
“Prejudice,” as required to establish waiver of
arbitration by litigation conduct, 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; thus, a party should not
be allowed purposefully and unjustifiably to
manipulate the exercise of its arbitral rights
simply to gain an unfair tactical advantage
over the opposing party.
Cases that cite this headnote
[26] Alternative Dispute Resolution
Suing or participating in suit
Employer of employee who died from
injuries sustained within the course of his
employee did not “substantially invoke” the
litigation process in wrongful death action
by employee's wrongful death beneficiaries,
as required to establish waiver of employer's
contractual right to arbitration pursuant to
agreement in which employer and employee
agreed to arbitrate all claims arising from a
work-related injury or illness, even though
employer waited over one year to file
motion to compel arbitration, where employer
asserted affirmative defense that wrongful
death claims were the subject of a binding
arbitration agreement in its original answer,
did not file any motions on the merits, and
did not engage in extensive discovery, but
rather participated in discovery initiated by
employer's co-defendants.
Cases that cite this headnote
[27] Alternative Dispute Resolution
Waiver or Estoppel
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Delay alone generally does not establish
waiver of right to arbitration.
Cases that cite this headnote
[28] Alternative Dispute Resolution
Suing or participating in suit
Litigation conduct of employer of employee
who died from injuries sustained within the
course of his employee did not prejudice
employee's wrongful death beneficiaries in
their wrongful death action against employer,
as required to establish waiver of employer's
contractual right to arbitration pursuant to
agreement in which employer and employee
agreed to arbitrate all claims arising from
a work-related injury or illness; although
employer waited over one year to file motion
to compel arbitration, discovery that had been
conducted in judicial proceedings would be
useful in arbitration, employer did not seek
to compel arbitration in order to gain an
unfair tactical advantage, and record failed
to demonstrate other detriment suffered by
beneficiaries.
Cases that cite this headnote
[29] Alternative Dispute Resolution
Employment disputes
Commerce
Arbitration
Truck stop maintenance worker who
maintained parking lots and facilities within
one state did not qualify as “transportation
worker,” within meaning of provision of
Federal Arbitration Act (FAA) exempting
contracts of employment of workers engaged
in foreign or interstate commerce from its
coverage, since maintenance worker was
not engaged in the movement of goods in
interstate commerce. 9 U.S.C.A. § 1.
Cases that cite this headnote
[30] Alternative Dispute Resolution
Employment disputes
Commerce
5
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Arbitration
Federal Arbitration Act's (FAA) exclusion of
“contracts of employment of workers engaged
in foreign or interstate commerce” from the
Act's coverage applies only to employment
contracts of those workers actually engaged in
movement of goods in interstate commerce. 9
U.S.C.A. § 1.
Cases that cite this headnote
Attorneys and Law Firms
*172 Carl Evans Jr., Stephanie Almeter, Jeffrey C.
Wright, McCathern, PLLC, Dallas, TX, for Appellant.
Augustus Corbett, The Corbett Law Firm, Dallas, TX, for
Appellees.
Before Justices MOSELEY, FILLMORE, and MYERS.
OPINION
Opinion by Justice FILLMORE.
In this interlocutory appeal, Pilot Travel Centers, LLC
(Pilot Travel) asserts the trial court erred by denying its
motion to compel arbitration and for a stay of the trial
court proceedings against it. We reverse the trial court's
order denying Pilot Travel's motion to compel arbitration
and for stay of the trial court proceedings.
Background
On January 18, 2011, James Antonio McCray (Tony) 1
began employment with *173 Pilot Travel as a
maintenance worker. Pilot Travel was a non-subscriber
to the Texas Workers' Compensation insurance system;
it provided an Occupational Injury Benefit Plan (Benefit
Plan) for its Texas employees. Amendment 1 to the Benefit
Plan is a Mandatory Arbitration Plan for Resolution
of Work Related Injury or Illness Claims of Texas
Employees (arbitration agreement). By its terms, the
arbitration agreement indicates it is the exclusive and
mandatory means for an employee and Pilot Travel to
resolve their disputes arising from a work-related injury
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
or illness, and neither an employee nor Pilot Travel “may
bring a lawsuit in any state or federal court against the
other regarding a work related injury or illness or the
severity of alleged damages arising from a work related
injury or illness.” More specifically, paragraph 1.05 of the
arbitration agreement provides:
All employees, by applying for, accepting or by
continuing employment after the implementation of
this Plan, shall be required to submit any legally
recognized claim for a work related injury or illness
to arbitration, rather than to litigation, according to
this Plan and the rules established for its enforcement.
The Company shall also be required to proceed to
arbitration on all work related injury or illness matters
brought for arbitration by an employee. The duty
imposed on both the Company and Employee to
arbitrate all legally recognized claims arising from a
work related injury or illness shall continue beyond and
not be affected by, the termination of an employee's
employment.
A document captioned “Employer Notice to Current
Texas Employees” (Employer Notice), dated January 18,
2011, contains Tony's signature, initialing of paragraphs,
and social security number, as well as the witness
signature of Pilot Travel's representative, Brandy Allen.
The Employer Notice contains an “Acknowledgment
Receipt Regarding Mandatory Arbitration Plan for Texas
Employees” which provides:
I, James McCray hereby certify
by my initials and signature below
that I have received a copy of
the Mandatory Arbitration Plan. I
also understand that ALL issues
related to the work related injury
or illness or benefits pertaining
thereto MUST be settled through
binding arbitration, not litigation,
per Pilot Travel Centers' Mandatory
Arbitration Plan. Neither party shall
have the right to file a suit in
any state or federal court. Any
such arbitration will be governed
by the Federal Arbitration Act
and administered by the American
Mediation Association.
(Emphasis in original.)
6
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
On January 26, 2011, Tony was working within the course
and scope of his employment with Pilot Travel at a truck
stop in Dallas, Texas, when he was struck by a tractor
trailer rig owned by Smile Transportation and operated
by Ljubo Dilber. Tony died several weeks later as a result
of the injuries he sustained. At the time of his death,
Tony was survived by his parents, appellees Joan and
James McCray, and his son, appellee Brandon Gullatte,
as represented by his next friend, Shamekia Gullatte.
The record contains Pilot Travel's July 20, 2011
demand for arbitration before the American Mediation
Association, which was received by the American
Mediation *174 Association on July 21, 2011. Pilot
Travel referenced the “respondents in this arbitration”
as “Joan and James McCray, Individually and as Next
Friends of James Antonio McCray, Deceased; The Estate
of James Antonio McCray; and Shemekia Gullatte,
as next Friend of Brandon Gullatte, a Minor.” Pilot
Travel requested the arbitration be conducted in Dallas,
Texas, where the accident occurred and where Tony was
employed.
On July 22, 2011, appellees Joan and James McCray,
and Shamekia Gullatte, as next friend of Brandon
Gullatte, filed their original petition in a district court of
Dallas County, Texas, against Pilot Travel and others in
the lawsuit underlying this appeal. Appellees allege the
negligence of Pilot Travel and the other named defendants
proximately caused Tony's death and appellees' damages
resulting from his death. On August 29, 2011, Pilot Travel
filed its answer to appellees' lawsuit. Included in Pilot
Travel's answer is the affirmative defense that the claims
asserted in the lawsuit were the subject of a mandatory
arbitration agreement signed by Tony. On September 6,
2012, Pilot Travel filed its motion to compel arbitration of
appellees' claims and for a stay of appellees' lawsuit against
it.
By order with a signature date of November 12, 2012,
the trial court denied Pilot Travel's motion to compel
arbitration (November 12, 2012 Order). The November
12, 2012 Order indicates that Pilot Travel's motion to
compel arbitration was considered on November 16, 2012.
By order with a signature date of December 12, 2012, the
trial court again denied Pilot Travel's motion to compel
arbitration (December 12, 2012 Order). Other than a mark
through the November 12, 2012 date and a handwritten
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
signature date of December 12, 2012, the December 12,
2012 Order is identical to the November 12, 2012 Order.
On December 28, 2012, Pilot Travel filed its notice of
interlocutory appeal of the denial of its motion to compel
arbitration.
On January 16, 2013, the trial judge signed an order
granting appellees' “Motion for Judgment Nunc Pro
Tunc” (January 16, 2013 Order). 2 In the January 16,
2013 Order, the trial court found that the December 12,
2012 Order contained a clerical error; according to the
trial court, the signature date of December 12, 2012 was
incorrect and should have been November 16, 2012. In
the January 16, 2013 Order, the trial court ordered the
December 12, 2012 Order corrected to reflect the finding
that the date of the trial judge's signature should be
November 16, 2012.
On February 6, 2013, Pilot Travel filed its verified
objection to the January 16, 2013 Order and motion to
vacate that order. 3 In its motion to vacate the January
16, 2013 Order, Pilot Travel stated that on December 14,
2012, it received the trial court's December 12, 2012 Order
denying Pilot Travel's motion to compel arbitration. Pilot
Travel stated the December 12, 2012 Order was the only
signed order it received regarding its motion to compel
arbitration. Citing rule of civil procedure 306a and rule of
appellate procedure 26.1(b), *175 Pilot Travel asserted
its timetable for filing an interlocutory appeal of the denial
of its motion to compel arbitration began to run on
December 12, 2012.
On May 1, 2013, the trial court signed an “Order on [Pilot
Travel's] Motion for Court to Vacate Order Granting
[Appellees'] Judgment Nunc Pro Tunc and Order Denying
Motion to Compel Arbitration” (May 1, 2013 Order). In
the May 1, 2013 Order, the trial court vacated its January
16, 2013 Order, and again denied Pilot Travel's motion to
compel arbitration.
By letter dated February 19, 2013, this Court
communicated to the parties to this interlocutory appeal
that, after review of the record, it appeared Pilot Travel's
notice of appeal of the trial court's denial of its motion to
compel arbitration was untimely under rule of appellate
procedure 26.1(b) and requested that the parties file
a jurisdictional brief explaining how this Court has
jurisdiction over this appeal. See TEX.R.APP. P. 26.1(b).
7
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Jurisdiction
Section 51.016 of the civil practice and remedies code
provides that in a matter subject to the Federal
Arbitration Act (FAA), a party may appeal from an
interlocutory order of a district court “under the same
circumstances that an appeal from a federal district court's
order ... would be permitted by 9 U.S.C. Section 16.”
TEX. CIV. PRAC. & REM.CODE ANN. § 51.016 (West
Supp.2012); see CMH Homes v. Perez, 340 S.W.3d 444,
448–49 (Tex.2011) (explaining that section 51.016 of the
civil practice and remedies code provides for interlocutory
appeals in FAA cases so long as “it would be permitted
under the same circumstances in federal court under [9
U.S.C] section 16”). Section 16 of the FAA provides
an appeal may be taken from an order “denying an
application under section 206 of this title to compel
arbitration.” 9 U.S.CA. § 16(a)(1)(C) (West 2009); Austin
Commercial Contractors, L.P. v. Carter & Burgess, Inc.,
347 S.W.3d 897, 900 (Tex.App.-Dallas 2011, pet. denied);
Texas La Fiesta Auto Sales, LLC v. Belk, 349 S.W.3d 872,
877 (Tex.App.-Houston [14th Dist.] 2011, no pet.).
An appeal from an interlocutory order denying a motion
to compel arbitration is an accelerated appeal. See
TEX.R.APP. P. 28.1 (“Appeals from interlocutory orders
(when allowed by statute) ... are accelerated appeals.”).
In an accelerated appeal, absent a rule of appellate
procedure 26.3 motion, the deadline for filing a notice of
appeal is strictly set at twenty days after the appealable
interlocutory order is signed. TEX.R.APP. P. 26.1(b);
TEX.R.APP. P. 26.3; see also In re K.A.F., 160 S.W.3d
923, 927 (Tex.2005); Iron Mountain Bison Ranch, Inc. v.
Easley Trailer Mfg., Inc., 964 S.W.2d 762, 763 (Tex.App.-
Amarillo 1998, no pet.) (interlocutory appeal is perfected
by filing notice of appeal with trial court within twenty
days after judgment or order is signed).
The notice of accelerated appeal of the November 12, 2012
Order denying Pilot Travel's motion to compel arbitration
and for stay had to be filed within twenty days after the
date the order was signed. Because the twentieth day after
the November 12, 2012 Order fell on Sunday, December 2,
2012, Pilot Travel's deadline for perfecting the appeal from
that order fell on the following day, Monday, December
3, 2012. See TEX.R.APP. P. 4.1(a). 4 Pilot *176 Travel
filed its notice of appeal on December 28, 2012, more than
twenty days after the November 12, 2012 Order.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[1] If applicable, rule of civil procedure 306a may operate
to extend the deadline for filing a notice of appeal of an
interlocutory order. See TEX.R. CIV. P. 306a; see also
John v. Marshall Health Servs., Inc., 58 S.W.3d 738, 740
(Tex.2001). If a party affected by an appealable order or
the party's attorney has not, within twenty days after the
order was signed, either received notice required by rule
of civil procedure 306a(3) or acquired actual knowledge
of the signing, then any period that, under the rules of
appellate procedure, runs from the signing of the order
will begin on the earlier of the date when the party or
the party's attorney receives notice or acquires actual
knowledge of the signed order; however, no such period
may begin to run more than ninety days after the judgment
or order was signed. TEX.R.APP. P. 4.2(a)(1); see also
TEX.R.CIV.P. 306a(4).
[2] Subsection (5) of rule of civil procedure 306a provides
a procedure that enables the trial court to change the date
the appellate timetable begins to run from the actual date
of the interlocutory order to the date on which the party or
the party's attorney received the clerk's notice or acquired
actual knowledge that the trial court signed the order,
whichever occurs first, as long as that date is not more than
ninety days after the trial court signed the interlocutory
order. TEX.R. CIV. P. 306a(5). A party must obtain
an order from the trial court that reflects the date the
party or the party's attorney first either received notice
or acquired actual knowledge that the order was signed.
Hone v. Hanafin, 105 S.W.3d 15, 18 (Tex.App.-Dallas
2002), rev'd on other grounds, 104 S.W.3d 884 (Tex.2003)
(per curiam); see TEX.R.APP. P. 4.2(c); Moore Landrey,
L.L.P. v. Hirsch & Westheimer, P.C., 126 S.W.3d 536,
540 (Tex.App.-Houston [1st Dist.] 2003, no pet.); Nedd–
Johnson v. Wells Fargo Bank, N.A., 338 S.W.3d 612, 613
(Tex.App.-Dallas 2010, no pet.); Mem'l Hosp. of Galveston
Cnty. v. Gillis, 741 S.W.2d 364, 366 (Tex.1987) ( “Rule
306a plainly requires that this proof be made in the trial
court, not the court of appeals.”).
On September 25, 2013, the trial court signed an order on
Pilot Travel's motion to reconsider Pilot Travel's request
for factual finding under rule of civil procedure 306a(5).
In that order, the trial court found that the date Pilot
Travel or its attorney first received notice or acquired
actual knowledge of a signed order denying its motion to
compel arbitration and for stay was December 11, 2012,
more than twenty days after the November 12, 2012 Order
8
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

denying Pilot Travel's motion to compel arbitration was (1) the existence of a valid, enforceable arbitration
signed by the trial court. Therefore, pursuant to rule of agreement and (2) that the claims at issue fall within
civil procedure 306a(4) and rule of appellate procedure that agreement's scope. In re Kellogg Brown & Root, Inc.,
4.2(a)(1), the twenty-day deadline for filing Pilot Travel's 166 S.W.3d 732, 737 (Tex.2005) (orig. proceeding); see
notice of appeal of the denial of its motion to compel also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,
arbitration and for stay began on December 11, 2012. See 227 (Tex.2003) (although there is strong presumption
TEX.R. CIV. P. 306a(4); TEX.R.APP. P. 4.2(a)(1). favoring arbitration, presumption arises only after party
seeking to compel arbitration proves a valid arbitration
Pilot Travel's notice of appeal was filed December 28, agreement exists). The party seeking to avoid arbitration
2012, within twenty days from the date Pilot Travel then bears the burden of raising an affirmative defense to
or its attorney first received notice or acquired actual enforcement of the otherwise valid arbitration provision.
knowledge of a signed order denying its motion to compel In re AdvancePCS Health, 172 S.W.3d at 607. A court
arbitration and for stay. Thus, Pilot Travel's notice of has no discretion and must compel arbitration if it is
appeal was timely perfected and this Court has jurisdiction established that there is a valid arbitration agreement and
over the accelerated appeal. the claims raised fall within the scope of that agreement. In
re Tenet Healthcare, Ltd., 84 S.W.3d 760, 765 (Tex.App.-
Houston [1st Dist.] 2002, orig. proceeding). “An order
to arbitrate should not be denied unless it can be said
*177 Motion to Compel Arbitration
with positive assurance that the arbitration cause is not
and to Stay Trial Court Proceedings
susceptible of an interpretation that covers the asserted
In a single issue, Pilot Travel asserts that, because a dispute.” Hou–Scape, Inc. v. Lloyd, 945 S.W.2d 202,
valid arbitration agreement exists that is applicable to 205 (Tex.App.-Houston [1st Dist.] 1997, no writ) (citing
appellees' pleaded claims, the trial court erred in denying United Steelworkers v. Warrior & Gulf Navigation Co.,
its motion to compel arbitration and to stay the trial court 363 U.S. 574, 582–83, 80 S.Ct. 1347, 4 L.Ed.2d 1409
proceedings. (1960)). To determine if a claim falls within the scope of an
arbitration agreement, we focus on the facts alleged, not
[3] [4] The arbitration agreement provides that the the causes of action asserted. Hou–Scape, 945 S.W.2d at
FAA applies to and governs any matter submitted to 205.
arbitration. See In re AdvancePCS Health, L.P., 172
S.W.3d 603, 605–06 & n. 3 (Tex.2005) (orig. proceeding) We review de novo whether an enforceable agreement to
(per curiam) (FAA governs arbitration in Texas if arbitrate exits. In re Jindal Saw, Ltd., 264 S.W.3d 755, 761
parties expressly contracted for FAA's application); In re (Tex.App.-Houston [1st Dist.] 2008, orig. proceeding). We
ReadyOne Indus., Inc., 294 S.W.3d 764, 769 (Tex.App.- defer to the trial court's factual determinations if they
El Paso 2009, orig. proceeding) (if parties expressly are supported by evidence, but we review the trial court's
choose for arbitration agreement to be governed by FAA, legal determinations de novo. In re Labatt Food Serv.,
agreement should be enforced regardless of parties' nexus L.P., 279 S.W.3d 640, 643 (Tex.2009) (orig. proceeding);
to interstate commerce). When a party asserts a right see also J.M. Davidson, 128 S.W.3d at 227 (whether an
to arbitrate under the FAA, the question of whether agreement imposes a duty to arbitrate is question of law
the dispute is subject to arbitration is determined under which is reviewed de novo); Trammell v. Galaxy Ranch
federal law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d Sch., L.P., 246 S.W.3d 815, 820 (Tex.App.-Dallas 2008,
896, 899 (Tex.1995). As a matter of federal law, any no pet.). “This *178 standard is the same as the abuse
doubts concerning the scope of arbitrable issues are of discretion standard of review and we will apply that
resolved in favor of arbitration, whether pertaining to the standard of review to interlocutory appeals under section
construction of the contract or a defense to arbitrability. 51.016.” Sidley Austin Brown & Wood, LLP v. J.A. Green
See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., Dev. Corp., 327 S.W.3d 859, 863 (Tex.App.-Dallas 2010,
460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). no pet.).

[5] [6] [7] [8] [9] In general, a party seeking

to compel arbitration under the FAA must establish

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Arbitration Agreement
Existence of Arbitration Agreement
Between Pilot Travel and Tony
[10] Pilot Travel argues that it established a valid
arbitration agreement existed between it and Tony. The
record contains the “Acknowledgment Receipt Regarding
Mandatory Arbitration Plan for Texas Employees”
reflecting Tony's certification “by [his] initials and
signature” on the date he was hired by Pilot Travel
that he received a copy of the arbitration agreement
and understood that all issues “related to the work
related injury or illness or benefits pertaining thereto
must be settled through binding arbitration” governed by
the FAA and administered by the American Mediation
Association, and that neither he nor Pilot Travel had
the right to file suit in any state or federal court.
Further, that Acknowledgment was signed by a company
representative.
While appellees do not contest that the arbitration
agreement was incorporated into Pilot Travel's Benefit
Plan, appellees contend Pilot Travel failed to establish
the arbitration agreement was signed by Tony
or that he “assented to arbitration.” Pilot Travel
is unable to “authenticate” Tony's signature on
the “Acknowledgement Receipt Regarding Mandatory
Arbitration Plan for Texas Employees” through
questioning him. Cf. In re Halliburton Co., 80 S.W.3d
566, 568 n. 2 (Tex.2002) (orig. proceeding) (in response
to motion to compel arbitration of employee's claim of
employment discrimination, employee asserted signature
on a document agreeing to binding arbitration was
not his). During her deposition, appellee Joan McCray
testified she recognized Tony's signature on the arbitration
agreement, although she later apparently “disavowed” her
answer “since she is neither a handwriting expert nor had
she paid close attention to [Tony's] signature in more than
ten years.”
Ultimately, appellees' argument fails because their
response in opposition to Pilot Travel's motion to
compel arbitration is unverified. Appellees have cited no
authority, and we are aware of none, requiring Pilot
Travel in this circumstance to “authenticate” Tony's
signature on the arbitration agreement. See TEX.R. CIV.
P. 93(7) (pleading setting up denial of execution of
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
instrument in writing shall be verified by affidavit; where
party denying execution of a document by person then
deceased, affidavit shall be sufficient if it states affiant has
reason to believe and does believe that such instrument
was not executed by the decedent or by his authority);
TEX.R. EVID. 601(b) (Dead Man's Rule); Munden v.
Chambless, 315 S.W.2d 355, 358 (Tex.Civ.App.-Dallas
1958, writ ref'd n.r.e.) (test of whether evidence should
be excluded under Dead Man's Statute is whether, “in
case the witness testified falsely, the deceased, if living
could contradict the testimony of his own knowledge”).
Based on the documentation in the record, we agree with
Pilot Travel that it established a valid and enforceable
arbitration agreement existed between it and Tony.
Appellees as Non–Signatories to Arbitration Agreement
[11] Appellees Joan and James McCray are Tony's
surviving parents, and appellee Brandon Gullatte,
represented by his mother as his next friend, is Tony's
*179 surviving son. Appellees' wrongful death claims
against Pilot Travel are made in their capacities as the
surviving parents and child of Tony. See TEX. CIV.
PRAC. & REM.CODE ANN. § 71.004 (West 2008)
(action to recover damages as provided by this subchapter
is for exclusive benefit of surviving spouse, children, and
parents of the deceased). Appellees argue that as non-
signatories to the arbitration agreement between Pilot
Travel and Tony, their claims are not subject to the
arbitration agreement. They argue their claims are not
derivative of any rights that belonged to Tony had he
survived.
Paragraph 1.02 of the arbitration agreement defines the
term “employee” to include the employee and “any
individual, child, dependent, spouse, relative, executor,
estate or guardian which would have the legal standing
required to bring a lawsuit for damages arising out of
a claim.” Paragraph 1.04 of the arbitration agreement
provides as follows with regard to claims arising from
work-related injuries or illnesses:
As used in this Plan, “Claim,” “Controversy,”
“Dispute” or “Difference” means any claim, dispute,
disagreement, contention, or grievance arising from
a work related injury or illness which an Employee
has with the Company, or the Company has with the
Employee, which could normally be made the basis of a
10
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

lawsuit in a State or Federal Court. This pertains only to
those claims, controversies, disputes or differences for
work related injuries and illnesses.
This Plan DOES NOT provide for resolution of
disputes arising from any claim, dispute, disagreement,
contention or grievance other than those arising from a
work related injury or illness.
(Emphasis in original.)
The Texas Supreme Court has held that wrongful death
beneficiaries, as derivative claimants, are bound by the
decedent's agreement to arbitrate. In re Golden Peanut
Co., 298 S.W.3d 629, 630 (Tex.2009) (orig. proceeding);
In re Labatt Food Serv., 279 S.W.3d at 646 (decedent's
pre-death arbitration agreement binds his wrongful death
beneficiaries because, under Texas law, the wrongful
death cause of action is entirely derivative of the decedent's
rights); Arredondo v. Dugger, 347 S.W.3d 757, 764
(Tex.App.-Dallas 2011) (citing In re Golden Peanut Co.,
298 S.W.3d at 631), aff'd on other grounds, Dugger v.
Arredondo, 408 S.W.3d 825 (Tex.2013). 5
arbitration bears the burden to prove unconscionability.
See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756
(Tex.2001); see also In re Oakwood Mobile Homes, Inc.,
987 S.W.2d 571, 573 (Tex.1999) (orig. proceeding) (per
curiam) (once party establishes a claim within scope
of an arbitration agreement, trial court must compel
arbitration unless other party presents evidence agreement
was procured in unconscionable manner, induced or
procured by fraud or duress, or waived), abrogated in
part on other grounds by In re Halliburton, 80 S.W.3d
at 572. Unconscionability of an arbitration agreement
may exist in one or both of two forms: (1) procedural
unconscionability, which refers to the circumstances
surrounding the adoption of the arbitration provision,
and (2) substantive unconscionability, which refers to
the fairness of the arbitration provision itself. In re
Halliburton, 80 S.W.3d at 571. Whether a contract is
unconscionable at the time it is formed is a question of law.
In re Poly–America, L.P., 262 S.W.3d 337, 349 (Tex.2008)
(orig. proceeding). A trial court has no discretion to
determine what the law is or to apply the law incorrectly,
and a failure to properly analyze or apply the law of
unconscionability constitutes an abuse of discretion. Id.

Pursuant to the arbitration agreement, if Tony sued Pilot

Travel for his own injuries prior to his death, he would
have been compelled to arbitrate his claims. Texas law
and the arbitration agreement therefore provide that all
of the claims asserted by appellees against Pilot Travel
are subject to mandatory binding arbitration as agreed to
by Tony. Accordingly, appellees' argument that they are
not bound to arbitrate because they are not signatories
to Tony's arbitration agreement with Pilot Travel is not
persuasive.
Conclusion
We conclude Pilot Travel established the existence of an
arbitration agreement and *180 that appellees' claims
against it fall within that agreement's scope.
Unconscionability of Arbitration Agreement
[12] [13] Appellees contend the arbitration agreement is by appellees. With regard to appellees' argument that the
invalid and unenforceable because under Texas contract
law it is procedurally and substantively unconscionable. because Tony had to accept the arbitration agreement
Because the law favors arbitration, the party opposing
Procedural Unconscionability
In response to Pilot Travel's motion to compel
arbitration, appellees argued the arbitration agreement is
procedurally unconscionable because it was difficult for
an unsophisticated man like Tony to understand, and
Pilot Travel knew Tony's level of education, and was
aware of his lack of sophistication, based on information
contained in his application for employment. Appellees
further argue the procedural unconscionability of the
arbitration agreement based on Tony's lack of input
concerning the terms of the agreement and the one-sided
character of the agreement which Tony had to accept or
forego employment by Pilot Travel.
[14] Appellees' unverified response to Pilot Travel's
motion to compel arbitration contained no evidence the
arbitration agreement is procedurally unconscionable.
Further, there is no evidence in the record establishing
Tony's lack of education and “sophistication” as argued
arbitration agreement was procedurally unconscionable
terms to be employed by Pilot Travel, the Texas Supreme

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 11

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Court has recognized that an employer may make
precisely such a “take it or leave it” offer to its at-
will employees. See In re Halliburton, 80 S.W.3d at
572 (rejecting argument that disparity in bargaining
power between employer and employee rendered
arbitration agreement procedurally unconscionable)
(citing Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 228–
29 (Tex.1986)). Mere inequality of bargaining power is
not a sufficient reason to hold an arbitration agreement
unenforceable in the employment context. Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111
S.Ct. 1647, 114 L.Ed.2d 26 (1991). On this record,
nothing about the specific circumstances surrounding the
adoption of the arbitration agreement shows it to be
procedurally unconscionable.
*181 Substantive Unconscionability
With regard to their argument the arbitration agreement
is substantively unconscionable, appellees contended
in their response to Pilot Travel's motion to compel
arbitration that the costs and fees to arbitrate their
wrongful death claims effectively preclude them from
vindicating their rights because they are indigent. Further,
appellees stated they live in Alabama and the travel
expenses to Texas are more than they can bear; yet
appellees also indicated that “court costs” to litigate
before a jury have been “very costly but manageable.”
Finally, appellees argued the limitations on discovery
contained in the arbitration agreement are substantively
unconscionable.
[15] [16] Addressing first appellees' argument that
arbitration conducted in Texas will be prohibitively
expensive for them, we note appellees filed their wrongful
death lawsuit in Texas, and there is no evidence in the
record that arbitration in Texas will entail greater travel
expense than litigation of the wrongful death case in a
Texas state court. Moreover, the arbitration agreement
indicates that the party seeking arbitration (Pilot Travel)
shall pay the American Mediation Association filing fee.
The arbitration agreement further provides that the costs
and fees charged by the arbitrator shall be borne equally
by the parties; however, the arbitrator shall have the
discretion, upon request of a party and for good cause, “to
reapportion the arbitration fees (except attorney fees) and
costs in a manner which the arbitrator deems equitable.”
According to the terms of the arbitration agreement, “in
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
no event would an employee be assessed more than one-
half of the arbitration fees (except attorney fees) and
costs.” An agreement that provides for fee-splitting is not,
by itself, unconscionable. In re Weeks Marine, Inc., 242
S.W.3d 849, 860 (Tex.App.-Houston [14th Dist.] 2007,
orig. proceeding). There is no evidence in the record that
appellees do not have the financial ability to pay a portion
of the arbitrator's fees. Appellees admit in their brief
that appellee James McCray makes a living wage and
that “Appellee Shamekia Gullatte is a registered nurse.”
Appellees cannot point to evidence of severe monetary
constraints that would effectively preclude participation
in arbitration. Further, there is no evidence in the record
supporting appellees' assertion an arbitration will be more
costly than litigating appellees' wrongful death claims in
state court.
[17] By the express terms of the arbitration agreement,
remedies available to appellees in arbitration shall be
the same remedies available to them in a state court
proceeding. With regard to the amount of discovery
permitted, paragraph 1.17 of the arbitration agreement
provides:
Unless so ordered by the arbitrator,
and only upon a showing of good
cause, no more than three (3)
depositions, excluding depositions
of expert witnesses, may be taken
by any party. No single deposition
may exceed four (4) hours.
Interrogatories may be utilized by
any party. Each party is allowed
two (2) sets of Interrogatories
requiring no more than twenty
(20) separate responses per set
(subset requests such as IA, IB
or questions requesting multiple
answers shall each count as one
response). The arbitrator shall have
sole authority to determine which
discovery procedures are necessary
and appropriate in the case to
reduce the time, cost and expense
of the discovery process, while
still affording each party a fair
opportunity to prepare its case.
Requests for Production may be
utilized by any party upon approval
by the arbitrator. Requests for
12
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

Admission may be utilized by any

party upon *182 approval by
Waiver of Arbitration Agreement
the arbitrator. Unless a greater
time is allowed by the requesting [19] A party may waive contractual arbitration rights by
party, Interrogatories, Requests substantially invoking the judicial process to the detriment
for Production and Requests for of the other party. Perry Homes v. Cull, 258 S.W.3d
Admission shall be answered or 580, 589–90 (Tex.2008). As a defense to Pilot Travel's
objected to within thirty (30) days motion to compel arbitration, appellees contend Pilot
from the date of service. Travel waived arbitration and that they were prejudiced
by Pilot Travel invoking the judicial process.
Under the arbitration agreement, the parties are permitted
the same amount of discovery. See In re Poly–America,
262 S.W.3d at 357–58 (discovery limitations in arbitration
agreement applied equally to both sides and were not Standard of Review and Applicable Law
per se substantively unconscionable; limitations that
[20] [21] [22] Waiver of contractual arbitration rights
operate to prevent effective presentation of claim are
is a question of law that this Court reviews de novo.
unenforceable, but that determination is best left to
Id. at 598; see also Small v. Specialty Contractors, Inc.,
arbitrator as case unfolds). Appellees contend they need
310 S.W.3d 639, 644 (Tex.App.-Dallas 2010, no pet.).
to conduct discovery beyond that contemplated by the
Because public policy favors resolving disputes through
arbitration agreement. However, appellees acknowledge
arbitration, the law imposes a strong presumption against
written discovery has been exchanged and depositions
the waiver of contractual arbitration rights. See In re
have previously been taken in the lawsuit. In addition,
Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998)
the arbitration agreement provides that upon a showing
(orig. proceeding); see also In re Vesta Ins. Group, Inc.,
of good cause, a party may obtain an order from the
192 S.W.3d 759, 763 (Tex.2006) (orig. proceeding) (per
arbitrator for taking additional depositions, and may
curiam) (there is a strong presumption against waiver
obtain approval from the arbitrator to utilize requests
under the FAA). When presented with questions of
for production and for admissions. At this point in
waiver, we are required to resolve any doubts in favor
the proceeding, we cannot conclude that the evidence
of arbitration. In re Oakwood Mobile Homes, 987 S.W.2d
presented to the trial court compelled a finding that the
at 574. The standard for determining waiver is the same
discovery limitations were per se unconscionable. See id.
under federal and state law. See Holmes, Woods &
at 358.
Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex.App.-Dallas
2009, no pet.). Waiver may be implied from a party's
[18] Substantive unconscionability refers to fairness of
an arbitration provision. See In re Halliburton, 80 S.W.3d *183 conduct, so long as that conduct is unequivocal.
Perry Homes, 258 S.W.3d at 593. In “close cases, the
at 571. Here, the terms of the arbitration agreement do
‘strong presumption against waiver’ should govern.” Id.
not favor either party. Appellees have not established
(quoting In re D. Wilson Constr. Co., 196 S.W.3d 774, 783
that the cost of arbitration or the discovery limitations
contained in the arbitration agreement will prevent them (Tex.2006) (orig. proceeding)).
from effectively presenting their wrongful death claims.
[23] [24] As the parties claiming waiver, appellees had
On this record, appellees failed to establish the terms of the
the heavy burden of establishing Pilot Travel substantially
arbitration agreement arc substantively unconscionable.
invoked the judicial process. See Bruce Terminix, 988
S.W.2d at 704; Adams v. StaxxRing, Inc., 344 S.W.3d 641,
648 (Tex.App.-Dallas 2011, pet. denied). In determining
Conclusion whether appellees met their burden, we must examine
the case-specific facts and look to the totality of the
Appellees failed to establish procedural or substantive
circumstances. See Perry Homes, 258 S.W.3d at 591
unconscionability as a defense to Pilot Travel's motion to
(whether a party has waived arbitration must be decided
compel arbitration.
on a case-by-case basis, based upon an examination of
the totality of the circumstances). The judicial process is

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 13

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
substantially invoked when the party seeking arbitration
has taken specific and deliberate actions, after the filing
of the suit, that are inconsistent with the right to
arbitrate or has actively tried, but failed, to achieve a
satisfactory result through litigation before turning to
arbitration. In re Vesta Ins. Group, Inc., 192 S.W.3d at 763.
Factors considered in determining whether a movant has
substantially invoked the judicial process include when
the movant knew of the arbitration clause, how much
discovery has been initiated and who initiated it, the
extent to which discovery related to the merits rather
than arbitrability or standing, how much of the discovery
would be useful in arbitration, whether the movant sought
judgment on the merits, and whether the movant sought
to compel arbitration on the “eve of trial.” Perry Homes,
258 S.W.3d at 590–92.
[25] In addition to their burden of showing Pilot Travel
substantially invoked the judicial process, appellees had
the burden to show prejudice. See id. at 595 (“waiver of
arbitration requires a showing of prejudice”). “Prejudice”
in the context of waiver of contractual arbitration rights
“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.” Id. at 597 (quoting
Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d
341, 346 (5th Cir.2004)). “Thus, ‘a party should not be
allowed purposefully and unjustifiably to manipulate the
exercise of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.’ ” Id. (quoting
In re Tyco Inti'l Ltd. Sec. Litig., 422 F.3d 41, 46 n. 5 (1st
Cir.2005)).
Substantial Invocation of Judicial Process
[26] On July 20, 2011, Pilot Travel demanded arbitration
before the American Mediation Association. On July 22,
2011, appellees filed their original petition and request
for disclosures. Pilot Travel's original answer filed on
August 29, 2011 included the affirmative defense that
appellees' claims against Pilot Travel were the subject
of a binding arbitration agreement. See In re H & R
Block Fin. Advisors, Inc., 262 S.W.3d 896, 901 (Tex.App.-
Houston [14th Dist.] 2008, orig. proceeding) (burden of
demonstrating waiver “falls even more heavily” when
the party seeking arbitration included a demand for
arbitration in its original answer) (quoting Keytrade
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897
(5th Cir.2005)). Pilot Travel filed its motion to compel
arbitration and for stay of the trial court proceedings
against it on September 6, 2012. Appellees filed their
response to Pilot Travel's motion to compel arbitration on
October 11, 2012.
*184 Appellees assert they have expended considerable
time and resources responding to Pilot Travel's “actions
in litigation.” According to appellees, Pilot Travel gained
valuable information “during discovery,” especially from
depositions that “potentially” would not have been
available in arbitration. Appellees also state their “pretrial
strategy would have been substantially different” had
Pilot Travel filed its motion to compel arbitration earlier.
Appellees state they have “endured two years of litigation
including being deposed, answering interrogatories,
interstate traveling and so forth.”
[27] With regard to appellees' argument that Pilot Travel
waived arbitration by its delay in seeking an order
from the trial court compelling arbitration, delay alone
generally does not establish waiver. See In re Vesta Ins.
Group, 192 S.W.3d at 763. The record shows a period
of approximately one year between the time Pilot Travel
answered the lawsuit and the time it filed its motion to
compel arbitration. Greater delays in moving to compel
arbitration have been insufficient to constitute waiver of
arbitration rights. See, e.g., id. (litigating for two years in
trial court insufficient to overcome presumption against
waiver). We must consider this delay in the context of
other factors affecting the litigation process. Small, 310
S.W.3d at 639.
We note there was no evidentiary hearing and no
reporter's record of argument before the trial court
concerning Pilot Travel's motion to compel arbitration.
The trial court made no findings pertinent to the merits
of Pilot Travel's motion to compel arbitration. Appellees
do not cite to evidence purportedly presented to the trial
court, nor can appellees cite to any evidence in the record,
that demonstrates Pilot Travel substantially invoked the
judicial process. See Small, 310 S.W.3d at 645–46, 649
(record did not support argument that movants had
waived their right to arbitration by invoking the judicial
process to the prejudice of nonmovant; record contained
no reporter's record of argument before the trial court,
no evidentiary hearing regarding the motion to compel
arbitration, and no trial court findings).
14
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
The quantum of litigation conduct that will be deemed
“substantial” depends very much on the context. See
Perry Homes, 258 S.W.3d at 593; EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 89–90 (Tex.1996) (per curiam)
(party did not waive arbitration right by answering
the suit, participating in docket control conference,
propounding requests for production and interrogatories,
noticing plaintiff's deposition, and entering into an agreed
order to reset the original trial date); Walker v. J.C.
Bradford & Co., 938 F.2d 575, 576–78 (5th Cir.1991)
(party did not waive arbitration right by propounding
interrogatories and requests for production, attending
pretrial conference, and delaying thirteen months before
filing motion to compel arbitration).
In response to Pilot Travel's motion to compel arbitration,
appellees argued Pilot Travel invoked the judicial process
by consenting to co-defendants' removal of the state court
litigation to federal court, participating in scheduling
conferences in federal and state court, agreeing to trial
dates in state and federal court, and signing scheduling
orders in federal and state court. 6 By appellees' own
admission, Pilot *185 Travel did not “invoke” the
judicial process with regard to removal of the case to
federal court, but rather consented to co-defendants'
removal of the case. We disagree that by purported
agreement to trial settings, Pilot Travel “sought judgment
on the merits” as argued by appellees. Further, the record
contains no evidence of scheduling orders or trial dates in
the lawsuit during its pendency in either federal or state
court. 7
In their appellate brief, appellees state the discovery in
this lawsuit “has been pretty extensive” between appellees
and Pilot Travel's co-defendants, and the exchange
of discovery between appellees and Pilot Travel's co-
defendants has “greatly benefitted” Pilot Travel because it
received copies of the discovery exchanged. Appellees do
not contend Pilot Travel has initiated discovery; instead,
they argue Pilot Travel has not needed to initiate discovery
because of the discovery exchanged between appellees
and Pilot Travel's co-defendants. Further, appellees assert
Pilot Travel participated in discovery by “significantly”
deposing three parties, co-defendant Dilber and appellees
Joan McCray and Shamekia Gullatte. However, appellees
do not contend Pilot Travel invoked the judicial process
by noticing any of the parties for deposition; instead, they
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
argue that by merely participating in the depositions, Pilot
Travel invoked the judicial process.
Appellees' arguments regarding discovery concern matters
that are not reflected in the record. No discovery was
admitted into evidence or attached to appellees' response
to Pilot Travel's motion to compel arbitration. Because
appellees offered none of the discovery documents as
evidence in the trial court and presented no details about
any of them, the record does not show whether the written
discovery was limited or extensive, sought information for
affirmative or defensive issues, or whether the discovery
addressed the merits of the lawsuit. Further, appellees
do not allege that the discovery already conducted
would not be useful in arbitration. See In re Vesta Ins.
Group, 192 S.W.3d at 763 (noting that no prejudice from
allegedly “extensive discovery” was shown where party
opposing arbitration failed to present evidence detailing
the discovery conducted and failed to allege discovery
already conducted would not be useful in arbitration); see
Small, 310 S.W.3d at 648 (appellee did not claim discovery
already exchanged could not be used in arbitration).
The supreme court in Perry Homes emphasized facts that
would constitute waiver: “allowing a party to conduct
full discovery, file motions going to the merits, and seek
arbitration only on the eve of trial.” Perry Homes, 258
S.W.3d at 590 (quoting In re Vesta Ins. Group, 192 S.W.3d
at 764). Here, the record does not show Pilot Travel filed
a motion on the merits, engaged in extensive discovery,
or sought arbitration on the eve of trial. See Small, 310
S.W.3d at 645–47.
Prejudice
[28] Additionally, appellees did not present any evidence
that they suffered *186 prejudice. “Prejudice” in the
context of waiver of a contractual right to arbitration
means “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.” Perry Homes, 258
S.W.3d at 597; see also In re Bruce Terminix Co., 988
S.W.2d at 704 (noting that even substantial invocation
of judicial process does not constitute waiver absent
proof of prejudice). In appellees' brief they state Pilot
Travel's “delay” and “actions” caused them “detriment
and prejudice in terms of burgeoning and unnecessary
15
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
legal fees, etc.” We question whether this argument was
made before the trial court. In their response to Pilot
Travel's motion to compel arbitration, appellees state
Pilot Travel delayed in moving to compel arbitration
which resulted in appellees “expending considerable time
and resources.” Assuming this argument can be construed
to comport with appellees' argument on appeal, the record
is void of evidence relating to legal fees and expenses
incurred as a result of Pilot Travel's allegedly invoking
the litigation process to appellees' detriment. See id.
Further, although appellees argue their “pretrial strategy”
would have been “substantially different” had Pilot Travel
filed its motion to compel arbitration earlier, appellees
have not established how their legal position has been
prejudiced. Appellees have not carried their burden to
establish expense or damage to their legal position as a
result of Pilot Travel's alleged invoking the judicial process
to appellees' detriment.
Conclusion
On this record and considering the totality of the
circumstances in this case, we conclude appellees have
not met their heavy burden of establishing Pilot Travel
waived arbitration by substantially invoking the judicial
process, nor have they demonstrated sufficient prejudice
to overcome the strong presumption against waiver of
arbitration.
Section 1 of the FAA
[29] According to appellees, the arbitration agreement
is unenforceable under section 1 of the FAA. Section
1 is an exemption provision and it provides the FAA
does not apply “to contracts of employment of seamen,
railroad employees, or any other class of worker engaged
in foreign or interstate commerce.” 9 U.S.C.A. § 1
(West 2009). Appellees argued to the trial court in their
response to Pilot Travel's motion to compel arbitration
that “nothing in the FAA applies to employment contracts
of workers engaged in interstate commerce.” More
specifically, appellees argued to the trial court that Tony
was a maintenance worker for Pilot Travel and a large
portion of Pilot Travel's business “involves providing fuel,
rest facilities, food, etc. for truck drivers of 18–wheeler
tractor trailers.” According to appellees, “these drivers
and their trucks are engaged in interstate commerce
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
daily” and. “[b]y extension, workers who maintain the
parking lots and facilities that service these trucks as
well as providing other services to these truckers and
their trucking companies are directly engaged in interstate
commerce.”
[30] Appellee's argument that “nothing in the FAA
applies to employment contracts of workers engaged in
interstate commerce” has been previously rejected by the
United States Supreme Court and by this Court. The
United States Supreme Court has held that “[s]ection 1
exempts from the FAA only contracts of employment of
transportation workers.” *187 Circuit City Stores, Inc.
v. Adams, 532 U.S. 105, 119, 121 S.Ct. 1302, 149 L.Ed.2d
234 (2001). Many years prior to the decision in Adams, this
Court concluded that section 1's exemption related only
to employment contracts of workers “actually engaged
in the movement of goods in interstate commerce.”
White–Weld & Co. Inc. v. Mosser, 587 S.W.2d 485, 487
(Tex.Civ.App.-Dallas 1979, writ ref'd n.r.e.) (employee
who sold government bonds not engaged in movement of
goods in interstate commerce for purposes of section 1
exclusion) (citing Dickstein v. duPont, 443 F.2d 783, 785
(1st Cir.1971)).
While appellees also argue that workers who maintain
parking lots and facilities at a truck stop are “by
extension” engaged in interstate commerce, there is no
evidence in this record to support an argument Tony was a
transportation worker actually engaged in the movement
of goods in interstate commerce within the meaning of
the exemption of section 1 of the FAA. See Adams, 532
U.S. at 119, 121 S.Ct. 1302; Mosser, 587 S.W.2d at 487.
Instead, the record indicates Tony was employed as a
truck stop maintenance worker, and as a maintenance
worker Tony was no more engaged in the movement of
goods in interstate commerce than a clerk in a truck stop
convenience store or wait staff in a truck stop restaurant.
The facts on this record are insufficient to trigger the
exemption in section 1 of the FAA. See Cole v. Burns Int'l
Sec. Servs., 105 F.3d 1465, 1472 (D.C.Cir.1997) (security
guard at Union Station in Washington, D.C. not engaged
in transportation of goods in commerce for purposes of
section 1 exclusion). Accordingly, we are not persuaded
by appellees' defense to Pilot Travel's motion to compel
arbitration based on section 1 of the FAA.
16
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

Section 171.002 of the Texas Arbitration Act
The arbitration agreement provides the FAA shall apply
to and govern any matter submitted to arbitration
pursuant to Pilot Travel's Benefit Plan, and that in the
event or to the extent the FAA may be determined
to be inapplicable, “and only in such an event,” the
Texas General Arbitration Act (TAA) shall apply. In
defense to Pilot Travel's motion to compel arbitration,
appellees assert that because section 1 of the FAA
does not apply to employment contracts of workers
engaged in interstate commerce, section 171.002 of the
TAA applies and exempts this matter from arbitration.
Section 171.002 of the TAA excludes claims for personal
injury from arbitration under the TAA 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. TEX. CIV. PRAC. &
REM.CODE ANN. § 171.002(a)(3), (c) (West 2011); see
also In re Nexion Health at Humble, Inc., 173 S.W.3d
67, 69 (Tex.2005) (orig. proceeding) (TAA interfered
with enforceability of arbitration agreement governed by
FAA by adding requirement of signature of a party's
counsel to arbitration agreements in personal injury cases,
and FAA preempts the TAA); Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134
L.Ed.2d 902 (1996) (“Courts may not, however, invalidate
arbitration agreements under state laws applicable only to
arbitration provisions.”). Here, the parties do not dispute
that appellees' wrongful death claims arc personal injury
claims. See TEX. CIV. PRAC. & REM.CODE ANN. §
71.002(b) (West 2008) (person is liable for damages arising
from an injury that causes an individual's death if injury
was caused by person's or his agent's or servant's wrongful
act, neglect, carelessness, unskillfulness, or default). Pilot
Travel does not contend Tony was represented by an
attorney at the time of signing the arbitration agreement
or that an attorney *188 for Tony signed the arbitration
agreement. However, as discussed above, we conclude
section 1 of the FAA does not exempt this matter from
arbitration. Therefore, appellees' argument that section
171.002 of the TAA exempts this matter from arbitration
is unpersuasive.
Conclusion
The trial court abused its discretion by refusing to compel
arbitration of appellees' claims against Pilot Travel. Under
the FAA, a trial court must stay the litigation of issues
that are subject to arbitration. See 9 U.S.C.A. § 3 (West
2009). The trial court's order denied Pilot Travel's motion
to compel arbitration and for stay in “all respects.”
Therefore, it appears the trial court, in addition to denying
Pilot Travel's motion to compel arbitration, also denied
Pilot Travel's motion to stay further litigation of appellees'
claims against it. Having concluded the trial court erred in
failing to compel arbitration of appellees' claims asserted
against Pilot Travel, the trial court also erred in failing
to stay further litigation of those claims. See Courtland
Bldg. Co., Inc. v. Jalal Family P'ship, Ltd., 403 S.W.3d
265, 276 (Tex.App.-Houston [14th Dist.] 2012, no pet.).
Accordingly, we reverse the order of the trial court
denying Pilot Travel's motion to compel arbitration and
for stay of the trial court proceedings and remand the case
to the trial court for further proceedings consistent with
this opinion.
All Citations

416 S.W.3d 168

Footnotes
1 The record indicates James Antonio McCray signed his name on Pilot Travel employment documents as “James McCray.”
In this opinion, we refer to James Antonio McCray as “Tony” in order to avoid confusion with our references to Tony's
father, appellee James McCray.
2 The January 16, 2013 Order states the trial court considered appellees' “Motion for Judgment Nunc Pro Tunc, and the
response thereto.” However, the record contains no motion for judgment nunc pro tunc, nor any response by Pilot Travel
to such a motion. See TEX.R. CIV. P. 316 (permits trial court to correct mistakes and incorrect recitals in judgments but
only after reasonable notice of any application for correction is given to opposing party).
3 In its objection to the January 16, 2013 order and motion to vacate that order, Pilot Travel stated it was never served
with a motion for judgment nunc pro tunc.
4 On appeal, the parties do not dispute the trial court conducted a hearing on Pilot Travel's motion to compel arbitration on
November 16, 2012, However, no reporter's record containing a transcript of the November 16, 2012 hearing has been

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 17

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

filed with this Court, Even assuming the November 12, 2012 date of signature on the order was incorrect and should have
been November 16, 2012, the deadline for filing a notice of accelerated appeal of a November 16, 2012 order denying
Pilot Travel's motion to compel arbitration and for stay would have been December 6, 2012.
5 Appellees assert that even if this Court concludes the arbitration agreement is enforceable, appellees' loss of consortium
claims are not subject to the arbitration agreement. As was explained in In re Labatt Food Service, a tort action seeking
damages for loss of consortium arises from nonfatal injuries to a parent or child and are not entirely derivative as are
wrongful death claims. 279 S.W.3d at 646. However, “[a] wrongful death action is different than a loss of consortium
claim because the Wrongful Death Act expressly conditions the beneficiaries' claims on the decedent's right to maintain
suit for his injuries.” Id.
6 According to appellees, because of a lack of complete diversity jurisdiction, the federal case was remanded to state
court. The record contains no evidence of when the case was removed to federal court or remanded to state court. The
docket sheet from the state court litigation references removal and remand. However, docket sheets are not part of the
record. See Energo Int'l Corp. v. Modern Indus. Heating. Inc., 722 S.W.2d 149, 151 & n. 2 (Tex.App.-Dallas 1986, no
writ) (docket sheet entries are not part of the record which may be considered because they lack the formality of orders
and judgments; rather, docket sheet entry is a memorandum made for the convenience of the trial court and clerk).
7 Appellees state in their response to Pilot Travel's motion to compel arbitration that the case was set for trial on July 23,
2012. However, appellees do not argue that Pilot Travel invoked the judicial process by seeking a continuance of that
trial setting.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 18

Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
2002 WL 31528463
Only the Westlaw citation is currently available.
United States District Court,
E.D. Louisiana.
PRESCOTT–FOLLETT & ASSOCIATES, INC. et al
v.
DELASA/PRESCOTT
FOLLETT & ASSOCIATES, et al
No. Civ.A. 01–3178.
| at Puerto Cabezas in July, 2001. 6 As a prerequisite for
Nov. 8, 2002.
Opinion
AFRICK, J.
*1 Before this Court is the motion of defendants, Delasa/
Prescott Follett & Associates, a Delaware limited liability
company, Alma Finance Group, Kris N. Mahabir, Arete,
LLC, and Mary Wright, to compel arbitration pursuant
to an operating agreement of Delasa/Prescott Follett &
Associates. Plaintiffs, Prescott–Follett & Associates, Inc.
and Latin American Energy Development, Inc. d/b/a
Delasa oppose the motion. For the following reasons, the
motion is GRANTED.
FACTUAL BACKGROUND
In 1999, Prescott–Follett & Associates, Inc., Latin
American Energy Development, Inc. d/b/a Delasa, 1
Alma Finance Group, and Arete, LLC, (the “Parties”)
formed a Delaware limited liability company, Delasa/
Prescott–Follett & Associates LLC (the “Delaware
Company”), for the purpose of securing a twenty five year
lease of the port facilities at Puerto Cabezas, Nicaragua. 2
Shortly after forming the Delaware Company, the Parties
signed an operating agreement dated March 29, 1999,
(the “March Operating Agreement”) to formalize their
3
agreement to work together on the project. The March
Operating Agreement contained a clause requiring that,
“[i]n the Event of any dispute under this Agreement, such
dispute shall be settled by arbitration in New York, New
York, in accordance with the rules then promulgated by
the American Arbitration Association ...” 4
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In November 1999, the Parties allegedly negotiated a
new operating agreement (the “November Operating
Agreement”). The terms of the November Operating
Agreement were substantially different from the March
Operating Agreement, but contained the same dispute
resolution clause as the original March Operating
Agreement, in that it required the members to resolve “any
dispute under this Agreement ... by arbitration in New
York.” 5
The Delaware Company was ultimately successful in
securing the lease and it assumed control of the port
doing business in Nicaragua, Nicaraguan law required
the Delaware Company to be registered in Nicaragua
and to appoint an agent who resided in Nicaragua. 7 The
Delaware Company appointed Arnaldo Talavera to act as
its agent and it granted him power of attorney to handle,
inter alia, certain banking transactions for the Delaware
Company. 8
In August, 2001, the majority shareholder of the
Delaware Company requested that Talavera provide
an accounting of funds he handled on behalf of the
Delaware Company. 9 Talavera failed to respond to
these requests. Shortly thereafter, it was discovered that
John Wheelock 10 had allegedly opened a bank account
in Nicaragua under the same name as the Delaware
Company and that he wrongfully deposited checks
belonging to the Delaware Company. 11
Consequently, the Delaware Company filed charges in
Nicaragua against Talavera on September 18, 2002,
seeking an accounting of the Delaware Company's
funds. 12 On December 12, 2001, a judge of the Criminal
Court of Puerto Cabezas convicted Talavera of the
crime of theft with abuse of trust in violation of
the Nicaraguan Criminal Code. 13 In the judgment of
conviction, defendants allege that the judge also set
forth a criminal complaint 14 against Wheelock for being
presumed to be Talavera's co-conspirator. 15 Plaintiffs
agree that Wheelock was subsequently convicted of this
alleged crime in absentia. 16
*2 On October 19, 2001, plaintiffs filed the present
lawsuit seeking to have the November Operating
1
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
Agreement declared null and void and to reinstate the
March Operating Agreement. Plaintiffs also seek damages
arising from the defendants' alleged breach of the March
Operating Agreement.
LAW AND ANALYSIS
The Federal Arbitration Act (“FAA”) applies to written
arbitration provisions contained in contracts involving
commerce and “its reach is coextensive with the
Congressional power to regulate under the Commerce
Clause.” Trapp Chevrolet–Oldsmobile–Cadillac, Inc. v.
General Motors Corporation, 2002 WL 11633611, *2
(E.D.La.5/31/02). Specifically, Section 2 of the FAA
provides:
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 revocation of any contract.
9 U.S.C. § 2. The term “commerce” refers to “commerce
among the several States or with foreign nations” 17 and
it is to be broadly construed. Atlantic Aviation, Inc. v.
EBM Group, Inc., 11 F.3d 1276, 1280 (5 th Cir.1994).
Furthermore, it is well established that although the
FAA is substantive law, the Act applies “in diversity
cases because Congress ha[s] so intended.” 18 Allied Bruce
Terminex Companies, Inc. v. Dobson, 513 U.S. 265, 271,
115 S.Ct. 834, 838, 130 L.Ed.2d 753 (1995).
In this case, none of the parties dispute that the operating
agreements between the parties are contracts involving
commerce within the meaning of 9 U.S.C. § 2. 19
Moreover, it is also undisputed that both the March
and November operating agreements contain written
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitration provisions. 20 Accordingly, the FAA governs
this Court's determination regarding the arbitrability of
this dispute.
The FAA expresses a strong presumption favoring
arbitration of disputes and “all doubts concerning the
arbitrability of claims should be resolved in favor of
arbitration.” Primerica Life Insurance Co. v. Brown, 304
F.3d 469, 471 (5 th Cir.2002). “By its terms, the Act 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.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 614, 625–26, 105 S.Ct.
1238, 1241, 84 L.Ed.2d 158 (1985)(emphasis added). In
determining whether the parties should be compelled to
arbitrate a dispute, the Court performs a two-step inquiry.
Primerica Life Insurance Co. v. Brown, 304 F.3d 469, 471
(5 th Cir.2002). “First, the court must determine whether
the parties agreed to arbitrate the dispute. 21 Once the
court finds that the parties agreed to arbitrate, it must
consider whether any federal statute or policy renders
the claims nonarbitrable.” Id. In conducting this two
step analysis, “courts must not consider the merits of the
underlying action.” Downer v. Siegel, 2002 WL 31106920,
*2 (E.D .La. 9/19/02).
*3 Here, plaintiffs do not deny that both the March
and November operating agreements at issue contain
an identical arbitration clause requiring “any dispute”
under the agreement to be arbitrated in New York. 22
Likewise, plaintiffs do not contest that their claims
for breach of the original operating agreement (i.e.
the March Operating Agreement) fall within the broad
scope 23 of the arbitration clause. 24 Rather, plaintiffs
sole argument is that they should not be compelled to
arbitrate at all because both the March and November
agreements are invalid as a whole as a result of fraudulent
misrepresentations by the defendants . 25 Specifically,
plaintiffs contend “that the entire consent to form the
contract initially was obtained by the fraud, manipulation
and misrepresentation” 26 of facts by the defendants
“upon which the plaintiffs relied, and without which the
entire contract, including the arbitration clause, would
never have been entered into or agreed to.” 27
2
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
The Court notes that plaintiffs' arguments, legally
actionable as they may be, do not render their claims
nonarbitrable. At no time have plaintiffs asserted that
there was fraud in the inducement or misrepresentations
relative to the arbitration clause alone. 28 In Prima Paint
Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395,
403–04, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967),
the United States Supreme Court specifically held that
pursuant to the FAA, “ ‘if the claim is fraud in the
inducement of the arbitration clause itself—an issue which
goes to the ‘making’ of the agreement to arbitrate—the
federal court may proceed to adjudicate it,' but the federal
court cannot consider claims of fraud in the inducement of
the contract itself.” Downer v. Siegel, 2002 WL 31106920,
*2 (E.D.La.9/19/02)(citing Prima Paint, 388 U.S. at 403–
04, 87 S.Ct. at 1806)). Thus, unless a defense relates
solely to the arbitration clause, it must be submitted to
the arbitrator for consideration as part of the underlying
dispute between the parties. 29 Primerica Life Insurance
Co. v. Brown, 304 F.3d 469, 471–72 (5 th Cir.2002).
Plaintiffs in this case seek a declaratory judgment that
the November operating agreement is “null, void, ultra
vires, in violation of the Original Consent and Terms of
the Operating Agreement, and of no effect whatsoever”
as a result of alleged fraudulent misrepresentations by
the defendants. 30 In their opposition to the motion to
compel arbitration, the plaintiffs further allege that “even
th[e] March 29 Operating Agreement was manipulated by
defendants” and should be voided. 31 As plaintiffs' fraud
defense relates to the operating agreements generally,
the jurisprudence and the FAA mandate that plaintiffs'
claims, including the fraud in the inducement defense, be
resolved by the arbitrator. 32 See Prima Paint, 388 U.S.
395, 404, 87 S.Ct. 1801, 1806; Rushe, 2002 WL 575706 at
*7.
Plaintiffs next argue that arbitration should be denied
in this case because defendants sought the intervention
of the judicial system in Nicaragua rather than resorting
to arbitration, thereby waiving their right to compel
arbitration. 33 Specifically, in their supplemental and
amending complaint plaintiffs aver:
*4 Defendants have waived any right to arbitration
of this claim both by their filing or causing the filing
of civil and criminal litigation against John Wheelock
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and Arnoldo Talavera in matters arising out of the
Lease and Operating Agreement; and by their conscious
and deliberate efforts to violate, illegally modify and
undermine the operation of DELASA/Delaware and
the proper operation of Puerto Cabezas under the
Lease. 34
“Waiver of arbitration is not a favored finding and there
is a presumption against it.” Lawrence v. Comprehensive
Bus. Servs. Co ., 833 F.2d 1159, 1164 (5 th Cir.1987);
Subway Equipment Leasing v. Forte, 169 F.3d 324, 326
(5 th Cir.1999)(“There is a strong presumption against
waiver of arbitration”); Walker v. J .C. Bradford &
Co., 938 F.2d 575, 577 (5 th Cir.1991)(“In general, we
hesitate to find that a party has waived its contractual
right to arbitration.”); Moses H. Cone Mem'l Hosp.,
460 U.S. 1, 24–25, 103 S.Ct. 927, 941, 74 Led.2d 765
(1983)(“[A]ny doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration, whether
the problem at hand is the construction of the contract
itself or an allegation of waiver, delay, or a like defense
to arbitrability”). Accordingly, a party asserting waiver
of arbitration bears a heavy burden of proof. Subway,
169 F.3d at 326 (5 th Cir.1999). “Waiver will be found
when the party seeking arbitration substantially invokes
the judicial process to the detriment or prejudice of
the other party.” Miller v. Brewing Co. v. Forth Worth
Distrib. Co., 781 F.2d 494, 497 (5 th Cir.1986). Waiver
requires a showing of “both a substantial invocation of
the judicial process and either detriment or prejudice to
the other party.” 35 Consorcio Rive v. Briggs of Cancun,
Inc., 134 F.Supp.2d 789, 795 (E.D.La.2001). Finally,
it is well established that “a party only invokes the
judicial process to the extent it litigates a specific claim
it subsequently wants to arbitrate.” Subway, 169 F.3d at
328; Doctor's Associates v. Distajo, 107 F.3d 126, 134 (2 nd
Cir.1997)(“[O]nly prior litigation of the same legal and
factual issues as those the party now wants to arbitrate
results in a waiver of the right to arbitrate”).
Defendants' filing of alleged civil and/or criminal matters
in Nicaragua against Talavera and Wheelock did not
amount to a substantial invocation of the judicial process
and it was not inconsistent with the defendants' desire
to arbitrate the present claims arising out of the parties'
operating agreement. With respect to the alleged civil
and criminal proceedings against Talavera, plaintiffs have
presented no evidence that Talavera was a member of
3
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
the Delaware Company or a party to the March and/or
November agreements. 36 Accordingly, the Court fails to
see how litigation against a non-party to an agreement
can result in a waiver of arbitration rights pursuant to
that agreement. 37 Further, defendants' actions in filing
proceedings against Talavera for theft of funds could not
have resulted in any detriment or prejudice to plaintiffs
with respect to this action. Plaintiffs were not even parties
to the litigation against Talavera and did not have to
bear the expense of burdensome litigation. Plaintiffs'
claims against defendants for breach of the operating
agreements are unrelated to any claims against Talavera,
individually, for alleged theft of funds. Consequently, the
Court finds that any proceeding by defendants against
Talavera, whether civil or criminal, did not result in a
waiver of arbitration rights in this matter. See Subway,
169 F.2d at 328 (holding that franchisor did not waive
right to arbitration under franchise agreement by filing
previous lawsuit against franchisees where the earlier
action involved claims that were different from the one the
franchisor now sought to arbitrate); Amalgamated Local
No. 55, United Automobile, Aerospace & Agricultural
Implement Workers of America v. Metal and Alloy Division
of Silver Creek Precision Corporation, 396 F.Supp. 667,
670 (N.D.N.Y.1975)(finding that union did not waive
arbitration under collective bargaining agreement by
filing criminal charge against one of employer's officers
where criminal action was based upon different issues
than those before the court and was brought against an
individual and not the defendant corporation).
*5 Similarly, the Court finds that the alleged filing of
38
criminal charges against Wheelock did not amount to
a waiver of defendants' right to arbitrate. Federal courts
have held that the FAA, while promoting arbitration, does
not contemplate the arbitration of criminal activity. See
Myers v. Rosenberg, 1986 WL 3329, *2 (N.D.Ill.3/7/86).
Therefore, defendants' alleged filing of criminal charges
cannot be held to be inconsistent with their desire to
arbitrate. Nor can it be held to have resulted in any
detriment or prejudice to the plaintiffs, particularly in light
of the fact that Wheelock “was convicted in absentia, being
out of the Country of Nicaragua at the time, never having
been formally faced with his accusers, never having been
permitted to go to trial.” 39 Accordingly, plaintiffs fail to
meet their burden of proving a waiver of the arbitration.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In sum, the Court finds that there is no impediment
to the arbitration of plaintiffs' claims. All of the
parties, including the plaintiffs, admittedly signed the
operating agreements. 40 All agreed to arbitrate “any
dispute under th[e] Agreement[s].” 41 Further, plaintiffs
point to no federal statute or policy that may render
their claims nonarbitrable. Consequently, considering the
broad nature of the arbitration clause 42 and the U.S.
Supreme Court's pronouncement in Prima Paint, this
Court holds that plaintiffs' claims, including their claim
for fraud in the inducement of the operating agreement,
must be submitted to arbitration. 43
Accordingly,
IT IS ORDERED that the motion to compel arbitration
of defendants, Delasa/Prescott Follett & Associates, a
Delaware Limited Liability Company, Alma Finance
Group, Kris N. Mahabir, Arete, LLC, and Mary Wright,
is GRANTED.
IT IS FURTHER ORDERED that the claims of
plaintiffs, Prescott–Follett & Associates, Inc. and Latin
American Energy Development, Inc. d/b/a Delasa, shall
be submitted to arbitration, in accordance with the parties'
arbitration agreement.
IT IS FURTHER ORDERED that this case BE AND IS
HEREBY STAYED PENDING ARBITRATION.
IT IS FURTHER ORDERED that the Clerk of Court
mark this action closed for statistical purposes and place
this matter in a Civil Suspense File;
IT IS FURTHER ORDERED that the Court shall retain
jurisdiction and the matter shall be restored to the trial
docket if circumstances change this action, upon motion
of a party, within thirty (30) days of any such change of
circumstances, so that it may proceed to final disposition.
This order shall not prejudice the rights of the parties to
this litigation.
All Citations
Not Reported in F.Supp.2d, 2002 WL 31528463
4
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

Footnotes
1 Plaintiffs, Prescott–Follett & Associates, Inc. and Latin American Energy Development, Inc. d/b/a Delasa, are both
Louisiana corporations. Alma Finance Group and Arete LLC are foreign companies. R. Doc. No. 1, ¶ 1.
2 R. Doc. No. 18, Memorandum, p. 2.
The purpose of the project was “the commercial, long-term development and privatization of Puerto Cabezas, as a
major port in Nicaragua, on the Atlantic coast, serving the North Atlantic Autonomous Region of Nicaragua.” R. Doc.
No. 1, ¶ 8.
3 Id. at pp. 2–3.
4 R. Doc. No. 5, Exhibit D–1, Article XXII, § 22.1.
5 R. Doc. No. 18, Exhibit 1, Operating Agreement, Article 10, § 10.1.
6 R. Doc. No. 18, Memorandum, p. 3.
7 Id.
8 Id. at p. 4.
9 Id.
10 John Wheelock is the principal of Latin American Energy Development d/b/a Delasa, and a member of the Delaware
Company. R. Doc. No. 1, ¶ 8–9.
11 R. Doc. No. 18, p. 4. Plaintiffs dispute that Wheelock wrongfully deposited money into this account.
12 R. Doc. No. 18, p. 5; R. Doc. No. 5, Exhibits M–1, M–2, and N.
13 R. Doc. No. 18, p. 5; R. Doc. No. 32, p. 2.
14 According to the record, the judge ordered that an “instructive of law” be opened against Wheelock. R. Doc. No. 32, p. 5.
15 R. Doc. No. 18, p. 5 and Exhibit 2.
16 R. Doc. No. 23, p. 12. Plaintiffs further argue that the conviction was subsequently overturned by the judge who held that
the charges against Wheelock were civil in nature. Id. However, plaintiffs arguments are unsupported by any evidence
in the record.
17 9 U.S.C. § 1.
18 In fact, the U.S. Supreme Court has made it clear that the FAA preempts state law. Id., 513 U.S. at 272, 115 S.Ct. at 838.
19 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 23, pp. 1, 6–7. Although the parties dispute whether the March or
November operating agreement should apply, it is clear that both agreements “involve commerce” as the parties to the
agreements are residents of different states and the agreements relate to the operations of a Delaware Company whose
business was the development of a major foreign port in Nicaragua. As such, they fall under the coverage of the FAA. See
Rushe v. NMTC, Inc., 2002 WL 575706, *5 (E.D.La.4/16/02)(holding that where distributorship agreement was between
residents of different states and involved the distribution of products from outside the State of Louisiana and “where the
claims and allegations of the suit involve[d] meetings and communications which took place between Ohio and Louisiana,”
the agreement was one which involved commerce within the meaning of the FAA).
20 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 1, p. 1.
21 This determination involves two considerations: “(1) whether there is a valid agreement to arbitrate between the parties;
and (2) whether the dispute in question falls within the scope of that arbitration agreement.” Webb v. Investacorp, Inc.,
th
89 F.3d 252, 258 (5 Cir.1996).
22 R. Doc. No. 5, Exhibit D–1, Operating Agreement, Article XXII, § 22.1; R. Doc. No. 18, Exhibit 1, Article 10, § 10.1.
23 The Fifth Circuit has differentiated between arbitration clauses which are “broad” and those which are “narrow.” Rushe,
2002 WL 575706 at *5. “Where an arbitration clause is ‘broad,’ the action should be stayed and the arbitrator permitted
to decide if the dispute falls within the clause. Whereas in cases where the clause is ‘narrow,’ the case is not referred
to arbitration or stayed, unless the Court determines that the dispute falls within the clause.” Id. (citing In Re Complaint
th
of Hornbeck Offshore Corp., 981 F.2d 752, 755 (5 Cir.1993)).
Clauses which contain the term “any dispute” have been held to be “broad.” Id.; see also Pennzoil, 139 F.3d at 1067;
th
Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corporation, 797 F.2d 238, 244 (5 Cir.1986)(finding
that arbitration clause requiring arbitration of “any controversy between the parties ... arising under this Contract” was
th
broad); Rojas v. TK Communications, Inc., 87 F.3f 745 (5 Cir.1996)(“any other dispute” was sufficiently broad); In Re
Complaint of Hornbeck, 981 F.2d at 755 (holding that arbitration clause in towage agreement providing for reference
to arbitration of “any dispute” arising between the parties was broad); Sedco v. Petroleos Mexicanos Mexican Nat'l Oil,

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Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

th
767 F.2d 1140, 1144 (5 Cir.1985)(finding that clause providing for arbitration of “any dispute or difference between
th
the parties” was sufficiently broad); Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 38 (5 Cir.1990)(clause
governing “any and all disputes” between the parties was broad). In this case, both the March and November Operating
Agreements contain identical arbitration provisions requiring arbitration of “any dispute under this Agreement.” The
Court finds that regardless of which operating agreement is applied, the clauses are of the “broad” type. Therefore, in
accordance with the jurisprudence, the matter should be stayed and submitted to arbitration.
24 In fact, plaintiffs do not even address this issue in their opposition memorandum.
25 R. Doc. No. 23, p. 7–10. The Court notes that plaintiffs' original and first supplemental and amending complaints assert
only that the November Operating Agreement should be voided. R. Doc. No. 1, R. Doc. No. 5. On September 19, 2002,
plaintiffs requested leave to file a second supplemental and amending complaint wherein they asserted claims that the
March operating agreement should also be rescinded on the same basis as the November agreement. R. Doc. No. 27.
Although the Court denied plaintiffs request for leave, the Court, in the interest of justice, nevertheless considers plaintiffs'
arguments with respect to the March Operating Agreement as these are raised in opposition to the present motion to
compel arbitration.
26 R. Doc. No. 23, p. 14.
27 Id. at p. 7.
28 Plaintiffs' contention that the arbitration clause should be voided because the entire contract is null and void is not a
challenge to the arbitration clause, itself, but a challenge to the entire contract, including the arbitration clause.
29 th
See Primerica Life Insurance Company v. Brown, 304 F.3d 469, 471–72 (5 Cir.2002)(holding that where defendant's
capacity defense was a defense to the entire agreement and not a specific challenge to the arbitration clause, the defense
was part of the underlying dispute between the parties which must be submitted to the arbitrator); Snap–On Tools Corp.
th
v. Mason, 18 F .3d 1261, 1267–68 (5 Cir.1994)(submitting allegations of fraud in the inducement to arbitration because
allegations did not concern arbitration clause specifically, but rather was a challenge to the contract in its entirety);
th
Lawrence v. Comprehensive Business Services Company, 833 F.2d 1159, 1162 (5 Cir.1987)(submitting defense of
illegality of the contract to arbitration because it was not a challenge to the arbitration clause, itself, but rather to the
th
contract as a whole); Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 244 (5
Cir.1986)(submitting to arbitration a defense that contract was void from its inception because defendant did not argue
“that the agreement to arbitrate [was] invalid separately from the entire contract).
30 R. Doc. No. 1, ¶ 21,
31 R. Doc. No. 23, p. 2.
32 Plaintiffs cite George Engine Co., Inc. v. Southern Shipbuilding Corp., 350 So.2d 881 (La.1977) in support of their
contention that the district court, not the arbitrator, has jurisdiction to decide the issue of fraud in the inducement of a
contract containing an arbitration clause. Id. at 884. In George Engine, the Louisiana Supreme Court declined to follow
Prima Paint. However, in Rushe and Downer, the federal district courts, faced with the same argument presented by the
plaintiffs herein, rejected the holding in George Engine, explaining that in George Engine the Louisiana Supreme Court
“was interpreting the Louisiana Arbitration Act §§ 4201, 4203, not the FAA.” Rushe, 2002 WL 575706 at *6; Downer,
2002 WL 31106920 at *3, n. 3.
33 R. Doc. No. 23, p. 11.
34 R. Doc. No. 5, ¶ 50.
35 “Substantial” invocation of the judicial process requires “active participation in a lawsuit or some other type of act
inconsistent with the desire to arbitrate.” Consorcio Rive v. Briggs of Cancun, Inc., 134 F.Supp.2d 789, 795 (E.D.La.2001).
With respect to the requirement of “prejudice,” the Fifth Circuit has held that, “[w]hen one party reveals a disinclination to
resort to arbitration on any phase of a lawsuit involving all parties, those parties are prejudiced by being forced to bear
the expenses of a trial ... Arbitration is designed to avoid this very expense. Substantially invoking the litigation machinery
qualifies as the kind of prejudice ... that is the essence of waiver.” Id. (quoting E.C. Ernst, Inc. v. Manhattan Construction
th
Co. of Texas, 559 F.2d 268, 269 (5 Cir.1977)).
36 To the contrary, the Operating Agreements themselves show that the only parties to the operating agreements and the
only entities/individuals having an ownership interest in the Delaware Company are Alma Finance (through its principal,
Kris N. Mahabir), Arete LLC (through its principal, Mary A. Wright), Delasa, Inc. (through its principal John F. Wheelock),
Prescott Follett and Associates, Inc. (through its principal, Prescott Follett), Michael Beaury, and Todd Esse. See R. Doc.
No. 18, Exhibit 1, Schedule A.

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Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

37 Clearly, as a non-party to the agreement, there was no duty owed to Talavera to resolve any disputes arising out of the
agreement through arbitration.
38 The Court notes that although plaintiffs argue that civil charges were also filed against Wheelock, the evidence submitted
by plaintiffs to the Court do not reveal the filing of any such civil matters. See R. Doc. No. 5, Exhibits M–1, M–2 and N.
To the contrary, a review of the documents submitted by plaintiffs show that the only matter against Wheelock is/was
pending before the Criminal District Court of Puerto Cabezas. R. Doc. No. 5, Exhibit M–2. Accordingly, any arguments
by plaintiff that a civil lawsuit was filed against Wheelock or, alternatively, that the criminal charges “were purely civil in
nature,” R. Doc. No. 23, p. 12, are merely speculative and unsupported by any evidence in the record.
39 R. Doc. No. 23, p. 12. Because Wheelock was convicted in absentia, there was no “active participation in a lawsuit”
sufficient to amount to substantial invocation of the judicial process. Consorcio Rive, 134 F.Supp.2d at 795.
40 R. Doc. No. 23, p. 2.
41 R. Doc. No. 23, p. 1.
42 In Re Complaint of Hornbeck Offshore Corp., 981 F.2d at 755 (“[A]rbitration clauses containing the ‘any dispute’
language ... are of the broad type.”).
43 th
Id.; Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil Co., 767 F.2d 1140, 1148 (5 Cir.1985)(“ ‘[a]bsent
allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause
on its face appears broad enough to encompass the party's claims.” ’)(quoting Life of America Insurance Co. v. Aetna
th
Life Insurance Co., 744 F.2d 409, 413 (5 Cir.1984)).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...

When parties agree to arbitrate all disputes

arising under their contract, questions
KeyCite Yellow Flag - Negative Treatment concerning the validity of the entire contract
Declined to Extend by Dalton v. Santander Consumer USA, Inc., N.M., 
are to be resolved by the arbitrator in the first
September 22, 2016
instance, not by a federal or state court.
128 S.Ct. 978
Supreme Court of the United States 127 Cases that cite this headnote

Arnold M. PRESTON, Petitioner,

v. [2] Alternative Dispute Resolution
Alex E. FERRER. Arbitration favored; public policy
National policy favoring arbitration applies in
No. 06–1463. state as well as federal courts and forecloses
| state legislative attempts to undercut the
Argued Jan. 14, 2008. enforceability of arbitration agreements. 9
| U.S.C.A. § 2.
Decided Feb. 20, 2008.
121 Cases that cite this headnote
Synopsis
Background: Attorney who rendered services for
personnel in motion picture-television industry initiated [3] Alternative Dispute Resolution
arbitration proceeding against television performer, Preemption
seeking to recover fees to which he claimed he was Labor and Employment
entitled under their contract. The Superior Court of Los Employment Agencies
Angeles County, No. BC342454, Haley J. Fromholz, J., States
denied arbitration and granted performer's motion to stay Labor and Employment
action pending proceedings before Labor Commissioner. Federal Arbitration Act (FAA) preempts
Attorney appealed. The California Court of Appeal, California Talent Agencies Act (TAA)
Jackson, J., 145 Cal.App.4th 440, 51 Cal.Rptr.3d 628, provisions granting Labor Commissioner
affirmed. Certiorari was granted. exclusive jurisdiction to decide issue that
parties agreed to arbitrate and imposing
prerequisites to enforcement of arbitration
[Holding:] The Supreme Court, Justice Ginsburg, held that agreement that are not applicable to contracts
when parties agree to arbitrate all questions arising under generally. West's Ann.Cal.Labor Code §§
contract, Federal Arbitration Act (FAA) supersedes state 1700.44(a), 1700.45.
laws lodging primary jurisdiction in another forum,
124 Cases that cite this headnote
whether judicial or administrative.

[4] Alternative Dispute Resolution

Reversed and remanded. Nature, purpose, and right to arbitration
in general
Justice Thomas filed dissenting opinion.
Prime objective of agreement to arbitrate
is to achieve streamlined proceedings and
expeditious results.
West Headnotes (5)
26 Cases that cite this headnote

[1] Alternative Dispute Resolution

[5] Alternative Dispute Resolution
Existence and validity of agreement
Preemption

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
States
Particular cases, preemption or
supersession
When parties agree to arbitrate all questions
arising under a contract, the Federal
Arbitration Act (FAA) supersedes state
laws lodging primary jurisdiction in another
forum, whether judicial or administrative. 9
U.S.C.A. § 1 et seq.
191 Cases that cite this headnote
West Codenotes
Preempted
West's Ann.Cal Labor Code §§ 1700.44(a), 1700.45.
**978 Syllabus *
A contract between respondent Ferrer, who appears
on television as “Judge **979 Alex,” and petitioner
Preston, an entertainment industry attorney, requires
arbitration of “any dispute ... relating to the [contract's]
terms ... or the breach, validity, or legality thereof ...
in accordance with [American Arbitration Association
(AAA) ] rules.” Preston invoked this provision to gain
fees allegedly due under the contract. Ferrer thereupon
petitioned the California Labor Commissioner (Labor
Commissioner) for a determination that the contract
was invalid and unenforceable under California's Talent
Agencies Act (TAA) because Preston had acted as a
talent agent without the required license. After the Labor
Commissioner's hearing officer denied Ferrer's motion
to stay the arbitration, Ferrer filed suit in state court
seeking to enjoin arbitration, and Preston moved to
compel arbitration. The court denied Preston's motion
and enjoined him from proceeding before the arbitrator
unless and until the Labor Commissioner determined
she lacked jurisdiction over the dispute. While Preston's
appeal was pending, this Court held, in Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 446, 126 S.Ct.
1204, 163 L.Ed.2d 1038, that challenges to the validity
of a contract requiring arbitration of disputes ordinarily
“should ... be considered by an arbitrator, not a court.”
Affirming the judgment below, the California Court of
Appeal held that the TAA vested the Labor Commissioner
with exclusive original jurisdiction over the dispute, and
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
that Buckeye was inapposite because it did not involve an
administrative agency with exclusive jurisdiction over a
disputed issue.
Held: When parties agree to arbitrate all questions arising
under a contract, the Federal Arbitration Act (FAA),
9 U.S.C. § 1 et seq., supersedes state laws lodging
primary jurisdiction in another forum, whether judicial or
administrative. Pp. 982 – 988.
(a) The issue is not whether the FAA preempts the TAA
wholesale. Instead, the question is simply who decides
—the arbitrator or the Labor Commissioner—whether
Preston acted as an unlicensed talent agent in violation of
the TAA, as Ferrer claims, or as a personal manager not
governed by the TAA, as Preston contends. P. 983.
(b) FAA § 2 “declare[s] a national policy favoring
arbitration” when the parties contract for that mode
of dispute resolution. Southland Corp. v. Keating, 465
U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1. That national
policy “appli[es] in state as well as federal courts” and
“foreclose[s] state legislative attempts to undercut the
enforceability of arbitration agreements.” Id., at 16, 104
S.Ct. 852. The FAA's displacement of conflicting state law
has been repeatedly reaffirmed. See, e.g., Buckeye, 546
U.S., at 445–446, 126 S.Ct. 1204; Allied–Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130
L.Ed.2d 753. A recurring question under § 2 is who should
decide whether “grounds ... exist at law or in equity” to
invalidate an arbitration agreement. In Prima Paint Corp.
v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–404, 87
S.Ct. 1801, 18 L.Ed.2d 1270, which originated in federal
court, this Court held that attacks on an entire contract's
validity, as distinct from attacks on the arbitration clause
alone, are within the arbitrator's ken. Buckeye held that
the same rule applies in state court. See 546 U.S., at 446,
126 S.Ct. 1204.
Buckeye largely, if not entirely, resolves the present
dispute. The contract at issue clearly “evidenc[ed] a
transaction involving commerce” under § 2, and Ferrer
has never disputed that the contract's written arbitration
provision falls within **980 § 2's purview. Ferrer sought
invalidation of the contract as a whole. He made no
discrete challenge to the validity of the arbitration clause,
and thus sought to override that clause on a ground
Buckeye requires the arbitrator to decide in the first
instance. Pp. 983 – 984.
2
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
(c) Ferrer attempts to distinguish Buckeye, urging that
the TAA merely requires exhaustion of administrative
remedies before the parties proceed to arbitration. This
argument is unconvincing. Pp. 984 – 987.
(1) Procedural prescriptions of the TAA conflict with the
FAA's dispute resolution regime in two basic respects:
(1) One TAA provision grants the Labor Commissioner
exclusive jurisdiction to decide an issue that the parties
agreed to arbitrate, see Buckeye, 546 U.S., at 446,
126 S.Ct. 1204; (2) another imposes prerequisites to
enforcement of an arbitration agreement that are not
applicable to contracts generally, see Doctor's Associates,
Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134
L.Ed.2d 902. Pp. 984 – 985.
(2) Ferrer contends that the TAA is compatible with
the FAA because the TAA provision vesting exclusive
jurisdiction in the Labor Commissioner merely postpones
arbitration. That position is contrary to the one Ferrer
took in the California courts and does not withstand
examination. Arbitration, if it ever occurred following
the Labor Commissioner's decision, would likely be long
delayed, in contravention of Congress' intent “to move
the parties to an arbitrable dispute out of court and into
arbitration as quickly and easily as possible.” Moses H.
Cone Memorial Hospital v. Mercury Constr. Corp., 460
U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765. Pp. 985 – 986.
(3) Ferrer contends that the conflict between
the arbitration clause and the TAA should be
overlooked because Labor Commissioner proceedings are
administrative rather than judicial. The Court rejected
a similar argument in Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 28–29, 111 S.Ct. 1647, 114 L.Ed.2d 26.
Pp. 986 – 987.
(d) Ferrer's reliance on Volt Information Sciences, Inc. v.
Board of Trustees of Leland Stanford Junior Univ., 489
U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488, is misplaced
for two reasons. First, arbitration was stayed in Volt
to accommodate litigation involving third parties who
were strangers to the arbitration agreement. Because the
contract at issue in Volt did not address the order of
proceedings and included a choice-of-law clause adopting
California law, the Volt Court recognized as the gap
filler a California statute authorizing the state court to
stay either third-party court proceedings or arbitration
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
proceedings to avoid the possibility of conflicting rulings
on a common issue. Here, in contrast, the arbitration
clause speaks to the matter in controversy; both parties
are bound by the arbitration agreement; the question of
Preston's status as a talent agent relates to the validity
or legality of the contract; there is no risk that related
litigation will yield conflicting rulings on common issues;
and there is no other procedural void for the choice-of-law
clause to fill. Second, the Court is guided by its decision
in Mastrobuono v. Shearson Lehman Hutton, Inc., 514
U.S. 52, 115 S.Ct. 1212, 131 L.Ed.2d 76. Although the
Volt contract provided for arbitration in accordance with
AAA rules, 489 U.S., at 470, n. 1, 109 S.Ct. 1248, Volt
never argued that incorporation of those rules by reference
trumped the contract's choice-of-law clause, so this Court
never addressed the import of such incorporation. In
Mastrobuono, the Court reached that open question,
declaring that the “best way to harmonize” **981 a
New York choice-of-law clause and a clause providing
for arbitration in accordance with privately promulgated
arbitration rules was to read the choice-of-law clause “to
encompass substantive principles that New York courts
would apply, but not to include [New York's] special
rules limiting [arbitrators'] authority.” 514 U.S., at 63–
64, 115 S.Ct. 1212. Similarly here, the “best way to
harmonize” the Ferrer–Preston contract's adoption of the
AAA rules and its selection of California law is to read the
latter to encompass prescriptions governing the parties'
substantive rights and obligations, but not the State's
“special rules limiting [arbitrators'] authority.” Ibid. Pp.
987 – 989.
145 Cal.App. 4th 440, 51 Cal.Rptr.3d 628, reversed and
remanded.
GINSBURG, J., delivered the opinion of the Court,
in which ROBERTS, C.J., and STEVENS, SCALIA,
KENNEDY, SOUTER, BREYER, and ALITO, JJ.,
joined. THOMAS, J., filed a dissenting opinion, post, at
989.
Attorneys and Law Firms
Joseph D. Schleimer, Beverly Hills, CA, for petitioner.
G. Eric Brunstad, Jr., Hartford, Connecticut, for
respondent.
3
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...

