In re Olshan Found. Repair Co., LLC

• Decision Date: 03 December 2010
• Docket Number: Nos. 09-0432, 09-0433, 09-0474, 09-0703.,s. 09-0432, 09-0433, 09-0474, 09-0703.
• Citation: 328 S.W.3d 883
• Parties: In re OLSHAN FOUNDATION REPAIR COMPANY, LLC and Olshan Foundation Repair Company of Dallas, Ltd., Relators.
• Court: Texas Supreme Court

328 S.W.3d 883

In re OLSHAN FOUNDATION REPAIR COMPANY, LLC and Olshan Foundation Repair Company of Dallas, Ltd., Relators.

Nos. 09-0432, 09-0433, 09-0474, 09-0703.

Supreme Court of Texas.

Argued March 23, 2010.

Decided Dec. 3, 2010.

Stephan B. Rogers, Rogers & Moore, Boerne, Duncan Roderick MacRae II, Henslee Schwartz, LLP, Austin, Mark C. Roberts, Henslee Schwartz, LLP, Dallas, Jeffrey D. Janota, Henslee Schwartz,LLP, Austin, for Olshan Foundation Repair Company, LLC.

Robert W. Loree, Edwin Todd Lipscomb, Loree, Hernandez & Lipscomb, PLLC, San Antonio, Steven W. Thornton, McCorkle Westerburg & Thornton, P.C., David M. Walsh IV, Chamblee & Ryan, P.C., Dallas, for Real Parties in Interest Kenneth Kilpatrick in No. 09-0432, Charley Tisdale in No. 09-0433, Craig Waggoner in No. 09-0474.

Robert W. Loree, Edwin Todd Lipscomb, Christopher Dean Below, Loree, Hernandez & Lipscomb, PLLC, San Antonio, Steven W. Thornton, McCorkle Westerburg & Thornton, P.C., David M. Walsh IV, Chamblee & Ryan, P.C., Dallas, for Real Party in Interest Robert Tingdale in No. 09-0703.

Justice WAINWRIGHT delivered the opinion of the Court.

Olshan Foundation Repair Company filed these petitions for writs of mandamus in four different cases in which three separate trial courts denied Olshan's pleas in abatement, refusing to compel arbitration of consumer claims against it. Three different courts of appeals also declined to order the disputes to arbitration. We consolidated these cases for argument and now issue a consolidated opinion. Because the Texas General Arbitration Act (TAA), and not the Federal Arbitration Act (FAA), governs the arbitration dispute in one of the cases (Waggoner, No. 09-0474), we deny Olshan mandamus relief in that case. We conclude that for the other three cases, the trial courts erred in holding that the TAA governs the arbitrations, there is no evidence that the arbitration agreements were unconscionable as a matter of law, and all other disputed issues are questions for the arbitrator. Because the trial court erred by denying Olshan's pleas in abatement in the arbitrations governed by the FAA, we conditionally grant mandamus relief in those three actions.

I. Factual and Procedural Background

Olshan is a national company that repairs residential home foundations. In 1998, Craig and Joy Waggoner contracted with Olshan to repair their home's foundation. The Waggoners subsequently discovered new damage to the foundation and hired an engineer, Peter De la Mora, to investigate the problems. In a 2007 report, De la Mora concluded that Olshan had not properly repaired the home. The Waggoners filed suit against Olshan for breach of contract, breach of warranty, negligence, violations of the Texas Deceptive Trade Practices Act, and violations of the Texas Home Solicitation Act.

In three other cases, similar circumstances unfolded. In 2002, Olshan contracted with Vickie and Kenneth Kilpatrick, who filed suit against Olshan in 2007. The Kilpatricks' case was consolidated at the appellate court level with claims brought by Charley and Gladys Tisdale, again with nearly identical facts. In June 2007, Robert and Marta Tingdale, who initially contracted with Olshan in 2004, filed another similar case. All plaintiffs are represented by the same counsel, and each case includes a report from De la Mora opining that Olshan had not properly repaired each home.

The four repair contracts were in writing, and each contained arbitration clauses. The arbitration clauses in Kilpatrick (No. 09-0432), Tisdale (No. 09-0433), and Tingdale (No. 09-0703) provide:

Notwithstanding, any provision in this agreement to the contrary, any dispute, controversy, or lawsuit between any of the parties to this agreement about any matter arising out of this agreement, shall be resolved by mandatory andbinding arbitration administered by the American Arbitration Association ("AAA") pursuant to the arbitration laws in your state and in accordance with this arbitration agreement and the commercial arbitration rules of the AAA....

(emphasis added). The arbitration clause in the Waggoner (No. 09-0474) agreement is identical except for the language in bold, which states "pursuant to the Texas General Arbitration Act." (emphasis added). None of the agreements addressed in this opinion was signed by the consumers' attorney or exceeded $50,000 in consideration.

