Henry & Sons Constr. Co. v. Campos

• Decision Date: 06 October 2016
• Docket Number: NUMBER 13–16–00204–CV
• Citation: 510 S.W.3d 689
• Parties: HENRY & SONS CONSTRUCTION CO., INC., Appellant, v. Pablo CAMPOS, Appellee.
• Court: Texas Court of Appeals

510 S.W.3d 689

HENRY & SONS CONSTRUCTION CO., INC., Appellant,

v.Pablo CAMPOS, Appellee.

NUMBER 13–16–00204–CV

Court of Appeals of Texas, Corpus Christi-Edinburg.

Delivered and filed October 6, 2016

Rehearing and Reconsideration En Banc Overruled October 28, 2016

Gerard "Jerry" Thomas Fazio, Owen & Fazio, Dallas, TX, for Appellant

Craig Farrish, Law Office of Thomas J. Henry, Corpus Christi, TX, for Appellee.

Before Justices Rodriguez, Benavides, and Perkes

OPINION

Opinion by Justice Rodriguez

Appellee Pablo Campos was an employee of appellant Henry & Sons Construction Company, Inc. (HSC). Campos sued the company for personal injuries he allegedly sustained at the HSC worksite. HSC filed a motion to compel arbitration, which the trial court denied. This interlocutory appeal followed. By what we construe as four issues on appeal, HSC contends that the trial court abused its discretion in denying HSC's motion to compel arbitration. We affirm.

I. BACKGROUND

The facts of this appeal are largely undisputed. Rather, the parties dispute the legal significance of an arbitration policy and whether HSC and Campos were mutually bound to adhere to that policy.

HSC is a non-subscriber to the Texas Workers Compensation Act. In 2005, HSC promulgated a Dispute Resolution Policy which went into effect on January 1, 2006 (the Policy). The Policy specified that it covered all disputes arising out of the employee's relationship with HSC, including tort claims for negligence or gross negligence and any claims related to on-the-job injuries or illnesses. The Policy indicated that by beginning or continuing employment with HSC after January 1, 2006, the employee agreed to arbitrate any disputes with HSC under the Federal Arbitration Act (FAA). According to the Policy, the employee thus waived any right to seek a remedy outside of the arbitration procedure established by the Policy; it required an employee to complete a three-step grievance procedure and then file a request for arbitration, taking each step within fourteen days of the prior step—or else forfeit any claim. The Policy stated that HSC's employees agreed to binding arbitration in "exchange for HSC's agreement to resolve employment disputes with [the employee] under the terms and conditions of this Policy, and as a condition of continued employment ...." Employees were required to sign and return an "Employee Acknowledgment" form within five business days after receiving the Policy.

Campos signed and returned an Employee Acknowledgement form on August 26, 2013, though the record does not reveal when he began his employment with HSC. It is undisputed, however, that Campos was injured while he was an employee of HSC in 2014. He filed this suit in 2015. Shortly thereafter, HSC filed a motion to compel arbitration. In its motion, HSC argued that the Policy was enforceable as a binding arbitration agreement, to which Campos had assented by beginning or continuing his employment with HSC after the Policy's effective date. HSC argued that under the terms of the Policy, the parties were required to arbitrate any tort claims for negligence and any claims related to on-the-job injuries.

In his response, Campos raised several arguments to resist arbitration. Among them, Campos cited a section in the Policy which allowed HSC to modify or terminate the Policy at its sole discretion. According to Campos, the following language allowed HSC to avoid its promise to arbitrate by modifying or terminating the arbitration arrangement:

G. REVISIONS TO OR TERMINATION OF THIS POLICY

(1) ... If HSC determines that revisions are necessary, you will be provided with a copy of the revised Policy indicating the effective date, and you will be asked to sign an Employee Acknowledgement reflecting that you received the new Policy. Revisions to this Policy shall only apply prospectively. In other words, revisions will apply only to those claims based upon actions or events that occur following the effective date of the revisions. Unless all parties to an arbitration proceeding agree otherwise[,] revisions to this Policy shall not apply to any arbitration proceeding that exists as of the time that the revised Policy is issued.

(2) If HSC decides to terminate this Policy, such termination shall terminate both HSC's and your right to arbitrate under this Policy. HSC shall provide at least thirty (30) days['] notice of any termination of the Policy. Any claim based upon actions or events that occurred or any proceeding under this Policy that was initiated prior to the effective date of the termination of the Policy shall not be affected by such termination, unless all parties agree otherwise.

Campos argued that because the employer's promise to arbitrate was avoidable and non-binding, the promise could not serve as valid consideration for a contract. Campos reasoned that because any consideration was "illusory," the Policy was not an enforceable arbitration agreement as a matter of Texas contract law.

