ADR/MEDIATION UPDATE

Talmage BostonWinstead Sechrest & Minick, P.C.

1201 Elm Street5400 Renaissance Tower

Dallas, Texas 75270214/745-5400

Advanced Business and Commercial LitigationState Bar of Texas

Houston, TexasMay 10-11, 2001

Chapter 11

Talmage BostonWinstead, Sechrest & Minick

Shareholder, DallasT: (214) 745-5400F: (214) 745-5390

tboston@winstead.comPrimary Practice Area: Litigation

UNIVERSITY OF TEXAS JD, 1978

BA cum laude, Economics, 1975, Phi Beta Kappa

• Board Certified in Civil Trial Law and Civil Appellate Law, Texas Board of Legal Specialization;• Current member of Council (ten members total) and Past Chairman (1993), Business Litigation

Section, Dallas Bar Association;• Member of Council (fifteen members total), Litigation Section, State Bar of Texas;• Active commercial litigator and mediator.

Recent Speaking Activities• Featured speaker at Advanced Civil Trial Law Course, State Bar of Texas, September 1998 on Non-

Binding Summary Jury Trials;• Will be the featured speaker giving the "ADR Update" at the Litigation Update Seminar put on by the

Litigation Section of the State Bar of Texas, January 1999;• Moderator of program involving Texas' New Summary Judgment Rule given as a program jointly

sponsored by the Business Litigation Section of the Dallas Bar Association and the Litigation Sectionof the State Bar of Texas, March 1998;

• Featured speaker at State Bar of Texas Advanced Personal Injury Law Course, July 1997, "The Useof Non-Binding Summary Jury Trials as a Necessary Settlement Tool";

• Featured speaker to Business Litigation Section of Dallas Bar Association on "Recent Developments inTexas Deceptive Trade Practices Act", December 1994.

Published opinionsCounsel of record in a broad variety of fifteen state and federal trial and appellate published opinions involvinga multitude of business litigation issues over the past twenty years as set forth below:

STATE COURT:1. Gillespie v. Fields, 958 S.W.2d 228 (Tex.App. - Tyler, Sept. 30, 1997) (No. 12-96-00268-

CV) -- Case involved whether the "discovery rule" applied in a statute of limitations case.2. City of Dallas v. Villages of Forest Hills, L.P., 931 S.W.2d 601 (Tex.App. - Dallas, April

30, 1996) (No. 05-95-00368-CV) -- Case involved a private party's being able to enforce a bindingcontract with a city, even if such contract was not prepared and approved in compliance with thecity charter.

3. Matter of the Marriage of Banks, 887 S.W.2d 160 (Tex.App. - Texarkana, Sept. 20, 1994)(No. 06-94-00049-CV) -- Case involved the enforceability of a settlement agreement reached atmediation which one party later attempted to revoke.

4. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492 (Tex., June 19, 1991) (No. D-0333) -- Case involved pleading burdens in a summary judgment case as well as sufficiency of considerationfor a contract involving oil and gas properties.

5. Roark v. Stallworth Oil & Gas, Inc., 811 S.W.2d 630 (Tex.App. - Ft. Worth, July 25, 1990)(No. 2-89-142-CV) -- Case involved the legal sufficiency of deemed admissions.

6. Transwestern Pipeline Co. v. Horizon Oil & Gas Co., 809 S.W.2d 589 (Tex.App. - Dallas,Apr. 23 1991) (No. 05-90-01549-CV) -- Case involved enforceability of an arbitration provision in agas purchase contract.

7. Audio Data Corp. v. Monus, 789 S.W.2d 281 (Tex.App. - Dallas, Jan. 18, 1990)(No. 05-90-00059-CV) -- Case involved what can and cannot be litigated in state court while undisclosedbankruptcy proceedings are pending (voidability vs. voidness issues).

8. City of Carrollton v. Duncan, 742 S.W.2d 70 (Tex.App. - Fort Worth, Nov. 25, 1987) (No.2-86-128-CV) -- Case involved boundary disputes in trespass to try title action and evidenceadmissibility issues related to such.

9. Curtis Sharp Custom Homes v. Glover, 701 S.W.2d 24 (Tex.App. - Dallas, Nov. 4, 1985)(No. 05-84-00455-CV) -- Case involved issue of enforceability and forecloseability of equitable lienagainst homestead where stolen money was used to make homestead improvements.

10. Jeanes v. Henderson, 688 S.W.2d 100 (Tex., Mar. 27, 1985) (No. C-3130) -- Case involvedsuccessful application of doctrines of res judicata and collateral estoppel preventing re-litigation ofissues tried previously.

11. First Nat. Bank of Marshall v. Beavers, 619 S.W.2d 288 (Tex.Civ.App. - Texarkana, June30, 1981) (No. 8880) -- Case involved admissibility of evidence of net worth being presented to thejury in the context of the awarding of punitive damages.

12. First Nat. Bank of Marshall v. Beavers, 602 S.W.2d 327 (Tex.Civ.App. - Texarkana, June10, 1980) (No. 8777) -- Case involved acquisition of prescriptive easement using a succession ofpersons in a chain of title claiming by adverse possession.

FEDERAL COURT:1. Texas Commercial Business Systems, Inc. v. F.C.C., 898 F.2d 460 (5th Cir. (Tex.), Apr. 16,

1990) (No. 89-1035) -- Case involved an expert economist's testimony on causation beingdisregarded because it lacked a rational basis.

2. Herr-Voss Corp. v. Delta Brands, Inc., 900 F.Supp. 34 (N.D.Tex., Aug. 31, 1995)(No.3:92-CV-0891-P) -- Case involved patent infringement issues and application of doctrine ofequivalents and best mode defenses.

3. Old Stone Bank v. Fidelity Bank , 749 F.Supp. 147 (N.D.Tex., Oct. 9, 1990) (No. CV. A. 4-88-726-E) -- Case involved enforceability of obligations upon successor bank as to obligations whichhad been incurred by a predecessor bank prior to FDIC takeover.

Other• Author, Position paper on "Tort Reform", successful 1994 George W. Bush for Governor Campaign.• Inducted into Texas Baseball Hall of Fame in 1997 as a Media Member.• Regular guest columnist and book reviewer for Dallas Morning News.

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Table of Contents

I. MEDIATION ISSUES....................................................................................................................1A. Objection to Court Ordered Mediation ........................................................................................1B. Confidentiality Erosion..............................................................................................................1

1. No Absolute Mediation Confidentiality or Privilege. ................................................................12. Mediator Testimony Admissible Regarding Alleged Duress or Coercion at Mediation. ................2

C. Federal Government Settlement Authority at Mediation.................................................................2D. Enforcement of Written Settlement Agreements ..........................................................................3E. New Approach to Breaking Impasse at Mediation ........................................................................3F. Internet Mediation....................................................................................................................3

II. ARBITRATION ISSUES ................................................................................................................4A. Federal Arbitration Act .............................................................................................................4

1. In General.........................................................................................................................42. Restrictions of the FAA in the Employment Context...............................................................43. Availability of Injunctive Relief to Allow Arbitration Proceedings to go Forward........................44. Distinctions Between the FAA and the Texas General Arbitration Act.......................................5

B. The Texas General Arbitration Act.............................................................................................51. 1997 Amendments .............................................................................................................52. Matters Outside the Scope of the TAA. ................................................................................5

C. Frequently Litigated Arbitration Issues........................................................................................51. Is There an Agreement to Arbitrate?.....................................................................................5

a Agreement by conduct:.................................................................................................5b Evidentiary Considerations ............................................................................................5c When an arbitration clause isn't an arbitration clause: .......................................................5d Arbitration agreements may bind non-parties to the contract. ............................................6e Agreement to arbitrate must be stated with certainty. .......................................................6

2. Is the Arbitration Agreement Unconscionable?.......................................................................6a Clear legal test for whether arbitration provision in employment contract is notunconscionable, per California Supreme Court. .....................................................................6b Unconscionability determined by arbitrator in FAA cases..................................................6c Unconscionability decided by judge in TAA cases............................................................6d Unconscionability related to inequitable burden of costs....................................................7e Unconscionability based on ignorance of contract's terms. ...............................................7

3. What is the Scope of the Arbitration Agreement?...................................................................7a Meeting of the minds....................................................................................................7b No vague references to disputes to be arbitrated..............................................................7

