arbitration: practical considerations practical considerations for the texas litigator b-1 ... the...

ARBITRATION: PRACTICAL CONSIDERATIONSFOR THE TEXAS LITIGATOR

PENNY P. REIDWeil, Gotshal & Manges LLP

100 Crescent Court, Suite 1300Dallas, Texas 75201-6950

21st ANNUAL ADVANCED CIVIL TRIAL COURSEState Bar of Texas

Fall 1998

©Penny P. Reid

B

Arbitration: Practical Considerations For The Texas Litigator B-i

Table of Contents

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. STARTING AN ARBITRATION PROCEEDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2A. Agency Administered vs. Ad Hoc Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2B. Absent a Clear and Unequivocal Agreement to the Contrary, the Courts Must

Decide the Arbitrability Issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2C. Determination of Arbitrability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Evidentiary Hearing may be Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32. If FAA applies, federal substantive law is applicable. . . . . . . . . . . . . . . . . . . . . . . . . 33. Is the FAA applicable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34. The FAA preempts inconsistent state laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55. Effect of choice-of-law provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

D. Scope of Arbitration Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8E. Defenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9F. Procedure to Overturn an Adverse Ruling on Issue of Arbitrability. . . . . . . . . . . . . . . . . . 10

1. In Texas state court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102. In federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

G. Other Orders from the Courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

III. PARTICIPATING IN AN ARBITRATION PROCEEDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12A. Selecting an Arbitrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1. Party-appointed arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122. Agency-appointed arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133. Other considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

B. Formatting the Arbitration Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131. Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143. Final Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

IV. POST AWARD LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15A. Confirming or Vacating an Arbitration Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1. Vacating an Arbitration Award under the Texas Arbitration Act. . . . . . . . . . . . . . . . 162. Vacating an Arbitration Award under the FAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

V. DRAFTING AN ARBITRATION PROVISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18A. Ad Hoc v. Institutional Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1. Institutional Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182. Ad hoc Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

B. Number of Arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19C. Arbitrability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19D. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20E. Written Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20F. Other considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

1. Where to Arbitrate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212. Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213. Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Arbitration: Practical Considerations For The Texas Litigator B-1

ARBITRATION: PRACTICAL CONSIDERATIONS FOR THETEXAS LITIGATOR.

I. INTRODUCTION.Arbitration is continuing its increase in popu- App. -- Fort Worth 1997, no writ); United Parcel

larity as an alternative to the trial process. Many Serv. v. McFall, 940 S.W.2d 716, 719 (Tex. App. --business enterprises have turned to mandatory Amarillo 1997, no writ) (explaining that the weight ofarbitration clauses in hopes of avoiding time-con- the policy favoring arbitration is so great that it effec-suming, uncertain, and expensive litigation because it tively compels the courts to presume that the matter isis perceived that arbitration agreements will provide subject to arbitration until the opponent proves other-the parties with a quick, efficient, and economical wise). Applying that presumption, the courts havemethod of resolving disputes before panels of trained held that "any doubts regarding the scope of an arbi-arbitrators, as opposed to whimsical juries. See tration agreement should be resolved in favor of arbi-Michael A. Hanzman, Arbitration Agreements: tration." American Employers' Ins. Co. v. Aiken, 942Analyzing Threshold Choice of Law and S.W.2d 156, 159 (Tex. App. -- Fort Worth 1997, noArbitrability Questions: an often overlooked Task, writ) (citing Cantella, 924 S.W.2d at 944). Once a70 Fla. B.J. 14 (December, 1996). Although not all party seeking to compel arbitration establishes that ancommentators agree that arbitration is the best method agreement exists and that the claims raised are withinof resolving disputes in all situations, see Jean R. the agreement's scope, the trial court must compelSternlight, Panacea or Corporate Tool?: Debunking arbitration. Cantella, 924 S.W.2d at 944; Nationwidethe Supreme Court's Preference for Binding Arbi- of Fort Worth, Inc. v. Wigington, 945 S.W.2d 883tration, 74 Wash. Univ. L. Q. 637 (Fall 1996), the (Tex. App. -- Waco 1997, no writ).number of industries electing arbitration as the Despite its continued increase in popularity andpreferred choice of dispute resolution is quickly on the the courts' strong preference for arbitration, manyrise. experienced litigators are unfamiliar with the process

Additionally, both federal and state law strongly and some mistakenly believe that arbitration is merelyfavor arbitration. See Moses H. Cone Mem'l Hosp. v. a form of mediation. Arbitration, however, is not aMercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. form of mediation, but rather, a binding proceeding927, 941-42 (1983); Cantella & Co., Inc. v. Goodwin, that can have the same force and effect as any other924 S.W.2d 943, 944 (Tex. 1996). Indeed, the Su- judgment entered by a court after a full trial. See Tex.preme Court recently reemphasized that the Federal Civ. Prac. & Rem. Code Ann. ¶ 171.092 (VernonArbitration Act (the "FAA") "declared a national Supp. 1998); Nuno v. Pulido, 946 S.W.2d 448, 452policy favoring arbitration." Mastrobuono v. (Tex. App. -- Corpus Christi 1997, no writ)("anShearson Lehman Hutton, Inc., 514 U.S. 52, 115 S. arbitration award is given the same effect as a finalCt. 1212, 1215-16 (1995). The Court explained that judgment of a court of last resort.") Moreover, thethe FAA was enacted "to overrule the judiciary's arbitration process has a number of distinct charac-longstanding refusal to enforce agreements to teristics that can prove to be a trap for the unwaryarbitrate." Volt Info. Sciences, Inc. v. Board of litigator who proceeds to handle an arbitration just asTrustees of Leland Stanford Junior Univ., 489 U.S. they would a trial. Thus, the purpose of this paper is468, 474, 109 S. Ct. 1248, 1253 (1989) (quoting to emphasis to practitioners some of the critical issuesDean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, that must be addressed when confronted with a dispute219-220 (1985)). The Court also has found that when involving an arbitration agreement.the arbitration agreement involves interstate com- The first part of this paper discusses how to startmerce, the FAA applies both to federal and state an arbitration proceeding. Part two will address issuescourts and preempts state laws that invalidate arbi- to be concerned with during the arbitration process.tration agreements. Allied-Bruce Terminix Cos., Inc. Part three will discuss litigating after an award hasv. Dobson, 513 U.S. 265, 115 S. Ct. 834, 838 (1995) been entered. Finally, part four will briefly address(citing Southland Corp. v. Keating, 465 U.S. 1, 15-16 issues to consider in drafting an arbitration agreement.(1984)).

Pursuant to the policy favoring arbitration, Texascourts recognize a presumption in favor of arbitration.See, e.g., Cantella & Co., Inc. v. Goodwin, 924S.W.2d 943, 944 (Tex. 1996); Prudential Sec., Inc. v.Marshall, 909 S.W.2d 896, 898 (Tex. 1995); Circuit

City Stores, Inc. v. Curry, 946 S.W.2d 486, (Tex.

II. STARTING AN ARBITRATION PROCEED-ING.

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_supremeopinions&volume=460&edition=U.S.&page=1&id=68864_01

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_supremeopinions&volume=103&edition=S.Ct.&page=927&id=68864_01


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=tx_caselaw&volume=924&edition=S.W.2d&page=943&id=68864_01






















B-2 21st Annual Advanced Civil Trial Course

A. Agency Administered vs. Ad Hoc Proceeding.How a party to an arbitration agreement com- to be answered by the courts absent "clear and unmis-

mences the arbitration depends upon whether the agre- takable evidence" that the parties agreed to submit theement provides for the arbitration to be administered question of arbitrability to arbitration. First Optionsby an institution (such as the American Arbitration of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct.Association (the "AAA"), J.A.M.S Endispute 1920, 1924-25 (1995) (citing AT&T Techs., Inc. v.("JAMS"), the International Chamber of Commerce Communications Workers of America, 475 U.S. 643,("ICC"), or the London Court of International Arbitra- 649, 106 S. Ct. 1415, 1418-19 (1986)). The Courttion ("LCIA")), or on an ad hoc basis. If the arbitra- explained that the law treats silence or ambiguitytion is to be administered by an agency, a party wish- about the question "who (primarily) should decideing to commence an arbitration merely makes a de- arbitrability" differently from the way it treats silencemand on the opposing party and files a copy of that or ambiguity about the question "whether a particulardemand and of the arbitration agreement with the dispute is within the scope of a valid arbitration agree-administering agency. See, e.g., Rule 6 of the AAA's ment." Id. at 1924. With respect to the latterCommercial Arbitration Rules (the "AAA Rules"); question, "any doubts concerning the scope of arbitra-Rule 5 of JAMS' Comprehensive Arbitration Rules ble issues should be resolved in favor of arbitration."and Procedures ("JAMS' Rules"). The arbitration Moses H. Cone Mem'l Hosp. v. Mercury Constr.proceeding will then procedure pursuant to the Corp., 103 S. Ct. 927, 941-42 (1983). With respectagency's rules or the parties' agreement. Both the to the former question, the law reverses the presump-AAA Rules and JAMS Rules provide that an award tion -- unless the parties by their arbitration agreementcan be made even if the opposing party refuses to vest authority to determine the issue of arbitrabilityparticipate in the process, as long as notice is provided with the arbitrator, it will be presumed that the partiesand the party seeking arbitration proves its entitlement intended the courts to decide the issue. First Options,to relief (i.e., an award may not be rendered soley on 115 S.Ct at 1924-25. The reason behind this seemingdefault, but rather a party must present evidence to inconsistency is that a failure to require clear andsupport its position). See AAA Rule 30; JAMS Rule unmistakable evidence on this point might "too often20(i). Thus, if the opposing party does not want an force unwilling parties to arbitrate a matter they rea-agency-administered arbitration to proceed, it must file sonably would have thought a judge, not an arbitrator,a motion to stay the arbitration with a court. See, e.g., would decide." Id. at 1925. The First Options holdingTex. Civ. Prac. & Rem. Code § 171.023 (Vernon has been criticized by some on the basis that "the costSupp. 1998). savings, time savings, and efficiencies of arbitration

Conversely, if the parties' agreement to arbitrate [will now] depend on putting in arbitration agreementsdoes not provide for agency administration, a party a provision that arbitrators shall be empowered toseeking arbitration must file a motion to compel arbi- decide questions of arbitrability." William J. Baum,tration with a court, if the opposing party is refusing Jr., Recent Developments in the Case Law of Arbitra-to participate in the arbitration. See Tex. Civ. Prac. & tion, 25 Colo. Law. 63, 64 (Nov. 1996).Rem. Code § 171.021 (Vernon Supp. 1998); 9 U.S.C.§ 4. In Texas, the motion to compel must be filed (a)in the court where there is a proceeding alreadypending if that proceeding involves the arbitrable Although federal substantive law may governissue; (b) in a court in the county where the arbitration the determination of arbitrability if the FAA applieswill take place if the arbitration agreement provides (see discussion below), Texas courts neverthelessfor a location; (c) in the county where the adverse follow Texas procedure to make that determination.party resides or has a place of business; or (d) if none Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266,of the above are applicable, in any county. See id. at 272 (Tex. 1992). Specifically, the Texas Supreme§ 171.096. Court set out the procedure for determining arbitrabi-

B. Absent a Clear and Unequivocal Agreement tothe Contrary, the Courts Must Decide theArbitrability Issue.

If there is a dispute over whether there is an if the material facts necessary to determine theagreement to arbitrate, that dispute must be settled by issue are controverted, by an opposing affidavita court, not by the arbitrators, unless the parties have or otherwise admissible evidence, the trial courtunequivocally provided that the arbitrators would must conduct an evidentiary hearing to determinemake that decision. The Supreme Court has mandated the disputed material facts.

that the question of whether a dispute is arbitrable is

C. Determination of Arbitrability.1. Evidentiary Hearing may be Required.

lity as follows:the trial court may summarily decide whether tocompel arbitration on the basis of affidavits,pleadings, discovery, and stipulations. However,









Id. at 269. This evidentiary hearing requirement is 896, 899 (Tex. 1995). However, although Texassimilar to the federal statute that allows a party to courts interpreting agreements under the FAA applydemand a jury trial with regard to the issue of whether federal substantive law, federal procedural rules arean agreement to arbitrate exists. 9 U.S.C. § 4 (1970); not applicable. Jack B. Anglin Co., Inc. v. Tipps, 842Hardin Constr. Group, Inc. v. Strictly Painting, Inc., S.W.2d 266, 272 (Tex. 1992); see Southland Corp. v.945 S.W.2d 308, 311 (Tex. App. -- San Antonio Keating, 104 S. Ct. 852, 861 n.10 (1984).1997, no writ).

