In re Labatt Food Service, L.P.

• Citation: 279 S.W.3d 640
• Decision Date: 13 February 2009
• Docket Number: No. 07-0419.,07-0419.
• Parties: In re LABATT FOOD SERVICE, L.P., Relator.
• Court: Supreme Court of Texas

279 S.W.3d 640

In re LABATT FOOD SERVICE, L.P., Relator.

No. 07-0419.

Supreme Court of Texas.

Argued September 9, 2008.

Decided February 13, 2009.

Rehearing Denied May 1, 2009.

Robert A. Valadez, Mark A. Giltner, Shelton & Valadez, San Antonio, Nissa M. Dunn, for relator.

Fidel Rodriguez Jr., San Antonio, Leo D. Figueroa, for real party in interest.

Justice JOHNSON delivered the opinion of the Court.

Under Texas law, wrongful death beneficiaries are generally bound by a decedent's pre-death contractual agreement because of the derivative nature of their claims. In this case, we consider whether the arbitration provision in an agreement between a decedent and his employer requires the employee's wrongful death beneficiaries to arbitrate their wrongful death claims against the employer even though they did not sign the agreement. We hold that it does.

I. Background

Labatt Food Service, L.P. does not provide workers' compensation insurance to cover its employees in the event of on-the-job injuries. Rather, it provides an "occupational injury plan" (the plan) under which its employees may elect to participate. To become participants in the plan, employees sign an agreement entitled "Election of Comprehensive Benefits, Indemnity, and Arbitration Agreement." The agreement contains several numbered paragraphs. Of primary relevance to this proceeding are three of those paragraphs. Paragraph three provides that the employee elects to be covered under the plan "individually and on behalf of heirs and beneficiaries." Paragraph three also provides that the employee will indemnify Labatt from claims and suits based on injury to or death of the employee from occupational causes, except for claims filed pursuant to the plan. Paragraph four consists of an arbitration clause providing that disputes related to either the agreement, the plan, or to an employee's occupational injury or death must be submitted to binding arbitration pursuant to the Federal Arbitration Act (FAA). See 9 U.S.C. §§ 1-16. Paragraph eight provides for the severability of any invalid provision.

Carlos Dancy, Jr., an employee of Labatt, elected to participate in the plan and signed an agreement. Dancy later died from an apparent asthma attack that occurred while he was working. His parents and children filed a wrongful death action against Labatt. Labatt responded by filing a motion to compel arbitration in which it asserted the arbitration agreement bound the wrongful death beneficiaries. The beneficiaries argued they were not bound by Dancy's arbitration agreement for two reasons: (1) they were not signatories to the agreement, and (2) the entire agreement was void because the indemnity clause was a pre-injury waiver in violation of Texas Labor Code section 406.033(e).

The trial court denied Labatt's motion without stating its reasons. The court of appeals denied mandamus relief. Labatt now seeks mandamus relief from this Court.

II. Are the Beneficiaries Bound to Arbitrate?

A. Standard of Review

A party denied the right to arbitrate pursuant to an agreement subject to the FAA does not have an adequate remedy by appeal and is entitled to mandamus relief to correct a clear abuse of discretion. In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 128 (Tex.1999). Under an abuse of discretion standard, we defer to the trial court's factual determinations if they are supported by evidence, but we review the trial court's legal determinations de novo. Brainard v. State, 12 S.W.3d 6, 30 (Tex.1999); see Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). Whether an arbitration agreement is enforceable is subject to de novo review. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex.2003).

B. Governing Law

Under the FAA, whether an arbitration agreement binds a nonsignatory is a gateway matter to be determined by courts rather than arbitrators unless the parties clearly and unmistakably provide otherwise. In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex.2005); see Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). As this arbitration agreement is silent about who is to determine whether particular persons are bound by the agreement, courts, rather than the arbitrator, should determine the issue. See First Options of Chic., Inc. v. Kaplan, 514 U.S. 938, 944-45, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

