Texas Supreme Court Is At It Again — Arbitration Clause

The Texas Supreme Court has once again rejected the claims of an individual plaintiff in favor of a corporate defendant. This time, the opinion involved an arbitration agreement.

It has long been held that arbitration agreements are not enforceable if they are unconscionable, if they were signed under duress, or if they were the result of a fraudulent inducement. In the June 2001 opinion of In Re FirstMerit Bank, the Supreme Court held that an arbitration clause could only be avoided if the defense applied to the arbitration clause itself — that is, if the arbitration clause was unconscionable or was signed under duress or the result of fraudulent inducement. Thus, the Court required arbitration in a case where a plaintiff was fraudulently induced to sign a contract, but there was no evidence that there was any fraudulent representations specifically relating to the arbitration clause in the contract.

While that decision may have wounded the defenses, today, the Court killed them. In In Re RLS Legal Solutions, the employee claimed that she was forced to sign an agreement, which contained an arbitration clause among other things, when her employer threatened to withhold her paycheck. The employee (and the court of appeals) thought she had complied with the requirements of Firstmerit because she had specific conversations with her employer where the arbitration clause was discussed. Her employer told her that the arbitration clause was required, that there was no exception to the clause, that there was nothing up for debate, and that she would not be paid unless she signed the arbitration clause. The employee also had disputes with other parts of the agreement.

The Court held that this was not enough.

The Court agreed that the court of appeals correctly concluded that “[t]he economic duress defense and [the employee’s] objection specifically related to the arbitration agreement itself,” which was the test under FirstMerit. However, the Court held that the duress defense was unavailable because there was no evidence that the arbitration provision was the only provision to which she objected. In essence, the Court created a new test: Now, the duress or fraud must not only go to the arbitration clause itself, but now, the arbitration clause must be the only part of the agreement that the party objects to. To support this conclusion, the Court argues that the employee’s “argument, carried to its logical conclusion, would defeat the rule in FirstMerit in any case where the arbitration provision is only a clause in a larger agreement, since duress to force execution of an agreement containing an arbitration provision also forces consent to arbitration. Unless the arbitration provision alone was singled out from the other provisions, the claim of duress goes to the agreement generally and must be decided in arbitration.”

The Court is simply wrong on both grounds. In this instance, where there are representations and attempted negotiations about the arbitration agreement itself, then FirstMerit, where there were no particular discussions about the arbitration agreement, can be distinguished. Moreover, the Court’s new rule swallows the defenses. It is extremely unlikely to find any case where the arbitration agreement is not part of another agreement and where there is no objection to any other part of an agreement. Except in the extremely rare case, the Court has abolished the defenses.

The Court was also wrong in its assertion that the arbitration provision was not singled out from the other provisions. There was ample testimony about negotiations and representations that related only to the arbitration agreement.

Unfortunately, this is merely another case where it appears that the Court attempted to obtain a result rather than have an opinion based on good reason and good law.

Having said all that, we are not always opposed to arbitration.  We have successfully arbitrated several consumer disputes (even successfully prevailing at a hearing this week to send a homeowner’s dispute against his contractor to arbitration).  We have also agreed to arbitration more frequently for some of our Austin car wreck cases.  But arbitration is not a panacea and comes with many pitfalls.  Whether arbitration is appropriate is a decision that ought to be examined on a case by case basis.

For more of our posts on arbitration, click here, here or here.

To contact Austin Personal Injury Lawyer, Austin Personal Attorney, Austin Accident Lawyer, Austin Injury Lawyer Perlmutter & Schuelke, PLLC or to learn more about Austin Personal Injury visit http://www.civtrial.com/.

How long will my case last? What will it cost?

The two questions that almost every client ask are “how long will the case last?” and, if the case is not contingent, “what will it cost?”  Those two questions are difficult to answer because the opposing lawyer and the opposing party are such big factors.

In every case, we try and let the other side know that we intend to work with them to exchange sufficient information so the parties can fairly evaluate the case, that we’ll make good faith efforts to settle, and failing that, we’ll do our best to give both sides a fair opportunity to present the merits of the claim.   If both sides can agree to this principle, then it’s our experience that most cases can be resolved both economically and fairly.  And working in Austin, which still has a fairly small town feel to the civil litigation bar, we know most of the lawyers and can work towards those ends.