In the course of this procedure, the party seeking The FAA applies to written arbitration provisionsarbitration has the initial burden to establish that a contained in "a contract evidencing a transaction in-valid arbitration agreement exists. Dallas Cardiology volving commerce." 9 U.S.C. § 2; Allied-BruceAssoc. v. Mallick, 1998 WL 466099 at *2, (Tex. App. Terminix Cos., Inc. v. Dobson, 115 S. Ct. 834, 836-- Texarkana Aug. 12, 1998, n.w.h.); Weekley Homes, (1995). Before the Supreme Court's decision in Al-Inc. v. Jennings, 936 S.W.2d 16, 17-19 (Tex. App. -- lied-Bruce, several state courts and federal districtSan Antonio 1996, writ denied)(burden of party courts had interpreted the FAA's language as requiringseeking arbitration to establish compliance with the parties to a contract to have "contemplated" ancondition precedent to arbitration agreement). Once interstate commerce connection. See, e.g., Warren v.the existence of an arbitration agreement has been J.S. Ford, Inc., 548 So. 2d 157, 160 (Ala.), cert.established, then a presumption attaches favoring denied, 493 U.S. 998 (1989); Burke County Pub.arbitration and the burden of proof shifts to the party Schs. Bd. of Educ. v. Shaver Partnership, 303 N.C.seeking to avoid the arbitration by showing that the 408, 279 S.E.2d 816, 822 (1981); Lacheney v.claims are not within the scope of the agreement or ProfitKey Int'l, Inc. 818 F. Supp. 922, 924 (E.D. Va.that some grounds exist for revocation of the agree- 1993). Indeed, although the Texas supreme court inment. Dallas Cardiology, 1998 WL 466099 at *2; Jack B. Anglin declined to define the scope of thePrudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 "involving commerce" language, it did acknowledge(Tex. 1995); Prudential Sec. Inc. v. Banales, 860 that some courts had required the parties to have con-S.W.2d 594, 597 (Tex. App. -- Corpus Christi 1993, templated substantial interstate activity to triggerno writ). In determining whether to compel arbitration application of the FAA. See Jack B. Anglin, 842the court must decide two issues: (1) whether a valid, S.W.2d at 270 n.6 (emphasis added). Other courts,enforceable arbitration agreement exists, and (2) if so, however, had interpreted the same language as reach-whether the claims asserted fall within the scope of the ing to the limits of Congress' Commerce Clauseagreement. Dallas Cardiology, 1998 WL 466099 at power. See, e.g., Del E. Webb Constr. v. Richardson*2; BDO Seidman v. Miller, 949 S.W.2d 858, 860 Hosp. Auth., 823 F.2d 145, 147-48 (5th Cir. 1987);(Tex. App. -- Austin 1997, writ dism'd w.o.j.). Once Foster v. Turley, 808 F.2d 38, 40 (10th Cir. 1986).a court determines that a dispute is covered by an In Allied-Bruce, the Court resolved the conflict ofarbitration agreement, it has no discretion but to com- whether the language in § 2 of the FAA should bepel arbitration. See Tex. Civ. Prac. & Rem. Code §§ interpreted broadly as reaching to the limits of171.021 (the court "shall order the arbitration"), Congress' Commerce Clause power, or whether a more171.023 (same); Cantella & Co., Inc. v. Goodwin, 924 restrictive interpretation was required. Allied-Bruce,S.W.2d 943, 944 (Tex. 1996). Further, in deciding 115 S. Ct. at 836. The Allied-Bruce case involved anarbitrability, a court cannot consider the validity of the action brought in Alabama state court by homeownersunderlying claim. Tex. Civ. Prac. & Rem. Code against a local termite control company for a faulty§ 171.026. termite inspection. Id. at 837. Because the termite

2. If FAA applies, federal substantive law isapplicable.

In determining whether a dispute is arbitrable, the tration under the FAA. Id. The trial court denied theSupreme Court has held that a court must apply "fed- stay, and the Alabama supreme court upheld thateral substantive law of arbitrability," if the arbitration denial based on an Alabama statute that makes writ-agreement is covered by the FAA. Mitsubishi Motors ten, predispute arbitration agreements unenforceable.Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, Id. The Alabama courts had concluded that the FAA105 S. Ct. 3346, 3353 (1985) (citing Moses H. Cone did not apply to the termite contract because at theMem'l Hosp., 460 U.S. 1, 24 (1983)). Consistent with time the parties entered into the contract they had notthat precedent, the Texas supreme court has explained contemplated substantial interstate activity. Id. Thethat when the FAA applies, Texas courts must apply U.S. Supreme Court reversed, finding that the FAAfederal law to determine whether a dispute is arbi- was applicable to the termite contract even though thetrable. Prudential Sec., Inc. v. Marshall, 909 S.W.2d parties did not contemplate an interstate connection.

3. Is the FAA applicable?

contract contained an arbitration provision, the termitecompany moved to stay the litigation and compel arbi-
















http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=al_caselaw&volume=548&edition=So.2d&page=157&id=68864_01


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=nc_caselaw&volume=303&edition=N.C.&page=408&id=68864_01

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=nc_caselaw&volume=303&edition=N.C.&page=408&id=68864_01

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=nc_caselaw&volume=279&edition=S.E.2d&page=816&id=68864_01

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_distctopinions&volume=818&edition=F.Supp.&page=922&id=68864_01



http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_5thcircuit&volume=823&edition=F.2d&page=145&id=68864_01



Id. at 843. The Court explained that the words denied) (finding that the amount of commerce con-"involving commerce" should be interpreted as sidered in the contract need not be substantial andbroadly as the words "affecting commerce," which holding that the FAA was applicable where suretyhave been interpreted to mean a full exercise of consti- bond was issued and goods were made outside state).tutional power. Id. at 841. The Court also interpreted Recently, however, the Houston Court of Appealsthe words "evidencing a transaction" to mean "to have declined to find the FAA applicable to an arbitrationin fact involved interstate commerce," rather than "for agreement contained in a title insurance contract. Seeinterstate commerce to have been contemplated by the Stewart Title Guar. Co. v. Mack, 945 S.W.2d 330,parties." Id. As such the Court concluded that the 333 (Tex. App. -- Houston [1st Dist.] 1997, writFAA reached to the limits of Congress' Commerce dism'd w.o.j.). The court did acknowledge that a partyClause powers. Id. In light of the Court's "commerce can show interstate commerce in the following ways:in fact" standard, it is hard to imagine many a. location of headquarters in another state;transactions that would not be covered by the FAA. b. transportation of materials across statelines;See Hanzman, 70 Fla. B.J. at 21; Sternlight, 74 Wash. c. manufacture of parts in a different state;Univ. L. Q. at 665. d. billings prepared out of state;

Following the holding in Allied-Bruce, the Texas e. interstate mail; andcourts have interpreted the "involving commerce" f. phone calls in support of a contract.language broadly. For example, in Palm Harbor Id. at 333. The court, however, in reliance on one ofHomes, Inc. v. McCoy, 944 S.W.2d 716, 719-720 its own earlier decisions, went on to state that "when(Tex. App. -- Fort Worth 1997, no writ), the court the only evidence of interstate commerce was that onefound that the FAA applied to an arbitration of the parties in the suit was a corporation doing busi-agreement contained in a mobile home contract. The ness in several states, this court held interstate com-court explained that "whether the parties contemplated merce was not affected and the arbitration agreementthat their transaction would substantially affect did not fall under the terms of the [FAA]." Id. (citinginterstate commerce is irrelevant; if the transaction Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217,affects interstate commerce 'in fact,' the arbitration 218 (Tex. App. -- Houston [1st Dist.] 1996, no writ).provision is governed by the FAA." Id. at 719 (citing Although this statement appears to be only dicta be-Allied-Bruce, 115 S. Ct. at 837-841). See also City of cause the court indicates that the only evidenceLubbock v. Hancock, 940 S.W.2d 123, 125 (Tex. Stewart Title offered to support its claim thatApp. -- Amarillo 1996, no writ) (citing Allied-Bruce, interstate commerce was involved was exclusionary115 S. Ct. at 841, and acknowledging in dicta that "the language from the title policy (and therefore, the factUnited States Supreme Court has interpreted the that Stewart Title is a "multistate" entity must notFAA's reach to extend to the limits of Congress' Com- have been asserted in support of a finding of interstatemerce Clause powers"); accord Hou-Scape, Inc. v. commerce), it is not clear that the statement is aLloyd, 945 S.W.2d 202 (Tex. App. -- Houston [1st correct statement of the law after Allied-Bruce. SeeDist.] 1997, no writ) (holding that "commerce" is Allied-Bruce, 115 S. Ct. at 843. Indeed, the Stewartbroadly construed); Hardin Constr. Group, Inc. v. Title court did not even discuss Allied-Bruce. More-Strictly Painting, Inc., 945 S.W.2d 308, 311 (Tex. over, in the case on which the Stewart Title courtApp. -- San Antonio 1997, no writ) (finding relied, the party that was doing business in other statesarbitration agreement related to interstate commerce). was not a party to the arbitration agreement. SeeEven before Allied-Bruce was decided, Texas courts Porter & Clements, 935 S.W.2d at 218. Rather, inhad interpreted "involving commerce" broadly. See, that case the parties to the arbitration agreement weree.g., Belmont Constructors, Inc. v. Lyondell all Texas residents. Id.; see also Palm Harbor, 944Petrochemical Co., 896 S.W.2d 352, 355 (Tex. App. S.W.2d at 720-21 (distinguishing Porter & Clements).-- Houston [1st Dist.] 1995, no writ) (treating Regardless of the Stewart Title decision, however, theinsurance by foreign companies as evidence of Supreme Court as well as the Texas courts have heldinterstate commerce); BWI Cos., Inc. v. Beck, 910 that the FAA's reach extends to the limits of Congress'S.W.2d 620, 622 (Tex. App. -- Austin 1995, orig. Commerce Clause powers. Id.; Palm Harbor, 944proceeding [leave denied]) (holding that arbitration S.W.2d at 719.agreement between employer and employee related tointerstate commerce, even though employee onlyworked and made deliveries in Texas, because em- If the FAA is applicable, it preempts state lawsployer had facilities in Texas and other states); Lost to the extent they are inconsistent with the act. See,Creek Mun. Util. Dist. v. Travis Indus. Painters, Inc., e.g., Doctor's Assocs., Inc. v. Casarotto, 116 S. Ct.827 S.W.2d 103, 105 (Tex. App. -- Austin 1992, writ 1652, 1656-57 (1996). Perry v. Thomas, 482 U.S.

