Amateur Athletic Union of the United States, Inc., Paul Campbell, Rod Seaford, and Charles Oliver v. Augustus Bray , 499 S.W.3d 96 ( 2016 )

Fourth Court of Appeals
San Antonio, Texas
OPINION
No. 04-15-00268-CV
AMATEUR ATHLETIC UNION OF THE UNITED STATES, INC.,
Paul Campbell, Rod Seaford, and Charles Oliver,
Appellants
v.
/s
Augustus BRAY,
Appellee
From the 57th Judicial District Court, Bexar County, Texas
Trial Court No. 2014-CI-10872
Honorable David A. Canales, Judge Presiding
Opinion by: Rebeca C. Martinez, Justice
Sitting: Karen Angelini, Justice
Rebeca C. Martinez, Justice
Patricia O. Alvarez, Justice
Delivered and Filed: July 6, 2016
REVERSED AND REMANDED
The Amateur Athletic Union of the United States, Inc. (“AAU”) and Paul Campbell, Rod
Seaford, and Charles Oliver, all of whom are AAU officers (collectively, the “Individual
Defendants”) appeal the trial court’s order denying their motion to compel arbitration in a lawsuit
brought by AAU volunteer and officer Augustus Bray. Because we conclude that the arbitration
agreement contained in the AAU National Policies is valid and enforceable against Bray, except
for the prohibition against punitive damages, and that Bray’s claims fall within the scope of the
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agreement, we reverse the trial court’s order denying the motion to compel arbitration and remand
the cause with instructions to compel arbitration.
FACTUAL AND PROCEDURAL BACKGROUND
Augustus Bray was a thirty-year volunteer for the AAU, a non-profit volunteer sports
organization, and had served as Governor of the South Texas District since his election in 2005.
The incident giving rise to the current lawsuit occurred in August 2012 at an AAU-sponsored track
meet in Houston, Texas which Bray, Campbell, and Oliver attended in the course and scope of
their respective AAU officer roles. Bray was assigned to the Jury of Appeals, which resolves any
protests lodged during the track meet. While Bray was sitting in the press box, a woman attempted
to squeeze past him and Bray made contact with the woman’s body. According to Bray, Oliver
— the Meet Director — told the woman to contact the police department and file charges.
Campbell, the Junior Olympic Event Director, allegedly made a statement in front of a group of
people that Bray was being charged with sexual assault and that according to AAU policies his
AAU membership was to be immediately terminated. Bray also claimed that Oliver and Campbell
coerced Marv Allen, another AAU member present at the time of the incident, to make false
statements against Bray, which Allen later recanted. The police arrested Bray and escorted him
from the track meet. Bray was charged with the criminal offense of “assault by contact,” but the
charge was later dismissed.
Bray submitted written complaints to the AAU National Board of Review (the “Board”)
alleging that Oliver’s and Campbell’s conduct violated AAU rules. The Board resolves complaints
alleging violations of the AAU Code or AAU sport operating rules. Bray contends the Board,
chaired by Seaford, failed to exercise its powers and failed to investigate Bray’s complaints before
dismissing them. Bray appealed the Board’s dismissal of his complaints to the AAU National
Board of Appeals, which sustained the dismissal.
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After exhausting the AAU’s administrative appeals process, Bray filed suit on July 10,
2014 against Campbell, Oliver, and Seaford alleging claims for negligence, intentional infliction
of emotional distress, defamation, aiding and abetting, and conspiracy arising out of the August
2012 incident at the track meet. Bray also alleged the Individual Defendants were “acting in the
scope of their employment and in furtherance of AAU’s business,” and that the AAU was liable
for their conduct under the theory of respondeat superior. Bray sought recovery of actual and
special damages, past and future medical expenses, past and future physical pain and suffering,
past and future mental anguish, economic damages, and exemplary damages.
The AAU and Individual Defendants filed a motion to compel arbitration under the AAU
National Policies and to abate the trial court proceedings pending arbitration. The AAU National
Policies contain a “Binding Arbitration” provision in Section I(B), under “Membership Policies,”
which is set forth in bold, underlined, capital letters and conspicuously placed on the first page. In
relevant part, the provision states, “BY APPLYING FOR AAU MEMBERSHIP . . . OR UPON
ENTERING ANY AAU EVENT, THE APPLICANT/MEMBER/ENTRANT AND THE
AAU AGREE TO SUBMIT ALL CIVIL DISPUTE(S) TO BINDING ARBITRATION.” The
arbitration agreement states that the parties agree to submit the dispute to an arbitrator pursuant to
American Arbitration Association (AAA) rules, the Federal Arbitration Act (FAA), and the
Arbitration Code of Florida, where the AAU national office is located. The arbitration agreement
also contains a forum selection clause requiring that arbitration be conducted in the county where
the AAU’s national office is located.
