Can Texas make you arbitrate a dispute instead of going to court?

Plain-English summary

A Texas state senator asked whether the Texas general arbitration statute, article 224 et seq. of the civil statutes, ran afoul of the "open courts" provision in article I, section 13 of the Texas Constitution. The statute, first enacted in 1965, made a written agreement to arbitrate "valid, enforceable and irrevocable," subject to ordinary contract defenses and to an unconscionability check, and it carved out exceptions for collective-bargaining agreements, small consumer transactions, and personal-injury and workers'-compensation claims. The open-courts provision says all courts shall be open and that every person shall have a remedy by due course of law for injury to lands, goods, person, or reputation.

The Attorney General concluded the arbitration statute did not violate that provision. The Texas Supreme Court's open-courts test has two prongs: the person must show a well-recognized common-law cause of action that is being restricted, and must show the restriction is unreasonable or arbitrary when balanced against the statute's purpose. The opinion noted two reasons the arbitration statute survived. First, the open-courts clause protects only common-law causes of action, not statutory ones that expand rights beyond the common law, and many of the claims covered by the arbitration statute (for example, Deceptive Trade Practices Act and Insurance Code claims) are statutory. Second, even for the common-law claims the clause does reach, the statute does not take away a remedy. It limits a party to a forum the party itself pre-selected by signing the arbitration agreement, and an aggrieved party may still go to court to show the agreement is tainted by fraud, unconscionability, or invalidity.

The opinion added that, although the arbitration statute had been in effect since 1965, common-law arbitration still existed in Texas, and the Texas Supreme Court in L. H. Lacy Co. v. City of Lubbock had signaled that the old common-law rule letting a party revoke an arbitration agreement at will had no future. Coupled with the presumption that every statute is constitutional, the opinion concluded a court would find the statute imposed no restriction on the right to judicial redress that was unreasonable or arbitrary, so it did not contravene article I, section 13.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The general arbitration statute discussed here has since been recodified into the Texas Civil Practice and Remedies Code, so confirm the current statute before relying on any procedure described.

Background and statutory framework

Article 224 made a prior written agreement to arbitrate an existing or future controversy "valid, enforceable and irrevocable," save on grounds that exist at law or in equity for revoking any contract, and directed a court to refuse enforcement of an agreement it found unconscionable when made. The statute did not apply to collective-bargaining agreements, to certain consumer contracts of $50,000 or less unless both sides and their attorneys signed an arbitration agreement, or to personal-injury claims absent written advice of counsel for both parties; workers'-compensation claims could not be arbitrated under the act.

Article I, section 13 of the Texas Constitution provides that all courts shall be open and that every person, for an injury to lands, goods, person, or reputation, shall have remedy by due course of law. Establishing an open-courts violation required a two-pronged showing: a well-recognized common-law cause of action that is being restricted, and a restriction that is unreasonable or arbitrary when balanced against the purpose of the statute. Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 355 (Tex. 1990). The opinion began from the presumption that every legislative act is constitutional and that a mere difference of opinion among reasonable minds is no basis for striking down a statute. Sax v. Votteler, 648 S.W.2d 661, 664 (Tex. 1983) (quoting Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968)).

The open-courts clause "prohibits legislative bodies from arbitrarily withdrawing all legal remedies from one having a cause of action well established and well defined in the common law," but does not apply to a statutory cause of action that expands rights beyond the common law. Castillo ex rel. Castillo v. Hidalgo County Water Dist. No. 1, 771 S.W.2d 633, 636 (Tex. App.—Corpus Christi 1989, no writ). Because many causes of action covered by article 224 (such as Deceptive Trade Practices Act claims under Business and Commerce Code section 17.41 et seq. and Insurance Code claims under articles 21.21 and 21.21-2) are statutory rather than common-law, they fall outside the clause. And the statute did not itself deprive a litigant of a remedy; it limited the litigant to a remedy the litigant had pre-selected, while leaving open a suit to show the arbitration agreement was tarnished by fraud, unconscionability, or invalidity.

On the policy point, the opinion observed that common-law arbitration continued to exist in Texas, L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351-52 (Tex. 1977), and that before Lacy the common-law rule had allowed either party to revoke an agreement to arbitrate at any time before an award, Wylie Indep. School Dist. v. TMC Foundations, Inc., 770 S.W.2d 19, 21 (Tex. App.—Dallas 1989, writ dism'd w.o.j.). The Lacy court, while not overturning the common-law rule, made clear it had no future and praised arbitration as a flexible, efficient, private alternative suited to modern court congestion. Given that and the presumption of constitutionality, the opinion concluded a court would find no restriction on the right to judicial redress that was unreasonable or arbitrary when balanced against the statute's purpose, so article 224 et seq. did not contravene article I, section 13.

