Opinion
NUMBER 13-15-00174-CV
01-14-2016
HALE-MILLS CONSTRUCTION LTD., HALE-MILLS CONSTRUCTION INC., AND HMC CONTRACTING SOUTH TEXAS, LLC, Appellants, v. WILLACY COUNTY, Appellee.
On appeal from the 197th District Court of Willacy County, Texas.
MEMORANDUM OPINION
Before Justices Garza, Benavides, and Longoria
Memorandum Opinion by Justice Longoria
Hale-Mills Construction, Ltd., Hale-Mills Construction, Inc., and HMC Contracting South Texas, LLC (collectively, "Hale-Mills") contracted to build three buildings ("the Facilities") for Willacy County ("the County"). Several years after completion, Willacy County brought suit against Hale-Mills for alleged defects in the construction material and workmanship used on the Facilities. Hale-Mills filed a motion to enforce arbitration agreements in the contracts made for construction of the Facilities. The court denied the motion to compel arbitration. Hale-Mills argues on appeal that the trial court abused its discretion by refusing to compel arbitration. We reverse and remand.
I. BACKGROUND
Hale-Mills approached members of Willacy County's board of commissioners proposing to construct the Facilities for the County. Between 2002 and 2007, Hale-Mills entered into four separate contracts to construct the Facilities with local government corporations created by Willacy County specifically to carry out these contracts. None of the contracts were with the County itself.
On June 10, 2002, Hale-Mills executed a contract with Willacy County Public Facility Corporation to construct the Willacy County Detention Facility in Raymondville (the "2002 Contract"). This project was substantially completed in October of 2003. On June 29, 2004, Hale-Mills executed a contract with the County Jail Public Facility Corporation of Willacy County, Texas to construct the Willacy County Sheriff's Office in Raymondville (the "2004 Contract"). This project was substantially completed in April of 2005. On July 19, 2006, Hale-Mills executed a contract with the Willacy County Local Government Corporation to construct the Willacy County 2,000-bed Immigration and Customs Enforcement (ICE) Facility in Raymondville (the "2006 Contract"). The project was substantially completed in September of 2006. On August 30, 2007, Hale-Mills executed a contract with the Willacy County Local Government Corporation to construct a 1,086-bed addition to the Willacy County ICE Detention Facility (the "2007 Contract"). The project was substantially completed in January of 2008.
Years later, on March 7, 2013, Willacy County sued Hale-Mills for breach of contract, breach of warranty, negligence, fraudulent inducement, and unjust enrichment, complaining about the quality of work and materials used to construct the Facilities. Willacy County claimed that the list of problems with the Facilities is "endless." Some of those alleged problems include: poor quality materials were used instead of the higher quality materials requested; the foundation of each building was about one-fourth as thick as it should have been, causing flooding/shifting; the walls are cracking and failing because they do not properly distribute the load of the ceiling, allowing contamination to spread through the Facilities; there have been hundreds of roof leaks; there are severe and dangerous electrical wiring failures; and the sewage line was built "immensely too small," causing sewage and human waste to backup into the dormitories and cafeteria.
In response, Hale-Mills filed a motion to compel arbitration. The following day, Hale-Mills amended the motion to include excerpted copies of the agreements to arbitrate in each contract. The motion was set for hearing on January 21, 2015. The day before the hearing, the County filed a plea to the jurisdiction, asserting that the County could not be compelled to arbitrate because: (1) the government corporations that entered into the contracts with Hale-Mills could not waive the County's right to sue in a court of law; (2) the County was a non-signatory to the arbitration agreements; (3) Hale-Mills did not "prove" an arbitration agreement; and (4) the agreements to arbitrate were unconscionable when made. The County claimed that it was not trying to enforce the Contracts. The court never ruled expressly on the plea to the jurisdiction but on March 26, 2015, the court denied the motion to compel arbitration. In its order, the trial court stated the following as its reasons for denying Hale-Mills's motion to compel arbitration:
Plaintiff, Willacy County, retains sovereign immunity against any attempt to enforce the contractual terms—including those allowing for arbitration. See Highland Park v. Iron Crow Constr., Inc., 168 S.W.3d 313, 319 (Tex. App.—Dallas 2005). Moreover, Willacy County was not even a signatory to the agreements, and as such, has not consented to arbitration. The fact that the parties to the Agreements designated Willacy as a third party beneficiary does not rise to the level of making it a signatory or giving its assent to waive its right to a judicial forum. None of the cases cited by the Defendants hold otherwise. The Court further agrees with the reasons set forth in Plaintiffs' Response to Defendants' Motion as to why arbitration cannot be compelled under these circumstances.This appeal followed. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West, Westlaw through 2015 R.S.).