The arbitration agreement provides that the successful party is entitled to recover its actual
and consequential damages, but expressly prohibits the recovery of punitive or exemplary
damages, stating, “IT BEING THE INTENT OF THE PARTIES TO HEREBY WAIVE ANY
RIGHT TO SEEK AND THE PARTIES HEREBY COVENANT NOT TO SEEK, ANY
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PUNITIVE OR EXEMPLARY DAMAGES . . . .” The agreement does not address the recovery
of the costs of arbitration. Finally, the agreement contains a severability clause stating that if any
portion of the arbitration agreement is declared invalid or unenforceable, the rest of the agreement
shall remain in full force and effect.
In opposing the motion to compel arbitration in the trial court, Bray asserted the arbitration
clause is not a valid and enforceable agreement because: (1) neither he nor any of the Individual
Defendants are signatories to the arbitration agreement; (2) his tort claims fall outside the scope of
the arbitration agreement because they stand apart from the contract, i.e., the AAU National
Policies and Code; (3) the arbitration agreement is illusory because the AAU can avoid its
obligation to arbitrate by unilaterally amending or terminating the agreement without prior notice;
and (4) the agreement is unconscionable because it imposes excessive fees and travel costs, and
provides insufficient remedies by prohibiting exemplary damages.
After a hearing, the trial court denied the motion to compel arbitration in a general order.
The trial court made no specific findings. The AAU and Individual Defendants now appeal. See
TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015) (authorizing an interlocutory appeal of
the denial of a motion to compel arbitration under the Federal Arbitration Act in suits filed after
September 1, 2009).
ANALYSIS
On appeal, the AAU and Individual Defendants assert the trial court abused its discretion
in denying their motion to compel arbitration because they met their burden to prove the arbitration
agreement is valid and enforceable and encompasses the claims Bray asserted, and Bray failed to
establish a defense to enforcement of the arbitration agreement.
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Standard of Review
We review a trial court’s order denying a motion to compel arbitration for an abuse of
discretion, deferring to the court’s factual determinations supported by the record but reviewing
legal determinations de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009)
(orig. proceeding); Schmidt Land Servs., Inc. v. Unifirst Corp., 432 S.W.3d 470, 472 (Tex. App.—
San Antonio 2014, pet. denied). Whether a valid arbitration agreement exists and is enforceable
are legal determinations subject to de novo review. In re Labatt, 279 S.W.3d at 643; J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Whether the scope of an arbitration
agreement encompasses the claims in dispute is also a question of law reviewed de novo. Henry
v. Gonzalez, 18 S.W.3d 684, 691 (Tex. App.—San Antonio 2000, pet. dism’d). When the trial
court makes no specific findings or conclusions in support of its order, the reviewing court upholds
the trial court’s ruling if there is a sufficient basis under any legal theory asserted in the trial court.
In re W.E.R., 669 S.W.2d 716, 717 (Tex. 1984) (per curiam) (citing Lassiter v. Bliss, 559 S.W.2d
353, 346 (Tex. 1997)).
Applicable Law (FAA)
A party seeking to compel arbitration under the FAA bears the burden of establishing (1)
the existence of a valid and enforceable agreement to arbitrate, and (2) that the claims at issue fall
within the scope of the arbitration agreement. In re Rubiola, 334 S.W.3d 220, 223-24 (Tex. 2011);
In re Dillard Dept. Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006). Under the FAA, ordinary
principles of state contract law apply in determining whether a valid agreement to arbitrate exists.
In re Rubiola, 334 S.W.3d at 224 (agreement to arbitrate is valid if it meets general contract law
requirements of the state); see J.M. Davidson, 128 S.W.3d at 227 (in construing a written contract,
the primary concern of Texas courts is to ascertain the true intentions of the parties as expressed
in the instrument as a whole).
