Texas Supreme Court Remands Case in Light of Recent Ruling That Arbitrator Must Determine Arbitrability for AAA Arbitration Agreements

In a lawsuit brought by a car dealership (Lone Star) against a car auction company (Alliance), the latter moved to compel arbitration as a third-party beneficiary of an agreement between Lone Star and a separate company that Alliance used to verify and authorize Lone Star to buy and sell in Alliance’s auctions. Lone Star opposed the motion, contending that its claims fell outside the scope of the arbitration agreement.

After the trial court denied Alliance’s motion to compel arbitration, Alliance appealed to the intermediate court of appeals. That court affirmed, in part premised on its determination that arbitrability is a “gateway issue that courts must decide at the outset of litigation.” (Emphasis added.)

Alliance petitioned the Texas Supreme Court for a review of the denial of arbitration. While the petition was pending, the Texas Supreme Court issued TotalEnergies E&P USA Inc. v. MP Gulf of Mexico LLC, which held that “as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator must decide whether the parties’ disputes must be resolved through arbitration.” (Emphasis added.) This holding, the court noted, is inconsistent with the holding of the intermediate court of appeals in this case.

The Texas Supreme Court accordingly reversed the intermediate court of appeals’ judgment and remanded the case to the intermediate court of appeals to reevaluate the appeal in light of TotalEnergies. The court deferred to the intermediate court to consider Lone Star’s arguments that this case is distinguishable because, here, (1) the parties agreed to arbitrate under the AAA rules only if they are unable to agree on a different ADR firm and (2) Alliance is not a party to the arbitration agreement but is instead a third-party beneficiary.

Alliance Auto Auction of Dallas, Inc. v. Lone Star Cleburne Autoplex, Inc., No. 22-0191 (Tex. Sept. 1, 2023).