In Re Morgan Stanley & Co., Inc.
293 S.W.3d 182
Tex.
2009
Check Treatment

*1 307, 314-15 MacFadyen, 93 S.W.3d ter v. 2002, pet. [14th Dist.]

(Tex.App.-Houston

denied) (“A activity ineffective flurry of easily diligence due not constitute does Willett, JJ., Scott Brister and Don R. con- effective alternatives and more available opinions. curred and filed ignored.”). Hecht, J., Nathan L. dissented and filed opinion. IV reasons, court these we reverse the

For and reinstate the tri- appeals’ judgment judgment grant summary

al court’s Ashley.

favor of CO.,

In re MORGAN STANLEY

INC., To Successor

Stanley DW, Inc., Relator.

No. 07-0665. of Texas.

Supreme Court 15, 2008.

Argued Oct. July

Decided 25, 2009.

Rehearing Sept. Denied *2 with

accordance its in the un- derlying putative party case. The other the agreement resists arbitration on the ground that she lacked the mental capacity to assent to the contract. question The here is whether the court or the arbitrator should decide of capacity. this issue trial court proper concluded that it was the and, agree forum. We accordingly, deny petition for writ of mandamus. Taylor’s Helen estate was worth several million year dollars in which diagnosed she was with dementia. That year, she also transferred several of her securities accounts to Morgan Stanley. Each account with Morgan Stanley included an arbitration clause.1 Over the years, Taylor next few also signed a power attorney durable in fa- Albers, granddaughter, vor of her Kathryn and a agreement, naming trust Albers as L.L.P., Phillips, Thomas R. Baker Botts During period, trustee. this Albers made Austin, TX, David D. Sterling, Brooke mother, sister, gifts to her her and herself Geren, L.L.P., Ashley Baker Botts Hous- Taylor’s estate. ton, TX, for Relator. Jr., T. Charles Frazier LaDawn H. Con- In probate ap a Dallas court Townsend, way, Alexander Dubose & pointed guardian Tay Nathan Griffin as LLP, Ganci, Wolfe, Amy B. Dolores G. time, By lor’s estate. this the value of her P.C., Dallas, TX, Thompson, Cowles for significantly estate had been reduced. In Party Real in Interest. May guardian Taylor’s sued Justice MEDINA opinion delivered the granddaughters and others for violation of Court, of the in which Chief Justice the Texas Uniform Fraudulent Transfer JEFFERSON, WAINWRIGHT, Justice Act, theft, conversion, civil GREEN, JOHNSON, Justice Justice and imposition of a constructive trust. About a joined. Justice WILLETT later, year Taylor’s guardian added Mor defendant, gan Stanley asserting as a original In this proceeding, mandamus the relator compel fiduciary duty, negligence seeks to arbitration in breach of eluding arising provisions corporations) 1. The arbitration in the new ac- affiliated out accounts, agreements concerning any your count stated: of or or- transactions, construction, ders or or the Arbitration of Controversies performance, agree or breach of this or other You that all controversies between your ... you principals agents between us shall be deter- or and Mor- (in- gan Stanley only.... agents Dean Witter or its mined investments, unsuitability of case for argument consider whether malpractice, Act, Security of the Texas violations court or an arbitrator should determine Stanley contract. breach of the issue of mental to contract. dispute. moved *3 motion, arguing guardian resisted II Taylor lacked the mental to that The Federal Arbitration Act she the account