**982 program, and petitioner Arnold M. Preston, a

Robert M. Dudnik, Mitchell, Silberberg & Knupp California attorney who renders services to persons in the
LLP, Los Angeles, CA, G. Eric Brunstad, Jr., Counsel entertainment industry. Seeking fees allegedly due under
of Record, Rheba Rutkowski, Brian R. Hole, Collin the contract, Preston invoked the parties' agreement to
O'Connor Udell Bingham McCutchen LLP, Hartford, arbitrate “any dispute ... relating to the terms of [the
Connecticut, for Respondents. contract] or the breach, validity, or legality thereof ... in
accordance with the rules [of the American Arbitration
Joseph D. Schleimer, Counsel of Record, Kenneth D.
Association].” App. 18.
Freundlich, Schleimer & Freundlich, LLP, Beverly Hills,
CA, for Petitioner.
Preston's demand for arbitration, made in June 2005,
Opinion was countered a month later by Ferrer's petition
to the California Labor Commissioner charging that
Justice GINSBURG delivered the opinion of the Court. the contract was invalid and unenforceable under the
California Talent Agencies Act (TAA), Cal. Lab.Code
[1] *349 As this Court recognized in Southland Corp. v. Ann. § 1700 et seq. (West 2003 and Supp.2008). Ferrer
Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), asserted that Preston acted as a talent agent without the
the Federal Arbitration Act (FAA or Act), 9 U.S.C. § license required by the TAA, and that Preston's unlicensed
1 et seq. (2000 ed. and Supp. V), establishes a national
status rendered the entire contract void. 1
policy favoring arbitration when the parties contract for
that mode of dispute resolution. The Act, which rests on
The Labor Commissioner's hearing officer, in November
Congress' authority under the Commerce Clause, supplies
2005, determined that Ferrer had stated a “colorable basis
not simply a procedural framework applicable in federal
for exercise of the Labor Commissioner's jurisdiction.”
courts; it also calls for the application, in state as well
App. 33. The officer denied Ferrer's motion to stay
as federal courts, of federal substantive law regarding
the arbitration, however, on the ground that the Labor
arbitration. 465 U.S., at 16, 104 S.Ct. 852. More recently,
Commissioner lacked authority to order such relief. Ferrer
in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
then filed suit in the Los Angeles Superior Court, seeking
440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), the Court
a declaration that the controversy between the parties
clarified that, when parties agree to arbitrate all disputes
“arising from the [c]ontract, including in particular the
arising under their contract, questions concerning the
issue of the validity of the [c]ontract, is not subject to
validity of the entire contract are to be resolved by the
arbitration.” *351 Id., at 29. As interim relief, Ferrer
arbitrator in the first instance, not by a federal or state
sought an injunction restraining Preston from proceeding
court.
before the arbitrator. Preston responded by moving to
compel arbitration.
The instant petition presents the following question: Does
the FAA override not only state statutes that refer certain
In December 2005, the Superior Court denied Preston's
state-law controversies initially to a judicial forum, but
motion to compel arbitration and enjoined Preston from
also state statutes that refer certain disputes initially to an
proceeding before the arbitrator “unless and until the
administrative agency? We hold today that, when parties
Labor Commissioner determines that ... she is without
agree to arbitrate all questions arising under a contract,
jurisdiction over the disputes between Preston and
state laws lodging primary jurisdiction in another forum,
Ferrer.” No. BC342454 (Dec. 7, 2005), App. C to Pet.
*350 whether judicial or administrative, are superseded
for Cert. 18a, 26a–27a. During the pendency of Preston's
by the FAA.
appeal from the Superior Court's decision, this Court
reaffirmed, in Buckeye, that challenges to the validity of
a contract providing for arbitration ordinarily “should ...
I be considered by an arbitrator, not a court.” 546 U.S., at
446, 126 S.Ct. 1204.
This case concerns a contract between respondent Alex E.
Ferrer, a former Florida trial court judge who currently
In a 2–to–1 decision issued in November 2006, the
appears as “Judge Alex” on a Fox television network
California Court of Appeal affirmed the Superior

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
Court's judgment. The appeals court held that the
relevant provision of the TAA, Cal. Lab.Code Ann.
§ 1700.44(a) (West 2003), vests “exclusive original
jurisdiction” over the dispute in the Labor Commissioner.
145 Cal.App.4th 440, 447, 51 Cal.Rptr.3d 628, 634.
Buckeye is “inapposite,” the court said, because that case
“did not involve an administrative agency with exclusive
jurisdiction over a disputed issue.” 145 Cal.App.4th, at
447, 51 Cal.Rptr.3d, at 634. The dissenting judge, in
contrast, viewed Buckeye as controlling; she reasoned
that the FAA called for immediate recognition and
enforcement of the parties' agreement to arbitrate and
afforded no basis for distinguishing prior resort to a state
administrative agency from prior resort to a state court.
145 Cal.App.4th, at 450–451, 51 Cal.Rptr.3d, at 636–637
(Vogel, J., dissenting).
The California Supreme Court denied Preston's petition
for review. No. S149190 (Feb. 14, 2007), 2007 Cal. LEXIS
1539, App. A to Pet. for Cert. 1a. We granted certiorari
to determine whether the FAA overrides a state law
vesting *352 initial adjudicatory **983 authority in an
administrative agency. 551 U.S. 1190, 128 S.Ct. 31, 168
L.Ed.2d 807 (2007).
II
An easily stated question underlies this controversy.
Ferrer claims that Preston was a talent agent who operated
without a license in violation of the TAA. Accordingly,
he urges, the contract between the parties, purportedly for
“personal management,” is void, and Preston is entitled
to no compensation for any services he rendered. Preston,
on the other hand, maintains that he acted as a personal
manager, not as a talent agent, hence his contract with
Ferrer is not governed by the TAA and is both lawful and
fully binding on the parties.
Because the contract between Ferrer and Preston provides
that “any dispute ... relating to the ... validity, or legality,”
of the agreement “shall be submitted to arbitration,” App.
18, Preston urges that Ferrer must litigate “his TAA
defense in the arbitral forum,” Reply Brief 31. Ferrer
insists, however, that the “personal manager” or “talent
agent” inquiry falls, under California law, within the
exclusive original jurisdiction of the Labor Commissioner,
and that the FAA does not displace the Commissioner's
primary jurisdiction. Brief for Respondent 14, 30, 40–44.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
The dispositive issue, then, contrary to Ferrer's
suggestion, is not whether the FAA preempts the TAA
wholesale. See id., at 44–48. The FAA plainly has no such
destructive aim or effect. Instead, the question is simply
who decides whether Preston acted as personal manager
or as talent agent.
III
[2] Section 2 of the FAA states:
“A written provision in any ... contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract
or transaction ... shall be valid, irrevocable, and
enforceable, *353 save upon such grounds as exist at
law or in equity for the revocation of any contract.” 9
U.S.C. § 2.
Section 2 “declare[s] a national policy favoring
arbitration” of claims that parties contract to settle in
that manner. Southland Corp., 465 U.S., at 10, 104 S.Ct.
852. That national policy, we held in Southland, “appli
[es] in state as well as federal courts” and “foreclose[s]
state legislative attempts to undercut the enforceability
of arbitration agreements.” Id., at 16, 104 S.Ct. 852. The
FAA's displacement of conflicting state law is “now well-
established,” Allied–Bruce Terminix Cos. v. Dobson, 513
U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995),
and has been repeatedly reaffirmed, see, e.g., Buckeye, 546
U.S., at 445–446, 126 S.Ct. 1204; Doctor's Associates, Inc.
v. Casarotto, 517 U.S. 681, 684–685, 116 S.Ct. 1652, 134
L.Ed.2d 902 (1996); Perry v. Thomas, 482 U.S. 483, 489,
107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). 2
A recurring question under § 2 is who should decide
whether “grounds ... exist at law or in equity” to invalidate
an arbitration agreement. In **984 Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 403–404, 87 S.Ct.
1801, 18 L.Ed.2d 1270 (1967), we held that attacks on
the validity of an entire contract, as distinct from attacks
aimed at the arbitration clause, are within the arbitrator's
ken.
The litigation in Prima Paint originated in federal court,
but the same rule, we held in Buckeye, applies in state
court. 546 U.S., at 447–448, 126 S.Ct. 1204. The plaintiffs
5
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
in Buckeye alleged that the contracts they signed, which
contained arbitration clauses, were illegal under state law
and void ab initio. Id., at 443, 126 S.Ct. 1204. Relying on
Southland, we held that the plaintiffs' challenge was within
the province of the arbitrator to decide. See 546 U.S., at
446, 126 S.Ct. 1204.
*354 Buckeye largely, if not entirely, resolves the dispute
before us. The contract between Preston and Ferrer
clearly “evidenc[ed] a transaction involving commerce,” 9
U.S.C. § 2, and Ferrer has never disputed that the written
arbitration provision in the contract falls within the
purview of § 2. Moreover, Ferrer sought invalidation of
the contract as a whole. In the proceedings below, he made
no discrete challenge to the validity of the arbitration
clause. See 145 Cal.App.4th, at 449, 51 Cal.Rptr.3d,
at 635 (Vogel, J., dissenting). 3 Ferrer thus urged the
Labor Commissioner and California courts to override
the contract's arbitration clause on a ground that Buckeye
requires the arbitrator to decide in the first instance.
IV
Ferrer attempts to distinguish Buckeye by arguing that
the TAA merely requires exhaustion of administrative
remedies before the parties proceed to arbitration. We
reject that argument.
A has consistently maintained that he is not a talent agent
The TAA regulates talent agents and talent agency
agreements. “Talent agency” is defined, with exceptions
not relevant here, as “a person or corporation who
engages in the occupation of procuring, offering,
promising, or attempting to procure employment or
engagements for an artist or artists.” Cal. Lab.Code Ann.
§ 1700.4(a) (West 2003). The definition *355 “does not
cover other services for which artists often contract, such
as personal and career management (i.e., advice, direction,
coordination, and oversight with respect to an artist's
career or personal or financial affairs).” Styne v. Stevens,
26 Cal.4th 42, 51, 109 Cal.Rptr.2d 14, 26 P.3d 343, 349
(2001) (emphasis deleted). The TAA requires talent agents
to procure a license from the Labor Commissioner. §
1700.5. “In furtherance of the [TAA's] protective aims, an
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
unlicensed person's contract with an artist to provide the
services of a talent agency is illegal and void.” Ibid. 4
**985 [3] Section 1700.44(a) of the TAA states:
“In cases of controversy arising
under this chapter, the parties
involved shall refer the matters in
dispute to the Labor Commissioner,
who shall hear and determine the
same, subject to an appeal within
10 days after determination, to the
superior court where the same shall
be heard de novo.”
Absent a notice of appeal filed within ten days, the Labor
Commissioner's determination becomes final and binding
on the parties. REO Broadcasting Consultants v. Martin,
69 Cal.App.4th 489, 495, 81 Cal.Rptr.2d 639, 642–643
(1999). 5
The TAA permits arbitration in lieu of proceeding before
the Labor Commissioner if an arbitration provision “in
a contract between a talent agency and [an artist]”
both “provides for reasonable notice to the Labor
Commissioner of the time and place of all arbitration
hearings” and gives the Commissioner *356 “the right
to attend all arbitration hearings.” § 1700.45. This
prescription demonstrates that there is no inherent conflict
between the TAA and arbitration as a dispute resolution
mechanism. But § 1700.45 was of no utility to Preston. He
as that term is defined in § 1700.4(a), but is, instead, a
personal manager not subject to the TAA's regulatory
regime. 145 Cal.App.4th, at 444, 51 Cal.Rptr.3d, at 631.
To invoke § 1700.45, Preston would have been required to
concede a point fatal to his claim for compensation—i.e.,
that he is a talent agent, albeit an unlicensed one—and to
have drafted his contract in compliance with a statute that
he maintains is inapplicable.
Procedural prescriptions of the TAA thus conflict with
the FAA's dispute resolution regime in two basic respects:
First, the TAA, in § 1700.44(a), grants the Labor
Commissioner exclusive jurisdiction to decide an issue
that the parties agreed to arbitrate, see Buckeye, 546 U.S.,
at 446, 126 S.Ct. 1204; second, the TAA, in § 1700.45,
imposes prerequisites to enforcement of an arbitration
agreement that are not applicable to contracts generally,
6
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
see Doctor's Associates, Inc., 517 U.S., at 687, 116 S.Ct.
1652.
B
Ferrer contends that the TAA is nevertheless compatible
with the FAA because § 1700.44(a) merely postpones
arbitration until after the Labor Commissioner has
exercised her primary jurisdiction. Brief for Respondent
14, 40. The party that loses before the Labor
Commissioner may file for de novo review in Superior
Court. See § 1700.44(a). At that point, Ferrer asserts,
either party could move to compel arbitration under
Cal.Civ.Proc.Code Ann. § 1281.2 (West 2007), and
thereby obtain an arbitrator's determination prior to
judicial review. See Brief for Respondent 13.
That is not the position Ferrer took in the California
courts. In his complaint, he urged the Superior Court
to *357 declare that “the [c]ontract, including in
particular the issue of the validity of the [c]ontract, is
not subject to arbitration,” and he sought an injunction
stopping arbitration “unless and until, if ever, the
Labor Commissioner determines that he/she has no
jurisdiction over the parties' dispute.” App. 29 (emphasis
added). Ferrer also told the Superior Court: “[I]f ... the
Commissioner rules that the [c]ontract is void, Preston
may appeal that ruling and have a hearing de novo before
this Court.” Appellant's **986 App. in No. B188997
(Cal.App.), p. 157, n. 1 (emphasis added).
Nor does Ferrer's current argument—that § 1700.44(a)
merely postpones arbitration—withstand examination.
Section 1700.44(a) provides for de novo review in Superior
Court, not elsewhere. 6 Arbitration, if it ever occurred
following the Labor Commissioner's decision, would
likely be long delayed, in contravention of Congress' intent
“to move the parties to an arbitrable dispute out of court
and into arbitration as quickly and easily as possible.”
Moses H. Cone Memorial Hospital v. Mercury Constr.
Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
If Ferrer prevailed in the California courts, moreover, he
would no doubt argue that judicial findings of fact and
conclusions of law, made after a full and fair de novo
hearing in court, are binding on the parties and preclude
the arbitrator from making any contrary rulings.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[4] A prime objective of an agreement to arbitrate
is to achieve “streamlined proceedings and expeditious
results.” *358 Mitsubishi Motors Corp. v. Soler Chrysler–
Plymouth, Inc., 473 U.S. 614, 633, 105 S.Ct. 3346, 87
L.Ed.2d 444 (1985). See also Allied–Bruce Terminix Cos.,
513 U.S., at 278; Southland Corp., 465 U.S., at 7, 104 S.Ct.
852. That objective would be frustrated even if Preston
could compel arbitration in lieu of de novo Superior Court
review. Requiring initial reference of the parties' dispute
to the Labor Commissioner would, at the least, hinder
speedy resolution of the controversy.
Ferrer asks us to overlook the apparent conflict
between the arbitration clause and § 1700.44(a)
because proceedings before the Labor Commissioner
are administrative rather than judicial. Brief for
Respondent 40–48. Allowing parties to proceed directly to
arbitration, Ferrer contends, would undermine the Labor
Commissioner's ability to stay informed of potentially
illegal activity, id., at 43, and would deprive artists
protected by the TAA of the Labor Commissioner's
expertise, id., at 41–43.
In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), we considered and
rejected a similar argument, namely, that arbitration of
age discrimination claims would undermine the role of the
Equal Employment Opportunity Commission (EEOC)
in enforcing federal law. The “mere involvement of an
administrative agency in the enforcement of a statute,” we
held, does not limit private parties' obligation to comply
with their arbitration agreements. Id., at 28–29, 111 S.Ct.
1647.
Ferrer points to our holding in EEOC v. Waffle House,
Inc., 534 U.S. 279, 293–294, 122 S.Ct. 754, 151 L.Ed.2d
755 (2002), that an arbitration agreement signed by an
employee who becomes a discrimination complainant
does not bar the EEOC from filing an enforcement suit
in its own name. He further emphasizes our observation
in Gilmer that individuals who agreed to arbitrate their
discrimination claims would “still be free to file a
charge with the EEOC.” 500 U.S., at 28, 111 S.Ct.
1647. Consistent with these decisions, Ferrer argues, the
arbitration clause in his contract **987 with Preston
leaves undisturbed the Labor Commissioner's *359
independent authority to enforce the TAA. See Brief for
Respondent 44–48. And so it may. 7 But in proceedings
under § 1700.44(a), the Labor Commissioner functions
7
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
not as an advocate advancing a cause before a tribunal
authorized to find the facts and apply the law; instead, the
Commissioner serves as impartial arbiter. That role is just
what the FAA-governed agreement between Ferrer and
Preston reserves for the arbitrator. In contrast, in Waffle
House and in the Gilmer aside Ferrer quotes, the Court
addressed the role of an agency, not as adjudicator but
as prosecutor, pursuing an enforcement action in its own
name or reviewing a discrimination charge to determine
whether to initiate judicial proceedings.
Finally, it bears repeating that Preston's petition presents
precisely and only a question concerning the forum in
which the parties' dispute will be heard. See supra, at 983.
“By agreeing to arbitrate a statutory claim, a party does
not forgo the substantive rights afforded by the statute; it
only submits to their resolution in an arbitral ... forum.”
Mitsubishi Motors Corp., 473 U.S., at 628, 105 S.Ct. 3346.
So here, Ferrer relinquishes no substantive rights the TAA
or other California law may accord him. But under the
contract he signed, he cannot escape resolution of those
rights in an arbitral forum.
[5] In sum, we disapprove the distinction between judicial
and administrative proceedings drawn by Ferrer and
adopted by the appeals court. When parties agree to
arbitrate all questions arising under a contract, the FAA
supersedes state laws lodging primary jurisdiction in
another forum, whether judicial or administrative.
*360 V
Ferrer's final attempt to distinguish Buckeye relies on Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248, 103
L.Ed.2d 488 (1989). Volt involved a California statute
dealing with cases in which “[a] party to [an] arbitration
agreement is also a party to a pending court action ...
[involving] a third party [not bound by the arbitration
agreement], arising out of the same transaction or series of
related transactions.” Cal.Civ.Proc.Code Ann. § 1281.2(c)
(West 2007). To avoid the “possibility of conflicting
rulings on a common issue of law or fact,” the statute gives
the Superior Court authority, inter alia, to stay the court
proceeding “pending the outcome of the arbitration” or
to stay the arbitration “pending the outcome of the court
action.” Ibid.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Volt Information Sciences and Stanford University
were parties to a construction contract containing an
arbitration clause. When a dispute arose and Volt
demanded arbitration, Stanford sued Volt and two other
companies involved in the construction project. Those
other companies were not parties to the arbitration
agreement; Stanford sought indemnification from them
in the event that Volt prevailed against Stanford.
At Stanford's request, the Superior Court stayed the
arbitration. The California Court of Appeal affirmed the
stay order. Volt and Stanford incorporated § 1281.2(c)
into their agreement, the appeals court held. They did so
by stipulating that the contract—otherwise silent **988
on the priority of suits drawing in parties not subject
to arbitration—would be governed by California law.
Board of Trustees of Leland Stanford Junior Univ. v. Volt
Information Sciences, Inc., 240 Cal.Rptr. 558, 561 (1987)
(officially depublished). Relying on the Court of Appeal's
interpretation of the contract, we held that the FAA did
not bar a stay of arbitration pending the resolution of
Stanford's Superior Court suit against Volt and the two
companies not bound by the arbitration agreement.
*361 Preston and Ferrer's contract also contains a
choice-of-law clause, which states that the “agreement
shall be governed by the laws of the state of California.”
App. 17. A separate saving clause provides: “If there is any
conflict between this agreement and any present or future
law,” the law prevails over the contract “to the extent
necessary to bring [the contract] within the requirements
of said law.” Id., at 18. Those contractual terms, according
to Ferrer, call for the application of California procedural
law, including § 1700.44(a) 's grant of exclusive jurisdiction
to the Labor Commissioner.
Ferrer's reliance on Volt is misplaced for two discrete
reasons. First, arbitration was stayed in Volt to
accommodate litigation involving third parties who were
strangers to the arbitration agreement. Nothing in the
arbitration agreement addressed the order of proceedings
when pending litigation with third parties presented the
prospect of inconsistent rulings. We thought it proper,
in those circumstances, to recognize state law as the gap
filler.
Here, in contrast, the arbitration clause speaks to the
matter in controversy; it states that “any dispute ...
relating to ... the breach, validity, or legality” of the
contract should be arbitrated in accordance with the
8
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...
American Arbitration Association (AAA) rules. App. 18.
Both parties are bound by the arbitration agreement; the
question of Preston's status as a talent agent relates to the
validity or legality of the contract; there is no risk that
related litigation will yield conflicting rulings on common
issues; and there is no other procedural void for the choice-
of-law clause to fill.
Second, we are guided by our more recent decision in
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.
52, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995). Although the
contract in Volt provided for “arbitration in accordance
with the Construction Industry Arbitration Rules of the
American Arbitration Association,” 489 U.S., at 470, n.
1, 109 S.Ct. 1248 (internal quotation marks omitted), Volt
never argued that incorporation of those rules trumped
the choice-of-law clause contained in the contract, see
Brief for *362 Appellant, and Reply Brief, in Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., O.T. 1988, No. 87–1318. Therefore,
neither our decision in Volt nor the decision of the
California appeals court in that case addressed the import
of the contract's incorporation by reference of privately
promulgated arbitration rules.
In Mastrobuono, we reached that open question while
interpreting a contract with both a New York choice-
of-law clause and a clause providing for arbitration in
accordance with the rules of the National Association of
Securities Dealers (NASD). 514 U.S., at 58–59, 115 S.Ct.
1212. 8 The “best **989 way to harmonize” the two
clauses, we held, was to read the choice-of-law clause “to
encompass substantive principles that New York courts
would apply, but not to include [New York's] special rules
limiting the authority of arbitrators.” Id., at 63–64, 115
S.Ct. 1212.
Preston and Ferrer's contract, as noted, provides for
arbitration in accordance with the AAA rules. App.
18. One of those rules states that “[t]he arbitrator shall
have the power to determine the existence or validity
of a contract of which an arbitration clause forms a
part.” AAA, Commercial Arbitration Rules ¶ R–7(b)
(2007), online at http://www.adr.org/sp.asp? id=22440
(as visited Feb. 15, 2008, and in Clerk of Court's
case file). The incorporation of the AAA rules, and
Footnotes
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
in particular Rule 7(b), weighs against inferring from
the choice-of-law clause an understanding shared by
Ferrer and Preston that their disputes would be heard,
in *363 the first instance, by the Labor Commissioner.
Following the guide Mastrobuono provides, the “best way
to harmonize” the parties' adoption of the AAA rules and
their selection of California law is to read the latter to
encompass prescriptions governing the substantive rights
and obligations of the parties, but not the State's “special
rules limiting the authority of arbitrators.” 514 U.S., at
63–64, 115 S.Ct. 1212.
***
For the reasons stated, the judgment of the California
Court of Appeal is reversed, and the case is remanded for
further proceedings not inconsistent with this opinion.
It is so ordered.
JUSTICE THOMAS, dissenting.
As I have stated on many previous occasions, I believe
that the Federal Arbitration Act (FAA), 9 U.S.C. §
1 et seq. (2000 ed. and Supp. V), does not apply to
proceedings in state courts. See Allied–Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 285–297, 115 S.Ct. 834,
130 L.Ed.2d 753 (1995) (dissenting opinion); see also
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
449, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (same);
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 460,
123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (same); Doctor's
Associates, Inc. v. Casarotto, 517 U.S. 681, 689, 116 S.Ct.
1652, 134 L.Ed.2d 902 (1996) (same). Thus, in state-court
proceedings, the FAA cannot displace a state law that
delays arbitration until administrative proceedings are
completed. Accordingly, I would affirm the judgment of
the Court of Appeal.
All Citations
552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW
3437, 76 USLW 4097, 27 IER Cases 257, 08 Cal. Daily
Op. Serv. 2100, 2008 Daily Journal D.A.R. 2511, 21 Fla.
L. Weekly Fed. S 77, 28 A.L.R. Fed. 2d 681
9
Preston v. Ferrer, 552 U.S. 346 (2008)
128 S.Ct. 978, 169 L.Ed.2d 917, 76 USLW 3437, 76 USLW 4097, 27 IER Cases 257...

* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 The TAA uses the term “talent agency” to describe both corporations and individual talent agents. We use the terms
“talent agent” and “talent agency” interchangeably.
2 Although Ferrer urges us to overrule Southland, he relies on the same arguments we considered and rejected in Allied–
Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Compare Brief for Respondent 55–
59 with Brief for Attorney General of Alabama et al. as Amici Curiae in Allied–Bruce Terminix Cos. v. Dobson, O.T.1994;
No. 93–1001, pp. 11–19. Adhering to precedent, we do not take up Ferrer's invitation to overrule Southland.
3 Ferrer's petition to the Labor Commissioner sought a declaration that the contract “is void under the [TAA].” App. 23. His
complaint in Superior Court seeking to enjoin arbitration asserted: “[T]he [c]ontract is void by reason of [Preston's] attempt
to procure employment for [Ferrer] in violation of the [TAA],” and “the [c]ontract's arbitration clause does not vest authority
in an arbitrator to determine whether the contract is void.” Id., at 27. His brief in the appeals court stated: “Ferrer does not
contend that the arbitration clause in the [c]ontract was procured by fraud. Ferrer contends that Preston unlawfully acted
as an unlicensed talent agent and hence cannot enforce the [c]ontract.” Brief for Respondent in No. B188997, p. 18.
4 Courts “may void the entire contract” where talent agency services regulated by the TAA are “inseparable from
[unregulated] managerial services.” Marathon Entertainment, Inc. v. Blasi, 42 Cal.4th 974, 998, 174 P.3d 741, 744 (2008).
If the contractual terms are severable, however, “an isolated instance” of unlicensed conduct “does not automatically bar
recovery for services that could lawfully be provided without a license.” Ibid.
5 To appeal the Labor Commissioner's decision, an aggrieved party must post a bond of at least $1,000 and up to twice
the amount of any judgment approved by the Commissioner. § 1700.44(a).
6 From Superior Court an appeal lies in the Court of Appeal. Cal. Civ. Proc. Code Ann. § 904.1(a) (West 2007); Cal. Rule
of Court 8.100(a) (Appellate Rules) (West 2007 rev. ed.). Thereafter, the losing party may seek review in the California
Supreme Court, Rule 8.500(a)(1) (Appellate Rules), perhaps followed by a petition for a writ of certiorari in this Court,
28 U.S.C. § 1257. Ferrer has not identified a single case holding that California law permits interruption of this chain of
appeals to allow the arbitrator to review the Labor Commissioner's decision. See Tr. of Oral Arg. 35.
7 Enforcement of the parties' arbitration agreement in this case does not displace any independent authority the
Labor Commissioner may have to investigate and rectify violations of the TAA. See Brief for Respondent 47 (“[T]he
Commissioner has independent investigatory authority and may receive information concerning alleged violations of the
TAA from any source.” (citation omitted)). See also Tr. of Oral Arg. 13–14.
8 The question in Mastrobuono was whether the arbitrator could award punitive damages. See Mastrobuono v. Shearson
Lehman Hutton, Inc., 514 U.S. 52, 53–54, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995). New York law prohibited arbitrators, but
not courts, from awarding such damages. Id., at 55, 115 S.Ct. 1212. The NASD rules, in contrast, authorized “damages
and other relief,” which, according to an NASD arbitration manual, included punitive damages. Id., at 61, 115 S.Ct. 1212
(internal quotation marks omitted). Relying on Volt, respondents argued that the choice-of-law clause incorporated into
the parties' arbitration agreement New York's ban on arbitral awards of punitive damages. Opposing that argument,
petitioners successfully urged that the agreement to arbitrate in accordance with the NASD rules controlled.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (2002)

Construction in Favor of Arbitration

KeyCite Yellow Flag - Negative Treatment
Disagreed With by Spahr v. Secco, 10th Cir.(Colo.), June 3, 2003  
304 F.3d 469
United States Court of Appeals,
Fifth Circuit.
PRIMERICA LIFE INSURANCE
CO.; et al., Plaintiffs,
Primerica Life Insurance Co.; Primerica Financial
Services, Inc.; Citigroup, Inc.; Sanford L. Weill;
and CitiFinancial, Inc., Plaintiffs-Appellants,
v.
Catherine E. BROWN, individually and
in her representative capacity for John E.
Brown; John E. Brown, Defendants-Appellees.
Federal Arbitration Act (FAA) expresses
strong national policy favoring arbitration
of disputes, and all doubts concerning
arbitrability of claims should be resolved in
favor of arbitration. 9 U.S.C.A. § 1 et seq.
59 Cases that cite this headnote
[3] Alternative Dispute Resolution
Merits of Controversy
Court, when determining whether parties
should be compelled to arbitrate dispute, must
not consider merits of underlying action.
64 Cases that cite this headnote

No. 01-60852. [4] Alternative Dispute Resolution

| Unconscionability
Aug. 28, 2002.
Borrower brought action against lender for breach of
contract. The United States District Court for the
Northern District of Mississippi, Glen H. Davidson, Chief
Judge, declined to compel arbitration, and appeal was
taken. The Court of Appeals, Edith H. Jones, Circuit
Judge, held that plaintiff's incapacity defense had to be
[5]
submitted to arbitrators.
Reversed and remanded.
Dennis, Circuit Judge, concurred and filed opinion.
West Headnotes (5)
Party could avoid arbitration on ground
that costs made arbitration requirement
unconscionable absent showing of likelihood
of incurring prohibitive costs.
6 Cases that cite this headnote
Alternative Dispute Resolution
Existence and Validity of Agreement
Issue of whether party to contract containing
arbitration clause had mental capacity to
execute contract was question for arbitrators;
party's capacity defense did not relate
specifically to arbitration clause, but rather
was part of underlying dispute. 9 U.S.C.A. § 4.
63 Cases that cite this headnote

[1] Alternative Dispute Resolution

Scope and Standards of Review
Grant or denial of petition to compel
Attorneys and Law Firms
arbitration is subject to de novo review. 9
U.S.C.A. § 4. *470 Fred H. Krutz, III, John Chase Bryan, Forman,
Perry, Watkins, Krutz & Tardy, Jackson, MS, Phillip
6 Cases that cite this headnote
S. McKinney, Christopher J. Willis, Richard H.
Sinkfield (argued), Rogers & Hardin, Atlanta, GA, for
[2] Alternative Dispute Resolution CitiFinancial, Inc.
Arbitration Favored; Public Policy
Alternative Dispute Resolution

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (2002)
William Eason Mitchell (argued), Albert Gamaliel
Lewis, III, Susan Mason Donovan, Lewis & Mitchell,
Tuscaloosa, AL, Winston James Thompson, The Colom
Law Firm, Columbus, MS, for Defendants-Appellees.
Appeals from the United States District Court for the
Northern District of Mississippi.
Before JONES, WIENER and DENNIS, Circuit Judges.
Opinion
EDITH H. JONES, Circuit Judge:
John Brown sued CitiFinancial, Inc., and its affiliates
(“Appellants”), in state court alleging breach of contract
and related claims. Brown's contract with CitiFinancial
contains an arbitration clause requiring arbitration of his
claims. CitiFinancial *471 filed a petition to compel
arbitration of Brown's claims in federal district court,
pursuant to § 4 of the Federal Arbitration Act (“FAA”),
9 U.S.C. § 4. The district court determined that Brown
lacked the mental capacity to execute a contract under
Mississippi law, and that Brown's entire contract with
CitiFinancial was void. On this basis, the district court
refused to compel arbitration of Brown's claims.
CitiFinancial now appeals and contends that the district
court erred by reaching the merits of Brown's capacity
defense. Appellants contend that Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801,
18 L.Ed.2d 1270 (1967), requires arbitration of Brown's
capacity defense. We agree, and reverse the judgment of
the district court.
DISCUSSION
[1] [2] This court reviews de novo the grant or denial
of a petition to compel arbitration pursuant to § 4 of
the FAA. Webb v. Investacorp, 89 F.3d 252, 257 (5th
Cir.1996). The FAA expresses a strong national policy
favoring arbitration of disputes, and all doubts concerning
the arbitrability of claims should be resolved in favor of
arbitration. Southland Corp. v. Keating, 465 U.S. 1, 10, 104
S.Ct. 852, 79 L.Ed.2d 1 (1984).
[3] “Courts perform a two-step inquiry to determine
whether parties should be compelled to arbitrate a dispute.
First, the court must determine whether the parties agreed
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to arbitrate the dispute. Once the court finds that the
parties agreed to arbitrate, it must consider whether any
federal statute or policy renders the claims nonarbitrable.”
R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 538
(5th Cir.1992) (citing Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346, 87
L.Ed.2d 444 (1985)). When conducting this two-pronged
analysis, courts must not consider the merits of the
underlying action. Snap-On Tools Corp. v. Mason, 18
F.3d 1261, 1267 (5th Cir.1994). “Under § 4 of the FAA,
the federal district court ascertains only whether the
arbitration clause covers the allegations at issue. ‘If the
dispute is within the scope of the arbitration clause, the
court may not delve further into the merits of the dispute.’
” Id. (quoting Municipal Energy Agency of Miss. v. Big
Rivers Elec. Corp., 804 F.2d 338, 342 (5th Cir.1986)).
[4] Brown's contract with CitiFinancial contains an
express arbitration agreement. Brown's state court claims
fall within the scope of the arbitration agreement. There
are no external impediments to the arbitrability of Brown's
claims. 1 Therefore, a straightforward application of the
required two-pronged inquiry supports CitiFinancial's
petition to compel arbitration.
[5] The district court nevertheless refused to compel
arbitration by delving into the merits of the underlying
dispute. Specifically, the district court determined that
Brown lacked the capacity to contract under Mississippi
law. As explained above, the district court's inquiry when
reviewing a petition to compel arbitration is limited.
“[T]he merits of the underlying dispute are for the
arbitrator to consider, not for this Court or the district
court.” Snap-On *472 Tools Corp., 18 F.3d at 1267.
Brown's capacity defense is part of the underlying dispute
between the parties, and the defense must be submitted to
the arbitrator.
In Prima Paint, the Court held that, under § 4 of the
FAA, the “making” of an agreement to arbitrate was
not called into question by an allegation that the entire
contract was void as fraudulently induced. 388 U.S. at
403-04, 87 S.Ct. 1801. “[The FAA] does not permit the
federal court to consider claims of fraud in the inducement
of the contract generally ... A federal court may consider
only issues relating to the making and performance of the
agreement to arbitrate.” Id. Accordingly, unless a defense
relates specifically to the arbitration agreement, it must
2
Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (2002)
be submitted to the arbitrator as part of the underlying
dispute.
This court has applied the Prima Paint rule on numerous
occasions. See Snap-On Tools Corp., 18 F.3d at 1267-68
(submitting fraudulent inducement defense to arbitration
because allegations of fraud did not specifically relate
to the arbitration clause); R.M. Perez & Assoc., Inc.,
960 F.2d at 538-39 (submitting allegations of fraud in
obtaining signatures to contract to arbitration because
defense was not specific to the arbitration agreement);
Lawrence v. Comprehensive Business Serv. Co., 833 F.2d
1159, 1162 (5th Cir.1987) (submitting illegality defense
to arbitration because it did not specifically relate to
arbitration clause); Mesa Operating Ltd. Partnership v.
Louisiana Intrastate Gas Corp., 797 F.2d 238, 244 (5th
Cir.1986) (submitting claim that contract was void ab
initio to arbitration because parties failed to demonstrate
that the arbitration agreement was “invalid separately
from the entire contract”).
As in each of these cases, Brown's capacity defense is a
defense to his entire agreement with CitiFinancial and not
a specific challenge to the arbitration clause. Therefore,
Brown's capacity defense is part of the underlying dispute
between the parties which, in light of Prima Paint and its
progeny, must be submitted to the arbitrator. 2 We need
not reach the other issues raised by the parties.
CONCLUSION
For the reasons stated above, we REVERSE the judgment
of the district court and REMAND for proceedings
consistent with this opinion.
DENNIS, Circuit Judge, concurring:
I concur in the judgment of the majority opinion. I
write separately to note the district court's finding, which
the parties apparently do not dispute, that Mr. Brown
“has been profoundly retarded since birth.” The district
court also found that the loan agency “required him
to sign the loan agreement containing the arbitration
clause by printing his name on a piece of paper and
having him copy it on the appropriate line.” Under
Mississippi law, contracts entered into by incompetent
persons are voidable. See Williams v. Wilson, 335 So.2d
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
110, 112 (Miss.1976) (stating that a contract made by
an incompetent “may be avoided on the ground of
insanity”). Similarly, when a party contracting with
an incompetent has knowledge of the incompetent's
condition, the contract “will be *473 rescinded.” Id. at
112-13 (emphasis added).
Against this backdrop, I note the grounds on which this
Court will vacate a decision of an arbitrator: (1) the award
is contrary to public policy, (2) the award is arbitrary and
capricious, (3) the award fails to draw its essence from
the underlying contract, and (4) the award is in manifest
disregard of the law. See Williams v. Cigna Fin. Advisors
Inc., 197 F.3d 752, 758, 761-62 (5th Cir.1999). Hence, if the
facts are as they appear to be on the record before us, I can
conceive of no way in which the contract underlying this
action could be enforced against the profoundly retarded
and incompetent Mr. Brown.
Finally, with regard to the broad statement that “unless
a defense relates specifically to the arbitration agreement,
it must be submitted to the arbitrator as part of the
underlying dispute” and the related footnote two, I
note that this circuit has not considered the authority
of other circuits applying the Prima Paint rule to
the distinction between voidable contracts and those
contracts deemed not to have existed. We have decided
that the question of whether a contract as a whole was
illegal must be submitted to arbitration. See Lawrence
v. Comprehensive Bus. Servs. Co., 833 F.2d 1159 (5th
Cir.1987); Mesa Operating Ltd. P'ship v. Louisiana
Intrastate Gas Corp., 797 F.2d 238 (5th Cir.1986). But
we have not yet thoroughly analyzed or squarely decided
whether challenges going to the very existence of a
contract must be submitted to arbitration. Other circuits
have split on this question. See, e.g., Three Valleys Mun.
Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136 (9th
Cir.1991) (no); I.S. Joseph Co. v. Michigan Sugar Co., 803
F.2d 396 (8th Cir.1986) (no); Cancanon v. Smith Barney,
Harris, Upham & Co., 805 F.2d 998 (11th Cir.1986) (no);
Unionmutual Stock Life Ins. Co. v. Beneficial Life Ins. Co.,
774 F.2d 524 (1st Cir.1985) (yes); Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., 636 F.2d 51 (3d Cir.1980) (no).
Because it is not necessary for us to reach that question
here, the majority opinion's statements thereon are dicta,
in which I do not join.
3
Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (2002)

All Citations

304 F.3d 469

Footnotes
1 Brown also argues that arbitration costs render the arbitration clause “substantively unconscionable.” The Supreme Court,
in Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), explained that
“a party seeking to avoid arbitration on the ground that arbitration would be prohibitively expensive” bears the burden of
showing the likelihood of incurring prohibitive costs. Brown has failed to carry this burden. Brown also suggests that the
arbitration agreement is “procedurally unconscionable” on other grounds. This argument is without merit.
2 The district court determined that the Prima Paint rule applied to defenses which render a contract voidable, but did not
apply to defenses which render a contract void. This distinction is inconsistent with Mesa Operating, which applied the
Prima Paint rule to a defense which, if proven, would have rendered the contract containing the arbitration clause “void
as never having been entered into.” 797 F.2d at 244; see also Lawrence, 833 F.2d at 1162 (following Mesa Operating
and submitting illegality defense to arbitrator).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2

Saitta, J., concurred with opinion.

366 P.3d 688
Supreme Court of Nevada.

PRINCIPAL INVESTMENTS, INC., d/b/a Rapid

West Headnotes (13)
Cash; Granite Financial Services, Inc., d/b/a Rapid
Cash; FMMR Investments, Inc., d/b/a Rapid
Cash; Prime Group, Inc., d/b/a Rapid Cash; and [1] Alternative Dispute Resolution
Waiver, laches, or estoppel
Advance Group, Inc., d/b/a Rapid Cash, Appellants,
v. Claims of waiver of the right to arbitration
Cassandra HARRISON; Concepcion Quintino; based on active litigation in court are
presumptively for a court, not an arbitrator,
and Mary Dungan, Individually and on behalf
to decide.
of All Persons Similarly Situated, Respondents.
Cases that cite this headnote
No. 59837.
|
Jan. 14, 2016. [2] Alternative Dispute Resolution
Contractual or consensual basis
Synopsis
Alternative Dispute Resolution
Background: Borrowers, against whom payday loan
Construction
company had received default judgments, brought class
Because arbitration is fundamentally a matter
action against company and its process server, alleging
of contract, whether enforcing an agreement
fraud upon the court, abuse of process, negligent hiring,
to arbitrate or construing an arbitration
supervision, and retention, negligence, civil conspiracy,
clause, courts and arbitrators must give effect
and violation of fair debt collection laws and sought,
to the contractual rights and expectations of
inter alia, declaratory relief deeming default judgments
the parties.
void and uncollectible. The District Court, Clark County,
Elizabeth Goff Gonzalez, J., denied company's motion to Cases that cite this headnote
compel arbitration. Company appealed.

[3] Alternative Dispute Resolution

Waiver or Estoppel
Holdings: The Supreme Court, Pickering, J., held that:
The right to enforce an agreement to arbitrate,
like any contract right, can be waived.
[1] claims of waiver of the right to arbitration based on
active litigation in court are presumptively for court to Cases that cite this headnote
decide;

[2] company's arbitration agreements with borrowers did [4] Alternative Dispute Resolution
not provide clear and unmistakable evidence to overcome Evidence
presumption that litigation-conduct waiver of right to Given the strong presumption in favor of
arbitration was issue for court; arbitration, waiver of the right to arbitration
is not to be lightly inferred.
[3] company waived its right to arbitrate; and
Cases that cite this headnote
[4] company was not entitled to differentiation of
borrowers' claims in context of determining waiver. [5] Alternative Dispute Resolution
Arbitrability of dispute

Affirmed.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2

Issues that are presumptively for the court,

not an arbitrator, to solve involve gateway
questions of arbitrability, such as whether
the parties are bound by a given arbitration
clause, or whether an arbitration clause in
a concededly binding contract applies to a
particular type of controversy.
Cases that cite this headnote
Cases that cite this headnote
[9] Alternative Dispute Resolution
Evidence
Presumption that courts decide litigation-
conduct waiver of the right to arbitration is
rooted in presumed party intent and probable
expectations.

[6] Alternative Dispute Resolution Cases that cite this headnote

Arbitrability of dispute
Because courts presume that the parties intend [10] Alternative Dispute Resolution
courts, not arbitrators, to decide gateway Evidence
questions of arbitrability, these gateway
Silence or ambiguity is resolved against the
questions are for the court to decide, unless
party seeking to overcome the presumption
the parties' agreement or, possibly, conduct,
that courts decide litigation-conduct waiver of
provides clear and unmistakable evidence that
the right to arbitration.
they intended to commit the questions to the
arbitrator in the first instance. Cases that cite this headnote

Cases that cite this headnote

[11] Alternative Dispute Resolution
Suing or participating in suit
[7] Alternative Dispute Resolution
Payday loan company waived its right
Waiver, laches, or estoppel
to arbitrate, in class action brought by
Payday loan company's arbitration
borrowers, against whom company had
agreements with its borrowers did not provide
received default judgments, against company
clear and unmistakable evidence to overcome
and its process server, alleging fraud upon
presumption that litigation-conduct waiver
the court, abuse of process, negligent
of right to arbitration was issue for court,
hiring, supervision, and retention, negligence,
not arbitrator, to decide; agreements did not
civil conspiracy, and violation of fair
manifest contrary intent to presumption that
debt collection laws; borrowers claims
waiver was issue for court to decide, had
arose out of and were integrally related
company intended to delegate issue of waiver
to individual collection actions company
to arbitrator, agreements could and should
previously conducted against them.
have been written to say that explicitly, and
litigants would have expected court to decide 1 Cases that cite this headnote
question of waiver.

Cases that cite this headnote [12] Alternative Dispute Resolution

Presentation and reservation of grounds
for review
[8] Alternative Dispute Resolution
Payday loan company waived for appellate
Matters to Be Determined by Court
review claim that Supreme Court should
An issue that is presumptively for the court
differentiate among claims borrowers, against
to decide will be referred to the arbitrator
whom company had received default
for determination only where the parties'
judgments, brought in their class action
arbitration agreement contains clear and
against company and its process server,
unmistakable evidence of such an intent.
alleging fraud upon the court, abuse of

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
process, negligent hiring, supervision, and
retention, negligence, civil conspiracy, and
violation of fair debt collection laws; company
did not make claim to trial court before that
court entered its order denying company's
second motion to compel arbitration.
1 Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing or participating in suit
Payday loan company was not entitled
to differentiation of claims borrowers,
against whom company had received default
judgments, brought, in context of determining
whether company waived right to arbitration,
in borrowers' class action against company
and its process server, alleging fraud upon
the court, abuse of process, negligent hiring,
supervision, and retention, negligence, civil
conspiracy, and violation of fair debt
collection laws; claims concerned, at their
core, validity of default judgments company
obtained against borrowers.
1 Cases that cite this headnote
Attorneys and Law Firms
*690 Lewis Roca Rothgerber, LLP, and Daniel F.
Polsenberg, Joel D. Henriod, and Ryan T. O'Malley, Las
Vegas; Gordon Silver and Mark S. Dzarnoski and William
M. Noall, Las Vegas, for Appellants.
Kemp, Jones & Coulthard, LLP, and J. Randall Jones,
Jennifer C. Dorsey, and Carol L. Harris, Las Vegas; Legal
Aid Center of Southern Nevada, Inc., and Dan L. Wulz,
Venicia Considine, and Sophia A. Medina, Las Vegas, for
Respondents.
Before the Court En Banc. 1
OPINION
By the Court, PICKERING, J.:
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
**1 This is an appeal from an order denying a motion
to compel arbitration. The district court held that the
moving party waived its right to arbitrate by litigating
collection claims against its borrowers to default judgment
in justice court. We must decide whether the district
court erred in addressing waiver, instead of referring the
question to the arbitrator. We hold that litigation-conduct
waiver is presumptively for the court to decide, unless
the arbitration agreement clearly commits the question to
the arbitrator, which the agreements here do not. On the
merits, we uphold the district court's finding of waiver and
therefore affirm.
I.
A.
Appellant Rapid Cash is a payday loan company
that provided short-term, high-interest loans to the
named plaintiffs Mary Dungan, Cassandra Harrison,
and Concepcion Quintino, among others. 2 The named
plaintiffs and other borrowers did not repay their loans,
prompting Rapid Cash, over a seven-year period, to
file more than 16,000 individual collection actions in
justice court in Clark County, Nevada. Rapid Cash
hired Maurice Carroll, d/b/a On–Scene Mediations, as
its process server. Relying on On–Scene's affidavits
of service, Rapid Cash secured thousands of default
judgments against the named plaintiffs and other
borrowers who *691 failed to appear and defend the
collection lawsuits.
At some point, a justice of the peace noticed that
On–Scene's affidavits attested to an improbably high
number of same-day receipts and service of process, and
initiated an investigation. The investigation revealed that
Carroll and On–Scene had engaged in “sewer service”—
the practice of accepting summonses and complaints for
service, failing to serve them, then falsely swearing in
court-filed affidavits that service had been made when
it was not. Carroll and On–Scene were cited for serving
process without a license, and a cease and desist order
was entered against them. Ultimately, Carroll was charged
with and convicted of 17 counts of forgery and offering
false instruments.
3
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
Carroll's criminal convictions involved false affidavits of
service for clients other than Rapid Cash. Nonetheless,
Carroll and On–Scene were Rapid Cash's exclusive agent
for service of process in southern Nevada, and the
named plaintiffs sued Rapid Cash, On–Scene, and others
in district court, alleging that Rapid Cash improperly
obtained its default judgments against them and other
similarly situated borrowers without their knowledge via
On–Scene's “sewer service.” The first amended complaint
is styled as a class action and asserts claims for fraud
upon the court, abuse of process, negligent hiring/
supervision/retention, negligence, civil conspiracy, and
violation of Nevada's fair debt collection laws. The relief
requested includes declaratory relief deeming the justice
court default judgments void and uncollectable; injunctive
relief; disgorgement, restitution, or a constructive trust for
funds already collected; forfeiture by Rapid Cash of all
loan amounts; return of all principal, interest, charges,
or fees associated with the loans; punitive damages and
statutory penalties; and attorney fees and costs. The first
amended complaint disavows claims for individual tort or
consequential damages, stating:
**2 This Class action does not seek
to, nor will it, actually litigate any
additional claims for compensatory
damage, which may include but
not be limited to damage to credit
reputation, fear, anxiety, mental
and emotional distress, nor damages
arising from wrongful garnishment
or attachment, such as bank fees,
bounced check fees, finance charges
or interest on bills which would have
otherwise been paid, and the like.
B.
Rapid Cash moved to compel arbitration based on the
arbitration provisions in its loan agreements, which take
one of two forms, depending on the date of the loan. The
Dungan/Harrison form of agreement provides that either
party may elect binding arbitration of any “Claim,” and
broadly defines “Claim” as follows:
2. DEFINITION OF “CLAIM.”
The term “Claim” means any claim,
dispute or controversy between you
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and us (including “related parties”
identified below) that arises from
or relates in any way to Services
you request or we provide, now,
in the past or in the future; the
Application (or any prior or future
application); any agreement relating
to Services (“Services Agreement”);
any of our marketing, advertising,
solicitations and conduct relating
to your request for Services; our
collection of any amounts you owe;
our disclosure of or failure to
protect any information about you;
or the validity, enforceability or
scope of this Arbitration Provision.
“Claim” is to be given the broadest
possible meaning and includes
claims of every kind and nature,
including but not limited to, initial
claims, counterclaims, cross-claims
and third-party claims, and claims
based on any constitution, statute,
regulation, ordinance, common law
rule (including rules relating to
contracts, negligence, fraud or other
intentional wrongs) and equity. It
includes disputes that seek relief of
any type, including damages and/
or injunctive, declaratory or other
equitable relief.
The Dungan/Harrison form of agreement specifies that
litigating one claim does not waive arbitration as to other
claims:
Even if all parties have elected
to litigate a Claim in court, you
or we may elect arbitration with
respect to any Claim made by a new
party or any new Claim asserted in
that lawsuit, and nothing in that
litigation *692 shall constitute a
waiver of any rights under this
Arbitration Provision.
Quintino's form of agreement differs. It includes a
preliminary “Mediation Agreement,” requiring that
before either party proceeds with arbitration or litigation,
the party must submit all “Claims ... to neutral, individual
4
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
(and not class) mediation.” If mediation does not resolve
the dispute, then the “Arbitration Agreement” controls:
If you and we are not able
to resolve a Claim in mediation,
then you and we agree that such
Claim will be resolved by neutral,
binding individual (and not class)
arbitration. You and we may
not initiate arbitration proceedings
without first complying with the
Mediation Agreement.
The Quintino form of agreement also defines “Claims”
broadly:
**3 “Claims” means any and all
claims, disputes or controversies
that arise under common law,
federal or state statute or regulation,
or otherwise, and that we or
our servicers or agents have
against you or that you have
against us, our servicers, agents,
directors, officers and employees.
“Claims” also includes any and all
claims that arise out of (i) the
validity, scope and/or applicability
of this Mediation Agreement or the
Arbitration Agreement appearing
below, (ii) your application for a
Loan, (iii) the Agreement, (iv) any
prior agreement between you and
us, including any prior loans we
have made to you[,] or (v) our
collection of any Loan. “Claims”
also includes all claims asserted as
a representative, private attorney
general, member of a class or in any
other representative capacity, and
all counterclaims, cross-claims and
third party claims.
The Quintino agreement specifies that either party may
“bring a Claim in a small claims or the proper Las
Vegas Justice Court, as long as the Claim is within the
jurisdictional limits of that court,” without submitting the
claim to mediation or arbitration, but that “[a]ll Claims
that cannot be brought in small claims court or Las Vegas
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Justice Court ... must be resolved consistent with ... the
Arbitration Agreement.”
Both forms of agreement state that they are “made
pursuant to a transaction involving interstate commerce”
and shall “be governed by the Federal Arbitration Act, 9
U.S.C. Sections 1–16, as amended,” or the “FAA.” They
also include class-action and class-arbitration waivers.
The district court denied Rapid Cash's motions to compel
arbitration of the claims asserted in the original and first
amended complaints. It held that Rapid Cash waived its
right to an arbitral forum by bringing collection actions in
justice court, employing Carroll and On–Scene as its agent
for service of process, and obtaining default judgments
allegedly based on On–Scene's falsified affidavits of
service. Rapid Cash appeals. We have jurisdiction under
NRS 38.247(1)(a) and 9 U.S.C. § 16(a)(1)(B) (2012), which
allow interlocutory appeals from orders denying motions
to compel arbitration, and affirm.
II.
A.
[1] [2] As the loan documents stipulate, the arbitration
agreements evidence transactions involving commerce,
so the Federal Arbitration Act (FAA) applies. See
Tallman v. Eighth Judicial Dist. Court, ––– Nev. ––––,
359 P.3d 113, 121–22 (2015). Under the FAA, arbitration
agreements “shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity
for the revocation of any contract.” 9 U.S.C. § 2.
This provision expresses “both a liberal federal policy
favoring arbitration, and the fundamental principle that
arbitration is a matter of contract.” 3 AT&T Mobility
LLC v. Concepcion, 563 U.S. 333, 339, 131 S.Ct. 1740,
179 L.Ed.2d 742 (2011) (quotations and internal citations
omitted). Because arbitration is fundamentally a matter
of contract, *693 “[w]hether enforcing an agreement
to arbitrate or construing an arbitration clause, courts
and arbitrators must ‘give effect to the contractual rights
and expectations of the parties.’ ” Stolt–Nielsen S.A. v.
AnimalFeeds Int'l Corp., 559 U.S. 662, 682, 130 S.Ct. 1758,
176 L.Ed.2d 605 (2010) (quoting Volt Info. Scis., Inc. v.
Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)).
5
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
**4 [3] [4] The right to enforce an agreement to presumption, Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct.
arbitrate, like any contract right, can be waived. But the
FAA “establishes that, as a matter of federal law, any
doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration, whether the problem
at hand is the construction of the contract language itself
or an allegation of waiver, delay, or a like defense to
arbitrability.” Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d
765 (1983). Given the “strong presumption in favor of
arbitration[,] ... waiver of the right to arbitration is not to contract applies to a particular type of controversy.’ ”
be lightly inferred.” Coca–Cola Bottling Co. v. Soft Drink
& Brewery Workers Union Local 812, 242 F.3d 52, 57 (2d
Cir.2001) (internal quotations omitted); accord Tallman,
––– Nev. ––––, 359 P.3d at 123 (quoting Clark Cty. v.
Blanchard Constr. Co., 98 Nev. 488, 491, 653 P.2d 1217,
1219 (1982)). Under the FAA, “any doubts concerning
whether there has been a waiver are resolved in favor
of arbitration.” Louis Dreyfus Negoce S.A. v. Blystad
Shipping & Trading Inc., 252 F.3d 218, 229 (2d Cir.2001)
(quoting Leadertex, Inc. v. Morganton Dyeing & Finishing
Corp., 67 F.3d 20, 25 (2d Cir.1995)).
B.
We must decide whether Rapid Cash waived its right
to arbitrate the named plaintiffs' equitable, common-
law and statutory claims against them by its litigation
activities in justice court. Before we can do so, we must
address the threshold issue of who decides the question of
waiver-by-litigation-conduct—the court or the arbitrator?
The answer depends on presumptions the Supreme Court
has developed to guide division-of-labor determinations
under the FAA and the text of the arbitration agreements
themselves. See BG Grp., PLC v. Republic of Argentina,
572 U.S. ––––, ––––, 134 S.Ct. 1198, 1206–07, 188 L.Ed.2d
220 (2014) (stating that since arbitration is a matter of
contract, “it is up to the parties to determine whether a
particular matter is primarily for arbitrators or for courts
to decide.... If the contract is silent on the matter of
who primarily is to decide ‘threshold’ questions about
arbitration, courts determine the parties' intent with the
help of presumptions.”); First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 944–45, 115 S.Ct. 1920, 131 L.Ed.2d
985 (1995).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[5] [6] Despite the FAA's robust pro-arbitration
927, the Supreme Court has instructed that certain issues
—the kind that “contracting parties would likely have
expected a court to have decided”—are presumptively for
the court, not the arbitrator, to resolve. Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154
L.Ed.2d 491 (2002). These court-committed issues involve
gateway questions of arbitrability, “such as ‘whether
the parties are bound by a given arbitration clause,’ or
‘whether an arbitration clause in a concededly binding
BG Grp., 572 U.S. at ––––, 134 S.Ct. at 1206 (quoting
Howsam, 537 U.S. at 84, 123 S.Ct. 588). Because “courts
presume that the parties intend courts, not arbitrators,
to decide [gateway questions of] arbitrability,” id., these
gateway questions are for the court to decide, unless
the parties' agreement (or, possibly, conduct) provides
“clear and unmistakable evidence” that they intended to
commit the questions to the arbitrator in the first instance.
First Options, 514 U.S. at 944, 115 S.Ct. 1920 (internal
quotation omitted). But the Supreme Court applies an
exactly opposite set of rules to procedural gateway matters:
“On the other hand, courts presume that the parties
intend arbitrators, not courts, to decide disputes about
the meaning and application of particular procedural
preconditions for the use of arbitration.” BG Grp., 572
U.S. at ––––, 134 S.Ct. at 1207. Procedural gateway
matters “include the satisfaction of prerequisites such
as time limits, *694 notice, laches, estoppel, and other
conditions precedent to an obligation to arbitrate.” Id.
(internal quotations omitted).
**5 In Howsam, and again in BG Group, the Supreme
Court characterized “waiver” as a procedural gateway
question, not a gateway “question of arbitrability,” stating
that, under the FAA, the arbitrator presumptively “should
decide ‘allegation[s] of waiver, delay, or a like defense to
arbitrability.’ ” 537 U.S. at 84, 123 S.Ct. 588 (emphasis
added) (alteration in original) (quoting Moses H. Cone,
460 U.S. at 25, 103 S.Ct. 927); BG Grp., 572 U.S. at
––––, 134 S.Ct. at 1207. These pronouncements have
generated uncertainty in the lower courts as to who
decides litigation-conduct waiver. See Thomas J. Lilly, Jr.,
Participation in Litigation as a Waiver of the Contractual
Right to Arbitrate: Toward a Unified Theory, 92 Neb. L.
Rev. 86, 100–01 (2013). Before Howsam, most courts held
that, under the FAA, litigation-conduct waiver challenges
were for the court to resolve. Marie v. Allied Home
6
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
Mortg. Corp., 402 F.3d 1, 11–12 (1st Cir.2005) (noting
the First Circuit's “long history of deciding such waiver
claims itself” and observing that “[t]his was in accord
with the overwhelming weight of pre-Howsam authority,
which held that waiver due to litigation conduct was
generally for the court and not for the arbitrator”); see
Nev. Gold & Casinos, Inc. v. Am. Heritage, Inc., 121 Nev.
84, 90, 110 P.3d 481, 485 (2005) (judicially addressing
litigation-conduct waiver without questioning whether
the arbitrator should have decided the matter); see also
Tallman, ––– Nev. ––––, 359 P.3d at 123 (upholding
order rejecting litigation-conduct waiver claim but noting
that all parties assumed “that waiver was for the court,
not the arbitrator to decide”). After Howsam, courts
have divided on who decides litigation-conduct waiver.
Compare Marie, 402 F.3d at 14 (“We hold that the
Supreme Court in Howsam ... did not intend to disturb
the traditional rule that waiver by conduct, at least
where due to litigation-related activity, is presumptively
an issue for the court.”), Ehleiter v. Grapetree Shores,
Inc., 482 F.3d 207, 221 (3d Cir.2007) (“[W]aiver of the
right to arbitrate based on litigation conduct remains
presumptively an issue for the court to decide [even] in
the wake of Howsam.”), and Grigsby & Assocs., Inc. v.
M Sec. Inv., 664 F.3d 1350, 1353 (11th Cir.2011) (“[I]t
is presumptively for the courts to adjudicate disputes
about whether a party, by earlier litigating in court, has
waived the right to arbitrate.”), with Nat'l Am. Ins. Co. v.
Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466
(8th Cir.2003) (summarily holding that Howsam mandates
that the court refer all waiver challenges to the arbitrator,
even litigation-conduct waiver).
Howsam considered a procedural rule of the contractually
chosen arbitral forum, the National Association of
Securities Dealers (NASD), which provided that “no
dispute ‘shall be eligible for submission to arbitration ...
where six (6) years have elapsed from the occurrence or
event giving rise to the ... dispute.’ ” Howsam, 537 U.S.
at 81, 123 S.Ct. 588 (quoting NASD Code of Arbitration
Procedure § 10304 (1984)). The “waiver” Howsam deemed
the province of the arbitrator, not the court, thus did
not grow out of litigation conduct but, rather, delay in
initiating arbitration, a procedural matter the NASD rules
controlled. The courts that have retained the traditional
rule that litigation-conduct waivers are for the court
to decide have distinguished Howsam by limiting its
waiver pronouncement to the context in which it arose,
specifically, waiver “arising from non-compliance with
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
contractual conditions precedent to arbitration.” Grigsby,
664 F.3d at 1353 (internal quotation marks omitted).
That Howsam presumed the arbitrator would decide the
NASD time-limit bar makes sense: The NASD arbitrator
was “comparatively better able to interpret and to apply”
the NASD's procedural rule, so the parties would have
expected that issue to go to the arbitrator as the decision-
maker with the better comparative expertise. Howsam, 537
U.S. at 85, 123 S.Ct. 588. 4 But litigation- *695 conduct
“waiver implicates courts' authority to control judicial
procedures or to resolve issues ... arising from judicial
conduct.” Ehleiter, 482 F.3d at 219. Arbitrators are not
comparatively better able than courts to interpret and to
apply litigation-conduct waiver defenses, see Grigsby, 664
F.3d at 1354 (stating that a court is “the decisionmaker
with greater expertise in recognizing and controlling
abusive forum-shopping”), and, thus, it is reasonable to
assume that “parties would expect the court to decide
[litigation-conduct waiver] itself.” Ehleiter, 482 F.3d at
219.
**6 Litigation-conduct waiver questions commonly arise
out of proceedings before the court being asked to
compel arbitration. Having the court assess waiver not
only comports with party expectations but also is more
efficient than reconstructing the litigation history before
the arbitrator and deferring the question to the arbitral
forum, only to have the dispute return if the arbitrator
finds waiver.
Questions of litigation-conduct waiver are best resolved
by a court that “has inherent power to control its docket
and to prevent abuse in its proceedings (i.e. forum
shopping),” which has “more expertise in recognizing
such abuses, and in controlling ... them,” and which
could most efficiently and economically decide the issue
as “where the issue is waiver due to litigation activity,
by its nature the possibility of litigation remains, and
referring the question to an arbitrator would be an
additional, unnecessary step.”
See Am. Gen. Home Equity, Inc. v. Kestel, 253 S.W.3d 543,
551–52 (Ky.2008) (internal footnote omitted) (quoting
David LeFevre, Note, Whose Finding Is It Anyway?: The
Division of Labor Between Courts and Arbitrators With
Respect to Waiver, 2006 J. Disp. Resol. 305, 313–14
(2006)); see UAA of 2000, § 6, cmt. 5, 7 U.L.A., part
1A 28 (2009) (stating that litigation-conduct “[w]aiver
is one area where courts, rather than arbitrators, often
make the decision as to enforceability of an arbitration
7
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
clause,” and noting that “[a]llowing the court to decide
this issue of arbitrability comports with the separability
doctrine because in most instances waiver concerns only
the arbitration clause itself and not an attack on the
underlying contract” and that “[i]t is also a matter of
judicial economy to require that a party, who pursues an
action in a court proceeding but later claims arbitrability,
be held to a decision of the court on waiver”).
We therefore hold, as the majority of courts have,
that Howsam's reference to “waiver, delay, or a like
defense” being for the arbitrator encompasses “defenses
arising from non-compliance with contractual conditions
precedent to arbitration, such as the NASD time limit
rule at issue in that case, [but] not ... claims of waiver
based on active litigation in court.” Ehleiter, 482 F.3d at
219 (internal quotations omitted); see Marie, 402 F.3d
at 14. A party to an arbitration agreement likely would
expect a court to determine whether the opposing party's
conduct in a judicial setting amounted to waiver of the
right to arbitrate. Thus, even post-Howsam, litigation-
conduct waiver remains a matter presumptively for the
court to decide.
C.
[7] We still must consider Rapid Cash's argument that
its arbitration agreements provide for the arbitrator to
decide litigation-conduct waiver, notwithstanding any
presumption to the contrary. See First Options, 514 U.S. at
943, 115 S.Ct. 1920 (“Just as the arbitrability of the merits
of a dispute depends upon whether the parties agreed
to arbitrate that dispute, so the question ‘who has the
primary power to decide arbitrability’ turns upon what
the parties agreed about that matter.” (internal citations
omitted)). In this regard, the Dungan/Harrison form of
agreement requires arbitration of “any claim, dispute or
controversy ... that arises from or relates in any way to ...
the validity, enforceability or scope of this Arbitration
Provision,” while the Quintino form of agreement *696
requires the parties to arbitrate “any and all claims that
arise out of ... the validity, scope and/or applicability of
this ... Arbitration Agreement.” (Emphases added.).
**7 Rapid Cash argues that the district court's finding of
litigation-conduct waiver defeats the “enforceability” of
its arbitration agreements and so, at minimum, Dungan's
and Harrison's waiver challenge should have been referred
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to the arbitrator under First Options and its progeny.
See Rent–A–Center, W., Inc. v. Jackson, 561 U.S. 63,
66, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (upholding
district court's referral of substantive unconscionability
defense to the arbitrator based on a delegation clause that
sent to the arbitrator questions as to the “applicability,
enforceability or formation of this Agreement including,
but not limited to any claim that all or any part of
this Agreement is void or voidable” (internal quotation
omitted)). Rapid Cash argues that Quintino's agreement,
too, delegates litigation-conduct waiver to the arbitrator,
since Quintino's waiver challenge amounts to a defense to
the “applicability” of her arbitration agreement. We do
not agree.
[8] [9] [10] “An issue that is presumptively for
the court to decide will be referred to the arbitrator
for determination only where the parties' arbitration
agreement contains ‘clear and unmistakable evidence’ of
such an intent.” Ehleiter, 482 F.3d at 221 (quoting First
Options, 514 U.S. at 944), 115 S.Ct. 1920; see also Rent–
A–Center, 561 U.S. at 70 n. 1, 130 S.Ct. 2772. The
general language in both forms of Rapid Cash agreements
falls short of the “clear and unmistakable evidence”
required to overcome the presumption that litigation-
conduct waiver is for the court to decide. The presumption
that courts decide litigation-conduct waiver is rooted
in presumed party intent and probable expectations.
The agreements between Rapid Cash and its borrowers
provide specifically for litigation of some claims in some
courts without loss of the right to arbitrate other claims
in other courts, yet are silent on the issue of who decides
on which side of the line such later-asserted claims fall.
A corollary of the First Options rule requiring “clear and
unmistakable evidence” of contrary intent to overcome
a division-of-labor presumption is the rule that “silence
or ambiguity” is resolved against the party seeking to
overcome the presumption. First Options, 514 U.S. at 944–
45, 115 S.Ct. 1920. Had Rapid Cash intended to delegate
litigation-conduct waiver to the arbitrator, rather than the
court, the agreements could and should have been written
to say that explicitly. Absent an explicit delegation,
litigation-conduct waiver remains a matter for the court to
resolve. See Marie, 402 F.3d at 15 (declining to interpret
agreement delegating “arbitrability” determinations to
the arbitrator as “evinc[ing] a clear and unmistakable
intent to have waiver issues decided by the arbitrator” and
holding that “[n]either party should be forced to arbitrate
8
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2
the issue of waiver by conduct without a clearer indication
in the agreement that they have agreed to do so”). 5 arbitrate results in waiver of the right to arbitrate.”
Here, as in Ehleiter, “[l]itigants would expect the court,
not an arbitrator, to decide the question of waiver based
on litigation conduct, and the Agreement ... does not
manifest a contrary intent.” 482 F.3d at 222. We thus
“cannot interpret the Agreement's silence regarding who
decides the waiver issue here ‘as giving the arbitrators that
power, for doing so ... [would] force [an] unwilling part[y]
to arbitrate a matter he reasonably would have thought a
judge, not an arbitrator, would decide.’ ” Id. (alteration in
original) (quoting First Options, 514 U.S. at 945, 115 S.Ct.
1920).
D.
**8 [11] We turn to Rapid Cash's contention that
the district court erred in finding it waived its right to
arbitrate. Waiver is not a *697 favored finding and
should not be lightly inferred. Coca–Cola Bottling, 242
F.3d at 57; Clark Cty., 98 Nev. at 491, 653 P.2d at
1219. “A party seeking to prove the waiver of a right to
arbitrate must demonstrate these elements: knowledge of
an existing right to compel arbitration; acts inconsistent
with that existing right; and prejudice to the party
opposing arbitration resulting from such inconsistent
acts.” 3 Thomas H. Oehmke, Commercial Arbitration §
50:28, at 28–29 (3d ed. Supp. 2015); see Nev. Gold, 121
Nev. at 90, 110 P.3d at 485.
Rapid Cash knew of its arbitration rights and
acknowledges that it waived its right to arbitrate its
collection claims by bringing them in justice court. Its
point is that the claims the named plaintiffs have asserted
against Rapid Cash in district court are separate and
distinct from the collection claims Rapid Cash sued on in
justice court. Especially since its arbitration agreements
permit it to litigate a collection claim in justice court
without losing the right to arbitrate other, distinct claims,
Rapid Cash sees no inconsistency in enforcing arbitration
of the named plaintiffs' claims despite its prior litigation
in justice court. Rapid Cash also disputes whether the
class representatives have made a sufficient showing of
prejudice to justify a finding of waiver.
Consistent with the policy disfavoring waiver, caselaw
teaches that “only prior litigation of the same legal
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and factual issues as those the party now wants to
Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 133 (2d
Cir.1997); see MicroStrategy, Inc. v. Lauricia, 268 F.3d
244, 250 (4th Cir.2001); Subway Equip. Leasing Corp.
v. Forte, 169 F.3d 324, 328 (5th Cir.1999); Cottonwood
Fin., Ltd. v. Estes, 339 Wis.2d 472, 810 N.W.2d 852,
860–61 (App.2012). The reasoning underlying these
cases is that litigating one claim is not necessarily
inconsistent with seeking to arbitrate another, separate
claim and does not prejudice rights of the opposing
party that the arbitration agreement protects. See Distajo,
107 F.3d at 133 (“Finding waiver where a party has
previously litigated an unrelated yet arbitrable dispute
would effectively abrogate an arbitration clause once a
party had litigated any issue relating to the underlying
contract containing the arbitration clause.”). Thus, the
franchisor in Distajo did not waive its right to arbitrate its
franchisees' claims for breach of the franchise agreement
by obtaining eviction orders against its franchisees in state
court because the eviction actions did not prejudice rights
secured by the arbitration agreement, as required to find
waiver of arbitration rights under the FAA. 107 F.3d at
134 (“[P]rejudice as defined by our [waiver] cases 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.”). Similarly, the payday
lender in Cottonwood Financial did not waive its right to
compel arbitration of its borrower's counterclaim alleging
violation of the Wisconsin Consumer Act by bringing a
collection action in small claims court; the arbitration
agreement provided that a small claims action did not
waive the right to compel arbitration of other claims and
the borrower's counterclaim converted the case from a
small to a large claims action, triggering the arbitration
agreement. 810 N.W.2d at 860–61; see Fid. Nat'l Corp. v.
Blakely, 305 F.Supp.2d 639, 642 (S.D.Miss.2003) (holding
lender's state-court collection action did not waive its right
to seek arbitration of counterclaim asserting tort claims
associated with the transaction).
**9 This case differs from the cases just cited in one
crucial respect: The claims the named plaintiffs have
asserted in district court arise out of, and are integrally
related to, the litigation Rapid Cash conducted in justice
court. By initiating a collection action in justice court,
Rapid Cash waived its right to arbitrate to the extent
of inviting its borrower to appear and defend on the
9
Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2

merits of that claim. The entry of default judgment based
on a falsified affidavit of service denied the defendant
borrower that invited opportunity to appear and defend.
Allowing the borrower to litigate its claim to set aside the
judgment and be heard on the merits comports with the
waiver Rapid Cash initiated. If the judgment Rapid Cash
obtained was the product of fraud or criminal misconduct
and is unenforceable for that reason, it would be *698
unfairly prejudicial to the judgment debtor to require
arbitration of claims seeking to set that judgment aside,
to enjoin its enforcement, and otherwise to remediate
its improper entry. We recognize that the arbitration
agreements specify that bringing one claim does not result
in waiver of the right to arbitrate another, but a no-
waiver clause can itself be waived, see Silver Dollar Club
v. Cosgriff Neon Co., 80 Nev. 108, 111, 389 P.2d 923,
924 (1964), and should not be applied to sanctify a fraud
upon the court allegedly committed by the party who itself
elected a litigation forum for its claim. Cf. S & R Co. of
Kingston v. Latona Trucking, Inc., 159 F.3d 80, 86 (2d
Cir.1998) (declining to enforce a “no waiver” clause where
to do so would hamper a judge's authority to control the
proceedings and correct any abuse in them); Gen. Elec.
Capital Corp. v. Bio–Mass Tech, Inc., 136 So.3d 698, 703
(Fla.Dist.Ct.App.2014) (holding that an “antiwaiver or
‘no waiver’ provision is not itself determinative and does
not operate as a complete bar to finding a waiver of the
right to arbitration”).
of such judgment may vacate such
judgment and allow the party or
the party's legal representatives to
answer to the merits of the original
action,
and that all other claims should be dismissed or sent to
arbitration. Rapid Cash did not make this argument to the
district court before that court entered its order denying
Rapid Cash's second motion to compel arbitration, and
thus, this argument is not properly before us on appeal.
See Old Aztec Mine, Inc. v. Brown, 97 Nev. 49, 52, 623
P.2d 981, 983 (1981) (“A point not urged in the trial
court ... is deemed to have been waived and will not be
considered on appeal.”). 6 More to the point, while we do
not pass upon the validity of any of the named plaintiffs'
claims and we recognize that the FAA “requires that we
rigorously enforce agreements to arbitrate, even if the
result is ‘piecemeal’ litigation,” Dean Witter Reynolds, Inc.
v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d
158 (1985), we do not accept Rapid Cash's view of their
separability for waiver purposes. The named plaintiffs'
claims all concern, at their core, the validity of the
default judgments Rapid Cash obtained against them in
justice court, as to which issue the district court correctly
concluded that Rapid Cash waived its right to an arbitral
forum.
**10 We therefore affirm.

