650 S.W.3d 660
Tex. App.2021Background
- Jack and Erin Skufca bought a new home from Taylor Woodrow; Paragraph 11 of the purchase agreement contained a broad arbitration clause that included a delegation provision assigning gateway arbitrability questions to an arbitrator.
- The Skufcas sued for defective construction and mold-related injuries; appellants (Taylor Woodrow and Taylor Morrison) moved to compel arbitration under the FAA, asking the arbitrator to decide arbitrability.
- The trial court initially compelled arbitration as to the parents (not the children), abated proceedings, then later found the arbitration clause unconscionable and struck or severed parts of it.
- On October 16, 2020 the trial court severed the delegation language, struck provisions requiring AAA administration and fee-allocation language, and ordered arbitration with an arbitrator selected by the court (not under the original delegation clause).
- Appellants appealed the October 16 order; the Court of Appeals held the order functioned to deny appellants’ motion to compel arbitration under the delegation clause, concluded the delegation clause was not proven unconscionable, reversed, and remanded with instructions to compel arbitration under the delegation clause.
Issues
| Issue | Plaintiff's Argument (Skufca) | Defendant's Argument (Taylor) | Held |
|---|---|---|---|
| 1) Is the October 16 order interlocutory/appealable (did it effectively deny the motion to compel)? | Order merely modified arbitration, not appealable. | The order effectively denied appellants’ contractual right to arbitrate gateway issues and is appealable under FAA/§51.016. | Appealable: the order functioned to deny the motion to compel; court has jurisdiction. |
| 2) Is the delegation provision enforceable or unconscionable because it delegates arbitrability to an arbitrator? | Delegation is unconscionable and unlawful; courts must decide gateway issues. | Delegation is "clear and unmistakable" and severable; parties may contract to delegate arbitrability. | Delegation valid; Skufcas did not meet burden to show it was unconscionable; trial court erred by severing it. |
| 3) Do arbitration costs make the delegation provision unconscionable? | AAA fees and fee-splitting make arbitration prohibitively expensive and prevent vindication of rights. | Only costs to arbitrate threshold issues matter (not full merits); appellants offered to pay fees for arbitrability hearing. | Skufcas failed to show likely prohibitive costs for arbitrating the threshold issues or ability to pay; appellants’ offer to pay mooted the objection. |
| 4) Could the trial court sever other arbitration provisions and appoint its own arbitrator? | Severance or striking was appropriate to cure unconscionability and preserve arbitration of merits under modified terms. | Court lacked authority to sever delegation and alter agreed procedure; arbitrator must decide enforceability. | Trial court abused its discretion in severing the delegation language and altering the agreed arbitration procedure; order reversed and remanded to compel arbitration under the delegation clause. |
Key Cases Cited
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses are separable and enforceable when clearly and unmistakably agreed)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (parties may contract to assign arbitrability questions to arbitrators)
- RSL Funding, LLC v. Newsome, 569 S.W.3d 116 (Tex. 2018) (Texas Supreme Court: courts must send delegated arbitrability questions to arbitrator)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitration provision is severable from the larger contract)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (arbitration clause separability doctrine)
- Olshan Foundation Repair Co., LLC v. Flores, 328 S.W.3d 883 (Tex. 2010) (test for unconscionability and adequacy of arbitral forum to vindicate rights)
- Venture Cotton Coop. v. Freeman, 435 S.W.3d 222 (Tex. 2014) (focus on whether arbitral forum is adequate and accessible substitute)
- Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (party alleging prohibitive arbitration costs must present evidence of likelihood of such costs)