II. STANDARD OF REVIEW AND PLEA TO THE JURISDICTION
Hale-Mills argues on appeal in a consolidated issue that the trial court abused its discretion by holding that the County was not bound to arbitrate its claims.
On appeal, the County argues that Hale-Mills has waived any alleged error by failing to object at the trial court to every possible ground for denying the motion to compel arbitration. The County bases this argument on the premise that the trial court adopted all the reasons set forth by the County in its response to Hale-Mills's motion to enforce arbitration. However, we find this argument meritless. Hale-Mills actually objected to the trial court below in its response to Willacy County's plea to the jurisdiction. Subsequently, Hale-Mills adequately addressed every issue on appeal raised by the County. We find that Hale-Mills did not waive any of its arguments at the trial court or on appeal.
A. Standard of Review of Motion to Compel Arbitration
We review the denial of a motion to compel arbitration for an abuse of discretion. Weekley Homes, L.P. v. Rao, 336 S.W.3d 413, 418 (Tex. App.—Dallas 2011, pet. denied). A trial court abuses its discretion when it acts without reference to any guiding rules or principles. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990). Under this standard, we defer "to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo." Weekley, 336 S.W.3d at 418 (citing In re Labatt Food Svc, L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding)). Specifically, "[w]hether an arbitration agreement is enforceable is subject to de novo review." Id. But "[a] trial court that refuses to compel arbitration under a valid and enforceable arbitration agreement has clearly abused its discretion." In re 24R, Inc., 324 S.W.3d 564, 566 (Tex. 2010) (orig. proceeding) (citing In re Halliburton Co., 80 S.W.3d 566, 573 (Tex. 2002)).
B. Sovereign Immunity in a Plea to the Jurisdiction
"Sovereign immunity deprives a trial court of subject matter jurisdiction for lawsuits In which the state or certain governmental units have been sued unless the state consents to suit." Tex. Dept. of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 224 (Tex. 2004) (emphasis added). Thus, sovereign immunity from suit can be properly asserted in a plea to the jurisdiction. Id. at 226. However, in the present case, Willacy County filed a plea to the jurisdiction as a response to Hale-Mills's motion to compel arbitration. The trial court did not specifically rule on the plea to the jurisdiction but denied the motion to enforce arbitration because it found that Willacy County had sovereign immunity. If the trial court implicitly granted the plea to the jurisdiction, it was an error to do so because the government has not been sued. See id. at 224. The County logically cannot be immune from its own lawsuit. See id.; see also Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 375 (Tex. 2006). Thus, immunity from suit is completely inapplicable to the present case. Furthermore, neither party has asserted that the trial court lost its jurisdiction over the case because of sovereign immunity. As such, we will treat this appeal as an appeal of the denial of the order denying the motion to enforce arbitration, and not as an appeal of the plea to the jurisdiction.
III. ARBITRATION
Hale-Mills specifically argues that the County was bound to arbitration because: (1) its claims fall within the scope of the valid arbitration agreements that were authorized by the County; (2) the government corporations were agents of the County; (3) the County is a third-party beneficiary to the contracts; and (4) the County is estopped from refusing to arbitrate because it has sued on the contracts and is making claims that arise from the contracts. Further, Hale-Mills argues that sovereign immunity is inapplicable and does not negate any of the above reasons for enforcing arbitration. We review these claims de novo. See Weekley, 336 S.W.3d at 418.
The 2002 Contract states that "[c]laims, disputes, or other matters in question between the parties to this Part 2 Agreement arising out of or relating to this Part 2 Agreement or breach thereof shall be subject to and decided by mediation or arbitration."
The 2004 Contract states that "[c]laims, disputes, or other matters in question between the parties to this Agreement arising out of or relating to this Agreement or breach thereof shall be subject to and decided by mediation or arbitration."
