In re Poly-America, L.P.

• Decision Date: 29 August 2008
• Docket Number: No. 04-1049.,04-1049.
• Citation: 262 S.W.3d 337
• Parties: In re POLY-AMERICA, L.P., Ind. and d/b/a Pol-Tex International, and Poly-America GP, L.L.C., Relators.
• Court: Texas Supreme Court

262 S.W.3d 337

In re POLY-AMERICA, L.P., Ind. and d/b/a Pol-Tex International, and Poly-America GP, L.L.C., Relators.

No. 04-1049.

Supreme Court of Texas.

August 29, 2008.

Erica W. Harris, Susman Godfrey L.L.P., Houston, Craig T. Enoch, Winstead PC, Austin, Adam Brian Ross, Poly-America, LP, Grand Prairie, TX, for Relator.

Scott Fiddler, Law Office of G. Scott Fiddler, P.C., Houston TX, for Real Party in Interest.

Jeffrey C. Londa, Ogletree Deakins Nash Smoak & Stewart, P.C., Houston, Audrey Elaine Mross, Davis Munck Butrus, P.C., Kirk L. Pittard, Durham & Pattard, LLP, Dallas, Peter M. Kelly, Law Office Of Peter M. Kelly, P.C., Houston TX, for Amicus Curiae.

Justice O'NEILL delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice WAINWRIGHT, Justice MEDINA, Justice GREEN, and Justice JOHNSON joined.

HARRIET O'NEILL, Justice.

In this retaliatory-discharge case, the employee's employment contract contains an arbitration agreement that requires the employee to split arbitration costs up to a capped amount, limits discovery, eliminates punitive damages and reinstatement remedies available under the Workers' Compensation Act, and imposes other conditions on the arbitration process. We must decide whether any or all of these provisions are unconscionable and, if they are, whether the contract's severability clause preserves the arbitration right. We hold that the trial court did not abuse its discretion in allowing the arbitrator to assess the unconscionability of the agreement's fee-splitting and discovery-limitation provisions as applied in the course of arbitration. We further hold that the arbitration agreement's provisions precluding remedies under the Workers' Compensation Act are substantively unconscionable and void under Texas law. However, those provisions are not integral to the parties' overall intended purpose to arbitrate their disputes and, pursuant to the agreement's severability clause, are severable from the remainder of the arbitration agreement, which we conclude is otherwise enforceable. Accordingly, we conditionally grant the petition for mandamus.

I. Facts

Johnny Luna began his employment with Pol-Tex International, d/b/a Poly-America, L.P., in October 1998. Upon his hiring, Luna signed an agreement to submit "all claims or disputes" to arbitration. Approximately four years later, Luna signed an amended agreement to arbitrate that contained substantially the same provisions. Both the 1998 and 2002 agreements provide that they are governed by the Federal Arbitration Act (FAA). 9 U.S.C. §§ 1-14. Additionally, both agreements contain a series of requirements for the arbitration between the parties. All claims must be asserted within a maximum of one year from the occurrence of the event from which the claim arises. Fees associated with arbitration — including but not limited to mediation fees, the arbitrators' fees, court reporter fees, and fees to secure a place for a hearing — are to be split between the parties, with the employee's share capped at "the gross compensation earned by the Employee in Employee's highest earning month in the twelve months prior to the time the arbitrator issues his award." Each side is permitted limited forms of discovery: twenty-five interrogatories (including sub-parts), twenty-five requests for production or inspection of documents or tangible things, and one oral deposition of no more than six hours. Parties may not use written depositions or requests for admission; the agreement prohibits discovery of either party's financial information except for the employee's earnings if the employee seeks lost wages, back pay, and/or front pay; and all aspects of the arbitration are deemed confidential. Finally, the arbitrator is stripped of authority to award punitive, exemplary, or liquidated damages, or to order reinstatement of employment.

In December 2002, Luna suffered a work-related neck injury when he accidentally hit his head on a pipe. Poly-America's company doctor examined Luna and diagnosed him with an acute cervical spine flexion injury. Luna subsequently filed a workers' compensation claim and began receiving physical therapy. Approximately two weeks later, Luna returned to work on a release for light duty; however, Luna continued to suffer pain and utilized previously scheduled vacation time to recover from his injury. After being warned by the company doctor that he needed to return to work and get off of workers' compensation if he wanted to keep his job Luna returned to work without restrictions on January 10, 2003. Upon his return, Luna noticed that another person was already being trained for his position, and he claims that his supervisor began to harass him. One month later, Luna told his supervisor that his neck continued to bother him and that he needed to return to the company doctor; the next day that Luna was scheduled to work, he was fired.