4. Does the Arbitration Agreement Need to be Supported by Consideration?.................................85. Has Either Party Waived its Right to Arbitrate or Compel Arbitration? .....................................86. Does the Arbitration Procedure Violate Due Process?............................................................87. Under What Circumstances Should an Arbitration Award be Vacated? .....................................9

a Texas Arbitration Act...................................................................................................9b Federal Arbitration Act .................................................................................................9c Evident Partiality........................................................................................................ 10d State Law: Where There's Been an "Evident Miscalculation of Figures"........................... 10e State Law: Where Arbitrator Exceeds Powers .............................................................. 10f Federal Law:............................................................................................................. 11

8. When Can a Party Appeal an Adverse Ruling on Arbitrability? ............................................... 11

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9. Miscellaneous New Arbitration Issues: ............................................................................... 11a Enforceability of Arbitration Provision in Repudiated Contract:........................................ 11b Supreme Court Jurisdiction to Hear Arbitration Disputes ................................................ 11c Securities Dealer Required to Arbitrate Title VII Discrimination Claim -- Employee ClearlyWaived Right to Litigate.................................................................................................... 12d In Collective Bargaining Agreement Where Union Negotiated Comprehensive ArbitrationProvision, Employee Not Bound, and Can Litigate Title VII Claims. ....................................... 12e Enforceability of Arbitration Agreements In Bankruptcy Court ........................................ 12f Federal Courts Aren't Empowered to Assist Parties in International Arbitrations WithDiscovery ....................................................................................................................... 12g No Arbitration of Magnuson-Moss Warranty Claims...................................................... 12h Normally No Arbitration of Disputes Over Continent Fee Contracts................................. 12i Non-Parties to an Arbitration Proceeding May be Barred from Bringing Suit by Res JudicataBased on What Occurred at Arbitration. ............................................................................. 13

III. NON-BINDING SUMMARY JURY TRIALS .................................................................................. 13A. The Movement in Texas State Courts....................................................................................... 13B. SJTs in Texas Federal Courts.................................................................................................. 14

IV. INTERNET SUMMARY JURY TRIALS:........................................................................................ 14

V. FEDERAL LAW UPDATE: THE ALTERNATIVE DISPUTE RESOLUTION ACT OF 1998 ............... 14

VI. ETHICAL ISSUES....................................................................................................................... 14

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ADR UPDATE"I hate war as only a soldier who has lived it can,only as one who has seen its brutality, its futility, and its stupidity"

Dwight Eisenhower

I. MEDIATION ISSUESA. Objection to Court Ordered Mediation1. When a litigator gets ordered into mediation, andbelieves it will be a waste of time, he should object tothe Order within ten (10) days after receiving notice ofthe Order. � 154.022 Tex. Civ. Prac Rem. Code.

2. Although a party ordered to mediate is not requiredto mediate in good faith (Decker v. Lindsay, 824S.W.2d 247 (Tex.App. -- Houston [1st Dist.] 1992, nowrit), and a mediation order that requires a party tomediate in good faith is void (Texas Parks andWildlife Dept. v. Davis, 988 S.W.2d 370 (Tex. App.- Austin 1999), no pet.); In Re Relator AcceptanceInsurance Company, 2000 WL 1728427 (Tex.App.--Ft. Worth, 11/22/00), if a party anticipates thathe will be attending the mediation (per the Court'sOrder) but does not plan to negotiate in good faith,then he must file his �154.022 Objection to Mediationon a timely basis or else he can be sanctioned underTRCP 141 for the court costs, attorneys' fees, andmediator's fees incurred in connection with theunsuccessful mediation. Texas Dept. of Transp. v.Pirtle, 977 S.W.2d 657 (Tex. App. -- Fort Worth1998, pet. denied).

3. Where a party who does not want to mediate filesa timely (but rejected) objection to a court-orderedmediation, his only downside risk is potential liabilityfor the mediator's fee which is taxable as court costsin the final judgment against an unsuccessful litigatingparty. Texas Parks and Wildlife Dept. v. Davis, 988S.W.2d 370, 376 (Tex.App. -- Austin 1999, no pet.)

B. Confidentiality Erosion1. No Absolute Mediation Confidentiality or Privilege.a. Although the manner in which participantsnegotiate should not be disclosed to the trial court inaccordance with �154.073(a) In Re: RelatorAcceptance Insurance Co., No. 2000 WL 1728427(Tex.App.-Ft. Worth 11/22/00); Texas Parks &Wildlife Dept. v. Davis, 988 S.W.2d 370, 375(Tex.App.-Austin 1999, no pet.); and Williams v.State, 770 S.W.2d 948, 949 (Tex.App.-Houston [1stDist] 1989, no pet) there is a caveat to this general rulein the statute. �154.073(e), Tex. Civ. Prac. & Rem.Code, provides for the trial court's presiding over an in

camera proceeding to determine whether the duty todisclose information as a matter of public policy (suchas for a fiduciary to disclose information to hisbeneficiary) is more important to the interests ofjustice than the duty to maintain the confidentiality ofmediation communications. If the public policyfavoring disclosure in a particular circumstanceoutweighs the public policy of mediationconfidentiality, the judge may order that testimony beadmitted and the confidentiality of the mediationcommunications will not be honored. A trial court'srefusal to conduct such an in camera hearing uponrequest is an abuse of discretion. In Re; RelatorsAcceptance Insurance Company, No. 2000 WL1728427 (Tex.App. -- Ft. Worth 11/22/00.)

b. Tex. Atty. Gen. Ordinance 659 (1999) providesthat a mediation conducted between a victim and anoffender by the Texas Department of Criminal Justicedoes not qualify as a mediation for purposes ofChapter 154 of the Texas Civil Practice and RemediesCode, such that these mediation communications arenot considered confidential, since the purpose of themediation is to accomplish some form of healing ratherthan resolve a dispute.

c. In the federal courts in Texas, there is nomediation "privilege," but rather communications at amediation are "confidential," but such confidentialitycan be set aside to prove fraud, duress, coercion, ormutual mistake. F.D.I.C. v. White, 76 F.Supp 2d 736,738, (N.D.Tex. 1999). In the White case, over theF.D.I.C.'s objection, the court considered the affidavittestimony of the parties and their attorneys regardingthe F.D.I.C.'s allegedly threatening criminalprosecution during a mediation in order to pressureWhite to settle. Magistrate Kaplan considered theaffidavit testimony reflecting the statements made atthe mediation, but then held that there was no duressor coercion, and proceeded to enforce the mediationsettlement agreement.

d. In federal court, a grand jury subpoena maycontrol over a claim of mediation confidentiality.

Magistrate Kaplan's holding in the White case thatthere is no mediation privilege in federal courts is

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consistent with a recent Fifth Circuit holding thatdocuments exchanged during confidential mediationproceedings (over 600 mediations in all) which tookplace under the Texas Agricultural Mediation Program,a state program that receives federal funding under theFederal Agricultural Credit Act ("ACA"), are availableto be subpoenaed by a federal grand jury, such thatthere is no federal mediation privilege. In re GrandJury Subpoena dated December 17, 1996, 148 F.3d487 (5th Cir.1998).

In the Grand Jury case, supra, the Fifth Circuitdetermined that neither the Texas ADR statute(Tex.Civ.Prac. & Rem.Code �154.001 et seq.), northe federal Alternative Dispute Resolution Act (5U.S.C. �571, et seq), had any application to whetherthe prior mediation was confidential, even though theparties had agreed in writing that the Texas ADRStatute would apply and that the mediationcommunications would remain confidential; rather thecase went off on the congressional intent behind theACA and, in particular, whether the Act was intendedto create a mediation privilege. Though the ACA doesstate that mediation material shall be "confidential",because of the secrecy in the grand jury proceedings,the Fifth Circuit held that the "confidentiality" of themediation documents would be preserved even ifpassed on to the grand jury.

2. Mediator Testimony Admissible Regarding AllegedDuress or Coercion at Mediation.a. Federal Judge David Hittner in Houston wasrecently presented with a situation (in a �1983 CivilRights Act claim arising out of a shooting deathinvolving policemen) where the plaintiffs attempted torevoke a mediation settlement agreement because ofthe mediator's allegedly forcing them to settle byallegedly threatening them with the likelihood of beingforced to pay additional fees and costs if they failed tosettle. Allen v. Leal, 27 F. Supp. 2d 945 (S.D. Tex.1998).

In the course of the proceedings, Judge Hittnergave the mediator the opportunity (but did not orderhim) to testify regarding what happened at themediation in order to give him a chance to defend hisprofessional reputation, and the mediator, in fact,accepted the opportunity and did so testify.

In the Allen case, the Association ofAttorney-Mediators ("AAM") got leave of court to filean amicus curiae brief, and during the pendency of theproceedings, the president of the Houston Chapter ofAAM was quoted publicly as saying, "What somepeople might consider a little bullying is really just partof how mediation works." Judge Hittner held that

such an assertion was in violation of �154.053(a)Tex. Civ. Prac. & Rem Code, which states that amediator "may not compel or coerce the parties into asettlement agreement."

