Brand FX, LLC D/B/A Brand FX Body Company v. Curtis Rhine
458 S.W.3d 195
| Tex. App. | 2015Background
- Brand FX (Delaware LLC, public) hired Curtis Rhine as CFO and had Rhine sign an employment agreement containing an arbitration clause requiring AAA arbitration in New York.
- Rhine also entered a subscription agreement acquiring a 1% ownership interest.
- Brand FX gave Rhine a notice of alleged willful misconduct, offered a cure period, and terminated him for cause; Rhine sued for statutory libel per se and contract breaches (including wrongful denial of severance).
- Brand FX failed to timely answer; the trial court entered a default judgment on liability and set a damages hearing. Brand FX then filed a motion to compel arbitration and to set aside the default judgment.
- The trial court denied the motion to compel arbitration and later denied Brand FX’s motion to reconsider. Brand FX appealed the denial of the motion to compel. The appeal raised whether the FAA or Texas Arbitration Act (TAA) governed and whether Rhine established defenses (waiver, unconscionability).
Issues
| Issue | Plaintiff's Argument (Rhine) | Defendant's Argument (Brand FX) | Held |
|---|---|---|---|
| Governing law: FAA vs TAA | TAA applies because Brand FX didn’t prove interstate commerce; if TAA applies, certain claims (e.g., personal-injury/libel) require attorney signature | FAA applies because Brand FX’s business and Rhine’s duties involved interstate commerce | FAA governs (contract affects interstate commerce) |
| Timeliness/scope of appellate review of evidence | Exclude evidence submitted with motion to reconsider; interlocutory appeal is only from denial of motion to compel | Documents properly filed in trial court may be in clerk’s record; but appellate scope limited to denial of motion to compel | Court refused to consider new evidence filed only with motion to reconsider; limited review to trial-court record at time of denial |
| Waiver of arbitration | Brand FX substantially invoked the judicial process by allowing default and seeking new trial, thereby waiving arbitration | Moving to set aside default judgment and for new trial does not constitute substantial invocation; strong presumption against waiver | No waiver; Brand FX did not substantially invoke the judicial process |
| Unconscionability (cost-shifting, forum, arbitrator authority) | Clause is one-sided: loser-pays fees, New York forum is burdensome, arbitrator cannot modify agreement | Cost-shifting alone is insufficient without proof costs are prohibitive; Rhine presented no evidence of unaffordability or specific costs; forum and arbitrator-limitation arguments speculative | No unconscionability shown; Rhine failed to meet burden of proof |
Key Cases Cited
- Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266 (Tex. 1992) (scope of appellate review and what trial-court materials may be considered when deciding motion to compel arbitration)
- In re FirstMerit Bank, N.A., 52 S.W.3d 749 (Tex. 2001) (valid arbitration agreement compels arbitration absent defenses)
- Perry Homes v. Cull, 258 S.W.3d 580 (Tex. 2008) (standards for reviewing arbitration-enforceability questions; de novo review of legal issues)
- In re Nexion Health at Humble, Inc., 173 S.W.3d 67 (Tex. 2005) (FAA preempts TAA signature requirement for certain claims; waiver analysis under FAA)
- Odyssey Healthcare, Inc. v. [named party], 310 S.W.3d 419 (Tex.) (party must be compelled when agreement is valid and no defenses shown; trial court abuses discretion if it denies)
- CMH Homes v. Perez, 340 S.W.3d 444 (Tex. 2011) (interlocutory-appeal statutes strictly construed)
- Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000) (speculative risk of prohibitive arbitration costs insufficient to invalidate arbitration clause)
- In re Macy’s Tex., Inc., 291 S.W.3d 418 (Tex. 2009) (FAA governs personal-injury claims as to attorney-signature requirement under the TAA)