Olshan Foundation Repair Company v. Remigio E. Ayala and Martha Ayala--Appeal from 225th Judicial District Court of Bexar County

DISSENTING OPINION

No. 04-04-00829-CV

OLSHAN FOUNDATION REPAIR COMPANY,

Appellant

v.

Remigio E. AYALA and Martha Ayala,

Appellees

From the 225th Judicial District Court, Bexar County, Texas

Trial Court No. 2001-CI-12719

Honorable David A. Berchelmann, Jr., Judge Presiding

Opinion by: Catherine Stone, Justice

Dissenting opinion by: Karen Angelini, Justice

Sitting: Catherine Stone, Justice

Karen Angelini, Justice

Phylis J. Speedlin, Justice

Delivered and Filed: September 7, 2005

In one issue, Olshan contends that the trial court abused its discretion in denying Olshan s application for arbitration on the grounds that it was unconscionable. Because I agree with Olshan, I would reverse the trial court s order, and would remand the cause to the trial court for entry of an order compelling arbitration . For these reasons, I respectfully dissent.

UNCONSCIONABILITY OF THE ARBITRATION AGREEMENT

An agreement to arbitrate is valid and enforceable absent grounds for the revocation of a contract, such as unconscionability. See TEX. CIV. PRAC. & REM. CODE ANN. 171.001 (Vernon Supp. 2005); Pony Express Carrier Corp. V. Morris, 921 S.W.2d 817, 821 (Tex. App. San Antonio 1996, no writ). The basic test for unconscionability is whether, given the parties general commercial background and the commercial needs of the particular trade or case, the arbitration clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (orig. proceeding). Unconscionability includes two aspects: (1) procedural unconscionability, which refers to the circumstances surrounding the adoption of the arbitration provision; and (2) substantive unconscionability, which refers to the fairness of the arbitration provision itself. In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (orig. proceeding). Courts may consider both procedural and substantive unconscionability of an arbitration clause in evaluating the validity of an arbitration provision. Id. at 572.

Here, the Ayalas argue that the cost of the proposed arbitration was so prohibitive as to render the arbitration agreement substantively unconscionable. Both the United States and Texas Supreme Courts have recognized the possibility that the excessive costs of an arbitration might, under certain circumstances, render an arbitration agreement unconscionable. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000) (noting that the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her . . . rights in the arbitral forum ); In re FirstMerit Bank,52 S.W.3d at 757. In both Green Tree and In re FirstMerit, the party resisting arbitration raised an unconscionability defense based upon the allegation that they would be subjected to excessive arbitration fees. See Green Tree, 531 U.S. at 80-81; In re FirstMerit Bank, 52 S.W.3d at 756-57. In both cases, because the party opposed to the arbitration failed to produce sufficient evidence of cost, the United States and Texas Supreme Courts declined to reach a decision on whether the agreements were unconscionable. See Green Tree, 531 U.S. at 90 n.6 (holding evidence insufficient to defeat arbitration where party opposing arbitration supported motion with evidence of AAA figures on arbitration costs, but failed to show that AAA would actually conduct the arbitration or charge her the fees she identified); In re FirstMerit Bank, 52 S.W.3d at 756-57 (holding evidence legally insufficient to defeat arbitration where party opposing arbitration testified that AAA charged a minimum $2,000 filing fee and a $250/day/party hearing fee, along with several other unspecified fees, for hearings before a three-member panel, but presented no evidence that AAA would conduct arbitration). While neither court specified what quantum of proof is necessary to meet that burden, the Texas Supreme Court did note that there is no doubt that some specific information of future costs is required. In re First Merit, 52 S.W.3d at 756; see also Green Tree, 531 U.S. at 91 (holding that the mere possibility or risk that a plaintiff might bear such costs was too speculative). Here, relying on this language, the Ayalas cite the decisions in Green Tree and In re FirstMerit as authority for the proposition that a party opposing arbitration need only make some specific showing of actual cost to avoid enforcement of the arbitration agreement. Applying this reasoning, the Ayalas presented the trial court with a copy of an invoice from the AAA showing that they owed $33,150.00, payment due upon receipt, for their part of the arbitration expenses. // Alleging that this amount represented approximately twenty-eight percent of their combined gross annual income, the Ayalas argued that these arbitration costs were excessive and would preclude them from bringing their claims against Olshan. While I do not dispute the Ayalas allegations that these costs of arbitration are high, their claim of oppressive fees ignores the antecedent question of whether the arbitration agreement was unconscionable at the time it was made. See TEX. CIV. PRAC. & REM. CODE ANN. 171.022 (Vernon 2005) ( A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time the agreement was made ) (emphasis added).

The determination of whether or not arbitration fees make the agreement to arbitrate unconscionable is a matter that must be determined on a case-by-case basis in light of the state law governing contracts. Compare J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003) (holding that arbitration agreements are interpreted under general contract principles), with Green Tree, 531 U.S. at 90-92 (addressing arbitration with respect to federal statutory claims). Under Texas law, in determining whether a contract is unconscionable, we consider only the circumstances as they existed at contract formation. See Tex. Bus. & Com. Code Ann. 2.302(a) (Vernon 1994); see also El Paso Natural Gas Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 61 (Tex. App. Amarillo 1997) (holding that [unconscionability] must be assessed as of the time it occurred, not via hindsight ), rev d on other grounds, 8 S.W.3d 309 (Tex. 1999). Here, in my review of the record, it is clear that the Ayalas neither argued, nor did the trial court consider, the facts and circumstances as they existed at the time the arbitration agreement was made, choosing instead to focus on their alleged current inability to pay the fees. Holding this provision unconscionable based on this evidence would negate the long-standing public policy in favor of arbitration. Therefore, after carefully reviewing the record, I conclude that the trial court abused its discretion in finding the arbitration agreement unconscionable and unenforceable as a matter of law.

Karen Angelini, Justice