This term the Texas Supreme Court issued a succession of rulings favoring arbitration agreements and refusing to recognize various defenses.  It rejected a claim of unconscionability due to excessive costs, held a nonsignatory bound to arbitrate by direct-benefits estoppel, and held that incorporation of AAA Commercial Rules into a contract constitutes a clear and unmistakable agreement that the arbitrator not the courts would rule on arbitrability questions.

Unconscionability due to excessive costs rejected

In Houston AN USA, LLC v. Shattenkirk, No. 22-0214, 2023 Tex. LEXIS 438 (Tex. May 26, 2023), the court held that an employee resisting arbitration of an employment-discrimination suit failed to establish that the arbitration agreement was unconscionable because the costs of arbitration are so excessive that they would foreclose the employee from pursuing his claims.  The court recognized that a party opposing arbitration on this ground has the burden of proof, citing In re Poly-Am, LP, Poly-America, 262 S.W.3d 337, 356 (Tex. 2008).  The party resisting arbitration must show that the party “will actually be charged fees that would prevent him from effectively vindicating his statutory rights.”  “[T]he crucial inquiry is whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation,” citing In re Olshan Found Repair Co., 328 S.W.3d 883, 894-95 (Tex. 2010).  If the cost of proceeding in court and arbitration are comparable “that effectively ends the inquiry because it renders the arbitral forum ’equally accessible.’”  Shattenkirk’s evidence included an AAA invoice from an unrelated case, an affidavit from Shattenkirk’s attorney that his case would last longer than the one in the invoice and averring that the cost to litigate in court would be a few hundred dollars.  The court held that such evidence fell short of demonstrating that Shattenkirk would actually be charged fees that would prevent him from effectively vindicating his rights.  The affidavit arguably provided a reasonable basis to estimate the total fees of arbitration, but did not show how that amount compared to the overall cost of litigation nor show Shattenkirk’s ability to afford litigation but not arbitration.  The court held that the reference to litigation costing a few hundred dollars appeared to refer only to filing fees and was thus not concrete evidence of the increased cost of arbitration as compared to litigation or that such increased cost foreclosed the party from pursuing his claims. And nothing in the record showed that Shattenkirk would actually be charged and incur the estimated costs of arbitration.  The agreement did not specify any arbitration rules such as JAMS or AAA, but the court noted that those groups had employment arbitration rules requiring employers to pay all costs other than an initial filing fee. Without condoning silence in an arbitration agreement with regard to payment terms, the court held that the plaintiff “cannot leverage the contractual silence about who would pay to summarily avoid the arbitration agreement he made.” It concluded that the risk that Shattenkirk would be saddled with prohibitive costs was “too speculative to justify the invalidation of the arbitration agreement.”

Direct-benefits estoppel applied to non-signatory

In Lennar Homes of Tex. Land & Constr., Ltd. v. Whiteley, No. 21-0783, 2023 Tex. LEXIS 407 (Tex. May 12, 2023), the court held that a subsequent purchaser of a home was bound under the doctrine of direct-benefits estoppel to arbitration clauses in a builder’s purchase-and-sale agreement with the original purchaser and in a deed to that purchaser.  A home was built for an original purchaser under an agreement that included both a general and a warranty-specific arbitration agreement.  The builder later recorded a deed that included an arbitration provision and stated that the provision would run with the land and bind all successors and assigns. The house was later sold to a new buyer who discovered mold and sued the builder.  The plaintiff argued that she was not a party to any of the arbitration agreements and was not bound by them. The trial court issued a stay and the parties proceeded to arbitration, where plaintiff was denied relief and the builder awarded its attorney fees and costs.  But the trial court vacated the award and the court of appeals affirmed.  The Texas Supreme Court first listed the six ways non-signatories can be bound to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel; and (6) third-party beneficiary, citing In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).  With regard to direct benefits estoppel, a non-signatory may be compelled to arbitrate if its claims are “based on a contract” containing an arbitration provision, but not if liability arises from general obligations imposed by law.  Whether a claim seeks a direct benefit from a contract turns on the substance of the claim not artful pleading.  The court held that implied warranty claims are as much a part of the writing as the express terms of the contract, and absent a contract such warranties would not arise.  It analyzed each implied warranty separately.  The implied warranty of good workmanship applies unless it is supplanted by express warranties in the contract, therefore the claim does not stand independently of the purchase agreement.  The implied warranty of habitability can be waived to the extent that defects are adequately disclosed.  The purchase agreement here contained some disclosures and therefore liability for breach of this implied warranty, while not arising from the purchase agreement, must still be determined with reference to it and thus does not stand independently from it.  The court concluded that the plaintiff was bound to arbitrate pursuant to the purchase and sale agreement under the doctrine of direct-benefits estoppel and rendered judgment confirming the arbitrator’s award in favor of the builder and against the plaintiff.   On the basis of its holding in this case the court ordered arbitration in the similar case of Taylor Morrison of Tex., Inc. v. Kohlmeyer, No. 21-0072, 2023 Tex. LEXIS 623 (Tex. June 30, 2023).

