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FILED

16-0854
4/20/2017 8:14:03 AM
tex-16556230
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK

NO. 16-0854

IN THE SUPREME COURT OF TEXAS

HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS, and
ROOSEVELT COLEMAN, JR., on behalf of themselves and for all other similarly
situated
Petitioner

v.

CASH BIZ, LP, CASH ZONE, LLC D/B/A CASH BIZ and REDWOOD
FINANCIALS, LLC
Respondent

From the Court of Appeals for the Fourth District of Texas
Cause No. 04-15-00469-CV

RESPONDENTS’ BRIEF ON THE MERITS

COATS ROSE, P.C.
Edward S. Hubbard
State Bar No.: 10131700
ehubbard@coatsrose.com
Patrick E. Gaas
State Bar No.: 07562790
pgaas@coatsrose.com
9 Greenway Plaza, Ste. 1100
Houston, Texas 77046
(713) 651-0111
(713) 651-0220 facsimile
COUNSEL FOR RESPONDENTS

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I. IDENTITY OF PARTIES AND COUNSEL

In compliance with Rule 55.3(a) of the Texas Rules of Appellate Procedure,

Respondents agree with and will defer to the “Identity of Parties and Counsel”

contained in Petitioners’ Brief on the Merits.

Additionally, in both the Court of Appeals and this Court, the same Amicus

Curiae, Texas Appleseed, filed briefs in support of the Petition. Though not

representing a party to this suit, counsel for Texas Appleseed sought to participate

in the oral argument before the Court of Appeals. The Court of Appeals denied the

request at the start of oral argument. Although Respondents would oppose any

attempt by Texas Appleseed to participate in an oral argument of this matter before

this Court, Respondents will treat Texas Appleseed as so closely aligned with

Petitioners as to require disclosure of the identity of it and its counsel.

Amicus Curaie: Texas Appleseed

Represented by: Ricardo G. Cedillo
State Bar No. 04043600
Davis, Cedillo & Mendoza, Inc.
755 E. Mulberry, Suite 500
San Antonio, Texas 78212
Telephone: (210) 822-6666
Facsimile: (210) 822-1151
rcedillo@lawdcm.com

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II. TABLE OF CONTENTS

PAGE
I. IDENTITY OF PARTIES AND COUNSEL .................................................. i
II. TABLE OF CONTENTS ............................................................................... ii

III. INDEX OF AUTHORITIES ......................................................................... iv

IV. STATEMENT OF THE CASE ................................................................... xiii

V. STATEMENT OF JURISDICTION ........................................................... xiv

VI. ISSUES PRESENTED FOR REVIEW .........................................................xv

VII. SUMMARY OF THE ARGUMENT ..............................................................1
VIII. STATEMENT OF FACTS ..............................................................................4

A. Contextual Background .........................................................................4
B. The Undisputed Facts ............................................................................9

C. The Evidentiary Record ......................................................................10
D. The Trial Court Hearing and Order .....................................................12

E. The Fourth Court’s Opinion and Disposition of the Case ..................13
IX. GOVERNING LAW, STANDARD OF REVIEW, AND BURDENS OF
PROOF...........................................................................................................15

A. The FAA under Texas Law .................................................................15

B. The Standard of Review ......................................................................18

C. The Burdens of Proof ..........................................................................21

X. ARGUMENT .................................................................................................23
A. Respondents met their burden of proof to enforce the arbitration
provision ..............................................................................................23

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1. A valid and enforceable arbitration agreement exists...............24

2. The dispute falls within the scope of the arbitration provision 25

B. The Petitioners failed to meet their burden to prove waiver and
prejudice ..............................................................................................32

C. The trial court erred by not enforcing the waiver-of-class-action
provision ..............................................................................................46

D. There is no split of authority justifying further review by this Court .47
E. The Vine Memorandum Opinion.........................................................47

F. The Harrison Opinion .........................................................................50
CONCLUSION ........................................................................................................51

XI. PRAYER........................................................................................................52
XII. CERTIFICATE OF COMPLIANCE ............................................................53

XIII. CERTIFICATE OF SERVICE ......................................................................54
XIV. APPENDIX......................................................................................................1

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III. INDEX OF AUTHORITIES

Page(s)

Cases
Alvarez v. Anesthesiology Associates,
967 S.W.2d 871 (Tex. App.—Corpus Christi 1998, no writ) ............................ 34
Amalgamated Local No. 55, United Automobile, Aerospace &
Agricultural Implement Workers of Am. v. Metal and Alloy Div. of
Silver Creek Precision Corp.,
396 F.Supp. 667 (W.D. N.Y. 1975) .................................................................... 37

AT&T Mobility v. Concepcion, 563 U.S. 333 (2011) ........................................18, 46

AT&T Technologies, Inc. v. Communications Workers of Am.,
475 U.S. 643 (1986) ..........................................................................20, 28, 41, 44

Bell v. State, 2006 WL 3628916 (Tex. App.—Houston [1st Dist.]
2006, no pet.) ................................................................................................34, 48
BG Group, PLC v. Republic of Argentina,
572 U.S. ____, 134 S. Ct. 1198 (2014)............................................................... 30

Bonded Builders Home Wty Ass’n of Texas, Inc. v. Smith,
2016 WL 1612916 (Tex. App.—Dallas 2016, no pet. h.) .................................. 20
Browning-Ferris Indus. v. Lieck,
881 S.W.2d 288 (Tex. 1994) ..................................................................30, 34, 35
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) ........................... 25

Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (Tex. 1996) ............................. 18
Capital Income Properties v. Blackmon,
843 S.W.2d 22 (Tex. 1992)................................................................................. 15

Cash Biz, LP v. Henry,
2016 WL 4013794 (Tex. App.—San Antonio 2016, pet. filed) .............13, 32, 40

Coker v. Coker, 650 S.W.2d 391 (Tex. 1983) ......................................................... 27

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Community Financial Services Assoc. of Am., Ltd. v. FDIC,
132 F.Supp.3d 98 (D.C. D. 2015) ......................................................................... 7

Consorcio Rive, S.A. De C.V. v. Briggs of Cancun, Inc.,
134 F.Supp.2d 789 (E.D. La. 2001) .................................................................... 37

Consumer Service Alliance of Texas, Inc. v. City of Dallas,
433 S.W.3d 796 (Tex. App.—Dallas 2014, no pet.) ............................................ 6

Cooper Indus., LLC v. Pepsi-Cola Metro. Bottling Co., Inc.,
475 S.W.3d 436 (Tex. App.—Houston [14th Dist.] 2015, no pet.)
............................................................................ 16, 17, 20, 22, 23, 30, 32, 36, 45

D Magazine Partners, L.P. v. Rosenthal,
___ S.W.3d ___, 2017 WL 1041234 (Tex., March 17, 2017)............................ 42
Diamond Shamrock Corp. v. Ortiz,
753 S.W.2d 238 (Tex.App.—Corpus Christi 1988, writ denied) ....................... 35
DirectTV, Inc. v. Imburgia, 577 U.S. ___, 136 S.Ct. 463 (2015) ......................18, 46
Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681 (1996)........................................ 17

East Montgomery Cty. Mun. Utility Dist. No. 1 v. Roman Forest
Consol. Mun. Utility Dist.,
620 S.W.2d 110 (Tex. 1981) .............................................................................. 28
Ex parte Rains, 555 S.W.2d 478 (Tex. Crim. App. 1977)....................................... 39
First Options of Chi., Inc. v. Kaplan,
514 U.S. 938 (1995) ............................................................................................ 17

Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) ....................22, 23, 32, 45
Fridl v. Cook,
908 S.W.2d 507 (Tex. App.—El Paso 1995, writ dism’d w.o.j.) ....................... 20

Frost Nat’l Bank v. L&F Distributors, Ltd.,
165 S.W.3d 310 (Tex. 2005) .............................................................................. 27

Garcia v. Huerta,
340 S.W.3d 864 (Tex. App.—San Antonio 2011, pet. denied) .......................... 20

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Gatlin v. P.O.A. Criscione Star #16195,
2008 WL 2745956 (N.D. Ill. 2008) ..............................................................31, 37

Greever v. Persky, 165 S.W.2d 709 (Tex. 1935) ....................................................... 4

Griffin v. Burlington Volkswagen, Inc.,
411 N.J.Super. 515, 988 A.2d 101 (NJ. App. Div. 2010) .................................. 37
G.T. Leach, Builders L.L.C. v. Sapphire VP, L.P.,
458 S.W.3d 502 (Tex. 2015) ............................. 19, 21, 22, 30, 36, 38, 42, 43, 45
Guyton v. Monteau,
332 S.W.3d 687 (Tex. App.—Houston [14th Dist.] 2011, no pet.) ................... 40

Hearthshire Braeswood Plaza Ltd. Partnership v. Bill Kelly Co.,
849 S.W.2d 380 (Tex. App.—Houston [14th Dist.] 1993, writ
denied)................................................................................................................. 20

Heritage Res. v. Nationsbank, 939 S.W.2d 118 (Tex. 1996) .................................. 27
Horizon Health Corp. v. Tyler-Holmes Memorial Hosp.,
284 F. Supp. 2d 439 (N.D. Miss. 2003)............................................20, 21, 41, 44

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) .................................. 30

In re AdvancePCS Health, L.P.,
172 S.W.3d 603 (Tex. 2005) (orig. proceeding) ....................................18, 21, 25
In re Amos, 397 S.W.3d 309 (Tex. App.—Dallas 2013, orig.
proceeding) ...................................................................................................34, 48
In re Bruce Terminix Co., 988 S.W.2d 702 (Tex.1998) ....................................14, 45

In re Christus Spohn Health System Corp.,
231 S.W.3d 475 (Tex. App.—Corpus Christi-Edinburg 2007, orig.
proceeding) .......................................................................................33, 38, 48, 49

In re Conseco Finance Servicing Corp.,
19 S.W.3d 562 (Tex. App.—Waco 2000, orig. proceeding) ............25, 28, 29, 36

In re D. Wilson Constr. Co., 196 S.W.3d 774 (Tex. 2006) .........................19, 36, 45
In re FirstMerit Bank, N.A.,
52 S.W.3d 749 (Tex. 2001)...........................................................................14, 28
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In re Fleetwood Homes, 257 S.W.3d 692 (Tex. 2008) ............................................ 19

In re Flores, 2016 WL 890969 (Tex. App.—Dallas 2016, orig.
proceeding) ...................................................................................................35, 48

In re Jeffory Blackard,
2016 WL 1756786 (Tex. App.—Dallas 2016, orig. proceeding) ....................... 35
In re Kaplan Higher Educ. Corp., 235 S.W.3d 206 (Tex. 2007) ......................23, 32

In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732 (Tex.2005)........................................................16, 17, 21, 22, 23

In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009) .................14, 17, 20, 25

In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571 (Tex. 1999) ...................22, 25

In re Olshan Foundation Repair Co., Inc.,
328 S.W.3d 883 (Tex. 2010) .............................................................................. 27

In re Online Travel Co. (OTC) Hotel Booking Antitrust Litigation,
953 F.Supp.2d 713 (N.D. Tex. 2013) ................................................................. 21
In re Rubiola, 334 S.W.3d 220 (Tex. 2011) ......................................................14, 21

In re Ruefer,
1999 WL 371568, 1999 Tex. App. LEXIS 4275 (Tex. App.—
Amarillo 1999, pet. dism’d. want of jurisdiction) ........................................18, 21
In re Service Corp. Int’l, 85 S.W.3d 171 (Tex. 2002) ............................................. 38

In re Universal Underwriters of Texas Ins. Co.,
345 S.W.3d 404 (Tex. 2011) .............................................................................. 18

In re Vesta Ins. Group, Inc., 192 S.W.3d 759 (Tex. 2006) ..................................... 30

In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005) ...........................15, 16, 17

In re Wingfield,
171 S.W.3d 374 (Tex. App.—Tyler 2005, orig. proceeding) ......................34, 48
Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266 (Tex. 1992) .......................16, 18

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J.M. Davidson, Inc. v. Webster,
128 S.W.3d 223 (Tex. 2003) ................................... 14, 17, 19, 21, 22, 27, 31, 41

Kennedy Hodges, L.L.P. v. Gobellan,
433 S.W.3d 542 (Tex. 2014) ......................................................19, 22, 23, 32, 45

Kenny v. Portfolio Recovery Assocs., LLC,
464 S.W.3d 29 (Tex. App.—Houston [1st Dist.] 2015, no pet.) ........................ 40

Kroger Tex. L.P. v. Suberu, 216 S.W.3d 788 (Tex. 2006) ...................................... 30
Lovick v. Ritemoney, 378 F.3d 433 (5th Cir. 2004) ................................................... 4

McReynolds v. Elston,
222 S.W.3d 731 (Tex. App.—Houston [14th Dist.] 2007, orig.
proceeding) ...................................................................................................28, 42
Mendelsohn v. A&D Catering Corp.,
119 Misc.2d 581, 464 N.Y.S.2d 331 (N.Y. 1983) .............................................. 37
Monotype Imaging, Inc. v. Bitstream, Inc.,
376 F.Supp.2d 877 (N.D. Ill. 2005) .................................................................... 42

Moses H. Cone Mem’l Hosp. v. Mecury Constr. Corp.,
460 U.S. 1 (1983) ....................................................................................16, 17, 45

Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp.,
804 F.2d 338 (5th Cir. 1986) ..................................................................20, 41, 44
Myers v. Rosenberg, 1986 WL 3329 (N.D.Ill.3/7/86) .................................35, 37, 38
NCP Finance Ltd. Partnership v. Escatiola,
350 S.W.3d 152 (Tex. App.—San Antonio, no pet.) ...... 6, 18, 24, 27, 46, 47, 50
Perry Homes v. Cull,
258 S.W.3d 580 (Tex. 2008) ........... 14, 15, 16, 17, 18, 19, 23, 32, 38, 42, 43, 45

Perry v. Thomas, 482 U.S. 483 (1987) .................................................................... 17
PHH Corp. v. CFPB,
839 F.3d 1 (D.C. Cir. 2016) (en banc review granted, op.
withdrawn, February 6, 2017) .............................................................................. 7

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Pilot Travel Ctrs., LLC v. McCray,
416 S.W.3d 168 (Tex. App.—Dallas 2013, no pet.) ..................21, 22, 33, 36, 42

Porter & Clements, LLP v. Stone,
935 S.W.2d 217 (Tex. App.—Houston [1st Dist.] 1996, no writ) ..................... 24

Prescott-Follett & Assocs., Inc. v. Delasa/Prescott Folett & Assocs.,
2002 WL 31528463 (E.D. La. 2002) ......................................................35, 37, 38

Preston v. Ferrer, 552 U.S 346 (2008) .................................................................... 15
Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (5th Cir. 2002) ...........20, 21, 41, 44

Principal Investments v. Harrison, 366 P.3d 688 (Nov. 2016) .........................33, 50

Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896 (Tex. 1995) ........14, 18, 22

Randol Mill Pharm. v. Miller, 465 S.W.3d 612 (Tex. 2015) .................................xiv
Ranzy v. Extra Cash of Texas, Inc.,
2011 WL 6719881 (S.D. Tex. 2011) ........................................................6, 10, 11
Reed v. Lindley,
240 S.W. 348 (Tex.Civ.App. Fort Worth 1922, no writ) ................................... 35

Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C.,
455 S.W.3d 573 (Tex. 2014) ............................................... 22, 23, 32, 36, 38, 45

Seagull Energy E & P, Inc. v. Eland Energy, Inc.,
207 S.W.3d 342 (Tex. 2006) .............................................................................. 27

Smith Barney Shearson, Inc. v. Boone,
838 F. Supp. 1156 (N.D. Tex. 1993) ......................................................20, 41, 44

Snap-On Tools Corp. v. Mason,
18 F.3d 1261 (5th Cir. 1994) ..................................................................20, 41, 44

Southland Corp. v. Keating, 465 U.S. 1 (1984) ....................................................... 15

Southwind Group, Inc. v. Landwehr,
188 S.W.3d 730 (Tex. App.—Eastland 2006, orig. proceeding) ....................... 42
Suarez v. City of Tex. City, 465 S.W.3d 623 (Tex. 2015).......................................xiv

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Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc.,
468 F.3d 523 (8th Cir. 2006) ........................................................................40, 41

Subway Equip. Leasing Corp. v. Forte,
169 F.3d 324 (5th Cir. 1999) ................................... 33, 34, 35, 36, 37, 38, 49, 50

Taft v. Burttram, 254 Ga. 687, 333 S.E.2d 585 (1985) .....................................37, 38
Taylor v. Gately,
870 S.W.2d 204 (Tex. App.—Waco 1994, writ dism’d.) .................................. 34
Thomas v. Cisneros,
596 S.W.2d 313 (Tex.Civ.App.—Austin 1980, writ ref’d n.r.e.)....................... 35

Tuscan Builders, L.P. v. 1437 SH6 L.L.C.,
438 S.W.3d 717 (Tex. App.—Houston [1st Dist.] 2014, pet.
denied)................................................................................................................. 42

Valero Energy Corp. v. Teco Pipeline Co.,
2 S.W.3d 576 (Tex. App.—Houston [14th Dist.] 1999, no pet.) .................19, 45
Venture Cotton Co-op v. Freeman,
435 S.W.3d 222 (Tex. 2014) ........................................................................14, 21

Vine v. PLS Financial Services, Inc.,
___ F. Supp.3d ___, 2016 WL 8138800 (W.D. Tex. [El Paso
Division] June 6, 2016) .................................................. 7, 8, 9, 37, 38, 47, 48, 49
Vine v. PLS Financial Services, Inc., ___ F.Supp.3d ___, 2016 WL
8138799 (W.D.Tex. [El Paso Division] August 11, 2016) .............................. 7, 9

Wash. Mut. Fin. Group, LLC v. Bailey,
364 F.3d 260 (5th Cir. 2004) ..................................................................22, 42, 43

Williams Indus. v. Earth Dev. Sys. Corp.,
110 S.W.3d 131 (Tex. App.—Houston [1st Dist.] 2003, no pet.) ...................... 28

Willis v. Donnelly,
199 S.W.3d 262 (Tex. 2006) .............................................................................. 27

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Statutes
Federal Arbitration Act, 9 USCA §§ 1-16
...................................... xv, 1, 6, 14, 15, 17, 18, 20, 21, 33, 37, 38, 40, 42, 47, 51

12 USC § 5491(a) ...................................................................................................... 4

15 USC § 1692e (2006) ............................................................................................. 4
TEX. CIV. PRAC. & REM. CODE § 51.016.................................................................. 15

TEX. CIV. PRAC. & REM. CODE § 171.021(b) ...............................................16, 17, 41

TEX. CIV. PRAC. & REM. CODE §171.098(a)(1) ....................................................... 15
TEX. FIN. CODE § 341.001(6) ..................................................................................... 5
TEX. FIN. CODE § 393.001(3) ..................................................................................... 5

TEX. FIN. CODE § 393.105 .......................................................................................... 6
TEX. FIN. CODE § 393.201-223 .................................................................................. 6

TEX. FIN. CODE § 393.203 ........................................................................................ 31

TEX. FIN. CODE § 393.204 ..............................................................................6, 10, 11
TEX. FIN. CODE § 393.221(1) ..................................................................................... 5

TEX. FIN. CODE § 393.221(2) ..................................................................................... 5
TEX. FIN. CODE § 393.503 ..............................................................................6, 10, 11

TEX. FIN. CODE § 393.504 ..................................................................................26, 31

TEX. FIN. CODE §§ 393.601-628 ................................................................................ 5

TEX. GOV’T. CODE § 22.001(a)(1) ..........................................................................xiv
TEX. GOV’T. CODE § 22.225(c) ...............................................................................xiv

TEX. PENAL CODE § 1.03(c) ..................................................................................... 34

TEX. PENAL CODE § 9.06 .......................................................................................... 34

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Other Authorities
Federal Rules of Civil Procedure Rule 12(b).........................................40, 41, 43, 47

TEX. R. APP. P. 9(i) .................................................................................................. 54

TEX. R. APP. P. 55.2(d)(1) ...........................................................................................i

TEX. R. APP. P. 55.3(a) ........................................................................................... xiii
TEX. R. APP. P. 56.1(a)(1) .......................................................................................xiv

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IV. STATEMENT OF THE CASE
The “Statement of the Case” contained in Petitioner’s Brief on the Merits is

generally correct. However, it fails to identify the “nature of the case,” as required

by Rule of 55.2(d)(1) of the Texas Rules of Appellate Procedure.

Nature of the case: The underlying suit seeks class certification, and

recovery of damages and equitable relief under the Texas Finance Code, the Texas

Deceptive Trade Practices Act, and tort law, arising from allegations that

Respondents used the criminal justice system as an improper means to collect

debts accrued on “pay-day” loans. Respondents seek individual arbitrations of

each of Petitioners’ claims through enforcement of broad-form arbitration and

class-action waiver provisions contained in the written contracts with each

Petitioner.

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V. STATEMENT OF JURISDICTION

Respondents recognize that the justices of the court of appeals disagree on a

question of law material to the decision. TEX. GOV’T. CODE §§ 22.001(a)(1) and

22.225(c); TEX. R. APP. P 56.1(a)(1); Suarez v. City of Tex. City, 465 S.W.3d 623,

621 (Tex. 2015); Randol Mill Pharm. v. Miller, 465 S.W.3d 612, 615 n.2 (Tex.

2015).

Respondents disagree with the other bases of jurisdiction asserted in

Petitioners’ Brief on the Merits. As will be shown in Respondents’ Brief, there is

no true conflict between the majority opinion of the Fourth Court of Appeals in

this case and the rulings of any other federal or state court.

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VI. ISSUES PRESENTED FOR REVIEW
In addition to, or in further explanation of, the issues presented for review by

Petitioners, Respondents present the following issues that will be addressed in this

Brief:

1. The Court of Appeals correctly construed and applied the substantive law of
arbitrability under the Federal Arbitration Act (“FAA”), consistent with
cases construing the FAA issued by the United States Supreme Court, this
Court, and other state and federal courts.
2. The Court of Appeals correctly construed and applied the evidentiary
standards and burdens of proof applicable to the elements of arbitrability,
including the elements of the defense of waiver, applicable to the FAA.
3. The Court of Appeals correctly determined that Respondents met their
burden of proof to show that the parties had agreed to valid, written, broad-
form agreements to arbitrate, and that Petitioners’ claims fell within the
scope of the agreements.

4. The Court of Appeals correctly determined that the written, broad-form
agreements contained enforceable class-action waiver provisions applicable
to Petitioners’ claims.

5. The Court of Appeals correctly determined that Petitioners failed to meet
their burden of proof on the defense of waiver to arbitrability, because:
a. Petitioners failed to submit relevant, and legally sufficient evidence of
waiver;

b. reliance solely on the allegations in the Petitioners’ pleading, and
unverified allegations from newspapers articles and online sources,
does not constitute legally sufficient evidence of waiver;
c. a private litigant cannot, as a matter of law, “substantially invoke” the
criminal justice system so as to waive its right to arbitrate civil
disputes; and

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d. evidence supporting the alleged merit of the substantive allegations
giving rise to a plaintiff’s claim cannot, as a matter of law, be
considered as evidence of waiver to defeat enforcement of a valid,
broad-form arbitration and class-action waiver provision.

6. The relief sought by Petitioners would constitute an improper “punishment”
of Respondents, which is not supported by federal or state law, and would
require development of new rules, or exceptions to existing rules, governing
the defenses of waiver and prejudice.

7. The jurisprudential consequences of creating the relief sought by Petitioners
would adversely impact federal and Texas public policy.

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TO THE HONORABLE SUPREME COURT OF TEXAS:

VII. SUMMARY OF THE ARGUMENT

Did the Fourth Court of Appeals correctly construe and
apply the federal substantive law of arbitration in this
case?

After clearing away the pretext presented by Petitioners and Amicus, this is the

central question before this Court. And, the answer to this question is “yes.”

The Fourth Court of Appeals correctly applied well-established law

governing arbitrability under the Federal Arbitration Act (“FAA”) in the context of

three overlapping circumstances:

 when the defense of waiver arises from alleged acts of the movant occurring
before the pending litigation was filed, and in the context of separate
criminal proceedings;

 when the earlier criminal proceedings and the underlying suit do not involve
the same dispute or the same parties; and

 when the alleged acts of the movant that form the basis of the waiver and
prejudice defenses also form the basis for the plaintiff’s substantive claims
of liability and damages.

Although these circumstances are atypical when compared to most cases in which

the defense of waiver arises from litigation conduct of the movant in the

underlying case after its filing, such circumstances do not require courts to deviate

from applying the well-established rules governing waiver, as Petitioners seek.

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When all of Petitioners’ allegations and arguments are fully distilled, what

they actually seek from this Court is imposition of a preliminary procedural

“punishment” on Respondents by prohibiting the enforcement of broad-form

arbitration and class-action-waiver provisions contained in “pay-day” loan

agreements. In support of their pleading for “punishment,” Petitioners argue that

different rules or exceptions should apply to the analysis of their defenses to

arbitrability, including:

 lowering of the burden of proof on for the defense of waiver from a “high
hurdle” based on the submission of independent relevant evidence, to merely
reliance on the allegations in a petition; and

 reliance on the alleged merit of the factual allegations giving rise to the
plaintiff’s substantive claims as evidence of waiver.

Petitioners provided no evidence of waiver. Instead, they filed petitions

containing conclusory allegations of wrongdoing, followed by a response to the

motion to compel that

 quoted interviews and papers from private organizations obtained from
various websites, which accused Respondents and other Credit Service
Organizations of improperly using the criminal justice system to collect
debts owed on “pay day” loans;

 provided copies of criminal court webpages listing Respondents as
“complainants” in certain criminal cases;

 asserted the merit of the factual allegations contained in their pleading; and

 offered conclusory and inferential arguments about what other evidence
would show in support of their malicious prosecution claim.

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This is not legally sufficient evidence of the elements of waiver. In lieu of

evidence, Petitioners argue that their substantive allegations of wrongdoing prove

“substantial invocation of the judicial process,” and that their substantive

allegations of damages prove prejudice. However, these arguments ignore the rule

that courts are prohibited from considering the underlying merits of the substantive

claims when determining arbitrability.

In essence, Petitioners and Amicus are reconfiguring their attack on

enforcement of the arbitration and class-action waiver provision into a de facto

unconscionability defense—that is, given all of the allegations they have made

against Respondents, it is somehow unconscionable to make Petitioners

individually arbitrate their claims. But, this argument fails, too, because courts

have uniformly held that unconscionability is not a defense to the enforcement of

the provision at issue.

When all is said and done, the Majority Opinion of the Fourth Court of

Appeals, which was upheld by 5 of the 7 justices on the entire court, correctly

stated and applied the well-established law governing arbitrability to this case.

3
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VIII. STATEMENT OF FACTS

A. Contextual Background
In order to fully address the arguments presented in the Petition, it is

important to provide some background facts that place this case in a proper

context. These contextual facts relate to the nature and regulation of Respondents’

business, and the parallel case filed by Petitioners’ counsel now pending before the

United States Fifth Circuit Court of Appeals.

The Legality of Respondents’ Business

The business of brokering loans for a fee (separate from the interest and fees

charged by the ultimate lender) has been legal in Texas for many years. See, e.g.,

Greever v. Persky, 165 S.W.2d 709, 769 (Tex. 1935); see generally, Lovick v.

Ritemoney, 378 F.3d 433, 439-41 (5th Cir. 2004). Texas licenses and regulates the

activities of brokers who facilitate short-term loans for consumers, including the

written terms of their contracts and disclosure statements, and the collection of

debts created by the loans, pursuant to Chapters 341 and 393 of the Texas Finance

Code.1

Under the Finance Code, a licensed broker who obtains, or assists in

obtaining, short-term loans for consumers is defined as a Credit Access Business

1
The debt-collection activity of such brokers also is regulated by federal law. See, e.g., 15 USC
§ 1692e (2006). Also, the Dodd-Frank Act gave the Consumer Financial Protection Bureau
(“CFPB”) authority to supervise and regulate aspects of these activities. 12 USC § 5491(a).

4
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(“CAB”), which is a type of Credit Service Organization (“CSO”). TEX. FIN. CODE

§§ 393.001(3), 393.221(1). Compliance with the Finance Code by CSOs,

including CABs, is regulated by the Finance Commission and the Office of

Consumer Credit Commissioner (“OCCC”). TEX. FIN. CODE §§ 393.601-628.

As reflected in the written contracts contained in the record, it is undisputed

that Respondents are licensed and regulated CAB/CSOs that engage in the business

of facilitating short-term loans to customers in Texas. (C.R. 80-130). The short-

term loans facilitated by Respondents include loans defined in the Finance Code as

“Deferred Presentment Transactions”:

a transaction in which: (A) a cash advance in whole or in part is made
in exchange for a personal check or authorization to debit a deposit
account; (B) the amount of the check or authorization debit equals the
amount of the advance plus a fee; and (C) the person making the
advance agrees that the check will not be cashed or deposited or the
authorized debit will not be made until a designated future date.

TEX. FIN. CODE §§ 341.001(6), 393.221(2).

Respondents are not the lender to the consumer. Instead, Respondents

arrange and assist with extensions of short-term credit for consumers through a

third-party lending institution, including the collection of payments to forward to

the lender. TEX. FIN. CODE §§ 393.001(3), 393.221 (1). The terms of the written

contracts between Respondents and their customers, and the disclosure statements

that Respondents must provide to their customers, are known as credit services

agreements (“CSO Agreements”) and credit services disclosures statements

5
010725.000005\4820-6817-9523.v1
(“Disclosure Statements”), certain terms of which are proscribed and regulated by

the Finance Code. TEX. FIN. CODE §§ 393.105, 393.201-223. The CSO

Agreements and Disclosure Statements, together with Loan Disclosures,

Promissory Note and Security Agreements (“Promissory Notes”), form the

documentation of the transaction between Respondents and their customers,

including Petitioners (hereinafter collectively referred to as “Loan Contracts”).2

A breach of contract by a CAB/CSO is deemed to be a violation of Chapter

393 of the Finance Code, which subjects a CAB/CSO to a claim by the consumer

for actual damages in an amount not less than the amount the consumer paid the

CAB/CSO, reasonable attorney’s fees, court costs, and punitive damages. TEX.

FIN. CODE §§ 393.204, 393.503; see, e.g., Ranzy v. Extra Cash of Texas, Inc., 2011

WL 6719881, *4 (S.D. Tex. 2011).

As illustrated by the briefs submitted by Petitioners and Amicus, the

CAB/CSO lending industry has come under increasing political criticism in recent

years, ranging from efforts at local levels to impede the operation of CAB/CSOs

through zoning regulations, to federal regulatory efforts to foreclose CAB/CSOs

from doing business with lending institutions. See, e.g., Consumer Service

Alliance of Texas, Inc. v. City of Dallas, 433 S.W.3d 796 (Tex. App.—Dallas
2
The Finance Code does not prohibit the inclusion of arbitration provisions, or class-action
waiver provisions, in the contracts between a CAB/CSO and a consumer. In fact, such
provisions have been enforced in a CAB/CSO contract by a Texas Court applying the FAA. See
NCP Finance Ltd. Partnership v. Escatiola, 350 S.W.3d 152, 155 (Tex. App.—San Antonio, no
pet.).

6
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2014, no pet.) (describing recent zoning regulations); Community Financial

Services Assoc. of Am., Ltd. v. FDIC, 132 F.Supp.3d 98 (D.C. D. 2015) (describing

“Operation Choke Point”). Additionally (as discussed in Petitioners’ Brief), the

recently-created CFPB has considered prohibiting the inclusion of arbitration and

class-action-waiver provisions in the written contracts for these short-term credit

agreements. It is critical to note, however, that no such regulation has been

promulgated by the CFPB, and that the constitutionality of the CFPB and its

structure are currently under judicial review. See PHH Corp. v. CFPB, 839 F.3d 1

(D.C. Cir. 2016) (en banc review granted, op. withdrawn, February 6, 2017).

As is clear from much of Petitioners’ (and Amicus’) arguments, this current

political climate engulfing the entire CAB/CSO industry provides a significant pre-

text for the Petition now before the Court.

The Current Litigation Effort Against the CAB/CSO Industry

In fact, this case, and the parallel case of Vine v. PLS Financial Services,

Inc., ___ F. Supp.3d ___, 2016 WL 8138800 (W.D. Tex. [El Paso Division] June

6, 2016), opinion on reconsideration, ___ F. Supp.3d ___, 2016 WL 8138799

(W.D. Tex. [El Paso Division] August 11, 2016)3, are part of a concerted effort by

organizations, including Petitioners’ counsel and Amicus, to impose a prohibition

3
Vine is currently pending on appeal before the United States Fifth Circuit Court of Appeals as
Cause No. 16-50847, which was orally argued on March 8, 2017 (See Appendix 1 to
Respondents’ Brief on the Merits).

7
010725.000005\4820-6817-9523.v1
on the enforcement of arbitration and class-action-waiver provisions in the written

contracts for short-term Deferred Presentment Transactions, which neither the

State of Texas, nor the federal government, has imposed.

Petitioners’ counsel is also counsel of record for the Plaintiffs in Vine, and

Amicus, Texas Appleseed, filed amicus briefs in the Fourth Court of Appeals in

this case and also appeared in the District Court in Vine (and has attempted to

appear before the Fifth Circuit in Vine).4 (See Appendix 2 to Respondents’ Brief

on the Merits). As will be discussed below, the trial court’s order issued in this

case denying arbitration was written by Petitioners’ counsel, was submitted at the

close of the hearing, and was signed by the trial court without any changes. (R.R.

33:16-19; C.R. 246-47, 257-58). Then, that order was submitted to the District

Court in Vine to support Petitioners’ counsel’s argument that courts support their

opposition to enforcement of arbitration and class-action-waiver provisions in CSO

Agreements. (See Appendix 4 to Respondents’ Brief on the Merits). In turn, the

District Court’s opinion in Vine was presented to the Fourth Court of Appeals (and

to this Court) to support Petitioners’ arguments in this case, and the District Court

4
Texas Appleseed’s motion to submit its Amicus Brief was denied by the Fifth Circuit. (See
Appendix 3 to Respondents’ Brief on the Merits).

8
010725.000005\4820-6817-9523.v1
in Vine ultimately issued a second opinion in which it disagreed with the Fourth

Court’s analysis in this case. Vine, 2016 WL 8138799, at *5 n.4. 5

B. The Undisputed Facts
Turning from the pretext presented by Petitioners, Respondents now present

the following uncontested facts, which are relevant to the issue of arbitrability

before this Court:

 Respondents are CAB/CSOs that are regulated pursuant to Chapter 393 of
the Finance Code (C.R. 131);

 Petitioners entered into transactions with Respondents memorialized by the
Loan Contracts, which contained a broad-form arbitration and waiver-of-
class-action provision (C.R. 132, 80-130);

 the arbitration provision contained the following specific terms outlining its
breadth: “the words “dispute” and “disputes” are given the broadest possible
meaning and include, without limitation … (d) all common law claims,
based on contract, tort, fraud, or intentional torts; (e) all claims based on a
violation of any state or federal constitution, statute or regulation; … (g) all
claims asserted by you individually against us …, including claims for
money damages and/or equitable or injunctive relief; … (i) all claims
asserted by you as a private attorney general, as a representative and member
of a class of persons, or in any other representative capacity, against us …;
and/or (j) all claims arising from or relating directly or indirectly to the
5
The decision of the Fourth Court of Appeals in this case was issued between the two
memorandum opinions issued in Vine. Compare Vine, 2016 WL 8138800, Vine, 2016 WL
8138799, and Cash Biz, LP v. Henry, 2016 WL 4013894 (Tex. App.—San Antonio, 2016, pet.
filed). This cycle of self-reinforcing arguments and orders has been mirrored in out-of-court
statements to the press by Petitioners’ counsel about this case, and all of these arguments and
orders were cited to support the granting of the Petition by this Court. (See, e.g., Petition for
Review, p.3 and App. B). In fact, much of the efficacy of the underlying allegations in this suit
rely on information collected and published by Amicus, which it, and Petitioners, now cite as
authority to support Petitioners’ defense to arbitrability. These efforts are churning the political
debate surrounding “pay day” loans into potential class-action litigation, but they should have
nothing to do with whether Respondents waived their right to arbitrate Petitioners’ claims.

9
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disclosure by us … of any non-public personal information about you.”
(C.R. 81-82, 85-86, 89-91, 93-94, 97-98, 101-03, 105-06, 109-110, 113-15,
117-18, 122-23, 126-28);

 Respondents arranged extensions of credit to Petitioners by obtaining the
amount of funds described in each Loan Contract by and through a third-
party lender (C.R. 132, 80-130);

 Petitioners brought the present action alleging that Respondents’ submission
of information to prosecutors constituted an improper attempt to collect a
civil debt in violation of the Texas Finance Code and tort law, and that they
were damaged as result of such conduct (C.R. 1-11, 15-26, 147-48, 257-58);

 the damages sought by Petitioners include damages recoverable under the
Finance Code for a breach of contract (See TEX. FIN. CODE §§ 393.204,
393.503; see, e.g., Ranzy v. Extra Cash of Texas, Inc., 2011 WL 6719881, *4
(S.D. Tex. 2011));

 Respondents sought to enforce its contractual right to individual arbitrations
of Petitioners’ claims by moving to compel arbitration and enforce the
waiver-of-class action provision (C.R. 52-133, 248-55);

 Petitioners’ opposed the motion to compel on two grounds: their claims did
not fall within the scope of the broad-form provision; and that the alleged
conduct of Respondents giving rise to Petitioners’ claims—the submission
of information to law enforcement agencies—constituted evidence of waiver
that would prohibit the enforcement of the arbitration and class-action-
waiver provisions (C.R. 136-247); and

 There is no allegation, evidence or finding that Respondents filed or initiated
any civil proceedings against any Petitioners, or sought any relief or benefit
in the underlying action before the motion to compel was heard by the trial
court. (C.R. 1-11, 15-26, 147-48, 257-58).

C. The Evidentiary Record
The record from the trial court consists of Petitioners’ pleadings; the motions

and responses filed by the parties pertaining to the enforcement of the contractual

10
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arbitration and class-action waiver provision in the Loan Contracts; the materials

attached to those filings; the transcript of the oral hearing; and the trial court’s

order denying the motion to compel.

Petitioners filed the present suit claiming that Respondents committed the

torts of malicious prosecution and fraud, and violated certain Texas statutes, by

“using the criminal justice system to collect a civil debt” created by the Loan

Contracts. (C.R. 1-11, 15-26, 147-48, 257-58).6 They sought monetary damages,

including statutory damages, related to criminal fines, jail time, loss of reputation

related to criminal convictions, as well as equitable and injunctive relief, which are

provided under Chapter 393 of the Finance Code as remedies for breach of

CAB/CSO contracts. (C.R. 3, 257-58); see TEX. FIN. CODE §§ 393.204, 393.503;

see, e.g., Ranzy v. Extra Cash of Texas, Inc., 2011 WL 6719881, *4 (S.D. Tex.

2011).

In response, Respondents sought to enforce the contractual broad-form

arbitration and waiver-of-class-action provision by filing a motion to compel.

(C.R. 52-133). Prior to the hearing on the motion to compel held on July 9, 2015,

Respondents submitted the Loan Contracts, and the affidavits of David Flanagan,

who, as an officer of Respondents, authenticated the Loan Contracts and

6
In fact, the Petitioners stipulated to the existence of such debts owed under the Loan Contracts,
and that their suit related to the collection of those debts. (R.R. 21:11-13).

11
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transactions, and swore to the limited involvement of Respondents in the process

of providing information to prosecutors. (C.R. 131-33; S.C.R. 10).

Petitioners provided no evidence controverting either the Loan Contracts or

the affidavits. Instead, they filed a response that quoted interviews and papers

from private organizations obtained from various websites, which accused

Respondents and other CAB/CSOs of improperly using the criminal justice system

to collect debts owed on “pay day” loans; provided copies of criminal court

webpages listing Respondents as “complainants” in certain criminal cases; asserted

the merit of the factual allegations contained in their pleading; and offered

conclusory and inferential arguments about what other evidence would show in

support of their malicious prosecution claim. (C.R. 137-43; R.R. 13:20-14:9,

19:12-21:21, 22:7-10, 24:2-25:10, 29:16-23:10, 32:17-33:14).

D. The Trial Court Hearing and Order
No additional evidence was presented during the hearing in the trial court on

the motion to compel. However, during the hearing the trial judge made several

observations and asked questions based on her stated knowledge of and experience

about the process used by certain prosecutors when handling bad-check

complaints. (R.R. 28:15-22, 30:22-24, 31:14-18). None of the statements made by

the trial court were based on any evidence submitted in support of, or in opposition

to, the motion to compel.

12
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At the end of the hearing, the trial judge denied the motion and received a

pre-prepared written order to sign from Petitioners’ counsel.7 (R.R. 33:16-19).

The pre-prepared written order contained specific findings, and the trial court

signed the order at the close of the hearing without making any edits. (C.R. 246-

47, 257-58). The order contained the following findings:

 Respondents “filed criminal charges against Plaintiffs, participated in
criminal trials, obtained criminal judgments, and attempted to collect from
Plaintiffs;”

 Petitioners’ claims arose from Respondents’ use of the “the criminal justice
system to enforce a civil debt;”

 the arbitration and class-action-waiver provision did not apply to such a
dispute; and

 Respondents waived their right to enforce the arbitration and class-action-
waiver provision by substantially invoking the judicial process when they
submitted information about criminal activity to prosecutors.

(C.R. 246-47, 257-58).

E. The Fourth Court’s Opinion and Disposition of the Case
The Fourth Court of Appeals, in a 2-1 opinion, reversed the trial court order,

and rendered judgment enforcing the broad-form arbitration and waiver-of-class

action provision of the Loan Contracts. Cash Biz, LP v. Henry, 2016 WL 4013794

(Tex. App.—San Antonio 2016, pet. filed). The Majority Opinion cited and

7
The docket sheet does not reflect any specific findings or conclusions made by the trial court to
support the denial of the motion. (C.R. 256).

13
010725.000005\4820-6817-9523.v1
applied Texas case law interpreting and applying the FAA, including the following

opinions from this Court:

 In re Rubiola, 334 S.W.3d 220 (Tex. 2011);

 J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003);

 Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014);

 In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009);

 Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896 (Tex. 1995);

 In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. 2001);

 Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008); and

 In re Bruce Terminix Co., 988 S.W.2d 702 (Tex.1998).

Id., at *3-9. The Majority Opinion found that the scope of the broad-form

provision included the claims made by Petitioners, and found that Petitioners failed

to submit legally sufficient evidence to meet their burden of proof on the defenses

of either waiver or prejudice. Id., *3-8.

Petitioners and Amicus sought both a motion for rehearing, and en banc

review by the entire Fourth Court of Appeals. The motion for rehearing was

denied, and en banc review was denied by 5 of the 7 members of the Fourth Court

of Appeals. (See, Petition for Review, App. F).

14
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IX. GOVERNING LAW, STANDARD OF REVIEW, AND BURDENS OF
PROOF

A. The FAA under Texas Law

The FAA under Texas Law

The Loan Contracts specifically stated that the arbitration provision “is made

pursuant to a transaction involving interstate commerce and shall be governed by

the FAA,” and both parties have threated the FAA as the governing law in this

case.8 When applicable to a case, the FAA pre-empts the TAA, and state courts

must recognize and apply the federal substantive law of arbitrability. Preston v.

Ferrer, 552 U.S 346, 349 (2008); see Southland Corp. v. Keating, 465 U.S. 1

(1984). In recognition of this form of pre-emption, Texas courts treat the federal

substantive law under the FAA as being part of the substantive law of this state.

Capital Income Properties v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992).

As part of the incorporation of the FAA into Texas substantive law, this

Court has stressed the importance of “keeping federal and state arbitration law

consistent.” Perry Homes, 258 S.W.3d at 594; In re Weekley Homes, L.P., 180

8
Because the same provision expressly states that the Texas Arbitration Act (“TAA”) would
apply in the event the FAA was found not to apply for any reason to the Loan Contracts,
Respondents moved to enforce the arbitration agreement containing the waiver-of-class-action
provision under both the TAA and the FAA, and have based their right to interlocutory appeal on
both laws. TEX. CIV. PRAC. & REM. CODE §§ 51.016, 171.098(a)(1); 9 USCA §§ 1-16. Neither
the trial court, nor the Fourth Court of Appeals found the FAA to be inapplicable to the Loan
Contracts.

15
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S.W.3d 127, 130-31 (Tex. 2005); In re Kellogg Brown & Root, Inc., 166 S.W.3d

732, 739 (Tex.2005); see Moses H. Cone Mem’l Hosp. v. Mecury Constr. Corp.,

460 U.S. 1, 25 (1983). Applying this principle, this Court has agreed with the

federal Fifth Circuit Court of Appeals that the determination of whether state or

federal law of arbitrability applies “is often an uncertain question.” Perry Homes,

258 S.W.3d at 594 n.86 (quoting Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d

260, 267 n.6 (5th Cir. 2004)). In the absence of a clear directive from the United

States Supreme Court, Texas courts should lean toward applying state law while

endeavoring to keep its ruling as consistent as possible with federal law. In re

Kellogg Brown & Root, Inc., 166 S.W.3d at 739.

Maintaining consistency between federal and state law requires Texas trial

courts to harmonize and apply the procedural rules of Texas law and the

substantive federal law to determine whether the parties must arbitrate. In re

Weekley Homes, L.P., 180 S.W.3d at 130; Cooper Indus., LLC v. Pepsi-Cola

Metro. Bottling Co., Inc., 475 S.W.3d 436 (Tex. App.—Houston [14th Dist.] 2015,

no pet.).. Under Texas procedural law, a party seeking to compel arbitration is

entitled to a summary determination of its motion by the trial court, in a proceeding

similar to a summary judgment proceeding. TEX. CIV. PRAC. & REM. CODE

§ 171.021(b); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268–69 (Tex.

1992); Cooper Indus., LLC, 475 S.W.3d at 441-442. In such a proceeding, the

16
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preliminary questions as to whether a valid arbitration agreement exists, and

whether the dispute come within the scope of the arbitration provision are legal

questions of law to be resolved summarily by comparing the arbitration provision

with the pleadings and any supporting affidavits or discovery. TEX. CIV. PRAC. &

REM. CODE § 171.021(b); J.M. Davidson, Inc., 128 S.W.3d at 227. Appellate

courts defer to a trial court’s factual determinations that are supported by sufficient

evidence, but appellate courts are to review legal determinations de novo. Cooper

Indus., LLC, 475 S.W.3d at 441.

As for the substantive law of arbitration, application of the FAA generally

requires courts to apply state law to the resolution of whether a valid and

enforceable arbitration provision exists, and federal law as to whether the dispute

comes within the scope of the arbitration provision. In re Weekley Homes, L.P.,

180 S.W.3d at 130; In re Kellogg Brown & Root, Inc., 166 S.W.3d at 738; Doctor's

Assocs. Inc. v. Casarotto, 517 U.S. 681, 686–87 (1996); First Options of Chi., Inc.

v. Kaplan, 514 U.S. 938, 944, (1995); Perry v. Thomas, 482 U.S. 483, 492 n.9

(1987). Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103

S.Ct. 927, 74 L.Ed.2d 765 (1983). For the defense of waiver, this Court adopted

the “totality of circumstances” legal analysis developed by federal courts. Perry

Homes, 258 S.W.3d at 593-600. As a result, the legal standard applied to evaluate

the defense of waiver is similar under both the FAA and the TAA. See, e.g., In re

17
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Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009); In re AdvancePCS

Health, L.P., 172 S.W.3d 603, 605-06 (Tex. 2005) (orig. proceeding); In re Ruefer,

1999 WL 371568, 1999 Tex. App. LEXIS 4275, *8-10 (Tex. App.—Amarillo

1999, pet. dism’d. want of jurisdiction).

Public policy heavily favors enforcement of contractual terms that provide

private mechanisms for resolving disputes outside of the courthouse, including

arbitration and class-action waiver provisions. Cantella & Co., Inc. v. Goodwin,

924 S.W.2d 943, 944 (Tex. 1996); Prudential Securities, Inc., 909 S.W.2d at 898-

99; Tipps, 842 S.W.2d at 268; see, e.g., In re Universal Underwriters of Texas Ins.

Co., 345 S.W.3d 404 (Tex. 2011) (contractual appraisal clause); Perry Homes,

supra. (Tex. 2008) (contractual arbitration provision); NCP Finance Ltd.

Partnership, 350 S.W.3d at 155 (contractual arbitration and class-action waiver

provisions). Consistent with federal law and this shared public policy, Texas courts

applying the FAA are generally required to enforce broad-form arbitration and

class-action waiver provisions. See generally, DirectTV, Inc. v. Imburgia, 577

U.S. ___, 136 S.Ct. 463 (2015); AT&T Mobility v. Concepcion, 563 U.S. 333

(2011); see also, NCP Finance Ltd. Partnership, 350 S.W.3d at 155.

B. The Standard of Review
Based on these principles, a trial court’s disposition of a motion to compel

arbitration involves a series of summary determinations and questions of law,

18
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which will be reviewed under the de novo standard by the appellate court. See J.M.

Davidson, Inc., 128 S.W.3d at 227; Valero Energy Corp. v. Teco Pipeline Co., 2

S.W.3d 576, 581 (Tex. App.—Houston [14th Dist.] 1999, no pet.); see also In re

D. Wilson Constr. Co., 196 S.W.3d 774, 778–81 (Tex. 2006). The de novo

standard specifically applies to appellate review of questions of law and legal

conclusions, including the existence of a valid arbitration agreement, whether the

scope of the arbitration provision includes the dispute at issue, and whether the

defense of waiver applies to defeat enforcement of an otherwise valid and

applicable arbitration provision. In re Fleetwood Homes, 257 S.W.3d 692, 694

(Tex. 2008) (citing Perry Homes, 258 S.W.3d at 590, 598); J.M. Davidson, Inc.,

128 S.W.3d at 227; G.T. Leach, Builders L.L.C. v. Sapphire VP, L.P., 458 S.W.3d

502, 511 (Tex. 2015); Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 545

(Tex. 2014). Moreover, where no factual dispute is raised as to an issue addressed

by the trial court, or where there are no findings of fact entered by the trial court as

to such issues, the de novo standard of review will apply to such issues. G.T.

Leach, Builders L.L.C., 458 S.W.3d at 511; Kennedy Hodges, L.L.P., 433 S.W.3d

at 545; Perry Homes, 258 S.W.3d at 598.

To the extent any of the decisions of the trial court involve findings of fact,

those findings will be reviewed by an appellate court for an abuse of discretion

applying the legal sufficiency or “no evidence” standard of review. Valero Energy

19
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Corp., 2 S.W.3d at 581; Fridl v. Cook, 908 S.W.2d 507, 511 (Tex. App.—El Paso

1995, writ dism’d w.o.j.); Hearthshire Braeswood Plaza Ltd. Partnership v. Bill

Kelly Co., 849 S.W.2d 380, 384 (Tex. App.—Houston [14th Dist.] 1993, writ

denied); Cooper Indus., LLC, 475 S.W.3d at 442. When applying this standard, an

appellate court must defer to the trial court’s findings, but such deference is limited

to only those findings that are supported by the record. In re Labatt Food Serv.,

L.P., 279 S.W.3d at 643; Bonded Builders Home Wty Ass’n of Texas, Inc. v. Smith,

2016 WL 1612916, *3 (Tex. App.—Dallas 2016, no pet. h.); Garcia v. Huerta, 340

S.W.3d 864, 868 (Tex. App.—San Antonio 2011, pet. denied).

Federal law governing the FAA further limits appellate deference to a trial

court by prohibiting courts from considering the merits of the underlying action

when making findings of fact and resolving questions of law. AT&T Technologies,

Inc. v. Communications Workers of Am., 475 U.S. 643, 649 (1986); Primerica Life

Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002); Snap-On Tools Corp. v.

Mason, 18 F.3d 1261, 1267 (5th Cir. 1994); Municipal Energy Agency of

Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338, 342 (5th Cir. 1986); Horizon

Health Corp. v. Tyler-Holmes Memorial Hosp., 284 F. Supp. 2d 439, 441 (N.D.

Miss. 2003); Smith Barney Shearson, Inc. v. Boone, 838 F. Supp. 1156, 1158 (N.D.

Tex. 1993).

20
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C. The Burdens of Proof
Under both the TAA and the FAA, the movant seeking to compel has the

initial burden to prove, and the court must initially decide, only two issues:

1. Is there a valid arbitration agreement; and

2. If so, does the agreement encompass the claim.9

In re Rubiola, 334 S.W.3d at 223; In re Kellogg Brown & Root, 166 S.W.3d at

737; J.M. Davidson, Inc., 128 S.W.3d at 227. Once the movant meets its burden

on these two elements, the burden shifts to the non-movants to prove defenses to

arbitrability, including waiver. Venture Cotton Co-op, 435 S.W.3d at 227; J.M.

Davidson, Inc., 128 S.W.3d at 227; In re AdvancePCS Health, L.P., 172 S.W.3d at

607; Pilot Travel Ctrs., LLC v. McCray, 416 S.W.3d 168, 177 (Tex. App.—Dallas

2013, no pet.) (citing to In re Kellogg Brown & Root, 166 S.W.3d at 737); see In re

Online Travel Co. (OTC) Hotel Booking Antitrust Litigation, 953 F.Supp.2d 713,

717 (N.D. Tex. 2013); In re Ruefer, 1999 Tex. App. LEXIS 4275, *8-10.

The questions as to whether a valid arbitration agreement exists, and

whether the dispute comes within the scope of the arbitration provision, are

questions of law. J.M. Davidson, Inc., 128 S.W.3d at 227; G.T. Leach Builders,

9
Federal Courts also recognize another step, which requires the trial court to determine whether
arbitration of the dispute would be prohibited by another law. Primerica Life Ins. Co., 304 F.3d
at 471; Horizon Health Corp., 284 F. Supp. 2d at 441. The Petitioners did not raise this issue in
either the trial court, or to the Court of Appeals, and they have not presented any such law to this
Court. Though they mention statements made by the CFPB, no federal law or regulation exists
that prohibits the inclusion or enforcement of arbitration or class-action waiver provisions in the
Loan Contracts at issue.

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LLC, L.P., 458 S.W.3d at 519-20; Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 55

& n.9 (Tex. 2008). In answering these questions, the court must apply a

reasonable presumption, and resolve all doubts, in favor of compelling arbitration.

In re Kellogg Brown & Root, 166 S.W.3d at 737. If the trial court has to make

findings of fact in order to resolve the questions of law, the trial court makes those

findings by comparing the arbitration provision with the pleadings and any

supporting affidavits or discovery. J.M. Davidson, Inc., 128 S.W.3d at 227.

If the movant meets its burden, the trial court has no discretion but to compel

arbitration, unless the non-movant can show that it has a defense to the

applicability or enforcement of the arbitration provision, including the defense of

waiver. J.M. Davidson, Inc., 128 S.W.3d at 227; In re Oakwood Mobile Homes,

Inc., 987 S.W.2d 571, 573 n.3 (Tex. 1999); Prudential Securities, Inc., 909 S.W.2d

at 898-99. Whether waiver occurs depends on the specific facts and circumstances

of each case. Pilot Travel Ctrs., LLC, 416 S.W.3d at 183. Waiver may be express

or implied. G.T. Leach, Builders L.L.C., 458 S.W.3d at 511; Cooper Indus., LLC,

475 S.W.3d at 447. An implied waiver may be proved if the non-movant can show

based on a totality of circumstances that the party seeking to enforce arbitration

substantially invoked the judicial process to the non-movant’s detriment or

prejudice. G.T. Leach, Builders L.L.C., 458 S.W.3d at 511-12; Kennedy Hodges,

L.L.P., 433 S.W.3d at 543; Richmont Holdings, Inc. v. Superior Recharge Sys.,

22
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L.L.C., 455 S.W.3d 573, 574-75 (Tex. 2014); Perry Homes, 258 S.W.3d at 589-93.

The non-movant has the burden of proof and persuasion on the issue of

waiver. Forest Oil Corp., 268 S.W.3d at 56; Perry Homes, 258 S.W.3d at 589; In

re Kaplan Higher Educ. Corp., 235 S.W.3d 206, 208–09 (Tex. 2007); Cooper

Indus., LLC, 475 S.W.3d at 447. Because of the strong presumption against waiver

of arbitration, “this hurdle is a high one.” Kennedy Hodges, L.L.P., 433 S.W.3d at

543; Richmont Holdings, Inc., 455 S.W.3d at 574-75; Perry Homes, 258 S.W.3d at

589-90.

If the non-movant does not meet its burden on the issue of waiver, the trial

court has no discretion but to compel arbitration. Forest Oil Corp., 268 S.W.3d at

56, 61. Resolution of the issue as to whether an implied waiver has occurred is

also a question of law for the court to decide. Perry Homes, 258 S.W.3d at 598;

Cooper Indus., LLC, 475 S.W.3d at 447-448.

X. ARGUMENT

A. Respondents met their burden of proof to enforce the arbitration
provision
Respondents had the initial burden to prove the two initial elements required

to compel arbitration. In re Kellogg Brown & Root, 166 S.W.3d at 737.

Respondents met this burden by proffering the Loan Contracts and the affidavits of

23
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David Flanagan, together with the motion to compel and reply.

1. A valid and enforceable arbitration agreement exists
Petitioners did not challenge the existence, validity, or enforceability of the

arbitration and class-action waiver provision in the trial court, and the trial court

did not base its ruling on this element of Respondents’ burden. However, because

this Court is to apply the de novo standard of review, and Petitioners appear to now

ask this Court to “punish” the Respondents with a denial of enforcement of this

provision, Respondents will briefly address this element.

The Loan Contracts provided the prima facie evidence of the existence of

valid and enforceable arbitration provisions binding each of the Petitioners. Each

Petitioner executed the Loan Contracts containing the arbitration and class-action

waiver provision that referred all disputes between the parties to binding arbitration

on an individual basis as indicated above. Each Petitioner enjoyed the benefits of

the Loan Contracts and obtained benefits or funds based on, and arising out of, the

Loan Contracts. Each Petitioner agreed to be bound by the arbitration and class-

action waiver provision, and none of the Appellees opted out of the provision. The

provision is binding, because the agreement states that it is binding and a court

may enter judgment on the arbitration award. See Porter & Clements, LLP v.

Stone, 935 S.W.2d 217, 220-21 (Tex. App.—Houston [1st Dist.] 1996, no writ);

NCP Finance Ltd. Partnership, 350 S.W.3d at 155.

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Based on the foregoing, Respondents met their burden as a matter of law to

prove the first element of arbitrability. However, Petitioners and Amicus now

appear to be reconfiguring their attack on enforcement of the provision into a de

facto unconscionability defense—that is, given all of the allegations they have

made against Respondents, it is somehow unconscionable to make Petitioners

individually arbitrate their claims. Not only have Petitioners failed to properly

raise such a defense, but Texas and federal courts have been clear that

unconscionability is not a defense to judicial enforcement of an arbitration

agreement, but is instead a matter for the arbitrator to address. In re Labatt Food

Serv., L.P., 279 S.W.3d 647-48; In re AdvancePCS Health, L.P., 172 S.W.3d at

608; In re Oakwood Mobile Homes, Inc., 987 S.W.2d at 573; In re Conseco

Finance Servicing Corp., 19 S.W.3d 562, 569-70 (Tex. App.—Waco 2000, orig.

proceeding); see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006).

Therefore, the provision at issue is valid and enforceable as a matter of law at this

stage of the proceeding.

2. The dispute falls within the scope of the arbitration provision
As for the second element of Respondents’ burden, the order signed by the

trial court concluded that the arbitration and waiver-of-class-action provision was

inapplicable to the Petitioners’ allegations related to “use of the criminal justice

system to enforce a civil debt,” and to damage claims “related to criminal fines, jail

25
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time, and loss of reputation related to [Petitioners’] criminal convictions.” As the

Majority Opinion of the Fourth Court of Appeals properly determined, the trial

court abused its discretion as a matter of law in reaching this conclusion, because it

is inconsistent with the law and is unsupported by any evidence presented by either

party.

Petitioners pled tort and statutory causes of action, and a contractual defense

of material breach of the Loan Contracts, based on the allegation of Respondents’

improper “use of the criminal justice system to enforce a civil debt.” (CR, 6-9, 21-

23, 147-48). Petitioners sought to recover monetary damages caused by such

conduct, including statutory damages recoverable for breach of a CAB/CSO

contract under Section 393.504 of the Finance Code. (CR, 10, 11, 17, 24, 25);

TEX. FIN. CODE § 393.504. These claims fall squarely within the four corners of

the arbitration and class-action waiver provision.

Paragraph1of the arbitration provision states that the agreement requires

arbitration of all disputes between the parties to the Loan Contracts, including the

following:

… (d) all common law claims, based on contract, tort, fraud, or
intentional torts; (e) all claims based on a violation of any state or
federal constitution, statute or regulation; … (g) all claims asserted by
you individually against us …, including claims for money damages
and/or equitable or injunctive relief; … and/or (j) all claims arising
from or relating directly or indirectly to the disclosure by us … of any
non-public personal information about you.

26
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(CR, 81-82, 85-86, 89-91, 93-94, 97-98, 101-03, 105-06, 109-110, 113-15, 117-18,

122-23, 126-28). Therefore, the tort and statutory causes of action (and the

contractual defense) are covered by the referrals under Paragraph 1(d) and (e) of

the provision. Moreover, the damages sought by the Petitioners are covered by the

broad referral under Paragraph 1(g) of the provision.

Arbitration agreements, like other contracts, are subject to the legal rules of

contract construction. In re Olshan Foundation Repair Co., Inc., 328 S.W.3d 883,

889 (Tex. 2010). No party claimed the Loan Contracts were ambiguous, so the

trial court was required to interpret the arbitration provision as a matter of law.

Willis v. Donnelly, 199 S.W.3d 262, 275 (Tex. 2006); Seagull Energy E & P, Inc.

v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); see generally, Coker v.

Coker, 650 S.W.2d 391, 393-94 (Tex. 1983). In construing a contract, courts must

ascertain and give effect to the parties’ intentions as expressed in the document.

Frost Nat’l Bank v. L&F Distributors, Ltd., 165 S.W.3d 310 (Tex. 2005); J.M.

Davidson, Inc. 128 S.W.3d at 229. Unambiguous contracts are enforced as

written, therefore the language of the arbitration provision is the best evidence as

to whether the Appellees’ claims fall within the scope of the arbitration provision.

Heritage Res. v. Nationsbank, 939 S.W.2d 118, 121 (Tex. 1996); see, e.g.,NCP

Finance Ltd. Partnership, 350 S.W.3d at 155. The conduct of the parties is

ordinarily immaterial to the determination of the construction of an unambiguous

27
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contract. East Montgomery Cty. Mun. Utility Dist. No. 1 v. Roman Forest Consol.

Mun. Utility Dist., 620 S.W.2d 110, 112 (Tex. 1981).

Applying these rules of construction, courts must resolve any doubts about

an arbitration agreement’s scope in favor of arbitration. In re FirstMerit Bank,

N.A., 52 S.W.3d at 753. A broad-form arbitration clause, purporting to cover all

claims, disputes, and other matters arising out of or relating to the contract, creates

a presumption of arbitrability. AT&T Technologies, Inc., 475 U.S. at 650;

McReynolds v. Elston, 222 S.W.3d 731, 740-41 (Tex. App.—Houston [14th Dist.]

2007, orig. proceeding); Williams Indus. v. Earth Dev. Sys. Corp., 110 S.W.3d 131,

137 (Tex. App.—Houston [1st Dist.] 2003, no pet.); In re Conseco Finance

Servicing Corp., 19 S.W.3d at 570. All of Petitioners’ claims are expressly

covered by the contractual provision at issue. Therefore, under the proper rules of

construction, including the presumption of arbitrability, Petitioners’ claims fall

within the scope of the provision as a matter of law.

Even if this Court feels it needs to look deeper into the basis for Petitioners’

claims to resolve this element of arbitrability, it is clear that the underlying dispute

as described in both the order and Petitioners’ pleadings—“use of the criminal

justice system to enforce a civil debt”—fall within the scope of the arbitration

provision. Efforts to collect debts owed under a contract are covered under broad-

28
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form arbitration clauses. See In re Conseco Finance Servicing Corp., 19 S.W.3d at

570. In Conseco, the Court of Appeals specifically found as such and stated:

Although true that the claim raised by [Plaintiff] is not based on the
formation or the terms of the contract, the arbitration clause is not so
limited. Rather, the clause provides for arbitration of any claims
“arising from or relating to” the contract. [Plaintiff’s] complaint
arises from Conseco’s alleged efforts to collect the amounts due under
the terms of the agreement. Absent the contract, there would be no
relationship between [Plaintiff] and Conseco, and there would have
been no debt the collection of which caused the difficulty between
them. See American Employers’ Ins. Co. v. Aiken, 942 S.W.2d 156,
160 (Tex. App.—Fort Worth 1997, no writ). Therefore, we conclude
that [Plaintiff’s] claims based on Conseco’s acts in collecting the debt
owed on the contract arise from or relate to the contract and so are
within the scope of the arbitration clause. Furthermore, the Texas
Supreme Court has held that claims under the DTPA fall within the
scope of an arbitration agreement. Jack B. Anglin Co., Inc. v. Tipps,
842 S.W.2d 266, 270-71 (Tex. 1992).

Id. In the present case, the “civil debt” arises from and directly relates to the

obligations created by the Loan Contracts. Therefore, the dispute falls squarely

within the scope of the arbitration provision.

Even if the trial court could look beyond the express language of the

arbitration provision, as well as its application to disputes involving the “civil

debt,” the malicious prosecution and fraud claims are torts that fall within the

scope of a broad arbitration provision. Typically, the test for applying a broad-

form arbitration provision to a tort claim is whether the liability arises from the

contract that contains the arbitration provision, or whether the liability arises from

29
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general obligations imposed by law. In re Vesta Ins. Group, Inc., 192 S.W.3d 759,

761 (Tex. 2006); Cooper Indus., LLC, 475 S.W.3d at 442.

In the present case, the malicious prosecution and fraud claims arise from

the allegations that Respondents chose an improper method of collecting the

contractual debt, and failed to disclose this alleged method to Petitioners before the

Loan Contracts were signed and the money was loaned. Without the formation

and performance of the Loan Contracts containing the arbitration provisions, there

would be no debt and there would be no issue of disclosure. Petitioners’ own

conduct in incurring their debts under the Loan Contracts, as well as what they

understood at the time they entered into the contracts, will be at issue in this case.10

Therefore, liability arises from and/or relates to the formation and performance of

the Loan Contracts, so that the malicious prosecution and fraud claims fall within

the scope of the arbitration provisions. In re Vesta Ins. Group, Inc., 192 S.W.3d at

10
Although the merits of Petitioners’ malicious prosecution claim should not have been
considered by the trial court, much of the argument made by Petitioners in their filings, and
during the trial court hearing, focused on what they believed they could prove in support of their
tort claim. (C.R. 137-43; RR, 13:20-14:9, 19:12-21:21, 22:7-10, 24:2-25:10, 29:16-23:10, 32:17-
33:14). It is important to remember in evaluating these arguments that malicious prosecution
claims generally are disfavored, because they tend to discourage the reporting of crimes.
Browning-Ferris Indus. v. Lieck, 881 S.W.2d 288, 290-94 (Tex. 1994). Moreover, such a claim
cannot be proven unless the plaintiff was innocent of the charge and the prosecution was
terminated in the plaintiff’s favor. Kroger Tex. L.P. v. Suberu, 216 S.W.3d 788, 792 n.3 (Tex.
2006). In the order at issue, which was written and submitted by Petitioners, the court found that
Petitioners’ damage claims arise, in part, from their “criminal convictions.” If that finding is
correct, there is no substance to the tort claims as a matter of law. In any event, any issue as to
whether a malicious prosecution claim is a tort or intentional tort that can survive and be litigated
is a question for the arbitrator to decide. G.T. Leach, Builders L.L.C., 458 S.W.3d at 520-23; BG
Group, PLC v. Republic of Argentina, 572 U.S. ____, 134 S. Ct. 1198, 1206-07 (2014); Howsam
v. Dean Witter Reynolds, Inc., 537 U.S. 79, 81 (2002).

30
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761; accord, Gatlin v. P.O.A. Criscione Star #16195, 2008 WL 2745956, *3 (N.D.

Ill. 2008).

Petitioners strenuously argue that their claims do not fall within the scope of

the arbitration and class-action waiver provision because they have not sued for

breach of contract. However, even if this argument carried legal validity, it is not

completely accurate. Petitioners have based their claims for class certification, and

for liability and damages, in part, on violations of Chapter 393 of the Finance Code

and the damages recoverable under that Chapter. The violations alleged by

Petitioners constitutes a breach of the Loan Contracts, which, in turn, constitutes a

violation of the Finance Code allowing for recovery of statutory damages. TEX.

FIN. CODE §§ 393.203, 393.504. Therefore, even their statutory claims are

intertwined with the Loan Contracts containing the arbitration and class-action

waiver provision.11

So, under any way to look at the issue of the scope of the arbitration clause

in this case, Petitioners’ claims fall within that scope as a matter of law. Therefore,

because Respondents met their burden on the two threshold elements to support its

motion to compel, the trial court erred in making its conclusions contained in its

order, and abused its discretion when it denied Respondents’ motion to compel.

J.M. Davidson, Inc., 128 S.W.3d at 227. The Fourth Court of Appeals, in turn,

11
Moreover, Petitioners pled the defense of first material breach of the Loan Contracts against
Respondents. (C.R. 138).

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correctly applied the law to find that Respondents met their burden of proof on

these elements to shift the burden to the Petitioners to prove waiver.

B. The Petitioners failed to meet their burden to prove waiver and
prejudice
Petitioners had the “high” burden of proof and persuasion on the issue of

waiver. Kennedy Hodges, L.L.P., 433 S.W.3d at 543; Richmont Holdings, Inc., 455

S.W.3d at 574-75; Forest Oil Corp., 268 S.W.3d at 56; Perry Homes, 258 S.W.3d

at 589-90; In re Kaplan Higher Educ. Corp., 235 S.W.3d at 208–09; Cooper

Indus., LLC, 475 S.W.3d at 449. Because they failed to meet this burden, the trial

court erred as a matter of law by denying Respondents’ motion to compel. Forest

Oil Corp., 268 S.W.3d at 56, 61; Perry Homes, 258 S.W.3d at 598; Cooper Indus.,

LLC, 475 S.W.3d at 449.

1. Filing information or complaints with prosecutors does not waive
a contractual right to arbitrate civil claims
Petitioners argue that Respondents waived their right to arbitrate Petitioners

claims tort and statutory claims for damages when Respondents sought the support

and assistance of prosecutors pertaining to “bad checks” provided by Petitioners.

As the Fourth Court of Appeals noted, this argument presents an atypical scenario

for application of the waiver defense, which normally arises when the movant has

taken action in the underlying litigation that is inconsistent with later seeking to

enforce the arbitration provision. Cash Biz, LP, 2016 WL 4013794, at *6, 8; see

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Pilot Travel Ctrs., LLC, 416 S.W.3d at 183; In re Christus Spohn Health System

Corp., 231 S.W.3d 475, 481 (Tex. App.—Corpus Christi-Edinburg 2007, orig.

proceeding) (courts “ordinarily would not consider actions in a separate cause to be

indicative of waiver.”); see also Principal Investments v. Harrison, 366 P.3d 688,

695 (Nov. 2016) (“Litigation-conduct waiver questions commonly arise out of

proceedings before the court being asked to compel arbitration.”). In this case, no

such allegation is made. Instead, the Petitioners are relying on actions that

occurred outside of the civil court system and prior to the underlying litigation, and

that form the operative facts of their substantive claims for liability and damages.

The leading federal case under the FAA to look closely at both the definition

of “invoke” related to the waiver defense, and to a claim of waiver arising from

litigation conduct in a separate proceeding, is the Fifth Circuit’s opinion in Subway

Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th Cir. 1999). In Subway, the

Fifth Circuit explained the meaning of “invoke” in the context of the waiver

defense as follows:

… We use the term to describe the act of implementing or enforcing
the judicial process, not the act of calling upon for support or
assistance, as say, one would invoke a spirit or the elements. Thus, to
invoke the judicial process, the waiving party must do more than call
upon unrelated litigation to delay an arbitration proceeding. The party
must, at the very least, engage in some overt act in court that evinces
a desire to resolve the arbitrable dispute through litigation rather
than arbitration.

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In this context, we regard the judicial process as a mechanism:
to invoke it is to implement it.

Subway Equip. Leasing Corp., 169 F.3d at 328 (emphasis added). This description

of the concept of “invoke” contains two elements: an “act of implementing or

enforcing the judicial process;” and an “overt act in court that evinces a desire to

resolve the arbitrable dispute through litigation rather than arbitration.” Id.

Applying these elements to the facts of the case before it, the Fifth Circuit found

that the filing of a separate bankruptcy proceeding did not meet the definition of

“invoke” to support a claim that arbitration of the dispute at issue had been waived.

Id.

Under Texas law, the civil judicial process and the criminal judicial process

are different remedial systems that do not merge. See TEX. PENAL CODE § 1.03(c);

see, e.g., TEX. PENAL CODE § 9.06. Consistent with this separateness, a private

party cannot implement or enforce the criminal judicial process under Texas law;

the acceptance of a criminal complaint, and the filing of a criminal charge are

within the sole discretion of the prosecuting attorney. Browning-Ferris Industries,

Inc., 881 S.W.2d at 293-294; Alvarez v. Anesthesiology Associates, 967 S.W.2d

871 (Tex. App.—Corpus Christi 1998, no writ); Taylor v. Gately, 870 S.W.2d 204,

204 (Tex. App.—Waco 1994, writ dism’d.). Additionally, a private party is

prohibited from intervening in, or being a party to a criminal case. See In re Amos,

397 S.W.3d 309, 314 (Tex. App.—Dallas 2013, orig. proceeding) (following Bell

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v. State, 2006 WL 3628916, at *5 (Tex. App.—Houston [1st Dist.] 2006, no pet.),

and In re Wingfield, 171 S.W.3d 374, 381 (Tex. App.—Tyler 2005, orig.

proceeding)); In re Flores, 2016 WL 890969, at *1 (Tex. App.—Dallas 2016, orig.

proceeding); In re Jeffory Blackard, 2016 WL 1756786 (Tex. App.—Dallas 2016,

orig. proceeding). Moreover, criminal law disputes are not arbitrable. See

Prescott-Follett & Assocs., Inc. v. Delasa/Prescott Folett & Assocs., 2002 WL

31528463, *4-5 (E.D. La. 2002); Myers v. Rosenberg, 1986 WL 3329, *2

(N.D.Ill.3/7/86).

Instead, consistent with the first element of “invoke” described in Subway,

all a private party can do is seek the “support or assistance” of prosecutors if it

feels a crime has been committed—a private party cannot, as a matter of law,

implement or enforce the criminal process. Therefore, Respondents, as a matter of

law, could not “substantially invoke the judicial process” by providing affidavits or

form complaints to law enforcement.12

As to the second element of Subway, Petitioners’ allegations cannot, as a

matter of law, provide both the basis for the present suit and the basis for the

12
Although, as will be discussed below, there is no evidence of Respondents further participation
in any criminal proceeding involving Petitioners, participation as a complaining witness during
trial still would not constitute “implementation or enforcement” of a criminal proceeding. Such
a finding would violate the public policy of this state that encourages reporting facts to
prosecuting authorities. See Diamond Shamrock Corp. v. Ortiz, 753 S.W.2d 238, 241
(Tex.App.—Corpus Christi 1988, writ denied); Thomas v. Cisneros, 596 S.W.2d 313, 316
(Tex.Civ.App.—Austin 1980, writ ref'd n.r.e.); Reed v. Lindley, 240 S.W. 348 (Tex.Civ.App.
Fort Worth 1922, no writ); see generally, Browning-Ferris Industries, Inc., 881 S.W.2d at 290-
94.

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waiver defense to arbitration, because the earlier criminal proceedings and the

underlying suit do not involve the same “arbitrable dispute.” See generally, Pilot

Travel Ctrs., LLC, 416 S.W.3d at 183. Subway requires that the movant engage in

an overt act to litigate the same “arbitable dispute,” and a criminal case cannot be

the same “arbitrable dispute,” because criminal disputes are subject to a different

judicial process and are not arbitrable.13 Therefore, Petitioners’ waiver defense

fails under both elements of the Subway standard for “invoke.”

