Texas Supreme Court Sides with Underwriters Insurance Companies in Finding that Only a Trial Court Judge Has Jurisdiction Over Class Action Claims
In November, the Texas Supreme Court upheld the Court of appeals judgment in a case that involved deciding whether an arbitrator or a trial court judge must decide whether arbitration can be conducted on a class basis; i.e. whether class allegations should be decided in arbitration or in state court. Ultimately, the state Supreme Court upheld the Court of appeals’ judgment in favor of Home Owners Management Enterprises Inc. d/b/a Home of Texas and Warranty Underwriters Insurance Companies; that that arbitrability of class claims is a “gateway” issue for the court unless the arbitration agreement clearly and unmistakably states otherwise,
The Case: Nathan and Misti Robinson v. Home Owners Management Enterprises Inc.
The case initially involved construction litigation, as a family (the Robinsons) entered into a construction contract for their home and also purchased a warranty program provided by Home Owners Management Enterprise Inc. The Robinsons ended up filing a lawsuit, alleging breach of the warranty for construction defects. Home Owners Management Enterprise Inc. then moved for the parties to enter into arbitration pursuant to the requirement to do so in its contract with the Robinsons. However, once in arbitration, the family amended the claim to include claims for class relief. After the arbitrator entered an award on the individual claims, Home Owners Management Enterprise Inc. requested that the court strike the class allegations. The trial court sided with Home Owners, and, on appeal, this decision was upheld.,
On appeal to the Texas Supreme Court, the Robinsons argued that Home Owners Management Enterprise Inc. was simply seeking the most beneficial forum for its claims; since it had initially argued that the arbitration clause was broad; then subsequently changed its mind once that the arbitration claim was amended. Home Owners Management Enterprise Inc. also argued that, when it comes to the issue of arbitrability of class claims, only a trial court can properly decide.
The Texas Supreme Court’s Decision:
In upholding both the trial court and appeals court decisions, the Texas Supreme Court ultimately resolved the question in finding that arbitrability of class allegations is an issue that can only be decided by the courts. The Court pointed out that because arbitration is a matter of consent, parties cannot be compelled to arbitrate any dispute, absent an agreement to do so. The ultimate questions involved in the case were whether the parties both agreed to arbitrate class-action claims and whether a court or arbitrator can make this determination. Ultimately, the Court held that arbitrability of class claims is a “gateway” issue for the court unless the arbitration agreement clearly and unmistakably states otherwise, and a contract that is silent on the matter cannot speak to that with unmistakable clarity. In addition, an agreement to arbitrate class claims cannot be inferred from silence—the contract has to expressly address this.
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