E.
[12] [13] Rapid Cash urges us to differentiate among GIBBONS, JJ.
the claims the named plaintiffs have brought, arguing
that the named plaintiffs have an adequate remedy under
Rule 60(c) of the Nevada Justice Court Rules of Civil
Procedure, which provides:
When a default judgment shall have
been taken against any party who
was not personally served with
summons and complaint, either in
the State of Nevada or in any
other jurisdiction, and who has not
entered a general appearance in the
action, the court, after notice to the
adverse party, upon motion made
within six months after the date of
service of written notice of entry
We concur: HARDESTY, DOUGLAS, CHERRY, and
SAITTA, J., concurring:
In large part, I agree with the majority's opinion.
However, I disagree with the majority's inclusion as
dicta of two cases, Cottonwood Financial, Ltd. v. Estes,
339 Wis.2d 472, 810 N.W.2d 852 (App.2012), and
Fidelity National Corp. v. Blakely, 305 F.Supp.2d 639
(S.D.Miss.2003). The Cottonwood court based its decision
on its interpretation of the arbitration clause in that
case and did not perform an analysis of whether the
“same legal and factual issues” were at issue in the
lender's collection action as the borrower's counterclaim.
Compare Cottonwood Financial, 810 N.W.2d at 860–61,
with Majority Opinion at 697 (holding that “ ‘only prior
litigation of the same legal and factual issues as those

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

Principal Investments v. Harrison, 366 P.3d 688 (2016)
2016 WL 166011, 132 Nev. Adv. Op. 2

the party now wants to arbitrate results in waiver of the claims associated with the transaction). Therefore, I am
puzzled by its inclusion in the majority's opinion.
right to arbitrate.’ ” *699 (quoting Doctor's Assocs., Inc.
v. Distajo, 107 F.3d 126, 133 (2d Cir.1997))). Therefore,
Lastly, I note that the above caselaw originates from the
I believe that Cottonwood is inapposite to the majority's
Wisconsin Court of Appeals and a federal district court in
analysis under the standard it set out in its opinion.
Mississippi. Thus, beyond the issue of their applicability
to the current case, I question their persuasiveness as
In the case of Blakely, I respectfully note that the holding
authority in Nevada. Therefore, although I concur with
in that case directly contradicts the majority's holding
most of the majority's opinion, I do not join with them as
in the current case. Compare Blakely, 305 F.Supp.2d at
to the use of those two cases as dicta.
642 (holding lender's state court collection action did
not waive its right to seek arbitration of counterclaim
asserting tort claims associated with the transaction), with All Citations
Majority Opinion at 698 (holding that lender's state-court
collection action waived its right to seek arbitration of 366 P.3d 688, 2016 WL 166011, 132 Nev. Adv. Op. 2

Footnotes
1 The Honorable Ron D. Parraguirre, Chief Justice, voluntarily recused himself from participation in the decision of this
matter.
2 We refer to appellants collectively as “Rapid Cash,” the name by which they are all alleged to do business.
3 Nevada has adopted the Uniform Arbitration Act of 2000(UAA), see NRS 38.206, which expresses Nevada's similarly
fundamental policy favoring the enforceability of arbitration agreements as written. See NRS 38.219(1); Tallman, –––
Nev. ––––, 359 P.3d at 119 (“As a matter of public policy, Nevada courts encourage arbitration and liberally construe
arbitration clauses in favor of granting arbitration.” (quoting State ex rel. Masto v. Second Judicial Dist. Court, 125 Nev.
37, 44, 199 P.3d 828, 832 (2009))).
4 The Court's quotation of Howsam's waiver language in BG Group, 572 U.S. at ––––, 134 S.Ct. at 1207, is not inconsistent
with the distinction Grigsby and other post-Howsam cases have drawn between waiver by litigation-conduct and waiver
by failure to comply with procedural prerequisites to arbitration. In BG Group, the Supreme Court deemed a foreign
sovereign's local litigation provision the province of the arbitrators because it constituted “a purely procedural requirement
—a claims-processing rule that governs when the arbitration may begin, but not whether it may occur or what its
substantive outcome will be on the issues in dispute.” Id. at ––––, 134 S.Ct. at 1207.
5 Rent–A–Center is not to the contrary. In Rent–A–Center, the party opposing arbitration conceded that the text of the
delegation clause—referring to the arbitrator claims that the arbitration agreement was “void or voidable” and so not
enforceable or applicable—encompassed his substantive unconscionability challenge. See Rent–A–Center, 561 U.S. at
66, 130 S.Ct. 2772 (internal quotation omitted). In this case, by contrast, the parties opposing arbitration hotly contest the
delegation clauses in their agreements, which, unlike the Rent–A–Center clause, stop at “enforceability” and “applicability”
without adding a description of what the term means.
6 A separate proceeding regarding this issue whereby Rapid Cash seeks original writ relief from the district court's orders
partially granting class certification and declining to dismiss certain claims for relief is pending before this court as Principal
Investments, Inc. v. Eighth Judicial District Court, Docket No. 61581.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 11

Smith Barney Shearson, Inc. v. Boone, 838 F.Supp. 1156 (1993)
838 F.Supp. 1156
United States District Court,
N.D. Texas,
Wichita Falls Division.
SMITH BARNEY SHEARSON, INC.
v.
Warren BOONE, Individually and as Trustee
for Watercol Profit Sharing Plan, Dated 1/7/90.
Civ. A. 7:93–CV–146–K.
| Arbitrability of dispute
Dec. 6, 1993.
Investment company sought declaration that investor's
claims were not subject to arbitration, and it moved
for preliminary injunction barring arbitration of claims.
The District Court, Belew, J., held that American Stock
Exchange (AMEX) arbitration rule requiring claims to be
filed within six years from event giving rise to claim was
procedural limitation on arbitrability of investor's claims,
and thus timeliness of claims was for arbitral, not judicial,
determination.
Complaint denied.
West Headnotes (7)
[1] Alternative Dispute Resolution
Contractual or consensual basis
Submission to arbitration is matter bound by
parties' contract, and party cannot be forced
to arbitrate what it has not agreed to arbitrate.
Cases that cite this headnote
[2] Alternative Dispute Resolution
Arbitrability of dispute
Since there must be forum to determine what
parties have agreed to arbitrate, and because
it would be unfair to force party to arbitrate
the arbitrability issue, courts are body which
decides disputes over what claims parties may
arbitrate.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Cases that cite this headnote
[3] Alternative Dispute Resolution
Merits of controversy
In determining what claims parties may
arbitrate, court must not inquire into merits of
underlying dispute.
Cases that cite this headnote
[4] Alternative Dispute Resolution
Alternative Dispute Resolution
Conditions precedent to arbitration;
procedural arbitrability
Judicial inquiry is limited to issues of
“substantive arbitrability,” which is question
of whether or not dispute is covered by
parties' arbitration agreement, and matters
of procedural arbitrability are to be left to
arbitrator.
1 Cases that cite this headnote
[5] Alternative Dispute Resolution
Conditions precedent to arbitration;
procedural arbitrability
Questions as to timeliness of claim subject to
arbitration are procedural issues for arbitral,
not judicial, determination.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Conditions precedent to arbitration;
procedural arbitrability
Only exception to rule requiring arbitrator
to decide questions as to timeliness of claim
subject to arbitration is that court may decide
procedural arbitrability questions if, and only
if, court can confidently say that claim would
be barred.
Cases that cite this headnote
[7] Alternative Dispute Resolution
1
Smith Barney Shearson, Inc. v. Boone, 838 F.Supp. 1156 (1993)
Performance, breach, enforcement, and
contest of agreement
Although last disputed investment purchase
took place more than six years before
investor filed arbitration claim, American
Stock Exchange (AMEX) arbitration rule
requiring claims to be filed within six years
from event giving rise to claim was procedural
limitation on arbitrability of investor's claims,
and thus timeliness of claims was for arbitral,
not judicial, determination; moreover, it could
not be said with confidence that claims were
time barred without forbidden judicial inquiry
into underlying merits of claims.
Cases that cite this headnote
Attorneys and Law Firms
*1156 Charles Watts Flynn, Susan L. Karamanian,
Bradley W. Foster, Locke Purnell Rain Harrell, Dallas,
TX, for plaintiff.
Tracy Pride Stoneman, Godwin & Carlton, Dallas, TX,
for defendant.
AMENDED MEMORANDUM OPINION AND
ORDER DENYING SMITH BARNEY SHEARSON'S
COMPLAINT FOR DECLARATORY JUDGMENT
AND MOTION FOR PRELIMINARY INJUNCTION
BELEW, District Judge.
The Court enters this Amended Memorandum Opinion
and Order to supersede its December 2, 1993
Memorandum Opinion Denying Smith Barney Shearson's
Motion for Preliminary Injunction.
*1157 Pursuant to Fed.R.Civ.P. 65(a)(2), the Court
sua sponte consolidates Smith Barney Shearson's (SBS)
Motion for Preliminary Injunction with a determination
of the merits of SBS' Complaint for Declaratory Judgment
for reasons discussed infra.
After a hearing on SBS' application for a temporary
restraining order, the parties agreed to waive their
preliminary injunction hearing and submit their dispute
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
on the basis of their motions, affidavits and a stipulation
of facts. SBS and Boone's dispute solely concerns
interpreting American Stock Exchange arbitration rule
605 (AMEX R. 605) to determine its effect on Boone's
pending arbitration claims against SBS.
Because of the nature of this dispute, the Court
believes that further evidentiary hearings are unnecessary
to resolve this matter. See, Fed.R.Civ.P. 43(e) (court
may determine matter entirely on the filings) and
Fed.R.Civ.P. 78 (court may determine matter without oral
argument). Therefore, the Court sua sponte consolidates
its ruling on SBS' Motion for Preliminary Injunction
with determination of SBS' Complaint for Declaratory
Judgment.
I. BACKGROUND FACTS
Boone opened several stock accounts with SBS 1 in both
his name and in the name of the Watercol Profit Sharing
Plan, a retirement plan for his McDonald's franchises.
Boone used these accounts to invest in several limited
partnerships that ultimately proved unprofitable and are
the subject of this litigation. Boone made these purchases
from May 4, 1984 to February 18, 1986. Boone filed his
arbitration claim on July 13, 1993, over seven and a half
years after the last transaction.
The Customer Agreement that Boone signed on opening
his accounts with SBS provided that all disputes arising
out of his SBS accounts would be arbitrated by Boone's
choice of one of several arbitration bodies listed in the
Customer Agreement. Boone elected to pursue his claims
with the American Stock Exchange (AMEX) and to be
bound by its procedural rules.
Boone claims that he knew nothing about the nature of
limited partnerships at the time he invested in them and
that he relied entirely on the assurances SBS employee
Larry Robb that these limited partnerships were risk-
proof and right for the retirement income strategy Boone
was pursuing.
Boone seeks $1,301,000.00 in damages under a variety
of theories including violation of Texas Deceptive Trade
Practices and Consumer Protection Act; fraud in real
estate and stock transactions under Tex.Bus. & Com.Code
§ 27.01; violation of the Racketeer Influenced and
Corrupt Organizations Act (18 U.S.C. §§ 1961–1968);
2
Smith Barney Shearson, Inc. v. Boone, 838 F.Supp. 1156 (1993)
breach of contract; negligence; breach of fiduciary duty;
common law fraud and misrepresentation; and fraudulent
concealment.
II. DISCUSSION
The dispute SBS and Boone have brought to the Court
requires the Court to divine which side the Fifth Circuit
will take in a dispute that is currently dividing the other
Courts of Appeal.
SBS asks the Court to enjoin an arbitration panel of the
American Stock Exchange (AMEX) from hearing Boone's
complaints. SBS argues that Rule 605 2 of the AMEX
Rules precludes this issue from arbitration because the
events complained of occurred over six years before Boone
filed his arbitration claim.
The Court's determination of whether Rule 605 is a
condition precedent for arbitration eligibility for the
Court to decide or whether Rule 605 is a procedural
limitation for the arbitration panel to apply will determine
the outcome of this dispute.
*1158 A. PRELIMINARY INJUNCTION
Because the Court is denying SBS' declaratory judgment,
SBS is obviously not entitled to a preliminary injunction.
Canal Authority of State of Florida v. Callaway, 489 F.2d
567, 572 (5th Cir.1974). Accordingly, the Court DENIES
SBS' Motion for Preliminary Injunction.
B. THE MERITS OF SBS' APPLICATION
FOR DECLARATORY JUDGMENT
In deciding this issue, the Court must examine the state of
the law in the Fifth Circuit, in other Circuits and what the
Supreme Court has said in analogous areas to determine
what the proper rule should be.
[1] It is a settled matter of law that submission to
arbitration is a matter bound by the parties' contract—a
party cannot be forced to arbitrate what it has not agreed
to arbitrate. AT & T Technologies v. Communications
Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415,
1418, 89 L.Ed.2d 648 (1986), citing, Steelworkers v.
Warrior & Gulf, 363 U.S. 574, 582, 80 S.Ct. 1347, 1352,
4 L.Ed.2d 1409 (1960) and Steelworkers v. American
Manufacturing Co., 363 U.S. 564, 570–71, 80 S.Ct. 1363,
1364, 4 L.Ed.2d 1432 (1960).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[2] [3] Since there must be a forum to determine just
what the parties have agreed to arbitrate, the courts are
the body which decides disputes over what claims the
parties may arbitrate, AT & T Technologies, 475 U.S.
at 649, 106 S.Ct. at 1418, quoting, John Wiley & Sons
v. Livingston, 376 U.S. 543, 546–47, 84 S.Ct. 909, 912,
11 L.Ed.2d 898 (1964), because it would be unfair to
force a party to “arbitrate the arbitrability issue.” Litton
Financial Printing Division v. NLRB, 501 U.S. 190, ––––,
111 S.Ct. 2215, 2226, 115 L.Ed.2d 177 (1991), quoting,
AT & T Technologies, 475 U.S. at 651, 106 S.Ct. at
1420. In making this determination, a court must not
inquire into the merits of the underlying dispute. AT & T
Technologies, 475 U.S. at 649, 106 S.Ct. at 1418; United
Steelworkers of America, AFL–CIO v. ASARCO, 970 F.2d
1448, 1451 (5th Cir.1992) citing, Oil Chemical Atomic
Workers' International Union, Local 4–447 v. Chevron
Chemical Co., 815 F.2d 338, 343 (5th Cir.1987) ( “Local
4–447 ”).
[4] Judicial inquiry is therefore limited to issues of
substantive arbitrability, the question of whether or
not the dispute is covered by the parties' arbitration
agreement. Matters of procedural arbitrability are to be
left to the arbitrator. John Wiley & Sons, 376 U.S. at 557,
84 S.Ct. at 918.
1. Are Boone's claims Covered
by the Arbitration Agreement?
The Fifth Circuit has drawn a clear line separating judicial
determination of questions of substantive and procedural
arbitrability in Local 4–447, 815 F.2d at 340. “Once it is
determined that the parties are obligated to submit the
subject matter of a dispute to arbitration, ‘procedural’
questions which grow out of the dispute and bear on
its final disposition should be left to the arbitrator.” Id.,
citing, John Wiley & Sons, 376 U.S. at 557, 84 S.Ct. at 918.
It is clear from Boone's Customer agreement that the
claims he is making are of the type Boone and SBS agreed
to arbitrate. The Agreement requires that “any disputes
relating to [Boone's] investments shall be settled by
arbitration in accordance with the rules” of the arbitration
organization of Boone's choice. SBS' Original Compl.,
Application for T.R.O. and Mot. for Prelim. Inj., Ex. C.
SBS concurs—“there is no dispute that this controversy is
subject to arbitration ... under the Customer Agreement
which Boone signed.” Pl.'s Resp. to Def.'s Mot. to Dismiss
3
Smith Barney Shearson, Inc. v. Boone, 838 F.Supp. 1156 (1993)
and Mot. to Compel Arbitration at 3. Accordingly, the
Court finds that Boone's substantive claims arise out of
his investments with SBS and are substantively arbitrable
under the provisions of the Customer Agreement.
Boone elected, under the terms of the contract, to have an
arbitration panel of the American Stock Exchange hear
this dispute, and any arbitration that occurs will be bound
by AMEX's rules, including AMEX R. 605.
*1159 2. Is AMEX R. 605 a
Procedural or Substantive Bar?
Now the Court turns to the stickier question of whether
AMEX Rule 605 is a procedural or substantive limitation
on the arbitrability of Boone's claim.
SBS cites many well reasoned and thorough opinions
from outside the Fifth Circuit in support of its claim
that AMEX 605 is a substantive limitation on Boone's
agreement to arbitrate. 3 SBS includes Shearson Lehman
Brothers v. Glazer Scott Investments, CA 3–92–0600–
T, (N.D.Tex.1992) which held, in an order temporarily
restraining arbitration of Glazer Scott's claims, that
New York Stock Exchange Rule 603 4 (NYSE R. 603)
is a substantive limitation on arbitration contracts. In
reaching this decision, the Glazer Scott court recognized
that “non-binding authority to the contrary exists,”
referring to, inter alia, Commerce Park at DFW Freeport
v. Mardian Construction Co., 729 F.2d 334, 339 n. 5 (5th
Cir.1984) where, according to the Glazer Scott court, the
Fifth Circuit had stated, “in dicta, that whether a request
for arbitration was timely or not is a procedural matter
to be resolved by the arbitrator.” Glazer Scott Investments
slip op. at 3 n. 1.
The Glazer Scott court does not appear to have considered
post-Commerce Park cases that solidified its rule when
it dismissed Commerce Park as dicta. See Local 4–447,
815 F.2d at 341, citing, Local No. 406, Int'l Union of
Operating Engineers, AFL–CIO v. Austin Co., 784 F.2d
1262, 1264 (5th Cir.1986) (timeliness issues are procedural
questions to be answered by the arbitrator, not judicially
determinable limitations on the substantive scope of
arbitration). SBS' reliance on Glazer Scott is, therefore,
poorly placed.
A closer examination of Local 4–447 sheds additional
light on the procedural versus substantive limitation
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
question. At issue in Local 4–447 was a provision in
Chevron's arbitration agreement with the union that
“[o]nly grievances ... which are processed ... within the
time limits herein provided shall be subject to arbitration.”
Local 4–447, 815 F.2d at 341. In addressing Chevron's
arguments that this timing clause should act as a
substantive limit on the union's claims (because Chevron
had not agreed to arbitrate untimely claims), the court,
following John Wiley, 376 U.S. at 557–58, 84 S.Ct. at 918,
stated that, while normally a court should not address
procedural questions, in rare instances a court “could
deny arbitration [ ] if it could confidently be said, not
only that a claim was strictly ‘procedural’, ... but also
that it should operate to bar arbitration altogether.” Local
4–447 815 F.2d at 341. The court held that because an
arbitrator could find that Chevron had waived its rights to
object to late service by its conduct, the district court had
properly ordered Chevron to arbitration because the trial
judge could not confidently say that the procedural claim
would bar arbitration altogether. Id. at 342 (emphasis in
original).
[5] [6] In light of these decisions, current Fifth Circuit
law appears to be that timeliness questions are procedural
issues for arbitral, not judicial, determination. Austin Co.,
784 F.2d at 1264. The only exception to this rule is that
a court may decide procedural arbitrability questions if,
and only if, the court can confidently say the claim would
be barred. Local 4–447 815 F.2d at 340–41, relying on
John Wiley & Sons, 376 U.S. at 557–58, 84 S.Ct. at 918.
The court may not, however, consider the merits of the
underlying dispute in deciding whether the claims are
barred. AT & T Technologies, 475 U.S. at 649, 106 S.Ct.
at 1418.
[7] The situation in Local 4–447 is analogous to the one
before the Court. If proven before the AMEX arbitrators,
Boone's allegations that SBS fraudulently concealed its
wrongdoing could act to waive any objection SBS has
to Boone filing his arbitration claims late, but the Fifth
Circuit has made it clear that this is a question for the
arbitrators. Additionally, because the Court may not
consider the merits of Boone's claims, the Court *1160
cannot confidently determine whether or not Boone's
fraudulent concealment claims are valid, i.e. would toll or
waive AMEX R. 605's six year limitation.
Therefore, because the Fifth Circuit considers timeliness
questions to be procedural, not substantive, issues and
4
Smith Barney Shearson, Inc. v. Boone, 838 F.Supp. 1156 (1993)

because this Court cannot confidently say that SBS' This action came on for consideration by the Court,
Honorable David O. Belew, Jr., District Judge, presiding,
procedural timeliness claim clearly bars Boone from
and the issues having been duly heard and considered
proceeding, SBS' Complaint for Declaratory Relief is
and a decision having been rendered by Memorandum
hereby DENIED.
Opinion and Order entered this same day,
As discussed supra SBS' Motion for Preliminary
It is hereby ORDERED and ADJUDGED that Plaintiff
Injunction is also DENIED.
Smith Barney Shearson's Complaint for Declaratory
Judgment is DENIED. This action is hereby terminated
These rulings are made without reference or comment on
and the Clerk of the Court is directed to close this case.
the merits of the underlying dispute between Boone and
SBS. The parties are free to pursue arbitration according
Each party shall pay their own costs of court.
to the Customer Agreement.

IT IS SO ORDERED.
IT IS SO ORDERED.

All Citations
JUDGMENT ON DECISION BY THE COURT
838 F.Supp. 1156

Footnotes
1 For the sake of clarity, the Court will refer to all transactions as if made with Smith Barney Shearson, regardless if made
with SBS or one of its predecessors.
2 AMEX Rule 605 reads:
No dispute, claim or controversy shall be eligible for submission to arbitration in any instance where six (6) years
shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy. This
section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration
by a court of competent jurisdiction.
2 Am.Stock Ex.Guide (CCH) ¶ 9544 (1989).
3 E.g., PaineWebber, Inc. v. Hofmann, 984 F.2d 1372 (3d Cir.1993); Roney & Co. v. Kassab, 981 F.2d 894 (6th Cir.1992);
and Edward D. Jones & Co. v. Sorrells, 957 F.2d 509 (7th Cir.1992).
4 NYSE R. 603 is identical to AMEX R. 605.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)
KeyCite Yellow Flag - Negative Treatment
Distinguished by Will-Drill Resources, Inc. v. Samson Resources Co., 
5th Cir.(La.), November 26, 2003
18 F.3d 1261
United States Court of Appeals,
Fifth Circuit.
SNAP–ON TOOLS CORPORATION,
Plaintiff–Appellant,
v.
Barney MASON, Jr. and Sandra
Mason, Defendants–Appellees.
No. 93–7317.
|
April 15, 1994.
Tool manufacturer, which was being sued by nonexclusive
distributor in state court for torts arising out of
distributorship relationship, brought action in federal
court to compel arbitration of dispute. The United States
District Court for the Southern District of Texas, Samuel
B. Kent, J., abstained. Manufacturer appealed. The Court
of Appeals, Frank A. Kaufman, District Judge, sitting
by designation, held that District Court should not have
abstained from deciding motion to compel arbitration.
Reversed and remanded.
West Headnotes (3)
[1] Federal Courts
Colorado River abstention
Colorado River permits federal courts to
abstain from exercising their jurisdiction over
case where considerations of wise judicial
administration, giving regard to conservation
of judicial resources and comprehensive
disposition of litigation, so warrant.
10 Cases that cite this headnote
Attorneys and Law Firms
[2] Federal Courts
*1262 Stacy Obenhaus, Harold H. Walker, Jr., Gardere
Federal-state relations, questions of state
& Wynne, Dallas, TX, James F. Stern, Michael Bowen,
law, and parallel state proceedings
Foley & Lardner, Milwaukee, WI, for plaintiff-appellant.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In determining whether to abstain from
exercising jurisdiction over case, federal court
should consider whether state or federal
court has assumed jurisdiction over res;
inconveniences of federal forum; desirability
of avoiding piecemeal litigation; order in
which jurisdiction was obtained by concurrent
forums; and whether federal policy is
involved, and none of these factors are
determinative but, rather, require careful
balancing of important factors as they apply
in given case, with balance heavily weighted in
favor of exercise of jurisdiction.
30 Cases that cite this headnote
[3] Federal Courts
Torts in general
Colorado River/Moses H. Cone did not
require district court to abstain from
deciding manufacturer's motion to compel
arbitration of distributor's tort claims,
although distributor had filed state court
action against manufacturer and four of its
present or former employees; distributor's
only claim as to inconvenience of federal
forum was that he would suffer increased
costs if federal court asserted jurisdiction
because state court was closer to home,
terms of arbitration agreement suggested
that piecemeal litigation would not result
inasmuch as tort claims all arose out
of business relationship between opposing
parties, although state court action was
filed first, manufacturer had no notice that
distributor would repudiate its duty to
arbitrate until state suit was filed, and federal
law provided rule of decision on merits. 9
U.S.C.A. § 4.
90 Cases that cite this headnote
1
Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)
Frank W. Mitchell, G.P. Hardy, III, Houston, TX, for
defendants-appellees.
Appeal from the United States District Court for the
Southern District of Texas.
Before HIGGINBOTHAM and WIENER, Circuit
Judges, and KAUFMAN, * District Judge.
Opinion
FRANK A. KAUFMAN, District Judge:
On January 24, 1989, Barney Mason entered into a
written Dealer Agreement with Snap–On, pursuant to
which Mason became a non-exclusive distributor of
various Snap-on tools. The Dealer Agreement includes
the following provision governing arbitration of disputes
between the parties:
RESOLUTION OF DISPUTES—
ARBITRATION. Any controversy
or dispute arising out of or relating
to this Agreement, or breach thereof
including, but not limited to, any
claim by the Dealer relating to
termination of this Agreement by
the Company or any other claim
against an employee, officer or
director of the Company, shall
be submitted to final and binding
arbitration as the sole and exclusive
remedy for any such controversy or
dispute. Any request for arbitration
shall be filed in writing within six
(6) months following the alleged
breach; otherwise, the right to any
remedy shall be deemed forever
waived and lost.
On September 9, 1992, Barney and his wife, Sandra
Mason, served Snap-on with a petition which they had
filed in the District Court for Matagorda County, Texas,
against Snap-on and four of its present or former *1263
employees. Snap-on is a Delaware corporation with
its principal place of business in Wisconsin; the four
individual-employee defendants and the Masons are all
citizens of Texas. In the state court complaint, the Masons
allege fraudulent inducement into the dealership contract,
fraud during the executory time of the contract, breach of
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
fiduciary duty, and negligent and intentional infliction of
emotional distress.
In response to the state court complaint Snap-on and
its co-defendants filed a general denial and a motion to
stay proceedings in the state court pending arbitration. 1
On October 5, 1992, Snap-on sent a written demand for
arbitration to the Masons to which the Masons did not
respond. On February 12, 1993, Snap-on filed a petition
and complaint in the United States District Court for the
Southern District of Texas to compel arbitration pursuant
to section 4 of the Federal Arbitration Act (“FAA” or
“the Act”), 9 U.S.C. § 4. 2 Snap-on invoked the diversity
jurisdiction of the district court on the basis of complete
diversity of citizenship between Snap-on and the Masons.
The four non-diverse co-defendants in the state court
action are not plaintiffs in the federal court action and are
not parties to the arbitration agreement.
The Masons responded to the petition to compel
arbitration with a motion to dismiss. On April 30, 1993,
the district court granted the Masons' motion to dismiss
on abstention grounds. 3 The district court gave primarily
five reasons for its grant of the motion, stating that:
(1) in order to determine whether Snap-on is entitled to
arbitration the court would have to hold a trial, a course
of action it did not want to pursue; (2) there was no reason
why Snap-on should not pursue its arbitration claim in
the state court; (3) Snap-on had likely filed the motion to
compel arbitration because it had missed the thirty day
deadline for filing a petition of removal; (4) a plaintiff's
choice of forum is entitled to deference; and (5) Snap-on
was motivated to file its federal claim because it feared
the pro-plaintiff orientation of the state court. Snap-on
appeals the district court's dismissal.
“In enacting the Federal Arbitration Act, Congress
declared a national policy in favor of arbitration,”
Municipal Energy Agency of Mississippi v. Big Rivers Elec.
Corp., 804 F.2d 338, 342 (5th Cir.1986) (citing Southland
Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1
(1984)). “[C]ongress' clear intent, in the Arbitration Act,
[was] to move the parties to an arbitrable dispute out
of court and into arbitration as quickly and easily as
possible.” Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 940, 74
L.Ed.2d 765 (1983).
2
Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)
*1264 In its opinion granting the motion to dismiss,
the district court noted the federal policy in favor
of arbitration, but declined nonetheless to enforce the
arbitration agreement. “We review de novo the district
court's decision not to compel arbitration.” Catholic
Diocese of Brownsville v. A.G. Edwards & Sons, Inc., 919
F.2d 1054, 1056 (5th Cir.1990).
The district court's decision conflicts with the Supreme
Court's decision in Moses H. Cone, 460 U.S. 1, 103
S.Ct. 927, 74 L.Ed.2d 765 (1983). In Moses H. Cone,
a hospital filed a state court suit against a construction
contractor and an architect raising a number of claims
against the contractor arising out of the construction
contract between the hospital and the contractor and also
contending that the contractor had, by not proceeding
timely, lost its right to arbitrate. That contract contained
a broadly worded arbitration provision. In the state
court suit, the hospital included several claims against an
architect who was involved in the construction project,
but who was not a party to the disputed contract.
The contractor mailed a demand for arbitration to the
hospital the same day the hospital's complaint was served
upon the contractor. The hospital then obtained an ex
parte injunction from the state court prohibiting the
contractor from taking any steps toward arbitration.
After the contractor objected, that stay was dissolved
and the contractor filed an action in federal district
court seeking an order compelling arbitration under § 4
of the FAA. After the district court stayed the federal
proceedings before it, the Fourth Circuit, on appeal by
the contractor, reversed and directed the district court to
order arbitration. The Supreme Court affirmed.
[1] In so doing, Justice Brennan noted the principles of
abstention set forth in Colorado River Water Conservation
District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47
L.Ed.2d 483 (1976):
“Abstention from the exercise of federal jurisdiction is
the exception, not the rule. ‘The doctrine of abstention,
under which a District Court may decline to exercise
or postpone the exercise of its jurisdiction, is an
extraordinary and narrow exception to the duty of a
District Court to adjudicate a controversy properly
before it. Abdication of the obligation to decide cases can
be justified under this doctrine only in the exceptional
circumstances where the order to the parties to repair
to the State Court would clearly serve an important
countervailing interest.’ ”
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Moses H. Cone, 460 U.S. at 14, 103 S.Ct. at 936 (emphasis
added) (quoting Colorado, 424 U.S. at 813, 96 S.Ct. at
1244) (quoting County of Allegheny v. Frank Mashuda Co.,
360 U.S. 185, 188–89, 79 S.Ct. 1060, 1062–63, 3 L.Ed.2d
1163 (1959)). Colorado River permits federal courts to
abstain from exercising their jurisdiction over a case
where “considerations of ‘[w]ise judicial administration,
giving regard to conservation of judicial resources and
comprehensive disposition of litigation’ ” so warrant.
Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246 (quoting
Kerotest Mfg. Co. v. C–O–Two Fire Equip. Co., 342 U.S.
180, 183, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952)).
[2] The considerations discussed in Colorado River, and/
or in Moses H. Cone, include the following: (1) whether
the state or federal court has assumed jurisdiction over the
res; (2) the inconveniences of the federal forum; (3) the
desirability of avoiding piecemeal litigation; and (4) the
order in which jurisdiction was obtained by the concurrent
forums. Moses H. Cone, 460 U.S. at 16, 103 S.Ct. at
937 (citing Colorado River, 424 U.S. at 818–820, 96 S.Ct.
at 1246–1248). In Moses H. Cone the Supreme Court
added an additional factor to the balance—(5) whether
a federal policy is involved. Id. 460 U.S. at 23, 103 S.Ct.
at 941. None of these factors are determinative; rather,
they require “a careful balancing of the important factors
as they apply in a given case, with the balance heavily
weighted in favor of the exercise of jurisdiction.” Moses
H. Cone, 460 U.S. at 16, 103 S.Ct. at 937.
Applying these considerations to the facts before it, the
Court in Moses H. Cone concluded that the exceptional
circumstances test of Colorado River was not met, and that
therefore abstention was inappropriate. Id. 460 U.S. at
19, 103 S.Ct. at 938 (“[T]he first two factors mentioned
in Colorado River are *1265 not present here.... The
remaining factors—avoidance of piecemeal litigation, and
the order in which jurisdiction was obtained by the
concurrent forums—far from supporting the stay, actually
counsel against it.”).
[3] A careful review of the five factors enunciated in
Moses H. Cone reveals that the district court should have
ordered arbitration in this case. 4 As in Moses H. Cone,
the first factor, regarding the res, has no bearing on the
facts of the instant case. The second factor, inconvenience
of the federal forum, while a relevant consideration,
does not support abstention here. The Masons argue
3
Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)

that they will suffer increased costs if the federal court result in the hospital being forced to resolve its dispute
asserts jurisdiction over this case because the state court against the architect in a different forum than its dispute
is closer to their home. They provide no other evidence of against the contractor,
inconvenience; both the federal suit and any arbitration
will likely occur in Texas, where the Masons reside. “That misfortune ... is not the
More specifically, at least some increased cost appears result of any choice between the
to have arisen from the Masons' resistance to arbitration federal and state courts; it occurs
and their litigating in two court systems, in a manner because the relevant federal *1266
hardly in accord with the Supreme Court's approach that, law requires piecemeal resolution
“[c]ontracts to arbitrate are not to be avoided by allowing when necessary to give effect to
one party to ignore the contract and resort to the courts. an arbitration agreement. Under
Such a course could lead to prolonged litigation, one of the Arbitration Act, an arbitration
the very risks the parties, by contracting for arbitration, agreement must be enforced
sought to eliminate.” Southland Corp. v. Keating, 465 U.S. notwithstanding the presence of
1, 7, 104 S.Ct. 852, 856, 79 L.Ed.2d 1 (1984). other persons who are parties to the
underlying dispute but not to the
The Masons rely most heavily on the third factor, the arbitration agreement.”
avoidance of piecemeal litigation. They contend that
460 U.S. at 20, 103 S.Ct. at 939.
the tort claims alleged in their state court suit are not
arbitrable under the contract and therefore will have to
With regard to the fourth factor, concerning which forum
be litigated in a separate forum. Further, they assert that
first acquired jurisdiction over the action, the Masons
some of the parties will not participate in the arbitration,
assert that because the state court suit was filed first, that
namely Sandra Mason and the individual co-defendants,
court should retain jurisdiction. The district court also
none of whom were parties to the arbitration agreement,
relied on the priority in filing in its reasoning. However,
again resulting in some claims being litigated in another
the Supreme Court in Moses H. Cone characterized
forum.
as “mechanical” a similar argument in that case and
noted that in the arbitration context, such an argument
The terms of the arbitration agreement suggest that,
“disregards the obvious reason for the ... priority in filing.
practically speaking, piecemeal litigation may well not
An indispensable element of [the contractor's] cause of
result. The arbitration agreement mandates arbitration
action under § 4 for an arbitration order is the Hospital's
of claims for breach of the Dealer Agreement as well
refusal to arbitrate.... That refusal did not occur until less
as for claims “arising out of or relating to” the Dealer
than a day before the Hospital filed its state suit.” Id. at
Agreement. Because the tort claims all arise out of
21, 103 S.Ct. at 939. See also Municipal Energy Agency v.
the business relationship between the opposing parties,
Big Rivers Elec. Corp., 804 F.2d 338, 344 (5th Cir.1986).
it appears that they are arbitrable under the terms of
the agreement. The arbitration agreement also provides
In this case, Snap-on had no notice that the Masons would
that Barney Mason must arbitrate not only claims
repudiate their apparent duty to arbitrate until the state
against Snap-on, but also claims against any “employee,
court suit was filed, and therefore, there is no reason why
officer or director” of Snap-on. Thus Barney Mason's
Snap-on should be expected to have filed the within suit
claims against the Snap-on employees may be subject to
before that date. That the state of Texas may have some
arbitration, even though those defendants are not parties
interest in maintaining jurisdiction over this litigation has
to the agreement. Further, according to Snap-on, the
no bearing in a case such as this one, where the federal
individual co-defendants may be willing to participate in
policy favoring arbitration prevails “notwithstanding any
the arbitration proceeding.
state substantive or procedural policies to the contrary.”
Moses H. Cone, 460 U.S. at 24, 103 S.Ct. at 941.
However, even if some piecemeal litigation does result,
Moreover, we note that when the district court chose to
that sometimes is the inevitable result of a congressional
abstain, the state court had not substantially proceeded
policy strongly favoring arbitration. The Supreme Court
towards disposition of the case. In Moses H. Cone, Justice
in Moses H. Cone noted that although arbitration could
Brennan commented that “the federal suit was running

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)
well ahead of the state suit at the very time that the District
Court decided to refuse to adjudicate the case.” 460 U.S.
at 22, 103 S.Ct. at 940.
As to the fifth Moses H. Cone factor, whether federal law
controls the case, the Masons contend that because state
law governs the underlying dispute, their claims against
Snap-on should be heard in state court. However, in this
federal case—concerning only whether the case should be
submitted to arbitration under § 4 of the FAA—federal
law provides the rule of decision on the merits. Id. at 24,
103 S.Ct. at 941. The basic issue presented in this suit,
as in Moses H. Cone, is “the arbitrability of the dispute”
between the opposing parties, and federal law governs that
issue whether it is raised in federal or state court. Id. at 24,
103 S.Ct. at 941.
Despite the obvious applicability of Moses H. Cone
to the facts of the instant case, the Masons present
several additional arguments with which they attempt
to distinguish this case from Moses H. Cone. In
that context, they contend that the individual state
defendants are indispensable parties to the within case
under Fed.R.Civ.P. 19 and that the presence of all of
them destroys diversity jurisdiction. 5 Without diversity
jurisdiction, the federal courts would have no subject
matter jurisdiction over this case. 6 According *1267 to
the Masons, the co-defendants are indispensable because
“any resolution by arbitration does not adjudicate all
issues of law and fact between the Masons and all potential
defendants.”
Under Rule 19(a)(1), joinder is required if “in the person's
absence complete relief cannot be accorded among those
already parties.” This is essentially what the Masons are
contending. However, such a contention merely re-states
the “piecemeal litigation” argument which the Supreme
Court rejected in Moses H. Cone. In Moses H. Cone,
the existence of the state suit against the architect did
not make the architect “indispensable” to the federal
court suit. While the Supreme Court recognized that
any suit against the architect would necessarily take
place in another forum if the architect did not consent
to arbitration, nonetheless, that result did not warrant
abstention. Id. at 19–21, 103 S.Ct. at 938–940.
In a further attempt to demonstrate “exceptional
circumstances” warranting abstention, the Masons claim
that Snap-on waived its right to arbitration by failing
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to request arbitration within six weeks of the Masons'
written notice to Snap-on that Snap-on had violated the
contract. The Masons assert that they provided written
notice to Snap-on on January 23, 1992, that Snap-on was
in breach of the contract. Although the district court did
not consider this argument, and we therefore have no
factual record with regard to this matter, even if we assume
arguendo that the Masons' factual assertion is correct,
their waiver claim lacks merit.
“[F]ifth Circuit precedent places a ‘heavy burden’ on
a party claiming waiver of arbitration rights.” Storey
v. Shearson–American Express, 928 F.2d 159, 163 (5th
Cir.1991) (quoting Frye v. Paine, Webber, Jackson
& Curtis, Inc., 877 F.2d 396, 398 (5th Cir.1989)).
“Accordingly, we indulge a presumption against finding
waiver.” Walker v. J.C. Bradford & Co., 938 F.2d 575, 577
(5th Cir.1991). Herein, the Masons' waiver contention is
based upon the arbitration clause of the agreement which
in pertinent part provides: “Any request for arbitration
shall be filed in writing within six (6) months following
the alleged breach; otherwise, the right to any remedy
shall be deemed forever waived and lost.” From Snap-
on's perspective, there was no possible breach of the dealer
agreement to arbitrate until the Masons sought to avoid
arbitration and filed their suit in state court. Under the
agreement, a party who alleges a breach must request
arbitration within six months. The plain language of the
agreement, as well as common sense, reveals that the
agreement does not require an arbitration request to be
made upon notice of an alleged breach, only upon an
actual breach. By filing its request for arbitration within
one month of the Masons' state court filing, Snap-on
complied with the dealer agreement. 7 The fact that the
breach alleged by the Masons may have occurred more
than six months before Snap-on requested arbitration
cannot under any commonsense interpretation of the
arbitration clause bar Snap-on of the right to arbitrate
since Snap-on had no way of knowing what the Masons
would do until they did it.
Finally, the Masons argue that they were fraudulently
induced to enter the dealership agreement and they
proffer certain facts concerning such alleged inducement.
However, the merits of the underlying dispute are for the
arbitrator to consider, not for this Court or the district
court. Under § 4 of the FAA, the federal district court
ascertains only whether the arbitration clause covers the
allegations at issue. “If the dispute is within the scope of
5
Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)

the arbitration clause, the court may not delve further into inducement of the contract generally.” Prima Paint, 388
U.S. at 404, 87 S.Ct. at 1806. As in Prima Paint and Mesa
the merits of the dispute.” *1268 Municipal Energy, 804
Operating, the defendants in this case have “not argued
F.2d at 342 (citing City of Meridian v. Algernon Blair, Inc.,
that the agreement to arbitrate is invalid separately from
721 F.2d 525, 528 (5th Cir.1983)).
the entire contract. Thus the arbitration provision remains
separate and enforceable....” Mesa Operating, 797 F.2d at
The fact that the Masons make general allegations
244.
of fraud does not alter this analysis. In Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
In sum, the Masons have not demonstrated “exceptional
87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the Supreme
circumstances” which support abstention; rather, Moses
Court “held that, under section 4 of the FAA, the
H. Cone makes clear that in this case, as in most cases, a
‘making’ of an agreement to arbitrate was not called into
“liberal federal policy favoring arbitration” prevails, and
question by the allegation that the entire contract was
abstention is unwarranted. 460 U.S. at 24, 103 S.Ct. at
fraudulently induced. Therefore, the Court concluded, the
941. In the light of the foregoing discussion, we reverse the
fraudulent inducement question was properly resolved by
district court and remand with direction to that court to
an arbitrator rather than a court.” Mesa Operating Ltd.
enter an appropriate order compelling arbitration.
Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d
238, 244 (5th Cir.1986) (citing Prima Paint, 388 U.S. at
REVERSED AND REMANDED.
403–04, 87 S.Ct. at 1805–1806); see also Municipal Energy,
804 F.2d at 342. Only if the allegation of fraud goes
specifically to the making of the agreement to arbitrate All Citations
must a district court address the merits of the fraud claim.
The district court does not address “claims of fraud in the 18 F.3d 1261

Footnotes
* District Judge of the District of Maryland, sitting by designation.
1 The Masons have not responded in the state court to Snap-on's motion to stay the state court proceedings. As of the
date of the district court's dismissal, the state court had taken no action with regard to either the complaint or the motion
to stay. Shortly before arguments were heard in this appeal, the state court granted Snap-on's motion for a stay pursuant
to § 3 of the FAA and sua sponte ordered Barney Mason to arbitrate.
9 U.S.C. § 3 provides:
If any suit or proceeding be 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 an agreement, shall on
application of one of the parties stay the trial of the action until such arbitration has been had in accordance with
the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
2 Section 4 provides in pertinent part:
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 ... 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.
3 On April 8, 1993, at a Scheduling Conference, the district court directed Snap-on to file a formal motion to compel
arbitration by April 30, 1993, and to file an opposition to the motion to dismiss by May 14, 1993. Snap-on filed its motion
to compel arbitration on April 30, 1993, the same day the district court issued its Order granting the Masons' motion to
dismiss. In its Order, the district court expressly forbade the parties from filing anything further in this case in the district
court.
4 The district court's decision cannot be sustained on the basis that determining whether Snap-on is entitled to arbitrate
would require a “full-fledged trial,” since in FAA suits, the federal courts conduct “an expeditious and summary hearing,
with only restricted inquiry into factual issues” bearing on the making of the arbitration agreement. Moses, 460 U.S. at
22, 103 S.Ct. at 940.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Snap-on Tools Corp. v. Mason, 18 F.3d 1261 (1994)

Further, the district court's position that Snap-on may have been trying to get into federal court after failing timely to
remove is not valid. Snap-on could not remove the state court case to federal court in any event because the presence
of the co-defendants destroys diversity. 28 U.S.C. §§ 1332, 1441.
Finally, the district court's assumption that Snap-on could have brought its suit in state court may or may not be soundly
based. This is because the Supreme Court has expressed reticence on this issue, by noting that although states courts
must grant stays pursuant to § 3 of the FAA, “[i]t is less clear ... whether the same is true of an order to compel arbitration
under § 4 of the Act.” Moses H. Cone, 460 U.S. at 26, 103 S.Ct. at 942 (noting the “probable inadequacy of the state-
court proceeding to protect [the] rights” of the party seeking arbitration).
5 Under Rule 19, joinder is required if:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims
an interest relating to the subject of the action and is so situated that the disposition of the action in the person's
absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any
of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations by reason of the claimed interest.
“When joinder of someone described in Rule 19(a) is not feasible [because it will deprive the court of subject matter
jurisdiction], the court must examine ... Rule 19(b) to determine whether the action may go forward in his absence or
must be dismissed....” 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1604,
at 41 (1986). Because in this case joinder is not required under 19(a), see infra, it is unnecessary for this court, in this
appeal, to go on to address the 19(b) standards.
6 Although the Arbitration Act creates a body of substantive federal law governing arbitration agreements, it does not
provide a basis for federal question jurisdiction. “[T]here must be diversity of citizenship or some other independent basis
for federal jurisdiction before [an order compelling arbitration] can issue.” Moses, 460 U.S. at 25 n. 32, 103 S.Ct. at 942
n. 32.
7 We acknowledge that questions of waiver go to the substantive merits of the petition to compel arbitration, i.e., whether
the claim is arbitrable. Because the district court abstained from addressing the merits, we could remand this case to
the district court to reconsider the petition in the light of this Court's guidance. However, where abstention is clearly
unwarranted, as it appears to be in this case, the appellate court should consider the merits itself and move this litigation
along. See Burns v. Watler, 931 F.2d 140, 147 (1st Cir.1991).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
KeyCite Yellow Flag - Negative Treatment
Overruling Recognized by Cohen v. DirecTV, Inc., Cal.App. 2 Dist., 
September 18, 2006
104 S.Ct. 852
Supreme Court of the United States
SOUTHLAND CORPORATION, et al., Appellants
v.
Richard D. KEATING et al.
No. 82–500.
| the federal act preempted the state law. 9
Argued Oct. 4, 1983.
| 6, cl. 2; West's Ann.Cal.Corp.Code §§ 31000 et
Decided Jan. 23, 1984.
Individual actions and class action by convenience store
franchisees were brought against franchisor alleging,
among other things, fraud, breach of contract and
violation of disclosure requirements of the California
Franchise Investment Law. The Superior Court, Alameda
County, Robert H. Kroninger, J., ordered arbitration of
all claims except those based on the statute. The California
Court of Appeal, 109 Cal.App.3d 784, 167 Cal.Rptr. 481,
reversed as regards the statutory claim. The California
Supreme Court, 31 Cal.3d 584, 183 Cal.Rptr. 360, 645
P.2d 1192, held that statutory claims were not arbitrable,
and appeal was taken. The Supreme Court, Chief Justice
Burger, held that: (1) the court had jurisdiction to
decide whether federal arbitration act preempted state law
voiding arbitration clause; (2) since it did not affirmatively
appear that request for class certification was drawn in
question on federal grounds the court lacked appellate
jurisdiction to resolve that question as a matter of federal
law; and (3) provision of state law requiring judicial
consideration of claims brought under that law directly
conflicts with the Federal Arbitration Act and violates the
supremacy clause.
Appeal dismissed in part and judgment reversed in part.
Justice Stevens, filed an opinion concurring in part and
dissenting in part.
Justice O'Connor filed a dissenting opinion, in which
Justice Rehnquist joined.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
West Headnotes (9)
[1] Federal Courts
Validity of state constitution or statutes
Judgment of California Supreme Court
that claims asserted under state Franchise
Investment Law were not arbitrable and that
the state law did not contravene Federal
Arbitration Act was immediately appealable
and the court would determine whether
U.S.C.A. §§ 1 et seq., 2; U.S.C.A. Const. Art.
seq., 31512; 28 U.S.C.A. § 1257(2).
46 Cases that cite this headnote
[2] Alternative Dispute Resolution
As ousting jurisdiction of or precluding
resort to courts
Contracts to arbitrate are not to be avoided by
allowing one party to ignore the contract and
resort to the courts. 9 U.S.C.A. § 2.
186 Cases that cite this headnote
[3] Federal Courts
Validity of state constitution or statutes
Federal Courts
Review of state courts
Where it was not contended in California
courts and those courts did not decide
whether state law imposition of class
actions procedures for arbitration under
franchise agreement was preempted by
Federal Arbitration Act, the class action
arbitration issue was not directly appealable
to the United States Supreme Court under
statute providing for appeal from state court
when validity of challenged state statute is
sustained as not in conflict with federal law,
notwithstanding appealability of ruling that
provision of state franchise act precluding
arbitration did not violate the federal act.
West's Ann.Cal.Corp.Code §§ 31000 et seq.,
31512; 9 U.S.C.A. § 2; 28 U.S.C.A. § 1257(2).
1
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
272 Cases that cite this headnote
[4] Commerce
Arbitration
Provision of California Franchise Investment
Law requiring judicial consideration of claims
brought under the statute and precluding
enforceability of contract to arbitrate such
claims conflicts with United States arbitration
as regards transactions involving commerce
and violates the supremacy clause. West's
Ann.Cal.Corp.Code § 31512; 9 U.S.C.A. § 2;
U.S.C.A. Const. Art. 6, cl. 2.
329 Cases that cite this headnote
[5] Alternative Dispute Resolution
Contractual or consensual basis
Alternative Dispute Resolution
Arbitration favored; public policy
Commerce
Arbitration
In enacting provision of federal arbitration
act that an arbitration provision is valid and
irrevocable the Congress declared a national
policy favoring arbitration and withdrew
power of the states to require a judicial forum
for resolution of claims which the contracting
parties agreed to resolve by arbitration. 9
U.S.C.A. § 2.
453 Cases that cite this headnote
[6] Commerce
Arbitration
Federal Arbitration Act rests on the authority
of Congress to enact substantive rules under
the commerce clause. 9 U.S.C.A. § 1 et seq.;
U.S.C.A. Const. Art. 1, § 8, cl. 3.
78 Cases that cite this headnote
[7] Commerce
Arbitration
The “involving commerce” requirement of
Federal Arbitration Act is not an inexplicable
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
limitation on the power of federal courts but is
a necessary qualification on a statute intended
to apply in state and federal courts. 9 U.S.C.A.
§ 2.
127 Cases that cite this headnote
[8] Alternative Dispute Resolution
Mode and course of proceedings in
general
Although Federal Arbitration Act preempts
state law that withdraws power to enforce
arbitration agreements that are enforceable
under the Federal Act, provision of Federal
Act that the federal rules apply in proceedings
to arbitration is not applicable in state court
proceedings. 9 U.S.C.A. §§ 2, 4.
426 Cases that cite this headnote
[9] Alternative Dispute Resolution
Right to Enforcement and Defenses in
General
A party may assert general contract defenses
such as fraud to avoid enforcement of an
arbitration agreement. 9 U.S.C.A. § 2.
87 Cases that cite this headnote
**853 *1 Syllabus *
Appellant Southland Corp. (hereafter appellant) is the
owner and franchisor of 7-Eleven convenience stores.
Appellees are 7-Eleven franchisees. Each franchise
agreement between appellant and appellees contains
a clause requiring arbitration of any controversy or
claim arising out of or relating to the agreement or
breach thereof. Several of the appellees filed individual
actions against appellant in California Superior Court,
alleging fraud, misrepresentation, breach of contract,
breach of fiduciary duty, and violation of the disclosure
requirements of the California Franchise Investment Law.
These actions were consolidated with a subsequent class
action filed by another appellee making substantially the
same claims. Appellant moved to compel arbitration of
the claims pursuant to the contract. The Superior Court
2
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
granted the motion as to all claims except those based
on the Franchise Investment Law, and did not pass on
appellees' request for class certification. The California
Court of Appeal reversed the trial court's refusal to
compel arbitration of the claims under the Franchise
Investment Law, construing the arbitration clause to
require arbitration of such claims and holding that the
Franchise Investment Law did not invalidate arbitration
agreements and that if it rendered such agreements
involving commerce unenforceable, it would conflict with
§ 2 of the United States Arbitration Act, which provides
that “a contract evidencing a transaction involving
commerce to settle by arbitration a controversy ...
arising out of such contract or transaction ... shall be
valid, irrevocable, and enforceable, *2 save upon such
grounds as exist at law or in equity for the revocation
of any contract.” The court also directed the trial
court to conduct class certification proceedings. The
California Supreme Court reversed the **854 ruling
that claims asserted under the Franchise Investment Law
are arbitrable, interpreting § 31512 of that Law—which
renders void any provision purporting to bind a franchisee
to waive compliance with any provision of that Law—to
require judicial consideration of claims brought under that
statute and holding that the statute did not contravene
the federal Act. The court remanded the case to the
trial court for consideration of appellees' request for class
certification.
Held:
1. This Court has jurisdiction under 28 U.S.C. § 1257(2)
to decide whether the United States Arbitration Act pre-
empts § 31512 of the California statute. Cox Broadcasting
Corp. v. Cohn, 420 U.S. 469, 95 S.Ct. 1029, 43 L.Ed.2d 328
(1975). To delay review of a state judicial decision denying
enforcement of an arbitration contract until the state
litigation has run its course would defeat the core purpose
of the contract. On the other hand, since it does not
affirmatively appear that the request for class certification
was “drawn in question” on federal grounds, this Court is
without jurisdiction to resolve this question as a matter of
federal law under § 1257(2). Pp. 856 – 858.
2. Section 31512 of the California statute directly conflicts
with § 2 of the United States Arbitration Act and hence
violates the Supremacy Clause. Pp. 858 – 861.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
(a) In enacting § 2 of the federal Act, Congress declared
a national policy favoring arbitration and withdrew the
power of the states to require a judicial forum for the
resolution of claims that the contracting parties agreed
to resolve by arbitration. That Act, resting on Congress'
authority under the Commerce Clause, creates a body of
federal substantive law that is applicable in both state
and federal courts. Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927,
74 L.Ed.2d 765 (1983). To confine the Act's scope to
arbitrations sought to be enforced in federal courts would
frustrate what Congress intended to be a broad enactment.
Pp. 858 – 860.
(b) If Congress, in enacting the Arbitration Act, had
intended to create a procedural rule applicable only in
federal courts it would not have limited the Act to
contracts “involving commerce.” Section 2's “involving
commerce” requirement is not to be viewed as an
inexplicable limitation on the power of the federal courts
but as a necessary qualification on a statute intended to
apply in state as well as federal courts. P. 860.
(c) The California Supreme Court's interpretation of §
31512 would encourage and reward forum shopping. This
Court will not attribute to *3 Congress the intent to
create a right to enforce an arbitration contract and yet
make that right dependent on the particular forum in
which it is asserted. Since the overwhelming proportion
of civil litigation in this country is in the state courts,
Congress could not have intended to limit the Arbitration
Act to disputes subject only to federal -court jurisdiction.
In creating a substantive rule applicable in state as well
as federal courts, Congress intended to foreclose state
legislative attempts to undercut the enforceability of
arbitration agreements. Pp. 860 – 861.
Appeal dismissed in part; 31 Cal.3d 584, 183 Cal.Rptr.
360, 645 P.2d 1192, reversed in part and remanded.
Attorneys and Law Firms
Mark J. Spooner argued the case for appellants. With him
on the briefs were Peter K. Bleakley and Martin H. Kresse.
John F. Wells argued the cause for appellees. With him on
the brief were Lise A. Pearlman and Fonda Karelitz.*
3
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
* A brief of amici curiae was filed by Simon H. Trevas for
the Securities Division of the State of Washington et al.
Mark J. Spooner argued the case for appellants. With him
on the briefs were Peter K. Bleakley and Martin H. Kresse.
John F. Wells argued the cause for appellees. With him on
the brief were Lise A. Pearlman and Fonda Karelitz.*
* A brief of amici curiae was filed by Simon H. Trevas for
the Securities Division of the State of Washington et al.
Opinion
Chief Justice BURGER delivered the opinion of the
Court.
We noted probable jurisdiction to consider (a) whether the
California Franchise Investment Law, which invalidates
certain arbitration agreements covered by the Federal
Arbitration Act, violates the Supremacy Clause and (b)
whether arbitration under the Federal Act is impaired
when a class action **855 structure is imposed on the
process by the state courts.
I
Appellant The Southland Corporation is the owner and
franchisor of 7-Eleven convenience stores. Southland's
standard franchise agreement provides each franchisee
with a license to use certain registered trademarks, a lease
or sublease of a convenience store owned or leased by
Southland, inventory *4 financing, and assistance in
advertising and merchandising. The franchisees operate
the stores, supply bookkeeping data, and pay Southland
a fixed percentage of gross profits. The franchise
agreement also contains the following provision requiring
arbitration:
“Any controversy or claim arising
out of or relating to this Agreement
or the breach thereof shall be
settled by arbitration in accordance
with the Rules of the American
Arbitration Association ... and
judgment upon any award rendered
by the arbitrator may be entered
in any court having jurisdiction
thereof.”
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Appellees are 7-Eleven franchisees. Between September
1975 and January 1977, several appellees filed individual
actions against Southland in California Superior
Court alleging, among other things, fraud, oral
misrepresentation, breach of contract, breach of fiduciary
duty, and violation of the disclosure requirements of the
California Franchise Investment Law, Cal.Corp.Code §
31000 et seq. (West 1977). Southland's answer, in all but
one of the individual actions, included the affirmative
defense of failure to arbitrate.
In May 1977, appellee Keating filed a class action against
Southland on behalf of a class that assertedly includes
approximately 800 California franchisees. Keating's
principal claims were substantially the same as those
asserted by the other franchisees. After the various actions
were consolidated, Southland petitioned to compel
arbitration of the claims in all cases, and appellees moved
for class certification.
The Superior Court granted Southland's motion to
compel arbitration of all claims except those claims based
on the Franchise Investment Law. The court did not pass
on appellees' request for class certification. Southland
appealed from the order insofar as it excluded from
arbitration the claims based on the California statute.
Appellees filed a petition for a writ of mandamus or
prohibition in the California *5 Court of Appeal arguing
that the arbitration should proceed as a class action.
The California Court of Appeal reversed the trial
court's refusal to compel arbitration of appellees' claims
under the Franchise Investment Law. 109 Cal.App.3d
784, 167 Cal.Rptr. 481 (1980). That court interpreted
the arbitration clause to require arbitration of all
claims asserted under the Franchise Investment Law,
and construed the Franchise Investment Law not to
invalidate such agreements to arbitrate. 1 Alternatively,
the court concluded that if the Franchise Investment
Law rendered arbitration agreements involving commerce
unenforceable, it would conflict with § 2 of the Federal
Arbitration Act, 9 U.S.C. § 2 (1976), and therefore be
invalid under the Supremacy Clause. 167 Cal.Rptr. at
493–494. The Court of Appeal also determined that
there was no “insurmountable obstacle” to conducting
an arbitration on a classwide basis, and issued a writ
of mandate directing the trial court to conduct class
certification proceedings. Id., at 492.
4
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
The California Supreme Court, by a vote of 4–2, reversed
the ruling that claims asserted under the Franchise
Investment Law are arbitrable. 31 Cal.3d 584, 183
Cal.Rptr. 360, 645 P.2d 1192 (1982). The California
Supreme Court interpreted the Franchise Investment Law
to require judicial consideration of claims brought under
**856 that statute and concluded that the California
statute did not contravene the federal Act. Id., at 604, 183
Cal.Rptr., at 371–372, 645 P.2d, at 1203–1204. The court
also remanded the case to the trial court for consideration
of appellees' request for classwide arbitration.
*6 We postponed consideration of the question of
jurisdiction pending argument on the merits. 459 U.S.
1101, 103 S.Ct. 721, 74 L.Ed.2d 948 (1983). We reverse in
part and dismiss in part.
II
A 940, 74 L.Ed.2d 765 (1983).
Jurisdiction of this Court is asserted under 28 U.S.C.
§ 1257(2) which provides for an appeal from a final
judgment of the highest court of a state when the validity
of a challenged state statute is sustained as not in
conflict with federal law. Here Southland challenged the
California Franchise Investment Law as it was applied to
invalidate a contract for arbitration made pursuant to the
Federal Arbitration Act. Appellee argues that the action
of the California Supreme Court with respect to this claim
is not a “final judgment or decree” within the meaning of
§ 1257(2).
Under Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 482–
483, 95 S.Ct. 1029, 1039–1040, 43 L.Ed.2d 328 (1975),
judgments of state courts that finally decide a federal
issue are immediately appealable when “the party seeking
review here might prevail [in the state court] on the merits
on nonfederal grounds, thus rendering unnecessary review
of the federal issue by this Court, and where reversal of
the state court on the federal issue would be preclusive of
any further litigation on the relevant cause of action....”
In these circumstances, we have resolved the federal issue
“if a refusal immediately to review the state-court decision
might seriously erode federal policy.” Id., at 483, 95 S.Ct.,
at 1040.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[1] [2] The judgment of the California Supreme
Court with respect to this claim is reviewable under
Cox Broadcasting, supra. Without immediate review of
the California holding by this Court there may be no
opportunity to pass on the federal issue and as a result
“there would remain in effect the unreviewed decision
of the State Supreme Court” holding that the California
statute does not conflict with the Federal Arbitration Act.
Id., at 485, 95 S.Ct., at 1041. On the other hand, reversal
*7 of a state court judgment in this setting will terminate
litigation of the merits of this dispute.
Finally, the failure to accord immediate review of the
decision of the California Supreme Court might “seriously
erode federal policy.” Plainly the effect of the judgment
of the California court is to nullify a valid contract made
by private parties under which they agreed to submit all
contract disputes to final, binding arbitration. The federal
Act permits “parties to an arbitrable dispute [to move]
out of court and into arbitration as quickly and easily as
possible.” Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., ––– U.S. ––––, ––––, 103 S.Ct. 927,
Contracts to arbitrate are not to be avoided by allowing
one party to ignore the contract and resort to the courts.
Such a course could lead to prolonged litigation, one of
the very risks the parties, by contracting for arbitration,
sought to eliminate. In The Bremen v. Zapata Off-Shore
Co., 407 U.S. 1, 12, 92 S.Ct. 1907, 1914, 32 L.Ed.2d
513 (1972), we noted that the contract fixing a particular
forum for resolution of all disputes
“was made in an arm's-length
negotiation by experienced and
sophisticated businessmen, and
absent some compelling and
countervailing reason it should be
honored by the parties and enforced
by the courts.”
The Zapata court also noted that
“the forum clause was a vital part of the agreement, and
it would be unrealistic to think that the parties did not
conduct their negotiations, including fixing the **857
monetary terms, with the consequences of the forum
clause figuring prominently in their calculations.” Id.,
at 14, 92 S.Ct., at 1915.
5
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
For us to delay review of a state judicial decision denying
enforcement of the contract to arbitrate until the state
court litigation has run its course would defeat the core
purpose of *8 a contract to arbitrate. We hold that
the Court has jurisdiction to decide whether the Federal
Arbitration Act preempts § 31512 of the California
Franchise Investment Law.
B
[3] That part of the appeal relating to the propriety
of superimposing class action procedures on a contract
arbitration raises other questions. Southland did not
contend in the California courts that, and the State courts
did not decide whether, State law imposition class action
procedures was preempted by federal law. When the
California Court of Appeal directed Southland to address
the question whether state or federal law controlled the
class action issue, Southland responded that State law did
not permit arbitrations to proceed as class actions, that
the Federal Rules of Civil Procedure were inapplicable,
and that requiring arbitrations to proceed as class actions
“could well violate the [federal] constitutional guaranty
of procedural due process.” 2 Southland did not claim in
the Court of Appeal that if State law required class action
procedures, it would conflict with the federal Act and thus
violate the Supremacy Clause.
In the California Supreme Court, Southland argued that
California law applied but that neither the contract to
arbitrate nor State law authorized class action procedures
to govern arbitrations. Southland also contended that
the Federal Rules were inapplicable in State proceedings.
Southland pointed out that although California law
provided a basis for class action procedures, the Judicial
Council of California acknowledged “the incompatibility
of class actions and arbitration.” Petition for Hearing
at 23. It does not appear that Southland opposed class
procedures on federal grounds in the *9 California
Supreme Court. 3 Nor does the record show that the
California Supreme Court passed upon the question
whether superimposing class action procedures on a
contract arbitration was contrary to the federal Act. 4
**858 Since it does not affirmatively appear that the
validity of the State statute was “drawn in question”
on federal grounds by Southland, this Court is without
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
jurisdiction to resolve this question as a matter of federal
law under 28 U.S.C. § 1257(2). See Bailey v. Anderson, 326
U.S. 203, 207, 66 S.Ct. 66, 68, 90 L.Ed. 3 (1945).
*10 III
[4] The California Franchise Investment Law provides:
“Any condition, stipulation or provision purporting
to bind any person acquiring any franchise to waive
compliance with any provision of this law or any rule or
order hereunder is void.” Cal.Corp.Code § 31512 (West
1977).
The California Supreme Court interpreted this statute to
require judicial consideration of claims brought under
the State statute and accordingly refused to enforce the
parties' contract to arbitrate such claims. So interpreted
the California Franchise Investment Law directly conflicts
with § 2 of the Federal Arbitration Act and violates the
Supremacy Clause.
[5] In enacting § 2 of the federal Act, Congress declared
a national policy favoring arbitration and withdrew 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 Federal Arbitration Act
provides:
“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 revocation of any contract.” 9 U.S.C. § 2 (1976).
Congress has thus mandated the enforcement of
arbitration agreements.
We discern only two limitations on the enforceability
of arbitration provisions governed by the Federal
Arbitration *11 Act: they must be part of a written
maritime contract or a contract “evidencing a transaction
involving commerce” 5 and such clauses may be revoked
upon “grounds as exist at law or in equity for the
6
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
revocation of any contract.” We see nothing in the Act
indicating that the broad principle of enforceability is
subject to any additional limitations under State law.
[6] The Federal Arbitration Act rests on the authority of
Congress to enact substantive rules under the Commerce
Clause. In Prima Paint Corp. v. Flood & Conklin
Manufacturing Corp., 388 U.S. 395, 87 S.Ct. 1801, 18
L.Ed.2d 1270 (1967), the Court examined the legislative
history of the Act and concluded that the statute “is based
upon ... the incontestable federal foundations of ‘control
over interstate commerce and over admiralty.’ ” Id., at
405, 87 S.Ct., at 1806 (quoting H.R.Rep. No. 96, 68th
Cong., 1st Sess. 1 (1924)). The contract in Prima Paint,
as here, contained an arbitration clause. One party in that
case alleged that the other had committed fraud in the
inducement of the contract, although not of arbitration
clause in particular, and sought to have the claim of
fraud adjudicated in federal court. The Court held that,
notwithstanding a contrary state rule, consideration of a
claim of fraud in the inducement of a contract “is for the
arbitrators and not for the courts,” id., at 400, 87 S.Ct., at
1804. The Court relied for this holding on Congress' broad
power to fashion substantive rules under the Commerce
Clause. 6
**859 At least since 1824 Congress' authority under
the Commerce Clause has been held plenary. Gibbons
v. Ogden, 22 U.S. 1, 196, 9 Wheat. 1, 196, 6 L.Ed. 23
(1824). In the words of Chief Justice Marshall, *12 the
authority of Congress is “the power to regulate; that is, to
prescribe the rule by which commerce is to be governed.”
Ibid. The statements of the Court in Prima Paint that
the Arbitration Act was an exercise of the Commerce
Clause power clearly implied that the substantive rules of
the Act were to apply in state as well as federal courts.
As Justice Black observed in his dissent, when Congress
exercises its authority to enact substantive federal law
under the Commerce Clause, it normally creates rules
that are enforceable in state as well as federal courts.
Prima Paint, 388 U.S., at 420, 87 S.Ct., at 1814 (Black, J.,
dissenting).
In Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., ––– U.S., at ––––, –––– n. 32, 103
S.Ct., at 942 n. 32, we reaffirmed our view that the
Arbitration Act “creates a body of federal substantive
law” and expressly stated what was implicit in Prima
Paint, i.e., the substantive law the Act created was
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
applicable in state and federal court. Moses H. Cone
began with a petition for an order to compel arbitration.
The District Court stayed the action pending resolution
of a concurrent state court suit. In holding that the
District Court had abused its discretion, we found no
showing of exceptional circumstances justifying the stay
and recognized “the presence of federal-law issues” under
the federal Act as “a major consideration weighing against
surrender [of federal jurisdiction].” Id., at ––––, 103 S.Ct.,
at 942. We thus read the underlying issue of arbitrability
to be a question of substantive federal law: “Federal law
in the terms of the Arbitration Act governs that issue in
either state or federal court.” Id., at ––––, 103 S.Ct., at 941.
Although the legislative history is not without
ambiguities, there are strong indications that Congress
had in mind something more than making arbitration
agreements enforceable only in the federal courts. The
House Report plainly suggests the more comprehensive
objectives:
“The purpose of this bill is to make valid and
enforcible agreements for arbitration contained in
contracts involving *13 interstate commerce or within
the jurisdiction or admiralty, or which may be the
subject of litigation in the Federal courts.” H.R.Rep.
No. 96, 68th Cong., 1st Sess. 1 (1924) (Emphasis added.)
This broader purpose can also be inferred from the reality
that Congress would be less likely to address a problem
whose impact was confined to federal courts than a
problem of large significance in the field of commerce. The
Arbitration Act sought to “overcome the rule of equity,
that equity will not specifically enforce any arbitration
agreement.” Hearing on S. 4214 Before a Subcomm. of the
Senate Comm. on the Judiciary, 67th Cong., 4th Sess. 6
(1923) ( “Senate Hearing”) (remarks of Sen. Walsh). The
House Report accompanying the bill stated:
“[t]he need for the law arises from ... the jealousy of
the English courts for their own jurisdiction.... This
jealousy survived for so lon[g] a period that the principle
became firmly embedded in the English common law
and was adopted with it by the American courts. The
courts have felt that the precedent was too strongly
fixed to be overturned without legislative enactment....”
H.R.Rep. No. 96, supra, 1–2 (1924).
Surely this makes clear that the House Report
contemplated a broad reach of the Act, unencumbered
7
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
by state law constraints. As was stated in Metro
Industrial Painting Corp. v. Terminal Construction Corp.,
287 F.2d 382, 387 (CA2 1961) (Lumbard, Chief Judge,
concurring), “the purpose of the act was to assure those
who desired arbitration and whose contracts related to
interstate commerce that their expectations would not
be undermined by federal judges, or ... by state courts
or legislatures.” Congress also showed its awareness
of the widespread unwillingness of **860 state courts
to enforce arbitration agreements, e.g., Senate Hearing,
supra, at 8, and that *14 such courts were bound by state
laws inadequately providing for
“technical arbitration by which, if you agree to arbitrate
under the method provided by the statute, you have an
arbitration by statute[;] but [the statutes] ha[d] nothing
to do with validating the contract to arbitrate.” Ibid.
The problems Congress faced were therefore twofold:
the old common law hostility toward arbitration, and
the failure of state arbitration statutes to mandate
enforcement of arbitration agreements. To confine the
scope of the Act to arbitrations sought to be enforced in
federal courts would frustrate what we believe Congress
intended to be a broad enactment appropriate in scope to
meet the large problems Congress was addressing.
[7] Justice O'CONNOR argues that Congress viewed
the Arbitration Act “as a procedural statute, applicable
only in federal courts.” Post, at 865. If it is correct that
Congress sought only to create a procedural remedy in the
federal courts, there can be no explanation for the express
limitation in the Arbitration Act to contracts “involving
commerce.” 9 U.S.C. § 2. For example, when Congress has
authorized this Court to prescribe the rules of procedure
in the federal Courts of Appeals, District Courts, and
bankruptcy courts, it has not limited the power of the
Court to prescribe rules applicable only to causes of action
involving commerce. See, e.g., 28 U.S.C. §§ 2072, 2075,
2076 (1976). We would expect that if Congress, in enacting
the Arbitration Act, was creating what it thought to be a
procedural rule applicable only in federal courts, it would
not so limit the Act to transactions involving commerce.
On the other hand, Congress would need to call on the
Commerce Clause if it intended the Act to apply in state
courts. Yet at the same time, its reach would be limited to
transactions involving interstate commerce. We therefore
view the “involving commerce” requirement in § 2, not
as an inexplicable limitation on the power of the federal
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
courts, but as a necessary *15 qualification on a statute
intended to apply in state and federal courts.
Under the interpretation of the Arbitration Act urged by
Justice O'CONNOR, claims brought under the California
Franchise Investment Law are not arbitrable when they
are raised in state court. Yet it is clear beyond question
that if this suit had been brought as a diversity action in
a federal district court, the arbitration clause would have
been enforceable. 7 Prima Paint, supra. The interpretation
given to the Arbitration Act by the California Supreme
Court would therefore encourage and reward forum
shopping. We are unwilling to attribute to Congress
the intent, in drawing on the comprehensive powers of
the Commerce Clause, to create a right to enforce an
arbitration contract and yet make the right dependent
for its enforcement on the particular forum in which it is
asserted. And since the overwhelming proportion of all
civil litigation in this country is in the state courts, 8 we
cannot believe Congress intended to limit the Arbitration
Act to disputes subject only to federal **861 court
jurisdiction. 9 Such an interpretation would frustrate
Congressional *16 intent to place “[a]n arbitration
agreement ... upon the same footing as other contracts,
where it belongs.” H.R.Rep. No. 96, supra, 1.
[8] [9] In creating a substantive rule applicable in state
as well as federal courts, 10 Congress intended to foreclose
state legislative attempts to undercut the enforceability
of arbitration agreements. 11 We hold that § 31512 of
the California Franchise Investment Law violates the
Supremacy Clause.
*17 IV
The judgment of the California Supreme Court denying
enforcement of the arbitration agreement is reversed;
as to the question whether the Federal Arbitration Act
precludes a class action arbitration and any other issues
not raised in the California courts, no decision by this
Court would be appropriate at this time. As to the latter
issues, the case is remanded for further proceedings not
inconsistent with this opinion.
It is so ordered.
8
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1

The limited objective of the Federal Arbitration Act was

to abrogate the general common law rule against specific
Justice STEVENS, concurring in part and dissenting in
enforcement of arbitration agreements, S.Rep. No. 536,
part.
68th Cong., 1st Sess., 2–3 (1924), and a state statute which
The Court holds that an arbitration clause that is
merely codified the general common law rule—either
enforceable in an action in a federal court is equally
directly by employing the prior doctrine of revocability
enforceable if the action is brought in a state court. I agree
or indirectly by declaring all such agreements void—
with that conclusion. Although Justice O'CONNOR'S
would be preempted by the Act. However, beyond this
review of the legislative history of the Federal Arbitration
conclusion, which seems compelled by the language of § 2
Act demonstrates that the 1925 Congress that enacted
and case law concerning the Act, it is by no means clear
**862 the statute viewed the statute as essentially
that Congress intended entirely to displace State authority
procedural in nature, I am persuaded that the intervening
in this field. Indeed, while it is an understatement to say
developments in the law compel the conclusion that the
that “the legislative history of the ... Act ... reveals little
Court has reached. I am nevertheless troubled by one
awareness on the part of Congress that *19 state law
aspect of the case that seems to trouble none of my
might be affected,” it must surely be true that given the
colleagues.
lack of a “clear mandate from Congress as to the extent to
which state statutes and decisions are to be superseded, we
For me it is not “clear beyond question that if this
must be cautious in construing the act lest we excessively
suit had been brought as a diversity action in a Federal
encroach on the powers which Congressional policy, if
District Court, the arbitration clause would have been
not the Constitution, would reserve to the states.” Metro
enforceable.” Ante, at 860. The general rule prescribed by
Industrial Painting Corp. v. Terminal Construction Co., 287
§ 2 of the Federal *18 Arbitration Act is that arbitration
F.2d 382, 386 (CA2 1961) (Lumbard, C.J., concurring).
clauses in contracts involving interstate transactions are
enforceable as a matter of federal law. That general
The textual basis in the Act for avoiding such
rule, however, is subject to an exception based on “such
encroachment is the provision of § 2 which provides that
grounds as exist at law or in equity for the revocation of
arbitration agreements are subject to revocation on such
any contract.” I believe that exception leaves room for the
grounds as exist at law or in equity for the revocation
implementation of certain substantive state policies that
of any contract. The Act, however, does not define what
would be undermined by enforcing certain categories of
grounds for revocation may be permissible, and hence
arbitration clauses.
it would appear that the judiciary must fashion the
limitations as a matter of federal common law. Cf. Textile
The exercise of State authority in a field traditionally
Workers v. Lincoln Mills, 353 U.S. 448, 77 S.Ct. 912, 1
occupied by State law will not be deemed preempted by
L.Ed.2d 972 (1957). In doing so, we must first recognize
a federal statute unless that was the clear and manifest
that as the “ ‘saving clause’ in § 2 indicates, the purpose
purpose of Congress. Ray v. Atlantic Richfield Co., 435
of Congress in 1925 was to make arbitration agreements
U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978);
as enforceable as other contracts, but not more so.” Prima
see generally, Hamilton, The Federalist, No. 32, 300
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
(Van Doren Ed.1945). Moreover, even where a federal
404 n. 12, 87 S.Ct. 1801, 1806 n. 12, 18 L.Ed.2d 1270
statute does displace State authority, it “rarely occupies
(1967); see also, H.R.Rep. No. 96, 68th Cong., 1st Sess.
a legal field completely, totally excluding all participation
1 (1924). The existence of a federal statute enunciating
by the legal systems of the states.... Federal legislation,
a substantive **863 federal policy does not necessarily
on the whole, has been conceived and drafted on an
require the inexorable application of a uniform federal
ad hoc basis to accomplish limited objectives. It builds
rule of decision notwithstanding the differing conditions
upon legal relationships established by the states, altering
which may exist in the several States and regardless of
or supplanting them only so far as necessary for the
the decisions of the States to exert police powers as they
special purpose.” P. Bator, P. Mishkin, D. Shapiro, & H.
deem best for the welfare of their citizens. Cf. Wallis v.
Wechsler, Hart and Wechsler's The Federal Courts and
Pan American Petroleum Corp., 384 U.S. 63, 69, 86 S.Ct.
the Federal System 470–471 (2d ed. 1973).
1301, 1304, 16 L.Ed.2d 369 (1966); see generally, Wilson
v. Omaha Indian Tribe, 442 U.S. 653, 671–672, 99 S.Ct.

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Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
2529, 2539–2540, 61 L.Ed.2d 153 (1979); United States
v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59
L.Ed.2d 711 (1979); Clearfield Trust Co. v. United States,
318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943). Indeed,
the lower courts generally look to State law regarding
questions of formation of the arbitration agreement under
§ 2, see, e.g., Comprehensive Merchandising Cat. *20 Inc.
v. Madison Sales Corp., 521 F.2d 1210 (CA7 1975), which
is entirely appropriate so long as the state rule does not
conflict with the policy of § 2.
A contract which is deemed void is surely revocable
at law or in equity, and the California legislature has
declared all conditions purporting to waive compliance
with the protections of the Franchise Disclosure Act,
including but not limited to arbitration provisions, void
as a matter of public policy. Given the importance to the
State of franchise relationships, the relative disparity in
the bargaining positions between the franchisor and the
franchisee, and the remedial purposes of the California
Act, I believe this declaration of State policy is entitled to
respect.
Congress itself struck a similar balance in § 14 of the
Securities Act of 1933, 15 U.S.C. § 77n, and did not
find it necessary to amend the Federal Arbitration Act.
Rather, this Court held that the Securities Act provision
invalidating arbitration agreements in certain contexts
could be reconciled with the general policy favoring
enforcement of arbitration agreements. Wilko v. Swan,
346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). Repeals
by implication are of course not favored, and we did
not suggest that Congress had intended to repeal or
modify the substantive scope of the Arbitration Act
in passing the Securities Act. Instead, we exercised
judgment, scrutinizing the policies of the Arbitration
Act and their applicability in the special context of the
remedial legislation at issue, and found the Arbitration
Act inapplicable. We have exercised such judgment in
other cases concerning the scope of the Arbitration Act,
and have focused not on sterile generalization, but rather
on the substance of the transaction at issue, the nature
of the relationship between the parties to the agreement,
and the purpose of the regulatory scheme. See, e.g., Scherk
v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41
L.Ed.2d 270 (1974), rev'g, 484 F.2d 611 (CA7 1973); see
also, id., 484 F.2d, at 615–620 (Stevens, Circuit Judge,
dissenting). Surely the general language of the Arbitration
Act that arbitration agreements are valid does not mean
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
that all such agreements are valid *21 irrespective of
their purpose or effect. See generally, Paramount Famous
Lasky Corp. v. United States, 282 U.S. 30, 51 S.Ct. 42, 75
L.Ed. 145 (1930) (holding arbitration agreement void as a
restraint of trade).
We should not refuse to exercise independent judgment
concerning the conditions under which an arbitration
agreement, generally enforceable under the Act, can be
held invalid as contrary to public policy simply because
the source of the substantive law to which the arbitration
agreement attaches is a State rather than the Federal
Government. I find no evidence that Congress intended
such a double standard to apply, and I would not lightly
impute such an intent to the 1925 Congress which enacted
the Arbitration Act.
A state policy excluding wage claims from arbitration,
cf. Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414
U.S. 117, 94 S.Ct. 383, 38 L.Ed.2d 348 (1973), or a state
policy of providing special protection for franchisees, such
as that expressed in California's Franchise Investment
Law, **864 can be recognized without impairing the
basic purposes of the federal statute. Like the majority of
the California Supreme Court, I am not persuaded that
Congress intended the pre-emptive effect of this statute
to be “so unyielding as to require enforcement of an
agreement to arbitrate a dispute over the application of a
regulatory statute which a state legislature, in conformity
with analogous federal policy, has decided should be left
to judicial enforcement.” App. to Juris. Statement 18a.
Thus, although I agree with most of the Court's
reasoning and specifically with its jurisdictional holdings,
I respectfully dissent from its conclusion concerning the
enforceability of the arbitration agreement. On that issue,
I would affirm the judgment of the California Supreme
Court.
Justice O'CONNOR with whom Justice REHNQUIST
joins, dissenting.
Section 2 of the Federal Arbitration Act (FAA), 9 U.S.C.
§ 2, provides that a written arbitration agreement “shall be
valid, irrevocable, *22 and enforceable, save upon such
grounds as exist at law or in equity for the revocation of
any contract.” 1 § 2 does not, on its face, identify which
judicial forums are bound by its requirements or what
10
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
procedures govern its enforcement. The FAA deals with
these matters in §§ 3 and 4. § 3 provides:
“If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable to
arbitration ... the court ... shall on application of one
of the parties stay the trial of the action until such
arbitration has been had in accordance with the terms
of the agreement....” 2
§ 4 specifies that a party aggrieved by another's refusal to
arbitrate
“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 ... for an order directing that such
arbitration proceed in the manner provided for in such
agreement....” 3
Today, the Court takes the facial silence of § 2 as a
license to declare that state as well as federal courts
must apply § 2. In addition, though this is not spelled
out in the opinion, the Court holds that in enforcing
this newly-discovered federal right state courts must
follow procedures specified in § 3. The Court's decision
is impelled by an understandable desire to encourage the
use of arbitration, but it utterly fails to recognize *23 the
clear congressional intent underlying the FAA. Congress
intended to require federal, not state, courts to respect
arbitration agreements.
I
The FAA (originally the “United States Arbitration Act”)
was enacted in 1925. As demonstrated below, infra, at
865 – 868, Congress thought it was exercising its power
to dictate either procedure or “general federal law” in
federal courts. The issue presented here is the result of
three subsequent decisions of this Court.
In 1938 this Court decided Erie Railroad Co. v. Tompkins,
304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. Erie denied the
federal government the power to create substantive law
solely by virtue of the Article III power to control federal
court jurisdiction. Eighteen years later the Court decided
Bernhardt v. Polygraphic Co., 350 U.S. 198, 76 S.Ct.
273, 100 L.Ed. 199 (1956). Bernhardt held that the duty
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to arbitrate a contract dispute is outcome-determinative
—i.e. “substantive”—and therefore a matter normally
governed by state law in federal diversity cases.
**865 Bernhardt gave rise to concern that the FAA
could thereafter constitutionally be applied only in federal
court cases arising under federal law, not in diversity
cases. 4 In Prima Paint v. Flood & Conklin, 388 U.S.
395, 404–405, 87 S.Ct. 1801, 1806–1807, 18 L.Ed.2d 1270
(1967), we addressed that concern, and held that the
FAA may constitutionally be applied to proceedings in a
federal diversity court. 5 The FAA covers only contracts
involving interstate commerce or maritime affairs, and
Congress “plainly has the power to legislate” in that area.
388 U.S., at 405, 87 S.Ct., at 1807.
*24 Nevertheless, the Prima Paint decision “carefully
avoided any explicit endorsement of the view that the
Arbitration Act embodied substantive policies that were
to be applied to all contracts within its scope, whether
sued on in state or federal courts.” P. Bator, P. Mishkin,
D. Shapiro, & H. Wechsler, Hart and Wechsler's The
Federal Courts and the Federal System 731–732 (2d ed.
1973). 6 Today's case is the first in which this Court has
had occasion to determine whether the FAA applies to
state court proceedings. One statement on the subject did
appear in Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d
765 (1983), but that case involved a federal, not a state,
court proceeding; its dictum concerning the law applicable
in state courts was wholly unnecessary to its holding.
II
The majority opinion decides three issues. First, it holds
that § 2 creates federal substantive rights that must be
enforced by the state courts. Second, though the issue
is not raised in this case, the Court states, ante, at 861,
n. 9, that § 2 substantive rights may not be the basis
for invoking federal court jurisdiction under 28 U.S.C. §
1331. Third, the Court reads § 2 to require state courts
to enforce § 2 rights using procedures that mimic those
specified for federal courts by FAA §§ 3 and 4. The first
of these conclusions is unquestionably wrong as a matter
of statutory construction; the second appears to be an
attempt to limit the damage done by the first; the third is
unnecessary and unwise.
11
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
*25 A
One rarely finds a legislative history as unambiguous as
the FAA's. That history establishes conclusively that the
1925 Congress viewed the FAA as a procedural statute,
applicable only in federal courts, derived, Congress
believed, largely from the federal power to control the
jurisdiction of the federal courts.
In 1925 Congress emphatically believed arbitration to
be a matter of “procedure.” At hearings on the Act
congressional subcommittees were told: “The theory on
which you do this is that you have the right to tell the
Federal courts how to proceed.” 7 **866 The House
Report on the FAA stated: “Whether an agreement for
arbitration shall be enforced or not is a question of
procedure....” 8 On the floor of the House Congressman
Graham assured his fellow members that the FAA
“does not involve any new principle of law except
to provide a simple method ... in order to give
enforcement.... It creates no new legislation, grants no
new rights, except a remedy to enforce an agreement in
commercial contracts and in admiralty contracts.” 9
*26 A month after the Act was signed into law the
American Bar Association Committee that had drafted
and pressed for passage of the federal legislation wrote:
“The statute establishes a procedure in the Federal
courts for the enforcement of arbitration agreements....
A Federal statute providing for the enforcement of
arbitration agreements does relate solely to procedure
in the Federal courts.... [W]hether or not an arbitration
agreement is to be enforced is a question of the law
of procedure and is determined by the law of the
jurisdiction wherein the remedy is sought. That the
enforcement of arbitration contracts is within the law of
procedure as distinguished from substantive law is well
settled by the decisions of our courts.” 10
Since Bernhardt, a right to arbitration has been
characterized as “substantive,” and that holding is not
challenged here. But Congress in 1925 did not characterize
the FAA as this Court did in 1956. Congress believed
that the FAA established nothing more than a rule of
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
procedure, a rule therefore applicable only in the federal
courts. 11
If characterizing the FAA as procedural was not enough,
the draftsmen of the Act, the House Report, and the early
commentators all flatly stated that the Act was intended
to affect only federal court proceedings. Mr. Cohen,
the American Bar Association member who drafted the
bill, assured two congressional subcommittees in joint
hearings:
“Nor can it be said that the Congress of the United
States, directing its own courts ..., would infringe upon
*27 the provinces or prerogatives of the States....
[T]he question of the enforcement relates to the law
of remedies and not to substantive law. The rule must
be changed for the jurisdiction in which the agreement
is sought to be enforced.... There is no disposition
therefore by means of the Federal bludgeon to force
an individual State into an unwilling submission to
arbitration enforcement.” 12
The House Report on the FAA unambiguously stated:
“Before [arbitration] contracts could be enforced in the
Federal courts ... this law is essential. The bill declares that
such agreements shall be recognized **867 and enforced
by the courts of the United States.” 13
Yet another indication that Congress did not intend
the FAA to govern state court proceedings is found
in the powers *28 Congress relied on in passing the
Act. The FAA might have been grounded on Congress's
powers to regulate interstate and maritime affairs, since
the Act extends only to contracts in those areas. There
are, indeed, references in the legislative history to the
corresponding federal powers. More numerous, however,
are the references to Congress's pre-Erie power to
prescribe “general law” applicable in all federal courts. 14
At the congressional hearings, for example: “Congress
rests solely upon its power to prescribe the jurisdiction and
duties of the Federal courts.” 15 And in the House Report:
“The matter is properly the subject of Federal action.
Whether an agreement for arbitration shall be enforced
or not is a question of procedure to be determined by
the law court in which the proceeding is brought and
12
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
not one of substantive law to be determined by the law
of the forum in which the contract is made....” 16
Plainly, a power derived from Congress's Article III
control over federal court jurisdiction would not by any
flight of fancy permit Congress to control proceedings in
state courts.
*29 The foregoing cannot be dismissed as “ambiguities”
in the legislative history. It is accurate to say that the entire
history contains only one ambiguity, and that appears in
the single sentence of the House Report cited by the Court
ante, at 859. That ambiguity, however, is definitively
resolved elsewhere in the same House Report, see supra,
at 857, and throughout the rest of the legislative history.
B
The structure of the FAA itself runs directly contrary to
the reading the Court today gives to § 2. §§ 3 and 4 are
the implementing provisions of the Act, and they expressly
apply only to federal courts. § 4 refers to the “United States
district court[s],” and provides that it can be invoked only
in a court that has jurisdiction **868 under Title 28 of
the United States Code. As originally enacted, § 3 referred,
in the same terms as § 4, to “courts [or court] of the United
States.” 17 There has since been a minor amendment in §
4's phrasing, but no substantive change in either section's
limitation to federal courts. 18
*30 None of this Court's prior decisions has
authoritatively construed the Act otherwise. It bears
repeating that both Prima Paint and Moses H. Cone
involved federal court litigation. The applicability of the
FAA to state court proceedings was simply not before
the Court in either case. Justice Black would surely be
surprised to find either the majority opinion or his dissent
in Prima Paint cited by the Court today, as both are, ante,
at 858, 859. His dissent took pains to point out:
“The Court here does not hold ... that the body of
federal substantive law created by federal judges under
the Arbitration Act is required to be applied by state
courts. A holding to that effect—which the Court seems
to leave up in the air—would flout the intention of the
framers of the Act.” 388 U.S., at 424, 87 S.Ct., at 1816
(Black, J., dissenting) (footnotes omitted).
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Nothing in the Prima Paint majority opinion contradicts
this statement.
The Prima Paint majority gave full but precise effect
to the original congressional intent—it recognized that
notwithstanding the intervention of Erie the FAA's
restrictive focus on maritime and interstate contracts
permits its application in federal diversity courts. Today's
decision, in contrast, glosses over both the careful crafting
of Prima Paint and the historical reasons that made Prima
Paint necessary, and gives the FAA a reach far broader
than Congress intended. 19
*31 III
Section 2, like the rest of the FAA, should have no
application whatsoever in state courts. Assuming, to the
contrary, that § 2 does create a federal right that the state
courts must enforce, state courts should nonetheless be
allowed, at least in the first instance, to fashion their own
procedures for enforcing the right. Unfortunately, the
Court seems to direct that the arbitration clause at issue
here must be specifically enforced; apparently no other
means of enforcement is permissible. 20
**869 It is settled that a state court must honor
federally created rights and that it may not unreasonably
undermine them by invoking contrary local procedure.
“[T]he assertion of Federal rights, when plainly and
reasonably made, is not to be defeated under the name of
local practice.” Brown v. Western R., 338 U.S. 294, 299,
70 S.Ct. 105, 108, 94 L.Ed. 100 (1949). But absent specific
direction from Congress the state courts have always been
permitted to apply their own reasonable procedures when
enforcing federal rights. Before we undertake to read a
set of complex and mandatory procedures into § 2's brief
and general language, we should at a minimum allow
state courts and legislatures a chance to develop their
own methods for enforcing the new federal rights. Some
might choose to award compensatory or punitive damages
for the violation of an arbitration agreement; some
might award litigation costs to the party who remained
willing to arbitrate; some might affirm the “validity and
enforceability” *32 of arbitration agreements in other
ways. Any of these approaches could vindicate § 2 rights
in a manner fully consonant with the language and
background of that provision. 21
13
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1
The unelaborated terms of § 2 certainly invite flexible
enforcement. At common law many jurisdictions were
hostile to arbitration agreements. Kulukundis Shipping
Co. v. Amtorg Trading Corp., 126 F.2d 978, 982–
984 (CA2 1942). That hostility was reflected in two
different doctrines: “revocability,” which allowed parties
to repudiate arbitration agreements at any time before
the arbitrator's award was made, and “invalidity” or
“unenforceability,” equivalent rules 22 that flatly denied
any remedy for the failure to honor an arbitration
agreement. In contrast, common law jurisdictions that
enforced arbitration agreements did so in at least three
different ways—through actions for damages, actions for
specific enforcement, or by enforcing sanctions imposed
by trade and commercial associations on members who
violated arbitration agreements. 23 In 1925 a forum
allowing any one of these remedies would have been
thought to recognize the “validity” and “enforceability”
of arbitration clauses.
This Court has previously rejected the view that state
courts can adequately protect federal rights only if “such
courts in enforcing the Federal right are to be treated
as Federal courts and subjected pro hac vice to [federal]
limitations....” Minneapolis & St. Louis R. v. Bombolis, 241
U.S. 211, 221, 36 S.Ct. 595, 598, 60 L.Ed. 961 (1916). As
explained by Professor Hart,
*33 “The general rule, bottomed deeply in belief
in the importance of state control of state judicial
procedure, is that federal law takes the state courts
as it finds them.... Some differences in remedy and
procedure are inescapable if the different governments
are to retain a measure of independence in deciding
how justice should be administered. If the differences
become so conspicuous as to affect advance calculations
of outcome, and so to induce an undesirable shopping
between forums, the remedy does not lie in the sacrifice
of the independence of either government. It lies rather
in provision by the federal government, confident of the
justice of its own procedure, **870 of a federal forum
equally accessible to both litigants.” 24
In summary, even were I to accept the majority's reading
of § 2, I would disagree with the Court's disposition of
this case. After articulating the nature and scope of the
federal right it discerns in § 2, the Court should remand
to the state court, which has acted, heretofore, under a
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
misapprehension of federal law. The state court should
determine, at least in the first instance, what procedures it
will follow to vindicate the newly articulated federal rights.
Compare Missouri ex rel. Southern R. v. Mayfield, 340
U.S. 1, 5, 71 S.Ct. 1, 3, 95 L.Ed. 3 (1950).
IV
The Court, ante, at 860 – 861, rejects the idea of requiring
the FAA to be applied only in federal courts partly out of
concern with the problem of forum shopping. The concern
is unfounded. Because the FAA makes the federal courts
equally accessible to both parties to a dispute, no forum
shopping would be possible even if we gave the FAA a
construction *34 faithful to the congressional intent. In
controversies involving incomplete diversity of citizenship
there is simply no access to federal court and therefore
no possibility of forum shopping. In controversies with
complete diversity of citizenship the FAA grants federal
court access equally to both parties; no party can gain
any advantage by forum shopping. Even when the party
resisting arbitration initiates an action in state court, the
opposing party can invoke FAA § 4 and promptly secure a
federal court order to compel arbitration. See, e.g., Moses
H. Cone, supra.
Ironically, the FAA was passed specifically to rectify
forum shopping problems created by this Court's decision
in Swift v. Tyson, 41 U.S. 1, 16 Pet. 1, 10 L.Ed. 865
(1842). 25 By 1925 several major commercial states had
passed state arbitration laws, but the federal courts
refused to enforce those laws in diversity cases. 26 The
drafters of the FAA might have anticipated Bernhardt
by legislation and required federal diversity courts to
adopt the arbitration law of the state in which they sat.
But they deliberately chose a different approach. As was
pointed out at congressional hearings, 27 an additional
goal of the Act was to make arbitration agreements
enforceable even in federal courts located in states that
had no arbitration law. The drafters' plan for maintaining
reasonable harmony between state and federal practices
was not to bludgeon states into compliance, but rather
to adopt a uniform federal law, patterned after New
York's path-breaking state statute, 28 and simultaneously
to press for passage of coordinated *35 state legislation.
The key language of the Uniform Act for Commercial
14
Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1

Arbitration was, accordingly, identical to that in § 2 of the
FAA. 29
**871 In summary, forum shopping concerns in
connection with the FAA are a distraction that do
not withstand scrutiny. The Court ignores the drafters'
carefully devised plan for dealing with those problems.
FAA in a federal court proceeding as a valid exercise
of Congress's Commerce Clause and Admiralty powers.
Today the Court discovers a federal right in FAA § 2
that the state courts must enforce. Apparently confident
that state courts are not competent to devise their own
procedures for protecting the newly discovered federal
right, the Court summarily prescribes a specific procedure,
found nowhere in § 2 or its common law origins, that the
state courts are to follow.