Luna filed this suit asserting claims for unlawful retaliatory discharge under section 451.001 of the Labor Code ("the Workers' Compensation Act"). TEX. LAB. CODE § 451.001-.003. Claiming that Poly-America acted with malice, ill will, spite, or specific intent to cause injury, Luna sought both reinstatement and the imposition of punitive damages. He additionally sought a declaratory judgment that the arbitration agreement was unenforceable because, among other reasons, its provisions violated public policy and were unconscionable. Luna submitted two affidavits — his own, and that of an expert witness — in support of his claims. Poly-America responded with a motion to compel arbitration which, after a hearing, the trial court granted.

Luna sought a writ of mandamus in the court of appeals, reasserting his argument that provisions of the arbitration agreement were substantively unconscionable. The court of appeals held that, in light of the fee-splitting provisions and limitations on remedies, the arbitration agreement as a whole was substantively unconscionable. 175 S.W.3d 315, 318. Poly-America sought review in this Court. We hold that the arbitration agreement's provision that eliminates available remedies under the Workers' Compensation Act is unenforceable, but we find that provision severable from the arbitration agreement as a whole and conditionally grant Poly-America's writ of mandamus.

II. Standard of Review

Mandamus is the proper means by which to seek review of an order compelling arbitration under the FAA. In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 483 (Tex.2001). In In re Palacios, we recognized that it is "important for federal and state law to be as consistent as possible" in enforcement and review of provisions under the FAA. 221 S.W.3d 564, 565 (Tex.2006) (per curiam) (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex.2005)). Federal courts may not review orders compelling arbitration and staying litigation ("compel-and-stay orders") by interlocutory appeal. See 9 U.S.C. § 16(b)(1) ("[A]n appeal may not be taken from an interlocutory order ... granting a stay of any action under Section 3 of this title."). Accordingly, as we noted in Palacios, it would be inappropriate to exercise our own mandamus power in a manner inconsistent with the federal courts' practice. See Palacios, 221 S.W.3d at 565. Although mandamus review is generally available in federal courts to review non-appealable interlocutory rulings, mandamus is granted only in exceptional cases. See generally Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 288-90 & n. 13, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988) (holding that, where a particular order is not appealable, mandamus is available and "will be appropriate in exceptional cases"). As we acknowledged in Palacios, federal courts have applied this template to orders that cannot be appealed under the FAA, although they almost never grant mandamus relief. 221 S.W.3d at 565-66 ("Even after Green Tree [Financial Corp. — Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000)], the Fifth Circuit has held that federal mandamus review of an order staying a case for arbitration may still be available if a party can meet a `particularly heavy' mandamus burden to show `clearly and indisputably that the district court did not have the discretion to stay the proceedings pending arbitration.'") (quoting Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307, 310-11 (5th Cir.2003)). This general rule has been broadly applied to unappealable ancillary interlocutory orders in proceedings under the FAA, see, e.g., Georgiou v. Mobil Exploration & Prod. Servs., Inc. U.S., 190 F.3d 538, 1999 WL 642871 at *3 (5th Cir. July 27, 1999) (dismissing appeal of order staying litigation in favor of arbitration proceeding in foreign forum, and denying mandamus because plaintiffs failed to carry the "particularly heavy burden" to warrant mandamus relief from such an order); Cofab Inc. v. Phila. Joint Bd., Amalgamated Clothing & Textile Workers Union, AFL-CIO-CLC, 141 F.3d 105, 110 (3d Cir.1998); and appears to also apply to compel-and-stay orders under section 16(b)(1), see Douglas v. U.S. Dist. Court, 495 F.3d 1062, 1065 (9th Cir.2007) (granting mandamus relief from compel-and-stay order); Manion v. Nagin, 255 F.3d 535, 538-40 & n. 4 (8th Cir.2001) (dismissing appeal of various interlocutory orders, including order compelling arbitration, and denying mandamus because Manion had not made "any showing that he [was] entitled to such extraordinary relief"); McDermott Int'l, Inc. v. Underwriters at Lloyds Subscribing to Memorandum of Ins. No. 104207, 981 F.2d 744, 748 (5th Cir.1993) ("This court has recognized that [mandamus review of an order compelling arbitration] may be available [but] McDermott has failed to satisfy [the] demanding standard.").¹

Although federal precedent in this area is not uniformly clear, it appears a federal court would be permitted — albeit not compelled — to address the merits...