Incorporation of AAA rules delegates arbitrability to the arbitrator

Finally, in a case of first impression, the court in TotalEnergies E&P USA, Inc. v. MP Gulf of Mex., LLC, No. 21-0028, 2023 Tex. LEXIS 315 (Tex. June 9, 2023), held that incorporating AAA Commercial Rules into a contract constitutes a clear and unmistakable agreement that the arbitrator decides arbitrability.  The parties had two related contracts, a System Operating Agreement that included an arbitration clause and a Cost Sharing Agreement that did not.  The arbitration provision provided that arbitration would be in accordance with AAA Commercial Rules.  The plaintiff attempted to bring claims solely under the Cost Sharing Agreement and thereby avoid arbitration.  MP Gulf contended that by incorporating the AAA Commercial Rules, the System Operating Agreement delegated to the arbitrator the power to rule on the arbitrability of any claim including those ostensibly under the Cost Sharing Agreement.  The AAA rule mandates that the arbitrator has “the power” to decide arbitrability issues.  The Texas Supreme Court noted that courts will enforce an agreement to delegate arbitrability disputes to the arbitrator only if such agreement is “clear and unmistakable,” which raised the question of the effect of incorporating the AAA rules.  After reviewing many other state and federal court rulings, the court held that, “as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator must decide whether the parties’ disputes must be resolved through arbitration.”  The majority further held that such an agreement grants the arbitrator the exclusive power to rule on what claims are arbitrable and courts do not have concurrent power to make such rulings.  “The fact that the parties’ arbitration agreement may cover only some disputes while carving out others does not affect the fact that the delegation agreement clearly and unmistakably requires the arbitrator to decide whether the present disputes must be resolved through arbitration.”  That ruling still left Total E&P’s argument that the valid arbitration agreement did not apply to the claims it was asserting because they did not arise out of the agreement containing the valid arbitration agreement.  But the court noted that while challenges to the scope of an arbitration agreement are ordinarily decided by the courts, that rule applies unless the parties have clearly and unmistakably delegated that issue to the arbitrators, as the parties did here.  Thus the arbitrator was required to decide whether the arbitration agreement required arbitration of the claims asserted by Total E&P.

I continue to track the statistics on the number of petitions for review granted by the Texas Supreme Court where the court of appeals wrote an “Opinion,” versus those where the court of appeals wrote a “Memorandum Opinion.” My prior years’ statistical analysis have dispelled the notion that if the court of appeals writes a “Memorandum Opinion,” the Texas Supreme Court will be less likely to review it. The calendar year for 2022 only helps to further that conclusion.

In 2022, 42% of the petitions for review that the supreme court granted and issued opinions involved “Opinions” issued by the court of appeals, while the remaining 58% involved “Memorandum Opinions.” The high-water mark for “Memorandum Opinions” came in 2019, when the Texas Supreme Court’s petition for review docket consisted of 61% Memorandum Opinions.

The reversal rate for both types of opinions was statistically the same.

Per curiam opinions. Per curiam opinions are unsigned opinions issued by the whole court. These opinions are generally used by the court to correct errors where the error is clear-cut and oral argument isn’t needed. The court can in effect correct an error without devoting more court resources than absolutely necessary. In the year 2022, the court issued 19 per curiam opinions on petition for review. Of those 19 opinions, the court of appeals was reversed 100% of the time. This is the same reversal rate for per curiam dispositions as in 2021.

I have completed the statistical calculations for the Texas Supreme Court’s cause disposition for the calendar year beginning January 1, 2022, through December 31, 2022. The breakdown of broader statistics is shown below. Additional calculations and numbers will be posted in the coming weeks.

