Weil, Gotshal & Manges Guest-Post: Texas House Bill 1083

On June 19, 2009, Texas House Bill 1083 was signed into law.The new provision, effective immediately, prevents courts from ordering mediation in cases subject to the Federal Arbitration Act (excepting cases where the parties have agreed otherwise).The bill, which passed both the House and the Senate without amendment, applies to all actions commencing on or after June 19th.

What does this mean for future Texas cases involving the FAA?Fewer reversals, for one.H.B. 1083 codifies In re Heritage Building Systems, Inc., 185 S.W.3d 539 (Tex. App.—Beaumont 2006, no pet.).Though the FAA applied to the claims in that case, the trial court ordered the parties to mediate, citing Texas’s policy in favor of settlement.The appellate court reversed, determining that mediation would result in additional time and expense, and thus frustrate the expectations of the parties and the federal mandate that a case be ordered “to proceed to arbitration in accordance with the terms of the agreement.”Id. at 542 (quoting 9 U.S.C. § 4).(Note that though this new law is only prospective – as it should be – because of In re Heritage, the same rule will apply to pending cases.)This law has the same effect as the holding in In re Heritage, but is applicable state-wide.

But the new law will also (likely) result in more litigation.The language of H.B. 1083 is sweeping, covering any action subject to the FAA.Reality is more nuanced, however.Courts regularly deal with cases where some claims are subject to the FAA and others are not.See, e.g., United States v. Medica-Rents Co., 2006 WL 3635416 (N.D. Tex. 2006) (referring the remaining attorneys’ fees question to mediation).What is a court to do when the law requires that mediation be barred as to the entire action?Truth be told, it is unlikely that courts will adopt this wholesale – though literal – interpretation.Rather, one would expect that courts will interpret “action” to mean “claims” or “part of an action.”Such an interpretation would make the law consistent with both the FAA and Texas’s pro-mediation policies.

Though the courts’ treatment of this law remains to be seen, we expect that courts will attempt to harmonize this state law – which, interestingly, codifies federal preemption principles – with the FAA and related state policies.