V *36 Today's decision is unfaithful to congressional

Today's decision adds yet another chapter to the FAA's
already colorful history. In 1842 this Court's ruling in
Swift v. Tyson, 41 U.S. 1, 16 Pet. 1, 10 L.Ed. 865 (1842), set
up a major obstacle to the enforcement of state arbitration
laws in federal diversity courts. In 1925 Congress sought
to rectify the problem by enacting the FAA; the intent
was to create uniform law binding only in the federal
courts. In Erie (1938), and then in Bernhardt (1956), this
Court significantly curtailed federal power. In 1967 our
decision in Prima Paint upheld the application of the
intent, unnecessary, and, in light of the FAA's antecedents
and the intervening contraction of federal power,
inexplicable. Although arbitration is a worthy alternative
to litigation, today's exercise in judicial revisionism goes
too far. I respectfully dissent.
All Citations
465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1

Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 287, 50 L.Ed. 499.
1 Cal.Corp.Code § 31512 provides: “Any condition, stipulation or provision purporting to bind any person acquiring any
franchise to waive compliance with any provision of this law or any rule or order hereunder is void.”
2 Supplemental Memorandum of Points and Authorities in Opposition to Petition for Writs of Mandate or Prohibition at
19–25.
3 The question Southland presented to the state Supreme Court was “[w]hether a court may enter an order compelling a
private commercial arbitration governed by the Federal Arbitration Act ... to proceed as a class action even though the
terms of the parties' arbitration agreement do not provide for such a procedure.” Southland argued that (1) the decision
of the Court of Appeal “is in conflict with the decisions of other Courts of Appeal in this State,” Petition for Hearing at 3; (2)
class actions would delay and complicate arbitration, increase its cost, and require judicial supervision, “considerations
[which] strongly militate against the creation of class action arbitration procedures,” id., at 22; and (3) there was no basis
in law for class actions. According to appellants, the Federal Rules of Civil Procedure did not apply in California courts.
Id., at 23. Southland thus relied, not on federal law, but on California law in opposing class action procedures.
4 The California Supreme Court cited “[a]nalogous authority” supporting consolidation of arbitration proceedings by federal
courts. E.g., Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966, 975 (CA2 1975), cert. denied,
426 U.S. 936, 96 S.Ct. 2650, 49 L.Ed.2d 387 (1976); In re Czarnikow-Rionda Co., 512 F.Supp. 1308, 1309 (SDNY 1981).
This, along with support by other state courts and the California legislature for consolidation of arbitration proceedings
permitted the court to conclude that class action proceedings were authorized: “It is unlikely that the state Legislature in
adopting the amendment to the Arbitration Act authorizing consolidation of arbitration proceedings, intended to preclude
a court from ordering classwide arbitration in an appropriate case. We conclude that a court is not without authority to do
so.” 31 Cal.3d, at 613, 183 Cal.Rptr., at 377, 645 P.2d, at 1209. The California Supreme Court thus ruled that imposing
a class action structure on the arbitration process was permissible as a matter of state law.
5 We note that in defining “commerce” Congress declared that “nothing herein contained shall apply to contracts of
employment of seamen, railroad employees, or any other class or workers engaged in foreign or interstate commerce.”
9 U.S.C. § 1 (1976).

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 15

Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1

6 The procedures to be used in an arbitration are not prescribed by the federal Act. We note, however, that Prima Paint,
supra, considered the question of what issues are for the courts and what issues are for the arbitrator.
7 Appellees contend that the arbitration clause, which provides for the arbitration of “any controversy or claim arising out of
or relating to this Agreement or the breach hereof,” does not cover their claims under the California Franchise Investment
Law. We find the language quoted above broad enough to cover such claims. Cf. Prima Paint, supra, 388 U.S., at 403–
404, 406, 87 S.Ct., at 1805–1806, 1807 (finding nearly identical language to cover a claim that a contract was induced
by fraud).
8 It is estimated that 2% of all civil litigation in this country is in the federal courts. Administrative Office of the United
States Court, Annual Report of the Director 3 (1982) (206,000 filings in federal district court in twelve months ending June
30, 1982, excluding bankruptcy filings); Flango, Advance Report—The Latest State Court Caseload Data, State Court
Journal, p. 18 (Winter 1983) (approximately 13,600,000 civil filings during comparable period, excluding traffic filings).
9 While the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements,
it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 (1976) or otherwise. Moses H.
Cone, 460 U.S., at –––– n. 32, 103 S.Ct., at 942 n. 32. This seems implicit in the provisions in § 3 for a stay by a “court in
which such suit is pending” and in § 4 that enforcement may be ordered by “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.” Ibid.; Prima Paint, supra, 388 U.S., at 420 and n. 24, 87 S.Ct., at 1814 (Black,
J., dissenting); Krauss Bros. Lumber Co. v. Louis Bossert & Sons, Inc., 62 F.2d 1004, 1006 (CA2 1933) (L. Hand, J.)
10 The contention is made that the Court's interpretation of § 2 of the Act renders §§ 3 and 4 “largely superfluous.” Post, at
869, n. 20. This misreads our holding and the Act. In holding that the Arbitration Act preempts a state law that withdraws
the power to enforce arbitration agreements, we do not hold that §§ 3 and 4 of the Arbitration Act apply to proceedings in
state courts. Section 4, for example, provides that the Federal Rules of Civil Procedure apply in proceedings to compel
arbitration. The Federal Rules do not apply in such state court proceedings.
11 The California Supreme Court justified its holding by reference to our conclusion in Wilko v. Swan, 346 U.S. 427, 74 S.Ct.
182, 98 L.Ed. 168 (1953), that arbitration agreements are nonbinding as to claims arising under the federal Securities
Act of 1933. 31 Cal.3d at 602, 183 Cal.Rptr. at 370, 645 P.2d at 1202–1203. The analogy is unpersuasive. The question
in Wilko was not whether a state legislature could create an exception to § 2 of the Arbitration Act, but rather whether
Congress, in subsequently enacting the Securities Act, had in fact created such an exception.
Justice STEVENS dissents in part on the ground that § 2 of the Arbitration Act permits a party to nullify an agreement
to arbitrate on “such grounds as exist at law or in equity for the revocation of any contract.” We agree, of course, that
a party may assert general contract defenses such as fraud to avoid enforcement of an arbitration agreement. We
conclude, however, that the defense to arbitration found in the California Franchise Investment Law is not a ground
that exists at law or in equity “for the revocation of any contract” but merely a ground that exists for the revocation of
arbitration provisions in contracts subject to the California Franchise Investment Law. Moreover, under this dissenting
view, “a state policy of providing special protection for franchisees ... can be recognized without impairing the basic
purposes of the federal statute.” Post, at 866. If we accepted this analysis, states could wholly eviscerate Congressional
intent to place arbitration agreements “upon the same footing as other contracts,” H.R.Rep. No. 96, supra, 1, simply by
passing statutes such as the Franchise Investment Law. We have rejected this analysis because it is in conflict with the
Arbitration Act and would permit states to override the declared policy requiring enforcement of arbitration agreements.
1 9 U.S.C. § 2.
2 9 U.S.C. § 3 (emphasis added).
3 9 U.S.C. § 4 (emphasis added). § 9, which addresses the enforcement of arbitration awards, is also relevant. “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 (emphasis added).
4 Justice Frankfurter made precisely this suggestion in Bernhardt. 350 U.S., at 208, 76 S.Ct., at 279 (Frankfurter, J.,
concurring).
5 Two circuits had previously addressed the problem. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402
(CA2 1959), cert. granted 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed pursuant to stipulation of counsel, 364
U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960); American Airlines, Inc. v. Louisville & Jefferson County Air Bd., 269 F.2d
811 (CA6 1959).
6 In Robert Lawrence, supra, the Second Circuit had flatly announced—in dictum, of course—that the FAA was “a
declaration of national law equally applicable in state or federal courts.” 271 F.2d, at 407. One Justice in Prima Paint
was prepared to adopt wholesale the Second Circuit's more broadly written opinion. 388 U.S., at 407, 87 S.Ct., at 1807

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 16

Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1

(Harlan, J., concurring). But the Prima Paint majority opinion did not do so. In these circumstances, the majority opinion
speaks loudly by its complete silence regarding the Act's applicability to state courts.
7 Arbitration of Interstate Commercial Disputes, Hearing on H.R. 646 and S. 1005 before the Joint Committee of
Subcommittees on the Judiciary, 68th Cong., 1st Sess. 17 (1924) (hereinafter Joint Hearing) (statement of Mr. Cohen,
American Bar Association). See also, Sales and Contracts to Sell in Interstate and Foreign Commerce, and Federal
Commercial Arbitration, Hearing Before a Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess.
2 (1923) (hereinafter Senate Hearing).
8 H.R.Rep. No. 96, 68th Cong., 1st Sess. 1 (1924). To similar effect, the Senate Report noted that the New York statute,
after which the FAA was patterned, had been upheld against constitutional attack the previous year in Red Cross Line
v. Atlantic Fruit Co., 264 U.S. 109, 44 S.Ct. 274, 68 L.Ed. 582 (1924). S.Rep. No. 536, 68th Cong., 1st Sess. 3 (1924).
In Red Cross Justice Brandeis based the Court's approval of the New York statute on the fact that the statute effected
no change in the substantive law.
9 65 Cong.Rec. 1931 (1924).
10 Committee on Commerce, Trade and Commercial Law, The United States Arbitration Law and its Application, 11 A.B.A.J.
153, 156 (1925). See also Cohen & Dayton, The New Federal Arbitration Law, 12 Va.L.Rev. 265, 275–276 (1926).
11 That Congress chose to apply the FAA only to proceedings related to commercial and maritime contracts does not
suggest that the Act is “substantive.” Cf. Fed.Rule Civ.Proc. 81; Fed.Rule Evid. 1101; Fed.Rule Crim.Proc. 54.
12 Joint Hearing 39–40 (emphasis added). “The primary purpose of the statute is to make enforcible in the Federal courts
such agreements for arbitration....” Id., at 38 (statement of Mr. Cohen). See also Senate Hearing 2 (“The bill follows the
lines of the New York arbitration law applying it to fields wherein there is Federal jurisdiction”).
13 H.R.Rep. No. 96, supra, at 1. Commentators writing immediately after passage of the Act uniformly reached the same
conclusion. The A.B.A. Committee that drafted the legislation wrote: “So far as the present law declares simply the policy
of recognizing and enforcing arbitration agreements in the Federal courts it does not encroach upon the province of
the individual states.” Committee on Commerce, Trade and Commercial Law, supra, at 155. See also Cohen & Dayton,
supra, at 276–277; Baum & Pressman, The Enforcement of Commercial Arbitration Agreements in the Federal Courts,
8 N.Y.U.L.Quart.Rev. 428, 459 (1931). Williston wrote: “Inasmuch as arbitration acts are deemed procedural, the United
States Act applies only to the federal courts....” 6 S. Williston & G. Thompson, A Treatise on the Law of Contracts 5368
(Rev. ed. 1938).
More recent students of the FAA uniformly and emphatically reach the same conclusion. Prima Paint, supra, 388 U.S.,
at 424, 87 S.Ct., at 1816 (Black, J., dissenting); Note, 73 Harv.L.Rev. 1382 (1960); Note, Erie, Bernhardt, and § 2 of the
United States Arbitration Act: A Farrago of Rights, Remedies, and a Right to a Remedy, 69 Yale L.J. 847, 863 (1960);
Note, Scope of the United States Arbitration Act in Commercial Arbitration: Problems in Federalism, 58 Nw.U.L.Rev.
468, 492 (1963).
14 For my present purpose it is enough to recognize that Congress relied at least in part on its Article III power over the
jurisdiction of the federal courts. See Prima Paint, 388 U.S., at 405, and n. 13, 87 S.Ct., at 1807, n. 13 (majority opinion);
id., at 416–420, 87 S.Ct., at 1812–1814 (Black, J., dissenting).
15 Joint Hearing 38. See also id., at 17, 37–38.
16 H.R.Rep. No. 96, supra, at 1. Immediately after the FAA's enactment the A.B.A. drafters of the Act wrote:
“[The FAA] rests upon the constitutional provision by which Congress is authorized to establish
and control inferior Federal courts. So far as congressional acts relate to procedure in the Federal
courts, they are clearly within the congressional power.”
Committee on Commerce, Trade and Commercial Law, supra, at 156. Numerous other commentators writing shortly
after the FAA's passage, as well as more recently, have made similar statements. See, e.g., Cohen & Dayton, supra,
at 275; Baum & Pressman, supra, at 430–431; Note, 73 Harv.L.Rev., at 1383; Note, 58 Nw.U.L.Rev., at 481.
17 The use of identical language in both sections was natural: § 3 applies when the party resisting arbitration initiates the
federal court action; § 4 applies to actions initiated by the party seeking to enforce an arbitration provision. Phrasing the
two sections differently would have made no sense.
18 In 1954, as a purely clerical change, Congress inserted “United States district court” in § 4 as a substitute for “court of the
United States.” Both House and Senate Reports explained: “ ‘United States district court’ was substituted for ‘court of the
United States' because, among Federal courts, such a proceeding would be brought only in a district court.” H.R.Rep.
No. 1981, 83d Cong., 2d Sess. 8 (1954); S.Rep. No. 2498, 83d Cong., 2d Sess. 9 (1954).
Even without this history, § 3's “courts of the United States” is a term of art whose meaning is unmistakable. State
courts are “in” but not “of” the United States. Other designations of federal courts as the courts “of” the United States

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 17

Southland Corp. v. Keating, 465 U.S. 1 (1984)
104 S.Ct. 852, 79 L.Ed.2d 1

are found, for example, in 28 U.S.C. § 2201 (declaratory judgments); Fed.Rule Evid. 501; and the Norris LaGuardia
Act, 29 U.S.C. § 104, see Boys Markets, Inc. v. Retail Clerks Union, 398 U.S. 235, 247, 90 S.Ct. 1583, 1590, 26 L.Ed.2d
199 (1970) (Brennan, J.). References to state and federal courts together as courts “in” or “within” the United States
are found in the Supremacy Clause (“Judges in every state”); 11 U.S.C. § 306; 22 U.S.C. § 2370(e)(2); and 28 U.S.C.
§ 1738. See also W. Sturges, Commercial Arbitration and Awards § 480, p. 937 (1930).
19 The Court suggests, ante, at 859, that it is unlikely that Congress would have created a federal substantive right that
the state courts were not required to enforce. But it is equally rare to find a federal substantive right that cannot be
enforced in federal court under the jurisdictional grant of 28 U.S.C. § 1331. Yet the Court states, ante, at 861, n. 9, that
the FAA must be so construed. The simple answer to this puzzle is that in 1925 Congress did not believe it was creating
a substantive right at all.
20 If my understanding of the Court's opinion is correct, the Court has made § 3 of the FAA binding on the state courts.
But as we have noted, supra, at 8–9, § 3 by its own terms governs only federal court proceedings. Moreover, if § 2,
standing alone, creates a federal right to specific enforcement of arbitration agreements §§ 3 and 4 are, of course, largely
superfluous. And if § 2 implicitly incorporates §§ 3 and 4 procedures for making arbitration agreements enforceable
before arbitration begins, why not also § 9 procedures concerning venue, personal jurisdiction, and notice for enforcing
an arbitrator's award after arbitration ends? One set of procedures is of little use without the other.
21 See Note, 69 Yale L.J., at 864–865; Note, 73 Harv.L.Rev., at 1385; Note, 58 Nw.U.L.Rev., at 493.
22 See J. Cohen, Commercial Arbitration and the Law 53–252 (1918); W. Sturges, supra, at §§ 15–17 (discussing
“revocability”); id., § 22 (treating as equivalent different courts' declarations that arbitration agreements were “contrary to
public policy,” “invalid,” “not binding upon the parties,” “unenforceable,” or “void”). See also Note, 73 Harv.L.Rev., at 1384.
23 See W. Sturges, supra, at §§ 22–24.
24 Hart, The Relations Between State and Federal Law, 54 Colum.L.Rev. 489, 508 (1954). See generally P. Bator, P.
Mishkin, D. Shapiro, & H. Wechsler, supra, at 567–573.
25 See Joint Hearing 16 (statement of Mr. Cohen, A.B.A.); Senate Hearing 2. See also Cohen & Dayton, supra, at 275–
276; Sturges & Murphy, Some Confusing Matters Relating to Arbitration under the United States Arbitration Act, 17 L.
& Contemp.Prob. 580, 590 (1952).
26 See, e.g., Atlantic Fruit Co. v. Red Cross Line, 276 Fed. 319 (SDNY 1921), aff'd, 5 F.2d 218 (CA2 1924); Lappe v. Wilcox,
14 F.2d 861 (NDNY 1926).
27 Joint Hearing 35.
28 See S.Rep. No. 536, supra, at 3.
29 The Uniform Act tracked the “valid, irrevocable, and enforceable” language of § 2. See 47 A.B.A.Reps. 318 (1922). It was
also hoped that other states might pattern their arbitration statutes directly after the federal Act. See, e.g., Joint Hearing
28. By 1953 it was reported that arbitration statutes “quite similar” to the FAA had been enacted in twelve other states.
Kochery, The Enforcement of Arbitration Agreements in the Federal Courts: Erie v. Tompkins, 39 Corn.L.Q. 74, 76, n.
7 (1953). See also Ludwig Mowinckels Rederi v. Dow Chemical Co., 25 N.Y.2d 576, 584–585, 307 N.Y.S.2d 660, 666,
255 N.E.2d 774, 778 (1970).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 18

Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)
188 S.W.3d 730 West Headnotes (24)
Court of Appeals of Texas,
Eastland.
[1]
SOUTHWIND GROUP, INC., Appellant,
v.
Jesstin R. LANDWEHR and
Joyce Landwehr, Appellees.
In re Southwind Group, Inc.
Nos. 11–05–00247–CV, 11–05–00324–CV.
|
Feb. 2, 2006.
Synopsis
[2]
Background: Employer sued former employee and his
wife, seeking to recover $32,000 that it allegedly had
loaned to defendants in connection with their purchase
of home in Texas, and seeking a resulting trust on
the home. Defendants counterclaimed for breach of
employment agreement. The 104th District Court, Taylor
County, Lee Hamilton, J., denied employer's motion
to compel arbitration of the counterclaims. Employer
brought interlocutory appeal and petitioned for writ of
mandamus.
[3]
Holdings: The Court of Appeals, Terry McCall, J., held
that:
[1] arbitration clause of employment agreement was
governed by Texas Arbitration Act rather than Federal
Arbitration Act, and thus, interlocutory appeal rather
than mandamus was appropriate method for employer to
seek relief from trial court's order;
[2] employer did not substantially invoke the judicial
process, as element for waiver of right to arbitration; and
[4]
[3] even assuming employer substantially invoked the
judicial process, employee was not prejudiced.
Reversed and remanded with instructions; petition denied.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Alternative Dispute Resolution
Review
If the Texas Arbitration Act (TAA) applies,
a party must seek relief, from a trial court's
order denying a motion to compel arbitration,
through an interlocutory appeal. V.T.C.A.,
Civil Practice & Remedies Code § 171.001 et
seq.
Cases that cite this headnote
Mandamus
Civil Proceedings Other Than Actions
If the Federal Arbitration Act (FAA) applies,
a party must seek relief, from a trial court's
order denying a motion to compel arbitration,
through a mandamus proceeding. 9 U.S.C.A.
§ 1 et seq.
Cases that cite this headnote
Alternative Dispute Resolution
Constitutional and Statutory Provisions
and Rules of Court
Commerce
Arbitration
The Federal Arbitration Act (FAA) extends
to any contract affecting interstate commerce
as far as the Commerce Clause of the United
States Constitution will reach. U.S.C.A.
Const. Art. 1, § 8, cl. 3; 9 U.S.C.A. § 1 et seq.
1 Cases that cite this headnote
Alternative Dispute Resolution
Constitutional and Statutory Provisions
and Rules of Court
Commerce
Arbitration
The Federal Arbitration Act (FAA) does
not require a substantial effect on interstate
commerce; it requires only that commerce be
1
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)
involved or affected. U.S.C.A. Const. Art. 1,
§ 8, cl. 3; 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Review
Mandamus
Modification or Vacation of Judgment or
Order
Arbitration clause of employment agreement
for employer's director of operations was
governed by Texas Arbitration Act (TAA)
rather than Federal Arbitration Act (FAA),
and thus, employer's method for seeking relief
from trial court's order denying employer's
motion to compel arbitration of employee's
claims of breach of employment agreement
was through interlocutory relief rather
than mandamus; neither the employment
agreement, nor the employment, nor
employer's business operations in any way
involved or affected interstate commerce. 9
U.S.C.A. § 1 et seq.; V.T.C.A., Civil Practice
& Remedies Code § 171.001 et seq.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Validity
Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
A party seeking to compel arbitration must
first prove that an arbitration agreement exists
and that the claims asserted fall within the
scope of the agreement.
Cases that cite this headnote
[7] Alternative Dispute Resolution
Construction in Favor of Arbitration
Alternative Dispute Resolution
Evidence
The law presumes the existence of an
arbitration agreement, and any doubts
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
regarding the existence or scope of an
agreement are resolved in favor of arbitration.
Cases that cite this headnote
[8] Alternative Dispute Resolution
Evidence
If a party seeking arbitration carries its
initial burden of proving that an arbitration
agreement exists and that the claims asserted
fall within the scope of the agreement, the
burden shifts to the party resisting arbitration
to present evidence on its defenses to the
arbitration agreement.
1 Cases that cite this headnote
[9] Alternative Dispute Resolution
Waiver or Estoppel
The standard for determining waiver of the
right to arbitration is the same under the
Texas Arbitration Act (TAA) and the Federal
Arbitration Act (FAA). 9 U.S.C.A. § 1 et seq.;
V.T.C.A., Civil Practice & Remedies Code §
171.001 et seq.
3 Cases that cite this headnote
[10] Alternative Dispute Resolution
Scope and Standards of Review
Whether a party has waived its right to
arbitrate presents a question of law that is
reviewed de novo.
Cases that cite this headnote
[11] Alternative Dispute Resolution
Evidence
Because public policy favors arbitration, there
is a strong presumption against finding that a
party has waived its right to arbitration, and
the burden to prove waiver is thus a heavy one.
3 Cases that cite this headnote
[12] Alternative Dispute Resolution
Evidence
2
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)
Any doubts regarding waiver of the right
to arbitration are resolved in favor of
arbitration.
Cases that cite this headnote
[13] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of the right to arbitration may be
express or implied, but it must be intentional.
1 Cases that cite this headnote
[14] Alternative Dispute Resolution
Suing or Participating in Suit
Whether waiver of the right to arbitration
occurs depends on the individual facts and
circumstances of each case.
2 Cases that cite this headnote
[15] Alternative Dispute Resolution
Waiver or Estoppel
A party does not waive arbitration merely by
delay; instead, the party urging waiver must
establish that any delay resulted in prejudice.
2 Cases that cite this headnote
[16] Alternative Dispute Resolution
Suing or Participating in Suit
Waiver of the right to arbitration will be found
only when: (1) the party seeking arbitration
has substantially invoked the judicial process,
and (2) the party opposing arbitration suffers
actual prejudice as a result.
4 Cases that cite this headnote
[17] Alternative Dispute Resolution
Suing or Participating in Suit
Employer, by participating in discovery,
seeking continuance of trial setting, asking
trial court to reset the case for trial, and filing
response to employee's motion for summary
judgment on employer's non-arbitrable claim,
did not substantially invoke the judicial
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
process with respect to employee's arbitrable
counterclaim for breach of employment
agreement, and thus, employer did not
waive its contractual right to arbitration of
counterclaim.
2 Cases that cite this headnote
[18] Alternative Dispute Resolution
Suing or Participating in Suit
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.
2 Cases that cite this headnote
[19] Alternative Dispute Resolution
Suing or Participating in Suit
Substantially invoking the judicial process
may occur, as element for waiver of right
to arbitration, when the party seeking
arbitration actively tried, but failed, to achieve
a satisfactory result in litigation before turning
to arbitration, and examples include moving
for summary judgment or otherwise seeking
final judicial resolution of the dispute but
failing to receive satisfactory result.
6 Cases that cite this headnote
[20] Alternative Dispute Resolution
Suing or Participating in Suit
A party substantially invokes the judicial
process, as element for waiver of right to
arbitration, by taking specific and deliberate
actions after a suit has been filed that are
inconsistent with the right to arbitrate.
1 Cases that cite this headnote
[21] Alternative Dispute Resolution
Suing or Participating in Suit
Employer, by filing action against employee
raising a claim that was not subject to
arbitration under employment agreement,
did not substantially invoke the judicial
3
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)
process, as element for waiver of right
to arbitration, with respect to employee's
arbitrable counterclaim for breach of
employment agreement.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Suing or Participating in Suit
A party does not substantially invoke the
judicial process, as element for waiver of
right to arbitration, merely by participating
in discovery; however, pursuing extensive
discovery may substantially invoke the
judicial process.
1 Cases that cite this headnote
[23] Alternative Dispute Resolution
Suing or Participating in Suit
Even assuming that employer substantially
invoked the judicial process, as element for
waiver of right to arbitration, with respect
to employee's claim of breach of employment
agreement, employee did not establish he was
prejudiced, as additional element for waiver;
employee did not identify any discovery
obtained by employer in trial court that
employer would not have been entitled to
receive in arbitration, and employee did not
present any evidence of expenses, relating to
litigation of employee's claim in trial court,
that employee would not have incurred in
arbitration.
1 Cases that cite this headnote
[24] Alternative Dispute Resolution
Suing or Participating in Suit
In determining whether non-moving party
was prejudiced by moving party's conduct
in substantially invoking the judicial process
before bringing motion to compel arbitration,
so that moving party waived the right to
arbitration, courts focus on such things as:
(1) movant's access to information that is
not discoverable in arbitration, and (2) non-
movant's incurring costs and fees due to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
movant's actions or movant's delay in seeking
to compel arbitration.
3 Cases that cite this headnote
Attorneys and Law Firms
*733 Billy W. Boone, Abilene, for appellant.
John R. Saringer, Wagstaff, Alvis, Stubbeman, Seamster
& Longacre, Abilene, for appellees.
Panel consists of WRIGHT, C.J., and McCALL, J., and
STRANGE, J.
OPINION
TERRY McCALL, Justice.
Southwind Group, Inc. challenges the trial court's
order denying its motion to compel arbitration of
Jesstin R. Landwehr and Joyce Landwehr's breach of
employment agreement claims. Southwind has brought an
interlocutory appeal pursuant to the Texas Arbitration
Act (TAA) 1 and a petition for writ of mandamus
pursuant to the Federal Arbitration Act (FAA). 2 The
primary issue in these proceedings is whether Southwind
waived its right to arbitrate the Landwehrs' claims.
We conclude that the TAA applies to the employment
agreement and that Southwind did not waive its right to
arbitration. Therefore, in Cause No. 11–05–00247–CV, we
reverse the trial court's order and remand the cause with
instructions that the trial court enter an order compelling
arbitration of the Landwehrs' claims. Because the FAA
does not apply to the employment agreement, we deny
Southwind's petition for writ of mandamus in Cause No.
11–05–00324–CV.
Background Facts
Southwind and Jesstin R. Landwehr entered into an
employment agreement on October 30, 2001, whereby
Southwind employed Jesstin as its director of operations.
The employment agreement provided that Jesstin would
work at Southwind's offices in Abilene, Texas, and that he
would receive a base compensation of $50,000 per year,
4
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)

plus any commissions earned. The employment agreement in seeking arbitration and by substantially invoking the
contained the following arbitration provision: judicial process. After a hearing, the trial court denied
Southwind's motion to compel arbitration.
9.04. Arbitration Provisions. Any
claim or controversy that arises out
of or relates to this Agreement,
or the breach of this Agreement, Which Act Applies?
shall be settled by arbitration in
[1] [2] The employment agreement does not provide
accordance with the rules of the
whether the TAA or the FAA applies. If the TAA applies,
American Arbitration Association.
a party must seek relief from a trial court's order denying
Judgment upon the award rendered
a motion to compel arbitration through an interlocutory
may *734 be entered in any court
appeal. If the FAA applies, a party must seek relief from
of competent jurisdiction.
the trial court's order through a mandamus proceeding.
In re Educ. Mgmt. Corp., 14 S.W.3d 418, 425 (Tex.App.-
The Landwehrs moved from Arkansas to Texas in Houston [14th Dist.] 2000, orig. proceeding); Russ Berrie
connection with Jesstin's employment with Southwind. In and Co. v. Gantt, 998 S.W.2d 713, 714–15 (Tex.App.-
2002, Jesstin left his employment with Southwind, and the El Paso 1999, no pet.). Southwind argues that the TAA
Landwehrs moved back to Arkansas. applies, but it has filed a petition for writ of mandamus in
the event the FAA applies. The Landwehrs do not assert
On July 17, 2002, Southwind filed suit against the that the FAA applies.
Landwehrs seeking to recover $32,000 that it allegedly
had loaned to the Landwehrs in connection with their [3] [4] [5] The FAA extends to any contract affecting
purchase of a home in Abilene, Texas. Southwind also interstate commerce as far as the Commerce Clause
sought to establish a resulting trust on the Landwehrs'
of the United States Constitution 3 will reach. In re
home. On November 13, 2002, the Landwehrs filed
FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex.2001);
their original counterclaim alleging that Southwind had
In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125,
breached its employment agreement with Jesstin. The
127 (Tex.1999). The FAA does not require a substantial
Landwehrs sought to recover not only Jesstin's annual
effect on interstate commerce; it requires only that
salary of $50,000 plus benefits for the remaining term of
commerce be involved or affected. In re Merrill Lynch
the agreement, but also additional damages.
Trust Co., 123 S.W.3d 549, 553 (Tex.App.-San Antonio
2003, orig. proceeding). In this case, Jesstin performed
The record demonstrates that the parties exchanged
his employment responsibilities for Southwind in Abilene,
written discovery and took depositions. The case also
Texas. The record does not show that the employment
received a number of trial settings. The record also shows
agreement, Jesstin's employment with Southwind, or
that the Landwehrs moved for summary judgment on
Southwind's business operations in any way involved or
Southwind's claims against them, Southwind responded to
affected interstate commerce. *735 Because the record
their motion, and the trial court denied the motion.
does not show that the employment agreement involved or
affected interstate commerce, we conclude that the TAA
On June 1, 2005, Southwind filed its motion to stay and
applies. We deny Southwind's request for mandamus relief
compel arbitration of the Landwehrs' claims pursuant to
pursuant to the FAA.
the TAA. Southwind did not seek to compel arbitration
of its claims against the Landwehrs. Southwind asserted
that the Landwehrs' claims fell within the scope of
the arbitration provision in the employment agreement. Southwind's Right to Arbitrate the Landwehrs' Claims
The Landwehrs filed a response to Southwind's motion
to compel arbitration. The Landwehrs did not argue [6] [7] A party seeking to compel arbitration must
that their claims did not fall within the scope of first prove that an arbitration agreement exists and
the arbitration provision. Instead, they argued that that the claims asserted fall within the scope of the
Southwind had waived its right to arbitration by its delay agreement. In re Oakwood Mobile Homes, Inc., 987
S.W.2d 571, 573 (Tex.1999)(orig.proceeding). The law

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)

presumes the existence of an arbitration agreement, by delay; instead, the party urging waiver must establish
and any doubts regarding the existence or scope of an that any delay resulted in prejudice. Prudential Secs., Inc.
agreement are resolved in favor of arbitration. In re v. Marshall, 909 S.W.2d 896, 898 (Tex.1995). Waiver will
FirstMerit Bank, N.A., 52 S.W.3d at 753. Section 9.04 be found only when (1) the party seeking arbitration has
of the employment agreement provided that any claims substantially invoked the judicial process and (2) the party
arising out of a breach of the agreement would be settled opposing arbitration suffers actual prejudice as a result. In
by arbitration. In their counterclaim, the Landwehrs re Bruce Terminix Co., 988 S.W.2d at 704; Williams Indus.,
alleged that Southwind had breached the employment Inc., 110 S.W.3d at 135.
agreement. The Landwehrs' claims fall within the scope
of the arbitration agreement. Southwind met its burden
of establishing that an arbitration agreement exists and Substantially Invoking the Judicial Process
that the Landwehrs's claims fall within the scope of the [17] [18] [19] [20] The Landwehrs argue that
agreement. Southwind substantially invoked the judicial *736
process by conducting discovery, by seeking a continuance
of the trial setting, and by asking the trial court to
reset the case for trial. Courts will not find that a
Waiver Defense to Arbitration party has waived its right to enforce an arbitration
clause by merely taking part in litigation unless it has
[8] If a party seeking arbitration carries its initial
substantially invoked the judicial process to its opponent's
burden, the burden shifts to the party resisting arbitration
detriment. In re Bruce Terminix Co., 988 S.W.2d at
to present evidence on its defenses to the arbitration
704. Substantially invoking the judicial process may
agreement. Williams Indus., Inc. v. Earth Dev. Sys. Corp.,
occur when the party seeking arbitration actively tried,
110 S.W.3d 131, 134 (Tex.App.-Houston [1st Dist.] 2003,
but failed, to achieve a satisfactory result in litigation
no pet.). The Landwehrs' sole defense to arbitration is that
before turning to arbitration. Williams Indus., Inc., 110
Southwind waived its right to arbitrate their claims.
S.W.3d at 135. Examples include moving for summary
judgment or otherwise seeking a final judicial resolution
[9] [10] [11] [12] The standard for determining waiver
of the dispute but failing to receive a satisfactory result.
of the right to arbitration is the same under both the
In re Bruce Terminix Co., 988 S.W.2d at 704; In re
TAA and the FAA. Brown v. Anderson, 102 S.W.3d 245,
Winter Park Constr., Inc., 30 S.W.3d 576, 579 (Tex.App.-
250 (Tex.App.-Beaumont 2003, pet. denied); Sedillo v.
Texarkana 2000, orig. proceeding). Substantially invoking
Campbell, 5 S.W.3d 824, 826 (Tex.App.-Houston [14th
the judicial process has also been defined as taking specific
Dist.] 1999, no pet.). Whether a party has waived its
and deliberate actions after a suit has been filed that are
right to arbitrate presents a question of law that we
inconsistent with the right to arbitrate. Sedillo, 5 S.W.3d
review de novo. In re Oakwood Mobile Homes, Inc., 987
at 827. The Sedillo court held that a party substantially
S.W.2d at 574; Williams Indus., Inc., 110 S.W.3d at 136.
invoked the judicial process by seeking a discharge of
Because public policy favors arbitration, there is a strong
claims in the bankruptcy court before seeking arbitration
presumption against finding that a party has waived its
of the claims. Sedillo, 5 S.W.3d at 827.
right to arbitration; the burden to prove waiver is thus
a heavy one. In re Bruce Terminix Co., 988 S.W.2d 702,
[21] In this case, Southwind filed suit against the
704–05 (Tex.1998)(orig.proceeding); EZ Pawn Corp. v.
Landwehrs seeking to recover $32,000 that it allegedly
Mancias, 934 S.W.2d 87, 89 (Tex.1996)(orig.proceeding).
had loaned to the Landwehrs in connection with
Any doubts regarding waiver are resolved in favor of
their purchase of a home. Neither Southwind nor the
arbitration. In re Bruce Terminix Co., 988 S.W.2d at 705.
Landwehrs contend that Southwind's affirmative claims
for relief fall within the scope of the arbitration provision.
[13] [14] [15] [16] Waiver may be express or implied,
Southwind did not substantially invoke the judicial
but it must be intentional. EZ Pawn Corp., 934 S.W.2d
process by filing suit on its nonarbitrable claims.
at 89; Williams Indus., Inc., 110 S.W.3d at 135. Whether
waiver occurs depends on the individual facts and
The Landwehrs filed their counterclaim for breach of
circumstances of each case. Williams Indus., Inc., 110
the employment agreement. Southwind did not move
S.W.3d at 135. A party does not waive arbitration merely
for summary judgment or otherwise seek a final judicial

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)
resolution of the Landwehrs' claims before moving the
trial court to compel arbitration. The Landwehrs filed
a motion for summary judgment on Southwind's claims,
and Southwind responded to the motion. Southwind did
not substantially invoke the judicial process by responding
to the Landwehrs' motion for summary judgment for at
least two reasons. First, the Landwehrs' motion covered
Southwind's nonarbitrable claims. Second, Southwind did
not file a motion for summary judgment seeking a judicial
resolution of any claims. Southwind merely responded to
the Landwehrs' motion for summary judgment.
[22] A party does not substantially invoke the judicial
process merely by participating in discovery. In re Bruce
Terminix Co., 988 S.W.2d at 704; In re Nasr, 50 S.W.3d
23, 27 (Tex.App.-Beaumont 2001, orig. proceeding).
However, pursuing extensive discovery may substantially
invoke the judicial process. Nationwide of Bryan, Inc. v.
Dyer, 969 S.W.2d 518, 522 (Tex.App.-Austin 1998, no
pet.). Southwind and the Landwehrs exchanged written
discovery and took depositions before Southwind sought
to compel arbitration. The record shows that Southwind
sent the Landwehrs a request for disclosure, a request
for admissions, and two requests for production. The
record does not contain copies of the written discovery
or the depositions. Without copies of the discovery, the
record does not demonstrate the extent of the discovery
undertaken by the parties or the extent of discovery related
to the Landwehrs' claims. Thus, the record does not show
that Southwind engaged in extensive discovery related to
the Landwehrs' claims.
The discovery in this case is similar to the discovery
in Nasr. The Nasr court held that the party seeking
arbitration did *737 not substantially invoke the judicial
process by participating in discovery. In re Nasr, 50
S.W.3d at 27. Likewise, we find that Southwind did not
substantially invoke the judicial process by participating
in discovery.
Southwind moved for a continuance of a trial setting
and requested a new trial setting. These actions did not
seek a resolution of the merits of the Landwehrs' claims.
Southwind did not try to obtain a satisfactory result on
the Landwehrs' claims in the trial court before moving
to compel arbitration. Southwind did not substantially
invoke the judicial process.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Actual Prejudice
[23] [24] Even if Southwind's actions had substantially
invoked the judicial process, the Landwehrs did not meet
their heavy burden of showing that they were prejudiced
by those actions. In determining the prejudice issue,
courts focus on such things as (1) the movant's access to
information that is not discoverable in arbitration and (2)
the opponent's incurring costs and fees due to the movant's
actions or delay. Williams Indus., Inc., 110 S.W.3d at
135. The Landwehrs claim that they incurred substantial
litigation costs and expenses as a result of Southwind's
delay in moving to compel arbitration.
In Section 9.04 of the employment agreement, the parties
agreed to arbitrate under the rules of the American
Arbitration Association. Those rules permit the arbitrator
to allow discovery. See In re Bruce Terminix Co., 988
S.W.2d at 704–05; Williams Indus., Inc., 110 S.W.3d
at 140. The Landwehrs did not identify any discovery
obtained by Southwind in the trial court that Southwind
would not have been entitled to receive in arbitration. The
Landwehrs did not present any evidence of the expenses
relating to litigation of their claims in the trial court.
The record does not demonstrate that the Landwehrs
incurred any expenses in litigating their claims that they
would not have incurred in arbitration. The record does
not establish that the Landwehrs were prejudiced by
Southwind's actions.
The trial court erred in denying Southwind's motion to
compel arbitration of the Landwehrs' claims. We sustain
Southwind's issue in Cause No. 11–05–00247–CV.
This Court's Ruling
In Cause No. 11–05–00247–CV, we reverse the trial court's
order and remand the cause with instructions for the
trial court to compel arbitration of the Landwehrs' claims
against Southwind. In Cause No. 11–05–00324–CV, we
deny Southwind's petition for writ of mandamus.
All Citations
188 S.W.3d 730
7
Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730 (2006)

Footnotes
1 TEX. CIV. PRAC. & REM.CODE ANN. §§ 171.001–.098 (Vernon 2005).
2 9 U.S.C. §§ 1–16.
3 U.S. CONST. art. I, § 8, cl. 3.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523 (2006)
468 F.3d 523
United States Court of Appeals,
Eighth Circuit.
SUBURBAN LEISURE CENTER, INC., Appellee,
v.
AMF BOWLING PRODUCTS, INC.; AMF
Billiards & Games, LLC, Appellants.
No. 06-1865.
|
Submitted: Oct. 20, 2006.
|
Filed: Nov. 17, 2006.
Synopsis
Background: Franchisee brought action in state court
against franchisor alleging that it was entitled to damages
from the cancellation of the parties' oral franchise
agreement. Following removal, the United States District
Court for the Eastern District of Missouri, Donald J.
Stohr, J., 2006 WL 680964, denied franchisor's motion to
dismiss or in the alternative to compel arbitration and stay
proceedings. Franchisor appealed.
[Holding:] The Court of Appeals, Shepherd, Circuit Judge,
held that dispute regarding franchise agreement was not
subject to arbitration clause contained in subsequent e-
commerce agreement between the parties.
Affirmed.
West Headnotes (8)
[1] Alternative Dispute Resolution
Scope and Standards of Review
The Court of Appeals reviews de novo the
district court's denial of a motion to compel
arbitration based on contract interpretation.
9 Cases that cite this headnote
[2] Alternative Dispute Resolution
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Construction in Favor of Arbitration
Pursuant to the Federal Arbitration Act
(FAA),the Court of Appeals construes an
arbitration clause resolving any doubts in
favor of arbitration. 9 U.S.C.A. § 1 et seq.
2 Cases that cite this headnote
[3] Alternative Dispute Resolution
Construction in Favor of Arbitration
The Court of Appeals may not deny a
party's request to arbitrate an issue unless
it may be said with positive assurance that
the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute.
1 Cases that cite this headnote
[4] Alternative Dispute Resolution
Contractual or Consensual Basis
A party cannot be required to submit to
arbitration any dispute which he has not
agreed so to submit.
3 Cases that cite this headnote
[5] Alternative Dispute Resolution
Construction
Under Virginia law, oral franchise agreement
was independent of, collateral to, and not
inconsistent with subsequent e-commerce
agreement between franchisor and franchisee,
and thus, pursuant to the “collateral contract
doctrine,” the e-commerce agreement's
arbitration clause was not attributable
to the oral franchise agreement through
the e-commerce agreement's merger clause;
e-commerce agreement, which required
franchisee to install and service franchisor's
products sold from franchisor's website, did
not address franchisee's ability to promote or
sell franchisor's products, the subject of the
prior oral franchise agreement.
1 Cases that cite this headnote
[6] Evidence
1
Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523 (2006)
Completeness of Writing and
Presumption in Relation Thereto;
Integration
Under Virginia law, parol evidence
is inadmissible to vary, contradict,
add to, or explain the terms of
a complete, unambiguous, unconditional
written instrument.
Cases that cite this headnote
[7] Evidence
Contracts in General
Under Virginia law, a merger clause does
not prohibit the admission of parol evidence
which does not contradict or vary the terms of
the contract.
Cases that cite this headnote
[8] Evidence
Prior and Contemporaneous Collateral
Agreements
Under Virginia law, the parol evidence rule
does not exclude parol proof of a prior
or contemporaneous oral agreement that
is independent of, collateral to and not
inconsistent with the written contract, and
which would not ordinarily be expected
to be embodied in the writing, and thus
a merger clause gives rise to no more
than a presumption that all the parties'
prior agreements merged into the written
agreement.
Cases that cite this headnote
Attorneys and Law Firms
*524 Vincint Keady, argued, St. Louis, MO, for
appellant.
Matthew S. McBride, argued, St. Louis, MO, for appellee.
Before MELLOY, BENTON and SHEPHERD, Circuit
Judges.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Opinion
SHEPHERD, Circuit Judge.
AMF Bowling Products, Inc. and AMF Billiards &
Games LLC (collectively “AMF”) appeals from an
order of the district court 1 denying its motion to
dismiss or in the alternative to compel arbitration and
stay proceedings with regard to claims brought by
Suburban Leisure Center, Inc. (“Suburban”) after AMF
terminated its oral franchise agreement with Suburban.
We possess jurisdiction of this appeal pursuant to the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 16(a)(1)
(C), providing that “[a]n appeal may be taken from ...
*525 an order ... denying an application ... to compel
arbitration....” For the reasons discussed below, we
affirm.
I.
For the purpose of ruling on AMF's motion to dismiss
or in the alternative to compel arbitration, the district
court assumed the truth of the allegations in Suburban's
complaint. With the limited purpose of reviewing the
district court's ruling, we, too, view Suburban's allegations
as true. See Palcko v. Airborne Express, Inc., 372
F.3d 588, 597 (3d Cir.2004) (stating that a motion to
compel arbitration is generally treated as a motion to
dismiss for failure to state a claim upon which relief
can be granted); cf. Manion v. Nagin, 394 F.3d 1062,
1065 (8th Cir.2005) (viewing factual allegations as true
for purposes of motion to dismiss). Accordingly, the
following facts are undisputed for purposes of this appeal.
Suburban distributes indoor and outdoor lawn and leisure
equipment, and AMF manufactures pool tables and pool
table accessories. The parties entered into an oral franchise
agreement, whereby they agreed that Suburban would
have the right use the AMF trade name, trademark, or
service mark in order to sell AMF's line of pool tables
and related accessories from Suburban's stores located in
the St. Louis, Missouri region. Subsequently, the parties
executed a written E-Commerce Dealer Agreement (“e-
commerce agreement”), in which Suburban agreed to
provide delivery and installation of AMF's products sold
by AMF via its website to customers in Suburban's
specified areas.
2
Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523 (2006)
With regard to the e-commerce agreement, Section 14
provides that “[t]he determination of any dispute or claim
arising under the Agreement or any invoice or agreement
executed pursuant to this Agreement will be settled by
binding arbitration in Richmond, Virginia.” Further,
Section 15 states that the e-commerce “[a]greement
constitutes the entire agreement between the parties and
supercedes all prior agreement[s], oral and written.”
Finally, Section 15 goes on to state that the e-commerce
agreement “will be construed in accordance with the
laws of Virginia without regard to their conflict of laws
provisions.”
On August 25, 2005, AMF sent a termination letter
stating that Suburban would be “required to cease
promoting” AMF's line of pool tables and accessories
within sixty days. The letter made no mention of the
e-commerce agreement. Suburban filed suit in Missouri
state court alleging that it was entitled to damages from
the cancellation of the oral franchise agreement without
the requisite notice pursuant to Missouri Revised Statute
section 407.405 as well as recoupment for improvements
it had made to its stores in reliance on the oral franchise
agreement. See Mo. Ann. Stat. § 407.405 (West 2001).
Pursuant to 28 U.S.C. § 1441, AMF removed the matter
to federal court. Upon removal, AMF filed a motion
to dismiss or in the alternative to compel arbitration
and stay proceedings pursuant to the FAA, 9 U.S.C. §
3. Because the district court found that the e-commerce
agreement did not address Suburban's ability to promote
or sell AMF's products, it concluded that Suburban's
underlying claims did not arise under the e-commerce
agreement. Accordingly, the district court denied AMF's
motion to compel arbitration of the dispute. AMF appeals
the district court's order.
II.
[1] We review de novo the district court's denial of
a motion to compel arbitration based on contract
interpretation. *526 Nitro Distrib., Inc. v. Alticor, Inc.,
453 F.3d 995, 998 (8th Cir.2006). As both Missouri
and Virginia recognize the validity of the choice of laws
provision contained in the e-commerce agreement, we
apply the law of Virginia to resolve this appeal. See Paul
Bus. Sys., Inc. v. Canon U.S.A., Inc., 240 Va. 337, 397
S.E.2d 804, 807 (1990); Kagan v. Master Home Prods.
Ltd., 193 S.W.3d 401, 407 (Mo.Ct.App.2006). Resolution
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
of this appeal is also governed by the FAA, 9 U.S.C. §
1 et seq., because the e-commerce agreement “involved
interstate commerce.” Amchem Prods., Inc. v. Newport
News Circuit Court Asbestos Cases, 264 Va. 89, 563 S.E.2d
739, 743 (2002).
[2] [3] [4] Pursuant to the FAA, we construe the
arbitration clause resolving any doubts in favor of
arbitration. Am. Recovery Corp. v. Computerized Thermal
Imaging, Inc., 96 F.3d 88, 92 (4th Cir.1996) (citing Moses
H. Cone Mem'l Hosp. v. Mercury Constr. Co., 460 U.S. 1,
24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). “Thus, we
may not deny a party's request to arbitrate an issue ‘unless
it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers
the asserted dispute.’ ” Id. (quoting United Steelworkers
of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). However,
a “party cannot be required to submit to arbitration
any dispute which he has not agreed so to submit.”
Amchem Prods., Inc., 563 S.E.2d at 743 (quoting United
Steelworkers of Am., 363 U.S. at 582, 80 S.Ct. 1347).
When determining whether a contractual dispute exists
that is subject to arbitration, Virginia courts examine
the contract's language and apply the commonwealth's
substantive contract law. Id.
[5] On appeal, AMF contends that the e-commerce
agreement's merger clause incorporates and subsumes
the oral franchise agreement such that the e-commerce
agreement is the sole agreement between the parties
necessitating arbitration of the present dispute. “[A]
‘merger clause’ (sometimes an ‘integration’ or ‘entire
agreement’ clause) ... ‘merges' prior negotiations into the
writing. A typical clause includes a recital that the writing
‘contains the entire agreement of the parties.’ ” 2 E. Allan
Farnsworth, Farnsworth on Contracts § 7.3 (3d ed.2004);
see, e.g., Prospect Dev. Co., Inc. v. Bershader, 258 Va.
75, 515 S.E.2d 291, 296 (1999) (observing that a contract
contained an “integration clause” stating “that in the
absence of an amendment in writing, the contract contains
the final and entire agreement between the parties”);
Spotsylvania County Sch. Bd. v. Seaboard Surety Co.,
243 Va. 202, 415 S.E.2d 120, 126 (1992) (noting that “a
merger clause in the contract stated that the document
‘represent[ed] the entire and integrated agreement between
the parties' ”).
3
Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523 (2006)

[6] [7] Merger clauses “purport to contractually require discussed Shevel's and stated that its “focus then was
on whether parol evidence was admissible in the face of
application of the parol evidence rule to the parties'
a [contract] silent on the subject matter of an alleged
agreement.” 11 Richard A. Lord, Williston on Contracts
separate agreement yet stating that it was the complete
§ 33:21 (4th ed.1999). In Virginia, “parol evidence ... is
agreement of the parties. We said such evidence was
inadmissible to vary, contradict, add to, or explain the
admissible.” J.E. Robert Co. v. J. Robert Co., Inc. of
terms of a complete, unambiguous, unconditional written
Virginia, 231 Va. 338, 343 S.E.2d 350, 353 (1986).
instrument.” (Shevel's Inc.-Chesterfield v. Se. Assocs., Inc.,
228 Va. 175, 320 S.E.2d 339, 343 (1984)). However, a
This case involves two distinct agreements between
merger “clause does not prohibit the admission of parol
Suburban and AMF. Suburban and AMF initially
evidence which does not contradict or vary the terms of
entered into the oral franchise agreement providing for
the ... contract....” Prospect Dev. Co., Inc., 515 S.E.2d
Suburban's promotion and sale of AMF products from
at 296. In this case, as the district court found, the e-
Suburban's stores. Subsequently, the parties executed the
commerce agreement does not address Suburban's ability
written e-commerce agreement, which required Suburban
to promote or sell AMF's products, which is the subject
to install and service AMF products sold by AMF through
of the prior oral franchise agreement. Accordingly, the
its website to its customers. Therefore, the oral franchise
prior oral agreement necessarily does not seek *527
agreement addresses a contractual relationship between
to contradict or supplement the subsequent e-commerce
the parties that is not covered in any manner by the
agreement that addresses a different subject, AMF's
e-commerce agreement. As a result, the oral franchise
selling its own product from the AMF website. Thus, these
agreement is “independent of, collateral to, and not
facts do not implicate the parol evidence rule.
inconsistent with” the e-commerce agreement within the
meaning of Shevel's. See Shevel's, 320 S.E.2d at 343. Thus,
[8] Further, the e-commerce agreement does not
the parties did not intend for the e-commerce agreement
extinguish the prior oral franchise agreement because
to be their sole agreement such that the merger clause does
it constitutes an independent agreement under the
not subsume the prior oral franchise agreement pursuant
“collateral contract doctrine.” Because “the parol
to Virginia's “collateral contract doctrine.” Because the
evidence rule does not exclude parol proof of a prior
agreements are independent of each other, the e-commerce
or contemporaneous oral agreement that is independent
agreement's arbitration language cannot be attributed
of, collateral to and not inconsistent with the written
to the oral franchise agreement, even construing the
contract, and which would not ordinarily be expected to
language in favor of arbitration. Accordingly, Suburban
be embodied in the writing,” a merger clause gives rise
has not agreed to arbitrate its claims in the underlying suit.
to no more than a presumption that all the parties' prior
agreements merged into the written agreement. Shevel's,
320 S.E.2d at 343 (quoting Pierce v. Plogger, 223 Va.
116, 286 S.E.2d 207, 209 (1982)). The Virginia Supreme III.
Court refers to this exception to the parol evidence rule as
the “collateral contract doctrine.” Id. The Shevel's Court We conclude that the district court did not err in denying
determined that this doctrine required the admission of a AMF's motion to dismiss or in the alternative to compel
prior oral agreement into evidence, despite a merger clause arbitration and stay proceedings, and affirm.
in the parties' subsequent written agreement, because the
prior oral agreement was a “different agreement” that
All Citations
did not seek “to vary or explain” the subsequent written
agreement. Id. In a later case, the Virginia Supreme Court 468 F.3d 523

Footnotes
1 The Honorable Donald J. Stohr, United States District Judge for the Eastern District of Missouri.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)

KeyCite Yellow Flag - Negative Treatment West Headnotes (8)

Declined to Follow by Schuster v. Prestige Senior Management, L.L.C., 
Wash.App. Div. 3, April 28, 2016
169 F.3d 324 [1] Alternative Dispute Resolution
United States Court of Appeals, Scope and standards of review
Fifth Circuit. Court of Appeals reviews the issue of whether
a party's conduct amounts to a waiver of
SUBWAY EQUIPMENT LEASING CORPORATION; arbitration de novo.
Subway Restaurants, Inc., Plaintiffs–Appellants,
v. 7 Cases that cite this headnote
Bonnie FORTE, wife of/and; Charles N. Forte;
Selena Rankins, wife of/and; Frank R. Rankins; [2] Federal Courts
Dorothy Sims, wife of/and; Earl Sims, Jr., Estoppel and waiver
Defendants–Counter Claimants–Appellees, Factual findings underlying a district court's
v. waiver of arbitration determination are
Doctor's Associates, Inc., doing business reviewed for clear error.
as Subway; Frederick A. DeLuca,
1 Cases that cite this headnote
Counter Defendants–Appellants.
Earl Sims; Subway Development of
[3] Alternative Dispute Resolution
Louisiana, Inc.; Subway Management
Evidence
Group of Louisiana, Plaintiffs–Appellees,
v. There is a strong presumption against waiver
of arbitration; accordingly, a party alleging
Doctor's Associates, Inc.; Frederick DeLuca;
waiver of arbitration must carry a heavy
Subway Restaurants, Inc., Defendants–Appellants.
burden.
No. 97–31236.
42 Cases that cite this headnote
|
March 24, 1999.
[4] Alternative Dispute Resolution
Sandwich shop franchisees brought action against Suing or participating in suit
franchisor and related entities. The United States District
Party only invokes the judicial process, as
Court for the Eastern District of Louisiana, Patrick E.
required to establish waiver of arbitration,
Carr, J., denied defendants' motion for a stay pending
to the extent it litigates a specific claim it
arbitration, and they appealed. The Court of Appeals, E.
subsequently seeks to arbitrate.
Grady Jolly, Circuit Judge, held that: (1) franchisor did
not invoke judicial process, so as to waive arbitration, 71 Cases that cite this headnote
when affiliated entities sued franchisees for breach of
equipment and real estate leases; (2) franchisor did
[5] Alternative Dispute Resolution
not invoke judicial process by allegedly encouraging
Suing or participating in suit
affiliates to file involuntary bankruptcy petitions against
franchisees; and (3) Federal Arbitration Act (FAA) Sandwich shop franchisor did not invoke
required stay to extend to claims against franchisor's judicial process, so as to waive arbitration of
affiliates. franchisees' claims under franchise agreement,
when affiliated entities sued the franchisees for
Reversed and remanded. breach of equipment and real estate leases;
affiliates' actions involved claims different for
the one franchisor sought to arbitrate.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)
11 Cases that cite this headnote
[6] Alternative Dispute Resolution
Suing or participating in suit
Sandwich shop franchisor did not invoke
a judicial process to the prejudice of its
franchisees, so as to waive arbitration of
franchisees' claims under franchise agreement,
by allegedly encouraging its affiliates to
file involuntary bankruptcy petitions against
franchisees to delay arbitration, where
franchisees never challenged arbitrator's
decision to hold arbitration in abeyance
pending bankruptcy proceeding, and there
was no showing that franchisor desired
to resolve the arbitrable dispute through
litigation.
35 Cases that cite this headnote
[7] Alternative Dispute Resolution
Suing or participating in suit
To invoke the judicial process, as required
to waive arbitration, the waiving party must
do more than call upon unrelated litigation
to delay an arbitration proceeding; the party
must, at the very least, engage in some overt
act in court that evinces a desire to resolve
the arbitrable dispute through litigation rather
than arbitration.
56 Cases that cite this headnote
[8] Alternative Dispute Resolution
Particular cases
Federal Arbitration Act (FAA) required stay
pending arbitration of franchisees' claims
against sandwich shop franchisor to extend
to franchisees' claims against franchisor's
affiliates, although affiliates were not parties
to arbitration agreement, where franchisees'
claims were based entirely on their rights
under franchise agreement, which contained
arbitration clause. 9 U.S.C.A. § 3.
28 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Attorneys and Law Firms
*325 Edward Wood Dunham, Wiggins & Dana,
New Haven, CT, for Plaintiffs–Appellants and Counter
Defendants–Appellants.
James C. Ferguson, Ferguson & Associates, Baton Rouge,
LA, David Maxwell Duree, Reinert & Duree, St. Louis,
MO, for Plaintiffs–Appellees and Defendants–Counter
Claimants–Appellees.
Appeals from the United States District Court for the
Eastern District of Louisiana.
Before JOLLY, DUHÉ and EMILIO M. GARZA,
Circuit Judges.
Opinion
E. GRADY JOLLY, Circuit Judge:
Doctor's Associates, Inc. (“DAI”) and companies
associated with DAI appeal a district court ruling denying
their motion for a stay pending arbitration. The district
court held that DAI and its associates had invoked
the judicial process thereby creating a significant delay
that prejudiced the opposing parties and that DAI had
therefore waived its right to arbitration. Because DAI has
not invoked the judicial process with respect to the claim
it wishes to arbitrate and because there is no evidence that
the opposing parties have been prejudiced by any delay,
we reverse.
I
This case involves a franchisor-franchisee relationship
gone sour. Subway, the chain sandwich shop, sells
franchises through DAI. Earl and Dorothy Sims and
various other partners (“the franchisees”), ran four
Subway franchises in the 1980's. Earl Sims was also
a Subway Development Agent (“D.A.”) for the Baton
Rouge area and, on a temporary basis, for the New
Orleans area. The franchisees' agreements with DAI,
contained broad arbitration clauses. Earl Sims's D.A.
contract with DAI contained a similar arbitration clause.
The franchisees subletted real estate and leased equipment
from DAI's affiliated companies, Subway Restaurants,
2
Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)
Inc. (“SRI”) and Subway Sandwich Shops (“SSS”), both
of which leased real estate, and Subway Equipment
Leasing (“SEL”), which leased store equipment. The
franchisees' real estate subleases and the equipment leases
did not contain arbitration clauses.
In March 1988, Earl Sims, much to his displeasure, was
replaced by another D.A. in the New Orleans area. In May
of 1988, he filed an arbitration demand with the American
Arbitration Association (“AAA”), claiming that DAI
had breached the D.A. agreement. Subsequently, the
franchisees defaulted on their real estate and equipment
leases. Shortly thereafter, the litigation began in earnest.
In November 1988, SEL and SRI sued the franchisees in
United States District Court for the Eastern District of
Louisiana to recover amounts due under the equipment
and real estate contracts for one of the franchises
(“the 1988 federal case”). The claims made by SEL
and SRI were under their respective contracts with the
franchisees, for which there were no arbitration clauses.
The franchisees responded by filing what they styled as a
counterclaim against DAI and Frederick DeLuca, one of
DAI's principals. Although neither DAI nor DeLuca were
parties to the lawsuit, the franchisees claimed that they
should be joined as SEL and SRI were merely extensions
of DAI. The district court apparently permitted this
1
joinder. The counterclaim *326 alleged similar claims
to those made by Sims in his arbitration demand.
A day before the franchisees filed their counterclaim in the
1988 federal case, SEL filed an involuntary bankruptcy
petition against the franchisees. By 1990, SEL, SRI and
SSS had all filed separate, amended involuntary petitions
against the franchisees in bankruptcy court. None of
the bankruptcy petitions involved arbitrable claims. In
December of 1990, the bankruptcy court entered orders
for relief, granting the involuntary petition in each
proceeding. The district court reversed the bankruptcy
court, holding that SEL, SRI, and SSS were not separate
entities for purposes of 11 U.S.C. § 303(b)(1). On appeal,
we reversed the holding that SEL, SRI, and SSS were
separate entities. Matter of Sims, 994 F.2d 210 (5th
Cir.1993). The franchisees then appealed to the Supreme
Court, which denied certiorari in 1994. Sims v. Subway
Equipment Leasing Corporation, 510 U.S. 1049, 114 S.Ct.
702, 126 L.Ed.2d 669 (1994). The bankruptcy proceedings
were finally resolved in 1996.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In the interim, the franchisees had filed two lawsuits of
their own. In July 1989, they filed a suit in the District
Court for East Baton Rouge Parish for damages against
DAI, DeLuca, and SSS. That case was stayed while
the bankruptcy case was pending and, after discharge,
the state granted DAI's motion to stay the matter
pending arbitration. In February of 1990, Sims sued
DAI and DeLuca in the Orleans Parish District Court.
DAI removed the suit to federal court, where it was
consolidated with the 1988 federal case.
The consolidated case was stayed pursuant to the
bankruptcy proceedings. At approximately the same time,
pursuant to a letter sent by counsel for DAI, the AAA
decided to hold Earl Sims's arbitration in abeyance
until the bankruptcy proceedings were resolved. Sims
apparently did not object to the arbitration proceeding
being held in abeyance. When the bankruptcy proceedings
concluded in 1996, the franchisees moved to restore their
actions in the consolidated case to the active docket. After
the district court reopened the franchisees' actions, DAI
filed a demand for arbitration with the AAA and moved to
stay the litigation pending arbitration. The district court
denied the motion, reasoning that DAI waived its right to
compel arbitration. DAI has filed a timely appeal.
On appeal, DAI makes two arguments. First, DAI
contends that the district court erred when it held that
DAI had waived its right to arbitrate claims related to the
D.A. agreement. Second, DAI argues that, provided it is
correct that the district court should stay the franchisees'
claims against DAI pending arbitration, then the district
court should also stay the claims against SEL, SRI, and
SSS as well. We address each argument in turn.
II
[1] [2] We review the issue of whether a party's conduct
amounts to a waiver of arbitration de novo. Walker v.
J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir.1991).
The factual findings underlying a district court's waiver
determination are reviewed for clear error. See id. at 576.
“Waiver will be found when the party seeking arbitration
substantially invokes the judicial process to the detriment
or prejudice of the other party.” Miller Brewing Co. v. Fort
Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986).
3
Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)
[3] There is a strong presumption against waiver of
arbitration. See, e.g., Lawrence v. Comprehensive Business
Services Co., 833 F.2d 1159, 1164 (5th Cir.1987) (“Waiver
of arbitration is not a favored finding and there is a
presumption against it.”); Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct.
927, 74 L.Ed.2d 765 (1983) (“[A]s a matter of law, any
doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration.”). Accordingly, a party
alleging waiver of arbitration must carry a heavy burden.
Associated Builders v. Ratcliff Constr. Co., 823 F.2d 904,
905 (5th Cir.1987).
Walker provides an example of this court's “hesitat[ion]
to find that a party has waived its contractual right to
arbitration.” 938 F.2d at 577. In Walker, the plaintiffs
sued in state court, alleging state securities law violations.
*327 Instead of immediately demanding arbitration,
the defendant answered the complaint and participated
in discovery. Thirteen months later, after the plaintiffs
moved to transfer the case, the defendant sought to
enforce its contractual right to arbitration. Despite the
defendant's delay and participation in the lawsuit, this
court held that the defendant had not waived arbitration
because the plaintiffs failed to show that they were
“materially prejudiced” by the delay. Id. at 578.
Before proceeding to the arguments in this case, we should
note that the Second Circuit has addressed the waiver issue
in great detail with respect to litigation involving one of
the parties before this court, DAI. In Doctor's Associates,
Inc. v. Distajo, the Second Circuit considered and rejected
challenges to the arbitration clause in a Subway franchise
agreement. 66 F.3d 438 (2d Cir.1995) (“Distajo I ”), cert.
denied, 517 U.S. 1120, 116 S.Ct. 1352, 134 L.Ed.2d 520
(1996). The court held that “[i]f the alleged violations of
the subleases were premised on violations of the franchise
agreement (which DAI was contractually bound to resolve
through arbitration) then DAI did litigate substantial
issues going to the merits, and the only remaining question
will be whether the franchisees suffered prejudice from the
eviction proceedings.” Id. at 457.
In a subsequent appeal of Distajo I, the Second Circuit
further delved into the meaning of prejudice for purposes
of a waiver of an arbitration agreement: “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
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and later seeks to arbitrate that same issue.” Doctor's
Associates v. Distajo, 107 F.3d 126, 134 (2d Cir.1997),
cert. denied, 522 U.S. 948, 118 S.Ct. 365, 139 L.Ed.2d
284 (1997) (“Distajo II ”). However, in Distajo II, the
court held that, even where DAI directed its affiliates to
sue pursuant to cross-default clauses based on franchise
agreement breaches, there was no waiver of DAI's right to
arbitrate the franchisees' claims. Id. at 132.
III
In this case, the arbitration clause in the D.A. agreement
covers “[a]ny controversy or claim arising out of or
relating to this contract or the breach thereof.” This
language clearly covers the franchisees' claims against
DAI. Absent waiver, the FAA would require the district
court to stay the litigation pending arbitration. See In re
Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 754
(5th Cir.1993).
The district court provided the following explanation for
concluding that DAI waived its right to arbitrate:
[The] disputes in these actions were
not arbitrated at their inception
because of the actions of the
Subway entities. Movants invoked
the judicial process, in this court
and in bankruptcy court, creating
an eight year delay which has
prejudiced the opposing parties.
Movants, the Subway entities,
waived their right to arbitration.
DAI argues that the district court erred when it concluded
that DAI invoked the judicial process.
DAI argues that it has not engaged in any litigation on
the merits of the claims it is seeking to arbitrate. None
of the actions brought by a DAI affiliate involved claims
arising out of a contract containing an arbitration clause.
SEL and SRI brought the 1988 federal action for breach
of their respective contracts, neither of which contained
arbitration clauses. The only other action initiated by
a DAI affiliate is the bankruptcy proceeding, which
again did not involve arbitrable claims. In contrast, the
franchisees have, on three separate occasions, sought to
litigate arbitrable claims related to the D.A. agreement:
(1) in their counterclaim in the 1988 federal case; (2) in
4
Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)
their petition filed in Baton Rouge Parish; and (3) in their
petition filed in Orleans Parish. On its face, at least, it
would appear that it is the franchisees, not DAI, that have
invoked the judicial process.
The franchisees make two arguments to support their
claim that DAI has invoked the judicial process to their
detriment. First, they argue that DAI and its affiliates
are so related, and the claims brought by the affiliates
so inextricably intertwined, that DAI *328 invoked the
judicial process when its affiliates brought the 1988 federal
action and the bankruptcy action. The franchisees second
argument is that DAI's affiliates acted as an agents for
DAI in filing the bankruptcy proceeding so that DAI
could stay Sims's arbitration proceeding.
[4] The franchisees contend that the district court
correctly concluded that DAI invoked the judicial process
through its affiliates, insisting that the affiliates were
DAI's alter egos or at least its agents. 2 This argument
brings up an issue we addressed in Lawrence, and which
the Second Circuit has addressed in greater detail since
—whether a party can invoke the judicial process if it
litigates a non-arbitrable claim against a party with whom
it has arbitrable claims. Lawrence, 833 F.2d at 1165
(holding that franchisor who sued franchisees had not
invoked the judicial process for purposes of a subsequent
dispute); Distajo II, 107 F.3d at 132–33 (“only prior
litigation of the same legal and factual issues as those
the party now wants to arbitrate results in waiver of
the right to arbitrate”); see also Gingiss Int'l, Inc. v.
Bormet, 58 F.3d 328, 330(holding that a franchisor “did
not waive ... [his arbitrable] claims by prosecuting the
unlawful detainer action in California state court because
that action involved different issues”). We hold today that
a party only invokes the judicial process to the extent it
litigates a specific claim it subsequently seeks to arbitrate.
[5] The franchisees argue, however, that the dispute over
the D.A. agreement is so inextricably intertwined with
the actions brought by DAI's affiliates that they amount
to the same action. We cannot agree. DAI's affiliates
sought to recover for obligations under their respective
contracts. These contracts, all related to obligations for
leasing equipment and real estate, in no instance involved
the D.A. agreement between Sims and DAI. Because the
actions brought by the DAI affiliates involved claims that
are different from the one DAI now seeks to arbitrate, it
does not matter whether DAI's affiliates were the alter ego,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
agent, or precursor to DAI. Even if the affiliates and DAI
were one and the same, DAI still would not have invoked
the judicial process.
[6] The franchisees further argue that DAI encouraged its
affiliates to file actions against the franchisees so that DAI
could postpone the arbitration proceeding. This argument
is a relatively novel one. The franchisees essentially
contend that by using the bankruptcy proceeding as an
excuse to delay the Simses' arbitration, DAI invoked
a judicial process (the bankruptcy proceeding) to the
prejudice of the franchisees (who were subjected to an
eight-year delay). Even if we accepted the reasoning of
this argument, which we do not, the franchisees' argument
would still fail on the record before us. DAI did request
that Sims's arbitration be held in abeyance pending the
bankruptcy proceeding and all of the parties now agree
that there was no legally binding reason for the arbitrator
to do so. The franchisees, however, never challenged the
arbitrator's decision. We will not construe a decision to
delay arbitration as prejudicial to the franchisees, when
the franchisees never objected to that delay.
[7] More importantly, the reasoning used by the
franchisees is ultimately specious. As we make clear today,
in order to invoke the *329 judicial process, a party must
have litigated the claim that the party now proposes to
arbitrate. Here, the franchisees argue that, by asserting
unrelated litigation—the bankruptcy proceeding—as a
basis for delaying the arbitration proceeding, DAI has
“invoked the judicial process” and therefore waived its
right to arbitrate. This argument, however, confuses our
use of the term “invoke” in past cases. We use the
term to describe the act of implementing or enforcing
the judicial process, not the act of calling upon for
support or assistance, as say, one would invoke a spirit
or the elements. 3 Thus, to invoke the judicial process,
the waiving party must do more than call upon unrelated
litigation to delay an arbitration proceeding. The party
must, at the very least, engage in some overt act in court
that evinces a desire to resolve the arbitrable dispute
through litigation rather than arbitration. There is no
evidence that DAI's actions or, assuming arguendo that
DAI's associates' actions can be imputed to DAI, the
actions of SEL, SRI, or SSS amount to this threshold
showing of an attempt to invoke the judicial process.
We therefore find no basis for concluding that DAI should
be denied an opportunity to arbitrate this claim. DAI
5
Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)

did not invoke the judicial process with respect to the
arbitrable claim at issue here. Even if the franchisees could
show that DAI intentionally brought the bankruptcy
proceeding to delay arbitration, the franchisees have not
shown that they were prejudiced as a result of that stay.
We therefore hold that the district court erred when it
denied DAI's motion for a stay pending arbitration.
IV
have no right to arbitration, the claim brought by the
franchisees is based entirely on the franchisees' rights
under the D.A. contract. We therefore fail to see how
litigation could proceed on the franchisees' claims without
adversely affecting DAI's right to arbitration. See, e.g.,
Kroll v. Doctor's Associates, Inc., 3 F.3d 1167, 1171 (7th
Cir.1993) (stating that a decision about whether to grant
a stay should be motivated by the court's “concern that
litigation against a party not bound by an arbitration
provision may impair an arbitrator's consideration of
claims against a party that is compelled to arbitrate.”).

[8] Having concluded that DAI is entitled to a stay

pending arbitration, we now must address the scope of
the stay order. DAI argues that, even though SEL, SRI, V
and SSS have no right to arbitrate the claims brought
For the foregoing reasons, we hold that DAI, SEL, SRI,
against them by the franchisees, the district court should
and SSS are entitled to a stay pending arbitration of the
stay the litigation with respect to them as well. DAI argues
franchisees' claims against DAI. We therefore REVERSE
that the FAA requires the district court to stay litigation
the district court and REMAND for further proceedings
where issues presented in the litigation are the subject of
not inconsistent with the opinion.
an arbitration agreement. See 9 U.S.C. § 3.

REVERSED and REMANDED.

Based on the record before us, we find merit in DAI's
argument. In Sam Reisfeld & Son Import Co. v. S.A. Eteco,
we held that an order to stay covering claims against all All Citations
defendants was proper, even though two defendant were
not part of the arbitration agreement. 530 F.2d 679, 681 169 F.3d 324
(5th Cir.1976). Although the DAI affiliates themselves

Footnotes
1 This point is not entirely clear. Normally, such a joinder would raise an issue regarding whether DAI and DeLuca were
properly joined under Fed.R.Civ.P. 14(a). Because the 1988 case was subsequently consolidated with the 1990 case,
in which DAI and DeLuca were named defendants, and because this issue was not argued on appeal, we assume that
DAI and DeLuca are proper parties in this appeal.
2 The franchisees concede that, in Matter of Sims, 994 F.2d 210, 217–20 (5th Cir.1993), we held that the bankruptcy court's
finding that DAI's affiliates were not its alter egos was not clearly erroneous. Even so, the appellees note that several
post-Sims cases have found an alter ego relationship between DAI and its affiliates. See Jannotta v. Subway Sandwich
Shops, Inc., 125 F.3d 503, 510 (7th Cir.1997) (noting that DAI did not appeal the jury finding that SSS was DAI's alter
ego); Doctor's Associates, Inc. v. Distajo, 944 F.Supp. 1010, 1014 (D.Conn.1996) (stating that “DAI has conceded that
the leasing companies were its alter egos”); Pine Tree Associates v. Doctors' Associates, Inc., 654 So.2d 735, 739–40
(La.App.1995) (finding sufficient evidence to warrant a trial on the issue of whether DAI's affiliates were its alter egos).
The franchisees also contend that DAI is responsible for SEL's conduct in initiating the involuntary bankruptcy
proceeding because SEL merged into DAI on December 31, 1996. The franchisees claim that, as a Florida corporation,
DAI is “liable and responsible” for SEL's pre-merger conduct pursuant to Fla. Stat. Ann. § 607.1106(1)(c).
Because we need not make a determination of the exact relationship between DAI and its affiliates to resolve the
matter before us, we will not do so.
3 See Webster's Third International Dictionary 1191 (1993). Both uses of “invoke” are accepted definitions. In this context,
however, we cannot see a plausible reading of the term “invoke” that would lead to our treating the “judicial process”
as if it were a specter, ghost, or deity. In this context, we regard the judicial process as a mechanism: to invoke it is
to implement it.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Subway Equipment Leasing Corp. v. Forte, 169 F.3d 324 (1999)

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

Taft v. Burttram, 254 Ga. 687 (1985)
333 S.E.2d 585
254 Ga. 687
Supreme Court of Georgia.
TAFT
v.
BURTTRAM, Jr., et al.
KILROY
v.
BURTTRAM, Jr., et al.
Nos. 42329, 42330.
| Appellants, William H. Taft and Kevin P. Kilroy, each
Sept. 5, 1985.
Former account executives with securities brokerage
corporation brought action against officers of the
corporation for malicious prosecution, libel, abuse of
process, slander, wrongful interference with employment
relationship and intentional infliction of emotional harm.
The Superior Court, Fulton County, William W. Daniel,
J., granted defendants' motions to stay lawsuits pending
arbitration, and plaintiffs appealed. The Supreme Court,
Smith, J., held that defendants, by swearing out criminal
warrants against former account executives rather than
arbitrating dispute as required by employment contract,
waived right to compel arbitration.
Reversed.
West Headnotes (1)
[1] Alternative Dispute Resolution
Performance, Breach, Enforcement, and
Contest of Agreement
Officers of securities exchange brokerage
corporation, by swearing out criminal
warrants against former account executives
rather than arbitrating dispute as required by
employment contract, waived right to compel
arbitration.
2 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Attorneys and Law Firms
**585 *688 Rex M. Lamb III, Henry D. Fellows, Jr.,
Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta,
for William H. Taft and Kevin P. Kilroy.
*689 Robert M. Axelrod, Rogers & Hardin, Atlanta,
Phillip S. McKinney, for H. Dyar Burttram, Jr., et al.
Opinion
*687 SMITH, Justice.
sued appellees, H. Dyar Burttram, Jr., and Robert
Rosenberg, officers of appellee Norris and Hirshberg,
Inc., for malicious prosecution, libel, abuse of process,
slander, wrongful interference with an employment
relationship, and intentional infliction of emotional harm.
Taft and Kilroy appeal the trial court's grants of appellees'
motions to stay the lawsuits pending arbitration. The
appeals have been consolidated. We reverse.
Norris and Hirshberg, a securities brokerage business,
hired Taft and Kilroy as account executives in August,
1983. Taft and Kilroy resigned in August, 1984, to
join a similar business. They allege that the appellees
altered their employment records to show that they
were terminated for cause, and that the appellees mailed
libelous material and related slanderous charges about
them to various people involved in the securities business.
In October, 1984, after requesting the return of certain
information and records to Norris and Hirshberg,
appellee Burttram swore out warrants charging Taft
and Kilroy with theft by taking. He contended that
they had stolen client lists, confirmation slips, and other
information regarding Norris and Hirshberg's clients
when they left Norris and Hirshberg to join the other
business. Taft and Kilroy were arrested on November 2,
1984.
On November 6, a Fulton County Magistrate dismissed
the charges for lack of probable cause. He stated that
the controversy was best suited for civil court. The
**586 appellees subsequently requested Taft and Kilroy
to submit the dispute to arbitration. Taft and Kilroy filed
the complaints initiating these lawsuits five days later, on
December 12, 1984.
1
Taft v. Burttram, 254 Ga. 687 (1985)
333 S.E.2d 585

1. Taft and Kilroy contend that the trial court erred in
staying their lawsuits pending arbitration.
Under the agreement that the appellants signed prior
to their employment with Norris and Hirshberg, they
“[agreed] to arbitrate any dispute, claim, or controversy”
that the National Association of Securities Dealers
[NASD] requires to be arbitrated. The NASD requires its
members to arbitrate “any dispute, claim, or controversy
arising out of or in connection with the business of any
member of the Association ...” (Emphasis supplied.) As
the appellees note, this procedure broadly encourages the
members to arbitrate their disputes.
Manhattan Industries, 754 F.2d 457, 461 (2d Cir.1985), as
the dispute involved in the criminal case and this case, and
the parties involved in both cases for all practical purposes
are identical. 2 The appellees, in choosing the forum of
criminal law rather than arbitration in their first attempt
to sort out their dispute with Taft and Kilroy, waived their
right to compel arbitration. To put it simply, appellees
cannot run with the hare and the hounds. Accordingly
we find that the trial court should have denied appellees'
motions for stay of these lawsuits pending arbitration.
2. Following the holding in Division 1, we need not reach
appellants' remaining enumerations of error.

