law-unconscionable arbitration agreement provision | Confirmation of arb award | agreement to arbitrate
| against public policy
Procedural Unconscionability Due to Inconspicious Print
In their second issue, the Fogals assert that "the trial court erred in compelling arbitration where the agreement
to arbitration was unconscionable and inconspicuous." The Fogals contend that the clause is procedurally
unconscionable under the public policy of Texas, as now codified in Texas Property Code section 420.003.
If an agreement to arbitrate exists encompassing the claims in question, and the party opposing arbitration has
failed to prove its defenses, then a trial court has no discretion; its only option is to compel arbitration. In re
FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001). In the context of enforcement of an arbitration
agreement, defenses refer to unconscionability, duress, fraudulent inducement, and revocation. Id. at 756.
Procedural unconscionability refers to the fairness of the circumstances surrounding adoption of the arbitration
clause. See In re Luna, 175 S.W.3d 315, 319 (Tex. App.--Houston [1st Dist.] 2004, orig. proceeding). Texas
Property Code section 420.003 provides that after September 1, 2007 an arbitration clause in a new-home
contract must "be conspicuously printed or typed in a size equal to at least 10-point bold type or the computer
equivalent." See Tex. Prop. Code Ann. § 420.003 (Vernon Supp. 2008). The legislative note to the statute
states that "this Act applies only to [new homes that are required to be registered under the comprehensive
act] that are filed on or after September 1, 2007." See id. The public policy of Texas, therefore, is to now
require the conspicuous printing. See Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653, 665
(Tex. 2008) ( "The legislature determines public policy through the statutes it passes."). Because the Fogals'
agreement was signed prior to 2007, section 420.003 does not apply to this agreement. See Tex. Prop. Code
Ann. § 420.003. We hold the Fogals' agreement does not violate the policy as stated in section 420.003
because that section does not apply to this agreement due to the effective date of the section. See id.
To the extent that the Fogals are asserting a policy argument concerning the conspicuousness of the print
other than as codified in section 420.003, we conclude the argument is waived due to inadequate briefing. See
Tex. R. App. P. 38.1(h). In their brief, the Fogals state that the current font requirements were the preexisting
policy of Texas, but they provide no authority to support the statement, nor do they provide anything but a
conclusory assertion that this must have been the policy then because it is now the codified law. Moreover, the
Fogals suggest that this arbitration agreement is inconspicuous, but they do not explain how it was
inconspicuous and how it would have violated any then applicable policy. We hold the Fogals have waived any
policy complaint outside Property Code section 420.003. See Tex. Prop. Code Ann. § 420.003.
We overrule the second issue.
Fogal v. Stature Construction (Tex.App.- Houston [1st Dist.] Jan. 29, 2009)(Alcala)
(confirmation of arbitration award, no waiver, challenges to arb award overruled, award confirmed, open courts)
AFFIRM TC JUDGMENT: Opinion by Justice Alcala
Before Justices Taft, Keyes and Alcala
01-07-00456-CV Mary Fogal and Robert Fogal v. Stature Construction, Inc., Jorge Casimiro, Tom Thibodeau
and Bernie Kane
Appeal from 80th District Court of Harris County
Trial Court Judge: Hon. Lynn Bradshaw-Hull
Unconscionability Argument re Compulsory Attorney-Client Arbitration
Letney additionally argued in her response that the arbitration provision was unconscionable and therefore
invalid. In her argument to the trial court, Letney relied heavily on Chief Justice Hardberger’s dissent in Henry
v. Gonzalez, 18 S.W.3d 684 (Tex. App.—San Antonio 2000, pet. dism’d by agr.). In Henry, Justice Hardberger
maintained that “special public policy considerations are implicated when an attorney imposes an arbitration
provision on his or her client.” 18 S.W.3d at 692 (Hardberger, C.J., dissenting). He further detailed the
advantages an attorney typically holds over a prospective client during contract negotiations, including a
greater base of knowledge and greater bargaining power. Id. at 693. He then argued that arbitration clauses
between attorney and client should be held against public policy in the absence of additional protections for the
client. Id. at 693-94. While we are not unsympathetic to Justice Hardberger’s concerns, or the concerns
expressed by Justice Seymore in his dissent in the present case, we believe that such policy arguments are
better directed to the legislature. Indeed, the legislature has already considered limitations on arbitration
agreements in certain contexts, as demonstrated by section 171.002 of the Texas Civil Practice and Remedies
Code, and has yet to see fit to include attorney-client contracts among those requiring restrictions. Moreover,
this court has already addressed and rejected the notion that arbitration provisions in attorney-client contracts
are inherently unconscionable without additional restrictions. See Labidi v. Sydow, 287 S.W.3d 922, 927-28
(Tex. App.—Houston [14th Dist.] 2009, orig. proceeding).
