Houston COA Orders Arbitration After Man Ratifies Procedurally Unconscionable Agreement

Texas’ Fourteenth District Court of Appeals in Houston has overturned a trial court’s order denying a party’s motion to compel arbitration. In Mission Petroleum Carriers, Inc. v. Kelley, No. 14-14-00072-CV (October 9, 2014), a man, Kelley, was hospitalized over the injuries he sustained in a workplace tractor-trailer accident. While still hospitalized and receiving a narcotic pain killer, a representative for Kelley’s employer, Mission, asked him to sign paperwork authorizing his participation in a Health and Safety Plan (“H & S Plan”) offered by the company and the best car accident attorneys in Kentucky to help in this case. The plan provides a number of benefits to enrolled workers who are injured in a workplace incident including medical expenses, lost wages, death payments, and more. The paperwork Kelley signed included an agreement to submit specific disputes or claims to binding arbitration. Not long after, Kelley began receiving benefits under the H & S Plan.

A few months later, Kelley filed a negligence complaint against Mission and a third party in Harris County. The man also asked the court to award him punitive damages. Mission responded by filing a motion to compel arbitration based on the provision included in the H & S Plan. Kelley argued that he should not be bound by the provision because he was under the influence of intense painkillers when he signed the plan paperwork. Kelley also claimed that the arbitration agreement was procedurally unconscionable and he had no recollection of signing it. Following an evidentiary hearing, the trial court denied Mission’s motion to compel arbitration. The company then filed an interlocutory appeal with the Fourteenth District Court of Appeals.

On appeal, the Houston court stated that Kelley did not deny his claims fell within scope of the arbitral provision at issue but only argued that the agreement was procedurally unconscionable. The court added that Mission did not deny the provision was procedurally unconscionable. Instead, Mission claimed that Kelley ratified the agreement by accepting benefits under the plan despite that he knew the agreement was not legally binding. In addition, Mission asserted that whether or not the arbitration agreement was procedurally unconscionable was irrelevant.

The Houston Appeals Court agreed with Mission and said,

Ratification is the adoption or confirmation by a person, with knowledge of all material facts, of a prior act that did not legally bind that person and that the person had the right to repudiate. In re Weeks Marine, Inc. , No. 14–09–00580–CV, 2009 WL 3231570, at *3 (Tex.App.-Houston [14th Dist.] Oct. 8, 2009, orig. proceeding) (mem.op.). “Ratification may be express or implied from a course of conduct.” Id. An act inconsistent with the intent to avoid a contract ratifies the contract. Id. Once a party ratifies a contract, he may not later withdraw his ratification and seek to avoid the contract. Id. The relevant inquiry focuses on the actions taken by the party seeking to avoid the contract once that party became fully aware that his prior act did not legally bind him. Id. A party cannot avoid an agreement by claiming there was no intent to ratify after he has accepted the benefits of the agreement. Id. Ratification may be determined as a matter of law if the evidence is not controverted or is incontrovertible. Id.

The court continued,

Here, as in Weeks Marine, there is undisputed evidence that Kelley received benefits under the H & S Plan containing the Arbitration Agreement after he retained an attorney and filed suit. Likewise, as in Weeks Marine, there is undisputed evidence that Kelley continued to receive H & S Plan benefits after Mission filed its motion to compel arbitration; and there is no evidence that Kelley returned any of the payments made to him or on his behalf under the H & S Plan either after he filed suit or after Mission sought to compel arbitration. In short, Kelley cannot avoid the Arbitration Agreement because he has accepted benefits under the plan after he became aware that the agreement was allegedly invalid due to procedural unconscionablity. See id. at *4–5.

Because the trial court abused its discretion when it denied Mission’s motion to compel arbitration, Texas’ Fourteenth District Court of Appeals in Houston reversed the lower court’s decision and remanded the case with instructions to submit the parties’ dispute to arbitration.

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