recent developments in arbitration and other forms … · 2013-10-17 · recent developments in...

RECENT DEVELOPMENTS IN ARBITRATION AND OTHERFORMS OF ADR

Talmage BostonJay Madrid

Winstead Sechrest & Minick P.C.1201 Elm Street

5400 Renaissance TowerDallas, Texas 75270

214/745-5400

25TH ADVANCED CIVIL TRIAL COURSEAugust 28-30, 2002 - Dallas

October 9-11, 2002 - HoustonOctober 30-November 1, 2002 – San Antonio

CHAPTER 6

TALMAGE BOSTONWinstead Sechrest & Minick, P.C. - Shareholder - Dallas Office

PRACTICE AREAS:

Litigation (Trial and Appellate)Alternative Dispute Resolution

PROFESSIONAL LICENSESAND ASSOCIATIONS:

• Board Certified and Recertified multiple times in Civil Trial Law and CivilAppellate Law, Texas Board of Legal Specialization;

• Current member of Council (fifteen member total) and Past Chairman (1993),Business Litigation Section, Dallas Bar Association;

• Officer and Member of Council of Litigation Section (this is the 23 membergoverning board of the Section), State Bar of Texas;

• Active commercial litigator and mediator.

MAJOR SPEECHESAND PUBLICATIONS: Recent Speaking Activities --

Featured speaker:

• State Bar of Texas, Litigation Update Institute, January 11-12, 2002, speaker"ADR Update";

• State Bar of Texas, Chairman of Planning Committee for seminar, “Litigation ina Changing Business World: Are You Ready?” May 10-11, 2001 in Houston;

• State Bar of Texas, Litigation Update Institute, January 19-20, 2001, speaker“ADR/Mediation Update";

• State Bar of Texas, Advanced Civil Trial Course, Fall of 2000, speaker “RecentDevelopments in Alternative Dispute Resolution and Arbitration”;

• St. Mary’s Law School Seminar, March 2, 2000, speaker “Dispute Resolution inthe New Millennium”;

• State Bar of Texas, Litigation Update Institute, January 14-15, 2000, speaker“ADR Update”;

• State Bar of Texas, Advanced Civil Trial Course, Fall of 1999, speaker “RecentADR Developments”;

• State Bar of Texas, Advanced Personal Injury Course, Summer of 1999, speaker“Electronic Evidence and Spoliation of Evidence Issues”;

• Dallas Bar Association, Business Litigation Section, May 11, 1999, speaker“Electronic Evidence Issues”;

• American Bar Association, Litigation Section Annual Meeting, April 16, 1999,Panelist on discussion of “Summary Jury Trials”;

PUBLISHED OPINIONS --

• Counsel of record in a broad variety of seventeen state and federal trial andappellate published opinions involving a multitude of business litigation issuesover the past twenty years as set forth below:

STATE COURT:

1. Rhonda Avery v. Bank of America, 72 SW3d 779 (Tex. App. -- Dallas 2002)-- case involved application of mediation confidentiality privilege..

2. Saratoga Resources, Inc. v. Baker, 59 S.W. 3d 411 (Tex. App. -- Houston [1stDist.] (2001, no writ) -- Case involved interpretation of several oil andgas contracts.

3. Gillespie v. Fields, 958 S.W.2d 228 (Tex.App. - Tyler, Sept. 30, 1997) (No.12-96-00268-CV) -- Case involved whether the “discovery rule” appliedin a statute of limitations case involving oil field surface damage.

4. City of Dallas v. Villages of Forest Hills, L.P., 932 S.W.2d 601 (Tex.App. -Dallas, April 30, 1996) (No. 05-95-00368-CV) -- Case involved a privateparty’s being able to enforce a binding contract with a city, even if suchcontract was not prepared and approved in compliance with the citycharter.

5. Matter of the Marriage of Banks, 887 S.W.2d 160 (Tex.App.- Texarkana,Sept. 20, 1994) (No. 06-94-00049-CV) -- Case involved the

enforceability of a settlement agreement reached at mediation which one party later attempted to revoke.6. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492 (Tex., June 19, 1991)

(No. D-0333) -- Case involved pleading burdens in a summary judgmentcase as well as sufficiency of consideration for a contract involving oiland gas properties.

7. Roark v. Stallworth Oil & Gas, Inc., 811 S.W.2d 630 (Tex.App. - Ft.Worth, July 25, 1990) (No. 2-89-142-CV) -- Case involved the legalsufficiency of deemed admissions.

8. Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589(Tex.App. - Dallas, April 23, 1991) (No. 05-90-01549-CV) -- Caseinvolved enforceability of an arbitration provision in a gas purchasecontract.

9. Audio Data Corp. v. Monus, 789 S.W.2d 281 (Tex.App. - Dallas, January18, 1990) (No. 05-90-00059-CV) -- Case involved what can and cannotbe litigated in state court while undisclosed bankruptcy proceedings arepending (voidability vs. voidness issues).

10. City of Carrollton v. Duncan, 742 S.W.2d 70 (Tex.App. - Fort Worth,November 25, 1987) (No. 2-86-128-CV) -- Case involved boundarydisputes in trespass to try title action and evidence admissibility issuesrelated to such.

11. Curtis Sharp Custom Homes v. Glover, 701 S.W.2d 24 (Tex.App.- Dallas,November 4, 1985) (No. 05-84-00455-CV) -- Case involved issue of

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enforceability and forecloseability of equitable lien against homesteadwhere stolen money was used to make homestead improvements.

12. Jeanes v. Henderson, 688 S.W.2d 100 (Tex., March 27, 1985) (No. C-3130)-- Case involved successful application of doctrines of res judicata andcollateral estoppel preventing re-litigation of oil and gas issues triedpreviously.

13. First National Bank of Marshall v. Beavers, 619 S.W.2d 288 (Tex.Civ.App. -Texarkana, June 30, 1981) (No. 8777) -- Case involved admissibility ofevidence of net worth being presented to the jury in the context of theawarding of punitive damages.

14. First National Bank of Marshall v. Beavers, 602 S.W.2d 327 (Tex.Civ.App. -Texarkana, June 10, 1980) (No. 8777) -- Case involved acquisition ofprescriptive easement using a succession of persons in a chain of titleclaiming by adverse possession.

FEDERAL COURT:

1. Texas Commercial Business Systems, Inc. v. F.C.C., 898 F.2d 460 (5th Cir.(Tex.), April 16, 1990) (No. 89-1035) -- Case involved an experteconomist’s testimony on causation being disregarded because it lackeda rational basis.

2. Herr-Voss Corp. v. Delta Brands, Inc., 900 F.Supp. 34 (N.D.Tex., August31, 1995) (No. 3:92-CV-0891-P) -- Patent infringement case.

3. Old Stone Bank v. Fidelity Bank, 749 F.Supp. 147 (N.D.Tex., Oct 9, 1990)(No. CV.A. 4-8-726-E) -- Case involved enforceability of obligationsupon successor bank as to obligations which had been incurred by apredecessor bank prior to FDIC takeover.

EDUCATION:

UNIVERSITY OF TEXASJ.D., 1978B.A., cum laude 1975; Phi Beta Kappa

OTHER:

• Regular guest columnist and book reviewer for Dallas Morning News.• Author, Position paper on “Tort Reform”, successful 1994 George W. Bush for

Governor Campaign.• Officer and Director, Texas Business Hall of Fame Foundation 2000-2002• Inducted into Texas Baseball Hall of Fame in 1997 as a Media Member.

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JAY J. MADRIDWinstead Sechrest & Minick P.C.

1201 Elm Street, Suite 5400Dallas, Texas 75270

214/745-5709214/745-5390 (Fax)

Biographical Information

EDUCATION

B.A. Texas Western CollegeLL.B. University of Texas School of LawM.L.A. Southern Methodist UniversityBoston University (M.B.A. Course Work)

PROFESSIONAL ACTIVITIES

Shareholder, Winstead Sechrest & Minick P.C.Board Certified, Civil Trial Law, Texas Board of Legal Specialization

(1978-Present)Life Fellow, Texas and Dallas Bar FoundationsAssociate, American Board of Trial AdvocatesPast Member, Board of Directors, Dallas Bar AssociationMember, ADR Council, State Bar of TexasExam Commissioner, Texas Board of Legal Specialization

LAW RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS

Author/Speaker, State Bar of Texas PDP, 1980-PresentCivil Trial and Advanced Civil Trial Courses on Discovery,Trial Advocacy and ADR

Faculty Member, National Institute of Trial AdvocacyAdjunct Professor, Southern Methodist University, Dedman School of Law1980-Present)

Lecturer and Practice Skills Instructor, Trial AdvocacyLecturer, Alternative Dispute Resolution

Captain, U.S. Army Judge Advocate General's Corps (1967-1972)Service in Vietnam, Germany, United StatesAwarded Bronze Star, Air Medal and Army Commendation Medals

DALLAS_1\3691638\1999993-1054 08/12/2002

Recent Developments in Arbitration and Other Forms of ADR Chapter 6

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Table of Contents

Page

I . ARBITRATION ISSUES ..........................................................................................................................................................1

A. Federal Arbitration Act – 9 U.S.C.A. 1 et seq...............................................................................................................1

1. In General...........................................................................................................................................................................1

2. Restrictions of the FAA in the Employment Context ................................................................................................1

3. Availability of Injunctive Relief to Allow Arbitration Proceedings to go Forward .............................................2

4. Arbitrations Involving Parties Who Did Not Sign the Agreement ..........................................................................2

5. Availability of Punitive Damages in FAA Arbitrations ............................................................................................2

6. Under FAA, Absent a Process Breakdown, Only Parties (Not Courts) Select the Arbitrators, and theSelection Is Not Final and Can Be Challenged Only to Mandamus........................................................................3

7. Distinctions Between the FAA and the Texas General Arbitration Act.................................................................3

B. The Texas General Arbitration Act.................................................................................................................................3

1. 1997 Amendments. ..........................................................................................................................................................3

2. Matters Outside the Scope of the TAA........................................................................................................................3

C. Frequently Litigated Arbitration Issues ........................................................................................................................3

1. Is There an Agreement to Arbitrate?.............................................................................................................................3

