Fleetwood Ent Inc v. Gaskamp , 303 F.3d 570 ( 2002 )


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  •                     REVISED FEBRUARY 19, 2002
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    No. 01-20334
    FLEETWOOD ENTERPRISES, INC.,
    FLEETWOOD HOMES OF MISSISSIPPI, INC.,
    AND GEORGIA-PACIFIC CORPORATION
    Plaintiffs-Appellees,
    versus
    WILLIAM P. GASKAMP, JR., individually, and
    as next friends for William P. Gaskamp, III,
    Derek S. Gaskamp and Brooke A. Gaskamp, Minors;
    SHANNON GASKAMP,individually, and as next
    friends for William P. Gaskamp III, Derek S.
    Gascamp and Brooke A. Gaskamp, Minors
    Defendants-Appellants.
    --------------------
    Appeal from the United States District Court
    for the Southern District of Texas
    --------------------
    January 24, 2002
    Before JOLLY, SMITH, and BENAVIDES, Circuit Judges.
    BENAVIDES, Circuit Judge:
    This appeal arises from a district court order compelling
    arbitration of all of the claims brought by plaintiffs in a
    Mississippi state court lawsuit.     The plaintiffs-appellants, the
    1
    Gaskamps,1 assert on appeal that the district court erred in
    compelling arbitration of the claims of the Gaskamp children
    because the children were not parties to the arbitration agreement
    between the Gaskamp parents and the defendants-appellees Fleetwood
    Enterprises,    Inc.    and      Fleetwood     Homes     of    Mississippi,   Inc.
    (collectively, “Fleetwood”), and Georgia-Pacific Corp. (“Georgia-
    Pacific”).     They also assert that the district court erred in
    compelling     arbitration       of    the    parents’    claims    because   the
    arbitration agreement was procedurally unconscionable.                 We reverse
    in part and affirm in part.
    FACTUAL   AND   PROCEDURAL BACKGROUND
    In November 1997, the Gaskamp parents negotiated with a sales
    representative for Manufactured Bargains the purchase of a mobile
    home manufactured by Fleetwood. They made a down payment of $2,500
    on the home, gave Manufactured Bargains some household items, and
    traded in their old mobile home; in exchange, Manufactured Bargains
    delivered and installed the new Fleetwood home on the Gaskamp
    parents’ property.      The Gaskamps moved into the new mobile home,
    and remained there while Manufactured Homes arranged for financing
    of the home.    The following month, Manufactured Homes informed the
    Gaskamp parents that it had arranged financing for the mobile home
    through Bombardier Capital, Inc. (“Bombardier”). To obtain the
    1
    Hereinafter, William P. Gaskamp, Jr. and Shannon Gaskamp are referred
    to, collectively, as “the Gaskamp parents;” William P. Gaskamp, III, Derek S.
    Gaskamp, and Brooke A. Gaskamp are referred to as “the Gaskamp children.” All
    members of the Gaskamp family are collectively referred to as “the Gaskamps.”
    2
    financing and keep the new home, the Gaskamp parents were asked to
    make an additional down payment of $12,500.00, and to sign some
    paperwork.      The   Gaskamp   parents   signed    documentation    on   two
    separate occasions, and made the payment.            The documents signed
    included an “Arbitration Provision.”2
    After moving into the Fleetwood home, the Gaskamps began
    experiencing health problems including throat and eye irritation,
    runny nose, and respiratory problems.          In September 1999, Brooke
    Gaskamp was hospitalized as a result of breathing difficulties.
    She received a diagnosis of reactive airway disease as a result of
    exposure to formaldehyde.       Two months later, the Texas Department
    of Health, Toxic Substances Division, tested the new mobile home,
    and found elevated levels of formaldehyde. Shortly thereafter, the
    Gaskamps moved out of the mobile home.
    2
    The Arbitration Provision provides, in relevant part:
    “The parties to the Retail Installment Contract or Cash Sale Contract
    agree that any and all controversies or claims arising out of, or in any way
    relating to, the Retail Installment Contract or Cash Sale Contract or the
    negotiation, purchase, financing, installation, ownership, occupancy,
    habitation, manufacture, warranties (express or implied), repair or
    sale/disposition of the home which is the subject of the Retail Installment
    Contract or Cash Sale Contract, whether those claims arise from or concern
    contract, warranty, statutory, property or common law, will be settled solely
    by means of final and binding arbitration before a three-judge panel of the
    American Arbitration Association (AAA) in accordance with the rules and
    procedures of the AAA....
    The parties agree that this Arbitration Provision inures to the benefit
    of, and is intended to be for the benefit of, the manufacturer of the home
