Arbitration in Contract Agreement

Commercial Litigation Austin Texas

Dec 8, 2012 — by Jeff Mundy
Tags: Arbitration


If a valid arbitration agreement exists, then a strong presumption arises favoring arbitration, and the burden shifts to the party opposing arbitration to raise an affirmative defense to enforcing arbitration....

A party seeking to compel arbitration can meet its burden to establish that a valid arbitration agreement covers the claims at issue by producing a signed agreement covering these claims. 

Although the [party] did not sign the contract, it nevertheless is bound by the contract's terms under the doctrine of direct benefits estoppel. Under this doctrine, a non-signatory will be compelled to arbitrate if it raises a claim through which "it seeks . . . to derive a direct benefit from the contract containing the arbitration provision." ... Here, each of the Property Owners-including the Family Partnership-asserted claims against Courtland for breaching various contract provisions. By asserting such claims, the Family Partnership subjected itself to the contract's terms. See id. at 739 ("[I]f a nonsignatory's breach-of-warranty and breach-of-contract claims are based on certain terms of a written contract, then the non-signatory cannot avoid an arbitration provision within that contract."); .... ("[A] litigant who sues based on a contract subjects him or herself to the contract's terms."). 

Any doubts as to whether [a party's] claims against the [defendant] fall within the scope of the arbitration clause must be resolved in favor of arbitration.... A court should not deny arbitration unless the court can say with positive assurance that an arbitration clause is not susceptible of an interpretation that would cover the claims at issue. Id. In determining whether a claim falls within the scope of an arbitration clause, we focus on [the party's] factual allegations, rather than the legal claims asserted. ... The presumption of arbitrability is particularly applicable when, as in the case under review, the clause is broad.  Absent any express provision excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail, and the [plaintiffs] have the burden of showing that Courtland's claims against them fall outside the broad scope of the arbitration clause.... Nonetheless, the strong policy in favor of arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or to allow modification of the unambiguous meaning of the arbitration clause. 

See TEX. PROP. CODE ANN. § 162.001 (West 2011). Under this chapter, "[c]onstruction payments are trust funds . . . if the payments are made to a contractor or subcontractor . . . under a construction contract for the improvement of specific real property in this state." Id. § 162.001(a) (emphasis added).

A party waives an arbitration clause by substantially invoking the judicial process to the other party's detriment or prejudice.

How much litigation conduct will be "substantial" depends very much on the context. A party who enjoys substantial direct benefits by gaining an advantage in the pretrial litigation process should be barred from turning around and seeking arbitration with the spoils. See id. Like any other contractual right, arbitration can be waived if the parties agree instead to resolve a dispute in court. Such waiver can be implied from a party's conduct, although that conduct must be unequivocal. See id. In close cases, the "strong presumption against waiver" should govern. See id. In the context of waiver of an arbitration clause, "prejudice" relates to the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue. 

Courtland Building Co. v. Jalal Family Partnership Ltd., (Tex. App. - Houston [14th Dist.], 2012).



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