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Texas Appellate Court Refuses to Enforce Arbitration Clause on Grounds of Unconscionability

Monday, January, 14, 2013


 

This month, a Texas appellate court upheld a judge’s refusal to enforce binding arbitration in a dispute between Venture Cotton Cooperative and Gaines County cotton growers on grounds that the clause was unconscionable.  According to Chief Justice Jim R. Wright of the Eleventh Court of Appeals, even though the growers had signed a contract with Venture Cotton Cooperative containing an arbitration clause, the clause was not enforceable because “conditions prevented the growers from fully recovering damages to which they would be entitled under the Texas Deceptive Practices Act.”


District Judge Kelly Moore agreed last year, and in March of 2012, issued an injunction to block arbitration due to unconscionable conditions.  According to the American Cotton Shippers’ Association arbitration rules, cotton growers could only collect their monetary damages for breach of contract and could not recover attorneys’ fees, or consequential or punitive damages, in arbitration with the Cooperative.  However, the Texas Deceptive Practices Act allows for all of the above remedies to be collected in arbitration.  


Both judges found that the contractual arbitration clause signed was decidedly one-sided, in favor of the Cooperative.  According to the contract signed by both parties, the American Cotton Shippers’ Association would have been in charge of handling the arbitration proceedings.  In addition, if the Cooperative won the arbitration dispute, according to the contract, the cotton growers would have had to pay the Cooperative’s attorney fees for arbitration. 


These decisions are the result of two pending lawsuits filed by the growers.  One concerned a dispute over the growers maintaining the rights to their “overs,” or the cotton that was produced in addition to the number of bales per acre that was originally estimated in the contract.  The other involved growers who fell short of their bale production estimates, despite the fact that the pool of growers was able to reach a harvest that was 98% of the estimated production levels.