Judge Hittner then held that he did not havejurisdiction to evaluate the defendants' breach ofmediation settlement agreement against the revokingplaintiffs, and that it would have to be determined inseparate state court litigation because the mediationsettlement dispute was not "part of the same case orcontroversy" as the main �1983 case until theresolution of the enforceability of the mediatedsettlement agreement gets litigated in state court.

b. A recent case from California (reported in the May2000 issue of the State Bar of Texas ADR Sectionnewsletter) also involved a court ordering a mediatorto testify regarding what occurred during a mediationwhen both parties desired such mediator testimony. Olam v. Congress Mortgage Company, 68 F.Supp.2d1110 (N.D.Cal.1999). In the Olam case, theplaintiff claimed that the Memorandum of Settlementsigned by him at the mediation was executed underduress. Both plaintiff and defendant waived theconfidentiality provisions relating to mediation therebyallowing the mediator to testify. A California federalmagistrate held that whether such communicationswere confidential or not was determined by the statelaw of the forum (in that case, California law),because of state law governing the case. UnderCalifornia law, the mediator was compelled to testify"in the interest of justice" in an in camera proceeding,resulting in the judge's tendering the testimony into therecord, but then finding that there was no duress in theexecution of the settlement agreement.

C. Federal Government Settlement Authority atMediation

The Fifth Circuit recently denied a writ ofmandamus filed by the United States governmentarising out of Judge Joe Fish's ordering thegovernment to have a representative present during theentire mediation with full settlement authority. In reU.S. 149 F.3d332 (5th Cir. 1998). The Fifth Circuittempered Judge Fish's ruling somewhat by proposingthat he "consider alternatively ordering the governmentto have the person or persons identified as holding fullsettlement authority consider settlement in advance ofthe mediation and be fully prepared and available bytelephone to discuss settlement at the time ofmediation." Id. at 333.

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D. Enforcement of Written SettlementAgreements1. ADR Statute: �154.071(a), Tex. Civ. Prac. &Rem. Code, provides that if the parties reach asettlement and execute a written agreement disposingof the dispute (at mediation), the agreement isenforceable in the same manner as any other writtencontract.

2. After the enactment of the ADR Statute in 1987,when one party to a settlement agreement revoked,rescinded or simply balked at signing definitivesettlement settlements (including orders of dismissaland releases), the standard practice was to file aMotion to Enforce Settlement Agreement or somethingsimilar thereto. However, in 1995, the Texas SupremeCourt held that a settlement agreement can beenforced, even though one party withdraws itsconsent. The proper enforcement mechanism,however, is a suit for breach of contract rather than aconsent decree. Padilla v. LaFrance, 907 S.W.2d454 (Tex. 1995). This holding was furthered inMantas v. 5th Court of Appeals, 925 S.W.2d 656(Tex. 1996) wherein the Supreme Court held that aparty attempting to enforce a mediation settlementagreement may amend its pleadings and add a claimfor breach of contract. If the suit is not pending in thetrial court, then the party seeking to enforce anagreement must file a separate breach of contract suitunder a new cause number.

3. In Cadle Co. v. Castle, 913 S.W.2d 627(Tex.App. - Dallas 1996, writ den'd), the Dallas Courtof Appeals concluded that there was no summaryproceeding for the enforcement of written settlementagreements and since � 154.071(b), CPRC, gives thetrial judge the discretion to either include or excludeterms of written settlement agreement, a party seekingenforcement of a mediation settlement agreement is toput to the same proof and other requirements as wouldbe a party in an original proceeding. Accordingly, a"Motion to Enforce Settlement Agreement" wasdetermined to be an inappropriate vehicle foraccomplishing that objective.

4. When a party seeks to enforce a written mediationsettlement agreement, both Rule 408, Tex.R.of Civ.Ev.and its Federal counterpart) as well as � 154.073,CPRC, are implicated. How can the fact of settlement,one might ask, be admissible to establish liability? Theanswer is simple, of course: "Liability", in this contexthas to do with liability for breaching an agreement(settlement agreement) rather than liability on the

underlying dispute. Hence, a settlement reached atmediation, duly signed and in writing, does not runafoul of the traditional rules respecting inadmissibilityof settlement discussions or offers.

5. In fact, there is precedent for the enforceability ofan oral settlement at mediation. Hur v. City ofMesquite, 893 S.W.2d 227 (Tex.App.-Amarillo 1995,writ denied).

E. New Approach to Breaking Impasse atMediation

The "Safety Deposit Box" of mediation negotiationto break an impasse is described in an articlepublished in the Spring 2000 issue of the ABA'sDispute Resolution quarterly publication (a copy of thearticle is attached hereto) where Massachusettsattorney-mediator Peter Contuzzi explains its use--

When the parties reach impasse in the mediation,and in hopes of getting the parties to tell the mediatortheir absolute final "bottom line number," the partiesput their settlement numbers into the mediator's "box"where they remain "locked" (in the mediator'sconfidence) and will not be disclosed to the other sideby the mediator unless they are the same. If they arethe same, the mediator gets the parties to sign asettlement agreement. If the numbers overlap, themediator picks the mid-point. If there is a gap of anysignificance between the numbers, the mediator tellsthe parties that a gap exists and that they have threeoptions: (1) keep their number confidential;(2) disclose their number to the other side; or (3)condition their disclosure on the other party's agreeingto disclose its number. If this does not lead to asettlement, then there will be a brief joint meeting tosee if the parties want to go on to the optional laststage of the process -- a joint request for the finalsettlement proposal from the mediator. The attachedarticle provides the rest of the details about this newapproach.

F. Internet MediationUnder the format used by a company called

"cybersettle.com," parties who agree to mediate onlineeach submit confidential settlement offers into thesystem, and if they are close enough, Settlement! When the agreement to mediate online is made, theparties agree that if the offers are within $5,000 or30% of the original demand, then they will agree tosplit the difference. If the offers have too muchdistance between them, they are not disclosed. Feesare charged based on the success of the session, witha maximum fee of $300.00 per party.

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Thus far, according to a recent article in theWinter 2000 issue of the ABA's ADR Section's DisputeResolution Magazine, Cybersettle's settlement successratio is approximately at 40%, certainly lower thantraditional face-to-face mediation, but notunrespectable -- particularly when considering thespeed and reduced expense of the procedure.

II. ARBITRATION ISSUESA. Federal Arbitration Act1. In General

The Federal Arbitration Act, 9 U.S.C.A. � 1 etseq. (West 1999), provides a strong foundation foremployers and business entities to address disputesarising in transactions involving "interstate commerce"to the fullest extent permitted by the Congress'Commerce Clause powers. Allied-Bruce TerminixCos. Inc. v. Dobson, 115 S. Ct 834, 836 (1995). Themost recent pronouncement concerning the breadth ofthe notion of interstate commerce (and, therefore, theapplicability of the FAA) is found in In Re:Profanchik , 2000 Tex. App. LEXIS 6757(Tex.App.--Corpus Christi, 10/6/00). In theProfanchik case, the subject employment contractwas between two Texas residents and the dispute wasover their ownership interests in a Texas company. The Corpus Christi Court of Appeals held that becausethe company had significant contracts in many statesand was engaged in a type of business(telecommunications) that affects interstatecommerce, the transaction was governed by the FAA.

Thus, the scope of the FAA extends to mostcommercial disputes (since most involve interstatecommerce) and the Act preempts any inconsistentstate laws due to the effect of the Supremacy Clauseof the United States Constitution. However, consistentwith general preemption doctrine, the Fifth Circuit hasheld that the FAA does not preempt state arbitrationrules as long as the state rules do not undermine thegoals and policies of the FAA. ASW Allstate Paintingand Construction Company v. Lexington InsuranceCompany, 188 F3d 307, 310 (5th Cir. 1999). Regardless of traditional notions of the effect ofpreemption, parties may contract to have their desiredchoice of law (substantive or procedural) which willbe enforced, unless inconsistent with the FAA. Doctor's Assoc., Inc. v. Casarotto, 116 S.Ct. 1652(1996).

2. Restrictions of the FAA in the EmploymentContext.

The FAA does not apply to contracts ofemployment for certain types of employees -- in

particular "seamen, railroad employees or any otherclass of workers engaged in foreign or interstatecommerce." 9 U.S.C. � 1 (1970). This provision hasbeen interpreted to exempt workers in thetransportation industry, or workers engaged in theactual movement of goods in interstate commerce. Hampton v. ITT Corp. 829 F. Supp. 202, 203 (S.D.Texas 1993). While this exclusion has causedconsiderable litigation over the term "interstatecommerce" with employees typically arguing that theirdisputes are excluded, the trend among the majority ofcourts is to interpret this exclusion narrowly in light ofthe strong federal policy favoring arbitration. Cole v.Burns International Security Service, 105 F3d 1465,1470 (D.C. Cir. 1997).

