Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes

Over the years, the Texas courts have followed federal courts in that they are now showing a preference that business disputes be resolved in arbitration rather than with a trial. Many view arbitration as a less costly, faster, and more logical way to solve conflicts between a company’s employees and its clients.

This willingness to have disputes be resolved outside a courtroom took on even more fervor in 2009, when the Texas Supreme Court determined that non-signatories in an arbitration agreement could be made to deal with their problems between each other away from the courtroom. The court held that an arbitration agreement between an employee and employer that was signed prior to the employee’s passing binds that employee’s wrongful death beneficiaries even if they didn’t sign the agreement. The state’s highest court said that in states where wrongful death actions are derivative, these are bound by the agreement of the decedent.

Then, in 2012, the Texas Supreme Court again exhibited its approval for dispute resolution methods not having to require a jury when it found in an employment dispute that a threat by an employer to use its legal right to fire an at-will employee if he didn’t sign a jury waiver is not coercion that would render a jury waiver agreement not valid. Also, a standalone arbitration agreement is still valid even if an employer keeps its right to unilaterally change or take back an employment policy in its employee manual. This includes arbitration policies (and even if the arbitration agreement doesn’t talk about the right to modify its terms or of incorporating the employment manual by reference.) Also, mutual promises to bring employment disputes to arbitration are satisfactory consideration for the agreements.

Meantime, the US Supreme Court also continues to express preference for arbitration. In 2010, the nation’s highest court held that arbitrators and not judges are the ones with the authority to decide whether unconscionability exists when the agreement gives the former that authority. Responding to a discrimination lawsuit by an employee, the court sided with employer Rent-A. Center. Inc., which had sought a motion to compel arbitration due to an agreement that the plaintiff had signed as part of terms for employment.

“Since landmark decisions in 1987, arbitration agreements in investors’ account documents have been strictly enforced,” said Texas securities arbitration lawyer William Shepherd. “Since that time virtually all disputes between securities firms and their clients have been decided in arbitration, not courts. Arbitration decisions, including in securities arbitration, are fully binding on the parties. In fact, is far more difficult to appeal or ‘vacate’ an arbitration award than it is to appeal a court decision. This can be bad for investors if the decision is unfavorable, but this is good for investors who win because they only rarely have to face years of appeals before they are paid.”

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