When the appellees failed to abide by this policy, in Judgment reversed.

swearing out criminal warrants against the appellants
“instead of seeking to arbitrate, this was the clearest kind
of waiver on their part of an agreement to arbitrate.” 1 All the Justices concur.
Morales Rivera v. Sea Land of Puerto Rico, 418 F.2d
725, 726 (1st Cir.1969). Any other holding would be All Citations
contrary to the clear federal policy of encouraging parties
254 Ga. 687, 333 S.E.2d 585
to resolve disputes through arbitration, rather than a
resort to the courts. See Sweater Bee By Banff, Ltd. v.

Footnotes
1 Here, the party who initiated legal proceedings subsequently seeks arbitration, and the party who defended that action
claims waiver by inconsistency. This distinguishes this case from waiver cases in which the party defending the initial
action seeks arbitration belatedly and the party initiating the action claims waiver. See, e.g., Sweater Bee, infra.
2 Compare Amalgamated Local No. 55, etc. v. Metal and Alloy Division, 396 F.Supp. 667 (W.D.N.Y.1975).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)

Cases that cite this headnote

KeyCite Yellow Flag - Negative Treatment
Distinguished by Cooper Industries, LLC v. Pepsi-Cola Metropolitan 
Bottling Co., Inc., Tex.App.-Hous. (14 Dist.), August 25, 2015
[2] Alternative Dispute Resolution
438 S.W.3d 717 Suing or participating in suit
Court of Appeals of Texas, Party waives arbitration clause by
Houston (1st Dist.). substantially invoking judicial process to
other party's detriment or prejudice.
TUSCAN BUILDERS, LP, Appellant
v. 2 Cases that cite this headnote
1437 SH6 L.L.C. d/b/a Sweetwater Aesthetic
SPA & Wellness Center, Shelena C. Lalji, [3] Alternative Dispute Resolution
M.D., P.A. d/b/a Dr. Shel Wellness & Medical Suing or participating in suit
SPA and Lalji Dental, P.C. d/b/a Lake Party substantially invokes judicial process,
Pointe Dental And Specialty, Appellees. so as to waive arbitration clause, if it
takes specific and deliberate actions that are
No. 01–13–00685–CV. inconsistent with the right to arbitrate or if it
| actively tries, but fails to achieve, satisfactory
May 15, 2014. result through litigation before turning to
arbitration.
Synopsis
Background: Commercial building owners sued builder 2 Cases that cite this headnote
for breach of warranty associated with alleged
construction defects. The 151st District Court, Harris
County, denied builder's motion to compel arbitration. [4] Alternative Dispute Resolution
Builder appealed. Suing or participating in suit
For purposes of a waiver of arbitration
agreement, prejudice refers to inherent
unfairness caused by party's attempt to have it
[Holding:] On rehearing, the Court of Appeals, Jane
both ways by switching between litigation and
Bland, J., held that builder substantially invoked judicial
arbitration to its own advantage.
process to detriment of owners.
Cases that cite this headnote

Affirmed and remanded.

[5] Alternative Dispute Resolution
Evidence
Courts apply strong presumption against
West Headnotes (10)
waiver of arbitration and resolve any doubt on
the issue in favor of arbitration.
[1] Estoppel
Nature and elements of waiver Cases that cite this headnote

Estoppel
Implied waiver and conduct constituting
waiver
“Waiver ” is the intentional relinquishment
of known right or intentional conduct
inconsistent with claiming that right.
[6] Alternative Dispute Resolution
Suing or participating in suit
For waiver of arbitration agreement to have
occurred, appellant must, at the very least,
have engaged in some overt act in court
that evinced a desire to resolve the same

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)
arbitrable dispute through litigation rather
than arbitration.
1 Cases that cite this headnote
[7] Alternative Dispute Resolution
Suing or participating in suit
In determining whether party waived
arbitration clause, courts can consider, among
other factors: (1) whether movant for
arbitration was plaintiff, who chose to file in
court, or defendant, who merely responded;
(2) when movant learned of arbitration
clause and how long movant delayed before
seeking arbitration; (3) amount of movant's
pretrial activity related to merits rather than
arbitrability or jurisdiction; (4) amount of
discovery conducted; and (5) whether movant
sought judgment on the merits.
Cases that cite this headnote
[8] Alternative Dispute Resolution
Waiver or Estoppel
Courts analyze whether waiver of arbitration
agreement occurred based on the totality of
the circumstances presented in each case.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Suing or participating in suit
Builder of commercial building substantially
invoked judicial process to the prejudice of
building owners in owners' suit against builder
for breach of warranty associated with alleged
construction defects, such that builder waived
arbitration clause incorporated by reference
in construction contract; builder did not
accompany its answer or third-party claims
against subcontractors with any notice of
intent to pursue arbitration, builder joined in
motions that prolonged discovery period and
postponed trial date and mediation deadline
to allow additional discovery on the merits,
and by the time builder moved to compel
arbitration, parties had completed written
discovery, designated their experts for trial,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and physically inspected building, with the
trial setting less than a month away.
1 Cases that cite this headnote
[10] Alternative Dispute Resolution
Presentation and reservation of grounds
for review
Builder waived any complaint about
evidentiary value of counsel's statement
regarding status of discovery, as relating to
builder's motion to compel arbitration of
contract dispute, by failing to object in trial
court.
1 Cases that cite this headnote
Attorneys and Law Firms
*718 Michael B. Gerstle, Patrick T. Mulry, Gerstle,
Minissale & Snelson, LLP, Dallas, TX, for Appellant.
E. Michelle Bohreer, Todd Zucker, Pritesh Soni, Bohreer
& Zuccker LLP Houston, TX, for Appellees.
Panel consists of Chief Justice RADACK and Justices
BLAND and HUDDLE.
OPINION ON REHEARING
JANE BLAND, Justice.
Appellant Tuscan Builders, LP has moved for rehearing
and en banc consideration. We grant rehearing, withdraw
our opinion and judgment of January 30, and issue the
following in their stead. We dismiss as moot Tuscan's
motion for en banc consideration. Our disposition of the
appeal remains unchanged.
In this construction dispute, a builder appeals the trial
court's order denying its motion to compel arbitration
against the building's owners. The builder contends that
the trial court erred in finding that the builder had
waived enforcement of an arbitration clause by invoking
the judicial process and delaying its effort to compel
arbitration for more than a year. Finding no error, we
affirm.
2
Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)
*719 Background
The contract dispute
The commercial building owners, 1437 SH6 L.L.C. d/b/
a Sweetwater Aesthetic Spa & Wellness Center, Shelena
C. Lalji, M.D., P.A. d/b/a Dr. Shel Wellness & Medical
Spa, and Lalji Dental, P.C. d/b/a Lake Pointe Dental
and Specialty (collectively, Sweetwater) sued Tuscan, the
builder, for breach of warranty associated with alleged
construction defects. Sweetwater had contracted with a
construction design team, the Mirador Group, Inc., and
an architect, Todd Blitzer, to design a building suitable
for a dental office, a wellness clinic, and other health-
related businesses. Sweetwater's design services agreement
with Mirador provides that venue for any suit “shall be
in a Texas State District Court in Harris County, Texas.”
The design agreement incorporates by reference specific
provisions of the “Standard Form of Agreement between
Owner and Architect (AIA Document B141–1997),” but
it expressly excludes “Sections 1.3.4, Mediation and 1.3.5,
Arbitration.”
Sweetwater hired Tuscan to construct the building
according to Mirador's design specifications. Tuscan
prepared the construction contract using AIA Document
AlOl–1997, the “Standard Form of Agreement between
Owner and Contractor where the basis of payment is
a stipulated sum.” The parties' construction contract
incorporates by reference an industry form document
—AIA Document A201–1997, the “General Conditions
of the Contract for Construction” [General Conditions]
—but it does not attach a copy of that document.
Like AIA Document B141–1997, incorporated into the
design agreement, A201–1997 calls for mediation in
the first instance, followed by arbitration. Unlike the
design agreement, the construction contract does not
exclude the AIA Document's arbitration provisions that
were incorporated by reference, but not attached to the
contract. The pertinent sections of A201–1997 provide:
Claims not resolved by mediation
shall be decided by arbitration
which, unless the parties mutually
agree otherwise, shall be in
accordance with the Construction
Industry Arbitration Rules of the
American Arbitration Association
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
currently in effect. The demand for
arbitration shall be filed in writing
with the other party to the Contract
and with the American Arbitration
Association, and a copy shall be filed
with the Architect.
After it moved in, Sweetwater noticed water leaking into
the building. It informed Mirador and Tuscan of the
problem, and they attempted to repair the leaks. During
a rainstorm in July 2010, however, significant water
leaks appeared in the exterior walls and roof, causing
substantial damage to the structure and interior walls.
Sweetwater again sought to have Mirador and Tuscan
repair the building, but Sweetwater was not satisfied with
the results.
Course of proceedings
In June 2012, Sweetwater sued Mirador, Tuscan, and
Blitzer for negligence, breach of contract, and breaches of
express and implied warranties, as well as statutory claims
under the Texas Deceptive Trade Practices Act. Tuscan
answered the suit on June 29. Tuscan denied Sweetwater's
allegations, raised several specific defenses, and made a
verified denial; it did not mention arbitration in the filing.
In November, Tuscan sued its five subcontractors, seeking
indemnification under the indemnification provisions
in each subcontractor agreement. Tuscan sued each
subcontractor for negligence, breach of contract, and
breach of warranty. Sweetwater later *720 amended
its petition to include its own claims against the
subcontractors. The subcontractors answered, and several
demanded a jury trial. In addition to pursuing written
discovery, the subcontractors also sought to inspect the
Sweetwater property, pursuant to Texas Rule of Civil
Procedure 196.7. Tuscan participated with the third-party
defendants in the inspection.
The trial court's docket control order called for the
discovery period to end in March 2013 and trial to
commence in April 2013. In January 2013, Tuscan joined
Sweetwater in filing an agreed motion for continuance.
The joint motion requested the continuance for the
“opportunity to conduct discovery and identify the
relevant issues.” Tuscan did not mention arbitration. The
trial court granted the motion and extended the discovery,
motion, and pleading deadlines. It set trial to commence
on September 16, 2013.
3
Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)
On June 6, 2013, Tuscan, the other defendants, and the
third-party defendants moved to extend the mediation
deadline complaining that, before mediating the dispute,
they required additional information concerning the
various components of Sweetwater's alleged damages,
responses to additional interrogatories, answers to
requests for admissions they had propounded, and the
depositions of Sweetwater's corporate representatives and
management agents, which, the motion represented, were
scheduled for July 2 and 8.
By July 14, the expert witnesses had been designated and
the expert designation deadlines for all parties had passed;
approximately one month remained of the discovery
period. The parties had completed their paper discovery.
On that date, Tuscan invoked the arbitration provision
incorporated by reference into the construction contract
and included with its motion an unsigned copy of the
General Conditions form containing that provision.
The trial court held an evidentiary hearing on Tuscan's
motion to compel arbitration and denied the motion on
August 1.
Discussion
Tuscan challenges the trial court's ruling, contending that
it erred in denying Tuscan's motion to compel arbitration
because the evidence does not establish that Tuscan had
waived its contractual right to arbitrate by substantially
invoking the judicial process. 1
Applicable Law and Standard of Review
[1] [2] [3] [4] Waiver is the intentional relinquishmentan arbitration clause, the courts can consider, among
of a known right or intentional conduct inconsistent
with claiming that right. Jernigan v. Langley, 111 S.W.3d
153, 156 (Tex.2003); Interconex, Inc. v. Ugarov, 224
S.W.3d 523, 533 (Tex.App.-Houston [1st Dist.] 2007,
no pet.). “[A] party waives an arbitration clause 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) (footnote omitted).
A party substantially invokes the judicial process if it
takes specific and deliberate actions that are inconsistent
with the right to arbitrate or if it actively tries, but fails 141 (Tex.App.-Dallas 2009, no pet.). We analyze whether
to achieve, a satisfactory result through litigation before
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
turning to arbitration. In re Christus Spohn Health Sys.
Corp., 231 S.W.3d 475, 478–79 (Tex.App.-Corpus Christi
2007, *721 orig. proceeding); see In re Vesta Ins. Grp.,
Inc., 192 S.W.3d 759, 763 (Tex.2006) (orig. proceeding).
Prejudice refers to the inherent unfairness caused by “a
party's attempt to have it both ways by switching between
litigation and arbitration to its own advantage.” Perry
Homes, 258 S.W.3d at 597.
[5] Whether a party has participated in the litigation
process and thus waived the right to arbitrate is a question
of law for the court. Id. at 587. We apply a strong
presumption against waiver of arbitration and resolve any
doubt on the issue in favor of arbitration. Id. at 584; see In
re Bruce Terminix Co., 988 S.W.2d 702, 705 (Tex.1998).
[6] [7] [8] For a waiver to have occurred, the
appellant “must, at the very least, [have] engage[d] in some
overt act in court that evince[d] a desire to resolve the
[same] arbitrable dispute through litigation rather than
arbitration.” Haddock v. Quinn, 287 S.W.3d 158, 177
(Tex.App.-Fort Worth 2009, pet. denied). In assessing
whether Tuscan waived its right to arbitrate, we consider
whether Tuscan's conduct in the litigation portrays the
kind of “aggressive litigation strategy” that substantially
invokes the litigation process. See Okorafor v. Uncle Sam
& Assocs., 295 S.W.3d 27, 40 (Tex.App.-Houston [1st
Dist.] 2009, pet. denied); see also In re Christus Spohn
Health Sys. Corp., 231 S.W.3d at 479 (explaining that
actions inconsistent with right to arbitrate may include
“some combination of filing an answer, setting up a
counterclaim, pursuing extensive discovery, moving for a
continuance, and failing to timely request arbitration”)
(citing Cent. Nat'l Ins. Co. of Omaha v. Lerner, 856
S.W.2d 492, 494 (Tex.App.-Houston [1st Dist.] 1993,
orig. proceeding)). In determining whether a party waived
other factors: (1) whether the movant for arbitration
was the plaintiff (who chose to file in court) or the
defendant (who merely responded), (2) when the movant
learned of the arbitration clause and how long the movant
delayed before seeking arbitration, (3) the amount of the
movant's pretrial activity related to the merits rather than
arbitrability or jurisdiction, (4) the amount of discovery
conducted, and (5) whether the movant sought judgment
on the merits. See Perry Homes, 258 S.W.3d at 591–
92; In re Hawthorne Townhomes, L.P., 282 S.W.3d 131,
waiver occurred based on the totality of the circumstances
4
Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)
presented in each case. See In re Citigroup Global Mkts.,
Inc., 258 S.W.3d 623, 625 (Tex.2008); Okorafor, 295
S.W.3d at 38; Interconex, Inc., 224 S.W.3d at 533.
The Perry Homes Factors
[9] Tuscan began as a defendant in the suit. Early in
the litigation, however, Tuscan also became a third-party
plaintiff by suing its subcontractors. Although a party
invokes the judicial process when it sues in court, the
filing of a third-party action, standing alone, may not be
enough to constitute waiver of an agreement to arbitrate.
In D.R. Horton–Tex., Ltd. v. Drogseth, for example, the
Fort Worth Court of Appeals held that the defendant
did not waive its right to arbitrate by filing a third-party
action because the defendant concurrently had moved in
the trial court to abate the case and submit it to binding
arbitration. No. 02–12–00435–CV, 2013 WL 3377121, at
*5–6 (Tex.App.-Fort Worth July 3, 2013, no pet.) (mem.
op.). In its motion to compel arbitration filed six weeks
later, the defendant explained that it had filed the third-
party petition before the hearing on its motion to compel
to preserve its claims against the third-party defendants
and did not intend a waiver of *722 right to arbitration.
Id. at *5. In contrast to the movant in D.R. Horton, Tuscan
did not accompany its answer or its third-party claims
with any notice of an intent to pursue arbitration, nor did
Tuscan seek an abatement of the case pending resolution
of its claim to arbitration.
[10] Based on the record, the trial court reasonably
could have found that Tuscan knew of the arbitration
clause before it answered Sweetwater's suit, but that
it did not reveal the existence of the arbitration
agreement to Sweetwater until after Tuscan had
sued third parties and the parties had conducted a
property inspection and completed written discovery,
including expert designations. 2 The owner-contractor
agreement, prepared by Tuscan for Sweetwater's
execution, incorporates a construction industry form that
incorporates by reference another clause, contained in the
General Conditions form, that allows for arbitration.
The “General Conditions” form containing the
arbitration clause declares that, “The Contract
Documents consist of the Agreement between Owner
and Contractor ..., Conditions of the Contract (General,
Supplementary, and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Contract, other documents listed in the Agreement and
Modifications issued after execution of the Contract.” It
further provides that “[t]he Contract Documents shall be
signed by Owner and Contractor.” Tuscan, however, did
not provide a signed copy of the form with its motion, nor
did it deny Sweetwater's assertion that it had no actual
knowledge or notice of the form's contents until it received
Tuscan's motion to compel.
If Tuscan's failure to attach the industry form to the
construction contract did not render the arbitration
provision invalid, the record, at a minimum, demonstrates
that Tuscan understood the reference to its own industry
form and was aware that it contained an arbitration
provision, yet did not enlighten Sweetwater that its claims
were subject to arbitration until Tuscan moved to compel
arbitration more than a year after filing third party actions
and proceeding with discovery.
Sweetwater's contract with Mirador expressly excludes
any obligation to arbitrate and requires litigation in
Harris County district court. As a result, Tuscan's belated
invocation of the arbitration clause to conduct arbitration
would delay the resolution of the dispute between
Tuscan and Mirador, and would make for an inefficient,
piecemeal adjudication, to the expense of Sweetwater, who
has prepared its case against the defendants in a single
forum. Had Tuscan promptly moved for arbitration,
Sweetwater and the other defendants would have been
entitled to a stay of proceedings pending arbitration;
instead, the parties engaged in considerable time and
expense on the road to a court trial. These circumstances
make the timing of Tuscan's motion to compel more
consistent with a late-game tactical decision than an intent
to preserve the right to arbitrate.
Tuscan joined in motions that prolonged the discovery
period and postponed the trial date and mediation
deadline to allow the parties to pursue additional
discovery on the merits. By the time Tuscan moved to
compel arbitration—more than a year after Sweetwater
filed suit—the parties had completed written discovery,
designated *723 their experts for trial, and physically
inspected the building, and the trial setting was less than
a month away. The need for further merits discovery
served as the basis for the parties' successful requests
for both the trial continuance and the extension of the
mediation deadline. In opposing Tuscan's motion to
compel arbitration, Sweetwater pointed out that Tuscan
5
Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717 (2014)

would not have been likely to obtain a building inspection disposition of the disputed matter. See Porter & Clements,
L.L.P. v. Stone, 935 S.W.2d 217, 221 (Tex.App.-Houston
in an arbitral forum.
[1st Dist.] 1996, no pet.). Tuscan's year-long delay in
invoking or even mentioning the arbitration clause gave
Tuscan responds that its own discovery activities were
Tuscan litigation advantages it would not have had in
limited to written discovery. Tuscan's litigation strategy,
an arbitration proceeding. We hold that the trial court
however, enhanced its discovery efforts. By suing its
properly denied Tuscan's motion to compel arbitration
subcontractor-indemnitors, Tuscan benefited from the
because Tuscan had substantially invoked the judicial
discovery sought by these additional parties, who are
process, to Sweetwater's prejudice.
aligned with it against Sweetwater. For example, Tuscan
availed itself of the opportunity, made possible by the
subcontractors' discovery request, to inspect the building.
By bringing the subcontractors into the suit, Tuscan Conclusion
accomplished indirectly what it did not do directly. The
record supports the trial court's conclusion that these We hold that the trial court did not err in denying Tuscan's
tactics, taken together, were inconsistent with any intent motion to compel arbitration. We therefore affirm the
to arbitrate these claims, and caused some prejudice to trial court's order and remand the cause for further
Sweetwater. proceedings.

The purpose of the presumption against finding a waiver

All Citations
of contractual arbitration is to preserve the purpose of the
parties' agreement to obtain a speedy and inexpensive final 438 S.W.3d 717

Footnotes
1 Tuscan also contends on appeal that it established the validity of the arbitration agreement. The trial court raised questions
concerning the validity during the evidentiary hearing, but it but did not base its ruling on any specific ground. For purposes
of this appeal, we assume that a valid arbitration agreement exists between Tuscan and Sweetwater.
2 On rehearing, Tuscan contends that we should disregard counsel's statements concerning the status of discovery in
the proceedings because they are not evidence, only argument. Tuscan, however, waived any complaint about their
evidentiary value by failing to object in the trial court. See Banda v. Garcia, 955 S.W.2d 270, 272 (Tex.1997).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

KeyCite Yellow Flag - Negative Treatment West Headnotes (17)

Distinguished by Bonded Builders Home Warranty Association of 
Texas, Inc. v. Smith, Tex.App.-Dallas, April 21, 2016
435 S.W.3d 222 [1] Alternative Dispute Resolution
Supreme Court of Texas. Decisions reviewable; finality
Courts
VENTURE COTTON COOPERATIVE Review by or certificate to Supreme
and Noble Americas Corp., Petitioners, Court by Court of Civil Appeals of questions
v. where its decision conflicts with or overrules
Shelby Alan FREEMAN, et al., Respondents. that of another Court of Civil Appeals or
that of the Supreme Court
No. 13–0122. Supreme Court has jurisdiction to hear an
| appeal from an interlocutory order denying
Argued Jan. 9, 2014. arbitration when the court of appeals' decision
| conflicts with prior precedent.
Delivered June 13, 2014.
1 Cases that cite this headnote
Synopsis
Background: Cotton growers who entered into contract
with cooperative marketing pool brought action against [2] Alternative Dispute Resolution
cooperative pool. Cooperative pool moved to compel Preemption
arbitration pursuant to an arbitration agreement States
contained in the contracts between growers and Particular cases, preemption or
cooperative pool. The 106th District Court, Gaines supersession
County, Kelly Moore, J., denied motion, finding the Although the Federal Arbitration Act (FAA)
arbitration agreement to be unconscionable. Cooperative preempts state law that conflicts with
pool appealed, and the Eastland Court of Appeals, 395 its objectives, state law remains relevant
S.W.3d 272, Jim R. Wright, C.J., affirmed. Cooperative to declare an arbitration agreement itself
pool filed petition for review. unenforceable on such grounds as exist in law
or in equity for the revocation of any contract.
9 U.S.C.A. § 2.
Holdings: The Supreme Court, Devine, J., held that:
1 Cases that cite this headnote

[1] any implied waiver of growers' statutory right to

recover attorney fees was invalid as contrary to public [3] Alternative Dispute Resolution
policy; Validity
Alternative Dispute Resolution
[2] unenforceable limitation on growers' right to recover Validity of assent
attorney fees was severable from the remainder of the
Alternative Dispute Resolution
arbitration agreement; and
Unconscionability
The “saving clause” of the Federal
[3] one-sided attorney fee provision of the arbitration
Arbitration Act (FAA) permits agreements
agreement was insufficient to invalidate agreement as
to arbitrate to be invalidated by generally
unconscionable.
applicable contract defenses, such as fraud,
duress, or unconscionability, but not by
Reversed and remanded. defenses that apply only to arbitration or that
derive their meaning from the fact that an

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
agreement to arbitrate is at issue. 9 U.S.C.A.
§ 2.
5 Cases that cite this headnote
[4] Alternative Dispute Resolution
Unconscionability
Alternative Dispute Resolution
Construction
In determining an arbitration agreement's
validity, 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; but if the circumstances
would render any contract unconscionable
under Texas law, they are appropriate to
invalidate the agreement to arbitrate as well.
9 U.S.C.A. § 2.
11 Cases that cite this headnote
[5] Alternative Dispute Resolution
Preemption
States
Particular cases, preemption or
supersession
Special state rules for interpreting arbitration
agreements cannot coexist with the Federal
Arbitration Act (FAA) because Congress
intended the act as its response to a
longstanding judicial hostility to arbitration
agreements. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[6] Alternative Dispute Resolution
Evidence
A party seeking to compel arbitration under
the Federal Arbitration Act (FAA) must
establish that the dispute falls within the scope
of an existing agreement to arbitrate; upon
such proof, the burden shifts to the party
opposing arbitration to raise an affirmative
defense to the agreement's enforcement. 9
U.S.C.A. §§ 3, 4.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
4 Cases that cite this headnote
[7] Contracts
Unreasonable or Oppressive Contracts
Contracts
Presumptions and burden of proof
Unambiguous contracts are presumed to
reflect the intent of the contracting parties and
are generally enforced as written regardless of
whether one or more of the parties contracted
wisely or foolishly, or created a hardship for
himself; courts therefore do not ordinarily
inquire into the reasons for the contract or the
relative fairness of its terms.
1 Cases that cite this headnote
[8] Contracts
Unconscionable Contracts
Unconscionable bargains are an exception to
the freedom that generally pervades contract
law.
1 Cases that cite this headnote
[9] Alternative Dispute Resolution
Statutory rights and obligations
When parties agree to arbitrate a statutory
claim, a party does not forego the substantive
rights afforded by the statute; it only submits
to their resolution in an arbitral, rather than a
judicial, forum.
Cases that cite this headnote
[10] Alternative Dispute Resolution
Writing, signature, and acknowledgment
Alternative Dispute Resolution
Validity
Any implied waiver of cotton growers' right
to recover attorney fees under the Consumer
Protection-Deceptive Trade Practices Act
arising out of their execution of arbitration
agreement that incorporated arbitration rules
limiting recovery of attorney fees was invalid
as contrary to public policy; arbitration
2
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
rules did not comply with the statutory
requirements for waiver of rights under
the Consumer Protection-Deceptive Trade
Practices Act, including that the waiver be
conspicuous and in bold-face type of at least
10 points in size, and that it include language
substantially similar to the form provided by
the statute. V.T.C.A., Bus. & C. § 17.42(c)(1–
3).
Cases that cite this headnote
[11] Alternative Dispute Resolution
Severability
Arbitration agreement's unenforceable
limitation on cotton growers' right to
recover attorney fees on their claim
against cooperative marketing pool under
the Consumer Protection-Deceptive Trade
Practices Act was severable from the
remainder of the arbitration agreement;
essential purpose of the arbitration agreement
was to provide for speedy and efficient
resolution of disputes to ensure timely
performance under the contract, and
agreement's collateral effect on statutory
rights and remedies appeared to be a
peripheral concern.
3 Cases that cite this headnote
[12] Contracts
Partial Illegality
In determining an agreement's essential
purpose, for purposes of severability of
unenforceable provisions, the issue is whether
or not parties would have entered into
the agreement absent the unenforceable
provisions.
1 Cases that cite this headnote
[13] Alternative Dispute Resolution
Unconscionability
Provision of arbitration agreement between
cotton growers and cooperative marketing
pool that entitled pool, but not growers,
to recover attorney fees for any breach
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
of contract was insufficient to invalidate
the arbitration agreement as unconscionable,
despite contention that it deprived growers of
their statutory right to recover attorney fees
on a breach of contract claim. V.T.C.A., Civil
Practice & Remedies Code § 38.001.
4 Cases that cite this headnote
[14] Costs
Contracts
Parties are generally free to contract for
attorney's fees as they see fit; thus, a
contract that expressly provides for one
party's attorney fees, but not another's, is not
unconscionable per se.
Cases that cite this headnote
[15] Alternative Dispute Resolution
Matters to Be Determined by Court
Alternative Dispute Resolution
Existence and validity of agreement
Alternative Dispute Resolution
Waiver, laches, or estoppel
Questions of waiver, illegality, remedies, and
attorney fees often relate to the broader,
container contract, rather than the separable
agreement to arbitrate, and, as such, are
matters entrusted to the arbitrators.
2 Cases that cite this headnote
[16] Alternative Dispute Resolution
Evidence
When authority over the matters of waiver,
illegality, remedies, and attorney fees is
unclear, a strong federal presumption favors
arbitration. 9 U.S.C.A. § 1 et seq.
2 Cases that cite this headnote
[17] Contracts
Unconscionable Contracts
Courts usually analyze unconscionability
issues in light of a variety of factors, which aim
to prevent oppression and unfair surprise.
3
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
1 Cases that cite this headnote
Attorneys and Law Firms
*224 R. Carson Fisk, Ford Nassen & Baldwin P.C.,
Austin, TX, for Amicus Curiae Fisk R. Carson.
Amber S. Miller, ZS Brady & Co., Lubbock, TX, for
Amicus Curiae Plains Cotton Growers, Inc.
Zachary S. Brady, ZS Brady & Co., Lubbock, TX, for
Amicus Curiae Texans for Lawsuit Reform.
Danica Lynn Milios, Kent C. Sullivan, Sean D. Jordan,
Sutherland Asbill & Brennan LLP, Austin, H. Grady
Terrill III, Craig Terrill Hale & Grantham LLP, Lubbock,
TX, for Petitioner.
Don David Martinson, McCleskey Harriger Brazill &
Graf, L.L.P., Lubbock, Dustin Slade, Fernando Manuel
Bustos, Bustos Law Firm, P.C., Lubbock, Jennifer Lea
Kelley, Fanning Harper Martinson Brandt & Kutchin PC,
Dallas, TX, for Respondent Freeman, Shelby Alan.
Dennis R. Burrows, William P. Lane, McCleskey Harriger
Brazill & Graf, L.L.P., Lubbock, Don Martinson,
Fanning Harper Martinson Brandt & Kutchin, P.C.,
Dallas, Jennifer Lea Kelley, Texans for Lawsuit Reform,
Austin, TX, for Respondent Neitsch, Roger.
H. Alan Carmichael, Wetsel & Carmichael, LLP,
Sweetwater, TX, for Respondent OCHO Gin Company,
Ltd.
Opinion
Justice DEVINE delivered the opinion of the Court.
[1] Two groups of cotton farmers sue to rescind
contracts in which they agreed to sell cotton through a
cooperative marketing pool. The farmers allege that they
were fraudulently induced to join the cooperative and
seek damages, declaratory relief, and attorney's fees under
various statutes. Because the agreements provide for
arbitration of all disputes under the Federal Arbitration
Act, 9 U.S.C §§ 1–16, the cotton cooperative moved to
stay the litigation and compel arbitration. This appeal
is from the trial court's interlocutory order, denying
those motions. See TEX. CIV. PRAC. & REM.CODE §
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
51.016 (permitting interlocutory appeals of orders denying
arbitration under the FAA). 1
*225 The trial court has concluded that the parties'
agreement to arbitrate should not be enforced because
it is unconscionable, and the court of appeals has
affirmed the trial court's order denying arbitration. 395
S.W.3d 272, 275–76 (Tex.App.–Eastland 2013). The court
of appeals reasons that the arbitration agreement is
unconscionable because it prevents the farmers from
pursuing the statutory remedies and attorney's fees alleged
in their pleadings. Id. at 277. We conclude that this
limitation of statutory remedies is insufficient to defeat
arbitration under the FAA and accordingly reverse the
court of appeals' judgment. We conclude further that,
because the court has not fully considered the parties'
arguments on the issue of unconscionability, the case
should be remanded to the court of appeals.
I. Background
Venture Cotton Cooperative is a cotton cooperative-
marketing association, incorporated in Texas, and
managed by Noble Americas Corp., a foreign
corporation. In 2010, Venture operated a pool for the
exclusive sale and marketing of its members' cotton
production. Venture promoted this pool through various
cotton-gin companies, which arranged meetings with local
farmers. Venture would explain the pool's terms and
solicit membership at these meetings. One such meeting
was arranged by Ocho Gin Company in Seminole, Texas.
Farmers, who agreed to join the 2010 pool, signed
Venture's Membership and Marketing Agreement and
other related documents. These documents asked each
farmer to designate the acreage committed to the pool
and to estimate the production Venture might expect to
market. After the meeting in Seminole, Venture left copies
of these documents with Ocho for farmers to execute,
should they decide to join the cooperative. Several farmers
decided to join the pool.
During the growing season, the price of cotton rose
significantly. By harvest, Venture had become concerned
that members of the pool might be tempted to sell their
committed production on the open market. This concern
blossomed into a dispute with some member-farmers
over the quantity of cotton committed to the pool and
4
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
ultimately led to a lawsuit by Alan Freeman and Perry
Brewer, two prominent cotton farmers in Gaines County,
Texas. 2
In their lawsuit, Freeman and Brewer asserted claims for
fraud, negligent misrepresentation, breach of fiduciary
duty, mutual mistake, civil conspiracy and violations
of the Texas Consumer Protection—Deceptive Trade
Practices Act, and the Texas Free Enterprise and Antitrust
Act of 1983. Freeman and Brewer also sought declaratory
and injunctive relief and attorney's fees under Civil
Practice and Remedies Code section 38.001. Shortly after
filing this suit, another group of farmers filed a second
suit against Venture and the other defendants in Gaines
County, asserting similar claims. 3
*226 Venture generally denied the allegations in both
suits and moved to stay the litigation and compel
arbitration under the United States Arbitration Act
(also known as the Federal Arbitration Act or FAA). 9
U.S.C §§ 1–16. The farmers' membership and marketing
agreements with the cooperative provided for the
arbitration of all disputes under the FAA and the
arbitration rules of the American Cotton Shippers
Association (ACSA). The arbitration provision referred
to the farmers as “producers” and provided in pertinent
part:
• All disputes will be resolved pursuant to binding
arbitration pursuant to the arbitration rules of the
American Cotton Shippers Association.
• The site of the arbitration shall be either Houston,
Texas, or Memphis, Tennessee, as chosen by Venture,
unless otherwise directed by the arbitrator(s).
• The cotton sold herein is purchased for shipment out
of state of origin in interstate or foreign commerce.
• Any court having or claiming jurisdiction, whether
state or federal, shall apply the substantive provisions
of the United States Arbitration Act....
• In the event of a breach of this Agreement by Producer,
Producer agrees to pay all arbitration and court costs,
if any, and the reasonable attorney's fees and litigation
and arbitration expenses of Venture.
The farmers opposed Venture's motions, asserting a
number of reasons why the arbitration agreement was
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
unconscionable and should not be enforced. The trial
court scheduled an evidentiary hearing.
At this hearing, Freeman and Brewer testified about
their decisions to join the pool. According to their
testimony, they had a question about “overages” a few
days after Venture's marketing presentation. “Overages”
refers to cotton produced on designated land in excess
of the estimate given by a farmer at the time of land's
commitment to the pool. Freeman and Brewer's question,
which they directed to Ocho, was whether overages
were included in the pool under Venture's contracts. An
Ocho representative called Venture with this question and
allegedly learned that the disposition of overages was at
the farmer's discretion, that is, the farmer could elect to
sell overages under the agreement or not.
Venture denies making any such representations. It also
argues that its contract clearly calls for the commitment
of acres, not bales, making overages subject to the
agreement. In any event, Freeman and Brewer maintain
that they signed with the cooperative after being led to
believe that they would control overages.
After considering the parties' pleadings, motions,
responses, and briefs, as well as evidence presented at
the hearing, the trial court refused to stay the litigation
or compel arbitration, finding the arbitration agreements
unconscionable. Findings of fact and conclusions of
law were requested and filed, but these findings and
conclusions shed no light on the court's reasoning. 4
Venture filed interlocutory appeals in both cases, and
the court of appeals consolidated them for decision. See
TEX. CIV. PRAC. & REM.CODE § 51.016 (permitting
interlocutory *227 appeals of orders denying arbitration
under the FAA). Agreeing that the arbitration agreements
were unconscionable, the court affirmed the trial court's
order denying Venture's motion to compel. 395 S.W.3d
at 275–76. The court reasoned that the agreements were
unconscionable in two respects: (1) they forced the farmers
“to forego substantive rights and remedies afforded by
statute,” id. at 275, and (2) they were one-sided because
they allowed Venture to recover its attorney's fees, if
the farmers breached the contract, but did not provide
reciprocal rights to the farmers, id. at 276.
5
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
II. The FAA and State Law
[2] [3] [4] Although the Federal Arbitration Act by compelling arbitration or staying litigation. 9 U.S.C. §§
preempts state law that conflicts with its objectives,
Southland Corp. v. Keating, 465 U.S. 1, 10–17, 104
S.Ct. 852, 79 L.Ed.2d 1 (1984), 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.” 9 U.S.C.
§ 2 (the saving clause). “This saving clause permits
agreements to arbitrate 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 arbitrate is at issue.” AT &
T Mobility LLC v. Concepcion, ––– U.S. ––––, ––––,
131 S.Ct. 1740, 1746, 179 L.Ed.2d 742 (2011) (quoting
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, contracted wisely or foolishly, or created a hardship for
116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)). In determining
the arbitration agreement's validity then, a court may not 709 (Tex.Civ.App.–El Paso 1963, writ ref'd). Texas courts
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. Perry v. Thomas, 482 U.S. 483,
492, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). But if the
circumstances would render any contract unconscionable
under Texas law, they are appropriate to invalidate the
agreement to arbitrate as well. In re Poly–America, 262
S.W.3d 337, 348 (Tex.2008).
[5] [6] Special state rules for interpreting arbitration
agreements cannot coexist with the FAA because
Congress intended the act as its response to
a “longstanding judicial hostility to arbitration
agreements.” Green Tree Fin. Corp.–Ala. v. Randolph,
531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).
Under the FAA, an agreement to arbitrate that is valid
under general state law principles and involves interstate
commerce is “valid, irrevocable, and enforceable.” 9
U.S.C. § 2. A party seeking to compel arbitration under
the FAA, however, 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). Upon such
proof, the burden shifts to the party opposing arbitration
to raise an affirmative defense to the agreement's
enforcement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d
223, 227 (Tex.2003). The FAA thus requires a court to
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
make at least a threshold determination of arbitrability
—that the dispute is subject to an enforceable agreement
to arbitrate—before enforcing the arbitration agreement
3–4. 5
*228 A. Unconscionability
[7] [8] The farmers do not dispute that their claims are
covered by the agreements with Venture and subject to
arbitration under the FAA, if their arbitration agreement
itself is valid and enforceable. They contend, of course,
that it cannot be enforced because the agreement is one-
sided and grossly unfair in several respects. Unambiguous
contracts, however, are presumed to reflect the intent
of the contracting parties and are generally enforced as
written “regardless of whether one or more of the parties
himself.” Wooten Props., Inc. v. Smith, 368 S.W.2d 707,
therefore do not ordinarily inquire into the reasons for
the contract or the relative fairness of its terms. El Paso
Field Services, L.P. v. MasTec N. Am., Inc., 389 S.W.3d
802, 810–11 (Tex.2012) (observing that a court's role
“is not to protect parties from their own agreements”).
But this notion that parties are free to negotiate their
own bargains conflicts with the equally compelling notion
that grossly unfair bargains should not be enforced.
49 DAVID R. DOW & CRAIG SMYSER, TEXAS
PRACTICE SERIES: CONTRACT LAW § 3.9 (2005).
Unconscionable bargains are therefore an exception to the
freedom that generally pervades contract law.
Unconscionability, however, is not easily defined. The
term defies a precise legal definition because “it is not
a concept, but a determination to be made in light of
a variety of factors not unifiable into a formula.” 27
STEPHEN COCHRAN, TEXAS PRACTICE SERIES:
CONSUMER RIGHTS AND REMEDIES § 4.2 at 394
(3d ed.2002); see also 1 JAMES J. WHITE & ROBERT
S. SUMMERS, UNIFORM COMMERCIAL CODE §
4–3 at 294 (5th ed.2006). Although difficult to define, the
defense has a long history. One of the earliest decisions
to apply the defense described an unconscionable contract
as one that “no man in his senses and not under delusion
would make on the one hand, and as no honest and
fair man would accept on the other.” Earl of Chesterfield
v. Janssen, 28 Eng. Rep. 82, 100, 2 Ves. Sr. 125, 155
6
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
(1751); see also Saunders v. Guinn, 1 S.W.2d 363, 366
(Tex.Civ.App.–Eastland 1927, writ ref'd) (noting this
“definition”); Shumway v. Horizon Credit Corp., 801
S.W.2d 890, 896 (Tex.1991) (Mauzy, J. concurring and
quoting Janssen ). Modern uniform laws add context to
the defense but again do not attempt to define it.
The Uniform Commercial Code provides that a court
should afford the parties a reasonable opportunity to
present evidence as to a contract's commercial setting,
purpose and effect to aid the court in evaluating the
defense. TEX. BUS. & COMM.CODE § 2.302(b); see
also RESTATEMENT (SECOND) OF CONTRACTS §
208, cmt. a (stating that unconscionability determinations
are made in “light of [a contract's] setting, purpose, and
effect”). Under the UCC, an unconscionability defense
is a question of law that involves a highly fact-specific
inquiry into the circumstances of the bargain, such as
the commercial atmosphere in which the agreement was
made, the alternatives available to the parties at the time
and their ability to bargain, any illegality or public-policy
concerns, and the agreement's oppressive or shocking
nature. 49 TEXAS PRACTICE SERIES: CONTRACT
LAW § 3.11.
In the court of appeals, the cotton farmers argued that
the arbitration agreement was unconscionable in several
respects. They complained that the American Cotton
Shippers Association (ACSA) Arbitration Rules, adopted
by the agreement, were one-sided and designed to foster
arbitrator bias and that the rules' summary procedures
further denied them adequate discovery and preparation
time. They also *229 contended that the arbitration was
too expensive and that its prospective cost would prevent
them from vindicating their rights in the arbitral forum.
Finally, they argued that the agreement and ACSA rules
violated the state's public policy by illegally eliminating
their statutory right to attorney's fees and other remedies
under the Texas Consumer Protection—Deceptive Trade
Practices Act (DTPA).
B. Invalidity
The court of appeals' decision focuses solely on this last
argument, concluding that the arbitration agreement is
unconscionable because it forces the farmers “to forego
substantive rights and remedies afforded by statute.” 395
S.W.3d at 275. The court's application of public policy
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
here is premised on our decision in In re Poly–America,
L.P., 262 S.W.3d 337 (Tex.2008). There, we indicated
that it would be unconscionable for an arbitration
agreement to mandate arbitration of a statutory claim
and at the same time eliminate the rights and remedies
afforded by the statute. Id. at 349. The court of appeals
concludes that such a possibility exists here because the
arbitration agreement applies to “all disputes,” while the
ACSA Arbitration Rules, incorporated into the parties'
agreement, foreclose the farmers' statutory claims for
attorney's fees and enhanced damages under the DTPA.
Specifically, section 8(k) of the ACSA rules limits the
arbitral award “to the monetary damages arising out
of the failure of either party to perform its obligations
pursuant to the contract as determined by the Arbitration
Committee and shall not include attorney's fees unless
provided for in the contract.”
[9] When parties agree to arbitrate a statutory claim,
“a party does not forego the substantive rights afforded
by the statute; it only submits to their resolution in
an arbitral, rather than a judicial, forum.” Mitsubishi
Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473
U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).
Thus, in Poly–America, we observed that arbitration
agreements typically function simply as forum-selection
clauses rather than statutory waivers and generalized that
“[a]n arbitration agreement covering statutory claims is
valid so long as ‘the arbitration agreement does not waive
substantive rights and remedies of the statute and the
arbitration procedures are fair so that the employee may
effectively vindicate his statutory rights.’ ” Poly–America,
262 S.W.3d at 352 (quoting In re Halliburton, 80 S.W.3d
at 572).
An asserted waiver of the anti-retaliation provisions of
the Workers' Compensation Act was at issue in Poly–
America. The employee in that case sued his employer,
seeking statutory remedies of reinstatement and punitive
damages after being allegedly terminated for filing a
workers' compensation claim. Id. at 345. Because the
employee had agreed to arbitrate all disputes under the
FAA, the trial court granted the employer's motion to
compel arbitration. Id. at 344.
The employee sought mandamus relief from this
order, arguing that the arbitration agreement was
unconscionable because it eliminated his rights and
remedies under the Workers Compensation Act. Id. at
7
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
352, 359. We agreed. Id. at 353, 360. After reviewing the
statutory remedies at issue, we held the anti-retaliation
provisions to be “a non-waivable legislative system”
necessary to the Act's function. Id. at 352. We further
concluded that their elimination under the arbitration
agreement undermined a key purpose of the Workers'
Compensation Act, was contrary to public policy, and
could not be enforced. Id. at 353. We did not, however,
hold the arbitration agreement invalid. Instead, *230
we severed the offending limitation from the agreement
and permitted the arbitration to proceed. See id. at 344
(noting that severance was proper because the limitation
of statutory remedies was “not integral to the parties'
overall intended purpose to arbitrate”).
[10] In contrast to Poly–America 's anti-retaliation
provision, the DTPA remedies at issue here can be
contractually waived. TEX. BUS. & COM.CODE § 17.42.
The DTPA provides detailed instructions on how to
accomplish this. See id. (detailing requirements for a
valid waiver). Among other requirements, the waiver must
be “conspicuous and in bold-face type of at least 10
points in size,” identified by a specific heading indicating
the waiver, and include language substantially similar
to the form the statute provides. Id. § 17.42(c)(1), (2)
and (3). The contracts here do not comply with the
statutory requirements. We accordingly agree with the
court of appeals that any implied waiver under ACSA
Rule 8(k), which likewise does not conform to the DTPA's
requirements, is contrary to public policy and therefore
invalid.
C. Severability
[11] Venture argues, however, that even if ACSA Rule
8(k) and the arbitration clause are deemed unconscionable
and incapable of limiting the farmers' statutory rights
under the DTPA, the court of appeals nevertheless
erred when it refused to sever the offending rule and
require arbitration under the remainder of the agreement.
Venture submits that the unconscionability defense,
which is codified in the Texas Business and Commerce
Code and applicable to the cotton sales at issue here,
allows courts to consider severance whenever they are
confronted with an unconscionable contract term. TEX.
BUS. & COM.CODE § 2.302. Similarly, the Restatement
provides that “[w]here a term rather than the entire
contract is unconscionable, the appropriate remedy is
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
ordinarily to deny effect to the unconscionable term.”
RESTATEMENT (SECOND) OF CONTRACTS § 208
cmt. g.
The court of appeals concludes, however, that Venture
waived its right to enforce the remainder of the arbitration
clause by not asking the trial court to sever the offending
limitation of statutory remedies. 395 S.W.3d at 277. But
this is an interlocutory appeal, and the case remains
pending in the trial court. We are therefore unsure about
what Venture has waived. If the court merely means
to suggest that Venture waived the right to complain
about severance in this interlocutory appeal, the waiver
argument serves only to delay a decision in the case.
Conservation of time and resources recommend that we
consider the issue now because nothing prevents Venture
from urging severance in the trial court and, if denied,
from renewing its complaint in yet another interlocutory
appeal.
[12] In Poly–America we noted that “[a]n illegal or
unconscionable provision of a contract may generally be
severed so long as it does not constitute the essential
purpose of the agreement.” Poly–America, 262 S.W.3d
at 360. In determining an agreement's essential purpose,
the issue is “whether or not parties would have entered
into the agreement absent the unenforceable provisions.”
Id. Quite clearly, the arbitration agreement's essential
purpose here was to provide for a speedy and efficient
resolution of disputes to ensure timely performance under
the contract. The agreement's collateral effect on statutory
rights and remedies appears to be a peripheral concern
to this essential purpose. We accordingly conclude that
the court of appeals erred in declining to sever *231 the
objectionable limitation on the farmers' statutory rights.
D. Attorney's Fees
In addition to the agreement's unconscionable limitation
on potential statutory rights, the court of appeals
concludes that the arbitration agreement is also
unconscionably one-sided because it provides for only
Venture to recover attorney's fees. 395 S.W.3d at 276.
The court's opinion further indicates that this provision
together with an ACSA rule, limiting the award of
attorney's fees to those expressed in the contract, violates
the farmers' statutory right to attorney's fees under Civil
Practice and Remedies Code section 38.001.
8
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730
That section provides, in relevant part, that “[a] person
may recover reasonable attorney's fees from an individual
or corporation, in addition to the amount of a valid claim
and costs, if the claim is for ... an oral or written contract.”
TEX. CIV. PRAC. & REM.CODE 38.001. The court of
appeals ultimately decides, however, that the arbitration
agreement fails effectively to waive the farmers' rights
under section 38.001 because the agreement and ACSA
rules do not reference the statute or otherwise specifically
inform the farmers of the intended waiver of such rights.
See 395 S.W.3d at 276 (concluding that waiver of these
statutory rights cannot occur absent specific notice and
reference to § 38.001).
Venture, on the other hand, argues that whether the
agreement waives these rights is irrelevant because
the statute simply does not apply to the farmers'
circumstances. The statute does not apply, according
to Venture, because the farmers seek to cancel the
contract rather than recover under its terms. In short,
Venture contends that the farmers' pleadings do not assert
contractual rights and therefore do no invoke a right to
attorney's fees under section 38.001.
[13] The farmers respond that they have pled a breach of
contact claim. Their pleadings are not clear on the subject,
but even were we to recognize some deficiency in the
present pleadings, the result would be merely to postpone
the issue, much the same as the court of appeals has done
with the severance question. The appeal is interlocutory,
and the farmers are free to amend their pleadings to clarify
the matter. For purposes of this appeal then, we accept
that the farmers intended to plead an alternative breach
of contract claim, as they assert. We conclude, however,
that neither the contract's attorney's fee provision nor its
effect on attorney's fees under section 38.001 is sufficient
to invalidate the arbitration agreement as unconscionable.
[14] Parties are generally free to contract for attorney's
fees as they see fit. Intercontinental Group P'ship v. KB
Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex.2009).
Thus, a contract that expressly provides for one party's
attorney's fees, but not another's, is not unconscionable
per se. Although perhaps relevant to a broader inquiry
into contractual oppression or an imbalance in bargaining
power, the attorney's fee provision here is not, standing
alone, decisive proof of an unconscionable bargain.
Moreover, the court of appeals itself concludes that the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitration agreement did not waive the farmers' statutory
right to attorney's fees under section 38.001 and so
its relevancy to the court's unconscionability analysis is
unclear.
In Olshan, we observed that the “crucial inquiry” in
determining unconscionability was “whether the arbitral
forum in a particular case is an adequate and accessible
substitute to litigation, a forum where the litigant can
effectively vindicate his or her rights.” In re Olshan Found.
Repair Co., *232 LLC, 328 S.W.3d 883, 894 (Tex.2010).
That inquiry is not satisfied by speculation but by
specific proof in the particular case of the arbitral forum's
inadequacy. Id. at 896. If speculation about possible
harm was insufficient to establish unconscionability in
Olshan, then clearly the court's determination here that
no harm has been done will not suffice. See 395 S.W.3d
at 276 (concluding that arbitration agreement did not
waive cotton farmers' right to attorney's fees under section
38.001).
In Olshan, we cautioned that courts “should be wary
of setting the bar for holding arbitration clauses
unconscionable too low” as that would undermine the
“liberal federal policy favoring arbitration agreements.”
Olshan, 328 S.W.3d at 893. Courts should also use care not
to intrude upon arbitral jurisdiction under the guise of an
unconscionability defense.
[15] [16] Questions of waiver, illegality, remedies, and
attorney's fees often relate to the broader, container
contract, rather than the separable agreement to arbitrate,
and, as such, are matters entrusted to the arbitrators. 6
And, when authority over the matter is unclear, “a strong
federal presumption” favors arbitration. Poly–America,
262 S.W.3d at 348. Thus, the United States Supreme
Court has indicated that arbitration provisions should
not be held unconscionable based on speculation about
their potential effect. See PacifiCare Health Sys., Inc. v.
Book, 538 U.S. 401, 407 n. 2, 123 S.Ct. 1531, 155 L.Ed.2d
578 (2003) (noting that “the preliminary question [of]
whether the remedial limitations at issue ... prohibit[ed]
an award of RICO treble damages [was] not a question of
arbitrability”).
In PacifiCare, several physicians filed suit against
managed healthcare organizations, including PacifiCare
and UnitedHealth, alleging breach of contract, unjust
enrichment, and violations of several federal and state
9
Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

statutes, including RICO. Id. at 402, 123 S.Ct. 1531. farmers from pursuing statutory remedies. See 395
S.W.3d at 277 (concluding that the court did not need
Because the arbitration agreements prohibited awarding
to consider “remaining arguments attacking appellees'
punitive damages, the physicians argued that arbitration
other substantive unconscionability and procedural
would prevent them from obtaining “meaningful relief”
unconscionability defenses”).
under RICO's treble-damages provision. Id. at 403,
123 S.Ct. 1531. The lower courts agreed, holding the
[17] Texas courts usually analyze unconscionability
arbitration clauses to *233 be unenforceable with respect
issues “in light of a variety of factors, which aim to
to the RICO claims. Id.
prevent oppression and unfair surprise ...” Poly–America,
262 S.W.3d at 348. Unconscionability determinations
The Supreme Court reversed and remanded, concluding
are not isolated inquiries but rather are made in
that it was “premature” to conclude that the contractual
“light of [a contract's] setting, purpose, and effect.”
ban on punitive damages acted as a bar to statutory
RESTATEMENT (SECOND) OF CONTRACTS § 208,
damages and that the arbitrator should decide the issue
cmt. a.
as an initial matter. Id. at 404, 123 S.Ct. 1531. The Court
thus deferred consideration of whether public policy
Thus, in Olshan we observed that a court should consider
might taint the arbitration agreement's enforceability until
“the parties' general commercial background and the
the award-enforcement stage, but implicit in the Court's
commercial needs of the particular trade or case” when
analysis was the notion that the arbitration clause was
determining whether “the clause involved is so one-sided
prima facie enforceable, notwithstanding the contractual
that it is unconscionable under the circumstances existing
prohibition on punitive damages.
when the parties made the contract.” Olshan, 328 S.W.3d
at 892 (quoting FirstMerit Bank, 52 S.W.3d at 757).
In summary, we conclude that a contract that fails
to provide reciprocal rights to attorney's fees is not
In the court of appeals, Venture has argued the
unconscionable per se. We further disagree with the court
commercial reasonableness and necessity for the
of appeals' opinion to the extent it uses the contract's “one-
arbitration agreement, while the farmers have emphasized
sided” attorney's fees provision as an independent reason
potential abuses and unequal treatment under the arbitral
to hold the arbitration agreement unconscionable. See 395
process. In this Court, the parties have not briefed or
S.W.3d at 276.
argued these broader concerns. They have instead focused
solely on the court of appeals' rationale for affirming
the trial court's order. Because the court's public-policy
III. Unaddressed Arguments analysis is insufficient to defeat arbitration, the arguments
left unaddressed in the court of appeals should be
Although the court of appeals' refusal to compel
considered as they are “necessary to the final disposition
arbitration in this case rests solely on public-policy
of the appeal.” TEX.R.APP. P. 47.1.
grounds, unconscionability typically involves a broader
inquiry, and, indeed, the farmers presented a broader
***
case in the trial court. In addition to their complaint
about the agreement's limitation of remedies, the farmers
The court of appeals' judgment, affirming the trial court's
contended they could not effectively vindicate their rights
order denying arbitration, is reversed, and the case is
through arbitration because of arbitrator bias, the lack
remanded *234 to the court of appeals for consideration
of adequate discovery under the arbitration's summary
of the remaining arguments.
procedures, the exorbitant cost of the arbitration itself,
and other inequities in the arbitral process. The court
of appeals did not consider these additional concerns All Citations
once it determined the arbitration agreement to be
“substantively unconscionable” because it prevented the 435 S.W.3d 222, 57 Tex. Sup. Ct. J. 730

Footnotes

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222 (2014)
57 Tex. Sup. Ct. J. 730

1 We have jurisdiction to hear an appeal from an interlocutory order denying arbitration when the court of appeals' decision
conflicts with prior precedent. See Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55 n. 8 (Tex.2008) (noting that our
jurisdiction over the interlocutory appeal depends on a dissent or decisional conflict); Certain Underwriters at Lloyd's of
London v. Celebrity, Inc., 988 S.W.2d 731, 733 (Tex.1998) (per curiam) (same).
2 The lawsuit was styled Alan and Christine Freeman d/b/a Alan Freeman Farms, J.V., and Perry and Kathy Brewer d/b/a
PDB Joint Venture v. Venture Cotton Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho Management Corp.
3 The second lawsuit was styled Roger Neitsch, Gregory Upton, Wayne Upton, Anderson Upton, Jud Cheuvront d/b/a L
& ME, Inc. and JDC Farms, Max McGuire, Raymond McPherson, Abe Froese d/b/a BAC Farms, Gerardo Froese d/b/
a Gerardo Froese Farms, George P. Froese d/b/a George P. Froese Farms, Neil Enns, David Bergen, Bradley Peters,
Peter Neustaeter Jr., Wilhelm Friesen, Cornelius Banman, Gerard Neustaeter, Peter Friesen, Heinrich Friesen, Abe S.
Peters, Isaak T. Fehr, Jacob Peters, Abe Loewen, Isaak Wiebe, Ben Neudorf, and Rudolph Peters v. Venture Cotton
Cooperative, Noble Americas, Corp., Ocho Gin Co. and Ocho Management Corp.
4 The trial court's finding of fact stated: “The arbitration clause sought to be enforced is unconscionable.” Its conclusion of
law stated: “The arbitration clause sought to be enforced is unenforceable because it is unconscionable.”
5 Under FAA § 3, when a party moves to stay litigation pending arbitration, the court shall grant the motion “upon being
satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement.” 9 U.S.C. §
3. Section 4 requires a court to grant a motion to compel arbitration “upon being satisfied that the making of the agreement
for arbitration or the failure to comply therewith is not in issue.” Id. § 4.
6 Professor Rau explains:
Suppose that the issue—“whether the plaintiff can recover statutory damages or attorneys' fees”—is treated as one
more claim or dispute within the scope of the arbitration clause; suppose further that in pursuing this inquiry the
decisionmaker is presented with some more precise questions:
. For openers, is the contractual limitation of remedies properly interpreted as a “waiver” by the plaintiff of the recovery
otherwise made available by statute?
. If so, is the plaintiff able to waive this recovery? More precisely: Are, say, “sophisticated groups of doctors” who
contract with a managed care company the sort of plaintiffs who in these circumstances need the protection of
an unwaivable rule? For commercial parties in high-stakes cases, the appropriate trade-off between litigation and
informal justice may sometimes take the form of choosing a more intensive form of judicial review; an alternative
bargain might call for reducing the risk of excessive damage awards.
And in any event, is it sensible to address either of these concerns in the form of an interim decision preceding
the merits? Might they not instead be the focus of attention at a later point-once the predicate of liability has been
established, and an appropriate remedy needs to be crafted?
Framed in this way, all these questions begin very much to look as if they belonged to the realms of interpretation
and appreciation of context—that is, to the matters of substance that have been routinely entrusted to arbitrators.
Alan Scott Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 AM.
REV. INT'L ARB. 1, 65–66 (2003) (emphasis in original) (footnotes omitted).

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© 2016 Thomson Reuters. No claim to original U.S. Government Works. 11

§ 51.016. Appeal Arising Under Federal Arbitration Act, TX CIV PRAC & REM § 51.016

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 2. Trial, Judgment, and Appeal
Subtitle D. Appeals
Chapter 51. Appeals
Subchapter B. Appeals from County or District Court (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 51.016

§ 51.016. Appeal Arising Under Federal Arbitration Act

Effective: September 1, 2009

Currentness

In a matter subject to the Federal Arbitration Act (9 U.S.C. Section 1 et seq.), a person may take an appeal or writ of
error 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 from a federal district court's order or decision would be permitted
by 9 U.S.C. Section 16.

Credits
Added by Acts 2009, 81st Leg., ch. 820, § 1, eff. Sept. 1, 2009.

NOTES OF DECISIONS

Interlocutory appeal

Court of Appeals lacked jurisdiction over employer's interlocutory appeal from trial court's order denying its motion
to compel appraisal and abate lawsuit, in employee's action for breach of contract, tortious interference with contract,
and breach of fiduciary duty; statute provided that parties could appeal an order denying an application to compel
arbitration, appraisal provisions were different from arbitration provisions, and appraisal provision's reference to the
American Arbitration Association (AAA) was only for the purpose of appointing an appraiser and could not have been
construed as an agreement to submit dispute to arbitration. Tex. Civ. Prac. & Rem. Code Ann. §§ 51.016, 171.021,
171.098(a)(1). Hodge v. Kraft (App. 4 Dist. 2015) 490 S.W.3d 510, rule 53.7(f) motion granted. Alternative Dispute
Resolution 213(3)

V. T. C. A., Civil Practice & Remedies Code § 51.016, TX CIV PRAC & REM § 51.016
Current through the end of the 2015 Regular Session of the 84th Legislature

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© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

T. 7, Ch. 171, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Refs & Annos

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Refs & Annos
Currentness

Footnotes
* Date of approval.
1 Adopted the Uniform Arbitration Act (2000) without repealing the Uniform Arbitration Act (1956). See the General Statutory
Note.
V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Refs
& Annos
Current through the end of the 2015 Regular Session of the 84th Legislature

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T. 7, Ch. 171, Disp Table, TX CIV PRAC & REM T. 7, Ch. 171, Disp Table

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Disp Table
Currentness

Editors' Notes

DISPOSITION TABLE
Showing where the subject matter of provisions contained in former Chapter 171 may be found in Chapter 171
as amended by Acts 1997, 75th Leg., ch. 165, § 5.01.

Former Section Amended Section

171.001........................................................................ ............................................................ 171.001, 171.002, 171.022
   
171.002........................................................................ .........................................................171.021, 171.023 to 171.025
   
171.003........................................................................ .........................................................................................171.041
   
171.004........................................................................ .........................................................................................171.042
   
171.005........................................................................ .......................................................................171.043 to 171.046
   
171.006........................................................................ .........................................................................................171.048
   
171.007........................................................................ .......................................................................171.049 to 171.052
   
171.008........................................................................ .........................................................................................171.053
   
171.009........................................................................ .........................................................................................171.054
   
171.010........................................................................ .......................................................................... 171.048, 171.055
   
171.011........................................................................ .........................................................................................171.081
   
171.012........................................................................ ....................................... 171.082 to 171.086, 171.094 to 171.097
   
171.013........................................................................ .........................................................................................171.087
   
171.014........................................................................ .......................................................................171.088 to 171.090
   
171.015........................................................................ .........................................................................................171.091
   
171.016........................................................................ .........................................................................................171.092
   
171.017........................................................................ .........................................................................................171.098
   
171.018........................................................................ .................................................................................................. --
   
171.019........................................................................ .........................................................................................171.003
   

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T. 7, Ch. 171, Disp Table, TX CIV PRAC & REM T. 7, Ch. 171, Disp Table

171.020........................................................................ .................................................................................................. --
   
171.021........................................................................ .................................................................................................. --
   
171.022........................................................................ .................................................................................................. --
   
171.023........................................................................ .................................................................................................. --
   
Former §§ 171.018 and 171.020, relating to an effective date and severability, respectively, were derived from Acts 1965,
49th Leg., p. 1593, ch. 689, § 1; Vernon's Ann.Civ.St. arts. 238-3, 238-5; and Acts 1995, 74th Leg., ch. 588, § 1.

For subject matter of former §§ 171.021 to 171.023, see, now, V.T.C.A, Civil Practice & Remedies Code § 173.001 et seq.

V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Disp Table, TX CIV PRAC & REM T. 7, Ch. 171, Disp
Table
Current through the end of the 2015 Regular Session of the 84th Legislature

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© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

T. 7, Ch. 171, Subch. A, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Subch....

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration
Subchapter A. General Provisions

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. A, Refs & Annos
Currentness

V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. A, Refs & Annos, TX CIV PRAC & REM T. 7,
Ch. 171, Subch. A, Refs & Annos
Current through the end of the 2015 Regular Session of the 84th Legislature

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© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.001. Arbitration Agreements Valid, TX CIV PRAC & REM § 171.001

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.001

§ 171.001. Arbitration Agreements Valid

Currentness

(a) A written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that:

(1) exists at the time of the agreement; or

(2) arises between the parties after the date of the agreement.

(b) A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.

Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (650)

V. T. C. A., Civil Practice & Remedies Code § 171.001, TX CIV PRAC & REM § 171.001
Current through the end of the 2015 Regular Session of the 84th Legislature

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§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002

KeyCite Red Flag - Severe Negative Treatment

Unconstitutional or PreemptedPreempted by Forged Components, Inc. v. Guzman, Tex.App.-Hous. (1 Dist.), June 25, 2013  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.002

§ 171.002. Scope of Chapter

Currentness

(a) This chapter does not apply to:

(1) a collective bargaining agreement between an employer and a labor union;

(2) an agreement for the acquisition by one or more individuals of property, services, money, or credit in which the
total consideration to be furnished by the individual is not more than $50,000, except as provided by Subsection (b);

(3) a claim for personal injury, except as provided by Subsection (c);

(4) a claim for workers' compensation benefits; or

(5) an agreement made before January 1, 1966.

(b) An agreement described by Subsection (a)(2) is subject to this chapter if:

(1) the parties to the agreement agree in writing to arbitrate; and

(2) the agreement is signed by each party and each party's attorney.

(c) A claim described by Subsection (a)(3) is subject to this chapter if:

(1) each party to the claim, on the advice of counsel, agrees in writing to arbitrate; and

(2) the agreement is signed by each party and each party's attorney.

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§ 171.002. Scope of Chapter, TX CIV PRAC & REM § 171.002

Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (48)

V. T. C. A., Civil Practice & Remedies Code § 171.002, TX CIV PRAC & REM § 171.002
Current through the end of the 2015 Regular Session of the 84th Legislature

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§ 171.003. Uniform Interpretation, TX CIV PRAC & REM § 171.003

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.003

§ 171.003. Uniform Interpretation

Currentness

This chapter shall be construed to effect its purpose and make uniform the construction of other states' law applicable
to an arbitration.

Credits
Amended by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (4)

V. T. C. A., Civil Practice & Remedies Code § 171.003, TX CIV PRAC & REM § 171.003
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.004

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.004, TX CIV PRAC & REM § 171.004
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.005

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.005, TX CIV PRAC & REM § 171.005
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.006

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.006, TX CIV PRAC & REM § 171.006
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.007

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.007, TX CIV PRAC & REM § 171.007
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.008

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.008, TX CIV PRAC & REM § 171.008
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.009

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.009, TX CIV PRAC & REM § 171.009
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.010

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.010, TX CIV PRAC & REM § 171.010
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.011

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.011, TX CIV PRAC & REM § 171.011
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.012

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.012, TX CIV PRAC & REM § 171.012
Current through the end of the 2015 Regular Session of the 84th Legislature

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§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.013

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.013, TX CIV PRAC & REM § 171.013
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.014

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.014, TX CIV PRAC & REM § 171.014
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.015

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.015, TX CIV PRAC & REM § 171.015
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.016

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.016, TX CIV PRAC & REM § 171.016
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.017

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.017, TX CIV PRAC & REM § 171.017
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.018

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.018, TX CIV PRAC & REM § 171.018
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.019

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.019, TX CIV PRAC & REM § 171.019
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg.,..., TX CIV PRAC & REM...

KeyCite Red Flag - Severe Negative Treatment

KeyCite Red Flag Negative Treatment§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997  
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter A. General Provisions (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.020

§§ 171.004 to 171.020. Deleted by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997

Currentness

V. T. C. A., Civil Practice & Remedies Code § 171.020, TX CIV PRAC & REM § 171.020
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

T. 7, Ch. 171, Subch. B, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Subch....

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration
Subchapter B. Proceedings to Compel or Stay Arbitrations

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. B, Refs & Annos
Currentness

V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. B, Refs & Annos, TX CIV PRAC & REM T. 7, Ch.
171, Subch. B, Refs & Annos
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.021. Proceeding to Compel Arbitration, TX CIV PRAC & REM § 171.021

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.021

§ 171.021. Proceeding to Compel Arbitration

Currentness

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

(1) an agreement to arbitrate; and

(2) the opposing party's refusal to arbitrate.

(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall
summarily determine that issue. The court shall order the arbitration if it finds for the party that made the application.
If the court does not find for that party, the court shall deny the application.

(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (180)

V. T. C. A., Civil Practice & Remedies Code § 171.021, TX CIV PRAC & REM § 171.021
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.022. Unconscionable Agreements Unenforceable, TX CIV PRAC & REM § 171.022

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.022

§ 171.022. Unconscionable Agreements Unenforceable

Currentness

A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time the
agreement was made.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (22)

V. T. C. A., Civil Practice & Remedies Code § 171.022, TX CIV PRAC & REM § 171.022
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.023. Proceeding to Stay Arbitration, TX CIV PRAC & REM § 171.023

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.023

§ 171.023. Proceeding to Stay Arbitration

Currentness

(a) A court may stay an arbitration commenced or threatened on application and a showing that there is not an agreement
to arbitrate.

(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.

(c) 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.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (20)

V. T. C. A., Civil Practice & Remedies Code § 171.023, TX CIV PRAC & REM § 171.023
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.024. Place for Making Application, TX CIV PRAC & REM § 171.024

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.024

§ 171.024. Place for Making Application

Currentness

(a) If there is a proceeding pending in a court involving an issue referable to arbitration under an alleged agreement to
arbitrate, a party may make an application under this subchapter only in that court.

(b) If Subsection (a) does not apply, a party may make an application in any court, subject to Section 171.096.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (2)

V. T. C. A., Civil Practice & Remedies Code § 171.024, TX CIV PRAC & REM § 171.024
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.025. Stay of Related Proceeding, TX CIV PRAC & REM § 171.025

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.025

§ 171.025. Stay of Related Proceeding

Currentness

(a) The court shall stay a proceeding that involves an issue subject to arbitration if an order for arbitration or an
application for that order is made under this subchapter.

(b) The stay applies only to the issue subject to arbitration if that issue is severable from the remainder of the proceeding.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (6)

V. T. C. A., Civil Practice & Remedies Code § 171.025, TX CIV PRAC & REM § 171.025
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.026. Validity of Underlying Claim, TX CIV PRAC & REM § 171.026

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter B. Proceedings to Compel or Stay Arbitrations (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.026

§ 171.026. Validity of Underlying Claim

Currentness

A court may not refuse to order arbitration because:

(1) the claim lacks merit or bona fides; or

(2) the fault or ground for the claim is not shown.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (1)

V. T. C. A., Civil Practice & Remedies Code § 171.026, TX CIV PRAC & REM § 171.026
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

T. 7, Ch. 171, Subch. C, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Subch....

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration
Subchapter C. Arbitration

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. C, Refs & Annos
Currentness

V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. C, Refs & Annos, TX CIV PRAC & REM T. 7, Ch.
171, Subch. C, Refs & Annos
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.041. Appointment of Arbitrators, TX CIV PRAC & REM § 171.041

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.041

§ 171.041. Appointment of Arbitrators

Currentness

(a) The method of appointment of arbitrators is as specified in the agreement to arbitrate.

(b) The court, on application of a party stating the nature of the issues to be arbitrated and the qualifications of the
proposed arbitrators, shall appoint one or more qualified arbitrators if:

(1) the agreement to arbitrate does not specify a method of appointment;

(2) the agreed method fails or cannot be followed; or

(3) an appointed arbitrator fails or is unable to act and a successor has not been appointed.

(c) An arbitrator appointed under Subsection (b) has the powers of an arbitrator named in the agreement to arbitrate.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (19)

V. T. C. A., Civil Practice & Remedies Code § 171.041, TX CIV PRAC & REM § 171.041
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.042. Majority Action by Arbitrators, TX CIV PRAC & REM § 171.042

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.042

§ 171.042. Majority Action by Arbitrators

Currentness

The powers of the arbitrators are exercised by a majority unless otherwise provided by the agreement to arbitrate or
this chapter.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (3)

V. T. C. A., Civil Practice & Remedies Code § 171.042, TX CIV PRAC & REM § 171.042
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.043. Hearing Conducted by Arbitrators, TX CIV PRAC & REM § 171.043

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.043

§ 171.043. Hearing Conducted by Arbitrators

Currentness

(a) Unless otherwise provided by the agreement to arbitrate, all the arbitrators shall conduct the hearing. A majority of
the arbitrators may determine a question and render a final award.

(b) If, during the course of the hearing, an arbitrator ceases to act, one or more remaining arbitrators appointed to act
as neutral arbitrators may hear and determine the controversy.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (7)

V. T. C. A., Civil Practice & Remedies Code § 171.043, TX CIV PRAC & REM § 171.043
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.044. Time and Place of Hearing; Notice, TX CIV PRAC & REM § 171.044

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.044

§ 171.044. Time and Place of Hearing; Notice

Currentness

(a) Unless otherwise provided by the agreement to arbitrate, the arbitrators shall set a time and place for the hearing
and notify each party.

(b) The notice must be served not later than the fifth day before the hearing either personally or by registered or certified
mail with return receipt requested. Appearance at the hearing waives the notice.

(c) The court on application may direct the arbitrators to proceed promptly with the hearing and determination of the
controversy.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (8)

V. T. C. A., Civil Practice & Remedies Code § 171.044, TX CIV PRAC & REM § 171.044
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.045. Adjournment or Postponement, TX CIV PRAC & REM § 171.045

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.045

§ 171.045. Adjournment or Postponement

Currentness

Unless otherwise provided by the agreement to arbitrate, the arbitrators may:

(1) adjourn the hearing as necessary; and

(2) on request of a party and for good cause, or on their own motion, postpone the hearing to a time not later than:

(A) the date set by the agreement for making the award; or

(B) a later date agreed to by the parties.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (2)

V. T. C. A., Civil Practice & Remedies Code § 171.045, TX CIV PRAC & REM § 171.045
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.046. Failure of Party to Appear, TX CIV PRAC & REM § 171.046

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.046

§ 171.046. Failure of Party to Appear

Currentness

Unless otherwise provided by the agreement to arbitrate, the arbitrators may hear and determine the controversy on
the evidence produced without regard to whether a party who has been notified as provided by Section 171.044 fails
to appear.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.046, TX CIV PRAC & REM § 171.046
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.047. Rights of Party at Hearing, TX CIV PRAC & REM § 171.047

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.047

§ 171.047. Rights of Party at Hearing

Currentness

Unless otherwise provided by the agreement to arbitrate, a party at the hearing is entitled to:

(1) be heard;

(2) present evidence material to the controversy; and

(3) cross-examine any witness.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (4)

V. T. C. A., Civil Practice & Remedies Code § 171.047, TX CIV PRAC & REM § 171.047
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.048. Representation by Attorney; Fees, TX CIV PRAC & REM § 171.048

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.048

§ 171.048. Representation by Attorney; Fees

Currentness

(a) A party is entitled to representation by an attorney at a proceeding under this chapter.

(b) A waiver of the right described by Subsection (a) before the proceeding is ineffective.

(c) The arbitrators shall award attorney's fees as additional sums required to be paid under the award only if the fees
are provided for:

(1) in the agreement to arbitrate; or

(2) by law for a recovery in a civil action in the district court on a cause of action on which any part of the award
is based.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (22)

V. T. C. A., Civil Practice & Remedies Code § 171.048, TX CIV PRAC & REM § 171.048
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.049. Oath, TX CIV PRAC & REM § 171.049

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.049

§ 171.049. Oath

Currentness

The arbitrators, or an arbitrator at the direction of the arbitrators, may administer to each witness testifying before them
the oath required of a witness in a civil action pending in a district court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (1)

V. T. C. A., Civil Practice & Remedies Code § 171.049, TX CIV PRAC & REM § 171.049
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.050. Depositions, TX CIV PRAC & REM § 171.050

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.050

§ 171.050. Depositions

Currentness

(a) The arbitrators may authorize a deposition:

(1) 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; or

(2) for discovery or evidentiary purposes to be taken of an adverse witness.

(b) A deposition under this section shall be taken in the manner provided by law for a deposition in a civil action pending
in a district court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (4)

V. T. C. A., Civil Practice & Remedies Code § 171.050, TX CIV PRAC & REM § 171.050
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.051. Subpoenas, TX CIV PRAC & REM § 171.051

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.051

§ 171.051. Subpoenas

Currentness

(a) The arbitrators, or an arbitrator at the direction of the arbitrators, may issue a subpoena for:

(1) attendance of a witness; or

(2) production of books, records, documents, or other evidence.

(b) A witness required to appear by subpoena under this section may appear at the hearing before the arbitrators or
at a deposition.

(c) A subpoena issued under this section shall be served in the manner provided by law for the service of a subpoena
issued in a civil action pending in a district court.

(d) Each provision of law requiring a witness to appear, produce evidence, and testify under a subpoena issued in a civil
action pending in a district court applies to a subpoena issued under this section.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (2)

V. T. C. A., Civil Practice & Remedies Code § 171.051, TX CIV PRAC & REM § 171.051
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.052. Witness Fee, TX CIV PRAC & REM § 171.052

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.052

§ 171.052. Witness Fee

Currentness

The fee for a witness attending a hearing or a deposition under this subchapter is the same as the fee for a witness in
a civil action in a district court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.052, TX CIV PRAC & REM § 171.052
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.053. Arbitrators' Award, TX CIV PRAC & REM § 171.053

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.053

§ 171.053. Arbitrators' Award

Currentness

(a) The arbitrators' award must be in writing and signed by each arbitrator joining in the award.

(b) The arbitrators shall deliver a copy of the award to each party personally, by registered or certified mail, or as
provided in the agreement.

(c) 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 ordered by the court on application of a party.

(d) The parties may extend the time for making the award either before or after the time expires. The extension must
be in writing.

(e) 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 the delivery of the award to that party.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (14)

V. T. C. A., Civil Practice & Remedies Code § 171.053, TX CIV PRAC & REM § 171.053
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.054. Modification or Correction to Award, TX CIV PRAC & REM § 171.054

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.054

§ 171.054. Modification or Correction to Award

Currentness

(a) The arbitrators may modify or correct an award:

(1) on the grounds stated in Section 171.091; or

(2) to clarify the award.

(b) A modification or correction under Subsection (a) may be made only:

(1) on application of a party; or

(2) on submission to the arbitrators by a court, if an application to the court is pending under Sections 171.087, 171.088,
171.089, and 171.091, subject to any condition ordered by the court.

(c) A party may make an application under this section not later than the 20th day after the date the award is delivered
to the applicant.

(d) An applicant shall give written notice of the application promptly to the opposing party. The notice must state that
the opposing party must serve any objection to the application not later than the 10th day after the date of notice.

(e) An award modified or corrected under this section is subject to Sections 171.087, 171.088, 171.089, 171.090, and
171.091.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (7)

V. T. C. A., Civil Practice & Remedies Code § 171.054, TX CIV PRAC & REM § 171.054

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.054. Modification or Correction to Award, TX CIV PRAC & REM § 171.054

Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

§ 171.055. Arbitrator's Fees and Expenses, TX CIV PRAC & REM § 171.055

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter C. Arbitration (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.055

§ 171.055. Arbitrator's Fees and Expenses

Currentness

Unless otherwise provided in the agreement to arbitrate, the arbitrators' expenses and fees, with other expenses incurred
in conducting the arbitration, shall be paid as provided in the award.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.055, TX CIV PRAC & REM § 171.055
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

T. 7, Ch. 171, Subch. D, Refs & Annos, TX CIV PRAC & REM T. 7, Ch. 171, Subch....

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code
Title 7. Alternate Methods of Dispute Resolution
Chapter 171. General Arbitration
Subchapter D. Court Proceedings

V.T.C.A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. D, Refs & Annos
Currentness

V. T. C. A., Civil Practice & Remedies Code T. 7, Ch. 171, Subch. D, Refs & Annos, TX CIV PRAC & REM T. 7,
Ch. 171, Subch. D, Refs & Annos
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.081. Jurisdiction, TX CIV PRAC & REM § 171.081

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.081

§ 171.081. Jurisdiction

Currentness

The making of an agreement described by Section 171.001 that provides for or authorizes an arbitration in this state
and to which that section applies confers jurisdiction on the court to enforce the agreement and to render judgment on
an award under this chapter.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (12)

V. T. C. A., Civil Practice & Remedies Code § 171.081, TX CIV PRAC & REM § 171.081
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.082. Application to Court; Fees, TX CIV PRAC & REM § 171.082

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.082

§ 171.082. Application to Court; Fees

Currentness

(a) The filing with the clerk of the court of an application for an order under this chapter, including a judgment or decree,
invokes the jurisdiction of the court.

(b) On the filing of the initial application and the payment to the clerk of the fees of court required to be paid on the
filing of a civil action in the court, the clerk shall docket the proceeding as a civil action pending in that court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.082, TX CIV PRAC & REM § 171.082
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.083. Time for Filing, TX CIV PRAC & REM § 171.083

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.083

§ 171.083. Time for Filing

Currentness

An applicant for a court order under this chapter may file the application:

(1) before arbitration proceedings begin in support of those proceedings;

(2) during the period the arbitration is pending before the arbitrators; or

(3) subject to this chapter, at or after the conclusion of the arbitration.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.083, TX CIV PRAC & REM § 171.083
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.084. Stay of Certain Proceedings, TX CIV PRAC & REM § 171.084

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.084

§ 171.084. Stay of Certain Proceedings

Currentness

(a) After an initial application is filed, the court may stay:

(1) a proceeding under a later filed application in another court to:

(A) invoke the jurisdiction of that court; or

(B) obtain an order under this chapter; or

(2) a proceeding instituted after the initial application has been filed.

(b) A stay under this section affects only an issue subject to arbitration under an agreement in accordance with the terms
of the initial application.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (1)

V. T. C. A., Civil Practice & Remedies Code § 171.084, TX CIV PRAC & REM § 171.084
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.085. Contents of Application, TX CIV PRAC & REM § 171.085

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.085

§ 171.085. Contents of Application

Currentness

(a) A court may require that an application filed under this chapter:

(1) show the jurisdiction of the court;

(2) have attached a copy of the agreement to arbitrate;

(3) define the issue subject to arbitration between the parties under the agreement;

(4) specify the status of the arbitration before the arbitrators; and

(5) show the need for the court order sought by the applicant.

(b) A court may not find an application inadequate because of the absence of a requirement listed in Subsection (a)
unless the court, in its discretion:

(1) requires that the applicant amend the application to meet the requirements of the court; and

(2) grants the applicant a 10-day period to comply.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.085, TX CIV PRAC & REM § 171.085
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.086. Orders That May be Rendered, TX CIV PRAC & REM § 171.086

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.086

§ 171.086. Orders That May be Rendered

Currentness

(a) Before arbitration proceedings begin, in support of arbitration a party may file an application for a court order,
including an order to:

(1) invoke the jurisdiction of the court over the adverse party and to effect that jurisdiction by service of process on
the 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:

(A) the destruction of all or an essential part of the subject matter of the controversy; or

(B) the destruction or alteration of books, records, documents, or other evidence needed for the arbitration;

(4) obtain from the court in its discretion an order for a deposition for discovery, perpetuation of testimony, or evidence
needed before the arbitration proceedings begin;

(5) appoint one or more arbitrators so that an arbitration under the agreement to arbitrate 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.

(b) During the period an arbitration is pending before the arbitrators or at or after the conclusion of the arbitration, a
party may file an application for a court order, including an order:

(1) that was referred to or that would serve a purpose referred to in Subsection (a);

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.086. Orders That May be Rendered, TX CIV PRAC & REM § 171.086

(2) to require compliance by an adverse party or any witness with an order made under this chapter by the arbitrators
during the arbitration;

(3) to require the issuance and service under court order, rather than under the arbitrators' order, of a subpoena,
notice, or other court process:

(A) in support of the arbitration; or

(B) in an ancillary proceeding in rem, including by attachment, garnishment, or sequestration, in the manner of 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 entered under this chapter; or

(6) to obtain relief under Section 171.087, 171.088, 171.089, or 171.091.