Even assuming that submitting affidavits or form complaints to prosecutors

could be considered in the context of a waiver defense, the Respondents’ conduct

is more analogous to the filing of initial pleadings in a civil case. As the Fourth

Court of Appeals recognized in the Majority Opinion below, Texas courts

uniformly hold that the mere filing of pleadings in a civil case is not the type of

active participation in a court proceeding required to find “substantial invocation of

the judicial process.” G.T. Leach, Builders L.L.C., 458 S.W.3d at 512; Richmont

Holdings, Inc., 455 S.W.3d at 574-75; In re D. Wilson Constr. Co., 196 S.W.3d at

783; Cooper Indus., LLC, 475 S.W.3d at 449. Consistent with this rule, one

federal court found that the mere filing of a criminal complaint in Mexico parallel

13
In support of its finding of waiver, the dissenting opinion in the appellate court notes that both
the earlier criminal proceedings and the underlying case arise from the same civil debt. Cash
Biz, LP, 2016 WL 4013894, at *10. Although this point is relevant to the issue of whether the
subject matter of the dispute comes within the scope of the arbitration agreement consistent with
In re Conseco Finance Servicing Corp., 19 S.W.3d at 570, it should not, as a matter of law, be
used to conflate a criminal case that is not arbitrable, with a civil case that is arbitrable, just
because the circumstances giving rise to each case may arise from the same transaction.

36
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to an ongoing arbitration did not constitute a substantial invocation of the judicial

process. See Consorcio Rive, S.A. De C.V. v. Briggs of Cancun, Inc., 134

F.Supp.2d 789, 795-97 (E.D. La. 2001).

Like the court in Consorcio Rive, the vast majority of courts that have

looked at this issue under the FAA, or another federal or state arbitration statute,

have followed the reasoning of Subway and found that a private party’s filing of a

criminal complaint cannot and does not waive arbitration of a civil dispute. See,

e.g., Griffin v. Burlington Volkswagen, Inc., 411 N.J.Super. 515, 988 A.2d 101,

104 (NJ. App. Div. 2010); Gatlin v. P.O.A. Criscione Star #16195, 2008 WL

2745956, at *3; Prescott-Follett & Assocs., Inc., 2002 WL 31528463, at *4-5;

Myers, 1986 WL 3329, at *2; Amalgamated Local No. 55, United Automobile,

Aerospace & Agricultural Implement Workers of Am. v. Metal and Alloy Div. of

Silver Creek Precision Corp., 396 F.Supp. 667, (W.D. N.Y. 1975); c.f.,

Mendelsohn v. A&D Catering Corp., 119 Misc.2d 581, 464 N.Y.S.2d 331 (N.Y.

1983); but see, Taft v. Burttram, 254 Ga. 687, 333 S.E.2d 585, 586 (1985)

(analyzing the facts in the context of the rules of the National Association of

Securities Dealers, rather than the FAA); Vine, supra.14 Petitioners even admitted

14
To date, Respondents have found only one, 30-year-old court ruling (other than the PLS
Opinion) that is consistent with Petitioners’ argument and the trial court’s order. See Taft v.
Burttram, 254 Ga. 687, 333 S.E.2d 585, 586 (1985). In Taft, the Georgia Supreme Court was
looking at the issue in the context of an arbitration pursuant to the rules of the National
Association of Securities Dealers (“NASD”). In that case, the court found that the swearing out
of criminal complaints instead of seeking to arbitrate their disputes, constituted a waiver of their

37
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during the hearing on the motion to compel (and prior to the District Court’s

opinion in Vine) that they could not cite to any case law supporting their argument

(R.R. 17:3-6).

Moreover, courts do not typically find involvement in separate legal

proceedings to constitute the type of conduct that constitutes waiver. See Subway

Equip. Leasing Corp., 169 F.3d at 328; In re Christus Spohn Health Sys. Corp.,

231 S.W.3d at 481. The totality of circumstances test described in Perry Homes

focuses on factors that involve litigation and delay in the same (or directly related)

civil proceeding in which arbitration is sought to be compelled. Perry Homes, 258

S.W.3d at 589-92; see G.T. Leach, Builders L.L.C., 458 S.W.3d at 511-14;

Richmont Holdings, Inc., 455 S.W.3d at 575 n.1; see also, In re Service Corp. Int’l,

85 S.W.3d 171, 174-76 (Tex. 2002); In re Christus Spohn Health Sys. Corp., 231

S.W.3d at 481 (courts “ordinarily would not consider actions in a separate cause to

be indicative of waiver.”). There is nothing in the recent decisions of the this

Court, let alone the cases from other jurisdictions that have looked at the specific

issue, that give any support for the determination made by the trial court that

presenting information as a criminal complaint substantially invokes the judicial

process so as to waive arbitration in a later civil dispute. Therefore, the trial court

right to arbitrate the dispute under the NASD rules. Id. Although the court in Taft based its
ruling on the breadth of the NASD arbitration rule that required “all disputes” to be arbitrated,
this interpretation appears to be at odds with those cases interpreting the FAA, which have found
that criminal activity cannot be arbitrated under the FAA. Prescott-Follett & Assocs., Inc., 2002
WL 31528463, *5; Myers v. Rosenberg, 1986 WL 3329, *2.

38
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erred as a matter of law by concluding that Respondents’ submission of

information as a criminal complainant against Petitioners substantially invoked the

litigation process so as to waive the contractual right to arbitrate the present civil

suit brought by Petitioners.

2. The Appellees failed to meet their burden on the issue of waiver
Petitioners produced no evidence to the trial court to prove waiver or

prejudice, other than the allegations contained in their pleadings and copies of

unverified articles and dockets sheets from websites. All of these materials

submitted to the trial court, at most, show what is uncontested in this case:

Respondents submitted affidavits and complaints to law enforcement officials.

Despite this lack of evidence, the trial court signed the pre-written order

finding that Respondents “filed criminal charges against the Plaintiffs, participated

in criminal trial, obtained criminal judgments, and attempted to collect from

Plaintiffs.” Petitioners contend that the allegations recited in their pleadings,

together with the unverified materials attached to their pleadings and response to

the motion to compel, fill the gap in evidence, either directly or by inference, to

prove waiver.15 In essence, they are relying on their substantive allegations of

15
A significant portion of the hearing on the motion to compel dealt with the trial judge’s
personal observations and experiences with the process followed by some prosecutors to pursue
bad-check criminal charges. None of what was discussed by the trial court was supported by
evidence in the record, nor would it have been appropriate for the trial court to take judicial
notice of such personal observations and experiences. See Ex parte Rains, 555 S.W.2d 478, 481
(Tex. Crim. App. 1977). To the extent the trial court’s observations and experiences formed the

39
010725.000005\4820-6817-9523.v1
wrongdoing to prove “substantial invocation,” and on their substantive allegations

of damages to prove prejudice. The Fourth Court of Appeals correctly found that

such allegations and materials were legally insufficient to meet Petitioners’ burden

to prove the elements of waiver. Cash Biz, LP, 2016 WL 4013794, at *6- 8.

To avoid this conclusion, Petitioners argued in their motion for rehearing

and motion for en banc review, and now argue before this Court, that cases

interpreting and applying Rule 12(b) of the Federal Rules of Civil Procedure to

motions to compel arbitration in federal court should be incorporated into the

federal substantive law under the FAA in order to show that they met their burden

of proof.

Petitioners note that federal courts procedurally treat a motion to compel

arbitration as a form of motion to dismiss under Rule 12(b) of the Federal Rules of

Civil Procedure. When considering motions under 12(b), federal courts treat the

non-movants factual pleadings as true when reviewing the motion to compel. See

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., 468 F.3d 523, 525

(8th Cir. 2006). But, the case law applying Federal Rule 12(b) is neither a

substantive rule of law under the FAA, nor is it used by federal courts to change

basis of the findings and conclusions in the order, those findings and conclusions were based on,
and constitute no evidence. See Kenny v. Portfolio Recovery Assocs., LLC, 464 S.W.3d 29,34
(Tex. App.—Houston [1st Dist.] 2015, no pet.); Guyton v. Monteau, 332 S.W.3d 687, 693 (Tex.
App.—Houston [14th Dist.] 2011, no pet.).

40
010725.000005\4820-6817-9523.v1
the relevant evidence and burden of proof on the defense of waiver and prejudice.

See, e.g., Id., at 525-27.

In fact, federal courts limit the application of the procedural rule that the

factual pleadings are to be taken as true in the arbitration context to the legal

determination as to whether the nature of the dispute falls within the scope of the

arbitration provision. Primerica Life Ins. Co., 304 F.3d at 471; Municipal Energy

Agency of Mississippi, 804 F.2d at 342; Horizon Health Corp., 284 F.Supp.2d at

441; Smith Barney Shearson, Inc., 838 F. Supp. at 1158; see, e.g., Suburban

Leisure Center, Inc., 468 F.3d at 525-27. In making that determination, the federal

courts focus only on the nature of the dispute as pled and are prohibited from

analyzing the merits of the underlying action. AT&T Technologies, Inc., 475 U.S.

at 649; Primerica Life Ins. Co., 304 F.3d at 471; Snap-On Tools Corp., 18 F.3d at

1267; Municipal Energy Agency of Mississippi, 804 F.2d at 342; Horizon Health

Corp., 284 F.Supp.2d at 441; Smith Barney Shearson, Inc., 838 F. Supp. at 1158.

This application of the pleading rule under Federal Rule 12(b) is consistent

with the burdens each party has during the summary proceeding on arbitrability in

Texas courts. The two initial elements for which the movant has the burden

typically are satisfied by a review of the pleadings and the arbitration provision.

TEX. CIV. PRAC. & REM. CODE § 171.021(b); J.M. Davidson, Inc., 128 S.W.3d at

227. Once the movant’s burden is met, however, the non-movant has the burden to

41
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present evidence of “substantial invocation” and prejudice to defeat enforcement of

the arbitration provision, and the standard for determining waiver is the same under

both the FAA and the TAA. Tuscan Builders, L.P. v. 1437 SH6 L.L.C., 438

S.W.3d 717, 720 (Tex. App.—Houston [1st Dist.] 2014, pet. denied); Pilot Travel

Ctrs., LLC, 416 S.W.3d at 182-83; McReynolds, 222 S.W.3d at 741; Southwind

Group, Inc. v. Landwehr, 188 S.W.3d 730, 735 (Tex. App.—Eastland 2006, orig.

proceeding).

Courts are to determine whether the non-movant met its burden using the

“totality of the circumstances” standard. G. Leach Builders, LLC, 458 S.W.3d at

512; Perry Homes, 258 S.W.3d 589-90. Because this portion of the proceeding

requires the presentation of “evidence,” the federal pleading rule is simply

inapplicable to determining whether the burden has been met by the non-movant.16

16
Confusion can arise from the type of “evidence” courts typically consider. Because the typical
waiver defense arises from litigation activity in a lawsuit after it is filed, evidence of the
movant’s litigation activity (e.g., discovery filings, depositions, motions for summary judgment)
is normally found in the trial court’s file, or can be submitted as attachments to the non-movant’s
response to the motion to compel. Depending on the type of evidence submitted from the
underlying litigation, it can be verified by the non-movant’s counsel, or a trial court can take
judicial notice of it. However, in the atypical situation posed by this case, Petitioners had the
burden to proffer evidence from outside the trial court’s file and litigation record of the pending
case to support findings that Respondents “filed criminal charges against the Plaintiffs,
participated in criminal trials, obtained criminal judgments, and attempted to collect from
Plaintiffs.” Petitioners failed to proffer any such evidence, and failed to controvert the evidence
submitted in David Flanagan’s affidavit. Instead, Petitioners vociferously argue that their
allegations of wrongdoing, together with interviews and inferences contained in unverified
articles posted on Internet websites, constitute sufficient “evidence” to meet the totality of
circumstances test. See Monotype Imaging, Inc. v. Bitstream, Inc., 376 F.Supp.2d 877, 885 n. 6
(N.D. Ill. 2005) (“…printouts from websites should be closely scrutinized for reliability.”); cf., D

42
010725.000005\4820-6817-9523.v1
So, even assuming that a rule of pleading similar to the rule under Federal

Rule 12(b) applies to the summary proceeding in a Texas state court, it does not

apply as broadly as Petitioners argue so as to relieve them from producing

admissible relevant evidence on the issues of waiver and prejudice. Again, the

only relevant evidence presented in the trial court by Petitioners to meet their high

burden on the elements of waiver was a compilation of online records showing that

Respondents were complainants in several criminal cases—a point Respondents

concede. The other materials presented to the trial court by Petitioners—their

conclusory pleadings, the Texas Appleseed Report and online articles—contain

arguments, inferences, conclusions and unverified quotes from out-of-court

interviews that, at most, provide an indication of what Petitioners contend they

could proffer to support the alleged merit of their underlying claims; such materials

present no legally sufficient evidence relevant to the “totality of the circumstances”

standard applicable to the elements of waiver. G. Leach Builders, LLC, 458

S.W.3d at 512; Perry Homes, 258 S.W.3d 589-90.

Moreover, if the federal rule of pleading were to be engrafted into

substantive arbitration law and applied to the defense of waiver, Petitioners’

pleadings and supporting materials still do not provide legally sufficient evidence

of “substantial invocation” or prejudice. Such materials simply present the

Magazine Partners, L.P. v. Rosenthal, ___ S.W.3d ___, 2017 WL 1041234 (Tex., March 17,
2017) (majority and concurring opinions).

43
010725.000005\4820-6817-9523.v1
operative allegations underlying the Petitioners’ claims for liability and damages,

and federal law prohibits courts from considering the merits of the underlying

action when making findings of fact and resolving questions of law. AT&T

Technologies, Inc., 475 U.S. at 649; Primerica Life Ins. Co., 304 F.3d at 471;

Snap-On Tools Corp., 18 F.3d at 1267; Municipal Energy Agency of Mississippi,

804 F.2d at 342; Horizon Health Corp., 284 F.Supp.2d at 441; Smith Barney

Shearson, Inc., 838 F. Supp. at 1158.

Therefore, even if it is legally possible under Texas law to substantially

invoke the judicial process by submitting information to law enforcement as a

criminal complainant separate from seeking arbitration in a later civil dispute,

Petitioners failed to proffer any legally sufficient evidence under the totality of

circumstances test to overcome the presumptions of the law and to meet their high

burden on the issue of waiver and prejudice. There was no evidence in the record

that Respondents “filed criminal charges”—only a prosecutor can file criminal

charges. There was no evidence in the record that Respondents “participated in

criminal trials.” There was no evidence in the record that Respondents “obtained

criminal judgments”—again, only prosecutors can obtain criminal judgments.

Finally, there is no evidence that Respondents “attempted to collect from

Plaintiffs”—they were not parties to the criminal actions and they had not filed any

civil collection action against any Petitioner.

44
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The only evidence submitted to the trial court by either party showed that the

Respondents merely submitted information of possible criminal activity to

prosecutors, and that Respondents were referred to as the “complainant” on official

websites.17 Without more, the only evidence before the court was evidence of the

mere filing of a complaint in a separate proceeding, which the courts of this state

have found not to rise to the level of waiver. G.T. Leach, Builders L.L.C., 458

S.W.3d at 511-12; Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., 455

S.W.3d 573, 574-75 (Tex. 2014); Kennedy Hodges, L.L.P., 433 S.W.3d at 543;;

Forest Oil Corp., 268 S.W.3d at 56; Perry Homes, 258 S.W.3d at 589-93; In re D.

Wilson Constr. Co., 196 S.W.3d at 783; Cooper Indus., LLC, 475 S.W.3d at 450-

451. Because Petitioners did not proffer legally sufficient evidence to meet their

burden, and all doubts are to be resolved in favor of arbitration, the trial court had

no discretion to deny arbitration. Forest Oil Corp., 268 S.W.3d at 56, 61; Valero

Energy Corp., 2 S.W.3d at 581; In re Bruce Terminix Co., 988 S.W.2d 702, 705

(Tex.1998); Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1,

24-25 (1983).

Based on this record from the trial court, the Majority Opinion below

correctly applied the law pertaining to waiver and prejudice to find that being the

17
Recognizing this problem, Petitioners try to construe statements made by Respondents counsel
during the trial court hearing as stipulations that they were more than a complainant in the
criminal proceedings, but these statements are neither stipulations, nor do they describe any
activity other than that of being the initial complainant. (R.R. 26:3-14, 28:15-29:12).

45
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complainant in criminal proceedings pre-dating Petitioners’ current suit does not

constitute waiver of the contractual right to arbitrate Petitioners’ underlying civil

action. To have considered the arguments, inferences, conclusions and unverified

quotes from out-of-court interviews submitted by Petitioners as evidence of

waiver, the appellate court would have had to analyze and pre-judge the merit of

the Petitioners’ underlying action, and the legal sufficiency of the proffered

materials to support such claims, which it is legally prohibited from doing under

federal law when resolving the issue of arbitrability.

Therefore, the Majority Opinion correctly applied the pleading rules to

review the trial court’s order, and this Petition for Review should be denied of the

Fourth Court of Appeals’ decision should be affirmed.

C. The trial court erred by not enforcing the waiver-of-class-action
provision
The trial court’s ruling on the enforcement of the waiver-of-class-action

provision also is wrong as a matter of law, and ignores this Court’s ruling in NCP

Finance. See generally, See DirectTV, Inc., supra; AT&T Mobility, supra.

It is well-settled that Texas law enforces arbitration agreements and class-

action waivers of the type contained in the Loan Contracts. In fact, the San

Antonio Court of Appeals previously enforced an arbitration provision prohibiting

class actions in an almost identical suit brought by borrowers against a Credit

Service Organization, involving language remarkably similar to the arbitration

46
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agreements at issue in this case. See NCP Finance Ltd. Partnership, 350 S.W.3d at

155.

D. There is no split of authority justifying further review by this
Court
Although Texas courts look to the decisions of federal courts and other

sister-state courts when construing and applying the FAA, they are not bound by

distinguishable decisions by those courts. Again, Petitioners want this Court to

find that the Majority Opinion conflicts with the decisions of one federal district

court and one sister-state court, when those opinions are clearly distinguishable

and when both courts impermissibly analyzed and pre-judged the merits of the

non-movants’ underlying actions.

E. The Vine Memorandum Opinion
The federal district court’s memorandum opinion in Vine, which currently is

on appeal to the Fifth Circuit, is distinguishable for several reasons.18

First, the district court broadly applied the federal rule of pleading under

Rule 12(b) beyond a review of the movant’s initial burden on the two elements of

arbitrability, to find that the non-movants met their burden of proof on the

elements of waiver simply based on the allegations contained in their pleading. By

reaching its decision in this way, the district court relied on a federal procedural

rule, rather than the federal substantive law embodied in the FAA. Moreover, by
18
Because the dissenting opinion in the Fourth Court of Appeals largely followed the reasoning
of the District Court in Vine, this part of the Response Brief also addresses the dissent below.

47
010725.000005\4820-6817-9523.v1
using the procedural rule in this way, the district court arguably misapplied the

pleading rule to relieve the non-movants of their burden to produce evidence of

waiver and impermissibly analyzed and pre-judged the merit of the underlying

action. In fact, the district court even delved into an analysis of the elements of the

underlying action as it made its determination, which federal law prohibits.

Second, the District Court in Vine relies too extensively on In re Christus

Spohn Health System Corp., which was briefed and argued extensively to the

Fourth Court of Appeals by both parties. The circumstances that gave rise to the

ruling in Christus Spohn are extraordinarily unique, because a private party was

inexplicably allowed to intervene in a criminal case to pursue a contempt motion

when Texas law prohibits such an intervention by a private party. See In re Amos,

397 S.W.3d at 314; Bell v. State, 2006 WL 3628916, at *5; In re Wingfield, 171

S.W.3d at 381; In re Flores, 2016 WL 890969, at *1. This factor alone makes the

Christus Spohn opinion an outlier with little or no precedential value beyond its

unique facts.

However, the court in Vine also ignores the fact that the court in Christus

Spohn narrowed the application of its ruling by stating that the civil litigant’s

intervention in the criminal case would not alone establish waiver of the right to

arbitration. Id., at 481-82. Instead, the court in Vine read Christus Spohn as

broadly concluding “that a party can invoke the judicial process by strategically

48
010725.000005\4820-6817-9523.v1
filing a contempt motion in a related criminal matter.” Vine, 2016 WL 8138800, at

*5. That conclusion is a misreading of Christus Spohn. So, to the extent Vine

relies on a misreading of Christus Spohn, it should not be given weight in this

Court’s determination of the present case.

Third, Vine misapplies the definition of “invoke” provided in Subway.

Although the opinion contains a correct quotation of the Subway definition, it

ignores Texas and federal law by assuming that a private party can implement or

enforce the criminal judicial process when it presents a complaint to a district

attorney, and by failing to address the many analogous cases (cited in the Majority

Opinion) that have found that the mere filing of pleadings in a civil case does not

constitute a “substantial invocation of the judicial process.” Moreover, Vine

ignores the majority of courts (cited above) that have applied the reasoning of

Subway to conclude that the filing of a criminal complaint does not constitute

“substantial invocation of the judicial process” to waive arbitration of a later civil

dispute.

For these reasons, Vine is distinguishable from the present case, and it

should not be given weight by this Court in determining whether to grant the

Petition.

49
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F. The Harrison Opinion
In Principal Investments v. Harrison, the Nevada Supreme Court was not

dealing with a criminal case, and the movant had been the plaintiff in the prior civil

actions at issue.

The arbitration provision had allowed the plaintiff to choose whether to

proceed in a justice court or arbitration, and the movant chose to pursue claims in

justice court and obtained default judgments. Principal Investments, 366 P.3d at

692. The underlying action involved a judicial proceeding to set aside those

judgments, analogous to a Bill of Review proceeding under Texas law. Id., at 697-

98.

So, unlike the present case, but consistent with a proper application of the

two elements of Subway, the Court in Harrison found that the lender had invoked

the judicial process in a civil proceeding within the scope of the arbitration

agreement. Therefore, Harrison is distinguishable, but not inconsistent with, the

Majority Opinion in this case.19

Neither of these cases support Petitioners’ arguments in this case, nor do

they conflict with the decision of the Fourth Court of Appeals.

19
Finally, the Fourth Court’s prior decision in NCP Finance Ltd. Partnership is itself evidence
that there is no real split of authority in Texas on how to apply the broad-form provision at issue
in this case.

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CONCLUSION
Although the allegations involving prior criminal proceedings make the

underlying factual dispute in this case somewhat unique, the law to be applied to

the question of arbitrability is well-settled, and was correctly analyzed and applied

by the appellate court.

The Majority Opinion of the Fourth Court of Appeals carefully and correctly

avoided pre-judging the merits of the Petitioners’ underlying action, and was

subject to further review and sustained by 5 of the 7 members of the appellate court

when it denied rehearing and en banc review. The lower court correctly applied

Texas and Federal law construing and applying the FAA to the relevant evidence

in the trial court record.

In reality, what Petitioners and Amicus seek is a different rule of law, or a

new exception to the law, governing arbitrability of “pay day” loan contracts based

on the nature of the allegations giving rise to their underlying action. However,

federal and Texas law is clear that the consideration of the merits is for the ultimate

trier of fact—the arbitrator—not for the court to decide in a summary proceeding

to determine arbitrability.

Any rule or exception that would deny enforcement of the arbitration and

class-action waiver provision in this case would necessarily turn on a consideration

of the merits of Petitioners’ and Amicus’ allegations, lower the “high hurdle” of

51
010725.000005\4820-6817-9523.v1
proof required to sustain the defense of waiver, treat submission of information to

prosecutors differently than filing pleadings in civil proceedings, and recognize a

role for private parties in the criminal legal process that is contrary to law and

public policy. No matter what concerns this Court may have about the allegations

made by the Petitioners and Amicus, there are two sides to every dispute, and the

parties agreed to have that dispute decided in individual arbitrations. This Court

should not acquiesce to change the law of arbitrability to punish Respondents as

Petitioners seek.

Therefore, this Petition for Review should be denied, or the judgment of the

Fourth Court of Appeals should be affirmed.

XI. PRAYER
WHEREFORE, PREMISES CONSIDERED, Respondents request that the

Petition for Review be denied, or that the opinion and judgment of the Fourth

Court of Appeals be affirmed; and that they receive such other and further relief to

which they are justly entitled.

Respectfully submitted,

COATS ROSE, P.C.

By: /s/ Edward S. Hubbard
Edward S. Hubbard
State Bar No. 10131700
ehubbard@coatsrose.com
Patrick E. Gaas

52
010725.000005\4820-6817-9523.v1
Texas Bar No. 07562790
pgaas@coatsrose.com
9 Greenway Plaza, Suite 1100
Houston, Texas 77046-0307
(713) 651-0111
(713) 651-0220 facsimile

ATTORNEYS FOR THE RESPONDENTS

XII. CERTIFICATE OF COMPLIANCE

Pursuant to Rule 9(i)(2)(B) and (i)(3) of the Texas Rules of Appellate

Procedure, the undersigned certifies that this Response complies with the Rule’s

word limits. The word count of pages 1 through 52 is 13,241 words, excluding the

parts of the brief exempted by Rule 9(i)(1). This word court is based on the count

provided by the “word count” function of Microsoft Word 2010, which is the

computer program used to prepare this Petition.

/s/ Edward S. Hubbard
Edward S. Hubbard

Attorney for Respondents

Dated: April 20, 2017

53
010725.000005\4820-6817-9523.v1
XIII. CERTIFICATE OF SERVICE

I hereby certified that a true and correct copy of the foregoing instrument has
been served upon all counsel of record, listed below, by certified mail, return
receipt requested, or by facsimile, or by electronic transmission of same on the 20th
day of April, 2017.

Daniel R. Dutko
Hanszen LaPorte, L.L.P.
11767 Katy Freeway, Suite 850
Houston, Texas 77079

Ricardo G. Cedillo
Davis, Cedillo & Mendoza, Inc.
755 E. Mulberry, Suite 500
San Antonio, Texas 78212

/s/ Edward S. Hubbard
Edward S. Hubbard

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010725.000005\4820-6817-9523.v1
XIV. APPENDIX

NO.

1 Letter from Fifth Circuit setting oral argument schedule for March 8, 2017

2 Copy of Docket Sheets from the PACER System for the District Court and
Fifth Circuit proceedings in Vine

3 Motion for Leave to File Amicus Brief, and Order denying the Motion by
the Fifth Circuit

4 Vine pleadings: Plaintiffs’ Unopposed Motion for Leave to File Response to
Defendants’ Motions to Dismiss, and Compel Plaintiffs to Arbitration;
Plaintiff’s Response; and Exhibit C to Plaintiff’s Response

1
010725.000005\4820-6817-9523.v1
Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

4 Cases that cite this headnote
967 S.W.2d 871
Court of Appeals of Texas,
Corpus Christi. [2] Judgment
Tort Cases in General
Ramona ALVAREZ, et al., Appellants, Bad faith and malice elements of malicious
v. prosecution are not properly disposed of by
ANESTHESIOLOGY ASSOCIATES, et al., Appellees. summary judgment because they entail the
evaluation of intent.
No. 13–96–385–CV.
| Cases that cite this headnote
March 26, 1998.
|
[3] Judgment
Rehearing Overruled May 28, 1998.
Torts
Mother and her parents brought action against hospital Mother failed to create genuine issue of
and physicians for malicious prosecution, intentional material fact as to whether doctors were
infliction of emotional distress, civil conspiracy, and involved in reporting or investigating of child
negligence relating to treatment of child and filing of abuse, as would preclude summary judgment
report of abuse. The 117th District Court, Nueces County, in her malicious prosecution claim, where
Robert J. Blackmon, J., granted summary judgment in she did not contradict doctors' statements
favor of hospital and physicians. Mother appealed. The in affidavits that denied that they had any
Court of Appeals, Rodriguez, J., held that: (1) genuine communications with anyone from Child
issue of material fact existed as to whether one doctor Protective Services (CPS) or any other
acted in good faith when he made report of child abuse, department or investigating agency on which
precluding summary judgment on malicious prosecution mother's claims were based.
claim; (2) genuine issue of material fact remained on
claim of intentional infliction of emotional distress; (3) 3 Cases that cite this headnote
genuine issues of material fact existed on civil conspiracy
claim; and (4) genuine issues of material fact existed on [4] Malicious Prosecution
negligence claim. Personal Knowledge and Statements of
Others
Affirmed in part, reversed and remanded in part.
Doctor, who was not accused of malpractice,
had reasonable suspicion of child abuse
justifying report of mother to Child Protective
West Headnotes (22) Services (CPS), precluding mother's malicious
prosecution claim, where doctor was faced
with an infant who had suddenly lapsed into
[1] Malicious Prosecution a life-threatening coma and concluded the
Nature and Elements of Malicious child's lungs appeared healthy and would
Prosecution in General not explain respiratory failure, she was told
In order to maintain a malicious prosecution by other doctors that, in their opinion,
action, a plaintiff must prove: (1) the the circumstances of the child's illness were
commencement of a criminal prosecution suspicious, she was told that another doctor
against the plaintiff, (2) initiated or procured had contacted CPS based on his suspicions,
by the defendant, (3) which terminated in the and she observed child's medical records
plaintiff's favor, (4) the plaintiff was innocent, which suggested mother was not forthcoming
(5) there was no probable cause for the with information, had disregarded prior
proceedings, (6) malice, and (7) damages.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

medical advice, and was the only person criminal law and the individual's interest in
present when the child suffered his attacks. freedom from unjustifiable and oppressive
criminal prosecution.
Cases that cite this headnote
Cases that cite this headnote

[5] Malicious Prosecution
Necessity [9] Malicious Prosecution
To prevail on a defense to malicious Belief in Guilt of Accused
prosecution, a defendant must show that Doctors should be given deference in
probable cause justified the initiation of reporting child abuse, and claim for malicious
criminal proceedings. prosecution should not stand where doctor
sets out objectively reasonable basis for his
1 Cases that cite this headnote belief.

Cases that cite this headnote
[6] Malicious Prosecution
Belief in Guilt of Accused
In the context of malicious prosecution, [10] Judgment
probable cause is the existence of such facts Tort Cases in General
and circumstances as would excite belief in Genuine issue of material fact existed as to
the mind of a reasonable person, acting on whether doctor acted in good faith when
facts within his knowledge, that the person he told Child Protective Services (CPS) that
charged was guilty of the crime for which he mother had attempted to suffocate her child,
was prosecuted; question to be answered is or whether he reported mother to cover his
not what the facts actually were, but rather own acts of negligence, precluding summary
what the defendant honestly and reasonably judgment on claim of malicious prosecution.
believed the facts to be.
Cases that cite this headnote
1 Cases that cite this headnote

[11] Damages
[7] Malicious Prosecution Elements in General
Presumptions and Burden of Proof A plaintiff establishes intentional infliction
There is an initial presumption in malicious of emotional distress if he can show: (1) the
prosecution cases that the defendant acted defendant acted intentionally or recklessly;
in good faith and had probable cause to (2) the conduct was extreme and outrageous;
initiate or procure the prosecution, but (3) defendant's conduct caused the plaintiff
that presumption disappears once a plaintiff emotional distress; and (4) the emotional
produces evidence that the motives, grounds, distress was severe.
beliefs, and other evidence upon which the
defendant acted did not constitute probable Cases that cite this headnote
cause.
[12] Judgment
2 Cases that cite this headnote
Matters of Fact or Conclusions
Doctors' affidavits providing merely legal
[8] Malicious Prosecution conclusions that mother did not experience
Nature and Form of Remedy emotional distress, and that doctors' actions
Cause of action for malicious prosecution did not cause emotional distress, were wholly
involves a delicate balance between society's insufficient to negate cause of action for
interest in the efficient enforcement of the

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

intentional infliction of emotional distress, on Torts
motion for summary judgment. In a medical malpractice suit, because the
trier of fact must be guided by the opinion
1 Cases that cite this headnote
testimony of experts, a defendant physician
can obtain summary judgment based on his
[13] Judgment uncontroverted testimonial evidence if he
Matters of Fact or Conclusions establishes, as a matter of law, that no genuine
Conclusory statements made by an expert issue of material fact exists as to one or more
witness are insufficient to support summary elements of the plaintiff's cause of action.
judgment. Vernon's Ann.Texas Rules Civ.Proc., Rule
166a(c).
Cases that cite this headnote
3 Cases that cite this headnote

[14] Judgment
Tort Cases in General [18] Health
Standard of Practice and Departure
Genuine issue of material fact existed as
Therefrom
to whether doctors conspired to cover up
evidence of medical malpractice by accusing The threshold question in a medical
mother of abuse, precluding summary malpractice case is the standard of care, which
judgment for them on mother's civil must be established by expert testimony.
conspiracy claim.
1 Cases that cite this headnote
Cases that cite this headnote
[19] Judgment
[15] Conspiracy Torts
Nature and Elements in General Testimony from an interested expert, such
To prove civil conspiracy, the plaintiff must as the defendant doctor, can establish the
show the following elements: (1) two or more standard of care and support summary
persons; (2) an object to be accomplished; (3) judgment in medical malpractice case, if
a meeting of the minds on the object to be the testimony is clear, direct, positive,
accomplished; (4) one or more unlawful, overt otherwise credible, free of contradictions and
acts; and (5) damages as the proximate result. inconsistencies, and capable of being readily
controverted.
Cases that cite this headnote
3 Cases that cite this headnote

[16] Judgment
Matters of Fact or Conclusions [20] New Trial
Time of Discovery
Doctor's affidavit stating merely that he was
familiar with the definition of gross negligence New Trial
and negligence per se, and denying that he Nature of Action or Issue and Character
was negligent in any way, did not sufficiently of Evidence
negate negligence claim to warrant grant of Doctors' failure to disclose their “manual of
summary judgment. strategies to avoid litigation” did not warrant
new trial in suit by mother arising from
Cases that cite this headnote treatment of child and report of child abuse,
where mother was aware of manual and of
[17] Judgment doctors' failure to produce, but did not file
motion to compel, and she made no showing

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

that content of manual was not cumulative of intentional infliction of *874 emotional distress, civil
other evidence. conspiracy, and negligence resulting from appellees'
medical treatment of Michael Harwood. We affirm in part
Cases that cite this headnote and reverse and remand in part.

[21] Appeal and Error
For Newly Discovered Evidence Standard of Review
Denials of motions for new trial based on
newly discovered evidence are reviewed under The standards of review for a summary judgment are well-
an abuse of discretion standard. established. The movant must show there is no genuine
issue concerning a material fact which would entitle
1 Cases that cite this headnote the movant to judgment as a matter of law. TEX.R.
CIV. P. 166a(c); Cathey v. Booth, 900 S.W.2d 339, 341
(Tex.1995). A defendant who conclusively negates at
[22] New Trial
least one essential element of a plaintiff's claim or who
Power and Duty of Court in General
conclusively establishes all the elements of an affirmative
In order to obtain a new trial based on
defense is entitled to summary judgment. Wornick Co.
newly discovered evidence, a plaintiff must
v. Casas, 856 S.W.2d 732, 733 (Tex.1993). However, in
show that: (1) the evidence has come to
reviewing a summary judgment, all evidence is to be
their attention since the trial; (2) it was not
construed in favor of the nonmovant, to whom every
discovered earlier due to the lack of diligence;
reasonable inference is allowed and on whose behalf all
(3) the evidence is not cumulative; and (4) it is
doubts are resolved. El Chico v. Poole, 732 S.W.2d 306
so material that it would produce a different
(Tex.1987); Nixon v. Mr. Property Mgt. Co., 690 S.W.2d
result if a new trial were granted.
546, 548–49 (Tex.1985); Dickson v. State Farm Lloyds,
1 Cases that cite this headnote 944 S.W.2d 666, 667 (Tex.App.—Corpus Christi 1997,
no writ). It is not the purpose of summary judgment to
deprive a litigant of his right to a full hearing on the
merits of any real issue of fact, but to eliminate patently
unmeritorious claims and untenable defenses. City of
Attorneys and Law Firms
Garland v. Booth, 895 S.W.2d 766, 768 (Tex.App.—Dallas
*873 Craig S. Smith, Donald B. Edwards, Smith & 1995, writ denied).
Edwards, Corpus Christi, for Appellants.

Linda C. Breck, Thomas F. Nye, Brin & Brin, Carlos
Facts
Villarreal, Hunt, Hermansen, McKibben & Barger,
Corpus Christi, for Appellees. Viewing the evidence in the light most favorable to
appellants shows that Michael Harwood was the infant
Before DORSEY, YANEZ and RODRIGUEZ, JJ.
son of Roxanne Alvarez and Clifford Harwood. Since
his birth, the baby was regularly treated at Driscoll
Children's Hospital (“Driscoll”) for asthma, pneumonia,
OPINION and gastrointestinal or gastroesophegeal reflux. He had
a history of sleep apnea—periods when he would stop
RODRIGUEZ, Justice.
breathing while sleeping. On several occasions in late
This is an appeal from a summary judgment granted 1992 and early 1993, Alvarez brought Michael to see Dr.
in favor of appellees Anesthesiology Associates and Steve Oshman concerning his various medical problems.
Mary Dale Peterson, M.D. (collectively referred to Michael was prescribed a heart monitor for the apnea and
herein as “Peterson”); Edgar Cortes, M.D. (“Cortes”); the drug Reglan to control the reflux.
Tom McNeil, M.D. (“McNeil”); and William Dirksen,
M.D. (“Dirksen”) for claims of malicious prosecution,

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

On January 27, 1993, Alvarez found Michael turning blue, Alvarez was ultimately indicted, but on April 14, 1994,
and she rushed him to Driscoll for treatment. On the 28th, the indictment was dismissed. Alvarez and her parents
Michael again turned blue and Alvarez ran to the nurses' filed suit against appellees 2 asserting claims for malicious
station screaming for help. A nurse found Michael to be prosecution, intentional infliction of emotional distress,
cyanotic and unresponsive. He was revived and ultimately civil conspiracy, and negligence. The appellees filed
discharged on February 3, 1993. motions for summary judgment, which the court granted.

Michael had an asthma attack on April 10, 1993, and
again Alvarez took him to Driscoll, where McNeil treated
him. He was then transferred out of the emergency Analysis
room and placed under the care of Dirksen. He was
Because appellants alleged the same four causes of action
not prescribed a heart monitor, and his Reglan was
against each of the appellees, for ease of reference we will
discontinued. On April 12th, at approximately 3:30
first set out the elements of each cause of action and then
a.m., Michael was found not breathing by Norma
address the merits of each appellee's motion for summary
Gonzalez, the respiratory therapist. She turned Michael
judgment in the context of these elements.
onto his back and applied CPR. The resuscitation effort
restored Michael's breathing, but he did not regain
consciousness. 1 Michael was transferred to pediatric ICU
I. Malicious Prosecution
and placed under the care of Peterson and Cortes.
[1] In order to maintain a malicious prosecution action,
After Michael was in ICU for approximately thirty-six a plaintiff must prove: 1) the commencement of a criminal
hours, red marks appeared on the back of his neck and prosecution against the plaintiff; 2) initiated or procured
head. Cortes called Children's Protective Services (“CPS”) by the defendant; 3) which terminated in the plaintiff's
to report suspected child abuse. The risk management favor; 4) the plaintiff was innocent; 5) there was no
department at Driscoll was also notified. probable cause for the proceedings; 6) malice; and 7)
damages. Browning–Ferris Indus., Inc. v. Zavaleta, 827
On April 15th, Alvarez and Harwood were informed of S.W.2d 336, 338 (Tex.App.—Corpus Christi 1991, writ
Michael's vegetative condition. Harwood demanded to denied).
know the reason for CPS involvement and suggested the
doctors and the hospital had engaged in a cover-up of their InBrowning–Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288
negligence. Also on April 15th, the police were summoned (Tex.1994), the supreme court modified the causation
to Driscoll. Alvarez was interviewed and Michael was element of a malicious prosecution case. The court
photographed. expressly rejected the concept that the prosecution could
be brought about merely through a defendant's aid
In addition to initially reporting to CPS, Cortes wrote or cooperation. Instead, the court held that malicious
to CPS on April 24, 1993, and stated Alvarez had prosecution occurs only when a defendant “initiates”
not informed the hospital of Michael's previous medical
or “procures” the prosecution. Lieck, 881 S.W.2d
history; that the apnea attacks occurred only in Alvarez's at 293. “Initiation” occurs when a defendant is the
presence; and that Alvarez seemed more concerned with entity that actually files the charges. The court defined
getting Harwood out of prison than in Michael's health. “procurement” as follows:

*875 On April 29th Peterson gave a statement to A person procures a criminal
CPS concurring with Cortes. She also concluded the prosecution if his actions were
bruises found on Michael's neck could not be caused by enough to cause the prosecution,
resuscitation efforts, but only by being held face down. and but for his actions the
Cortes contacted CPS for a third time on May 6, 1993 and prosecution would not have
opined that Alvarez deliberately attempted to suffocate occurred. A person does not procure
Michael by forcing his head into the mattress. a criminal prosecution when the
decision whether to prosecute is

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

left to the discretion of another, Gen. Laws 1466 (repealed 1995)) (current version at TEX.
including a law enforcement official FAM.CODE ANN. § 261.106(a), (c) (Vernon 1996)).
or the grand jury, unless the person
provides information which he knows [2] Appellants counter with the argument that if a jury
is false. determines any of the doctors were negligent and sought
to cover up their negligence through the prosecution of
Lieck, 881 S.W.2d at 293 (emphasis added). Alvarez, they will have shown the requisite bad faith or
malice that exempts the doctors from immunity. Bad faith
Appellants alleged appellees knew that any injury to and malice are elements that are not properly disposed of
Michael was the result of their own negligence in failing by summary judgment because they entail the evaluation
to adequately treat him. Appellants contended appellees of intent. Villacana v. Campbell, 929 S.W.2d 69, 73
engaged in a cover-up of the doctors' and the hospital's (Tex.App.—Corpus Christi 1996, writ denied); Wofford
liability by accusing Alvarez of injuring her own child; that v. Blomquist, 865 S.W.2d 612, 614 (Tex.App.—Corpus
Alvarez's prosecution was procured and propelled in bad Christi 1993, writ denied).
faith or maliciously in an effort to deflect attention from
the negligent medical care given to Michael.
A. McNeil and Dirksen
All appellees claimed immunity from malicious [3] In their motions for summary judgment, McNeil and
prosecution under the mandatory child abuse reporting Dirksen attached their affidavits, each stating
provisions of the Texas Family Code. At the time of the
incidents in question, the family code provided: I deny that I had any conversations
whatsoever with anyone from Child
A person having cause to believe Protective Services or any other
that a child's physical or mental department or investigating agency
health or welfare has been or may for which the Plaintiffs' claims seem
be adversely affected by abuse or to be based. I had no contact with
neglect by any person shall report them whatsoever in any manner
in accordance with Section 34.02 of with respect to the case of Michael
this code. Harwood.... I simply did not in any
way whatsoever, speak with, write,
TEX. FAM.CODE ANN. § 34.01 (Vernon 1989) (Act talk to, or otherwise communicate
of June 16, 1989, 71st Leg., R.S., ch. 1265, § 2, 1989 with Child Protective Services or any
Tex. Gen. Laws 5849 (repealed 1995)) (current version at other investigation agency in this
TEX. FAM.CODE ANN. § 261.101(a) (Vernon 1996)). matter.
The code further provided:

(a) Except as provided by Subsection (b) of this section, Appellants did not refute these affidavits by providing any
a person reporting or assisting in the investigation competent summary judgment evidence that McNeil and
of a report pursuant to this chapter is immune Dirksen were involved in any way with the reporting of the
from liability, civil or criminal, *876 that might incident to CPS or with CPS's subsequent investigation.
otherwise be incurred or imposed. Immunity extends
to participation in any judicial proceedings resulting McNeil's and Dirksen's affidavits established as a matter
from the report. of law that they neither initiated nor procured the criminal
prosecution of Alvarez. Having negated one element of
(b) Persons who report their own conduct or who appellants' cause of action, the trial court did not err
otherwise report in bad faith or malice, or assist in the in granting summary judgment on this cause of action.
investigation of a report in bad faith or malice, are Points of error three and four are overruled.
not protected by this section.

TEX. FAM.CODE ANN. § 34.03 (Vernon 1989) (Act of B. Peterson
June 14, 1989, 71st Leg., R.S., ch. 371, § 8, 1989 Tex.

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

[4] [5] [6] To prevail on a defense to malicious
prosecution, a defendant must show that probable cause [7] There is an initial presumption in malicious
justified the initiation of criminal proceedings. Ellis prosecution cases that the defendant acted in good
County State Bank v. Keever, 888 S.W.2d 790, 793–94 faith and had probable cause to initiate or procure the
(Tex.1994) (opinion on reh'g); Akin v. Dahl, 661 S.W.2d prosecution. Richey, 952 S.W.2d at 517. That presumption
917, 920 (Tex.1983), cert. denied, 466 U.S. 938, 104 S.Ct. disappears once a plaintiff produces evidence that the
1911, 80 L.Ed.2d 460 (1984); Zavaleta, 827 S.W.2d at 338. motives, grounds, beliefs, and other evidence upon which
In the context of malicious prosecution, probable cause is the defendant acted did not constitute probable cause. Id.
“the existence of such facts and circumstances as would at 518.
excite belief in the mind of a reasonable person, acting on
facts within his knowledge, that the person charged was Appellants' response questioned whether Peterson had
guilty of the crime for which he was prosecuted.” Richey v. probable cause and whether she reasonably believed
Brookshire Grocery Co., 952 S.W.2d 515, 517 (Tex.1997) Alvarez had attempted to suffocate Michael. Their
(citing Akin, 661 S.W.2d at 921); Metzger v. Sebek, 892 summary judgment proof included the following:
S.W.2d 20, 42 (Tex.App.—Houston [1st Dist.] 1994, writ
denied) (quoting Compton v. Calabria, 811 S.W.2d 945, 1. Michael's hospital records from the admission in
949 (Tex.App.—Dallas 1991, no writ)). The question to question, as well as his previous admissions. These
be answered is not what the facts actually were, but rather records showed Michael was born with “Mongolian
what the defendant honestly and reasonably believed the spots”; he had been admitted to Driscoll for asthma and
facts to be. Metzger, 892 S.W.2d at 42; Compton, 811 bronchitis; his condition required a breathing monitor;
S.W.2d at 950. and he was on medication to control gastroesophageal
reflux, a condition which can cause vomiting and
Peterson delineated her probable cause as follows: aspiration of the vomitus.

1. Pulmonary arrest was suspicious because Michael's 2. Alvarez's deposition, in which she states:
lungs were “working well.”
(a) at least one of Michael's apneic attacks occurred in
2. Upon review of the medical records, she observed the January 1993 when Michael was in his room directly
apnea attacks occurred only in Alvarez's presence, and across from the nurses' station.
she appeared to be sleeping, although monitors were
(b) other than on one occasion in which she propped
going off during one incident.
up Michael's bottle, and after she was instructed
3. Alvarez persistently fed Michael by propping up his not to do so, Alvarez did not feed Michael by the
bottle while Michael was laying down, a practice she bottle propping method; she always held him upright
had been instructed not to do. because of his reflux problem.

4. A review of the medical records indicated neither (c) she did not withhold information from the doctors
the admitting physician, resident, *877 or nurse and/or hospital staff. To the contrary, in her
were informed by Alvarez that Michael had been deposition, Alvarez related an incident with the
hospitalized previously for apnea or gastro-esophegeal nursing staff in which she insisted Michael have a
reflux, that he was on medication to control the reflux, breathing monitor, that he had had one during his
and that he had been on an apnea monitor. previous admissions and that the nurses refused to
give Michael a monitor because he did not need one
5. When Peterson interviewed Alvarez, she (Alvarez) and no doctor had prescribed it.
contradicted herself regarding whether she had
informed admitting personnel about Michael's medical 3. Police photographs, taken on April 15, 1993, which did
history; and not indicate the presence of any bruises on Michael's
head or neck.
6. She noticed red marks on the back of the child's neck
that looked like fingerprints, which she did not believe 4. The deposition of Dr. Joseph Anzaldua, plaintiff's
to have been caused by resuscitation efforts. expert, in which he testified he could not tell from

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

looking at the blurry Polaroid pictures taken by the adversely affected by abuse or neglect to orally report their
hospital staff on April 13, 1993, whether there were any suspicions within forty-eight hours.
bruises on Michael. He specifically declined to say the
marks were bruises. [8] [9] There are important policy considerations which
favor affirming the summary judgment with respect to
5. The deposition of Dr. Steve Oshman, Michael's treating Peterson as well. It has often been stated generally that
physician, in which he described one of the steps in “actions for malicious prosecution are not favored in
administering CPR to an infant as placing the thumbs the law.” Lieck, 881 S.W.2d at 291 and cases cited
behind the back of the baby's head to tilt the head therein. This cause of action involves “a delicate balance
backwards and clear the airway. between society's interest in the efficient enforcement of
the criminal law and the individual's interest in freedom
Alvarez did not produce any evidence which suggested from unjustifiable and oppressive criminal prosecution.”
Peterson knew the information provided to CPS was false. Richey, 952 S.W.2d at 517. Doctors and other health care
While Alvarez's summary judgment evidence creates a fact professionals have an affirmative duty to report suspected
question with respect to whether she caused Michael's abuse. The law does not require them to be certain abuse
injuries, it does not controvert Peterson's evidence that has occurred before they report, but merely “to have
she acted in good faith. Peterson simply offered her
cause to believe.” 3 Given the language in the statute and
opinion, based on facts as provided to her by the other
the burden imposed by it, we believe physicians should
doctors and the medical records. Unlike the other doctors,
be afforded deference in reporting such matters. The
who are business associates, Peterson was not alleged
life threatening injury was sustained by Michael before
to have committed any act of malpractice, not having
Peterson treated him. She set out an objectively reasonable
seen Michael until he was already comatose and on a
basis for her belief Alvarez had abused Michael, and
ventilator.
therefore, the immunity afforded by the family code is
extended to her.
The critical facts relied on by Peterson were not disputed.
She was faced with an infant who had suddenly lapsed
Point of error one is overruled. Based on this same
into a life-threatening coma and concluded the child's
analysis, we also overrule point of error five (the trial
lungs appeared healthy and would not explain respiratory
court erred in granting Peterson's motion for summary
failure. She was told by other doctors that, in their
judgment on Alvarez's claim of intentional infliction of
opinion, the circumstances *878 of the child's infirmity
emotional distress), and point of error nine (the trial
were suspicious. She was apprised that Cortes had indeed
court erred in granting Peterson's motion for summary
contacted CPS, based on his apparent suspicions. She
judgment on Alvarez's claim of conspiracy).
observed the medical records which, as described above,
suggested Alvarez was not forthcoming with information,
had disregarded prior medical advice concerning her C. Cortes
child's well-being, and was the only person present when [10] Cortes delineated his probable cause to notify CPS
the child suffered his attacks. Based on the records relied as follows:
upon by Peterson, as well as her conferring with other
doctors, together with Alvarez's inability to refute the Following Michael's cardio-
veracity of Peterson's statements (i.e. that these items were respiratory arrest, it was noted by
in records which she relied on to form her conclusions), we myself and other treating physicians,
find Alvarez failed to rebut the presumption that Peterson that the recurrent episodes of
had probable cause to suspect abuse. respiratory arrest and near arrest
occurred only in the presence of
Peterson's discussions with the other doctors, review the mother and never when another
of the medical records, and her cooperation with CPS person was present. This, coupled
investigation were apparently based on nothing more with the fact that shortly after this
than sound medical practice. Indeed, the Texas Family final episode, Michael developed
Code compels doctors having cause to believe that a some suspicious bruising on the
child's physical and mental health or welfare has been back of his head and neck, lead the

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

health care providers to suspect that those allegations are the people that are named in
there may have been or may be in this lawsuit are turning right around and accusing the
the future some intentional harm to mother of injury to the child. I really in good conscience
Michael by the mother.... cannot agree to that. In this particular case, I couldn't
do it.”
In their response, appellants questioned whether Cortes
5. Dr. Oshman's deposition testimony outlining the
“honestly and reasonably, or actually, believe[d] that
procedure for infant CPR.
Michael Harwood had suffered a failed suffocation
attempt by his mother.” They provided the following 6. Police photographs, taken on April 15, 1993, that do not
summary judgment evidence: indicate the presence of any bruises on Michael's head
or neck.
1. Michael's medical records. In addition to describing his
previous admissions and treatments, the records stated
We conclude appellants' summary judgment evidence
Michael suffered a cardio/pulmonary arrest that was the
created fact questions with respect to not only the origin
“possible result of regurgitation and aspirating.”
and cause of any marks on Michael's head, but more
2. Peterson's deposition in which she admitted (1) importantly, whether Cortes reasonably believed Alvarez
Michael's condition, including the apnea, aspiration had injured Michael.
and reflux problems could have caused his respiratory
arrest; and (2) she is not a forensic pathologist *879 Appellants' theory of the case must be kept in mind—
and is not qualified to determine the cause of Michael's that the entire story of Alvarez's abuse was fabricated by
cardio/pulmonary arrest, nor is she qualified to assess appellees, acting in concert, as a cover-up for their medical
the cause of any red marks or bruises that may have negligence. In light of this unique framework, we disagree
been visible on Michael's body. Peterson said she would with appellees' prophecy that our holding will have a
not have notified CPS. chilling effect on the mandatory reporting of suspected
child abuse or neglect. Our opinion is limited to the facts
3. The records from the CPS investigation. Ms. Bonneau of this case, that being those situations where the plaintiff
noted she had called Cortes on April 13, 1993 at claims the defendant fabricated the existence of abuse or
approximately 2:30 to question him about the incident. neglect or fabricated the existence of probable cause to
“I asked Dr. Cortes, ‘Can you tell me about the monitor cover up his own negligent conduct in causing injury to
the child had in the past?’ Dr. Cortes did not respond to the child.
the question,” but instead continued to assert Alvarez
had pushed Michael's face into the mattress. Point of error two is sustained.

4. Dr. Joseph Anzaldua's deposition in which he stated,
“it just seems to me that everything starts coming into
play after the lawsuit or after all these incidents and all II. Intentional Infliction of Emotional Distress
of a sudden these physicians kind of decide, through
[11] [12] A plaintiff establishes intentional infliction
whatever inspiration they have, that this mother is a
of emotional distress if he can show: (1) the defendant
bad mother doing all these bad things to this poor
acted intentionally or recklessly; (2) the conduct was
child. It just doesn't fit. And the medical records,
extreme and outrageous; (3) defendant's conduct caused
as I stated before, do not substantiate any of their
the plaintiff emotional distress; and (4) the emotional
theories or scenarios or possibilities that they seem to be
distress was severe. Twyman v. Twyman, 855 S.W.2d 619,
postulating, as we say, in the records that I've reviewed.”
621 (Tex.1993).
When asked whether the red marks observed on
Michael were bruises as alleged by the doctors, In their motions for summary judgment, both McNeil
Anzaldua stated, “Specifically in this case of everything and Dirksen stated only that appellants “have no proof
I know about this case, I would not feel comfortable of three of the four requisite elements in this case.”
agreeing to that. I mean, the very people that are making Cortes stated appellants “have no proof of two of the
four requisite elements in this case.” While appellants

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Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

would ultimately have the burden of proof at trial to
present sufficient evidence to prove each of the elements Appellants' sixth, seventh and eighth points of error are
of this cause of action, they were not required to do so sustained.
before that time. 4 Neither Cortes, McNeil, nor Dirksen
delineated what appellants' lack of proof was, nor did they
provide any evidence to negate the elements of intentional III. Conspiracy
infliction *880 of emotional distress. Their sole evidence
consisted of the following: [14] [15] To prove civil conspiracy, the plaintiff must
show the following elements: (1) two or more persons;
(2) an object to be accomplished; (3) a meeting of
Affidavit of McNeil and Dirksen the minds on the object to be accomplished; (4) one
or more unlawful, overt acts; and (5) damages as the
I have been informed what the elements of a claim
proximate result. Triplex Communications, Inc. d/b/a
for Intentional Infliction of Emotional Distress ... are.
Radio Station KZZB–95 FM v. Riley, 900 S.W.2d 716,
I have reviewed Plaintiffs' Third Amended Original
719 (Tex.1995); Massey v. Armco Steel Co., 652 S.W.2d
Petition with respect to their claims of Intentional
932, 934 (Tex.1983); Bernstein v. Portland Sav. & Loan
Infliction of Emotional Distress.... I specifically deny
Ass'n., 850 S.W.2d 694, 706 (Tex.App.—Corpus Christi
each and every one of the claims in each of the
1993, writ denied).
aforementioned causes of action with respect to any
care and treatment rendered by me in this case.
In their motions for summary judgment, McNeil and
McNeil and Dirksen also denied having any
Dirksen provided the affidavits set out above. While
conversations with anyone from CPS or with any other
the affidavits are sufficient to establish that neither
investigating agency.
McNeil nor Dirksen communicated with CPS, neither
Affidavit of Cortes appellee stated he did not discuss the case with any of
the other appellees. On this basis alone, we find this
I have been informed what the elements of a claim for affidavit evidence insufficient as a matter of law to negate
intentional infliction of emotional distress are. With appellants' claim of conspiracy.
respect to Plaintiffs' claims for intentional infliction of
emotional distress, I specifically deny each and every Moreover, appellants' summary judgment proof included
one of those claims. I deny that I acted intentionally or excerpts from McNeil's deposition in which he stated he
recklessly to cause harm to the Plaintiffs. I deny that had several conversations with Cortes regarding Michael's
my contact by merely exercising my duty was in anyway bruising and Michael's “unexplained” apneic episodes.
[sic] extreme or outrageous. I further deny that Plaintiffs McNeil stated Michael's apnea was caused by abuse, an
were caused emotional distress or that said distress was opinion substantiated by viewing the child in ICU and
severe as a result of any actions that were taken by me. the bruises to the back of his head. McNeil conceded,
[13] In Anderson v. Snider, the supreme court held however, that he did not go to look at Michael in ICU
that testimony comprised only of legal conclusions is until requested to do so by Cortes. He also conceded he
insufficient to support summary judgment as a matter saw no signs of abuse when Michael was admitted in the
of law. 808 S.W.2d 54, 55 (Tex.1991); see also Mercer emergency room and he made no notation in Michael's
v. Daoran Corp., 676 S.W.2d 580, 583 (Tex.1984); emergency room record that he suspected any abuse.
Hidalgo v. Surety Savings & Loan Ass'n, 487 S.W.2d
702, 703 (Tex.1972) (per curiam). Likewise, conclusory Dirksen stated in his deposition that he went to see
statements made by an expert witness are insufficient to Michael in ICU even though at that time Michael was no
support summary judgment. Anderson, 808 S.W.2d at longer his patient, but was Cortes's patient. He observed
55; Vinklarek v. Cane, 691 S.W.2d 108, 111 (Tex.App.— bruising on the back of Michael's neck. He consulted with
Austin 1985, writ ref'd n.r.e.). These doctors' affidavits are Cortes and Peterson about it. When asked if he considered
wholly insufficient to negate appellants' cause of action for whether the bruising could have occurred when Norma
intentional infliction of emotional distress as a matter of Gonzales attempted to resuscitate Michael after he had
law; they are merely sworn denials of appellants' claims. vomited and aspirated milk, *881 Dirksen stated he was

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 10
Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

not aware Michael had vomited, nor was he aware that negligence. During oral argument, appellants informed
the medical records contained notations that Michael had the Court they were waiving this point of error.
vomited. The following transpired: Accordingly, it is not necessary to address it. TEX.R.APP.
P. 47.1.
Q: Would you like to read them [the medical records]
now if you've never read them before?
B. Cortes
A: Yes, please. [16] [17] In point of error fourteen, appellants complain
the trial court erred in granting summary judgment in
Q: Don't you think before you start speculating that a
favor of Cortes on their claims of negligence and gross
mother might have intended harm to her—
negligence. In a medical malpractice suit, because the trier
A: I, sir— of fact must be guided by the opinion testimony of experts,
Hart v. Van Zandt, 399 S.W.2d 791, 792 (Tex.1965),
Q: —own child that you might read the medical records a defendant physician can obtain summary judgment
— based on his uncontroverted testimonial evidence if he
establishes, as a matter of law, that no genuine issue of
A: I— material fact exists as to one or more elements of the
plaintiff's cause of action. TEX.R. CIV. P. 166a(c); Davis
Q: —sir?
v. Manning, 847 S.W.2d 446, 449 (Tex.App.—Houston
A: I, sir, did not—I have a—I have a legal responsibility [14th Dist.] 1993, no writ).
that if I think that a child has been abused that I need
to report it. Dr. Cortes and I discussed it. He did in [18] [19] [20] The threshold question in a medical
fact report it. If he hadn't, I would have. malpractice case is the standard of care, which must
be established by expert testimony. Hall v. Tomball
Also attached to appellants' response to both McNeil's Nursing Center, Inc., 926 S.W.2d 617, 620 (Tex.App.—
and Dirksen's motions were excerpts from Cortes's Houston [14th Dist.] 1996, no writ); Chopra v. Hawryluk,
deposition in which he stated “it was now the consensus 892 S.W.2d 229, 233 (Tex.App.—El Paso 1995, writ
of the doctors who were caring for [Michael] that he denied); Armbruster v. Memorial Southwest Hosp., 857
might have been the victim of abuse.” (Emphasis added). S.W.2d 938, 941 (Tex.App.—Houston [1st Dist.] 1993,
Cortes stated he was sure all the doctors discussed the case no writ). Testimony from an interested expert, such
and before he called CPS, Cortes talked to McNeil and as the defendant doctor, can establish the standard of
Dirksen. care and support summary judgment if the testimony
is clear, direct, positive, otherwise credible, free of
Appellees included the foregoing testimony of Cortes in contradictions and inconsistencies, and capable of being
their response to his motion for summary judgment as readily controverted. Hall, 926 S.W.2d at 620; Chopra, 892
well. S.W.2d at 233. It is not sufficient for an expert to simply
state he knew the standard of care and conclude it was
Appellants' summary judgment proof creates a fact met. Rather, the expert must state what the standard is and
question regarding elements one, two, and three set out in explain how the defendant's acts met it. Hall, 926 S.W.2d
Rileyand Massey. Points of error ten, eleven, and twelve at 620; Nicholson v. Naficy, 747 S.W.2d 3, 4–5 (Tex.App.
are sustained. —Houston [1st Dist.] 1987, no writ).

Cortes's sole summary judgment evidence consisted of his
affidavit. He stated:
IV. Negligence
I am familiar with the definition of gross negligence,
A. Peterson
that being explained to me as meaning more than
In point of error thirteen, appellants complain the trial
momentary thoughtlessness, inadvertence, or error of
court erred in granting summary judgment in favor
judgment. *882 It means such an entire want of care
of Peterson on their claims of negligence and gross
as to establish that the act or omission in question

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 11
Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

was the result or actual conscious indifference to the so throughout the entire remainder
rights, welfare, or safety of the persons affected by it. of his hospital stay at Driscoll.
I specifically deny the allegations of gross negligence
made by the Plaintiffs pertaining to me. As appellants noted in their response to Cortes's motion,
Cortes's affidavit lacked factual detail to the extent they
I am familiar with the definition of negligence per se,
would have had great difficulty controverting it. Hall, 926
that being explained to me as conduct, whether of action
S.W.2d at 620. We conclude Cortes's affidavit does not set
or omission, which may be declared and treated as
out the applicable standard of care and does not negate
negligence without any argument or proof as to the
appellants' claim of negligence as a matter of law.
particular surrounding circumstances, either because it
is in violation of a statute or valid municipal ordinance,
Point of error fourteen is sustained.
or because it is so palpably opposed to the dictates of
common prudence that it can be said without hesitation
By point of error fifteen, appellants complain of the
or doubt that no careful person would have been guilty
trial court's failure to grant their motion for new trial.
of it. I specifically deny the allegations of negligence per
The motion was based on two factors: (1) that they had
se made by the Plaintiffs pertaining to me.
acquired new evidence—what they term the “defendants'
I have reviewed the Plaintiffs' Third Amended Petition manual of strategies for avoiding litigation” 5 and (2)
in this case. I deny that any act or omission on my part a new trial should be granted in the interest of justice.
as specifically stated therein was in any way negligent Neither point has merit.
or grossly negligent or in any way adversely affected the
health and safety of Michael Harwood. [21] [22] We review denials of motions for new trial
based on newly discovered evidence under an abuse of
Further, it is my expert opinion, based on a reasonable discretion standard. Jackson v. Van Winkle, 660 S.W.2d
degree of medical probability, that none of the damages 807, 809 (Tex.1983). In order to obtain a new trial, a
[P]laintiff claims in Plaintiffs' latest Petition were in any plaintiff must show that (1) the evidence has come to
way caused by any negligent act or omission on my part. their attention since the trial; (2) it was not discovered
earlier due to the lack of diligence; (3) the evidence is not
Cortes' affidavit falls far short of the requirements set out cumulative; and (4) it is so material that it would produce
in Hall. Nowhere in this affidavit did Cortes delineate the a different result if a new trial were granted. Id. at 809.
standard of care, state he was familiar with the standard
of care, or how his conduct complied with that standard. After reviewing the statement of facts from the hearing
As in Hall, although Cortes's affidavit stated that no act on the motion for new trial, we conclude appellants failed
or omission on his part caused damage to Michael, we to establish the second and third prongs of the Jackson
find the statement conclusory because we do not know test. After hearing the argument of counsel, the trial court
what actions were taken by Cortes in treating Michael. He concluded that, although appellants did request appellees
merely stated: produce the manual and any incident reports, when the
information was not forthcoming, appellants did not file
The next time I saw Michael
a motion to compel. The court stated:
was on April 13, 1993. He had
been admitted to the hospital on *883 Those were matters that could
April 10, 1992[sic] by my associate, have been brought up pre-trial so
Dr. Tom McNeil for treatment of to speak. You did have the right
symptomatic asthma. At the time to compel the other side to deliver
that I saw Michael, he had already documents and answer questions
experienced the cardio-pulmonary and so forth .... and I think you
arrest made the basis of this missed your opportunity.
lawsuit, and had been transferred to
the Pediatric Intensive Care Unit.
Moreover, appellants failed to put on any evidence that
Michael was in a coma and remained
the manual would not be cumulative of other evidence

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 12
Alvarez v. Anesthesiology Associates, 967 S.W.2d 871 (1998)

already before the court via the motions for summary for malicious prosecution. The judgment is REVERSED
and REMANDED on all causes of action with respect
judgment.
to Cortes and with respect to McNeil and Dirksen on
Alvarez's causes of action for conspiracy and intentional
Finding that the trial court did not abuse its discretion
infliction of emotional distress.
in denying the motion for new trial, we overrule point of
error number fifteen.
All Citations
The judgment of the trial court is AFFIRMED with
respect to Peterson on all causes of action and with respect 967 S.W.2d 871
to McNeil and Dirksen on Alvarez's cause of action

Footnotes
1 Michael remained in a coma and died after several months.
2 She also sued Driscoll Foundation Children's Hospital; Driscoll Children's Hospital; The Children's Clinic; Steve Oshman,
M.D.; Odent Youssef, M.D.; and Norma Gonzales, R.T. They are not before the Court in this appeal.
3 The code indicates the report “should reflect the reporter's belief that a child has been or may be abused or neglected.”
TEX. FAM.CODE ANN. § 261.102 (Vernon 1996).
4 The new “no evidence” summary judgment rule was not in effect when appellees filed their motions. See Order of April
16, 1997, 60 TEX. B.J. 534 (amending TEX.R. CIV. P. 166a, eff. Sept. 1, 1997).
5 What was obtained was Driscoll's Risk Management Policy and Procedure Manual.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 13
Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

Cases that cite this headnote
396 F.Supp. 667
United States District Court, W.D. New York.
[2] Labor and Employment
AMALGAMATED LOCAL NO. 55, UNITED Pensions and Other Benefits
AUTOMOBILE, AEROSPACE & AGRICULTURAL Arbitration clause in collective bargaining
IMPLEMENT WORKERS OF AMERICA, Plaintiff, agreement requiring arbitration of all issues
v. regarding interpretation or application of any
METAL AND ALLOY DIVISION OF SILVER term of the agreement applied to dispute
CREEK PRECISION CORPORATION, Defendant. as to whether there were arrearages of
employer's contributions to union welfare
No. Civ-74-397. fund required by the contract. Labor
| Management Relations Act, 1947, § 301, 29
June 19, 1975. U.S.C.A. § 185.

Union brought action to compel arbitration under 3 Cases that cite this headnote
collective bargaining agreement. On union's motion for
summary judgment, the District Court, Curtin, Chief
[3] Labor and Employment
Judge, held that arbitration clause applied to dispute as
Waiver and Estoppel
to whether there were arrearages in payments to union
welfare fund required by the contract; and that union had Union did not waive arbitration under
not waived arbitration either by filing a criminal charge collective bargaining agreement by filing
against one of the employer's officers or by filing unfair criminal charge against one of employer's
labor practice charge with the NLRB. officers under state labor law with respect to
the subject matter of the dispute, particularly
Plaintiff's motion for summary judgment granted. where union had already informed employer
of intention to arbitrate, or by filing unfair
labor practice charge with the NLRB,
particularly where the NLRB dismissed the
West Headnotes (3) charge because union's remedy was deemed
to be under contract arbitration provision.
Labor Law N.Y. § 198–c.
[1] Labor and Employment
Arbitration Favored; Presumption of 2 Cases that cite this headnote
Arbitrability
Labor and Employment
Scope of Inquiry; Merits of Controversy
Where party seeks to compel arbitration Attorneys and Law Firms
under a collective bargaining agreement,
court's role is narrowly limited to a *667 Lipsitz, Green, Fahringer, Roll, Schuller & James,
consideration whether the reluctant party did Buffalo, N.Y. (Richard Lipsitz, and Stuart M. Pohl,
agree to arbitrate the grievance, and order Buffalo, N.Y., of counsel), for plaintiff.
to arbitrate particular grievance should not
Moot, Sprague, Marcy, Landy, Fernbach & Smythe,
be denied unless it may be said with positive
Buffalo, N.Y. (John J. Phelan, Buffalo N.Y., of counsel),
assurance that the arbitration clause is not
for defendant.
susceptible of an interpretation that covers
the asserted dispute. Labor Management Opinion
Relations Act, 1947, § 301, 29 U.S.C.A. § 185.
CURTIN, Chief Judge.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

arbitrate the grievance.’ United Steelworkers of America
This is an action brought by Amalgamated Local No. 55 v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80
pursuant to § 301 of the Labor Management Relations S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). Furthermore,
Act, 29 U.S.C. § 185, to compel arbitration under a
collective bargaining agreement. The agreement, which
was executed in 1968 and amended on September 1, 1972, an order to arbitrate the particular grievance should not
*668 contains an arbitration clause requiring all issues be denied unless it may be said with positive assurance
regarding interpretation or application of any term of that the arbitration clause is not susceptible of an
the agreement upon which the parties cannot agree to be interpretation that covers the asserted dispute. Doubts
submitted to the office of the New York State Board of should be resolved in favor of coverage. Id. at 582-83, 80
Mediation for a panel of nine names, from which the name S.Ct. at 1353.
of an arbitrator could be chosen to arbitrate the dispute. 1
In another case, United Steelworkers of America v.
The issue the plaintiff seeks to submit to arbitration
American Mfg. Co., 363 U.S. 564, 567-68, 80 S.Ct. 1343,
stems from defendant's alleged failure to contribute to an
1346, 4 L.Ed.2d 1403 (1960), decided on the same day as
employee welfare fund, as required by Article XI, Section
the above cited case, the role of the court was similarly
5 of the amended agreement. 2 The case is now before delineated:
the court on plaintiff's motion for summary judgment
brought pursuant to Rule 56 of the Federal Rules of Civil The function of the court is very limited when the
Procedure. parties have agreed to submit all questions of contract
interpretation to the arbitrator. It is confined to
The facts in this case are not in dispute. Defendant ascertaining whether the party seeking arbitration is
corporation terminated its manufacturing operations on making a claim which on its face is governed by the
or about August 13, 1973, at which time employees contract. Whether the moving party is right or wrong is
represented by plaintiff were laid off. 3 On September 14, a question of contract interpretation for the arbitrator.
1973, plaintiff union informed defendant that an arrearage In these circumstances the moving party should not be
in its contributions payable to the Local 55 UAW Welfare deprived of the arbitrator's judgment, when it was his
Fund, pursuant to Article XI, Section 5 of their collective judgment and all that it connotes that was bargained for.
bargaining agreement, had developed. Plaintiff received
no response and, therefore, again notified defendant Under the standards set forth above, and reiterated in
of the arrearage on February 27, 1974. At that time other Supreme Court cases, 4 this court must therefore
plaintiff also stated that if the amount was not paid initially make a determination whether the company
within ten days, the plaintiff would submit the dispute contractually bound itself to arbitrate. John Wiley & Sons,
to arbitration. Further letters followed in March and Inc. v. Livingston, 376 U.S. 543, 547, 84 S.Ct. 909, 11
April 1974, reiterating plaintiff's intention to arbitrate the L.Ed.2d 898 (1964); Atkinson v. Sinclair Refining Co.,
dispute. Thereafter plaintiff contacted the New York State 370 U.S. 238, 241, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962);
Mediation Board on March 26, 1974 and requested that Necchi v. Necchi Sewing Machine Sales Corp., 348 F.2d
a panel of nine names be submitted to the parties from 693 (2d Cir. 1965), cert. denied, 383 U.S. 909, 86 S.Ct. 892,
which an arbitrator could be selected pursuant to their 15 L.Ed.2d 664 (1966). After this primary determination
agreement. On April 11, 1974, plaintiff was informed by has been made, the decision of whether or not arbitration
both the Mediation Board and defendant's attorney that should be compelled can be made.
defendant refused to arbitrate the dispute. This action was [2] Plaintiff has submitted both the text of the arbitration
then begun on August 16, 1974. clause, Article VI, Section 4, and the insurance provision,
[1] The precise question raised by the plaintiff's summary Article XI, Section 5, contained in the September 1, 1972
judgment motion is whether the defendant's alleged failure contract, as amended. 5 Defendant has acknowledged
to pay into the union's welfare fund is an arbitrable dispute both the existence of this contract and the provisions
subject to the arbitration clause. In deciding this *669 in question. An issue has clearly arisen regarding
question, the role of the court under § 301 of the Labor
contributions to the welfare fund. 6 The arbitration
Management Relations Act has been narrowly limited to a
clause, in concise, unambiguous language, requires that all
consideration of ‘whether the reluctant party did agree to
disputes regarding any such term of the agreement must

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Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

be submitted to arbitration. Since defendant has not given dispute between the parties; nor could it have served that
purpose since it was a criminal complaint based upon
the court any positive assurance that the insurance issue
different issues than those before this court and brought
is not covered by the arbitration clause, it is clear that
against an individual, Manuel Llop, not the defendant
the company has agreed to arbitrate disputes such as this.
corporation. The criminal court action was brought
John Wiley & Sons, Inc. v. Livingston, supra.
after plaintiff had informed defendant of its intention
to arbitrate the dispute if the amount was not paid
[3] Defendant has argued that plaintiff's motion for
to the welfare fund, clearly indicating that the criminal
summary judgment directing defendant to submit to
action was not brought in lieu of arbitration. Nor can
arbitration should not be granted because plaintiff has
plaintiff's action in filing a charge with the National Labor
repudiated its right to arbitration. This repudiation
Relations Board be construed as a waiver of their contract
occurred, according to defendant, through plaintiff's filing
rights to arbitration, Glass Bottle Blowers Association
of a criminal information *670 in the City Court
of the United States and Canada, AFL-CIO, et al. v.
of Buffalo on December 12, 1973, charging one of
Arkansas Glass Container Corp., 183 F.Supp. 829, 830-31
defendant's officers with a violation of § 198-c of the New
(E.D.Ark.1960), especially since the N.L.R.B. dismissed
York State Labor Law, 7 and through plaintiff's filing
the charge because defendant's remedy was deemed to be
an unfair labor practice charge with the National Labor
under the contract provision for arbitration. 9
Relations Board on April 18, 1974. 8 The court finds no
merit to defendant's argument that plaintiff has waived
arbitration. Only one circuit court of appeals has found Therefore, since it appears from the record that there is a
that a union's action in bringing suit in a federal district valid collective bargaining agreement between the parties
court against their employer for back wages, instead of which provides for arbitration of the present dispute,
seeking arbitration, was a waiver of the union's right to summary judgment *671 is granted for the plaintiff
compel arbitration. Morales Rivera v. Sea Land of Puerto against the defendant directing the defendant to submit to
Rico, Inc., 418 F.2d 725 (1st Cir. 1969). However, the arbitration. Plaintiff shall prepare judgment and present it
Morales Rivera case differs from the instant case in that to the court after notice to defendant.
the union had decided to file suit in the district court
instead of compelling arbitration under the collective So ordered.
bargaining agreement. In this case the action in City Court
All Citations
was not brought instead of arbitration. To the contrary,
plaintiff had informed defendant of the arrearage at the 396 F.Supp. 667, 89 L.R.R.M. (BNA) 2922, 77 Lab.Cas.
time the complaint was filed. The action instituted in P 11,051
City Court was not instituted to resolve the merits of the

Footnotes
1 Article VI, § 4 of the collective bargaining agreement, as amended, provides:
4. If the third step should fail to secure satisfactory settlement, the grievance may be submitted to the office of the New
York State Board of Mediation for a panel of nine (9) names.
(a) In the event that an arbitrator is required, he shall be selected from the arbitration panel provided either by mutual
agreement or by each party alternately striking off a name from the panel. The remaining name shall be the arbitrator
who shall arbitrate the grievance or grievances pending.
(b) The arbitrator shall fix and notify the parties of the time and place for arbitration of the grievance.
(c) Any issue involving the interpretation or application of any term of this agreement shall be initiated by the Union directly
at step 3. Upon the failure of the parties to agree, the Union may then appeal the issue to arbitration for a decision.
(d) The decision of the arbitrator shall be final and binding upon both parties, but he shall have no power either to
add to, subtract from or modify any of the terms, conditions or limitations of this agreement or any agreement made
supplementary hereto . . ..
2 Article XI, § 5 of the collective bargaining agreement, as amended, provides:
5. INSURANCE:

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Amalgamated Local No. 55, United Auto., Aerospace and..., 396 F.Supp. 667 (1975)
89 L.R.R.M. (BNA) 2922, 77 Lab.Cas. P 11,051

(a) Effective February 1, 1972, the Company shall continue as a contributing employer to Local 55, UAW Welfare
Fund which has been established under an Agreement and Declaration of Trust dated September 1, 1958 which said
Agreement and Declaration of Trust the Company hereby ratifies and is deemed to be a part of this Agreement. The
Company will contribute the cost of $26.46 for each single, active working employee and $52.62 for each married, active
working employee to the Local 55, UAW Welfare Fund including employees on sick leave not to exceed twelve (12)
months for any one sick leave with an initial master list and subsequent monthly supplemental list for those for whom
premiums have been paid by the fifth (5th) day of each calendar mont . . ..
3 Defendant, in P6 of his answer, filed October 8, 1974, denies that the plaintiff's employee members were laid off.
4 For the third case in the famous Steelworkers' trilogy, see United States Steelworkers of America v. Enterprise Wheel
and Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). The Second Circuit has applied the standard set
in the Steelworkers' trilogy, stating:
Only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail. Strauss v. Silvercup Bakers,
353 F.2d 555, 557 (2d Cir. 1965). See also Publishers Association of New York City v. New York Mailers Union No. 6,
317 F.2d 624 (2d Cir. 1963).
5 Supra, nn. 1 and 2.
6 Plaintiff has stated that there have been arrearages in payments to the welfare fund, while defendant has denied the
allegation. Although it is not within the province of this court to pass on the merits of the allegation, it is clear that a
dispute does exist.
7 N.Y. Labor Law § 198-c (McKinney's Supp.1975) states:
1. In addition to any other penalty or punishment otherwise prescribed by law, any employer who is party to an agreement
to pay or provide benefits or wage supplements to employees or to a third party or fund for the benefit of employees
and who fails, neglects or refuses to pay the amount or amounts necessary to provide such benefits or furnish such
supplements within thirty days after such payments are required quired to be made, shall be guilty of a misdemeanor, and
upon conviction shall be punished as provided in section one hundred ninety-eight-a this article. Where such employer
is a corporation, the president, secretary, treasurer or officers exercising corresponding functions shall each be guilty
of a misdemeanor. 2. As used in this section, the term ‘benefits or wage supplements' includes, but is not limited to,
reimbursement for expenses; health, welfare and retirement benefits; and vacation, separation or holiday pay.
This charge was dismissed on February 24, 1974 because the court felt that plaintiff should seek other means of collecting
the monies due.
8 This charge was dismissed on May 24, 1974.
9 The reasons for the dismissal of the unfair labor charge by the National Labor Relations Board, similar to the reasons
of the City Court judge, did not go to the merits. According to a letter of the National Labor Relations Board dated May
24, 1974, the reasons for dismissal were as follows:
As a result of the investigation, it does not appear that further proceedings on the charge are warranted inasmuch as the
investigation revealed that all employees represented by the Charging Party were terminated more than eight months
ago as the Respondent closed its business for economic reasons. Furthermore, there was no successor to take over
and honor the collective bargaining agreement negotiated on behalf of the predecessor. It is also noted that the Union's
remedy for an enforcement of a contract in the circumstances herein is not within the jurisdiction of this Agency. I am,
therefore, refusing to issue complaint in this matter.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW 4279, 161 Lab.Cas. P 10,368...

