Business Arbitration and Mediation Under Texas and Federal Law

Arbitration in Texas runs under two statutes, often at the same time. Mediation runs under a third.

The Federal Arbitration Act and the Texas Arbitration Act

The Federal Arbitration Act, 9 U.S.C. § 2, makes a written arbitration provision in a contract involving interstate commerce valid, irrevocable and enforceable, except on grounds that would revoke any contract, such as fraud or unconscionability. Most commercial contracts involve interstate commerce, so the FAA usually applies, in Texas state courts as well as federal.

The Texas Arbitration Act, Chapter 171 of the Civil Practice and Remedies Code, says the same for a written agreement to arbitrate an existing or future controversy (Section 171.001) and governs where the FAA does not reach. Section 171.002 carves out a few agreements, including those in which an individual acquires property, services, money or credit for $50,000 or less, unless the agreement is signed by each party and each party's attorney. Section 171.021 requires a court to order arbitration when a party shows an agreement to arbitrate and the other side's refusal, and to stay the court case.

Confirming, vacating and appealing an award

Under Section 171.087 the court must confirm an award on application unless grounds exist to vacate, modify or correct it; confirmation produces a judgment that can be collected like any other. Section 171.088 lists the only grounds to vacate: an award obtained by corruption, fraud or undue means; evident partiality, corruption or misconduct of an arbitrator that prejudiced a party; arbitrators who exceeded their powers, refused to postpone for good cause, refused to hear material evidence or conducted the hearing in a way that substantially prejudiced a party; or no agreement to arbitrate at all, where that objection was preserved. A party has 90 days from delivery of the award to apply. The FAA's grounds in 9 U.S.C. § 10 are nearly identical. Neither statute lets a court vacate an award because the arbitrator got the law or the facts wrong. Section 171.098 allows an appeal from orders denying arbitration, confirming or vacating an award, and similar rulings.

Mediation under the Texas ADR Act

Chapter 154 of the Civil Practice and Remedies Code states Texas policy in favor of peaceable resolution and early settlement. Section 154.021 lets a court, on its own motion or a party's, refer a pending case to mediation or another procedure; under Section 154.022 a party has 10 days after notice to object, and the court may not refer the case if it finds a reasonable basis for the objection. Section 154.023 defines mediation as a forum in which an impartial mediator facilitates communication, and bars the mediator from imposing his own judgment on the issues. Under Section 154.073, communications made in the procedure are confidential, are not subject to disclosure and may not be used as evidence against a participant, with exceptions for material that is independently admissible or discoverable.

Making the settlement stick

Section 154.071 makes a written settlement agreement reached in mediation enforceable in the same manner as any other written contract, and lets the court incorporate it into the final decree. In a pending case, Texas Rule of Civil Procedure 11 adds that no agreement between attorneys or parties touching the suit will be enforced unless it is in writing, signed and filed with the papers as part of the record, or made in open court and entered of record. The practical lesson is to leave mediation with a signed agreement that contains the essential terms, and to file it.