In another case in which a trial court declined to compel arbitration under a valid agreement, the Corpus Christi Court of Appeals has stepped in to enforce the contract.
D. Wilson Construction Company v. Filegonia Site Contractors, LLC (No. 13-21-00203-CV) arose from a dispute between a general contractor (Wilson) and subcontractor (Filegonia) in connection with the construction an aquatic facility owned by the City of Pharr, Texas. The contract between the parties contained an arbitration provision whereby any claim arising under the contract would, at the general contractor’s “sole option and discretion, be resolved by arbitration in accordance with the most current edition of the Construction Industry Arbitration Rules of the American Arbitration Association . . . .” (It is interesting to note that the agreement incorporates the AAA rules by reference. Similar incorporation language is being challenged in TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, No. 21-0028, currently pending before the Texas Supreme Court.)
In March 2021 the subcontractor sued the general contractor and the city for breach of contract and unjust enrichment. The general contractor filed a motion to compel arbitration. The subcontractor responded that the agreement was not enforceable because the Federal Arbitration Act did not apply, the agreement was unconscionable, and the agreement lacked consideration and was illusory. The trial court denied the motion to compel without stating the grounds. The general contractor appealed.
The court of appeals reversed and remanded. There was no dispute over the existence of an agreement to arbitrate, so the court’s analysis focused on whether the subcontractor had proven an affirmative defense to arbitration. First, the court dismissed the subcontractor’s argument that the Federal Arbitration Act did not apply because the contract did affect interstate commerce. Although acknowledging that the FAA “does not require a substantial effect on interstate commerce,” the court did not need to reach the issue because the parties may contract for arbitration under the FAA just like they do for other forum selection or choice-of-law clauses. Second, the fact that the arbitration provision gave the general contractor sole discretion to determine whether the subcontractor’s claims would be submitted to arbitration did not render the provision unconscionable, as SCOTX has already held in Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494, 501 (Tex. 2015).
Additionally, the subcontractor alleged that the arbitration clause was unconscionable because other parts of the contract required notice of claims, limited the general contractor’s liability, and required good faith mediation of disputes (which the subcontractor alleged did not occur). The court brushed these arguments aside, holding that “Texas law declares that these issues are for an arbitrator to resolve, not a trial court.” Finally, the court rejected the subcontractor’s illusoriness claim because the subcontractor clearly accepted benefits under the contract and was suing to enforce its terms. Since consideration supported the underlying contract, it supported the arbitration clause as well. The court of appeals ordered the trial court to stay proceedings pending arbitration under the contract.
Justice Hinojosa, joined by Justices Benavides and Silva, had authored a solid opinion that provides an excellent survey of the relevant authority. From what we can tell, the intermediate appellate courts have almost uniformly honored the parties’ agreements to arbitrate, and this case is no exception. What troubles us is the number of cases in which they have to order recalcitrant trial courts to do the same.