Brister Concurrence in
In Re Morgan Stanley & Co. Inc. (Tex. 2009)(mandamus denial)
No. 07-0665 (Tex. Jul. 3, 2009)(Majority Opinion by Justice Medina) (arbitration mandamus denied)
(arbitration vs. litigation: legal capacity of party to arbitration agreement, who decides the issue? Is the
question for the court or the arbitrator to determine?)
I concede that Morgan Stanley did not assert direct-benefits estoppel in the trial
court or on appeal. But of course nothing prevents it from doing so now. ... As this
case can be decided on clear estoppel lines rather than the murkier line between
contract formation and contract validity, I would not hazard a guess that we may
have to retract later. Instead, I would deny the petition and remand to the district
court for reconsideration.
IN RE MORGAN STANLEY & CO. INC., SUCCESSOR TO MORGAN STANLEY DW, INC.;
from Dallas County;
5th district (05-07-00590-CV, ___ SW3d ___, 07-17-07 Opinion by the Dallas CoA)
The petition for writ of mandamus is denied.
Justice Medina delivered the opinion of the Court, in which Chief Justice Jefferson, Justice Wainwright,
Justice Green, Justice Johnson, and Justice Willett joined.
Justice Brister delivered a concurring opinion [4-page pdf opinion] (suggesting direct benefits estoppel as
an alternative theory to enforce arbitration clauses in the underlying agreements)
Justice Willett delivered a concurring opinion (reading that FAA as clearly requiring that the court decide
the mental-incapacity issue)
Justice Hecht delivered a dissenting opinion (would have the arbitrator decide the issue of capacity to
contract, analogously to a fraudulent inducement defense asserted to avoid enforcement of a contract)
(Justice O'Neill not sitting)
In Re Morgan Stanley & Co. Inc. (Tex. 2009)(Brister, concurring)
[Note: highlights and hyperlinks have been added to the text of the opinion below; to view the opinion in its
original format (pdf), click the appropriate hyperlink above.
Argued October 15, 2008
Justice Brister, concurring.
Whether a person can avoid an arbitration clause by claiming she was mentally incompetent
raises many difficult problems. As the Court notes, the federal courts cannot even agree whether
judges or arbitrators should answer the question. I would not try to guess (as the Court does) how
the United States Supreme Court may resolve this difficult issue because equitable estoppel
renders it irrelevant in this case.
A person “cannot both have his contract and defeat it too.”1 Even those who had nothing
to do with an arbitration agreement are bound by it if they seek to gain the benefits of the larger
contract in which it is contained.2 Accordingly, it is irrelevant whether Helen Taylor was mentally
incompetent; even if she was, she is still bound to arbitrate because her legal guardian’s suit
depends entirely on account agreements that contain arbitration clauses.
Every claim Taylor asserts against Morgan Stanley (breach of fiduciary duty, negligence,
malpractice, and violations of securities law) has no basis unless Morgan Stanley was her broker.
Every legal duty Morgan Stanley owed Taylor arises from the account agreements. Because
Taylor’s guardian insists that Morgan Stanley violated duties it owed her as a client, he cannot “turn
[his] back on the portions of the contract, such as an arbitration clause, that [he] finds distasteful.”3
It is true that in response to the motion to compel arbitration, Taylor’s guardian asserted for the
first time that all her agreements with Morgan Stanley were unenforceable, not just the arbitration
clauses. But that is not what her pleadings said either before or after the hearing. The only
declaratory judgment she sought in her First Amended Petition is “that any and all arbitration
agreements entered into by or on behalf of Helen Taylor are void and not enforceable.” She did not
seek rescission, which is her only remedy if the entire account agreements are invalid due to
incompetence.4 To the contrary, she seeks exemplary damages, statutory damages, and attorney’
s fees — relief not available with equitable remedies like rescission.
The question whether mental competence is an issue for courts or arbitrators is not as
“straightforward” as Justice Willett suggests. In Prima Paint Corp. v. Flood & Conklin
Manufacturing Co., the United States Supreme Court held that a fraudulent inducement claim
specifically directed at an arbitration clause is “an issue which goes to the ‘making’ of the
agreement to arbitrate.”5 In Buckeye Check Cashing, Inc. v. Cardegna, the Court affirmed Prima
Paint, describing it as a case involving a contract’s validity rather than contract formation.6
Because both contract formation and validity fall within “the making of the agreement for
arbitration” in section 4 of the Federal Arbitration Act,7 that section alone gives no definitive
answer. For better or worse, there has been so much “judicial parsing or sprucing” in this area that
there is no easy answer.
As the arbitration clauses here were embedded in each Morgan Stanley contract, Taylor cannot
possibly have been incompetent as to one part but competent as to the rest. As her suit clearly
relies on the contracts as a whole, she should have to comply with the arbitration clauses too.
I concede that Morgan Stanley did not assert direct-benefits estoppel in the trial court or on
appeal. But of course nothing prevents it from doing so now. Arbitration can be waived by
substantial litigation conduct, but there is a strong presumption against waiver and we have never
suggested it occurs by initially asserting the wrong grounds.8 As this case can be decided on
clear estoppel lines rather than the murkier line between contract formation and contract validity, I
would not hazard a guess that we may have to retract later. Instead, I would deny the petition and
remand to the district court for reconsideration.
OPINION DELIVERED: July 3, 2009
1 In re Weekley Homes, L.P., 180 S.W.3d 127, 135 (Tex. 2005).
2 Id. at 131; In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001).
3 Weekley, 180 S.W.3d at 135 (internal punctuation omitted) (citing E.I. DuPont de Nemours & Co. v.
Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 (3d Cir. 2001)).
4 See, e.g., Oram v. Gen. Am. Oil Co. of Tex., 513 S.W.2d 533, 534 (Tex. 1974).
5 388 U.S. 395, 403-04 (1967)(“Accordingly, if the claim is fraud in the inducement of the arbitration clause
itself—an issue which goes to the ‘making’ of the agreement to arbitrate—the federal court may proceed to
6 546 U.S. 440, 445-46 (2006).
7 See id. at 444 n.1.
8 See Perry Homes v. Cull, 258 S.W.3d 580, 590 (Tex. 2008).