However, if the other side doesn’t agree, and it plays loose with the rules, hides information, and makes little attempt to work out even the most basic disputes, then costs of litigation increase substantially.

A recent case in Florida provides one example of how the opposing party’s flaunting of the rules can affect the costs.  The case, a $10 billion trade secrets case against Motorola, had waged on for several years.   The case finally went to trial last fall, and the case was tried to a jury for almost two months.  During the trial, the judge entered a standard order that no witnesses should read transcripts of other witnesses’ testimony  (you don’t want witnesses to mold their story depending on what others have already said).  Unfortunately, two of Motorola’s witnesses were caught having read testimony of prior witnesses, and the judge was forced to declare a mistrial.  The parties are currently in the throes of a hearing to determine what sanctions and attorneys’ fees should be awarded to the plaintiff for Motorola’s violations of the court’s orders.  And the stakes are high.  The plaintiff is arguing that the conduct has poisoned the entire case, and it is asking for almost $200 million in sanctions and attorneys’ fees (including an unheard of and almost absurd $11,000.00 per hour rate for one attorney).  For more on the story, click here.  (Thanks to our friend Stephanie Mencimer of the The Tortellini blog for the link.  We’ve also previously written on fraudulent defenses here.)

Fortunately, it is rare to find such a blatant flaunting of the rules.  On the other hand, it’s the routine obstinance and refusal to cooperate that drives up the costs and time of litigation, but is not severe enough to be sanctioned by the court.

To contact Austin Personal Injury Lawyer, Austin Personal Attorney, Austin Accident Lawyer, Austin Injury Lawyer Perlmutter & Schuelke, PLLC or to learn more about Austin Personal Injury visit http://www.civtrial.com/.

Sexual Harassment

We’ve been getting more and more calls about sexual harassment from potential clients in Austin and Central Texas.  As a result, we’ve added a short primer on the Basics of Sexual Harassment to our Sexual Harassment and Employment Discrimination page.  We hope you find the information useful.

To contact Austin Personal Injury Lawyer, Austin Personal Attorney, Austin Accident Lawyer, Austin Injury Lawyer Perlmutter & Schuelke, PLLC or to learn more about Austin Personal Injury visit http://www.civtrial.com/.

Supreme Court Justice in the Hotseat

Texas Watch continues to follow the saga of Texas Supreme Court Justice Nathan Hecht.  As you may recall, Hecht was censured for remarks made about former US Supreme Court nominee Harriet Miers.  Hecht fought those charges and incurred significant legal fees in the process.  Reportedly, Hecht then sought the passage of a state law that would require the state to reimburse judges for their legal fees when they successfully appeal a similar ethics rebuke.  Hecht reportedly sought the new law despite the fact that donations were solicited from political supporters for all or almost all of the attorneys’ fees.

Now reports are out that one of those donors was a political action committee funded by homebuilder Bob Perry shortly before Hecht and the Supreme Court heard an appeal of a very large case involving Perry’s company, Perry Homes.  Because of the potential conflict, Texas Watch is calling for Justice Hecht to recuse himself for the case.

Stay tuned to see how this plays out.

For additional posts on the topic, click here or here.

To contact Austin Personal Injury Lawyer, Austin Personal Attorney, Austin Accident Lawyer, Austin Injury Lawyer Perlmutter & Schuelke, PLLC or to learn more about Austin Personal Injury visit http://www.civtrial.com/.

Perlmutter & Schuelke, PLLC maintains offices in Austin, Texas. However, our attorneys and lawyers represent clients throughout the state of Texas, including Dallas, Houston, San Antonio, Forth Worth, El Paso, New Braunfels, San Marcos, Kyle, Buda, Round Rock, Georgetown, Lockhart, Bastrop, Elgin, Manor, Brenham, Cedar Park, Burnet, Marble Falls, Temple and Killeen. By Brooks Schuelke


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