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1301 SOLANA BLVD
llp.com
BLDG 1 SUITE 1545
W ESTLAKE, TX 76262
bbains@l-llp.com
DIR 214 722 7171
September 23, 2016
Via Electronic Filing and Hand Delivery
The Honorable Dale Tillery
Dallas County District Court
134th District Court
600 Commerce Street
Suite 650, 6th Floor West
Dallas, Texas 75202
Re: Seminole Hospital District of Gaines County, Texas v. BancTec, Inc., Cause No.
-15-14169
Dear Judge Tillery:
Courts should use care not to intrude upon arbitral jurisdiction under the guise of an
unconscionability defense Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014)
Summary
At the conclusion of the hearing on September 19, the Court invited further briefing in
connection with BancTec’s Motion to Compel the contractually agreed dispute resolution
procedures. These procedures should be compelled for three reasons:
Public policy strongly favors arbitration, and courts indulge every reasonable
presumption in favor of enforcing a valid arbitration agreement. Venture Cotton does
not alter this presumption. Venture Cotton was a case confined to a specific set of
facts, and it does not stand for the proposition that DTPA claims prevent a dispute
from going to arbitration, as Seminole has argued.
Seminole’s real complaint is with a separate section of the contract that addresses
limitation of liability, not the arbitration clause itself. This too distinguishes this case
from Venture Cotton. Even if the limitation of liability was void (which it is not), this
would not preclude enforcement of the separate and distinct dispute resolution
clauses.
Courts decided whether there is an agreement to arbitrate and there is no real dispute
that the clause in this contract is valid. Whether the separate clauses limiting liability
are valid within the discretion of the arbitrator.
LANGLEY LLP
The Honorable Dale Tillery
September 23, 2016
Page 2
Venture Cotton is a Narrow Holding
Arbitration clauses are almost always enforced, subject to a narrow exception where the
arbitration clause itself contains a defect. Even in those situations, the problematic part of the
arbitration clause is severed so that arbitration can still be enforced. That was the issue in
Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014). There, arbitration was
compelled. Seminole’s argument that Venture Cotton has broad application and is precedent for
not compelling arbitration is simply inaccurate.
Venture Cotton does not stand for the proposition that DTPA claims prevent a dispute
from going to arbitration. This makes sense. If Seminole’s argument was correct, every
arbitration clause would be rendered meaningless because a party would simply need to allege a
DTPA claim. That argument proves too much.
Seminole Attacks a Provision of the “Container Contract” rather than the Arbitration
Clause
It is Seminole’s burden to prove that its challenge is truly to the arbitration clause and not
another provision in the contract. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001).
“Unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is
considered by the arbitrator in the first instance.” Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 445–45 (2006); see also In re FirstMerit Bank, 52 S.W.3d at 756 (emphasizing that
challenges to arbitration, including unconscionability, must target the arbitration provision rather
than the contract as a whole). Seminole has not – and cannot – meet this burden.
In Venture Cotton, the arbitration provision itself was the clause under attack. That
arbitration clause incorporated rules from the American Cotton Shippers Association, and those
rules eliminated attorney’s fees in arbitration. 435 S.W.3d at 226, 229. The Court held the
attorney’s fees portion of the arbitration provision was invalid, and the Court took that part out
so the parties could proceed with arbitration. Id. at 230–32. That Court cautioned, however,
“Courts should use care not to intrude upon arbitral jurisdiction under the guise of an
unconscionability defense. . . . Questions of waiver, illegality, remedies, and attorney’s fees often
relate to the broader, container contract, rather than the separable agreement to arbitrate, and, as
such, are matters entrusted to the arbitrators.” Id. at 232.
Seminole’s argument that section 11.4 is unconscionable targets a provision in the
“container contract,” not the arbitration provision, which is section 13.4. In an exercise
reminiscent of Six Degrees of Kevin Bacon, Seminole has come up with a new argument after the
hearing that section 11.4 is actually part of section 13.4 via two layers of incorporation by
reference (one layer being section 13.4’s reference to the AAA Commercial Arbitration Rules,
and the second layer being those rules’ indirect incorporation of section 11.4 into section 13.4).
LANGLEY LLP
The Honorable Dale Tillery
September 23, 2016
Page 3
This argument also proves too much. Accepting this argument would lead to the absurd
result of invalidating arbitration provisions that reference the AAA Commercial Arbitration
Rules – an extremely common occurrence. That result additionally obliterates the distinction
between an arbitration agreement and the “container contract” that courts have respected, and it
threatens the public policy of favoring arbitration. See Prudential Secs. Inc. v. Marshall, 909
S.W.2d 896, 898 (Tex. 1995) (emphasizing that public policy); Jack B. Anglin Co., Inc. v. Tipps,
842 S.W.2d 266, 268 (Tex. 1992) (same).
The Enforceability of Section 11.4 is for the Arbitrator to Decide
There is no dispute by Seminole that section 13.4 covers its claims. As briefed and
discussed at length, BancTec has not substantially invoked the judicial process. Accordingly, this
Court need not decide Seminole’s argument concerning section 11.4; that issue is subject to
arbitration. Buckeye Check Cashing, 546 U.S. at 445–45; In re FirstMerit Bank, 52 S.W.3d at
756.