(c) A court may not require an applicant for an order under Subsection (a)(1) to show that the adverse party is about to,
or may, leave the state if jurisdiction over that party is not effected by service of process before the arbitration proceedings
begin.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (15)

V. T. C. A., Civil Practice & Remedies Code § 171.086, TX CIV PRAC & REM § 171.086
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

§ 171.087. Confirmation of Award, TX CIV PRAC & REM § 171.087

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.087

§ 171.087. Confirmation of Award

Currentness

Unless grounds are offered for vacating, modifying, or correcting an award under Section 171.088 or 171.091, the court,
on application of a party, shall confirm the award.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (31)

V. T. C. A., Civil Practice & Remedies Code § 171.087, TX CIV PRAC & REM § 171.087
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.088. Vacating Award, TX CIV PRAC & REM § 171.088

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.088

§ 171.088. Vacating Award

Currentness

(a) 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 appointed as a neutral arbitrator;

(B) corruption in an arbitrator; or

(C) misconduct or wilful 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, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, 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 in a proceeding under Subchapter B, 1
and the party did not participate in the arbitration hearing without raising the objection.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.088. Vacating Award, TX CIV PRAC & REM § 171.088

(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of
the award to the applicant. A party must make an application under Subsection (a)(1) not later than the 90th day after
the date the grounds for the application are known or should have been known.

(c) 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.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (284)

Footnotes
1 V.T.C.A., Civil Practice & Remedies Code § 171.021 et seq.
V. T. C. A., Civil Practice & Remedies Code § 171.088, TX CIV PRAC & REM § 171.088
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

§ 171.089. Rehearing After Award Vacated, TX CIV PRAC & REM § 171.089

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.089

§ 171.089. Rehearing After Award Vacated

Currentness

(a) On vacating an award on grounds other than the grounds stated in Section 171.088(a)(4), the court may order a
rehearing before new arbitrators chosen:

(1) as provided in the agreement to arbitrate; or

(2) by the court under Section 171.041, if the agreement does not provide the manner for choosing the arbitrators.

(b) If the award is vacated under Section 171.088(a)(3), the court may order a rehearing before the arbitrators who made
the award or their successors appointed under Section 171.041.

(c) The period within which the agreement to arbitrate requires the award to be made applies to a rehearing under this
section and commences from the date of the order.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (5)

V. T. C. A., Civil Practice & Remedies Code § 171.089, TX CIV PRAC & REM § 171.089
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.090. Type of Relief Not Factor, TX CIV PRAC & REM § 171.090

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.090

§ 171.090. Type of Relief Not Factor

Currentness

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 the award.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (3)

V. T. C. A., Civil Practice & Remedies Code § 171.090, TX CIV PRAC & REM § 171.090
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.091. Modifying or Correcting Award, TX CIV PRAC & REM § 171.091

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.091

§ 171.091. Modifying or Correcting Award

Currentness

(a) 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 in a manner not affecting the merits of the controversy.

(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy
of the award to the applicant.

(c) If the application is granted, the court shall modify or correct the award to effect its intent and shall confirm the
award as modified or corrected. If the application is not granted, the court shall confirm the award.

(d) An application to modify or correct an award may be joined in the alternative with an application to vacate the award.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (58)

V. T. C. A., Civil Practice & Remedies Code § 171.091, TX CIV PRAC & REM § 171.091
Current through the end of the 2015 Regular Session of the 84th Legislature

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.091. Modifying or Correcting Award, TX CIV PRAC & REM § 171.091

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

§ 171.092. Judgment on Award, TX CIV PRAC & REM § 171.092

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.092

§ 171.092. Judgment on Award

Currentness

(a) On granting an order that confirms, modifies, or corrects an award, the court shall enter a judgment or decree
conforming to the order. The judgment or decree may be enforced in the same manner as any other judgment or decree.

(b) The court may award:

(1) costs of the application and of the proceedings subsequent to the application; and

(2) disbursements.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (14)

V. T. C. A., Civil Practice & Remedies Code § 171.092, TX CIV PRAC & REM § 171.092
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.093. Hearing; Notice, TX CIV PRAC & REM § 171.093

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.093

§ 171.093. Hearing; Notice

Currentness

The court shall hear each initial and subsequent application under this subchapter in the manner and with the notice
required by law or court rule for making and hearing a motion filed in a pending civil action in a district court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (3)

V. T. C. A., Civil Practice & Remedies Code § 171.093, TX CIV PRAC & REM § 171.093
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.094. Service of Process for Initial Application, TX CIV PRAC & REM § 171.094

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.094

§ 171.094. Service of Process for Initial Application

Currentness

(a) On the filing of an initial application under this subchapter, the clerk of the court shall:

(1) issue process for service on each adverse party named in the application; and

(2) attach a copy of the application to the process.

(b) To the extent applicable, the process and service and the return of service must be in the form and include the substance
required for process and service on a defendant in a civil action in a district court.

(c) An authorized official may effect the service of process.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.094, TX CIV PRAC & REM § 171.094
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.095. Service of Process for Subsequent Applications, TX CIV PRAC & REM §...

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.095

§ 171.095. Service of Process for Subsequent Applications

Currentness

(a) After an initial application has been made, notice to an adverse party for each subsequent application shall be made
in the same manner as is required for a motion filed in a pending civil action in a district court. This subsection applies
only if:

(1) jurisdiction over the adverse party has been established by service of process on the party or in rem for the initial
application; and

(2) the subsequent application relates to:

(A) the same arbitration or a prospective arbitration under the same agreement to arbitrate; and

(B) the same controversy or controversies.

(b) If Subsection (a) does not apply, service of process shall be made on the adverse party in the manner provided by
Section 171.094.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.095, TX CIV PRAC & REM § 171.095
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.096. Place of Filing, TX CIV PRAC & REM § 171.096

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.096

§ 171.096. Place of Filing

Currentness

(a) Except as otherwise provided by this section, a party must file the initial application:

(1) in the county in which an adverse party resides or has a place of business; or

(2) if an adverse party does not have a residence or place of business in this state, in any county.

(b) If the agreement to arbitrate provides that the hearing before the arbitrators is to be held in a county in this state, a
party must file the initial application with the clerk of the court of that county.

(c) If a hearing before the arbitrators has been held, a party must file the initial application with the clerk of the court
of the county in which the hearing was held.

(d) Consistent with Section 171.024, if a proceeding is pending in a court relating to arbitration of an issue subject to
arbitration under an agreement before the filing of the initial application, a party must file the initial application and
any subsequent application relating to the arbitration in that court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (4)

V. T. C. A., Civil Practice & Remedies Code § 171.096, TX CIV PRAC & REM § 171.096
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.097. Transfer, TX CIV PRAC & REM § 171.097

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.097

§ 171.097. Transfer

Currentness

(a) On application of a party adverse to the party who filed the initial application, a court that has jurisdiction but that
is located in a county other than as described by Section 171.096 shall transfer the application to a court of a county
described by that section.

(b) The court shall transfer the application by an order comparable to an order sustaining a plea of privilege to be sued
in a civil action in a district court of a county other than the county in which an action is filed.

(c) The party must file the application under this section:

(1) not later than the 20th day after the date of service of process on the adverse party; and

(2) before any other appearance in the court by that adverse party, other than an appearance to challenge the
jurisdiction of the court.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

V. T. C. A., Civil Practice & Remedies Code § 171.097, TX CIV PRAC & REM § 171.097
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 171.098. Appeal, TX CIV PRAC & REM § 171.098

Vernon's Texas Statutes and Codes Annotated

Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)

V.T.C.A., Civil Practice & Remedies Code § 171.098

§ 171.098. Appeal

Currentness

(a) 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.

(b) 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.

Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.

Notes of Decisions (148)

V. T. C. A., Civil Practice & Remedies Code § 171.098, TX CIV PRAC & REM § 171.098
Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 1. “Maritime transactions” and “commerce” defined; exceptions to..., 9 USCA § 1

KeyCite Yellow Flag - Negative Treatment

Proposed Legislation  
United States Code Annotated
Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 1

§ 1. “Maritime transactions” and “commerce” defined; exceptions to operation of title

Currentness

“Maritime transactions”, as herein defined, means charter parties, bills of lading of water carriers, agreements relating
to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which,
if the subject of controversy, would be embraced within admiralty jurisdiction; “commerce”, as herein defined, means
commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of
Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation,
or between the District of Columbia and any State or Territory or foreign nation, but nothing herein contained shall
apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or
interstate commerce.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 670.)

Notes of Decisions (270)

9 U.S.C.A. § 1, 9 USCA § 1
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate, 9 USCA § 2

KeyCite Yellow Flag - Negative Treatment

Unconstitutional or PreemptedLimitation Recognized by Courville v. Allied Professionals Ins. Co., La.App. 1 Cir., June 05, 2015  
 
KeyCite Yellow Flag - Negative TreatmentProposed Legislation
United States Code Annotated
Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 2

§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate

Currentness

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 revocation of any contract.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 670.)

Notes of Decisions (3257)

9 U.S.C.A. § 2, 9 USCA § 2
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 3. Stay of proceedings where issue therein referable to arbitration, 9 USCA § 3

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 3

§ 3. Stay of proceedings where issue therein referable to arbitration

Currentness

If any suit or proceeding be 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 an agreement, shall on application
of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the
agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 670.)

Notes of Decisions (842)

9 U.S.C.A. § 3, 9 USCA § 3
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 4. Failure to arbitrate under agreement; petition to United States..., 9 USCA § 4

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 4

§ 4. Failure to arbitrate under agreement; petition to United States court having jurisdiction
for order to compel arbitration; notice and service thereof; hearing and determination

Currentness

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. Five days' notice in
writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided
by the Federal Rules of Civil Procedure. 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 in issue, the court shall make an order directing
the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under
such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the
making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall
proceed summarily to the trial thereof. If no jury trial be 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. Where such an issue is raised, the
party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application,
demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to
a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If
the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder,
the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there
is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 671; Sept. 3, 1954, c. 1263, § 19, 68 Stat. 1233.)

Notes of Decisions (1181)

9 U.S.C.A. § 4, 9 USCA § 4
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 5. Appointment of arbitrators or umpire, 9 USCA § 5

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 5

§ 5. Appointment of arbitrators or umpire

Currentness

If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire,
such method shall be followed; but 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
said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise
provided in the agreement the arbitration shall be by a single arbitrator.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 671.)

Notes of Decisions (111)

9 U.S.C.A. § 5, 9 USCA § 5
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 6. Application heard as motion, 9 USCA § 6

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 6

§ 6. Application heard as motion

Currentness

Any application to the court hereunder shall be made and heard in the manner provided by law for the making and
hearing of motions, except as otherwise herein expressly provided.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 671.)

Notes of Decisions (15)

9 U.S.C.A. § 6, 9 USCA § 6
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 7. Witnesses before arbitrators; fees; compelling attendance, 9 USCA § 7

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 7

§ 7. Witnesses before arbitrators; fees; compelling attendance

Currentness

The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, 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. The fees for such attendance shall
be the same as the fees of witnesses before masters of the United States courts. Said summons shall issue in the name of
the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and
shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the
court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the
United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the
attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt
in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal
to attend in the courts of the United States.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 672; Oct. 31, 1951, c. 655, § 14, 65 Stat. 715.)

Notes of Decisions (48)

9 U.S.C.A. § 7, 9 USCA § 7
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 8. Proceedings begun by libel in admiralty and seizure of vessel or property, 9 USCA § 8

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 8

§ 8. Proceedings begun by libel in admiralty and seizure of vessel or property

Currentness

If the basis of jurisdiction be a cause of action otherwise justiciable in admiralty, then, notwithstanding anything herein
to the contrary, the party claiming to be aggrieved may begin his proceeding hereunder by libel and seizure of the vessel
or other property of the other party according to the usual course of admiralty proceedings, and the court shall then
have jurisdiction to direct the parties to proceed with the arbitration and shall retain jurisdiction to enter its decree upon
the award.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 672.)

Notes of Decisions (65)

9 U.S.C.A. § 8, 9 USCA § 8
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 9. Award of arbitrators; confirmation; jurisdiction; procedure, 9 USCA § 9

KeyCite Yellow Flag - Negative Treatment

Unconstitutional or PreemptedLimitation Recognized by Hancor, Inc. v. R & R Engineering Products, Inc., D.Puerto Rico, Aug. 02, 2005  
United States Code Annotated
Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 9

§ 9. Award of arbitrators; confirmation; jurisdiction; procedure

Currentness

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 as prescribed in sections 10 and 11 of this title. 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. 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. 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.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 672.)

Notes of Decisions (455)

9 U.S.C.A. § 9, 9 USCA § 9
Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 10. Same; vacation; grounds; rehearing, 9 USCA § 10

KeyCite Yellow Flag - Negative Treatment

Proposed Legislation  
United States Code Annotated
Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 10

§ 10. Same; vacation; grounds; rehearing

Effective: May 7, 2002

Currentness

(a) 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, upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.

(b) 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.

(c) The United States district court for the district wherein an award was made that was issued pursuant to section 580
of title 5 may make an order vacating the award upon the application of a person, other than a party to the arbitration,
who is adversely affected or aggrieved by the award, if the use of arbitration or the award is clearly inconsistent with
the factors set forth in section 572 of title 5.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 672; Nov. 15, 1990, Pub.L. 101-552, § 5, 104 Stat. 2745; Aug. 26, 1992, Pub.L. 102-354,
§ 5(b)(4), 106 Stat. 946; May 7, 2002, Pub.L. 107-169, § 1, 116 Stat. 132.)

Notes of Decisions (1634)

9 U.S.C.A. § 10, 9 USCA § 10

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 10. Same; vacation; grounds; rehearing, 9 USCA § 10

Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

§ 11. Same; modification or correction; grounds; order, 9 USCA § 11

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 11

§ 11. Same; modification or correction; grounds; order

Currentness

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 effect the intent thereof and promote justice between the parties.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 673.)

Notes of Decisions (84)

9 U.S.C.A. § 11, 9 USCA § 11

Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

§ 12. Notice of motions to vacate or modify; service; stay of proceedings, 9 USCA § 12

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 12

§ 12. Notice of motions to vacate or modify; service; stay of proceedings

Currentness

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. 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. For the purposes of the motion any judge who might make an order to stay the proceedings in an action
brought in the same court may make an order, to be served with the notice of motion, staying the proceedings of the
adverse party to enforce the award.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 673.)

Notes of Decisions (92)

9 U.S.C.A. § 12, 9 USCA § 12

Current through P.L. 114-254. Also includes P.L. 114-256.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

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§ 13. Papers filed with order on motions; judgment; docketing; force..., 9 USCA § 13

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 13

§ 13. Papers filed with order on motions; judgment; docketing; force and effect; enforcement

Currentness

The party moving for an order confirming, modifying, or correcting an award shall, at the time such order is filed with
the clerk for the entry of judgment thereon, also file the following papers with the clerk:

(a) The agreement; the selection or appointment, if any, of an additional arbitrator or umpire; and each written extension
of the time, if any, within which to make the award.

(b) The award.

(c) Each notice, affidavit, or other paper used upon an application to confirm, modify, or correct the award, and a copy
of each order of the court upon such an application.

The judgment shall be docketed as if it was rendered in an action.

The judgment so entered shall have the same force and effect, in all respects, as, and be subject to all the provisions of
law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in
which it is entered.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 673.)

Notes of Decisions (16)

9 U.S.C.A. § 13, 9 USCA § 13

Current through P.L. 114-254. Also includes P.L. 114-256.

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§ 14. Contracts not affected, 9 USCA § 14

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 14

§ 14. Contracts not affected

Currentness

This title shall not apply to contracts made prior to January 1, 1926.

CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 674.)

Notes of Decisions (2)

9 U.S.C.A. § 14, 9 USCA § 14

Current through P.L. 114-254. Also includes P.L. 114-256.

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§ 15. Inapplicability of the Act of State doctrine, 9 USCA § 15

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 15

§ 15. Inapplicability of the Act of State doctrine

Currentness

Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders
confirming such awards shall not be refused on the basis of the Act of State doctrine.

CREDIT(S)
(Added Pub.L. 100-669, § 1, Nov. 16, 1988, 102 Stat. 3969.)

Notes of Decisions (1)

9 U.S.C.A. § 15, 9 USCA § 15

Current through P.L. 114-254. Also includes P.L. 114-256.

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§ 16. Appeals, 9 USCA § 16

United States Code Annotated

Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)

9 U.S.C.A. § 16

§ 16. Appeals

Currentness

(a) An appeal may be taken from--

(1) an order--

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(C) denying an application under section 206 of this title 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
this title; or

(3) a final decision with respect to an arbitration that is subject to this title.

(b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order--

(1) granting a stay of any action under section 3 of this title;

(2) directing arbitration to proceed under section 4 of this title;

(3) compelling arbitration under section 206 of this title; or

(4) refusing to enjoin an arbitration that is subject to this title.

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§ 16. Appeals, 9 USCA § 16

CREDIT(S)
(Added Pub.L. 100-702, Title X, § 1019(a), Nov. 19, 1988, 102 Stat. 4670, § 15; renumbered Pub.L. 101-650, Title III,
§ 325(a)(1), Dec. 1, 1990, Stat. 5120.)

Notes of Decisions (202)

9 U.S.C.A. § 16, 9 USCA § 16

Current through P.L. 114-254. Also includes P.L. 114-256.

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

United States Code Annotated

Federal Rules of Civil Procedure for the United States District Courts (Refs & Annos)
Title III. Pleadings and Motions

Federal Rules of Civil Procedure Rule 12

Rule 12. Defenses and Objections: When and How Presented; Motion for Judgment
on the Pleadings; Consolidating Motions; Waiving Defenses; Pretrial Hearing

Currentness

<Notes of Decisions for 28 USCA Federal Rules of Civil Procedure Rule 12 are displayed in two separate
documents. Notes of Decisions for subdivisions I to VII are contained in this document. For Notes of Decisions
for subdivisions VIII to end, see second document for 28 USCA Federal Rules of Civil Procedure Rule 12.>

(a) Time to Serve a Responsive Pleading.

(1) In General. Unless another time is specified by this rule or a federal statute, the time for serving a responsive
pleading is as follows:

(A) A defendant must serve an answer:

(i) within 21 days after being served with the summons and complaint; or

(ii) if it has timely waived service under Rule 4(d), within 60 days after the request for a waiver was sent, or within
90 days after it was sent to the defendant outside any judicial district of the United States.

(B) A party must serve an answer to a counterclaim or crossclaim within 21 days after being served with the pleading
that states the counterclaim or crossclaim.

(C) A party must serve a reply to an answer within 21 days after being served with an order to reply, unless the
order specifies a different time.

(2) United States and Its Agencies, Officers, or Employees Sued in an Official Capacity. The United States, a United
States agency, or a United States officer or employee sued only in an official capacity must serve an answer to a
complaint, counterclaim, or crossclaim within 60 days after service on the United States attorney.

(3) United States Officers or Employees Sued in an Individual Capacity. A United States officer or employee sued in
an individual capacity for an act or omission occurring in connection with duties performed on the United States'
behalf must serve an answer to a complaint, counterclaim, or crossclaim within 60 days after service on the officer or
employee or service on the United States attorney, whichever is later.

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

(4) Effect of a Motion. Unless the court sets a different time, serving a motion under this rule alters these periods as
follows:

(A) if the court denies the motion or postpones its disposition until trial, the responsive pleading must be served
within 14 days after notice of the court's action; or

(B) if the court grants a motion for a more definite statement, the responsive pleading must be served within 14 days
after the more definite statement is served.

(b) How to Present Defenses. Every defense to a claim for relief in any pleading must be asserted in the responsive pleading
if one is required. But a party may assert the following defenses by motion:

(1) lack of subject-matter jurisdiction;

(2) lack of personal jurisdiction;

(3) improper venue;

(4) insufficient process;

(5) insufficient service of process;

(6) failure to state a claim upon which relief can be granted; and

(7) failure to join a party under Rule 19.

A motion asserting any of these defenses must be made before pleading if a responsive pleading is allowed. If a pleading
sets out a claim for relief that does not require a responsive pleading, an opposing party may assert at trial any defense to
that claim. No defense or objection is waived by joining it with one or more other defenses or objections in a responsive
pleading or in a motion.

(c) Motion for Judgment on the Pleadings. After the pleadings are closed--but early enough not to delay trial--a party
may move for judgment on the pleadings.

(d) Result of Presenting Matters Outside the Pleadings. If, on a motion under Rule 12(b)(6) or 12(c), matters outside the
pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under
Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

(e) Motion for a More Definite Statement. A party may move for a more definite statement of a pleading to which a
responsive pleading is allowed but which is so vague or ambiguous that the party cannot reasonably prepare a response.
The motion must be made before filing a responsive pleading and must point out the defects complained of and the
details desired. If the court orders a more definite statement and the order is not obeyed within 14 days after notice of
the order or within the time the court sets, the court may strike the pleading or issue any other appropriate order.

(f) Motion to Strike. The court may strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter. The court may act:

(1) on its own; or

(2) on motion made by a party either before responding to the pleading or, if a response is not allowed, within 21 days
after being served with the pleading.

(g) Joining Motions.

(1) Right to Join. A motion under this rule may be joined with any other motion allowed by this rule.

(2) Limitation on Further Motions. Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this
rule must not make another motion under this rule raising a defense or objection that was available to the party but
omitted from its earlier motion.

(h) Waiving and Preserving Certain Defenses.

(1) When Some Are Waived. A party waives any defense listed in Rule 12(b)(2)-(5) by:

(A) omitting it from a motion in the circumstances described in Rule 12(g)(2); or

(B) failing to either:

(i) make it by motion under this rule; or

(ii) include it in a responsive pleading or in an amendment allowed by Rule 15(a)(1) as a matter of course.

(2) When to Raise Others. Failure to state a claim upon which relief can be granted, to join a person required by Rule
19(b), or to state a legal defense to a claim may be raised:

(A) in any pleading allowed or ordered under Rule 7(a);

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

(B) by a motion under Rule 12(c); or

(C) at trial.

(3) Lack of Subject-Matter Jurisdiction. If the court determines at any time that it lacks subject-matter jurisdiction,
the court must dismiss the action.

(i) Hearing Before Trial. If a party so moves, any defense listed in Rule 12(b)(1)-(7)--whether made in a pleading or by
motion--and a motion under Rule 12(c) must be heard and decided before trial unless the court orders a deferral until
trial.

CREDIT(S)
(Amended December 27, 1946, effective March 19, 1948; January 21, 1963, effective July 1, 1963; February 28, 1966,
effective July 1, 1966; March 2, 1987, effective August 1, 1987; April 22, 1993, effective December 1, 1993; April 17, 2000,
effective December 1, 2000; April 30, 2007, effective December 1, 2007; March 26, 2009, effective December 1, 2009.)

ADVISORY COMMITTEE NOTES

1937 Adoption

Note to Subdivision (a). 1. Compare [former] Equity Rules 12 (Issue of Subpoena--Time for Answer) and 31 (Reply--When
Required--When Cause at Issue); 4 Mont.Rev.Codes Ann. (1935) §§ 9107, 9158; N.Y.C. P.A. (1937) § 263; N.Y.R.C.P.
(1937) Rules 109-111.

2. U.S.C., Title 28, § 763 (now § 547) (Petition in action against United States; service; appearance by district attorney)
provides that the United States as a defendant shall have 60 days within which to answer or otherwise defend. This and
other statutes which provide 60 days for the United States or an officer or agency thereof to answer or otherwise defend
are continued by this rule. In so far as any statutes not excepted in rule 81 provide a different time for a defendant to
defend, such statutes are modified. See U.S.C., Title 28, [former] § 45 (District courts; practice and procedure in certain
cases under the interstate commerce laws) (30 days).

3. Compare the last sentence of [former] Equity Rule 29 (Defenses--How Presented) and N.Y.C.P.A. (1937) § 283. See
Rule 15(a) for time within which to plead to an amended pleading.

Note to Subdivisions (b) and (d). 1. See generally [former] Equity Rules 29 (Defenses--How Presented), 33 (Testing
Sufficiency of Defense), 43 (Defect of Parties--Resisting Objection), and 44 (Defect of Parties--Tardy Objection);
N.Y.C.P.A. (1937) §§ 277-280; N.Y.R.C.P. (1937) Rules 106-112; English Rules Under the Judicature Act (The Annual
Practice, 1937) O. 25, r.r. 1-4; Clark, Code Pleading, 1928, pp. 371-381.

2. For provisions authorizing defenses to be made in the answer or reply see English Rules Under the Judicature Act,
(The Annual Practice, 1937) O. 25, r.r. 1-4; 1 Miss.Code Ann. (1930) §§ 378, 379. Compare Equity Rule 29 (Defenses--
How Presented); U.S.C.A., Title 28, [former] § 45 (District Courts; practice and procedure in certain cases under the
interstate commerce laws). U.S.C., Title 28, [former] § 45, substantially continued by this rule, provides: “No replication
need be filed to the answer, and objections to the sufficiency of the petition or answer as not setting forth a cause
of action or defense must be taken at the final hearing or by motion to dismiss the petition based on said grounds,
which motion may be made at any time before answer is filed.” Compare Calif.Code Civ.Proc., (Deering, 1937) § 433; 4

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

Nev.Comp.Laws (Hillyer, 1929) § 8600. For provisions that the defendant may demur and answer at the same time, see
Calif.Code Civ.Proc. (Deering, 1937) § 431; 4 Nev.Comp.Laws (Hillyer, 1929) § 8598.

3. [Former] Equity Rule 29 (Defenses--How Presented) abolished demurrers and provided that defenses in point of law
arising on the face of the bill should be made by motion to dismiss or in the answer, with further provision that every such
point of law going to the whole or material part of the cause or causes stated might be called up and disposed of before
final hearing “at the discretion of the court.” Likewise many state practices have abolished the demurrer, or retain it only
to attack substantial and not formal defects. See 6 Tenn.Code Ann. (Williams, 1934) § 8784; Ala.Code Ann. (Michie,
1928) § 9479; 2 Mass.Gen.Laws (Ter.Ed., 1932) ch. 231, §§ 15-18; Kansas Gen.Stat.Ann. (1935) §§ 60-705, 60-706.

Note to Subdivision (c). Compare [former] Equity Rule 33 (Testing Sufficiency of Defense); N.Y.R.C.P. (1937) Rules
111 and 112.

Note to Subdivisions (e) and (f). Compare [former] Equity Rules 20 (Further and Particular Statement in Pleading May
be Required) and 21 (Scandal and Impertinence); English Rules Under the Judicature Act (The Annual Practice, 1937)
O. 19, r.r. 7, 7a, 7b, 8; 4 Mont.Rev.Codes Ann. (1935) §§ 9166, 9167; N.Y.C.P.A. (1937) § 247; N.Y.C.P.A. (1937) Rules
103, 115, 116, 117; Wyo.Rev.Stat.Ann. (Courtright, 1931) §§ 89-1033, 89-1034.

Note to Subdivision (g). Compare Rules of the District Court of the United States for the District of Columbia (1937)
Equity Rule 11; N.M. Rules of Pleading, Practice and Procedure, 38 N.M.Rep. vii. [105-408] (1934); Wash.Gen.Rules
of the Superior Courts, 1 Wash.Rev.Stat.Ann. (Remington, 1932) p. 160, Rule VI(e) and (f).

Note to Subdivision (h). Compare Calif.Code Civ.Proc. (Deering, 1937) § 434; 2 Minn.Stat. (Mason, 1927) § 9252;
N.Y.C.P.A. (1937) §§ 278 and 279; Wash.Gen.Rules of the Superior Courts, 1 Wash.Rev.Stat.Ann. (Remington, 1932)
p. 160, Rule VI(e). This rule continues U.S.C.A., Title 28, former § 80 [now 1359, 1447, 1919] (Dismissal or remand)
(of action over which district court lacks jurisdiction), while U.S.C.A., Title 28, § 399 (Amendments to show diverse
citizenship) is continued by Rule 15.

1946 Amendment

Note. Subdivision (a). Various minor alterations in language have been made to improve the statement of the rule. All
references to bills of particulars have been stricken in accordance with changes made in subdivision (e).

Subdivision (b). The addition of defense (7), “failure to join an indispensable party”, cures an omission in the rules
which are silent as to the mode of raising such failure. See Commentary, Manner of Raising Objection of Non-Joinder
of Indispensable Party, 1940, 2 Fed.Rules Serv. 658, and, 1942, 5 Fed.Rules Serv. 820. In one case, United States v.
Metropolitan Life Ins. Co., E.D.Pa.1941, 36 F.Supp. 399, the failure to join an indispensable party was raised under
Rule 12(c).

Rule 12(b)(6), permitting a motion to dismiss for failure of the complaint to state a claim on which relief can be granted,
is substantially the same as the old demurrer for failure of a pleading to state a cause of action. Some courts have held that
as the rule by its terms refers to statements in the complaint, extraneous matter on affidavits, depositions or otherwise,
may not be introduced in support of the motion, or to resist it. On the other hand, in many cases the district courts
have permitted the introduction of such material. When these cases have reached circuit courts of appeals in situations
where the extraneous material so received shows that there is no genuine issue as to any material question of fact and
that on the undisputed facts as disclosed by the affidavits or depositions, one party or the other is entitled to judgment
as a matter of law, the circuit courts, properly enough, have been reluctant to dispose of the case merely on the face of
the pleading, and in the interest of prompt disposition of the action have made a final disposition of it. In dealing with
such situations the Second Circuit has made the sound suggestion that whatever its label or original basis, the motion

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

may be treated as a motion for summary judgment and disposed of as such. Samara v. United States, C.C.A.2, 1942, 129
F.2d 594, certiorari denied 63 S.Ct. 258, 317 U.S. 686, 87 L.Ed. 549; Boro Hall Corp. v. General Motors Corp., C.C.A.2,
1942, 124 F.2d 822, certiorari denied 63 S.Ct. 436, 317 U.S. 695, 87 L.Ed. 556. See, also, Kithcart v. Metropolitan Life
Ins. Co., C.C.A.8, 1945, 150 F.2d 997.

It has also been suggested that this practice could be justified on the ground that the federal rules permit “speaking”
motions. The Committee entertains the view that on motion under Rule 12(b)(6) to dismiss for failure of the complaint
to state a good claim, the trial court should have authority to permit the introduction of extraneous matter, such as
may be offered on a motion for summary judgment, and if it does not exclude such matter the motion should then
be treated as a motion for summary judgment and disposed of in the manner and on the conditions stated in Rule 56
relating to summary judgments, and, of course, in such a situation, when the case reaches the circuit court of appeals,
that court should treat the motion in the same way. The Committee believes that such practice, however, should be tied
to the summary judgment rule. The term “speaking motion” is not mentioned in the rules, and if there is such a thing its
limitations are undefined. Where extraneous matter is received, by tying further proceedings to the summary judgment
rule the courts have a definite basis in the rules for disposing of the motion.

The Committee emphasizes particularly the fact that the summary judgment rule does not permit a case to be disposed
of by judgment on the merits on affidavits, which disclose a conflict on a material issue of fact, and unless this practice
is tied to the summary judgment, rule, the extent to which a court, on the introduction of such extraneous matter, may
resolve questions of fact on conflicting proof would be left uncertain.

The decisions dealing with this general situation may be generally grouped as follows: (1) cases dealing with the use of
affidavits and other extraneous material on motions; (2) cases reversing judgments to prevent final determination on
mere pleading allegations alone.

Under group (1) are: Boro Hall Corp. v. General Motors Corp., C.C.A.2, 1942, 124 F.2d 822, certiorari denied 1943, 63
S.Ct. 436, 317 U.S. 695, 87 L.Ed. 556; Gallup v. Caldwell, C.C.A.3, 1941, 120 F.2d 90; Central Mexico Light & Power
Co. v. Munch, C.C.A.2, 1940, 116 F.2d 85; National Labor Relations Board v. Montgomery Ward & Co., 1944, 144 F.2d
528, 79 U.S.App.D.C. 200, certiorari denied 1944, 65 S.Ct. 134, 323 U.S. 774, 89 L.Ed. 619; Urquhart v. American-La
France Foamite Corp., 1944, 144 F.2d 542, 79 U.S.App.D.C. 219; Samara v. United States, C.C.A.2, 1942, 129 F.2d 594;
Cohen v. American Window Glass Co., C.C.A.2, 1942, 126 F.2d 111; Sperry Products Inc. v. Association of American
Railroads, C.C.A.2, 1942, 132 F.2d 408; Joint Council Dining Car Employees Local 370 v. Delaware, Lackawanna and
Western R. Co., C.C.A.2, 1946, 157 F.2d 417; Weeks v. Bareco Oil Co., C.C.A.7, 1941, 125 F.2d 84; Carroll v. Morrison
Hotel Corp., C.C.A.7, 1945, 149 F.2d 404; Victory v. Manning, C.C.A.3, 1942, 128 F.2d 415; Locals No. 1470, No. 1469,
and No. 1512 of International Longshoremen's Association v. Southern Pacific Co., C.C.A.5, 1942, 131 F.2d 605; Lucking v.
Delano, C.C.A.6, 1942, 129 F.2d 283; San Francisco Lodge No. 68 of International Association of Machinists v. Forrestal,
Cal.1944, 58 F.Supp. 466; Benson v. Export Equipment Corp., 1945, 164 P.2d 380, 49 N.M. 356, construing New Mexico
rule identical with Rule 12(b)(6); F. E. Myers & Bros. Co. v. Gould Pumps, Inc., W.D.N.Y.1946, 9 Fed.Rules Serv. 12b.33,
Case 2, 5 F.R.D. 132. Cf. Kohler v. Jacobs, C.C.A.5, 1943, 138 F.2d 440; Cohen v. United States, C.C.A.8, 1942, 129
F.2d 733.

Under group (2) are: Sparks v. England, C.C.A.8, 1940, 113 F.2d 579; Continental Collieries, Inc. v. Shober, C.C.A.3,
1942, 130 F.2d 631; Downey v. Palmer, C.C.A.2, 1940, 114 F.2d 116; DeLoach v. Crowley's Inc., C.C.A.5, 1942, 128 F.2d
378; Leimer v. State Mutual Life Assurance Co. of Worcester, Mass., C.C.A.8, 1940, 108 F.2d 302; Rossiter v. Vogel,
C.C.A.2, 1943, 134 F.2d 908, compare s.c., C.C.A.2, 1945, 148 F.2d 292; Karl Kiefer Machine Co. v. United States Bottlers
Machinery Co., C.C.A.7, 1940, 113 F.2d 356; Chicago Metallic Mfg. Co. v. Edward Katzinger Co., C.C.A.7, 1941, 123
F.2d 518; Louisiana Farmers' Protective Union, Inc. v. Great Atlantic & Pacific Tea Co. of America, Inc., C.C.A.8, 1942,
131 F.2d 419; Publicity Bldg. Realty Corp. v. Hannegan, C.C.A.8, 1943, 139 F.2d 583; Dioguardi v. Durning, C.C.A.2,
1944, 139 F.2d 774; Package Closure Corp. v. Sealright Co., Inc., C.C.A.2, 1944, 141 F.2d 972; Tahir Erk v. Glenn L.

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

Martin Co., C.C.A.4, 1941, 116 F.2d 865; Bell v. Preferred Life Assurance Society of Montgomery, Ala., 1943, 64 S.Ct.
5, 320 U.S. 238, 88 L.Ed. 15.

The addition at the end of subdivision (b) makes it clear that on a motion under Rule 12(b)(6) extraneous material
may not be considered if the court excludes it, but that if the court does not exclude such material the motion shall
be treated as a motion for summary judgment and disposed of as provided in Rule 56. It will also be observed that if
a motion under Rule 12(b)(6) is thus converted into a summary judgment motion, the amendment insures that both
parties shall be given a reasonable opportunity to submit affidavits and extraneous proofs to avoid taking a party by
surprise through the conversion of the motion into a motion for summary judgment. In this manner and to this extent the
amendment regularizes the practice above described. As the courts are already dealing with cases in this way, the effect
of this amendment is really only to define the practice carefully and apply the requirements of the summary judgment
rule in the disposition of the motion.

Subdivision (c). The sentence appended to subdivision (c) performs the same function and is grounded on the same
reasons as the corresponding sentence added in subdivision (b).

Subdivision (d). The change here was made necessary because of the addition of defense (7) in subdivision (b).

Subdivision (e). References in this subdivision to a bill of particulars have been deleted, and the motion provided for is
confined to one for more definite statement to be obtained only in cases where the movant cannot reasonably be required
to frame an answer or other responsive pleading to the pleading in question. With respect to preparations for trial, the
party is properly relegated to the various methods of examination and discovery provided in the rules for that purpose.
Slusher v. Jones, E.D.Ky.1943, 7 Fed.Rules Serv. 12e.231, Case 5, 3 F.R.D. 168; Best Foods, Inc. v. General Mills, Inc.,
D.Del.1943, 7 Fed.Rules Serv. 12e.231, Case 7, 3 F.R.D. 275; Braden v. Callaway, E.D.Tenn.1943, 8 Fed.Rules Serv.
12e.231, Case 1 (“. . . most courts . . . conclude that the definiteness required is only such as will be sufficient for the
party to prepare responsive pleadings”). Accordingly, the reference to the 20 day time limit has also been eliminated,
since the purpose of this present provision is to state a time period where the motion for a bill is made for the purpose
of preparing for trial.

Rule 12(e) as originally drawn has been the subject of more judicial rulings than any other part of the rules, and has
been much criticized by commentators, judges and members of the bar. See general discussion and cases cited in 1
Moore's Federal Practice, 1938, Cum.Supplement, § 12.07, under “Page 657”; also, Holtzoff, New Federal Procedure
and the Courts, 1940, 35-41. And compare vote of Second Circuit Conference of Circuit and District Judges, June
1940, recommending the abolition of the bill of particulars; Sun Valley Mfg. Co. v. Mylish, E.D.Pa.1944, 8 Fed.Rules
Serv. 12e.231, Case 6 (“Our experience . . . has demonstrated not only that ‘the office of the bill of particulars is fast
becoming obsolete’ . . . but that in view of the adequate discovery procedure available under the Rules, motions for bills
of particulars should be abolished altogether.”); Walling v. American Steamship Co., W.D.N.Y.1945, 4 F.R.D. 355, 8
Fed.Rules Serv. 12e.244, Case 8 (“. . . the adoption of the rule was ill advised. It has led to confusion, duplication and
delay.”) The tendency of some courts freely to grant extended bills of particulars has served to neutralize any helpful
benefits derived from rule 8, and has overlooked the intended use of the rules on depositions and discovery. The words
“or to prepare for trial”--eliminated by the proposed amendment--have sometimes been seized upon as grounds for
compulsory statement in the opposing pleading of all the details which the movant would have to meet at the trial. On the
other hand, many courts have in effect read these words out of the rule. See Walling v. Alabama Pipe Co., W.D.Mo.1942,
3 F.R.D. 159, 6 Fed.Rules Serv. 12e.244, Case 7; Fleming v. Mason & Dixon Lines, Inc., E.D.Tenn.1941, 42 F.Supp. 230;
Kellogg Co. v. National Biscuit Co., D.N.J.1941, 38 F.Supp. 643; Brown v. H. L. Green Co., S.D.N.Y.1943, 7 Fed.Rules
Serv. 12e.231, Case 6; Pedersen v. Standard Accident Ins. Co., W.D.Mo.1945, 8 Fed.Rules Serv. 12e.231, Case 8; Bowles
v. Ohse, D.Neb.1945, 4 F.R.D. 403, 9 Fed.Rules Serv. 12e.231, Case 1; Klages v. Cohen, E.D.N.Y.1945, 9 Fed.Rules
Serv. 8a.25, Case 4; Bowles v. Lawrence, D.Mass.1945, 8 Fed.Rules Serv. 12e.231, Case 19; McKinney Tool & Mfg. Co.
v. Hoyt, N.D.Ohio 1945, 9 Fed.Rules Serv. 12e.235, Case 1; Bowles v. Jack, D.Minn.1945, 5 F.R.D. 1, 9 Fed.Rules Serv.

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Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

12e.244, Case 9. And it has been urged from the bench that the phrase be stricken, Poole v. White, N.D.W.Va.1941, 5
Fed.Rules Serv. 12e.231, Case 4, 2 F.R.D. 40. See also Bowles v. Gabel, W.D.Mo.1946, 9 Fed.Rules Serv. 12e.244, Case
10. (“The courts have never favored that portion of the rules which undertook to justify a motion of this kind for the
purpose of aiding counsel in preparing his case for trial.”).

Subdivision (f). This amendment affords a specific method of raising the insufficiency of a defense, a matter which
has troubled some courts, although attack has been permitted in one way or another. See Dysart v. Remington-Rand,
Inc., D.Conn.1939, 31 F.Supp. 296; Eastman Kodak Co. v. McAuley, S.D.N.Y.1941, 4 Fed.Rules Serv., 12f.21, Case
8, 2 F.R.D. 21; Schenley Distillers Corp. v. Renken, E.D.S.C.1940, 34 F.Supp. 678; Yale Transport Corp. v. Yellow
Truck & Coach Mfg. Co., S.D.N.Y.1944, 3 F.R.D. 440; United States v. Turner Milk Co., N.D.Ill.1941, 4 Fed.Rules
Serv. 12b.51, Case 3, 1 F.R.D. 643; Teiger v. Stephan Oderwald, Inc., S.D.N.Y.1940, 31 F.Supp. 626; Teplitsky v.
Pennsylvania R. Co., N.D.Ill.1941, 38 F.Supp. 535; Callagher v. Carroll, E.D.N.Y.1939, 27 F.Supp. 568; United States
v. Palmer, S.D.N.Y.1939, 28 F.Supp. 936. And see Indemnity Ins. Co. of North America v. Pan American Airways,
Inc., S.D.N.Y.1944, 58 F.Supp. 338; Commentary, Modes of Attacking Insufficient Defenses in the Answer, 901, 1939, 1
Fed.Rules Serv. 669, 1940, 2 Fed.Rules Serv. 640.

Subdivision (g). The change in title conforms with the companion provision in subdivision (h).

The alteration of the “except” clause requires that other than provided in subdivision (h) a party who resorts to a motion
to raise defenses specified in the rule, must include in one motion all that are then available to him. Under the original
rule defenses which could be raised by motion were divided into two groups which could be the subjects of two successive
motions.

Subdivision (h). The addition of the phrase relating to indispensable parties is one of necessity.

1963 Amendment

This amendment conforms to the amendment of Rule 4(e). See also the Advisory Committee's Note to amended Rule
4(b).

1966 Amendment

Subdivision (b)(7). The terminology of this subdivision is changed to accord with the amendment of Rule 19. See
the Advisory Committee's Note to Rule 19, as amended, especially the third paragraph therein before the caption
“Subdivision (c).”

Subdivision (g). Subdivision (g) has forbidden a defendant who makes a preanswer motion under this rule from making a
further motion presenting any defense or objection which was available to him at the time he made the first motion and
which he could have included, but did not in fact include therein. Thus if the defendant moves before answer to dismiss
the complaint for failure to state a claim, he is barred from making a further motion presenting the defense of improper
venue, if that defense was available to him when he made his original motion. Amended subdivision (g) is to the same
effect. This required consolidation of defenses and objections in a Rule 12 motion is salutary in that it works against
piecemeal consideration of a case. For exceptions to the requirement of consolidation, see the last clause of subdivision
(g), referring to new subdivision (h)(2).

Subdivision (h). The question has arisen whether an omitted defense which cannot be made the basis of a second motion
may nevertheless be pleaded in the answer. Subdivision (h) called for waiver of “* * * defenses and objections which he
[defendant] does not present * * * by motion * * * or, if he has made no motion, in his answer * * *.” If the clause “if
he has made no motion,” was read literally, it seemed that the omitted defense was waived and could not be pleaded

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 8

Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

in the answer. On the other hand, the clause might be read as adding nothing of substance to the preceding words;
in that event it appeared that a defense was not waived by reason of being omitted from the motion and might be
set up in the answer. The decisions were divided. Favoring waiver, see Keef v. Derounian, 6 F.R.D. 11 (N.D.Ill.1946);
Elbinger v. Precision Metal Workers Corp., 18 F.R.D. 467 (E.D.Wis.1956); see also Rensing v. Turner Aviation Corp.,
166 F.Supp. 790 (N.D.Ill.1958); P. Beiersdorf & Co. v. Duke Laboratories, Inc., 10 F.R.D. 282 (S.D.N.Y.1950); Neset v.
Christensen, 92 F.Supp. 78 (E.D.N.Y.1950). Opposing waiver, see Phillips v. Baker, 121 F.2d 752 (9th Cir.1941); Crum
v. Graham, 32 F.R.D. 173 (D.Mont.1963) (regretfully following the Phillips case); see also Birnbaum v. Birrell, 9 F.R.D.
72 (S.D.N.Y.1948); Johnson v. Joseph Schlitz Brewing Co., 33 F.Supp. 176 (E.D.Tenn.1940); cf. Carter v. American Bus
Lines, Inc., 22 F.R.D. 323 (D.Neb.1958).

Amended subdivision (h)(1)(A) eliminates the ambiguity and states that certain specified defenses which were available
to a party when he made a preanswer motion, but which he omitted from the motion, are waived. The specified defenses
are lack of jurisdiction over the person, improper venue, insufficiency of process, and insufficiency of service of process
(see Rule 12(b)(2)-(5) ). A party who by motion invites the court to pass upon a threshold defense should bring forward
all the specified defenses he then has and thus allow the court to do a reasonably complete job. The waiver reinforces
the policy of subdivision (g) forbidding successive motions.

By amended subdivision (h)(1)(B), the specified defenses, even if not waived by the operation of (A), are waived by the
failure to raise them by a motion under Rule 12 or in the responsive pleading or any amendment thereof to which the
party is entitled as a matter of course. The specified defenses are of such a character that they should not be delayed and
brought up for the first time by means of an application to the court to amend the responsive pleading.

Since the language of the subdivisions is made clear, the party is put on fair notice of the effect of his actions and omissions
and can guard himself against unintended waiver. It is to be noted that while the defenses specified in subdivision (h)(1)
are subject to waiver as there provided, the more substantial defenses of failure to state a claim upon which relief can
be granted, failure to join a party indispensable under Rule 19, and failure to state a legal defense to a claim (see Rule
12(b)(6), (7), (f) ), as well as the defense of lack of jurisdiction over the subject matter (see Rule 12(b)(1) ), are expressly
preserved against waiver by amended subdivision (h)(2) and (3).

1987 Amendment

The amendments are technical. No substantive change is intended.

1993 Amendment

Subdivision (a) is divided into paragraphs for greater clarity, and paragraph (1)(B) is added to reflect amendments to
Rule 4. Consistent with Rule 4(d)(3), a defendant that timely waives service is allowed 60 days from the date the request
was mailed in which to respond to the complaint, with an additional 30 days afforded if the request was sent out of
the country. Service is timely waived if the waiver is returned within the time specified in the request (30 days after the
request was mailed, or 60 days if mailed out of the country) and before being formally served with process. Sometimes a
plaintiff may attempt to serve a defendant with process while also sending the defendant a request for waiver of service;
if the defendant executes the waiver of service within the time specified and before being served with process, it should
have the longer time to respond afforded by waiving service.

The date of sending the request is to be inserted by the plaintiff on the face of the request for waiver and on the waiver
itself. This date is used to measure the return day for the waiver form, so that the plaintiff can know on a day certain
whether formal service of process will be necessary; it is also a useful date to measure the time for answer when service is
waived. The defendant who returns the waiver is given additional time for answer in order to assure that it loses nothing
by waiving service of process.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

Rule 12. Defenses and Objections: When and How Presented;..., FRCP Rule 12

2000 Amendment

Rule 12(a)(3)(B) is added to complement the addition of Rule 4(i)(2)(B). The purposes that underlie the requirement that
service be made on the United States in an action that asserts individual liability of a United States officer or employee
for acts occurring in connection with the performance of duties on behalf of the United States also require that the time
to answer be extended to 60 days. Time is needed for the United States to determine whether to provide representation to
the defendant officer or employee. If the United States provides representation, the need for an extended answer period
is the same as in actions against the United States, a United States agency, or a United States officer sued in an official
capacity.

An action against a former officer or employee of the United States is covered by subparagraph (3)(B) in the same way
as an action against a present officer or employee. Termination of the relationship between the individual defendant and
the United States does not reduce the need for additional time to answer.

GAP Report

No changes are recommended for Rule 12 as published.

2007 Amendment

The language of Rule 12 has been amended as part of the general restyling of the Civil Rules to make them more easily
understood and to make style and terminology consistent throughout the rules. These changes are intended to be stylistic
only.

Former Rule 12(a)(4)(A) referred to an order that postpones disposition of a motion “until the trial on the merits.” Rule
12(a)(4) now refers to postponing disposition “until trial.” The new expression avoids the ambiguity that inheres in “trial
on the merits,” which may become confusing when there is a separate trial of a single issue or another event different
from a single all-encompassing trial.

2009 Amendment

The times set in the former rule at 10 or 20 days have been revised to 14 or 21 days. See the Note to Rule 6.

Notes of Decisions (4259)

Fed. Rules Civ. Proc. Rule 12, 28 U.S.C.A., FRCP Rule 12

Including Amendments Received Through 12-1-16

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 10

28.1. Accelerated Appeal, TX R APP Rule 28.1

Vernon's Texas Rules Annotated

Texas Rules of Appellate Procedure
Section Two. Appeals from Trial Court Judgments and Orders (Refs & Annos)
Rule 28. Accelerated, Agreed, and Permissive Appeals in Civil Cases (Refs & Annos)

TX Rules App.Proc., Rule 28.1

28.1. Accelerated Appeal

Currentness

(a) Types of Accelerated Appeals. Appeals from interlocutory orders (when allowed by statute), appeals in quo warranto
proceedings, appeals required by statute to be accelerated or expedited, and appeals required by law to be filed or
perfected within less than 30 days after the date of the order or judgment being appealed are accelerated appeals.

(b) Perfection of Accelerated Appeal. Unless otherwise provided by statute, an accelerated appeal is perfected by filing
a notice of appeal in compliance with Rule 25.1 within the time allowed by Rule 26.1(b) or as extended by Rule 26.3.
Filing a motion for new trial, any other post-trial motion, or a request for findings of fact will not extend the time to
perfect an accelerated appeal.

(c) Appeals of Interlocutory Orders. The trial court need not file findings of fact and conclusions of law but may do so
within 30 days after the order is signed.

(d) Quo Warranto Appeals. The trial court may grant a motion for new trial timely filed under Texas Rule of Civil
Procedure 329b(a)-(b) until 50 days after the trial court's final judgment is signed. If not determined by signed written
order within that period, the motion will be deemed overruled by operation of law on expiration of that period.

(e) Record and Briefs. In lieu of the clerk's record, the appellate court may hear an accelerated appeal on the original
papers forwarded by the trial court or on sworn and uncontroverted copies of those papers. The appellate court may allow
the case to be submitted without briefs. The deadlines and procedures for filing the record and briefs in an accelerated
appeal are provided in Rules 35.1 and 38.6.

Credits
Eff. Sept. 1, 1997. Amended by Supreme Court March 10, 2008, Aug. 20, 2008, and Aug. 25, 2008, eff. Sept. 1, 2008.
Approved by Court of Criminal Appeals Sept. 30, 2008, eff. Sept. 30, 2008. Amended by Supreme Court Sept. 9, 2011,
eff. Sept. 9, 2011.

Editors' Notes

NOTES AND COMMENTS

Comment to 2011 Change: Section 51.014(d)-(f) of the Texas Civil Practice and Remedies Code, as amended
in 2011, provides for appeals of orders not otherwise appealable when permitted by the trial court. The 2011
amendments, which explicitly apply only to cases commenced on or after September 1, 2011, eliminated the
prior requirement that the parties agree to the appeal and reinstated a requirement that the court of appeals

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

28.1. Accelerated Appeal, TX R APP Rule 28.1

also permit the appeal. Act of May 25, 2011, 82nd Leg., R.S., ch. 203, §§ 3.01, 6.01 [HB 274], amending Act
of May 27, 2005, 79th Leg. R.S., ch. 1051 [HB 1294], §§ 1-2, 2005 Tex. Gen. Laws 3512, 3512-3513 and Act of
May 17, 2001, 77th Leg., R.S., ch. 1389 [HB 978], § 1, 2001 Tex. Gen. Laws 3575. The amendments necessitated
the addition of Rule 28.3 and the adoption of Rule of Civil Procedure 168, which governs the procedure for
obtaining permission to appeal from the trial court.

New Rule 28.3 applies only to appeals in cases that were filed in the trial court on or after September 1, 2011.
Rule 28.2 applies only to appeals in cases that were filed in the trial court before September 1, 2011.

Rule of Civil Procedure 168 clarifies that the trial court's permission to appeal should be included in the order
to be appealed rather than in a separate order. As stated in Rule 28.3(c), if a prior order containing the trial
court's ruling is amended to include such permission, the time for appeal runs from the amended order. Rule
28.3(k) further clarifies that if the petition is granted, appeal is thereby perfected, and the appeal proceeds as an
accelerated appeal, with all deadlines--including deadlines and obligations for preparing the record--running
from the date the petition was granted. A separate notice of appeal need not be filed. The petition procedure in
Rule 28.3 is intended to be similar to the Rule 53 procedure governing petitions for review in the Supreme Court.

Comment to 2008 change: Rule 28 is rewritten. Subdivision 28.1 more clearly defines accelerated appeals and
provides a uniform appellate timetable. But many statutes that provide for accelerated or expedited appeals also
set appellate timetables, and statutory deadlines govern over deadlines provided in the rule. Subdivision 28.2
provides procedures for an agreed appeal of an interlocutory order permitted by statute. Such appeals are now
permitted under Section 51.014(d) of the Civil Practice and Remedies Code. The requirements for perfecting
appeal are generally set out in Rule 25.1, and as provided there, only the notice of appeal is jurisdictional.

Notes of Decisions (34)

Rules App. Proc., Rule 28.1, TX R APP Rule 28.1

Rules of Civil Procedure, Rules of Evidence, and Rules of Appellate Procedure are current with amendments received
through September 1, 2016. Bar Rules, Rules of Disciplinary Procedure, Code of Judicial Conduct, and Rules of Judicial
Administration are current with amendments received through September 1, 2016. Other state court rules and selected
county rules are current with rules verified through September 1, 2016.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

for violation of the Deceptive Trade

Practices Act, and violation of the Credit
350 S.W.3d 152
Services Organization Act, where the parties'
Court of Appeals of Texas,
arbitration agreement expressly assigned
San Antonio.
“any dispute about the validity, effect or
NCP FINANCE LIMITED PARTNERSHIP enforceability of the prohibitions against class
and NMCapital, Inc., Appellants, proceedings” to the trial court, not the
v. arbitrator. V.T.C.A. Bus. & C., § 17.41 et seq.
Humberto ESCATIOLA, Appellee. Cases that cite this headnote

No. 04–10–00644–CV.
| [2] Alternative Dispute Resolution
April 27, 2011. Disputes and Matters Arbitrable Under
Agreement
Synopsis
Lender was entitled to compel individual
Background: On behalf of a purported class, borrower
arbitration of borrower's purported class
sued credit services organization and lender for usury,
action claims for violation of the Deceptive
violation of the Deceptive Trade Practices Act, and
Trade Practices Act, and violation of the
violation of the Credit Services Organization Act. Lender
Credit Services Organization Act, where the
filed a motion to compel individual arbitration, to strike
parties' arbitration agreement committed any
borrower's request for class action certification, and to
claim, which it defined as any legal dispute
stay the litigation pending completion of arbitration.
between borrower, on the one hand, and credit
The 150th Judicial District Court, Bexar County,
services organization and/or lender, on the
Antonia Arteaga, J., denied lender's motion to compel
other hand, to the arbitrator, and the clear
individual arbitration and permitted borrower to seek
language of the parties' agreement expressly
class certification before the arbitrator. Lender appealed.
forbade class certification in arbitration.
V.T.C.A. Bus. & C., § 17.41 et seq.

Holdings: The Court of Appeals, Sandee Bryan Marion, 1 Cases that cite this headnote
J., held that:

[1] trial court was required to rule on lender's motion to

compel individual arbitration, and Attorneys and Law Firms

[2] lender was entitled to compel individual arbitration of *152 Bryan James Wick, Jeffrey Wallace Hellberg Jr.,
borrower's claims. Wick Phillips, LLC, Dallas, TX, for Appellants.

John Steven Dwyre, John Dwyre & Associates, San

Reversed and remanded. Antonio, TX, for Appellee.

Sitting: SANDEE BRYAN MARION, Justice,

REBECCA SIMMONS, Justice, STEVEN C. HILBIG,
West Headnotes (2) Justice.

[1] Alternative Dispute Resolution

OPINION
Matters to Be Determined by Court
Trial court was required to rule on lender's Opinion by: SANDEE BRYAN MARION, Justice.
motion to compel individual arbitration of
borrower's purported class actions claims

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

In this accelerated appeal, appellants, NCP Finance

Limited Partnership and NMCapital, Inc. (collectively The arbitration agreement commits any “claim,” which
“NCP”), appeal from the trial court's order on their it defines as “any legal dispute between [Escatiola],
motion to compel individual arbitration and stay on the one hand, and ACE and/or [NCP], on the
litigation pending arbitration. We reverse and remand. other hand,” to the arbitrator. However, the arbitration
agreement also states: “[A]ny dispute about the validity,
effect or enforceability of the prohibitions against class
proceedings, private attorney general proceedings and/
*153 BACKGROUND or multiple-party proceedings ... shall be resolved by a
court and not by an arbitrator or arbitration administrator
ACE Credit Service, LLC (“ACE”) is a registered Texas
” (emphasis added). Escatiola refinanced the loan three
credit services organization, and NMCapital is an out-of-
times over the next two months, and he signed identical
state lender and a general partner of NCP Finance Limited
arbitration agreements on each occasion.
Partnership, a Texas limited partnership. On February
16, 2008, appellee, Humberto Escatiola, obtained a loan
On behalf of a purported class, Escatiola sued ACE and
from NCP through credit services provided by ACE. On
NCP for usury, violation of the Texas Deceptive Trade
that same date, Escatiola, ACE, and NCP signed a credit
Practices Act, and violation of the Texas Credit Services
services agreement, a loan agreement, a promissory note,
Organization Act. NCP filed a motion in the trial court to
and an arbitration agreement. The arbitration agreement
compel individual arbitration, to strike Escatiola's request
states:
for class action certification, and to stay the litigation
[U]pon the election of either pending completion of arbitration. The trial court's order
[Escatiola], [ACE] ..., or [NCP] ..., on the motion reads, in part: “IT IS ... ORDERED THAT
any legal dispute between [NCP's] Motion as to individual arbitration is denied and
[Escatiola], on the one hand, that the case shall proceed in arbitration and [Escatiola]
and ACE and/or [NCP], on the may seek class certification therein.” The trial court stayed
other hand, will be resolved the litigation and appointed an arbitrator.
by binding arbitration.... (1) NO
PARTY MAY PARTICIPATE On appeal, NCP argues the trial court was required to
IN A CLASS ACTION IN grant the motion as to individual arbitration because (a)
COURT OR IN CLASS– the parties' arbitration agreement specifically prohibits
WIDE ARBITRATION ...; (2) class arbitration, and (b) the United States Supreme
NO PARTY MAY ACT Court recently ruled in Stolt–Nielsen S.A. v. AnimalFeeds
AS A PRIVATE ATTORNEY International Corp. that class arbitration may not be
GENERAL IN COURT OR IN compelled absent express agreement of the parties.
AN ARBITRATION; (3) CLAIMS
BROUGHT BY OR AGAINST
[ESCATIOLA] MAY NOT BE DISCUSSION
JOINED OR CONSOLIDATED
WITH CLAIMS BROUGHT [1] Several years ago, the United States Supreme Court
BY OR AGAINST ANY held that whether an arbitration agreement forbids a class
OTHER PERSON; AND (4) action is a question for the arbitrator, not the trial court,
THE ARBITRATOR SHALL to decide. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444,
HAVE NO AUTHORITY TO 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (plurality
CONDUCT A CLASS–WIDE opinion). In Green Tree, Lynn and Burt Bazzle (“the
ARBITRATION, PRIVATE Bazzles”) obtained a home improvement loan from Green
ATTORNEY GENERAL Tree *154 Financial Corporation (“Green Tree”). Id. at
ARBITRATION OR MULTIPLE– 447, 123 S.Ct. 2402. The Bazzles and Green Tree signed
PARTY ARBITRATION. a contract, which included this arbitration clause: “ ‘All
disputes, claims, or controversies arising from or relating

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2

NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)
to this contract or the relationships which result from
this contract ... shall be resolved by binding arbitration
by one arbitrator selected by [Green Tree] with consent
of [the Bazzles].’ ” Id. at 448, 123 S.Ct. 2402 (emphasis
in original). The Bazzles subsequently sued Green Tree
in South Carolina state court for violation of the South
Carolina Consumer Protection Code and asked the trial
court to certify their claim as a class action. Id. at 449,
123 S.Ct. 2402. The trial court certified a class and entered
an order compelling arbitration. Id. Affirming the trial
court's order, the South Carolina Supreme Court held
class arbitration was authorized because the contract was
silent on the matter. Id. at 450, 123 S.Ct. 2402.
A plurality of the United States Supreme Court vacated
the South Carolina Supreme Court's ruling, holding
that in certain limited circumstances, courts must decide
“gateway” arbitration-related matters, “such as whether
the parties have a valid arbitration agreement at all or
whether a concededly binding arbitration clause applies to
a certain type of controversy.” Id. at 452, 123 S.Ct. 2402.
However, the Court concluded the question involved
in Green Tree—whether the parties' contract forbade
class arbitration—did not fall into that narrow exception
because it concerned neither the validity of the arbitration
clause nor the clause's applicability to the underlying
dispute. Id. According to the Court, whether the parties'
contract forbade class arbitration was a question of what
kind of arbitration the parties agreed to—a matter of
contract interpretation and arbitration procedures. Id. at
452–53, 123 S.Ct. 2402. Given that “[a]rbitrators are well
suited to answer” questions of contract interpretation, and
that the parties' contract contained “sweeping language
concerning the scope of the questions committed to
arbitration,” the Court held the matter should be decided
by the arbitrator, not the trial court. Id. at 453, 123 S.Ct.
2402.
Expressly relying upon the United States Supreme Court's
ruling in Green Tree, the Texas Supreme Court also held
the arbitrator, not the trial court, must rule on class
certification issues. In re Wood, 140 S.W.3d 367, 368
(Tex.2004) (per curiam). In Wood, an attorney and three
of his clients signed fee agreements providing that all
disputes arising from the agreements would be submitted
to binding arbitration. Id. When the clients sued the
attorney over a fee dispute, the trial court ordered the
case to arbitration and signed a second order specifically
authorizing the arbitrator to decide whether the clients
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
could seek class certification in arbitration. Id. The court
of appeals issued a writ of mandamus directing the
trial court to vacate its second order and determine
whether the parties' agreement permitted class arbitration.
Id. However, the Texas Supreme Court concluded the
decision in Green Tree was “directly on point” and held
the court of appeals erred in directing the trial court
to determine the class certification issue. Id. at 369–
70. According to the unanimous Texas Supreme Court,
“when the contracts at issue commit[ ] all disputes arising
out of the agreement to the arbitrator,” the arbitrator
must decide class certification issues. Id. at 368.
Recently, a majority of the United States Supreme
Court recognized Green Tree did not garner a majority
on the question of whether the trial court or the
arbitrator must decide class certification questions. *155
Stolt–Nielsen, ––– U.S. ––––, 130 S.Ct. 1758, 1772,
176 L.Ed.2d 605 (2010). However, the Stolt–Nielsen
majority declined to resolve this unsettled question
because the parties' agreement expressly assigned the class
certification question to the arbitration panel. Id. Instead,
the Court turned to the question the Green Tree Court did
not address—the standard to be applied when determining
whether a contract permits class arbitration. Id. The Court
held that “a party may not be compelled ... to submit
to class arbitration unless there is a contractual basis for
concluding that the party agreed to do so.” Id. at 1775
(emphasis in original). Because the parties conceded their
agreement was silent on the matter of class certification,
the Court found the arbitration panel's certification of
a class “fundamentally at war with the foundational ...
principle that arbitration is a matter of consent.” Id.
Here, the arbitration agreement expressly assigns “any
dispute about the validity, effect or enforceability of the
prohibitions against class proceedings” to the trial court,
not the arbitrator. Accordingly, because the contract at
issue here did not commit all disputes to the arbitrator,
but rather expressly assigned disputes involving the class
action waiver provision to the trial court, the trial
court was required to rule on NCP's motion to compel
individual arbitration.
[2] Turning to whether the trial court's denial of NCP's
motion was correct in light of recent precedent, we
must conclude it was not. The clear language of the
parties' agreement expressly forbids class certification in
arbitration. Because the United States Supreme Court
3
NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152 (2011)

recently held in Stolt–Nielsen that a party cannot be We reverse the trial court's order and remand this matter
to the trial court for proceedings consistent with this
compelled to submit to class arbitration absent its express
opinion.
consent, the trial court erred by denying NCP's motion to
compel individual arbitration and by permitting Escatiola
to seek class certification before the arbitrator. All Citations

350 S.W.3d 152

CONCLUSION

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

KeyCite Yellow Flag - Negative Treatment Judgment of Court of Appeals reversed, arbitration award
Distinguished by RSL Funding, LLC v. Pippins, Tex., July 1, 2016   vacated, and case remanded.
258 S.W.3d 580
Supreme Court of Texas. O'Neill, J., concurred and filed opinion.

PERRY HOMES, A Joint Venture, Home
Owners Multiple Equity, Inc., and Warranty
Underwriters Insurance Company, Petitioners,
v.
Robert E. CULL and S. Jane Cull, Respondents.
Johnson, J., concurred in part, dissented in part, and filed
opinion in which Jefferson, C.J., and Green, J., joined.
Willett, J., concurred in part, dissented in part, and filed
opinion.

No. 05–0882.
|
Argued March 20, 2007. West Headnotes (42)
|
Delivered May 2, 2008. [1] Alternative Dispute Resolution
| Suing or participating in suit
Rehearing Denied Aug. 29, 2008.
A party can not substantially invoke
Synopsis the litigation process and then switch to
Background: Homeowners moved to confirm arbitration arbitration on the eve of trial.
award against home builder and warranty companies
5 Cases that cite this headnote
on faulty construction claim. The 236th District Court,
Tarrant County, Thomas Wilson Lowe III, J., granted
motion. Defendants appealed. The Fort Worth Court of [2] Alternative Dispute Resolution
Appeals, 173 S.W.3d 565, affirmed as modified to delete Evidence
duplicative interest. Defendants' petitioned for review. There is a strong presumption against waiver
of arbitration, but it is not irrebuttable.

15 Cases that cite this headnote

Holdings: The Supreme Court, Brister, J., held that:

[1] order compelling arbitration could be reviewed post- [3] Courts

arbitration; Operation and effect in general
Appellate courts' denial, without comment,
[2] waiver of arbitration by litigation conduct is an issue of home builder and warranty companies'
for the courts, rather than arbitrators; petitions for mandamus relief from trial
court order compelling arbitration of
[3] waiver of arbitration by litigation conduct must be faulty construction claim did not foreclose
decided on a case-by-case basis, and courts should look to Supreme Court's review of order compelling
the totality of the circumstances; arbitration, on appeal from confirmation of
arbitration award.
[4] waiver of arbitration requires a showing of prejudice;
7 Cases that cite this headnote
[5] homeowners substantially invoked the litigation
process to defendants' prejudice and, thus, waived
[4] Mandamus
arbitration; and
Remedy by Appeal or Writ of Error

[6] warranty companies also waived arbitration.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
Mandamus is only available when a final
appeal would be inadequate.
3 Cases that cite this headnote
[5] Alternative Dispute Resolution
Scope and Standards of Review
Trial court order compelling arbitration could
be reviewed post-arbitration.
9 Cases that cite this headnote
[6] Appeal and Error
Interlocutory and Intermediate Decisions
Parties waive nothing by foregoing
interlocutory review and awaiting a final
judgment to appeal.
1 Cases that cite this headnote
[7] Alternative Dispute Resolution
Decisions reviewable; finality
Courts may review an order compelling
arbitration if the order also dismisses the
underlying litigation so it is final rather than
interlocutory.
3 Cases that cite this headnote
[8] Alternative Dispute Resolution
Scope and standards of review
Alternative Dispute Resolution
Scope and Standards of Review
Courts conduct ordinary review of a trial
court's initial referral to arbitration and
deferential review only of the arbitrator's final
award.
3 Cases that cite this headnote
[9] Alternative Dispute Resolution
Waiver, laches, or estoppel
Waiver of arbitration by litigation conduct is
an issue for the courts, rather than arbitrators.
17 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[10] Alternative Dispute Resolution
Matters to Be Determined by Court
Alternative Dispute Resolution
Existence and validity of agreement
Arbitrators generally must decide defenses
that apply to the whole contract, while
courts decide defenses relating solely to the
arbitration clause; thus, arbitrators must
decide if an entire contract was fraudulently
induced, while courts must decide if an
arbitration clause was.
10 Cases that cite this headnote
[11] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
must be decided on a case-by-case basis, and
courts should look to the totality of the
circumstances.
15 Cases that cite this headnote
[12] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
was not ruled out solely because plaintiffs,
who moved to compel arbitration, did not ask
the court to make any judicial decisions on the
merits of their faulty construction claim; while
that was a factor to consider, it was not the
only one.
1 Cases that cite this headnote
[13] Alternative Dispute Resolution
Suing or participating in suit
Waiver of arbitration by litigation conduct
involves substantial invocation of the judicial
process, not just judgment on the merits.
10 Cases that cite this headnote
[14] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
2
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

Parties may file suit in order to compel
arbitration. V.T.C.A., Civil Practice &
Remedies Code § 171.021(a).
1 Cases that cite this headnote
turning around and seeking arbitration with
the spoils.
5 Cases that cite this headnote

[19] Alternative Dispute Resolution

[15] Alternative Dispute Resolution
Suing or participating in suit
While whether the party who moves to compel
arbitration is the plaintiff or the defendant
is a factor to consider in determining waiver
of arbitration by litigation conduct, it does
not alone justify a finding of waiver or
change the basic nature of the totality-of-the-
circumstances test.
8 Cases that cite this headnote
[16] Alternative Dispute Resolution
Suing or participating in suit
How much litigation conduct will be
“substantial,” for purposes of rule that a party
waives arbitration by substantially invoking
the judicial process to the other party's
prejudice, depends very much on the context;
three or four depositions may be all the
discovery needed in one case, but purely
preliminary in another.
52 Cases that cite this headnote
Contractual or consensual basis
The answers to most questions regarding
arbitration flow inexorably from the fact that
arbitration is simply a matter of contract
between the parties.
8 Cases that cite this headnote
[20] Alternative Dispute Resolution
Waiver or Estoppel
Like any other contract right, arbitration can
be waived if the parties agree instead to resolve
a dispute in court.
6 Cases that cite this headnote
[21] Alternative Dispute Resolution
Waiver or Estoppel
Waiver of arbitration can be implied from a
party's conduct, although that conduct must
be unequivocal, and in close cases, the strong
presumption against waiver should govern.
13 Cases that cite this headnote

[17] Estoppel
[22] Estoppel
Nature and Application of Estoppel in
Nature and elements of waiver
Pais
Waiver is essentially unilateral in its character
Estoppel is a defensive theory barring parties
and no act of the party in whose favor it is
from asserting a claim or defense when
made is necessary to complete it.
their representations have induced action or
forbearance of a definite and substantial 1 Cases that cite this headnote
character and injustice can be avoided only by
enforcement.
[23] Estoppel
3 Cases that cite this headnote Prejudice to person setting up estoppel
Estoppel includes a prejudice requirement.
[18] Alternative Dispute Resolution Cases that cite this headnote
Suing or participating in suit
A party who enjoys substantial direct benefits
[24] Alternative Dispute Resolution
by gaining an advantage in the pretrial
Waiver or Estoppel
litigation process should be barred from

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

Waiver of arbitration requires a showing of

prejudice. 33 Cases that cite this headnote

14 Cases that cite this headnote

[25] Alternative Dispute Resolution
Suing or participating in suit
Homeowners who filed action claiming
faulty construction substantially invoked
the litigation process to home builder
and warranty companies' prejudice and,
thus, waived arbitration clause in warranty
agreement, where homeowners vigorously
opposed arbitration in their pleadings and in
open court, then requested hundreds of items
of merits-based information and conducted
months of discovery under the rules of court,
and finally, only four days before the trial
setting, changed their minds and decided they
would prefer to arbitrate after all.
30 Cases that cite this headnote
[29] Alternative Dispute Resolution
Waiver or Estoppel
A party should not be allowed purposefully
and unjustifiably to manipulate the exercise
of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.
8 Cases that cite this headnote
[30] Alternative Dispute Resolution
Suing or participating in suit
Under the Federal Arbitration Act,
“prejudice” relates to inherent unfairness; that
is, a party's attempt to have it both ways by
switching between litigation and arbitration
to its own advantage. 9 U.S.C.A. § 1 et seq.
26 Cases that cite this headnote

[31] Appeal and Error

[26] Alternative Dispute Resolution
Abuse of discretion
Suing or participating in suit
Every abuse-of-discretion review is not
Under the totality-of-the-circumstances test,
identical because a trial judge's discretion may
discovery is not the only measure of waiver of
be applied to scores of situations and in many
arbitration by litigation conduct.
different ways.
Cases that cite this headnote
10 Cases that cite this headnote

[27] Alternative Dispute Resolution

[32]
Applicant's default, delay, or laches
The rule that one can not wait until the eve of
trial to request arbitration is not limited to the
evening before trial; it is a rule of proportion.
6 Cases that cite this headnote
Alternative Dispute Resolution
Suing or participating in suit
The totality-of-the-circumstances test for
determining waiver of arbitration by litigation
conduct presumes a multitude of potential
factors and a balancing of evidence on either
side.

[28] Alternative Dispute Resolution 3 Cases that cite this headnote

Suing or participating in suit
For purposes of a waiver of an arbitration [33] Appeal and Error
agreement, “prejudice” refers to the inherent Power to Review
unfairness in terms of delay, expense, or
Under a proper abuse-of-discretion review,
damage to a party's legal position that occurs
waiver is a question of law for the court, and
when the party's opponent forces it to litigate
an appellate court does not defer to the trial
an issue and later seeks to arbitrate that same
court on questions of law.
issue.