  • During the 2022 calendar year, the Court disposed of 95 causes, consisting of 73 causes taken on petition for review, 14 original mandamus proceedings, 6 certified questions from the Fifth Circuit, and 2 direct appeals. The disposition of 95 causes is in line with prior years.
  • Twenty-seven of the causes were disposed of by per curiam (unsigned) opinions. In 2021, this number was 20. In 2020, the number was 30.
  • With 14 opinions issued on petitions for writ of mandamus, the number of such original proceedings has dropped from last year’s high of 28. However, this year’s 14 opinions is still higher than the handful of original proceedings the court wrote on each year prior to 2020.
  • The number of opinions on certified questions (6) is higher than in prior years.
  • The reversal rate for causes taken on petitions for review is up. The average is a 75% reversal rate. The reversal rate in 2022 was 86%.
  • I have again looked at the number of causes with unanimous opinions. Excluding per curiam opinions, there were 53 unanimous opinions, including 5 of the mandamus opinions that were unanimous and all 6 of the certified questions that were unanimous.

I had the privilege and pleasure of speaking to the Dallas Bar Association Appellate Law Section on the subject of superseding judgments in Texas state courts. In connection with that continuing legal education presentation, I prepared a written paper and a powerpoint presentation.  I am making those resources publicly available here:

Supersedeas Paper 2022

Supersedeas powerpoint slides

On Thursday, June 16, 2022, at 12:00pm, I have the pleasure of presenting a continuing education program to the Dallas Bar Appellate Law Section at the Arts District Mansion (2101 Ross).

I will be speaking on one of my favorite subjects, superseding judgments in Texas state courts.  The presentation will focus on the basics of superseding judgments and will delve into more complex, unanswered issues.

This is an in-person event only and the Dallas Bar Association has applied for an hour of continuing education credit for your attendance.

In the case of a judgment for recovery of an interest in real or personal property, the trial judge must determine the amount of security required to suspend enforcement of the judgment during appeal.  Texas Appellate Rule 24.2(a)(2) requires that the amount must be at least

(A) the value of the property interest’s rent or revenue, if the property
interest is real property; or
(B) the value of the property interest on the date when the court rendered
judgment, if the property interest is personal property

A recent opinion from the Corpus Christi Court of Appeals highlights a potential flaw or shortcoming with Rule 24.2(a)(2).

The dispute in Port Isabel Logistical Offshort Terminal, Inc. v. Subsea 7 Port Isabel, LLC, Nos. 13-21-00169-CV & 13-21-00368-CV (Tex. App.–Corpus Christi Mar. 10, 2022, orig. proceeding), related to the termination of Subsea’s leasehold interest kn property owned by Port Isabel Logistical Offshore Terminal (PILOT) and Subsea’s claimed right to retrieve improvements it made to the property.

Following an initial 2017 judgment, PILOT asked the trial court to set an amount required to suspend a portion of the trial court’s judgment ordering that Subsea be allowed to remove improvements from PILOT’s property.   The trial court set that amount required at $168.000 and PILOT thereafter posted a cash deposit in that amount.

In the initial appeal, the court of appeals largely affirmed the judgment, but remanded the case to the trial court for entry of a new judgment with recalculated prejudgment interest.  While on remand, a further dispute arose as to whether Subsea had waived the right to remove its improvements because of Subsea’s delay in taking action to do so.  PILOT expressed its desire to take a further appeal of the trial court’s ruling on the new issue.  The trial court signed an order requiring PILOT to post an additional $38,000 to suspend the new judgment allowing Subsea to to remove its improvements.  Subsea then filed a motion to further increase the amount of PILOT’s cash deposit, and the trial court ordered that PILOT must post an additional $150,000 to suspend the judgment, thereby bringing the total amount ordered to $350,000.

PILOT filed a motion with the court of appeals seeking review of the trial court’s supersedeas order.  PILOT argued that the proper amount for the supersedeas was the value of Subsea’s improvements  and Subsea had not shown that the value changed between the time of the trial court’s initial November 2, 2017 order and the trial court’s October 26, 2021 order granting Subsea’s motion to increase the supersedeas amount.  The court of appeals rejected PILOT’s challenge to the order, pointing out that Rule 24.2(a)(2) expressly provides that the amount of security must be “at least” the property’s value.  The appellate court further observed that the rule does not restrict a trial court from ordering security in excess of the property’s value.  Relying on the trial court’s general discretion in this regard, the court of appeals denied PILOT’s motion challenging the trial court’s order.