4. The FAA preempts inconsistent state laws.





















483, 107 S. Ct. 2520 (1987); Southland Corp. v. was not preempted, the Montana supreme court hadKeating, 465 U.S. 1, 104 S. Ct. 852, 861 (1984). In misread the Court's earlier decision in Volt Info. Sci-Southland, the Supreme Court first addressed the issue ences, Inc. v. Board of Trustees of Leland Stanfordof whether a particular state law that governed arbi- Junior Univ., 489 U.S. 468, 109 S. Ct. 1248 (1989),tration agreements and conflicted with the FAA violat- as limiting the preemptive force of FAA and corre-ed the supremacy clause of the U.S. Constitution. spondingly qualifying Southland and Perry. SeeSouthland, 104 S. Ct. at 854-55. In that case, several Doctor's Assocs., 116 S. Ct. 1655-56. In Volt, thefranchisees had filed individual state court actions U.S. Supreme Court had found that the proceduraleven though their franchise agreements included rules of the California arbitration act were not pre-arbitration provisions. Id. at 855. The California empted by the FAA. Volt, 109 S. Ct. at 1254-55.supreme court had found that the California Franchise The Court in Doctor's Assocs., however, explainedInvestment Law required judicial consideration of that the Volt holding did not limit the holdings ofclaims brought under that act, and as such refused to Southland and Perry where the state law at issue inval-compel arbitration of those claims. Id. at 856. The idates an arbitration agreement. Doctor's Assocs., atU.S. Supreme Court reversed the California supreme 1655-57. Rather, the Volt ruling dealt with a statecourt's holding, finding that the California Franchise rule that determined only the efficient order of pro-Statute was preempted by the FAA. Id. at 6, 858-61. ceedings. Id. In determining that the FAA displacedSpecifically, the Court found that by enacting § 2 of the Montana statute, the Court once again stated that:the FAA "Congress declared a national policy favoring Courts may not, however,arbitration and withdrew the power of states to invalidate arbitration agreementsrequire a judicial forum for the resolution of claims under state laws applicable only towhich the contracting parties agreed to resolve by arbitration provisions.arbitration." Id. at 858 (emphasis added). Id. at 1656.Recognizing that the purpose of the act was to assure Consistent with this Supreme Court mandate, thethose who bargained for arbitration that their Texas courts have concluded that when the FAA ap-expectations would not be undermined by federal plies, it preempts state laws that limit the enforceabili-judges, or by state courts or legislatures, the Southland ty of arbitration agreements. For example, in EZCourt held that in creating a substantive rule Pawn Corp. v. Mancias, 934 S.W.2d 87, 91 (Tex.applicable in state and federal courts, Congress 1996), the Texas supreme court concluded that theintended to foreclose state legislative attempts to FAA prevailed over a provision of the Texas Arbitra-undercut the enforceability of arbitration agreements. tion Act that exempts personal injury suits from arbi-Id. tration except upon counsel's advice and upon written

Three years later, the Supreme Court reiterated: agreement. Likewise, in Jack B. Anglin Co., theState law, whether of legislative or Supreme Court found that the FAA preempted thejudicial origin, is applicable if that DTPA nonwaiver provision. Jack B. Anglin Co., 842law arose to govern issues S.W.2d at 271; accord Palm Harbor Homes, Inc. v.concerning the validity, revocabil- McCoy, 944 S.W.2d 716, 718 (Tex. App. -- Fortity, and enforceability of contracts Worth 1997, no writ) (finding that the FAA preemptsgenerally. A state-law that takes a provision of the Texas Arbitration Act that requiresits meaning precisely from the fact attorney's signature on arbitration agreements con-that a contract to arbitrate is at tained in consumer contract for $50,000 or less).issue does not comport with [the Thus, if the FAA applies, not only is federal substan-FAA]. tive law applicable, any state law that conflicts with

Perry, 107 S. Ct. at 2527, n.9. Applying this reason- the FAA will be preempted.ing, the Court in Perry concluded that the FAA pre-empted a provision in the California Labor Code that While the Southland and Perry cases made clearauthorized employees to maintain an action for wages, that the FAA preempts a state law that invalidates andespite the existence of an agreement between the em- otherwise enforceable arbitration agreement, the ques-ployer and employee to arbitrate any controversy. Id. tion remained whether a choice-of-law clause wouldat 2520. allow an otherwise preempted state law to be enforced.

Most recently, the Court concluded that the FAA The Supreme Court first addressed this issue in Voltpreempted a Montana statute that conditioned enforce- Info. Sciences, Inc. v. Board of Trustees of Lelandability of arbitration clauses on compliance with spe- Stanford Junior Univ., 109 S. Ct. 1248 (1989).cial notice requirements. Doctor's Assocs., 116 S. Ct. a. choice-of-law provision can be used toat 1656-57. In determining that the Montana statute incorporate state procedural roles.

5. Effect of choice-of-law provisions













In Volt, the parties entered into a construction be permissible. One example of such attempts is thecontract that contained an agreement to arbitrate all cases where the underlying contract incorporated thedisputes between the parties. Id. at 1251. The agree- law of a state that did not allow arbitrators to awardment also contained a choice-of-law clause providing punitive damages. See, e.g., Barbier v. Shearsonthat the agreement would be governed by the law of Lehman Hutton, Inc., 948 F.2d 117 (2d Cir. 1991).the place where the project was located, which was The Court addressed the question of whether aCalifornia. Id. When a dispute arose between the par- contractual choice-of-law provision may preclude anties, the appellant made a formal demand for arbi- arbitral award of punitive damages that otherwisetration. Id. In response, the appellee filed an action in would be proper in Mastrobuono v. Shearson Lehmanstate court alleging fraud and breach of contract, and Hutton, Inc., 115 S. Ct. 1212 (1995). Inbrought third party claims for indemnity against two Mastrobuono, the Court was presented with a securi-other companies involved in the construction project, ties trading account contract that contained both anwith whom it did not have an arbitration agreement. arbitration provision and a choice-of-law provision.Id. The appellee then moved to stay the arbitration Id. at 1214. An arbitration was conducted, and theproceedings pursuant to a provision in the California arbitration panel ruled in favor of petitioners andCivil Procedure Code that permitted a court to stay awarded them punitive damages. The district courtarbitration pending resolution of related litigation be- and court of appeals vacated the punitive damagestween a party to the arbitration agreement and third award because New York law prohibits arbitratorsparties not bound by the arbitration agreement. Id. from awarding punitive damages and the contract con-The California court of appeal affirmed and the tained a choice-of-law provision incorporating NewCalifornia supreme court denied appellant's petition York law. Id. at 1215. The Supreme Court reversed.for discretionary review. Id. at 1252. Id.

After accepting review, the Supreme Court reiter- The Supreme Court first observed that the FAA'sated that the FAA was designed 'to overrule the pro-arbitration policy did not operate without regardjudiciary's longstanding refusal to enforce agreements to the wishes of the contracting parties. Mastrobuono,to arbitrate," and place such agreements "'upon the 115 S. Ct. at 1216. Citing Volt, the Court reiteratedsame footing as other contracts.'" Id. at 1253 (cita- that, just as parties may limit by contract the issuestions omitted). The Court explained, however, that that they will arbitrate, so too may they specify byalthough there is a federal policy favoring arbitration, contract the rules under which that arbitration will bethere is no federal policy favoring arbitration under a conducted. Id. On the other hand, the Court also em-certain set of procedural rules; rather, the federal phasized that when contracting parties agree to arbi-policy is simply to ensure the enforceability, according trate all claims, including claims for punitive damages,to their terms, of private agreements to arbitrate. Id. the FAA ensures that their agreement will be enforcedat 1254. The Court explained that "interpreting a according to its terms, even if a rule of state law wouldchoice-of-law clause to make applicable state rules otherwise exclude such claims from arbitration. Id.governing the conduct of arbitration--rules which are The Court therefore stated that "the case before usmanifestly designed to encourage resort to the arbitral comes down to what the contract has to say about theprocess--simply does not offend" the federal policy arbitrability of petitioners' claim for punitive damag-favoring arbitration. Id. The Court stated that al- es." Id.though "the FAA preempts state laws that 'require a The court concluded that the contract did notjudicial forum for the resolution of claims that the express an intent to preclude an award of punitivecontracting parties agreed to resolve by arbitration,' . damages. Mastrobuono, 115 S. Ct. at 1219. The. . it does not follow that the FAA prevents the en- Court emphasized that the agreement should be readforcement of agreements to arbitrate under different to give effect to all its provisions and to render themrules than those set forth in the Act itself." Id. at consistent with each other. Id. As such, the Court1255-56. Accordingly, the Court found that the FAA held that the generic New York choice-of-lawdid not preempt the California procedural rules and provision did not operate to limit the scope of thetherefore affirmed the lower courts. Id. broad arbitration clause by divesting the arbitrators of

b. choice-of-law provisions should not be read authority to award punitive damages. Id.to invalidate other provisions of the parties' agree- c. choice-of-law provisions cannot be used toments. incorporate state law that would otherwise be

As a result of the Volt holding, litigants began to preempted.rely upon choice-of-law provisions to try and divest In Doctor's Assocs., the Court explained itsarbitrators of the authority to enter awards that, in the holding in Volt ever further:absence of the choice-of-law provision, clearly would




Volt involved an arbitration agree- The court, relying on Volt, found that the FAA did notment that incorporated state proce- preempt the Texas notice requirements because thedural rules . . .. The state rule contract provided it would be arbitrated "pursuant toexamined in Volt determined only the arbitration laws of the State of Texas." Id. Like-the efficient order of proceedings; wise, in Al's Formal, although the court did not haveit did not affect the enforceability to decide the issue of whether the FAA preempted theof the arbitration agreement itself. Texas act because the parties agreed that it did, Volt

Doctor's Assocs., 116 S. Ct. at 1656. The Court once was cited to support the parties' agreement. See Al'sagain stated that courts may not invalidate arbitration Formal, 869 S.W.2d at 444 n. 3. In concluding thatagreements under state law applicable only to arbitra- the FAA did not preempt the Texas act noticetion provisions. Id. requirements, the American Physicians court and the

As one commentator has stated: parties in Al's Formal misinterpreted the Volt holdingThe message derived from these just as the Montana supreme court did in Doctor'sdecisions is, in this author's Assocs.. See Doctor's Assocs., 116 S. Ct. at 1056-57.opinion, clear. Generic choice-of- Volt allows a choice-of-law provision to incorporatelaw provisions cannot be used to state procedural rules; it does not allow a choice-of-incorporate into an arbitration law provision to incorporate state statutes that inval-agreement state law which, in the idate arbitration agreements only. Id. Because theabsence of the choice-of-law provi- statute in American Physicians applies to arbitrationsion, would be preempted by the provisions only, and not to contracts generally, itFAA. But, as was the case in Volt, undermines the goals and policies of the FAA, whichstate procedural rules that do not were designed to place arbitration clauses on equalundermine the enforceability of an "footing" with contracts generally. Id. at 1655-56. Asotherwise valid contract to arbitrate the Court in Doctor's Assocs. explained, such statutesmay be deemed to have been are preempted by the FAA. Id. 1656-57. Thus, itincorporated into contracts through would appear that the reliance on Volt in these twochoice-of-law provisions. And as cases to incorporate a provision of the Texas act thatcourts, including the U.S. Supreme would otherwise be preempted was misplaced.Court, have consistently reminded,nothing in the FAA prevents aparty from explicitly excluding Once it is determined that an arbitrationclaims, including statutory claims provision exists, a court must determine whether theand punitive damages claims, from specific dispute is covered by the arbitrationthe scope of an agreement to agreement. Mitsubishi Motors Corp. v. Solerarbitrate. Mitsubishi Motors Corp. Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3353 (19-v. Soler Chrysler-Plymouth, Inc., 85); Pepe Intern. Dev. v. Pub Brewing Co., 915473 U.S. 614 (1985). S.W.2d 925, 930 (Tex. App. -- Houston [1st Dist.]

