Prestonwood Tradition, LP v. Jennings
Dallas Court of Appeals, No. 05-20-00380-CV (August 5, 2022)
A divided en banc Dallas Court of Appeals has held that arbitrators—not a court—must decide arbitrability issues when an arbitration agreement incorporates the AAA’s Commercial Arbitration Rules—even when the AAA administratively declines to decide the issue without direction from a court.
Several residents of The Tradition-Prestonwood senior living community died in 2016. Representatives of the residents’ estates raised wrongful death and survivorship claims against the owners of the facility. The owners commenced AAA arbitrations based on agreements in their leases with the deceased residents. These arbitration agreements stated, “any claims, controversies, or disputes arising between us and in any way related to or arising out of the relationship created by this Agreement shall be resolved exclusively by binding arbitration” using the Commercial Arbitration Rules of the American Arbitration Association. The decedents’ representatives objected to arbitration and filed suit in county court, where they requested a declaratory judgment that their claims were not subject to arbitration. They moved to stay arbitration. After the AAA—itself, not through a duly empaneled arbitrator or arbitrators—made an “administrative determination” not to proceed without the parties’ mutual agreement or until the court decided the issue of arbitrability, the trial court granted the decedents’ representatives’ motion to stay arbitration and denied the owners’ request to abate the lawsuits. The owners filed interlocutory appeals and the court of appeals eventually granted en banc review.
In a 7-6 split, the en banc Dallas Court held the trial court abused its discretion when it decided arbitrability issues that had been delegated to the arbitrator. Trial courts generally determine arbitrability unless the parties “clearly and unmistakably” delegate arbitrability to the arbitrator. The Court explained that the arbitration agreements in this case had incorporated the AAA’s Commercial Rules, one of which provides that the arbitrator has the power to rule on his or her own jurisdiction, including any objections to the arbitrability of any claim or counterclaim. Coupled with the broad scope of the arbitration agreements—which encompassed “any claims, controversies, or disputes arising between us and in any way related to or arising out of the relationship created by this Agreement”—the agreements evidenced a clear and unmistakable intent that arbitrability would be determined by the arbitrator.
The dissent acknowledged that “under ordinary circumstances” incorporation of the AAA’s commercial rules means the arbitrator is to decide arbitrability. However, the dissent argued, the circumstances of this case were not “ordinary” because (1) the AAA had declined to decide arbitrability, deferring to the trial court, and (2) the decedents’ representatives were not signatories to the arbitration agreements. The dissent, therefore, would have gone on to review the substance of the arbitrability issue and to find that the disputes were not subject to arbitration under the Texas Arbitration Act.
The majority responded that neither of the distinctions identified by the dissent justified creating an exemption from the general rule. The AAA was bound to decide arbitrability based on the parties’ agreements, and the trial court should not have acquiesced to the AAA’s “administrative decision” punting arbitrability to the trial court in violation of the parties’ contracts. The fact the dispute involved non-signatories was irrelevant because the arbitration agreements specifically bound “all persons whose claim is derived through or on behalf of [decedent], including that of the [decedent’s] family, heirs, guardian, executor, administrator and assigns.” The representatives’ claims for wrongful death and survivorship were “derived through or on behalf of” the deceased residents. Because they stood in the decedents’ legal shoes, the representatives were bound by the decedents’ arbitration agreements. The en banc Court therefore reversed the stay of arbitration and remanded with instructions to order the parties to arbitration.
NOTE: The “general rule” at issue here—whether incorporation of the AAA rules “constitutes clear and unmistakable evidence of the parties’ intent to delegate the issue of arbitrability to the arbitrator”—is set to be addressed by the Supreme Court of Texas early in its upcoming term. The Court has granted review and is scheduled to hear argument on the issue next month in MP Gulf of Mex., LLC v. Total E&P USA, Inc., Case No. 21-0028.