KeyCite Yellow Flag - Negative Treatment West Headnotes (13)
Disagreement Recognized by Wallace v. Red Bull Distributing Co., 
N.D.Ohio, July 23, 2013
131 S.Ct. 1740 [1] Alternative Dispute Resolution
Supreme Court of the United States Constitutional and statutory provisions
and rules of court
AT&T MOBILITY LLC, Petitioner, The provision of the Federal Arbitration Act
v. (FAA) stating that arbitration agreements in
Vincent CONCEPCION et ux. maritime transactions or contracts evidencing
transactions involving commerce are valid,
No. 09–893. irrevocable, and enforceable, save upon such
| grounds as exist at law or in equity for the
Argued Nov. 9, 2010. revocation of any contract, reflects both a
| liberal federal policy favoring arbitration and
Decided April 27, 2011. the fundamental principle that arbitration is a
matter of contract. 9 U.S.C.A. § 2.
Synopsis
Background: Customers brought putative class action 756 Cases that cite this headnote
against telephone company, alleging that company's offer
of a free phone to anyone who signed up for its cellphone
service was fraudulent to the extent that the company [2] Alternative Dispute Resolution
charged the customer sales tax on the retail value of Constitutional and statutory provisions
the free phone. The United States District Court for the and rules of court
Southern District of California, Dana M. Sabraw, J., In light of the liberal federal policy
2008 WL 5216255, denied company's motion to compel favoring arbitration and the fundamental
arbitration. Company appealed. The United States Court principle that arbitration is a matter
of Appeals for the Ninth Circuit, Carlos T. Bea, Circuit of contract, which are reflected in the
Judge, 584 F.3d 849, affirmed. Certiorari was granted. provision of the Federal Arbitration Act
(FAA) stating that arbitration agreements in
maritime transactions or contracts evidencing
transactions involving commerce are valid,
[Holding:] The Supreme Court, Justice Scalia, held that
irrevocable, and enforceable, save upon such
the Federal Arbitration Act preempts California's judicial
grounds as exist at law or in equity for
rule regarding the unconscionability of class arbitration
the revocation of any contract, courts must
waivers in consumer contracts, abrogating Discover Bank
place arbitration agreements on an equal
v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113
footing with other contracts, and enforce
P.3d 1100.
them according to their terms. 9 U.S.C.A. § 2.

1002 Cases that cite this headnote
Reversed and remanded.

Justice Thomas filed a concurring opinion. [3] Alternative Dispute Resolution
Preemption
Justice Breyer filed a dissenting opinion, in which Justices States
Ginsburg, Sotomayor, and Kagan, joined. Particular cases, preemption or
supersession
The Federal Arbitration Act (FAA) preempts
California's judicial rule stating that a
class arbitration waiver is unconscionable

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
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under California law if it is found in a Substantive unconscionability
consumer contract of adhesion in a setting Under California law, a finding that
in which disputes between the contracting a contract is unconscionable requires a
parties predictably involve small amounts of procedural and a substantive element, the
damages, and if it is alleged that the party with former focusing on oppression or surprise
superior bargaining power has carried out a due to unequal bargaining power, the latter
scheme to deliberately cheat large numbers of on overly harsh or one-sided results. West's
consumers out of individually small sums of Ann.Cal.Civ.Code §§ 1668, 1670.5(a).
money, because that rule stands as an obstacle
to the accomplishment and execution of the 55 Cases that cite this headnote
full purposes and objectives of Congress in
enacting the FAA, which include ensuring
[6] Alternative Dispute Resolution
the enforcement of arbitration agreements
Preemption
according to their terms so as to facilitate
States
streamlined proceedings; abrogating Discover
Particular cases, preemption or
Bank v. Superior Court, 36 Cal.4th 148, 30
supersession
Cal.Rptr.3d 76, 113 P.3d 1100. 9 U.S.C.A. § 2;
West's Ann.Cal.Civ.Code §§ 1668, 1670.5(a). When state law prohibits outright the
arbitration of a particular type of claim,
154 Cases that cite this headnote the conflicting state rule is displaced by the
Federal Arbitration Act (FAA). 9 U.S.C.A. §
[4] Alternative Dispute Resolution 2.
Validity
141 Cases that cite this headnote
Alternative Dispute Resolution
Validity of assent
[7] Alternative Dispute Resolution
Alternative Dispute Resolution
Preemption
Unconscionability
States
Under the saving clause in the provision
Particular cases, preemption or
of the Federal Arbitration Act (FAA)
supersession
stating that arbitration agreements in
In light of the preemptive effect of the Federal
maritime transactions or contracts evidencing
Arbitration Act (FAA), a court may not
transactions involving commerce are valid,
rely on the uniqueness of an agreement to
irrevocable, and enforceable, save upon such
arbitrate as a basis for a state-law holding
grounds as exist at law or in equity for
that enforcement would be unconscionable,
the revocation of any contract, arbitration
for this would enable the court to effect what
agreements may be invalidated by generally
the state legislature cannot. 9 U.S.C.A. § 2.
applicable contract defenses, such as fraud,
duress, or unconscionability, but not by 181 Cases that cite this headnote
defenses that apply only to arbitration or that
derive their meaning from the fact that an
agreement to arbitrate is at issue. 9 U.S.C.A. [8] Alternative Dispute Resolution
§ 2. Constitutional and statutory provisions
and rules of court
979 Cases that cite this headnote While the saving clause, in the provision
of the Federal Arbitration Act (FAA)
[5] Contracts stating that arbitration agreements in
Procedural unconscionability maritime transactions or contracts evidencing
transactions involving commerce are valid,
Contracts

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irrevocable, and enforceable, save upon such For a class-action money judgment to bind
grounds as exist at law or in equity for absentees in litigation, class representatives
the revocation of any contract, preserves must at all times adequately represent absent
generally applicable contract defenses, class members, and absent members must be
nothing in it suggests an intent to preserve afforded notice, an opportunity to be heard,
state-law rules that stand as an obstacle to and a right to opt out of the class.
the accomplishment of the FAA's objectives.
9 U.S.C.A. § 2. 16 Cases that cite this headnote

297 Cases that cite this headnote
[13] Alternative Dispute Resolution
Contractual or consensual basis
[9] States Alternative Dispute Resolution
Congressional intent Constitutional and statutory provisions
A federal statute's preemption saving clause and rules of court
cannot in reason be construed as allowing a Arbitration is a matter of contract, and
common law right, the continued existence of the Federal Arbitration Act (FAA) requires
which would be absolutely inconsistent with courts to honor parties' expectations. 9
the provisions of the act; in other words, the U.S.C.A. § 1 et seq.
act cannot be held to destroy itself.
143 Cases that cite this headnote
5 Cases that cite this headnote

[10] Alternative Dispute Resolution
Constitutional and statutory provisions West Codenotes
and rules of court
Limited on Preemption Grounds
The principal purpose of the Federal
West's Ann.Cal.Civ.Code §§ 1668, 1670.5(a).
Arbitration Act (FAA) is to ensure that
private arbitration agreements are enforced
according to their terms. 9 U.S.C.A. §§ 2–4. **1742 *333 Syllabus *

268 Cases that cite this headnote The cellular telephone contract between respondents
(Concepcions) and petitioner (AT & T) provided for
[11] Alternative Dispute Resolution arbitration of all disputes, but did not permit classwide
Nature, purpose, and right to arbitration arbitration. After the Concepcions were charged sales
in general tax on the retail value of phones provided free
under their service contract, they sued AT & T in
In bilateral arbitration, parties forgo the
a California Federal District Court. Their suit was
procedural rigor and appellate review of the
consolidated with a class action alleging, inter alia,
courts in order to realize the benefits of
that AT & T had engaged in false advertising and
private dispute resolution: lower costs, greater
fraud by charging sales tax on “free” phones. The
efficiency and speed, and the ability to choose
District Court denied AT & T's motion to compel
expert adjudicators to resolve specialized
arbitration under the Concepcions' contract. Relying on
disputes.
the California Supreme Court's Discover Bank decision,
8 Cases that cite this headnote it found the arbitration provision unconscionable because
it disallowed classwide proceedings. The Ninth Circuit
agreed that the provision was unconscionable under
[12] Judgment California law and held that the Federal Arbitration
Persons represented by parties Act (FAA), which makes arbitration agreements “valid,
irrevocable, and enforceable, save upon such grounds

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as exist at law or in equity for the revocation of any U.S. 861, 872, 120 S.Ct. 1913, 146 L.Ed.2d 914. The
contract,” 9 U.S.C. § 2, did not preempt its ruling. FAA's overarching purpose is to ensure the enforcement
of arbitration agreements according to their terms so as to
Held: Because it “stands as an obstacle to the facilitate informal, streamlined proceedings. Parties may
accomplishment and execution of the full purposes and agree to limit the issues subject to arbitration, Mitsubishi
objectives of Congress,” Hines v. Davidowitz, 312 U.S. 52, Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S.
67, 61 S.Ct. 399, 85 L.Ed. 581, California's Discover Bank 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444, to arbitrate
rule is pre-empted by the FAA. Pp. 1745 – 1753. according to specific rules, Volt, supra, at 479, 109 S.Ct.
1248, and to limit with whom they will arbitrate, Stolt–
(a) Section 2 reflects a “liberal federal policy favoring Nielsen, supra, at ––––. Pp. 1746 – 1750.
arbitration,” Moses H. Cone Memorial Hospital v.
Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, (d) Class arbitration, to the extent it is manufactured
74 L.Ed.2d 765, and the “fundamental principle that by Discover Bank rather than consensual, interferes
arbitration is a matter of contract,” Rent–A–Center, West, with fundamental attributes of arbitration. The switch
Inc. v. Jackson, 561 U.S. ––––, ––––, 130 S.Ct. 2772, 177 from bilateral to class arbitration sacrifices arbitration's
L.Ed.2d 403 (2010). Thus, courts must place arbitration informality and makes the process slower, more costly,
agreements on an equal footing with other contracts, and more likely to generate procedural morass than
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, final judgment. And class arbitration greatly increases
443, 126 S.Ct. 1204, 163 L.Ed.2d 1038, and enforce them risks to defendants. The absence of multilayered review
according to their terms, Volt Information Sciences, Inc. makes it more likely that errors will go uncorrected. That
v. Board of Trustees of Leland Stanford Junior Univ., 489 risk of error may become unacceptable when damages
U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488. Section allegedly owed to thousands of claimants are aggregated
2's saving clause permits agreements to be invalidated and decided at once. Arbitration is poorly suited to these
by “generally applicable contract defenses,” but not by higher stakes. In litigation, a defendant may appeal a
defenses that apply **1743 only to arbitration or derive certification decision and a final judgment, but 9 U.S.C. §
their meaning from the fact that an agreement to arbitrate 10 limits the grounds on which courts can vacate arbitral
is at issue. Doctor's Associates, Inc. v. Casarotto, 517 U.S. awards. Pp. 1750 – 1753.
681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902. Pp. 1745 – 1746.
584 F.3d 849, reversed and remanded.
(b) In Discover Bank, the California Supreme Court held
that class waivers in consumer arbitration agreements are SCALIA, J., delivered the opinion of the Court, in which
unconscionable if the *334 agreement is in an adhesion ROBERTS, C. J., and KENNEDY, THOMAS, and
contract, disputes between the parties are likely to involve ALITO, JJ., joined. THOMAS, J., filed a concurring
small amounts of damages, and the party with inferior opinion. BREYER, J., filed a dissenting opinion, in which
bargaining power alleges a deliberate scheme to defraud. GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.
Pp. 1745 – 1747.

(c) The Concepcions claim that the Discover Bank rule is a Attorneys and Law Firms
ground that “exist[s] at law or in equity for the revocation
Andrew J. Pincus, Washington, DC, for Petitioner.
of any contract” under FAA § 2. When state law prohibits
outright the arbitration of a particular type of claim, Deepak Gupta, for Respondents.
the FAA displaces the conflicting rule. But the inquiry
is more complex when a generally applicable doctrine is Donald M. Falk, Mayer Brown LLP, Palo Alto, CA,
alleged to have been applied in a fashion that disfavors Neal Berinhout, Atlanta, GA, Kenneth S. Geller, Andrew
or interferes with arbitration. Although § 2's saving clause J. Pincus, Evan M. Tager, Archis A. Parasharami,
preserves generally applicable contract defenses, it does Kevin Ranlett, Mayer Brown LLP, Washington, DC, for
not suggest an intent to preserve state-law rules that Petitioner.
stand as an obstacle to the accomplishment of the FAA's
objectives. Cf. Geier v. American Honda Motor Co., 529

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seek reimbursement of its attorney's fees, and, in the event
Opinion that a customer receives an arbitration award greater than
AT & T's last written settlement offer, requires AT & T to
**1744 Justice SCALIA delivered the opinion of the
pay a $7,500 minimum recovery and twice the amount of
Court.
the claimant's attorney's fees. 3
*336 Section 2 of the Federal Arbitration Act (FAA)
makes agreements to arbitrate “valid, irrevocable, and The Concepcions purchased AT & T service, which was
enforceable, save upon such grounds as exist at law or advertised as including the provision of free phones; they
in equity for the revocation of any contract.” 9 U.S.C. were not charged for the phones, but they were charged
§ 2. We consider whether the FAA prohibits States $30.22 in sales tax based on the phones' retail value. In
from conditioning the enforceability of certain arbitration March 2006, the Concepcions filed a complaint against
agreements on the availability of classwide arbitration AT & T in the United States District Court for the
procedures. Southern District of California. The complaint was later
consolidated with a putative class action alleging, among
other things, that AT & T had engaged in false advertising
and fraud by charging sales tax on phones it advertised as
I
free.
In February 2002, Vincent and Liza Concepcion entered
into an agreement for the sale and servicing of cellular In March 2008, AT & T moved to compel
arbitration under the terms of its contract **1745
telephones with AT & T Mobility LCC (AT & T). 1 The
with the Concepcions. The Concepcions opposed the
contract provided for arbitration of all disputes between
motion, contending that the arbitration agreement was
the parties, but required that claims be brought in the
unconscionable and unlawfully exculpatory *338 under
parties' “individual capacity, and not as a plaintiff or
California law because it disallowed classwide procedures.
class member in any purported class or representative
The District Court denied AT & T's motion. It described
proceeding.” App. to Pet. for Cert. 61a. 2 The agreement
AT & T's arbitration agreement favorably, noting, for
authorized AT & T to make unilateral amendments, which
example, that the informal dispute-resolution process was
it did to the arbitration provision on several occasions.
“quick, easy to use” and likely to “promp[t] full or ...
The version at issue in this case reflects revisions made in
even excess payment to the customer without the need to
December 2006, which the parties agree are controlling.
arbitrate or litigate”; that the $7,500 premium functioned
as “a substantial inducement for the consumer to pursue
The revised agreement provides that customers may
the claim in arbitration” if a dispute was not resolved
initiate dispute proceedings by completing a one-page
informally; and that consumers who were members of a
Notice of Dispute form available on AT & T's Web site.
class would likely be worse off. Laster v. T–Mobile USA,
AT & T may *337 then offer to settle the claim; if it
Inc., 2008 WL 5216255, *11–*12 (S.D.Cal., Aug.11, 2008).
does not, or if the dispute is not resolved within 30 days,
Nevertheless, relying on the California Supreme Court's
the customer may invoke arbitration by filing a separate
decision in Discover Bank v. Superior Court, 36 Cal.4th
Demand for Arbitration, also available on AT & T's Web
148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), the court
site. In the event the parties proceed to arbitration, the
found that the arbitration provision was unconscionable
agreement specifies that AT & T must pay all costs for
because AT & T had not shown that bilateral arbitration
nonfrivolous claims; that arbitration must take place in
adequately substituted for the deterrent effects of class
the county in which the customer is billed; that, for claims
actions. Laster, 2008 WL 5216255, *14.
of $10,000 or less, the customer may choose whether the
arbitration proceeds in person, by telephone, or based
The Ninth Circuit affirmed, also finding the provision
only on submissions; that either party may bring a claim
unconscionable under California law as announced in
in small claims court in lieu of arbitration; and that
Discover Bank. Laster v. AT & T Mobility LLC, 584
the arbitrator may award any form of individual relief,
F.3d 849, 855 (2009). It also held that the Discover
including injunctions and presumably punitive damages.
Bank rule was not preempted by the FAA because that
The agreement, moreover, denies AT & T any ability to
rule was simply “a refinement of the unconscionability

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analysis applicable to contracts generally in California.”
584 F.3d, at 857. In response to AT & T's argument [3] [4] The final phrase of § 2, however, permits
that the Concepcions' interpretation of California law arbitration agreements to be declared unenforceable
discriminated against arbitration, the Ninth Circuit “upon such grounds as exist at law or in equity for the
rejected the contention that “ ‘class proceedings will revocation of any contract.” This saving clause permits
reduce the efficiency and expeditiousness of arbitration’ agreements to arbitrate to be invalidated by “generally
” and noted that “ ‘Discover Bank placed arbitration applicable contract defenses, such as fraud, duress, or
agreements with class action waivers on the exact same unconscionability,” but not by defenses that apply only to
footing as contracts that bar class action litigation outside arbitration or that derive their meaning from the fact that
the context of arbitration.’ ” Id., at 858 (quoting Shroyer an agreement to arbitrate is at issue. Doctor's Associates,
v. New Cingular Wireless Services, Inc., 498 F.3d 976, 990 Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134
(C.A.9 2007)). L.Ed.2d 902 (1996); see also Perry v. Thomas, 482 U.S.
483, 492–493, n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987).
We granted certiorari, 560 U.S. 923, 130 S.Ct. 3322, 176 *340 The question in this case is whether § 2 preempts
L.Ed.2d 1218 (2010). California's rule classifying most collective-arbitration
waivers in consumer contracts as unconscionable. We
refer to this rule as the Discover Bank rule.

*339 II
[5] Under California law, courts may refuse to enforce
[1] [2] The FAA was enacted in 1925 in response to any contract found “to have been unconscionable at
widespread judicial hostility to arbitration agreements. the time it was made,” or may “limit the application
See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. of any unconscionable clause.” Cal. Civ.Code Ann. §
576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Section 1670.5(a) (West 1985). A finding of unconscionability
2, the “primary substantive provision of the Act,” Moses requires “a ‘procedural’ and a ‘substantive’ element, the
H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 former focusing on ‘oppression’ or ‘surprise’ due to
U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), provides, unequal bargaining power, the latter on ‘overly harsh’
in relevant part, as follows: or ‘one-sided’ results.” Armendariz v. Foundation Health
Pyschcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d
“A written provision in any maritime transaction or a 745, 6 P.3d 669, 690 (2000); accord, Discover Bank, 36
contract evidencing a transaction involving commerce Cal.4th, at 159–161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1108.
to settle by arbitration a controversy thereafter arising
out of such contract or transaction ... shall be valid, In Discover Bank, the California Supreme Court applied
irrevocable, and enforceable, save upon such grounds this framework to class-action waivers in arbitration
as exist at law or in equity for the revocation of any agreements and held as follows:
contract.” 9 U.S.C. § 2.
“[W]hen the waiver is found in a consumer contract
We have described this provision as reflecting both a of adhesion in a setting in which disputes between the
“liberal federal policy favoring arbitration,” Moses H. contracting parties predictably involve small amounts
Cone, supra, at 24, 103 S.Ct. 927, and the “fundamental of damages, and when it is alleged that the party with
principle that arbitration is a matter of contract,” Rent– the superior bargaining power has carried out a scheme
A–Center, West, Inc. v. Jackson, 561 U.S. ––––, ––––, 130 to deliberately cheat large numbers of consumers out
S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010). In line with of individually small sums of money, then ... the waiver
these principles, courts must place arbitration agreements becomes in practice the exemption of the party ‘from
on an equal footing with other contracts, Buckeye Check responsibility for [its] own fraud, or willful injury
Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 to the person or property of another.’ Under these
S.Ct. 1204, 163 L.Ed.2d 1038 (2006), and enforce them circumstances, such waivers are unconscionable under
according to their terms, Volt Information Sciences, Inc. California law and should not be enforced.” Id., at
v. **1746 Board of Trustees of Leland Stanford Junior 162, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110 (quoting Cal.
Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 Civ.Code Ann. § 1668).
(1989).

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An obvious illustration of this point would be a case
California courts have frequently applied this rule to finding unconscionable or unenforceable as against public
find arbitration agreements unconscionable. See, e.g., policy *342 consumer arbitration agreements that
Cohen v. DirecTV, Inc., 142 Cal.App.4th 1442, 1451–1453, fail to provide for judicially monitored discovery. The
48 Cal.Rptr.3d 813, 819–821 (2006); Klussman v. Cross rationalizations for such a holding are neither difficult to
Country *341 Bank, 134 Cal.App.4th 1283, 1297, 36 imagine nor different in kind from those articulated in
Cal.Rptr.3d 728, 738–739 (2005); Aral v. EarthLink, Inc., Discover Bank. A court might reason that no consumer
134 Cal.App.4th 544, 556–557, 36 Cal.Rptr.3d 229, 237– would knowingly waive his right to full discovery, as
239 (2005). this would enable companies to hide their wrongdoing.
Or the court might simply say that such agreements are
exculpatory—restricting discovery would be of greater
III benefit to the company than the consumer, since the
former is more likely to be sued than to sue. See Discover
Bank, supra, at 161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1109
A (arguing that class waivers are similarly one-sided). And,
the reasoning would continue, because such a rule applies
The Concepcions argue that the Discover Bank rule,
the general principle of unconscionability or public-policy
given its origins in California's unconscionability doctrine
disapproval of exculpatory agreements, it is applicable
and California's policy against exculpation, is a ground
to “any” contract and thus preserved by § 2 of the
that “exist[s] at law or in equity for the revocation of
FAA. In practice, of course, the rule would have a
any contract” under FAA § 2. Moreover, they argue
disproportionate impact on arbitration agreements; but
that even if we construe the Discover Bank rule as
it would presumably apply to contracts purporting to
a prohibition on collective-action waivers rather than
restrict discovery in litigation as well.
simply an application of unconscionability, the rule would
still be applicable to all dispute-resolution contracts,
Other examples are easy to imagine. The same argument
since California prohibits waivers of class litigation as
might apply to a rule classifying as unconscionable
well. See America Online, Inc. v. Superior **1747 Ct.,
arbitration agreements that fail to abide by the Federal
90 Cal.App.4th 1, 17–18, 108 Cal.Rptr.2d 699, 711–713
Rules of Evidence, or that disallow an ultimate disposition
(2001).
by a jury (perhaps termed “a panel of twelve lay
[6] [7] When state law prohibits outright the arbitrators” to help avoid preemption). Such examples
are not fanciful, since the judicial hostility towards
arbitration of a particular type of claim, the analysis is
arbitration that prompted the FAA had manifested itself
straightforward: The conflicting rule is displaced by the
in “a great variety” of “devices and formulas” declaring
FAA. Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct.
arbitration against public policy. Robert Lawrence Co.
978, 169 L.Ed.2d 917 (2008). But the inquiry becomes
v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (C.A.2
more complex when a doctrine normally thought to be
1959). And although these statistics are not definitive, it
generally applicable, such as duress or, as relevant here,
is worth noting that California's courts have been more
unconscionability, is alleged to have been applied in a
likely to hold contracts to arbitrate unconscionable than
fashion that disfavors arbitration. In Perry v. Thomas,
other contracts. Broome, An Unconscionable Applicable
482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), for
of the Unconscionability Doctrine: How the California
example, we noted that the FAA's preemptive effect might
Courts are Circumventing the Federal Arbitration Act,
extend even to grounds traditionally thought to exist “
3 Hastings Bus. L.J. 39, 54, 66 (2006); Randall,
‘at law or in equity for the revocation of any contract.’
*343 Judicial Attitudes Toward Arbitration and the
” Id., at 492, n. 9, 107 S.Ct. 2520 (emphasis deleted). We
Resurgence of Unconscionability, 52 Buffalo L.Rev. 185,
said that a court may not “rely on the uniqueness of an
186–187 (2004).
agreement to arbitrate as a basis for a state-law holding
that enforcement would be unconscionable, for this would
The Concepcions suggest that all this is just a parade
enable the court to effect what ... the state legislature
of horribles, and no genuine worry. “Rules aimed
cannot.” Id., at 493, n. 9, 107 S.Ct. 2520.
at destroying arbitration” or “demanding procedures

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incompatible with arbitration,” they concede, **1748 S.Ct. 1248; see also Stolt–Nielsen S.A. v. AnimalFeeds Int'l
“would be preempted by the FAA because they Corp., 559 U.S. ––––, ––––, 130 S.Ct. 1758, 1763, 176
cannot sensibly be reconciled with Section 2.” Brief for L.Ed.2d 605 (2010). This purpose is readily apparent from
Respondents 32. The “grounds” available under § 2's the FAA's text. Section 2 makes arbitration agreements
saving clause, they admit, “should not be construed to “valid, irrevocable, and enforceable” as written (subject,
include a State's mere preference for procedures that of course, to the saving clause); § 3 requires courts
are incompatible with arbitration and ‘would wholly to stay litigation of arbitral claims pending arbitration
eviscerate arbitration agreements.’ ” Id., at 33 (quoting of those claims “in accordance with the terms of the
Carter v. SSC Odin Operating Co., LLC, 237 Ill.2d 30, 50, agreement”; and § 4 requires courts to compel arbitration
340 Ill.Dec. 196, 927 N.E.2d 1207, 1220 (2010)). 4 “in accordance with the terms of the agreement” upon the
motion of either party to the agreement (assuming that
[8] [9] We largely agree. Although § 2's saving clause the “making of the arbitration agreement or the failure ...
preserves generally applicable contract defenses, nothing to perform the same” is not at issue). In light of these
in it suggests an intent to preserve state-law rules that provisions, we have held that parties may agree to limit
stand as an obstacle to the accomplishment of the FAA's the issues subject to arbitration, Mitsubishi Motors Corp.
objectives. Cf. Geier v. American Honda Motor Co., 529 v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105
U.S. 861, 872, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000); S.Ct. 3346, 87 L.Ed.2d 444 (1985), **1749 to arbitrate
Crosby v. National Foreign Trade Council, 530 U.S. 363, according to specific rules, Volt, supra, at 479, 109 S.Ct.
372–373, 120 S.Ct. 2288, 147 L.Ed.2d 352 (2000). As we 1248, and to limit with whom a party will arbitrate its
have said, a federal statute's saving clause “ ‘cannot in disputes, Stolt–Nielsen, supra, at ––––, 130 S.Ct. at 1773.
reason be construed as [allowing] a common law right,
the continued existence of which would be absolutely The point of affording parties discretion in designing
inconsistent with the provisions of the act. In other words, arbitration processes is to allow for efficient, streamlined
the act cannot be held to destroy itself.’ ” American procedures tailored to the type of dispute. It can be
Telephone & Telegraph Co. v. Central Office Telephone, specified, *345 for example, that the decisionmaker be a
Inc., 524 U.S. 214, 227–228, 118 S.Ct. 1956, 141 L.Ed.2d specialist in the relevant field, or that proceedings be kept
222 (1998) (quoting Texas & Pacific R. Co. v. Abilene confidential to protect trade secrets. And the informality
Cotton Oil Co., 204 U.S. 426, 446, 27 S.Ct. 350, 51 L.Ed. of arbitral proceedings is itself desirable, reducing the cost
553 (1907)). and increasing the speed of dispute resolution. 14 Penn
Plaza LLC v. Pyett, 556 U.S. 247, ––––, 129 S.Ct. 1456,
*344 We differ with the Concepcions only in the 1460, 173 L.Ed.2d 398 (2009); Mitsubishi Motors Corp.,
application of this analysis to the matter before us. We supra, at 628, 105 S.Ct. 3346.
do not agree that rules requiring judicially monitored
discovery or adherence to the Federal Rules of Evidence The dissent quotes Dean Witter Reynolds Inc. v. Byrd,
are “a far cry from this case.” Brief for Respondents 470 U.S. 213, 219, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985),
32. The overarching purpose of the FAA, evident in as “ ‘reject[ing] the suggestion that the overriding goal
the text of §§ 2, 3, and 4, is to ensure the enforcement of the Arbitration Act was to promote the expeditious
of arbitration agreements according to their terms resolution of claims.’ ” Post, at 4 (opinion of BREYER,
so as to facilitate streamlined proceedings. Requiring J.). That is greatly misleading. After saying (accurately
the availability of classwide arbitration interferes with enough) that “the overriding goal of the Arbitration Act
fundamental attributes of arbitration and thus creates a was [not] to promote the expeditious resolution of claims,”
scheme inconsistent with the FAA. but to “ensure judicial enforcement of privately made
agreements to arbitrate,” 470 U.S., at 219, 105 S.Ct.
1238, Dean Witter went on to explain: “This is not to
say that Congress was blind to the potential benefit of
B the legislation for expedited resolution of disputes. Far
from it ....” Id., at 220, 105 S.Ct. 1238. It then quotes a
[10] The “principal purpose” of the FAA is to
House Report saying that “the costliness and delays of
“ensur[e] that private arbitration agreements are enforced
litigation ... can be largely eliminated by agreements for
according to their terms.” Volt, 489 U.S., at 478, 109

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arbitration.” Ibid. (quoting H.R.Rep. No. 96, 68th Cong., (the Ninth Circuit has held that damages of $4,000 are
1st Sess., 2 (1924)). The concluding paragraph of this part sufficiently small, see Oestreicher v. Alienware Corp., 322
of its discussion begins as follows: Fed.Appx. 489, 492 (2009) (unpublished)), and the latter
has no limiting effect, as all that is required is an allegation.
“We therefore are not persuaded by the argument that Consumers remain free to bring and resolve their disputes
the conflict between two goals of the Arbitration Act— on a bilateral basis under Discover Bank, and some may
enforcement of private agreements and encouragement well do so; but there is little incentive for lawyers to
of efficient and speedy dispute resolution—must be arbitrate on behalf of individuals when they may do so for
resolved in favor of the latter in order to realize the a class and reap far higher fees in the process. And faced
intent of the drafters.” 470 U.S., at 221, 105 S.Ct. 1238. with inevitable class arbitration, companies would have
less incentive to continue resolving potentially duplicative
In the present case, of course, those “two goals” do not
claims on an individual basis.
conflict—and it is the dissent's view that would frustrate
both of them.
Although we have had little occasion to examine
classwide arbitration, our decision in Stolt–Nielsen is
Contrary to the dissent's view, our cases place it
instructive. In that case we held that an arbitration panel
beyond dispute that the FAA was designed to promote
exceeded its power under § 10(a)(4) of the FAA by
arbitration. *346 They have repeatedly described the Act
imposing class procedures based on policy judgments
as “embod[ying] [a] national policy favoring arbitration,”
rather than the arbitration agreement itself or some
Buckeye Check Cashing, 546 U.S., at 443, 126 S.Ct.
background principle of contract law that would affect
1204, and “a liberal federal policy favoring arbitration
its interpretation. 559 U.S., at ––––, 130 S.Ct. at 1773–
agreements, notwithstanding any state substantive or
1776. We then held that the agreement at issue, which
procedural policies to the contrary,” Moses H. Cone, 460
was silent on the question of class procedures, could
U.S., at 24, 103 S.Ct. 927; see also Hall Street Assocs., 552
not be interpreted to allow them because the “changes
U.S., at 581, 128 S.Ct. 1396. Thus, in Preston v. Ferrer,
brought about by the shift from bilateral arbitration
holding preempted a state-law rule requiring exhaustion
to class-action arbitration” are “fundamental.” Id., at
of administrative remedies before arbitration, we said: “A
––––, 130 S.Ct. at 1776. This is obvious as a *348
prime objective of an agreement to arbitrate is to achieve
structural matter: Classwide arbitration includes absent
‘streamlined proceedings and expeditious results,’ ” which
parties, necessitating additional and different procedures
objective would be “frustrated” by requiring a dispute to
and involving higher stakes. Confidentiality becomes
be heard by an agency first. 552 U.S., at 357–358, 128 S.Ct.
more difficult. And while it is theoretically possible to
978. That rule, we said, would “at the least, hinder speedy
select an arbitrator with some expertise relevant to the
resolution of the controversy.” Id., at 358, 128 S.Ct. 978. 5 class-certification question, arbitrators are not generally
knowledgeable in the often-dominant procedural aspects
**1750 California's Discover Bank rule similarly of certification, such as the protection of absent parties.
interferes with arbitration. Although the rule does not The conclusion follows that **1751 class arbitration, to
require classwide arbitration, it allows any party to a the extent it is manufactured by Discover Bank rather than
consumer contract to demand it ex post. The rule is consensual, is inconsistent with the FAA.
limited to adhesion contracts, Discover Bank, 36 Cal.4th,
at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110, but [11] First, the switch from bilateral to class arbitration
the times in which consumer contracts were anything sacrifices the principal advantage of arbitration—its
*347 other than adhesive are long past. 6 Carbajal v. informality—and makes the process slower, more costly,
H & R Block Tax Servs., Inc., 372 F.3d 903, 906 (7th and more likely to generate procedural morass than
Cir.2004); see also Hill v. Gateway 2000, Inc., 105 F.3d final judgment. “In bilateral arbitration, parties forgo the
1147, 1149 (C.A.7 1997). The rule also requires that procedural rigor and appellate review of the courts in
damages be predictably small, and that the consumer order to realize the benefits of private dispute resolution:
allege a scheme to cheat consumers. Discover Bank, supra, lower costs, greater efficiency and speed, and the ability
at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110. The to choose expert adjudicators to resolve specialized
former requirement, however, is toothless and malleable disputes.” 559 U.S., at ––––, 130 S.Ct. at 1775. But

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before an arbitrator may decide the merits of a claim in in Discover Bank, class arbitration is a “relatively recent
classwide procedures, he must first decide, for example, development.” 36 Cal.4th, at 163, 30 Cal.Rptr.3d 76, 113
whether the class itself may be certified, whether the P.3d, at 1110. And it **1752 is at the very *350 least
named parties are sufficiently representative and typical, odd to think that an arbitrator would be entrusted with
and how discovery for the class should be conducted. ensuring that third parties' due process rights are satisfied.
A cursory comparison of bilateral and class arbitration
illustrates the difference. According to the American Third, class arbitration greatly increases risks to
Arbitration Association (AAA), the average consumer defendants. Informal procedures do of course have a
arbitration between January and August 2007 resulted in cost: The absence of multilayered review makes it more
a disposition on the merits in six months, four months if likely that errors will go uncorrected. Defendants are
the arbitration was conducted by documents only. AAA, willing to accept the costs of these errors in arbitration,
Analysis of the AAA's Consumer Arbitration Caseload, since their impact is limited to the size of individual
online at http://www.adr.org/ si.asp?id=5027 (all Internet disputes, and presumably outweighed by savings from
materials as visited Apr. 25, 2011, and available in Clerk avoiding the courts. But when damages allegedly owed to
of Court's case file). As of September 2009, the AAA tens of thousands of potential claimants are aggregated
had opened 283 class arbitrations. Of those, 121 remained and decided at once, the risk of an error will often
active, and 162 had been settled, withdrawn, or dismissed. become unacceptable. Faced with even a small chance of a
Not a single one, however, had *349 resulted in a final devastating loss, defendants will be pressured into settling
award on the merits. Brief for AAA as Amicus Curiae questionable claims. Other courts have noted the risk of
in Stolt–Nielsen, O.T.2009, No. 08–1198, pp. 22–24. For “in terrorem” settlements that class actions entail, see, e.g.,
those cases that were no longer active, the median time Kohen v. Pacific Inv. Management Co. LLC, 571 F.3d 672,
from filing to settlement, withdrawal, or dismissal—not 677–678 (C.A.7 2009), and class arbitration would be no
judgment on the merits—was 583 days, and the mean was different.
630 days. Id., at 24. 7
Arbitration is poorly suited to the higher stakes of
[12] Second, class arbitration requires procedural class litigation. In litigation, a defendant may appeal a
formality. The AAA's rules governing class arbitrations certification decision on an interlocutory basis and, if
mimic the Federal Rules of Civil Procedure for class unsuccessful, may appeal from a final judgment as well.
litigation. Compare AAA, Supplementary Rules for Class Questions of law are reviewed de novo and questions of
Arbitrations (effective Oct. 8, 2003), online at http:// fact for clear error. In contrast, 9 U.S.C. § 10 allows a court
www.adr.org/ sp.asp? id=21936, with Fed. Rule Civ. Proc. to vacate an arbitral award only where the award “was
23. And while parties can alter those procedures by procured by corruption, fraud, or undue means”; “there
contract, an alternative is not obvious. If procedures are was evident partiality or corruption in the arbitrators”;
too informal, absent class members would not be bound “the arbitrators were guilty of misconduct in refusing to
by the arbitration. For a class-action money judgment to postpone the hearing ... or in refusing to hear evidence
bind absentees in litigation, class representatives must at pertinent and material to the controversy[,] or of any
all times adequately represent absent class members, and other misbehavior by which the rights of any party
absent members must be afforded notice, an opportunity have been prejudiced”; or if the “arbitrators exceeded
to be heard, and a right to opt out of the class. Phillips their powers, or so imperfectly executed them that a
Petroleum Co. v. Shutts, 472 U.S. 797, 811–812, 105 S.Ct. mutual, final, and definite award ... was not made.” The
2965, 86 L.Ed.2d 628 (1985). At least this amount of AAA rules do authorize judicial review of certification
process would presumably be required for absent parties decisions, but this review is unlikely to have much effect
to be bound by the results of arbitration. given these limitations; review under § 10 focuses on
misconduct *351 rather than mistake. And parties may
We find it unlikely that in passing the FAA Congress not contractually expand the grounds or nature of judicial
meant to leave the disposition of these procedural review. Hall Street Assocs., 552 U.S., at 578, 128 S.Ct.
requirements to an arbitrator. Indeed, class arbitration 1396. We find it hard to believe that defendants would bet
was not even envisioned by Congress when it passed the the company with no effective means of review, and even
FAA in 1925; as the California Supreme Court admitted

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harder to believe that Congress would have intended to Circuit is reversed, and the case is remanded for further
allow state courts to force such a decision. 8 proceedings consistent with this opinion.

[13] The Concepcions contend that because parties may It is so ordered.
and sometimes do agree to aggregation, class procedures
are not necessarily incompatible with arbitration. But the
same could be said about procedures that the Concepcions Justice THOMAS, concurring.
admit States may not superimpose on arbitration: Parties Section 2 of the Federal Arbitration Act (FAA) provides
could agree to arbitrate pursuant to the Federal Rules that an arbitration provision “shall be valid, irrevocable,
of Civil Procedure, or pursuant to a discovery process and enforceable, save upon such grounds as exist at law or
rivaling that in litigation. Arbitration is a matter of in equity for the revocation of any contract.” 9 U.S.C. §
contract, and the FAA requires courts to honor parties' 2. The question here is whether California's Discover Bank
expectations. Rent–A– **1753 Center, West, 561 U.S., rule, see Discover Bank v. Superior Ct., 36 Cal.4th 148, 30
at ––––, 130 S.Ct. 2772, 2774. But what the parties in Cal.Rptr.3d 76, 113 P.3d 1100 (2005), is a “groun[d] ... for
the aforementioned examples would have agreed to is not the revocation of any contract.”
arbitration as envisioned by the FAA, lacks its benefits,
and therefore may not be required by state law. It would be absurd to suggest that § 2 requires only
that a defense apply to “any contract.” If § 2 means
The dissent claims that class proceedings are necessary anything, it *353 is that courts cannot refuse to enforce
to prosecute small-dollar claims that might otherwise slip arbitration agreements because of a state public policy
through the legal system. See post, at 9. But States cannot against arbitration, even if the policy nominally applies
require a procedure that is inconsistent with the FAA, to “any contract.” There must be some additional limit
even if it is desirable for unrelated reasons. Moreover, the on the contract defenses permitted by § 2. Cf. ante, at
claim here was most unlikely to go unresolved. As noted 17 (opinion of the Court) (state law may not require
earlier, the arbitration agreement provides that AT & T procedures that are “not arbitration as envisioned by the
will *352 pay claimants a minimum of $7,500 and twice FAA” and “lac[k] its benefits”); post, at 5 (BREYER, J.,
their attorney's fees if they obtain an arbitration award dissenting) (state law may require only procedures that are
greater than AT & T's last settlement offer. The District “consistent with the use of arbitration”).
Court found this scheme sufficient to provide incentive for
the individual prosecution of meritorious claims that are I write separately to explain how I would find that limit
not immediately settled, and the Ninth Circuit admitted in the FAA's text. As I would read it, the FAA requires
that aggrieved customers who filed claims would be that an agreement to arbitrate be enforced unless a party
“essentially guarantee[d]” to be made whole, 584 F.3d, successfully challenges the formation of the arbitration
at 856, n. 9. Indeed, the District Court concluded that agreement, such as by proving fraud or duress. 9 U.S.C.
the Concepcions were better off under their arbitration §§ 2, 4. Under this reading, I would reverse the Court of
agreement with AT & T than they would have been as Appeals because a district court cannot follow both the
participants in a class action, which “ could take months, FAA and the Discover Bank rule, which does not relate to
if not years, and which may merely yield an opportunity defects in the making of an agreement.
to submit a claim for recovery of a small percentage of a
few dollars.” Laster, 2008 WL 5216255, at *12. **1754 This reading of the text, however, has not been
fully developed by any party, cf. Brief for Petitioner 41,
n. 12, and could benefit from briefing and argument in
*** an appropriate case. Moreover, I think that the Court's
test will often lead to the same outcome as my textual
Because it “stands as an obstacle to the accomplishment interpretation and that, when possible, it is important in
and execution of the full purposes and objectives of interpreting statutes to give lower courts guidance from
Congress,” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. a majority of the Court. See US Airways, Inc. v. Barnett,
399, 85 L.Ed. 581 (1941), California's Discover Bank rule 535 U.S. 391, 411, 122 S.Ct. 1516, 152 L.Ed.2d 589 (2002)
is preempted by the FAA. The judgment of the Ninth (O'Connor, J., concurring). Therefore, although I adhere

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to my views on purposes-and-objectives pre-emption, see a substantive effect that is compatible with the rest of
Wyeth v. Levine, 555 U.S. 555, ––––, 129 S.Ct. 1187, 173 the law.” United Sav. Assn. of Tex. v. Timbers of Inwood
L.Ed.2d 51 (2009) (opinion concurring in judgment), I Forest Associates, Ltd., 484 U.S. 365, 371, 108 S.Ct. 626,
reluctantly join the Court's opinion. 98 L.Ed.2d 740 (1988).

Examining the broader statutory scheme, § 4 can be read
to clarify the scope of § 2's exception to the enforcement
I
of *355 arbitration agreements. When a party seeks to
The FAA generally requires courts to enforce arbitration enforce an arbitration agreement in federal court, § 4
agreements as written. Section 2 provides that “[a] written requires that “upon being satisfied that the making of
provision in ... a contract ... to settle by arbitration a the agreement for arbitration or the failure to comply
controversy thereafter arising out of such contract ... therewith is not in issue,” the court must order arbitration
shall *354 be valid, irrevocable, and enforceable, save “in accordance with the terms of the agreement.”
upon such grounds as exist at law or in equity for the
revocation of any contract.” Significantly, the statute Reading §§ 2 and 4 harmoniously, the “grounds ... for
does not parallel the words “valid, irrevocable, and the revocation” preserved in § 2 would mean grounds
enforceable” by referencing the grounds as exist for related to the **1755 making of the agreement. This
the “ invalidation, revocation, or nonenforcement” of would require enforcement of an agreement to arbitrate
any contract. Nor does the statute use a different unless a party successfully asserts a defense concerning the
word or phrase entirely that might arguably encompass formation of the agreement to arbitrate, such as fraud,
validity, revocability, and enforce-ability. The use of duress, or mutual mistake. See Prima Paint Corp. v. Flood
only “revocation” and the conspicuous omission of & Conklin Mfg. Co., 388 U.S. 395, 403–404, 87 S.Ct. 1801,
“invalidation” and “nonenforcement” suggest that the 18 L.Ed.2d 1270 (1967) (interpreting § 4 to permit federal
exception does not include all defenses applicable to any courts to adjudicate claims of “fraud in the inducement
contract but rather some subset of those defenses. See of the arbitration clause itself” because such claims “g[o]
Duncan v. Walker, 533 U.S. 167, 174, 121 S.Ct. 2120, to the ‘making’ of the agreement to arbitrate”). Contract
150 L.Ed.2d 251 (2001) (“It is our duty to give effect, if defenses unrelated to the making of the agreement—such
possible, to every clause and word of a statute” (internal as public policy—could not be the basis for declining to
quotation marks omitted)). enforce an arbitration clause. *

Concededly, the difference between revocability, on the
one hand, and validity and enforceability, on the other,
*356 II
is not obvious. The statute does not define the terms,
and their ordinary meanings arguably overlap. Indeed, Under this reading, the question here would be whether
this Court and others have referred to the concepts of California's Discover Bank rule relates to the making of an
revocability, validity, and enforceability interchangeably. agreement. I think it does not.
But this ambiguity alone cannot justify ignoring Congress'
clear decision in § 2 to repeat only one of the three In Discover Bank, 36 Cal.4th 148, 30 Cal.Rptr.3d 76,
concepts. 113 P.3d 1100, the California Supreme Court held that
“class action waivers are, under certain circumstances,
To clarify the meaning of § 2, it would be natural to look unconscionable as unlawfully exculpatory.” Id., at 65, 30
to other portions of the FAA. Statutory interpretation Cal.Rptr.3d 76, 113 P.3d, at 1112; see also id., at 161,
focuses on “the language itself, the specific context in 30 Cal.Rptr.3d 76, 113 P.3d, at 1108 (“[C]lass action
which that language is used, and the broader context of waivers [may be] substantively unconscionable inasmuch
the statute as a whole.” Robinson v. Shell Oil Co., 519 as they may operate effectively as exculpatory contract
U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997). clauses that are contrary to public policy”). The court
“A provision that may seem ambiguous in isolation is concluded that where a class-action waiver is found in
often clarified by the remainder of the statutory scheme ... an arbitration agreement in certain consumer contracts
because only one of the permissible meanings produces of adhesion, such waivers “should not be enforced.” Id.,

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at 163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110. In practice,
the court explained, such agreements “operate to insulate
I
a party from liability that otherwise would be imposed
under California law.” Id., at 161, 30 Cal.Rptr.3d 76, 113 The California law in question consists of an authoritative
P.3d, at 1108, 1109. The court did not conclude that a state-court interpretation of two provisions of the
customer would sign such an agreement only if under California Civil Code. The first provision makes unlawful
**1756 the influence of fraud, duress, or delusion. all contracts “which have for their object, directly or in-
directly, to exempt anyone from responsibility for his
The court's analysis and conclusion that the arbitration own ... violation of law.” *358 Cal. Civ.Code Ann. § 1668
agreement was exculpatory reveals that the Discover Bank (West 1985). The second provision authorizes courts to
rule does not concern the making of the arbitration “limit the application of any unconscionable clause” in
agreement. Exculpatory contracts are a paradigmatic a contract so “as to avoid any unconscionable result.” §
example of contracts that will not be enforced because of 1670.5(a).
public policy. *357 15 G. Giesel, Corbin on Contracts
§§ 85.1, 85.17, 85.18 (rev. ed.2003). Indeed, the court The specific rule of state law in question consists of
explained that it would not enforce the agreements the California Supreme Court's application of these
because they are “ ‘against the policy of the law.’ ” 36 principles to hold that “some” (but not “all”) “class action
Cal.4th, at 161, 30 Cal.Rptr.3d 76, 113 P.3d, at 1108 waivers” in consumer contracts are exculpatory and
(quoting Cal. Civ.Code Ann. § 1668); see also 36 Cal.4th, unconscionable under California “law.” Discover Bank v.
at 166, 30 Cal.Rptr.3d 76, 113 P.3d, at 1112 (“Agreements Superior Ct., 36 Cal.4th 148, 160, 162, 30 Cal.Rptr.3d 76,
to arbitrate may not be used to harbor terms, conditions 113 P.3d 1100, 1108, 1110 (2005). In particular, in Discover
and practices that undermine public policy” (internal Bank the California Supreme Court stated that, when a
quotation marks omitted)). Refusal to enforce a contract class-action waiver
for public-policy reasons does not concern whether the
contract was properly made. “is found in a consumer contract of adhesion in
a setting in which disputes between the contracting
Accordingly, the Discover Bank rule is not a “groun[d] ... parties predictably involve small amounts of damages,
for the revocation of any contract” as I would read § 2 and when it is alleged that the party with the
of the FAA in light of § 4. Under this reading, the FAA superior bargaining power has carried out a scheme to
dictates that the arbitration agreement here be enforced deliberately cheat large numbers of consumers out of
and the Discover Bank rule is pre-empted. individually small sums of money, then ... the waiver
becomes in practice the exemption of the party ‘from
responsibility for [its] own fraud, or willful injury
**1757 to the person or property of another.’ ” Id., at
Justice BREYER, with whom Justice GINSBURG,
162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
Justice SOTOMAYOR, and Justice KAGAN join,
dissenting. In such a circumstance, the “waivers are unconscionable
The Federal Arbitration Act says that an arbitration under California law and should not be enforced.” Id., at
agreement “shall be valid, irrevocable, and enforceable, 163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2 (emphasis added). The Discover Bank rule does not create a “blanket policy
California law sets forth certain circumstances in which in California against class action waivers in the consumer
“class action waivers” in any contract are unenforceable. context.” Provencher v. Dell, Inc., 409 F.Supp.2d
In my view, this rule of state law is consistent with the 1196, 1201 (C.D.Cal.2006). Instead, it represents the
federal Act's language and primary objective. It does not “application of a more general [unconscionability]
“stan[d] as an obstacle” to the Act's “accomplishment and principle.” Gentry v. Superior Ct., 42 Cal.4th 443,
execution.” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 457, 64 Cal.Rptr.3d 773, 165 P.3d 556, 564 (2007).
399, 85 L.Ed. 581 (1941). And the Court is wrong to hold Courts applying California law have enforced class-action
that the federal Act pre-empts the rule of state law. waivers where they satisfy general unconscionability
standards. See, e.g., *359 Walnut Producers of Cal.

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v. Diamond Foods, Inc., 187 Cal.App.4th 634, 647–650, arbitration, for example by refusing to order specific
114 Cal.Rptr.3d 449, 459–462 (2010); Arguelles–Romero performance of agreements to arbitrate. See S.Rep. No.
v. Superior Ct., 184 Cal.App.4th 825, 843–845, 109 536, 68th Cong., 1st Sess., 2 (1924). The Act sought to
Cal.Rptr.3d 289, 305–307 (2010); Smith v. Americredit eliminate that hostility by placing agreements to arbitrate
Financial Servs., Inc., No. 09cv1076, 2009 WL 4895280 “ ‘upon the same footing as other contracts.’ ” Scherk v.
(S.D.Cal., Dec.11, 2009); cf. Provencher, supra, at 1201 Alberto–Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449,
(considering Discover Bank in choice-of-law inquiry). And 41 L.Ed.2d 270 (1974) (quoting H.R.Rep. No. 96, at 2;
even when they fail, the parties remain free to devise other emphasis added).
dispute mechanisms, including informal mechanisms,
that, in context, will not prove unconscionable. See Volt Congress was fully aware that arbitration could provide
Information Sciences, Inc. v. Board of Trustees of Leland procedural and cost advantages. The House Report
Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, emphasized the “appropriate[ness]” of making arbitration
103 L.Ed.2d 488 (1989). **1758 agreements enforceable “at this time when there
is so much agitation against the costliness and delays of
litigation.” Id., at 2. And this Court has acknowledged
that parties may enter into arbitration agreements in
II
order to expedite the resolution of disputes. See Preston
v. Ferrer, 552 U.S. 346, 357, 128 S.Ct. 978, 169 L.Ed.2d
A 917 (2008) (discussing “prime objective of an agreement
to arbitrate”). See also Mitsubishi Motors Corp. v. Soler
The Discover Bank rule is consistent with the federal Act's Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct.
language. It “applies equally to class action litigation 3346, 87 L.Ed.2d 444 (1985).
waivers in contracts without arbitration agreements as it
does to class arbitration waivers in contracts with such But we have also cautioned against thinking that
agreements.” 36 Cal.4th, at 165–166, 30 Cal.Rptr.3d 76, Congress' primary objective was to guarantee these
113 P.3d, at 1112. Linguistically speaking, it falls directly particular procedural advantages. Rather, that primary
within the scope of the Act's exception permitting courts to objective was to secure the “enforcement” of agreements
refuse to enforce arbitration agreements on grounds that to arbitrate. Dean Witter, 470 U.S., at 221, 105 S.Ct.
exist “for the revocation of any contract.” 9 U.S.C. § 2 1238. See also id., at 219, 105 S.Ct. 1238 (we “reject the
(emphasis added). The majority agrees. Ante, at 9. suggestion that the overriding goal of the Arbitration Act
was to promote the expeditious resolution of claims”);
id., at 219, 217–218, 105 S.Ct. 1238 (“[T]he intent of
B Congress” requires us to apply the terms of the Act
without regard to whether the result would be “possibly
The Discover Bank rule is also consistent with the inefficient”); cf. id., at 220, 105 S.Ct. 1238 (acknowledging
basic “purpose behind” the Act. Dean Witter Reynolds that “expedited resolution of disputes” might lead parties
Inc. v. Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 84 to prefer arbitration). The relevant Senate Report points
L.Ed.2d 158 (1985). We have described that purpose as to the Act's basic purpose when it says that “[t]he purpose
one of “ensur[ing] judicial enforcement” of arbitration of the [Act] is clearly set forth in section 2,” S.Rep. No.
agreements. Ibid.; see also Marine Transit Corp. v. 536, at 2 (emphasis added), namely, the section that says
Dreyfus, 284 U.S. 263, 274, n. 2, 52 S.Ct. 166, 76 L.Ed. that an arbitration agreement “shall be valid, irrevocable,
282 (1932) (“ ‘The purpose of this bill is to make valid *362 and enforceable, save upon such grounds as exist
and enforceable agreements for arbitration’ ” (quoting at law or in equity for the revocation of any contract,” 9
H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924); emphasis U.S.C. § 2.
added)); 65 Cong. Rec.1931 (1924) ( “It creates no new
legislation, grants no new rights, except a remedy to Thus, insofar as we seek to implement Congress' intent,
enforce an agreement in commercial contracts and in we should think more than twice before invalidating a
*360 admiralty contracts”). As is well known, prior state law that does just what § 2 requires, namely, puts
to the federal Act, many courts expressed hostility to

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agreements to arbitrate and agreements to litigate “upon have thought that arbitration would be used primarily
the same footing.” where merchants sought to resolve disputes of fact, not
law, under the customs of their industries, where the
parties possessed roughly equivalent bargaining power.
See Mitsubishi Motors, supra, at 646, 105 S.Ct. 3346
III
(Stevens, J., dissenting); Joint Hearings on S. 1005 and
The majority's contrary view (that Discover Bank stands as H.R. 646 before the Subcommittees of the Committees on
an “obstacle” to the accomplishment of the federal law's the Judiciary, 68th Cong., 1st Sess., 15 (1924); Hearing
objective, ante, at 9–18) rests primarily upon its claims on S. 4213 and S. 4214 before a Subcommittee of
that the Discover Bank rule increases the complexity the Senate Committee on the Judiciary, 67th Cong.,
of arbitration procedures, thereby discouraging parties 4th Sess., 9–10 (1923); Dept. of Commerce, Secretary
from entering into arbitration agreements, and to that Hoover Favors Arbitration—Press Release (Dec. 28,
extent discriminating in practice against arbitration. 1925), Herbert Hoover Papers—Articles, Addresses, and
These claims are not well founded. Public Statements File—No. 536, p. 2 (Herbert Hoover
Presidential Library); Cohen & Dayton, The New Federal
For one thing, a state rule of law that would sometimes Arbitration Law, 12 Va. L.Rev. 265, 281 (1926); AAA,
set aside as unconscionable a contract term that forbids Year Book on Commercial Arbitration in the United
class arbitration is not (as the majority claims) like a rule States (1927). This last mentioned feature of the history
that would require “ultimate disposition by a jury” or —roughly equivalent bargaining power—suggests, if
“judicially monitored discovery” or use of “the Federal anything, that California's statute is consistent with, and
Rules of Evidence.” Ante, at 8, 9. Unlike the majority's indeed may help to further, the objectives that Congress
examples, class arbitration is consistent with the use of had in mind.
arbitration. It is a form of arbitration that is well known
in California and followed elsewhere. See, e.g., Keating Regardless, if neither the history nor present practice
v. Superior Ct., 109 Cal.App.3d 784, 167 Cal.Rptr. 481, suggests that class arbitration is fundamentally
492 (1980) (officially depublished); American Arbitration incompatible with arbitration itself, then on what basis
Association (AAA), Supplementary Rules for Class can the majority hold California's law pre-empted?
Arbitrations (2003), http://www.adr.org/sp.asp?id=21936
(as visited Apr. 25, 2011, and available in Clerk of Court's *363 For another thing, the majority's argument that
case file); JAMS, The Resolution Experts, Class Action the Discover Bank rule will discourage arbitration rests
Procedures (2009). Indeed, the AAA has told us that it critically upon the wrong comparison. The majority
has found class arbitration to be “a fair, balanced, and compares the complexity of class arbitration with that
efficient means of resolving class disputes.” Brief for AAA of bilateral arbitration. See ante, at 14. And it finds the
as Amicus Curiae in Stolt–Nielsen S.A. v. AnimalFeeds former more complex. See ibid. But, if incentives are at
Int'l Corp., O.T.2009, No. 08–1198, p. 25 (hereinafter issue, the relevant comparison is not “arbitration with
AAA Amicus Brief). And unlike the majority's examples, arbitration” but a comparison between class arbitration
the Discover Bank rule imposes equivalent limitations on and judicial class actions. After all, in respect to the
litigation; hence it cannot **1759 fairly be characterized relevant set of contracts, the Discover Bank rule similarly
as a targeted attack on arbitration. and equally sets aside clauses that forbid class procedures
—whether arbitration procedures or ordinary judicial
Where does the majority get its contrary idea—that procedures are at issue.
individual, rather than class, arbitration is a “fundamental
attribut[e]” of arbitration? Ante, at 9. The majority does Why would a typical defendant (say, a business) prefer a
not explain. And it is unlikely to be able to trace its present judicial class action to class arbitration? AAA statistics
view to the history of the arbitration statute itself. “suggest that class arbitration proceedings take more time
than the average commercial arbitration, but may take less
When Congress enacted the Act, arbitration procedures time than the average class action in court.” AAA Amicus
had not yet been fully developed. Insofar as Congress Brief 24 (emphasis added). Data from California courts
considered detailed forms of arbitration at all, it may well confirm that class arbitrations can take considerably less

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time than in-court proceedings in which class certification to arbitration or not—are unenforceable under Texas
is sought. Compare ante, at 14 (providing statistics for law”). The Discover Bank rule amounts to a variation on
class arbitration), with Judicial Council of California, this theme. California is free to define unconscionability
Administrative Office of the Courts, Class Certification as it sees fit, and its common law is of no federal concern
in California: Second Interim Report from the Study of so long as the State does not adopt a special rule that
California Class Action Litigation 18 (2010) (providing disfavors arbitration. Cf. Doctor's Associates, supra, at
statistics for class-action litigation in California courts). 687. See also ante, at 4, n. (THOMAS, J., concurring)
And a single class proceeding is surely more efficient (suggesting that, under certain circumstances, California
than thousands of separate proceedings for identical might remain free to apply its unconscionability doctrine).
claims. Thus, if speedy resolution of disputes were all that
mattered, then the Discover Bank rule would reinforce, *365 Because California applies the same legal principles
**1760 not obstruct, that objective of the Act. to address the unconscionability of class arbitration
waivers as it does to address the unconscionability of
The majority's related claim that the Discover Bank any other contractual provision, the merits of class
rule will discourage the use of arbitration because proceedings should not factor into our decision. If
“[a]rbitration is poorly suited to ... higher stakes” lacks California had applied its law of duress to void an
empirical support. Ante, at 16. Indeed, the majority arbitration agreement, would it matter if the procedures
provides no convincing reason to believe that parties are in the coerced agreement were efficient?
unwilling to submit High-Stake disputes to Arbitration.
and There are numerous counterexamples. Loftus, Rivals Regardless, the majority highlights the disadvantages of
Resolve Dispute Over Drug, Wall Street Journal, Apr. 16, class arbitrations, as it sees them. See ante, at 15–16
2011, p. B2 (discussing $500 million settlement in dispute (referring to the “greatly increase[d] risks to defendants”;
submitted to arbitration); Ziobro, Kraft Seeks Arbitration the “chance of a devastating loss” pressuring defendants
In Fight With Starbucks Over Distribution, Wall Street “into settling questionable claims”). But class proceedings
Journal, Nov. 30, 2010, p. B10 (describing initiation of an have countervailing advantages. In general agreements
arbitration in which the payout “could be higher” than that forbid the consolidation of claims can lead small-
$1.5 billion); Markoff, Software Arbitration Ruling Gives dollar claimants to abandon their claims rather than to
I.B.M. $833 Million From Fujitsu, N.Y. Times, Nov. 30, litigate. I suspect that it is true even here, for as the
1988, p. A1 (describing both companies as “pleased with Court of Appeals recognized, AT & T can avoid the
the ruling” resolving a licensing dispute). $7,500 payout (the payout that supposedly makes the
Concepcions' arbitration worthwhile) simply by paying
Further, even though contract defenses, e.g., duress the claim's face value, such that “the maximum gain to a
and unconscionability, slow down the dispute resolution customer for the hassle of arbitrating a $30.22 dispute is
process, federal arbitration law normally leaves such still just $30.22.” Laster v. AT & T Mobility **1761 LLC,
matters to the States. Rent–A–Center, West, Inc. v. 584 F.3d 849, 855, 856 (C.A.9 2009).
Jackson, 561 U.S. ––––, ––––, 130 S.Ct. 2772, 2775
(2010) (arbitration agreements “may be invalidated What rational lawyer would have signed on to represent
by ‘generally applicable contract defenses' ” (quoting the Concepcions in litigation for the possibility of fees
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, stemming from a $30.22 claim? See, e.g., Carnegie v.
116 S.Ct. 1652, 134 L.Ed.2d 902 (1996))). A provision in a Household Int'l, Inc., 376 F.3d 656, 661 (C.A.7 2004)
contract of adhesion (for example, requiring a consumer (“The realistic alternative to a class action is not 17
to decide very quickly whether to pursue a claim) might million individual suits, but zero individual suits, as only
increase the speed and efficiency of arbitrating a dispute, a lunatic or a fanatic sues for $30”). In California's
but the State can forbid it. See, e.g., Hayes v. Oakridge perfectly rational view, nonclass arbitration over such
Home, 122 Ohio St.3d 63, 67, 2009–Ohio–2054, ¶ 19, sums will also sometimes have the effect of depriving
908 N.E.2d 408, 412 (“Unconscionability is a ground claimants of their claims (say, for example, where claiming
for revocation of an arbitration agreement”); In re the $30.22 were to involve filling out many forms that
Poly–America, L. P., 262 S.W.3d 337, 348 (Tex.2008) require technical legal knowledge or waiting at great
(“Unconscionable contracts, however—whether relating length while a call is placed on hold). Discover Bank sets

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forth circumstances in which the California courts believe C.J.) (“Courts are not at liberty to shirk the process of
[contractual] construction under the empire of a belief that
that the terms of consumer contracts can be manipulated
arbitration is beneficent any more than they may shirk
to *366 insulate an agreement's author from liability for
it if their belief happens to be the contrary”); Cohen &
its own frauds by “deliberately cheat[ing] large numbers of
Dayton, 12 Va. L.Rev., at 276 (the Act “is no infringement
consumers out of individually small sums of money.” 36
upon the right of each State to decide for itself what
Cal.4th, at 162–163, 30 Cal.Rptr.3d 76, 113 P.3d, at 1110.
**1762 contracts shall or shall not exist under its laws”).
Why is this kind of decision—weighing the pros and cons
of all class proceedings alike—not California's to make?
These cases do not concern the merits and demerits of
class actions; they concern equal treatment of arbitration
Finally, the majority can find no meaningful support
contracts and other contracts. Since it is the latter question
for its views in this Court's precedent. The federal Act
that is at issue here, I am not surprised that the majority
has been in force for nearly a century. We have decided
can find no meaningful precedent supporting its decision.
dozens of cases about its requirements. We have reached
results that authorize complex arbitration procedures.
E.g., Mitsubishi Motors, 473 U.S., at 629, 105 S.Ct.
3346 (antitrust claims arising in international transaction IV
are arbitrable). We have upheld nondiscriminatory state
laws that slow down arbitration proceedings. E.g., Volt By using the words “save upon such grounds as exist
Information Sciences, 489 U.S., at 477–479, 109 S.Ct. at law or in equity for the revocation of any contract,”
1248 (California law staying arbitration proceedings until Congress retained for the States an important role incident
completion of related litigation is not pre-empted). But we to agreements to arbitrate. 9 U.S.C. § 2. Through those
have not, to my knowledge, applied the Act to strike down words Congress reiterated a basic federal idea that has
a state statute that treats arbitrations on par with judicial long informed the nature of this Nation's laws. We
and administrative proceedings. Cf. Preston, 552 U.S., at have often expressed this idea in opinions that set forth
355–356, 128 S.Ct. 978 (Act pre-empts state law that vests presumptions. See, e.g., Medtronic, Inc. v. Lohr, 518
primary jurisdiction in state administrative board). U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996)
(“[B]ecause the States are independent sovereigns in our
At the same time, we have repeatedly referred to the Act's federal system, we have long presumed that Congress does
basic objective as assuring that courts treat arbitration not cavalierly pre-empt state-law causes of action”). But
agreements “like all other contracts.” Buckeye Check federalism is as much a question of deeds as words. It often
Cashing, Inc. v. Cardegna, 546 U.S. 440, 447, 126 S.Ct. takes the form of a concrete decision by this Court that
1204, 163 L.Ed.2d 1038 (2006). See also, e.g., Vaden v. respects the legitimacy of a State's action in an individual
Discover Bank, 556 U.S. 49, ––––, 129 S.Ct. 1262, 1273– case. Here, recognition of that federalist ideal, embodied
1274, 173 L.Ed.2d 206 (2009);; Doctor's Associates, supra, in specific language in this particular statute, should lead
at 687, 116 S.Ct. 1652; Allied–Bruce Terminix Cos. v. us to uphold California's law, not to strike it down. We do
Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 not honor federalist principles in their breach.
(1995); Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 483–484, 109 S.Ct. 1917, 104 L.Ed.2d With respect, I dissent.
526 (1989); Perry v. Thomas, 482 U.S. 483, 492–493, n. 9,
107 S.Ct. 2520, 96 L.Ed.2d 426 (1987); Mitsubishi Motors, 19 NO. 4 Westlaw Journal Class Action 319 NO. 4
supra, at 627, 105 S.Ct. 3346. And we have recognized Westlaw Journal Class Action 319 NO. 4 Westlaw Journal
that “[t]o immunize an arbitration agreement from judicial Class Action 319 NO. 4 Westlaw Journal Class Action 3
challenge” on grounds applicable to all other contracts
All Citations
“would be to elevate it over other forms of contract.”
*367 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742, 79 USLW
388 U.S. 395, 404, n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270 4279, 161 Lab.Cas. P 10,368, 11 Cal. Daily Op. Serv. 4842,
(1967); see also Marchant v. Mead–Morrison Mfg. Co., 2011 Daily Journal D.A.R. 5846, 52 Communications
252 N.Y. 284, 299, 169 N.E. 386, 391 (1929) (Cardozo, Reg. (P&F) 1179, 22 Fla. L. Weekly Fed. S 957

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Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 The Conceptions' original contract was with Cingular Wireless. AT & T acquired Cingular in 2005 and renamed the
company AT & T Mobility in 2007. Laster v. AT & T Mobility LLC, 584 F.3d 849, 852, n. 1 (C.A.9 2009).
2 That provision further states that “the arbitrator may not consolidate more than one person's claims, and may not otherwise
preside over any form of a representative or class proceeding.” App. to Pet. for Cert. 61a.
3 The guaranteed minimum recovery was increased in 2009 to $10,000. Brief for Petitioner 7.
4 The dissent seeks to fight off even this eminently reasonable concession. It says that to its knowledge “we have not ...
applied the Act to strike down a state statute that treats arbitrations on par with judicial and administrative proceedings,”
post, at 10 (opinion of BREYER, J.), and that “we should think more than twice before invalidating a state law that ... puts
agreements to arbitrate and agreements to litigate ‘upon the same footing’ ” post, at 4–5.
5 Relying upon nothing more indicative of congressional understanding than statements of witnesses in committee hearings
and a press release of Secretary of Commerce Herbert Hoover, the dissent suggests that Congress “thought that
arbitration would be used primarily where merchants sought to resolve disputes of fact ... [and] possessed roughly
equivalent bargaining power.” Post, at 6. Such a limitation appears nowhere in the text of the FAA and has been explicitly
rejected by our cases. “Relationships between securities dealers and investors, for example, may involve unequal
bargaining power, but we [have] nevertheless held ... that agreements to arbitrate in that context are enforceable.” Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); see also id., at 32–33, 111 S.Ct.
1647 (allowing arbitration of claims arising under the Age Discrimination in Employment Act of 1967 despite allegations of
unequal bargaining power between employers and employees). Of course the dissent's disquisition on legislative history
fails to note that it contains nothing—not even the testimony of a stray witness in committee hearings—that contemplates
the existence of class arbitration.
6 Of course States remain free to take steps addressing the concerns that attend contracts of adhesion—for example,
requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted. Such steps cannot,
however, conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according
to their terms.
7 The dissent claims that class arbitration should be compared to class litigation, not bilateral arbitration. Post, at 6–7.
Whether arbitrating a class is more desirable than litigating one, however, is not relevant. A State cannot defend a rule
requiring arbitration-by-jury by saying that parties will still prefer it to trial-by-jury.
8 The dissent cites three large arbitration awards (none of which stems from classwide arbitration) as evidence that parties
are willing to submit large claims before an arbitrator. Post, at 7–8. Those examples might be in point if it could be
established that the size of the arbitral dispute was predictable when the arbitration agreement was entered. Otherwise, all
the cases prove is that arbitrators can give huge awards—which we have never doubted. The point is that in class-action
arbitration huge awards (with limited judicial review) will be entirely predictable, thus rendering arbitration unattractive. It
is not reasonably deniable that requiring consumer disputes to be arbitrated on a classwide basis will have a substantial
deterrent effect on incentives to arbitrate.
* The interpretation I suggest would be consistent with our precedent. Contract formation is based on the consent of the
parties, and we have emphasized that “[a]rbitration under the Act is a matter of consent.” Volt Information Sciences, Inc.
v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).
The statement in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), suggesting that § 2 preserves
all state-law defenses that “arose to govern issues concerning the validity, revocability, and enforceability of contracts
generally,” id., at 493, n. 9, 107 S.Ct. 2520, is dicta. This statement is found in a footnote concerning a claim that the
Court “decline[d] to address.” Id., at 493, n. 9, 107 S.Ct. 2520. Similarly, to the extent that statements in Rent–A–Center,
West, Inc. v. Jackson, 561 U.S. ––––, –––– n. 1, 130 S.Ct. 2772, 2778 n. 1 (2010), can be read to suggest anything
about the scope of state-law defenses under § 2, those statements are dicta, as well. This Court has never addressed
the question whether the state-law “grounds” referred to in § 2 are narrower than those applicable to any contract.
Moreover, every specific contract defense that the Court has acknowledged is applicable under § 2 relates to contract
formation. In Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996),
this Court said that fraud, duress, and unconscionability “may be applied to invalidate arbitration agreements without
contravening § 2.” All three defenses historically concern the making of an agreement. See Morgan Stanley Capital

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Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527, 547, 128 S.Ct. 2733, 171 L.Ed.2d 607 (2008)
(describing fraud and duress as “traditional grounds for the abrogation of [a] contract” that speak to “unfair dealing
at the contract formation stage”); Hume v. United States, 132 U.S. 406, 411, 414, 10 S.Ct. 134, 33 L.Ed. 393 (1889)
(describing an unconscionable contract as one “such as no man in his senses and not under delusion would make” and
suggesting that there may be “contracts so extortionate and unconscionable on their face as to raise the presumption
of fraud in their inception” (internal quotation marks omitted)).