2. Is the Arbitration Agreement Unconscionable?..........................................................................................................5

3. What is the Scope of the Arbitration Agreement?......................................................................................................6

4. Does the Arbitration Agreement Need to be Supported by Consideration? ..........................................................6

5. Has Either Party Waived its Right to Arbitrate or Compel Arbitration?................................................................6

6. Does the Arbitration Procedure Violate Due Process?..............................................................................................7

7. Under What Circumstances Should an Arbitration Award be Vacated?................................................................8

8. When Can a Party Appeal an Adverse Ruling on Arbitrability?............................................................................10

9. Miscellaneous New Arbitration Issues:......................................................................................................................10

I I . MEDIATION ISSUES ............................................................................................................................................................12

A. Objection to Court Ordered Mediation.......................................................................................................................12

B. Confidentiality Erosion .....................................................................................................................................................12

1. No Absolute Mediation Confidentiality or Privilege. ..............................................................................................12

2. Mediator Testimony Admissible Regarding Alleged Duress or Coercion at Mediation. ..................................14

C. Federal Government Settlement Authority at Mediation.......................................................................................15

D. Enforcement of Written Settlement Agreements ......................................................................................................15

E. Fraudulent Inducement of the Means to Set Aside a Mediation Settlement Agreement................................15

F. Mediation Ethics Issue in Mass Torts Cases ...............................................................................................................15

G. New Mediation Twist – Collaborative Law in Family Law Cases .......................................................................16

Recent Developments in Arbitration and Other Forms of ADR Chapter 6

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I I I . NON-BINDING SUMMARY JURY TRIALS ...............................................................................................................16

A. The Movement in Texas State Courts ..........................................................................................................................16

1. Dallas ................................................................................................................................................................................16

2. Houston............................................................................................................................................................................17

3. Elsewhere in Texas........................................................................................................................................................17

4. Caselaw on Confidentiality...........................................................................................................................................17

B. SJTs in Texas Federal Courts .........................................................................................................................................17

IV. FEDERAL LAW UPDATE: THE ALTERNATIVE DISPUTE RESOLUTION ACT OF 1998 ....................17

V . ETHICAL ISSUES ..................................................................................................................................................................18

A. No requirement that lawyers tell clients of alternatives to litigation...........................................................................18

A. Potential malpractice claim against an attorney who drafted an unenforceable arbitration clause. Id..................18

B. Potential malpractice claim against an attorney who allegedly did not tell the client that arbitration awardswere unappealable. Id.........................................................................................................................................................18

C. ABA Model Rule Proposal.................................................................................................................................................18

Recent Developments in Arbitration and Other Forms of ADR

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I. ARBITRATION ISSUES

A. Federal Arbitration Act – 9 U.S.C.A. 1 etseq.

1. In Generala. Only Interstate Commerce Cases

The FAA comes into effect in disputes arisingin transactions involving "interstate commerce" tothe fullest extent permitted by the Congress'Commerce Clause powers. Allied-Bruce TerminixCos. Inc. v. Dobson, 513 U.S. 265 (1995). TheTexas Supreme Court reaffirmed this stand in thecase of In Re: L & L Kempwood Associates, L.P.9 S.W.3d 125 (Tex. 1999), holding that the FAAapplied to "any contract affecting commerce, as faras the Commerce Clause of the United StateConstitution will reach." Id. at 127. An exampleof how far the Commerce Clause will reach isfound in the case of In Re: Profanchik , 31 S.W.3d381 (Tex. App. – Corpus Christi, 2000, no pet.)where the Court of Appeals held that in anemployment contract involving two Texasresidents in which their dispute centered aroundownership interest in a Texas company, the FAAgoverned since the company in question hadsignificant contracts in many states and wastherefore engaged in a business that affectsinterstate commerce.

b. Fact Question Regarding InterstateCommerce

The Houston Court of Appeals [1st Dist.]recently held that when an arbitration clause doesnot specify that the arbitration is to be conductedin accordance with the FAA, then a fact questionexists for the trial court concerning whether thetransaction in question affected interstatecommerce. Associated Air Freight, Inc. v. Meek,67 S.W.3d 249, opinion withdrawn andsuperceded on reh. on other gds, 2001 WL 225576(Tex. App. – Houston [1st] 2001). The partyseeking to have the FAA govern the arbitrationproceedings has an evidentiary burden to establishthat the subject contract affects interstatecommerce. This may be done by verifying theMotion to Compel Arbitration, submittingauthenticated copies to key documents, orsubmitting affidavits. Id.

c. Preemption IssuesThe scope of the FAA extends to most

commercial disputes (since most involve interstatecommerce) and the Act preempts any inconsistentstate laws due to the effect of the SupremacyClause of the United States Constitution.However, consistent with general preemptiondoctrine, the Fifth Circuit has held that the FAAdoes not preempt state arbitration rules as long asthe state rules do not undermine the goals andpolicies of the FAA. ASW Allstate Painting andConstruction Company v. Lexington InsuranceCompany, 188 F.3d 307, 310 (5th Cir. 1999).Regardless of traditional notions of the effect ofpreemption, parties may contract to have theirdesired choice of law (substantive or procedural)which will be enforced, unless inconsistent withthe FAA. Doctor's Assoc., Inc. v. Casarotto, 517U.S. 681 (1996).

2. Restrictions of the FAA in theEmployment Context

The FAA does not apply to contracts ofemployment for certain types of employees –– inparticular "seamen, railroad employees or anyother class of workers engaged in foreign orinterstate commerce." 9 U.S.C. 1 (1970). Thisprovision has been interpreted to exempt workersin the transportation industry, or workers engagedin the actual movement of goods in interstatecommerce. Circuit City Stores, Inc. v. Adams, 121S.Ct. 1302 (March 21, 2001). In the Circuit Citycase, the employee who sued Circuit City wasdetermined by the United States Supreme Courtnot to be a transportation worker and therefore hisemployment agreement was not excluded from theFAA, and his discrimination claim was subject toarbitration. The Circuit City case is certainlyconsistent with the trend among the majority ofcourts is to interpret this exclusion narrowly inlight of the strong federal policy favoringarbitration. Cole v. Burns International SecurityService, 105 F.3d 1465, 1470 (D.C. Cir. 1997).

In Rojas v. TK Communications, 87 F.3d 745,748 (5th Cir. 1996), the Fifth Circuit held that itwas joining with the majority of other courts thathave addressed the issue and concluded that Sec. 1of the Act is to be given a narrow reading, with thecourt noting that Congress could have limited thelanguage to state that nothing herein shall apply toany contract of employment had it intended to

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exclude all contracts of employment from FAAcoverage.

Texas state courts have applied the FAA tomost employment contracts and consistent withthe Fifth Circuit, have adopted a narrowinterpretation of the exclusion language. RussBerry & Company, Inc. v. Gant 998 S.W.2d 713,715 Tex. App. -- Corpus Christi 1999, no pet.);Merrill Lynch Pierce Fenner v. Macullum, 666S.W.2d 604, 610 (Tex. App.—Houston [14thDistrict] 1984, writ ref. n.r.e.). However, interstatecommerce was not substantially affected so as totrigger the application of the FAA "when a partyfrom another state hires a party in Texas to dorepairs on fixed real property in Texas."Kempwood Associates, supra.

In the case of BWl Companies v. Beck , 910S.W.2d 620 (Tex. App.-- Austin 1995, orig. pro.),the Austin court applied the narrow interpretationof the FAA exclusion, and enforced the arbitrationprovision under the FAA because the employerwas engaged in the landscaping business in severalstates and delivered its products across state lines.

3. Availability of Injunctive Relief to AllowArbitration Proceedings to go Forward

Injunctive relief is available to enforcecontractual rights in a pending claim subject toarbitration under the FAA. Merrill, Lynch, Pierce,Fenner & Smith, Inc. v. Chapman, 1998 U.S. Dist.LEXIS 17896 (N.D. Tex. Nov. 3, 1998).

4. Arbitrations Involving Parties Who DidNot Sign the Agreement

The Fifth Circuit recently spoke to orderingarbitration of a dispute that involves a non-signatory of the contract which contains thearbitration provision. Hill v. G.E. Power Systems,Inc. 282 F.3d 343 (5th Cir. 2002). In the Hill case,the plaintiff filed a suit against a signatory party tothe arbitration agreement who immediately filed aMotion to Compel Arbitration. The Plaintiff thenadded a non-signatory party claiming that theissues plaintiff had with the signatory and the non-signatory were intertwined and thus should not bearbitrated. The original defendant (the signatory)sought a stay pending arbitration. The FifthCircuit reversed the District Court and stayed thelitigation pending arbitration of the plaintiff'sclaims against the signatory party.

Another recent Fifth Circuit case involving thenexus between nonsignatories and arbitration is

Grigson v. Creative Artist Agency, 210 F.3d. 524(5th Cir. 2000), where the Fifth Circuit held that anon-signatory to an arbitration agreement has thepower to compel arbitration under an equitableestoppel theory and the action is intertwined withand dependent upon the contract containing thearbitration provision. Arbitration provisions arealso binding upon non-signatories who areaffiliates of a signatory party. Subway EquipmentLeading Corp. v. Forte, 169 F.3d. 324 (5th Cir.1999). However, nonsignatories (such as thechildren of the signatory parties) are not bound byarbitration agreements where the nonsignatories'claims are in tort and are not tied to the agreement.Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d1069 (5th Cir. 2002).

Finallly, and most recently, the Fifth Circuithas now officially held that "there are twocircumstances under which a non-signatory cancompel arbitration: first, when the signatory to awritten agreement contained in the arbitrationclause must rely on the terms of the writtenagreement in asserting its claims against the non-signatory; and second, when the signatory to thecontract containing an arbitration clause raisesallegations of substantially interdependent andconcerted misconduct by the non-signatory andone or more of the signatories to the contract.Westmoreland v. Sadoux, Cause No. 01-20793,July 18, 2002.

5. Availability of Punitive Damages in FAAArbitrations

The Fifth Circuit recently addressed thesituation where the parties' arbitration agreementprohibited "punitive damages", and the plaintiffsought to recover statutory treble damages basedon a violation of the Clayton Act. InvestmentPartners LPE v. Glamour Shots Licensing, Inc.2002 WL 1498721 (5th Cir. July 15, 2002). TheFifth Circuit determined that statutory trebledamages under the Clayton Act aim to compensatethe injured party and are not intended to be"punitive" and, thus, were permitted under theagreement. Id.