Hanzman, 70 Fla. B.J. at 20. 1996, no writ). As explained above, when the FAAd. earlier Texas cases appear to have misinter- applies, federal substantive law determines whether a

preted Volt holding. dispute is arbitrable. Mitsubishi, 105 S. Ct. at 3353;Two Texas cases that were decided before the Prudential Sec., Inc. v. Marshall, 909 S.W.2d 896,

Doctor's Assocs. court explained its holding in Volt, 899 (Tex. 1995). Whether the agreement imposes arelied on Volt to invalidate arbitration agreements duty to arbitrate this particular dispute is a matter ofbased on the failure of those agreements to comply contract interpretation because one cannot be requiredwith technical notice requirements of the Texas Arbi- to arbitrate unless it has agreed to do so. AT&Ttration Act then in effect. See American Physicians Techs., Inc. v. Communications Workers of America,Serv. Group, Inc. v. Port Lavaca Clinic Assocs., 843 106 S. Ct. 1415, 1418 (1986); American Employers'S.W.2d 675, 676 (Tex. App. -- Corpus Christi 1992, Ins. Co. v. Aiken, 942 S.W.2d 156, 159 (Tex. App. --writ denied); Al's Formal Wear of Houston, Inc. v. Fort Worth 1997, no writ). Nevertheless, there is aSun, 869 S.W.2d 442, 443 (Tex. App. -- Houston [1st strong federal policy favoring arbitration. Moses H.Dist.] 1993, writ denied). Specifically in American Cone Mem'l Hosp. v. Mercury Constr. Corp., 103 S.Physicians, the court found that because the arbitration Ct. 927, 941 (1983). The weight of this policy is soagreement failed to comply with the notice provisions great that it effectively compels the court to presumeof Tex. Rev. Civ. Stat. Ann. art 224 (Vernon 1973) that the matter is subject to arbitration until the(now repealed), it was unenforceable. Id. at 677-78. opponent proves otherwise. United Parcel Serv., Inc.

D. Scope of Arbitration Provision.











v. McFall, 940 S.W.2d 716, 720 (Tex. App. -- revocation of any contract." 9 U.S.C. § 2. Similarly,Amarillo 1997, no writ) (citing Cantella & Co., Inc. v. the Texas Arbitration Act provides that a party mayGoodwin, 924 S.W.2d at 944); see Prudential, 909 revoke an arbitration agreement "only on a ground thatS.W.2d at 899. Any doubts concerning the scope of exists at law or in equity for the revocation of a con-arbitrable issues should be resolved in favor of arbitra- tract." Tex. Civ. Prac. & Rem. Code § 171.001tion. Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205 (Vernon Supp. 1998). Thus, generally applicable con-(Tex. App. -- Houston [1st Dist.] 1997, no writ) tract defenses, such as fraud, duress, or unconsciona-(citing Moses H. Cone, 103 S. Ct. at 941). bility, may be applied to invalidate arbitration agree-

In determining whether a claim falls within the ments. Doctor's Assocs., 116 S. Ct. 1652, 1656scope of an arbitration agreement, a court focuses on (1996). Due to the policy favoring arbitration, howev-the facts alleged, not on the causes of actions asserted. er, establishing such a defense can be difficult.Prudential, 909 S.W.2d at 900; Hou-Scape, 945 For example, "the FAA disfavors waiver, andS.W.2d at 205. If the facts alleged "touch upon" there is a strong presumption against waiver." In rematters covered by the agreement, then the claim is Bruce Terminix Co., 1998 WL 288930 at *2 (Tex.subject to arbitration regardless of the legal label June 5, 1998) (citing Moses H. Cone Mem'l Hosp. v.attached to it. Hou-Scape, 945 S.W.2d at 205-206; Mercury Constr. Corp., 103 S. Ct. 927, 941 (1983);United Parcel, 940 S.W.2d at 719. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 89 (Tex.

Applying these standards, courts have found both 1996)). This presumption applies in construing agree-statutory and tort (as opposed to contract) claims ments to arbitrate whether the issue is "waiver, delay,subject to arbitration even though such claims were or a like defense to arbitration." EZ Pawn, 934not specifically referenced in the arbitration S.W.2d at 89. Accordingly, waiver of an arbitrationagreement. For example, in Mitsubishi, the Supreme right can be found only if the facts demonstrate thatCourt found that antitrust claims under the Sherman the party seeking to enforce arbitration intended toAct were subject to arbitration even though the waive its arbitration right. Id. (emphasis added).arbitration clause at issue did not mention those Additionally, a party does not waive a right to arbitra-claims. Mitsubishi, 105 S. Ct. at 3352-55; accord tion merely by delay; instead, the party urging waiverSouthland, 104 S. Ct. at 852 (1984). Likewise, the must establish that any delay resulted in prejudice.Texas supreme court has held that claims for Prudential, 909 S.W.2d at 898-99. Thus, to establishdefamation and DTPA violations are subject to waiver a party must show that (1) the other party hasarbitration when those claims are "factually intentionally and substantially invoked the judicialintertwined" with the contract containing an arbitration process and (2) that such conduct resulted inclause. Prudential, 909 S.W.2d at 900; Jack B. prejudice. See EZ Pawn, 934 S.W.2d at 89;Anglin, 842 S.W.2d at 271. Similarly, other statutory Prudential, 909 S.W.2d at 899.and tort claims have been found to be arbitrable even Applying these standards, the Texas Supremethough such claims were not mentioned in the arbi- Court has declined to find waiver even where the partytration agreement. See, e.g., United Parcel, 940 requesting arbitration has answered the suit,S.W.2d at 719 (finding employee's retaliation claim participated in a pretrial conference, served inter-within the parameters of the arbitration clause); Hou- rogatories and requests for production, noticed depo-Scape, 945 S.W.2d at 205-206 (DTPA, sitions, and entered into an agreed order on themisrepresentation, fraud, negligence, gross negligence, grounds that the party opposing arbitration failed todefamation, and tortious interference claims subject to meet his burden of proving prejudice. EZ Pawn, 934arbitration); American Employers', 942 S.W.2d at 160 S.W.2d at 90; accord Bruce Terminix, 1998 WL(defamation, interference with business relations, 288930 at *2 (no waiver where party answerednegligence, gross negligence, negligent lawsuit, served interrogatories and served requests formisrepresentation, and intentional infliction of production); Prudential, 909 S.W.2d at 898-99 (noemotional distress claims were so "interwoven" with waiver where party moved to strike intervention andthe contract claims, as to make them arbitrable). resisted discovery because opposing party was notThus, if the factual allegations underlying a particular prejudiced). See also United Parcel, 940 S.W.2d atdispute relate in any way to a contract containing an 720 (delay in requesting arbitration does not amountarbitration agreement, the dispute will be arbitrable. to waiver; must also show prejudice); Pepe Intern.

E. Defenses.The FAA provides that written arbitration agree- alone does not constitute a waiver). Steel Warehouse

ments are "valid, enforceable and irrevocable, save Co. Inc. v. Abalone Shipping Ltd., 141 F.3d 234, 238upon such grounds as exist at law or in equity for the (5th Cir. 1998) ("There is a well settled rule in this

Dev. v. Pub Brewing Co., 915 S.W.2d 925, 931 (Tex.App. -- Houston [1st Dist.] 1996, no writ) (delay

































circuit that waiver of arbitration is not a favored tion agreements; [rather,] Texas law favors settlingfinding, and there is a presumption against it.") But disputes by arbitration." EZ Pawn, 934 S.W.2d at 90.see, Vireo, P.L.L.C. v. Cates, 953 S.W.2d 489, 491 In light of this presumption, Texas courts rarely find(Tex. App. -- Austin 1997, pet. for review filed Dec. unconscionability. See, e.g., id.; Circuit City Stores,12, 1997) (finding that plaintiffs had waived their Inc. v. Curry, 946 S.W.2d 486, 489 (Tex. App. -- Fortright to arbitrate defendant's counterclaims and created Worth 1997, no writ); American Employers', 942a right in the defendant to elect for or against S.W.2d at 160-62.arbitration, when plaintiff filed suit on claims that Likewise, the recent Texas cases addressing awere so "factually intertwined" with defendant's fraud defense have not sustained that defense. See,arbitrable counterclaims); Turford v. Underwood, 952 e.g., Palm Harbor, 944 S.W.2d at 721-22; CircuitS.W.2d 641, 643 (Tex. App. -- Beaumont 1997, no City, 946 S.W.2d at 489. Further as the court in Palmwrit)(finding defendant waived its right to arbitrate by Harbor explained "[t]o avoid arbitration, a fraudulentfiling a separate suit in Michigan). inducement claim must focus specifically on the

The Texas Supreme Court recently declined to negotiation and acceptance of the arbitration provisionfind waiver where a party against whom a claim was in a contract, not on the contract as a whole." Palmasserted failed to initiate an arbitration proceeding Harbor, 944 S.W.2d at 722.after the trial court granted the party's motion to Additionally, the Texarkana court of appealscompel arbitration. Bruce Terminix, 1998 WL recently held that a claim of anticipatory breach is288930 at *2. In Bruce Terminix, the plaintiff had insufficient to avoid a Party's obligation to arbitrate.filed suit against Terminix for breach of its termite Dallas Cardiology Assoc. v. Mallick, 1998 WLextermination contract. Id. at *1. Terminix answered 466099 (Tex. App. --- Texarkana Aug. 12, 1998,the suit and sent the plaintiff interrogatories and n.w.h.). In Dallas Cardiology, the court of appealsrequests for production, which she answered. Id. declined to follow the dicta from a 1974 Waco courtShortly thereafter, Terminix moved to abate the action of appeals, which had implied that an anticipatoryand compel arbitration, which motion the trial court breach could relieve the parties of their obligation toorally granted. Id. Terminix, however, never arbitrate. Id. at *3 (declining to follow Miller v.commenced an arbitration proceeding, and as a result, Puritan Fashions Corp., 516 S.W.2d 234 (Tex. Civ.two years later the plaintiff moved to vacate the oral App. --Waco 1974, writ ref'd n.r.e.)). Rather, theorder compelling arbitration. Id. The trial court court applied the interpretation embraced by the FAAgranted the plaintiff's motion and vacated its earlier and found that arbitration agreements made under theorder finding that Terminix had waived its right to Texas arbitration statue are enforceable and irrevoca-arbitrate through its use of discovery. Id. The court of ble in spite of attacks made upon the contract as aappeals upheld the trial court's ruling on an alternative whole. Id.ground: that Terminix had waived its arbitration rights Finally, a party's failure to read or understand anby failing to initiate arbitration after the trial court arbitration agreement, or unequal bargaining powergranted its motion to compel arbitration. Id. between the two parties is not sufficient grounds to

The Texas Supreme Court in Bruce avoid an agreement to arbitrate. EZ Pawn, 934Terminix, applying the presumption against waiver, S.W.2d at 90; Cantella, 924 S.W.2d at 944. Rather afirst found that Terminix had not waived its rights by party who has the opportunity to read an arbitrationanswering the suit and serving discovery upon plain- agreement and signs it is presumed to know its con-tiff. Id. at *2. The Court then addressed the appellate tents. Id.; American Employers', 942 S.W.2d at 161.courts' alternative ground for waiver -- the failure to Thus, although general contract defenses are available,initiate arbitration--and found that "a party against the presumption in favor of arbitration makes thewhom a claim is asserted does not waive its right to burden of establishing those defenses a heavy one.arbitrate by failing to initiate arbitration of that claim."Id. at *3. The Court explained that "it would be anom-alous to require the party against whom relief issought to present its opponent's case and pay a filing The procedure for appealing an adverse ruling onfee whose amount is based on the size of its arbitrability depends upon (1) whether a party is inopponent's claim." Id. at *4. Accordingly, the Court state or federal court, (2) upon whether the underlyingdeclined to find a waiver of the right to arbitrate. Id. court denied or granted a motion to compel arbitration,

Similarly, the presumption in favor of arbitration and (3) upon whether the request for arbitration isagreements makes proving unconscionability difficult. based upon the Texas Arbitration Act or upon theSpecifically, the Texas Supreme Court has said that FAA."there is nothing per se unconscionable about arbitra-

