Duress and Arbitration

This past Friday, while Karl and I attended the Austin Bar Association’s annual Bench Bar conference, the Texas Supreme Court handed down another mandamus, per curiam opinion reversing trial court and court of appeals decisions not to compel arbitration.

The case involved an employee of RLS Legal Solutions (“RLS”) named Amy Cobb Maida (“Maida”) who worked as a sales rep for RLS from 1997 until 2002. As per her employment contract, she was paid a base salary twice a month and a commission payment monthly. All payments were made to her by RLS via direct deposit. In November 2001, RLS asked her to sign a new employment contract, which contained, among other things, an arbitration clause. Maida objected to the new contract, but RLS told her that it would not pay her unless and until she signed. Sure enough, on the next payday, RLS did not pay her her salary.

The next work day, Maida signed the contract containing the arbitration agreement, but she indicated that she had done so under duress. Later, when her employment dispute arose with RLS and RLS moved to compel arbitration, Maida argued that the arbitration agreement was unenforceable as it was procured by duress. The Court of Appeals found the arbitration agreement to be unenforceable since RLS had withheld wages that had already been earned by Maida until she signed the agreement. In other words, this was not a “take it or leave it” employment contract; this was a situation where the employer would not pay the employee past wages until she signed the future contract.

The Supreme Court was unbothered by that distinction and instead focused on whether or not Maida objected to the contract as a whole or just the arbitration clause. Since Maida’s duress argument applied not just to the agreement to arbitrate, but to Maida’s whole deal with RLS, the Supreme Court reversed the court of appeals and held that the arbitrator, and not the courts, must rule on the duress argument. In other words, in order to have avoided arbitration, Maida would have had to have testified that she had no problem with the other terms of her contract with RLS (which may have had an adverse impact on the substance of her litigation with RLS, one might think).

While at first blush it seems strange that the Supreme Court would enforce an agreement to arbitrate while assuming that it was procured by duress, Friday’s opinion is in line with FAA jurisprudence, including the recent U.S. Supreme Court’s Buckeye Check Cashing opinion, where that court upheld an arbitration agreement in an illegal contract.

Finally, we would note that the court of appeals opinion which has now been reversed was discussed in the updated arbitration paper Karl presented on Friday. So, on the very same day the paper was posted on this blog, part of it was rendered obsolete and out of date.

In RE: RLS Legal Solutions, LLC, ___ S.W.3d ___ (Tex. 2007) (Cause No. 05-0290)

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