    which is the subject of the Retail Installment Contract or Cash Sale Contract
    as fully as if the manufacturer was a signatory to the Retail Installment
    Contract or Cash Sale Contract.
    The parties agree that this Arbitration Provision inures to the benefit
    of, and is intended to be for the benefit of, any lender or mortgagee (or
    assigns) who provides financing for the purchase of the home...
    THE PARTIES KNOWINGLY AND VOLUNTARILY WAIVE ANY RIGHT THEY HAVE TO A
    JURY TRIAL.”
    3
    In June 2000, the Gaskamp parents brought suit in Mississippi
    state court against the manufacturer of the home, Fleetwood; the
    manufacturer of particle board contained in the home, Georgia
    Pacific; the seller, Manufactured Bargains; and the financing
    institution, Bombardier.        The Gaskamp parents brought the suit
    individually and as next friends of the Gaskamp children, alleging
    a variety of claims for personal injuries resulting from the
    exposure to formaldehyde.3
    In December 2000, two of the defendants in the Mississippi
    lawsuit, Fleetwood and Georgia-Pacific, filed a Complaint to Compel
    3
    In summary, the claims listed in the complaint were as follows:
    First, strict liability claims against Fleetwood, Georgia-Pacific, and
    Manufactured Bargains for defective design and manufacture of the home.
    Second, claims for negligence in the design, manufacture, financing, and
    marketing of the home.
    Third, claims for fraud, on the grounds that defendants knowingly and
    intentionally concealed the dangers of formaldehyde poisoning, in violation of
    statutory requirements.
    Fourth, claims for intentional infliction of emotional distress, on the
    grounds that the defendants intentionally engaged in extreme and outrageous
    conduct that caused distress and damages to all the plaintiffs.
    Fifth, claims for negligent misrepresentation, on the grounds that
    defendants supplied false information on which the plaintiffs relied in
    deciding to purchase and occupy the home, and that the defendants’ withholding
    of the information about the formaldehyde caused injuries to the plaintiffs.
    Sixth, claims for constructive fraud, in that the defendants made
    material misrepresentations that the home was habitable.
    Seventh, claims for trespass to realty, on the grounds that defendants
    designed and constructed the home in a manner that permitted the invasion of
    unacceptably high levels of formaldehyde into the Gaskamps’ property.
    Eighth, claims for negligence under the theory of res ipsa loquitur, on
    the basis that the presence of formaldehyde in the home is not the sort of
    event that occurs in the absence of negligence.
    Ninth, a claim for misrepresentation, on the grounds that the defendants
    materially misrepresented the character and quality of the home as fit for
    human habitation via advertising and labeling, thereby causing injuries to the
    plaintiffs.
    Tenth, plaintiffs allege that various defendants are responsible for
    additional torts such as negligent testing, liability to third persons for
    negligent performance of an undertaking, misrepresentation and false
    advertising, and “violations of the Restatement of Torts, Sec. 324A.”
    4
    Arbitration against the Gaskamps in the United States District
    Court for the Southern District of Texas.     The Gaskamps responded
    with a motion to dismiss. The Gaskamp parents subsequently settled
    their claims against Bombardier in the Mississippi state court
    lawsuit, and filed a motion to dismiss all of their individual
    claims in the Mississippi state court lawsuit in February 2001.
    After the Gaskamps’ settlement with Bombardier, Fleetwood and
    Georgia-Pacific filed a Motion to Compel Arbitration and for
    Expedited Hearing.    On February 20, 2001, the district court
    ordered all of the Gaskamps’ claims to arbitration, and stayed all
    proceedings in both the district court and the Mississippi state
    court (including the hearing on the Motion to Dismiss the claims of
    the Gaskamp parents).     In its Order Compelling Arbitration and
    Staying State and Federal Cases, the district court explained,
    without citing authority, that the children must arbitrate with
    their parents because “[u]nlike a guest who happened to be in a
    mobile home when he was hurt, the children are permanent residents
    whose presence and use is wholly derivative of the parents’ use of
    the mobile home.”
    On appeal, the Gaskamps make two main arguments.    First, they
    assert that the district court erred in compelling arbitration of
    the Gaskamp children’s claims because they were not parties to the
    arbitration   agreement   or   third-party   beneficiaries   thereof.
    5
    Second, they argue that the arbitration provision is procedurally
