81R1307 AJA-F
By: West S.B. No. 222
A BILL TO BE ENTITLED
AN ACT
relating to arbitration and arbitration agreements.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. (a) The Texas Legislature, whose power is
defined broadly to include the power to set public policy, has
adhered to the Texas heritage of permissive arbitration and has not
declared a public policy favoring compulsory arbitration. The
Texas Arbitration Act, codified as Chapter 171, Civil Practice and
Remedies Code, was intended to reflect the Texas heritage of
permissive arbitration and was not intended to serve as an
expression of public policy compelling arbitration in the absence
of an agreement or as a consequence of agreements among parties of
disparate bargaining power, nor was it intended to derogate the
constitutionally protected right to trial by jury.
(b) A series of Texas Supreme Court decisions have changed
the intention and meaning of the Act so that it now extends to
nonsignatories and disputes among parties of disparate bargaining
power, such as consumer and employment disputes. As a result, Texas
consumers and employees may be compelled to submit their claims to
binding arbitration, even in the absence of agreement.
(c) Few people realize or understand the significance of
arbitration clauses set forth in fine print that strip them of
constitutionally protected rights. Because entire industries have
adopted the placement of arbitration clauses in documents of trade
or commerce, people increasingly have no choice but to accept them.
They must often give up their rights as a condition of having a job,
getting necessary medical care, buying a home, buying a car,
opening a bank account, getting a credit card, investing their
money, buying insurance, or buying an array of consumer goods and
services. Oftentimes, they are not even aware that they have given
up their rights.
(d) Mandatory or compulsory arbitration undermines the
development of public law for civil and consumer rights because
there is no meaningful judicial review of arbitrators' decisions.
Because they are working outside the civil justice system, and with
knowledge that their rulings will not be examined by a court
applying applicable law, arbitrators enjoy near-complete freedom
to ignore the law.
(e) Mandatory or compulsory arbitration is a poor system for
protecting civil and consumer rights because it is not transparent.
While the American civil justice system features publicly
accountable jurists who issue written decisions that are widely
available to the public and are subject to appellate scrutiny,
arbitration does not offer transparent or protective features.
(f) Many business entities add unfair provisions to their
arbitration clauses that deliberately tilt the systems against
individuals, including provisions that strip individuals of
substantive statutory rights, ban class actions, and force people
to arbitrate their claims hundreds or thousands of miles from their
homes. While some courts have been protective of individuals, too
many have upheld even egregiously unfair mandatory arbitration
clauses in deference to a supposed federal or state policy favoring
arbitration over the constitutional rights of individuals.
(g) Private arbitration companies, which have emerged to
handle the increase in arbitration business, are sometimes under
pressure to devise systems or engage in conduct that favors the
business entities that decide whether those companies will receive
their lucrative repeat arbitration business.
(h) For these reasons, Chapter 171, Civil Practice and
Remedies Code, should be amended to restore fairness to the system
of arbitration in Texas.
SECTION 2. Section 171.001, Civil Practice and Remedies
Code, is amended by amending Subsection (a) and adding Subsections
(c) and (d) to read as follows:
(a) Except as provided by this section, a [A] written
agreement to arbitrate is valid and enforceable if the agreement is
to arbitrate a controversy that:
(1) exists at the time of the agreement; or
(2) arises between the parties after the date of the
agreement.
(c) An agreement to arbitrate a controversy that arises
between the parties to the agreement after the date of the agreement
is void and unenforceable if the agreement requires arbitration of:
(1) a dispute between an employer and employee arising
out of the relationship of employer and employee, as defined by the
federal Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.);
(2) a dispute involving:
(A) a person who seeks or acquires goods, real or
personal property, services, money, or credit for personal, family,
or household purposes; and
(B) a seller or provider of goods, property,
services, money, or credit that is a business organization or
entity;
(3) a dispute between a franchisor and franchisee
arising out of or relating to a contract or agreement under which:
(A) a franchisee is granted the right to engage
in the business of offering, selling, or distributing goods or
services under a marketing plan or system prescribed in substantial
part by a franchisor;
(B) the operation of the franchisee's business
under the plan or system is substantially associated with the
franchisor's trademark, service mark, trade name, logotype,
advertising, or other commercial symbol designating the franchisor
or the franchisor's affiliate; and
(C) the franchisee is required to pay, directly
or indirectly, a franchise fee; or
(4) a dispute arising under any statute intended to
protect civil rights or regulate contracts or transactions between
parties of unequal bargaining power.
