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Memorandum Opinion Issued April 23, 2008 Withdrawn; Motion for Rehearing Denied; Petition for Writ of Mandamus Conditionally Granted; and Memorandum Opinion filed May 29, 2008.



In The


Fourteenth Court of Appeals



NO. 14-07-00851-CV












Real parties= in interest motion for rehearing is denied.  The memorandum opinion issued on April 23, 2008 is withdrawn.  This memorandum opinion is substituted in its place.

Relator MHI Partnership, Ltd. seeks a writ of mandamus directing the presiding judge of the 11th District Court of Harris County, Texas, to vacate an order denying MHI=s motion to compel arbitration.  We conditionally grant the writ. 


MHI is a homebuilder that does business as Pioneer Homes and Plantation Homes.  Real parties in interest are 30 owners of 18 homes purchased in the Villages of Bear Creek subdivision in Katy, Texas between June 2002 and September 2004.  They sued MHI for damages or rescission of their home purchases contending that MHI failed to disclose alleged contamination of their homes= water supply. 

MHI used three different earnest money contract forms during the relevant time period.  Two homes were purchased using Form 1 (the oldest form); twelve homes were purchased using Form 2 (an intermediate form); and four homes were purchased using Form 3 (the most recent form).  While the three contract forms contain some differences, those differences are not material to the disposition of this proceeding.  Each earnest money contract signed by the homeowners includes an arbitration provision. 

On August 15, 2005, MHI moved to compel arbitration and to stay the trial court proceedings.  The homeowners opposed arbitration; among other things, they contended that the arbitration provisions in their earnest money contracts are procedurally and substantively unconscionable, and were procured by fraud.  The trial court gave the parties a year to conduct discovery regarding enforceability of the arbitration provisions.  Following discovery and briefing, the trial court held a hearing on the motions to compel on August 7, 2007.[1]  The trial court orally denied the motion at the hearing=s conclusion.[2] 

                                                       Standard of Review

The arbitration provisions at issue here recite that they are governed by the Federal Arbitration Act (AFAA@), 9 U.S.C. '' 1B16.  The homeowners do not dispute this point.  Mandamus is the appropriate vehicle to seek relief from a trial court order denying a motion to compel arbitration under the FAA.  In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007) (orig. proceeding) (per curiam).  To obtain mandamus relief, the relator must demonstrate that (1) the trial court clearly abused its discretion; and (2) there is no adequate remedy by appeal.  In re Sw. Bell Tele. Co., 226 S.W.3d 400, 403 (Tex. 2007) (orig. proceeding).  The trial court abuses its discretion if it reaches a decision that constitutes a clear and prejudicial error of law.  Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding).  As to factual matters, the relator must establish that the trial court could have reached only one decision.  Id. at 840.

The party seeking to compel arbitration under the FAA must establish that (1) a valid arbitration agreement exists, and (2) the claims at issue fall within that agreement=s scope.  In re Dillard Dep=t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) (orig. proceeding) (per curiam).  The homeowners= challenges to arbitration in this case focus solely on validity.  The trial court=s determination of an arbitration agreement=s validity is a legal question.  Id.

Contentions that arbitration provisions are invalid because they are procedurally and substantively unconscionable must be assessed against the backdrop of the strong policy favoring arbitration under federal and state law.  See, e.g., Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (orig. proceeding) (per curiam) (citing Moses H. Cone Mem=l Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24B25 (1983); Prudential Secs., Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding) (per curiam); Capital Income Props.‑LXXX v. Blackmon, 843 S.W.2d 22, 23 (Tex. 1992) (orig. proceeding) (per curiam); Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268 (Tex. 1992) (orig. proceeding)); see also TMI, Inc. v. Brooks, 225 S.W.3d 783, 792 (Tex. App.CHouston [14th Dist.] 2007, pet. denied) (op. on reh=g).  ABecause the law favors arbitration, the party opposing arbitration bears the burden to prove unconscionability.@  TMI, Inc., 225 S.W.3d at 792 (citing In re FirstMerit Bank, 52 S.W.3d 749, 756 (Tex. 2001) (orig. proceeding)).  This allocation comports with the policy animating the FAA, which is Amotivated, first and foremost, by a congressional desire to enforce agreements into which parties ha[ve] entered.@  Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220 (1985); see also Hall Street Assocs., L.L.C. v. Mattel, Inc., __ U.S. __, 128 S. Ct. 1396, 1402 (2008) (ACongress enacted the FAA to replace judicial indisposition to arbitration with a >national policy favoring [it] and plac[ing] arbitration agreements on equal footing with all other contracts=@) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)). 