The court of appeals’ opinion raises the question as to whether there are limits to a trial court’s discretion.  In the Port Isabel matter, the amount set for supersedeas was 75% greater than the amount the court had set 4 years earlier.  Would the trial court’s discretion have allowed a figure that was 200% greater?  Appellate Rule 24.2(b) might allow for a reduction if the judgment debtor (assuming PILOT is a “judgment debtor”) can establish substantial economic harm as a result of having to post the amount set.  But the question remains–is a trial court’s discretion over the amount of supersedeas limited or is the sky the limit?  Perhaps the limiting principle on the trial court’s discretion is the principle that the supersedeas amount should be an amount sufficient to protect the judgment creditor from any potential harm caused by the stay during the course of the appeal.  Clarification of Rule 24.2 may be necessary to avoid inequities and due process problems.

 

 

My review of the statistics from the Texas Supreme Court’s dispositions in 2021 brought an assortment of facts to the forefront that are worth highlighting.

  • For the second year in a row, the court accepted a significantly higher number of petitions for writ of mandamus.
  • As the number of petitions for writ of mandamus reviewed increased significantly, the number of petitions for review granted declined, so that the size of the court’s active docket remained relatively constant.
  • The court wrote opinions on a disproportionate number of petitions for review that originated in the Third District Court of Appeals District (Austin), the Fourth District Court of Appeals (San Antonio), and the Fourteenth District Court of Appeals (Houston).
  • No petitions for review originating in either the Ninth District Court of Appeals (Beaumont) or the Twelfth District Court of Appeals (Tyler) were disposed of by written opinion.
  • 100 percent of the petitions for review granted and originating in the Third District Court of Appeals (Austin) were reversed.  In spite of this high reversal rate, the Third District Court of Appeals is tied with the Thirteenth District Court of Appeals for the best affirmance rate of all intermediate courts of appeals over the last 8 years.
  • Justice Blacklock authored the highest number of unanimous opinions for the court in 2021.

Parties (and their counsel) to a court of appeals’ disposition of an appeal sometimes worry that if the court disposed of the appeal by issuing a “Memorandum Opinion” instead of an “Opinion,” the chances of obtaining review by the Texas Supreme Court will be diminished.  Statistics in recent years have helped to dispel this concern.  The statistics for 2021 continue to support the conclusion that the label on the court of appeals’ disposition doesn’t matter insofar as obtaining supreme court review.

During 2021, petitions for review granted and disposed of by the Texas Supreme Court were almost evenly split between those for which the court of appeals issued an “Opinion” (53%) and those for which the court of appeals issued a “Memorandum Opinion” (47%).  Keeping in mind that the factors a court of appeals is supposed to use in its determination of what label to put on the written disposition overlap with factors the supreme court uses in deciding what matters are important to the state’s jurisprudence (for purposes of granting a petition), the near-even split between “Opinions” and “Memorandum Opinions” is notable.

The label on the court of appeals opinion didn’t seem to make a difference insofar as the affirmance or reversal by the supreme court.  The court reversed 76% of the causes involving a court of appeals “Opinion,” and reversed 73% of the causes involving a court of appeals “Memorandum Opinion.”

Per curiam opinions:  I like to track the supreme court’s use of per curiam (unsigned) opinions to see how the court uses that procedural device.  The court often uses this device to correct patent errors made by the courts of appeals.  Because these opinions are nearly always issued without oral argument, in theory the court expends fewer resources than it would otherwise expend,   In 2021, the supreme court reversed the court of appeals in 100% of the causes when the supreme court issued a per curiam opinion upon granting a petition for review.   This is the highest reversal rate I have seen for per curiam opinions since I have been tracking this statistic.

 

I ran the statistics for the Texas Supreme Court’s cause disposition for the calendar year beginning January 1, 2021, through December 31, 2021, and the breakdown of broader statistics is shown below.  As with prior years, I will follow up with additional data as I crunch more of the numbers.

