In a per curiam arbitrability opinion released today, the Texas Supreme Court held that a fraudulent inducement claim must be arbitrated, if the contract which was allegedly fraudulently induced contained an arbitration clause, even if the party seeking to compel arbitration is not a signatory to that contract. The case involves fraudulent inducement claims by a group of student electricians against a vocational College; they allege that the College induced them to enroll by making false promises that they would be eligible for journeyman or master electrician licenses upon graduation. The College, with whom the students had entered into the arbitration agreements, was wholly owned by Kaplan Higher Education Corporation. When the students sued the College, the College moved to compel arbitration, and the students dropped their claims against the College, choosing instead to proceed against Kaplan. Kaplan was not a signatory to the enrollment agreement with the arbitration clause, and neither the trial court nor the Court of Appeals would compel arbitration. The Supreme Court, however, did, holding that “when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was pulling the strings.” In Re: Kaplan, ___ S.W.3d ___ (Tex. 2007) (Cause No. 06-0072). Technorati Tags: arbitration, ADR, Texas Supreme Court, law

Yesterday, we posted about a Third Court of Appeals opinion where a party seeking to compel arbitration was found to have not established the existence of an agreement to arbitrate. Today, the Texas Supreme Court addresses the same issue but comes up with the opposite result. The case involved claims by investors against their stock broker based on Enron stock losses. In this case, the plaintiffs, who sought to avoid arbitration, signed contracts with a company called Olde Discount Corporation. The contracts contained arbitration clauses. Later, Olde changed its name to H&R Block, but the plaintiffs continued to use the same broker. In October 2002, the plaintiffs sued H&R Block, and H&R Block moved to compel arbitration. The trial court denied the motion, and the Corpus Christi Court of Appeals denied the petition for mandamus (in 2003 – the opinion never explains the delay between these events and today’s opinion). The Supreme Court, however, disagreed with the other courts that looked at these facts and ordered the claims to arbitration. According to the Court, H&R Block made an evidentiary record that demonstrated that the plaintiffs signed an agreement to arbitrate with Olde, and that H&R Block was simply the new name for Olde. Since the change in name would not have invalidated the contracts as a whole, it did not invalidate the arbitration clause, and H&R Block could enforce the arbitration clause in the Olde contract. Like yesterday’s Third Court of Appeals opinion, the case does not make any new law, but read in concert together, the two opinions provide a good discussion of the burden of proof a party seeking to establish the existence of an agreement to arbitrate must meet. In re: H&R Block, ___ S.W.3d ___ (Tex. 2007) (Cause No. 04-0061). Technorati Tags: arbitration, ADR, Texas Supreme Court, law

Well, the Texas Appellate Law Blog scooped us on a Third Court of Appeals opinion handed down today in which the Court refuses to compel arbitration under either the TAA or the FAA. We will not simply recap what Mr. Smith has already posted on the subject, but we wanted to make a couple additional points about the interesting opinion. Really, the case is more about motion practice and Texas appellate practice than arbitrability issues. Judge Yelenosky presided over a hearing on a motion to compel arbitration. The movant had attached a copy of a contract between the parties which contained an arbitration clause, but: a) it was for a year after the period in which the facts occurred which gave rise to the claim; and b) the non-movant had specifically written a refusal to accept the arbitration clause into the contract. The movant, apparently, could not locate the earlier contract which allegedly contained a properly-signed arbitration clause. Adding fuel to the eventual fire, the parties entered into a Rule 11 agreement whereby the non-movant agreed to not ask for a continuance of the hearing on the Motion to Compel arbitration and the movant agreed to not try to supplement the record at the hearing, unless the specific 1987 contract could be located. On the record before him, Judge Yelenosky refused to compel arbitration, finding that the movant had not met its threshhold burden of establishing the existence of an agreement to arbitrate. The movant then filed a motion to reconsider, attaching earlier, signed agreements with arbitration clauses. The trial court denied the Motion to Reconsider. The movant then filed both an interlocutory appeal (under the TAA) and a petition for writ of mandamus (under the FAA) (why both? More on this procedural quirk here). This is where the appellate law excitement started. First of all, the Court refused to exercise jurisdiction over the interlocutory appeal. While one can, in Texas, take an interlocutory appeal of an order refusing to compel arbitration under the TAA, one cannot, apparently, take an interlocutory appeal of an order denying a motion to reconsider a refusal of an order to compel arbitration under the TAA. That being the case, the 20 day deadline is not tolled by the filing of a motion to reconsider. This, as the Texas Appellate Law Blog noted before we did, is an important practice tip. The jurisdictional technicality did not affect the mandamus petition under the FAA, however, and the Court fully considered that petition. The Court ruled, however, that based on the record before him, especially considering the Rule 11 agreement, Judge Yelenosky did not abuse his discretion when he found that an agreement to arbitrate between the parties had not been proven. With respect to the Motion to Reconsider, the Court found that since that Motion added no new argument to the Motion to Compel, but instead simply added to the record, denying it was appropriate. Again, the opinion does not add any new wrinkles to the law that governs arbitrability, but it certainly highlights the often over-looked burden of establishing the existence of an agreement to arbitrate. None of the myriad cases about arbitration’s favorable treatment under Texas law applies if a movant has not made a record which establishes the existence of an agreement to arbitrate. AXA Financial vs. Roberts, Cause No. 03-07-00079 (Tex. App. – Austin 2007) (mem. opinion). Technorati Tags: arbitration, ADR, Third Court of Appeals, law

Earlier this week, the Fifth Circuit handed down an opinion reversing a decision from the Eastern District of Louisiana which had vacated an arbitral award (link is to .pdf file). The underlying case was a securities fraud action against a stock broker, which the Plaintiffs arbitrated under protest, having challenged the arbitrability of the case from the outset. The District Court, however, forced the parties to arbitrate, and the Defendant stoke broker prevailed. Later, however, the Plaintiffs opposed the confirmation of the arbitral award, arguing that since the dispute was not arbitrable in the first place, the arbitrators exceeded their authority under Section 10(a)(4) of the Federal Arbitration Act. This time, the district court agreed with the Plaintiffs and vacated the award, finding that the dispute fell outside the scope of the arbitration clause in question. After all that, however, the Fifth Circuit reversed and remanded so that the District Court could confirm the award. According to the Court, “A reasonable interpretation of the arbitration clause in the instant case supports a conclusion that the clause covers the dispute.” Given the strong presumption which exists in favor of arbitrability, this is enough; to the extent ambiguity exists in the arbitration clause, that ambiguity must be resolved in favor of arbitration. The opinion itself is short and does not break any new ground. However, it is important as a reminder that, even if a client’s initial challenge to arbitrability fails, one can always try again at the confirmation phase, providing that the challenge has been maintained and not waived (even though ultimately the challenge to arbitrability, in this case, failed). Downer v. Siegel, ___ F3d ___ (5th Cir. 2007) (Cause No. 06-30159). Technorati Tags: arbitration, ADR, Fifth Circuit, law