    unconscionable.
    DISCUSSION
    I.   Standard of Review and Applicable Law
    This Court reviews de novo the grant or denial of a motion to
    compel arbitration.      See Webb v. Investacorp, 
    89 F.3d 252
    , 257(5th
    Cir. 1996).     In adjudicating a motion to compel arbitration under
    the Federal Arbitration Act, courts begin by determining whether
    the parties agreed to arbitrate the dispute. See Mitsubishi Motors
    Corp. v. Soler Chrysler-Plymouth, Inc., 
    473 U.S. 614
    , 626, 
    105 S. Ct. 3346
    ,    3353-54      (1985);     Folse     v.   Richard   Wolf     Medical
    Instruments     Corp.,   
    56 F.3d 603
    ,   605    (5th   Cir.   1995).     This
    determination is generally made on the basis of “ordinary state-law
    principles that govern the formation of contracts.”                First Options
    of Chicago, Inc. v. Kaplan, 
    514 U.S. 938
    , 944, 
    115 S. Ct. 1920
    , 1924
    (1995).   Next, the Court must determine "whether legal constraints
    external to the parties' agreement foreclosed the arbitration of
    those claims." Mitsubishi 
    Motors, 473 U.S. at 628
    , 105 S.Ct. at
    3355; see also 
    Folse, 56 F.3d at 605
    .               In the present case, the
    6
    parties agree that Texas state law governs matters that are not
    addressed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.4
    II.   The Claims of the Gaskamp Children
    As stated earlier, the first step in evaluating a motion to
    compel arbitration is to determine whether the parties agreed to
    arbitrate.      This determination depends on two considerations: (1)
    whether there      is   a   valid    agreement    to   arbitrate     between   the
    parties; and (2) whether the dispute in question falls within the
    scope of that arbitration agreement.              
    Webb, 89 F.3d at 258
    .         In
    determining whether the dispute falls within the scope of the
    arbitration agreement, “ambiguities... [are] resolved in favor of
    arbitration.”     Volt Info. Serv., Inc. v. Bd. of Trustees of Leland
    Stanford Junior Univ., 
    489 U.S. 468
    , 475 (1989).                   However, this
    federal   policy     favoring       arbitration    does   not   apply    to    the
    determination of whether there is a valid agreement to arbitrate
    between   the    parties;    instead     “[o]rdinary      contract    principles
    determine who is bound.”        Daisy Mfg. Co., Inc., v. NCR Corp., 
    29 F.3d 389
    , 392 (8th Cir. 1994); see also Volt 
    Info., 489 U.S. at 478
    (“[T]he FAA does not require parties to arbitrate when they have
    4
    In addition, under Texas choice of law rules “the law of the state
    with the most significant relationship to the particular substantive issue
    will be applied to resolve that issue.” Duncan v. Cessna Aircraft, 
    665 S.W.2d 414
    , 421 (Tex. 1984). In the present case, the state with the most significant
    relationship to the arbitration clause is Texas. The Gaskamp parents
    purchased the home in Texas and signed the sale contract and arbitration
    clause in Texas, and the arbitration clause itself provides that Harris
    County, Texas, is the forum.
    7
    not agreed to do so.”); EEOC v. Waffle House, 
    2002 U.S. LEXIS 489
    ,
    at *24-*25 (U.S. Jan 15, 2002)(citations omitted)(“Because the FAA
    is ‘at bottom a policy guaranteeing the enforcement of private
    contractual arrangements,’... we look first to whether the parties
    agreed to arbitrate a dispute, not to general policy goals....             It
    goes without saying that a contract cannot bind a nonparty.”);
    McCarthy v. Azure, 
    22 F.3d 351
    , 355 (1st Cir. 1994)(“The federal
    policy   [favoring    arbitration],       however,   does   not   extend   to
    situations in which the identity of the parties who have agreed to
    arbitrate is unclear.”).5
    In the present case, the parties agree that the dispute in
    question, i.e. the set of claims for personal injury resulting from
    use of the mobile home, falls within the scope of the arbitration
    agreement, which is very broad. However, the parties disagree with
    regard to the first consideration, namely, whether there is a valid
    agreement to arbitrate between the parties.            The Gaskamps argue
    that, although there is an arbitration agreement between the
    5
    The federal policy favoring arbitration does not extend to a
    determination of who is bound because, as stated by the Supreme Court, the
    purpose of the Federal Arbitration Act is “to make arbitration agreements as
    enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood
    & Conklin Mfg. Co., 
    388 U.S. 395
    , 404 n.12, 
    87 S. Ct. 1801
    , 1806 (1967); see
    also Mitsubishi Motors Corp v. Soler Chrysler Plymouth, 
    473 U.S. 614
    , 625-26,
    
