Today, the Texas Supreme Court handed down an opinion on three certified questions from the Fifth Circuit which construes Section 5.077 of the Texas Property Code, which deals with accounting requirements the Code places on sellers of real property pursuant to executory contracts. Justice Medina wrote for the six-Justice majority, Justice Wainright wrote a concurring opinion, and three Justices dissented. Section 5.077(a) of the Property Code requires that a seller of real property under an executory contract provide the purchaser with an annual accounting statement for each year of the contract. Section 5.077(b) provides a list of items that must be included in the statement. Section 5.077(c) provides that a seller who fails to comply with 5.077(a) is liable to the purchaser for liquidated damages of $250.00 per day of noncompliance, as well as reasonable attorneys’ fees. The Fifth Circuit wanted to know if a seller was liable for liquidated damages under 5.077(c) when the seller timely provided an accounting statement, but that the statement did not included some of the information clearly required by 5.077(b). The majority here answered “no,” stating that since the liquidated damages provision only referred to 5.077(a), the requirement of an accounting, the seller who provides some kind of good faith effort to keep the purchaser apprised of their contractual relationship is not liable to the purchase under 5.077(c). The dissent notes that since Section 5.077(b) provides that certain mandatory accountings be included in the statement required by 5.077(a), a statement delivered purportedly pursuant to 5.077(a) is not in fact an accounting statement at all unless it fully complies with 5.077(b). Thus, according to the dissent, “In answering the first certified question, the Court “strictly” construes the statute to require fewer items than the statute itself says “must” be included. That is not a very strict construction. Nor does it comply with the legislative mandate that we give the entire statute effect.” Cause No. 04-1003 Arturo Flores, et al. v. Millennium Interests, Ltd., et al. Technorati Tags: litigation, Texas Supreme Court, law

Rick Freeman Commentary Following up on my article last week regarding the Olshan case – in which the San Antonio Court of Appeals found that the high cost of the required arbitration to be “shocking” and unconscionable and therefore the arbitration provision was unenforceable – I want to examine two appellate cases decided in 2004 that discuss substantive unconscionablity. In the first case, Pine Ridge Homes, Inc. v. Stone, the Dallas Court of Appeals evaluated the fairness of an arbitration provision in a contract involving the purchase of a house. In this case, the home purchasers, the Stones, paid $5,000 in earnest money and signed a contract to purchase a house from Pine Ridge Homes. The contract included an arbitration provision. Pine Ridge Homes refused to agree with the proposed mortgage company to include the statutorily required retainage provision. Because of this refusal the mortgage company refused to provide financing for the house. The Stones canceled the contract to purchase the house and requested that their $5,000 earnest money be returned. Pine Ridge Homes refused to return the money. The arbitration provision in question provided that the party who demanded arbitration had to pay all arbitration fees for both parties. The court examined the contract provisions and determined that Pine Ridge Homes had a remedy that did not require arbitration — keeping the earnest money. The Stones, on the other hand, had no remedy without going through arbitration. So the Stones would be required to pay the arbitration fees for both sides in any dispute they brought while Pine Ridge Homes could retain the earnest money and never pay any arbitration fees. Based on this one-sidedness, the appellate court ruled that the arbitration provision was so unfair and one-sided that it was unconscionable and therefore unenforceable. In the second case, In Re Johnny Luna, the Houston 1st Court of Appeals ruled that the arbitration provision in this employment setting was substantively unconscionable. In this case, Johnny Luna, the employee was required to sign an arbitration agreement in order to go to work for Poly America. The arbitration provision required that any and all job-related disputes be arbitrated. Luna was injured on the job and filed a workers compensation claim. Poly America then fired Luna. Luna filed suit alleging wrongful discharge and retaliation due to his filing a workers compensation claim. Poly America demanded arbitration. Luna objected on the basis that the cost to him of the arbitration was so high that it effectively prevented him from asserting his legal rights. In addition, Luna alleged that the arbitration agreement limited the remedies that he should have had under the Labor Code wrongful discharge and retaliation statute. First, the Court evaluated the substantive effect of each of Luna’s allegations individually. I recommend that you read the Court’s opinion for its discussion of the substantive effect of each of Luna’s individual allegations. The Court then evaluated the arbitration provisions when taken as a whole. The Court ruled that the arbitration agreement, when taken as a whole, was substantively unconscionable and therefore unenforceable because of the combination of its high costs to Luna and its limitation on the statutorily available remedies available to Luna. These two cases along with Olshan, when read together, provide a “road map” to those drafting arbitration agreements. Arbitration cannot be so expensive that it effectively defeats the ability of a party to litigate its claim. Arbitration costs cannot be placed completely on one party while allowing the other party a remedy that does not require arbitration. The arbitration provision should not significantly eliminate statutorily provided rights or remedies of a party, especially if some of the other “unfair” provisions are also contained in the arbitration provision. In other words, when considered as a whole, there needs to be some indicia of fairness and lack of one-sidedness in the arbitration provision. If there is some fairness in the arbitration provision, it is unlikely that the arbitration provision will be declared substantively unconscionable.

