The 2nd District Appeals Court in Fort Worth has held that a trial court has a ministerial duty to rule on a party’s motion to compel arbitration. In Kelly v. Hinson, No. 02–12–00058–CV, (Tex.App.–Fort Worth, 2012), two investors, Phillip Hinson and Don Siratt, filed a lawsuit against Technotree International, LLC and two of the company’s officers, William J. Kelly and Ariel I. Quiros, (“LLC”) to recover a refund of certain investments made in the corporation in 1999. According to the investors, William J. Kelly personally agreed to fully refund Hinson and Siratt’s investment of $130,000 after ten years if total dividends and distributions paid to them did not equal that amount. As part of their investment, both Hinson and Siratt received a copy of the LLC’s regulations and operating agreement which contained an arbitration provision. After the investors filed their lawsuit, the pro se LLC repeatedly asked the court to compel the dispute to arbitration through a number of letters and telephone calls. A Tarrant County District Court judge did not rule on the parties’ motion to compel arbitration and instead granted a motion for summary judgment that was later filed by the investors. The LLC then appealed the case to Texas’ 2nd District Court of Appeals. The investors argued that the trial court properly failed to rule on the LLC’s request for arbitration because the pro se LLC did not specifically request a hearing on the matter. In response, the Fort Worth court stated, “[b]oth Texas and federal law strongly favor arbitration.” In addition, The Agreement and the arbitration clause at issue were specifically identified in the motion, and a copy of the Agreement containing the arbitration clause was attached to the motion. During the next eleven months, Appellants repeatedly requested a hearing and a ruling on the arbitration motion; Appellants mailed three letters to the trial court requesting a ruling or a hearing on their motion to compel arbitration, served opposing counsel with copies of the letters, sent in a certificate of conference indicating that Appellees did not agree with the motion to compel arbitration, and filed a motion for a telephonic hearing on their motion to compel arbitration. Appellants communicated via telephone with the court coordinator in an effort to set a hearing on their motion. We hold that the trial court had a ministerial duty to set Appellants’ motion for arbitration for a hearing and to rule on it. The appeals court continued, Appellees’ contention that Appellants “did not request a hearing, or object to any perceived refusal by the trial court to rule” is not supported by the record before us. As set forth above, Appellants’ letters requested a ruling and a hearing, and ultimately Appellants filed a motion explicitly requesting a fifteen-minute telephonic hearing on their motion to compel arbitration. Next, the 2nd District dismissed the investors’ argument that the LLC waived its right to a trial court ruling on the motion to compel arbitration because the LLC failed to file a response to the investors’ motion for summary judgment. According to the Fort Worth court, the investors’ position was simply not supported by case law. Finally, the appeals court disagreed with the investors’ argument that the LLC’s motion to compel arbitration was void because it was not signed by an attorney. The court stated, Appellees neither objected in the trial court to the pro se status of the motion to compel arbitration nor filed a motion requesting that Quiros show authority to proceed on behalf of TTI. See Tex. R. Civ. P. 12. A document filed in court by a nonlawyer purportedly on behalf of a corporation is defective but not void and may be effective for certain purposes. The court went on to state, Thus, Appellants’ motion to compel arbitration—signed by a nonlawyer, managing member of TTI—was not void ab initio, and its unobjected-to, pro se status did not excuse the trial court from performing the ministerial duties of setting the motion for a hearing and ruling on it. Because the trial court had no discretion to refuse to rule on the LLC’s motion to compel arbitration, the 2nd District Appeals Court reversed and remanded the case without reaching the merits.

Tomorrow, the United States Supreme Court will hear oral arguments in American Express Corp. v. Italian Colors Restaurant, et al. (No. 12-133). The appeal from the United States Court of Appeals for the Second Circuit addresses whether the Federal Arbitration Act allows a court to invalidate an arbitration agreement that does not permit class arbitration of a federal law claim. In the case, a number of small businesses, including Italian Colors Restaurant, accuse American Express of violating federal anti-trust law because the company allegedly forced them to accept credit cards with high transaction and other fees in order to accept American Express as a customer payment option. Although each of the merchants reportedly agreed to arbitrate any dispute with the company and the parties’ arbitration agreement does not permit class arbitration, several class action lawsuits were eventually filed. In the class action lawsuits, the merchants argued that obtaining individual arbitral awards would be cost prohibitive and would effectively deny each company’s rights when compared with the potential for recovery. In 2003, the class action cases were consolidated in the Southern District of New York. The district court reportedly ordered the disputes to bilateral arbitration. The merchants appealed the case to the Second Circuit. The Appeals Court overturned the lower court’s order by stating the class action waiver was unenforceable. In addition, the Second Circuit reconsidered and reaffirmed its own holding after the Supreme Court’s decision in both Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. and AT&T Mobility LLC v. Concepcion. Last May, the Second Circuit also denied a request for rehearing of the case en banc. In the company’s appeal to the Supreme Court, American Express argues that the appellate court’s decision directly conflicts with the high court’s holding in Concepcion. In that case, the Supreme Court held a California law stating a class action waiver in an arbitration provision was unenforceable directly conflicted with the Federal Arbitration Act. In addition, American Express argues the Supreme Court previously considered and dismissed the merchants’ argument that a class arbitration waiver would make it impossible for them to vindicate their rights. This case will be the third time in three years the high court has considered the scope of a class action waiver in an agreement to arbitrate. Stay tuned to Disputing for more about this fascinating case!

