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NUMBER 13-05-277-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
IN RE: WASHINGTON MUTUAL FINANCE, L.P.,
FELA CAVAZOS, DAVID GONZALEZ, CARMEN GONZALEZ,
REY GONZALES, AND ADELAIDO GONZALES
On Petition for Writ of Mandamus
O P I N I O N
Before Justices Rodriguez, Castillo, and Garza
Opinion by Justice Garza
Washington Mutual Finance, L.P. and David Gonzalez (collectively AWashington Mutual@) have filed a petition for writ of mandamus, seeking to compel Judge Jay Palacios of the County Court at Law Number Two of Hidalgo County to vacate his order of February 18, 2005, denying Washington Mutual=s motion to compel arbitration, order arbitration under the Federal Arbitration Act (AFAA@), and stay the underlying proceedings. We conclude that the trial court abused its discretion by sustaining a defense to arbitration without holding an evidentiary hearing to determine disputed issues of material fact. We therefore instruct the trial court to vacate its order of February 18, 2005, denying Washington Mutual=s motion to compel arbitration, and conditionally issue a writ of mandamus in the event the trial court does not comply with this opinion.
This original proceeding arises from a suit filed against Washington Mutual and other defendants by Ignacio and Gloria Garcia and Carlos and Esmeralda Flores (the Aplaintiffs@), in which the plaintiffs allege that they were fraudulently induced into obtaining loans from Washington Mutual. In response to the suit, Washington Mutual filed a motion to compel arbitration based on arbitration agreements signed by the plaintiffs at the time of their loans.
In a brief filed in opposition to the motion to compel arbitration, the plaintiffs conceded the existence of the arbitration agreements but contended that arbitration could not be compelled because (1) there was unequal bargaining strength between Washington Mutual and the plaintiffs, (2) Washington Mutual did not explain the arbitration agreements to the plaintiffs, and (3) the plaintiffs did not understand the arbitration agreements because their reading fluency and comprehension is at an elementary school or junior high level. Attached to the plaintiffs= brief were test results for each of the plaintiffs=, arguably establishing their below-average Areading fluency and comprehension,@ as well as a transcript of a deposition of Carmen Gonzalez, a defendant in the underlying action.[1]
The trial court held a hearing on Washington Mutual=s motion to compel on May 3, 2004. At the hearing, the trial court heard arguments from both sides, but it did not hear testimony or admit other evidence into the record. Washington Mutual argued that the evidence attached to the plaintiffs= brief was inadmissible because it was not properly proven-up by affidavits or otherwise verified. Washington Mutual also argued that because the proceeding was summary in nature, the trial court was required to grant its motion to compel based on the uncontroverted evidence in the record, which established that the plaintiffs had signed arbitration agreements covering the claims they presently asserted. For their part, the plaintiffs conceded that they had signed the arbitration agreements. They urged the trial court to find the agreements to be unconscionable based on the evidence attached to their brief. The trial court did not rule on Washington Mutual=s motion to compel, and it did not state whether it was admitting or excluding the evidence attached to the plaintiffs= brief.
On May 5, 2004, the plaintiffs filed a motion to supplement the record and for an evidentiary hearing. Attached to the motion were four affidavits, one from each of the plaintiffs. The plaintiffs= motion argued, AIf the affidavits offered above are permitted to supplement the record . . . . , further hearing is necessary to determine disputed facts.@ Washington Mutual filed a response in opposition to the plaintiffs= motion, arguing that the motion was untimely and that the plaintiffs= evidence was immaterial. On January 7, 2005, the parties received notice from the trial court setting a hearing for the plaintiffs= motion to supplement and for an evidentiary hearing on January 31, 2005.
At the hearing on the plaintiffs= motion, the trial court heard arguments from both sides but did not hear testimony or admit other evidence. Counsel for the plaintiffs briefly mentioned his motion to supplement the record and for an evidentiary hearing but spent the bulk of his time arguing a different motion, in which he asked the trial court to strike the affidavits filed by Washington Mutual in support of its motion to compel. In concluding his argument, counsel for the plaintiffs stated to the court, AI=m asking you to strike the affidavits of David Gonzalez and Fela Cavazos, which are in support of their motion to compel arbitration, and alternatively to allow the Plaintiffs to supplement the record with their affidavits and if B if the Court decides that it still wants to hear further evidence on this matter, then we=re B we=re prepared to put on evidence today.@
In response, counsel for Washington Mutual argued that the affidavits challenged by the plaintiffs were perfectly admissible. He explained that the affidavits had been on file with the court for almost a year with no complaint from the plaintiffs. Counsel further explained that the only purpose the affidavits served was to prove that the plaintiffs signed the arbitration agreements, a fact which the plaintiffs conceded at the hearing on May 3, 2004, as well as in their brief in opposition to the motion to compel arbitration. According to counsel, even if the court were to strike the affidavits, Washington Mutual would be entitled to arbitration based on these admissions. Counsel then objected to the plaintiffs= motion to supplement the record and for an evidentiary hearing.