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When determining whether a particular claim falls within the scope of an arbitration
agreement, courts employ a strong presumption in favor of arbitration. In re Rubiola, 334 S.W.3d
at 225; Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (“any doubts as to
whether . . . claims fall within the scope of the agreement must be resolved in favor of arbitration”
under the FAA). However, the presumption in favor of arbitration arises only after the party
seeking to compel arbitration proves that a valid arbitration agreement exists. J.M. Davidson, 128
S.W.3d at 227. To determine whether a claim falls within the scope of the agreement, courts focus
on the factual allegations in the plaintiff’s petition, rather than the legal causes of action asserted,
and the terms of the arbitration agreement. In re Rubiola, 334 S.W.3d at 225; In re Labatt, 279
S.W.3d at 643 (federal law generally governs the scope of an arbitration agreement).
If the party seeking arbitration meets its two-pronged burden to show the agreement’s
validity and scope, the party opposing arbitration then has the burden to raise an affirmative
defense to enforcement of the arbitration agreement. J.M. Davidson, 128 S.W.3d at 227; Venture
Cotton Coop. v. Freeman, 435 S.W.3d 222, 227 (Tex. 2014). A party opposing arbitration can
raise a contract-formation defense, arguing that no agreement to arbitrate was ever formed, or a
contract-validity defense such as fraud, unconscionability, duress, or illusory contract. See In re
Morgan Stanley & Co., Inc., 293 S.W.3d 182, 187 (Tex. 2009) (contract-formation defense); see
id. at 185 (contract-validity defense); see also In re Olshan Found. Repair Co. LLC, 328 S.W.3d
883, 891-92 (Tex. 2010). The party opposed to arbitration may also assert that his claims fall
outside the scope of the arbitration agreement. Rachal v. Reitz, 403 S.W.3d 840, 850 (Tex. 2013);
In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008).
Because the trial court signed a general order denying the AAU’s motion to compel
arbitration, we will address each objection raised by Bray in the trial court upon which the order
could have been based. Lassiter, 559 S.W.2d at 346; In re W.E.R., 669 S.W.2d at 717.
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Valid and Enforceable Arbitration Agreement
Non-Signatories
The AAU and Individual Defendants argue on appeal that they proved the existence of a
valid and enforceable arbitration agreement which binds Bray through his membership and role as
an officer in the AAU. Bray argued in the trial court that neither he nor the three Individual
Defendants personally signed or agreed to be individually bound by the arbitration agreement
contained in the AAU National Policies and Code. Therefore, Bray asserted that, as non-
signatories, the Individual Defendants cannot enforce arbitration and he cannot be compelled to
arbitrate. Whether a non-signatory can compel arbitration, or be compelled to arbitrate, goes to
the existence of a valid arbitration clause and is a gateway matter for the court to decide and which
we review de novo. In re Rubiola, 334 S.W.3d at 224; In re Labatt, 279 S.W.3d at 643 (citing In
re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005)).
Under the FAA, ordinary principles of state contract law govern whether there is a valid
agreement to arbitrate. In re Rubiola, 334 S.W.3d at 224; In re Kellogg Brown & Root, Inc., 166
S.W.3d 732, 738 (Tex. 2005) (orig. proceeding). Generally, parties must sign an arbitration
agreement before being bound by it. In re Rubiola, 334 S.W.3d at 224. However, neither the FAA
nor Texas law requires that an arbitration agreement be signed as long as it is in writing and agreed
to by the parties. See 9 U.S.C. § 2; see also In re AdvancePCS Health L.P., 172 S.W.3d 603, 606
(Tex. 2005) (per curiam) (arbitration clause contained in an insurer’s provider agreement was
binding even though the member pharmacies signed only the membership and network enrollment
forms); see also In re Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2002) (holding arbitration clause
was accepted by continued employment). Thus, an obligation to arbitrate may attach not only to
one who has personally signed the written arbitration agreement, but may also bind a non-signatory
under principles of contract law and agency. In re Rubiola, 334 S.W.3d at 224 (citing In re Kellogg
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Brown & Root, 166 S.W.3d at 738). Therefore, non-signatories to an arbitration agreement can
sometimes compel arbitration or be compelled to arbitrate. In re Labatt, 279 S.W.3d at 643; see,
e.g., In re Kaplan Higher Educ. Corp., 235 S.W.3d 206, 209 (Tex. 2007) (per curiam) (non-
signatory corporate parent and non-signatory admissions director could enforce broad arbitration
clause in enrollment agreement between college and students). Arbitration agreements, like other
contracts, are enforced according to their terms and the intentions of the parties. First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995). “[T]he question of ‘[w]ho is actually bound
by an arbitration agreement is [ultimately] a function of the intent of the parties, as expressed in
the terms of the agreement.’” In re Rubiola, 334 S.W.3d at 224 (quoting Bridas S.A.P.I.C. v. Gov’t
of Turkmenistan, 345 F.3d 347, 355, 358 (5th Cir. 2003)).
