Supreme Court of Texas Holds TAA Applies Where No Evidence to the Contrary Demonstrated

The Supreme Court of Texas has held in a per curiam opinion that the Texas General Arbitration Act (TAA) applied to a dispute where a party invoked the TAA in a hearing on a motion to compel arbitration and no evidence was offered to show the TAA did not apply despite that the motion itself failed to invoke the act.

In Ellis v. Schlimmer, No. 10-0243 (Tex., April 1, 2011), Ron and Tana Schlimmer purchased a home in Corpus Christi, TX from Veronica Ellis, a listing agent with Coldwell Banker Pacesetter Steel Realtors (“Pacesetter”), which acted as broker in the transaction. After their purchase, the Schlimmers discovered a number of defects with the home and sued both Ellis and Pacesetter for fraud, breach of contract, negligent misrepresentation and violations of the Texas Deceptive Trade Practices Act. After discovery began and five months before trial, Pacesetter’s lawyers discovered a mandatory arbitration clause in the real estate contract between Ellis and the Schlimmers. Pacesetter and Ellis filed a motion to abate and compel arbitration. The Schlimmers counter-claimed with waiver and estoppel arguments and alleged the arbitration clause did not cover the parties’ dispute. After the trial court denied Pacesetter and Ellis’ motion, they filed an interlocutory appeal with the Corpus Christi Court of Appeals.

Although the Schlimmers did not contest the court’s jurisdiction to hear the matter, the Corpus Christi court raised the issue on its own. The Court of Appeals noted that Pacesetter and Ellis failed to invoke either the TAA or Federal Arbitration Act (FAA) in their motion to compel arbitration. The court then dismissed the parties’ appeal for lack of jurisdiction because the trial court failed to determine whether the TAA or FAA applied to the dispute and only the TAA authorized an interlocutory appeal. (Read the lower court’s opinion here.)

According to the Supreme Court of Texas, although Pacesetter and Ellis failed to invoke the TAA in their motion to compel arbitration their counsel invoked the TAA by referring to the act at a hearing on the motion. Because of this,

The burden was on the Schlimmers to show that some Texas state law or statutory requirement would prevent enforcement of the arbitration agreement under the TAA so that the FAA would preempt the Texas act. They did not raise any such defenses, nor did they question the agreement’s existence. . . . The court of appeals’ decision erroneously placed the burden to establish the absence of any defenses to arbitration on Ellis and Pacesetter. Under these circumstances, its decision is contrary to the strong policy favoring arbitration.

The Texas Supreme Court reversed and remanded the case to the Corpus Christi Court of Appeals for consideration on the merits.

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