We have previously speculated that the pandemic’s impact on landlord-tenant relations may produce a spike in litigation reaching the appellate level. One case in point is Mid-America Apartments, L.P. d/b/a Colonial Village at Willow Creek Apartments v. Travis Trojan and Cammy Null (No. 02-21-00204-CV), handed down last week by the Fort Worth Court of Appeals.
The issue in the case is whether the arbitration provision in the residential lease agreement covers the plaintiff-tenant’s claims that the landlord wrongfully entered his apartment and removed his personal property. That doesn’t sound like something that would ordinarily merit an extended appellate opinion, but the fact pattern suggests that the landlord’s actions may have been influenced by the inability to prosecute an eviction action by virtue of the various moratoria on evictions. Here the tenant entered into a year’s lease with the landlord in March 2020. The tenant lost his job in December 2020, allegedly because of the pandemic. The landlord notified the tenant that he was in default and must vacate the premises but did not commence eviction proceedings. In February 2020 the tenant returned home to find that the landlord had removed the tenant’s property from the apartment. The tenant brought suit against the landlord, alleging breach of the lease agreement, wrongful entry, and violations of the Property Code and DTPA. The landlord answered and pled an affirmative defense that the tenant’s claims were subject to an arbitration provision in the lease. The trial court, without explanation, denied the landlord’s motion to compel arbitration. The landlord filed an interlocutory appeal.
The tenant argued that his claims related to his personal property, not the lease agreement (although he also claimed the landlord breached the lease), and were thus not arbitrable. The tenant also claimed that the attorney’s fees provision of the arbitration agreement was unconscionable because it allowed broader recovery of attorney’s fees than the DTPA. The court of appeals found that: (1) an agreement to arbitrate was present; (2) the tenant’s claims fell within the ambit of the provision (i.e., were “related to” the lease); and (3) the tenant failed to prove a defense to enforcement (i.e., a wrongful action unrelated to the lease). The court of appeals noted that once it finds the existence of an arbitration agreement, there is a strong presumption in favor of arbitration and that any doubts about the scope of an arbitration agreement should be resolved in favor of arbitration. Here the court of appeals found that the arbitration provision’s terms applied broadly to “any dispute or controversy of any kind or nature” between the landlord and tenant. It found further that the tenant’s claims “touch,” “have a significant relation to, are inextricably enmeshed with, or are factually intertwined with the lease” (citing Southwinds Express Constr., LLC v. D.H. Griffin of Tex., Inc., 513 S.W.3d 66, 74 (Tex. App.—Houston [14th Dist.] 2016, no pet.)). By contrast, only “stand-alone” facts completely independent of the contract are not arbitrable.
The court, however, did find that the lease’s attorney’s fee provision was unconscionable and severed it from the arbitration provision. Under the DTPA (§17.50(c), Business & Commerce Code), a defendant can only recover attorney’s fees only on a finding that the plaintiff’s “action was groundless in fact or law or brought in bad faith, or brought for purposes of harassment.” The lease provision simply provided that the prevailing party could recover attorney’s fees. Noting that Texas law, not the Federal Arbitration Act, governs whether an arbitration agreement is enforceable or unconscionable based on general contract principles. The court of appeals applied the “concept of substantive unconscionability to ensure that parties are not unfairly deprived of the ability to ‘vindicate’ statutory rights provided to them simply because they are in an arbitral forum” (citing In re Olshan Found. Repair Co., 328 S.W.3d 883, 892 (Tex. 2010) (orig. proceeding)). Relying on SCOTX’s holding in Venture Cotton Coop. v. Freeman, 435 S.W.3d 222 (Tex.2014) (holding that an arbitration provision in lease did not waive substantive rights but was in the nature of a forum-selection clause), the court found that the lease failed to follow the DTPA’s statutorily mandated waiver wording. To waive a provision of the DTPA, including the attorney’s fees provision, the agreement must contain a conspicuous clause written in substantially the same form as prescribed in the statute (§17.42(c), Business & Commerce Code). Since the lease included no such waiver clause, the court of appeals held the attorney’s fees provision of the lease unconscionable and severed it from the remainder of the lease, leaving the arbitration clause intact. The court remanded to the trial court with instructions to enter an order compelling the parties to arbitration.
Again, while on its own bottom this case might not warrant such lengthy treatment, the Fort Worth Court of Appeals evidently thought that a corrective opinion was in order. Given the extreme difficulty that landlords have experienced in many jurisdictions just trying to get courts to hear eviction cases and issue writs of possession, it occurs to us that the kind of self-help the landlord resorted to in this case might occur with more frequency than in “normal” times. The tenant’s attempt to get around the lease in general, and the arbitration clause in particular, by filing a tort claim makes sense in that context, and the trial court seemed willing to go along with it. This opinion, perhaps, reflects at least one court of appeals’ (and a strong one at that) response to that kind of litigation. If the lease has an arbitration clause, the court will honor it, absent any general contract defenses that a tenant might be able to establish (a difficult and fact-intensive task indeed). And if the landlord wants to insert an attorney’s fee provision into the lease, it should take care to comply with the DTPA’s waiver language.