F. Procedure to Overturn an Adverse Ruling onIssue of Arbitrability.

















1. In Texas state court.a. Motion to compel arbitration denied. ing arbitration has an adequate remedy at law. Id.If a Texas court denies a motion to compel arbi- Similarly, if a Texas court grants a motion to

tration or grants a stay of arbitration, and the request compel arbitration based on the FAA, a party cannotfor arbitration was based on the Texas Arbitration maintain an interlocutory appeal of that ruling. GatheAct, a party can pursue an interlocutory appeal under v. Cigna Healthplan of Texas, Inc., 879 S.W.2d 360,the Texas act. Tex. Civ. Prac. & Rem. Code Ann. 362 (Tex. App. -- Houston [14th Dist.] 1994, writ§ 171.017 (Vernon 1997); Jack B. Anglin, 842 denied). The Gathe court explained that even thoughtS.W.2d at 272; Stewart Title Guar. Co. v. Mack, 945 the arbitration request is based on the FAA, TexasS.W.2d 330, 331 (Tex. App. -- Houston [1st Dist.] procedure still controls. Id. As such, there is no right1997, writ. dism'd w.o.j.). to an interlocutory appeal. Id. Recently, however, the

On the other hand, if a Texas court denies a Corpus Christi Court of Appeals has allowed a partymotion to compel arbitration (or grants a stay of arbi- to bring a mandamus proceeding when the order totration), and the request for arbitration was based on compel arbitration was based on the FAA. See Solisthe FAA, a party must file a mandamus proceeding to v. Evins, 951 S.W.2d 44 (Tex. App. -- Corpus Christihave an adverse ruling overturned. Cantella & Co., 1997, no writ). This holding seems to conflict withInc. v. Goodwin, 924 S.W.2d 943, 945 (Tex. 1996) the reasoning behind the McMullen and Shearson("a party who is erroneously denied the right to arbi- Lehman cases and with the precedent that Texastrate under the FAA has no adequate remedy at law procedure should control. It would seem that aand mandamus relief is appropriate"); accord Pruden- mandamus proceeding should not be available iftial, 909 S.W.2d at 899. motion to compel is granted based on the FAA for the

Finally, if the request for arbitration was based same reasons that it is not available for an order basedon both the Texas act and the FAA, a party must on the Texas act. The courts have explained that man-pursue parallel proceedings: an interlocutory appeal damus is not appropriate if arbitration is orderedof the order denying arbitration under the Texas act, based on the Texas act because the losing party has anand a writ of mandamus from denial under the federal appeal available once a final judgment is entered andact. Stewart Title, 945 S.W.2d at 331. he loses no contract rights or benefits by availing

b. Motion to compel arbitration granted. himself of arbitration. Shearson Lehman, 763 S.W.2dConversely, if a Texas court grants a motion to at 938. This reasoning would seem to be equally

compel arbitration and the request for arbitration was applicable to an order based on the FAA.based on the Texas act, a party does not have a rightto an interlocutory appeal. Tex. Civ. Prac. & Rem. a. Motion to compel arbitration denied.Code § 171.017 (Vernon 1997); Lipshy Motorcars, If a federal court denies a motion to compelInc. v. Sovereign Assocs., Inc., 944 S.W.2d 68, 70 arbitration, a party can pursue an interlocutory appeal(Tex. App. -- Dallas 1997, no writ) ("Section 171.017 under section 16 of the FAA. 9 U.S.C. § 16;does not authorize an interlocutory appeal of an order McDermott Int'l, Inc. v. Underwriters at Lloyds, 981granting a motion to compel arbitration and staying F.2d 744, 746-47 (5th Cir.), cert. denied, 508 U.S.litigation"); accord Elm Creek Villas Homeowner 951 (1993).Ass'n, Inc. v. Beldon Roofing & Remodeling Co., 940 b. Motion to compel arbitration granted.S.W.2d 150, 153 (Tex. App. -- San Antonio 1996, no On the other hand, a federal court order compel-writ). Additionally, a party faced with on order com- ling arbitration is appealable only if it is a final order;pelling arbitration based on the Texas act is interlocutory orders compelling arbitration are notapparently not entitled to bring a mandamus appealable. 9 U.S.C. § 16(a)(3) and (b); F.C. Schafferproceeding. McMullen v. Yates, 697 S.W.2d 500, & Assoc., Inc. v. Demech Contractors, Ltd., 101 F.3d502 (Tex. App. -- San Antonio 1985, no writ); see 40, 41 (5th Cir. 1996); Altman Nursing, Inc. v. Clayalso Shearson Lehman Hutton, Inc. v. McKay, 763 Capital Corp., 84 F.3d 769, 770 (5th Cir. 1996). AnS.W.2d 934, 938 (Tex. App. -- San Antonio 1989, no order is final that ends the litigation on the merits andwrit). The McMullen court explained that although a leaves nothing for the court to do but execute theparty faced with on order compelling arbitration would judgment. F.C. Schaffer, 101 F.3d at 41. To deter-have to submit their claims to arbitration and incur the mine whether an order compelling arbitration is finaltime and expense of that process before having a right or interlocutory most courts look to whether theto appeal, the resulting delay and cost was no more arbitration claim is "independent" or is "embedded"onerous than being forced to try a case in an inappro- with other claims. Id.; Altman, 84 F.3d at 770. Anpriate venue, or suffering an incorrect ruling on a plea independent proceeding is one in which the only issueto the jurisdiction. Id. Hence, the court concluded that before the court is the dispute's arbitrability; an

mandamus was not available because the party oppos-

2. In federal court.


























embedded claim, on the other hand, arises in a suit inwhich one party or the other seeks some relief other A number of arbitration provisions provide thatthan an order requiring or prohibiting arbitration. Id. there will be three arbitrators: one selected by eachAn order involving an independent claim is always party and the third selected by the two party-appointedfinal (and therefore appealable); an order involving an arbitrators. Although on paper this party-appointedembedded claim is interlocutory (and not appealable). method may appear to be a fair method, it can be aAltman, 84 F.3d at 771. trap for the unwary. The domestic rules of the Ameri-

If the order compelling arbitration is embedded can Arbitration Association (the "AAA") do not re-and therefore not appealable, a party may still be able quire the party-appointed arbitrators to be neutral.to bring a mandamus proceeding. McDermott, 981 See Rule 12 of the Commercial Arbitration Rules ofF.2d at 748. Such a writ, however, is an extraordinary the AAA, as amended July, 1996 [hereinafter theremedy, and the party seeding mandamus has the "AAA Rules"]. This rule, as construed in most states,burden of demonstrating a clear and indisputable right permits party-appointed arbitrators to be an advocateto it. Id. That burden is "particularly heavy" in the for the appointing party and to be in communicationarbitration context because Congress has expressly with their appointing party during the arbitration. Seelimited interlocutory review of a district court decision Tom Arnold, Booby Traps In Arbitration Practiceon arbitration. Id. and How to Avoid Them SB41 ALI-ABA Course of

G. Other Orders from the Courts.In addition to seeking an order compelling arbi- additional advocate to attempt to exert his or her influ-

tration, an applicant can seek a number of other orders ence over the third arbitrator. As long as both party-from the Texas courts to assist in commencing an appointed arbitrators are aware that each is to bearbitration. See Tex. Civ. Prac. & Rem. Code operating as an advocate the scales should still be in§ 171.086 (Vernon Supp. 1998) (allowing orders for, balance. The trap, however, arises where one side, orinter alia, enjoining the destruction of property, com- one arbitrator, does not know that the party-appointedpelling depositions, and appointing arbitrators). arbitrators are suppose to be partisan, or one party is

III. PARTICIPATING IN AN ARBITRATIONPROCEEDING.

Once it has been determined that a dispute is appointed arbitrators declares, based on his ownarbitrable, the arbitration is ready to begin. Before ethics, that as an arbitrator he is required to be neutral.trial counsel simply starts prosecuting or defending the Id. In that situation, the scales are tipped against thecase as they would a case that was in litigation, how- party with the self-imposed neutral arbitrator becauseever, they need to focus on: the panel of three consists of two neutrals and one

(1) who is going to be the judge (i.e., the arbi- advocate for the other party.trator); One solution to this problem that is sometimes

(2) how the process will be conducted (i.e, will proposed is permitting ex parte communications withthere be discovery? do the rules of evidence apply?); potential arbitrators to determine qualifications, avail-and ability, and fee requirements, while expressly exclud-

(3) what happens at the conclusion of the case ing communications about the case. See Arnold,(i.e., how do I get the award enforced or vacated?). SB41 ALI-ABA at 123. This proposed "solution" can

A. Selecting an Arbitrator.Most likely, at the time trial counsel receives a necessary to determine qualifications or some other

case for arbitration, the decisions as to (a) whether permitted discussion area. The better solution is thatthat arbitration will be conducted before an arbitration all parties agree that there are no ex parte communica-agency or before some type of ad hoc tribunal and (b) tions. The above benign inquiries all can be done withthe number of arbitrators will already have been made both parties present, which often results in spendingin the contract provision providing for the arbitration. less time and expense on the selection process. Id.(See infra at "V. Drafting an Arbitration Clause".) Using the party-appointed system to appoint aThus, the first decision that counsel will have to make panel also may affect the character of the award that isis selecting an arbitrator, unless of course that decision generated. For example, the two party-appointedalso has been made in the arbitration provision. arbitrators may ignore the existence of the neutral

There are basically two methods for selecting the arbitrator and reach a particular result that basicallyarbitrator(s): party-appointed and agency-appointed. amounts to a settlement. See JOHN S. MURRAY, ET AL.,

1. Party-appointed arbitrators.

Study 101, 135 fn. 4 (Dec. 12, 1996). In essence, inthis type of situation each side merely has hired one

not aware that his arbitrator does not have an obli-gation to be loyal to that party's position after beingappointed. For example, sometimes one of the party-

actually be another trap because information regardingthe case can always be disguised as information


ARBITRATION 196 (1996). Obviously the expense of difficulties alone can undermine efficiency. See Rich-arbitration is unnecessary if negotiation will produce ard Chernick, Arbitration: The Art of Managing thea settlement. On the other hand, when the two party- Large, Complex Case, SB41 ALI-ABA 213, 215-16appointed arbitrators maintain radical positions, a (Dec. 12, 1996).neutral arbitrator may have to compromise his or herviews simply to produce a majority. Thus, given theproblems with the party-appointed method, if the goal Parties have the ability to shape and control theof having three arbitrators is to have additional deci- arbitration process so that the goals of participating insion makers, the parties simply should appoint three that process (such as cost savings and speedy results)neutral arbitrators. are met. This control can start with participating in2. Agency-appointed arbitrators.

The most common way of selecting an arbitration hearing. Both the AAA Rules and JAMS Rules pro-panel in domestic disputes is to delegate the task to an vide that parties may request a preliminary hearinginstitution, such as the AAA. The AAA Rules estab- once the case is filed. (AAA Rule 10; JAMS Rule 6.)lish a specific procedure for selecting arbitrators. (See The purpose of this preliminary hearing is "to specifyAAA Rule 13, which is the procedure that will apply the issues to be resolved, to stipulate to uncontestedif the arbitration clause provides that the AAA Rules facts, and to consider any other matter that will expe-apply but does not specify a procedure for selecting an dite the arbitration proceedings." Id.arbitrator.) In the AAA procedure, the AAA distrib-utes an identical list of proposed arbitrators to each of The issues of discovery and the voluntary ex-the parties. Both parties then have ten days to object change of information also should be discussed at thisto any of the proposed arbitrators on the list and rank hearing. Traditional discovery generally does notthe remaining names in order of preference. If a party occur in arbitration proceedings. Indeed, the AAAfails to object to any of the names on the list of all the rules have no specific provisions for discovery. AAAnames will be deemed acceptable to the party. The Rule 10 does provide that at the preliminary hearingAAA will then select an arbitrator that is mutually "the extent of and schedule for the production of rele-acceptable to the parties. vant documents and other information" can be dis-

There are numerous advantages to using the cussed. Hence, if the arbitration clause does notAAA system. First, the process is conducted in a provide for some type of discovery, the parties maytimely manner. The parties are expected to promptly wish to agree on mutual, formal or informal discovery.object to names from the list of proposed arbitrators. The parties may also want to identify any witnessesSecond, the process produces neutral arbitrators. that they anticipate calling. Although the AAA RulesThird, the process is administered by an agency with do not provide for depositions, the Texas Arbitrationvast experience in appointing arbitration panels. Act specifically allows an arbitrator to issue subpoe-Finally, the AAA rules provide for problems that may nas for discovery purposes. See Tex. Civ. Prac. &occur during arbitration such as for the filling of a Rem. Code Ann. § 171.086 (Vernon Supp. 1998).vacancy on the panel and for the removal of an arbi- While the parties are free to agree to do whatever theytrator. want in this area, discovery is not available as a right3. Other considerations.