                            The Homeowners= Defenses to Arbitration

The existence of the arbitration provisions is undisputed.  The homeowners do not contend that their claims fall outside the arbitration provisions= scope.  The homeowners acknowledge the arbitration provisions at issue are Abroad form@ provisions encompassing their claims for rescission and damages based on the failure to disclose alleged contamination of their drinking water.  The homeowners focus on validity and assert that the arbitration provisions:  (1) are procedurally unconscionable; (2) were induced by fraud; (3) are substantively unconscionable; and (4) are unconscionable when considered as a whole.  We address these arguments in turn.


The homeowners assert the arbitration provisions are procedurally and substantively unconscionable.  Procedural unconscionability refers to the circumstances surrounding the adoption of the arbitration provision; substantive unconscionability refers to the fairness of the arbitration provision itself.  In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex. 2006) (orig. proceeding); TMI, Inc., 225 S.W.3d at 792.  The burden of proving unconscionability rests on the party seeking to invalidate the arbitration agreement.  In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (orig. proceeding); TMI, Inc., 225 S.W.3d at 792.

                         Procedural Unconscionability & Fraud in the Inducement

The homeowners argue that the arbitration provisions are procedurally unconscionable because they were required to execute earnest money contracts containing these provisions to purchase their homes.  Thus, the homeowners contend that the earnest money contracts are contracts of adhesion.  See In re Palm Harbor Homes, Inc., 195 S.W.3d at 678.[3] 

Adhesion contracts are not necessarily unconscionable, and there is nothing per se unconscionable about arbitration provisions.  In re AdvancePCS Health, L.P., 172 S.W.3d 603, 608 (Tex. 2005) (orig. proceeding) (per curiam).  One party=s refusal to contract with another absent an arbitration provision does not establish procedural unconscionability.  In re U.S. Home Corp., 236 S.W.3d 761, 764 (Tex. 2007) (orig. proceeding) (per curiam); see also In re Halliburton Co., 80 S.W.3d at 572 (arbitration provision not procedurally unconscionable because employer made Atake it or leave it@ offer to at‑will employee).  Under the FAA, unequal bargaining power does not establish grounds for defeating an agreement to arbitrate absent a well‑supported claim that the clause resulted from the sort of fraud or overwhelming economic power that would provide grounds for the revocation of any contract.  In re AdvancePCS Health, L.P., 172 S.W.3d at 608.

The homeowners recognize that adhesion contracts are not per se unconscionable, but assert that this is a factor to consider in determining unconscionability along with (1) misrepresentations and omissions regarding the effect of the arbitration provisions; and (2) efforts to ensure that the homeowners did not read the arbitration provisions.  The homeowners= assertions of affirmative misrepresentations, omissions, and efforts to keep them from reading the provisions parallel the contentions raised in support of their defense of fraudulent inducement to the arbitration provisions.[4]  Therefore, we address the homeowners= defenses of procedural unconscionability and fraudulent inducement together.

The homeowners contend MHI=s representatives made the following misrepresentations:  (1) the arbitration provisions apply only to claims for structural and foundation problems after the expiration of the one-year warranty; (2) the arbitration provisions are merely a formality, and any disputes would be settled by negotiations between the parties; and (3) the homeowners would receive copies of the earnest money contracts.[5]

The homeowners catalogue the following omissions by MHI=s representatives during the process of explaining the provisions to the homeowners:  (1) the homeowners waived their rights to a trial in a court of law and to a jury trial; (2) any homeowner dispute with MHI, its subcontractors, and suppliers would be arbitrated and administered by the American Arbitration Association (AAAA@) in accordance with the Construction Industry Arbitration Rules; (3) MHI=s subscontractors and suppliers may be able to force the homeowners to arbitrate any claim the homeowners may have against them; (4) the homeowners would have to pay all the arbitration administrative filing fees; (5) the homeowners would have to pay, in advance of arbitration, half of the arbitrators= fees; and (6) the homeowners would have to pay costs and expenses to MHI, including attorney=s fees, if they opposed arbitration.

