The arbitration process is one that is commonly encouraged as a means to resolve disputes. It is touted as being less expensive and quicker than litigating in court and presided over by arbitrators who are experts in the area of law governing the dispute. Texas law favors arbitration.  However, a party seeking to compel another to arbitration must establish the existence of an agreement to arbitrate and show that the claims asserted fall within the scope of that agreement. As the Mainthia Technologies, Inc. v. Recruiting Force, LLC case out of the Third Court of Appeals shows, it is not enough if the agreement references arbitration. There must be an express intent by the parties to the agreement to submit their disputes to arbitration.

1.    Agreeing to what, exactly?

The dispute in Mainthia arose when two parties who had entered into a joint-venture agreement to obtain a services contract disagreed on the most effective way to manage the services contract. The parties attempted to resolve their dispute through mediation, but when mediation was unsuccessful, a lawsuit followed. In response to the lawsuit, one of the parties filed a motion to compel arbitration in which it argued that the dispute at issue was subject to arbitration pursuant to the joint-venture agreement. The moving party contended that the following provision evidenced an agreement to arbitrate:

Should the Parties be unable to resolve said dispute(s) through good faith negotiation, the Parties agreed to attempt in good faith to resolve said dispute(s) through mediation administered by the American Arbitration Association under its Commercial Mediation Rules as a condition precedent to arbitration as herein provided” (emphasis added).

The district court disagreed, found that there was no agreement to arbitrate, and the moving party appealed.

The Court of Appeals found that the language in the joint-venture agreement’s dispute resolution provision, stating that disputes will be submitted to mediation as a condition precedent to arbitration, was not express enough to find that the parties had agreed to arbitrate. The Court reasoned that a set of conditions precedent mentioning arbitration alone did not give rise to the obligation to arbitrate.

The Court further found that the joint-venture agreement was devoid of any indication that the parties had promised to arbitrate their dispute once the mediation condition precedent had been satisfied, nor was arbitration mentioned anywhere else in the agreement. As there was no showing of an express intent to arbitrate, the Court of Appeals refused to infer from the “passing reference” to arbitration that the parties intended to arbitrate. As such, the Court found that absent a clear intent to arbitrate, there was no binding arbitration clause.

2.    Drafting for the future

When deciding whether to find arbitration enforceable in Mainthia, the Third Court of Appeals focused on discerning the parties’ intent when entering into the joint-venture agreement. The Court’s analysis shines light on how important it is for arbitration agreements to evidence a clear intent to arbitrate, as courts will generally not infer terms that the parties did not negotiate. A mere reference to arbitration, as seen in Mainthia, is likely not enough to enforce an arbitration agreement. As such, if the goal is to arbitrate contractual disputes, it is paramount to expressly reflect such intent by drafting clear and unambiguous arbitration provisions in contracts.

When determining whether contractual arbitration provisions are enforceable, we recommend consulting with legal counsel. Our attorneys in our Dallas and Austin offices are available to answer any questions you may have.

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