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

[2] Alternative Dispute Resolution
KeyCite Yellow Flag - Negative Treatment Existence and Validity of Agreement
Not Followed on State Law Grounds Local No. 1119, American 
Unless parties clearly and unmistakably
Federation State, County, and Mun. Employees, AFL-CIO v. Mesabi
provide otherwise, question of whether parties
Regional Medical Center, Minn.App., November 20, 1990
agreed to arbitrate is to be decided by court,
106 S.Ct. 1415
not arbitrator.
Supreme Court of the United States
2570 Cases that cite this headnote
AT & T TECHNOLOGIES, INC., Petitioner
v.
COMMUNICATIONS [3] Alternative Dispute Resolution
WORKERS OF AMERICA et al. Merits of Controversy
In deciding whether parties have agreed to
No. 84-1913. submit particular grievance to arbitration,
| court is not to rule on potential merits of
Argued Jan. 22, 1986. underlying claims.
|
Decided April 7, 1986. 2309 Cases that cite this headnote

Union sought intervention of court to compel arbitration
of dispute concerning company's layoff of employees. The [4] Alternative Dispute Resolution
United States District Court for the Northern District Construction in Favor of Arbitration
of Illinois, John F. Grady, J., ordered arbitration of Order to arbitrate particular grievance should
arbitrability issue, and employer appealed. The Court not be denied unless it may be said with
of Appeals, 751 F.2d 203, affirmed, and certiorari positive assurance that arbitration clause is
was granted. The Supreme Court, Justice White, held not susceptible of interpretation that covers
that it was for court, not arbitrator, to decide in asserted dispute; doubts should be resolved in
first instance whether parties to collective bargaining favor of coverage.
agreement intended to arbitrate grievances concerning
1365 Cases that cite this headnote
layoffs predicated on “lack of work” determination by
company.
[5] Labor and Employment
Vacated and remanded. Discharge and Layoff
It was for court, not arbitrator, to decide
Justice Brennan filed concurring opinion in which Chief in first instance whether parties to collective
Justice Burger and Justice Marshall joined. bargaining agreement intended to arbitrate
grievances concerning layoffs predicated on
“lack of work” determination by company.
West Headnotes (5)
908 Cases that cite this headnote

[1] Alternative Dispute Resolution
Contractual or Consensual Basis
Arbitration is matter of contract and party
cannot be required to submit to arbitration **1415 *643 Syllabus *
any dispute which he has not agreed so to
Petitioner employer and respondent Union are parties
submit.
to a collective-bargaining agreement covering telephone
1651 Cases that cite this headnote equipment installation workers. Article 8 of the agreement

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
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provides for arbitration of differences arising over bargaining agreements and arbitration clauses, or to
interpretation of the agreement. Article 9 provides that consider any other evidence that might demonstrate that
subject to certain limitations, but otherwise not subject to a particular grievance was not subject to arbitration. P.
the arbitration clause, petitioner is free to exercise certain 1420.
management functions, including the hiring, placement,
and termination of employees. Article 20 prescribes the 751 F.2d 203 (CA 7th 1984), vacated and remanded.
order in which employees will be laid off “[w]hen lack of
work necessitates Layoff.” The Union filed a grievance WHITE, J., delivered the opinion for a unanimous Court.
challenging petitioner's decision to lay off 79 installers BRENNAN, J., filed a concurring opinion, in which
from its Chicago location, claiming that there was no BURGER, C.J., and MARSHALL, J., joined, post, p. ---.
lack of work at that location and that therefore the
layoffs would violate Article 20. But petitioner laid off
the installers and refused to submit the grievance to Attorneys and Law Firms
arbitration on the ground that under Article 9 the layoffs
Rex E. Lee argued the cause for petitioner. With him on
were not arbitrable. The Union then sought to compel
the briefs were David W. Carpenter, Gerald D. Skoning,
arbitration by filing suit in Federal District Court, which,
Charles C. Jackson, Howard J. Trienens, Alfred A. Green,
after finding that the Union's interpretation of Article 20
and Joseph Ramirez.
was at least “arguable,” held that it was for the arbitrator,
not the court, to decide whether that interpretation had Laurence Gold argued the cause for respondents. With him
merit, and, accordingly, ordered petitioner to arbitrate. on the brief were Irving M. Friedman, Stanley Eisenstein,
The Court of Appeals affirmed. Harold A. Katz, David Silberman, and James Coppess.*

Held: The issue whether, because of express exclusion or * Briefs of amici curiae urging reversal were filed for the
other evidence, the dispute over interpretation of Article Chamber of Commerce of the United States by John S.
20 was subject to the arbitration clause, **1416 should Irving, Carl L. Taylor, and Stephen A. Bokat; and for
have been decided by the District Court and reviewed by the National Association of Manufacturers by Jan S.
the Court of Appeals, and should not have been referred Admundson and Gary D. Lipkin.
to the arbitrator. Pp. 1418-20.
David E. Feller filed a brief for the National Academy of
Arbitrators as amicus curiae urging affirmance.
(a) Under the principles set forth in the Steelworkers
Trilogy (Steelworkers v. American Mfg. Co., 363 U.S. 564, Opinion
80 S.Ct. 1343, 4 L.Ed.2d 1403; Steelworkers v. Warrior
& Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, Justice WHITE delivered the opinion of the Court.
4 L.Ed.2d 1409; and Steelworkers v. Enterprise Wheel
& Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d The issue presented in this case is whether a court
1424), it was the District Court's duty to interpret the asked to order arbitration of a grievance filed under a
collective-bargaining agreement and to determine whether collective-bargaining agreement must first determine that
the parties intended to arbitrate grievances concerning the parties intended to arbitrate the dispute, or whether
layoffs predicated on a “lack of work” determination that determination is properly left to the arbitrator.
by petitioner. If the court should determine that the
agreement so provides, then it would be for the arbitrator
to determine the relative merits of the parties' substantive I
interpretations of the agreement. Pp. 1418-20.
AT & T Technologies, Inc. (AT & T or the Company), and
*644 (b) This Court will not examine the collective- the Communications Workers of America (the Union)
bargaining agreement for itself and affirm the Court are parties to a collective-bargaining agreement which
of Appeals on the ground that the parties had agreed covers telephone equipment installation workers. Article
to arbitrate the dispute over the layoffs. It is not this 8 of this agreement *645 establishes that “differences
Court's function in the first instance to construe collective- arising with respect to the interpretation of this contract

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

or the performance of any obligation hereunder” must by a lack of work but only whether the company *647
be referred to a mutually agreeable arbitrator upon the followed the proper order in laying off the employees.”
written demand of either party. This Article expressly does App. to Pet. for Cert. 10A.
not cover disputes “excluded from arbitration by other Finding that “the union's interpretation of Article 20 was
provisions of this contract.” 1 Article 9 provides that, at least ‘arguable,’ ” the court held that it was “for the
“subject to the limitations contained in the provisions arbitrator, not the court to decide whether the union's
of this contract, but otherwise not subject to the interpretation has merit,” and accordingly, ordered the
provisions of the arbitration clause,” AT & T is free Company to arbitrate. Id., at 11A.
to exercise certain management functions, including the
hiring and placement of employees and the termination of The Court of Appeals for the Seventh Circuit affirmed.
Communications Workers of America v. Western Electric
employment. 2 “When lack of work necessitates Layoff,”
Co., 751 F.2d 203 (1984). The Court of Appeals
Article 20 prescribes the order in which employees are to
understood the District Court to have ordered arbitration
be laid off. 3 of the threshold issue of arbitrability. Id., at 205, n. 4. The
court acknowledged the “general rule” that the issue of
**1417 On September 17, 1981, the Union filed a arbitrability is for the courts to decide unless the parties
grievance challenging AT & T's decision to lay off 79 stipulate otherwise, but noted that this Court's decisions
installers from its Chicago base location. The Union in Steelworkers v. Warrior & Gulf Navigation Co., 363
claimed that, because there was no lack of work at the U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960), and
Chicago location, the *646 planned layoffs would violate Steelworkers v. American Mfg. Co., 363 U.S. 564, 80 S.Ct.
Article 20 of the agreement. Eight days later, however, 1343, 4 L.Ed.2d 1403 (1960), caution courts to avoid
AT & T laid off all 79 workers, and soon thereafter, the becoming entangled in the merits of a labor dispute under
Company transferred approximately the same number of the guise of deciding arbitrability. From this observation,
installers from base locations in Indiana and Wisconsin to the court announced an “exception” to the general
the Chicago base. AT & T refused to submit the grievance rule, under which “a court should compel arbitration
to arbitration on the ground that under Article 9 the of the arbitrability issue where the collective bargaining
Company's decision to lay off workers when it determines agreement contains a standard arbitration clause, the
that a lack of work exists in a facility is not arbitrable. parties have not clearly excluded the arbitrability issue
from arbitration, and deciding the issue would entangle
The Union then sought to compel arbitration by filing the court in interpretation of substantive provisions of
suit in federal court pursuant to § 301(a) of the the collective bargaining agreement and thereby involve
Labor Management Relations Act, 29 U.S.C. § 185(a). 4 consideration of the merits of the dispute.” 751 F.2d, at
Communications Workers of America v. Western Electric 206.
Co., No. 82 C 772 (ND Ill., Nov. 18, 1983). Ruling on
cross-motions for summary judgment, the District Court **1418 All of these factors were present in this case.
reviewed the provisions of Articles 8, 9, and 20, and set Article 8 was a “standard arbitration clause,” and there
forth the parties' arguments as follows: was “no clear, unambiguous exclusion from arbitration of
terminations predicated by a lack of work determination.”
“Plaintiffs interpret Article 20 to require that there be Id., at 206-207. Moreover, although there were “colorable
an actual lack of work prior to employee layoffs and arguments” on both sides of the exclusion issue, if the
argue that there was no such lack of work in this court were to decide this question it would have to
case. Under plaintiffs' interpretation, Article 20 would interpret not only Article 8, but Articles 9 and 20 as well,
allow the union to take to arbitration the threshold both of which are “substantive *648 provisions of the
issue of whether the layoffs were justified by a lack of Agreement.” The court thus “decline[d] the invitation to
work. Defendant interprets Article 20 as merely providing decide arbitrability,” and ordered AT & T “to arbitrate
a sequence for any layoffs which management, in its the arbitrability issue.” Id., at 207.
exclusive judgment, determines are necessary. Under
defendant's interpretation, Article 20 would not allow for The court admitted that its exception was “difficult to
an arbitrator to decide whether the layoffs were warranted reconcile with the Supreme Court's discussion of a court's

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

duty to decide arbitrability in [John Wiley & Sons, Inc. clearly and unmistakably provide otherwise, the question
v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 of whether the parties agreed to arbitrate is to be decided
(1964) ].” The court asserted, however, that the discussion by the court, not the arbitrator. Warrior & Gulf, supra,
was “dicta,” and that this Court had reopened the issue 363 U.S., at 582-583, 80 S.Ct., at 1352-1353. See Operating
in Nolde Brothers, Inc. v. Bakery Workers, 430 U.S. 243, Engineers v. Flair Builders, Inc., 406 U.S. 487, 491, 92 S.Ct.
255, n. 8, 97 S.Ct. 1067, 1074, n. 8, 51 L.Ed.2d 300 (1977). 1710, 1712, 32 L.Ed.2d 248 (1972); Atkinson v. Sinclair
751 F.2d, at 206. Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8
L.Ed.2d 462 (1962), overruled in part on other grounds,
We granted certiorari, 474 U.S. 814, 106 S.Ct. 56, 88 Boys Markets, Inc. v. Retail Clerks, 398 U.S. 235, 90 S.Ct.
L.Ed.2d 46 (1985), and now vacate the Seventh Circuit's 1583, 26 L.Ed.2d 199 (1970). Accord, Mitsubishi Motors
decision and remand for a determination of whether the Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626,
Company is required to arbitrate the Union's grievance. 105 S.Ct. 3346, 3353-3354, 87 L.Ed.2d 444 (1985).

The Court expressly reaffirmed this principle in John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct.
II
909, 11 L.Ed.2d 898 (1964). The “threshold question”
The principles necessary to decide this case are not new. there was whether the court or an arbitrator **1419
They were set out by this Court over 25 years ago in a series should decide if arbitration provisions in a collective-
of cases known as the Steelworkers Trilogy: Steelworkers bargaining contract survived a corporate merger so as to
v. American Mfg. Co., supra; Steelworkers v. Warrior & bind the surviving corporation. Id., at 546, 84 S.Ct., at
Gulf Navigation Co., supra; and Steelworkers v. Enterprise 912. The Court answered that there was “no doubt” that
Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d this question was for the courts. “ ‘Under our decisions,
1424 (1960). These precepts have served the industrial whether or not the company was bound to arbitrate, as
relations community well, and have led to continued well as what issues it must arbitrate, is a matter to be
reliance on arbitration, rather than strikes or lockouts, as determined by the Court on the basis of the contract
the preferred method of resolving disputes arising during entered into by the parties.’ ... The duty to arbitrate
the term of a collective-bargaining agreement. We see no being of contractual origin, a compulsory submission to
reason either to question their continuing validity, or to arbitration cannot precede judicial determination that the
eviscerate their meaning by creating an exception to their collective bargaining agreement does in fact create such
general applicability. a duty.” Id., at 546-547, 84 S.Ct., at 912-913 (citations
omitted).
[1] The first principle gleaned from the Trilogy is that
“arbitration is a matter of contract and a party cannot [3] The third principle derived from our prior cases is
be required to submit to arbitration any dispute which that, in deciding whether the parties have agreed to submit
he has not agreed so to submit.” Warrior & Gulf, supra, a particular grievance to arbitration, a court is not to rule
363 U.S., at 582, 80 S.Ct., at 1353; American Mfg. on the potential merits of the underlying claims. Whether
Co., supra, 363 U.S., at 570-571, 80 S.Ct., at 1364-1365 “arguable” or not, indeed even if it appears to the court
(BRENNAN, J., concurring). This axiom recognizes the to be *650 frivolous, the union's claim that the employer
fact that arbitrators derive their authority to resolve has violated the collective-bargaining agreement is to be
disputes only because the parties have agreed in advance decided, not by the court asked to order arbitration,
to submit such grievances to *649 arbitration. Gateway but as the parties have agreed, by the arbitrator. “The
Coal Co. v. Mine Workers, 414 U.S. 368, 374, 94 S.Ct. 629, courts, therefore, have no business weighing the merits
635, 38 L.Ed.2d 583 (1974). of the grievance, considering whether there is equity
in a particular claim, or determining whether there
[2] The second rule, which follows inexorably from is particular language in the written instrument which
the first, is that the question of arbitrability-whether a will support the claim. The agreement is to submit all
collective-bargaining agreement creates a duty for the grievances to arbitration, not merely those which the court
parties to arbitrate the particular grievance-is undeniably will deem meritorious.” American Mfg. Co., 363 U.S., at
an issue for judicial determination. Unless the parties 568, 80 S.Ct., at 1346 (footnote omitted).

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

[5] With these principles in mind, it is evident that
[4] Finally, it has been established that where the contract the Seventh Circuit erred in ordering the parties to
contains an arbitration clause, there is a presumption arbitrate the arbitrability question. It is the court's duty
of arbitrability in the sense that “[a]n order to arbitrate to interpret the agreement and to determine whether the
the particular grievance should not be denied unless it parties intended to arbitrate grievances concerning layoffs
may be said with positive assurance that the arbitration predicated on a “lack of work” determination by the
clause is not susceptible of an interpretation that covers Company. If the court determines that the agreement so
the asserted dispute. Doubts should be resolved in favor provides, then it is for the arbitrator to determine the
of coverage.” Warrior & Gulf, 363 U.S., at 582-583, relative merits of the parties' substantive interpretations of
80 S.Ct., at 1352-1353. See also Gateway Coal Co. v. the agreement. It was for the court, not the arbitrator, to
Mine Workers, supra, 414 U.S., at 377-378, 94 S.Ct., at decide in the first instance whether the dispute was to be
636-637. Such a presumption is particularly applicable resolved through arbitration.
where the clause is as broad as the one employed in this
case, which provides for arbitration of “any differences The Union does not contest the application of these
arising with respect to the interpretation of this contract or principles to the present case. Instead, it urges the Court to
the performance of any obligation hereunder....” In such examine the specific provisions of the agreement for itself
cases, “[i]n the absence of any express provision excluding and to affirm the Court of Appeals on the ground that the
a particular grievance from arbitration, we think only the parties had agreed to arbitrate the dispute over the layoffs
most forceful evidence of a purpose to exclude the claim at issue here. But it is usually not our function in the
from arbitration can prevail.” Warrior & Gulf, supra, 363 first instance to construe collective-bargaining contracts
U.S., at 584-585, 80 S.Ct., at 1353-1354. and arbitration clauses, or to consider any other evidence
that might unmistakably demonstrate that a particular
This presumption of arbitrability for labor disputes grievance was not to *652 be subject to arbitration. The
recognizes the greater institutional competence issue in the case is whether, because of express exclusion or
of arbitrators in interpreting collective-bargaining other forceful evidence, the dispute over the interpretation
agreements, “furthers the national labor policy of peaceful of Article 20 of the contract, the layoff provision, is not
resolution of labor disputes and thus best accords with subject to the arbitration clause. That issue should have
the parties' presumed objectives in pursuing collective been decided by the District Court and reviewed by the
bargaining.” Schneider Moving & Storage Co. v. Robbins, Court of Appeals; it should not have been referred to the
466 U.S. 364, 371-372, 104 S.Ct. 1844, 1849-1850, arbitrator.
80 L.Ed.2d 366 (1984) (citation *651 omitted). See
Gateway Coal Co., supra, 414 U.S., at 378-379, 94 The judgment of the Court of Appeals is vacated, and the
S.Ct., at 637-638. The willingness of parties to enter case is remanded for proceedings in conformity with this
into agreements that provide for arbitration of specified opinion.
disputes would be “drastically reduced,” however, if
a labor arbitrator had the “power to determine his It is so ordered.
own jurisdiction ....” Cox, Reflections Upon Labor
Arbitration, 72 Harv.L.Rev. 1482, 1509 (1959). Were this
the applicable rule, an arbitrator would not be constrained
Justice BRENNAN, with whom THE CHIEF JUSTICE
to resolve only those disputes that the parties have agreed
and Justice MARSHALL join, concurring.
in advance to settle by arbitration, but, instead, would be
I join the Court's opinion and write separately only to
empowered “to impose obligations outside the contract
supplement what has been said in order to avoid any
limited only by his understanding and conscience.” Ibid.
misunderstanding on remand and in future cases.
This result undercuts the longstanding federal policy
of promoting industrial harmony through the use of
The Seventh Circuit's erroneous conclusion that the
collective-bargaining agreements, and is antithetical to the
arbitrator should decide whether this dispute is arbitrable
function of a collective- **1420 bargaining agreement as
resulted from that court's confusion respecting the
setting out the rights and duties of the parties.
“arbitrability” determination that we have held must be
judicially made. Despite recognizing that Article 8 of the

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

collective-bargaining agreement “is a standard arbitration Gulf, supra, at 582-583, 80 S.Ct., at 1352-1353 (footnote
clause, providing for arbitration of ‘any differences arising omitted).
with respect to the interpretation of this contract or
the performance of any obligation hereunder,’ ” and The Company in Warrior & Gulf relied for its argument
that “there is no clear, unambiguous exclusion [of this that the dispute was not arbitrable on a “Management
dispute] from arbitration,” the Court of Appeals thought Functions” clause which, like Article 9 of the AT &
that “there [were] colorable arguments both for and T/CWA agreement, *654 excluded “matters which are
against exclusion.” Communications Workers of America strictly a function of management,” 363 U.S., at 576,
v. Western Electric Co., 751 F.2d 203, 206-207 (1984). The 80 S.Ct., at 1349, from the arbitration provision. We
“colorable arguments” referred to by the Court of Appeals recognized that such a clause “might be thought to
were the parties' claims concerning the meaning of Articles refer to any practice of management in which, under
9 and 20 of the collective-bargaining agreement: the Court particular circumstances prescribed by the agreement, it
of Appeals thought that if the Union's interpretation of is permitted to indulge.” Id., at 584, 80 S.Ct., at 1353.
Article 20 was correct and management *653 could not However, we also recognized that to read the clause this
order layoffs for reasons other than lack of work, the way would make arbitrability in every case depend upon
dispute was arbitrable; but if AT & T's interpretation of whether management could take the action challenged
Article 20 was correct and management was free to order by the Union; the arbitrability of every dispute would
layoffs for other reasons, the dispute was not arbitrable turn upon a resolution of the merits, and “the arbitration
under Article 9. Id., at 207. Because these were the very clause would be swallowed up by the exception.” Ibid.
issues that would be presented to the arbitrator if the Therefore, we held that, where a collective-bargaining
dispute was held to be arbitrable, the court reasoned that agreement contains a standard arbitration clause and
“determining arbitrability would enmesh a court in the the “exception” found in the Management Functions
merits of th[e] dispute,” ibid., and concluded that the clause is general, “judicial inquiry ... should be limited
arbitrability issue should be submitted to the arbitrator. to the search for an explicit provision which brings the
grievance under the cover of the [Management Functions]
The Court of Appeals was mistaken insofar as it thought clause....” Steelworkers v. American Mfg. Co., 363 U.S.
that determining arbitrability required resolution of the 564, 572, 80 S.Ct. 1343, 1365, 4 L.Ed.2d 1403 (1960)
parties' dispute with respect to the meaning of Articles (BRENNAN, J., concurring); Warrior & Gulf, supra, 363
9 and 20 of the collective-bargaining agreement. This U.S., at 584, 80 S.Ct., at 1353. “In the absence of any
is clear from our opinion in Steelworkers v. Warrior express provision excluding a particular grievance from
& Gulf **1421 Navigation Co., 363 U.S. 574, 80 arbitration, ... only the most forceful evidence of a purpose
S.Ct. 1347, 4 L.Ed.2d 1409 (1960). In Warrior & Gulf, to exclude the claim from arbitration can prevail....” 363
the Union challenged management's contracting out of U.S., at 584-585, 80 S.Ct., at 1353-1354.
labor that had previously been performed by Company
employees. The parties failed to resolve the dispute The Seventh Circuit misunderstood these rules of contract
through grievance procedures, and the Union requested construction and did precisely what we disapproved
arbitration; the Company refused, and the Union sued to of in Warrior & Gulf -it read Article 9, a general
compel arbitration under § 301 of the Labor Management Management Functions clause, to make arbitrability
Relations Act, 29 U.S.C. § 185. The collective-bargaining depend upon the merits of the parties' dispute. As
agreement contained a standard arbitration clause similar Warrior & Gulf makes clear, the judicial inquiry required
to Article 8 of the AT & T/CWA contract, i.e., providing to determine arbitrability is much simpler. The parties'
for arbitration of all differences with respect to the dispute concerns whether Article 20 of the collective-
meaning or application of the contract. We held that, in bargaining agreement limits management's authority to
light of the congressional policy making arbitration the order layoffs for reasons other than lack of work. The
favored method of dispute resolution, such a provision question for the court is “strictly confined,” id., at 582,
requires arbitration “unless it may be said with positive 80 S.Ct., at 1353, to whether the parties agreed to submit
assurance that the arbitration clause is not susceptible of disputes over the meaning of Article 20 to arbitration.
an interpretation that covers the asserted dispute. Doubts Because the collective-bargaining agreement contains a
should be resolved in favor of coverage.” Warrior & standard arbitration *655 clause, the answer must be

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

affirmative unless the contract contains explicit language bargaining agreement only where there is some special
reason to do so. Thus, it is appropriate for this Court
stating that disputes respecting Article 20 are not subject
to construe a collective-bargaining agreement where-as
to arbitration, or unless the party opposing arbitration-
in the Steelworkers Trilogy -our decision announces a
here AT & T-adduces “the most forceful evidence” to
new principle of law, since applying this principle may
this effect from the bargaining history. Under Warrior &
help to clarify our meaning. There is no such need,
Gulf, determining arbitrability does not require the court
however, where-as here-we simply reaffirm established
even to consider which party is correct with respect to the
principles. Moreover, since the determination left for
meaning of Article 20.
the Court of Appeals on remand is straightforward and
will require little time or effort, concerns for efficient
The Court remands this case so that the court below may
judicial administration do not require us to interpret the
apply the proper standard to determine arbitrability. The
agreement. Finally, because the parties have submitted to
Court **1422 states that “it is usually not our function
us only fragmentary pieces of the bargaining history, we
in the first instance to construe collective-bargaining
are not in a position properly to evaluate whether there
contracts and arbitration clauses, or to consider any other
is “the most forceful evidence” that the parties *656
evidence that might unmistakably demonstrate that a
did not intend for this dispute to be arbitrable. Therefore,
particular grievance was not to be subject to arbitration.”
I join the Court's opinion and concur in the Court's
Ante, at 1420. Of course, we have on numerous occasions
judgment remanding to the Court of Appeals.
construed collective-bargaining agreements “in the first
instance”; we did so, for example, in the three cases
comprising the Steelworkers Trilogy. See also John Wiley
& Sons, Inc. v. Livingston, 376 U.S. 543, 552-555, 84 All Citations
S.Ct. 909, 916-917, 11 L.Ed.2d 898 (1964); Packinghouse
Workers v. Needham Packing Co., 376 U.S. 247, 249-253, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648, 121
84 S.Ct. 773, 774-777, 11 L.Ed.2d 680 (1964). Nonetheless, L.R.R.M. (BNA) 3329, 54 USLW 4339, 104 Lab.Cas. P
I agree with the Court that we should interpret a collective- 11,758

Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 287, 50 L.Ed. 499.
1 Article 8 provides, in pertinent part, as follows:
“If the National and the Company fail to settle by negotiation any differences arising with respect to the interpretation of
this contract or the performance of any obligation hereunder, such differences shall (provided that such dispute is not
excluded from arbitration by other provisions of this contract, and provided that the grievance procedures as to such
dispute have been exhausted) be referred upon written demand of either party to an impartial arbitrator mutually agreeable
to both parties.” App. 21.
2 Article 9 states:
“The Union recognizes the right of the Company (subject to the limitations contained in the provisions of this contract, but
otherwise not subject to the provisions of the arbitration clause) to exercise the functions of managing the business which
involve, among other things, the hiring and placement of Employees, the termination of employment, the assignment of
work, the determination of methods and equipment to be used, and the control of the conduct of work.” Id., at 22.
3 Article 20 provides, in pertinent part, that “[w]hen lack of work necessitates Layoff, Employees shall be Laid-Off in
accordance with Term of Employment and by Layoff groups as set forth in the following [subparagraphs stating the order
of layoff].” Id., at 23. Article 1.11 defines the term “Layoff” to mean “a termination of employment arising out of a reduction
in the force due to lack of work.” Id., at 20.
4 Section 301(a), 61 Stat. 156, 29 U.S.C. § 185(a) states:
“Suits for violation of contracts between an employer and a labor organization representing
employees in an industry affecting commerce as defined in this chapter, or between any such
organizations, may be brought in any district court of the United States having jurisdiction of the
parties, without respect of the amount in controversy or without regard to the citizenship of the
parties.”

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AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986)
106 S.Ct. 1415, 121 L.R.R.M. (BNA) 3329, 89 L.Ed.2d 648, 54 USLW 4339...

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

when the State failed to incorporate into the indictment
the necessary language and adoption by reference of the
2006 WL 3628916
document the State alleges was the corpus delicti of the
Only the Westlaw citation is currently available.
offense itself”; and (4) the trial court should have “referred
SEE TX R RAP RULE 47.2 FOR a ‘motion to recuse’ filed by a purported ‘public interest
DESIGNATION AND SIGNING OF OPINIONS. group’ before proceeding to trial.”

MEMORANDUM OPINION We affirm.
Court of Appeals of Texas,
Houston (1st Dist.).

Betty Brock BELL, Appellant Factual and Procedural Background
v.
James Devore, Chief Deputy for the Harris County Tax
The STATE of Texas, Appellee.
Assessor Collector's office, testified that his office provides
disabled parking placards to qualified persons, persons
No. 01-05-01180-CR.
who desire such placards are required by law to complete
|
an application, the application is a governmental record,
Dec. 14, 2006.
and the application contains a warning stating that the
On Appeal from the 232nd District Court, Harris County, falsification of any required statement on the application
Texas, Trial Court Cause No. 1020229. is a crime. Devore received a complaint that appellant
made a false statement on an application for a disabled
Attorneys and Law Firms parking placard, and he referred the matter to the Harris
County District Attorney's office.
Jeffrey Gelb, for Betty Brock Bell.

William J. Delmore III and Charles A. Rosenthal, for The Burnell Gistand, a Harris County Tax Assessor Collector
State of Texas. office manager, testified that on September 7, 2005,
appellant went to Gistand's branch office, was allowed
Panel consists of Justices NUCHIA, JENNINGS, and to enter Gistand's personal office, and handed Gistand a
HIGLEY. renewal notice for her vehicle tags, a blue parking placard,
proof of insurance, a license, and a check. Appellant told
Gistand she needed “to do her renewal.” When Gistand
MEMORANDUM OPINION asked appellant, “is this for you,” appellant said “yes.”
Gistand asked Ingram Mitchem, the next available clerk,
TERRY JENNINGS, Justice. to process appellant's paperwork.

*1 A jury found appellant, Betty Brock Bell, guilty Gistand further testified that on the following morning,
of the state jail felony offense of tampering with a after Mitchem approached Gistand regarding appellant's
governmental record 1 and assessed her punishment at paperwork, Gistand reviewed appellant's disabled parking
confinement for 18 months and a fine of $5,000. The placard application and saw that appellant's mother
trial court, in accordance with the jury's recommendation, was identified as the applicant. Because Gistand had
suspended the confinement portion of the sentence and previously attended the funeral of appellant's mother, she
placed appellant on community supervision for a period realized that appellant had made a false statement on
of two years. In four issues, appellant contends that (1) the application, and she notified her supervisor. Gistand
the trial court “abuse[d] its discretion in denying the would not have processed the application for the parking
motion for new trial on the merits after a hearing which placards had she known appellant was renewing the
preserved errors that had otherwise been waived”; (2) the placards for her deceased mother.
trial court “abuse[d] its discretion in failing to quash the
indictment ... based on a statutory ‘confusion’ “; (3) the Mitchem testified that Gistand asked her to assist
“indictment as a matter of law fail[ed] to charge an offense appellant, and Gistand handed Mitchem the paperwork

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

that appellant had originally provided Gistand, including appellant was likely referring to an aunt who already had
a vehicle registration renewal, a check, a driver's license, her own disabled parking placards.
insurance, and the disabled parking placards. Mitchem
went back to her office to process the paperwork. Whem
Mitchem discovered that appellant had not completed
Waiver
a renewal application for the disabled parking placards,
she provided appellant with an application. Mitchem In her first issue, appellant argues that the trial court
also referred to a computer database that contained “abuse[d] its discretion in denying the motion for new trial
information concerning the “original paperwork” and on the merits after a hearing which preserved errors that
discovered that the disabled parking placards belonged had otherwise been waived.”
to Mary Lou Brock, appellant's mother. When Mitchem
asked appellant whether the application was for her or At the outset, we note that appellant discusses her first
her mother, appellant responded that the application was three issues together in no particular order and in a
for her mother. Thus, Mitchem believed that appellant single paragraph that spans over seven pages. Specifically,
was renewing her mother's disabled parking placards, and in regard to her first issue, appellant directly mentions
she was unaware at the time that appellant's mother was the trial court's denial of her motion for new trial only
deceased. once and provides scant record references and citations
to legal authority. However, construing the briefing rules
*2 The completed application, which was introduced
liberally, 2 we consider below appellant's first issue as
into evidence during Mitchem's testimony, showed that
an argument that the evidence is legally insufficient to
above the space for the “applicant's name,” appellant
support her conviction.
wrote “Mary Lou Brock,” and above the space for the
applicant's signature, appellant printed “Mary L. Brock.”
Within her first issue, appellant also complains that,
Appellant also wrote her initials “BBB” next to the
during trial, “the State was allowed to again and again
signature line on the application. Mitchem stated that
mention her judicial office” even though appellant was
she told appellant to put her initials on the application
“not charged with any act of official misconduct.”
because appellant was submitting the application on
However, to the extent this complaint concerns the fact
behalf of her mother. Mitchem stated that appellant also
that the jury was informed that appellant was serving
wrote her mother's address on the application. Mitchem
as a justice of the peace at the time she committed the
processed the application and gave appellant two disabled
alleged offense, appellant has not referred us to any place
parking placards. However, after leaving work, Mitchem
in the record where she asserted a timely objection to the
remembered seeing an article at the office stating that
State's reference of this fact, and thus she has waived this
appellant's mother was deceased, and Mitchem notified
Gistand the following morning. Mitchem stated that complaint for our review. 3 See TEX.R.APP. P. 33.1.
appellant deceived her and that she would not have
processed appellant's paperwork had she known that *3 Appellant further complains within her first issue that
appellant was not being truthful. she was “tried by proxy for the offense of aggravated
perjury” and the State used her grand jury testimony
Harris County District Attorney's Office Investigator Jim “to reach around her right not to testify.” However,
Britt testified that he received the complaint that appellant appellant's only record reference to support this claim
had put false information on an application for disabled concerns a question by the State to Britt regarding whether
parking placards. Attached to the complaint he received the grand jury had discretion in indicting appellant.
was a computer printout of two disabled parking placards Appellant did not timely object to this question, and has
and an obituary for appellant's mother. During the course waived this complaint for our review. See id.
of Britt's investigation, he interviewed appellant, who
initially told Britt that the placards were for her, and then To the extent that appellant has attempted to raise any
told Britt that the placards were for her 82-year-old aunt. additional issues, we hold that those issues have been
Although appellant would not provide Britt with the name inadequately briefed. 4 See TEX.R.APP. P. 38.1(h).
of her aunt, Britt determined in his own investigation that

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

appellant sought to renew were for appellant's mother,
and appellant told Mitchem that the application was for
Legal Sufficiency
her mother. The application, which was introduced into
In regard to her legal sufficiency complaint, made within evidence, showed that appellant identified her mother
her first issue, appellant asserts that the State failed to as the applicant, signed the application on her mother's
prove that she acted with the intent to defraud another behalf, and wrote her initials next to her mother's
person and an “intent to harm anyone, much less a specific name. Mitchem processed the application and gave
other person” and that there was no evidence appellant appellant the placards. However, after remembering
“used, profited from, or allowed another to use the permit that appellant's mother was deceased, Mitchem notified
in question.” Gistand. Mitchem stated that appellant deceived her, and
both Gistand and Mitchem testified that they would not
We review the legal sufficiency of the evidence by viewing have provided appellant with the placards had they known
the evidence in the light most favorable to the verdict she was obtaining them for her deceased mother. Britt
to determine whether any rational trier of fact could testified that during the course of his investigation, he
have found the essential elements of the offense beyond interviewed appellant, and appellant initially told Britt
a reasonable doubt. Vodochodsky v. State, 158 S.W.3d that the placards were for her and then stated that they
502, 509 (Tex.Crim.App.2005). We note that the trier were for her 82-year-old aunt.
of fact is the sole judge of the weight and credibility
of the evidence. Margraves v. State, 34 S.W.3d 912, *4 The State presented sufficient evidence that appellant
919 (Tex.Crim.App.2000). Thus, when performing a legal acted with the intent to defraud both Mitchem and
sufficiency review, we may not re-evaluate the weight and Gistand in renewing her deceased mother's disabled
credibility of the evidence and substitute our judgment parking placards. Furthermore, the State was not required
for that of the fact finder. Dewberry v. State, 4 S.W.3d to prove that appellant “used, profited from, or allowed
735, 740 (Tex.Crim.App.1999). We must resolve any another to use the permit in question.” Viewing all the
inconsistencies in the evidence in favor of the verdict. evidence in the light most favorable to the jury's verdict,
Curry v. State, 30 S.W.3d 394, 406 (Tex.Crim.App.2000). we conclude that a rational trier of fact could have found
the essential elements of the offense beyond a reasonable
A person commits the offense of tampering with a doubt. Accordingly, we hold that the evidence is legally
governmental record if she “knowingly makes a false entry sufficient to support appellant's conviction.
in, or false alteration of, a governmental record.” TEX.
PEN.CODE ANN. § 37.10(a) (Vernon Supp.2006). An We overrule appellant's first issue.
offense under this section is a state jail felony if the actor's
intent is to defraud or harm another. Id. § 37.10(c)(1).
Motion to Quash Indictment
Here, Devore testified that persons who desire disabled
parking placards are required by law to complete In her second issue, appellant argues that the trial
an application, which qualifies as a governmental court “abuse[d] its discretion in failing to quash the
record. Gistand testified that when appellant handed indictment ... based on a statutory ‘confusion.’ “ In
her a disabled parking placard, along with some other her motion to quash, appellant asserted that she should
paperwork, she told Gistand that she needed “to do have been charged under section 502.410 of the Texas
her renewal” and appellant confirmed, in response to Transportation Code. See TEX. TRANSP. CODE ANN.
Gistand's question, that the paperwork was for her. § 502.410 (Vernon Supp.2006). In her brief, appellant
The following morning, Gistand noticed that appellant's argues that section 502.410 “amply covers the alleged
mother, who was deceased, was identified as the applicant conduct” and that she should have been charged under
for the parking placards. this more specific statute in accordance with the statutory
rule of construction of in pari materia. 5
Mitchem testified that she provided appellant with the
application for the disabled parking placards. Mitchem Here, appellant completed and submitted the application
discovered in the computer records that the placards for the disabled parking placards in accordance with

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Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

section 681.003 of the Texas Transportation Code. Id. § as Exhibit A and the actions of the
681.003 (Vernon Supp.2006). Chapter 502, under which [appellant] were done with the intent
appellant contends she should have been prosecuted, to defraud and harm another.
is entitled “Registration of Vehicles” and does not
apply to applications for disabled parking placards. The indictment in the clerk's record is followed
Id. § 502.001-502.412 (Vernon 1999 & Supp.2006). immediately by a copy of the application, which is marked
Accordingly, false statements made in an application for Exhibit A, and this application appears identical to the
disabled parking placards are not subject to the criminal copy of the application that was introduced into evidence
at trial. Moreover, at the beginning of trial, the State
penalty provision in section 502.410. 6 Id. § 502.410.
read the indictment to the jury, including the reference
Thus, as the State notes, although the application for
to the application attached as Exhibit A, and the State
the disabled parking placards contains a reference to
noted that Exhibit A was contained on the “reverse
section 502.410 of the Transportation Code, the reference
page” of the indictment. As the State was reading the
is inaccurate, and section 502.410 does not “control”
indictment, appellant requested that the State simply
under these facts. We hold that the trial court did not
refer to the application as the “the Exhibit” and not
abuse its discretion in denying appellant's motion to quash
read the entire application to the jury. Finally, appellant
the indictment on the ground that she should have been
necessarily referred to the application, which was attached
charged under section 502.410.
as Exhibit A to the indictment, in her motion to quash the
indictment. Thus, we can see no defect or irregularity in
We overrule appellant's second issue.
the State's attachment of Exhibit A to the indictment.

However, because appellant did not assert this objection
Exhibit Attached to Indictment in the trial court, we hold that appellant has waived this
complaint for our review. TEX.CODE CRIM. PROC.
In her third issue, appellant argues that the “indictment as ANN. art 1.14(b) (Vernon 2005) (“If the defendant does
a matter of law fail[ed] to charge an offense when the State not object to a defect, error, or irregularity of form or
failed to incorporate into the indictment the necessary substance in an indictment or information before the date
language and adoption by reference of the document the on which the trial on the merits commences, he waives
State alleges was the corpus delicti of the offense itself.” and forfeits the right to object to the defect, error, or
irregularity and he may not raise the objection on appeal
Although appellant does not discuss this issue in the or in any other postconviction proceeding.”).
argument section of her brief, appellant, in her statement
of facts, explains that “[a]t no time was Exhibit A [the We overrule appellant's third issue.
application] adopted and incorporated by reference into
the indictment, but was in fact, left as a stand-alone
document which was a renewal of information that was
already on file in the Tax Assessor's Office, which was true, Motion to Recuse
and to which the State did not allege a falsity.”
In her fourth issue, appellant argues that the trial court
should have “referred a ‘motion to recuse’ filed by a
*5 Here, the indictment stated that appellant
purported ‘public interest group’ before proceeding to
.... [U]nlawfully and knowingly trial.”
[made] a false entry, namely,
the applicant name of Mary The motion to recuse that appellant asserts should have
Lou Brock, in a governmental been “referred” was captioned “Emergency Motion to
record, namely, APPLICATION Intervene; Motion for Judge Mary Lou Keel's Recusal;
FOR DISABLED PERSON Motion to Vacate Motion for Criminal Contempt of
IDENTIFICATION PLACARD Court.” The motion was filed by the “African-American
AND/OR DISABLED PERSON Legal Defense Group,” a self-described “public interest
LICENSE PLATE, attached hereto organization that investigates and prosecutes government

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

corruption and abuse.” The motion alleged that appellant Criminal Appeals or the court of appeals, any party may
file with the clerk of the court a motion stating grounds
was “being prosecuted by a vindictive and racist judicial
why the judge before whom the case is pending should not
system,” and was signed by “Jim Thompson, GYSGT,
sit in the case.” TEX.R. CIV. P. 18a(a) (emphasis added).
USMC, Chief Executive Officer, Intervenor.” The record
Here, the motion to recuse, which was not filed until the
does not indicate that Thompson is a lawyer licensed in
end of the punishment phase of trial, was filed by a non-
the State of Texas or is otherwise authorized to represent
party to the proceedings below and appears to be authored
any party in this case. 7
by a person unauthorized to practice law in the State of
Texas. We hold that the trial court was not required to
“A ‘criminal action,’ such as the underlying proceeding,
refer this motion before proceeding with the punishment
is prosecuted in the name of the State of Texas against
phase of the trial.
the accused and is conducted by some person acting
under the authority of the State, in accordance with its
*6 We overrule appellant's fourth issue.
laws.” In re Wingfield, 171 S.W.3d 374, 381 (Tex.App.-
Tyler 2005, orig. proceeding) (citing TEX.CODE CRIM.
PROC. ANN. art. 3.02 (Vernon 2005)). The Code of
Criminal Procedure makes no provision for a third party Conclusion
to intervene in a “criminal action.” Id. Furthermore, Rule
We affirm the judgment of the trial court.
18a of the Texas Rules of Civil Procedure, which applies
to the recusal of a trial judge in criminal cases 8 and sets
out the prerequisites for a proper motion requesting the All Citations
recusal of the trial judge, specifically states that “[a]t least
ten days before the date set for trial or other hearing in Not Reported in S.W.3d, 2006 WL 3628916
any court other than the Supreme Court, the Court of

Footnotes
1 See TEX. PEN.CODE ANN. § 37.10 (Vernon Supp.2006).
2 See TEX.R.APP. P. 38.9.
3 Our review of the record reveals that both the State and appellant, in their opening statements, made references, without
objection, to the fact that appellant was a justice of the peace. Gistand also testified, without objection, that appellant
was allowed into her personal office as a courtesy to appellant as a public official. Moreover, appellant, in her defense,
presented evidence that Gistand reported appellant in retaliation for appellant's firing of her sister, who worked as a clerk
in appellant's court.
4 In her brief, appellant asserts that she “was impugned repeatedly over her judicial decisions and acts of judicial
discretion” and was “demonized for ruling against the State.” Although appellant does not provide this Court with specific
record references to the allegedly objectionable evidence, the State concedes that, during the punishment phase of
trial, it introduced into evidence “two unadjudicated extraneous offenses demonstrating [appellant's] predilection for
prevarication.” It introduced evidence that appellant tampered with another governmental record when she entered
a contempt order that contained false statements, and the State Commission on Judicial Conduct issued a public
admonition against appellant for this conduct. The State also introduced testimony from two assistant district attorneys
that appellant had previously coerced guilty pleas from pro se defendants. The State asserts that appellant has not
clearly identified in the record a specific, timely objection to the above testimony. However, we need not address the
State's waiver argument on these points because we agree with the State's initial argument that any specific complaints
concerning this testimony have been inadequately briefed. TEX.R.APP. P. 38.1(h).
5 The doctrine of in pari materia is one of statutory construction. See Burke v. State, 28 S.W.3d 545, 546
(Tex.Crim.App.2000). Texas has codified the doctrine in section 311.026 of the Government Code:
(a) If a general provision conflicts with a special or local provision, the provisions shall be construed, if possible, so
that effect is given to both.

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Bell v. State, Not Reported in S.W.3d (2006)
2006 WL 3628916

(b) If the conflict between the general provision and the special or local provision is irreconcilable, the special or local
provision prevails as an exception to the general provision, unless the general provision is the later enactment and
the manifest intent is that the general provision prevail.
TEX. GOV'T CODE ANN. § 311.026 (Vernon 2005); see also Burke, 28 S.W.3d at 547 n. 2.
6 The criminal penalty provision in section 502.410 also does not apply to a statement or application filed under section
504.201, which concerns license plates for vehicles used by disabled persons. See TEX. TRANSP. CODE ANN. §§
502.410, 504.201 (Vernon Supp.2006).
7 Appellant agrees that Thompson is not a lawyer and that the motion was “patently frivolous.” However, appellant contends
that because the motion was not struck, “it implanted reversible error in the record.”
8 Arnold v. State, 853 S.W.2d 543, 544 (Tex.Crim.App.1993).

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

[4] arbitrators' decision, in concluding that foreign
KeyCite Yellow Flag - Negative Treatment investor in Argentinian entity was excused from having
Declined to Extend by Crystallex International Corporation v. 
to comply with local court litigation requirement, did not
Bolivarian Republic of Venezuela, D.D.C., March 25, 2017
stray from interpretation and application of arbitration
134 S.Ct. 1198
provisions in treaty, and could not be disturbed by court.
Supreme Court of the United States

BG GROUP PLC, Petitioner
Reversed.
v.
REPUBLIC OF ARGENTINA. Justice Sotomayor filed opinion concurring in part.

No. 12–138.
Chief Justice Roberts, with whom Justice Kennedy joined,
|
filed opinion dissenting.
Argued Dec. 2, 2013.
|
Decided March 5, 2014.
West Headnotes (12)
Synopsis
Background: Republic of Argentina petitioned under the
Federal Arbitration Act (FAA) to vacate or modify [1] Alternative Dispute Resolution
arbitral award rendered against it and in favor of United Matters to Be Determined by Court
Kingdom company for Argentina's alleged violation of It is up to parties to contract to determine
bilateral investment treaty. Company cross-moved to whether particular matter is primarily for
confirm award. The United States District Court for arbitrators or for courts to decide.
the District of Columbia, Reggie B. Walton, J., denied
petition, 715 F.Supp.2d 108, and confirmed award, 764 30 Cases that cite this headnote
F.Supp.2d 21. The Republic of Argentina appealed.
The United States Court of Appeals for the District of
[2] Alternative Dispute Resolution
Columbia Circuit, Rogers, Circuit Judge, 665 F.3d 1363,
Evidence
reversed. Certiorari was granted.
If contract is silent on matter of who primarily
is to decide threshold questions about
arbitration, courts determine the parties'
Holdings: The Supreme Court, Justice Breyer, held that: intent with help of certain presumptions.

[1] local court litigation requirement in arbitration 23 Cases that cite this headnote
provisions of treaty was procedural condition precedent
to arbitration, whose interpretation and application, if [3] Alternative Dispute Resolution
requirement were found in ordinary contract, would Evidence
presumptively be primarily for arbitrators;
Courts presume that parties to contract intend
for courts, not arbitrators, to decide disputes
[2] ordinary contract-based presumptions applied, despite
about arbitrability, including questions such
fact that arbitration provisions appeared in treaty, and
as whether parties are bound by given
that parties thereto were sovereign nations;
arbitration clause, or whether an arbitration
clause in a concededly binding contract
[3] primary responsibility for interpretation and
applies to particular type of controversy.
application of local court litigation requirement lay with
arbitrators, such that court, on competing motions to 58 Cases that cite this headnote
confirm and vacate arbitration award, had to grant
appropriate deference to arbitrators' decision; and

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

[4] Alternative Dispute Resolution [7] Treaties
Evidence Construction and operation in general
Courts presume that parties to contract Normally, interpretation of treaty, like
intend for arbitrators, not courts, to decide interpretation of contract, is matter of
disputes about meaning and application of determining parties' intent.
particular procedural preconditions for the
use of arbitration, including claims of waiver, 5 Cases that cite this headnote
delay, or a like defense to arbitrability, or
disputes as to satisfaction of such prerequisites [8] Alternative Dispute Resolution
as time limits, notice, laches, estoppel, and Presumptions
other conditions precedent to obligation to
Treaties
arbitrate.
Construction and operation of particular
41 Cases that cite this headnote provisions
When federal court is asked to interpret
intent of parties to treaty, pursuant to motion
[5] Alternative Dispute Resolution
to vacate or confirm an arbitration award
Proceedings
made in the United States under the Federal
Treaties Arbitration Act, it should normally apply
Construction and operation of particular the presumptions supplied by American law,
provisions such as the presumption that parties intend
Local court litigation requirement in procedural preconditions to arbitration to be
arbitration provisions of investment treaty resolved primarily by arbitrators. 9 U.S.C.A.
between United Kingdom and Argentina, § 1 et seq.
which required 18 months to elapse from
time that dispute was submitted to local 4 Cases that cite this headnote
tribunal, without a final decision by that
tribunal, before dispute could be submitted [9] Alternative Dispute Resolution
for international arbitration, was procedural Matters to Be Determined by Court
condition precedent to arbitration, which
Treaties
determined when the contractual duty to
Construction and operation of particular
arbitrate arose and not whether there was
provisions
contractual duty to arbitrate at all, such that
In absence of explicit language in treaty
this requirement, if it appeared in ordinary
demonstrating that the parties thereto
contract rather than in treaty, would be
intended a different delegation of authority,
presumptively for arbitrators, and not courts,
the ordinary interpretive framework, which is
to interpret and apply. Agreement for the
utilized by courts in deciding who is primarily
Promotion and Protection of Investments,
responsible for deciding threshold questions
Art. 8(2), 1765 U.N.T.S. 33.
about arbitration, applies when arbitration
16 Cases that cite this headnote provision appears not in ordinary contract but
in treaty.

[6] Treaties Cases that cite this headnote
Nature and grounds of obligation
As general matter, treaty is contract, though
[10] Alternative Dispute Resolution
it is between nations.
Proceedings
6 Cases that cite this headnote Treaties

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BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

Construction and operation of particular Construction and operation of particular
provisions provisions
Primary responsibility for interpretation Arbitrators' decision, in concluding that
and application of local court litigation foreign investor in Argentinian entity was
requirement in arbitration provisions of excused from having to comply with local
investment treaty between United Kingdom court litigation requirement in arbitration
and Argentina, which required 18 months to provisions of investment treaty between
elapse from time that dispute was submitted United Kingdom and Argentina, by first
to local tribunal, without a final decision filing suit in Argentine court and waiting for
by that tribunal, before dispute could be 18 months prior to submitting matter for
submitted for international arbitration, lay international arbitration, as result of conduct
with arbitrators rather than with courts, so by the Argentine government which interfered
that court, on competing motions to confirm with this judicial remedy by suspending
and vacate arbitration award, had to grant Argentine courts' ability to enter final
appropriate deference to arbitrators' decision judgments and by refusing to allow parties
that foreign nation's own conduct had excused engaged in litigation with the Argentine
other party from having to comply with this government to utilize contract renegotiation
purely procedural requirement regarding the process, did not stray from interpretation
timing of arbitration and could not review and application of arbitration provisions in
matter de novo; treaty did not indicate that treaty, and could not be disturbed by court.
local litigation requirement was condition Agreement for the Promotion and Protection
of foreign nations' consent to arbitration, of Investments, Art. 8(2), 1765 U.N.T.S. 33.
and there was nothing else in treaty to
rebut presumption that interpretation and 3 Cases that cite this headnote
application of such procedural provisions was
for arbitrators. Agreement for the Promotion
and Protection of Investments, Art. 8(2), 1765
U.N.T.S. 33.
*1201 Syllabus *
4 Cases that cite this headnote
An investment treaty (Treaty) between the United
Kingdom and Argentina authorizes a party to submit
[11] Alternative Dispute Resolution
a dispute “to the decision of the competent tribunal of
Matters to Be Determined by Court
the Contracting Party in whose territory the investment
When provision in arbitration agreement was made,” i.e., a local court, Art. 8(1); and permits
resembles a claims-processing requirement arbitration, as relevant here, “where, after a period of
and is not a requirement that affects the eighteen months has elapsed from the moment when
arbitration contract's validity or scope, court the dispute was submitted to [that] tribunal ..., the said
presumes that the parties, even if they are tribunal has not given its final decision,” Art. 8(2)(a)(i).
sovereigns, intended to give authority to
decide disputes regarding that provision to the Petitioner BG Group PLC, a British firm, belonged to
arbitrators. a consortium with a majority interest in MetroGAS,
an Argentine entity awarded an exclusive license to
1 Cases that cite this headnote
distribute natural gas in Buenos Aires. At the time of
BG Group's investment, Argentine law provided that
[12] Alternative Dispute Resolution gas “tariffs” would be calculated in U.S. dollars and
Proceedings would be set at levels sufficient to assure gas distribution
Treaties firms a reasonable return. But Argentina later amended
the law, changing (among other things) the calculation

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BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
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basis to pesos. MetroGAS' profits soon became losses. determine whether a particular matter is primarily for
Invoking Article 8, BG Group sought arbitration, which arbitrators or for courts to decide. See, e.g., Steelworkers
the parties sited in Washington, D.C. BG Group claimed v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct.
that Argentina's new laws and practices violated the 1347, 4 L.Ed.2d 1409. If the contract is silent on the
Treaty, which forbids the “expropriation” of investments matter of who is to decide a “threshold” question about
and requires each nation to give “fair and equitable arbitration, courts determine the parties' intent using
treatment” to investors from the other. Argentina denied presumptions. That is, courts presume that the parties
those claims, but also argued that the arbitrators lacked intended courts to decide disputes about “arbitrability,”
“jurisdiction” to hear the dispute because, as relevant e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
here, BG Group had not complied with Article 8's local 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491, and arbitrators
litigation requirement. The arbitration panel concluded to decide disputes about the meaning and application of
that it had jurisdiction, finding, among other things, procedural preconditions for the use of arbitration, see
that Argentina's conduct (such as also enacting new laws id., at 86, 123 S.Ct. 588, including, e.g., claims of “waiver,
that hindered recourse to its judiciary by firms in BG delay, or a like defense to arbitrability,” Moses H. Cone
Group's situation) had excused BG Group's failure to Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1,
comply with Article 8's requirement. On the merits, the 25, 103 S.Ct. 927, 74 L.Ed.2d 765, and the satisfaction
panel found that Argentina had not expropriated BG of, e.g., “ ‘time limits, notice, laches, [or] estoppel,’ ”
Group's investment but had denied BG Group “fair Howsam, 537 U.S., at 85, 123 S.Ct. 588. The provision at
and equitable treatment.” It awarded damages to BG issue is of the procedural variety. As its text and structure
Group. Both sides sought review in federal district court: make clear, it determines when the contractual duty to
BG Group to confirm the award under the New York arbitrate arises, not whether there is a contractual duty to
Convention and the Federal Arbitration Act (FAA), and arbitrate at all. Neither its language nor other language
Argentina to vacate the award, in part on the ground in Article 8 gives substantive weight to the local court's
that the arbitrators lacked jurisdiction under the FAA. determinations on the matters at issue between the parties.
The District Court confirmed the award, but the Court The litigation provision is thus a claims-processing rule. It
of Appeals for the District of Columbia Circuit vacated. is analogous to other procedural provisions found to be
It found that the interpretation and application of Article for arbitrators primarily to interpret and apply, see, e.g.,
8's requirement were matters for courts to decide de ibid., and there is nothing in Article 8 or the Treaty to
novo, i.e., without deference to the arbitrators' views; that overcome the ordinary assumption. Pp. 1206 – 1208.
the circumstances did not excuse BG Group's failure to
comply with the requirement; and that BG Group had (b) The fact that the document at issue is a treaty does
to commence a lawsuit in Argentina's courts and wait 18 not make a critical difference to this analysis. A treaty is a
months before seeking arbitration. Thus, the court held, contract between nations, and its interpretation normally
the arbitrators lacked authority to decide the dispute. is a matter of determining the parties' intent. Air France
v. Saks, 470 U.S. 392, 399, 105 S.Ct. 1338, 84 L.Ed.2d
Held : 289. Where, as here, a federal court is asked to interpret
that intent pursuant to a motion to vacate or confirm
1. A court of the United States, in reviewing an arbitration an award made under the Federal Arbitration Act, it
award made under the Treaty, should interpret and apply should normally apply the presumptions supplied by
“threshold” provisions concerning arbitration using the American law. The presence of a condition of “consent” to
framework developed for interpreting similar provisions arbitration in a treaty likely does not warrant abandoning,
in ordinary contracts. Under that framework, the local or increasing the complexity of, the ordinary intent-
litigation requirement is a matter for arbitrators primarily determining framework. See, e.g., Howsam, supra, at 83–
to interpret and apply. *1202 Courts should review their 85, 123 S.Ct. 588 But because this Treaty does notstate
interpretation with deference. Pp. 1206 – 1212. that the local litigation requirement is a condition of
consent, the Court need not resolve what the effect
(a) Were the Treaty an ordinary contract, it would call for of any such language would be. The Court need not
arbitrators primarily to interpret and to apply the local go beyond holding that in the absence of language
litigation provision. In an ordinary contract, the parties in a treaty demonstrating that the parties intended a

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
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different delegation of authority, the ordinary interpretive
framework applies. Pp. 1208 – 1210. Alexander A. Yanos, Elliot Friedman, Julia A. Lisztwan,
Freshfields Bruckhaus, Deringer US LLP, New York,
(c) The Treaty contains no evidence showing that NY, Thomas C. Goldstein, Counsel of Record, Kevin
the parties had an intent contrary to the ordinary K. Russell, Tejinder Singh, Goldstein & Russell, P.C.,
presumptions about who should decide threshold Washington, DC, for Petitioner.
arbitration issues. The text and structure of Article
Jonathan I. Blackman, Counsel of Record, Carmen
8's litigation requirement make clear that it is a
Amalia Corrales, Carmine D. Boccuzzi, Jr., Cleary
procedural condition precedent to arbitration. Because
Gottlieb Steen & Hamilton LLP, New York, NY,
the ordinary presumption applies and is not overcome,
Matthew D. Slater, Teale Toweill, M. Veronica Yepez,
the interpretation and application of the provision are
Caroline Stanton, Cleary Gottlieb Steen & Hamilton
primarily for the arbitrators, and courts must review their
LLP, Washington, DC, for Respondent.
decision with considerable deference. Pp. 1209 – 1212.
Opinion
2. While Argentina is entitled to court review (under
a properly deferential standard) of the arbitrators' Justice BREYER delivered the opinion of the Court.
decision to excuse BG Group's noncompliance with the
Article 8 of an investment treaty between the United
*1203 litigation requirement, that review shows that the
Kingdom and Argentina contains a dispute-resolution
arbitrators' determinations were lawful. Their conclusion
provision, applicable to disputes between one of those
that the litigation provision cannot be construed as an
nations and an investor from the other. See Agreement for
absolute impediment to arbitration, in all cases, lies
the Promotion and Protection of Investments, Art. 8(2),
well within their interpretative authority. Their factual
Dec. 11, 1990, 1765 U.N.T.S. 38 (hereinafter Treaty). The
findings that Argentina passed laws hindering recourse
provision authorizes either party to submit a dispute “to
to the local judiciary by firms similar to BG Group are
the decision of the competent tribunal of the Contracting
undisputed by Argentina and are accepted as valid. And
Party in whose territory the investment was made,” i.e., a
their conclusion that Argentina's actions made it “absurd
local court. Art. 8(1). And it provides for arbitration
and unreasonable” to read Article 8 to require an investor
in BG Group's position to bring its grievance in a domestic “(i) where, after a period of eighteen months has elapsed
court, before arbitrating, is not barred by the Treaty. Pp. from the moment when the dispute was submitted to the
1212 – 1213. competent tribunal ..., the said tribunal has not given its
final decision; [or]
665 F.3d 1363, reversed.
“(ii) where the final decision of the aforementioned
BREYER, J., delivered the opinion of the Court, in tribunal has been made but the Parties are still in
which SCALIA, THOMAS, GINSBURG, ALITO, and dispute.” Art. 8(2)(a).
KAGAN, JJ., joined, and in which SOTOMAYOR, J.,
joined except for Part IV–A–1. SOTOMAYOR, J., filed The Treaty also entitles the parties to agree to proceed
an opinion concurring in part. ROBERTS, C.J., filed a directly to arbitration. Art. 8(2)(b).
dissenting opinion, in which KENNEDY, J., joined.
This case concerns the Treaty's arbitration clause, and
specifically the local court litigation requirement set forth
Attorneys and Law Firms in Article 8(2)(a). The question before us is whether a
court of the United States, in reviewing an arbitration
Thomas Goldstein, Washington, DC, for Petitioner. award made under the Treaty, *1204 should interpret
and apply the local litigation requirement de novo, or
Ginger D. Anders, for the United States as amicus curiae,
with the deference that courts ordinarily owe arbitration
by special leave of the Court, supporting vacatur and
decisions. That is to say, who—court or arbitrator—bears
remand.
primary responsibility for interpreting and applying the
Jonathan I. Blackman, New York, NY, for Respondent. local litigation requirement to an underlying controversy?

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In our view, the matter is for the arbitrators, and courts treatment” to investors from the other. Argentina
must review their determinations with deference. denied these claims, while also arguing that the
arbitration tribunal lacked “jurisdiction” to hear the
dispute. App. to Pet. for Cert. 143a–144a, 214a–218a,
224a–232a. According to Argentina, the arbitrators
I
lacked jurisdiction because: (1) BG Group was not a
Treaty-protected “investor”; (2) BG Group's interest in
A MetroGAS was not a Treaty-protected “investment”;
and (3) BG Group initiated arbitration without first
In the early 1990's, the petitioner, BG Group plc, a litigating its claims in Argentina's courts, despite Article
British firm, belonged to a consortium that bought a 8's requirement. Id., at 143a–171a. In Argentina's view,
majority interest in an Argentine entity called MetroGAS. “failure by BG to bring its grievance to Argentine courts
MetroGAS was a gas distribution company created by for 18 months renders its claims in this arbitration
Argentine law in 1992, as a result of the government's inadmissible.” Id., at 162a.
privatization of its state-owned gas utility. Argentina
distributed the utility's assets to new, private companies, In late December 2007, the arbitration panel reached
one of which was MetroGAS. It awarded MetroGAS a final decision. It began by determining that it
a 35–year exclusive license to distribute natural gas in had “jurisdiction” to consider the merits of the
Buenos Aires, and it submitted a controlling interest in
dispute. In support of that determination, the tribunal
the company to international public tender. BG Group's concluded that BG Group was an “investor,” that its
consortium was the successful bidder. interest in MetroGAS amounted to a Treaty-protected
“investment,” and that Argentina's own conduct had
At about the same time, Argentina enacted statutes waived, or excused, BG Group's failure to comply with
providing that its regulators would calculate gas “tariffs” Article 8's local litigation *1205 requirement. Id., at
in U.S. dollars, and that those tariffs would be set at 99a, 145a, 161a, 171a. The panel pointed out that in
levels sufficient to assure gas distribution firms, such as 2002, the President of Argentina had issued a decree
MetroGAS, a reasonable return. staying for 180 days the execution of its courts' final
judgments (and injunctions) in suits claiming harm as a
In 2001 and 2002, Argentina, faced with an economic result of the new economic measures. Id., at 166a–167a.
crisis, enacted new laws. Those laws changed the basis for In addition, Argentina had established a “renegotiation
calculating gas tariffs from dollars to pesos, at a rate of one process” for public service contracts, such as its contract
peso per dollar. The exchange rate at the time was roughly with MetroGAS, to alleviate the negative impact of the
three pesos to the dollar. The result was that MetroGAS' new economic measures. Id., at 129a, 131a. But Argentina
profits were quickly transformed into losses. BG Group had simultaneously barred from participation in that
believed that these changes (and several others) violated “process” firms that were litigating against Argentina in
the Treaty; Argentina believed the contrary. court or in arbitration. Id., at 168a–171a. These measures,
while not making litigation in Argentina's courts literally
impossible, nonetheless “hindered” recourse “to the
B domestic judiciary” to the point where the Treaty
implicitly excused compliance with the local litigation
In 2003, BG Group, invoking Article 8 of the Treaty, requirement. Id., at 165. Requiring a private party in such
sought arbitration. The parties appointed arbitrators; circumstances to seek relief in Argentina's courts for 18
they agreed to site the arbitration in Washington, D.C.; months, the panel concluded, would lead to “absurd and
and between 2004 and 2006, the arbitrators decided unreasonable result[s].” Id., at 166a.
motions, received evidence, and conducted hearings.
BG Group essentially claimed that Argentina's new On the merits, the arbitration panel agreed with Argentina
laws and regulatory practices violated provisions in the that it had not “expropriate[d]” BG Group's investment,
Treaty forbidding the “expropriation” of investments but also found that Argentina had denied BG Group “fair
and requiring that each nation give “fair and equitable

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and equitable treatment.” Id., at 222a–223a, 240a–242a. It Investor– *1206 State Arbitration 51–52, 117–120 (2008)
awarded BG Group $185 million in damages. Id., at 297a. (referring to the large number of investment treaties
that provide for arbitration, and explaining that some
also impose prearbitration requirements such as waiting
periods, amicable negotiations, or exhaustion of local
C
remedies).
In March 2008, both sides filed petitions for review in
the District Court for the District of Columbia. BG
Group sought to confirm the award under the New II
York Convention and the Federal Arbitration Act. See
Convention on the Recognition and Enforcement of As we have said, the question before us is who—court or
Foreign Arbitral Awards, Art. IV, June 10, 1958, 21 arbitrator—bears primary responsibility for interpreting
U.S.T. 2519, T.I.A.S. No. 6997 (New York Convention) and applying Article 8's local court litigation provision.
(providing that a party may apply “for recognition Put in terms of standards of judicial review, should a
and enforcement” of an arbitral award subject to the United States court review the arbitrators' interpretation
Convention); 9 U.S.C. §§ 204, 207 (providing that a party and application of the provision de novo, or with the
may move “for an order confirming [an arbitral] award” deference that courts ordinarily show arbitral decisions
in a federal court of the “place designated in the agreement on matters the parties have committed to arbitration?
as the place of arbitration if such place is within the United Compare, e.g., First Options of Chicago, Inc. v. Kaplan,
States”). Argentina sought to vacate the award in part 514 U.S. 938, 942, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)
on the ground that the arbitrators lacked jurisdiction. See (example where a “court makes up its mind about [an
§ 10(a)(4) (a federal court may vacate an arbitral award issue] independently” because the parties did not agree
“where the arbitrators exceeded their powers”). it should be arbitrated), with Oxford Health Plans LLC
v. Sutter, 569 U.S. ––––, ––––, 133 S.Ct. 2064, 2068,
The District Court denied Argentina's claims and 186 L.Ed.2d 113 (2013) (example where a court defers to
confirmed the award. 764 F.Supp.2d 21 (D.D.C.2011); arbitrators because the parties “ ‘bargained for’ ” arbitral
715 F.Supp.2d 108 (D.D.C.2010). But the Court of resolution of the question (quoting Eastern Associated
Appeals for the District of Columbia Circuit reversed. Coal Corp. v. Mine Workers, 531 U.S. 57, 62, 121 S.Ct.
665 F.3d 1363 (2012). In the appeals court's view, the 462, 148 L.Ed.2d 354 (2000))). See also Hall Street
interpretation and application of Article 8's local litigation Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 588, 128
requirement was a matter for courts to decide de novo, S.Ct. 1396, 170 L.Ed.2d 254 (2008) (on matters committed
i.e., without deference to the views of the arbitrators. to arbitration, the Federal Arbitration Act provides for
The Court of Appeals then went on to hold that the “just the limited review needed to maintain arbitration's
circumstances did not excuse BG Group's failure to essential virtue of resolving disputes straightaway” and
comply with the requirement. Rather, BG Group must to prevent it from becoming “merely a prelude to a
“commence a lawsuit in Argentina's courts and wait more cumbersome and time-consuming judicial review
eighteen months before filing for arbitration.” Id., at 1373. process” (internal quotation marks omitted)); Eastern
Because BG Group had not done so, the arbitrators lacked Associated Coal Corp., supra, at 62, 121 S.Ct. 462 (where
authority to decide the dispute. And the appeals court parties send a matter to arbitration, a court will set aside
ordered the award vacated. Ibid. the “arbitrator's interpretation of what their agreement
means only in rare instances”).
BG Group filed a petition for certiorari. Given the
importance of the matter for international commercial In answering the question, we shall initially treat the
arbitration, we granted the petition. See, e.g., K. document before us as if it were an ordinary contract
Vandevelde, Bilateral Investment Treaties: History, Policy between private parties. Were that so, we conclude, the
& Interpretation 430–432 (2010) (explaining that dispute- matter would be for the arbitrators. We then ask whether
resolution mechanisms allowing for arbitration are a the fact that the document in question is a treaty makes a
“critical element” of modern day bilateral investment critical difference. We conclude that it does not.
treaties); C. Dugan, D. Wallace, N. Rubins, & B. Sabahi,

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preconditions for the use of arbitration. See Howsam,
supra, at 86, 123 S.Ct. 588 (courts assume parties
III
“normally expect a forum-based decisionmaker to decide
[1] [2] Where ordinary contracts are at issue, it is up forum-specific procedural gateway matters” (emphasis
to the parties to determine whether a particular matter is added)). These procedural matters include claims of
primarily for arbitrators or for courts to decide. See, e.g., “waiver, delay, or a like defense to arbitrability.” Moses
Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, H. Cone Memorial Hospital v. Mercury Constr. Corp., 460
582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) (“[A]rbitration U.S. 1, 25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). And
is a matter of contract and a party cannot be required to they include the satisfaction of “ ‘prerequisites such as
submit to arbitration any dispute which he has not agreed time limits, notice, laches, estoppel, and other conditions
so to submit”). If the contract is silent on the matter of precedent to an obligation to arbitrate.’ ” Howsam,
who primarily is to decide “threshold” questions about supra, at 85, 123 S.Ct. 588 (quoting the Revised Uniform
arbitration, courts determine the parties' intent with the Arbitration Act of 2000 § 6, Comment 2, 7 U.L.A.
help of presumptions. 13 (Supp.2002); emphasis deleted). See also § 6(c) (“An
arbitrator shall decide whether a condition precedent
[3] On the one hand, courts presume that the parties to arbitrability has been fulfilled”); § 6, Comment 2
intend courts, not arbitrators, to decide what we have (explaining that this rule reflects “the holdings of the vast
called disputes about “arbitrability.” These include majority of state courts” and collecting cases).
questions such as “whether the parties are bound by
a given arbitration clause,” or “whether an arbitration [5] The provision before us is of the latter, procedural,
clause in a concededly binding contract applies to a variety. The text and structure of the provision make
particular type of controversy.” Howsam v. Dean Witter clear that it operates as a procedural condition precedent
Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d to arbitration. It says that a dispute “shall be submitted
491 (2002); accord, Granite Rock Co. v. Teamsters, to international arbitration” if “one of the Parties so
561 U.S. 287, 299–300, 130 S.Ct. 2847, 177 L.Ed.2d requests,” as long as “a period of eighteen months
567 (2010) (disputes over “formation of the parties' has elapsed” since the dispute was “submitted” to a
arbitration agreement” *1207 and “its enforceability or local tribunal and the tribunal “has not given its final
applicability to the dispute” at issue are “matters ... the decision.” Art. 8(2). It determines when the contractual
court must resolve” (internal quotation marks omitted)). duty to arbitrate arises, not whether there is a contractual
See First Options, supra, at 941, 943–947, 115 S.Ct. duty to arbitrate at all. Cf. 13 R. Lord, Williston on
1920 (court should decide whether an arbitration clause Contracts § 38:7, pp. 435, 437; § 38:4, p. 422 (4th ed.
applied to a party who “had not personally signed” the 2013) (a “condition precedent” determines what must
document containing it); AT & T Technologies, Inc. v. happen before “a contractual duty arises” but does
Communications Workers, 475 U.S. 643, 651, 106 S.Ct. not “make the validity of the contract depend on its
1415, 89 L.Ed.2d 648 (1986) (court should decide whether happening” (emphasis added)). Neither does this language
a particular labor-management layoff dispute fell within or other language in Article 8 give substantive weight
the arbitration clause of a collective-bargaining contract); to the local court's determinations on the matters at
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, issue between the parties. To the contrary, Article 8
546–548, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (court provides that only the “arbitration decision shall be
should decide whether an arbitration provision survived final and binding on both Parties.” Art. 8(4). The
a corporate merger). See generally AT & T Technologies, litigation provision is consequently a purely procedural
supra, at 649, 106 S.Ct. 1415 (“Unless the parties clearly requirement—a claims-processing rule that governs when
and unmistakably provide otherwise, the question of the arbitration may begin, but not whether it may occur
whether the parties agreed to arbitrate is to be decided by or what its substantive outcome will be on the issues in
the court, not the arbitrator”). dispute.

[4] On the other hand, courts presume that the parties Moreover, the local litigation requirement is highly
intend arbitrators, not courts, to decide disputes about analogous to procedural provisions that both this Court
the meaning and application of particular procedural and others have found are for arbitrators, not courts,

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primarily to interpret and to apply. See *1208 Howsam, matter, a treaty is a contract, though between nations. Its
supra, at 85, 123 S.Ct. 588 (whether a party filed a notice interpretation normally is, like a contract's interpretation,
of arbitration within the time limit provided by the rules a matter of determining the parties' intent. Air France
of the chosen arbitral forum “is a matter presumptively v. Saks, 470 U.S. 392, 399, 105 S.Ct. 1338, 84 L.Ed.2d
for the arbitrator, not for the judge”); John Wiley, supra, 289 (1985) (courts must give “the specific words of the
at 555–557, 84 S.Ct. 909 (same, in respect to a mandatory treaty a meaning consistent with the shared expectations
prearbitration grievance procedure that involved holding of the contracting parties”); Sullivan v. Kidd, 254 U.S.
two conferences). See also Dialysis Access Center, LLC v. 433, 439, 41 S.Ct. 158, 65 L.Ed. 344 (1921) (“[T]reaties
RMS Lifeline, Inc., 638 F.3d 367, 383 (C.A.1 2011) (same, are to be interpreted upon the principles which govern the
in respect to a prearbitration “good faith negotiations” interpretation of contracts in writing between individuals,
requirement); Lumbermens Mut. Cas. Co. v. Broadspire and are to be executed in the utmost good faith, with
Management Servs., Inc., 623 F.3d 476, 481 (C.A.7 a view to making effective the purposes of the high
2010) (same, in respect to a prearbitration filing of a contracting parties”); Wright v. Henkel, 190 U.S. 40,
“Disagreement Notice”). 57, 23 S.Ct. 781, 47 L.Ed. 948 (1903) (“Treaties must
receive a fair interpretation, according to the intention of
Finally, as we later discuss in more detail, see infra, the contracting parties”). And where, as here, a federal
at 1209 – 1210, we can find nothing in Article 8 or court is asked to interpret that intent pursuant to a
elsewhere in the Treaty that might overcome the ordinary motion to vacate or confirm an award made in the
assumption. It nowhere demonstrates a contrary intent as United States under the Federal Arbitration Act, it should
to the delegation of decisional authority between judges normally apply the presumptions supplied by American
and arbitrators. Thus, were the document an ordinary law. See New York Convention, Art. V(1)(e) (award may
contract, it would call for arbitrators primarily to interpret be “set aside or suspended by a competent authority
and to apply the local litigation provision. of the country in which, or under the law of which,
that award was made”); Vandevelde, Bilateral Investment
Treaties, at 446 (arbitral awards pursuant to treaties are
“subject to review under the arbitration law of the state
IV
where the arbitration takes place”); Dugan, Investor–
State Arbitration, at 636 (“[T]he national courts and the
A law of the legal situs of arbitration *1209 control a losing
party's attempt to set aside [an] award”).
We now relax our ordinary contract assumption and
ask whether the fact that the document before us is The Solicitor General does not deny that the presumption
a treaty makes a critical difference to our analysis. discussed in Part III, supra (namely, the presumption
The Solicitor General argues that it should. He says that parties intend procedural preconditions to arbitration
that the local litigation provision may be “a condition to be resolved primarily by arbitrators), applies both to
on the State's consent to enter into an arbitration ordinary contracts and to similar provisions in treaties
agreement.” Brief for United States as Amicus Curiae when those provisions are not also “conditions of
25. He adds that courts should “review de novo the consent.” Brief for United States as Amicus Curiae 25–
arbitral tribunal's resolution of objections based on an 27. And, while we respect the Government's views about
investor's non-compliance” with such a condition. Ibid. the proper interpretation of treaties, e.g., Abbott v. Abbott,
And he recommends that we remand this case to the Court 560 U.S. 1, 15, 130 S.Ct. 1983, 176 L.Ed.2d 789 (2010), we
of Appeals to determine whether the court-exhaustion have been unable to find any other authority or precedent
provision is such a condition. Id., at 31–33. suggesting that the use of the “consent” label in a treaty
should make a critical difference in discerning the parties'
intent about whether courts or arbitrators should interpret
1 and apply the relevant provision.