The homeowners= allegations of misrepresentations and omissions all relate to not having read or understood the contracts before signing them.  Texas law presumes a party who signs a contract has read it and knows of its contents.  Cantella & Co., 924 S.W.2d at 944.  Consistent with this principle, A[w]hen the arbitration provision in an agreement is conspicuous, a party may not avoid its effect by asserting that he did not notice the provision or that it was not pointed out to him.@  Beldon Roofing & Remodeling Co. v. Tanner, No. 04-97-00071-CV, 1997 WL 280482, at *2 (Tex. App.CSan Antonio May 28, 1997, orig. proceeding) (per curiam) (not designated for publication).

The first page of each earnest money contract states, in all capital letters, that the contract is subject to arbitration under the FAA.  Each arbitration provision is separately numbered and typed in all capital letters.  Two of the contract forms required the homeowners to sign their initials immediately after the arbitration provision, while the third contract form required the homeowners= initials on the same page as the arbitration provision.  The homeowners identify no asserted ambiguities in the arbitration provisions.  The arbitration provision in each iteration of the earnest money contract is both conspicuous and unambiguous.  See Cantella & Co., 924 S.W.2d at 944 (arbitration clause was Aquite conspicuous@ because it was separately numbered, captioned in bold print, and in all capital letters); In re Orkin Extermination Co., No. 01-01-00035-CV, 2001 WL 871738, at *1 (Tex. App.CHouston [1st Dist.] Aug. 2, 2001, orig. proceeding) (not designated for publication) (arbitration clause was conspicuous because it was identified in a separately numbered paragraph, with a paragraph heading in all bold capital letters); cf. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508, 511 (Tex. 1993) (conspicuousness requirement, in context of express negligence doctrine, mandates that something must appear on the face of the contract, such as larger type, or contrasting colors, to attract the attention of a reasonable person).  Under these circumstances, the asserted misrepresentations and omissions are insufficient to establish procedural unconscionability.

Each earnest money contract also contains a disclaimer under which the homeowners stipulated that MHI=s representatives did not make any oral statements, promises, or representations that add to, change, modify, or vary the terms of the contract; MHI would not be bound by such oral representations, if any; and the homeowners did not rely on any representations not contained in the contract when they signed the contract.  MHI argues that this disclaimer bars the homeowners= claims for fraud in the inducement.  Relying on Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171, 181 (Tex. 1997), the homeowners argue that such disclaimers do not preclude their fraud in the inducement claims. 

We need not decide whether the disclaimer bars the homeowners= claims for fraud in the inducement.  Even without a disclaimer, the homeowners= asserted reliance on MHI=s alleged oral representations contradicting the unambiguous and conspicuous arbitration provisions was not justified as a matter of law.  See TMI, Inc., 225 S.W.3d at 795 (party=s claimed reliance on an oral representation that is directly contradicted by the express, unambiguous terms of an arbitration provision is not justified as a matter of law) (citing DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d 854, 858 (Tex. App.CHouston [14th Dist.] 2003, pet. denied) (op. on reh=g en banc)).  Because justifiable reliance is an essential element of any claim for fraudulent inducement, the absence of such reliance forecloses the homeowners= fraudulent inducement contention as a matter of law.  See Id.; DRC Parts & Accessories, L.L.C., 112 S.W.3d at 858. 

