Texas Arbitration Act

The Texas Arbitration Act is the governing law over arbitrations occurring in Texas.  The Act covers most aspects of the arbitration procedure and aims to ensure that arbitrations are conducted fairly within the state.  While it has existed in some form for quite some time, it has been shifted and amended to fit the demands of modern arbitration practice. If practicing or preparing for arbitration in the state of Texas, understanding The Texas Arbitration Act is vital to succeeding in the arbitration.  This article will explain the Texas Arbitration Act, beginning with a brief explanation of arbitration before detailing the Act and some of its key provisions.  Finally, it will outline some recent Texas Supreme Court decisions that shape the way that The Act is applied in Texas.  

Arbitration Defined: 

Arbitration is a process where a third-party neutral hears the presentation of the case and issues a decision, called an award, that outlines how the case is resolved.  Unlike other forms of alternative dispute resolution, arbitration does not allow the parties to discuss and evaluate the case and come to a resolution but places the resolution in the hands of a neutral decisionmaker.  The parties will each have an opportunity to present their case to the arbitrator and the arbitrator will consider the evidence presented when deciding the case.  While it sounds similar to a court trial in that the parties are not responsible for the resolution, the arbitration process is often faster and cheaper than traditional litigation.  Additionally, it is less formal than litigation, so it allows the parties to discuss a wider range of evidence and have a more candid discussion than would be possible in litigation.  Finally, an important aspect of arbitration that will be important to note is that judicial review of arbitration awards is rare, and usually only for limited circumstances.  

Texas Arbitration Act:

The Texas Arbitration Act has been on the book since 1965, and it is the guiding law when it comes to arbitrating in Texas.  It has the relevant parts of the Federal Arbitration Act within the laws but has some key differences that will be discussed later.  The Texas Arbitration Act covers the enforceability of all arbitration agreements in Texas, with a few exceptions that will be discussed later.  Under The Act, an agreement to arbitrate is enforceable between the parties unless it was revoked under a law of contract.  The key to remember when discussing both the Texas Arbitration Act and the Federal Arbitration Act is that law in the United States favors enforcement of contracts and agreements to arbitration over disallowing arbitration.  However, the Texas Arbitration Act notes several instances where the enforcement of an agreement would not serve the interests of justice and should be avoided.  These are the exceptions, which include the following agreements unless the agreement is in writing and signed by the parties and each party’s attorney: 

  • Collective Bargaining:  Collective bargaining is the process of a union or group bargaining on behalf of a group of laborers within an organization.  The Texas Arbitration Act acknowledges that a clause requiring arbitration in the instance of dispute within the collective bargaining agreement will likely produce a variety of outcomes that will not always match the same or similar disputes that fall under the agreement.  
  • Sales under $50,000: An agreement between a buyer and a seller may often include an arbitration agreement.  However, the Texas Arbitration Act’s exception for sales or exchanges under $50,000 removes much of the possibility of a large corporation taking advantage of a single buyer in a dispute over goods or services.  
  • Personal Injury: Personal injury claims often involve a lot of evidence, most of which is expert testimony about injuries suffered by the parties.  The Act does not require personal injury claims by a party to be heard in arbitration, even if there is an agreement because there are often evidentiary issues and interim relief that should be addressed by a court.  
  • Worker’s Compensation: Similar to personal injury claims, workers’ compensation claims are not required to be heard under the Act unless expressly agreed to.  This keeps most claims on a similar path and allows the claims to be made public.  

While these exceptions are important, it is also important to understand some of the other provisions of the Act.  Some common issues that are addressed by The Act are: 

  • Court Procedures: In appropriate situations, the courts in Texas can compel arbitration, stay court proceedings, stay arbitration proceedings. Appoint an arbitrator or arbitrators, enforce subpoenas in arbitration, confirm, vacate, modify, or correct awards, and hear appeals.  
  • Arbitrator Appointment: While the procedure for this is usually outlined in the agreement, if it is not, the Texas Arbitration Act allows the parties to move for a court to appoint the arbitrators.  
  • Discovery: The only issue of discovery discussed in the Act is that an arbitrator may authorize the parties to conduct a deposition.  
  • Hearings: The largest portion of the Texas Arbitration Act governs the procedures for a hearing conducted under the jurisdiction of the Act.  It covers issues of service, arbitrator replacement, and absence, postponing or adjourning the hearing, failure to appear, the right of the parties to be heard, present evidence, cross-examine witnesses, and be represented, and the authorization of witnesses.  
  • Award: The Act outlines the procedures in place for the award.  It requires the award to be in writing, signed by the arbitrators participating in the decision and delivered to each party either by mail or as required in the agreement.  

These aspects of arbitration in Texas under the Act are just highlights.  Anyone participating in arbitration in Texas should look through the exact procedures and identify any specific issues.  However, an understanding of the provisions of the Act will help identify where a party may need to study of use to their advantage.  

Texas Supreme Court Decisions Concerning the Act:

Like any good law, the Texas Arbitration Act has been evaluated by the Texas Supreme Court, which has clarified the way that the Act is applied. Several recent decisions have further clarified arbitration in Texas.  These decisions include: 

  • Judicial Review: Hall Street Associates, LLC v. Mattel, Inc. and Nafta Traders, Inc. v. Quinn, the Texas Supreme Court considered provisions of the Texas Arbitration Act that seems to contradict the Federal Arbitration Act by allowing judicial review of a decision that the parties believe exceeded the arbitrator’s authority.  The Court determined that the parties cannot agree to broader review than that allowed by the Federal Arbitration Act, but the Texas Arbitration Act defines the limits of the arbitrator’s authority, which allows the courts to review decisions that are explicitly outside of the law, much like appeals of a judicial order.  
  • Electronic Signatures: In Aerotek, Inc. v. Boyd, the Texas Supreme Court was tasked with issuing a decision after lower courts had various rulings on the applicability of electronically executed arbitration agreements.  These are often challenged because they lack a “wet” signature.  The Supreme Court rules that electronic signatures are enforceable if the party moving to compel arbitration can produce proof of the efficacy of the security procedures used in generating the agreements. This step would ensure that the signatures were completed by the correct people while allowing electronic signatures to stand.  
  • Discovery: When a party moves to compel arbitration after a suit is filed, it is common practice in Texas for the other party to move to compel pre-arbitration discovery.  This has been allowed sporadically across Texas under varying standards until the Supreme Court recently rules in In re Copart, Inc that the law favors enforcement of arbitration agreements and that a request to compel pre-arbitration discovery must include proof that such discovery would shed light on the enforceability of the agreement.  

Conclusion: 

Arbitration in Texas will often involve the Texas Arbitration Act. Understanding and knowing what the Act is and how it is applied in Texas is vital to participating in arbitration within Texas.  It is also important to understand when considering the addition of arbitration to an agreement.  The Texas Arbitration Act will enforce most arbitration agreements outside of a few exceptions and will govern the procedures that are used in the decision.  Following the Act from start to finish will help ensure that arbitration is done well when it is done in Texas.  

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