The Supreme Court of Texas ruled on May 26, 2023, in favor of Auto Nation USA Houston (AutoNation). Gray Reed Partner Bill Drabble represented Auto Nation in the case before the Texas Supreme Court. Assisting during the appeal process were Gray Reed Partners Ruth Ann Daniels and Jake Lewis, as well as Jim Moseley.
This employment-discrimination case deals with whether the courts may refuse to enforce an arbitration agreement on grounds that arbitrating would be cost prohibitive for the employee.
AutoNation owns and operates a car dealership in Houston. It hired Walter Shattenkirk as its general manager but fired him approximately six months later. After Shattenkirk sued AutoNation, it moved to compel arbitration based on an agreement, which Shattenkirk signed during the hiring process, that requires the parties to arbitrate any claims arising from the employment relationship, including discrimination claims. The agreement does not discuss who would pay administrative fees, the arbitrator’s compensation, or other expenses. The trial court denied AutoNation’s motion to compel, concluding that the agreement is unconscionable and unenforceable because the cost of arbitration would be so high that it would effectively preclude Shattenkirk from pursuing his claims. The court of appeals affirmed.
The supreme court, however, reversed, holding that Shattenkirk failed to provide enough evidence to demonstrate the arbitration agreement was unconscionable. To merely show the risk or speculation of high cost is insufficient, the party opposing arbitration must present specific evidence that he will actually be charged such costs. Here, the court concluded that Shattenkirk presented only general claims that the increased cost of arbitration compared to litigation would prevent him from proceeding with the case. Considering the agreement’s silence on costs and the lack of other documents indicating the allocation of cost, any argument that such costs make the agreement unconscionable would be premature. Accordingly, the court ruled that Shattenkirk failed to prove the likelihood that he would incur prohibitive arbitration costs which deemed the agreement enforceable.
A copy of the Supreme Court’s 13-page opinion (Case No. 22-0214) is available here.
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