The homeowners cannot change this conclusion by contending that MHI=s representatives rushed them through reading the earnest money contract.  The homeowners contend that MHI=s representatives thwarted their ability to read the contracts before signing them by (1) stating they were in a hurry and there was no time to read the earnest money contract; (2) stating it was not necessary for the homeowners to read the earnest money contract because they would explain the contract to the homeowners; and (3) holding the earnest money contract at a distance from the homeowners and obscuring the language with a hand.  They contend these circumstances defeat any presumption that the earnest money contracts were read and understood.  See Brown v. Aztec Rig Equip., Inc., 921 S.W.2d 835, 846 (Tex. App.CHouston [14th Dist.] 1996, writ denied) (rule that a person having the capacity to enter into a contract knows the meaning of words used in the contract and fully comprehends the contract=s legal effect does not operate when Atrick or artifice is resorted to@ and prevents the party from reading the contract). 

The homeowners indicated they read and understood the arbitration provisions by initialing each page of the earnest money contracts and numerous clauses in the contracts, and by signing the earnest money contracts.  The homeowners do not assert that they requested additional time to read the contracts and were denied.  They do not assert that they asked MHI=s representatives to go back over the contracts and were refused.  Claims of lack of sophistication, lack of explanation, and lack of time to review a contract containing a conspicuous and unambiguous arbitration provision do not trump the strongly favored status of arbitration under the FAA.  See In re Palm Harbor Homes, Inc., 195 S.W.3d at 679.  It is incompatible with arbitration=s strongly favored status to conclude that assertions of this nature establish procedural unconscionability and thereby defeat conspicuous arbitration clauses in contracts initialed and signed by the homeowners.  These assertions fall short of establishing that the homeowners were foreclosed from reading conspicuous and unambiguous arbitration provisions they are presumed to have read.  See id.; EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996) (orig. proceeding) (per curiam); see also Cantella & Co., 924 S.W.2d at 944 (ABecause of the document=s nature, combined with the legal presumption that a party who signs a contract knows its contents, we reject the City=s argument that it did not agree to arbitrate because it did not see the arbitration provision in the agreement@). 

We conclude the arbitration provisions are not procedurally unconscionable, and claims of fraud in the inducement do not bar their enforcement.

                                                  Substantive Unconscionability

The test for substantive unconscionability is whether, given the parties= general commercial background and the commercial needs of the particular trade or case, the arbitration clause is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.  In re Palm Harbor Homes, Inc., 195 S.W.3d at 678; In re FirstMerit Bank, N.A., 52 S.W.3d at 757.  The homeowners assert the arbitration agreements are substantively unconscionable because they cannot afford the arbitration fees and are effectively prevented from pursuing their claims. 

The party resisting arbitration based on assertions of burdensome arbitration costs must establish the likelihood that A>arbitration would be prohibitively expensive.=@  Am. Life Ins. Co. v. Orr, 294 F.3d 702, 711 (5th Cir. 2002) (quoting Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 81 (2000)).  Without more, the possibility that a party may have to share in the payment of the arbitrators= fees is insufficient to invalidate an arbitration agreement.  Id. at 712.  When a party fails to specify excessive arbitration costs, and relies instead on speculation that the party will be burdened with prohibitive costs, a court is not allowed to invalidate the arbitration agreement.  Id. 

The homeowners submitted the affidavit of Richard Melamed, a board certified residential real estate law attorney, who estimated that the personal costs of arbitration for the owner of each home would be $6,000 in administrative fees, $2,500 in services fees, and a deposit of $24,750 to $41,250 for half of the arbitrator fees.  Melamed based his calculations on the AAA=s Construction Industry Arbitration Rules and an estimation of the length of each arbitration proceeding set forth in the affidavit of Jim Culpepper, an attorney for the homeowners.  Each homeowner also submitted an affidavit setting forth his or her financial situation, including annual income at the time they purchased their homes and at the time they filed the underlying lawsuit, the purchase price of their homes, and the damages they are seeking.

The homeowners rely on Olshan Foundation Repair Co. v. Ayala, 180 S.W.3d 212 (Tex. App.CSan Antonio 2005, pet. denied), for the proposition that burdensome costs render arbitration provisions unconscionable.  In Olshan, the Ayalas brought claims for breach of contract, DTPA violations, fraud, and negligence in connection with the installation of foundation stabilization to their home.  Id. at 214.  The Ayalas provided information that the AAA would preside over the arbitration; a panel of three structural engineers approved by the AAA would conduct the arbitration; and the arbitration would cost more than $63,670.  Id. at 216.  The Ayalas further provided the court with a copy of an invoice from the AAA showing that they owed $33,150, Apayment due upon receipt,@ for their part of the arbitration expenses.  Id.  The court of appeals held the trial court acted within its discretion when it ruled the arbitration agreement unconscionable.  In so doing, it focused on the Ayalas= personal inability to pay the arbitration fee; the court also stressed that the arbitration cost almost three times the amount of the original contract between the parties, under which the Ayalas paid $22,650.  Id.