The trial court advised the parties that it would review the motions and issue a ruling in the near future. It also stated, AIf I need to hear any other additional testimony or evidence, I will . . . advise both offices . . . .@ Without conducting an evidentiary hearing or requesting additional evidence, the trial court denied Washington Mutual=s motion to compel on February 18, 2005. No ruling was issued on either the plaintiffs= motion to strike or its motion to supplement the record and for an evidentiary hearing. This original proceeding ensued.[2]
If a trial court erroneously denies a party=s motion to compel arbitration under the FAA, the movant has no adequate remedy at law and is entitled to a writ of mandamus. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001) (orig. proceeding). The trial court may summarily decide whether to compel arbitration on the basis of affidavits, pleadings, discovery, and stipulations; however, the trial court does not have discretion to determine disputed material facts without holding an evidentiary hearing. See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992).
As discussed above, there was no dispute before the trial court regarding the existence of arbitration agreements, which, if enforceable, would invoke the FAA and cover the plaintiffs= claims. Once a party seeking to compel arbitration establishes that an agreement exists under the FAA and that the claims raised are within the agreement=s scope, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration. Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (orig. proceeding) (per curiam). Under such circumstances, the trial court may deny a motion to compel arbitration only if it concludes that the party opposing arbitration carried its burden of proving a defense to arbitration. See In re FirstMerit Bank, N.A., 52 S.W.3d at 756 (A[S]ince the law favors arbitration, the burden of proving a defense to arbitration is on the party opposing arbitration.@). In this case, Washington Mutual established by its evidence and by the plaintiffs= admissions that multiple arbitration agreements existed under the FAA and that the plaintiffs= claims fell within the scope of the agreements. The burden thus shifted to the plaintiffs to prove a valid defense to arbitration. See id.
As noted above, the plaintiffs contended that the arbitration agreements were procedurally unconscionable, an issue which is reserved for judicial review. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.3 (Tex. 1999) (orig. proceeding). The plaintiffs also contended that the trial court needed to hold an evidentiary hearing to determine disputed fact issues related to their defense. The plaintiffs maintained throughout their motion to supplement and for an evidentiary hearing that, if the trial court supplemented the record with their affidavits, the affidavits would succeed only in raising issues of material fact, which would require the court to conduct an evidentiary hearing. The trial court never held such an evidentiary hearing and never admitted any of the plaintiffs= evidence. It therefore had no basis to sustain the plaintiffs= defense to arbitration. We are fully aware that Washington Mutual opposed the plaintiffs= motion to supplement the record and for an evidentiary hearing, but we do not view such opposition as an invitation for the trial court to summarily resolve disputed issues of material fact without providing both sides a fair opportunity to present evidence. We certainly do not construe it as an invitation for the trial court to resolve issues of material fact without considering any evidence at all.
For these reasons, we conclude that the trial court abused its discretion by sustaining the plaintiffs= defense to Washington Mutual=s motion to compel arbitration. Accordingly, this Court conditionally issues a writ of mandamus compelling the trial court to vacate its order denying Washington Mutual=s motion to compel arbitration. The trial court is instructed to conduct an evidentiary hearing on any disputed issues of material fact related to the plaintiffs= defense to arbitration. The writ will issue only if the trial court refuses to vacate its order.
_______________________
DORI CONTRERAS GARZA,
Justice
Dissenting Opinion by
Justice Errlinda Castillo.
Opinion delivered and filed
this the 26th day of August, 2005.
1 Carmen Gonzalez is not a party to this mandamus proceeding.
2 This Court has requested a response from the plaintiffs, but to date, the plaintiffs have not filed any response to Washington Mutual=s petition for writ of mandamus. See Tex. R. App. P. 52.4.