The 2006 Contract states that "[a]ny claims, disputes, or controversies between the parties arising out of or relating to the Agreement, or the breach thereof, the Project or any transaction or occurrence arising out of or relating to the Project which have not been resolved in accordance with the procedures set forth in section 10.2 above shall be decided by arbitration."
The 2007 Contract states "[a]ny claims, disputes, or controversies between the parties arising out of or relating to the Agreement, or the breach thereof, the Project or any transaction or occurrence arising out of or relating to the Agreement and/or the Project which have not been resolved in accordance with the procedures set forth in Section 10.2 above shall be decided by arbitration."
A. Compelling Arbitration
Generally, federal and state policies strongly favor arbitration. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985); Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996); see also TEX. CIV. PRAC. & REM. CODE ANN. § 171.001, etseq. (West, Westlaw through 2015 R.S.) The Federal Arbitration Act (FAA) makes private agreements to submit to arbitration enforceable and requires courts to enforce arbitration agreements just like normal contracts.See 9 U.S.C. § 1, et seq. However, the purpose of the FAA is to make arbitration agreements "as enforceable as other contracts, but not more so." In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 192 (Tex. 2007) (orig. proceeding). For a court to compel arbitration, the moving party must establish: (1) a valid agreement to arbitrate, and (2) that the claims fall within the scope of that agreement. Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013). Ordinary principles of state law determine whether there is a valid agreement to arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005) (orig. proceeding).
The arbitration agreements do not specify whether the federal or Texas arbitration acts apply. The contracts do specify, in general, that the law of the place of the work (Texas) will apply. However, federal and Texas law do not differ as applied to the issues on appeal here. See In re D. Wilson Constr. Co., 196 S.W.3d 774, 778-79 (Tex. 2006). If an arbitration agreement does not specify whether the FAA or the TAA applies, but states that it is governed by the laws of Texas, both the FAA and the TAA apply unless the agreement specifically excludes federal law. See In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127-28 (Tex. 1999) (orig. proceeding). Furthermore, Willacy County raises no argument as to the applicability of either the Federal or Texas Arbitration Acts. We will assume both apply.
1) Valid Agreements to Arbitrate
In the proceedings below, Hale-Mills originally attached only the portions of the contracts that contained the arbitration agreements. The County objected that the contracts had not been properly authenticated because no affidavit was attached and Hale-Mills only included "snippets" of the contracts instead of the entire documents. The following day, Hale-Mills supplemented its motion to compel arbitration by attaching complete copies of the contracts and providing an affidavit to authenticate the contracts. The County made no further objections challenging the existence of the arbitration agreements. At a subsequent hearing, Hale-Mills reminded the trial court that the contracts had been proven up, to which statement the County made no objection. When the Court asked the County about the contracts, the County admitted that all four contracts "have arbitration clauses." The four contracts between the County entities and Hale-Mills are each worded differently but they all include, at a minimum, that "claims [and] disputes" that "aris[e] out of or relat[e] to" the contracts in question "shall be decided by arbitration" or mediation. The trial court below impliedly found that valid arbitration agreements existed by reaching the County's defenses to arbitration; otherwise, the trial court would have dismissed for lack of an arbitration agreement. Despite the County's argument to the contrary, we find that the evidence is abundantly clear that valid arbitration agreements exist. The more pressing issues are whether Hale-Mills can enforce these valid arbitration agreements against the County, a non-signatory plaintiff, and whether the claims fall within the scope of the arbitration agreements. See id.
Normally, only parties to an arbitration agreement can be compelled to arbitrate. Id. at 739. However, the Texas Supreme Court has recognized "six theories, arising out of common principles of contract and agency law, that may bind non-signatories to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary." Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 362 (5th Cir. 2003) (applying Texas law); see In re Kellogg, Brown & Root, Inc., 166 S.W.3d at 738. Being a third-party beneficiary is more than merely having an interest in, or receiving some benefit from, a contract. See Bridas 345 F.3d at 362. To be a third-party beneficiary, the contracting parties to the contract must have specifically "intended to secure some benefit" for that third party. MCI Telecomm. Corp. v. Tex. Utilities Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999) (emphasis added). Even though the equitable estoppel and third-party beneficiary theories are applied similarly, there is a subtle difference: "Under third-party beneficiary theory, a court must look to the intentions of the parties at the time the contract was executed. Under the equitable estoppel theory, a court looks to the parties' conduct after the contract was executed." Bridas, 345 F.3d at 362 (emphasis added). Hale-Mills argues that the County can be compelled to arbitrate its claims under the equitable estoppel, third-party beneficiary, and agency theories.
