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In 2016 the Texas Supreme Court Continues to Favor Arbitration

Written by Judith R. Blakeway on January 3, 2017

In 2016, the Texas Supreme Court issued three important opinions affecting arbitration agreements. The most significant was Hoskins v. Hoskins, 497 S.W.3d 490 (Tex. 2016). The issue in that case was whether a party seeking to vacate an arbitration award under the Texas Arbitration Act (TAA) may invoke extra-statutory, common-law vacatur grounds. A party to arbitration sought to vacate an award because the arbitrator manifestly disregarded the law. The court held that the TAA provides the exclusive grounds for vacatur of an arbitration award; manifest disregard and other common-law vacatur doctrines are no longer viable means of setting aside awards under the TAA.

In Cardwell v. Whataburger Restaurants, LLC, 484 S.W.3d 426 (Tex. 2016), the court held that a court must address all defenses raised in opposition to arbitration. There, an employee sued her employer, Whataburger, a non-subscriber, to recover for an on-the-job injury. Whataburger moved to compel arbitration. The employee argued that the arbitration agreement was unconscionable for a number of reasons and illusory. The trial court denied the motion but did not rule on all the employee’s arguments, including that the agreement was illusory. On appeal, both parties briefed all of the grounds alleged, but the court of appeals addressed only the ground the trial court gave for its ruling. The supreme court reversed, holding that the court of appeals could not order arbitration without either addressing all the employee’s arguments or remanding to the trial court to address them.

In RSL Funding LLC v. Pippins, No. 14-0457, 2016 Tex. LEXIS 616 (Tex. 2016), the court considered whether a party who litigates a claim with an opponent substantially invokes the litigation process for a related yet distinct claim against another party with whom it has an arbitration agreement. There, RSL Funding had arbitration agreements with three individuals who owned annuity contracts issued by MetLife that they agreed to sell to RSL. The annuity contracts did not contain arbitration agreements. Each of the individuals assigned their annuities to RSL in exchange for lump sum payments. The assignments included clauses providing for arbitration. When MetLife refused to honor the assignments, RSL sued MetLife and the individuals seeking a declaratory judgment that its agreements with the individuals were binding on MetLife and sought a judgment against MetLife for damages, interest, costs and attorney’s fees. RSL did not seek recovery from the individuals. Later, the individuals counterclaimed against RSL for breach of contract for failing to pay lump sums under the annuities. RSL then sought arbitration with the individuals while continuing to litigate with MetLife (which did not have an arbitration agreement). The court held that the heavy burden to prove RSL invoked the judicial process sufficiently to waive its contractual arbitration right with the individuals was not met and the court of appeals erred in so holding.