In her briefing to this court, Letney greatly expanded her unconscionability argument. She premised her
additional contentions on the notion that a fiduciary relationship can develop between an attorney and a
prospective client prior to their entering into a formal contract for legal services, citing Restatement (Second) of
Agency § 390 cmt. e (1958) (“[i]f . . . in the case of attorney and client, the creation of the relation involves
peculiar trust and confidence, with reliance by the principal upon fair dealing by the agent, it may be found that
a fiduciary relation exists prior to the employment and, if so, the agent is under a duty to deal fairly with the
principal in arranging the terms of the employment.”), et al. Letney contends that on such basis, it may be
incumbent upon the attorney to ensure that the prospective client is fully informed and advised regarding the
nature and implications of any arbitration clause contained in the formal contract.
The problem for Letney, however, is not that it is impossible for a special, fiduciary, or attorney-client
relationship to arise prior to entering a formal agreement but that she has not brought forth evidence that such
occurred here. See In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001) (orig. proceeding) (“[T]he
burden of proving a defense to arbitration is on the party opposing arbitration.”). The only evidence Letney
attached to her response was a copy of the contract and her own affidavit. In her affidavit, Letney stated that
in making her decision to hire appellants she relied on various representations made on the firm’s website
regarding the firm’s qualities. She acknowledged that no one from Smith & Garg advised her or told her about
the arbitration clause or its implications. She said that she “did not obtain advice from outside counsel, or any
counsel regarding the arbitration clause prior to signing” the contract. Although Letney states generally that
appellants “held themselves out to be expert lawyers in the field of personal injury” and that she trusted them to
advise her on all matters regarding their representation of her, she does not identify any negotiations,
discussions, or counseling that occurred prior to her signing of the contract that could have given rise to a
special relationship between the parties. Indeed, Letney’s affidavit establishes nothing more than that she read
statements on the firm’s website and then signed the contract. The reading of statements on a website is not
by itself evidence of the development of a special relationship. See Barron Partners, L.P. v. LAB123, Inc., 593
F. Supp. 2d 667, 671 (S.D.N.Y. 2009). Letney’s statements that she relied on and trusted the defendants are
conclusory in nature and likewise do not, by themselves, constitute evidence that a special relationship had
developed. Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 595 (Tex. 1992) (“[M]ere
subjective trust alone is not enough to transform arms-length dealing into a fiduciary relationship.”). In short,
Letney failed to carry her burden of proving her defense of unconscionability.
Lastly, Letney cites to an opinion rendered by the Texas Ethics Commission in which the Commission
suggested that it would be permissible under the Texas Disciplinary Rules of Professional Conduct to include
an arbitration clause in an attorney-client contract only if the client was made aware of the advantages and
disadvantages of arbitration and had sufficient information to make an informed decision as to whether to
include the clause. See Op. Tex. Ethics Comm’n No. 586 (2008). Letney contends that this opinion supports
the notion that for an arbitration clause in an attorney-client contract to be considered valid, an attorney must
make sure that the client is fully informed regarding the clause’s implications. However, in Labidi, we
considered a substantially similar argument based on the exact same ethics opinion. 287 S.W.3d at 929. We
concluded in Labidi that Opinion No. 586 did not impose any restrictions on attorney-client arbitration clauses
because (1) such opinions are advisory at best, (2) the commission expressly declined in the opinion to opine
on the substantive law concerning arbitration clause enforceability, and (3) substantive law does not include
any such restrictions. Id. Following Labidi, we decline to impose a requirement that attorneys must in all cases
fully inform prospective clients regarding the implications of an arbitration clause in an attorney-client contract.
This argument is best preserved for the legislature.
For the foregoing reasons, the trial court erred if it refused to compel arbitration based on unconscionability of
the arbitration agreement.