[6] [7] [8] We do not accept the Solicitor General's We are willing to assume with the Solicitor General
view as applied to the treaty before us. As a general that the appearance of this label in a treaty can

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show that the parties, or one of them, thought the press his claim before an “administrative tribunal or
designated matter quite important. But that is unlikely court”), online at www.ustr.gov/trade-agreements/free-
to be conclusive. For parties often submit important trade-agreements/korus-fta/final-text; North American
matters to arbitration. And the word “consent” could Free Trade Agreement, Arts. 1121–1122, Dec. 17, 1992,
be attached to a highly procedural precondition to 32 I. L. M. 643–644 (providing that each party's “[c]onsent
arbitration, such as a waiting period of several months, to [a]rbitration” is conditioned *1210 on fulfillment of
which the parties are unlikely to have intended that certain “procedures,” one of which is a waiver by an
courts apply without saying so. See, e.g., Agreement investor of his right to litigate the claim being arbitrated).
on Encouragement and Reciprocal Protection of See also 2012 U.S. Model Bilateral Investment Treaty,
Investments, Art. 9, Netherlands–Slovenia, Sept. 24, 1996, Art. 26 (entitled “Conditions and limitations on Consent
Netherlands T.S. No. 296 (“Each Contracting Party of Each Party”), online at www.ustr. gov/sites/default/
hereby consents to submit any dispute ... which they files/BIT% 20text% 20for% 220ACIEP% 20Meeting.pdf.
can not [sic ] solve amicably within three months ... And we apply our ordinary presumption that the
to the International Center for Settlement of Disputes interpretation and application of procedural provisions
for settlement by conciliation or arbitration”), online such as the provision before us are primarily for the
at www. rijksoverheid.nl/documenten-en-publicaties/ arbitrators.
besluiten/2006/10/17/slovenia.html (all Internet materials
as visited on Feb. 28, 2014, and available in Clerk of
Court's case file); Agreement for the Promotion and
B
Protection of Investments, Art. 8(1), United Kingdom–
Egypt, June 11, 1975, 14 I.L.M. 1472 (“Each Contracting [10] A treaty may contain evidence that shows the parties
Party hereby consents to submit” a dispute to arbitration had an intent contrary to our ordinary presumptions
if “agreement cannot be reached within three months about who should decide threshold issues related to
between the parties”). While we leave the matter open for arbitration. But the treaty before us does not show
future argument, we do not now see why the presence any such contrary intention. We concede that the local
of the term “consent” in a treaty warrants abandoning, litigation requirement appears in ¶ (1) of Article 8,
or increasing the complexity of, our ordinary intent- while the Article does not mention arbitration until the
determining framework. See Howsam, 537 U.S., at 83–85, subsequent paragraph, ¶ (2). Moreover, a requirement
123 S.Ct. 588; First Options, 514 U.S., at 942–945, 115 that a party exhaust its remedies in a country's domestic
S.Ct. 1920; John Wiley, 376 U.S., at 546–549, 555–559, 84 courts before seeking to arbitrate may seem particularly
S.Ct. 909. important to a country offering protections to foreign
investors. And the placing of an important matter prior
to any mention of arbitration at least arguably suggests
2 an intent by Argentina, the United Kingdom, or both,
to have courts rather than arbitrators apply the litigation
[9] In any event, the treaty before us does not state requirement.
that the local litigation requirement is a “condition
of consent” to arbitration. Thus, we need not, and These considerations, however, are outweighed by others.
do not, go beyond holding that, in the absence of As discussed supra, at 1207 – 1208, the text and structure
explicit language in a treaty demonstrating that the of the litigation requirement set forth in Article 8 make
parties intended a different delegation of authority, our clear that it is a procedural condition precedent to
ordinary interpretive framework applies. We leave for arbitration—a sequential step that a party must follow
another day the question of interpreting treaties that refer before giving notice of arbitration. The Treaty nowhere
to “conditions of consent” explicitly. See, e.g., United says that the provision is to operate as a substantive
States–Korea Free Trade Agreement, Art. 11.18, Feb. condition on the formation of the arbitration contract,
10, 2011 (provision entitled “Conditions and Limitations or that it is a matter of such elevated importance that it
on Consent of Each Party” and providing that “[n]o is to be decided by courts. International arbitrators are
claim may be submitted to arbitration under this Section” likely more familiar than are judges with the expectations
unless the claimant waives in writing “any right” to of foreign investors and recipient nations regarding

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the operation of the provision. See Howsam, supra, at While it is possible to read the provision in this way,
85, 123 S.Ct. 588 (comparative institutional expertise doing so is not consistent with our case law interpreting
a factor in determining parties' likely intent). And the similar provisions appearing in ordinary arbitration
Treaty itself authorizes the use of international arbitration contracts. See Part III, supra. Consequently, interpreting
associations, the rules of which provide that arbitrators the provision in such a manner would require us to treat
shall have the authority to interpret provisions of this treaties as warranting a different kind of analysis. And
kind. Art. 8(3) (providing that the parties may refer a the dissent does so without supplying any different set
dispute to the International Centre for the Settlement of of general principles that might guide that analysis. That
Investment Disputes (ICSID) or to arbitrators appointed is a matter of some concern in a world where foreign
pursuant to the arbitration rules of the United Nations investment and related arbitration treaties increasingly
Commission on International Trade Law (UNCITRAL)); matter.
accord, UNCITRAL Arbitration Rules, Art. 23(1) (rev.
2010 ed.) (“[A]rbitral tribunal shall have the power to rule
on its own jurisdiction”); ICSID Convention, Regulations Even were we to ignore our ordinary contract principles,
and Rules, Art. 41(1) (2006 ed.) (“Tribunal shall be the however, we would not take the dissent's view. As we
judge of its own competence”). Cf. Howsam, supra, at 85, have explained, the local litigation provision on its face
123 S.Ct. 588 (giving weight to the parties' incorporation concerns arbitration's timing, not the Treaty's effective
of the National Association of Securities Dealers' Code date; or whom its arbitration clause binds; or whether
of Arbitration into their contract, which provided for that arbitration clause covers a certain kind of dispute.
similar arbitral authority, as evidence that they intended Cf. Granite Rock, 561 U.S., at 296–303, 130 S.Ct. 2847
arbitrators to “interpret and apply the NASD time limit (ratification date); First Options, 514 U.S., at 941, 943–
rule”). 947, 115 S.Ct. 1920 (parties); AT & T Technologies, 475
U.S., at 651, 106 S.Ct. 1415 (kind of dispute). The dissent
The upshot is that our ordinary presumption applies and it points out that Article 8(2)(a) “does not simply require
is not overcome. The interpretation and application of the the parties to wait for 18 months before proceeding
local litigation provision is primarily for the arbitrators. to arbitration,” but instructs them to do something—
Reviewing courts cannot review their decision de novo. to “submit their claims for adjudication.” Post, at 1219.
Rather, they must do so with considerable deference. That is correct. But the something they must do has no
direct impact on the resolution of their dispute, for as
we previously pointed out, Article 8 provides that only
the decision of the arbitrators (who need not give weight
C to the local court's decision) will be “final and binding.”
Art. 8(4). The provision, at base, is a claims-processing
The dissent interprets Article 8's local litigation provision
rule. And the dissent's efforts to imbue it with greater
differently. In its view, *1211 the provision sets forth
significance fall short.
not a condition precedent to arbitration in an already-
The treatises to which the dissent refers also fail to
binding arbitration contract (normally a matter for
support its position. Post, at 1216, 1217 – 1218. Those
arbitrators to interpret), but a substantive condition
authorities primarily describe how an offer to arbitrate
on Argentina's consent to arbitration and thus on the
in an investment treaty can be accepted, such as
contract's formation in the first place (normally something
through an investor's filing of a notice of arbitration.
for courts to interpret). It reads the whole of Article 8 as a
See J. Salacuse, The Law of Investment Treaties 381
“unilateral standing offer” to arbitrate that Argentina and
(2010); Schreuer, Consent to Arbitration, in The Oxford
the United Kingdom each extends to investors of the other
Handbook of International Investment Law 830, 836–
country. Post, at 1219 – 1220 (opinion of ROBERTS, C.
837 (P. Muchlinski, F. Ortino, & C. Schreuer eds. 2008);
J.). And it says that the local litigation requirement is one
Dugan, Investor–State Arbitration, at 221–222. They do
of the essential “ ‘terms in which the offer was made.’ ”
not endorse the dissent's reading of the local litigation
Post, at 1218 (quoting Eliason v. Henshaw, 4 Wheat. 225,
provision or of provisions like it.
228, 4 L.Ed. 556 (1819); emphasis deleted).

To the contrary, the bulk of international authority
supports our view that the provision functions as a

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purely procedural precondition to arbitrate. See 1 G.
Born, International Commercial Arbitration 842 (2009) The arbitration panel made three relevant determinations:
(“A substantial body of arbitral authority from investor-
state disputes concludes that compliance with procedural (1) “As a matter of treaty interpretation,” the local
mechanisms in an arbitration agreement (or bilateral litigation provision “cannot be construed as an absolute
investment treaty) is not ordinarily a jurisdictional impediment to arbitration,” App. to Pet. for Cert. 165a;
prerequisite”); Brief for Professors and Practitioners of
Arbitration Law as Amici Curiae 12–16 (to assume the (2) Argentina enacted laws that “hindered” “recourse
parties intended de novo review of the provision by a to the domestic judiciary” by those “whose rights
court “is likely *1212 to set United States courts on a were allegedly affected by the emergency measures,”
collision course with the international regime embodied id., at 165a–166a; that sought “to prevent any judicial
in thousands of [bilateral investment treaties]”). See also interference with the emergency legislation,” id., at 169a;
Schreuer, Consent to Arbitration, supra, at 846–848 and that “excluded from the renegotiation process” for
(“clauses of this kind ... creat[e] a considerable burden public service contracts “any licensee seeking judicial
to the party seeking arbitration with little chance of redress,” ibid.;
advancing the settlement of the dispute,” and “the most
likely effect of a clause of this kind is delay and additional (3) under these circumstances, it would be “absurd and
cost”). unreasonable” to read Article 8 as requiring an investor to
bring its grievance to a domestic court before arbitrating.
[11] In sum, we agree with the dissent that a sovereign's Id., at 166a.
consent to arbitration is important. We also agree that
sovereigns can condition their consent to arbitrate by The first determination lies well within the arbitrators'
writing various terms into their bilateral investment interpretive authority. Construing the local litigation
treaties. Post, at 1207 – 1208. But that is not the issue. provision as an “absolute” requirement would mean
The question is whether the parties intended to give courts Argentina could avoid arbitration by, say, passing a
or arbitrators primary authority to interpret and apply a law that closed down its court system indefinitely or
threshold provision in an arbitration contract—when the that prohibited investors from using its courts. Such
contract is silent as to the delegation of authority. We have an interpretation runs contrary to a basic objective of
already explained why we believe that where, as here, the the investment treaty. Nor does Argentina argue for an
provision resembles a claims-processing requirement and absolute interpretation.
is not a requirement that affects the arbitration contract's
validity or scope, we presume that the parties (even if As to the second determination, Argentina does not argue
they are sovereigns) intended to give that authority to the that the facts set forth by the arbitrators are incorrect.
arbitrators. See Parts III, IV–A and IV–B, supra. Thus, we accept them as valid.

The third determination is more controversial. Argentina
argues that neither the 180–day suspension of courts'
V
issuances of final judgments nor its refusal to allow
[12] Argentina correctly argues that it is nonetheless litigants (and those in arbitration) to *1213 use
entitled to court review of the arbitrators' decision to its contract renegotiation process, taken separately
excuse BG Group's noncompliance with the litigation or together, warrants suspending or waiving the
requirement, and to take jurisdiction over the dispute. It local litigation requirement. We would not necessarily
asks us to provide that review, and it argues that even characterize these actions as rendering a domestic court-
if the proper standard is “a [h]ighly [d]eferential” one, exhaustion requirement “absurd and unreasonable,” but
it should still prevail. Brief for Respondent 50. Having at the same time we cannot say that the arbitrators'
the relevant materials before us, we shall provide that conclusions are barred by the Treaty. The arbitrators did
review. But we cannot agree with Argentina that the not “ ‘stra[y] from interpretation and application of the
arbitrators “ ‘exceeded their powers' ” in concluding they agreement’ ” or otherwise “ ‘effectively “dispens[e]” ’ ”
had jurisdiction. Ibid. (quoting 9 U.S.C. § 10(a)(4)). their “ ‘own brand of ... justice.’ ” Stolt–Nielsen S.A. v.

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AnimalFeeds Int'l Corp., 559 U.S. 662, 671, 130 S.Ct. 1758, 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002).
176 L.Ed.2d 605 (2010) (providing that it is only when And a party plainly cannot be bound by an arbitration
an arbitrator engages in such activity that “ ‘his decision clause to which it does not consent. See Granite Rock Co. v.
may be unenforceable’ ” (quoting Major League Baseball Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d
Players Assn. v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 567 (2010) (“Arbitration is strictly ‘a matter of consent’
149 L.Ed.2d 740 (2001) (per curiam ))). ” (quoting Volt Information Sciences, Inc. v. Board of
Trustees of Leland Stanford Junior Univ., 489 U.S. 468,
Consequently, we conclude that the arbitrators' 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989))).
jurisdictional determinations are lawful. The judgment of
the Court of Appeals to the contrary is reversed. Consent is especially salient in the context of a
bilateral investment treaty, where the treaty is not
It is so ordered. an already agreed-upon arbitration provision between
known parties, but rather a nation state's standing
offer to arbitrate with an amorphous class of private
investors. In this setting, a *1214 nation-state might
Justice SOTOMAYOR, concurring in part.
reasonably wish to condition its consent to arbitrate with
I agree with the Court that the local litigation requirement
a previously unspecified investor counterparty on the
at issue in this case is a procedural precondition to
investor's compliance with a requirement that might be
arbitration (which the arbitrators are to interpret), not
deemed “purely procedural” in the ordinary commercial
a condition on Argentina's consent to arbitrate (which
context, ante, at 1207 – 1208. Moreover, as THE
a court would review de novo ). Ante, at 1207, 1210.
CHIEF JUSTICE notes, “[i]t is no trifling matter” for
Importantly, in reaching this conclusion, the Court
a sovereign nation to “subject itself to international
acknowledges that “the treaty before us does not state that
arbitration” proceedings, so we should “not presume that
the local litigation requirement is a ‘condition of consent’
any country ... takes that step lightly.” Post, at 1219
to arbitration.” Ante, at 1209. The Court thus wisely
(dissenting opinion).
“leave[s] for another day the question of interpreting
treaties that refer to ‘conditions of consent’ explicitly.”
Consider, for example, the United States–Korea Free
Ibid. I join the Court's opinion on the understanding that
Trade Agreement, which as the Court recognizes, ante,
it does not, in fact, decide this issue.
at 1209 – 1210, includes a provision explicitly entitled
“Conditions and Limitations on Consent of Each Party.”
I write separately because, in the absence of this express
Art. 11.18, Feb. 10, 2011. That provision declares that
reservation, the opinion might be construed otherwise.
“[n]o claim may be submitted to arbitration” unless a
The Court appears to suggest in dictum that a decision
claimant first waives its “right to initiate or continue
by treaty parties to describe a condition as one on their
before any administrative tribunal or court ... any
consent to arbitrate “is unlikely to be conclusive” in
proceeding with respect to any measure alleged to
deciding whether the parties intended for the condition
constitute a breach” under another provision of the
to be resolved by a court. Ante, at 1208 – 1209. Because
treaty. Ibid. If this waiver condition were to appear
this suggestion is unnecessary to decide the case and is in
without the “consent” label in a binding arbitration
tension with the Court's explicit reservation of the issue,
agreement between two commercial parties, one might
I join the opinion of the Court with the exception of Part
characterize it as the kind of procedural “ ‘condition
IV–A–1.
precedent to arbitrability’ ” that we presume parties intend
for arbitrators to decide. Howsam, 537 U.S., at 85, 123
The Court's dictum on this point is not only unnecessary;
S.Ct. 588. But where the waiver requirement is expressly
it may also be incorrect. It is far from clear that a
denominated a “condition on consent” in an international
treaty's express use of the term “consent” to describe a
investment treaty, the label could well be critical in
precondition to arbitration should not be conclusive in
determining whether the states party to the treaty intended
the analysis. We have held, for instance, that “a gateway
the condition to be reviewed by a court. After all, a dispute
dispute about whether the parties are bound by a given
as to consent is “the starkest form of the question whether
arbitration clause raises a ‘question of arbitrability’ for a
the parties have agreed to arbitrate.” Post, at 1222.
court to decide.” Howsam v. Dean Witter Reynolds, Inc.,

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And we ordinarily presume that parties intend for courts It is instead a treaty between two sovereign nations: the
to decide such questions because otherwise arbitrators United Kingdom and Argentina. No investor is a party
might “force unwilling parties to arbitrate a matter they to the agreement. Having elided this rather important fact
reasonably would have thought a judge ... would decide.” for much of its analysis, the majority finally “relax[es] [its]
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945, ordinary contract assumption and ask[s] whether the fact
115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). that the document before us is a treaty makes a critical
difference to [its] analysis.” Ante, at 1208. It should come
Accordingly, if the local litigation requirement at issue as no surprise that, after starting down the wrong road,
here were labeled a condition on the treaty parties' the majority ends up at the wrong place.
“consent” to arbitrate, that would in my view change the
analysis as to whether the parties intended the requirement I would start with the document that is before us and
to be interpreted by a court or an arbitrator. As it take it on its own terms. That document is a bilateral
is, however, all parties agree that the local litigation investment treaty between the United Kingdom and
requirement is not so denominated. See Agreement for Argentina, in which Argentina agreed to take steps to
the Promotion and Protection of Investments, Art. 8(2), encourage U.K. investors to invest within its borders (and
Dec. 11, 1990, 1765 U.N.T.S. 38. Nor is there compelling the United Kingdom agreed to do the same with respect
reason to suppose the parties silently intended to make it to Argentine investors). Agreement for the Promotion
a condition on their consent to arbitrate, given that a local and Protection of Investments, Dec. 11, 1990, 1765
court's decision is of no legal significance under the treaty, U.N.T.S. 33 (Treaty). The Treaty does indeed contain
ante, at 1207 – 1208, and given that the entire purpose of a completed agreement for arbitration—between the
bilateral investment agreements is to “reliev[e] investors of signatory countries. Art. 9. The Treaty also includes, in
any concern that the courts of host countries will be unable Article 8, certain provisions for resolving any disputes that
or unwilling to provide justice in a dispute between a might arise between a signatory country and an investor,
foreigner and their own government,” Brief for Professors who is not a party to the agreement.
and Practitioners of Arbitration Law as Amici Curiae 6.
Moreover, Argentina's conduct confirms that the local One such provision—completely ignored by the Court in
litigation requirement is not a condition on consent, for its analysis—specifies that disputes may be resolved by
rather than objecting to arbitration on the ground that arbitration when the host country and an investor “have
there was no binding arbitration agreement to begin with, so agreed.” Art. 8(2)(b), 1765 U.N.T.S. 38. No one doubts
Argentina actively participated in the constitution of the that, as is the normal rule, whether there was such an
arbitral panel and in the proceedings that followed. See agreement is for a court, not an arbitrator, *1216 to
Eastern Airlines, Inc. v. Floyd, 499 U.S. 530, 546, 111 S.Ct. decide. See First Options of Chicago, Inc. v. Kaplan, 514
1489, 113 L.Ed.2d 569 (1991) (treaty interpretation can be U.S. 938, 943–945, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
informed by parties' postenactment conduct). 1
When there is no express agreement between the host
*1215 In light of these many indicators that Argentina country and an investor, they must form an agreement
and the United Kingdom did not intend the local in another way, before an obligation to arbitrate arises.
litigation requirement to be a condition on their consent The Treaty by itself cannot constitute an agreement to
to arbitrate, and on the understanding that the Court does arbitrate with an investor. How could it? No investor is a
not pass on the weight courts should attach to a treaty's party to that Treaty. Something else must happen to create
use of the term “consent,” I concur in the Court's opinion. an agreement where there was none before. Article 8(2)
(a) makes clear what that something is: An investor must
submit his dispute to the courts of the host country. After
18 months, or an unsatisfactory decision, the investor may
Chief Justice ROBERTS, with whom Justice KENNEDY then request arbitration.
joins, dissenting.
The Court begins by deciding a different case, “initially Submitting the dispute to the courts is thus a condition
treat[ing] the document before us as if it were an ordinary to the formation of an agreement, not simply a matter
contract between private parties.” Ante, at 1206. The of performing an existing agreement. Article 8(2)(a)
“document before us,” of course, is nothing of the sort.

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constitutes in effect a unilateral offer to arbitrate, which anywhere in the world, solely at the option of private
an investor may accept by complying with its terms. To parties.
be sure, the local litigation requirement might not be
absolute. In particular, an investor might argue that it
was an implicit aspect of the unilateral offer that he be
A
afforded a reasonable opportunity to submit his dispute to
the local courts. Even then, however, the question would The majority focuses throughout its opinion on what
remain whether the investor has managed to form an it calls the Treaty's “arbitration clause,” ante, at 1203,
arbitration agreement with the host country pursuant to but that provision does not stand alone. Rather, it is
Article 8(2)(a). That question under Article 8(2)(a) is— only part—and a subordinate part at *1217 that—of
like the same question under Article 8(2)(b)—for a court, a broader dispute resolution provision. Article 8 is thus
not an arbitrator, to decide. I respectfully dissent from the entitled “Settlement of Disputes Between an Investor
Court's contrary conclusion. and the Host State,” and it opens without so much
as mentioning arbitration. 1765 U.N.T.S. 37. Instead
it initially directs any disputing investor and signatory
I country (what the Treaty calls a “Contracting Party”)
to court. When “an investor of one Contracting Party
The majority acknowledges—but fails to heed—“the first and the other Contracting Party” have an investment-
principle that underscores all of our arbitration decisions: related dispute that has “not been amicably settled,” the
Arbitration is strictly ‘a matter of consent.’ ” Granite Rock Treaty commands that the dispute “shall be submitted,
Co. v. Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177 at the request of one of the Parties to the dispute, to
L.Ed.2d 567 (2010) (quoting Volt Information Sciences, the decision of the competent tribunal of the Contracting
Inc. v. Board of Trustees of Leland Stanford Junior Univ., Party in whose territory the investment was made.” Art.
489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 8(1), id., at 37–38. (emphasis added). This provision could
(1989)); see ante, at 1206 – 1207. We have accordingly not be clearer: Before taking any other steps, an aggrieved
held that arbitration “is a way to resolve those disputes investor must submit its dispute with a Contracting Party
—but only those disputes—that the parties have agreed to that Contracting Party's own courts.
to submit to arbitration.” First Options of Chicago, Inc.,
supra, at 943, 115 S.Ct. 1920. The same “first principle” There are two routes to arbitration in Article 8(2)(a),
underlies arbitration pursuant to bilateral investment and each passes through a Contracting Party's domestic
treaties. See C. Dugan, D. Wallace, N. Rubins, & B. courts. That is, the Treaty's arbitration provisions in
Sabahi, Investor–State Arbitration 219 (2008) (Dugan); Article 8(2)(a) presuppose that the parties have complied
J. Salacuse, The Law of Investment Treaties 385 (2010); with the local litigation provision in Article 8(1).
K. Vandevelde, Bilateral Investment Treaties: History, Specifically, a party may request arbitration only (1) “after
Policy, and Interpretation 433 (2010). So only if Argentina a period of eighteen months has elapsed from the moment
agreed with BG Group to have an arbitrator resolve their when the dispute was submitted to the competent tribunal
dispute did the arbitrator in this case have any authority of the Contracting Party in whose territory the investment
over the parties. was made” and “the said tribunal has not given its final
decision,” Art. 8(2)(a)(i), id., at 38, or (2) “where the final
The majority opinion nowhere explains when and how decision of the aforementioned tribunal has been made
Argentina agreed with BG Group to submit to arbitration. but the Parties are still in dispute,” Art. 8(2)(a)(ii), ibid.
Instead, the majority seems to assume that, in agreeing Either way, the obligation to arbitrate does not arise until
with the United Kingdom to adopt Article 8 along with the the Contracting Party's courts have had a first crack at the
rest of the Treaty, Argentina thereby formed an agreement dispute.
with all potential U.K. investors (including BG Group) to
submit all investment-related disputes to arbitration. That Article 8 provides a third route to arbitration in paragraph
misunderstands Article 8 and trivializes the significance 8(2)(b)—namely, “where the Contracting Party and the
to a sovereign nation of subjecting itself to arbitration investor of the other Contracting Party have so agreed.”
Ibid. In contrast to the two routes in Article 8(2)(a),

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this one does not refer to the local litigation provision. accept Argentina's offer, an investor must therefore first
That omission is significant. It makes clear that an litigate its dispute in Argentina's courts—either to a “final
investor can bypass local litigation only by obtaining the decision” or for 18 months, whichever comes first. Unless
Contracting Party's explicit agreement to proceed directly the investor does so (or, perhaps, establishes a valid excuse
to arbitration. Short of that, an investor has no choice for failing to do so, as discussed below, see infra, at
but to litigate in the Contracting Party's courts for at least 17), it has not accepted the terms of Argentina's offer
some period. to arbitrate, and thus has not formed an arbitration
agreement with Argentina. 1
The structure of Article 8 confirms that the routes
to arbitration in paragraph (2)(a) are just as much Although the majority suggests that the local litigation
about eliciting a Contracting Party's consent to arbitrate requirement would not be a “condition of consent” even
as the route in paragraph 8(2)(b). Under Article 8(2) if the Treaty explicitly called it one, the Court's holding is
(b), the requisite consent is demonstrated by a specific limited to treaties that contain no such clear statement. See
agreement. Under Article 8(2)(a), the requisite consent ante, at 1208 – 1210. But there is no reason to think that
is demonstrated by compliance with the requirement to such a clear statement should be required, for we generally
resort to a country's local courts. do not require “talismanic words” in treaties. Medellín v.
Texas, 552 U.S. 491, 521, 128 S.Ct. 1346, 170 L.Ed.2d
Whereas Article 8(2)(a) is part of a completed agreement 190 (2008). Indeed, another arbitral tribunal concluded
between Argentina and the United Kingdom, it that the local litigation requirement was a condition
constitutes only a unilateral standing offer by Argentina on Argentina's consent to arbitrate despite the absence
with respect to U.K. investors—an offer to submit to of the sort of clear statement apparently contemplated
arbitration where certain conditions are met. That is how by the majority. See ICS Inspection & Control Servs.
scholars understand arbitration provisions in bilateral Ltd. v. Argentine Republic, PCA Case No. 2010–9,
investment treaties in general. See Dugan 221; Salacuse Award on Jurisdiction, ¶ 262 (Feb. 10, 2012). Still other
381; Brief for Practitioners and Professors of International tribunals have reached the same conclusion with regard to
Arbitration Law as Amici Curiae 4. And it is how BG similar litigation requirements in other Argentine bilateral
Group itself describes this investment treaty in particular. investment treaties. See Daimler Financial Servs. AG v.
See Brief for Petitioner 43 (the Treaty is a “standing offer” Argentine Republic, ICSID Case No. ARB/05/1, Award,
by Argentina “to arbitrate”); Reply Brief 9 (same). ¶¶ 193, 194 (Aug. 22, 2012); Wintershall Aktiengesellschaft
v. Argentine Republic, ICSID Case No. ARB/04/14,
An offer must be accepted for a legally binding contract Award, ¶ 116 (Dec. 8, 2008).
to be formed. And it is an “undeniable principle of
the law of contracts, that an offer ... by one person to In the face of this authority, the majority quotes a treatise
another, imposes no obligation upon the former, until for the proposition that “ ‘[a] substantial body of arbitral
it is accepted by the latter, *1218 according to the authority from investor-state disputes concludes that
terms in which the offer was made. Any qualification compliance with procedural mechanisms in an arbitration
of, or departure from, those terms, invalidates the agreement (or bilateral investment treaty) is not ordinarily
offer.” Eliason v. Henshaw, 4 Wheat. 225, 228, 4 L.Ed. a jurisdictional prerequisite.’ ” Ante, at 1211 (quoting
556 (1819) (emphasis added). This principle applies to 1 G. Born, International Commercial Arbitration 842
international arbitration agreements just as it does to (2009)). But that simply restates the question. The whole
domestic commercial contracts. See Dugan 221–222; issue is whether the local litigation requirement is a
Salacuse 381; Schreuer, Consent to Arbitration, in The mere “procedural mechanism” or instead a condition on
Oxford Handbook of International Investment Law 830, Argentina's consent to arbitrate.
836–837 (P. Muchlinski, F. Ortino, & C. Schreuer eds.
2008). BG Group concedes that other terms of Article 8(1)
constitute conditions on Argentina's consent to arbitrate,
By incorporating the local litigation provision in Article even though they are not expressly labeled as such. See Tr.
8(1), paragraph 8(2)(a) establishes that provision as a of Oral Arg. 57 (“You have to be a U.K. investor, you
term of Argentina's unilateral offer to arbitrate. To have to have a treaty claim, you have to be suing another

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party to the treaty. And if those aren't true, then there is The law of international arbitration and domestic contract
no arbitration agreement ” (emphasis added)). The Court law lead to the same conclusion: Because paragraph (2)(a)
does not explain why the only other term—the litigation of Article 8 constitutes only a unilateral standing offer by
requirement—should be viewed differently. the Contracting Parties to each other's investors to submit
to arbitration under certain conditions, an investor cannot
*1219 Nor does the majority's reading accord with form an arbitration agreement with a Contracting Party
ordinary contract law, which treats language such as the under the Treaty until the investor accepts the actual terms
word “after” in Article 8(2)(a)(i) as creating conditions, of the Contracting Party's offer. Absent a valid excuse,
even though such language may not constitute a “clear that means litigating its dispute in the Contracting Party's
statement.” See 13 R. Lord, Williston on Contracts § courts to a “final decision” or, barring that, for at least 18
38:16 (4th ed. 2013). The majority seems to regard the months.
local litigation requirement as a condition precedent to
performance of the contract, rather than a condition
precedent to formation of the contract. Ante, at 1207
B
– 1208; see 13 Lord §§ 38:4, 38:7. But that cannot be.
Prior to the fulfillment of the local litigation requirement, The nature of the obligations a sovereign incurs in
there was no contract between Argentina and BG Group agreeing to arbitrate with a private party confirms that the
to be performed. The Treaty is not such an agreement, local litigation requirement is a condition on a signatory
since BG Group is of course not a party to the Treaty. country's consent to arbitrate, and not merely a condition
Neither the majority nor BG Group contends that the on performance of a pre-existing arbitration agreement.
agreement is under Article 8(2)(b), the provision that There are good reasons for any sovereign to condition its
applies “where the Contracting Party and the investor consent to arbitrate disputes on investors' first litigating
of the other Contracting Party have so agreed.” An their claims in the country's own courts for a specified
arbitration agreement must be formed, and Article 8(2)(a) period. It is no trifling matter for a sovereign nation
spells out how an investor may do that: by submitting the to subject itself to suit by private parties; we do not
dispute to local courts for 18 months or until a decision presume that any country—including our own—takes
is rendered. that step lightly. Cf. United States v. Bormes, 568 U.S.
––––, ––––, 133 S.Ct. 12, 16, 184 L.Ed.2d 317 (2012)
Moreover, the Treaty's local litigation requirement (Congress must “unequivocally express[ ]” its intent to
certainly does not resemble “time limits, notice, laches, waive the sovereign immunity of the United *1220
estoppel,” or the other kinds of provisions that are States (quoting United States v. Nordic Village, Inc., 503
typically treated as conditions on the performance of U.S. 30, 33, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992);
an arbitration agreement, rather than prerequisites to internal quotation marks omitted)). But even where a
formation. Revised Uniform Arbitration Act of 2000 § sovereign nation has subjected itself to suit in its own
6(c), Comment 2, 7 U.L.A. 26 (2009). Unlike a time courts, it is quite another thing for it to subject itself
limit for submitting a claim to arbitration, see Howsam to international arbitration. Indeed, “[g]ranting a private
v. Dean Witter Reynolds, Inc., 537 U.S. 79, 85, 123 S.Ct. party the right to bring an action against a sovereign
588, 154 L.Ed.2d 491 (2002), the litigation requirement state in an international tribunal regarding an investment
does not simply regulate the timing of arbitration. As the dispute is a revolutionary innovation” whose “uniqueness
majority recognizes, ante, at 1210 – 1212, the provision and power should not be over-looked.” Salacuse 137. That
does not simply require the parties to wait for 18 months is so because of both the procedure and substance of
before proceeding to arbitration, but instead requires investor-state arbitration.
them to submit their claims for adjudication during that
period. And unlike a mandatory pre-arbitration grievance Procedurally, paragraph (3) of Article 8 designates the
procedure, see John Wiley & Sons, Inc. v. Livingston, 376 Arbitration Rules of the United Nations Commission on
U.S. 543, 556–559, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964), International Trade Law (UNCITRAL) as the default
the litigation requirement sends the parties to court—and rules governing the arbitration. Those rules authorize the
not just any court, but a court of the host country. Secretary–General of the Permanent Court of Arbitration
at The Hague to designate an “appointing authority” who

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—absent agreement by the parties—can select the sole particular foreign investors to be different in kind and to
arbitrator (or, in the case of a three-member tribunal, require special limitations on its use.
the presiding arbitrator, where the arbitrators nominated
by each of the parties cannot agree on a presiding The majority regards the local litigation requirement as
arbitrator). UNCITRAL Arbitration Rules, Arts. 6, 8–9 toothless simply because *1221 the Treaty does not
(rev. 2010 ed.). The arbitrators, in turn, select the site of require an arbitrator to “give substantive weight to
the arbitration (again, absent an agreement by the parties) the local court's determinations on the matters at issue
and enjoy broad discretion in conducting the proceedings. between the parties,” ante, at 1207; see also ante, at 1207,
Arts. 18, 17(1). but instead provides that “[t]he arbitration decision shall
be final and binding on both Parties,” Art. 8(4), 1765
Substantively, by acquiescing to arbitration, a state U.N.T.S. 38. While it is true that an arbitrator need not
permits private adjudicators to review its public policies defer to an Argentine court's judgment in an investor
and effectively annul the authoritative acts of its dispute, that does not deprive the litigation requirement
legislature, executive, and judiciary. See Salacuse 355; of practical import. Most significant, the Treaty provides
G. Van Harten, Investment Treaty Arbitration and that an “arbitral tribunal shall decide the dispute in
Public Law 65–67 (2007). Consider the dispute that accordance with ... the laws of the Contracting Party
gave rise to this case: Before the arbitral tribunal, involved in the dispute.” Art. 8(4), ibid. I doubt that a
BG Group challenged multiple sovereign acts of tribunal would give no weight to an Argentine court's
the Argentine Government taken after the Argentine authoritative construction of Argentine law, rendered in
economy collapsed in 2001—in particular, Emergency the same dispute, just because it might not be formally
Law 25,561, which converted dollar-denominated tariffs bound to adopt that interpretation.
into peso-denominated tariffs at a rate of one Argentine
peso to one U.S. dollar; Resolution 308/02 and Decree The local litigation requirement can also help to narrow
1090/02, which established a renegotiation process for the range of issues that remain in controversy by the time
public service contracts; and Decree 214/02, which stayed a dispute reaches arbitration. It might even induce the
for 180 days injunctions and the execution of final parties to settle along the way. And of course the investor
judgments in lawsuits challenging the effects of the might prevail, which could likewise obviate the need for
Emergency Law. Indeed, in awarding damages to BG arbitration. Cf. McKart v. United States, 395 U.S. 185,
Group, the tribunal held that the first three of these 195, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969).
enactments violated Article 2 of the Treaty. See App. to
Pet. for Cert. 241a–242a, 305a. None of this should be interpreted as defending
Argentina's history when it comes to international
Perhaps they did, but that is not the issue. Under Article investment. That history may prompt doubt that requiring
8, a Contracting Party grants to private adjudicators not an investor to resort to that country's courts in the first
necessarily of its own choosing, who can meet literally instance will be of any use. But that is not the question.
anywhere in the world, a power it typically reserves to its Argentina and the United Kingdom reached agreement on
own courts, if it grants it at all: the power to sit in judgment the term at issue. The question can therefore be rephrased
on its sovereign acts. Given these stakes, one would as whether it makes sense for either Contracting Party
expect the United Kingdom and Argentina to have taken to insist on resort to its courts before being compelled
particular care in specifying the limited circumstances in to arbitrate anywhere in the world before arbitrators not
which foreign investors can trigger the Treaty's arbitration of its choosing. The foregoing reasons may seem more
process. And that is precisely what they did in Article 8(2) compelling when viewed apart from the particular episode
(a), requiring investors to afford a country's own courts before us.
an initial opportunity to review the country's enactments
and assess the country's compliance with its international
obligations. Contrast this with Article 9, which provides
II
for arbitration between the signatory countries of disputes
under the Treaty without any preconditions. Argentina Given that the Treaty's local litigation requirement is a
and the United Kingdom considered arbitration with condition on consent to arbitrate, it follows that whether

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 18
BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

an investor has complied with that requirement is a Argentina and BG Group at all. Cf. ante, at 1213 – 1214
question a court must decide de novo, rather than an (SOTOMAYOR, J., concurring in part) (“Consent is
issue for the arbitrator to decide subject only to the most especially salient in the context of a bilateral investment
deferential judicial review. See, e.g., Adams v. Suozzi, 433 treaty, where the treaty is not an already agreed-upon
F.3d 220, 226–228 (C.A.2 2005) (holding that compliance arbitration provision between known parties”).
with a condition on formation of an arbitration agreement
is for a court, rather than an arbitrator, to determine). The The majority never even starts down this path. Instead,
logic is simple: Because an arbitrator's authority depends it preempts the whole inquiry by concluding that the
on the consent of the parties, the arbitrator should not as a local litigation requirement is the kind of “procedural
rule be able to decide for himself whether the parties have precondition” that parties typically expect an arbitrator to
in fact consented. Where the consent of the parties is in enforce. Ante, at 1207 – 1208. But as explained, the local
question, “reference of the gateway dispute to the court litigation requirement does not resemble the requirements
avoids the risk of forcing parties to arbitrate a matter that we have previously deemed presumptively procedural. See
they may well not have agreed to arbitrate.” Howsam, 537 supra, at 1219. It does not merely regulate the timing of
U.S., at 83–84, 123 S.Ct. 588. arbitration. Nor does it send the parties to non-judicial
forms of dispute resolution.
This principle is at the core of our arbitration precedents.
See Granite Rock Co., 561 U.S., at 299, 130 S.Ct. More importantly, all of the cases cited by the majority
2847 (questions concerning “the formation of the parties' as examples of procedural provisions involve commercial
arbitration agreement” are for a court to decide de contracts between two private parties. See ante, at 1207
novo ). The same principle is also embedded in the – 1208. None of them—not a single one—involves an
law of international commercial arbitration. 2 Born agreement between sovereigns or an agreement to which
2792 (“[W]here one party denies ever having made an the person seeking to compel arbitration is not even a
arbitration agreement or challenges the validity of any party. The Treaty, of course, is both of those things.
such agreement, ... the possibility of de novo judicial
review of any jurisdictional award in an annulment action The majority suggests that I am applying “a different
is logically necessary”). See also Restatement (Third) kind of analysis” from that governing private commercial
of U.S. Law of International Commercial Arbitration contracts, just because what is at issue is a treaty. Ante,
*1222 § 4–12(d)(1) (Tent. Draft No. 2, Apr. 16, 2012) (“a at 1210 – 1211. That is not so: The key point, which the
court determines de novo ... the existence of the arbitration majority never addresses, is that there is no completed
agreement”). agreement whatsoever between Argentina and BG Group.
An agreement must be formed, and whether that has
Indeed, the question in this case—whether BG Group happened is—as it is in the private commercial contract
accepted the terms of Argentina's offer to arbitrate— context—an issue for a court to decide. See supra, at 1221
presents an issue of contract formation, which is the – 1222.
starkest form of the question whether the parties have
agreed to arbitrate. In Howsam v. Dean Witter Reynolds, The distinction between questions concerning consent to
Inc., we gave two examples of questions going to consent, arbitrate and mere procedural requirements under an
which are for courts to decide: “whether the parties existing arbitration agreement can at times seem elusive.
are bound by a given arbitration clause” and “whether Even the most mundane procedural requirement can be
an arbitration clause in a concededly binding contract recast as a condition on consent as a matter of technical
applies to a particular type of controversy.” 537 U.S., logic. But it should be clear by now that the Treaty's
at 84, 123 S.Ct. 588. In both examples, there is at least local litigation requirement is not a mere formality—not
a putative arbitration agreement between the parties to in Buenos Aires, not in London. And while it is true that
the dispute. The only question is whether the agreement “parties often submit important matters to arbitration,”
is truly binding or whether it covers the specific dispute. ante, at 1209, our precedents presume that parties do not
Here, by contrast, the question is whether the arbitration submit to arbitration the most important matter of all:
clause in the Treaty between the United Kingdom and whether they are subject to an agreement to arbitrate in
Argentina gives rise to an arbitration agreement between the first place.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 19
BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

665 F.3d 1363, 1371–1373 (C.A.D.C.2012). At the same
time, however, the court seems to have simply taken it for
Nor has the majority pointed to evidence that would rebut
granted that, because BG Group did not submit its dispute
this presumption by showing that Argentina “ ‘clearly and
to the local courts, the arbitral award in BG Group's favor
*1223 unmistakably’ ” intended to have an arbitrator
was invalid. Indeed, the court addressed the issue in a
enforce the litigation requirement. Howsam, supra, at 83,
perfunctory paragraph at the end of its opinion and saw
123 S.Ct. 588 (quoting AT & T Technologies, Inc. v.
“ ‘only one possible outcome’ ”: “that BG Group was
Communications Workers, 475 U.S. 643, 649, 106 S.Ct.
required to commence a lawsuit in Argentina's courts and
1415, 89 L.Ed.2d 648 (1986)). As the majority notes, ante,
wait eighteen months before filing for arbitration.” Id., at
at 1210, the Treaty incorporates certain arbitration rules
1373 (quoting Stolt–Nielsen S.A. v. AnimalFeeds *1224
that, in turn, authorize arbitrators to determine their own
Int'l Corp., 559 U.S. 662, 677, 130 S.Ct. 1758, 176 L.Ed.2d
jurisdiction over a dispute. See Art. 8(3). But those rules
605 (2010)).
do not operate until a dispute is properly before an arbitral
tribunal, and of course the whole question in this case is
That conclusion is not obvious. A leading treatise has
whether the dispute between BG Group and Argentina
indicated that “[i]t is a necessary implication from [a
was before the arbitrators, given BG Group's failure to
unilateral] offer that the offeror, in addition, makes a
comply with the 18–month local litigation requirement.
subsidiary offer by which he or she promises to accept
As a leading treatise has explained, “[i]f the parties have
a tender of performance.” 1 Lord § 5:14, at 1005. On
not validly agreed to any arbitration agreement at all,
this understanding, an offeree's failure to comply with an
then they also have necessarily not agreed to institutional
essential condition of the unilateral offer “will not bar an
arbitration rules.” 1 Born 870. “In these circumstances,
action, if failure to comply with the condition is due to the
provisions in institutional rules cannot confer any [such]
offeror's own fault.” Id., at 1005–1006.
authority upon an arbitral tribunal.” Ibid.

It would be open to BG Group to argue before the
I also see no reason to think that arbitrators enjoy
Court of Appeals that this principle was incorporated
comparative expertise in construing the local litigation
into Article 8(2)(a) as an implicit aspect of Argentina's
requirement. Ante, at 1210. It would be one thing if
unilateral offer to arbitrate. Such an argument would find
that provision involved the application of the arbitrators'
some support in the background principle of customary
own rules, cf. Howsam, supra, at 85, 123 S.Ct. 588, or if
international law that a foreign individual injured by a
it were “intertwined” with the merits of the underlying
host country must ordinarily exhaust local remedies—
dispute, John Wiley & Sons, 376 U.S., at 557, 84 S.Ct.
unless doing so would be “futile.” See Dugan 347–357. In
909. Neither is true of the litigation requirement. A court
any event, the issue would be analyzed as one of contract
can assess compliance with the requirement at least as
formation, and therefore would be for the court to decide.
well as an arbitrator can. Given the structure of Article 8
I would accordingly vacate the decision of the Court of
and the important interests that the litigation requirement
Appeals and remand the case for such an inquiry.
protects, it seems clear that the United Kingdom and
Argentina thought the same. 2
I respectfully dissent.

III All Citations

Although the Court of Appeals got there by a slightly 134 S.Ct. 1198, 188 L.Ed.2d 220, 82 USLW 4166, 14 Cal.
different route, it correctly concluded that a court Daily Op. Serv. 2337, 2014 Daily Journal D.A.R. 2692, 24
must decide questions concerning the interpretation and Fla. L. Weekly Fed. S 599
application of the local litigation requirement de novo.

Footnotes

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BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198 (2014)
188 L.Ed.2d 220, 82 USLW 4166, 14 Cal. Daily Op. Serv. 2337...

* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 The dissent discounts the significance of Argentina's conduct on the ground that Argentina “object[ed] to the [arbitral]
tribunal's jurisdiction to hear the dispute.” Post, at 1223, n. 2. But there is a difference between arguing that a party has
failed to comply with a procedural condition in a binding arbitration agreement and arguing that noncompliance with the
condition negates the existence of consent to arbitrate in the first place. Argentina points to no evidence that its objection
was of the consent variety. This omission is notable because Argentina knew how to phrase its arguments before the
arbitrators in terms of consent; it argued separately that it had not consented to arbitration with BG Group on the ground
that BG was not a party to the license underlying the dispute. See App. to Pet. for Cert. 182a–186a. First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), is not to the contrary, as that case held
that “arguing the arbitrability issue to an arbitrator” did not constitute “clea[r] and unmistakabl[e]” evidence sufficient to
override an indisputably applicable presumption that a court was to decide whether the parties had agreed to arbitration.
Id., at 944, 946, 115 S.Ct. 1920. The question here, by contrast, is whether that presumption attaches to begin with—
that is, whether the local litigation requirement was a condition on Argentina's consent to arbitrate (which would trigger
the presumption) or a procedural condition in an already binding arbitration agreement (which would not). That Argentina
apparently took the latter position in arbitration is surely relevant evidence that the condition was, in fact, not one on
its consent.
1 To be clear, the only question is whether BG Group formed an arbitration agreement with Argentina. To say that BG
Group never formed such an agreement is not to call into question the validity of its various commercial agreements
with Argentina.
2 Justice SOTOMAYOR contends that “Argentina's conduct confirms that the local litigation requirement is not a condition
on consent, for rather than objecting to arbitration on the ground that there was no binding arbitration agreement to begin
with, Argentina actively participated in the constitution of the arbitral panel and in the proceedings that followed.” Ante,
at 1214 (opinion concurring in part). But as the arbitral tribunal itself recognized, Argentina did object to the tribunal's
jurisdiction to hear the dispute. App. to Pet. for Cert. 99a, 134a, 143a, 161a–163a. And we have held that “merely arguing
the arbitrability issue to an arbitrator”—say, by “filing with the arbitrators a written memorandum objecting to the arbitrators'
jurisdiction”—“does not indicate a clear willingness to arbitrate that issue, i.e., a willingness to be effectively bound by
the arbitrator's decision on that point.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 946, 115 S.Ct. 1920, 131
L.Ed.2d 985 (1995). The concurrence contends that Argentina “apparently” argued its jurisdictional objection in terms
of procedure rather than consent, ante, at 1205, n., but the one piece of evidence cited—a negative inference from the
arbitrator's characterization of Argentina's argument on a subsidiary issue—hardly suffices to distinguish First Options.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 21
Bonded Builders Home Warranty Association of Texas, Inc...., 488 S.W.3d 468 (2016)
2016 WL 1612916

Practices Act under statutes that entitled prevailing party
to recover reasonable attorney fees; and
488 S.W.3d 468
Court of Appeals of Texas,
[7] invalid attorney fees clause of arbitration agreement
Dallas.
was severable from remainder of otherwise valid
Bonded Builders Home Warranty agreement.
Association of Texas, Inc. d/b/a Bonded
Builders Warranty Group, Appellant
Reversed and remanded.
v.
James B. Smith and Michelle Eyrich, Appellees

No. 05–15–00964–CV West Headnotes (26)
|
Opinion Filed April 21, 2016.
[1] Alternative Dispute Resolution
Synopsis Validity
Background: Purchasers of new home filed suit against Alternative Dispute Resolution
builder arising out of construction defects, and against Disputes and Matters Arbitrable Under
corporation that issued warranty based on claims of Agreement
breach of warranty and violations of Texas Deceptive In general, a party seeking to compel
Trade Practices Act (DTPA). Corporation filed motion arbitration under the Federal Arbitration Act
to compel arbitration. The 95th Judicial District Court, (FAA) must establish (1) the existence of a
Dallas County, denied motion to compel, and corporation valid, enforceable arbitration agreement and
appealed. (2) that the claims at issue fall within that
agreement's scope. 9 U.S.C.A. § 1 et seq.

3 Cases that cite this headnote
Holdings: The Court of Appeals, Lang, J., held that:

[1] omission of identity of arbitrator and rules of [2] Alternative Dispute Resolution
arbitration did not render arbitration agreement invalid; Evidence
The party seeking to avoid arbitration bears
[2] arbitration agreement was not invalid based on the burden of proving its defenses against
purchasers' unsupported assertion that it gave corporation enforcing an otherwise valid arbitration
exclusive authority to select arbitrators; provision.

[3] denial of motion to compel was abuse of discretion to Cases that cite this headnote
extent that it was based on finding that agreement was
procedurally unconscionable due to “gross disparity”;
[3] Alternative Dispute Resolution
Validity
[4] agreement was not unconscionable based on purely
speculative assertions by purchasers; Arbitration agreements are enforceable only
if they meet the requirements of the general
[5] to extent that purchasers complained of “General contract law of the applicable state.
Conditions” of warranty, such matters were for arbitrator
Cases that cite this headnote
to address in first instance;

[6] attorney fees provision of agreement was [4] Alternative Dispute Resolution
unenforceable with respect to claims for breach of What law governs
contract and violations of Texas Deceptive Trade

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2016 WL 1612916

When determining whether an agreement a transaction so one-sided, with so gross a
to arbitrate is valid, state law, whether of disparity in the values exchanged, that no
legislative or judicial origin, is applicable if rational contracting party would have entered
that law arose to govern issues concerning the contract.
the validity, revocability, and enforceability of
contracts generally. Cases that cite this headnote

Cases that cite this headnote
[10] Alternative Dispute Resolution
Unconscionability
[5] Contracts In applying the unconscionability standard to
Unconscionable Contracts an arbitration agreement, the crucial inquiry
Texas law renders unconscionable contracts is whether the arbitral forum in a particular
unenforceable. case is an adequate and accessible substitute
to litigation, a forum where the litigant can
Cases that cite this headnote effectively vindicate his or her rights, and this
inquiry is not satisfied by speculation but by
[6] Alternative Dispute Resolution specific proof in the particular case of the
Unconscionability arbitral forum's inadequacy.
Arbitration agreements may be either Cases that cite this headnote
substantively or procedurally unconscionable,
or both.
[11] Alternative Dispute Resolution
Cases that cite this headnote Contractual or consensual basis
An arbitration agreement need not be in any
[7] Alternative Dispute Resolution particular form, but no party is under a duty
Unconscionability to arbitrate unless by clear language he has
so agreed, and it must clearly appear that the
“Substantive unconscionability” of an
intention of the parties was to submit their
arbitration agreement refers to the fairness
dispute to the arbitrators and to be bound by
of the arbitration provision itself, whereas
that decision.
“procedural unconscionability” refers to the
circumstances surrounding adoption of the Cases that cite this headnote
arbitration provision.

Cases that cite this headnote [12] Alternative Dispute Resolution
Nature, purpose, and right to arbitration
in general
[8] Alternative Dispute Resolution
Evidence The essence of arbitration is the submission of
the controversy to a third party. 9 U.S.C.A. §
A party seeking to avoid arbitration on
2.
unconscionability grounds bears the burden
of proof. Cases that cite this headnote
Cases that cite this headnote
[13] Alternative Dispute Resolution
In general; formation of agreement
[9] Contracts
Unconscionable Contracts Identity of arbitrator and rules and costs
of arbitration were not essential terms of
The theory behind unconscionability in
arbitration agreement in warranty issued
contract law is that courts should not enforce
to purchasers of new home, and therefore,

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2016 WL 1612916

absence of such information did not render and presented no evidence in support of such
agreement invalid. claim.

Cases that cite this headnote Cases that cite this headnote

[14] Alternative Dispute Resolution [17] Alternative Dispute Resolution
In general; formation of agreement Unconscionability
Arbitration agreement in warranty issued Arbitration agreement in warranty issued to
to purchasers of new home was not purchasers of new home, which provided that,
impermissibly vague, based on purchasers' when arbitration was requested, warranty
allegation that it failed to identify any corporation would provide to purchasers list
arbitrator, arbitration body, or arbitral rules; of approved arbitrators for purchasers to
agreement provided method for selecting select from, and that arbitration would be
an arbitration company, which company's governed by rules of selected arbitrator, was
rules would apply, and agreement did not not unconscionable, based on purchasers'
designate particular rules that were known to assertions that corporation controlled pool
be nonexistent. of potential arbitrators and therefore, dispute
would not be resolved by neutral party, that
Cases that cite this headnote corporation intended to control every aspect
of arbitration process, and that purchasers
[15] Alternative Dispute Resolution could face fees “north of $100,00” by
Validity conclusion of arbitration; because purchasers
had not requested arbitration before filing suit
Arbitration agreement in warranty issued to
against corporation for breach of warranty,
purchasers of new home was not invalid
no list of approved arbitrators was provided
based on purchasers' unsupported assertion
to them, and therefore, purchasers' assertions
that it gave warranty corporation exclusive
about partiality of potential arbitrators
authority to select arbitrators; rather,
amounted to nothing more than pure
under arbitration agreement, once claim
speculation, and “risk” of possible costs
was submitted under warranty, corporation
of arbitration, without any documentary
provided purchasers with list of approved
evidence as to actual costs that purchasers
arbitration companies for purchasers to select
could incur, was insufficient to prove that
from.
arbitration fees that purchasers would incur
Cases that cite this headnote were excessive.

Cases that cite this headnote
[16] Alternative Dispute Resolution
Unconscionability
[18] Alternative Dispute Resolution
To extent that trial court determined that
Unconscionability
arbitration agreement in warranty issued to
Excessive costs imposed by an arbitration
purchasers of new home was procedurally
agreement render a contract unconscionable
unconscionable due to “gross disparity”
if the costs prevent a litigant from effectively
between parties, such determination was
vindicating his or her rights in the arbitral
abuse of discretion, given that purchasers
forum; however, evidence of the risk of
did not raise “procedural unconscionability”
possible costs of arbitration is insufficient
argument before trial court on warranty
evidence of the prohibitive cost of the
corporation's motion to compel arbitration
arbitration forum.
of purchasers' claim for breach of warranty,

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2016 WL 1612916

for the purposes of severability of the
Cases that cite this headnote invalid provision, depends upon whether
the remaining provisions are independent or
[19] Alternative Dispute Resolution mutually dependent promises, which courts
Evidence determine by looking to the language of
the contract itself; the relevant inquiry is
The party opposing arbitration based on an
whether or not parties would have entered
assertion that agreement is unconscionable
into the agreement absent the unenforceable
because the costs of arbitration are prohibitive
provisions.
must show the likelihood of incurring such
costs in his particular case. Cases that cite this headnote
Cases that cite this headnote
[23] Alternative Dispute Resolution
Existence and validity of agreement
[20] Alternative Dispute Resolution
Evidence Alternative Dispute Resolution
Evidence
While claimants are not required to actually
incur the cost of arbitration before they When the parties have contracted for
can show its excessiveness, as a basis for arbitration of their disputes, a trial court
determining that the arbitration agreement may consider only issues relating to the
is unconscionable, the claimant must at making and performance of the agreement to
least provide evidence of the likely cost of arbitrate, and when authority over the matter
their particular arbitration, through invoices, is unclear, a strong federal presumption favors
expert testimony, reliable cost estimates, or arbitration.
other comparable evidence; evidence that
Cases that cite this headnote
merely speculates about the risk of possible
cost is insufficient.
[24] Alternative Dispute Resolution
Cases that cite this headnote Matters to Be Determined by Court
To extent that purchasers complained of
[21] Alternative Dispute Resolution “General Conditions” of warranty that issued
Validity on purchase of new home, such matters were
Alternative Dispute Resolution for arbitrator to address in first instance, and
Severability were not for trial court to resolve on warranty
corporation's motion to compel arbitration
An arbitration agreement covering statutory
of purchasers' claim for breach of warranty,
claims is generally invalid if it waives
where warranty's “General Conditions” was
substantive rights and remedies the statute
not within or specifically referenced by
affords; however, an illegal or unconscionable
arbitration clause, and therefore, complaints
provision of a contract may generally be
as to “General Conditions” was not challenge
severed so long as it does not constitute the
to arbitration clause itself.
essential purpose of the agreement.
Cases that cite this headnote
Cases that cite this headnote

[25] Alternative Dispute Resolution
[22] Contracts
Statutory rights and obligations
Partial Illegality
Provisions of arbitration agreement in
Whether or not the invalidity of a particular
warranty issued to purchasers of new home,
provision affects the rest of the contract,
stating that each party would pay their own

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2016 WL 1612916

attorney fees and expenses, and that arbitrator
had discretion to reallocate arbitration fees *472 On Appeal from the 95th Judicial District Court,
and expenses, save and except attorney fees, Dallas County, Texas, Trial Court Cause No. DC–15–
in interests of justice, were unenforceable 04117, Ken Molberg, Judge.
against purchasers; purchasers' claims against
Attorneys and Law Firms
warranty corporation included breach of
warranty and violations of Texas Deceptive William David Toney II, Adam Massey, Houston, TX, for
Trade Practices Act (DPTA) under statutes appellants.
that provided for recovery of attorney fees by
prevailing parties, and there was no evidence Cynthia C. Hollingsworth, Rachel E. Khirallah, William
that purchasers waived their statutory rights L. Wolf, Dallas, TX, for appellees.
to recover attorney fees. Tex. Civ. Prac. &
Before Justices Lang, Evans, and Whitehill
Rem. Code Ann. § 38.001; Tex. Bus. & C.
Code § 17.50.

Cases that cite this headnote OPINION

Opinion by Justice Lang
[26] Alternative Dispute Resolution
Statutory rights and obligations **1 In this interlocutory appeal, appellant Bonded
Clause of arbitration agreement in warranty Builders Home Warranty Association of Texas, Inc. d/b/a
issued to purchasers of new home stating Bonded Builders Warranty Group (“BBWG”) challenges
that each party would bear their own the trial court's denial of its motion to compel arbitration
attorney fees and expenses, and that arbitrator in a lawsuit filed by James B. Smith and Michelle Eyrich
had discretion to reallocate arbitration fees (“appellees” or “plaintiffs”) based on alleged defects in a
and expenses, save and except attorney home purchased by them.
fees, which clause was invalid with respect
to purchasers' claims against warranty We decide in favor of BBWG on its sole issue. We
corporation for breach of warranty and reverse the portion of the trial *473 court's order denying
violations of Texas Deceptive Trade Practices BBWG's motion to compel arbitration, order the severing
Act (DPTA) under statutes that provided of a portion of the arbitration provision in question and
for recovery of attorney fees by prevailing the granting of BBWG's motion to compel arbitration,
parties, was severable from remainder of and remand this case to the trial court for further
otherwise valid and enforceable arbitration proceedings consistent with this opinion.
agreement; arbitration agreement's essential
purpose was to provide for expedient and
efficient resolution of dispute arising out of I. FACTUAL AND PROCEDURAL BACKGROUND
warranty without resorting to legal action,
and effect of attorney fee clause on purchasers' In April 2013, appellees purchased a home from a builder,
statutory rights and remedies was nothing Regent Custom Homes (“Regent”). In connection with
more than peripheral concern to that essential that purchase, appellees obtained an “express limited
purpose. Tex. Civ. Prac. & Rem. Code Ann. § warranty” (the “Warranty”) issued by BBWG. The
38.001; Tex. Bus. & C. Code § 17.50. Warranty documentation set forth “general warranty
provisions” applicable here. 1
1 Cases that cite this headnote

**2 On April 10, 2015, appellees filed this lawsuit
against Regent 2 and BBWG. In their last-filed petition
at the time of the order complained of, appellees
contended in part that several months after purchase,

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2016 WL 1612916

they “began to notice serious defects” in their home, argued “[t]his entire arbitration clause is unconscionable,
including “significant foundation problems.” According and not capable of bits and pieces being severed.”
to appellees, after Regent “refused to assist” them, they
made a claim under the Warranty, which claim was Further, appellees contended “the unconscionability
rejected by BBWG. Appellees' petition asserted a cause of this clause is even more evident when it is
of action against BBWG for breach of contract based on taken into consideration with other terms in the
BBWG's “failing to accept Plaintiffs' valid and enforceable Warranty that dictate the terms of the arbitration.”
warranty claim.” Further, appellees asserted they “are Specifically, appellees complained of two provisions in
entitled to recover reasonable and necessary attorneys' the “General Conditions” section of the Warranty that
fees” as a result of BBWG's breach *474 of contract follows the Warranty's arbitration provision described
pursuant to section 38.001 of the Texas Civil Practice and above. 3 Appellees contended those two “General *475
Remedies Code. See TEX. CIV. PRAC. & REM. CODE Conditions” (1) improperly “limited Plaintiffs' claims to
ANN. § 38.001 (West 2015). only those dictated in the Warranty, expressly stating
regardless of the law” and (2) attempted to “eliminate”
BBWG filed a general denial answer. Also, BBWG their right to seek reimbursement of their attorney's fees
asserted (1) affirmative defenses in which it contended, in pursuant to the civil practice and remedies code and
part, that plaintiffs had committed a “material breach” the Texas Deceptive Trade Practices Act (“DTPA”).
of the Warranty and “failed to satisfy all conditions According to appellees, the “entire arbitration clause”
precedent” because they “failed to comply with the dispute and the two “additional conditions” in the Warranty that
process required by the Warranty” and (2) a claim for are “not part of the arbitration clause, but [apply] to the
“attorney's fees ... incurred in arbitration and in any arbitration clause,” are “grossly one-sided” and “meant to
litigation prior to or subsequent to arbitration” and “all oppress Plaintiffs” and “deter them from bringing claims
court and arbitration costs” pursuant to the terms of the against the Defendants.” In support of those arguments,
Warranty. appellees attached a copy of the Warranty and a printout
of a page from BBWG's website respecting “Dispute
Additionally, on July 29, 2015, BBWG filed a “plea Resolution.” The website page stated in part (1) BBWG
in abatement and motion to compel arbitration” in offers a “proven resolution process, Conciliation,” which
which it sought “an order compelling arbitration and is intended to “help all parties reach agreement without
abating all proceedings against all defendants pending an the additional cost, time, inconvenience or bad will of legal
arbitrator's award.” Therein, BBWG stated in part (1) action,” and (2) “[i]n an extreme case, if Conciliation does
“Plaintiffs' claims against BBWG arise exclusively out of not facilitate an agreeable and equitable outcome, you and
the Warranty Document”; (2) “there is no valid defense your builder may request arbitration by a professional
to enforceability of the arbitration agreement”; and (3) independent organization.”
“[a]ccordingly, the Court should compel arbitration and
stay the proceedings.” **3 During the hearing on BBWG's plea in abatement
and motion to compel arbitration, appellees restated
Appellees filed a response to BBWG's plea in abatement their arguments described above. Then, counsel for
and motion to compel arbitration in which they asserted in BBWG argued in part (1) appellees' contentions respecting
part that the “entire arbitration clause” in the Warranty is selection of an arbitration company are “premature”
“unconscionable” because (1) it “requires Plaintiffs to ask because arbitration has not yet been requested by
an arbitrator to award damages against a company that appellees and therefore no list respecting this matter
is sending business to the arbitration company”; (2) “the has yet been compiled; (2) the arbitration provision in
rules that govern the arbitration are unknown until a pre- question allows for “selecting an arbitration company,”
approved arbitration company is selected, yet Plaintiffs rather than choosing from “a list of biased and unneutral
were not given access to those arbitration companies, or to individual arbitrators,” and is therefore distinguishable
their rules when they presumably agreed to this arbitration from the arbitration provisions in the authority relied
clause”; and (3) “to date, Plaintiffs are unable to access the upon by appellees; (3) pursuant to the severability clause
pre-approved companies or their rules.” Also, appellees described above, the trial court “could very easily strike”
any unenforceable portion of the arbitration provision

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and uphold the remainder of that provision; and (4) “We review an order denying a motion to compel
“the Texas Supreme Court has repeatedly stated that arbitration under an abuse of discretion standard.”
issues that go to contractual provisions other than the Morford v. Esposito Sec., LLC, No. 05–14–01223–CV,
arbitration provision are to be arbitrated” and are “not 2015 WL 5472640, at *4 (Tex.App.–Dallas Sept. 18, 2015,
even to be discussed or considered for purposes of no pet.) (mem.op.) (citing In re Labatt Food Serv., L.P.,
a Motion to Compel Arbitration.” Additionally, the 279 S.W.3d 640, 642–43 (Tex.2009) (orig.proceeding);
following exchange occurred between the trial court and Sidley Austin Brown & Wood, LLP v. J.A. Green Dev.
counsel for BBWG: Corp., 327 S.W.3d 859, 863 (Tex.App.–Dallas 2010, no
pet.)). We defer to the trial court's factual determinations
[COUNSEL FOR BBWG]: ... When we have an if they are supported by evidence, but we review the
arbitration company, such as ... AAA, for the trial court's legal determinations de novo. Id. (citing
homeowners to choose from, they then select the Labatt, 279 S.W.3d at 643; Sidley, 327 S.W.3d at 863);
arbitration company that they like best. They do that Tex. Health Res. v. Kruse, No. 05–13–01754–CV, 2014
by looking at that company's cost, that company's rules, WL 3408636, at *1 (Tex.App.–Dallas July 11, 2014, pet.
and making the best determination for them. denied) (mem.op.). “Whether an arbitration agreement is
enforceable is subject to de novo review.” Tex. Health
THE COURT: That's very generous of you. So if your
Res., 2014 WL 3408636, at *1 (citing Labatt, 279 S.W.3d
client decided—and I have some doubts that it would,
at 643).
but if your client decided to put AAA on this list, or
select AAA, because it's your right, they would have to
proceed under the Commercial Arbitration Rules?
B. Applicable Law
[COUNSEL FOR BBWG]: The warranty states that
the arbitration will be conducted under the arbitration [1] [2] In general, a party seeking to compel arbitration
company's rules in effect at the time of the arbitration. under the Federal Arbitration Act (“FAA”) must
establish (1) the existence of a valid, enforceable
THE COURT: So in a case like this where it deals with arbitration agreement and (2) that the claims at issue
this subject matter, their filing fee would be about what?
fall within that agreement's scope. 5 Pilot Travel Ctrs.,
$10,000?
LLC v. McCray, 416 S.W.3d 168, 177 (Tex.App.–Dallas
[COUNSEL FOR BBWG]: Your Honor, I'm not aware 2013, no pet.) (citing In re Kellogg Brown & Root, Inc.,
of the exact cost. It would depend on the company that 166 S.W.3d 732, 737 (Tex.2005) (orig.proceeding)); see
they chose. also J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227
(Tex.2003) (although there is strong presumption favoring
THE COURT: So they would—by the time this was arbitration, that presumption arises only after party
over, they would spend *476 easily north of $100,000 seeking to compel arbitration proves valid arbitration
to arbitrate this case. 4 agreement exists). The party seeking to avoid arbitration
then bears the burden of proving its defenses against
Following the hearing, BBWG's motion was “denied in enforcing the otherwise valid arbitration provision.
its entirety” by the trial court. This interlocutory appeal Pilot Travel Ctrs., 416 S.W.3d at 177 (citing In
timely followed. See TEX. CIV. PRAC. & REM. CODE re AdvancePCS Health, L.P., 172 S.W.3d 603, 607
ANN. § 51.016 (West 2015); 9 U.S.C. § 16 (2012). (Tex.2005) (orig.proceeding)). A court has no discretion
and must compel arbitration if it is established that there
is a valid arbitration agreement and the claims raised fall
within the scope of that agreement. See id.
II. DENIAL OF BBWG'S MOTION
TO COMPEL ARBITRATION **4 [3] [4] [5] Section 2 of the FAA states that
“[a] written provision in any ... contract evidencing a
A. Standard of Review transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or
transaction ... shall be valid, irrevocable, and enforceable,

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save upon such grounds as exist at law or in equity for
the revocation of any contract.” 9 U.S.C. § 2; *477
C. Application of Law to Facts
In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883,
891 (Tex.2010) (orig.proceeding). Such agreements are In its sole issue on appeal, BBWG asserts the trial
enforceable only if they meet the requirements of the court abused its discretion by denying BBWG's motion
general contract law of the applicable state. Olshan, 328 to compel arbitration because (1) “BBWG conclusively
S.W.3d at 891. When determining whether an agreement established that Plaintiffs' claims fall squarely within the
to arbitrate is valid, state law, whether of legislative scope of a valid, enforceable arbitration agreement” and
or judicial origin, is applicable if that law arose to (2) “Plaintiffs failed to meet their burden of establishing
govern issues concerning the validity, revocability, and that the arbitration agreement is unconscionable.”
enforceability of contracts generally. Id. at 891–92. Texas
law renders unconscionable contracts unenforceable. Id. Appellees contend on appeal that BBWG did not prove
at 892. the existence of a valid agreement to arbitrate because
(1) the alleged agreement in question “lacks essential
[6] [7] [8] Arbitration agreements may be either terms rendering it impermissibly vague and invalid”;
substantively or procedurally unconscionable, or both. (2) BBWG's “exclusive right to choose the pool of
Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, arbitrators” renders the alleged agreement invalid; and
467 S.W.3d 494, 499 (Tex.2015) (citing In re Halliburton (3) “BBWG's system utterly fails to provide a neutral
Co., 80 S.W.3d 566, 572 (Tex.2002) (orig.proceeding) forum.” Additionally, appellees assert that even if this
(“[C]ourts may consider both procedural and substantive Court concludes there is an agreement to arbitrate,
unconscionability of an arbitration clause in evaluating the arbitration provision in question is unconscionable
the validity of an arbitration provision.”)). “Substantive because (1) it “permits [BBWG] to unilaterally select the
unconscionability refers to the fairness of the arbitration arbitrator”; (2) it “attempts to limit the statutory rights”
provision itself, whereas procedural unconscionability of appellees; and (3) there is a “gross disparity” between
refers to the circumstances surrounding adoption of appellees and BBWG.
the arbitration provision.” Id. (citing In re Palm
Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex.2006)
(orig.proceeding)). A party seeking to avoid arbitration on
1. Existence of Valid Agreement to Arbitrate
unconscionability grounds bears the burden of proof. See
In re Halliburton, 80 S.W.3d at 572. **5 [11] [12] We begin by considering whether the
record shows BBWG conclusively *478 established
[9] [10] The supreme court has stated that courts
the existence of a valid agreement to arbitrate. 6 See
“should be wary of setting the bar for holding arbitration
Pilot Travel Ctrs., 416 S.W.3d at 177. “The arbitration
clauses unconscionable too low.” Olshan, 328 S.W.3d at
agreement need not be in any particular form, but no
892. “[T]he theory behind unconscionability in contract
party is under a duty to arbitrate unless by clear language
law is that courts should not enforce a transaction so one-
he has so agreed, and it must clearly appear that the
sided, with so gross a disparity in the values exchanged,
intention of the parties was to submit their dispute to
that no rational contracting party would have entered
the arbitrators and to be bound by that decision.” Manes
the contract.” Id. “In applying the unconscionability
v. Dallas Baptist Coll., 638 S.W.2d 143, 145 (Tex.App.–
standard, the crucial inquiry is whether the arbitral forum
Dallas 1982, writ ref'd n.r.e.); accord In re Bates, 177
in a particular case is an adequate and accessible substitute
S.W.3d 419, 422 (Tex.App.–Houston [1st Dist.] 2005, orig.
to litigation, a forum where the litigant can effectively
proceeding) (“Although an arbitration agreement does
vindicate his or her rights.” Id. at 894. “That inquiry
not have to assume any particular form, the language
is not satisfied by speculation but by specific proof in
of the agreement must clearly indicate the intent to
the particular case of the arbitral forum's inadequacy.”
arbitrate.”). “The essence of arbitration is the submission
Venture Cotton Coop. v. Freeman, 435 S.W.3d 222, 232
of the controversy to a third party.” Manes, 638 S.W.2d
(Tex.2014) (citing Olshan, 328 S.W.3d at 896).
at 145; see also 9 U.S.C. § 2.

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As described above, the Warranty contains a written language (“the International Arbitration rules”) suggests
provision stating the parties agree that (1) “any that a particular set of arbitration rules would govern the
Dispute under any BBWG warranty” that “cannot be dispute; but, as it turns out, there are no rules called the
resolved by one of the Alternative Dispute Resolution ‘International Arbitration rules.’ ” Id. By contrast, the
processes described herein” will be submitted to “binding alleged arbitration agreement in the case before us (1)
arbitration” and (2) “[t]he decision of the arbitrator shall provides a method for selecting an arbitration company,
be final and binding on all parties.” which company's rules will apply to the arbitration, and
(2) does not designate particular rules that are known to be
[13] First, we address appellees' contention that the nonexistent. We cannot agree with appellees that Marks
alleged arbitration agreement before us is “not a valid supports their position respecting vagueness.
agreement to arbitrate” because it “lacks essential terms.”
Specifically, according to appellees, (1) it “fails to include **6 [15] Next, we address together appellees' remaining
material terms such as where the dispute is to be two arguments respecting the existence of a “valid
arbitrated, the identity of any arbitration company or the agreement to arbitrate.” Specifically, appellees contend
specific arbitrator(s), or the rules and costs of arbitration” (1) “[b]ecause the ‘agreement’ gives BBWG the sole
and (2) “[a]ll of these missing terms are ones that any authority to select the arbitrator(s), Appellees are denied
reasonable person would consider vitally important to an the opportunity to select an unbiased arbitrator,” and (2)
agreement to have their disputes heard in a forum other “BBWG's arbitration scheme is an inherently conflicted
than Texas courts.” However, appellees cite no authority, system, which creates a roadblock to neutrality and
and we have found none, to support their position that impartiality.” As to the first of those arguments, appellees
the terms described by them are “essential” as to an assert in part,
arbitration agreement. Cf. Goetz v. Goetz, 130 S.W.3d 359,
362 (Tex.App.–Houston [14th Dist.] 2004, pet. denied) BBWG controls the list of
(“the failure to identify an arbitrator, or even specify a arbitrators from which the
method for choosing one, does not render an arbitration arbitrator is selected, having
agreement unenforceably incomplete”); 9 U.S.C. § 5 (“If unrestricted and exclusive control
in the agreement provision be made for a method of of the arbitrator to be “chosen.”
naming or appointing an arbitrator or arbitrators or an BBWG does not provide a list
umpire, such method shall be followed; but if no method of approved arbitrators to the
be provided therein, ... then upon the application of either homeowner. BBWG waits until
party to the controversy the court shall designate and a claim is submitted to select
appoint an arbitrator or arbitrators or umpire....”). an arbitrator, allowing BBWG to
handpick an arbitrator it wants
[14] Second, appellees argue the alleged agreement to to resolve the dispute. BBWG is
arbitrate is “impermissibly vague” because it “fails to free to submit a list of arbitrators
identify any arbitrator, arbitration body, or arbitral who are partial to BBWG. The
rules.” In support of that position, appellees cite a list could include BBWG's own
case outside this jurisdiction involving international officers, directors, family members,
arbitration. See Marks 3 Zet–Ernst Marks GmBh & Co. or arbitrators who regularly receive
KG v. Presstek, Inc., 455 F.3d 7, 9–10 (1st Cir.2006). business from BBWG. BBWG is free
The agreement at issue in Marks stated in part, “Any to change its list at any time.
dispute ... between the Parties arising out of or relating
to this Agreement which cannot be settled amicably shall However, the arbitration provision does not state that
be referred to and determined by arbitration in The BBWG will provide a “list of arbitrators.” Appellees do
Hague under the International Arbitration rules.” Id. at not explain or address, and the record does not show,
9. The court in that case concluded the arbitration clause how BBWG's providing a list of “approved arbitration
was “poorly drafted” because (1) “the clause does not companies” from which appellees may choose a company
identify the specific arbitral body at The Hague that to conduct the arbitration equates to “unrestricted
would adjudicate any dispute” and (2) *479 “the contract and exclusive control of the arbitrator to be ‘chosen.’