The County was not a signatory to any of the contracts; instead, the contracts for the Facilities were with individual government corporations created by the County. However, in the 2006 and 2007 Contracts, there are provisions providing that Willacy County is a "third-party beneficiary of this Agreement"; in fact, these two contracts go even further by specifically stating that Willacy County "shall be bound by the dispute resolution procedures" of the contracts. The 2002 Contract provides that "[t]his agreement is made and intended for the benefit of the Owner and Designer/Builder only, and is not made or intended for the benefit of any third party, except the County." (emphasis added). The 2004 Contract contains no overt statements concerning third-party beneficiaries, but there is still ample evidence that the County was intended as a third-party beneficiary on this and the other contracts. All three entities specified in their articles of incorporation that anything belonging to the entities at the time of dissolution, including property or any other rights, "shall be transferred and delivered to, and shall vest in, the County." All of the local governmental entities that entered into contracts with Hale-Mills have since lost their charters and have been dissolved. All parties to the contracts knew that any benefit given to these local government entities would ultimately be bestowed upon the County because by their very nature, the government entities were created for the direct benefit of the County. This indicates the clear intention of the parties to secure a benefit for Willacy County as a third-party beneficiary. See Bridas, 345 F.3d at 362. Therefore, we agree with Hale-Mills that Willacy County is a third-party beneficiary on all four contracts. Although courts sometimes hesitate to compel arbitration against a third-party beneficiary, courts are less hesitant to do so when the third-party beneficiary is the one to initiate the suit. Id. at 363; see also In re Weekley Homes, L.P., 180 S.W.3d at 134 (observing that the "strong state policy favoring arbitration would be effectively thwarted" if non-signatories could avoid arbitration by initiating the suit themselves); In re Kellogg, Brown & Root, Inc., 166 S.W.3d at 739.
Alternatively, Willacy County is estopped from refusing arbitration because it seeks to benefit from the agreements containing the arbitration clauses. Direct estoppel applies when a non-signatory attempts to exploit the agreements containing the arbitration clauses by benefitting from the agreements while simultaneously trying to avoid arbitration. See Bridas, 345 F.3d at 363. The County claims that it is not bound to arbitrate because it is not seeking to "enforce" the contracts, rather, its claims merely "touch upon" the contracts. However, the County cannot have it both ways: "it cannot, on the one hand, seek to hold the [opposing party] liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because [it] is a non-signatory." Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306 (Tex. 2006) (citing Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000)). Even though the County is suing for fraud and negligence, the County has also sued Hale-Mills for breach of warranty and breach of all four contracts. By suing for breach of contract, it is seeking to hold Hale-Mills liable based on the four contracts. See id. The County would need to look to each contract in the calculation of damages on any of its claims because what was promised in each contract will define the parameters of the County's damages. If a party must rely on the contract containing the arbitration agreement to calculate damages, then estoppel will prevent that party from refusing arbitration. See Meyer, 211 S.W.3d at 307. Ultimately, the County is seeking to both benefit from the existence of the agreements and yet avoid the arbitration clauses within those agreements. We conclude that both the estoppel and third-party beneficiary theories apply in this case, which allow non-signatories to be bound to arbitrate. Because we find these theories applicable, we do not address Hale-Mills's agency theory. See TEX. R. APP. P. 47.1.
2) Scope of the Arbitration Agreement
Finding that there was a valid arbitration agreement applicable to the County as a non-signatory, we next look to see if the County's claims fall within the scope of the arbitration agreement. See In re Kellogg, Brown & Root, Inc., 166 S.W.3d at 738. The United States Supreme Court has held that the FAA establishes that "as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); see In re FirstMerit Bank, N.A., 52 S.W.3d 749, 753-54 (Tex. 2001) (orig. proceeding) (holding that Texas law similarly resolves doubts in favor of arbitration).
