Can I Avoid Arbitration and Go to Court?

Start with what will not work

Courts will not release a party from an arbitration clause because arbitration is expensive, because the arbitrator has no jury, because the claim is large, or because the clause was in a form contract. Section 2 of the Federal Arbitration Act and Tex. Civ. Prac. & Rem. Code § 171.001 allow a clause to be defeated only on grounds that would defeat any contract. The presumption favors arbitration, and doubts about scope are resolved in its favor. So the question is not whether you can argue your way out; it is whether one of five specific grounds fits your facts.

Ground one: the dispute is outside the clause

A clause covers what its words cover. Many business clauses carve out requests for injunctive relief, collection of undisputed amounts, claims below a stated amount, or disputes under a particular schedule. Some cover only disputes "arising under" the agreement and leave related tort claims in court. Some bind only one of several related contracts. Read the clause and the carve-outs before anything else. A court decides scope unless the clause delegates that question to the arbitrator, a point covered in whether an arbitration clause is enforceable in Texas.

Ground two: the other side waived arbitration by litigating

This is the ground that most often succeeds, and it usually arises when the party who wants arbitration is the one that filed suit or litigated for months before invoking the clause. The test depends on which act governs.

Under the FAA. In Morgan v. Sundance, Inc. (U.S. 2022) the Supreme Court held that federal courts may not require the party claiming waiver to show it was prejudiced. Waiver looks at the conduct of the party that held the right: did it act inconsistently with that right by litigating? Filing suit, taking discovery, moving for summary judgment or waiting until the eve of trial can be enough without proof of harm to the other side.

Under Texas law. The Texas Supreme Court's test, set out in Perry Homes v. Cull (Tex. 2008), asks whether the party substantially invoked the judicial process to the other party's detriment or prejudice, judged on the totality of the circumstances. The court called it a high bar because of the strong presumption against waiver, and said delay alone is not enough. In Perry Homes the party that had resisted arbitration for about 14 months, taken extensive discovery and then demanded arbitration shortly before trial was held to have waived it. Texas courts continue to require prejudice; whether Morgan changes that in Texas state court for FAA-governed contracts is a question the courts are still working through.

Waiver cuts both ways. If you file in court and litigate hoping the clause will be forgotten, you may lose your own right to arbitrate later, and the other side may be able to say you waived it when you change your mind.

Ground three: the clause was unconscionable when made

Section 171.022 of the Texas act bars a court from enforcing an agreement to arbitrate that was unconscionable at the time it was made, and the FAA's saving clause allows the same defense under state contract law. Texas courts look at two things: procedural unconscionability, the circumstances of formation, such as hidden terms or a party unable to read or understand them; and substantive unconscionability, terms so one-sided they are oppressive, such as fees that make the forum unusable for a claim of that size, a clause that lets one party choose court while binding the other to arbitration, or an arbitrator the other side controls.

Two limits matter. First, an ordinary form contract between businesses is not unconscionable for being non-negotiable. Second, under Rent-A-Center, West, Inc. v. Jackson (U.S. 2010), if the clause delegates enforceability questions to the arbitrator, the court will hear an unconscionability attack only if it is aimed at the delegation provision itself. An argument that the whole agreement is unconscionable goes to the arbitrator.

Ground four: no agreement was formed

Arbitration binds those who agreed. If the clause sits in a document the resisting party never accepted, in a later form sent after the deal closed, or in a contract between other parties, there may be no agreement to enforce. Section 171.021(b) of the Texas act requires the court to decide a denial of the agreement summarily, and 9 U.S.C. § 4 provides a prompt trial, with a jury on request, when the making of the agreement is in issue. Fraud in the inducement of the arbitration clause itself is for the court; fraud in the inducement of the contract as a whole goes to the arbitrator, because the clause is treated as severable.

Ground five: a statutory exclusion

Under § 171.002 the Texas act does not reach certain agreements, including a personal-injury claim or an individual's acquisition of goods, services or credit for $50,000 or less, unless the clause is signed by each party and each party's attorney. These rarely apply to business-to-business disputes, and even where they do, the FAA may still enforce the clause if the contract involves interstate commerce.

Example

Suppose a Dallas subcontractor sues a general contractor in district court for an unpaid balance. The general answers, serves written discovery, deposes the subcontractor's owner, files a motion for partial summary judgment and sets the case for trial. Eleven months in, after the court denies its motion, the general moves to compel arbitration under the subcontract. The subcontractor has a strong waiver argument under either test: the general substantially invoked the judicial process, sought a ruling on the merits and lost, and the subcontractor spent a year of fees preparing for a jury. Had the general moved to compel in its first filing, the clause would almost certainly have been enforced.

How the fight actually happens

• If you are already in court and the other side moves to compel, you respond with your ground, and the court decides it on the motion. Under § 171.021 the court must order arbitration if it finds an agreement and a refusal, and § 171.025 stays the court case on the arbitrable issues.
• If a demand for arbitration arrives and you believe there is no agreement, § 171.023 lets you ask a court to stay the arbitration. Do not simply participate: under § 171.088(a)(4) a party who takes part in the hearing without objecting cannot later attack the award for lack of an agreement.
• Appeals are lopsided by design. Under § 171.098 a party may appeal an order denying a motion to compel or granting a stay of arbitration; under 9 U.S.C. § 16 an order refusing arbitration is appealable while an order compelling it generally is not. The side that loses the forum fight in favor of arbitration usually has to arbitrate first and complain later.

Deciding whether the fight is worth it

A forum fight can take months and the arbitration still follows. Before launching one, weigh what court gives you that arbitration does not: full discovery, a jury, a public record, a right of appeal. If your case depends on the other side's documents or on a jury's view of fair dealing, the fight may be worth it. If your case is already in your own files, arbitration may serve you as well and sooner; see arbitration vs. court for a business dispute. Where the clause has a carve-out for emergency relief, a request for a temporary restraining order may belong in court regardless, as explained in emergency relief in Texas business cases.

Tina Wysk litigates motions to compel and to stay arbitration in Dallas state and federal courts and represents businesses in the arbitrations that follow. More on the business arbitration and mediation practice page.