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6. Under FAA, Absent a ProcessBreakdown, Only Parties (Not Courts)Select the Arbitrators, and the SelectionIs Not Final and Can Be Challenged Onlyto Mandamus

The Texas Supreme Court was recently facedwith a mandamus proceeding arising out of aparty's challenging the trial court's appointment ofa substitute arbitrator in an FAA arbitration. In reLouisiana Pacific Corp., 972 S.W.2d 63 (Tex.1998). The Court held that, under the FAA, a trialcourt is supposed to get involved in theappointment of arbitrators only when somemechanical breakdown in the arbitrator selectionprocess" occurs or when "one of the parties refusesto comply, thereby delaying arbitrationindefinitely." Id. at 64-65. Because the trial courterred in the appointment of a substitute arbitrator,the Supreme Court granted the mandamusapplication and directed the trial court to vacatethe appointment order.

7. Distinctions Between the FAA and theTexas General Arbitration Act

a. Conditions PrecedentDetermination.

Under the TAA, based upon evidencepresented by the party seeking arbitration, it is upto the trial court to determine whether allconditions precedent have been satisfied so as toallow arbitration to commence; whereas under theFAA, it is the arbitrator who makes thatdetermination. Id. at 823-825; L & L KempwoodAssoc. v. Omega Builders, Inc., 972 S.W.2d 819(Tex. App--Corpus Christi 1998, no pet.); D.Wilson Const. v. Cris Equipment Co., 988 S.W.2d388 (Tex. App. -- Corpus Christi 1999).

b. Interlocutory AppealUnder the Texas Act, a party may appeal the

denial of a Motion to Compel Arbitration througha mandamus action. In re: Halliburton Companyand Brown & Root Energy Services, 45 Tex. Sup.Ct. J. 720 (Tex. May 20, 2002, petn. for rehearingfiled June 18, 2002). Under the FAA, if a trialcourt grants a motion to compel arbitration andthen dismisses the case, the order is final andappealable, whereas if the court grants the motionand stays further court proceedings, then the orderis not final and can be challenged only bymandamus. Green Tree Financial Corp. –Alabama v. Randolph, 121 S.Ct. 513 (2000). The

appellate courts have been instructed toconsolidate proceedings n the rare case where aparty is free to seek arbitration under either theFederal or the Texas Act. Consolidation of theproceedings allows a decision disposing of bothsimultaneously. In re: Valero Energy Corp., 968S.W.2d 916 (Tex.1998); In re: Anaheim AngelsBaseball Club, Inc., 993 S.W.2d 875, 877(Tex.App. – El Paso, 1999)

B. The Texas General Arbitration Act1. 1997 Amendments.

The Texas legislature revised the TexasGeneral Arbitration Act in 1997. Tex. Civ. Prac. &Rem. Code 171.001 et seq. The 1997 revisions didnot significantly alter the prior statute, but didclarify procedural issues related to arbitration. Thebest example are those procedural revisionsregarding expanded discovery and the taking ofdepositions (171.050), which clearly signaled thelegislature's intent to put disputes into anarbitration setting. The 1997 Act also clarified thearbitration subpoena power (171.051) and set forthdetailed provisions regarding the method ofvacating (171.088) or correcting panels' awards(171.054) and appellate issues related thereto.

2. Matters Outside the Scope of the TAA.a. Workers' Compensation benefit

disputes (covered under the Workmen's Compstatute)

b. Collective bargaining agreementdisputes (covered under Texas Labor Code,102.001 - 075).

c. As to arbitration agreements relating topersonal injuries or contracts involvingconsideration less than $50,000.00, the TAA willonly apply if the agreement is in writing andexecuted by both parties and their attorneys.

C. Frequently Litigated Arbitration Issues1. Is There an Agreement to Arbitrate?

The fundamental issue facing most litigateddisputes involving arbitration is determiningwhether there was an agreement between theparties to enter into an agreement to arbitrate. Thecourts have consistently resolved this inquirythrough the application of basic contractprinciples. Circuit City Stores, Inc. v. Curry, 946S.W.2d 486, 488-89 Tex. App. -- Ft. Worth 1997,original proceedings).












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a. Agreement by conduct:In the Halliburton case, the Texas Supreme

Court held that after an employee was notified ofhis employer's arbitration policy, the employee'sfailure to opt out and his continuing to work forthat employer constituted an agreement toarbitrate. In re: Halliburton Company and Brown& Root Energy Services, 45 Tex. Sup. Ct. J. 720(Tex. May 20, 2002, petn. for rehearing filed June18, 2002).

b. Evidentiary ConsiderationsIf the facts are disputed, whether there's an

agreement to arbitrate is determined after the courtconducts an evidentiary hearing. (Corollary: iffacts are not disputed, use of affidavits isappropriate). Jack B. Anglin Co., Inc. v. Tipps, 842S.W.2d 266, 272 (Tex. 1992).

c. Fraudulent inducement defense:The Texas Supreme Court recently held that

claims of fraudulent inducement as to an entirecontract do not constitute a defense to theenforceability of the arbitration clause itself. InRe: First Merit Bank , 52 S.W.3d 749 (Tex. 2001).Only if a party can claim that there was fraud inthe inducement of the arbitration clause itself (andnot inducement as to the entire contract) couldthere be a bar to the enforceability of thearbitration clause. Id.

d. When an arbitration clause isn't anarbitration clause:

A professional baseball player signed astandard Minor League Players Contract whichprovided that any disputes or claims under thecontract were subject to "the Player's rights ofappeal. . .with the Commissioner" [of Baseball]. InRe Anaheim Angels Baseball Club, Inc., 993S.W.2d 875 (Tex. App. -- El Paso 1999, mand.den.). Even though the El Paso Court of Appealsheld that the agreement was subject to the FederalArbitration Act because it involved interstatecommerce, the subject clause was held not to be anarbitration clause since it made no mention ofarbitration, but only a right of appeal to theCommissioner, such that the player was entitled tolitigate his claims arising out of the team's allegedfailure to provide adequate medical care. Id.

e. Arbitration agreements may bindnon-parties to the contract..

The Texas Supreme Court recently heldthat where a married couple received a mobilehome as a gift from parents, though the purchaseagreement containing the arbitration agreementwas not signed by the donees, nonetheless theywere bound as third party beneficiaries of theagreement. In Re: Merit Bank , 52 S.W.3rd 749(Tex. 2001). Both Austin and the Waco Courts ofAppeals recently enforced an arbitrationagreement in a situation where the party (a wife)resisting arbitration had not signed the subjectcontract to purchase a mobile home, because shewas deemed to be a third party beneficiary of theagreement which was signed by her husband.Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d518 (Tex.App. - Austin 1998, no pet.); In Re :Rangel, 45 S.W.3d 783 (Tex. App. – Waco 2001,no pet.).

f. Agreement to arbitrate must be statedwith certainty.

The intentions to have an arbitration agreementmust be expressed with certainty. Where acompany handbook stated that its contents were"guidelines", and were "not intended to constitutea legal contact with any employee," a statement inthe handbook stating the company's preference forarbitration to resolve disputes with its employeesdid not create an enforceable contract requiring thecompany to arbitrate. Tenet Healthcare Ltd. v.Cooper, 960 S.W.2d 386 (Tex. App. -- Houston[14th] 1997, pet. dism'd w.o j.).

As further proof of the need to express a clearintent to arbitrate, in the case of In re ACG CottonMarketing, L.L.C., 985 S.W.2d 632 (Ct. App. --Amarillo 1999, no pet), the Amarillo Court ofAppeals held that merely providing that certainassociation rules were incorporated into thecontract (where such rules provided for thepossibility of arbitration when both sides consentto it), without saying anything more about anintention to arbitrate, does not create an arbitrationprovision.

However, the Austin Court of Appeals hasrecently held that an arbitration clause may beenforceable when it is incorporated into a contractby reference. Teal Construction Co. v. DarrenCasey Interests, Inc., 46 S.W.3d 417 (Tex.App.-Austin, 2001).













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2. Is the Arbitration AgreementUnconscionable?

a. Substantive and proceduralunconscionability.

The Texas Supreme Court recently determinedthat in evaluating whether an arbitration clause isunconscionable, a Court should look at whether itis either procedurally or substantivelyunconscionable. In re: Halliburton Company andBrown & Root Energy Services, 45 Tex. Sup. Ct.J. 720 (Tex. May 20, 2002, petn. for rehearingfiled June 18, 2002). Procedural unconscionabilityrefers to the circumstances surrounding theadoption of the arbitration provision whereassubstantive unconscionability refers to the fairnessof the arbitration provision itself. Id.

b. Allocation of costs impact onunconscionability

The United States Supreme Court recentlyexamined the issue of when an arbitrationagreement is silent on the question of arbitrationcosts, does that make the agreement unenforceablebecause one party may find the costs prohibitive?Green Tree Financial Corp v. Randolph, 121 S.Ct.513 (2000). In the Green Tree case, the SupremeCourt held that the party challengingenforceability bears the burden of proof, and, inthat case, the party failed to carry its burden byfailing to offer any evidence that the costs wereprohibitive. An arbitration agreement's silence andthe risks that the costs may be prohibitive are "toospeculative to justify the invalidation of anarbitration agreement".

Though no Texas courts have addressed theissue yet, a good way for an employee to challengethe enforceability of an arbitration provision is tochallenge its burdensomeness as beingunconscionable when, for example, it

(i) requires the employee to pay the costsof the arbitrator. Davis v. LPK Corp., 1998 U.S.Dist. LEXIS 3504 (N.D. Cal. 1998); Shankle v.B-G Maintenance Management of Colorado, 163F.3d 1230 (10th Cir. 1999); Cole v. BurnsInternational Security Services, 105 F.3d 1465(D.C. Cir.1997);

(ii) imposes an arbitration fee perceivedto be excessive. Brower v. Gateway 2000, Inc.,246 A.D. 2d 246, 676 NYS 2d 569 (N.Y.A.D. 1stDept. - 1998).

