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In a case arising from an employment dispute, the Texas Supreme Court held that the employee's allegation of economic duress raised a question for the arbitrator rather than the court because the alleged duress related to the entire contract and not specifically to the arbitration clause.
In In re RLS Legal Solutions, LLC, No. 05-0290, 2007 WL 1162795 (Tex. Apr. 20, 2007), Maida worked for RLS Legal Solutions (RLS) as a sales representative. During her employment, Maida was asked to sign an employment agreement that contained various terms, including a new compensation structure, an arbitration clause, and a non-compete agreement.
When Maida refused to sign the agreement, RLS allegedly threatened to withhold her paycheck. Maida subsequently signed the agreement. Accordingly, when later sued by Maida, RLS filed a motion to compel arbitration pursuant to the employment agreement. In opposing the motion, Maida argued that she signed the agreement under economic duress.
The trial court denied the motion to compel arbitration on the ground that RLS procured the agreement through economic duress. On appeal, RLS argued that Maida's allegation of duress should be submitted to the arbitrator because the allegation related to the entire agreement rather than just the arbitration clause. The court of appeals rejected that argument, thus affirming the trial court's ruling.
The Texas Supreme Court revisited the issue of whether Maida's allegation of duress related to the entire agreement or specifically to the arbitration clause. Even though Maida submitted an affidavit highlighting her specific objection to the arbitration clause, the Court held that the allegation of duress related to the entire agreement because Maida had testified that she also opposed both the new compensation structure and the non-compete agreement. Moreover, there was no evidence indicating that RLS was trying to coerce Maida to assent to the arbitration clause and none of the other provisions.
Since the allegation of duress related to the entire agreement rather than just the arbitration clause, it raised a question for the arbitrator. Accordingly, the Court instructed the trial court to issue an order compelling arbitration.
Economic duress is similar to the "oppression" form of procedural unconscionability insofar as both arise from unequal bargaining power and neither can be attributed solely to a specific provision of the contract under scrutiny. As such, the Court's holding in this case implicitly rejects the Ninth Circuit's holding in Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006). In Nagrampa, the Ninth Circuit held that when faced with an unconscionability challenge to an arbitration agreement, a court may consider the circumstances surrounding the formation of underlying contract (e.g., disparity in bargaining power) if inquiry into those circumstances is necessary to determine procedural unconscionability.
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