Of course, if the parties cannot agree on an agree, it will be the arbitrator's decision as to whetherarbitrator and the arbitration is not being administer to allow any additional discovery under the AAAby an agency, a party may request the court to appoint Rules.an arbitrator. See Tex. Civ. Prac. & Rem. Code By contrast, JAMS Rule 15 does provide for the§ 171.041 (Vernon Supp. 1998). Where a party has exchange of all non-privileged documents, thea right to appoint an arbitrator, however, the court exchange of names of persons with knowledge and ofcannot disregard that party's designation. See In re all experts who may be called, and one deposition.Louisiana Pacific Corp. 1998 WL 327020 (Tex. June This rule is attractive to litigators who are use to the23, 1998). In selecting an arbitrator under any method extensive discovery practice in a trial proceeding, butthere are many issues counsel should consider besides may actually defeat some of the benefits of an arbitra-whether the arbitrator will be neutral or party-appoint- tion such as efficiency and cost savings.ed. In addition to substantive and process skills, the The arbitrator can assist the parties in formu-arbitrator(s) must be available to the parties, in the lating an appropriate discovery plan. The arbitratortime frame the parties determine, for sufficient time to should remind overzealous counsel that the arbitrationassure the efficient scheduling and completion of the process was probably chosen by the parties to achievematter. Particularly with a tripartite panel, scheduling efficiency and economy in the event of a dispute, and

B. Formatting the Arbitration Proceeding.

some type of prehearing conference or preliminary

1. Discovery.

under the AAA Rules. Thus, if the parties cannot


unbridled discovery is likely to frustrate any chance of necessary in arbitration because arbitrators are, as op-achieving that goal. In most cases, the voluntary posed to jurors, sophisticated persons that have beenexchange of documents by the parties and perhaps a selected for their technical expertise and ability to befew limited depositions of the key witnesses will suf- fair-minded. Id. Finally, arbitration, like all forms office. Interrogatories, requests for admissions, and alternative dispute resolution, stresses party involve-other more extensive discovery will quickly expand ment. Thus, it may be appropriate to dispense withcost and may not truly be necessary. the rules of evidence in an arbitration proceeding to2. Evidence.

In preparing the case for arbitration, trial counsel problem. Id. Requiring a party's testimony to complyshould remember that the traditional rules of evidence with the rules of evidence might hamper this goal andare generally disregarded in arbitration. Indeed, the become a source of further frustration.AAA Rules specifically provide that "conformity to le- When an opposing party introduces evidence thatgal rules of evidence [is not] . . . necessary." AAA would be inadmissible in a court proceeding oneRule 31; accord JAMS Rule 20(d). Thus, hearsay should object to the admission of the evidence. Id.evidence and other prejudicial evidence can easily Although the arbitrator is likely to admit the evidenceenter an arbitration proceeding. See Bowles Fin. anyway, the objection makes the arbitrator aware thatGroup, Inc. v. Stifel, Nicolaus & Co., Inc., 22 F.3d the evidence is not reliable or credible. MURRAY ET

1010 (10th Cir. 1994) (arbitrator admitted evidence of AL., at 215. This is obviously more important whenearlier proposed settlement); Petroleum Separating the arbitrator is not a lawyer.Co. v. Interamerican Ref. Corp., 296 F.2d 124, 125(2nd Cir. 1961) (arbitrator entitled to admit hearsay A structure for the final hearing should also betestimony); Farkas v. Receivable Fin. Corp., 806 F. discussed. The parties can either agree on a structureSupp. 84 (E.D. Va. 1992) (arbitrator admitted hear- or this issue can be raised with the arbitrator duringsay). This evidence is admitted because an arbitrator the preliminary hearing. Issues to be addressed in-is generally required to admit all relevant and material clude, inter alia, the length of each parties presenta-evidence. As will be discussed in the next section, an tions, exchange of exhibits, the number and identity ofarbitrator's award can be vacated if the arbitrator has witnesses, how testimony will be presented (live,refused "to hear evidence pertinent and material to the telephonic, or affidavit), whether there will be rebuttal,controversy." 9 U.S.C. § 108 (1996); Tex. Civ. Prac. whether experts will be used, and whether the case& Rem. Code Ann. § 171.014(a)(5) (Vernon 1997). lends itself to bifurcation of issues. The parties shouldOn the other hand, one commentator noted the absence also discuss whether briefs will be submitted before orof "any reported decision in which an arbitration after the hearing (or both) and the schedule for thoseaward has been reversed for admitting evidence." submissions.JEFFREY BARIST, COMMERCIAL ARBITRATION LAW & Consideration should also be given to whetherCLAUSES: A DRAFTER'S GUIDE (1994), at 20-3. some issues can be resolved without the need of anFaced with the possibility of a court vacating its evidentiary hearing. Until recently some believed thataward, most arbitration panels "let it all in." In fact, a summary judgment-type procedure was not availablethe AAA specifically advises arbitrators that in an arbitration because it risked vacation of the"everything that could further understanding of the award on the grounds that the arbitrator had refused tocase should be heard." AMERICAN ARBITRATION hear evidence material to the controversy. See Knight,ASSOCIATION, A GUIDE FOR COMMERCIAL ARBI- et al., CALIFORNIA PRACTICE GUIDE, ALTERNATIVE

TRATORS 20 (1988). Nevertheless, an arbitrator can DISPUTE RESOLUTION 4-1 - 4-2 (Rutter 1994) (notingrefuse to hear cumulative, irrelevant, or immaterial that the unavailability of summary judgment motionsevidence. SECTION OF LITIGATION AMERICAN BAR is a disadvantage of contractual arbitration pro-ASSOCIATION, COMMERCIAL ARBITRATION ASSO- ceedings); Tex. Civ. Prac. & Rem. Code Ann.CIATION FOR THE 1990'S 48 (Richard J. Medalic ed. § 171.088(a)(3)(C) (Vernon Supp. 1998) (award can1991) [hereinafter "Commercial Arbitration."] be vacated if arbitrator refused to "hear evidence

There are numerous reasons why arbitration is material to the controversy"). Recently, however,conducted without evidentiary rules. First, evidentiary courts and commentators have begun to recognize thatrules are not in accord with the informal nature of summary judgment is a tool that should be used inarbitration. ROBERT COLSON, BUSINESS ARBITRATION arbitration, so long as the party opposing the motion-- WHAT YOU NEED TO KNOW, 20-21 (3ed. 1985). has a fair opportunity to present its case, given that theRigid rules of evidence hinder the informal presenta- purpose of arbitration is to provide a speedy and rela-tion of the facts in an arbitration proceeding. It has tively inexpensive means of dispute resolution. See,also been argued that the rules of evidence are not e.g., Schlessinger v. Rosenfeld, Meyer & Susman, 40

allow the parties to fully vent their feelings about the

3. Final Hearing.







Cal. App. 4th 1096, 1109, 47 Cal. Rptr. 2d 650 "build a record" or, as will be discussed later in this(1995) (explaining an arbitrator's obligation "to hear paper, encourage arbitrators to write extensiveevidence" does not mean that the evidence must be opinions to support their awards.orally presented or that live testimony is required; Because of the limited judicial review of arbitra-legally speaking the admission of evidence is to hear tion awards that is available, it is important that theit); Chernick, SB41 ALI-ABA at 216. client's interests are protected in an arbitration pro-

In a recent Texas case the appellant moved to ceeding. Thus, an attorney participating in an arbitra-vacate an arbitration award because the arbitrator had tion proceeding should be sure that the procedure isused the summary judgment procedure. Jamison & being conducted in accordance with the parties' agree-Harris v. National Loan Investors, 939 S.W.2d 735, ment. Dobin, at 71. The attorney should also be sure737 (Tex. App. -- Houston [14th Dist.] 1997, writ that their party-appointed arbitrator discloses all priordenied). The court refused to vacate the award, how- social, business, and other contacts that he or she mayever, because the appellant had not furnished a record have had with the attorney, his client, opposing party,of the hearing. Id. Thus, although not explicitly and the opposing counsel before allowing the individu-stated by the court, this holding makes clear that the al to serve as an arbitrator. Failing to disclose suchuse of the summary judgment procedure is not per se information up front can be used later to vacate aninappropriate in an arbitration; rather, the issue is otherwise valid award. see Tex. Civ. Prac. & Rem.whether the arbitrator "refused to hear evidence that Code Ann. § 171.088(a)(2)(A) (Vernon Supp. 1998);was material to the controversy." Id. Cf. J.J. Gregory Burlington Northern Ry. Co. v. TUCO Inc., 960 S.W-Gourmet Servs., Inc. v. Antone's Import Co., 927 .2d 629 (Tex. 1997). Additionally, if a proposedS.W.2d 31, 36 (Tex. App. -- Houston [1st Dist.] arbitrator has had prior contacts with the opposing1995, no writ) (concluding that arbitrators did not party, counsel should immediately object to the personexceed their authority by awarding injunctive relief in serving on the panel. By failing to object, a party willlight of the agreement's broad arbitration clause and in likely waive any possible complaint in such athe absence of any language specifically prohibiting situation. Finally, the attorney should consider havingthe arbitrators from granting such relief). a court reporter present at the arbitration hearing.Additionally, JAMS Rule 16 specifically provides for Without such a record of the proceedings, it will besummary deposition of a claim. difficult to establish that a arbitrator was bias, failed

IV. POST AWARD LITIGATIONA. Confirming or Vacating an Arbitration Award. 1. Vacating an Arbitration Award under the

Once an arbitrator has entered an award, a partycan seek to have it either confirmed or vacated. Con- The Texas Arbitration Act permits a court to setfirming an award simply requires filing an application aside an Arbitration Award only in very narrow cir-with the court and unless some grounds are put forth cumstances. See Monday v. Cox, 881 S.W.2d 381for vacating or modifying that award, the court will (Tex. App. -- San Antonio 1994, writ denied). Whenenter a judgment confirming the award. Tex. Civ. determining whether to vacate an arbitrator's award,Prac. & Rem. Code Ann. § 171.087 (Vernon Supp. the court's focus is on the arbitration process, not the1998). There are no time limits or other specific underlying award. See id. A party seeking to vacateprocedures for confirming an award. an arbitrator's award has the burden of establishing

Vacating an award, on the other hand, is more any facts that would support a court's decision todifficult. Judicial review of an arbitrator's award is vacate the award. Teleometrics Int'l, Inc. v. Hall, 922extremely narrow. See generally Marc S. Dobin, 26 S.W.2d 189 (Tex. App. -- Houston [1st Dist.] 1995,BRIEF 69 (Fall 1996); see also COMMERCIAL writ denied). This burden will not be sustained merelyARBITRATION, at 95. To the extent that review is be demonstrating that the arbitrator erred in the ap-permitted, it will only concern defects in the plication of substantive law. Jamison & Harris v.arbitration procedure, and the court will likely ignore National Loan Investors, 939 S.W.2d 735, 737 (Tex.arguments over the sufficiency of the evidence or the App. -- Houston [14th Dist.] 1997, writ denied). "Amerits of the case. COULSON, at 30. There are several mistake of fact or law is insufficient to set aside anrationales for limiting judicial review of arbitration arbitration award." Id.; see also Nuno v. Pulido, 946awards. Allowing excessive review of arbitration S.W.2d 448, 452 (Tex. App. -- Corpus Christi 1997,awards would likely lead to increased costs and delay, no writ) ("a mere mistake of fact or law is insufficientwhich is exactly what parties are attempting to avoid to set aside an arbitration award; only those errors ofwhen they decide to use arbitration. In addition, fact or law that result in a fraud or some great andexcessive judicial review might lead arbitrators to manifest wrong and injustice warrant setting aside an

to hear evidence, or was guilty of some other miscon-duct. See, e.g., Jamison, 939 S.W.2d at 737.