(iii) causes the employee to forfeit hisright to recover his attorneys' fees and costs if heprevails. Maciejewski v. Alpha Systems Lab, Inc.,99 C.D.O.S. 6312 (Cal. App. Ct. 1999); or

(iv) though it is not unenforceable justbecause it is silent on the question of responsibilityfor fees. Green Tree Financial Corp. v. Randolph,531 U.S. 79 (2000).

c. Unconscionability determined byarbitrator in FAA cases.

Consistent with the holding in the Kempwoodcase, (972 S.W.2d 819, supra), in arbitration casesgoverned by the FAA, it is the arbitrator (and,therefore, not the trial judge) who is to considerclaims regarding the unconscionability of anarbitration agreement. In re Foster Mold, Inc., 979S.W.2d 665 (Tex-App. -- El Paso 1998, orig.proceeding); In Re: Rangel, 45 S.W.3d 783 (Tex.App.—Waco 2001, no pet.).

d. Unconscionability decided by judge inTAA cases.

e. Where the complaint to arbitration isprocedural unconscionability that relates to theactual making or the inducement which caused aparty to enter into the arbitration agreement, thenthose unconscionability issues are for the court andnot the arbitrator. In re Oakwood Mobile Homes,Inc., 987 S.W.2d 571 (Tex. 1999).

f. Unconscionability based on ignoranceof contract's terms.

As for published Texas opinions on the"unconscionability" of arbitration agreements, theargument almost always fails if it is based on oneparty's ignorance of the arbitration agreement'sterms. EZPawn Corp. v. Mancias, 934 S.W.2d 87,90 (Tex. 1996). In the EZ Pawn case, the plaintiffclaimed that he should not be forced to arbitratehis wrongful discharge and employmentdiscrimination claims against his employerbecause he did not actually read his arbitrationagreement before signing it and did not understandits effect. The Texas Supreme Court rejected thisargument, citing the well-established rule incontract law that a party who has had anopportunity to read a contract, as did the plaintiff,and signs it, is presumed to know its contents.However, in the case of In re Turner BrothersTrucking Company, Inc., 8 S.W.3d 370, 375-76(Tex. Appeals - Texarkana 1999, pet. req.) theTexarkana Court of Appeals found an agreement















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to arbitrate to be unconscionable based onevidence that the employee signing the agreementwas illiterate and the employers presenting thearbitration agreement did not explain it to theemployee.

Thus, it appears that as long as the due processrequirements of notice and the opportunity tounderstand one's rights are present, the arbitrationagreement will be upheld and not set aside ongrounds of unconscionability.

3. What is the Scope of the ArbitrationAgreement?

a. Meeting of the minds.Claims relating to the scope of the agreement

are also grounded in traditional contractconstruction principles. The inquiry must bewhether the parties agreed at the time they enteredinto the contract that the claim would be subject toarbitration. If the FAA governs, any doubts aboutwhether the claims fall within the scope of thearbitration are resolved in favor of arbitration.Moses H. Cohen Memorial Hospital v. MercuryConstruction Company, 460 US 1, 24-25 (1983).

b. No vague references to disputes to bearbitrated.

The drafter of an arbitration agreement mustavoid vague references to arbitration of anundefined category of claims since such vaguenessmay push a particular claim outside of the dispute.Shearson Lehman Hutton, Inc. v. Tucker, 806S.W.2d 914, 919–20 (Tex. Appeals - CorpusChristi 1991, writ dismissed). If the arbitrationprovision in a contract says that it covers "alldisputes arising out of this agreement," that coversnot only contract claims, but also fraudulent ininducement claims, (Prima Paint Corp. v. Flood &Conklin Mfg. Co., 388 U.S. 395, 398 (1967)),antitrust claims arising from the contract,(Mitsubishi Motors Corp. v. Soler Chrysler -Plymouth, Inc., 473 U.S. 614 (1985)), defamationand DTPA claims factually intertwined with thecontract (Prudential Sec., Inc. v. Marshall, 909S.W.2d 896 (Tex. 1995)), and tortuousinterference and infliction of distress claims(American Employers Ins. Co., v. Aiken, 942S.W.2d 156 (Tex. App. --Ft. Worth 1997, nowrit)).

4. Does the Arbitration Agreement Need tobe Supported by Consideration?

Employees seeking to avoid an arbitrationagreement may contend that no considerationsupports the agreement because the employee is atwill. As a general rule, this does not preventparties from entering into a binding arbitrationagreement notwithstanding the at-will employmentdoctrine. In Re Alamo Lumber Co., 23 S.W.3d 577(Tex. App.--San Antonio, 2000, req. fordiscretionary review den.); Burlington N.RR,Company v. Akpan, 943 S.W.2d 48, 52 (Tex.Appeals -- Ft. Worth 1996, no writ).

5. Has Either Party Waived its Right toArbitrate or Compel Arbitration?

a. The Austin Court of Appeals in theNationwide of Bryan, Inc. v. Dyer, 969 S.W.2d518 (Tex. App. -- Austin, 1998, no pet.), addressedthe claim that arbitration rights had been allegedlywaived by reason of the moving party's engagingin pre-litigation negotiations and failing to file amotion to compel arbitration until two monthsafter the suit was filed. In rejecting the waiverclaim, under Texas common law, the Court heldthat waiver of arbitration rights takes place onlywhen a party makes "a specific and deliberate actafter suit is filed that is inconsistent with its rightto arbitrate, such as engaging in extensivediscovery or requesting a jury." Id. at 522.

b. Shortly after the Austin Court ofAppeals came down with its holding in theNationwide of Bryan case, the Texas SupremeCourt shed additional light on the issue ofarbitration waiver under the Federal ArbitrationAct. In re Bruce Terminex Co., 988 S.W.2d 702(Tex. 1998). In the Bruce Terminix case, the Courtheld that in light of the fact that "the FAAdisfavors waiver, and that there is a strongpresumption against waiver," the party seeking tocompel arbitration did not substantially invoke thejudicial process to its opponent's detriment bypropounding one set of eighteen interrogatoriesand one set of nineteen requests for production ofdocuments prior to seeking arbitration.

In addition, the Supreme Court held thatwhere it is the defendant who is the party seekingarbitration, it does not waive its rights by failing toinitiate the arbitration proceedings after the trialcourt granted its motion to compel arbitration,because it is always the plaintiff's burden to go















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forward with commencing arbitration, absent acontrary agreement between the parties.

c. Following on the heels of the BruceTerminix case, the San Antonio Court of Appealsheld that there could be no finding of a waiver ofthe right to arbitrate where a party maintained aconsistent litigation position of attempting to getthe litigation abated and have the disputearbitrated, even if that party had not satisfied theconditions precedent required to get to arbitrationas set forth in the subject contract. In re WeeklyHomes, 985 S.W.2d 111 (Tex.App. -- San Antonio1998, no pet.).

d. If a party files a motion to compelarbitration promptly, his failure to bring it to thecourt's attention while he participates in discoveryand a temporary injunction hearing does notconstitute a waiver of his arbitration rights. Mennav. Romero, 48 S.W.3d 247 (Tex.App. -- SanAntonio 2001, dism'd w.o.j.).

e. When a court is presented with amotion to compel arbitration, it must address itpromptly and cannot delay ruling on it pendingdiscovery, In re MHI Partnership, Ltd., 7 S.W.3d918 (Tex. App.--Houston [1st District] 1999 nopet.).

f. There is no waiver of a party's right toarbitrate if he participates in a mediation orderedby the trial court. In re Certain Underwriters ofLloyd's, 18 S.W.3d 867 (Tex. App. -- Beaumont2000, no pet.).

g. There is no waiver of the right toarbitrate when the parties engage in extensivelitigation discovery and litigate a motion forsummary judgment, if there is no showing ofprejudice that those activities are beyond the scopeof what would have been covered in the course ofthe arbitration. Pennzoil Co. et al v. Arnold OilCo., 30 S.W. 3d 494 (Tex. App. -- San Antonio2000, no pet.).

6. Does the Arbitration Procedure ViolateDue Process?

One criticism of the arbitration process is basedupon the alleged weakness of the procedures andthe deprivation of a jury trial. Although the UnitedStates Supreme Court rejected a number of thesechallenges in the case of Gilmore v. InterstateJohnson Lane Corporation, 500 U.S. 20 (1991),the court's decision has sparked numerousassociation rules (including the New York StockExchange) to become focused on procedural

fairness. The American Bar Association's Sectionon Labor and Employment Law, the NationalEmployment Lawyers Association, the AmericanArbitration and the National Academy ofArbitrators have all endorsed a due processprotocol for employment arbitration. Thefollowing due process safeguards have beenrecommended:

(a) Employees be allowed tochoose their own representatives.

(b) Arbitrators have the authorityto award representation feesin the interest justice.

(c) Employers should considerpaying representation costs for lower paidemployees.

(d) Adequate but limited pretrialdiscovery.

(e) Prehearing depositions on anexpedited basis.

(f) Arbitrators should provideparties with six of their most recent decisions toaid in the selection process.

(g) Arbitrators have specifictraining in employment law (or applicable area ofthe dispute).

(h) A list of procedure forselection of arbitrators giving each party equalnumber of strikes.

(i) Arbitrator's award should bebinding with limited scope of review.

(j) Arbitrator should issue awritten opinion explaining the arbitrator's decision.

In 1997, the ABA's policymaking Houses of Delegatesapproved certain due process standards for mediation andarbitration of statutory employment disputes, including thefollowing:

1. Employee should have the right to berepresented by a person of their choice.

2. The fee for that representation shouldbe determined by agreement between theemployee and the representative, but the arbitrator









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should have authority to provide feereimbursement by the employer as part of theremedy.

3. Employee should have access to allinformation reasonably relevant to mediationand/or arbitration of their claims.

4. A roster of the available arbitratorsand mediators with experience in employmentmatters should be established. Training should beprovided by government agencies, bar associationsand academic institutions acting under theauspices of a designating agency such as theAmerican Arbitration Association. Mediators andarbitrators should be selected using a listprocedure with certain number of strikes availableto both parties.