(d) Except as otherwise provided by this chapter, the
validity or enforceability of an arbitration agreement shall be
determined by a court, rather than the arbitrator, regardless of
whether the party resisting arbitration challenges the arbitration
agreement specifically or in conjunction with other terms of the
contract containing the agreement.
SECTION 3. Subchapter A, Chapter 171, Civil Practice and
Remedies Code, is amended by adding Section 171.0021:
Sec. 171.0021. APPLICABILITY OF CHAPTER. (a) This chapter
does not apply to an arbitration provision:
(1) in a collective bargaining agreement between an
employer and a labor union; or
(2) required by statute.
(b) An issue as to whether this chapter applies to an
arbitration agreement shall be determined under the law of this
state.
SECTION 4. Section 171.021, Civil Practice and Remedies
Code, is amended by adding Subsection (d) to read as follows:
(d) An order compelling arbitration may not violate a right
protected by the constitution of this state or the United States
unless the person holding the right knowingly waives the right.
SECTION 5. Section 171.041, Civil Practice and Remedies
Code, is amended by adding Subsection (d) to read as follows:
(d) An arbitrator appointed under Subsection (b) must
satisfy objective qualification standards that consider education,
training, and experience.
SECTION 6. Section 171.044, Civil Practice and Remedies
Code, is amended by adding Subsection (d) to read as follows:
(d) Notwithstanding Subsection (c), the hearing may not
proceed in the absence of notice or waiver of notice in accordance
with this section.
SECTION 7. Section 171.047, Civil Practice and Remedies
Code, is amended to read as follows:
Sec. 171.047. RIGHTS OF PARTY AT HEARING. (a) Unless
otherwise provided by the agreement to arbitrate, a party at the
hearing is entitled to:
(1) be heard;
(2) present evidence material to the controversy;
[and]
(3) cross-examine any witness; and
(4) obtain a stenographic recording of the hearing in
accordance with Subsection (b).
(b) A party must request a stenographic recording before the
commencement of the hearing or the party's right to obtain the
recording is waived. A stenographic recording under this section
may be made by any officer authorized by law to record testimony.
The cost of the stenographic recording shall be borne by all parties
requesting the recording or requesting a copy of the recording. The
cost of the stenographic recording may be considered by the
arbitrator to be an expense incurred in conducting the arbitration
under Section 171.055.
SECTION 8. Section 171.088(a), Civil Practice and Remedies
Code, is amended to read as follows:
(a) On application of a party, the court shall vacate an
award if:
(1) the award was obtained by corruption, fraud, or
other undue means;
(2) the rights of a party were prejudiced by:
(A) evident partiality by an arbitrator
appointed as a neutral arbitrator;
(B) corruption in an arbitrator; or
(C) misconduct or wilful misbehavior of an
arbitrator;
(3) the arbitrators:
(A) exceeded their powers;
(B) refused to postpone the hearing after a
showing of sufficient cause for the postponement;
(C) refused to hear evidence material to the
controversy; or
(D) conducted the hearing, contrary to Section
171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that
substantially prejudiced the rights of a party; [or]
(4) there was no agreement to arbitrate, the issue was
not adversely determined in a proceeding under Subchapter B, and
the party did not participate in the arbitration hearing without
raising the objection; or
(5) the award clearly violates fundamental public
policy or is the result of manifest disregard of the law.
SECTION 9. Section 171.098(a), Civil Practice and Remedies
Code, is amended to read as follows:
(a) A party may appeal a judgment or decree entered under
this chapter or an order:
(1) granting or denying an application to compel
arbitration made under Section 171.021;
(2) granting an application to stay arbitration made
under Section 171.023;
(3) confirming or denying confirmation of an award;
(4) modifying or correcting an award; or
(5) vacating an award without directing a rehearing.
SECTION 10. Section 171.002, Civil Practice and Remedies
Code, is repealed.
SECTION 11. The change in law made by this Act applies only
to an arbitration agreement entered into on or after the effective
date of this Act. An arbitration agreement entered into before the
effective date of this Act is governed by the law in effect
immediately before that date, and that law is continued in effect
for that purpose.
SECTION 12. This Act takes effect immediately if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for immediate
effect, this Act takes effect September 1, 2009.