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Lea A. Ream William “Cody” Faulk, III. Abraham Lincoln.

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Presentation on theme: "Lea A. Ream William “Cody” Faulk, III. Abraham Lincoln."— Presentation transcript:

1 Lea A. Ream William “Cody” Faulk, III

2 Abraham Lincoln

3 Requirements for an Enforceable Arbitration Clause  Construction  Court Compelling  Grounds for Revocation  Waiver Pros and Cons of Arbitration Contractual Provisions that can Make the Courthouse More Tolerable  Forum Selection  Venue Selection  Jury Waiver

4 Arbitration. Executive and the Company agree to arbitrate before a neutral arbitrator any and all disputes or claims arising from or relating to Executive's employment with the Company, or the termination of that employment, including disputes or claims against any current or former agent or employee of the Company.

5  No particular form of arbitration agreement is required as long as it is the parties' clear intention to submit to arbitration. Wachovia Sec., LLC v. Emery, 186 S.W.3d 107 (Tex. App.—Houston [1st Dist.] 2005, no pet.).  Texas law does not require that arbitration clauses be signed, although the parties may only express their intent not to be bound by the agreement unless it is signed. In re AdvancePCS Health L.P., 172 S.W.3d 603 (Tex. 2005); In re Bunzl USA, Inc., 155 S.W.3d 202 (Tex. App.—El Paso 2004, no pet.).  Even if no writing exists, or a written agreement is not executed, a common-law right to arbitration is enforceable if an appropriate agreement to submit to arbitration is shown. Howell Crude Oil Co. v. Tana Oil & Gas Corp., 860 S.W.2d 634 (Tex. App.—Corpus Christi 1993, no writ).  The parties' agreement and intent to submit to arbitration must be clear and unambiguous. In re Big 8 Food Stores, Ltd., 166 S.W.3d 869 (Tex. App.— El Paso 2005, no pet.).

6  Courts have determined that broad form language is to be honored and enforced to encompass all claims.  Phrases like "in connection with or relating to" are clearly meant to be broad clauses and to embrace all disputes between the parties that concern or touch the matters covered by the Agreement. See Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5 th Cir. 1998); United Steelworkers of America v. Warrior and Gulf Navigation Co., 363 U.S. 574, 582 (1960).  Such broad clauses "governing disputes that 'relate to' or 'are connected with' the contract" can be distinguished from the "narrow" arbitration clauses that require arbitration only of the disputes that "arise out of' the contract. Id.  “Doubts should be resolved in favor of coverage.” Id.

7  Section 171.021 of the TAA provides: 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.  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.

8  Party seeking to compel arbitration must (1) establish the existence of an arbitration agreement and (2) show that the claims asserted fall within the scope of that agreement. Cappadonna Elec. Mgmt. v. Cameron County, 180 S.W.3d 364 (Tex. App.—Corpus Christi 2005, no pet.)  A presumption exists in favor of agreements to arbitrate under the FAA and courts must resolve any doubts about an agreement to arbitrate in favor of arbitration. In re Bank One, 216 S.W.3d 825, 826-27 (Tex. 2007)  Under Tex. Civ. Prac. & Rem. Code Ann. § 171.026 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.

9  Under the TAA an order compelling arbitration must include a stay of any proceeding subject to Section 171.025. Tex. Civ. Prac. & Rem. Code Ann. § 171.021(c) (Vernon)  Similarly the FAA provides for a stay of proceedings where issue therein is referable to arbitration. 9 U.S.C. § 3

10  The Texas Arbitration Act compels arbitration if an arbitration agreement exists. Tex. Civ. Prac. & Rem. Code § 171.021  As the law stands now Texas courts have the power to compel arbitration under the Texas Arbitration Act (TAA) or the Federal Arbitration Act (FAA). (TAA found at Tex. Civ. Prac. & Rem. Code §§ 171.001 to 171.023, 172.001 to 172.310) (FAA found at 9 U.S.C. §§ 1 to 16).

11  The FAA is considered part of the substantive law of Texas in situations involving interstate commerce. Capital Income Props.-LXXX v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992).  In situations where the parties agree to arbitrate under the FAA, they are not required to prove that the transaction involved or affected interstate commerce. In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.--Houston [1st Dist.] 2002, orig. proceeding).  Currently the FAA "dictates enforcement of an arbitration agreement upon evidence that a written agreement to arbitrate exists and that the claims raised are within the scope of the agreement.” Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5 th Cir. 1998).

