Non-signatories and arbitration of personal injury claims

On Friday, the Texas Supreme Court handed down an opinion granting Petition for Writ of Mandamus compelling a non-signatory to an arbitration clause to arbitrate personal injury claims the Court itself admits do not stem from the contract which contains the arbitration clause.

The plaintiff in the underlying case asserted personal injury claims against a home builder, claiming that she developed asthma from the dust created by the home builder’s repairs of the home in which she lived (but which she did not own), so she decided to get help with injuries from lawyers as https://www.spauldinginjurylaw.com/savannah/. The purchase agreement which obligated the home builder to undergo the repairs contained an arbitration clause, and the home builder attempted to compel arbitration of the asthma claims. The asthmatic plaintiff was not a signatory to the purchase agreement.

The Texas Supreme Court adopted a doctrine of “direct-benefits estoppel,” asserting that since the asthmatic plaintiff insisted upon and enjoyed benefits of the contract (specifically its warranty and repair provisions), she could not subsequently avoid the contract’s arbitration clause. The Court declines to establish a firm test for lower courts to apply when “deciding what particular conduct embraces or merely shakes hands with” the contract, stating instead that trial courts must “exercise some discretion based on the facts of each case.” In other words, the rule in Texas, as of Friday, seems to be: if a party embraces a contract containing an arbitration clause, it cannot then avoid arbitration of tort claims unrelated to the contract, but if the party merely shakes hands with the contract, then arbitration is not required. The Court acknowledges that since the U.S. Supreme Court has not adopted direct-benefits estoppel, “its application and boundaries are not entirely clear.”

The case was complicated by the fact that the home was purchased by the asthmatic plaintiff’s elderly father and then given to a trust for the plaintiff’s benefit, the idea being that the elderly father would live with his daughter and her family during his sunset years, after which the daughter would own the house. That being the case, the daughter supervised the construction and repairs, despite not being an owner of the home. So, the factual relationship between the daughter, the trust which owned the property, and the home builder which repaired the home and allegedly caused the daughter’s asthma was complex, to say the least. Emerging from this unusual set of facts is a vaguely defined doctrine which may prove to have a broad impact, given the seeming ubiquity of arbitration clauses in today’s consumer contracts.

Finally, it seems worth noting that, according to the Texas Supreme Court, neither party challenged the trial court ruling that the FAA, as opposed to the TAA, governed the contract which contained the arbitration clause. As we’ve noted on this blog before, TAA analysis would place far stricter requirements on arbitration clauses which purport to require arbitration of personal injury claims than does the FAA.

Cause No. 04-0119, In RE: Weekley Homes, LP

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