SCOTx: Agreeing to Arbitrate According to the AAA Rules Constitutes “Clear and Unmistakable” Agreement to Delegate Questions of Arbitrability to the Arbitrator

TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC

Supreme Court of Texas, No. 21-0028 (April 14, 2023)

Opinion by Justice Boyd (linked here), Concurrence by Justice Bland (here), Dissent by Justice Busby (here)

Ken Carroll

AAA Commercial Rule 7(a) provides that an arbitrator “shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Relying on that passage, the Supreme Court of Texas confirmed what most of us thought we already knew, holding that, “as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator,” not a court, “must decide whether the parties’ disputes must be resolved through arbitration”—i.e., questions of arbitrability. The Court buttressed its pronouncement with a comprehensive review of other courts’ decisions on the issue, which revealed that “the vast majority of federal circuit courts and other state supreme courts have reached this same conclusion.”

But the TotalEnergies arbitration agreement came with a wrinkle. It said:

If any dispute or controversy arises between the parties out of this Agreement, the alleged breach thereof, or any tort in connection therewith, … the same shall be submitted to arbitration . . . in accordance with the rules of the AAA and the provisions in this Article.

Justice Busby contended in dissent that the “if” took the agreement out of the “general rule” recognized by the majority. “As a matter of text and logic,” he argued, “the ‘if’ clause is a substantive condition precedent to arbitrators acquiring the power to decide anything at all .…, including any issues … regarding [their] jurisdiction.” At the very least, he concluded, this “if” precondition precluded a determination that the parties had “clearly and unmistakably” agreed to delegate questions of arbitrability to the arbitrators unless and until a court first found the precondition to have been met. And, as both he and the majority acknowledged, it appears the Second and Fifth Circuits agree with that analysis.

The majority, however, rejected that argument. Just as an arbitration provision is “severable” and to be evaluated separately from the overall contract in which it appears, so also, the Court said, should a delegation clause be considered severable and evaluated separately from the overall arbitration agreement. Viewed through this lens, the delegation clause here—incorporating the AAA rules—was absolute and not subject to the “if” precondition. Consequently, the Court held, even under the language of the TotalEnergies arbitration agreement, the parties “clearly and unmistakably” delegated questions of arbitrability to the arbitrator.

SCOTX CLARIFIES IMMUNITY AND PRIVILEGE ISSUES FOR ATTORNEYS

Haynes and Boone, LLP v. NFTD, LLC

Supreme Court of Texas, No. 20-0066 (May 21, 2021)

Justice Bland (opinion available here)

Landry’s, Inc. v. Animal Legal Defense Fund

Supreme Court of Texas, No. 19-0036 (May 21, 2021)

Justice Blacklock (opinion available here)

Kelli Hinson

The SCOTX issued two long-awaited decisions clarifying the scope of important immunity protections for attorneys—attorney immunity and the judicial-proceedings privilege.

First, in Haynes and Boone v. NFTD, the Court expressly confirmed for the first time that the attorney-immunity doctrine applies outside the context of litigation. The doctrine, previously outlined and applied to litigation and “quasi-litigation” matters in Cantey Hanger v. Byrd and other cases, immunizes lawyers from claims by non-client third parties based on actions those lawyers take on behalf of their clients. In clarifying the scope of the doctrine, the Court has now held it operates “in all adversarial contexts in which an attorney has a duty to zealously and loyally represent a client, including a business-transactional context,” assuming the conduct at issue is the kind of conduct the doctrine is intended to protect—that is, “the provision of ‘legal’ services involving the unique office, professional skill, training, and authority of an attorney.”

The Court’s ruling was not unexpected, but will provide welcome certainty among non-litigation attorneys regarding the scope of their immunity. Questions remain, however, about whether the lawyer’s particular conduct on which a claim is based is the “kind of conduct” the doctrine should protect. The Court remanded the NFTD case for the court of appeals to consider whether any of the lawyer’s conduct at issue there was non-lawyerly in nature, so as to remove it from the scope of immunity in light of the other opinion issued by the Court on the same day, Landry’s v. Animal Legal Defense Fund.

In Landry’s, the Court analyzed the scope of attorney conduct subject to protection and held that the attorney-immunity doctrine and the “judicial-proceedings privilege” do not apply to or protect lawyers’ statements to the media about a pending or potential case, or to lawyers’ social media posts about those matters. There, the plaintiff’s counsel delivered a “60-day notice of intended suit” to the opposing party, as required by the applicable statute. But the attorney and his client went further, providing the pre-suit notice letter to the media and issuing a press release and social media posts about it. When Landry’s sued, alleging defamation and other claims, the trial court dismissed. But the Supreme Court reversed.

The judicial-proceedings privilege protects “communications in the due course of a judicial proceeding,” including communications “in serious contemplation of such a proceeding.” Providing the 60-day notice letter to the prospective defendant, as required by statute, therefore is fine and was protected, even if that letter contained defamatory statements. Repeating the allegations to the press and on Facebook, however, is not protected. Similarly, the Court held that providing the notice letter to the media and publicizing it through press releases and social media posts are not covered by the attorney-immunity doctrine either, because that is not the “kind of conduct” the doctrine was meant to protect. That is, “such statements, while sometimes made by lawyers, do not partake of ‘the office, professional training, skill, and authority of an attorney.’” If a publicist and a lawyer issue identical public statements to the press or on social media, why should the publicist be subject to a defamation claim, but not the lawyer? Even though many lawyers do resort to publicity, thinking it will aid their client’s cause, such conduct is not unique to lawyers or a product of legal training or skill. So, they are not protected in doing so by the attorney-immunity doctrine after Landry’s.