Common questions

Did the Attorney General say Texas can force you into arbitration?
The opinion addressed only a narrow constitutional question: whether the general arbitration statute violated the open-courts provision. It concluded the statute did not. The statute enforced arbitration agreements a party had already signed, rather than forcing arbitration on someone who never agreed to it.

Why doesn't the open-courts clause block the arbitration statute?
For two reasons in the opinion. The clause protects only well-established common-law causes of action, and many arbitrable claims are statutory. For the common-law claims it does cover, the statute does not remove a remedy; it holds a party to a forum the party chose in advance, and the party can still sue to challenge the arbitration agreement itself.

Could a party still go to court at all?
Yes, in the situations the opinion described. Even where arbitration was mandatory under an agreement, an aggrieved party could bring a suit to show the arbitration agreement was tainted by fraud, unconscionability, or invalidity.

Did this opinion cover personal-injury or workers'-comp claims?
No. The statute itself excluded personal-injury claims unless both parties' attorneys signed off in writing, and it barred arbitration of workers'-compensation claims entirely. The constitutional analysis was about the claims the statute did reach.

Citations

• V.T.C.S. art. 224
• V.T.C.S. art. 237
• Tex. Const. art. I, § 13
• Bus. & Com. Code § 17.41 et seq.
• Ins. Code art. 21.21
• Ins. Code art. 21.21-2
• Moreno v. Sterling Drug, Inc., 787 S.W.2d 348 (Tex. 1990)
• Sax v. Votteler, 648 S.W.2d 661 (Tex. 1983)
• Smith v. Davis, 426 S.W.2d 827 (Tex. 1968)
• Castillo ex rel. Castillo v. Hidalgo County Water Dist. No. 1, 771 S.W.2d 633 (Tex. App.—Corpus Christi 1989, no writ)
• L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348 (Tex. 1977)
• Wylie Indep. School Dist. v. TMC Foundations, Inc., 770 S.W.2d 19 (Tex. App.—Dallas 1989, writ dism'd w.o.j.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0127
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0127.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

June 17, 1992

Honorable Carl A. Parker
Chairman
Subcommittee on Insurance
Texas State Senate
P. O. Box 12068
Austin, Texas 78711

Opinion No. DM-127

Re: Whether V.T.C.S. article 224 et seq., the Texas general arbitration statute, violates article I, section 13 of the Texas Constitution, the open courts amendment (RQ-199)

Dear Senator Parker:

You have requested our opinion as to whether V.T.C.S. article 224 et seq., the Texas general arbitration statute, violates article I, section 13 of the Texas Constitution, the "open courts" provision. Article 224, first enacted in 1965, provides:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. A court shall refuse to enforce an agreement or contract to submit a controversy to arbitration if the court finds it was unconscionable at the time the agreement or contract was made. Provided, however, that none of the provisions of this Act shall apply to:

  (a) any collective bargaining agreement between an employer and a labor union;

  (b) any contract for the acquisition by an individual person or persons (as distinguished from a corporation, trust, partnership, association, or other legal entity) of real or personal property, or services, or money or credit where the total consideration therefor to be paid or furnished by the individual is $50,000 or less, unless said individual and the other party or parties agree in writing to submit to arbitration and such written agreement is signed by the parties to such agreement and their attorneys;

  (c) any claim for personal injury except upon the advice of counsel to both parties as evidenced by a written agreement signed by counsel for both parties. A claim for workers' compensation shall not be submitted to arbitration under this Act.

With certain exceptions, the statute declares a prior written agreement to arbitrate to be "valid, enforceable and irrevocable," except where the agreement itself is tainted, for example, by fraud, partiality on the part of the arbitrator, absence of an effective arbitration agreement, or unconscionability.

Article I, section 13 of the Texas Constitution provides in part:

All courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law.

The Texas Supreme Court has indicated that establishing an "open courts" violation requires compliance with a two-pronged test. First, the litigant "must show that he has a well-recognized common-law cause of action that is being restricted." In addition, "he must show that the restriction is unreasonable or arbitrary when balanced against the purpose . . . of the statute." Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 355 (Tex. 1990).

Initially, we note that every legislative act carries with it a presumption of constitutionality.