contract when (“FAA”) generally governs pro arbitration clauses and with arbitration agreements arbitrator, involving visions contracts interstate court, not an that it was for 2;§ 9 See U.S.C. see also In commerce. capacity. Taylor’s issue of to decide this Assocs., L.P., re L Kempwood & L subsequently also nonsuited 9 guardian (Tex.1999). 125, claim.2 The trial court 127 breach of contract S.W.3d Where compel arbitration. controls, refused to here, ostensibly FAA as it does an agreement except to arbitrate is valid Stanley petitioned the court of grounds equity on as exist at law or in to relief, mandamus but the court appeals for § revoke the contract. 9 U.S.C. Section to order the matter to arbi also declined 2 provides of the FAA that courts shall Morgan Stanley In re & tration. compel subject arbitration on issues to an 2035128, 2007 Tex.App. 2007 WL LEXIS Id. Section 4 2007, agreement. arbitration 17, July orig. (Tex.App.-Dallas 5582 (mem. provides may the FAA that a court proceeding) op.). Morgan Stanley consid er petitioned only relating making then this Court. We set the issues and Although nonsignatoiy compel the breach of contract claim has to arbitration because nonsuited, the nonsignatory been doctrine of direct benefits upon misleading had relied and estoppel may apply equitable compel to inaccurate extra-contractual and assurances person other claims. A who losses; arbitration of nonsignatory alleged sustained state- agreed may has not to arbitrate nevertheless apart law causes of action from the compelled person to be do so when the deceit, deceit, including negligent intentional “seeks, claim, through the to derive a direct practices, promissory estoppel, unfair trade containing the contract benefit from arbi- advantageous tortious interference with rela- provision.” Kellogg tration In re & Brown tions, meruit); quantum Westmoreland Root, Inc., 732, (Tex.2005); 166 S.W.3d 741 Sadoux, (5th Cir.2002) 299 F.3d 467 Homes, L.P., Weekley re see also In (refusing nonsignatory’s request apply eq- to (Tex.2005). Equitable estoppel compel estoppel signatory uitable to to arbi- however, inapplicable, when the benefit is signatory's rely tration where that suit did not indirect; is, merely that when the substance upon agreement the terms of its shareholder general obligations of the claim arises from any duty or seek to enforce created law, statutes, including imposed state torts agreement); see also Mohamed v. Auto Nation duties, law and other common or federal law. Corp., (Tex.App.- USA 89 S.W.3d Root, Kellogg In re Brown 166 S.W.3d pet.) (refusing Houston no [1st Dist.] 740-41; see, e.g., R.J. & Co. v. Beach Griffin nonsignatory’s request apply equitable to es- Ass’n, 157, 162, Club II Homeowners 384 F.3d toppel compel where suit Cir.2004) (refusing signatory's re- against nonsignatory rely employ- did not on quest apply equitable estoppel compel to ment to assert claims race dis- against signatory; another the le- crimination, intentional infliction of emotion- gal signatory allegedly duties the builder vio- distress, negligent hiring, supervision, al depend lated did on the not terms of retention); Cook, Fridl 908 S.W.2d contract but arose from the common law and cf. (Tex.App.-El Paso writ dism'd resisting signatory statute and thus arbitra- w.o.j.) (refusing compel arbitration where seeking was not direct benefit of the Grina, contract); signatory resisting party arbitration had al- InterGen N.V. v. 134, 140, (1st Cir.2003) leged independent (refusing signato- fraud claim of the con- tract). ry's request apply equitable estoppel 15-16, (1984) to arbitrate. performance S.Ct. L.Ed.2d Thus, seeking a party (holding § once federal U.S.C. arbitration law creat courts). compel arbitration has established that ed applies the FAA state there is a valid arbitrate and have attacking We held defenses plaintiffs claims are within the whole, validity of a contract aas and not trial agreement’s scope, the court must specifically aimed at the to ar Id.; In bitrate, arbitration. re Oakwood arbitrator, are for the Homes, Inc., Mobile 987 S.W.2d Solutions, re Legal court. See In RLS (Tex.1999) curiam). (per LLC, (Tex.2007). 221 S.W.3d *4 But we have also recognized pre that the 1967, however,

Before courts often rea- sumption favoring only arbitration arises any soned that that render defense would party seeking compel after the to arbitra the entire contract unenforceable void proves a agree that valid arbitration court was for the to decide because the Davidson, ment exists. J.M. Inc. Web v. contract was invalid too was underlying so ster, (Tex.2003). We agreement the to arbitrate. See generally not, however, have previously considered Stone, Katherine V.W. at Law Arbitration incapacity whether the defense mental (2003). The States United validity is an attack on the of the contract rejected reasoning that in Prima aas whole and for the therefore matter Paint v. Conklin Corp. Flood & Manufac- arbitrator, Morgan Stanley argues, as or a Co., turing 388 U.S. 87 S.Ct. gateway concerning matter the existence (1967). 1801,18 L.Ed.2d 1270 of an that proven must be to The in issue Prima Paint was whether court, Taylor’s the satisfaction of the as the court anor arbitrator should decide a guardian argues. claim of fraud in the inducement the entire contract. Id. at 1801. S.Ct. There disagreement is some about what FAA, Relying on section 4 the Su- in requires Prima Paint this situation. held a claim in preme Court of fraud Fifth The Circuit in Primerica Insur Life the inducement of a generally, contract as Brown, ance Co. v. 304 F.3d opposed specifi- to arbitration clause Cir.2002), has concluded that the arbitra arbitrator, court, cally, for the was not the tor should decide defense of mental inca (“a to Id. at decide. S.Ct. 1801 pacity specific challenge because is not a may only federal court re- consider issues to the arbitration clause goes but rather lating making performance and agreement. the entire The Tenth Circuit arbitrate”). the agreement Prima opposite reached the result in v. Spahr thereby the “separabili- established Secco, (10th Cir.2003), con doctrine, ty” explaining that an arbitration cluding that the “mental incapacity defense separable was from provision the rest of a naturally goes to both the entire contract contract under section 4 and that the issue specific agreement and the arbitrate of the contract’s was to be deter- Thus, Id. under contract.” at mined the arbitrator unless the chal- view, Tenth the mental inca Circuit’s lenge was to the to arbitrate places pacity “making” defense 402-04, itself. Id. at 87 S.Ct. 1801. issue Sec agreement under FAA, Paint,

