The Common Law
Does an arbitration clause mean I have to arbitrate?
You can still file a suit in small claims court, but you may ultimately be forced to arbitrate the claim. Under state and federal law, you can file a claim even though you have a contract with an arbitration agreement. However, once a party properly shows the court that there is a valid arbitration agreement that covers the dispute in question, the court must compel the arbitration.
Generally, there are three potential scenarios involving an arbitration agreement. In the first scenario, one party files suit, but the opposing party responds by filing a motion to compel the arbitration. If the opposing party successfully shows that there is a valid arbitration agreement that covers the dispute, then the courts will order the parties to go to arbitration.
In the second scenario, one party files suit, but the opposing party intentionally waives the right to arbitrate. In the Texas courts, waiver is highly disfavored and is difficult for a party to prove. Note that delay alone does not mean that the opposing party has waived their right to arbitration.
Under the third scenario, the party that asserts their claims first compels the arbitration without ever filing a lawsuit.
It is important to read over a contract carefully; sometimes the proper procedure for setting up the arbitration is included in the contract. In many cases, if arbitration is desirable, it is good to contact the opposing party if the contract clearly states that arbitration is appropriate. If the opposing party refuses to arbitrate, the court can order the opposing party to participate in the arbitration. Generally, to get a court order compelling arbitration, a party must show that a valid arbitration agreement exists, the agreement encompasses the claim, and the opposing party refuses to arbitrate.
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Marrs, Ellis & Hodge LLP, www.jmehlaw.com.
The material in this column is for informational purposes only. It does not constitute, nor is it a substitute for, legal advice. For advice on your specific facts and circumstances, consult a licensed attorney. You may wish to contact the Lawyer Referral Service of Central Texas, a non-profit public service of the Austin Bar Association, at 512-472-8303 or www.austinlrs.com.