It is to be presumed that the Legislature has not acted unreasonably or arbitrarily; and a mere difference of opinion, where reasonable minds could differ, is not a sufficient basis for striking down legislation as arbitrary or unreasonable.

Sax v. Votteler, 648 S.W.2d 661, 664 (Tex. 1983) (quoting Smith v. Davis, 426 S.W.2d 827, 831 (Tex. 1968)).

Article I, section 13 "prohibits legislative bodies from arbitrarily withdrawing all legal remedies from one having a cause of action well established and well defined in the common law." Castillo ex rel. Castillo v. Hidalgo County Water Dist. No. 1, 771 S.W.2d 633, 636 (Tex. App.—Corpus Christi 1989, no writ). The clause "does not, however, apply to a statutory cause of action which expands the rights of an individual beyond those granted by the common law." Id.

Many of the causes of action covered by article 224, et seq., are statutory rather than common-law causes of action, and therefore fall outside the ambit of article I, section 13. See, e.g., Bus. & Com. Code § 17.41 et seq. (Deceptive Trade Practices - Consumer Protection Act); Ins. Code arts. 21.21 (Unfair Competition and Unfair Practices), 21.21-2 (Unfair Claim Settlement Practices Act). Furthermore, article 224, et seq., does not itself deprive a litigant of a remedy for any wrong he has suffered. Rather, it limits his choice of remedy to one that he himself has pre-selected. Even in those instances in which arbitration is mandatory, an aggrieved party may still bring a cause of action to show that the arbitration agreement itself is tarnished by fraud, unconscionability, or invalidity. To the extent, however, that article 224, et seq., does impose restrictions on the common-law right to litigate those disputes which continue to be covered by article I, section 13, we do not believe that a court would find that those restrictions are either unreasonable or arbitrary.

Although the Texas general arbitration act has been in effect since 1965, common-law arbitration continues to exist in this state. L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351-52 (Tex. 1977). Prior to L. H. Lacy Company, "the Texas common law rule was that either party could revoke the agreement to arbitrate at any time" prior to the actual award. Wylie Indep. School Dist. v. TMC Foundations, Inc., 770 S.W.2d 19, 21 (Tex. App.—Dallas 1989, writ dism'd w.o.j.). In L. H. Lacy Company, the court, while finding it unnecessary to actually overturn the common-law rule, made clear that it had no future in Texas. Wylie Independent School District, 770 S.W.2d at 21. Chief Justice Greenhill took the opportunity to extol the virtues of arbitration:

Under the traditional common law, courts have refused specific enforcement to agreements to arbitrate future disputes. [Emphasis in original.] Either party to an executory agreement providing for arbitration of future disputes has been allowed to revoke the agreement at any time before the arbitration proceeding resulted in an award. The only penalty for such revocation consisted of damages, if any, for breach of contract. . . . The rationale behind these rules rested on a "public policy" argument against allowing private persons to oust the courts of their jurisdiction to determine the rights and liabilities of parties to a contract. This notion was a result of early English precedent which was transferred to the United States and to Texas through our adoption of the common law. The doctrine has long since been abandoned in England by case law and by statute, and an increasing number of American jurisdictions have rejected the rationale by adopting modern and comprehensive arbitration statutes. . . . The doctrine was evolved in a time when court congestion was not a major problem as it is today, and in modern times a policy encouraging agreements to arbitrate is preferable. In addition to alleviating some measure of the burden on the courts, arbitration in a commercial context is a valuable tool which provides business people, and all citizens, with greater flexibility, efficiency, and privacy. . . . While it is unnecessary in this case to alter common law arbitration rules, the policy of refusing specific enforcement to executory arbitration agreements is not justifiable where the case fits within the common mold.

L. H. Lacy Company, 559 S.W.2d at 352 (emphasis added, footnotes omitted), suggesting that the easy revocation of arbitration agreements under common law was based on an outmoded idea of public policy. When such sentiments are coupled with the presumption of constitutionality which every statute commands, we believe that it is even more clear that the court would find that article 224, et seq., does not impose any restrictions upon a litigant's right to judicial redress which are "unreasonable or arbitrary when balanced against the purpose of the statute." Accordingly, we conclude that article 224, et seq., does not contravene article I, section 13 of the Texas Constitution.

                               SUMMARY

      V.T.C.S. article 224 et seq., the Texas general arbitration statute, does not contravene article I, section 13 of the Texas Constitution, the "open courts" provision.

                                            DAN MORALES
                                            Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Rick Gilpin
Assistant Attorney General