Since dutifully Prima have tion 4 of giving court authori separability ty followed doctrine that to determine have presumptively actually favors arbitration. See The agreed arbitration. Id. Corp. Keating, yet Southland v. Court has not settled this defense, raising illegality that an reserved the noted expressly rather but conflict validity, was differ- the contract’s issue of Cashing, Inc. Buckeye Check question defense, raising the from a formation ent 1, 126 444 n. S.Ct. 546 U.S. Cardegna, ever con- a contract was of whether (2006). issue 1204, 163L.Ed.2d cluded: the defense of ille- Buckeye concerned validity is the contract’s The issue of there claimed plaintiffs gality. the issue whether different cashing agreement check the defendant’s alleged obligor between the con- lending Florida various “violated Our obligee was ever concluded. laws,” and was therefore sumer-protection former, only the today addresses opinion initio. Id. at illegal ab void to ... whether speak and does not law, the Applying Florida S.Ct. signed alleged obligor ever agreed Supreme Court Florida Robinson-Humphrey Chastain void, and refused illegal (C.A.11, 1992), whether the 957 F.2d 851 443, 446, Id. at arbitration. authority to commit the lacked signor Applying Prima Paint’s doc- S.Ct. AB v. Advent alleged principal, Sandvik *5 Supreme the separability, trine of 2000); (C.A.3, 220 F.3d 99 Corp., Int’l Supreme the Florida reversed Court Ltd. v. All American Sphere Drake Ins. 449,126 at S.Ct. 1204. Id. Court. (C.A.7, 2001), and Ins. 256 F.3d 587 Paint, in Prima the it had done As lacked the mental signor the whether the notion that rejected Supreme Court Secco, assent, v. Spahr to capacity enforceability agree- of the arbitration the 2003). (C.A.10, F.3d 1266 on the distinction between depended ment 1, 1204. The n. 126 S.Ct. Court Id. at 444 448, Id. at contracts. and voidable void analysis from its several thus excluded Instead, the Court reiter- 126 S.Ct. issues, includ- contract-formation-defense of federal controlling principles three ated case, signor that the in this ing the defense First, that an arbitration law. arbitration to assent. capacity mental lacked the from the remainder is severable provision Buckeye Although Supreme the Court 445, Id. at 126 S.Ct. 1204. contract. of the with fraudulent induce- grouped illegality Second, challenge is to the that “unless sepa- Prima Paint’s for of purposes ment itself, the of the clause issue arbitration expressly and excluded rability doctrine by the ar- validity is considered contract’s capacity along mental with the issue of Id. at 445- first instance.” bitrator in the from that issues other contract-formation Third, that federal 126 S.Ct. here concludes that analysis, the Dissent in state and federal applies law arbitration really more like fraudu- capacity is mental 1204. The at 126 S.Ct. courts. Id. inducement, that the Su- suggesting lent plaintiffs concluded that because Court it with wrong to include preme Court [ajgreement, spe- but not challenged “the issues. Com- other contract-formation the rule cifically provisions,” its (Hecht, J., at 193 dissent- 293 S.W.3d pare and the arbitration separability applied, of (“seems me, is capacity lack of ing) from “apart were enforceable provisions inducement”), with fraudulent closer to at of the contract.” Id. the remainder n. at 126 S.Ct. Buckeye, 546 U.S. 126 S.Ct. incapacity Dissent reasons 1204. The case, present to our the other contract-forma- importantly Most is different however, Buckeye be- distinguished was the distinction tion issues by incapacitated an a contract validity issues of cause Court drew between to ratification subject exists person of contract formation. issues person. III by incapacitated avoidance anal- at 193. But Dissent’s 293 S.W.3d Several courts have read to add con- begs question whether a ysis a to the Prima category third discrete Fifth ob- tract exists. As the Circuit has (1) analysis, which includes: a chal- served, of a ‘very “where existence lenge to the validity of the contract as a containing relevant arbitra- contract’ whole, (2) challenge a question, is called into (3) provision itself, a chal- authority responsi- federal courts have lenge was ever One Banc bility to matter.” decide the concluded. Prima Paint reserves the first Hill, Acceptance Corp. v. F.3d for the category arbitrator and the second (5th Cir.2004). And, when the issue Buckeye, category for the court. 546 U.S. raised, exis- capacity “very mental is Buckeye, 126 S.Ct. 1204. Since Id. courts,3 is at Be- tence a contract” issue. court,4 federal a state supreme grouped cause the Court has appellate other state have general- courts5 the other ly mental with issues concluded that the third in- category formation, do so as well. volves a threshold inquiry the court. Memberworks, Inc., whole, F.3d 3.See the contract as a must be it decided Sanford Cir.2007) (holding Second, chal- by challenge the arbitrator. if a lenges to whether contract was concluded specifically provision, to the arbitration prior must be the court determined Finally, must be decided a court. if a USA, arbitration); Krutchik Chase Bank challenge party’s signatory power is to a N.A., (S.D.Fla. F.Supp.2d court.”) it must be decided *6 2008) (holding it is for the court de- that to (internal omitted); citations see also Fox Int’l cide where “the initial formation or existence Inc., Sec., v. F.Supp.2d Relations Fiserv 418 contract, including disputed a a of arbitration 718, (E.D.Pa.2006) (concluding 723-24 that legitimately question”); called clause is into decision, "after the Court’s O’Connor, 127, F.Supp.2d Toledano v. 501 appears categories that there are three of (D.D.C.2007) ("[This circuit ad- 140 has not challenges provisions” to arbitration and that adjudi- propriety the of dressed] district-court challenge party's signatory power a to a falls challenges to the of a cation of formation category third under the and thus must be containing provision contract an arbitration court). decided a (as opposed challenges to the formation of to itself). [But, provision the arbitration Thompson Chrysler Jeep Dodge v. Lithia long disputes have] treated over the formation Falls, 392, 332, 343 Great Mont. 185 P.3d 338 i.e., of an whether to arbitrate — (2008) ("the body proper court is the to hear agreed anything the ever to submit to challenge a to the of a existence contract place properly arbitration in the first be- —as containing provision"). an arbitration court.”) (internal quotation the fore district Stores, omitted); City v. marks Foss Circuit Didion, 1272, Cal.App.4th v. 5. See Bruni 160 Inc., 230, (D.Me.2007) F.Supp.2d 477 234-35 395, court, (2008) (“A Cal.Rptr.3d 73 406 ("The articulated in Prima distinction first however, type still one must consider of chal Corp. regarding appropriate role contract; lenge overall a claim to the that the court and is not the arbitrator determina- resisting party actually never arbitration questions regarding very tive on forma- bound.”); agreed Operis Group, Corp. be to v. challenge of a [A] contract.... to wheth- Doral, LLC, 485, (Fla. E.I. at 973 488 So.2d validly er a contract was ever concluded is for ("A challenge Dist.Ct.App.2007) very court, arbitrator, decide.”); and not the to any agreement par existence of SBA, between Speetjens, Larson v. NO. C05-3176 2006 2567873, distinguishable challenge *3, ties is a thus to WL at 2006 U.S. Dist. LEXIS 66459, (N.D.Cal. 2006) existing, signed presumptively of a Sept.5, at *11-12 document.”); ("The Sys. Rowe Int’l distinguished has be- Enters. LLCv. & 537, (Fla.Dist. categories challenges Corp., tween three arbi- Elees. 