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” Further, in support of both arguments described [16] Now, we address BBWG's assertion that appellees
above, appellees cite several cases from Texas and failed to meet their burden to establish the arbitration
other jurisdictions. See In re Phelps Dodge Magnet agreement in question is unconscionable. As to appellees'
Wire Co., 225 S.W.3d 599, 605–06 (Tex.App.–El Paso contention respecting “gross disparity,” appellees' entire
2005, orig. proceeding) (employer's “problem solving argument in their appellate brief consists of the following
policy” was not arbitration agreement under FAA where sentence: “There is a gross disparity between Appellees,
procedures provided employer could opt for review by individual homeowners purchasing a home found almost
panel composed exclusively of employer's employees); immediately to have structural issues, and BBWG, a
McMullen v. Meijer, Inc., 355 F.3d 485, 493–94 (6th sophisticated commercial bonding company.” Appellees
Cir.2004) (arbitration agreement granting employer do not cite the record or any authority in support of that
exclusive control over pool of individual potential position. BBWG argues in its reply brief in this Court (1)
arbitrators from which arbitrator was to be selected was “Plaintiffs appear to raise a procedural unconscionability
unenforceable); Murray v. United Food & Commercial argument (i.e., that ‘there is a gross disparity between
Workers Int'l Union, 289 F.3d 297, 302–03 (4th Cir.2002) Plaintiffs ... and BBWG’) for the very first time in this
(arbitration provision that provided for review by single appeal” and (2) “[b]ecause this argument was not made
arbitrator who would be selected from list of arbitrators to the trial court (and because it is wholly unsupported
provided by union with no specified constraints and by evidence), the [trial court] abused its discretion if it
stated that arbitrator did not have authority to alter based its decision to deny BBWG's Motion to Compel
or diminish any power of union's president, including Arbitration on procedural unconscionability grounds.”
termination of an employee, was unenforceable); Hooters
of Am., Inc. v. Phillips, 173 F.3d 933, 940 (4th Cir.1999) The record does not show “gross disparity” was asserted
(where process allowed for employee's selection of one by appellees in the trial court. Further, even assuming
of three arbitrators on three-person arbitration panel, without deciding that this argument is preserved for
but provided that all three arbitrators must be selected appellate review, appellees direct us to no evidence in
from list of individual arbitrators created exclusively by the record, and we have found none, respecting “gross
Hooters with no restrictions, court concluded Hooters disparity” between appellees and BBWG. On this record,
“breached its agreement to arbitrate”); Raglani v. Ripken we conclude the trial court erred to the extent it concluded
Prof'l Baseball, 939 F.Supp.2d 517, 523–25 (D.Md.2013) the arbitration agreement was unconscionable based on
(arbitration provision that granted employer exclusive “gross disparity.”
control over list of individual arbitrators that may be
utilized was unenforceable). [17] Additionally, appellees assert the arbitration
agreement in question is unconscionable because it
*480 Unlike the case before us, each of the cases cited “permits [BBWG] to unilaterally select the arbitrator.”
by appellees involved arbitration provisions that granted According to appellees, (1) “[t]he [arbitration provision]
employers exclusive control over the pool of individual drafted by BBWG is extremely one-sided, designed to
arbitrators from which employees could select arbitrators. create an alternative forum to resolve disputes that has
Appellees cite no authority, and we have found none, no semblance of neutrality”; (2) “[t]he fact that [BBWG]
invalidating an arbitration provision on the ground that it controls the pool of potential arbitrators taints the
allows one party to provide a list of arbitration companies arbitration process because the dispute will not be resolved
from which the other party is to choose a company to by an impartial third person chosen by the parties”; (3)
conduct the arbitration. “the contract and the facts solidly support the concept
that BBWG's intention is to control every aspect of the
**7 On this record, we conclude BBWG conclusively ‘dispute resolution’ process”; and (4) “[t]he trial judge also
established the existence of a valid agreement to arbitrate. noted that the filing fee for an AAA arbitration would be
in the $10,000 range, and that ‘by the time it was over’
Plaintiffs/Appellees ‘would easily spend north of $100,000
to arbitrate the case.’ ”
2. Unconscionability

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BBWG argues (1) “Plaintiffs have never requested should be commercially disinterested with respect to the
arbitration in this case, so a list of arbitration companies particular dispute intended to be presented to him for
has not been formally provided by BBWG”; (2) “[a]ny judgment”; (2) a selected arbitrator must disclose “any
argument that the arbitration companies to be approved circumstances likely to affect his or her impartiality,
by BBWG are biased is therefore premature and wholly including any bias or any financial or personal interest in
unsupported by evidence”; (3) “[b]ecause Plaintiffs have the result of the arbitration”; (3) such arbitrator shall be
the power to choose the arbitration company, they have replaced if either party requests replacement; (4) “either
the ability to select the rules they like best from the list party to the case may challenge the appointment of [an
of arbitration companies provided by BBWG”; and (4) arbitrator] for prejudicial or other causes”; and (5) if a
“[t]here is no evidence that the cost of *481 arbitration challenge is determined to be valid, the executive vice
would be prohibitively expensive.” president is to replace the arbitrator. Id. Further, the
court of appeals stated that the parties may challenge the
**8 As described above, the supreme court has stated appointment of an arbitrator in an appeal of the initial
that an inquiry respecting unconscionability “is not award pursuant to the FAA. Id. Then, that court reasoned
satisfied by speculation but by specific proof in the as follows:
particular case of the arbitral forum's inadequacy.”
Venture Cotton, 435 S.W.3d at 232. On subsequent [The farmers] argue that their ability to object to
remand in Venture Cotton, the Eleventh District Court appointed arbitrators is a “hollow and worthless right
of Appeals in Eastland considered the substantive because disqualification simply leads to an endless
unconscionability of an arbitration agreement between procession of ACSA cotton merchant members” who
a group of cotton farmers (the “farmers”) and a cotton will “benefit from arbitration rulings that favor member
cooperative marketing association (“Venture”) managed cotton merchants in disputes with non-member cotton
by Noble Americas Corp. (“Noble”). Venture Cotton producers.” [The farmers] do not argue whether
Coop. v. Freeman, No. 11–11–00093–CV, ––– S.W.3d unbiased arbitrators can, in general, be found. Instead,
––––, ––––, 2015 WL 1967251, at *6 (Tex.App.–Eastland they argue whether, under the rules in this case,
Apr. 30, 2015, no pet.) (hereinafter Venture Cotton II unbiased arbitrators will be found....
). The agreement in that case provided that arbitration
While it is possible that the arbitral forum will be biased
would be conducted by the American Cotton Shippers
because one of the Appellants serves on the board of
Association (“ACSA”) pursuant to ACSA rules. Id. at
directors for the ACSA and because he or she might
––––, 2015 WL 1967251, at *1.
play a role in approving a biased arbitrator that is
not replaced upon request, it is simply that—a mere
The farmers contended in part that a conflict of
possibility. Until [the farmers] are denied *482 access
interest existed between appellants Venture and Noble,
to unbiased arbitrators, it would be a matter of pure
collectively, and the ACSA because the manager of Noble
speculation to find that there is a conflict of interest that
was also on the ACSA's board of directors. Id. at ––––,
will not be resolved.
2015 WL 1967251 at *6. The court of appeals observed
(1) the ACSA executive vice president and president have Id. at ––––, 2015 WL 1967251, at *7.
active roles in the selection process in that the executive
vice president selects the three arbitrators to hear a The court of appeals stated in part that because the
case and the president approves the selection and (2) farmers failed to present evidence that the ACSA will in
arbitrators are “selected from the [ACSA] membership, fact provide biased arbitrators to hear the farmers' case,
retired members, or from a roster of qualified arbitrators the farmers had failed to show that the rules in question
approved by the Board of Directors.” Id. The court of prevent them from effectively vindicating their rights in
appeals stated it was thus possible that “the arbitrators the arbitral forum. Id. Therefore, that court concluded,
that are selected by the executive vice president to hear the farmers' argument that the arbitral forum will be
this case will come from a list of arbitrators that Noble's biased did not support the trial court's determination that
manager, as one of the directors on the board, approved.” the arbitration agreement was unconscionable. Id.
Id. However, the court of appeals observed, the ACSA
rules provide (1) “[t]o qualify as an arbitrator, a member

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**9 In the case before us, the arbitration provision states complain as to the following portion of the arbitration
in part that (1) when arbitration is requested, BBWG will provision:
provide a “list of approved arbitration companies” from
which the requestor may select a company to conduct the Each party shall pay their
arbitration and (2) the arbitration will be conducted under own attorney fees and expenses.
the arbitration company's rules in effect at the time of the Additional fees may be assessed
arbitration. The record shows arbitration has not been in accordance with the arbitration
requested and no list of approved arbitration companies company rules and fees. The
has been provided. Thus, the possibility of unresolved bias arbitrator shall have the discretion
or partiality respecting the selection of an arbitrator under to reallocate such fees and expenses,
the rules that will apply in this case is “a matter of pure save and except attorney's fees, in the
speculation.” See id.; see also Venture Cotton, 435 S.W.3d interest of justice.
at 232.
According to appellees, (1) “[t]he above provision in
the arbitration clause is unconscionable *483 and
[18] [19] [20] Further, to the extent appellees' argument
unenforceable because it attempts to limit the statutory
can be construed to assert that the record supports a
rights of Plaintiffs and other consumers” and “[i]t
conclusion that arbitration under the parties' agreement
eliminates any cause of action Appellees would otherwise
is unconscionable based on prohibitive cost, we cannot
have” and (2) “the agreement deprives Appellees
agree with that position. “[E]xcessive costs imposed by an
from recovering damages and attorney's fees otherwise
arbitration agreement render a contract unconscionable
available to them under the DTPA.”
if the costs prevent a litigant from effectively vindicating
his or her rights in the arbitral forum.” Olshan, 328
Additionally, appellees contend “[t]he arbitration clause is
S.W.3d at 893 (citing Green Tree Fin. Corp.–Ala. v.
unconscionable because it requires each party to bear its
Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373
own costs of litigation, and ‘under no circumstances shall
(2000)). However, “[e]vidence of the ‘risk’ of possible costs
any party, prevailing or otherwise, be entitled to an award
of arbitration is insufficient evidence of the prohibitive
and/or judgment which includes or provides for attorney's
cost of the arbitration forum.” Id. at 895. Rather,
fees and/or court costs.’ ” According to appellees, “[t]he
both the United States Supreme Court and the Texas
provision compels Appellees to waive rights afforded by
Supreme Court require “specific evidence that a party
statutes, including Chapter 38 of the Texas Civil Practice
will actually be charged excessive arbitration fees.” Id.
& Remedies Code, which allows recovery of attorney fees
The party opposing arbitration must show the likelihood
for, among other things, breach of contract and their
of incurring such costs in his particular case. Id. While
rights under the DTPA.” In support of those arguments,
claimants are not required to actually incur the cost of
appellees cite generally to Venture Cotton and assert that
arbitration before they can show its excessiveness, “parties
in that case, the supreme court “concluded that a similar
must at least provide evidence of the likely cost of their
arbitration clause's waiver of remedies under the DTPA
particular arbitration, through invoices, expert testimony,
was unenforceable because it did not satisfy the DTPA's
reliable cost estimates, or other comparable evidence.”
requirements for a waiver of claims under the Act.”
Id. “Evidence that merely speculates about the risk of
possible cost is insufficient.” Id. In the case before us,
**10 BBWG contends (1) “defenses against the overall
appellees' argument in their appellate brief includes the
agreement itself (i.e., the BBWG Warranty), such as
trial judge's statements described above respecting costs.
whether the agreement impermissibly disclaims certain
However, appellees cite no evidence in the record, and
rights and remedies, must be arbitrated,” and (2) because
we have found none, showing appellees “will actually be
the arbitration provision provides for severability of any
charged excessive arbitration fees.” See id.
portion of that provision “determined to be unenforceable
by the arbitrator or by the court,” a determination by the
Finally, appellees assert “[t]he arbitration agreement is
trial court that the provision limiting attorney's fees was
also unconscionable because BBWG's warranty deprives
impermissible “would be an insufficient basis for denying
Appellees of substantive rights.” Specifically, appellees
BBWG's right to compel arbitration.”

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Bonded Builders Home Warranty Association of Texas, Inc...., 488 S.W.3d 468 (2016)
2016 WL 1612916

[21] [22] An arbitration agreement covering statutory Consumer Rights,’ or words of similar meaning”; and
claims is generally invalid if it “waive[s] substantive include language substantially similar to the form the
rights and remedies the statute affords.” In re Poly–Am., statute provides. Id. § 17.42. Also, section 38.001 of the
L.P., 262 S.W.3d 337, 349 (Tex.2008) (orig.proceeding). Texas Civil Practice and Remedies Code provides for
However, “[a]n illegal or unconscionable provision of a recovery of attorney's fees by a claimant prevailing in a
contract may generally be severed so long as it does not breach of contract action. TEX. CIV. PRAC. & REM.
constitute the essential purpose of the agreement.” Id. CODE ANN. § 38.001.
at 360. “Whether or not the invalidity of a particular
provision affects the rest of the contract depends upon [24] To the extent appellees' appellate argument can
whether the remaining provisions are independent or be construed to complain of the “General Conditions”
mutually dependent promises, which courts determine provisions in the Warranty described above, those
by looking to the language of the contract itself.” Id. provisions are not within or specifically referenced by
“The relevant inquiry is whether or not parties would the arbitration provision. Further, the case cited by
have entered into the agreement absent the unenforceable appellees in support of their position, Venture Cotton,
provisions.” Id. involved a complaint as to a provision in the set of
arbitration rules specifically designated in the arbitration
[23] Additionally, “when the parties have contracted for provision in that case, rather than a complaint respecting
arbitration of their disputes, a trial court ‘may consider a different section of the parties' contract. See 435 S.W.3d
only issues relating to the making and performance of at 226, 229. Appellees do not explain, and the record
the agreement to arbitrate.’ ” Olshan, 328 S.W.3d at does not show, how complaints as to the Warranty's
898 (quoting Prima Paint Corp. v. Flood & Conklin “General Conditions” constitute a challenge to the
Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d arbitration clause itself. See id. at 232. On this record,
1270 (1967)); see also Buckeye Check Cashing, Inc. v. we conclude appellees' complaints respecting provisions
Cardegna, 546 U.S. 440, 445–46, 126 S.Ct. 1204, 163 in the Warranty's “General Conditions” are matters to be
L.Ed.2d 1038 (2006) (“[U]nless the challenge is to the entrusted to the arbitrators. See id.; Olshan, 328 S.W.3d
arbitration clause itself, the issue of the contract's validity at 898.
is considered by the arbitrator in the first instance.”);
Venture Cotton, 435 S.W.3d at 232 & n. 6 (“Questions **11 [25] As to appellees' complaints respecting the
of waiver, illegality, remedies, and attorney's fees often portions of the arbitration provision that state “[e]ach
relate to the broader, container contract, rather than the party shall pay their own attorney fees and expenses”
separable agreement to arbitrate, and, as such, are matters and “[t]he arbitrator shall have the discretion to reallocate
entrusted to the arbitrators.”); In re FirstMerit Bank, such fees and expenses, save and except attorney's fees,”
N.A., 52 S.W.3d 749, 756 (Tex.2001) (orig.proceeding) the claims in this case include breach of contract and
(stating that plaintiffs' defenses of unconscionability, DTPA claims asserted by appellees pursuant to statutes
duress, fraudulent inducement, and revocation “must that provide for recovery of attorney's fees by prevailing
specifically relate to the Arbitration Addendum itself, not claimants. See TEX. CIV. PRAC. & REM. CODE ANN.
the contract as a whole, if they are to defeat arbitration”). § 38.001; TEX. BUS. & COM. CODE ANN. § 17.50. The
“[W]hen authority over the *484 matter is unclear, a record does not show appellees have waived the rights
strong federal presumption favors arbitration.” Venture afforded by statute respecting recovery of attorney's fees
Cotton, 435 S.W.3d at 232 (citing Poly–Am., 262 S.W.3d as to those claims. See Venture Cotton II, ––– S.W.3d
at 348). at ––––, 2015 WL 1967251, at *2 (concluding alleged
waivers of statutory rights in arbitration agreement were
Further, the DTPA provides in part that consumers not specific enough to be effective); see also TEX. BUS. &
prevailing in an action pursuant to that act “shall be COM. CODE ANN. § 17.42. On this record, we agree with
awarded” their attorney's fees. TEX. BUS. & COM. appellees' position that those portions of the arbitration
CODE ANN. § 17.50 (West 2011). Although certain agreement are invalid. See Venture Cotton, 435 S.W.3d
DTPA remedies can be contractually waived, such waiver at 230 (provision that arbitration would proceed under
must be “conspicuous and in bold-face type of at least ACSA rule that eliminated rights otherwise available
10 points in size”; “identified by the heading ‘Waiver of under DTPA was invalid where record did not show

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Bonded Builders Home Warranty Association of Texas, Inc...., 488 S.W.3d 468 (2016)
2016 WL 1612916

compliance with DTPA waiver requirements); Venture erred by declining to sever the arbitration provision's
objectionable limitation on appellees' statutory rights
Cotton II, ––– S.W.3d at ––––, 2015 WL 1967251, at *2.
respecting recovery of attorney's fees and proceed with
enforcement of the remaining provisions. See id.; see also
[26] However, as described above, the arbitration
Venture Cotton II, –––S.W.3d at ––––, ––––, 2015 WL
provision states in part that “[i]f any provision of
1967251, at *2, *10 (severing provision of arbitration
this arbitration agreement shall be determined to be
agreement that limited statutory rights as to attorney's
unenforceable by the arbitrator or by the court, the
fees).
remaining provisions shall be deemed to be severable
there from [sic] and enforceable according to their terms.”
According to BBWG, “[t]he parties' intent is thus clear: We decide in favor of BBWG on its issue. 7
any provisions held unenforceable should be severed out
to permit arbitration of claims to proceed as intended.”
Appellees do not specifically address severability in their III. CONCLUSION
appellate brief.
**12 We decide BBWG's sole issue in its favor. We
As described above, in determining an agreement's reverse the portion of the trial court's order denying
essential purpose, “[t]he relevant *485 inquiry is whether BBWG's motion to compel arbitration; order (1) the
or not parties would have entered into the agreement severing of the arbitration provision's limitation on
absent the unenforceable provisions.” Poly–Am, 262 appellees' statutory rights as to recovery of attorney's
S.W.3d at 360. The record shows the arbitration fees and (2) the granting of BBWG's motion to compel
provision's essential purpose was to provide for expedient arbitration; and remand this case to the trial court for
and efficient resolution of disputes without resorting to further proceedings consistent with this opinion.
legal action. See Venture Cotton, 435 S.W.3d at 230.
Further, nothing in the record shows the arbitration
provision's effect on statutory rights and remedies was All Citations
more than a “peripheral concern” to the essential purpose.
488 S.W.3d 468, 2016 WL 1612916
See id. On this record, we conclude the trial court

Footnotes
1 Specifically, the general warranty provisions stated, in part, as follows:
C. ARBITRATION PROVISION
In the event any Dispute under any BBWG warranty, including without limitation, a claim of subrogation, negligent or
intentional misrepresentation or nondisclosure in the inducement, breach of any alleged duty of good faith and fair
dealing, and/or any dispute over the scope of this Arbitration Provision, cannot be resolved by one of the Alternative
Dispute Resolution processes described herein, You, the Builder and BBWG agree to submit the Dispute to binding
arbitration. You will have the right to select the arbitration company from the list of approved arbitration companies
BBWG will provide to You when arbitration is requested. The arbitration will be conducted under the arbitration
company's rules in effect at the time of the arbitration.
The decision of the arbitrator shall be final and binding on all parties and may be entered as a judgment in any State
or Federal court of competent jurisdiction. By accepting the warranty, You are agreeing to waive Your right to
a trial by either judge or jury in a court of law.
... Any party shall be entitled to recover reasonable attorney's fees and costs incurred in enforcing this arbitration
provision, and the arbitrator shall have sole authority to award such fees and costs.
The arbitrator's compensation fee, administrative fee and all expenses charged by the arbitrator and/or the arbitration
service shall be borne equally by the arbitrating parties. Each party shall pay their own attorney fees and expenses.
Additional fees may be assessed in accordance with the arbitration company rules and fees. The arbitrator shall
have the discretion to reallocate such fees and expenses, save and except attorney's fees, in the interest of justice.
The parties agree that this arbitration provision involves and concerns interstate commerce and is governed by the
Federal Arbitration Act ... to the exclusion of any different or inconsistent state or local law, ordinance or judicial rule....
....

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2016 WL 1612916

If any provision of this arbitration agreement shall be determined to be unenforceable by the arbitrator or by the court,
the remaining provisions shall be deemed to be severable there from [sic] and enforceable according to their terms.
(emphasis original) (hereinafter, the “arbitration provision”).
2 Regent is not a party to this appeal and the record does not show it has sought to compel arbitration. Appellees' claims
against Regent included negligence, gross negligence, breach of express and implied warranties, violations of the Texas
Deceptive Trade Practices Act, and breach of contract.
3 The two “General Conditions” complained of by appellees state as follows:
D. GENERAL CONDITIONS
....
6. Exclusive Remedy Agreement—Except as provided herein, You have waived the right to seek damages or other
legal or equitable remedies from the Builder, its principles [sic], his subcontractors, agents, vendors, suppliers,
workers, material men, and/or design professionals under any and all causes of action whether statutory or at
common law, including but not limited to negligence and/or strict liability. The agreement contained herein shall be
enforceable to the fullest extent permissible by the law of the state in which the property is located and shall apply
to any claim thereafter made against the Builder or any other person. Your sole remedy, in the event of a defect in
Your Home or in the real property upon which it is situated, is as prescribed in the terms and conditions of the BBWG
Warranty issued on the Home. Nothing in this paragraph shall effect [sic] or be applicable to any other express
written warranty You may have received from any single vendor or manufacturer who has supplied any appliance
or component for the Home.
....
9. Attorney's Fees and Costs Forbidden—Each party shall bear its own costs of litigation and under no circumstances
shall any party, prevailing or otherwise be entitled to an award and/or judgment which includes or provides for
attorney's fees and/or court costs.
4 The acronym “AAA” is commonly used in arbitration cases to refer to the American Arbitration Association. See, e.g.,
Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 801 (Tex.App.–Dallas 2008, pet. denied).
5 As described above, the arbitration provision states in part “[t]he parties agree that this arbitration provision involves
and concerns interstate commerce and is governed by the Federal Arbitration Act ... to the exclusion of any different or
inconsistent state or local law, ordinance or judicial rule.” The parties do not dispute that the FAA is applicable in this case.
6 Appellees did not assert in the trial court, and do not contend on appeal, that their claims fall outside the scope of the
alleged arbitration agreement in question. See Venture Cotton, 435 S.W.3d at 228.
7 BBWG's prayer for relief in its appellate brief requests that this Court not only reverse the denial of BBWG's motion
to compel, but also reverse the denial of its plea in abatement and “abate” this “cause” pending an arbitration award.
Section 3 of the FAA provides in part that when a court is satisfied that an issue involved in a suit is properly referable to
arbitration, that court “shall on application of one of the parties stay the trial of the action until such arbitration has been
had.” 9 U.S.C. § 3. Further, section 16 of the FAA allows for interlocutory appeal from an order “refusing a stay of any
action under section 3 of this title,” as well as from an order “denying a petition ... to order arbitration to proceed.” See
id. § 16(a)(1)(A)–(B). However, BBWG's appellate issue, appellate argument, and notice of appeal complain only as to
the denial of its motion to compel arbitration and do not mention or address “abatement” or stay of this case or cite any
applicable authority. On this record, we conclude BBWG's complaint respecting denial of its plea in abatement presents
nothing for this Court's review. See TEX. R. APP. P. 38.1(i); cf. Metro. Life Ins. Co. v. Lindsay, 920 S.W.2d 720, 726 &
n. 7 (Tex.App.–Houston [1st Dist.] 1996, no writ) (reversing denial of motion to compel arbitration pursuant to FAA and
stating that although record did not support appellant's contention that trial court also abused its discretion by refusing to
stay litigation among non-arbitrating parties pending outcome of arbitration, “nothing in this opinion” prohibits trial court
from reconsidering stay on remand).

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 15
Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

as required to establish tort of malicious
prosecution, unless person's acts were both
KeyCite Yellow Flag - Negative Treatment necessary and sufficient cause of prosecution,
Disagreed With by Pahle v. Colebrookdale Tp., E.D.Pa., March 26, 2002 
i.e., person's actions in course of things
881 S.W.2d 288
brought about prosecution and, but for his
Supreme Court of Texas.
actions, prosecution would not have occurred;
abrogating -Flowers, 314 S.W.2d 373.
BROWNING–FERRIS INDUSTRIES,
INC. and James Meszaros, Petitioners, 96 Cases that cite this headnote
v.
Kenneth LIECK and Nydia
[2] Marriage and Cohabitation
Hinojosa Lieck, Respondents.
Nature of underlying claim or injury
No. D–3616. Damages for loss of consortium cannot be
| awarded for harm to spouse that involves no
Argued Oct. 13, 1993. physical injury.
|
29 Cases that cite this headnote
Decided June 2, 1994.
|
Rehearing Overruled Sept. 8, 1994.

City manager, against whom charges of official Attorneys and Law Firms
misconduct had been dropped, brought action against
defendant who had provided information to authorities, *289 Roger Townsend, Houston, William Powers, Jr.,
alleging malicious prosecution. The 138th District Court, Austin, Lisa Powell, Charles C. Murray, McAllen, for
Cameron County, Darrell B. Hester, J., entered jury petitioners.
verdict for city manager, and appeal was taken. The
Neil E. Norquest, McAllen, Norton A. Colvin,
Corpus Christi Court of Appeals, 845 S.W.2d 926,
Jr., Brownsville, Gordon L. Briscoe, Harlingen, for
Gilberto Hinojosa, J., affirmed in part and reversed in
respondents.
part, and writ of error was sought. The Supreme Court,
Hecht, J., held that, unless person knowingly provides Opinion
false information, person cannot be held to have “caused”
criminal prosecution, as required to establish tort of HECHT, Justice, delivered the opinion of the Court,
malicious prosecution, unless person's acts were both in which PHILLIPS, Chief Justice, and HIGHTOWER,
necessary and sufficient cause of prosecution. CORNYN, GAMMAGE, ENOCH, and SPECTOR,
Justices, join.
Reversed and remanded.
We address three questions in this malicious prosecution
Doggett, J., concurred in part and dissented in part. action: first, whether the trial court properly instructed
the jury concerning the causal connection a plaintiff
must prove between defendant's conduct and plaintiff's
criminal prosecution to establish liability; second, whether
West Headnotes (2) a defendant can ever be liable for making statements
to law enforcement officials which he did not actually
know were false; and third, whether damages for loss of
[1] Malicious Prosecution
consortium can be awarded for harm to a spouse that
Instigation of or participation in
involves no physical injury? For reasons that follow, we
prosecution
answer the first and third questions “no”, and the second
Unless person knowingly provides false question “yes”. The district court rendered judgment
information to authorities, person cannot be against defendants, which a sharply divided court of
held to have “caused” criminal prosecution,

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Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

appeals, 845 S.W.2d 926, en banc, affirmed with some
modifications. 845 S.W.2d at 950. We reverse and remand At the request of various other law enforcement officials,
the case for further proceedings. Meszaros and an attorney for BFI provided additional
statements and affidavits. Two City Commissioners also
told officials that Lieck had given Torres confidential
information. Meszaros, by his own admission at trial,
I
never told officials that the terms of BFI's contract
A detailed account of the evidence in this case has been had been made public during the City Commission's
made by the court of appeals in assessing the sufficiency consideration of the bids, even though he knew that was
of the evidence to support the judgment. As we have not true, nor did he tell officials that he believed Lieck had not
been asked to review the method or standard used in that committed a crime, even though that was his belief. From
assessment, we need not recapitulate the entire record. We these admissions it may thus be fairly said that Meszaros
focus instead on the circumstances directly relevant to the withheld from law enforcement officials information
legal issues raised here. which they might well have considered important in
deciding whether to prosecute Lieck.
When James Meszaros, an employee of Browning–
Ferris Industries, Inc., heard that the Texas Rangers An assistant district attorney reviewed the matter and
were investigating the purchasing practices of the City presented it to the grand jury, which indicted Lieck
of Brownsville, he became concerned that they might for giving Torres confidential information, specifically,
question his attempt to make a financial contribution to the contract BFI had submitted to the Brownsville City
the reelection campaign of one of the members of the City Commission. The indictment alleged a misdemeanor,
Commission at a time when BFI was bidding on the City's although it did not state what statute had been violated.
garbage collection business. Meszaros asked another BFI The indictment was dismissed about two months later
employee and former Ranger, Dan North, to contact because the grand jury had been improperly constituted.
his friends among the Rangers and try to determine the A second grand jury refused to indict Lieck, and the
scope of the investigation. North did so, and arranged prosecution was then terminated.
for Meszaros to meet with two officials involved in the
investigation. Lieck and his wife Nydia sued BFI and Meszaros
for malicious prosecution. The jury rendered a verdict
At that meeting, Meszaros brought up the subject of the favorable to the Liecks on all issues and found actual
bidding on the City's garbage collection business. BFI had damages of $706,500 for Lieck 1 and $250,000 for his wife
submitted its bid on its standard form contract, which for loss of consortium, and punitive damages against BFI
was similar to the ones it, and its competitors, used with of $1,500,000. The trial court rendered judgment awarding
other Texas cities. Garbage Management Services also Lieck his actual damages against BFI and Meszaros,
bid on the City's business. The terms of the bids were jointly and severally, and his punitive damages against
summarized by Brownsville's City Manager, Kenneth BFI, but rendered judgment non obstante veredicto
Lieck, distributed to members of the City Commission and that Nydia Lieck take nothing. The court of appeals
to the press, and discussed at several City Commission reversed in part, awarding Nydia the consortium damages
meetings *290 which were open to the public. After found by the jury, then modified the punitive damages,
the Commission voted to award the business to GMS, apportioning them between Nydia and Kenneth, and
Lieck gave GMS' representative, Robert Torres, a slightly otherwise affirmed the judgment. 845 S.W.2d 926.
modified form of the contract BFI had submitted, and
that proposed contract became the basis of the final
negotiations between the City and GMS. Meszaros
II
complained to the investigators that the contract Lieck
had given Torres was confidential information. North Before we turn to petitioners' complaints, it is necessary
showed the two investigators a statute from which they to recognize the important societal interests in tension in
concluded, after reading it, that Lieck had violated the the tort of malicious criminal prosecution. A century ago
law. this Court wrote:

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Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

S.W.2d 496, 499 (Tex.Civ.App.—Dallas 1971, no writ);
It is important that every Montgomery Ward & Co. v. Kirkland, 225 S.W.2d 906,
citizen should be protected against 909 (Tex.Civ.App.—San Antonio 1949, writ ref'd n.r.e.);
malicious prosecutions, and it Deaton v. Montgomery Ward & Co., 159 S.W.2d 969,
is equally important that crimes 972 (Tex.Civ.App.—Beaumont 1942, writ ref'd w.o.m.);
should be punished, in order that the Reed v. Lindley, 240 S.W. 348, 351 (Tex.Civ.App.—Ft.
law-abiding citizen may be secure in Worth 1922, no writ); 54 C.J.S. Malicious Prosecution § 4,
life, liberty, and property. To make at 524–25 (1987); 52 AM.JUR.2D Malicious Prosecution
the citizen liable to be mulcted in § 5, at 188 (1970). This aphorism is far too vague to
damages for an honest discharge serve as an analytical tool. As with any other cause
of duty is to give immunity to of action, if the elements of malicious prosecution are
crime, and to weaken the restraining proved, liability is established. What is distinctive about
power of the criminal law, thereby malicious prosecution is that there is little room for error
endangering the security of law- in applying the law. Even a small departure from the
abiding people. exact prerequisites for liability may threaten the delicate
balance between protecting against wrongful prosecution
Sebastian v. Cheney, 86 Tex. 497, 25 S.W. 691, 694
and encouraging reporting of criminal conduct. It is in this
(1894). The Restatement (Second) of Torts describes these
context that we consider the issues raised.
competing interests similarly:

The first is the interest of society
in the efficient enforcement of the III
criminal law, which requires that
private persons who aid in the
enforcement of the law should A
be given an effective protection
Petitioners complain that the trial court erred in refusing
against the prejudice that is likely
to require the jury to find whether Meszaros' actions
to arise from the termination of
actually caused the indictment of Lieck. The trial court
the prosecution in favor of the
asked instead:
accused. The second is the interest
that the individual citizen has in Did James R. Meszaros, acting
being protected against unjustifiable without probable cause and with
and oppressive litigation of criminal malice, cause, or aid or cooperate in
charges, which not only involve causing, a criminal prosecution to
pecuniary loss but also distress and be commenced against Kenneth J.
loss of reputation. Lieck?

*291 RESTATEMENT (SECOND) OF TORTS ch. (Emphasis added.) The trial court did not define “cause,
29, intro. note, at 405 (1977) [hereinafter “the or aid or cooperate in causing” in the jury charge. Giving
RESTATEMENT”]. These interests are balanced by these words their plain meaning, the jury could have
carefully defining the elements of an action for malicious concluded that it was enough for Meszaros to have aided
prosecution, and the balance is maintained by strictly or cooperated with law enforcement officials in bringing
adhering to these elements. about Lieck's prosecution. Petitioners argue that this does
not satisfy the requirements for liability.
It is frequently said that actions for malicious prosecution
are not favored in the law. E.g., Sullivan v. O'Brien, 85 The court of appeals rejected petitioners' argument in a
S.W.2d 1106, 1112 (Tex.Civ.App.—San Antonio 1935, single sentence: “The courts of this State have repeatedly
writ ref'd); Diamond Shamrock Corp. v. Ortiz, 753 stated that the causation issue submitted in this case is
S.W.2d 238, 241 (Tex.App.—Corpus Christi 1988, writ the proper question for malicious prosecution cases.” 845
denied); Parker v. Dallas Hunting & Fishing Club, 463 S.W.2d at 943. The court cited four cases in support

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

of this statement. In Davis v. City of San Antonio, 752
S.W.2d 518 (Tex.1988), this Court held that there was The RESTATEMENT formulates the causation element
evidence to support a finding that defendant caused, aided as “initiates or procures”. RESTATEMENT § 653. 2 A
or contributed to a criminal prosecution, but did not person initiates a criminal prosecution if he makes a
consider—because it was not questioned by the parties formal charge to law enforcement authorities. Id. cmt. c.
—whether such a finding was sufficient for liability. In A person procures a criminal prosecution if his actions are
Bass v. Metzger, 569 S.W.2d 917, 924 (Tex.Civ.App.— enough to cause the prosecution, and but for his actions
Corpus Christi 1978, writ ref'd n.r.e.), and Ellis v. Sinton the prosecution would not have occurred. Id. cmts. d, f–
Sav. Ass'n, 455 S.W.2d 834, 836 (Tex.Civ.App.—Corpus h. In other words, procurement requires that a person's
Christi 1970, writ ref'd n.r.e.), the court listed the elements actions be both a necessary and a sufficient cause of
of a malicious prosecution action as including that the criminal prosecution. Thus, a person cannot procure
defendant have caused, or aided or cooperated in causing, a criminal prosecution when the decision whether to
plaintiff's prosecution. Neither of these cases considered prosecute is left to the discretion of another person, a law
the causation element specifically; each merely listed enforcement official or the grand jury. Id. An exception,
the element among the other requirements to establish which we discuss below, occurs when a person provides
liability. See also Yianitsas v. Mercantile Nat'l Bank, 410 information which he knows is false to another to cause a
S.W.2d 848, 850 (Tex.Civ.App.—Dallas 1967, no writ). criminal prosecution. Id. cmt. g.
Finally, Thomas v. Cisneros, 596 S.W.2d 313, 316–17
(Tex.Civ.App.—Austin 1980, writ ref'd n.r.e.), also lists The concept of procurement in the RESTATEMENT
the same elements but later refers to a requirement that is essentially the same as the cause-in-fact element of
defendant's actions have proximately caused plaintiff's proximate cause. Cause in fact is ordinarily defined as
prosecution. Thus, none of the cases cited by the court “that cause which, in a natural and continuous sequence,
of appeals, or by respondents, specifically considers the produces an event, and without which cause such event
element of causation. would not have occurred”. 1 STATE BAR OF TEXAS,
TEXAS PATTERN JURY CHARGES PJC 2.04 (1987).
The statement of the element as “cause, or aid or A person procures a criminal prosecution if his actions
cooperate in causing”, appears to have originated in in the course of things bring it about, and if, but for
Flowers v. Central Power & Light Co., 314 S.W.2d his actions, the prosecution would not have occurred.
373, 375 (Tex.Civ.App.—Waco 1958, writ ref'd n.r.e.). Just as there may be more than one proximate cause
That case cites no authority for so broad an element of an event, a single prosecution may be procured by
*292 of causation. Prior decisions included among more than one person. The RESTATEMENT idea of
the required elements a stricter showing that defendant procurement does not, however, include the foreseeability
actually caused the prosecution. See Davidson v. First component of proximate cause, which requires that “the
State Bank, 310 S.W.2d 678, 680 (Tex.Civ.App.—El act or omission complained of must be such that a person
Paso 1958, no writ); Kirkland, 225 S.W.2d at 907–08; using ordinary care would have foreseen that the event, or
Meyer v. Viereck, 286 S.W. 894, 897 (Tex.Civ.App.— some similar event, might reasonably result therefrom.”
Galveston 1926, writ dism'd w.o.j.); Reed, 240 S.W. at Id. Foreseeability is not an appropriate requirement
351. Although as noted above several courts of appeals for procurement. An ordinary person simply cannot be
have recited the Flowers version of the elements of expected to foresee that his communication with law
malicious prosecution, several others have referred to enforcement officials either will or will not lead to a
the pre-Flowers version of the causation element. See criminal prosecution. There are too many participants in
McHenry v. Tom Thumb Page Drug Stores, 696 S.W.2d the process to foresee what the outcome of one person's
664, 665 (Tex.App.—Dallas 1985, writ dism'd); Blanton role in the investigatory process is likely to be.
v. Morgan, 681 S.W.2d 876, 878 (Tex.App.—El Paso
1984, writ ref'd n.r.e.); Fisher v. Beach, 671 S.W.2d 63, 66 The RESTATEMENT rule does not subject a person
(Tex.App.—Dallas 1984, no writ); Martin v. Trevino, 578 to liability for merely aiding or cooperating in causing
S.W.2d 763, 766 (Tex.Civ.App.—Corpus Christi 1978, a criminal prosecution. We agree that liability should
writ ref'd n.r.e.); Lloyd v. Almeda State Bank, 346 S.W.2d be thus restricted. Were it otherwise, persons only
947, 951 (Tex.Civ.App.—Waco 1961, writ ref'd n.r.e.). incidentally involved in a criminal investigation might find

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

themselves facing allegations in a civil suit. The prospect 94 (Texas Practice 1988). Island Recreational considered
of such liability poses too great a disincentive for people to whether the trial court's failure to instruct the jury on a
cooperate freely with law enforcement officials. As many party's theory was reversible error. In the present case,
Texas courts have already recognized, a person's actions the trial court affirmatively charged the jury on the wrong
must be the cause in fact of a criminal prosecution before standard of causation. We have not extended the holding
he can be liable for malicious prosecution. The trial court's of Island Recreational, see Exxon Corp. v. Perez, 842
instruction permitted the jury to find liability under a S.W.2d 629 (Tex.1992) (per curiam), and we do not do
lesser standard and was therefore in error. so in this case. We need not consider here whether Island
Recreational should be overruled.
*293 [1] The RESTATEMENT concepts of initiation
and procurement are better suited to malicious The trial court rendered judgment against petitioners
prosecution cases than the more general idea of causation. on a verdict which allowed the jury to find only that
In such cases in the future, the jury should be asked, Meszaros aided or cooperated in causing Lieck's criminal
not whether the defendant “caused” criminal proceedings, prosecution. The trial court's failure to limit the jury to the
but whether he either “initiated” or “procured” them, proper standard of causation constitutes reversible error.
depending on the nature of the case. Initiation would not
ordinarily need to be defined, as it would be demonstrated
by evidence that defendant filed formal charges against
IV
plaintiff, but procurement should be defined as follows:
Petitioners also argue that a person who cooperates
A person procures a criminal
with law enforcement authorities by providing them
prosecution if his actions were
information should not be liable for malicious prosecution
enough to cause the prosecution,
unless he knows the information to be false. Petitioners
and but for his actions the
base their argument on the RESTATEMENT § 653,
prosecution would not have
cmt. g, quoted in Thomas, 596 S.W.2d at 317, and
occurred. A person does not procure
policy considerations underlying actions for malicious
a criminal prosecution when the
prosecution and defamation.
decision whether to prosecute is
left to the discretion of another,
Comment g describes the circumstances under which
including a law enforcement official
a person may be said to have procured a criminal
or the grand jury, unless the
prosecution by influencing a public prosecutor. The
person provides information which
comment states:
he knows is false. A criminal
prosecution may be procured by A private person who gives to a public
more than one person. official information of another's supposed criminal
misconduct, of which the official is ignorant, obviously
We discuss below the basis for the exception for providing
causes the institution of such subsequent proceedings
false information.
as the official may begin on his own initiative, but
giving the information or even making an accusation of
criminal misconduct does not constitute a procurement
B of the proceedings initiated by the officer if it is left
entirely to his discretion to initiate the proceedings or
Respondents argue that even if the trial court erred not. When a private person gives to a prosecuting officer
in failing to instruct the jury properly on the element information that he believes to be true, and the officer
of causation, that error was harmless, citing Island in the exercise of his uncontrolled discretion initiates
Recreational Dev. Corp. v. Republic of Texas Sav. Ass'n, criminal proceedings based upon that information, the
710 S.W.2d 551 (Tex.1986). Petitioners urge us to overrule informer is not liable under the rule stated in [§ 653] even
Island Recreational as having been wrongly decided. See though the information proves to be false and his belief
34 GUS. M. HODGES & T. RAY GUY, THE JURY was one that a reasonable man would not entertain. The
CHARGE IN TEXAS CIVIL LITIGATION § 34, at 92–

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Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

exercise of the officer's discretion makes the initiation Petitioners have cited no authority from any other
of the prosecution his own and protects from liability jurisdiction which supports their argument, and we are
the person whose information or accusation has led the aware of none. They argue that a person would not
officer to initiate the proceedings. be liable for defamation of a public official, like Lieck,
without proof that statements made were known to be
If, however, the information is known by the giver to false, and that the same rule should apply in a malicious
be false, an intelligent exercise *294 of the officer's prosecution case. Otherwise, they argue, the imposition
discretion becomes impossible, and a prosecution based of civil liability will infringe upon constitutionally
upon it is procured by the person giving the false guaranteed freedom of speech. We are not persuaded.
information. In order to charge a private person with As we noted above, the conflicting policies underlying
responsibility for the initiation of proceedings by a malicious prosecution actions must be carefully balanced.
public official, it must therefore appear that his desire to The requirements that a person make statements without
have the proceedings initiated, expressed by direction, probable cause and with malice, and the stringent
request or pressure of any kind, was the determining requirement of procurement, are sufficient protection to
factor in the official's decision to commence the those cooperating with law enforcement officials.
prosecution, or that the information furnished by him
upon which the official acted was known to be false. Accordingly, we conclude that the trial court did not err
in refusing to instruct the jury that Meszaros could not
Plainly, comment g does not support petitioners'
be liable for malicious prosecution unless he knew the
argument. The last sentence states that a person may
statements he made to investigators to be false.
be liable, not only when he gives information he knows
is false to a prosecutor, but also when his conduct is
the determining factor in the prosecutor's decision to
prosecute. The comment states that a person who provides V
information which he believes is true but is in fact
false is not liable when the prosecutor relies upon his [2] We turn finally to the question whether Nydia
own discretion in deciding whether to prosecute. If the Lieck is entitled to damages for loss of consortium when
prosecutor does not exercise his own discretion, however, Lieck suffered no physical injury. Although we have
the comment indicates that the provider of information never held that damages for loss of spousal consortium
has procured a criminal prosecution whether he knew the cannot be recovered absent proof of physical injury, the
information to be false or not. only cases in which we have allowed such damages did
involve physical injury. See Reed Tool Co. v. Copelin,
The comment states that an intelligent exercise of 610 S.W.2d 736 (Tex.1980); Whittlesey v. Miller, 572
discretion is impossible when a prosecutor is provided S.W.2d 665 (Tex.1978). Moreover, in Reagan v. Vaughn,
false information. This is not literally true in all instances. 804 S.W.2d 463, 467 (Tex.1990), we limited recovery of
Prosecutors may well suspect that information they damages for loss of parental consortium to those cases
receive is unreliable and decide not to initiate criminal where the parent has sustained “serious, permanent, and
proceedings. What is true is that a person who provides disabling” physical injuries. There is no reason to have
false information cannot complain if a prosecutor acts one rule for parental relationships and another rule for
on it; he cannot be heard to contend that the prosecutor spousal relationships. We are bound by Reagan to hold
should have known better. Such a person has procured that damages for loss of spousal consortium are not
the resulting prosecution, regardless of the actions of recoverable absent proof of physical injury.
the prosecutor, and the causation element for malicious
prosecution is satisfied. This rule does not assist the Furthermore, we believe that the conflicting policies
Liecks. The jury found that Meszaros did not make full underlying malicious prosecution actions require that
and fair disclosure to investigating officers. This is not the recovery of damages be limited to the person prosecuted,
equivalent of a finding that Meszaros made statements he and should not extend to members of his family. A
knew were false. person who provides information leading to *295 the
prosecution of another should not face liability for
damages other than to the person prosecuted.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (1994)

******
Nydia cites decisions by four intermediate appellate
For the reasons explained, we reverse the judgment of
courts in other states which have permitted recovery
the court of appeals, remand Kenneth Lieck's action
of consortium damages in malicious prosecution cases
against BFI and Meszaros to the trial court for further
without proof of physical injury. See Minion v. Gaylord's
proceedings, and render judgment that Nydia Lieck take
Int'l Corp., 541 So.2d 209 (La.Ct.App.1989); Rivers v. Ex–
nothing.
Cell–O Corp., 100 Mich.App. 824, 300 N.W.2d 420 (1980);
Zalewski v. Gallagher, 150 N.J.Super. 360, 375 A.2d 1195
(1977); Dunn v. Alabama Oil & Gas Co., 42 Tenn.App. 108,
299 S.W.2d 25 (Tenn.Ct.App.1956). She does not cite a DOGGETT, J., joins in Parts I–IV only, and notes his
case from any state's highest court, and we are aware of dissent to Part V.
none. We decline to follow these authorities.
GONZALEZ, J., not sitting.
Accordingly, we hold that Nydia is not entitled to recover
All Citations
damages for loss of consortium.
881 S.W.2d 288

Footnotes
1 The jury found Lieck's damages to be $50,000 for past loss of earning capacity, $0 for future loss of earning capacity,
$50,000 for past mental anguish, $100,000 for future mental anguish, $500,000 for injury to reputation, and $6,500
attorney fees to defend the criminal charges.
2 “A private person who initiates or procures the institution of criminal proceedings against another who is not guilty of
the offense charged is subject to liability for malicious prosecution if (a) he initiates or procures the proceedings without
probable cause and primarily for a purpose other than that of bringing an offender to justice, and (b) the proceedings
have terminated in favor of the accused.”

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

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Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)
126 S.Ct. 1204, 163 L.Ed.2d 1038, 74 USLW 4119, 06 Cal. Daily Op. Serv. 1491...

KeyCite Yellow Flag - Negative Treatment West Headnotes (5)
Declined to Extend by Jackson v. Rent-A-Center West, Inc., 9th Cir. 
(Nev.), September 9, 2009
126 S.Ct. 1204 [1] Alternative Dispute Resolution
Supreme Court of the United States Validity
Alternative Dispute Resolution
BUCKEYE CHECK CASHING, INC., Petitioner, Validity of assent
v. Challenges to the validity of arbitration
John CARDEGNA et al. agreements that are made “upon such
grounds as exist at law or in equity for
No. 04–1264.
the revocation of any contract,” within
|
meaning of Federal Arbitration Act provision
Argued Nov. 29, 2005.
stating that arbitration provisions are valid,
|
irrevocable, and enforceable “save upon such
Decided Feb. 21, 2006.
grounds as exist at law or in equity for
Synopsis the revocation of any contract,” include
Background: Borrowers brought putative class action specific challenges to the validity of the
lawsuit against lender, alleging that lender made illegal agreement to arbitrate and challenges to the
usurious loans disguised as check cashing transactions in contract as a whole, either on a ground that
violation of various state statutes. Lender filed motion to directly affects the entire agreement, such as
compel arbitration and to stay proceedings pursuant to fraudulent inducement, or on the ground that
provisions for arbitration contained in deferred deposit the illegality of one of the contract's provisions
and disclosure agreement signed by borrowers. The renders the whole contract invalid. 9 U.S.C.A.
Circuit Court, 15th Judicial Circuit, Palm Beach County, § 2.
Thomas H. Barkdull, III, J., denied motion, but the
671 Cases that cite this headnote
District Court of Appeal, 824 So.2d 228, reversed and
remanded. Borrowers petitioned for review. The Florida
Supreme Court, 894 So.2d 860, quashed and remanded, [2] Alternative Dispute Resolution
ruling that borrowers' claim that underlying contract was What law governs
illegal and void ab initio had to be resolved by trial court Alternative Dispute Resolution
before arbitration of other disputes could be compelled. Severability
Certiorari was granted. Federal Courts
Alternative dispute resolution
As a matter of substantive federal arbitration
[Holding:] The Supreme Court, Justice Scalia, held that law, an arbitration provision is severable from
claim that purportedly usurious contract containing an the remainder of the contract, and such law
arbitration provision was void for illegality was to be applies in either state or federal courts.
determined by arbitrator, not court.
201 Cases that cite this headnote

Reversed and remanded.
[3] Alternative Dispute Resolution
Existence and validity of agreement
Justice Thomas filed dissenting opinion.
In either state or federal courts, unless
Justice Alito did not participate. a challenge involving a contract with
an arbitration clause is to the contract's
arbitration clause itself, the issue of the

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contract's validity is considered by the arbitration agreement in a contract challenged as unlawful
arbitrator in the first instance. would violate state public policy and contract law.

777 Cases that cite this headnote Held: Regardless of whether it is brought in federal or
state court, a challenge to the validity of a contract as
[4] Alternative Dispute Resolution a whole, and not specifically to the arbitration clause
Existence and validity of agreement within it, must go to the arbitrator, not the court. Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
Claim that a purportedly usurious contract
87 S.Ct. 1801, 18 L.Ed.2d 1270, and Southland Corp.
containing an arbitration provision was void
v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1,
for illegality was to be determined by
answer the question presented here by establishing three
arbitrator, not court, where claim challenged
propositions. First, as a matter of substantive federal
contract as whole, not arbitration provisions
arbitration law, an arbitration provision is severable from
in particular, and arbitration provisions were
the remainder of the contract. See Prima Paint, 388
thus enforceable apart from the remainder of
U.S., at 400, 402–404, 87 S.Ct. 1801. Second, unless the
the contract.
challenge is to the arbitration clause itself, the issue of the
700 Cases that cite this headnote contract's validity is considered by the arbitrator in the
first instance. See id., at 403–404, 87 S.Ct. 1801. Third,
this arbitration law applies in state as well as federal
[5] Alternative Dispute Resolution
courts. See Southland, supra, at 12, 104 S.Ct. 852. The crux
Validity
of respondents' claim is that the Agreement as a whole
Federal Arbitration Act provision stating that (including its arbitration provision) is rendered invalid by
arbitration provisions in a contract are valid, the usurious finance charge. Because this challenges the
irrevocable, and enforceable “save upon such Agreement, and not specifically its arbitration provisions,
grounds as exist at law or in equity for the the latter are enforceable apart from the remainder of the
revocation of any contract” includes those contract, and the challenge should be considered by an
grounds for revocation that render a contract arbitrator, not a court. The Florida Supreme Court erred
void, as well as those that render a contract in declining to apply Prima Paint's severability rule, and
voidable. 9 U.S.C.A. § 2. respondents' assertion that that rule does not apply in state
court runs contrary to Prima Paint and Southland. Pp.
141 Cases that cite this headnote
1207–1211.

894 So.2d 860, reversed and remanded.

SCALIA, J., delivered the opinion of the Court, in
**1205 *440 Syllabus * which ROBERTS, C. J., and STEVENS, KENNEDY,
SOUTER, GINSBURG, and BREYER, JJ., joined.
For each deferred-payment transaction respondents
THOMAS, J., filed a dissenting opinion, post, p. 1211.
entered into with Buckeye **1206 Check Cashing, they
ALITO, J., took no part in the consideration or decision
signed an Agreement containing provisions that required
of the case.
binding arbitration to resolve disputes arising out of
the Agreement. Respondents sued in Florida state court,
alleging that Buckeye charged usurious interest rates Attorneys and Law Firms
and that the Agreement violated various Florida laws,
rendering it criminal on its face. The trial court denied Amy L. Brown, Pierre H. Bergeron, Squire, Sanders &
Buckeye's motion to compel arbitration, holding that a Dempsey LLP, Washington, DC, Christopher Landau,
court rather than an arbitrator should resolve a claim Counsel of Record, Michael Shumsky, Kirkland & Ellis
that a contract is illegal and void ab initio. A state LLP, Washington, DC, for petitioner.
appellate court reversed, but was in turn reversed by the
Florida Supreme Court, which reasoned that enforcing an

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of limitations and shall honor claims of privilege
E. Clayton Yates, Yates & Mancini, LLC, Fort recognized by law ... .” App. 36, 38, 40, 42.
Pierce, Florida, Christopher C. Casper, James, Hoyer,
Newcomer, & Smiljanich, P.A., Tampa, Florida, Richard Respondents brought this putative class action in Florida
A. Fisher, Richard Fisher Law Office, Cleveland, state court, alleging that Buckeye charged usurious
Tennessee, F. Paul Bland, Jr., Counsel of Record, interest rates and that the Agreement violated various
Michael J. Quirk, Trial Lawyers for Public Justice, Florida lending and consumer-protection laws, rendering
P.C., Washington, DC, Arthur H. Bryant, Leslie A. it criminal on its face. Buckeye moved to compel
Bailey, Trial Lawyers for Public Justice, P.C., Oakland, arbitration. The trial court denied the motion, holding
California, for Respondents. that a court rather than an arbitrator should resolve
a claim that a contract is illegal and void ab initio.
Opinion
The District Court of Appeal of Florida for the Fourth
Justice SCALIA delivered the opinion of the Court. District reversed, holding that because respondents did
not challenge the arbitration provision itself, but instead
*442 We decide whether a court or an arbitrator claimed that the entire contract was void, the agreement
should consider the claim that a contract containing an to arbitrate was enforceable, and the question of the
arbitration provision is void for illegality. contract's legality should go to the arbitrator.

Respondents appealed, and the Florida Supreme Court
reversed, reasoning that to enforce an agreement to
I
arbitrate in a contract challenged as unlawful “ ‘could
Respondents John Cardegna and Donna Reuter breathe life into a contract that not only violates state law,
entered into various deferred-payment transactions with but also is criminal in nature ... .’ ” 894 So.2d 860, 862
petitioner Buckeye Check Cashing (Buckeye), in which (2005) (quoting Party Yards, Inc. v. Templeton, 751 So.2d
they received cash in exchange for a personal check in 121, 123 (Fla.App.2000)). We granted certiorari. 545 U.S.
the amount of the cash plus a finance charge. For each 1127, 125 S.Ct. 2937, 162 L.Ed.2d 864 (2005).
separate transaction they signed a “Deferred Deposit and
Disclosure Agreement” (Agreement), which included the
following arbitration provisions: II
“1. Arbitration Disclosure By signing this Agreement,
you agree that i[f] a dispute of any kind arises out of A
this Agreement or your application therefore or any
instrument relating thereto, th[e]n either you or we or [1] To overcome judicial resistance to arbitration,
third-parties involved can choose to have that dispute Congress enacted the Federal Arbitration Act (FAA), 9
resolved by binding arbitration as set forth in Paragraph U.S.C. §§ 1–16. Section 2 embodies the national policy
2 below .... favoring arbitration and places arbitration agreements on
equal footing with all other contracts:
“2. Arbitration Provisions Any claim, dispute, or
controversy ... arising from or relating to this **1208 “A written provision in ...
Agreement ... or the validity, enforceability, or scope a contract ... to settle by arbitration
of this Arbitration Provision or the entire Agreement a controversy thereafter arising out
(collectively ‘Claim’), shall be resolved, upon the of such *444 contract ... or an
election of you or us or said third-parties, by agreement in writing to submit to
binding arbitration .... This arbitration Agreement is arbitration an existing controversy
made pursuant to a transaction involving interstate arising out of such a contract ...
commerce, and shall be governed *443 by the Federal shall be valid, irrevocable, and
Arbitration Act (‘FAA’), 9 U.S.C. Sections 1–16. enforceable, save upon such grounds
The arbitrator shall apply applicable substantive law as exist at law or in equity for the
constraint [sic] with the FAA and applicable statu[t]es revocation of any contract.”

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Challenges to the validity of arbitration agreements “upon
such grounds as exist at law or in equity for the revocation
of any contract” can be divided into two types. One type B
challenges specifically the validity of the agreement to
[2] [3] [4] Prima Paint and Southland answer
arbitrate. See, e.g., Southland Corp. v. Keating, 465 U.S.
the question presented here by establishing three
1, 4–5, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (challenging
propositions. First, as a matter of substantive federal
the agreement to arbitrate as void under California law
arbitration law, an arbitration provision is severable from
insofar as it purported to cover claims brought under the
the remainder of the contract. Second, unless the challenge
state Franchise Investment Law). The other challenges the
is to the arbitration clause itself, *446 the issue of the
contract as a whole, either on a ground that directly affects
contract's validity is considered by the arbitrator in the
the entire agreement (e.g., the agreement was fraudulently
first instance. Third, this arbitration law applies in state as
induced), or on the ground that the illegality of one of the
well as federal courts. The parties have not requested, and
contract's provisions renders the whole contract invalid. 1 we do not undertake, reconsideration of those holdings.
Respondents' claim is of this second type. The crux of the Applying them to this case, we conclude that because
complaint is that the contract as a whole (including its respondents challenge the Agreement, but not specifically
arbitration provision) is rendered invalid by the usurious its arbitration provisions, those provisions are enforceable
finance charge. apart from the remainder of the contract. The challenge
should therefore be considered by an arbitrator, not a
In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 court.
U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), we
addressed the question of who—court or arbitrator— In declining to apply Prima Paint's rule of severability, the
decides these two types of challenges. The issue in the case Florida Supreme Court relied on the distinction between
was “whether a claim of fraud in the inducement of the void and voidable contracts. “Florida public policy and
entire contract is to be resolved by the federal *445 court, contract law,” it concluded, permit “no severable, or
or whether the matter is to be referred to the arbitrators.” salvageable, parts of a contract found illegal and void
Id., at 402, 87 S.Ct. 1801. Guided by § 4 of the FAA, 2 under Florida law.” 894 So.2d, at 864. Prima Paint makes
we held that “if the claim is fraud in the inducement of this conclusion irrelevant. That case rejected application
the arbitration clause itself—an issue which goes to the of state severability rules to the arbitration agreement
making of the agreement to arbitrate—the federal court without discussing whether the challenge at issue would
may proceed to adjudicate it. But the statutory language have rendered the contract void or voidable. See 388 U.S.,
does not permit the federal court to consider claims of at 400–404, 87 S.Ct. 1801. Indeed, the opinion expressly
fraud in the inducement of the contract generally.” Id., disclaimed any need to decide what state-law remedy
at 403–404, 87 S.Ct. 1801 (internal quotation marks and was available, id., at 400, n. 3, 87 S.Ct. 1801 (though
footnote omitted). We rejected the view that the question Justice Black's dissent asserted that state law rendered
of “severability” was one of state law, so that if state the contract void, id., at 407, 87 S.Ct. 1801). Likewise
law held the arbitration provision not to be severable a in Southland, which arose in state court, we did not
challenge to the contract as a whole would be decided by ask whether the several challenges made there—fraud,
the court. See id., at 400, 402–403, 87 S.Ct. 1801. misrepresentation, breach of contract, breach of fiduciary
duty, and violation of the California Franchise Investment
Subsequently, in Southland Corp., we held that the FAA Law—would render the contract void or voidable. We
“create[d] a body of **1209 federal substantive law,” simply rejected the proposition that the enforceability of
which was “applicable in state and federal courts.” 465 the arbitration agreement turned on the state legislature's
U.S., at 12, 104 S.Ct. 852 (internal quotation marks judgment concerning the forum for enforcement of the
omitted). We rejected the view that state law could bar state-law cause of action. See 465 U.S., at 10, 104 S.Ct.
enforcement of § 2, even in the context of state-law claims 852. So also here, we cannot accept the Florida Supreme
brought in state court. See id., at 10–14, 104 S.Ct. 852; see Court's conclusion that enforceability of the arbitration
also Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, agreement should turn on “Florida public policy and
270–273, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). contract law,” 894 So.2d, at 864.

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provision “upon such grounds as exist at law or in equity
for the revocation of any contract.” (Emphasis added.)
There can be no doubt that “contract” as used this last
*447 C
time must include contracts that later prove to be void.
Respondents assert that Prima Paint's rule of severability Otherwise, the grounds for revocation would be limited
does not apply in state court. They argue that Prima Paint to those that rendered a contract voidable—which would
interpreted only §§ 3 and 4—two of the FAA's procedural mean (implausibly) that an arbitration agreement could
provisions, which appear to apply by their terms only be challenged as voidable but not as void. Because the
in federal court—but not § 2, the only provision that sentence's final use of “contract” so obviously includes
we have applied in state court. This does not accurately putative contracts, we will not read the same word earlier
describe Prima Paint. Although § 4, in particular, had in the same sentence to have a more narrow meaning. 3 We
much to do with Prima Paint's understanding of the rule note that neither Prima Paint nor Southland lends support
of severability, see 388 U.S., at 403–404, 87 S.Ct. 1801, to respondents' reading; as we have discussed, neither case
this rule ultimately arises out of § 2, the FAA's substantive turned on whether the challenge at issue would render the
command that arbitration agreements be treated like all contract voidable or void.
other contracts. The rule of severability establishes how
this equal-footing guarantee for “a written [arbitration]
provision” is to be implemented. Respondents' **1210
***
reading of Prima Paint as establishing nothing more
than a federal-court rule of procedure also runs contrary It is true, as respondents assert, that the Prima Paint
to Southland's understanding of that case. One of the rule permits a court to enforce an arbitration agreement
bases for Southland's application of § 2 in state court in a contract that the arbitrator later finds to be void.
was precisely Prima Paint's “reli[ance] for [its] holding on But it is equally true that respondents' approach permits
Congress' broad power to fashion substantive rules under a court to deny effect to an arbitration provision in a
the Commerce Clause.” 465 U.S., at 11, 104 S.Ct. 852; see contract that *449 the court later finds to be perfectly
also Prima Paint, supra, at 407, 87 S.Ct. 1801 (Black, J., enforceable. Prima Paint resolved this conundrum—and
dissenting) (“[t]he Court here holds that the [FAA], as a resolved it in favor of the separate enforceability of
matter of federal substantive law ...” (emphasis added)). arbitration provisions. We reaffirm today that, regardless
Southland itself refused to “believe Congress intended of whether the challenge is brought in federal or state
to limit the Arbitration Act to disputes subject only to court, a challenge to the validity of the contract as a whole,
federal-court jurisdiction.” 465 U.S., at 15, 104 S.Ct. 852. and not specifically to the arbitration clause, must go to
the arbitrator.
[5] Respondents point to the language of § 2, which
renders “valid, irrevocable, and enforceable” “a written **1211 The judgment of the Florida Supreme Court is
provision in” or “an agreement in writing to submit reversed, and the case is remanded for further proceedings
to arbitration an existing controversy arising out of” a not inconsistent with this opinion.
“contract.” Since, respondents argue, the only arbitration
agreements to which § 2 applies are those involving It is so ordered.
a “contract,” and since an agreement void ab initio
under state law is not a “contract,” there is no “written Justice ALITO took no part in the consideration or
provision” in or “controversy arising out of” a “contract,” decision of this case.
to which § 2 can apply. This argument echoes *448
Justice Black's dissent in Prima Paint: “Sections 2 and
3 of the Act assume the existence of a valid contract.
They merely provide for enforcement where such a valid Justice THOMAS, dissenting.
contract exists.” 388 U.S., at 412–413, 87 S.Ct. 1801. I remain of the view that the Federal Arbitration Act
We do not read “contract” so narrowly. The word (FAA), 9 U.S.C. § 1 et seq., does not apply to proceedings
appears four times in § 2. Its last appearance is in the in state courts. See Allied–Bruce Terminix Cos. v. Dobson,
final clause, which allows a challenge to an arbitration 513 U.S. 265, 285–297, 115 S.Ct. 834, 130 L.Ed.2d

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)
126 S.Ct. 1204, 163 L.Ed.2d 1038, 74 USLW 4119, 06 Cal. Daily Op. Serv. 1491...

753 (1995) (dissenting opinion); Doctor's Associates, Inc. Accordingly, I would leave undisturbed the judgment of
the Florida Supreme Court.
v. Casarotto, 517 U.S. 681, 689, 116 S.Ct. 1652, 134
L.Ed.2d 902 (1996) (same); Green Tree Financial Corp. v.
Bazzle, 539 U.S. 444, 460, 123 S.Ct. 2402, 156 L.Ed.2d All Citations
414 (2003) (same). Thus, in state-court proceedings, the
FAA cannot be the basis for displacing a state law that 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038, 74 USLW
prohibits enforcement of an arbitration clause contained 4119, 06 Cal. Daily Op. Serv. 1491, 2006 Daily Journal
in a contract that is unenforceable under state law. D.A.R. 2008, 19 Fla. L. Weekly Fed. S 94

Footnotes
* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the
convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50
L.Ed. 499.
1 The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and
obligee was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in
the cases cited by respondents (and by the Florida Supreme Court), which hold that it is for courts to decide whether
the alleged obligor ever signed the contract, Chastain v. Robinson–Humphrey Co., 957 F.2d 851 (C.A.11 1992), whether
the signor lacked authority to commit the alleged principal, Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (C.A.3 2000);
Sphere Drake Ins. Ltd. v. All American Ins. Co., 256 F.3d 587 (C.A.7 2001), and whether the signor lacked the mental
capacity to assent, Spahr v. Secco, 330 F.3d 1266 (C.A.10 2003).
2 In pertinent part, § 4 reads:
“A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written
agreement for arbitration may petition any United States district court [with jurisdiction] ... for an
order directing that such arbitration proceed in a manner provided for in such agreement ... .[U]pon
being satisfied that the making of the agreement for arbitration or the failure to comply therewith
is not in issue, the court shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement ... .”
3 Our more natural reading is confirmed by the use of the word “contract” elsewhere in the United States Code to refer
to putative agreements, regardless of whether they are legal. For instance, the Sherman Act, ch. 647, 26 Stat. 209,
as amended, states that “[e]very contract, combination ..., or conspiracy, in restraint of trade [is] hereby declared to be
illegal.” 15 U.S.C. § 1. Under respondents' reading of “contract,” a bewildering circularity would result: A contract illegal
because it was in restraint of trade would not be a “contract” at all, and thus the statutory prohibition would not apply.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (1996)
39 Tex. Sup. Ct. J. 856

Courts must resolve any doubts about
agreement to arbitrate in favor of arbitration.
KeyCite Yellow Flag - Negative Treatment 9 U.S.C.A. § 1 et seq.
Distinguished by Morella v. Andonov, Tex.App.-Hous. (1 Dist.), 
December 20, 2001 34 Cases that cite this headnote
924 S.W.2d 943
Supreme Court of Texas.
[4] Alternative Dispute Resolution
CANTELLA & CO., INC., Relator, Evidence
v. Party opposing arbitration agreement bears
The Honorable Gerald A. burden of defeating it. 9 U.S.C.A. § 1 et seq.
GOODWIN, Judge, Respondent.
16 Cases that cite this headnote
No. 95–0819.
| [5] Alternative Dispute Resolution
June 28, 1996. Elements
Securities broker filed petition for writ of mandamus, Alternative Dispute Resolution
seeking relief from trial court's order denying arbitration Discretion
of city's suit against broker arising from securities Alternative Dispute Resolution
transaction. The Supreme Court held that: (1) Remedies and Proceedings for
arbitration provision was sufficiently conspicuous, and (2) Enforcement in General
noncompliance with National Association of Securities Once party seeking to compel arbitration
Dealers (NASD) rules did not render arbitration establishes that agreement exists under
agreement void. Federal Arbitration Act (FAA), and that
claims raised are within agreement's scope,
Writ conditionally granted. trial court has no discretion but to compel
arbitration and stay its proceedings pending
arbitration. 9 U.S.C.A. § 1 et seq.
West Headnotes (8)
43 Cases that cite this headnote

[1] Alternative Dispute Resolution [6] Alternative Dispute Resolution
Arbitration favored; public policy Agreements to arbitrate
Federal and state law strongly favor Arbitration provision in client's agreement
arbitration. 9 U.S.C.A. § 1 et seq. between city and securities broker was
sufficiently conspicuous; provision was
33 Cases that cite this headnote
separately numbered and captioned in bold
print, and entire arbitration provision, unlike
[2] Alternative Dispute Resolution other provisions in the agreement, was typed
Evidence in all capital letters.
Presumption exists in favor of agreements
6 Cases that cite this headnote
to arbitrate under Federal Arbitration Act
(FAA). 9 U.S.C.A. § 1 et seq.
[7] Alternative Dispute Resolution
67 Cases that cite this headnote Agreements to arbitrate
Even though disclosure warning of arbitration
[3] Alternative Dispute Resolution was located at bottom of client's agreement,
Construction in favor of arbitration instead of immediately above signature line as

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (1996)
39 Tex. Sup. Ct. J. 856

required by National Association of Securities Arbitration Act....” Darryl Mayfield, the City's assistant
Dealers (NASD) rules, arbitration agreement city manager, signed the agreement on the City's behalf,
was not rendered void, where agreement did and Atha Stokes, the city secretary, attested to it.
not require that NASD rules apply, but rather
specifically provided for arbitration under In 1994, the City sued Cantella for fraud, Texas Securities
Federal Arbitration Act (FAA). 9 U.S.C.A. § Act violations, negligence and gross negligence. Cantella
1 et seq. moved to stay the suit and to compel arbitration. At a
hearing on the motion, Cantella proved up the arbitration
7 Cases that cite this headnote agreement and that the subject matter involved commerce,
thereby bringing the agreement within the FAA's scope.
[8] Mandamus See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266,
Acts and proceedings of courts, judges, 269–70 (Tex.1992). Nevertheless, the trial court denied
and judicial officers Cantella's motion. The court of appeals denied Cantella
mandamus relief.
Party who is erroneously denied right to
arbitrate under Federal Arbitration Act
[1] [2] [3] [4] [5] Federal and state law strongly
(FAA) has no adequate remedy at law and
favor arbitration. See Moses H. Cone Memorial Hosp.
mandamus relief is appropriate. 9 U.S.C.A. §
v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct.
1 et seq.
927, 941–42, 74 L.Ed.2d 765 (1983); Prudential Sec., Inc.
23 Cases that cite this headnote v. Marshall, 909 S.W.2d 896, 898 (Tex.1995); Capital
Income Properties–LXXX v. Blackmon, 843 S.W.2d 22,
23 (Tex.1992); Tipps, 842 S.W.2d at 268. Indeed, a
presumption exists in favor of agreements to arbitrate
Attorneys and Law Firms under the FAA. Marshall, 909 S.W.2d at 898–99. Courts
must resolve any doubts about an agreement to arbitrate
*943 Carla Powers Herron, James A. Gilman, Houston, in favor of arbitration. Marshall, 909 S.W.2d at 899. A
for relator. party opposing an arbitration agreement bears the burden
of defeating it. Marshall, 909 S.W.2d at 900. Once a
Kyle W. King, Hugh L. McKinney, Charles L. Henke, party seeking to compel arbitration establishes that an
John E. O'Neill, Michael Napoli, Houston, Robert L. agreement exists under the FAA, and that the claims
Fluornoy, Lufkin, Eric Tibbs, Houston, for respondent. raised are within the agreement's scope, the trial court
“has no discretion but to compel arbitration and stay its
Opinion
proceedings pending arbitration.” See Shearson Lehman
*944 PER CURIAM. Bros., Inc. v. Kilgore, 871 S.W.2d 925, 928 (Tex.App.—
Corpus Christi 1994, orig. proceeding).
In this original proceeding, Cantella & Company seeks
relief from the trial court's order denying arbitration of [6] The City argues that it did not agree to arbitrate
the City of Lufkin's suit against Cantella arising from a and, therefore, the courts cannot require it to submit to
securities transaction. Because the parties entered into a the process. See Freis v. Canales, 877 S.W.2d 283, 284
valid arbitration agreement under the Federal Arbitration (Tex.1994)(holding that a court cannot order arbitration
Act (the FAA) 1 , we conditionally grant mandamus relief. absent an agreement between the parties). Specifically, the
City argues that the arbitration provision was “hidden”
In 1993, Cantella and the City entered into a “Client's on the back of the client's agreement, and consequently,
Agreement” whereby Cantella agreed to handle securities Mayfield did not know about the arbitration provision
transactions for the City. The agreement has an when he signed the document. Therefore, the City argues
arbitration clause. It provides that “all controversies that Mayfield did not agree to arbitration on the City's
which may arise between us ... shall be determined behalf. This argument does not persuade us.
by arbitration.” The agreement further provides that
arbitration “shall be conducted pursuant to the Federal

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (1996)
39 Tex. Sup. Ct. J. 856

The agreement is a single page with text on both 859 P.2d at 450 (Nelson, J., dissenting). These remedial
sides. Nothing is “hidden” on the back side of the remedies are consistent with the strong public policy
document. The arbitration provision is quite conspicuous. emphasized by caselaw favoring arbitration agreements
It is separately numbered and captioned in bold between parties. See Moses H. Cone Memorial Hosp., 460
print, “ARBITRATION”. Also, the entire arbitration U.S. at 24–25, 103 S.Ct. at 941–42; Tipps, 842 S.W.2d at
provision, unlike other provisions in the agreement, is 268.
typed in all capital letters. Because of the document's
nature, combined with the legal presumption that a party The City relies on two recent cases for the proposition
who signs a contract knows its contents, we reject the that Cantella's alleged non-compliance with NASD
City's argument that it did not agree to arbitrate because rules, section 21(f), makes the agreement void. See
it did not see the arbitration provision in the agreement. Nielsen v. Piper, Jaffray & Hopwood, Inc., 66 F.3d 145
See Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex.1962); (7th Cir.1995); Mueske, 859 P.2d at 444. These cases
Kilgore, 871 S.W.2d at 928–29. are distinguishable. In both Nielsen and Mueske, the
courts declared the respective arbitration agreements void
[7] Alternatively, the City asserts that because the because the contracts had specific language requiring that
arbitration provision does not strictly comply with arbitration “shall be in accordance with the rules [of] the
National Association of Securities Dealers (NASD) rules, National Association of Securities Dealers, Inc. [NASD].”
the agreement is void. Specifically, the City complains that See Nielsen, 66 F.3d at 148; Mueske, 859 P.2d at 446.
Cantella did not comply with NASD Manual–Rules of Because the defendants' contracts in Nielsen and Mueske
Fair Practice (CCH) *945 ¶ 2171, Art. III, Sec. 21(f), violated NASD rules at the same time that they expressly
because: (1) it neglected to place a disclosure statement called for NASD rules to apply, the courts declared the
above the signature line of the agreement, warning of arbitration agreements invalid. See Nielsen, 66 F.3d at
the arbitration provision; (2) it did not highlight the 146–47; Mueske, 859 P.2d at 450.
arbitration provision; and, (3) it did not forward a
conformed copy of the agreement to the City. Here, the agreement between Cantella and the City
does not require that NASD rules apply. Instead, the
Our review of the document reveals that the arbitration agreement specifically provides for arbitration under the
provision is “highlighted” in all capital letters and in FAA. Regardless, if Cantella violated section 21(f), as the
bold text. The City's argument that it did not receive a City alleges, voiding the agreement is not the appropriate
conformed copy of the agreement is based on Mayfield remedy under NASD rules. See Mueske, 859 P.2d at
and Stokes' affidavits, stating that they could not find a 450 (Nelson, J., dissenting); cf. Nielsen, 66 F.3d at 147
copy of the agreement in the City's files. Cantella concedes (recognizing that new NASD rule did not allow for
that the agreement does not comply with section 21(f) enforcement of arbitration agreement in class action suit).
to the extent that the disclosure warning of arbitration Accordingly, we reject the City's argument that Cantella
is located at the bottom of the client's agreement instead should be forced to forego its contractual right to arbitrate
of being properly placed immediately above the signature because of any non-compliance with section 21(f) of
line. NASD rules.