Pham v. Letney (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges) (arbitration agreement in legal services
contract between lawyer and client enforced by mandamus, interlocutory appeal of order denying motion to
compel arbitration dismissed, FAA applied, TAA would be preempted)
INTERLOCUTORY APPEAL DISMISSED: Opinion by Chief Justice Hedges
Before Chief Justice Hedges, Justices Seymore and Justice Sullivan
14-08-01153-CV Steven Tuan Pham v. Shelly Letney
Appeal from 215th District Court of Harris County
Trial Court Judge: Levi James Benton
Dissenting Opinion by Justice Seymore in Pham v. Letney
(In consideration of the unique relationship between attorney and client, Justice Seymore writes dissenting
opinion to express his concern about mandatory arbitration provisions in attorney-client agreements)
In re Tuam Pham (pdf) (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges)
MOTION OR WRIT GRANTED: Opinion by Chief Justice Adele Hedges
Before Chief Justice Hedges, Justices Seymore and Sullivan
14-09-00387-CV In Re Steven Tuam Pham
Appeal from 215th District Court of Harris County
Dissenting Opinion by Justice Seymore In re Tuam Pham (pdf)
Unconscionability and Fraud in the Inducement
"[A]rbitrators must decide if an entire contract was fraudulently induced, while courts must decide if an
arbitration clause was." Perry Homes, 258 S.W.3d at 589. Although Labidi contends that both pages of the
agreement containing all of the contract's terms were removed and replaced, he has not suggested that any
provision other than the arbitration clause was changed or added. It therefore was appropriate for the trial
court to make the determination of whether Labidi's allegations are true, and to resolve any doubts about such
factual matters in favor of arbitration. See Henry v. Gonzalez, 18 S.W.3d 684, 688-89 (Tex.App.-San Antonio
2000, pet. dism'd).
1. Procedural Unconscionability
Labidi's fraudulent-inducement argument and his assertion of procedural unconscionability are both based on
his allegation that his attorneys substituted different pages to the engagement agreement after Labidi signed it.
The success or failure of this argument "is dependent upon the existence of facts which allegedly illustrate
unconscionability." Besteman v. Pitcock, 272 S.W.3d 777, 788 (Tex.App.-Texarkana 2008, no pet.) (quoting El
Paso Natural Gas. Co. v. Minco Oil & Gas Co., 964 S.W.2d 54, 60-61 (Tex.App.-Amarillo 1997), rev'd on other
grounds, 8 S.W.3d 309 (Tex.1999)). The real parties in interest deny the allegation, and the trial court's ruling
indicates that it resolved the conflicting evidence in their favor. Where, as here, the facts impliedly found by the
trial court are supported by the record, we will not disturb them. See id.
2. Substantive Unconscionability
Regarding substantive unconscionability, Labidi argues that he received "no benefit of the bargain" for the loss
of his right to jury trial, discovery, and unspecified civil and evidentiary protections. If such arguments were
sufficient, then arbitration provisions would be unconscionable per se, but this is not the case: arbitration
agreements are not inherently unconscionable. Palm Harbor Homes, 195 S.W.3d at 678; Emerald Tex., 920 S.
W.2d at 402. Labidi's arguments are similar to those rejected in Emerald Texas, in which the evidence of
unconscionability was as follows:
The contract clause was drafted by Emerald. I was not represented by a lawyer when I entered into this
contract. During the discussions about this contract no mention was made concerning the arbitration clause or
its alleged relationship  to design and building defects. The contract was presented as a standard earnest
money contract. I was not informed of the existence of the arbitration clause nor its alleged effect on our rights.
I do not have any expertise in the area of homebuilding or negotiating real estate transactions. I did not receive
any consideration for allegedly foregoing my legal right to a trial.
Emerald Tex., 920 S.W.2d at 402.
Contrary to Labidi's suggestion, even disputes between a lawyer and client that involve their contract, the
attorney-client relationship, or services rendered or fees charged to the client are properly referable to
arbitration. Henry, 18 S.W.3d at 687-89; Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 219-22 (Tex.App.
-Houston [1st Dist.] 1996, no writ). The arbitration agreement is not grossly one-sided, but is instead a bilateral
agreement to arbitrate. See In re Poly-America, 262 S.W.3d at 348-49. It therefore is not substantively
Labidi, MD v. Sydow, 287 S.W.3d 922 (Tex.App.- Houston [14th Dist.] Jun. 25, 2009)(Guzman)
(consolidation of an interlocutory appeal and a petition for writ of mandamus, challenge to district court's order
compelling arbitration and staying proceedings in the trial court fails)(unconscionabiltiy argument rejected re
arbitration of attorney-client disputes)(public policy arguments overruled)
DISMISSED: Opinion by Justice Eva Guzman
Panel members: Justices Guzman, Mirabal and Boyce
14-08-00527-CV Abdel Hakim Labidi, M.D. Ph.D. v. Michael D. Sydow, Et Al
Appeal from 61st District Court of Harris County
In re Labidi, M.D., 287 S.W.3d 922 (Tex.App.- Houston [14th Dist.] Jun. 25, 2009)(Guzman)
MOTION OR WRIT DENIED: Opinion by Justice Eva Guzman
Panel members: Justices Guzman, Mirabal and Boyce
14-08-00757-CV In Re Abdel Hakim Labidi, M.D., PH.D.
Appeal from 61st District Court of Harris County
Trial Court Judge: Hon. John Donovan
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