by Eleanor Mason, Staff Attorney for Justice Hassan, Fourteenth Court of Appeals

Lennar Homes of Tex., Inc. v. Rafiei, 652 S.W.3d 532, (Tex. App.—Houston [14th Dist.] Aug. 16, 2022, no pet. h.) (Zimmerer, J., majority; Jewell, J., dissenting).

In Lennar Homes of Texas, Inc., the Fourteenth Court of Appeals affirmed the denial of a motion to compel arbitration on grounds that the parties’ arbitration agreement was unconscionable.

Rafiei sued Lennar Homes after he was injured when his kitchen garbage disposal exploded. Id. at 536. Lennar Homes filed a motion to compel arbitration, citing the arbitration provision in the parties’ sale contract. Id. Responding to the motion, Rafiei argued that the arbitration provision was unconscionable because it imposed an excessive and unfair financial burden. See id. The trial court denied Lennar Homes’ motion to compel. Id. at 538.

The Fourteenth Court of Appeals affirmed the denial of the motion to compel. Id. at 541. The court’s analysis focused on the evidence Rafiei produced to support his excessive-costs argument, including the parties’ arbitration agreement, AAA arbitration rules and fee schedule, and affidavits from Rafiei and a plaintiff’s lawyer. Id. at 539-41. This evidence, the majority held, showed that arbitration would require Rafiei to pay approximately $7,300-8,400 in administrative fees, including half of the compensation for three arbitrators, which was estimated to cost $450 per hour. Id. at 540. In his affidavit, Rafiei stated that he would not be able to continue pursuing his claims if the arbitration costs exceeded $6,000. Id.

Noting that “[a]rbitration is intended to be a lower cost, efficient alternative to litigation,” the court concluded that this evidence “establishe[d] the opposite.” Id. at 541. Therefore, the evidence supported the trial court’s implied finding that the arbitration provision was unconscionable.

Justice Jewell filed a dissenting opinion, contending that Rafiei had not established with evidence that the threshold question of arbitrability is unconscionably cost-prohibitive; rather his evidence was speculative and improperly assumed the most expensive scenario. Id. at 542-43. Justice Jewell also maintained that the majority opinion “not only conflicts with existing precedent from the Texas Supreme Court and this court on similar issues, but it brings our court into direct conflict with the First Court of Appeals on an identical question.” Id. at 541.

Wagner v. Exxon Mobil Corp., __ S.W.3d __, 2022 WL 3970872 (Tex. App.—Houston [14th Dist.] Sept. 1, 2022, no pet. h.) (Hassan, J.).

Exxon sued the appellants over the appellants’ alleged indemnity obligations with respect to Exxon’s settlement of two Louisiana lawsuits. Id. at *1. The jury returned a verdict in favor of Exxon, and Exxon asked the trial court to award it the $71 million it paid to settle the two Louisiana suits. Id. The trial court granted in part the appellants’ JNOV motion and reduced Exxon’s damages to $28.22 million. Id.

The Fourteenth Court of Appeals reversed the trial court’s order on the JNOV motion and remanded the case for entry of judgment in accordance with the jury’s verdict. Id. The court’s opinion contains two holdings relevant to other litigation, particularly in similar contexts.

First, the appellants argued on appeal that Exxon’s alleged failure to allocate between indemnified and non-indemnified benefits precluded its recovery. Id. at *3. Rejecting this argument, the court concluded that the evidence was sufficient to support the jury’s finding that the full amount Exxon paid to settle the lawsuits was made in good faith and reasonable and prudent under the circumstances. The court noted that “[t]he obligation to indemnity is a creature of contract and defined according to the terms therein.” Id. at *9. Here, the parties’ agreements set “broad parameters” for the appellants’ indemnity obligations that were sufficient to encompass the full $71 million paid by Exxon. Id.

Second, the appellants cited a 2013 summary judgment obtained in related litigation and argued that Exxon’s indemnity claims were barred by the doctrine of res judicata. Id. at *3. However, as the court pointed out, the appellants did not raise their res judicata contention until the last day of trial—over three years after the allegedly-preclusive summary judgment had been obtained. Id. at 13. Citing the Restatement (Second) of Judgment § 26, the court concluded that the appellants waived the defense of res judicata. To hold otherwise, the court noted, “would undercut the goals the doctrine is intended to advance, i.e., the efficient resolution of lawsuits.” Id.