5. Arbitrator's awards should be finaland binding and the scope of review should belimited.

7. Under What Circumstances Should anArbitration Award be Vacated?

a. Texas Arbitration ActUnder the Texas General Arbitration Act,

TEX. CIV. PRAC. & REM. CODE 171.014,arbitration awards shall be vacated where:

(1) the award was obtained bycorruption, fraud, or other undue means;

(2) the rights of a party wereprejudiced by:

(a) evident partiality by anarbitrator appointed as a neutral arbitrator;

(b) corruption in an arbitrator;

(c) misconduct or willfulmisbehavior of an arbitrator;

(3) the arbitrators:

(a) exceeded their powers;

(b) refused to postpone the hearingafter a showing of sufficient cause for thepostponement;

(c) refused to hear evidencematerial to the controversy; or

(d) conducted the hearing,contrary to Section 171.043, 171.044, 171.045,

171.046, or 171.047, in a manner that substantiallyprejudiced the rights of a party; or

(4) there was no agreement toarbitrate, the issue was not adversely determinedin a proceeding under Subchapter B, and the partydid not participate in the arbitration heatingwithout raising the objection.

b. Federal Arbitration ActGrounds for vacating an award under the

Federal Arbitration Act, 9 U.S.C. 10, are thefollowing:

(1) Where the award was procured bycorruption, fraud, or undue means.

(2) Where there was evident partialityor corruption in the arbitrators, or either of them.

(3) Where the arbitrators were guiltyof misconduct in refusing to postpone the hearing,upon sufficient cause shown, or in refusing to hearevidence pertinent and material to the controversy;or of any other misbehavior by which the rights ofany party have been prejudiced.

(4) Where the arbitrators exceededtheir powers, or so imperfectly executed them thata mutual, final, and definite award upon thesubject matter submitted was not made.

(5) Where an award is vacated and thetime within which the agreement required theaward to be made has not expired, the court may,in its discretion, direct a rehearing by thearbitrators.

c. Evident PartialityIn a case where there was intended to be a

neutral arbitrator, there is "evident partiality"under 171.014 Tex. Civ. Prac. & Rem. Code, as amatter of law, thereby automatically invalidatingthe arbitration ruling, when that neutral, during thependency of the arbitration proceedings, wasretained as litigation counsel (so as to be in aposition to earn a substantial fee) in a separate,unrelated matter at the recommendation of thearbitration defendant's law firm, and the neutralfailed to disclose such to the parties. BurlingtonNorthern Ry. Co. v. TUCO, Inc., 960 S.W.2d 629(Tex. 1997). The trial court granted summary



9

judgment that, as a matter of law, there wasnothing in the facts which "might reasonablycreate an appearance of partiality or bias." TheAmarillo Court of Appeals reversed, holding thatthere was a fact issue on the neutral's "evidentpartiality," and remanded the case for trial. TheTexas Supreme Court then modified the Court ofAppeals' opinion and found "evident partiality" asa matter of law and directed that the case be sentback to the trial court with instructions to vacatethe arbitration award. Justices Enoch, Spector,and Abbott dissented from the majority opinionauthored by Chief Justice Phillips.

The Corpus Christi Court of Appeals has alsorecently spoken to the subject of an arbitrator's"evident partiality" in the case of Int'l Bank ofCommerce-Brownsville v. Int'1 Energy Dev.Corp., 981 S.W.2d 38 (Tex. App. -- Corpus Christi1998, reh. den.). In that case, in which the subjectcontract had a provision that the FederalArbitration Agreement would govern theproceedings, the pertinent "evident partiality" factswere that a party (which was a bank) argued thatan arbitration award should be vacated becauseone of the neutral arbitrators:

(i) had a close friendship with a lawyerfor the non-complaining party; and

(ii) failed to disclose that he had been thesubject of a federal grand juryinvestigation nineteen years before thearbitration involving his dealings withbanks which allegedly made himprejudiced toward banks.

The trial court held and the court ofappeals affirmed that such facts did not provide asufficient basis for a determination that there was"evident partiality" in the challenged arbitrator.The Corpus Christi Court of Appeals noted thatthere were no Fifth Circuit cases addressing thepertinent considerations for evaluating whether anarbitrator had "evident partiality" under the FAA,and then looked at Texas case law for precedentthat in order for there to be "evident partiality", thequestioned relationship "must be ongoing anddirect rather than speculative and remote."

Recently, the Houston Court of Appeals lookedat the "evident partiality" issue in TexasCommerce Bank v. Univ. Tech. Inst., 985 S.W.2d678 (Tex. App. - Houston [1st Dist.] 1999, dism'dw.o.j.), and held that an arbitration award (in favor

of TCB) should be vacated where one of theneutral arbitrators had represented TCB in alawsuit involving a $1.5 million claim whichpreceded the arbitration by six years.

Most recently, the "evident partiality" issuearose in Bossley v. Mariner Financial Group Inc.,11 S.W.3d. 349 (Tex. App. Houston [1st Dist.]2000), aff'd 45 Tex. Sup. Ct. J. 815 (June 13,2002). In the Bossley case, one of the plaintiff'skey witnesses had been a witness in an earliermalpractice suit against the neutral arbitrator. Theneutral arbitrator ruled in favor of the defendantsbefore the discovery of the prior transactioninvolving the key witness was discovered. Theplaintiff then sued to vacate the arbitration awardbased on "evident partiality". Given that a list ofthe parties and their witnesses was provided to thearbitrator before the proceedings commenced, andin the prior case, the witness had testified as anexpert that the neutral arbitrator had committedmalpractice in seven different ways, it wasreversible error for the arbitration award to beenforced.

d. State Law: Where There's Been an"Evident Miscalculation of Figures"

The Tyler Court of Appeals faced an attempt tochallenge an arbitration award on the ground thatit contained an "evident miscalculation of figures,"(Tex. Civ. Prac. & Rem. Code under 171.015(a))and rejected such challenge where the award was"rationally infer able from the facts before thearbitrator," and was "within the range establishedby the testimony." Vernon E. Falconer, Inc. v.H.I., Ltd. Partnership, 970 S.W.2d 36 (Tex. App.-- Tyler 1998, no pet).

e. State Law: Where Arbitrator ExceedsPowers

The El Paso Court of Appeals vacated anarbitration award on the basis that the arbitratorhad exceeded his authority where he ordered ElPaso County to pay a former employee's unusedsick leave in violation of Article III, 53 of theTexas Constitution which limits extracompensation to county employees. Lee v. El PasoCounty, 965 S.W.2d 668 (Tex. App. -- El Paso1998, pet. denied).

he Court of Appeals first noted the basicpremise handed down by the United StatesSupreme Court in W.R. Grace & Co., 461 U.S.757, 766 (1983), that courts are to substitute theirown judgment for that of an arbitrator if thearbitration award, left unchanged, would violate









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public policy. Because any award in contraventionof the State Constitution would clearly be inviolation of public policy, the award was vacated.

f. Federal Law:As of 12/6/99, the Fifth Circuit now has joined

the other courts of appeals which allow anarbitration award to be vacated when arbitratorshave acted in "manifest disregard of the law," andthe award results in significant injustice to thelosing party. Williams v. Cigna FinancialAdvisors, 197 F.3d 753 (5th Cir. 1999),cert.denied, 120 S.Ct. 1833, 146 L.Ed.2d 777(2000)

8. When Can a Party Appeal an AdverseRuling on Arbitrability?

a. If arbitration request is under TAA,losing party has interlocutory appeal right when (i)motion to compel denied or (ii) arbitration stayed.Tex. Civ. Prac. & Rem. Code. 171.017.

b. In state court, if arbitration request isunder FAA, under same circumstances as a 8.a.above, losing party must file mandamusproceeding, Cantella & Co., Inc. v. Goodwin, 924S.W.2d 943 (Tex. 1996).

c. In a case where a party in state courtmoves to compel arbitration under both the TexasGeneral Arbitration Act (Tex. Civ. Prac. & Rem.Code 171.001-.098) and the FAA (9 U.S.C. 1-16),and the trial court denies the right to arbitrate, theparty's remedies are (i) to pursue mandamusreview to the appellate court under the FAA, and(ii) to pursue an interlocutory appeal to theappellate court under the TAA (Tex. Civ. Prac. &Rem. Code 171.098). In re Valero Energy Corp.,968 S.W.2d 916 (Tex. 1998); In re AnaheimAngels Baseball Club, Inc., 993 S.W.2d 875, 877(Tex. App. -- El Paso 1999, mand. den.).

The Supreme Court in the Valero case held thata court of appeals which finds itself in this positionof addressing a FAA mandamus proceeding and aTAA interlocutory appeal should consolidate thetwo proceedings and then render one decisiondisposing of both issues simultaneously. Id. at 917.

d. If arbitration request is under TAA,after motion to compel is granted: losing party hasno right to interlocutory appeal (Tex. Civ. Prac. &Rem. Code 171.017) or to mandamus proceeding.McMullen v. Yates, 697 S.W.2d 500 (Tex.App. --San Antonio 1985, no writ).

e. In state court, if an arbitration requestis under the FAA, after motion to compel isgranted, losing party has no right to interlocutoryappeal, Gathe v. Cigra Healthcare of Texas, Inc.,879 S.W.2d 360 (Tex. App. -- Houston [14thDist.] 1994, writ denied), but may bring amandamus proceeding. Solis v. Evans, 951 S.W.2d44 (Tex. App.--Corpus Christi 1997, no writ).

f. In federal court (i) if motion to compelarbitration is denied, party can pursueinterlocutory appeal. 9 U.S.E. 16; (ii) if motion tocompel arbitration is granted, and order is finalsuch that the court has nothing left to do, thenorder is appealable ; and if motion to compelarbitration is granted, and is not a final order,losing party may bring mandamus proceeding.Green Tree Financial Corp. – Alabama v.Randolph, 513 U.S. 79 (2000).