932 So.2d 538-41 to First, provisions.... challenge Ct.App.2006) (stating required tration if a is trial court to to arbitration absent compel comment about refused Buckeye’s before Even arbitrate.6 formation, of an to virtually every court existence who compel plaintiffs claimed individual hearing motion to on defendant's hold authority principal agreement lacked the to bind plaintiff’s claimed when arbitration containing plaintiffs because Prima Paint was "limited document never seen that he had clause, challenges seeking signature to avoid or rescind a con- that on his arbitration "challenges Rhymer inapplicable forged); v. tract” and was had been that document very that going existence of a contract Corp., E006-00742-COA- Mortgage No. 21st to”); 3731937, *3, R3-CV, agreed party never to have at 2006 Tenn. a claims WL Passenger Corp. v. & Maine (Tenn.Ct.App. Nat’l R.R. Boston at Dec. App. LEXIS *9 ("if (D.C.Cir.1988) 2006) required Corp., F.2d (holding trial court is they challenge parties disagree ever because fed as to decide mental all, agreement entered into arbitration generally reasoned that "have eral courts (internal dispute”) challenging a the court must resolve a difference between there is omitted); (i.e. Joseph Co. v. Mich. party's status citation I.S. the basis of contract on Co., Cir.1986) (8th challenging Sugar 803 F.2d a contract incapacity) and mental (i.e. apply (holding does not party that Prima Paint based on behavior/conduct inducement)''). challenges party the whole contract when a fraudulent assignee that the cannot based on the claim Hill, Corp. Acceptance Banc One 6. See contract); Massey Co. v. enforce the A.T. Coal (5th Cir.2004)(holding that F.3d 429-30 Am., Union, Workers Int'l United Mine authority respon- have the federal courts Cir.1986) (4th (refusing to F.2d challenge where the sibility decide matters until district court decided "very a contract” existence of concerns question of of a contract to arbi- existence a contract with an or whether Mills, trate); Stockbridge Par-Knit Inc. concluded) (internal quotation clause Cir.1980) Co., (3d F.2d Fabrics Res., omitted); Inc. v. Sam- Will-Drill marks ("A may, party in an effort to avoid arbitra- (5th F.3d Res. son tion, that it did not intend to enter contend very Cir.2003)(holding exis- "[w]here an arbi- into the which contained disputed, it is for any agreement is tence of clause.”); Shipping Co. v. tration Interocean whether an at the outset the courts to decide Shipping Trading Corp., 462 F.2d Nat’l Secco, reached”); Spahr v. agreement was 1972) (2d (holding party's that a 676-77 Cir. 1266, 1268, Cir. into the con- assertion that it never entered 2003) party's hear a (holding that courts *7 containing clause should tract the arbitration based on the challenge to the whole contract Davidson, court); by trial be decided J.M. signor did not have mental claim that Webster, 223, (Tex. v. 128 S.W.3d 227 Inc. v. All sign); Sphere Drake Ins. Ltd. capacity to 2003) (stating "party that if a resists arbitra- 587, (7th Co., 591 Cir. 256 F.3d tion, Am. Ins. determine whether the trial court must 2001) ("[A]s depends on a valid exists”); arbitration agreement Am. a valid to arbitrate contracl[,] argument Techs., Miller, 265, that contract an Med. Inc. v. 149 S.W.3d logically 2004, be resolved not exist can’t does (Tex.App.-Houston Dist.] 270 [14th arbitrator....”); AB v. Advent Sandvik orig. (stating party proceeding) that when a Cir.2000) (3d arbitration, Corp., Int'l 220 F.3d 100-01 compel a court must seeks to trial (refusing compel where the arbitration agree- first determine the existence of a valid arbitrate); "the party seeking asserted that Large arbitration v. ment to see also Conseco (1st agent signed agreement on its behalf Corp., who Servicing 292 F.3d 53-54 Fin. Cir.2002) authority "involving allega- because Prima (reviewing lacked to do so” cases agree- underlying existent presumes an that the contract with the arbitration tions Co., Enters., existed”); ment); Robinson-Humphrey Fleetwood Inc. Chastain v. clause never Cir.1992) (11th (5th (stating Cir. Gaskamp, F.2d 280 F.3d 2002) favoring (holding policy ar- extended to that federal that has never been "Prima Paint adjudicate party's apply to the determination require a bitration does not arbitrators to contention, agreement there is an to arbi- evi- of whether supported substantial ”); trate); dence, Primerica Ins. Co. v. but see that a never existed at all Life Brown, (5th Cir.2002) 304 F.3d Valleys v. E.F. Hutton Three Mun. Water Dist. (9th Cir.1991) (holding apply rule does that the Prima Paint 1136-42 defenses). to mental (refusing where the arbitration Primeri- agreement, opposed The Circuit’s decision in of an as Fifth to its con ca, incapacity the defense of mental is" enforcement, that tinued court, arbitrator, for the an issue not the courts first1 must resolve that dispute. an con- because attack on the whole (internal F.3d at citation omit- tract, in stark to these stands contrast ted). Similarly, we have concluded that Pyimerica Moreover, has authorities. agreement whether an arbitration a binds criticized,7 roundly aware of been and we nonsignatory gateway is a matter to be court that reason- no other has followed its court, determined rather than the including the Fifth Several ing, Circuit. arbitrator, parties unless the clearly and Primeyica, Circuit, after the Fifth months unmistakably provide otherwise. In re fact, reached a decidedly different result Homes, L.P., Weekley 180 S.W.3d case of a involving in another the issue (Tex.2005); see also In re Labatt contract-formation defense to an arbitra- L.P., Serv., Food 279 S.W.3d tion clause. (Tex.2009) (when agreement “arbitration Resources, In Inc. v. Samson Will-Drill is silent who is to about determine wheth- Resources, Co., Cir. F.3d particular persons er are by the bound 2003), Samson resisted on the courts, agreement, rather than the arbi- that all grounds signed had not trator, issue”). should determine the agreement containing the deciding When questions federal clause. case involved sellers several of impression, anticipate first how the leases. Id. mineral at 213. Some Court would decide the is agreed dispute, sellers had to arbitrate any Chambers, sue. City Lancaster had never signed underlying and some (Tex.1994). anal This Id. at contract. 215. The Fifth Circuit ysis on the precedents often draws of oth concluded the sellers had courts, courts, er federal or state to deter agreement directly went mine the appropriate answer. Given the “making” party’s and the weight overwhelming authority, it is Noting consent arbitrate. arbitra- apparent to that the formation us defenses upon party tion could be forced identified in are consent,” go matters that its “absent the court wrote: very existence of an the very agree existence of an [W]here such, and, as arbitrate matters for the challenged, ment is ordering arbitration court, Although not the arbitrator. result in an deciding could arbitrator Fifth Circuit reached different conclusion no was ever formed. *8 Primerica, obligated in we are not to fol an outcome Such would be a statement Dyilling low that decision. See Penrod any the arbitrator never had au Williams, thority Corp. v. to decide A 868 S.W.2d presump the issue. (Tex.1993) (“While represents may tion that a Texas courts document cer tainly upon precedents an draw agreement could lead to this untena of the Circuit, any ble result. that Fifth other We therefore conclude federal or state court, a party very determining where attacks the existence in the appropriate fed- Huber, See, e.g., Stephen K. Really “Sep- erything The Arbitration Need to You Know About " TV, Jurisprudence Round Circuit: arability Simple Propositions, Seventeen in Fifth (2007) (disap- 39 Tex. Tech L. Rev. (2003) (criticiz- 14 Am. Rev. Int'l Arb. proving ignor- for as not "sensible” Primerica ing inexplicable” Primerica as a "bizarre and ing the distinction between contract defenses doctrine). misreading separability Rau, formation); Alan Scott Ev- decision, they obligated dissenting Justice HECHT filed eral rale of opinion. and the only higher Texas courts follow Court.”). Instead, States United participate Justice O’NEILL not in did misapplies that Primerica Prima agree the decision. doctrine: separability Paint’s BRISTER, concurring. Justice assumptions to the con-