As previously noted, the arbitration agreement is contained in the AAU National Policies
and incorporated into the AAU Code. None of the individual parties personally signed the
arbitration agreement. However, Bray and the Individual Defendants did sign membership
applications renewing their AAU membership each year, and also served as officers of the AAU.
The AAU membership application expressly states that a member agrees to be bound by the AAU
National Polices and Code. In addition, the record contains two AAU documents signed by Bray
in his capacity as Governor of the South Texas District: (i) the 2012 District Charter Application
which contains a paragraph above Bray’s signature stating, “[i]n submitting this application and
paying the annual charter fee, the District and its officers and members agree to be bound by the
AAU Code, including its operating policies and procedures;” and (ii) a 2012 request and consent
by the South Texas District to be listed as a subordinate of the AAU and a group tax exemption
that included a section stating that the South Texas District would be bound by the AAU Code. In
addition, Bray, Campbell, and Oliver were present at the track meet in their official roles with the
AAU. Bray initially filed his complaints against Campbell and Oliver with the AAU and followed
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the AAU administrative procedures for resolution of his complaint and his appeal. Seaford’s only
involvement in the dispute with Bray was in his official role as Chairman of the AAU National
Board of Review. By invoking and exhausting the AAU administrative complaint process set forth
in the AAU National Policies, Bray acknowledged that the National Policies, including the
arbitration clause, apply to the “civil dispute” at issue.
With respect to the Individual Defendants, Bray alleges in his petition that all of their
challenged actions were “within the scope of their employment and in furtherance of the AAU’s
business” and he invokes respondeat superior to hold the AAU liable for the Individual
Defendants’ acts. Based on Bray’s factual allegations in the petition, the actions and statements
by the three Individual Defendants all occurred either at the AAU-sponsored track meet (Oliver
and Campbell) or during the AAU appeals process (Seaford). Under the doctrine of respondeat
superior, an employer or principal may be vicariously liable for the tortious acts of any employee
or agent acting within the scope of the employment or agency, even though the principal or
employer did not itself commit a wrong. St. Joseph Hosp. v. Wolff, 94 S.W.3d 513, 541-42 (Tex.
2002). “When the principal is bound under the terms of a valid arbitration clause, its agents,
employees, and representatives are covered by that agreement.” In re Merrill Lynch Trust Co.
FSB, 123 S.W.3d 549, 556 (Tex. App.—San Antonio 2003, orig. proceeding) (quoting McMillan
v. Computer Translation Sys. & Support, Inc., 66 S.W.3d 477, 481 (Tex. App.—Dallas 2001, orig.
proceeding)). “The scope of an arbitration agreement may be extended to claims against agents of
the principal when all the agents’ allegedly wrongful acts relate to their behavior as agents of the
principal signatory company, and those acts were within the scope of the claims covered by the
arbitration provisions for which the principal would be liable.” In re Merrill Lynch, 123 S.W.3d
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at 556. Here, according to Bray’s own factual allegations, the Individual Defendants were acting
as agents of the AAU when they engaged in the conduct upon which Bray’s claims are based. 1
We therefore conclude that, under the principles of contract law and agency discussed
above, Bray, the Individual Defendants, and the AAU were all obligated to arbitrate Bray’s claims
under the AAU National Policies.
Scope of the Agreement
The AAU and Individual Defendants also argue they established that Bray’s tort claims
fall within the scope of the arbitration agreement and do not stand apart from the AAU National
Policies and Code. As quoted above, the arbitration agreement is very broad in scope,
encompassing “all civil disputes.” Under a broad arbitration clause, arbitration can be compelled
even though the particular dispute is not specifically covered. In re D. Wilson Constr. Co., 196
S.W.3d 774, 783 (Tex. 2006). For example, an agreement to arbitrate “all disputes” arising from
a contract may encompass some tort claims. See Merrill Lynch v. Wilson, 805 S.W.2d 38, 39 (Tex.