Texas Arbitration Act.

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=ca_caselaw&volume=47&edition=Cal.%20Rptr.2d&page=650&id=68864_01












arbitration award"); accord J.J. Gregory Gourmet Ser- acceptance, during the arbitration, of a substantialvs., Inc. v. Antone's Import Co., 927 S.W.2d 31 (Tex. referral from the law firm of a non-neutral co-App. -- Houston [1st Dist.] 1995, no writ); Powell v. arbitrator. Burlington Northern Ry. Co. v. TUCOGulf Coast Carriers, Inc., 872 S.W.2d 22 (Tex. App. Inc., 960 S.W.2d 629 (Tex. 1997). The Texas-- Houston [14th Dist.] 1994, no writ). Instead, the Supreme Court found that the failure to disclose thisTexas statute requires that a party seeking to vacate an information "established evident partiality as a matterarbitrator's award demonstrate that: of law" and was grounds to vacate under § 171.0-

(1) the award was procured by corruption, fraud 14(a)(2) [repealed now 171.088(a)(2)(A)] of theor other undue means; Texas Act. In addition to statutory grounds, an

(2) the rights of a party were prejudiced by: arbitration award can be vacated if it violates public(A) evident partiality by an arbitrator ap- policy. Lee v. El Paso County, 965 S.W.2d 668, 672pointed as a neutral arbitrator; (Tex. App. -- El Paso 1998, pet. for review filed June(B) corruption in an arbitrator; or 26, 1998) (citations omitted). Until the Lee case(C) misconduct or wilful misbehavior of an (which involved a collective bargaining agreement),arbitrator; however, no Texas court had ever vacated an

(3) the arbitrators: arbitration award based upon public policy grounds.(A) exceeded their powers;(B) refused to postpone the hearing after a The FAA also lists grounds upon which a courtshowing of sufficient cause for the post- is entitled to vacate an arbitrator's award. Specifically,ponement; the Act provides that an arbitrator's award will be set(C) refused to hear evidence material to the aside where:controversy; or (1) the award was procured by corruption, fraud,(D) conducted the hearing . . . in a manner or undue means;that substantially prejudiced the rights of a (2) there was evident partiality or corruption inparty; or the arbitrators, or either of them,

(4) there was no agreement to arbitrate . . . . (3) the arbitrators were guilty of misconduct inTex. Civ. Prac. & Rem. Code Ann. § 171.088 (Vernon refusing to postpone the hearing, upon sufficient causeSupp. 1998). shown, or in refusing to hear evidence pertinent and

An application to vacate under section 171.088 material to the controversy; or of any other misbehav-must be filed within 90 days after a party receives an ior by which the rights of any party have beenarbitration award. § 171.088(b); Teleometrics Int'l, prejudiced; [or]Inc. v. Hall, 922 S.W.2d 189, 191-92 (Tex. App. -- (4) the arbitrators exceeded their powers, or soHouston [1st Dist.] 1995, writ denied)(holding that the imperfectly executed them that a mutual, final, and90-day period is a limitations period after which a definite award upon the subject matter was not made.party no longer has a right to petition a court to vacate 9 U.S.C. § 10 (West Supp. 1998). If a party choosesan arbitration award.) Because an arbitrator's award to challenge an arbitration award on one of thesehas the same effect as a judgment of a court of last re- grounds he or she must move to modify or vacate itsort, the trial judge will not substitute his judgment for within three months after the award was delivered. 9the arbitrators merely because he would reach a dif- U.S.C. § 12 (1970).ferent result. Holk v. Biard, 920 S.W.2d 803, 806-07 All of these statutory exceptions are construed(Tex. App. -- Texarkana 1996, orig. proceeding [leave narrowly. See, e.g., Al-Harbi v. Citibank, N.A., 85denied]). F.3d 680 (D.C. Cir.), cert. denied, 117 S. Ct. 432

The grounds listed in section 171.088(a) for (1996) (arbitrator does not have duty to investigatevacating an arbitrator's award are narrowly construed. former law firm's client list to ensure against bias inFor example, merely complaining that the arbitrator arbitration). For example, numerous courts have heldacted in bad faith or failed to exercise honest judgment that an arbitrator does not engage in misconductwill not establish arbitrator misconduct. Id. Addition- within the meaning of the FAA by communicating exally, one court found that the exception that allows a parte with a party. See, e.g., Pacific Reinsurancecourt to vacate an arbitration award based on Management Corp. v. Ohio Reinsurance Corp., 935arbitrator partiality or bias did not apply when the F.2d 1019 (9th Cir. 1991); Bowles Fin. Group, Inc. v.arbitrator's company had previously been sued by the Stifel, Nicolaus & Co., Inc., 22 F.3d 1010 (10th Cir.defendant's lawyer's law partner. Monday, 881 1994). Moreover, when the parties have agreed toS.W.2d 381. Recently, however, the Texas Supreme arbitrate "any and all disputes" arising out of an agree-Court found there were grounds to support vacating an ment, it is very unlikely that a court will find that theaward where a neutral arbitrator failed to disclose his arbitrator has exceeded his or her authority. On the

2. Vacating an Arbitration Award under the FAA.
















other hand, when an arbitrator's behavior is egregious, (b) where the arbitrator's findings of fact are nota court will likely respond by vacating the award. For supported by substantial evidence, or (c) where theexample, one plaintiff was able to establish that the arbitrator's conclusions of law are erroneous." Id. atarbitrator that heard her sexual harassment case was 887. Subsequent to an arbitration panel's decision, abiased by proving that the arbitrator made comments district court denied a motion to vacate the award,about the plaintiffs weight, appearance, and social life. holding that it could only rule under the statutoryStroehmann Bakeries, Inc. v. Local 776, Int'l Bhd. of grounds for vacating found in the Act. Id. The courtTeamsters, 969 F.2d 1436 (3d Cir.), cert. denied, 113 of appeals reversed, finding that the intent behind theS. Ct. 660 (1992); but c.f. Health Servs. Management Act is the enforce private agreements to arbitrate andCorp. v. Hughes, 975 F.2d 1253 (7th Cir. 1992) holding that a court must honor the agreement and not(award confirmed despite allegations of gender bias). limit review to those grounds found in the Act. Id. at

In addition to the statutory grounds for vacatur 888. Nevertheless, vacating an arbitrator's award islisted within the FAA, several circuit courts have en- difficult.dorsed a variety of non-statutory bases for vacating anarbitrator's award. Stephen L. Hayford & Scott B.Kerrigan, Vacatur: The Non-Statutory Grounds forJudicial Review of Commercial Arbitration Awards, The best way to ensure that the goals of arbitra-51 DISP. RESOL. J. 22 (1996). Every circuit except the tion are met is to draft an arbitration provision thatFifth (which has declined to adopt any non-statutory ensures that result. Unfortunately, most drafters ofgrounds for vacating arbitration awards), has such a provision have never actually participated in anexpressly recognized that "manifest disregard of the arbitration proceeding and therefore include suchlaw" is an appropriate reason to review and vacate an provisions as party-appointed arbitrators. Whenarbitration panels' decision. Montes v. Shearson drafting an arbitration provision, drafters shouldLehman Bros. Inc., 128 F.3d 1456 (11th Cir. 1997) consider what the goals of arbitration are (i.e., cost(citations omitted); accord Kanuth v. Prescott, Ball & savings, efficiency, skill and knowledge of theTurben, Inc., 949 F.2d 1175, 1182 (D.C. Cir. 1991); arbitrator, etc.) and include terms to fulfill those goals.O.R. Secs., Inc. v. Professional Planning Assocs., Inc., This part of the paper identifies some of the areas to857 F.2d 742, 747 (11th Cir. 1988). But see McIlroy consider before drafting an arbitration provision.v. PaineWebber, Inc., 989 F.2d 817 (5th Cir. 1993)(rejecting any non-statutory grounds for vacating arbi-tration awards). In Montes, the court found that the There are various ways to conduct an arbitrationarbitration panel had evidenced manifest disregard for proceeding. These different processes can generallythe law where counsel's remarks expressly urged the be grouped into two categories: institutional and adpane to deliberately disregard the law. Montes, 128 hoc. Institutional arbitration refers to the situationF.3d at 1464. Courts also have vacated awards that where two parties have designated a specific insti-conflict with established public policy. See, e.g., tution or institutions to conduct any arbitrations thatPaineWebber, Inc. v. Agron, 49 F.3d 347, 350 (8th may arise. In contrast, ad hoc arbitration refers to aCir. 1995); see generally Todd M. Siegel, Is Arbitra- procedure whereby the parties design and administertion Final & Binding? Public Policy Says, "Not Nec- the arbitration process themselves. The advantagesessarily!," 2 J. DISP. RESOL. 351 (1995). Other courts and disadvantages of these alternatives should behave also vacated awards that are "arbitrary and capri- considered when drafting an arbitration clause, and thecious" or "completely irrational." See Hayford & procedure that is desired should be delineated in theKerrigan, at 27-28. Finally, the Ninth Circuit in contract.Lapine Tech. Corp. v. Kyocera Corp., 130 F.3d 884(9th Cir. 1997), followed the Fifth Circuit's holding in There are numerous institutions that conductGateway Techs., Inc. v. MCI Telecomm. Corp., 64 arbitration proceedings. The most popular organiza-F.3d 993, 996-97 (5th Cir. 1995), and held that a tions world wide include the AAA, JAMS, the ICC,court may conduct a more searching review of arbitra- the LCIA, and the China International Economic andtion awards than it normally would under the FAA Trade Arbitration Commission. See generally Jean T.where the parties to the arbitration agreement have Carney, A Beginner's Guide to Resolving Trans-contracted for a heightened standard of review. In actional Disputes Through Arbitration, N.Y. ST. B.J.Lapine, the parties to an arbitration contract had 10, 18 n.11 (Nov. 1996). If counsel decides to use theagreed that the arbitrator's award could be vacated, AAA, the preamble to the AAA rules suggest the fol-modified, or corrected by the Court (a) based upon any lowing generic arbitration provision, which is agrounds referred to in the [Federal Arbitration] Act, or starting point for drafting:

V. DRAFTING AN ARBITRATION PROVI-SION.

A. Ad Hoc v. Institutional Arbitration.

1. Institutional Arbitration.














Any controversy or claim arising has on one's ability to compel or contest arbitrationout of or relating to this contract, proceedings. If an institution is selected to conduct theor the breach thereof, shall be arbitration proceeding the party opposing the arbitra-settled by arbitration administered tion will generally be required to go to court to halt theby the American Arbitration procedure. Arnold, at 111. However, if the partiesAssociation under its Commercial have decided to conduct arbitration on an ad hoc basisArbitration Rules, and judgment on the party seeking arbitration will likely have to go tothe award rendered by the arbitra- court to compel arbitration. Id. To the extent that onetor(s) may be entered in any court can anticipate whether an arbitration proceedings willhaving jurisdiction thereof. be advantageous for a client, implications concerning