Today, a divided panel of the Third Court of Appeals issued an opinion in a case involving the deregulation of Texas’ retail electricity market. Justice Pemberton wrote for the majority, he and Justice Patterson; Justice Smith issued a dissenting opinion. Rather than try to summarize a detailed pair of opinions on a complex regulatory issue, I will simply quote Justice Pemberton’s summary of the case and the majority’s position: This case presents three sets of issues arising from Texas’s transition from a wholly regulated retail electricity market. First, we will consider the extent to which the Public Utility Commission had power to order electric utilities to refund alleged “over-mitigation” of their stranded costs, as determined from interim computer models, before the final 2004 true-up proceedings. Second, we will determine whether substantial evidence supports the Commission’s characterization of Nuclear Electric Insurance Limited (NEIL) account balances as generation-related rather than transmission-related. Third, we will address whether the Commission may set demand charges for large commercial customers greater than those it set before deregulation. Because we determine that the Commission exceeded its statutory authority in ordering refunds of “over-mitigated” stranded costs determined before the 2004 true-ups, we will reverse the portion of the district court’s judgment compelling such refunds and remand to the Commission for further proceedings. However, we will affirm the district court’s judgment affirming the Commission’s disposition of the issues concerning NEIL member accounts and demand charges. Justice Smith, in her dissent, summarizes as follows: While I join the majority in affirming the Commission’s handling of the member account balances with Nuclear Electric Insurance Limited and the demand charge issues, I strongly disagree that prior to 2004 the Commission lacked the authority to require AEP Texas Central Company to refund the excess earnings it had retained to accelerate the recovery of stranded costs when changed market circumstances eliminated the prospect of any stranded costs. I would hold that the Commission’s action is entitled to deference because (1) it was a reasonable method of meeting its statutory obligations of encouraging “full and fair competition among all providers of electricity” and preventing the overrecovery of stranded costs, see Tex. Util. Code Ann. §§ 39.001(b)(1), .262(a) (West Supp. 2004-05); and (2) it did not conflict with any express provision, or the overall intent, of PURA Chapter 39. See City of Austin v. Southwestern Bell Tel. Co., 92 S.W.3d 434, 441-42 (Tex. 2002) (we give weight to Commission’s interpretation of its own powers if it is reasonable and not inconsistent with statute); Southwestern Bell Telephone Co. v. Public Util. Comm’n, 863 S.W.2d 754, 758 (Tex. App.–Austin 1993, writ denied) (we defer to agency’s construction of statute that agency is charged with enforcing). Cause No. 03-03-00428-CV Cities of Corpus Christi, et al. v. Public Utility Commission of Texas, et al. The Court also issued a memorandum opinion in a juvenile delinquency case.