In Rojas v. TK Communications, 87 F3d 745, 748(5th Cir. 1996), the Fifth Circuit held that it wasjoining with the majority of other courts that haveaddressed the issue and concluded that � 1 of the Actis to be given a narrow reading, with the court notingthat Congress could have limited the language to statethat nothing herein shall apply to any contract ofemployment had it intended to exclude all contracts ofemployment from FAA coverage.

Texas state courts have applied the FAA to mostemployment contracts and consistent with the FifthCircuit, have adopted a narrow interpretation of theexclusion language. Russ Berry & Company, Inc. v.Gant 998 SW2d 713, 715 Tex. App.-- Corpus Christi1999, no petition); Merrill Lynch Pierce Fenner v.Macullum, 666 SW2d 604, 610 (Tex. App.-- Houston[14th District] 1984, writ ref. n.r.e.). However,interstate commerce was not substantially affected soas to trigger the application of the FAA "when a partyfrom another state hires a party in Texas to do repairson fixed real property in Texas." KempwoodAssociates, supra, 993 S.W.2d at 877.

In the case of BWI Companies v. Beck, 910 SW2d620 (Tex. App.-- Austin 1995, orig. pro.), the Austincourt applied the narrow interpretation of the FAAexclusion, and enforced the arbitration provision underthe FAA because the employer was engaged in thelandscaping business in several states and delivered itsproducts across state lines.

3. Availability of Injunctive Relief to AllowArbitration Proceedings to go Forward

Federal Judge Sid Fitzwater recently granted apreliminary injunction to enforce contractual rights tostop solicitation of customers and disclosure ofconfidential information in a pending claim subject toarbitration under the FAA. Merrill, Lynch, Pierce,

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Fenner & Smith, Inc. v. Chapman, 1998 U.S. Dist.LEXIS 17896 (N.D. Tex.).

4. Distinctions Between the FAA and the TexasGeneral Arbitration Acta. Under the TAA, based upon evidence presented bythe party seeking arbitration, it is up to the trial courtto determine whether all conditions precedent havebeen satisfied so as to allow arbitration to commence;whereas under the FAA, it is the arbitrator who makesthat determination. Id. at 823-825; L & L KempwoodAssoc. v. Omega Builders, Inc., 972 S.W.2d 819(Tex.App--Corpus Christi 1998, no pet.); D. WilsonConst. v. Cris Equipment Co., 988 S.W.2d 388(Tex.App. -- Corpus Christi 1999).

b. Under FAA, Absent a Process Breakdown, OnlyParties (Not Courts) Select Arbitrators

The Texas Supreme Court was recently facedwith a mandamus proceeding arising out of a party'schallenging the trial court's appointment of a substitutearbitrator in an FAA arbitration. In re LouisianaPacific Corp., 972 S.W.2d 63 (Tex. 1998). TheCourt held that, under the FAA, a trial court issupposed to get involved in the appointment ofarbitrators only when some mechanical breakdown inthe arbitrator selection process" occurs or when "oneof the parties refuses to comply, thereby delayingarbitration indefinitely." Id. at 64-65. Because the trialcourt erred in the appointment of a substitutearbitrator, the Supreme Court granted the mandamusapplication and directed the trial court to vacate theappointment order.

B. The Texas General Arbitration Act1. 1997 Amendments

The Texas legislature revised the Texas GeneralArbitration Act in 1997. Tex. Civ. Prac . & Rem. Code�� 171.001 et seq. The 1997 revisions did notsignificantly alter the prior statute, but did clarifyprocedural issues related to arbitration. The bestexample are those procedural revisions regardingexpanded discovery and the taking of depositions(� 171.050), which clearly signaled the legislature'sintent to put disputes into an arbitration setting. The1997 Act also clarified the arbitration subpoena power(� 171.051) and set forth detailed provisions regardingthe method of vacating (� 171.088) or correctingpanels' awards (� 171.054) and appellate issuesrelated thereto.

2. Matters Outside the Scope of the TAA.a. Workers' Compensation benefit disputes (coveredunder the Workmen's Comp statute)

b. Collective bargaining agreement disputes (coveredunder Texas Labor Code, �102.001 - 075).

c. As to arbitration agreements relating to personalinjuries or contracts involving consideration less than$50,000.00, the TAA will only apply if the agreementis in writing and executed by both parties and theirattorneys.

C. Frequently Litigated Arbitration Issues.1. Is There an Agreement to Arbitrate?

The fundamental issue facing most litigateddisputes involving arbitration is determining whetherthere was an agreement between the parties to enterinto an agreement to arbitrate. The courts haveconsistently resolved this inquiry through theapplication of basic contract principles. Circuit CityStores, Inc. v. Curry, 946 SW2d 486, 488-89 Tex.App. -- Ft. Worth 1997, original proceedings).

a Agreement by conduct:In the Circuit City case, the court held that after

the employee was notified of the employer's arbitrationpolicy, the employee's failure to opt out and continuethe work constituted an agreement to arbitrate.

b Evidentiary ConsiderationsWhether there's an agreement to arbitrate is

determined after the court conducts an evidentiaryhearing, if the facts are disputed, (corollary: if factsare not disputed, use of affidavits is appropriate). JackB. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272(Tex.1992); 9 U.S.C. � 4 (1970).

c When an arbitration clause isn't an arbitrationclause:

A professional baseball player signed a standardMinor League Players Contract which provided thatany disputes or claims under the contract were subjectto "the Player's rights of appeal. . .with theCommissioner" [of Baseball]. In Re Anaheim AngelsBaseball Club, Inc. , 993 S.W.2d 875 (Tex. App. -- ElPaso 1999). Even though the El Paso Court ofAppeals held that the agreement was subject to theFederal Arbitration Act because it involved interstatecommerce, the subject clause was held not to be anarbitration clause since it made no mention ofarbitration, but only a right of appeal to theCommissioner, such that the player was entitled to

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litigate his claims arising out of the team's allegedfailure to provide adequate medical care. Id.

d Arbitration agreements may bind non-parties to thecontract.1. Third party beneficiary of contract bond.

The Austin Court of Appeals recently enforced anarbitration agreement in a situation where the party (awife) resisting arbitration had not signed the subjectcontract to purchase a mobile home, because she wasdeemed to be a third party beneficiary of theagreement which was signed by her husband. Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518(Tex.App. - Austin 1998, no pet.). Similarly, FederalMagistrate Jeff Kaplan held that a parent corporationcould be required to arbitrate a dispute, even if only thesubsidiary was the party to the arbitration agreement,where the subsidiary agreed that the agreement wouldbind the subsidiary's affiliates. Ericsson, Inc. v.Commscape, Inc., et al, 1999 WL 689473 (N.D. Tex.,1999).

2. Equitable estoppel creating an agreement toarbitrate.

The Fifth Circuit recently held that a non-signatoryto an arbitration agreement may compel arbitration ifthe facts support the application of the doctrine ofequitable estoppel. Grigson v. Creative Artists, 210F.3d 524 (5th Cir. 2000). In the Grigson case, theFifth Circuit court determined that the claims of theparty seeking to compel arbitration (who had notsigned the subject contract containing the arbitrationprovision)were so intertwined with and dependentupon the subject contract, that the party resistingarbitration (who had signed the subject contract) wasestopped from disputing that the claim should not bearbitrated. The test is that a non-signatory maycompel arbitration in two situations: (i) when thesignatory must rely on the agreement in making itsclaims against the non-signatory and (ii) when asignatory alleges substantially interdependent andconcerted misconduct by both non-signatories and oneor more signatories.

This power to compel arbitration by non-party bymeans of equitable estoppel is not available, however,if the non-party is determined to have "unclean hands." Anco Ins. Svc. of Houston v. Romero, 27 S.W.3d 1(Tex.App. -- San Antonio, 2000).

e Agreement to arbitrate must be stated withcertainty.

The intentions to have an arbitration agreementmust be expressed with certainty. Where a company

handbook stated that its contents were "guidelines",and were "not intended to constitute a legal contactwith any employee," a statement in the handbookstating the company's preference for arbitration toresolve disputes with its employees did not create anenforceable contract requiring the company toarbitrate. Tenet Healthcare Ltd. v. Cooper, 960S.W.2d 386 (Tex. App. -- Houston [14th] 1997, pet.dism'd w.o.j.).

