Sidley Austin Brown & Wood, LLP v. J.A. Green Development Corp.
327 S.W.3d 859
| Tex. App. | 2010Background
- Green and Sidley Austin signed a two-page engagement letter that included an arbitration clause governed by the FAA.
- The engagement letter related to outlining tax-reduction transactions and the opinion letter on federal tax consequences.
- The IRS disallowed the tax positions; Green sued Sidley and other advisers for malpractice and related claims in June 2009.
- Sidley moved to compel arbitration under the engagement letter; Green amended to challenge the arbitration agreement as invalid/unconscionable.
- The trial court denied the motion to compel arbitration without specifying grounds.
- The Court of Appeals analyzes whether unconscionability defenses to the entire contract bar arbitration and whether the clause is severable under FAA principles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unconscionability defenses to the whole contract defeat arbitration | Green argues fraud and duress defenses apply to the entire engagement. | Sidley argues those defenses relate to the contract as a whole, not the arbitration clause, and arbitration should still be compelled. | Arbitration clause severable; defenses to whole contract do not defeat arbitration. |
| Whether the ethics-opinion-based argument makes the arbitration clause unconscionable | The ethics opinion suggests attorneys must discuss arbitration, implying unconscionability. | Ethics opinions are advisory and not binding; do not render arbitration unconscionable. | Ethics-opinion basis does not render the clause unconscionable. |
| Whether the fraud and duress defenses are properly limited to the arbitration clause | Green has shown misrepresentations and coercive conduct tied to the engagement letter and arbitration clause. | Those arguments attack the entire contract, not specifically the arbitration provision; must be decided in arbitration. | Fraud and duress defenses are to the contract generally and do not defeat the arbitration provision. |
| Whether the arbitration provision is enforceable under the FAA and severable from the rest of the contract | Arbitration is a valid method to resolve disputes arising under the engagement letter. | State-law defenses cannot override FAA severability; the clause should be enforced if valid. | Arbitration provision is severable and enforceable; the trial court abused its discretion. |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitrability questions and severability of arbitration clause)
- Labatt Food Service, L.P. v. dictated, 279 S.W.3d 640 (Tex.2009) (severability and contract-wide defenses vs arbitration clause)
- FirstMerit Bank, N.A. v. In re, 52 S.W.3d 749 (Tex.2001) (defenses must specifically relate to arbitration to defeat provision)
- In re Halliburton, 80 S.W.3d 566 (Tex.2002) (bargaining power and procedural unconscionability considerations)
- In re RLS Legal Solutions, L.L.C., 221 S.W.3d 629 (Tex.2007) (duress defense to arbitration clause must be specific to arbitration provision)
- Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (federal policy favoring arbitration; state policies cannot undermine arbitration clause)