9. Miscellaneous New Arbitration Issues:a. Enforceability of Arbitration Provision

in Repudiated Contract:A favored tactic in attempting to avoid

arbitration is to claim that the party seeking toarbitrate under a contract has lost his right toenforce the arbitration provision by reason of hishaving repudiated and/or anticipatorily breachedthe subject contract. In 1998, the Texarkana Courtof Appeals was faced with prior conflictingopinions on this issue. Contrast, Miller v. PuritanFashions Corp., 516 S.W.2d 234 (Tex. Civ. App. -Waco, 1974, writ ref'd n.r.e.) and Pepe Intl Dev.Co. v. Pub Brewing Co., 915 S.W.2d 925, 932(Tex.App. - Houston [1st Dist.] 1996, no writ).

The Texarkana Court favored the holding in thePepe case and held that arbitration agreementsmade under the Texas arbitration statute areenforceable and irrevocable in spite of attacksmade upon the contract as a whole. DallasCardiology Associates v. Mallick, 978 S.W.2d 209(Tex.App. -- Texarkana 1998,pet. den.).

b. Supreme Court Jurisdiction to HearArbitration Disputes

In September 1998, the Texas Supreme Courtdismissed an application for writ of error for lackof jurisdiction in a situation where the trial courthad denied a motion to compel arbitration, theappellant had pursued his right to an interlocutoryappeal to the Tyler Court of Appeals (found at 950S.W.2d 375), and, losing there, tried to get to theSupreme Court. Certain Underwriters at Lloyd's of


















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London v. Celebrity, Inc., 988 S.W.2d 731 (Tex.1998).

The Supreme Court held that it had nojurisdiction to consider the case, under22.225(b)(3) of the Texas Government Code andunder the Texas Arbitration Act (Tex. Civ. Prac. &Rem. Code 177.098(b)), because there was nodissenting opinion from the court of appeals andno conflicting decisions from two or more courtsof appeals on the subject issue. Petitioners'argument that he was entitled to be heard by theSupreme Court because the Tyler Court ofAppeals' opinion was in conflict with the generalstatewide policy favoring arbitration fell on deafears.

c. Securities Dealer Required to ArbitrateTitle VII Discrimination Claim --Employee Clearly Waived Right toLitigate

The Fifth Circuit was recently faced with anon-traditional scenario whereby a securitiesbroker, licensed by the NASD, who in hissecurities license application agreed to arbitrateany dispute with his firm, found himself wantingto pursue litigation on his Title VII employmentdiscrimination claim (because he had beenallegedly wrongfully terminated after blowing thewhistle on some sexual harassment activities).Mouton v. Metropolitan Life Ins. Co., 147 F.3d453 (5th Cir. 1998). The Fifth Circuit reversed thetrial court and determined that the arbitrationclause should be read broadly to include the TitleVII claims, and did not fall within the exception tocompulsory arbitration as a "dispute involving theinsurance business of any member which is also aninsurance company." The Court held that theplaintiff's Title VII claims involved defendant'sobligations as an employer rather than an insurer,such that the insurance business exception had noapplication. The Fifth Circuit follows the majorityrule on this issue, with the Ninth Circuit in theminority. Duffield v. Robertson Stephens & Co.,144 F.3d 1182 (9th Cir.), cert. den., 525 U.S. 982(1998).

d. In Collective Bargaining AgreementWhere Union NegotiatedComprehensive Arbitration Provision,Employee Not Bound, and CanLitigate Title VII Claims.

The situation causing the enforceability of thearbitration provision in the Mouton case does notexist where the provision was not agreed to by the

employee, but by a union on behalf of anemployee, in a collective bargaining agreement.Then, the employee may litigate (and, thus, not becompelled to arbitrate) his Title VII claims.McCormick v. El Paso Electric Co., et al. 996S.W.2d 241 (Ct. App.-- El Paso 1999, no pet.).

e. Enforceability of ArbitrationAgreements In Bankruptcy Court

The issue frequently arises whether arbitrationagreements are enforceable in cases involvingentities in bankruptcy. The Fifth Circuitestablished the law in this jurisdiction on thissubject in Matter of Nat'1 Gypsum Co., 118 F.3d1056 (5th Cir. 1997).

In the National Gypsum case, NGC was aChapter 11 debtor and was attempting to avoidarbitration proceedings initiated by its liabilityinsurance carrier ("INA") which had defendedNGC in a number of asbestos lawsuits. TheBankruptcy Court, Judge Solis , and the FifthCircuit all agreed that when a dispute is a "core"bankruptcy matter, then the Bankruptcy Court hasthe discretion to refuse to order arbitration of suchdisputes when it determines that permittingarbitration would be in conflict with the purposesof the Bankruptcy Code. Thus, the question doesnot get answered merely by a determination ofwhether a dispute is "core" or "non-core," butwhether its resolution in arbitration wouldspecifically conflict "with the textual provisionsand/or purposes of the Bankruptcy Code." Id., at1067.

Bankruptcy Judge Donald Sharp of the EasternDistrict of Texas then followed the Fifth Circuit'sholding in the case of In re Harold W. Bailey, II;Harold W. Bailey, II v. Sorenson Laboratories,Inc., 217 B.R. 523 (Bank. E.D. Tex. 1997).

f. Federal Courts Aren't Empowered toAssist Parties in International Arbitrations WithDiscovery

Although Congress has empowered federalcourts to have jurisdiction to provide assistance ondiscovery matters to parties litigating judicialproceedings in foreign countries, 28 U.S.C. 1782,this does not extend to providing assistance ondiscovery matters to parties engaged ininternational arbitrations. Republic of Kazakhstanv. Biedermann Intern., 168 F.3d 880 (5th Cir.1999).

g. Arbitration of Magnuson-MossWarranty Claims










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Under warranty claim asserted underMagnuson-Moss Warranty Act, the parties to anagreement can impose binding arbitration into aconsumer product warranty agreement. In Re:American Homestar of Lancaster, Inc., 50 S.W.3d480 (Tex. 2001).

h. Normally No Arbitration of DisputesOver Continent Fee Contracts

Except under specifically definedcircumstances, a contingent fee contract for legalservices cannot have an enforceable arbitrationprovision, under 171.002(a)(3) of the TexasArbitration Act. A legal malpractice claim is apersonal injury action. In re: Pamela Godt, 28S.W.3d 732 (Tex. App. -- Corpus Christi 2000, nopet.). The TAA does not apply to a claim forpersonal injury unless (i) each party to the claim,on the advice of counsel, agrees in writing toarbitrate; and (ii) the agreement is signed by eachparty and each party's attorney. Id. Where theparty who signed the contingent fee agreement asclient was not acting on the advice of counselwhen she signed the agreement, then the TAAdoes not apply, and the arbitration provision is notenforceable. Id.

i. Non-Parties to an ArbitrationProceeding May be Barred fromBringing Suit by Res Judicata Based onWhat Occurred at Arbitration.

j. Arbitration can be appropriatemechanism for resolving validity of mechanics'liens.

The Houston Court of Appeals (1st Dist.)recently rejected a claim that the validity ofmechanics' liens can only by evaluated inaccordance with Texas Property Code§53.160(e)(2), where the parties on the front endof their agreement had provided for resolving theirdisputes by arbitration Dalton Contractors, Inc.v. Bryan Autumn Woods Ltd. 60 S.W.3d 351,(Tex.App.—Houston [1st Dist.], 2001, no pet.).

If one party who participates in an arbitrationhas the same interest at stake as a non-party wholater decides to pursue litigation over the sameissue that was the subject of the arbitration, thenthe non-party to the arbitration may be barred byres judicata. Daic, et al v. Nauru PhosphateRoyalties (Texas) Inc., 27 S.W.3d 695 (Tex. App.-- Beaumont 2000, pet. den.).

II. MEDIATION ISSUESA. Objection to Court Ordered Mediation

1. When a litigator gets ordered intomediation, and believes it will be a waste of time,he should object to the Order within ten (10) daysafter receiving notice of the Order. § 154.022 Tex.Civ. Prac. Rem. Code.

2. Although a party ordered to mediate isnot required to mediate in good faith (Decker v.Lindsay, 824 S.W.2d 247 (Tex.App. -- Houston[1st Dist.] 1992, no writ), and a mediation orderthat requires a party to mediate in good faith isvoid (Texas Parks and Wildlife Dept. v. Davis, 988S.W.2d 370 (Tex. App. - Austin 1999), no pet.); InRe Relator Acceptance Insurance Company, 33S.W.3d 443 (Tex. App.--Ft. Worth, 2000, no pet.),if a party anticipates that he will be attending themediation (per the Court's Order) but does not planto negotiate in good faith, then he must file his154.022 Objection to Mediation on a timely basisor else he can be sanctioned under TRCP 141 forthe court costs, attorneys' fees, and mediator's feesincurred in connection with the unsuccessfulmediation. Texas Dept. of Transp. v. Pirtle, 977S.W.2d 657 (Tex. App. -- Fort Worth 1998, pet.denied).

3. Where a party who does not want tomediate files a timely (but rejected) objection to acourt-ordered mediation, his only downside risk ispotential liability for the mediator's fee which istaxable as court costs in the final judgment againstan unsuccessful litigating party. Texas Parks andWildlife Dept. v. Davis, 988 S.W.2d 370, 376(Tex.App. -- Austin 1999, no pet.)

B. Confidentiality Erosion1. No Absolute Mediation Confidentiality or

Privilege.a. Balancing of confidentiality vs public

"need to know" policy--§154.073(e) ofTexas Civil Practice & RemediesCode.

Although the manner in which participantsnegotiate should not be disclosed to the trial courtin accordance with 154.073(a) In Re: RelatorAcceptance Insurance Co., No. 33 S.W.3d 443(Tex.App.-Ft. Worth 2000, no pet.); Texas Parks& Wildlife Dept. v. Davis, 988 S.W.2d 370, 375(Tex.App.-Austin 1999, no pet.); and Williams v.State, 770 S.W.2d 948, 949 (Tex.App. - Houston[1st Dist] 1989, no pet), there is a caveat to this



















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general rule in the statute. 154.073(e), Tex. Civ.Prac. & Rem. Code, provides for the trial court'spresiding over an in camera proceeding todetermine whether the duty to disclose informationas a matter of public policy (such as for a fiduciaryto disclose information to his beneficiary) is moreimportant to the interests of justice than the duty tomaintain the confidentiality of mediationcommunications. If the public policy favoringdisclosure in a particular circumstance outweighsthe public policy of mediation confidentiality, thejudge may order that testimony be admitted andthe confidentiality of the mediationcommunications will not be honored.