The NASD is a private, independent, self-regulating [8] A party who is erroneously denied the right to
organization. See Mueske v. Piper, Jaffray & Hopwood, arbitrate under the FAA has no adequate remedy at law
Inc., 260 Mont. 207, 859 P.2d 444, 448–49 (1993). and mandamus relief is appropriate. Marshall, 909 S.W.2d
Under 15 U.S.C. § 78o–3, the Securities and Exchange at 900; Tipps, 842 S.W.2d at 272–73. Because Cantella
Commission reviews and approves NASD's rules and established an agreement to arbitrate with the City under
procedures. While some NASD rules preclude arbitration the FAA, we conditionally grant writ of mandamus. See
for non-compliance, there is no such penalty for non- TEX.R.APP. P. 122. We direct the trial court to order that
compliance with section 21(f). Instead, the remedies for a the City's claims against Cantella proceed to arbitration.
broker's section 21(f) violations are censure, suspension, The clerk is instructed to issue the writ only if the trial
expulsion, fine and sanctions. See NASD Manual–Rules court does not follow our direction.
of Fair Practice (CCH) ¶ 2301, Art. V, Sec. 1; Mueske,

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (1996)
39 Tex. Sup. Ct. J. 856

All Citations

924 S.W.2d 943, 39 Tex. Sup. Ct. J. 856

Footnotes
1 See 9 U.S.C. § 1 et seq.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22 (1992)

KeyCite Yellow Flag - Negative Treatment Attorneys and Law Firms
Distinguished by Loy v. Harter, Tex.App.-Texarkana, February 10, 2004 
843 S.W.2d 22 *22 Kelly M. Crawford and C. Kent Adams, Dallas,
Supreme Court of Texas. Scott G. Campbell, New York City, for relators.

CAPITAL INCOME PROPERTIES–LXXX; Cary N. Goldberg, Chicago, IL, Thomas L. Busby,
CRI, Inc.; William B. Dockser; Martin C. Corpus Christi, Ronald A. Schy, Chicago, IL, Kathryn
F. Green, Corpus Christi, Bruce W. Collins, Dallas, for
Schwartzberg; H. William Willoughby;
respondent.
C.R.C.C. of Corpus Christi, Ltd.; CRICO–
Texas Growth Partners Limited Partnership Opinion
and Crico Securities Corporation, Relators,
v. PER CURIAM.
The Honorable Robert M. Capital Income Properties–LXXX and seven other
BLACKMON, Judge, Respondent. defendants (collectively CIP) have filed a motion for leave
to file a petition for writ of mandamus, requesting that
No. D–2848.
we direct the trial court to compel arbitration of the
|
claims raised by thirty plaintiffs in the underlying suit.
Dec. 16, 1992.
Concluding that CIP has established that the trial court
Limited partnership petitioned for writ of mandamus abused its discretion in refusing to order arbitration and
to compel arbitration of limited partners' claims against that CIP does not have an adequate remedy by appeal, we
limited partnership. The Supreme Court held that conditionally grant the relief requested. 1
arbitration was required.
Plaintiffs, residents of fourteen different states, purchased
Petition granted. shares in CIP, a District *23 of Columbia limited
partnership formed to develop and operate a Corpus
Christi hotel. Article 12.01 of the limited partnership
agreement provided that “any dispute, controversy or
West Headnotes (1)
claim arising out of or in connection with or relating to
this Agreement ... shall, upon the request of any party
[1] Alternative Dispute Resolution involved, be submitted to and settled by arbitration....”
Disputes and Matters Arbitrable Under Plaintiffs filed suit in 1991, seeking return of their
Agreement initial investments plus damages based on fraud, breach
Limited partners' claims that limited of fiduciary duty, negligent misrepresentation, and
partnership breached fiduciary duty in violation of the Deceptive Trade Practices Act. Urging
operating and managing partnership, the application of the Texas General Arbitration Act,
repeatedly misrepresenting financial health TEX.REV.CIV.STAT.ANN. art. 224—238–6 (the Texas
of operation, and fraudulently inducing Act), and the Federal Arbitration Act, 9 U.S.C. § 1–16 (the
investments arose out of and related to Federal Act), CIP requested that the trial court compel
limited partnership agreement, and, thus, arbitration.
arbitration was required under provision
of agreement requiring arbitration of any At the conclusion of a hearing on the motion to compel
dispute, controversy, or claim arising out of or arbitration, the trial court determined that the agreement
in connection with or relating to agreement. to arbitrate was binding and enforceable but that the
claims raised were not within the scope of the arbitration
42 Cases that cite this headnote clause. CIP's request for mandamus relief from the
Thirteenth Court of Appeals was denied.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Capital Income Properties-LXXX v. Blackmon, 843 S.W.2d 22 (1992)

After reviewing the mandamus record before us, we Painter, 827 S.W.2d 103, 105 (Tex.App.—Austin 1992,
writ denied).
conclude that although the trial court correctly concluded
that the arbitration clause is valid and enforceable, it
It is also undisputed that the Plaintiffs claim that CIP
abused its discretion in failing to compel arbitration
breached its fiduciary duty to them in operating and
under the Federal Act. 2 We have recently reiterated the
managing the partnership, in repeatedly misrepresenting
strong policy preference for enforcing arbitration clauses.
the financial health of the operation, and in fraudulently
Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266 (Tex.1992)
inducing them to invest in the partnership. These claims
(orig. proceeding). The Federal Act, which applies to
arise out of and relate to the limited partnership
transactions “involving commerce,” dictates enforcement
agreement. In Anglin we held that Deceptive Trade
of an arbitration agreement upon evidence that a written
Practice Act claims may be subject to arbitration, 842
agreement to arbitrate exists and that the claims raised
S.W.2d at 271, and the United States Supreme Court
are within the scope of the agreement. The Federal Act
has held that a claim of fraud in the inducement unless
is part of the substantive law of Texas. Southland Corp.
specifically directed to the making of the arbitration clause
v. Keating, 465 U.S. 1, 14–16, 104 S.Ct. 852, 860–61, 79
does not defeat application of that clause to the agreement
L.Ed.2d 1 (1984); Anglin, 842 S.W.2d at 271; Batton v.
as a whole. Prima Paint Corp., 388 U.S. at 406, 87 S.Ct. at
Green, 801 S.W.2d 923, 927 (Tex.App.—Dallas 1990, no
1807; Mesa Operating, 797 F.2d at 244.
writ). In Anglin we also concluded that a party denied
the benefit of an agreement to arbitrate is without an
*24 Accordingly, because CIP has shown that a written
adequate remedy by appeal when pursuing application
arbitration agreement exists and that the Plaintiffs' claims
of the Federal Act in state court, and that mandamus is
fall within the scope of that agreement, without hearing
therefore appropriate. 842 S.W.2d at 271.
oral argument and pursuant to Texas Rule of Appellate
Procedure 122, a majority of the court conditionally
The undisputed facts of this case establish the applicability
grants the writ of mandamus and directs the trial court
of the Federal Act: citizens from a number of different
to order that all claims proceed to arbitration under the
states have purchased interests from a business entity in
Federal Arbitration Act. The clerk is instructed to issue
one state for the purpose of carrying out a commercial
the writ only should the trial court fail to follow our
venture in another state. See Prima Paint v. Flood &
direction.
Conklin Mfg. Co., 388 U.S. 395, 401 n. 7, 87 S.Ct. 1801,
1805 n. 7, 18 L.Ed.2d 1270 (1967); Mesa Operating Ltd.
Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d All Citations
238, 243 (5th Cir.1986); Lost Creek Util. v. Travis Indep.
843 S.W.2d 22

Footnotes
1 CIP also filed an application for writ of error from the judgment of the Thirteenth Court of Appeals dismissing CIP's
interlocutory appeal for want of jurisdiction. Capital Income Properties–LXXX v. Waldman, 835 S.W.2d 152 (Tex.App.—
Corpus Christi 1992). The court of appeals held that the arbitration clause was not enforceable under Texas law and that
federal law did not permit an interlocutory appeal in state court. That application is denied by separate order.
2 Section 2 of the Federal Act provides that:
a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle
by arbitration a controversy thereafter arising out of such contract or transaction, ... shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
CASH BIZ, LP v. HENRY, Not Reported in S.W.3d (2016)
2016 WL 4013794

borrowing parties' alleged causes of action fall within
the scope of the arbitration provision contained within
KeyCite Yellow Flag - Negative Treatment the loan documents, and if so, (2) whether Cash Biz
Declined to Follow by Vine v. Pls Financial Services, Inc., W.D.Tex., 
waived the right to enforce the arbitration provision
August 11, 2016
because it substantially invoked the judicial process by
2016 WL 4013794
filing criminal complaints against the borrowing parties.
Only the Westlaw citation is currently available.
Dependent upon whether the arbitration provision
SEE TX R RAP RULE 47.2 FOR applies, the parties also dispute whether the Plaintiff
DESIGNATION AND SIGNING OF OPINIONS. borrowing parties waived the ability to proceed through a
class action.
Court of Appeals of Texas,
San Antonio. We conclude the Plaintiff borrowing parties' causes of
action fall within the scope of the parties' arbitration
CASH BIZ, LP, Redwood Financial, LLC, agreement, and Cash Biz's filing of a criminal complaint
Cash Zone, LLC dba Cash Biz, Appellants was not an act that substantially invoked the judicial
v. process to constitute waiver of this agreement. We
Hiawatha HENRY, Addie Harris, Montray Norris, conclude the Plaintiff borrowing parties waived the right
and Roosevelt Coleman Jr., et al., Appellees to bring a class action. Accordingly, we reverse the
trial court's order denying Cash Biz's motion to compel
No. 04-15-00469-CV arbitration and denying Cash Biz's motion to enforce the
| class action waiver provision. We render an order granting
Delivered and Filed: July 27, 2016 Cash Biz's motion. We remand for arbitration.

From the 166th Judicial District Court, Bexar County,
Texas, Trial Court No. 2015-CI-01545, Honorable Laura
Salinas, Judge Presiding. FACTUAL BACKGROUND

Attorneys and Law Firms Cash Biz, LP, Redwood Financial, LLC, and Cash Zone,
LLC d/b/a Cash Biz (collectively referred to as “Cash
Edward Hubbard, Patrick E. Gaas, Sumit Kumar Arora, Biz”) provide short-term consumer loans, also known
Coats Rose Yale Ryman & Lee PC, Houston, TX, for as “payday loans.” See TEX. FIN. CODE ANN. §
Appellant. 393.221 (defining a payday loan). As is normal practice
with “payday loans”, Cash Biz required all borrowers to
Daniel Dutko, H. Mark Burck, Philip A. Meyer, Hanszen
provide a post-dated personal check in the amount of the
Laporte, LLP, Houston, TX, for Appellee.
loan plus the finance charge. As a general practice, if a
Sitting: Karen Angelini, Justice Rebeca C. Martinez, borrower defaulted, Cash Biz deposited the post-dated
Justice Jason Pulliam, Justice check on the loan's due date in satisfaction of the loan.

Also as part of the process of obtaining the loan,
borrowers signed written credit service agreements
MEMORANDUM OPINION
along with disclosure statements, promissory notes, and
Opinion by: Jason Pulliam, Justice security agreements (collectively, “Loan Contracts”).
Each written credit service agreement contained
a provision entitled “Waiver of Jury Trial and
INTRODUCTION
Arbitration Provision” (hereinafter referred to as
*1 This appeal arises from the trial court's denial of “arbitration provision”). This arbitration provision
a motion to compel arbitration and to enforce a class requires arbitration of any of the following “disputes”:
action waiver provision contained within loan documents
between the Cash Biz appellants and its customers.
The issues on appeal are: (1) whether the Plaintiff

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
CASH BIZ, LP v. HENRY, Not Reported in S.W.3d (2016)
2016 WL 4013794

OF CLAIMANTS IN ANY LAWSUIT FILED
the words “dispute and “disputes” are given the AGAINST US ....
broadest possible meaning and include, without
limitation Finally, the arbitration provision contains a waiver of
class action in arbitration provision, which states,
• (a) claims, disputes, or controversies arising from or
relating directly or indirectly to the signing of this all disputes ... shall be
Arbitration Provision, the validity and scope of this resolved by binding arbitration
Arbitration Provision and any claim or attempt to set only on an individual
aside this Arbitration Provision; basis with you. THEREFORE,
THE ARBITRATOR SHALL
• (b) all federal or state law claims ... arising from or NOT CONDUCT CLASS
relating directly or indirectly to this Agreement ..., ARBITRATION ....
any past and/or future claims or disputes between you Notwithstanding any other
and us and/or any Lender who provides you with a provision herein to the contrary,
loan as a result of our services; ... the validity, effect, enforceability of
this waiver of class action lawsuit
*2 • (d) all common law claims, based upon contract,
and class-wide arbitration shall be
tort, fraud, or other intentional torts;
determined solely by a court of
• (e) all claims based upon a violation of any state or competent jurisdiction and not by
federal constitution, statute, or regulation; the arbitrator.

• (f) all claims asserted by us against you, including Hiawatha Henry, Addie Harris, Montray Norris, and
claims for money damages to collect any sum we Roosevelt Coleman, Jr. (the Borrowing Parties) obtained
claim you owe us; ... loans from Cash Biz and subsequently defaulted on their
repayment obligations. Cash Biz attempted to deposit
• (g) all claims asserted by you individually against us ...
the post-dated checks written upon execution of the loan
including claims for money damages and/or equitable
documents; however, the checks were declined based upon
or injunctive relief; ...
insufficient funds.
• (i) all claims asserted by you as a private attorney
general, as a representative and member of a class ... Cash Biz contacted the applicable local district attorneys
against us ... ; and/or and submitted information necessary to make a criminal
complaint, stating these borrowers “engaged in criminal
• (j) all claims arising from or relating directly or conduct during the formation and performance of the loan
indirectly to the disclosure by us ... of any non-public transactions, including the issuance of bad checks and
personal information about you. check fraud.” The district attorneys then filed criminal
charges against each of the Borrowing Parties for violation
In addition, relevant to this appeal, the arbitration of Texas Penal Code Section 32.41, which prohibits
provision states: issuance of “bad checks”. But see TEX. PENAL CODE
ANN. § 32.41 (West Supp. 2015) (offense requires issuer's
You acknowledge and agree that by entering into this
knowledge of insufficient funds at the time of issuance;
Arbitration Provision:
knowledge may be presumed except for postdated check).
(a) YOU ARE GIVING UP YOUR RIGHT TO HAVE
A TRIAL BY JURY TO RESOLVE ANY DISPUTE The criminal charges against each of the Borrowing
ALLEGED AGAINST US, THE LENDER AND/ Parties were eventually dismissed; however, several of
OR OUR/ITS RELATED THIRD PARTIES; ... and the Borrowing Parties were arrested and detained. In
addition, other Cash Biz borrowers within the purported
(c) YOU ARE GIVING UP YOUR RIGHT TO class faced criminal convictions for theft by check
SERVE AS A REPRESENTATIVE ... OR TO and were assessed jail time, restitution, and fines as
PARTICIPATE AS A MEMBER OF A CLASS punishment.

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brought by the Borrowing Parties. In addition, the trial
court concluded Cash Biz waived its right to arbitration
by substantially invoking the judicial process when it
PROCEDURAL BACKGROUND
“filed criminal charges against Plaintiffs, participated
On January 30, 2015, the Borrowing Parties filed a in criminal trials, obtained criminal judgments, and
class action petition on behalf of themselves and all attempted to collect from Plaintiffs.” Cash Biz perfected
this interlocutory appeal pursuant to Texas Civil Practice
others similarly situated in Texas, 1 alleging Cash Biz: (1)
and Remedies Code Sections 51.016 and 171.098.
illegally and wrongfully used the criminal justice system
to collect payday loans through the wrongful filing of
criminal charges; (2) illegally and wrongfully threatened
its customers with criminal prosecution for failure to ANALYSIS
repay payday loans in violation of the Texas Finance
Code, Texas Penal Code, and Texas Constitution; and
Burden of Proof to Compel Arbitration
(3) illegally and wrongfully classified post-dated checks
as bad checks and pursued criminal charges against its A party seeking to compel arbitration bears the burden to
customers in violation of the Finance Code and Penal establish (1) the existence of a valid agreement to arbitrate;
Code. The Borrowing Parties alleged Cash Biz engaged in and (2) the claims in dispute fall within the scope of the
the described conduct knowing it was in violation of the arbitration agreement. In re Rubiola, 334 S.W.3d 220,
law. 2 223 (Tex. 2011); J.M. Davidson v. Webster, 128 S.W.3d
223, 227 (Tex. 2003). If the party seeking arbitration
*3 Based upon these allegations, the Borrowing Parties meets its two-pronged burden to establish the agreement's
pled specific causes of action of malicious prosecution, validity and scope, the burden shifts to the party opposing
fraud, violation of the DTPA, and violation of Finance arbitration to raise an affirmative defense to enforcement
Code Section 393.301. Cash Biz filed a motion to compel of the arbitration agreement, such as, in this case, waiver
arbitration under the Loan Contracts and to enforce of arbitration. Venture Cotton Co-op. v. Freeman, 435
the class action waiver provision within the arbitration S.W.3d 222, 227 (Tex. 2014); J.M. Davidson, 128 S.W.3d
provision. Cash Biz requested that the trial court compel at 227.
individual arbitration with each Plaintiff and stay the
action pending completion of the individual arbitrations.
Standard of Review
At the conclusion of the hearing on the motion, the trial
court denied Cash Biz's motion to compel and enforce the An appellate court will review a trial court's order denying
arbitration and class action waiver provisions and signed a motion to compel arbitration for an abuse of discretion,
a written order finding: deferring to the trial court's factual determinations if
they are supported by the record and reviewing legal
(1) the plaintiffs' claims “relate solely to Cash Biz's
determinations de novo. In re Labatt Food Serv., L.P.,
illegal use of the criminal justice system to enforce a
279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding);
civil debt”;
Bonded Builders Home Wty Ass'n of Texas, Inc. v. Smith,
(2) the challenged conduct occurred after the expiration 05-15-00964-CV, 2016 WL 1612916, at *3 (Tex. App.—
of any contracts entered into by the Borrowing Dallas Apr. 21, 2016, no. pet. h.); Garcia v. Huerta, 340
Parties; and S.W.3d 864, 868 (Tex. App.—San Antonio 2011, pet.
denied). A trial court's determination whether a valid
(3) all of the damages are “solely related to criminal arbitration agreement exists and whether the claims in
fines, jail time, and loss of reputation related to dispute fall within the scope of an arbitration agreement
plaintiffs' criminal convictions.” are legal determinations subject to de novo review. In
re Labatt, 279 S.W.3d at 643; J.M. Davidson, Inc., 128
Based on these findings, the trial court concluded the S.W.3d at 227. If the moving party satisfies its burden of
arbitration provision and class action waiver within the proof, the trial court has no discretion but to grant the
Loan Contracts are “not applicable” to the type of action

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motion to compel arbitration unless the opposing party
satisfies its burden to prove an affirmative defense. Henry
v. Gonzalez, 18 S.W.3d 684, 688-89 (Tex. App.—San
Applicable Law
Antonio 2000, pet. dism'd by agrm't); Dallas Cardiology
Assoc., P.A. v. Mallick, 978 S.W.2d 209, 212 (Tex. App.— When determining whether a particular claim falls within
Texarkana 1998, writ denied). the scope of an arbitration agreement, courts employ a
strong presumption in favor of arbitration. In re Rubiola,
*4 In this case, the only affirmative defense at issue is 334 S.W.3d at 225; Prudential Sec. Inc. v. Marshall, 909
waiver of the right to arbitrate. Determination whether S.W.2d 896, 899 (Tex. 1995). Any doubt as to whether
a party waived its right to arbitrate presents a question a claim falls within the scope of a valid arbitration
of law subject to de novo review. Sedillo v. Campbell, 5 agreement must be resolved in favor of arbitration. In
S.W.3d 824, 826 (Tex. App.—Houston [14th Dist.] 1999). re Rubiola, 334 S.W.3d at 225; Prudential Sec. Inc., 909
If the opposing party satisfies its burden, the trial court S.W.2d at 899.
must deny the motion to compel arbitration. See Henry,
18 S.W.3d at 688-89; see also In re FirstMerit Bank, N.A., Under a broad arbitration clause, arbitration can
52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding); In re be compelled even though a particular dispute that
Washington Mut. Fin., L.P., 173 S.W.3d 189, 192 (Tex. arises between the parties does not specifically pertain
App.—Corpus Christi 2005, no pet.). to formation of, or obligations created by, the
originating contract. See In re Conseco Fin. Servicing
Corp., 19 S.W.3d 562, 570 (Tex. App.—Waco 2000,
Issue One: Enforcement of the Arbitration Provision
orig. proceeding) (holding broad arbitration provision
On appeal, Cash Biz challenges the trial court's denial of
encompassed statutory and tort claims not based on
its motion to compel arbitration contending it satisfied its
the formation, negotiation, terms, or performance of
burden of proof to compel arbitration, and the Borrowing
contract); AutoNation USA Corp. v. Leroy, 105 S.W.3d
Parties failed to establish waiver. The parties do not
190, 197 (Tex. App.—Houston [14th Dist.] 2003, no pet.);
contest the first element of Cash Biz's burden of proof:
Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205-06 (Tex.
whether a valid arbitration agreement exists. Instead,
App.—Houston [1st Dist.] 1997, no writ). To determine
Cash Biz's appellate argument focuses on the second
whether a claim falls within the scope of the agreement,
prong: whether the claims in dispute fall within the scope
courts must focus on the factual allegations outlined in the
of the parties' arbitration provision.
petition, rather than the legal causes of action asserted.
Prudential Sec. Inc., 909 S.W.2d at 899; Hou-Scape, Inc. v.
1. Cash Biz's Burden of Proof to Compel Arbitration: Lloyd, 945 S.W.2d at 205.
Whether the Borrowing Parties' asserted claims fall
within the scope of the arbitration provision *5 If the facts alleged in support of a cause of action
On appeal, Cash Biz argues it proved the Borrowing have a “significant relationship” to or are “factually
Parties' claims fall within the scope of the arbitration intertwined” with an underlying contract that contains
provision because the supporting factual allegations, the arbitration agreement, then the asserted cause of
contending Cash Biz used the criminal justice system to action is within the scope of the arbitration agreement.
enforce a civil debt arise out of the Loan Contract which See Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 498
created the civil debt and which contains the arbitration (Tex. App.—San Antonio 2000, orig. proceeding); Hou-
provision. Cash Biz contends these factual allegations and Scape, Inc. v. Lloyd, 945 S.W.2d at 205-06. If the facts
basis of the action are encompassed within the broad alleged stand alone and are completely independent of
definition of “dispute” in the arbitration provision. the contract, the asserted cause of action is not subject to
arbitration. Pennzoil, 30 S.W.3d at 498.
The Borrowing Parties assert their claims are not based
on the parties' legal relationship created by the Loan
Contract, but arise independently based upon Cash Biz's Application
ancillary action of illegally initiating criminal prosecutions
against them.

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Here, the Borrowing Parties' allege in their first amended Thus, the burden of proof shifted to the Borrowing Parties
class action petition that Cash Biz “illegally and to establish an affirmative defense, that is, waiver of the
wrongfully used the criminal justice system to collect right to enforce the arbitration provision. Venture Cotton
payday loans,” “illegally and wrongfully threatened its Co-op., 435 S.W.3d at 227; J.M. Davidson, 128 S.W.3d at
customers with criminal prosecution,” and “illegally and 227.
wrongfully classified post-dated checks as bad checks and
pursued criminal charges.”
2. The Borrowing Parties' Burden of Proof to Defeat
While the torts alleged are based upon independent Arbitration: Whether Cash Biz Waived its Right to
acts outside the formation or performance of the Loan Enforce Arbitration Agreement
Contracts, the arbitration provision compels a very broad *6 The Borrowing Parties' sole defense to arbitration
definition of “dispute”. By defining “dispute” as “all is Cash Biz waived its right to arbitrate by substantially
common law claims based upon tort, fraud, or other invoking the judicial process through its filing of criminal
intentional tort”, this broad definition encompasses all complaints. Accordingly, the Borrowing Parties assert
claims based on acts that occur outside the formation Cash Biz sought to obtain a satisfactory result of
or performance of the Loan Contracts, and specifically repayment of the civil debts through restitution.
the causes of action alleged here. Therefore, the causes
of action alleged by the Borrowing Parties against Cash Biz responds it merely provided information to
Cash Biz fall within the broad definition of “dispute” support a complaint of potentially criminal activity, and
with the arbitration provision. This broad definition, the prosecuting district attorneys facilitated independent
which encompasses “any claim” between the parties, is investigation and arrest. Because the district attorneys
limited only by the legal requirement that the facts be held discretion whether to file and/or prosecute criminal
“intertwined” or have a “substantial relationship.” See charges, Cash Biz asserts it did not invoke any judicial
Pennzoil Co., 30 S.W.3d at 498; Hou-Scape, Inc., 945 process.
S.W.2d at 205-06.

The factual allegations within the first amended petition Applicable Law
focus upon Cash Biz's filing of criminal complaints against
the Borrowing Parties to collect on the civil debt created As a defense to a motion to compel arbitration,
by the Loan Contracts. As alleged, the Loan Contracts the opposing party may show that the party seeking
serve as basis for the underlying allegations because arbitration either expressly or impliedly waived its right to
the Borrowing Parties' civil debt arose out of the Loan enforce the arbitration agreement. Perry Homes v. Cull,
Contracts, and the existence of this debt served as the 258 S.W.3d 580, 584 (Tex. 2008). Whether waiver occurs
impetus for Cash Biz to complain of criminal activity. depends on the individual facts and circumstances of each
For this reason, the facts alleged in support of the case. See Pilot Travel Ctrs v. McCray, 416 S.W.3d 168, 183
asserted causes of action have a significant relationship (Tex. App.—Dallas 2013, no pet.); Southwind Group, Inc.
to and are factually intertwined with the underlying Loan v. Landwehr, 188 S.W.3d 730, 735 (Tex. App.—Eastland
Contracts. Although the allegations are centered upon 2006, no pet.). To establish an implied waiver of a right
tortious conduct that does not pertain to the parties' to enforce arbitration, a party must show, based upon the
obligations within the Loan Contracts, these alleged torts totality of circumstances: (1) the party seeking arbitration
would not have occurred except for the existence of the substantially invoked the judicial process; and (2) the
Loan Contracts. party opposing arbitration suffered actual prejudice as a
result. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458
Because the facts as alleged to support the causes of S.W.3d 502, 511-12 (Tex. 2015); Perry Homes v. Cull, 258
action are factually intertwined with the Loan Contracts S.W.3d 580, 589-93 (Tex. 2008); Williams Indus., Inc. v.
and because the broad definition of “dispute” within the Earth Dev. Sys. Corp., 110 S.W.3d 131, 135 (Tex. App.—
arbitration provision encompasses these allegations, Cash Houston [1st Dist.] 2003, no pet.). Again, because public
Biz satisfied its burden of proof to show the claims in policy favors arbitration, there is a strong presumption
dispute fall within the scope of the arbitration provision. against finding a party waived its right to arbitration. In re

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Bruce Terminix Co., 988 S.W.2d 702, 704–05 (Tex. 1998) noticing deposition, agreeing to reset trial date, and
(orig. proceeding); EZ Pawn Corp. v. Mancias, 934 S.W.2d waiting nearly a year to move for arbitration). To waive
87, 89 (Tex. 1996) (orig. proceeding). The burden to prove arbitration, the party must “engage in some overt act
waiver is thus a heavy one, and any doubts regarding in court that evince[s] a desire to resolve the arbitrable
waiver are resolved in favor of arbitration. Perry Homes, dispute through litigation rather than arbitration.” Tuscan
258 S.W.3d at 584; In re Bruce Terminix Co., 988 S.W.2d Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717,
at 705. 721 (Tex. App.—Houston [1st Dist.] 2014, pet. denied);
Haddock v. Quinn, 287 S.W.3d 158, 177 (Tex. App.—Fort
No Texas caselaw addresses the specific issue whether Worth 2009, pet. denied).
the filing of a criminal complaint constitutes substantial
invocation of a judicial process to constitute waiver of *7 Within the context of a criminal case,
arbitration in a civil suit. However, caselaw establishing
factors to consider and interpreting acts which constitute [a] person procures a criminal
substantial invocation apply to guide this determination prosecution if his actions were
under these facts. enough to cause the prosecution,
and but for his actions the
With regard to the first prong, in determining whether prosecution would not have
the party seeking arbitration substantially invoked the occurred. A person does not procure
judicial process, courts review the circumstances of each a criminal prosecution when the
case to determine whether a party made specific and decision whether to prosecute is
deliberate acts after suit was filed that are inconsistent left to the discretion of another,
with its right to arbitrate or if a party otherwise engaged including a law enforcement official
in active participation to substantially invoke judicial or the grand jury, unless the
person provides information which
process. 3 See Pilot Travel Ctrs, 416 S.W.3d at 183;
he knows is false. A criminal
Southwind Group, Inc., 188 S.W.3d at 735; Sedillo, 5
prosecution may be procured by
S.W.3d at 827. This requisite action necessitates more
more than one person.
than filing suit or initiation of litigation; a party must
engage in deliberate conduct inconsistent with the right Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 293
to arbitrate, that is, an active attempt to achieve a (Tex. 1994); Daniels v. Kelley, 2010 WL 2935798, at *4
satisfactory result through means other than arbitration. (Tex. App.—San Antonio July 28, 2010, no pet.) (mem.
See e.g. G.T. Leach Builders, LLC, 458 S.W.3d at 512 op.).
(holding no waiver by asserting counterclaims, seeking
change of venue, filing motions to designate responsible
third parties, for continuance, and to quash depositions,
designating experts and waiting six months to move Application
for arbitration); Richmont Holdings, Inc. v. Superior
To prove Cash Biz waived arbitration, the Borrowing
Recharge Sys., L.L.C., 455 S.W.3d 573, 576 (Tex. 2014)
Parties presented evidence consisting of a series of criminal
(holding no waiver by initiating lawsuit, invoking forum-
case summaries and a case list of criminal cases initiated
selection clause, moving to transfer venue, propounding
in Harris County Justice of the Peace court. This evidence
request for disclosure, and waiting nineteen months after
reveals Cash Biz was the “complainant” in a number of
being sued to move for arbitration); In re Fleetwood
criminal cases, including those of the named Borrowing
Homes of Texas, L.P., 257 S.W.3d 692, 694 (Tex.
Parties, which resulted in criminal charges for “issuance
2008) (holding no waiver by noticing deposition, serving
of bad check”.
written discovery, and waiting eight months to move
for arbitration); In re Bruce Terminix, 988 S.W.2d at
To refute this assertion, Cash Biz presented an affidavit
703–04 (holding no waiver by propounding requests for
and supplemental affidavit of David Flanagan, an
production and interrogatories and waiting six months to
“authorized representative” whose “principal business for
seek arbitration); EZ Pawn Corp., 934 S.W.2d at 88-89
Cash Biz includes all general affairs and operations of
(holding no waiver by propounding written discovery,

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the business.” In his supplemental affidavit, Flanagan Ass'n of Texas, Inc., 2016 WL 1612916, at *3; Garcia, 340
attested: S.W.3d at 868.

Cash Biz simply left the information *8 In any event, Cash Biz presents a limited issue on
entirely to the discretion of the appeal, and the Borrowing Parties limit their argument
district attorney, and any action on appeal, to the issue whether Cash Biz's filing of
taken by the district attorney criminal complaints was sufficient to constitute waiver of
thereafter was made completely on the contractual right to arbitrate. The borrowing Parties
his/her own. Cash Biz did not do not present argument that Cash Biz engaged in any
make any formal charges, did not conduct beyond the filing of criminal complaints. The
participate in any criminal trial, and evidence that pertains to this limited issue is not disputed,
did not obtain criminal judgments. that is, Cash Biz provided information and filed criminal
Similarly, Cash Biz was neither a complaints against the Borrowing Parties. Therefore, this
witness in any criminal proceeding court's determination of waiver need only focus on this
nor was it asked to appear in any undisputed evidence.
such proceeding.
Cash Biz's filing of a criminal complaint does not rise
The case list presented by the Borrowing Parties impliedly to the extent of active engagement in litigation that
reveals that absent Cash Biz's complaint, no criminal Texas courts have consistently held to be specific and
prosecution would have occurred. The case list does not deliberate actions inconsistent with a right to arbitrate
reflect, however, the extent of Cash Biz's involvement in or that display an intent to resolve a dispute through
the criminal process, which is necessary for determination litigation. To begin, courts consistently evaluate a party's
of the issue whether Cash Biz substantially invoked the conduct after suit is filed to determine whether it waived
judicial process. its right to arbitration. See Pilot Travel Ctrs, 416 S.W.3d
at 183; Sedillo, 5 S.W.3d at 827; Nationwide of Bryan,
The trial court's order contains fact findings that Cash Inc. v. Dyer, 969 S.W.2d 518, 521 (Tex. App.—Austin
Biz “filed criminal charges against Plaintiffs, participated 1998, no pet.). Here, the parties focus on Cash Biz's
in criminal trials, obtained criminal judgments, and conduct in a separate proceeding before the underlying
attempted to collect from Plaintiffs.” While this court litigation was filed by the Borrowing Parties. Further,
must defer to the trial court, as fact finder, this deference under these facts, Cash Biz was not a party to the criminal
is limited to those fact findings supported by the record. prosecutions and did not serve as a witness or provide
See In re Labatt Food Serv., L.P., 279 S.W.3d at 643; any interviews to facilitate prosecution. Cash Biz's actions,
Bonded Builders Home Wty Ass'n of Texas, Inc., 2016 WL though presumably vindictive, do not evince a desire to
1612916, at *3; Garcia, 340 S.W.3d at 868. Here, the trial achieve repayment of any loans through the criminal
court's fact findings are not supported by the record. The process. Thus, Cash Biz's actions were not sufficiently
case list and summaries presented do not reflect that Cash active or deliberate to constitute substantial invocation
Biz “participated in criminal trials, obtained criminal of the judicial process. See G.T. Leach Builders, LLC,
judgments, and attempted to collect from Plaintiffs.” The 458 S.W.3d at 512; Richmont Holdings, Inc., 455 S.W.3d
evidence submitted reveals only that Cash Biz provided at 576. Finally, Cash Biz's actions, even if wrong, were
information and filed criminal complaints against the insufficient to rise to the level of “substantial invocation”
Borrowing Parties. The only evidence submitted that of a litigation process. In Texas, the filing of criminal
pertains to the trial court's fact findings is Flanagan's charges and initiation of criminal process is the discretion
supplemental affidavit, which is contrary to all of the of the prosecuting attorney. Even if this court were to
trial court's findings. Flanagan attests Cash Biz did not construe Cash Biz's preliminary act as an initiation of
initiate criminal proceedings and did not participate in, or litigation to “achieve a satisfactory result,” the filing of
was in any way involved in, the criminal prosecution of suit or initiation of litigation is not “substantial invocation
the Borrowing Parties. Consequently, this court need not of judicial process”. See G.T. Leach Builders, LLC, 458
defer to these specific fact findings. See In re Labatt Food S.W.3d at 512; Richmont Holdings, Inc., 455 S.W.3d
Serv., L.P., 279 S.W.3d at 643; Bonded Builders Home Wty at 576. Therefore, the filing of a criminal complaint,

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though the impetus for initiation of criminal process, is
insufficient to be construed as substantial invocation of a Here, the Borrowing Parties do not contest the validity of
judicial process. the class action waiver provision. Absent any argument or
basis to hold the class action waiver provision internally
invalid, this court must conclude it applies, and the trial
court erred by denying Cash Biz's motion to enforce the
Conclusion
class action waiver provision.
As in precedential and persuasive cases involving similar
or greater participation in litigation than occurred here, Cash Biz's second issue is sustained.
we decline to find waiver under these circumstances.
Consequently, the Borrowing Parties failed to satisfy their
burden of proof to establish Cash Biz waived its right CONCLUSION
to arbitration as a matter of law. Because the Borrowing
Parties failed to satisfy the first prong of their burden of For these reasons, the trial court's order denying Cash
proof, we do not address the remaining prong: whether the Biz's motion to compel arbitration and motion to enforce
Borrowing Parties were prejudiced by Cash Biz's actions. the class action waiver is reversed and order is rendered
granting this motion. The cause is remanded and stayed
Cash Biz's first issue is sustained. pending completion of individual arbitration.

Issue Two: Enforcement of the Class-Action Waiver
Provision Rebeca C. Martinez, Justice, dissenting
The class-action waiver provision is not an independent While I agree that the Borrowing Parties' claims against
agreement or provision, but is included within the Cash Biz in the underlying suit are factually intertwined
arbitration provision in the Loan Contracts. Therefore with the Loan Contracts, and thus fall within the broad
applicability of the class action waiver provision is scope of the Loan Contracts' arbitration agreement, I
dependent upon the validity and applicability of the disagree with the majority's conclusion that Cash Biz
arbitration provision. did not “substantially invoke the judicial process” and
thus did not waive its right to enforce the arbitration
Cash Biz contends the trial court erred by denying agreement. In my view, the Borrowing Parties met their
its motion to enforce the class action waiver provision burden to prove that Cash Biz waived its right to enforce
based upon the plain language of the provision, itself. arbitration by showing that Cash Biz filed criminal “bad
The Borrowing Parties argue generally that the class check” complaints against the Borrowing Parties in an
action waiver does not apply under these facts for the effort to collect restitution on the debts created by
same reasons and based upon the same arguments as the Loan Contracts, thereby substantially invoking the
that presented to dispel application of the arbitration judicial process to obtain a satisfactory result and causing
provision. the Borrowing Parties actual prejudice. 1 See Perry Homes
v. Cull, 258 S.W.3d 580, 584 (Tex. 2008) (stating the two-
*9 We have already concluded the Borrowing Parties' prong test for waiver). I therefore dissent to the portion of
asserted causes of action fall within the scope of the the majority opinion holding that the Borrowing Parties
arbitration provision, and therefore, the provision applies, failed to prove that Cash Biz waived its right to enforce
and further concluded Cash Biz did not waive its the arbitration agreement by substantially invoking the
right to arbitration. This conclusion necessarily compels judicial process.
application of the class action waiver contained therein.
Therefore, the class-action waiver contained within the As the majority notes, the relevant issue presented on
arbitration provision must also apply, unless shown to appeal is whether Cash Biz's action in filing criminal
be independently invalid. See NCP Fin. Ltd. P'ship v. bad check complaints against the Borrowing Parties
Escatiola, 350 S.W.3d 152, 155 (Tex. App.—San Antonio was sufficient to constitute substantial invocation of the
2011, no pet.). judicial process, waiving its contractual right to arbitrate

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the Borrowing Parties' malicious prosecution and other has staunchly maintained that it acted with no self-
claims against it. The majority concedes that the evidence interest, but “simply left the information [of potential
is undisputed that Cash Biz “provided information and criminal conduct] to the discretion of the district attorney,
filed criminal complaints against the Borrowing Parties,” and any action taken by the district attorney thereafter
and that “absent Cash Biz's complaint, no criminal was made completely on his/her own.” To the contrary,
prosecution would have occurred.” 2 The majority holds the evidence in this case shows a pattern of specific,
that such evidence is insufficient, however, because it deliberate, and affirmative conduct by Cash Biz in filing
does not show that Cash Biz engaged in “deliberate sworn complaints (accompanied by documentation) with
conduct inconsistent with the right to arbitrate, that the district attorneys' offices as an immediate and direct
is, an active attempt to achieve a satisfactory result reaction to its borrowers' defaults on their payday loans.
through means other than arbitration.” See Maj. Op. The 13-page list of criminal cases in the Justice of the Peace
at p. 12. The majority reasons that Cash Biz's filing Courts for Harris County, Texas, where the bad check
of a criminal complaint does not rise to the level of cases against the Borrowing Parties were filed, shows that
“active engagement in litigation” through “specific and Cash Biz was the complainant in more than 400 bad
deliberate actions” that are inconsistent with the right to check cases filed during the relevant time period from
arbitrate, or that reveal an intent to resolve the dispute May 2011 through July 2012. The appellees represent that
through litigation rather than arbitration, because: (1) Cash Biz repeated this conduct in other Texas counties
the criminal complaints were filed before the Borrowing as well. Given the sheer number and geographic scope of
Parties filed suit; (2) Cash Biz was not a party to, and the complaints, it is disingenuous to assert, as Cash Biz
did not participate as a witness in, the separate criminal does, that it was simply acting as a concerned citizen who
prosecution; and (3) Cash Biz's actions do not show was aware of potentially criminal conduct, without any
its desire to obtain repayment of the loans through the desire for restitution from any of its borrowers. Moreover,
criminal process. See Maj. Op. at p. 14-15. The majority at the hearing, counsel for Cash Biz ultimately conceded
stresses that, even assuming Cash Biz's action in filing the that Cash Biz would provide the “bad check” information
complaints “initiated” the criminal prosecution, the mere to the prosecutors, and the prosecutors' office would send
filing of suit or initiation of litigation does not, by itself, out letters “to collect.”
constitute substantial invocation of the judicial process.
In addition, in its appellate brief and at oral argument,
*10 I disagree with the majority's analysis for several Cash Biz conceded that it was “mistaken” in believing
reasons. First, the traditional waiver requirement that that it was a crime for its borrowers to give it a post-
the judicial process have been substantially invoked after dated check as security for the loan (as it required).
the filing of the underlying lawsuit is based on the usual See TEX. PENAL CODE ANN. § 32.41 (West Supp.
situation where there is only one legal proceeding. See, 2015) (defining the offense of issuance of a bad check).
e.g., Perry Homes, 258 S.W.3d at 585, 591. Here, we are Indeed, the criminal charges against the four named
presented with the unique situation of a civil lawsuit and Borrowing Parties were ultimately dismissed. This does
a criminal proceeding, both of which arise out of the same not change the fact that they suffered prejudice as a
civil debt. Second, while the formal parties in a criminal result of the charges, arrests, and defense costs, as well
proceeding are the defendant and the State of Texas, In re as the mental, emotional, and reputational damages.
Amos, 397 S.W.3d 309, 314 (Tex. App.—Dallas 2013, orig. Other defaulting borrowers against whom Cash Biz
proceeding), the victim or complainant has a personal filed complaints suffered convictions and punishment,
interest in the prosecution and thus plays a unique role in including restitution. Ultimately, Cash Biz invoked the
criminal proceedings. See In re Ligon, 408 S.W.3d 888, 896 collection authority of the district attorney's office with
(Tex. App.—Beaumont 2013, orig. proceeding). the expectation to obtain restitution, i.e., repayment of the
loans.
Third, I disagree with the majority that Cash Biz's actions
in “merely” filing the criminal complaints do not show While it may be technically correct that the district
its desire to obtain repayment of the loans, or otherwise attorney made the ultimate decision whether to file bad
obtain a satisfactory result, through the criminal process. check charges based on the information contained in Cash
As Flanagan's supplemental affidavit indicates, Cash Biz Biz's sworn complaints, it is also true that no criminal

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 9
CASH BIZ, LP v. HENRY, Not Reported in S.W.3d (2016)
2016 WL 4013794

prosecution would ever have been initiated without Cash Id. at 481. The court of appeals explained that, “[w]hile
Biz alerting the district attorney's office and supplying we ordinarily would not consider actions in a separate
the information stated in, and attached to, its complaints. cause as indicative of waiver,” the motion for contempt
See Browning-Ferris Indus., Inc. v. Leick, 881 S.W.2d 288, expressly stated that Christus Spohn planned to use the
293 (Tex. 1994). By submitting the sworn complaints, criminal court's contempt finding to prevent the use of
Cash Biz not only procured the prosecution, it became the criminal defendant's statement in the civil matter. Id.
a “witness” in the criminal prosecution, i.e., a person at 481. The court “construe[d] Spohn's actions in this
who presented personal knowledge of the borrowers' separate lawsuit as part of its strategic plan of defense
purported criminal conduct. See Crawford v. Washington, in the underlying matter that would be inconsistent
541 U.S. 36, 50-53 (2004) (defining “ ‘witnesses' against with a right to arbitrate.” Id. (emphasis added). The
the accused” within the context of the Sixth Amendment court of appeals concluded that “Spohn's third-party
to include not only those who actually testify at trial, but petition, motion for contempt, and attempt to impose
also those whose out-of-court statements are used against sanctions constitute specific and deliberate actions that
the defendant). Once the complaint was submitted, the are inconsistent with the right to arbitrate and suggest
right of confrontation attached to each defendant. Id. at that Spohn was attempting to achieve a satisfactory result
50. Whether Cash Biz was attempting to obtain repayment through the judicial process.” Id. at 481-82. Based on this
of the loans through restitution as its conduct suggests, combination of facts and circumstances, the court held
or to obtain some other form of punishment against that Christus Spohn had substantially invoked the judicial
its defaulting borrowers, it deliberately and repeatedly process and waived its right to enforce arbitration. Id. at
invoked the criminal justice system in an attempt to 482.
achieve some form of satisfactory result based on the civil
debt. In doing so, Cash Biz ignored its own right and A Nevada court has addressed waiver of arbitration in
obligation under the arbitration agreement contained in a factual scenario that is substantially similar, if not
the Loan Contracts to seek collection of the debts through identical, to the scenario presented here. The Nevada
arbitration rather than judicially. Supreme Court has held that a payday loan company
that obtained default judgments against its borrowers
*11 While the instant facts involving Cash Biz's actions waived its right to arbitration under the loan contracts
in a separate criminal proceeding do not fit within in a separate lawsuit. Principal Invs., Inc. v. Harrison,
the traditional waiver analysis applied to a single civil 366 P.3d 688, 697-98 (Nev. 2016). In that case, during
lawsuit, the parties have presented us with some cases a seven-year period, Rapid Cash filed more than 16,000
that are instructive on the application of waiver law individual collection actions in justice of the peace court
to similar fact scenarios. Only one Texas case discusses in Clark County, Nevada against its borrowers seeking
the interplay between civil and criminal litigation in a repayment of the loans. Id. at 690. Relying on affidavits
waiver-of-arbitration context. In In re Christus Spohn of service by its process server, Rapid Cash obtained
Health Sys. Corp., 231 S.W.3d 475 (Tex. App.—Corpus thousands of default judgments. Id. at 690-91. The
Christi-Edinburg 2007, orig. proceeding), a nurse was borrowers filed a class-action lawsuit against Rapid Cash
murdered in her employer hospital's parking lot and alleging fraud upon the court through false affidavits of
her family sued the hospital for wrongful death. Id. at service, abuse of process, negligence, civil conspiracy and
478. Christus Spohn “substantially litigated” the case violation of fair debt collection laws. Id. at 691. Rapid
during the fourteen-month period before it filed a motion Cash moved to compel arbitration under the provision
to compel arbitration. Id. at 480-81 (describing how contained in the loan agreements, but the trial court
the hospital engaged in “voluminous discovery,” filed a denied the motion based on waiver due to the collection
motion to designate the criminal defendant as a third party actions in justice court. Id. at 691-92. Acknowledging that
defendant, and filed an original third party petition, while FAA waiver law requires “prior litigation of the same
three trial dates were rescheduled). During the fourteen- legal and factual issues as those the party now wants
month period before the hospital sought to compel to arbitrate,” the Nevada Supreme Court affirmed the
arbitration, the hospital filed a motion for contempt in finding of waiver, reasoning the class-action claims “arise
the criminal proceeding based on alleged discovery abuse out of, and are integrally related to, the litigation Rapid
in the civil case by counsel for the deceased's family. Cash conducted in justice court.” Id. at 697. The court

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CASH BIZ, LP v. HENRY, Not Reported in S.W.3d (2016)
2016 WL 4013794

stated that if the default judgments that Rapid Cash a “specific claim [it] subsequently wants to arbitrate,” to
wit: the specific issue of non-payment from which all of
obtained were unenforceable as the product of fraud or
the Borrowing Parties' causes of action derive.
criminal misconduct, it would be “unfairly prejudicial
to the judgment debtor to require arbitration of claims
*12 I believe the record here shows that Cash Biz
seeking to set that judgment aside ... and otherwise to
substantially invoked the judicial process by deliberately
remediate its improper entry.” Id. at 697-98.
engaging in a series of overt acts in court that evidence
a desire to resolve the same arbitrable dispute through
Harrison is not directly on point, but is instructive because
litigation rather than arbitration. See Tuscan Builders, LP
there “the named plaintiffs' claims all concern[ed], at their
v. 1437 SH6 L.L.C., 438 S.W.3d 717, 721 (Tex. App.
core, the validity of the default judgments,” and in our
—Houston [1st Dist.] 2014, pet. denied) (op. on reh'g)
situation the Borrowing Parties' malicious prosecution
(quoting Haddock v. Quinn, 287 S.W.3d 158, 177 (Tex.
claims similarly “arise out of, and are integrally related
App.—Fort Worth 2009, pet. denied)). Therefore, I would
to” the criminal bad check charges instigated by Cash Biz.
hold that, by filing the criminal “bad check” complaints
See id. at 698. Waiver of the right to arbitration under the
against the Borrowing Parties, seeking repayment or some
FAA does not require that the party litigate the identical
other form of satisfaction, Cash Biz waived its contractual
claims in order to invoke the judicial process, but rather a
right to arbitrate the malicious prosecution claims arising
“specific claim it subsequently wants to arbitrate.” Subway
out of the criminal proceedings.
Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328 (5th
Cir. 1999) (emphasis added). Here, Cash Biz initiated a
As to the class-action prohibition, it is not an
process that invited the Harris County district attorney
independent agreement, but is included within the
to address issues that are at stake in the underlying
arbitration agreement in the Loan Contracts. Therefore
lawsuit. The Borrowing Parties' malicious prosecution
its applicability depends on the applicability of the
claim contains elements of a plaintiff's innocence. 3 The
arbitration agreement. I would therefore hold that the
Borrowing Parties' innocence and the absence of probable
class-action prohibition was similarly waived by Cash
cause were litigated in the prior criminal proceedings.
Biz's invocation of the judicial process.
Their other claims for fraud and violations of the DTPA
and Finance Code similarly involve litigation in the
criminal proceedings of defensive issues based on Cash Biz All Citations
misrepresenting the conditions for the loans the process
of collection, and threatening them to achieve repayment. Not Reported in S.W.3d, 2016 WL 4013794
Cash Biz invoked the criminal judicial process to litigate

Footnotes
1 The proposed Class is defined as “[a]ll residents of the State of Texas who received a ‘deferred presentment transaction’
or payday loan as defined by TEX. FIN. CODE § 393.221 from Cash Biz in the State of Texas and Cash Biz's pursuit
of [sic] criminal charges to collect or recover the payday loan.”
2 See TEX. CONST. Art. 1, sec. 18 (“No person shall ever be imprisoned for debt.”); see also TEX. FIN. CODE ANN. §
392.301(a) (West 2006) (“In debt collection, a debt collector may not use threats, coercion or attempts to coerce that
employ any of the following practices ... (2) accusing falsely or threatening to accuse falsely a person of fraud or any
other crime”); TEX. FIN. CODE ANN. § 393.201(c)(3) (West Supp. 2015) (credit services contract must state “a person
may not threaten or pursue criminal charges against a consumer related to a check or other debit authorization provided
by the consumer as security for a transaction in the absence of forgery, fraud, theft, or other criminal conduct.”).
3 In the civil context, courts consider factors such as: (i) when the movant knew of the arbitration clause; (ii) the reason for
any delay in moving to enforce arbitration; (iii) how much discovery was conducted; (iv) who initiated the discovery; (v)
whether the discovery related to the merits; (vi) how much the discovery would be useful for arbitration; and (vii) whether
the movant sought judgment on the merits. Perry Homes, 258 S.W.3d at 591-92
1 Because the majority opinion does not reach the second-prong issue of prejudice, I also omit that analysis; however, I
believe the Borrowing Parties proved that they suffered actual prejudice.

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CASH BIZ, LP v. HENRY, Not Reported in S.W.3d (2016)
2016 WL 4013794

2 The majority agrees that the list of criminal cases in the Harris County Justice of the Peace Court showing Cash Biz as
“complainant” in all the cases against the Borrowing Parties, as well as multiple other borrowers, “impliedly reveals” that
no criminal prosecution would have been initiated without Cash Biz's complaints.
3 The elements of a malicious prosecution claim are: (1) the commencement of a criminal prosecution against the plaintiff;
(2) causation (initiation or procurement) of the action by the defendant; (3) termination of the prosecution in the plaintiff's
favor; (4) the plaintiff's innocence; (5) the absence of probable cause for the proceedings; (6) malice in filing the charge;
and (7) damage to the plaintiff. Richey v. Brookshire Grocery Co., 952 S.W.2d 515, 517 (Tex. 1997); Davis v. Prosperity
Bank, 383 S.W.3d 795, 802 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 12
Coker v. Coker, 650 S.W.2d 391 (1983)

755 Cases that cite this headnote
KeyCite Yellow Flag - Negative Treatment
Distinguished by Castro v. Castro, Tex.App.-Hous. (14 Dist.), May 9, 
2013
[2] Contracts
650 S.W.2d 391 Construing whole contract together
Supreme Court of Texas. No single contractual provision taken alone
will be given controlling effect; rather, all
Mac L. COKER, Jr., Petitioner, provisions must be considered with reference
v. to the whole instrument.
Frances Kincaid COKER, Respondent.
277 Cases that cite this headnote
No. C–1728.
|
[3] Contracts
May 4, 1983.
Conflicting clauses in general
|
In harmonizing contractual provisions, terms
Rehearing Denied June 8, 1983.
stated earlier in an agreement must be favored
Divorced wife brought action against former husband to over subsequent terms.
recover under the terms of property settlement agreement
38 Cases that cite this headnote
incorporated into their divorce decree. The District Court,
Court No. 134, Dallas County, Burnett, J., entered
summary judgment in favor of divorced wife, and husband [4] Contracts
appealed. The Dallas Court of Appeals, Fifth Supreme Existence of ambiguity
Judicial District, Akin, J., affirmed, and appeal was taken. Contracts
The Supreme Court, Barrow, J., held that substantial fact Ambiguity in general
issue existed as to whether former husband agreed to pay
If written instrument is so worded that it can
wife a specified amount of money or whether wife was
be given a certain or definite legal meaning or
merely assigned all of husband's interest in real estate
interpretation, then it is not ambiguous and
commissions, precluding summary judgment.
court will construe the contract as a matter of
law.
Reversed and remanded.
1053 Cases that cite this headnote
Spears, J., dissented and filed opinion in which Pope, C.J.,
and Ray and Robertson, JJ., joined.
[5] Contracts
Existence of ambiguity
A contract is ambiguous when its meaning
West Headnotes (11) is uncertain and doubtful or it is reasonably
susceptible to more than one meaning.
[1] Contracts
295 Cases that cite this headnote
Construing whole contract together
In construing a written contract, primary
concern of court is to ascertain the true [6] Contracts
intentions of parties as expressed in the Ambiguity in general
instrument, and to achieve that objective, Whether a contract is ambiguous is a question
courts should examine and consider the entire of law for court to decide by looking at
writing in an effort to harmonize and give contract as a whole in light of circumstances
effect to all provisions of the contract so that present when the contract was entered.
none will be rendered meaningless.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Coker v. Coker, 650 S.W.2d 391 (1983)

or whether wife was merely assigned all of
266 Cases that cite this headnote husband's interest in real estate commissions,
precluding summary judgment.
[7] Judgment
6 Cases that cite this headnote
Contract cases in general
When contract contains an ambiguity, the
granting of a motion for summary judgment
is improper because the interpretation of the
Attorneys and Law Firms
instrument becomes a fact issue.
*392 Akin, Gump, Strauss, Hauer & Feld, Emil Lippe,
142 Cases that cite this headnote
Jr. and Ruth Abboud Cross, Dallas, for petitioner.

[8] Guaranty Neal & McBeath, Bill Neal and Marc McBeath, Vernon,
Scope and Extent of Liability for respondent.
A guarantor is entitled to have his agreement Opinion
strictly construed so that it is limited to his
undertakings, and it will not be extended by BARROW, Justice.
construction or implication.
This suit was brought by Frances Kincaid Coker (Frances)
18 Cases that cite this headnote against her former husband, Mac L. Coker, Jr. (Mac), on
a property settlement agreement incorporated into their
divorce decree. The decree awarded Frances a real estate
[9] Guaranty
commission previously earned by Mac from the sale of
General rules of construction
certain ranch property. The seller of the property was
Where uncertainty exists as to the meaning of to pay the commission in seven annual installments as
a contract of guarantee, its terms should be payments were made by the purchaser. After Frances
given a construction which is most favorable received payments totaling $14,317.16, the purchaser
to guarantor. defaulted and no further commissions were receivable.
The question presented here is whether Mac agreed to pay
16 Cases that cite this headnote
Frances a minimum of $25,000 or whether Frances was
assigned all of Mac's interest in the commissions to be paid
[10] Contracts by the seller in this particular transaction.
Construing whole contract together
Courts must favor an interpretation that Both parties asserted that the property settlement
affords some consequence to each part of the agreement was unambiguous and each moved for a
instrument so that none of the provisions will favorable summary judgment. The trial court construed
be rendered meaningless. the agreement as one of guaranty and rendered summary
judgment that Frances recover the sum of $10,682.84 from
309 Cases that cite this headnote Mac. The court of appeals affirmed in an unpublished
opinion. Tex.R.Civ.P. 452. We reverse the judgments of
[11] Judgment the courts below and remand the cause to the trial court.
Domestic relations
The parties were divorced on September 24, 1971 after
In action brought by divorced wife against her
being married about ten years. They had accumulated
former husband to recover under the terms of
community property consisting of a 1969 Buick
property settlement agreement incorporated
automobile, two Dallas Cowboy seat options, unpaid real
into their divorce decree, substantial fact issue
estate commissions earned by Mac while employed as
existed as to whether former husband agreed
a broker for the real estate firm of Majors & Majors
to pay wife a specified amount of money
and certain personal effects. The parties entered into a

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 2
Coker v. Coker, 650 S.W.2d 391 (1983)

property settlement agreement which was approved by the further have as her sole and separate property, free
trial court and incorporated into the divorce decree. The and clear *393 of all claim, right or title asserted
decree provides in relevant part: by husband, that certain right, commission or account
receivable heretofore earned by husband during his
IT IS THEREFORE FURTHER employment with the firm of Majors & Majors in
ORDERED, ADJUDGED AND connection with the sale of the “Jinkens ranch property
DECREED that Petitioner Frances in Tarrant County, Texas,” such future commission or
Kincaid Coker have and she account receivable being in the approximate sum of
hereby is awarded as her sole $25,000.00.
and separate property one 1969
Buick automobile, Serial No. ....
4443792127816, all household goods
and personal possessions now in 8. Husband represents and warrants to the wife that,
her possession or located at her to the best of his knowledge, approximately $25,000.00
place of residence, one Texas remains due and owing to him as his portion of
Stadium Bond along with season commissions earned in connection with the sale of the
ticket sold in connection therewith, “Jinkens property in Tarrant County, Texas,” and he
and those certain commissions and hereby guarantees to wife that she will receive the said
accounts receivable heretofore earned sum of $25,000.00, from Majors & Majors, or from
by husband during his employment any other payor of such commissions receivable. Such
with the firm of Majors and commission is payable to her as payments are made by
Majors in connection with the sale purchasers to sellers, and will normally be received by
of the “Jinkens Ranch property her through the office of Majors & Majors. In the event,
in Tarrant County, Texas”; that for any reason she fails to receive such installments of
Respondent have and he hereby is commission exactly as husband would have prior to
awarded as his sole and separate his assignment of his rights thereto to wife, husband
property one Texas Stadium Bond agrees to pay to wife in Dallas County, Texas all such
along with season ticket sold in sums of money, which she has failed to receive, up to the
connection therewith, all personal guaranteed sum of $25,000.00. (emphasis added).
effects in his possession and those
certain commissions or accounts The parties thereby agreed that Mac would keep his
receivable owing to him from rights to the monthly commissions earned on leases
Majors and Majors being the he had negotiated and Frances would be assigned the
monthly commissions on leases commission earned by Mac from the sale of the “Jinkens
negotiated while Respondent was ranch property in Tarrant County.” Prior to the divorce,
in the employment of Majors and Mac had participated in the sale of the Jinkens ranch
Majors. (emphasis added). whereby he would receive 40% of the sales commission
payable by the seller to Majors & Majors over a seven
The property settlement agreement provides in part: year period contingent on the annual payments being
made by the purchaser. In 1976, however, the purchaser
5. Wife shall receive as her sole and separate property, defaulted and according to the terms of the sales contract,
free and clear of any claim, right or title of husband, the seller was not required to continue payments of the
the following described property: one 1969 Buick commission. Therefore, Mac's rights in the commission
automobile, serial no. 4443792127816, all household were terminated.
goods and personal possessions now in the wife's
possession or located at her place of residence, (except Frances admitted that she had received all the commission
that the husband shall receive one bedroom suite now payable to Mac prior to default, but she contends that
located in Crowell, Texas), and one Texas Stadium under the property settlement agreement she was to
bond, free of all indebtedness, along with the season receive a minimum of $25,000. The trial court and the
ticket sold in connection therewith. The wife shall court of appeals agreed with Frances. We must attempt

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 3
Coker v. Coker, 650 S.W.2d 391 (1983)

to construe this contract and determine the intent of the the commission sales agreement. This interpretation
parties as shown by the written instruments. conflicts with paragraph 5 of the agreement and the
language used in the divorce decree.
[1] [2] [3] In construing a written contract, the primary
concern of the court is to ascertain the true intentions According to the rules of construction, paragraph 8 must
of the parties as expressed in the instrument. R & P be considered along with paragraph 5 and the underlying
Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d circumstances to ascertain the true intention of the parties.
517, 518 (Tex.1980); City of Pinehurst v. Spooner Addition See City of Pinehurst, 432 S.W.2d at 518, 519. The court
Water Co., 432 S.W.2d 515, 518 (Tex.1968). To achieve of appeals failed to fully consider paragraph 5 of the
this objective, courts should examine and consider the agreement which clearly states that Mac only assigned
entire writing in an effort to harmonize and give effect that “certain right, commission or account receivable
to all the provisions of the contract so that none will heretofore earned by husband.” Also, the language of the
be rendered meaningless. Universal C.I.T. Credit Corp. divorce decree supports an interpretation only assigning
v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 158 (1951). Mac's interest in the commission.
No single provision taken alone will be given controlling
effect; rather, all the provisions must be considered [8] [9] [10] When the language in paragraph 8 is
with reference to the whole instrument. Myers v. Gulf considered alone and particularly the last sentence thereof,
Coast Minerals Management Corp., 361 S.W.2d 193, 196 the meaning is unclear. The provision could be construed
(Tex.1962); Citizens Nat'l Bank in Abilene v. Texas & P. as a guarantee by Mac that Frances would receive $25,000
Ry. Co., 136 Tex. 333, 150 S.W.2d 1003, 1006 (1941). or merely a promise that he would not interfere with the
In harmonizing these provisions, terms stated earlier in payments made by Majors & Majors to her after they
an agreement must be favored over subsequent terms. received the commission from the seller. If we construe
Ogden v. Dickinson State Bank, –––S.W.2d ––––, ––––, 26 the agreement as a contract of guaranty, any uncertainty
Tex.Sup.Ct.J. 200, 202 (Jan. 26, 1983). must be resolved in favor of Mac as guarantor. 1 Even if
we conclude the rules of guaranty do not apply, we could
[4] [5] [6] [7] If the written instrument is so wordednot say with certainty that Mac promised to pay Frances
that it can be given a certain or definite legal meaning or $25,000 regardless of the payment of the commission.
interpretation, then it is not ambiguous and the court will Such an interpretation would render the provisions in the
construe the contract as a matter of law. Universal C.I.T. divorce decree and paragraph 5 relating to the assignment
Credit Corp., 243 S.W.2d at 157; R & P Enterprises, 596 of the commission surplusage. Courts must favor an
S.W.2d at 519. A contract, however, is ambiguous when interpretation that affords some consequence to each part
its meaning is uncertain and doubtful or it is reasonably of the instrument so that none of the provisions will be
susceptible to more than one meaning. *394 Skelly Oil rendered meaningless. See Odgen, –––S.W.2d at ––––, 26
Co. v. Archer, 163 Tex. 336, 356 S.W.2d 774, 778 (1962). Tex.Sup.Ct.J. at 202; Portland Gasoline Co. v. Superior
Whether a contract is ambiguous is a question of law Marketing Co., 150 Tex. 533, 243 S.W.2d 823, 824 (1951).
for the court to decide by looking at the contract as
a whole in light of the circumstances present when the [11] The divorce decree and paragraph 5 state what
contract was entered. R & P Enterprises, 596 S.W.2d at interest is assigned to Frances. Unless paragraph 8 is
518. When a contract contains an ambiguity, the granting construed to merely set out the manner in which Frances
of a motion for summary judgment is improper because would receive the annual payments, this paragraph
the interpretation of the instrument becomes a fact issue. conflicts with paragraph 5 and the divorce decree. This
See Harris v. Rowe, 593 S.W.2d 303, 306 (Tex.1980). conflict creates an ambiguity as to the intent of the parties
as expressed in the written agreement and the decree.
The court of appeals determined that Mac had absolutely
guaranteed the payment of $25,000 to Frances. Although The court of appeals held the provisions of the property
the court of appeals recognized that the liability of settlement agreement unambiguously required Mac to pay
a guarantor is generally measured by the liability Frances $25,000 regardless of whether the commissions
of the principal, it held that paragraph 8 of the were in fact paid by the purchaser. This construction
settlement agreement created a broader obligation than conflicts with paragraph 5 as well as the divorce decree.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4
Coker v. Coker, 650 S.W.2d 391 (1983)

Therefore, this agreement is ambiguous and the trial court In the first sentence of paragraph eight, Mac
erred in granting summary judgment. The trier of fact unconditionally represented and warranted that the
must resolve the ambiguity *395 by determining the true “Jinkins property” commission was due and owing to
intent of the parties. Trinity Universal Ins. Co. v. Ponsford him. He then assigned the commission to Frances and
Bros., 423 S.W.2d 571, 575 (Tex.1968). “guaranteed” receipt by her of $25,000. While it is true
that the payments of the commission were due only so
We reverse the judgments of the courts below and remand long as payments on the purchase of the property were
the cause to the trial court. made, and upon default no commission would be paid,
this limitation is not incorporated in nor alluded to in the
agreement setting forth his obligation to pay his wife the
$25,000. In fact, the agreement is quite to the contrary.
SPEARS, J., dissents in which POPE, C.J., and RAY and
ROBERTSON, JJ., join.
The third sentence of paragraph eight provides:

SPEARS, Justice, dissenting. “In the event, for any reason she fails to receive such
I respectfully dissent. installments of commission exactly as Husband would
have prior to this assignment of his rights thereto to Wife,
I do not believe that the property settlement agreement Husband agrees to pay Wife in Dallas County, Texas all
entered into by the Cokers is ambiguous. If a written such sums of money, which she has failed to receive, up
instrument can be given a definite interpretation, it is not to the guaranteed sum of $25,000.00.” (emphasis added).
ambiguous and the court will construe the contract as a
When this statement is construed with the other provisions
matter of law. R & P Enterprises v. La Guarta, Gavrel &
of the agreement it is clear that Mac guaranteed that
Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980).
Frances would receive $25,000 regardless of what might
happen to the commission. The sentence is a directional
The majority correctly states that the primary objective
provision indicating when and how she is to receive the
in the interpretation of contracts is to give effect to the
payments. No other provision in the contract pointed to
intentions of the parties as expressed in the instrument.
by the majority negates this guarantee; rather, all other
R & P Enterprises v. La Guarta, Gavrel & Kirk, Inc., 596
provisions are consistent with it. Mac “warranted” the
S.W.2d at 518; Citizens National Bank in Abilene v. Texas
commission was due him and he “guaranteed” the sum of
& P. Ry. Co., 136 Tex. 333, 150 S.W.2d 1003, 1006 (1944).
$25,000 would be paid to his ex-wife. In other words, Mac
Also, the court must consider the entire instrument so
guaranteed that Frances would receive approximately
that none of the provisions will be rendered meaningless.
$25,000 from Majors & Majors or any other payor.
R & P Enterprises, 596 S.W.2d at 519; Myers v. Gulf
He further promised that if she failed to receive these
Coast Minerals Management Corp., 361 S.W.2d 193, 196
payments as he would have prior to assignment directly
(Tex.1962).
from the third party payors, he would pay the balance up
to $25,000.
By applying these rules of construction and looking
at the contract as a whole, we see the clear,
Mac's guarantee is unqualified and expresses no
unambiguous meaning of the words used. It is obvious
other condition for its enforceability than default of
to me that Frances was to receive a minimum of
performance by the principal obligor. It should be treated,
$25,000. The divorce decree awarded her “those certain
therefore, as the guaranty of payment that it is. An
commissions and accounts receivable heretofore earned
unconditional guaranty for payment becomes a primary
by husband ....” (emphasis added). Paragraph five of
obligation upon *396 default. See Ferguson v. McCarrell,
the property settlement provides that Frances shall
588 S.W.2d 895 (Tex.1979); Universal Metal & Machinery,
have as her separate property “that certain right,
Inc. v. Bohart, 539 S.W.2d 874, 877 (Tex.1976).
commission or account receivable heretofore earned by
husband ....” (emphasis added).
The majority curiously finds ambiguity in the words
“guarantee,” “for any reason,” “agrees to pay wife,” “all
such sums of money which she failed to receive,” and

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
Coker v. Coker, 650 S.W.2d 391 (1983)

“up to the guaranteed sum of $25,000.” No draftsman
could have made it any plainer. The finding of an
ambiguity in this language, which is neither negated nor POPE, C.J., and RAY and ROBERTSON, JJ., join in this
qualified elsewhere in the contract, expressly or impliedly, dissent.
is without justification.
All Citations
I would, therefore, affirm the judgment of the court of
650 S.W.2d 391
appeals, and hold that Mac agreed to pay Frances the
$25,000, and that she is entitled to recover the balance of
$10,682.84 from him.

Footnotes
1 A guarantor is entitled to have his agreement strictly construed so that it is limited to his undertakings, and it will not be
extended by construction or implication. Reece v. First State Bank of Denton, 566 S.W.2d 296, 297 (Tex.1978); McKnight
v. Virginia Mirror Co., 463 S.W.2d 428, 430 (Tex.1971); Southwest Savings Association v. Dunagan, 392 S.W.2d 761,
766 (Tex.Civ.App.—Dallas 1965, writ ref'd n.r.e.). Where uncertainty exists as to the meaning of a contract of guaranty,
its terms should be given a construction which is most favorable to the guarantor. Commerce Savings Assoc. v. GGE
Management Co., 539 S.W.2d 71, 78 (Tex.Civ.App.—Houston [1st Dist.] 1976) modified and affirmed with per curiam, 543
S.W.2d 862 (Tex.1976); Walter E. Heller & Co. v. Allen, 412 S.W.2d 712, 721 (Tex.Civ.App.—Tyler 1967, writ ref'd n.r.e.).

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 6
Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

accounts and their chosen line of business, so as to state a
claim for violation of procedural due process.
132 F.Supp.3d 98
United States District Court,
District of Columbia. Motions to dismiss granted in part and denied in part, and
motion to amend granted.
Community Financial Services Association
of America, Ltd., et al., Plaintiffs,
v.
Federal Deposit Insurance West Headnotes (53)
Corporation, et al., Defendants.
[1] Consumer Credit
Case No. 14–CV–953 (GK)
Regulations in general
|
Signed September 25, 2015 Consumer Financial Protection Bureau
(CFPB) has authority to supervise payday
Synopsis lenders and promulgate regulations pertaining
Background: National trade association representing to payday lending. 12 U.S.C.A. § 5491(a).
payday lenders, together with payday lender, brought
action against Federal Deposit Insurance Corporation Cases that cite this headnote
(FDIC), Board of Governors of Federal Reserve System,
and Office of Comptroller of Currency (OCC), seeking [2] Banks and Banking
declaratory and injunctive relief to set aside certain In general; nature and status
informal guidance documents and other actions by
Banks and Banking
defendants as part of their alleged participation in United
Powers, functions and dealings in general
States Department of Justice (DOJ)-initiated campaign
to force banks to terminate their business relationships Federal Deposit Insurance Corporation
with payday lenders. Defendants filed motions to dismiss. (FDIC) is an independent agency that acts
Plaintiffs filed motion for leave to file second amended as the primary federal regulator for certain
complaint. state-chartered banks, in which capacity
it prescribes standards to promote banks'
safety and soundness, either by regulation or
guideline; the agency also examines banks,
Holdings: The District Court, Gladys Kessler, J., held that: prepares examination reports, and brings
enforcement actions.
[1] plaintiffs had standing to bring this action;
Cases that cite this headnote
[2] plaintiffs' claims were not moot, notwithstanding
FDIC's issuance of two new guidance documents;
[3] Banks and Banking
Regulation and supervision in general
[3] the agency actions in question were neither final agency
actions nor binding norms and, thus, were not subject to Building and Loan Associations
judicial review under the Administrative Procedure Act Regulation in general
(APA); Office of the Comptroller of the Currency
(OCC) is an independent bureau within the
[4] plaintiffs sufficiently stated a claim for which due United States Department of the Treasury
process protections applied; and that functions as the primary supervisor
of federally chartered “national” banks and
[5] plaintiffs sufficiently alleged that their liberty interests savings and loan associations; the OCC
were implicated by defendants' alleged actions and that administers statutory provisions governing
alleged stigma deprived them of their rights to bank most aspects of the federal banking system

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 1
Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

and has broad authority to examine the safety consider matters outside the pleadings, and
and soundness of the banks it supervises. may rest its decision on its own resolution of
disputed facts. Fed. R. Civ. P. 12(b)(1).
Cases that cite this headnote
Cases that cite this headnote

[4] Banks and Banking
Federal Reserve Board [9] Federal Courts
Board of Governors of the Federal Reserve Case or Controversy Requirement
System is a federal agency authorized to No principle is more fundamental to the
regulate and examine bank holding companies judiciary's proper role in this nation's
and state-chartered banks that are members of system of government than the constitutional
the Federal Reserve System. limitation of federal-court jurisdiction to
actual cases or controversies. U.S. Const. art.
Cases that cite this headnote 3, § 2, cl. 1.

