Flemma v. Halliburton Energy Servs., Inc.

• Decision Date: 30 May 2013
• Docket Number: No. 33,353.,33,353.
• Citation: 303 P.3d 814
• Parties: Edward R. FLEMMA, Plaintiff–Petitioner, v. HALLIBURTON ENERGY SERVICES, INC., Rick Grisinger, Richard Montman, and Karl E. Madden, Defendants–Respondents.
• Court: New Mexico Supreme Court

303 P.3d 814

Edward R. FLEMMA, Plaintiff–Petitioner,

v.HALLIBURTON ENERGY SERVICES, INC., Rick Grisinger, Richard Montman, and Karl E. Madden, Defendants–Respondents.

No. 33,353.

Supreme Court of New Mexico.

May 30, 2013.

Guebert Bruckner, P.C., Terry R. Guebert, Donald George Bruckner, Jr., Albuquerque, NM, for Petitioner.

Jackson Lewis, L.L.P., Danny W. Jarrett, James L. Cook, Albuquerque, NM, Vinson & Elkins, L.L.P., W. Carl Jordan, Corey E. Devine, Houston, TX, for Respondents.

OPINION

VIGIL, Justice.

{1} This case presents a conflict of laws issue that requires us to determine whether enforcement of an arbitration agreement, formed in the State of Texas, would offend New Mexico public policy to overcome our traditional choice of law rule, which requires that we apply the law of the jurisdiction in which the contract was formed. We conclude that the agreement formed in Texas would be unconscionable under New Mexico law, and it therefore violates New Mexico public policy. Thus, we apply New Mexico law and conclude that no valid agreement to arbitrate exists between the parties because Halliburton's promise to arbitrate is illusory. Accordingly, we reverse the Court of Appeals and remand this case to the district court for further proceedings.

I. BACKGROUND

{2} Defendant Halliburton Energy Services (Halliburton) hired Plaintiff Edward Flemma (Flemma) to work as a cement equipment operator in Houma, Louisiana, in January of 1982. During his twenty-six years of employment with Halliburton, Flemma was promoted several times and worked for the company in Louisiana, Texas, Angola, and New Mexico. The last position he held was as district manager in Farmington, New Mexico, where he worked from 2006 until the time of his termination in 2008.

{3} As district manager, Flemma was involved in a company initiative to consolidate three Farmington facilities into one suitable facility. Halliburton considered two locations for the consolidated facility: Troy King, located within the Farmington city limits, and Crouch Mesa, located outside the city limits. The company preferred the Troy King location partly due to tax incentives offered by the city. Flemma opposed the Troy King facility for various reasons, including concerns about the safety of the general public.

{4} Flemma alleged that in August 2006, he and Defendant Karl Madden, a district sales manager for Halliburton, received a warning from Defendant Richard Montman, Flemma's supervisor, that “if you value your career, you will keep your mouth shut about the Troy King property.” The day after this warning, Rick Grisinger, a Vice President of Halliburton, told Flemma to stop making “negative comments” regarding the Troy King location. Flemma did not heed Grisinger's warning, and in July 2007, Flemma continued to express his concerns when he prepared an executive summary comparing the two locations and reiterating the public safety issues at the Troy King location.

{5} In April 2008, Montman informed Flemma, “Today is your last day with the company, you are not meeting my expectations.” Montman gave Flemma the option of signing a resignation, general release, and settlement agreement, as well as accepting twelve weeks of base salary, or being terminated. Flemma refused to sign the documents and was terminated. He stated in an affidavit that he was terminated in retaliation for “not keeping [his] mouth shut” about his concerns related to the Troy King facility. As a result, Flemma filed a complaint in district court on December 22, 2008, against Halliburton and others for wrongful and retaliatory discharge.

{6} After answering Flemma's complaint, Halliburton filed a motion to compel arbitration, alleging that Flemma agreed to a binding arbitration provision in the company's Dispute Resolution Program (DRP), which was adopted in 1997. In support of its motion, Halliburton attached documentary evidence that on four separate occasions, Halliburton mailed Flemma materials notifying him that continued employment with the company constituted his acceptance of the terms of the DRP. According to Halliburton, the four mailings were essentially identical and expressly stated that continuing employment with Halliburton would constitute an agreement with Flemma to abide by the DRP.