Professors Thomas Stipanowich (Pepperdine University School of Law) and J. Ryan Lamare (Pennsylvania State University) have posted a paper entitled “Living with ‘ADR’: Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations” on the Social Science Research Network. Here is the abstract: As attorneys for the world’s most visible clients, corporate counsel played a key role in the transformation of American conflict resolution in the late Twentieth Century. In 1997 a survey of Fortune 1,000 corporate counsel provided the first broad-based picture of conflict resolution processes within large companies. In 2011, a second landmark survey of corporate counsel in Fortune 1,000 companies captured a variety of critical changes in the ways large companies handle conflict. Comparing their responses to those of the mid-1990s, clear and significant evolutionary trends are observable, including a further shift in corporate orientation away from litigation and toward “alternative dispute resolution (ADR),” moderated expectations of ADR; increasing use of mediation, contrasted with a dramatic fall-off in arbitration (except, importantly, consumer and products liability cases); greater control over the selection of third-party neutrals; growing emphasis on proactive approaches such as early neutral evaluation, early case assessment, and integrated systems for managing employment disputes. This article summarizes and analyzes the results of the 2011 Fortune 1,000 survey, compares current data to the 1997 results, and sets both studies against the background of a half-century of evolution. The article concludes with reflections on the future of corporate dispute resolution and conflict management and related research questions. The full paper is available to download (free of charge), along with other scholarly papers written by Professor Stipanowich.

Houston’s 14th District Appeals Court has reversed a district court’s order denying a company’s motion to compel arbitration. In Cotton Commercial USA, Inc. v. Clear Creek Independent School Dist. (Tex.App.–Houston [14 Dist.], 2012), the Clear Creek Independent School District (“School District”) contracted with Cotton Commercial USA, LP (“Contractor”) for debris removal following Hurricane Ike. A restoration services agreement signed by the parties contained an agreement to arbitrate any disputes related to work performed as part of the contract. In addition, the agreement specifically authorized the use of subcontractors to complete the work and provided for a 20 percent mark-up where a subcontractor was used. In September 2008, the hurricane debris was reportedly removed by Cottonwood Debris Company, LLC (“Subcontractor”). After Contractor submitted bills that included a mark-up for Subcontractor’s services, the School District questioned the relationship of the two parties and refused to pay the mark-up rate. The School District also alleged that Subcontractor submitted a number of fraudulent invoices for work that was never performed. Contractor and Subcontractor were later merged to form Cotton Commercial USA, Inc. (“Cotton Commercial”). In December 2010, the School District filed a lawsuit against Cotton Commercial alleging fraud. In May 2011, Cotton Commercial filed a motion to stay court proceedings and compel the dispute to arbitration. The company also asserted a number of counterclaims against the School District. The district court denied Cotton Commercial’s motion to compel arbitration with regard to the School District’s claims against the company and granted Cotton Commercial’s motion related to the company’s counterclaims. Cotton Commercial then appealed the trial court’s order denying the company’s motion to compel the parties to arbitration over the School District’s claims. The School District did not appeal either of the lower court’s orders. On appeal, the School District argued that it filed a lawsuit against Cotton Commercial because Subcontractor was merged with the company and ceased to exist. In addition, the School District stated it should not be compelled to arbitrate because there was no contract between the two parties. According to Houston’s 14th District, although an agreement to arbitrate is generally only enforced between signatories, exceptions do exist. Despite that a corporate relationship between Cotton Commercial, Contractor, and Subcontractor “is insufficient to compel arbitration,” the court stated, …the Texas Supreme Court recognizes an “intertwined-claims” test that has been applied by other courts in circumstances where a nonsignatory defendant has a “close relationship” with one of the signatories and the claims are “‘intimately founded in and intertwined with the underlying contract obligations.’” After finding the School District’s claims were “completely interwoven” with the parties’ restoration services agreement, the appeals court said, The School District is a signatory to the Restoration Agreement. The School District agreed to arbitrate “any controversy, dispute or claim arising out of [the Restoration Agreement] or the Work done [thereunder].” The School District cannot artfully choose its defendant or plead its claims to avoid arbitration. In addition, the court dismissed the School District’s public policy argument by stating, It would be contrary to Texas policy favoring arbitration and against artful pleading to avoid arbitration to allow the School District to avoid its agreement to arbitrate claims or to piecemeal such claims in two forums simply because its contracting counterpart has merged with another company. Next, the appellate court addressed the scope of the parties’ agreement to arbitrate. According to the court, the arbitration agreement at issue was extremely broad and the factual allegations in the complaint were sufficient to prove the dispute fell within the scope of the agreement. Finally, Houston’s 14th District Appeals Court reversed the district court’s order denying Cotton Commercial’s motion to compel arbitration with regard to the School District’s claims against the company and remanded the case.