Despite casual merely pre- Paint trary, Prima does person Whether a can avoid an arbitra- challenges that are serve for the courts by claiming mentally tion clause she was “just” or “limited” to “restricted” incompetent many prob- raises difficult clause alone—this would be notes, lems. As the Court the federal senseless; preserves it the courts courts cannot even agree judges necessarily claim at all that calls question. or arbitrators should answer question. to arbitrate into an (as try I would not to guess the Court dispute to To send a arbitration where does) how the United States itself, only” the arbitration clause “not may resolve this difficult issue be- “also,” addition, the “entire” but equitable cause estoppel renders it irrele- subject challenge, is to vant in this case. sight only important ques- lose person A “cannot have both his contract legally is the existence of a tion—which too.”1 and defeat it Even those who had assent to to arbitra- enforceable submit nothing to do with an arbitration agree- lacking requisite tion. Someone ment are they gain bound it seek to cannot, capacity to contract mental larger the benefits of the contract in which say, anything assent to arbitrate dare Accordingly, is contained.2 it is irrele- all. Taylor mentally vant whether Helen Rau, Everything Really Alan Scott You was, incompetent; even if she she is still “Separability” Need to Know About legal bound arbitrate because her Simple Propositions, Seventeen 14 Am. guardian’s entirely depends suit on ac- 1,17 (2003). agree We Rev. ARB. Int’l agreements count that contain arbitration Prima reserves court issues clauses. here, signor like the one that the lacked Every Taylor against claim asserts Mor- According- the mental to assent. (breach gan Stanley fiduciary duty, neg- ly, the trial court did not abuse its discre- ligence, malpractice, and violations of secu- in declining yield question law) rities has no basis unless the arbitrator. Stanley Every legal duty was her broker. petition Relator’s for writ of mandamus Morgan Stanley Taylor owed arises is denied. agreements. Taylor’s the account Because guardian Morgan Stanley insists that vio- concurring Justice BRISTER filed a client, lated duties it owed her as a he opinion. portions cannot “turn back on the [his] *9 clause, concurring Justice filed a such an arbitration WILLETT as opinion. finds distasteful.”3 [he] Homes, L.P., 127, 131; Bank, N.A., Weekley 1.In re 180 S.W.3d 2.Id. In re FirstMerit (Tex.2001). (Tex.2005). (internal

