Lead Opinion
delivered the opinion of the Court.
This interlocutory appeal involves the enforceability of an arbitration provision in an attorney-client employment contract. The provision specifies that the client and firm will arbitrate disputes that arise between them, except for claims made by firm for recovery of its fees and expenses. After the underlying matter was settled, the client sued the firm. The trial court denied the firm’s motion to order the dispute to arbitration. On interlocutory appeal, the court of appeals affirmed on the basis that the arbitration provision is substantively unconscionable and unenforceable.
We conclude that the client did not prove that either the arbitration provision is substantively unconscionable or any other defense to the arbitration provision. Accordingly, the judgment of the court of
I. Background
Francisco Lopez hired Royston, Rayzor, Vickery, & Williams, LLP to represent him in a suit for divorce from his alleged common-law wife who won $11 million in the lottery. The two-page employment contract between Lopez and Royston, Ray-zor contained the following arbitration provision:
While we would hope that no dispute would ever arise out of our representation or this Employment Contract, you and the firm agree that any disputes arising out of or connected with this agreement (including, but not limited to the services performed by any attorney under this agreement) shall be submitted to binding arbitration in Nueces County, Texas, in accordance with appropriate statutes of the State of Texas and the Commercial Arbitration Rules of the American Arbitration Association (except, however, that this does not apply to any claims made by the firm for the recovery of its fees and expenses).
Royston, Rayzor then filed suit for divorce on Lopez’s behalf, the trial court ordered the parties in the divorce suit to mediation, and they settled. Lopez later sued Roy-ston, Rayzor, claiming the firm induced him to accept an inadequate settlement. The firm moved to compel arbitration under both the Texas Arbitration Act (Arbitration Act), and common law. See Tex. Civ. Prac. & Rem. Code §§ 171.001-.098; see also L.H. Lacy Co. v. City of Lubbock,
Royston, Rayzor filed both an interlocutory appeal challenging the denial under the Arbitration Act, and an original proceeding seeking mandamus relief under common law. Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez,
As an initial part of its analysis, the appeals court considered whether Lopez was required to show that the arbitration provision was both procedurally and substantively unconscionable. Id. at 203-04. It concluded that he needed to show only one or the other. Id. at 204. The court, then concluded that the provision was so one-sided it was substantively unconscionable and unenforceable. Id. at 206.
In cause number 13-1026, Royston, Ray-zor seeks relief from the court of appeals’ judgment denying its interlocutory appeal, and in cause number 14-0109, it seeks mandamus relief directing the trial court to order arbitration. In 13-1026, the firm challenges the two determinations on which the court of appeals affirmed the trial court’s order. It also urges that we consider Lopez’s remaining defenses to arbitration even though the court of appeals did not reach them, hold that they are also invalid, reverse the court of appeals’ judg
Lopez responds by urging that we affirm the lower courts’ decisions for several reasons: (1) the court of appeals correctly determined that an arbitration provision need not be,both procedurally and substantively unconscionable to be unenforceable, and this provision is substantively unconscionable because it is excessively one-sided; (2) the arbitration provision was entered into in the context of Lopez’s agreeing to become a client of the law firm, and given that context it violates public policy; (3) Lopez’s status as a prospective client shifted the burden of proof to Royston, Rayzor to establish it met its ethical obligation to explain the effects of the arbitration provision to him and Roy-ston, Rayzor did not do so; and (4) the arbitration provision is illusory because it allows Royston, Rayzor to avoid arbitration as to its fee disputes while requiring Lopez to arbitrate all his disputes.
II. Standard of Review
Arbitration agreements can be enforced under either statutory provisions or the common law. L.H. Lacy Co.,
III. Analysis
We first address the unconscionability issue which was the basis for the court of appeals’ decision. Because we reverse on that issue and resolve the appeal by means of Royston, Rayzor’s interlocutory appeal under the Arbitration Act, we do not address the firm’s petition for writ of mandamus. See Walker v. Packer,
A. Unconscionability
Arbitration agreements maybe either substantively or procedurally unconscionable, or both. See In re Halliburton Co.,
As noted previously, the court of appeals agreed with Lopez’s argument that the agreement was substantively unconscionable.