We apply Texas procedural rules in determining whether nonsignatories are bound by an arbitration agreement. In re Weekley Homes, 180 S.W.3d at 130. It is not entirely clear, however, if state or federal substantive law governs whether nonsignatories are bound to arbitrate under an agreement subject to the FAA. Id.; see Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 n. 6 (5th Cir.2004). Under the FAA, state law generally governs whether a litigant agreed to arbitrate, and federal law governs the scope of the arbitration clause. In re Weekley Homes, 180 S.W.3d at 130. But whether nonsignatories are bound by an arbitration agreement is a distinct issue that may involve either or both of these matters. Id. at 130-31; see also In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex.2005) (noting whether nonsignatory plaintiffs should be compelled to arbitrate their claims is related to validity but is also a distinct issue). The FAA does not specify whether state or federal law governs, and the United States Supreme Court has not directly addressed the issue. In re Weekley Homes, 180 S.W.3d at 130. Pending an answer from the United States Supreme Court, we have determined to apply state substantive law and endeavor to keep it consistent with federal law. Id. We keep in mind that a purpose of the FAA is "to make arbitration agreements as enforceable as other contracts, but not more so." Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); see Fleetwood Enter., Inc. v. Gaskamp, 280 F.3d 1069, 1074 n. 5 (5th Cir.2002).

Mindful of the foregoing, we move to the issue before us—whether an arbitration agreement governed by the FAA binds the nonsignatory wrongful death beneficiaries of a party to the agreement.

C. Beneficiaries as Nonsignatories

We have previously determined that nonsignatories to an agreement subject to the FAA may be bound to an arbitration clause when rules of law or equity would bind them to the contract generally. In re Weekley Homes, 180 S.W.3d at 131 (noting that if state law would bind a nonparty to a contract generally, the FAA appears to preempt an exception for arbitration clauses because the FAA requires states to place arbitration contracts on equal footing with other contracts); see also Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (2005) (noting that a state "may not ... decide that a contract is fair enough to enforce all its basic terms ... [yet] not fair enough to enforce its arbitration clause"). Therefore, we look to whether the agreement signed by Dancy would generally bind his beneficiaries under Texas law.

Several rules of law and equity may bind nonsignatories to a contract. For example, we have held that the principles of equitable estoppel and agency may bind nonsignatories to an arbitration agreement. In re Weekley Homes, 180 S.W.3d at 131-35; see also In re Kellogg Brown & Root, 166 S.W.3d at 739 (noting nonsignatories may be bound to arbitration agreement under "direct benefits estoppel"); In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 191-95 (Tex.2007) (recognizing estoppel may bind a nonsignatory to an arbitration agreement but holding plaintiffs were not bound to arbitration agreement under "concerted misconduct estoppel" because it was not a recognized theory of estoppel under Texas law); In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755-56 (Tex.2001) (holding a nonsignatory who sues based on a contract subjects himself to the contract's terms, including its arbitration agreement).

Labatt argues that under these circumstances the beneficiaries should be bound by the agreement because (1) they are third party beneficiaries of the agreement; (2) they are bound by the agreement because of the derivative nature of their claims; and (3) Texas Family Code section 151.001 afforded Dancy the legal authority to bind his minor children to the agreement. Because we determine it is dispositive, we first consider Labatt's argument that the beneficiaries are bound to arbitrate due to the derivative nature of their claims.

At common law there was no recognized cause of action for the wrongful death of another person. Russell v. Ingersoll-Rand Co., 841 S.W.2d 343, 344 (Tex. 1992). The Legislature enacted the Wrongful Death Act in order to create a cause of action to allow a deceased tort victim's surviving parents, children, and spouse to recover damages for their losses from the victim's death. Shepherd v. Ledford, 962 S.W.2d 28, 31 (Tex.1998); see TEX. CIV. PRAC. & REM.CODE §§ 71.002-.004. Under the Wrongful Death Act as it applies here, wrongful death beneficiaries may pursue a cause of action "only if the individual injured would have been entitled to bring an action for the injury if the individual had lived." TEX. CIV. PRAC. & REM.CODE § 71.003(a). This language is not a recent innovation but is a recodification of language which has consistently been part of the Wrongful Death Act. See Russell, 841 S.W.2d at 346. And we have consistently held that the right of statutory beneficiaries to maintain a wrongful death action is entirely derivative of the decedent's right to have sued for his own injuries immediately prior to his death. See id. at 345-47. Thus, it is well established that statutory wrongful death beneficiaries' claims place them in the exact "legal shoes" of the decedent, and they are subject to the same defenses to which the decedent's claims would have been subject. Id. at 347.

Accordingly, we long ago held that a decedent's...