App.—El Paso 1991, no writ). If the facts alleged in support of the claim have a “significant
relationship” to or are “factually intertwined” with the contract that is subject to the arbitration
agreement, then the claim is within the scope of the arbitration agreement and is arbitrable. See In
re Dillard Dept. Stores, 186 S.W.3d at 515 (arbitration clause in employment contract covered
defamation claim); Pennzoil Co. v. Arnold Oil Co., Inc., 30 S.W.3d 494, 498 (Tex. App.—San
Antonio 2000, orig. proceeding). If the facts alleged stand alone and are completely independent
of the contract, the claim is not subject to arbitration. Pennzoil, 30 S.W.3d at 498.
1
Bray stresses that Section 1(I) of the AAU National Policies states, “Membership in the AAU does not create an
agency relationship.” However, as noted, Bray and the Individual Defendants were not merely members of the AAU,
but were officers of the AAU.
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Focusing on the factual allegations in Bray’s petition, rather than the legal causes of action
asserted, it is apparent that all of Bray’s claims against Oliver and Campbell arise out of their
actions in accusing Bray of committing sexual misconduct at the AAU-sanctioned track meet.
Section I(E) of the AAU National Policies expressly addresses the bases upon which a member’s
participation in the AAU may be denied on the basis of sexual misconduct. It provides that, “It is
the policy of the AAU to deny participation in the AAU to any individual for whom there is
reasonable cause to believe that they have engaged in sexual misconduct.” It then provides that
“reasonable cause” exists when (1) criminal or civil charges alleging sexual misconduct have been
filed against the person, (2) the person has been convicted of a crime involving sexual misconduct,
(3) written allegations of sexual misconduct with reasonable probative value have been submitted
to the AAU, or (4) the person has been accused of sexual misconduct and the accusation has
reasonable probative value.
Oliver and Campbell were present at the track meet in their capacity as AAU officers,
specifically as the Meet Director and Junior Olympic Event Director, and acted within those roles
in dealing with Bray after the accusation of sexual misconduct. Bray’s allegations against Seaford
are that he failed to investigate Bray’s complaint before dismissing it. Seaford’s conduct occurred
solely within the scope of his role as Chairman of the AAU National Board of Appeals. Bray’s
petition also includes a factual allegation that Oliver violated the AAU Code and Handbook
because he “has allowed members to circumvent the intent and historical application of the AAU
Athletics Handbook as well as the AAU Code by openly awarding medals/awards to participants
five or more hours prior to the event. . . . in direct violation of the ‘participation’ rule in the AAU
Athletics Handbook . . . .” Thus, all of the claims raised by Bray arise out of actions taken by the
Individual Defendants in their roles as AAU officers, whether at the AAU-sponsored track meet
or in the course of the administrative appeal of Bray’s complaint. As such, the claims are factually
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intertwined with the contract at issue, and do not arise separate and apart from the AAU policies
and rules; therefore, Bray’s claims fall within the scope of the arbitration agreement contained in
the AAU National Policies and Code. See Marshall, 909 S.W.2d at 899 (doubts regarding whether
claims fall within scope of arbitration agreement are resolved in favor of arbitration once valid
agreement is proven to exist); J.M. Davidson, 128 S.W.3d at 227.
Conclusion
We conclude that, as the parties seeking to compel arbitration, the AAU and the Individual
Defendants met their burden to establish the existence of a valid arbitration agreement governing
the instant dispute. See In re Odyssey Healthcare, Inc., 310 S.W.3d 419, 422 (Tex. 2010) (orig.
proceeding).
Defense to Enforcement of Arbitration Agreement
We now turn to whether Bray, as the party seeking to avoid arbitration, met his burden to
prove a defense against enforcement of the otherwise valid arbitration agreement. Id.; In re
FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001). As noted, Bray raised two affirmative
defenses to enforcement of the arbitration clause in the trial court, asserting the agreement is
illusory and unconscionable.
Illusory Agreement
Bray asserted the arbitration agreement is illusory, and thus invalid, because it contains no
restriction on the AAU’s ability to unilaterally amend or terminate the arbitration agreement,
thereby allowing the AAU to avoid its promise to arbitrate; he asserts there is no mutual obligation
to arbitrate and thus, no consideration. He contends a savings clause in the agreement was
necessary to prevent the agreement from being illusory. See Halliburton, 80 S.W.3d at 569-70
(employer’s promise to arbitrate was not illusory because arbitration agreement contained a
“savings clause” requiring prior notice of changes and making changes prospective). Because the
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arbitration agreement does not contain such a savings clause, Bray asserts the agreement is
unenforceable.