  • During the 2021 calendar year, the court disposed of 91 causes, consisting of 61 causes taken on petition for review, 28 original proceedings (27 mandamuses and one habeas corpus), and 2 certified questions.  The court disposed of 97 causes in 2020, 88 causes in 2019, and 98 causes in 2018.
  • Twenty of the causes were disposed of by per curiam opinion (unsigned opinion).  This is a decline from last year when the court disposed of 30 causes by per curiam opinion.
  • The number of petitions for writ of mandamuses accepted and disposed of rose markedly.  In 2020, the court wrote opinions on 12 original proceedings, and that number was an increase over prior years.  in 2020, it appeared to me that the increase may have been explained partly by election-year issues.  However, this year’s number of original proceedings is more than double the number handled in 2020.
  • During 2021, the reversal rate for causes taken on petition for review is 75%, which is about the average.
  • As with last year’s numbers, I looked at the number of causes with unanimous opinions.  Excluding per curiam opinions, there were 48 unanimous opinions, which includes 9 of 18 mandamuses decided by signed opinion, and 1 of the 2 certified questions was decided by unanimous opinion.  Overall, there was some disagreement among the justices in 35.6% of the causes.  This disagreement could reflect the changing make-up of the court during the past year.

Final notes on original proceedings:  I looked at the substance of the mandamuses that were decided during 2021 to see if I could glean anything from that subject-matter as to why the number of writings on petitions for writ of mandamuses is up.  It’s a complete mix of subjects addressed and there does not appear to be any trend or explanation on the face the petitions taken.  One potential explanation for the increase could be fall-out from the fact that fewer appeals have been taken during the Covid pandemic since trial courts have been restricted in their operations.  With fewer ordinary appeals taken, perhaps the petitions for writ of mandamus simply looked more important to the state’s jurisprudence.

One observation worth noting, however, is that the overall number of causes taken and addressed by the court has remained relatively fixed, which means that as the proportion of petitions for writ of mandamus  taken has gone up, the proportion of petitions for review has declined.

Early last year, I wrote about the split among the Texas courts of appeals on whether mandamus relief is available to challenge a trial court’s ruling striking a Section 18.001 counteraffidavit.  Civil Practice and Remedies Code Section 18.001 counteraffidavits are used by defendants to contest the reasonableness and necessity of a claimant’s affidavit proof of medical expenses in personal injury cases.  The Texas Supreme Court has now resolved the split of authority and held that mandamus relief is available because an appeal is not an adequate remedy since the defendant’s ability to present a viable claim or defense at trial is severely compromised.

In In re Allstate Indemnity Company, No. 20-0071, the trial court’s challenged order excluded the defendant’s damages expert from testifying on any issue and it prohibited the defendant from offering evidence, questioning witnesses, or arguing to the jury about the reasonableness of the plaintiff’s medical expenses.  The supreme court wrote that the order was “far from routine.”

The trial court had expressed a number of reasons for striking the defendant’s counteraffidavit.  One by one, the supreme court’s opinion addresses each reason provided by the trial court and holds that the trial court erred.  Many of the grounds addressed are commonly-used grounds for striking counteraffidavits.

Lack of expertise.  The supreme court rejected the trial court’s ruling that the affiant lacked the expertise to controvert the reasonableness of expenses.  The record showed that the affiant had extensive education and training in nursing and was a licensed registered nurse.  She had 21 years’ experience in healthcare, including 12 years reviewing medical bills.  The supreme court expressly rejected the contention that the nurse had to be in the same field of medicine as was reflected by the medical charge in order to attest to reasonableness of the charge.

Lack of “reasonable notice.”  The supreme court rejected the conclusion that the counteraffidavit failed to give reasonable notice of the charges that were being contested.  The court likened Section 18.001’s “reasonable notice” requirement to the “fair notice” requirement for pleadings.  In this case, the court held that the reasonable notice standard was met where the affiant itemized each charge being controverted and compared it to the median charges for the same service in the same time-frame and zip code.

Unreliability.  The supreme court held that the trial court abused its discretion by striking the affidavit due to the trial court’s conclusion that the affiant’s opinions were unreliable.  The supreme court held that Section 18.001 does not make reliability one of the threshold standards applicable to Section 18.001 counteraffidavits.

Limits on defendant’s evidence at trial.  The supreme court also held that the trial court abused its discretion by prohibiting the affiant from testifying at trial and by prohibiting the defendant from questioning the plaintiff’s witnesses, offering evidence, or arguing to the jury about the reasonableness of the plaintiff’s medical bills.  The court observed that Section 18.001 is purely procedural and designed to streamline a plaintiff’s proof.  The failure of a defendant to file a counteraffidavit under Section 18.001 has no impact on the defendant’s ability to challenge reasonableness and necessity of a plaintiff’s medical expenses at trial.  This last holding is consistent with the dissent in the earlier Dallas Court of Appeals case (In re Parks) that I wrote about last year.