Next, the court of appeals stated that Lopez did not have an evidentiary burden with respect to his contention that the arbitration provision was unconscionable.
[U]nder Texas law, as with any other contract, agreements to arbitrate are valid unless grounds exist at law or in equity for revocation of the agreement. The burden of proving such a ground— such as fraud, unconscionability or voidness under public policy — falls on the party opposing the contract.
In re Poly-Am.,
Third, the appeals court specified three reasons on which it based its “one-sidedness” conclusion: (1) the contract gave Royston, Rayzor the right to withdraw as counsel at any time for any reason; (2) the arbitration provision facially favored Roy-ston, Rayzor by giving it the right to litigate claims for its fees and expenses while compelling Lopez to arbitrate all his disputes; and (3) the contract provided that regardless of the outcome of the claims in the underlying divorce action, Lopez would be solely responsible for all costs and ex
As the court of appeals noted, the attorney-client contract gave Royston, Rayzor the right to withdraw from representing Lopez at any time, for any reason, and it also required Lopez to pay costs and expenses of the divorce suit regardless of its outcome. But regardless of whether either or both of those provisions are so one-sided that the contract is unenforceable, a question we do not decide, they relate to the contract as a whole. And challenges relating to an entire contract will not invalidate an arbitration provision in the contract; rather, challenges to an arbitration provision in a contract must be directed specifically to that provision. See In re Labatt Food Serv., L.P.,
Which leaves the second reason the court of appeals gave for its conclusion that the arbitration provision was so one-sided as to be unconscionable: the provision favored Royston, Rayzor by excepting from the provision the claims it made for fees and expenses while compel-Liig Lopez to arbitrate all his disputes. But, as the court of appeals pointed out earlier in its opinion, an arbitration agreement is not so one-sided as to be unconscionable just because certain claims are excepted from those to be arbitrated.
In support of the court of appeals’ decision, Lopez argues that the language of the arbitration provision itself is evidence of its unconscionability. We disagree. In analyzing the provision for unconscionability, we begin with the rule that, as a party to the written agreement, Lopez is presumed to have knowledge of and understand its contents. In re Bank One,
Additionally, Lopez does not focus on whether the arbitration provision deprives him of a substantive right, but even if he seriously contended that it did, it does not. A substantive right is generally understood to be “[a] right that can be protected or enforced by law; a right of substance rather than form.” Black’s Law Dictionary 1349 (8th ed. 2004). The provision does not unduly burden Lopez’s substantive rights merely because it requires some, but not all, claims between the parties to be arbitrated. Final and binding resolution of a dispute by arbitration is an accepted and adequate alternative to its resolution by a judge or jury.
And lastly, although Lopez counters Royston, Rayzor’s contention that he offered no evidence of unconscionability, in part, by arguing that he did not need to present evidence because he was prevailing in the hearing on Royston, Rayzor’s motion to compel arbitration, the record does not substantiate that position. The hearing transcript shows that after introducing the employment contract, Royston, Rayzor’s counsel repeatedly argued that Lopez had the burden to prove a defense in order to avoid arbitration, and that he had not submitted any evidence to do so. The trial court questioned attorneys for both parties about the lack of evidence concerning whether Royston, Rayzor advised Lopez regarding the advantages and disadvantages of arbitration. Lopez’s counsel did not intimate that evidence other than the contract existed or could be presented, and specified that Lopez was choosing to rely only on the language of the employment agreement and arbitration provision:
[W]e did present evidence. The evidence is their contract.... We choose to rely on the language of their contract. ... Our position [is] the language in their contract itself with regard to [the] arbitration provision specifically does not put [Lopez] on notice of that and so we are relying on that evidence, ... then I believe the burden shifts back to them to have to disprove that.