12 TAA 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, unless the agreement to arbitrate is in writing and is signed by each party and each party's attorney; (3) a claim for personal injury, unless each party to the claim agrees in writing to arbitrate and the agreement is signed by each party and each party's attorney. (4) a claim for workers' compensation benefits; or (5) an agreement made before January 1, 1966. Tex. Civ. Prac. & Rem. Code § 171.002

13  Defenses to enforcement of the arbitration clause of a contract, such as fraudulent inducement, must specifically relate to the arbitration clause itself, not to the contract as a whole, if they are to defeat arbitration. Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 56 (Tex. 2008).  “A party may revoke the agreement only on a ground that exists at law or in equity for the revocation of a contract.” Tex. Civ. Prac. & Rem. Code § 171.001.

14 Unconscionability A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time the agreement was made. Tex. Civ. Prac. & Rem. Code § 171.022. This issue of unconscionability includes two aspects:  (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 Co., 80 S.W.3d 566, 571 (Tex 2002)

15 Procedural Unconscionability Procedural unconscionability refers to the circumstances surrounding the adoption of the arbitration provision. Olshan Found. Repair Co. v. Ayala, 180 S.W.3d 212 (Tex. App.—San Antonio 2005, pet. denied). Unequal bargaining power does not necessarily render an arbitration agreement procedurally unconscionable and a party opposing arbitration must present some evidence of unconscionability other than the fact that an arbitration agreement is a contract of adhesion. In re AdvancePCS Health L.P., 172 S.W.3d 603 (Tex. 2005); In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002).

16 Substantive Unconscionability Refers to whether the arbitration provision ensures preservation of the substantive rights and remedies of a litigant. In re Odyssey Healthcare, Inc., 310 S.W.3d 419 (Tex. 2010), cert. denied, 131 S. Ct. 319 (2010). The basic test for substantive unconscionability of a contract's arbitration clause is whether, given the parties' general commercial background and the commercial needs of the particular trade or case, the clause is so one- sided that it is unconscionable under the circumstances existing when the parties made the contract. In re Poly- America, L.P., 262 S.W.3d 337 (Tex. 2008)

17  Fraud To revoke the arbitration agreement on grounds of fraud, the party must show evidence of misrepresentation, scienter, or reliance. In re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding). In U.S. Home, the Texas Supreme Court held that the arbitration clause on back of single-sheet contract for new home sales was not procured by fraud; no one prevented purchasers from reading both sides.  A party that, through its agent, drafted the arbitration agreement cannot claim to have been fraudulently induced to accept the term. D. Wilson Const. Co., Inc. v. McAllen Independent School Dist., 848 S.W.2d 226 (Tex. App.--Corpus Christi 1992, writ dismissed w.o.j.).

18  Excessive Costs Excessive costs imposed by an arbitration agreement render a contract unconscionable if the costs prevent a litigant from effectively vindicating his or her rights in the arbitral forum. In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883, 892 (Tex. 2010) (orig. proceeding). There must be some evidence that a complaining party will likely incur arbitration costs in such an amount as to deter enforcement of statutory rights in the arbitral forum. Id. Evidence of the likely cost of the particular arbitration may be shown through invoices, expert testimony, reliable cost estimates, or other comparable evidence. Id.  To avoid revocation on the basis of cost, a party seeking to compel arbitration should agree to pay costs. Carter v. Countrywide Credit Indus., 362 F.3d 294, 300 (5 th Cir. 2004).

19 Intoxication While an arbitration agreement is voidable due to intoxication, it is voidable only if the intoxication is so excessive as to render the person incapable of exercising his judgment or understanding the nature of the agreement and the consequences of its execution. In re ReadyOne Indus., Inc., 394 S.W.3d 689 (Tex. App.—El Paso 2012, no pet.).

20  A presumption exists against waiving a contractual right to arbitration. Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589, 592 (Tex.App.—Dallas 1991, writ dism'd w.o.j.)  Merely delaying one's demand for arbitration is not a waiver of the right to make that demand; the inquiry is whether the delay resulted in prejudice to the other party. Transwestern Pipeline, 809 S.W.2d at 593.  Waiver will be found when the party seeking arbitration “substantially invokes the judicial process to the detriment or prejudice of the other party.” Id.

21 Under the TAA, an appeal may be taken from an order: Denying an application to compel arbitration Granting an application to stay arbitration based on a showing that there is no agreement to arbitrate Confirming or denying confirmation of an award Modifying or correcting an award Vacating an award without directing a rehearing. Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a).

22  American Arbitration Association (“AAA”) Most commonly used. Varying options and formats depending on the substantive nature of the dispute. Time guidelines. Expensive.  Non-Traditional Arbitrators Select a third party neutral…former judge or mediator, but will still need rules. Conflict Solutions of Texas ( National Association of Distinguished Neutrals (

23  Avoiding a jury.  More control over the trier of fact and law…industry knowledge and conservative practitioners.  Provides leverage for settlement of claims.  Avoid unfriendly venues.  Potentially less hearings and discovery.  Finality--limited appellate review.