AAA Rules p. 2. the ability to compel arbitration should be consideredUsing an institution to conduct arbitration can be when determining whether to use institutional or ad

very advantageous because of the experience that such hoc arbitration. Typically, a party cannot predictorganizations offer to participants. Most arbitration whether the use of arbitration will be advantageous ininstitutions have established rules for nearly every a particular case. However, there are certain trans-aspect of the arbitration process. However, even in actions in which a party will almost undoubtedly favorinstitutional arbitrations parties generally maintain arbitration. For example, most companies uniformlysome ability to specify certain details about the pro- prefer arbitrating, rather than litigating, employmentcess, such as the number of arbitrators to be employed discrimination law suits. See Diana Kunde, Suing foror how the arbitrators will be selected. Besides pro- the Right to Sue, DALLAS MORNING NEWS, May 25,viding an established methodology for conducting 1997, at H1. Thus, in an employment agreement, aarbitration, some institutions will also help company would be wise to use an institution toparticipants enforce arbitration awards. Carney, at 13. conduct arbitration. The employee will then be re-

On the down side, institutional arbitration can be quired to go to court to halt the arbitration proceeding.cumbersome and expensive. Tom Arnold, BoobyTraps in Arbitration Practice and How to AvoidThem, SB41 ALI-ABA COURSE OF STUDY 101, 111 Often arbitration is conducted by a panel of three( Dec. 12, 1996). For example, ICC rules require that arbitrators. United States arbitration parties havethe arbitrators and parties initially agree on which historically favored three arbitrator panels. See Ar-issues will be arbitrated. Although this procedural nold, at 101--111. However, there are definite advan-step seems advantageous at first blush, the utility of tages to providing for the appointment of a sole arbi-such an additional stage can be reduced as the issues trator. The advantages and disadvantages of both ofevolve during later discovery. Additionally, there are these alternatives should be carefully considered whenadministrative fees. For example, the AAA assesses drafting an arbitration clause. As will be discussed,an administrative fee based on the amount of the more is not always better.claim. The largest and most obvious advantage to em-2. Ad hoc Arbitration.

Ad hoc arbitration essentially refers to a process opinion and experience that can result. In addition, thewhereby the parties contractually determine the rules debate that often occurs amongst a three arbitratorby which an arbitration proceeding will be conducted panel can generate better reasoned opinions. More-and the manner in which an arbitration panel will be over, an eccentric or unusual decision by a singleselected. Some parties write their own rules, but arbitrator can be balanced by the other two membersothers merely determine that a particular of a three arbitrator panel. Finally, it is possible thatorganization's rules will govern. The advantage of appointing a three arbitrator panel, at least under theconducting arbitration on an ad hoc basis is obviously party-appointed system, can be conducted more easilythe flexibility that the approach allows. However, than a single arbitrator panel because the parties areflexibility is not always important, and the expense both able to select an arbitrator instead of being forcedthat ad hoc arbitration requires may not justify any to agree on a singe individual. As previouslyadded benefits. Moreover, when parties have little discussed, however, if the party-appointed method isexperience with arbitration using an institution to going to be used to select a panel, the arbitrationconduct the arbitration can save valuable time and provision should include language to the effect thatresources. "all arbitrators shall be neutral, impartial, disinterested

Beyond considerations of price and efficiency, arbitrators and none shall have ex parte communica-one should consider the implications that the decision tions" to ensure that all three arbitrators are consideredwhether to use ad hoc or institutional administration to be neutral. Despite these advantages, a three arbi-

B. Number of Arbitrators.

ploying a three arbitrator panel is the diversity of


trator panel is often disproportionately expensive to nent of an arbitration clause. The most common typeemploy. One commentator estimates that it can be as of damages excluded are punitive damages. Id. Asmuch as ten times as expensive in a complicated case discussed above, the Supreme Court held into use a three arbitrator panel. Arnold, at 112. More- Mastrobuono that if an agreement to arbitrate does notover, when three persons are required to coordinate contain a limitation on the panel's ability to awardtheir schedules, delays in decision making are inevita- punitive damages, the arbitrators are free to imposeble. Three arbitrator panels can also be inefficient punitive damages. However, some lower courts havebecause individual arbitrators may be hesitant to take held that when an arbitration clause limits a party'sthe initiative to cut off repetitive discovery or testimo- ability to obtain punitive damages in arbitration, theyny without the support of the entire panel. One way to may still seek punitive damages in court. See DiCriscieliminate this problem is to designate one of the arbi- v. Lyndon Guar. Bank of New York, 807 F. Supp.trators as the case manager or chairman. Finally, it is 947, 953-54 (W.D.N.Y. 1992); Davis v. Chevy Chasequestionable whether the increased time and money Fin. Ltd., 667 F.2d 160, 165 (D.C. Cir. 1981); c.f.spent in employing a three member panel really pro- Waltman v. Fahnestock & Co., Inc., 792 F. Supp. 31,duces better reasoned decisions. 33-34 (E.D. Pa. 1992).

Possibly for these reasons, the AAA rules pro- There are numerous ways to limit the arbitrator'svide for a single arbitrator unless the parties specify ability to award punitive damages in an arbitrationotherwise or the AAA decides "in its discretion" to clause. The AAA suggests that to limit the arbitrator'sappoint a larger panel. However, despite its rule to the ability to award punitive damages, the parties shouldcontrary, it is current AAA policy to provide for a specify that "the arbitrators will have no authority tothree member arbitration panel where the amount in award punitive damages or any other damages notcontroversy exceeds $250,000. MURRAY ET AL., at measured by the prevailing party's actual damages,195. On the other hand, the ICC's policy is to provide and may not, in any event, make any rulings, findingfor a single arbitrator panel where the amount in con- or award that does not conform to the terms and condi-troversy is less than $1 million. Id. tions of the Agreement." AMERICAN ARBITRATION

C. Arbitrability.After the Supreme Court's decision in First Op- suggested clause provides that "the arbitrator is not

tions, parties should pay particular attention to the empowered to award damages in excess of compensa-breadth an arbitration clause. If all disputes, including tory damages, and each party hereby irrevocablywhether a particular issue is arbitrable, are to be de- waives any right to recover punitive damages withcided by arbitration, the parties should use a "broad respect to any [d]ispute." Chernick, Shaping theform" arbitration clause. Richard Chernick, Shaping Arbitration Process, at 231.the Arbitration Process by Controlling the Power ofthe Arbitrator, SB41 ALI-ABA COURSE OF STUDY

227, 229 (Dec. 12, 1996). A typical broad form The cost of arbitration proceedings can also beclause will provide for arbitration of "all controversies, greatly increased if the arbitration panel decides toclaims, and disputes arising under or relating to this issue a written explanation of its opinion, a documentagreement, including the issue of arbitrability." that is often referred to as the arbitrator's "reasons."

Alternatively, if the parties wish to arbitrate The arbitrator's reasons are similar to a judicial opin-certain issues and litigate others, they should specify ion. Sometimes the additional expense of writtenwhich agreements are subject to arbitration. This reasons may be justified, but often it is not. To avoidapproach is generally costly and time consuming be- the waste, the parties should state whether they desirecause of the inevitable dispute about whether a the arbitrators to issue reasons. Even if the parties doparticular issue is arbitrable. Id. Moreover, parties wish for the arbitrators to issue reasons with theshould be mindful of res judicata and collateral award, they should consider adopting some limitationsestoppel issues when drafting such a clause. Id. at on how the reasons will be drafted.230. On the other hand, it may be to a party's There are numerous reasons why allowing arbi-advantage to exclude claims for fraud or trators to release written reasons increases the costs ofmisrepresentation from an arbitration clause that the proceeding. First, the arbitrators generally do notcovers disputes regarding a particular contract. have a transcript or index of the exhibits to use while

D. Remedies.A limitation on the availability of certain types of reasons can involve a lengthy search through weeks of

damages is becoming an increasingly common compo- testimony. Second, the panel will be extremely careful

ASSOCIATION, DRAFTING DISPUTE RESOLUTION

CLAUSES: A PRACTICAL GUIDE 29 (1993). Another

E. Written Award.

drafting a set of reasons for the underlying award.Thus, noting all of the supporting evidence in the






when drafting the reasons for fear of reversal. Advis- to the parties. The drafter should also specify timeing against the use of written opinions in arbitration limitations for the discovery process and provide aproceedings, the former President of the AAA noted, method of resolving discovery disputes. (See AAA"[w]ritten opinions can be dangerous because they DRAFTING DISPUTE RESOLUTION CLAUSES, at 24.) Itidentify targets for the losing party to attack." is important to remember that providing for discoveryCOULSON, at 29. This fear will slow the proceedings procedures will almost undoubtedly increase the costand add unnecessary expense to the proceeding. of arbitration from both the expense of the discoveryThird, some arbitrators write extensive written reasons and the expense from disputes over the interpretationto justify their award and to demonstrate their careful of the provisions.nature in hopes of being selected by the parties forfuture arbitration proceedings. Finally, the whole As with discovery, the parties can provide withinprocess is obviously slowed when time is taken to their contract that evidentiary rules will apply to thewrite any reasons. Without this additional step the arbitration proceeding. Keeping in mind that anarbitrators can come to an immediate conclusion after arbitrator's award can be vacated for failure to hearthe proceeding is completed. The fact that many pertinent evidence, the parties might specify that aarbitrators travel to distant cities to conduct arbitration liberal interpretation of the Federal or Texas Rules ofand will have difficulty coordinating their schedules to Evidence will apply. Alternatively, the parties maymeet concerning the drafting of an opinion in itself provide that the Rules of Evidence will apply, butmay be a reason to eliminate written reasons. allow the arbitrator to relax the rules regarding hear-

The AAA does not recommend the use of written say testimony. The obvious disadvantage to either ofreasons in commercial cases. AAA, DRAFTING DIS- these alternatives is, as with a discovery provision, thePUTE RESOLUTION CLAUSES, at 25. However, the litigation that may result over the interpretation of theAAA draws a distinction between commercial cases provision such as the meaning of a "liberal interpreta-and international and labor relations cases. Id. In fact, tion "of the rules of evidence. On the other hand, ifit notes that "an itemized award can eliminate the need one anticipates damaging hearsay testimony from anto render [a written] opinion." Id. If it is desirable to opponent, an agreement to abide by evidentiary ruleshave written reasons, the drafters should consider may be worth the extra expense.specifying that the arbitrators will only issue reasons * * *that are "necessary to support the award and not with As can be seen there are many factors torespect to all issues presented in the evidence." Ar- consider when drafting an arbitration clause. Draftersnold, at 119. Alternatively, the parties should consider tread a narrow line in crafting a clause that is neitherproviding page or word limits on the arbitrator's too general nor too specific. For further issues towritten reasons. Id. at 120. Additionally, the parties consider see Arnold, SB41 ALI-ABA at 135 (checklistshould impose time limits for the written reasons. for arbitration provision).

F. Other considerations. VI. CONCLUSION.There are a number of other issues that should be When properly conducted, arbitration is a useful

considered in drafting a clause: alternative to backlogged courts and expensive legal1. Where to Arbitrate.

In considering the location of the arbitration, the trial counsel needs to be aware of the differencesdrafter should consider someplace convenient for the between arbitration and trial and must structure theparties and any witnesses. This will help to minimize process from beginning to achieve these goals. Final-costs. ly, counsel drafting an arbitration provision must2. Choice of Law.

The drafters should consider whether they want will be lost.the FAA, the Texas Arbitration Act, or, in an interna-tional agreement, international law to govern theagreement. As discussed above, the FAA will pre-empt any law that is hostile to arbitration agreements,but a choice-of-law provision can be used to incorpo-rate procedural rules.3. Discovery.

If discovery is provided for in an agreement toarbitrate, the parties should indicate the type ofdiscovery devices and procedures that will be available

4. Evidence.

battles. To achieve the goals of arbitration, however,

consider all the various alternatives or the efficiencies

arbitration: practical considerations practical considerations for the texas litigator b-1 ... the...

Documents