{7} The first two alleged notifications occurred in December 1997 and spring 1998 while Flemma was working in Texas. The third alleged notification occurred in the summer of 1999 while Flemma was working in Louisiana. The fourth alleged notification occurred in October 2001 while Flemma was again working in Texas. Halliburton stated that it maintained a record of all the DRP-related mailings that were returned to Halliburton as undeliverable and none of the mailings sent to Flemma were returned as such. Thus, Halliburton alleged that Flemma must have received the mailings, which it asserted means that he was on notice that he agreed to arbitrate any employment-related disputes by continuing his employment.

{8} Flemma responded to Halliburton's motion to compel, arguing that he was not bound by the DRP's arbitration provisions pursuant to DeArmond v. Halliburton Energy Services, Inc., 2003–NMCA–148, ¶ 14, 134 N.M. 630, 81 P.3d 573, which requires proof that an employee have actual knowledge of both the employer's offer and its invitation that the offer be accepted by performance. Flemma's affidavit stated that he did not remember seeing, receiving, opening, or reading the DRP material and that his ex-wife may have disposed of it. Flemma also argued that the DRP is invalid because Halliburton's promise to arbitrate is illusory, as it allows Halliburton to amend or terminate the DRP after a claim accrues.

{9} After briefing by the parties and a hearing, the district court denied Halliburton's motion to compel arbitration. The district court's order gave little explanation of its reasoning for the denial. However, during the hearing on the motion to compel, the district court gave two reasons for its ruling. First, the district court stated that the arbitration agreement was unenforceable because under New Mexico law it would be illusory, in that there cannot be a change to the arbitration agreement after a claim accrues. Second, the district court declined to apply Texas law on the basis that Texas law offends New Mexico public policy. The district court reasoned that enforcing an agreement solely on the basis of the mailings without affirmative evidence of acceptance or mutual assent would be contrary to public policy.

{10} After it failed to move the district court to reconsider its motion to compel arbitration, Halliburton appealed the denial of its motion to the Court of Appeals. In a split decision, the Court of Appeals reversed the district court. The Court of Appeals framed the issue as “whether the district court correctly applied the public-policy exception in refusing to apply Texas law on the acceptance and assent issue when the sole conflict between Texas and New Mexico law involves only evidentiary requirements of contract formation.” Flemma v. Halliburton Energy Servs., Inc., 2012–NMCA–009, ¶ 24, 269 P.3d 931. Concluding that the agreement to arbitrate was enforceable under Texas law, the Court of Appeals reasoned that “[t]he mere differences between Texas and New Mexico in terms of the evidence required to prove acceptance of and assent to an agreement are not sufficient to overcome the place-of-formation rule on public-policy grounds.” Id. ¶ 31. Judge Bustamante dissented, stating that the difference between Texas and New Mexico law is “not merely an evidentiary requirement, but instead a reflection of New Mexico public policy protecting workers from contractual obligations they are not aware of and to which they never agreed.” Id. ¶ 59 (Bustamante, J., dissenting).

{11} Flemma appealed the Court of Appeals' opinion and argues that New Mexico's requirement of proof of actual knowledge and conscious assent is a reflection of public policy protecting workers from contractual obligations of which they are not aware and to which they never agreed. He also argues that Halliburton's ability to modify the terms of the arbitration agreement after a claim has accrued, but before an arbitration proceeding has been initiated, renders the arbitration agreement illusory and thereby unenforceable. We agree with Flemma on the latter, and thus, we decline to enforce the arbitration agreement under Texas law. Applying New Mexico law, we conclude that there is no valid agreement to arbitrate due to a lack of consideration since Halliburton's ability to revoke its promise to arbitrate after a claim has accrued makes the promise illusory.

II. DISCUSSION

{12} At the heart of this dispute is whether the parties have validly agreed to arbitrate Flemma's wrongful and retaliatory discharge claims. In order to determine whether such an agreement exists, we must navigate the arterial corridors of our conflict of laws rules, as well as our laws of contract formation. To determine which state's laws govern our inquiry, we employ a conflict of laws analysis. If the law of a foreign jurisdiction governs, then we look to whether its application would offend a tenet of New Mexico public policy. United Wholesale Liquor Co. v. Brown–Forman Distillers Corp., 108 N.M. 467, 470, 775 P.2d 233, 236 (1989). If the application of the foreign law offends our public policy, we may apply New Mexico law. Id. In this case, the arbitration agreement was formed is Texas, where Flemma worked when the DRP was offered, and where Halliburton argues Flemma accepted its terms. Therefore, we analyze whether enforcing the agreement under Texas law would offend New Mexico public policy. Concluding that it does, we apply New Mexico law and conclude that no valid agreement to arbitrate exists.

A. STANDARD OF REVIEW

{13} This Court “appl[ies] a de novo standard of review to a district court's denial of a motion to compel...