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Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
31 Cases that cite this headnote
[34] Appeal and Error
Sufficiency of Evidence in Support
Appellate court defers to a trial court's factual
findings if they are supported by evidence.
21 Cases that cite this headnote
[35] Alternative Dispute Resolution
Discovery and depositions
Arbitrators have almost unbridled discretion
regarding discovery.
1 Cases that cite this headnote
[36] Alternative Dispute Resolution
Suing or participating in suit
Defendants asserting that plaintiffs waived
their right to arbitration had to show
substantial invocation of the litigation process
that prejudiced them, not precisely how much
it all was.
5 Cases that cite this headnote
[37] Alternative Dispute Resolution
Trial or hearing
Referral to arbitration should be decided
summarily with the evidence limited to
disputed facts. V.T.C.A., Civil Practice &
Remedies Code § 171.021(b).
Cases that cite this headnote
[38] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
The amount of discovery needed to show
prejudice, for purposes of rule that a party
waives arbitration by substantially invoking
the judicial process to the other party's
prejudice, will vary depending on what the
other circumstances are.
36 Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[39] Alternative Dispute Resolution
Suing or participating in suit
Prejudice, as required to establish waiver of
arbitration by litigation conduct, should be
easier to show against a party that initially
opposed arbitration than against one who
sought it from the start.
2 Cases that cite this headnote
[40] Alternative Dispute Resolution
Suing or participating in suit
A party who requests lots of discovery is not
prejudiced, as required to establish waiver of
arbitration by litigation conduct, by getting
it and taking it to arbitration in the same
way that a party who produces lots of
discovery outside the stricter discovery limits
in arbitration.
14 Cases that cite this headnote
[41] Alternative Dispute Resolution
Suing or participating in suit
Warranty companies that originally
requested arbitration of homeowners' faulty
construction claim waived arbitration by
extensively co-participating in months of
discovery.
Cases that cite this headnote
[42] Alternative Dispute Resolution
Presentation and reservation of grounds
for review
Fact that the only objection to trial
court's order compelling arbitration was
signed by home builder's attorneys, not
co-defendant warranty companies, did not
preclude warranty companies from objecting
to arbitration on appeal from confirmation
of arbitration award, where, in the motion
objecting to order compelling arbitration
and at the hearing held on it, home
builder's attorneys represented that they were
authorized to do so on behalf of all the
defendants; if the homeowners wanted to
5
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
question home builder's attorneys' authority
to speak for the warranty companies, they
should have done so by sworn motion.
1 Cases that cite this headnote
Attorneys and Law Firms
*584 Geoffrey H. Bracken, Gardere Wynne Sewell,
L.L.P., Houston, TX, Stacy R. Obenhaus, Gardere
Wynne Sewell LLP, Dallas, TX, Kent Hance, Hance
Scarborough Wright Woodward & Weisbart LLP,
Austin, TX, Gary W. Javore, Johnson Cristopher Javore
& Cochran, Inc., San Antonio, TX, for Petitioners.
Thomas M. Michel, Griffith, Jay, & Michel LLP, Fort
Worth, TX, Evan (Van) Lane Shaw, Law Offices of Van
Shaw, Dallas, TX, for Respondent.
M. Scott Norman Jr., Texas Association of Builders,
Austin, TX, for Amicus Curiae.
Opinion
Justice BRISTER delivered the opinion of the Court,
in which Justice HECHT, Justice O'NEILL, Justice
WAINWRIGHT, and Justice MEDINA joined, and
in which Chief Justice JEFFERSON, Justice GREEN,
Justice JOHNSON, and Justice WILLETT joined as to
parts I–V.
[1] [2] Since 1846, Texas law has provided that parties discovery from all of the Defendants.
to a dispute may choose to arbitrate rather than litigate. 1
But that choice cannot be abused; a party cannot
substantially invoke the litigation process and then switch was set for trial, the Culls changed their minds about
2
to arbitration on the eve of trial. There is a strong
presumption against waiver of arbitration, 3 but it is not
irrebuttable and was plainly rebutted here. The Plaintiffs
vigorously opposed (indeed spurned) arbitration in their
pleadings and in open court; then they requested hundreds
of items of merits-based information and conducted
months of discovery under the rules of court; finally
only four days before the trial setting they changed their
minds and decided they would prefer to arbitrate after
all. Having gotten what they wanted from the litigation
process, they could not switch to arbitration at the last
minute like this.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
The Plaintiffs argue—and we agree—that sending them
back to the trial court not only deprives them of a
substantial award but also wastes the time and money
spent in arbitration. But they knew of this risk when
they requested arbitration at the last minute because all
of the Defendants objected. Accordingly, we vacate the
arbitration award and remand the case to the trial court
for a prompt trial.
I. Background
In 1996, Robert and Jane Cull bought a house
from Perry Homes for $233,730. They also bought a
warranty from Home Owners Multiple Equity, Inc.
and Warranty Underwriters Insurance Company. The
warranty agreement included a broad arbitration clause
providing that all disputes the Culls might have against
Perry Homes or the warranty companies were subject to
the Federal Arbitration Act, and would be submitted to
the American Arbitration *585 Association (AAA) or
another arbitrator agreed upon by the parties. 4
Over the next several years, the home suffered serious
structural and drainage problems. According to the Culls,
the Defendants spent more effort shifting blame than
repairing the home. When the Culls sued in October
2000, the warranty companies (but not Perry Homes)
immediately requested arbitration; the Culls vigorously
opposed it, and no one ever pressed for a ruling. At the
same time, the Culls' attorneys began seeking extensive
After most of the discovery was completed and the case
litigating. Instead they asked the trial court to compel
arbitration under precisely the same clause and conditions
to which they had originally objected. The trial judge
expressed reservations, saying:
I really have a problem with people
who have competent counsel who
wait 14 months and after all this
much effort in the courthouse has
taken place, to come in and say
that they have not waived that
arbitration. That arbitration clause
was there when the lawsuit was filed.
6
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
Nevertheless, the trial court ordered arbitration because
the Defendants had not shown any prejudice from
litigation conduct:
[A]ll I have heard from [defense
counsel] insofar as what is the
prejudice suffered by people you
represent is that they have
participated in litigation activities
that may or may not have been
required by the arbitrator. So
without anything further, I am going
to grant the motion to abate the case
for arbitration.
The order was signed December 6, 2001, four days before
the case was set for trial. The Defendants filed petitions
for mandamus in the court of appeals and this Court, both
of which were denied without opinion within a few days. 5
After a year in arbitration, on December 24,
2002, the arbitrator awarded the Culls $800,000,
including restitution of the purchase price of their
home ($242,759), mental anguish ($200,000), exemplary
damages ($200,000), and attorney's fees ($110,000). The
Defendants moved to vacate the award, again arguing
(among other things) that the case should never have been
sent to arbitration after so much activity in court. The trial
court overruled the objection, confirmed the award, and
added post-judgment interest duplicating that already in
the award; the court of appeals affirmed after deleting the
duplicative interest. 6 We granted the Defendants' petition
to consider whether the arbitration award should be set
aside because the Culls waived their right to arbitration.
II. When Should Orders Compelling
Arbitration Be Reviewed?
[3] [4] At the outset, the Culls assert it is too late
to review the trial court's order referring this case
to arbitration. First, they argue the pre-arbitration
mandamus proceedings establish the law of the case
*586 and preclude the Defendants from raising the
same arguments now. We recently rejected this argument,
holding that as mandamus is a discretionary writ, “its
denial, without comment on the merits, cannot deprive
another appellate court from considering the matter in a
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
subsequent appeal.” 7 Mandamus is only available when a
final appeal would be inadequate; 8 if filing for mandamus
precluded a final appeal, that requirement would be self-
fulfilling. Because the earlier proceedings here were denied
without comment on the merits, they do not foreclose our
review.
[5] [6] Second, the Culls argue that an order compelling
arbitration can only be reviewed before arbitration occurs.
The Culls address none of the cases in which this Court
and the United States Supreme Court have reviewed such
orders after arbitration. 9 Nor do they address the general
rule that parties waive nothing by foregoing interlocutory
review and awaiting a final judgment to appeal. 10
[7] But most important, the Culls do not address
section 16 of the Federal Arbitration Act, which expressly
prohibits pre-arbitration appeals:
Except as otherwise provided in
section 1292(b) of title 28 [providing
for certified questions to federal
circuit courts], an appeal may not
be taken from an interlocutory
order ... directing arbitration to
proceed under section 4 of this title
[providing for orders compelling
arbitration].... 11
This ban on interlocutory appeals of orders compelling
arbitration was added by Congress in 1988 to prevent
arbitration from bogging down in preliminary appeals. 12
We have held that routine mandamus review of such
orders in state court would frustrate this federal law. 13
*587 [8] The Culls assert that post-arbitration review is
unavailable because an arbitration award can be vacated
only for statutory grounds like corruption, fraud, or
evident partiality. 14 But reviewing the trial court's initial
referral to arbitration is not the same as reviewing the
arbitrator's final award; as the United States Supreme
Court has held, courts conduct ordinary review of the
former and deferential review only of the latter. 15
We agree that post-arbitration review of referral may
create (as the Culls allege) a “huge waste of the
parties' resources.” But if review is available before
7
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
arbitration, parties may also waste resources appealing
every referral when a quick arbitration might settle the
matter. Frequent pre-arbitration review would inevitably
frustrate Congress's intent “to move the parties to an
arbitrable dispute out of court and into arbitration as
quickly and easily as possible.” 16 We recognize the
potential for waste, but that is a risk a party must take
if it moves for arbitration after substantially invoking the
litigation process.
III. Do Courts or Arbitrators Decide Waiver?
[9] The Culls also assert that waiver of arbitration by
litigation conduct is an issue to be decided by arbitrators
rather than courts. To the contrary, this Court and the
federal courts have held it is a question of law for the
court. 17 Rather than referring such claims to arbitrators,
we have decided them ourselves at least eight times, 18 as
does every federal circuit court. 19
*588 The Culls argue this was all changed in 2002 by
Howsam v. Dean Witter Reynolds, in which the United
States Supreme Court said the “presumption is that the
arbitrator should decide ‘allegation[s] of waiver, delay, or
a like defense to arbitrability.’ ” 20 For several reasons,
we disagree that this single sentence changed the federal
arbitration landscape.
First, “waiver” and “delay” are broad terms used in
many different contexts. Howsam involved the National
Association of Securities Dealers' six-year limitations
period for arbitration claims, not waiver by litigation
conduct; indeed, it does not appear the United States
Supreme Court has ever addressed the latter kind of
waiver. Although the federal courts do not defer to
arbitrators when waiver is a question of litigation conduct,
they consistently do so when waiver concerns limitations
21
periods or waiver of particular claims or defenses. As
22
Howsam involved the latter rather than the former, its
reference to waiver must be read in that context.
Second, the Howsam court specifically stated that “parties
to an arbitration contract would normally expect a
forum-based decisionmaker to decide forum-specific
procedural gateway matters.” 23 Thus, the NASD's six-
year limitations rule in that case was a gateway matter
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
for the NASD arbitrator because “the NASD arbitrators,
comparatively more expert about the meaning of their
own rule, are comparatively better able to interpret and to
apply it.” 24 By contrast, when waiver turns on conduct in
court, the court is obviously in a better position to decide
whether it amounts to waiver. 25 “Contracting parties
would expect the court to decide whether one party's
conduct before the court waived the right to arbitrate.” 26
*589 Third, as the Howsam Court itself stated, parties
generally intend arbitrators to decide matters that “grow
out of the dispute and bear on its final disposition,” while
they intend courts to decide gateway matters regarding
“whether the parties have submitted a particular dispute
to arbitration.” 27 Waiver of a substantive claim or
delay beyond a limitations deadline could affect final
disposition, but waiver by litigation conduct affects only
the gateway matter of where the case is tried. 28
[10] Finally, arbitrators generally must decide defenses
that apply to the whole contract, while courts decide
defenses relating solely to the arbitration clause. 29 Thus,
for example, arbitrators must decide if an entire contract
was fraudulently induced, while courts must decide if an
arbitration clause was. 30 As waiver by litigation conduct
goes solely to the arbitration clause rather than the whole
contract, consistency suggests it is an issue for the courts.
Every federal circuit court that has addressed this issue
since Howsam has continued to hold that substantial
invocation of the litigation process is a question for
the court rather than the arbitrator—including the
First, 31 Third, 32 Fifth, 33 and Eighth Circuits. 34 Legal
commentators appear to agree. 35 So do we.
IV. When Is the Litigation Process Substantially Invoked?
We have said on many occasions that a party waives
an arbitration clause by substantially *590 invoking
the judicial process to the other party's detriment or
prejudice. 36 Due to the strong presumption against
waiver of arbitration, this hurdle is a high one. 37 To date,
we have never found such a waiver, holding in a series of
cases that parties did not waive arbitration by:
8
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
• filing suit; 38
39
• moving to dismiss a claim for lack of standing;
• moving to set aside a default judgment and requesting
40
a new trial;
• opposing a trial setting and seeking to move the
litigation to federal court; 41
• moving to strike an intervention and opposing
42
discovery;
• sending 18 interrogatories and 19 requests for
production; 43
• requesting an initial round of discovery, noticing (but
not taking) a single deposition, and agreeing to a trial
resetting; 44 or
• seeking initial discovery, taking four depositions, and
moving for dismissal based on standing. 45
These cases well illustrate the kind of conduct that falls
short. But because none amounted to a waiver, they are
less instructive about what conduct suffices. We have
stated that “allowing a party to conduct full discovery, file
motions going to the merits, and seek arbitration only on
the eve of trial” would be sufficient. 46 But what if (as in
this case) only two out of these three are met? And how
much is “full discovery”?
We begin by looking to the standards imposed by
the federal courts. They decide questions of waiver by
applying a totality-of-the-circumstances test on a case-by-
case basis. 47 In doing so, they *591 consider a wide
variety of factors including:
• whether the movant was plaintiff (who chose to file in
court) or defendant (who merely responded); 48
• how long the movant delayed before seeking
arbitration; 49
• whether the movant knew of the arbitration clause all
along; 50
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
• how much pretrial activity related to the merits rather
than arbitrability or jurisdiction; 51
• how much time and expense has been incurred in
litigation; 52
• whether the movant sought or opposed arbitration
earlier in the case; 53
• whether the movant filed affirmative claims or
dispositive motions; 54
• what discovery would be unavailable in arbitration; 55
• whether activity in court would be duplicated in
arbitration; 56 and
• when the case was to be tried. 57
Of course, all these factors are rarely presented in a single
case. Federal courts have found waiver based on a few, or
even a single one. 58
[11] We agree waiver must be decided on a case-by-
case basis, and that courts should look to the totality of
the circumstances. Like the federal courts, this Court has
considered factors such as:
• when the movant knew of the arbitration clause; 59
*592 • how much discovery has been conducted; 60
• who initiated it; 61
• whether it related to the merits rather than arbitrability
or standing; 62
• how much of it would be useful in arbitration; 63 and
• whether the movant sought judgment on the merits. 64
[12] [13] Thus, we disagree with the court of appeals that
waiver is ruled out in this case solely because the Culls “did
not ask the court to make any judicial decisions on the
merits of their case.” 65 While this is surely a factor, 66 it is
not the only one. Waiver involves substantial invocation
of the judicial process, not just judgment on the merits.
9
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
[14] [15] We also disagree with the Defendants although that conduct must be unequivocal. 77 And in
that different standards should apply to plaintiffs and
defendants. As parties may begin arbitration without a
court order, it is certainly relevant that a plaintiff chose
to file suit instead. But Texas procedure also contemplates
that parties may file suit in order to compel arbitration. 67
Thus, while the movant's status is a factor to consider, it
does not alone justify a finding of waiver or change the
basic nature of the totality-of-the-circumstances test. 68
[16] We recognize, as we have noted before, “the
difficulty of uniformly applying a test based on nothing
more than the totality of the circumstances.” 69 But
there appears to be no better test for “substantial
invocation.” 70 As the United States Supreme Court
has said about minimum contacts, tests based on
“reasonableness” are never susceptible to mechanical
application—“few answers will be written in black and
white [;] [t]he greys are dominant *593 and even
among them the shades are innumerable.” 71 How much
litigation conduct will be “substantial” depends very much
on the context; three or four depositions may be all the
discovery needed in one case, 72 but purely preliminary in
another. 73
[17] [18] Moreover, this test is quite similar to
one we have long recognized and recently applied to
arbitration—estoppel. Estoppel is a defensive theory
barring parties from asserting a claim or defense when
their representations have induced “action or forbearance
of a definite and substantial character” and “injustice
74
can be avoided only by enforcement.” In arbitration
cases, we have held a nonparty who enjoys substantial
direct benefits from a contract may be estopped from
denying an arbitration clause in the same contract. 75 By
the same token, a party who enjoys substantial direct
benefits by gaining an advantage in the pretrial litigation
process should be barred from turning around and seeking
arbitration with the spoils.
[19] [20] [21] The answer to most questions regarding
arbitration “flow inexorably from the fact that arbitration
is simply a matter of contract between the parties.” 76
Like any other contract right, arbitration can be waived
if the parties agree instead to resolve a dispute in court.
Such waiver can be implied from a party's conduct,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
close cases, the “strong presumption against waiver”
should govern. 78
V. Is a Showing of Prejudice Required?
Although convinced that the Culls had substantially
invoked the litigation process, the trial court compelled
arbitration because the Defendants did not prove an
arbitrator would not have allowed the same discovery.
“Even substantially invoking the judicial process does not
waive a party's arbitration rights unless the opposing party
proves that it suffered prejudice as a result.” 79 On at
least eight occasions, we have said prejudice is a necessary
requirement of waiver by litigation *594 conduct. 80
[22] The Defendants ask us to reconsider this
requirement. They point out that Texas law does not
require a showing of prejudice for waiver, but only an
intentional relinquishment of a known right. 81 Waiver “is
essentially unilateral in its character” and “no act of the
party in whose favor it is made is necessary to complete
it.” 82 Thus, they argue we cannot impose a waiver rule for
arbitration contracts that does not apply to all others. 83
We decline the Defendants' invitation based on both
federal and state law. The Defendants say the federal
courts are split on the issue, but the split is not very wide.
Of the twelve regional circuit courts, ten require a showing
of prejudice, 84 and the other two treat it as a factor
to consider. 85 We have noted before the importance of
keeping federal and state arbitration law consistent. 86
*595 [23] Under Texas law, waiver may not include
a prejudice requirement, but estoppel does. In cases of
waiver by litigation conduct, the precise question is not so
much when waiver occurs as when a party can no longer
take it back. As noted above, Texas estoppel law does
not allow a party to withdraw a representation once the
other party takes “action or forbearance of a definite and
substantial character.” 87 Using precisely the same terms,
the Restatement does not allow a party to withdraw an
option contract when the offeree has taken substantial
action based upon it. 88 In these contexts, prejudice is an
element of the normal contract rules.
10
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
[24] Thus, we agree with the courts below that waiver of
arbitration requires a showing of prejudice.
VI. Was Arbitration Waived Here?
A. Did the Culls Waive Arbitration?
It remains only to apply these rules to this case.
[25] Unquestionably, the Culls substantially invoked
the litigation process, as their conduct here far exceeds
anything we have reviewed before. Before arbitration was
ordered, the Culls did not deny taking ten depositions,
and the court's file (of which the trial judge took judicial
notice) included:
• their initial objection to arbitration covering 79 pages;
• the Defendants' responses to requests for disclosure;
• the Culls' five motions to compel, attached to
which were 76 requests for production of documents
regarding complaints, inspections, repairs, and
settlements relating to eight other homes in the same
subdivision;
• Perry Homes' two motions for protective orders
regarding six designees noticed for deposition by
the Culls on nine issues (including purchase and
preparation of the lot, design and construction of
the foundation, sale of this home and others in the
subdivision, and attempts to deal with the Culls' and
other foundation complaints), with an attachment
requesting 67 categories of documents (including all
photos, videos, correspondence, insurance policies,
plans, soil tests, permits, subcontractors, contracts
for sale, and repairs relating to the house or the suit,
all complaints about any house in the subdivision,
and Perry Homes' articles of incorporation, by-laws,
minutes, and financials); and
• the Culls' notices of depositions for three of the
Defendants' experts with 24 categories of documents
requested from each (including all documents
relating to this case, all their articles, *596
publications, or speeches given in their fields of
expertise, all courses or seminars they had attended,
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
all persons they had studied under, and all reference
books or treatises in their libraries).
There is simply no question on this record that the Culls
conducted extensive discovery about every aspect of the
merits. 89
[26] But under the totality-of-the-circumstances test,
discovery is not the only measure of waiver. Here,
when the warranty defendants initially moved to compel
arbitration, the Culls filed a 79–page response opposing
it, asserting that the AAA “is incompetent, is biased, and
fails to provide fair and appropriate arbitration panels.”
They complained of the AAA's fees, and asserted that as a
result the “purported arbitration clause is unconscionable
and unenforceable, and this Court's enforcement of such
would be nothing short of ridiculous and absurd.” This,
plus their prayer asking the trial court to deny the motion
to compel arbitration “in its entirety,” belies the court of
appeals' conclusion that “the Culls merely opposed the
use of the AAA” rather than arbitration itself. 90 In some
federal courts, the Culls' objection alone could suffice to
waive arbitration. 91
[27] The Culls also moved for arbitration very late in
the trial process. It is true that Perry Homes moved
to continue the trial setting when the Culls sought
arbitration, requesting about ten weeks to finish deposing
experts. Because the trial court ordered arbitration, no
one knows whether the case would have gone to trial
(including the unnamed court clerk cited by the dissent).
But in view of the written discovery and depositions
already completed, the record is nevertheless clear that
most of the discovery in the case had already been
completed before the Culls requested arbitration. 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 that is implicated here. 92
Then 14 months after filing suit and shortly before the
December 2001 trial setting, the Culls changed their minds
and requested arbitration. They justified their change of
heart on the basis that they wanted to avoid the delays
of an appeal. But their change unquestionably delayed
adjudication of the merits; instead of a trial beginning in a
few days or weeks, the plenary arbitration hearing did not
begin until late September of 2002—almost ten months
after the Culls abandoned their trial setting. Moreover,
to the extent arbitration reduces delay, it does so by
11
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
severely limiting both pretrial discovery and post-trial
review. Having enjoyed the benefits of extensive discovery
for 14 *597 months, the Culls could not decide only then
that they were in a hurry.
[28] [29] [30] It is also unquestionably true that this
conduct prejudiced the Defendants. “Prejudice” has many
meanings, but in the context of waiver under the FAA it
relates to inherent unfairness—that is, a party's attempt
to have it both ways by switching between litigation and
arbitration to its own advantage:
[F]or purposes of a waiver of an
arbitration agreement[,] 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. 93
Thus, “a party should not be allowed purposefully and
unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over the
opposing party.” 94
Here, the record before the trial court showed that the
Culls objected to arbitration initially, and then insisted
on it after the Defendants acquiesced in litigation. They
got extensive discovery under one set of rules and then
sought to arbitrate the case under another. They delayed
disposition by switching to arbitration when trial was
imminent and arbitration was not. They got the court to
order discovery for them and then limited their opponents'
rights to appellate review. Such manipulation of litigation
for one party's advantage and another's detriment is
precisely the kind of inherent unfairness that constitutes
prejudice under federal and state law.
B. A Response to the Dissents
Although we have repeatedly said arbitration agreements
can be waived, today's dissents would effectively hold they
cannot. That would favor arbitration too much; because
most agreements can be waived by the parties' conduct, 95
arbitration contracts should not be more enforceable than
other contracts. That is not what Congress intended when
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
it enacted the FAA. 96 Indeed, one dissent cannot even
bring itself to say the Culls substantially invoked the
litigation process. If the litigation conduct here is not
enough, it is hard to imagine what would be.
[31] [32] The dissents make several mistakes in their
analyses. First, they misconstrue the standard of review.
Every *598 abuse-of-discretion review is not identical
because “a trial judge's discretion may be applied to
scores of situations and in many different ways.” 97
Reviewing a declaratory judgment fee award (where trial
judges have broad discretion) 98 is not the same as
reviewing admission of hearsay (where trial judges follow
detailed rules), 99 even though an abuse-of-discretion
standard applies to both. 100 Moreover, a totality-of-
the-circumstances test presumes a multitude of potential
factors and a balancing of evidence on either side;
if appellate courts must affirm every time there is
some factor that was not negated or some evidence on
either side, then no ruling based on the totality-of-the-
circumstances could ever be reversed. That standard of
review would be the same as no review at all. By applying
such a standard, both dissents would allow trial judges to
send any case to arbitration no matter what has occurred
in court.
[33] [34] Under a proper abuse-of-discretion review,
waiver is a question of law for the court, 101 and we do
not defer to the trial court on questions of law. 102 We do
defer to a trial court's factual findings if they are supported
by evidence, 103 but there was no factual dispute here
regarding whether the Culls initially opposed arbitration,
whether they conducted extensive merits discovery, or
whether they sought arbitration late in the litigation
process. This leaves only the conclusion whether such
conduct constitutes prejudice, a legal question we cannot
simply abandon to the trial court. 104
*599 [35] Second, the dissents define prejudice in a
way that makes it impossible to prove. While recognizing
that “waiver” has a special definition in the arbitration
context, the dissents overlook that “prejudice” does too.
Instead of the inherent-unfairness standard used by the
federal courts, 105 they impose what appears to be an
irretrievable-loss standard. One dissent would go so far
as to hold that no amount of discovery, no matter how
extensive, can show prejudice if the fees incurred might
12
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
be compensated in the final arbitration award, even if
erroneously. 106
No one could ever show prejudice under
this standard, because even if a contract allowed no
reimbursement of discovery costs (as in this case), 107 it
is always hypothetically possible that a rogue arbitrator
might reimburse costs regardless. The same dissent would
find no prejudice from extensive discovery without proof
that an arbitrator would have prohibited it. That again is
impossible; arbitrators have almost unbridled discretion
regarding discovery, so no one can predict what they
might do in advance. Presuming (as the dissents do)
that broad discovery is generally available in arbitration
simply ignores one of its most distinctive features. 108
[36] [37] Third, both dissents quibble with the
Defendants' proof of prejudice because it was
insufficiently detailed. 109 This confuses proof of the fact
of prejudice with proof of its extent; the Defendants had
to show substantial invocation that prejudiced them, not
precisely how much it all was. Referral to arbitration
should be decided summarily with the evidence limited to
disputed facts; 110 as the Culls did not dispute that the
parties had conducted more than a dozen depositions and
other extensive discovery on the merits, requiring proof
of each one would have merely made the referral hearing
longer and more *600 expensive. The pre-arbitration
record proved that discovery was extensive; the evidence
demanded by the dissents would have merely showed how
much it cost.
[38] [39] Finally, the dissents' focus on discovery depositions (rather than 15); they had also exchanged
ignores all the other circumstances that the totality-of- standard requests for disclosure and one request for
the-circumstances test requires us to consider. Because
we must consider all the circumstances, the amount of
discovery needed to show prejudice will vary depending on discovery related to the merits (as the extensive discovery
what the other circumstances are. As the Fifth Circuit has here clearly did). 114 And while the party opposing
held, prejudice should be easier to show against a party
that initially opposed arbitration than against one who
sought it from the start:
While the mere failure to assert the
right to demand arbitration does
not alone translate into a waiver of
that right, such failure does bear on
the question of prejudice, and may,
along with other considerations,
require a court to conclude that
waiver has occurred. The failure
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
to demand arbitration affects the
burden placed upon the party
opposing waiver. When a timely
demand for arbitration was made,
the burden of proving waiver falls
even more heavily on the shoulders
of the party seeking to prove
waiver. A demand for arbitration
puts a party on notice that
arbitration may be forthcoming, and
therefore, affords that party the
opportunity to avoid compromising
its position with respect to
arbitrable and nonarbitrable claims.
In contrast, where a party fails
to demand arbitration ... and in
the meantime engages in pretrial
activity inconsistent with an intent
to arbitrate, the party later opposing
a motion to compel arbitration
may more easily show that its
position has been compromised, i.e.,
prejudiced. 111
[40] It is these other circumstances that make this
case different from In re Vesta. 112 The parties seeking
arbitration in Vesta had not opposed arbitration from the
outset and then invoked it after getting all the discovery
they wanted. 113 Nor was the Vesta case close to trial, as
was the case here. The parties in Vesta had taken four
production, but only one of those documents was in the
record so there was no evidence whether this limited
arbitration in Vesta allegedly incurred more than $200,000
in expenses, most of that was incurred in getting discovery
rather than providing it; 115 a party who requests lots of
discovery is not prejudiced by getting it and taking it to
arbitration in the same way that a party who produces
lots of discovery outside the stricter discovery limits in
arbitration. 116
Applying the proper standard of review and the proper
definition of prejudice, we disagree with the dissents that
the Defendants have failed to show prejudice here.
13
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
*601 C. Did the Warranty
Companies Waive Arbitration?
[41] Finally, the Culls argue the warranty companies
cannot object to arbitration for two reasons.
First, the warranty companies originally requested
arbitration (which the Culls opposed), so it could be
argued that it is unfair to hold the Culls to their original
position without holding the warranty companies to
theirs. Of course, we cannot hold both parties to their
original positions as those positions were contradictory.
More important, while the parties' original demands
are relevant factors, the test is the totality of the
circumstances. Looking to all the circumstances, it is
quite clear from the parties' extensive co-participation in
months of discovery that everyone waived their right to
arbitration—whether they asserted that right early (as did
the warranty companies) or late (as did the Culls).
[42] Second, the Culls argue that the only objection to
the trial court's order compelling arbitration was filed
by Perry Homes, not the warranty companies. It is true
that only Perry Homes' attorneys signed the motion,
but in that motion and at the hearing held on it they
represented that they were authorized to do so on behalf
of all the Defendants. If the Culls wanted to question
their authority to speak for the warranty companies, they
should have done so by sworn motion. 117
***
Accordingly, we reverse the court of appeals' judgment,
vacate the arbitration award, and remand this case to the
trial court for a prompt trial.
Justice O'NEILL filed a concurring opinion.
Justice JOHNSON filed an opinion concurring in part and
dissenting in part, in which Chief Justice JEFFERSON
and Justice GREEN joined.
Justice WILLETT filed an opinion concurring in part and
dissenting in part.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Justice O'NEILL, concurring.
Most members of the Court agree that the Culls
substantially invoked the litigation process before
requesting arbitration; the point of disagreement is
whether Perry Homes adequately proved it suffered
prejudice as a result. I join the Court's opinion, but
write separately to note that I believe the proof required
to demonstrate prejudice in any given case should be
measured by the degree to which the litigation process has
been invoked. In some circumstances, a party's invocation
of the judicial process may be so substantial that a court
could presume the party resisting arbitration has been
prejudiced and the right to arbitration has been waived.
In my view, such a presumption may easily be drawn on
this record.
Justice JOHNSON, joined by Chief Justice JEFFERSON
and Justice GREEN, concurring in part and dissenting in
part.
I disagree that the trial court abused its discretion in
compelling arbitration. I concur with the disposition of
part VI–C. I dissent from parts VI–A and VI–B of the
Court's opinion and dissent from its judgment.
The parties agree that their arbitration agreement covers
the dispute and that the Federal Arbitration Act (FAA)
applies. Thus, whether the Culls waived the right to
arbitrate is a question of law. *602 In re Oakwood Mobile
Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); In re Bruce
Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998). The
Court has said previously, and says again today, that
prejudice is a required element of waiver of the right to
arbitrate cases subject to the FAA. 258 S.W.3d at 595; see
In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007). The
party asserting waiver has the burden to prove prejudice.
See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753–
54 (Tex.2001) (noting that if an agreement to arbitrate
exists and the party opposing arbitration fails to prove
its defenses, then a trial court has no discretion and its
only option is to compel arbitration); In re Bruce Terminix
Co., 988 S.W.2d at 704 (“Even substantially invoking
the judicial process does not waive a party's arbitration
rights unless the opposing party proves that it suffered
prejudice as a result.”). In the context of the issue before
us, prejudice means detriment. See In re Bank One, 216
S.W.3d at 827 (“A party waives an arbitration clause
14
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
when it substantially invokes the judicial process to the
other party's detriment.”). We review a trial court's order
compelling arbitration for an abuse of discretion. See In
re Bruce Terminix Co., 988 S.W.2d at 705. That standard
is in accord with the general practice of reviewing a
trial court's actions for an abuse of discretion when a
trial court has discretion to grant or deny relief based
on its factual determinations. See Bocquet v. Herring,
972 S.W.2d 19, 20–21 (Tex.1998) (noting that the abuse
of discretion standard of review as to a trial court's
factual determinations applies when a trial court has
discretion either to grant or deny relief based on its factual
determinations). The test for abuse of discretion is not
whether, in the opinion of the reviewing court, the trial
court's ruling was proper, but whether the trial court
acted without reference to guiding rules and principles.
See Cire v. Cummings, 134 S.W.3d 835, 838–39 (Tex.2004).
The trial court's ruling should be reversed only if it was
arbitrary or unreasonable. Id. at 839. Generally, if there
is any evidence to support the trial court's ruling then the
court did not abuse its discretion. See In re BP Prods. N.
Am., Inc., 244 S.W.3d 840, 848 (Tex.2008) (citing Butnaru
v. Ford Motor Co., 84 S.W.3d 198, 211 (Tex.2002)). That
is because it is only when the evidence is such that the
trial court could have made but one decision, yet made
another, that we say the trial court abused its discretion.
Id. Our decisions affording deference to trial court rulings
when evidence supports those rulings comport with the
standard of review utilized by the United States Fifth
Circuit Court of Appeals in regard to whether a party
has suffered prejudice for purposes of waiving arbitration
rights subject to the FAA. The Fifth Circuit's position
is that trial court findings on which the legal conclusion
of waiver is based are predicate questions of fact “which
may not be overturned unless clearly erroneous.” Price v.
Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th
Cir.1986); see also Republic Ins. Co. v. Paico Receivables,
LLC, 383 F.3d 341, 347 (5th Cir.2004) (“[T]he district
court's finding that PRLLC would suffer prejudice if
arbitration was compelled is not clearly erroneous.”).
The waiver issue in this matter is not determined by
general waiver elements, but by waiver as that term
is used in regard to avoiding arbitration agreements
subject to the FAA. Generally, “waiver” is the intentional
relinquishment of a right actually or constructively
known, or intentional conduct inconsistent with claiming
that right. See Jernigan v. Langley, 111 S.W.3d 153,
156 (Tex.2003). The elements of waiver include (1) an
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
existing right, benefit, or advantage held by a party; (2)
the party's actual or constructive knowledge *603 of its
existence; and (3) the party's actual intent to relinquish the
right or intentional conduct inconsistent with the right.
See Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640,
643 (Tex.1996). The Culls' actions and their attorneys'
statements in court, taken as a whole, present compelling
evidence of those elements.
Waiver as that term is used in regard to arbitration
agreements subject to the FAA, however, requires more
than is required for general waiver—it requires proof that
the party asserting waiver as a defense to arbitration has
suffered detriment. 258 S.W.3d at 589–90; In re Bank
One, 216 S.W.3d at 827. So, when the Culls finally moved
to compel arbitration and proved applicability of an
arbitration agreement, Defendants unquestionably had
the burden to raise and prove their defense of waiver,
including prejudice, if they wanted to avoid arbitration. In
re Bruce Terminix Co., 988 S.W.2d at 704.
Defendants recognized that to avoid arbitration they
had to prove a defense to the arbitration agreement. As
part of their response to the Culls' motion to compel
arbitration, Defendants pled that (1) after suit was filed,
all parties conducted written and oral discovery, (2) the
Culls filed several motions and obtained two hearings and
court rulings on discovery-related issues, and (3) a trial
setting was imminent. Defendants conceded applicability
of the arbitration clause, then cited authorities for and
took the position that “Plaintiffs have waived arbitration
because they substantially invoked the judicial process to
the detriment of Defendants.” Subsequently, Defendants
more clearly detailed the detriment they were claiming:
In this case, the costs incurred
by Defendants in responding to the
motions to compel filed by Plaintiffs
would not have been incurred during
the course of arbitration. Similarly,
defendants are prejudiced by the
fact that it [sic] was required to
comply with the Court's orders
on such motions to compel, when
such means and methods would not
have been available in arbitration.
Because of Plaintiffs' delay in
seeking arbitration, coupled with
the resulting prejudice by Defendants
being required to respond to multiple
15
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
discovery motions and comply with
orders thereon, Plaintiffs cannot
now rely on the Limited Warranty
Agreement to compel arbitration.
(Emphasis added). A second part of Defendants' response
was a motion for continuance of trial to complete
discovery.
At the hearing on the Culls' motion to compel arbitration,
the trial judge, who noted at the end of the hearing
that “I just finished [an arbitration] with the American
Arbitration Association,” admitted all the evidence
offered, and took judicial notice of the court file as
requested by Defendants. After evidence was introduced
at the hearing, Defendants again argued that there were
two factors involved: “whether or not the parties have
acted inconsistently with the agreement to arbitrate and
then whether those actions and the actions that were taken
actually worked to the detriment or prejudice of the party
that's opposing transference to arbitration.”
During the hearing, the trial judge expressed considerable
concern over the Culls' conduct. He discussed the Culls'
testimony that they had knowledge of the arbitration
clause before suit was filed, the extended time for
which the case had been filed, and the impending trial
setting. He also discussed the arbitration provision itself, 1
its mandatory nature, and pressed *604 the Culls'
attorney about the reason for the delay in requesting
arbitration. Finally, he asked about a provision in
the arbitration provision that provided “if any party
commences litigation in violation of this Agreement, such
party shall reimburse the other parties to the litigation for
their costs and expenses including attorney's fees incurred
in seeking dismissal of such litigation.” The Culls' attorney
acknowledged the provision and asserted that it would be
up to the arbitrator to determine whether the Culls would
be responsible for such fees and costs of Defendants.
Defendants did not dispute the Culls' position. Then,
agreeing with the assertions of the parties, the trial
judge did not address whether the judicial process had
been substantially invoked; rather, the court concluded
Defendants had not shown the prejudice they claimed and
granted the Culls' motion:
The question is, I think, when it deals with waiver is are
the defendants prejudiced by this delay, and if they are not
prejudiced or if there is not proof of prejudice, then the
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Court has no alternative but to order the case abated for
arbitration purposes.
And, [counsel for Defendants], all I have heard from
you insofar as what is the prejudice suffered by
people you represent is that they have participated
in litigation activities that may or may not have
been required by the arbitrator. So without anything
further, I'm going to grant the motion to abate the
case for arbitration. 2
(Emphasis added).
Perry Homes filed a motion for reconsideration. In their
motion, Perry Homes again asserted that “all parties have
conducted written and oral discovery under the Texas
Rules of Civil Procedure” but did not complain that they
had been denied any discovery. Perry Homes' motion
recapped the prejudice they were claiming:
Defendants have in fact been
prejudiced by Plaintiffs' last-minute
attempt to disclaim their election
to file suit and instead choose
arbitration. In this case, the costs
incurred by Defendants—including
attorneys' fees and man hours
—in attending 16 depositions,
responding to multiple sets of
written discovery and responding
to the motions to compel filed
by Plaintiffs would not have been
incurred during the course of
arbitration. Similarly, Defendants
are prejudiced by the fact that
they were required to comply with
the Court's orders on such motions
to compel, when such means and
methods would not have been
available in arbitration. The amount
of attorney time Perry Homes
has invested in responding to
Plaintiffs' discovery requests and
related motions thus far is 122
attorney hours and 20 paralegal
hours.
*605 (Emphasis added). An affidavit was attached
setting out that the law firm representing Perry Homes
had spent 122 attorney hours and 20 paralegal hours in
responding to the Culls' discovery requests and related
16
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
motions. 3 The hours were not broken down and no dates,
times, or tasks were set out. There was no specification
as to time spent on actions Defendants claimed as
prejudice—responding to motions to compel discovery
and complying with court orders compelling discovery
that would not have been available in arbitration. The
docket sheet reflects that the trial court denied the motion,
but the record contains neither a transcript from the
hearing nor an order ruling on the motion.
The Court agrees that the standard of review applicable
to the trial court's order compelling arbitration is abuse of
discretion, but its holding that the Culls waived their right
to arbitrate misses the mark. In reaching its conclusion,
the Court says the question of prejudice is a matter of law
because all the relevant facts were undisputed. It seems to
me that (1) there was evidence requiring the trial court to
make evidentiary determinations as to prejudice, and (2)
Defendants did not prove that they were prejudiced or that
the Culls obtained an advantage because of the litigation
process.
As to the evidence that the trial court was required to
weigh and make evidentiary determinations on, the record
reveals that Defendants took depositions and engaged in
written discovery, as did the Culls. Yet Defendants did
not claim prejudice due to the Culls somehow reaping
an unfair advantage through discovery. The trial court
could have considered the advantages accruing to all
parties by depositions and bilateral written discovery
and determined that no prejudice was shown because
all parties were more fully prepared to proceed with
dispute resolution by knowing what the testimony of
witnesses would be, and that such knowledge would
shorten arbitration and reduce further costs.
Next, at the time of the hearing on the motion to compel
there was an imminent trial setting. But Defendants did
not claim they had spent time preparing to go to trial at the
December 10 setting and that those hours would be wasted
unless they went to trial immediately. At the December
6 hearing on the motion to compel, the parties agreed
the case would not be ready for trial at the December 10
setting, and the Culls' attorney stated that, according to
the court clerk, the case probably would not be reached
for trial. In any event, a trial setting and actually going
to trial are different matters. Even though Defendants
moved for a continuance and requested the case to be
reset in two months, there is nothing in the record to show
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
when the next setting actually would have been, much less
when the case would have gone to trial if the motion for
continuance had been granted. The Court speculates that
trial would have occurred sooner than arbitration took
place. To the extent a resetting or actual future trial date
should be considered, however, the trial court was in the
best position to determine when any new setting would
have occurred—whether days, weeks, or months in the
future—and to determine the weight to give the setting and
a potential trial date along with the other factors.
*606 Further, the Court discounts evidence of a
contractual provision in the arbitration clause requiring
any party that commenced litigation in violation of the
arbitration clause to reimburse other parties' litigation
expenses and costs. The clause is not a model of clarity as
to exactly what was recoverable:
Inasmuch as this Agreement
provides for mandatory arbitration
of disputes, if any party commences
litigation in violation of this
Agreement, such party shall
reimburse the other parties to
the litigation for their costs and
expenses including attorney's fees
incurred in seeking dismissal of such
litigation.
It was the trial court's goal, just as it is ours, to ascertain
the true intent of the parties to the agreement. See J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003).
The language used in the agreement is the primary
evidence of that intent. See id.; National Union Fire Ins.
Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517,
520 (Tex.1995). If the contract is subject to two or more
reasonable interpretations after applying the pertinent
rules of construction, the contract is ambiguous, creating
a fact issue on the parties' intent. See J.M. Davidson, 128
S.W.3d at 229.
The Court construes the clause as allowing reimbursement
for expenses and attorneys' fees incurred in seeking
dismissal of the lawsuit, but not for expenses and fees
in preparing the suit for trial. However, the clause can
also be read as requiring reimbursement of all litigation
costs and expenses, including but not limited to attorneys'
fees incurred in seeking dismissal of the litigation. And
that, apparently, is how the parties interpreted the
17
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
agreement. The trial court questioned the Culls' attorney
about whether the Culls would be responsible for the
Defendants' attorneys' fees and costs. When the Culls'
attorney replied that it was an issue for the arbitrator,
the Defendants' attorney did not contend otherwise. See
Mathis v. Lockwood, 166 S.W.3d 743, 744–45 (Tex.2005);
Banda v. Garcia, 955 S.W.2d 270 (Tex.1997). The Culls'
attorney's representations and lack of protestation by
Defendants' attorney is the only evidence in the hearing
record about the parties' intent as to the language in
the clause. 4 Under the abuse of discretion standard by
which we review the trial court's order, the reimbursement
clause and the attorneys' respective representations and
silence is part of the entire record which we must consider
in determining whether the trial court followed guiding
rules and principles. See Chrysler Corp. v. Blackmon, 841
S.W.2d 844, 852 (Tex.1992); Walker v. Packer, 827 S.W.2d
833, 839–40 (Tex.1992).
But even if the Court is right and the reimbursement
clause does not allow for *607 recovery of all Defendants'
litigation attorney's fees, an arbitration award would not
be subject to being vacated if an arbitrator interpreted
the clause to allow recovery of all the fees. If arbitrators
simply misinterpret a contractual clause such as the
reimbursement clause, that type of error is not one which
will justify setting aside an award. 5 See Wise v. Wachovia
Securities, LLC, 450 F.3d 265, 269 (7th Cir.2006) (noting
that in reviewing an arbitration award under the FAA,
“the issue for the court is not whether the contract
interpretation is incorrect or even wacky but whether
the arbitrators had failed to interpret the contract at
all”). Under the circumstances, it was proper for the
trial court to weigh, and the record shows it did, the
reimbursement provision and the parties' representations
in deciding that Defendants had not proved they suffered
prejudice. Regardless of the trial court's interpretation
of what costs and expenses would be recoverable under
the reimbursement provision, the mere existence of the
provision and its reimbursement requirement comprise
evidence supporting the decision to order arbitration and
properly leave construction and application of the clause
to the arbitrator.
In sum, there were decisions for the trial court to make
based upon weighing evidence, drawing inferences from it
in light of the parties' contentions, determining what the
evidence and inferences proved, and drawing a conclusion
as to Defendants' claims of prejudice. That situation
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
requires our deferring to the trial court's findings and
order when the standard of review is abuse of discretion.
Despite evidentiary matters the trial court had before
it which warrant our deferring to its implied and
stated findings, the Court sets out factors that
were uncontroverted, then concludes, without ever
saying exactly how, that Plaintiffs were advantaged or
Defendants were prejudiced by the “inherent unfairness”
of it all:
Here, the record before the trial
court showed that the Culls objected
to arbitration initially, and then
insisted on it after the Defendants
acquiesced in litigation. They got
extensive discovery under one set of
rules and then sought to arbitrate
the case under another. They
delayed disposition by switching to
arbitration when trial was imminent
and arbitration was not. They got
the court to order discovery for them
and then limited their opponents'
rights to appellate review. Such
manipulation of litigation for one
party's advantage and another's
detriment is precisely the kind of
inherent unfairness that constitutes
prejudice under federal and state
law.
258 S.W.3d at 597. No one (but the Culls and their
attorneys) could seriously disagree that the Culls' conduct
smacks of inequity. But even disregarding the evidentiary
questions the trial court had to resolve as set out above,
when the record is searched for evidence that Defendants
suffered prejudice as Defendants *608 claimed—by
incurring expenses in discovery proceedings, responding
to discovery motions, and complying with court orders on
discovery when that type of activity would not be available
in arbitration—there is none. Nor is there evidence that
the Culls were unfairly advantaged. The fact of the matter
is that all parties took part in litigation discovery as part
of the process to resolve their dispute. The Court discusses
at length how the facts are undisputed, how ordering the
parties to arbitration resulted in “inherent unfairness”
to Defendants, and that such “inherent unfairness”
equates to prejudice to Defendants, or conversely, unfair
advantage to the Culls. However, the authorities used
18
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
to support the Court's statements do not cut nearly so
broadly as the Court indicates. The cases cited incorporate
elements such as delay, expense, damage to a party's legal
position, or “tactical advantage” by which to measure
prejudice to one party or unfairness to the other party. 258
S.W.3d at 597 n. 94 (citing In re Tyco Int'l Ltd. Sec. Litig.,
422 F.3d 41, 46 n. 5 (1st Cir.2005) (“[A] party should not
be allowed purposefully and unjustifiably to manipulate
the exercise of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.” (emphasis
added))); Doctor's Assocs. v. Distajo, 107 F.3d 126, 134 (2d
Cir.1997) (“[P]rejudice as defined by our cases 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.” (emphasis added)).
The following passage embodies the substance of the
Court's opinion as to prejudice or unfair advantage:
It is also unquestionably true that [the Cull's] conduct
prejudiced the Defendants. “Prejudice” has many
meanings, but in the context of waiver under the FAA it
relates to inherent unfairness—that is, a party's attempt
to have it both ways by switching between litigation and
arbitration to its own advantage:
[F]or purposes of a waiver of an arbitration
agreement[,] 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.
Thus, “a party should not be allowed purposefully and
unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over
the opposing party.”
... Such manipulation of litigation for one party's
advantage and another's detriment is precisely the kind
of inherent unfairness that constitutes prejudice under
federal and state law.
258 S.W.3d at 597 (citations omitted). As noted
previously, the Court does not specify how Defendants
proved, at the hearing on the Culls' motion to compel
arbitration, detriment from delay, damage to Defendants'
legal position or a tactical advantage achieved by the
Culls, which perhaps is just as well because Defendants
did not claim those types of prejudice in the trial
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
court. Defendants claimed prejudice because of discovery
and court hearings that would not have occurred in
arbitration. But contrary to the Court's conclusion that
discovery would have been limited in arbitration, the
broad arbitration clause did not preclude any particular
type or level of discovery. It provided that arbitration
would be conducted according to the arbitrator's rules so
long as they did not conflict with the FAA. Specifically,
and by way of example, Defendants did not claim
prejudice from or prove that (1) delay because of litigation
interfered with *609 their business activities, caused
them loss of evidence, or interfered with their ability to
arbitrate; (2) if an arbitrator had ordered the lawsuit
discovery pursuant to the arbitration clause, the order
would have violated the arbitration clause; (3) had
the litigation discovery been requested in arbitration,
Defendants would have agreed to it and conferences
with the arbitrator would not have been necessary; (4)
the litigation discovery was not useable in arbitration;
(5) Defendants had already begun trial preparations or
taken other litigation related actions that would have
been wasted effort if the case went to arbitration; or (6)
Defendants suffered compromise of their legal position on
the merits of the Culls' claims.
There was not an offer of proof such as by expert
testimony, Defendants themselves, their attorneys or
otherwise, that all, some, or any arbitrators probably
would not have allowed the discovery, that their
agreement or a rule limited discovery in arbitration, or
Defendants wasted any litigation discovery effort. And to
boot, arbitrators do not come free. Disclosure conferences
in arbitration might well have cost more than discovery
hearings in litigation because arbitrators generally charge
for preparing for and attending conferences while trial
judges do not. Nor have Defendants claimed that their
attorneys would not have charged fees for arbitration
discovery activities. So the possibility exists that the
disclosure process in arbitration could have ended up
costing more than litigation discovery.
The Court questions whether broad discovery is generally
available in arbitration, but the parties here do not argue
that it is. What is argued here is that the parties' contract
provided how the arbitration was to be conducted—
through adherence to the arbitrator's rules so long as those
rules do not conflict with the FAA—and that Defendants
did not prove any litigation discovery that would have
been in violation of the contract. The Court says that
19
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
as of the time of the hearing on the Culls' motion to
compel arbitration, what discovery an arbitrator would
allow was purely speculative. But arbitration is not
new; Defendants could have at least attempted to prove
the custom and practice, if any, of arbitrators as to
discovery in arbitration, even though each arbitration
is governed by the particular agreement between the
parties. Even if such evidence might have been ruled
speculative, as the Court concludes it would have been,
the obligation to overcome the burden of proof still lay
with Defendants. See Borg–Warner Corp. v. Flores, 232
S.W.3d 765, 772–74 (Tex.2007) (recognizing difficulties of
proving asbestos claims against individual defendants, yet
requiring plaintiffs to meet that burden).
The Court says that “a party who enjoys substantial
direct benefits by gaining an advantage in the pretrial
litigation process should be barred from turning around
and seeking arbitration with the spoils.” 258 S.W.3d at
593. I agree with that statement. The problem is that the
Court does not apply the statement in its entirety to this
case. The Court assumes, without requiring Defendants to
prove, that the Culls obtained some advantage or caused
detriment to Defendants by both parties having engaged
in discovery activities. It is hard to see how discovery
of facts, witness names, documents, and testimony about
the controversy can prejudice either party. See Jampole
v. Touchy, 673 S.W.2d 569, 573 (Tex.1984) (noting that
discovery is done so disputes may be decided by what the
facts are, not by what facts are concealed). Defendants
neither alleged nor proved that they were prejudiced
because some privileged, proprietary, or confidential
matter had been disclosed. Discovery in both judicial
proceedings and in arbitration facilitates just *610 and
reasonable resolutions of disputes and helps prevent
unjust and unreasonable resolutions because of ambush,
surprise, or concealment of relevant, nonprotected,
nonprivileged evidence which could sway the outcome.
Furthermore, I disagree with the idea that merely making
discovery disclosures is evidence of wasted effort or other
prejudice. Although the extent to which a party engages in
litigation discovery plays a significant part in determining
whether that party substantially engaged the litigation
process, disclosure of relevant, nonprivileged evidence,
names of witnesses, and information makes just and
reasonable dispute resolution more likely regardless of
whether disclosure is strictly voluntary or is made in
judicial discovery proceedings or arbitration proceedings.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Evidence at the hearing on the Culls' motion to compel
arbitration consisted only of testimony by the Culls
and five documents they introduced: the earnest money
contract, the application for warranty, the limited
warranty agreement containing the arbitration provision,
a letter from the warranty company, and a copy of one
of Defendants' original answers. The Culls acknowledged
in their testimony that discovery and depositions had
occurred, but they were unsure of how many depositions
and how much discovery. Defendants requested the trial
court to take judicial notice of “five separate motions
to compel discovery and two separate orders on some,
but not all, of the motions to compel.” The court took
notice of “its file,” which at that time mostly consisted
of copies of pleadings and discovery requests attached
as exhibits to motions. The file contained only one or
two of the documents actually produced in discovery.
There were two orders on the Culls' motions to compel
discovery. The second order referred only to the Kunkel
defendants who were not ordered to arbitration. Because
the Kunkel defendants were not ordered to arbitration,
the trial court could have determined that any orders or
motions relating solely to them should not be considered
in regard to prejudice as to the other Defendants. In short,
the record on which the trial court ruled on December
6 was not extensive, and although it showed what the
Culls requested, practically none of the record was of
what Defendants produced in discovery, which was filed
later when Defendants sought to set aside the arbitration
award. And Defendants did not allege in the trial court
that some or even any of the discovery would not be
useful in arbitration, only that the discovery would not be
available in arbitration.
Last, the Court says that requiring Defendants to file
detailed proof of the discovery would have made the
record more cumbersome and would have entailed more
expense, and that to show prejudice, Defendants only had
to show substantial wasted effort anyway. The Court then
concludes that the record before the trial court at the time
of the hearing showed substantial wasted effort, and thus
detriment, to Defendants. But in In re Vesta Ins. Group,
Inc., 192 S.W.3d 759 (Tex.2006), the Court declined to
determine that waiver of the right to arbitrate occurred
when the party opposing arbitration failed to introduce
any of the discovery documents, present details about
them, or contend that the discovery would not be useful
in arbitration. The record, the Court stated,
20
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819
does not show whether these
requests were limited or extensive,
whether they sought information for
affirmative claims or defensive ones,
or even whether they addressed the
merits or merely the arbitration
issue. Further, [plaintiff] does not
allege that the discovery already
conducted would not be useful in
arbitration; to the contrary, he
concedes *611 it would be useful
whether the case is arbitrated or
tried.
Id. at 763.
Neither party here claimed before arbitration (nor, for
that matter, after arbitration) that the litigation discovery
would not be useful in arbitration. On the other hand, and
as addressed below, Defendants claimed after arbitration
that they suffered prejudice because Plaintiffs' attorney
used the discovery depositions to prepare for arbitration.
In this regard, there are further inferences from the record
that the Court does not credit but that the trial court
could have made when it compelled arbitration: both
parties would use the litigation discovery and depositions
to prepare for arbitration, the discovery would be useful
in arbitration, and neither party was unfairly advantaged
or suffered detriment from the discovery.
In summary, the Court (1) does not limit its review
to Defendants' claims of prejudice made in the trial
court, (2) disregards factors that presented the trial court
with decisions to make based on evidence allowing for
different interpretations and inferences, and (3) assumes
“inherent unfairness” equates to Defendants' prejudice or
the Culls' unfair advantage from litigation conduct and
effectively forgives Defendants' failure to prove detriment
to themselves or advantage to the Culls.
Defendants make other contentions not reached by the
Court, but none of them warrant holding that the trial
court abused its discretion. In their brief to this Court,
Defendants reference rules of the American Arbitration
Association and urge that the AAA Rules of Procedure
provide for limited discovery in that the arbitrator is
limited to directing “(i) the production of documents
and other information, and (ii) the identification of
any witnesses to be called.” Defendants also assert that
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
they were prejudiced because during post-arbitration
proceedings, the Culls' attorney testified that he reviewed
deposition testimony in preparing for the arbitration and
depositions are not generally available in arbitration. 6
First, Defendants did not introduce the AAA rules
into evidence at the hearing or ask the trial court to
take judicial notice of them. Second, to the extent the
arguments encompass discovery depositions, Defendants
did not complain in the trial court that they were
prejudiced by the taking of depositions or that the Culls
planned to use them in arbitration, and the argument
cannot be raised here. See TEX.R.APP. P. 33.1; Mack
Trucks, Inc. v. Tamez, 206 S.W.3d 572, 577 (Tex.2006)
(noting that except for fundamental error, appellate courts
are not authorized to consider issues not properly raised
by the parties). Third, even if the AAA rules had been
before the trial court, there was no evidence that all, most,
or any arbitrators would have refused to require disclosure
of any of the matters disclosed by Defendants. Finally,
Defendants' attorneys had access to the same deposition
testimony to use for arbitration preparation, so there
could not have been an unfair advantage to the Culls by
use of the depositions.
I conclude the record is not conclusive either that
Defendants suffered prejudice as they claimed or that the
Culls obtained an unfair advantage by litigation conduct
as the Court holds. I also conclude that evidence before the
trial court required the court to weigh and draw inferences
from it and that some evidence supports the trial court's
determination that Defendants did not prove prejudice to
themselves *612 or unfair advantage to the Culls by use
of the litigation process. Accordingly, I would hold that
the trial court did not abuse its discretion by compelling
the parties to arbitrate and I would affirm the judgment
of the court of appeals.
Justice WILLETT, concurring in part and dissenting in
part.
Arbitration has become a hot-button topic for the Court
of late—in this Term alone we have decided at least three
arbitration-related cases 1 and heard argument in four
more. 2 As the range of opinions in this case demonstrates,
the invocation and operation of arbitration provisions can
present tricky legal questions that spark honest differences
of opinion. I agree with Parts I–V of the Court's decision,
and also with much of Part VI regarding waiver. However,
I respectfully dissent from the Court's ultimate result, not
21
Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

on an arbitration law issue, but on a much more old-
fashioned ground—the applicable standard of review.
The Court properly acknowledges that a trial court's order
compelling arbitration is reviewed for abuse of discretion.
Under this standard, we will reverse the trial court only
when “it acts in an arbitrary or unreasonable manner,
without reference to any guiding rules or principles.” 3 I
agree with the Court, and the trial judge for that matter,
that the record clearly shows that the Culls substantially
invoked the judicial process. I also agree with the Court
that the cost-reimbursement provision in the arbitration
agreement does not prevent Perry Homes from showing
prejudice resulting from the Culls' arbitration flip-flop.
JUSTICE JOHNSON is comforted by the possibility that
an arbitrator might (mis)construe this provision to award
Perry Homes all its litigation-related costs and fees, but
I am not. The provision limits reimbursement to “costs
and expenses including attorney's fees incurred in seeking
dismissal of such litigation,” and we cannot plausibly say
Perry Homes fails on prejudice because an arbitrator may
misread the agreement.
arbitration. I believe in waiver-by-conduct, but Perry
Homes bore the threshold responsibility of building a
record upon which the trial court could find prejudice. The
record on appeal is far more extensive than what the trial
court considered (and the arguments far more refined),
but I agree with JUSTICE JOHNSON that the trial court
—sitting where it sat, seeing what it saw, hearing what
it heard, reviewing what it reviewed—did not abuse its
discretion in concluding “no prejudice.” Trial courts do
not have carte blanche “to send any case to arbitration
no matter what has occurred in court,” 4 but I cannot
conclude that this trial court acted “without reference to
any *613 guiding rules or principles” 5 in ruling that
Perry Homes fell short of building a trial-court record that
showed prejudice. This is admittedly a close call, and the
Court makes the best possible case for going the other
way. Given the relevant record, however, I have a difficult
time saying the trial court acted arbitrarily or disregarded
all guiding standards in not reaching the opposite result.
Accordingly, I dissent from the Court's decision vacating
the arbitration award and remanding for trial.

All Citations
Having said all that, I cannot conclude, as does the Court,
that the trial court abused its discretion by compelling 258 S.W.3d 580, 51 Tex. Sup. Ct. J. 819

Footnotes
1 See L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex.1977).
2 See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 348 (5th Cir.2004); Com–Tech Assocs. v. Computer
Assocs. Int'l, Inc., 938 F.2d 1574, 1576–77 (2d Cir.1991); Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1160
(5th Cir.1986); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006).
3 See, e.g., In re Vesta, 192 S.W.3d at 763; In re Bruce Terminix Co., 988 S.W.2d 702, 704–05 (Tex.1998); EZ Pawn Corp.
v. Mancias, 934 S.W.2d 87, 89–90 (Tex.1996).
4 The warranty provided:
Any “unresolved dispute” (defined below) that you may have with [Perry Homes or the warranty companies] shall
be submitted to binding arbitration governed by the procedures of the Federal Arbitration Act, 9 U.S.C. § 1 et seq....
The dispute will be submitted to the American Arbitration Association, or such other independent arbitration service
as is agreeable to the [warranty administrator] and you....
5 Perry Homes sought mandamus in the court of appeals on April 11, 2002, and was denied 7 days later. It refiled in this
Court on April 26, and was denied 13 days later.
6 173 S.W.3d 565, 568.
7 Chambers v. O'Quinn, 242 S.W.3d 30, 32 (Tex.2007).
8 In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex.2004); Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992).
9 See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Chambers, 242
S.W.3d at 31; see also Gulf Oil Corp. v. Guidry, 160 Tex. 139, 327 S.W.2d 406, 408 (1959) (invalidating portion of award
regarding nonarbitrable issues); Fortune v. Killebrew, 86 Tex. 172, 23 S.W. 976, 978 (1893) (same).
10 Pope v. Stephenson, 787 S.W.2d 953, 954 (Tex.1990) (“The decision not to pursue the extraordinary remedy of
mandamus does not prejudice or waive a party's right to complain on appeal.”); accord, City of San Benito v. Rio Grande
Valley Gas Co., 109 S.W.3d 750, 756 (Tex.2003); Walker v. Packer, 827 S.W.2d 833, 842 n.9 (Tex.1992).

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Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

11 See 9 U.S.C. § 16(b)(2); see also TEX. CIV. PRAC. & REM.CODE § 171.098 (providing for interlocutory appeal only of
orders denying motion to compel arbitration).
12 See David D. Siegel, Appeals from Arbitrability Determinations, Practice Commentary to 9 U.S.C. § 16 (“The mission
of § 16 is to assure that if the district court does determine that arbitration is called for, the court system's interference
with the arbitral process will terminate then and there, leaving the arbitration free to go forward. To accomplish this, §
16 provides in general that there may be no appeal from the pro-arbitration determination until after the arbitration has
gone forward to a final award.”); see also CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER,
FEDERAL PRACTICE AND PROCEDURE § 3914.17 (2d ed.1992).
13 In re Palacios, 221 S.W.3d 564, 565 (Tex.2006). Courts may review an order compelling arbitration if the order also
dismisses the underlying litigation so it is final rather than interlocutory. See Green Tree Fin. Corp.-Ala., 531 U.S. at 87
n.2, 121 S.Ct. 513; Childers v. Advanced Found. Repair, L.P., 193 S.W.3d 897, 898 (Tex.2006). As we noted in Palacios,
the Fifth Circuit has indicated it may review a district court's decision to stay rather than dismiss if a petitioner shows
“clearly and indisputably that the district court did not have the discretion to stay the proceedings pending arbitration.” Id.
(citing Apache Bohai Corp., LDC v. Texaco China, B.V., 330 F.3d 307, 310–11 (5th Cir.2003)).
14 See 9 U.S.C. § 10(a).
15 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947–48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The Court noted that
a different rule would apply if the parties clearly and unmistakably indicated in the arbitration contract that the arbitrator
should decide arbitrability, id., but there is no such indication in this contract.
16 Preston v. Ferrer, 552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (quoting Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
17 In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Bruce Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998);
accord, In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d
102, 104 (2d Cir.2002); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 n. 18 (11th Cir.2002); Price v. Drexel
Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir.1986).
18 See In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007) (finding no waiver under FAA); In re D. Wilson Constr. Co.,
196 S.W.3d 774, 783 (Tex.2006) (same); In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006) (same); In re Serv.
Corp. Int'l, 85 S.W.3d at 174 (same); In re Bruce Terminix Co., 988 S.W.2d at 704–05 (same); In re Oakwood Mobile
Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999) (same); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89–90 (Tex.1996)
(same); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex.1995).
19 See, e.g., Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 32–34 (1st Cir.2001); Doctor's Assocs., Inc.
v. Distajo, 66 F.3d 438, 456 (2d Cir.1995); Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir.2000); Am.
Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 96 (4th Cir.1996); Subway Equip. Leasing Corp. v.
Forte, 169 F.3d 324, 329 (5th Cir.1999); Germany v. River Terminal Ry. Co., 477 F.2d 546, 547 (6th Cir.1973); Ernst &
Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753, 758 (7th Cir.2002); Ritzel Commc'ns v. Mid–American Cellular,
989 F.2d 966, 969–71 (8th Cir.1993); Martin Marietta Aluminum, Inc. v. Gen. Elec. Co., 586 F.2d 143, 146 (9th Cir.1978);
Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489–90 (10th Cir.1994); Ivax Corp., 286 F.3d at 1316;
Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 777–78 (D.C.Cir.1987).
20 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
21 See, e.g., Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 447, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (holding whether
arbitration could proceed by class action was question for arbitrator); John Wiley & Sons, Inc. v. Livingston, 376 U.S.
543, 557, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (holding question whether steps of grievance procedure prerequisite to
arbitration had been completed was for arbitrator); Sleeper Farms v. Agway, Inc., 506 F.3d 98, 104 (1st Cir.2007) (noting
question whether breach of contract voided arbitration clause would normally be for arbitrator); United Steelworkers of
Am. v. Saint Gobain Ceramics & Plastics, Inc., 505 F.3d 417, 422 (6th Cir.2007) (holding question of timely demand
for arbitration was for arbitrator); Ansari v. Qwest Commc'ns Corp., 414 F.3d 1214, 1220–21 (10th Cir.2005) (holding
question whether plaintiffs waived forum selection clause by filing suit elsewhere was for arbitrator); Pro Tech Indus.,
Inc. v. URS Corp., 377 F.3d 868, 871–72 (8th Cir.2004) (holding questions of timely demand and waiver by failing to
initiate arbitration were for arbitrator); Glass v. Kidder Peabody & Co., 114 F.3d 446, 457 (4th Cir.1997) (holding question
of timely demand for arbitration was for arbitrator); Great W. Mortgage Corp. v. Peacock, 110 F.3d 222, 231–32 (3d
Cir.1997) (holding question of waiver of substantive state law rights was for arbitrator).
22 See Howsam, 537 U.S. at 81–82, 123 S.Ct. 588.
23 Id. at 86, 123 S.Ct. 588.

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24 Id. at 85, 123 S.Ct. 588.

25 Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 Fed.Appx. 462, 464 (5th Cir.2004).
26 Id.
27 Howsam, 537 U.S. at 83–84, 123 S.Ct. 588 (internal quotations omitted); see also Green Tree Fin. Corp. v. Bazzle, 539
U.S. 444, 451–52, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003).
28 See Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 13 (1st Cir.2005).
29 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (“We reaffirm
today that ... a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must
go to the arbitrator.”).
30 In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 190 (Tex.2007) (holding claim that contract was illusory went to
contract as a whole and thus was for arbitrators); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex.2001) (“The de
los Santoses assert the defenses of unconscionability, duress, fraudulent inducement, and revocation. We again note
that these defenses must specifically relate to the Arbitration Addendum itself, not the contract as a whole, if they are
to defeat arbitration.”); see also In re Kaplan Higher Educ. Corp., 235 S.W.3d 206, 210 (Tex.2007) (holding claim of
“unclean hands” that went to contract as a whole rather than arbitration clause was question for arbitrators).
31 In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 45–47 (1st Cir.2005); Marie, 402 F.3d at 13–14; In re Citigroup, Inc., 376
F.3d 23, 27–29 (1st Cir.2004); Rankin v. Allstate Ins. Co., 336 F.3d 8, 12–14 (1st Cir.2003); Restoration Pres. Masonry,
Inc. v. Grove Eur. Ltd., 325 F.3d 54, 61–63 (1st Cir.2003).
32 Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217–21 (3d Cir.2007).
33 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344–47 (5th Cir.2004); Tristar Fin. Ins. Agency, Inc. v.
Equicredit Corp. of Am., 97 Fed.Appx. 462, 464 (5th Cir.2004).
34 Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1090–94 (8th Cir.2007); Kelly v. Golden, 352 F.3d 344, 349–
50 (8th Cir.2003). The Eighth Circuit did refer to Howsam in one case as requiring waiver to be referred to arbitrators, but
that case involved an allegation of waiver by previous arbitration, not litigation. See Nat'l Am. Ins. Co. v. Transamerica
Occidental Life Ins. Co., 328 F.3d 462, 463–66 (8th Cir.2003).
35 See David LeFevre, Note, Whose Finding is it Anyway?: The Division of Labor Between Courts and Arbitrators with
Respect to Waiver, 2006 J. DISP. RESOL.. 305, 316–17 (2006); Stephen K. Huber, The Arbitration Jurisprudence of the
Fifth Circuit, Round II, 37 TEX. TECH L.REV. 531, 542 (2005).
36 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007); In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006);
In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006); In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002);
In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); In re Bruce Terminix Co., 988 S.W.2d 702, 704
(Tex.1998); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996); Prudential Sec. Inc. v. Marshall, 909 S.W.2d
896, 898–99 (Tex.1995).
37 In re Bank One, N.A., 216 S.W.3d at 827; In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta Ins. Group, Inc.,
192 S.W.3d at 763; In re Serv. Corp. Int'l, 85 S.W.3d at 174; In re Bruce Terminix Co., 988 S.W.2d at 704; EZ Pawn
Corp., 934 S.W.2d at 89.
38 In re D. Wilson Constr. Co., 196 S.W.3d at 783.
39 In re Vesta Ins. Group, Inc., 192 S.W.3d at 764.
40 In re Bank One, N.A., 216 S.W.3d at 827.
41 In re Serv. Corp. Int'l, 85 S.W.3d at 174–75.
42 Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex.1995).
43 In re Bruce Terminix Co., 988 S.W.2d at 704.
44 EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex.1996).
45 In re Vesta Ins. Group, Inc., 192 S.W.3d at 763 (holding requests for disclosure, four depositions, and request for
production did not waive arbitration absent proof regarding extent of requests and whether they addressed merits or
arbitrability).
46 Id. at 764.
47 In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir.2005) (“[E]ach case is to be judged on its particular facts.”);
Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (“Ultimately, however, the question of
what constitutes a waiver of the right of arbitration depends on the facts of each case.”); accord, Ivax Corp. v. B. Braun
of Am., Inc., 286 F.3d 1309, 1315 (11th Cir.2002); Grumhaus v. Comerica Sec., Inc., 223 F.3d 648, 650 (7th Cir.2000);

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Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C.Cir.1987); Tenneco Resins,
Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.1985).
48 Grumhaus, 223 F.3d at 650; see also Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir.1995).
49 PAICO, 383 F.3d at 346; In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004); Metz v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 39 F.3d 1482, 1489 (10th Cir.1994); Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 926 (3d Cir.1992).
50 Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir.2005); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc.,
380 F.3d 200, 206 (4th Cir.2004).
51 PAICO, 383 F.3d at 346; Kelly v. Golden, 352 F.3d 344, 349 (8th Cir.2003); Hoxworth, 980 F.2d at 926; Gilmore v.
Shearson/American Express Inc., 811 F.2d 108, 112 (2d Cir.1987); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l
Oil Co., 767 F.2d 1140, 1150–51 (5th Cir.1985).
52 PAICO, 383 F.3d at 346; Patten Grading, 380 F.3d at 205; In re Citigroup, 376 F.3d at 26; Metz, 39 F.3d at 1489;
Hoxworth, 980 F.2d at 927.
53 Hoxworth, 980 F.2d at 927; Com–Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574, 1577 (2d Cir.1991); E.C.
Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1040–41 (5th Cir.1977); Blake Constr. Co. v. U.S. for Use and
Benefit of Lichter, 252 F.2d 658, 662 (5th Cir.1958).
54 In re Citigroup, 376 F.3d at 26; Metz, 39 F.3d at 1489.
55 In re Citigroup, 376 F.3d at 26; Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489.
56 Kelly, 352 F.3d at 349; Metz, 39 F.3d at 1489.
57 Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir.1995); Peterson v. Shearson/American
Express, Inc., 849 F.2d 464, 468 (10th Cir.1988) (finding waiver as movant waited until five weeks before trial date to
move to compel).
58 See, e.g., Restoration Preserv. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 62 (1st Cir.2003) (finding three-year delay
alone sufficient to establish waiver); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir.1995)
(finding removal to federal court alone sufficient to establish waiver).
59 See EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 88–89 (Tex.1996) (finding no waiver as defendant did not discover
existence of arbitration agreement for almost a year).
60 In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006).
61 Id.
62 Id.
63 Id.; In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998).
64 In re Bruce Terminix Co., 988 S.W.2d at 704.
65 173 S.W.3d at 570.
66 See In re Bruce Terminix Co., 988 S.W.2d at 704.
67 See, e.g., TEX. CIV. PRAC. & REM.CODE § 171.021(a) (“A court shall order the parties to arbitrate on application of a
party showing: (1) an agreement to arbitrate; and (2) the opposing party's refusal to arbitrate.”).
68 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006); accord, United Computer Sys., Inc. v. AT & T Corp., 298
F.3d 756, 764 (9th Cir.2002).
69 See R.R. St. & Co. v. Pilgrim Enters., Inc., 166 S.W.3d 232, 242–43 (Tex.2005) (quotation marks omitted) (applying
totality-of-the-circumstances test in determining whether party “otherwise arranged” to dispose of hazardous waste).
70 See Burton–Dixie Corp. v. Timothy McCarthy Constr. Co., 436 F.2d 405, 407–08 (5th Cir.1971) (“There is no set rule,
however, as to what constitutes a waiver or abandonment of the arbitration agreement. The question depends upon
the facts of each case and usually must be determined by the trier of facts.”); Joel E. Smith, Annotation, Defendant's
Participation in Action as Waiver of Right to Arbitration of Dispute Involved Therein, 98 A.L.R.3d 767, 771 (1980) (“In
those cases involving the issue of whether the defendant's participation in an action constitutes a waiver of the right to
arbitrate the dispute involved therein, no general rules are readily apparent for determining waiver other than the general
adherence by the courts to the principle that waiver is to be determined from the particular facts and circumstances of
each case....”).
71 Kulko v. Superior Court of Cal., 436 U.S. 84, 92, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978) (quoting Estin v. Estin, 334 U.S.
541, 545, 68 S.Ct. 1213, 92 L.Ed. 1561 (1948)).
72 See, e.g., TEX.R. CIV. P. 190.2(c)(2) (limiting parties in Level 1 cases to six hours of depositions).
73 See, e.g., In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006) (holding four depositions did not waive arbitration
as record did not show whether they were limited or extensive or whether they addressed merits or merely arbitrability).

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74 Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997); see English v. Fischer, 660 S.W.2d 521, 524
(Tex.1983); Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936–37 (Tex.1972); Wheeler v. White, 398
S.W.2d 93, 96 (Tex.1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 (1979).
75 In re Weekley Homes, L.P., 180 S.W.3d 127, 133–35 (Tex.2005); accord, Meyer v. WMCO–GP, LLC, 211 S.W.3d 302,
305 (Tex.2006).
76 First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
77 See Van Indep. Sch. Dist. v. McCarty, 165 S.W.3d 351, 353 (Tex.2005); First Valley Bank of Los Fresnos v. Martin, 144
S.W.3d 466, 471 (Tex.2004); Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex.2003); Equitable Life Assurance Soc'y of
U.S. v. Ellis, 105 Tex. 526, 152 S.W. 625, 628 (1913).
78 In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.2006); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.1996).
79 In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998).
80 In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex.2007); In re D. Wilson Constr. Co., 196 S.W.3d at 783; In re Vesta
Ins. Group, Inc., 192 S.W.3d 759, 763 (Tex.2006); In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Bruce
Terminix Co., 988 S.W.2d at 704; In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574 (Tex.1999); EZ Pawn Corp.,
934 S.W.2d at 89; Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex.1995).
81 See In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex.2006); Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d
35, 37 (Tex.1987); Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980); Mass. Bonding & Ins. Co. v.
Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex.1967); Texas & P. Ry. Co. v. Wood, 145 Tex. 534, 199 S.W.2d
652, 656 (1947); Kennedy v. Bender, 104 Tex. 149, 135 S.W. 524, 526 (1911); see also Cabinetree of Wis., Inc. v.
Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.1995) (citing authorities showing that contract law generally holds
waiver effective without proof of detrimental reliance).
82 Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 401 (Tex.1967).
83 See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996); Allied–Bruce
Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).
84 In re Citigroup, Inc., 376 F.3d 23, 26 (1st Cir.2004) (“We have emphasized that, to succeed on a claim of waiver, plaintiffs
must show prejudice.”); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir.2002); Hoxworth v.
Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir.1992) (“[P]rejudice is the touchstone for determining whether the
right to arbitrate has been waived....”); Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 206
(4th Cir.2004) ( “[T]he dispositive question is whether the party objecting to arbitration has suffered actual prejudice.”)
(internal quotations and italics omitted); Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004)
(“In addition to the invocation of the judicial process, there must be prejudice to the party opposing arbitration before we
will find that the right to arbitrate has been waived.”); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th
Cir.2003); Kelly v. Golden, 352 F.3d 344, 349 (8th Cir.2003) (“The actions must result in prejudice to the other party for
waiver to have occurred.”); Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir.2005); Metz v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 39 F.3d 1482, 1490 (10th Cir.1994); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1316 (11th
Cir.2002) (“[W]e look to see whether, by [invoking the litigation process], that party has in some way prejudiced the other
party.”) (internal quotations omitted).
85 St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 590–91 (7th Cir.1992); Nat'l Found.
for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 777 (D.C.Cir.1987) (holding “a court may consider
prejudice to the objecting party as a relevant factor among the circumstances that the court examines in deciding whether
the moving party has taken action inconsistent with the agreement to arbitrate”).
86 In re Weekley Homes, L.P., 180 S.W.3d 127, 130–31 (Tex.2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732,
738–39 (Tex.2005); see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 87, 123 S.Ct. 588, 154 L.Ed.2d 491
(2002) (Thomas, J., concurring) (suggesting Supreme Court sometimes looks to federal law and sometimes law chosen
by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n. 6 (5th Cir.2004) (noting that whether state or
federal law of arbitrability applies “is often an uncertain question”).
87 Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636 (Tex.1997); see English v. Fischer, 660 S.W.2d 521,
524 (Tex.1983); Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex.1972); Wheeler v. White, 398
S.W.2d 93, 96 (Tex.1965); RESTATEMENT (SECOND) OF CONTRACTS § 90 (1979).
88 RESTATEMENT (SECOND) OF CONTRACTS § 87(2) (1981) (“An offer which the offeror should reasonably expect to
induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does
induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.”).

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89 Because we limit our review to the record before the trial judge, we do not consider the Defendants' additional seven
volumes of discovery exhibits filed after the arbitration award.
90 173 S.W.3d 565, 570; see also Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d
373 (2000) (holding that unconscionable arbitration fee would render clause unenforceable).
91 See In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 46 (1st Cir.2005) (holding defendant's objections to arbitration before
criminal trial waived his right to arbitration); Gilmore v. Shearson/American Exp. Inc., 811 F.2d 108, 112 (2d Cir.1987)
(holding party's withdrawal of its prior motion to compel arbitration constituted express waiver of that right).
92 See In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 764 (Tex.2006) (citing Com–Tech Assocs. v. Computer Assocs. Int'l,
Inc., 938 F.2d 1574, 1576–77 (2d Cir.1991), in which arbitration was waived by request that did not come until 18 months
after filing and 4 months before trial).
93 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (punctuation omitted); accord, In re Tyco,
422 F.3d at 46 n. 5 (“[A] party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral
rights simply to gain an unfair tactical advantage over the opposing party.”); In re Citigroup, Inc., 376 F.3d 23, 28 (1st
Cir.2004); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 327 (5th Cir.1999); PPG Indus., Inc. v. Webster Auto
Parts, Inc., 128 F.3d 103, 107 (2d Cir.1997); Doctor's Assocs. v. Distajo, 107 F.3d 126, 134 (2d Cir.1997) (“[P]rejudice as
defined by our cases 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.”).
94 In re Tyco, 422 F.3d at 46 n. 5.
95 See, e.g., Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 643 (Tex.1996) (holding companies waived contractual
right to approve assignments by treating assignee as full partner); Ford v. State Farm Mut. Auto. Ins. Co., 550 S.W.2d
663, 666 (Tex.1977) (holding insurer waived contractual right to consent to settlement by denying liability under policy).
96 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (“[T]he
purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.”).
97 W. Wendell Hall, Standards of Review in Texas, 38 ST. MARY'S L.J . 43, 67 (2006).
98 TEX. CIV. PRAC. & REM.CODE § 37.009 (“In any proceeding under this chapter, the court may award costs and
reasonable and necessary attorney's fees as are equitable and just.” (emphasis added)).
99 See TEX.R. EVID. 801–806.
100 See Nat'l Liab. and Fire Ins. Co. v. Allen, 15 S.W.3d 525, 529 (Tex.2000) (hearsay); Bocquet v. Herring, 972 S.W.2d
19, 21 (Tex.1998) (declaratory fee award).
101 In re Serv. Corp. Int'l, 85 S.W.3d 171, 174 (Tex.2002); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 574
(Tex.1999); In re Bruce Terminix Co., 988 S.W.2d 702, 703–04 (Tex.1998).
102 Brainard v. State, 12 S.W.3d 6, 30 (Tex.1999) (holding that in abuse-of-discretion standard “we defer to the trial court's
factual determinations if they are supported by the evidence and review its legal determinations de novo”); Walker v.
Packer, 827 S.W.2d 833, 840 (Tex.1992) (“A trial court has no ‘discretion’ in determining what the law is or applying the
law to the facts. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of
discretion ....”); see Hall, supra note 97, at 284 (“When the trial court's findings involve [mixed] questions of law and fact,
the appellate court reviews the trial court's decision for an abuse of discretion. In applying the standard, the reviewing
court defers to the trial court's factual determinations if supported by the evidence and reviews its legal determinations
de novo.”); cf. Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 484 (5th Cir.2002) (“This court reviews
de novo a district court's dismissal of a claim that a party waived its right to arbitrate.”); accord, Ivax Corp. v. B. Braun of
Am., Inc., 286 F.3d 1309, 1316 (11th Cir.2002); Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir.1999).
103 Brainard, 12 S.W.3d at 30; Walker, 827 S.W.2d at 840; see Hall, supra note 97, at 284; cf. Gulf Guar., 304 F.3d at 484;
accord, Ivax Corp., 286 F.3d at 1316; Subway Equip., 169 F.3d at 326.
104 See Reliance Nat'l Indem. Co. v. Advance'd Temps., Inc., 227 S.W.3d 46, 50 (Tex.2007) (“What might otherwise be a
question of fact becomes one of law when the fact is not in dispute or is conclusively established.”); Hall, supra note 97,
at 284 (“[A] trial court abuses its discretion [if the court] ... fails to properly apply the law to the undisputed facts....”).
105 See supra Part VI.A.
106 258 S.W.3d at 606–07 (“But even if the Court is right and the reimbursement clause does not allow for recovery of all
Defendants' litigation attorney's fees, an arbitration award would not be subject to being vacated if an arbitrator interpreted
it to allow recovery of all the fees.”).
107 The parties contract limited reimbursement to costs incurred in “seeking dismissal” of litigation, not costs incurred in
preparing it for trial:

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Inasmuch as this Agreement provides for mandatory arbitration of disputes, if any party commences litigation in
violation of this Agreement, such party shall reimburse the other parties to the litigation for their costs and expenses
including attorney's fees incurred in seeking dismissal of such litigation.
(emphasis added).
108 See Preston v. Ferrer, 552 U.S. 346, 128 S.Ct. 978, 986, 169 L.Ed.2d 917 (2008) (“A prime objective of an agreement to
arbitrate is to achieve streamlined proceedings and expeditious results.”); Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry,
Inc., 50 F.3d 388, 391 (7th Cir.1995) (noting that “the discovery provisions of the Federal Rules of Civil Procedure are
more generous than those of the American Arbitration Association”); cf. Price v. Drexel Burnham Lambert, Inc., 791 F.2d
1156, 1160 (5th Cir.1986) (finding prejudice due to discovery as “discovery—whether meaningful or otherwise—is not
available in arbitration”); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 498 (5th Cir.1986) (“A party to
arbitration does not have a right to the pre-trial discovery procedures that are used in a case at law.”); Developments in the
Law–Discovery, 74 HARV. L.REV.. 940, 943 (1961) (noting expense of discovery as inconsistent with desire to arbitrate).
109 The court of appeals affirmed on this basis. 173 S.W.3d at 570 (“Appellants did not provide any evidence of the work
done, time spent, or costs incurred that would not have been done or incurred in anticipation of an arbitration hearing.”).
110 TEX. CIV. PRAC. & REM.CODE § 171.021(b); see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex.1992).
111 Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 346 (5th Cir.2004) (internal citations and punctuation
omitted).
112 In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex.2006).
113 Two of the numerous defendants in Vesta initially objected to the remaining defendants' motion to compel arbitration, but
withdrew that objection before the hearing on the motion.
114 Id. at 763.
115 Id.
116 The defendants in Vesta had stipulated that all discovery obtained so far could be used in arbitration.
117 See TEX.R. CIV. P. 12.
1 In relevant part, the provision provided for the homeowners, the builder, the administrator of the warranty program, and
the warranty insurer to submit to arbitration
all claims, demands, disputes, controversies, and differences that may arise between the parties to this Agreement
of whatever kind or nature, including without limitation, disputes: (1) as to events, representations, or omissions
which pre-date this Agreement; (2) arising out of this Agreement or other action performed or to be performed by
the Builder, the Administrator or the Insurer pursuant to this Agreement.
As to procedures in arbitration, the arbitration provision provided that “The Arbitration shall be conducted in accordance
with the Arbitrator's rules and regulations to the extent that they are not in conflict with the Federal Arbitration Act.”
2 The trial court did not order arbitration as to defendants Jerald W. Kunkel, the foundation engineer, and his firm. The Culls
agreed the Kunkel defendants were not covered by the arbitration agreement. The Kunkel defendants are not parties
to this appeal.
3 Defendants referenced depositions in their motion for rehearing. They did not take the position or offer proof at the hearing
on the Culls' motion to compel arbitration that depositions would not have occurred in arbitration either by permission
of the arbitrator or by agreement.
4 Although not before the trial court when it ordered arbitration, the arbitration record now before us shows that Defendants
considered the clause to provide for recovery of all litigation costs and attorneys' fees, not just those incurred in seeking
dismissal of the lawsuit. The arbitration record shows Defendants claimed that pursuant to the reimbursement clause
they were “entitled to recover or setoff [their] attorney's fees from [the Culls], which were incurred in connection, with the
litigation.” Perry Homes' attorney submitted an affidavit to the arbitrator in support of the claim for attorneys' fees recovery
or setoff. The affidavit mirrored the affidavit submitted as part of Defendants' motion for reconsideration that was earlier
filed in the lawsuit. The arbitration affidavit claimed that
Prior to the Court's order compelling arbitration, Perry Homes incurred one-hundred-twenty-two (122) attorney
hours and twenty (20) paralegal hours responding to Claimants' discovery requests and discovery-related motions.
Accordingly, Perry Homes is entitled to an offset in the amount of $26,400.00 against any damages awarded to
Claimants, due to their violation of the arbitration agreement.
5 The Federal Arbitration Act provides that an arbitration award may be set aside for limited reasons:
(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;

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 28

Perry Homes v. Cull, 258 S.W.3d 580 (2008)
51 Tex. Sup. Ct. J. 819

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
9 U.S.C. § 10(a).
6 Of course, that argument cuts against the idea that discovery was not usable in arbitration.
1 See Chambers v. O'Quinn, 242 S.W.3d 30 (Tex.2007); In re U.S. Home Corp., 236 S.W.3d 761 (Tex.2007). This case
is the third.
2 In re Great Western Drilling, Ltd., 211 S.W.3d 828 (Tex.App.–Eastland 2006), pet. granted, 51 Tex. Sup.Ct. J. 77 (Nov.
2, 2007); Werline v. E. Tex. Salt Water Disposal Co., 209 S.W.3d 888 (Tex.App.–Texarkana 2006), pet. granted, 51 Tex.
Sup.Ct. J. 77 (Nov. 2, 2007); Bison Bldg. Materials v. Aldridge, 2006 WL 2641280 (Tex.App.–Houston [1st Dist.] 2006),
pet. granted, 51 Tex. Sup.Ct. J. 77 (Nov. 2, 2007); Forest Oil Corp. v. McAllen, 2005 WL 3435061 (Tex.App.–Corpus
Christi 2005), pet. granted, 51 Tex. Sup.Ct. J. 667 (Apr. 27, 2007).
3 In re Nitla, 92 S.W.3d 419, 422 (Tex.2002) (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42
(Tex.1985)).
4 258 S.W.3d at 598.
5 Nitla, 92 S.W.3d at 422.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 29

