The Texas Supreme Court issued a per curiam mandamus opinion compelling an arbitration this morning in a class action suit which alleges that a home builder built a bunch of houses without shower pans. The opinion is not long, but it quickly dispenses with a number of the common contractual arguments parties raise when seeking to avoid arbitration. In other words, it is a handy primer for this type of arbitrability challenge, offering a sort of cliff notes version of why these challenges are exceedingly difficult in Texas.
Contracts of Adhesion: the Court first overrules the trial court decision that the arbitration contract, as a contract of adhesion, is unconscionable. In Texas, proving that a party will not contract with someone unless the contract contains an arbitration clause, in and of itself, is not an obstacle to arbitration.
Procured By Fraud: printing the arbitration clause on the back of a form contract is not evidence that the arbitration clause was procured by fraud. In Texas, a party to a contract has some obligation to read all of it. Failure to read the back of a form is not evidence of fraud.
Mutuality of Obligation: the Supreme Court re-states the now well-settled rule that a mutual obligation to arbitrate is its own consideration for an agreement to arbitrate.
Cost as a Basis for Unconscionability: while evidence of high costs of arbitration remains a theoretical basis for challenging an arbitration clause, evidence of the AAA fee schedule, in and of itself, does not meet the burden.
Mediation as condition precedent: this is a more interesting argument, given that many arbitration clauses contain this type of language, and the Third Court of Appeals’ recent opinion in the Pisces Foods case. Today, however, the Court was unpersuaded, given that mediation had since taken place. Since the argument, if accepted, would be a basis for postponing, rather than avoiding, the obligation to arbitrate, and since the mediation had already happened while the case was pending, the Court rejected the conditions precedent argument here. The Court did not address the point in great detail, however.
In RE: U.S. Home Corp., ___ S.W.3d ___ (Tex. 2007) (Cause No. 03-1080).
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