Lennar Homes of Texas, Inc.; Lennar Homes of Texas Land and Construction, Ltd.; Lennar Homes of Texas Sales and Marketing, Ltd. v. Mohammad Rafiei (No. 22-0830) arose from a personal injury suit arising from the explosion of a garbage disposal in the homeowner three-year old Lennar home. Plaintiff sought compensatory damages in excess of $1 million and punitive damages. The home purchase contract included an arbitration provision calling for resolution of disputes in accordance with the AAA’s Construction Industry Arbitration Rules. The agreement further requires each party to bear its own costs and expenses. Lennar moved to compel arbitration. Plaintiff objected, arguing that the agreement was unconscionable because arbitration was prohibitively expense and would bar him from pursuing his claims. The trial court denied the motion, and a divided Houston [14th] Court of Appeals affirmed. SCOTX accepted review.
In a per curiam opinion, SCOTX reversed. In this case, the arbitration agreement delegated the issue of arbitrability to the arbitrator. Consequently, a court may only decide “whether the party opposing arbitration has proven that the cost of arbitrating this delegated threshold issue of unconscionability is excessive, standing alone, and prevents the party from enforcing its rights.” To make this determination, the court must compare the total costs of the two forums and decide whether the difference “is so substantial as to deter the bringing of claims” (citations omitted). Plaintiff offered into evidence the AAA fee schedules and his attorney’s affidavit, which addressed only the costs to arbitrate the dispute as a whole, not just the delegation provision. Under the standard fee schedule, a plaintiff seeking more than $1 million, as Plaintiff did here, must pay either a standard fee of $7000 or a flexible fee of $3500, with additional fees if the case proceeds to a hearing. In addition to the fees, plaintiffs must pay their half-share of the arbitrator’s hourly rates and other expenses. To show that costs are excessive, a plaintiff must “adduce some evidence of a fee schedule as it is applied to resolve an arbitrability issue in his particular case.” Plaintiff failed to do that in this case.
AAA Rules further permit a party, in the event of extreme hardship, to obtain a deferral or reduction of administrative fees. Here, Plaintiff didn’t ask for that, nor did he request the agreement to proceed with one arbitrator, rather than the three required by AAA rules for a claim of this size. Without any evidence of this nature, “without the actual costs associated with arbitrating the arbitrability question, it is speculative to conclude that the delgation provision is itself unconscionable” (citations omitted). As to comparing the costs of arbitrating the issue or determining it in court, the Court held that Plaintiff’s evidence was so vague as to render a determination of whether the cost of arbitrating the arbitrability provision was substantially higher than what litigation costs would be. Finally, Plaintiff failed to show that he could afford litigation but not arbitration. Without evidence establishing “the claimant’s overall ability to pay the arbitration costs,” a court cannot guess at it, much less determine whether arbitration “would deter enforcement of [Plaintiff’s] rights due to his inability to pay them” (citations omitted).
The case now returns to the district court, presumably (if Plaintiff pursues it) for referral to arbitration on the arbitrability issue. The Court made it clear that it did not express any opinion as to the unconscionability of the entire arbitration agreement, but we would think that once the threshold issue went against him Plaintiff would not continue to pursue an escape from the arbitration agreement through more appellate litigation.
