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Court of Appeals Opens The Door To Post-Dispute Arbitration Forum Shopping

April 22, 2016

On April 21, 2016, the Dallas Court of Appeals reversed a trial court’s denial of a motion to compel arbitration.  Homeowners had alleged breach of warranty claims against a bonded warranty company.  The warranty company moved to compel arbitration under a contractual provision that restricted the homeowner to a list of arbitration companies approved by the warranty company that would only be provided after the arbitration clause was invoked.

On appeal, the Court of Appeals in an opinion by Justice Lang held that:

  1. An agreement to arbitrate does not lack essential terms merely because it fails to identify an arbitrator, arbitration company, or set of arbitration rules;
  2. An agreement to arbitrate that permits one party to identify a list of approved arbitration companies after a dispute arises is valid;
  3. An agreement to arbitrate is not unconscionable because one party can select a list of approved arbitration companies absent proof “in the particular case of the arbitral forum’s inadequacy”;
  4. An agreement to arbitrate cannot be found unconscionable for imposing excessive costs unless there is proof that the costs would prevent a litigant from vindicating his or her rights in the arbitral forum; and
  5. The portion of the agreement to arbitrate that provided that “each party shall pay their own attorneys’ fees and expenses” and “the arbitrator shall have the discretion to reallocate such fees and expenses, save and except attorney’s fees” was invalid because the provision did not meet the waiver requirements of the DTPA.

This case represents an expansion of the authority of a party (as opposed to a court) to alter the terms of arbitration after a dispute has arisen.  Pursuant to such arbitration agreements, the costs, rules, and arbitration company will not be known unless and until the claimant invokes the arbitration process.  Accordingly, it is not clear that the evidence that the Court of Appeals requires to prove unconscionability could even be obtained in advance of a motion to compel hearing.

The case is styled Bonded Builders Home Warranty Association of Texas, Inc. d/b/a Bonded Builders Warranty Group v. James B. Smith, Michelle Eyrich and McElroy Ventures LLC d/b/a Regent Custom Homes, 05-15-00964-CV.  The opinion can be read here.

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