Olshan is distinguishable.  Unlike Olshan, the homeowners here have not provided an invoice from the AAA for their part of the expenses, or established that the cost of the arbitration is almost three times the cost of the purchase of their homes.  Moreover, the homeowners have not shown that the expense of impaneling three attorneys or engineers is inevitable.  One contract form provides that the parties may agree on one arbitrator, but if they cannot agree, the homeowner and MHI each will submit a name in writing, and those two named arbitrators will choose the third arbitrator.  The other two contract forms provide that the parties may agree on one arbitrator, but if they do not, a panel of three arbitrators will be appointed in accordance with the arbitration rules. 

The homeowners sought in the trial court to establish the cost of proceeding with three arbitrators.  They did not try to establish the cost of proceeding with a single arbitrator.  To the contrary, the homeowners emphatically foreclosed the possibility of proceeding with a single arbitrator.  The homeowners= attorney, Jim Culpepper, states in his affidavit that the homeowners Acannot agree to less than three arbitrators@ because a Asingle arbitrator has an extreme amount of power and control in the case. . . . and [t]he single arbitrator=s award is not subject to a system of checks and balances.@  Mr. Culpepper=s statements appear under a heading announcing, AIt is Essential for Plaintiffs= [sic] to Have an Arbitration with Three Arbitrators.@

Mr. Culpepper=s pronouncement is carried through in Mr. Melamed=s affidavit, and in the affidavit of each homeowner.  Mr. Melamed=s affidavit contains a heading stating, AMHI Arbitration Agreement States There Shall Be Three Arbitrators Appointed.@  Each homeowner=s affidavit contains an identical paragraph under the heading, AThe Earnest Money Contract Requires Three Arbitrators Will Be Appointed.@  The following statement appears under that heading: AMr. Culpepper informs me that the Earnest Money Contract requires that there shall be three arbitrators to determine . . . any claims that the homeowner brings against MHI.@

The accuracy of the information attributed to Mr. Culpepper is open to question; as discussed above, all versions of the earnest money contract allow the use of a single arbitrator.  What cannot be questioned is the repeated, emphatic and unequivocal rejection of using a single arbitrator established in the affidavits of the homeowners and their attorney.

The homeowners argue on rehearing that some information about the potential cost of a single arbitrator can be gleaned from references to the arbitrators= hourly rates.  The homeowners also argue that Ait cannot be their burden to prove whether or not MHI will agree to one arbitrator that each homeowner finds acceptable.@

Both arguments miss the mark.  The homeowners carefully structured their proof in support of substantive unconscionability so as to exclude any possibility of using a single arbitrator.  Consideration of the cost of a single arbitratorCor of the likelihood that both sides could agree to a single arbitratorCwas foreclosed because the homeowners took that option off the table.  They are left to argue substantive unconscionability based upon evidence that assumes a substantially more expensive procedure.  This does not suffice to establish substantive unconscionability.  See Aspen Tech., Inc. v. Shasha, No. 14B07-00303-CV, 2008 WL 2130572 (Tex. App.CHouston [14th Dist.] 2002, orig. proceeding) (rejecting reliance on cost of arbitration administered by AAA to establish substantive unconscionability because Athe AAA may administer the arbitration, but the parties are not required to have the arbitration administered by the AAA@).  Substantive unconscionability threatens to become the exception that swallows the rule if all that must be done to avoid arbitration is to assume the most expensive possible scenario.