3.Weekley, pune 180 S.W.3d at 135 Act,7 It is true that in response the motion Arbitration that section alone gives arbitration, Taylor’s guardian worse, no definitive answer. For better or assei’ted for the first time that her all there has been so much “judicial parsing with agreements Morgan Stanley were un- sprucing” in this area that there is no enforceable, just the arbitration claus- easy answer. es. But pleadings is not what her As the arbitration clauses here were em- said either before or after hearing. bedded in each Morgan Stanley contract, only declaratory judgment sought she Taylor cannot possibly have incompe- been

in her First Amended Petition is “that tent as to part one but competent as to the and all agreements entered rest. her clearly As suit relies on the into or on behalf Helen Taylor whole, contracts as a she should have void and not enforceable.” She did not comply with the arbitration clauses too. rescission, seek which only remedy is her concede that Stanley did not if the entire account agreements are inval- assert estoppel direct-benefits in the trial id due to To the incompetence.4 contrary, court or on appeal. But of course nothing exemplary damages, she seeks statutory prevents it from doing so now. Arbitra- damages, attorney’s fees—relief not tion can be waived litigation substantial equitable available with remedies like re- conduct, but there is a strong presumption scission. against waiver we suggest- have never The question whether mental compe- ed it by initially occurs asserting the tence anis issue for courts or arbitrators wrong grounds.8 As this case can be de- is not “straightforward” as as Justice Wil- cided on estoppel clear lines rather than In suggests. Prima Paint Corp. lett the murkier line between contract forma- Flood & Manufacturing Conklin validity, and contract I would not haz- United States Court held that a guess ard a may have to retract fraudulent inducement claim specifically Instead, later. deny I would the petition directed at an arbitration clause is “an and remand to the district court for recon- goes issue which to the ‘making’ of the sideration. to arbitrate.”5 In Buckeye Cashing, Check Inc. Cardegna, WILLETT, Justice concurring. Paint, Court affirmed Prima describing it Court, as a involving validity case a contract’s Like the I believe the Federal (FAA) rather than contract formation.6 Because Arbitration Act signatory- reserves both contract formation and fall power judges, issues like this to not to within “the making of the mental-incapacity arbitrators. A defense arbitration” section 4 of the goes Federal to whether reached an omitted) (citing ‘making’ tuation E.I. DuPont de Nem to arbitrate— ours & Co. v. Rhone Poulenc may proceed adjudicate Fiber Resin the federal court S.A.S., Intermediates, (3d it.”). Cir.2001)). 445-46, 6. 546 U.S. 126 S.Ct. See, Tex., e.g., Oram v. Gen. Am. Oil Co. of (2006). L.Ed.2d 1038 (Tex. 1974). 513 S.W.2d 7. See id. at 444 n. S.Ct. 1204. 403-04, 87 S.Ct. (1967)(''Accordingly, L.Ed.2d 1270 Cull, Perry claim is fraud in the inducement of the arbi- See Homes v. 258 S.W.3d (Tex.2008). goes tration clause itself —an issue which *10 192 place, interpretation: the while defens- The FAA itself declares in first