    105 S. Ct. 3346
    , 3353(1985)(citation omitted)(“The preeminent concern of
    Congress in passing the Act was to enforce private agreements into which
    parties had entered.”).
    8
    Gaskamp parents and the appellees,6 there is no such agreement
    between the Gaskamp children and the appellees.                The issue in
    this case is, then, not what claims are arbitrable, but rather who
    must arbitrate.       We apply Texas law to determine whether the
    Gaskamp children are required to arbitrate.
    The Gaskamp children did not personally sign the arbitration
    agreement, and there is no provision in the agreement expressly
    stating that the Gaskamp parents, on behalf of their children,
    agreed    to   submit     the   children’s     claims     to    arbitration.
    Nonetheless, the appellees argue that because the Gaskamp children
    are minors, their parents were empowered to make decisions of
    substantial      legal     significance      concerning        the   minors.
    Additionally, the appellees contend that under Texas law, non-
    signatory family members who bring claims intertwined with a
    signatory family member’s claims are bound to arbitrate.             Because
    the Gaskamp children are minors and because they joined their
    parents in the Mississippi state court suit, appellees argue, the
    arbitration agreement should be considered binding on the Gaskamp
    children.
    6
    It is not entirely clear whether the arbitration agreement covers
    Georgia-Pacific. The agreement states that it “inures to the benefit of the
    manufacturer” but is not clear on whether it covers manufacturers of component
    parts of the mobile home. However, because the Gaskamps have not raised the
    issue of whether Georgia-Pacific is protected by the agreement, they have
    waived it. See Melton v. Teachers Ins. & Annuity Ass’n of Am., 
    114 F.3d 557
    ,
    561 (5th Cir. 1997).
    9
    To determine whether the Gaskamp children are bound by the
    arbitration agreement under Texas contract law, we apply the law as
    interpreted by the state’s highest court, in this case, the Texas
    Supreme Court.   See Ladue v. Chevron, U.S.A., Inc., 
    920 F.2d 272
    ,
    274 (5th Cir. 1991).        Texas courts have found non-signatories
    bound to arbitration agreements in only two situations: first,
    where the non-signatory sued on the contract; and second, where the
    non-signatory was a third-party beneficiary of the contract.        The
    present case does not fit either model.
    In In re First Merit Bank, 
    52 S.W.3d 749
    (Tex. 2001), the
    Texas Supreme Court held that the owners of a mobile home, who had
    received the home as a gift from their parents and were non-
    signatories to the arbitration agreement between the seller and the
    parents, were bound by the agreement.          The Court specifically
    grounded its decision on the fact that the donees had sued on the
    basis of the contract: “a litigant who sues based on a contract
    subjects him or herself to the contract's terms.             Here, the
    Alvarezes fully joined the de los Santoses' contract claims...
    Thus, by suing FirstMerit based on the de los Santoses' installment
    contract, the Alvarezes subjected themselves to the contract's
    terms,   including   the   Arbitration   Addendum.”   
    Id. at 755-56.
    Indeed, the claims made by the Alvarezes and de los Santoses in
    First Merit Bank included traditional contract claims: breach of