The Dallas Court of Appeals recently becamethe first Texas appellate court to interpret thespecifics of the balancing contest created under §154.073(e) of the Civil Practice and RemediesCode. Avary v. Bank of America, N.A., 72 S.W.3rd

779 (Tex. App. Dallas 2002, petition for reviewpending). In the Avary case, the Court of Appealsaffirmed the trial court's ruling that a Bank'sfiduciary obligation to disclose materialinformation to its beneficiary was a "legalrequirement for disclosure" that, as a public policymatter, outweighed the importance of maintainingmediation confidentiality. The Court of Appealsthen reversed the trial court and held thatdiscovery should have been permitted not only asto the Bank's fiduciary witness who had attendedthe mediation, but also the trial court should havepermitted discovery of other persons present at themediation (Ms. Avary's own lawyer and counselfor the defendant in the prior suit in which themediation had taken place). Even though Avarydid not specifically request an in-camera hearingto determine the appropriateness of whetherAvary's lawyer and/or the prior litigationdefendant's lawyer should be deposed, the DallasCourt of Appeals held that it was error for the trialcourt to have failed to conduct the in-camerahearing on the Court's own Motion. The Courtalso found error in the trial court's entering ablanket order restricting additional discoverybeyond the deposition of the Bank fiduciary'srepresentative. Bank of America is still waiting onits Petition for Review which was filed with theTexas Supreme Court on June 19, 2002.

A trial court's refusal to conduct an in camerahearing upon request is an abuse of discretion. InRe: Relators Acceptance Insurance Company,supra. Furthermore, videotape materials composed

of an attorney questioning fact witnesses) preparedexclusively for use at a mediation are subsequentlydiscoverable because "mediation activities do notprovide a blanket protection" for all materialsused. In re: Learjet, Inc., 59 S.W.3d 842(Tex.App.—Texarkana, Nov. 15, 2001, mand.dism'd).

b. No confidentiality for victim-offendermediations.

Tex. Atty. Gen. Ordinance 659 (1999) providesthat a mediation conducted between a victim andan offender by the Texas Department of CriminalJustice does not qualify as a mediation forpurposes of Chapter 154 of the Texas CivilPractice and Remedies Code, such that thesemediation communications are not consideredconfidential, since the purpose of the mediation isto accomplish some form of healing rather thanresolve a dispute.

c. Federal court limitations orconfidentiality.

In the federal courts in Texas, there is nomediation "privilege," but rather communicationsat a mediation are "confidential," but suchconfidentiality can be set aside to prove fraud,duress, coercion, or mutual mistake. F.D.I.C. v.White, 76 F.Supp. 2d 736, 738, (N.D.Tex. 1999).In the White case, over the F.D.I.C.'s objection, thecourt considered the affidavit testimony of theparties and their attorneys regarding the F.D.I.C.'sallegedly threatening criminal prosecution during amediation in order to pressure White to settle.Magistrate Kaplan considered the affidavittestimony reflecting the statements made at themediation, but then held that there was no duressor coercion, and proceeded to enforce themediation settlement agreement.

d. Grand jury issues.In federal court, a grand jury subpoena may

control over a claim of mediation confidentiality.Magistrate Kaplan's holding in the White case thatthere is no mediation privilege in federal courts isconsistent with a recent Fifth Circuit holding thatdocuments exchanged during confidentialmediation proceedings (over 600 mediations in all)which took place under the Texas AgriculturalMediation Program, a state program that receivesfederal funding under the Federal AgriculturalCredit Act ("ACA"), are available to be


http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_distctopinions&volume=76&edition=F.Supp.2d&page=736&id=17781_01


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subpoenaed by a federal grand jury, such that thereis no federal mediation privilege. In re Grand JurySubpoena, 148 F.3d 487 (5th Cir.1998).

In the Grand Jury case, supra, the Fifth Circuitdetermined that neither the Texas ADR statute(Tex. Civ. Prac. & Rem. Code 154.001 et seq.),nor the federal Alternative Dispute Resolution Act(5 U.S.C. 571, et seq), had any application towhether the prior mediation was confidential, eventhough the parties had agreed in writing that theTexas ADR Statute would apply and that themediation communications would remainconfidential; rather the case went off on thecongressional intent behind the ACA and, inparticular, whether the Act was intended to createa mediation privilege. Though the ACA does statethat mediation material shall be "confidential",because of the secrecy in the grand juryproceedings, the Fifth Circuit held that the"confidentiality" of the mediation documentswould be preserved even if passed on to the grandjury.

e. Uniform Mediation Act Draft of LessComprehensive Confidentiality Provision

The National Conference of Commissioners onUniform State Laws and the ABA's DisputeResolution Section have been developing a draftUniform Mediation Act which may be filed in thenext session of the Texas Legislature in early2003. The draft proposal does not have a wideumbrella of confidentiality protection followed byappropriate exceptions; rather it "attempts tosafeguard confidentiality through a complex anddizzying array or privileges and exceptions. I.Fagan and Brian D. Shannon, "A Potential Threatto Texas ADR", Alternative Resolutions,Newsletter of the State Bar of Texas ADR Section,January, 2002 Issue, p. 7; B. Shannon,"Confidentiality of Texas Mediations", 32 Tex.Tech L. Rev. 77 (2000). .

2. Mediator Testimony AdmissibleRegarding Alleged Duress or Coercion atMediation.

a. Federal Judge David Hittner inHouston was recently presented with a situation(in a 1983 Civil Rights Act claim arising out of ashooting death involving policemen) where theplaintiffs attempted to revoke a mediationsettlement agreement because of the mediator'sallegedly forcing them to settle by allegedly

threatening them with the likelihood of beingforced to pay additional fees and costs if theyfailed to settle. Allen v. Leal, 27 F. Supp. 2d 945(S.D. Tex. 1998).

In the course of the proceedings, Judge Hittnergave the mediator the opportunity (but did notorder him) to testify regarding what happened atthe mediation in order to give him a chance todefend his professional reputation, and themediator, in fact, accepted the opportunity and didso testify.

In the Allen case, the Association ofAttorney-Mediators ("AAM") got leave of court tofile an amicus curiae brief, and during thependency of the proceedings, the president of theHouston Chapter of AAM was quoted publicly assaying, "What some people might consider a littlebullying is really just part of how mediationworks." Judge Hittner held that such an assertionwas in violation of 154.053(a) Tex. Civ. Prac. &Rem Code, which states that a mediator "may notcompel or coerce the parties into a settlementagreement."

Judge Hittner then held that he did not havejurisdiction to evaluate the defendants' breach ofmediation settlement agreement against therevoking plaintiffs, and that it would have to bedetermined in separate state court litigationbecause the mediation settlement dispute was not"part of the same case or controversy" as the main1983 case until the resolution of the enforceabilityof the mediated settlement agreement gets litigatedin state court.

b. A recent case from California(reported in the May 2000 issue of the State Bar ofTexas ADR Section newsletter) also involved acourt ordering a mediator to testify regarding whatoccurred during a mediation when both partiesdesired such mediator testimony. Olam v.Congress Mortgage Company, 68 F. Supp.2d 1110(N.D.Cal. 1999). In the Olam case, the plaintiffclaimed that the Memorandum of Settlementsigned by him at the mediation was executedunder duress. Both plaintiff and defendant waivedthe confidentiality provisions relating to mediationthereby allowing the mediator to testify. ACalifornia federal magistrate held that whethersuch communications were confidential or not wasdetermined by the state law of the forum (in thatcase, California law), because of state lawgoverning the case. Under California law, the





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mediator was compelled to testify "in the interestof justice" in an in camera proceeding, resulting inthe judge's tendering the testimony into the record,but then finding that there was no duress in theexecution of the settlement agreement.

C. Federal Government SettlementAuthority at Mediation

The Fifth Circuit recently denied a writ ofmandamus filed by the United States governmentarising out of Judge Joe Fish's ordering thegovernment to have a representative presentduring the entire mediation with full settlementauthority. In re U.S. 149 F.3d 332 (5th Cir. 1998).The Fifth Circuit tempered Judge Fish's rulingsomewhat by proposing that he "consideralternatively ordering the government to have theperson or persons identified as holding fullsettlement authority consider settlement inadvance of the mediation and be fully preparedand available by telephone to discuss settlement atthe time of mediation." Id. at 333.

D. Enforcement of Written SettlementAgreements

1. ADR Statute: 154.071(a), Tex. Civ. Prac.& Rem. Code, provides that if the parties reach asettlement and execute a written agreementdisposing of the dispute (at mediation), theagreement is enforceable in the same manner asany other written contract.

2. After the enactment of the ADR Statutein 1987, when one party to a settlement agreementrevoked, rescinded or simply balked at signingdefinitive settlement settlements (including ordersof dismissal and releases), the standard practicewas to file a Motion to Enforce SettlementAgreement or something similar thereto. However,in 1995, the Texas Supreme Court held that asettlement agreement can be enforced, eventhough one party withdraws its consent. Theproper enforcement mechanism, however, is a suitfor breach of contract rather than a consent decree.Padilla v. LaFrance, 907 S.W.2d 454 (Tex. 1995).This holding was furthered in Mantas v. 5th Courtof Appeals, 925 S.W.2d 656 (Tex. 1996) whereinthe Supreme Court held that a party attempting toenforce a mediation settlement agreement mayamend its pleadings and add a claim for breach ofcontract. If the suit is not pending in the trial court,then the party seeking to enforce an agreement

must file a separate breach of contract suit under anew cause number.

3. In Cadle Co. v. Castle, 913 S.W.2d 627(Tex.App. - Dallas 1996, writ den'd), the DallasCourt of Appeals concluded that there was nosummary proceeding for the enforcement ofwritten settlement agreements and since154.071(b), CPRC, gives the trial judge thediscretion to either include or exclude terms ofwritten settlement agreement, a party seekingenforcement of a mediation settlement agreementis to put to the same proof and other requirementsas would be a party in an original proceeding.Accordingly, a "Motion to Enforce SettlementAgreement" was determined to be an inappropriatevehicle for accomplishing that objective.