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
416 S.W.3d 168
Court of Appeals of Texas,
Dallas.
PILOT TRAVEL CENTERS, LLC, Appellant
v.
Joan McCRAY, James McCray, and
Shamekia Gullatte, as Next Friend
of Brandon Gullatte, Appellees.
No. 05–13–00002–CV.
|
Nov. 5, 2013.
Synopsis
Background: Wrongful death beneficiaries of employee
who died as a result of injuries sustained within course
and scope of his employment as a maintenance worker
brought wrongful death action against employer, alleging
that employer's negligence proximately caused employee's
death. Employer filed motion to compel arbitration and
to stay litigation. The 298th Judicial District Court,
Dallas County, Emily G. Tobolowsky, J., denied motion.
Employer appealed.
Holdings: The Court of Appeals, Fillmore, J., held that:
[1] valid agreement to arbitrate all claims arising from
a work-related injury or illness under the Federal
Arbitration Act (FAA) existed between employer and
employee;
[2] employee's wrongful death beneficiaries were bound by
employee's agreement to arbitrate;
[3] mere inequality of bargaining power was not
sufficient render arbitration agreement procedurally
unconscionable;
[4] fee provision of arbitration agreement, which required
that party seeking arbitration pay filing fee and that
arbitrators' costs and fees be borne equally by the parties,
was not substantively unconscionable;
[5] provision of arbitration agreement limiting amount
of discovery to be conducted was not substantively
unconscionable;
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[6] employer did not “substantially invoke” litigation
process, as required to establish waiver of employer's
contractual right to arbitration; and
[7] employee did not qualify as “transportation worker”
within meaning of FAA provision exempting contracts of
employment of workers engaged in foreign or interstate
commerce from FAA's coverage.
Reversed and remanded.
West Headnotes (30)
[1] Alternative Dispute Resolution
Review
Employer who sought to compel arbitration
in wrongful death action brought by estate of
deceased employee was entitled to extension
of time limit for filing interlocutory appeal
from trial court's order denying employer's
motion to compel arbitration, pursuant to rule
extending time within which to file appeal
when a party does not receive notice or
knowledge of the judgment within 20 days
after judgment was signed, where employer
obtained requisite finding from trial court
that it did not receive notice of trial court's
original order within 20 days after order was
signed. Rules App.Proc., Rule 4.2; Vernon's
Ann.Texas Rules Civ.Proc., Rule 306a(5).
1 Cases that cite this headnote
[2] Appeal and Error
Extension of Time
In order to invoke benefit of rule extending
time within which to file appeal when a party
does not receive notice or knowledge of the
judgment within 20 days after judgment was
signed, party must obtain an order from the
trial court that reflects the date the party or the
party's attorney first either received notice or
acquired actual knowledge that the order was
signed. Vernon's Ann.Texas Rules Civ.Proc.,
Rules 306a(4, 5).
1
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
1 Cases that cite this headnote
[3] Alternative Dispute Resolution
What law governs
When a party asserts a right to arbitrate
under the Federal Arbitration Act (FAA), the
question of whether the dispute is subject to
arbitration is determined under federal law. 9
U.S.C.A. § 1 et seq.
Cases that cite this headnote
[4] Alternative Dispute Resolution
Construction in favor of arbitration
As a matter of federal law under the
Federal Arbitration Act (FAA), any doubts
concerning the scope of arbitrable issues
are resolved in favor of arbitration, whether
pertaining to the construction of the contract
or a defense to arbitrability. 9 U.S.C.A. § 1 et
seq.
Cases that cite this headnote
[5] Alternative Dispute Resolution
Validity
Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
In general, a party seeking to compel
arbitration under the Federal Arbitration Act
(FAA) must establish (1) the existence of a
valid, enforceable arbitration agreement and
(2) that the claims at issue fall within that
agreement's scope. 9 U.S.C.A. § 1 et seq.
2 Cases that cite this headnote
[6] Alternative Dispute Resolution
Evidence
Party seeking to avoid arbitration under the
Federal Arbitration Act (FAA) bears the
burden of raising an affirmative defense to
enforcement of the otherwise valid arbitration
provision. 9 U.S.C.A. § 1 et seq.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
2 Cases that cite this headnote
[7] Alternative Dispute Resolution
Remedies and Proceedings for
Enforcement in General
A court has no discretion and must compel
arbitration under the Federal Arbitration Act
(FAA) if it is established that there is a valid
arbitration agreement and the claims raised
fall within the scope of that agreement. 9
U.S.C.A. § 1 et seq.
3 Cases that cite this headnote
[8] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
Under Federal Arbitration Act (FAA), an
order to arbitrate should not be denied unless
it can be said with positive assurance that
the arbitration cause is not susceptible of an
interpretation that covers the asserted dispute.
9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[9] Alternative Dispute Resolution
Disputes and Matters Arbitrable Under
Agreement
To determine if a claim falls within the scope
of an arbitration agreement under the Federal
Arbitration Act (FAA), the court focuses on
the facts alleged, not the causes of action
asserted. 9 U.S.C.A. § 1 et seq.
1 Cases that cite this headnote
[10] Alternative Dispute Resolution
Employment disputes
Under terms of employer's occupational
injury benefit plan, valid agreement to
arbitrate all claims arising from a work-
related injury or illness under the Federal
Arbitration Act (FAA) existed between
employer and employee who died as a
result of injuries sustained within the
course of his employment, even though
2
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
employee's wrongful death beneficiaries
challenged the validity of employee's
signature on document acknowledging
employee's receipt of mandatory arbitration
provision of occupational injury benefit
plan in their wrongful death action
against employer, where wrongful death
beneficiaries failed to file verified pleading
denying that employee had executed
challenged document acknowledging receipt
of arbitration agreement. 9 U.S.C.A. § 1 et
seq.; Vernon's Ann.Texas Rules Civ.Proc.,
Rule 93(7).
Cases that cite this headnote
[11] Alternative Dispute Resolution
Persons affected or bound
Employee's wrongful death beneficiaries,
as derivative claimants, were bound by
employee's agreement to arbitrate, pursuant
to employer's occupational injury benefit plan
that contained an agreement to arbitrate all
claims arising from a work-related injury
or illness under the Federal Arbitration
Act (FAA), even though wrongful death
beneficiaries had not signed the arbitration
agreement. 9 U.S.C.A. § 1 et seq.
Cases that cite this headnote
[12] Alternative Dispute Resolution
Evidence
Because the law favors arbitration, the party
opposing arbitration bears the burden to
prove unconscionability.
2 Cases that cite this headnote
[13] Alternative Dispute Resolution
Unconscionability
Unconscionability of an arbitration
agreement may exist in one or both of
two forms: (1) procedural unconscionability,
which refers to the circumstances surrounding
the adoption of the arbitration provision,
and (2) substantive unconscionability, which
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
refers to the fairness of the arbitration
provision itself.
3 Cases that cite this headnote
[14] Alternative Dispute Resolution
Unconscionability
Mere inequality of bargaining power is
not a sufficient reason to hold an
arbitration agreement unenforceable, on
grounds of procedural unconscionability, in
the employment context.
Cases that cite this headnote
[15] Alternative Dispute Resolution
Unconscionability
Fee provision of arbitration agreement
between employer and employee who died
as a result of injuries sustained within the
course of his employment, which required
that parties arbitrate all claims arising
from a work-related injury or illness, that
party seeking arbitration pay filing fee,
and that arbitrators' costs and fees be
borne equally by the parties, was not
substantively unconscionable, as a defense to
enforcement of agreement in wrongful death
action by deceased employee's wrongful death
beneficiaries; although beneficiaries resided
in Alabama and employer requested that
arbitration be held in Texas, beneficiaries filed
wrongful death action in Texas and failed to
demonstrate that cost of arbitration in Texas
would be greater than cost of litigation in
Texas, and beneficiaries failed to demonstrate
that they lacked financial ability to pay a
portion of arbitrator's fees.
Cases that cite this headnote
[16] Alternative Dispute Resolution
Unconscionability
An arbitration agreement that provides for
fee-splitting is not, by itself, unconscionable.
3 Cases that cite this headnote
3
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
[17] Alternative Dispute Resolution
Unconscionability
Provision of arbitration agreement between
employer and employee, who died as a result
of injuries sustained within the course of his
employment, limiting amount of discovery to
be conducted during arbitration proceedings
in a matter involving work-related injury or
illness was not substantively unconscionable,
as a defense to enforcement of agreement
in wrongful death action by deceased
employee's wrongful death beneficiaries,
where agreement permitted each party the
same amount of discovery, and agreement
provided that, upon a showing of good cause,
either party could obtain an order from the
arbitrator for taking additional depositions
and could obtain approval from the arbitrator
to utilize requests for production and for
admissions.
Cases that cite this headnote
[18] Alternative Dispute Resolution
Unconscionability
Substantive unconscionability refers to
fairness of an arbitration provision.
3 Cases that cite this headnote
[19] Alternative Dispute Resolution
Suing or participating in suit
A party may waive contractual arbitration
rights by substantially invoking the judicial
process to the detriment of the other party.
1 Cases that cite this headnote
[20] Alternative Dispute Resolution
Evidence
Because public policy favors resolving
disputes through arbitration, the law imposes
a strong presumption against the waiver of
contractual arbitration rights.
Cases that cite this headnote
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[21] Alternative Dispute Resolution
Evidence
When presented with question of whether a
party waived its contractual arbitration rights,
court is required to resolve any doubts in favor
of arbitration.
Cases that cite this headnote
[22] Alternative Dispute Resolution
Evidence
Waiver of a party's contractual arbitration
rights may be implied from the party's
conduct, so long as that conduct is
unequivocal, and in close cases, the strong
presumption against waiver should govern.
1 Cases that cite this headnote
[23] Alternative Dispute Resolution
Suing or participating in suit
The judicial process is “substantially
invoked,” as required to establish waiver of
arbitration by litigation conduct, when the
party seeking arbitration has taken specific
and deliberate actions, after the filing of the
suit, that are inconsistent with the right to
arbitrate or has actively tried, but failed, to
achieve a satisfactory result through litigation
before turning to arbitration.
2 Cases that cite this headnote
[24] Alternative Dispute Resolution
Suing or participating in suit
Factors considered in determining whether a
movant has substantially invoked the judicial
process, as required to establish waiver of
arbitration by litigation conduct, include
when the movant knew of the arbitration
clause, how much discovery has been initiated
and who initiated it, the extent to which
discovery related to the merits rather than
arbitrability or standing, how much of the
discovery would be useful in arbitration,
whether the movant sought judgment on the
4
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
merits, and whether the movant sought to
compel arbitration on the eve of trial.
2 Cases that cite this headnote
[25] Alternative Dispute Resolution
Suing or participating in suit
“Prejudice,” as required to establish waiver of
arbitration by litigation conduct, 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; thus, a party should not
be allowed purposefully and unjustifiably to
manipulate the exercise of its arbitral rights
simply to gain an unfair tactical advantage
over the opposing party.
Cases that cite this headnote
[26] Alternative Dispute Resolution
Suing or participating in suit
Employer of employee who died from
injuries sustained within the course of his
employee did not “substantially invoke” the
litigation process in wrongful death action
by employee's wrongful death beneficiaries,
as required to establish waiver of employer's
contractual right to arbitration pursuant to
agreement in which employer and employee
agreed to arbitrate all claims arising from a
work-related injury or illness, even though
employer waited over one year to file
motion to compel arbitration, where employer
asserted affirmative defense that wrongful
death claims were the subject of a binding
arbitration agreement in its original answer,
did not file any motions on the merits, and
did not engage in extensive discovery, but
rather participated in discovery initiated by
employer's co-defendants.
Cases that cite this headnote
[27] Alternative Dispute Resolution
Waiver or Estoppel
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
Delay alone generally does not establish
waiver of right to arbitration.
Cases that cite this headnote
[28] Alternative Dispute Resolution
Suing or participating in suit
Litigation conduct of employer of employee
who died from injuries sustained within the
course of his employee did not prejudice
employee's wrongful death beneficiaries in
their wrongful death action against employer,
as required to establish waiver of employer's
contractual right to arbitration pursuant to
agreement in which employer and employee
agreed to arbitrate all claims arising from
a work-related injury or illness; although
employer waited over one year to file motion
to compel arbitration, discovery that had been
conducted in judicial proceedings would be
useful in arbitration, employer did not seek
to compel arbitration in order to gain an
unfair tactical advantage, and record failed
to demonstrate other detriment suffered by
beneficiaries.
Cases that cite this headnote
[29] Alternative Dispute Resolution
Employment disputes
Commerce
Arbitration
Truck stop maintenance worker who
maintained parking lots and facilities within
one state did not qualify as “transportation
worker,” within meaning of provision of
Federal Arbitration Act (FAA) exempting
contracts of employment of workers engaged
in foreign or interstate commerce from its
coverage, since maintenance worker was
not engaged in the movement of goods in
interstate commerce. 9 U.S.C.A. § 1.
Cases that cite this headnote
[30] Alternative Dispute Resolution
Employment disputes
Commerce
5
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Arbitration
Federal Arbitration Act's (FAA) exclusion of
“contracts of employment of workers engaged
in foreign or interstate commerce” from the
Act's coverage applies only to employment
contracts of those workers actually engaged in
movement of goods in interstate commerce. 9
U.S.C.A. § 1.
Cases that cite this headnote
Attorneys and Law Firms
*172 Carl Evans Jr., Stephanie Almeter, Jeffrey C.
Wright, McCathern, PLLC, Dallas, TX, for Appellant.
Augustus Corbett, The Corbett Law Firm, Dallas, TX, for
Appellees.
Before Justices MOSELEY, FILLMORE, and MYERS.
OPINION
Opinion by Justice FILLMORE.
In this interlocutory appeal, Pilot Travel Centers, LLC
(Pilot Travel) asserts the trial court erred by denying its
motion to compel arbitration and for a stay of the trial
court proceedings against it. We reverse the trial court's
order denying Pilot Travel's motion to compel arbitration
and for stay of the trial court proceedings.
Background
On January 18, 2011, James Antonio McCray (Tony) 1
began employment with *173 Pilot Travel as a
maintenance worker. Pilot Travel was a non-subscriber
to the Texas Workers' Compensation insurance system;
it provided an Occupational Injury Benefit Plan (Benefit
Plan) for its Texas employees. Amendment 1 to the Benefit
Plan is a Mandatory Arbitration Plan for Resolution
of Work Related Injury or Illness Claims of Texas
Employees (arbitration agreement). By its terms, the
arbitration agreement indicates it is the exclusive and
mandatory means for an employee and Pilot Travel to
resolve their disputes arising from a work-related injury
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
or illness, and neither an employee nor Pilot Travel “may
bring a lawsuit in any state or federal court against the
other regarding a work related injury or illness or the
severity of alleged damages arising from a work related
injury or illness.” More specifically, paragraph 1.05 of the
arbitration agreement provides:
All employees, by applying for, accepting or by
continuing employment after the implementation of
this Plan, shall be required to submit any legally
recognized claim for a work related injury or illness
to arbitration, rather than to litigation, according to
this Plan and the rules established for its enforcement.
The Company shall also be required to proceed to
arbitration on all work related injury or illness matters
brought for arbitration by an employee. The duty
imposed on both the Company and Employee to
arbitrate all legally recognized claims arising from a
work related injury or illness shall continue beyond and
not be affected by, the termination of an employee's
employment.
A document captioned “Employer Notice to Current
Texas Employees” (Employer Notice), dated January 18,
2011, contains Tony's signature, initialing of paragraphs,
and social security number, as well as the witness
signature of Pilot Travel's representative, Brandy Allen.
The Employer Notice contains an “Acknowledgment
Receipt Regarding Mandatory Arbitration Plan for Texas
Employees” which provides:
I, James McCray hereby certify
by my initials and signature below
that I have received a copy of
the Mandatory Arbitration Plan. I
also understand that ALL issues
related to the work related injury
or illness or benefits pertaining
thereto MUST be settled through
binding arbitration, not litigation,
per Pilot Travel Centers' Mandatory
Arbitration Plan. Neither party shall
have the right to file a suit in
any state or federal court. Any
such arbitration will be governed
by the Federal Arbitration Act
and administered by the American
Mediation Association.
(Emphasis in original.)
6
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
On January 26, 2011, Tony was working within the course
and scope of his employment with Pilot Travel at a truck
stop in Dallas, Texas, when he was struck by a tractor
trailer rig owned by Smile Transportation and operated
by Ljubo Dilber. Tony died several weeks later as a result
of the injuries he sustained. At the time of his death,
Tony was survived by his parents, appellees Joan and
James McCray, and his son, appellee Brandon Gullatte,
as represented by his next friend, Shamekia Gullatte.
The record contains Pilot Travel's July 20, 2011
demand for arbitration before the American Mediation
Association, which was received by the American
Mediation *174 Association on July 21, 2011. Pilot
Travel referenced the “respondents in this arbitration”
as “Joan and James McCray, Individually and as Next
Friends of James Antonio McCray, Deceased; The Estate
of James Antonio McCray; and Shemekia Gullatte,
as next Friend of Brandon Gullatte, a Minor.” Pilot
Travel requested the arbitration be conducted in Dallas,
Texas, where the accident occurred and where Tony was
employed.
On July 22, 2011, appellees Joan and James McCray,
and Shamekia Gullatte, as next friend of Brandon
Gullatte, filed their original petition in a district court of
Dallas County, Texas, against Pilot Travel and others in
the lawsuit underlying this appeal. Appellees allege the
negligence of Pilot Travel and the other named defendants
proximately caused Tony's death and appellees' damages
resulting from his death. On August 29, 2011, Pilot Travel
filed its answer to appellees' lawsuit. Included in Pilot
Travel's answer is the affirmative defense that the claims
asserted in the lawsuit were the subject of a mandatory
arbitration agreement signed by Tony. On September 6,
2012, Pilot Travel filed its motion to compel arbitration of
appellees' claims and for a stay of appellees' lawsuit against
it.
By order with a signature date of November 12, 2012,
the trial court denied Pilot Travel's motion to compel
arbitration (November 12, 2012 Order). The November
12, 2012 Order indicates that Pilot Travel's motion to
compel arbitration was considered on November 16, 2012.
By order with a signature date of December 12, 2012, the
trial court again denied Pilot Travel's motion to compel
arbitration (December 12, 2012 Order). Other than a mark
through the November 12, 2012 date and a handwritten
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
signature date of December 12, 2012, the December 12,
2012 Order is identical to the November 12, 2012 Order.
On December 28, 2012, Pilot Travel filed its notice of
interlocutory appeal of the denial of its motion to compel
arbitration.
On January 16, 2013, the trial judge signed an order
granting appellees' “Motion for Judgment Nunc Pro
Tunc” (January 16, 2013 Order). 2 In the January 16,
2013 Order, the trial court found that the December 12,
2012 Order contained a clerical error; according to the
trial court, the signature date of December 12, 2012 was
incorrect and should have been November 16, 2012. In
the January 16, 2013 Order, the trial court ordered the
December 12, 2012 Order corrected to reflect the finding
that the date of the trial judge's signature should be
November 16, 2012.
On February 6, 2013, Pilot Travel filed its verified
objection to the January 16, 2013 Order and motion to
vacate that order. 3 In its motion to vacate the January
16, 2013 Order, Pilot Travel stated that on December 14,
2012, it received the trial court's December 12, 2012 Order
denying Pilot Travel's motion to compel arbitration. Pilot
Travel stated the December 12, 2012 Order was the only
signed order it received regarding its motion to compel
arbitration. Citing rule of civil procedure 306a and rule of
appellate procedure 26.1(b), *175 Pilot Travel asserted
its timetable for filing an interlocutory appeal of the denial
of its motion to compel arbitration began to run on
December 12, 2012.
On May 1, 2013, the trial court signed an “Order on [Pilot
Travel's] Motion for Court to Vacate Order Granting
[Appellees'] Judgment Nunc Pro Tunc and Order Denying
Motion to Compel Arbitration” (May 1, 2013 Order). In
the May 1, 2013 Order, the trial court vacated its January
16, 2013 Order, and again denied Pilot Travel's motion to
compel arbitration.
By letter dated February 19, 2013, this Court
communicated to the parties to this interlocutory appeal
that, after review of the record, it appeared Pilot Travel's
notice of appeal of the trial court's denial of its motion to
compel arbitration was untimely under rule of appellate
procedure 26.1(b) and requested that the parties file
a jurisdictional brief explaining how this Court has
jurisdiction over this appeal. See TEX.R.APP. P. 26.1(b).
7
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Jurisdiction
Section 51.016 of the civil practice and remedies code
provides that in a matter subject to the Federal
Arbitration Act (FAA), a party may appeal from an
interlocutory order of a district court “under the same
circumstances that an appeal from a federal district court's
order ... would be permitted by 9 U.S.C. Section 16.”
TEX. CIV. PRAC. & REM.CODE ANN. § 51.016 (West
Supp.2012); see CMH Homes v. Perez, 340 S.W.3d 444,
448–49 (Tex.2011) (explaining that section 51.016 of the
civil practice and remedies code provides for interlocutory
appeals in FAA cases so long as “it would be permitted
under the same circumstances in federal court under [9
U.S.C] section 16”). Section 16 of the FAA provides
an appeal may be taken from an order “denying an
application under section 206 of this title to compel
arbitration.” 9 U.S.CA. § 16(a)(1)(C) (West 2009); Austin
Commercial Contractors, L.P. v. Carter & Burgess, Inc.,
347 S.W.3d 897, 900 (Tex.App.-Dallas 2011, pet. denied);
Texas La Fiesta Auto Sales, LLC v. Belk, 349 S.W.3d 872,
877 (Tex.App.-Houston [14th Dist.] 2011, no pet.).
An appeal from an interlocutory order denying a motion
to compel arbitration is an accelerated appeal. See
TEX.R.APP. P. 28.1 (“Appeals from interlocutory orders
(when allowed by statute) ... are accelerated appeals.”).
In an accelerated appeal, absent a rule of appellate
procedure 26.3 motion, the deadline for filing a notice of
appeal is strictly set at twenty days after the appealable
interlocutory order is signed. TEX.R.APP. P. 26.1(b);
TEX.R.APP. P. 26.3; see also In re K.A.F., 160 S.W.3d
923, 927 (Tex.2005); Iron Mountain Bison Ranch, Inc. v.
Easley Trailer Mfg., Inc., 964 S.W.2d 762, 763 (Tex.App.-
Amarillo 1998, no pet.) (interlocutory appeal is perfected
by filing notice of appeal with trial court within twenty
days after judgment or order is signed).
The notice of accelerated appeal of the November 12, 2012
Order denying Pilot Travel's motion to compel arbitration
and for stay had to be filed within twenty days after the
date the order was signed. Because the twentieth day after
the November 12, 2012 Order fell on Sunday, December 2,
2012, Pilot Travel's deadline for perfecting the appeal from
that order fell on the following day, Monday, December
3, 2012. See TEX.R.APP. P. 4.1(a). 4 Pilot *176 Travel
filed its notice of appeal on December 28, 2012, more than
twenty days after the November 12, 2012 Order.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
[1] If applicable, rule of civil procedure 306a may operate
to extend the deadline for filing a notice of appeal of an
interlocutory order. See TEX.R. CIV. P. 306a; see also
John v. Marshall Health Servs., Inc., 58 S.W.3d 738, 740
(Tex.2001). If a party affected by an appealable order or
the party's attorney has not, within twenty days after the
order was signed, either received notice required by rule
of civil procedure 306a(3) or acquired actual knowledge
of the signing, then any period that, under the rules of
appellate procedure, runs from the signing of the order
will begin on the earlier of the date when the party or
the party's attorney receives notice or acquires actual
knowledge of the signed order; however, no such period
may begin to run more than ninety days after the judgment
or order was signed. TEX.R.APP. P. 4.2(a)(1); see also
TEX.R.CIV.P. 306a(4).
[2] Subsection (5) of rule of civil procedure 306a provides
a procedure that enables the trial court to change the date
the appellate timetable begins to run from the actual date
of the interlocutory order to the date on which the party or
the party's attorney received the clerk's notice or acquired
actual knowledge that the trial court signed the order,
whichever occurs first, as long as that date is not more than
ninety days after the trial court signed the interlocutory
order. TEX.R. CIV. P. 306a(5). A party must obtain
an order from the trial court that reflects the date the
party or the party's attorney first either received notice
or acquired actual knowledge that the order was signed.
Hone v. Hanafin, 105 S.W.3d 15, 18 (Tex.App.-Dallas
2002), rev'd on other grounds, 104 S.W.3d 884 (Tex.2003)
(per curiam); see TEX.R.APP. P. 4.2(c); Moore Landrey,
L.L.P. v. Hirsch & Westheimer, P.C., 126 S.W.3d 536,
540 (Tex.App.-Houston [1st Dist.] 2003, no pet.); Nedd–
Johnson v. Wells Fargo Bank, N.A., 338 S.W.3d 612, 613
(Tex.App.-Dallas 2010, no pet.); Mem'l Hosp. of Galveston
Cnty. v. Gillis, 741 S.W.2d 364, 366 (Tex.1987) ( “Rule
306a plainly requires that this proof be made in the trial
court, not the court of appeals.”).
On September 25, 2013, the trial court signed an order on
Pilot Travel's motion to reconsider Pilot Travel's request
for factual finding under rule of civil procedure 306a(5).
In that order, the trial court found that the date Pilot
Travel or its attorney first received notice or acquired
actual knowledge of a signed order denying its motion to
compel arbitration and for stay was December 11, 2012,
more than twenty days after the November 12, 2012 Order
8
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

denying Pilot Travel's motion to compel arbitration was (1) the existence of a valid, enforceable arbitration
signed by the trial court. Therefore, pursuant to rule of agreement and (2) that the claims at issue fall within
civil procedure 306a(4) and rule of appellate procedure that agreement's scope. In re Kellogg Brown & Root, Inc.,
4.2(a)(1), the twenty-day deadline for filing Pilot Travel's 166 S.W.3d 732, 737 (Tex.2005) (orig. proceeding); see
notice of appeal of the denial of its motion to compel also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223,
arbitration and for stay began on December 11, 2012. See 227 (Tex.2003) (although there is strong presumption
TEX.R. CIV. P. 306a(4); TEX.R.APP. P. 4.2(a)(1). favoring arbitration, presumption arises only after party
seeking to compel arbitration proves a valid arbitration
Pilot Travel's notice of appeal was filed December 28, agreement exists). The party seeking to avoid arbitration
2012, within twenty days from the date Pilot Travel then bears the burden of raising an affirmative defense to
or its attorney first received notice or acquired actual enforcement of the otherwise valid arbitration provision.
knowledge of a signed order denying its motion to compel In re AdvancePCS Health, 172 S.W.3d at 607. A court
arbitration and for stay. Thus, Pilot Travel's notice of has no discretion and must compel arbitration if it is
appeal was timely perfected and this Court has jurisdiction established that there is a valid arbitration agreement and
over the accelerated appeal. the claims raised fall within the scope of that agreement. In
re Tenet Healthcare, Ltd., 84 S.W.3d 760, 765 (Tex.App.-
Houston [1st Dist.] 2002, orig. proceeding). “An order
to arbitrate should not be denied unless it can be said
*177 Motion to Compel Arbitration
with positive assurance that the arbitration cause is not
and to Stay Trial Court Proceedings
susceptible of an interpretation that covers the asserted
In a single issue, Pilot Travel asserts that, because a dispute.” Hou–Scape, Inc. v. Lloyd, 945 S.W.2d 202,
valid arbitration agreement exists that is applicable to 205 (Tex.App.-Houston [1st Dist.] 1997, no writ) (citing
appellees' pleaded claims, the trial court erred in denying United Steelworkers v. Warrior & Gulf Navigation Co.,
its motion to compel arbitration and to stay the trial court 363 U.S. 574, 582–83, 80 S.Ct. 1347, 4 L.Ed.2d 1409
proceedings. (1960)). To determine if a claim falls within the scope of an
arbitration agreement, we focus on the facts alleged, not
[3] [4] The arbitration agreement provides that the the causes of action asserted. Hou–Scape, 945 S.W.2d at
FAA applies to and governs any matter submitted to 205.
arbitration. See In re AdvancePCS Health, L.P., 172
S.W.3d 603, 605–06 & n. 3 (Tex.2005) (orig. proceeding) We review de novo whether an enforceable agreement to
(per curiam) (FAA governs arbitration in Texas if arbitrate exits. In re Jindal Saw, Ltd., 264 S.W.3d 755, 761
parties expressly contracted for FAA's application); In re (Tex.App.-Houston [1st Dist.] 2008, orig. proceeding). We
ReadyOne Indus., Inc., 294 S.W.3d 764, 769 (Tex.App.- defer to the trial court's factual determinations if they
El Paso 2009, orig. proceeding) (if parties expressly are supported by evidence, but we review the trial court's
choose for arbitration agreement to be governed by FAA, legal determinations de novo. In re Labatt Food Serv.,
agreement should be enforced regardless of parties' nexus L.P., 279 S.W.3d 640, 643 (Tex.2009) (orig. proceeding);
to interstate commerce). When a party asserts a right see also J.M. Davidson, 128 S.W.3d at 227 (whether an
to arbitrate under the FAA, the question of whether agreement imposes a duty to arbitrate is question of law
the dispute is subject to arbitration is determined under which is reviewed de novo); Trammell v. Galaxy Ranch
federal law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d Sch., L.P., 246 S.W.3d 815, 820 (Tex.App.-Dallas 2008,
896, 899 (Tex.1995). As a matter of federal law, any no pet.). “This *178 standard is the same as the abuse
doubts concerning the scope of arbitrable issues are of discretion standard of review and we will apply that
resolved in favor of arbitration, whether pertaining to the standard of review to interlocutory appeals under section
construction of the contract or a defense to arbitrability. 51.016.” Sidley Austin Brown & Wood, LLP v. J.A. Green
See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., Dev. Corp., 327 S.W.3d 859, 863 (Tex.App.-Dallas 2010,
460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). no pet.).

[5] [6] [7] [8] [9] In general, a party seeking

to compel arbitration under the FAA must establish

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 9

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Arbitration Agreement
Existence of Arbitration Agreement
Between Pilot Travel and Tony
[10] Pilot Travel argues that it established a valid
arbitration agreement existed between it and Tony. The
record contains the “Acknowledgment Receipt Regarding
Mandatory Arbitration Plan for Texas Employees”
reflecting Tony's certification “by [his] initials and
signature” on the date he was hired by Pilot Travel
that he received a copy of the arbitration agreement
and understood that all issues “related to the work
related injury or illness or benefits pertaining thereto
must be settled through binding arbitration” governed by
the FAA and administered by the American Mediation
Association, and that neither he nor Pilot Travel had
the right to file suit in any state or federal court.
Further, that Acknowledgment was signed by a company
representative.
While appellees do not contest that the arbitration
agreement was incorporated into Pilot Travel's Benefit
Plan, appellees contend Pilot Travel failed to establish
the arbitration agreement was signed by Tony
or that he “assented to arbitration.” Pilot Travel
is unable to “authenticate” Tony's signature on
the “Acknowledgement Receipt Regarding Mandatory
Arbitration Plan for Texas Employees” through
questioning him. Cf. In re Halliburton Co., 80 S.W.3d
566, 568 n. 2 (Tex.2002) (orig. proceeding) (in response
to motion to compel arbitration of employee's claim of
employment discrimination, employee asserted signature
on a document agreeing to binding arbitration was
not his). During her deposition, appellee Joan McCray
testified she recognized Tony's signature on the arbitration
agreement, although she later apparently “disavowed” her
answer “since she is neither a handwriting expert nor had
she paid close attention to [Tony's] signature in more than
ten years.”
Ultimately, appellees' argument fails because their
response in opposition to Pilot Travel's motion to
compel arbitration is unverified. Appellees have cited no
authority, and we are aware of none, requiring Pilot
Travel in this circumstance to “authenticate” Tony's
signature on the arbitration agreement. See TEX.R. CIV.
P. 93(7) (pleading setting up denial of execution of
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
instrument in writing shall be verified by affidavit; where
party denying execution of a document by person then
deceased, affidavit shall be sufficient if it states affiant has
reason to believe and does believe that such instrument
was not executed by the decedent or by his authority);
TEX.R. EVID. 601(b) (Dead Man's Rule); Munden v.
Chambless, 315 S.W.2d 355, 358 (Tex.Civ.App.-Dallas
1958, writ ref'd n.r.e.) (test of whether evidence should
be excluded under Dead Man's Statute is whether, “in
case the witness testified falsely, the deceased, if living
could contradict the testimony of his own knowledge”).
Based on the documentation in the record, we agree with
Pilot Travel that it established a valid and enforceable
arbitration agreement existed between it and Tony.
Appellees as Non–Signatories to Arbitration Agreement
[11] Appellees Joan and James McCray are Tony's
surviving parents, and appellee Brandon Gullatte,
represented by his mother as his next friend, is Tony's
*179 surviving son. Appellees' wrongful death claims
against Pilot Travel are made in their capacities as the
surviving parents and child of Tony. See TEX. CIV.
PRAC. & REM.CODE ANN. § 71.004 (West 2008)
(action to recover damages as provided by this subchapter
is for exclusive benefit of surviving spouse, children, and
parents of the deceased). Appellees argue that as non-
signatories to the arbitration agreement between Pilot
Travel and Tony, their claims are not subject to the
arbitration agreement. They argue their claims are not
derivative of any rights that belonged to Tony had he
survived.
Paragraph 1.02 of the arbitration agreement defines the
term “employee” to include the employee and “any
individual, child, dependent, spouse, relative, executor,
estate or guardian which would have the legal standing
required to bring a lawsuit for damages arising out of
a claim.” Paragraph 1.04 of the arbitration agreement
provides as follows with regard to claims arising from
work-related injuries or illnesses:
As used in this Plan, “Claim,” “Controversy,”
“Dispute” or “Difference” means any claim, dispute,
disagreement, contention, or grievance arising from
a work related injury or illness which an Employee
has with the Company, or the Company has with the
Employee, which could normally be made the basis of a
10
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

lawsuit in a State or Federal Court. This pertains only to
those claims, controversies, disputes or differences for
work related injuries and illnesses.
This Plan DOES NOT provide for resolution of
disputes arising from any claim, dispute, disagreement,
contention or grievance other than those arising from a
work related injury or illness.
(Emphasis in original.)
The Texas Supreme Court has held that wrongful death
beneficiaries, as derivative claimants, are bound by the
decedent's agreement to arbitrate. In re Golden Peanut
Co., 298 S.W.3d 629, 630 (Tex.2009) (orig. proceeding);
In re Labatt Food Serv., 279 S.W.3d at 646 (decedent's
pre-death arbitration agreement binds his wrongful death
beneficiaries because, under Texas law, the wrongful
death cause of action is entirely derivative of the decedent's
rights); Arredondo v. Dugger, 347 S.W.3d 757, 764
(Tex.App.-Dallas 2011) (citing In re Golden Peanut Co.,
298 S.W.3d at 631), aff'd on other grounds, Dugger v.
Arredondo, 408 S.W.3d 825 (Tex.2013). 5
arbitration bears the burden to prove unconscionability.
See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756
(Tex.2001); see also In re Oakwood Mobile Homes, Inc.,
987 S.W.2d 571, 573 (Tex.1999) (orig. proceeding) (per
curiam) (once party establishes a claim within scope
of an arbitration agreement, trial court must compel
arbitration unless other party presents evidence agreement
was procured in unconscionable manner, induced or
procured by fraud or duress, or waived), abrogated in
part on other grounds by In re Halliburton, 80 S.W.3d
at 572. Unconscionability of an arbitration agreement
may exist in one or both of two forms: (1) procedural
unconscionability, which refers to the circumstances
surrounding the adoption of the arbitration provision,
and (2) substantive unconscionability, which refers to
the fairness of the arbitration provision itself. In re
Halliburton, 80 S.W.3d at 571. Whether a contract is
unconscionable at the time it is formed is a question of law.
In re Poly–America, L.P., 262 S.W.3d 337, 349 (Tex.2008)
(orig. proceeding). A trial court has no discretion to
determine what the law is or to apply the law incorrectly,
and a failure to properly analyze or apply the law of
unconscionability constitutes an abuse of discretion. Id.

Pursuant to the arbitration agreement, if Tony sued Pilot

Travel for his own injuries prior to his death, he would
have been compelled to arbitrate his claims. Texas law
and the arbitration agreement therefore provide that all
of the claims asserted by appellees against Pilot Travel
are subject to mandatory binding arbitration as agreed to
by Tony. Accordingly, appellees' argument that they are
not bound to arbitrate because they are not signatories
to Tony's arbitration agreement with Pilot Travel is not
persuasive.
Conclusion
We conclude Pilot Travel established the existence of an
arbitration agreement and *180 that appellees' claims
against it fall within that agreement's scope.
Unconscionability of Arbitration Agreement
[12] [13] Appellees contend the arbitration agreement is by appellees. With regard to appellees' argument that the
invalid and unenforceable because under Texas contract
law it is procedurally and substantively unconscionable. because Tony had to accept the arbitration agreement
Because the law favors arbitration, the party opposing
Procedural Unconscionability
In response to Pilot Travel's motion to compel
arbitration, appellees argued the arbitration agreement is
procedurally unconscionable because it was difficult for
an unsophisticated man like Tony to understand, and
Pilot Travel knew Tony's level of education, and was
aware of his lack of sophistication, based on information
contained in his application for employment. Appellees
further argue the procedural unconscionability of the
arbitration agreement based on Tony's lack of input
concerning the terms of the agreement and the one-sided
character of the agreement which Tony had to accept or
forego employment by Pilot Travel.
[14] Appellees' unverified response to Pilot Travel's
motion to compel arbitration contained no evidence the
arbitration agreement is procedurally unconscionable.
Further, there is no evidence in the record establishing
Tony's lack of education and “sophistication” as argued
arbitration agreement was procedurally unconscionable
terms to be employed by Pilot Travel, the Texas Supreme

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 11

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
Court has recognized that an employer may make
precisely such a “take it or leave it” offer to its at-
will employees. See In re Halliburton, 80 S.W.3d at
572 (rejecting argument that disparity in bargaining
power between employer and employee rendered
arbitration agreement procedurally unconscionable)
(citing Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 228–
29 (Tex.1986)). Mere inequality of bargaining power is
not a sufficient reason to hold an arbitration agreement
unenforceable in the employment context. Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111
S.Ct. 1647, 114 L.Ed.2d 26 (1991). On this record,
nothing about the specific circumstances surrounding the
adoption of the arbitration agreement shows it to be
procedurally unconscionable.
*181 Substantive Unconscionability
With regard to their argument the arbitration agreement
is substantively unconscionable, appellees contended
in their response to Pilot Travel's motion to compel
arbitration that the costs and fees to arbitrate their
wrongful death claims effectively preclude them from
vindicating their rights because they are indigent. Further,
appellees stated they live in Alabama and the travel
expenses to Texas are more than they can bear; yet
appellees also indicated that “court costs” to litigate
before a jury have been “very costly but manageable.”
Finally, appellees argued the limitations on discovery
contained in the arbitration agreement are substantively
unconscionable.
[15] [16] Addressing first appellees' argument that
arbitration conducted in Texas will be prohibitively
expensive for them, we note appellees filed their wrongful
death lawsuit in Texas, and there is no evidence in the
record that arbitration in Texas will entail greater travel
expense than litigation of the wrongful death case in a
Texas state court. Moreover, the arbitration agreement
indicates that the party seeking arbitration (Pilot Travel)
shall pay the American Mediation Association filing fee.
The arbitration agreement further provides that the costs
and fees charged by the arbitrator shall be borne equally
by the parties; however, the arbitrator shall have the
discretion, upon request of a party and for good cause, “to
reapportion the arbitration fees (except attorney fees) and
costs in a manner which the arbitrator deems equitable.”
According to the terms of the arbitration agreement, “in
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
no event would an employee be assessed more than one-
half of the arbitration fees (except attorney fees) and
costs.” An agreement that provides for fee-splitting is not,
by itself, unconscionable. In re Weeks Marine, Inc., 242
S.W.3d 849, 860 (Tex.App.-Houston [14th Dist.] 2007,
orig. proceeding). There is no evidence in the record that
appellees do not have the financial ability to pay a portion
of the arbitrator's fees. Appellees admit in their brief
that appellee James McCray makes a living wage and
that “Appellee Shamekia Gullatte is a registered nurse.”
Appellees cannot point to evidence of severe monetary
constraints that would effectively preclude participation
in arbitration. Further, there is no evidence in the record
supporting appellees' assertion an arbitration will be more
costly than litigating appellees' wrongful death claims in
state court.
[17] By the express terms of the arbitration agreement,
remedies available to appellees in arbitration shall be
the same remedies available to them in a state court
proceeding. With regard to the amount of discovery
permitted, paragraph 1.17 of the arbitration agreement
provides:
Unless so ordered by the arbitrator,
and only upon a showing of good
cause, no more than three (3)
depositions, excluding depositions
of expert witnesses, may be taken
by any party. No single deposition
may exceed four (4) hours.
Interrogatories may be utilized by
any party. Each party is allowed
two (2) sets of Interrogatories
requiring no more than twenty
(20) separate responses per set
(subset requests such as IA, IB
or questions requesting multiple
answers shall each count as one
response). The arbitrator shall have
sole authority to determine which
discovery procedures are necessary
and appropriate in the case to
reduce the time, cost and expense
of the discovery process, while
still affording each party a fair
opportunity to prepare its case.
Requests for Production may be
utilized by any party upon approval
by the arbitrator. Requests for
12
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

Admission may be utilized by any

party upon *182 approval by
Waiver of Arbitration Agreement
the arbitrator. Unless a greater
time is allowed by the requesting [19] A party may waive contractual arbitration rights by
party, Interrogatories, Requests substantially invoking the judicial process to the detriment
for Production and Requests for of the other party. Perry Homes v. Cull, 258 S.W.3d
Admission shall be answered or 580, 589–90 (Tex.2008). As a defense to Pilot Travel's
objected to within thirty (30) days motion to compel arbitration, appellees contend Pilot
from the date of service. Travel waived arbitration and that they were prejudiced
by Pilot Travel invoking the judicial process.
Under the arbitration agreement, the parties are permitted
the same amount of discovery. See In re Poly–America,
262 S.W.3d at 357–58 (discovery limitations in arbitration
agreement applied equally to both sides and were not Standard of Review and Applicable Law
per se substantively unconscionable; limitations that
[20] [21] [22] Waiver of contractual arbitration rights
operate to prevent effective presentation of claim are
is a question of law that this Court reviews de novo.
unenforceable, but that determination is best left to
Id. at 598; see also Small v. Specialty Contractors, Inc.,
arbitrator as case unfolds). Appellees contend they need
310 S.W.3d 639, 644 (Tex.App.-Dallas 2010, no pet.).
to conduct discovery beyond that contemplated by the
Because public policy favors resolving disputes through
arbitration agreement. However, appellees acknowledge
arbitration, the law imposes a strong presumption against
written discovery has been exchanged and depositions
the waiver of contractual arbitration rights. See In re
have previously been taken in the lawsuit. In addition,
Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.1998)
the arbitration agreement provides that upon a showing
(orig. proceeding); see also In re Vesta Ins. Group, Inc.,
of good cause, a party may obtain an order from the
192 S.W.3d 759, 763 (Tex.2006) (orig. proceeding) (per
arbitrator for taking additional depositions, and may
curiam) (there is a strong presumption against waiver
obtain approval from the arbitrator to utilize requests
under the FAA). When presented with questions of
for production and for admissions. At this point in
waiver, we are required to resolve any doubts in favor
the proceeding, we cannot conclude that the evidence
of arbitration. In re Oakwood Mobile Homes, 987 S.W.2d
presented to the trial court compelled a finding that the
at 574. The standard for determining waiver is the same
discovery limitations were per se unconscionable. See id.
under federal and state law. See Holmes, Woods &
at 358.
Diggs v. Gentry, 333 S.W.3d 650, 654 (Tex.App.-Dallas
2009, no pet.). Waiver may be implied from a party's
[18] Substantive unconscionability refers to fairness of
an arbitration provision. See In re Halliburton, 80 S.W.3d *183 conduct, so long as that conduct is unequivocal.
Perry Homes, 258 S.W.3d at 593. In “close cases, the
at 571. Here, the terms of the arbitration agreement do
‘strong presumption against waiver’ should govern.” Id.
not favor either party. Appellees have not established
(quoting In re D. Wilson Constr. Co., 196 S.W.3d 774, 783
that the cost of arbitration or the discovery limitations
contained in the arbitration agreement will prevent them (Tex.2006) (orig. proceeding)).
from effectively presenting their wrongful death claims.
[23] [24] As the parties claiming waiver, appellees had
On this record, appellees failed to establish the terms of the
the heavy burden of establishing Pilot Travel substantially
arbitration agreement arc substantively unconscionable.
invoked the judicial process. See Bruce Terminix, 988
S.W.2d at 704; Adams v. StaxxRing, Inc., 344 S.W.3d 641,
648 (Tex.App.-Dallas 2011, pet. denied). In determining
Conclusion whether appellees met their burden, we must examine
the case-specific facts and look to the totality of the
Appellees failed to establish procedural or substantive
circumstances. See Perry Homes, 258 S.W.3d at 591
unconscionability as a defense to Pilot Travel's motion to
(whether a party has waived arbitration must be decided
compel arbitration.
on a case-by-case basis, based upon an examination of
the totality of the circumstances). The judicial process is

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 13

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
substantially invoked when the party seeking arbitration
has taken specific and deliberate actions, after the filing
of the suit, that are inconsistent with the right to
arbitrate or has actively tried, but failed, to achieve a
satisfactory result through litigation before turning to
arbitration. In re Vesta Ins. Group, Inc., 192 S.W.3d at 763.
Factors considered in determining whether a movant has
substantially invoked the judicial process include when
the movant knew of the arbitration clause, how much
discovery has been initiated and who initiated it, the
extent to which discovery related to the merits rather
than arbitrability or standing, how much of the discovery
would be useful in arbitration, whether the movant sought
judgment on the merits, and whether the movant sought
to compel arbitration on the “eve of trial.” Perry Homes,
258 S.W.3d at 590–92.
[25] In addition to their burden of showing Pilot Travel
substantially invoked the judicial process, appellees had
the burden to show prejudice. See id. at 595 (“waiver of
arbitration requires a showing of prejudice”). “Prejudice”
in the context of waiver of contractual arbitration rights
“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.” Id. at 597 (quoting
Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d
341, 346 (5th Cir.2004)). “Thus, ‘a party should not be
allowed purposefully and unjustifiably to manipulate the
exercise of its arbitral rights simply to gain an unfair
tactical advantage over the opposing party.’ ” Id. (quoting
In re Tyco Inti'l Ltd. Sec. Litig., 422 F.3d 41, 46 n. 5 (1st
Cir.2005)).
Substantial Invocation of Judicial Process
[26] On July 20, 2011, Pilot Travel demanded arbitration
before the American Mediation Association. On July 22,
2011, appellees filed their original petition and request
for disclosures. Pilot Travel's original answer filed on
August 29, 2011 included the affirmative defense that
appellees' claims against Pilot Travel were the subject
of a binding arbitration agreement. See In re H & R
Block Fin. Advisors, Inc., 262 S.W.3d 896, 901 (Tex.App.-
Houston [14th Dist.] 2008, orig. proceeding) (burden of
demonstrating waiver “falls even more heavily” when
the party seeking arbitration included a demand for
arbitration in its original answer) (quoting Keytrade
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897
(5th Cir.2005)). Pilot Travel filed its motion to compel
arbitration and for stay of the trial court proceedings
against it on September 6, 2012. Appellees filed their
response to Pilot Travel's motion to compel arbitration on
October 11, 2012.
*184 Appellees assert they have expended considerable
time and resources responding to Pilot Travel's “actions
in litigation.” According to appellees, Pilot Travel gained
valuable information “during discovery,” especially from
depositions that “potentially” would not have been
available in arbitration. Appellees also state their “pretrial
strategy would have been substantially different” had
Pilot Travel filed its motion to compel arbitration earlier.
Appellees state they have “endured two years of litigation
including being deposed, answering interrogatories,
interstate traveling and so forth.”
[27] With regard to appellees' argument that Pilot Travel
waived arbitration by its delay in seeking an order
from the trial court compelling arbitration, delay alone
generally does not establish waiver. See In re Vesta Ins.
Group, 192 S.W.3d at 763. The record shows a period
of approximately one year between the time Pilot Travel
answered the lawsuit and the time it filed its motion to
compel arbitration. Greater delays in moving to compel
arbitration have been insufficient to constitute waiver of
arbitration rights. See, e.g., id. (litigating for two years in
trial court insufficient to overcome presumption against
waiver). We must consider this delay in the context of
other factors affecting the litigation process. Small, 310
S.W.3d at 639.
We note there was no evidentiary hearing and no
reporter's record of argument before the trial court
concerning Pilot Travel's motion to compel arbitration.
The trial court made no findings pertinent to the merits
of Pilot Travel's motion to compel arbitration. Appellees
do not cite to evidence purportedly presented to the trial
court, nor can appellees cite to any evidence in the record,
that demonstrates Pilot Travel substantially invoked the
judicial process. See Small, 310 S.W.3d at 645–46, 649
(record did not support argument that movants had
waived their right to arbitration by invoking the judicial
process to the prejudice of nonmovant; record contained
no reporter's record of argument before the trial court,
no evidentiary hearing regarding the motion to compel
arbitration, and no trial court findings).
14
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
The quantum of litigation conduct that will be deemed
“substantial” depends very much on the context. See
Perry Homes, 258 S.W.3d at 593; EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 89–90 (Tex.1996) (per curiam)
(party did not waive arbitration right by answering
the suit, participating in docket control conference,
propounding requests for production and interrogatories,
noticing plaintiff's deposition, and entering into an agreed
order to reset the original trial date); Walker v. J.C.
Bradford & Co., 938 F.2d 575, 576–78 (5th Cir.1991)
(party did not waive arbitration right by propounding
interrogatories and requests for production, attending
pretrial conference, and delaying thirteen months before
filing motion to compel arbitration).
In response to Pilot Travel's motion to compel arbitration,
appellees argued Pilot Travel invoked the judicial process
by consenting to co-defendants' removal of the state court
litigation to federal court, participating in scheduling
conferences in federal and state court, agreeing to trial
dates in state and federal court, and signing scheduling
orders in federal and state court. 6 By appellees' own
admission, Pilot *185 Travel did not “invoke” the
judicial process with regard to removal of the case to
federal court, but rather consented to co-defendants'
removal of the case. We disagree that by purported
agreement to trial settings, Pilot Travel “sought judgment
on the merits” as argued by appellees. Further, the record
contains no evidence of scheduling orders or trial dates in
the lawsuit during its pendency in either federal or state
court. 7
In their appellate brief, appellees state the discovery in
this lawsuit “has been pretty extensive” between appellees
and Pilot Travel's co-defendants, and the exchange
of discovery between appellees and Pilot Travel's co-
defendants has “greatly benefitted” Pilot Travel because it
received copies of the discovery exchanged. Appellees do
not contend Pilot Travel has initiated discovery; instead,
they argue Pilot Travel has not needed to initiate discovery
because of the discovery exchanged between appellees
and Pilot Travel's co-defendants. Further, appellees assert
Pilot Travel participated in discovery by “significantly”
deposing three parties, co-defendant Dilber and appellees
Joan McCray and Shamekia Gullatte. However, appellees
do not contend Pilot Travel invoked the judicial process
by noticing any of the parties for deposition; instead, they
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
argue that by merely participating in the depositions, Pilot
Travel invoked the judicial process.
Appellees' arguments regarding discovery concern matters
that are not reflected in the record. No discovery was
admitted into evidence or attached to appellees' response
to Pilot Travel's motion to compel arbitration. Because
appellees offered none of the discovery documents as
evidence in the trial court and presented no details about
any of them, the record does not show whether the written
discovery was limited or extensive, sought information for
affirmative or defensive issues, or whether the discovery
addressed the merits of the lawsuit. Further, appellees
do not allege that the discovery already conducted
would not be useful in arbitration. See In re Vesta Ins.
Group, 192 S.W.3d at 763 (noting that no prejudice from
allegedly “extensive discovery” was shown where party
opposing arbitration failed to present evidence detailing
the discovery conducted and failed to allege discovery
already conducted would not be useful in arbitration); see
Small, 310 S.W.3d at 648 (appellee did not claim discovery
already exchanged could not be used in arbitration).
The supreme court in Perry Homes emphasized facts that
would constitute waiver: “allowing a party to conduct
full discovery, file motions going to the merits, and seek
arbitration only on the eve of trial.” Perry Homes, 258
S.W.3d at 590 (quoting In re Vesta Ins. Group, 192 S.W.3d
at 764). Here, the record does not show Pilot Travel filed
a motion on the merits, engaged in extensive discovery,
or sought arbitration on the eve of trial. See Small, 310
S.W.3d at 645–47.
Prejudice
[28] Additionally, appellees did not present any evidence
that they suffered *186 prejudice. “Prejudice” in the
context of waiver of a contractual right to arbitration
means “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.” Perry Homes, 258
S.W.3d at 597; see also In re Bruce Terminix Co., 988
S.W.2d at 704 (noting that even substantial invocation
of judicial process does not constitute waiver absent
proof of prejudice). In appellees' brief they state Pilot
Travel's “delay” and “actions” caused them “detriment
and prejudice in terms of burgeoning and unnecessary
15
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)
legal fees, etc.” We question whether this argument was
made before the trial court. In their response to Pilot
Travel's motion to compel arbitration, appellees state
Pilot Travel delayed in moving to compel arbitration
which resulted in appellees “expending considerable time
and resources.” Assuming this argument can be construed
to comport with appellees' argument on appeal, the record
is void of evidence relating to legal fees and expenses
incurred as a result of Pilot Travel's allegedly invoking
the litigation process to appellees' detriment. See id.
Further, although appellees argue their “pretrial strategy”
would have been “substantially different” had Pilot Travel
filed its motion to compel arbitration earlier, appellees
have not established how their legal position has been
prejudiced. Appellees have not carried their burden to
establish expense or damage to their legal position as a
result of Pilot Travel's alleged invoking the judicial process
to appellees' detriment.
Conclusion
On this record and considering the totality of the
circumstances in this case, we conclude appellees have
not met their heavy burden of establishing Pilot Travel
waived arbitration by substantially invoking the judicial
process, nor have they demonstrated sufficient prejudice
to overcome the strong presumption against waiver of
arbitration.
Section 1 of the FAA
[29] According to appellees, the arbitration agreement
is unenforceable under section 1 of the FAA. Section
1 is an exemption provision and it provides the FAA
does not apply “to contracts of employment of seamen,
railroad employees, or any other class of worker engaged
in foreign or interstate commerce.” 9 U.S.C.A. § 1
(West 2009). Appellees argued to the trial court in their
response to Pilot Travel's motion to compel arbitration
that “nothing in the FAA applies to employment contracts
of workers engaged in interstate commerce.” More
specifically, appellees argued to the trial court that Tony
was a maintenance worker for Pilot Travel and a large
portion of Pilot Travel's business “involves providing fuel,
rest facilities, food, etc. for truck drivers of 18–wheeler
tractor trailers.” According to appellees, “these drivers
and their trucks are engaged in interstate commerce
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
daily” and. “[b]y extension, workers who maintain the
parking lots and facilities that service these trucks as
well as providing other services to these truckers and
their trucking companies are directly engaged in interstate
commerce.”
[30] Appellee's argument that “nothing in the FAA
applies to employment contracts of workers engaged in
interstate commerce” has been previously rejected by the
United States Supreme Court and by this Court. The
United States Supreme Court has held that “[s]ection 1
exempts from the FAA only contracts of employment of
transportation workers.” *187 Circuit City Stores, Inc.
v. Adams, 532 U.S. 105, 119, 121 S.Ct. 1302, 149 L.Ed.2d
234 (2001). Many years prior to the decision in Adams, this
Court concluded that section 1's exemption related only
to employment contracts of workers “actually engaged
in the movement of goods in interstate commerce.”
White–Weld & Co. Inc. v. Mosser, 587 S.W.2d 485, 487
(Tex.Civ.App.-Dallas 1979, writ ref'd n.r.e.) (employee
who sold government bonds not engaged in movement of
goods in interstate commerce for purposes of section 1
exclusion) (citing Dickstein v. duPont, 443 F.2d 783, 785
(1st Cir.1971)).
While appellees also argue that workers who maintain
parking lots and facilities at a truck stop are “by
extension” engaged in interstate commerce, there is no
evidence in this record to support an argument Tony was a
transportation worker actually engaged in the movement
of goods in interstate commerce within the meaning of
the exemption of section 1 of the FAA. See Adams, 532
U.S. at 119, 121 S.Ct. 1302; Mosser, 587 S.W.2d at 487.
Instead, the record indicates Tony was employed as a
truck stop maintenance worker, and as a maintenance
worker Tony was no more engaged in the movement of
goods in interstate commerce than a clerk in a truck stop
convenience store or wait staff in a truck stop restaurant.
The facts on this record are insufficient to trigger the
exemption in section 1 of the FAA. See Cole v. Burns Int'l
Sec. Servs., 105 F.3d 1465, 1472 (D.C.Cir.1997) (security
guard at Union Station in Washington, D.C. not engaged
in transportation of goods in commerce for purposes of
section 1 exclusion). Accordingly, we are not persuaded
by appellees' defense to Pilot Travel's motion to compel
arbitration based on section 1 of the FAA.
16
Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

Section 171.002 of the Texas Arbitration Act
The arbitration agreement provides the FAA shall apply
to and govern any matter submitted to arbitration
pursuant to Pilot Travel's Benefit Plan, and that in the
event or to the extent the FAA may be determined
to be inapplicable, “and only in such an event,” the
Texas General Arbitration Act (TAA) shall apply. In
defense to Pilot Travel's motion to compel arbitration,
appellees assert that because section 1 of the FAA
does not apply to employment contracts of workers
engaged in interstate commerce, section 171.002 of the
TAA applies and exempts this matter from arbitration.
Section 171.002 of the TAA excludes claims for personal
injury from arbitration under the TAA 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. TEX. CIV. PRAC. &
REM.CODE ANN. § 171.002(a)(3), (c) (West 2011); see
also In re Nexion Health at Humble, Inc., 173 S.W.3d
67, 69 (Tex.2005) (orig. proceeding) (TAA interfered
with enforceability of arbitration agreement governed by
FAA by adding requirement of signature of a party's
counsel to arbitration agreements in personal injury cases,
and FAA preempts the TAA); Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134
L.Ed.2d 902 (1996) (“Courts may not, however, invalidate
arbitration agreements under state laws applicable only to
arbitration provisions.”). Here, the parties do not dispute
that appellees' wrongful death claims arc personal injury
claims. See TEX. CIV. PRAC. & REM.CODE ANN. §
71.002(b) (West 2008) (person is liable for damages arising
from an injury that causes an individual's death if injury
was caused by person's or his agent's or servant's wrongful
act, neglect, carelessness, unskillfulness, or default). Pilot
Travel does not contend Tony was represented by an
attorney at the time of signing the arbitration agreement
or that an attorney *188 for Tony signed the arbitration
agreement. However, as discussed above, we conclude
section 1 of the FAA does not exempt this matter from
arbitration. Therefore, appellees' argument that section
171.002 of the TAA exempts this matter from arbitration
is unpersuasive.
Conclusion
The trial court abused its discretion by refusing to compel
arbitration of appellees' claims against Pilot Travel. Under
the FAA, a trial court must stay the litigation of issues
that are subject to arbitration. See 9 U.S.C.A. § 3 (West
2009). The trial court's order denied Pilot Travel's motion
to compel arbitration and for stay in “all respects.”
Therefore, it appears the trial court, in addition to denying
Pilot Travel's motion to compel arbitration, also denied
Pilot Travel's motion to stay further litigation of appellees'
claims against it. Having concluded the trial court erred in
failing to compel arbitration of appellees' claims asserted
against Pilot Travel, the trial court also erred in failing
to stay further litigation of those claims. See Courtland
Bldg. Co., Inc. v. Jalal Family P'ship, Ltd., 403 S.W.3d
265, 276 (Tex.App.-Houston [14th Dist.] 2012, no pet.).
Accordingly, we reverse the order of the trial court
denying Pilot Travel's motion to compel arbitration and
for stay of the trial court proceedings and remand the case
to the trial court for further proceedings consistent with
this opinion.
All Citations

416 S.W.3d 168

Footnotes
1 The record indicates James Antonio McCray signed his name on Pilot Travel employment documents as “James McCray.”
In this opinion, we refer to James Antonio McCray as “Tony” in order to avoid confusion with our references to Tony's
father, appellee James McCray.
2 The January 16, 2013 Order states the trial court considered appellees' “Motion for Judgment Nunc Pro Tunc, and the
response thereto.” However, the record contains no motion for judgment nunc pro tunc, nor any response by Pilot Travel
to such a motion. See TEX.R. CIV. P. 316 (permits trial court to correct mistakes and incorrect recitals in judgments but
only after reasonable notice of any application for correction is given to opposing party).
3 In its objection to the January 16, 2013 order and motion to vacate that order, Pilot Travel stated it was never served
with a motion for judgment nunc pro tunc.
4 On appeal, the parties do not dispute the trial court conducted a hearing on Pilot Travel's motion to compel arbitration on
November 16, 2012, However, no reporter's record containing a transcript of the November 16, 2012 hearing has been

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 17

Pilot Travel Centers, LLC v. McCray, 416 S.W.3d 168 (2013)

filed with this Court, Even assuming the November 12, 2012 date of signature on the order was incorrect and should have
been November 16, 2012, the deadline for filing a notice of accelerated appeal of a November 16, 2012 order denying
Pilot Travel's motion to compel arbitration and for stay would have been December 6, 2012.
5 Appellees assert that even if this Court concludes the arbitration agreement is enforceable, appellees' loss of consortium
claims are not subject to the arbitration agreement. As was explained in In re Labatt Food Service, a tort action seeking
damages for loss of consortium arises from nonfatal injuries to a parent or child and are not entirely derivative as are
wrongful death claims. 279 S.W.3d at 646. However, “[a] wrongful death action is different than a loss of consortium
claim because the Wrongful Death Act expressly conditions the beneficiaries' claims on the decedent's right to maintain
suit for his injuries.” Id.
6 According to appellees, because of a lack of complete diversity jurisdiction, the federal case was remanded to state
court. The record contains no evidence of when the case was removed to federal court or remanded to state court. The
docket sheet from the state court litigation references removal and remand. However, docket sheets are not part of the
record. See Energo Int'l Corp. v. Modern Indus. Heating. Inc., 722 S.W.2d 149, 151 & n. 2 (Tex.App.-Dallas 1986, no
writ) (docket sheet entries are not part of the record which may be considered because they lack the formality of orders
and judgments; rather, docket sheet entry is a memorandum made for the convenience of the trial court and clerk).
7 Appellees state in their response to Pilot Travel's motion to compel arbitration that the case was set for trial on July 23,
2012. However, appellees do not argue that Pilot Travel invoked the judicial process by seeking a continuance of that
trial setting.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 18

Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
2002 WL 31528463
Only the Westlaw citation is currently available.
United States District Court,
E.D. Louisiana.
PRESCOTT–FOLLETT & ASSOCIATES, INC. et al
v.
DELASA/PRESCOTT
FOLLETT & ASSOCIATES, et al
No. Civ.A. 01–3178.
| at Puerto Cabezas in July, 2001. 6 As a prerequisite for
Nov. 8, 2002.
Opinion
AFRICK, J.
*1 Before this Court is the motion of defendants, Delasa/
Prescott Follett & Associates, a Delaware limited liability
company, Alma Finance Group, Kris N. Mahabir, Arete,
LLC, and Mary Wright, to compel arbitration pursuant
to an operating agreement of Delasa/Prescott Follett &
Associates. Plaintiffs, Prescott–Follett & Associates, Inc.
and Latin American Energy Development, Inc. d/b/a
Delasa oppose the motion. For the following reasons, the
motion is GRANTED.
FACTUAL BACKGROUND
In 1999, Prescott–Follett & Associates, Inc., Latin
American Energy Development, Inc. d/b/a Delasa, 1
Alma Finance Group, and Arete, LLC, (the “Parties”)
formed a Delaware limited liability company, Delasa/
Prescott–Follett & Associates LLC (the “Delaware
Company”), for the purpose of securing a twenty five year
lease of the port facilities at Puerto Cabezas, Nicaragua. 2
Shortly after forming the Delaware Company, the Parties
signed an operating agreement dated March 29, 1999,
(the “March Operating Agreement”) to formalize their
3
agreement to work together on the project. The March
Operating Agreement contained a clause requiring that,
“[i]n the Event of any dispute under this Agreement, such
dispute shall be settled by arbitration in New York, New
York, in accordance with the rules then promulgated by
the American Arbitration Association ...” 4
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In November 1999, the Parties allegedly negotiated a
new operating agreement (the “November Operating
Agreement”). The terms of the November Operating
Agreement were substantially different from the March
Operating Agreement, but contained the same dispute
resolution clause as the original March Operating
Agreement, in that it required the members to resolve “any
dispute under this Agreement ... by arbitration in New
York.” 5
The Delaware Company was ultimately successful in
securing the lease and it assumed control of the port
doing business in Nicaragua, Nicaraguan law required
the Delaware Company to be registered in Nicaragua
and to appoint an agent who resided in Nicaragua. 7 The
Delaware Company appointed Arnaldo Talavera to act as
its agent and it granted him power of attorney to handle,
inter alia, certain banking transactions for the Delaware
Company. 8
In August, 2001, the majority shareholder of the
Delaware Company requested that Talavera provide
an accounting of funds he handled on behalf of the
Delaware Company. 9 Talavera failed to respond to
these requests. Shortly thereafter, it was discovered that
John Wheelock 10 had allegedly opened a bank account
in Nicaragua under the same name as the Delaware
Company and that he wrongfully deposited checks
belonging to the Delaware Company. 11
Consequently, the Delaware Company filed charges in
Nicaragua against Talavera on September 18, 2002,
seeking an accounting of the Delaware Company's
funds. 12 On December 12, 2001, a judge of the Criminal
Court of Puerto Cabezas convicted Talavera of the
crime of theft with abuse of trust in violation of
the Nicaraguan Criminal Code. 13 In the judgment of
conviction, defendants allege that the judge also set
forth a criminal complaint 14 against Wheelock for being
presumed to be Talavera's co-conspirator. 15 Plaintiffs
agree that Wheelock was subsequently convicted of this
alleged crime in absentia. 16
*2 On October 19, 2001, plaintiffs filed the present
lawsuit seeking to have the November Operating
1
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
Agreement declared null and void and to reinstate the
March Operating Agreement. Plaintiffs also seek damages
arising from the defendants' alleged breach of the March
Operating Agreement.
LAW AND ANALYSIS
The Federal Arbitration Act (“FAA”) applies to written
arbitration provisions contained in contracts involving
commerce and “its reach is coextensive with the
Congressional power to regulate under the Commerce
Clause.” Trapp Chevrolet–Oldsmobile–Cadillac, Inc. v.
General Motors Corporation, 2002 WL 11633611, *2
(E.D.La.5/31/02). Specifically, Section 2 of the FAA
provides:
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 revocation of any contract.
9 U.S.C. § 2. The term “commerce” refers to “commerce
among the several States or with foreign nations” 17 and
it is to be broadly construed. Atlantic Aviation, Inc. v.
EBM Group, Inc., 11 F.3d 1276, 1280 (5 th Cir.1994).
Furthermore, it is well established that although the
FAA is substantive law, the Act applies “in diversity
cases because Congress ha[s] so intended.” 18 Allied Bruce
Terminex Companies, Inc. v. Dobson, 513 U.S. 265, 271,
115 S.Ct. 834, 838, 130 L.Ed.2d 753 (1995).
In this case, none of the parties dispute that the operating
agreements between the parties are contracts involving
commerce within the meaning of 9 U.S.C. § 2. 19
Moreover, it is also undisputed that both the March
and November operating agreements contain written
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
arbitration provisions. 20 Accordingly, the FAA governs
this Court's determination regarding the arbitrability of
this dispute.
The FAA expresses a strong presumption favoring
arbitration of disputes and “all doubts concerning the
arbitrability of claims should be resolved in favor of
arbitration.” Primerica Life Insurance Co. v. Brown, 304
F.3d 469, 471 (5 th Cir.2002). “By its terms, the Act 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.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 614, 625–26, 105 S.Ct.
1238, 1241, 84 L.Ed.2d 158 (1985)(emphasis added). In
determining whether the parties should be compelled to
arbitrate a dispute, the Court performs a two-step inquiry.
Primerica Life Insurance Co. v. Brown, 304 F.3d 469, 471
(5 th Cir.2002). “First, the court must determine whether
the parties agreed to arbitrate the dispute. 21 Once the
court finds that the parties agreed to arbitrate, it must
consider whether any federal statute or policy renders
the claims nonarbitrable.” Id. In conducting this two
step analysis, “courts must not consider the merits of the
underlying action.” Downer v. Siegel, 2002 WL 31106920,
*2 (E.D .La. 9/19/02).
*3 Here, plaintiffs do not deny that both the March
and November operating agreements at issue contain
an identical arbitration clause requiring “any dispute”
under the agreement to be arbitrated in New York. 22
Likewise, plaintiffs do not contest that their claims
for breach of the original operating agreement (i.e.
the March Operating Agreement) fall within the broad
scope 23 of the arbitration clause. 24 Rather, plaintiffs
sole argument is that they should not be compelled to
arbitrate at all because both the March and November
agreements are invalid as a whole as a result of fraudulent
misrepresentations by the defendants . 25 Specifically,
plaintiffs contend “that the entire consent to form the
contract initially was obtained by the fraud, manipulation
and misrepresentation” 26 of facts by the defendants
“upon which the plaintiffs relied, and without which the
entire contract, including the arbitration clause, would
never have been entered into or agreed to.” 27
2
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
The Court notes that plaintiffs' arguments, legally
actionable as they may be, do not render their claims
nonarbitrable. At no time have plaintiffs asserted that
there was fraud in the inducement or misrepresentations
relative to the arbitration clause alone. 28 In Prima Paint
Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395,
403–04, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967),
the United States Supreme Court specifically held that
pursuant to the FAA, “ ‘if the claim is fraud in the
inducement of the arbitration clause itself—an issue which
goes to the ‘making’ of the agreement to arbitrate—the
federal court may proceed to adjudicate it,' but the federal
court cannot consider claims of fraud in the inducement of
the contract itself.” Downer v. Siegel, 2002 WL 31106920,
*2 (E.D.La.9/19/02)(citing Prima Paint, 388 U.S. at 403–
04, 87 S.Ct. at 1806)). Thus, unless a defense relates
solely to the arbitration clause, it must be submitted to
the arbitrator for consideration as part of the underlying
dispute between the parties. 29 Primerica Life Insurance
Co. v. Brown, 304 F.3d 469, 471–72 (5 th Cir.2002).
Plaintiffs in this case seek a declaratory judgment that
the November operating agreement is “null, void, ultra
vires, in violation of the Original Consent and Terms of
the Operating Agreement, and of no effect whatsoever”
as a result of alleged fraudulent misrepresentations by
the defendants. 30 In their opposition to the motion to
compel arbitration, the plaintiffs further allege that “even
th[e] March 29 Operating Agreement was manipulated by
defendants” and should be voided. 31 As plaintiffs' fraud
defense relates to the operating agreements generally,
the jurisprudence and the FAA mandate that plaintiffs'
claims, including the fraud in the inducement defense, be
resolved by the arbitrator. 32 See Prima Paint, 388 U.S.
395, 404, 87 S.Ct. 1801, 1806; Rushe, 2002 WL 575706 at
*7.
Plaintiffs next argue that arbitration should be denied
in this case because defendants sought the intervention
of the judicial system in Nicaragua rather than resorting
to arbitration, thereby waiving their right to compel
arbitration. 33 Specifically, in their supplemental and
amending complaint plaintiffs aver:
*4 Defendants have waived any right to arbitration
of this claim both by their filing or causing the filing
of civil and criminal litigation against John Wheelock
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
and Arnoldo Talavera in matters arising out of the
Lease and Operating Agreement; and by their conscious
and deliberate efforts to violate, illegally modify and
undermine the operation of DELASA/Delaware and
the proper operation of Puerto Cabezas under the
Lease. 34
“Waiver of arbitration is not a favored finding and there
is a presumption against it.” Lawrence v. Comprehensive
Bus. Servs. Co ., 833 F.2d 1159, 1164 (5 th Cir.1987);
Subway Equipment Leasing v. Forte, 169 F.3d 324, 326
(5 th Cir.1999)(“There is a strong presumption against
waiver of arbitration”); Walker v. J .C. Bradford &
Co., 938 F.2d 575, 577 (5 th Cir.1991)(“In general, we
hesitate to find that a party has waived its contractual
right to arbitration.”); Moses H. Cone Mem'l Hosp.,
460 U.S. 1, 24–25, 103 S.Ct. 927, 941, 74 Led.2d 765
(1983)(“[A]ny doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration, whether
the problem at hand is the construction of the contract
itself or an allegation of waiver, delay, or a like defense
to arbitrability”). Accordingly, a party asserting waiver
of arbitration bears a heavy burden of proof. Subway,
169 F.3d at 326 (5 th Cir.1999). “Waiver will be found
when the party seeking arbitration substantially invokes
the judicial process to the detriment or prejudice of
the other party.” Miller v. Brewing Co. v. Forth Worth
Distrib. Co., 781 F.2d 494, 497 (5 th Cir.1986). Waiver
requires a showing of “both a substantial invocation of
the judicial process and either detriment or prejudice to
the other party.” 35 Consorcio Rive v. Briggs of Cancun,
Inc., 134 F.Supp.2d 789, 795 (E.D.La.2001). Finally,
it is well established that “a party only invokes the
judicial process to the extent it litigates a specific claim
it subsequently wants to arbitrate.” Subway, 169 F.3d at
328; Doctor's Associates v. Distajo, 107 F.3d 126, 134 (2 nd
Cir.1997)(“[O]nly prior litigation of the same legal and
factual issues as those the party now wants to arbitrate
results in a waiver of the right to arbitrate”).
Defendants' filing of alleged civil and/or criminal matters
in Nicaragua against Talavera and Wheelock did not
amount to a substantial invocation of the judicial process
and it was not inconsistent with the defendants' desire
to arbitrate the present claims arising out of the parties'
operating agreement. With respect to the alleged civil
and criminal proceedings against Talavera, plaintiffs have
presented no evidence that Talavera was a member of
3
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463
the Delaware Company or a party to the March and/or
November agreements. 36 Accordingly, the Court fails to
see how litigation against a non-party to an agreement
can result in a waiver of arbitration rights pursuant to
that agreement. 37 Further, defendants' actions in filing
proceedings against Talavera for theft of funds could not
have resulted in any detriment or prejudice to plaintiffs
with respect to this action. Plaintiffs were not even parties
to the litigation against Talavera and did not have to
bear the expense of burdensome litigation. Plaintiffs'
claims against defendants for breach of the operating
agreements are unrelated to any claims against Talavera,
individually, for alleged theft of funds. Consequently, the
Court finds that any proceeding by defendants against
Talavera, whether civil or criminal, did not result in a
waiver of arbitration rights in this matter. See Subway,
169 F.2d at 328 (holding that franchisor did not waive
right to arbitration under franchise agreement by filing
previous lawsuit against franchisees where the earlier
action involved claims that were different from the one the
franchisor now sought to arbitrate); Amalgamated Local
No. 55, United Automobile, Aerospace & Agricultural
Implement Workers of America v. Metal and Alloy Division
of Silver Creek Precision Corporation, 396 F.Supp. 667,
670 (N.D.N.Y.1975)(finding that union did not waive
arbitration under collective bargaining agreement by
filing criminal charge against one of employer's officers
where criminal action was based upon different issues
than those before the court and was brought against an
individual and not the defendant corporation).
*5 Similarly, the Court finds that the alleged filing of
38
criminal charges against Wheelock did not amount to
a waiver of defendants' right to arbitrate. Federal courts
have held that the FAA, while promoting arbitration, does
not contemplate the arbitration of criminal activity. See
Myers v. Rosenberg, 1986 WL 3329, *2 (N.D.Ill.3/7/86).
Therefore, defendants' alleged filing of criminal charges
cannot be held to be inconsistent with their desire to
arbitrate. Nor can it be held to have resulted in any
detriment or prejudice to the plaintiffs, particularly in light
of the fact that Wheelock “was convicted in absentia, being
out of the Country of Nicaragua at the time, never having
been formally faced with his accusers, never having been
permitted to go to trial.” 39 Accordingly, plaintiffs fail to
meet their burden of proving a waiver of the arbitration.
© 2016 Thomson Reuters. No claim to original U.S. Government Works.
In sum, the Court finds that there is no impediment
to the arbitration of plaintiffs' claims. All of the
parties, including the plaintiffs, admittedly signed the
operating agreements. 40 All agreed to arbitrate “any
dispute under th[e] Agreement[s].” 41 Further, plaintiffs
point to no federal statute or policy that may render
their claims nonarbitrable. Consequently, considering the
broad nature of the arbitration clause 42 and the U.S.
Supreme Court's pronouncement in Prima Paint, this
Court holds that plaintiffs' claims, including their claim
for fraud in the inducement of the operating agreement,
must be submitted to arbitration. 43
Accordingly,
IT IS ORDERED that the motion to compel arbitration
of defendants, Delasa/Prescott Follett & Associates, a
Delaware Limited Liability Company, Alma Finance
Group, Kris N. Mahabir, Arete, LLC, and Mary Wright,
is GRANTED.
IT IS FURTHER ORDERED that the claims of
plaintiffs, Prescott–Follett & Associates, Inc. and Latin
American Energy Development, Inc. d/b/a Delasa, shall
be submitted to arbitration, in accordance with the parties'
arbitration agreement.
IT IS FURTHER ORDERED that this case BE AND IS
HEREBY STAYED PENDING ARBITRATION.
IT IS FURTHER ORDERED that the Clerk of Court
mark this action closed for statistical purposes and place
this matter in a Civil Suspense File;
IT IS FURTHER ORDERED that the Court shall retain
jurisdiction and the matter shall be restored to the trial
docket if circumstances change this action, upon motion
of a party, within thirty (30) days of any such change of
circumstances, so that it may proceed to final disposition.
This order shall not prejudice the rights of the parties to
this litigation.
All Citations
Not Reported in F.Supp.2d, 2002 WL 31528463
4
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

Footnotes
1 Plaintiffs, Prescott–Follett & Associates, Inc. and Latin American Energy Development, Inc. d/b/a Delasa, are both
Louisiana corporations. Alma Finance Group and Arete LLC are foreign companies. R. Doc. No. 1, ¶ 1.
2 R. Doc. No. 18, Memorandum, p. 2.
The purpose of the project was “the commercial, long-term development and privatization of Puerto Cabezas, as a
major port in Nicaragua, on the Atlantic coast, serving the North Atlantic Autonomous Region of Nicaragua.” R. Doc.
No. 1, ¶ 8.
3 Id. at pp. 2–3.
4 R. Doc. No. 5, Exhibit D–1, Article XXII, § 22.1.
5 R. Doc. No. 18, Exhibit 1, Operating Agreement, Article 10, § 10.1.
6 R. Doc. No. 18, Memorandum, p. 3.
7 Id.
8 Id. at p. 4.
9 Id.
10 John Wheelock is the principal of Latin American Energy Development d/b/a Delasa, and a member of the Delaware
Company. R. Doc. No. 1, ¶ 8–9.
11 R. Doc. No. 18, p. 4. Plaintiffs dispute that Wheelock wrongfully deposited money into this account.
12 R. Doc. No. 18, p. 5; R. Doc. No. 5, Exhibits M–1, M–2, and N.
13 R. Doc. No. 18, p. 5; R. Doc. No. 32, p. 2.
14 According to the record, the judge ordered that an “instructive of law” be opened against Wheelock. R. Doc. No. 32, p. 5.
15 R. Doc. No. 18, p. 5 and Exhibit 2.
16 R. Doc. No. 23, p. 12. Plaintiffs further argue that the conviction was subsequently overturned by the judge who held that
the charges against Wheelock were civil in nature. Id. However, plaintiffs arguments are unsupported by any evidence
in the record.
17 9 U.S.C. § 1.
18 In fact, the U.S. Supreme Court has made it clear that the FAA preempts state law. Id., 513 U.S. at 272, 115 S.Ct. at 838.
19 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 23, pp. 1, 6–7. Although the parties dispute whether the March or
November operating agreement should apply, it is clear that both agreements “involve commerce” as the parties to the
agreements are residents of different states and the agreements relate to the operations of a Delaware Company whose
business was the development of a major foreign port in Nicaragua. As such, they fall under the coverage of the FAA. See
Rushe v. NMTC, Inc., 2002 WL 575706, *5 (E.D.La.4/16/02)(holding that where distributorship agreement was between
residents of different states and involved the distribution of products from outside the State of Louisiana and “where the
claims and allegations of the suit involve[d] meetings and communications which took place between Ohio and Louisiana,”
the agreement was one which involved commerce within the meaning of the FAA).
20 R. Doc. No. 18, Memorandum, p. 6; R. Doc. No. 1, p. 1.
21 This determination involves two considerations: “(1) whether there is a valid agreement to arbitrate between the parties;
and (2) whether the dispute in question falls within the scope of that arbitration agreement.” Webb v. Investacorp, Inc.,
th
89 F.3d 252, 258 (5 Cir.1996).
22 R. Doc. No. 5, Exhibit D–1, Operating Agreement, Article XXII, § 22.1; R. Doc. No. 18, Exhibit 1, Article 10, § 10.1.
23 The Fifth Circuit has differentiated between arbitration clauses which are “broad” and those which are “narrow.” Rushe,
2002 WL 575706 at *5. “Where an arbitration clause is ‘broad,’ the action should be stayed and the arbitrator permitted
to decide if the dispute falls within the clause. Whereas in cases where the clause is ‘narrow,’ the case is not referred
to arbitration or stayed, unless the Court determines that the dispute falls within the clause.” Id. (citing In Re Complaint
th
of Hornbeck Offshore Corp., 981 F.2d 752, 755 (5 Cir.1993)).
Clauses which contain the term “any dispute” have been held to be “broad.” Id.; see also Pennzoil, 139 F.3d at 1067;
th
Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corporation, 797 F.2d 238, 244 (5 Cir.1986)(finding
that arbitration clause requiring arbitration of “any controversy between the parties ... arising under this Contract” was
th
broad); Rojas v. TK Communications, Inc., 87 F.3f 745 (5 Cir.1996)(“any other dispute” was sufficiently broad); In Re
Complaint of Hornbeck, 981 F.2d at 755 (holding that arbitration clause in towage agreement providing for reference
to arbitration of “any dispute” arising between the parties was broad); Sedco v. Petroleos Mexicanos Mexican Nat'l Oil,

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5

Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

th
767 F.2d 1140, 1144 (5 Cir.1985)(finding that clause providing for arbitration of “any dispute or difference between
th
the parties” was sufficiently broad); Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 38 (5 Cir.1990)(clause
governing “any and all disputes” between the parties was broad). In this case, both the March and November Operating
Agreements contain identical arbitration provisions requiring arbitration of “any dispute under this Agreement.” The
Court finds that regardless of which operating agreement is applied, the clauses are of the “broad” type. Therefore, in
accordance with the jurisprudence, the matter should be stayed and submitted to arbitration.
24 In fact, plaintiffs do not even address this issue in their opposition memorandum.
25 R. Doc. No. 23, p. 7–10. The Court notes that plaintiffs' original and first supplemental and amending complaints assert
only that the November Operating Agreement should be voided. R. Doc. No. 1, R. Doc. No. 5. On September 19, 2002,
plaintiffs requested leave to file a second supplemental and amending complaint wherein they asserted claims that the
March operating agreement should also be rescinded on the same basis as the November agreement. R. Doc. No. 27.
Although the Court denied plaintiffs request for leave, the Court, in the interest of justice, nevertheless considers plaintiffs'
arguments with respect to the March Operating Agreement as these are raised in opposition to the present motion to
compel arbitration.
26 R. Doc. No. 23, p. 14.
27 Id. at p. 7.
28 Plaintiffs' contention that the arbitration clause should be voided because the entire contract is null and void is not a
challenge to the arbitration clause, itself, but a challenge to the entire contract, including the arbitration clause.
29 th
See Primerica Life Insurance Company v. Brown, 304 F.3d 469, 471–72 (5 Cir.2002)(holding that where defendant's
capacity defense was a defense to the entire agreement and not a specific challenge to the arbitration clause, the defense
was part of the underlying dispute between the parties which must be submitted to the arbitrator); Snap–On Tools Corp.
th
v. Mason, 18 F .3d 1261, 1267–68 (5 Cir.1994)(submitting allegations of fraud in the inducement to arbitration because
allegations did not concern arbitration clause specifically, but rather was a challenge to the contract in its entirety);
th
Lawrence v. Comprehensive Business Services Company, 833 F.2d 1159, 1162 (5 Cir.1987)(submitting defense of
illegality of the contract to arbitration because it was not a challenge to the arbitration clause, itself, but rather to the
th
contract as a whole); Mesa Operating Limited Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238, 244 (5
Cir.1986)(submitting to arbitration a defense that contract was void from its inception because defendant did not argue
“that the agreement to arbitrate [was] invalid separately from the entire contract).
30 R. Doc. No. 1, ¶ 21,
31 R. Doc. No. 23, p. 2.
32 Plaintiffs cite George Engine Co., Inc. v. Southern Shipbuilding Corp., 350 So.2d 881 (La.1977) in support of their
contention that the district court, not the arbitrator, has jurisdiction to decide the issue of fraud in the inducement of a
contract containing an arbitration clause. Id. at 884. In George Engine, the Louisiana Supreme Court declined to follow
Prima Paint. However, in Rushe and Downer, the federal district courts, faced with the same argument presented by the
plaintiffs herein, rejected the holding in George Engine, explaining that in George Engine the Louisiana Supreme Court
“was interpreting the Louisiana Arbitration Act §§ 4201, 4203, not the FAA.” Rushe, 2002 WL 575706 at *6; Downer,
2002 WL 31106920 at *3, n. 3.
33 R. Doc. No. 23, p. 11.
34 R. Doc. No. 5, ¶ 50.
35 “Substantial” invocation of the judicial process requires “active participation in a lawsuit or some other type of act
inconsistent with the desire to arbitrate.” Consorcio Rive v. Briggs of Cancun, Inc., 134 F.Supp.2d 789, 795 (E.D.La.2001).
With respect to the requirement of “prejudice,” the Fifth Circuit has held that, “[w]hen one party reveals a disinclination to
resort to arbitration on any phase of a lawsuit involving all parties, those parties are prejudiced by being forced to bear
the expenses of a trial ... Arbitration is designed to avoid this very expense. Substantially invoking the litigation machinery
qualifies as the kind of prejudice ... that is the essence of waiver.” Id. (quoting E.C. Ernst, Inc. v. Manhattan Construction
th
Co. of Texas, 559 F.2d 268, 269 (5 Cir.1977)).
36 To the contrary, the Operating Agreements themselves show that the only parties to the operating agreements and the
only entities/individuals having an ownership interest in the Delaware Company are Alma Finance (through its principal,
Kris N. Mahabir), Arete LLC (through its principal, Mary A. Wright), Delasa, Inc. (through its principal John F. Wheelock),
Prescott Follett and Associates, Inc. (through its principal, Prescott Follett), Michael Beaury, and Todd Esse. See R. Doc.
No. 18, Exhibit 1, Schedule A.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6

Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett..., Not Reported in...
2002 WL 31528463

37 Clearly, as a non-party to the agreement, there was no duty owed to Talavera to resolve any disputes arising out of the
agreement through arbitration.
38 The Court notes that although plaintiffs argue that civil charges were also filed against Wheelock, the evidence submitted
by plaintiffs to the Court do not reveal the filing of any such civil matters. See R. Doc. No. 5, Exhibits M–1, M–2 and N.
To the contrary, a review of the documents submitted by plaintiffs show that the only matter against Wheelock is/was
pending before the Criminal District Court of Puerto Cabezas. R. Doc. No. 5, Exhibit M–2. Accordingly, any arguments
by plaintiff that a civil lawsuit was filed against Wheelock or, alternatively, that the criminal charges “were purely civil in
nature,” R. Doc. No. 23, p. 12, are merely speculative and unsupported by any evidence in the record.
39 R. Doc. No. 23, p. 12. Because Wheelock was convicted in absentia, there was no “active participation in a lawsuit”
sufficient to amount to substantial invocation of the judicial process. Consorcio Rive, 134 F.Supp.2d at 795.
40 R. Doc. No. 23, p. 2.
41 R. Doc. No. 23, p. 1.
42 In Re Complaint of Hornbeck Offshore Corp., 981 F.2d at 755 (“[A]rbitration clauses containing the ‘any dispute’
language ... are of the broad type.”).
43 th
Id.; Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil Co., 767 F.2d 1140, 1148 (5 Cir.1985)(“ ‘[a]bsent
allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause
on its face appears broad enough to encompass the party's claims.” ’)(quoting Life of America Insurance Co. v. Aetna
th
Life Insurance Co., 744 F.2d 409, 413 (5 Cir.1984)).

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works. 7

 Dismiss and Opinion Fited AprilZg,2016

In The
(tuurt uf
^Appeulø
Ifrifitl lBistrîrt uf @exu¡ st Butlnr
No. 05-16-00478-CV
No. 05-16-00479-CV
No. 05-16-00480-CV

INRE JE¡'FORY BLACKARD, Retnror

On Appeal from the 4l6th Judicial District Court

rriar cou rr cau se N"* 4 r;.Ti ;l."-äTg'ä::äi, or-ro r r, 416 -Bzt4s -z0rs

MËN'IORANDUM OPINIOH
Before chief Justice wright, Justice Lang, and Justice Brown
Opinion by Chief Justice Wright
In this petition for writ of mandamus and prohibition, relator requests that
the Court order

the trial court to vacate its January 6,2016 Order on Payment of Attorney's
Fees to Attorneys

Pro Tem to the extent it approves the hourly rate set for each ofthe attorneys representing the
State of Texas in this case as attorneys pro tem. He further requests that the Court prohibit the
trial coud from ordering the payment of any additional invoices subrnitted
by the attomey pro
tem that vary from the frxed fees or hourly rates set forth in the fee
schedule contained in the

Collin County District Coun Plan. Relator is not a party in any of the cases
in which the order
was signed.

Taxpayers may, under certain limited circumstances, possess standing

to challenge the
lawfulness of government acts. see Bland Indep. sch. Dist, v,
ßlue, 34 s.w.3d 547, 555 (Tex.
 2000); verney v. Abbott, No. 03-05-00064-cv, 2006 rill, z}Bz)gs, ar 17 (Tex, App.-Austin

July 28, 2006, no pet.),¡ That limited grant of standing to bring a civil suit to challenge
a

government act does not, however, authorize a taxpayer to challenge

an order in a criminal case

in which he is not a party. see In re Amos,397 s.w.3d 30g,314 (Tex. App.-Dallas

2013, orig.
proceeding) (parties to a criminal case are the State and the acoused);
see also In re llringfìeld,
171 S.W.3d 374, 381 (Tex' App.-Tyler 2005, orig. prooeeding) ("Unlike the Rules of Civil
Procedure, the Code of Criminal Procedure makes no provision for a third party
to intervene in a

'criminal action. "').

Standing is an element of an appellate court's subject-matter jurísdiction over an original

proceeding. see Inre Baknr,404 s,w.3d 57s,s77 (Tex. App.-Houston [lstDist.] 2010, orig.

proceeding)' Because relator lacks standing to challenge the trial court's order,
we dismiss the
petition.

/Carolvn Wriehl
CAROLYN WRIGHT
CHIEF JUSTICE

160478F.P0s

I
The question whqther relûtor possesscs stônding to ohallcngc thc psymcnts to tho ettonìeys pro tenì in
. ..
in this original proceeding.
a civit silit is tìot befbre rhis court

-2-