Willacy County argues that only disputes arising between the parties during, not after, construction of the facilities could possibly be bound by arbitration. According to the County, its claims arose after the completion of the contracts and thus are not subject to arbitration. However, the arbitration agreements in this case are extremely broad in scope. The contracts use broad language providing that "claims and disputes" that arise "between the parties" must be arbitrated. The language suggests that the parties intended all claims between the parties, both during and after construction, are subject to arbitration. Such broad language includes both contractual and extra-contractual claims. See Prima Paint Corp., v. Flood & Conklin Mfg. Co., 388 U.S. 395, 397-98, (1967) (observing that an arbitration clause requiring "[an]y controversy or claim arising out of or relating to this Agreement" to be arbitrated was "broad" and had an expansive reach); see also Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir. 1998) (holding that when parties agree to arbitrate any "dispute . . . arising out of or in connection with or relating to this Agreement," the parties intended the clause to "reach all aspects of the relationship"). Other courts have compelled arbitration of tort claims if the arbitration clause's scope was broad enough to include tort claims. See Meyer, 211 S.W.3d at 307. The language in the contracts suggests that the parties contemplated that all types of claims would be arbitrated because the contracts did not place any limitations on what kinds of disputes would be arbitrated or when those disputes must arise. See id.
Willacy County also argues that arbitration cannot be required in the 2006 and 2007 contracts because those contracts include language to suggest that only mediation or arbitration must occur, not necessarily both. Willacy County and Hale-Mills went to mediation, but it was unsuccessful. But because it at least attempted mediation, Willacy County believes that it satisfied the contractual requirements. However, the language in the 2006 and 2007 contracts says that any disputes "which have not been resolved in accordance with 10.2 above shall be decided by arbitration." (emphasis added). Read in context, the plain language of this phrase states that if mediation fails, then arbitration is required. Additionally, the language "between the parties" does not prevent the trial court from enforcing arbitration against Willacy County as a non-signatory to the contract. Id. Therefore, we conclude that the County's claims fall within the broad scope of the valid, enforceable arbitration agreements in this case.
10.2 is a section about dispute resolution and mediation. --------
B. Defenses to Arbitration
Once the arbitration movant establishes a valid arbitration agreement that encompasses the claims at issue, it is the opposing party's burden to prove a defense to arbitration. See In re FirstMerit Bank, 52 S.W.3d at 753. Regardless of whether there is a valid arbitration agreement, Willacy County argues that it still cannot be compelled to arbitrate its claims because it retains sovereign immunity and the arbitration agreements are unconscionable. We review the trial court's decision to refuse to compel arbitration for abuse of discretion. See In re 24R, Inc., 324 S.W.3d at 566.
1) Sovereign Immunity
Sovereign immunity has two components: "immunity from suit, which bars a suit unless the state has consented, and immunity from liability, which protects the state from judgments even if it has consented to the suit." Reata, 197 S.W.3d at 374. Counties generally enjoy both components of immunity. Catalina Dev., Inc. v. County of El Paso, 121 S.W.3d 704, 705 (Tex. 2003). Immunity from suit is usually asserted in a plea to the jurisdiction, whereas immunity from liability is an affirmative defense. See Miranda, 133 S.W.3d at 224. The aim of sovereign immunity is to protect the State "from lawsuits for money damages." Reata, 197 S.W.3d at 374. Only the Legislature can waive sovereign immunity from suit in a breach-of-contract claim. Tex. Natural Res. Conservation Comm'n v. IT-Davy, 74 S.W.3d 849, 858 (Tex. 2002). But if the County "asserts affirmative claims for monetary recovery, the [County] must participate" as an ordinary party in the litigation process. Reata, 197 S.W.3d at 377.