As further proof of the need to express a clearintent to arbitrate, in the case of In re ACG CottonMarketing, L.L.C., 985 S.W.2d 632 (Ct. App. --Amarillo 1999, no pet), the Amarillo Court of Appealsheld that merely providing that certain association ruleswere incorporated into the contract (where such rulesprovided for the possibility of arbitration when bothsides consent to it), without saying anything moreabout an intention to arbitrate, does not create anarbitration provision.

2. Is the Arbitration Agreement Unconscionable?

a Clear legal test for whether arbitration provision inemployment contract is not unconscionable, perCalifornia Supreme Court.

The California Supreme Court has recently heldthat an arbitration agreement is lawful (and thereforenot unconscionable) in the employment contractsituation if it: (i) provides for neutral arbitrators, (ii)provides for more than minimal discovery, (iii)requires a written award, (iv) provides for all of thetypes of relief that would otherwise be available incourt, and (v) does not require employees to pay eitherunreasonable costs or any arbitrator's fees or expensesas a condition of access to the arbitration form. Armendariz & Olague-Rodgers v. Foundation HealthPsyche Care Services, Inc., Cal.Sup.Ct. SO 75492(8/24/00).

b Unconscionability determined by arbitrator in FAAcases.

Consistent with the holding in the Kempwood case,(972 S.W.2d 819, supra), in arbitration cases governedby the FAA, it is the arbitrator (and, therefore, not thetrial judge) who is to consider claims regarding theunconscionability of an arbitration agreement. In reFoster Mold, Inc., 979 S.W.2d 665 (Tex.App. -- ElPaso 1998, orig. proceeding).

c Unconscionability decided by judge in TAA cases.Where the complaint to arbitration is procedural

unconscionability that relates to the actual making orthe inducement which caused a party to enter into the

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arbitration agreement, then those unconscionabilityissues are for the court and not the arbitrator. In reOakwood Mobile Homes, Inc. , 987 S.W.2d 571 (Tex.1999).

d Unconscionability related to inequitable burden ofcosts.

Though no Texas courts have addressed the issueyet, a good way for an employee to challenge theenforceability of an arbitration provision is to challengeits burdensomeness as being unconscionable when, forexample, it(i) requires the employee to pay the costs of thearbitrator. Davis v. LPK Corp., 1998 U.S. Dist.LEXIS 3504 (N.D. Cal. 1998); Shankle v. B-GMaintenance Management of Colorado, 163 F.3d1230 (10th Cir. 1999); Cole v. Burns InternationalSecurity Services, 105 F3d 1465 (D.C. Cir.1997);

(ii) imposes an arbitration fee perceived to beexcessive. Brower v. Gateway 2000, Inc., 1998 WL481066 (N.Y.A.D. 1st Dept.-1998).

(iii) causes the employee to forfeit his right to recoverhis attorneys' fees and costs if he prevails. Maciejewski v. Alpha Systems Lab, Inc., 99 C.D.O.S.6312 (Cal. App. Ct. 1999); or

(iv) is silent on the question of responsibility for feesbecause it fails to provide the minimum guaranteesrequired to ensure that a party's ability to vindicatestatutory rights will not be undone by steep filing fees,steep arbitrator's fees, or other high costs ofarbitration. Green Tree Financial Corp. v. Randolph,178 F.3d 1149 (11th Cir. 1999), certiorari granted,120 S. Ct. 1552 (2000).

e Unconscionability based on ignorance ofcontract's terms.

As for published Texas opinions on the"unconscionability" of arbitration agreements, theargument almost always fails if it is based on oneparty's ignorance of the arbitration agreement's terms. EZ Pawn Corp. v. Mancias, 934 SW2d 87, 90 (Tex.1996). In the EZ Pawn case, the plaintiff claimed thathe should not be forced to arbitrate his wrongfuldischarge and employment discrimination claimsagainst his employer because he did not actually readhis arbitration agreement before signing it and did notunderstand its effect. The Texas Supreme Courtrejected this argument, citing the well-established rulein contract law that a party who has had anopportunity to read a contract, as did the plaintiff, and

signs it, is presumed to know its contents. However,in the case of In re Turner Brothers TruckingCompany, Inc., 8 SW3d 370, 375-76 (Tex. Appeals --Texarkana 1999, pet. req.) the Texarkana Court ofAppeals found an agreement to arbitrate to beunconscionable based on evidence that the employeesigning the agreement was illiterate and the employerspresenting the arbitration agreement did not explain itto the employee.

Thus, it appears that as long as the due processrequirements of notice and the opportunity tounderstand one's rights are present, the arbitrationagreement will be upheld and not set aside on groundsof unconscionability.

3. What is the Scope of the Arbitration Agreement?a Meeting of the minds.

Claims relating to the scope of the agreement arealso grounded in traditional contract constructionprinciples. The inquiry must be whether the partiesagreed at the time they entered into the contract thatthe claim would be subject to arbitration. If the FAAgoverns, any doubts about whether the claims fallwithin the scope of the arbitration are resolved in favorof arbitration. Moses H. Cohen Memorial Hospital v.Mercury Construction Company, 460 US 1, 24-25(1983).

b No vague references to disputes to be arbitrated.The drafter of an arbitration agreement must avoid

vague references to arbitration of an undefinedcategory of claims since such vagueness may push aparticular claim outside of the dispute. ShearsonLehman Hutton, Inc. v. Tucker, 806 SW2d 914, 919-20 (Tex. Appeals -- Corpus Christi 1991, writdismissed). If the arbitration provision in a contractsays that it covers "all disputes arising out of thisagreement, "that covers not only contract claims, butalso fraudulent in inducement claims, (Prima PaintCorp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,398 (1967)), antitrust claims arising from the contract,(Mitsubishi Motors Corp. v. Soler Chrysler -Plymouth, Inc., 105 S. Ct. 3346 (1985)), defamationand DTPA claims factually intertwined with thecontract (Prudential Sec., Inc. v. Marshall, 909S.W.2d 896 (Tex.1995)), and tortuous interferenceand infliction of distress claims (American Employers'Ins. Co., v. Aiken, 942 S.W.2d 156 (Tex.App.--Ft.Worth 1997, no writ)).

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4. Does the Arbitration Agreement Need to beSupported by Consideration?

Employees seeking to avoid an arbitrationagreement may contend that no consideration supportsthe agreement because the employee is at will. As ageneral rule, this does not prevent parties fromentering into a binding arbitration agreementnotwithstanding the at-will employment doctrine. InRe Alamo Lumber Co., 23 S.W.3d 577(Tex.App.--San Antonio, 2000); Burlington N.RR,Company v. Akpan, 943 SW2d 48, 52 (Tex. Appeals-- Ft. Worth 1996 no writ).

5. Has Either Party Waived its Right to Arbitrate orCompel Arbitration?a. The Austin Court of Appeals in the Nationwide ofBryan, Inc. v. Dyer, 969 S. W.2d 518 (Tex. App. --Austin, 1998, no pet. h.), addressed the claim thatarbitration rights had been allegedly waived by reasonof the moving party's engaging in pre-litigationnegotiations and failing to file a motion to compelarbitration until two months after the suit was filed. Inrejecting the waiver claim, under Texas common law,the Court held that waiver of arbitration rights takesplace only when a party makes "a specific anddeliberate act after suit is filed that is inconsistent withits right to arbitrate, such as engaging in extensivediscovery or requesting a jury." Id. at 522.

b. Shortly after the Austin Court of Appeals camedown with its holding in the Nationwide of Bryancase, the Texas Supreme Court shed additional light onthe issue of arbitration waiver under the FederalArbitration Act. In re Bruce Terminex Co.,, 988S.W.2d 702 (Tex.1998). In the Bruce Terminix case,the Court held that in light of the fact that "the FAAdisfavors waiver, and that there is a strongpresumption against waiver," the party seeking tocompel arbitration did not substantially invoke thejudicial process to its opponent's detriment bypropounding one set of eighteen interrogatories andone set of nineteen requests for production ofdocuments prior to seeking arbitration.