Olshan filed a plea in abatement in each case and sought to compel arbitration under the Federal Arbitration Act (FAA). The homeowners responded to the pleas, arguing that: (1) the TAA applies to the agreements to the exclusion of the FAA, rendering the arbitration agreements unenforceable because the agreements were not signed by the homeowners' attorney; and (2) arbitration with the AAA is substantively unconscionable because of the expense required and because the contract itself was undisputably unenforceable under the Texas Home Solicitation Act.

The trial court denied Olshan's plea in the Waggoners' action. It held that the TAA applies to the agreement, and thus the arbitration agreement was unenforceable pursuant to Chapter 171 of the Texas Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem.Code § 171.002(a)(2) (requiring arbitration agreements in service contracts for less than $50,000 be signed by all parties and their attorneys). The trial court alternatively held that the prohibitive cost of arbitration rendered the agreement to arbitrate unconscionable. Olshan petitioned for mandamus relief with the court of appeals, which was denied. The court of appeals held the TAA was not preempted by the FAA, and section 171.002(a)(2) of the TAA rendered the agreement unenforceable. It denied Olshan's writ of mandamus without reaching the other issues. In the remaining three actions, the trial courts denied Olshan's pleas in abatement and the courts of appeals denied Olshan's petitions for writs of mandamus.¹

II. Standard for Mandamus

At the time these petitions were filed, there was no method under Texas procedure for parties to file interlocutory appeals of a trial court's refusal to compel arbitration under the FAA.² Olshan sought relief through petitions for writs of mandamus. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex.1992). Mandamus will not issue unless: (1) the trial judge has committed a clear abuse of discretion; and (2) there is no adequate remedy on appeal.In re Odyssey Healthcare, Inc., 310 S.W.3d 419, 422 (Tex.2010) (per curiam) (citing In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex.2004)). A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable it amounts to a clear and prejudicial error of law or it clearly fails to correctly analyze or apply the law. Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992) (citations omitted). The second requirement for mandamus relief, that the relator has no adequate remedy by appeal, "has no comprehensive definition." See In re Ford Motor Co., 165 S.W.3d 315, 317 (Tex.2005) (citing Prudential, 148 S.W.3d at 136). However, we have determined that relators have no adequate remedy by appeal when a trial judge erroneously refuses to compel arbitration under the FAA. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex.2001).

This Court must decide whether the trial courts abused their discretion by not compelling arbitration pursuant to the FAA, as requested in Olshan's pleas in abatement. The trial courts abuse their discretion by refusing to compel arbitration if the FAA preempts the TAA and the arbitration agreements are not unconscionable. However, the trial courts did not err by denying Olshan's pleas in abatement if the TAA applies to the agreements or the agreements are unconscionable.

III. Federal Preemption

A. The FAA and Choice of Law

The TAA renders arbitration agreements unenforceable if the agreements containing the arbitration clauses are agreements for services "in which the total consideration to be furnished by the individual is not more than $50,000" and the agreements are not in writing, signed by each party, and each party's attorney. Tex. Civ. Prac. & Rem.Code § 171.002(a)(2). The homeowners contend that the arbitration agreements are governed by the TAA and are unenforceable for failure to meet the two identified TAA requirements. Olshan argues that the FAA applies to the agreements and preempts the TAA's exemption from coverage under section 171.002(a)(2), making the arbitration clauses enforceable. See In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex.2005) (per curiam) (addressing a similar exemption under the TAA for personal injury cases).

Section 2 of the FAA preempts state law that would otherwise render arbitration agreements unenforceable in a contract involving interstate commerce. 9 U.S.C. § 2; Southland Corp. v. Keating, 465 U.S. 1, 10-11, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). "The Act was designed to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate, and place such agreements upon the same footing as other contracts." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (internal quotations omitted). We have recognized that the FAA preempts parts of the TAA, including section 171.002(a)(2) of the Civil Practice and Remedies Code. See Jack B. Anglin Co., 842 S.W.2d at 271 (discussing FAA's preemption of non-waiver provision of DTPA); Nexion, 173 S.W.3d at 69 (Tex.2005) (discussing FAA's preemption of TAA section 171.002(a)(3)).

But the FAA does not "confer a right to compel arbitration of any dispute at any time." Volt, 489 U.S. at 474, 109 S.Ct. 1248. The FAA policy is simply to "ensur[e] that private agreements to arbitrate are enforced according to their terms." Id. at 479, 109 S.Ct. 1248. In Volt, the Court upheld the application of a California statute that allowed a stay of arbitration proceedings pending resolution of related litigation because the...