agreement judicial inducement attack the this issue a one. es like fraudulent agreement actually made. validity of an HECHT, dissenting. Justice is, says agreement no That the former exists; but latter concedes existence the Before a court can Act,1 contests enforcement. under the Federal Arbitration it making must be “satisfied that the of the Brister, the dislike Like Justice ... agreement for arbitration is not contract formation murky line between A challenge validity issue”.2 to the of a validity.1 while I have and contract And containing contract an arbitration provi- of quarrel application no with the Court’s not put making sion does of the arbi- caselaw, I the relevant wish such discus- issue; provision tration itself “as mat- unnecessary. Judicial decisions sion were law, ter of substantive federal arbitration statutory text with more often embroider an arbitration provision is severable from necessary. complexity than is Sometimes A remainder of contract.”3 chal- language enough is clear on its legislative validity lenge pro- judicial pars- own leaves no room for decide; vision itself is for the court to but governed This case is ing sprucing. or parties agree’ “when to arbitrate all dis- Act, and Section 4 the Federal Arbitration putes arising ques- their under answer, straightforward a rather provides concerning tions of the entire declaring disputes relating contract are to be resolved the arbitra- “making” agreement of an arbitration instance, tor in the first a federal or court.2 gateway matters for the example, state court.” Thus for whether mental-incapacity goes Since a defense induced,5 fraudulently the contract was made, to whether an is usurious and therefore ille- (Indeed, it. it’s court must decide difficult gal,6 are issues for arbitration. incompetent person how an can to see challenge But what if the “meeting “make” a contract since a of the it never came into happen being? cannot one of the minds is Since minds” contract”,7 meeting.) The statute is “arbitration is a matter of incapable a nuance-free issue must be one for the court to free of nuance and merits decide. J., Ferrer, (Brister, 346, -, concurring). 4. U.S. 1. 293 S.W.3d at Preston (2008). S.Ct. 169 L.Ed.2d 917 (the par- 4§ 2. 9 court shall order the U.S.C. "upon being satisfied that ties to arbitration Corp. Mfg. 5. v. Flood Prima & Conklin making for arbitration Co., 395, 403-404, U.S. S.Ct. comply or the failure to therewith is not in 1270(1967). L.Ed.2d issue”). §§ 1. 9 U.S.C. 1-16. Buckeye, 6. 546 U.S. 126 S.Ct. 1204. ("The parties, § Id. court shall hear the Inc., Reynolds, v. Dean Witter Howsam making upon being that the satisfied 79, 83, U.S. 123 S.Ct. L.Ed.2d 491 for arbitration or failure (2002) ("This court determined that 'arbi has issue, comply is not in the court therewith party tration is a matter of contract and a directing shall make an order required cannot be to submit to arbitration proceed in accordance with the to arbitration agreed dispute which he has not so agreement.”). terms of the ” (quoting United Steelworkers Am. submit.’ Cashing, Cardegna, Navigation Check Inc. v. Wairior & Gulf 440, 445-446, 574, 582, 4 L.Ed.2d 1409 546 U.S. 126 S.Ct. 80 S.Ct. (2006). (1960))). L.Ed.2d 1038

193 Otherwise, put it; would be in authorize an arbitrator its execution cannot enforce a position deciding person of whether he was who mental capacity sign the lacks it Thus, me, parties’ dispute, the can. it capacity authorized to decide seems lack of that he concluding either was author- is closer to fraudulent inducement than to ized, was, circularity, a or he of logical signature that lack or authorization and by raising bootstraps.8 and himself his own therefore an for the issue arbitrator rather Thus, person by whether a is bound than the judge. a The issue is not “the signed is an making agreement”; agreement contract he never issue the an So, too, person lacking court.9 would seem to be issues a capacity with exists—it Rather, person’s signature happened. whether a on a contract the is whether issue forged,10 person’s agent agreement was whether a is was valid and enforceable. an offer sign,11 authorized to whether The Court reaches the opposite conclu- withdrawn before a was contract was reasons, for two sion neither which is signed.12 First, compelling. notes that Court, party The issue a whether who executed in a footnote distin- capacity a contract lacked mental to do guishing issue of the contract’s va- “[t]he lidity is different. The rule in ... so Texas13 and any issue whether jurisdictions14 concluded”, most other is the con- ... agreement was ever listed tract exists can be or ratified avoided. four cases had been it cited to involv- ing authorization, distinguishes forgery, That issue of and mental ca- signature pacity.15 from issues of or authorization. the Supreme But Court ex- person sign A who did not a contract or on pressed opinion any no of these issues Res., Co., Hence, Will-Drill Inc. v. 8. Samson Res. 352 not void but voidable. as voidable (5th Cir.2003) ("[W]here deed, effectually F.3d 219 accomplishes thing very challenged, an sought accomplished, existence of is to be until set aside in a (citations ordering could result an arbi- suit for rescission cancellation.” deciding omitted)). trator that no ever formed. outcome be a Such an would state- any ment that the never arbitrator had author- Mentally Impaired 14. 53 Am. Jur. 2d Persons issue.”); ity Sphere to decide the Drake Ins. (2006); § § 150 17A C.J.S. Contracts 145 Co., (7th Ltd. v. All Am. Ins. (1999); 5 Samuel Williston & A. Lord, Richard Cir.2001) ("[A]s depends on a val- (4th § A 10:3 Law of Treatise on the Contracts argument id contract an the contract ed.1993); (Second) Restatement Contracts logically does not exist can’t be resolved (1981); § 1 E. Farnsworth, Allan Contracts (unless agree the arbitrator to ar- 2004). (3d § 4.7 ed. arises).”). dispute bitrate this issue after the Cashing, Cardegna, 15. Check Inc. Options Chicago, Kaplan, 9. First Inc. v. 546 U.S. 444 n. 126 S.Ct. 938, 944, S.Ct. 131 L.Ed.2d (2006) (“The L.Ed.2d of the con- issue (1995). validity is tract's different from issue alleged between Co., Robinson-Humphrey 10. Chastain v. obligor obligee was ever Our concluded. Cir.1992). F.2d former, opinion today only addresses speak does not to the issue in the decided Drake, Sphere 256 F.3d at 591. (and respondents cases cited the Florida Court), which hold that it is for Will-Drill, F.3d at alleged obligor courts to decide whether the Co., 13. See Neill v. Oil ever Pure Chastain Robin- (C.A.ll, ref'd) (“It (Tex.Civ.App.-Dallas son-Humphrey writ 957 F.2d 851 state, think, 1992), signor authority is the in this settled law that a whether the lacked by person alleged deed principal, executed mind commit the AB v. unsound Sandvik *12 sources, Inc. v. Samson Resources Co.19 important note the difference not and did that mental inca- and has been criticized for mis- states’ laws Primerica under some separability doctrine. But agreement. applying an preclude not pacity does footnote, think cites Primerica and repeatedly overreads the Will-Drill the Court course, approvingly,20 and the results one cannot be sure. As discusses though entirely in the two cases are consistent. has observed: Ware Professor Primerica that the issue whether a holds long has been a defense to Incapacity made, is invalid is for the though of a contract formed enforcement arbitrator; holds that the issue Will-Drill mentally incompetent person. or a minor made is for whether a contract was ever prevent incapacity does Such if Primerica was the court. And even a contract. So under the formation of concluding in was mistaken distinction between Court’s simply for because it an issue (“whether formation contract’s whole, to a contract as a challenge was a concluded”) ... ever and mean that the result was that does not (“the contract’s defenses to enforcement Ware summa- Again, incorrect. Professor plainly falls in the validity”), incapacity rizes: category and thus should be re- latter questions hear about mu- rather than courts. would [C]ourts