    contract, revocation of acceptance, and breach of warranty.          In
    10
    Southwest Tex. Pathology Assocs., L.L.P. v. Roosth, an intermediate
    appellate court refused to bind a nonsignatory wife to arbitration
    of claims against her husband’s employer, even though the husband’s
    claims were subject to arbitration.            
    27 S.W.3d 204
    , 208 (Tex. App.
    San Antonio 2000)(“[A] nonsignatory can only be bound by the terms
    of an arbitration provision in an agreement if the nonsignatory is
    asserting claims that require reliance on the terms of the written
    agreement containing the arbitration provision.”).7 In the present
    case, while the Gaskamp children fully joined the Gaskamp parents’
    claims in the Mississippi state court lawsuit, these claims were
    not contractual, but rather tort claims.              At no point have the
    Gaskamp children attempted to enforce the contract, or sue on the
    basis of any warranties contained in the contract; the Gaskamps’
    complaint in state court does not rely at all on the terms of any
    agreement with the state court defendants. Thus, it cannot be said
    that       the   children   sued   on   the   contract,   thereby   subjecting
    themselves to the arbitration agreement.
    Intermediate appellate courts in Texas have also held that non-
    signatories are bound by arbitration agreements where the non-
    7
    There are additional cases in which wives were found not to be bound by
    arbitration agreements signed by their husbands.   In In re Conseco Fin.
    Corp., 
    19 S.W.3d 562
    (Tex. App. Waco 2000), the court held that in the absence
    of a theory that would bind a non-signatory wife to her husband’s contract,
    she could not be bound to arbitrate. And in another case, a court held that a
    wife was not required to arbitrate her claim for loss of consortium even
    though it was derivative of the wrongful termination claim of her husband, who
    was subject to arbitration under his employment contract. See Merrill Lynch,
    Pierce, Fenner, and Smith, Inc. v. Longoria, 
    783 S.W.2d 229
    , 231 (Tex. App.
    Corpus Christi 1990).
    11
    signatories are third-party beneficiaries of the contracts. See In
    re Rangel, 
    45 S.W.3d 783
    , 787 (Tex. App. Waco, 2001); Nationwide of
    Bryan, Inc. v. Dyer, 
    969 S.W.2d 518
    , 520 (Tex. App. Austin 1998).
    Under Texas    law,     parties      are    presumed      to    be   contracting     for
    themselves only; as stated by the Texas Supreme Court, “[a] court
    will    not    create        a    third-party          beneficiary       contract     by
    implication....        The intention to contract or confer a direct
    benefit to a third party must be clearly and fully spelled out or
    enforcement     by     the       third     party   must        be    denied.”        MCI
    Telecommunications Corp. v. Texas Utilities Elec. Co., 
    995 S.W.2d 7647
    , 651 (Tex. 1999); see also MJR Corp. v. B&B Vending Co., 
    760 S.W.2d 4
    , 12     (Tex. App. Dallas 1988).                 Thus, “the fact that a
    person is directly affected by the parties’ conduct, or that he
    ‘may have a substantial interest in a contract’s enforcement, does
    not make him a third-party beneficiary.’”                     Loyd v. Eco Resources,
    Inc.,   
    956 S.W.2d 110
    ,       134   (Tex.     App.       Houston    (14th    Dist.)
    1997)(citing Merrimack Mut. Fire Ins. Co. v. Allred Fairbanks Bank,
    