Arbitration agreements are subject to ordinary contract principles, and thus must be
supported by consideration, or mutuality of obligation, to be enforceable. In re Palm Harbor
Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006) (orig. proceeding). Mutual promises to submit all
disputes to arbitration provide sufficient consideration for an arbitration agreement. In re Odyssey
Healthcare, 310 S.W.3d at 424. An arbitration clause is illusory when one party can avoid its
promise to arbitrate by amending the provision or terminating it altogether. In re 24R, Inc., 324
S.W.3d 564, 567 (Tex. 2010) (per curiam) (promise is illusory when promisor retains the option
to discontinue performance). With respect to stand-alone arbitration agreements, binding promises
to arbitrate by both sides constitute the only consideration to create the contract. In re
AdvancePCS, 172 S.W.3d at 607. However, when an arbitration clause is part of an underlying
contract, the remainder of the parties’ agreement provides the consideration for the arbitration
agreement. Id.; In re Palm Harbor Homes, 195 S.W.3d at 676-77.
The arbitration agreement here contains no restrictions on the AAU’s ability to amend or
terminate it, and the parties agree the AAU has amended the provision twice in the past, most
recently in March 2009. However, the arbitration agreement is not a stand-alone contract, but
rather is part of a much broader underlying contract, i.e., the AAU National Policies and Code,
that governs the conduct of all AAU members. Bray repeatedly renewed his AAU membership,
and enjoyed the benefits and bore the obligations of such membership for over thirty years. In
addition, Bray was elected and served as Governor of the South Texas District, and was then re-
elected to another four-year term after the March 2009 amendment, thereby indicating his
acceptance of the amended arbitration provision. Further, Bray’s actions in following the internal
AAU procedure and exhausting his administrative remedies before filing the underlying lawsuit
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constitute an acknowledgment that the terms of the AAU National Policies and Code govern
resolution of his claims in this civil dispute. We conclude that the remainder of the underlying
contract formed by the AAU National Policies and Code provides sufficient consideration and
mutuality of obligation for the arbitration agreement, and the agreement is not illusory. See In re
AdvancePCS, 172 S.W.3d at 607; see also Cleveland Constr., Inc. v. Levco Constr., Inc., 359
S.W.3d 843, 853-54 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d).
Unconscionable Agreement
Next, Bray asserted the arbitration agreement was not enforceable because it is
procedurally and substantively unconscionable. “Substantive unconscionability refers to the
fairness of the arbitration provision itself, whereas procedural unconscionability refers to the
circumstances surrounding adoption of the arbitration provision.” Royston, Rayzor, Vickery, &
Williams, LLP v. Lopez, 467 S.W.3d 494, 499 (Tex. 2015); In re Palm Harbor Homes, 195 S.W.3d
at 677. Unconscionable contracts, whether relating to arbitration or not, are unenforceable under
Texas law. In re Poly-Am., 262 S.W.3d at 348. A party seeking to avoid arbitration on
unconscionability grounds bears the burden of proof. Halliburton, 80 S.W.3d at 572.
Bray argued that the arbitration agreement is procedurally unconscionable because he did
not sign the agreement and it is illusory due to a lack of mutuality. We have already rejected both
of these arguments.
With respect to substantive unconscionability, Bray contended the costs of arbitrating in
Florida, as required by the agreement, would be excessive and would impose an unfair financial
burden on him. He also asserted that the agreement’s prohibition against punitive damages
deprived him of a full remedy. We first address the issue of excessive costs. When the costs
imposed by an arbitration agreement are excessive and effectively prevent a party from asserting
his rights in an arbitration proceeding, the arbitration agreement may be substantively
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unconscionable. In re Olshan, 328 S.W.3d at 893; In re Palm Harbor Homes, 195 S.W.3d at 677.
The party opposing arbitration on the basis of excessive costs has the burden to show the costs of
arbitration would be prohibitively expensive and must submit specific evidence showing the
likelihood of incurring such costs for the particular arbitration. In re Olshan, 328 S.W.3d at 893,
895 & n.5. Such specific evidence can consist of invoices, expert testimony, reliable cost
estimates, or other comparable evidence. Id. at 895; BBVA Compass Inv. Solutions, Inc. v. Brooks,
456 S.W.3d 711, 724 (Tex. App.—Fort Worth 2015, no pet.). In determining whether the costs of
arbitration are excessive, courts apply a case-by-case analysis and focus on the following factors:
(1) the party’s ability to pay the arbitration fees and costs; (2) the actual amount of the fees
compared to the amount of the underlying claim(s); (3) the expected cost differential between
arbitration and litigation; and (4) whether that cost differential is so substantial that it would deter
a party from bringing a claim. In re Olshan, 328 S.W.3d at 893-94. A comparison of the total
costs of the two forums, litigation and arbitration, is the most important factor. Id. at 894-95;
Brooks, 456 S.W.3d at 724.