The collision of the right to contract, arbitration, substantive civil law, separation of church and state, and civil rights embodied in Canada’s (now seemingly interminable) struggle with faith-based arbitration must have created the Rorshach test of all inkblots for liberals and conservatives alike. Heads and hearts must be about to explode everywhere in Ontario. Although we are puzzled with (1)why this debate lingers, (2) the cognitive dissonance it seems to have created, and (3) why the US media has failed give it the attention it deserves, we are convinced the conflict is something BIG and FUNDAMENTAL. We are also convinced that the debate will fester until whatever mysteries are (ultimately) driving the fuss have been identified. We also warn the discussion will be fruitless unless all of us plumb some dark depths about our own beliefs, civil and religious. The posts are now in the the hundreds and spread over weeks. I am including a few links and quotes from other sources merely to get you up to speed if you haven’t been following this (with no particular agreement or disagreement expressed). Also, we recently presented a paper (p.13, col. 2) that reported the Fifth Circuit’s review of an employment arbitration in which the arbitrator was required to decide based in part on a particular passage from Christian scripture. The protests about the use of Muslim practice to do faith-based arbitration under a 1991 Canadian Law were on Ontario’s radar screen by September 4, 2005. The government fired off the nuclear option of ending all faith-based arbitrations in hopes of killing the dispute, but succeeded only in upsetting everyone — Muslim, Jew and Christian. More tempered approaches have been suggested and the debate just won’t go away. Victor Davis Hanson writes : The debate over the 1991 Ontario Arbitrator Act and Sharia Law goes and on, and on, and on, and on, and on. The debate is like a slow moving train wreck that never runs seems to run out of rail. Strangely enough my position on the Arbitrator Act leaves me standing in a corner somewhat all by my blogsome. Lucky for me, I learned early in life that I can take a few shots to the head and still rise to my feet for a few more. The 1991 Ontario Arbitrator Act was a piece of horrendously bad legislation and violated the principle of separation of Church and State and equality before the law for all. The Act essentially paid religious tribunals to rule and enforce their judgments utilizing the coercive power of the Secular State (where necessary) in matters of family or civil law providing that both parties were consenting adults and willingly gave up their secular family and civil rights. It made multiple systems of justice in the areas of family and civil law. The initial rationale for this piece of legislation was one of those mushy-feel good multi-cultural moments and much was touted at the time as both a cost and time saving piece of legislation. It was to allegedly going to lighten the load on the overburden Ontario family and civil court system beyond our ken. Marina Jimenz had a rather informative article in the Globe and Mail on Wednesday where she contended that rabbinical courts in Ontario are rarely used, and in fact, in the last year alone only two cases were resolved using the faith-based rabbinical court to settle a dispute. Meredith Cartwright, a lawyer and lecturer in religion, law and sexuality at the University of Toronto, says the small number of family law cases rabbinical courts arbitrate illustrates that most couples resolve disputes over custody and child-support payments in civil court or in private arbitration that is not faith-based.Jewish groups have said they are considering a constitutional challenge to Premier Dalton McGuinty’s recently announced ban on such tribunals. “Proponents of faith-based arbitration are misleading the public in pretending there is widespread use of this mechanism,” Ms. Cartwright said. “On this basis, they are asking for a new incarnation of faith-based arbitrations with government oversight and funding, which completely erodes the distinction between religion and state.” Rabbi Reuven Tradburks, secretary of the Beit Din (rabbinical courts) of the Council of Orthodox Rabbis of Toronto, conceded that the number of cases involving family disputes is small, but would not comment on the exact number. He said the principle underlying the right for Jews to go to rabbinical courts to resolve civil disputes is significant, however, and that settlements should have the imprimatur of the state. But the Rabbi is somewhat misleading. Even before the 1991 Ontario Arbitration Act there was nothing in law that prevented two or more parties of consenting adults from resolving any dispute before a mediator of a faith-based tribunal. Once the law is repealed there still will be no law restricting any consenting adults to seek a resolution to any family or civil dispute using a faith-based tribunal. What will be missing is that after this horrendously bad law is repealed is any ruling from the faith based tribunal will not have the “imprimatur” of the state’s coercive authority nor will the faith-based arbitration be overseen or funded by the state. In simple English, it will be completely an out of pocket expense borne solely by the parties involved. I ask you as a taxpayer, why should you be compelled to fund and oversee multiple religious systems of family and civil courts of justice? For Sharia law to be accepted and have an Islamic religious tribunal funded and overseen by the state with all the coercive power of the state to enforce its judgments would require significant amendments and safeguards added to the 1991 Ontario Arbitration Act. Bad law always means well and always requires constant revision. But, of course, to the critics of McGuinty’s decision to repeal the Act against all faith-based tribunals, all Sharia, is all good, all the time. I would challenge the pro-Sharia fraction to point to one country where Sharia law is the law […]