Cases that cite this headnote
[5] Federal Courts
Limited jurisdiction; jurisdiction as
dependent on constitution or statutes [10] Federal Civil Procedure
As courts of limited jurisdiction, federal In general; injury or interest
courts possess only those powers specifically Federal Courts
granted to them by Congress or directly by the Injury, harm, causation, and redress
United States Constitution. One element of the case-or-controversy
requirement is that plaintiffs must establish
Cases that cite this headnote
that they have standing to sue. U.S. Const. art.
3, § 2, cl. 1.
[6] Federal Courts
Weight and sufficiency Cases that cite this headnote

Plaintiff bears the burden of establishing by a
preponderance of the evidence that the court [11] Federal Civil Procedure
has subject matter jurisdiction to hear the In general; injury or interest
case. Fed. R. Civ. P. 12(b)(1). Federal Civil Procedure
Causation; redressability
Cases that cite this headnote
Irreducible constitutional minimum of
standing contains three elements: (1) plaintiff
[7] Federal Courts must have suffered an injury in fact which is
Presumptions and burden of proof (a) concrete and particularized, and (b) actual
In deciding whether to grant a motion to or imminent, not conjectural or hypothetical,
dismiss for lack of jurisdiction, the court must (2) there must be a causal connection between
accept all of the factual allegations in the the injury and the conduct complained of, and
complaint as true. Fed. R. Civ. P. 12(b)(1). (3) it must be likely, as opposed to merely
speculative, that the injury will be redressed by
Cases that cite this headnote a favorable decision.

Cases that cite this headnote
[8] Federal Courts
Evidence; Affidavits
In deciding whether to grant a motion to [12] Federal Civil Procedure
dismiss for lack of jurisdiction, the court may In general; injury or interest

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Federal Civil Procedure
Pleading Cases that cite this headnote

Plaintiff's burden to demonstrate standing
grows heavier at each stage of the litigation; at [16] Declaratory Judgment
the pleading stage, general factual allegations Subjects of relief in general
of injury resulting from the defendant's Plaintiffs, a payday lender and a national
conduct may suffice, for on a motion to trade association representing such lenders,
dismiss courts presume that the general had standing to bring action for declaratory
allegations embrace those specific facts which and injunctive relief against Federal Deposit
are necessary to support the claim. Insurance Corporation (FDIC) and other
government entities to set aside informal
Cases that cite this headnote
guidance documents and other actions as
part of defendants' alleged participation
[13] Federal Civil Procedure in Department of Justice (DOJ)-initiated
Matters deemed admitted; acceptance as campaign to force banks to terminate their
true of allegations in complaint business relationships with payday lenders; at
Courts must accept as true all material pleading stage it was undisputed that plaintiffs
allegations of the complaint at the pleadings suffered injury in fact, as association's
stage. members had lost beneficial banking
relationships, plaintiffs alleged sufficient facts
Cases that cite this headnote that, if proven true, could have shown
that defendants' conduct was substantial
factor motivating decisions of third parties,
[14] Federal Civil Procedure
namely, banks, that were direct source of
In general; injury or interest
plaintiffs' injuries, and injunctive relief and/or
Federal Civil Procedure
invalidation of agency documents providing
Causation; redressability
guidance on risk management would result in
When plaintiff's asserted injury arises from the substantial likelihood of redressability.
government's regulation of a third party that is
not before the court, it becomes “substantially Cases that cite this headnote
more difficult” to establish standing; where
standing has been found on the basis of [17] Federal Civil Procedure
third-party conduct, the record presented Causation; redressability
substantial evidence of a causal relationship
In order to establish standing on the basis
between the government policy and the third-
of third-party conduct, to show causation,
party conduct, leaving little doubt as to
plaintiffs must show that defendants' actions
causation and the likelihood of redress.
were a substantial factor motivating the
Cases that cite this headnote decisions of the third parties that were the
direct source of plaintiffs' injuries.

[15] Federal Civil Procedure Cases that cite this headnote
In general; injury or interest
While the court accepts as true all material [18] Federal Civil Procedure
allegations made by plaintiffs, plaintiffs bear Causation; redressability
a greater burden of what they must allege in
Redressability component of standing
order to show standing on the basis of third-
requires that plaintiffs demonstrate a
party conduct.
substantial likelihood that the requested relief
will remedy the alleged injury in fact.

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grant any injunctive relief whatsoever. 12
Cases that cite this headnote U.S.C.A. § 1818(i)(1).

Cases that cite this headnote
[19] Federal Civil Procedure
Causation; redressability
“Substantial likelihood” that requested relief [23] Constitutional Law
will remedy the alleged injury in fact, as Advisory Opinions
required to establish standing, requires more Federal Courts
than a remote possibility that plaintiffs' Rights and interests at stake
situation might improve were the court to Doctrine of mootness is premised upon the
afford relief, but is not so demanding as to notion that a federal court is constitutionally
require plaintiffs to show to a certainty that a forbidden to render advisory opinions or to
favorable decision will redress their injury. decide questions that cannot affect the rights
of litigants in the case before them.
Cases that cite this headnote
Cases that cite this headnote
[20] Federal Civil Procedure
Causation; redressability [24] Federal Courts
Plaintiffs cannot establish standing by Weight and sufficiency
requesting relief that the court lacks the Burden to establish that a case is moot is a
authority to grant. heavy one.

Cases that cite this headnote Cases that cite this headnote

[21] Federal Civil Procedure [25] Federal Courts
Causation; redressability Trade, Business, and Finance
To establish the redressability component of Claims of payday lender and national trade
standing, plaintiffs are not required to show association representing such lenders, in their
to a certainty that a favorable decision will action against the Federal Deposit Insurance
redress their injury. Corporation (FDIC) and other government
entities to set aside informal guidance
Cases that cite this headnote
documents and other actions claimed to
be part of defendants' alleged participation
[22] Banks and Banking in Department of Justice (DOJ)-initiated
Actions campaign to force banks to terminate
Injunction their business relationships with payday
Financial institutions, transactions, and lenders, were not moot, notwithstanding
services FDIC's issuance of two new guidance
documents clarifying that banks' termination
While the section of the Federal Deposit
of relationships with payday lenders was
Insurance Act divesting federal courts of
not required; while the subject documents
jurisdiction to “affect by injunction or
may have addressed a portion of plaintiffs'
otherwise” or “modify” cease-and-desist
allegations, they did not resolve the entirety
orders issued by certain federal banking
of plaintiffs' claims, as invalidation of agency
agencies precludes the court's jurisdiction to
documents was only one facet of the relief
issue an injunction that interferes with an
sought.
enforcement action or other specified orders,
that does not preclude the court's ability to

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facts consistent with the allegations in the
Cases that cite this headnote complaint. Fed. R. Civ. P. 12(b)(6).

Cases that cite this headnote
[26] Action
Persons entitled to sue
Federal Civil Procedure [30] Federal Civil Procedure
In general; injury or interest Pleading, Defects In, in General
Principle of “prudential standing” denies a Federal Civil Procedure
right of review if the plaintiff's interests are Determination
so marginally related to or inconsistent with Court deciding a motion to dismiss must not
the purposes implicit in the statute that it make any judgment about the probability of
cannot reasonably be assumed that Congress the plaintiffs' success, must assume all the
intended to permit the suit. allegations in the complaint are true, even if
doubtful in fact, and must give the plaintiff
Cases that cite this headnote the benefit of all reasonable inferences derived
from the facts alleged. Fed. R. Civ. P. 12(b)(6).
[27] Action
Cases that cite this headnote
Persons entitled to sue
Federal Civil Procedure
In general; injury or interest [31] Federal Civil Procedure
Matters deemed admitted; acceptance as
Zone of interests test no longer falls under the
true of allegations in complaint
prudential standing umbrella, nor is the zone
of interests test a jurisdictional requirement; Court deciding a motion to dismiss does not
instead, the zone of interests test is now accept as true legal conclusions or inferences
considered a merits issue, in which the court that are unsupported by the facts alleged. Fed.
asks whether the plaintiff has a cause of action R. Civ. P. 12(b)(6).
under the statute in question.
Cases that cite this headnote
Cases that cite this headnote
[32] Federal Civil Procedure
[28] Federal Civil Procedure Claim for relief in general
Insufficiency in general Complaint which tenders naked assertions
To survive a motion to dismiss for failure to devoid of further factual enhancement will not
state a claim upon which relief can be granted, suffice. Fed. R. Civ. P. 12(b)(6).
plaintiff need only plead enough facts to state
Cases that cite this headnote
a claim to relief that is plausible on its face and
to nudge his or her claims across the line from
conceivable to plausible. Fed. R. Civ. P. 12(b) [33] Administrative Law and Procedure
(6). Finality; ripeness
In context of the final agency action
Cases that cite this headnote
requirement for judicial review under the
Administrative Procedure Act (APA), one
[29] Federal Civil Procedure way of viewing the final agency action
Claim for relief in general question is whether the action constitutes a
Once a claim has been stated adequately, it de facto rule or binding norm that could
may be supported by showing any set of not properly be promulgated absent the
requirements of the APA; by demonstrating

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5
Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

the latter, a party implicitly proves the former, Language used by an agency is an important
because the agency's adoption of a binding consideration in determining whether legal
norm obviously would reflect final agency consequences flow from agency action, such
action. 5 U.S.C.A. § 704. that it is reviewable as “final” under the
Administrative Procedure Act (APA). 5
Cases that cite this headnote U.S.C.A. § 704.

Cases that cite this headnote
[34] Administrative Law and Procedure
Finality; ripeness
Supreme Court's two-part Bennett test is used [38] Administrative Law and Procedure
to determine when agency action is reviewable Finality; ripeness
as “final” under the Administrative Procedure Agency's expressed intentions may be
Act (APA): (1) the action under review evaluated in determining whether legal
must mark the consummation of the agency's consequences flow from agency action, such
decisionmaking process, that is, it must not be that it is reviewable as “final” under the
of a merely tentative or interlocutory nature, Administrative Procedure Act (APA); this
and (2) the action must be one by which entails a consideration of three factors: (1) the
rights or obligations have been determined, agency's own characterization of the action,
or from which legal consequences will flow. 5 (2) whether the action was published in the
U.S.C.A. § 704. Federal Register or the Code of Federal
Regulations, and (3) whether the action has
Cases that cite this headnote binding effects on private parties or on the
agency. 5 U.S.C.A. § 704.
[35] Administrative Law and Procedure
Cases that cite this headnote
Finality; ripeness
Final agency action under the Administrative
Procedure Act (APA) may be comprised of a [39] Banks and Banking
series of agency pronouncements rather than Regulation and supervision in general
a single edict. 5 U.S.C.A. § 704. Banks and Banking
Federal Reserve Board
Cases that cite this headnote
Banks and Banking
Powers, functions and dealings in general
[36] Administrative Law and Procedure Alleged actions of Federal Deposit Insurance
Finality; ripeness Corporation (FDIC), Board of Governors
In evaluating whether legal consequences flow of Federal Reserve System, and Office
from agency action, such that it is reviewable of Comptroller of Currency (OCC) in
as “final” under the Administrative Procedure promulgating certain informal guidance
Act (APA), courts may consider the effects documents for banks, engaging in coercive
of the agency's action, inquiring whether back-room communications, and creating
the agency has: (1) imposed any rights de facto rule against providing financial
and obligations, or (2) genuinely left the services to payday lenders were neither final
agency and its decisionmakers free to exercise agency actions nor binding norms and,
discretion. 5 U.S.C.A. § 704. thus, were not subject to judicial review
under the Administrative Procedure Act
Cases that cite this headnote (APA); although, given their publication and
wide distribution, it was reasonable to view
[37] Administrative Law and Procedure documents as consummation of agencies'
Finality; ripeness decision-making processes rather than as

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Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

tentative or interlocutory steps, the same Finality; ripeness
could not be said for the amorphous de While an enforcement action may be sufficient
facto rule, documents did not create legal to show legal consequences, it is not per se
obligations, but were advisory, providing indicative of final agency action, for purposes
guidance on agencies' views regarding risk of determining availability of judicial review
management, and documents did not commit under the Administrative Procedure Act
agencies to particular course of action. 5 (APA); the enforcement action must still be
U.S.C.A. § 704. evaluated within the Bennett rubric of “rights
or obligations” or “legal consequences.” 5
Cases that cite this headnote
U.S.C.A. § 704.

[40] Administrative Law and Procedure Cases that cite this headnote
Finality; ripeness
Guidance that does not tell regulated parties [44] Constitutional Law
what they must do or may not do in order to Arbitrariness
avoid liability is merely a general statement Fifth Amendment's due process clause
of policy, not a final agency action subject protects the individual citizen from the
to judicial review under the Administrative arbitrary exercise of power by the
Procedure Act (APA). 5 U.S.C.A. § 704. government. U.S. Const. Amend. 5.

Cases that cite this headnote Cases that cite this headnote

[41] Administrative Law and Procedure [45] Constitutional Law
Finality; ripeness Procedural due process in general
Guidance documents must establish a For a plaintiff to establish a procedural
new substantive rule before they can be due process claim, it must show that:
characterized as “final” action under the (1) it has a protected interest, (2) the
Administrative Procedure Act (APA) subject government deprived it of this interest, and
to judicial review. 5 U.S.C.A. § 704. (3) the deprivation occurred without proper
procedural protections. U.S. Const. Amend.
Cases that cite this headnote
5.

[42] Administrative Law and Procedure Cases that cite this headnote
Finality; ripeness
In determining whether agency documents [46] Administrative Law and Procedure
reflected “final” agency action, and so Proceedings for Adoption
were subject to judicial review under the Administrative Law and Procedure
Administrative Procedure Act (APA), the Hearings and Adjudications
court need not limit its analysis to the four
Supreme Court has recognized a distinction
corners of the documents; rather, it may look
in administrative law between proceedings
to post-guidance events to determine whether
for the purpose of promulgating policy-
the agency has applied the guidance as if it
type rules or standards, on the one hand,
were binding on regulated parties. 5 U.S.C.A.
and proceedings designed to adjudicate
§ 704.
disputed facts in particular cases on the
Cases that cite this headnote other; adjudicative proceedings require more
individualized process than rule-making
decisions. U.S. Const. Amend. 5.
[43] Administrative Law and Procedure

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Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

have more than an abstract need or desire;
Cases that cite this headnote the party must have a legitimate claim of
entitlement to it. U.S. Const. Amend. 5.
[47] Banks and Banking
Cases that cite this headnote
Regulation and supervision in general
Banks and Banking
Federal Reserve Board [50] Constitutional Law
Rights, Interests, Benefits, or Privileges
Banks and Banking
Involved in General
Powers, functions and dealings in general
Interests afforded due process protection are
Constitutional Law
not created by the Constitution, but are
Financial institutions, transactions, and
defined by existing rules or understandings
services
that secure certain benefits and that support
Allegations of payday lender and national claims of entitlement to these benefits. U.S.
trade association representing payday lenders, Const. Amend. 5.
that Federal Deposit Insurance Corporation
(FDIC) and other government entities Cases that cite this headnote
promulgated risk-management guidelines for
banks, that they engaged in coercive back-
[51] Constitutional Law
room communications aimed at payday
Reputation; defamation
lenders and targeting specific payday lenders,
and that they took these actions for the While a company may have a liberty interest
direct purpose of putting payday lenders in avoiding the damage to its reputation and
out of business, stated a claim for which business caused by stigma, stigma alone is
due process protections applied; defendants' insufficient to implicate due process interests.
alleged actions were not legislative in nature, U.S. Const. Amend. 5.
but were more analogous to an adjudication
Cases that cite this headnote
of payday lenders' right to do business, and
the effects of defendants' actions were neither
indirect nor incidental. U.S. Const. Amend. 5. [52] Constitutional Law
Reputation; defamation
Cases that cite this headnote
Constitutional Law
Public contracts
[48] Constitutional Law In addition to stigma or reputational harm,
Rights, Interests, Benefits, or Privileges plaintiff asserting a due process claim must
Involved in General be able to show that: (1) the government
First inquiry in every due process challenge is has deprived plaintiff of some benefit to
whether the plaintiff has been deprived of a which it had a legal right, for example,
protected interest in “property” or “liberty.” the right to be considered for government
U.S. Const. Amend. 5. contracts in common with all others, or (2) the
government-imposed stigma is so severe that
Cases that cite this headnote it broadly precludes plaintiff from pursuing a
chosen trade or business. U.S. Const. Amend.
[49] Constitutional Law 5.
Rights, Interests, Benefits, or Privileges
Cases that cite this headnote
Involved in General
In order to have a life, liberty, or property
interest protected by due process, a party must [53] Banks and Banking

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 8
Community Financial Services Association of America, Ltd...., 132 F.Supp.3d 98 (2015)

Regulation and supervision in general In June 2014, Plaintiffs' Community Financial Services
Banks and Banking Association of America, Ltd. (“CFSA”) and Advance
Federal Reserve Board America, Cash Advance Centers, Inc. (“Advance
America”) filed a Complaint against Defendants the
Banks and Banking
Federal Deposit Insurance Corporation (“the FDIC”),
Powers, functions and dealings in general
the Board of Governors of the Federal Reserve System
Constitutional Law (“the Board”), and the Office of the Comptroller of the
Financial institutions, transactions, and Currency and Thomas J. Curry, in his official capacity as
services the Comptroller of the Currency (“the OCC”). Plaintiffs
Payday lender and national trade association seek declaratory and injunctive relief to set aside certain
representing payday lenders stated a claim informal guidance documents and other actions by the
for violation of their right to procedural FDIC, the Board, and the OCC on the grounds that
due process by alleging that Federal they exceed the agencies' statutory authority, are arbitrary
Deposit Insurance Corporation (FDIC) and capricious, were promulgated without following the
and other government entities promulgated procedures required by law, and deprive Plaintiffs of
certain informal guidance documents for liberty interests without due process of law.
banks, engaged in coercive back-room
communications, and created de facto rule This matter is before the Court on Defendants' Motions
against providing financial services to payday to Dismiss for Lack of Jurisdiction and for Failure to
lenders, that stigma resulted from defendant State a Claim (collectively, “Motions to Dismiss”) [Dkt.
agencies' actions, that the stigma deprived Nos. 16, 17, 18], Plaintiffs' Motion for Jurisdictional
plaintiffs of two interests, namely, their Discovery (“Motion for Discovery”) [Dkt. No. 25], and
interest in having bank accounts and their Plaintiffs' Motion for Leave to File a Second Amended
interest in their ability to engage in their Complaint [Dkt. No. 56]. Upon consideration of the
chosen line of business, and that defendants'
motions, 1 oppositions, replies, surreplies, notices of
actions thus implicated a protected liberty
support, response, the entire record herein, and for the
interest. U.S. Const. Amend. 5.
reasons stated below, the Motions to Dismiss are granted
Cases that cite this headnote in part and denied in part, the Motion for Discovery
is denied, and the Motion for Leave to File a Second
Amended Complaint is granted.

Attorneys and Law Firms I. Background

*105 David Henry Thompson, Harold Smith Reeves,
A. Factual Overview 2
Howard C. Nielson, Jr., Charles John Cooper, Cooper &
[1] Plaintiff CFSA is a national trade organization that
Kirk, PLLC, Washington, DC, for Plaintiffs.
represents payday lenders and Plaintiff Advance America
Duncan Norman Stevens, Erik Bond, Federal Deposit is a payday lender and member of CFSA. SAC ¶¶ 14–16.
Insurance Corporation, Arlington, VA, Yvonne F. Payday lenders are by and large licensed and regulated
Mizusawa, Federal Reserve Board, Peter Chadwell Koch, by the states, as well as some federal consumer protection
Office of the Comptroller of the Currency, Washington, laws. Board Mot. at 3. The Dodd–Frank Act gave
DC, for Defendants. the Consumer Financial Protection Bureau (“CFPB”)
authority to supervise payday lenders and promulgate
*106 regulations pertaining to payday lending. See SAC
¶¶ 39–41; Dodd–Frank Act Wall Street Reform and
MEMORANDUM OPINION
Consumer Protection Act, 12 U.S.C. § 5491(a). CFPB is
Gladys Kessler, United States District Judge not a party in this case.

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[2] Defendant FDIC is an independent agency and acts known as “Operation Choke Point,” to force banks
as the primary federal regulator for certain state-chartered to terminate their business relationships with payday
banks. In that capacity, the FDIC prescribes standards to lenders. Operation Choke Point has recently been
promote banks' safety and soundness, and may do so by the subject of a House Committee Investigation
regulation or guideline. The FDIC also examines banks, and reports. See SAC ¶¶ 56–58; STAFF OF H.
prepares examination reports, and brings enforcement COMM. ON OVERSIGHT & GOV'T REFORM,
actions. See FDIC Mot. at 2; FDIC, Who is the FDIC?, 113TH CONG., REP. ON THE DEP'T OF JUSTICE'S
available at www.fdic.gov/about/learn/symbol. “OPERATION CHOKE POINT”: ILLEGALLY
CHOKING OFF LEGITIMATE BUSINESSES?
[3] Defendant OCC is an independent bureau within the (Comm. Print 2014) (“Comm.Report”); STAFF
U.S. Department of the Treasury that functions as the OF H. COMM. ON OVERSIGHT AND GOV'T
primary supervisor of federally chartered (national) banks REFORM, 113TH CONG., FEDERAL DEPOSIT
and savings and loan associations. The OCC administers INSURANCE CORPORATION'S INVOLVEMENT
statutory provisions governing most aspects of the federal IN “OPERATION CHOKE POINT” (Comm. Print
banking system and has broad authority to examine the 2014) (“Comm. FDIC Report”).
safety and soundness of the banks it supervises. See OCC
Mot. at 5; OCC, About the OCC, available at http:// Defendants allegedly forced banks to terminate
www.occ.gov/about. relationships with Plaintiffs and Plaintiffs' members
by first promulgating regulatory guidance regarding
[4] Defendant Board of Governors of the Federal Reserve “reputation risk,” and by later relying on the reputation
System is a federal agency authorized to regulate and risk guidance “as the fulcrum for a *107 campaign of
examine bank holding companies and state-chartered backroom regulatory pressure seeking to coerce banks to
banks that are members of the Federal Reserve System. terminate longstanding, mutually beneficial relationships
State member banks that are regulated by the Board are with all payday lenders.” Pls.' Opp'n at 9.
also regulated by state banking agencies. See Board Mot.
at 2–3.
B. Procedural Background
Payday lenders utilize the services of banks as part of their On June 5, 2014, Plaintiffs filed their original Complaint
business. For example, “[w]hen a prospective borrower against Defendants asserting violations of the APA and
applies for the loan ... he or she typically provides a post- due process [Dkt. No. 1]. The First Amended Complaint
dated check or an electronic debit authorization for the was filed on July 30, 2014 (“FAC”) [Dkt. No. 12]. On
value of the loan, plus a fee. The lender immediately August 18, 2014, the Board filed its Motion to Dismiss
advances the customer funds, then after a specified period for Lack of Jurisdiction, or Alternatively for Failure to
of time, usually determined by the customer's next payday, State a Claim [Dkt. No. 16] (“Board Mot.”). The FDIC
the borrower returns to repay the loan and fee. But if the filed a similar Motion [Dkt. No. 17] (“FDIC Mot.”), as
customer does not return, the terms of the transaction did the OCC [Dkt. No. 18] (“OCC Mot.”). On October
permit the lender to deposit the post-dated check or to 2, 2014, Plaintiffs filed their Opposition to Motions to
execute the debit authorization. In order to have that Dismiss [Dkt. No. 23] (“Pls.' Opp'n”).
security, the lender must have a deposit account with a
bank and/or access to the Automated Clearing House The following day, Plaintiffs filed a Motion for Discovery
(ACH) network.” SAC ¶ 28; see also OCC Motion to [Dkt. No. 25] (“Discovery Mot.”). On October 31, 2014,
Dismiss (“OCC Mot.”) [Dkt. No. 18–1] at 1 (“a payday the Board filed its Reply in support of its Motion to
lender typically must submit checks provided by its Dismiss [Dkt. No. 41] (“Board Reply”) and its Opposition
borrowers through the payment system by causing the to Plaintiffs' Motion for Discovery [Dkt. No. 42] (“Board
checks to be deposited at a bank.”) Discovery Opp'n”); the FDIC filed its Reply [Dkt. No. 46]
(“FDIC Reply”) and Opposition [Dkt. No. 45] (“FDIC
Plaintiffs allege that Defendants participated and Discovery Opp'n”); and the OCC filed its Reply [Dkt.
continue to participate in a campaign initiated by No. 44] (“OCC Reply”) and Opposition [Dkt. No. 43]
the United States Department of Justice (“DOJ”), (“OCC Discovery Opp'n”). Plaintiffs filed their Reply in
support of their Motion for Discovery [Dkt. No. 49] (“Pls.'

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Discovery Reply”) on November 10, 2014. Plaintiffs also 391 (1994). The plaintiff bears the burden of establishing
filed a Surreply to Defendants' Replies in Support of the by a preponderance of the evidence that the Court has
Motions to Dismiss [Dkt. No. 50] (“Pls.' Surreply”) the subject matter jurisdiction to hear the case. SeeShuler
same day. In response, the FDIC filed a Surreply [Dkt. v. United States, 531 F.3d 930, 932 (D.C.Cir.2008). In
No. 51] (“FDIC Surreply”) on November 14, 2014. deciding whether to grant a motion to dismiss for lack of
jurisdiction under Rule 12(b)(1), the court must “accept
On October 23, 2014, prior to the filing of Defendants' all of the factual allegations in [the] complaint as true.”
Replies and Discovery Oppositions, Plaintiffs filed a Jerome Stevens Pharmaceuticals, Inc. v. Food & Drug
Notice of Supplemental Support [Dkt. No. 35] (“Pls.' Admin., 402 F.3d 1249, 1253 54 (D.C.Cir.2005) (quoting
First Supp.”) notifying the Court of a letter from an United States v. Gaubert, 499 U.S. 315, 327, 111 S.Ct.
FDIC official to a depository institution. On December 1267, 113 L.Ed.2d 335 (1991)). The Court may also
12, 2014, after briefing was complete on the Motions consider matters outside the pleadings, and may rest
to Dismiss and the Motion for Discovery, Plaintiffs its decision on its own resolution of disputed facts.
filed a Second Notice of Supplemental Support [Dkt. SeeHerbert v. Nat'l Acad. of Sci., 974 F.2d 192, 197
No. 52] (“Pls.' Second Supp.”) to notify the Court of (D.C.Cir.1992).
a U.S. House of Representatives Committee Report
on the FDIC's involvement in Operation Choke Point.
On December 23, 2014, the FDIC filed a Response to B. Standing
Plaintiffs' Second Supplemental Notice [Dkt. No. 53] [9] [10] As a threshold matter, Defendants argue that
(“FDIC Supp. Resp.”). Plaintiffs do not have standing. Article III of the
Constitution limits the jurisdiction of federal courts to
certain “Cases” and “Controversies.” See U.S. Const.
II. Second Amended Complaint art. 3, § 2. “[N]o principle is more fundamental to the
After briefing was complete on the Motions to Dismiss judiciary's proper role in our system of government than
and the Motion for Jurisdictional Discovery, Plaintiffs the constitutional limitation of federal-court jurisdiction
filed a Motion for Leave to File a Second Amended to actual cases or controversies.” Clapper v. Amnesty Int'l
Complaint on April 10, 2015 [Dkt. No. 56]. Defendants' USA, ––– U.S. ––––, 133 S.Ct. 1138, 1146, 185 L.Ed.2d
only opposition to the Motion to Amend is that the 264 (2013) (quoting DaimlerChrysler Corp. v. Cuno, 547
proposed Second Amended Complaint is futile because U.S. 332, 341, 126 S.Ct. 1854, 164 L.Ed.2d 589, (2006)).
it does not overcome the alleged deficiencies in the First “One element of the case-or-controversy requirement is
Amended Complaint with regard to standing and/or that plaintiffs must establish that they have standing to
failure to state a claim. Consequently, Defendants argue sue.” Id. (internal quotation marks and citation omitted).
that the Motion to Amend should be denied as futile.
See Opp'ns to Motion to Amend. Because this Court [11] “[T]he irreducible constitutional minimum of
finds, infra, that Plaintiffs have standing and some claims standing contains three elements. First, the plaintiff must
survive the Motions to Dismiss, and are therefore not have suffered an injury in fact ... which is (a) concrete and
futile, Plaintiffs' Motion to Amend will be granted. For particularized, and (b) actual or imminent, not conjectural
purposes of deciding the Motions to Dismiss, the Court or hypothetical. Second, there must be a causal connection
will rely on the Second Amended Complaint [Dkt. No. 56– between the injury and the conduct complained of ...
1] (“SAC”) in this Memorandum Opinion. Third, it must be likely, as opposed to merely speculative,
that the injury will be redressed by a favorable decision.”
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112
III. Jurisdiction S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation
marks, citations, and footnote omitted).
A. Standard of Review Under Fed. R. Civ. P. 12(b)(1)
[5] [6] [7] [8] As courts of limited jurisdiction, federal
[12] “A plaintiff's burden to demonstrate standing grows
courts possess only those powers *108 specifically
heavier at each stage of the litigation.” Osborn v. Visa Inc.,
granted to them by Congress or directly by the United
No. 14–7004, 797 F.3d 1057, 1063, 2015 WL 4619874,
States Constitution. Kokkonen v. Guardian Life Ins. Co.
at *4 (D.C.Cir. Aug. 4, 2015) (citing Lujan, 504 U.S.
of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d
at 561, 112 S.Ct. 2130). “At the pleading stage, general

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factual allegations of injury resulting from the defendant's Defendants do not dispute that Plaintiffs have
conduct may suffice, for on a motion to dismiss we suffered an injury in fact. CFSA's members, including
‘presume that the general allegations embrace those Plaintiff Advance America, have lost beneficial banking
specific facts which are necessary to support the claim.’ ” relationships, causing them on short notice to lose
Lujan, 504 U.S. at 561, 112 S.Ct. 2130 (quoting Lujan v. business and expend resources to locate new banking
National Wildlife Federation, 497 U.S. 871, 889, 110 S.Ct. partners. Pls.' Opp'n at 11. Many payday lenders have not
3177, 111 L.Ed.2d 695 (1990)). been able to replace the terminated bank relationships.
Id. Plaintiffs have also alleged that Defendants' actions
[13] Our Court of Appeals recently reiterated and have deprived them of their ability to compete for banks'
emphasized the requirement that courts must “accept resources and have stigmatized them. Id. at 12–13.
as true all material allegations of the complaint” at the
pleadings stage. Osborn, 797 F.3d at 1064, 2015 WL In sum, it is clear that Plaintiffs have alleged facts
4619874, at *5 (internal citation omitted). In Osborn, the sufficient to show an injury in fact at the pleadings stage.
Court of Appeals found that the plaintiffs' alleged facts
were “specific, plausible, and susceptible to proof at trial,”
and therefore they “pass[ed] muster for standing purposes 2. Causation
at the pleadings stage.” Id. at 1066, 2015 WL 4619874, at Defendants argue that Plaintiffs do not meet the causation
*6. prong of standing because their injuries are not “fairly
traceable” to any acts by the Defendants, and that it
[14] [15] *109 “When a plaintiff's asserted injury arises was the independent decisions of the respective banks to
from the Government's regulation of a third party that terminate their relationships with Plaintiffs' members. See
is not before the court, it becomes ‘substantially more Board Mot. at 10–11; FDIC Mot. at 12, 15.
difficult’ to establish standing.” Nat'l Wrestling Coaches
Ass'n v. Dep't of Educ., 366 F.3d 930, 938 (D.C.Cir.2004) [17] To show causation, Plaintiffs must show that the
(quoting Lujan, 504 U.S. at 562, 112 S.Ct. 2130). Where Defendants' actions were a “substantial factor motivating
standing has been found on the basis of third-party the decisions of the third parties that were the direct source
conduct, “the record presented substantial evidence of a of the [P]laintiff[s'] injuries.” National Wrestling Coaches,
causal relationship between the government policy and the 366 F.3d at 940–41. Thus the key issue is the degree
third-party conduct, leaving little doubt as to causation of Defendants' alleged involvement or influence on the
and the likelihood of redress.” Id. at 941. Therefore, while banks' decisions to terminate relationships with payday
the Court accepts as true all material allegations made by lenders.
Plaintiffs, Plaintiffs bear a greater burden of what they
must allege in order to show standing on the basis of third- Plaintiffs allege that the Defendants undertook a “two-
party conduct. stage regulatory campaign designed to cripple and
ultimately eliminate the payday lending industry.” Pls.'
[16] In this case, the elements of causation and Opp'n at 9. The first stage involved Defendants issuing
redressability “hinge on the independent choices of the informal regulatory guidance regarding “reputation risk.”
regulated third party,” namely the banks. Id. at 938. While Plaintiffs allege that the Defendant agencies expanded
it is Plaintiffs' burden to “adduce facts showing that those the definition of “reputation risk” beyond its traditional
choices have been or will be made in such a manner as to understanding to include bad publicity due to the actions
produce causation and permit redressability of injury,” Id. of third parties, even when the actions were unrelated to
(quoting Lujan, 504 U.S. at 562, 112 S.Ct. 2130) (emphasis work done on behalf of the bank. SAC ¶ 5, 47–51.
added), at the motion to dismiss stage, Plaintiffs need only
allege facts that are “specific, plausible, and susceptible Plaintiffs cite to several documents issued by the
to proof at trial.” Osborn, 797 F.3d at 1066, 2015 WL FDIC, as well as one by the *110 OCC, as
4619874 at *6. examples of the expansion of “reputation risk.” See
e.g., OCC, Third–Party Relationships: Risk Management
Guidance, OCC Bulletin 2013–29 (Oct. 30, 2013); FDIC,
1. Injury in Fact Financial Institution Letter: Guidance for Managing
Third–Party Risk, FIL44–2008 (June 6, 2008); FDIC,

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Financial Institution Letter: Guidance on Payment to an internal email from Marguerite Sagatelian, Senior
Processor Relationships, FIL–127–2008 (Nov. 7, 2008); Counsel with the FDIC Consumer Enforcement Unit,
FDIC, Financial Institution Letter: Payment Processor stating that FDIC Legal was “looking into avenues by
Relationships, FIL–3–2012 (Jan. 31, 2012); FDIC, which the FDIC can potentially prevent [its] banks from
Managing Risks in Third–Party Payment Processor facilitating payday lending.” Pls. Second Supp., Ex. B at
Relationships, 8 SUPERVISORY INSIGHTS (Summer 118 [Dkt. No. 52–2].
2011). The Supervisory Insights article included a list
of merchant categories—including payday loans—“that Plaintiffs bolster their allegations by noting that the
have been associated with high-risk activity.” Managing Federal Reserve Board of Governors is the prudential
Risks in Third–Party Payment Processor Relationships, 8 regulator for three banks that have already terminated
SUPERVISORY INSIGHTS at 7; Pls. Second Supp., Ex. relationships with Plaintiffs and their members, the OCC
B at 157 (collectively, “Agency Documents”). is the prudential regulator for seven banks that terminated
relationships with Plaintiffs and their members, and that
The second stage, according to Plaintiffs' theory, is the FDIC is the prudential regulator for four banks
that Defendants relied on the expanded definition of that terminated relationships with Plaintiffs and their
“reputation risk,” as outlined in the regulatory guidance, members. SAC ¶ 84.
“as the fulcrum for a campaign of backroom regulatory
pressure” to coerce banks into terminating relationships Plaintiffs also point to a DOJ memo indicating that it had
with payday lenders. Pls.' Opp'n at 9. Defendants allegedly been in contact with “several state attorneys general, FTC,
acted in concert with DOJ in Operation Choke Point and FDIC, the Federal Reserve Bank of Atlanta, *111 and
“used their prudential ‘safety and soundness' regulatory [they] hope to begin working with the OCC soon,” in “an
authority” to pressure banks. SAC ¶ 5; see also SAC ¶¶ attempt to increase their knowledge and attention to the
56–60. roles banks and payment processors play in facilitating
fraud.” Memorandum from Michael S. Blume, Dir., DOJ
Plaintiffs further allege that, as part of Operation Consumer Prot. Branch, to Stuart F. Delery, Ass't Att'y
Choke Point, Defendants privately threatened banks with Gen., DOJ Civil Division at 14 (Sept. 9, 2013), in Comm.
adverse regulatory action if they continued doing business Report app. at HOGR–3PPP000339. Finally, Plaintiffs
with payday lenders. See id. In support of their theory, claim that Defendants undertook the actions they did
Plaintiffs cite to an internal DOJ memo titled “Operation with the express purpose of pressuring banks to terminate
Choke Point: Eight–Week Status Report,” in which relationships with payday lenders.
meetings with the FDIC and the possibility of the FDIC
assigning agents to work on DOJ cases were discussed. In sum, Plaintiffs have alleged sufficient facts, that, if
Pls.' Opp'n at 25 (citing Memorandum from Michael S. proven true, could show that the Defendants' conduct
Blume, Dir., DOJ Consumer Prot. Branch, to Stuart F. was a “substantial factor motivating the decisions of third
Delery, Principal Deputy Ass't Att'y Gen., DOJ Civil Div. parties that were the direct source of [P]laintiff[s'] injuries.”
at 6 (Apr. 17, 2013), in Comm. Report app. at HOGR– National Wrestling Coaches, 366 F.3d at 940–41. Because
3PPP000048. the “facts alleged by the Plaintiffs are specific, plausible,
and susceptible to proof at trial, they pass muster for
Plaintiffs also refer to a February 15, 2013 letter from standing purposes at the pleadings stage.” Osborn, 797
FDIC Regional Director M. Anthony Lowe to an F.3d at 1066, 2015 WL 4619874 at *6.
unidentified bank regarding that bank's involvement in
payday lending. See Pls.' Supp. Support, Ex. A [Dkt. No.
35–1]. In the letter, Lowe states, “we have generally found 3. Redressability
that activities related to payday lending are unacceptable [18] [19] Next, Defendants argue that Plaintiffs lack
for an insured depository institution.” Id. at 2. Lowe also standing because their injuries are not redressable by the
states that members of the Region's Senior Management Court. Redressability requires that Plaintiffs demonstrate
will be contacting the bank in the near future “to further “a substantial likelihood 3 that the requested relief
discuss [its] concerns relative to the aforementioned will remedy the alleged injury in fact.” Teton Historic
[payday lender] relationship.” Id. Similarly, Plaintiffs cite Aviation Found. v. U.S. Dep't of Def., 785 F.3d 719, 724

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(D.C.Cir.2015) (quoting Vermont Agency of Natural Res.
v. U.S. ex rel. Stevens, 529 U.S. 765, 771, 120 S.Ct.
i. Invalidation of Agency Documents
1858, 146 L.Ed.2d 836 (2000)). A “substantial likelihood”
requires “more than a remote possibility ... that [Plaintiffs'] Defendants argue that, even if the Court were to invalidate
situation might ... improve were the court to afford the Agency Documents that allegedly redefine reputation
relief,” Warth v. Seldin, 422 U.S. 490, 491, 95 S.Ct. 2197, risk and enjoin Defendants' actions, it does not necessarily
45 L.Ed.2d 343 (1975), but is not so demanding as to follow that the banks will re-establish relationships with
require Plaintiffs to “show to a certainty that a favorable the Plaintiffs. See FDIC Mot. at 16–20; OCC Mot. at 13–
decision will redress [their] injury.” Teton, 785 F.3d at 726 14; Board Mot. at 14.
(quoting Nat'l Wildlife Fed'n v. Hodel, 839 F.2d 694, 705
(D.C.Cir.1988)). Defendants explain that the Agency Documents do not
require banks to sever relationships with any third parties,
Plaintiffs' prayer for relief includes: (1) declaring various but only provide guidance on risk management. For that
Agency Documents to be unlawful, (2) declaring that reason, Defendants argue that the documents could not
Defendants significantly changed the definition of have been the impetus for the termination of the bank
reputation risk without notice and comment rulemaking; relationships, and invalidation of them will not necessarily
(3) declaring that Defendants deprived Plaintiffs of liberty be the catalyst for reinstatement of the bank relationships.
without due process of law; (4) enjoining Defendants, See FDIC Mot. at 17; OCC Mot. at 14–15. The Board
“as well as those acting in concert with them,” from argues that this is particularly true for it, because Plaintiffs
implementing the aforementioned Agency Documents, are not even seeking to invalidate any Board documents.
from relying on the revised definition of “reputation See Board Mot. at 14.
risk,” and from applying informal pressure to banks to
encourage them to terminate relationships with payday Defendants argue further that invalidation of the Agency
lenders; (5) enjoining Defendants, “as well as those acting Documents would not provide prospective relief to
in concert with them,” from harming the reputations of Plaintiffs. Banks would still be required to abide by safety
Plaintiffs and from seeking to deprive them of access to and soundness standards, and independently determine
financial services; and (6) other such relief as the Court whether they can adequately manage risks. See OCC Mot.
deems just and proper. SAC ¶ 205. at 14–15; Board Mot. at 14.

[20] Defendants focus their redressability arguments Defendants also point out that the Agency Documents do
primarily on the invalidation of the Agency Documents, permit banks to have relationships with payday lenders.
offering little discussion about Plaintiffs' other requested Moreover, the FDIC notes that it recently promulgated
*112 relief. They also argue that 12 U.S.C. § 1818(i)(1) two Financial Institution Letters (“FILs”) explicitly
prevents this Court from providing any injunctive relief stating that banks “that properly manage” relationships
that interferes with “the issuance or enforcement of any with customers engaged in higher-risk activities, and the
notice or order.” Board Mot. at 15–16; FDIC Mot. at associated risks, “are neither prohibited nor discouraged
43–44; OCC Mot. at 18–19. The nature of any injunctive from providing” services to those customers. FDIC Mot.
relief the Court is able to provide is extremely relevant at 18–19 (quoting FIL–43–2013). Thus, the FDIC argues
to standing, as “Plaintiffs cannot establish standing by that invalidating the Agency Documents is unlikely to
requesting relief that the Court lacks the authority to provide prospective relief, as there would be no change
grant.” Long Term Care Pharmacy All. v. Leavitt, 530 in the FDIC's official position, which already permits
F.Supp.2d 173, 185 (D.D.C.2008). relationships with payday lenders. Id. at 19.

Therefore, the Court will address the parties' redressability [21] Although invalidation of the Agency Documents
arguments regarding the invalidation of the Agency would not necessarily lead to restoration of banking
Documents and injunctive relief separately, and will then relationships, it may certainly affect Defendants' ability
assess the “substantial likelihood” of redressability. Teton to pressure banks in the future. Plaintiffs have argued
Historic Aviation Found., 785 F.3d at 724. that Defendants relied on the definition of “reputation
risk” contained in the Agency Documents as the

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“fulcrum” of their campaign pressuring banks to claims for injunctive relief that do not cover Sections 1818,
terminate relationships with payday lenders. Pls.' Opp'n at 1813o, or 1831p–1.
9. Under Plaintiffs' theory, it is likely that the invalidation
of the Agency Documents could deprive Defendants of Moreover, all the cases cited by Defendants involve
this “fulcrum.” Plaintiffs are not required to “show to challenges to specific enforcement actions or orders. See,
a certainty that a favorable decision will redress [their] e.g.,Board of Governors of Fed. Reserve Sys. v. MCorp
injury.” Teton Historic Aviation Found., 785 F.3d at 726 Fin., Inc., 502 U.S. 32, 39, 112 S.Ct. 459, 116 L.Ed.2d 358
(internal citation omitted). (1991) (court lacked jurisdiction to enforce automatic stay
in bankruptcy against agency enforcement proceeding);
Ridder v. Office of Thrift Supervision, 146 F.3d 1035,
1039 (D.C.Cir.1998) (no jurisdiction under 1818(i)(1) to
*113 ii. Section 1818(1) and Injunctive Relief
enjoin provision in consent order); Groos Nat'l Bank
Defendants argue that Section 1818 of the Federal v. Comptroller of the Currency, 573 F.2d 889, 895 (5th
Deposit Insurance Act (“FDI Act”) divests the Court Cir.1978) (court cannot issue declaratory judgment that
of jurisdiction to grant Plaintiffs most of the injunctive would prevent agency from pursuing enforcement).
relief they seek. See Board Mot. at 15; OCC Mot. at 18–
20; FDIC Mot. at 44–45; 12 U.S.C. § 1818(i)(1). Section That is simply not the case here. Section 1818(i) does
1818(i)(1) states that “no court shall have jurisdiction to not necessarily prevent the Court from granting Plaintiffs'
affect by injunction or otherwise” any ongoing or future requests for injunctive relief. 4
enforcement action by Defendants, or to “review, modify,
suspend, terminate, or set aside” such actions. 12 U.S.C.
§ 1818(i)(1).
iii. Likelihood of Redressability

As an initial matter, Plaintiffs correctly point out that Even if some injunctive relief might be available to
there is no enforcement action at issue here, nor are they Plaintiffs, the Court must also determine if injunctive relief
asking the Court to enjoin future enforcement actions. See and/or the invalidation of the Agency Documents will
Pls.' Opp'n at 25. result in a “substantial likelihood” that Plaintiffs' injuries
will be redressed.
Defendants argue that any injunction the Court might
enter is likely to interfere with or effectively enjoin future Defendants point out that other reasons unrelated to the
enforcement actions, and is therefore precluded by Section challenged Agency Documents and actions by Defendants
1818(i)(1). See Board Mot. at 15–17; OCC Mot. at 20; may affect banks' individual decisions on whether to
FDIC Reply at 22–23. The FDIC further argues that reinstate relationships with payday lenders. See Board
the limitation imposed by Section 1818(i)(1) extends to Mot. at 15 (citing National Wrestling Coaches, 366 F.3d at
supervisory actions as well, such as examination findings 939); FDIC Mot. at 14. Such factors include *114 safety
and notices of undercapitalized status. See FDIC Mot. at and soundness standards, bank capacity and systems to
44–45; FDIC Reply at 22–23. effectively manage risk, DOJ's continued activities under
Operation Choke Point, etc.See OCC Mot. at 14; Board
[22] While it is true that Section 1818(i)(1) precludes this Mot. at 14. Due to these factors, Defendants contend, it is
Court's jurisdiction to issue an injunction that interferes not clear that a decision by this Court would change the
with an enforcement action or an order under Sections outcome of banks' decisions.
1818, 1831o, or 1831p-l, that does not preclude the Court's
ability to grant any injunctive relief against Defendants. Plaintiffs believe that, because some banks regretted
The exact contours of any injunctive relief this Court terminating payday lenders, “they presumably would
might grant would depend on the specific facts that are reverse those decisions if the coercive regulatory influence
proven. Mere speculation that an injunction “might” was removed.” Pls.' Opp'n at 20. Plaintiffs support this
interfere with “any notice or order” does not necessarily assumption with letters from banks indicating that the
mean that the Court has no authority to grant Plaintiffs' banks were “very sorry” to terminate the relationship,
were “frustrated and disappointed” with the situation,

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and, in the case of one bank, expressing the “hope [that redress Plaintiffs' injuries. The FDIC and OCC do not
they could] find a way to work together again soon.” address the issue at all, and instead rely wholly on their
Id. (citations omitted). These letters do suggest that some belief that injunctive relief is not available because of
banks would likely consider re-establishing relationships. Section 1818(i)(1). See FDIC Reply at 3–4; OCC Reply
at 9–13. The Board responds that, even if the Court
Although they believe banks would resume relationships enjoined Defendants from exerting regulatory pressure,
with them should the Court order relief, Plaintiffs argue it does not necessarily follow that banks would restore
that it is not necessary to show that even a single any relationships and “banks still could terminate these
bank would restore service to payday lenders in order relationships” with payday lenders for a multitude of
to establish redressability. Pls.' Opp'n at 19. Instead, lawful *115 business reasons. See Board Reply at 10–11
Plaintiffs argue that, to the extent Defendants deprived (emphasis in original).
them of “the ability to compete for banks' limited
compliance and risk management resources on an equal While the Board is correct that banks could still terminate
footing,” and therefore Plaintiffs need only demonstrate payday lenders even if Plaintiffs received injunctive relief,
that they are “able and ready” to compete for banking Plaintiffs are not required to show that banks could
services should the Court provide relief. Pls.' Opp'n at not, under any circumstances, terminate relationships in
19 (citing Northeastern Fla. Chapter of Associated Gen. order to show redressability. If Plaintiffs are able to
Contractors of Am. v. City of Jacksonville, Fla., 508 U.S. prove that injunctive relief would result in a substantial
656, 666, 113 S.Ct. 2297, 124 L.Ed.2d 586 (1993). likelihood that banks will restore relationships or not
terminate relationships in the future, they have sufficiently
City of Jacksonville, and the redressability standard established.
Plaintiffs cite it for, do not support Plaintiffs' argument.
City of Jacksonville involved a challenge to a minority Assuming for now the truth of Plaintiffs' allegations that
business program that required 10% of the amount spent Defendants expanded the definition of reputation risk
on city contracts be set aside for “Minority Business and relied on that expanded definition to pressure banks
Enterprises.” Id. at 659, 113 S.Ct. 2297. The Supreme into terminating relationships with payday lenders, it is
Court found that, in order to establish standing, the reasonable to conclude that a Court order invalidating
plaintiff did not need to show that it would have won the the guidance documents and enjoining Defendants would
contracts, but rather only needed to demonstrate that the redress Plaintiffs' injuries. In the absence of such pressure,
policy prevented it from competing for the contracts on some banks may well choose to reestablish relationships
an equal basis. Id. at 666, 113 S.Ct. 2297. Unlike City of with Plaintiffs. Finally, the absence of such pressure is
Jacksonville, this case does not involve any sort of set- also likely to prevent additional banks from terminating
aside or quota program. Nor was City of Jacksonville a relationships with Plaintiffs in the future.
third-party standing case, which is “substantially more
difficult.” Lujan v. Defenders of Wildlife, 504 U.S. 555, In sum, Plaintiffs have alleged facts sufficient to show that
562, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Moreover, there is a “substantial likelihood” that a favorable ruling
Plaintiffs do not even allege that bank relationships by this Court would redress their injuries.
were terminated because Plaintiffs were at a competitive
disadvantage due to Defendants' actions.
C. Mootness
Plaintiffs argue that the injunctive relief they request The FDIC argues that the two guidance documents it
would “restrain Defendants from inflicting additional has issued render Plaintiffs' case moot, FDIC Mot. at 22,
injury by continuing to pressure banks to terminate because, to the extent the FDIC Agency Documents may
[Plaintiffs'] accounts,” thereby providing meaningful have previously led banks to terminate relationships with
prospective relief and redressability. Pls.' Opp'n at 19 payday lenders, the two more recent FILs they have issued
(emphasis omitted). expressly clarified that termination of relationships is not
required.
However, Defendants provide little in the way of
counterargument as to why injunctive relief would not The two new guidance documents, as noted previously,
are FILs issued in September 2013 and July 2014. The

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FILs state that banks, with appropriate controls in place, Therefore, while the September 2013 and July 2014 FILs
may continue to do business with “merchant customers may have addressed a portion of Plaintiffs' allegations,
engaged in higher risk activities,” and those who properly they have not resolved the entirety of Plaintiffs' claims.
manage such relationships “are neither prohibited nor Therefore Plaintiffs' claims are not moot.
discouraged” from doing business with payday lenders
(among others). FIL–43–2013 at 2; FIL–41–2014 at 2.
The July 2014 FIL also removed the list of high-risk D. Plaintiffs' Motion for Jurisdictional Discovery
merchant categories, due to “the misperception that the In response to Defendants' contention that the Court
listed examples of merchant categories were prohibited has no jurisdiction, Plaintiffs have filed a Motion for
or discouraged.” FIL–41–2014 at 2. Therefore, the FDIC Jurisdictional Discovery in order to further support their
concludes, even if the FDIC Agency Documents did Complaint. Because the Court has found that it has
force banks to terminate their relationships with payday jurisdiction, Plaintiffs' Motion for Jurisdictional discovery
lenders, the two FILS negate any such action now. is moot and is therefore denied.

[23] [24] The doctrine of mootness is premised upon the
E. Prudential Standing
notion that “[a] federal court is constitutionally forbidden
[26] Defendant FDIC argues that, even if Plaintiffs have
to render advisory opinions or ‘to decide questions that
Article III standing, Plaintiffs fail to meet prudential
cannot affect the rights of litigants in the case before
standing requirements because they are not within the
them.’ ” Better Gov't Assoc. v. Dep't of State, 780 F.2d
zone of interests protected by the relevant statutes. FDIC
86, 90–91 (D.C.Cir.1986) (quoting North Carolina v. Rice,
Mot. at 20. The principle of prudential standing “denies a
404 U.S. 244, 246, 92 S.Ct. 402, 30 L.Ed.2d 413 (1971)).
right of review if the plaintiff's interests are so marginally
Plaintiffs state that under the two-pronged test established
related to or inconsistent with the purposes implicit in
by the Supreme Court, Defendants bear the burden of
the statute that it cannot reasonably be assumed that
showing that “(1) there is no reasonable expectation that
Congress intended to permit the suit.” Clarke v. Sec. Indus.
the alleged violation will recur and (2) interim relief or
Ass'n, 479 U.S. 388, 399, 107 S.Ct. 750, 93 L.Ed.2d 757
events have completely and irrevocably eradicated the
(1987).
effects of the alleged violation.” Pls.' Opp'n. at 22 (quoting
Reeve Aleutian Airways, Inc. v. United States, 889 F.2d
The FDIC states that the statutes giving it the authority
1139, 1142–43 (D.C.Cir.1989)); see alsoCounty of Los
to promulgate guidelines, as well as the FDIC Agency
Angeles v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 59
Documents, are focused on promoting the safety and
L.Ed.2d 642 (1979). This burden “is a heavy one.” Reeve
soundness of banks, and that those interests are not
Aleutian Airways, 889 F.2d at 1143).
implicated by Plaintiffs' claims. FDIC Mot. at 21.

[25] *116 The FDIC has not met this heavy burden.
Plaintiffs failed to respond to this argument in their
The invalidation of the Agency Documents is only
Opposition, and the FDIC argues that Plaintiffs have
one facet of the relief Plaintiffs' seek—Plaintiffs' other
therefore conceded this point. See Pls.' Opp'n; FDIC
alleged harms and requested relief are not mooted by
Reply at 5; see alsoClifton Power Corp. v. Fed. Energy
the FDIC's clarification of the Agency Documents.
Reg. Comm'n, 88 F.3d 1258, 1267 (D.C.Cir.1996) (taking
Furthermore, in addition to the allegation that the Agency
as conceded a seemingly sound argument that was not
Documents forced banks to terminate relationships with
opposed); Rosenblatt v. Fenty, 734 F.Supp.2d 21, 22
them, Plaintiffs also allege that the Agency Documents
(D.D.C.2010) (“an argument in a dispositive motion that
improperly redefine “reputation risk” and violate the
the opponent fails to address in an opposition may be
APA. SAC ¶¶ 137, 169, 195. The September 2013 and July
deemed conceded”).
2014 FILs do not change the definition of or even mention
“reputation risk.” See FIL–43–2013; FIL–41–2014; see
It was only after the FDIC stated that Plaintiffs had
also Pls.' Opp'n at 23. Nor do the FILs remedy the alleged
conceded this argument that Plaintiffs filed a Surreply
APA violations of the previous FILs.
addressing prudential standing. Plaintiffs counter that
“inherent in all of Plaintiffs' arguments that are based
upon the [FDI] Act ... is the proposition that Plaintiffs'

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injuries fall within the zone of interest protected by the 296, 315 (D.C.Cir.2014) (citation omitted). Furthermore,
[FDI] Act.” Pls.' Surreply at 2–3. a complaint which “tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement’ ” will not suffice. Ashcroft
[27] However, the Supreme Court's recent decision in v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d
Lexmark Int'l, Inc. v. Static Control Components, Inc., 868 (2009) (quoting Twombly, 550 U.S. at 557, 127 S.Ct.
––– U.S. ––––, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014), 1955) (alteration in Iqbal ).
“makes plain the zone of interests test no longer falls under
the prudential standing umbrella.” Crossroads Grassroots
Policy Strategies v. Fed. Election Comm'n, 788 F.3d 312, B. APA Claims
319 (D.C.Cir.2015) (citing Lexmark, 134 S.Ct. at 1387 n. Plaintiffs allege that Defendants violated the APA in
4). *117 Nor is the zone of interests test a jurisdictional a number of ways. The APA requires that the Court
requirement.Id. Instead, the Supreme Court ruled that the “hold unlawful and set aside agency action, findings, and
zone of interests test is now considered a merits issue, in conclusions” that are, inter alia: “arbitrary, capricious, an
which the “court asks whether the plaintiff ‘has a cause abuse of discretion, or otherwise not in accordance with
of action under the statute.’ ” Id. (quoting Lexmark, 134 law”; “contrary to constitutional right, power, privilege,
S.Ct. at 1387). or immunity”; “in excess of statutory jurisdiction,
authority, or limitations”; or “without observance of
Given the clear holdings from the Supreme Court and procedure required by law.” 5 U.S.C. § 706(2).
our Court of Appeals' clear rulings that the zone of
interests test is not related to jurisdiction or standing, the Plaintiffs allege that Defendants: (1) promulgated binding
FDIC's argument that Plaintiffs lack prudential standing rules without providing notice and comment, as required
necessarily must be denied. by law, see SAC, Counts 1, 5, and 9; (2) exceeded
their authority conferred by 12 U.S.C. § 1831p–1 to set
standards for safety and soundness, see SAC, Counts 2,
IV. Failure to State a Claim 6, and 10; (3) acted arbitrarily and capriciously, see SAC,
Counts 3, 7, and 11; and (4) deprived them of protected
A. Standard of Review Under Fed. R. Civ. P. 12(b)(6) liberty interests without due process of law, see SAC,
[28] [29] To survive a motion to dismiss under Rule 12(b) Counts 4, 8, and 12.
(6) for failure to state a claim upon which relief can be
granted, a plaintiff need only plead “enough facts to state
a claim to relief that is plausible on its face” and to “nudge
[ ] [his or her] claims across the line from conceivable to 1. Final Agency Action Requirement
plausible.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
[33] Before the Court can evaluate the merits of Plaintiffs'
570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “[O]nce a
APA claims, it must first determine whether Defendants'
claim has been stated adequately, it may be supported by
actions are considered final agency actions. The APA
showing any set of facts consistent with the allegations in
authorizes judicial review only of “[a]gency action made
the complaint.” Id. at 563, 127 S.Ct. 1955.
reviewable by statute and final agency action for which
there *118 is no other adequate remedy in a court.” 5
[30] [31] [32] Under the Twombly standard, a “court
U.S.C. § 704. Plaintiffs have cited no provision of the
deciding a motion to dismiss must not make any judgment
FDI Act authorizing judicial review beyond that which is
about the probability of the plaintiffs' success ... [,]
provided for in the APA. Therefore, the alleged agency
must assume all the allegations in the complaint are
actions by Defendants must be final agency actions in
true (even if doubtful in fact) ... [, and] must give the
plaintiff the benefit of all reasonable inferences derived order to be judicially reviewable. 5 Nat'l Ass'n of Home
from the facts alleged.” Aktieselskabet AF 21. November Builders v. Norton, 415 F.3d 8, 13 (D.C.Cir.2005); see
2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C.Cir.2008) alsoLujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 882, 110
(internal quotation marks and citations omitted). The S.Ct. 3177, 111 L.Ed.2d 695 (1990) (“When ... review
court does not, however, accept as true “legal conclusions is sought not pursuant to specific authorization in the
or inferences that are unsupported by the facts alleged.” substantive statute, but only under the general review
Ralls Corp. v. Comm. on Foreign Inv. in U.S., 758 F.3d

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provisions of the APA, the ‘agency action’ in question FDIC Mot. at 23–24; OCC Mot. at 21–29, while the
must be ‘final agency action.’ ”) (citing 5 U.S.C. § 704). Board notes that Plaintiffs do not even allege that any
guidance documents issued by the Board violate the APA,
[34] [35] “The Supreme Court has established a two-part see Board Mot. at 18. In addition, Defendants argue that
test to determine when an agency action is reviewable as *119 the communications Plaintiffs cite in support of
final.” Nat'l Ass'n of Home Builders, 415 F.3d at 13. First, their argument of a de facto rule do not constitute final
the action under review “must mark the ‘consummation’ agency action. Board Mot. at 19; FDIC Mot. at 36–37.
of the agency's decisionmaking process—it must not
be of a merely tentative or interlocutory nature.” Id. As noted above, under Bennett, Defendants' actions
(quoting Bennett v. Spear, 520 U.S. 154, 177–78, 117 cannot be viewed as “final agency action” under § 704
S.Ct. 1154, 137 L.Ed.2d 281 (1997)). Second, the action of the APA unless they “mark the consummation of the
must “be one by which ‘rights or obligations have been agency's decisionmaking process” and either determine
determined,’ or from which ‘legal consequences will flow.’ “rights or obligations” or result in “legal consequences.”
” Id. (quoting Bennett, 520 U.S. at 178, 117 S.Ct. 1154). Bennett, 520 U.S. at 178, 117 S.Ct. 1154 (citations and
Final agency action may be comprised of “a series of internal quotation marks omitted).
agency pronouncements rather than a single edict.” Ciba–
Geigy Corp. v. Envtl. Prot. Agency, 801 F.2d 430, 435 n. After setting forth the two-step Bennett analysis, Plaintiffs
7 (D.C.Cir.1986). inexplicably fail to discuss the first Bennett step and
make no argument as to how the Agency Documents
[36] [37] [38] Our Court of Appeals has also given or the alleged de facto rules “mark the consummation
guidance for evaluating whether legal consequences flow of [Defendants'] decisionmaking processes.” See Pls.'
from an action. One line of analysis “considers the effects Opp'n at 27–28. The closest Plaintiffs come to addressing
of an agency's action, inquiring whether the agency has the first Bennett step is a passing reference stating,
‘(1) impose[d] any rights and obligations, or (2) genuinely without further explanation, that the Agency Documents
[left] the agency and its decisionmakers free to exercise “purport to reflect the agencies' expertise, experience,
discretion.’ ” Id. (quoting CropLife Am. v. Envtl. Prot. and reasoned reflection.” Pls.' Opp'n at 29. Plaintiffs
Agency, 329 F.3d 876, 883 (D.C.Cir.2003)). “The language continue that “[n]othing in the guidelines suggests that
used by an agency is an important consideration in they are ‘tentative, open to further consideration, or
such determinations.” Id. “The second line of analysis conditional on future agency action.’ ” Id. (quoting City
looks to the agency's expressed intentions. This entails of Dania Beach, Fla. v. F.A.A., 485 F.3d 1181, 1188
a consideration of three factors: (1) the agency's own (D.C.Cir.2007)).
characterization of the action; (2) whether the action was
published in the Federal Register or the Code of Federal Plaintiffs' statement sufficiently alleges that the Agency
Regulations; and (3) whether the action has binding Documents reflect the consummation of the agencies
effects on private parties or on the agency.” Id. at 806–07 decision-making process, rather than a tentative or
(internal quotation marks and citation omitted). interlocutory step in that process. Given that the
documents were published and widely distributed by the
FDIC and OCC, it is reasonable to view them as the
consummation of the agencies' decision-making processes.
2. Defendants' Actions Constitute Neither
Therefore, the Court finds that the first Bennett prong has
Final Agency Actions Nor Binding Norms
been met with regard to the Agency Documents.
[39] Plaintiffs point to two actions by each of the
Defendants that they consider final agency actions: 1) the Plaintiffs have alleged that Defendants created a de
promulgation of the Agency Documents; and 2) coercive facto rule—in other words, Defendants' alleged “coercive
back-room communications and the creation of a de facto communications with banks,” taken together, have
rule against providing financial services to all payday effectively created a rule against providing financial
lenders. See SAC ¶¶ 116–22, 127, 148–54, 159, 180– services to payday lenders.
184, 189. The FDIC and OCC argue that the Agency
Documents do not constitute final agency action, see

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It is not readily apparent how the amorphous de facto to avoid liability” is merely a general statement of policy.
rule against payday lenders alleged by Plaintiffs is National Mining Ass'n., 758 F.3d 243, 252 (2014).
the consummation of the Defendants' decision-making
processes. 6 In the absence of any explanation by [41] Furthermore, the Agency Documents expressly state
Plaintiffs, the Court concludes that the alleged de facto that they are not obligatory and are meant only to
rule fails to meet the first step of the Bennett test. Having serve as guidance. See e. g., FIL–44–2008 at 2 (“[t]he
failed the first prong of the Bennett test, any alleged de guidelines should not be considered a set of mandatory
facto rule created by Defendants is not a final agency procedures”); OCC Bulletin 2013–29 at 1 (“[t]his bulletin
action and therefore not subject to review under the provides guidance to national banks and federal savings
associations”). While this alone does not totally insulate
APA. 7
the documents from having legal consequences, the
agency's characterization of the documents is one of the
Turning to the second prong of the Bennett test,
relevant factors for consideration. Ctr. for Auto Safety,
Plaintiffs make several arguments regarding the legal
452 F.3d at 806–07. Guidance documents must establish
consequences of the Agency Documents. Plaintiffs
a “new substantive rule” before they can be characterized
characterize them as “filled with obligatory language and
as final action under the APA. Broadgate, Inc. v. USCIS,
threats of enforcement actions.” Pls.' Opp'n at 31. Such
730 F.Supp.2d 240, 245 (D.D.C.2010).
characterizations are clearly unsupported by the facts on
which Plaintiffs rely. Plaintiffs excerpt phrases from the
[42] The Court need not limit its analysis to the four
Agency Documents such as “it is essential that,” “it is
corners of the Agency Documents. Our Circuit has
imperative that,” and “the FDIC expects,” as examples
“looked to post-guidance events to determine whether the
*120 of obligatory language. Id. Read in context, it
agency has applied the guidance as if it were binding on
is clear that the language does not create new legal
regulated parties.” Nat'l Min. Ass'n v.McCarthy, 758 F.3d
obligations. Instead, the language is used with regard to
243, 253 (D.C.Cir.2014).
banks' overall responsibility to manage risks and third-
party risks 8 —obligations that existed prior to the Agency Plaintiffs allege that Defendants engaged in a campaign
Documents. In addition, the documents consistently use of backroom pressure against banks and payday lenders,
non-mandatory language such as “should,” rather than relying on the definition of “reputation risk” outlined in
“shall” or “must.” See e.g., FIL–127–2008; OCC Bulletin the Agency Documents. See Pls.' Opp'n at 29. Specifically,
2013–29; see alsoHolistic Candlers & Consumers Ass'n Plaintiffs argue that the use of “reputation risk” in
v. F.D.A., 664 F.3d 940, 944 (D.C.Cir.2012) (use of many termination letters from banks indicates that
“should” and “may” make plain that “there has been no the redefinition of “reputation risk” has been actively
order compelling the appellants to do anything”) (internal enforced. Id. However, these letters are from banks,
citation omitted). not Defendants, *121 and do not indicate any legal
consequences or enforcement stemming from the Agency
[40] Indeed, Plaintiffs actually acknowledge the advisory Documents or Defendants.
nature of the Agency Documents, stating that “[a]lthough
the banks' failure to follow the agencies' informal guidance In a similar vein, Plaintiffs argue that DOJ's attachment
may not directly trigger civil liability, these guidance of an FDIC guidance document to subpoenas is indicative
documents set a standard for risk management that may of the legal effect of the guidance document. Pls.' Opp'n
also be used indirectly in other civil enforcement actions,” at 33. Plaintiffs cite to Barrick Goldstrike Mines Inc. for
Pls.' Opp'n at 33, and alleging that some “letters encourage the proposition that an informal action stating an agency's
banks to cut off relations ... if the risks are too great.” Id. position, along with the threat of enforcement action, may
at 32 (emphasis added). Although the Agency Documents constitute final agency action. See Pls.' Opp'n at 29–30
provide guidance on the FDIC and OCC's views regarding (citing Barrick Goldstrike Mines Inc. v. Browner, 215 F.3d
risk management, they do not impose any obligations 45, 48 (D.C.Cir.2000).
or prohibitions on banks. Guidance that “does not tell
regulated parties what they must do or may not do in order [43] While an enforcement action may be sufficient to
show legal consequences, it is not per se indicative of

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final agency action. The enforcement action must still In Counts 4, 8, and 12 of the Second Amended
be evaluated within the Bennett rubric of “rights or Complaint, Plaintiffs allege that Defendants stigmatized
obligations” or “legal consequences.” them, deprived them of their bank accounts, and
threatened their ability to engage in their chosen line of
In Barrick, an enforcement letter from the guidance- business, all without notice and opportunity to be heard,
issuing agency, relying on the guidance document as the in violation of their procedural due process rights under
basis for enforcement, caused the guidance document to the Fifth Amendment to the United States Constitution.
have legal consequences. In this case however, none of See SAC ¶¶ 141–47, 173–79, 198–204; U.S. Const. amend.
the Defendants have issued any enforcement letters and V.
Barrick is not relevant.
[44] [45] *122 The Fifth Amendment's due process
DOJ's use of an FDIC guidance document does not clause protects the individual citizen from the arbitrary
necessarily reflect the FDIC's views, nor do any legal exercise of power by the government. Mathews v. Eldridge,
consequences flow from the document itself; any legal 424 U.S. 319, 332, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).
consequences flow from the actions of DOJ. Plaintiffs For a plaintiff to establish a procedural due process
point to no case law to support the contention that DOJ's claim, it must show that (1) it has a protected interest,
use of the FDIC's document constitutes enforcement (2) the government deprived it of this interest, and
action—and therefore final agency action—by the FDIC. (3) the deprivation occurred without proper procedural
protections. SeeIndus. Safety Equip. Ass'n, Inc. v. Envtl.
Plaintiffs also allege that the guidelines provide the Prot. Agency, 837 F.2d 1115, 1122 (D.C.Cir.1988).
Defendant agencies with a justification for requiring a
bank to submit a safety and soundness plan, which
is “an initial step toward exercising their enforcement
1. Applicability of Due Process Protections
powers.” Pls.' Opp'n at 32. Obviously, there is an
important distinction between an initial step toward an Defendants argue that the Supreme Court has held that
enforcement action, and an actual enforcement action. due process protections are not applicable to legislative
SeeReliable Automatic Sprinkler Co. v. Consumer Prod. activities of an administrative agency that are generalized
Safety Comm'n, 324 F.3d 726, 731–32 (D.C.Cir.2003) in nature and affect a large number of parties. See Board
(no final agency action where agency issued preliminary Mot. at 28–29 (citing Natural Res. Def. Council, Inc.
determination of violation of law, but was required by v.Envtl. Prot. Agency, 859 F.2d 156, 194 (D.C.Cir.1988);
statute to bring a formal action before it could make a Bi–Metallic Inv. Co. v. State Bd. of Equalization Colorado,
legally binding determination). Plaintiffs are not alleging 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372 (1915)); OCC Mt.
that the Agency Documents commit the FDIC or OCC at 37–38. In Bi–Metallic, the Supreme Court held that no
to a particular course of action. It remains within the hearing was constitutionally required prior to a decision
FDIC and OCC's discretion to determine whether an by Colorado to increase the valuation of taxable property.
enforcement action is warranted. Bi–Metallic Inv. Co., 239 U.S. at 445–46, 36 S.Ct. 141.

For all the foregoing reasons, the Court concludes that [46] However, the Supreme Court has recognized a
the Agency Documents are not final agency actions for distinction in administrative law “between proceedings
purposes of § 704 review because they do not determine for the purpose of promulgating policy-type rules or
any rights or obligations. Consequently, they are not standards, on the one hand, and proceedings designed to
subject to judicial review under the APA and all of adjudicate disputed facts in particular cases on the other.”
Plaintiffs claims under the APA fail to state a claim. United States v. Florida E. Coast Ry. Co., 410 U.S. 224,
Therefore, Defendants' Motions to Dismiss shall be 245, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973). Adjudicative
granted with regard to Counts 1, 2, 3, 5, 6, 7, 9, 10, and 11, proceedings require more individualized process than
as well as the portions of Counts 4, 8, and 12 that plead rule-making decisions. Seeid. at 244–45, 93 S.Ct. 810.
violations of the APA.
[47] Plaintiffs' allegations fall somewhere in between
the Court's two opposing poles. Plaintiffs first allege
C. Violation of Fifth Amendment Due Process

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that Defendants' promulgated guidelines, which are Interests afforded due process protection are not created
akin to “policy-type rules or standards.” Plaintiffs also by the Constitution, but are defined by existing “rules
allege that Defendants engaged in coercive backroom or understandings that secure certain benefits and that
communications aimed at payday lenders and targeted support claims of entitlement to these benefits.” Id.
specific payday lenders. See Pls.' Opp'n at 43 n. 17.
Plaintiffs allege that Defendants took these actions for the Plaintiffs allege that the stigma resulting from Defendants'
direct purpose of putting them out of business, which is actions have affected two of their protected interests: 1)
more akin to an informal adjudication. an interest in their bank accounts; and 2) an interest in
their ability to engage in their chosen line of business. Pls.'
The FDIC also argues that the Due Process Clause does Opp'n at 42–43.
not apply to the indirect adverse effects of government
action. See FDIC Mot. at 43 (citing O'Bannon v. [51] [52] While a company may have a “liberty interest
Town Court Nursing Ctr., 447 U.S. 773, 789, 100 S.Ct. in avoiding the damage to its reputation and business”
2467, 65 L.Ed.2d 506 (1980)). While the O'Bannon caused by stigma, Reeve Aleutian Airways, Inc. v. United
court distinguished “between government action that States, 982 F.2d 594, 598 (D.C.Cir.1993), the Supreme
directly affects a citizen's legal rights, or imposes a Court has held that stigma alone is insufficient to
direct restraint on his liberty, and action that is directed implicate due process interests, seeGen. Elec. Co. v.
against a third party and affects the citizen only Jackson, 610 F.3d 110, 121 (D.C.Cir.2010) (citing Paul v.
indirectly or incidentally,” this case fits into neither Davis, 424 U.S. 693, 708, 96 S.Ct. 1155, 47 L.Ed.2d 405
category. O'Bannon, 447 U.S. at 788, 100 S.Ct. 2467. (1976). In addition to stigma or reputational harm, the
Though Defendants' alleged actions were directed at plaintiff must be able to show “that (1) the government
the banks, Plaintiffs argue that they were the intended has deprived them of some benefit to which they have a
targets—that Defendants undertook the actions with the legal right, e.g., the right to be considered for government
express purpose of affecting Plaintiffs. Taking Plaintiffs' contracts in common with all other persons; or (2) the
allegations as true, the impact was neither “indirect” nor government-imposed stigma is so severe that it broadly
“incidental,” and therefore O'Bannon is inapplicable. precludes plaintiffs from pursuing a chosen trade or
business.” Id. at 121 (internal quotation marks and
Defendants' actions, as alleged by Plaintiffs, are not citations omitted).
legislative in nature and are more analogous to an
adjudication of payday lenders right to do business. Nor [53] Plaintiffs have alleged that the stigma promulgated
are the effects of Defendants' alleged actions indirect or by Defendants has resulted in lost banking relationships,
incidental. Therefore, the Court concludes that Plaintiffs and that the continued loss of banking relationships may
have sufficiently *123 stated a claim for which due preclude them from pursuing their chosen line of business.
process protections apply. Pls. Opp'n at 42–43. This is sufficient to constitute a
“tangible change in status” and implicate a protected
liberty interest. O'Donnell v. Barry, 148 F.3d 1126, 1141
(D.C.Cir.1998).
2. Interests Protected by Due Process

[48] [49] [50] Turning to the merits of Plaintiffs' alleged Plaintiffs also argue that the stigma deprived them of their
due process claim, “[t]he first inquiry in every due process right to a bank account. Plaintiffs cite to National Council
challenge is whether the plaintiff has been deprived of a of Resistance of Iran v. Department of State (“NCRI ”) for
protected interest in ‘property’ or ‘liberty.’ ” American the proposition that our Court of Appeals has previously
Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 59, 119 held that a colorable allegation of a property interest in a
S.Ct. 977, 143 L.Ed.2d 130 (1999) (U.S. Const.amend.14). bank account is sufficient to support a due process claim.
In order to have a life, liberty, or property interest, a See Pls.' Opp'n at 42–43 (citing NCRI, 251 F.3d 192, 204
party must have more than an abstract need or desire— (D.C.Cir.2001)).
the party must have “a legitimate claim of entitlement
to it.” Board of Regents of State Colleges v. Roth, 408 It is important to distinguish between the right to have a
U.S. 564, 577, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972). bank account, and the right to the contents of one's bank

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