In addition, the Supreme Court held that where itis the defendant who is the party seeking arbitration, itdoes not waive its rights by failing to initiate thearbitration proceedings after the trial court granted itsmotion to compel arbitration, because it is always theplaintiff's burden to go forward with commencingarbitration, absent a contrary agreement between theparties.

c. Following on the heels of the Bruce Terminix case,the San Antonio Court of Appeals held that there couldbe no finding of a waiver of the right to arbitratewhere a party maintained a consistent litigation positionof attempting to get the litigation abated and have thedispute arbitrated, even if that party had not satisfiedthe conditions precedent required to get to arbitrationas set forth in the subject contract. In re WeeklyHomes, 985 S.W. 2d 111 (Tex.App. -- San Antonio1998).

d. Even if a party files a motion to compel arbitrationpromptly, his failure to bring it to the court's attentionwhile he participates in discovery and a temporaryinjunction hearing constitutes a waiver of hisarbitration rights. Menna v. Romero, 2000 Tex. App.LEXIS 44 (Tex.App. -- San Antonio 2000).

e. When a court is presented with a motion tocompel arbitration, it must address it promptly andcannot delay ruling on it pending discovery, In re MHIPartnership, Ltd., 7 S.W.3d 918 (Tex.App.--Houston [1st District] 1999).

f. There is no waiver of a party's right to arbitrate ifhe participates in a mediation ordered by the trial court. In re Certain Underwriters of Lloyd's, 18 S.W.3d 867 (Tex. App. -- Beaumont 2000).

g. There is no waiver of the right to arbitrate whenthe parties engage in extensive litigation discovery andlitigate a motion for summary judgment, if there is noshowing of prejudice that those activities are beyondthe scope of what would have been covered in thecourse of the arbitration. Pennzoil Co. et al v. ArnoldOil Co., 30 S.W. 3d 494 (Tex. App. -- San Antonio2000).

6. Does the Arbitration Procedure Violate DueProcess?

One criticism of the arbitration process is basedupon the alleged weakness of the procedures and thedeprivation of a jury trial. Although the United StatesSupreme Court rejected a number of these challengesin the case of Gilmore v. Interstate Johnson LaneCorporation, 111 S.Ct. 1647 (1991), the court'sdecision has sparked numerous association rules(including the New York Stock Exchange) to becomefocused on procedural fairness. The American BarAssociation's Section on Labor and Employment Law,the National Employment Lawyers Association, theAmerican Arbitration and the National Academy ofArbitrators have all endorsed a due process protocol

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for employment arbitration. The following dueprocess safeguards have been recommended:

1. Employees be allowed to choose their ownrepresentatives. 2. Arbitrators have the authority to awardrepresentation fees in the interest of justice. 3. Employers should consider paying representationcosts for lower paid employees. 4. Adequate but limited pretrial discovery. 5. Prehearing depositions on an expedited basis. 6. Arbitrators should provide parties with six of theirmost recent decisions to aid in the selection process. 7. Arbitrators have specific training in employmentlaw (or applicable area of the dispute). 8. A list of procedure for selection of arbitratorsgiving each party equal number of strikes. 9. Arbitrator's award should be binding with limitedscope of review.10. Arbitrator should issue a written opinion explainingthe arbitrator's decision.

In 1997, the ABA's policymaking Houses of Delegatesapproved certain due process standards for mediationand arbitration of statutory employment disputes,including the following:

1. Employee should have the right to be representedby a person of their choice.2. The fee for that representation should bedetermined by agreement between the employee andthe representative, but the arbitrator should haveauthority to provide fee reimbursement by theemployer as part of the remedy.3. Employee should have access to all informationreasonably relevant to mediation and/or arbitration oftheir claims.4. A roster of the available arbitrators and mediatorswith experience in employment matters should beestablished. Training should be provided bygovernment agencies, bar associations and academicinstitutions acting under the auspices of a designatingagency such as the American Arbitration Association. Mediators and arbitrators should be selected using alist procedure with certain number of strikes availableto both parties.5. Arbitrator's awards should be final and binding andthe scope of review should be limited.

7. Under What Circumstances Should an ArbitrationAward be Vacated?a Texas Arbitration Act

Under the Texas General Arbitration Act, TEX.CIV. PRAC. & REM. CODE � 171.014, arbitrationshall be vacated where:

(1) the award was obtained by corruption, fraud, orother undue means;

(2) the rights of a party were prejudiced by:

(a) evident partiality by an arbitrator appointed as aneutral arbitrator;

(b) corruption in an arbitrator;

(c) misconduct or willful misbehavior of an arbitrator;

(3) the arbitrators:

(a) exceeded their powers;

(b) refused to postpone the hearing after a showing ofsufficient cause for the postponement;

(c) refused to hear evidence material to thecontroversy; or

(d) conducted the hearing, contrary to Section171.043, 171.044, 171.045, 171.046, or 171.047, in amanner that substantially prejudiced the rights of aparty; or

(4) there was no agreement to arbitrate, the issue wasnot adversely determined in a proceeding underSubchapter B, and the party did not participate in thearbitration hearing without raising the objection.

b Federal Arbitration ActGrounds for vacating an award under the Federal

Arbitration Act, 9 U.S.C. � 10, are the following:

(1) Where the award was procured by corruption,fraud, or undue means.

(2) Where there was evident partiality or corruption inthe arbitrators, or either of them.

(3) Where the arbitrators were guilty of misconductin refusing to postpone the hearing, upon sufficientcause shown, or in refusing to hear evidence pertinentand material to the controversy; or of any other

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misbehavior by which the rights of any party havebeen prejudiced.

(4) Where the arbitrators exceeded their powers, or soimperfectly executed them that a mutual, final, anddefinite award upon the subject matter submitted wasnot made.

(5) Where an award is vacated and the time withinwhich the agreement required the award to be madehas not expired, the court may, in its discretion, directa rehearing by the arbitrators.

c Evident PartialityIn a case where there was intended to be a neutral

arbitrator, there is "evident partiality" under � 171.014Tex. Civ. Prac. & Rem. Code, as a matter of law,thereby automatically invalidating the arbitration ruling,when that neutral, during the pendency of thearbitration proceedings, was retained as litigationcounsel (so as to be in a position to earn a substantialfee) in a separate, unrelated matter at therecommendation of the arbitration defendant's lawfirm, and the neutral failed to disclose such to theparties. Burlington Northern Ry. Co. v. TUCO, Inc. ,960 S.W.2d 629 (Tex. 1997).

The trial court granted summary judgment that, asa matter of law, there was nothing in the facts which"might reasonably create an appearance of partiality orbias." The Amarillo Court of Appeals reversed,holding that there was a fact issue on the neutral's"evident partiality," and remanded the case for trial.

The Texas Supreme Court then modified the Courtof Appeals' opinion and found "evident partiality" as amatter of law and directed that the case be sent backto the trial court with instructions to vacate thearbitration award.

Justices Enoch, Spector, and Abbott dissentedfrom the majority opinion authored by Chief JusticePhillips.

The Corpus Christi Court of Appeals has alsorecently spoken to the subject of an arbitrator's"evident partiality" in the case of Int'l Bank ofCommerce-Brownsville v. Int'l Energy Dev. Corp.,981 S.W.2d 38 (Tex. App. -- Corpus Christi 1998,pet. filed). In that case, in which the subject contracthad a provision that the Federal Arbitration Agreementwould govern the proceedings, the pertinent "evidentpartiality" facts were that a party (which was a bank)argued that an arbitration award should be vacatedbecause one of the neutral arbitrators:

(i) had a close friendship with a lawyer for thenon-complaining party; and

(ii) failed to disclose that he had been the subject of afederal grand jury investigation nineteen years beforethe arbitration involving his dealings with banks whichallegedly made him prejudiced toward banks.

The trial court held and the court of appeals affirmedthat such facts did not provide a sufficient basis for adetermination that there was "evident partiality" in thechallenged arbitrator. The Corpus Christi Court ofAppeals noted that there were no Fifth Circuit casesaddressing the pertinent considerations for evaluatingwhether an arbitrator had "evident partiality" under theFAA, and then looked at Texas case law for precedentthat in order for there to be "evident partiality", thequestioned relationship "must be ongoing and directrather than speculative and remote."

Most recently, the Houston Court of Appealslooked at the "evident partiality" issue in TexasCommerce Bank v. Univ. Tech. Inst., 985 S.W.2d 678(Tex. App. -- Houston [1st Dist.] 1999), and held thatan arbitration award (in favor of TCB) should bevacated where one of the neutral arbitrators hadrepresented TCB in a lawsuit involving a $1.5 millionclaim which preceded the arbitration by six years.

d State Law: Where There's Been an "EvidentMiscalculation of Figures"

The Tyler Court of Appeals faced an attempt tochallenge an arbitration award on the ground that itcontained an "evident miscalculation of figures," (Tex.Civ. Prac. & Rem. Code under � 171.015(a)) andrejected such challenge where the award was"rationally infer able from the facts before thearbitrator," and was "within the range established bythe testimony." Vernon E. Falconer, Inc. v. H.I., Ltd.Partnership, 970 S.W.2d 36 (Tex. App. -- Tyler 1998,no pet. h.).

e State Law: Where Arbitrator Exceeds PowersThe El Paso Court of Appeals vacated an

arbitration award on the basis that the arbitrator hadexceeded his authority where he ordered El PasoCounty to pay a former employee's unused sick leavein violation of Article III, � 53 of the TexasConstitution which limits extra compensation tocounty employees. Lee v. El Paso County, 965S.W.2d 668 (Tex. App. -- El Paso 1998, pet. denied).