On January 14, 2016, the trial court conducted a hearing on HSC's motion to compel arbitration. Shortly afterwards, the trial court denied the motion. HSC filed this appeal.

II. PROMISE TO ARBITRATE AS CONSIDERATION

By its first issue on appeal, HSC contends that two features save the Policy from being considered "illusory" as a binding arbitration agreement. First, HSC asserts that the Policy required HSC to provide thirty days' notice of its intent to modify or terminate the Policy—though Campos disputed this conclusion, arguing that the Policy did not guarantee any prior notice of modifications. Second, HSC contends that the Policy provided that any modification or termination would only apply "prospectively." According to HSC, these guarantees to notice and prospective-only application prevent HSC from avoiding its promise to arbitrate by quickly modifying or terminating the Policy.

To address this argument, we must first determine the minimum requirements for an enforceable agreement based on a mutually binding promise to arbitrate. We then evaluate whether the Policy meets those requirements.

A. Standard of Review and Applicable Law

The Texas Civil Practice and Remedies Code permits the interlocutory appeal of an order denying a motion to compel arbitration under the Federal Arbitration Act. TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West, Westlaw through 2015 R.S.); Flex Enters. LP v. Cisneros , 442 S.W.3d 725, 727 (Tex. App.–El Paso 2014, pet. denied). A party seeking to compel arbitration must first establish the existence of a valid arbitration agreement between the parties. In re Odyssey Healthcare, Inc. , 310 S.W.3d 419, 422 (Tex. 2010) (per curiam) (orig. proceeding). Whether an enforceable arbitration agreement exists is a question of law that we review de novo. In re D. Wilson Constr. Co. , 196 S.W.3d 774, 781 (Tex. 2006) (orig. proceeding). "Once a party seeking to compel arbitration establishes that an agreement exists under the FAA, and that the claims raised are within the agreement's scope, the trial court has no discretion but to compel arbitration and stay its proceedings pending arbitration." Cantella & Co., Inc. v. Goodwin , 924 S.W.2d 943, 944 (Tex. 1996) (orig. proceeding) (internal quotations omitted).

"Under the FAA, ordinary principles of state contract 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). "Like other contracts, arbitration agreements must be supported by consideration." DR Horton, Inc. v. Brooks , 207 S.W.3d 862, 867 (Tex. App.–Houston [14th Dist.] 2006, orig. proceeding) ; see Labor Ready Cent. III, LP v. Gonzalez , 64 S.W.3d 519, 522 (Tex. App.–Corpus Christi 2001, orig. proceeding) (providing that "[a] contract that lacks consideration lacks mutuality of obligation," an element of contract formation). The only consideration required of both parties to create a stand-alone arbitration agreement is a binding promise of each party. In re AdvancePCS Health LP , 172 S.W.3d 603, 607 (Tex. 2005) (per curiam) (orig. proceeding).

When illusory promises are the only consideration that supports a purported bilateral contract, there is no mutuality of obligation, and therefore, no contract. In re 24R, Inc. , 324 S.W.3d 564, 567 (Tex. 2010) (per curiam) (orig. proceeding). A promise is illusory when it fails to bind the promisor, who retains the option of discontinuing performance. Light v. Centel Cellular Co. of Tex. , 883 S.W.2d 642, 645 (Tex. 1994). If an employer can unilaterally modify or terminate the purported agreement, without prior notice to an employee, that agreement is based upon an illusory promise and thus not enforceable. In re C & H News Co. , 133 S.W.3d 642, 647 (Tex. App.–Corpus Christi 2003, orig. proceeding). In such situations, once the employer receives notice of a claim, the employer could avoid its promise to arbitrate by modifying or terminating the agreement, and thus "unilaterally nullify the arbitration agreement." See In re Lucchese, Inc. , 324 S.W.3d 214, 217 (Tex. App.–El Paso 2010, orig. proceeding). The employees would have "received nothing of value for their promises to arbitrate employment related disputes;" because the arbitration agreement would not be mutually binding, it would therefore be illusory and unenforceable. Id .

"This is not to say, however, that if a party retains any ability to terminate the agreement, the agreement is illusory." Nelson v. Watch House Intern., LLC , 815 F.3d 190, 193 (5th Cir. 2016) (internal quotations omitted). In the seminal Halliburton case, the Texas Supreme Court upheld an arbitration agreement which could be changed at the employer's sole discretion, concluding that two critical features saved the agreement from being illusory. In re Halliburton Co. , 80 S.W.3d 566, 569–70 (Tex. 2002) (orig. proceeding). The court emphasized the agreement's provisions that "no amendment shall apply to a Dispute of which the [employer] had...