Texas Bar Journal Article: “What You Always Wanted to Know About Arbitration”

Texas Bar Journal

September 2010 | Volume 73, 8

This issue features an interesting article entitled “What You Always Wanted to Know About Arbitration” written by Scott D. Marrs and Sean P. Milligan. The article seeks to answer five key arbitration questions recently decided by the courts:

1. Can the parties agree that an arbitration award is appealable?

In Hall Street Associates, Inc. v. Mattel, Inc., No. 06-989, 552 U.S. 576 (2008), the U.S. Supreme Court held that contractual agreements to expand judicial review in arbitrations governed by the Federal Arbitration Act are prohibited and unenforceable, but left open the possibility that state law might provide a basis for expanded review.

2. Under what circumstances does a party waive its right to arbitrate?

The Texas Supreme Court in Perry Homes v. Cull, No. 05-0882, 258 S.W.3d 580 (Tex. 2008), cert. denied 129 S. Ct. 952, utilized a totality of circumstances test when determining whether waiver has occurred. Those factors include: which party invoked arbitration, the length of time the moving party waited prior to invoking arbitration, whether or not the party invoking arbitration was previously aware of the alternative dispute resolution clause, how much activity was related to the merits of the case rather than arbitrability or jurisdiction, the expense and time incurred in litigation, whether or not the moving party had previously opposed arbitration, filed affirmative claims or dispositive motions in the case, whether arbitration would preclude important discovery, whether activity in court would be duplicated in arbitration and the pending trial date, if set.

3. What effect does an unconscionable contract provision within an agreement have on enforceability of the arbitration clause contained therein?

In Security Service Federal Credit Union v. Sanders, No. 04-07-00540-CV, 264 S.W.3d 292 (Tex. App 2008) the Court of Appeals of Texas held that an illegal or unenforceable contract provision can be severed and the remainder of the contract may be enforced if intended by the parties.

4. Do arbitrators have the power to compel discovery from non-parties?

Although the Second Circuit has stated arbitrators may order a non-party to an arbitration to produce documents so long as that person is called as a witness at the hearing, recent case law has adopted a limited view of an arbitrator’s power to compel discovery from non-parties.

5. Are heirs and beneficiaries bound by a decedent’s arbitration agreement?

In the majority of states, including Texas, the answer to this question depends on whether the wrongful death action is an independent or derivative cause of action under state law. In such states, beneficiaries are bound by a decedent’s agreement to arbitrate in a derivative action.

You can read the full article here.

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