Respectfully,
Brandon Bains
cc: Via Electronic Service and Email
Benjamin H. Hathaway
816 Congress Avenue, Suite 1200
Austin, Texas 78701
BHathaway@rrsfirm.com
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1301 SOLANA BLVD llp.com BLDG 1 SUITE 1545 W ESTLAKE, TX 76262 bbains@l-llp.com DIR 214 722 7171 September 23, 2016 Via Electronic Filing and Hand Delivery The Honorable Dale Tillery Dallas County District Court 134th District Court 600 Commerce Street Suite 650, 6th Floor West Dallas, Texas 75202 Re: Seminole Hospital District of Gaines County, Texas v. BancTec, Inc., Cause No. -15-14169 Dear Judge Tillery: Courts should use care not to intrude upon arbitral jurisdiction under the guise of an unconscionability defense Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014) Summary At the conclusion of the hearing on September 19, the Court invited further briefing in connection with BancTec’s Motion to Compel the contractually agreed dispute resolution procedures. These procedures should be compelled for three reasons: Public policy strongly favors arbitration, and courts indulge every reasonable presumption in favor of enforcing a valid arbitration agreement. Venture Cotton does not alter this presumption. Venture Cotton was a case confined to a specific set of facts, and it does not stand for the proposition that DTPA claims prevent a dispute from going to arbitration, as Seminole has argued. Seminole’s real complaint is with a separate section of the contract that addresses limitation of liability, not the arbitration clause itself. This too distinguishes this case from Venture Cotton. Even if the limitation of liability was void (which it is not), this would not preclude enforcement of the separate and distinct dispute resolution clauses. Courts decided whether there is an agreement to arbitrate and there is no real dispute that the clause in this contract is valid. Whether the separate clauses limiting liability are valid within the discretion of the arbitrator. LANGLEY LLP The Honorable Dale Tillery September 23, 2016 Page 2 Venture Cotton is a Narrow Holding Arbitration clauses are almost always enforced, subject to a narrow exception where the arbitration clause itself contains a defect. Even in those situations, the problematic part of the arbitration clause is severed so that arbitration can still be enforced. That was the issue in Venture Cotton Co-op v. Freeman, 435 S.W.3d 222 (Tex. 2014). There, arbitration was compelled. Seminole’s argument that Venture Cotton has broad application and is precedent for not compelling arbitration is simply inaccurate. Venture Cotton does not stand for the proposition that DTPA claims prevent a dispute from going to arbitration. This makes sense. If Seminole’s argument was correct, every arbitration clause would be rendered meaningless because a party would simply need to allege a DTPA claim. That argument proves too much. Seminole Attacks a Provision of the “Container Contract” rather than the Arbitration Clause It is Seminole’s burden to prove that its challenge is truly to the arbitration clause and not another provision in the contract. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). “Unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–45 (2006); see also In re FirstMerit Bank, 52 S.W.3d at 756 (emphasizing that challenges to arbitration, including unconscionability, must target the arbitration provision rather than the contract as a whole). Seminole has not – and cannot – meet this burden. In Venture Cotton, the arbitration provision itself was the clause under attack. That arbitration clause incorporated rules from the American Cotton Shippers Association, and those rules eliminated attorney’s fees in arbitration. 435 S.W.3d at 226, 229. The Court held the attorney’s fees portion of the arbitration provision was invalid, and the Court took that part out so the parties could proceed with arbitration. Id. at 230–32. That Court cautioned, however, “Courts should use care not to intrude upon arbitral jurisdiction under the guise of an unconscionability defense. . . . Questions of waiver, illegality, remedies, and attorney’s fees often relate to the broader, container contract, rather than the separable agreement to arbitrate, and, as such, are matters entrusted to the arbitrators.” Id. at 232. Seminole’s argument that section 11.4 is unconscionable targets a provision in the “container contract,” not the arbitration provision, which is section 13.4. In an exercise reminiscent of Six Degrees of Kevin Bacon, Seminole has come up with a new argument after the hearing that section 11.4 is actually part of section 13.4 via two layers of incorporation by reference (one layer being section 13.4’s reference to the AAA Commercial Arbitration Rules, and the second layer being those rules’ indirect incorporation of section 11.4 into section 13.4). LANGLEY LLP The Honorable Dale Tillery September 23, 2016 Page 3 This argument also proves too much. Accepting this argument would lead to the absurd result of invalidating arbitration provisions that reference the AAA Commercial Arbitration Rules – an extremely common occurrence. That result additionally obliterates the distinction between an arbitration agreement and the “container contract” that courts have respected, and it threatens the public policy of favoring arbitration. See Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (emphasizing that public policy); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992) (same). The Enforceability of Section 11.4 is for the Arbitrator to Decide There is no dispute by Seminole that section 13.4 covers its claims. As briefed and discussed at length, BancTec has not substantially invoked the judicial process. Accordingly, this Court need not decide Seminole’s argument concerning section 11.4; that issue is subject to arbitration. Buckeye Check Cashing, 546 U.S. at 445–45; In re FirstMerit Bank, 52 S.W.3d at 756. Respectfully, Brandon Bains cc: Via Electronic Service and Email Benjamin H. Hathaway 816 Congress Avenue, Suite 1200 Austin, Texas 78701 BHathaway@rrsfirm.com