The homeowners cannot carry their burden to establish excessive arbitration costs by insisting that a single arbitrator is inadequate, and that only a more expensive three-arbitrator panel will be employed.  This approach impermissibly presumes that arbitration is disfavored.  Texas law indulges no such presumption.  It presumes just the opposite.  See In re FirstMerit Bank, N.A., 52 S.W.3d at 753 & n.n.7, 8; see also Cantella & Co., 924 S.W.2d at 944 (ACourts must resolve any doubts about an agreement to arbitrate in favor of arbitration@).

The homeowners also rely on a wrongful employment termination case, In re Luna, 175 S.W.3d 315 (Tex. App.CHouston [1st Dist.] 2004, orig. proceeding [mand. pending]).  In Luna, an affidavit by an experienced employment lawyer established the average cost for an arbitration for a case similar to the plaintiff=s in Harris County.  Id. at 319.  The plaintiff stated in his affidavit that two lawyers refused to take his case on a contingency basis due to the arbitration agreement, and that he would be unable to afford the arbitration fees.  Id. at 319B20.  The court held that the costs provision weighed heavily toward a finding of substantive unconscionability.  Id. at 322.  The Luna court also found the arbitration agreement=s preclusion of reinstatement and punitive damages provided by the Texas Labor Code tended to weigh towards a finding that the agreement=s provisions as a whole were substantively unconscionable.  Id. at 324. 

The homeowners= reliance on Luna is misplaced.  They make no claim of inability to obtain legal representation due to the arbitration provisions.  Nor have the homeowners asserted that the arbitration provisions have limited any specific types of damages. 

As part of their substantive unconscionability challenge, the homeowners renew their complaint that the contracts are contracts of adhesion and assert they did not voluntarily agree that they had the financial capacity to participate in arbitration.  Under the arbitration provisions contained in Forms 2 and 3, MHI and each homeowner represented that they had Aadequate financial capacity to avail themselves of the arbitration remedies provided herein and that participation in arbitration will not constitute a financial hardship.@  As noted above, adhesion contracts are not per se unconscionable.  In re AdvancePCS Health, L.P., 172 S.W.3d at 608.  Moreover, the homeowners= asserted failure to read the contracts before signing them does not make them substantively unconscionable because Texas law presumes parties to a contract have read it and are familiar with its contents.  Cantella & Co., 924 S.W.2d at 944.  The representations of financial capacity therefore cannot be disregarded so easily. 

The homeowners further argue that MHI=s representatives never asked about their ability to pay the arbitration fees, or if such payments would create a financial hardship for them.  They also claim substantive unconscionability because the arbitration provisions require the homeowners to pay MHI=s attorney=s fees if they do not prevail without a reciprocal requirement providing that MHI would pay the homeowners= attorney=s fees if they prevail.  The homeowners did not raise these arguments in support of their substantive unconscionability defense in the trial court; these arguments appeared for the first time in response to MHI=s petition for writ of mandamus.  Therefore, we do not address these arguments.  See Nabors Drilling USA, L.P. v. Carpenter, 198 S.W.3d 240, 249 (Tex. App.CSan Antonio 1996, orig. proceeding); In re Steger Energy Corp., Nos. 04-01-00556-CV & 04-01-00670-CV, 2002 WL 663645, at *4 (Tex. App.CSan Antonio 2002, orig. proceeding) (op. on reh=g).[6] 

We conclude the homeowners have not established that the arbitration agreements are so burdensome as to render them substantively unconscionable. 

    Unconscionability of the Arbitration Agreements As A Whole

The homeowners argue the cumulative effect of the provisions in the arbitration agreements renders the agreements unconscionable.  Texas courts must consider the arbitration agreement as a whole.  In re Luna 175 S.W.3d at 328; see also Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 822 (Tex. App.CSan Antonio 1996, no pet.) (per curiam) (trial court abused its discretion by determining unconscionability without sufficient facts before the court to determining if agreement was unconscionable as a whole).  Because we already have rejected the homeowners= arguments, we cannot say the arbitration agreements are unconscionable as a whole. 


We hold the trial court abused its discretion in denying MHI=s motion to compel arbitration.[7]  We therefore conditionally grant the petition for a writ of mandamus, and direct the trial court vacate its order denying MHI=s motion to compel arbitration.  The writ will issue only if the trial court fails to act in accordance with this opinion.