Here, Bray attached his affidavit to his post-hearing brief stating that the costs of arbitration
would be a “serious financial burden,” but he provided no supporting evidence or documentation
concerning his financial ability or inability to pay the arbitration fees and costs. The only
information submitted with respect to the actual amount of arbitration fees and costs was a copy
of a travel package quote for $588 from Southwest Airlines’ website for a particular weekend in
April 2015 and the AAA chart showing the initial and final arbitration fees of $750 and $800, and
the general hourly fees between $200-$500 for an arbitrator; there was no evidence of the actual
amount of fees for this particular arbitration. Bray’s affidavit also described his claimed damages
totaling $9,780. Other than his conclusory statement that paying the costs of arbitration would
create a financial burden on him, Bray did not establish the estimated costs of proceeding with
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litigation of his claims, the cost differential between arbitration and litigation, or show that such
differential is so great that it would deter him from bringing his claims. See In re Olshan, 328
S.W.3d at 893-94. “Evidence that merely speculates about the risk of possible cost is insufficient.”
Id. at 895. We conclude Bray failed to meet his burden to provide specific evidence on the four
relevant factors with respect to the costs of this particular arbitration. See id.; see also In re
Odyssey Healthcare, 310 S.W.3d at 422-23 (even if being forced to arbitrate in a different city
would cause substantial expense, plaintiff did not prove that such costs were likely); Brooks, 456
S.W.3d at 724 (record contained no specific evidence that excessive arbitration fees would actually
be charged).
Finally, Bray asserted the arbitration agreement is unconscionable due to its prohibition
against the recovery of punitive or exemplary damages. Bray pled for recovery of exemplary
damages pursuant to section 41.003(a)(2) of the Civil Practice and Remedies Code based on the
Individual Defendants having acted with malice. That statute authorizes the award of exemplary
damages if “the claimant proves by clear and convincing evidence that the harm with respect to
which the claimant seeks recovery of exemplary damages results from . . . malice.” TEX. CIV.
PRAC. & REM. CODE ANN. § 41.003(a)(2) (West 2015). Because the portion of the arbitration
agreement prohibiting punitive damages eliminates a statutory remedy that is available as a matter
of public policy upon proof of malicious conduct, we conclude that provision is unconscionable
and unenforceable. Pursuant to the arbitration agreement’s severability clause, the provision
prohibiting punitive damages is hereby severed from the remainder of the valid and enforceable
arbitration agreement. See In re Poly-Am., 262 S.W.3d at 351-52, 360 (provision of arbitration
agreement that eliminated the reinstatement and punitive damages remedies available under the
anti-retaliation provisions of Worker’s Compensation Act was unconscionable and was severed
pursuant to severability clause of the agreement); see also Hadnot v. Bay, Ltd., 344 F.3d 474, 478
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04-15-00268-CV
(5th Cir. 2003) (severing unconscionable clause prohibiting award of punitive damages); Sec. Serv.
Fed. Credit Union v. Sanders, 264 S.W.3d 292, 300-01 (Tex. App.—San Antonio 2008, no pet.)
(severing arbitration agreement’s provision waiving right to recover attorney’s fees under DTPA).
Conclusion
Except for the unconscionable punitive damages prohibition, we conclude Bray failed to
carry his burden to establish a defense to enforcement of the otherwise valid arbitration agreement.
CONCLUSION
Based on the foregoing reasons, we hold that the trial court erred in denying the motion to
compel arbitration urged by the AAU and the Individual Defendants, and we reverse the trial
court’s order denying the motion to compel arbitration and remand for entry of an order compelling
arbitration and staying further proceedings in the underlying cause. As stated above, the portion
of the arbitration agreement prohibiting recovery of punitive or exemplary damages is
unconscionable and is severed from the remainder of the otherwise valid and enforceable
arbitration agreement.
Rebeca C. Martinez, Justice
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