The Court of Appeals first noted the basic premisehanded down by the United States Supreme Court inW.R. Grace & Co., 461 U.S. 757, 766 (1983), that

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courts are to substitute their own judgment for that ofan arbitrator if the arbitration award, left unchanged,would violate public policy. Because any award incontravention of the State Constitution would clearlybe in violation of public policy, the award was vacated.

f Federal Law:As of 12/6/99, the Fifth Circuit now has joined the

other courts of appeals which allow an arbitrationaward to be vacated when arbitrators have acted in"manifest disregard of the law." Williams v. CignaFinancial Advisors, 197 F.3d 753 (5th Cir. 1999).

8. When Can a Party Appeal an Adverse Ruling onArbitrability?a. If arbitration request is under TAA, losing partyhas interlocutory appeal right when (i) motion tocompel denied or (ii) arbitration stayed. Tex.Civ.Prac. & Rem. Code. � 171.017.

b. In state court, if arbitration request is under FAA,under same circumstances as a 8.a. above, losingparty must file mandamus proceeding, Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943 (Tex.1996).

c. In a case where a party in state court moves tocompel arbitration under both the Texas GeneralArbitration Act (Tex. Civ. Prac. & Rem. Code�171.001-.098) and the FAA (9 U.S.C. ��1-16), andthe trial court denies the right to arbitrate, the party'sremedies are (i) to pursue mandamus review to theappellate court under the FAA, and (ii) to pursue aninterlocutory appeal to the appellate court under theTAA (Tex. Civ. Prac. & Rem. Code �171.098). In reValero Energy Corp., 968 S.W.2d 916 (Tex. 1998); Inre Anaheim Angels Baseball Club, Inc., 993 S.W.2d875, 877 (Tex. App. -- El Paso 1999).

The Supreme Court in the Valero case held that acourt of appeals which finds itself in this position ofaddressing a FAA mandamus proceeding and a TAA interlocutory appeal should consolidate the twoproceedings and then render one decision disposing ofboth issues simultaneously. Id. at 917.

d. If arbitration request is under TAA, after motionto compel is granted: losing party has no right tointerlocutory appeal (Tex. Civ. Prac. & Rem. Code�171.017) or to mandamus proceeding. McMullen v.Yates, 697 S.W.2d 500 (Tex.App. -- San Antonio1985, no writ).

e. In state court, of arbitration request is under FAA,after motion to compel is granted, losing party has no

right to interlocutory appeal, Gathe v. CigraHealthcare of Texas, Inc., 879 S.W.2d 360 (Tex. App.-- Houston [14th Dist.] 1994, writ denied), but maybring a mandamus proceeding. Solis v. Evans, 951S.W.2d 44 (Tex. App.--Corpus Christi 1997, no writ).

f. In federal court (i) if motion to compel arbitrationis denied, party can pursue interlocutory appeal. 9U.S.E. �16; (ii) if motion to compel arbitration isgranted, and order is final such that the court hasnothing left to do, then order is appealable. F.C.Schaffer & Assoc., Inc. v. Demech Contractors, Ltd.,101 F.3d 40 [5th Cir.1996]; and (iii) if motion tocompel arbitration is granted, and is not a final order,losing party may bring mandamus proceeding. McDermott Int'l, Inc. v. Underwriters at Lloyds, 981F.2d 744 [5th Cir.]. cert. den., 508 U.S. 951 (1993).

9. Miscellaneous New Arbitration Issues:a Enforceability of Arbitration Provision inRepudiated Contract:

A favored tactic in attempting to avoid arbitrationis to claim that the party seeking to arbitrate under acontract has lost his right to enforce the arbitrationprovision by reason of his having repudiated and/oranticipatorily breached the subject contract. In 1998,the Texarkana Court of Appeals was faced with priorconflicting opinions on this issue. Contrast, Miller v.Puritan Fashions Corp., 516 S.W.2d 234(Tex.Civ.App. - Waco, 1974, writ ref'd n.r.e.) andPepe Int'l Dev. Co. v. Pub Brewing Co., 915 S.W.2d925, 932 (Tex.App. -- Houston [1st Dist.] 1996, nowrit).

The Texarkana Court favored the holding in thePepe case and held that arbitration agreements madeunder the Texas arbitration statute are enforceable andirrevocable in spite of attacks made upon the contractas a whole. Dallas Cardiology Associates v. Mallick,978 S.W.2d 209 (Tex.App. -- Texarkana 1998, no pet.h.).

b Supreme Court Jurisdiction to Hear ArbitrationDisputes

In September 1998, the Texas Supreme Courtdismissed an application for writ of error for lack ofjurisdiction in a situation where the trial court haddenied a motion to compel arbitration, the appellant hadpursued his right to an interlocutory appeal to the TylerCourt of Appeals (found at 950 S.W.2d 375), and,losing there, tried to get to the Supreme Court. Certain Underwriters at Lloyd's of London v.Celebrity, Inc., 988 S.W.2d 731 (Tex. 1998).

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The Supreme Court held that it had no jurisdictionto consider the case, under �22.225(b)(3) of theTexas Government Code and under the TexasArbitration Act (Tex. Civ. Prac. & Rem. Code�177.098(b)), because there was no dissentingopinion from the court of appeals and no conflictingdecisions from two or more courts of appeals on thesubject issue. Petitioners' argument that he wasentitled to be heard by the Supreme Court because theTyler Court of Appeals' opinion was in conflict withthe general statewide policy favoring arbitration fell ondeaf ears.

c Securities Dealer Required to Arbitrate Title VIIDiscrimination Claim -- Employee Clearly WaivedRight to Litigate

The Fifth Circuit was recently faced with anon-traditional scenario whereby a securities broker,licensed by the NASD, who in his securities licenseapplication agreed to arbitrate any dispute with hisfirm, found himself wanting to pursue litigation on hisTitle VII employment discrimination claim (because hehad been allegedly wrongfully terminated after blowingthe whistle on some sexual harassment activities). Mouton v. Metropolitan Life Ins. Co., 147 F.3d 453(5th Cir. 1998). The Fifth Circuit reversed the trialcourt and determined that the arbitration clause shouldbe read broadly to include the Title VII claims, and didnot fall within the exception to compulsory arbitrationas a "dispute involving the insurance business of anymember which is also an insurance company." TheCourt held that the plaintiff's Title VII claims involveddefendant's obligations as an employer rather than aninsurer, such that the insurance business exception hadno application. The Fifth Circuit follows the majorityrule on this issue, with the Ninth Circuit in theminority. Duffield v. Robertson Stephens & Co., 144F.3d 1182 (9th Cir.), cert. den., 1998 U.S. LEXIS7127.

d In Collective Bargaining Agreement Where UnionNegotiated Comprehensive Arbitration Provision,Employee Not Bound, and Can Litigate Title VIIClaims.

The situation causing the enforceability of thearbitration provision in the Mouton case does not existwhere the provision was not agreed to by theemployee, but by a union on behalf of an employee, ina collective bargaining agreement. Then, the employeemay litigate (and, thus, not be compelled to arbitrate)his Title VII claims. McCormick v. El Paso ElectricCo., et al, 996 S.W.2d 241 (Ct. App. -- El Paso 1999).

e Enforceability of Arbitration Agreements InBankruptcy Court

The issue frequently arises whether arbitrationagreements are enforceable in cases involving entitiesin bankruptcy. The Fifth Circuit established the law inthis jurisdiction on this subject in Matter of Nat'lGypsum Co., 118 F.3d 1056 (5th Cir. 1997).

In the National Gypsum case, NGC was a Chapter11 debtor and was attempting to avoid arbitrationproceedings initiated by its liability insurance carrier("INA") which had defended NGC in a number ofasbestos lawsuits. The Bankruptcy Court, JudgeSolis, and the Fifth Circuit all agreed that when adispute is a "core" bankruptcy matter, then theBankruptcy Court has the discretion to refuse to orderarbitration of such disputes when it determines thatpermitting arbitration would be in conflict with thepurposes of the Bankruptcy Code. Thus, the questiondoes not get answered merely by a determination ofwhether a dispute is "core" or "non-core," but whetherits resolution in arbitration would specifically conflict"with the textual provisions and/or purposes of theBankruptcy Code." Id., at 1067.