    678 S.W.2d 574
    , 577 (Tex. App. Houston (14th Dist.)).                           In other
    words, the intent to make someone a third-party beneficiary must be
    clearly written or evidenced in the contract.                        Otherwise, Texas
    will not recognize that person as a third-party beneficiary.                          In
    the present    case,     the      contract      does    not    mention    the    Gaskamp
    children at all and there is no indication in the contract that it
    is designed to benefit anyone other than the Gaskamp parents, who
    12
    purchased the home.   Any intention to confer a direct benefit on
    the children is far from being “clearly and fully spelled out.”
    And the fact that the children lived in the home for some period of
    time renders them only incidental beneficiaries, not third-party
    beneficiaries.   Thus, the Gaskamp children are not third-party
    beneficiaries of their parents’ contract under Texas law.
    The parties have not explicitly asserted any additional basis
    on which a non-signatory could be bound to arbitrate.     The only
    potential argument at which the appellees hinted is that the fact
    that the Gaskamp children are minors somehow binds them to their
    parents’ agreements to arbitrate.    However, there is no basis in
    existing Texas law for such an argument, and we should not create
    such a rule in this case.   When the state's highest court has not
    yet spoken on an issue, as in this case, we must determine, to the
    best of our ability, how that court would rule if the issue were
    before it.   See 
    Ladue, 920 F.2d at 274
    .    There is no reason to
    think that the Texas Supreme Court would adopt a rule requiring
    non-signatory children to arbitrate on the basis of their parents’
    arbitration agreement in the absence of third-party beneficiary
    status or an attempt by the child to enforce the contract.   To the
    contrary, several indicators suggest that the Texas Supreme Court
    would refuse to adopt such a rule.    First, the language of Texas
    decisions that have addressed the question of when non-signatories
    are bound to arbitrate is restrictive: the decisions do not even
    13
    mention the possibility of additional bases for binding non-
    signatories to arbitration.   Second, other jurisdictions that have
    addressed the question of when non-signatories are bound have only
    gone a little further than Texas, holding that there are five
    theories under “common law principles of contract and agency law"
    that provide a basis "for binding nonsignatories to arbitration
    agreements:    1) incorporation by references;   2) assumption;   3)
    agency;    4) veil piercing/alter ego;   and 5) estoppel."   Thomson-
    CSF, S.A. v. American Arbitration Ass'n, 
    64 F.3d 773
    , 776 (2d Cir.
    1995).    See also Bel-Ray Co. v. Chemrite (Pty) Ltd., 
    181 F.3d 435
    ,
    440-43 (3d Cir. 1999); International Paper Co. v. Schwabedissen
    Maschinen & Anlagen, 
    206 F.3d 411
    , 417 (4th Cir. 2000); Amoco
    Transport Co. v. Bugsier Reederei & Bergungs, A.G. (In re Oil Spill
    by the "Amoco Cadiz" ), 
    659 F.2d 789
    , 795-96 (7th Cir. 1981);
    McCarthy v. Azure, 
    22 F.3d 351
    , 356 (1st Cir. 1994); In re Hydro-
    Action, Inc., 
    266 B.R. 638
    , 645 (U.S. Bankruptcy Court, E.D. Tex.
    2001).    None of these theories would require children to arbitrate
    simply because they are minors and their claims are related to
    those of their parents.    If the Texas Supreme Court were to add to
    the circumstances Texas has recognized so far for binding non-
    signatories, it is unlikely that it would go beyond the theories
    listed above.    Finally, even outside the context of arbitration
    agreements, Texas law does not ordinarily bind children to the
    contracts their parents sign.     See, e.g., Stern v. Wonzer,     846
    
