The obligation of a party to arbitrate a dispute in Texas may be governed by the Federal Arbitration Act (FAA) or the Texas Arbitration Act (TAA). While this brief overview risks oversimplification, in broad strokes Texas law is clear–when parties have contractually agreed to arbitrate their future disputes, the courts’ obligation to honor and enforce that agreement requires that they refer those disputes to arbitration. Under either the FAA or the TAA, the analysis is the same: (1) does a valid agreement to arbitrate exist? If so, (2) does the dispute in question fall within the scope of that arbitration agreement? and finally, (3) has the opposing party refused to arbitrate. Upon such a showing, a party seeking to arbitrate is entitled to obtain a court order compelling the parties to proceed with the arbitration. In the context of a pending litigation, the application is typically made in the form of a motion to compel arbitration. If there is no pending litigation, a party seeking to compel arbitration might commence an independent action by filing a petition to compel arbitration. Section 171.021 of the TAA provides:
(a) A court shall order the parties to arbitrate on application of a party showing:
(1) an agreement to arbitrate; and
(2) the opposing party’s refusal to arbitrate.
(b) If a party opposing an application made under Subsection (a) denies the existence of the agreement, the court shall summarily determine that issue. The court shall order the arbitration if it finds for the party that made the application. If the court does not find for that party, the court shall deny the application.
(c) An order compelling arbitration must include a stay of any proceeding subject to Section 171.025.
This determination is intended to be a summary proceeding. Procedural questions affecting whether arbitration should go forward—such as compliance with notice, time limits, and similar prerequisites to arbitration—are questions for an arbitrator to decide.
Parties may not avoid enforcement of the arbitration agreement by suing nonsignatories rather than suing the signatory directly. As the Texas Supreme Court has stated, “parties to an arbitration agreement may not evade arbitration through artful pleading, such as by naming individual agents of the party to the arbitration clause and suing them in their individual capacity.”
Waiver of Right to Arbitrate
One of the most frequently litigated issues is whether the party seeking to compel arbitration has waived an otherwise valid right to do so by “substantially invoking the judicial process to the other party’s detriment.” The Texas Supreme Court has set a high bar to demonstrate such conduct, both in terms of the acts necessary to substantially invoke the judicial process and the detriment that must be suffered by the other party. In Perry Homes v. Cull, the court set forth a totality of the circumstances test and instructed courts to consider:
- whether the movant for arbitration was the plaintiff (who chose to file in court) or the defendant (who merely responded);
- when the movant learned of the arbitration clause and how long the movant delayed before seeking arbitration;
- the amount of pretrial activity related to the merits rather than arbitrability or jurisdiction;
- the amount of time and expense incurred in litigation;
- whether the movant sought or opposed arbitration earlier in the case;
- whether the movant filed affirmative claims or dispositive motions;
- the amount of discovery conducted, which party initiated the discovery, whether the discovery related to the merits, the arbitrability of the case, or standing, and how much of the discovery would be useful in arbitration; and
- whether the movant sought judgment on the merits.