Texas: Appeals Panel Rules Trial Court Can't Order Mediation in a FAA Case (Web)

The Texas Court of Appeals, in Beaumont, Texas, ruled on Feb. 9, 2006, that in a case governed by the Federal Arbitration Act, it was improper for the trial court to defer a ruling on a motion to compel arbitration and order the parties to mediation.

In In re Heritage Building Systems, 2006 WL 300813 (Tex. App. Beaumont Feb. 9, 2006)(available at www.9thcoa.courts.state.tx.us/opinions/HTMLopinion.asp?OpinionID=8251) defendant Heritage Building Systems Inc., a North Little Rock, Ark., prefabricated builder, moved to compel arbitration under an American Arbitration Association clause in a purchase agreement for materials.

In an example of how not to draft an arbitration clause, the contract simply provided, “The parties designate American Arbitration Association as the arbitrator to conduct any hearings in Little Rock, Arkansas.”

The plaintiff, a Texas resident, filed a motion requesting that the trial court refer the matter to mediation, which it did. The trial court took Heritage’s motions to enforce the arbitration agreement under advisement until the mediation was concluded.

Heritage filed a writ of mandamus, arguing that since the contract involved the interstate shipment of goods, it was governed by the FAA. As a result, under the FAA, once the court was satisfied that the making of the agreement to arbitrate was not at issue, the court could do no more than order the parties to arbitrate.

The plaintiff didn’t dispute the FAA’s applicability, but argued that Texas’s policy of encouraging settlement allowed the court to refer the case to mediation before ordering the case to arbitration.

The appellate court--drawing upon decisions that forbade Texas courts from deferring a decision on motions to compel arbitration until after discovery was complete--reasoned that ordering the parties to mediate, like ordering them to engage in discovery, interfered with the parties’ expectations that their dispute would be expeditiously and promptly handled through arbitration, and would result in additional delay and expense.

The unanimous appeals panel, in a per curiam decision, directed that the trial court summarily rule on the motion to compel, or conduct an evidentiary hearing if necessary.

In throwing a bone to mediation practice, the panel noted that the arbitrator may or may not choose to require mediation but that a court doing so would undermine the parties’ expectations that their dispute would be resolved “by proceedings directed by an arbitrator.”