In sum, although the provision was one-sided in the sense that it excepted any fee claims by Royston, Razor from its scope, excepting that one type of dispute does not make the agreement so grossly one-sided so as to be unconscionable. See In re FirstMerit Bank,
We agree with Royston, Rayzor that Lopez did not prove the arbitration provision is substantively unconscionable. But if he had, then we agree with the court of appeals that it would be unenforceable regardless of whether it is procedurally unconscionable. An arbitration agreement is unenforceable if it is procedurally unconscionable, substantively unconscionable, or both. See In re Halliburton Co.,
We next consider Lopez’s assertion that the arbitration provision is unenforceable because it violates public policy.
B. Public Policy
Attorney-client arbitration agreements are the subject of ongoing debate. See Jean Fleming Powers, Ethical Implications of Attorneys Requiring Clients to Submit Malpractice Claims to ADR, 38 S. Tex. L. Rev. 625 (1997); Robert J. Kraemer, Attorney-Client Conundrum: The Use of Arbitration Agreements for Legal Malpractice in Texas, 33 St. Mary’s L.J. 909 (2002). The debate arises because of two competing policies: the policy of holding
In Hoover Slovacek, the court of appeals held that a fee provision in an attorney-client agreement was so one-sided as to be unconscionable.
The [Professional Ethics] Committee is of the opinion that [Rule 1.03(b) ] applies when a lawyer asks a prospective client to agree to binding arbitration in an engagement agreement. In order to meet the requirements of Rule 1.03(b), the lawyer should explain the significant advantages and disadvantages of binding arbitration to the extent the lawyer reasonably believes is necessary for an informed decision by the client.
Tex. Comm, on Profl Ethics, Op. 586, 72 Tex. B.J. 128 (2009). In essence, Lopez argues that the standard in Disciplinary Rule 1.03(b), providing that “[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation,” applies to prospective clients. He also argues that Royston, Rayzor had the burden to. show that the explanations were made.
Royston, Rayzor maintains that the Disciplinary Rules and Professional Ethics Committee opinions .are advisory and do not impose legal duties. The firm further argues that even if the rule and opinion apply in whole or part so it had a duty to explain something to Lopez, it was Lopez who had the burden to prove that the explanations were not made. We agree with the firm.
The Disciplinary Rules are not binding as to substantive law regarding attorneys, although they inform that law. In re Meador,
It is by now axiomatic that legislative enactments generally establish public policy. See, e.g., id.; Tex. Commerce Bank, N.A. v. Grizzle,
Courts must exercise judicial restraint in deciding whether to hold arm’s-length contracts void on public policy grounds: Public policy, some courts have said, is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well-established rule of law.
Lawrence v. CDB Servs., Inc.,
It is true that public policy is not solely established through legislative enactments and may be informed by the Disciplinary Rules. But where the Legislature has addressed a matter, as it has addressed the enforceability of arbitration provisions, we are constrained to defer to that expression of policy. See Liberty Mut. Ins. Co. v. Adcock,
Noting again that our decision is not intended to diminish or address any applicable ethical obligations of Royston, Ray-zor, but rather is intended to address legal obligations between the parties, we conclude that the arbitration provision is not unenforceable on the basis that it violates public policy.
C. Illusory
Last, we address Lopez’s claim that the arbitration provision is illusory because it binds Lopez to arbitrate all his claims against Royston, Rayzor, while excluding the only possible claim the firm might ever realistically make against him. Royston, Rayzor responds that Lopez’s position completely misses the mark as to what comprises an illusory agreement. The firm urges that Lopez’s illusory defense fails because consideration exists for the provision and Royston, Rayzor cannot avoid its promise to arbitrate all claims within the scope of the arbitration provision by, for example, unilaterally amending or terminating the provision. We agree with Royston, Rayzor.
Promises are illusory and unenforceable if they lack bargained-for consideration because they fail to bind the promisor. See In re 24R, Inc.,
Words of promise which by their terms make performance entirely optional, with the “promisor” do not constitute a promise.... [Because while] there might theoretically be a bargain to pay for the utterance of the words, ... in practice it is performance which is bargained for. Where the apparent assurance of performance is illusory, it is not consideration for a return promise.
