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Case Summary: In re Heritage Bldg. Sys., Inc., 185 S.W.3d 539 (Tex. Ct. App. 2006)

Issue: At issue in this case was whether a court could order parties to submit their dispute to mediation before ruling on a party's motion to compel arbitration as mandated by the contract governing the relationship between the parties.

Rule: Under the Federal Arbitration Act, a court cannot order parties to submit their dispute to mediation before ruling on a motion to compel arbitration.

Facts: Plaintiff in this case, John Bohler, entered into a contract with Heritage Building Systems (Heritage) to purchase materials to be used in the construction of a prefabricated building. After receiving the materials, Bohler brought suit against Heritage claiming that it had provided him with components that did not meet the specifications of his order and were unfit for his building. In response to the suit, Heritage filed a plea in abatement asserting that the contract governing the sale contained language requiring that any resulting dispute be resolved in arbitration. Indeed, the contract provided that "Buyer and Seller agree that in the event of any disputes from this transaction whether in contract or tort, Buyer and Seller shall submit all maters to final and binding arbitration." [1] Just over a month after Heritage filed its plea in abatement, Bohler filed a motion requesting that the trial court refer the dispute to mediation. In response, Heritage filed a Motion to Enforce Agreement to Arbitrate.

The trial court granted Bohler's motion to refer the case to mediation and indicated that Heritage's motions concerning arbitration were to be taken under advisement until the conclusion of mediation. When issuing its mediation order, the trial court advised that either party could, within ten days, file a written objection to the referral of the case to mediation. Heritage filed a petition for writ of mandamus with the Court of Appeals of Texas (Beaumont).

Discussion: The Court of Appeals conditionally granted a writ of mandamus and ordered the trial court to vacate its mediation order and either summarily rule on the motion to compel arbitration or conduct an evidentiary hearing to resolve facts in dispute. Initially, the court had to determine whether the contract between Bohler and Heritage contained a valid arbitration provision, and in turn, whether the provision was governed by the Federal Arbitration Act (FAA).[2] According to the Texas Rules of Appellate Procedure, the Court of Appeals could accept the claims in Heritage's brief as being true unless they were contradicted by Bohler. Bohler did not attempt to contradict Heritage's representations that evidence of the contract had been presented to the trial court. Moreover, Bohler did not dispute that his claims fell within the scope of the contract's arbitration clause. Thus, the court found that Heritage had made a prima facie case establishing that there was a valid arbitration agreement. On the issue of the FAA's applicability, the Supreme Court has previously held that an arbitration agreement will be covered by the Act if it is included in a contract that relates to interstate commerce.[3] Here, as Heritage shipped the components from Arkansas to Bohler who was in Texas, the required nexus with interstate commerce was clearly present. Although Bohler did not dispute that the FAA applied to his claims, he asserted that "Texas's policy of encouraging settlement permits the trial court to refer the case to mediation prior to ordering arbitration." [4] The court rejected this argument and found that given Heritage had proved the existence of a valid arbitration agreement and its own finding of a nexus with interstate commerce, the FAA governed the dispute. Under the FAA, once a court is satisfied that a dispute can be referred to arbitration under the controlling arbitration provision, it "'shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . .'" [5] While it was clear that federal law required a stay of trial in this case, it was an issue of first impression whether a trial judge could delay disposing of a motion to compel arbitration and compel the parties to mediate. Having reviewed prior Texas cases holding that a trial court could not defer ruling on a motion to compel arbitration in order to allow completion of discovery, the court held that the FAA required stay of all proceedings, except those involving threshold issues "like whether the parties enter into a valid and enforceable arbitration agreement." [6] Finding that an order requiring mediation was not a threshold issue, the court held that trial court could not delay ruling on the motion to compel arbitration.

[1] In re Heritage Bldg. Sys., Inc., 185 S.W.3d at 540.

[2] See Federal Arbitration Act, 9 U.S.C.A. §§ 1-16 (West 1999 & Supp. 2005).

[3] See, e.g., Perry v. Thomas, 482 U.S. 483, 489 (1987).

[4] In re Heritage Bldg. Sys., Inc., 185 S.W.3d at 541.

[5] Id. at 542 (citing Federal Arbitration Act, 9 U.S.C.A. § 4).

[6] Id.