Supreme Court of Texas Continues to Expand the Reach of Arbitration Clauses
April 24, 2012The Supreme Court of Texas has held that parties to an arbitration agreement can grant third parties the right to enforce arbitration as though they had signed the agreement themselves. In In re Rubiola, the court was faced with the issue of whether parties who were not signatories to the agreement containing the arbitration clause could compel parties who did sign the contract to arbitrate. Generally speaking, only parties to a contract can enforce or be required to arbitrate. While not necessarily rewriting the prior case law, the court held that under the circumstances present in Rubiola, the nonsignatories could compel arbitration.
In Rubiola, a dispute arose out of the sale and financing of a home. The sellers of the home were Greg Rubiola and his wife. Mr. Rubiola and his brother J.C. also owned a mortgage company, Rubiola Mortgage Company. The purchasers decided to finance the home through Rubiola Mortgage Company. As part of the financing for the transaction an arbitration agreement was signed between the purchasers and Rubiola Mortgage Company. J.C. Rubiola signed the agreement on behalf of the company.
The agreement contained a broad definition of “parties” to include “individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such documents . . .”
The arbitration clause in the agreement provided: “Arbitrable disputes include any and all controversies or claims between the parties of whatever type or manner, including without limitation, all past, present and/or future credit facilities and/or agreements involving the parties.”
Several months after closing the purchasers sued the Rubiolas. They sought to rescind the transaction and collect damages under theories of fraud and DTPA. All defendants moved to compel arbitration based on the agreement signed between the purchasers and Rubiola Mortgage Company. The trial court denied the motion to compel.
The supreme court found that the Federal Arbitration Act (FAA) governed the provision at issue. The court also concluded that whether a nonsignatory could compel arbitration was subsumed within whether there was a valid arbitration clause and was therefore a question for the court, not an arbitrator. The court then held that the Rubiolas, who had not signed the arbitration agreement, could compel the purchasers, who signed the agreement to arbitrate. Specifically, the court stated:
“The arbitration agreement’s broad definition of parties, at a minimum, made J.C. and Greg Rubiola parties to the arbitration agreement. Rubiola Mortgage Company signed the arbitration agreement, and the Rubiola brothers are clearly officers and representatives of the mortgage company and thus non-signatory parties to the arbitration agreement under the agreement’s terms. Because the arbitration agreement expressly provides that certain non-signatories are considered parties, we conclude that such parties may compel arbitration under the agreement.”
With this, holding parties can no longer just assume that a nonsignatory to a contract is immune from an arbitration clause. Consistent with other recent opinions, the Texas Supreme Court continues to allow parties the freedom to expand the scope of arbitration clauses depending on the language they include in the agreement.