Arbitration Clause In a Brokerage Agreement

In Shearson Lehman Brothers, Inc. v. Kilgore, 871 S.W.2d 925, 927 (Tex. App.-Corpus Christi 1994, orig. proceeding), a stock brokerage firm filed a plea in abatement seeking arbitration of claims brought by a client for alleged mishandling of the client's account. The client opposed arbitration arguing the arbitration clause in the brokerage agreement was procured by fraud. See id. Specifically, the client asserted that he did not read the contract and that he was unaware of the arbitration provision when he signed the contract based on representations that it contained only matters that had been previously discussed between the firm and the client. See id. The trial court denied the plea in abatement and the brokerage firm sought mandamus relief. See id. Finding that the client's fraud claim was directed at the entire brokerage contract rather then at the arbitration clause, the appellate court granted mandamus relief. See id. 928. The court stated: Fraud is not sufficiently focused upon the arbitration agreement when a party merely fails to read the contract which contains an arbitration clause of which he is unaware. Even though that party may have been induced to sign the contract without reading it by someone with whom he has had prior agreements or oral understandings that did not include an arbitration agreement, if there have been no negotiations or representations concerning arbitration, any fraudulent inducement is considered to be directed at the signing of the contract generally and not at the arbitration clause within that contract. See id.