/s/        William J. Boyce






Petition Conditionally Granted and Memorandum Opinion filed May 29, 2008.

Panel consists of Chief Justice Hedges, and Justices Anderson and Boyce.

[1]  When the underlying case was filed on June 29, 2005, two cases related to the same subdivision, both of which were filed on June 27, 2005, were pending:  (1) No. 2005-42002, Marcus J. Vondenstein, et al. v. MHI Partnership Ltd., pending in the 280th District Court; and (2) No. 2005-42004, Sean Henderson, et al. v. MHI Partnership, Ltd., pending in 215th District Court.  In Vondenstein, the 280th District Court denied MHI=s motion to compel arbitration.  MHI filed a petition for a writ of mandamus in the First Court of Appeals, which denied the petition in a per curiam opinion.  See In re MHI P=ship, Ltd., No. 01-06-00121-CV, 2006 WL 3476821 (Tex. App.CHouston [1st Dist.] Dec. 1, 2006, orig. proceeding) (per curiam).  In Henderson, the 215th District Court granted MHI=s motion to compel arbitration.  The homeowners in Henderson did not seek appellate review of the order compelling arbitration. 

[2]  There is no written order denying MHI=s motion to compel.  At the end of the hearing on the motion to compel arbitration, the trial court stated, AI=ll respectfully deny the motion.@  Texas Rule of Appellate Procedure 52.3(j)(1)(A) requires Aa certified or sworn copy of any order complained of, or any other document showing the matter complained of . . . .@  Tex. R. App. P. 52.3(j)(1)(A) (emphasis added).  An oral ruling on the record satisfies the requirements of Rule 52.3(j)(1)(A).  In re Bill Heard Chevrolet, Ltd., 209 S.W.3d 311, 314 (Tex. App.CHouston [1st Dist.] 2006, orig. proceeding); In re Bledsoe, 41 S.W.3d 807, 811 (Tex. App.CFort Worth 2001, orig. proceeding); In re Hamrick, 979 S.W.2d 851, 852 n.3 (Tex. App.CHouston [14th Dist.] 1998, orig. proceeding). 

[3]  Parties seeking to invalidate arbitration provisions have invoked the same contract of adhesion contention in arguing substantive unconscionability.  See In re Palm Harbor Homes, Inc., 195 S.W.3d at 678.

[4]  A[W]ith a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties.@  Haase v. Glazner, 62 S.W.3d 795, 798B99 (Tex. 2001).  The elements of fraud are:  (1) the defendant made a material representation; (2) the defendant knew the representation was false, or made it recklessly as a positive assertion without any knowledge of its truth; (3) the defendant intended to induce the other party to act upon it; and (4) the other party actually and justifiably relied upon the representation, and thereby suffered injury.  Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001). 

[5]  Additionally, homeowners Alberto Diaz and Gina D=Agostino Diaz complain that after they signed contract Form 1, MHI contacted them and told them they needed to sign a new earnest money contract.  They assert that  MHI told them the provisions of the first and second earnest money contracts were the same.  The Diazes complain that the arbitration provision in contract Form 2 contains more onerous terms than those in contract Form 1.  These separate arguments do not establish unconscionability for the same reasons that the homeowners= general misrepresentation arguments do not establish unconscionability.

[6]  The homeowners argued in the trial court that the arbitration provisions are substantively unconscionable because (1) the arbitration proceedings are to be conducted in accordance with the AAA=s Construction Industry Arbitration Rules, which are for more sophisticated parties such as developers, and (2) the arbitrators, who are attorneys with significant experience in the single family residential construction industry, will have a natural bias toward residential developers.  Because the homeowners have abandoned these contentions by omitting them from their response to MHI=s petition, we do not consider them.  The homeowners also argued in the trial court that an arbitration panel does not have the power to craft and enforce equitable remedies under these circumstances, but likewise appear to have abandoned this position by omitting it from their brief in this court. 

[7]  Because of our disposition, it is not necessary to address MHI=s argument that the affidavits submitted in support of the homeowners= response to the motion to compel arbitration are not competent evidence.