solved arbitrators assent, consideration, authority tual and Buckeye Court Yet others, while together with lack of to assent on behalf of send- incapacity grouped about ing questions both of which fall to arbitrators mis- agency, assent (fraud (formation) in the induce- category representation the former into held, ment), mistake, duress, influence, which, Options First are undue both unconscionability, incapacity, impractica- courts rather than arbitra- resolved possible bility, purpose, frustration of the statute pre- it is that —when tors. So frauds, limitations, incapacity an the statute of ille- with case—the sented (or expiration group incapacity gality “public policy”), will continue to However, termination. these latter agency lack of assent and and treat with courts, only are sent to the arbitrator questions all as for rather issues them con- they challenges Time will tell.16 container than arbitrators.... whole; if they tract as a are “directed Second, between the two cases on the as itself,” they then the arbitration clause us, the Tenth Circuit’s deci- issue before by courts.21 are heard Secco,17 the Fifth Spahr sion in issue, there Apart in Primerica Ins. from the merits of decision Circuit’s Life Brown,18 to hold that mental inca- picks Spahr the Court is another reason Co. the Fifth pacity reached “a for the arbitrator: Cir- because the Fifth Circuit decid- empha- has result” in Will-Drill Re- cuit has done so. This Court edly different 2000); (10th Cir.2003). (C.A.3, Corp., Int’l 220 F.3d 99 17. 330 F.3d 1266 Advent v. All Sphere Drake Ins. Ltd. American Ins. (C.A.7, 2001), and whether the 256 F.3d 587 (5th Cir.2002). 18. 304 F.3d assent, signor capacity to lacked the mental Secco, (C.A.10, Spahr v. 330 F.3d 1266 211,219 Cir.2003). F.3d 19. 352 2003).”). 214-215, 218 n. 41-42. Id. at Ware, Separa- Stephen J. Arbitration Law’s bility Cashing, Doctrine Check after (footnotes Ware, supra note at 115-116 Cardegna, Inc. v. 8 Nev. L.J. (footnotes omitted). omitted). (2007) past important sized in the “it is

federal and state law to be as consistent as FAA],

possible [applying because TEXAS DEPARTMENT OF *13 federal and state courts have concurrent TRANSPORTATION, jurisdiction to enforce the FAA.”22 Feder- Petitioner, al courts in Texas must follow the Fifth

Circuit, and state courts must follow this today, Court. After whether an issue of Sergio GARCIA, Respondent . mental capacity is for the court or arbitra- tor in the depend first instance will on No. 07-1030. whether arbitration sought is state or federal Today’s court. decision encour- Supreme Court of Texas.

ages the forum-shopping the Court has Aug.

tried hard avoid. out, points

As Justice BristeR the mat- may

ter up being end a small one. Helen

Taylor’s guardian initially sued for breach

of her Morgan Stanley, contract with then dropped that claim he when realized he Greg Abbott, W. Attorney General of could not stand on the contract and disa- Texas, Morales, David S. Kristina Weber provision vow at the same Silcocks, Cruz, Rafael Edward Walter C. guardian time. The Morgan now sues Brocato, Office Attorney General of Stanley fiduciary duty for breach of arising Texas, Garza, Henry De La Asst. Attorney out of relationship Taylor between General, Ho, James C. Morgan Stanley, for Solicitor General of recommending unsui- Texas, Davis, table transactions in violation of state se- Bill Office of the Attorney laws, negligence. curities and for But the Texas, General of Office of Solicitor Gener- relationship Taylor between Morgan al, Sullivan, Austin, TX, Kent Ryan C. D. Stanley was created and defined their Clinton, TX, Levinger, Hankinson Dallas guardian contract. If the proves the con- for Petitioner. invalid, tract Taylor Stanley simply strangers, Zayas, Zayas Hernandez, were Richard E. clear what duty Morgan Stanley or P.C., owed Brownsville, TX, for Respondent. breached. The goes way out of its guardian to work the through prob- PER CURIAM. himself,23

lems he has made but repudiating any contract to avoid arbitra- Sergio Garcia Depart sued the Texas tion, may he well have cut off his arbitra- (TxDOT) Transportation ment of under spite tion nose to litigation his face. Act, the Texas Whistleblower alleging that he respectfully resign was forced to dissent. based on two

incidents in reported which he violations law to the “enforcement authorities within TxDOT plea [TxDOT].” filed a jurisdiction suit, immunity based on Root, Inc., Kellogg In re Brown & 23. Ante at-. (Tex.2005).