    14 S.W.2d 939
    , 944 (Tex. App. Houston (1st         Dist.)1993)(holding that
    parents’ contract with a law firm for legal representation did not
    bind their child with respect to her claims arising from the same
    incident, and noting that “there is a distinction between having
    authority to contract for legal representation of a child and
    actually exercising that authority.”). In sum, because the Gaskamp
    children are not signatories to the sales contract, are not third-
    party beneficiaries of the agreement or contract, and are not suing
    on the basis of the contract, they are not bound by the arbitration
    agreement signed by their parents.
    III. Procedural Unconscionability
    The Gaskamps raise a defense to arbitration, arguing that the
    arbitration provision is procedurally unconscionable. The Gaskamps
    argue that Paul and Shannon Gaskamp were improperly told that the
    arbitration agreement was “standard documentation” that they were
    required to sign to keep living in the home.            Consequently, they
    claim that they were given no meaningful choice as to acceptance of
    the   arbitration   agreement.      Moreover,    they    assert   that    no
    explanation of the document was given to them, and that they did
    not have an opportunity to read or negotiate the agreement’s terms.
    They also point out that they were unsophisticated with respect to
    business   and   legal   matters,   whereas     the   appellees   are    very
    experienced in contract negotiations.         Thus, the Gaskamps argue,
    there is evidence of Manufactured Bargains’ “overreaching or sharp
    15
    practices combined with the buyer’s ignorance or inexperience,”
    which make the arbitration agreement procedurally unconscionable.
    American Stone Diamond, Inc. v. Lloyds of London, 
    934 F. Supp. 839
    ,
    844 (S.D. Tex. 1996).
    The party contesting the contractual arbitration provision has
    the burden to show procedural unconscionability.                         Smith v. H.E.
    Butt Grocery Co., 
    18 S.W.3d 910
    , 912 (Tex.App. Beaumont 2000, pet.
    denied) (citing In re Oakwood Mobile Homes, 
    987 S.W.2d 571
    , 573
    (Tex. 1999)).       The Gaskamps have not met their burden here.                     The
    only evidence the Gaskamps have presented is in the form of their
    allegations    of    misrepresentations             and   pressure       to   sign   the
    documents quickly.      Such allegations are insufficient to establish
    unconscionability.           And   while      there   may     be   imbalance    in   the
    relative     sophistication        of    the       parties,     this     imbalance    is
    insufficient on its own to render the agreement unconscionable.
    See Rangel, 
    45 S.W.3d 783
    (Tex. App. Waco 2001) (holding that an
    agreement was not unconscionable even though one of the parties had
    never attended school, was 75, hard of hearing, and had difficulty
    reading).    The only cases under Texas law in which an agreement was
    found procedurally unconscionable involve situations in which one
    of the parties appears to have been incapable of understanding the
    agreement.    See In re Turner Bros. Trucking Co., 
    8 S.W.3d 370
    (Tex.
    App.    Texarkana     1999)(finding           an    agreement      was    procedurally
    unconscionable       where     one      of    the     parties      was    functionally
    16
    illiterate, nobody explained the agreement to him, and the person
    who    gave   him    the    agreement       to   sign       did    not   understand     the
    agreement); Prevot v. Phillips Petroleum Co., 
    133 F. Supp. 2d 937
    (S.D. Tex. 2001)(finding procedural unconscionability where the
    plaintiffs     did    not       speak    English      and    the    agreement     was   not
    translated or explained to them).
    CONCLUSION
    The Arbitration Provision was not procedurally unconscionable
    and the Gaskamp parents have not raised any valid defenses to
    arbitration of their own claims, so as signatories they are bound
    to    arbitrate     all    of    their    claims      for    fraud       and   negligence.
    However, because the Gaskamp children are not signatories to the
    contract or third-party beneficiaries thereof, and because they
    have not sought to enforce the contract, the children cannot be
    required to arbitrate.              The district court’s order compelling
    arbitration and staying state and federal cases is therefore
    REVERSED with regard to the Gaskamp children’s claims, and AFFIRMED
    with regard to the claims of the Gaskamp parents.
    17
    

Document Info

Docket Number: 01-20334

Citation Numbers: 303 F.3d 570

Filed Date: 2/19/2002

Precedential Status: Precedential

Modified Date: 3/3/2016

Authorities (31)

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Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 87 S. Ct. 1801 ( 1967 )

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Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland ... , 109 S. Ct. 1248 ( 1989 )

First Options of Chicago, Inc. v. Kaplan , 115 S. Ct. 1920 ( 1995 )

Southwest Texas Pathology Associates v. Roosth , 27 S.W.3d 204 ( 2000 )

Duncan v. Cessna Aircraft Co. , 665 S.W.2d 414 ( 1984 )

In Re Firstmerit Bank, N.A. , 52 S.W.3d 749 ( 2001 )

In Re Oakwood Mobile Homes, Inc. , 987 S.W.2d 571 ( 1999 )

In Re Rangel , 45 S.W.3d 783 ( 2001 )

Equal Employment Opportunity Commission v. Waffle House, ... , 122 S. Ct. 754 ( 2002 )

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