24  The “Sword”: Having the opposing party invoke arbitration when you would prefer to appear before a traditional trial court…particularly where the claim lacks merit.  Costs of arbitration.  Difficulty arranging hearings…is arbitration really faster?  Less ability to utilize procedural motions or remedies.  More difficulty compelling production of non-party witnesses and documents.  Limited judicial precedent.  Limited appellate remedies.

25  Forum Selection  Venue Selection  Jury Waiver

26  Any disputes between the parties to this Agreement concerning the subject matter of this Agreement shall be submitted for resolution to the United States District Court for the Western District of Texas.

27  Under earlier authority, where jurisdiction was vested by law in a court, parties could not contract so as to deprive the court of its jurisdiction. Such an agreement would be contrary to public policy and unenforceable. International Travelers' Ass'n v. Branum, 212 S.W. 630 (1919).  Texas law now recognizes the validity of forum selection clauses. In re Laibe Corp., 307 S.W.3d 314 (Tex. 2010).

28  Forum selection clauses are enforceable in Texas if: (1) the parties have contractually consented to submit to the exclusive jurisdiction of another state; and (2) the other state recognizes the validity of such provisions. My Cafe-CCC, Ltd. v. Lunchstop, Inc., 107 S.W.3d 860 (Tex. App.—Dallas 2003, no pet.).  The party seeking to enforce a contractual forum selection provision has the initial burden of establishing that the parties entered into an agreement to an exclusive forum, and that the agreement applies to the claims involved. Young v. Valt. X Holdings, Inc., 336 S.W.3d 258 (Tex. App.—Austin 2010, pet. dism'd).  Such clauses are presumptively valid and enforceable. In re Laibe Corp., 307 S.W.3d 314 (Tex. 2010).

29 Enforcement of a mandatory forum selection clause would be unreasonable and unjust if: (1) enforcement of the clause would contravene a strong public policy of the forum in which suit was filed, or (2) the balance of convenience is strongly in favor of litigation in the forum in which suit was filed, and litigation in the forum identified in the clause would be so manifestly and gravely inconvenient to the resisting party that the resisting party effectively would be deprived of a meaningful day in court. Deep Water Slender Wells, Ltd. v. Shell Intern. Exploration & Prod., Inc., 234 S.W.3d 679 (Tex. App.— Houston [14th Dist.] 2007, pet. denied).

30  A party waives a forum selection clause by substantially invoking the judicial process to the other party's detriment or prejudice. In re ADM Investor Services, Inc., 304 S.W.3d 371 (Tex. 2010).  Waiver of a forum selection clause can be implied from a party's unequivocal conduct, but not by inaction. Id.  Merely participating in litigation does not categorically mean the party has invoked the judicial process so as to waive enforcement of a forum selection clause. Id.

31 Venue shall lie exclusively in Kendall County, Texas. Any and all suits, claims or causes of action by and between the parties hereto, for any and every breach of this Agreement or for any other cause whatsoever, shall be instituted and maintained in any court of competent jurisdiction in the County of Kendall, State of Texas.

32  In contrast to a forum selection clause venue provision cannot be the subject of a private contract unless provided by statute. Fleming v. Ahumada, 193 S.W.3d 704 (Tex. App.—Corpus Christi 2006, no pet.).  Venue, in the context of this principle, means state venue provisions that set out which county within Texas has authority to hear a particular case. Ramsay v. Texas Trading Co., Inc., 254 S.W.3d 620 (Tex. App.— Texarkana 2008, pet. denied).  The Texarkana court has held that a venue selection clause may not set venue in an improper location. Id.

33 LESSOR AND LESSEE KNOWINGLY AND INTENTIONALLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING THAT LESSOR OR LESSEE MAY INSTITUTE AFTER THE EXECUTION OF THIS LEASE AGAINST EACH OTHER WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATED TO THIS LEASE OR THE PREMISES. A provision in a contract stating in capital letters and bold print that “the maker hereby unconditionally waives its rights to a jury trial,” is prima facie evidence of the party's knowing and voluntary waiver of his or her right to jury trial, and shifts the burden to the party to rebut it. In re General Elec. Capital Corp., 203 S.W.3d 314 (Tex. 2006).

34  In civil cases, the right to a jury trial is not automatic, but, rather, arises only when a party has demanded a jury trial and paid the applicable jury fee. In re J.N.F., 116 S.W.3d 426 (Tex. App.—Houston [14th Dist.] 2003, no pet.).  The Texas Constitution sets certain conditions on the right of trial by jury. Tex. Const. Art. V § 10.  It provides that no jury may be empanelled in any civil case in district court unless demanded by a party to the case, and a jury fee is paid by the party demanding a jury, in such sum and with such exceptions as may be prescribed by the Legislature. Tex. Const. Art. V § 10.