The Supreme Court noted that its ruling today falls in line with “the widely adopted rule in other American jurisdictions.” But not all Texas courts, much less all practitioners and commentators, shared that view up to now. The Landry’s ruling likely will prompt many attorneys to revisit their tactics in publicizing allegations made in lawsuits—or at least to think twice before taking to Twitter or Facebook.

SCoTx HOLDS A SECOND PART OF THE EXPUNCTION STATUTE TO BE “OFFENSE-BASED” RATHER THAN “ARREST-BASED”

Ex parte R.P.G.P.

Supreme Court of Texas, No. 19-1051 (May 14, 2021)

Justice Guzman (Opinion, linked here), Justice Bland Dissenting (Opinion linked here)

Ken Carroll

Expunction is a statutory civil remedy that, when applicable, largely erases the record of an individual's arrest. It allows one who has been arrested to “deny the occurrence of the arrest and [deny even] the existence of the expunction order” itself, except in a criminal proceeding. It also prohibits governmental and private entities named in the expunction order from maintaining, disseminating, or using the expunged records “for any purpose.” A court will issue an expunction order if the prerequisites and conditions specified in the statute are met. See Tex. Code Crim. Pro. art. 55.01. The statute, however, is not a model of clarity. The Supreme Court of Texas describes it as “linguistically complex and present[ing] a statutory construction challenge that courts at all levels have grappled with.”

One particularly vexing problem arises when an individual is arrested on multiple charges, one or more of which later would qualify for expunction if viewed in isolation, while others would not. Until fairly recently, most Texas courts facing that situation had held the test for expunction to be “arrest-based” rather than “offense-based”—that is, if any of the multiple offenses for which the petitioner was arrested did not qualify for expunction, then none covered by that same arrest could be expunged. In 2018, however, the Supreme Court held that Article 55.01(a)(1)—which authorizes expunction on the basis of acquittal or pardon—is “offense-based” rather than “arrest-based,” such that an individual arrested on multiple charges could obtain “partial expunction” and redaction of arrest records for the charges on which he was acquitted or pardoned, even if other charges entailed in the same arrest did not qualify for that relief. State v. T.S.N., 547 S.W.3d 617 (Tex. 2018).

In R.P.G.P., the Court dropped the second shoe, answering a question left open in T.S.N. R.P.G.P. deals with Article 55.01(a)(2), which concerns potential expunction in the context of dismissals and plea bargains. Although that provision has different requirements and conditions than Article 55.01(a)(1), addressed in T.S.N., the Supreme Court reached the same conclusion as in T.S.N., guided by that prior decision—an intricate analysis of the language of the statute compels the determination that “Article 55.01(a)(2) is an offense-based expunction provision and with respect to misdemeanor offenses, the proviso [or condition] in Article 55.01(a)(2)(A) is also offense-based.” Said another way, “the statute recognizes that [a single] arrest for multiple offenses is the functional equivalent of individual arrests for each individual offense,” each of which should be evaluated on its own for expunction purposes under Article 55.01(a)(2).

SCOTx AGAIN TELLS INSURERS: WAITING FOR AN APPRAISAL CAN TRIGGER DELAYED-PAYMENT PENALTIES

State Farm Lloyds v. Hinojos

Supreme Court of Texas, No. 19-0280 (March 19, 2021)

Opinion by Justice Bland linked here.

Dissents by Justices Guzman and Blacklock linked here and here.

Lyndon F. Bittle

The Texas Supreme Court has once again rejected the argument that by eventually paying an appraisal award, an insurer can avoid liability under the Prompt Payment of Claims Act, chapter 542 of the Texas Insurance Code.

As discussed last April in this blog, linked here, the Court has in recent years addressed several scenarios involving an insurer’s payment of an appraisal award long after the deadline imposed by the Prompt Payment Act. In each case, the Court held the insurer was potentially liable for the penalties imposed by the Act, including interest at 18% under section 542.060(a). Hinojos presents a slight variation on the theme. Rather than rejecting the claim, State Farm accepted the claim and paid the amount it determined was due ($2000) within the time period required by the Act. Fifteen months after the policyholder filed suit, Start Farm invoked the policy’s appraisal process. Shortly after the appraisal award was issued—about two and a half years after Hinojos submitted his claim—State Farm paid an additional $23,000. State Farm sought summary judgment on the grounds that “timely payment of the appraisal award precludes prompt payment damages under Chapter 542.” The trial granted summary judgment, and the court of appeals affirmed.

The Texas Supreme Court reversed and remanded. Finding that its previous decisions, including Barbara Technologies Corp. v. State Farm Lloyds (2019) and Alvarez v. State Farm Lloyds (2020), applied to these facts, the Court reiterated, “State Farm’s payment of the appraisal award outside the statutory deadline does not relieve it of Chapter 542 liability.” The Court held the result was compelled by the text of the Act and supported by public policy: “Otherwise, an insurer could pay a nominal amount toward a valid claim to avoid the prompt payment deadline that the Legislature has imposed.”

The dissenting Justices argued the language of the Act and the cases on which the majority relied did not support the majority’s conclusion. While they acknowledged concern about giving insurers “an incentive to low-ball insureds and hope they will accept the initial offer,” the dissenters noted “statutory claims are available against insurers” acting in bad faith, and insisted the Court’s “job is to apply the statutory text, not to worry about whether the text wisely aligns the incentives.”