In its order, the trial court specifically cited sovereign immunity as a reason for refusing to enforce the arbitration agreements. The County and the trial court rely on Town of Highland Park v. Iron Crow Constr., Inc., for the proposition that the County retains sovereign immunity in this case and has not waived it. 168 S.W.3d 313, 317 (Tex. App.—Dallas 2005, no pet.). The County argues that only the Legislature may waive the State's immunity. IT-Davy, 74 S.W.3d at 858. This is normally true; the State remains immune "from suit" for monetary damages. Id. (emphasis added). However, in Town of Highland Park, IT-Davy, and other similar cases cited by the County, the entity invoking sovereign immunity is the defendant. See id. That is not the case here, where the County initiated the lawsuit and is seeking to impose liability on another party, Hale-Mills. In other words, Hale-Mills has made no claim or counterclaim for monetary damages, but the County has made such claims. See id. at 853; Miranda, 133 S.W.3d at 224. Willacy County may be immune from liability, but Hale-Mills is not seeking to impose liability on the County. Furthermore, there is no immunity from arbitration only. See Reata, 197 S.W.3d at 374. Therefore, we conclude that sovereign immunity is not applicable to this case. It was an abuse of discretion to find that the County retained sovereign immunity in this suit.
2) Unconscionability
In its order, even though the trial court did not specifically mention unconscionability, it recited, "The Court further agrees with the reasons set forth in Plaintiffs' Response to Defendants' Motion as to why arbitration cannot be compelled under these circumstances." We will assume that by including this language in its order the court at least implicitly agreed with the County's unconscionability arguments.
Contracts that are unconscionable will not be enforced. In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex. 2006). Unconscionability principles are applied to prevent unfair surprise or oppression. Id. at 679. There are two types of unconscionability claims: substantive and procedural. Id. "Substantive unconscionability refers to the fairness of the arbitration provision itself, whereas procedural unconscionability refers to the circumstances surrounding adoption of the arbitration provision." Id. at 677. Unconscionability is measured at the date the agreements are made. Id. at 678.
Hale-Mills claims that there was no evidence of procedural or substantive unconscionability for the trial court to consider, and thus the unconscionability claims should fail. In its response to Hale-Mills's motion to compel arbitration, the County made only the following argument with respect to procedural unconscionability: "They were standard form agreements that were compelled on the County. Moreover they were procedure [sic] through a process that included two officials who accepted bribes and ultimately plead guilty to criminal charges of bribery." In a footnote to this argument, the County linked to a news article that mentioned the bribery scandal.
"There is nothing per se unconscionable about arbitration agreements." Service Corp. Int'l v. Lopez, 162 S.W.3d 801, 809 (Tex. App.—Corpus Christi 2005, no pet.) (combined appeal and orig. proceeding). The County had the burden to point to specific evidence showing unfair conditions that existed at the agreement's inception. See id. The only evidence the County raised to show that the arbitration agreements were procedurally unconscionable was the fact that some County officials were bribed during the process of the contracts being approved. However, that officials were bribed does not, standing alone, make the arbitration agreement unconscionable; the bribery is never even remotely connected to Hale-Mills, and the County fails to demonstrate how the bribery made the arbitration agreements unconscionable. There is no evidence to suggest that the contracts were in any way partial to Hale-Mills or gravely one-sided against the government entities or that the parties' bargaining powers were gravely unequal. See id. If the trial court based its decision to refuse to compel arbitration on procedural unconscionability, it was an abuse of discretion to do so.
Hale-Mills also argues that the County presented insufficient evidence of substantive unconscionability. We agree because the County's arguments in favor of substantive unconscionability were equally unpersuasive:
The agreements are substantively unconscionable because they select the American Arbitration Association, which requires high up-front fees and arbitrator costs—all of which the Willacy County taxpayers would have to bare [sic]. The taxpayers should not be the victims of a bribery scandal and shoddy workmanship on a prison that is at the root of this issue.However, the County never substantiated its claims with evidence. The County made no attempt to prove how high the actual fees involved would be, what the cost differential would be between arbitration and litigation, the reasons why arbitration would be burdensome on the County, or that the County would be financially incapable of paying arbitration fees. This type of evidence is essential for proving substantive unconscionability. See In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883, 893-95 (Tex. 2010) (orig. proceeding). We conclude that the County failed to establish that the arbitration agreements were unconscionable. If the trial court based its decision to refuse to compel arbitration on the grounds of substantive unconscionability, it was an abuse of discretion to do so.
In sum, we sustain Hale-Mills's sole issue on appeal.
IV. CONCLUSION
We reverse the trial court's order refusing to compel arbitration and remand for entry of an order compelling the parties to arbitrate.
NORA LONGORIA,
Justice Delivered and filed the 14th day of January, 2016.