ARBITRATION CONTRACTS created by Jenny S.

                This case started when the trial court denied a motion to compel arbitration under the Federal Arbitration Act (FAA).  The appellant argued that the trial court erred by denying that motion.  The appellant (Brown) stated that the arguments raised by the Appallee (Green) would apply to the entire agreement and not specifically to the arbitration portion of the agreement. 

                Green is a real estate developer and originally went to Sidley Austin for help with his options for reducing his tax liability. Austin referred Green to a one of his predecessors- Brown & Wood, L.L.P. Brown agreed to issue an opinion letter.  This letter was on the federal income tax consequences of the transactions.  Green signed a contract with Browns & Wood that set out a fee and it provided an arbitration clause for any controversy that may arise from the letter.  When Green was informed by the IRS that his tax deductions were denied and he was being assessed for late fees, back taxes, and penalties he sued the entire firm alleging malpractice and fraud. Sidley Austin pushed for arbitration. Green changed his complaint to state that the arbitration clause wan “invalid and unenforceable”.  He stated that it (1) violated public policy as it was part of a criminal fraud and conspiracy to commit criminal fraud; (2) it was procured by economic distress; (3) obtained in violation of ethical standards.

The courts stated that it was undisputed that Green and Brown had signed an agreement and that this agreement did include an arbitration clause for the purpose of any controversy that could arise from the letter Brown was writing for Green.  Austin stated that Green has failed to prove any defenses against the first two arguments because they relate to the entire agreement between the two not just the arbitration clause. Austin also stated that Texas favors arbitration agreements because they are generally preempted by the FAA.

Green’s first argument stated that Austin knew that the IRS would not allow for the transactions because it would be seen as an illegal tax shelter.  These were the misrepresentation clauses and fraudulent conduct that he was stating in the beginning.  There is nothing in the records that stated these representations were related to the arbitration clause and looking at FirstMerit Bank, 52 S.W.3d at  758, we can uphold the fact that there is no link to the arbitration clause that is now being argued.

The court decided that the lower court had abused its discretion to the extent that it found Green’s fraud and duress unconscionability defeated the arbitration clause.

The third claim is that Austin did not explain to Green what the advantages and disadvantages were of having the arbitration clause. This contended to the factor of unconscionability.  The court found that the terms and conditions of the arbitration clause were not unusual and did not favor either party.  The arbitration was to be administered by the AAA and that the arbitrator was authorized to award and remedy that a court would award. Green then relied on the ethics opinion stating that an attorney should explain advantages and disadvantages of the arbitration before they enter into a contract that contained such a clause.  The court look at Texas’ Professional Ethics that stated opinions were concerned with attorney  discipline and are advisory rather than binding and that the commission was not at liberty to state the validity of arbitration clauses in agreements between the lawyers and their clients. The court found that the trial court had abused its discretion to the extent that it had found the arbitration clause to be unconscionable on this basis. 

The Court of Appeals concluded that Green failed to establish unconscionability as his defense to the arbitration clause of the contract. They then reversed the trial courts holding and remanded with instructions to grant the motion to compel arbitration.