Professor Alan Scott Rau Comments on In re Morgan Stanley

Professor Alan Scott Rau has forwarded us the following comments relating to our post of yesterday, in which we summarized the recent Texas Supreme Court case of In re Morgan Stanley & Co., Inc., __ S.W.3d __ (Texas 2009) (No. 07-0665).

The Texas Supreme Court gets it absolutely right [and totally without regard to the fact that they quote me.] How could it be otherwise? Compare Justice Hecht’s dissent:

“A raving lunatic in a strait-jacket “agrees” to a contract, including an arbitration clause. Her guardian later seeks to avoid it, but the question of the contract’s validity must be submitted to the arbitrators for a final and binding decision. But where do the arbitrators get such authoritative decisionmaking power? Why, where they always get their power—from the agreement of the parties! Now, just what agreement of the parties is that? Well, there is something written and signed—it “exists,” doesn’t it? “It happened,” didn’t it? That the signatory was out of her head is just an inconvenient detail.”

Such an approach could only make sense if one is living in some world of words and labels totally divorced from reality. “The law” rarely permits such silly results—and it never, ever, absolutely requires them.

All of this is reasonably obvious. What I find more interesting here is Justice Hecht’s argument that the result should be different because the Texas courts need to align themselves with the Fifth Circuit. This is really rather striking when you think about it: As a matter of constitutional law the Texas courts have an equal claim with the lower federal courts to interpret the dictates of federal law; I can’t believe that it’s better to acquiesce in foolish Fifth Circuit opinions than to try to get the Fifth Circuit to reconsider.

Now it may well be, as Justice Brister points out, that even if the plaintiff’s incapacity is ultimately confirmed by a court, she [or her guardian] may still be bound to arbitrate; where “estoppel” kicks in, arbitration is no longer consensual and becomes irrelevant anyway. But this is a different point, and the case hadn’t been argued on that basis—which just reflects the fact that the lawyering was inadequate and that we’re in a messy state on appeal.

Alan Scott Rau
Burg Family Professor of Law
University of Texas at Austin School of Law
http://ssrn.com/author=55273

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arbitration, ADR, law, Texas Supreme Court, In re Morgan Stanley