Bankruptcy Judge Donald Sharp of the EasternDistrict of Texas then followed the Fifth Circuit'sholding in the case of In re Harold W. Bailey, II;Harold W. Bailey, II v. Sorenson Laboratories, Inc.,217 B.R. 523 (Bank. E.D. Tex. 1997).

f Federal Courts Aren't Empowered to Assist Partiesin International Arbitrations With Discovery

Although Congress has empowered federal courtsto have jurisdiction to provide assistance on discoverymatters to parties litigating judicial proceedings inforeign countries, 28 U.S.C. �1782, this does notextend to providing assistance on discovery matters toparties engaged in international arbitrations. Republicof Kazakhstan v. Biedermann Intern., 168 F.3d 880(5th Cir. 1999).

g No Arbitration of Magnuson-Moss WarrantyClaims

Under warranty claim asserted underMagnuson-Moss Warranty Act, the parties to anagreement cannot impose binding arbitration into aconsumer product warranty agreement. In Re: VanBlarcum, 19 S.W.3d 484 (Tex. App. -- Corpus Christi4/6/2000).

h Normally No Arbitration of Disputes OverContinent Fee Contracts

Except under specifically defined circumstances,a contingent fee contract for legal services cannot

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have an enforceable arbitration provision, under� 171.002(a)(3) of the Texas Arbitration Act. A legalmalpractice claim is a personal injury action. In re:Pamela Godt, 28 S.W.3d 732 (Tex. App. -- CorpusChristi 2000). The TAA does not apply to a claim forpersonal injury unless (i) each party to the claim, onthe advice of counsel, agrees in writing to arbitrate;and (ii) the agreement is signed by each party and eachparty's attorney. Id. Where the party who signed thecontingent fee agreement as client was not acting onthe advice of counsel when she signed the agreement,then the TAA does not apply, and the arbitrationprovision is not enforceable. Id.

i Non-Parties to an Arbitration Proceeding May beBarred from Bringing Suit by Res Judicata Based onWhat Occurred at Arbitration.

If one party who participates in an arbitration hasthe same interest at stake as a non-party who laterdecides to pursue litigation over the same issue thatwas the subject of the arbitration, then the non-partyto the arbitration may be barred by res judicata. Daic,et al v. Nauru Phosphate Royalties (Texas) Inc., 27S.W.3d 695 (Tex. App. -- Beaumont 2000).

III. NON-BINDING SUMMARY JURY TRIALSA. The Movement in Texas State Courts1. Dallasa. Beginning in December 1996, state courts inDallas started using non-binding summary jury trials("SJTs") on an ongoing basis as an alternative ADRtechnique. At last count, since that time, nine DallasDistrict Judges have conducted SJTs (Judge JohnMarshall, Bill Rhea, Sally Montgomery, Ann Ashby,Gary Hall, David Godbey, Martin Richter, JayPatterson, and Adolph Canales), and most of thesenine judges have done more than one.

b. Beginning in the Spring of 1997, and in eachsubsequent semester, the course on ADR taught atSMU Law School introduced the SJT as an ADRalternative to law students.

c. Beginning in July 1997, the SJT video producedby the Dallas Bar Association's Business LitigationSection was distributed to all district judges in Texas'largest cities, as well as to any district judge in anyother counties who requested a copy. (If you wouldlike one, please contact Talmage Boston, the co-authorof this paper).

d. In July 1998, the Dallas County AlternativeDispute Resolution office began a pilot program,

endorsed and utilized already by at least four DallasDistrict Judges, involving court-ordered one-half daySJTs in small soft tissue injury cases (see Dallas BarAssociation Headnotes article attached as Exhibit "D").

2. HoustonAt least four current judges and one former judge inHarris County have used summary jury trials as anADR alternative. The judges have found that SJTshelp the parties evaluate their cases, and more oftenthan not lead to settlements. The attorneys in HarrisCounty, however, have had very limited experiencewith SJTs and often object to the procedure or requireconvincing of its utility. The jurors have been verysupportive of SJTs. The Harris County judges havefound that one day SJTs may not give the parties anadequate amount of time to present their cases. If theparties do not feel they have an adequate opportunityto present their cases, they do not give sufficientcredence to the jury verdict. Therefore, a number ofcases have been given two or three days to presenttheir evidence. The judges have also experimentedwith having the mediator attend the trial and discussingthe case with the jury after the verdict. One judgeuses the SJT only if the liability facts are particularlystrong and the damages are uncertain or if the partieswill agree that they will not increase the demand orreduce the offer after the SJT.

3. In the past three years, district judges in El Paso,Midland, and Fort Worth have also started using SJTs.

4. Caselaw on ConfidentialityThe Kaiser Permanente case which involved an SJT

after the parties settled following the SJT. Prior to theSJT, the parties had entered into a Rule 11 agreementaimed at maintaining the confidentiality of certaindocuments. On May 6, 1998, The Dallas MorningNews intervened in the case and filed a Rule 76aMotion seeking to obtain the confidential documentswhich were the subject of the Rule 11 Agreement. Inre Kaiser Found. Health Plan of Texas, 997 S.W.2d605 (Tex.App. -- Dallas 1998, no pet. h.).Judge Marshall, the trial judge who presided over the

SJT, determined that in May 1998, (four months afterthe January dismissal), he still had jurisdiction to hearthe Morning News Rule 76a Motion.The Kaiser Defendants filed a petition for writ of

mandamus to prevent the trial court from hearing theRule 76a Motion. The Dallas Court of Appeals grantedthe writ and held that the trial court lacked jurisdictionto hear the Rule 76a Motion after its plenaryjurisdiction had expired. The appellate court went on

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to find that, as a matter of law, any documentsintroduced in a SJT proceeding are not subject to aRule 76a Motion.

B. SJTs in Texas Federal Courts1. Section III of the Civil Justice Expense and DelayReduction Plan instituted by the judges in the NorthernDistrict of Texas, effective July 1, 1993, endorsesADR programs and in particular "recognizes thefollowing ADR methods: mediation, mini-trial, andsummary jury trial. A judge may approve the ADRmethod the parties suggest or any other method thejudge believes is suited to the litigation."Thus, federal judges in the Northern District of Texas

are empowered to order cases into non-bindingsummary jury trials as a method of ADR.

2. SJTs in Texas Federal Courts.In the Northern District of Texas, Judge Joe Fish has

ordered cases into SJTs.

IV. INTERNET SUMMARY JURY TRIALS:In addition to internet mediations, another situation

where a new alternative online option for resolution isa situation where a litigator wants to conduct a mocktrial, but is reluctant to pay jury consultants tens (andsometimes hundreds) of thousands of dollars to line upmock jurors and conduct the traditional mock trial. Anew case presentation arrangement for getting jurorfeedback is found at "I-court-house.com," a websiteformed by a California husband and wife legal teamlast year. Parties and/or attorneys submit their voirdire questions, opening statements, evidence, andclosing arguments online to the retained jurors, whocan ask questions of the attorney, and then deliberatein a chat room. Parties may agree for the result to bebinding or nonbinding, and can also decide whether thewinner needs only a simple majority, two-thirds, ormore to obtain a verdict. Amazingly, the cost of theservice is free.

V. FEDERAL LAW UPDATE: THEALTERNATIVE DISPUTE RESOLUTION ACT OF1998

On October 31, 1998, President Clinton signedinto law House Bill 3528, which became Public Law105-315, the Alternative Dispute Resolution Act of1998, a copy of which is attached. Basically, the Actformalizes that all federal courts are to create localrules to devise and implement their own ADRprograms to encourage and promote ADR use in theirrespective districts.VI. ETHICAL ISSUESa No Requirement that Lawyers Tell Clients ofAlternatives to Litigation.

In its review of the Rules of Professional Conduct,the ABA Commission on the Evaluation of the Rules ofProfessional Conduct, known as the Ethics 2000Commission has declined to include an expressrequirement that lawyers tell clients of alternatives tolitigation. "Much To Do About ADR" William C.Smith, ABA Journal 62, 66 (June 2000).

There is no requirement yet that lawyers discussthe pros and cons of different ADR processes. Id.

b. Potential malpractice claim against an attorneywho drafted an unenforceable arbitration clause. Id.

c. Potential malpractice claim against an attorneywho allegedly did not tell the client that arbitrationawards were unappealable. Id.

d. A proposed ABA Model Rule of ProfessionalConduct would require a lawyer-mediator to tellunrepresented parties that the lawyer-mediator is notrepresenting any party to the proceeding. "EthicsRules Proposed for ADR Neutrals", 25 Litigation NewsNo. 4 (May 2000).