35  Parties may agree to waive their right to trial by jury in certain future disputes. In re Prudential Ins. Co. of America, 148 S.W.3d 124 (Tex. 2004).  However, the right to a jury trial is so strongly favored that contractual jury waivers are strictly construed and will not be lightly inferred or extended. In re Credit Suisse First Boston Mortg. Capital, L.L.C., 257 S.W.3d 486 (Tex. App.—Houston [14th Dist.] 2008, no pet.).

36  Before a jury waiver will be enforced, such waiver must be found to be a voluntary, knowing, and intelligent act that was done with sufficient awareness of the relevant circumstances and likely consequences. In re Credit Suisse First Boston Mortg. Capital, L.L.C., 257 S.W.3d 486 (Tex. App.—Houston [14th Dist.] 2008, no pet.).  Contractual jury waivers do not violate public policy and are enforceable as long as the waiver is voluntary, knowing, and intelligent, and with full awareness of the legal consequences. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-40 (Tex. 2004, orig. proceeding).  When no fraud or imposition with regard to a contractual waiver of jury trial is alleged, a conspicuous waiver of trial by jury is presumed to be knowing and voluntary. In re Bank of Am., N.A., 278 S.W.3d 342 (Tex. 2009)

37  “In light of the strong public policy favoring freedom of contract, contractual jury waivers deserve no more scrutiny than agreements to waive the judicial forum entirely and arbitrate any future dispute. In re Key Equipment Finance Inc., 371 S.W.3d 296, 301 (Tex. Ct. App.—Houston [1st Dist. ] 2012, orig. proceeding)  In Prudential, the Texas Supreme Court observed that a party who agrees to arbitrate waives both right to jury trial and right to appeal. The Court found it “preferable to enforce th[e] agreement [to limit dispute resolution to non- jury trial] rather than leave them with arbitration as their only enforceable option.” In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-40 (Tex. 2004, orig. proceeding).

38  In order to be entitled to mandamus relief, a party seeking to enforce a jury waiver need only show that the trial court clearly abused its discretion and that it had no adequate remedy at law. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-140 (Tex. 2004).  Texas courts have held that whether a pre-suit waiver of a trial by jury is enforceable fits well within the types of issues for which mandamus review is not only appropriate but necessary. Id.; see also, In re Wells Fargo Bank Minn. N.A., 115 S.W.3d 600, 606-608 (Tex. App. – Houston [14 th Dist.] 2003, no pet.) (orig. proceeding).

39  A conspicuous jury waiver provision is “prima facie evidence of a knowing and voluntary waiver and shifts the burden to the opposing party to rebut it.” In re Gen. Ele. Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006) (per curiam).  The Texas Supreme Court expressly provided that it was not making a determination that the requirements of conspicuousness in Tex. Bus. & Com. Section 1.201(b)(10) applied to jury waivers. Prudential, 148 S.W.3d at 134.  However, meeting those requirements would seem to assist in enforcement even in cases not governed by the Uniform Commercial Code.

40 "Conspicuous," with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following: (A) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and (B) language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language. Tex. Bus. & Com. Section 2.201(b)(10)

41  A Non-conspicuous jury waiver is not foreclosed from enforcement. In re Key Equipment Finance Inc., 371 S.W.3d 296, 302 (Tex. Ct. App.—Houston [1st Dist. ] 2012, orig. proceeding)(citing In re Bank of Am., N.A., 278 S.W.3d 342 (Tex. 2009))  Rather, with a non-conspicuous jury waiver, the burden remains on the party seeking to enforce the provision to show that the waiver was knowingly and voluntarily made. Id.

42 Courts consider:  Length of document containing waiver  Whether paragraphs are numbered and set apart with lines  Whether the waiver language has an appropriate caption  Sophistication and education of parties  History of dealings between parties  Representation by counsel

43 Arbitration may be a good choice for dispute resolution. Thought should be given to whether it is the right choice for your company or organization depending on the nature of the disputes covered, anticipated costs and whether other contractual alternatives might provide the same benefits without the negative aspects of arbitration.

44 Such considerations should include whether a jury waiver, forum selection and/or venue selection clause may accomplish the same or similar goals of arbitration without the downside of agreeing to arbitrate.

45 If you decide to proceed with arbitration consideration should be given to options that might be more selective on the types of disputes that are covered, whether costs will be shared and how the arbitration will be conducted. If you decide to proceed in the courtroom with jury limitations or forum or venue selection clauses be careful to insure that you have incorporated provisions and procedures that will be enforceable.


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