4. When a party seeks to enforce a writtenmediation settlement agreement, both Rule 408,Tex.R.of Civ.Ev. and its Federal counterpart) aswell as 154.073, CPRC, are implicated. How canthe fact of settlement, one might ask, beadmissible to establish liability? The answer issimple, of course: "Liability", in this context has todo with liability for breaching an agreement(settlement agreement) rather than liability on theunderlying dispute. Hence, a settlement reached atmediation, duly signed and in writing, does not runafoul of the traditional rules respectinginadmissibility of settlement discussions or offers.

5. In fact, there is precedent for theenforceability of an oral settlement at mediation.Hur v. City of Mesquite, 893 S.W.2d 227(Tex.App.-Amarillo 1995, writ denied).

E. Fraudulent Inducement of the Means toSet Aside a Mediation Settlement Agreement

The Fort Worth Court of Appeals recentlyvoided the mediation settlement agreement in adivorce case where the husband had failed todisclose to his wife during the mediation that hehad earned and would receive a $230,000 bonus.Boyd v. Boyd, 2000 Tex. App. Lexis 16 (Tex. Civ.App. – Fort Worth 2002).

F. Mediation Ethics Issue in Mass TortsCases

Rule 1.08(f) of The Texas Disciplinary Rulesof Professional Conduct provides that a lawyerwho represents two or more clients shall notparticipate in making an aggregate settlement ofthe claims of or against the clients without a fulldisclosure of all relevant facts. In the context of







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mass torts, this required lawyers to consult witheach client prior to agreeing to an aggregatesettlement of claims. When a lawyer has thousandof clients, meaningful consultation with each ofthem regarding the terms of the settlement isdifficult if not impossible. Additionally, clientshave the right to individualize privacy, anddisclose unto each client the relevant factsnecessary for each to make an "informed decision"only serves to violate this trust and results inincreasing the transaction cost as the lawyer triesto explain the difference in amounts received byother clients. Finally, the rule prohibits the lawyerfrom accepting an aggregate settlement unlesseach client approves the settlement after learningits term. Although some lawyers have attemptedto circumvent this rule by having the Plaintiffsagree in advance to be bound by the ADRagreement upon a majority vote, the courtsgenerally have been reluctant to enter suchagreement over the minority's objection citing theaggregate rule. "Shadowcast over ADR in mass-torts context", Texas Lawyer November 19, 2001,c. 34. The "Safety Deposit Box" of mediationnegotiation to break an impasse is described in anarticle published in the Spring 2000 issue of theABA's Dispute Resolution quarterly publication (acopy of the article is attached hereto) whereMassachusetts attorney-mediator Peter Contuzziexplains its use --

When the parties reach impasse in themediation, and in hopes of getting the parties totell the mediator their absolute final "bottom linenumber," the parties put their settlement numbersinto the mediator's "box" where they remain"locked" (in the mediator's confidence) and willnot be disclosed to the other side by the mediatorunless they are the same. If they are the same, themediator gets the parties to sign a settlementagreement. If the numbers overlap, the mediatorpicks the mid-point. If there is a gap of anysignificance between the numbers, the mediatortells the parties that a gap exists and that they havethree options: (1) keep their number confidential;(2) disclose their number to the other side; or (3)condition their disclosure on the other party'sagreeing to disclose its number. If this does notlead to a settlement, then there will be a brief jointmeeting to see if the parties want to go on to theoptional last stage of the process -- a joint requestfor the final settlement proposal from themediator. The attached article provides the rest of

the details about this new approach. J.C. Brockand Fred D. Raschke, "Shadow Cast over ADR inMass-Torts Context", Texas Lawyer, p.34.

G. New Mediation Twist – CollaborativeLaw in Family Law Cases

The 2001 Texas Legislature passed HB 1363which sanctions the practice of Collaborative Lawin family cases in Texas. It adds sections 6.603and 153.0072 to the Texas Family Code andprovides that the parties and their attorneys mayagree to conduct their dissolution of marriageproceeding or suit affecting the parent-childrelationship under collaborative law procedures.Although the bill is limited to family law, it iscertainly possible that practitioners under certaincircumstances might want to use commerciallitigation it, by agreement, in the commercialdispute. A collaborative law agreement mustinclude provisions for: (i) full and candidexchange of information between the parties andtheir attorneys as necessary to make a properevaluation of the case; (ii) suspending courtintervention into the dispute while the parties areusing collaborative law procedures; (iii) hiringexperts, as jointly agreed, to be used in theprocedures; (iv) withdrawal of all counselinvolved in the collaborative law procedure if itdoes not result in settlement of the dispute, and(iv) other provisions as agreed to by the partiesconsistent with a good faith effort tocollaboratively settle the matter.

For those of you who despise mediation, orthink of it as sometimes too expensive for yourparticular case, think of collaborative law as aform of mediation without a mediator.

III. NON-BINDING SUMMARY JURYTRIALS

A. The Movement in Texas State Courts1. Dallas

a. Beginning in December 1996, statecourts in Dallas started using non-bindingsummary jury trials ("SJTs") on an ongoing basisas an alternative ADR technique. Since that time,almost all Dallas district judges have conductedSJTs and most have done more than one.

b. Beginning in the Spring of 1997, andin each subsequent semester, the course on ADRtaught at SMU Law School introduced the SJT asan ADR alternative to law students.


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c. Beginning in July 1997, the SJT videoproduced by the Dallas Bar Association's BusinessLitigation Section was distributed to all districtjudges in Texas' largest cities, as well as to anydistrict judge in any other counties who requesteda copy. (If you would like one, please contactTalmage Boston, the co-author of this paper).

d. In July 1998, the Dallas CountyAlternative Dispute Resolution office began a pilotprogram, endorsed and utilized already by at leastfour Dallas District Judges, involvingcourt-ordered one-half day SJTs in small softtissue injury cases (see Dallas Bar AssociationHeadnotes article attached as Exhibit "D"). TheSJT Subcommittee of the Dallas Bar Associationformed in the summer of 2001 is now attemptingto cause Dallas judges to use this ADR device inbigger, more complex cases. An example of itsrecent use in a complex commercial case fromDallas attached to this outline.

2. HoustonMany Harris County judges have used

summary jury trials. Per Judge Harvey Brown, thejudges have found that SJTs help the partiesevaluate their cases, and more often than not leadto settlements. The attorneys in Harris County,however, have had very limited experience withSJTs and often object to the procedure or requireconvincing of its utility. The jurors have been verysupportive of SJTs. The Harris County judgeshave found that one day SJTs may not give theparties an adequate amount of time to present theircases. If the parties do not feel they have anadequate opportunity to present their cases, theydo not give sufficient credence to the jury verdict.Therefore, a number of cases have been given twoor three days to present their evidence. The judgeshave also experimented with having the mediatorattend the trial and discussing the case with thejury after the verdict. One judge uses the SJT onlyif the liability facts are particularly strong and thedamages are uncertain or if the parties will agreethat they will not increase the demand or reducethe offer after the SJT.

3. In the past three years, district judges inEl Paso, Midland, and Fort Worth have alsostarted using SJTs.

4. Caselaw on ConfidentialityThe Kaiser Permanente case which involved an

SJT after the parties settled following the SJT.Prior to the SJT, the parties had entered into a Rule

11 agreement aimed at maintaining theconfidentiality of certain documents. On May 6,1998, The Dallas Morning News intervened in thecase and filed a Rule 76a Motion seeking to obtainthe confidential documents which were the subjectof the Rule 11 Agreement. In re Kaiser FoundHealth Plan of Texas, 997 S.W.2d 605 (Tex.App.-- Dallas 1998, no pet.).

Judge Marshall, the trial judge who presidedover the SJT, determined that in May 1998, (fourmonths after the January dismissal), he still hadjurisdiction to hear the Morning News Rule 76aMotion.

The Kaiser Defendants filed a petition for writof mandamus to prevent the trial court fromhearing the Rule 76a Motion. The Dallas Court ofAppeals granted the writ and held that the trialcourt lacked jurisdiction to hear the Rule 76aMotion after its plenary jurisdiction had expired.The appellate court went on to find that, as amatter of law, any documents introduced in a SJTproceeding are not subject to a Rule 76a Motion.

B. SJTs in Texas Federal Courts1. Section III of the Civil Justice Expense

and Delay Reduction Plan instituted by the judgesin the Northern District of Texas, effective July 1,1993, endorses ADR programs and in particular"recognizes the following ADR methods:mediation, mini-trial, and summary jury trial. Ajudge may approve the ADR method the partiessuggest or any other method the judge believes issuited to the litigation."

Thus, federal judges in the Northern District ofTexas are empowered to order cases intonon-binding summary jury trials as a method ofADR.

2. SJTs in Texas Federal Courts.In the Northern District of Texas, Judge Joe

Fish has ordered at least one case into an SJT.

IV. FEDERAL LAW UPDATE: THEALTERNATIVE DISPUTE RESOLUTIONACT OF 1998

On October 31, 1998, President Clinton signedinto law House Bill 3528, which became PublicLaw 105-315, the Alternative Dispute ResolutionAct of 1998, a copy of which is attached.Basically, the Act formalizes that all federal courtsare to create local rules to devise and implementtheir own ADR programs to encourage andpromote ADR use in their respective districts.



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V. ETHICAL ISSUESA. No Requirement that Lawyers Tell Clients

of Alternatives to Litigation.In its review of the Rules of Professional

Conduct, the ABA Commission on the Evaluationof the Rules of Professional Conduct, known asthe Ethics 2000 Commission has declined toinclude an express requirement that lawyers tellclients of alternatives to litigation. "Much To DoAbout ADR" William C. Smith, ABA Journal 62,66 (June 2000).

There is no requirement yet that lawyersdiscuss the pros and cons of different ADRprocesses. Id.

A. Potential malpractice claim against anattorney who drafted an unenforceable arbitrationclause. Id.

B. Potential malpractice claim against anattorney who allegedly did not tell the client thatarbitration awards were unappealable. Id.

C. A proposed ABA Model Rule ofProfessional Conduct would require alawyer-mediator to tell unrepresented parties thatthe lawyer-mediator is not representing any partyto the proceeding. "Ethics Rules Proposed forADR Neutrals", 25 Litigation News No. 4 (May2000).

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