Restatement (Second) of Contracts § 77 cmt. a (1981) (internal citations omitted). The same applies in the arbitration agreement context. An arbitration agreement is illusory if it binds one party to arbitrate, while allowing the other to choose whether to arbitrate. And an arbitration provision that is part of a larger underlying contract may be supported by the consideration supporting the underlying contract. In re AdvancePCS Health, L.P.,
The provision here binds both Royston, Rayzor and Lopez as to their claims other than those specifically excluded. It does not allow either party to unilaterally escape or modify the obligation to arbitrate
IY. Conclusion
Lopez did not prove a defense to arbitration. We reverse the judgment of the court of appeals in cause number 13-1026 and remand that cause to the trial court for further proceedings consistent with this opinion. The petition for writ of mandamus in cause number 14-0109 is denied.
Notes
. Johnson v. Brewer & Pritchard, P.C.,
Concurrence Opinion
joined by Justice-Lehrmann and Justice Devine, concurring.
We have long observed that attorneys have an ethical obligation to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”
As written, the Disciplinary Rules do not speak directly to arbitration agreements; however, attorneys are under a general obligation to provide enough information about a matter so that the client can make informed decisions regarding the representation.
As a court, we are constitutionally and statutorily charged with promoting and enforcing ethical behavior by attorneys.
“In Texas, we hold attorneys to the highest standards of ethical conduct in their dealings with their clients. The duty is highest when the attorney contracts with his or her client or otherwise takes a position adverse to his or her client’s interests. As Justice Cardozo observed, ‘[a fiduciary] is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.’ ”4
Attorneys must therefore demean themselves “ ‘with inveterate honesty and loyalty, always keeping the client’s best interest in mind.’ ”
Arbitration agreements between attorneys and their clients are not inherently unethical.
Vulnerable or unsophisticated clients are less likely to fully appreciate the implications of an arbitration agreement, understand the arbitration process and its procedures, or seek independent counsel regarding the costs and benefits of arbitration.
With these additional thoughts, I join the Court’s opinion.
. Tex. Disciplinary Rules Prof'l Conduct R. 1.03(b), reprinted in Tex. Gov't Code, tit. 2, subtit. G, App. A (Tex. State Bar R. art. X, § 9).
. Id.-, cf. id. R. 1.08(a) (prohibiting lawyer from entering into a business transaction with a client unless (1) the transaction and terms “are fair and reasonable to the client and are fully disclosed in a manner which can be reasonably understood by the client”; (2) the client has a reasonable opportunity to seek independent counsel; and (3) the client consents in writing).
. See Tex. Const, art. V, § 31;Tex. Gov’t Code §§ 81.024, .071-072; see also Tex. Rules Disciplinary P. preamble, reprinted in Tex. Gov’t Code, tit. 2, subtit. G, App. A-l (“The Supreme Court of Texas has the constitutional and statutory responsibility within the State for the lawyer discipline and disability system, and has inherent power to maintain appropriate standards of professional conduct-”).
. Hoover Slovacek LLP v. Walton,
. Id. at 561.
. See Tex. Comm. On Prof’l Ethics, Op. 586, 72 Tex. B.J. 128 (2008) (binding arbitration provision is permissible in engagement agreement if the terms would not be unfair to a typical client, the client is aware of the significant advantages and disadvantages of arbitration, and the arbitration provision does not limit liability for malpractice); ABA Comm on Ethics & Prof’l Responsibility, Formal Op. 02-425 (2002) (holding similarly); see also Restatement (Third) of The Law Governing Lawyers § 54 cmt. b .(acknowledging that arbitration agreements between lawyers and clients are permissible if “the client receives proper notice of the scope and effect of the agreement” and such agreements are enforceable in the relevant jurisdiction).
. See Jack B. Anglin Co., Inc. v. Tipps,
. See Lopez, 22 S.W.3d at 867 (Gonzales, J., concurring and dissenting) ("A lawyer and client’s negotiations are often imbalanced in favor of the lawyer because of information inequalities and the client's customary reliance on the lawyer’s legal advice.”); Jean Fleming Powers, Ethical Implications of Attorneys Requiring Clients to Submit Malpractice Claims to ADR, 38 S. Tex. L. Rev. 625, 648 (1997).
. See, e.g., In re Pham,
